##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended June 30, 2005
 Commission file number: 0-27406
 CONNETICS CORPORATION
 (Exact name of registrant as specified in its charter)
 Delaware
    
    94-3173928(State or other jurisdiction of
    
    (IRS Employerincorporation or organization)
    
    Identification Number)3160 Porter Drive
    
    94304Palo Alto, California
    
    (Zip Code)(Address of principal executive offices)
 Registrants telephone number, including area code: (650) 843-2800
 o þ
 þ o




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CONNETICS CORPORATION
 TABLE OF CONTENTS
  
 PagePART I FINANCIAL INFORMATIONItem 1. Financial Statements
    
    
    3Condensed Consolidated Balance Sheets at June 30, 2005 and December 31, 2004
    
    
    3Condensed Consolidated Statements of Operations for the Three and Six Months ended June 30,
2005 and 2004
    
    
    4Condensed Consolidated Statements of Cash Flows for the Six Months ended June 30, 2005 and 2004
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    12Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    18Item 4. Controls and Procedures
    
    
    19PART II OTHER INFORMATIONItem 4. Submission of Matters to a Vote of Security Holders
    
    
    19Item 6. Exhibits
    
    
    20Signatures
    
    
    21Exhibits
    
    
    22EXHIBIT 10.6EXHIBIT 10.7EXHIBIT 10.8EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
  2




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PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 CONNETICS CORPORATION
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
 June 30,
    
    December 31,2005
    
    2004ASSETSCurrent assets:Cash and cash equivalents
    
    $
    14,562
    
    
    $
    18,261Marketable securities
    
    
    237,649
    
    
    
    54,122Restricted
cash  current
    
    
    1,000
    
    
    
    1,000Accounts receivable, net of allowances
    
    
    15,914
    
    
    
    21,206Inventory, net
    
    
    7,440
    
    
    
    5,020Prepaid expenses
    
    
    8,879
    
    
    
    7,561Other current assets
    
    
    2,168
    
    
    
    1,963Total current assets
    
    
    287,612
    
    
    
    109,133Property and equipment, net
    
    
    14,045
    
    
    
    11,830Restricted cash  long term
    
    
    3,059
    
    
    
    2,963Debt issuance costs, deposits and other assets
    
    
    11,462
    
    
    
    3,707Goodwill and other intangible assets, net
    
    
    121,860
    
    
    
    128,659Total assets
    
    $
    438,038
    
    
    $
    256,292LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    15,120
    
    
    $
    14,531Assumed liabilities related to acquisition of product rights
    
    
    2,298
    
    
    
    2,710Accrued payroll and related expenses
    
    
    4,876
    
    
    
    5,746Product rebate and coupon accruals
    
    
    15,315
    
    
    
    10,564Accrued clinical trial costs
    
    
    1,683
    
    
    
    751Other accrued liabilities
    
    
    7,162
    
    
    
    3,650Total current liabilities
    
    
    46,454
    
    
    
    37,952Convertible senior notes
    
    
    290,000
    
    
    
    90,000Other non-current liabilities
    
    
    471
    
    
    
    420Commitments and contingenciesStockholders equity:Preferred stock
    
    
    
    
    
    
    Common stock
    
    
    35
    
    
    
    36Additional paid-in capital
    
    
    207,567
    
    
    
    237,666Deferred stock compensation
    
    
    (4
    )
    
    
    (13
    )Accumulated deficit
    
    
    (107,630
    )
    
    
    (111,173
    )Accumulated other comprehensive income
    
    
    1,145
    
    
    
    1,404Total stockholders equity
    
    
    101,113
    
    
    
    127,920Total liabilities and stockholders equity
    
    $
    438,038
    
    
    $
    256,292
 See accompanying notes to condensed consolidated financial statements.
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CONNETICS CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
 Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Revenues:Product
    
    $
    45,239
    
    
    $
    37,999
    
    
    $
    87,429
    
    
    $
    61,565Royalty and contract
    
    
    130
    
    
    
    254
    
    
    
    311
    
    
    
    1,670Total revenues
    
    
    45,369
    
    
    
    38,253
    
    
    
    87,740
    
    
    
    63,235Operating costs and expenses:Cost of product revenues
    
    
    4,982
    
    
    
    3,578
    
    
    
    8,748
    
    
    
    5,146Amortization of intangible assets
    
    
    3,400
    
    
    
    3,400
    
    
    
