**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**


**____________________________**


**FORM
      10-Q**





**x 
QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE****SECURITIES
                EXCHANGE ACT OF 1934****For
                the quarterly period ended September 30, 2008****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 000-30929**


**___________________**


**KERYX
      BIOPHARMACEUTICALS, INC.**


**(Exact
      name of registrant as specified in its charter)**





**Delaware**
              (State
                or other jurisdiction of incorporation or organization)
            **13-4087132**
              (I.R.S.
                Employer Identification No.)




**750
      Lexington Avenue**


**New
      York, New York 10022**


(Address
      including zip code of principal executive offices)





**(212)
      531-5965**


(Registrant's
      telephone number, including area code)





Indicate
      by check mark whether the registrant: (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days.


Yes x No £





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, a non-accelerated filer, or a smaller reporting company.
      See
      definition of “large accelerated filer,” “accelerated filer” and “smaller
      reporting company” in Rule 12b-2 of the Exchange Act.





Large
                accelerated filer£
            Accelerated
                filerxNon-accelerated
                filer£(Do not check if smaller reporting company)
            Smaller
                reporting company£




Indicate
      by checkmark whether the registrant is a shell company (as defined in Rule
      12b-2
      of the Exchange Act).


Yes £ No x





There
      were 45,354,559 shares of the registrant’s common stock, $0.001 par value,
      outstanding as of November 3, 2008.









**KERYX
      BIOPHARMACEUTICALS, INC.**


**FORM
      10-Q**


**FOR
      THE QUARTER ENDED SEPTEMBER 30, 2008**





**TABLE
      OF CONTENTS**








**Page**SPECIAL
                CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
            1**PART
                I**
            **FINANCIAL
                INFORMATION**
            2Item
                1
            Financial
                Statements
            2Consolidated
                Balance Sheets as of September 30, 2008 andDecember
                31, 2007 (unaudited)
            2Consolidated
                Statements of Operations for the three and nine monthsended
                September 30, 2008 and 2007 (unaudited)
            3Consolidated
                Statement of Changes in Stockholders’ Equityfor
                the nine months ended September 30, 2008 (unaudited)
            4Consolidated
                Statements of Cash Flows for the nine monthsended
                September 30, 2008 and 2007 (unaudited)
            5Notes
                to Consolidated Financial Statements (unaudited)
            7Item
                2
            Management's
                Discussion and Analysis of Financial Condition andResults
                of Operations
            18Item
                3
            Quantitative
                and Qualitative Disclosures About Market Risk
            27Item
                4
            Controls
                and Procedures
            28**PART
                II**
            **OTHER
                INFORMATION**
            28Item
                1
            Legal
                Proceedings
            28Item
                1A
            Risk
                Factors
            29Item
                6
            Exhibits
            39









**SPECIAL
      CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS**





Certain
      matters discussed in this report, including matters discussed under the caption
      “Management’s Discussion and Analysis of Financial Condition and Results of
      Operations,” may constitute forward-looking statements for purposes of the
      Securities Act of 1933, as amended, or the Securities Act, and the Securities
      Exchange Act of 1934, as amended, or the Exchange Act, and involve known and
      unknown risks, uncertainties and other factors that may cause our actual
      results, performance or achievements to be materially different from the future
      results, performance or achievements expressed or implied by such
      forward-looking statements. The words "anticipate," "believe," "estimate,"
      "may," "expect" and similar expressions are generally intended to identify
      forward-looking statements. Our actual results may differ materially from the
      results anticipated in these forward-looking statements due to a variety of
      factors, including, without limitation, those discussed under the captions
“Risk
      Factors,” “Management’s Discussion and Analysis of Financial Condition and
      Results of Operations” and elsewhere in this report, as well as other factors
      which may be identified from time to time in our other filings with the
      Securities and Exchange Commission, or the SEC, or in the documents where such
      forward-looking statements appear. All written or oral forward-looking
      statements attributable to us are expressly qualified in their entirety by
      these
      cautionary statements. Such forward-looking statements include, but are not
      limited to, statements about our:




·
              expectations
                  for increases or decreases in expenses;
  ·
              expectations
                  for the development, manufacturing, regulatory approval, and
                  commercialization of ZerenexTM(ferric citrate), KRX-0401 (perifosine), and our additional product
                  candidates or any other products we may acquire or in-license;
  ·
              expectations
                  for incurring capital expenditures to expand our research and development
                  and manufacturing capabilities;
  ·
              expectations
                  for generating revenue or becoming profitable on a sustained basis;
  ·
              expectations
                  or ability to enter into marketing and other partnership agreements;
  ·
              expectations
                  or ability to enter into product acquisition and in-licensing
                  transactions;
  ·
              expectations
                  or ability to build our own commercial infrastructure to manufacture,
                  market and sell our drug
                  candidates;
  ·
              estimates
                  of the sufficiency of our existing cash and cash equivalents and
                  investments to finance our business strategy;
  ·
              expected
                  losses;
  ·
              ability
                  to continue to satisfy the listing requirements of the NASDAQ Stock
                  Market; and
  ·
              expectations
                  for future capital requirements.


The
      forward-looking statements contained in this report reflect our views and
      assumptions only as of the date this report is signed. Except as required by
      law, we assume no responsibility for updating any forward-looking statements.





We
      qualify all of our forward-looking statements by these cautionary statements.
      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.




1




**PART
      I. FINANCIAL INFORMATION**





**ITEM
      1. FINANCIAL STATEMENTS**





**Keryx
      Biopharmaceuticals, Inc. (A Development Stage Company)**


Consolidated
      Balance Sheets as of September 30, 2008 and December 31, 2007
      (Unaudited)





(in
      thousands, except share and per share amounts)





**September
                30, 2008**
            
            **December
                31, 2007****Assets**Current
                assetsCash
                and cash equivalents
            
            $
            6,779
            
            $
            19,065Short-term
                investment securities
            
            
            10,305
            
            
            43,038Interest
                receivable
            
            
            222
            
            
            283Assets
                of discontinued operations
            
            
            --
            
            
            87Other
                current assets
            
            
            684
            
            
            1,257Total
                current assets
            
            
            17,990
            
            
            63,730Long-term
                investment securities
            
            
            9,213
            
            
            2,296Property,
                plant and equipment, net
            
            
            208
            
            
            11,483Goodwill
            
            
            3,208
            
            
            3,208Other
                assets, net
            
            
            83
            
            
            344Total
                assets
            
            $
            30,702
            
            $
            81,061**Liabilities
                and stockholders’ equity**Current
                liabilitiesAccounts
                payable and accrued expenses
            
            $
            6,005
            
            $
            18,971Accrued
                compensation and related liabilities
            
            
            1,018
            
            
            1,254Current
                portion of deferred revenue
            
            
            1,464
            
            
            1,023Liabilities
                of discontinued operations
            
            
            120
            
            
            163Total
                current liabilities
            
            
            8,607
            
            
            21,411Deferred
                revenue, net of current portion
            
            
            17,635
            
            
            11,022Contingent
                equity rights
            
            
            4,004
            
            
            4,004Other
                liabilities
            
            
            135
            
            
            202Total
                liabilities
            
            
            30,381
            
            
            36,639Commitments
                and contingencies (Note 6)Stockholders’
                equityPreferred
                stock, $0.001 par value per share (5,000,000 shares authorized, no
                shares
                issued and outstanding)
            
