##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended September 30, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Transition Period from                      to
 Commission File Number 001-33103
 
 CADENCE PHARMACEUTICALS, INC.
  Delaware
    
    41-2142317(State or other jurisdiction 
of incorporation)
    
    (I.R.S. Employer
Identification No.)
 12481 High Bluff Drive, Suite 200
San Diego, CA 92130
 (858) 436-1400
 
 þ o
  o o þ
 o þ




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##### 



CADENCE PHARMACEUTICALS, INC.
 INDEX
  
 PART I. FINANCIAL INFORMATIONItem 1.
    
    Financial Statements (Unaudited)Condensed Balance Sheets at September 30, 2007 and December 31, 2006
    
    
    1Condensed Statements of Operations for the three and nine months
ended September 30, 2007 and 2006 and for the period from May 26, 2004
(inception) through September 30, 2007
    
    
    2Condensed Statements of Cash Flows for the nine months ended
September 30, 2007 and 2006 and for the period from May 26, 2004
(inception) through September 30, 2007
    
    
    3Notes to Condensed Financial Statements
    
    
    4Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    10Item 3.
    
    Qualitative and Quantitative Disclosures About Market Risk
    
    
    19Item 4T.
    
    Controls and Procedures
    
    
    19PART II. OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    20Item 1A.
    
    Risk Factors
    
    
    20Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    44Item 3.
    
    Defaults Upon Senior Securities
    
    
    45Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    45Item 5.
    
    Other Information
    
    
    45Item 6.
    
    Exhibits
    
    
    45EXHIBIT 10.18EXHIBIT 10.19EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 CADENCE PHARMACEUTICALS, INC.
(a development stage company)
 
 CONDENSED BALANCE SHEETS
 September 30,
    
    
    December 31,2007
    
    
    2006(unaudited)AssetsCurrent assets:Cash and cash equivalents
    
    $
    54,451,097
    
    
    $
    86,825,526Restricted cash
    
    
    1,981,849
    
    
    
    347,849Prepaid expenses and other current assets
    
    
    635,409
    
    
    
    820,311Total current assets
    
    
    57,068,355
    
    
    
    87,993,686Property and equipment, net
    
    
    4,930,888
    
    
    
    3,558,618Restricted cash
    
    
    1,233,281
    
    
    
    1,233,281Other assets
    
    
    515,852
    
    
    
    536,042Total assets
    
    $
    63,748,376
    
    
    $
    93,321,627Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    $
    3,341,141
    
    
    $
    2,073,726Accrued liabilities
    
    
    12,748,423
    
    
    
    7,378,750Current portion of long-term debt
    
    
    2,765,601
    
    
    
    2,338,010Total current liabilities
    
    
    18,855,165
    
    
    
    11,790,486Deferred rent
    
    
    1,290,551
    
    
    
    1,460,109Long-term debt, less current portion
    
    
    2,558,479
    
    
    
    4,661,990Other long-term liabilities
    
    
    22,048
    
    
    
    Total liabilities
    
    
    22,726,243
    
    
    
    17,912,585Commitments and contingencies (Note 6)Stockholders equity :Common
stock, $0.0001 par value;
100,000,000 shares authorized, 29,108,730
shares and 29,092,720 shares issued and
outstanding at September 30, 2007
and December 31, 2006, respectively
    
    
    2,911
    
    
    
    2,909Additional paid-in capital
    
    
    141,126,894
    
    
    
    138,057,890Accumulated other comprehensive income
    
    
    88,840
    
    
    
    64,033Deficit accumulated during the development stage
    
    
    (100,196,512
    )
    
    
    (62,715,790
    )Total stockholders equity
    
    
    41,022,133
    
    
    
    75,409,042Total liabilities and stockholders equity
    
    $
    63,748,376
    
    
    $
    93,321,627
  1




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CADENCE PHARMACEUTICALS, INC.
(a development stage company)
 
 CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
 Period fromMay 26, 2004Three Months Ended
    
    
    Nine Months Ended
    
    
    (Inception) throughSeptember 30,
    
    
    September 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006
    
    
    2007Operating expenses:Research and development
    
    $
    10,353,033
    
    
    $
    6,387,623
    
    
    $
    31,349,828
    
    
    $
    40,051,593
    
    
    $
    87,186,172Marketing
    
    
    694,187
    
    
    
    244,284
    
    
    
    1,462,724
    
    
    
    560,825
    
    
    
    2,554,514General and administrative
    
    
    2,555,579
    
    
    
    1,362,551
    
    
    
    6,819,111
    
    
    
    3,330,531
    
    
    
    14,054,188Total operating expenses
    
    
    13,602,799
    
    
    
    7,994,458
    
    
    
    39,631,663
    
    
    
    43,942,949
    
    
    
    103,794,874Loss from operations
    
    
    (13,602,799
    )
    
    
    (7,994,458
    )
    
    
    (39,631,663
    )
    
    
    (43,942,949
    )
    
    
    (103,794,874
    )Other income (expense):Interest income
    
    
    820,850
    
    
    
    479,500
    
    
    
    2,775,877
    
    
    
    1,032,001
    
    
    
