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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, DC 20549

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FORM 10-Q

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|(Mark One)                                                                                   |                                                                                         
|-------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------
|ý                                                                                            | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|For the quarterly period ended September 30, 2007                                           
|OR                                                                                          
|o                                                                                            | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|For the transition period
from                             to           
                  .

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Commission File Number 0-28494

MILLENNIUM PHARMACEUTICALS, INC.(Exact name of registrant as specified in its charter)

|Delaware(State or other jurisdiction
of incorporation or organization)                 |  | 04-3177038(I.R.S. Employer
Identification No.)
|-------------------------------------------------------------------------------------- |  | ----------------------------------------------
|40 Landsdowne Street, Cambridge, Massachusetts(Address of principal executive offices) |  | 02139(zip code)                               
|(617) 679-7000(Registrant's telephone number, including area code)                    

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one):

Large
accelerated filer ý        Accelerated
filer o        Non-accelerated filer

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

Number of shares of the registrant's Common Stock, $0.001 par value, outstanding on November 2, 2007: 322,868,809



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MILLENNIUM PHARMACEUTICALS, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2007
TABLE OF CONTENTS



|PART I FINANCIAL INFORMATION |  |                                                                                                                
|---------------------------- |  | ---------------------------------------------------------------------------------------------------------------
|Item 1.                      |  | Condensed Consolidated Financial Statements                                                                    
|                             |  | Condensed Consolidated Balance Sheets as of September 30, 2007 and December 31, 2006                           
|                             |  | Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2007 and 2006
|                             |  | Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2007 and 2006          
|                             |  | Notes to Condensed Consolidated Financial Statements                                                           
|Item 2.                      |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                          
|                             |  | Risk Factors That May Affect Results                                                                           
|Item 3.                      |  | Quantitative and Qualitative Disclosures about Market Risk                                                     
|Item 4.                      |  | Controls and Procedures                                                                                        
|PART II OTHER INFORMATION    |  |                                                                                                                
|Item 6.                      |  | Exhibits                                                                                                       
|                             |  | Signatures                                                                                                     
|                             |  | Exhibit Index                                                                                                  

The following Millennium trademarks are used in this Quarterly Report on Form 10-Q:Millennium®, the Millennium "M" logo
and design (registered), Millennium Pharmaceuticals, VELCADE® (bortezomib) for Injection, and INTEGRILIN® (eptifibatide) Injection. All are covered by
registrations or pending applications for registration in the U.S. Patent and Trademark Office and many other countries. DOXIL® (doxorubicin HCl liposome injection) is a trademark of Ortho
Biotech Products, L.P, ReoPro® (abciximab) is a trademark of Eli Lilly & Company, Aggrastat® (tirofiban) is a trademark of Merck & Co., Inc.,
Thalomid® (thalidomide) and Revlimid® (lenalidomide) are trademarks of Celgene Corporation and Angiomax® (bivalirudin) is a trademark of The Medicines Company. Other trademarks used in this Quarterly Report on
Form 10-Q are the property of their respective owners.

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PART I FINANCIAL INFORMATION

Item 1.    Condensed Consolidated Financial Statements

Millennium Pharmaceuticals, Inc.        Condensed Consolidated Balance Sheets

|(in thousands, except per share amounts)                                                                                                                       |                                            | September 30,
2007 |            | December 31,
2006 |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------------------ | ---------- | ----------------- | -
|
|Assets                                                                                                                                                         |                                            |                    |            |                   |  
|Current assets:                                                                                                                                                |                                            |                    |            |                   |  
|Cash and cash equivalents                                                                                                                                      |                                            | $                  | 86,805     |                   | $
|Marketable securities                                                                                                                                          |                                            |                    | 789,507    |                   |  
|Accounts receivable, net of allowances of $524 in 2007 and $521 in 2006                                                                                        |                                            |                    | 59,675     |                   |  
|Inventory                                                                                                                                                      |                                            |                    | 9,304      |                   |  
|Prepaid expenses and other current assets                                                                                                                      |                                            |                    | 9,097      |                   |  
|                                                                                                                                                               |                                            |                    |            |                   |  
|                                                                                                                                                               | Total current assets                       |                    |            | 954,388           |  
|Property and equipment, net                                                                                                                                    |                                            |                    | 146,305    |                   |  
|Restricted cash                                                                                                                                                |                                            |                    | 7,635      |                   |  
|Other assets                                                                                                                                                   |                                            |                    | 28,766     |                   |  
|Goodwill                                                                                                                                                       |                                            |                    | 1,216,503  |                   |  
|Developed technology, net                                                                                                                                      |                                            |                    | 246,780    |                   |  
|Intangible assets, net                                                                                                                                         |                                            |                    | 61,157     |                   |  
|                                                                                                                                                               |                                            |                    |            |                   |  
|                                                                                                                                                               | Total assets                               |                    | $          | 2,661,534         |  
|                                                                                                                                                               |                                            |                    |            |                   |  
|Liabilities and Stockholders' Equity                                                                                                                           |                                            |                    |            |                   |  
|Current liabilities:                                                                                                                                           |                                            |                    |            |                   |  
|Accounts payable                                                                                                                                               |                                            | $                  | 16,808     |                   | $
|Accrued expenses                                                                                                                                               |                                            |                    | 77,200     |                   |  
|Current portion of restructuring                                                                                                                               |                                            |                    | 23,811     |                   |  
|Current portion of deferred revenue                                                                                                                            |                                            |                    | 5,012      |                   |  
|Current portion of capital lease obligations                                                                                                                   |                                            |                    | 1,230      |                   |  
|Current portion of long-term debt                                                                                                                              |                                            |                    |           |                   |  
|                                                                                                                                                               |                                            |                    |            |                   |  
|                                                                                                                                                               | Total current liabilities                  |                    |            | 124,061           |  
|Other long-term liabilities                                                                                                                                    |                                            |                    | 1,712      |                   |  
|Restructuring, net of current portion                                                                                                                          |                                            |                    | 31,063     |                   |  
|Deferred revenue, net of current portion                                                                                                                       |                                            |                    | 14,851     |                   |  
|Capital lease obligations, net of current portion                                                                                                              |                                            |                    | 74,112     |                   |  
|Long-term debt                                                                                                                                                 |                                            |                    | 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: 322,416 shares at September 30, 2007 and 317,342 shares at December 31, 2006 issued and outstanding |                                            |                    | 322        |                   |  
|Additional paid-in capital                                                                                                                                     |                                            |                    | 4,702,799  |                   |  
|Accumulated other comprehensive loss                                                                                                                           |                                            |                    | (243       | )                 |  
|Accumulated deficit                                                                                                                                            |                                            |                    | (2,537,143 | )                 |  
|                                                                                                                                                               |                                            |                    |            |                   |  
|                                                                                                                                                               | Total stockholders' equity                 |                    |            | 2,165,735         |  
|                                                                                                                                                               |                                            |                    |            |                   |  
|                                                                                                                                                               | Total liabilities and stockholders' equity |                    | $          | 2,661,534         |  
|                                                                                                                                                               |                                            |                    |            |                   |  

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

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Millennium Pharmaceuticals, Inc.        Condensed Consolidated Statements of Operations  (unaudited)

|                                           |                                                                     | Three Months Ended
September 30, |         | Nine Months Ended
September 30, |        
|------------------------------------------ | ------------------------------------------------------------------- | -------------------------------- | ------- | ------------------------------- | -------
|
|(in thousands, except per share amounts)   |                                                                     |                                  |         |                                 |        
|Revenues:                                  |                                                                     |                                  |         |                                 |        
|                                           | Net product sales                                                   |                                  | $       | 70,360                          |        
|                                           | Revenue under strategic alliances                                   |                                  |         | 10,628                          |        
|                                           | Royalties                                                           |                                  |         | 41,344                          |        
|                                           |                                                                     |                                  |         |                                 |        
|                                           |                                                                     | Total revenues                   |         |                                 | 122,332
|                                           |                                                                     |                                  |         |                                 |        
|Costs and expenses:                        |                                                                     |                                  |         |                                 |        
|                                           | Cost of sales (excludes amortization of acquired intangible assets) |                                  |         | 6,931                           |        
|                                           | Research and development (Note 1)                                   |                                  |         | 72,551                          |        
|                                           | Selling, general and administrative (Note 1)                        |                                  |         | 42,949                          |        
|                                           | Restructuring                                                       |                                  |         | 1,667                           |        
|                                           | Amortization of intangibles                                         |                                  |         | 8,488                           |        
|                                           |                                                                     |                                  |         |                                 |        
|                                           |                                                                     | Total costs and expenses         |         |                                 | 132,586
|                                           |                                                                     |                                  |         |                                 |        
|Loss from operations                       |                                                                     |                                  | (10,254 | )                               |        
|Other income (expense):                    |                                                                     |                                  |         |                                 |        
|                                           | Investment income, net                                              |                                  |         | 10,995                          |        
|                                           | Interest expense                                                    |                                  |         | (2,434                          | )      
|                                           | Other income                                                        |                                  |         |                                |        
|                                           |                                                                     |                                  |         |                                 |        
|Net loss                                   |                                                                     | $                                | (1,693  | )                               | $      
|                                           |                                                                     |                                  |         |                                 |        
|Amounts per common share:                  |                                                                     |                                  |         |                                 |        
|Net loss per share, basic and diluted      |                                                                     | $                                | (0.01   | )                               | $      
|                                           |                                                                     |                                  |         |                                 |        
|Weighted average shares, basic and diluted |                                                                     |                                  | 318,871 |                                 |        
|                                           |                                                                     |                                  |         |                                 |        

Note 1:
Stock-based compensation expense is allocated in the condensed consolidated statements of operations as follows:

|                                    |  | Three Months Ended
September 30, |       | Nine Months Ended
September 30,
|----------------------------------- |  | -------------------------------- | ----- | -------------------------------
|
|Research and development            |  | $                                | 3,090 |                                
|Selling, general and administrative |  |                                  | 3,792 |                                

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

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Millennium Pharmaceuticals, Inc        Condensed Consolidated Statements of Cash Flows        (unaudited)

|                                                                                            |                                                                          | Nine Months Ended
September 30, |         
|------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------ | ------------------------------- | --------
|
|
|Cash Flows from Operating Activities:                                                       |                                                                          |                                 |         
|Net loss                                                                                    |                                                                          | $                               | (26,152 
|Adjustments to reconcile net loss to cash provided by (used in) operating activities:       |                                                                          |                                 |         
|                                                                                            | Depreciation and amortization                                            |                                 |         
|                                                                                            | Restructuring charges, net                                               |                                 |         
|                                                                                            | Amortization of deferred financing costs                                 |                                 |         
|                                                                                            | Realized (gain) loss on marketable securities and other investments, net |                                 |         
|                                                                                            | Realized gain on sale of assets to Gene Logic, Inc.                      |                                 |         
|                                                                                            | 401K stock match                                                         |                                 |         
|                                                                                            | Stock-based compensation expense                                         |                                 |         
|Changes in operating assets and liabilities:                                                |                                                                          |                                 |         
|                                                                                            | Accounts receivable                                                      |                                 |         
|                                                                                            | Inventory                                                                |                                 |         
|                                                                                            | Prepaid expenses and other current assets                                |                                 |         
|                                                                                            | Restricted cash and other assets                                         |                                 |         
|                                                                                            | Accounts payable and accrued expenses                                    |                                 |         
|                                                                                            | Deferred revenue                                                         |                                 |         
|                                                                                            | Other long-term liabilities                                              |                                 |         
|                                                                                            |                                                                          |                                 |         
|Net cash provided by (used in) operating activities                                         |                                                                          |                                 | 67,831  
|                                                                                            |                                                                          |                                 |         
|Cash Flows from Investing Activities:                                                       |                                                                          |                                 |         
|                                                                                            | Investments in marketable securities                                     |                                 |         
|                                                                                            | Proceeds from sales and maturities of marketable securities              |                                 |         
|                                                                                            | Proceeds from the sale of assets to Gene Logic, Inc.                     |                                 |         
|                                                                                            | Purchases of property and equipment                                      |                                 |         
|                                                                                            | Other investing activities                                               |                                 |         
|                                                                                            |                                                                          |                                 |         
|Net cash provided by (used in) investing activities                                         |                                                                          |                                 | (115,681
|                                                                                            |                                                                          |                                 |         
|Cash Flows from Financing Activities:                                                       |                                                                          |                                 |         
|Net proceeds from employee stock purchases                                                  |                                                                          |                                 | 22,828  
|Repayment of principal of long-term debt obligations                                        |                                                                          |                                 | (99,571 
|Principal payments on capital leases                                                        |                                                                          |                                 | (884    
|                                                                                            |                                                                          |                                 |         
|Net cash provided by (used in) financing activities                                         |                                                                          |                                 | (77,627 
|                                                                                            |                                                                          |                                 |         
|Increase (decrease) in cash and cash equivalents                                            |                                                                          |                                 | (125,477
|Effects of exchange rate changes on cash and cash equivalents                               |                                                                          |                                 | 9       
|Cash and cash equivalents, beginning of period                                              |                                                                          |                                 | 212,273 
|                                                                                            |                                                                          |                                 |         
|Cash and cash equivalents, end of period                                                    |                                                                          | $                               | 86,805  
|                                                                                            |                                                                          |                                 |         
|Supplemental Cash Flow Information:                                                         |                                                                          |                                 |         
|Cash paid for interest                                                                      |                                                                          | $                               | 7,375   
|                                                                                            |                                                                          |                                 |         
|Supplemental Disclosure of Noncash Investing Activities:                                    |                                                                          |                                 |         
|Receipt of shares of SGX Pharmaceuticals, Inc. common stock in exchange for note receivable |                                                                          | $                               |        
|                                                                                            |                                                                          |                                 |         

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

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Millennium Pharmaceuticals, Inc.        Notes to Condensed Consolidated Financial Statements

1. Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals and revisions of
estimates, considered necessary for a fair presentation of the accompanying condensed consolidated financial statements have been included. Interim results for the three and nine months ended
September 30, 2007 are not necessarily indicative of the results that may be expected for the year ending December 31, 2007. For further information, refer to the consolidated financial
statements and accompanying footnotes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2006, which was filed with the Securities and
Exchange Commission ("SEC") on March 1, 2007.

The
information presented in the condensed consolidated financial statements and related footnotes at September 30, 2007, and for the three and nine months ended
September 30, 2007 and 2006, is unaudited and the condensed consolidated balance sheet amounts and related footnotes at December 31, 2006, have been derived from audited financial
statements.

2. Summary of Significant Accounting Policies

Reclassifications

Certain prior year amounts previously included in work in process in the notes to the condensed consolidated financial statements related to inventory have been
reclassified to raw materials to conform to the current year presentation. This reclassification has no impact on previously reported net loss or total inventory in any period presented.

