**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington,DC 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 March 31, 2008** |
| ** **            | ** ** | ** ** |
| ** **            | ** ** | **OR** |
| ** **            | ** ** | ** ** |
| **  ****o** | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

 

**Forthe transition period from                      to                      .**

 

**CommissionFile Number 0-28494**

 

**MILLENNIUMPHARMACEUTICALS, INC.**

(Exact name ofregistrant as specified in its charter)

 

| **Delaware**                       | ** ** | **04-3177038**       |
|------------------------------------|------------|----------------------|
| (State or other  jurisdiction      |       | (I.R.S. Employer     |
| of incorporation  or organization) |       | Identification  No.) |

 

**40Landsdowne Street, Cambridge, Massachusetts 02139**

(Address ofprincipal executive offices) (zip code)

 

**(617) 679-7000**

(Registrant’stelephone number, including area code)

 

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

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a small reporting company. See the definitions of “largeaccelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2of the Exchange Act. (Check one):

 

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

 

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

 

Number of shares of theregistrant’s Common Stock, $0.001 par value, outstanding on May 2,2008:   327,288,246

 

 

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**MILLENNIUMPHARMACEUTICALS, INC.**

 

**FORM 10-Q**

 

**FORTHE QUARTER ENDED MARCH 31, 2008**

 

**TABLEOF CONTENTS**

 
| **PART I**  | ** ** | **FINANCIAL INFORMATION**                                                                                 |       |       |
|------------------|------------|-----------------------------------------------------------------------------------------------------------|------------|------------|
| ** **       | ** ** | ** **                                                                                                | ** ** | ** ** |
| Item 1.          |       | Condensed Consolidated  Financial Statements                                                              |       |       |
|             |       |                                                                                                      |       |       |
|             |       | Condensed Consolidated  Balance Sheets as of March 31, 2008 and December 31, 2007               |       | 3          |
|             |       |                                                                                                      |       |       |
|             |       | Condensed Consolidated  Statements of Operations for the three months ended March 31, 2008 and  2007 |       | 4          |
|             |       |                                                                                                      |       |       |
|             |       | Condensed Consolidated  Statements of Cash Flows for the three months ended March 31, 2008 and  2007 |       | 5          |
|             |       |                                                                                                      |       |       |
|             |       | Notes to  Condensed Consolidated Financial Statements                                                     |       | 6          |
|             |       |                                                                                                      |       |       |
| Item 2.          |       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations               |       | 16         |
|             |       |                                                                                                      |       |       |
| Item 3.          |       | Quantitative  and Qualitative Disclosures about Market Risk                                               |       | 28         |
|             |       |                                                                                                      |       |       |
| Item 4.          |       | Controls and Procedures                                                                                   |       | 28         |
|             |       |                                                                                                      |       |       |
| **PART II** | ** ** | **OTHER INFORMATION**                                                                                     |       |       |
| ** **       | ** ** | ** **                                                                                                | ** ** | ** ** |
| Item 1.          |       | Legal Proceedings                                                                                         |       | 29         |
|             |       |                                                                                                      |       |       |
| Item 1A.         |       | Risk Factors That  May Affect Results                                                                |       | 30         |
|             |       |                                                                                                      |       |       |
| Item 6.          |       | Exhibits                                                                                                  |       | 44         |
|             |       |                                                                                                      |       |       |
|             |       | Signatures                                                                                                |       | 45         |
|             |       |                                                                                                      |       |       |
|             |       | Exhibit Index                                                                                        |       | 46         |

 

*Thefollowing Millennium trademarks are used in this Quarterly Report on Form 10-Q:* Millennium®, the Millennium “M” logo anddesign (registered), Millennium PharmaceuticalsTM, VELCADE® (bortezomib) forInjection, and INTEGRILIN® (eptifibatide) Injection. All are covered byregistrations or pending applications for registration in the U.S. Patent andTrademark Office and many other countries. DOXIL® (doxorubicin HCl liposomeinjection) is a trademark of Ortho Biotech Products, L.P, ReoPro® (abciximab)is a trademark of Eli Lilly & Company, Aggrastat® (tirofiban) is atrademark of Merck & Co., Inc., Thalomid® (thalidomide) andRevlimid® (lenalidomide) are trademarks of Celgene Corporation and Angiomax®(bivalirudin) is a trademark of The Medicines Company.*  Othertrademarks used in this Quarterly Report on Form 10-Q are the property oftheir respective owners.*

 

2

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**PART I   FINANCIALINFORMATION**

 

**Item 1.  Condensed Consolidated Financial Statements**

 

**MillenniumPharmaceuticals, Inc.**

 

**Condensed Consolidated Balance Sheets**

 
| **(in thousands, except per share amounts)**                                                                                                  | ** ** | **March 31,  2008** | ** ** | **December 31,  2007** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                                                             | ** ** | **(unaudited)**          | ** ** | ** **                  | ** ** |
| **Assets**                                                                                                                                                             | ** ** | ** **               | ** ** | ** **                  | ** ** |
| Current assets:                                                                                                                                                        |       |                     |       |                        |       |
| Cash and cash  equivalents                                                                                                                                             |       | $                        | 143,973    |                        | $          | 89,163 |   |
| Marketable  securities                                                                                                                                                 |       | 787,315                  |       | 802,113                     |       |
| Accounts  receivable, net of allowances of $514 in 2008 and $524 in 2007                                                                                               |       | 85,562                   |       | 126,349                     |       |
| Inventory                                                                                                                                                              |       | 7,410                    |       | 6,821                       |       |
| Prepaid expenses  and other current assets                                                                                                                             |       | 10,118                   |       | 9,624                       |       |
| Total current  assets                                                                                                                                                  |       | 1,034,378                |       | 1,034,070                   |       |
| Property and  equipment, net                                                                                                                                           |       | 144,715                  |       | 147,869                     |       |
| Restricted cash                                                                                                                                                        |       | 7,584                    |       | 7,650                       |       |
| Other assets                                                                                                                                                           |       | 29,646                   |       | 29,961                      |       |
| Goodwill                                                                                                                                                               |       | 1,218,630                |       | 1,217,501                   |       |
| Developed  technology, net                                                                                                                                             |       | 230,048                  |       | 238,413                     |       |
| Intangible  assets, net                                                                                                                                                |       | 60,914                   |       | 61,036                      |       |
| Total assets                                                                                                                                                           |       | $                        | 2,725,915  |                        | $          | 2,736,500 |   |
|                                                                                                                                                                   |       |                     |       |                        |       |
| **Liabilities  and Stockholders’ Equity**                                                                                                                         | ** ** | ** **               | ** ** | ** **                  | ** ** |
| Current  liabilities:                                                                                                                                                  |       |                     |       |                        |       |
| Accounts payable                                                                                                                                                       |       | $                        | 16,562     |                        | 23,461     |   |
| Accrued expenses                                                                                                                                                       |       | 59,311                   |       | 75,370                      |       |
| Current portion  of restructuring                                                                                                                                      |       | 19,862                   |       | 22,986                      |       |
| Current portion  of deferred revenue                                                                                                                                   |       | 4,357                    |       | 9,412                       |       |
| Current portion  of capital lease obligations                                                                                                                          |       | 1,262                    |       | 1,246                       |       |
| Total current  liabilities                                                                                                                                             |       | 101,354                  |       | 132,475                     |       |
| Other long-term  liabilities                                                                                                                                           |       | 2,333                    |       | 2,016                       |       |
| Restructuring,  net of current portion                                                                                                                                 |       | 21,359                   |       | 26,416                      |       |
| Deferred  revenue, net of current portion                                                                                                                              |       | 14,574                   |       | 14,905                      |       |
| Capital lease  obligations, net of current portion                                                                                                                     |       | 73,474                   |       | 73,795                      |       |
| Long-term debt                                                                                                                                                         |       | 250,000                  |       | 250,000                     |       |
|                                                                                                                                                                   |       |                     |       |                        |       |
| Commitments and  contingencies                                                                                                                                         |       |                     |       |                        |       |
|                                                                                                                                                                   |       |                     |       |                        |       |
| **Stockholders’  Equity:**                                                                                                                                        | ** ** | ** **               | ** ** | ** **                  | ** ** |
| Preferred stock,  $0.001 par value; 5,000 shares authorized, none issued                                                                                               |       | —                   |       | —                      |       |
| Common stock,  $0.001 par value; 500,000 shares authorized: 326,660 shares at March 31,  2008 and 324,605 shares at December 31, 2007 issued and outstanding |       | 327                      |       | 325                         |       |
| Additional  paid-in capital                                                                                                                                            |       | 4,738,195                |       | 4,728,762                   |       |
| Accumulated  other comprehensive income                                                                                                                                |       | 5,755                    |       | 3,888                       |       |
| Accumulated  deficit                                                                                                                                                   |       | (2,481,456               | )          | (2,496,082                  | )          |
| Total  stockholders’ equity                                                                                                                                       |       | 2,262,821                |       | 2,236,893                   |       |
| Total  liabilities and stockholders’ equity                                                                                                                       |       | $                        | 2,725,915  |                        | $          | 2,736,500 |   |

 

The accompanyingnotes are an integral part of these condensed consolidated financialstatements.

 

3

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**MillenniumPharmaceuticals, Inc.**

 

**Condensed Consolidated Statements ofOperations**

 

**(unaudited)**

 
| ** **                                                            | ** ** | **Three Months Ended March 31,** | ** ** |
|-----------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| **(in thousands, except per share amounts)** | ** ** | **2008**                                             | ** ** | **2007** | ** ** |
| ** **                                                            | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| Revenues:                                                             |       |                                                 |       |   |   |
| Net product  sales                                                    |       | $                                                    | 83,470     |   | $ | 58,640 |   |
| Revenue under  strategic alliances                                    |       | 15,523                                               |       | 15,714 |   |
| Royalties                                                             |       | 40,459                                               |       | 36,370 |   |
| Total revenues                                                        |       | 139,452                                              |       | 110,724 |   |
|                                                                  |       |                                                 |       |   |   |
| Costs and  expenses:                                                  |       |                                                 |       |   |   |
| Cost of sales  (excludes amortization of acquired intangible assets)  |       | 10,160                                               |       | 5,358 |   |
| Research and  development (Note 1)                                    |       | 71,406                                               |       | 69,206 |   |
| Selling, general  and administrative (Note 1)                         |       | 49,795                                               |       | 41,548 |   |
| Restructuring                                                         |       | (2,870                                               | )          | 5,611 |   |
| Amortization of  intangibles                                          |       | 8,487                                                |       | 8,487 |   |
| Total costs and  expenses                                             |       | 136,978                                              |       | 130,210 |   |
|                                                                  |       |                                                 |       |   |   |
| Income (loss)  from operations                                        |       | 2,474                                                |       | (19,486 | ) |
|                                                                  |       |                                                 |       |   |   |
| Other income  (expense):                                              |       |                                                 |       |   |   |
| Investment  income, net                                               |       | 14,553                                               |       | 15,495 |   |
| Interest expense                                                      |       | (2,401                                               | )          | (2,787 | ) |
| Net income  (loss)                                                    |       | $                                                    | 14,626     |   | $ | (6,778 | ) |
|                                                                  |       |                                                 |       |   |   |
| *Amounts  per common share:*                                          | * *   | * *                                             | * *   | * * | * * |
|                                                                  |       |                                                 |       |   |   |
| Earnings (loss)  per share, basic and diluted                         |       | $                                                    | 0.05       |   | $ | (0.02 | ) |
|                                                                  |       |                                                 |       |   |   |
| Weighted average  shares, basic                                       |       | 321,608                                              |       | 316,072 |   |
| Weighted average  shares, diluted                                     |       | 326,694                                              |       | 316,072 |   |

 

Note 1:  Stock-basedcompensation expense is allocated in the condensed consolidated statements ofoperations expense lines as follows:

 
| ** **                           | ** ** | **Three Months Ended March 31,** | ** ** |
|--------------------------------------|------------|------------------------------------------------------|------------|
| **(in thousands)**              | ** ** | **2008**                                             | ** ** | **2007** | ** ** |
| ** **                           | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| Research and  development            |       | $                                                    | 1,361      |   | $ | 2,055 |   |
| Selling, general  and administrative |       | 4,162                                                |       | 3,347 |   |
|                                      |            |                                                      |            |  |  |  |  |

 

The accompanyingnotes are an integral part of these condensed consolidated financialstatements.

 

4

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**MillenniumPharmaceuticals, Inc**

 

**Condensed Consolidated Statements ofCash Flows**

 

**(unaudited)**

 
| ** **                                                                                | ** ** | **Three Months Ended   March 31,** | ** ** |
|-------------------------------------------------------------------------------------------|------------|--------------------------------------------------------|------------|
| **(in thousands)**                                                                   | ** ** | **2008**                                               | ** ** | **2007** | ** ** |
| ** **                                                                                | ** ** | ** **                                             | ** ** | ** ** | ** ** |
| **Cash  Flows from Operating Activities:**                                                | ** ** | ** **                                             | ** ** | ** ** | ** ** |
| Net income  (loss)                                                                        |       | $                                                      | 14,626     |   | $ | (6,778 | ) |
| Adjustments to  reconcile net income (loss) to net cash provided by operating activities: |       |                                                   |       |   |   |
| Depreciation and  amortization                                                            |       | 12,634                                                 |       | 17,083 |   |
| Realized gain on  sale of restructured assets                                             |       | (211                                                   | )          | — |   |
| Amortization of  deferred financing costs                                                 |       | 402                                                    |       | 448 |   |
| Realized gain on  securities, net                                                         |       | (3,315                                                 | )          | (5,092 | ) |
| 401K stock match                                                                          |       | 167                                                    |       | 1,650 |   |
| Stock-based  compensation expense                                                         |       | 5,523                                                  |       | 5,402 |   |
| Changes in  operating assets and liabilities:                                             |       |                                                   |       |   |   |
| Accounts  receivable                                                                      |       | 40,787                                                 |       | 24,203 |   |
| Inventory                                                                                 |       | (589                                                   | )          | 1,508 |   |
| Prepaid expenses  and other current assets                                                |       | (494                                                   | )          | 576 |   |
| Restricted cash  and other assets                                                         |       | 66                                                     |       | (3,509 | ) |
| Accounts payable  and accrued expenses                                                    |       | (30,863                                                | )          | (20,534 | ) |
| Deferred revenue                                                                          |       | (5,386                                                 | )          | (838 | ) |
| Other long-term  liabilities                                                              |       | 317                                                    |       | 34 |   |
| Net cash  provided by operating activities                                                |       | 33,664                                                 |       | 14,153 |   |
|                                                                                      |       |                                                   |       |   |   |
| **Cash  Flows from Investing Activities:**                                                | ** ** | ** **                                             | ** ** | ** ** | ** ** |
| Investments in  marketable securities                                                     |       | (177,153                                               | )          | (190,474 | ) |
| Proceeds from  sales and maturities of marketable securities                              |       | 195,811                                                |       | 117,991 |   |
| Purchases of  property and equipment                                                      |       | (1,354                                                 | )          | (1,100 | ) |
| Other investing  activities                                                               |       | 400                                                    |       | 1,269 |   |
| Net cash  provided by (used in) investing activities                                      |       | 17,704                                                 |       | (72,314 | ) |
|                                                                                      |       |                                                   |       |   |   |
| **Cash  Flows from Financing Activities:**                                                | ** ** | ** **                                             | ** ** | ** ** | ** ** |
| Net proceeds  from employee stock purchases                                               |       | 3,747                                                  |       | 8,351 |   |
| Repayment of  principal of long-term debt obligations                                     |       | —                                                 |       | (99,571 | ) |
| Principal  payments on capital leases                                                     |       | (305                                                   | )          | (291 | ) |
| Net cash  provided by (used in) financing activities                                      |       | 3,442                                                  |       | (91,511 | ) |
|                                                                                      |       |                                                   |       |   |   |
| Increase  (decrease) in cash and cash equivalents                                         |       | 54,810                                                 |       | (149,672 | ) |
| Effects of  exchange rate changes on cash and cash equivalents                            |       | —                                                 |       | 1 |   |
| Cash and cash  equivalents, beginning of period                                           |       | 89,163                                                 |       | 212,273 |   |
| Cash and cash  equivalents, end of period                                                 |       | $                                                      | 143,973    |   | $ | 62,602 |   |
| ** **                                                                                | ** ** | ** **                                             | ** ** | ** ** | ** ** |
| **Supplemental  Cash Flow Information:**                                                  | ** ** | ** **                                             | ** ** | ** ** | ** ** |
| Cash paid for  interest                                                                   |       | $                                                      | 610        |   | $ | 3,323 |   |

 

The accompanyingnotes are an integral part of these condensed consolidated financialstatements.

 

5

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**MillenniumPharmaceuticals, Inc.**

**Notes to Condensed ConsolidatedFinancial Statements**

 

**1.   Basis of Presentation**

 

The accompanying condensed consolidated financial statements have beenprepared in accordance with generally accepted accounting principles forinterim financial information and with the instructions to Form 10-Q and Article 10of Regulation S-X. Accordingly, they do not include all of the information andfootnotes required by generally accepted accounting principles for completefinancial statements. In the opinion of management, all adjustments, consistingof normal recurring accruals and revisions of estimates, considered necessaryfor a fair presentation of the accompanying condensed consolidated financialstatements have been included. Interim results for the three months ended March 31,2008 are not necessarily indicative of the results that may be expected for theyear ending December 31, 2008. For further information, refer to theconsolidated financial statements and accompanying footnotes included in theCompany’s Annual Report on Form 10-K for the year ended December 31,2007, which was filed with the Securities and Exchange Commission (“SEC”) on February 29,2008.

 

The information presented in the condensed consolidated financial statementsand related footnotes at March 31, 2008, and for the three months ended March 31,2008 and 2007, is unaudited and the condensed consolidated balance sheetamounts and related footnotes at December 31, 2007, have been derived fromaudited financial statements.

 

**2.   Summary of Significant Accounting Policies**

 

**Cash Equivalents, Marketable Securities and Other Investments**

 

Cash equivalentsprincipally consist of money market funds and corporate bonds with maturitiesof three months or less at the date of purchase. Marketable securitiesprimarily consist of investment-grade corporate bonds, asset-backed debtsecurities and U.S. government agency debt securities. Other investmentsrepresent ownership in private companies in which the Company holds less than a20 percent ownership position and does not otherwise exercise significantinfluence. The Company carries such investments at cost unless significantinfluence can be exercised over the investee, in which case such securities arerecorded using the equity method. The Company monitors these investments inprivate companies on a quarterly basis and determines whether any impairment intheir value would require a charge to the statement of operations, based on theimplied value from any recent rounds of financing completed by the investee,market prices of comparable public companies and general marketconditions.  These other investments areincluded in other long-term assets at March 31, 2008 and December 31,2007.

 

Management determines the appropriate classificationof marketable securities at the time of purchase and reevaluates suchdesignation at each balance sheet date. Marketable securities at March 31,2008 and December 31, 2007 are classified as “available-for-sale.”Available-for-sale securities are carried at fair value, with the unrealizedgains and losses reported in a separate component of stockholders’ equity. Thecost of debt securities in this category is adjusted for amortization ofpremiums and accretion of discounts to maturity. Such amortization andaccretion are included in investment income. Realized gains and losses anddeclines in value judged to be other-than-temporary on available-for-salesecurities and other investments are included in investment income. The cost ofsecurities sold is based on the specific identification method. Interest anddividends on securities classified as available-for-sale are included ininvestment income.

 

During the three monthsended March 31, 2008, the Company recorded realized gains on marketablesecurities and other investments of $3.7 million and realized losses onmarketable securities of $0.4 million.  During the three months ended March 31,2007, the Company recorded realized gains on marketable securities and otherinvestments of $6.0 million and realized losses on marketable securities of$0.9 million.

 

Realized gains onmarketable securities for the three months ended March 31, 2008 included arealized gain of approximately $1.2 million related to the Company’s share ofproceeds from a class action proceeding against WorldCom, Inc.  TheCompany had previously recorded realized losses equal to the carrying value ofits investment in WorldCom, Inc., as the decline in value was determinedto be other-than-temporary at that time.

 

Realized gains on marketablesecurities for the three months ended March 31, 2007 included a realizedgain of approximately $3.5 million related to the sale of the Company’sinvestment in SGX Pharmaceuticals, Inc. and a realized gain ofapproximately $2.3 million related to the Company’s share of proceeds from aclass action proceeding against WorldCom, Inc.

 

**Segment Information**

 

Statement of Financial Accounting Standards (“SFAS”) No. 131,“Disclosures about Segments of an Enterprise and Related Information” (“SFAS No. 131”),establishes standards for the way that public business enterprises reportinformation about operating

 

6

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**MillenniumPharmaceuticals, Inc.**

**Notesto Condensed Consolidated Financial Statements (continued)**

 

segments in their financial statements. SFAS No. 131 alsoestablishes standards for related disclosures about products and services,geographic areas, and major customers.

 

The Company operates in one business segment, whichfocuses on the research, development and commercialization of therapeuticproducts. All of the Company’s product sales are currently related to sales ofVELCADE® (bortezomib) for Injection. The remainder of the Company’stotal revenue is related to its strategic alliances and royalties.

 

Revenues from OrthoBiotech Products, L.P. (“OBL”), a member of the Johnson & JohnsonFamily of Companies, accounted for approximately 19 percent and15 percent of consolidated revenues for the three months ended March 31,2008 and 2007, respectively.

 

Revenues fromSchering-Plough Ltd. and Schering Corporation (collectively “SGP”)accounted for approximately 16 percent and 25 percent of consolidated revenuesfor the three months ended March 31, 2008 and 2007, respectively.

