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**UNITED STATESSECURITIES AND EXCHANGE COMMISSION****Washington, DC 20549**

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**FORM 10-Q**

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**(Mark One)**

| **|X|  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE**                                                                                                                                                                                                                    |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                                                                                                                                      |
| **For the quarterly period ended June 30, 2007**                                                                                                                                                                                                                                         |
| **OR**                                                                                                                                                                                                                                                                                   |
| **|_|  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE**                                                                                                                                                                                                                   |
| **SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                                                                                                                                      |
| **For the transition period from                      to                     .** |
|                                                                                                                                                                                                                                                                                          |
| **Commission file number 0-28494**                                                                                                                                                                                                                                                       |
| **MILLENNIUM PHARMACEUTICALS, INC.**                                                                                                                                                                                                                                                     |
| (Exact name of registrant as specified in its charter)                                                                                                                                                                                                                                   |

| **Delaware**                                                  |   | **04-3177038**                                |
|---------------------------------------------------------------|--------|-----------------------------------------------|
| (State or other jurisdictionof incorporation or organization) |   | (I.R.S. EmployerIdentification No.) |

**40 Landsdowne Street, Cambridge, Massachusetts 02139**(Address of principal executive offices) (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 |X| No |_|

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

| Large accelerated filer  |X| | Accelerated filer  |_| | 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 |_| No |X|

Number of shares of the registrant's Common Stock, $0.001 par value, outstanding on August 3, 2007: 322,104,542

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**MILLENNIUM PHARMACEUTICALS, INC.**

**FORM 10-Q**

**FOR THE QUARTER ENDED JUNE 30, 2007**

**TABLE OF CONTENTS**

|             |                                                                                                     | Page                       |   |
|------------------|----------------------------------------------------------------------------------------------------------|----------------------------|--------|
| **PART I**  | **FINANCIAL INFORMATION**                                                                                |                       |   |
|             |                                                                                                     |                       |   |
| Item 1.          | Condensed Consolidated Financial Statements                                                              | 3      |   |
|             |                                                                                                     |                       |   |
|             | Condensed Consolidated Balance Sheets as ofJune 30, 2007 and December 31, 2006                           | 3      |   |
|             |                                                                                                     |                       |   |
|             | Condensed Consolidated Statements of Operations for thethree and six months ended June 30, 2007 and 2006 | 4      |   |
|             |                                                                                                     |                       |   |
|             | Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2007 and 2006          | 5      |   |
|             |                                                                                                     |                       |   |
|             | Notes to Condensed Consolidated Financial Statements                                                     | 6      |   |
|             |                                                                                                     |                       |   |
| Item 2.          | Management's Discussion and Analysis of FinancialCondition and Results of Operations                     | 16     |   |
|             |                                                                                                     |                       |   |
|             | Risk Factors That May Affect Results                                                                     | 29     |   |
|             |                                                                                                     |                       |   |
| Item 3.          | Quantitative and Qualitative Disclosures About Market Risk                                               | 43     |   |
|             |                                                                                                     |                       |   |
| Item 4.          | Controls and Procedures                                                                                  | 43     |   |
|             |                                                                                                     |                       |   |
| **PART II** | **OTHER INFORMATION**                                                                                    |                       |   |
|             |                                                                                                     |                       |   |
| Item 4.          | Submission of Matters to a Vote of Security Holders                                                      | 44     |   |
|             |                                                                                                     |                       |   |
| Item 6.          | Exhibits                                                                                                 | 45     |   |
|             |                                                                                                     |                       |   |
|             | Signatures                                                                                               | 46     |   |
|             |                                                                                                     |                       |   |
|             | Exhibit Index                                                                                            | 47     |   |
|             |                                                                                                     |                       |   |

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

2

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**PART I     FINANCIAL INFORMATION**

**Item 1.    Condensed Consolidated Financial Statements**

**Millennium Pharmaceuticals, Inc.Condensed Consolidated Balance Sheets**

|                                                                                                                                                                                                     | June 30, 2007 |   | December 31, 2006 |       |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------|--------|-------------------|------------|
||
||
||
| Current assets:                                                                                                                                                                                          |          |   |              |       |   |   |   |   |
| Cash and cash equivalents                                                                                                                                                                                |          |   | $                 | 103,412    |   | $ | 212,273 |   |
| Marketable securities                                                                                                                                                                                    |          |   |              | 740,952    |   |   | 682,076 |   |
| Accounts receivable, net of allowances of $519 in 2007 and $521 in     2006                                                                                                          |          |   |              | 59,012     |   |   | 94,516 |   |
| Inventory                                                                                                                                                                                                |          |   |              | 9,272      |   |   | 13,598 |   |
| Prepaid expenses and other current assets                                                                                                                                                                |          |   |              | 11,227     |   |   | 13,191 |   |
|                                                                                                                                                                                                     |          |   |                   |            |   |  |  |   |
|     Total current assets                                                                                                                                                             |          |   |              | 923,875    |   |   | 1,015,654 |   |
| Property and equipment, net                                                                                                                                                                              |          |   |              | 145,417    |   |   | 153,349 |   |
| Restricted cash                                                                                                                                                                                          |          |   |              | 7,662      |   |   | 7,600 |   |
| Other assets                                                                                                                                                                                             |          |   |              | 30,230     |   |   | 27,900 |   |
| Goodwill                                                                                                                                                                                                 |          |   |              | 1,215,557  |   |   | 1,213,910 |   |
| Developed technology, net                                                                                                                                                                                |          |   |              | 255,146    |   |   | 271,876 |   |
| Intangible assets, net                                                                                                                                                                                   |          |   |              | 61,279     |   |   | 61,523 |   |
|                                                                                                                                                                                                     |          |   |                   |            |   |  |  |   |
|     Total assets                                                                                                                                                                     |          |   | $                 | 2,639,166  |   | $ | 2,751,812 |   |
|                                                                                                                                                                                                     |          |   |                   |            |   |  |  |   |
|                                                                                                                                                                                                     |          |   |              |       |   |   |   |   |
| **Liabilities and Stockholders' Equity**                                                                                                                                                                 |          |   |              |       |   |   |   |   |
| Current liabilities:                                                                                                                                                                                     |          |   |              |       |   |   |   |   |
| Accounts payable                                                                                                                                                                                         |          |   | $                 | 20,731     |   | $ | 26,301 |   |
| Accrued expenses                                                                                                                                                                                         |          |   |              | 57,339     |   |   | 62,544 |   |
| Current portion of restructuring                                                                                                                                                                         |          |   |              | 24,585     |   |   | 25,540 |   |
| Current portion of deferred revenue                                                                                                                                                                      |          |   |              | 7,431      |   |   | 10,378 |   |
| Current portion of capital lease obligations                                                                                                                                                             |          |   |              | 1,215      |   |   | 1,185 |   |
| Current portion of long-term debt                                                                                                                                                                        |          |   |              | —     |   |   | 99,571 |   |
|                                                                                                                                                                                                     |          |   |                   |            |   |  |  |   |
|     Total current liabilities                                                                                                                                                        |          |   |              | 111,301    |   |   | 225,519 |   |
| Other long-term liabilities                                                                                                                                                                              |          |   |              | 856        |   |   | 757 |   |
| Restructuring, net of current portion                                                                                                                                                                    |          |   |              | 36,997     |   |   | 41,974 |   |
| Deferred revenue, net of current portion                                                                                                                                                                 |          |   |              | 14,328     |   |   | 13,344 |   |
| Capital lease obligations, net of current portion                                                                                                                                                        |          |   |              | 74,426     |   |   | 75,041 |   |
| Long-term debt                                                                                                                                                                                           |          |   |              | 250,000    |   |   | 250,000 |   |
|                                                                                                                                                                                                     |          |   |              |       |
| Commitments and contingencies                                                                                                                                                                            |          |   |              |       |   |   |   |   |
|                                                                                                                                                                                                     |          |   |              |       |
| **Stockholders' equity:**                                                                                                                                                                                |          |   |              |       |   |   |   |   |
| Preferred Stock, $0.001 par value; 5,000 shares authorized,     none issued                                                                                                          |          |   |              | —     |   |   | — |   |
| Common Stock, $0.001 par value; 500,000 shares authorized:    321,893 shares at June 30, 2007 and 317,342 shares at     December 31, 2006 issued and outstanding |          |   |              | 322        |   |   | 317 |   |
| Additional paid-in capital                                                                                                                                                                               |          |   |              | 4,691,460  |   |   | 4,657,177 |   |
| Accumulated other comprehensive loss                                                                                                                                                                     |          |   |              | (5,074     | ) |   | (1,326 | ) |
| Accumulated deficit                                                                                                                                                                                      |          |   |              | (2,535,450 | ) |   | (2,510,991 | ) |
|                                                                                                                                                                                                     |          |   |                   |            |   |  |  |   |
|     Total stockholders' equity                                                                                                                                                       |          |   |              | 2,151,258  |   |   | 2,145,177 |   |
|                                                                                                                                                                                                     |          |   |                   |            |   |  |  |   |
|     Total liabilities and stockholders' equity                                                                                                                                       |          |   | $                 | 2,639,166  |   | $ | 2,751,812 |   |
|                                                                                                                                                                                                     |          |   |                   |            |   |  |  |   |

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

3

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

|                                                                                                                            | Three Months Ended June 30, |   | Six Months Ended June 30, |    |
|---------------------------------------------------------------------------------------------------------------------------------|----------------------------------|--------|--------------------------------|---------|
||
||
| Revenues:                                                                                                                       |                             |   |                           |    |   |   |   |   |   |   |   |   |   |   |   |   |
|     Net product sales                                                                                       |                             |   | $                              | 62,550  |   | $ | 58,786 |   |   |   | $ | 121,190 |   | $ | 112,159 |   |
|     Revenue under strategic alliances                                                                       |                             |   |                           | 11,826  |   |   | 27,165 |   |   |   |   | 27,540 |   |   | 65,794 |   |
|     Royalties                                                                                               |                             |   |                           | 38,903  |   |   | 34,172 |   |   |   |   | 75,273 |   |   | 64,645 |   |
|                                                                                                                            |                             |   |                                |         |   |  |  |   |   |   |  |  |   |  |  |   |
|         Total revenues                                                                  |                             |   |                           | 113,279 |   |   | 120,123 |   |   |   |   | 224,003 |   |   | 242,598 |   |
|                                                                                                                            |                             |   |                                |         |   |  |  |   |   |   |  |  |   |  |  |   |
| Costs and expenses:                                                                                                             |                             |   |                           |    |   |   |   |   |   |   |   |   |   |   |   |   |
|     Cost of sales (excludes amortization of       acquired intangible assets) |                             |   |                           | 5,379   |   |   | 14,102 |   |   |   |   | 10,737 |   |   | 29,930 |   |
|     Research and development (Note 1)                                                                       |                             |   |                           | 73,382  |   |   | 79,309 |   |   |   |   | 144,611 |   |   | 161,907 |   |
|     Selling, general and administrative (Note 1)                                                            |                             |   |                           | 47,032  |   |   | 37,391 |   |   |   |   | 86,557 |   |   | 72,856 |   |
|     Restructuring                                                                                           |                             |   |                           | 5,772   |   |   | 1,554 |   |   |   |   | 11,383 |   |   | 4,385 |   |
|     Amortization of intangibles                                                                             |                             |   |                           | 8,487   |   |   | 8,487 |   |   |   |   | 16,974 |   |   | 16,974 |   |
|                                                                                                                            |                             |   |                                |         |   |  |  |   |   |   |  |  |   |  |  |   |
|         Total costs and expenses                                                        |                             |   |                           | 140,052 |   |   | 140,843 |   |   |   |   | 270,262 |   |   | 286,052 |   |
|                                                                                                                            |                             |   |                                |         |   |  |  |   |   |   |  |  |   |  |  |   |
| Loss from operations                                                                                                            |                             |   |                           | (26,773 | ) |   | (20,720 | ) |   |   |   | (46,259 | ) |   | (43,454 | ) |
|                                                                                                                            |                             |   |                           |    |   |   |   |   |   |   |   |   |   |   |   |   |
| Other income (expense):                                                                                                         |                             |   |                           |    |   |   |   |   |   |   |   |   |   |   |   |   |
|     Investment income, net                                                                                  |                             |   |                           | 11,567  |   |   | 5,777 |   |   |   |   | 27,062 |   |   | 10,402 |   |
|     Interest expense                                                                                        |                             |   |                           | (2,475  | ) |   | (2,724 | ) |   |   |   | (5,262 | ) |   | (5,456 | ) |
|                                                                                                                            |                             |   |                                |         |   |  |  |   |   |   |  |  |   |  |  |   |
| Net loss                                                                                                                        |                             |   | $                              | (17,681 | ) | $ | (17,667 | ) |   |   | $ | (24,459 | ) | $ | (38,508 | ) |
|                                                                                                                            |                             |   |                                |         |   |  |  |   |   |   |  |  |   |  |  |   |
| *Amounts per common share:*                                                                                                     |                             |   |                           |    |   |   |   |   |   |   |   |   |   |   |   |   |
| Net loss per share, basic and diluted                                                                                           |                             |   | $                              | (0.06   | ) | $ | (0.06 | ) |   |   | $ | (0.08 | ) | $ | (0.12 | ) |
|                                                                                                                            |                             |   |                                |         |   |  |  |   |   |   |  |  |   |  |  |   |
| Weighted average shares, basic and diluted                                                                                      |                             |   |                           | 317,799 |   |   | 313,321 |   |   |   |   | 316,940 |   |   | 312,575 |   |
|                                                                                                                            |                             |   |                                |         |   |  |  |   |   |   |  |  |   |  |  |   |

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

|                                | Three Months Ended June 30, |   | Six Months Ended June 30, |   |
|-------------------------------------|-----------------------------|--------|---------------------------|--------|
||
|                                |                        |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Research and development            |                        | $      | 3,090                     |   | $ | 5,998 |   |   | $ | 5,145 |   | $ | 12,332 |   |
| Selling, general and administrative |                        |   | 3,609                     |   |   | 5,483 |   |   |   | 6,956 |   |   | 9,649 |   |
|                                |                        |   |                      |   |   |   |   |   |   |

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)**

|                                                                                             | Six Months Ended June 30, |   |
|--------------------------------------------------------------------------------------------------|--------------------------------|--------|
||
||
| **Cash Flows from Operating Activities:**                                                        |                           |   |   |   |   |   |   |   |
| Net loss                                                                                         |                           |   | $ | (24,459 | ) | $ | (38,508 | ) |
| Adjustments to reconcile net loss to cash provided by (used in) operating activities:            |                           |   |   |   |   |   |   |   |
|     Depreciation and amortization                                            |                           |   |   | 30,529 |   |   | 33,252 |   |
|     Restructuring charges, net                                               |                           |   |   | — |   |   | 4,368 |   |
|     Amortization of deferred financing costs                                 |                           |   |   | 857 |  |   | 218 |   |
|     Realized (gain) loss on marketable securities and other investments, net |                           |   |   | (5,850 | ) |   | 3,078 |   |
|     401K stock match                                                         |                           |   |   | 2,800 |   |   | 2,838 |   |
|     Stock-based compensation expense                                         |                           |   |   | 12,101 |   |   | 21,981 |   |
| Changes in operating assets and liabilities:                                                     |                           |   |   |   |   |   |   |   |
|     Accounts receivable                                                      |                           |   |   | 35,504 |   |   | (4,671 | ) |
|     Inventory                                                                |                           |   |   | 4,326 |   |   | 2,201 |   |
|     Prepaid expenses and other current assets                                |                           |   |   | 1,964 |   |   | 3,834 |   |
|     Restricted cash and other assets                                         |                           |   |   | (2,527 | ) |   | (1,620 | ) |
|     Accounts payable and accrued expenses                                    |                           |   |   | (16,733 | ) |   | (36,954 | ) |
|     Deferred revenue                                                         |                           |   |   | (1,963 | ) |   | (11,931 | ) |
|     Other long-term liabilities                                              |                           |   |   | 99 |   |   | 668 |   |
|                                                                                             |                           |   |  |  |   |  |  |   |
| Net cash provided by (used in) operating activities                                              |                           |   |   | 36,648 |   |   | (21,246 | ) |
|                                                                                             |                           |   |  |  |   |  |  |   |
|                                                                                             |                           |   |   |   |   |   |   |   |
| **Cash Flows from Investing Activities:**                                                        |                           |   |   |   |   |   |   |   |
| Investments in marketable securities                                                             |                           |   |   | (300,264 | ) |   | (179,640 | ) |
| Proceeds from sales and maturities of marketable securities                                      |                           |   |   | 239,244 |   |   | 206,428 |   |
| Purchases of property and equipment                                                              |                           |   |   | (5,826 | ) |   | (5,552 | ) |
| Other investing activities                                                                       |                           |   |   | 2,097 |   |   | (1,379 | ) |
|                                                                                             |                           |   |  |  |   |  |  |   |
| Net cash provided by (used in) investing activities                                              |                           |   |   | (64,749 | ) |   | 19,857 |   |
|                                                                                             |                           |   |  |  |   |  |  |   |
|                                                                                             |                           |   |   |   |   |   |   |   |
| **Cash Flows from Financing Activities:**                                                        |                           |   |   |   |   |   |   |   |
| Net proceeds from employee stock purchases                                                       |                           |   |   | 19,389 |   |   | 15,966 |   |
| Repayment of principal of long-term debt obligations                                             |                           |   |   | (99,571 | ) |   | (5,890 | ) |
| Principal payments on capital leases                                                             |                           |   |   | (585 | ) |   | (3,275 | ) |
|                                                                                             |                           |   |  |  |   |  |  |   |
| Net cash provided by (used in) financing activities                                              |                           |   |   | (80,767 | ) |   | 6,801 |   |
|                                                                                             |                           |   |  |  |   |  |  |   |
|                                                                                             |                           |   |   |   |   |   |   |   |
| Increase (decrease) in cash and cash equivalents                                                 |                           |   |   | (108,868 | ) |   | 5,412 |   |
| Effects of exchange rate changes on cash and cash equivalents                                    |                           |   |   | 7 |   |   | 20 |   |
| Cash and cash equivalents, beginning of period                                                   |                           |   |   | 212,273 |   |   | 5,029 |   |
|                                                                                             |                           |   |  |  |   |  |  |   |
| Cash and cash equivalents, end of period                                                         |                           |   | $ | 103,412 |   | $ | 10,461 |   |
|                                                                                             |                           |   |  |  |   |  |  |   |
|                                                                                             |                           |   |   |   |   |   |   |   |
| **Supplemental Cash Flow Information:**                                                          |                           |   |   |   |   |   |   |   |
| Cash paid for interest                                                                           |                           |   | $ | 6,757 |   | $ | 5,165 |   |
|                                                                                             |                           |   |  |  |   |  |  |   |
| **Supplemental Disclosure of Noncash Investing Activities:**                                     |                           |   |   |   |   |   |   |   |
| Receipt of shares of SGX Pharmaceuticals, Inc. common stock in exchange for note receivable      |                           |   | $ | — |   | $ | 6,000 |   |
|                                                                                             |                           |   |  |  |   |  |  |   |