Cash Equivalents, Marketable Securities and Other Investments

Cash equivalents principally consist of money market funds and corporate bonds with maturities of three months or less at the date of purchase. Marketable
securities primarily consist of investment-grade corporate bonds, asset-backed debt securities and U.S. government agency debt securities. Other investments represent ownership in private companies in
which the Company holds less than a 20 percent ownership position and does not otherwise exercise significant influence. The Company carries such investments at cost unless significant
influence can be exercised over the investee, in which case such securities are recorded using the equity method. The Company monitors these investments in private companies on a quarterly basis and
determines whether any impairment in their value would require a charge to the statement of operations, based on the implied value from any recent rounds of financing completed by the investee, market
prices of comparable public companies and general market conditions. These other investments are included in other long-term assets at September 30, 2007 and December 31,
2006.

Management
determines the appropriate classification of marketable securities at the time of purchase and reevaluates such designation at each balance sheet date. Marketable securities
at September 30, 2007 and December 31, 2006 are classified as "available-for-sale." Available-for-sale securities are carried at fair
value, with the unrealized gains and losses reported in a separate component of stockholders' equity. The cost of debt securities in this category is adjusted for

6

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amortization
of premiums and accretion of discounts to maturity. Such amortization and accretion are included in investment income. Realized gains and losses and declines in value judged to be
other-than-temporary on available-for-sale securities and other investments are included in investment income. The cost of securities sold is based on
the specific identification method. Interest and dividends on securities classified as available-for-sale are included in investment income.

During
the three and nine months ended September 30, 2007, the Company recorded realized gains on marketable securities and other investments of $0.2 million and
$8.0 million, respectively, and recorded
realized losses on marketable securities of $0.4 million and $2.4 million, respectively. During the three and nine months ended September 30, 2006, the Company did not record
significant realized gains on marketable securities and recorded realized losses on marketable securities of $1.7 million and $4.7 million, respectively. Realized gains on marketable
securities for the nine months ended September 30, 2007 included a realized gain of approximately $3.5 million related to the sale of the Company's investment in SGX
Pharmaceuticals, Inc. and a realized gain of approximately $2.3 million related to the Company's share of proceeds from a class action proceeding against WorldCom, Inc. During
2002, the Company recorded realized losses equal to the carrying value of its investment in WorldCom, Inc., as the decline in value was determined to be
other-than-temporary at that time.

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 report information about operating segments in their financial statements. SFAS No. 131 also establishes
standards for related disclosures about products and services, geographic areas, and major customers.

The
Company operates in one business segment, which focuses on the research, development and commercialization of therapeutic products. All of the Company's product sales are currently
related to sales of VELCADE® (bortezomib) for Injection. The remainder of the Company's total revenue is related to its strategic alliances and royalties.

Revenues
from Ortho Biotech Products, L.P. ("OBL"), a member of the Johnson & Johnson Family of Companies, accounted for approximately 19 percent and
14 percent of consolidated revenues for the three months ended September 30, 2007 and 2006, respectively, and 17 percent of consolidated revenues for each of the nine months ended
September 30, 2007 and 2006.

Revenues
from Schering-Plough Ltd. and Schering Corporation (collectively "SGP") accounted for approximately 22 percent and 28 percent of consolidated revenues for
the three months ended September 30, 2007 and 2006, respectively, and 23 percent and 30 percent of consolidated revenues for the nine months ended September 30, 2007 and
2006, respectively.

There
were no other significant customers under strategic alliances and royalties in the three and nine months ended September 30, 2007 and 2006.

Information Concerning Market and Source of Supply Concentration

The Company relies on third-party contract manufacturers for the manufacturing, fill/finish and packaging of VELCADE for both commercial purposes and for ongoing
clinical trials. The Company has established long-term supply relationships for the production of commercial supplies of VELCADE. The Company works with one manufacturer under a
long-term supply agreement to

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complete
fill/finish for VELCADE. The Company is currently qualifying a second fill/finish supplier in order to mitigate its risk of VELCADE supply interruption.

The
Company distributes VELCADE in the United States through a sole-source open access distribution model where the Company sells directly to an independent third party who
in turn distributes to the wholesaler base. In April 2006, the Company's distributor added a second distribution site to its network in order to improve access to the product for physicians in
the western United States.

INTEGRILIN®
(eptifibatide) Injection has received regulatory approvals in the United States, the countries of the European Union and a number of other countries for various
indications. The Company and SGP co-promoted INTEGRILIN in the United States and shared any profits and losses through August 31, 2005. In September 2005, SGP acquired the
exclusive development and commercialization rights to INTEGRILIN in the United States from the Company. In the European Union, GlaxoSmithKline plc ("GSK") exclusively markets INTEGRILIN. The Company
continues to manage the supply chain for INTEGRILIN at the expense of SGP for products sold in the SGP territories, and at the expense of GSK in the GSK territory.

The
Company relies on third-party contract manufacturers for the clinical and commercial production of INTEGRILIN. The Company has three approved manufacturers of eptifibatide, the
active pharmaceutical ingredient ("API") necessary to make INTEGRILIN, for both clinical trials and commercial supply. Solvay, S.A. ("Solvay"), one of the current manufacturers, owns the process
technology used by it and one other manufacturer for the production of the API. In June 2006, the Company received FDA approval of its own alternative process technology utilized by the third
manufacturer for the production of eptifibatide in the United States. The European Medicines Agency approved the alternate process technology for eptifibatide in June 2007. The Company has two
manufacturers that currently perform fill/finish services for INTEGRILIN and two packaging suppliers for the United States. The FDA or other regulatory agencies must approve the processes or the
facilities that may be used for the manufacture of the Company's marketed products.

Inventory

Inventory consists of currently marketed products, including VELCADE and INTEGRILIN. Inventories are stated at the lower of cost (first in, first out) or market.
Inventories are reviewed periodically for slow-moving or obsolete status based on sales activity, both projected and historical.

VELCADE
inventories primarily relate to raw materials used in production, work in process and finished goods inventory on hand. INTEGRILIN inventories include raw materials used in
production and work in process to supply GSK and limited amounts of work in process to supply SGP.

Inventory
consists of the following (in thousands):

September 30, 2007

December 31, 2006Raw materials

$
4,733

$
6,770Work in process


3,056


6,424Finished goods


1,515


404$
9,304

$
13,598


8

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Goodwill and Intangible Assets

Intangible assets consist of the following (in thousands):

|                                                        |                                                                     | September 30, 2007 |         | December 31, 2006 |  
|------------------------------------------------------- | ------------------------------------------------------------------- | ------------------ | ------- | ----------------- | -
|
|Developed technology                                    |                                                                     | $                  | 435,000 |                   | $
|                                                        |                                                                     |                    |         |                   |  
|Core technology                                         |                                                                     | $                  | 18,712  |                   | $
|Other                                                   |                                                                     |                    | 17,060  |                   |  
|                                                        |                                                                     |                    |         |                   |  
|                                                        | Total amortizable intangible assets, excluding developed technology |                    |         | 35,772            |  
|Indefinite-lived trademark                              |                                                                     |                    | 59,000  |                   |  
|                                                        |                                                                     |                    |         |                   |  
|Total intangible assets, excluding developed technology |                                                                     | $                  | 94,772  |                   | $
|                                                        |                                                                     |                    |         |                   |  

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

Developed technology

13 yearsCore technology

4 yearsOther

2 to 12 years


Amortization
expense was approximately $8.5 million in each of the three months ended September 30, 2007 and 2006 and approximately $25.5 million in each of the nine
months ended September 30, 2007 and 2006. The Company expects to incur amortization expense of approximately $34.0 million for each of the next five years.

As
required by SFAS No. 142, "Goodwill and Other Intangible Assets," goodwill and indefinite lived intangible assets are not amortized, but are reviewed annually for impairment,
or more frequently if impairment indicators arise. Separable intangible assets that are not deemed to have an indefinite life are amortized over their useful lives and reviewed for impairment when
events or changes in circumstances suggest that the assets may not be recoverable. The Company tests for goodwill impairment annually, on October 1, and whenever events or changes in
circumstances suggest that the carrying amount may not be recoverable.

On
October 1, 2007, the Company performed its annual goodwill impairment test and determined that no impairment existed on that date. The Company continually monitors business and
market conditions, including the restructured relationship with SGP, to assess whether an impairment indicator exists. If the Company were to determine that an impairment indicator exists, it would be
required to
perform an impairment test, which might result in a material impairment charge to the statement of operations.

Goodwill
consists of the excess purchase price over the estimated fair value of net tangible and intangible assets. The carrying value may be adjusted as a result of the continued
settlement of contingent consideration arising from acquisitions. Accordingly, goodwill increased by $2.6 million and $2.2 million for the nine months ended September 30, 2007 and
2006, respectively.

9

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Revenue Recognition

The Company recognizes revenue from the sale of its products, strategic alliances and royalties. The Company's revenue arrangements with multiple elements are
divided into separate units of accounting if specified criteria are met, including whether the delivered element has stand-alone value to the customer and whether there is objective and reliable
evidence of the fair value of the undelivered items. The consideration received is allocated among the separate units based on their respective fair values, and the applicable revenue recognition
criteria are applied to each of the separate units. Advance payments received in excess of amounts earned are classified as deferred revenue until earned.

Net product sales

The Company records product sales of VELCADE when delivery has occurred, title has transferred, collection is reasonably assured and the Company has no further
obligations. Allowances are recorded as a reduction to product sales for estimated returns and discounts at the time of sale. Costs incurred by the Company for shipping and handling are recorded in
cost of sales.

Revenue under strategic alliances

The Company recognizes revenue under strategic alliances from nonrefundable license payments, milestone payments, reimbursement of research and development costs
and reimbursement of manufacturing-related costs. Nonrefundable upfront fees for which no further performance obligations exist are recognized as revenue on the earlier of when payments are received
or collection is assured.

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



Milestone
payments are recognized as revenue when the performance obligations, as defined in the contract, are achieved. Performance obligations typically consist of significant
milestones in the development life cycle of the related technology or product candidate, such as initiation of clinical trials, filing for approval with regulatory agencies and approvals by regulatory
agencies.

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

Royalties

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



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---





Advertising and Promotional Expenses

Advertising and promotional expenses are expensed as incurred. During the three months ended September 30, 2007 and 2006, advertising and promotional
expenses were $9.2 million and $3.7 million, respectively. During the nine months ended September 30, 2007 and 2006, advertising and promotional expenses were $29.2 million
and $14.3 million, respectively.

Net Loss Per Common Share

Basic net loss per common share is computed using the weighted-average number of common shares outstanding during the period, excluding restricted stock that has
been issued but is not yet vested. Diluted net loss per share is based upon the weighted average number of common shares outstanding during the period, plus additional weighted average common
equivalent shares outstanding during the period when the effect is not anti-dilutive. Common equivalent shares result from the assumed exercise of outstanding stock options and warrants
(the proceeds of which are then assumed to have been used to repurchase outstanding stock using the treasury stock method), the assumed conversion of convertible notes and the vesting of unvested
restricted shares of common stock. Options and warrants to purchase shares of common stock and unvested restricted shares that were not included in the calculation of diluted shares because the effect
of including the options, warrants and unvested restricted shares would have been anti-dilutive were 2.7 million and 3.1 million for the three and nine months ended
September 30, 2007, respectively, and 1.9 million and 1.5 million for the three and nine months ended September 30, 2006, respectively.

Comprehensive Income (Loss)

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

Three Months Ended
September 30,

Nine Months Ended
September 30,2007

2006

2007

2006Net loss

$
(1,693
)
$
(13,717
)
$
(26,152
)
$
(52,225
)Unrealized gain on marketable securities


4,834


4,584


1,107


8,270Cumulative translation adjustments


(3
)

(565
)

(24
)

(1,227
)Comprehensive income (loss)

$
3,138

$
(9,698
)
$
(25,069
)
$
(45,182
)


The
components of accumulated other comprehensive loss were as follows (in thousands):

September 30, 2007

December 31, 2006Unrealized gain (loss) on marketable securities

$
751

$
(356
)Cumulative translation adjustments


(994
)

(970
)Accumulated other comprehensive loss

$
(243
)
$
(1,326
)


11

---



Stock-Based Compensation Expense

The Company adopted SFAS No. 123 (revised 2004), "Share Based Payment," ("SFAS 123R"), effective January 1, 2006. SFAS 123R requires
the recognition of the fair value of stock-based compensation in its statements of operations. Stock-based compensation expense primarily relates to stock options, restricted stock and stock issued
under the Company's employee stock purchase plans. The Company recognized stock-based compensation expense of $6.9 million and $19.0 million during the three and nine months ended
September 30, 2007, respectively, and $10.2 million and $32.2 million during the three and nine months ended September 30, 2006, respectively.

Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements," ("SFAS 157"). SFAS 157 defines fair value, establishes a
framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 codifies the definition of fair
value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, clarifies the principle that
fair value should be based on the assumptions market participants would use when pricing the asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop
those assumptions. SFAS 157 is effective for fiscal years beginning after November 15,
2007. The Company does not believe adoption will have a material impact on its results of operations, financial position or cash flows.

In
February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities," ("SFAS 159"). SFAS 159 permits
entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate
volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS 159 is effective for fiscal
years beginning after November 15, 2007. The Company is currently analyzing the effect, if any, SFAS 159 will have on its consolidated financial position and results of operations.

In
June 2007, the FASB issued EITF No. 07-3, "Accounting for Nonrefundable Advance Payments for Goods or Services to Be Used in Future Research and Development
Activities," ("EITF 07-3"). EITF 07-3 requires that nonrefundable advance payments for goods or services to be received in the future for use in research and development
activities should be deferred and capitalized. The capitalized amounts should be expensed as the related goods are delivered or the services are performed. EITF 07-3 is effective for new
contracts entered into during fiscal years beginning after December 15, 2007. The Company is currently analyzing the effect, if any, EITF 07-3 will have on its consolidated
financial position and results of operations.

3. Restructuring

2006 Resource Alignment

In October 2006, the Company announced a program to further align resources with its current corporate priorities of advancing VELCADE and accelerating the
clinical and preclinical pipeline by lowering investment in discovery and supporting areas. As part of its program, the Company has reduced in-house research and development technologies
and headcount in areas where the work can now be outsourced.

12

---



The
Company recorded restructuring charges of approximately $1.9 million and $15.8 million during the three and nine months ended September 30, 2007, respectively,
under the 2006 restructuring program, primarily for facilities-related costs associated with vacated buildings and employee termination benefits
as a result of headcount reductions. "Other" in the table below includes the write-off of deferred rent in accordance with SFAS No. 13, "Accounting for Leases," upon vacating the
facilities.

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

Balance at
December 31,
2006

Net
Charges /
(Credits)

Payments

Other

Balance at
September 30,
2007Termination benefits

$
3,602

$
1,550

$
(4,352
)
$


$
800Facilities





14,221


(2,509
)

(2,168
)

9,544Other associated costs





54


(52
)




2Total

$
3,602

$
15,825

$
(6,913
)
$
(2,168
)
$
10,346


2005 Strategic Refinement

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

The
Company recorded restructuring charges of approximately $0.1 million during the three months ended September 30, 2007 and a net restructuring credit of approximately
$2.4 million for the nine months ended September 30, 2007 under the 2005 restructuring plan. The net restructuring credit for the nine months ended September 30, 2007 was
primarily related to the earlier than anticipated sublease of one of its facilities charged to restructuring in prior years at a higher rate per square foot than it had originally estimated.