    4,985,950Interest expense
    
    
    (185,868
    )
    
    
    (227,954
    )
    
    
    (605,999
    )
    
    
    (271,849
    )
    
    
    (1,103,616
    )Other expense
    
    
    (18,618
    )
    
    
    (39,929
    )
    
    
    (18,937
    )
    
    
    (39,929
    )
    
    
    (283,972
    )Total other income, net
    
    
    616,364
    
    
    
    211,617
    
    
    
    2,150,941
    
    
    
    720,223
    
    
    
    3,598,362Net loss
    
    $
    (12,986,435
    )
    
    $
    (7,782,841
    )
    
    $
    (37,480,722
    )
    
    $
    (43,222,726
    )
    
    $
    (100,196,512
    )Basic and diluted net loss
per share(1)
    
    $
    (0.45
    )
    
    $
    (6.01
    )
    
    $
    (1.31
    )
    
    $
    (34.27
    )Shares used to compute basic and
diluted net loss per share(1)
    
    
    28,637,956
    
    
    
    1,295,807
    
    
    
    28,530,309
    
    
    
    1,261,128
 
 (1)
    
    As a result of the issuance of 6,900,000 shares of common stock in the Companys
initial public offering in the fourth quarter of 2006 and the conversion of the Companys preferred
stock into 19,907,605 shares of common stock upon completion of the Companys initial public
offering, there is a lack of comparability in the per share amounts
between the 2006 and 2007 periods presented. Please see Note 3
for further discussion.  2




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CADENCE PHARMACEUTICALS, INC.
(a development stage company)
 
 CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
 Period fromMay 26, 2004Nine Months Ended
    
    
    (Inception) throughSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007Operating activitiesNet loss
    
    $
    (37,480,722
    )
    
    $
    (43,222,726
    )
    
    $
    (100,196,512
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation
    
    
    384,434
    
    
    
    76,195
    
    
    
    651,380Loss on disposal of assets
    
    
    
    
    
    
    39,929
    
    
    
    37,035Stock-based compensation
    
    
    3,065,243
    
    
    
    1,470,138
    
    
    
    5,201,012Non-cash interest expense and impairment charges
    
    
    74,997
    
    
    
    41,665
    
    
    
    394,660Changes in operating assets and liabilities:Prepaid expenses and other current assets
    
    
    154,902
    
    
    
    (82,484
    )
    
    
    (693,509
    )Accounts payable
    
    
    1,267,415
    
    
    
    2,384,849
    
    
    
    3,070,485Accrued liabilities and other liabilities
    
    
    5,222,163
    
    
    
    4,719,723
    
    
    
    12,862,674Net cash used in operating activities
    
    
    (27,311,568
    )
    
    
    (34,572,711
    )
    
    
    (78,672,775
    )Investing activitiesPurchases of marketable securities
    
    
    
    
    
    
    
    
    
    
    (7,450,000
    )Maturities of marketable securities
    
    
    
    
    
    
    7,000,000
    
    
    
    7,000,000Restricted cash
    
    
    (1,634,000
    )
    
    
    (1,581,130
    )
    
    
    (3,215,130
    )Purchases of property and equipment
    
    
    (1,756,704
    )
    
    
    (1,662,403
    )
    
    
    (4,428,772
    )Net cash (used in) provided by investing activities
    
    
    (3,390,704
    )
    
    
    3,756,467
    
    
    
    (8,093,902
    )Financing activitiesProceeds from issuance of common stock, net
    
    
    3,763
    
    
    
    202,769
    
    
    
    56,959,946Proceeds from sale of preferred stock, net
    
    
    
    
    
    
    53,775,013
    
    
    
    78,933,748Net (payments) borrowings under debt agreements
    
    
    (1,675,920
    )
    
    
    7,000,000
    
    
    
    5,324,080Net cash (used in) provided by financing activities
    
    
    (1,672,157
    )
    
    
    60,977,782
    
    
    
    141,217,774Net (decrease) increase in cash and cash equivalents
    
    
    (32,374,429
    )
    
    
    30,161,538
    
    
    
    54,451,097Cash and cash equivalents at beginning of period
    
    
    86,825,526
    
    
    
    8,025,285
    
    
    
    Cash and cash equivalents at end of period
    
    $
    54,451,097
    
    
    $
    38,186,823
    
    
    $
    54,451,097Supplemental disclosuresIssuance of warrants in connection with loan and security agreement
    
    $
    
    
    
    $
    313,572
    
    
    $
    313,572Assets acquired through lease concessions
    
    $
    
    
    
    $
    1,190,530
    
    
    $
    1,190,530Unrealized gain on investment securities
    
    $
    24,807
    
    
    $
    104,540
    
    
    $
    88,840
  3




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CADENCE PHARMACEUTICALS, INC.
(a development stage company)
 
 NOTES TO CONDENSED FINANCIAL STATEMENTS
 1. The Company and Summary of Significant Accounting Policies
 The Company
 Accounting and Reporting by Development Stage Enterprises
 Basis of Presentation
  Stock-Based Compensation
 Share-Based
Payment,
 4




