##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-K
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2009
 OR
 o
    
    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: 000-50414
 MIDDLEBROOK PHARMACEUTICALS, INC.
 (Exact Name of Registrant as Specified in Its Charter)
 Delaware
    
    52-2208264(State or Other Jurisdiction of
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification Number)7 Village Circle, Suite 100
    
    76262Westlake, Texas
    
    (Zip Code)(Address of Principal Executive Offices)
 (Registrants Telephone Number, Including Area Code): (817) 837-1200
 Securities registered pursuant to Section 12(b) of the Act:
 Title of each class
    
    Name of each exchange on which registeredCommon Stock, par value $0.01 per share
    
    NASDAQ Global Market
 Securities registered pursuant to Section 12(g) of the Act:
 Yes o No þ
 Yes o
No þ
 þ o
 o o
 þ
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer
o(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE
 Portions of the registrants Proxy Statement for the 2010 Annual Meeting of Stockholders, to
be filed within 120 days after the end of the registrants fiscal year, are incorporated by
reference into Part III of this Annual Report on Form 10-K .




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##### 



MIDDLEBROOK PHARMACEUTICALS, INC.
INDEX
FORM 10-K
 PagePART IItem 1. Business
    
    
    4Item 1A. Risk Factors
    
    
    17Item 1B. Unresolved Staff Comments
    
    
    29Item 2. Properties
    
    
    29Item 3. Legal Proceedings
    
    
    29Item 4. Reserved
    
    
    29PART IIItem 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
    
    
    30Item 6. Selected Financial Data
    
    
    32Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    33Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    48Item 8. Financial Statements and Supplementary Data
    
    
    48Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    48Item 9A. Controls and Procedures
    
    
    48Item 9B. Other Information
    
    
    49PART IIIItem 10. Directors, Executive Officers and Corporate Governance
    
    
    50Item 11. Executive Compensation
    
    
    50Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
    
    
    50Item 13. Certain Relationships and Related Transactions, and Director Independence
    
    
    50Item 14. Principal Accountant Fees and Services
    
    
    50PART IVItem 15. Exhibits and Financial Statement Schedules
    
    
    51Exhibit 23.1Exhibit 31.1Exhibit 32.1
  KEFLEX, KEFLEX 250 MG, KEFLEX 500 MG, KEFLEX 750 MG, MiddleBrook, MiddleBrook Pharmaceuticals
(stylized), MiddleBrook Pharmaceuticals, Inc., M1 (stylized), MOX-10, MOXAKIT, MOXATAG1 (stylized),
MOXATAG, MOXATAG PAK, MOXATAG PAK(stylized), MOXATEN, MOX PAK (stylized), MOX-PAK, MOX PAK1
(stylized) and PULSYS are our trademarks and have been registered in the U.S. Patent and Trademark
Office or are the subject of pending U.S. trademark applications. Each of the other trademarks,
tradenames, or service marks appearing in this document belongs to the respective holder. Except as
otherwise indicated by the context, references to we,
us, our, MiddleBrook, or the
Company, refer to MiddleBrook Pharmaceuticals, Inc., and its subsidiaries.
 The data included in this Annual Report on Form 10-K regarding market share, historical sales,
market size, and ranking, including our position within these markets, is based on data generated
by the independent market research firm IMS Health Incorporated, or IMS Health. IMS Health reports
data from various sources, including drug manufacturers, wholesalers, retailers, pharmacies, mail
services, long-term care facilities, and hospitals. We rely on IMS Health-National Sales
Perspectives TM for retail and non-retail sales data related to our business; IMS Health,
National Prescription Audit TM for historical retail and mail-order prescription data
related to our product classes; and IMS Health, National Disease and Therapeutic Index TM for tracking physician treatment patterns.
  2




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FORWARD-LOOKING STATEMENTS
 Some of the statements made under the heading Managements Discussion and Analysis of
Financial Condition and Results of Operations and elsewhere in this Annual Report on Form 10-K
contain forward-looking statements within the meaning of the Securities Exchange Act of 1934, or
the Exchange Act, and the Securities Act of 1933, or the Securities Act, which reflect our current
plans, beliefs, estimates and views with respect to, among other things, future events and
financial performance. In some cases, forward-looking statements are identified by words such as
believe, anticipate, expect, intend, plan, potential, estimate, will, may,
predict, should, could, would and similar expressions. Specifically, this Annual Report on
Form 10-K contains, among others, forward-looking statements regarding our exploration of strategic
alternatives, our future financial performance, the sufficiency of our cash resources, the
successful commercialization of MOXATAG and its market position and growth, the seasonality of our
products, estimated expense savings from our reductions in force, the sufficiency of our existing
KEFLEX supply, the status of our product development efforts and our use of our PULSYS technology
to develop any new products, the amounts of charge-backs and rebates we record, the impact of
market and foreign currency risk, and our ability to rely on previous FDA findings for any PULSYS
product candidates. You should not place undue reliance on these forward-looking statements. The
forward-looking statements included herein and any expectations based on such forward-looking
statements are subject to risks and uncertainties and other important factors that could cause
actual results to differ materially from the results contemplated by the forward-looking
statements, including:
 
    
    the failure to obtain market acceptance or to successfully commercialize MOXATAG and any
decrease in sales of our KEFLEX products;
    
    the effectiveness of our sales and marketing efforts;
    
    our ability to continue as a going concern and to meet our
anticipated operating needs with our revenues and existing cash,
and our ability to identify and consummate a strategic transaction;
    
    the effect of current market conditions on our products and business;
    
    our obligations related to product returns;
    
    our reliance on third parties to provide us with the active pharmaceutical ingredients in
our products and product candidates, and to perform certain aspects of the manufacturing,
packaging and distribution of our products;
    
    our ability to protect our intellectual property;
    
    continued pricing pressures;
    
    reimbursement of our products under managed care programs;
    
    unsuccessful product development candidates and the effectiveness of the PULSYS technology;
    
    our exposure to credit rate, interest rate and exchange rate risk;
 as well as other risks and uncertainties identified in Part I, Item 1A. Risk Factors and Part II,
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations in
this Annual Report on Form 10-K.
 We operate in a continually changing business environment, and new risks and uncertainties
emerge from time to time. Management cannot predict these new risks or uncertainties, nor can it
assess the impact, if any, that any such risks or uncertainties may have on our business or the
extent to which any factor, or combination of factors, may cause actual results to differ from
those projected in any forward-looking statement. Accordingly, the risks and uncertainties to which
we are subject can be expected to change over time, and we undertake no obligation to update
publicly or review the risks or uncertainties described in this Annual Report on Form 10-K . We also
undertake no obligation to update publicly or review any of the forward-looking statements made in
this Annual Report on Form 10-K , whether as a result of new information, future developments or
otherwise.
 In addition, with respect to all of our forward-looking statements, we claim the protection of
the safe harbor for forward-looking statements contained in the Private Securities Litigation
Reform Act of 1995.
  3




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PART I
 
 Item 1.
    
    Business
 Corporate Overview
  Streptococcus pyogenes Streptococcus pyogenes
       4




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Anti-Infectives Market
   Substantial market. TM TM TM TM TM
 Increased resistance to existing therapies. Streptococcus pneumoniae Streptococcus pyogenes
 Growing need for improved new treatments.
 Difficulties in developing new classes of anti-infective compounds. .
 Limitations of standard treatment regimens.
 Our Proprietary PULSYS Technology
   
    
    shorter duration of therapy;
    
    lower dose;
    
    reduced side effect profile;
    
    improved pediatric dosage form; and
    
    combination product(s) with superior efficacy over either drug alone.
  5




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Our Strategy
  Commercialize products with multiple advantages over existing therapies/regimens.
 Focus initially on antibiotics that have been used and trusted for decades.
 Focus on first-line, broad-spectrum antibiotics for community infections.
 Multi-level patent strategy for PULSYS.
 In-license or acquire antibiotic products
 Our Approved and Marketed Products
 KeyProducts
    
    Indication(s)
    
    Marketing RightsMOXATAG (amoxicillin extended-release) Tablets, 775 mg
    
    Pharyngitis/tonsillitis
    
    Worldwide rights (100% ownership  no royalties due to any third party)KEFLEX (Cephalexin, USP) Capsules 250 mg, 500 mg and 750 mg
    
    Skin and skin structure infections; upper respiratory tract infections
    
    U.S. and Puerto Rico rights (royalties to Eli Lilly for 750 mg)
 MOXATAG
(amoxicillin extended-release) Tablets, 775 mg Streptococcus pyogenes, TM TM
 6




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tm Streptococcus pyogenes ® Streptococcus pyogenes
  KEFLEX
(Cephalexin, USP) Capsules 250 mg, 500 mg, and 750 mg (Cephalexin, USP)
    KEFLEX Agreements- Deerfield Transaction. Business  KEFLEX Agreements  Deerfield
Transaction.
 Our Product Pipeline
 Targeted PULSYSPULSYS Product
    
    Key
    
    AddedCandidate/Program
    
    Indication(s)
    
    Value
    
    Program Status(1)KEFLEX
(Cephalexin)
PULSYS Adolescent
& Adult
    
    Skin and skin
structure infections
    
    Once-daily for 10-days
    
    Preparing for Phase III-delayedPediatric
Amoxicillin PULSYS
 Sprinkle
    
    Pharyngitis/tonsillitis
    
    Shorter course of
therapy, or
once-daily
    
    Plan to conduct Phase II-delayed
 
 (1)
    
    For an explanation of the terms Phase II and Phase III, please
refer to the information under the heading Government
Regulation- NDA Process below.  7




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Managements Discussion and Analysis of Financial Condition and Results of
Operations
 Business  Government Regulation  5 05(b)(2) Applications
 KEFLEX (Cephalexin) PULSYS.
 TM TM
   Amoxicillin Pediatric PULSYS Sprinkle Program. TM TM TM
  8




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Other
Possible Pulsatile Product Candidates.
 
    
    once-a-day formulation;
    
    shorter duration of therapy;
    
    lower dose;
    
    reduced side effect profile;
    
    improved pediatric dosage form; and
    
    combination product with superior efficacy over either drug alone.
   
    
    sinusitis;
    
    chronic bronchitis;
    
    acute otitis media;
    
    urinary tract infections; and
    
    community-acquired methicillin resistant staphylococcus aureus (MRSA).
   Patent and Intellectual Property Protection
  Number of patents.
 9




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Multi-level patent strategy for PULSYS.
 Expiration dates for key patents.
 No royalties on PULSYS patents.
 KEFLEX 250 MG, KEFLEX 500 MG, KEFLEX 750 MG, MOXATAG PAK, MOXATAG PAK(stylized), MOXATEN, (stylized), MOX-PAK, MOX PAK1
(stylized)
 Sales and Marketing
   ® ® ® ®
   Trade Sales and Distribution.
    10




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Seasonality
 TM
 Competition
  
    
    Large pharmaceutical companies, such as Pfizer, GlaxoSmithKline,
Bristol-Myers Squibb, Merck, Johnson & Johnson, Roche, Novartis,
sanofi-aventis, Abbott Laboratories, AstraZeneca, and Bayer.
    
    Smaller pharmaceutical and biotechnology companies and specialty
pharmaceutical companies engaged in focused research and development
of anti-infective drugs, such as Trimeris, Vertex, Gilead Sciences,
Cubist, Basilea, InterMune, King, Advanced Life Sciences.
    
    Drug delivery companies, such as Johnson & Johnsons Alza division,
Biovail, DepoMed, Flamel Technologies, and SkyePharma.
    
