**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      DC 20549**





**FORM
      10-QSB**





x QUARTERLY
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For
      the
      quarterly period ended September 30, 2006





OR





o TRANSITION
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For
      the
      transition period from _______ to _______








Commission
      file number 000-51473





**Cougar
      Biotechnology, Inc.**


(Exact
      Name of Registrant as Specified in Its Charter)





Delaware
              (State
                or other jurisdiction of
              incorporation
                or organization)
            20-2903204
              (I.R.S.
                Employer Identification No.)





10990
      Wilshire Boulevard, Suite 1200, Los Angeles, CA 90024


(Address
      of principal executive offices)





(310)
      943-8040


(Issuer’s
      telephone number)











Check
      whether the issuer: (1) 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 issuer was required to file such reports),
      and
      (2) has been subject to such filing requirements for the past 90 days.
      Yes x
      No o





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





As
      of
      November 2, 2006 there were 4,607,105 shares of the issuer’s common stock,
      $.0001 par value, outstanding.





Traditional
      Small Business Disclosure Format (check one): Yes o No x







1


**INDEX**




Page**PART
                I**
            **FINANCIAL
                INFORMATION**Item
                1.
            Unaudited
                Condensed Balance Sheets
            3Unaudited
                Condensed Statements of Operations
            4Unaudited
                Condensed Statement of Stockholders’ Equity (Deficiency)
            5Unaudited
                Condensed Statements of Cash Flows
            7Notes
                to Unaudited Condensed Financial Statements
            9Item
                2.
            Management’s
                Discussion and Analysis or Planof
                Operations
            17Item
                3.
            Controls
                and Procedures
            27**PART
                II**
            **OTHER
                INFORMATION**Item
                5.
            Other
              Information
            27Item
                6.
            Exhibits
            27Signatures
            29





**Note
      Regarding Forward-Looking Statements**





The
      following discussion of our financial condition and results of operations should
      be read in conjunction with the financial statements and the notes to those
      statements included elsewhere in the Quarterly Report. This Quarterly Report
      contains statements that are not historical, but are forward-looking in nature,
      including statements regarding the expectations, beliefs, intentions or
      strategies regarding the future. In particular, the “Management’s Discussion and
      Analysis or Plan of Operation” section in Part I, Item 2 of this quarterly
      report includes forward-looking statements that reflect our current views with
      respect to future events and financial performance. Words such as we “expect,”
“anticipate,” “believe,” and “intend” and similar expressions are used to
      identify forward-looking statements. A number of important factors could,
      individually or in the aggregate, cause actual results to differ materially
      from
      those expressed or implied in any forward-looking statements. Such factors
      include, but are not limited to, our ability to obtain additional financing,
      our
      ability to develop and maintain customer relationships, regulatory developments
      relating to and the general success of our product and product candidates,
      and
      our ability to protect our proprietary technology. Other risks are described
      under the section entitled “Risk Factors” in our Current Report on Form 8-K
      filed on April 7, 2006.





Further,
      any forward-looking statement speaks only as of the date on which it is made,
      and we undertake no obligation to update any forward-looking statement or
      statements to reflect events or circumstances after the date on which such
      statement is made or to reflect the occurrence of unanticipated events. New
      factors emerge from time to time, and it is not possible for us to predict
      which
      factors will arise. In addition, we cannot assess the impact of each factor
      on
      our business or the extent to which any factor, or combination of factors,
      may
      cause actual results to differ materially from those contained in any
      forward-looking statements.








2





**COUGAR
                BIOTECHNOLOGY, INC.****(A
                DEVELOPMENT STAGE COMPANY)****CONDENSED
                BALANCE SHEETS****(Unaudited)**September
                30,
            
            December
                31,**ASSETS**
            
            2006
            
            2005Current
                assets:Cash
                and cash equivalents
            
            $
            34,179,355
            
            $
            1,040,864Debt
                issuance costs, net
            
            
            -
            
            
            47,500Prepaid
                expenses and other assets
            
            
            961,885
            
            
            164,061Total
                current assets
            
            
            35,141,240
            
            
            1,252,425Property
                and equipment, net
            
            
            155,306
            
            
            8,581Debt
                issuance costs, net
            
            
            -
            
            
            453,276Deposits
            
            
            160,000
            
            
            160,000Totals
            
            $
            35,456,546
            
            $
            1,874,282**LIABILITIES
                AND STOCKHOLDERS’ DEFICIENCY**Current
                liabilities:Accounts
                payable
            
            $
            1,370,727
            
            $
            1,251,586Accrued
                expenses
            
            
            838,839
            
            
            875,728Borrowings
                under line of credit
            
            
            -
            
            
            600,000Convertible
                notes payable, net of discount
            
            
            -
            
            
            3,113,324Notes
                payable, net of discount
            
            
            -
            
            
            934,887Warrant
                liability
            
            
            -
            
            
            856,398Option
                compensation liability for non-employees
            
            
            -
            
            
            459,833Total
                current liabilities
            
            
            2,209,566
            
            
            8,091,756Deferred
                rent
            
            
            37,508
            
            
            -Total
                liabilities
            
            
            2,247,074
            
            
            8,091,756Series
                A Redeemable Convertible Preferred Stock; $.0001 par value; 10,000,000
                shares authorized; 9,486,752 shares issued andoutstanding;
                liquidation value of $43,570,882 at September 30, 2006
            
            
            38,954,520
            
            
            -Commitments
                and contingencies
            
            
            -
            
            
            -Stockholders’
                deficiency:Common
                  stock - $.0001 par value; 100,000,000 shares authorized; 4,607,105
                  shares
                  issued and outstanding at September 30, 2006 and 3,553,021 shares
                  issued
                  and outstanding at December 31, 2005
            
            
            460
            
            
            355Additional
                paid-in capital
            
            
            13,338,194
            
            
            5,132,020Deficit
                accumulated during the development stage
            
            
            (19,083,702
            )
            
            (11,349,849
            )Total
                stockholders’ deficiency
            
            
            (5,745,048
            )
            
            (6,217,474
            )Totals
            
            $
            35,456,546
            
            $
            1,874,282




SEE
                ACCOMPANYING NOTES TO THE CONDENSED FINANCIAL STATEMENTS







3




**COUGAR
                  BIOTECHNOLOGY, INC.****(A
                  DEVELOPMENT STAGE COMPANY)****CONDENSED
                  STATEMENTS OF OPERATIONS****(Unaudited)**Period
                  fromMay
                  14, 2003Three
                  Months Ended
              
              Nine
                  Months Ended
              
              (date
                  ofSeptember
                  30,
              
              September
                  30,
              
              inception)
                  to2006
              
              2005
              
              2006
              
              2005
              
              September
                  30, 2006Operating
                  expenses:General
                  and administrative
              
              $
              733,796
              
              $
              311,536
              
              $
              3,124,549
              
              $
              932,503
              
              $
              6,934,002Research
                  and development
              
              
              2,322,523
              
              
              2,348,694
              
              
              4,076,926
              
              
              4,068,425
              
              
              11,351,797Depreciation
              
              
              10,409
              
              
              490
              
              
              19,011
              
              
              1,470
              
              
              22,808Totals
              
              
              3,066,728
              
              
              2,660,720
              
              
              7,220,486
              
              
              5,002,398
              
              
              18,308,607Loss
                  from operations
              
              
              (3,066,728
              )
              
              (2,660,720
              )
              
              (7,220,486
              )
              
              (5,002,398
              )
              
              (18,308,607
              )Other
                  income (expenses):Interest
                  income
              
              
              430,228
              
              
              1,130
              
              
              699,294
              
              
              12,358
              
              
              736,800Interest
                  expense
              
              
              (24
              )
              
              (48,414
              )
              
              (1,012,661
              )
              
              (48,414
              )
              
              (1,311,895
              )Other
                  expense
              
              
              -
              
              
              -
              
              
              (200,000
              )
              
              -
              
              
              (200,000
              )Totals
              
              
              430,204
              
              
              (47,284
              )
              
              (513,367
              )
              
              (36,056
              )
              
              (775,095
              )Net
                  loss
              
              
              (2,636,524
              )
              
              (2,708,004
              )
              
              (7,733,853
              )
              
              (5,038,454
              )
              
              (19,083,702
              )Accretion
                    of dividends on preferred stock
              
              
              (426,468
              )
              
              -
              
              
              (842,845
              )
              
              -
              
              
              (842,845
              )Accretion
                  of issuance costs on preferred stock
              
              
              (123,722
              )
              
              -
              
              
              (242,943
              )
              
              -
              
              
              (242,943
              )Net
                  loss applicable to common stock
              
              $
              (3,186,714
              )
              $
              (2,708,004
              )
              $
              (8,819,641
              )
              $
              (5,038,454
              )
              $
              (20,169,490
              )Net
                    loss per common share - basic and diluted
              
              $
              (0.69
              )
              $
              (0.76
              )
              $
              (2.07
              )
              $
              (1.42
              )Weighted-average
                  common shares outstanding - basic and diluted
              
              
              4,607,105
              
              
              3,553,021
              
              
              4,256,095
              
              
              3,553,021
  SEE
        ACCOMPANYING NOTES TO THE CONDENSED FINANCIAL STATEMENTS


4






**COUGAR
                  BIOTECHNOLOGY, INC.****(A
                  DEVELOPMENT STAGE COMPANY)****CONDENSED
                  STATEMENT OF STOCKHOLDERS' EQUITY
                  (DEFICIENCY)****(Unaudited)**Period
                  from May 14, 2003 (date of inception) through September 30,
                  2006DeficitAccumulatedAdditional
              
              During
                  theCommon
                  Stock
              
              Paid-in
              
              DevelopmentShares
              
              Amount
              
              Capital
              
              Stage
              
              TotalIssuance
                      of shares of common stock through private placement at $.4595 per
                      share
              
              
              1,632,468
              
              $
              163
              
              $
              749,837
              
              $
              -
              
              $
              750,000Effect
                    of issuance of shares of common stock to an officer at $.0026
                    per
                    share
              
              
              288,083
              
              
              29
              
              
              132,346
              
              
              -
              
              
              132,375Option
                  compensation for non-employees
              
              
              -
              
              
              -
              
              
              207
              
              
              -
              
              
              207Net
                  loss
              
              
              -
              
              
              -
              
              
              
              
              
              (378,375
              )
              
              (378,375
              )Balance
                  at December 31, 2003
              
              
              1,920,551
              
              
              192
              
              
              882,390
              
              
              (378,375
              )
              
              504,207Issuance
                    of shares of common stock through private placement at $2.60
                    per
                    share
              
              
              1,632,470
              
              
              163
              
              
              4,249,837
              
              
              -
              
              
              4,250,000Option
                  compensation for non-employees
              
              
              -
              
              
              -
              
              
              14,476
              
              
              -
              
              
              14,476Net
                  loss
              
              
              
              
              
              
              
              
              
              
              
              (3,160,136
              )
              
              (3,160,136
              )Balance
                  at December 31, 2004
              
              
              3,553,021
              
              
              355
              
              
              5,146,703
              
              
              (3,538,511
              )
              
              1,608,547Issuance
                  of warrants with notes payable
              
              
              -
              
              
              -
              
              
              130,954
              
              
              -
              
              
              130,954Issuance
                  of warrants for debt costs
              
              
              -
              
              
              -
              
              
              91,041
              
              
              -
              
              
              91,041Option
                  compensation for non-employees
              
              
              -
              
              
              -
              
              
              403,331
              
              
              -
              
              
              403,331Reclassification
                      of fair value of non-employee options and warrants to liabilities
                      due to issuance of convertible notes
              
              
              -
              
              
              -
              
              
              (640,009
              )
              
              -
              
              
              (640,009
              )Net
                  loss
              
              
              -
              
              
              -
              
              
              -
              
              
              (7,811,338
              )
              
              (7,811,338
              )Balance
                  at December 31, 2005
              
              
              3,553,021
              
              
              355
              
              
              5,132,020
              
              
              (11,349,849
              )
              