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

Balance at
December 31,
2006

Net
Charges /
(Credits)

Payments

Balance at
September 30,
2007Termination benefits

$
133

$
(30
)
$
(103
)
$
Facilities


13,827


(2,363
)

(3,745
)

7,719Other associated costs


24


(24
)




Total

$
13,984

$
(2,417
)
$
(3,848
)
$
7,719


2003 Restructuring Plan

In December 2002 and June 2003, the Company realigned its resources to become a commercially-focused biopharmaceutical company. The Company
discontinued specified discovery research efforts, reduced overall headcount, primarily in its discovery group, and consolidated its research and development facilities.

13

---



The Company recorded net restructuring credits of approximately $0.3 million and $0.4 million during the three and nine months ended September 30, 2007,
respectively, under the Company's 2003 restructuring plan, primarily related to the earlier than anticipated sublease of one of its facilities charged to restructuring in prior years at a higher rate
per square foot than it had originally estimated as well as the sublease extension for another facility charged to restructuring in prior years. Offsetting these credits were net present value
adjustments for facilities charged to restructuring in prior years.

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

Balance at
December 31,
2006

Net
Charges /
(Credits)

Payments

Balance at
September 30,
2007Facilities

$
49,928

$
(358
)
$
(12,761
)
$
36,809


The
Company 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 exit or disposal activity be recognized and measured initially at its fair value in the period in which the liability is
incurred, except for one-time termination benefits that meet specified requirements. Costs of termination benefits relate to severance packages, out-placement services and
career counseling for employees affected by the restructuring.

In
accordance with SFAS No. 146, the Company's facilities related expenses and liabilities in all restructuring plans include estimates of the remaining rental obligations, net of
estimated sublease income, for facilities the Company no longer occupies. The Company validates its estimates and assumptions with independent third parties having relevant expertise in the real
estate market. The Company reviews its estimates and assumptions on a regular basis, until the outcome is finalized, and makes whatever modifications are necessary, based on the Company's best
judgment, to reflect any changed circumstances.

The
projected timing of payments of the remaining restructuring liabilities under all of the Company's restructuring initiatives at September 30, 2007 is approximately
$23.8 million due through September 30, 2008 and $31.1 million thereafter through 2014. The actual amount and timing of the payment of the remaining accrued liability is dependent
upon the ultimate terms of any potential subleases or lease restructuring. The Company expects to record total restructuring charges of approximately $15.0 million in 2007 primarily related to
certain facilities that the Company decided to abandon in November 2006, but were not vacated until 2007, as well as net present value adjustments on facilities charged to restructuring in
prior years. In connection with the 2006 decision to abandon the facilities in 2007, the Company revised the useful lives of the leasehold improvements at these facilities in accordance with SFAS
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." During the nine months ended September 30, 2007, the Company recorded additional amortization
expense of approximately $3.0 million in research and development expense related to its decision.

The
Company continues to evaluate its strategic alternatives, including facility consolidation, and as a result, additional restructuring charges could occur in future periods.

4. Revenue and Strategic Alliances

The Company has entered into research, development, technology transfer and commercialization arrangements with major pharmaceutical and biotechnology companies
relating to a broad range of therapeutic products. These alliances provide the Company with the opportunity to receive various combinations of license fees, research funding, co-promotion
revenue, distribution fees and may provide additional payments contingent upon its achievement of research and regulatory milestones and

14

---



royalties
and/or profit shares if the Company's collaborations are successful in developing and commercializing products.

Product Alliances

VELCADE

In January 2007, the Company and Ortho Biotech Inc. ("OBI") began jointly promoting VELCADE to U.S.-based physicians who treat multiple myeloma
patients. The Company pays a proportion of the VELCADE-related costs for the OBI sales force, and OBI is entitled to receive a commission should sales associated with the increased promotional effort
exceed pre-specified targets. Both parties are able to terminate the agreement under certain circumstances and subject to fees. The Company continues to be responsible for manufacturing
and distribution of VELCADE in the U.S. The current agreement between the Company and OBL for the promotion of VELCADE outside the U.S. remains unchanged.

5. Convertible Debt

The Company had the following convertible notes outstanding (in thousands):

|                                                         |       | September 30, 2007 |         | December 31, 2006
|-------------------------------------------------------- | ----- | ------------------ | ------- | -----------------
|2.25% convertible senior notes due November 15, 2011     |       | $                  | 250,000 |                  
|5.5% convertible subordinated notes due January 15, 2007 |       |                    |        |                  
|5.0% convertible subordinated notes due March 1, 2007    |       |                    |        |                  
|                                                         |       |                    |         |                  
|                                                         | Total |                    | $       | 250,000          
|                                                         |       |                    |         |                  

The
$250.0 million of principal of 2.25% convertible senior notes due November 15, 2011 are convertible into the Company's common stock at a price equal to $15.47 per share
(the "2.25% notes"). Under the terms of the 2.25% notes, the Company is required to make semi-annual interest payments on the outstanding principal balance on May 15 and
November 15 of each year.

The
2.25% notes are convertible into the Company's common stock based upon a conversion rate of 64.6465 shares of common stock per $1,000 principal amount of the 2.25% notes, which is
equal to an initial conversion price of approximately $15.47 per share of stock, subject to adjustment. The 2.25% notes are convertible only in the following circumstances: (1) if the closing
price of the common stock exceeds 120% of the conversion price within a specified period, (2) if specified distributions to holders of the common stock are made or specified corporate
transactions occur, (3) if the average trading price per $1,000 principal amount is less than 98% of the average conversion of the notes within a specified period or (4) during the last
three months prior to the maturity date of the notes, unless previously repurchased by the Company under certain circumstances. In lieu of delivery of shares of the Company's common stock, the Company
may elect to deliver cash or a combination of cash and shares of the Company's common stock in satisfaction of its obligation upon conversion. The 2.25% notes are subordinated in right of payment to
future senior indebtedness of the Company.

In
accordance with the payment terms, the Company repaid the entire $83.3 million principal balance on its 5.5% convertible subordinated notes due on January 15, 2007 that
were convertible at a price equal to $42.07 per share and the entire $16.2 million principal balance on its 5.0% convertible subordinated notes due on March 1, 2007 that were convertible
at a price equal to $34.21 per share.

15

---



6. Stock Plans

SFAS 123R requires the recognition of the fair value of stock-based compensation in its statements of operations. Stock-based compensation expense
primarily relates to stock options, restricted stock and stock issued under the Company's employee stock purchase plans.

In
March 2007, the Company implemented performance based vesting for a portion of executive officer restricted stock awards. A significant portion of the annual equity awards to
all executive officers will vest only upon achievement of predefined performance objectives. These performance based awards vest over a four year period so long as the predefined annual "target" or
"overachievement" performance objectives are met or exceeded. No shares will vest in the years where "target" and "overachievement" performance objectives are not achieved and such shares will be
forfeited.
Performance based awards are recorded as compensation cost, based on the market value on the date the "target" or "overachievement" performance objectives are known and probable, on a
straight-line basis over the requisite service period for each separately vesting portion of the award as if the award was, in substance, multiple awards consistent with SFAS 123R.

In
May 2007, the Company issued 40,000 restricted stock units to members of the Board of Directors as partial compensation for their board member service. Restricted stock units
are recorded as compensation cost, based on the market value on the date of the grant, on a straight-line basis over the requisite service period of approximately one year for each
separately vesting portion of the award as if the award was, in substance, multiple awards.

The
following table summarizes the weighted-average assumptions the Company used in its fair value calculations at the date of grant:

|                   |  | Stock Options |   | Employee Stock Purchase Plan |  
|------------------ |  | ------------- | - | ---------------------------- | -
|
|
|Expected life      |  | 4.2           |   | 3.7                          |  
|Risk-free interest |  | 4.32          | % | 4.79                         | %
|Volatility         |  | 35            | % | 45                           | %

The
Company has never declared cash dividends on any of its capital stock and does not expect to do so in the foreseeable future.

16

---



The
following table presents the combined option activity of the Company's stock plans for the nine months ended September 30, 2007:

|                                                 |  | Shares of
Common Stock
Attributable to
Options |   | Weighted-
Average
Exercise Price
of Options |       | Weighted-
Average
Remaining
Contractual
Term
(in years) |      | Aggregate
Intrinsic Value
(in thousands)
|------------------------------------------------ |  | ---------------------------------------------- | - | ------------------------------------------- | ----- | ------------------------------------------------------- | ---- | ----------------------------------------
|Outstanding at January 1, 2007                   |  | 27,004,963                                     |   | $                                           | 16.19 |                                                         |      |                                         
|Granted                                          |  | 1,186,796                                      |   |                                             | 10.74 |                                                         |      |                                         
|Exercised                                        |  | (2,650,298                                     | ) |                                             | 7.91  |                                                         |      |                                         
|Forfeited or expired                             |  | (3,904,715                                     | ) |                                             | 22.45 |                                                         |      |                                         
|                                                 |  |                                                |   |                                             |       |                                                         |      |                                         
|Outstanding at September 30, 2007                |  | 21,636,746                                     |   | $                                           | 15.92 |                                                         | 5.49 |                                         
|                                                 |  |                                                |   |                                             |       |                                                         |      |                                         
|Vested or expected to vest at September 30, 2007 |  | 20,842,483                                     |   | $                                           | 16.13 |                                                         | 5.37 |                                         
|                                                 |  |                                                |   |                                             |       |                                                         |      |                                         
|Exercisable at September 30, 2007                |  | 17,863,453                                     |   | $                                           | 16.99 |                                                         | 4.87 |                                         
|                                                 |  |                                                |   |                                             |       |                                                         |      |                                         

As
of September 30, 2007, the total remaining unrecognized compensation cost related to nonvested stock option awards amounted to approximately $8.5 million, including
estimated forfeitures, which will be recognized over the weighed-average remaining requisite service period of approximately one and one half years.

A
summary of the status of nonvested shares of restricted stock and restricted stock units as of September 30, 2007, and changes during the nine months then ended, is presented
below:

Shares

Weighted-Average
Grant Date Fair ValueNonvested at January 1, 2007

1,659,100

$
10.31Granted

2,256,477


10.82Vested

(507,990
)

10.35Forfeited

(343,366
)

10.56Nonvested at September 30, 2007

3,064,221

$
10.64


As
of September 30, 2007, the total remaining unrecognized compensation cost related to nonvested restricted stock awards and units amounted to approximately $15.5 million,
including estimated forfeitures, which will be recognized over the weighted-average remaining requisite service period of approximately one and one half years.

7. Income Taxes

In June 2006, the FASB issued FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxesan Interpretation of FASB
Statement No. 109" (the "Interpretation"). The Interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with FASB
Statement No. 109, "Accounting for Income Taxes." The Interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a
tax position taken or expected to be taken in a tax return. This Interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods,
disclosure and transition. The Interpretation is effective for fiscal years beginning after December 15, 2006. The Company's adoption did not have a material impact on its results of
operations, financial position or cash flows as it has not recorded any liabilities relating to uncertain tax positions.

The
Company files income tax returns in the United States federal jurisdiction and various state, local, and foreign jurisdictions. The Company is no longer subject to any tax assessment
from an income tax examination in major taxing jurisdictions for years before 2004, except to the extent that in the future it utilizes net operating losses or tax credit carryforwards that originated
before 2004. The Company currently is not under examination by the Internal Revenue Service or other jurisdictions for any tax years.

The
Company recognizes both accrued interest and penalties related to unrecognized tax benefits in income tax expense. The Company has not recognized any interest and penalties since
inception.

17

---





Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations

Our management's discussion and analysis of our financial condition and results of our operations include the identification of certain trends and other
statements that may predict or anticipate future business or financial results that are subject to important factors that could cause our actual results to differ materially from those indicated. See
"Risk Factors That May Affect Results."

Overview

We are an innovation-driven biopharmaceutical company focused on discovering, developing and commercializing medicines to change the lives of patients with cancer
and inflammatory diseases. We currently commercialize VELCADE, the United States market leader for the treatment of patients with multiple myeloma who have received at least one prior therapy. In
addition, VELCADE is the first and only FDA approved therapeutic for the treatment of patients with mantle cell lymphoma, or MCL, who have received at least one prior therapy. We have a development
pipeline of clinical and preclinical product candidates in our therapeutic focus areas of cancer and inflammatory diseases, and we have an oncology-focused drug discovery organization. Strategic
business relationships are a key component of our business.

In
January 2007, we began, with Ortho Biotech Inc., or OBI, to jointly promote VELCADE for a two year time period in the United States. In May 2007, the FDA granted
marketing approval to OBI for the steroid-sparing therapy of VELCADE / DOXIL® (pegylated liposomal doxorubicin) in multiple myeloma patients who have received at least one prior therapy.
We believe this collaboration, with the well-established OBI oncology sales force, will help us to realize the full potential of VELCADE in the U.S. market.

Our
business strategy is to build a portfolio of new medicines based on our understanding of genomics and particular molecular pathways that affect the establishment and progression of
diseases. These molecular pathways include the related effects of proteins on cellular performance, reproduction and death. We plan to develop and commercialize many of our products on our own, but
expect to seek development and commercial collaborators on favorable terms or when we otherwise believe that doing so would be advantageous to us.

In
the near term, we expect to focus our commercial activities in cancer where we plan to build on our commercial and regulatory experience with VELCADE. We also are working to obtain
approval to market VELCADE in the United States and, through Ortho Biotech Products, L.P., or OBL, a member of the Johnson Family of Companies and an affiliate of OBI, outside of the United States for
the treatment of multiple myeloma in newly diagnosed, or front-line, patients and for the treatment of additional forms of hematological and solid-tumor cancers. We believe, if approved,
these additional uses of VELCADE would lead to a significant expansion of our cancer business.

In
inflammatory disease, we are advancing novel product candidates in clinical development as potential treatments for serious and widely prevalent conditions. For example, MLN0002 is a
highly selective gut-targeted immune therapy being studied in inflammatory bowel diseases. With material from a new commercially scalable cell line, we have completed enrollment in our
core bridging studies. We expect to have data from these bridging studies in the first half of next year and to initiate pivotal trials in the timeframe of late 2008 to early 2009.

In
the long-term, we expect to bring new products to market on a regular basis from our pipeline of discovery and development-stage programs. We also expect to continue to
evaluate opportunities to in-license and acquire molecules from other companies in order to supplement our pipeline.

18

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VELCADE® (bortezomib) for Injection

VELCADE, the first of a new class of medicines called proteasome inhibitors, was the first treatment in more than a decade to be approved in the United States for
patients with multiple myeloma. We received accelerated approval based on phase II data from the FDA in May 2003 to market VELCADE for the treatment of multiple myeloma patients who have
received at least two prior therapies and have demonstrated disease progression on their most recent therapy, commonly referred to as third-line and beyond. In March 2005, we
received approval from the FDA for the treatment of patients with multiple myeloma who have received at least one prior therapy, commonly referred to as relapsed, or second-line multiple
myeloma.