    Generic drug companies, such as Teva, Ranbaxy, Sandoz (a subsidiary of
Novartis) and Stada, which produce low-cost versions of antibiotics
that may contain the same active pharmaceutical ingredients as our
PULSYS product candidates.
  
    
    efficacy;
    
    safety;
    
    tolerability;
    
    acceptance by doctors;
    
    patient compliance and acceptance;
    
    patent protection;
    
    convenience;
    
    price;
    
    insurance and other reimbursement coverage;
    
    distribution;
    
    marketing; and
    
    adaptability to various modes of dosing.
      11




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Manufacturing
 Manufacture and Packaging.
      Raw Material Sourcing Agreements.
 Product Candidates.
 Collaboration Agreements
     12




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EGI Transaction
  KEFLEX Agreements  Deerfield Transaction
  First Closing.
 Second Closing.
 Repurchase Right.
 Government Regulation
  NDA Process.
 
    
    completion of preclinical laboratory and animal testing;
    
    submission of an investigational new drug application, which must become effective before the
commencement of human clinical trials;
    
    performance of adequate and well-controlled human clinical trials to establish the safety and efficacy
of the proposed drug products intended use; and
    
    submission to and approval by the FDA of a NDA, which includes inspection of manufacturing facilities.
   PHASE I:
 PHASE II:
 13




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PHASE III:
    Abbreviated New Drug Applications, or ANDA.
 5 05(b)(2) Applications.
  Paragraph IV Certifications.
 14




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Other
FDA Constraints.
 Fraud
and Abuse Laws
  15




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Other Regulatory Requirements.
 Foreign Regulatory Approval.
  Pharmaceutical Pricing and Reimbursement.
   
    
    controls on government-funded reimbursement for drugs;
    
    controls on payments to healthcare providers that affect demand for drug products;
    
    challenges to the pricing of drugs or limits or prohibitions on reimbursement for specific products through other means;
    
    weakening of restrictions on imports of drugs; and
    
    expansion of use of managed care systems in which healthcare providers contract to provide comprehensive healthcare for
a fixed cost per person.
   16




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Employees
   Access to Our Filings with the Securities and Exchange Commission
   
 Item 1A.
    
    Risk Factors
  Risks Related to Our Business
 We may be forced to file for bankruptcy protection if we fail to identify and consummate a
strategic transaction in the near future.
  
    
    the cash received from sales of existing MOXATAG and KEFLEX products;
    
    our ability to successfully commercialize our products and the costs associated with related marketing,
promotional and sales efforts;
  17




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
    
    the cost of products sold, including royalties due to Eli Lilly on KEFLEX 750 mg net revenues, and the cost
of manufacturing activities, including raw material sourcing and regulatory compliance; and
    
    the costs involved in establishing and protecting our patent, trademark and other intellectual property
rights.
    There is substantial doubt about our ability to continue as a going concern.
  We may be required to pay liquidated damages if we do not maintain the effectiveness of our S-3
registration statements.
  The loss of certain senior management could have a material adverse effect on our operations and
financial performance.
  We have a history of losses, we expect to incur losses for the foreseeable future, and we may never
become profitable.
    
    
    commercializing our MOXATAG (amoxicillin extended-release) Tablets, 775 mg product;
    
    maintaining sales of our KEFLEX products; and
    
    consummating a strategic transaction.
   18




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Our products may never be successfully accepted by the market.
  
    
    demonstration of clinical efficacy and safety;
    
    cost-effectiveness;
    
    potential advantages over competitive products and alternative therapies, including generics;
    
    reimbursement policies of government and third-party payors;
    
    pharmacist substitution; and
    
    effectiveness of our marketing and distribution capabilities and the effectiveness of such
capabilities of our collaborative partners.
    Current unfavorable market conditions may continue to adversely affect our product sales and
business.
  If a competitor produces and commercializes an antibiotic that is superior to our PULSYS
antibiotics, the market for our potential products would be reduced or eliminated.
  Any inability to protect our intellectual property could harm our competitive position.
  19




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Streptococcus pyogenes
  Claims that we infringe the intellectual property rights of others may adversely affect our
reputation and financial condition.
  
    
    cease selling, incorporating or using any of our products that incorporate the
challenged intellectual property, including MOXATAG;
    
    obtain a license from the holder of the infringed intellectual property right, which may
be costly or may not be available on reasonable terms, if at all; or
    
    redesign our products, which would be costly and time-consuming and may not be possible.
   20




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We have not sought patent protection for certain aspects of the technology used in our
PULSYS product candidates, and if we are not able to protect the confidentiality of such
information, others may use our technology to compete against us.
  We have a post-marketing commitment to proceed with a Phase II clinical trial for our
pediatric PULSYS sprinkle product candidate, which we may never be able to
conduct.
  Our ability to commercialize our products is dependent upon the success of our own sales and
marketing capabilities and infrastructure.
  ® ® ®
  We rely upon a limited number of pharmaceutical wholesalers and distributors, which could
impact our ability to sell our products.
  We are dependent on our contract manufacturers and suppliers to provide us with active
pharmaceutical ingredients and finished products, and any failure of such third parties to
meet our product demand could negatively impact our business and results of operations.
  
    
    the possibility that third parties may not comply with the FDAs cGMP regulations, other regulatory
requirements or quality assurance;
  21




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
    
    the possible breach of manufacturing agreements by third parties due to factors beyond our control; and
    
    the possibility of termination or nonrenewal of an agreement by a third-party manufacturer, based on
its own business priorities, at a time that is costly or inconvenient for us.
     All of our manufacturing operations are located outside of the United States, which exposes
us to additional business risks that may adversely impact our financial results.
   Our PULSYS technology is based on a finding that could ultimately prove to be incorrect or
could have limited applicability.
    22




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If clinical trials for our products are unsuccessful or delayed, we will be unable to meet
our anticipated development and commercialization timelines, which could have a material
adverse effect on our growth prospects.
   
    
    lack of efficacy during the clinical trials;
    
    unforeseen safety issues;
    
    slower than expected rate of patient recruitment; or
    
    government or regulatory delays.
    If we proceed with our long-term development plan, clinical trials for our product candidates may
be delayed due to our dependence on third parties for the conduct of such trials.
  Our success may depend on our ability to successfully attract and retain collaborative
partners.
  
    
    fund our research and development activities;
    
    fund manufacturing by third parties;
    
    seek and obtain regulatory approvals; and
    
    successfully commercialize our product candidates.
   23




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If we cannot enter into new licensing arrangements or otherwise gain access to products, our
ability to develop a diverse product portfolio could be limited.
    Risks Related to Our Industry
 We could be forced to pay substantial damage awards if product liability claims that may be
brought against us are successful.
  Generic pricing plans, such as those implemented by Wal-Mart, CVS, Rite Aid and Walgreens,
may affect the market for our products.
  Our products are subject to Medicaid reimbursement and price reporting, and further
limitations on or reductions in reimbursement would reduce our revenues and could have a
material adverse effect on our results of operations.
   24




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Our industry is subject to extensive government regulation, and noncompliance could
harm our business.
    If we do not compete successfully in the development and commercialization of products and
keep pace with rapid technological change, we will be unable to capture and sustain a
meaningful market position.
   
    
    Large pharmaceutical companies, such as Pfizer, GlaxoSmithKline,
Bristol-Myers Squibb, Merck, Johnson & Johnson, Roche, Novartis,
sanofi-aventis, Abbott Laboratories, AstraZeneca, and Bayer, which may
develop new drug compounds that render our drugs obsolete or
noncompetitive.
    
    Smaller pharmaceutical and biotechnology companies and specialty
pharmaceutical companies engaged in focused research and development
of anti-infective drugs, such as Trimeris, Vertex, Gilead Sciences,
Cubist, Basilea, InterMune, King, Advanced Life Sciences, and others.
    
    Drug delivery companies, such as Johnson & Johnsons Alza division,
Biovail, DepoMed, Flamel Technologies, and SkyePharma, which may
develop a dosing regimen that is more effective than pulsatile dosing.
    
    Generic drug companies, such as Teva, Ranbaxy, Sandoz (a subsidiary of
Novartis) and Stada, which produce low-cost versions of antibiotics
that may contain the same APIs as our PULSYS product candidates.
  
    
    developing products;
    
    undertaking preclinical testing and human clinical trials;
    
    obtaining approvals of products from the FDA and other regulatory agencies; and
    
    manufacturing and marketing products.
  If we experience delays in obtaining regulatory approvals, or are unable to obtain or
maintain regulatory approvals, we may be unable to commercialize our products.
 Business  Government Regulation
  
    
    adversely affect the commercialization of any drugs that we or our collaborative partners develop;
    
    impose costly procedures on us or our collaborative partners;
    
    diminish any competitive advantages that we or our collaborative partners may attain; and
    
    adversely affect our receipt of revenues or royalties.
   25




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
    
    delays in clinical trials or commercialization;
    
    product recalls or seizures;
    
    suspension of production and/or distribution;
    
    withdrawals of previously approved marketing applications; and
    
    fines, civil penalties and criminal prosecutions.
      The manufacture and storage of pharmaceutical and chemical products is subject to
environmental regulation and risk.
   Our current and future products may be associated with certain transient side effects. If we or
others identify additional, more severe side effects associated with our current or future
products, we may be required to withdraw our products from the market, perform lengthy additional
clinical trials or change the labeling of our products, any of which could have an adverse impact
on revenues.
   
    
    regulatory authorities may withdraw their approvals;
    
    we may be required to reformulate our products, conduct additional
clinical trials, change the labeling of our products, or implement
changes to obtain new approvals of manufacturers facilities;
  26




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
    
    we may recall the affected products from the market;
    
    we may experience a significant drop in sales of the affected products;
    
    our reputation in the marketplace may suffer;
    
    we may become the target of lawsuits, including class action suits; and
    
    we may be required to withdraw our products from the market and not be
able to re-introduce them into the market.
  Market acceptance of our products will be limited if users of our products are unable to obtain
adequate reimbursement from third-party payors.
     Other Risks
 We are currently not in compliance with NASDAQ rules for continued listing of our Common Stock,
which could result in our delisting.
  Future sales of our common stock, or the perception that these sales may occur, could depress our
stock price.
    27




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A small number of stockholders have significant influence over our business, and the interests of
those stockholders may not be consistent with the interests of our other stockholders.
  Our certificate of incorporation and provisions of Delaware law could discourage a takeover you may
consider favorable or could cause current management to become entrenched and difficult to replace.
   The price of our common stock has been and will likely continue to be volatile.
   28




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Item 1B.
    
    Unresolved Staff Comments
  
 Item 2.
    
    Properties
  Monthly
    
    
    Sq.Location and Purpose
    
    Rent
    
    
    Ft. (appx)
    
    
    ExpirationWestlake, TX (Headquarters)
    
    $
    31,190
    
    
    
    15,000
    
    
    November 2013Germantown, MD (Vacant)
    
    
    93,522
    
    
    
    62,000
    
    
    June 2013Germantown, MD (Vacant)
    
    
    27,172
    
    
    
    12,500
    
    
    June 2013Gaithersburg, MD (Office)
    
    
    3,000
    
    
    
    325
    
    
    Month to Month
  
 Item 3.
    
    Legal Proceedings
  
 Item 4.
    
    Reserved
  29




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PART II
 
 Item 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
 Market Information
  High
    
    
    Low2009:Fourth quarter
    
    $
    1.17
    
    
    $
    0.40Third quarter
    
    
    1.64
    
    
    
    1.00Second quarter
    
    
    1.97
    
    
    
    1.15First quarter
    
    
    2.00
    
    
    
    1.212008:Fourth quarter
    
    $
    1.96
    
    
    $
    0.95Third quarter
    
    
    3.43
    
    
    
    1.17Second quarter
    
    
    4.89
    
    
    
    3.18First quarter
    
    
    4.44
    
    
    
    1.11
 Holders
  Dividends
  Corporate Performance Graph
   (GRAPH) 12/31/04
    
    
    12/31/05
    
    
    12/31/06
    
    
    12/31/07
    
    
    12/31/08
    
    
    12/31/09MiddleBrook Pharmaceuticals
    
    $
    100.00
    
    
    $
    36.12
    
    
    $
    102.35
    
    
    $
    31.42
    
    
    $
    39.27
    
    
    $
    13.35NASDAQ Stock Market (U.S.)
    
