##### Table of Contents





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q





(Mark One)

|x | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934:
|- | ----------------------------------------------------------------------------------------

For the quarterly period ended June 30, 2008

OR



| ̈ | 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:





Targanta Therapeutics Corporation

(Exact Name of Registrant as Specified in
Its Charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 20-3971077                          
|(State or Other Jurisdiction of Incorporation or Organization) |  | (I.R.S. Employer Identification No.)

222 Third Street, Suite 2300, Cambridge, Massachusetts 02142-1122

(Address of Principal Executive Offices) (Zip Code)

(617) 577-9020

(Registrants Telephone Number, Including Area Code)





Indicate by check mark whether the registrant:(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days.    Yes  x    No   ̈

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



|                        |  |                                                  |  |                           |  |  
|----------------------- |  | ------------------------------------------------ |  | ------------------------- |  | -
|Large accelerated filer |  |  ̈                                                |  | Accelerated filer         |  |  ̈
|                        |  |                                                  | 
|Non-accelerated filer   |  | x  (Do not check if a smaller reporting company) |  | Smaller reporting company |  |  ̈

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

As of July 31, 2008, there were 20,971,834 shares of the Registrants common stock outstanding.









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##### Table of Contents

TARGANTA THERAPEUTICS CORPORATION

QUARTERLY REPORT

ON FORM 10-Q

INDEX



|                              |  |                                                                                                                                                                                                  |  |     
|----------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----
|                              |  |                                                                                                                                                                                                  |  | Page
|PART I. FINANCIAL INFORMATION |  |                                                                                                                                                                                                 
|Item 1.                       |  | Financial Statements (Unaudited)                                                                                                                                                                 |  | 3   
|                              |  | Condensed Consolidated Balance Sheets as of June 30, 2008 and December 31, 2007                                                                                                                  |  | 4   
|                              |  | Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2008 and 2007 and the cumulative
 period from May 20, 1997 (date of inception) through June 30, 2008 |  | 5   
|                              |  | Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2008 and 2007 and the cumulative period
 from May 20, 1997 (date of inception) through June 30, 2008           |  | 6   
|                              |  | Notes to Condensed Consolidated Financial Statements                                                                                                                                             |  | 8   
|Item 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                                                                                            |  | 16  
|Item 3.                       |  | Quantitative and Qualitative Disclosures about Market Risk                                                                                                                                       |  | 22  
|Item 4.                       |  | Controls and Procedures                                                                                                                                                                          |  | 23  
|                             
|PART II. OTHER INFORMATION   
|Item 1.                       |  | Legal Proceedings                                                                                                                                                                                |  | 24  
|Item 1A.                      |  | Risk Factors                                                                                                                                                                                     |  | 24  
|Item 2.                       |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                                                                                                      |  | 24  
|Item 3.                       |  | Defaults Upon Senior Securities                                                                                                                                                                  |  | 24  
|Item 4.                       |  | Submission of Matters to a Vote of Security Holders                                                                                                                                              |  | 24  
|Item 5.                       |  | Other Information                                                                                                                                                                                |  | 25  
|Item 6.                       |  | Exhibits                                                                                                                                                                                         |  | 25  
|                              | 
|Signatures                    |  | 26                                                                                                                                                                                              



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PART I. FINANCIAL INFORMATION

FORWARD-LOOKING STATEMENTS

This Quarterly Report on
Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause the
results of Targanta Therapeutics Corporation to differ materially from those expressed or implied by such forward-looking statements. All statements other than statements of historical fact are statements that could be deemed forward-looking
statements, including any projections of financing needs, revenue, expenses, earnings or losses from operations, or other financial items; any statements of the plans, strategies and objectives of management for future operations, any statements
concerning product research, development and commercialization plans and timelines; any statements regarding safety and efficacy of product candidates, any statements of expectation or belief; and any statements of assumptions underlying any of the
foregoing. In addition, forward looking statements may contain the words believe, anticipate, expect, estimate, intend, plan, project, will be,
will continue, will result, seek, could, may, might, or any variations of such words or other words with similar meanings.

The risks, uncertainties and assumptions referred to above include risks that are described under the title Risk Factors in our Annual Report
on Form 10-K for the fiscal year ended December 31, 2007 filed on March 27, 2008 and our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2008 filed on May 13, 2008 with the Securities and Exchange
Commission, and that are otherwise described from time to time in our Securities and Exchange Commission reports filed after this report.

The forward-looking statements included in this quarterly report represent our estimates as of the date of this quarterly report. We specifically disclaim any obligation to update these forward-looking statements in the future. These
forward-looking statements should not be relied upon as representing our estimates or views as of any date subsequent to the date of this quarterly report.



|Item 1. | Financial Statements  Unaudited
|------- | --------------------------------

The
financial information set forth below should be read in conjunction with our Managements Discussion and Analysis of Financial Condition and Results of Operations appearing elsewhere in this Quarterly Report on Form 10-Q.



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Targanta Therapeutics Corporation

(A development-stage company)

Condensed Consolidated Balance Sheets

(in thousands, except share and per share amounts)

(Unaudited)



|                                                                                                                                                                            |  |              |          |   |                  |   |          |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | -------- | - | ---------------- | - | -------- | -
|                                                                                                                                                                            |  | June 30,2008 |          |   | December 31,2007 |  
|Assets                                                                                                                                                                      |  |              |          |   |                  |   |          |  
|Current assets:                                                                                                                                                             |  |              |          |   |                  |   |          |  
|Cash and cash equivalents                                                                                                                                                   |  | $            | 36,363   |   |                  | $ | 32,955   |  
|Short-term investments                                                                                                                                                      |  |              | 22,319   |   |                  |   | 56,798   |  
|Restricted cash                                                                                                                                                             |  |              | 491      |   |                  |   | 506      |  
|Investment tax credits recoverable                                                                                                                                          |  |              | 516      |   |                  |   | 757      |  
|Prepaid expenses and other current assets                                                                                                                                   |  |              | 1,372    |   |                  |   | 1,630    |  
|                                                                                                                                                                            |  |              |          |   |                  |   |          |  
|Total current assets                                                                                                                                                        |  |              | 61,061   |   |                  |   | 92,646   |  
|Property and equipment, net                                                                                                                                                 |  |              | 1,276    |   |                  |   | 1,350    |  
|Deferred financing costs                                                                                                                                                    |  |              | 86       |   |                  |   | 103      |  
|Deposits                                                                                                                                                                    |  |              | 72       |   |                  |   | 50       |  
|                                                                                                                                                                            |  |              |          |   |                  |   |          |  
|Total assets                                                                                                                                                                |  | $            | 62,495   |   |                  | $ | 94,149   |  
|                                                                                                                                                                            |  |              |          |   |                  |   |          |  
|Liabilities and Stockholders Equity                                                                                                                                        |  |              |          |   |                  |   |          |  
|Current liabilities:                                                                                                                                                        |  |              |          |   |                  |   |          |  
|Accounts payable                                                                                                                                                            |  | $            | 2,848    |   |                  | $ | 718      |  
|Accrued expenses                                                                                                                                                            |  |              | 9,730    |   |                  |   | 5,873    |  
|Income tax payable                                                                                                                                                          |  |              | 674      |   |                  |   | 2,731    |  
|Current portion of deferred rent                                                                                                                                            |  |              | 34       |   |                  |   | 24       |  
|Current portion of long-term debt                                                                                                                                           |  |              | 6,591    |   |                  |   | 5,480    |  
|                                                                                                                                                                            |  |              |          |   |                  |   |          |  
|Total current liabilities                                                                                                                                                   |  |              | 19,877   |   |                  |   | 14,826   |  
|Deferred rent                                                                                                                                                               |  |              | 78       |   |                  |   | 100      |  
|Other long-term liabilities                                                                                                                                                 |  |              | 181      |   |                  |   | 63       |  
|Long-term debt                                                                                                                                                              |  |              | 10,991   |   |                  |   | 14,287   |  
|Commitments (Note 4)                                                                                                                                                        |  |              |          |   |                  |   |          |  
|Stockholders equity:                                                                                                                                                       |  |              |          |   |                  |   |          |  
|Preferred Stock, par value $0.0001; 5,000,000 shares authorized, no shares issued and outstanding                                                                           |  |              |         |   |                  |   |         |  
|Common stock, par value $0.0001; 35,000,000 shares authorized, 20,971,834 and 20,969,257 shares issued and outstanding at June 30, 2008
and December 31, 2007, respectively |  |              | 2        |   |                  |   | 2        |  
|Additional paid-in capital                                                                                                                                                  |  |              | 191,476  |   |                  |   | 190,137  |  
|Accumulated other comprehensive income                                                                                                                                      |  |              | 1,551    |   |                  |   | 1,665    |  
|Deficit accumulated during the development stage                                                                                                                            |  |              | (161,661 | ) |                  |   | (126,931 | )
|                                                                                                                                                                            |  |              |          |   |                  |   |          |  
|Total stockholders equity                                                                                                                                                  |  |              | 31,368   |   |                  |   | 64,873   |  
|                                                                                                                                                                            |  |              |          |   |                  |   |          |  
|Total liabilities and stockholders equity                                                                                                                                  |  | $            | 62,495   |   |                  | $ | 94,149   |  
|                                                                                                                                                                            |  |              |          |   |                  |   |          |  

The accompanying notes are an integral part of these consolidated financial statements.