In
September 2007, we announced top-line results of the large, randomized, Phase III VISTA trial in patients with newly diagnosed multiple myeloma. In this trial, the
therapy of VELCADE, melphalan and prednisone demonstrated a highly statistically significant improvement, compared with melphalan and prednisone alone, across all efficacy endpoints, including
complete remission rate, time to progression, progression free survival and overall survival. Based on these positive data, the control arm of the trial was stopped early to allow patients still being
treated with
melphalan and prednisone to have VELCADE added to their therapy. We now expect to file a supplementary new drug application, or sNDA, for use of VELCADE in patients with newly diagnosed
multiple myeloma, commonly referred to as front-line, in December 2007.

VELCADE
is also approved in the United States for the treatment of patients with mantle cell lymphoma who have received at least one prior therapy, commonly referred to as relapsed, or
second-line MCL.

Outside
of the United States, VELCADE is approved by the European Commission as a monotherapy for multiple myeloma patients who have received at least one prior therapy and who have
already undergone or are unsuitable for bone marrow transplantation. Regulatory authorities in a number of other countries, including countries within Latin America, South-East Asia and
Japan have also approved VELCADE. The product is now approved in more than 80 countries.

Our Alliances

Ortho Biotech Collaborations

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

We
are engaged with JJPRD in an extensive global program for further clinical development of VELCADE with the purpose of maximizing the commercial potential of the product. This program
is investigating VELCADE to treat multiple forms of solid and hematological tumors, including continued clinical development of VELCADE for multiple myeloma and non-Hodgkin's lymphoma, or
NHL. JJPRD is responsible for 45% of the joint development costs. We are eligible to receive payments from JJPRD or OBL for achieving clinical development milestones, regulatory milestones outside of
the United States or agreed-upon sales levels of VELCADE outside of the United States.

In
January 2007, we began, with OBI, to jointly promote VELCADE for a two year time period to U.S.-based physicians. We pay the cost of a portion of the OBI sales effort dedicated
to VELCADE and a commission if sales associated with the increased effort exceed specified targets. Both parties are

19

---



able
to terminate the agreement under certain circumstances and subject to termination fees. We continue to be responsible for manufacturing and distribution of VELCADE in the U.S. Our current
agreement with OBL for the promotion of VELCADE outside the U.S. remains unchanged.

INTEGRILIN® (eptifibatide) Injection

Schering-Plough Ltd. and Schering Corporation, together referred to as SGP, market INTEGRILIN in the United States and specified other areas outside of the
European Union. GlaxoSmithKline plc, or GSK, markets INTEGRILIN in the European Union under a license from us.

SGP Collaboration

In April 1995, COR Therapeutics, Inc., or COR, entered into a collaboration agreement with SGP to jointly develop and commercialize INTEGRILIN on a
worldwide basis. We acquired COR in February 2002. Under our original collaboration agreement with SGP, we generally shared any profits or losses from INTEGRILIN sales in the United States
included in co-promotion revenue with SGP, and we granted SGP an exclusive license to market INTEGRILIN outside the United States and the European Union in exchange for royalty
obligations.

On
September 1, 2005, SGP obtained the exclusive U.S. development and commercialization rights for INTEGRILIN products from us and paid us a nonrefundable upfront payment of
approximately $35.5 million. In addition, we are entitled to receive royalties on net product sales of INTEGRILIN in the United States from SGP for so long as SGP is engaged in the
commercialization and sale of an INTEGRILIN product in the United States, with the potential of receiving royalties beyond the 2014 patent expiration date. Minimum royalty payments for 2007 are set at
approximately $85.4 million. There are no guaranteed minimum royalty payments beyond 2007. We also receive royalties on net product sales by SGP outside of the United States. SGP's obligation
to pay us royalties in other countries expires on a country by country basis upon the later of fifteen years from the first commercial use of an INTEGRILIN product in such country and the expiration
of the last to expire patent covering such INTEGRILIN product. We are continuing to manage the supply chain for INTEGRILIN at the expense of SGP for products sold in the SGP territories including the
U.S. We receive payments as a result of managing the supply chain and record those payments as strategic alliance revenue.

GSK License Agreement

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

sanofi-aventis Inflammatory Disease Collaboration

In June 2000, we entered into a broad agreement in the field of inflammatory disease with Aventis, now sanofi-aventis, which includes joint discovery,
development and commercialization of small molecule drugs for the treatment of inflammatory diseases. This agreement covers a substantial portion of our development program in the inflammatory disease
area and provides us with potential access to

20

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sanofi-aventis'
large promotional infrastructure in connection with the commercialization of jointly developed products. The discovery phase of this collaboration has concluded. The development and
commercialization programs continue under the agreement.

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

To
date, we and sanofi-aventis have identified a significant number of novel drug targets and associated molecules relevant in inflammatory diseases. During the remaining portion of the
development phase of the alliance, we and sanofi-aventis have agreed to focus our joint resources on preclinical and clinical development of candidates identified in the collaboration. The alliance
has identified several development candidates, one of which, MLN3897, is now being tested in a phase II clinical trial and
two of which, MLN3701 and MLN0415, are now being tested by us in phase I clinical trials. A fourth candidate, MLN6095, is now in preclinical testing and is expected to enter a phase I trial in 2008.

Critical Accounting Policies and Significant Judgments and Estimates

Our management's discussion and analysis of our financial condition and results of operations are based on our condensed consolidated financial statements, which
have been prepared in accordance with generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported revenues and expenses during the reporting
periods. On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition, inventory, intangible assets, goodwill, restructuring and stock-based
compensation expense. We base our estimates on historical experience and on various other factors that we believe are appropriate under the circumstances, the results of which form the basis for
making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or
conditions.

While
our significant accounting policies are more fully described in Note 2 to our consolidated financial statements included in our Form 10-K, filed with the
SEC on March 1, 2007, we believe the following accounting policies are most critical to aid in fully understanding and evaluating our reported financial results.

Revenue

We recognize revenue from the sale of our products, our strategic alliances and royalties and distribution fees based on net sales of licensed products. We divide
our revenue arrangements with multiple elements into separate units of accounting if specified criteria are met, including whether the delivered element has stand-alone value to the customer and
whether there is objective and reliable evidence of the fair value of the undelivered items. We allocate the consideration we receive among the separate units based on their respective fair values,
and we apply the applicable revenue recognition criteria to each of the separate units. We classify advance payments received in excess of amounts earned as deferred revenue until earned.

We
recognize revenue from the sale of VELCADE in the United States when delivery has occurred and title has transferred. During the fourth quarter of 2004, we began distributing VELCADE
through a sole-source open access distribution model in which we sell directly to an independent third party who in turn distributes to the wholesaler base. In April 2006, our
sole-source distributor added a

21

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second
distribution site to its network in order to improve access to the product for physicians in the western United States. Under our agreement with our sole-source distributor,
inventory levels are contractually limited to no more than three weeks. VELCADE product inventory levels held by the sole-source distributor and wholesalers have been and we expect will
continue to be within our desired range of one to two weeks of inventory in the distribution channel.

We
record allowances as a reduction to product sales for product returns, chargebacks and discounts at the time of sale. We estimate VELCADE product returns based on historical return
patterns. We expect VELCADE returns to be, and returns have been, generally low, and we expect, and have experienced, that wholesalers will not stock significant inventory. We consider several factors
in our estimation process, including our internal sales forecasts, inventory levels as provided by wholesalers and third party market research data. As we continually monitor actual product returns
and inventory levels in the domestic distribution channel, we have reduced and may, from time to time in the future, reduce our product returns estimate. Doing so results in increased product sales at
the time the return estimate is changed. If circumstances change or conditions become more competitive in the market for therapeutic products that address multiple myeloma, we may take actions to
increase our product return estimates. Doing so would result in an incremental reduction of product sales at the time the return estimate is changed. Our accruals for rebates, chargebacks, and other
discounts were immaterial at September 30, 2007.

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



When
the period of deferral cannot be specifically identified from the contract, management estimates the period based upon other critical factors contained within the contract. We
continually review these estimates, which could result in a change in the deferral period and might impact the timing and the amount of revenue recognized.

Milestone
payments are recognized as strategic alliance revenue when the substantive performance obligations, as defined in the contract, are achieved. Performance obligations typically
consist of significant milestones in the development life cycle of the related product candidate, such as initiation of clinical trials, filing for approval with regulatory agencies and approvals by
regulatory agencies. Reimbursements of research and development costs are recognized as strategic alliance revenue as the related costs are incurred.

We
are entitled to receive royalty payments under license agreements with a number of third parties that sell products based on technology we have developed or to which we have rights.
These license agreements provide for the payment of royalties to us based on sales of the licensed product and we record royalty revenues based on estimates of sales from interim data provided by
licensees. For all of our royalty arrangements, we perform an analysis of historical royalties we have been paid, adjusted for any changes in facts and circumstances, as appropriate. Differences
between actual royalty revenues and estimated royalty revenues are adjusted for in the period which they become known, typically the following quarter. These adjustments have not been, and we do not
expect them to be, significant. To the extent we do not have sufficient ability to accurately estimate royalty revenue, we record royalties on a cash basis.

22

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Inventory

Inventory consists of currently marketed products. VELCADE inventories primarily represent raw materials used in production, work in process and finished goods
inventory on hand, valued at cost. INTEGRILIN inventories include raw materials used in production and work in process, valued at cost, to supply GSK and limited amounts of work in process, valued at
cost, to supply SGP. We review inventories periodically for slow-moving or obsolete status based on sales activity, both projected and historical. Our current sales projections provide for
full utilization of the inventory balance. If product sales levels differ from projections or a launch of a new product is delayed, inventory may not be fully utilized and could be subject to
impairment, at which point we would adjust inventory to its net realizable value.

Intangible Assets

We have acquired significant intangible assets that we value and record. Those assets that do not yet have regulatory approval and for which there are no
alternative uses are expensed as acquired in-process research and development, and those that are 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 amount of future cash inflows and outflows, risk, the
cost of capital, and terminal values. Each of these factors can significantly affect the value of the intangible asset. We engage independent valuation experts who review our critical assumptions for
significant acquisitions of intangibles. We review intangible assets for impairment on a periodic basis using an undiscounted net cash flows approach when impairment indicators arise. If the
undiscounted cash flows of an intangible asset are less than the carrying value of an intangible asset, we would write down the intangible asset to the discounted cash flow value. Where we cannot
identify cash flows for an individual asset, our review is applied at the lowest group level for which cash flows are identifiable.

Goodwill

On October 1, 2007, we performed our annual goodwill impairment test and determined that no impairment existed on that date. However, since the date of
acquisition of COR, which generated a significant amount of goodwill, we have experienced a significant decline in market capitalization due to a decline in stock price. We continually monitor
business and market conditions, including the restructured relationship with SGP, to assess whether an impairment indicator exists. If we were to determine that an impairment indicator exists, we
would be required to perform an impairment test, which could result in a material impairment charge to our statement of operations.

Restructuring

In accordance with Statement of Financial Accounting Standard, or SFAS, No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," our
facilities related expenses and liabilities under all of our restructuring plans included estimates of the remaining rental obligations, net of estimated sublease income, for facilities we no longer
occupy. We validated our estimates and assumptions with independent third parties having relevant expertise in the real estate market. We review our estimates and assumptions on a regular basis until
the outcome is finalized, and make whatever modifications we believe necessary, based on our best judgment, to reflect any changed circumstances. It is possible that such estimates could change in the
future resulting in additional adjustments, and the effect of any such adjustments could be material.

23

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Stock-Based Compensation Expense

We adopted SFAS No. 123 (revised 2004), "Share Based Payment," or SFAS 123R, effective January 1, 2006 under the modified prospective method.
SFAS 123R requires the recognition of the fair value of stock-based compensation expense in our operations, and accordingly the adoption of SFAS 123R fair value method has had and will
continue to have a significant impact on our results of operations, although it will have no impact on our overall financial position. Option valuation models require the input of highly subjective
assumptions, including stock price volatility and expected term of an option. In determining our volatility, we have considered implied volatilities of currently traded options to provide an estimate
of volatility based upon current trading activity in addition to our historical volatility. After considering other such factors as our stage of development, the length of time we have been public and
the impact of having a marketed product, we believe a blended volatility rate based upon historical performance, as well as the implied volatilities of currently traded options, best reflects the
expected volatility of our stock going forward. Changes in market price directly affect volatility and could cause stock-based compensation expense to vary significantly in future reporting periods.

We
use historical data to estimate option exercise and employee termination behavior, adjusted for known trends, to arrive at the estimated expected life of an option. We update these
assumptions on a quarterly basis to reflect recent historical data. Additionally, we are required to estimate forfeiture rates to approximate the number 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 adjust the estimated term and forfeiture rates in future periods. Increasing the estimated life would
result in an increase in the fair value to be recognized over the requisite service period, generally the vesting period. Estimated forfeitures will be adjusted to actual forfeitures upon the vest
date of the cancelled options as a cumulative adjustment on a quarterly basis. Doing so could cause future expenses to vary at each reporting period.

In
March 2006, we revised our annual merit compensation program to include the availability of both stock options and restricted stock to certain employees. In March 2007,
we extended the choice of stock options or restricted stock to all employees through the annual merit compensation program. Additionally, in March 2007, we implemented performance based vesting
for a portion of executive officer restricted stock awards. A significant portion of the annual equity awards to all executive officers will vest only upon achievement of predefined performance
objectives. In May 2007, we issued restricted stock units to members of the Board of Directors as partial compensation for their board member service. For the three and nine months ended
September 30, 2007, we recognized total stock-based compensation expense under SFAS 123R of $6.9 million and $19.0 million, respectively. As of September 30, 2007,
the total remaining unrecognized compensation cost related to nonvested stock option awards amounted to approximately $8.5 million, including estimated forfeitures, which will be amortized over
the weighted-average remaining requisite service periods of approximately one and one half years. As of September 30, 2007, the total remaining unrecognized compensation cost related to
nonvested restricted stock awards and units amounted to approximately $15.5 million, including estimated forfeitures, which will be amortized over the weighted-average remaining requisite
service periods of approximately one and one half years.

Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements," or SFAS 157. SFAS 157 defines fair value, establishes a
framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 codifies the definition of fair
value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, clarifies the principle that
fair value should be based on the assumptions market participants

24

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would
use when pricing the asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. SFAS 157 is effective for fiscal years
beginning after November 15, 2007. We do not currently believe that adoption will have a material impact on our results of operations, financial position or cash flows.

In
February 2007, the FASB released SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities," or SFAS 159. SFAS 159 permits
entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate
volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS 159 is effective for fiscal
years beginning after November 15, 2007. We are currently analyzing the effect, if any, SFAS 159 will have on our consolidated financial position and results of operations.