              (6,217,474
              )Issuance
                    of shares of common stock through private placement at $4.50
                    per
                    share
              
              
              893,656
              
              
              89
              
              
              3,725,063
              
              
              -
              
              
              3,725,152






SEE
      ACCOMPANYING NOTES TO THE CONDENSED FINANCIAL
      STATEMENTS


5


**COUGAR
                  BIOTECHNOLOGY, INC.****(A
                  DEVELOPMENT STAGE COMPANY)****CONDENSED
                  STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
                  (CONCLUDED)****(Unaudited)**Period
                  from May 14, 2003 (date of inception) through September 30,
                  2006DeficitAccumulatedCommon
              
              
              
              Additional
              
              During
                  theStock
              
              
              
              Paid-in
              
              DevelopmentShares
              
              Amount
              
              Capital
              
              Stage
              
              TotalIssuance
                    of shares of common stock through debt conversion at $4.50 per
                    share
              
              
              160,428
              
              
              16
              
              
              722,544
              
              
              -
              
              
              722,560Issuance
                  of warrants with Series A Preferred
              
              
              -
              
              
              -
              
              
              2,160,672
              
              
              -
              
              
              2,160,672Option
                  compensation for employees
              
              
              -
              
              
              -
              
              
              744,799
              
              
              -
              
              
              744,799Reclassification
                    of fair value of non-employee options from liabilities due to
                    debt
                    conversion
              
              
              -
              
              
              -
              
              
              1,195,927
              
              
              -
              
              
              1,195,927Option
                  compensation for non-employees
              
              
              -
              
              
              -
              
              
              62,953
              
              
              -
              
              
              62,953Reclassification
                    of fair value of warrants from liability due to debt
                    conversion
              
              
              -
              
              
              -
              
              
              680,004
              
              
              -
              
              
              680,004Accretion
                    of dividends on preferred stock
              
              
              -
              
              
              -
              
              
              (842,845
              )
              
              -
              
              
              (842,845
              )Accretion
                    of issuance costs on preferred stock
              
              
              -
              
              
              -
              
              
              (242,943
              )
              
              -
              
              
              (242,943
              )Net
                  loss
              
              
              -
              
              
              -
              
              
              -
              
              
              (7,733,853
              )
              
              (7,733,853
              )Balance
                  at September 30, 2006
              
              
              4,607,105
              
              $
              460
              
              $
              13,338,194
              
              $
              (19,083,702
              )
              $
              (5,745,048
              )






SEE
        ACCOMPANYING NOTES TO THE CONDENSED FINANCIAL STATEMENTS


6






**COUGAR
                  BIOTECHNOLOGY, INC.****(A
                  DEVELOPMENT STAGE COMPANY)****CONDENSED
                  STATEMENTS OF CASH FLOWS****(Unaudited)**Period
                  fromMay
                  14, 2003(date
                  ofNine
                  Months Ended
              
              inception)
                  toSeptember
                  30,
              
              September
                  30,2006
              
              2005
              
              2006Operating
                  activities:Net
                  loss
              
              $
              (7,733,853
              )
              $
              (5,038,454
              )
              $
              (19,083,702
              )Adjustments
                    to reconcile net loss to net cash used in operating
                    activities:Depreciation
              
              
              19,011
              
              
              1,469
              
              
              22,808Option
                  compensation for non-employees
              
              
              799,048
              
              
              83,350
              
              
              1,258,881Option
                  compensation for employees
              
              
              744,799
              
              
              -
              
              
              744,799Stock
                  issued for compensation
              
              
              -
              
              
              -
              
              
              131,625Other
                  non-cash compensation
              
              
              -
              
              
              -
              
              
              48,000Amortization
                  of discount on notes payable
              
              
              376,712
              
              
              33,102
              
              
              486,785Amortization
                  of debt issuance costs
              
              
              612,993
              
              
              -
              
              
              752,591Charge
                  to interest expense for change in warrant value
              
              
              (68,634
              )
              
              -
              
              
              (48,634
              )Amortization
                  of deferred rent
              
              
              3,753
              
              
              -
              
              
              3,753Changes
                  in operating assets and liabilities:Employee
                  advance
              
              
              -
              
              
              -
              
              
              (96,000
              )Prepaid
                  expenses and other assets
              
              
              (747,824
              )
              
              (105,539
              )
              
              (1,073,885
              )Accounts
                  payable and accrued expenses
              
              
              212,729
              
              
              2,179,746
              
              
              2,340,043Net
                  cash used in operating activities
              
              
              (5,781,266
              )
              
              (2,846,326
              )
              
              (14,512,936
              )Investing
                  activities - purchase of furniture and fixtures
              
              
              (131,985
              )
              
              (4,664
              )
              
              (144,363
              )Financing
                  activities:Net
                  proceeds from issuance of common and preferred stock
              
              
              37,251,520
              
              
              -
              
              
              42,252,270Payment
                  of debt issuance costs
              
              
              (134,778
              )
              
              -
              
              
              (510,736
              )Proceeds
                  from issuance of notes payable
              
              
              -
              
              
              1,000,000
              
              
              1,000,000Payment
                  of notes payable
              
              
              (50,000
              )
              
              -
              
              
              (50,000
              )Proceeds
                  from issuance of convertible notes payable
              
              
              2,585,000
              
              
              -
              
              
              6,145,120Borrowings
                  (payments) under line of credit
              
              
              (600,000
              )
              
              500,000
              
              
              -Net
                  cash provided by financing activities
              
              
              39,051,742
              
              
              1,500,000
              
              
              48,836,654Net
                  increase (decrease) in cash and cash equivalents
              
              
              33,138,491
              
              
              (1,350,990
              )
              
              34,179,355Cash
                  and cash equivalents, beginning of period
              
              
              1,040,864
              
              
              1,838,594
              
              
              -Cash
                  and cash equivalents, end of period
              
              $
              34,179,355
              
              $
              487,604
              
              $
              34,179,355






SEE
      ACCOMPANYING NOTES TO THE CONDENSED FINANCIAL
      STATEMENTS




7




**COUGAR
                  BIOTECHNOLOGY, INC.****(A
                  DEVELOPMENT STAGE COMPANY)****CONDENSED
                  STATEMENTS OF CASH FLOWS (CONCLUDED)****(Unaudited)**Period
                  fromMay
                  14, 2003(date
                  ofNine
                  Months Ended
              
              inception)
                  toSeptember
                  30,
              
              September
                  30,2006
              
              2005
              
              2006Supplemental
                  disclosures of non-cash investing and financing
                  activities:Carrying
                  value of convertible notes converted to equity
              
              $
              6,145,120
              
              $
              -
              
              $
              6,145,120Carrying
                  value of promissory notes converted to equity
              
              $
              950,000
              
              $
              -
              
              $
              950,000Fair
                  value of warrants issued with notes payable
              
              $
              47,497
              
              $
              130,954
              
              $
              574,485Accrued
                  interest on convertible and other notes converted to
                  equity
              
              $
              130,477
              
              $
              -
              
              $
              130,477Acquisition
                  of leasehold improvements paid by lessor under lease
                  obligation
              
              $
              33,751
              
              $
              -
              
              $
              33,751Fair
                  value of warrants issued to placement agents
              
              $
              2,400,000
              
              $
              -
              
              $
              2,400,000Supplemental
                  disclosures of cash flow information:Interest
                  paid
              
              $
              12,588
              
              $
              1,563
              
              $
              27,390




SEE
        ACCOMPANYING NOTES TO THE CONDENSED FINANCIAL
        STATEMENTS




8






**COUGAR
      BIOTECHNOLOGY, INC.**


**(A
      DEVELOPMENT STAGE COMPANY)**





**NOTES
      TO UNAUDITED CONDENSED FINANCIAL STATEMENTS**





**NOTE
      1. BUSINESS DESCRIPTION**





Cougar
      Biotechnology, Inc. (the “Company”) is a development stage biopharmaceutical
      company based in Los Angeles, California that in-licenses novel therapeutics
      and
      develops such therapeutics for the treatment of cancer. The Company’s strategy
      is to license technologies that have previously been tested in clinical trials,
      enabling it to obtain an initial indication of the drug’s safety and biological
      activity in humans before committing capital to the drug’s development.








**NOTE
      2. BASIS OF PRESENTATION**





The
      accompanying unaudited condensed financial statements (the “Financial
      Statements”) have been prepared in accordance with accounting principles
      generally accepted in the United States of America, pursuant to the rules and
      regulations of the Security and Exchange Commission for interim financial
      information. Accordingly, the Financial Statements do not include all
      information and footnotes required by accounting principles generally accepted
      in the United States for complete annual financial statements. In the opinion
      of
      management, the accompanying unaudited Financial Statements reflect all
      adjustments, consisting of only normal recurring adjustments, considered
      necessary for a fair presentation. Interim operating results are not necessarily
      indicative of results that may be expected for the year ending December 31,
      2006
      or for any subsequent period. These Financial Statements should be read in
      conjunction with the audited financial statements for Cougar Biotechnology,
      Inc.
      and notes thereto for the year ended December 31, 2005 included in the Company’s
      Current Report on Form 8-K filed April 7, 2006.





**NOTE
      3. MERGER WITH PUBLIC COMPANY**





On
      April
      3, 2006, pursuant to an Agreement and Plan of Merger dated February 27, 2006
      (the “Merger Agreement”) by and among the Company, SRKP 4, Inc., a Delaware
      corporation (“SRKP”), and SRKP Acquisition Corp., a Delaware corporation and
      wholly owned subsidiary of SRKP, the Company entered into a “reverse merger”
transaction whereby SRKP Acquisition Corp. merged with and into the Company,
      with the Company remaining as the surviving corporation and a wholly owned
      subsidiary of SRKP (the “Merger”). Pursuant to the Merger Agreement, each share
      of outstanding common stock and preferred stock of the Company automatically
      converted into shares of SRKP common stock and preferred stock, respectively,
      at
      a conversion ratio of .38411. All share and per share information in these
      unaudited condensed financial statements have been restated to retroactively
      reflect the conversion ratio of .38411. In consideration for their shares of
      the
      Company’s pre-merger capital stock and, in accordance with the Merger Agreement,
      the Company’s stockholders received an aggregate of 4,607,105 shares of SRKP
      common stock and 9,486,752 shares of SRKP’s newly designated Series A Preferred
      Stock. Upon completion of the Merger and the Redemption (as defined below),
      the
      Company’s stockholders held 100% of SRKP capital stock. In addition, the Company
      assumed all of the rights and obligations relating to all other securities
      convertible into and exercisable for shares of the Company’s capital stock
      outstanding immediately prior to the Merger, which constituted, on a
      fully-diluted basis, the rights to acquire an aggregate of 2,327,299 shares
      of
      SRKP common stock. Subsequent to the Merger, the holders of the Company’s
      capital stock held the same percentage of the Company’s capital stock after the
      effectiveness of the Merger as they held immediately prior to the Merger.





In
      addition, in accordance with the terms of the Merger, upon the effective time
      of
      the Merger the board of directors and officers of SRKP were replaced by the
      directors and officers of the Company. The business of SRKP was abandoned and
      the business plan of the Company was adopted. The transaction was therefore
      accounted for as a reverse acquisition with the Company as the acquiring party
      and SRKP as the acquired party for accounting purposes. On April 6, 2006, the
      Company completed a short-form merger with SRKP, whereby the Company merged
      with
      and into SRKP, and changed its name to “Cougar Biotechnology, Inc.”





9




**NOTE
      3. MERGER WITH PUBLIC COMPANY (CONCLUDED)**




As
      a
      condition to the Merger, the Company entered into an Indemnity Agreement dated
      April 3, 2006 with Richard A. Rappaport and Anthony C. Pintsopoulos, SRKP’s
      former officers and directors, pursuant to which it agreed to indemnify such
      persons for actions taken in their official capacities as officers and directors
      relating to the consideration, approval and consummation of the Merger.