            
            --
            
            
            --Common
                stock, $0.001 par value per share (95,000,000 shares authorized,
                45,434,507 and 43,751,101 shares issued, 45,354,559 and 43,671,153
                shares
                outstanding at September 30, 2008 and December 31, 2007,
                respectively)
            
            
            45
            
            
            44Additional
                paid-in capital
            
            
            327,981
            
            
            323,009Treasury
                stock, at cost, 79,948 shares at September 30, 2008 and December
                31, 2007,
                respectively
            
            
            (357
            )
            
            (357
            )Deficit
                accumulated during the development stage
            
            
            (327,348
            )
            
            (278,274
            )Total
                stockholders’ equity
            
            
            321
            
            
            44,422Total
                liabilities and stockholders’ equity
            
            $
            30,702
            
            $
            81,061





*The
      accompanying notes are an integral part of the consolidated financial
      statements.*




2


**Keryx
      Biopharmaceuticals, Inc. (A Development Stage Company)**


Consolidated
      Statements of Operations


for
      the
      Three and Nine months Ended September 30, 2008 and 2007 (Unaudited)


(in
      thousands, except share and per share amounts)





**Three
                months ended**
              **September
                30,**
            
            **Nine
                months ended**
              **September
                30,**
            
            **Amounts
                accumulated during the development****2008**
            
            **2007**
            
            **2008**
            
            **2007**
            
            **stage**Revenue:License
                revenue
            
            $
            327
            
            $
            41
            
            $
            853
            
            $
            41
            
            $
            1,057Service
                revenue
            
            
            41
            
            
            11
            
            
            103
            
            
            37
            
            
            1,969Other
                revenue
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            1,027Total
                revenue
            
            
            368
            
            
            52
            
            
            956
            
            
            78
            
            
            4,053Operating
                expenses:Cost
                of services
            
            
            13
            
            
            28
            
            
            27
            
            
            90
            
            
            2,195Research
                and development:Non-cash
                compensation
            
            
            334
            
            
            735
            
            
            (395
            )
            
            2,908
            
            
            17,417Non-cash
                acquired in-process research and development
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            18,800Other
                research and development
            
            
            2,208
            
            
            15,965
            
            
            37,277
            
            
            49,093
            
            
            231,804Total
                research and development
            
            
            2,542
            
            
            16,700
            
            
            36,882
            
            
            52,001
            
            
            268,021Selling,
                general and administrative:Non-cash
                compensation
            
            
            1,662
            
            
            1,780
            
            
            5,146
            
            
            5,193
            
            
            26,081Other
                selling, general and administrative
            
            
            2,284
            
            
            2,062
            
            
            6,249
            
            
            6,531
            
            
            48,996Total
                selling, general and administrative
            
            
            3,946
            
            
            3,842
            
            
            11,395
            
            
            11,724
            
            
            75,077Total
                operating expenses
            
            
            6,501
            
            
            20,570
            
            
            48,304
            
            
            63,815
            
            
            345,293Operating
                loss
            
            
            (6,133
            )
            
            (20,518
            )
            
            (47,348
            )
            
            (63,737
            )
            
            (341,240
            )Interest
                and other (expense) income, net
            
            
            (622
            )
            
            1,017
            
            
            (1,551
            )
            
            3,658
            
            
            16,366Loss
                from continuing operations before income taxes
            
            
            (6,755
            )
            
            (19,501
            )
            
            (48,899
            )
            
            (60,079
            )
            
            (324,874
            )Income
                taxes
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            527Loss
                from continuing operations
            
            
            (6,755
            )
            
            (19,501
            )
            
            (48,899
            )
            
            (60,079
            )
            
            (325,401
            )Loss
                from discontinued operations
            
            
            (86
            )
            
            (27
            )
            
            (175
            )
            
            (722
            )
            
            (1,947
            )Net
                loss
            
            $
            (6,841
            )
            $
            (19,528
            )
            $
            (49,074
            )
            $
            (60,801
            )
            $
            (327,348
            )Basic
                and diluted loss per common share:Continuing
                operations
            
            $
            (0.15
            )
            $
            (0.45
            )
            $
            (1.11
            )
            $
            (1.38
            )
            $
            (13.60
            )Discontinued
                operations
            
            
            (--)*
            
            
            (--)*
            
            
            (--)*
            
            
            (0.02
            )
            
            (0.08
            )Basic
                and diluted loss per common share
            
            $
            (0.15
            )
            $
            (0.45
            )
            $
            (1.11
            )
            $
            (1.40
            )
            $
            (13.68
            )Weighted
                average shares used in computing basic and diluted netloss
                per common share
            
            
            45,222,053
            
            
            43,619,523
            
            
            44,348,537
            
            
            43,561,160
            
            
            23,935,836





*
      Amount
      less than one cent.





*The
      accompanying notes are an integral part of the consolidated financial
      statements.*




3




**Keryx
      Biopharmaceuticals, Inc. (A Development Stage Company)**


Consolidated
      Statement of Changes in Stockholders’ Equity


for
      the
      Nine months Ended September 30, 2008 (Unaudited)





(in
      thousands, except share amounts)




**Common
                stock**
            
            **Additional
                paid-in****Shares**
            
            **Amount**
            
            **capital**Balance
                at December 31, 2007
            
            
            43,751,101
            
            $
            44
            
            $
            323,009Changes
                during the period:Issuance
                of restricted stock
            
            
            1,681,906
            
            
            1
            
            
            --Forfeiture
                of restricted stock
            
            
            (73,500
            )
            
            (--)*
            
            
            --Exercise
                of options
            
            
            75,000
            
            
            --*
            
            
            222Compensation
                in respect of options and restricted stock granted to employees,
                directors
                and third-parties
            
            
            --
            
            
            --
            
            
            4,750Net
                loss
            
            
            --
            
            
            --
            
            
            --Balance
                at September 30, 2008
            
            
            45,434,507
            
            $
            45
            
            $
            327,981




**Treasury
                stock**
            
            **Deficit
                accumulated during the development****Shares**
            
            **Amount**
            
            **Stage**
            
            **Total**Balance
                at December 31, 2007
            
            
            79,948
            
            $
            (357
            )
            $
            (278,274
            )
            $
            44,422Changes
                during the period:Issuance
                of restricted stock
            
            
            --
            
            
            --
            
            
            --
            
            
            1Forfeiture
                of restricted stock
            
            
            --
            
            
            --
            
            
            --
            
            
            (--)*Exercise
                of options
            
            
            --
            
            
            --
            
            
            --
            
            
            222Compensation
                in respect of options and restricted stock granted to employees,
                directors
                and third-parties
            
            
            --
            
            
            --
            
            
            --
            
            
            4,750Net
                loss
            
            
            --
            
            
            --
            
            
            (49,074
            )
            
            (49,074
            )Balance
                at September 30, 2008
            
            
            79,948
            
            $
            (357
            )
            $
            (327,348
            )
            $
            321





*
      Amount
      less than one thousand dollars.