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Targanta Therapeutics Corporation

(A development-stage company)

Condensed Consolidated Statements of Operations

(in thousands, except share and per share amounts)

(Unaudited)



|                                                                                      |  |                            |            |   |                          |   |         |                                                                        |  |   |            |   |  |   |           |   |  |   |          |  
|------------------------------------------------------------------------------------- |  | -------------------------- | ---------- | - | ------------------------ | - | ------- | ---------------------------------------------------------------------- |  | - | ---------- | - |  | - | --------- | - |  | - | -------- | -
|                                                                                      |  | Three
Months EndedJune 30, |            |   | Six Months EndedJune 30, |   |         | For thePeriod from May 20,1997 (date of inception)through
June 30,2008 | 
|                                                                                      |  | 2008                       |            |   | 2007                     |   |         | 2008                                                                   |  |   | 2007       |   | 
|Operating expenses                                                                    |  |                            |            |   |                          |   |         |                                                                        |  |   |            |   |  |   |           |   |  |   |          |  
|Research and development (1)                                                          |  | $                          | 12,859     |   |                          | $ | 9,405   |                                                                        |  | $ | 27,138     |   |  | $ | 14,844    |   |  | $ | 92,533   |  
|Acquired in-process research and development                                          |  |                            |           |   |                          |   |        |                                                                        |  |   |           |   |  |   | 9,500     |   |  |   | 29,000   |  
|General and administrative (1)                                                        |  |                            | 4,189      |   |                          |   | 2,847   |                                                                        |  |   | 7,807      |   |  |   | 4,782     |   |  |   | 28,771   |  
|                                                                                      |  |                            |            |   |                          |   |         |                                                                        |  |   |            |   |  |   |           |   |  |   |          |  
|Total operating expenses                                                              |  |                            | 17,048     |   |                          |   | 12,252  |                                                                        |  |   | 34,945     |   |  |   | 29,126    |   |  |   | 150,304  |  
|                                                                                      |  |                            |            |   |                          |   |         |                                                                        |  |   |            |   |  |   |           |   |  |   |          |  
|Other income (expense)                                                                |  |                            |            |   |                          |   |         |                                                                        |  |   |            |   |  |   |           |   |  |   |          |  
|Interest income                                                                       |  |                            | 466        |   |                          |   | 556     |                                                                        |  |   | 1,334      |   |  |   | 1,014     |   |  |   | 4,791    |  
|Interest expense                                                                      |  |                            | (602       | ) |                          |   | 273     |                                                                        |  |   | (1,245     | ) |  |   | (1,937    | ) |  |   | (20,360  | )
|Foreign exchange gain (loss)                                                          |  |                            | 5          |   |                          |   | (789    | )                                                                      |  |   | (14        | ) |  |   | (853      | ) |  |   | (1,948   | )
|Gain on disposal of property and equipment                                            |  |                            |           |   |                          |   |        |                                                                        |  |   |           |   |  |   |          |   |  |   | 47       |  
|                                                                                      |  |                            |            |   |                          |   |         |                                                                        |  |   |            |   |  |   |           |   |  |   |          |  
|Other income (expense), net                                                           |  |                            | (131       | ) |                          |   | 40      |                                                                        |  |   | 75         |   |  |   | (1,776    | ) |  |   | (17,470  | )
|                                                                                      |  |                            |            |   |                          |   |         |                                                                        |  |   |            |   |  |   |           |   |  |   |          |  
|Loss before income tax benefit                                                        |  |                            | (17,179    | ) |                          |   | (12,212 | )                                                                      |  |   | (34,870    | ) |  |   | (30,902   | ) |  |   | (167,774 | )
|Income tax benefit                                                                    |  |                            | 74         |   |                          |   | 83      |                                                                        |  |   | 140        |   |  |   | 54        |   |  |   | 6,113    |  
|                                                                                      |  |                            |            |   |                          |   |         |                                                                        |  |   |            |   |  |   |           |   |  |   |          |  
|Net loss                                                                              |  | $                          | (17,105    | ) |                          | $ | (12,129 | )                                                                      |  | $ | (34,730    | ) |  | $ | (30,848   | ) |  | $ | (161,661 | )
|                                                                                      |  |                            |            |   |                          |   |         |                                                                        |  |   |            |   |  |   |           |   |  |   |          |  
|Net loss per sharebasic and diluted                                                  |  | $                          | (0.82      | ) |                          | $ | (479.78 | )                                                                      |  | $ | (1.66      | ) |  | $ | (1,229.07 | ) |  |   |          |  
|                                                                                      |  |                            |            |   |                          |   |         |                                                                        |  |   |            |   |  |   |           |   |  |   |          |  
|Weighted average number of common shares used in net loss per sharebasic and diluted |  |                            | 20,970,490 |   |                          |   | 25,282  |                                                                        |  |   | 20,969,873 |   |  |   | 25,282    |   |  |   |          |  
|(1)    Amounts include stock-based compensation expense, as follows:                  | 
|                                                                                      |  |                            |            |   |                         
|Research and development                                                              |  | $                          | 312        |   |                          | $ | 739     |                                                                        |  | $ | 569        |   |  | $ | 747       |   |  | $ | 2,461    |  
|General and administrative                                                            |  | $                          | 546        |   |                          | $ | 592     |                                                                        |  | $ | 761        |   |  | $ | 603       |   |  | $ | 2,547    |  

The accompanying notes are an integral part of these consolidated financial statements.



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Targanta Therapeutics Corporation

(A development-stage company)

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)



|                                                                              |  |                          |         |   |                                                                        |   |         |   |  |   |          |  
|----------------------------------------------------------------------------- |  | ------------------------ | ------- | - | ---------------------------------------------------------------------- | - | ------- | - |  | - | -------- | -
|                                                                              |  | Six Months EndedJune 30, |         |   | For thePeriod from May 20,1997 (date of inception)through
June 30,2008 |  
|                                                                              |  | 2008                     |         |   | 2007                                                                   |   |        
|Cash flows from operating activities:                                         |  |                          |         |   |                                                                        |   |         |   |  |   |          |  
|Net loss                                                                      |  | $                        | (34,730 | ) |                                                                        | $ | (30,848 | ) |  | $ | (161,661 | )
|Adjustments to reconcile net loss to net cash used in operating activities:   |  |                          |         |   |                                                                        |   |         |   |  |   |          |  
|Depreciation and amortization                                                 |  |                          | 327     |   |                                                                        |   | 226     |   |  |   | 3,232    |  
|Stock-based compensation expense                                              |  |                          | 1,330   |   |                                                                        |   | 1,350   |   |  |   | 5,008    |  
|Gain on disposal of property and equipment                                    |  |                          |        |   |                                                                        |   |        |   |  |   | (47      | )
|Amortization of deferred financing costs                                      |  |                          | 16      |   |                                                                        |   | 338     |   |  |   | 695      |  
|Deferred rent                                                                 |  |                          | (10     | ) |                                                                        |   | 17      |   |  |   | 70       |  
|Acquired in-process research and development                                  |  |                          |        |   |                                                                        |   | 7,500   |   |  |   | 26,000   |  
|Non-cash interest expense                                                     |  |                          | 154     |   |                                                                        |   | 1,419   |   |  |   | 17,481   |  
|Unrealized foreign exchange loss                                              |  |                          | 17      |   |                                                                        |   | 1,080   |   |  |   | 1,675    |  
|Changes in operating assets and liabilities:                                  |  |                          |         |   |                                                                        |   |         |   |  |   |          |  
|Investment tax credits recoverable                                            |  |                          | 230     |   |                                                                        |   | (156    | ) |  |   | 75       |  
|Prepaid expenses and other current assets                                     |  |                          | 258     |   |                                                                        |   | (634    | ) |  |   | (1,271   | )
|Deposits                                                                      |  |                          | (23     | ) |                                                                        |   |        |   |  |   | (70      | )
|Accounts payable                                                              |  |                          | 2,130   |   |                                                                        |   | (142    | ) |  |   | 3,124    |  
|Accrued expenses                                                              |  |                          | 3,863   |   |                                                                        |   | 2,772   |   |  |   | 7,191    |  
|Income tax payable                                                            |  |                          | (2,055  | ) |                                                                        |   | 2,336   |   |  |   | 282      |  
|Reimbursement from landlord                                                   |  |                          |        |   |                                                                        |   | 30      |   |  |   | 30       |  
|Deferred income tax                                                           |  |                          |        |   |                                                                        |   | (2,212  | ) |  |   | (222     | )
|                                                                              |  |                          |         |   |                                                                        |   |         |   |  |   |          |  
|Net cash used in operating activities                                         |  |                          | (28,493 | ) |                                                                        |   | (16,924 | ) |  |   | (98,408  | )
|                                                                              |  |                          |         |   |                                                                        |   |         |   |  |   |          |  
|Cash flows from investing activities:                                         |  |                          |         |   |                                                                        |   |         |   |  |   |          |  
|Purchases of property and equipment                                           |  |                          | (253    | ) |                                                                        |   | (660    | ) |  |   | (3,063   | )
|Proceeds from sale of property and equipment                                  |  |                          |        |   |                                                                        |   |        |   |  |   | 105      |  
|Increase in restricted cash                                                   |  |                          |        |   |                                                                        |   |        |   |  |   | (282     | )
|Proceeds from sales and maturities of short-term investments                  |  |                          | 47,262  |   |                                                                        |   |        |   |  |   | 66,551   |  
|Purchases of short-term investments                                           |  |                          | (12,896 | ) |                                                                        |   | (14,852 | ) |  |   | (88,174  | )
|                                                                              |  |                          |         |   |                                                                        |   |         |   |  |   |          |  
|Net cash provided by (used in) investing activities                           |  |                          | 34,113  |   |                                                                        |   | (15,512 | ) |  |   | (24,863  | )
|                                                                              |  |                          |         |   |                                                                        |   |         |   |  |   |          |  
|Cash flows from financing activities:                                         |  |                          |         |   |                                                                        |   |         |   |  |   |          |  
|Proceeds from bank loan                                                       |  |                          |        |   |                                                                        |   |        |   |  |   | 327      |  
|Payments on bank loan                                                         |  |                          |        |   |                                                                        |   |        |   |  |   | (337     | )
|Proceeds from issuance of note payable                                        |  |                          |        |   |                                                                        |   |        |   |  |   | 6,470    |  
|Payments on note payable                                                      |  |                          |        |   |                                                                        |   |        |   |  |   | (10,044  | )
|Principal payments under capital leases                                       |  |                          |        |   |                                                                        |   |        |   |  |   | (1,273   | )
|Proceeds from issuance of convertible notes                                   |  |                          |        |   |                                                                        |   |        |   |  |   | 11,763   |  
|Payments on convertible notes                                                 |  |                          |        |   |                                                                        |   | (2,177  | ) |  |   | (2,177   | )
|Proceeds from issuance of convertible debentures                              |  |                          |        |   |                                                                        |   |        |   |  |   | 14,028   |  
|Proceeds from issuance of long-term debt                                      |  |                          |        |   |                                                                        |   |        |   |  |   | 20,000   |  
|Payments on long-term debt                                                    |  |                          | (2,222  | ) |                                                                        |   |        |   |  |   | (2,222   | )
|Proceeds from issuance of preferred stock and warrants, net of issuance costs |  |                          |        |   |                                                                        |   | 57,825  |   |  |   | 69,154   |  
|Proceeds from issuance of common stock, net of issuance costs                 |  |                          | 10      |   |                                                                        |   |        |   |  |   | 53,693   |  
|Deferred financing costs                                                      |  |                          |        |   |                                                                        |   | (802    | ) |  |   | (812     | )
|                                                                              |  |                          |         |   |                                                                        |   |         |   |  |   |          |  
|Net cash (used in) provided by financing activities                           |  |                          | (2,212  | ) |                                                                        |   | 54,846  |   |  |   | 158,570  |  
|                                                                              |  |                          |         |   |                                                                        |   |         |   |  |   |          |  
|Net increase in cash and cash equivalents                                     |  |                          | 3,408   |   |                                                                        |   | 22,410  |   |  |   | 35,299   |  
|Effect of foreign currency on cash and cash equivalents                       |  |                          |        |   |                                                                        |   |        |   |  |   | 1,064    |  
|                                                                              |  |                          |         |   |                                                                        |   |         |   |  |   |          |  
|Cash and cash equivalents, beginning of period                                |  |                          | 32,955  |   |                                                                        |   | 12,104  |   |  |   |         |  
|                                                                              |  |                          |         |   |                                                                        |   |         |   |  |   |          |  
|Cash and cash equivalents, end of period                                      |  | $                        | 36,363  |   |                                                                        | $ | 34,514  |   |  | $ | 36,363   |  
|                                                                              |  |                          |         |   |                                                                        |   |         |   |  |   |          |  