Contemporaneously
      with the closing of the Merger, pursuant to the terms of a Redemption Agreement
      dated February 27, 2006 by and among SRKP’s then-current stockholders, SRKP
      completed a redemption of an aggregate of 2,700,000 shares of common stock
      (the
“Redemption”) from such former stockholders in consideration of an aggregate of
      $200,000 less the aggregate amount of fees, costs and expenses of attorneys,
      accountants and other service providers incurred by SRKP on or prior to the
      effective time of the Merger and an aggregate of $12,500 to be paid to such
      former stockholders on a pro rata basis in satisfaction of loans made by such
      individuals to SRKP. The 2,700,000 shares constituted all of the issued and
      outstanding shares of SRKP’s capital stock, on a fully-diluted basis,
      immediately prior to the Merger.





The
      merger of a private operating company into a non-operating public shell
      corporation with nominal net assets is considered to be a capital transaction
      in
      substance, rather than a business combination, for accounting purposes.
      Accordingly, the Company treated this transaction as a capital transaction
      without recording goodwill or adjusting any of its other assets or liabilities.
      The consideration in the amount of $200,000 paid to the former stockholders
      of
      SRKP was recorded as an Other Expense item and included in the Company’s net
      loss from operations for the nine months ended September 30, 2006.





**NOTE
      4. LIQUIDITY AND CAPITAL RESOURCES**





The
      Company reported a net loss of $7,733,853 and negative cash flows from operating
      activities of $5,781,266 for the nine months ended September 30, 2006. The
      net
      loss from date of inception, May 14, 2003, to September 30, 2006 amounted to
      $19,083,702 **.** As
      of
      September 30, 2006 the Company had approximately $34.2 million in cash and
      cash
      equivalents; however, it is still a development stage company that has not
      generated any revenues from operations. Management believes that the Company
      will continue to incur losses for the foreseeable future and will need
      additional equity or debt financing or will need to generate revenue from
      licensing of its products or by entering into strategic alliances to sustain
      its
      operations until it can achieve profitability and positive cash flows, if ever.
      The Company’s continued operations will depend on whether it is able to raise
      additional funds through various potential sources, such as equity and debt
      financing. Such additional funds may not become available on acceptable terms
      and there can be no assurance that any additional funding that the Company
      does
      obtain will be sufficient to meets its needs in the long term. Through September
      30, 2006, a significant portion of the Company’s financings have been through
      private placements of common and preferred stock and debt financing.





The
      Company will continue to fund operations from cash on hand and through the
      similar sources of capital previously described. The Company can give no
      assurances that any additional capital that it is able to obtain will be
      sufficient to meet its needs. There can be no assurance that such capital will
      be available to the Company on favorable terms or at all. Should the Company
      be
      unable to raise additional funds in the future on acceptable terms, or at all,
      it may be forced to curtail its desired development. In addition, the Company
      could be forced to delay or discontinue product development, and forego
      attractive business opportunities. Any additional sources of financing will
      likely involve the sale of the Company’s equity securities, which will have a
      dilutive effect on the Company’s stockholders.








10


**NOTE
      5. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**





**USE
      OF ESTIMATES**





The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America requires management to make
      estimates and assumptions that affect reported amounts of assets and liabilities
      as of the date of the balance sheet and reported amounts of expenses for the
      periods presented. Accordingly, actual results could differ from those
      estimates.





**NET
      LOSS PER SHARE**





Basic
      net
      loss per share is computed by dividing net loss applicable to common
      stockholders by the weighted-average number of common shares outstanding during
      the periods presented as required by SFAS No. 128, “Earnings Per Share”. For the
      purpose of determining basic net loss per share, dividends and accreted issuance
      costs on Series A Convertible Preferred Stock have been added to the net loss
      to
      arrive at net loss applicable to common stock. Diluted earnings per share have
      not been presented because the assumed conversion of Series A Convertible
      Preferred Stock and the exercise of the Company’s outstanding options and
      warrants would have been anti-dilutive. Potentially dilutive securities excluded
      from the calculations amounted to 12,535,953 shares for the three and nine
      months ended September 30, 2006, comprised of 9,486,752 shares of Series A
      Convertible Preferred Stock, 1,861,556 shares issuable upon exercise of options
      and 1,187,654 shares issuable upon exercise of warrants. Potentially dilutive
      securities excluded from the calculations amounted to 688,590 shares for the
      three and nine months ended September 30, 2005, comprised of 635,703 shares
      issuable upon exercise of options and 52,887 shares issuable upon exercise
      of
      warrants.









**STOCK-
      BASED COMPENSATION**




The
      Company’s 2003 Stock Option Plan (the “Plan”) was adopted by the Board of
      Directors on May 15, 2003. Pursuant to the Plan, the Company may grant incentive
      stock options and nonqualified stock options, as well as other forms of equity
      -based compensation. Incentive stock options may be granted only to employees,
      while consultants, employees, officers and directors are eligible for the grant
      of nonqualified options under the Plan. The maximum term of stock options
      granted under the Plan is 10 years. The exercise price of incentive stock
      options granted under the Plan must be at least equal to the fair market value
      of such shares on the date of grant. During the three months ended September
      30,
      2006, the Board of Directors approved an increase in the number of shares
      reserved from 1,344,385 to 2,344,385.




As
      required, the Company adopted Statement of Financial Accounting Standards
      (“SFAS”) No. 123, “Share-Based Payment” (“SFAS 123R”) on January, 1, 2006. SFAS
      123R requires the fair value of all share-based payments to employees, including
      grants of stock options, to be recognized in the statement of operations over
      the requisite service period. The Company will continue to account for the
      fair
      value of all share-based payments to non-employees, including stock options,
      in
      a similar manner as required by SFAS 123, “Accounting for Stock-Based
      Compensation” (“SFAS 123”). SFAS 123R eliminated the option provided by SFAS 123
      that was used by the Company prior to January 1, 2006 to account for stock
      options granted to employees using the intrinsic value method under Account
      Principles Board (“APB”) Opinion 25, “Accounting for Stock Issued to Employees.”
Under APB 25, the Company only recorded compensation expense for stock options
      granted to employees for the excess, if any, of the fair value over the exercise
      price of an option as of the date of grant. By electing the intrinsic value
      method, the Company was required to present pro forma disclosures as if it
      had
      used the provisions of SFAS 123 and had recorded the fair value of employee
      stock options over the vesting period.





The
      Company has adopted SFAS 123R using the modified-prospective method and
      accordingly financial statement amounts for periods prior to January 1, 2006
      have not been restated to reflect the fair value method of recognizing
      compensation cost relating to employee stock options. The adoption of SFAS
      123R’s fair value method had and will continue to have a material impact on our
      results of operations, although it will have no impact on our cash flows or
      overall financial position. Under SFAS 123R, employee option grants are
      generally valued at the grant date and those valuations do not change once
      they
      have been established. As a result, the stock-based compensation expense we
      expect to record in 2006 will be based largely upon the amortization of costs
      for awards granted in 2006 and amounts related to the amortization of the fair
      value of unvested options granted in prior periods. As SFAS 123R includes
      further guidance on the assumptions to be used in the stock option pricing
      models, we expect to have difference between the expenses the Company would
      have







11


**NOTE
      5. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)**




**STOCK-
      BASED COMPENSATION (CONTINUED)**





been
      recognized for the pro-forma disclosures required by SFAS 123 and the expense
      the Company will recognize under SFAS 123R. Because of the variability in the
      assumptions to be used in the valuation of stock options we may grant in 2006
      and the variability in the quantity and other terms of stock based awards we
      may
      issue in 2006, our ability to predict the 2006 stock-based compensation expense
      is limited.





Consequently,
      for the three and nine months ended September 30, 2006, the Company’s results of
      operations reflect compensation expense for stock options granted to employees
      in 2006 under its stock incentive plan and the unvested portion of stock option
      granted to employees prior to 2006 which vested during 2006. The amounts
      recognized in the financial statements related to stock-based compensation
      were
      $34,528 and $744,799 for the three and nine months ended September 30, 2006,
      which were included in general and administrative operating expense.





The
      fair
      value of each option award is estimated on the date of grant using the
      Black-Scholes option-pricing model. As allowed by SFAS 123R for companies with
      a
      short period of publicly traded stock history, management’s estimate of expected
      volatility is based on the average expected volatilities of a sampling of five
      companies with similar attributes to the Company, including **:** industry, stage of life cycle, size and financial leverage. As the Company
      has
      so far only awarded “plain vanilla options” as defined by Staff
      Accounting Bulletin (SAB) No.107 ,
      the
      Company used the “simplified method” for determining the expected life of the
      options granted. This method is allowed at least until December 31, 2007, after
      which the Company may be required to adopt another method to determine expected
      life of the option awards. The risk-free rate for periods within the contractual
      life of the option is based on the U.S. treasury yield curve in effect at the
      time of grant valuation. SFAS 123R does not allow companies to account for
      option forfeitures as they occur, instead estimated option forfeitures must
      be
      calculated upfront to reduce the option expense to be recognized over the life
      of the award and updated upon receipt of further information as to the amount
      of
      options expected to be forfeited.







The
      fair
      value of options granted to employees was estimated using the Black-Scholes
      option-pricing model with the following weighted average assumptions used during
      the nine months ended September 30, 2006:




2006Dividend
                  yield
              
              
              0
              %Expected
                  volatility
              
              
              72
              %Risk
                  - free interest rate
              
              
              4.8
              %Expected
                  life
              
              
              5.8
                  yearsExpected
                  forfeiture rate
              
              
              0
              %





Through
      September 30, 2006 only senior level employees have been granted stock options.
      These employees tend to have a long-term commitment to the Company with
      negligible turnover, thus a forfeiture rate of 0% was determined.







12


**NOTE
      5. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)**




**STOCK-
      BASED COMPENSATION (CONTINUED)**





Activity
      with respect to the Plan is summarized as follows:




WeightedAverageWeighted
              
              Remaining
              
              AggregateAverage
              
              Contractual
              
              IntrinsicShares
              
              Exercise
                  Price
              
              Term
                  (years)
              
              ValueOutstanding
                  at December 31, 2003
              
              
              38,411
              
              $
              0.39Granted
                  in the year-ended December 31, 2004
              
              
              597,292
              
              $
              1.12Outstanding
                  at December 31, 2004 and
                  December 31, 2005
              
              
              635,703
              
              $
              1.08Granted
                  in nine months ended September 30, 2006
              
              
              1,225,853
              
              $
              4.54Outstanding
                  at September 30, 2006
              
              
              1,861,556
              
              $
              3.35
              
              
              8.8
              
              $
              1,930,085Exercisable
                  at September 30, 2006
              
              
              937,997
              
              $
              2.89
              
              
              8.7
              
              $
              1,214,903





At
      September 30, 2006, total unrecognized estimated employee compensation cost
      related to non-vested stock options granted prior to that date was $1,471,618,
      which is expected to be recognized over a weighted average period of 2.9 years.
      The weighted average grant date fair value of options granted during the three
      and nine months ended September 30, 2006 was $4.50 and $4.54 per share,
      respectively.