    6,799
    
    
    
    4,672Research and development
    
    
    8,957
    
    
    
    5,096
    
    
    
    14,855
    
    
    
    9,537Selling, general and administrative
    
    
    25,356
    
    
    
    17,467
    
    
    
    53,165
    
    
    
    32,760Total operating costs and expenses
    
    
    42,695
    
    
    
    29,541
    
    
    
    83,567
    
    
    
    52,115Income from operations
    
    
    2,674
    
    
    
    8,712
    
    
    
    4,173
    
    
    
    11,120Interest income
    
    
    1,845
    
    
    
    152
    
    
    
    2,322
    
    
    
    500Interest expense
    
    
    (1,860
    )
    
    
    (690
    )
    
    
    (2,631
    )
    
    
    (1,381
    )Other income (expense), net
    
    
    (4
    )
    
    
    (70
    )
    
    
    (63
    )
    
    
    (19
    )Income before income taxes
    
    
    2,655
    
    
    
    8,104
    
    
    
    3,801
    
    
    
    10,220Income tax provision
    
    
    153
    
    
    
    647
    
    
    
    258
    
    
    
    890Net income
    
    $
    2,502
    
    
    $
    7,457
    
    
    $
    3,543
    
    
    $
    9,330Net income per share:Basic
    
    $
    0.07
    
    
    $
    0.21
    
    
    $
    0.10
    
    
    $
    0.27Diluted
    
    $
    0.07
    
    
    $
    0.19
    
    
    $
    0.09
    
    
    $
    0.25Shares used to calculate net income per share:Basic
    
    
    34,825
    
    
    
    35,242
    
    
    
    35,259
    
    
    
    34,439Diluted
    
    
    37,093
    
    
    
    41,627
    
    
    
    37,785
    
    
    
    36,722
 See accompanying notes to condensed consolidated financial statements.
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CONNETICS CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 Six Months EndedJune 30,2005
    
    2004Cash flows from operating activities:Net income
    
    $
    3,543
    
    
    $
    9,330Adjustments to reconcile net income to net cash from operating activities:Depreciation
    
    
    772
    
    
    
    744Amortization of intangible assets
    
    
    6,799
    
    
    
    4,672Amortization of convertible senior notes offering costs
    
    
    550
    
    
    
    368Allowance for discounts, returns and chargebacks
    
    
    4,121
    
    
    
    2,804Stock compensation expense
    
    
    9
    
    
    
    9Changes in assets and liabilities:Accounts receivable
    
    
    1,174
    
    
    
    (6,589
    )Prepaids and other assets
    
    
    (3,819
    )
    
    
    (1,485
    )Inventory
    
    
    (2,375
    )
    
    
    (3,290
    )Accounts payable
    
    
    984
    
    
    
    7,944Product rebates and coupon accruals
    
    
    4,751
    
    
    
    4,301Accrued and other current liabilities
    
    
    3,200
    
    
    
    920Other non-current liabilities
    
    
    51
    
    
    
    Net cash provided by operating activities
    
    
    19,760
    
    
    
    19,728Cash flows from investing activities:Purchases of marketable securities
    
    
    (238,682
    )
    
    
    (22,578
    )Sales and maturities of marketable securities
    
    
    54,981
    
    
    
    85,809Purchases of property and equipment
    
    
    (3,088
    )
    
    
    (1,492
    )Acquisition of patent and product rights
    
    
    
    
    
    
    (123,529
    )Net cash used in investing activities
    
    
    (186,789
    )
    
    
    (61,790
    )Cash flows from financing activities:Transfer to restricted cash
    
    
    (96
    )
    
    
    (2,696
    )Proceeds from issuance of convertible senior notes, net of issuance costs
    
    
    193,625
    
    
    
    Proceeds from issuance of common stock, net of issuance costs
    
    
    
    
    
    
    56,901Repurchase of common stock
    
    
    (35,000
    )
    
    
    Proceeds from exercise of stock options and employee stock purchase plan,
net of repurchases of unvested shares
    
    
    4,860
    
    
    
    3,021Net cash provided by financing activities
    
    
    163,389
    
    
    
    57,226Effect of foreign currency exchange rate changes on cash and cash equivalents
    
    
    (59
    )
    
    
    (172
    )Net change in cash and cash equivalents
    
    
    (3,699
    )
    
    
    14,992Cash and cash equivalents at beginning of period
    
    
    18,261
    
    
    
