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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended March 31, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Transition Periodfrom            to
 Commission File Number 001-33103
 
 CADENCE PHARMACEUTICALS, INC.
  Delaware
    
    41-2142317(State or other jurisdiction
    
    (I.R.S. Employerof incorporation)
    
    Identification No.)
 12481 High Bluff Drive, Suite 200
San Diego, CA 92130
 (858) 436-1400
 
 o þ
  o o þ
 o þ




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##### 



CADENCE PHARMACEUTICALS, INC.
 INDEX
 PART I. FINANCIAL INFORMATIONItem 1. Financial Statements (Unaudited)Condensed Balance Sheets at March 31, 2007 and December 31, 2006
    
    
    1Condensed Statements of Operations for the three months ended March 31, 2007 and 2006 and for the period from May 26, 2004 (inception) through March 31, 2007
    
    
    2Condensed Statements of Cash Flows for the three months ended March 31, 2007 and 2006 and for the period from May 26, 2004 (inception) through March 31, 2007
    
    
    3Notes to Condensed Financial Statements
    
    
    4Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations Operations
    
    
    10Item 3. Qualitative and Quantitative Disclosures About Market Risk Operations
    
    
    17Item 4. Controls and Procedures
    
    
    18PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    19Item 1A. Risk Factors
    
    
    19Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    41Item 3. Defaults Upon Senior Securities
    
    
    43Item 4. Submission of Matters to a Vote of Security Holders
    
    
    43Item 5. Other Information
    
    
    43Item 6. Exhibits
    
    
    43EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32




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PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 CADENCE PHARMACEUTICALS, INC.
(a development stage company)
 
 CONDENSED BALANCE SHEETS
 March 31,
    
    
    December 31,2007
    
    
    2006(unaudited)AssetsCurrent assets:Cash and cash equivalents
    
    $
    77,442,626
    
    
    $
    86,825,526Prepaid expenses and other current assets
    
    
    1,177,718
    
    
    
    1,168,160Total current assets
    
    
    78,620,344
    
    
    
    87,993,686Property and equipment, net
    
    
    4,309,501
    
    
    
    3,558,618Restricted cash
    
    
    2,867,281
    
    
    
    1,233,281Other assets
    
    
    608,521
    
    
    
    536,042Total assets
    
    $
    86,405,647
    
    
    $
    93,321,627Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    $
    3,226,431
    
    
    $
    2,073,726Accrued liabilities
    
    
    8,489,538
    
    
    
    7,378,750Current portion of long-term debt
    
    
    2,612,168
    
    
    
    2,338,010Total current liabilities
    
    
    14,328,137
    
    
    
    11,790,486Deferred rent
    
    
    1,403,589
    
    
    
    1,460,109Long-term debt, less current portion
    
    
    3,980,733
    
    
    
    4,661,990Other long-term liabilities
    
    
    22,048
    
    
    
    Total liabilities
    
    
    19,734,507
    
    
    
    17,912,585Commitments and contingencies (Note 6)Stockholders equity :Common stock, $0.0001 par value; 100,000,000 shares authorized, 29,129,295
shares and 29,092,720 shares issued and outstanding at March
31, 2007 and December 31, 2006, respectively
    
    
    2,913
    
    
    
    2,909Additional paid-in capital
    
    
    138,782,204
    
    
    
    138,057,890Accumulated other comprehensive income
    
    
    161,511
    
    
    
    64,033Deficit accumulated during the development stage
    
    
    (72,275,488
    )
    
    
    (62,715,790
    )Total
stockholders equity
    
    
    66,671,140
    
    
    
    75,409,042Total liabilities and stockholders equity
    
    $
    86,405,647
    
    
    $
    93,321,627
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CADENCE PHARMACEUTICALS, INC.
(a development stage company)
 
 CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
 Period fromMay 26, 2004Three Months Ended
    
    
    (Inception)March 31,
    
    
    through March2007
    
    
    2006
    
    

31, 2007Operating expenses:Research and
development
    
    $
    8,241,804
    
    
    $
    28,735,246
    
    
    $
    64,078,148Marketing
    
    
    302,183
    
    
    
    95,758
    
    
    
    1,393,973General and
administrative
    
    
    1,827,592
    
    
    
    537,349
    
    
    
    9,062,669Total operating
expenses
    
    
    10,371,579
    
    
    
    29,368,353
    
    
    
    74,534,790Loss from
operations
    
    
    (10,371,579
    )
    
    
    (29,368,353
    )
    
    
    (74,534,790
    )Other income (expense):Interest income
    
    
    1,031,890
    
    
    
    143,939
    
    
    
    3,241,963Interest expense
    
    
    (220,009
    )
    
    
    (16,666
    )
    
    
    (717,626
    )Other expense
    
    
    
    
    