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Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2007
    
    2006
    
    2007
    
    2006Risk free interest rates
    
    
    4.4
    %
    
    
    4.9
    %
    
    
    4.6
    %
    
    
    5.0
    %Expected life in years
    
    6.1 years
    
    6.0 years
    
    6.0 years
    
    6.1 yearsExpected dividend yield
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %Expected volatility
    
    
    66.0
    %
    
    
    70.0
    %
    
    
    66.0
    %
    
    
    70.0
    %
  Period fromMay 26, 2004Three Months Ended
    
    
    Nine Months Ended
    
    
    (Inception) throughSeptember 30,
    
    
    September 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006
    
    
    2007Research and development
    
    $
    311,665
    
    
    $
    280,077
    
    
    $
    865,930
    
    
    $
    390,416
    
    
    $
    1,427,187Marketing
    
    
    13,131
    
    
    
    766
    
    
    
    19,677
    
    
    
    850
    
    
    
    20,848General and administrative
    
    
    884,009
    
    
    
    502,434
    
    
    
    2,179,636
    
    
    
    1,078,872
    
    
    
    3,752,977Stock-based compensation expense
included in operating expenses
    
    
    1,208,805
    
    
    
    783,277
    
    
    
    3,065,243
    
    
    
    1,470,138
    
    
    
    5,201,012Total stock-based compensation expense
included in loss from operations
    
    $
    1,208,805
    
    
    $
    783,277
    
    
    $
    3,065,243
    
    
    $
    1,470,138
    
    
    $
    5,201,012
 2. Recent Accounting Pronouncements
 Accounting for Nonrefundable Advance Payments
for Goods or Services to Be Used in Future Research and Development Activities
 Fair Value Measurement
 5




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3. Net Loss Per Share
    Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2007
    
    2006
    
    2007
    
    2006Shares for basic and dilutive net loss per share:Weighted average common shares outstanding
    
    
    29,107,420
    
    
    
    2,166,576
    
    
    
    29,105,989
    
    
    
    2,027,432Weighted average unvested common shares
subject to repurchase
    
    
    (469,464
    )
    
    
    (870,769
    )
    
    
    (575,680
    )
    
    
    (766,304
    )Denominator for basic and diluted earnings per
share
    
    
    28,637,956
    
    
    
    1,295,807
    
    
    
    28,530,309
    
    
    
    1,261,128
  4. Comprehensive Loss
 Reporting Comprehensive Income,
 6




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Period fromMay 26, 2004Three Months Ended
    
    
    Nine Months Ended
    
    
    (Inception) throughSeptember 30,
    
    
    September 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006
    
    
    2007Net loss
    
    $
    (12,986,435
    )
    
    $
    (7,782,841
    )
    
    $
    (37,480,722
    )
    
    $
    (43,222,726
    )
    
    $
    (100,196,512
    )Other comprehensive income:Net unrealized (loss) gain
on available
for sale investments
    
    
    66,019
    
    
    
    104,540
    
    
    
    24,807
    
    
    
    104,540
    
    
    
    88,840Comprehensive loss
    
    $
    (12,920,416
    )
    
    $
    (7,678,301
    )
    
    $
    (37,455,915
    )
    
    $
    (43,118,186
    )
    
    $
    (100,107,672
    )
 5. Property and Equipment
  September 30,
    
    
    December 31,2007
    
    
    2006Leasehold improvements
    
    $
    1,580,336
    
    
    $
    1,572,690Computer equipment and software
    
    
    518,007
    
    
    
    373,502Furniture and fixtures
    
    
    418,366
    
    
    
    399,480Manufacturing equipment
    
    
    123,302
    
    
    
    122,500Construction in-process
    
    
    2,902,717
    
    
    
    1,317,8525,542,728
    
    
    
    3,786,024Less accumulated depreciation
    
    
    (611,840
    )
    
    
    (227,406
    )Total
    
    $
    4,930,888
    
    
    $
    3,558,618
  6. Commitments and Contingencies
 Loan and Security Agreement
   7




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Warrants
  Facility Leases
   Supply
Agreement
    8




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##### Table of Contents



7. Stockholders Equity
 Preferred Stock Issuances
  Initial Public Offering
  8. Income Taxes
 Accounting for Income
Tax Uncertainties
   9




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




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Revenues
  Research and Development Expenses
    11




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Period fromMay 26, 2004Three Months Ended
    
    
    Nine Months Ended
    
    
    (Inception) throughSeptember 30,
    
    
    September 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006
    
    
    2007Acetavance
    
    $
    4,382
    
    
    $
    207
    
    
    $
    11,442
    
    
    $
    25,905
    
    
    $
    39,494Omigard
    
    
    4,273
    
    
    
    4,008
    
    
    
    14,473
    
    
    
    10,246
    
    
    
    35,269Other supporting costs
    
    
    1,698
    
    
    
    2,173
    
    
    
    5,435
    
    
    
    3,901
    
    
    
    12,423$
    10,353
    
    
    $
    6,388
    
    
    $
    31,350
    
    
    $
    40,052
    
    
    $
    87,186
   Marketing
  General and Administrative
  Interest and Other Income
  12