*The
      accompanying notes are an integral part of the consolidated financial
      statements.*




4




**Keryx
      Biopharmaceuticals, Inc. (A Development Stage Company)**


Consolidated
      Statements of Cash Flows


for
      the
      Nine months Ended September 30, 2008 and 2007 (Unaudited)


(in
        thousands)





**Nine
                months ended**
              **September
                30,**
            
            **Amounts**
              **accumulated**
              **during
                the**
              **development**
              **stage****2008**
            
            **2007**CASH
                FLOWS FROM OPERATING ACTIVITIESNet
                loss
            
            $
            (49,074
            )
            $
            (60,801
            )
            $
            (327,348
            )Loss
                from discontinued operations
            
            
            (175
            )
            
            (722
            )
            
            (1,947
            )Loss
                from continuing operations
            
            
            (48,899
            )
            
            (60,079
            )
            
            (325,401
            )Adjustments
                to reconcile loss from continuing operations to cash flows used in
                operating activities in continuing operations:Acquired
                in-process research and development
            
            
            --
            
            
            --
            
            
            18,800Stock
                compensation expense
            
            
            4,751
            
            
            8,101
            
            
            43,498Issuance
                of common stock to technology licensor
            
            
            --
            
            
            --
            
            
            359Interest
                on convertible notes settled through issuance of preferred
                shares
            
            
            --
            
            
            --
            
            
            253Depreciation
                and amortization
            
            
            85
            
            
            96
            
            
            3,002Loss
                on disposal of property, plant and equipment
            
            
            --
            
            
            --
            
            
            171Impairment
                of investment securities
            
            
            2,787
            
            
            --
            
            
            2,787Other
                impairment charges
            
            
            11,037
            
            
            --
            
            
            13,518Exchange
                rate differences
            
            
            --
            
            
            --
            
            
            94Changes
                in assets and liabilities, net of effects of acquisitions:Decrease
                (increase) in other current assets
            
            
            573
            
            
            646
            
            
            (313
            )Decrease
                (increase) in accrued interest receivable
            
            
            61
            
            
            72
            
            
            (222
            )(Increase)
                in license receivable
            
            
            --
            
            
            (12,000
            )
            
            --Decrease
                (increase) in other assets
            
            
            261
            
            
            --
            
            
            (2
            )(Decrease)
                increase in accounts payable and accrued expenses
            
            
            (12,666
            )
            
            (22
            )
            
            5,224(Decrease)
                increase in accrued compensation and related liabilities
            
            
            (236
            )
            
            (425
            )
            
            446(Decrease)
                in other liabilities
            
            
            (67
            )
            
            (69
            )
            
            (20
            )Increase
                in deferred revenue
            
            
            7,054
            
            
            12,016
            
            
            18,643Net
                cash used in operating activities in continuing operations
            
            
            (35,259
            )
            
            (51,664
            )
            
            (219,163
            )Net
                cash used in operating activities in discontinued
                operations
            
            
            (132
            )
            
            (193
            )
            
            (1,730
            )Net
                cash used in operating activities
            
            
            (35,391
            )
            
            (51,857
            )
            
            (220,893
            )CASH
                FLOWS FROM INVESTING ACTIVITIESPurchases
                of property, plant and equipment
            
            
            (146
            )
            
            (2,963
            )
            
            (16,293
            )Proceeds
                from disposals of property, plant and equipment
            
            
            --
            
            
            --
            
            
            440Increase
                in note and accrued interest receivable from related party
            
            
            --
            
            
            --
            
            
            (356
            )Payments
                of transaction costs
            
            
            --
            
            
            --
            
            
            (231
            )Increase
                in other assets
            
            
            --
            
            
            --
            
            
            (1,192
            )Investment
                in held-to-maturity short-term securities
            
            
            (33
            )
            
            (2,072
            )
            
            (55,082
            )Proceeds
                from maturity of held-to-maturity short-term securities
            
            
            12,863
            
            
            20,006
            
            
            88,904Investment
                in available-for-sale short-term securities
            
            
            (12,000
            )
            
            (21,000
            )
            
            (126,800
            )Proceeds
                from sale of available-for-sale short-term securities
            
            
            22,200
            
            
            40,100
            
            
            114,800Investment
                in held-to-maturity long-term securities
            
            
            (1
            )
            
            (2,330
            )
            
            (44,320
            )Proceeds
                from maturity of held-to-maturity long-term securities
            
            
            --
            
            
            2
            
            
            193Net
                cash provided by (used in) investing activities in continuing
                operations
            
            
            22,883
            
            
            31,743
            
            
            (39,937
            )Net
                cash provided by investing activities in discontinued
                operations
            
            
            --
            
            
            15
            
            
            --Net
                cash provided by (used in) investing activities
            
            
            22,883
            
            
            31,758
            
            
            (39,937
            )




*The
      accompanying notes are an integral part of the consolidated financial
      statements.*




5


**Keryx
      Biopharmaceuticals, Inc. (A Development Stage Company)**


Consolidated
      Statements of Cash Flows


for
      the
      Nine months Ended September 30, 2008 and 2007 (Unaudited)


(continued)


(in
      thousands)





**Nine
                months ended**
              **September
                30,**
            
            **Amounts**
              **accumulated**
              **during
                the**
              **development**
              **stage****2008**
            
            **2007**CASH
                FLOWS FROM FINANCING ACTIVITIESProceeds
                from short-term loans
            
            $
            --
            
            $
            --
            
            $
            500Proceeds
                from long-term loans
            
            
            --
            
            
            --
            
            
            3,251Payment
                of assumed notes payable and accrued interest in connection with
                theACCESS Oncology acquisition
            
            
            --
            
            
            --
            
            
            (6,322
            )Issuance
                of convertible note, net
            
            
            --
            
            
            --
            
            
            2,150Issuance
                of preferred shares, net
            
            
            --
            
            
            --
            
            
            8,453Receipts
                on account of shares previously issued
            
            
            --
            
            
            --
            
            
            7Proceeds
                from initial public offering, net
            
            
            --
            
            
            --
            
            
            46,298Proceeds
                from subsequent public offerings, net
            
            
            --
            
            
            --
            
            
            158,487Proceeds
                from private placements, net
            
            
            --
            
            
            --
            
            
            45,795Proceeds
                from exercise of options and warrants
            
            
            222
            
            
            271
            
            
            9,342Purchase
                of treasury stock
            
            
            --
            
            
            (268
            )
            
            (357
            )Net
                cash provided by financing activities
            
            
            222
            
            
            3
            
            
            267,604Cash
                acquired in acquisition
            
            
            --
            
            
            --
            
            
            99Effect
                of exchange rate on cash
            
            
            --
            
            
            --
            
            
            (94
            )NET
                (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
            
            
            (12,286
            )
            
            (20,096
            )
            
            6,779Cash
                and cash equivalents at beginning of period
            
            
            19,065
            
            
            48,736
            
            
            --CASH
                AND CASH EQUIVALENTS AT END OF PERIOD
            
            $
            6,779
            
            $
            28,640
            
            $
            6,779NON
                - CASH TRANSACTIONSSale
                of manufacturing facility assets
            
            $
            300
            
            $
            --
            
            $
            300Issuance
                of common stock in connection with acquisition
            
            
            --
            
            
            --
            
            
            9,635Contingent
                equity rights in connection with acquisition
            
            
            --
            
            
            --
            
            
            4,004Assumption
                of liabilities in connection with acquisition
            
            
            --
            
            
            --
            
            
            9,068Conversion
                of short-term loans into contributed capital
            
            
            --
            
            
            --
            
            
            500Conversion
                of long-term loans into contributed capital
            
            
            --
            
            
            --
            
            
            2,681Conversion
                of long-term loans into convertible notes of Partec
            