 

There were no othersignificant customers under strategic alliances and royalties for the threemonths ended March 31, 2008 and 2007.

 

**Information Concerning Market and Source of SupplyConcentration**

 

The Company relies on third party contractmanufacturers for the manufacturing of the active ingredient, formulation,fill/finish and packaging of VELCADE for both commercial purposes and forongoing clinical trials. The Company has established long term supplyrelationships for the production of commercial supplies of VELCADE. The Companyworks with one manufacturer under a long term supply agreement to completefill/finish for VELCADE. The Company is currently qualifying a secondfill/finish supplier in order to mitigate its risk of VELCADE supplyinterruption.

 

The Company distributes VELCADE in the United Statesthrough a sole-source open access distribution model where the Company sellsdirectly to an independent third party who in turn distributes to thewholesaler base. In April 2006, the Company’s distributor added a seconddistribution site to its network in order to improve access to the product forphysicians in the western United States.

 

INTEGRILIN has received regulatory approvals in theUnited States, the countries of the European Union and a number of othercountries for various indications. The Company and SGP co-promoted INTEGRILINin the United States and shared any profits and losses through August 31,2005. In September 2005, SGP acquired the exclusive development andcommercialization rights to INTEGRILIN in the United States from the Company.In the European Union, GlaxoSmithKline plc (“GSK”) exclusively marketsINTEGRILIN. The Company continues to manage the supply chain for INTEGRILIN atthe expense of SGP for products sold in the SGP territories, and at the expenseof GSK in the GSK territory.

 

The Company relies on third party contractmanufacturers for the clinical and commercial production of INTEGRILIN. TheCompany has three approved manufacturers, two of which currently provide theCompany with eptifibatide, the active pharmaceutical ingredient (“API”)necessary to make INTEGRILIN, for both clinical trials and commercial supply.Solvay, S.A., one of the current manufacturers, owns the processtechnology used by it and one other manufacturer for the production of the API.In June 2006, the Company received FDA approval of its own alternativeprocess technology utilized by the second manufacturer for the production ofeptifibatide. The European Medicines Agency approved the alternate processtechnology for eptifibatide in June 2007. The Company has twomanufacturers that currently perform fill/finish services for INTEGRILIN andtwo packaging suppliers for INTEGRILIN for the United States. The FDA or otherregulatory agencies must approve the processes or the facilities that may beused for the manufacture of the Company’s marketed products.

 

**Inventory**

 

Inventory consists ofcurrently marketed products, including VELCADE and INTEGRILIN. Inventories arestated at the lower of cost (first in, first out) or market. Inventories arereviewed periodically for slow-moving or obsolete status based on salesactivity, both projected and historical.

 

VELCADE inventoriesprimarily relate to raw materials used in production, work in process andfinished goods inventory on hand. INTEGRILIN inventories include raw materialsused in production and work in process to supply GSK and limited amounts ofwork in process to supply SGP.

 

7

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**MillenniumPharmaceuticals, Inc.**

**Notesto Condensed Consolidated Financial Statements (continued)**

 

Inventory consists of thefollowing (in thousands):

 
| ** **      | ** ** | **March 31, 2008** | ** ** | **December 31, 2007** | ** ** |
|-----------------|------------|------------------------------|------------|---------------------------------|------------|
| Raw materials   |       | $                            | 3,909      |                            | $          | 4,270 |   |
| Work in process |       | 2,794                        |       | 1,385                           |       |
| Finished goods  |       | 707                          |       | 1,166                           |       |
|            |       | $                            | 7,410      |                            | $          | 6,821 |   |

 

**Goodwill and Intangible Assets**

 

Intangible assets consistof specifically identified intangible assets. Goodwill is the excess of anypurchase price over the estimated fair market value of net tangible assetsacquired not allocated to specific intangible assets.

 

Intangible assets consistof the following (in thousands):

 
| ** **                                                           | ** ** | **March 31, 2008**    | ** ** | **December 31, 2007** | ** ** |
|----------------------------------------------------------------------|------------|---------------------------------|------------|---------------------------------|------------|
| ** **                                                           | ** ** | **Gross Carrying  Amount** | ** ** | **Accumulated  Amortization**   | ** ** | **Gross Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** |
| Developed  technology                                                |       | $                               | 435,000    |                            | $          | (204,952 | ) | $ | 435,000 |   | $ | (196,587 | ) |
| Core technology                                                      |       | $                               | 18,712     |                            | $          | (18,712 | ) | $ | 18,712 |   | $ | (18,712 | ) |
| Other                                                                |       | 17,060                          |       | (15,146                         | )          | 17,060 |   | (15,024 | ) |
| Total  amortizable intangible assets, excluding developed technology |       | 35,772                          |       | (33,858                         | )          | 35,772 |   | (33,736 | ) |
| Total indefinite-lived  trademark                                    |       | 59,000                          |       | —                          |       | 59,000 |   | — |   |
| Total intangible  assets, excluding developed technology             |       | $                               | 94,772     |                            | $          | (33,858 | ) | $ | 94,772 |   | $ | (33,736 | ) |

 

Amortization ofintangibles is computed using the straight-line method over the useful lives ofthe respective assets as follows:

 
| Developed  technology |   | 13 years      |   |
|-----------------------|--------|---------------|--------|
| Core technology       |   | 4 years       |   |
| Other                 |   | 2 to 12 years |   |

 

Amortization expense wasapproximately $8.5 million in each of the three months ended March 31,2008 and 2007.  The Company expects to incur amortization expense ofapproximately $34.0 million for each of the next five years.

 

As required by SFAS No. 142, “Goodwill and OtherIntangible Assets,” goodwill and indefinite lived intangible assets are notamortized, but are reviewed annually for impairment, or more frequently ifimpairment indicators arise. Separable intangible assets that are not deemed tohave an indefinite life are amortized over their useful lives and reviewed forimpairment when events or changes in circumstances suggest that the assets maynot be recoverable. The Company tests for goodwill impairment annually, on October 1,and whenever events or changes in circumstances suggest that the carryingamount may not be recoverable.

 

On October 1, 2007, the Company performed itsannual goodwill impairment test and determined that no impairment existed onthat date. The Company continually monitors business and market conditions toassess whether an impairment indicator exists. If the Company were to determinethat an impairment indicator exists, it would be required to perform animpairment test, which might result in a material impairment charge to thestatement of operations.

 

Goodwill as of March 31,2008 consists of the excess purchase price over the estimated fair value of nettangible and intangible assets. The carrying value may be adjusted as a resultof the continued settlement of contingent consideration arising fromacquisitions. Accordingly, goodwill increased by $1.1 million and $0.8 millionfor the three months ended March 31, 2008 and 2007, respectively.

 

8

----

 

**MillenniumPharmaceuticals, Inc.**

**Notesto Condensed Consolidated Financial Statements (continued)**

 

**Fair Value Measurements**

 

In September 2006, the FASB issued SFAS No. 157,“Fair Value Measurements” (“SFAS No. 157”). The Company adopted SFAS No. 157as of January 1, 2008 and the adoption did not have a material impact onthe consolidated financial statements or results of operations of the Company.

 

SFAS No. 157 definesfair value, establishes a framework for measuring fair value, establishes athree-level valuation hierarchy for disclosure of fair value measurement andenhances disclosure requirements for fair value measurements.  SFAS No. 157 clarifies that fair valueis an exit price, representing the amount that would be received to sell anasset or paid to transfer a liability in an orderly transaction between marketparticipants. As such, fair value is a market-based measurement that should bedetermined based on assumptions that market participants would use in pricingan asset or liability. As a basis for considering such assumption, SFAS No. 157established a three-tier fair value hierarchy, which prioritizes the inputsused in measuring fair value as follows:

 

·                  Level1 – Observable inputs such as quoted prices in active markets;

·                  Level2 – Inputs, other than quoted prices in active markets, that are observableeither directly or indirectly; and

·                  Level3 – Unobservable inputs in which there is little or no market data, whichrequire the reporting entity to develop its own assumptions.

 

The Company’s third-partyinvestment custodian provides a report which classifies the Company’s holdingswithin its portfolio under the above valuation hierarchy assumptions.  The Company reviews any estimates andjudgments applied by the custodian in determining the appropriate investmentclassifications.

 

The Company’s marketablesecurities were valued at March 31, 2008 by its third-party investmentcustodian using information provided by pricing services. Because the Company’sinvestment portfolio includes many fixed income securities that do not alwaystrade on a daily basis, the pricing service applied other available informationas applicable through processes such as benchmark yields, benchmarking of likesecurities, sector groupings and matrix pricing to prepare evaluations. Inaddition, model processes were used to assess interest rate impact and developprepayment scenarios. These models take into consideration relevant creditinformation, perceived market movements, sector news and economic events. Theinputs into these models may include benchmark yields, reported trades,broker-dealer quotes, issuer spreads and other relevant data.

 

Assets measured at fair value at March 31,2008 are as follows:

 
| ** **                  | ** ** | ** **                   | ** ** | **Fair Value Measurements at Reporting Date Using**   | ** ** |
|-----------------------------|------------|------------------------------|------------|-------------------------------------------------------------------------------------|------------|
| ** **                  | ** ** | ** **                   | ** ** | **Quoted Prices in  Active Markets for  Identical Assets** | ** ** | **Significant Other  Observable  Inputs** | ** ** | **Significant  Unobservable  Inputs** | ** ** |
| **Description**             | ** ** | **March 31, 2008** | ** ** | **(Level 1)**                                                                  | ** ** | **(Level 2)** | ** ** | **(Level 3)** | ** ** |
| Corporate bonds             |       | $                            | 509,853    |                                                                                | $          | — |   | $ | 509,853 |   | $ | — |   |
| Asset-backed  securities    |       | 158,067                      |       | —                                                                              |       | 158,067 |   | — |   |
| U.S. government  securities |       | 119,395                      |       | 119,395                                                                             |       | — |   | — |   |
| Total                       |       | $                            | 787,315    |                                                                                | $          | 119,395 |   | $ | 667,920 |   | $ | — |   |

 

**Revenue Recognition**

 

The Company recognizes revenue from the sale of itsproducts, strategic alliances and royalties. The Company’s revenue arrangementswith multiple elements are divided into separate units of accounting ifspecified criteria are met, including whether the delivered element hasstand-alone value to the customer and whether there is objective and reliableevidence of the fair value of the undelivered items. The consideration receivedis allocated among the separate units based on their respective fair values, andthe applicable revenue recognition criteria are applied to each of the separateunits. Advance payments received in excess of amounts earned are classified asdeferred revenue until earned.

 

*Netproduct sales*

 

The Company records product sales of VELCADE whendelivery has occurred, title has transferred, collection is reasonably assuredand the Company has no further obligations. Allowances are recorded as areduction to product sales for discounts, product 

 

9

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**MillenniumPharmaceuticals, Inc.**

**Notesto Condensed Consolidated Financial Statements (continued)**

 

returns and governmental and contractual adjustments at the time ofsale. Costs incurred by the Company for shipping and handling are recorded incost of sales.

 

*Revenueunder strategic alliances*

 

The Company recognizes revenue under strategicalliances from nonrefundable license payments, milestone payments,reimbursement of research and development costs and reimbursement ofmanufacturing-related costs. Nonrefundable upfront fees for which no furtherperformance obligations exist are recognized as revenue on the earlier of whenpayments are received or collection is assured.

 

Nonrefundable upfront licensing fees and guaranteed,time-based payments that require continuing involvement in the form of researchand development, manufacturing or other commercialization efforts by theCompany are recognized as revenue:

 

·                  ratably over thedevelopment period if development risk is significant;

 

·                  ratably over themanufacturing period or estimated product useful life if development risk hasbeen substantially eliminated; or

 

·                  based upon thelevel of research services performed during the period of the researchcontract.

 

Milestone payments are recognized as revenue when theperformance obligations, as defined in the contract, are achieved. Performanceobligations typically consist of significant milestones in the development lifecycle of the related technology or product candidate, such as initiation ofclinical trials, filing for approval with regulatory agencies and approvals byregulatory agencies.

 

Reimbursements of research and development costs arerecognized as revenue as the related costs are incurred.

 

*Royalties*

 

Royalties are recognized as revenue when earned.Royalties may include:

 

·                  royalties earnedon sales of INTEGRILIN in the United States and other territories around theworld, as provided by SGP;

 

·                  royalties, ordistribution fees, earned on international sales of VELCADE, as provided byOBL;

 

·                  royalties earnedon sales of INTEGRILIN in Europe, as provided by GSK; and

 

·                  other royalties.

 

**Advertising and Promotional Expenses**

 

Advertising andpromotional expenses are expensed as incurred. During the three months ended March 31,2008 and 2007, advertising and promotional expenses were $7.3 million and$6.7 million, respectively.

 

**Earnings(Loss) Per Common Share**

 

Basic earnings (loss) per common share is computedusing the weighted-average number of common shares outstanding during theperiod, excluding restricted stock that has been issued but is not yet vested.Diluted earnings (loss) per share is based upon the weighted average number ofcommon shares outstanding during the period, plus additional weighted averagecommon equivalent shares outstanding during the period when the effect is notanti-dilutive. Common equivalent shares result from the assumed exercise ofoutstanding stock options and warrants (the proceeds of which are then assumedto have been used to repurchase outstanding stock using the treasury stockmethod), the assumed conversion of convertible notes and the vesting ofunvested restricted shares of common stock. Common equivalent shares fromoptions, warrants, unvested restricted shares and the assumed conversion ofconvertible notes that were not included in the calculation of diluted sharesbecause the effect would have been anti-dilutive were 25.4 million and 36.6million at March 31, 2008 and 2007, respectively.

 

10

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**MillenniumPharmaceuticals, Inc.**

**Notesto Condensed Consolidated Financial Statements (continued)**

 

Basic and diluted earnings (loss) per common sharewere determined as follows (in thousands, except per share amounts):

 
| ** **                                       | ** ** | **Three Months Ended March 31,** | ** ** |
|--------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                       | ** ** | **2008**                                             | ** ** | **2007** | ** ** |
| **Basic**                                        |       |                                                 |       |   |   |
| Net income  (loss)                               |       | $                                                    | 14,626     |   | $ | (6,778 | ) |
| Weighted average  shares outstanding             |       | 321,608                                              |       | 316,072 |   |
| Basic earnings  (loss) per share                 |       | $                                                    | 0.05       |   | $ | (0.02 | ) |
| **Diluted**                                      |       |                                                 |       |   |   |
| Net income  (loss)                               |       | $                                                    | 14,626     |   | $ | (6,778 | ) |
| Weighted average  shares outstanding             |       | 321,608                                              |       | 316,072 |   |
| Effect of  dilutive options and restricted stock |       | 5,086                                                |       | — |   |
| Weighted average  shares assuming dilution       |       | 326,694                                              |       | 316,072 |   |
| Diluted earnings  (loss) per share               |       | $                                                    | 0.05       |   | $ | (0.02 | ) |

 

**Comprehensive Income (Loss)**

 

Comprehensive income (loss)comprises net income (loss), changes in unrealized gains and losses onmarketable securities and cumulative foreign currency translation adjustments.The following table displays comprehensive income (loss) (in thousands):

 
| ** **                                       | ** ** | **Three Months Ended March 31,** | ** ** |
|--------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                       | ** ** | **2008**                                             | ** ** | **2007** | ** ** |
| Net income  (loss)                               |       | $                                                    | 14,626     |   | $ | (6,778 | ) |
| Unrealized gain  (loss) on marketable securities |       | 1,865                                                |       | (615 | ) |
| Cumulative  translation adjustments              |       | 2                                                    |       | 4 |   |
| Comprehensive  income (loss)                     |       | $                                                    | 16,493     |   | $ | (7,389 | ) |

 

The components of accumulated other comprehensive income were asfollows (in thousands):

 
| ** **                                | ** ** | **March 31, 2008** | ** ** | **December 31, 2007** | ** ** |
|-------------------------------------------|------------|------------------------------|------------|---------------------------------|------------|
| Unrealized gain  on marketable securities |       | $                            | 6,757      |                            | $          | 4,892 |   |
| Cumulative  translation adjustments       |       | (1,002                       | )          | (1,004                          | )          |
| Accumulated  other comprehensive income   |       | $                            | 5,755      |                            | $          | 3,888 |   |

 

**Stock-Based Compensation Expense**

 

SFAS No. 123(revised 2004), “Share Based Payment” (“SFAS 123R”), requires the recognitionof the fair value of stock-based compensation in the Company’s statements ofoperations. Stock-based compensation expense primarily relates to stockoptions, restricted stock and stock issued under the Company’s employee stockpurchase plans.  The Company recognized stock-based compensation expenseof $5.5 million and $5.4 million during the three months ended March 31,2008 and 2007, respectively.

 

**Accounting Pronouncements**

 

In December 2007, the FASB issued EITF Issue07-1, “Accounting for Collaborative Arrangements” (“EITF 07-1”).EITF 07-1 requires collaborators to present the results of activities forwhich they act as the principal on a gross basis and report any paymentsreceived from (made to) other collaborators based on other applicable GAAP or,in the absence of other applicable GAAP, based on analogy to authoritativeaccounting literature or a reasonable, rational, and consistently appliedaccounting policy election. Further, EITF 07-1 clarified the determinationof whether transactions within a collaborative arrangement are part of avendor-customer (or analogous) relationship subject to EITF 01-9, “Accountingfor Consideration Given by a Vendor to a Customer (Including a Reseller of theVendor’s Products).” EITF 07-1 will be effective for the Company beginningon January 1, 2009. The Company is currently evaluating the effectEITF 07-1 will have on its consolidated financial position and results ofoperations.

 

11

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**MillenniumPharmaceuticals, Inc.**

**Notesto Condensed Consolidated Financial Statements (continued)**

 

**3.   Restructuring**

 

*2006 Resource Alignment*

 

In October 2006, the Company announced a programto further align resources with its current corporate priorities of advancingVELCADE and accelerating the clinical and preclinical pipeline by loweringinvestment in discovery and supporting areas. As part of its program, theCompany reduced in-house research and development technologies and headcount inareas where the work could be outsourced.

 

The Company recorded netrestructuring credits of approximately $0.1 million during the three monthsended March 31, 2008, under the 2006 restructuring program, primarilyrelated to a gain on the sale of previously impaired assets offset by the netpresent value adjustment for facilities charged to restructuring in prior yearsand employee termination benefits as a result of headcount reductions. The Company recorded restructuring charges of approximately $5.0 million duringthe three months ended March 31, 2007, under the 2006 restructuringprogram, primarily for facilities-related costs associated with vacated buildingsand employee termination benefits as a result of headcount reductions.

 

The following tabledisplays the restructuring activity and liability balances (in thousands):

 
| ** **            | ** ** | **Balance at**   | ** ** | ** **            | ** ** | ** **   | ** ** | **Balance at** | ** ** |
|-----------------------|------------|-----------------------|------------|-----------------------|------------|--------------|------------|---------------------|------------|
| ** **            | ** ** | **December 31,** | ** ** | **Net Charges/** | ** ** | ** **   | ** ** | **March 31,**  | ** ** |
| ** **            | ** ** | **2007**              | ** ** | **(Credits)**         | ** ** | **Payments** | ** ** | **2008**            | ** ** |
| Termination  benefits |       | $                     | 639        |                  | $          | 47           |       | $                   | (222       | ) | $ | 464 |   |
| Facilities            |       | 9,480                 |       | 113                   |       | (830         | )          | 8,763               |       |
| Asset impairment      |       | —                |       | (211                  | )          | 211          |       | —              |       |
| Total                 |       | $                     | 10,119     |                  | $          | (51          | )          | $                   | (841       | ) | $ | 9,227 |   |

 

 *2005 Strategic Refinement*

 

In October 2005, the Company announced its 2005restructuring plan in support of a refined business strategy focused onadvancing key growth assets, including VELCADE, advancing the Company’sclinical pipeline and building a leading oncology-focused discovery organization.In connection with the strategic refinement, the Company substantially reducedits effort in inflammation discovery and reduced overall headcount, includingeliminating positions in INTEGRILIN sales and marketing, inflammation discoveryand various other business support groups.

 

The Company recordedrestructuring charges of approximately $0.1 million and $0.2 million during thethree months ended March 31, 2008 and 2007, respectively, under the 2005restructuring plan, primarily related to the net present value adjustment forfacilities charged to restructuring in prior years.

 

The following tabledisplays the restructuring activity and liability balances (in thousands):

 
| ** ** | ** ** | **Balance at**   | ** ** | ** **            | ** ** | ** **   | ** ** | **Balance at** | ** ** |
|------------|------------|-----------------------|------------|-----------------------|------------|--------------|------------|---------------------|------------|
| ** ** | ** ** | **December 31,** | ** ** | **Net Charges/** | ** ** | ** **   | ** ** | **March 31,**  | ** ** |
| ** ** | ** ** | **2007**              | ** ** | **(Credits)**         | ** ** | **Payments** | ** ** | **2008**            | ** ** |
| Facilities |       | $                     | 6,232      |                  | $          | 102          |       | $                   | (223       | ) | $ | 6,111 |   |
|            |            |                       |            |                       |            |              |            |                     |            |  |  |  |  |

 

*2003Restructuring Plan*

 

In December 2002 and June 2003, the Companyrealigned its resources to become a commercially-focused biopharmaceuticalcompany. The Company discontinued specified discovery research efforts, reducedoverall headcount, primarily in its discovery group, and consolidated itsresearch and development facilities.