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Income Taxes
  Critical Accounting Policies and Estimates
   Research and Development Expenses
  Stock-Based Compensation
 Share-Based Payment Accounting for Stock-Based
Compensation Accounting for
Stock Issued to Employees.
 13




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Period fromMay 26, 2004Three Months Ended
    
    
    Nine Months Ended
    
    
    (Inception) throughSeptember 30,
    
    
    September 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006
    
    
    2007Research and development
    
    $
    311,665
    
    
    $
    280,077
    
    
    $
    865,930
    
    
    $
    390,416
    
    
    $
    1,427,187Marketing
    
    
    13,131
    
    
    
    766
    
    
    
    19,677
    
    
    
    850
    
    
    
    20,848General and administrative
    
    
    884,009
    
    
    
    502,434
    
    
    
    2,179,636
    
    
    
    1,078,872
    
    
    
    3,752,977Stock-based compensation
expense
included in
operating expenses
    
    
    1,208,805
    
    
    
    783,277
    
    
    
    3,065,243
    
    
    
    1,470,138
    
    
    
    5,201,012Total stock-based
compensation expense
included in loss from
operations
    
    $
    1,208,805
    
    
    $
    783,277
    
    
    $
    3,065,243
    
    
    $
    1,470,138
    
    
    $
    5,201,012
  Results of Operations
 Three-Month Periods Ended September 30, 2007 and 2006
 Operating expenses
 Research and Development Expenses.
 Marketing Expenses.
 General and Administrative Expenses.
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Interest Income.
 Interest Expense.
 Nine-Month Periods Ended September 30, 2007 and 2006
 Operating expenses
 Research and Development Expenses.
 
    
    an increase of $10.8 million in our Acetavance program, primarily as a result of costs
related to the initiation of our clinical development program and pre-commercialization
manufacturing development activities;
    
    an increase of $4.2 million in our Omigard program as a result of costs related to our
Phase III clinical trial of this product candidate due to higher enrollment rates and
pre-commercialization manufacturing development activities; and
    
    an increase of $1.5 million in other supporting costs as a result of increased salaries
and related personnel costs (including an increase of $1.1 million in stock-based
compensation charges) from the planned addition of research and development staff hired to
support our clinical and regulatory efforts related to both Omigard and Acetavance.
 Marketing Expenses.
 General and Administrative Expenses.
 Interest Income.
 15




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Interest Expense.
 Liquidity and Capital Resources
     Sources of Liquidity
  
    
    from July 2004 to December 2006 (excluding our initial public offering), we issued and
sold a total of 2,285,115 shares of common stock for aggregate net proceeds of $0.8 million;
    
    from July 2004 to August 2004, we issued and sold a total of 8,085,108 shares of
Series A-1 preferred stock for aggregate net proceeds of $7.5 million;
    
    from June 2005 to September 2005, we issued and sold a total of 17,675,347 shares of
Series A-2 preferred stock for aggregate net proceeds of $17.6 million;
    
    in March 2006, we issued and sold a total of 53,870,000 shares of Series A-3 preferred
stock for aggregate net proceeds of $53.9 million; and
    
    in the fourth quarter of 2006, we completed our initial public offering in which we
issued and sold a total of 6,900,000 shares of our common stock for aggregate net proceeds
of $55.9 million.
 16




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Capital Resources
   
    
    the progress of our clinical trials, including expenses to support the trials and
milestone payments that may become payable to BMS or Migenix;
    
    our ability to establish and maintain strategic collaborations, including licensing and
other arrangements;
    
    the costs and timing of regulatory approvals;
    
    the costs involved in enforcing or defending patent claims or other intellectual property
rights;
    
    the costs of establishing manufacturing, sales or distribution capabilities;
    
    the success of the commercialization of our products; and
    
    the extent to which we may in-license, acquire or invest in other indications, products,
technologies and businesses.
 17




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Recent Accounting Pronouncements
  Caution on Forward-Looking Statements
  18




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Item 3. Qualitative and Quantitative Disclosures about Market Risk
 Cash and Cash Equivalents
  Debt
  
 Item 4T. Controls and Procedures
  Evaluation of disclosure controls and procedures.
 Changes in internal control over financial reporting.
 19




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PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
 Certain factors may have a material adverse effect on our business, financial condition and
results of operations, and you should carefully consider them. Accordingly, in evaluating our
business, we encourage you to consider the following discussion of risk factors, which has been
updated since the filing of our Annual Report on Form 10-K for the year ended December 31, 2006, in
its entirety, in addition to other information contained in this report as well as our other public
filings with the Securities and Exchange Commission.
 In the near-term, the success of our business will depend on many factors, including the
following risks:
 
    
    we are largely dependent on the success of our only two product candidates, Acetavance
and Omigard, and we cannot be certain that our ongoing and planned clinical development
programs will be sufficient to support new drug applications, or NDAs, or that either
product candidate will receive regulatory approval or be successfully commercialized;
    
    delays in the commencement, enrollment or completion of clinical testing for either of
our product candidates, or significant issues regarding the adequacy of our clinical trial
designs or the execution of our clinical trials, could result in increased costs to us and
delay or limit our ability to obtain regulatory approval;
    