    $
    100.00
    
    
    $
    102.13
    
    
    $
    112.18
    
    
    $
    121.67
    
    
    $
    58.64
    
    
    $
    84.30NASDAQ Pharmaceutical Index
    
    $
    100.00
    
    
    $
    110.13
    
    
    $
    107.79
    
    
    $
    113.36
    
    
    $
    105.46
    
    
    $
    118.52
  30




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Securities Authorized for Issuance under Equity Compensation Plans
  Number of SecuritiesRemaining Available forNumber of Securities
    
    
    
    
    
    
    Future Issuance Underto be Issued upon
    
    
    
    
    
    
    Equity CompensationExercise of
    
    
    Weighted-Average
    
    
    PlansOutstanding
    
    
    Exercise Price of
    
    
    (Excluding SecuritiesPlan
    
    Options,
    
    
    Outstanding Options,
    
    
    Reflected in SecondCategory
    
    Warrants and Rights
    
    
    Warrants and Rights
    
    
    Column)Equity
compensation plans
approved by
security holders
    
    
    12,602,862
    
    
    
    $ 2.73
    
    
    
    4,693,068Equity compensation
plans not approved
by security
holders(1)
    
    
    1,905,968
    
    
    
    $ 1.30
    
    
    
    2,594,032Total
    
    
    14,508,830
    
    
    
    
    
    
    
    7,287,100
 
 (1)
    
    In September 2008, our board of directors approved the New Hire Stock
Incentive Plan (the New Hire Incentive Plan) for use in making
inducement grants of stock options to new employees pursuant to NASDAQ
Marketplace Rule 5635(c)(4) as a material inducement for them to join
MiddleBrook. The New Hire Incentive Plan was based upon and is
substantially similar to our Stock Incentive Plan as approved by
stockholders, except that eligible recipients are limited to
prospective employees of MiddleBrook, consistent with its purpose as
an employment inducement tool. The board of directors initially
authorized 4,500,000 shares under the New Hire Incentive Plan, and as
of December 31, 2009, we had issued options to purchase 1,905,968
shares of our common stock pursuant to this plan. As of January 1,
2010, our board of directors ceased issuing shares under our New Hire
Incentive Plan. However, should the board of directors reinstitute
this plan, 2,594,032 shares remain available for issuance. The board
of directors may also increase shares available under the New Hire
Incentive Plan in its discretion.  31




---



##### Table of Contents



Item 6.
    
    Selected Financial Data
 Managements
Discussion and Analysis of Financial Condition and Results of Operations Financial Statements and Supplementary Data Report
 (in thousands, except per-share data)
    
    For the Years Ended December 31,2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005Statements of Operations DataTotal net revenues
    
    $
    14,844
    
    
    $
    8,849
    
    
    $
    10,457
    
    
    $
    4,810
    
    
    $
    16,848Cost and expenses:Cost of product sales
    
    
    2,254
    
    
    
    1,635
    
    
    
    2,577
    
    
    
    899
    
    
    
    562Research and development
    
    
    5,258
    
    
    
    19,079
    
    
    
    21,958
    
    
    
    25,974
    
    
    
    39,730Selling, general and administrative
    
    
    69,885
    
    
    
    24,384
    
    
    
    26,043
    
    
    
    21,289
    
    
    
    10,515Total expenses
    
    
    77,397
    
    
    
    45,098
    
    
    
    50,578
    
    
    
    48,162
    
    
    
    50,807Loss from operations
    
    
    (62,553
    )
    
    
    (36,249
    )
    
    
    (40,121
    )
    
    
    (43,352
    )
    
    
    (33,959
    )Interest income (expense), net
    
    
    240
    
    
    
    724
    
    
    
    (41
    )
    
    
    385
    
    
    
    954Other income (expense)
    
    
    161
    
    
    
    (6,714
    )
    
    
    (2,249
    )
    
    
    977
    
    
    
    16Loss before income taxes
    
    
    (62,152
    )
    
    
    (42,239
    )
    
    
    (42,411
    )
    
    
    (41,990
    )
    
    
    (32,989
    )Income tax expense (benefit)
    
    
    174
    
    
    
    (174
    )
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    
    (62,326
    )
    
    
    (42,065
    )
    
    
    (42,411
    )
    
    
    (41,990
    )
    
    
    (32,989
    )Loss attributable to noncontrolling interest
    
    
    
    
    
    
    485
    
    
    
    162
    
    
    
    
    
    
    
    Net loss attributable to MiddleBrook Pharmaceuticals
    
    $
    (62,326
    )
    
    $
    (41,580
    )
    
    $
    (42,249
    )
    
    $
    (41,990
    )
    
    $
    (32,989
    )Basic and diluted net loss per share attributable to MiddleBrook Pharmaceuticals
    
    $
    (0.72
    )
    
    $
    (0.64
    )
    
    $
    (0.96
    )
    
    $
    (1.38
    )
    
    $
    (1.20
    )Shares used in computing net loss per share, basic and diluted
    
    
    86,485
    
    
    
    65,180
    
    
    
    43,816
    
    
    
    30,536
    
    
    
    27,422Balance Sheet Data at Year-End:Unrestricted cash, cash equivalents and marketable securities
    
    $
    14,798
    
    
    $
    74,762
    
    
    $
    1,952
    
    
    $
    15,380
    
    
    $
    29,431Total assets
    
    
    42,175
    
    
    
    95,193
    
    
    
    23,666
    
    
    
    42,006
    
    
    
    57,797Long-term
obligations, including current portion
    
    $
    1,603
    
    
    
    
    
    
    
    
    
    
    
    6,964
    
    
    
    1,567Noncontrolling interest
    
    
    
    
    
    
    
    
    
    
    7,338
    
    
    
    
    
    
    
    Accumulated deficit
    
    
    (299,240
    )
    
    
    (236,914
    )
    
    
    (195,334
    )
    
    
    (153,085
    )
    
    
    (111,095
    )Stockholders equity (deficit)
    
    $
    13,053
    
    
    $
    71,931
    
    
    $
    (5,846
    )
    
    $
    11,873
    
    
    $
    33,342
  32




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##### Table of Contents



Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations.
 Forward-Looking Statements Risk Factors
 Our Business
  Streptococcus pyogenes Streptococcus pyogenes
    Management Overview of the Key Developments in 2009
  
    
    Launched MOXATAG, the first and only FDA-approved once-daily amoxicillin on March 16,
2009.
    
    Hired a nationwide field sales force and managers to
detail MOXATAG and KEFLEX 750 mg.
    
    Entered into a loan agreement for a two-year $10.0 million working capital-based
revolving line of credit with Silicon Valley Bank on June 29, 2009, which we subsequently
terminated effective March 16, 2010.
    
    Implemented a $20 maximum co-pay program for MOXATAG.
    
    Realigned field sales force and reduced corporate headcount to preserve capital for
ongoing operations. We subsequently terminated our field sales force and further reduced
corporate headcount, effective March 15, 2010.
  33




---



##### Table of Contents



Focus for 2010
    Critical Accounting Policies and Estimates
  TM
  Revenue Recognition
  Product Sales.
  Product Returns.
   34




---



##### Table of Contents



Distribution Service Fees.
  Chargebacks and Rebates.
   Co-Pay Assistance Programs.
  Other Sales Allowances and Reserves.
  35




---



##### Table of Contents



December 31,2009
    
    
    2008Product returns
    
    $
    1,684
    
    
    $
    1,321Co-pay assistance programs(1)
    
    
    3,796
    
    
    
    122Rebates and other sales allowances
    
    
    195
    
    
    
    67Accrued returns, rebates and other(2)
    
    $
    5,675
    
    
    $
    1,510Distribution service fees(3)
    
    $
    512
    
    
    $
    266Chargebacks(3)
    
    $
    220
    
    
    $
    97Cash discounts(3)
    
    $
    55
    
    
    $
    16
 
 (1)
    
    The co-pay assistance balance as of December 31, 2009 primarily consists of a liability for our co-pay assistance program associated with MOXATAG.
The liability is based on estimated redemption rates for prescriptions in the channel and was initially recorded when the vouchers were available
for physicians to distribute to their patients.(2)
    
    Accrued returns, rebates and other are reported within Accrued expenses and other current liabilities on the consolidated balance sheet.(3)
    
    Distribution fees, chargebacks and cash discounts are reported as valuation allowances against accounts receivable on the consolidated balance sheet.  Co-pay
    
    
    Rebates &
    
    
    Total AccruedProduct
    
    
    Distribution
    
    
    
    
    
    
    Cash
    
    
    Assistance
    
    
    Other Sales
    
    
    Sales ReservesReturns
    
    
    Service Fees
    
    
    Chargebacks
    
    
    Discounts
    
    
    Programs
    
    
    Allowances
    
    
    & AllowancesBalance at December 31, 2006
    
    $
    937
    
    
    $
    100
    
    
    $
    100
    
    
    $
    17
    
    
    $
    
    
    
    $
    112
    
    
    $
    1,266Provision made for sales during
period
    
    
    747
    
    
    
    604
    
    
    
    254
    
    
    
    261
    
    
    
    250
    
    
    
    156
    
    
    
    2,272Payments/credits
    
    
    (269
    )
    
    
    (364
    )
    
    
    (116
    )
    
    
    (253
    )
    
    
    (170
    )
    
    
    (86
    )
    
    
    (1,258
    )Balance at December 31, 2007
    
    
    1,415
    
    
    
    340
    
    
    
    238
    
    
    
    25
    
    
    
    80
    
    
    
    182
    
    
    
    2,280Provision made for sales during
period
    
    
    712
    
    
    
    626
    
    
    
    195
    
    
    
    224
    
    
    
    209
    
    
    
    113
    
    
    
    2,079Provision/(benefit) for sales
in prior periods
    
    
    636
    
    
    
    
    
    
    
    (161
    )
    
    
    
    
    
    
    
    
    
    
    (100
    )
    
    
    375Payments/credits
    
    
    (1,442
    )
    
    
    (700
    )
    
    
    (175
    )
    
    
    (233
    )
    
    
    (167
    )
    
    
    (128
    )
    
    
    (2,845
    )Balance at December 31, 2008
    
    
    1,321
    
    
    
    266
    
    
    
    97
    
    
    
    16
    
    
    
    122
    
    
    
    67
    
    
    
    1,889Provision made for sales during
period
    
    
    1,472
    
    
    
    1,155
    
    
    
    253
    
    
    
    490
    
    
    
    5,310
    
    
    
    278
    
    
    
    8,958Provision/(benefit) for sales
in prior periods
    
    
    
    
    
    
    (100
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (100
    )Payments/credits
    
    
    (1,109
    )
    
    
    (809
    )
    
    
    (130
    )
    
    
    (451
    )
    
    
    (1,636
    )
    
    
    (150
    )
    
    
    (4,285
    )Balance at December 31, 2009
    
    $
    1,684
    
    
    $
    512
    
    
    $
    220
    
    
    $
    55
    
    
    $
    3,796
    
    
    $
    195
    
    
    $
    6,462
 Inventories
   36




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##### Table of Contents



Foreign Currency Exchange Forward Contracts
    Intangible Assets
 Acquired Intangible Assets.
 Impairment.
 Accrued Expenses
  Stock-Based Compensation
  
    
    We estimate the expected term of share-based awards based on many
factors, including historical experience, vesting period of awards,
expected volatility and employee demographics. We have estimated the
expected term to be 4.0 years, equal to the length of the vesting
periods for most option grants. Previously, we elected to determine
the expected term of share-based awards using a transition approach
approved by GAAP, resulting in an expected term of 6.25 years for
four-year grants with a ten-year contractual term. The change in the
expected term occurred at the end of 2008. The shorter expected term
results in lower compensation expense per award.
    
    To estimate expected future volatility, we use our historical
volatility over a period equal to our estimated expected term of
options, adjusted for certain unusual, one day fluctuations. We have
no implied volatility data, as we have no publicly traded options or
other financial instruments from which implied volatility can be
derived. Late in 2008, we changed our volatility from 75% to 90% based
on the updated expected term of the awards and our adjusted historical
volatility and have maintained that estimated volatility throughout
2009. Historically, we based our estimate of expected future
volatility upon a combination of our historical volatility together
with the average volatility rates of comparable public companies. The
higher volatility input to the Black-Scholes model results in a higher
compensation expense for each award.
    