 

The Company recorded netrestructuring credits of approximately $2.9 million during the three monthsended March 31, 2008, under the Company’s 2003 restructuring plan,primarily related to the earlier than anticipated sublease of one of itsfacilities and the sublease extension of another facility, both charged torestructuring in prior years.  The Companyrecorded restructuring charges of approximately $0.4 million during the threemonths ended March 31, 2007, under the Company’s 2003 restructuring plan,primarily related to the net present value adjustment for facilities charged torestructuring in prior years.

 

12

----

** **

**MillenniumPharmaceuticals, Inc.**

**Notesto Condensed Consolidated Financial Statements (continued)**

 

The following tabledisplays the restructuring activity and liability balances (in thousands):

 
| ** ** | ** ** | **Balance at**   | ** ** | ** **            | ** ** | ** **   | ** ** | **Balance at** | ** ** |
|------------|------------|-----------------------|------------|-----------------------|------------|--------------|------------|---------------------|------------|
| ** ** | ** ** | **December 31,** | ** ** | **Net Charges/** | ** ** | ** **   | ** ** | **March 31,**  | ** ** |
| ** ** | ** ** | **2007**              | ** ** | **(Credits)**         | ** ** | **Payments** | ** ** | **2008**            | ** ** |
| Facilities |       | $                     | 33,051     |                  | $          | (2,921       | )          | $                   | (4,247     | ) | $ | 25,883 |   |
|            |            |                       |            |                       |            |              |            |                     |            |  |  |  |  |

 

 TheCompany accounts for its restructuring charges in accordance with SFAS No. 146,“Accounting for Costs Associated with Exit or Disposal Activities” (“SFAS No. 146”).SFAS No. 146 requires that a liability for a cost associated with an exitor disposal activity be recognized and measured initially at its fair value inthe period in which the liability is incurred, except for one-time terminationbenefits that meet specified requirements. Costs of termination benefits relateto severance packages, out-placement services and career counseling foremployees affected by the restructuring.

 

In accordance with SFAS No. 146, the Company’sfacilities related expenses and liabilities in all restructuring plans includeestimates of the remaining rental obligations, net of estimated subleaseincome, for facilities the Company no longer occupies. The Company reviews itsestimates and assumptions on a regular basis, until the outcome is finalized,and makes whatever modifications are necessary, based on the Company’s bestjudgment, to reflect any changed circumstances.

 

In connection with its 2006 decision to abandoncertain facilities in 2007 under the 2006 restructuring program, the Companyshortened the useful lives of the leasehold improvements at these facilities inaccordance with SFAS No. 144, “Accounting for the Impairment or Disposalof Long-Lived Assets.” During the three months ended March 31, 2008 and2007, the Company recorded additional depreciation expense of approximately$0.1 million and $2.8 million, respectively, in research anddevelopment expense related to its decision.

 

The projected timing of payments of the remainingrestructuring liabilities under all of the Company’s restructuring initiativesat March 31, 2008 is approximately $19.9 million due through March 31,2009 and $21.3 million thereafter through 2014. The actual amount andtiming of the payment of the remaining accrued liability is dependent upon theultimate terms of any potential subleases or lease restructuring.

 

**4.  Convertible Debt**

 

The Company had thefollowing convertible notes outstanding at March 31, 2008 and December 31,2007:

 
| ** **                                                 | ** ** | **March 31, 2008** | ** ** | **December 31, 2007** | ** ** |
|------------------------------------------------------------|------------|------------------------------|------------|---------------------------------|------------|
| 2.25%  convertible senior notes due November 15, 2011 |       | $                            | 250,000    |                            | $          | 250,000 |   |
|                                                            |            |                              |            |                                 |            |  |  |

 

The Company’s 2.25%convertible senior notes due November 15, 2011 (the “2.25%” notes) areconvertible into the Company’s common stock based upon a conversion rate of64.6465 shares of common stock per $1,000 principal amount of the 2.25% notes,which was equal to the initial conversion price of approximately $15.47 pershare of stock, subject to adjustment. The 2.25% notes are convertible only inthe following circumstances: (1) if the closing price of the common stockexceeds 120% of the conversion price within a specified period, (2) ifspecified distributions to holders of the common stock are made or specifiedcorporate transactions occur, (3) if the average trading price per $1,000principal amount is less than 98% of the product of the closing price of commonstock and the then applicable conversion rate within a specified period or (4) duringthe last three months prior to the maturity date of the notes, unlesspreviously repurchased by the Company under certain circumstances. The 2.25%notes are subordinated in right of payment to all existing and future secureddebt of the Company.

 

Under the terms of the 2.25% notes, the Company isrequired to make semi-annual interest payments on the outstanding principalbalance on May 15 and November 15 of each year. All required interestpayments to date have been made.

 

**5.  Stock Plans**

 

SFAS 123R requires the recognition of the fair value of stock-basedcompensation in the Company’s statements of operations. Stock-basedcompensation expense primarily relates to stock options, restricted stock andstock issued under the Company’s employee stock purchase plans.

 

13

----

 

**MillenniumPharmaceuticals, Inc.**

**Notesto Condensed Consolidated Financial Statements (continued)**

 

The following tablesummarizes the weighted-average assumptions the Company used in its fair valuecalculations at the date of grant:

 
| ** **          | ** ** | **Stock Options**                               | ** ** | **Stock Purchase Plan**                    | ** ** |
|---------------------|------------|------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **          | ** ** | **Three Months Ended March 31,** | ** ** | **Three Months Ended March 31,** | ** ** |
| ** **          | ** ** | **2008**                                             | ** ** | **2007**                                             | ** ** | **2008** | ** ** | **2007** | ** ** |
| Expected life       |       | 4.5                                                  |       | 4.4                                                  |       | 0.5 |   | 0.5 |   |
| Risk-free  interest |       | 2.58                                                 | %          | 4.73                                                 | %          | 3.50 | % | 4.82 | % |
| Volatility          |       | 40                                                   | %          | 40                                                   | %          | 35 | % | 40 | % |

 

The Company has neverdeclared cash dividends on any of its capital stock and does not expect to doso in the foreseeable future.

 

The following tablepresents the combined option activity of the Company’s stock plans for thethree months ended March 31, 2008:

 
| ** **                                         | ** ** | ** **               | ** ** | ** **              | ** ** | **Weighted-**       | ** ** | ** **               | ** ** |
|----------------------------------------------------|------------|--------------------------|------------|-------------------------|------------|---------------------|------------|--------------------------|------------|
| ** **                                         | ** ** | ** **               | ** ** | ** **              | ** ** | **Average**         | ** ** | ** **               | ** ** |
| ** **                                         | ** ** | **Shares of**       | ** ** | **Weighted-**           | ** ** | **Remaining**       | ** ** | ** **               | ** ** |
| ** **                                         | ** ** | **Common Stock**    | ** ** | **Average**             | ** ** | **Contractual**     | ** ** | **Aggregate**            | ** ** |
| ** **                                         | ** ** | **Attributable to** | ** ** | **Exercise Price** | ** ** | **Term**            | ** ** | **Intrinsic Value** | ** ** |
| ** **                                         | ** ** | **Options**              | ** ** | **of Options**     | ** ** | **(in years)** | ** ** | **(in thousands)**  | ** ** |
| Outstanding at  January 1, 2008               |       | 19,904,277               |       | $                       | 16.32      |                |       |                     |       |   |
| Granted                                            |       | 2,569,505                |       | 13.93                   |       |                |       |                     |       |
| Exercised                                          |       | (397,296                 | )          | 9.43                    |       |                |       |                     |       |
| Forfeited or  expired                              |       | (272,481                 | )          | 30.69                   |       |                |       |                     |       |
| Outstanding at  March 31, 2008                |       | 21,804,005               |       | $                       | 15.98      |                | 6.08       |                     | $          | 68,608 |   |
| Vested or  expected to vest at March 31, 2008 |       | 21,037,972               |       | $                       | 16.11      |                | 5.96       |                     | $          | 66,402 |   |
| Exercisable at  March 31, 2008                |       | 16,505,532               |       | $                       | 17.20      |                | 5.12       |                     | $          | 51,274 |   |

 

As of March 31,2008, the total remaining unrecognized compensation cost related to nonvestedstock option awards amounted to approximately $14.5 million, includingestimated forfeitures, which will be recognized over the weighed-averageremaining requisite service period of approximately one and one half years.

 

A summary of the statusof nonvested shares of restricted stock and restricted stock units as of March 31,2008, and changes during the three months then ended, is presented below:

 
| ** **                         | ** ** | **Shares** | ** ** | **Weighted-Average  Grant Date Fair Value** | ** ** |
|------------------------------------|------------|------------|------------|------------------------------------------------------------|------------|
| Nonvested at  January 1, 2008 |       | 3,079,541  |       | $                                                          | 10.70      |   |
| Granted                            |       | 1,708,974  |       | 13.91                                                      |       |
| Vested                             |       | (940,072   | )          | 10.71                                                      |       |
| Forfeited                          |       | (57,881    | )          | 11.93                                                      |       |
| Nonvested at  March 31, 2008  |       | 3,790,562  |       | $                                                          | 12.15      |   |

 

As of March 31, 2008the total remaining unrecognized compensation cost related to nonvestedrestricted stock awards and restricted stock units amounted to approximately$23.2 million, including estimated forfeitures, which will be recognized overthe weighted-average remaining requisite service period of approximately oneand one half years.

 

**6. Subsequent Event**

 

On April 10, 2008, the Company entered into anAgreement and Plan of Merger with Takeda Pharmaceutical Company Limited, acorporation organized under the laws of Japan, or TPC, Takeda America Holdings, Inc.,a New York corporation and wholly-owned subsidiary of TPC, or Parent, andMahogany Acquisition Corp., a Delaware corporation and a wholly-ownedsubsidiary of Parent, or Merger Sub. Pursuant to the merger agreement, upon the terms and subject to theconditions thereof, Merger Sub commenced a tender offer on April 11, 2008to acquire all of the outstanding shares of the Company’s common stock at apurchase price of $25.00 per share, net to the holder in cash, subject to anyrequired withholding of taxes, upon the terms and subject to the conditions setforth in the Offer to Purchase, dated April 11, 2008, and the relatedLetter of Transmittal, each as amended or supplemented from time to time.

 

                Theinitial offering period for the tender offer expired at 12:00 midnight, NewYork City time, at the end of Thursday, May 8, 2008.  According to the depositary for the tenderoffer, as of the expiration of the initial offering period, 300,871,367 sharesof the Company’s common stock had been tendered, representing approximately91.9% of the Company’s outstanding shares of common stock (of which 26,917,513shares, or approximately 8.2% of the Company’s outstanding shares, weretendered under guaranteed delivery procedures). Merger Sub has accepted for payment all shares of the Company’s commonstock that were validly tendered and not withdrawn during the initial offeringperiod, and payment for such shares has been or will be made promptly, inaccordance with the terms of the tender offer. The Company has been advised that shares validly tendered insatisfaction of guaranteed delivery procedures will also be accepted forpayment and promptly paid for.  Pursuantto the merger agreement, promptly upon acceptance for payment of, and paymentfor, the tendered shares of the Company’s common stock in the tender offer,Merger Sub has the right to designate a number of individuals to the Company’sboard of directors.

 

 

 

14

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**MillenniumPharmaceuticals, Inc.**

**Notesto Condensed Consolidated Financial Statements (continued)**

 

                MergerSub has commenced a subsequent offering period to acquire all of the remaininguntendered shares.  This subsequentoffering period will expire at 12:00 midnight, New York City time, at the endof May 13, 2008, unless extended. During this subsequent offering period,holders of shares of the Company’s common stock who did not previously tendertheir shares in the offer may do so and Merger Sub will promptly purchase anyshares properly tendered as such shares are tendered for the sameconsideration, without interest, paid in the tender offer. Procedures fortendering shares during the subsequent offer period are the same as during theinitial offering period with two exceptions: (1) shares cannot bedelivered by using the guaranteed delivery procedure, and (2) pursuant toapplicable law, shares tendered during the subsequent offer period may not bewithdrawn. Merger Sub reserves the right to further extend the subsequentoffering period in accordance with applicable law and the terms of the mergeragreement.

 

After expiration of the subsequent offering period,TPC intends to complete its acquisition of the Company on or about May 14,2008, by means of a merger under Delaware law. As a result of its purchase ofshares in the tender offer, Merger Sub has sufficient voting power to approvethe merger without the affirmative vote of any other stockholder of theCompany. As a result of such merger, the Company will become an indirectwholly-owned subsidiary of TPC, and each share of the Company’s outstandingcommon stock will be cancelled and (except for shares held by the Company, TPC,wholly-owned subsidiaries of Takeda or the Company, or by holders who properlyexercise their appraisal rights under Delaware law) will be converted into theright to receive the same consideration, without interest, received by holderswho tendered shares in the tender offer. Following the effective time of the merger, the Company’s common stockwill cease to be traded on Nasdaq.

 

In the Offer to Purchase,Parent and Merger Sub stated that they would need approximately $8.8 billion topurchase all of the Company’s outstanding shares of common stock pursuant tothe tender offer, to cash out certain employee options, restricted stock andrestricted stock units, to fund amounts that may become payable under theCompany’s outstanding convertible notes, and to consummate the merger, plusrelated fees and expenses. Parent and Merger Sub also stated in the Offer toPurchase that, to the extent necessary, TPC would provide them with sufficientfunds through cash on hand to purchase all shares properly tendered in thetender offer and would provide funding for the merger. The tender offer was notconditioned upon Parent’s, Merger Sub’s or TPC’s ability to finance thepurchase of shares pursuant to the tender offer.  Pursuant to the merger agreement, TPC hasunconditionally guaranteed the full and complete performance by Parent andMerger Sub of their respective obligations under the merger agreement.

 

On April 10, 2008, a purported shareholder classaction lawsuit was filed by a single plaintiff against the Company and each ofits directors, as well as Parent and Merger Sub, in Superior Court forMiddlesex County, Massachusetts.  Theaction, captioned Eleanor Turberg v. Millennium Pharmaceuticals, Inc. etal. (Case No. 08-1466, Superior Court, Middlesex County, MA), is broughtby Eleanor Turberg, who claims to be an individual Millennium stockholder, onher own behalf, and seeks certification as a class action on behalf of allMillennium stockholders except the defendants and any person, firm, trust,corporation or other entity related to or affiliated with any defendants.  The complaint alleges, among other things,that the defendants breached fiduciary duties of loyalty, due care,independence, good faith and fair dealing, and/or aided and abetted the breachof fiduciary duties, owed to our stockholders in connection with thetransactions contemplated by the Merger Agreement.  The complaint seeks, among other things, anorder:

 

·                  enjoining the defendants from proceedingwith the proposed acquisition of shares of our common stock by Takeda,

 

·                  rescinding, to the extent alreadyimplemented, the proposed acquisition of shares of our common stock by Takeda,

 

·                  awarding the plaintiff and the purportedclass damages and

 

·                  awarding plaintiff the costs anddisbursements of the action, including reasonable attorneys’ and experts’ fees.

 

On May 5,2008, the court heard the plaintiff’s motion for a preliminary injunctionenjoining the acceptance of tendered shares by Takeda.  Following thehearing, the court denied the plaintiff’s motion.

 

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**Item2.         Management’s Discussion andAnalysis of Financial Condition and Results of Operations**

 

Our management’s discussion and analysis of ourfinancial condition and results of our operations contains forward-lookingstatements, including statements about our growth and future operating results,discovery and development of products, strategic alliances and intellectualproperty. For this purpose, any statement that is not a statement of historicalfact should be considered a forward-looking statement. We often use the words “expect,”“anticipate,” “intend,” “plan,” “believe,” “may,” “will” and similarexpressions to help identify forward-looking statements.

 

Actual results may differ from those indicated by suchforward-looking statements as a result of various important factors, including,without limitation, those factors discussed in this annual report under theheading “Risk Factors.”

 

**Overview**

 

We are an innovation-driven biopharmaceutical companyfocused on discovering, developing and commercializing medicines to improve thelives of patients with cancer, inflammatory bowel diseases and otherinflammatory diseases. We currently commercialize VELCADE, the global marketleader for the treatment of patients with multiple myeloma who have received atleast one prior therapy and the United States market leader for the treatmentof mantle cell lymphoma, or MCL, patients who have received at least one priortherapy. We are also awaiting a decision from the Food and Drug Administration,or FDA, with respect to our supplementary new drug application, or sNDA, tomarket VELCADE for patients with newly diagnosed multiple myeloma. We have adevelopment pipeline of clinical and preclinical product candidates in ourtherapeutic focus areas of cancer and inflammatory diseases and we have anoncology-focused drug discovery organization. Strategic business relationshipsare a key component of our business to maximize the global potential of ourproducts and product candidates.

 

In January 2007, we began, with OrthoBiotech Inc., or OBI, to jointly promote VELCADE for a two year timeperiod in the United States. We believe this collaboration, with thewell-established OBI oncology sales force, is helping us to realize the fullpotential of VELCADE in the U.S. market. In May 2007, the FDA grantedmarketing approval to OBI for the combination therapy of VELCADE/DOXIL®(pegylated liposomal doxorubicin) in multiple myeloma patients who havereceived at least one prior therapy.

 

Our business strategy is to build a portfolio of newmedicines based on our understanding of genomics and protein homeostasis, whichis a set of particular molecular pathways that affect the establishment andprogression of diseases. These molecular pathways include the related effectsof proteins on cellular performance, reproduction and death. We plan to developand commercialize many of our products on our own, but expect to seekdevelopment and commercial collaborators when favorable terms are available orwhen we otherwise believe that doing so would be advantageous to us.

 

In the near term, we expect to focus our commercialactivities in cancer where we plan to build on our commercial and regulatoryexperience with VELCADE. We also are working to obtain approval to marketVELCADE in the United States and, through Ortho Biotech Products, L.P., orOBL, a member of The Johnson & Johnson Family of Companies and anaffiliate of OBI, outside of the United States for the treatment of multiplemyeloma in newly diagnosed, or front-line, patients and for the treatment ofadditional types of cancers. We believe, if approved, these additional uses ofVELCADE will lead to a significant expansion of our cancer business.

 

In the area of inflammatory disease, we are advancingnovel product candidates in clinical development as potential treatments forserious and widely prevalent conditions. For example, MLN0002 is a highlyselective gut-targeted immune therapy being studied in inflammatory boweldiseases. We expect to initiate pivotal trials with MLN0002 in patients withmoderate to severe ulcerative colitis and Crohn’s disease in late 2008 orearly 2009. If we successfully complete these trials and are successful inobtaining FDA approval, we believe MLN0002 could be available to patients asearly as 2012.  In the long term, weexpect to bring new products to market on a regular basis from our pipeline ofdiscovery and development-stage programs. We also expect to continue toevaluate opportunities to in-license and acquire molecules from other companiesin order to supplement our pipeline.

 

On April 10, 2008, we entered into an Agreementand Plan of Merger with Takeda America Holdings, Inc., a wholly-ownedsubsidiary of Takeda Pharmaceutical Company Limited, and Mahogany AcquisitionCorp., a wholly-owned subsidiary of Takeda America Holdings, Inc., whichwe refer to as Merger Sub.  We refer toTakeda America Holdings, Inc., Takeda Pharmaceutical Company Limited andMerger Sub collectively as Takeda and we refer to the Agreement and Plan ofMerger as the Merger Agreement.  Pursuantto the Merger Agreement, Merger Sub has completed a cash tender offer for allof our outstanding common stock at a purchase price of $25.00 per share. 

 

The tender offer expired atmidnight at the end of May 8, 2008, after which Merger Sub accepted andpaid for all shares validly tendered and not withdrawn at the time,representing approximately 83.7% of our outstanding common stock (excluding 26,917,513shares, or approximately 8.2% of our outstanding shares, tendered underguaranteed delivery procedures), and announced a three business day subsequent offeringperiod.   We expect that the subsequentoffering period will be followed by the merger of Merger Sub into Millennium onor shortly after May 14, 2008 under the short-form merger proceduresprovided by Delaware law.

 

 

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**VELCADE®(bortezomib) for Injection**

 

In May 2003, the FDA granted us approval tomarket VELCADE for the treatment of multiple myeloma patients who have receivedat least two prior therapies and have demonstrated disease progression on theirmost recent therapy, commonly referred to as third-line and beyond. In March 2005,the FDA granted us approval for the treatment of patients with multiple myelomawho have received at least one prior therapy, commonly referred to as relapsed,or second-line multiple myeloma.

 

In late 2007, we announced positive results from thelarge, randomized, Phase III VISTA trial in patients with newly diagnosedmultiple myeloma who are not eligible for stem cell transplantation. In thistrial, the therapy of VELCADE, melphalan and prednisone demonstrated a highlystatistically significant improvement, compared with melphalan and prednisonealone across all efficacy endpoints. In December 2007, we filed a sNDA,for use of VELCADE in patients with newly diagnosed multiple myeloma. Thefiling was granted priority review by the FDA. The FDA decision date isscheduled to occur by June 20, 2008.

 

Outside of the United States, VELCADE is approved by theEuropean Commission as a monotherapy for multiple myeloma patients who havereceived at least one prior therapy and who have already undergone or areunsuitable for bone marrow transplantation. Regulatory authorities in a numberof other countries, including countries within Latin America, South-East Asiaand Japan have also approved VELCADE. The product is now approved in more than85 countries. In December 2007, OBL submitted a variation to its MarketingAuthorization to the European Medicines Evaluation Agency, or EMEA, for use ofVELCADE for the treatment of newly diagnosed multiple myeloma. We expect theEMEA’s decision on the submission by the end of 2008.

 

In December 2006, the FDA granted approval ofVELCADE for the treatment of patients with MCL who have received at least oneprior therapy, commonly referred to as relapsed, or second-line MCL.