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##### Table of Contents

Targanta Therapeutics Corporation

(A development-stage company)

Condensed Consolidated Statements of Cash
Flows  (continued)

(in thousands)

(Unaudited)



|                                                                                                   |  |                          |       |      |                                                                        |         |   |  |   |         |  
|-------------------------------------------------------------------------------------------------- |  | ------------------------ | ----- | ---- | ---------------------------------------------------------------------- | ------- | - |  | - | ------- | -
|                                                                                                   |  | Six Months EndedJune 30, |       |      | For thePeriod from May 20,1997 (date of inception)Through
June 30,2008 |        
|                                                                                                   |  | 2008                     |       | 2007 |                                                                        |        
|Supplemental disclosure of cash flow information                                                   |  |                          |       |      |                                                                        |         |   |  |   |         |  
|Cash paid for interest                                                                             |  | $                        | 908   |      | $                                                                      | 180     |   |  | $ | 1,957   |  
|Cash paid for income taxes                                                                         |  | $                        | 2,027 |      | $                                                                      |        |   |  | $ | 2,027   |  
|                                                                                                   |  |                          |      
|Supplemental disclosure of non-cash financing activities                                           |  |                          |       |      |                                                                        |         |   |  |   |         |  
|Discount to note payable for warrant valuation                                                     |  | $                        |      |      | $                                                                      |        |   |  | $ | 406     |  
|Issuance of InterMune convertible note                                                             |  | $                        |      |      | $                                                                      | 7,500   |   |  | $ | 24,000  |  
|Reduction of InterMune convertible note                                                            |  | $                        |      |      | $                                                                      | (3,000  | ) |  | $ | (3,000  | )
|Discount to convertible notes for warrant valuation and beneficial conversion features             |  | $                        |      |      | $                                                                      |        |   |  | $ | 11,715  |  
|Discount to convertible debentures for beneficial conversion features                              |  | $                        |      |      | $                                                                      |        |   |  | $ | 8,724   |  
|Conversion of convertible debt into preferred stock                                                |  | $                        |      |      | $                                                                      | (38,990 | ) |  | $ | (46,642 | )
|Reversal of beneficial conversion features in connection with conversion of convertible debentures |  | $                        |      |      | $                                                                      | (7,026  | ) |  | $ | (7,026  | )
|Discount to long-term debt for warrant valuation                                                   |  | $                        |      |      | $                                                                      |        |   |  | $ | 253     |  
|Accretion of redeemable convertible preferred stock to redemption value                            |  | $                        |      |      | $                                                                      | 225     |   |  | $ | 5,327   |  
|Conversion of preferred stock into common stock                                                    |  | $                        |      |      | $                                                                      |        |   |  | $ | 121,534 |  

The accompanying notes are an integral part of these consolidated financial statements.



7



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##### Table of Contents

Targanta Therapeutics Corporation

(A development-stage company)

Notes
to Condensed Consolidated Financial Statements

(in thousands, except share and per share amounts)

(Unaudited)

1. Basis of Presentation

Targanta Therapeutics Corporation (Parent), a Delaware corporation, was incorporated on December 6, 2005 to become the
parent entity of Targanta Therapeutics Inc. (Targanta Québec) (previously PhageTech Inc.) and Targanta Therapeutics (Ontario) Inc. (Targanta Ontario) as part of a reorganization that was effective December 23,
2005. Targanta Québec, a Canadian company, was incorporated on May 20, 1997 and Targanta Ontario, a Canadian company, was incorporated on December 22, 2005. Targanta Therapeutics Corporation together with its subsidiaries (the
Company) is a biopharmaceutical company focused on developing and commercializing antibacterial drugs to treat serious infections acquired or treated in the hospital or other institutional settings. Oritavancin, the Companys lead
product candidate, is a once-daily, semi-synthetic lipoglycopeptide antibiotic with rapid bactericidal activity against all studied clinically relevant serious gram-positive pathogens, including multi-resistant strains. The Company has commenced its
planned principal operations; however, the Company has not generated any revenue from its operations. Accordingly, the Company is considered to be in the development stage as defined in Statement of Financial Accounting Standards (SFAS)
No. 7, Accounting and Reporting by Development Stage Enterprises. The Companys activities are carried out at its facilities in Cambridge, Massachusetts; Indianapolis, Indiana; and Montreal, Québec, Canada.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in
the United States (GAAP) for interim financial reporting and as required by Regulation S-X, Rule 10-01. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the
opinion of management, all adjustments (including those which are normal and recurring) considered necessary for a fair presentation of the interim financial information have been included. When preparing financial statements in conformity with
GAAP, the Company must make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures at the date of the financial statements. Actual results could differ from those estimates.
Additionally, operating results for the three and six months ended June 30, 2008 are not necessarily indicative of the results that may be expected for any other interim period or for the year ending December 31, 2008.

The accompanying unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the audited consolidated
financial statements for the year ended December 31, 2007 included in the Companys Annual Report on Form 10-K.

2. Summary of Significant
Accounting Policies

Principles of Consolidation

The unaudited condensed consolidated financial statements include the accounts of the Parent and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.

Cash and Cash Equivalents

The Company considers
all short-term, highly liquid investments with original maturities of three months or less at acquisition date to be cash equivalents. At June 30, 2008, the Company had invested its excess cash in money market accounts, overnight investment
accounts, certificates of deposit, commercial paper, United States treasury bills and debt obligations of government agencies. At December 31, 2007, the Company had invested its excess cash in money market accounts, overnight investment
accounts, certificates of deposit and commercial paper. The Company did not hold any investments in mortgage-backed or auction rate securities at June 30, 2008 or December 31, 2007.



8



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##### Table of Contents

Targanta Therapeutics Corporation

(A development-stage company)

Notes to Condensed Consolidated Financial
Statements  (continued)

(in thousands, except share and per share amounts)

(Unaudited)



Short-term Investments

The Company accounts for its investments in accordance with SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities (SFAS No. 115). In accordance with SFAS
No. 115, the Company has classified all of its investments as available-for-sale. The Companys investments are reported at fair value, with any unrealized gains or losses reported as a separate component of stockholders equity as
accumulated other comprehensive income.

Short-term investments included the following at June 30, 2008 and December 31, 2007:



|                                        |  |               |        |                 |   |                  |  |   |           |   |  |   |       
|--------------------------------------- |  | ------------- | ------ | --------------- | - | ---------------- |  | - | --------- | - |  | - | ------
|                                        |  | Amortizedcost |        | Unrealizedgains |   | Unrealizedlosses |  |   | Fairvalue
|June 30, 2008                          |  |               |        |                 |   |                  |  |   |           |   |  |   |       
|Commercial paper                        |  | $             | 9,846  |                 | $ | 12               |  | $ |          |   |  | $ | 9,858 
|Asset backed securities                 |  |               | 8,857  |                 |   | 20               |  |   |          |   |  |   | 8,877 
|Debt obligations of government agencies |  |               | 3,585  |                 |   |                 |  |   | (1        | ) |  |   | 3,584 
|                                        |  |               |        |                 |   |                  |  |   |           |   |  |   |       
|                                        |  | $             | 22,288 |                 | $ | 32               |  | $ | (1        | ) |  | $ | 22,319
|                                        |  |               |        |                 |   |                  |  |   |           |   |  |   |       
|December 31, 2007                      |  |               |        |                 |   |                  |  |   |           |   |  |   |       
|Commercial paper                        |  | $             | 34,080 |                 | $ | 121              |  | $ |          |   |  | $ | 34,201
|Corporate obligations                   |  |               | 4,861  |                 |   |                 |  |   | (6        | ) |  |   | 4,855 
|Asset backed securities                 |  |               | 17,725 |                 |   | 18               |  |   | (1        | ) |  |   | 17,742
|                                        |  |               |        |                 |   |                  |  |   |           |   |  |   |       
|                                        |  | $             | 56,666 |                 | $ | 139              |  | $ | (7        | ) |  | $ | 56,798
|                                        |  |               |        |                 |   |                  |  |   |           |   |  |   |       

All short-term investments have contractual maturities of less than one year.