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

5

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MillenniumPharmaceuticals, Inc.Notes to Condensed Consolidated Financial Statements

1.   Basis ofPresentation 

        Theaccompanying condensed consolidated financial statements have been prepared in accordancewith generally accepted accounting principles for interim financial information and withthe 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 acceptedaccounting principles for complete financial statements. In the opinion of management, alladjustments, consisting of normal recurring accruals and revisions of estimates,considered necessary for a fair presentation of the accompanying condensed consolidatedfinancial statements have been included. Interim results for the three and six monthsended June 30, 2007 are not necessarily indicative of the results that may be expected forthe year ending December 31, 2007. For further information, refer to the consolidatedfinancial statements and accompanying footnotes included in the Company’s AnnualReport on Form 10-K for the year ended December 31, 2006, which was filedwith the Securities and Exchange Commission (“SEC”) on March 1, 2007. 

        Theinformation presented in the condensed consolidated financial statements and relatedfootnotes at June 30, 2007, and for the three and six months ended June 30, 2007 and 2006,is unaudited and the condensed consolidated balance sheet amounts and related footnotes atDecember 31, 2006, have been derived from audited financial statements. 

2.   Summaryof Significant Accounting Policies 

Reclassifications 

        Certainprior year amounts of the condensed consolidated statements of cash flows related toequity adjustments from foreign currency translation have been reclassified to conform tothe current year presentation. 

        Certainprior year amounts previously included in work in process in the notes to the condensed consolidatedfinancial statements related to inventory have been reclassified to raw materials toconform to the current year presentation. This reclassification has no impact onpreviously reported net loss or inventory in any period presented. 

Cash Equivalents,Marketable Securities and Other Investments 

        Cashequivalents principally consist of money market funds and corporate bonds with maturitiesof three months or less at the date of purchase. Marketable securities primarily consistof investment-grade corporate bonds, asset-backed debt securities and U.S. governmentagency debt securities. Other investments represent ownership in private companies inwhich the Company holds less than a 20 percent ownership position and does not otherwiseexercise significant influence. The Company carries such investments at cost unlesssignificant influence can be exercised over the investee, in which case such securitiesare recorded using the equity method. The Company monitors theseinvestments in private companies on a quarterly basis and determines whether anyimpairment in their value would require a charge to the statement of operations, based onthe implied value from any recent rounds of financing completed by the investee, marketprices of comparable public companies and general market conditions. These otherinvestments are included in other long-term assets at June 30, 2007 and December 31,2006. 

        Managementdetermines the appropriate classification of marketable securities at the time of purchaseand reevaluates such designation at each balance sheet date. Marketable securities at June30, 2007 and December 31, 2006 are classified as “available-for-sale.”Available-for-sale securities are carried at fair value, with the unrealized gains andlosses reported in a separate component of stockholders’ equity. The cost of debtsecurities in this category is adjusted for amortization of premiums and accretion ofdiscounts 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 onavailable-for-sale securities and other investments are included in investment income. Thecost of securities sold is based on the specific identification method. Interest anddividends on securities classified as available-for-sale are included in investmentincome. 

        Duringthe three and six months ended June 30, 2007, the Company recorded realized gains onmarketable securities and other investments of $1.8 million and $7.8 million, respectively,and recorded realized losses on marketable securities of $1.1 million and $1.9 million,respectively. During the three and six months ended June 30, 2006, the Company did notrecord significant realized gains on marketable securities and other investments andrecorded realized losses on marketable securities of $1.1 million and $3.1 million,respectively. 

6

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MillenniumPharmaceuticals, Inc.Notes to Condensed Consolidated Financial Statements (continued)

        Realizedgains on marketable securities for the six months ended June 30, 2007 included a realizedgain of approximately $3.5 million related to the sale of the Company’s investment inSGX Pharmaceuticals, Inc. and a realized gain of approximately $2.3 million relatedto the Company’s share of proceeds from a class action proceeding againstWorldCom, Inc.  During 2002, the Company recorded realized losses equal to thecarrying value of its investment in WorldCom, Inc., as the decline in value wasdetermined to be other-than-temporary at that time. 

Segment Information 

        Statementof Financial Accounting Standards (“SFAS”) No. 131, “Disclosures aboutSegments of an Enterprise and Related Information” (“SFAS No. 131”),establishes standards for the way that public business enterprises report informationabout operating segments in their financial statements. SFAS No. 131 also establishesstandards for related disclosures about products and services, geographic areas, and majorcustomers. 

        TheCompany operates in one business segment, which focuses on the research, development andcommercialization of therapeutic products. All of the Company’s product sales arecurrently related to sales of VELCADE® (bortezomib) for Injection.  The remainderof the Company’s total revenue is related to its strategic alliances and royalties. 

        Revenuesfrom Ortho Biotech Products, L.P. (“OBL”), a member of the Johnson &Johnson Family of Companies, accounted for approximately 18 percent and14 percent of consolidated revenues for the three months ended June 30, 2007 and2006, respectively, and 17 percent of consolidated revenues for each of the sixmonths ended June 30, 2007 and 2006. 

        Revenuesfrom Schering-Plough Ltd. and Schering Corporation (collectively “SGP”)accounted for approximately 21 percent and 30 percent of consolidated revenues for thethree months ended June 30, 2007 and 2006, respectively, and 23 percent and31 percent of consolidated revenues for the six months ended June 30, 2007 and 2006,respectively. 

        Therewere no other significant customers under strategic alliances and royalties in the threeand six months ended June 30, 2007 and 2006. 

Information ConcerningMarket and Source of Supply Concentration 

        INTEGRILIN®(eptifibatide) Injection has received regulatory approvals in the United States, thecountries 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 andlosses through August 31, 2005. In September 2005, SGP acquired the exclusivedevelopment and commercialization rights to INTEGRILIN in the United States from theCompany. The Company continues to manage the supply chain for INTEGRILIN at the expense ofSGP for products sold in the SGP territories. In the European Union, GlaxoSmithKline plc(“GSK”) exclusively markets INTEGRILIN. 

        TheCompany relies on third-party contract manufacturers for the clinical and commercialproduction of INTEGRILIN. The Company has three approved manufacturers that provideeptifibatide, the active pharmaceutical ingredient (“API”) necessary to makeINTEGRILIN, for both clinical trials and commercial supply. Solvay, S.A.(“Solvay”), one of the current manufacturers, owns the process technology usedby it and one other manufacturer for the production of the API. The Company entered intoan agreement with Solvay in January 2003 for an initial term of four years andone-year renewal periods thereafter. In June 2006, the Company received FDA approvalof its own alternative process technology utilized by the third manufacturer for theproduction of eptifibatide for approval in the United States and is currently seekingapproval in Europe and other countries, as required. As of July 1, 2006, SGP began topurchase the majority of its API directly from the manufacturer. The Company has twomanufacturers that currently perform fill/finish services for INTEGRILIN and two packagingsuppliers for the United States. The FDA or other regulatory agencies must approve theprocesses or the facilities that may be used for the manufacture of the Company’smarketed products. 

        TheCompany also relies on third-party contract manufacturers for the manufacturing,fill/finish and packaging of VELCADE for both commercial purposes and for ongoing clinicaltrials. The Company has established long-term supply relationships for the production ofcommercial supplies of VELCADE. The Company works with one manufacturer under a long-termsupply agreement to complete fill/finish for VELCADE. The Company is currently qualifyinga second fill/finish supplier in order to mitigate its risk of VELCADE supplyinterruption. 

7

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MillenniumPharmaceuticals, Inc.Notes to Condensed Consolidated Financial Statements (continued)

        The Company distributes VELCADE in the United States through a sole-sourceopen access distribution model where the Company sells directly to an independent thirdparty who in turn distributes to the wholesaler base. In April 2006, theCompany’s distributor added a second distribution site to its network in order toimprove access to the product for physicians in the western United States. 

Inventory 

        Inventoryconsists of currently marketed products, including VELCADE and INTEGRILIN. Inventories arestated at the lower of cost (first in, first out) or market. Inventories are reviewedperiodically for slow-moving or obsolete status based on sales activity, both projectedand historical. 

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

        Inventoryconsists of the following (in thousands): 

|            |   | **June 30, 2007** |   | **December 31, 2006** |
|-----------------|--------|-------------------|--------|-----------------------|
| Raw materials   |   | $                 | 4,223  |                  | $ | 6,770 |
| Work in process |   |              | 3,230  |                  |   | 6,424 |
| Finished goods  |   |              | 1,819  |                  |   | 404 |
|            |   |                   |   |                       |
|            |   | $                 | 9,272  |                  | $ | 13,598 |
|            |   |                   |   |                       |

Goodwill and IntangibleAssets

        Intangibleassets consist of the following (in thousands): 

|                                                                                                                | June 30, 2007 |   | December 31, 2006 |
|---------------------------------------------------------------------------------------------------------------------|---------------|--------|-------------------|
||
| Developed technology                                                                                                |          | $      | 435,000           |   | $ | (179,854 | ) |   |   |   | $ | 435,000 |   | $ | (163,124 | ) |
|                                                                                                                |          |        |              |  |   |  |   |  |   |  |   |
| Core technology                                                                                                     |          | $      | 18,712            |   | $ | (18,712 | ) |   |   |   | $ | 18,712 |   | $ | (18,712 | ) |
| Other                                                                                                               |          |   | 17,060            |   |   | (14,781 | ) |   |   |   |   | 17,060 |   |   | (14,537 | ) |
|                                                                                                                |          |        |              |  |   |   |   |  |   |  |   |
|     Total amortizable intangible assets, excluding     developed technology |          |   | 35,772            |   |   | (33,493 | ) |   |   |   |   | 35,772 |   |   | (33,249 | ) |
| Total indefinite-lived trademark                                                                                    |          |   | 59,000            |   |   | — |   |   |   |   |   | 59,000 |   |   | — |   |
|                                                                                                                |          |        |              |  |   |   |   |  |   |  |   |
| Total intangible assets, excluding developed technology                                                             |          | $      | 94,772            |   | $ | (33,493 | ) |   |   |   | $ | 94,772 |   | $ | (33,249 | ) |
|                                                                                                                |          |        |              |  |   |   |   |  |   |  |   |

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

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

        Amortizationexpense was approximately $8.5 million in each of the three months endedJune 30, 2007 and 2006 and approximately $17.0 million in each of the six monthsended June 30, 2007 and 2006.  The Company expects to incur amortization expenseof approximately $34.0 million for each of the next five years. 

        Asrequired by SFAS No. 142, “Goodwill and Other Intangible Assets,” goodwilland indefinite lived intangible assets are not amortized, but are reviewed annually forimpairment, or more frequently if impairment indicators arise. Separable intangible assetsthat are not deemed to have an indefinite life are amortized over their useful lives andreviewed for impairment when events or changes in circumstances suggest that the assetsmay not be recoverable. The Company tests for goodwill impairment annually, onOctober 1, and whenever events or changes in circumstances suggest that the carryingamount may not be recoverable. 

8

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MillenniumPharmaceuticals, Inc.Notes to Condensed Consolidated Financial Statements (continued)

        Goodwill consists of the excess purchase price over the estimated fairvalue of net tangible and intangible assets. The carrying value may be adjusted as aresult of the continued settlement of contingent consideration arising from acquisitions.Accordingly, goodwill increased by $1.6 million and $1.5 million for the six months endedJune 30, 2007 and 2006, respectively. 

Revenue Recognition 

        TheCompany recognizes revenue from the sale of its products, strategic alliances androyalties. The Company’s revenue arrangements with multiple elements are divided intoseparate units of accounting if specified criteria are met, including whether thedelivered element has stand-alone value to the customer and whether there is objective andreliable evidence of the fair value of the undelivered items. The consideration receivedis allocated among the separate units based on their respective fair values, and theapplicable revenue recognition criteria are applied to each of the separate units. Advancepayments received in excess of amounts earned are classified as deferred revenue untilearned. 

*Net product sales*

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

*Revenue under strategicalliances*

        TheCompany recognizes revenue under strategic alliances from nonrefundable license payments,milestone payments, reimbursement of research and development costs and reimbursement ofmanufacturing-related costs. Nonrefundable upfront fees for which no further performanceobligations exist are recognized as revenue on the earlier of when payments are receivedor collection is assured. 

        Nonrefundableupfront licensing fees and guaranteed, time-based payments that require continuinginvolvement in the form of research and development, manufacturing or othercommercialization efforts by the Company are recognized as revenue: 

|   | • |   | ratably over the development period if development risk is significant;                                                         |
|--------|--------|--------|---------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |                                                                                                                            |
|   | • |   | ratably over the manufacturing period or estimated product useful life if development riskhas been substantially eliminated; or |
|   |   |   |                                                                                                                            |
|   | • |   | based upon the level of research services performed during the period of the researchcontract.                                  |

        Milestonepayments are recognized as revenue when the performance obligations, as defined in thecontract, are achieved. Performance obligations typically consist of significantmilestones in the development life cycle of the related technology or product candidate,such as initiation of clinical trials, filing for approval with regulatory agencies andapprovals by regulatory agencies. 

        Reimbursementsof research and development costs are recognized as revenue as the related costs areincurred. 

*Royalties*

        Royaltiesare recognized as revenue when earned. Royalties may include: 

|   | • |   | royalties earned on sales of INTEGRILIN in the United States and other territories around the world, as provided by        SGP; |
|--------|--------|--------|---------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |                                                                                                                            |
|   | • |   | royalties, or distribution fees, earned on international sales of VELCADE, as provided by OBL;                                  |
|   |   |   |                                                                                                                            |
|   | • |   | royalties earned on sales of INTEGRILIN in Europe, as provided by GSK; and                                                      |
|   |   |   |                                                                                                                            |
|   | • |   | other royalties.                                                                                                                |

9

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MillenniumPharmaceuticals, Inc.Notes to Condensed Consolidated Financial Statements (continued)

Advertising andPromotional Expenses 

        Advertisingand promotional expenses are expensed as incurred. During the three months ended June 30,2007 and 2006, advertising and promotional expenses were $13.4 million and$5.3 million, respectively. During the six months ended June 30, 2007 and 2006,advertising and promotional expenses were $20.0 million and $10.6 million,respectively. 

Net Loss Per Common Share 

        Basicnet loss per common share is computed using the weighted-average number of common sharesoutstanding during the period, excluding restricted stock that has been issued but is notyet vested. Diluted net loss per share is based upon the weighted average number of commonshares outstanding during the period, plus additional weighted average common equivalentshares outstanding during the period when the effect is not anti-dilutive. Commonequivalent shares result from the assumed exercise of outstanding stock options andwarrants (the proceeds of which are then assumed to have been used to repurchaseoutstanding stock using the treasury stock method), the assumed conversion of convertiblenotes and the vesting of unvested restricted shares of common stock. Options and warrantsto purchase shares of common stock and unvested restricted shares that were not includedin the calculation of diluted shares because the effect of including the options, warrantsand unvested restricted shares would have been anti-dilutive were 3.1 million and 3.3million for the three and six months ended June 30, 2007, respectively, and 1.0million and 1.3 million for the three and six months ended June 30, 2006,respectively. 