    17,946Cash and cash equivalents at end of period
    
    $
    14,562
    
    
    $
    32,938
 See accompanying notes to condensed consolidated financial statements.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 Note 1. Basis of Presentation and Policies
   Principles of Consolidation
  Use of Estimates
   Revenue Recognition
 Product Revenues. .
  6




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Royalty Revenue.
 Contract Revenue.
  Inventory
  Stock-Based Compensation
   pro forma
 7




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Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,(in thousands except per share amounts):
    
    2005
    
    2004
    
    2005
    
    2004Net income, as reported
    
    $
    2,502
    
    
    $
    7,457
    
    
    $
    3,543
    
    
    $
    9,330Add: Stock-based employee compensation
expense, net of related tax effects
    
    
    5
    
    
    
    4
    
    
    
    9
    
    
    
    8Deduct: Total stock-based employee
compensation expense determined under
the fair value method for all awards,
net of related tax effects
    
    
    (4,330
    )
    
    
    (2,617
    )
    
    
    (9,651
    )
    
    
    (5,301
    )Pro forma net income (loss)
    
    $
    (1,823
    )
    
    $
    4,844
    
    
    $
    (6,101
    )
    
    $
    4,037Net income (loss) per share:Basic net income  as reported
    
    $
    0.07
    
    
    $
    0.21
    
    
    $
    0.10
    
    
    $
    0.27Diluted net income  as reported
    
    $
    0.07
    
    
    $
    0.19
    
    
    $
    0.09
    
    
    $
    0.25Basic net income (loss)  pro forma
    
    $
    (0.05
    )
    
    $
    0.14
    
    
    $
    (0.17
    )
    
    $
    0.12Diluted net income (loss)  pro forma
    
    $
    (0.05
    )
    
    $
    0.13
    
    
    $
    (0.16
    )
    
    $
    0.11
  Stock Option Plans
    
    Stock Option PlansThree Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Expected stock volatility
    
    
    46.3
    %
    
    
    55.8
    %
    
    
    47.1
    %
    
    
    56.6
    %Risk-free interest rate
    
    
    3.9
    %
    
    
    3.3
    %
    
    
    3.6
    %
    
    
    2.8
    %Expected life (in years)
    
    
    4.0
    
    
    
    3.4
    
    
    
    4.0
    
    
    
    3.4Expected dividend yield
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
 Stock Purchase Plan
    
    Stock Purchase PlanThree Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Expected stock volatility
    
    
    54.5
    %
    
    
    51.6
    %
    
    
    50.2
    %
    
    
    51.6
    %Risk-free interest rate
    
    
    1.8
    %
    
    
    3.8
    %
    
    
    1.7
    %
    
    
    3.8
    %Expected life (in years)
    
    
    1.3
    
    
    
    1.6
    
    
    
    1.4
    
    
    
    1.6Expected dividend yield
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
  pro forma
 Recent Accounting Pronouncements
 pro forma
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Note 2. Net Income Per Share
  (in thousands except
share amounts)
 Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Net income, as reported
    
    $
    2,502
    
    
    $
    7,457
    
    
    $
    3,543
    
    
    $
    9,330Add back: interest expense, net of tax effect
    
    
    
    
    
    
    649
    
    
    
    
    
    
    
    Diluted income
    
    $
    2,502
    
    
    $
    8,106
    
    
    $
    3,543
    
    
    $
    9,330Basic weighted-average shares outstanding
    
    
    34,825
    
    
    
    35,242
    
    
    
    35,259
    
    
    
    34,439Effect of:Dilutive stock options
    
    
    2,268
    
    
    
    2,150
    
    
    
    2,526
    
    
    
    2,247Dilutive warrants
    
    
    
    
    
    
    32
    
    
    
    
    
    
    
    36Convertible debt
    
    
    
    
    
    
    4,203
    
    
    
    
    
    
    
    Diluted weighted-average shares outstanding
    
    
    37,093
    
    
    
    41,627
    
    
    
    37,785
    
    
    
    36,722Net income per share:Basic
    
    $
    0.07
    
    
    $
    0.21
    
    
    $
    0.10
    
    
    $
    0.27Diluted
    
    $
    0.07
    
    
    $
    0.19
    
    
    $
    0.09
    
    
    $
    0.25
 9




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(in thousands)
 Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Common stock equivalents:Options
    
    
    1,480
    
    
    
    106
    
    
    
    1,247
    
    
    