    even if our product candidates are approved by regulatory authorities, we expect intense
competition in the hospital marketplace for our targeted indications;
    
    delays or quality issues with respect to the completion of required pre-commercialization
manufacturing development activities for our product candidates, could result in increased
costs to us and delay or limit our clinical trials and our ability to obtain regulatory
approval;
    
    the patent rights that we have in-licensed covering Acetavance are limited to a specific
intravenous formulation of acetaminophen, and our market opportunity for this product
candidate may be limited by the lack of patent protection for the active ingredient itself
and other formulations that may be developed by competitors;
    
    we will require substantial additional funding and may be unable to raise capital when
needed, which would force us to delay, reduce or eliminate our development programs and
commercialization efforts; and
    
    our ability to maintain patent protection for our products and to commercialize our
products without infringing the patent rights of others.
 Each of these factors, as well as other factors that may impact our business, are described in
more detail in the following discussion. Although the factors highlighted above are among the most
significant, any of the following factors could materially adversely affect our business or cause
our actual results to differ materially from those contained in forward-looking statements we have
made in this report and those we may make from time to time, and you should consider all of the
factors described when evaluating our business.
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Risks Related to Our Business and Industry
 We are largely dependent on the success of our two product candidates, Acetavance and Omigard, and
we cannot be certain that either of these product candidates will receive regulatory approval or
be successfully commercialized.
   tm
  If clinical trials of our current or future product candidates do not produce results necessary to
support regulatory approval in the U.S. or elsewhere, we will be unable to commercialize these
products.
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Because the results of earlier clinical trials are not necessarily predictive of future results,
Acetavance, Omigard or any other product candidate we advance into clinical trials may not have
favorable results in later clinical trials or receive regulatory approval.
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Delays in the commencement or completion of clinical trials, or significant issues regarding the
adequacy of our clinical trial designs or the execution of our clinical trials, could result in
increased costs to us and delay or limit our ability to obtain regulatory approval for our product
candidates.
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
    
    reaching agreements on acceptable terms with prospective clinical research organizations,
or CROs, and trial sites, the terms of which can be subject to extensive negotiation and may
vary significantly among different CROs and trial sites;
    
    obtaining regulatory approval to commence or amend a clinical trial;
    
    obtaining institutional review board approval to commence or amend a clinical trial at a
prospective site;
    
    recruiting and enrolling patients to participate in clinical trials for a variety of
reasons, including competition from other clinical trial programs for the same indication as
our product candidates; and
    
    retaining patients who have initiated a clinical trial but who may be prone to withdraw
due to the treatment protocol, lack of efficacy, personal issues, side effects from the
therapy or who are lost to further follow-up.
  
    
    failure to conduct the clinical trial in accordance with regulatory requirements or our
clinical protocols;
    
    inspections of our own clinical trial operations, the operations of our CROs, or our
clinical trial sites by the FDA or other regulatory authorities, which may result in the
imposition of a clinical hold or, potentially, prevent us from using some of the data
generated from our clinical trials to support requests for regulatory approval of our
product candidates;
    
    new information suggesting unacceptable risk to subjects, or unforeseen safety issues or
any determination that a trial presents unacceptable health risks;
    
    new information suggesting that the target condition occurs too infrequently for the
product candidate to demonstrate efficacy; or
    
    lack of adequate funding to continue the clinical trial, including the incurrence of
unforeseen costs due to enrollment delays, requirements to conduct additional trials and
studies and increased expenses associated with the services of our CROs and other third
parties.
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We expect intense competition in the territories in which we have rights to our product
candidates, and new products may emerge that provide different or better therapeutic alternatives
for our targeted indications.
     
    
    capital resources;
    
    development resources, including personnel and technology;
    
    clinical trial experience;
    
    regulatory experience;
    
    expertise in prosecution of intellectual property rights; and
    
    manufacturing, distribution and sales and marketing experience.
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If any of our product candidates for which we receive regulatory approval do not achieve broad
market acceptance, the revenues that we generate from their sales will be limited.
  
    
    limitations or warnings contained in a products FDA-approved labeling, including
potential limitations or warnings for Acetavance that may be more restrictive than oral
formulations of acetaminophen;
    
    changes in the standard of care for the targeted indications for either of our product
candidates could reduce the marketing impact of any superiority claims that we could make
following FDA approval;
    
    limitations inherent in the approved indication for either of our product candidates
compared to more commonly-understood or addressed conditions, including, in the case for
Omigard, the ability to promote Omigard to hospitals and physicians who may be more focused
on an indication specifically for the prevention of CRBSIs compared to the prevention of
LCSIs, the primary endpoint in our ongoing Phase III clinical trial; and
    
    potential advantages over, and availability of, alternative treatments, including, in the
case of Acetavance, a number of products already used to treat acute pain in the hospital
setting, and in the case for Omigard, a number of competitive topical products as well as a
device that has been approved for wound dressing and prevention of catheter-related
infections.
  The decreasing use of the comparator product in our clinical trial of Omigard and improvements in
hospital infection control practices that lower catheter infection rates may limit our ability to
complete the trial in a timely manner and hinder the competitive profile of this product
candidate.
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Even if our product candidates receive regulatory approval, they may still face future development
and regulatory difficulties.
   