Comprehensive Loss 

        Comprehensiveloss comprises net loss, changes in unrealized gains and losses on marketable securitiesand cumulative foreign currency translation adjustments. The following table displayscomprehensive loss (in thousands): 

|                                            | Three Months EndedJune 30, |    | Six Months EndedJune 30, |   |
|-------------------------------------------------|----------------------------|---------|--------------------------|--------|
||
| Net loss                                        | $                          | (17,681 | )                        | $      | (17,667 | ) | $ | (24,459 | ) | $ | (38,508 | ) |
| Unrealized gain (loss) on marketable securities |                       | (3,112  | )                        |   | (5,130 | ) |   | (3,727 | ) |   | 3,686 |   |
| Cumulative translation adjustments              |                       | (25     | )                        |   | (657 | ) |   | (21 | ) |   | (662 | ) |
|                                            |                            |         |                     |        |  |   |  |  |   |  |  |   |
|     Comprehensive loss      | $                          | (20,818 | )                        | $      | (23,454 | ) | $ | (28,207 | ) | $ | (35,484 | ) |
|                                            |                            |         |                     |        |  |    |  |  |   |  |  |    |

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

|                                                                     |   | **June 30, 2007** |   | **December 31, 2006** |   |
|--------------------------------------------------------------------------|--------|-------------------|--------|-----------------------|--------|
| Unrealized loss on marketable securities                                 |   | $                 | (4,083 | )                     | $      | (356 | ) |
| Cumulative translation adjustments                                       |   |              | (991   | )                     |   | (970 | ) |
|                                                                     |   |                   |   |                       |
|       Accumulated other comprehensive loss |   | $                 | (5,074 | )                     | $      | (1,326 | ) |
|                                                                     |   |                   |   |                       |

Stock-Based CompensationExpense

        TheCompany adopted SFAS No. 123 (revised 2004), “Share Based Payment,”(“SFAS 123R”), effective January 1, 2006. SFAS 123R requires therecognition of the fair value of stock-based compensation in its statements of operations.Stock-based compensation expense primarily relates to stock options, restricted stock andstock issued under the Company’s employee stock purchase plans.  The Companyrecognized stock-based compensation expense of $6.7 million and $12.1 million during thethree and six months ended June 30, 2007, respectively, and $11.5 million and $22.0million during the three and six months ended June 30, 2006, respectively. 

Accounting Pronouncements 

        InSeptember 2006, the FASB issued SFAS No. 157, “Fair ValueMeasurements,” (“SFAS 157”). SFAS 157 defines fair value,establishes a framework for measuring fair value in accordance with generally acceptedaccounting principles and expands disclosures about fair value measurements. SFAS 157 codifies the definition of

10

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MillenniumPharmaceuticals, Inc.Notes to Condensed Consolidated Financial Statements (continued)

fair value as the price that would be received tosell an asset or paid to transfer a liability in an orderly transaction between marketparticipants at the measurement date, clarifies the principle that fair value should bebased on the assumptions market participants would use when pricing the asset or liabilityand establishes a fair value hierarchy that prioritizes the information used to developthose assumptions. SFAS 157 is effective for fiscal years beginning afterNovember 15, 2007. The Company does not believe adoption will have a material impacton its results of operations, financial position or cash flows. 

        InFebruary 2007, the FASB issued SFAS No. 159, “The Fair Value Option forFinancial Assets and Financial Liabilities,” (“SFAS 159”).  SFAS 159permits entities to choose to measure many financial instruments and certain other itemsat fair value. The objective is to improve financial reporting by providing entities withthe opportunity to mitigate volatility in reported earnings caused by measuring relatedassets and liabilities differently without having to apply complex hedge accountingprovisions. SFAS 159 is effective for fiscal years beginning after November 15,2007.  The Company is currently analyzing the effect, if any, SFAS 159 will haveon its consolidated financial position and results of operations. 

        InJune 2007, the FASB issued EITF Issue No. 07-3, “Accounting for Nonrefundable AdvancePayments for Goods or Services to Be Used in Future Research and DevelopmentActivities,” (“EITF 07-3”). EITF 07-3 requires that nonrefundable advance payments forgoods or services to be received in the future for use in research and developmentactivities should be deferred and capitalized. The capitalized amounts should be expensedas the related goods are delivered or the services are performed. EITF 07-3 is effectivefor new contracts entered into during fiscal years beginning after December 15, 2007. TheCompany is currently analyzing the effect, if any, EITF 07-3 will have on its consolidatedfinancial position and results of operations. 

3.  Restructuring 

*2006 Resource Alignment*

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

        TheCompany recorded restructuring charges of approximately $8.9 million and $13.9 million during the three and sixmonths ended June 30, 2007, respectively, under the 2006 restructuring program, primarily forfacilities-related costs associated with vacated buildings and employee terminationbenefits as a result of headcount reductions.  “Other” in the table belowincludes the write-off of deferred rent in accordance with SFAS No. 13, “Accountingfor Leases,” upon vacating the facilities. 

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

|                          | Balance at December 31, 2006 |   | Charges |   | Payments |   | Other  |   | Balance at June 30, 2007 |   |
|-------------------------------|-----------------------------------|--------|---------|--------|----------|--------|--------|--------|-------------------------------|--------|
| Termination benefits          |                              | $      | 3,602   |   | $        | 1,489  |   | $      | (3,545                        | )      | $ | — |   | $ | 1,546 |   |
| Facilities                    |                              |   | —  |   |     | 12,420 |   |   | (1,014                        | )      |   | (1,019 | ) |   | 10,387 |   |
| Other associated costs        |                              |   | —  |   |     | 31     |   |   | (29                           | )      |   | — |   |   | 2 |   |
|                          |                              |        |    |        |     |        |   |        |                          |        |   |
|                          |
|     Total |                              | $      | 3,602   |   | $        | 13,940 |   | $      | (4,588                        | )      | $ | (1,019 | ) | $ | 11,935 |   |
|                          |                              |        |    |        |     |        |   |        |                          |        |   |

*    2005Strategic Refinement*

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

        TheCompany recorded net restructuring credits of approximately $2.7 million and $2.5 millionduring the three and six months ended June 30, 2007, respectively, under the 2005restructuring plan, primarily related to the earlier
11
MillenniumPharmaceuticals, Inc.Notes to Condensed Consolidated Financial Statements (continued)
 than anticipated sublease of one ofits facilities charged to restructuring in prior years at a higher rate per square footthan it had originally estimated. The Company recorded net restructuring credits ofapproximately $1.6 million and restructuring charges of approximately $0.3 million duringthe three and six months ended June 30, 2006, respectively, under the 2005 restructuringplan. The restructuring charges primarily related to additional facility related costsassociated with vacated buildings and employee termination benefits. Offsetting thesecharges was a net credit of approximately $7.8 million resulting from the earlier thananticipated sublease of one of the vacated buildings at a higher rate per square foot thanthe Company had originally estimated. 

        Thefollowing table displays the restructuring activity and liability balances (in thousands): 
 Balance at December 31, 2006 Charges Payments Balance at June 30, 2007 Termination benefits $133 $(2)$(96)$35 Facilities  13,827  (2,468) (3,013) 8,346 Other associated costs  24  (24) —  —            Total $13,984 $(2,494)$(3,109)$8,381       
*    2003Restructuring Plan*

        InDecember 2002 and June 2003, the Company realigned its resources to become acommercially-focused biopharmaceutical company. The Company discontinued specifieddiscovery research efforts, reduced overall headcount, primarily in its discovery group,and consolidated its research and development facilities. 

        TheCompany recorded net restructuring credits of approximately $0.5 million and $0.1 millionduring the three and six months ended June 30, 2007, respectively, under theCompany’s 2003 restructuring plan, primarily related to the earlier than anticipatedsublease of one of its facilities charged to restructuring in prior years at a higher rateper square foot than it had originally estimated, offset by net present value adjustmentsfor facilities charged to restructuring in prior years. The Company recorded restructuringcharges of approximately $3.2 million and $4.1 million during the three and six monthsended June 30, 2006, respectively, under the 2003 restructuring plan, primarily related toadjustments to the Company’s original estimates of the remaining rental obligationsfor a vacated facility based upon the Company’s inability to secure subtenants in thetime and manner included in its earlier estimates. 

        Thefollowing table displays the restructuring activity and liability balances (in thousands): 
 Balance at December 31, 2006 Charges Payments Balance at June 30, 2007 Termination benefits $— $(10)$10 $— Facilities  49,928  (53) (8,609) 41,266            Total $49,928 $(63)$(8,599)$41,266       
        The Companyaccounts for its restructuring charges in accordance with SFAS No. 146,“Accounting for Costs Associated with Exit or Disposal Activities” (“SFASNo. 146”). SFAS No. 146 requires that a liability for a cost associatedwith an exit or disposal activity be recognized and measured initially at its fair valuein the period in which the liability is incurred, except for one-time termination benefitsthat meet specified requirements. Costs of termination benefits relate to severancepackages, out-placement services and career counseling for employees affected by therestructuring. 

        Inaccordance with SFAS No. 146, the Company’s facilities related expenses andliabilities in all restructuring plans include estimates of the remaining rentalobligations, net of estimated sublease income, for facilities the Company no longeroccupies. The Company validates its estimates and assumptions with independent thirdparties having relevant expertise in the real estate market. The Company reviews itsestimates and assumptions on a regular basis, until the outcome is finalized, and makeswhatever modifications are necessary, based on the Company’s best judgment, toreflect any changed circumstances. 

12
MillenniumPharmaceuticals, Inc.Notes to Condensed Consolidated Financial Statements (continued)
        Theprojected timing of payments of the remaining restructuring liabilities under all of theCompany’s restructuring initiatives at June 30, 2007 is approximately $24.6million due through June 30, 2008 and $37.0 million thereafter through 2014. The actualamount and timing of the payment of the remaining accrued liability is dependent upon theultimate terms of any potential subleases or lease restructuring. The Company expects torecord total restructuring charges of between $15.0 to $20.0 million in 2007 related to certain facilities that the Company decided to abandon inNovember 2006, but will not be vacated until 2007, as well as net present valueadjustments on facilities charged to restructuring in prior years.   Inconnection with the 2006 decision to abandon the facilities in 2007, the Company revised theuseful lives of the leasehold improvements at these facilities in accordance with SFASNo. 144, “Accounting for the Impairment or Disposal of Long-LivedAssets.”  During the three and six months ended June 30, 2007, the Companyrecorded additional amortization expense of approximately $0.2 million and $3.0 million,respectively, in research and development expense related to its decision. 

        TheCompany continues to evaluate its strategic alternatives, including facilityconsolidation, and as a result, additional restructuring charges could occurin future periods. 
4.  Revenueand Strategic Alliances 
        TheCompany has entered into research, development, technology transfer and commercializationarrangements with major pharmaceutical and biotechnology companies relating to a broadrange of therapeutic products. These alliances provide the Company with the opportunity toreceive various combinations of license fees, research funding, co-promotion revenue,distribution fees and may provide additional payments contingent upon its achievement ofresearch and regulatory milestones and royalties and/or profit shares if theCompany’s collaborations are successful in developing and commercializing products. 

*Product Alliances*

*VELCADE*

        InJanuary 2007, the Company and Ortho Biotech Inc. (“OBI”) began jointly promotingVELCADE to U.S.-based physicians who treat multiple myeloma patients. The Company pays aproportion of the VELCADE-related costs for the OBI sales force, and OBI is entitled toreceive a commission should sales associated with the increased promotional effort exceedpre-specified targets. Both parties are able to terminate the agreement under certaincircumstances and subject to fees. The Company continues to be responsible formanufacturing and distribution of VELCADE in the U.S. The current agreement between theCompany and OBL for the promotion of VELCADE outside the U.S. remains unchanged. 
5.  ConvertibleDebt 
        TheCompany had the following convertible notes outstanding at June 30, 2007 and December 31,2006: 
 June 30, 2007 December 31, 2006 2.25% convertible senior notes due November 15, 2011 $250,000 $250,000 5.5% convertible subordinated notes due January 15, 2007  —  83,325 5.0% convertible subordinated notes due March 1, 2007   —  16,246            Total $250,000 $349,571    
        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 pershare (the “2.25% notes”).  Under the terms of the 2.25% notes, theCompany is required to make semi-annual interest payments on the outstanding principalbalance on May 15 and November 15 of each year. 

        The2.25% notes are convertible into the Company’s common stock based upon a conversionrate 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 pershare of stock, subject to adjustment. The 2.25% notes are convertible only in thefollowing circumstances: (1) if the closing price of the common stock exceeds 120% ofthe conversion price within a specified period, (2) if specified distributions toholders 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 theaverage conversion of the notes within a specified period or (4) during the last three months prior to the maturity date of the notes, unlesspreviously repurchased by the Company under certain circumstances. In lieu of delivery ofshares of the Company’s common stock, the Company may elect to deliver cash or acombination of cash and shares of the
13
MillenniumPharmaceuticals, Inc.Notes to Condensed Consolidated Financial Statements (continued)
Company’s common stock in satisfaction of itsobligation upon conversion. The 2.25% notes are subordinated in right of payment to futuresenior indebtedness of the Company. 

        Inaccordance with the payment terms, the Company repaid the entire $83.3 million principalbalance on its 5.5% convertible subordinated notes due on January 15, 2007 that wereconvertible at a price equal to $42.07 per share and the entire $16.2 millionprincipal balance on its 5.0% convertible subordinated notes due on March 1, 2007 thatwere convertible at a price equal to $34.21 per share. 
6.  Stock Plans 
        SFAS 123Rrequires the recognition of the fair value of stock-based compensation in its statementsof operations. Stock-based compensation expense primarily relates to stock options,restricted stock and stock issued under the Company’s employee stock purchase plans. 

        InMarch 2007, the Company implemented performance based vesting for a portion of executiveofficer restricted stock awards.  A significant portion of the annual equity awardsto all executive officers will vest only upon achievement of predefined performanceobjectives.  These performance based awards vest over a four year period so long asthe predefined annual “target” or “overachievement” performanceobjectives are met or exceeded.  No shares will vest in the years where“target” and “overachievement” performance objectives are not achievedand such shares will be forfeited.  Performance based awards are recorded ascompensation cost, based on the market value on the date the “target” or“overachievement ” performance objectives are known and probable, on astraight-line basis over the requisite service period for each separately vesting portionof the award as if the award was, in substance, multiple awards consistent with FASB Interpretation No. 28. 

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

        Thefollowing table summarizes the weighted-average assumptions the Company used in its fairvalue calculations at the date of grant: 
 **Stock Options** **Employee Stock Purchase Plan**  **Three Months EndedJune 30,** **Six Months EndedJune 30,** **Three Months EndedJune 30,** **Six Months EndedJune 30,** **2007** **2006** **2007** **2006** **2007** **2006** **2007** **2006**Expected life 2.99 3.5 4.04 3.7 0.5 0.5 0.5 0.5Risk-free interest 4.71% 4.98% 4.73% 4.77% 4.91% 5.06% 4.87% 4.35%Volatility 40% 45% 40% 45% 40% 45% 40% 52%
        TheCompany has never declared cash dividends on any of its capital stock and does not expectto do so in the foreseeable future. 

        Thefollowing table presents the combined option activity of the Company’s stock plansfor the six months ended June 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  976,976  10.87       Exercised  (2,205,056) 7.95       Forfeited or expired  (3,312,901) 22.88                Outstanding at June 30, 2007  22,463,982 $15.93  5.58 $17,882       Vested or expected to vest at June 30, 2007  21,634,624 $16.13  5.47 $17,602       Exercisable at June 30, 2007  18,235,403 $17.06  4.93 $16,553       
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MillenniumPharmaceuticals, Inc.Notes to Condensed Consolidated Financial Statements (continued)
        Asof June 30, 2007, the total remaining unrecognized compensation cost related to nonvestedstock option awards amounted to approximately $10.6 million, including estimatedforfeitures, which will be recognized over the weighed-average remaining requisite serviceperiod of approximately one and one half years. 

        Asummary of the status of nonvested shares of restricted stock as of June 30, 2007, andchanges during the six months then ended, is presented below: 
 Shares  Weighted-Average Grant Date Fair Value Nonvested at January 1, 2007 1,659,100  $10.31 Granted 2,164,514   10.84 Vested (407,694)  10.45 Forfeited (269,188)  10.52       Nonvested at June 30, 2007 3,146,732  $10.64       
        Asof June 30, 2007, the total remaining unrecognized compensation cost related to nonvestedrestricted stock awards and units amounted to approximately $18.9 million, includingestimated forfeitures, which will be recognized over the weighted-average remainingrequisite service period of approximately one and one half years. 
7.  IncomeTaxes
        InJune 2006, the FASB issued FASB Interpretation No. 48, “Accounting forUncertainty in Income Taxes—an Interpretation of FASB Statement No. 109”(the “Interpretation”). The Interpretation clarifies the accounting foruncertainty in income taxes recognized in an enterprise’s financial statements inaccordance with FASB Statement No. 109, “Accounting for Income Taxes.” TheInterpretation prescribes a recognition threshold and measurement attribute for thefinancial statement recognition and measurement of a tax position taken or expected to betaken in a tax return. This Interpretation also provides guidance on derecognition,classification, interest and penalties, accounting in interim periods, disclosure andtransition. The Interpretation is effective for fiscal years beginning afterDecember 15, 2006. The Company’s adoption did not have a material impact on itsresults of operations, financial position or cash flows as it has not recorded anyliabilities relating to uncertain tax positions. 