    42Convertible debt
    
    
    4,203
    
    
    
    
    
    
    
    4,203
    
    
    
    4,203Total
    
    
    5,683
    
    
    
    106
    
    
    
    5,450
    
    
    
    4,245
  Note 3. Comprehensive Income
 (in thousands)
 Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Net income
    
    $
    2,502
    
    
    $
    7,457
    
    
    $
    3,543
    
    
    $
    9,330Foreign currency translation adjustment
    
    
    48
    
    
    
    (233
    )
    
    
    (174
    )
    
    
    (362
    )Change in unrealized gain on
securities, net of reclassification
adjustments for realized gain (loss)
    
    
    (1
    )
    
    
    (315
    )
    
    
    (83
    )
    
    
    (431
    )Comprehensive income
    
    $
    2,549
    
    
    $
    6,909
    
    
    $
    3,286
    
    
    $
    8,537
  4. Convertible Senior Notes and Stock Repurchase
    10




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5. Inventory
 (in thousands)
 June 30,
    
    December 31,2005
    
    2004Raw materials
    
    $
    2,107
    
    
    $
    677Finished goods, net of allowance
    
    
    5,333
    
    
    
    4,343Total inventory
    
    $
    7,440
    
    
    $
    5,020
  Note 6. Goodwill and Purchased Intangible Assets
 (in thousands)
 June 30, 2005
    
    December 31, 2004Useful Life

    
    Gross Carrying
    
    Accumulated
    
    
    
    
    
    Gross Carrying
    
    Accumulatedin Years
    
    Amount
    
    Amortization
    
    Net
    
    Amount
    
    Amortization
    
    NetAcquired product rights
    
    
    10
    
    
    $
    127,652
    
    
    $
    (17,021
    )
    
    $
    110,632
    
    
    $
    127,652
    
    
    $
    (10,638
    )
    
    $
    117,014Existing technology
    
    
    10
    
    
    
    6,810
    
    
    
    (2,866
    )
    
    
    3,944
    
    
    
    6,810
    
    
    
    (2,525
    )
    
    
    4,285Patents
    
    
    10 to 13
    
    
    
    1,661
    
    
    
    (648
    )
    
    
    1,013
    
    
    
    1,661
    
    
    
    (572
    )
    
    
    1,089Total
    
    
    
    
    
    $
    136,123
    
    
    $
    (20,535
    )
    
    $
    115,589
    
    
    $
    136,123
    
    
    $
    (13,735
    )
    
    $
    122,388
  (in thousands)
 AmortizationExpenseRemaining six months in 2005
    
    $
    6,799For the year ending December 31, 2006
    
    
    13,598For the year ending December 31, 2007
    
    
    13,598For the year ending December 31, 2008
    
    
    13,598For the year ending December 31, 2009
    
    
    13,598For the year ending December 31, 2010
    
    
    13,598Thereafter
    
    
    40,800Total
    
    $
    115,589
 11




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Note 7. Guaranties and Indemnifications
   Note 8. Co-Promotion Agreements
   Note 9. Commitments
   
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 This discussion and analysis should be read in conjunction with the MD&A included in our
Annual Report on Form 10-K for the year ended December 31, 2004, and with the unaudited condensed
consolidated financial statements and notes to financial statements included in this Report. Our
disclosure and analysis in this Report, in other reports that we file with the Securities and
Exchange Commission, in our press releases and in public statements of our officers may contain
forward-looking statements within the meaning of Section 27A of the Securities Act, and Section 21E
of the Securities Exchange Act. Forward-looking statements give our current expectations or
forecasts of future events. You can identify these statements by the fact that they do not relate
strictly to historical or current events. They use words such as
 12




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anticipate, estimate, expect, will, may, intend, plan, believe and similar
expressions in connection with discussion of future operating or financial performance. These
include statements relating to future actions, prospective products or product approvals, future
performance or results of current and anticipated products, sales efforts, expenses, the outcome of
contingencies such as legal proceedings, and financial results. Forward-looking statements may turn
out to be wrong. They can be affected by inaccurate assumptions or by known or unknown risks and
uncertainties. Many factors will be important in determining future results. No forward-looking
statement can be guaranteed, and actual results may vary materially from those anticipated in any
forward-looking statement. Some of the factors that, in our view, could cause actual results to
differ are discussed under the caption Factors Affecting Our Business and Prospects in our 2004
Annual Report on Form 10-K. Our historical operating results are not necessarily indicative of the
results to be expected in any future period.
 Overview
   
