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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 FOR QUARTERLY PERIOD ENDED MARCH 31, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 Commission File Number: 0-20117
 ENCYSIVE PHARMACEUTICALS INC.
 
  Delaware
    
    13-3532643(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 4848 Loop Central Drive, Suite 700, Houston, Texas
    
    77081(Address of principal executive office)
    
    (Zip code)
  
   
   X
  X
  X
  Class
    
    Outstanding at April 30, 2007Common stock, $0.005 par value
    
    70,158,934




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##### 



ENCYSIVE PHARMACEUTICALS INC.
 TABLE OF CONTENTS
  
 PAGE NO.Part I.
    
    Financial InformationItem 1:
    
    Financial Statements (Unaudited)Consolidated Balance Sheets as of March 31, 2007 and December 31, 2006
    
    
    1Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2007 and 2006
    
    
    2Consolidated Statements of Cash Flows for the three months ended March 31, 2007 and 2006
    
    
    3Notes to Consolidated Financial Statements
    
    
    4Item 2:
    
    Management's Discussion And Analysis Of Financial Condition And Results Of Operations
    
    
    14Item 3:
    
    Quantitative And Qualitative Disclosures About Market Risk
    
    
    23Item 4:
    
    Controls And Procedures
    
    
    24Part II.
    
    Other InformationItem 1:
    
    Legal Proceedings
    
    
    24Item 1A:
    
    Risk Factors
    
    
    25Item 2:
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    30Item 3:
    
    Defaults Upon Senior Securities
    
    
    30Item 4:
    
    Submission Of Matters To A Vote Of Security Holders
    
    
    30Item 5:
    
    Other Information
    
    
    30Item 6:
    
    Exhibits
    
    
    31SIGNATURES
    
    
    
    
    32Certification of CEO Pursuant to Rule 13a-14(a)/15d-14(a)Certification of CFO Pursuant to Rule 13a-14(a)/15d-14(a)Certification Pursuant to 18 U.S.C. Section 1350Certification Pursuant to 18 U.S.C. Section 1350




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ENCYSIVE PHARMACEUTICALS INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 ($ in thousands, except per share data)
 (Unaudited)
 March 31,
    
    
    December 31,2007
    
    
    2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    52,689
    
    
    $
    43,798Restricted cash
    
    
    10,197
    
    
    
    Accounts receivable
    
    
    5,156
    
    
    
    5,211Other current receivables, net of
reserve of $0 and $65
    
    
    579
    
    
    
    141Inventory, net of reserve of $625 and $496
    
    
    2,715
    
    
    
    2,343Prepaids
    
    
    2,681
    
    
    
    1,926Total current assets
    
    
    74,017
    
    
    
    53,419Equipment and leasehold improvements, net
    
    
    5,854
    
    
    
    5,976Deferred debt origination costs, net of
accumulated amortization of $1,421 and $1,202
    
    
    6,656
    
    
    
    3,461Intangible assets, net of accumulated
amortization of $711 and $685
    
    
    255
    
    
    
    281Total assets
    
    $
    86,782
    
    
    $
    63,137LIABILITIES AND STOCKHOLDERS DEFICITCurrent liabilities:Accounts payable
    
    $
    4,004
    
    
    $
    3,435Accrued expenses
    
    
    17,300
    
    
    
    22,133Deferred revenue
    
    
    964
    
    
    
    1,286Total current liabilities
    
    
    22,268
    
    
    
    26,854Long-term debt
    
    
    186,532
    
    
    
    130,000Commitments and contingencies
    
    
    
    
    
    
    Stockholders deficit:Preferred
stock, par value $.005 per share. 5,000,000 Shares authorized; none issued or outstanding
    
    
    
    
    
    
    Common stock, par value $.005 per share.
150,000,000 shares authorized. At March 31, 2007,
64,417,756 shares issued, 64,204,756 outstanding;
at December 31, 2006, 62,660,802 shares issued,
62,447,802 shares outstanding
    
    
    322
    
    
    
    313Additional paid-in capital
    
    
    331,408
    
    
    
    329,817Treasury stock, 213,000 shares at March 31, 2007
and December 31, 2006
    
    
    (1,602
    )
    
    
    (1,602
    )Accumulated other comprehensive income
    
    
    40
    
    
    