Prior
      to
      adoption of SFAS 123R, the company accounted for stock-based employee
      compensation under APB 25. Had compensation cost for stock-based compensation
      been determined using the fair value method consistent with SFAS 123, the net
      loss and net loss per share for the three and nine months ended September 30,
      2005 would have been adjusted to the following pro forma amount:





Three
                  Months
              
              Nine
                  MonthsEnded
              
              EndedSeptember
                  30,
              
              September
                  30,2005
              
              2005Net
                  loss applicable to common stock:As
                  reported
              
              $
              (2,708,004
              )
              $
              (5,038,454
              )Stock-based
                    employee compensation determined under the fair value
                    method
              
              
              (2,654
              )
              
              (7,342
              )Net
                  loss applicable to common stock, pro forma
              
              $
              (2,710,658
              )
              $
              (5,045,796
              )Basic
                  and diluted net loss per common share:As
                  reported
              
              $
              (0.76
              )
              $
              (1.42
              )Pro
                  forma
              
              $
              (0.76
              )
              $
              (1.42
              )





In
      accordance with the provisions of SFAS 123, and Emerging Issues Task Force
      (“EITF”) No. 96-18, “Accounting for Equity Instruments That are Issued to Other
      Than Employees for Acquiring or in Conjunction with Selling, Goods or Services,”
all other issuances of common stock, stock options or other equity instruments
      to non-employees (including consultants and all members of the Company’s
      Scientific Advisory Board) as the consideration for goods or services received
      by the Company are accounted for based on the fair value of the equity
      instruments issued (unless the fair value of the consideration received can
      be
      more reliably measured). The fair value of any options issued to non-employees
      is recorded in expense and additional paid-in capital in stockholders’
deficiency or current liabilities over the applicable service periods using
      variable accounting through the vesting date based on the fair value of the
      options at the end of each period. During the three months ended September
      30,
      2006 and 2005, the Company recognized expenses of $71,373 and $27,664,
      respectively, relating to the granting of options to non-employees for services
      and such expenses are included in the accompanying statements of operations.
      During the nine months ended September 30, 2006 and 2005, the Company recognized
      expenses of $799,048 and $83,350, respectively, relating to the granting of
      options to non-employees for services and such expenses are included in the
      accompanying statements of operations. Approximately $727,000 of the option
      expense for the nine months ended September 30, 2006 represents the effect
      of
      options granted during such period, which is when the services were
      provided.






13


**NOTE
      5. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONCLUDED)**




**STOCK-
      BASED COMPENSATION (CONCLUDED)**




The
      fair
      value of options granted to non-employees was estimated using the Black-Scholes
      option-pricing model with the following weighted average assumptions at
      September 30, 2006 and 2005:




2006
              
              2005Dividend
                  yield
              
              
              0%
              
              
              0%Expected
                  volatility
              
              
              72%
              
              
              72%Risk
                  - free interest rate
              
              
              4.8%
              
              
              4.0%Expected
                  lives
              
              
              4
                  years
              
              
              4
                  years





The
      price
      volatility for the calculation of value of options to non-employees was computed
      by using an average historical volatility of public companies in the same
      industry.








**NOTE
      6. PRIVATE PLACEMENT OFFERING**





On
      April
      3, 2006, immediately prior to the reverse acquisition of SRKP, the Company
      completed a private placement offering of 8,803,332 units at a price per unit
      of
      $4.50, each unit constituting 0.9 shares of Company preferred stock and 0.1
      shares of Company common stock, in consideration of gross proceeds of
      $39,650,000. Accordingly, the Company issued 7,922,998 shares of newly
      designated Series A Preferred Stock and 880,335 shares of its common stock
      to
      investors in the offering. Cowen & Co. and Paramount BioCapital, Inc.
      (“Paramount”), of which Lindsay A. Rosenwald, M.D., a director and stockholder
      of the Company, serves as Chairman and Chief Executive Officer, each of whom
      are
      registered with the NASD as broker-dealers, acted as placement agents in the
      offering. Each placement agent received a placement fee of $1,387,750 and was
      issued a five-year warrant to purchase 440,167 shares of Company common stock
      at
      an exercise price of $4.95 per share. The value of the warrants, which was
      determined using the Black-Scholes option pricing model, was approximately
      $2,400,000. The model assumed a risk-free rate of 4.78%, a five year term and
      stock volatility of 72%. The warrants are exercisable upon written notice of
      exercise to the Company together with the payment of the exercise price. The
      warrants do not provide for cashless exercise. The warrants (and the common
      stock issued upon exercise of the warrants) were not registered, and include
      restrictions upon transfer. The Company also provided the warrantholders demand
      and piggyback registration rights relating to the resale of common stock
      issuable upon exercise of the warrants. Total net proceeds of $31,366,696 from
      the private placement were allocated to the Series A Convertible Preferred
      Stock
      including an allocation of $2,160,672 for the value of the warrants using the
      fair value method. Reimbursable expenses associated with the placement were
      approximately $76,000.





14


**NOTE
      7. SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK**





In
      connection with the private placement closed on April 3, 2006 (see Note 6)
      and
      debt conversion on April 3, 2006 (see Note 10), the Company issued 9,486,752
      shares of Series A Convertible Preferred Stock (“Series A”), the terms of which
      are set forth in a Certificate of Designation for the Series A filed with the
      Secretary of State of Delaware, for an aggregate amount of $42,728,037 in cash
      and debt conversion. The Series A have a stated value of $4.50 per share.
      Commencing on the date of issue, the holders of the Series A are entitled to
      receive cumulative dividends on each share of Series A, payable at the election
      of the Company in kind or in cash, at the rate of 4% per annum of the stated
      value, payable annually in arrears on each anniversary of the original issuance
      date. Among other rights, in the event of a liquidation, dissolution or winding
      up of the Company, holders of Series A are entitled to receive an amount equal
      to the greater of the stated value plus an amount equal to all accrued and
      unpaid dividends and the amount such holders would have been entitled to receive
      upon such liquidation event had the Series A been converted immediately prior
      to
      such liquidation event. The Series A can be converted at the option of the
      stockholder in whole or in part into shares of common stock at an initial
      conversion price per share of common stock of $4.50 at any time. Cumulative
      dividends as of September 30, 2006 were $842,845, or $0.09 per
      share.





Each
      share of Series A automatically converts into shares of common stock at a
      conversion price of $4.50, subject to adjustment, in the event that the closing
      price of the Company’s common stock exceeds 200% of the conversion price for
      twenty consecutive trading days. At any time after the tenth anniversary of
      the
      original issue date, the holders of a majority of the Series A then outstanding
      may demand that the Company redeem all of the remaining outstanding shares
      of
      Series A for a cash amount equal to the stated value, plus all accrued and
      unpaid dividends. Payment shall be made by the Company quarterly over the three
      years following such mandatory redemption date. The Company does not have an
      option to redeem such outstanding shares.





Pursuant
      to Rule 5-02-28 of Regulation S-X, the mandatory redemption feature of the
      Series A requires that it be presented in the balance sheet outside of permanent
      equity, as redemption is outside the control of the Company. Accordingly, the
      Company has recorded the Series A outside of permanent equity at its fair value
      at date of issue and has adjusted its carrying value for accreted dividends
      and
      issuance costs. The issuance costs are amortized over the period between the
      issuance date and the initial mandatory redemption date, using the interest
      method.





**NOTE
      8. CONVERTIBLE NOTES**





On
      January 24, 2006, the Company completed the second and final closing relating
      to
      the issuance and sale of 5% convertible promissory notes (the “Bridge Notes”)
      with the issuance of Bridge Notes in the aggregate principal amount of
      $2,585,000. Fees of $134,778 were paid in cash and 31,244 warrants were issued
      to Paramount, of which Lindsay A. Rosenwald, M.D., a director and stockholder
      of
      the Company, serves as Chairman and Chief Executive Officer. The Bridge Notes
      and all unpaid interest were due on January 24, 2007. Interest was accrued
      at an
      annual rate of 5% and was originally payable upon the maturity of the Bridge
      Notes. The Bridge Notes were converted to equity on April 3, 2006 (see Note
      10).
      In addition to the Bridge Notes, the investors received five-year warrants
      initially exercisable at $8.28 per share (subject to adjustments for stock
      splits, recapitalizations and similar events), for a number of shares of Company
      common stock equal to 20% of the principal amount of the Bridge Notes purchased
      divided by $8.28 (see Note 9). The number of shares issuable would have been
      40%
      of the principal amount of the Bridge Notes purchased divided by $8.28 if the
      qualified equity placement (see Note 6) had not been completed within 90 days
      of
      the Bridge Note and warrant final closing in January 2006. Within 90 days of
      the
      Bridge Note and warrant closing in January 2006, the Company completed a
      qualified equity placement (see Note 6). Accordingly, the warrant coverage
      for
      the November 2005 and the January 2006 warrant issuances were adjusted from
      40%
      coverage to 20% coverage. Warrants issued with the Bridge Notes were valued
      at
      $178,275, which was recorded as debt discount. The warrant issued to the
      placement agent was valued at $89,137 using the Black-Scholes option pricing
      model which was recorded as debt issuance cost. A risk-free interest rate of
      4.3%, a term of five years and stock volatility of 72% were assumed in the
      model to determine the fair value. The warrants are exercisable upon written
      notice of exercise to the Company together with the payment of the exercise
      price. The warrants are redeemable at the option of the Company if the Company’s
      common stock is traded on the OTCBB, NASDAQ or a national securities exchange
      and the common stock has had an average closing price per share over a period
      of
      thirty consecutive calendar days equal to or greater than the exercise price
      of
      the warrants, as adjusted, which is initially $8.28. The warrants do not include
      cashless exercise or redemption provisions. Under the terms of the warrants,
      the
      Company has






15




**NOTE
      8. CONVERTIBLE NOTES (CONCLUDED)**





no
      obligation to settle the warrants in cash or in registered shares; the Company
      intends to settle only in unregistered shares of its common stock. However,
      the
      Company has also provided the warrant holders with piggyback registration rights
      relating to the registration of the resale of the shares issuable upon exercise
      of the warrants.





**NOTE
      9. WARRANTS ISSUED WITH DEBT INSTRUMENTS**





In
      November 2005 and January 2006, the Company issued Bridge Notes and warrants
      as
      discussed in Note 8 to the audited financial statements in the Form 8-K filed
      April 7, 2006 and Note 8 above. Since the conversion of the Bridge Notes could
      result in a conversion into an indeterminable number of common shares, the
      Company determined that under the guidance in EITF Issue No. 00-19 (“EITF
      00-19”) “Accounting for Derivative Financial Instruments Indexed to, and
      Potentially Settled in a Company’s Own Stock”, the Company was prohibited from
      concluding that the Company had sufficient authorized and un-issued shares
      to
      net-share settle any warrants or options granted to non-employees. Therefore,
      on
      the date convertible notes were issued, the Company recorded the related fair
      value of the warrants as current liabilities. Further, on that date, the fair
      value of the non-employee options were reclassified from additional paid-in
      capital in equity to current liabilities.





For
      warrants and convertible notes payable issued in January 2006, the Company
      accounted for the value of the warrants arising from the issuance of debt
      instruments pursuant to EITF 00-19, by allocating the proceeds first to the
      fair
      value of warrants, and then any residual amounts to the debt instruments. The
      fair value of the warrants was allocated to liabilities and to note discount.
      Upon conversion of the convertible debt to stock on April 3, 2006 (see Note
      10), the Company no longer had debt or equity instruments that could result
      in a
      conversion or an exercise into an indeterminable number of common shares.
      Accordingly, on April 3, 2006 the warrants and non-employee options were
      reclassified from current liabilities to additional paid-capital in the balance
      sheet.





The
      Company accounts for the intrinsic value of beneficial conversion rights arising
      from the issuance of convertible debt instruments with nondetachable conversion
      rights that are in-the money at the commitment date pursuant to the consensus
      of
      EITF Issue No. 98-5, “Accounting for Convertible Securities with Beneficial
      Conversion Features or Contingently Adjustable Conversion Ratios” and EITF Issue
      No. 00-27 (“EITF 00-27”), “Application of Issue No. 98-5 to Certain Convertible
      Instruments.” Such values are determined by first allocating an appropriate
      portion of the proceeds received from the debt instruments to the warrants
      included in the exchange based on the fair values of the warrants and the debt
      instruments as explained above. The intrinsic value of the beneficial conversion
      rights at the commitment date may also be recorded as additional paid-in capital
      or liabilities and debt discount as of that date or, if the terms of the debt
      instrument are contingently adjustable, may only be recorded if a triggering
      event occurs and the contingency is resolved.