            
            --
            
            
            --
            
            
            570Conversion
                of convertible notes of Partec and accrued interest into stock in
                Keryx
            
            
            --
            
            
            --
            
            
            2,973Issuance
                of warrants to related party as finder’s fee in private
                placement
            
            
            --
            
            
            --
            
            
            114Declaration
                of stock dividend
            
            
            --
            
            
            --
            
            
            3SUPPLEMENTARY
                DISCLOSURES OF CASH FLOW INFORMATIONCash
                paid for interest
            
            $
            --
            
            $
            --
            
            $
            1,166Cash
                paid for income taxes
            
            $
            --
            
            $
            --
            
            $
            468




*The
      accompanying notes are an integral part of the consolidated financial
      statements.*




6


**Keryx
      Biopharmaceuticals, Inc. (A Development Stage Company)**


Notes
      to
      Consolidated Financial Statements (unaudited)





**NOTE
      1 - GENERAL**





***Basis
      of Presentation***





Keryx
      Biopharmaceuticals, Inc. and subsidiaries (“Keryx” or the “Company”) is a
      biopharmaceutical company focused on the acquisition, development and
      commercialization of medically important, novel pharmaceutical products for
      the
      treatment of life-threatening diseases, including renal disease and cancer.
      The
      Company was incorporated in Delaware in October 1998 (under the name Paramount
      Pharmaceuticals, Inc., which was later changed to Lakaro Biopharmaceuticals,
      Inc. in November 1999, and finally to Keryx Biopharmaceuticals, Inc. in January
      2000). The Company commenced activities in November 1999, focusing on the
      development and commercialization of clinical compounds and core technologies
      for the life sciences.





Until
      November 1999, most of the Company’s activities were carried out by Partec
      Limited, an Israeli corporation formed in December 1996, and its subsidiaries
      -
      SignalSite Inc. (85% owned), SignalSite Israel Ltd. (wholly-owned), Vectagen
      Inc. (87.25% owned) and Vectagen Israel Ltd. (wholly-owned) (hereinafter
      collectively referred to as “Partec”). In November 1999, the Company acquired
      substantially all of the assets and liabilities of Partec and, as of that date,
      the activities formerly carried out by Partec were performed by the Company.
      On
      the date of the acquisition, Keryx and Partec were entities under common control
      (the controlling interest owned approximately 79.7% of Keryx and approximately
      76% of Partec) and accordingly, the assets and liabilities were recorded at
      their historical cost basis by means of “as if” pooling, with Partec being
      presented as a predecessor company. Consequently, these financial statements
      include the activities performed in previous periods by Partec by aggregating
      the relevant historical financial information with the financial statements
      of
      the Company as if they had formed a discrete operation under common management
      for the entire development stage.





The
      Company owns a 100% interest in each of ACCESS Oncology, Inc., Neryx
      Biopharmaceuticals, Inc., and Accumin Diagnostics, Inc., all U.S. corporations
      incorporated in the State of Delaware, and Keryx (Israel) Ltd. and Keryx
      Biomedical Technologies Ltd., each organized in Israel. In 2003, the Company’s subsidiaries
      in Israel ceased operations and are currently in the process of being closed
      down. Most
      of
      the Company's biopharmaceutical development and substantially all of its
      administrative operations during the three and nine months ended September
      30,
      2008 and 2007, were conducted in the United States of America.





On
      February 5, 2004, the Company completed the acquisition of ACCESS Oncology,
      Inc.
      and its subsidiaries (“ACCESS Oncology”). The transaction was structured as a
      merger of AXO Acquisition Corp., a Delaware corporation and the Company’s
      wholly-owned subsidiary, with and into ACCESS Oncology, with ACCESS Oncology
      remaining as the surviving corporation and a wholly-owned subsidiary of the
      Company. The transaction was accounted for under the purchase method of
      accounting. The assets and liabilities of ACCESS Oncology that the Company
      acquired and assumed pursuant to the acquisition have been included in the
      Company’s consolidated financial statements as of February 5, 2004.





On
      April
      6, 2006, Accumin Diagnostics, Inc., a wholly-owned subsidiary of the Company,
      completed the acquisition of Accumin TM ,
      a
      novel, patent protected, diagnostic for the direct measurement of total,
      intact urinary albumin, from AusAm Biotechnologies, Inc. The transaction was
      accounted for under the purchase method of accounting. The assets and
      liabilities of Accumin that the Company acquired and assumed pursuant to the
      acquisition have been included in the Company’s consolidated financial
      statements as of April 6, 2006. In September 2008, the Company terminated its
      license agreement related to the Accumin diagnostic product and ceased all
      operations related to this segment. The
      results of the Company’s Diagnostic segment and the related financial position
      have been reflected as discontinued operations in the consolidated financial
      statements in accordance with Statement
      of Financial Accounting Standards (“ SFAS”) No.
      144, “Accounting for the Impairment or Disposal of Long-lived Assets” (“SFAS No.
      144”) and Emerging
      Issues Task Force (“ EITF”) Issue
      No. 03-13, “Applying the Conditions in Paragraph 42 of FASB Statement
      No. 144 in Determining Whether to Report Discontinued Operations” (“EITF
      Issue No. 03-13”). The consolidated financial statements have been reclassified
      to conform to discontinued operations presentation for all historical periods
      presented. More details on discontinued operations are available in Note 7.




7





The
      accompanying unaudited consolidated financial statements were prepared in
      accordance with U.S. generally accepted accounting principles (“GAAP”) for
      interim financial information and with the instructions to Form 10-Q and
      Article 10 of Regulation S-X. Accordingly, they do not include all of
      the information and footnotes required by GAAP for complete financial
      statements. All adjustments that are, in the opinion of management, of a normal
      recurring nature and are necessary for a fair presentation of the consolidated
      financial statements have been included. Nevertheless, these financial
      statements should be read in conjunction with the Company's audited consolidated
      financial statements contained in its Annual Report on Form 10-K for the year
      ended December 31, 2007. The results of operations for the three and nine months
      ended September 30, 2008 are not necessarily indicative of the results that
      may
      be expected for the entire fiscal year or any other interim period.





The
      Company has incurred operating losses since its inception and expects to
      continue to incur operating losses for the foreseeable future and may never
      become profitable. The Company has not generated any revenues from its planned
      principal operations and is dependent upon significant financing to provide
      the
      working capital necessary to execute its business plan. The Company has not
      yet
      commercialized any of its drug candidates and cannot be sure if it will ever
      be
      able to do so. Even if the Company commercializes one or more of its drug
      candidates, the Company may not become profitable. The Company’s ability to
      achieve profitability depends on a number of factors, including its ability
      to
      complete its development efforts, obtain regulatory approval for its drug
      candidates, successfully complete any post-approval regulatory obligations
      and
      successfully commercialize its drug candidates. The Company may continue to
      incur substantial operating losses even if it begins to generate revenues from
      its drug candidates, if approved. The Company currently anticipates that its
      cash, cash equivalents, interest receivable and investment securities as of
      September 30, 2008, exclusive of its holdings in auction rate securities, are
      sufficient to meet its anticipated working capital needs and fund its business
      plan at least into the latter part of 2009. Accordingly, if the Company is
      not
      able to receive proceeds from some portion of its auction rate securities by
      October 1, 2009, the Company may not have the ability to continue as a going
      concern. If the Company determines that it is necessary to seek additional
      funding, there can be no assurance that the Company will be able to obtain
      any
      such funding on terms that are acceptable to it, if at all.