    
    
    
    
    
    (265,035
    )Total other income,
net
    
    
    811,881
    
    
    
    127,273
    
    
    
    2,259,302Net loss
    
    $
    (9,559,698
    )
    
    $
    (29,241,080
    )
    
    $
    (72,275,488
    )Basic and diluted net loss per
share (1)
    
    $
    (0.34
    )
    
    $
    (23.84
    )Shares used to compute basic and
diluted net loss per
share (1)
    
    
    28,402,352
    
    
    
    1,226,682
 
 (1)
    
    As a result of the issuance of 6,900,000 shares of common stock in the Companys initial public
offering in the fourth quarter of  2006 and the conversion of the Companys preferred stock
 into 19,907,605 shares of common stock upon completion of the Companys initial public
offering, there is a lack of comparability in the basic and diluted net loss per share amounts for the
periods presented above. Please see Note 3 for further discussion.  2




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CADENCE PHARMACEUTICALS, INC.
(a development stage company)
 
 CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
 Period from MayThree Months Ended
    
    
    26, 2004March 31,
    
    
    (Inception) to2007
    
    
    2006
    
    
    March 31, 2007Operating activitiesNet loss
    
    $
    (9,559,698
    )
    
    $
    (29,241,080
    )
    
    $
    (72,275,488
    )Adjustments to reconcile net loss to net
cash used in operating activities:Depreciation
    
    
    121,967
    
    
    
    10,732
    
    
    
    388,913Loss on disposal of
assets
    
    
    
    
    
    
    
    
    
    
    37,034Stock-based
compensation
    
    
    723,818
    
    
    
    
    
    
    
    2,859,587Non-cash interest expense and impairment
charges
    
    
    24,999
    
    
    
    16,666
    
    
    
    344,662Changes in operating assets and liabilities:Prepaid expenses and other current
assets
    
    
    (9,558
    )
    
    
    (127,275
    )
    
    
    (857,969
    )Accounts payable, accrued liabilities and
other liabilities
    
    
    2,229,021
    
    
    
    1,002,511
    
    
    
    11,672,603Net cash used in operating activities
    
    
    (6,469,451
    )
    
    
    (28,338,446
    )
    
    
    (57,830,658
    )Investing activitiesPurchases of marketable securities
    
    
    
    
    
    
    
    
    
    
    (7,450,000
    )Maturities of marketable securities
    
    
    
    
    
    
    7,000,000
    
    
    
    7,000,000Restricted cash
    
    
    (1,634,000
    )
    
    
    
    
    
    
    (3,215,130
    )Purchases of property and equipment
    
    
    (872,850
    )
    
    
    (47,803
    )
    
    
    (3,544,918
    )Net cash (used in) provided by investing
activities
    
    
    (2,506,850
    )
    
    
    6,952,197
    
    
    
    (7,210,048
    )Financing activitiesProceeds from issuance of common stock,
net
    
    
    500
    
    
    
    203,000
    
    
    
    56,956,683Proceeds from sale of preferred stock,
net
    
    
    
    
    
    
    53,775,013
    
    
    
    78,933,748(Payments) borrowings under debt
agreements
    
    
    (407,099
    )
    
    
    
    
    
    
    6,592,901Net cash (used in) provided by financing
activities
    
    
    (406,599
    )
    
    
    53,978,013
    
    
    
    142,483,332Net (decrease) increase in cash and cash
equivalents
    
    
    (9,382,900
    )
    
    
    32,591,764
    
    
    
    77,442,626Cash and cash equivalents at beginning of
period
    
    
    86,825,526
    
    
    
    8,025,285
    
    
    
    Cash and cash equivalents at end of
period
    
    $
    77,442,626
    
    
    $
    40,617,049
    
    
    $
    77,442,626Supplemental disclosuresIssuance of warrants in connection with loan and security
agreement
    
    $
    
    
    
    $
    
    
    
    $
    313,572Assets acquired through lease
concessions
    
    $
    
    
    
    $
    
    
    
    $
    1,190,530Unrealized gain on investment securities
    
    $
    97,478
    
    
    $
    
    
    
    $
    161,511
  3




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CADENCE PHARMACEUTICALS, INC.
(a development stage company)
 
 NOTES TO CONDENSED FINANCIAL STATEMENTS
 1. The Company and Summary of Significant Accounting Policies
 The Company
 Accounting and Reporting by
Development Stage Enterprises
 Basis of Presentation
  Stock-Based Compensation
 Share-Based
Payment, No. 123(R)
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CADENCE PHARMACEUTICALS, INC.
(a development stage company)
 NOTES TO CONDENSED FINANCIAL STATEMENTS-Continued
  Three months ended March 31,2007
    