**NOTE
      10. DEBT CONVERSION AND PAY-OFF**





Additionally,
      in conjunction with the private placement offering described in Note 6, the
      Company converted the aggregate principal balance totaling $6,145,120, together
      with accrued and unpaid interest of approximately $89,000 thereon, of its
      outstanding Bridge Notes into 1,384,162 units under the same terms as provided
      in the offering. Accordingly, the Company issued an additional 1,245,746 shares
      of Series A Preferred Stock and 138,416 shares of common stock to the
      holders of the Company’s Bridge Notes.




Under
      the
      same conditions as the Company’s April 3, 2006 private placement offering,
      the Company also issued 133,217 units to a director of the Company for a cash
      payment of approximately $600,000, and converted into preferred and common
      shares an aggregate of $950,000 of notes payable, together with accrued and
      unpaid interest of approximately $41,000 thereon, issued to five individuals,
      one of whom is a director of the Company. Accordingly, the Company issued an
      additional 318,008 shares of Series A Preferred and 35,334 shares of common
      stock to these individuals upon the conversion of the Bridge Notes.





Proceeds
      from the sale of the units was used to fully pay off the balance on a line
      of
      credit of $600,000 plus interest.





16


**NOTE
      11. SUBSEQUENT EVENTS**





In
      conjunction with the closing on April 3, 2006 of the private placement offering
      (see Note 6), the Company was required by the subscription agreement to file
      a
      registration statement with the SEC on the appropriate form to allow the resale
      of the common stock issued in the offering (including the common stock issuable
      upon conversion of the Series A Preferred Stock) under the Securities Act within
      30 days after the closing and to use its best effort to have the registration
      statement effective with-in 180 days after the closing. The Company's penalty
      for not meeting the registration requirement is to make compensatory payments
      (“Liquidated Damages”) in the amount equal to one percent of the aggregate
      purchase price paid by the subscribers for each 30-day period or prorated
      portion thereof in which the Company is in default of its obligation to register
      the shares or have the registration statement become effective. However, in
      no
      event will the Company be required to pay an aggregate amount that exceeds
      12%
      of the aggregate purchase price paid by the investors. Beginning October 1,
      2006 and up to the date the registration statement becomes effective, the
      Company will be in default of its obligations to have the registration statement
      become effective within 180 days of the placement closing. The Company is
      subject to compensatory payments to each placement subscriber payable within
      five business days of the end of each 30-day period in which such
      Liquidated Damages accrue. For each 30-day period in which the Company is in
      default it will be required to pay Liquidated Damages in the amount of
      approximately $412,000. The maximum potential exposure for the Company, based
      on
      the 12% cap, is approximately $4,944,000.








**Item
      2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF
      OPERATION**





**Overview**




Since
      the
      inception of Cougar Biotechnology, Inc. (“Cougar”) in May 2003, our efforts and
      resources have been focused primarily on acquiring and developing our
      pharmaceutical technologies, raising capital and recruiting personnel. We are
      a
      development stage company and have no product sales to date and we will not
      receive any product sales until we receive approval from the FDA or equivalent
      foreign regulatory bodies to begin selling our pharmaceutical candidates.
      Developing pharmaceutical products, however, is a lengthy and very expensive
      process. Assuming we do not encounter any unforeseen safety issues during the
      course of developing our product candidates, we do not expect to complete the
      development of a product candidate until approximately 2011. Currently, a large
      portion of development expenses have related to our lead product candidate,
      CB-7630. As we proceed with the clinical development of CB-7630 and as we
      further develop CB-3304 and CB-1089, our second and third product candidates,
      respectively, our research and development expenses will further increase.
      To
      the extent we are successful in acquiring additional product candidates for
      our
      development pipeline, our need to finance further research and development
      will
      continue increasing. Accordingly, our success depends not only on the safety
      and
      efficacy of our product candidates, but also on our ability to finance the
      development of the products. Our major sources of working capital have been
      proceeds from various private financings, primarily private sales of our common
      stock and other equity securities.




On
      April
      3, 2006, SRKP Acquisition Corp., a Delaware corporation and a wholly owned
      subsidiary of SRKP 4, Inc. (“SRKP”), a Delaware corporation, merged with and
      into Cougar (the “Merger”), with Cougar remaining as the surviving corporation
      and a wholly owned subsidiary of SRKP. Cougar stockholders received, in exchange
      for all of the outstanding shares of capital stock in Cougar, shares of capital
      stock of SRKP representing 100% of the outstanding capital stock of SRKP, on
      a
      fully-diluted basis, after giving effect to the Merger and a redemption,
      completed contemporaneous with the closing of the Merger, of all shares of
      SRKP
      capital stock held by SRKP’s former stockholders immediately prior to the
      Merger. In addition, at the time of effectiveness of the Merger, the board
      of
      directors of SRKP was reconstituted, such that the directors of SRKP immediately
      prior to the Merger resigned and were replaced by the directors of Cougar.
      Further, upon the effective time of the Merger, the business of SRKP was
      abandoned and the business plan of Cougar was adopted. The transaction was
      therefore accounted for as a reverse acquisition with Cougar as the acquiring
      party and SRKP as the acquired party. Accordingly, when we refer to our business
      and financial information relating to periods prior to the Merger, we are
      referring to the business and financial information of Cougar, unless otherwise
      indicated.




17


Research
      and development expenses consist primarily of salaries and related personnel
      costs, fees paid to consultants and outside service providers for regulatory
      and
      quality assurance support, licensing of drug compounds, and other expenses
      relating to the manufacture, development, testing and enhancement of our product
      candidates. Research and development costs are expensed as
      incurred.




General
      and administrative expenses consist primarily of salaries and related expense
      for executive, finance and other administrative personnel, professional fees,
      business insurance, rent, general legal activities, and other corporate
      expenses.




Our
      results include non-cash compensation expense as a result of the issuance of
      stock and stock option grants. Prior to 2006, compensation expense for options
      granted to employees and directors (excluding directors who are also scientific
      advisory board members or consultants) represents the difference between the
      fair value of our common stock and the exercise price of the options at the
      date
      of grant. Since January 1, 2006, we account for stock-based employee
      compensation arrangements in accordance with the provisions of and comply with
      the disclosure provisions of Statement of Financial Accounting Standards No.
      123(R), “Share-Based Payment” (“SFAS 123(R)”) by allocating the fair value of
      the instruments at the grant date over the applicable service period. In
      accordance with the provisions of SFAS 123(R) and Emerging Issues Task Force
      (“EITF”) No. 96-18, “Accounting for Equity Instruments That are Issued to Other
      Than Employees for Acquiring, or in Conjunction with Selling, Goods or
      Services,” all other issuances of common stock, stock options or other equity
      instruments to non-employees (including consultants and all members of the
      Scientific Advisory Board) as the consideration for goods or services received
      by the Company are accounted for based on the fair value of the equity
      instruments issued (unless the fair value of the consideration received can
      be
      more reliably measured). Any options issued to non-employees are recorded in
      expense and additional paid-in capital in stockholders’ equity (deficiency) or
      current liabilities over the applicable service periods using variable
      accounting through the vesting date based on the fair value of the options
      at
      the end of each period. We expect to record additional non-cash compensation
      expense in the future, which may be significant.




**Critical
      Accounting Policies**





As
      of the
      date of the filing of this quarterly report, we believe there have been no
      material changes to our critical accounting policies and estimates during the
      nine months ended September 30, 2006, except for the adoption of SFAS 123(R)
      as
      discussed below.





On
      January 1, 2006, we adopted the fair value recognition provisions of SFAS
      123(R), which requires the measurement and recognition of compensation expenses
      for all share-based payment awards made to employees and directors including
      stock options based on estimated fair values. SFAS 123(R) supersedes the
      Company’s previous accounting for employee stock options using the
      intrinsic-value method in accordance APB No. 25, FIN No. 44,
“Accounting for Certain Transactions Involving Stock Compensation, an
      interpretation of APB No. 25,” and related interpretations, and the
      disclosure-only provisions of SFAS 123.





We
      adopted SFAS 123(R) using the modified-prospective-transition method. Under
      this
      method, compensation costs recognized for the nine months ended September 30,
      2006 include: (a) compensation costs for all share-based payment awards granted
      prior to, but not yet vested as of January 1, 2006, based on grant-date
      fair value estimated in accordance with the original provisions of SFAS 123;
      and
      (b) compensation costs for all share-based payment awards granted subsequent
      to
      January 1, 2006, based on the grant-date fair value estimated in accordance
      with the provisions of SFAS 123(R) amortized over the applicable service period.
      In accordance with the modified-prospective-transition method, our Financial
      Statements for prior periods have not been restated to reflect, and do not
      include, the impact of SFAS 123(R).





**Results
      of Operations**




Nine
      Months Ended September 30, 2006 Compared to Nine Months Ended September 30,
      2005




*General
      and administrative expenses* :
      For the
      nine months ended September 30, 2006, general and administrative expenses were
      $3,124,549 compared to $932,503 for the nine months ended September 30, 2005.
      This increase of approximately $2,192,000 is primarily attributable to increases
      in stock based compensation of approximately $716,100, consulting fees of
      approximately $755,300, audit fees of approximately $248,200, legal fees of
      approximately $210,800, rent expense of approximately $93,100, increase in
      compensation of approximately $54,000 due to an increase in staff from two
      employees at the beginning of 2006 to five by the end of September 2006,
      increases in insurance expense of approximately $44,000, travel and
      entertainment expense of approximately $14,400, recruiting expense of
      approximately $44,000, printing expense of approximately $19,100, and employer’s
      contribution to the 401(k) plan of approximately $16,100. The increase in stock
      based compensation resulted primarily from the implementation of SFAS 123R.
      Partially offsetting this increase was a decrease in management bonus expense
      of
      approximately $144,000 resulting from a change in executive compensation package
      which reduced accrued bonus by $41,000, reduction of licensing bonus of
      $75,000, and a reduction of management performance bonus of $28,000.
      Partially offsetting the decrease in bonus expense was an increase in management
      salaries of approximately $54,000 due to the change in an executive compensation
      package. The increase in consulting fees was due to stock-based compensation
      for
      service rendered in the nine months ended September 30, 2006. The increase
      in
      audit fees was a result of expediting the year-end audit, and review of SEC
      filings related to our equity placement and the reverse merger noted above
      as
      well as the review of SEC filings related to being a public company in 2006
      and
      not in 2005. The increased legal fees are associated with work on the reverse
      merger and review of SEC filings. In April 2006, we moved our corporate offices
      to our current location and are currently leasing approximately 7,300 square
      feet of office space resulting in additional rent expense. The increase in
      insurance cost reflects the increased insurance requirements of being a public
      company. The increase in travel cost was associated with investor relations
      and
      reverse acquisition of SRKP. The Company implemented a 401(k) savings plan
      in
      the fourth quarter of 2005 and thus there were no related costs during the
      first
      nine months of 2005.




18


*Research
      and development expenses* :
      For the
      nine months ended September 30, 2006, research and development expenses were
      $4,076,926 compared to $4,068,425 for the nine months ended September 30, 2005,
      representing an increase of approximately $8,500. Third party manufacturing
      expenses for this period in 2006 were approximately $702,700 higher than the
      same period in 2005 due to increased drug manufacturing costs necessary to
      support our preclinical toxicology studies and our clinical trials. Clinical
      expenses in the first nine months of 2006 were approximately $660,000 higher
      than in the first nine months of 2005 due to an increase in Company sponsored
      clinical trials in 2006 compared to 2005. Costs associated with preclinical
      studies during the first nine months of 2006 were approximately $767,800 lower
      than during the same period in 2005 due to a decrease in preclinical toxicology
      and other non-clinical programs. Licensing fees decreased approximately $250,000
      in 2006 as we did not have any licensing fees payable in 2006 while we did
      have
      one licensing fee payable in 2005. We also experienced a decrease in licensing
      fee maintenance cost of approximately $21,000 due to favorable exchange rates.
      Contract regulatory affairs/quality assurance cost were approximately $587,700
      less then we experienced in the first months of 2005 as we required heavy
      contract regulatory affairs/quality assurance assistance in preparing IND
      submissions in early 2005 along with major assistance in writing protocols
      for
      product testing and for our clinical trials. Use of outside consultants
      increased by approximately $74,400 compared to the same period last year.
      Compensation expense increased by approximately $50,000 due to the hiring of
      three employees. There was a decrease in bonus expense of approximately $52,700
      as the bonus accrual was adjusted for actual payments. In addition, we had
      an
      increase in recruiting expense of approximately $136,900 and printing expense
      of
      approximately $76,100 compared to 2005.