In
June 2007, the FASB issued EITF No. 07-3, "Accounting for Nonrefundable Advance Payments for Goods or Services to Be Used in Future Research and Development
Activities," or EITF 07-3. EITF 07-3 requires that nonrefundable advance payments for goods or services to be received in the future for use in research and development
activities should be deferred and capitalized. The capitalized amounts should be expensed as the related goods are delivered or the services are performed. EITF 07-3 is effective for new
contracts entered into during fiscal years beginning after December 15, 2007. We are currently analyzing the effect, if any, EITF 07-3 will have on our consolidated financial
position and results of operations.

25

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Results of Operations

|                                           |                                                                     | Three Months Ended
September 30, |         | Increase/
(Decrease)
Percentage
Change
2007/2006 |         | Nine Months Ended
September 30, |        | Increase/
(Decrease)
Percentage
Change
2007/2006 |     
|------------------------------------------ | ------------------------------------------------------------------- | -------------------------------- | ------- | ------------------------------------------------ | ------- | ------------------------------- | ------ | ------------------------------------------------ | ----
|
|(in thousands, except per share amounts)   |                                                                     |                                  |         |                                                  |         |                                 |        |                                                  |     
|Revenues:                                  |                                                                     |                                  |         |                                                  |         |                                 |        |                                                  |     
|                                           | Net product sales                                                   |                                  | $       | 70,360                                           |         | $                               | 53,161 |                                                  | 32  
|                                           | Revenue under strategic alliances                                   |                                  |         | 10,628                                           |         |                                 | 17,196 |                                                  | (38 
|                                           | Royalties                                                           |                                  |         | 41,344                                           |         |                                 | 33,737 |                                                  | 23  
|                                           |                                                                     |                                  |         |                                                  |         |                                 |        |                                                  |     
|                                           |                                                                     | Total revenues                   |         |                                                  | 122,332 |                                 |        | 104,094                                          |     
|                                           |                                                                     |                                  |         |                                                  |         |                                 |        |                                                  |     
|Costs and expenses:                        |                                                                     |                                  |         |                                                  |         |                                 |        |                                                  |     
|                                           | Cost of sales (excludes amortization of acquired intangible assets) |                                  |         | 6,931                                            |         |                                 | 6,730  |                                                  | 3   
|                                           | Research and development (Note 1)                                   |                                  |         | 72,551                                           |         |                                 | 73,436 |                                                  | (1  
|                                           | Selling, general and administrative (Note 1)                        |                                  |         | 42,949                                           |         |                                 | 34,365 |                                                  | 25  
|                                           | Restructuring                                                       |                                  |         | 1,667                                            |         |                                 | 1,352  |                                                  | 23  
|                                           | Amortization of intangibles                                         |                                  |         | 8,488                                            |         |                                 | 8,488  |                                                  |    
|                                           |                                                                     |                                  |         |                                                  |         |                                 |        |                                                  |     
|                                           |                                                                     | Total costs and expenses         |         |                                                  | 132,586 |                                 |        | 124,371                                          |     
|                                           |                                                                     |                                  |         |                                                  |         |                                 |        |                                                  |     
|Loss from operations                       |                                                                     |                                  | (10,254 | )                                                |         | (20,277                         | )      | (49                                              | )   
|Other income (expense):                    |                                                                     |                                  |         |                                                  |         |                                 |        |                                                  |     
|                                           | Investment income, net                                              |                                  |         | 10,995                                           |         |                                 | 5,635  |                                                  | 95  
|                                           | Interest expense                                                    |                                  |         | (2,434                                           | )       |                                 | (2,478 | )                                                | (2  
|                                           | Other Income                                                        |                                  |         |                                                 |         |                                 | 3,403  |                                                  | (100
|                                           |                                                                     |                                  |         |                                                  |         |                                 |        |                                                  |     
|Net loss                                   |                                                                     | $                                | (1,693  | )                                                | $       | (13,717                         | )      | (88                                              | )%  
|                                           |                                                                     |                                  |         |                                                  |         |                                 |        |                                                  |     
|Amounts per common share:                  |                                                                     |                                  |         |                                                  |         |                                 |        |                                                  |     
|Net loss per share, basic and diluted      |                                                                     | $                                | (0.01   | )                                                | $       | (0.04                           | )      |                                                  |     
|                                           |                                                                     |                                  |         |                                                  |         |                                 |        |                                                  |     
|Weighted average shares, basic and diluted |                                                                     |                                  | 318,871 |                                                  |         | 314,228                         |        |                                                  |     
|                                           |                                                                     |                                  |         |                                                  |         |                                 |        |                                                  |     

Note 1:
Stock-based compensation expense is allocated in the condensed consolidated statements of operations as follows:

Three Months Ended
September 30,

Nine Months Ended
September 30,2007

2006

2007

2006(in thousands)Research and development

$
3,090

$
5,603

$
8,235

$
17,935Selling, general and administrative


3,792


4,642


10,748


14,291


Revenues

Total revenues increased 18% to $122.3 million during the three months ended September 30, 2007, or the 2007 Three Month Period, from the comparable
period in 2006, or the 2006 Three Month Period. Revenue of $346.3 million during the nine months ended September 30, 2007, or the 2007 Nine Month Period, remained relatively unchanged
from the comparable period in 2006, or the 2006 Nine Month Period. The increase in the 2007 Three Month Period was primarily related to net product sales

26

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of
VELCADE within the United States and increased distribution fees recognized from OBL on sales of VELCADE outside of the United States, partially offset by a decrease in strategic alliance revenue.
For the 2007 Nine Month Period, increases related to net product sales of VELCADE within the United States and increased distribution fees recognized from OBL on sales of VELCADE outside of the United
States were offset entirely by a decrease in strategic alliance revenue.

Net
product sales of VELCADE increased 32% to $70.4 million in the 2007 Three Month Period and 16% to $191.6 million in the 2007 Nine Month Period from the comparable
periods in 2006. The increases in both periods were primarily attributable to growth in product demand as well as price increases during the periods. Reserves for product returns, chargebacks and
discounts were within the range of 5% and 10% of gross product sales for all periods presented. Net product sales from VELCADE represented approximately 58% and 51% of our total revenues for the 2007
and 2006 Three Month Periods, respectively, and 55% and 48% of our total revenues in the 2007 and 2006 Nine Month Periods, respectively.

Revenue
under strategic alliances decreased 38% to $10.6 million in the 2007 Three Month Period and 54% to $38.2 million in the 2007 Nine Month Period from the comparable
periods in 2006. The decrease in the 2007 Three Month Period was primarily related to lower license revenue under the SGP relationship, a decrease in manufacturing-related reimbursement revenue earned
under the GSK relationship and a decrease in research and development related reimbursement revenue earned under the sanofi-aventis relationship. The decrease in the 2007 Nine Month Period was
primarily related to a decrease in milestone revenue earned in the 2007 Nine Month Period as well as lower manufacturing-related reimbursement revenue and lower license revenue under the SGP
relationship. Revenue under the SGP relationship was generated from the management of the INTEGRILIN supply chain on behalf of SGP in the form of license fees and reimbursement of
manufacturing-related expenses. On July 1, 2006, SGP began purchasing the majority of the active pharmaceutical ingredient necessary to manufacture INTEGRILIN resulting in lower reimbursement
of manufacturing-related expenses during the 2007 Nine Month Period.

We
expect revenue under strategic alliances to fluctuate in future periods depending on the level of revenues earned for ongoing development efforts, the level of milestones achieved and
the number of alliances we may enter into in the future with other biopharmaceutical companies.

Royalty
revenue increased 23% to $41.3 million in the 2007 Three Month Period and 19% to $116.6 million in the 2007 Nine Month Period from the comparable periods in 2006.
The increase was primarily a result of increased distribution fees recognized from OBL on sales of VELCADE outside of the United States.

Cost of Sales

Cost of sales increased 3% to $6.9 million in the 2007 Three Month Period and decreased 52% to $17.7 million in the 2007 Nine Month Period from the
comparable periods in 2006. Cost of sales included manufacturing-related expenses associated with the sales of VELCADE as well as costs associated with managing the INTEGRILIN supply chain on behalf
of SGP and GSK. The increase in the Three Month Period is due to the timing of drug product shipments offset by lower INTEGRILIN manufacturing-related expenses associated with the GSK relationship.
The decrease in the Nine Month Period is primarily due to the decrease in INTEGRILIN manufacturing-related expenses as a result of SGP purchasing the majority of the active pharmaceutical ingredient
directly from the manufacturer as of July 1, 2006.

27

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Research and Development

Research and development expenses decreased 1% to $72.6 million in the 2007 Three Month Period and 8% to $217.2 million in the 2007 Nine Month
Period from the comparable periods in 2006. The decreases in both periods were primarily a result of cost reductions associated with our 2006 restructuring efforts combined with reduced stock-based
compensation expense offset by an increase in clinical development activity. The reduction in stock-based compensation expense in the 2007 Three Month Period primarily related to the vesting of
certain option grants which were included in expense during the entire 2006 Three Month Period, as well as normal attrition. The reduction in stock-based compensation expense in the 2007 Nine Month
Period was primarily due to forfeitures in excess of our original estimates related to certain cliff-based awards held by employees who were severed in connection with restructuring initiatives,
normal attrition, as well as the vesting of certain options grants which were included in expense during the 2006 Nine Month Period.

In
addition to our ongoing clinical trials of VELCADE, we have a number of drug candidates in clinical and late preclinical development. The following chart summarizes the applicable
disease indication and the clinical or preclinical trial status of our drug candidates as of October 2007.

|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)
Renal cell carcinoma(1)
Prostate cancer (1) |  | phase I/II
phase I/II
phase I/II
phase I/II
|MLN8054 is a small molecule inhibitor of Aurora A Kinase                                                         |  | Advanced malignancies                                                        |  | phase I/II                                 
|MLN8237 is a small molecule inhibitor of Aurora A Kinase                                                         |  | Advanced malignancies                                                        |  | phase I/II                                 
|MLN4924 is a small molecule inhibitor of Nedd8-activating enzyme (NAE)                                           |  | Advanced malignancies                                                        |  | preclinical                                
|Inflammatory Diseases                                                                                            |  |                                                                              |  |                                            
|MLN0002 is a humanized monoclonal antibody directed against the alpha4beta7 integrin                             |  | Ulcerative colitis
Crohn's disease                                           |  | phase I/phase IIa(2)                       
|MLN1202 is a humanized monoclonal antibody directed against CCR2                                                 |  | Atherosclerosis                                                              |  | phase IIa-completed                        
|MLN3897 is a small molecule CCR1 inhibitor(3)                                                                    |  | Chronic inflammatory diseases such as rheumatoid arthritis                   |  | phase II                                   
|MLN3701 is a small molecule CCR1 inhibitor, backup to MLN3897(3)                                                 |  | Chronic inflammatory diseases such as rheumatoid arthritis                   |  | phase I                                    
|MLN0415 is a small molecule inhibitor of IKKbeta(3)                                                              |  | Chronic inflammatory diseases such as rheumatoid arthritis                   |  | phase I                                    
|MLN6095 is a small molecule CrTh2 receptor antagonist(3)                                                         |  | Asthma                                                                       |  | Preclinical                                

---

Completion of clinical trials may take several years or 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 costs incurred during a clinical trial vary depending upon the type of product candidate and the nature of the study.

28

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We
estimate that clinical trials in our areas of focus are 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                  

Upon
successful 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 to be safe or effective, will receive regulatory approvals, or will be successfully commercialized. Our clinical trials might prove that our product
candidates may not be effective in treating the disease or have undesirable or unintended side effects, toxicities or other characteristics that require us to cease further development of the product
candidate. The cost to take a product candidate through clinical trials is dependent upon, among other things, the disease indications, the timing, the size and dosing schedule of each clinical trial,
the number of patients enrolled in each trial and the speed at which patients are enrolled and treated. We could incur increased product development costs if we experience delays in clinical trial
enrollment, delays in the evaluation of clinical trial results or delays in regulatory approvals.

Some
products that are likely to result from our research and development projects are based on new technologies and new therapeutic approaches that have not been extensively tested in
humans. The regulatory requirements governing these types of products may be more rigorous than for conventional products. As a result, it is difficult to estimate the nature and length of the efforts
to complete such products as we may experience a longer regulatory process in connection with any products that we develop based upon these new technologies or therapeutic approaches. In addition,
ultimate approval
for commercial manufacturing and marketing of our products is dependent on the FDA or applicable approval body in the country for which approval is being sought, adding further uncertainty to
estimated costs and completion dates. Significant delays could allow our competitors to bring products to market before we do and impair our ability to commercialize our product candidates.

Due
to the variability in the length of time necessary to develop a product, the uncertainties related to the estimated cost of the projects and ultimate ability to obtain governmental
approval for commercialization, accurate and meaningful estimates of the ultimate cost to bring our product candidates to market are not available.

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

Given
the uncertainties related to development, we are currently unable to reliably estimate when, if ever, our product candidates will generate revenue and cash flows. We do not expect
to receive net cash inflows from any of our major research and development projects until a product candidate becomes a profitable commercial product.

29

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Selling, General and Administrative

Selling, general and administrative expenses increased 25% to $42.9 million in the 2007 Three Month Period and 21% to $129.5 million in the 2007
Nine Month Period from the comparable periods in 2006. The increases in both periods were primarily attributable to higher expense associated with the long-term investment in our VELCADE
brand, including continuing medical education, higher commission expense payable to our sales force associated with the increased product sales as well as increased costs representing our portion of
funding the OBI co-promotion efforts, offset by lower stock-based compensation expense. The reduction in stock-based compensation expense in the 2007 Three Month Period was primarily
related to the vesting of certain option grants which were included in expense during the entire 2006 Three Month Period, as well as normal attrition. The reduction in stock-based compensation expense
in the 2007 Nine Month Period was primarily due to forfeitures in excess of our original estimates related to certain cliff-based awards held by employees who were severed in connection with
restructuring initiatives, normal attrition, as well as the vesting of certain options grants which were included in expense during the 2006 Nine Month Period.

Restructuring

During the 2007 Three and Nine Month Periods, we recorded a total of $1.7 million and $13.1 million, respectively, in restructuring charges under
all of our restructuring initiatives. We recorded restructuring charges of approximately $1.9 million and $15.8 million during the 2007 Three and Nine Month Periods, respectively, under
the 2006 restructuring program. The restructuring charges primarily related to facilities-related costs associated with vacated buildings and employee termination benefits as a result of headcount
reductions.

We
recorded restructuring charges of approximately $0.1 million for the 2007 Three Month Period and a net restructuring credit of $2.4 million in the 2007 Nine Month Period
under the 2005 restructuring plan. The charge for the 2007 Three Month Period was primarily for facilities-related costs associated with vacated buildings. The net restructuring credit for the 2007
Nine Month Period was primarily related to the earlier than anticipated sublease of one of our facilities charged to restructuring in prior years at a higher rate per square foot than we had
originally estimated.