    2006Risk free interest rates
    
    
    4.5
    %
    
    
    4.4
    %Expected life in years
    
    6.1 years
    
    6.1 yearsExpected dividend yield
    
    
    0.0
    %
    
    
    0.0
    %Expected volatility
    
    
    66.0
    %
    
    
    70.0
    %
  Period fromMay 26, 2004Three Months Ended March 31,
    
    
    (Inception) through2007
    
    
    2006
    
    
    March 31, 2007Research and
development
    
    $
    193,635
    
    
    $
    61
    
    
    $
    754,892Marketing
    
    
    865
    
    
    
    
    
    
    
    2,036General and
administrative
    
    
    529,318
    
    
    
    
    
    
    
    2,101,849Stock-based compensation expense
included in operating
expenses
    
    
    723,818
    
    
    
    61
    
    
    
    2,858,777Total stock-based compensation expense
included in loss from
operations
    
    $
    723,818
    
    
    $
    61
    
    
    $
    2,858,777
 2. Recent Accounting Pronouncements
 Fair
Value Measurement
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CADENCE PHARMACEUTICALS, INC.
(a development stage company)
 NOTES TO CONDENSED FINANCIAL STATEMENTS  Continued
 3. Net Loss Per Share
    Three Months Ended March 31,2007
    
    
    2006Shares for basic and dilutive net loss per share:Weighted average common shares
outstanding
    
    
    29,094,933
    
    
    
    1,931,983Weighted average unvested common shares
subject to repurchase
    
    
    (692,581
    )
    
    
    (705,301
    )Denominator
for basic and diluted net loss per share
    
    
    28,402,352
    
    
    
    1,226,682
  4. Comprehensive Loss
 Reporting Comprehensive Income,
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CADENCE PHARMACEUTICALS, INC.
(a development stage company)
 NOTES TO CONDENSED FINANCIAL STATEMENTS  Continued
 Period fromMay 26, 2004Three Months Ended March 31,
    
    
    (Inception) through2007
    
    
    2006
    
    
    March 31, 2007Net
loss
    
    $
    (9,559,698
    )
    
    $
    (29,241,080
    )
    
    $
    (72,275,488
    )Other comprehensive income:Net unrealized gain on available for
sale
investments
    
    
    97,478
    
    
    
    
    
    
    
    161,511Comprehensive loss
    
    $
    (9,462,220
    )
    
    $
    (29,241,080
    )
    
    $
    (72,113,977
    )
 5. Property and Equipment
  March 31,
    
    
    December 31,2007
    
    
    2006Leasehold
improvements
    
    $
    1,572,690
    
    
    $
    1,572,690Computer equipment and
software
    
    
    453,238
    
    
    
    373,502Furniture and
fixtures
    
    
    418,366
    
    
    
    399,480Manufacturing
equipment
    
    
    123,303
    
    
    
    122,500Construction
in-process
    
    
    2,091,277
    
    
    
    1,317,8524,658,874
    
    
    
    3,786,024Less accumulated depreciation
    
    
    (349,373
    )
    
    
    (227,406
    )Total
    
    $
    4,309,501
    
    
    $
    3,558,618
  6. Commitments and Contingencies
 Loan and Security Agreement
  Warrants
  7




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CADENCE PHARMACEUTICALS, INC.
(a development stage company)
 NOTES TO CONDENSED FINANCIAL STATEMENTS  Continued
  Facility Leases
   Letter of Credit
  8




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CADENCE PHARMACEUTICALS, INC.
(a development stage company)
 NOTES TO CONDENSED FINANCIAL STATEMENTS  Continued
 7. Stockholders Equity
 Preferred Stock Issuances
  Initial Public Offering
  8. Income Taxes
    9




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Introduction
 The following discussion contains forward-looking statements, which involve risks and
uncertainties. Our actual results could differ materially from those anticipated in these
forward-looking statements as a result of various factors, including those set forth below under
the caption Risk Factors. The interim financial statements and this Managements Discussion and
Analysis of Financial Condition and Results of Operations should be read in conjunction with the
financial statements and notes thereto for the year ended December 31, 2006 and the related
Managements Discussion and Analysis of Financial Condition and Results of Operations, both of
which are contained in our Annual Report on Form 10-K for the year ended December 31, 2006.
 Overview
 tm
  Background
   10




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Revenues
  Research and Development Expenses
     11




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Period fromMay 26, 2004Three Months Ended March 31,
    
    
    (Inception) throughProduct Candidate
    
    2007
    
    
    2006
    
    
    March 31, 2007IV
APAP
    
    $
    1,880
    
    
    $
    25,478
    
    
    $
    29,932Omigard
    
    
    4,681
    
    
    
    2,785
    
    
    
    25,477Other supporting
costs
    
    
    1,681
    
    
    
    472
    
    
    