*Interest
      income:* For
      the
      nine months ended September 30, 2006 we recognized approximately $699,300 in
      interest income compared to approximately $12,400 of interest income for the
      same period last year. The increase is attributed to the proceeds of private
      placement being placed in an asset management account.




*Interest
      expense* :
      For the
      nine months ended September 30, 2006 interest expense was approximately
      $1,012,700. For the same period last year interest expense was approximately
      $48,400. The interest expense for the nine months ended September 30, 2006
      and 2005, includes a non-cash charge for amortization of note discounts of
      approximately $377,000 and $33,100, respectively. The note discounts were
      associated with the promissory notes issued in June of 2005 and convertible
      notes issued in November 2005 and January 2006. During the nine months ended
      September 30, 2006, we recorded a favorable charge to interest expense for
      the
      revaluation of the outstanding warrants classified as liabilities of
      approximately $69,000. With the conversion of promissory and convertible notes
      into equity in April 2006, the remaining balance of the note discounts of
      approximately $332,500 was written off to interest expense and variable
      accounting for the warrants was no longer required. Interest on the promissory
      and convertible notes of approximately $80,000 and $13,700 was recorded for
      the
      nine months ended September 30, 2006 and 2005 respectively. The nine months
      ended September 30, 2006 also includes non-cash charge for amortization of
      debt
      and note issuance cost of approximately $613,000. Interest on the credit
      facility opened in October 2005 of approximately $13,000 was recorded in the
      nine months ended September 30, 2006. The nine months ended September 30, 2005
      includes interest on trade accounts payable of approximately $1,600 which did
      not occur in 2006. We do not expect to incur additional interest charges for
      the
      remainder of 2006.




19


*Other
      expense:* Contemporaneously
      with the closing of the Merger, SRKP redeemed an aggregate cash payment of
      2,700,000 shares of its common stock from its stockholders in consideration
      of
      an aggregate of $200,000. This transaction was recorded as a capital transaction
      in substance, rather than a business combination resulting in a charge of
      $200,000 for consideration paid.




Three
      Months Ended September 30, 2006 Compared to Three Months Ended September 30,
      2005




*General
      and administrative expense* :
      General
      and administrative expenses for the three months ended September 30, 2006,
      were
      approximately $733,800 compared to $311,500 for the same period in 2005
      representing an increase of approximately $422,300. Accounting and legal fees
      increased approximately $80,200 and $95,500, respectively, compared to the
      same
      quarter in 2005. This increase in expenses resulted from the required SEC
      filings associated with being a public reporting company. The hiring of three
      employees resulted in the payment of approximately $43,600 in recruiting fees.
      We experienced no recruiting fees in the third quarter of 2005. The three
      additional employees increased payroll cost by approximately $22,000 compared
      to
      the third quarter of 2005. We engaged a consulting firm this quarter to provide
      assistance with the implementation of Sarbanes-Oxley resulting in an increase
      in
      consulting fees of approximately $57,100 compared to the same period last year.
      We implemented a Board of Directors compensation program resulting in an expense
      of approximately $50,000 for the quarter ended September 30, 2006, consisting
      of
      approximately $27,300 in fees and $22,700 in stock based compensation. Prior
      to
      this quarter, our Board of Directors received no compensation for their services
      to the Company as directors. Rent expense for the quarter increased
      approximately $34,200 compared for the same period last year resulting from
      the
      move into our new location containing approximately 7,300 square feet. We
      experienced an increase in insurance requirements of approximately $18,100
      during the quarter ended September 30, 2006, as a result of becoming a public
      reporting company.





*Research
      and development expenses* :
      For the
      three months ended September 30, 2006, research and development expenses were
      approximately $2,322,500 compared to $2,348,700 for the three months ended
      September 30, 2005, representing a decrease of approximately $26,200. Major
      decreases occurred in expenditures for pre-clinical expense of approximately
      $419,800 and contract regulatory affairs/quality assurance cost of approximately
      $436,300. The decrease in pre-clinical expenses reflects the decrease in
      non-clinical studies during 2006 compared to 2005. The decrease in regulatory
      affairs/quality assurance cost for the three months ended September 30, 2006
      reflects reduced regulatory affairs/quality assurance requirement compared
      to
      the same period in 2005. For the three months ended September 30, 2006, our
      clinical expense increased approximately $273,000 due to the expenses associated
      with our Company sponsored clinical trials. Third party manufacturing cost
      for
      the three months ended September 30, 2006, increased approximately $241,100
      compared to the same period in 2005 in support of our on-going preclinical
      toxicology studies and our clinical trials. Recruiting expenses are
      approximately $134,700 higher then the same period in 2005 as we are actively
      recruiting two senior level positions. For the three months just ended we spent
      approximately $76,100 for software required to manage regulatory submissions
      and
      our clinical trials. Our payroll related cost were approximately $49,900 higher
      then the same period last year as we have added staff to support our clinical
      trials and regulatory requirements. For the three months ended September 30,
      2006 consulting fees were approximately $21,300 higher then the same period
      last
      year resulting from an increase in stock based compensation. The increase in
      stock based compensation was the result of additional stock options being
      granted. Scientific Advisory Board fees for the quarter ended September 30,
      2006, were approximately $19,700 greater then the same period last year due
      to
      travel in support of our clinical trials.




*Interest
      income:* For
      the
      three months ended September 30, 2006 we recognized approximately $430,200
      in
      interest income compared to approximately $1,100 of interest income for the
      same
      period last year. The increase is attributed to the proceeds from the private
      placement.




*Interest
      expense* :
      For the
      three months ended September 30, 2006 interest expense was $25 compared to
      approximately $48,400 for the same period last year. The interest expense for
      2005 included a non-cash charge for amortization of note discounts associated
      with the June 2005 promissory notes of approximately $33,100. The June
      promissory notes were converted to equity in April 2006. We do not expect to
      incur additional interest charges for the remainder of 2006.




20


*Liquidity
      and Capital resources*




We
      reported a net loss of $7,733,853 and negative cash flow from operating
      activities of $5,781,266 for the nine months ended September 30, 2006. The
      net
      loss from date of inception, May 14, 2003 to September 30, 2006 amounted to
      $19,083,702 **.**





We
      have
      financed our operations since inception primarily through equity and debt
      financing. During the nine months ended September 30, 2006, we had a net
      increase in cash and cash equivalents of $33,138,491. This increase resulted
      from net cash provided by financing activities of $39,051,742, substantially
      all
      of which was derived from our private placement which provided us net proceeds
      of $37,251,520. The increase in cash provided by financing activities was
      reduced by net cash used in operating activities of $5,781,266 and net cash
      used
      in investing activities of $131,985 for the nine months ended September 30,
      2006. Total cash resources as of September 30, 2006 were $34,179,355 compared
      to
      $1,040,864 at December 31, 2005. The net cash used in operating activities
      includes a net loss of $7,733,853 adjusted for non-cash items of approximately
      $2,487,700, an increase in accounts payable and accrued expenses of
      approximately $212,700, and an increase in prepaid expenses and other assets
      of
      approximately $747,800. The major non-cash items were: stock option compensation
      for non-employees of $799,000, employee stock option compensation of $744,800,
      write-off of note issuance costs of $613,000, and write-off of note discounts
      of
      $377,000. The increase in prepaid expenses and other assets resulted from
      progress payments for: a pre-clinical study of approximately $360,100; progress
      payments in support of on-going clinical trials of approximately $201,000,
      and a
      progress payment for the manufacture of product of approximately $154,000.
      The
      increase in our various insurance policies resulted in an increase in prepaid
      expenses of approximately $60,000. The net cash used in investing activities
      was
      due to the move into our new office location and the addition of personnel
      necessitated the purchase of additional furniture, a phone system, work station
      for new employees, and a computer network.





Management
      believes that the Company will continue to incur losses for the foreseeable
      future and will need additional equity or debt financing or will need to
      generate revenue from licensing of its products or by entering into strategic
      alliances to sustain its operations until it can achieve profitability and
      positive cash flows, if ever.





Our
      continued operations will depend on whether we are able to raise additional
      funds through various potential sources, such as equity and debt financing.
      Such
      additional funds may not become available on acceptable terms and there can
      be
      no assurance that any additional funding that we do obtain will be sufficient
      to
      meet our needs in the long term. Through September 30, 2006, a significant
      portion of our financing has been through private placements of common and
      preferred stock and debt financing.





We
      will
      continue to fund operations from cash on hand and through the similar sources
      of
      capital previously described. We can give no assurances that any additional
      capital that we are able to obtain will be sufficient to meet our needs. There
      can be no assurance that such capital will be available to us on favorable
      terms
      or at all. If we are unable to raise additional funds in the future on
      acceptable terms, or at all, we may be forced to curtail our desired
      development. In addition, we could be forced to delay or discontinue product
      development, and forego attractive business opportunities. Any additional
      sources of financing will likely involve the sale of our equity securities,
      which will have a dilutive effect on our stockholders.







*Financings*




On
      July
      15, 2005, we entered into a credit facility with a commercial bank that allowed
      for borrowing under a line of credit of up to $1,000,000. The credit facility
      was guaranteed by Dr. Lindsay A. Rosenwald, a stockholder and member of our
      Board of Directors. In return for such guaranty, we agreed to grant Dr.
      Rosenwald warrants to purchase a number of shares of Cougar common stock based
      on amount of the credit facility used by us. Prior to terminating the credit
      facility in 2006, we utilized up to $600,000 of the credit facility, and issued
      Dr. Rosenwald a five-year warrant to purchase 31,732 shares of the Company’s
      common stock at an exercise price of $8.28 per share in consideration of the
      guaranty. The credit facility was paid in full upon closing of the private
      equity placement on April 3, 2006.




21


On
      June
      30, 2005, we issued unsecured promissory notes to six individuals, including
      a
      member of our Board of Directors, in the aggregate amount of $1,000,000 in
      consideration for aggregate proceeds to us of $1,000,000. In addition to the
      promissory notes, we issued the six individuals five-year warrants to purchase
      an aggregate of 52,888 shares of Cougar common stock at an exercise price of
      $8.28 per share.




In
      two
      closings on November 23, 2005 and January 24, 2006, we sold an aggregate of
      $6,145,120 in aggregate principal amount of 5% senior convertible notes (the
      “Bridge Notes”) to certain institutional and individual accredited investors in
      a private placement transaction (the “Bridge Offering”). The bridge note holders
      received five-year warrants to purchase an aggregate of 148,460 shares of our
      common stock at a price per share of $8.28. These warrants were valued at
      $455,958 using the Black-Scholes option pricing model and recorded as debt
      discount. Additionally, we issued warrants to purchase an aggregate of 74,227
      shares of common stock at an exercise price per share of $8.28 to our placement
      agents, and paid commissions and other offering-related expenses aggregating
      approximately $326,000. The Bridge Notes aggregate principal balance of
      $6,145,120, together with accrued and unpaid interest of approximately $89,000
      thereon, was automatically converted into units of the Company’s securities on
      April 3, 2006, each unit consisting of 0.9 shares of Series A Convertible
      Preferred Stock and 0.1 share of our common stock, at a price per unit of $4.50,
      pursuant to the terms of the Offering. Accordingly, the holders of the Bridge
      Notes received an aggregate of 360,356 shares of our common stock and 3,243,217
      shares of our Series A Convertible Preferred Stock upon conversion. The holders
      of the Bridge Securities are entitled to piggy-back registration rights with
      respect to the shares of common stock issued or issuable upon conversion of
      such
      securities.