    
    issue warning letters or untitled letters;
    
    require us to enter into a consent decree, which can include imposition of various fines,
reimbursements for inspection costs, required due dates for specific actions and penalties
for noncompliance;
    
    impose other civil or criminal penalties;
    
    suspend regulatory approval;
    
    suspend any ongoing clinical trials;
    
    refuse to approve pending applications or supplements to approved applications filed by
us;
    
    impose restrictions on operations, including costly new manufacturing requirements; or
    
    seize or detain products or require a product recall.
 Even if our product candidates receive regulatory approval in the U.S., we may never receive
approval or commercialize our products outside of the U.S.
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We have never marketed a drug before, and if we are unable to establish an effective sales and
marketing infrastructure, we will not be able to successfully commercialize our product
candidates.
  We will need to obtain FDA approval of our proposed product names, Acetavance and Omigard, and
any failure or delay associated with such approval may adversely impact our business.
  Our product candidates may have undesirable side effects that could delay or prevent their
regulatory approval or commercialization.
   
    
    regulatory authorities may require the addition of labeling statements, specific warnings
or a contraindication;
    
    regulatory authorities may suspend or withdraw their approval of the product, or require
it to be removed from the market;
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
    
    we may be required to change the way the product is administered, conduct additional
clinical trials or change the labeling of the product; and
    
    our reputation may suffer.
  If the government or third-party payors fail to provide coverage and adequate coverage and payment
rates for our future products, if any, or if hospitals choose to use therapies that are less
expensive, our revenue and prospects for profitability will be limited.
   If we breach any of the agreements under which we license rights to our product candidates from
others, we could lose the ability to continue the development and commercialization of our product
candidates.
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If BMS breaches the underlying agreement under which we sublicense the rights to our Acetavance
product candidate, we could lose the ability to develop and commercialize Acetavance.
  We rely on third parties to conduct our clinical trials, including our ongoing Phase III clinical
program for Acetavance and our ongoing Phase III clinical trial of Omigard. If these third parties
do not successfully carry out their contractual duties or meet expected deadlines, we may not be
able to obtain regulatory approval for or commercialize our product candidates on our anticipated
timeline or at all.
  If the manufacturers upon whom we rely fail to complete required pre-commercialization
manufacturing development activities on time, we may face delays in the development of, or in
obtaining regulatory approvals for, our product candidates, which would result in increased costs
and the loss of potential revenues.
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If the manufacturers upon whom we rely terminate our supply agreements or fail to produce our
product candidates in the volumes we require on a timely basis, or to comply with stringent
regulations applicable to pharmaceutical manufacturers, we may face delays in the development and
commercialization of, or be unable to meet demand for, our product candidates and may lose
potential revenues.
    Our future growth depends on our ability to identify and acquire or in-license products and if we
do not successfully identify and acquire or in-license related product candidates or integrate
them into our operations, we may have limited growth opportunities.
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
    
    exposure to unknown liabilities;
    
    disruption of our business and diversion of our managements time and attention to
develop acquired products or technologies;
    
    incurrence of substantial debt or dilutive issuances of securities to pay for
acquisitions;
    
    higher than expected acquisition and integration costs;
    
    increased amortization expenses;
    
    difficulty and cost in combining the operations and personnel of any acquired businesses
with our operations and personnel;
    
    impairment of relationships with key suppliers or customers of any acquired businesses
due to changes in management and ownership; and
    
    inability to retain key employees of any acquired businesses.
  We will need to increase the size of our organization, and we may experience difficulties in
managing growth.
  
    
    manage our clinical trials effectively, including our ongoing Phase III clinical program
for Acetavance, which will be conducted at numerous clinical trial sites in the U.S., and
our ongoing Phase III clinical trial of Omigard, which is being conducted at numerous
clinical sites in the U.S. and Europe;
    
    manage our internal development efforts effectively while carrying out our contractual
obligations to licensors and other third parties; and
    
    continue to improve our operational, financial and management controls, reporting systems
and procedures.
  We may not be able to manage our business effectively if we are unable to attract and retain key
personnel.
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We face potential product liability exposure, and if successful claims are brought against us, we
may incur substantial liability for a product candidate and may have to limit its
commercialization.
  