    8,669$
    8,242
    
    
    $
    28,735
    
    
    $
    64,078
   Marketing
  General and Administrative
  Interest and Other Income
  Income Taxes
  12




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Critical Accounting Policies and Estimates
   Research and Development Expenses
  Stock-Based Compensation
 Share-Based Payment Accounting for Stock-Based Compensation Accounting for Stock Issued to
Employees.
 Valuation of
Privately-Held-Company Equity Securities
 13




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Issued as Compensation
    Period fromMay 26, 2004Three Months Ended March 31,
    
    
    (Inception) through2007
    
    
    2006
    
    
    March 31, 2007Research and
development
    
    $
    193,635
    
    
    $
    61
    
    
    $
    754,892Marketing
    
    
    865
    
    
    
    
    
    
    
    2,036General and
administrative
    
    
    529,318
    
    
    
    
    
    
    
    2,101,849Stock-based compensation expense
included in operating
expenses
    
    
    723,818
    
    
    
    61
    
    
    
    2,858,777Total stock-based compensation expense
included in loss from
operations
    
    $
    723,818
    
    
    $
    61
    
    
    $
    2,858,777
 Results of Operations
 Three-Month Periods Ended March 31, 2007 and 2006
 Operating expenses
 Research and Development Expenses.
 14




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
    
    an increase of $1.9 million in our Omigard program as a result of clinical trial and
related costs for a Phase III clinical trial initiated in August 2005;
    
    an increase of $1.7 million in our IV APAP program, primarily as a result of costs
related to the initiation of our clinical development program and a Phase III clinical trial
during the fourth quarter of 2006; and
    
    an increase of $1.2 million in other supporting costs as a result of increased salaries
and related personnel costs (including $0.2 million in stock-based compensation charges)
from increased research and development staff to support our clinical and regulatory efforts
related to both Omigard and IV APAP.
 Marketing Expenses.
 General and Administrative Expenses.
 Interest Income.
 Interest Expense.
 Liquidity and Capital Resources
     Sources of Liquidity
  15




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
    
    from July 2004 to December 2006 (excluding our initial public offering), we issued and
sold a total of 2,285,115 shares of common stock for aggregate net proceeds of $0.8 million;
    
    from July 2004 to August 2004, we issued and sold a total of 8,085,108 shares of Series
A-1 preferred stock for aggregate net proceeds of $7.5 million;
    
    from June 2005 to September 2005, we issued and sold a total of 17,675,347 shares of
Series A-2 preferred stock for aggregate net proceeds of $17.6 million;
    
    in March 2006, we issued and sold a total of 53,870,000 shares of Series A-3 preferred
stock for aggregate net proceeds of $53.9 million; and
    
    in the fourth quarter of 2006, we completed our initial public offering in which we
issued and sold a total of 6,900,000 shares of our common stock for aggregate net proceeds
of $55.9 million.
   Capital Resources
   
    
    the progress of our clinical trials, including expenses to support the trials and
milestone payments that may become payable to BMS or Migenix;
 16




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
    
    our ability to establish and maintain strategic collaborations, including licensing and other arrangements;
    
    the costs and timing of regulatory approvals;
    
    the costs involved in enforcing or defending patent claims or other intellectual property rights;
    
    the costs of establishing sales or distribution capabilities;
    
    the success of the commercialization of our products; and
    
    the extent to which we in-license, acquire or invest in other indications, products,
technologies and businesses.
  Recent Accounting Pronouncements
  Caution on Forward-Looking Statements
  17




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Item 3. Qualitative and Quantitative Disclosure about Market Risk
 Cash and Cash Equivalents
  Debt
  
 Item 4. Controls and Procedures
  Evaluation of disclosure controls and procedures.
 Changes in internal control over financial reporting.
 18




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PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
 Certain factors may have a material adverse effect on our business, financial condition and
results of operations, and you should carefully consider them. Accordingly, in evaluating our
business, we encourage you to consider the following discussion of risk factors, which has been
updated since the filing of our Annual Report on Form 10-K , in its entirety, in addition to other
information contained in this report as well as our other public filings with the Securities and
Exchange Commission.
 In the near-term, the success of our business will depend on many factors, including the
following risks:
 
    
    we are largely dependent on the success of our only two product candidates, IV APAP and
Omigard, and we cannot be certain that our ongoing and planned clinical development programs
will be sufficient to support NDA submissions or that either product candidate will receive
regulatory approval or be successfully commercialized;
    
    delays in the commencement, enrollment or completion of clinical testing for either of
our product candidates could result in increased costs to us and delay or limit our ability
to obtain regulatory approval;
    
    even if our product candidates are approved by regulatory authorities, we expect intense
competition in the hospital marketplace for our targeted indications;
    
    delays or quality issues with respect to the manufacturing of our product candidates
could result in increased costs to us and delay or limit our ability to obtain regulatory
approval;
    