On
      April
      3, 2006, immediately prior to the closing of the Merger, we completed a private
      placement offering whereby we raised gross proceeds of approximately $39,650,000
      through the sale of 7,922,998 shares of preferred stock and 880,334 shares
      of
      common stock. Additionally, on terms similar to that in the offering, we sold
      35,334 shares of common stock and 318,008 shares of preferred stock in
      consideration of cash in the amount of approximately $600,000 and the
      cancellation of certain of our note obligations in the aggregate amount of
      $990,000, including principal and interest. Each share of preferred stock,
      designated as Series A Convertible Preferred Stock, is convertible, in whole
      or
      in part, at the option of the holder at any into shares of our common stock
      initially on a one-for-one basis and at an initial conversion price of $4.50
      per
      share. At our election, we may require each holder to convert its outstanding
      shares of preferred stock into shares of our common stock if the price per
      share
      of common stock trades at or above 200% of the initial purchase price of $4.50
      for a period of twenty consecutive trading days on any securities exchange,
      automated quotation system or any other over-the-counter market.




*Current
      and Future Financing Needs*




We
      have
      incurred negative cash flow from operations since we started our business.
      We
      have spent, and expect to continue to spend, substantial amounts in connection
      with implementing our business strategy, including our planned product
      development efforts, our clinical trials, and our research and discovery
      efforts. Given the current and desired pace of clinical development of our
      three
      product candidates, over the next 12 months we estimate that that our research
      and development expenses will be approximately $21 million. We will need
      approximately $5 million for general administrative expenses over the next
      12
      months.




However,
      the actual amount of funds we will need to operate is subject to many factors,
      some of which are beyond our control. These factors include the
      following:




·
            The
                progress of our research
                activities;




·
            The
                number and scope of our research
                programs;




·
            The
                progress of our pre-clinical and clinical development
                activities;




22


·
            The
                progress of the development efforts of parties with whom we have
                entered
                into research and development
                agreements;




·
            Our
                ability to maintain current research and development programs and
                to
                establish new research and development and licensing
                arrangements;




·
            The
                cost involved in prosecuting and enforcing patent claims and other
                intellectual property rights; and




·
            The
                cost and timing of regulatory
                approvals.




We
      have
      based our estimate on assumptions that may prove to be wrong. We may need to
      obtain additional funds sooner than planned or in greater amounts than we
      currently anticipate. Potential sources of financing include strategic
      relationships, public or private sales of equity or debt and other sources.
      We
      may seek to access the public or private equity markets when conditions are
      favorable due to our long-term capital requirements. We do not have any
      committed sources of financing at this time, and it is uncertain whether
      additional funding will be available when we need it on terms that will be
      acceptable to us, or at all. If we raise funds by selling additional shares
      of
      common stock or other securities convertible into common stock, the ownership
      interest of our existing stockholders will be diluted. If we are not able to
      obtain financing when needed, we may be unable to carry out our business plan.
      As a result, we may have to significantly limit our operations and our business,
      financial condition and results of operations would be materially
      harmed.




**Plan
      of Operation**





Our
      plan
      of operation for the next twelve months is to continue implementing our business
      strategy of in-licensing novel clinical stage products in order to accelerate
      clinical development and time to commercialization, and continue the clinical
      development of our three product candidates. We expect our principal
      expenditures during the next 12 months to include:





·
            Operating
                expenses, including expanded research and development and general
                and
                administrative expenses; and




·
            Product
                development expenses, including the costs incurred with respect to
                applications to conduct clinical trials in the United States for
                our three
                products.




As
      part
      of our planned expansion, we have budgeted hiring up to 5 additional full-time
      employees devoted to research and development activities and up to 3 additional
      full-time employees for general and administrative activities. We anticipate
      hiring additional professional research and development staff in the fourth
      quarter of 2006. These positions will require an advanced degree in the medicine
      and or bioscience and significant experience in the pharmaceutical or
      biotechnology industries. Our annual payroll expense will increase by
      approximately $1.2 million and our annual benefits and payroll taxes will
      increase by approximately $126,000. We anticipate spending approximately
      $478,500 on recruiting and relocation expenses for these positions. In addition,
      we intend to use contract research organizations and third parties to perform
      our clinical studies and manufacturing. As indicated above, at our current
      and
      desired pace of clinical development of our three product candidates, during
      the
      next 12 months we expect to spend approximately $21 million on clinical
      development and research and development activities and expend approximately
      $5
      million on general and administrative expenses and $242,000 on facilities
      rent.




*Research
      and Development Projects*




CB-7630.
      In April 2004, we exclusively licensed the worldwide rights to CB-7630
      (abiraterone acetate) from BTG plc. CB-7630 is an orally active targeted
      inhibitor of the steroidal enzyme 17α-hydroxylase/C17,20 lyase, a cytochrome
      p45 0
      complex
      that is involved in testosterone production. In preclinical studies, CB-7630
      has
      demonstrated the ability to selectively inhibit the target enzyme, reducing
      levels of testosterone production in both the adrenals and the testes that
      is
      believed to stimulate the growth of prostrate cancer cells.




23


In
      Phase
      I trials performed by the Centre for Cancer Therapeutics, Institute of Cancer
      Research (Sutton, United Kingdom), and Royal Marsden NHS Trust (Sutton, United
      Kingdom), CB-7630 was administered as a single agent to 26 patients with
      prostate cancer. We believe that the data from these clinical studies indicate
      that: 1) CB-7630, at an oral dose of 800mg, can successfully suppress
      testosterone levels to the castrate range; 2) CB-7630 can suppress testosterone
      produced by both the testes and the adrenals; and 3) CB-7630 is well tolerated
      with an acceptable toxicity profile. The results from these Phase I studies
      of
      CB-7630 were published in the British Journal of Cancer in June
      2004.




In
      December 2005, we initiated a Phase I/II trial of CB-7630 for the treatment
      of
      advanced prostate cancer. The Phase I/II trial is being conducted at The
      Institute of Cancer Research, in the Cancer Research UK Centre for Cancer
      Therapeutics, and at The Royal Marsden Hospital in the United Kingdom. The
      Phase
      I/II study is an open label, dose escalating study to evaluate the safety and
      efficacy of CB-7630 administered daily to patients with chemotherapy-naïve
      hormone refractory prostate cancer (HRPC) with a rising PSA (prostate specific
      antigen) despite hormonal therapy.




In
      October 2006, we announced that positive Phase I data from this Phase I/II
      trial
      was presented at the National Cancer Research Institute (NCRI) Cancer Conference
      that took place October 8-11, 2006, in Birmingham, United Kingdom. The results
      for the trial presented at the conference showed that in the 14 patients tested,
      CB7630 was well tolerated at doses as high as 2000 mg/day with minimal toxicity.
      Moreover, no dose limiting toxicity had been observed in the trial at the time
      of presentation. Of the 12 patients that were evaluable for antitumor activity,
      8 patients (67%) experienced a confirmed decline in PSA levels of greater than
      50% and 6 patients (50%) experienced PSA declines of greater than 90%. Of the
      5
      evaluable patients with measurable tumor lesions, treatment with CB7630 resulted
      in partial radiological responses (as measured by the RECIST criteria) in 3
      patients (60%). Individual patients treated with CB7630 also experienced
      radiographic regression of bone metastases and improvement in pain. Circulating
      tumor cells (CTC) were detected in 6 of 14 patients and changes in CTC counts
      were shown to correlate with changes in PSA. At the time of the presentation,
      10
      of the 14 patients (71%) were continuing on treatment with CB7630, with some
      patients having been on the drug for over 9 months.




In
      July
      2006, we announced that we initiated a Phase I trial of CB7630 for the treatment
      of advanced prostate cancer. The Phase I trial of CB7630 will be conducted
      at
      the University of California, San Francisco, Comprehensive Cancer Center. The
      study is an open label, dose escalating study to evaluate the safety and
      efficacy of CB7630 administered daily to patients with chemotherapy-naïve HRPC
      with a rising PSA despite hormonal therapy.




In
        previous filings with the SEC, we had stated our belief that we would be
        initiating one Phase II trial of CB7630 in 2006. However, as a result of
        the
        data we recently announced from the Phase I trial conducted in the United
        Kingdom, we intend to initiate two Phase II trials of CB7630 during 2006:
        one
        Phase II trial of CB7630 as a second line hormonal agent for advanced prostate
        cancer patients that have failed treatment with first line hormone therapy,
        and
        the second a Phase II trial of CB7630 for advance prostate cancer patients
        that
        have failed treatment with first line chemotherapy (e.g. Taxotere). ****


Through
      September 2006, we have incurred approximately $9,744,200 of cost related to
      the
      development of CB-7630. Currently, we anticipate that we will need to expend
      approximately an additional $1,900,000 to $2,400,000 in development costs in
      fiscal 2006 and at least an aggregate of approximately $50,000,000 to
      $75,000,000 until we receive FDA approval for CB-7630. Should we choose to
      continue development we expect that it will take an additional 6 to 8 years
      before we complete development and obtain FDA approval of CB-7630, if
      ever.




CB-3304.
      In March 2004, we exclusively licensed the worldwide rights to CB-3304
      (noscapine), an orally active alkaloid derived from opium. Preclinical studies
      have demonstrated that CB-3304 has anti-tumor activity and acts as an inhibitor
      of microtubule dynamics. Therefore, we believe that CB-3304 has potential
      applications in the treatment of a number of different tumor types where tubulin
      binding agents are known to have activity. These tumor types include, but are
      not limited to, non-Hodgkin’s lymphoma, multiple myeloma, breast cancer, lung
      cancer, ovarian cancer and prostate cancer.




In
      December 2005, we announced positive interim data from an ongoing investigator
      sponsored Phase I trial of CB-3304 in patients with relapsed or refractory
      non-Hodgkin’s lymphoma. The trial is an open label dose escalating study, being
      conducted at the University of Southern California Norris Comprehensive Cancer
      Center, where cohorts of patients with relapsed/refractory non-Hodgkin’s
      lymphoma (NHL) or chronic lymphocytic leukemia (CLL/SLL) were treated at one
      of
      three different dose levels involving total daily doses of 1 g, 2 g, and 3
      g per
      day. At each dose level, noscapine was administered orally on a three times
      a
      day schedule for 49 days. In the trial, responses for NHL patients were
      evaluated using the International Working Group Response Criteria for NHL and
      responses for CLL patients were evaluated using the NCI Working Group criteria.
      For both NHL and CLL patients, toxicity was graded according to the NCI common
      toxicity criteria.




24


At
      this
      interim analysis, 12 patients with a median age of 65 years (range 38-71) have
      been accrued. Four subjects had CLL/SLL, 2 had mantle cell lymphoma, one had
      follicular grade III lymphoma, 4 had diffuse large cell lymphoma (DLC), and
      one
      had lymphoplasmacytic low grade lymphoma. These interim results
      suggest:




·
            Of
                the 10 patients that are evaluable for response, one patient with
                follicular grade III disease has had a partial response. This patient
                initially demonstrated stabilization of their disease for a period
                of
                approximately four years before achieving a partial response. In
                addition,
                two patients, one with mantle cell lymphoma and one with DLC have
                demonstrated stable disease of duration 30 days and 77 days,
                respectively.




·
            CB-3304
                has been well tolerated, with no grade 3 or 4 hematological toxicities.
                One grade 3 neurotoxicity consisting of depressed level of consciousness
                was experienced at the 3 gram dose
                level.




·
            A
                larger study of noscapine is warranted to evaluate the efficacy of
                the
                compound in patients with lymphoma.