    33Accumulated deficit
    
    
    (452,186
    )
    
    
    (422,278
    )Total stockholders deficit
    
    
    (122,018
    )
    
    
    (93,717
    )Total liabilities and stockholders deficit
    
    $
    86,782
    
    
    $
    63,137
 See accompanying notes to consolidated financial statements
 1




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ENCYSIVE PHARMACEUTICALS INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 AND COMPREHENSIVE LOSS
 ($ in thousands, except per share data)
 (Unaudited)
 Three Months Ended March 31,2007
    
    
    2006Revenues:Sales
    
    $
    941
    
    
    $
    Royalty income
    
    
    4,145
    
    
    
    3,239License fees and milestones
    
    
    322
    
    
    
    322Total revenues
    
    
    5,408
    
    
    
    3,561Expenses:Cost of goods sold
    
    
    66
    
    
    
    Research and development
    
    
    17,499
    
    
    
    18,379Sales and marketing
    
    
    10,886
    
    
    
    9,836General and administrative
    
    
    5,616
    
    
    
    5,742Total expenses
    
    
    34,067
    
    
    
    33,957Operating loss
    
    
    (28,659
    )
    
    
    (30,396
    )Investment income
    
    
    795
    
    
    
    1,299Interest expense
    
    
    (2,044
    )
    
    
    (980
    )Loss before cumulative effect of change
in accounting principle
    
    $
    (29,908
    )
    
    $
    (30,077
    )Cumulative effect of change in accounting principle
    
    
    
    
    
    
    107Net loss applicable to common shares
    
    $
    (29,908
    )
    
    $
    (29,970
    )Other comprehensive income:Unrealized gain on foreign currency translation
    
    
    7
    
    
    
    Comprehensive loss
    
    $
    (29,901
    )
    
    $
    (29,970
    )Loss per share:Net loss per share, basic and diluted
    
    $
    (0.49
    )
    
    $
    (0.51
    )Weighted average common shares used to compute
Net loss per share basic and diluted
    
    
    61,643,847
    
    
    
    58,270,138
 See accompanying notes to consolidated financial statements
 2




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ENCYSIVE PHARMACEUTICALS INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 ($ in thousands)
 (Unaudited)
 Three Months Ended March 31,2007
    
    
    2006Cash flows from operating activities:Net loss
    
    $
    (29,908
    )
    
    $
    (29,970
    )Adjustments to reconcile net loss to cash used
in operating activities:Depreciation and amortization
    
    
    265
    
    
    
    188Expenses paid with stock
    
    
    43
    
    
    
    50Share-based compensation expense
    
    
    1,553
    
    
    
    2,087Amortization of debt issue costs
    
    
    218
    
    
    
    164Interest earned on restricted cash
    
    
    (72
    )
    
    
    Loss on disposition of fixed assets
    
    
    4
    
    
    
    28Changes in operating assets and liabilities:Accounts receivable
    
    
    62
    
    
    
    2,007Inventory
    
    
    (372
    )
    
    
    (348
    )Prepaids
    
    
    (754
    )
    
    
    (631
    )Other current receivables
    
    
    (435
    )
    
    
    74Accounts payable and accrued expenses
    
    
    (4,273
    )
    
    
    246Deferred revenue
    
    
    (322
    )
    
    
    (322
    )Net cash used in operating activities
    
    
    (33,991
    )
    
    
    (26,427
    )Cash flows from investing activities:Purchases of equipment and leasehold improvements
    
    
    (119
    )
    
    
    (1,376
    )Net cash used in investing activities
investing activities
    
    
    (119
    )
    
    
    (1,376
    )Cash flows from financing activities:Borrowing of long-term debt
    
    
    60,000
    
    
    
    Proceeds restricted
    
    
    (10,000
    )
    
    
    Debt issue costs
    
    
    (3,422
    )
    
    
    Repayment of long-term debt
    
    
    (3,468
    )
    
    
    Proceeds from option exercises
    
    
    4
    
    
    
    419Net cash provided by financing activities
    
    
    43,114
    
    
    
    419Effect of exchange rate changes on cash
    
    
    5
    
    
    
    Net increase (decrease) in cash and cash
equivalents
    
    
    9,009
    
    
    