The aggregate fair value of investments with unrealized losses was $3,584 and approximately $6,824 at June 30, 2008 and December 31, 2007,
respectively. At June 30, 2008, 4 investments were in an unrealized loss position. The Company reviews its investments for other-than-temporary impairment whenever the fair value of an investment is less than amortized cost and evidence
indicates that an investments carrying amount is not recoverable within a reasonable period of time. To determine whether an impairment is other-than-temporary, the Company considers whether it has the ability and intent to hold the investment
until a market price recovery and considers whether evidence indicating the cost of the investment is recoverable outweighs evidence to the contrary.

The cost of securities sold is determined based on the specific identification method for purposes of recording realized gains and losses. Gross realized gains and losses on the sales of investments have not been
material to the Companys consolidated results of operations.

Restricted Cash

The Company maintains restricted cash in the form of a guaranteed investment certificate of approximately $491 (CAN$500) collateralizing an available
credit facility of approximately $491 (CAN$500), comprised of a credit line of approximately $275 (CAN$280) and letters of guarantee maturing in March 2009 amounting to approximately $216 (CAN$220).

Concentration of Credit Risk

The Company maintains
its cash, cash equivalents, short-term investments and restricted cash with high quality financial institutions, and accordingly, is subject to minimal credit risk. The Company performs periodic evaluations of the relative credit quality of
investments and the Companys policy is designed to limit exposure to any one institution or type of investment. The primary objective of the Companys investment strategy is the preservation of the principal invested. Investment tax
credits recoverable were due from the Canadian federal and Québec provincial governments. The Company does not maintain foreign exchange contracts or other off-balance sheet financial instruments.



9



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##### Table of Contents

Targanta Therapeutics Corporation

(A development-stage company)

Notes to Condensed Consolidated Financial
Statements  (continued)

(in thousands, except share and per share amounts)

(Unaudited)



Fair Value of Financial Instruments

Cash, cash equivalents, short-term investments, restricted cash, investment tax credits recoverable, accounts payable, accrued expenses and the current
portion of long-term debt are carried at amounts that approximate fair value at June 30, 2008 and December 31, 2007 due to their short-term maturities.

Long-term debt approximates fair value at June 30, 2008, as it bears interest at a rate approximating a market interest rate.

On January 1, 2008, the Company adopted the provisions of SFAS No. 157, Fair Value Measurements (SFAS No. 157) for its financial assets and other items that are recognized or
disclosed at fair value on a recurring basis. This statement, among other things, defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. In February 2008, the Financial Accounting
Standards Board (FASB) issued FASB Staff Position 157-2 (FSP 157-2), which delays the effective date of SFAS No. 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed
at fair value in the financial statements on a recurring basis, until fiscal years beginning after November 15, 2008 and interim periods within those years. The partial adoption of SFAS No. 157 for financial assets and liabilities
recognized at fair value on a recurring basis, in accordance with FSP 157-2, did not have a material effect on the Companys consolidated financial statements.

SFAS No. 157 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As
such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumption, SFAS No. 157 established a three-tier
fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:



| |  |  | Level 1  Observable inputs such as quoted prices in active markets;
| | - |  | --------------------------------------------------------------------



| |  |  | Level 2  Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------



| |  |  | Level 3  Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------

The Companys investment portfolio includes many fixed income securities that do not always trade on a daily basis.
As a result, the pricing services used by the Company applied other available information as applicable through processes such as benchmark yields, benchmarking of like securities, sector groupings and matrix pricing to prepare evaluations. In
addition, model processes were used to assess interest rate impact and develop prepayment scenarios. These models take into consideration relevant credit information, perceived market movements, sector news and economic events. The inputs into these
models may include benchmark yields, reported trades, broker-dealer quotes, issuer spreads and other relevant data.

In accordance with the
disclosure provisions of SFAS No. 157, the Company has classified assets measured at fair value on a recurring basis as follows:



|                              |  |               |        |                                                             |   |                                            |  |                                        |        |  |   |  
|----------------------------- |  | ------------- | ------ | ----------------------------------------------------------- | - | ------------------------------------------ |  | -------------------------------------- | ------ |  | - | -
|                              |  |               |        | Fair Value Measurements at Reporting Date Using            
|Description                   |  | June 30, 2008 |        | Quoted Prices inActive Markets forIdentical Assets(Level 1) |   | Significant OtherObservableInputs(Level
2) |  | SignificantUnobservableInputs(Level
3)
|Cash equivalents              |  | $             | 18,158 |                                                             | $ | 16,660                                     |  | $                                      | 1,498  |  | $ | 
|Available-for-sale securities |  | $             | 22,319 |                                                             | $ | 3,584                                      |  | $                                      | 18,735 |  | $ | 



10



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##### Table of Contents

Targanta Therapeutics Corporation

(A development-stage company)

Notes to Condensed Consolidated Financial
Statements  (continued)

(in thousands, except share and per share amounts)

(Unaudited)



Research and Development Costs

The Company charges research and development costs to operations as incurred in accordance with SFAS No. 2, Accounting for Research and Development Costs and EITF Issue No. 07-3, Accounting for
Nonrefundable Advance Payments for Goods or Services to Be Used in Future Research and Development Activities. Research and development costs are comprised of costs incurred in performing research and development activities, including salaries,
benefits, facilities, research-related overhead, contracted services, license fees, and other external costs. Acquired in-process research and development having no alternative future use is written off at the time of acquisition. In addition, as
pre-established research and development milestones under the Companys various agreements are achieved, they are charged to acquired in-process research and development expense. Acquired in-process research and development expense for the six
months ended June 30, 2007 includes a $2,000 cash payment and the fair value of the securities issued to InterMune, Inc. (InterMune) in connection with the Companys achievement of certain milestones.

Net Loss per Share

The Company calculates net loss
per share in accordance with SFAS No. 128, Earnings Per Share. Basic and diluted net loss per common share was determined by dividing net loss by the weighted average number of shares of common stock outstanding during the period. The
Companys potentially dilutive shares, which include convertible preferred stock, outstanding stock options exercisable for shares of common stock and warrants exercisable for common and preferred stock, have not been included in the
computation of diluted net loss per share for all periods as the result would be anti-dilutive.



|                                                                                                 |  |                            |            |   |                          |   |         |      |  |   |            |   |  |   |           |  
|------------------------------------------------------------------------------------------------ |  | -------------------------- | ---------- | - | ------------------------ | - | ------- | ---- |  | - | ---------- | - |  | - | --------- | -
|                                                                                                 |  | Three Months EndedJune 30, |            |   | Six Months EndedJune 30, |  
|                                                                                                 |  | 2008                       |            |   | 2007                     |   |         | 2008 |  |   | 2007       |  
|As reported:                                                                                     |  |                            |            |   |                          |   |         |      |  |   |            |   |  |   |           |  
|Net loss                                                                                         |  | $                          | (17,105    | ) |                          | $ | (12,129 | )    |  | $ | (34,730    | ) |  | $ | (30,848   | )
|Accretion of Series B Redeemable Convertible Preferred Stock dividends                           |  |                            |           |   |                          |   |        |      |  |   |           |   |  |   | (225      | )
|                                                                                                 |  |                            |            |   |                          |   |         |      |  |   |            |   |  |   |           |  
|Net loss applicable to common stockholders                                                       |  |                            | (17,105    | ) |                          |   | (12,129 | )    |  |   | (34,730    | ) |  |   | (31,073   | )
|                                                                                                 |  |                            |            |   |                          |   |         |      |  |   |            |   |  |   |           |  
|Weighted average number of shares of common stock used in net loss per share  basic and diluted |  |                            | 20,970,490 |   |                          |   | 25,282  |      |  |   | 20,969,873 |   |  |   | 25,282    |  
|                                                                                                 |  |                            |            |   |                          |   |         |      |  |   |            |   |  |   |           |  
|Net loss per share applicable to common stockholders  basic and diluted                         |  | $                          | (0.82      | ) |                          | $ | (479.78 | )    |  | $ | (1.66      | ) |  | $ | (1,229.07 | )
|                                                                                                 |  |                            |            |   |                          |   |         |      |  |   |            |   |  |   |           |  

The following potentially dilutive securities have been excluded from the computation of diluted
weighted average shares outstanding during the three and six months ended June 30, 2008 and 2007.



|                            |  |                                    |  |          
|--------------------------- |  | ---------------------------------- |  | ---------
|                            |  | Three and Six Months EndedJune 30,
|                            |  | 2008                               |  | 2007     
|Convertible preferred stock |  |                                   |  | 9,935,665
|Warrants outstanding        |  | 850,287                            |  | 529,867  
|Options outstanding         |  | 3,685,391                          |  | 2,250,914



11



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##### Table of Contents

Targanta Therapeutics Corporation

(A development-stage company)

Notes to Condensed Consolidated Financial
Statements  (continued)

(in thousands, except share and per share amounts)

(Unaudited)



Comprehensive Income (Loss)

The Company has applied the provisions of SFAS No. 130, Reporting Comprehensive Income, which requires that all components of comprehensive income (loss) be reported in the period in which they are
recognized. Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. Other than the Companys net loss, the other
element of comprehensive income (loss) impacting the Company is unrealized gains on marketable securities.



|                                                |  |                            |         |   |                          |   |         |      |  |   |         |   |  |   |         |  
|----------------------------------------------- |  | -------------------------- | ------- | - | ------------------------ | - | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                                |  | Three Months EndedJune 30, |         |   | Six Months EndedJune 30, |  
|                                                |  | 2008                       |         |   | 2007                     |   |         | 2008 |  |   | 2007    |  
|As reported:                                    |  |                            |         |   |                          |   |         |      |  |   |         |   |  |   |         |  
|Net loss applicable to common stockholders      |  | $                          | (17,105 | ) |                          | $ | (12,129 | )    |  | $ | (34,730 | ) |  | $ | (31,073 | )
|Other comprehensive income (loss):              |  |                            |         |   |                          |   |         |      |  |   |         |   |  |   |         |  
|Unrealized gain (loss) on marketable securities |  |                            | (137    | ) |                          |   | 22      |      |  |   | (114    | ) |  |   | 22      |  
|                                                |  |                            |         |   |                          |   |         |      |  |   |         |   |  |   |         |  
|Comprehensive loss                              |  | $                          | (17,242 | ) |                          | $ | (12,107 | )    |  | $ | (34,844 | ) |  | $ | (31,051 | )
|                                                |  |                            |         |   |                          |   |         |      |  |   |         |   |  |   |         |  

Canadian Part VI.I Tax

The Company has accrued the potential Canadian Part VI.I tax related to the cumulative dividend on its Series B Redeemable Convertible Preferred Stock. The Company applied the provisions of EITF Issue No. 95-9,
Accounting for Tax Effects of Dividends in France in Accordance with FASB Statement No. 109, in accounting for the Canadian Part VI.I tax, which states that unless specific criteria are met, taxes on distributions should be treated as an
income tax expense. The Part VI.I tax liability of approximately $2,731 was presented as a current tax liability in the December 31, 2007 condensed consolidated balance sheet. In February 2008, the Company paid approximately $2,026 of the Part
VI.I tax liability to the Canadian tax authority. The Canadian government voted to approve, but has not given final approval to, a reduction in the Part VI.I tax rate. The February 2008 payment was made at the reduced tax rate. The remaining Part
VI.I tax liability of approximately $662 is presented as a current tax liability in the June 30, 2008 condensed consolidated balance sheet and will be reversed if and when the Canadian government finally approves the Part VI.I tax rate
reduction.