    The risk-free rate is based on U.S. Treasury yields in effect at the
time of grant corresponding with the expected term of the options.
Estimates of fair value are not intended to predict actual future
events or the value ultimately realized by the employees who receive
equity awards.
  37




---



##### Table of Contents



Income Taxes
  Warrants
  Registration Payment Arrangements
  Consolidation of Variable Interest Entities
     38




---



##### Table of Contents



Recent Accounting Pronouncements
       Research and Development Expenses
   Net Losses
   39




---



##### Table of Contents



Results of Operations
 Fiscal Year Ended December 31, 2009 Compared to Fiscal Year Ended December 31, 2008
 Revenues.
 Product Sale Revenues:
    
    2009
    
    
    2008MOXATAG 775mg tablets
    
    $
    8,297
    
    
    $
    KEFLEX 750 mg capsules
    
    
    4,407
    
    
    
    6,484KEFLEX 250 mg and 500 mg capsules
    
    
    2,140
    
    
    
    2,365Total
    
    $
    14,844
    
    
    $
    8,849
   Cost of Product Sales.
 Cost of Product Sales:
    
    2009
    
    
    2008Product manufacturing costs
    
    $
    1,499
    
    
    $
    609Obsolescence provisions
    
    
    414
    
    
    
    318Royalty to Eli Lilly
    
    
    341
    
    
    
    708$
    2,254
    
    
    $
    1,635
   Research and Development Expenses.
    40




---



##### Table of Contents



Year Ended December 31,2009
    
    
    2008Salaries, benefits and related costs
    
    $
    1,832
    
    
    $
    3,881Facilities and equipment-related
    
    
    1,355
    
    
    
    4,711Third-party direct project costs (consultants & materials)
    
    
    1,211
    
    
    
    2,881Legal and consulting expenses
    
    
    418
    
    
    
    580Severance
costs
    
    
    360
    
    
    
    Depreciation and amortization
    
    
    342
    
    
    
    5,675Stock-based compensation
    
    
    209
    
    
    
    555Insurance
    
    
    
    
    
    
    584Patents and licensing
    
    
    (685
    )
    
    
    32Other expenses
    
    
    216
    
    
    
    180Total
    
    $
    5,258
    
    
    $
    19,079
  Selling, General and Administrative Expenses.
 Year Ended December 31,2009
    
    
    2008Salaries, benefits and related costs
    
    $
    29,867
    
    
    $
    4,937Marketing costs
    
    
    18,858
    
    
    
    2,839Depreciation and amortization
    
    
    3,760
    
    
    
    1,610Stock-based compensation
    
    
    3,451
    
    
    
    1,649Facility and equipment-related expenses
    
    
    2,259
    
    
    
    776Travel and entertainment
    
    
    2,062
    
    
    
    735Severance costs
    
    
    1,925
    
    
    
    2,144Legal and consulting expenses
    
    
    1,797
    
    
    
    1,727Insurance
    
    
    1,365
    
    
    
    494Contract sales expenses
    
    
    
    
    
    
    4,094Other expenses
    
    
    4,541
    
    
    
    3,379Total
    
    $
    69,885
    
    
    $
    24,384
   Interest Income and (Expense).
  Year Ended December 31,2009
    
    
    2008Interest income
    
    $
    361
    
    
    $
    724Interest expense
    
    
    (121
    )
    
    
    Total, net
    
    $
    240
    
    
    $
    724
  41




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##### Table of Contents



Warrant Expense.
 Other Income.
 Noncontrolling Interest.
 Fiscal Year Ended December 31, 2008 Compared to Fiscal Year Ended December 31, 2007
 Revenues.
 Product Sale Revenues:
    
    2008
    
    
    2007KEFLEX 750 mg capsules
    
    $
    6,484
    
    
    $
    7,717KEFLEX 250 mg and 500 mg capsules
    
    
    2,365
    
    
    
    2,740Total
    
    $
    8,849
    
    
    $
    10,457
  Cost of Product Sales.
 Cost of Product Sales:
    
    2008
    
    
    2007Product manufacturing costs
    
    $
    609
    
    
    $
    903Obsolescence provisions
    
    
    318
    
    
    
    864Royalty to Eli Lilly
    
    
    708
    
    
    
    810$
    1,635
    
    
    $
    2,577
   Research and Development Expenses.
  Year Ended December 31,Research and Development Expenses
    
    2008
    
    
    2007Direct project costs:Personnel, benefits and related costs
    
    $
    3,881
    
    
    $
    6,766Stock-based compensation
    
    
    555
    
    
    
    718Consultants, supplies, materials and other direct costs
    
    
    2,881
    
    
    
    6,530Clinical studies
    
    
    (73
    )
    
    
    72Total direct costs
    
    
    7,244
    
    
    
    14,086Indirect project costs
    
    
    11,835
    
    
    
    7,872Total
    
    $
    19,079
    
    
    $
    21,958
  42




---



##### Table of Contents



Selling, General and Administrative Expenses.
 Year Ended December 31,2008
    
    
    2007Salaries, benefits and related costs
    
    $
    4,937
    
    
    $
    3,284Severance costs
    
    
    2,144
    
    
    
    534Stock-based compensation
    
    
    1,649
    
    
    
    1,213Legal and consulting expenses
    
    
    1,727
    
    
    
    2,212Other expenses
    
    
    6,994
    
    
    
    6,526Marketing costs
    
    
    2,839
    
    
    
    4,746Contract sales expenses
    
    
    4,094
    
    
    
    7,529Total
    
    $
    24,384
    
    
    $
    26,044
   Interest Income and (Expense).
 Year Ended December 31,2008
    
    
    2007Interest income
    
    $
    724
    
    
    $
    543Interest expense
    
    
    
    
    
    
    (584
    )Total, net
    
    $
    724
    
    
    $
    (41
    )
 Early Extinguishment of Debt.
 Warrant Expense.
 Other Income.
  43




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##### Table of Contents



Noncontrolling Interest.
 Liquidity and Capital Resources
 Prospective Information  Risks and Uncertainties related to Our Future Capital Requirements
  ®
   General Sources of Capital
      44




---



##### Table of Contents



Loan Agreement
  Cash and Marketable Securities
  As of December 31,2009
    
    
    2008Cash and cash equivalents
    
    $
    14,798
    
    
    $
    30,520Marketable securities
    
    
    
    
    
    
    44,242Total
    
    $
    14,798
    
    
    $
    74,762
   Cash Flow
  Year Ended December 31,2009
    
    
    2008
    
    
    2007Net cash used in operating activities
    
    $
    (58,158
    )
    
    $
    (23,996
    )
    
    $
    (35,261
    )Net cash provided by (used in) investing activities
    
    
    43,963
    
    
    
    (55,500
    )
    
    
    (834
    )Net cash (used in) provided by financing activities
    
    
    (1,527
    )
    
    
    108,064
    
    
    
    23,190Net (decrease) increase in cash and cash equivalents
    
    $
    (15,722
    )
    
    $
    28,568
    
    
    $
    (12,905
    )
 Operating Activities
   45




---



##### Table of Contents



Investing Activities
    Financing Activities
     Contractual Obligations
    46




---



##### Table of Contents



Payments Due by Period
 AfterContractual Obligations(1),(2)
    
    Total
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    2013
    
    
    2014
    
    
    2014Capital
lease commitments(3)
    
    $
    2,052
    
    
    $
    1,185
    
    
    $
    838
    
    
    $
    29
    
    
    $
    
    
    
    $
    
    
    
    $
    Operating lease obligations
    
    
    7,381
    
    
    
    2,355
    
    
    
    2,120
    
    
    
    1,935
    
    
    
    971
    
    
    
    
    
    
    
    Other
commercial commitments(4)
    
    $
    4,296
    
    
    $
    1,512
    
    
    $
    933
    
    
    $
    616
    
    
    $
    616
    
    
    $
    616
    
    
    $
    
 
 (1)
    
    This table does not include potential royalty payments,
at a rate of 10% of sales value, to Eli Lilly, which
may be due on product line extensions of KEFLEX,
including KEFLEX 750 mg. Any such royalties cannot be
estimated at this time.(2)
    
    This table does not include a contingent liability to
Par under our amoxicillin development and
commercialization agreement that was terminated by Par
in August 2005. Under certain circumstances, the
termination clauses of the agreement may entitle Par to
receive a share of future net profits, if any, up to
one-half of Pars total $23.25 million investment in
the development of certain amoxicillin PULSYS products,
should products covered by the agreement be
successfully commercialized. Accordingly, we retained
$11.625 million of deferred revenue in recognition of
this contingent liability to Par.(3)
    
    Effective March 15, 2010, we
eliminated our field sales force. As a result of this
action, we will be terminating any remaining vehicle
leases.(4)
    
    We expect to incur additional amounts under contractual
arrangements. These amounts represent software license
agreements for our field-based sales force, annual
license fees for the FDA and purchase commitments for
samples and insurance.    Private Placement
    
    Maximum Liquidated DamagesSeptember 2008
    
    $29.5 millionJanuary 2008
    
    $6.3 millionApril 2007
    
    $8.3 millionDecember 2006
    
    $6.5 millionApril 2005
    
    $6.2 million
  47




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##### Table of Contents



Off-Balance Sheet Arrangements
   
 Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
 Market Risk
  Foreign Currency Risk
  Inflation
  
 Item 8.
    
    Financial Statements and Supplementary Data
  
 Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  
 Item 9A.
    
    Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
   48




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##### Table of Contents



Changes in Internal Control over Financial Reporting during the Quarter
  Managements Report on Internal Control over Financial Reporting
   Internal Control  Integrated
Framework
  
 Item 9B.
    
    Other Information
   49




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##### Table of Contents



PART III
 
 Item 10.
    
    Directors, Executive Officers and Corporate Governance
    Code of Ethics
  
 Item 11.
    
    Executive Compensation
  
 Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
  
 Item 13.
    
    Certain Relationships and Related Transactions, and Director Independence
   
 Item 14.
    
    Principal Accountant Fees and Services
   50




---



##### Table of Contents



PART IV
 
 Item 15.
    
    Exhibits and Consolidated Financial Statement Schedules
  Index to Financial Statements
 PageNumberReport of Independent Registered Public Accounting Firm
    
    
    F-1Consolidated Balance Sheets at December 31, 2009 and 2008
    
    
    F-2Consolidated Statements of Operations for the Years Ended December 31, 2009, 2008 and 2007
    
    
    F-3Consolidated Statement of Changes in Stockholders Equity (Deficit) for the Years Ended December 31, 2009, 2008 and 2007
    
    
    F-4Consolidated Statements of Cash Flows for the Years Ended December 31, 2009, 2008 and 2007
    
    
    F-5Notes to Consolidated Financial Statements
    
    
    F-6
 Financial Statement Schedule
   Exhibits
 ExhibitNo.2.1
    +
    
    Asset Purchase Agreement, dated as of June 30, 2004, by and between the Registrant and Eli Lilly and Company (incorporated by reference to our
Current Report on Form 8-K filed July 15, 2004).2.2
    
    
    Asset Purchase Agreement, dated November 7, 2007, by and between the Registrant and Kef Pharmaceuticals, Inc. (incorporated by reference to our
Current Report on Form 8-K filed November 13, 2007).2.3
    
    
    Asset Purchase Agreement, dated November 7, 2007, by and between the Registrant and Lex Pharmaceuticals, Inc. (incorporated by reference to our
Current Report on Form 8-K filed November 13, 2007).3.1
    
    
    Eighth Amended and Restated Certificate of Incorporation (incorporated by reference to our Quarterly Report on Form 10-Q filed August 6, 2009).3.2
    
    
    Amended and Restated Bylaws (incorporated by reference to our Quarterly Report on Form 10-Q filed August 6, 2009).3.3
    
    
    Certificate of Ownership and Merger Merging MiddleBrook Pharmaceuticals, Inc. Into Advancis Pharmaceutical Corporation (incorporated by reference
to our Current Report on Form 8-K filed June 28, 2007).4.1
    
    
    Specimen Stock Certificate (incorporated by reference to our Registration Statement, as amended, on Form S-1 (File No. 333-107599)).4.2
    
    
    Form of Warrant of the Registrant attached to the Form of Purchase Agreement dated April 26, 2005 (incorporated by reference to our Current Report
on Form 8-K dated April 27, 2005).4.3
    
    
    Form of Registration Rights Agreement dated April 9, 2007 (incorporated by reference to our Current Report on Form 8-K filed April 13, 2007).4.4
    