We
also recorded net restructuring credits of $0.3 million and $0.4 million during the 2007 Three and Nine Month Periods, respectively, under the 2003 restructuring plan.
The restructuring credits primarily related to the earlier than anticipated sublease of one of our facilities charged to restructuring in a prior year at a higher rate per square foot than we had
originally estimated as well as the sublease extension for another facility charged to restructuring in a prior year. Offsetting these credits were net present value adjustments for facilities charged
to restructuring in prior years.

We
estimate that, of the remaining restructuring liabilities under all restructuring initiatives at September 30, 2007, we will pay approximately $23.8 million through
September 30, 2008 and $31.1 million thereafter through 2014.

We
expect to record total restructuring charges in 2007, under all restructuring initiatives, of approximately $15.0 million. These charges relate primarily to certain facilities
that we decided to abandon in November 2006, but were not vacated until 2007, as well as net present value adjustments on facilities charged to restructuring in prior years. In connection with
the decision to abandon the facilities in 2007, we revised the useful lives of the leasehold improvements at these facilities in accordance with SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." During the 2007 Nine Month Period, we recorded additional amortization expense of approximately $3.0 million in research and development expense
related to our decision.

We
are still evaluating the need or opportunity for further facilities consolidation associated with the 2006 restructuring initiative and the total future restructuring charges for
facility consolidation are

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dependent
upon the nature and timing of the final decisions we make. As we continue to evaluate strategic alternatives, including potential facilities consolidation in connection with our programs,
restructuring charges could occur in future periods.

Amortization of Intangibles

Amortization of intangible assets of $8.5 million in the 2007 Three Month Period and $25.5 million in the 2007 Nine Month Period was unchanged from
the comparable periods in 2006. Amortization in 2007 and 2006 primarily related to specifically identified intangible assets from the COR acquisition. We will continue to amortize the specifically
identified intangible assets from our COR acquisition through 2015. We expect to incur amortization expense of approximately $34.0 million for each of the next five years.

Investment Income

Investment income increased 95% to $11.0 million in the 2007 Three Month Period and 137% to $38.1 million in the 2007 Nine Month Period from the
comparable periods in 2006. The increase in the 2007 Three Month Period was primarily attributable to a higher average balance of invested funds during the period and a decrease in realized losses on
marketable securities. The increase in the 2007 Nine Month Period was primarily attributable to a higher average balance of invested funds during the period, a $3.5 million realized gain on
sale of our investment in SGX Pharmaceuticals, Inc. common stock, and a $2.3 million realized gain recognized in January 2007 related to our share of proceeds upon the settlement
of a class action proceeding against WorldCom, Inc.

Interest Expense

Interest expense decreased 2% to $2.4 million in the 2007 Three Month Period and 3% to $7.7 million in the 2007 Nine Month Period from the
comparable periods in 2006. The decrease in both periods was primarily related to decreased capital lease buyouts resulting in lower related interest expense offset slightly by an increase in accrued
interest on our convertible notes as a result of higher average balances of indebtedness during the periods.

Other Income

Other income in the 2006 Three and Nine Month Periods was attributable to a deferred gain recognized as a result of the sale of assets to Gene Logic, Inc.

Liquidity and Capital Resources

We require cash to fund our operating expenses, to make capital expenditures, acquisitions and investments and to pay debt service, including principal and
interest and capital lease payments. We have and may in the future lose money in these investments and our ability to liquidate these investments is in some cases very limited. We may also owe our
partners milestone payments and royalties. We also have committed to fund development costs incurred by some of our collaborators.

We
have funded our cash requirements primarily through the following:



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In
the future, we expect to continue to fund our cash requirements from some or all of these sources as well as from sales of other products, subject to receiving regulatory approval. We
are entitled to additional committed research and development funding under some of our strategic alliances. We believe the key factors that could affect our internal and external sources of cash are:



As
of September 30, 2007, we had $876.3 million in cash, cash equivalents and marketable securities. This excludes $7.6 million of interest-bearing marketable
securities classified as restricted cash on our balance sheet as of September 30, 2007, which primarily serve as collateral for letters of credit securing leased facilities.

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

|(in thousands)                                   |  | September 30, 2007 |         | December 31, 2006
|------------------------------------------------ |  | ------------------ | ------- | -----------------
|Cash, cash equivalents and marketable securities |  | $                  | 876,312 |                  
|Working capital                                  |  |                    | 830,327 |                  

|                                                              |                      | Nine Months Ended September 30, |        
|------------------------------------------------------------- | -------------------- | ------------------------------- | -------
|
|Cash provided by (used in):                                   |                      |                                 |        
|                                                              | Operating activities |                                 | $      
|                                                              | Investing activities |                                 |        
|                                                              | Financing activities |                                 |        
|Capital expenditures (included in investing activities above) |                      |                                 | (11,943

Cash Flows

Operating activities provided cash of $67.8 million in the 2007 Nine Month Period and used cash of $20.6 million in the 2006 Nine Month Period. The
principal source of funds in the 2007 Nine Month Period was the collection of accounts receivable offset by the payment of expenses in order to fund our net loss. The principal use of funds in the
2006 Nine Month Period was to fund our net loss. Cash flows from operations can vary significantly due to various factors including changes in accounts receivable, as well as changes in accounts
payable and accrued expenses. The average collection period of our accounts receivable can vary and is dependent on various factors, including the type of revenue and the payment terms related to
those revenues.

Investing
activities used cash of $115.7 million in the 2007 Nine Month Period and provided cash of $35.7 million in the 2006 Nine Month Period. The principal use of funds
in the 2007 Nine Month Period was the purchases of marketable securities. The principal source of funds in the 2006 Nine Month Period was the proceeds from sales and maturities of marketable
securities. In February 2007, we received proceeds of approximately $3.5 million related to the sale of our investment in SGX Pharmaceuticals, Inc. In January 2007, we
received proceeds of approximately $2.3 million related to our share of proceeds from a class action proceeding against WorldCom, Inc.

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Financing
activities used cash of $77.6 million in the 2007 Nine Month Period and provided cash of $11.2 million in the 2006 Nine Month Period. The principal use of funds
in the 2007 Nine Month Period was the repayment of our 5.5% and 5.0% convertible subordinated notes in accordance with the payment terms offset by payments received from the purchase of common stock
by our employees. The principal source of funds in the 2006 Nine Month Period was from the purchase of common stock by our employees offset by the repayment of our 4.5% convertible subordinated notes
in accordance with the payment terms. We also used $0.9 million and $3.8 million in financing activities in the 2007 and 2006 Nine Month Periods, respectively, to make principal payments
on our capital leases.

We
believe that our existing cash and cash equivalents and the anticipated cash receipts from our product sales, current strategic alliances and royalties will be sufficient to support
our expected operations, fund our debt service and capital lease obligations and fund our capital commitments for at least the next several years.

Contractual Obligations

As noted above and in accordance with the payment terms, we paid off the $83.3 million and $16.3 million principal balances on our 5.5% and 5.0%
convertible subordinated notes, respectively, during the 2007 Nine Month Period.

There
have been no additional significant changes to our contractual obligations and commercial commitments included in our Form 10-K as of December 31, 2006.

As
of September 30, 2007, we did not have any financing arrangements that were not reflected in our balance sheet.

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RISK FACTORS THAT MAY AFFECT RESULTS

This Quarterly Report on Form 10-Q contains forward-looking statements that are based on current expectations, estimates, forecasts and
projections about us, our future performance, our business, our beliefs and our management's assumptions. In addition, we, or others on our behalf, may make forward-looking statements in press
releases or written statements, or in our communications and discussions with investors and analysts in the normal course of business through meetings, webcasts, phone calls 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
words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve important risks, uncertainties and
assumptions that are difficult to predict. We describe some of the risks, uncertainties and assumptions that could affect our business, including our financial condition and results of operations, in
this "Risk Factors" section. We have based our forward-looking statements on our management's beliefs and assumptions based on information available to our management at the time the statements are
made.

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

Regulatory Risks

Our business may be harmed if we do not obtain approval to market VELCADE for additional therapeutic uses.

An important part of our strategy to grow our business is to market VELCADE for additional indications. To do so, we will need to successfully conduct clinical
trials in accordance with good clinical practices and then apply for and obtain the appropriate regulatory approvals. If we are unsuccessful in our clinical trials, or we experience a delay in
obtaining or are unable to obtain authorizations for expanded uses of VELCADE, our revenues may not grow as expected and our business and operating results will be harmed.

We may not be able to obtain approval in additional countries to market VELCADE.

VELCADE is currently approved for marketing in the United States and a total of more than 80 countries including the countries of the European Union. If we or OBL
are not able to obtain approval to market VELCADE in additional countries, OBL will lose the opportunity to sell in those countries and we may not be able to earn potential milestone payments under
our agreement with OBL or collect potential distribution fees on sales of VELCADE by OBL in those countries.

We may not be able to obtain marketing approval for products resulting from our development efforts.

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

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We
may need to successfully address a number of technological challenges in order to complete development of our products. Moreover, these products may not be effective in treating any
disease or may prove to have undesirable or unintended side effects, toxicities or other characteristics that may preclude our obtaining regulatory approval or prevent or limit commercial use. For
example, in January 2006, as part of our portfolio review process, based on the evaluation of clinical data in the context of additional opportunities in the pipeline, we decided to discontinue
development of MLN2704 as well as MLN1202 in rheumatoid arthritis.

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

If we fail to comply with regulatory requirements, or if we experience unanticipated problems with our approved products, our products could 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, adverse event reporting and
promotional activities for such product, is subject to continual review and periodic inspections by the FDA and other regulatory authorities. Later discovery of previously unknown problems or safety
issues with our products or manufacturing processes, or failure to comply with regulatory requirements, may result in restrictions on such products or manufacturing processes, withdrawal of the
products from the market, the imposition of civil or criminal penalties or a refusal by the FDA and other regulatory authorities to approve pending applications for marketing approval of new drugs or
supplements to approved applications. As with any recently approved therapeutic product, we expect that our knowledge of the safety profile for VELCADE will expand after wider usage, and the
possibility exists of patients receiving VELCADE treatment experiencing unexpected or more frequently than expected serious adverse events, which could have a material adverse effect on our business.

We
are a party to collaborations that transfer responsibility for specified regulatory requirements, such as filing and maintenance of marketing authorizations and safety reporting, to
our collaborators. If our collaborators do not fulfill these regulatory obligations, products, including VELCADE or INTEGRILIN, could be withdrawn from the market, which would have a material adverse
effect on our business. Additionally, the FDA requires that we, along with our collaborators and third party manufacturers, may not employ, in any capacity, persons who have been debarred under the
FDA's Application Integrity Policy. Employment of such a debarred person (even if inadvertently) may result in delays in the FDA's review or approval of our products, or the rejection of data
developed with the involvement of such person(s).

Some of our products may be based on new technologies, which may affect our ability or the time we require to obtain necessary regulatory approvals.

Products that result from our research and development programs may be based on new technologies, such as proteasome inhibition, and new therapeutic approaches
that have not been extensively tested in humans. The regulatory requirements governing these types of products may be more rigorous than for conventional products. As a result, we may experience a
longer development or regulatory process in connection with any products that we develop based on these new technologies or new therapeutic approaches.

Risks Relating to Our Business, Strategy and Industry

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

VELCADE was approved by the FDA in May 2003 and commercially launched in the United States shortly after that date. Marketing of VELCADE outside the United
States commenced in

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April 2004.
INTEGRILIN has been on the market in the United States since June 1998. Marketing of INTEGRILIN outside the United States commenced in mid-1999.

Our
business plan contemplates obtaining marketing authorization to sell VELCADE in many countries for the treatment of all patients with multiple myeloma and both in the United States
and abroad for other indications. We will be adversely affected if VELCADE does not receive such approvals, or if such approvals are subject to limitations on the indicated uses for which we may
market the product.

We
will not achieve our business plan, and we may be forced to scale back our operations and research and development programs, if we do not obtain regulatory approval to sell VELCADE in
additional countries or for additional therapeutic uses or the sales of VELCADE or INTEGRILIN do not meet 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 are highly competitive. Many of our competitors are substantially larger than we are, and these competitors have
substantially greater capital resources, research and development staffs and facilities than we have. Furthermore, many of our competitors are more experienced than we are in drug research, discovery,
development and commercialization, obtaining regulatory approvals and product manufacturing and marketing. As a result, our competitors may discover, develop and commercialize pharmaceutical products
before or in a shorter timeframe than we do. In addition, our competitors may discover, develop and commercialize products that make
the products that we or our collaborators have developed or are seeking to develop and commercialize non-competitive or obsolete.

With
respect to VELCADE, we face competition from Celgene Corporation's Thalomid and Revlimid. In May 2006, the FDA approved the use of Thalomid for the treatment of newly
diagnosed multiple myeloma. Revlimid was approved by the FDA in December 2005 for the treatment of patients with myelodysplastic syndromes and in June 2006 for multiple myeloma patients
who have received at least one prior therapy. We also face competition for VELCADE from traditional chemotherapy treatments, and there are other potentially competitive therapies for VELCADE,
including other proteasome inhibitors, some of which are in late-stage clinical development for the treatment of multiple myeloma. In addition, multiple myeloma therapies in development
may reduce the number of patients available for VELCADE treatment through enrollment of these patients in clinical trials of these potentially competing products.

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

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



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Sales of INTEGRILIN and possibly VELCADE in particular reporting periods may be affected by fluctuations in inventory, allowances and buying patterns.

We distribute VELCADE in the U.S. through a sole-source distribution model, where we sell directly to a third party who in turn distributes to the
wholesaler base. Our VELCADE product inventory levels may fluctuate from time to time depending on the consistency of the distribution logistics of this arrangement and the buying patterns of these
wholesalers.

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

A
significant portion of INTEGRILIN domestic pharmaceutical sales is made by SGP to major drug wholesalers. These sales are affected by fluctuations in the buying patterns of these
wholesalers and the corresponding changes in inventory levels maintained by them. Inventory levels held by these wholesalers may fluctuate significantly from quarter to quarter. If these wholesalers
build inventory levels excessively in any quarter, sales to the wholesalers in future quarters may unexpectedly decrease notwithstanding steady prescriber demand. Because SGP commercializes INTEGRILIN
and manages product distribution, we have limited insight into or control over factors affecting changes in distributor inventory levels. If SGP does not appropriately manage this distribution, SGP
may not realize sales goals for the product and could reduce the royalty revenue we recognize and thus adversely affect our business.

Because our research and development projects are based on new technologies and new therapeutic approaches that have not been extensively tested in
humans, it is possible that our discovery process will not result in commercial products.

The process of discovering drugs based upon genomics and other new technologies is new and evolving rapidly. We focus a portion of our research on diseases that
may be linked to a number of genes working in combination or to novel targets. Both we and the general scientific and medical communities have only a limited understanding of the role that genes play
in these diseases. To date, we have not commercialized any products discovered through our genomics research, and we may not be successful in doing so in the future. In addition, relatively few
products based on gene discoveries have been developed and commercialized by others. Rapid technological development by us or others may result in compounds, products or processes becoming obsolete
before we recover our development expenses. Further, manufacturing costs or products based on these new technologies may make products uneconomical to commercialize.