***Cash
      and Cash Equivalents***





The
      Company treats liquid investments with original maturities of less than three
      months when purchased as cash and cash equivalents.




The
      accompanying financial statements have been prepared assuming that we will
      continue as a going concern, which contemplates the realization of assets and
      satisfaction of liabilities in the normal course of business. The Company has
      incurred recurring losses from operations, has limited cash, cash equivalents,
      and short term securities, and illiquid investments in auction rate securities
      that raise substantial doubt about the Company’s ability to continue as a going
      concern. The financial statements do not include any adjustments that might
      be
      necessary should we be unable to continue as a going concern.


***Investment
      Securities***





The
      Company records its investments as either held-to-maturity or
      available-for-sale. Held-to-maturity investments are recorded at amortized
      cost.
      Available-for-sale investment securities (which are comprised of auction rate
      securities) are recorded at fair value. See Note 2 - Fair Value Measurements.
      Other-than-temporary impairment charges are included in interest and other
      income (expense), net.





The
      following table summarizes the Company’s investment securities at September 30,
      2008 and December 31, 2007:





(in thousands)
            
            **September
                30, 2008**
            
            **December
                31, 2007**Short-term
                investment securities:Obligations
                of domestic governmental agencies (mature between October 2008 and
                May
                2009) (held-to-maturity)
            
            $
            10,305
            
            $
            20,838Auction
                rate securities (mature between 2031 and 2047)
                (available-for-sale)
            
            
            --
            
            
            22,200Total
                short-term investment securities
            
            $
            10,305
            
            $
            43,038Long-term
                investment securities:Obligations
                of domestic governmental agencies(held-to-maturity)
            
            $
            --
            
            $
            2,296Auction
                rate securities (mature between 2031 and 2047)
                (available-for-sale)
            
            
            9,213
            
            
            --Total
                long-term investment securities
            
            $
            9,213
            
            $
            2,296




8




***Revenue
      Recognition***





The
      Company recognizes license revenue consistent with the provisions of Staff
      Accounting Bulletin (“SAB”) No. 104 and EITF Issue No. 00-21, “Revenue
      Arrangements with Multiple Deliverables.” The Company analyzes each element of
      its licensing agreement to determine the appropriate revenue recognition. The
      Company recognizes revenue on upfront payments and milestone payments over
      the
      period of significant involvement under the related agreements unless the fee
      is
      in exchange for products delivered or services rendered that represent the
      culmination of a separate earnings process and no further performance obligation
      exists under the contract. The Company may recognize milestone payments in
      revenue upon the achievement of specified milestones if (1) the milestone
      is substantive in nature, and the achievement of the milestone was not
      reasonably assured at the inception of the agreement and (2) the fees are
      nonrefundable. Any milestone payments received prior to satisfying these revenue
      recognition criteria are recognized as deferred revenue. Sales milestones and
      royalties that are deferred will be recognized when earned under the agreements.





The
      Company recognized diagnostic revenue when persuasive evidence of an arrangement
      existed, the product had been shipped, title and risk of loss had passed to
      the
      customer and collection from the customer was reasonably assured. Diagnostic
      revenue is included in discontinued operations.





The
      Company recognizes service revenues as the services are provided. Deferred
      revenue is recorded when the Company receives a deposit or prepayment for
      services to be performed at a later date.





***Stock-Based
      Compensation***




The
      Company adopted SFAS No. 123R, “Share-Based Payment” (“SFAS No. 123R”) on
      January 1, 2006 using the modified prospective transition method. SFAS No.
      123R
      requires all share-based payments to employees, and to non-employee directors
      as
      compensation for service on the Board of Directors, to be recognized as
      compensation expense in the consolidated financial statements based on the
      fair
      values of such payments. Stock-based compensation expense recognized each period
      is based on the value of the portion of share-based payment awards that is
      ultimately expected to vest during the period. SFAS No. 123R requires
      forfeitures to be estimated at the time of grant and revised, if necessary,
      in
      subsequent periods if actual forfeitures differ from those estimates.





The
      Company accounts for equity instruments issued to third party service providers
      (non-employees) in accordance with the fair value method prescribed by the
      provisions of EITF Issue No. 96-18, “Accounting for Equity Instruments That Are
      Issued to Other Than Employees for Acquiring, or in Conjunction with Selling
      Goods or Services” (“EITF 96-18”).





***Net
      Loss per Share***





Basic
      net
      loss per share is computed by dividing the losses allocable to common
      stockholders by the weighted average number of shares of common stock
      outstanding for the period. Diluted net loss per share does not reflect the
      effect of shares of common stock to be issued upon the exercise of stock options
      and warrants, as their inclusion would be anti-dilutive. The options and
      warrants outstanding as of September 30, 2008 and 2007, which are not included
      in the computation of net loss per share amounts, were 9,461,435 and 10,774,700,
      respectively.





***Accounting
      for Manufacturing Suite***





The
      Company spent approximately $11.3 million in capital expenditures building
      a
      manufacturing suite for Sulonex. With the cessation of the Company’s development
      of Sulonex in March 2008, the Company took an impairment charge of $11.0
      million, which is included in other research and development expenses in the
      nine months ended September 30, 2008, to write the assets down to their fair
      value of $300,000, the amount for which the assets were sold during the three
      months ended June 30, 2008. The sale of the assets offset a payable and,
      therefore, cash was not received by the Company. In addition, the Company
      recognized a $2.1 million expense, which is included in other research and
      development expenses in the nine months ended September 30, 2008, for costs
      related to the required restoration of the leased facility to its original
      condition.







9




***Impairment
      of Goodwill***





The
      Company accounts for impairment of goodwill using the provisions of SFAS No.
      142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”). This statement
      addresses how intangible assets that are acquired individually or with a group
      of other assets (but not those acquired in a business combination) should be
      accounted for in financial statements upon their acquisition. SFAS No. 142
      also
      addresses how goodwill and other intangible assets should be accounted for
      after
      they have been initially recognized in the financial statements. SFAS No. 142
      requires goodwill be tested using a two-step process. The first step compares
      the fair value of the reporting unit with the unit's carrying value, including
      goodwill. When the carrying value of the reporting unit is greater than fair
      value, the unit’s goodwill may be impaired, and the second step must be
      completed to measure the amount of the goodwill impairment charge, if any.
      In
      the second step, the implied fair value of the reporting unit’s goodwill is
      compared with the carrying amount of the unit’s goodwill. If the carrying amount
      is greater than the implied fair value, the carrying value of the goodwill
      must
      be written down to its implied fair value. The negative outcome of the Company’s
      pivotal SUN-MICRO Phase 3 clinical trial of SulonexTM (sulodexide) for the
      treatment of diabetic nephropathy, announced on March 7, 2008, and the Company’s
      subsequent decision to terminate the ongoing SUN-MACRO Phase 4 clinical trial
      triggered an impairment test. As of March 31, 2008, management concluded that
      there was no impairment of the Company’s goodwill. The Company will continue to
      perform impairment tests under SFAS No. 142 annually, at December 31, and
      whenever events or changes in circumstances suggest that the carrying value
      of
      an asset may not be recoverable.