 

**OurAlliances**

 

***Ortho Biotech Collaborations***

 

In June 2003, we entered into an agreement withOBL to collaborate on the commercialization of VELCADE and with Johnson &Johnson Pharmaceutical Research & Development, L.L.C., or JJPRD, forthe continued clinical development of VELCADE. OBL and its affiliate,Janssen-Cilag, are commercializing VELCADE outside of the United States, andJanssen Pharmaceutical K.K. is responsible for Japan. We receive distributionfees from OBL and its affiliates from sales of VELCADE outside of the UnitedStates. We record these distribution fees as royalties. We manage the supplychain for VELCADE at the expense of OBL for products sold in the OBLterritories. We retain a limited option to co-promote VELCADE with OBL at afuture date in specified European countries.

 

We are engaged with JJPRD in an extensive globalprogram for further clinical development of VELCADE with the purpose ofmaximizing the commercial potential of VELCADE. This program is investigatingthe potential of VELCADE to treat multiple forms of tumors, including continuedclinical development of VELCADE for multiple myeloma and non-Hodgkin’slymphoma, or NHL. JJPRD is currently responsible for 45% of the jointdevelopment costs. We are responsible for the remaining 55% of the jointdevelopment costs. We are eligible to receive payments from JJPRD or OBL forachieving clinical development milestones, regulatory milestones outside of theUnited States or agreed-upon sales levels of VELCADE outside of the UnitedStates.

 

In October 2006, we entered into a two-yearagreement with OBI to jointly promote VELCADE in the U.S. Under the terms ofthe agreement, in the first quarter of 2007, OBI began jointly promotingVELCADE with us to U.S.-based physicians. Under this agreement, we pay the costof a portion of the OBI sales effort dedicated to VELCADE and a commission ifsales associated with the increased effort exceed specified targets. Bothparties are able to terminate the agreement under certain circumstances andsubject to fees. We continue to be responsible for commercialization,manufacturing and distribution of VELCADE in the U.S.

 

***INTEGRILIN® (eptifibatide) Injection***

 

Through August 31, 2005, we co-promotedINTEGRILIN in the United States in collaboration with Schering-Plough Ltd.and Schering Corporation, together referred to as SGP, and shared profits andlosses. Since September 1, 2005, SGP has marketed INTEGRILIN in the UnitedStates and specified other areas outside of the European Union.GlaxoSmithKline plc, or GSK, markets INTEGRILIN in the European Unionunder a license from us.

 

***SGP Collaboration***

 

In April 1995, COR Therapeutics, Inc., orCOR, entered into a collaboration agreement with SGP to jointly develop andcommercialize INTEGRILIN on a worldwide basis. We acquired COR in February 2002.Under our original collaboration agreement with SGP, we generally shared anyprofits or losses from INTEGRILIN sales in the United States included inco-promotion revenue 

 

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with SGP and we granted SGP an exclusive license to market INTEGRILINoutside the United States and the European Union in exchange for royaltyobligations.

 

On September 1, 2005, SGP obtained the exclusiveU.S. development and commercialization rights for INTEGRILIN products from usand paid us a nonrefundable upfront payment of approximately$35.5 million. In addition, we are entitled to receive royalties on netproduct sales of INTEGRILIN in the United States from SGP for so long as SGP isengaged in the commercialization and sale of an INTEGRILIN product in theUnited States, with the potential of receiving royalties beyond the 2014 patentexpiration date. Minimum royalty payments for 2006 and 2007 were approximately$85.4 million. There are no guaranteed minimum royalty payments for 2008or future years. We also receive royalties on net product sales by SGP in SGP’sterritory outside of the United States. SGP’s obligation to pay us royalties inother countries expires on a country by country basis upon the later of fifteenyears from the first commercial use of an INTEGRILIN product in such countryand the expiration of the last to expire patent covering such INTEGRILINproduct. We continue to manage the supply chain for INTEGRILIN at the expenseof SGP for products sold in the SGP territories including the U.S. We receivepayments as a result of managing the supply chain and record those payments asstrategic alliance revenue.

 

***GSK License Agreement***

 

In June 2004, we reacquired the rights to marketINTEGRILIN in Europe from SGP and concurrently entered into a license agreementgranting GSK exclusive marketing rights to INTEGRILIN in Europe. In January 2005,the transition of the INTEGRILIN marketing authorizations for the EuropeanUnion from SGP to GSK was completed, and GSK began selling INTEGRILIN in thecountries of the European Union. GSK also markets INTEGRILIN in other Europeancountries where it has received approval of the transfer from SGP to GSK of therelevant marketing authorizations. Under the terms of the agreement, we havereceived license fees and are entitled to future royalties from GSK onINTEGRILIN sales in Europe subject to the achievement of specified objectives.We manage the supply chain for INTEGRILIN at the expense of GSK for productssold in the GSK territories. We receive payments as a result of managing thesupply chain and record those payments as strategic alliance revenue.

 

***sanofi-aventis Small Molecule Inflammatory DiseaseCollaboration***

 

In June 2000, we entered into a broad agreementin the field of inflammatory disease with Aventis, now sanofi-aventis, whichincludes joint discovery, development and commercialization of small moleculedrugs for the treatment of specified inflammatory diseases. This agreementcovers certain of our development programs in the inflammatory disease area andprovides us with potential access to sanofi-aventis’ large promotionalinfrastructure in connection with the commercialization of jointly developedproducts. The discovery phase of this collaboration has concluded. Onedevelopment program, MLN6095, continues under the agreement.

 

As provided in the original agreement, in NorthAmerica, we have agreed to share the responsibility for and cost of developing,manufacturing and marketing products arising from the alliance. Outside ofNorth America, sanofi-aventis is responsible for and bears the cost ofdeveloping, manufacturing and marketing products arising from the alliance.sanofi-aventis is required to pay us a royalty on product sales outside ofNorth America.

 

**CriticalAccounting Policies and Significant Judgments and Estimates**

 

Our management’s discussion and analysis of ourfinancial condition and results of operations are based on our consolidatedfinancial statements, which have been prepared in accordance with generallyaccepted accounting principles, or GAAP. The preparation of these financialstatements requires us to make estimates and assumptions that affect thereported amounts of assets and liabilities and the disclosure of contingentassets and liabilities at the date of the financial statements as well as thereported revenues and expenses during the reporting periods. On an ongoingbasis, we evaluate our estimates and judgments, including those related torevenue recognition, inventory, intangible assets, goodwill, restructuring andstock-based compensation expense. We base our estimates on historicalexperience and on various other factors that we believe are appropriate underthe circumstances, the results of which form the basis for making judgmentsabout the carrying value of assets and liabilities that are not readilyapparent from other sources. Actual results may differ from these estimatesunder different assumptions or conditions.

 

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While our significant accounting policies are morefully described in Note 2 to our consolidated financial statementsincluded in this report, we believe the following accounting policies are mostcritical to aid in fully understanding and evaluating our reported financialresults.

 

***Revenue***

 

We recognize revenue from the sale of our products,our strategic alliances, as well as royalties and distribution fees based onnet sales of licensed products. We divide our revenue arrangements withmultiple elements into separate units of accounting if specified criteria aremet, including whether the delivered element has stand-alone value to thecustomer and whether there is objective and reliable evidence of the fair valueof the undelivered items. We allocate the consideration we receive among theseparate units based on their respective fair values, and we apply theapplicable revenue recognition criteria to each of the separate units. Weclassify advance payments received in excess of amounts earned as deferredrevenue until earned.

 

***Net product sales***

 

We recognize revenue from the sale of VELCADE in theUnited States when delivery has occurred and title has transferred. During thefourth quarter of 2004, we began distributing VELCADE through a sole-sourceopen access distribution model in which we sell directly to an independentthird party who in turn distributes to the wholesaler base. In April 2006,our sole-source distributor added a second distribution site to its network inorder to improve access to the product for physicians in the western UnitedStates. Under our agreement with our sole-source distributor, inventory levelsare contractually limited to no more than three weeks. VELCADE productinventory levels held by the sole-source distributor have historically beenbelow this limit at the end of each quarter. We expect future inventory levelsto be within our desired range of one to two weeks of inventory in thedistribution channel.

 

We record allowances as a reduction to product salesfor discounts, product returns and governmental and contractual adjustments atthe time of sale. Calculating these gross-to-net sales adjustments involvesestimates and judgments based primarily on sales or invoice data and historicalexperience.

 

An analysis of the amount of, and change in, theseallowances is as follows (in thousands):

 
| ** **                                              | ** ** | **Discounts** | ** ** | **Returns** | ** ** | **Governmental and  contractual adjustments** | ** ** | **Total** | ** ** |
|---------------------------------------------------------|------------|---------------|------------|-------------|------------|---------------------------------------------------------|------------|-----------|------------|
| Balance at  December 31, 2007                      |       | $             | 819        |        | $          | 3,453                                                   |       | $         | 3,238      |   | $ | 7,510 |   |
| Current  provisions relating to sales in current period |       | 1,828         |       | 851         |       | 5,258                                                   |       | 7,937     |       |
| Payments/credits  relating to sales in current period   |       | (638          | )          | (4          | )          | (2,646                                                  | )          | (3,288    | )          |
| Payments/credits  relating to sales in prior period     |       | (988          | )          | (301        | )          | (2,382                                                  | )          | (3,671    | )          |
| Balance at  March 31, 2008                         |       | $             | 1,021      |        | $          | 3,999                                                   |       | $         | 3,468      |   | $ | 8,488 |   |

 

*Discounts*

 

We offer a 2% prompt payment discount to oursole-source distributor as an incentive to remit payment in accordance with thestated terms of the invoice. Because our customer typically takes advantage ofthe prompt payment discount, we accrue 100% of the prompt payment discount,based on the gross amount of each invoice, at the time of sale. We adjust theaccrual quarterly to reflect actual experience. Historically, these adjustmentshave not been material.

 

*Returns*

 

We estimate VELCADE product returns based onhistorical return patterns. Under our current methodology, we track actualreturns by individual production lots. Returns on closed lots (i.e., lotsno longer eligible for credits under our returned goods policy) are analyzed todetermine historical returns experience. Returns on open lots (i.e., lotsstill eligible for credits under our returned goods policy) are monitored andcompared with historical return trends and rates. Historical rates of returnare adjusted for known or expected changes in the marketplace.

 

We consider several factors in our estimation process,including our internal sales forecasts and inventory levels in the distributionchannel. We have experienced, and expect, that wholesalers will not stocksignificant inventory due to the product’s cost, expense to store andjust-in-time distribution model and as a result, returns have been, and weexpect will continue to be low. When considering the level of inventory in thedistribution channel, we determine whether an adjustment to the sales returnreserve is appropriate. For example, if levels of inventory in the distributionchannel increase and we believe sales returns will be larger than expected, weadjust the sales return reserve, taking into account historical experience, ourreturned goods policy and the shelf life of our product, which ranges from 18to 24 months.

 

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We have reduced and may, from time to time in thefuture, reduce our product returns estimate. Doing so results in increasedproduct revenue at the time the return estimate is reduced. For example, sincethe launch of VELCADE in 2003, we have estimated our returns based uponhistorical trends in the pharmaceutical industry for similar products and ourhistorical return patterns as they became available. In 2006, we reduced ourreturn estimate based on lower than previously anticipated returns as our firstcommercial lots reached expiration during the second half of 2005. Theseadjustments to our estimates were not material to product sales in any quarteror on an annual basis for 2006. We did not make any adjustments to our returnestimate during the three months ended March 31, 2008.

 

If circumstances change or conditions become morecompetitive in the market for therapeutic products that address the approvedindications for VELCADE, we may take actions to increase our product returnestimates. Doing so would result in an incremental reduction of product salesat the time the return estimate is changed. For example, an increase in ourreturns as a percentage of gross sales for the three months ended March 31,2008 of 0.50% would have resulted in a $0.5 million decrease in netproduct sales.

 

*Governmentaland contractual adjustments*

 

Governmental and contractual adjustment reservesrelate to chargebacks and rebates. Chargeback reserves represent our estimatedobligations resulting from the difference between the wholesaler price and thelower pricing as mandated by statute to eligible federally funded healthcareproviders, and in rare instances, lower contractual pricing to certain otherclasses of trade. We determine our chargeback estimates based on our historicalchargeback data. Chargebacks are generally invoiced and paid monthly inarrears, so that our accrual consists of an estimate of the amount to beexpected for the current month’s product sales for which actual adjustments havenot been billed, plus an accrual based upon the amount of inventory in thedistribution channel. Rebate reserves relate to our reimbursement arrangementswith state Medicaid programs. We determine our rebate estimates based on ourhistorical experience regarding rebates, outstanding claims and payments understate Medicaid programs. Rebate amounts generally are invoiced and paidquarterly in arrears, so that our accrual consists of an estimate of therebates that will be paid on the current quarter’s product sales, plus anaccrual for unprocessed and unpaid rebates from prior periods. Governmental andcontractual adjustment reserve accruals are recorded in the same period therelated revenue is recognized resulting in a reduction to product revenue and theestablishment of a liability. We adjust the accrual rate quarterly to reflectactual experience, taking into consideration price increases, as well ascurrent and expected product sales to federally and state funded healthcareproviders. Historically, these adjustments have not been material.

 

***Revenue under strategic alliances***

 

We recognize nonrefundable upfront licensing fees andguaranteed, time-based payments that, in either case, require continuinginvolvement in the form of research and development, manufacturing or othercommercialization efforts by us as strategic alliance revenue:

 

·                           ratably over the development period ifdevelopment risk is significant;

 

·                           ratably over the manufacturing period orestimated product useful life if development risk has been substantiallyeliminated; or

 

·                           based upon the level of research servicesperformed during the period of the research contract.

 

When the period of deferral cannot be specificallyidentified from the contract, management estimates the period based upon othercritical factors contained within the contract. We continually review theseestimates, which could result in a change in the deferral period and mightimpact the timing and the amount of revenue recognized.

 

Milestone payments are recognized as strategicalliance revenue when the substantive performance obligations, as defined inthe contract, are achieved. Performance obligations typically consist ofsignificant milestones in the development life cycle of the related productcandidate, such as initiation of clinical trials, filing for approval withregulatory agencies and approvals by regulatory agencies. Reimbursements ofresearch and development costs are recognized as strategic alliance revenue asthe related costs are incurred.

 

***Royalties***

 

We are entitled toreceive royalty payments under license agreements with a number of thirdparties that sell products based on technology we have developed or to which wehave rights. These license agreements provide for the payment of royalties tous based on sales of the licensed product and we record royalty revenues basedon estimates of sales from interim data provided by licensees. 

 

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Under certain of ourlicense agreements, the royalty structure is tiered based upon annual sales andresets at the beginning of each annual period. For all of our royaltyarrangements, we perform an analysis of historical royalties we have been paid,adjusted for any changes in facts and circumstances, as appropriate. Differencesbetween actual royalty revenues and estimated royalty revenues are adjusted forin the period which they become known, typically the following quarter. Theseadjustments have not been, and we do not expect them to be, significant. To theextent we do not have sufficient ability to accurately estimate royaltyrevenue, we record royalties on a cash basis

 

***Inventory***

 

Inventory consists ofcurrently marketed products. VELCADE inventories primarily represent rawmaterials used in production, work in process and finished goods inventory onhand, valued at cost. INTEGRILIN inventories include raw materials used inproduction and work in process, valued at cost, to supply GSK and limitedamounts of work in process, valued at cost, to supply SGP. We review inventoriesperiodically for slow-moving or obsolete status based on sales activity, bothprojected and historical. Our current sales projections provide for fullutilization of the inventory balance. If product sales levels differ fromprojections or a launch of a new product is delayed, inventory may not be fullyutilized and could be subject to impairment, at which point we would adjustinventory to its net realizable value.

 

***Intangible Assets***

 

We have acquiredsignificant intangible assets that we value and record. Those assets that donot yet have regulatory approval and for which there are no alternative usesare expensed as acquired in-process research and development, and those thatare specifically identified and have alternative future uses are capitalized.We use a discounted cash flow model to value intangible assets at acquisition.The discounted cash flow model requires assumptions about the timing and amountof future cash inflows and outflows, risk, the cost of capital, and terminalvalues. Each of these factors can significantly affect the value of theintangible asset. We review intangible assets for impairment using anundiscounted net cash flows approach when impairment indicators arise. If theundiscounted cash flows of an intangible asset are less than the carrying valueof an intangible asset, we would write down the intangible asset to thediscounted cash flow value. Where we cannot identify cash flows for anindividual asset, our review is applied at the lowest group level for which cashflows are identifiable.

 

***Goodwill***

 

On October 1, 2007,we performed our annual goodwill impairment test and determined that noimpairment existed on that date. We continually monitor business and marketconditions to assess whether an impairment indicator exists. If we were todetermine that an impairment indicator exists, we would be required to performan impairment test, which could result in a material impairment charge to ourstatement of operations.

 

***Restructuring***

 

In accordance withStatement of Financial Accounting Standard, or SFAS, No. 146, “Accountingfor Costs Associated with Exit or Disposal Activities,” our facilities relatedexpenses and liabilities under all of our restructuring plans includedestimates of the remaining rental obligations, net of estimated subleaseincome, for facilities we no longer occupy. We review our estimates andassumptions on a regular basis until the outcome is finalized, and makewhatever modifications we believe necessary, based on our best judgment, toreflect any changed circumstances. It is possible that such estimates couldchange in the future resulting in additional adjustments, and the effect of anysuch adjustments could be material.

 

***Stock-Based Compensation Expense***

 

SFAS No. 123(revised 2004), “Share Based Payment,” or SFAS 123R, requires therecognition of the fair value of stock-based compensation expense in ouroperations, and accordingly the SFAS 123R fair value method has had andwill continue to have a significant impact on our results of operations,although it will have no impact on our overall financial position. Optionvaluation models require the input of highly subjective assumptions, includingstock price volatility and expected term of an option. In determining ourvolatility, we have considered implied volatilities of currently traded optionsto provide an estimate of volatility based upon current trading activity inaddition to our historical volatility. After considering other such factors asour stage of development, the length of time we have been public and the impactof having a marketed product, we believe a blended volatility rate based uponhistorical performance, as well as the implied volatilities of currently tradedoptions, best reflects the expected volatility of our stock going forward.Changes in market price directly affect volatility and could cause stock-basedcompensation expense to vary significantly in future reporting periods.

 

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We use historical data toestimate option exercise and employee termination behavior, adjusted for knowntrends, to arrive at the estimated expected life of an option. We update theseassumptions on a quarterly basis to reflect recent historical data.Additionally, we are required to estimate forfeiture rates to approximate thenumber of shares that will vest in a period to which the fair value is applied.We will continually monitor employee exercise behavior and may further adjustthe estimated term and forfeiture rates in future periods. Increasing theestimated life would result in an increase in the fair value to be recognizedover the requisite service period, generally the vesting period. Estimatedforfeitures will be adjusted to actual forfeitures upon the vest date of thecancelled options as a cumulative adjustment on a quarterly basis. Doing socould cause future expenses to vary at each reporting period.

 

In March 2006, werevised our annual merit compensation program to include the availability ofboth stock options and restricted stock to certain employees. In March 2007,we extended the choice of stock options or restricted stock to all employeesthrough the annual merit compensation program. Additionally, in March 2007,we implemented performance based vesting for a portion of executive officerrestricted stock awards. A significant portion of the annual equity awards toall executive officers will vest only upon achievement of predefinedperformance objectives. In May 2007, we issued restricted stock units tomembers of the Board of Directors as partial compensation for their boardmember service. For the three months ended March 31, 2008 and 2007, werecognized total stock-based compensation expense under SFAS 123R of$5.5 million and $5.4 million, respectively. As of March 31, 2008,the total remaining unrecognized compensation cost related to nonvested stockoption awards amounted to approximately $14.5 million, including estimatedforfeitures, which will be recognized over the weighted-average remainingrequisite service periods of approximately one and one half years. As of March 31,2008, the total remaining unrecognized compensation cost related to nonvestedrestricted stock awards and restricted stock units amounted to approximately$23.2 million, including estimated forfeitures, which will be recognizedover the weighted-average remaining requisite service periods of approximatelyone and one half years.

 

**AccountingPronouncements**

 

In December 2007,the FASB issued EITF Issue 07-1, “Accounting for Collaborative Arrangements,”or EITF 07-1. EITF 07-1 requires collaborators to present the resultsof activities for which they act as the principal on a gross basis and reportany payments received from (made to) other collaborators based on otherapplicable GAAP or, in the absence of other applicable GAAP, based on analogyto authoritative accounting literature or a reasonable, rational, andconsistently applied accounting policy election. Further, EITF 07-1clarified the determination of whether transactions within a collaborative arrangementare part of a vendor-customer (or analogous) relationship subject toEITF 01-9, “Accounting for Consideration Given by a Vendor to a Customer(Including a Reseller of the Vendor’s Products).” EITF 07-1 will beeffective for us beginning on January 1, 2009. We are currently evaluatingthe effect of EITF 07-1 on our consolidated financial statements.

 

**Subsequent Event**

** **

On April 10, 2008, we entered into an Agreementand Plan of Merger with Takeda Pharmaceutical Company Limited, a corporationorganized under the laws of Japan, or TPC, Takeda America Holdings, Inc.,a New York corporation and wholly-owned subsidiary of TPC, or Parent, andMahogany Acquisition Corp., a Delaware corporation and a wholly-ownedsubsidiary of Parent, or Merger Sub. Pursuant to the merger agreement, upon the terms and subject to theconditions thereof, Merger Sub commenced a tender offer on April 11, 2008to acquire all of the outstanding shares of our common stock at a purchaseprice of $25.00 per share, net to the holder in cash, subject to any requiredwithholding of taxes, upon the terms and subject to the conditions set forth inthe Offer to Purchase, dated April 11, 2008, and the related Letter ofTransmittal, each as amended or supplemented from time to time.