        TheCompany files income tax returns in the United States federal jurisdiction and variousstate, local, and foreign jurisdictions. The Company is no longer subject to any taxassessment from an income tax examination in major taxing jurisdictions for years before2003, except to the extent that in the future it utilizes net operating losses or taxcredit carryforwards that originated before 2003. The Company currently is not underexamination by the Internal Revenue Service or other jurisdictions for any tax years. 

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

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

        Ourmanagement’s discussion and analysis of our financial condition and results of ouroperations include the identification of certain trends and other statements that maypredict or anticipate future business or financial results that are subject to importantfactors that could cause our actual results to differ materially from those indicated. See“Risk Factors That May Affect Results.” 
Overview 
        Weare an innovation-driven biopharmaceutical company focused on discovering, developing andcommercializing medicines to change the lives of patients with cancer and inflammatorydiseases. We currently commercialize VELCADE, the U.S. market leader for the treatment ofpatients 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 whohave received at least one prior therapy for mantle cell lymphoma, or MCL. We have adevelopment pipeline of clinical and preclinical product candidates in our therapeuticfocus areas of cancer and inflammatory diseases, and we have an oncology-focused drugdiscovery organization. Strategic business relationships are a key component of ourbusiness. 

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

        Ourbusiness strategy is to build a portfolio of new medicines based on our understanding ofgenomics and particular molecular pathways that affect the establishment and progressionof diseases. These molecular pathways include the related effects of proteins on cellularperformance, reproduction and death. We plan to develop and commercialize many of ourproducts on our own, but expect to seek development and commercial collaborators onfavorable terms or when we otherwise believe that doing so would be advantageous to us. 

        InApril 2007, we announced the advancement of a new small molecule, MLN4924, a novelinhibitor of Nedd 8 Activating Enzyme (NAE), from discovery to the development pipeline.NAE is an unprecedented target in the protein homeostasis pathway that acts upstream ofthe proteasome, the target of VELCADE. NAE regulates a subset of proteins that controlsthe survival of cancer cells. MLN4924 is the seventh molecule to advancefrom our discovery organization to the development pipeline in the past three years. 

        Inthe near term, we expect to focus our commercial activities in cancer where we plan tobuild on our commercial and regulatory experience with VELCADE. We also are working toobtain approval to market VELCADE in the United States and, through Ortho BiotechProducts, L.P., or OBL, a member of the Johnson Family of Companies and an affiliateof 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-tumorcancers. We believe, if approved, these additional uses of VELCADE would lead to asignificant expansion of our cancer business. In inflammatory disease, we are advancingnovel product candidates in clinical development as potential treatments for serious andwidely prevalent conditions. 

        Inthe long-term, we expect to bring new products to market on a regular basis from ourpipeline of discovery and development-stage programs. We also expect to continue toevaluate opportunities to in-license and acquire molecules from other companies in orderto supplement our pipeline. If we are successful, we will use the revenues from thisexpanding portfolio of marketed products to broaden the scope of our operations. 
VELCADE®(bortezomib) for Injection 
        VELCADE,the first of a new class of medicines called proteasome inhibitors, was the firsttreatment in more than a decade to be approved in the United States for patients withmultiple myeloma. We received accelerated approval based on phase II data from the FDA onMay 13, 2003 to market VELCADE for the treatment of multiple myeloma patients whohave received at least two prior therapies and have demonstrated disease progression ontheir most recent therapy, commonly referred to as third-line and beyond. 

        InMarch 2005, we received full approval from the FDA of our supplemental New DrugApplication, or sNDA, for VELCADE for the treatment of patients with multiple myeloma whohave received at least one prior therapy, commonly referred to as second-line or relapsedmultiple myeloma. This regulatory decision increased the approved

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 market potential of thedrug and also marked the completion of the confirmatory studies required by the FDA afterit granted accelerated approval in May 2003. VELCADE as a single agent demonstratedthe ability to extend the lives of patients compared to the standard of care at the time.VELCADE has the longest reported survival of any single agent, and is the only therapywith a survival claim in its FDA approved labeling. 

        InDecember 2006, the FDA granted full approval of VELCADE for the treatment of patientswith MCL who have received at least one prior therapy, commonly referred to as relapsed,or second-line MCL. This approval followed the FDA’s decision in November 2004to grant VELCADE fast track designation for MCL due to the high unmet medical need of MCLpatients and the strength of clinical trial data for VELCADE in the treatment of MCL. 

        InApril 2006, we initiated a phase III trial of VELCADE in combination with rituximabin the relapsed follicular and marginal zone non-Hodgkin’s lymphoma setting. As ofJuly 2007, accrual is more than half complete with target enrollment expected to bereached by the end of the first half of 2008. 

        InApril 2004, the European Commission granted Marketing Authorization for VELCADE inEurope for the treatment of multiple myeloma patients who have received at least two priortherapies and have demonstrated disease progression on their most recent therapy. Underthis Authorization, the European Commission granted us a single license for marketingVELCADE in the 15 member states of the European Union, plus Norway and Iceland. VELCADEwas also approved for marketing in the ten accession member countries when those countriesofficially joined the European Union on May 1, 2004. Regulatory authorities in anumber of other countries, including countries within Latin America and South-East Asiaand Japan have also approved VELCADE. The product is now approved in more than 80countries. Under our agreement with OBL, we have transferred the licenses to affiliates ofOBL. OBL’s affiliates now market VELCADE in these countries. 

        InApril 2005, OBL received approval from the European Commission for VELCADE as amonotherapy for multiple myeloma patients who have received at least one prior therapy andwho have already undergone or are unsuitable for bone marrow transplantation. InOctober 2006, OBL received approval for marketing VELCADE in Japan for relapsed orrefractory multiple myeloma in patients who have received at least one prior therapy. 
Our Alliances
*Ortho BiotechCollaborations*

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

        Weare engaged with JJPRD in an extensive global program for further clinical development ofVELCADE with the purpose of maximizing the commercial potential of VELCADE. This programis investigating the potential of VELCADE to treat multiple forms of solid andhematological tumors, including continued clinical development of VELCADE for multiplemyeloma and non-Hodgkin’s lymphoma, or NHL. JJPRD is responsible for 45% of the jointdevelopment costs. We are eligible to receive payments from JJPRD or OBL for achievingclinical development milestones, regulatory milestones outside of the United States oragreed-upon sales levels of VELCADE outside of the United States. 

        InJanuary 2007, we began, with OBI, to jointly promote VELCADE for a two year time period toU.S.-based physicians who treat multiple myeloma patients. We pay the cost of a portion ofthe OBI sales effort dedicated to VELCADE and a commission if sales associated with theincreased effort exceed specified targets. Both parties are able to terminate theagreement under certain circumstances and subject to termination fees. We continue to beresponsible for manufacturing and distribution of VELCADE in the U.S. Our currentagreement with OBL for the promotion of VELCADE outside the U.S. remains unchanged.

**INTEGRILIN®(eptifibatide) Injection**

        Schering-PloughLtd. and Schering Corporation, together referred to as SGP, markets INTEGRILIN in theUnited States and specified other areas outside of the European Union. GlaxoSmithKlineplc, or GSK, markets INTEGRILIN in the European Union under a license from us. 

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***SGP Collaboration***

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

        OnSeptember 1, 2005, SGP obtained the exclusive U.S. development and commercializationrights for INTEGRILIN products from us and paid us a nonrefundable upfront payment ofapproximately $35.5 million. In addition, we are entitled to receive royalties on netproduct sales of INTEGRILIN in the United States from SGP for so long as SGP is engaged inthe commercialization and sale of an INTEGRILIN product in the United States, with thepotential of receiving royalties beyond the 2014 patent expiration date. Minimum royaltypayments for 2007 are set at approximately $85.4 million. There are no guaranteed minimumroyalty payments beyond 2007. We also receive royalties on net product sales by SGPoutside of the United States. SGP’s obligation to pay us royalties in other countriesexpires on a country by country basis upon the later of fifteen years from the firstcommercial use of an INTEGRILIN product in such country and the expiration of the last toexpire patent covering such INTEGRILIN product. We are continuing to manage the supplychain for INTEGRILIN at the expense of SGP for products sold in the SGP territoriesincluding the U.S. We receive payments as a result of managing the supply chain and recordthose payments as strategic alliance revenue. 

***GSK License Agreement***

        InJune 2004, we reacquired the rights to market INTEGRILIN in Europe from SGP andconcurrently entered into a license agreement granting GSK exclusive marketing rights toINTEGRILIN in Europe. In January 2005, the transition of the INTEGRILIN marketingauthorizations for the European Union from SGP to GSK was completed, and GSK began sellingINTEGRILIN in the countries of the European Union. GSK also markets INTEGRILIN in otherEuropean countries where it has received approval of the transfer from SGP to GSK of therelevant marketing authorizations. Under the terms of the agreement, we have receivedlicense fees and are entitled to future royalties from GSK on INTEGRILIN sales in Europesubject to the achievement of specified objectives. We manage the supply chain forINTEGRILIN at the expense of GSK for products sold in the GSK territories. We receivepayments as a result of managing the supply chain and record those payments as strategicalliance revenue. 

***sanofi-aventisInflammatory Disease Collaboration***

        InJune 2000, we entered into a broad agreement in the field of inflammatory diseasewith Aventis, now sanofi-aventis, which includes joint discovery, development andcommercialization of small molecule drugs for the treatment of specified inflammatorydiseases. This agreement covers a substantial portion of our development program in theinflammatory disease area and provides us with potential access to sanofi-aventis’large promotional infrastructure in connection with the commercialization of jointlydeveloped products. The discovery phase of this collaboration has concluded. The development andcommercialization programs continue under the agreement. 

        Asprovided in the original agreement, in North America, we have agreed to share theresponsibility for and cost of developing, manufacturing and marketing products arisingfrom the alliance. Outside of North America, sanofi-aventis is responsible for and willbear the cost of developing, manufacturing and marketing products arising from thealliance. sanofi-aventis is required to pay us a royalty on product sales outside of NorthAmerica. Under this agreement, sanofi-aventis acquired 4.5 million shares of our commonstock over a two-year period through 2001 for $250.0 million. 

        Todate, we and sanofi-aventis have identified a significant number of novel drug targets andassociated molecules relevant in inflammatory diseases. During the remaining portion ofthe development phase of the alliance, we and sanofi-aventis have agreed to focus ourjoint resources on preclinical and clinical development of candidates identified in thecollaboration. 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 andMLN0415, are now being tested by us in phase I clinical trials. A fourth candidate,MLN6095, is now in preclinical testing. 

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Critical AccountingPolicies and Significant Judgments and Estimates 
        Ourmanagement’s discussion and analysis of our financial condition and results ofoperations are based on our condensed consolidated financial statements, which have beenprepared in accordance with generally accepted accounting principles. The preparation ofthese financial statements requires us to make estimates and assumptions that affect thereported amounts of assets and liabilities and the disclosure of contingent assets andliabilities at the date of the financial statements as well as the reported revenues andexpenses during the reporting periods. On an ongoing basis, we evaluate our estimates andjudgments, including those related to revenue recognition, inventory, intangible assets,goodwill, restructuring and stock-based compensation expense. We base our estimates on historicalexperience and on various other factors that we believe are appropriate under thecircumstances, the results of which form the basis for making judgments about the carryingvalue of assets and liabilities that are not readily apparent from other sources. Actualresults may differ from these estimates under different assumptions or conditions. 

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

***Revenue***

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

        Werecognize revenue from the sale of VELCADE in the United States when delivery has occurredand title has transferred. During the fourth quarter of 2004, we began distributingVELCADE through a sole-source open access distribution model in which we sell directly toan independent third party who in turn distributes to the wholesaler base. InApril 2006, our sole-source distributor added a second distribution site to itsnetwork in order to improve access to the product for physicians in the western UnitedStates. Under our agreement with our sole-source distributor, inventory levels arecontractually limited to no more than three weeks. VELCADE product inventory levels heldby the sole-source distributor and wholesalers may fluctuate from time to time within ourdesired range of one to two weeks of inventory in the distribution channel. 

        Werecord allowances as a reduction to product sales for product returns, chargebacks anddiscounts at the time of sale. We estimate VELCADE product returns based on historicalreturn patterns. We expect VELCADE returns to be, and returns have been, generally lowbecause the shelf life for the product is 18 months in the United States, and weexpect, and have experienced, that wholesalers will not stock significant inventory. We consider several factors in our estimationprocess, including our internal sales forecasts, inventory levels as provided bywholesalers and third party market research data.  As we continually monitor actualproduct returns and inventory levels in the domestic distribution channel, we have reducedand may, from time to time in the future, reduce our product returns estimate. Doing soresults in increased product sales at the time the return estimate is changed. Ifcircumstances change or conditions become more competitive in the market for therapeuticproducts that address multiple myeloma, we may take actions to increase our product returnestimates. Doing so would result in an incremental reduction of product sales at the timethe return estimate is changed. Our accruals for rebates, chargebacks, and other discountswere immaterial at June 30, 2007. 

        Werecognize 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: 
 • ratably over the development period if development risk is significant;     • ratably over the manufacturing period or estimated product useful life if development riskhas been substantially eliminated; or     • based upon the level of research services performed during the period of the researchcontract.    
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        Whenthe period of deferral cannot be specifically identified from the contract, managementestimates the period based upon other critical factors contained within the contract. Wecontinually review these estimates, which could result in a change in the deferral periodand might impact the timing and the amount of revenue recognized. 

        Milestonepayments are recognized as strategic alliance revenue when the substantive performanceobligations, as defined in the contract, are achieved. Performance obligations typicallyconsist of significant milestones in the development life cycle of the related productcandidate, such as initiation of clinical trials, filing for approval with regulatoryagencies and approvals by regulatory agencies. Reimbursements of research and developmentcosts are recognized as strategic alliance revenue as the related costs are incurred. 

        Weare entitled to receive royalty payments under license agreements with a number of thirdparties that sell products based on technology we have developed or to which we haverights. These license agreements provide for the payment of royalties to us based on salesof the licensed product and we record royalty revenues based on estimates of sales frominterim data provided by licensees. For all of our royalty arrangements, we perform ananalysis of historical royalties we have been paid, adjusted for any changes in facts andcircumstances, as appropriate. Differences between actual royalty revenues and estimatedroyalty revenues are adjusted for in the period which they become known, typically thefollowing 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 estimateroyalty revenue, we record royalties on a cash basis. 

***Inventory***

        Inventoryconsists of currently marketed products. VELCADE inventories primarily represent rawmaterials used in production, work in process and finished goods inventory on hand, valuedat cost. INTEGRILIN inventories include raw materials used in production and work inprocess, valued at cost, to supply GSK and limited amounts of work in process, valued atcost, to supply SGP. We review inventories periodically for slow-moving or obsolete statusbased on sales activity, both projected and historical. Our current sales projectionsprovide for full utilization of the inventory balance. If product sales levels differ fromprojections or a launch of a new product is delayed, inventory may not be fully utilizedand could be subject to impairment, at which point we would adjust inventory to its netrealizable value. 

***Intangible Assets***

        Wehave acquired significant intangible assets that we value and record. Those assets that donot yet have regulatory approval and for which there are no alternative uses are expensedas acquired in-process research and development, and those that are specificallyidentified and have alternative future uses are capitalized. We use a discounted cash flowmodel to value intangible assets at acquisition. The discounted cash flow model requiresassumptions about the timing and amount of future cash inflows and outflows, risk, thecost of capital, and terminal values. Each of these factors can significantly affect thevalue of the intangible asset. We engage independent valuation experts who review ourcritical assumptions for significant acquisitions of intangibles. We review intangibleassets for impairment on a periodic basis using an undiscounted net cash flows approachwhen impairment indicators arise. If the undiscounted cash flows of an intangible assetare less than the carrying value of an intangible asset, we would write down theintangible asset to the discounted cash flow value. Where we cannot identify cash flowsfor an individual asset, our review is applied at the lowest group level for which cashflows are identifiable. 

***Goodwill***

        OnOctober 1, 2006, we performed our annual goodwill impairment test and determined thatno impairment existed on that date. However, since the date of acquisition of COR, whichgenerated a significant amount of goodwill, we have experienced a significant decline inmarket capitalization due to a decline in stock price. We continually monitor business andmarket conditions, including the restructured relationship with SGP, to assess whether animpairment 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 materialimpairment charge to our statement of operations. 

***Restructuring***

        Inaccordance with SFAS No. 146, “Accounting for Costs Associated with Exit orDisposal Activities,” our facilities related expenses and liabilities under all ofour restructuring plans included estimates of the remaining rental obligations, net ofestimated sublease income, for facilities we no longer occupy. We validated our estimatesand assumptions with independent third parties having relevant expertise in the realestate market. We review our 

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estimates and assumptions on a regular basis until theoutcome is finalized, and make whatever modifications we believe necessary, based on ourbest judgment, to reflect any changed circumstances. It is possible that such estimatescould change in the future resulting in additional adjustments, and the effect of any suchadjustments could be material. 