    (27,384
    )Cash and cash equivalents at beginning of period
    
    
    43,798
    
    
    
    127,913Cash and cash equivalents at end of period
    
    $
    52,807
    
    
    $
    100,529Supplemental schedule of cash flow information:Interest paid
    
    
    2,597
    
    
    
    1,625
 See accompanying notes to consolidated financial statements
 3




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ENCYSIVE PHARMACEUTICALS INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 March 31, 2007 (unaudited)
 (1) Liquidity and Managements Plans
    SM
  (2) Organization and Significant Accounting Policies
 (a) Organization
  4




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(b) Basis of Consolidation
  (c) Revenue Recognition
  (d) Debt issue costs
   5




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(e) Use of Estimates
  f) New Accounting Pronouncements
     6




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(3) Inventory
  (4) Capital Stock
  Stock option plans
    
    
    8,205,5422.50% Convertible Senior Notes due 2012
    
    
    9,322,001Total shares reserved
    
    
    17,527,543
  (5) Cash, Cash Equivalents, and Restricted Cash
   (6) Net Loss per Common Share
  7




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(7) Income Taxes
  (8) Entity-Wide Geographic Data
  Three Months Ended March 31,2007
    
    
    2006Entities:GSK
    
    $
    4,145
    
    
    $
    3,239Others
    
    
    1,263
    
    
    
    322Total
    
    $
    5,408
    
    
    $
    3,561
  Three Months Ended March 31,2007
    
    
    2006Geographical Area:United States
    
    $
    4,467
    
    
    $
    3,561Europe
    
    
    941
    
    
    
    Total
    
    $
    5,408
    
    
    $
    3,561
  March 31,
    
    
    December 31,2007
    
    
    2006Geographical Area:United States
    
    $
    12,563
    
    
    $
    9,499Europe
    
    
    202
    
    
    
    219Total
    
    $
    12,765
    
    
    $
    9,718
 (9) Long-Term Debt
   8




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(10) Share-Based Payment
     9




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10




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Three Months EndedMarch 31,2007
    
    2006Expected dividend yield
    
    
    0.0
    %
    
    
    0.0
    %Risk-free interest rate
    
    
    4.7
    %
    
    
    4.6
    %Expected volatility
    
    
    77.9
    %
    
    
    64.4
    %Expected life in years
    
    
    5.0
    
    
    
    4.0




Weighted
    
    
    Weighted Average
    
    
    AggregateStock
    
    
    Average
    
    
    Remaining
    
    
    Intrinsic ValueOptions
    
    
    Exercise Price
    
    
    Contractual Term
    
    
    (in Thousands)Outstanding
at December 31, 2006
    
    
    5,614,455
    
    
    $
    8.14
    
    
    
    5.70Grants
    
    
    714,532
    
    
    $
    2.995Forfeited or expired
    
    
    (222,206
    )
    
    $
    6.26Exercises
    
    
    (4,166
    )
    
    $
    0.93Outstanding
at March 31, 2007
    
    
    6,102,615
    
    
    $
    7.61
    
    
    
    6.15
    
    
    $
    708Vested and
expected to vest in the future at
March 31, 2007
    
    
    6,060,134
    
    
    $
    7.62
    
    
    
    0.41
    
    
    $
    708Exercisable
at March 31, 2007
    
    
    4,320,615
    
    
    $
    7.89
    
    
    
    5.08
    
    
    $
    708Available for grant at
March 31, 2007
    
    
    2,100,088








Weighted AverageGrant DateShares
    
    
    Fair ValueNonvested at December 31, 2006
    
    
    823,675
    
    
    $
    8.83Activity during quarter ended March 31, 2007
Grants
    
    
    1,762,572
    
    
    $
    3.04Vested
    
    
    (35,783
    )
    
    $
    8.59Forfeited
    
    
    (11,537
    )
    
    $
    9.17Nonvested at March 31, 2007
    
    
    2,538,927
    
    
    $
    4.81 11




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WeightedAveragePhantom
    
    
    Grant DateUnits
    
    
    Fair ValueUnvested at January 1, 2007
    
    
    124,682
    
    
    $
    4.10Grants
    
    
    170,943
    
    
    
    3.00Vested
    
    
    
    
    
    
    Forfeited
    
    
    (10,504
    )
    