 

The initial offering period for the tender offerexpired at 12:00 midnight, New York City time, at the end of Thursday, May 8,2008.  According to the depositary forthe tender offer, as of the expiration of the initial offering period,300,871,367 shares of our common stock had been tendered, representingapproximately 91.9% of our outstanding shares of common stock (of which26,917,513 shares, or approximately 8.2% of our outstanding shares, weretendered under guaranteed delivery procedures). Merger Sub has accepted for payment all shares of our common stock thatwere validly tendered and not withdrawn during the initial offering period, andpayment for such shares has been or will be made promptly, in accordance withthe terms of the tender offer.  We havebeen advised that shares validly tendered in satisfaction of guaranteeddelivery procedures will also be accepted for payment and promptly paidfor.  Pursuant to the merger agreement,promptly upon acceptance for payment of, and payment for, the tendered sharesof our common stock in the tender offer, Merger Sub has the right to designatea number of individuals to our board of directors.

 

Merger Sub has commenced a subsequent offeringperiod to acquire all of the remaining untendered shares.  This subsequent offering period will expireat 12:00 midnight, New York City time, at the end of May 13, 2008, unlessextended. During this subsequent offering period, holders of shares of ourcommon stock who did not previously tender their shares in the offer may do soand Merger Sub will promptly purchase any shares properly tendered as suchshares are tendered for the same consideration, without interest, paid in thetender offer. Procedures for tendering shares during the subsequent offerperiod are the same as during the initial offering period with two exceptions: (1) sharescannot be delivered by using the guaranteed delivery procedure, and (2) pursuantto applicable law, shares tendered during the subsequent offer period may notbe withdrawn. Merger Sub reserves the right to further extend the subsequentoffering period in accordance with applicable law and the terms of the mergeragreement.

 

After expiration of the subsequent offering period,TPC intends to complete its acquisition of Millennium on or about May 14,2008, by means of a merger under Delaware law. As a result of its purchase ofshares in the tender offer, Merger Sub has sufficient voting power to approvethe merger without the affirmative vote of any other Millennium stockholder. Asa result of such merger, we will become an indirect wholly-owned subsidiary ofTPC, and each share of our outstanding common stock will be cancelled and(except for shares held by us, TPC, wholly-owned subsidiaries of Takeda or us,or by holders who properly exercise their appraisal rights under Delaware law)will be converted into the right to receive the same consideration, withoutinterest, received by holders who tendered shares in the tender offer.  Following the effective time of the merger,our common stock will cease to be traded on Nasdaq.

 

In the Offer to Purchase, Parent and Merger Substated that they would need approximately $8.8 billion to purchase all of ouroutstanding shares of common stock pursuant to the tender offer, to cash outcertain employee options, restricted stock and restricted stock units, to fundamounts that may become payable under our outstanding convertible notes, and toconsummate the merger, plus related fees and expenses. Parent and Merger Subalso stated in the Offer to Purchase that, to the extent necessary, TPC wouldprovide them with sufficient funds through cash on hand to purchase all sharesproperly tendered in the tender offer and would provide funding for the merger.The tender offer was not conditioned upon Parent’s, Merger Sub’s or TPC’sability to finance the purchase of shares pursuant to the tender offer.  Pursuant to the merger agreement, TPC hasunconditionally guaranteed the full and complete performance by Parent andMerger Sub of their respective obligations under the merger agreement.

** **

 

22

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**Resultsof Operations**

 
| ** **                                                            | ** ** | ** **                                       | ** ** | ** **             | ** ** | **Increase/**  | ** ** |
|-----------------------------------------------------------------------|------------|--------------------------------------------------|------------|------------------------|------------|----------------|------------|
| ** **                                                            | ** ** | ** **                                       | ** ** | ** **             | ** ** | **(Decrease)** | ** ** |
| ** **                                                            | ** ** | **Three Months Ended  March 31,** | ** ** | **Percentage  Change** | ** ** |
| **(in thousands, except per share amounts)** | ** ** | **2008**                                         | ** ** | **2007**               | ** ** | **2008/2007**  | ** ** |
| ** **                                                            | ** ** | ** **                                       | ** ** | ** **             | ** ** | ** **     | ** ** |
| Revenues:                                                             |       |                                             |       |                   |       |           |       |
| Net product  sales                                                    |       | $                                                | 83,470     |                   | $          | 58,640         |       | 42 | % |
| Revenue under  strategic alliances                                    |       | 15,523                                           |       | 15,714                 |       | (1             | )          |
| Royalties                                                             |       | 40,459                                           |       | 36,370                 |       | 11             |       |
| Total revenues                                                        |       | 139,452                                          |       | 110,724                |       | 26             |       |
|                                                                  |       |                                             |       |                   |       |           |       |
| Costs and  expenses:                                                  |       |                                             |       |                   |       |           |       |
| Cost of sales (excludes  amortization of acquired intangible assets)  |       | 10,160                                           |       | 5,358                  |       | 90             |       |
| Research and  development (Note 1)                                    |       | 71,406                                           |       | 69,206                 |       | 3              |       |
| Selling, general  and administrative (Note 1)                         |       | 49,795                                           |       | 41,548                 |       | 20             |       |
| Restructuring                                                         |       | (2,870                                           | )          | 5,611                  |       | (151           | )          |
| Amortization of  intangibles                                          |       | 8,487                                            |       | 8,487                  |       | —         |       |
| Total costs and  expenses                                             |       | 136,978                                          |       | 130,210                |       | 5              |       |
|                                                                  |       |                                             |       |                   |       |           |       |
| Income (loss)  from operations                                        |       | 2,474                                            |       | (19,486                | )          | 113            |       |
|                                                                  |       |                                             |       |                   |       |           |       |
| Other income  (expense):                                              |       |                                             |       |                   |       |           |       |
| Investment  income, net                                               |       | 14,553                                           |       | 15,495                 |       | (6             | )          |
| Interest expense                                                      |       | (2,401                                           | )          | (2,787                 | )          | (14            | )          |
| Net income  (loss)                                                    |       | $                                                | 14,626     |                   | $          | (6,778         | )          | 316 | % |
|                                                                  |       |                                             |       |                   |       |           |       |
| *Amounts  per common share:*                                          | * *   | * *                                         | * *   | * *               | * *   | * *       | * *   |
| Earnings (loss)  per share, basic and diluted                         |       | $                                                | 0.05       |                   | $          | (0.02          | )          |   |   |
|                                                                  |       |                                             |       |                   |       |           |       |
| Weighted average  shares, basic                                       |       | 321,608                                          |       | 316,072                |       |           |       |
| Weighted average  shares, diluted                                     |       | 326,694                                          |       | 316,072                |       |           |       |

 

Note 1:  Stock-basedcompensation expense is allocated in the condensed consolidated statements ofoperations expense lines as follows:

 
| ** **                           | ** ** | **Three Months Ended  March 31,** | ** ** |
|--------------------------------------|------------|--------------------------------------------------|------------|
| **(in thousands)**              | ** ** | **2008**                                         | ** ** | **2007** | ** ** |
|                                 |       |                                             |       |   |   |
| Research and  development            |       | $                                                | 1,361      |   | $ | 2,055 |   |
| Selling, general  and administrative |       | 4,162                                            |       | 3,347 |   |
|                                      |            |                                                  |            |  |  |  |  |

 

 ***Revenues***

 

Total revenues increased26% to $139.5 million during the three months ended March 31, 2008,or the 2008 Three Month Period, compared to the three months ended March 31,2007, or the 2007 Three Month Period.  The increase was primarily relatedto higher net product sales and additional royalty revenue earned on sales ofVELCADE outside the United States.

 

Net product sales ofVELCADE increased 42% to $83.5 million in the 2008 Three Month Period comparedto the 2007 Three Month Period.  The increase was primarily attributableto growth in product demand and to a lesser extent, price increases during theperiod.    Reserves as a percentageof gross product sales for discounts, product returns and governmental andcontractual adjustments were 9% in the 2008 Three Month Period and 7% in the2007 Three Month Period.  The increase inreserves was primarily related to increased governmental and contractualadjustments.  Net product sales ofVELCADE represented approximately 60% and 53% of our total revenues in the 2008and 2007 Three Month Periods, respectively.

 

Revenue under strategicalliances decreased 1% to $15.5 million in the 2008 Three Month Period comparedto the 2007 Three Month Period.  The decrease was primarily attributableto lower reimbursement of research and development costs offset by highernonrefundable license payments.  Weexpect revenue under strategic alliances to fluctuate in future periodsdepending on the level of 

 

23

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revenues earned forongoing development efforts, the level of milestones achieved and the number ofalliances we may enter into in the future with other biopharmaceuticalcompanies.

 

Royalty revenue increased11% to $40.5 million in the 2008 Three Month Period compared to the 2007 ThreeMonth Period.  The increase was primarily a result of increased sales ofVELCADE outside the United States.

 

***Cost of Sales***

 

Cost of sales increased90% to $10.2 million in the 2008 Three Month Period compared to the 2007 ThreeMonth Period.  The increase was primarily related to costs associated withmanaging the INTEGRILN supply chain on behalf of SGP and GSK andmanufacturing-related expenses associated with increased sales of VELCADE.

 

***Research and Development***

 

Research and developmentexpenses increased 3% to $71.4 million in the 2008 Three Month Period comparedto the 2007 Three Month Period.  The increase was primarily a result ofhigher expenses associated with manufacturing and clinical developmentactivity, including expenses related to MLN0002.  Partially offsetting this increase was adecrease in stock-based compensation expense as a result of forfeitures inexcess of our original estimates related to certain cliff-based awards held byemployees whose employment was terminated in connection with restructuringinitiatives and normal attrition.

 

In addition to our ongoing clinical trials of VELCADE,we have a significant pipeline of product candidates in clinical and latepreclinical development. In March 2008, we announced the expansion of ourinflammatory bowel disease program through the advancement of MLN3126 fromdiscovery to our development pipeline. MLN3126 is a selective antagonist of CCR9, a chemokine receptor know tobe important in the migration of inflammatory cells into the gastrointestinaltract.  The following chart summarizesthe applicable disease indication and the clinical or preclinical trial statusof our pipeline of drug candidates.

 
| **Product Description**                                                                                           | ** ** | **Disease Indication**                           | ** ** | **Current Trial Status**                |
|------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------|------------|---------------------------------------------------|
| ***Cancer***                                                                                                           |       |                                                  |       |                                              |
| MLN0518 is a small molecule inhibitor of the  class III receptor tyrosine kinase (RTKs), FLT-3, c-KIT, and PDGF-R |       | Acute myeloid leukemia  Glioma(1)  Prostate cancer(1) |       | phase I/II  phase I/II  phase I/II |
| MLN8054/MLN8237 are small molecule inhibitors of  Aurora A Kinase                                                      |       | Advanced  malignancies                                |       | phase I                                      |
| MLN4924 is a small molecule inhibitor of  Nedd8—activating enzyme (NAE)                                           |       | Advanced malignancies                                 |       | phase I                                      |
| MLN2238 is a second generation proteasome small  molecule inhibitor                                                    |       | Advanced  malignancies                                |       | preclinical                                       |
| ***Inflammatory  Bowel Diseases***                                                                                     |       |                                                  |       |                                              |
| MLN0002 is a humanized monoclonal antibody directed  against the alpha4beta7 integrin                                  |       | Ulcerative colitis    Crohn’s disease            |       | phase II(2)                                  |
| MLN3126 is a small molecule CCR9 inhibitor                                                                             |       | Crohn’s disease                                  |       | preclinical                                       |
| ***Other  Inflammatory Diseases***                                                                                     |       |                                                  |       |                                              |
| MLN1202 is a humanized monoclonal antibody directed  against CCR2                                                      |       | Atherosclerosis   Multiple sclerosis                  |       | phase IIa-completed                          |
| MLN3897/3701 are small molecule CCR1 inhibitors(3)                                                                     |       | Chronic  inflammatory diseases                        |       | phase I/II                                   |
| MLN6094 is a small molecule CrTh2 receptor  antagonist(4)                                                              |       | Asthma                                                |       | preclinical                                       |

 

----

| (1)    |   | Trials are  conducted through Cancer Therapy Evaluation Program, a division of the  National Cancer Institute.                                                                                                                                                                                   |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                             |
| (2)    |   | Clinical trials  resumed in May 2007 with a new, commercially scalable cell line; prior  phase II data established proof-of-concept for this mechanism  in ulcerative colitis.                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                             |
| (3)    |   | In November 2007,  we announced that the results from a phase II trial of MLN3897 did not  achieve the pre-established criteria for moving this product candidate  forward in rheumatoid arthritis. We are contemplating further development of  this program in oncology indications. |
|   |   |                                                                                                                                                                                                                                                                                             |
| (4)    |   | In development  through our sanofi-aventis small molecule inflamatory disease collaboration.                                                                                                                                                                                                     |

 

Completion of clinical trials may take several yearsor more and the length of time can vary substantially according to the type,complexity, novelty and intended use of a product candidate. The types of costsincurred during a clinical trial vary depending upon the type of productcandidate and the nature of the study.

 

24

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We estimate that clinical trials in our areas of focusare typically completed over the following timelines:

 
| **Clinical Phase** | ** ** | **Objective**                                                                                      | ** ** | **Estimated  Completion Period** |
|--------------------|------------|----------------------------------------------------------------------------------------------------|------------|----------------------------------|
| phase I       |       | Establish safety  in humans, study how the drug works, metabolizes and interacts with other  drugs |       | 1–2 years              |
| phase II      |       | Evaluate  efficacy, optimal dosages and expanded evidence of safety                                |       | 2–3 years              |
| phase III     |       | Confirm efficacy  and safety of the product                                                        |       | 2–3 years              |

 

Uponsuccessful completion of phase III clinical trials of a product candidate,we intend to submit the results to the FDA to support regulatory approval.However, we cannot be certain that any of our product candidates will prove tobe safe or effective, will receive regulatory approvals, or will besuccessfully commercialized. Our clinical trials might prove that our productcandidates may not be effective in treating the disease or have undesirable orunintended side effects, toxicities or other characteristics that require us tocease further development of the product candidate. The cost to take a productcandidate through clinical trials is dependent upon, among other things, thedisease indications, the timing, the size and dosing schedule of each clinicaltrial, the number of patients enrolled in each trial and the speed at whichpatients are enrolled and treated. We could incur increased product developmentcosts if we experience delays in clinical trial enrollment, delays in theevaluation of clinical trial results or delays in regulatory approvals.

 

Some products that arelikely to result from our research and development projects are based on newtechnologies and new therapeutic approaches that have not been extensivelytested in humans. The regulatory requirements governing these types of productsmay be more rigorous than for conventional products. As a result, it isdifficult to estimate the nature and length of the efforts to complete suchproducts as we may experience a longer regulatory process in connection withany products that we develop based upon these new technologies or therapeuticapproaches. In addition, ultimate approval for commercial manufacturing andmarketing of our products is dependent on the FDA or applicable approval bodyin the country for which approval is being sought, adding further uncertaintyto estimated costs and completion dates. Significant delays could allow ourcompetitors to bring products to market before we do and impair our ability tocommercialize our product candidates.

 

Due to the variability in the length of time necessaryto develop a product, the uncertainties related to the estimated cost of theprojects and ultimate ability to obtain governmental approval forcommercialization, accurate and meaningful estimates of the ultimate cost tobring our product candidates to market are not available.

 

We budget and monitor our research and developmentcosts by type or category, rather than by project on a comprehensive or fullyallocated basis. Significant categories of costs include personnel, clinical,third party research and development services and laboratory supplies. Inaddition, a significant portion of our research and development expenses is nottracked by project as it benefits multiple projects or our technology platform.Consequently, fully loaded research and development cost summaries by projectare not available.

 

Given the uncertainties related to development, we arecurrently unable to reliably estimate when, if ever, our product candidateswill generate revenue and cash flows. We do not expect to receive net cash inflowsfrom any of our major research and development projects until a productcandidate becomes a profitable commercial product.

 

***Selling,General and Administrative***

*** ***

Selling,general and administrative expenses increased 20% to $49.8 million in the 2008Three Month Period compared to the 2007 Three Month Period.  The increase wasprimarily attributable to higher expense associated with the long-terminvestment in our VELCADE brand, including continuing medical education,marketing materials, and higher commission expense payable to our sales forcewith increased product sales.

 

***Restructuring***

*** ***

During the2008 Three Month Period, we recorded a total of $2.9 million of netrestructuring credits under all of our restructuring initiatives. We recorded netrestructuring credits of approximately $0.1 million under the 2006restructuring program primarily related to a gain on the sale of previouslyimpaired assets offset by the net present value adjustment for facilitiescharged to restructuring in prior years and employee termination benefits as aresult of headcount reductions.  We recorded restructuring charges in the2008 Three Month Period of approximately $0.1 million under the 2005restructuring plan, primarily related to the net present value adjustment forfacilities charged to restructuring in prior years.  We also recorded net restructuring credits ofapproximately $2.9 million in the 2008 Three Month Period under the 2003restructuring plan primarily related to the earlier than anticipated subleaseof one of our facilities and the sublease extension of another facility, bothcharged to restructuring in prior years.

 

During the2007 Three Month Period, we recorded a total of $5.6 million of restructuringcharges under all of our restructuring initiatives. We recorded restructuringcharges of approximately $5.0 million under the 2006 restructuring programprimarily for 

 

25

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facilities-related costs associated withvacated buildings and employee termination benefits as a result of headcountreductions.  We also recorded restructuring charges in the 2007 ThreeMonth Period of approximately $0.2 million and $0.4 million under the 2005 and2003 restructuring plans, respectively, primarily related to the net presentvalue adjustment for facilities charged to restructuring in prior years.

 

We estimatethat of the remaining restructuring liabilities under all restructuringinitiatives at March 31, 2008, we will pay approximately $19.9 million through March31, 2009 and $21.3 million thereafter through 2014.

 

In connectionwith the 2006 decision to abandon certain facilities in 2007 under the 2006restructuring program, we shortened the useful lives of the leaseholdimprovements at these facilities in accordance with SFAS No. 144,“Accounting for the Impairment or Disposal of Long-Lived Assets.”  Duringthe 2008 and 2007 Three Month Periods, we recorded additional amortizationexpense of approximately $0.1 million and $2.8 million, respectively, inresearch and development expense related to our decision.

 

***Amortizationof Intangibles***

*** ***

Amortizationof intangible assets was $8.5 million in both the 2008 and 2007 Three MonthPeriods. Amortization primarily related to specifically identified intangibleassets from the COR acquisition. We will continue to amortize the specificallyidentified intangible assets from our COR acquisition through 2015. We expectto incur amortization expense of approximately $34.0 million for each ofthe next five years.

 

***InvestmentIncome***

*** ***

Investmentincome decreased 6% to $14.6 million in the 2008 Three Month Period compared tothe 2007 Three Month Period.  The decrease was primarily attributable tolower realized gains offset by higher interest income as a result of higheraverage balance of invested funds. Realized gains in the 2007 Three Month Period included a $3.5 milliongain on sale of our investment in SGX Pharmaceuticals, Inc. common stockand a $2.3 million gain related to our share of additional proceeds from a the classaction proceeding against WorldCom, Inc.

 

***InterestExpense***

*** ***

Interestexpense decreased 14% to $2.4 million in the 2008 Three Month Period comparedto the 2007 Three Month Period.  The decrease was primarily related to adecrease in interest on our convertible notes as a result of lower averagebalances of indebtedness during the period due to the repayment of our $83.3million principal balance and our $16.2 million principal balance convertiblenotes during the 2007 Three Month Period.

 

**Liquidity and CapitalResources**

** **

We requirecash to fund our operating expenses, to make capital expenditures, acquisitionsand investments and to pay debt service, including principal and interest andcapital lease payments. We have and may in the future lose money in theseinvestments and our ability to liquidate these investments is in some casesvery limited. We may also owe our partners milestone payments and royalties. Wealso have committed to fund development costs incurred by some of ourcollaborators.

 

We havefunded our cash requirements primarily through the following:

 

·         product sales of VELCADE;

 

·         payments from our strategiccollaborators, including equity investments, license fees, milestone paymentsand research funding;

 

·         royalty payments related to the sales ofour products; and

 

·         equity and debt financings in the publicmarkets.

 

In thefuture, we expect to continue to fund our cash requirements from some or all ofthese sources as well as from sales of other products, subject to receivingregulatory approval. We are entitled to additional committed research anddevelopment funding under some of our strategic alliances. We believe the keyfactors that could affect our internal and external sources of cash are:

 

·         revenues from sales of VELCADE,INTEGRILIN and other products and services for which we may obtain marketingapproval in the future or which are sold by companies that may owe us royalty,milestone, distribution or other payments on account of such products;

 

·         the success of our clinical andpreclinical development programs;

 

·         our ability to enter into additionalstrategic collaborations and to maintain existing collaborations as well as thesuccess of 

 

26

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     suchcollaborations; and

 

·         the receptivity of the capital markets tofinancings by biopharmaceutical companies generally and to financings by usspecifically.

 

As of March31, 2008, we had $931.3 million in cash, cash equivalents and marketablesecurities. This excludes $7.6 million of interest-bearing marketablesecurities classified as restricted cash on our balance sheet as of March 31,2008, which primarily serve as collateral for letters of credit securing leasedfacilities.