If our clinical trials are unsuccessful, or if they experience significant delays, our ability to commercialize products will be impaired.

We must provide the FDA and foreign regulatory authorities with preclinical and clinical data demonstrating that our products are safe and effective before they
can be approved for commercial sale. Clinical development, including preclinical testing, is a long, expensive and uncertain process. It

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may
take us several years to complete our testing, and failure can occur at any stage of testing. Interim results of preclinical or clinical studies do not necessarily predict their final results, and
acceptable results in early studies might not be seen in later studies. Any preclinical or clinical test may fail to produce results satisfactory to the FDA or other regulatory authorities.
Preclinical and clinical data can be interpreted in different 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 from products of the same class of drug could cause a preclinical study or clinical trial to be repeated or prolonged
or a program to be terminated, even if other studies or trials relating to the program are successful.

We
may not complete our planned preclinical or clinical trials on schedule or at all. We may not be able to confirm the safety and efficacy of our potential drugs in
long-term clinical trials, which may result in a delay or failure to commercialize our products. We may have difficulty obtaining a sufficient number of appropriate patients or clinical
support to conduct our clinical trials as planned. A number of additional events could delay the completion of our clinical trials, including conditions imposed on us by the FDA or foreign regulatory
authorities regarding the scope or design of our clinical trials, lower than anticipated retention rates for patients in our clinical trials, insufficient supply or deficient quality of our product
candidates or other materials necessary to conduct our clinical trials
or the failure of our third party contractors to comply with regulatory requirements or otherwise meet their contractual obligations to us in a timely manner, or at all. In addition, institutional
review boards or regulators, including the FDA, or our collaborators may hold, suspend or terminate our clinical trials for various reasons, including noncompliance with regulatory requirements or if,
in their opinion, the participating subjects are being exposed to unacceptable health risks. As a result, we may have to expend substantial additional funds to obtain access to resources or delay or
modify our plans significantly. Our product development costs will increase if we experience delays in testing or approvals. Significant clinical trial delays could allow our competitors to bring
products to market before we do and impair our ability to commercialize our products or potential products.

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

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

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

The commercial success of any of our products for which we may obtain marketing approval from the FDA or other regulatory authorities will depend upon their
acceptance by the medical community and third party payors and consumers as clinically useful, cost-effective and safe. Many of the products that we are developing are based upon new
technologies or therapeutic approaches. As a result, it may be more difficult for us to achieve market acceptance of our products, particularly the first products that we introduce to the market based
on new technologies and therapeutic approaches. Our efforts to

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educate
the medical community on these potentially unique approaches may require greater resources than would be typically required for products based on conventional technologies or therapeutic
approaches. The safety, efficacy, convenience and cost-effectiveness of our products as compared to competitive products will also affect market acceptance.

Because of the high demand for talented personnel within our industry, we could experience difficulties in recruiting or retaining employees necessary
for our success and growth.

Because competition for talented employees within our industry is fierce, we may not be successful in hiring, retaining or promptly replacing key management,
sales, marketing and technical personnel. Any failure to expeditiously fill our needs for key personnel could reduce our operational capacity and productivity and have a material adverse effect on our
business.

Our strategy of generating growth through license arrangements and acquisitions may not be successful.

An important element of our business strategy is to acquire additional therapeutic agents through license arrangements or acquisitions of other companies.
Although we regularly review and engage in discussions with third parties with respect to such transactions, we may be unable to license or acquire other suitable products or product candidates from
third parties for a number of reasons. In particular, the licensing and acquisition of pharmaceutical and biological products, including through the acquisition of other companies, is a competitive
area. A number of other companies are also pursuing strategies to license or acquire products within our therapeutic focus areas of cancer and inflammation. These other companies may have a
competitive advantage 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 or otherwise acquiring suitable products and product candidates include the following:



In
addition, we expect competition for licensing and acquisition candidates in the biotechnology and pharmaceutical fields to increase, which may mean fewer suitable opportunities for us
as well as higher prices. If we are unable to successfully obtain rights to suitable products and product candidates, our business, financial condition and prospects for growth could suffer.

If we fail to successfully manage any acquisitions, our ability to develop our product candidates and expand our product candidate pipeline may be
harmed.

Following any future acquisitions, our failure to adequately address the financial, operational or legal risks of these transactions could harm our business.
Financial aspects of these transactions that could alter our financial position, reported operating results or stock price include:



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Operational
risks that could harm our existing operations or prevent realization of anticipated benefits from these transactions include:



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

Risks Relating to Our Financial Results and Need for Financing

We have incurred substantial losses and expect to continue to incur losses. We will not be successful unless we reverse this trend.

We have incurred net losses of $1.7 million for the three months ended September 30, 2007 and $13.7 million for the three months ended
September 30, 2006. We have incurred net losses of $26.2 million for the nine months ended September 30, 2007, $52.2 million for the nine months ended September 30,
2006, $44.0 million for the year ended December 31, 2006, $198.2 million for the year ended December 31, 2005 and $252.3 million for the year ended
December 31, 2004. We expect to continue to incur operating losses in future periods. Prior to our acquisition of COR Therapeutics, Inc., or COR, in February 2002, substantially
all of our revenues resulted from payments from collaborators, and not from the sale of products. As of September 30, 2007, we had an accumulated deficit of $2.5 billion.

We
expect to continue to incur significant expenses in connection with our research and development programs and commercialization activities. As a result, we will need to generate
significant revenues to help fund these costs and achieve positive net income. Our ability to achieve positive net income would be adversely impacted if our acquired intangible assets, primarily
resulting from our acquisition of COR, and goodwill became impaired as a result of reduced market capitalization or product failures or withdrawals.

We
cannot be certain when we will achieve ongoing profitability because of the significant uncertainties with respect to our ability to successfully develop products and generate
revenues from the sale of approved products and from existing and potential future strategic alliances.

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

We will require substantial funds to conduct research and development, including preclinical testing and clinical trials of our potential products. We will also
require substantial funds to meet our obligations to our collaborators, manufacture and market products that are approved for commercial sale, including VELCADE, and meet our debt service obligations.
We may also require additional financing to execute on product in-licensing or acquisition opportunities. Additional financing may not be available when we need it or may not be available
on favorable terms.

If
we are unable to obtain adequate funding on a timely basis, we may have to delay or curtail our research and development programs, our product commercialization activities or our
in-licensing or acquisition activities. We could be required to seek funds through arrangements with collaborators or others that may require us to relinquish rights to specified
technologies, product candidates or products which we would otherwise pursue on our own.

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

At September 30, 2007, we had approximately $250.0 million of outstanding convertible debt and $75.3 million of capital lease obligations. We
will be required to make interest payments on our outstanding convertible notes of approximately $5.8 million for each of the next four and a half years.

We
may in the future incur additional indebtedness, including long-term debt, credit lines and property and equipment financings to finance capital expenditures. We intend to
satisfy our current and future debt service obligations from cash generated by our operations, our existing cash and investments and funds from external sources. We may not have sufficient funds and
we may be unable to arrange for additional financing to satisfy our principal or interest payment obligations when those obligations become due. Funds from external sources may not be available on
acceptable terms, or at all.

Our
indebtedness could have significant additional negative consequences, including:



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

We recorded restructuring charges of $1.7 million for the three months ended September 30, 2007 and $1.4 million for the three months ended
September 30, 2006. We recorded restructuring charges of $13.1 million for the nine months ended September 30, 2007, $5.7 million for the nine months ended
September 30, 2006, $20.4 million for the year ended December 31, 2006, $77.1 million for the year ended December 31, 2005 and $38.0 million for the year
ended December 31, 2004. Costs associated with our restructuring efforts include reducing personnel and infrastructure resulting from the

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restructured
relationship with SGP for INTEGRILIN and reducing our in-house research and development technologies and headcount in areas in which we believe the work can now be outsourced
cost effectively. As a result of these efforts, we expect to reduce research and development expenses as compared to prior years and recognize other cost savings. We may not achieve our estimated
expense reductions or recognize other cost savings anticipated from restructurings because such savings are difficult to predict and speculative in nature. We continue to evaluate strategic
alternatives, including facility consolidation, and as a result, additional restructuring charges could occur in future periods.

Risks Relating to Collaborators

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

Outside of the United States, we commercialize VELCADE through an alliance with OBL. We began jointly promoting VELCADE in the United States 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 of INTEGRILIN to SGP and SGP is solely
responsible for the commercialization and development of INTEGRILIN outside of Europe. GSK is responsible for marketing and selling INTEGRILIN in Europe. We conduct substantial discovery and
development activities through strategic alliances, including with OBL for the ongoing development of VELCADE.

We
expect to enter into additional alliances in the future, especially in connection with product commercialization. The success of our alliances depends heavily on the efforts and
activities of our collaborators.

Each
of our collaborators has significant discretion in determining the efforts and resources that it will apply to the alliance and the degree to which it shares financial and product
sales and inventory information. Our existing and any future alliances may not be scientifically or commercially successful.

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



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We are substantially dependent on SGP for future revenues related to INTEGRILIN.

Under the terms of our revised agreement with SGP effective as of September 1, 2005, SGP began paying us royalties based on net product sales of
INTEGRILIN. In 2007, the minimum royalty payment is set at $85.4 million, with some conditions that could reduce this minimum. There are no minimum guaranteed royalty payments beyond 2007. If
SGP's INTEGRILIN sales after 2007 are less than expected, we will receive less royalty revenue than we expect, which could have a material adverse effect on our financial results and our ability to
fund other parts of our business.

We may not be successful in establishing additional strategic alliances, which could adversely affect our ability to develop and commercialize products.

An important element of our business strategy is entering into strategic alliances for the development and commercialization of selected products. In some
instances, if we are unsuccessful in reaching an agreement with a suitable collaborator, we may fail to meet all of our business objectives for the applicable product or program. We face significant
competition in seeking appropriate collaborators. Moreover, these alliance arrangements are complex to negotiate and time-consuming to document. We may not be successful in our efforts to
establish additional strategic alliances or other alternative arrangements. The terms of any additional strategic alliances or other arrangements that we establish may not be favorable to us.
Moreover, such strategic alliances or other arrangements may not be successful.

Risks Relating to Intellectual Property

If we are unable to obtain patent protection for our discoveries, the value of our technology and products will be adversely affected. If we infringe
patent or other intellectual property rights of third parties, we may not be able to develop and commercialize our products or the cost of doing so may increase.

Our patent positions, and those of other pharmaceutical and biotechnology companies, are generally uncertain and involve complex legal, scientific and factual
questions. Our ability to develop and commercialize products depends in significant part on our ability to:



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

The validity and permissible scope of patent claims in the pharmaceutical and biotechnology fields, including, for example, the genomics field, involve important
unresolved legal principles and are the subject of public policy debate in the United States and abroad. We have filed patent applications in the U.S. and abroad seeking patent protection on our
current products and our potential products and processes emanating from our research and development, and we have similarly obtained rights to various patents and patent applications from various
third parties under licensing arrangements. There is significant uncertainty both in the United States and abroad regarding the duration and enforceability of patent protection available for
pharmaceutical and biopharmaceutical products and processes, for example protection of full-length genes and partial gene sequences. The ultimate scope of patent protection to be afforded
such inventions will be dependent upon the decisions rendered by

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patent
offices, courts and legislators in the U.S. and abroad. Thus, there is no assurance that our pending patent applications, or those of third parties that we have licensed, will ultimately be
granted as patents or that those patents that have issued or will be issued in the future will withstand challenge in court or patent offices in the U.S. or abroad.

Third parties may own or control patents or patent applications and require us to seek licenses, which could increase our development and
commercialization costs, or prevent us from developing or marketing our products.

We may not have rights under some patents or patent applications related to some of our existing and proposed products or processes. Third parties may own or
control these patents and patent applications in the United States and abroad. Therefore, in some cases, such as those described below, in order to develop, manufacture, sell or import some of our
existing and proposed products or processes, we or our collaborators may choose to seek, or be required to seek, licenses under third party patents issued in the United States and abroad, or those
that might issue from United States and foreign patent applications. In such event, we would be required to pay license fees or royalties or both to the licensor. If licenses are not available to us
on acceptable terms, we or our collaborators may not be able to develop, manufacture, sell or import these products or processes.

Our
MLN0002 and MLN1202 product candidates are humanized monoclonal antibodies. We are aware of third party patents and patent applications that relate to humanized or modified
antibodies, products useful for making humanized or modified antibodies and processes for making and using recombinant antibodies.

With
respect to VELCADE, in June 2002, Ariad Pharmaceuticals, Inc., or Ariad sent to us and approximately 50 other parties 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 successfully sues us for infringement, we would require a license from Ariad in
order to manufacture and market VELCADE. In 2002, Ariad filed a lawsuit in the United States District Court for the District of Massachusetts against Eli Lilly and Company, 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 claims of the patent asserted in the lawsuit are valid and infringed by
Lilly. The jury 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 of Ariad against Lilly.
We expect that Lilly will challenge this judgment and the validity of the patent with the U.S. Court of Appeals. In July 2007, Lilly filed a motion to stay entry of the final judgment by the
court pending re-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
to reexamine the patentability of certain claims of Ariad's patent.

In
addition, we are aware that Amgen Inc. has filed a declaratory relief action seeking an invalidity ruling with respect to this patent. However, Ariad's initial success in its
claim against Lilly may increase the possibility that Ariad could sue additional parties, including us, and allege infringement of the patent.

The
timing and ultimate outcome of the Lilly and Amgen litigations and the patent reexamination proceeding cannot be determined at this time. As a result, we cannot determine whether or
when a final determination as to allowance or rejection of the patent claims will be made or the 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 Ariad will seek to enforce the patent against other companies, including our company.

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

There has been substantial litigation and other proceedings regarding the patent and other intellectual property rights in the pharmaceutical and biotechnology
industries. We may become a party to patent litigation or other proceedings regarding intellectual property rights. For example, we believe that we hold patent applications that cover genes that are
also claimed in patent applications filed by others. Interference proceedings before the United States Patent and Trademark Office may be necessary to establish which party was the first to invent
these genes. In addition, from time to time, we receive unsolicited letters purporting to advise us of the alleged relevance of third party patents.

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

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

Our patent protection for any compounds that we seek to develop 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 another indication, we could be subject to competition arising from off-label use.

Although we generally seek the broadest patent protection available for our proprietary compounds, we may not be able to obtain patent protection for the actual
composition of any particular compound and may be limited to protecting a new method of use for the compound or otherwise restricted in our ability to prevent others from exploiting the compound. If
we are unable to obtain patent protection for the actual composition of any compound that we seek to develop and commercialize and must rely on method of use patent coverage, we would likely be unable
to prevent others from manufacturing or marketing that compound for any use that is not protected by our patent rights. If a third party were to receive marketing approval for the compound for another
use, physicians could nevertheless prescribe it for indications that are not described in the product's labeling or approved by the FDA or other regulatory authorities. Even if we have patent
protection of the prescribed indication, as a practical matter, we would have little recourse as a result of this off-label use. In that event, our revenues from the commercialization of
the compound would likely be adversely affected.