    
    4.10Unvested at March 31, 2007
    
    
    285,121
    
    
    $
    3.44
  (11) Accrued expenses
  March 31, 2007
    
    
    December 31, 2006Accrued compensation and benefits
    
    $
    2,816
    
    
    $
    4,498Accrued research and development
costs
    
    
    11,333
    
    
    
    11,498Accrued interest on long-term debt
    
    
    181
    
    
    
    953Accrued sales and marketing costs
    
    
    1,200
    
    
    
    1,676Reserve for future Argatroban returns
    
    
    1,254
    
    
    
    1,149Accrued legal and professional fees
    
    
    209
    
    
    
    231Other accrued expenses
    
    
    307
    
    
    
    2,128Total
    
    $
    17,300
    
    
    $
    22,133
 (12) Commitments and Contingencies
 (a) Litigation
   12




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(b) Foreign Currency Exchange Risk
  (c) Other contingencies
  13




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Item 2.
 ENCYSIVE PHARMACEUTICALS INC. AND SUBSIDIARIES
 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Three Months Ended March 31, 2007, and March 31, 2006
 OVERVIEW
   14




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
  15




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Critical Accounting Policies
 Revenue Recognition
 
    
    We recognize revenue from sales of Thelin when product is shipped and ownership
transfers to the customer. Sales revenue includes value added taxes billed to customers,
and is reported net of applicable discounts, allowances and returns.
    
    We recognize royalty revenue as a licensee sells products and we have received
sufficient information to record a receivable. Our royalty revenue is based on net sales
of product, that is, sales net of discounts, returns and allowances. Argatroban is
licensed to GSK, which distributes and sells the product, and from which we receive a
quarterly royalty payment. At the time of each payment, GSK provides us with limited
quarterly data related to the products gross sales, sales returns, discounts and
allowances. While we are informed of the amount of product returns recorded each quarter,
we do not have information necessary to identify the period or periods to which such
returns correspond. We believe that substantially all discounts and allowances pertain to
current period sales. We also believe that a portion of sales recorded in each period
will ultimately be returned, and therefore estimate future returns and their impact on
royalty revenues. In the pharmaceutical industry, product returns are primarily
influenced by remaining or expired shelf life, product withdrawals or recalls, significant
price changes from competitors or the introduction of generic products or other new
competition. We are not aware of any pending product recalls or withdrawals, significant
price fluctuations or generic or new competition. Accordingly, we have estimated only the
impact of product dating on returns.Since we do not manufacture, sell or distribute Argatroban, we do not have information
related to levels of inventory in the distribution channels. However, due to the cost of
the drug and pressures on hospitals to minimize operating expenditures, we believe
inventory levels are maintained at a minimally acceptable level. Inventory level is
therefore not a part of the Companys estimate process.We have estimated remaining shelf life, which is an important reason for product returns,
based upon the fact that Argatroban has an expiration date of two years from manufacture.
Common industry practice is that prescription drugs can be returned to the manufacturer at
any time; however, product is normally returned when the remaining shelf life is reduced to
six months or less. Our reserve is therefore based upon an estimate of the percentage of
sales made in the preceding 18-month period that may be returned in future periods.
Initially, lacking any historical sales data for Argatroban and based upon managements
experience with other pharmaceutical products in the industry, management estimated that
four percent of gross sales of Argatroban would be returned during future periods. Based
upon subsequent analysis of historical sales data, we believe that differences between
estimated and actual future returns will not have a material effect upon our results of
operations or financial condition.
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
    
    Revenue from collaborative research and development activities is recognized as services
are performed.
    
    We defer the recognition of milestone payments related to contractual agreements that
are still in the development stage. Such deferred revenues are amortized into income over
the estimated remaining development period. Milestone payments received under contractual
agreements which have completed the development stage are evaluated, and either recognized
into income when earned, or amortized over a future period, depending upon whether we
continue to have obligations under the terms of the arrangement.
    
    License fees received under the terms of licensing agreements for our intellectual
property are deferred and amortized into income over the estimated development period of
the licensed item or items.
    