 

Our significant capital resources andsources and uses of cash are as follows:

 

 
| **(in thousands)**                           | ** ** | **March 31, 2008** | ** ** | **December 31, 2007** | ** ** |
|---------------------------------------------------|------------|------------------------------|------------|---------------------------------|------------|
| Cash, cash  equivalents and marketable securities |       | $                            | 931,288    |                            | $          | 891,276 |   |
| Working capital                                   |       | 933,024                      |       | 901,595                         |       |
|                                                   |            |                              |            |                                 |            |  |  |

 
| ** **                                                     | ** ** | **Three Months Ended March 31,** | ** ** |
|----------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                     | ** ** | **2008**                                             | ** ** | **2007** | ** ** |
| Cash provided by  (used in):                                   |       |                                                 |       |   |   |
| Operating  activities                                          |       | $                                                    | 33,664     |   | $ | 14,153 |   |
| Investing  activities                                          |       | 17,704                                               |       | (72,314 | ) |
| Financing  activities                                          |       | 3,442                                                |       | (91,511 | ) |
| Capital  expenditures (included in investing activities above) |       | (1,354                                               | )          | (1,100 | ) |
|                                                                |            |                                                      |            |  |  |  |  |

 

***CashFlows***

*** ***

Operatingactivities provided cash of $33.7 million in the 2008 Three Month Period. The principal source of funds was the collection of accounts receivable, netincome and adjustments for non-cash charges offset by the payment ofexpenses.  Cash flows from operations can vary significantly due tovarious factors including changes in accounts receivable, as well as changes inaccounts payable and accrued expenses. The average collection period of ouraccounts receivable can vary and is dependent on various factors, including thetype of revenue and the payment terms related to those revenues.

 

Investingactivities provided cash of $17.7 million in the 2008 Three Month Period.The principal source of funds was proceeds from the sale of marketablesecurities.  In February 2008, we received proceeds of approximately $1.2million related to our share of proceeds from a class action proceeding againstWorldCom, Inc.

 

Financingactivities provided cash of $3.4 million in the 2008 Three Month Period.The principal source of funds was from the purchase of common stock by ouremployees.  We also used $0.3 million infinancing activities to make principal payments on our capital leases.

 

We believethat our existing cash and cash equivalents and the anticipated cash receiptsfrom our product sales, current strategic alliances and royalties will besufficient to support our expected operations, fund our debt service andcapital lease obligations and fund our capital commitments for at least thenext several years.

 

***ContractualObligations***

*** ***

There havebeen no additional significant changes to our contractual obligations andcommercial commitments included in our Form 10-K as of December 31,2007.

 

As of March31, 2008, we did not have any financing arrangements that were not reflected inour balance sheet.

 

27

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** **

**Item 3.       Quantitative andQualitative Disclosures About Market Risk**

** **

We manage ourfixed income investment portfolio in accordance with our Policy for SecuritiesInvestments, or Investment Policy, that has been approved by our Board ofDirectors. The primary objectives of our Investment Policy are to preserveprincipal, maintain a high degree of liquidity to meet operating needs, andobtain competitive returns subject to prevailing market conditions. Investmentsare made primarily in investment-grade corporate bonds with effectivematurities of three years or less, asset-backed debt securities and U.S.government agency debt securities. These investments are subject to risk ofdefault, changes in credit rating and changes in market value. Theseinvestments are also subject to interest rate risk and will decrease in valueif market interest rates increase. A hypothetical 100 basis point increase ininterest rates would result in an approximate $13.9 million decrease in thefair value of our investments as of March 31, 2008. However, due to theconservative nature of our investments and relatively short effectivematurities of debt instruments, interest rate risk is mitigated. Our InvestmentPolicy specifies credit quality standards for our investments and limits theamount of exposure from any single issue, issuer or type of investment. We donot own derivative financial instruments in our investment portfolio as ofMarch 31, 2008.

 

We receivedistribution fees from OBL based on worldwide product sales of VELCADE outsideof the U.S. and we make payments for certain inventory purchases and clinicaltrials outside of the U.S.  As a result, our financial position, resultsof operations and cash flows can be affected by fluctuations in foreigncurrency exchange rates, primarily the EURO.  Movement in foreign currencyexchange rates could cause royalty revenue or research and development expenseto vary significantly in future reporting periods.  We currently do not engage in any hedgingstrategies with respect to such foreign currency exposures.

 

The estimatedfair value of our 2.25% notes as of March 31, 2008 was $297.1 million based onquoted market values. The interest rates on our convertible notes and capital leaseobligations are fixed and therefore not subject to interest rate risk.

 

As of March31, 2008 we did not have any financing arrangements that were not reflected inour balance sheet.

 

**Item4.         Controls and Procedures**

** **

Ourmanagement, with the participation of our chief executive officer and chieffinancial officer, evaluated the effectiveness of our disclosure controls andprocedures (as defined in Rules 13a-15(e) and 15d-15(e) underthe Exchange Act) as of March 31, 2008. In designing and evaluating ourdisclosure controls and procedures, management recognized that any controls andprocedures, no matter how well designed and operated, can provide onlyreasonable assurance of achieving their objectives and our managementnecessarily applied its judgment in evaluating the cost-benefit relationship ofpossible controls and procedures. Based on this evaluation, our chief executiveofficer and chief financial officer concluded that as of March 31, 2008, ourdisclosure controls and procedures were (1) designed to ensure thatmaterial information relating to us is made known to our chief executiveofficer and chief financial officer by others, particularly during the periodin which this report was prepared and (2) effective, in that they provide reasonableassurance that information required to be disclosed by us in the reports wefile or submit under the Exchange Act is recorded, processed, summarized andreported within the time periods specified in the SEC’s rules and forms.

 

No change inour internal control over financial reporting (as defined inRules 13a-15(f) and 15d-15(f) under the Exchange Act) occurredduring the fiscal quarter ended March 31, 2008 that has materially affected, oris reasonably likely to materially affect, our internal control over financialreporting.

 

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** **

**PART II OTHER INFORMATION**

** **

**Item 1.  LEGAL PROCEEDINGS**

** **

On April 10, 2008,a purported shareholder class action lawsuit was filed by a single plaintiffagainst us and each of our directors, as well as Takeda America Holdings, Inc.and Mahogony Acquisition Corp., in Superior Court for Middlesex County,Massachusetts.  The action, captionedEleanor Turberg v. Millennium Pharmaceuticals, Inc. et al. (Case No. 08-1466,Superior Court, Middlesex County, MA), is brought by Eleanor Turberg, whoclaims to be an individual Millennium stockholder, on her own behalf, and seekscertification as a class action on behalf of all Millennium stockholders exceptthe defendants and any person, firm, trust, corporation or other entity relatedto or affiliated with any defendants. The complaint alleges, among other things, that the defendants breachedfiduciary duties of loyalty, due care, independence, good faith and fairdealing, and/or aided and abetted the breach of fiduciary duties, owed to ourstockholders in connection with the transactions contemplated by the MergerAgreement.  The complaint seeks, amongother things, an order:

 

·                  enjoining the defendants from proceeding with theproposed acquisition of shares of our common stock by Takeda,

 

·                  rescinding, to the extent already implemented, theproposed acquisition of shares of our common stock by Takeda,

 

·                  awarding the plaintiff and the purported class damagesand

 

·                  awarding plaintiff the costs and disbursements of theaction, including reasonable attorneys’ and experts’ fees.

 

On May 5, 2008, the courtheard the plaintiff’s motion for a preliminary injunction enjoining theacceptance of tendered shares by Takeda.  Following the hearing, the courtdenied the plaintiff’s motion.

 

We intend tovigorously defend against these claims; however, the outcome of all litigationis uncertain and we may not be successful in defending against theseclaims.  Regardless of the outcome ofthis lawsuit, it could delay or prevent our acquisition by Takeda, divert theattention of our management and employees from our day-to-day business andotherwise adversely affect us financially.

 

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** **

**Item 1A.  RISK FACTORS**

** **

This Quarterly Report on Form 10-Q containsforward-looking statements that are based on current expectations, estimates,forecasts and projections about us, our future performance, our business, ourbeliefs and our management’s assumptions. In addition, we, or others on ourbehalf, may make forward-looking statements in press releases or writtenstatements, or in our communications and discussions with investors andanalysts in the normal course of business through meetings, webcasts, phonecalls and conference calls. Words such as “expect,” “anticipate,” “outlook,”“could,” “target,” “project,” “intend,” “plan,” “believe,” “seek,” “estimate,”“should,” “may,” “will,” “assume” or “continue,” and variations of such wordsand similar expressions are intended to identify such forward-lookingstatements. These statements are not guarantees of future performance andinvolve important risks, uncertainties and assumptions that are difficult topredict. We describe some of the risks, uncertainties and assumptions that couldaffect our business, including our financial condition and results ofoperations, in this “Risk Factors” section. We have based our forward-lookingstatements on our management’s beliefs and assumptions based on informationavailable to our management at the time the statements are made.

 

We caution you that actual outcomes and results maydiffer materially from what is expressed, implied or forecast by ourforward-looking statements. Reference is made in particular to forward-lookingstatements about our acquisition by Takeda, growth and future financial andoperating results, discovery and development of products, strategic alliances,regulatory approvals, competitive strengths, intellectual property, litigation,mergers and acquisitions, market acceptance or continued acceptance of ourproducts, accounting estimates, financing activities, ongoing contractualobligations and sales efforts. We do not intend to update or revise anyforward-looking statements, whether as a result of new information, futureevents, changes in assumptions or otherwise.

 

**Risks Related to Our Acquisition**

 

***If our acquisition by Takeda is notcompleted as expected, our stock price, business and results of operations maysuffer.***

 

On April 10, 2008, weentered into an Agreement and Plan of Merger with Takeda America Holdings, Inc.,which we refer to as Parent, and Mahogany Acquisition Corp., a wholly-ownedsubsidiary of Parent, which we refer to as Merger Sub.  We refer to the Agreement and Plan of Mergeras the Merger Agreement, which we have previously filed with the U.S.Securities and Exchange Commission. Pursuant to the Merger Agreement, Merger Sub has completed a tenderoffer for all of our outstanding common stock at a purchase price of $25.00 pershare.  The tender offer expired atmidnight at the end of May 8, 2008, after which Merger Sub accepted andpaid for all shares validly tendered and not withdrawn at the time,representing approximately 83.7% of our outstanding common stock (excluding 26,917,513shares, or approximately 8.2% of our outstanding shares, tendered underguaranteed delivery procedures), and announced a three business day subsequentoffering period.   We expect that thesubsequent offering period will be followed by the merger of Merger Sub intoMillennium on or shortly after May 14, 2008 under the short-form mergerprocedures provided by Delaware law.

 

It is possible, however,that the required conditions to the short-form merger or the merger generallyunder the Merger Agreement may not be satisfied.  The merger might be delayed if Takeda cannotuse the short-form merger procedure and is required to obtain stockholderapproval, or it could be prevented if a court or other governmental authoritywere to block the merger or make it illegal.  If the merger is delayed or otherwise notconsummated within the contemplated time periods or at all, we could suffer anumber of consequences that may adversely affect our business, results ofoperations and stock price, including:

 

·      activities related to the merger and relateduncertainties may lead to a loss of revenue and market position that we may notbe able to regain if the proposed transaction does not occur;

 

·      the market price of our common stock coulddecline following an announcement that the proposed transaction had beenabandoned or delayed;

 

·      because Takeda would own a substantialmajority of our common stock, there may not be an active trading market for ourremaining shares of common stock and we may not be able to sustain our Nasdaqlisting;

 

·      we would remain liable for our costsrelated to the proposed transaction, including substantial legal, accountingand investment banking expenses; and

 

·      we may not be able to take advantage ofalternative business opportunities or effectively respond to competitivepressures.

 

***A lawsuit has been filed againstus and the members of our Board of Directors arising out of our acquisition byTakeda, which may delay or prevent the proposed transaction.***

 

On April 10, 2008, apurported shareholder class action lawsuit was filed by a single plaintiffagainst us and each of our directors, as well as Parent and Merger Sub, inSuperior Court for Middlesex County, Massachusetts.  The action, captioned Eleanor Turberg v.Millennium Pharmaceuticals, Inc. et al. (Case No. 08-1466, SuperiorCourt, Middlesex County, MA), is brought by Eleanor Turberg, who claims to bean individual Millennium stockholder, on her own behalf, and seekscertification as a class action on behalf of all Millennium stockholders exceptthe defendants and any person, firm, trust, corporation or other entity relatedto or affiliated with any defendants. The complaint alleges, among other things, that the defendants breachedfiduciary duties of loyalty, due care, independence, good faith and fairdealing, and/or aided and abetted the breach of fiduciary duties, owed to ourstockholders in connection with the transactions contemplated by the MergerAgreement.  The complaint seeks, amongother things, an order (a) enjoining the defendants from proceeding withthe proposed acquisition of shares of our common stock by Takeda, (b) rescinding,to the extent already implemented, the proposed acquisition of shares of ourcommon stock by Takeda, (c) awarding the plaintiff and the purported classdamages and (d) awarding plaintiff the costs and disbursements of theaction, including reasonable attorneys’ and experts’ fees.  On May 5, 2008, the court denied theplaintiff’s motion for a preliminary injunction against Merger Sub acceptingshares tendered in the tender offer, and on May 9, 2008, Merger Sub acceptedthe shares tendered in the tender offer. We intend to vigorously defend against these claims; however, theoutcome of all litigation is uncertain and we may not be successful indefending against these claims.  Regardlessof the outcome of this lawsuit, it could delay or prevent our acquisition byTakeda, divert the attention of our management and employees from ourday-to-day business and otherwise adversely affect us financially.

 

**RegulatoryRisks**

** **

***Our business will be harmed if we do not obtain approval tomarket VELCADE for additional therapeutic uses.***

*** ***

An important part of our strategy to grow our businessis to market VELCADE for additional indications. To do so, we will need tosuccessfully conduct clinical trials in accordance with good clinical practicesand then apply for and obtain the appropriate regulatory approvals. If we areunsuccessful in our clinical trials, or we experience a delay in obtaining orare unable to obtain authorizations for expanded uses of VELCADE, our revenueswill not grow as expected and our business and operating results will beharmed. For example, in December 2007 we submitted a sNDA to the FDA, and OBLsubmitted a variation to their Marketing Authorization to the EMEA, to market VELCADEfor patients with newly diagnosed multiple myeloma. If these submissions arenot approved by the regulatory agencies, sales of VELCADE could be materiallylower than anticipated. Future sales of VELCADE could also be materially lowerthan expected if the results from our phase III clinical trial in patientswith relapsed follicular or marginal zone NHL do not justify a label expansioninto this indication.

 

***We may not be able to obtain approval in additionalcountries to market VELCADE.***

*** ***

VELCADE is currently approved for marketing in theUnited States and a total of 85 countries including the countries of theEuropean Union. If OBL is not able to obtain approval to market VELCADE inadditional countries, OBL will lose the opportunity to sell in those countriesand we may not be able to earn potential milestone payments under our agreementwith OBL or collect potential distribution fees on sales of VELCADE by OBL inthose countries.

 

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***We may not be able to obtain marketing approval for productsresulting from our development efforts.***

*** ***

The products that we are developing require researchand development, extensive preclinical studies and clinical trials andregulatory approval, including the submission of user fees, prior to anycommercial sales. This process is expensive and lengthy, and can often take anumber of years. In some cases, the length of time that it takes for us toachieve various regulatory approval milestones affects the payments that we areeligible to receive under our strategic alliance agreements.

 

We may need to successfully address a number oftechnological challenges in order to complete development of our products.Moreover, these products may not be effective in treating any disease or mayprove to have undesirable or unintended side effects, toxicities or othercharacteristics that may preclude completing development, obtaining regulatoryapproval or prevent or limit commercial use. For example, in November 2007, weannounced that the results from a phase II trial of MLN3897 did notachieve the pre-established criteria for moving this product candidate forwardin rheumatoid arthritis.

 

Failure to gain approval for the products we aredeveloping could have a material adverse impact on our business.

 

***If we fail to comply with regulatory requirements, or if weexperience unanticipated problems with our approved products, our productscould be subject to restrictions or withdrawal from the market.***

*** ***

Any product for which we obtain marketing approval,along with the manufacturing processes, post-approval clinical data, adverseevent reporting and promotional activities for such product, is subject tocontinual review and periodic inspections by the FDA and other regulatoryauthorities. Later discovery of previously unknown problems or safety issueswith our products or manufacturing processes, or failure to comply withregulatory requirements, may result in restrictions on such products ormanufacturing processes, withdrawal of the products from the market, warningletters, product recalls or seizures, the imposition of total or partialsuspension of production or distribution, fines, civil or criminal penalties ora refusal by the FDA and other regulatory authorities to approve pending applicationsfor marketing approval of new drugs or supplements to approved applications. Aswith any recently approved therapeutic product, we expect that our knowledge ofthe safety profile for VELCADE will expand after wider usage, and thepossibility exists of patients receiving VELCADE treatment experiencingunexpected or more frequently than expected serious adverse events, which couldhave a material adverse effect on our business.

 

We are a party to collaborations that transferresponsibility for specified regulatory requirements, such as filing andmaintenance of marketing authorizations and safety reporting, to ourcollaborators. If our collaborators do not fulfill these regulatoryobligations, products, including VELCADE and INTEGRILIN, could be withdrawnfrom the market, which would have a material adverse effect on our business.Additionally, the FDA requires that we, along with our collaborators and thirdparty manufacturers, may not employ, in any capacity, persons who have beendebarred under the FDA’s Application Integrity Policy. Employment of such adebarred person (even if inadvertently) may result in delays in the FDA’sreview or approval of our products, or the rejection of data developed with theinvolvement of such person(s).

 

Additionally, because VELCADE and other products wemay develop could be used in combination with therapies we do not control, oursales of VELCADE and other future products could be adversely affected if thosecombined therapies became subject to increased safety concerns, were withdrawnfrom the market or otherwise lost favor among practitioners.

 

***Recently enacted legislation may make it more difficult andcostly for us to obtain regulatory approval of our product candidates and toproduce, market and distribute products after approval.***

*** ***

On September 27, 2007, the President signed theFood and Drug Administration Amendments Act of 2007, or the FDAAA, into law.The FDAAA grants a variety of new powers to the FDA, many of which are aimed atimproving the safety of drug products before and after approval. Under theFDAAA, companies that violate the new law are subject to substantial civilmonetary penalties. While we expect the FDAAA to have a substantial effect onthe pharmaceutical industry, the extent of that effect is not yet known. As theFDA issues regulations, guidance and interpretations relating to the newlegislation, the impact on the industry, as well as our business, will becomeclearer. The new requirements and other changes that the FDAAA imposes may makeit more difficult, and likely more costly, to obtain approval of newpharmaceutical products and to produce, market and distribute products afterapproval.

 

***Some of our products may be based on new technologies, whichmay affect our ability or the time we require to obtain necessary regulatoryapprovals.***

*** ***

Products that result from our research and developmentprograms may be based on new technologies, such as proteasome inhibition, Nedd8—activating enzyme inhibition, IKK beta inhibition and other new therapeuticapproaches that have not been extensively tested in humans. The regulatoryrequirements governing these types of products may be more rigorous than for 

 

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conventional products. As a result, we may experience a longerdevelopment or regulatory process in connection with any products that wedevelop based on these new technologies or new therapeutic approaches.

 

**RisksRelating to Our Business, Strategy and Industry**

** **

***Our revenues over the next several years will be materiallydependent on the commercial success of VELCADE and INTEGRILIN.***

*** ***

VELCADE was approved by the FDA in May 2003 andcommercially launched in the United States shortly after that date. Marketingof VELCADE outside the United States commenced in April 2004. INTEGRILIN hasbeen on the market in the United States since June 1998. Marketing ofINTEGRILIN outside the United States commenced in mid-1999.

 

Our business plan contemplates obtaining marketingauthorization to sell VELCADE in many countries for the treatment of allpatients with multiple myeloma and both in the United States and abroad forother indications. We will be adversely affected if VELCADE does not receivesuch approvals, or if such approvals are subject to limitations on the indicateduses for which we may market the product.

 

We will not achieve our business plan, and we may beforced to scale back our operations and research and development programs, ifwe do not obtain regulatory approval to sell VELCADE in additional countries orfor additional therapeutic uses or the sales of VELCADE or INTEGRILIN do notmeet our expectations.

 

***We face substantial competition, and others may discover,develop or commercialize products before or more successfully than we do.***

*** ***

The fields of biotechnology and pharmaceuticals arehighly competitive. Many of our competitors are substantially larger than weare, and these competitors have substantially greater capital resources,research and development staffs and facilities than we have. Furthermore, manyof our competitors are more experienced than we are in drug research,discovery, development and commercialization, obtaining regulatory approvalsand product manufacturing and marketing. As a result, our competitors maydiscover, develop and commercialize pharmaceutical products before or in ashorter timeframe than we do. In addition, our competitors may discover,develop and commercialize products that make the products that we or ourcollaborators have developed, or are seeking to develop and commercialize,non-competitive or obsolete.

 

With respect to VELCADE, we face competition fromCelgene Corporation’s Thalomid and Revlimid. In May 2006, the FDA approved theuse of Thalomid for the treatment of newly diagnosed multiple myeloma. Revlimidwas approved by the FDA in December 2005 for the treatment of a subset ofpatients with myelodysplastic syndromes and in June 2006 for multiple myelomapatients who have received at least one prior therapy. We also face competitionfor VELCADE from traditional chemotherapy treatments and other potentiallycompetitive therapies for VELCADE, including other proteasome inhibitors, someof which are in late-stage clinical development for the treatment of multiplemyeloma. In addition, multiple myeloma therapies in development may reduce thenumber of patients available for VELCADE treatment through enrollment of thesepatients in clinical trials of potentially competing products.