    the patent rights that we have in-licensed covering IV APAP are limited to a specific
intravenous formulation of acetaminophen, and our market opportunity for this product
candidate may be limited by the lack of patent protection for the active ingredient itself
and other formulations that may be developed by competitors;
    
    we will require substantial additional funding and may be unable to raise capital when
needed, which would force us to delay, reduce or eliminate our development programs and
commercialization efforts; and
    
    whether we are able to maintain patent protection for our products and to commercialize
our products without infringing the patent rights of others.
 Each of these factors, as well as other factors that may impact our business, are described in
more detail in the following discussion. Although the factors highlighted above are among the most
significant, any of the following factors could materially adversely affect our business or cause
our actual results to differ materially from those contained in forward-looking statements we have
made in this report and those we may make from time to time, and you should consider all of the
factors described when evaluating our business.
 Risks Related to Our Business and Industry
 We are largely dependent on the success of our two product candidates, IV APAP and Omigard, and we
cannot be certain that either of these product candidates will receive regulatory approval or be
successfully commercialized.
  19




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tm
 If clinical trials of our current or future product candidates do not produce results
necessary to support regulatory approval in the United States or elsewhere, we will be unable to
commercialize these products.
   20




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Because the results of earlier clinical trials are not necessarily predictive of future results,
IV APAP, Omigard or any other product candidate we advance into clinical trials may not have
favorable results in later clinical trials or receive regulatory approval.
    21




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Delays in the commencement or completion of clinical testing could result in increased costs to us
and delay or limit our ability to obtain regulatory approval for our product candidates.
  
    
    reaching agreements on acceptable terms with prospective clinical research organizations,
or CROs, and trial sites, the terms of which can be subject to extensive negotiation and may
vary significantly among different CROs and trial sites;
    
    obtaining regulatory approval to commence a clinical trial;
    
    obtaining institutional review board approval to conduct a clinical trial at a prospective site;
    
    recruiting and enrolling patients to participate in clinical trials for a variety of
reasons, including competition from other clinical trial programs for the same indication as
our product candidates; and
    
    retaining patients who have initiated a clinical trial but may be prone to withdraw due
to the treatment protocol, lack of efficacy, personal issues, side effects from the therapy
or who are lost to further follow-up.
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
    
    failure to conduct the clinical trial in accordance with regulatory requirements or our
clinical protocols;
    
    inspection of the clinical trial operations or trial sites by the FDA or other regulatory
authorities resulting in the imposition of a clinical hold;
    
    new information suggesting unacceptable risk to subjects, or unforeseen safety issues or
any determination that a trial presents unacceptable health risks;
    
    new information suggesting that the target condition occurs too infrequently for the
product candidate to demonstrate efficacy; or
    
    lack of adequate funding to continue the clinical trial, including the incurrence of
unforeseen costs due to enrollment delays, requirements to conduct additional trials and
studies and increased expenses associated with the services of our CROs and other third
parties.
  We expect intense competition in the territories in which we have rights to our product
candidates, and new products may emerge that provide different or better therapeutic alternatives
for our targeted indications.
    23




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
    
    capital resources;
    
    development resources, including personnel and technology;
    
    clinical trial experience;
    
    regulatory experience;
    
    expertise in prosecution of intellectual property rights; and
    
    manufacturing, distribution and sales and marketing experience.
  If any of our product candidates for which we receive regulatory approval do not achieve broad
market acceptance, the revenues that we generate from their sales will be limited.
  
    
    limitations or warnings contained in a products FDA-approved labeling, including
potential limitations or warnings for IV APAP that may be more restrictive than oral
formulations of acetaminophen;
    
    changes in the standard of care for the targeted indications for either of our product
candidates could reduce the marketing impact of any superiority claims that we could make
following FDA approval;
    
    limitations inherent in the approved indication for either of our product candidates
compared to more commonly-understood or addressed conditions, including, in the case for
Omigard, the ability to promote Omigard to hospitals and physicians who may be more focused
on an indication specifically for the prevention of CRBSIs compared to the prevention of
LCSIs, the primary endpoint in our ongoing Phase III clinical trial; and
    
    potential advantages over, and availability of, alternative treatments, including, in the
case of IV APAP, a number of products already used to treat acute pain in the hospital
setting, and in the case for Omigard, a number of competitive topical products as well as a
device that has been approved for wound dressing and prevention of catheter-related
infections.
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The decreasing use of the comparator product in our clinical trial of Omigard and improvements in
hospital infection control practices that lower catheter infection rates may limit our ability to
complete the trial in a timely manner and hinder the competitive profile of this product
candidate.
  Even if our product candidates receive regulatory approval, they may still face future development
and regulatory difficulties.
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
    