    Revenue from grants is recognized as earned under the terms of the related grant
agreements, typically as expenses are incurred.
  Cost of goods sold
  Stock Options
  Drug Manufacturing and Packaging
  Costs Related to Issue of Long-Term Debt
  18




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Results of Operations
    Three month periods ended March 31, 2007 and 2006
 Sales
   Royalties
  Total Revenues
  Cost of Goods Sold
  19




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Research and Development Expense
  Sales and Marketing Expense
  General and Administrative Expense
  Total Operating Expenses
  Operating Loss
  20




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Interest Expense
  Investment Income
  Cumulative effect of Change in Accounting Principle
  Net Loss
  Liquidity and Capital Resources
  Outlook for 2007
  21




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Cash Used in Operating Activities:
  Cash used in Investing Activities:
  22




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Cash provided by Financing Activities:
  Material
Commitments:
   LessContractual
    
    
    
    
    
    than 1
    
    
    1-3
    
    
    3-5
    
    
    AfterObligations
    
    Total
    
    
    year
    
    
    Years
    
    
    Years
    
    
    5 yearsLong-term debt
    
    $
    186,532
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    186,532Operating leases
    
    
    4,407
    
    
    
    2,060
    
    
    
    2,229
    
    
    
    118
    
    
    
    Total
    
    $
    190,939
    
    
    $
    2,060
    
    
    $
    2,229
    
    
    $
    118
    
    
    $
    186,532
 Off-Balance
Sheet Arrangements:
  Impact of Inflation and Changing Prices
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Foreign Currency Exchange Risk
  23




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Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
    Changes in Internal Controls Over Financial Reporting
  
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
     24




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Item 1A. Risk Factors
 If we are unable to raise additional capital, we will not be able to continue to operate as a going concern.
   We have a history of losses and we may never become profitable.
   25




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If we are unable to raise additional capital, we will be unable to conduct our operations and develop our potential products.
    26




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
    
    We have incurred and will continue to incur significant commercialization-related
expenses for Thelin. These costs include:
 
    
    maintaining a commercial infrastructure in the U.S. and building a commercial
infrastructure in Europe and other key geographic areas;
    
    investing in market launch and market development activities;
    
    expenses related to reimbursement submissions and approvals;
    
    market research;
    
    building the necessary infrastructure in our support services functions, such
as finance, human resources and legal;
    
    building the depth and breadth of our management team;
    
    preparing and producing educational and promotional materials; and
    
    establishing additional contractual relationships with manufacturing,
distribution and specialty pharmacy providers to support the commercialization of
Thelin.
 
    
    We expect to incur significant expenses in conjunction with additional clinical trial
costs for Thelin and are incurring costs for clinical trials related to additional drug
compounds. These costs include:
 
    
    hiring personnel to direct and execute clinical trials;
    
    costs incurred by clinical investigators;
    
    services of contract research organizations; and
    
    purchasing and formulating quantities of drug compound to be used in such
clinical trials.
  
    
    the outcome and timing of regulatory approvals for Thelin, including breadth of
approved product label;
    
    our ability to secure necessary reimbursement approvals for Thelin;
    
    competitive activity, including the timing of regulatory approvals for competitive products;
    
    our success in commercializing Thelin;
    
    scientific progress in our drug discovery programs;
    
    the number and magnitude of these research and development programs;
    
    progress with preclinical testing and clinical trials of new drug compounds;
    
    the costs and our success in filing, prosecuting and enforcing patent claims;
    
    competing technological and market developments and changes in our existing research
relationships;
    
    administrative costs and costs to commercialize our products as new product compounds
are further developed and marketed;
    
    working capital requirements to support inventory and accounts receivable;
    
    our ability to maintain and establish additional collaborative arrangements; and
    
    effective and sustained commercialization activities and arrangements.
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We
make business decisions based on forecasts of future sales of
Thelin that may be inaccurate.
  We are the subject of securities class action and shareholder derivative lawsuits that may result in substantial expenditures, and divert managements attention.
     28




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Legislative changes or regulatory decisions in Europe may adversely impact our orphan drug status which may result in loss of revenues in the European Union.
  We depend on third parties in the conduct of our clinical trials for our product candidates and any failure of those parties to fulfill their obligations could adversely affect our development plans.
  Issuance of shares in connection with financing transactions or under stock plans will dilute current stockholders.
  29




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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  30




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Item 6. Exhibits
 Exhibit No.
    