**NOTE
      2 - FAIR VALUE MEASUREMENTS**





As
      of
      January 1, 2008, the Company adopted SFAS No. 157, “Fair Value Measurements”
(“SFAS No. 157”) for its financial assets and liabilities carried at fair value
      on a recurring basis in the financial statements only. SFAS No. 157 defines
      fair
      value, establishes a fair value hierarchy for assets and liabilities measured
      at
      fair value and requires expanded disclosures about fair value measurements.
      The
      SFAS No. 157 hierarchy ranks the quality and reliability of inputs, or
      assumptions, used in the determination of fair value and requires financial
      assets and liabilities carried at fair value to be classified and disclosed
      in
      one of the following three categories:





·
            Level
                1 - quoted prices in active markets for identical assets and
                liabilities;





·
            Level
                2 - inputs other than Level 1 quoted prices that are directly or
                indirectly observable; and





·
            Level
                3 - unobservable inputs that are not corroborated by market
                data.





As
      of
      September 30, 2008, $9.2 million of the Company’s investment securities, which
      are classified as long-term investments, were auction rate securities, which
      represent interests in student loan-backed securities. Auction rate securities
      are structured to provide liquidity through a Dutch auction process that resets
      the applicable interest rate at pre-determined calendar intervals, generally
      every 28 days. This mechanism has historically allowed existing investors either
      to rollover their holdings, whereby they would continue to own their respective
      securities, or liquidate their holdings by selling such securities at par.
      This
      auction process has historically provided a liquid market for these securities;
      however, the uncertainties in the credit markets have affected all of the
      Company’s holdings in auction rate securities. Since February 2008, the auctions
      for the auction rate securities held by the Company have not had sufficient
      buyers to cover investors’ sell orders, resulting in unsuccessful auctions. When
      an auction is unsuccessful, the interest rate is re-set to a level
      pre-determined by the loan documents and remains in effect until the next
      auction date, at which time the process repeats. While these investments are
      currently rated AA or higher, the Company is uncertain as to when, or if, the
      liquidity issues relating to these investments will improve. The Company
      assessed the fair value of its auction rate securities portfolio. As a result
      of
      this valuation process, as described below, the Company recorded impairment
      charges of $1.8 million, $0.1 million and $0.9 million, in the three months
      ended March 31, June 30, and September 30, 2008, respectively, for
      other-than-temporary declines in the value of its auction rate securities to
      an
      estimated fair value of $9.2 million at September 30, 2008. These
      other-than-temporary impairment charges were included in interest and other
      income (expense), net. In addition, in the first quarter of 2008, the Company
      reclassified the entire auction rate securities portfolio from short-term to
      long-term investments due to the uncertainty of when the Company will be able
      to
      sell these securities.





The
      valuation methods used to estimate the auction rate securities’ fair value were
      (1) a discounted cash flow model, where the expected cash flows of the auction
      rate securities are discounted to the present using a yield that incorporates
      compensation for illiquidity, and (2) a market comparables method, where the
      auction rate securities are valued based on indications, from the secondary
      market, of what discounts buyers demand when purchasing similar auction rate
      securities. The valuation included numerous assumptions such as assessments
      of
      the underlying structure of each security, expected cash flows, discount rates,
      credit ratings, workout periods, and overall capital market liquidity. These
      assumptions, assessments and the interpretations of relevant market data are
      subject to uncertainties, are difficult to predict and require significant
      judgment. The use of different assumptions, applying different judgment to
      inherently subjective matters and changes in future market conditions could
      result in significantly different estimates of fair value.




10





The
      fair
      value of the Company’s auction rate securities could change significantly based
      on market conditions and continued uncertainties in the credit markets. If
      these
      uncertainties continue or if these securities experience credit rating
      downgrades, the Company may incur additional impairment charges with respect
      to
      its auction rate securities portfolio. The Company will continue to monitor
      the
      fair value of its auction rate securities and relevant market conditions and
      will recognize additional impairment charges if future circumstances warrant
      such charges.





The
      Company reviews impairments in accordance with the guidance in FSP SFAS 115-1
      and 124-1, “The Meaning of Other-Than-Temporary Impairment and Its Application
      to Certain Investments,” to determine the classification of the impairment as
      temporary or other-than-temporary. Losses are recognized in the Company’s
      statement of operations when a decline in fair value is determined to be
      other-than-temporary. The Company reviews its investments on an ongoing basis
      for indications of possible impairment. Once identified, the determination
      of
      whether the impairment is temporary or other-than-temporary requires significant
      judgment. The Company believes that the impairment charges related to its
      auction rate securities investments are other-than-temporary. The primary
      factors the Company considers in classifying an impairment include the extent
      and time the fair value of each investment has been below cost and the Company’s
      ability to hold such investment to maturity.





The
      following table provides the fair value measurements of applicable Company
      financial assets according to the fair value levels defined by SFAS No. 157
      as
      of September 30, 2008:





**Financial
                assets at fair value**
              **as
                of September 30, 2008**(in thousands)
            
            **Level
                1**
            
            **Level
                2**
            
            **Level
                3**Money
                market funds (1)
            
            $
            6,055
            
            $
            --
            
            $
            --Short-term
                investment securities (held-to-maturity) (2)
            
            
            10,305
            
            
            --
            
            
            --Auction
                rate securities (3)
            
            
            --
            
            
            --
            
            
            9,213Total
            
            $
            16,360
            
            $
            --
            
            $
            9,213


(1)
            Included
                in cash and cash equivalents on the Company’s consolidated balance sheet.
                The carrying amount of money market funds is a reasonable estimate
                of fair
                value.


(2)
            Amortized
                cost approximates fair value.


(3)
            Included
                in long-term investment securities on the Company’s consolidated balance
                sheet.





The
      following table summarizes the change in carrying value associated with Level
      3
      financial assets for the nine months ended September 30, 2008:





(in thousands)
            
            **Available-for-sale
                long-term****investments**Balance
                at January 1, 2008
            
            $
            --Transfer
                into Level 3 (1)
            
            
            12,000Total
                unrealized losses included in net loss
            
            
            (1,811
            )Balance
                at March 31, 2008
            
            
            10,189Total
                unrealized losses included in net loss
            
            
            (64
            )Balance
                at June 30, 2008
            
            
            10,125Total
                unrealized losses included in net loss
            
            
            (912
            )Balance
                at September 30, 2008
            
            $
            9,213


(1)
            Based
                on deteriorated market conditions experienced in the first quarter
                of
                2008, the Company changed the fair value measurement methodology
                of its
                auction rate securities portfolio that the Company classifies as
                available-for-sale from quoted prices in active markets to a model
                based
                on discounted cash flows and market comparables. Accordingly, these
                securities were re-classified from Level 1 to Level 3.