Investment Tax Credits

Canadian federal and Québec and Ontario provincial investment tax credits are accounted for as a reduction of the income tax expense in the period in which the credits are earned and when there is reasonable assurance of their
recovery.

Segment and Geographic Information

SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information (SFAS No. 131), established standards for reporting information about operating segments in annual financial statements and
requires selected information about operating segments to be presented in interim financial reports issued to stockholders. SFAS No. 131 also established standards for disclosures about products and services and geographic areas. Operating
segments are defined as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in
assessing performance. The Company views its operations and manages its business in one operating segment and the Company operates in only two geographic segments, the United States and Canada.



12



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##### Table of Contents

Targanta Therapeutics Corporation

(A development-stage company)

Notes to Condensed Consolidated Financial
Statements  (continued)

(in thousands, except share and per share amounts)

(Unaudited)



The Companys long-lived assets included the following:



|         |  |              |       |                  |   |      
|-------- |  | ------------ | ----- | ---------------- | - | -----
|         |  | June 30,2008 |       | December 31,2007
|Domestic |  | $            | 830   |                  | $ | 850  
|Canada   |  |              | 446   |                  |   | 500  
|         |  |              |       |                  |   |      
|         |  | $            | 1,276 |                  | $ | 1,350
|         |  |              |       |                  |   |      

Recent Accounting Pronouncements

In December, 2007, EITF 07-01, Accounting for Collaborative Arrangements Related to the Development and Commercialization of Intellectual Property
(EITF 07-01), was issued. EITF 07-01 prescribes the accounting for collaborations, requiring that, when certain characteristics exist in collaboration relationships, certain transactions between collaborators be recorded within expenses
in the statement of operations on either a gross or net basis. The Company currently has no collaborations that are impacted by EITF 07-01. The Company will evaluate any future collaborations under this guidance, as appropriate.

Reclassifications

Certain reclassifications were
made to prior year balances to conform to the current years presentation.

3. Accrued Expenses

Accrued expenses consist of the following:



|                                               |  |              |       |                  |   |      
|---------------------------------------------- |  | ------------ | ----- | ---------------- | - | -----
|                                               |  | June 30,2008 |       | December 31,2007
|Payroll and benefits                           |  | $            | 1,388 |                  | $ | 1,382
|Professional fees                              |  |              | 364   |                  |   | 545  
|Clinical expenses                              |  |              | 3,513 |                  |   | 3,202
|Manufacturing and process development expenses |  |              | 2,774 |                  |   | 301  
|Other                                          |  |              | 1,691 |                  |   | 443  
|                                               |  |              |       |                  |   |      
|                                               |  | $            | 9,730 |                  | $ | 5,873
|                                               |  |              |       |                  |   |      

4. Commitments

The Company leases its laboratory and office space under operating lease agreements with various terms and renewal options with lease expirations ranging from 2009 through 2012. In addition to minimum lease
commitments, these lease agreements require the Company to pay its pro rata share of property taxes and building operating expenses.



13



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##### Table of Contents

Targanta Therapeutics Corporation

(A development-stage company)

Notes to Condensed Consolidated Financial
Statements  (continued)

(in thousands, except share and per share amounts)

(Unaudited)



5. Stock-Based Compensation

Stock Option Plans

At June 30, 2008, the Companys 2005 Stock Option Plan (2005
Plan) provided for the grant of options for the purchase of 2,318,956 shares of common stock plus any shares of common stock covered by outstanding options under the Re-Amended and Restated Stock Option Plan of Targanta Québec
(Targanta Québec Plan) that are forfeited and returned for reissuance under the Targanta Québec Plan, such number not to exceed 3,597 shares of common stock. The Company is no longer permitted to make grants under the 2005
Plan or the Targanta Québec Plan. As a result, at June 30, 2008, the maximum aggregate number of shares of common stock available for issuance under the 2005 Plan was 2,322,553, including 433 shares of common stock which are not
available for future grant.

At June 30, 2008, the Companys 2007 Stock Option and Incentive Plan (2007 Plan)
provided for the grant of options for the purchase of 2,047,446 shares of common stock. The 2007 Plan permits the Company to make grants of incentive stock options, non-qualified stock options, stock appreciation rights, deferred stock awards,
restricted stock awards, unrestricted stock awards and cash-based awards. The number of shares available for future grant under the 2007 Plan may be increased each year by an amount determined by the Companys board of directors not to exceed
3.5% of all shares of the Companys capital stock outstanding on December 31st of each preceding year. Accordingly, on February 6, 2008, the Companys board of directors increased the aggregate number of shares available for
grant under the 2007 Plan by 733,921. Generally, shares that are forfeited or canceled from awards under the 2007 Plan also will be available for future awards. In addition, awards that are returned to the Companys 2005 Plan as a result of
their expiration, cancellation, termination or repurchase are automatically made available for issuance under the 2007 Plan.

The Company
adopted SFAS No. 123 (revised 2004), Share Based Payment (SFAS No. 123(R)), effective January 1, 2006. In connection with the adoption of SFAS No. 123(R), the Company reassessed the valuation methodology for
stock options and the related input assumptions. The assessment of the valuation methodology resulted in the continued use of the Black-Scholes model. Prior to October 9, 2007, the date the Companys Registration Statement on Form S-1, as
amended, was declared effective, the Company was a private company and did not have relevant historical data to support its expected term and volatility. As such, the Company analyzed the expected term and volatility of several peer companies to
support the assumptions used in its fair value calculations. The Company averaged the volatilities and expected terms of the peer companies with sufficient trading history, similar vesting terms and similar in-the-money option status to generate the
assumptions detailed below.

The following table summarizes the weighted average assumptions the Company used in its grant date fair value
calculations under SFAS No. 123(R):



|                        |  |                            |   |  |                          |   |  |           |   |  |           |  
|----------------------- |  | -------------------------- | - |  | ------------------------ | - |  | --------- | - |  | --------- | -
|                        |  | Three Months EndedJune 30, |   |  | Six Months EndedJune 30, |  
|                        |  | 2008                       |   |  | 2007                     |   |  | 2008      |   |  | 2007      |  
|Risk-free interest rate |  | 2.91                       | % |  | 4.50                     | % |  | 2.90      | % |  | 4.50      | %
|Expected dividend yield |  | None                       |   |  | None                     |   |  | None      |   |  | None      |  
|Expected option term    |  | 4.8 years                  |   |  | 5.4 years                |   |  | 5.0 years |   |  | 5.4 years |  
|Volatility              |  | 49.9                       | % |  | 64.1                     | % |  | 51.1      | % |  | 64.1      | %

SFAS No. 123(R) requires the application of an estimated forfeiture rate to current period
expense to recognize compensation expense only for those awards expected to vest. The Company estimates forfeitures based upon comparable companies data and adjusts its estimate of forfeitures if actual forfeitures differ, or are expected to
differ from the Companys estimates. Subsequent changes in estimated forfeitures will be recognized through a cumulative catch-up adjustment in the period of change and will also impact the amount of stock-based compensation expense in future
periods.



14



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##### Table of Contents

Targanta Therapeutics Corporation

(A development-stage company)

Notes to Condensed Consolidated Financial
Statements  (continued)

(in thousands, except share and per share amounts)

(Unaudited)



The weighted average grant date fair value of options granted during the three months ended
June 30, 2008 and 2007 was $3.53 and $2.32, respectively, and the weighted average grant date fair value of options granted during the six months ended June 30, 2008 and 2007 was $3.92 and $2.32, respectively, based on the assumptions in
the Black-Scholes valuation model discussed above.

As of June 30, 2008, there was $7,249 of unrecognized stock-based compensation
expense. These costs are expected to be recognized over a weighted average period of 2.95 years.