In
      December 2005, we also announced results from preclinical experiments that
      we
      believe demonstrate the effectiveness of CB-3304 for the treatment of NHL and
      multiple myeloma and that warrant our continued development of the drug in
      hematological malignancies. The preclinical studies demonstrate that CB-3304
      exhibits potent antitumor activity against NHL and myeloma in vitro, as well
      as *in
      vivo* in
      xenograft models. More specifically, the *in
      vitro* studies
      demonstrated that following exposure to CB-3304, the OPM2 (multiple myeloma),
      H9
      (T cell lymphoma) and RL (B cell lymphoma) tumor cell lines exhibited an IC50
      of
      approximately 30 nM, 700 nM, and 500 nM for the OPM2, H9 and RL lines,
      respectively. Treatment with noscapine resulted in the induction of apoptosis
      in
      each of the cell lines tested. Additionally, *in
      vivo* studies
      demonstrated that in xenograft models, daily administration of noscapine
      resulted in tumor growth delays of between 30-80% of the control tumor
      volumes.




In
        previous filings with the SEC, we stated that we intended to complete the
        Phase I portion of a Phase I/II clinical trial of CB3304 in hematological
        malignancies (non-Hodgkin’s lymphoma, multiple myeloma and chronic lymphocytic
        leukemia) during the second half of 2006, and to initiate the Phase II portion
        by the end of 2006. As a result of our plan to initiate a second Phase II
        clinical trial of CB7630 in 2006, as discussed above under “CB7630”, we
        subsequently decided to focus our clinical development of CB3304 in only
        multiple myeloma for the near future. Accordingly, we anticipate initiating
        a
        Phase I/II trial of CB3304 in multiple myeloma in either late 2006 or in
        early
        2007.


Through
      September 2006, we have incurred approximately $949,700 of cost related to
      the
      development of CB-3304. Currently, we anticipate that we will need to expend
      approximately an additional $200,000 to $300,000 in development costs in fiscal
      2006 and at least an aggregate of approximately $50,000,000 to $75,000,000
      until
      we receive FDA approval for CB-3304. Should we choose to continue development
      we
      expect that it will take an additional 6 to 8 years before we complete
      development and obtain FDA approval of CB-3304, if ever.




CB-1089.
      In June 2005, we exclusively licensed the worldwide rights to CB-1089
      (seocalcitol), a synthetic vitamin D analog. In prostate cancer, clinical
      studies of a metabolite of vitamin D (calcitriol) given in combination with
      chemotherapy suggested that patients that received the combination of calcitriol
      plus chemotherapy had an improvement in their survival over the patients that
      received chemotherapy plus placebo without an increase in the toxicity of the
      chemotherapy. Preclinical studies in prostate cancer have shown that CB-1089
      is
      a more potent anti-cancer drug than calcitriol, which may result in better
      efficacy when used in combination therapy to treat prostrate cancer as opposed
      to calcitriol.




In
        previous filings with the SEC, we stated that we intended to initiate two
        clinical trials of CB1089 during 2006 for the treatment of prostate cancer,
        including a Phase II trial with CB1089 as a single agent and a Phase I/II
        clinical trial with CB 1089 as a combination therapy. However, prior to
        initiating Phase II trials for the treatment of prostate cancer, we determined
        that we needed to better understand the safety of CB1089 in prostate cancer
        patients. Therefore, we now plan to initiate only a Phase I trial of CB1089
        in
        advanced prostate cancer patients by mid 2007.




Through
      September 2006, we have incurred approximately $427,500 of cost related to
      the
      development of CB-1089. Currently, we anticipate that we will need to expend
      approximately an additional $1,000,000 to $1,500,000 in development costs in
      fiscal 2006 and at least an aggregate of approximately $50,000,000 to
      $75,000,000 until we receive FDA approval for CB-1089. Should we choose to
      continue development we expect that it will take an additional 6 to 8 years
      before we complete development and obtain FDA approval of CB-1089, if
      ever.




*Penalty
      Relating to Registration Requirements*




In
        conjunction with its equity offering (see Note 6 of the financial statements),
        the Company was required to file a registration statement with the SEC on
        the
        appropriate form to allow the resale of the common stock issued in the
        offering  on April 3, 2006, (including common stock issuable upon
        conversion of the Series A Preferred Stock) under the Securities Act within
        30
        days after the closing and to use its best effort to have the registration
        statement effective within 180 days after the closing. The Company’s penalty for
        not meeting the registration requirement is to make compensatory payments
        (“Liquidated Damages”) in the amount equal to one percent of the aggregate
        purchase price paid by the subscribers for each 30-day period or prorated
        portion thereof in which the Company is in default of its obligation to register
        the shares or have the registration statement become effective. However,
        in no
        event will the Company be required to pay an aggregate amount that exceeds
        12.0%
        of the aggregate purchase price paid by the investors. Beginning October
        1, 2006
        and up to the date the registration statement becomes effective the Company
        will
        be in default of its obligations to have the registration statement become
        effective within 180 days of the placement closing. The Company is subject
        to
        compensatory payments to each placement subscriber payable within five business
        days of the end of each 30-day period in which such Liquidated Damages accrue.
        For each 30-day period in which the Company is in default it will be required
        to
        pay Liquidated Damages in the amount of approximately $412,000. The maximum
        potential exposure for the Company, based on the 12% cap, is approximately
        $4,944,000.





25




*License
      Agreement Obligations*




CB-3304.
      On February 23, 2004, we entered into a license agreement with Emory University
      (“Emory”) for the worldwide, exclusive rights to discover, develop, have made,
      use, sell, have sold, offer for sale and import the products described in
      Emory’s intellectual property portfolio for noscapine and analogs of noscapine.
      The license agreement terminates upon the date of the last to expire patent
      contained in the licensed technology. In consideration for the rights under
      the
      license agreement, we paid Emory an initial license fee of $72,435 in 2004.
      We
      sponsored a research project involving the licensed technology in the amount
      of
      $114,000 of which $28,688 and $85,312 were paid in 2005 and 2004, respectively.
      In connection with the license agreement, we have agreed to future milestone
      payments to Emory for the first technology from the intellectual property
      portfolio in the aggregate of up to $3,500,000, payable upon the achievement
      of
      certain clinical and regulatory milestones. Should a product incorporating
      the
      licensed technology be commercialized, we will be obligated to pay to Emory
      an
      annual royalty based on net sales of the product. In the event that we
      sublicense the licensed technology to a third party, we will be obligated to
      pay
      royalties to Emory based on a fixed rate of fees or royalties received from
      the
      sublicense.




CB-7630.
      Effective April 20, 2004, we entered into a license agreement with BTG
      International, LTD. for the exclusive worldwide rights to make, use, lease
      and
      sell abiraterone acetate. The agreement terminates upon the date of the last
      to
      expire patent contained in the licensed technology. In consideration for the
      rights under the BTG license agreement, we paid BTG an initial license fee
      of
£500,000 (approximately $923,100) in 2004 and agreed to pay BTG an annual
      license maintenance fee of £150,000 (approximately $288,000) until the first
      commercial sale of the licensed product. In addition, the license agreement
      requires us to make aggregate milestone payments of up to £9,000,000
      (approximately $16,614,000), payable upon the achievement of certain clinical
      and regulatory milestones. Should abiraterone acetate become commercialized,
      we
      will be obligated to pay to BTG an annual royalty based on net sales of the
      product. In the event that we sublicenses abiraterone acetate to a third party,
      we are obligated to pay royalties to BTG based on a fixed rate of fees or
      royalties received from the sublicense.




CB-1089.
      Effective June 27, 2005, we entered into a license agreement with LEO Pharma
      A/S
      for the exclusive worldwide right to make, use, lease and sell seocalcitol.
      The
      agreement terminates upon the later of the date of the last patent contained
      in
      the licensed technology to expire or twenty years. In consideration for the
      rights under the LEO license agreement, we paid LEO an initial license fee
      of
      $250,000 in 2005. In addition, the license agreement requires us to make
      aggregate milestone payments of up to $13,000,000, payable upon the achievement
      of certain clinical and regulatory milestones. Should seocalcitol become
      commercialized, we will be obligated to pay to LEO an annual royalty based
      on
      net sales of the product. In the event that we sublicenses seocalcitol to a
      third party, we are obligated to pay royalties to LEO based on a fixed rate
      of
      fees or royalties received from the sublicense.





**Off-Balance
      Sheet Arrangements**





During
      the three months ended September 30, 2006, the Company did not engage in any
      off-balance sheet arrangements as defined in Item 303(c) of the SEC’s Regulation
      S-B.





26





**Item
      3. CONTROLS AND PROCEDURES**








**Evaluation
      of disclosure controls and procedures**








As
      of
      September 30, 2006, we carried out an evaluation, under the supervision and
      with
      the participation of our Chief Executive Officer and Vice President, Finance,
      of
      the effectiveness of the design and operation of our disclosure controls and
      procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities
      Exchange Act of 1934, as amended). Based upon that evaluation, our Chief
      Executive Officer and Vice President, Finance concluded that our disclosure
      controls and procedures as of that date were effective.





During
      the quarter ended September 30, 2006, we have taken the following
      actions to improve our internal controls and disclosure controls over financial
      reporting:





1.
            We
                have hired a Controller.


2.
            We
                have contracted with consultants to improve our internal controls
                and
                disclosure controls over financial reporting and help us prepare
                for
                meeting the Sarbanes-Oxley compliance
                requirements.


3.
            We
                have increased our emphasis on accounting education for our
                accounting personnel and increased our emphasis on reviewing applicable
                accounting literature.





Other
      than as described above, there were no changes in our internal controls over
      financial reporting that occurred during the third quarter of 2006 that have
      materially affected, or are reasonably likely to materially affect, our internal
      control over financial reporting.





**PART
      II - OTHER INFORMATION**





**Item
      5.**  **OTHER
      INFORMATION**





Pursuant
      to a Current Report on Form 8-K filed on September 12, 2006, we inadvertently
      reported an incorrect vesting schedule relating to an option granted on
      September 6, 2006, to Dr. Arie Belldegrun, a director and the Chairman of our
      Scientific Advisory Board, for the purchase of 200,000 shares of our common
      stock. The Form 8-K report disclosed that the option vested in equal annual
      installments over three years, while in fact the option vests in equal annual
      installments over four years. ****





**Item
      6.**  **EXHIBITS**


Exhibit
                  No.
              Description10.1
              Employment
                  Agreement between the Company and Alan H. Auerbach dated September
                  28,
                  2006 (incorporated by reference to Exhibit 10.1 to the Company’s Current
                  Report on Form 8-K filed on October 2, 2006)10.2
              Summary
                  of terms of non-employee director compensation program ( as amended
                  through September 6, 2006) (incorporated by reference to Exhibit
                  10.1 to
                  the Company’s Current Report on Form 8-K filed on September 12,
                  2006)10.3
              2003
                  Stock Option Plan (as amended through September 6, 2006) (incorporated
                  by
                  reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K
                  filed on September 12, 2006)
   27
  10.4
              Form
                  of Option Agreement for employees and directors (incorporated by
                  reference
                  to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on
                  September 12, 2006)31.1
              Certification
                  of Principal Executive Officer31.2
              Certification
                  of Principal Financial Officer32.1
              Certifications
                  of Principal Executive Officer and Principal Financial Officer
                  pursuant to
                  Section 906 of the Sarbanes-Oxley Act of
                  2002









28


**SIGNATURES**







In
      accordance with the requirements of the Exchange Act of 1934, the registrant
      caused this report to be signed on its behalf by the undersigned, thereunto
      duly
      authorized.




COUGAR
              BIOTECHNOLOGY, INC.Date: November
              14, 2006
            By:
            /s/ Alan
              H.
              AuerbachAlan
              H. AuerbachPresident
              and
              Chief Executive Officer


Date: November
                14, 2006
              By:
              /s/ Charles
                R. EylerCharles
                R. EylerTreasurer







29


**** **Index
      to Exhibits Filed with this Report**





Exhibit
      No.  Description




31.1
              Certification
                  of Principal Executive Officer31.2
              Certification
                  of Principal Financial Officer32.1
              Certifications
                  of Principal Executive Officer and Principal Financial Officer
                  pursuant to
                  Section 906 of the Sarbanes-Oxley Act of
                  2002.





30