If we fail to comply with our obligations in our intellectual property licenses with third parties, we could lose license rights that are important to
our business.

We are a party to various license agreements. In particular, we license rights to patents for the formulation of VELCADE and issued patents relating to MLN0518
and MLN1202. We may enter into additional licenses in the future. Our existing licenses impose, and we expect future licenses will impose, various diligence, milestone payment, royalty, insurance and
other obligations on us. If we fail to comply with these obligations, the licensor may have the right to terminate the license, in which event we might not be able to market any product that is
covered by the licensed patents.

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Competition from generic pharmaceutical manufacturers could negatively impact our products sales.

Competition from manufacturers of generic drugs is a major challenge for us in the U.S. and is growing internationally. Upon the expiration 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 could lose the major portion of sales of that product in a very short period, which could adversely affect our business.

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

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

Risks Relating to Product Manufacturing, Marketing and Sales

We depend on third parties to successfully perform certain sales, marketing and distribution functions on our behalf and we may be required to incur
significant costs and devote significant efforts to augment our existing capabilities.

We market and sell VELCADE in the United States through our cancer-specific sales force. In the first quarter of 2007, we began jointly promoting VELCADE in the
United States with OBI. Our success in selling VELCADE will depend heavily on the performance of these sales forces. In areas outside the United States where VELCADE has received approval, OBL or its
affiliates market VELCADE. As a result, our ability to earn revenue related to VELCADE outside of the United States will depend heavily on OBL.

SGP
exclusively markets INTEGRILIN in areas outside of Europe, including the United States, and GSK exclusively markets INTEGRILIN in Europe. As a result, except for our minimum royalty
payments from SGP in 2007, our success in receiving royalties and milestone payments from sales of INTEGRILIN depends entirely on the marketing efforts of these third parties.

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

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Because we have no commercial manufacturing capabilities, we will continue to be dependent on third party manufacturers to manufacture products for us,
or we will be required to incur significant costs and devote significant efforts to 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 and commercialize products, we
will need to develop, contract for or otherwise arrange for the necessary manufacturing capabilities.

We
currently rely substantially upon third parties to produce material for preclinical testing purposes and expect to continue to do so in the future. We also currently rely, and expect
to continue to rely, upon other third parties, potentially including our collaborators, to produce materials required for clinical trials and for the commercial production of our products.

There
are a limited number of contract manufacturers that operate under the FDA's current Good Manufacturing Practices, or GMP, regulations capable of manufacturing our products. In
addition, the FDA will inspect our contract manufacturers prior to granting approval of a new drug application, and will conduct periodic, unannounced inspections to ensure strict ongoing compliance
with current GMPs and other applicable regulations. If we are unable to arrange for third party manufacturing of our products, or to do so on commercially reasonable terms, we may not be able to
complete development of our products or commercialize them, or we may experience delays in doing so.

Reliance
on third party manufacturers entails risks to which we would not be subject if we manufactured products ourselves, including reliance on the third party for regulatory
compliance, the possibility of breach of the manufacturing agreement by the third party because of factors beyond our control and the possibility of termination or non-renewal of the
agreement by the third party, based on its own business priorities, at a time that is costly or inconvenient for us. Any failure by our third party manufacturers to comply with applicable regulations,
including current GMP regulations, could result in sanctions being imposed on the manufacturers or us, including fines, injunctions, civil penalties, failure of regulatory authorities 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 could
significantly and adversely affect our business.

We
may in the future elect to manufacture some of our products in our own manufacturing facilities. We would need to invest substantial additional funds and recruit qualified personnel
in order to build or lease and operate any manufacturing facilities.

Because we have no commercial manufacturing capability for VELCADE and INTEGRILIN, we are dependent on third parties to produce product sufficient to
meet market demand.

We are responsible for managing the supply of material for all clinical and commercial production of VELCADE, including VELCADE that OBL sells or uses in clinical
trials, and INTEGRILIN, including INTEGRILIN that SGP and GSK sell or use in clinical trials.

We
rely on third party contract manufacturers to manufacture, fill/finish and package VELCADE for both commercial purposes and for all clinical trials. We have established
long-term supply relationships for the production of commercial supplies of VELCADE. We work with one manufacturer, with whom we have a long-term supply agreement, to complete
fill/finish for VELCADE, and have contracted with a second manufacturer who will provide fill/finish services for VELCADE in the future. If any of our current third party manufacturers performing
production and fill/finish for VELCADE 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 are otherwise
unable to contract with manufacturers to produce commercial supplies of VELCADE in a cost-effective manner, we could run out of VELCADE for commercial sale and clinical trials and our
business could be substantially harmed.

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We
have no manufacturing facilities for INTEGRILIN and, accordingly, rely on third party contract manufacturers for the clinical and commercial production of INTEGRILIN. We have three
approved manufacturers, two of which currently provide us with eptifibatide, the active ingredient necessary to make INTEGRILIN. Solvay, one of the current manufacturers, owns the process technology
used by it for the production of eptifibatide. We expect to cease receiving eptifibatide from Solvay in 2008. Thereafter, Lonza will be our sole source manufacturer of eptifibatide, and we own the
process technology utilized by it. We have two approved manufacturers that currently perform fill/finish services for INTEGRILIN and two packaging suppliers for the United States. If our current
manufacturers are unable to continue or decide to discontinue their manufacturing, fill/finish or packaging services and we are unable to secure alternative manufacturers, the supply of INTEGRILIN
could be adversely affected which could substantially harm our business.

In
2006, Solvay raised concerns that the new Millennium process may have been developed using information asserted to be confidential and proprietary to Solvay. We subsequently met with
Solvay to demonstrate why we believe no such information was used to develop our new process. If Solvay nevertheless brings a successful claim relating to these concerns and prevails, our ability to
practice our new process could be negatively impacted, which could adversely affect our ability to obtain INTEGRILIN from suppliers using the new process or the cost of manufacturing eptifibatide and
could in turn negatively impact our business.

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

The availability and levels of reimbursement by governmental and other third party payors affect the market for any pharmaceutical product or health care service.
These third party payors continually attempt to contain or reduce the costs of health care by challenging the prices charged for medical products and services. In some foreign countries, particularly
the countries of the European Union, the pricing of prescription pharmaceuticals is subject to governmental control. We may not be able to sell our products as successfully or as profitably as we
expect if we are required to sell our products at lower than anticipated prices, reimbursement is unavailable or limited in scope or amount or product price increases we implement result in reduced
demand or government challenges.

In
particular, third party payors could lower the amount that they will reimburse hospitals or doctors to treat the conditions for which the FDA has approved VELCADE or INTEGRILIN. If
they do, pricing levels or sales volumes of VELCADE or INTEGRILIN may decrease. In addition, if we fail to comply with the rules applicable to the Medicaid and Medicare programs, we could be subject
to the imposition of civil or criminal penalties or exclusion from these programs.

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

In
both the United States, on federal and state levels, and foreign jurisdictions, there have been a number of legislative and regulatory proposals to change the health care system. For
example, the Medicare Prescription Drug and Modernization Act of 2003 and its implementing regulations impose new requirements for the distribution and pricing of prescription drugs which may affect
the marketing of our products. These new requirements have created uncertainty among oncologists and could impact sales levels of VELCADE as oncologists adapt to the new reimbursement model. Further
proposals are also likely. The current uncertainty and the potential for adoption of additional proposals could affect the timing of product revenue, our ability to raise capital, obtain additional
collaborators and market our products.

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In
addition, we believe that the increasing emphasis on managed care in the United States has and will continue to put pressure on the price and usage of our present and future products,
which may adversely affect product sales. Further, when a new therapeutic product is approved, the availability of governmental or private reimbursement for that product is uncertain, as is the amount
for which that
product will be reimbursed. We cannot predict the availability or amount of reimbursement for our product candidates, and current reimbursement policies for VELCADE or INTEGRILIN could change at any
time.

We face a risk of product liability claims and may not be able to obtain insurance.

Our business exposes us to the risk of product liability claims that is inherent in the manufacturing, testing and marketing of human therapeutic products. In
particular, VELCADE and INTEGRILIN are administered to patients with serious diseases who have a high incidence of mortality. Although we have product liability insurance that we believe is
appropriate, this insurance is subject to deductibles, co-insurance requirements and coverage limitations and the market for such insurance is becoming more restrictive. We may not be able
to obtain or maintain adequate protection against potential liabilities. If we are unable to obtain insurance at acceptable cost or otherwise protect against potential product liability claims, we
will be exposed to significant liabilities, which may materially and adversely affect our business and financial position. These liabilities could prevent or interfere with our product
commercialization efforts.

We face a risk of government enforcement actions in connection with marketing activities.

Because we are a company operating in a highly regulated industry, for many reasons, regulatory authorities could take enforcement action against us including
seizure of allegedly misbranded product, cessation of promotional activities, injunction or criminal prosecution against us and our officers or employees.

For
example, we face the potential of FDA enforcement action for allegations of off-label promotion of VELCADE. Some physicians prescribe VELCADE for uses not approved by the
FDA or comparable regulatory agencies outside the United States. For example, VELCADE is not approved for front-line treatment of multiple myeloma. However, we are aware that the oncology
physician community is using VELCADE for this purpose. Although physicians may lawfully prescribe VELCADE for off-label uses, any promotion by us of off-label uses would be
unlawful. Although we have policies and procedures in place designed to help assure ongoing compliance with regulatory requirements regarding off-label promotion, regulatory authorities
could take enforcement action against us if they believe we are promoting, or have promoted, VELCADE for off-label use.

Additionally,
the Department of Justice can bring civil or criminal actions against companies that promote drugs for unapproved uses, based on the False Claims Act and other federal laws
governing reimbursement for such products under the Medicare, Medicaid and other federally supported healthcare programs. Monetary penalties in such cases have often been in excess of
$100 million. Civil
penalties can include costly mandatory compliance programs and exclusion from federal healthcare programs.

Guidelines and recommendations can affect the use of our products.

Government agencies promulgate regulations and guidelines directly applicable to us and to our products. In addition, professional societies, practice management
groups, private health and science foundations and organizations involved in various diseases from time to time may also publish guidelines or recommendations to the health care and patient
communities. Recommendations of government agencies or these other groups or organizations may relate to such matters as usage, dosage, route of administration and use of concomitant therapies.
Recommendations or guidelines

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suggesting
the reduced use of our products or the use of competitive or alternative products that are followed by patients and health care providers could result in decreased use of our products.

Risks Relating to Holding Our Common Stock

The trading price of our common stock could be subject to significant fluctuations.

The trading price of our common stock has been quite volatile, and may be volatile in the future. During the nine months ended September 30, 2007, our
common stock traded as high as $12.29 per share and as low as $9.49 per share. During 2006, our common stock traded as high as $12.08 per share and as low as $7.83 per share. Factors such as
announcements of our or our competitors' operating results, data from our or our competitors' clinical trial results, changes in our prospects, market conditions for biopharmaceutical stocks in
general and analyst recommendations or commentary concerning our or our competitors' products or business could have a significant impact on the future trading prices of our common stock.

In
particular, the trading price of the common stock of many biopharmaceutical companies, including ours, has experienced extreme price and volume fluctuations, which have at times been
unrelated to the
operating performance of such companies whose stocks were affected. Some of the factors that may cause volatility in the price of our securities include:



The
price of our common stock may also be affected by the estimates and projections of the investment community and our ability to meet or exceed the financial projections we provide to
the public. The
price may also be affected by general economic and market conditions, and the cost of operations in our product markets. While we cannot predict the individual effect that these factors may have on
the price of our securities, these factors, either individually or in the aggregate, could result in significant variations in price during any given period of time. We can not assure you that these
factors will not have an adverse effect on the trading price of our common stock.

We have anti-takeover defenses that could delay or prevent an acquisition and could adversely affect the price of our common stock.

Provisions of our certificate of incorporation and bylaws and of Delaware law could have the effect of delaying, deferring or preventing an acquisition of our
company. For example, we may issue shares of our authorized "blank check" preferred stock and our stockholders are limited in their ability to call special stockholder meetings. In addition, we have
issued preferred stock purchase rights that would adversely affect the economic and voting interests of a person or group that seeks to acquire us or a 15% or greater interest in our common stock
without negotiations with our board of directors.

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Item 3.    Quantitative and Qualitative Disclosures About Market Risk

We manage our fixed income investment portfolio in accordance with our Policy for Securities Investments, or Investment Policy, that has been approved by our
Board of Directors. The primary objectives of our Investment Policy are to preserve principal, maintain a high degree of liquidity to meet operating needs, and obtain competitive returns subject to
prevailing market conditions. Investments are made primarily in investment-grade corporate bonds with effective maturities of three years or less, asset-backed debt securities and U.S. government
agency debt securities. These investments are subject to risk of default, changes in credit rating and changes in market value. These investments are also subject to interest rate risk and will
decrease in value if market interest rates increase. A hypothetical 100 basis point increase in interest rates would result in an approximate $12.8 million decrease in the fair value of our
investments as of September 30, 2007. However, due to the conservative nature of our investments and relatively short effective maturities of debt instruments, interest rate risk is mitigated.
Our Investment Policy specifies credit quality standards for our investments and limits the amount of exposure from any single issue, issuer or type of investment. We do not own derivative financial
instruments in our investment portfolio as of September 30, 2007.

We
receive distribution fees from OBL based on worldwide product sales of VELCADE outside of the U.S. As a result, our financial position, results of operations and cash flows can be
affected by fluctuations in foreign currency exchange rates, primarily EURO. Movement in foreign currency exchange rates could cause royalty revenue to vary significantly in future reporting periods.

As
of September 30, 2007, the fair value of our 2.25% notes approximates their carrying value. The interest rates on our convertible notes and capital lease obligations are fixed
and therefore not subject to interest rate risk.

As
of September 30, 2007 we did not have any financing arrangements that were not reflected in our balance sheet.

Item 4.    Controls and Procedures

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2007. In designing and evaluating our disclosure controls and
procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and our management
necessarily applied its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on this evaluation, our chief executive officer and chief financial
officer concluded that as of September 30, 2007, our disclosure controls and procedures were (1) designed to ensure that material information relating to us is made known to our chief
executive officer and chief financial officer by others, particularly during the period in which this report was prepared and (2) effective, in that they provide reasonable assurance that
information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules
and forms.

No
change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal
quarter ended September 30, 2007 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II OTHER INFORMATION

Item 6.    Exhibits

The
exhibits listed in the Exhibit Index are included in this report.

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SIGNATURES

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

|                        | MILLENNIUM PHARMACEUTICALS, INC.
(Registrant)                                                                                              
|----------------------- | -------------------------------------------------------------------------------------------------------------------------------------------
|Dated: November 9, 2007 | /s/ MARSHA H. FANUCCIMarsha H. Fanucci Senior Vice President and Chief Financial Officer
(principal financial and chief accounting officer)

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Exhibit Index

|Exhibit No. |  | Description                                                                                                                         
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------
|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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