11




**NOTE
      3 - STOCKHOLDERS' EQUITY**





***Equity
      Incentive Plans***





The
      following table summarizes stock option activity for the nine months ended
      September 30, 2008:





**Number**
              **of
                shares**
            
            **Weighted-**
              **average**
              **exercise
                price**
            
            **Weighted-**
              **average**
              **Contractual****Term**
            
            **Aggregate
                Intrinsic****Value****(in
                years)**Outstanding
                at December 31, 2007
            
            
            10,869,173
            
            $
            7.69Granted
            
            
            243,800
            
            
            4.28Exercised
            
            
            (75,000
            )
            
            2.96
            
            
            
            
            $
            259,900Forfeited
            
            
            (1,326,214
            )
            
            10.29Expired
            
            
            (572,300
            )
            
            8.68Outstanding
                at September 30, 2008
            
            
            9,139,459
            
            $
            7.20
            
            
            5.9
            
            $
            76,413Vested
                and expected to vest at September 30, 2008
            
            
            9,093,858
            
            $
            7.17
            
            
            5.9
            
            $
            76,413Exercisable
                at September 30, 2008
            
            
            7,654,653
            
            $
            6.40
            
            
            5.4
            
            $
            76,413





Upon
      the
      exercise of stock options, the Company issues new shares. As of September 30,
      2008, 3,328,833 options issued to employees and directors, and 93,000 options
      issued to consultants, are milestone-based, of which 3,203,833 options issued
      to
      employees and directors, and 43,000 options issued to consultants, are vested
      and exercisable.





Certain
      employees and consultants have been awarded restricted stock under the 2004
      Long-Term Incentive Plan and 2007 Incentive Plan. The restricted stock vests
      primarily over a period of two to four years. The following table summarizes
      restricted share activity for the nine months ended September 30,
      2008:





**Number
                of****Shares**
            
            **Weighted
                Average Grant Date****Fair
                Value**
            
            **Aggregate
                Intrinsic****Value**Outstanding
                at December 31, 2007
            
            
            138,334
            
            $
            10.09Granted
            
            
            1,681,906
            
            
            0.50Vested
            
            
            (52,500
            )
            
            10.16
            
            $
            25,475Forfeited
            
            
            (73,500
            )
            
            10.19Outstanding
                at September 30, 2008
            
            
            1,694,240
            
            $
            0.56
            
            $
            592,984





Shares
      available for the issuance of stock options or other stock-based awards under
      our stock option and incentive plans were 4,803,928 shares at September 30,
      2008.





***Warrants***





**Warrants**
            
            **Weighted-**
              **average**
              **exercise
                price**
            
            **Aggregate
                Intrinsic****Value**Outstanding
                at December 31, 2007
            
            
            321,976
            
            $
            4.65Issued
            
            
            --
            
            
            --Exercised
            
            
            --
            
            
            --Canceled
            
            
            --
            
            
            --Outstanding
                at September 30, 2008
            
            
            321,976
            
            $
            4.65
            
            $
            24,911




12




***Stock-Based
      Compensation***





The
      fair
      value of stock options granted is estimated at the date of grant using the
      Black-Scholes model. The expected term of options granted is derived from
      historical data and the expected vesting period. Expected volatility is based
      on
      the historical volatility of the Company’s common stock and the Company’s
      assessment of its future volatility. The risk-free interest rate is based on
      the
      U.S. Treasury yield for a period consistent with the expected term of the option
      in effect at the time of the grant. The Company has assumed no expected dividend
      yield, as dividends have never been paid to stock or option holders and will
      not
      be paid for the foreseeable future.





There
      were no options granted in the three months ended September 30,
      2008.





**Black-Scholes
                Option Valuation Assumptions**
            
            **Three
                months ended September 30,**
            
            **Nine
                months ended September 30,****2008**
            
            **2007**
            
            **2008**
            
            **2007**Risk-free
                interest rates
            
            
            --
            
            
            4.4%
            
            
            2.6%
            
            
            4.6%Dividend
                yield
            
            
            --
            
            
            --
            
            
            --
            
            
            --Volatility
            
            
            --
            
            
            69.7%
            
            
            76.3%
            
            
            71.0%Weighted-average
                expected term
            
            
            --
            
            
            5.1
                years
            
            
            4.3
                years
            
            
            4.7
                years





The
      weighted average grant date fair value of options granted for the three months
      ended September 30, 2007, was $6.10 per option. The weighted average grant
      date
      fair value of options granted for the nine months ended September 30, 2008
      and
      2007, was $2.40 and $6.33 per option, respectively. The Company used historical
      information, industry data and the Company’s assessment of future forfeitures to
      estimate forfeitures within the valuation model. As of September 30, 2008,
      there
      was $5.8 million and $0.8 million of total unrecognized compensation cost
      related to non-vested stock options and restricted stock, respectively, which
      is
      expected to be recognized over weighted-average periods of 1.9 years and 2.6
      years, respectively. The amounts do not include, as of September 30, 2008,
      175,000 options outstanding, which are milestone-based and vest upon certain
      corporate milestones, such as FDA approval of our drug candidates and market
      capitalization targets. Stock-based compensation will be measured and recorded
      if and when a milestone occurs.





**NOTE
      4 - RESTRUCTURING**





On
      March
      26, 2008, the Company implemented a strategic restructuring plan to reduce
      its
      cash burn rate and re-focus its development efforts (the “2008 Restructuring”).
      The 2008 Restructuring, which was prompted by the negative outcome of the
      Company’s pivotal SUN-MICRO Phase 3 clinical trial of SulonexTM (sulodexide) for
      the treatment of diabetic nephropathy, announced on March 7, 2008, and
      subsequent decision by the Company to terminate the ongoing SUN-MACRO Phase
      4
      clinical trial, was intended to conserve the financial resources of the Company
      and enable it to focus its efforts on programs and opportunities that management
      believed were most likely to provide long-term shareholder value. The 2008
      Restructuring included a workforce reduction of approximately 50% as compared
      to
      the Company’s workforce at December 31, 2007. Following the workforce reduction,
      the Company had approximately 25 full and part-time employees.





As
      part
      of the 2008 Restructuring, on March 26, 2008, the Company notified its
      President, I. Craig Henderson, M.D., that the Company was terminating his
      employment, effective April 15, 2008. Dr. Henderson remained in his position
      as
      a member of the Company’s Board of Directors until the annual meeting in June
      2008. The Company recognized a $1,569,000 credit to expense, in the nine months
      ended September 30, 2008, related to the forfeiture of stock options and
      restricted stock issued to Dr. Henderson. In addition, the Company reached
      a
      mutual agreement with its Chief Accounting Officer, Mark Stier, that Mr. Stier
      resigned effective June 30, 2008. His responsibilities were assumed by James
      F.
      Oliviero, Vice President, Finance, who was appointed Principal Financial and
      Accounting Officer on May 6, 2008.




13





The
      following table summarizes restructuring costs that were provided for and/or
      incurred by the Company during the nine months ended September 30, 2008:





**Nine
                months ended**(in thousands)
            
            **September
                30, 2008**Research
                and developmentImpairment
                of manufacturing facility
            
            $
            11,037Manufacturing
                facility restoration
            
            
            2,063Severance
            
            
            624Non-cash
                compensation
            
            
            (1,569
            )Total
                research and development
            
            
            12,155Selling,
                general and administrativeSeverance
            
            
            99Total
                selling, general and administrative
            
            
            99Total
                restructuring costs
            
            $
            12,254





(in thousands)Restructuring
                liabilities at December 31, 2007
            
            $
            --Manufacturing
                facility restoration
            
            
            2,063Accrued
                severance
            
            
            723Restructuring
                liabilities at March 31, 2008
            
            
            2,786Payment
                of manufacturing facility restoration
            
            
            (2,063
            )Payment
                of severance
            
            
            (395
            )Restructuring
                liabilities at September 30, 2008
            
            $
            328





The
      remaining restructuring liabilities accrued for at September 30, 2008 were
      paid
      out in October 2008.