***Stock-Based CompensationExpense***

        Weadopted Statement of Financial Accounting Standards, or SFAS, No. 123 (revised 2004),“Share Based Payment,” or SFAS 123R, effective January 1, 2006 under themodified prospective method. SFAS 123R requires the recognition of the fair value ofstock-based compensation expense in our operations, and accordingly the adoption of SFAS123R fair value method has had and will continue to have a significant impact on ourresults of operations, although it will have no impact on our overall financial position.Option valuation models require the input of highly subjective assumptions, includingstock price volatility and expected term of an option. In determining our volatility, wehave considered implied volatilities of currently traded options to provide an estimate ofvolatility 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 wehave been public and the impact of having a marketed product, we believe a blendedvolatility rate based upon historical performance, as well as the implied volatilities ofcurrently traded options, best reflects the expected volatility of our stock goingforward. Changes in market price directly affect volatility and could cause stock-basedcompensation expense to vary significantly in future reporting periods. 

        Weuse historical data to estimate option exercise and employee termination behavior,adjusted for known trends, to arrive at the estimated expected life of an option. Weupdate these assumptions on a quarterly basis to reflect recent historical data.Additionally, we are required to estimate forfeiture rates to approximate the number ofshares that will vest in a period to which the fair value is applied. We will continuallymonitor employee exercise behavior and may further adjust the estimated term andforfeiture rates in future periods. Increasing the estimated life would result in anincrease in the fair value to be recognized over the requisite service period, generallythe vesting period. Estimated forfeitures will be adjusted to actual forfeitures upon thevest date of the cancelled options as a cumulative adjustment on a quarterly basis. Doingso could cause future expenses to vary at each reporting period. 

        InMarch 2006, we revised our annual merit compensation program to include theavailability of both stock options and restricted stock to certain employees. In March2007, we extended the choice of stock options or restricted stock to all employees throughthe annual merit compensation program.  Additionally, in March 2007, we implementedperformance based vesting for a portion of executive officer restricted stockawards.  A significant portion of the annual equity awards to all executive officerswill 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 six months ended June 30, 2007, werecognized total stock-based compensation expense under SFAS 123R of $6.7 million and$12.1 million, respectively. As of June 30, 2007, the total remaining unrecognizedcompensation cost related to nonvested stock option awards amounted to approximately$10.6 million, including estimated forfeitures, which will be amortized over theweighted-average remaining requisite service periods of approximately one and one halfyears. As of June 30, 2007, the total remaining unrecognized compensation costrelated to nonvested restricted stock awards and units amounted to approximately$18.9 million, including estimated forfeitures, which will be amortized over theweighted-average remaining requisite service periods of approximately one and one halfyears. 
Accounting Pronouncements 
        InSeptember 2006, the FASB issued SFAS No. 157, “Fair ValueMeasurements,” or SFAS 157. SFAS 157 defines fair value,establishes a framework for measuring fair value in accordance with generally acceptedaccounting principles and expands disclosures about fair value measurements. SFAS157 codifies the definition of fair value as the price that would be received tosell an asset or paid to transfer a liability in an orderly transaction between marketparticipants at the measurement date, clarifies the principle that fair value should bebased on the assumptions market participants would use when pricing the asset or liabilityand establishes a fair value hierarchy that prioritizes the information used to developthose assumptions. SFAS 157 is effective for fiscal years beginning afterNovember 15, 2007. We do not currently believe that adoption will have a materialimpact on our results of operations, financial position or cash flows. 

        InFebruary 2007, the FASB released SFAS No. 159, “The Fair Value Option forFinancial Assets and Financial Liabilities,” or SFAS 159.   SFAS 159permits entities to choose to measure many financial instruments and certain other itemsat fair value. The objective is to improve financial reporting by providing entities withthe opportunity to

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mitigate volatility in reported earnings caused by measuring relatedassets and liabilities differently without having to apply complex hedge accountingprovisions.  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 ourconsolidated financial position and results of operations. 

        InJune 2007, the FASB issued EITF Issue No. 07-3, “Accounting for Nonrefundable AdvancePayments for Goods or Services to Be Used in Future Research and DevelopmentActivities,” or EITF 07-3. EITF 07-3 requires that nonrefundable advance payments forgoods or services to be received in the future for use in research and developmentactivities should be deferred and capitalized. The capitalized amounts should be expensedas the related goods are delivered or the services are performed. EITF 07-3 is effectivefor new contracts entered into during fiscal years beginning after December 15, 2007. Weare currently analyzing the effect, if any, EITF 07-3 will have on our consolidatedfinancial position and results of operations. 
Results of Operations Three Months Ended June 30, Increase/(Decrease)Percentage Change Six Months Ended June 30, Increase/(Decrease)Percentage Change  2007 2006 2007/2006 2007 2006 2007/2006 (in thousands, except per share amounts) Revenues:                        Net product sales $62,550 $58,786  6% $121,190 $112,159  8%    Revenue under strategic alliances  11,826  27,165  (56)  27,540  65,794  (58)    Royalties  38,903  34,172  14   75,273  64,645  16                      Total revenues  113,279  120,123  (6)  224,003  242,598  (8)             Costs and expenses:                        Cost of sales (excludes amortization       of acquired intangible assets)  5,379  14,102  (62)  10,737  29,930  (64)    Research and development (Note 1)  73,382  79,309  (7)  144,611  161,907  (11)    Selling, general and administrative      (Note 1)  47,032  37,391  26   86,557  72,856  19     Restructuring  5,772  1,554  271   11,383  4,385  160     Amortization of intangibles  8,487  8,487  —   16,974  16,974  —                      Total costs and expenses  140,052  140,843  (1)  270,262  286,052  (6)             Loss from operations  (26,773) (20,720) 29   (46,259) (43,454) 6                      Other income (expense):                        Investment income, net  11,567  5,777  100   27,062  10,402  160     Interest expense  (2,475) (2,724) (9)  (5,262) (5,456) (4)             Net loss $(17,681)$(17,667) 0% $(24,459)$(38,508) (36)%             *Amounts per common share:*                    Net loss per share, basic and diluted $(0.06)$(0.06)    $(0.08)$(0.12)                Weighted average shares, basic and diluted  317,799  313,321      316,940  312,575                 
Note 1:  Stock-based compensation expense is allocated in the condensed consolidated statements ofoperations expense lines as follows:
 Three Months Ended June 30, Six Months Ended June 30,  2007 2006  2007 2006 **(in thousands)**              Research and development $3,090 $5,998  $5,145 $12,332 Selling, general and administrative  3,609  5,483   6,956  9,649           
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***Revenues***

        Totalrevenues decreased 6% to $113.3 million during the three months ended June 30, 2007,or the 2007 Three Month Period, and 8% to $224.0 million during the six months ended June30, 2007, or the 2007 Six Month Period, from the comparable periods in 2006. The decreasein the Three Month Period was primarily related to lower strategic alliance revenue as aresult of lower revenue under the SGP relationship. Revenue under the SGP relationship wasgenerated from the management of the INTEGRILIN supply chain on behalf of SGP in the formof license fees and reimbursement of manufacturing-related expenses.  On July 1,2006, SGP began purchasing the majority of the active pharmaceutical ingredient necessaryto manufacture INTEGRILIN resulting in lower reimbursement of manufacturing-relatedexpenses during the 2007 Three and Six Month Periods. The decrease in the Six Month Periodwas primarily the result of decreased milestone revenue during 2007 and lower revenueunder the SGP relationship. Partiallyoffsetting these decreases in both periods were increased net product sales of VELCADEwithin the United States and increased distribution fees recognized from OBL on sales ofVELCADE outside of the United States. 

        Netproduct sales of VELCADE increased 6% to $62.6 million in the 2007 Three Month Period and8% to $121.2 million in the 2007 Six Month Period from the comparable periods in2006.  The increases in both periods were primarily attributable to growth in productdemand as well as price increases during the period.  Reserves for product returns,chargebacks and discounts were within the range of 5% and 10% of gross product sales forall periods presented. Net product sales from VELCADE represented approximately 55% and49% of our total revenues in the 2007 Three Month Period and the three months ended June30, 2006, or the 2006 Three Month Period, respectively, and 54% and 46% of our totalrevenues in the 2007 Six Month Period and the six months ended June 30, 2006, or the 2006Six Month Period, respectively. 

        Revenueunder strategic alliances decreased 56% to $11.8 million in the 2007 Three Month Periodand 58% to $27.5 million in the 2007 Six Month Period from the comparable periods in2006.  The decrease in the 2007 Three Month Period was primarily related to lowerrevenue under the SGP relationship. The decrease in the 2007 Six Month Period wasprimarily related to a decrease in milestone revenue earned in the 2007 Six Month Periodas well as lower revenue under the SGP relationship.  Revenue under the SGPrelationship was generated from the management of the INTEGRILIN supply chain on behalf ofSGP 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 ingredientnecessary to manufacture INTEGRILIN resulting in lower reimbursement ofmanufacturing-related expenses during the 2007 Three and Six Month Periods. 

        Weexpect revenue under strategic alliances to fluctuate in future periods depending on thelevel of revenues earned for ongoing development efforts, the level of milestones achievedand the number of alliances we may enter into in the future with other biopharmaceuticalcompanies. 

        Royaltyrevenue increased 14% to $38.9 million in the 2007 Three Month Period and 16% to $75.3million in the 2007 Six Month Period from the comparable periods in 2006. The increase wasprimarily a result of increased distribution fees recognized from OBL on sales of VELCADEoutside of the United States. 

***Cost of Sales***

        Costof sales decreased 62% to $5.4 million in the 2007 Three Month Period and 64% to $10.7million in the 2007 Six Month Period from the comparable periods in 2006. Cost of salesincluded manufacturing-related expenses associated with the sales of VELCADE as well ascosts associated with managing the INTEGRILIN supply chain on behalf of SGP and GSK. The decrease in both periods was primarily due to the decrease in INTEGRILINmanufacturing-related expenses as a result of SGP purchasing the majority of the activepharmaceutical ingredient directly as of July 1, 2006. 

***Research and Development***

        Researchand development expenses decreased 7% to $73.4 million in the 2007 Three Month Period and11% to $144.6 million in the 2007 Six Month Period from the comparable periods in 2006.The decreases in both periods were primarily a result of cost reductions associated withour 2006 restructuring efforts combined with reduced stock-based compensationexpense.  The reduction in stock-based compensation expense in the 2007 Three MonthPeriod was primarily related to the vesting of certain option grants which were includedin expense during the 2006 Three Month Period, as well as normal attrition. The reductionin stock-based compensation expense in the 2007 Six Month Period was primarily due toforfeitures of certain cliff-based awards held by employees who were severed in connectionwith restructuring initiatives in excess of our original estimates, normal attrition, as well as the vesting of certain options grants which wereincluded in expense during the 2006 Six Month Period.

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        Inaddition to our ongoing clinical trials of VELCADE, we have a number of drug candidates inclinical and late preclinical development. The following chart summarizes the applicabledisease indication and the clinical or preclinical trial status of our drug candidates asof July 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 leukemiaGlioma(1)Renal cell carcinoma(1)Prostate cancer(1) phase I/IIphase I/IIphase I/IIphase 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 colitisCrohn's disease phase I/phase IIa(2)        MLN1202 is a humanized monoclonal antibody directed against CCR2 Multiple sclerosisAtherosclerosis phase IIaphase 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 
__________________    (1)                 Trials are conducted through Cancer Therapy Evaluation Program, a division of the NationalCancer Institute. 

    (2)               Clinical trials in ulcerative colitis patients resumed May 2007 with a new commerciallyscalable cell line; prior phase II data established proof-of-concept for thismechanism. This molecule has also demonstrated efficacy in Crohn's disease, and we are currently evaluating future trials in this indication.  

    (3)                  In development through our sanofi-aventis small molecule inflammatory disease collaboration. 

        Completionof clinical trials may take several years or more and the length of time can varysubstantially according to the type, complexity, novelty and intended use of a productcandidate. The types of costs incurred during a clinical trial vary depending upon thetype of product candidate and the nature of the study. 

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        Weestimate that clinical trials in our areas of focus are typically completed over thefollowing timelines: 
 **Clinical Phase** **Objective** **Estimated Completion Period**                                 phase I Establish safety in humans, study how the drug works, metabolizes andinteracts with other drugs 1-2 years                                 phase II Evaluate efficacy, optimal dosages and expanded evidence of safety 2-3 years                                 phase III Confirm efficacy and safety of the product 2-3 years        
        Uponsuccessful completion of phase III clinical trials of a product candidate, we intend tosubmit the results to the FDA to support regulatory approval. However, we cannot becertain that any of our product candidates will prove to be safe or effective, willreceive regulatory approvals, or will be successfully commercialized. Our clinical trialsmight prove that our product candidates may not be effective in treating the disease orhave undesirable or unintended side effects, toxicities or other characteristics thatrequire us to cease further development of the product candidate. The cost to take aproduct candidate through clinical trials is dependent upon, among other things, thedisease indications, the timing, the size and dosing schedule of each clinical trial, thenumber of patients enrolled in each trial and the speed at which patients are enrolled andtreated. We could incur increased product development costs if we experience delays inclinical trial enrollment, delays in the evaluation of clinical trial results or delays inregulatory approvals. 

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

        Dueto the variability in the length of time necessary to develop a product, the uncertaintiesrelated to the estimated cost of the projects and ultimate ability to obtain governmentalapproval for commercialization, accurate and meaningful estimates of the ultimate cost tobring our product candidates to market are not available. 

        Webudget and monitor our research and development costs by type or category, rather than byproject on a comprehensive or fully allocated basis. Significant categories of costsinclude personnel, clinical, third party research and development services and laboratorysupplies. In addition, a significant portion of our research and development expenses isnot tracked by project as it benefits multiple projects or our technology platform.Consequently, fully loaded research and development cost summaries by project are notavailable. 

        Giventhe uncertainties related to development, we are currently unable to reliably estimatewhen, if ever, our product candidates will generate revenue and cash flows. We do notexpect to receive net cash inflows from any of our major research and development projectsuntil a product candidate becomes a profitable commercial product. 

***Selling, General andAdministrative***

        Selling,general and administrative expenses increased 26% to $47.0 million in the 2007 Three MonthPeriod and 19% to $86.6 million in the 2007 Six Month Period from the comparable periodsin 2006.  The increases in both periods were primarily attributable to higher expenseassociated with the long-term investment in our VELCADE brand, including continuing medical education, higher commissionexpense payable to our sales force associated with the increased product sales as well as increased costsrepresenting our portion of funding the OBI co-promotion efforts, offset by lowerstock-based compensation expense. The reduction in stock-based compensation expense in the2007 Three Month Period was primarily related to the vesting of certain option grantswhich were included in expense during the 2006 Three Month Period, as well as normalattrition. The reduction in stock-based compensation expense in the 2007 Six Month Periodwas primarily due to forfeitures of certain cliff-based awards held by employees who were severed in connectionwith restructuring initiatives in excess of our original estimates, normal attrition, as well as the vesting of certain optionsgrants which were included in expense during the 2006 Six Month Period. 

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***Restructuring***

        Duringthe 2007 Three and Six Month Periods, we recorded a total of $5.8 million and $11.4million, respectively, in restructuring charges under all of our restructuringinitiatives. We recorded restructuring charges of approximately $8.9 million and $13.9million during the 2007 Three and Six Month Periods, respectively, under the 2006restructuring program. The restructuring charges primarily related to facilities-relatedcosts associated with vacated buildings and employee termination benefits as a result ofheadcount reductions.  

        Werecorded net restructuring credits in the 2007 Three and Six Month Periods ofapproximately $2.7 million and $2.5 million under the 2005 restructuring plan,respectively, primarily related to the earlier than anticipated sublease of one of ourfacilities charged to restructuring in prior years at a higher rate per square foot thanwe had originally estimated. 

        Wealso recorded net restructuring credits of $0.5 million and $0.1 million during the 2007 Threeand Six Month Periods under the 2003 restructuring plan. The restructuring creditsprimarily related to the earlier than anticipated sublease of one of our facilitiescharged to restructuring in prior years at a higher rate per square foot than we hadoriginally estimated offset by net present value adjustments for facilities charged torestructuring in prior years. 

        Weestimate that, of the remaining restructuring liabilities under all restructuringinitiatives at June 30, 2007, we will pay approximately $24.6 million through June 30,2008 and $37.0 million thereafter through 2014. 

        Weexpect to record total restructuring charges in 2007, under all restructuring initiatives,of between $15.0 million and $20.0 million.  These charges relate primarily tocertain facilities that we decided to abandon in November 2006, but will not bevacated until 2007, as well as net present value adjustments on facilities charged torestructuring in prior years.  In connection with the decision to abandon thefacilities in 2007, we revised the useful lives of the leasehold improvements at thesefacilities in accordance with SFAS No. 144, “Accounting for the Impairment orDisposal of Long-Lived Assets.”  During the 2007 Three and Six Month Periods, werecorded additional amortization expense of approximately $0.2 million and $3.0 million,respectively, in research and development expense related to our decision. 

        Weare still evaluating the need or opportunity for further facilities consolidationassociated with the 2006 restructuring initiative and the total future restructuringcharges for facility consolidation are dependent upon the nature and timing of the finaldecisions we make. As we continue to evaluate strategic alternatives, including potentialfacilities consolidation in connection with our programs, restructuringcharges could occur in future periods. 