    
    Form of Warrant of the Registrant attached to the Securities Purchase Agreement dated April 9, 2007 (incorporated by reference to our Current
Report on Form 8-K filed November 13, 2007).4.5
    
    
    Registration Rights Agreement, dated November 7, 2007, by and among the Registrant, Deerfield Private Design International Fund, L.P., Deerfield
Special Situations Fund, L.P., Deerfield Special Situation International Limited and Deerfield Private Design Fund, L.P. (incorporated by
reference to our Current Report on Form 8-K filed November 13, 2007).4.6
    
    
    Form of Registration Rights Agreement dated January 24, 2008 (incorporated by reference to our Current Report on Form 8-K filed January 30, 2008).4.7
    
    
    Form of Warrant Agreement attached to the Securities Purchase Agreement dated as of January 24, 2008 (incorporated by reference to our Current
Report on Form 8-K filed January 30, 2008).4.8
    
    
    Form of Warrant of the Registrant attached to the Securities Purchase Agreement, dated July 1, 2008 (incorporated by reference to our Current
Report on Form 8-K filed July 8, 2008).4.9
    
    
    Registration Rights Agreement, dated July 1, 2008, by and among the Registrant and the investors named therein (incorporated by reference to our
Current Report on Form 8-K filed July 8, 2008).4.10
    
    
    Fourth Amended and Restated Stockholders Agreement (incorporated by reference to our Registration Statement, as amended, on Form S-1 (File No.
333-107599)).4.11
    
    
    Omnibus Addendum and Amendment to Series E Convertible Preferred Stock Purchase Agreement and Fourth Amended and Restated Stockholders Agreement
(incorporated by reference to our Registration Statement, as amended, on Form S-1 (File No. 333-107599)).
  51




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##### Table of Contents



ExhibitNo.9.1
    
    
    Form of Voting Agreement dated July 1, 2008 (incorporated by reference to our Current Report on Form 8-K filed July 8, 2008).10.1
    *
    
    Form of Incentive Stock Option Agreement (incorporated by reference to our Registration Statement, as amended, on Form S-1 (File No. 333-107599)).10.2
    *
    
    Form of Non-Qualified Stock Option Agreement (incorporated by reference to our Registration Statement, as amended, on Form S-1 (File No.
333-107599)).10.3
    *
    
    Employee Stock Purchase Plan (incorporated by reference to our Registration Statement on Form S-8 (File No. 333-109728)).10.4
    
    
    Form of Employment Agreement on Ideas, Inventions and Confidential Information (incorporated by reference to our Registration Statement, as
amended, on Form S-1 (File No. 333-107599)).10.5
    
    
    Lease Agreement, dated August 1, 2002, between the Registrant and Seneca Meadows Corporate Center II LLC (incorporated by reference to our
Registration Statement, as amended, on Form S-1 (File No. 333-107599)).10.6
    +
    
    Development and Commercialization Agreement, dated May 28, 2004, between the Registrant and Par Pharmaceutical, Inc. (incorporated by reference to
our Quarterly Report on Form 10-Q filed August 6, 2004).10.7
    +
    
    Commercial Supply Agreement, dated December 3, 2004, between the Registrant and Ceph International Corporation (incorporated by reference to our
Annual Report on Form 10-K filed March 10, 2005).10.8
    +
    
    First Amendment to Development and Commercialization Agreement, dated December 14, 2004, between the Registrant and Par Pharmaceutical Corporation
(incorporated by reference to our Annual Report on Form 10-K filed March 10, 2005).10.9
    +
    
    Manufacturing and Supply Agreement, dated April 19, 2005, between the
Registrant and Clonmel Healthcare Limited (incorporated by reference to our
Quarterly Report on Form 10-Q filed August 15, 2005).10.10
    +
    
    Development and Clinical Manufacturing Agreement, dated April 19, 2005, between the Registrant and Clonmel Healthcare Limited (incorporated by
reference to our Quarterly Report on Form 10-Q filed August 15, 2005).10.11
    +
    
    Form of Purchase Agreement, dated April 26, 2005, including the form of Warrant attached thereto (incorporated by reference to our Current Report
on Form 8-K dated April 27, 2005).10.12
    
    
    Securities Purchase Agreement, dated April 9, 2007, including the form of Warrant attached thereto (incorporated by reference to our Current
Report on Form 8-K filed April 13, 2007).10.13
    *
    
    Form of Amendment to the Form of Incentive Stock Option Agreement (incorporated by reference to our Current Report on Form 8-K filed May 22, 2007).10.14
    *
    
    Form of Amendment to the Form of Non-Qualified Stock Option Agreement (incorporated by reference to our Current Report on Form 8-K filed May 22,
2007).
  52




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##### Table of Contents



ExhibitNo.10.15
    
    
    Form of Securities Purchase Agreement, dated January 24, 2008, including the form
of Warrant attached hereto (incorporated by reference to our Current Report on Form
8-K filed January 30, 2008).10.16
    *
    
    Amended and Restated Executive Employment Agreement, dated April 8, 2008, between
the Registrant and Edward M. Rudnic, Ph.D. (incorporated by reference to our Annual
Report on Form 10-K filed March 13, 2009).10.17
    *
    
    Amended and Restated Executive Employment Agreement, dated April 8, 2008, between
the Registrant and Robert C. Low (incorporated by reference to our Annual Report on
Form 10-K filed March 13, 2009).10.18
    *
    
    Amended and Restated Executive Employment Agreement, dated April 1, 2008, between
the Registrant and Beth A. Burnside, Ph.D. (incorporated by reference to our Annual
Report on Form 10-K filed March 13, 2009).10.19
    *
    
    Amended and Restated Executive Employment Agreement, dated April 1, 2008, between
the Registrant and Donald J. Treacy, Ph.D. (incorporated by reference to our Annual
Report on Form 10-K filed March 13, 2009).10.20
    *
    
    Amended and Restated Executive Employment Agreement, dated April 1, 2008, between
the Registrant and Susan Clausen, Ph.D. (incorporated by reference to our Annual
Report on Form 10-K filed March 13, 2009).10.21
    
    
    Securities Purchase Agreement, dated July 1, 2008, by and between the Registrant
and EGI-MBRK, L.L.C. (incorporated by reference to our Current Report on Form 8-K
filed July 8, 2008).10.22
    *
    
    Executive Employment Agreement, dated July 1, 2008, between the Registrant and John
S. Thievon (incorporated by reference to our Current Report on Form 8-K filed July
8, 2008).10.23
    *
    
    Executive Employment Agreement, dated July 1, 2008, between the Registrant and
David Becker (incorporated by reference to our Current Report on Form 8-K filed
July 8, 2008).10.24
    *
    
    Consulting Agreement, dated June 27, 2008, between the Registrant and Edward M.
Rudnic, Ph.D. (incorporated by reference to our Current Report on Form 8-K filed
July 8, 2008).10.25
    *
    
    Consulting Agreement, dated June 30, 2008, between the Registrant and Robert C. Low
(incorporated by reference to our Current Report on Form 8-K filed July 8, 2008).10.26
    *
    
    Amended and Restated MiddleBrook Pharmaceuticals, Inc. Stock Incentive Plan
(incorporated by reference to our Quarterly Report on Form 10-Q filed on June 26,
2009).10.27
    *
    
    Consulting Agreement, by and between the Registrant and Lord James Blyth, dated
October 17, 2008 (incorporated by reference to our Current Report on Form 8-K filed
October 23, 2008).10.28
    
    
    Lease Agreement dated October 30, 2008 between Maguire Partners  Solana Limited
Partnership and the Registrant (incorporated by reference to our Current Report on
Form 8-K filed November 4, 2008).10.29
    *
    
    New Hire Stock Incentive Plan (incorporated by reference to our Registration
Statement on Form S-8 filed February 11, 2009 (File No. 333-157261)).10.30
    *
    
    Form of New Hire Nonqualified Stock Option Agreement (incorporated by reference to
our Registration Statement on Form S-8 filed February 11, 2009 (File No.
333-157261)).10.31
    
    
    Form of Indemnification Agreement (incorporated by reference to our Annual Report
on Form 10-K filed March 13, 2009).23.1
    
    
    Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm31.1
    
    
    Certification of the Principle Executive Officer and Principal Financial Officer
pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as
amended.32.1
    
    
    Certification by the Principle Executive Officer and Principal Financial Officer
pursuant to Rule 13a-14b/13d-14(b) of the Securities Exchange Act of 1934, as
amended, and 18 U.S.C. § 1350 Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
    
    The Schedules and certain of the Exhibits to this Asset Purchase
Agreement have been omitted in reliance upon the rules of the
Securities and Exchange Commission. A copy will be delivered to the
Securities and Exchange Commission upon request.+
    
    Confidential treatment requested for certain portions of this
Exhibit pursuant to Rule 406 under the Securities Act, which
portions are omitted and filed separately with the Securities and
Exchange Commission.*
    
    Indicates a management contract or a compensatory plan.  53




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##### Table of Contents



SIGNATURES
  MIDDLEBROOK PHARMACEUTICALS, INC.By:
    /s/   David BeckerDavid BeckerExecutive Vice President,
Chief Financial Officer, and 
Acting President and Chief Executive Officer   Signature
    
    Title
    
    Date/s/ David Becker

David Becker
    
    Executive Vice President,Chief Financial Officer, and Acting President and Chief 
Executive Officer (Principal
Financial and Accounting Officer, and
Principal
Executive Officer)
    
    March 16, 2010/s/ R. Gordon Douglas

R. Gordon Douglas, M.D.
    
    Chairman of the Board of Directors
    
    March 16, 2010/s/ Lord James Blyth

Lord James Blyth
    
    Vice Chairman of the Board of Directors
    
    March 16, 2010/s/ James H. Cavanaugh

James H. Cavanaugh, Ph.D.
    
    Director
    
    March 16, 2010/s/ Richard W. Dugan

Richard W. Dugan
    
    Director
    
    March 16, 2010/s/ William C. Pate

William C. Pate
    
    Director
    
    March 16, 2010/s/ Mark R. Sotir

Mark R. Sotir
    
    Director
    
    March 16, 2010/s/ Martin A. Vogelbaum

Martin A. Vogelbaum
    
    Director
    
    March 16, 2010/s/ Harold R. Werner

Harold R. Werner
    
    Director
    
    March 16, 2010
  54




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##### Table of Contents



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 PageNumberReport of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm
    
    

    F-1Consolidated Balance Sheets at December 31, 2009 and 2008
    
    
    F-2Consolidated Statements of Operations for the Years ended December 31, 2009, 2008 and 2007
    
    
    F-3Consolidated Statement of Changes in Stockholders Equity (Deficit) for the Years ended December
31, 2009, 2008 and 2007
    
    
    F-4Consolidated Statements of Cash Flows for the Years ended December 31, 2009, 2008 and 2007
    
    
    F-5Notes to Consolidated Financial Statements
    
    
    F-6




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
 Internal Control  Integrated Framework
    
  F-1




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##### Table of Contents



MIDDLEBROOK PHARMACEUTICALS, INC.
 