    Description4.1
    
    
    Indenture, dated as of February 6, 2007, between Royalty Sub and U.S. Bank
National Association, as Trustee, including the form of Argatroban PhaRMASM Secured 12%
Notes due 2014 attached as Exhibit A thereto (incorporated by reference to Exhibit 4.1
to the Companys Current Report on Form 8-K (Commission File No. 000-20017) filed with
the Commission on February 8, 2007).10.1
    
    
    Eighth amendment dated March 8, 2007 to Consulting Agreement with John M.
Pietruski dated January 1, 1992 (incorporated by reference to Exhibit 10.2 to the
Companys Annual Report on Form 10-K for the year ended December 31, 2006 (Commission
File No. 000-20017) filed with the Commission on March 16, 2007).10.2
    
    
    Forms of Incentive Stock Option Award Agreement (incorporated by reference to
Exhibit 10.1 to the Companys Current Report on Form 8-K (Commission File No. 000-20017)
filed with the Commission on March 20, 2007).`10.3
    
    
    Forms of Nonqualified Stock Option Award Agreement (incorporated by reference to
Exhibit 10.2 to the Companys Current Report on Form 8-K (Commission File No. 000-20017)
filed with the Commission on March 20, 2007).10.4
    
    
    Form of Restricted Stock Awards for Employees With a Termination Agreement
(incorporated by reference to Exhibit 10.3 to the Companys Current Report on Form 8-K
(Commission File No. 000-20017) filed with the Commission on March 20, 2007).10.5
    
    
    Form of Restricted Stock Awards for Employees Without a Termination Agreement
(incorporated by reference to Exhibit 10.4 to the Companys Current Report on Form 8-K
(Commission File No. 000-20017) filed with the Commission on March 20, 2007).31.1
    
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) / Rule
15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended.31.2
    
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) / Rule
15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended.32.1
    
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.32.2
    
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
 31




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##### Table of Contents



ENCYSIVE PHARMACEUTICALS INC.
 May 8, 2007
 
 SIGNATURES
  ENCYSIVE PHARMACEUTICALS INC.By:
    /s/ Bruce D. Given, M.D.Bruce D. Given, M.D.President and Chief Executive OfficerBy:
    /s/ Gordon H. BusenbarkGordon H. BusenbarkChief Financial Officer
(Principal Financial and Accounting Officer) 32




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##### Table of Contents



INDEX TO EXHIBITS
 Exhibit No.
    
    Description4.1
    
    
    Indenture, dated as of February 6, 2007, between Royalty Sub and U.S. Bank
National Association, as Trustee, including the form of Argatroban PhaRMASM Secured 12%
Notes due 2014 attached as Exhibit A thereto (incorporated by reference to Exhibit 4.1
to the Companys Current Report on Form 8-K (Commission File No. 000-20017) filed with
the Commission on February 8, 2007).10.1
    
    
    Eighth amendment dated March 8, 2007 to Consulting Agreement with John M.
Pietruski dated January 1, 1992 (incorporated by reference to Exhibit 10.2 to the
Companys Annual Report on Form 10-K for the year ended December 31, 2006 (Commission
File No. 000-20017) filed with the Commission on March 16, 2007).10.2
    
    
    Forms of Incentive Stock Option Award Agreement (incorporated by reference to
Exhibit 10.1 to the Companys Current Report on Form 8-K (Commission File No. 000-20017)
filed with the Commission on March 20, 2007).`10.3
    
    
    Forms of Nonqualified Stock Option Award Agreement (incorporated by reference to
Exhibit 10.2 to the Companys Current Report on Form 8-K (Commission File No. 000-20017)
filed with the Commission on March 20, 2007).10.4
    
    
    Form of Restricted Stock Awards for Employees With a Termination Agreement
(incorporated by reference to Exhibit 10.3 to the Companys Current Report on Form 8-K
(Commission File No. 000-20017) filed with the Commission on March 20, 2007).10.5
    
    
    Form of Restricted Stock Awards for Employees Without a Termination Agreement
(incorporated by reference to Exhibit 10.4 to the Companys Current Report on Form 8-K
(Commission File No. 000-20017) filed with the Commission on March 20, 2007).31.1
    
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) / Rule
15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended.31.2
    
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) / Rule
15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended.32.1
    
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.32.2
    
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.