    
    withdrawal of clinical trial participants;
    
    termination of clinical trial sites or entire trial programs;
    
    decreased demand for our product candidates;
    
    impairment of our business reputation;
    
    costs of related litigation;
    
    substantial monetary awards to patients or other claimants;
    
    loss of revenues; and
    
    the inability to commercialize our product candidates.
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Recent proposed legislation may permit re-importation of drugs from foreign countries into the
U.S., including foreign countries where the drugs are sold at lower prices than in the U.S.,
which could materially adversely affect our operating results and our overall financial condition.
  Our business involves the use of hazardous materials and we and our third-party manufacturers must
comply with environmental laws and regulations, which can be expensive and restrict how we do
business.
  Our business and operations would suffer in the event of system failures.
  Risks Related to Intellectual Property
 The patent rights that we have in-licensed covering Acetavance are limited to a specific
intravenous formulation of acetaminophen, and our market opportunity for this product candidate
may be limited by the lack of patent protection for the active ingredient itself and other
formulations that may be developed by competitors.
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The patent rights that we have in-licensed covering Omigard are limited in scope and limited to
specific territories.
   We depend on our licensors for the maintenance and enforcement of our intellectual property and
have limited control, if any, over the amount or timing of resources that our licensors devote on
our behalf.
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Because it is difficult and costly to protect our proprietary rights, we may not be able to ensure
their protection.
    
    
    our licensors might not have been the first to make the inventions covered by each of our
pending patent applications and issued patents;
    
    our licensors might not have been the first to file patent applications for these
inventions;
    
    others may independently develop similar or alternative technologies or duplicate any of
our product candidates or technologies;
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
    
    it is possible that none of the pending patent applications licensed to us will result in
issued patents;
    
    the issued patents covering our product candidates may not provide a basis for
commercially viable active products, may not provide us with any competitive advantages, or
may be challenged by third parties;
    
    we may not develop additional proprietary technologies that are patentable; or
    
    patents of others may have an adverse effect on our business.
     If we are sued for infringing intellectual property rights of third parties, it will be costly and
time consuming, and an unfavorable outcome in any litigation would harm our business.
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
    
    infringement and other intellectual property claims which, with or without merit, can be
expensive and time consuming to litigate and can divert managements attention from our core
business;
    
    substantial damages for past infringement which we may have to pay if a court decides
that our product infringes on a competitors patent;
    
    a court prohibiting us from selling or licensing our product unless the patent holder
licenses the patent to us, which it is not required to do;
    
    if a license is available from a patent holder, we may have to pay substantial royalties
or grant cross licenses to our patents; and
    
    redesigning our processes so they do not infringe, which may not be possible or could
require substantial funds and time.
 We may be subject to claims that our employees have wrongfully used or disclosed alleged trade
secrets of their former employers.
  Risks Related to Our Finances and Capital Requirements
 We have incurred significant operating losses since our inception and anticipate that we will
incur continued losses for the foreseeable future.
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We currently have no source of revenue and may never be profitable.
  
    
    successfully complete our ongoing and future clinical trials for Acetavance and Omigard;
    
    obtain regulatory approval for either of our two product candidates or any other product
candidate that we may in-license or acquire;
    
    assuming these regulatory approvals are received, manufacture commercial quantities of
our product candidates at acceptable cost levels; and
    
    successfully market and sell any approved products.
  Our short operating history makes it difficult to evaluate our business and prospects.
  We will need additional funding and may be unable to raise capital when needed, which would force
us to delay, reduce or eliminate our product development programs or commercialization efforts.
  
    
    fund our operations and continue to conduct adequate and well-controlled clinical trials
to provide clinical data to support regulatory approval of marketing applications;
    
    continue our development activities;
    
    qualify and outsource the commercial-scale manufacturing of our products under cGMP; and
    
    commercialize Acetavance, Omigard or any other product candidates that we may in-license
or acquire, if any of these product candidates receive regulatory approval.
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
    
    the rate of progress and cost of our clinical trials and other product development
programs for Acetavance, Omigard and any other product candidates that we may in-license or
acquire;
    
    the costs of filing, prosecuting, defending and enforcing any patent claims and other
intellectual property rights associated with our product candidates;
    
    the cost and timing of completion of an outsourced commercial manufacturing supply for
each product candidate;
    
    the costs and timing of regulatory approval;
    
    the costs of establishing sales, marketing and distribution capabilities;
    
    the effect of competing technological and market developments; and
    
    the terms and timing of any collaborative, licensing, co-promotion or other arrangements
that we may establish.
   Our quarterly operating results may fluctuate significantly.
  
    
    the timing of milestone payments required under our license agreements for Acetavance and
Omigard;
    
    our execution of other collaborative, licensing or similar arrangements, and the timing
of payments we may make or receive under these arrangements;
    
    our addition or termination of clinical trials or funding support;
    
    variations in the level of expenses related to our two existing product candidates or
future development programs;
    
    any intellectual property infringement lawsuit in which we may become involved;
    
    regulatory developments affecting our product candidates or those of our competitors; and
    
    if either of our product candidates receives regulatory approval, the level of underlying
hospital demand for our product candidates and wholesalers buying patterns.
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Raising additional funds by issuing securities may cause dilution to existing stockholders and
raising funds through lending and licensing arrangements may restrict our operations or require us
to relinquish proprietary rights.
  We will continue to incur significant increased costs as a result of operating as a public
company, and our management will be required to devote substantial time to new compliance
initiatives.
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Risks Relating to Securities Markets and Investment in Our Stock
 There may not be a viable public market for our common stock.
  Future sales of our common stock may cause our stock price to decline.
   We expect that the price of our common stock will fluctuate substantially.
  