 CONSOLIDATED BALANCE SHEETS
 (amounts in thousands, except per share data)
 December 31,2009
    
    
    2008ASSETSCurrent assets:Cash and cash equivalents
    
    $
    14,798
    
    
    $
    30,520Marketable securities
    
    
    
    
    
    
    44,242Accounts receivable, net
    
    
    2,269
    
    
    
    426Inventories, net
    
    
    4,242
    
    
    
    335Prepaid expenses and other current assets
    
    
    4,749
    
    
    
    2,638Total current assets
    
    
    26,058
    
    
    
    78,161Property and equipment, net
    
    
    4,555
    
    
    
    4,192Restricted cash
    
    
    872
    
    
    
    872Deposits and other assets
    
    
    617
    
    
    
    523Intangible assets, net
    
    
    10,073
    
    
    
    11,445Total assets
    
    $
    42,175
    
    
    $
    95,193LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    1,031
    
    
    $
    2,993Accrued expenses and other current liabilities
    
    
    13,949
    
    
    
    6,141Total current liabilities
    
    
    14,980
    
    
    
    9,134Deferred contract revenue
    
    
    11,625
    
    
    
    11,625Deferred rent and credit on lease concession
    
    
    162
    
    
    
    174Other long-term liabilities
    
    
    2,355
    
    
    
    2,329Total liabilities
    
    
    29,122
    
    
    
    23,262Commitments and contingencies (See Note 20)Stockholders equity:Preferred stock, $0.01 par value; 25,000
shares authorized, no shares issued or
outstanding at December 31, 2009 and 2008
    
    
    
    
    
    
    Common stock, $0.01 par value; 225,000 shares
authorized, and 86,512 and 86,433 shares
issued and outstanding at December 31, 2009
and 2008, respectively
    
    
    865
    
    
    
    864Capital in excess of par value
    
    
    311,428
    
    
    
    307,705Accumulated deficit
    
    
    (299,240
    )
    
    
    (236,914
    )Accumulated other comprehensive income
    
    
    
    
    
    
    276Total stockholders equity
    
    
    13,053
    
    
    
    71,931Total liabilities and stockholders equity
    
    $
    42,175
    
    
    $
    95,193
   F-2




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##### Table of Contents



MIDDLEBROOK PHARMACEUTICALS, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (amounts in thousands, except per share amounts)
 Year Ended December 31,2009
    
    
    2008
    
    
    2007Revenues:Product sales, net
    
    $
    14,844
    
    
    $
    8,849
    
    
    $
    10,457Total net revenues
    
    
    14,844
    
    
    
    8,849
    
    
    
    10,457Cost and expenses:Cost of product sales
    
    
    2,254
    
    
    
    1,635
    
    
    
    2,577Research and development
    
    
    5,258
    
    
    
    19,079
    
    
    
    21,958Selling, general and administrative
    
    
    69,885
    
    
    
    24,384
    
    
    
    26,043Total expenses
    
    
    77,397
    
    
    
    45,098
    
    
    
    50,578Loss from operations
    
    
    (62,553
    )
    
    
    (36,249
    )
    
    
    (40,121
    )Interest income
    
    
    361
    
    
    
    724
    
    
    
    543Interest expense
    
    
    (121
    )
    
    
    
    
    
    
    (584
    )Early extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    (224
    )Warrant expense
    
    
    
    
    
    
    (6,714
    )
    
    
    (2,100
    )Other income
    
    
    161
    
    
    
    
    
    
    
    75Loss before income taxes
    
    
    (62,152
    )
    
    
    (42,239
    )
    
    
    (42,411
    )Income tax expense (benefit)
    
    
    174
    
    
    
    (174
    )
    
    
    Net loss
    
    
    (62,326
    )
    
    
    (42,065
    )
    
    
    (42,411
    )Loss attributable to noncontrolling interest
    
    
    
    
    
    
    485
    
    
    
    162Net loss attributable to MiddleBrook
Pharmaceuticals
    
    $
    (62,326
    )
    
    $
    (41,580
    )
    
    $
    (42,249
    )Basic and diluted net loss per share
attributable to MiddleBrook Pharmaceuticals
common stockholders
    
    $
    (0.72
    )
    
    $
    (0.64
    )
    
    $
    (0.96
    )Shares used in calculation of basic and
diluted net loss per share
    
    
    86,485
    
    
    
    65,180
    
    
    
    43,816
   F-3




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##### Table of Contents



MIDDLEBROOK PHARMACEUTICALS, INC.
 
 CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY (DEFICIT)
 (amounts in thousands)
 Stockholders EquityAccumulated
    
    
    TotalCapital in
    
    
    
    
    
    
    Other
    
    
    Stockholders
    
    
    Non-Common
    
    
    
    
    
    
    Excess of Par
    
    
    Accumulated
    
    
    Comprehensive
    
    
    Equity
    
    
    controlling
    
    
    TotalShares
    
    
    Par Value
    
    
    Value
    
    
    Deficit
    
    
    Income (Loss)
    
    
    (Deficit)
    
    
    Interest
    
    
    EquityBalance at December 31, 2006
    
    
    36,363
    
    
    $
    364
    
    
    $
    164,594
    
    
    $
    (153,085
    )
    
    $
    
    
    
    $
    11,873
    
    
    $
    
    
    
    $
    11,873Exercise of stock options
    
    
    201
    
    
    
    2
    
    
    
    165
    
    
    
    
    
    
    
    
    
    
    
    167
    
    
    
    
    
    
    
    167Vesting of unvested restricted stock
    
    
    30
    
    
    
    
    
    
    
    18
    
    
    
    
    
    
    
    
    
    
    
    18
    
    
    
    
    
    
    
    18Issuance and remeasurement of stock options
for services
    
    
    
    
    
    
    
    
    
    
    17
    
    
    
    
    
    
    
    
    
    
    
    17
    
    
    
    
    
    
    
    17Stock-based employee compensation expense
    
    
    
    
    
    
    
    
    
    
    1,915
    
    
    
    
    
    
    
    
    
    
    
    1,915
    
    
    
    
    
    
    
    1,915Proceeds from private placement of common
stock and warrants, net of issuance
expenses
    
    
    10,155
    
    
    
    102
    
    
    
    22,311
    
    
    
    
    
    
    
    
    
    
    
    22,413
    
    
    
    
    
    
    
    22,413Deerfield transaction
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,500
    
    
    
    7,500Net loss and total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (42,249
    )
    
    
    
    
    
    
    (42,249
    )
    
    
    (162
    )
    
    $
    (42,411
    )Balance at December 31, 2007
    
    
    46,749
    
    
    
    468
    
    
    
    189,020
    
    
    
    (195,334
    )
    
    
    
    
    
    
    (5,846
    )
    
    
    7,338
    
    
    
    1,492Exercise of stock options
    
    
    559
    
    
    
    5
    
    
    
    766
    
    
    
    
    
    
    
    
    
    
    
    771
    
    
    
    
    
    
    
    771Exercise of warrants
    
    
    72
    
    
    
    
    
    
    
    163
    
    
    
    
    
    
    
    
    
    
    
    163
    
    
    
    
    
    
    
    163Stock-based employee compensation expense
    
    
    
    
    
    
    
    
    
    
    2,203
    
    
    
    
    
    
    
    
    
    
    
    2,203
    
    
    
    
    
    
    
    2,203Proceeds from private placement of common
stock and warrants, net of issuance
expenses (January)
    
    
    8,750
    
    
    
    88
    
    
    
    19,828
    
    
    
    
    
    
    
    
    
    
    
    19,916
    
    
    
    
    
    
    
    19,916Proceeds from private placement of common
stock and warrants, net of issuance
expenses (September)
    
    
    30,303
    
    
    
    303
    
    
    
    95,725
    
    
    
    
    
    
    
    
    
    
    
    96,028
    
    
    
    
    
    
    
    96,028Comprehensive income (loss):Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (41,580
    )
    
    
    
    
    
    
    (41,580
    )
    
    
    (485
    )
    
    
    (42,065
    )Unrealized gain on securities, net of tax
of $101
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    160
    
    
    
    160
    
    
    
    
    
    
    
    160Unrealized gain on hedges, net of tax of $73
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    116
    
    
    
    116
    
    
    
    
    
    
    
    116Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (41,304
    )
    
    
    
    
    
    
    (41,304
    )Acquisition of noncontrolling interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,853
    )
    
    
    (6,853
    )Balance at December 31, 2008
    
    
    86,433
    
    
    
    864
    
    
    
    307,705
    
    
    
    (236,914
    )
    
    
    276
    
    
    
    71,931
    
    
    
    
    
    
    
    71.931Exercise of stock options
    
    
    79
    
    
    
    1
    
    
    
    63
    
    
    
    
    
    
    
    
    
    
    
    64
    
    
    
    
    
    
    
    64Stock-based employee compensation expense
    
    
    
    
    
    
    
    
    
    
    3,660
    
    
    
    
    
    
    
    
    
    
    
    3,660
    
    
    
    
    
    
    
    3,660Comprehensive income (loss):
    
    
    
    
    
    
    Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (62,326
    )
    
    
    
    
    
    
    (62,326
    )
    
    
    
    
    
    
    (62,326
    )Unrealized losses on securities, net of tax
of $101
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (160
    )
    
    
    (160
    )
    
    
    
    
    
    
    (160
    )Unrealized losses on hedges, net of tax of
$73
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (116
    )
    
    
    (116
    )
    
    
    
    
    
    
    (116
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (62,602
    )
    
    
    
    
    
    
    (62,602
    )Balance at December 31, 2009
    
    
    86,512
    
    
    $
    865
    
    
    $
    311,428
    
    
    $
    (299,240
    )
    
    $
    
    
    
    $
    13,053
    
    
    $
    
    
    
    $
    13,053
   F-4




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##### Table of Contents



MIDDLEBROOK PHARMACEUTICALS, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (amounts in 000s)
 Year Ended December 31,2009
    
    
    2008
    
    
    2007Cash flows from operating activities:Net loss
    
    $
    (62,326
    )
    
    $
    (42,065
    )
    
    $
    (42, 411
    )Adjustments to reconcile net loss to net cash used in
operating activities:Depreciation and amortization
    
    
    4,358
    
    
    
    6,316
    
    
    
    4,460Warrant expense
    
    
    
    
    
    
    6,714
    
    
    
    2,100Stock-based compensation
    
    
    3,660
    
    
    
    2,203
    
    
    
    1,931Deferred rent and credit on lease concession
    
    
    (11
    )
    
    
    (256
    )
    
    
    (75
    )Amortization of premium on marketable securities
    
    
    (17
    )
    
    
    (118
    )
    
    
    (40
    )Realized gains on investments
    
    
    (63
    )
    
    
    
    
    
    
    Loss on disposal of fixed assets and exiting facility
    
    
    966
    
    
    
    3,740
    
    
    
    Gain on termination of capital leases
    
    
    (58
    )
    
    
    
    
    
    
    Deferred tax expense (benefit)
    
    
    174
    
    
    
    (174
    )
    
    
    Changes in:Accounts receivable
    
    
    (1,842
    )
    
    
    262
    
    
    
    (384
    )Inventories
    
    
    (3,907
    )
    
    
    353
    
    
    
    1,389Prepaid expenses and other current assets
    
    
    (2,328
    )
    
    
    (1,279
    )
    
    
    540Deposits other than on property and equipment, and
other assets
    
    
    (94
    )
    
    
    (348
    )
    
    
    304Accounts payable
    
    
    (1,962
    )
    
    
    1,333
    
    
    
    (626
    )Accrued expenses and other current liabilities
    
    
    5,292
    
    
    
    (677
    )
    
    
    (2,260
    )Deferred product revenue
    
    
    
    
    
    
    
    
    
    
    (189
    )Net cash used in operating activities
    
    
    (58,158
    )
    
    
    (23,996
    )
    
    
    (35,261
    )Cash flows from investing activities:Repurchase of KEFLEX assets from Deerfield
    
    
    
    
    
    
    (12,190
    )
    
    
    Purchase of marketable securities
    
    
    (5,206
    )
    
    
    (46,244
    )
    
    
    (5,867
    )Sales and maturities of marketable securities
    
    
    49,267
    
    
    
    2,380
    
    
    
    6,430Purchases of property and equipment
    
    
    (98
    )
    
    
    (812
    )
    
    
    (1,397
    )Proceeds from sale of fixed assets
    
    
    
    
    
    
    1,366
    
    
    
    Net cash provided by (used in) investing activities
    
    
    43,963
    
    
    
    (55,500
    )
    
    
    (834
    )Cash flows from financing activities:Proceeds from private placement of common stock and warrants,
net of issuance costs
    
    
    
    
    
    
    115,944
    
    
    
    22,413Proceeds from purchase of noncontrolling interest
    
    
    
    
    
    
    
    
    
    
    7,500Payments on lines of credit
    
    
    
    
    
    
    
    
    
    
    (6,890
    )Principal payment on capital lease obligations
    
    
    (1,591
    )
    
    
    
    
    
    
    Proceeds from exercise of common stock options
    
    
    64
    
    
    
    771
    
    
    
    167Proceeds from exercise of common stock warrants
    
    
    
    
    