 

Due to the incidence and severity of cardiovasculardiseases, the market for therapeutic products that address these diseases islarge, and we expect the already intense competition in this field to increase.The most significant competitors for SGP and GSK in marketing INTEGRILIN aremajor pharmaceutical companies and biotechnology companies. The two productsthat compete directly with INTEGRILIN in the GP IIb-IIIa inhibitor marketsegment are ReoPro® (abciximab), which is produced byJohnson & Johnson and sold by Johnson & Johnson and Eli Lillyand Company, and Aggrastat® (tirofiban HCl), which is produced andsold by Merck & Co., Inc. outside of the United States andby Medicure Inc. in the United States.

 

Sales of INTEGRILIN could also be negatively affectedin the future by other competitive factors, including:

 

·                  expanded use ofheparin replacement therapies, such as Angiomax® (bivalirudin),which is produced and sold by The Medicines Company;

 

·                  changingtreatment practices for PCI and ACS based on new technologies, including theuse of drug-coated stents;

 

·                  increased use ofanother class of anti-platelet drugs known as ADP inhibitors in patients whosesymptoms make them potential candidates for treatment with INTEGRILIN; and

 

·                  the introductionof new therapeutics to treat cardiovascular diseases.

 

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***Sales of INTEGRILIN and possibly VELCADE in particularreporting periods may be affected by fluctuations in inventory, allowances andbuying patterns.***

*** ***

We distribute VELCADE in the U.S. through asole-source distribution model, where we sell directly to a third party who inturn distributes to the wholesaler base. Our VELCADE product inventory levelsmay fluctuate from time to time depending on the consistency of thedistribution logistics of this arrangement and the buying patterns of thesewholesalers.

 

Additionally, we make provisions at the time of saleof VELCADE for discounts, product returns and governmental and contractualadjustments based on historical experience updated for changes in facts andcircumstances, as appropriate. To the extent these allowances are incorrect, wemay need to adjust our estimates, which could have a material impact on thetiming and actual amount of revenue we are able to recognize from these sales.Also, pricing decisions may cause fluctuations in our quarterly results. Forexample, purchasers of VELCADE may increase purchase orders in anticipation ofa price increase and reduce order levels following the price increase.

 

A significant portion of INTEGRILIN domesticpharmaceutical sales is made by SGP to major drug wholesalers. These sales areaffected by fluctuations in the buying patterns of these wholesalers and thecorresponding changes in inventory levels maintained by them. Inventory levelsheld by these wholesalers may fluctuate significantly from quarter to quarter.If these wholesalers build inventory levels excessively in any quarter, salesto the wholesalers in future quarters may unexpectedly decrease notwithstandingsteady prescriber demand. Because SGP commercializes INTEGRILIN and managesproduct distribution, we have limited insight into or control over factorsaffecting changes in distributor inventory levels. If SGP does notappropriately manage this distribution, SGP may not realize sales goals for theproduct which would reduce the royalty revenue we recognize and thus adverselyaffect our business.

 

***Because many of our research and development projects arebased on new technologies and new therapeutic approaches that have not beenextensively tested in humans, it is possible that our discovery process willnot result in commercial products.***

*** ***

The process of discovering drugs based upon genomicsand other new technologies is evolving rapidly. Our effort to develop newtherapeutics is focused on the discovery of novel targets and pathways. Manynovel targets and pathways that appear viable in preclinical models do notresult in intended biologic outcomes due to pathway redundancy in humans. As aresult, we anticipate that many of these targets and pathways will not resultin the successful development of marketable therapeutics. Rapid technologicaldevelopment by us or others may result in compounds, products or processesbecoming obsolete before we recover our development expenses. Further,manufacturing costs or products based on these new technologies may makeproducts uneconomical to commercialize.

 

***If our clinical trials are unsuccessful, or if theyexperience significant delays, our ability to commercialize products will beimpaired.***

*** ***

We must provide the FDA and foreign regulatoryauthorities with preclinical and clinical data demonstrating that our productsare safe and effective before they can be approved for commercial sale.Clinical development, including preclinical testing, is a long, expensive anduncertain process. It may take us several years to complete our testing, andfailure can occur at any stage of testing. Interim results of preclinical orclinical studies do not necessarily predict their final results, and acceptableresults in early studies might not be seen in later studies. Any preclinical orclinical test may fail to produce results satisfactory to the FDA or otherregulatory authorities. Preclinical and clinical data can be interpreted indifferent ways, which could delay, limit or prevent regulatory approval.Negative or inconclusive results from a preclinical study or clinical trial,adverse medical events during a clinical trial or safety issues resulting fromproducts of the same class of drug could cause pending regulatory action to bedelayed, a preclinical study or clinical trial to be repeated or prolonged or aprogram to be terminated, even if other studies or trials relating to theprogram are successful.

 

We may not complete our planned preclinical orclinical trials on schedule or at all. We may not be able to confirm the safetyand efficacy of our potential drugs in long-term clinical trials, which mayresult in a delay or failure to commercialize our products. We may havedifficulty obtaining a sufficient number of appropriate patients or clinicalsupport to conduct our clinical trials as planned. A number of additionalevents could delay the completion of our clinical trials, including:

 

·                  conditionsimposed on us by the FDA or foreign regulatory authorities regarding the scopeor design of our clinical trials, requirements for additional trials or trialdata or restrictions on the distribution of products;

 

·                  slowerenrollment in our clinical trials than we anticipate;

 

·                  lower retentionrates for patients in our clinical trials than we anticipate;

 

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·                  insufficientsupply or deficient quality of our product candidates or other materials necessaryto conduct our clinical trials; or

 

·                  the failure ofour third party contractors to comply with regulatory requirements or otherwisemeet their contractual obligations to us in a timely manner, or at all.

 

In addition, institutional review boards orregulators, including the FDA, or our collaborators may hold, suspend orterminate our clinical trials for various reasons, including noncompliance withregulatory requirements or if, in their opinion, the participating subjects arebeing exposed to unacceptable health risks. As a result, we may have to expendsubstantial additional funds to obtain access to resources or delay or modifyour plans significantly. Our product development costs will increase if weexperience delays in testing or approvals. Significant clinical trial delayscould allow our competitors to bring products to market before we do and impairour ability to commercialize our products or potential products.

 

***If third parties on which we rely for clinical trials do notperform as contractually required or as we expect, we may not be able to obtainregulatory approval for or commercialize our product candidates.***

*** ***

We depend on independent clinical investigators and,in some cases, contract research organizations and other third party serviceproviders to conduct the clinical trials of our product candidates and expectto continue to do so. We rely heavily on these parties for successful executionof our clinical trials, but we do not control many aspects of their activities.Nonetheless, we are responsible for confirming that each of our clinical trialsis conducted in accordance with the general investigational plan and protocol.Our reliance on these third parties that we do not control does not relieve usof our responsibility to comply with the regulations and standards of the FDArelating to good clinical practices. Third parties may not complete activitieson schedule or may not conduct our clinical trials in accordance withregulatory requirements or the applicable trial plans and protocols. Thefailure of these third parties to carry out their obligations could delay orprevent the development, approval and commercialization of our productcandidates or result in enforcement action against us.

 

***Because many of the products that we are developing arebased on new technologies and therapeutic approaches, the market may not bereceptive to these products upon their introduction.***

*** ***

The commercial success of any of our products forwhich we may obtain marketing approval from the FDA or other regulatoryauthorities will depend upon their acceptance by the medical community andthird party payors and consumers as clinically useful, cost-effective and safe.Many of the products that we are developing are based upon new technologies ortherapeutic approaches. As a result, it may be more difficult for us to achievemarket acceptance of our products, particularly the first products that weintroduce to the market based on new technologies and therapeutic approaches.Our efforts to educate the medical community on these potentially uniqueapproaches may require greater resources than would be typically required forproducts based on conventional technologies or therapeutic approaches. Thesafety, efficacy, convenience and cost-effectiveness of our products ascompared to competitive products will also affect market acceptance.

 

***Because of the high demand for talented personnel within ourindustry, we could experience difficulties in recruiting or retaining employeesnecessary for our success and growth.***

*** ***

Because competition for talented employees within ourindustry is fierce, we may not be successful in hiring, retaining or promptlyreplacing key management, sales, marketing and technical personnel. Any failureto expeditiously fill our needs for key personnel could reduce our operationalcapacity and productivity and have a material adverse effect on our business.

 

***Our strategy of generating growth through licensearrangements and acquisitions may not be successful.***

*** ***

An important element of our business strategy is toacquire additional therapeutic agents through license arrangements oracquisitions of other companies. Although we regularly review and engage in discussions with thirdparties with respect to such transactions, we may be unable to license oracquire other suitable products or product candidates from third parties for anumber of reasons. In particular, the licensing and acquisition ofpharmaceutical and biological products, including through the acquisition ofother companies, is a competitive area. A number of other companies are alsopursuing strategies to license or acquire products within our therapeutic focusareas of cancer and inflammation. These other companies may have a competitiveadvantage over us due to their size, cash resources and greater drug research,discovery and development and commercialization capabilities.

 

Other factors that may prevent us from licensing orotherwise acquiring suitable products and product candidates include thefollowing:

 

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·                  we may be unableto license or acquire the relevant technology on terms that would allow us tomake an appropriate return on the product;

 

·                  companies thatperceive us to be their competitor may be unwilling to assign or license theirproduct rights to us; or

 

·                  we may be unableto identify suitable products or product candidates within our areas of focus.

 

In addition, we expect competition for licensing andacquisition candidates in the biotechnology and pharmaceutical fields toincrease, which may mean fewer suitable opportunities for us as well as higherprices. If we are unable to successfully obtain rights to suitable products andproduct candidates, our business, financial condition and prospects for growthcould suffer.

 

***If we fail to successfully manage any acquisitions, ourability to develop our product candidates and expand our product candidate pipelinemay be harmed.***

*** ***

Following any future acquisitions that we may make,our failure to adequately address the financial, operational or legal risks ofthese transactions could harm our business. Financial aspects of thesetransactions that could alter our financial position, reported operatingresults or stock price include:

 

·                  use of cashresources;

 

·                  higher thananticipated acquisition costs and expenses;

 

·                  potentiallydilutive issuances of equity securities;

 

·                  the incurrenceof debt and contingent liabilities;

 

·                  impairmentlosses or restructuring charges;

 

·                  large write-offsand difficulties in assessing the relative percentages of in-process researchand development expense that can be immediately written off as compared to theamount that must be amortized over the appropriate life of the asset; and

 

·                  amortizationexpenses related to other intangible assets.

 

Operational risks that could harm our existingoperations or prevent realization of anticipated benefits from thesetransactions include:

 

·                  challengesassociated with managing an increasingly diversified business;

 

·                  disruption ofour ongoing business;

 

·                  difficulty andexpense in assimilating the operations, products, technology, informationsystems or personnel of acquired companies;

 

·                  diversion ofmanagement’s time and attention from other business concerns;

 

·                  inability tomaintain uniform standards, controls, procedures and policies, including therequirements of Sarbanes-Oxley;

 

·                  difficulty ofconfirming compliance with all applicable laws and regulations;

 

·                  the assumptionof known and unknown liabilities of acquired companies, including intellectualproperty claims; and

 

·                  subsequent lossof key personnel.

 

If we are unable to successfully manage ouracquisitions, our ability to develop new products and continue to expand ourproduct pipeline may be limited.

 

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**RisksRelating to Our Financial Results and Need for Financing**

 

***We have incurred substantial losses and cannot be certainwhen we will achieve ongoing profitability.***

 

We recorded net income of $14.6 million for thethree months ended March 31, 2008 and net income of $14.9 million for theyear ended December 31, 2007. However, we incurred net losses of $6.8 million for the three monthsended March 31, 2007, $44.0 million for the year ended December 31,2006 and $198.2 million for the year ended December 31, 2005. It ispossible that we will incur operating losses in future periods which may besignificant. As of March 31, 2008, we had an accumulated deficit of$2.5 billion.

 

We expect to continue to incur significant expenses inconnection with our research and development programs and commercializationactivities. As a result, we will need to generate significant revenues tocontinue to operate profitably. Our ability to generate future profits would beadversely affected if our acquired intangible assets, primarily resulting fromour acquisition of COR, and goodwill became impaired as a result of reducedmarket capitalization, reduced VELCADE revenues, product failures orwithdrawals.

 

We cannot be certain if and to what extent we willachieve ongoing profitability because of the significant uncertainties withrespect to our ability to successfully develop products and generate revenuesfrom the sale of approved products and from existing and potential futurestrategic alliances.

 

***We may need additional financing, which may be difficult toobtain. Our failure to obtain necessary financing or doing so on unattractiveterms could adversely affect our business and operations.***

 

We will require substantial funds to conduct researchand development, including preclinical testing and clinical trials of ourpotential products. We will also require substantial funds to meet ourobligations to our collaborators, manufacture and market products that areapproved for commercial sale, including VELCADE, and meet our debt serviceobligations. We may also require additional financing to execute on productin-licensing or acquisition opportunities. Additional financing may not beavailable when we need it or may not be available on favorable terms.

 

If we are unable to obtain adequate funding on atimely basis, we may have to delay or curtail our research and developmentprograms, our product commercialization activities or our in-licensing oracquisition activities. We could be required to seek funds through arrangementswith collaborators or others that may require us to relinquish rights tospecified technologies, product candidates or products which we would otherwisepursue on our own.

 

***Our indebtedness and debt service obligations may adverselyaffect our cash flow and otherwise negatively affect our operations.***

 

At March 31, 2008, we hadapproximately $250.0 million of convertible debt outstanding and$74.7 million of capital lease obligations. As a result of theannouncement of our acquisition by Takeda, holders of our convertible debt mayelect to convert such debt into shares of our common stock or, following themerger, into the equivalent cash merger consideration, until the end of arepurchase period that will be specified in our notice to the noteholders.  We may incur additional indebtedness in thefuture, including long term debt, credit lines and property and equipmentfinancings to finance capital expenditures. We intend to satisfy our currentand future debt service obligations from cash generated by our operations, ourexisting cash and investments and funds from external sources. We may not havesufficient funds and we may be unable to arrange for additional financing tosatisfy our principal or interest payment obligations when those obligationsbecome due. Funds from external sources may not be available on acceptableterms, or at all.

 

Our indebtedness could have significant additionalnegative consequences, including:

 

·                  increasing our vulnerability to general adverseeconomic and industry conditions;

 

·                  limiting our ability to obtain additional financing;

 

·                  requiring the dedication of a substantial portion ofour cash flow from operations to service our indebtedness, thereby reducing theamount of our expected cash flow available for other purposes, includingcapital expenditures and research and development;

 

·                  limiting our flexibility in planning for, or reactingto, changes in our business and the industry in which we compete; and

 

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·                  placing us at a possible competitive disadvantage toless leveraged competitors and competitors that have better access to capitalresources.

 

***If we do not achieve the anticipated benefits of ourrestructuring efforts, or if the costs of our restructuring efforts exceedanticipated levels, our business could be harmed.***

 

We recorded net restructuring credits of$2.9 million for the three months ended March 31, 2008 andrestructuring charges of $5.6 million for the three months ended March 31,2007, $12.9 million for the year ended December 31, 2007, $20.4 millionfor the year ended December 31, 2006 and $77.1 million for the year ended December 31,2005. Costs associated with our restructuring efforts have included reducingour in-house research and development technologies and headcount in areas inwhich we believe the work can now be outsourced cost effectively. As a resultof these efforts, we expect to recognize other cost savings. We may not achieveour estimated expense reductions or recognize other cost savings anticipatedfrom restructurings because such savings are difficult to predict andspeculative in nature.

 

***A portion of our revenues and expenses is subject toexchange rate fluctuations in the normal course of business, which couldadversely affect our reported results of operations.***

 

We receive distribution fees from OBL based onworldwide sales of VELCADE outside of the U.S. and we make payments for certaininventory purchases and clinical trials outside of the U.S. As a result, ourfinancial position, results of operations and cash flows can be affected byfluctuations in foreign currency exchange rates, primarily the euro. Movementin foreign currency exchange rates could cause royalty revenue or clinicaltrial costs to vary significantly in the future and may affect period-to-periodcomparisons of our operating results. Historically, we have not hedged ourexposure to these fluctuations in exchange rates.

 

**RisksRelating to Collaborators**

 

***We depend significantly on our collaborators to work with usto commercialize and develop products including VELCADE and INTEGRILIN.***

 

Outside of the United States, we commercialize VELCADEthrough an alliance with OBL. We began jointly promoting VELCADE in the UnitedStates in the first quarter of 2007 under a two-year agreement with OBI. On September 1,2005, we transferred exclusive U.S. commercialization and development rights ofINTEGRILIN to SGP and SGP is solely responsible for the commercialization anddevelopment of INTEGRILIN outside of Europe. GSK is responsible for marketingand selling INTEGRILIN in Europe. We conduct substantial discovery anddevelopment activities through strategic alliances, including with OBL for theongoing development of VELCADE.

 

We expect to enter into additional alliances in thefuture, especially in connection with product development andcommercialization. The success of our alliances depends heavily on the effortsand activities of our collaborators.

 

Each of our collaborators has significant discretionin determining the efforts and resources that it will apply to the alliance andthe degree to which it shares financial and product sales and inventoryinformation. Our existing and any future alliances may not be scientifically orcommercially successful.

 

The risks that we face in connection with theseexisting and any future alliances include the following:

 

·                  All of our strategic alliance agreements are for fixedterms and are subject to termination under various circumstances, including, inmany cases, such as in our collaboration and our joint promotion agreement withOBL and OBI, without cause.

 

·                  Our collaborators may change the focus of theirdevelopment and commercialization efforts. Pharmaceutical and biotechnologycompanies historically have re-evaluated their development andcommercialization priorities following mergers and consolidations, which havebeen common in recent years in these industries. The likelihood of some of ourproducts, including VELCADE and INTEGRILIN, to reach their potential could belimited if our collaborators decrease or fail to increase marketing or spendingefforts related to such products.

 

·                  We expect to rely on our collaborators to manufacturemany products covered by our alliances.

 

·                  In our strategic alliance agreements, we generallyagree not to conduct specified types of research and development in the fieldthat is the subject of the alliance. These agreements may have the effect oflimiting the areas of research and development that we may pursue, either aloneor in collaboration with third parties.

 

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·                  Our collaborators may develop and commercialize,either alone or with others, products that are similar to or competitive withthe products that are the subject of the alliance with us.

 

·                  Our collaborators may not properly maintain or defendour intellectual property rights or may use our proprietary information in sucha way as to expose us to potential litigation.

 

***We are substantially dependent on SGP for future revenuesrelated to INTEGRILIN.***

 

Under the terms of our revised agreement with SGPeffective as of September 1, 2005, SGP began paying us royalties based onnet product sales of INTEGRILIN. Under the agreement, beginning in 2008, SGP nolonger has minimum royalty obligations to us. As a result, if SGP’s INTEGRILINsales are less than expected, we will receive less royalty revenue than weexpect, which could have a material adverse effect on our financial results andour ability to fund other parts of our business.

 

***We may not be successful in establishing additionalstrategic alliances, which could adversely affect our ability to develop andcommercialize products.***

 

An important element of our business strategy isentering into strategic alliances for the development and commercialization ofselected products. In some instances, if we are unsuccessful in reaching anagreement with a suitable collaborator, we may fail to meet all of our businessobjectives for the applicable product or program. We face significantcompetition in seeking appropriate collaborators. Moreover, these alliancearrangements are complex to negotiate and time-consuming to document. We maynot be successful in our efforts to establish additional strategic alliances orother alternative arrangements. The terms of any additional strategic alliancesor other arrangements that we establish may not be favorable to us. We mayincur significant infrastructure, research and development and other expensesas we try to maximize the value of assets subject to these arrangements.Moreover, such strategic alliances or other arrangements may not be successful.

 

**RisksRelating to Intellectual Property**

 

***If we are unable to obtain patent protection for ourdiscoveries, the value of our technology and products will be adverselyaffected. If we infringe patent or other intellectual property rights of thirdparties, we may not be able to develop and commercialize our products or thecost of doing so may increase.***

 

Our patent positions, and those of otherpharmaceutical and biotechnology companies, are generally uncertain and involvecomplex legal, scientific and factual questions. Our ability to develop andcommercialize products depends in significant part on our ability to:

 

·                  obtain and maintain patents;

 

·                  obtain licenses to the proprietary rights of others oncommercially reasonable terms;

 

·                  operate without infringing upon the proprietary rightsof others;

 

·                  prevent others from infringing on our proprietaryrights; and

 

·                  protect trade secrets.

 

***There is significant uncertainty about the validity andpermissible scope of patents in our industry, which may make it difficult forus to obtain patent protection for our discoveries.***

 

The validity and permissible scope of patent claims inthe pharmaceutical and biotechnology fields, including, for example, thegenomics field, involve important unresolved legal principles and are thesubject of public policy debate in the United States and abroad. We have filedpatent applications in the U.S. and abroad seeking patent protection on ourcurrent products and our potential products and processes emanating from ourresearch and development, and we have similarly obtained rights to variouspatents and patent applications from various third parties under licensingarrangements. There is significant uncertainty both in the United States andabroad regarding the duration and enforceability of patent protection availablefor pharmaceutical and biopharmaceutical products and processes. The ultimatescope of patent protection to be afforded such inventions will be dependentupon the decisions rendered by patent offices, courts and legislators in theU.S. and abroad. Thus, there is no assurance that our pending patentapplications, or those of third parties that we have licensed, will ultimatelybe granted as patents or that those patents that have issued or will be issuedin the future will withstand challenge in court or patent offices in the U.S.or abroad.