    
    OLUX, a super high-potency topical steroid prescribed for the treatment of steroid responsive dermatological
diseases;
    
    Luxíq, a mid-potency topical steroid prescribed for scalp dermatoses such as psoriasis, eczema and seborrheic
dermatitis;
    
    Soriatane, an oral medicine for the treatment of severe psoriasis; and
    
    Evoclin, a topical treatment for acne vulgaris.
    13




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Critical Accounting Policies
  Results of Operations
 Revenues
 Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,(In thousands)
    
    (In thousands)2005
    
    2004
    
    2005
    
    2004Product revenues:Soriatane
    
    $
    18,334
    
    
    $
    17,154
    
    
    $
    35,915
    
    
    $
    20,794OLUX
    
    
    14,033
    
    
    
    15,223
    
    
    
    29,825
    
    
    
    29,593Luxíq
    
    
    5,835
    
    
    
    5,614
    
    
    
    11,489
    
    
    
    11,085Evoclin
    
    
    7,037
    
    
    
    
    
    
    
    10,104
    
    
    
    Other
    
    
    
    
    
    
    8
    
    
    
    96
    
    
    
    93Total product revenues
    
    
    45,239
    
    
    
    37,999
    
    
    
    87,429
    
    
    
    61,565Royalty and contract revenues:Royalty
    
    
    130
    
    
    
    172
    
    
    
    228
    
    
    
    1,525Contract
    
    
    
    
    
    
    82
    
    
    
    83
    
    
    
    145Total royalty and contract revenues
    
    
    130
    
    
    
    254
    
    
    
    311
    
    
    
    1,670Total revenues
    
    $
    45,369
    
    
    $
    38,253
    
    
    $
    87,740
    
    
    $
    63,235
    Cost of Product Revenues
   14




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Amortization of Intangible Assets
  Research and Development
   Selling, General and Administrative Expenses
    15




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Interest and other income (expense), net
   Income Taxes
  Liquidity and Capital Resources
 Working Capital
   Capital Expenditures
  Capital Resources
   16




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##### Table of Contents



Contractual Obligations and Commercial Commitments
   (in thousands):
 Increase inOperating LeasePaymentsFor the year ending December 31, 2006
    
    $
    339For the year ending December 31, 2007
    
    
    303For the year ending December 31, 2008
    
    
    315For the year ending December 31, 2009
    
    
    338For the year ending December 31, 2010
    
    
    88Total
    
    $
    1,383
 Recent Accounting Pronouncements
  Factors that May Affect Future Results, Financial Condition and the Market Price of Securities
 Please also read Item 1 in our Annual Report on Form 10-K for the year ended December 31, 2004,
where we have described our business and the challenges and risks we may face in the future.
 17




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##### Table of Contents



Our Business Strategy May Cause Fluctuating Operating Results
  
    
    changes in the levels we spend to develop new product lines,
    
    changes in the amounts we spend to promote our products,
    
    changes in treatment practices of physicians that currently prescribe our products,
    
    changes in reimbursement policies of health plans and other similar health insurers, including changes that
affect newly developed or newly acquired products,
    
    increasing regulatory requirements that may affect timing of new product development and ultimate
commercialization,
    
    the development of new competitive products by others,
    
    the mix of products that we sell during any time period,
    
    increases in the cost of raw materials used to manufacture our products,
    
    our responses to price competition,
    
    forward-buying patterns by wholesalers that may result in significant quarterly swings in revenue reporting, and
    
    fluctuations in royalties paid by third parties.
 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  18




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##### Table of Contents








Item 4. Controls and Procedures











PART II. OTHER INFORMATION





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






Name
    
    For
    
    WithheldAlexander E. Barkas, MD
    
    
    30,102,471
    
    
    
    2,810,017Eugene Bauer, M.D.
    
    
    18,678,008
    
    
    
    14,234,479Andrew Eckert
    
    
    22,765,545
    
    
    
    10,146,942Denise Gilbert, Ph.D.
    