    
    163
    
    
    
    Payment to settle warrant liability
    
    
    
    
    
    
    (8,814
    )
    
    
    Net cash (used in) provided by financing activities
    
    
    (1,527
    )
    
    
    108,064
    
    
    
    23,190Net (decrease) increase in cash and cash equivalents
    
    
    (15,722
    )
    
    
    28,568
    
    
    
    (12,905
    )Cash and cash equivalents, beginning of period
    
    
    30,520
    
    
    
    1,952
    
    
    
    14,857Cash and cash equivalents, end of period
    
    $
    14,798
    
    
    $
    30,520
    
    
    $
    1,952Supplemental disclosure of cash flow information:Cash paid for interest
    
    $
    121
    
    
    $
    
    
    
    $
    566Supplemental disclosure of non-cash transactions:Capital leases obligation incurred for leased vehicles
    
    $
    4,967
    
    
    $
    
    
    
    $
    Capital leases obligation for terminated leases
    
    $
    (1,763
    )
    
    $
    
    
    
    $
    Reclassification of liability related to early exercises
of restricted stock to equity upon vesting of the
restricted stock
    
    $
    
    
    
    $
    
    
    
    $
    19Warrants issued
    
    $
    
    
    
    $
    
    
    
    $
    2,580
   F-5




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##### Table of Contents



MIDDLEBROOK PHARMACEUTICALS, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (tabular amounts in thousands except per share data)
 1. Nature of the Business
 Nature of Business
  Streptococcus pyogenes
 Liquidity
      F-6




---



##### Table of Contents



2. Summary of Significant Accounting Policies
 Financial Accounting Standards Codification
 TM
 Consolidation
 Noncontrolling Interest  Deerfield Transaction
    Use of Estimates
  Revenue Recognition
 Product sales revenue
 Deferred contract revenue Deferred Contract Revenue
 Research and Development
   F-7




---



##### Table of Contents



Cash and Cash Equivalents
  Restricted Cash
 Commitments and
Contingencies
 Marketable Securities
  Fair Value of Financial Instruments
  Derivative Financial Instruments
      Foreign CurrencyEuro
    
    
    2,000British pound sterling
    
    £
    1,000
  Balance Sheet
    
    Fair Value atLocation
    
    December 31, 2008Derivatives designated as hedging instruments:Foreign Exchange Forward Contracts
    
    Other current assets
    
    $
    216Foreign Exchange Forward Contracts
    
    Other current liabilities
    
    
    27Total derivatives designated as hedging instruments
    
    
    
    $
    189
  F-8




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##### Table of Contents



Fair Value
Measurements
  Accounts Receivable
  Inventories
  Property and Equipment
  Intangible Assets
 Consolidation,
 Equity Group Investments
Transaction
   Impairment of Long-Lived Assets
   F-9




---



##### Table of Contents



Intangible
Assets, Fair Value Measurements
   Leases
   Leases  Capital
  Income Taxes
  Warrant Liabilities
    F-10




---



##### Table of Contents



Registration Payment Arrangements
  Comprehensive Loss
  Earnings Per Share
    December 31,(Number of Underlying Common Shares)
    
    2009
    
    
    2008
    
    
    2007Stock options
    
    
    14,509
    
    
    
    15,760
    
    
    
    4,774Warrants
    
    
    25,561
    
    
    
    25,561
    
    
    
    13,013Total
    
    
    40,070
    
    
    
    41,321
    
    
    
    17,787
 Segment and Geographic Information
   Long-LivedGeographic Information
    
    AssetsUnited States
    
    $
    3,208Ireland
    
    
    1,347Total
    
    $
    4,555
 Recent Accounting Pronouncements
    F-11




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##### Table of Contents



3. Revenue
  4. Marketable Securities
  December 31, 2008Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairAvailable-for-Sale
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    ValueCorporate debt securities
    
    $
    11,331
    
    
    $
    67
    
    
    $
    
    
    
    $
    11,398Government debt securities
    
    
    32,650
    
    
    
    194
    
    
    
    
    
    
    
    32,844Total marketable securities
    
    $
    43,981
    
    
    $
    261
    
    
    $
    
    
    
    $
    44,242
  5. Accounts Receivable
  December 31,2009
    
    
    2008Accounts receivable, gross
    
    $
    3,055
    
    
    $
    806Allowances for discounts, chargebacks and rebates
    
    
    (786
    )
    
    
    (380
    )Accounts receivable, net
    
    $
    2,269
    
    
    $
    426
   F-12




---



##### Table of Contents



6. Inventories
  December 31,2009
    
    
    2008Finished goods
    
    $
    3,791
    
    
    $
    374Raw materials
    
    
    904
    
    
    
    Reserve for obsolete and slow-moving inventory
    
    
    (453
    )
    
    
    (39
    )Inventories, net
    
    $
    4,242
    
    
    $
    335
    7. Prepaids and Other Current Assets
  December 31,2009
    
    
    2008Product samples
    
    $
    3,179
    
    
    $
    523Prepaid insurance
    
    
    806
    
    
    
    825FDA license fee
    
    
    462
    
    
    
    586Other prepaid expenses and other current assets
    
    
    302
    
    
    
    192Deposits for sales training materials
    
    
    
    
    
    
    296Forward contract unrealized gains
    
    
    
    
    
    
    216Prepaid expenses and other current assets
    
    $
    4,749
    
    
    $
    2,638
  8. Property and Equipment
  Estimated Useful Life
    
    
    December 31,(Years)
    
    
    2009
    
    
    2008Computer equipment
    
    
    3
    
    
    $
    754
    
    
    $
    697Furniture and fixtures
    
    
    3-10
    
    
    
    834
    
    
    
    834Equipment
    
    
    3-10
    
    
    
    3,514
    
    
    
    3,473Leasehold improvements
    
    
    Shorter of economic life or lease term
    
    
    
    9,239
    
    
    
    9,239Automobiles
    
    
    Lease term
    
    
    
    2,502
    
    
    
    Subtotal
    
    
    
    
    
    
    16,843
    
    
    
    14,243Less  accumulated depreciation
    
    
    
    
    
    
    (12,288
    )
    
    
    (10,051
    )Property and equipment, net
    
    
    
    
    
    $
    4,555
    
    
    $
    4,192
  F-13




---



##### Table of Contents



Fair
Value Measurements
      December 31, 2006
    
    $
    Charges
    
    
    592Amortization
    
    
    (2
    )December 31, 2007
    
    
    590Charges
    
    
    3,320Amortization
    
    
    (295
    )December 31, 2008
    
    
    3,615Charges
    
    
    966Amortization
    
    
    (1,761
    )December 31, 2009
    
    $
    2,820
 9. Intangible Assets
  December 31, 2009Gross Carrying
    
    
    Accumulated
    
    
    Net CarryingAmount
    
    
    Amortization
    
    
    AmountKEFLEX intangible assets
    
    $
    11,758
    
    
    $
    (1,685
    )
    
    $
    10,073Patents acquired
    
    
    120
    
    
    
    (120
    )
    
    
    Intangible assets
    
    $
    11,878
    
    
    $
    (1,805
    )
    
    $
    10,073
 December 31, 2008Gross Carrying
    
    
    Accumulated
    
    
    Net CarryingAmount
    
    
    Amortization
    
    
    AmountKEFLEX intangible assets
    
    $
    11,758
    
    
    $
    (325
    )
    
    $
    11,433Patents acquired
    
    
    120
    
    
    
    (108
    )
    
    
    12Intangible assets
    
    $
    11,878
    
    
    $
    (433
    )
    
    $
    11,445
  F-14




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##### Table of Contents



Consolidation, Equity Group Investments Transaction.
 10. Revolving Line of Credit
    11. Accrued Expenses
  December 31,2009
    
    
    2008Co-pay assistance and coupon redemptions
    
    $
    3,796
    
    
    $
    122Inventory and samples
    
    
    2,590
    
    
    
    Product returns
    
    
    1,684
    
    
    
    1,321Accrued loss on leased facility  current
    
    
    1,103
    
    
    
    1,286Capital auto leases   current
    
    
    965
    
    
    
    Research and development expenses
    
    
    
    
    
    
    621Professional fees
    
    
    362
    
    
    
    607Commissions and bonuses
    
    
    776
    
    
    
    447Wages payable
    
    
    774
    
    
    
    Product royalties
    
    
    106
    
    
    
    315Severance
    
    
    825
    
    
    
    337Sales and marketing expense
    
    
    
    
    
    
    229Insurance and benefits
    
    
    41
    
    
    
    222Other expenses
    
    
    927
    
    
    
    634Total accrued expenses  current
    
    $
    13,949
    
    
    $
    6,141Deferred rent and credit on lease concessions  noncurrent
    
    
    162
    
    
    
    174Capital auto leases  noncurrent
    
    
    638Accrued loss on leased facility   noncurrent
    
    
    1,717
    
    
    
    2,329Total accrued expenses  noncurrent
    
    $
    2,517
    
    
    $
    2,503
  F-15




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##### Table of Contents



Accrued Severance
     2009
    
    
    2008
    
    
    2007Selling, general & administrative
    
    $
    1,925
    
    
    $
    2,145
    
    
    $
    515Research & development
    
    
    359
    
    
    
    
    
    
    
    Total
    
    $
    2,284
    
    
    $
    2,145
    
    
    $
    515
  2009
    
    
    
    
    
    
    2007Workforce
    
    
    
    
    
    
    WorkforceReduction
    
    
    2008 Severance
    
    
    Reduction
    
    
    TotalLiability as of December 31, 2006
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Expense
    
    
    
    
    
    
    
    
    
    
    533
    
    
    
    533Cash paid
    
    
    
    
    
    
    
    
    
    
    (343
    )
    
    
    (343
    )Liability as of December 31, 2007
    
    
    
    
    
    
    
    
    
    
    190
    
    
    
    190Expense
    
    
    
    
    
    
    2,144
    
    
    
    
    
    
    
    2,144Cash paid
    
    
    
    
    
    
    (1,807
    )
    
    
    (190
    )
    
    
    (1,997
    )Liability as of December 31, 2008
    
    
    
    
    
    
    337
    
    
    
    
    
    
    
    337Expense
    
    
    2,284
    
    
    
    
    
    
    
    
    
    
    
    2,284Cash paid
    
    
    (1,450
    )
    
    
    (337
    )
    
    
    
    
    
    
    (1,787
    )Adjustments
    
    
    (9
    )
    
    
    
    
    
    
    
    
    
    
    (9
    )Liability as of December 31, 2009
    
    $
    825
    
    
    $
    
    
    
    $
    
    
    
    $
    825
 12. Warrant Liability
   F-16




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##### Table of Contents



Equity Group Investments Transaction,
 13. Deferred Contract Revenue
 Collaboration with Par Pharmaceutical for Amoxicillin PULSYS.
    14. Preferred Stock  Undesignated
  15. Common Stock and Warrants
   Private Placements of Common Stock
 Equity Group Investments Transaction
  F-17




---



##### Table of Contents



Warrants
  Exercise
    
    
    Expiration
    
    Number ofDate Issued
    
    Price
    
    
    Date
    
    SharesApril 29, 2005
    
    $
    4.78
    
    
    April 29, 2010
    
    
    2,396April 12, 2007
    
    $
    2.27
    
    
    April 12, 2012
    
    
    7,544January 28, 2008
    
    $
    3.00
    
    
    July 28, 2013
    
    
    3,500September 4, 2008
    
    $
    3.90
    
    
    September 4, 2013
    
    
    12,12125,561
 Shares Reserved for Future Issuance
  Number of SharesOutstanding common stock options
    
    
    14,509Common stock available for future grant under our stock option plans
    
    
    7,287Common stock available for future grant under our Employee Stock
Purchase Plan
    
    
    100Warrants
    
    
    25,56147,457
  F-18




---



##### Table of Contents



16. Stock Option Plans
    F-19




---



##### Table of Contents



Weighted-AverageRemaining
    
    
    AggregateNumber of
    
    
    Weighted-Average
    
    
    Contractual
    
    
    IntrinsicOptions
    
    
    Exercise Price
    
    
    Term (Yrs)
    