For the three and six months ended
June 30, 2008 and 2007 and the period from May 20, 1997 (date of inception) to June 30, 2008, the total stock-based compensation expense in connection with stock options issued and outstanding amounted to:



|                         |  |                            |     |                          |   |                                                                        |  |      |       |  |   |       |  |   |      
|------------------------ |  | -------------------------- | --- | ------------------------ | - | ---------------------------------------------------------------------- |  | ---- | ----- |  | - | ----- |  | - | -----
|                         |  | Three Months EndedJune 30, |     | Six Months EndedJune 30, |   | For thePeriod from May 20,1997 (date of inception)through
June 30,2008
|                         |  | 2008                       |     | 2007                     |   | 2008                                                                   |  | 2007 |      
|Stock-based compensation |  | $                          | 858 |                          | $ | 1,331                                                                  |  | $    | 1,330 |  | $ | 1,350 |  | $ | 5,008

A summary of the status of the Companys stock option plans at June 30, 2008 and changes
during the six months then ended is presented in the table below:



|                                            |  |                                             |   |  |                                        |      |                                                   |      |                         |   |      
|------------------------------------------- |  | ------------------------------------------- | - |  | -------------------------------------- | ---- | ------------------------------------------------- | ---- | ----------------------- | - | -----
|                                            |  | Shares ofCommon StockAttributable toOptions |   |  | WeightedAverageExercisePrice ofOptions |      | WeightedAverageRemainingContractualTerm(in
years) |      | AggregateIntrinsicValue
|Outstanding at December 31, 2007            |  | 2,538,155                                   |   |  | $                                      | 4.44 |                                                   |      |                         |   |      
|Granted                                     |  | 1,256,050                                   |   |  |                                        | 8.32 |                                                   |      |                         |   |      
|Exercised                                   |  | (2,577                                      | ) |  |                                        | 4.00 |                                                   |      |                         |   |      
|Cancelled                                   |  | (106,237                                    | ) |  |                                        | 6.46 |                                                   |      |                         |   |      
|                                            |  |                                             |   |  |                                        |      |                                                   |      |                         |   |      
|Outstanding at June 30, 2008                |  | 3,685,391                                   |   |  | $                                      | 5.70 |                                                   | 9.08 |                         | $ | 4,049
|                                            |  |                                             |   |  |                                        |      |                                                   |      |                         |   |      
|Vested or expected to vest at June 30, 2008 |  | 3,563,339                                   |   |  | $                                      | 5.69 |                                                   | 9.08 |                         | $ | 3,942
|                                            |  |                                             |   |  |                                        |      |                                                   |      |                         |   |      
|Exercisable at June 30, 2008                |  | 1,244,347                                   |   |  | $                                      | 4.65 |                                                   | 8.77 |                         | $ | 1,910
|                                            |  |                                             |   |  |                                        |      |                                                   |      |                         |   |      



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##### Table of Contents

|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

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 under the title Risk Factors in our Annual Report on Form 10-K for the fiscal year ended December 31, 2007. 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, 2007 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 filed with Securities and Exchange Commission on March 27, 2008. Except as
required by law, we assume no obligation to update these forward-looking statements, whether as a result of new information, future events or otherwise.

Overview

We are a biopharmaceutical company focused on the development and commercialization of innovative antibiotics for
serious infections treated or acquired in hospitals and other institutional settings. Our lead product candidate is oritavancin, a novel intravenous antibiotic, for the treatment of serious gram-positive bacterial infections including complicated
skin and skin structure infections (cSSSI) and bacteremia. In February 2008, we submitted a New Drug Application (NDA) to the U.S. Food and Drug Administration (FDA) seeking to commercialize oritavancin for the
treatment of cSSSI, including infections caused by methicillin-resistant Staphylococcus aureus (MRSA). We are hopeful oritavancin will receive U.S. regulatory approval by the end of 2008. In June 2008, we submitted an application
for Marketing Authorization Approval (MAA) to the European Medicines Agency (EMEA) seeking approval to commercialize oritavancin for the treatment of complicated skin and soft tissue infections (cSSTI) in Europe.
We are hopeful oritavancin will receive European Union regulatory approval in 2009. We plan on commercializing oritavancin through our own direct sales force in the U.S. and in select other countries, and to out-license oritavancin to third parties
in other countries as we deem appropriate. In addition, we have completed our planned pre-clinical development of another antiobiotic in osteomyelitis, and we continually evaluate opportunities for potential in-licensing of other antibiotics for the
treatment of hospital-based infections.

We acquired worldwide rights to oritavancin from InterMune, Inc. (InterMune) in
December 2005, and believe that since then we have greatly improved the commercial and economic prospects for the drug by resolving several important issues with the FDA and by substantially lowering the royalty rate that may be payable to Eli Lilly
and Company (Lilly), the original discoverer of oritavancin. Our strategy is to capitalize on the unique attributes of oritavancin to develop it into a leading therapy worldwide for the treatment of serious gram-positive infections,
initially for cSSSI and subsequently for other indications.

We were incorporated as a Delaware corporation on December 6, 2005 and
initiated operations through our Québec subsidiary in May 1997 in Montreal, Québec. To date, we have dedicated substantially all of our activities to the research and development of our drug candidates. Accordingly, we are considered
to be in the development stage at June 30, 2008, as defined in SFAS No. 7, Accounting and Reporting by Development Stage Enterprises. Our fiscal year ends on December 31 and we operate as one reportable segment. Prior to our
acquisition of oritavancin in December 2005, we were focused on early-stage research in the area of antibiotics and the application of our proprietary phage technology.

On October 9, 2007, the Securities and Exchange Commission (SEC) declared our Registration Statement on Form S-1, as amended, for our initial public offering of 5.75 million shares of our common
stock (Registration No. 333-142842) effective. We sold the shares of common stock in this initial public offering at a price of $10.00 per share. We received net proceeds of approximately $51.1 million after deducting underwriting discounts and
commissions and offering expenses of approximately $2.3 million.

We have not generated any revenue to date from product sales and have
incurred significant operating losses since our inception in 1997. We incurred net losses of $63.3 million for the year ended December 31, 2007 and $34.7 million for the six months ended June 30, 2008. As of June 30, 2008, we had a
deficit accumulated during the development stage of $161.7 million and we expect to incur losses for the foreseeable future.

We expect to
incur substantial expenditures in the foreseeable future for the continued development of our product candidates and, if we obtain regulatory approval, for the commercialization of those products. We expect to continue to incur operating losses for
at least the next several years and we will need additional financing to support our activities. We will seek to fund our operations through public or private equity or debt financings or other sources, such as collaborations and revenue from the
sale of oritavancin, if approved by the FDA. Adequate additional funding may not be available to us on acceptable terms, or at all. Our failure to raise capital as and when needed could have a negative impact on our financial condition and our
ability to pursue our business strategies. If adequate funds are not available to us, we may be required to delay, reduce or eliminate research and development programs, reduce or eliminate commercialization efforts, obtain funds through
arrangements with collaborators or others on terms unfavorable to us or pursue merger or acquisition strategies.



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Critical Accounting Policies

We believe that several accounting policies are important to understanding our historical and future performance. We refer to these policies as critical because these specific areas generally require us to
make judgments and estimates about matters that are uncertain at the time we make the estimate, and different estimates  which also would have been reasonable  could have been used, which would have resulted in different financial
results. It is important that the discussion of our operating results that follows be read in conjunction with the critical accounting policies disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2007. There have
been no changes to these critical accounting policies in the three months ended June 30, 2008.

Results of Operations

Three and six months ended June 30, 2008 compared to three and six months ended June 30, 2007

Revenue. We recorded no revenue during the three and six months ended June 30, 2008 or 2007.

Operating Expenses

The following table
summarizes our operating expenses for the three and six months ended June 30, 2008 and 2007:



|                                                  |  |                            |        |                              |   |       |                          |    |                              |  |   |        |  |   |        |  |      |   
|------------------------------------------------- |  | -------------------------- | ------ | ---------------------------- | - | ----- | ------------------------ | -- | ---------------------------- |  | - | ------ |  | - | ------ |  | ---- | --
|                                                  |  | Three Months EndedJune 30, |        | PercentageIncrease(Decrease) |   |       | Six Months EndedJune 30, |    | PercentageIncrease(Decrease) | 
|                                                  |  | 2008                       |        | 2007                         |   |       | 2008                     |    | 2007                         | 
|                                                  |  | (in thousands)             |        |                              |   |       | (in thousands)           |    |                              | 
|Operating expenses                                |  |                            |        |                              |   |       |                          |    |                              |  |   |        |  |   |        |  |      |   
|Research and development (1)                      |  | $                          | 12,859 |                              | $ | 9,405 |                          | 37 | %                            |  | $ | 27,138 |  | $ | 14,844 |  | 83   | % 
|Acquired in-process research and development      |  | $                          |       |                              | $ |      |                          |   | %                            |  | $ |       |  | $ | 9,500  |  | (100 | )%
|General and administrative (1)                    |  | $                          | 4,189  |                              | $ | 2,847 |                          | 47 | %                            |  | $ | 7,807  |  | $ | 4,782  |  | 63   | % 
|(1) Includes stock-based compensation expense of: | 
|Research and development                          |  | $                          | 312    |                              | $ | 739   |                          |    |                              |  | $ | 569    |  | $ | 747    |  |      |   
|General and administrative                        |  | $                          | 546    |                              | $ | 592   |                          |    |                              |  | $ | 761    |  | $ | 603    |  |      |   

Research and development expense

Research and development expense for the three months ended June 30, 2008 was $12.9 million, compared to $9.4 million for the three months ended
June 30, 2007. The $3.5 million increase during the three months ended June 30, 2008 was primarily the result of a $2.3 million increase in contract research expense, which included an increase of $0.9 million in pre-clinical and clinical
trials expense resulting from clinical trials conducted and in-vitro clinical database work performed for the oritavancin program, as well as an increase of $1.5 million in third-party product manufacturing, validation and process development
expense incurred in preparation for the commercial launch of oritavancin. Additional factors that contributed to the increase in research and development expense were a $0.4 million increase in regulatory filing fees, due to the filing of our MAA
with the EMEA and a $0.8 million increase in salaries and benefits expense, mainly due to an increased number of employees working on the oritavancin program. Our research and development expense also increased as a result of a $0.2 million increase
in professional services, primarily due to increased consulting and recruiting fees. This was offset by a $0.4 million decrease in stock-based compensation expense as a result of a charge recorded in May 2007 related to the grant of replacement and
new options as well as the cancellation of options upon the acceptance of the replacement options.

Research and development expense for
the six months ended June 30, 2008 was $27.1 million, compared to $14.8 million for the six months ended June 30, 2007. The $12.3 million increase during the six months ended June 30, 2008 was primarily the result of a $7.9 million
increase in contract research expense, which included an increase of $4.8 million in pre-clinical and clinical trials expense resulting from clinical trials conducted and in-vitro clinical database work performed for the oritavancin program, as well
as an increase of $3.1 million in third-party product manufacturing, validation and process development expense incurred in preparation



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for the commercial launch of oritavancin. Additional factors that contributed to the increase in research and development expense were a $1.6 million
increase in regulatory filing fees, due to the filing of our NDA with the FDA and our MAA with the EMEA, and a $1.8 million increase in salaries and benefits expense, mainly due to an increased number of employees working on the oritavancin program.
Our research and development expense also increased as a result of a $0.7 million increase in professional services, primarily due to increased consulting and recruiting fees. This was offset by a $0.2 million decrease in stock-based compensation
expense as a result of a charge recorded in May 2007 related to the grant of replacement and new options as well as the cancellation of options upon the acceptance of the replacement options.