***Amortization ofIntangibles***

        Amortizationof intangible assets of $8.5 million in the 2007 Three Month Period and $17.0 million inthe 2007 Six Month Period was unchanged from the comparable periods in 2006. Amortizationin 2007 and 2006 primarily related to specifically identified intangible assets from theCOR acquisition. We will continue to amortize the specifically identified intangibleassets from our COR acquisition through 2015. We expect to incur amortization expense ofapproximately $34.0 million for each of the next five years. 

***Investment Income***

        Investmentincome increased 100% to $11.6 million in the 2007 Three Month Period and 160% to $27.1million in the 2007 Six Month Period from the comparable periods in 2006.  Theincrease in the 2007 Three Month Period was primarily attributable to a higher average balanceof invested funds during the period. The increase in the 2007 Six Month Period was primarilyattributable to a higher average balance of invested funds during the period, a $3.5million realized gain on sale of our investment in SGX Pharmaceuticals, Inc. commonstock, and a $2.3 million realized gain recognized in January 2007 related to our share ofproceeds upon the settlement of a class action proceeding against WorldCom, Inc. 

***Interest Expense***

        Interestexpense decreased 9% to $2.5 million in the 2007 Three Month Period and 4% to $5.3 millionin the 2007 Six Month Period from the comparable periods in 2006.  The decrease inboth periods was primarily related to decreased capital lease buyouts resulting in lowerrelated interest expense offset slightly by an increase in accrued interest on ourconvertible notes as a result of higher average balances of indebtedness during theperiods. 

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Liquidity and CapitalResources 
        Werequire cash to fund our operating expenses, to make capital expenditures, acquisitionsand investments and to pay debt service, including principal and interest and capitallease payments. We have and may in the future lose money in these investments and ourability to liquidate these investments is in some cases very limited. We may also owe ourpartners milestone payments and royalties. We also have committed to fund developmentcosts incurred by some of our collaborators. 

        Wehave funded our cash requirements primarily through the following: 
 • product sales of VELCADE;     • payments from our strategic collaborators, including equity investments, license fees,milestone payments and research funding;      • royalty payments related to the sales of our products; and     • equity and debt financings in the public markets.    
        Inthe future, we expect to continue to fund our cash requirements from some or all of thesesources 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 ourstrategic alliances. We believe the key factors that could affect our internal andexternal sources of cash are: 
 • revenues from sales of VELCADE, INTEGRILIN and other products and services for which we may obtainmarketing approval in the future or which are sold by companies that may owe us royalty,milestone, distribution or other payments on account of such products;     • the success of our clinical and preclinical development programs;     • our ability to enter into additional strategic collaborations and to maintain existingcollaborations as well as the success of such collaborations; and      • the receptivity of the capital markets to financings by biopharmaceutical companies generallyand to financings by us specifically.
        Asof June 30, 2007, we had $844.4 million in cash, cash equivalents and marketablesecurities. This excludes $7.7 million of interest-bearing marketable securitiesclassified as restricted cash on our balance sheet as of June 30, 2007, which primarilyserve as collateral for letters of credit securing leased facilities. 

Our significant capital resources andsources and uses of cash are as follows: 
 June 30, 2007 December 31, 2006 (in thousands)  Cash, cash equivalents and marketable securities  $844,364 $894,349 Working capital   812,574  790,135                    Six Months Ended June 30,  2007 2006 Cash provided by (used in):            Operating activities  $36,648 $(21,246)    Investing activities   (64,749) 19,857     Financing activities   (80,767) 6,801 Capital expenditures (included in investing activities above)   (5,826) (5,552)
***Cash Flows***

        Operatingactivities provided cash of $36.6 million in the 2007 Six Month Period.  Theprincipal source of funds was the collection of accounts receivable offset by the paymentof expenses in order to fund our net loss.  Cash flows from operations can varysignificantly due to various factors including changes in accounts receivable, as well aschanges in accounts payable and accrued expenses. The average collection period of ouraccounts receivable can vary and is dependent on various factors, including the type ofrevenue and the payment terms related to those revenues. 

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        Investingactivities used cash of $64.7 million in the 2007 Six Month Period. The principal useof funds was the purchases of marketable securities.  In February 2007, we receivedproceeds of approximately $3.5 million related to the sale of our investment in SGXPharmaceuticals, Inc.  In January 2007, we received proceeds of approximately $2.3million related to our share of proceeds from a class action proceeding against WorldCom,Inc. 

        Financingactivities used cash of $80.8 million in the 2007 Six Month Period. The principal useof funds was the repayment of our 5.5% and 5.0% convertible subordinated notes inaccordance with the payment terms offset by payments received from the purchase of commonstock by our employees.  We also used $0.6 million in financing activities to makeprincipal payments on our capital leases. 

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

***Contractual Obligations***

        Asnoted 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 Six Month Period. 

        Therehave been no additional significant changes to our contractual obligations and commercialcommitments included in our Form 10-K as of December 31, 2006. 

        Asof June 30, 2007, we did not have any financing arrangements that were not reflected inour balance sheet. 

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RISK FACTORS THAT MAYAFFECT RESULTS
        ThisQuarterly Report on Form 10-Q contains forward-looking statements that are based oncurrent expectations, estimates, forecasts and projections about us, our futureperformance, 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 orwritten statements, or in our communications and discussions with investors and analystsin the normal course of business through meetings, webcasts, phone calls and conferencecalls. 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 toidentify such forward-looking statements. These statements are not guarantees of futureperformance and involve important risks, uncertainties and assumptions that are difficultto predict. We describe some of the risks, uncertainties and assumptions that could affectour business, including our financial condition and results of operations, in this“Risk Factors” section. We have based our forward-looking statements on ourmanagement’s beliefs and assumptions based on information available to our managementat the time the statements are made. 

        Wecaution 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 toforward-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, marketacceptance or continued acceptance of our products, accounting estimates, financingactivities, ongoing contractual obligations and sales efforts. We do not intend to updateor revise any forward-looking statements, whether as a result of new information, futureevents, changes in assumptions or otherwise. 
Regulatory Risks 
***Our business may beharmed if we do not obtain approval to market VELCADE for additional therapeutic uses.***

        Animportant part of our strategy to grow our business is to market VELCADE for additionalindications. To do so, we will need to successfully conduct clinical trials in accordancewith Good Clinical Practices and then apply for and obtain the appropriate regulatory approvals. If we areunsuccessful in our clinical trials, or we experience a delay in obtaining or are unableto obtain authorizations for expanded uses of VELCADE, our revenues may not grow asexpected and our business and operating results will be harmed. 

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

        VELCADEis currently approved for marketing in the United States and a total of more than 80countries including the countries of the European Union. If we or OBL are not able toobtain approval to market VELCADE in additional countries, OBL will lose the opportunityto 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 ofVELCADE by OBL in those countries. 

***We may not be able toobtain marketing approval for products resulting from our development efforts.***

        Theproducts that we are developing require research and development, extensive preclinicalstudies and clinical trials and regulatory approval, including the submission of userfees, prior to any commercial sales. This process is expensive and lengthy, and can oftentake a number of years. In some cases, the length of time that it takes for us to achievevarious regulatory approval milestones affects the payments that we are eligible toreceive under our strategic alliance agreements. 

        Wemay need to successfully address a number of technological challenges in order to completedevelopment of our products. Moreover, these products may not be effective in treating anydisease or may prove to have undesirable or unintended side effects, toxicities or othercharacteristics that may preclude our obtaining regulatory approval or prevent or limitcommercial use. For example, in January 2006, as part of our portfolio reviewprocess, based on the evaluation of clinical data in the context of additionalopportunities in the pipeline, we decided to discontinue development of MLN2704 as well asMLN1202 in rheumatoid arthritis. 

        Failureto gain approval for the products we are developing could have a material adverse impacton our business. 

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***If we fail to comply withregulatory requirements, or if we experience unanticipated problems with our approvedproducts, our products could be subject to restrictions or withdrawal from the market.***

        Anyproduct for which we obtain marketing approval, along with the manufacturing processes,post-approval clinical data, adverse event reporting and promotional activities for suchproduct, is subject to continual review and periodic inspections by the FDA and otherregulatory authorities. Later discovery of previously unknown problems or safety issueswith our products or manufacturing processes, or failure to comply with regulatoryrequirements, may result in restrictions on such products or manufacturing processes,withdrawal of the products from the market, the imposition of civil or criminal penaltiesor a refusal by the FDA and other regulatory authorities to approve pending applicationsfor marketing approval of new drugs or supplements to approved applications. As with anyrecently approved therapeutic product, we expect that our knowledge of the safety profilefor VELCADE will expand after wider usage, and the possibility exists of patientsreceiving VELCADE treatment experiencing unexpected or more frequently than expectedserious adverse events, which could have a material adverse effect on our business. 

        Weare a party to collaborations that transfer responsibility for specified regulatoryrequirements, such as filing and maintenance of marketing authorizations and safetyreporting, to our collaborators. If our collaborators do not fulfill these regulatoryobligations, products, including VELCADE or INTEGRILIN, could be withdrawn from themarket, which would have a material adverse effect on our business. Additionally, the FDArequires that we, along with our collaborators and third party manufacturers, may notemploy, in any capacity, persons who have been debarred under the FDA’s ApplicationIntegrity Policy. Employment of such a debarred person (even if inadvertently) may resultin delays in the FDA’s review or approval of our products, or the rejection of datadeveloped with the involvement of such person(s). 

***Some of our products maybe based on new technologies, which may affect our ability or the time we require toobtain necessary regulatory approvals.***

        Productsthat result from our research and development programs may be based on new technologies,such as proteasome inhibition, and new therapeutic approaches that have not beenextensively tested in humans. The regulatory requirements governing these types ofproducts may be more rigorous than for conventional products. As a result, we mayexperience a longer development or regulatory process in connection with any products thatwe develop based on these new technologies or new therapeutic approaches. 
Risks Relating to OurBusiness, Strategy and Industry 
***Our revenues over thenext several years will be materially dependent on the commercial success of VELCADE andINTEGRILIN.***

        VELCADEwas approved by the FDA in May 2003 and commercially launched in the United Statesshortly after that date. Marketing of VELCADE outside the United States commenced inApril 2004. INTEGRILIN has been on the market in the United States sinceJune 1998. Marketing of INTEGRILIN outside the United States commenced in mid-1999. 

        Ourbusiness plan contemplates obtaining marketing authorization to sell VELCADE in manycountries for the treatment of all patients with multiple myeloma and both in the UnitedStates and abroad for other indications. We will be adversely affected if VELCADE does notreceive such approvals, or if such approvals are subject to limitations on the indicateduses for which we may market the product. 

        Wewill not achieve our business plan, and we may be forced to scale back our operations andresearch and development programs, if we do not obtain regulatory approval to sell VELCADEin additional countries or for additional therapeutic uses or the sales of VELCADE orINTEGRILIN do not meet our expectations. 

***We face substantialcompetition, and others may discover, develop or commercialize products before or moresuccessfully than we do.***

        Thefields of biotechnology and pharmaceuticals are highly competitive. Many of ourcompetitors are substantially larger than we are, and these competitors have substantiallygreater 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 productmanufacturing and marketing. As a result, our competitors may discover, develop andcommercialize pharmaceutical products before or in a shorter timeframe than we do. Inaddition, our competitors may discover,

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develop and commercialize products that make theproducts that we or our collaborators have developed or are seeking to develop andcommercialize non-competitive or obsolete. 

        Withrespect to VELCADE, we face competition from Celgene Corporation’s Thalomid andRevlimid. In May 2006, the FDA approved the use of Thalomid for the treatment ofnewly diagnosed multiple myeloma. Revlimid was approved by the FDA in December 2005for the treatment of patients with myelodysplastic syndromes and in June 2006 formultiple myeloma patients who have received at least one prior therapy. We also face competition for VELCADE from traditional chemotherapytreatments, and there are other potentially competitive therapies for VELCADE, includingother proteasome inhibitors, some of which are in late-stage clinical development for thetreatment of multiple myeloma. In addition, multiple myeloma therapies in development mayreduce the number of patients available for VELCADE treatment through enrollment of thesepatients in clinical trials of these potentially competing products. 

        Dueto the incidence and severity of cardiovascular diseases, the market for therapeuticproducts that address these diseases is large, and we expect the already intensecompetition in this field to increase. The most significant competitors for SGP andGlaxoSmithKline plc, or GSK, in marketing INTEGRILIN are major pharmaceutical companiesand biotechnology companies. The two products that compete directly with INTEGRILIN in theGP IIb-IIIa inhibitor market segment are ReoPro® (abciximab), which is producedby Johnson & Johnson and sold by Johnson & Johnson and Eli Lilly andCompany, and Aggrastat® (tirofiban HCl), which is produced and sold byMerck & Co., Inc. outside of the United States and by Medicure Inc. in theUnited States. 

        Salesof INTEGRILIN could also be negatively impacted in the future by other competitivefactors, including: 
 • expanded use of heparin replacement therapies, such as Angiomax® (bivalirudin),which is produced and sold by The Medicines Company;     • changing treatment practices for percutaneous coronary intervention and acute coronarysyndrome based on new technologies, including the use of drug-coated stents;      • increased use of another class of anti-platelet drugs known as ADP inhibitors in patientswhose symptoms make them potential candidates for treatment with INTEGRILIN; and     • SGP’s inability to complete clinical trials and develop data to promote increased useof INTEGRILIN in its current indications as well as in new indications. 
***Sales of INTEGRILIN andpossibly VELCADE in particular reporting periods may be affected by fluctuations ininventory, allowances and buying patterns.***

        Wedistribute VELCADE in the U.S. through a sole-source distribution model, where we selldirectly to a third party who in turn distributes to the wholesaler base. Our VELCADEproduct inventory levels may fluctuate from time to time depending on the consistency ofthe distribution logistics of this arrangement and the buying patterns of thesewholesalers. 

        Additionally,we make provisions at the time of sale of VELCADE for discounts, rebates, product returnsand other allowances based on historical experience updated for changes in facts andcircumstances, as appropriate. To the extent these allowances are incorrect, we may needto adjust our estimates, which could have a material impact on the timing and actualamount of revenue we are able to recognize from these sales. 

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

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***Because our research anddevelopment projects are based on new technologies and new therapeutic approaches thathave not been extensively tested in humans, it is possible that our discovery processwill not result in commercial products.***

        Theprocess of discovering drugs based upon genomics and other new technologies is new andevolving rapidly. We focus a portion of our research on diseases that may be linked to anumber of genes working in combination or to novel targets. Both we and the generalscientific and medical communities have only a limited understanding of the role thatgenes play in these diseases. To date, we have not commercialized any products discoveredthrough our genomics research, and we may not be successful in doing so in the future. Inaddition, relatively few products based on gene discoveries have been developed andcommercialized by others. Rapid technological development by us or others may result incompounds, products or processes becoming obsolete before we recover our developmentexpenses. Further, manufacturing costs or products based on these new technologies maymake products uneconomical to commercialize. 

***If our clinical trialsare unsuccessful, or if they experience significant delays, our ability to commercializeproducts will be impaired.***

        Wemust provide the FDA and foreign regulatory authorities with preclinical and clinical datademonstrating that our products are safe and effective before they can be approved forcommercial sale. Clinical development, including preclinical testing, is a long, expensiveand uncertain process. It may take us several years to complete our testing, and failurecan occur at any stage of testing. Interim results of preclinical or clinical studies donot necessarily predict their final results, and acceptable results in early studies mightnot be seen in later studies. Any preclinical or clinical test may fail to produce resultssatisfactory to the FDA or other regulatory authorities. Preclinical and clinical data canbe interpreted in different ways, which could delay, limit or prevent regulatory approval.Negative or inconclusive results from a preclinical study or clinical trial, adversemedical events during a clinical trial or safety issues resulting from products of thesame class of drug could cause a preclinical study or clinical trial to be repeated orprolonged or a program to be terminated, even if other studies or trials relating to theprogram are successful. 

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

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

        Wedepend on independent clinical investigators and, in some cases, contract researchorganizations and other third party service providers to conduct the clinical trials ofour product candidates and expect to continue to do so. We rely heavily on these partiesfor successful execution of our clinical trials, but we do not control many aspects oftheir activities. Nonetheless, we are responsible for confirming that each of our clinicaltrials is conducted in accordance with the general investigational plan and protocol. Ourreliance on these third parties that we do not control does not relieve us of ourresponsibility to comply with the regulations and standards of the FDA relating to goodclinical practices. Third parties may not complete activities on schedule or may notconduct our clinical trials in accordance with regulatory requirements or the applicabletrial plans and protocols. The failure of these third parties to carry out theirobligations could delay or prevent the development, approval and commercialization of ourproduct candidates or result in enforcement action against us. 

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

        Thecommercial success of any of our products for which we may obtain marketing approval fromthe FDA or other regulatory authorities will depend upon their acceptance by the medicalcommunity and third party payors and consumers as clinically useful, cost-effective andsafe. Many of the products that we are developing are based upon new technologies ortherapeutic approaches. As a result, it may be more difficult for us to achieve marketacceptance of our products, particularly the first products that we introduce to themarket based on new technologies and therapeutic approaches. Our efforts to educate themedical community on these potentially unique approaches may require greater resourcesthan would be typically required for products based on conventional technologies ortherapeutic approaches. The safety, efficacy, convenience and cost-effectiveness of ourproducts as compared to competitive products will also affect market acceptance. 