    
    ValueOutstanding, December 31, 2008
    
    
    15,760
    
    
    
    2.57Granted
    
    
    1,950
    
    
    
    1.27Exercised
    
    
    (79
    )
    
    
    0.82Cancelled
    
    
    (3,122
    )
    
    
    1.92Outstanding, December 31, 2009
    
    
    14,509
    
    
    $
    2.55
    
    
    
    8.0
    
    
    $
    1Exercisable, December 31, 2009
    
    
    6,814
    
    
    $
    3.40
    
    
    
    7.1
    
    
    $
    1
   Number of
    
    
    WeightedNonvested Stock
    
    
    Average Grant DateOptions
    
    
    Fair ValueOutstanding, December 31, 2008
    
    
    12,061
    
    
    $
    1.26Granted
    
    
    1,950
    
    
    
    0.82Vested
    
    
    (3,515
    )
    
    
    1.32Forfeited
    
    
    (2,653
    )
    
    
    1.06Outstanding, December 31, 2009
    
    
    7,843
    
    
    $
    1.19
   Weighted-
    
    
    Weighted-
    
    
    
    
    
    
    Weighted-Range of
    
    Number
    
    
    Average Remaining
    
    
    Average
    
    
    Number
    
    
    AverageExercise Prices
    
    Outstanding
    
    
    Contractual Life
    
    
    Exercise Price
    
    
    Exercisable
    
    
    Exercise PriceDecember 31, 2009$0.35 to $1.15
    
    
    1,619
    
    
    
    8.7
    
    
    $
    0.95
    
    
    
    531
    
    
    $
    1.02$1.28 to $1.36
    
    
    1,569
    
    
    
    8.8
    
    
    
    1.32
    
    
    
    438
    
    
    
    1.32$1.38 to $1.53
    
    
    959
    
    
    
    7.5
    
    
    
    1.47
    
    
    
    401
    
    
    
    1.48$1.64 to $2.03
    
    
    946
    
    
    
    8.6
    
    
    
    1.74
    
    
    
    357
    
    
    
    1.75$2.06
    
    
    6,188
    
    
    
    8.7
    
    
    
    2.06
    
    
    
    1,944
    
    
    
    2.06$2.47 to $4.05
    
    
    1,661
    
    
    
    7.0
    
    
    
    3.07
    
    
    
    1,288
    
    
    
    3.10$4.15 to $10.00
    
    
    1,567
    
    
    
    4.7
    
    
    
    7.94
    
    
    
    1,555
    
    
    
    7.9614,509
    
    
    
    8.0
    
    
    $
    2.55
    
    
    
    6,814
    
    
    $
    3.40
  F-20




---



##### Table of Contents



17. Stock-Based Compensation
  December 31,Stock-Based Compensation Expense:
    
    2009
    
    
    2008
    
    
    2007Employees:Fair-value method
    
    $
    3,637
    
    
    $
    2,076
    
    
    $
    1,915Nonemployees:Fair-value method
    
    
    23
    
    
    
    127
    
    
    
    17Total
    
    $
    3,660
    
    
    $
    2,203
    
    
    $
    1,932
 December 31,Included in Statement of Operations Captions as Follows:
    
    2009
    
    
    2008
    
    
    2007Research and development expense
    
    $
    209
    
    
    $
    555
    
    
    $
    718Selling, general and administrative expense
    
    
    3,451
    
    
    
    1,648
    
    
    
    1,214Total
    
    $
    3,660
    
    
    $
    2,203
    
    
    $
    1,932
 Employees.
    2009
    
    
    2008
    
    
    2007Expected term (in years)
    
    
    4.00
    
    
    
    6.19
    
    
    
    6.25Risk-free interest rate
    
    
    2.12
    %
    
    
    2.75
    %
    
    
    4.79
    %Volatility
    
    
    90.0
    %
    
    
    75.4
    %
    
    
    75.0
    %Dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
      F-21




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##### Table of Contents



Nonemployees.
 18. Income Taxes
   Year Ended December 31,2009
    
    
    2008
    
    
    2007Current:Federal
    
    $
    
    
    
    $
    
    
    
    $
    State
    
    
    
    
    
    
    
    
    
    
    Foreign
    
    
    
    
    
    
    
    
    
    
    Total current income tax benefit
    
    
    
    
    
    
    
    
    
    
    Deferred:Federal
    
    
    142
    
    
    
    (142
    )
    
    
    State
    
    
    32
    
    
    
    (32
    )
    
    
    Foreign
    
    
    
    
    
    
    
    
    
    
    Total
deferred income tax expense (benefit)
    
    
    174
    
    
    
    (174
    )
    
    
    Total income tax expense (benefit)
    
    $
    174
    
    
    $
    (174
    )
    
    $
    
  F-22




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##### Table of Contents



December 31,2009
    
    
    2008Net operating loss carryforwards
    
    $
    91,478
    
    
    $
    72,169Deferred revenue
    
    
    4,503
    
    
    
    4,503Depreciation and amortization
    
    
    2,763
    
    
    
    2,475Stock-based compensation
    
    
    701
    
    
    
    692Accrued research and development, accrued returns and
other items
    
    
    4,931
    
    
    
    4,229Patent costs
    
    
    874
    
    
    
    766Research and experimentation tax credit
    
    
    4,397
    
    
    
    4,385Amortization of capitalized R&D
    
    
    4,013
    
    
    
    2,039Identified intangibles
    
    
    (1,881
    )
    
    
    (2,250
    )Other comprehensive income
    
    
    
    
    
    
    (174
    )Net deferred tax assets
    
    
    111,779
    
    
    
    88,835Valuation allowance
    
    
    (111,779
    )
    
    
    (88,835
    )Net deferred tax assets
    
    $
    
    
    
    $
    
  Year Ended December 31,2009
    
    
    2008
    
    
    2007U.S. federal statutory income tax rate
    
    
    (34.0
    )%
    
    
    (34.0
    )%
    
    
    (34.0
    )%State income taxes, net of federal tax benefit
    
    
    (4.5
    )%
    
    
    (4.6
    )%
    
    
    (0.9
    )%Permanent items, primarily stock-based compensation
    
    
    2.1
    %
    
    
    0.7
    %
    
    
    1.4
    %Research and experimentation tax credit
    
    
    
    
    
    
    (0.7
    )%
    
    
    (1.4
    )%Income taxes at other rates
    
    
    
    
    
    
    0.4
    %
    
    
    Change in valuation allowance
    
    
    36.7
    %
    
    
    37.8
    %
    
    
    34.9
    %Effective tax rate
    
    
    0.3
    %
    
    
    (0.4
    )%
    
    
    (0.0
    )%
      19. 401(k) Savings Plan and Employee Stock Purchase Plan
    F-23




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##### Table of Contents



20. Commitments and Contingencies
 Leases
  Summary of Significant Accounting Policies
 Summary of Significant Accounting Policies
      F-24




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##### Table of Contents



OperatingYear Ending December 31,
    
    Leases2010
    
    $
    2,3552011
    
    
    2,1202012
    
    
    1,9352013
    
    
    9712014
    
    
    Thereafter
    
    
    Total
    
    $
    7,381
 Capital Leases  Automobiles
   Royalties
   Legal Proceedings
  21. Fair Value Measurements
   F-25




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##### Table of Contents




    
    Level 1  defined as observable inputs such as quoted prices in active markets
    
    Level 2  defined as inputs other than quoted prices in active markets that
are either directly or indirectly observable
    
    Level 3  defined as unobservable inputs in which little or no market data
exists, therefore requiring an entity to develop its own assumptions
  Fair Value Measurement at December 31, 2008Quoted Prices in
    
    
    SignificantActive Markets for
    
    
    Other
    
    
    SignificantIdentical Assets
    
    
    Observable
    
    
    Unobservable(Level 1)
    
    
    Inputs (Level 2)
    
    
    Inputs (Level 3)Marketable securities
    
    $
    
    
    
    $
    44,242
    
    
    $
    Total
    
    $
    
    
    
    $
    44,242
    
    
    $
    
  22. Noncontrolling Interest  Deerfield Transaction
  Equity Group
Investments Transaction
 23. Equity Group Investments Transaction
      F-26




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##### Table of Contents



24. Related Party Transactions
 Deerfield Transaction
 Noncontrolling Interest  Deerfield
Transaction Equity Group Investments Transaction
 Consulting Arrangements
  Consulting Agreements with Edward M. Rudnic.
  Consulting Agreements with Robert C. Low.
   F-27




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##### Table of Contents



25. Subsequent Events
    ® ® ® ®
  26. Quarterly Financial Data (Unaudited)
  Net LossNet Loss
    
    
    Per ShareLoss
    
    
    
    
    
    
    Attributable to
    
    
    Attributable tofrom
    
    
    
    
    
    
    Common
    
    
    CommonNet Revenue
    
    
    Operations
    
    
    Net Loss
    
    
    Stockholders
    
    
    StockholdersYear endedDecember 31, 2009:First quarter
    
    $
    8,969
    
    
    $
    (10,119
    )
    
    $
    (10,005
    )
    
    $
    (10,005
    )
    
    $
    (0.12
    )Second quarter
    
    
    2,148
    
    
    
    (19,678
    )
    
    
    (19,586
    )
    
    
    (19,586
    )
    
    
    (0.23
    )Third quarter
    
    
    1,115
    
    
    
    (17,013
    )
    
    
    (16,964
    )
    
    
    (16,964
    )
    
    
    (0.20
    )Fourth quarter
    
    
    2,612
    
    
    
    (15,743
    )
    
    
    (15,771
    )
    
    
    (15,771
    )
    
    
    (0.18
    )Year endedDecember 31, 2008:First quarter
    
    $
    2,394
    
    
    $
    (6,728
    )
    
    $
    (14,043
    )
    
    $
    (13,800
    )
    
    $
    (0.26
    )Second quarter
    
    
    2,522
    
    
    
    (5,414
    )
    
    
    (3,644
    )
    
    
    (3,707
    )
    
    
    (0.07
    )Third quarter
    
    
    2,267
    
    
    
    (11,985
    )
    
    
    (12,767
    )
    
    
    (12,462
    )
    
    
    (0.19
    )Fourth quarter
    
    
    1,666
    
    
    
    (12,122
    )
    
    
    (11,611
    )
    
    
    (11,611
    )
    
    
    (0.13
    )
  F-28




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##### Table of Contents



SCHEDULE II
 MIDDLEBROOK PHARMACEUTICALS, INC.
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 2009, 2008, and 2007
 Balance atBeginning of
    
    
    
    
    
    
    
    
    
    
    Balance at End ofPeriod
    
    
    Additions
    
    
    Deductions(1)
    
    
    PeriodAccounts receivable allowances:Year Ended December 31, 2009
    
    $
    379
    
    
    $
    1,798
    
    
    $
    (1,390
    )
    
    $
    787Year Ended December 31, 2008
    
    $
    603
    
    
    $
    884
    
    
    $
    (1,108
    )
    
    $
    379Year Ended December 31, 2007
    
    $
    217
    
    
    $
    1,119
    
    
    $
    (733
    )
    
    $
    603Inventory reserves:Year Ended December 31, 2009
    
    $
    39
    
    
    $
    414
    
    
    $
    
    
    
    $
    453Year Ended December 31, 2008
    
    $
    1,004
    
    
    $
    39
    
    
    $
    (1,004
    )
    
    $
    39Year Ended December 31, 2007
    
    $
    294
    
    
    $
    864
    
    
    $
    (154
    )
    
    $
    1,004Deferred tax asset valuation
reserves:Year Ended December 31, 2009
    
    $
    88,835
    
    
    $
    22,944
    
    
    $
    
    
    
    $
    111,779Year Ended December 31, 2008
    
    $
    74,980
    
    
    $
    13,855
    
    
    $
    
    
    
    $
    88,835Year Ended December 31, 2007
    
    $
    62,571
    
    
    $
    12,409
    
    
    $
    
    
    
    $
    74,980
 
 (1)
    
    Deductions represent utilization of the allowances. For accounts
receivable, these include the deduction by customers of prompt pay
discounts from their payments, chargebacks made by wholesalers to us,
wholesaler rebates and writeoffs of bad debts, if any.