 

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***Third parties may own or control patents or patentapplications and require us to seek licenses, which could increase ourdevelopment and commercialization costs, or prevent us from developing ormarketing our products.***

 

We may not have rights under some patents or patentapplications related to some of our existing and proposed products orprocesses. Third parties may own or control these patents and patentapplications in the United States and abroad. Therefore, in some cases, such asthose described below, in order to develop, manufacture, sell or import some ofour existing and proposed products or processes, we or our collaborators maychoose to seek, or be required to seek, licenses under third party patentsissued in the United States and abroad, or those that might issue from UnitedStates and foreign patent applications. In such event, we would be required topay license fees or royalties or both to the licensor. If licenses are notavailable to us on acceptable terms, we or our collaborators may not be able todevelop, manufacture, sell or import these products or processes and we couldbe liable to the holders of those licenses for infringement damages.

 

Our MLN0002 and MLN1202 product candidates arehumanized monoclonal antibodies. We are aware of third party patents and patentapplications that relate to humanized or modified antibodies, products usefulfor making humanized or modified antibodies and processes for making and usingrecombinant antibodies.

 

With respect to VELCADE, in June 2002, AriadPharmaceuticals, Inc., or Ariad, sent to us and approximately 50 otherparties a letter offering a sublicense for the use of United States Patent No. 6,410,516,which is exclusively licensed to Ariad. If this patent is valid and Ariad successfullysues us for infringement, we would require a license from Ariad in order tomanufacture and market VELCADE. In 2002, Ariad filed a lawsuit in the UnitedStates District Court for the District of Massachusetts against Eli Lilly andCompany, or Lilly, alleging infringement of certain claims of Ariad’s patent.In May 2006, the jury rendered a verdict in favor of Ariad that the claimsof the patent asserted in the lawsuit are valid and infringed by Lilly. Thejury determined that a reasonable royalty of 2.3% should be awarded. In July 2007,the court entered a judgment in accordance with the jury verdict in favor ofAriad against Lilly. We expect that Lilly will challenge this judgment and thevalidity of the patent with the U.S. Court of Appeals. In July 2007, Lillyfiled a motion to stay entry of the final judgment by the court pendingre-examination of the patent and Ariad filed an opposition to this motion. In April 2005,Lilly also filed a request in the United States Patent and Trademark Office toreexamine the patentability of certain claims of Ariad’s patent. In addition,we are aware that Amgen Inc. has filed a declaratory relief action seekingan invalidity ruling with respect to this patent. However, Ariad’s initialsuccess in its claim against Lilly may increase the possibility that Ariadcould sue additional parties, including us, and allege infringement of thepatent.

 

The timing and ultimate outcome of the Lilly and Amgenlitigations and the patent reexamination proceeding cannot be determined atthis time. As a result, we cannot determine whether or when a finaldetermination as to allowance or rejection of the patent claims will be made orthe outcome of any appeal of any such decision that may follow such a ruling.Thus, at the present time, we cannot assess the probability of whether Ariadwill seek to enforce the patent against other companies, including our company.

 

Very recently we received a copy of a notice sent tothe National Institutes of Health, or NIH, that a third party is claimingco-inventorship and co-ownership of some of the patents covering the VELCADEdrug product that are exclusively licensed to us by the NIH.  The other patents which make up the VELCADEpatent estate are solely owned by us and are not subject to this claim.  It is our understanding that the NIHpreviously reviewed and rejected the claim of this third party.  We are early in the process of evaluatingthis claim of co-inventorship on these patents licensed from the NIH, and theresulting implications to us if this claim were successful.

 

***We may become involved in expensive patent litigation orother proceedings, which could result in our incurring substantial costs andexpenses or substantial liability for damages or require us to stop ourdevelopment and commercialization efforts.***

 

There has been substantial litigation and otherproceedings regarding the patent and other intellectual property rights in thepharmaceutical and biotechnology industries. We may become a party to patentlitigation or other proceedings regarding intellectual property rights. Forexample, we believe that we hold patent applications that cover genes that arealso claimed in patent applications filed by others. Interference proceedingsbefore the United States Patent and Trademark Office may be necessary toestablish which party was the first to invent these genes. In addition, fromtime to time, we receive unsolicited letters purporting to advise us of thealleged relevance of third party patents.

 

The cost to us of any patent litigation or otherproceeding, even if resolved in our favor, could be substantial. Some of ourcompetitors may be able to sustain the cost of such litigation or proceedingsmore effectively than we can because of their substantially greater financialresources. If a patent litigation or other proceeding is resolved against us,we or our collaborators may be enjoined from developing, manufacturing, sellingor importing our products or processes without a license from the other partyand we may be held liable for significant damages. We may not be able to obtainany required license on commercially acceptable terms or at all.

 

Uncertainties resulting from the initiation andcontinuation of patent litigation or other proceedings could have a materialadverse effect on our ability to compete in the marketplace. Patent litigationand other proceedings may also absorb significant management time.

 

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***Our patent protection for any compounds that we seek todevelop may be limited to a particular method of use or indication such that,if a third party were to obtain approval of the compound for use in anotherindication, we could be subject to competition arising from off-label use.***

 

Although we generally seek the broadest patentprotection available for our proprietary compounds, we may not be able toobtain patent protection for the actual composition of any particular compoundand may be limited to protecting a new method of use for the compound orotherwise restricted in our ability to prevent others from exploiting thecompound. If we are unable to obtain patent protection for the actualcomposition of any compound that we seek to develop and commercialize and mustrely on method of use patent coverage, we would likely be unable to preventothers from manufacturing or marketing that compound for any use that is notprotected by our patent rights. If a third party were to receive marketingapproval for the compound for another use, physicians could neverthelessprescribe it for indications that are not described in the product’s labelingor approved by the FDA or other regulatory authorities. Even if we have patentprotection of the prescribed indication, as a practical matter, we would havelittle recourse as a result of this off-label use. In that event, our revenuesfrom the commercialization of the compound would likely be adversely affected.

 

***If we fail to comply with our obligations in ourintellectual property licenses with third parties, we could lose license rightsthat are important to our business.***

 

We are a party to various license agreements. Inparticular, we license rights to patents for the formulation of VELCADE andissued patents relating to MLN0002, MLN0518 and MLN1202. We may enter intoadditional licenses in the future. Our existing licenses impose, and we expectfuture licenses will impose, various diligence, milestone payment, royalty,insurance and other obligations on us. If we fail to comply with theseobligations, the licensor may have the right to terminate the license, in whichevent we might not be able to market any product that is covered by thelicensed patents.

 

***Competition from generic pharmaceutical manufacturers couldnegatively affect our products sales.***

 

Competition from manufacturers of generic drugs is amajor challenge for us in the U.S. and is growing internationally. Upon theexpiration or loss of patent protection for one of our products, or upon the “at-risk”launch (despite pending patent infringement litigation against the generic product)by a generic manufacturer of a generic version of one of our products, we couldlose the major portion of sales of that product in a very short period, whichcould adversely affect our business.

 

Generic competitors operate without our large researchand development expenses and our costs of conveying medical information aboutour products to the medical community. In addition, the FDA approval processexempts generics from costly and time-consuming clinical trials to demonstratetheir safety and efficacy, allowing generic manufacturers to rely on the safetyand efficacy data of the innovator product. Generic products, however, needonly demonstrate a level of availability in the bloodstream equivalent to thatof the innovator product. This means that generic competitors can market acompeting version of our product after the expiration or loss of our patent andcharge much less. The issued U.S. patents related to VELCADE expire in 2014with patent term extension for VELCADE expiring in 2017 and the issued foreignpatents expire in 2015 with extensions issued or pending in a number ofcountries. However, we may not be granted any such potential or pendingextension. The issued United States patents that cover INTEGRILIN expire in2014 and 2015 and the issued foreign patents expire between 2010 and 2014. Ourpatent-protected products also can face competition in the form of genericversions of branded products of competitors that lose their market exclusivity.

 

In addition, third parties could produce counterfeitproducts labeled as VELCADE, INTEGRILIN or other of our products in the future.Counterfeit products could reduce sales or compromise goodwill associated withour product brands.

 

**RisksRelating to Product Manufacturing, Marketing and Sales**

 

***We depend on third parties to successfully perform certainsales, marketing and distribution functions on our behalf and we may berequired to incur significant costs and devote significant efforts to augmentour existing capabilities.***

 

We market and sell VELCADE in the United Statesthrough our cancer-specific sales force. In the first quarter of 2007, we beganjointly promoting VELCADE in the United States with OBI. Our success in sellingVELCADE depends heavily on the performance of these sales forces. In areasoutside the United States where VELCADE has received approval, OBL or itsaffiliates market VELCADE. As a result, our ability to earn revenue related toVELCADE outside of the United States depends entirely on OBL.

 

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SGP exclusively markets INTEGRILIN in areas outside ofEurope, including the United States, and GSK exclusively markets INTEGRILIN inEurope. As a result, our success in receiving royalties and milestone paymentsfrom sales of INTEGRILIN depends entirely on the marketing efforts of thesethird parties.

 

Depending on the nature of the products for which weobtain marketing approval, we may need to rely significantly on sales,marketing and distribution arrangements with our collaborators and other thirdparties. For example, some types of pharmaceutical products require a largesales force and extensive marketing capabilities for effectivecommercialization. If in the future we elect to perform sales, marketing anddistribution functions for these types of products ourselves, we would face anumber of additional risks, including the need to recruit a large number ofadditional experienced marketing and sales personnel.

 

***Because we have no commercial manufacturing capabilities, weare dependent on third party manufacturers to manufacture products for us, orwe will be required to incur significant costs and devote significant effortsto establish our own manufacturing facilities and capabilities.***

 

We have no commercial-scale manufacturing capabilities.In order to continue to develop products, apply for regulatory approvals andcommercialize products, we will need to develop, contract for or otherwisearrange for the necessary manufacturing capabilities.

 

We currently rely substantially upon third parties toproduce material for preclinical testing purposes and expect to continue to doso in the future. We also currently rely, and expect to continue to rely, uponother third parties, potentially including our collaborators, to producematerials required for clinical trials and for the commercial production of ourproducts.

 

There are a limited number of contract manufacturersthat operate under the FDA’s current Good Manufacturing Practices, or GMP,regulations capable of manufacturing our products. In addition, the FDA willinspect our contract manufacturers prior to granting approval of a new drugapplication, and will conduct periodic, unannounced inspections to ensurestrict ongoing compliance with current GMPs and other applicable regulations. Ifwe are unable to arrange for third party manufacturing of our products, or todo so on commercially reasonable terms, we may not be able to completedevelopment of our products or commercialize them, or we may experience delaysin doing so.

 

Reliance on third party manufacturers entails risks towhich we would not be subject if we manufactured products ourselves, includingreliance on the third party for regulatory compliance, the possibility ofbreach of the manufacturing agreement by the third party because of factorsbeyond our control and the possibility of termination or non-renewal of theagreement by the third party, based on its own business priorities, at a timethat is costly or inconvenient for us. Any failure by our third partymanufacturers to comply with applicable regulations, including current GMPregulations, could result in sanctions being imposed on the manufacturers orus, including fines, injunctions, civil penalties, failure of regulatoryauthorities to grant marketing approval of our product candidates, delays,suspension or withdrawal of approvals, seizures or recalls of products,operating restrictions and criminal prosecutions, any of which couldsignificantly and adversely affect our business.

 

We may in the future elect to manufacture some of ourproducts in our own manufacturing facilities. We would need to investsubstantial additional funds and recruit qualified personnel in order to buildor lease and operate any manufacturing facilities.

 

***Because we have no commercial manufacturing capability forVELCADE or INTEGRILIN, we are dependent on third parties to produce productsufficient to meet market demand.***

 

We are responsible for managing the supply of materialfor all clinical and commercial production of VELCADE, including VELCADE thatOBL sells or uses in clinical trials, and INTEGRILIN, including INTEGRILIN thatSGP and GSK sell or use in clinical trials.

 

We rely on third party contract manufacturers tomanufacture, fill/finish and package VELCADE for both commercial purposes andfor all clinical trials. We have established long-term supply relationships forthe production of commercial supplies of VELCADE. We work with onemanufacturer, with whom we have a long-term supply agreement, to completefill/finish for VELCADE, and have contracted with a second manufacturer whowill provide fill/finish services for VELCADE in the future. If any of ourcurrent third party manufacturers performing production and fill/finish forVELCADE are unable or unwilling to continue performing these services for us,and we are unable to find a replacement manufacturer or in the future we areotherwise unable to contract with manufacturers to produce commercial suppliesof VELCADE in a cost-effective manner, we could run out of VELCADE for commercialsale and clinical trials and our business could be substantially harmed.

 

We have no manufacturing facilities for INTEGRILINand, accordingly, rely on third party contract manufacturers for the clinicaland commercial production of INTEGRILIN. We have three approved manufacturers,two of which currently provide us with 

 

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eptifibatide, the active ingredient necessary to make INTEGRILIN.Solvay, one of the current manufacturers, owns the process technology used byit for the production of eptifibatide. We expect to cease receivingeptifibatide from Solvay by the end of 2008. Thereafter, Lonza will be our solesource manufacturer of eptifibatide, and we own the process technology utilizedby it. We have two approved manufacturers that currently perform fill/finishservices for INTEGRILIN and two packaging suppliers for INTEGRILIN for theUnited States. If our current manufacturers are unable to continue or decide todiscontinue their manufacturing, fill/finish or packaging services and we areunable to secure alternative manufacturers, the supply of INTEGRILIN could beadversely affected which could substantially harm our business. Furthermore, ifwe are responsible for supply chain failures that adversely affect OBL or SGP,we could be liable to these parties for any losses they may incur.

 

In 2006, Solvay raised concerns that the newMillennium process may have been developed using information asserted to beconfidential and proprietary to Solvay. We subsequently met with Solvay todemonstrate why we believe no such information was used to develop our newprocess. If Solvay nevertheless brings a successful claim relating to theseconcerns and prevails, our ability to practice our new process could be negativelyaffected, which could adversely affect our ability to obtain INTEGRILIN fromsuppliers using the new process or the cost of manufacturing eptifibatide andcould in turn harm our business.

 

***If we fail to obtain an adequate level of reimbursement forour products by third party payors, there may be no commercially viable marketsfor our products.***

 

The availability and levels of reimbursement bygovernmental and other third party payors affect the market for anypharmaceutical product or health care service. These third party payorscontinually attempt to contain or reduce the costs of health care bychallenging the prices charged for medical products and services. In someforeign countries, particularly the countries of the European Union, thepricing of prescription pharmaceuticals is subject to governmental control. Wemay not be able to sell our products as successfully or as profitably as weexpect if we are required to sell our products at lower than anticipatedprices, reimbursement is unavailable or limited in scope or amount or productprice increases we implement result in reduced demand or government challenges.

 

In particular, third party payors could lower theamount that they will reimburse hospitals or doctors to treat the conditionsfor which the FDA has approved VELCADE or INTEGRILIN. If they do, pricinglevels or sales volumes of VELCADE or INTEGRILIN may decrease. In addition, ifwe fail to comply with the rules applicable to the Medicaid and Medicareprograms, we could be subject to the imposition of civil or criminal penaltiesor exclusion from these programs.

 

In foreign markets, a number of different governmentaland private entities determine the level at which hospitals will be reimbursedfor administering VELCADE and INTEGRILIN to insured patients. If these levelsare set, or reset, too low, it may not be possible to sell VELCADE orINTEGRILIN at a profit in these markets.

 

In both the United States, on federal and statelevels, and foreign jurisdictions, there have been a number of legislative andregulatory proposals to change the health care system. For example, theMedicare Prescription Drug and Modernization Act of 2003 and its implementingregulations impose new requirements for the distribution and pricing ofprescription drugs which may adversely affect the marketing of our products.Further proposals are also likely. The potential for adoption of additionalproposals and ensuing uncertainty among prescribers could reduce sales levelsand could affect the timing of product revenue, our ability to raise capital,obtain additional collaborators and market our products.

 

In addition, we believe that the increasing emphasison managed care in the United States has and will continue to put pressure onthe price and usage of our present and future products, which may adverselyaffect product sales. Further, when a new therapeutic product is approved, theavailability of governmental or private reimbursement for that product isuncertain, as is the amount for which that product will be reimbursed. Wecannot predict the availability or amount of reimbursement for our productcandidates, and current reimbursement policies for VELCADE or INTEGRILIN couldchange at any time.

 

Other matters also could be the subject of U.S.federal or state legislative or regulatory action that could adversely affectour business, including the importation of prescription drugs that are marketedoutside the U.S. and sold at lower prices as a result of drug price regulationsby the governments of various foreign countries. Such legislation or regulatoryaction could lead to a decrease in the price we receive for any approvedproducts, which, in turn, could impair our ability to generate revenue.Alternatively, in response to legislation such as this, we might elect not toseek approval for or market our products in foreign jurisdictions in order tominimize the risk of re-importation, which could also reduce the revenue wegenerate from our product sales.

 

***We face a risk of product liability claims and may not beable to obtain insurance.***

 

Our business exposes us to the risk of productliability claims that is inherent in the manufacturing, testing and marketingof human therapeutic products. In particular, VELCADE and INTEGRILIN areadministered to patients with serious diseases who have 

 

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a high incidence of mortality. Although we have product liabilityinsurance that we believe is appropriate, this insurance is subject todeductibles, co-insurance requirements and coverage limitations and the marketfor such insurance is becoming more restrictive. We may not be able to obtainor maintain adequate protection against potential liabilities. If we are unableto obtain insurance at acceptable cost or otherwise protect against potentialproduct liability claims, we will be exposed to significant liabilities, whichmay materially and adversely affect our business and financial position. Theseliabilities could prevent or interfere with our product commercializationefforts.

 

***We face a risk of government enforcement actions inconnection with marketing activities.***

 

Because we are a company operating in a highlyregulated industry, for many reasons, regulatory authorities could takeenforcement action against us in connection with our marketing activities,including, among other things, seizure of allegedly misbranded product,cessation of promotional activities, imposition of significant fines,injunction or criminal prosecution against us and our officers or employees,and exclusion from government health care programs.

 

Our labeling and promotional activities relating toour products are regulated by the FDA and other federal and state regulatoryagencies and are subject to associated risks. If we fail to comply with FDAregulations prohibiting promotion of off-label uses and the promotion ofproducts for which marketing approval has not been obtained, the FDA, or theOffice of the Inspector General of the Department of Health and Human Servicesor state Attorneys General could bring an enforcement action against us thatcould inhibit our marketing capabilities as well as result in significantpenalties.

 

In addition to FDA requirements, our marketingactivities are affected by government regulations and professional standards thatconstrain marketing practices in the pharmaceutical industry. These include,for example, anti-kickback laws that broadly prohibit payments or otherincentives for physicians to prescribe a drug or to select one drug overanother; self-referral laws that prohibit transactions in which physiciansdirect business to suppliers from which they receive compensation or have otherfinancial ties; and industry standards and state laws intended to preventconflicts of interest in arrangements between health care providers and thepharmaceutical industry.

 

***Guidelines and recommendations can affect the use of ourproducts.***

 

Government agencies promulgate regulations andguidelines directly applicable to us and to our products. In addition,professional societies, practice management groups, private health and sciencefoundations and organizations involved in various diseases from time to timemay also publish guidelines or recommendations to the health care and patientcommunities. Recommendations of government agencies or these other groups ororganizations may relate to such matters as usage, dosage, route ofadministration and use of concomitant therapies. Recommendations or guidelinessuggesting the reduced use of our products or the use of competitive oralternative products that are followed by patients and health care providerscould result in decreased use of our products.

 

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**Item6.    Exhibits**

 
| (a)    |   | Exhibits                                                                    |
|--------|--------|-----------------------------------------------------------------------------|
|   |   |                                                                        |
|   |   | The exhibits listed in  the Exhibit Index are included in this report. |

 

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**SIGNATURES**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned, thereuntoduly authorized.

 
|                      | MILLENNIUM  PHARMACEUTICALS, INC.                     |
|---------------------------|-------------------------------------------------------|
|                      | (Registrant)                                          |
|                      |                                                  |
|                      |                                                  |
| Dated: May 12,  2008 | /s/ MARSHA H. FANUCCI                                 |
|                      | Marsha H. Fanucci                                     |
| * *                  | *Senior  Vice President and Chief Financial Officer*  |
| * *                  | *(principal  financial and chief accounting officer)* |

 

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**Exhibit Index**

 
| **Exhibit********No.** | ** ** | **Description**                                                                                                                                                                                                                                                                                                  |
|------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1                   |       | Form of Indemnification  Agreement entered into with certain executive officers of the Company,  together with a schedule of parties thereto (incorporated herein by reference  to Exhibit 10.58 to our Annual Report on Form 10-K filed with the Securities  and Exchange Commission on February 29, 2008) |
|                   |       |                                                                                                                                                                                                                                                                                                             |
| 31.1                   |       | Certification of  principal executive officer pursuant to Rule 13a-14(a)/15d-14(a) of  the Securities Exchange Act of 1934, as amended                                                                                                                                                                 |
|                   |       |                                                                                                                                                                                                                                                                                                             |
| 31.2                   |       | Certification of  principal financial officer pursuant to Rule 13a-14(a)/15d-14(a) of  the Securities Exchange Act of 1934, as amended                                                                                                                                                                 |
|                   |       |                                                                                                                                                                                                                                                                                                             |
| 32.1                   |       | Statement Pursuant to  18 U.S.C. §1350                                                                                                                                                                                                                                                                      |
|                   |       |                                                                                                                                                                                                                                                                                                             |
| 32.2                   |       | Statement Pursuant to  18 U.S.C. §1350                                                                                                                                                                                                                                                                      |

 

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