    issue warning letters or untitled letters;
    
    require us to enter into a consent decree, which can include imposition of various fines,
reimbursements for inspection costs, required due dates for specific actions and penalties
for noncompliance;
    
    impose other civil or criminal penalties;
    
    suspend regulatory approval;
    
    suspend any ongoing clinical trials;
    
    refuse to approve pending applications or supplements to approved applications filed by us;
    
    impose restrictions on operations, including costly new manufacturing requirements; or
    
    seize or detain products or require a product recall.
 Even if our product candidates receive regulatory approval in the United States, we may never
receive approval or commercialize our products outside of the United States.
  We have never marketed a drug before, and if we are unable to establish an effective sales and
marketing infrastructure, we will not be able to successfully commercialize our product
candidates.
  Our product candidates may have undesirable side effects that could delay or prevent their
regulatory approval or commercialization.
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
    
    regulatory authorities may require the addition of labeling statements, specific warnings
or a contraindication;
    
    regulatory authorities may suspend or withdraw their approval of the product, or require
it to be removed from the market;
    
    we may be required to change the way the product is administered, conduct additional
clinical trials or change the labeling of the product; and
    
    our reputation may suffer.
  If the government or third-party payors fail to provide coverage and adequate coverage and payment
rates for our future products, if any, or if hospitals choose to use therapies that are less
expensive, our revenue and prospects for profitability will be limited.
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If we breach any of the agreements under which we license rights to our product candidates from
others, we could lose the ability to continue the development and commercialization of our product
candidates.
  If BMS breaches the underlying agreement under which we sublicense the rights to our IV APAP
product candidate, we could lose the ability to develop and commercialize IV APAP.
  We rely on third parties to conduct our clinical trials, including our ongoing Phase III clinical
program for IV APAP and our ongoing Phase III clinical trial of Omigard. If these third parties do
not successfully carry out their contractual duties or meet expected deadlines, we may not be able
to obtain regulatory approval for or commercialize our product candidates on our anticipated
timeline or at all.
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If the manufacturers upon whom we rely fail to produce our product candidates in the volumes that
we require on a timely basis, or to comply with stringent regulations applicable to pharmaceutical
drug manufacturers, we may face delays in the development and commercialization of, or be unable
to meet demand for, our products and may lose potential revenues.
    Our future growth depends on our ability to identify and acquire or in-license products and if we
do not successfully identify and acquire or in-license related product candidates or integrate
them into our operations, we may have limited growth opportunities.
  
    
    exposure to unknown liabilities;
    
    disruption of our business and diversion of our managements time and attention to
develop acquired products or technologies;
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
    
    incurrence of substantial debt or dilutive issuances of securities to pay for acquisitions;
    
    higher than expected acquisition and integration costs;
    
    increased amortization expenses;
    
    difficulty and cost in combining the operations and personnel of any acquired businesses
with our operations and personnel;
    
    impairment of relationships with key suppliers or customers of any acquired businesses
due to changes in management and ownership; and
    
    inability to retain key employees of any acquired businesses.
  We will need to increase the size of our organization, and we may experience difficulties in
managing growth.
  
    
    manage our clinical trials effectively, including our ongoing Phase III clinical program
for IV APAP, which will be conducted at numerous clinical trial sites, and our ongoing Phase
III clinical trial of Omigard, which is being conducted at numerous clinical sites in the
U.S. and Europe;
    
    manage our internal development efforts effectively while carrying out our contractual
obligations to licensors and other third parties; and
    
    continue to improve our operational, financial and management controls, reporting systems
and procedures.
  We may not be able to manage our business effectively if we are unable to attract and retain key
personnel.
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We face potential product liability exposure, and if successful claims are brought against us, we
may incur substantial liability for a product candidate and may have to limit its
commercialization.
  
    
    withdrawal of clinical trial participants;
    
    termination of clinical trial sites or entire trial programs;
    
    decreased demand for our product candidates;
    
    impairment of our business reputation;
    
    costs of related litigation;
    
    substantial monetary awards to patients or other claimants;
    
    loss of revenues; and
    
    the inability to commercialize our product candidates.
  Recent proposed legislation may permit re-importation of drugs from foreign countries into the
United States, including foreign countries where the drugs are sold at lower prices than in the
United States, which could materially adversely affect our operating results and our overall
financial condition.
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Our business involves the use of hazardous materials and we and our third-party manufacturers must
comply with environmental laws and regulations, which can be expensive and restrict how we do
business.
  Our business and operations would suffer in the event of system failures.
  Risks Related to Intellectual Property
 The patent rights that we have in-licensed covering IV APAP are limited to a specific intravenous
formulation of acetaminophen, and our market opportunity for this product candidate may be limited
by the lack of patent protection for the active ingredient itself and other formulations that may
be developed by competitors.
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The patent rights that we have in-licensed covering Omigard are limited in scope and limited to
specific territories.
   We depend on our licensors for the maintenance and enforcement of our intellectual property and
have limited control, if any, over the amount or timing of resources that our licensors devote on
our behalf.
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Because it is difficult and costly to protect our proprietary rights, we may not be able to ensure
their protection.
    