    
    31,125,696
    
    
    
    786,792John C. Kane
    
    
    30,262,799
    
    
    
    2,649,689Thomas D. Kiley
    
    
    31,544,126
    
    
    
    1,368,362Leon E. Panetta
    
    
    20,638,966
    
    
    
    12,273,521G. Kirk Raab
    
    
    29,843,519
    
    
    
    3,068,969Thomas G. Wiggans
    
    
    31,466,209
    
    
    
    1,466,279




For

    
    Against
    
    Abstain5,687,886
    
    
    22,321,253
    
    
    
    261,999




For
    
    Against
    
    Abstain28,468,459
    
    
    4,281,306
    
    
    
    162,723




For
    
    Against
    
    Abstain32,667,617
    
    
    244,361
    
    
    
    513


19



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##### Table of Contents



Item 6. Exhibits
 ExhibitNumber
    
    Description3.1*
    
    Amended and Restated Certificate of Incorporation (previously filed as an exhibit to the Companys Form
S-1 Registration Statement No. 33-80261)3.2*
    
    Certificate of Amendment of the Companys Amended and Restated Certificate of Incorporation, as filed with
the Delaware Secretary of State on May 15, 1997 (previously filed as Exhibit 3.7 to the Companys Current
Report on Form 8-K dated and filed May 23, 1997)3.3*
    
    Certificate of Designation of Rights, Preferences and Privileges of Series B
Participating Preferred Stock, as filed with the Delaware Secretary of State on May 15, 1997 (previously
filed as Exhibit A to Exhibit 1 to the Companys Form 8-A filed on May 23, 1997)3.4*
    
    Certificate of Elimination of Rights, Preferences and Privileges of Connetics Corporation, as filed with
the Delaware Secretary of State on December 11, 2001 (previously filed as Exhibit 3.5 to the Companys
Annual Report on Form 10-K/ A for the year ended December 31, 2001)3.5*
    
    Certificate of Designation of Rights, Preferences and Privileges of Series C Preferred
Stock, as filed with the Delaware Secretary of State on March 22, 2005 (previously filed
as Exhibit 3.1 to the Companys Current Report on Form 8-K filed on June 6, 2005)3.6*
    
    Certificate of Elimination of Rights, Preferences and Privileges of Series C Preferred
Stock of Connetics Corporation, as filed with the Delaware Secretary of State on May 18, 2005
(previously filed as Exhibit 3.2 to the Companys Current Report on Form 8-K filed on June 6, 2005)3.7*
    
    Certificate of Amendment of the Amended and Restated Certificate of Incorporation of Connetics
Corporation (previously filed as Exhibit 4.7 to the Companys Form S-1 Registration Statement filed
on June 20, 2005)10.1*
    
    Form of Change in Control Agreement between the Company and outside directors
of the Company (previously filed as Exhibit 10.13 to the Companys Form S-1 Registration Statement
filed on June 20, 2005)10.2*
    
    Change of Control Agreement dated January 1, 2002 between the Company and
Thomas G. Wiggans (previously filed as Exhibit 10.14 to the Companys Form S-1 Registration
Statement filed on June 20, 2005)10.3*
    
    Change of Control Agreement dated January 1, 2002 between the Company and G. Kirk Raab
(previously filed as Exhibit 10.15 to the Companys Form S-1 Registration Statement filed on June 20, 2005)10.4*
    
    Non-Qualified Stock Option Agreement between Connetics Corporation and James A. Trah (previously
filed as Exhibit 10.3 to the Companys Quarterly Report on Form 10-Q for the quarter ended March 31, 2005)10.5*
    
    Non-Qualified Stock Option Agreement between Connetics Corporation and Michael Eison
(previously filed as Exhibit 10.25 to the Companys Form S-1 Registration Statement filed on June 20, 2005)10.6
    
    Non-Qualified Stock Option Agreement between Connetics Corporation and Stefan Weiss10.7
    
    1995 Directors Stock Option Plan (as amended through February 10, 2005),and forms of Option Agreement10.8
    
    Description of Compensation Payable
to Non-Employee Directors31.1
    
    Rule 13a-14(a) Certification of the Chief Executive Officer31.2
    
    Rule 13a-14(a) Certification of the Chief Financial Officer32.1
    
    Section 1350 Certification of the Chief Executive Officer 32.2
    
    Section 1350 Certification of the Chief Executive Officer 
 
 *
    
    Incorporated by this reference to the previous filing, as indicated.
    