Acquired in-process research and development expense

We did not record any acquired in-process research and development expense for the three months ended June 30, 2008 or 2007.

We did not record any acquired in-process research and development expense for the six months ended June 30, 2008, compared to $9.5 million for the six months ended June 30, 2007. The $9.5 million acquired in-process research and
development expense we incurred during the six months ended June 30, 2007 was due to a $2.0 million cash milestone payment to InterMune and a total of $7.5 million of expense related to our achievement of the first milestone under the
convertible note we had initially issued to InterMune in December 2005 in connection with our acquisition of oritavancin. This $7.5 million expense reflects the fair value of the shares of our preferred stock and warrants to purchase shares of our
preferred stock that we issued to InterMune upon our achievement of this milestone.

General and administrative expense

General and administrative expense for the three months ended June 30, 2008 was $4.2 million, compared to $2.8 million for the three months ended
June 30, 2007. The $1.4 million increase during the three months ended June 30, 2008 was primarily the result of a $0.6 million increase in salaries and benefits expense resulting from the hiring of additional administrative staff as we
develop our infrastructure to support the commercial launch of oritavancin and a $0.6 million increase in professional and consulting fees, comprised of a $0.3 million increase in consulting fees primarily related to oritavancin pre-launch expenses,
investor relations/public relations and administrative support expenses and a $0.3 million increase in insurance, legal fees and patent expenses. An additional factor contributing to the increase in general and administrative expense during the
three months ended June 30, 2008 was a $0.1 million increase in expense related to meeting the regulatory requirements associated with being a public company.

General and administrative expense for the six months ended June 30, 2008 was $7.8 million, compared to $4.8 million for the six months ended June 30, 2007. The $3.0 million increase during the six months
ended June 30, 2008 was primarily the result of a $1.1 million increase in salaries and benefits expense resulting from the hiring of additional administrative staff as we develop our infrastructure to support the commercial launch of
oritavancin; and a $1.5 million increase in professional and consulting fees, comprised of a $0.8 million increase in consulting fees primarily related to oritavancin pre-launch expenses, investor relations/public relations and administrative
support expenses and a $0.7 million increase in insurance, legal fees and patent expenses. Additional factors contributing to the increase in general and administrative expense during the six months ended June 30, 2008 were a $0.2 million
increase in expense related to meeting the regulatory requirements associated with being a public company and $0.2 million increase in stock-based compensation expense due to the granting of 1.3 million options in the six months ended
June 30, 2008.

Interest income

Interest income for the three and six months ended June 30, 2008 was $0.5 million and $1.3 million, respectively, compared to $0.6 million and $1.0 million for the three and six months ended June 30, 2007, respectively. The $0.1
million, or 17%, decrease for the three months ended June 30, 2008 was primarily due to lower market interest rates on higher average cash, cash equivalents and short-term investments balances. The $0.3 million, or 30% increase for the six
months ended June 30, 2008 was due to higher average cash, cash equivalents and short-term investments balances. Our cash, cash equivalents and short-term investments balances were higher in 2008 as a result of the $20.0 million of proceeds we
received upon our issuance of the term notes to Merrill Lynch Capital and the two other lenders in late September 2007 (the MLC Term Note) and the $51.1 million of net proceeds from our October 2007 initial public offering.

Interest expense

Interest expense for the
three months ended June 30, 2008 was $0.6 million compared to $(0.3) million for the three months ended June 30, 2007. The increase of $0.9 million, or 300%, for the three months ended June 30, 2008 was primarily due to a $0.6



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million increase in interest expense related to the MLC Term Note, partially offset by a $0.3 million decrease in interest expense related to the repayment
of the loan to our former lender Investissement Québec (IQ) by our Québec subsidiary. Additionally, in the three months ended June 30, 2007, we reversed $0.5 million of interest expense related to an error in the
calculation of the fair value of the warrants issued to IQ due to the use of a contractual term of 8.4 years rather than 2.2 years in the Black-Scholes option pricing model. The reduction in the contractual term resulted in $0.5 million less of
interest expense in the three months ended June 30, 2007.

Interest expense for the six months ended June 30, 2008 was $1.2
million compared to $1.9 million for the six months ended June 30, 2007. The decrease of $0.7 million, or 37%, for the six months ended June 30, 2008 was primarily due to a $2.0 million decrease in interest expense and $0.3 million
decrease in amortization of deferred financing costs resulting from the January 2007 conversion of the outstanding convertible notes and convertible debentures into shares of our preferred stock and the repayment of the loan to IQ by our
Québec subsidiary; partially offset by a $1.2 million increase in interest expense related to the MLC Term Note in the six months ended June 30, 2008 and a reduction of interest expense in the six months ended June 30, 2007 of $0.4
million related to the change in the fair value of the IQ warrant.

Foreign Exchange gain (loss)

Foreign exchange gain for the three months ended June 30, 2008 was $5,000, compared to a foreign exchange loss of $789,000 in the three months ended
June 30, 2007. Foreign exchange loss for the six months ended June 30, 2008 was $14,000, compared to $853,000 in the six months ended June 30, 2007. The change in the foreign exchange loss of $794,000, or 101%, and $839,000, or 98%,
in the three and six months ended June 30, 2008, respectively, resulted from the strengthening of the Canadian dollar as the foreign exchange gain (loss) is primarily a result of the translation adjustments resulting from the financial
statements of our Canadian subsidiaries.

Income tax benefit

Income tax benefit for the three and six months ended June 30, 2008 was $74,000 and $140,000, respectively, compared to an income tax benefit of $83,000 and $54,000 for the three and six months ended
June 30, 2007, respectively. The $9,000, or 11%, decrease in income tax benefit for the three months ended June 30, 2008 primarily resulted from the strengthening of the Canadian dollar. The $86,000 increase in income tax benefit for the
six months ended June 30, 2008 primarily resulted from no longer recording any Canadian Part VI.I income tax expense on the accumulated dividends related to our Series B Redeemable Convertible Preferred Stock as a result of the January 2007
payment of the accrued dividend (and the associated termination of the cumulative dividend) on those shares.

Liquidity and Capital Resources

On October 9, 2007, our Registration Statement on Form S-1, as amended, for our initial public offering of 5.75 million
shares of our common stock was declared effective by the SEC. On October 15, 2007, we sold these 5.75 million registered shares at a price of $10.00 per share. We received net proceeds of approximately $51.1 million from the offering after
deducting underwriting discounts and commissions and offering expenses of approximately $2.3 million.

Prior to our October 9, 2007
initial public offering, we financed our operations primarily through the sale of preferred stock and common stock, debt financings, interest earned on investments and investment tax credits. Prior to our initial public offering, we had received
aggregate gross proceeds of $125.8 million from financings, of which $70.4 million was from the issuance of preferred stock, $2.7 million was from the issuance of common stock and $52.7 million was from debt financings. Our cash, cash equivalents,
short-term investments and restricted cash include amounts held in money market accounts, overnight investment accounts, guaranteed investment certificates, certificates of deposit, commercial paper, asset backed securities, United States treasury
bills, debt obligations of government agencies and corporate obligations, stated at cost plus accrued interest, which approximates fair market value. We invest cash in excess of immediate requirements in accordance with our investment policy, which
is focused primarily on the preservation of capital, fulfillment of liquidity needs, fiduciary control of cash and investments and the maximization of income from our investments without assuming significant risk. At June 30, 2008, we did not
own any mortgage backed securities or auction rate securities.

As of June 30, 2008, we had cash, cash equivalents and short-term
investments of approximately $58.7 million. We intend to use our cash to fund internal and external costs related to regulatory filings in Europe; to fund clinical trials for oritavancin in cSSSI using a single administration, including our Phase 2
clinical trial entitled Single or Infrequent Doses for the Treatment of Complicated Skin and Skin Structure Infections, or SIMPLIFI, which completed enrollment in May 2008; and to continue the clinical development of oritavancin for
other indications such as bacteremia; in anticipation of regulatory approval, to fund commercial launch related expenses for oritavancin including manufacturing, marketing, and sales; to make regularly scheduled payments on our existing debt
facilities, namely the MLC Term Note; and to apply the remaining funds for general corporate purposes and the potential acquisition of, or investment in, technologies, products, or companies that complement our business.



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The amounts and timing of our actual expenditures will depend upon numerous factors, including whether we
obtain FDA and foreign regulatory approvals for oritavancin and, if so, the timing of such approval; the success of the commercial launch of oritavancin if approved by the FDA; our cash flows from operations; any potential acquisitions of or
investments in technologies, products or companies; and the anticipated growth of our business.

We expect our existing resources to be
sufficient to fund our planned operations into the third quarter of 2009.

Cash Flows

The following table summarizes our net increase in cash and cash equivalents for the six months ended June 30, 2008 and 2007:



|                                          |  |                          |         |   |      |   |         |  
|----------------------------------------- |  | ------------------------ | ------- | - | ---- | - | ------- | -
|                                          |  | Six Months EndedJune 30, |        
|                                          |  | 2008                     |         |   | 2007 |  
|                                          |  | (in thousands)           |        
|Net cash provided by (used in):           |  |                          |         |   |      |   |         |  
|Operating activities                      |  | $                        | (28,493 | ) |      | $ | (16,924 | )
|Investing activities                      |  |                          | 34,113  |   |      |   | (15,512 | )
|Financing activities                      |  |                          | (2,212  | ) |      |   | 54,846  |  
|                                          |  |                          |         |   |      |   |         |  
|Net increase in cash and cash equivalents |  | $                        | 3,408   |   |      | $ | 22,410  |  
|                                          |  |                          |         |   |      |   |         |  

Net cash used in operating activities. Net cash used in operating activities was $28.5
million and $16.9 million for the six months ended June 30, 2008 and 2007, respectively, and primarily reflects our net loss for those periods. The increase in net cash used in the six months ended June 30, 2008 compared to the six months
ended June 30, 2007 was due primarily to a $7.5 million decrease in non-cash acquired in-process research and development expense; a $1.3 million decrease in non-cash interest expense; a $0.3 million decrease in amortization of deferred
financing costs expense; a $1.1 million decrease in unrealized foreign exchange loss and a $3.9 million increase in net loss; offset by a $2.4 million increase in net changes in working capital items relating to operations.