    
    the results from our clinical trial programs, including our ongoing Phase III clinical
program for Acetavance and our ongoing Phase III clinical trial of Omigard;
    
    the results of clinical trial programs for Acetavance and Omigard being performed by
others;
    
    FDA or international regulatory actions, including failure to receive regulatory approval
for any of our product candidates;
    
    failure of any of our product candidates, if approved, to achieve commercial success;
    
    announcements of the introduction of new products by us or our competitors;
    
    market conditions in the pharmaceutical and biotechnology sectors;
    
    developments concerning product development results or intellectual property rights of
others;
    
    litigation or public concern about the safety of our potential products;
    
    actual and anticipated fluctuations in our quarterly operating results;
    
    deviations in our operating results from the estimates of securities analysts or other
analyst comments;
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
    
    additions or departures of key personnel;
    
    third-party coverage and reimbursement policies;
    
    developments concerning current or future strategic collaborations; and
    
    discussion of us or our stock price by the financial and scientific press and in online
investor communities.
  Our executive officers and directors and their affiliates may exercise control over stockholder
voting matters in a manner that may not be in the best interests of all of our stockholders.
  Anti-takeover provisions under our charter documents and Delaware law could delay or prevent a
change of control which could limit the market price of our common stock and may prevent or
frustrate attempts by our stockholders to replace or remove our current management.
  
    
    a board of directors divided into three classes serving staggered three-year terms, such
that not all members of the board will be elected at one time;
    
    a prohibition on stockholder action through written consent;
    
    a requirement that special meetings of stockholders be called only by the chairman of the
board of directors, the chief executive officer, the president or by a majority of the total
number of authorized directors;
    
    advance notice requirements for stockholder proposals and nominations;
    
    a requirement of approval of not less than 66 2/3% of all outstanding shares of our
capital stock entitled to vote to amend any bylaws by stockholder action, or to amend
specific provisions of our certificate of incorporation; and
    
    the authority of the board of directors to issue preferred stock on terms determined by
the board of directors without stockholder approval.
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We have never paid dividends on our capital stock, and we do not anticipate paying any cash
dividends in the foreseeable future.
  We may become involved in securities class action litigation that could divert managements
attention and harm our business.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 Recent Sales of Unregistered Securities
  Use of Proceeds
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Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  
 Item 6. Exhibits
 3.1(1)
    
    Amended and Restated Certificate of Incorporation of the Registrant3.2(1)
    
    Amended and Restated Bylaws of the Registrant4.1(1)
    
    Form of the Registrants Common Stock Certificate4.2(2)
    
    Amended and Restated Investor Rights Agreement dated February 21, 200610.18±
    
    Form of Amended and Restated Employment Agreement10.19±
    
    Amended and Restated Director Compensation Policy31.1±
    
    Certification of Chief Executive Officer pursuant to Rule 13a  14(a)
and 15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 200231.2±
    
    Certification of Chief Financial Officer pursuant to Rule 13a  14(a)
and 15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 200232±
    
    Certification of Chief Executive Officer and Chief Financial Officer
pursuant to 18.U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes Oxley Act of 2002
 
 (1)
    
    Incorporated herein by reference to the corresponding exhibit to the Registrants
Quarterly Report on Form 10-Q (File No. 001-33103) for the period ended September 30, 2006
as filed with the SEC on November 30, 2006.(2)
    
    Incorporated herein by reference to the corresponding exhibit to the Registrants
Registration Statement on Form S-1 (File No. 333-135821) as filed with the SEC on July 17,
2006.±
    
    Included in this Report. 45




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SIGNATURES
  CADENCE PHARMACEUTICALS, INC.Dated: November 14, 2007
    
    By:
    
    /s/ William R. LaRueWilliam R. LaRueSenior Vice President, Chief Financial Officer,Treasurer and Assistant Secretary(Principal Financial and Accounting Officer)
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INDEX TO EXHIBITS
 ExhibitNumber
    
    Description of Exhibit3.1(1)
    
    Amended and Restated Certificate of Incorporation of the Registrant3.2(1)
    
    Amended and Restated Bylaws of the Registrant4.1(1)
    
    Form of the Registrants Common Stock Certificate4.2(2)
    
    Amended and Restated Investor Rights Agreement dated February 21, 200610.18±
    
    Form of Amended and Restated Employment Agreement10.19±
    
    Amended and Restated Director Compensation Policy31.1±
    
    Certification of Chief Executive Officer pursuant to Rule 13a  14(a)
and 15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 200231.2±
    
    Certification of Chief Financial Officer pursuant to Rule 13a  14(a)
and 15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 200232±
    
    Certification of Chief Executive Officer and Chief Financial Officer
pursuant to 18.U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes Oxley Act of 2002
 
 (1)
    
    Incorporated herein by reference to the corresponding exhibit to the Registrants
Quarterly Report on Form 10-Q (File No. 001-33103) for the period ended September 30, 2006
as filed with the SEC on November 30, 2006.(2)
    
    Incorporated herein by reference to the corresponding exhibit to the Registrants
Registration Statement on Form S-1 (File No. 333-135821) as filed with the SEC on July 17,
2006.±
    
    Included in this Report.