***Because of the highdemand for talented personnel within our industry, we could experience difficulties inrecruiting employees necessary for our success and growth.***

        Becausecompetition for talented employees within our industry is fierce, we may not be successfulin hiring, retaining or promptly replacing key management, sales, marketing and technicalpersonnel. Any failure to expeditiously fill our needs for key personnel could have amaterial adverse effect on our business. 

***Our strategy ofgenerating growth through license arrangements and acquisitions may not be successful.***

        Animportant element of our business strategy is to acquire additional therapeutic agentsthrough license arrangements or acquisitions of other companies. Although we regularlyreview and engage in discussions with third parties with respect to such transactions, wemay be unable to license or acquire other suitable products or product candidates fromthird parties for a number of reasons. In particular, the licensing and acquisition ofpharmaceutical and biological products, including through the acquisition of othercompanies, is a competitive area. A number of other companies are also pursuing strategiesto license or acquire products within our therapeutic focus areas of cancer andinflammation. These other companies may have a competitive advantage over us due to theirsize, cash resources and greater drug research, discovery and development andcommercialization capabilities. 

        Otherfactors that may prevent us from licensing or otherwise acquiring suitable products andproduct candidates include the following: 
 • we may be unable to license or acquire the relevant technology on terms that would allowus to make an appropriate return on the product;     • companies that perceive us to be their competitor may be unwilling to assign or license their product rights to us; or     • we may be unable to identify suitable products or product candidates within our areas offocus.    
        Inaddition, we expect competition for licensing and acquisition candidates in thebiotechnology and pharmaceutical fields to increase, which may mean fewer suitableopportunities for us as well as higher prices. If we are unable to successfully obtainrights to suitable products and product candidates, our business, financial condition andprospects for growth could suffer. 

***If we fail tosuccessfully manage any acquisitions, our ability to develop our product candidates andexpand our product candidate pipeline may be harmed.***

        Followingany future acquisitions, our failure to adequately address the financial, operational orlegal risks of these transactions could harm our business. Financial aspects of thesetransactions that could alter our financial position, reported operating results or stockprice include: 
 • use of cash resources;     • higher than anticipated acquisition costs and expenses;     •  potentially dilutive issuances of equity securities;     • the incurrence of debt and contingent liabilities, impairment losses or restructuring charges;    
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 • large write-offs and difficulties in assessing the relative percentages of in-processresearch and development expense that can be immediately written off as compared to theamount that must be amortized over the appropriate life of the asset; and     • amortization expenses related to other intangible assets.
        Operationalrisks that could harm our existing operations or prevent realization of anticipatedbenefits from these transactions include: 
 • challenges associated with managing an increasingly diversified business;     • disruption of our ongoing business;     • difficulty and expense in assimilating the operations, products, technology, informationsystems or personnel of the acquired company;     • diversion of management's time and attention from other business concerns;     • inability to maintain uniform standards, controls, procedures and policies;     • the assumption of known and unknown liabilities of the acquired company, including intellectual property claims; and     • subsequent loss of key personnel.
        Ifwe are unable to successfully manage our acquisitions, our ability to develop new productsand continue to expand our product pipeline may be limited. 
Risks Relating to OurFinancial Results and Need for Financing 
***We have incurred substantiallosses and expect to continue to incur losses. We will not be successful unless we reversethis trend.***

        Wehave incurred net losses of $17.7 million for the three months ended June 30, 2007 and$17.7 million for the three months ended June 30, 2006. We have incurred net losses of$24.5 million for the six months ended June 30, 2007, $38.5 million for the six months endedJune 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 forthe year ended December 31, 2004. We expect to continue to incur operating losses infuture periods. Prior to our acquisition of COR Therapeutics, Inc., or COR, inFebruary 2002, substantially all of our revenues resulted from payments fromcollaborators, and not from the sale of products. As of June 30, 2007, we had anaccumulated deficit of $2.5 billion. 

        Weexpect to continue to incur significant expenses in connection with our research anddevelopment programs and commercialization activities. As a result, we will need togenerate 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 acquiredintangible assets, primarily resulting from our acquisition of COR, and goodwill becameimpaired as a result of reduced market capitalization or product failures or withdrawals. 

        We cannot be certain whether or whenwe will become profitable because of the significant uncertainties with respect to ourability to successfully develop products and generate revenues from the sale of approvedproducts and from existing and potential future strategic alliances. 

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

        Wewill require substantial funds to conduct research and development, including preclinicaltesting and clinical trials of our potential products. We will also require substantialfunds to meet our obligations to our collaborators, manufacture and market products thatare approved for commercial sale, including VELCADE, and meet our debt serviceobligations. We may also require additional financing to execute on product in-licensingor acquisition opportunities. Additional financing may not be available when we need it ormay not be available on favorable terms. 

        Ifwe are unable to obtain adequate funding on a timely basis, we may have to delay orcurtail our research and development programs, our product commercialization activities orour in-licensing or acquisition activities. We 

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could be required to seek funds througharrangements with collaborators or others that may require us to relinquish rights tospecified technologies, product candidates or products which we would otherwise pursue onour own. 

***Our indebtedness and debtservice obligations may adversely affect our cash flow and otherwise negatively affectour operations.***

        AtJune 30, 2007, we had approximately $250.0 million of outstanding convertible debtand $75.6 million of capital lease obligations. We will be required to make interestpayments on our outstanding convertible notes of approximately $6.0 million for each ofthe next four and a half years. Additionally, we will be required to make interestpayments on our capital lease obligations of approximately $2.4 million for each ofthe next three years. 

        Wemay in the future incur additional indebtedness, including long-term debt, credit linesand property and equipment financings to finance capital expenditures. We intend tosatisfy our current and future debt service obligations from cash generated by ouroperations, our existing cash and investments and, in the case of principal payments atmaturity, funds from external sources. We may not have sufficient funds and we may beunable to arrange for additional financing to satisfy our principal or interest paymentobligations when those obligations become due. Funds from external sources may not beavailable on acceptable terms, or at all. 

        Ourindebtedness could have significant additional negative consequences, including: 
 • increasing our vulnerability to general adverse economic and industry conditions;     • limiting our ability to obtain additional financing;     • requiring the dedication of a substantial portion of our cash flow from operations toservice our indebtedness, thereby reducing the amount of our expected cash flow availablefor other purposes, including capital expenditures and research and development;     • limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we compete; and     • placing us at a possible competitive disadvantage to less leveraged competitors andcompetitors that have better access to capital resources.
***If we do not achieve theanticipated benefits of our restructuring efforts, or if the costs of our restructuringefforts exceed anticipated levels, our business could be harmed.***

        Werecorded restructuring charges of $5.8 million for the three months ended June 30, 2007and $1.6 million for the three months ended June 30, 2006. We recorded restructuringcharges of $11.4 million for the six months ended June 30, 2007, $4.4 million for the sixmonths ended June 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 forthe year ended December 31, 2004. Costs associated with our restructuring effortsinclude reducing personnel and infrastructure resulting from the restructured relationshipwith SGP for INTEGRILIN and reducing our in-house research and development technologiesand headcount in areas in which we believe the work can now be outsourced costeffectively. As a result of these efforts, we expect to reduce research anddevelopment 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 restructuringsbecause such savings are difficult to predict and speculative in nature. We continue toevaluate strategic alternatives, including facility consolidation, and as a result,additional restructuring charges could occur in future periods. 
Risks Relating toCollaborators 
***We depend significantlyon our collaborators to work with us to commercialize and develop products includingVELCADE and INTEGRILIN.***

        Outsideof the United States, we commercialize VELCADE through an alliance with OBL. We beganjointly promoting VELCADE in the United States in the first quarter of 2007 under atwo-year agreement with OBI. On September 1, 2005, we transferred exclusive U.S.commercialization and development rights of INTEGRILIN to SGP and SGP is solelyresponsible for the commercialization and development of INTEGRILIN outside of Europe. GSKis responsible for marketing and selling INTEGRILIN in Europe. We conduct substantialdiscovery and development activities through strategic alliances, including with OBL forthe ongoing development of VELCADE.

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

        Eachof our collaborators has significant discretion in determining the efforts and resourcesthat it will apply to the alliance and the degree to which it shares financial and productsales and inventory information. Our existing and any future alliances may not bescientifically or commercially successful. 

        Therisks that we face in connection with these existing and any future alliances include thefollowing: 
 • All of our strategic alliance agreements are for fixed terms and are subject totermination under various circumstances, including, in many cases, such as in ourcollaboration and our joint promotion agreement with OBL and OBI, without cause.     • Our collaborators may change the focus of their development and commercialization efforts.Pharmaceutical and biotechnology companies historically have re-evaluated theirdevelopment and commercialization priorities following mergers and consolidations, whichhave been common in recent years in these industries. The ability of some of our products,including VELCADE and INTEGRILIN, to reach their potential could be limited if ourcollaborators decrease or fail to increase marketing or spending efforts related to suchproducts.     • We expect to rely on our collaborators to manufacture many products covered by ouralliances.     • In our strategic alliance agreements, we generally agree not to conduct specified types ofresearch and development in the field that is the subject of the alliance. Theseagreements may have the effect of limiting the areas of research and development that wemay pursue, either alone or in collaboration with third parties.     • Our collaborators may develop and commercialize, either alone or with others, productsthat are similar to or competitive with the products that are the subject of the alliancewith us.      • Our collaborators may not properly maintain or defend our intellectual property rights ormay use our proprietary information in such a way as to expose us to potential litigation.
***We are substantiallydependent on SGP for future revenues related to INTEGRILIN.***

        Underthe terms of our revised agreement with SGP effective as of September 1, 2005, SGPbegan paying us royalties based on net product sales of INTEGRILIN. In 2007, the minimumroyalty payment is set at $85.4 million, with some conditions that could reduce thisminimum. There are no minimum guaranteed royalty payments beyond 2007. If SGP’sINTEGRILIN sales after 2007 are less than expected, we will receive less royalty revenuethan we expect, which would have a material adverse effect on our ability to fund otherparts of our business. 

***We may not be successfulin establishing additional strategic alliances, which could adversely affect our abilityto develop and commercialize products.***

        Animportant element of our business strategy is entering into strategic alliances for thedevelopment and commercialization of selected products. In some instances, if we areunsuccessful in reaching an agreement with a suitable collaborator, we may fail to meetall of our business objectives for the applicable product or program. We face significantcompetition in seeking appropriate collaborators. Moreover, these alliance arrangementsare complex to negotiate and time-consuming to document. We may not be successful in ourefforts to establish additional strategic alliances or other alternative arrangements. Theterms of any additional strategic alliances or other arrangements that we establish maynot be favorable to us. Moreover, such strategic alliances or other arrangements may notbe successful. 

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Risks Relating toIntellectual Property 
***If we are unable to obtainpatent protection for our discoveries, the value of our technology and products will beadversely affected. If we infringe patent or other intellectual property rights of thirdparties, we may not be able to develop and commercialize our products or the cost of doingso may increase.***

        Ourpatent positions, and those of other pharmaceutical and biotechnology companies, aregenerally uncertain and involve complex legal, scientific and factual questions. Ourability to develop and commercialize products depends in significant part on our abilityto: 
 • obtain and maintain patents;     • obtain licenses to the proprietary rights of others on commercially reasonable terms;     • operate without infringing upon the proprietary rights of others;     • prevent others from infringing on our proprietary rights; and     • protect trade secrets.
***There is significantuncertainty about the validity and permissible scope of patents in our industry, whichmay make it difficult for us to obtain patent protection for our discoveries.***

        Thevalidity and permissible scope of patent claims in the pharmaceutical and biotechnologyfields, including the genomics field, involve important unresolved legal principles andare the subject of public policy debate in the United States and abroad. For example,there is significant uncertainty both in the United States and abroad regarding thepatentability of gene sequences in the absence of functional data and the scope of patentprotection available for full-length genes and partial gene sequences. Moreover, somegroups have made particular gene sequences available in publicly accessible databases.These and other disclosures may adversely affect our ability to obtain patent protectionfor gene sequences claimed by us in patent applications that we file subsequent to suchdisclosures. There is also some uncertainty as to whether human clinical data will berequired for issuance of patents for human therapeutics. If such data are required, ourability to obtain patent protection could be delayed or otherwise adversely affected. 

***Third parties may own orcontrol patents or patent applications and require us to seek licenses, which couldincrease our development and commercialization costs, or prevent us from developing ormarketing our products.***

        Wemay not have rights under some patents or patent applications related to some of ourexisting and proposed products or processes. Third parties may own or control thesepatents 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 ofour existing and proposed products or processes, we or our collaborators may choose toseek, or be required to seek, licenses under third party patents issued in the UnitedStates and abroad, or those that might issue from United States and foreign patentapplications. In such event, we would be required to pay license fees or royalties or bothto the licensor. If licenses are not available to us on acceptable terms, we or ourcollaborators may not be able to develop, manufacture, sell or import these products orprocesses. 

        OurMLN0002 and MLN1202 product candidates are humanized monoclonal antibodies. We are awareof third party patents and patent applications that relate to humanized or modifiedantibodies, products useful for making humanized or modified antibodies and processes formaking and using recombinant antibodies. 

        Withrespect to VELCADE, on June 26, 2002, Ariad Pharmaceuticals, Inc. sent to us andapproximately 50 other parties a letter offering a sublicense for the use of United StatesPatent No. 6,410,516, which is exclusively licensed to Ariad. If this patent is validand Ariad successfully sues us for infringement, we would require a license from Ariad inorder to manufacture and market VELCADE. On May 4, 2006, a federal court jury gave averdict in favor of Ariad in its patent-infringement lawsuit against Eli Lilly relating toUnited States Patent No. 6,410,516. We expect that Eli Lilly will challenge thisverdict and the validity of the patent with the U.S. Court of Appeals. In addition, we arealso aware that Amgen Inc. has filed a declaratory relief action seeking aninvalidity ruling with respect to this patent. However, Ariad’s initial success inits claim against Eli Lilly may increase the possibility that Ariad could sue additionalparties, including us, and allege infringement of the patent. 

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***We may become involved inexpensive patent litigation or other proceedings, which could result in our incurringsubstantial costs and expenses or substantial liability for damages or require us tostop our development and commercialization efforts.***

        Therehas been substantial litigation and other proceedings regarding the patent and otherintellectual property rights in the pharmaceutical and biotechnology industries. We maybecome a party to patent litigation or other proceedings regarding intellectual propertyrights. For example, we believe that we hold patent applications that cover genes that arealso claimed in patent applications filed by others. Interference proceedings before theUnited States Patent and Trademark Office may be necessary to establish which party wasthe first to invent these genes. In addition, from time to time, we receive unsolicitedletters purporting to advise us of the alleged relevance of third party patents. 

        Thecost 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 suchlitigation or proceedings more effectively than we can because of their substantiallygreater financial resources. If a patent litigation or other proceeding is resolvedagainst 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 andwe may be held liable for significant damages. We may not be able to obtain any requiredlicense on commercially acceptable terms or at all. 

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

***Our patent protection for anycompounds that we seek to develop may be limited to a particular method of use orindication such that, if a third party were to obtain approval of the compound for use inanother indication, we could be subject to competition arising from off-label use.***

        Althoughwe 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 anyparticular compound and may be limited to protecting a new method of use for the compoundor otherwise restricted in our ability to prevent others from exploiting the compound. Ifwe are unable to obtain patent protection for the actual composition of any compound thatwe seek to develop and commercialize and must rely on method of use patent coverage, wewould likely be unable to prevent others from manufacturing or marketing that compound forany use that is not protected by our patent rights. If a third party were to receivemarketing approval for the compound for another use, physicians could neverthelessprescribe it for indications that are not described in the product’s labeling orapproved by the FDA or other regulatory authorities. Even if we have patent protection ofthe prescribed indication, as a practical matter, we would have little recourse as aresult of this off-label use. In that event, our revenues from the commercialization ofthe compound would likely be adversely affected. 

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

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

***Competition from genericpharmaceutical manufacturers could negatively impact our products sales.***

        Competitionfrom manufacturers of generic drugs is a major challenge for us in the U.S. and is growinginternationally. Upon the expiration or loss of patent protection for one of our products,or upon the “at-risk” launch (despite pending patent infringement litigationagainst the generic product) by a generic manufacturer of a generic version of one of ourproducts, we could lose the major portion of sales of that product in a very short period,which could adversely affect our business. 

        Genericcompetitors operate without our large research and development expenses and our costs ofconveying medical information about our products to the medical community. In addition,the FDA approval process exempts generics from costly and time-consuming clinical trialsto demonstrate their safety and efficacy, allowing generic manufacturers to rely on thesafety and efficacy data of the innovator product. Generic products, however, need onlydemonstrate a level of availability in the bloodstream equivalent to that of the innovatorproduct. This means that

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generic competitors can market a competing version of our productafter the expiration or loss of our patent and charge much less. The issued U.S. patentsrelated to VELCADE expire in 2017 and the issued foreign patents expire in 2015 withextensions issued or pending in a number of countries. However, we may not be granted anysuch potential or pending extension. The issued United States patents that coverINTEGRILIN expire in 2014 and 2015 and the issued foreign patents expire between 2010 and2012. Our patent-protected products also can face competition in the form of genericversions of branded products of competitors that lose their market exclusivity. 