    The certifications attached as Exhibits 32.1 and 32.2 that accompany this quarterly report on
Form 10-Q, are not deemed filed with the Securities and Exchange Commission and are not to be
incorporated by reference into any filing of Connetics Corporation under the Securities Act of
1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or
after the date of this Form 10-Q, irrespective of any general incorporation language contained
in such filing. 20




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##### Table of Contents



SIGNATURE
  Connetics CorporationBy:
    /s/ John L. HigginsJohn L. HigginsExecutive Vice President, Finance and Corporate Development and Chief Financial Officer (Principal Financial Officer and
Principal Accounting Officer and Duly Authorized Officer of the Registrant)  21




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##### Table of Contents



INDEX TO EXHIBITS
 ExhibitNumber
    
    Description3.1*
    
    Amended and Restated Certificate of Incorporation (previously filed as an exhibit to the Companys Form
S-1 Registration Statement No. 33-80261)3.2*
    
    Certificate of Amendment of the Companys Amended and Restated Certificate of Incorporation, as filed with
the Delaware Secretary of State on May 15, 1997 (previously filed as Exhibit 3.7 to the Companys Current
Report on Form 8-K dated and filed May 23, 1997)3.3*
    
    Certificate of Designation of Rights, Preferences and Privileges of Series B
Participating Preferred Stock, as filed with the Delaware Secretary of State on May 15, 1997 (previously
filed as Exhibit A to Exhibit 1 to the Companys Form 8-A filed on May 23, 1997)3.4*
    
    Certificate of Elimination of Rights, Preferences and Privileges of Connetics Corporation, as filed with
the Delaware Secretary of State on December 11, 2001 (previously filed as Exhibit 3.5 to the Companys
Annual Report on Form 10-K/ A for the year ended December 31, 2001)3.5*
    
    Certificate of Designation of Rights, Preferences and Privileges of Series C Preferred
Stock, as filed with the Delaware Secretary of State on March 22, 2005 (previously filed
as Exhibit 3.1 to the Companys Current Report on Form 8-K filed on June 6, 2005)3.6*
    
    Certificate of Elimination of Rights, Preferences and Privileges of Series C Preferred
Stock of Connetics Corporation, as filed with the Delaware Secretary of State on May 18, 2005
(previously filed as Exhibit 3.2 to the Companys Current Report on Form 8-K filed on June 6, 2005)3.7*
    
    Certificate of Amendment of the Amended and Restated Certificate of Incorporation of Connetics
Corporation (previously filed as Exhibit 4.7 to the Companys Form S-1 Registration Statement filed
on June 20, 2005)10.1*
    
    Form of Change in Control Agreement between the Company and outside directors
of the Company (previously filed as Exhibit 10.13 to the Companys Form S-1 Registration Statement
filed on June 20, 2005)10.2*
    
    Change of Control Agreement dated January 1, 2002 between the Company and
Thomas G. Wiggans (previously filed as Exhibit 10.14 to the Companys Form S-1 Registration
Statement filed on June 20, 2005)10.3*
    
    Change of Control Agreement dated January 1, 2002 between the Company and G. Kirk Raab
(previously filed as Exhibit 10.15 to the Companys Form S-1 Registration Statement filed on June 20, 2005)10.4*
    
    Non-Qualified Stock Option Agreement between Connetics Corporation and James A. Trah (previously filed as
Exhibit 10.3 to the Companys Quarterly Report on Form 10-Q for the quarter ended March 31, 2005)10.5*
    
    Non-Qualified Stock Option Agreement between Connetics Corporation and Michael Eison
(previously filed as Exhibit 10.25 to the Companys Form S-1 Registration Statement filed on June 20, 2005)10.6
    
    Non-Qualified Stock Option Agreement between Connetics Corporation and Stefan Weiss10.7
    
    1995 Directors Stock Option Plan (as amended through February 10, 2005),and forms of Option Agreement10.8
    
    Description of Compensation Payable
to Non-Employee Directors31.1
    
    Rule 13a-14(a) Certification of the Chief Executive Officer31.2
    
    Rule 13a-14(a) Certification of the Chief Financial Officer32.1
    
    Section 1350 Certification of the Chief Executive Officer 32.2
    
    Section 1350 Certification of the Chief Executive Officer 
 
 *
    
    Incorporated by this reference to the previous filing, as indicated.
    
    The certifications attached as Exhibits 32.1 and 32.2 that accompany this quarterly report on
Form 10-Q, are not deemed filed with the Securities and Exchange Commission and are not to be
incorporated by reference into any filing of Connetics Corporation under the Securities Act of
1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or
after the date of this Form 10-Q, irrespective of any general incorporation language contained
in such filing. 22