Net cash provided by (used in) investing activities. Net cash provided by investing activities was $34.1 million for the six months ended
June 30, 2008 and net cash used in investing activities was $15.5 million in the six months ended June 30, 2007. Investing activities consist primarily of purchases and sales of short-term securities and capital purchases. The increase in
cash provided by investing activities in the six months ended June 30, 2008 compared to the six months ended June 30, 2007 was primarily due to a $47.3 million increase in the proceeds from the sales and maturities of short-term
investments and a decrease of $2.0 million of cash used to purchase short-term investments.

Net cash (used in) provided by financing
activities. Net cash used in financing activities was $2.2 million for the six months ended June 30, 2008 and net cash provided by financing activities was $54.8 million for the six months ended June 30, 2007. The increase in net cash
used in the six months ended June 30, 2008 compared to the six months ended June 30, 2007 was primarily due to a decrease in proceeds from the issuance of preferred stock and warrants of $57.8 million; an increase of payments on long-term
debt of $2.2 million; offset by a decrease in payments on convertible notes of $2.2 million.

Contractual obligations

During the fiscal quarter ended June 30, 2008, we did not incur any additional obligations that materially change the disclosure of our contractual
obligations in our Annual Report on Form 10-K for the fiscal year ended December 31, 2007.

Off-balance sheet arrangements

We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or
special purpose entities, that would have been established for the purpose of facilitating off-balance sheet arrangements (as that term is defined in Item 303(a)(4)(ii) of Regulation S-K) or other contractually narrow or limited purposes.
As such, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in those types of relationships.



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Recently issued accounting pronouncements

In December, 2007, EITF 07-01,Accounting for Collaborative Arrangements Related to the Development and Commercialization of Intellectual Property
(EITF 07-01), was issued. EITF 07-01 prescribes the accounting for collaborations, requiring that, when certain characteristics exist in collaboration relationships, certain transactions between collaborators be recorded within expenses
in the income statement on either a gross or net basis. EITF 07-01 is effective for all of our collaborations existing after January 1, 2009. We currently have no collaborations that are impacted by EITF 07-01. We will evaluate any future
collaborations under this guidance, as appropriate.



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|Item 3. | Quantitative and Qualitative Disclosures about Market Risk
|------- | ----------------------------------------------------------

Interest Rate Risk

We are exposed to market risk related to changes in interest rates. As of June 30, 2008, we had
cash, cash equivalents and short-term investments of approximately $58.7 million. In accordance with our investment policy, this amount is invested in a mix of cash and highly liquid short-term investments. The goals of our investment policy are
preservation of capital, fulfillment of liquidity needs and fiduciary control of cash and investments. We also seek to maximize income from our investments without assuming significant risk.

Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of interest rates, particularly
because our investments are in short-term marketable securities. Due to the short-term duration of our investment portfolio and the low risk profile of our investments, an immediate 10% change in interest rates would not have a material effect on
the fair market value of our portfolio. Accordingly, we would not expect our operating results or cash flows to be affected to any significant degree by the effect of a sudden change in market interest rates on our securities portfolio.

As of June 30, 2008, our outstanding MLC Term Note has a fixed interest rate and therefore has minimal exposure to changes in interest rates.

Foreign Currency Risk

Most of our transactions are conducted in U.S. dollars, although we do have some development and clinical trial agreements with vendors located outside the U.S. Transactions under certain of these agreements are conducted in U.S. dollars
while others are transacted in the applicable local currency. The expenses and capital spending of our Canadian subsidiaries are transacted in Canadian dollars and subject to foreign exchange rate risk. Our foreign currency transactions are
translated into U.S. dollars at prevailing rates. Gains or losses resulting from foreign currency transactions are included in current period income or loss as incurred. All material transactions are denominated in U.S. dollars and we have not
entered into any material transactions that are denominated in foreign currencies. As a result, we do not believe that an immediate 10% change in the exchange rate applicable to our international business dealings would have a material impact on our
results of operations or cash flows.

Effects of Inflation

We do not believe that inflation and changing prices over the three and six months ended June 30, 2008 and 2007 had a significant impact on our
results of operations.



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|Item 4. | Controls and Procedures
|------- | -----------------------

Evaluation of Disclosure Controls and
Procedures

As required by Rule 13a15(b) of the Securities and Exchange Act of 1934, as amended (the 1934 Act), our
management, including the principal executive officer and the principal financial officer, conducted an evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q of the effectiveness of the design and operation of our
disclosure controls and procedures. Based on that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective at a reasonable assurance level in ensuring that
information required to be disclosed by us in the reports that we file or submit under the 1934 Act is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file under the 1934 Act is accumulated and communicated to our management, including our principal
executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control

As required by Rule 13a-15(d) of the 1934 Act, our management, including the principal executive officer and the principal financial
officer, conducted an evaluation of the internal control over financial reporting to determine whether any changes occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting. Based on that evaluation, the principal executive officer and principal financial officer concluded no such changes during the fiscal quarter covered by this Quarterly Report on Form
10-Q materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.



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PART II. OTHER INFORMATION



|Item 1. | Legal Proceedings
|------- | -----------------

We currently are not a party to
any material legal proceedings.



|Item 1A. | Risk Factors
|-------- | ------------

In addition to the other information
set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed under the title Risk Factors in our Annual Report on Form 10-K for the fiscal year ended December 31, 2007 and our Quarterly Report
on Form 10-Q for the quarterly period ended March 31, 2008, which risks could materially affect our business, financial condition and/or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our
Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.



|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds.
|------- | ------------------------------------------------------------

Unregistered Sales of Equity Securities

None.

Use of Proceeds

On October 9, 2007, our Registration Statement on Form S-1, as amended (File
No. 333-142842), relating to the initial public offering was declared effective by the SEC. On October 15, 2007, we closed the sale of 5.75 million shares of common stock in the initial public offering for net proceeds to us of
approximately $51.1 million. As of June 30, 2008, $51.1 million of the net proceeds remained available and were primarily invested in highly liquid short-term investments, including money market accounts, overnight investment accounts,
certificates of deposit, commercial paper, corporate bonds, asset backed securities, United States treasury bills and debt obligations of various government agencies, pending their use to fund our operations and expansion. There has been no material
change in our planned use of proceeds from the initial public offering from that described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2007.



|Item 3. | Defaults Upon Senior Securities
|------- | -------------------------------

None.



|Item 4. | Submission of Matters to a Vote of Security Holders
|------- | ---------------------------------------------------

We held our
annual meeting of stockholders on June 2, 2008. The following proposals were voted upon at the meeting.



| | (a) | A proposal to elect two Class I directors, each to serve a term of three years:
| | --- | -------------------------------------------------------------------------------



|                       |  |                 |  |          |  |              
|---------------------- |  | --------------- |  | -------- |  | -------------
|                       |  | Number of Votes
|                       |  | For             |  | Withheld |  | For AllExcept
|Mark W. Leuchtenberger |  | 19,949,296      |  |         |  |             
|William W. Crouse      |  | 19,949,296      |  |         |  |             

Each nominee received a plurality of the votes cast and, therefore, was duly re-elected as a
director of the Company. The terms of office of the other directors: Garen Bohlin, Jeffrey Courtney, Eric M. Gordon, Ph.D., Dilip J. Mehta, M.D., Ph.D., and Jay Venkatesan, M.D., continued after the meeting.



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| | (b) | A proposal to ratify the selection of Ernst & Young LLP as the Companys independent registered public accounting firm for the fiscal year ending December 31,
2008:
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                    |  |                         |  |                            |  |                           
|------------------- |  | ----------------------- |  | -------------------------- |  | --------------------------
|Number of Votes For |  | Number of Votes Against |  | Number of Votes Abstaining |  | Number of Broker Non-Votes
|19,941,792          |  | 7,504                   |  |                           |  |                          

The number of votes cast in favor of the proposal exceeded the number of votes cast against the
proposal and, therefore, the proposal was adopted.



|Item 5. | Other Information
|------- | -----------------

None.



|Item 6. | Exhibits
|------- | --------

The Exhibits listed in the Exhibit Index
immediately preceding the Exhibits are filed as a part of this Quarterly Report on Form 10-Q.



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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.



|                     |  |                                   |  |                                                                                                                                                           
|-------------------- |  | --------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------
|                     |  | TARGANTA THERAPEUTICS CORPORATION
|                     |  |                                  
|Date: August 7, 2008 |  | By:                               |  | /s/ Mark W. Leuchtenberger                                                                                                                                
|                     |  |                                   |  | Mark W. Leuchtenberger                                                                                                                                    
|                     |  |                                   |  | Director, President and Chief Executive Officer (principal executive officer)                                                                             
|                     |  |                                  
|Date: August 7, 2008 |  | By:                               |  | /s/ George A. Eldridge                                                                                                                                    
|                     |  |                                   |  | George A. Eldridge                                                                                                                                        
|                     |  |                                   |  | Senior Vice President, Finance and Administration, Chief Financial Officer, Treasurer and Assistant Secretary (principal accounting and financial officer)



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EXHIBIT INDEX



|            |  |                                                                                                                             
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------
|Exhibit No: |  | Description                                                                                                                 
|31.1        |  | Certification of Chief Executive Officer pursuant to Rules 13a-14 or 15d-14 of the 1934 Act                                 
|            | 
|31.2        |  | Certification of Chief Financial Officer pursuant to Rules 13a-14 or 15d-14 of the 1934 Act                                 
|            | 
|32.1        |  | Certification of Chief Executive Officer pursuant to Rules 13a-14(b) or 15d-14(b) of the 1934 Act and 18 U.S.C. Section 1350
|            | 
|32.2        |  | Certification of Chief Financial Officer pursuant to Rules 13a-14(b) or 15d-14(b) of the 1934 Act and 18 U.S.C. Section 1350



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