    
    our licensors might not have been the first to make the inventions covered by each of our
pending patent applications and issued patents;
    
    our licensors might not have been the first to file patent applications for these
inventions;
    
    others may independently develop similar or alternative technologies or duplicate any of
our product candidates or technologies;
    
    it is possible that none of the pending patent applications licensed to us will result in
issued patents;
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
    
    the issued patents covering our product candidates may not provide a basis for
commercially viable active products, may not provide us with any competitive advantages, or
may be challenged by third parties;
    
    we may not develop additional proprietary technologies that are patentable; or
    
    patents of others may have an adverse effect on our business.
     If we are sued for infringing intellectual property rights of third parties, it will be costly and
time consuming, and an unfavorable outcome in any litigation would harm our business.
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
    
    infringement and other intellectual property claims which, with or without merit, can be
expensive and time consuming to litigate and can divert managements attention from our core
business;
    
    substantial damages for past infringement which we may have to pay if a court decides
that our product infringes on a competitors patent;
    
    a court prohibiting us from selling or licensing our product unless the patent holder
licenses the patent to us, which it is not required to do;
    
    if a license is available from a patent holder, we may have to pay substantial royalties
or grant cross licenses to our patents; and
    
    redesigning our processes so they do not infringe, which may not be possible or could
require substantial funds and time.
 We may be subject to claims that our employees have wrongfully used or disclosed alleged trade
secrets of their former employers.
  Risks Related to Our Finances and Capital Requirements
 We have incurred significant operating losses since our inception and anticipate that we will
incur continued losses for the foreseeable future.
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We currently have no source of revenue and may never be profitable.
  
    
    successfully complete our ongoing and planned clinical trials for IV APAP and Omigard;
    
    obtain regulatory approval for either of our two product candidates;
    
    assuming these regulatory approvals are received, manufacture commercial quantities of
our product candidates at acceptable cost levels; and
    
    successfully market and sell any approved products.
  Our short operating history makes it difficult to evaluate our business and prospects.
  We will need additional funding and may be unable to raise capital when needed, which would force
us to delay, reduce or eliminate our product development programs or commercialization efforts.
  
    
    fund our operations and continue to conduct adequate and well-controlled clinical trials
to provide clinical data to support regulatory approval of marketing applications;
    
    continue our development activities;
    
    qualify and outsource the commercial-scale manufacturing of our products under cGMP; and
    
    commercialize IV APAP, Omigard or any other product candidates that we may in-license or
acquire, if any of these product candidates receive regulatory approval.
  
    
    the rate of progress and cost of our clinical trials and other product development
programs for IV APAP, Omigard and any other product candidates that we may in-license or
acquire;
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
    
    the costs of filing, prosecuting, defending and enforcing any patent claims and other
intellectual property rights associated with our product candidates;
    
    the cost and timing of completion of an outsourced commercial manufacturing supply for
each product candidate;
    
    the costs and timing of regulatory approval;
    
    the costs of establishing sales, marketing and distribution capabilities;
    
    the effect of competing technological and market developments; and
    
    the terms and timing of any collaborative, licensing, co-promotion or other arrangements
that we may establish.
   Our quarterly operating results may fluctuate significantly.
  
    
    the timing of milestone payments required under our license agreements for IV APAP and
Omigard;
    
    our execution of other collaborative, licensing or similar arrangements, and the timing
of payments we may make or receive under these arrangements;
    
    our addition or termination of clinical trials or funding support;
    
    variations in the level of expenses related to our two existing product candidates or
future development programs;
    
    any intellectual property infringement lawsuit in which we may become involved;
    
    regulatory developments affecting our product candidates or those of our competitors; and
    
    if either of our product candidates receives regulatory approval, the level of underlying
hospital demand for our product candidates and wholesalers buying patterns.
  Raising additional funds by issuing securities may cause dilution to existing stockholders and
raising funds through lending and licensing arrangements may restrict our operations or require us
to relinquish proprietary rights.
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We will continue to incur significant increased costs as a result of operating as a public
company, and our management will be required to devote substantial time to new compliance
initiatives.
   Risks Relating to Securities Markets and Investment in Our Stock
 There may not be a viable public market for our common stock.
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Future sales of our common stock may cause our stock price to decline.
   We expect that the price of our common stock will fluctuate substantially.
  