        Inaddition, third parties could produce counterfeit products labeled as VELCADE, INTEGRILINor other of our products in the future. Counterfeit products could reduce sales orcompromise goodwill associated with our product brands. 
Risks Relating toProduct Manufacturing, Marketing and Sales 
***Because we have limitedsales, marketing and distribution experience and capabilities, in some instances we aredependent on third parties to successfully perform these functions on our behalf, orwe may be required to incur significant costs and devote significant efforts toaugment our existing capabilities.***

        Wemarket and sell VELCADE in the United States through ourcancer-specific sales force. In the first quarter of 2007, webegan jointly promoting VELCADE in the United States with OBI. Our success in sellingVELCADE will depend heavily on the performance of these sales forces. In areas outside theUnited 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 Stateswill depend heavily on OBL. 

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

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

***Because we have nocommercial manufacturing capabilities, we will continue to be dependent on third partymanufacturers to manufacture products for us, or we will be required to incursignificant costs and devote significant efforts to establish our own manufacturing facilitiesand capabilities.***

        Wehave no commercial-scale manufacturing capabilities. In order to continue to developproducts, apply for regulatory approvals and commercialize products, we will need todevelop, contract for or otherwise arrange for the necessary manufacturing capabilities. 

        Wecurrently rely substantially upon third parties to produce material for preclinicaltesting purposes and expect to continue to do so in the future. We also currently rely, andexpect to continue to rely, upon other third parties, potentially including ourcollaborators, to produce materials required for clinical trials and for the commercialproduction of our products.

        Thereare a limited number of contract manufacturers that operate under the FDA’s currentGood Manufacturing Practices, or GMP, regulations capable of manufacturing our products. In addition, the FDA will inspectour contract manufacturers prior to granting approval of a new drug application, and willconduct periodic, unannounced inspections to ensure strict ongoing compliance with currentGMPs and other applicable regulations. If we are unable to arrange for third partymanufacturing of our products, or to do so on commercially reasonable terms, we may not beable to complete development of our products or commercialize them, or we may experiencedelays in doing so. 

        Relianceon third party manufacturers entails risks to which we would not be subject if wemanufactured products ourselves, including reliance on the third party for regulatorycompliance, the possibility of breach of the manufacturing agreement by the third partybecause of factors beyond our control and the possibility of termination or non-renewal ofthe agreement by the third party, based on its own business priorities, at a time that iscostly or inconvenient for us. Any failure by our third party manufacturers to comply withapplicable regulations, including current GMP regulations, could result in sanctions beingimposed on the manufacturers or us, including fines,

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injunctions, civil penalties, failureof regulatory authorities to grant marketing approval of our product candidates, delays,suspension or withdrawal of approvals, seizures or recalls of products, operatingrestrictions and criminal prosecutions, any of which could significantly and adverselyaffect our business. 

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

***Because we have nocommercial manufacturing capability for VELCADE and INTEGRILIN, we are dependent on thirdparties to produce product sufficient to meet market demand.***

        Weare responsible for managing the supply of material for all clinical and commercialproduction of VELCADE, including VELCADE that OBL sells or uses in clinical trials, andINTEGRILIN, including INTEGRILIN that SGP and GSK sell or use in clinical trials. 

        Werely on third party contract manufacturers to manufacture, fill/finish and package VELCADEfor both commercial purposes and for all clinical trials. We have established long-termsupply relationships for the production of commercial supplies of VELCADE. We work withone manufacturer, with whom we have a long-term supply agreement, to complete fill/finishfor VELCADE, and have contracted with a second manufacturer who will provide fill/finishservices for VELCADE in the future. If any of our current third party manufacturersperforming production and fill/finish for VELCADE are unable or unwilling to continueperforming these services for us, and we are unable to find a replacement manufacturer orin the future we are otherwise unable to contract with manufacturers to produce commercialsupplies of VELCADE in a cost-effective manner, we could run out of VELCADE for commercialsale and clinical trials and our business could be substantially harmed. 

        Wehave no manufacturing facilities for INTEGRILIN and, accordingly, rely on third partycontract manufacturers for the clinical and commercial production of INTEGRILIN. We havethree approved manufacturers, two of which currently provide us with eptifibatide, theactive ingredient necessary to make INTEGRILIN. Solvay, one of the current manufacturers,owns the process technology used by it for the production of bulk product. Lonza is theother current manufacturer of eptifibatide, and we own the process technology utilized byit. We have two approved manufacturers that currently perform fill/finish services forINTEGRILIN and two packaging suppliers for the United States. If our current manufacturersare unable to continue or decide to discontinue their manufacturing, fill/finish orpackaging services and we are unable to secure alternative manufacturers, the supply ofINTEGRILIN could be adversely affected which could substantially harm our business. 

        Inorder to mitigate the risk of INTEGRILIN supply interruption, we are exploring severaloptions for the long-term supply of eptifibatide. Also, Solvay, the owner of the processtechnology used by it and by one of our former suppliers of eptifibatide, has raisedconcerns that the new Millennium process may have been developed using informationasserted to be confidential and proprietary to Solvay. If Solvay succeeds in a claimrelating to these concerns, our ability to practice our new process could be negativelyimpacted, which could adversely affect our ability to obtain INTEGRILIN from suppliersusing the new process or the cost of manufacturing eptifibatide and negatively impact ourbusiness. We are in discussions with Solvay regarding its concern. 

***If we fail to obtain anadequate level of reimbursement for our products by third party payors, there may be nocommercially viable markets for our products.***

        Theavailability and levels of reimbursement by governmental and other third party payorsaffect the market for any pharmaceutical product or health care service. These third partypayors continually attempt to contain or reduce the costs of health care by challengingthe prices charged for medical products and services. In some foreign countries,particularly the countries of the European Union, the pricing of prescriptionpharmaceuticals is subject to governmental control. We may not be able to sell ourproducts as profitably as we expect if we are required to sell our products at lower thananticipated prices or reimbursement is unavailable or limited in scope or amount. 

        Inparticular, third party payors could lower the amount that they will reimburse hospitalsor 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. Inaddition, if we fail to comply with the rules applicable to the Medicaid and Medicareprograms, we could be subject to the imposition of civil or criminal penalties orexclusion from these programs. 

        Inforeign markets, a number of different governmental and private entities determine thelevel at which hospitals will be reimbursed for administering VELCADE and INTEGRILIN toinsured patients. If these levels are set, or reset, too low, it may not be possible tosell VELCADE or INTEGRILIN at a profit in these markets. 

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        Inboth the United States, on federal and state levels, and foreign jurisdictions, there havebeen 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 itsimplementing regulations impose new requirements for the distribution and pricing ofprescription drugs which may affect the marketing of our products. These new requirementshave created uncertainty among oncologists and could impact sales levels of VELCADE asoncologists adapt to the new reimbursement model. Further proposals are also likely. Thecurrent uncertainty and the potential for adoption of additional proposals could affectthe timing of product revenue, our ability to raise capital, obtain additionalcollaborators and market our products. 

        Inaddition, we believe that the increasing emphasis on managed care in the United States hasand will continue to put pressure on the price and usage of our present and futureproducts, which may adversely affect product sales. Further, when a new therapeuticproduct is approved, the availability of governmental or private reimbursement for thatproduct is uncertain, as is the amount for which that product will be reimbursed. Wecannot predict the availability or amount of reimbursement for our product candidates, andcurrent reimbursement policies for VELCADE or INTEGRILIN could change at any time. 

***We face a risk of productliability claims and may not be able to obtain insurance.***

        Ourbusiness exposes us to the risk of product liability claims that is inherent in themanufacturing, testing and marketing of human therapeutic products. In particular, VELCADEand INTEGRILIN are administered to patients with serious diseases who have a highincidence of mortality. Although we have product liability insurance that we believe isappropriate, this insurance is subject to deductibles, co-insurance requirements andcoverage limitations and the market for such insurance is becoming more restrictive. Wemay 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 againstpotential product liability claims, we will be exposed to significant liabilities, whichmay materially and adversely affect our business and financial position. These liabilitiescould prevent or interfere with our product commercialization efforts. 

***We face a risk ofgovernment enforcement actions in connection with marketing activities.***

        Becausewe are a company operating in a highly regulated industry, for many reasons, regulatoryauthorities could take enforcement action against us including seizure of allegedlymisbranded product, cessation of promotional activities, injunction or criminalprosecution against us and our officers or employees. 

        Forexample, we face the potential of FDA enforcement action for allegations of off-labelpromotion of VELCADE. Some physicians prescribe VELCADE for uses not approved by the FDAor comparable regulatory agencies outside the United States. For example, VELCADE is notapproved for front-line treatment of multiple myeloma. However, we are aware that theoncology physician community is using VELCADE for this purpose. Although physicians maylawfully prescribe VELCADE for off-label uses, any promotion by us of off-label uses wouldbe unlawful. Although we have policies and procedures in place designed to help assureongoing compliance with regulatory requirements regarding off-label promotion, regulatoryauthorities could take enforcement action against us if they believe we are promoting, orhave promoted, VELCADE for off-label use. 

        Additionally,the Department of Justice can bring civil or criminal actions against companies thatpromote drugs for unapproved uses, based on the False Claims Act and other federal lawsgoverning reimbursement for such products under the Medicare, Medicaid and other federallysupported healthcare programs.  Monetary penalties in such cases have often been inexcess of $100 million.  Civil penalties can include costly mandatory complianceprograms and exclusion from federal healthcare programs. 

***Guidelines andrecommendations can affect the use of our products.***

        Governmentagencies promulgate regulations and guidelines directly applicable to us and to ourproducts. In addition, professional societies, practice management groups, private healthand science foundations and organizations involved in various diseases from time to timemay also publish guidelines or recommendations to the health care and patient communities.Recommendations of government agencies or these other groups or organizations may relateto such matters as usage, dosage, route of administration and use of concomitanttherapies. Recommendations or guidelines suggesting the reduced use of our products or theuse of competitive or alternative products that are followed by patients and health careproviders could result in decreased use of our products. 

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Risks Relating toHolding Our Common Stock 
***The trading price of ourcommon stock could be subject to significant fluctuations.***

        The tradingprice of our common stock has been quite volatile, and may be volatile in the future.During the six months ended June 30, 2007, our common stock traded as high as $12.09 pershare and as low as $9.88 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 orour competitors’ operating results, data from our or our competitors’ clinicaltrial results, changes in our prospects, market conditions for biopharmaceutical stocks ingeneral and analyst recommendations or

commentary concerning our or our competitors’products or business could have a significant impact on the future trading prices of ourcommon stock. 

        Inparticular, the trading price of the common stock of many biopharmaceutical companies,including ours, has experienced extreme price and volume fluctuations, which have at timesbeen 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: 
 • product revenues and the rate of revenue growth;     • introduction or success of competitive products;     • clinical trial results and regulatory developments;     • quarterly variations in financial results and guidance to the investment community with respect to future financial results;     • business and product market cycles;     • fluctuations in customer requirements;     • availability and utilization of manufacturing capacity;     • timing of new product introductions; and     • our ability to develop and implement new technologies.    
        Theprice of our common stock may also be affected by the estimates and projections of theinvestment community and our ability to meet or exceed the financial projections weprovide to the public. The price may also be affected by general economic and marketconditions, and the cost of operations in our product markets. While we cannot predict theindividual effect that these factors may have on the price of our securities, thesefactors, either individually or in the aggregate, could result in significant variationsin price during any given period of time. We can not assure you that these factors willnot have an adverse effect on the trading price of our common stock. 

***We have anti-takeoverdefenses that could delay or prevent an acquisition and could adversely affect the priceof our common stock.***

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

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Item 3.    Quantitative and Qualitative Disclosures About MarketRisk
        Wemanage our fixed income investment portfolio in accordance with our Policy for SecuritiesInvestments, or Investment Policy, that has been approved by our Board of Directors. Theprimary objectives of our Investment Policy are to preserve principal, maintain a highdegree of liquidity to meet operating needs, and obtain competitive returns subject toprevailing market conditions. Investments are made primarily in investment-grade corporatebonds with effective maturities of three years or less, asset-backed debt securities andU.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 subjectto interest rate risk and will decrease in value if market interest rates increase. Ahypothetical 100 basis point increase in interest rates would result in an approximate$11.8 million decrease in the fair value of our investments as of June 30, 2007. However,due to the conservative nature of our investments and relatively short effectivematurities of debt instruments, interest rate risk is mitigated. Our Investment Policyspecifies credit quality standards for our investments and limits the amount of exposurefrom any single issue, issuer or type of investment. We do not own derivative financialinstruments in our investment portfolio as of June 30, 2007. 

        Wereceive distribution fees from Ortho Biotech based on worldwide product sales of VELCADEoutside of the U.S.  As a result, our financial position, results of operations andcash flows can be affected by fluctuations in foreign currency exchange rates, primarilyEURO.  Movement in foreign currency exchange rates could cause royalty revenue tovary significantly in future reporting periods. 

        Asof June 30, 2007, the fair value of our 2.25% notes approximates their carrying value. Theinterest rates on our convertible notes and capital lease obligations are fixed andtherefore not subject to interest rate risk. 

        Asof June 30, 2007 we did not have any financing arrangements that were not reflected in ourbalance sheet. 
Item4.    Controls and Procedures
        Ourmanagement, with the participation of our chief executive officer and chief financialofficer, evaluated the effectiveness of our disclosure controls and procedures (as definedin Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of June 30,2007. In designing and evaluating our disclosure controls and procedures, managementrecognized that any controls and procedures, no matter how well designed and operated, canprovide only reasonable assurance of achieving their objectives and our managementnecessarily applied its judgment in evaluating the cost-benefit relationship of possiblecontrols and procedures. Based on this evaluation, our chief executive officer and chieffinancial officer concluded that as of June 30, 2007, our disclosure controls andprocedures were (1) designed to ensure that material information relating to us ismade 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 usin the reports we file or submit under the Exchange Act is recorded, processed, summarizedand reported within the time periods specified in the SEC’s rules and forms. 

        Nochange in our internal control over financial reporting (as defined inRules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during thefiscal quarter ended June 30, 2007 that has materially affected, or is reasonably likelyto materially affect, our internal control over financial reporting. 

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**PART II    OTHER INFORMATION**

**Item 4.    Submission of Matters to a Vote of Security Holders**

        Atour Annual Meeting of Stockholders held on May 10, 2007, our stockholders voted on fivematters, as follows:
 1. The stockholders approved an amendment to our Restated Certificate of          Incorporation, as amended, to declassify our Board of Directors so that all          directors are elected annually and to eliminate the supermajority voting          provision relating to removal of directors by the following votes:    **For:**278,898,254**Against:**827,170**Abstain:**515,713**Broker Non-Votes:**0** **  2. The stockholders approved an amendment to our Restated Certificate of          Incorporation, as amended, to eliminate supermajority voting provisions by the          following votes:     **For:**279,055,158**Against:**640,436**Abstain:**545,543**Broker Non-Votes:**0** **  3. The stockholders elected Deborah Dunsire, Robert F. Friel, A. Grant Heidrich,          III, Charles J. Homcy, Raju S. Kucherlapati, Mark J. Levin, Norman C. Selby,          Kenneth E. Weg and Anthony H. Wild to serve as directors for a term of one year to          expire at the 2008 Annual Meeting of Stockholders by the following votes:     **Number of Shares****Name** **For** **Withheld**Deborah Dunsire 276,130,789 4,110,348Robert F. Friel 278,421,961 1,819,176A. Grant Heidrich, III 274,877,341 5,363,796Charles J. Homcy 274,789,787 5,451,350Raju S. Kucherlapati 275,874,530 4,366,607Mark J. Levin 274,522,690 5,718,447Norman C. Selby 277,284,068 2,957,069Kenneth E. Weg 277,251,183 2,989,954Anthony H. Wild 278,449,771 1,791,366      4. The stockholders approved our 2007 Incentive Plan by the following votes:    **For:**196,777,422**Against:**21,354,488**Abstain:**530,732**Broker Non-Votes:**61,578,495** **  5. The stockholders ratified the appointment of Ernst & Young LLP as our          independent registered public accounting firm for the fiscal year ending December 31, 2007 by the          following votes:     **For:**276,830,517**Against:**2,951,353**Abstain:**459,267**Broker Non-Votes:**0
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**Item 6.    Exhibits**
(a)    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 itsbehalf by the undersigned, thereunto duly authorized.  MILLENNIUM PHARMACEUTICALS, INC.(Registrant)        Dated: August 8, 2007  By /s/  MARSHA H. FANUCCI      Marsha H. Fanucci   *Senior Vice President and Chief Financial Officer*   *(principal financial and chief accounting officer)*    
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**EXHIBIT INDEX**
Exhibit No. Description       10.1† First Amendment dated May 2, 2007 to the Co-Promotion Agreement between the Company and Ortho Biotech, Inc. datedOctober 25, 2006       10.2 Form of agreement entered into with certain executive officers of the Company, together with a schedule of the                parties thereto       31.1 Certification of principal executive officer pursuant to Rule 13a-14(a)/15d-14(a) ofthe Securities Exchange Act of 1934, as amended       31.2 Certification of principal financial officer pursuant to Rule 13a-14(a)/15d-14(a) ofthe                                 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 
† Confidential treatment requested as to certain portions, which portionshave been separately filed with the Securities and Exchange Commission.

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