    
    the results from our clinical trial programs, including our ongoing Phase III clinical
program for IV APAP and our ongoing Phase III clinical trial of Omigard;
    
    the results of clinical trial programs for IV APAP and Omigard being performed by others;
    
    FDA or international regulatory actions, including failure to receive regulatory approval
for any of our product candidates;
    
    failure of any of our product candidates, if approved, to achieve commercial success;
    
    announcements of the introduction of new products by us or our competitors;
    
    market conditions in the pharmaceutical and biotechnology sectors;
    
    developments concerning product development results or intellectual property rights of others;
    
    litigation or public concern about the safety of our potential products;
    
    actual and anticipated fluctuations in our quarterly operating results;
    
    deviations in our operating results from the estimates of securities analysts or other analyst comments;
    
    additions or departures of key personnel;
    
    third-party coverage and reimbursement policies;
    
    developments concerning current or future strategic collaborations; and
    
    discussion of us or our stock price by the financial and scientific press and in online investor communities.
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Our executive officers and directors and their affiliates may exercise control over stockholder
voting matters in a manner that may not be in the best interests of all of our stockholders.
  Anti-takeover provisions under our charter documents and Delaware law could delay or prevent a
change of control which could limit the market price of our common stock and may prevent or
frustrate attempts by our stockholders to replace or remove our current management.
  
    
    a board of directors divided into three classes serving staggered three-year terms, such
that not all members of the board will be elected at one time;
    
    a prohibition on stockholder action through written consent;
    
    a requirement that special meetings of stockholders be called only by the chairman of the
board of directors, the chief executive officer, the president or by a majority of the total
number of authorized directors;
    
    advance notice requirements for stockholder proposals and nominations;
    
    a requirement of approval of not less than 66 2/3% of all outstanding shares of our
capital stock entitled to vote to amend any bylaws by stockholder action, or to amend
specific provisions of our certificate of incorporation; and
    
    the authority of the board of directors to issue preferred stock on terms determined by
the board of directors without stockholder approval.
  We have never paid dividends on our capital stock, and we do not anticipate paying any cash
dividends in the foreseeable future.
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We may become involved in securities class action litigation that could divert managements
attention and harm our business.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 Recent Sales of Unregistered Securities
  Use of Proceeds
    
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
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Item 6. Exhibits
 3.1(1)
    
    Amended and Restated Certificate of Incorporation of the Registrant3.2(1)
    
    Amended and Restated Bylaws of the Registrant4.1(1)
    
    Form of the Registrants Common Stock Certificate4.2(2)
    
    Amended and Restated Investor Rights Agreement dated February 21, 200631.1±
    
    Certification of Chief Executive Officer pursuant to Rule 13a  14(a) and
15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
200231.2±
    
    Certification of Chief Financial Officer pursuant to Rule 13a  14(a) and
15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
200232±
    
    Certification of Chief Executive Officer and Chief Financial Officer
pursuant to 18.U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes Oxley Act of 2002
 
 (1)
    
    Incorporated herein by reference to the corresponding exhibit to the Registrants
Quarterly Report on Form 10-Q (File No. 001-33103) for the period ended September 30, 2006
as filed with the SEC on November 30, 2006.(2)
    
    Incorporated herein by reference to the corresponding exhibit to the Registrants
Registration Statement on Form S-1 (File No. 333-135821) as
filed with the SEC on July 17, 2006.±
    
    Included in this Report. 43




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SIGNATURES
  CADENCE PHARMACEUTICALS, INC.Dated: May 15, 2007
    
    By:
    
    /s/ WILLIAM R. LARUEWilliam R. LaRueSenior Vice President, Chief Financial Officer,Treasurer and Assistant Secretary
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INDEX TO EXHIBITS
 ExhibitNumber
    
    Description of Exhibit3.1(1)
    
    Amended and Restated Certificate of Incorporation of the Registrant3.2(1)
    
    Amended and Restated Bylaws of the Registrant4.1(1)
    
    Form of the Registrants Common Stock Certificate4.2(2)
    
    Amended and Restated Investor Rights Agreement dated February 21, 200631.1±
    
    Certification of Chief Executive Officer pursuant to Rule 13a  14(a) and
15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
200231.2±
    
    Certification of Chief Financial Officer pursuant to Rule 13a  14(a) and
15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
200232±
    
    Certification of Chief Executive Officer and Chief Financial Officer
pursuant to 18.U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes Oxley Act of 2002
 
 (1)
    
    Incorporated herein by reference to the corresponding exhibit to the Registrants
Quarterly Report on Form 10-Q (File No. 001-33103) for the period ended September 30, 2006
as filed with the SEC on November 30, 2006.(2)
    
    Incorporated herein by reference to the corresponding exhibit to the Registrants
Registration Statement on Form S-1 (File No. 333-135821) as
filed with the SEC on July 17, 2006.±
    
    Included in this Report.