**NOTE
      5 - LICENSE AGREEMENT**





In
      September 2007, the Company entered into a Sublicense Agreement with Japan
      Tobacco Inc. (“JT”) and Torii Pharmaceutical Co., Ltd. (“Torii”), JT's
      pharmaceutical business subsidiary, under which JT and Torii obtained the
      exclusive sublicense rights for the development and commercialization of ferric
      citrate in Japan, which is being developed in the United States under the trade
      name Zerenex. JT and Torii are responsible for the future development and
      commercialization costs in Japan.





An
      upfront payment of $12.0 million, which was received in October 2007, is being
      recognized as license revenue on a straight-line basis over the life of the
      agreement, which is through the expiration of the last-to-expire patent covered
      by the agreement in 2023, and represents the estimated period over which the
      Company will have certain ongoing responsibilities under the sublicense
      agreement. The Company recorded license revenue of approximately $194,000 and
      $581,000 in the three and nine months ended September 30, 2008, respectively,
      and, at September 30, 2008, has deferred revenue of approximately $11.2 million
      (approximately $774,000 of which has been classified as a current liability),
      associated with this $12.0 million payment.





An
      additional milestone payment of $8.0 million, for the achievement of certain
      milestones reached in March 2008, was received in April 2008, and is being
      recognized as license revenue on a straight-line basis over the life of the
      agreement (as discussed above). The Company recorded license revenue of
      approximately $133,000 and $272,000 for the three and nine months ended
      September 30, 2008, and, at September 30, 2008, has deferred revenue of
      approximately $7.7 million (approximately $533,000 of which has been classified
      as a current liability) associated with this $8.0 million payment. The Company
      may receive up to an additional $80.0 million in payments upon the achievement
      of pre-specified milestones. In addition, upon commercialization, JT and Torii
      will make royalty payments to the Company on net sales of ferric citrate in
      Japan.





**NOTE** **6
      - COMMITMENTS AND** **CONTINGENCIES**




***Obligations
      and Commitments***





As
      of
      September 30, 2008, the Company has known contractual obligations, commitments
      and contingencies of $2,258,000. Of this amount, $1,053,000 relates to research
      and development agreements (relating to the Company’s KRX-0401 and Zerenex
      clinical programs), of which is $900,000 is due within the next year, with
      the
      remaining balance due as per the schedule below. Certain of these commitments
      are contingent upon the Company’s continuing development of its drug candidates.
      The additional $1,205,000 relates to the Company’s operating lease obligations,
      of which $597,000 is due within the next year, with the remaining balance due
      as
      per the schedule below.





**Payment
                due by period****Contractual
                obligations**
            
            **Total**
            
            **Less
                than**
              **1
                year**
            
            **1-3**
              **years**
            
            **3-5**
              **years**
            
            **More
                than**
              **5
                years**Research
                and development agreements
            
            $
            1,053,000
            
            $
            900,000
            
            $
            153,000
            
            $
            --
            
            $
            --Operating
                leases
            
            
            1,205,000
            
            
            597,000
            
            
            608,000
            
            
            --
            
            
            --Total
            
            $
            2,258,000
            
            $
            1,497,000
            
            $
            761,000
            
            $
            --
            
            $
            --




14





The
      Company has undertaken to make contingent milestone payments to certain of
      its
      licensors of up to approximately $68.4 million over the life of the licenses,
      of
      which approximately $57.1 million will be due upon or following regulatory
      approval of the licensed drugs. In certain cases, such payments will reduce
      any
      royalties due on sales of related products. The Company has also committed
      to
      pay to the former stockholders of ACCESS Oncology certain contingent equity
      rights (up to 3,372,422 shares of the Company’s common stock) if its drug
      candidates meet certain development milestones. Of the 3,372,422 shares, 500,000
      of these shares would be payable upon achieving the first development milestone.
      A substantial portion of the contingent shares would be payable to related
      parties of the Company. The contingent equity rights have been recognized as
      a
      non-current liability on the consolidated balance sheet. The uncertainty
      relating to the timing of the commitments described in this paragraph prevents
      the Company from including them in the table above.




***Litigation***





In
      July
      2003, Keryx (Israel) Ltd., one of the Company’s Israeli subsidiaries, vacated
      its Jerusalem facility, after giving advance notice to RMPA Properties Ltd.,
      the
      landlord. On May 1, 2005, the landlord filed suit in the Circuit Court of
      Jerusalem in Jerusalem, Israel, claiming that Keryx (Israel) Ltd., among other
      parties, was liable as a result of the alleged breach of the lease agreement.
      In
      addition to Keryx (Israel) Ltd., the landlord brought suit against Keryx
      Biomedical Technologies Ltd., another of the Company’s Israeli subsidiaries,
      Keryx Biopharmaceuticals, Inc., Michael S. Weiss, the Company’s Chairman and
      Chief Executive Officer, and Robert Trachtenberg, a former employee of Keryx.
      The amount demanded by the landlord totals 4,345,313 New Israeli Shekels, or
      approximately $1,309,000, and includes rent for the entire remaining term of
      the
      lease, as well as property taxes and other costs allegedly incurred by the
      landlord. In August 2003, the landlord claimed a bank deposit, in the amount
      of
      $222,000, which was previously provided as security in connection with the
      lease
      agreement. The Company intends to vigorously defend the suit. In July 2005,
      Keryx (Israel) Ltd. and Keryx Biomedical Technologies Ltd. filed an answer
      to
      the landlord's complaint. In October 2005, Keryx Biopharmaceuticals, Inc. filed
      an answer to the landlord's complaint. Generally, each answer challenges the
      merits of the landlord's cause of action as to each defendant. All defendants,
      except Keryx (Israel) Ltd., have filed a motion to dismiss the complaint. The
      plaintiff has filed a response to each answer. At this time, the Circuit Court
      of Jerusalem has not issued a decision with respect to the motion to dismiss.
      A
      hearing on a motion by Keryx Biopharmaceuticals, Inc. and Michael S. Weiss
      to
      vacate service of process outside of Israel was held in June 2006. On October
      15, 2006, the Court held that the service of the claim against Mr. Weiss is
      vacated. Consequently, the Circuit Court of Jerusalem dismissed the suit against
      Mr. Weiss. However, the service against the Company was sustained. The Company
      appealed this holding. The appeal was denied on June 18, 2007, and the Company
      filed a petition for certiorari to the Supreme Court of Israel. The Company’s
      motion for certiorari was denied as well. The Company filed its testimonial
      affidavit along with an expert opinion contesting the interest and the
      accumulated debt claimed by plaintiff. The trial is scheduled for November
      2008.
      The Court will hear the motion to dismiss parallel to the trial. The Company
      has
      not yet recorded a charge to reflect any potential liability associated with
      this lawsuit, as it is too early to accurately estimate the amount of a charge,
      if any.





The
      Company prevailed in an arbitration proceeding with Alfa Wasserman concerning
      certain terms of the 1998 License Agreement between Alfa Wasserman and the
      Company related to the provision of data to Alfa Wasserman and consultation
      regarding management of the licensed patents. An arbitration hearing was held
      in
      October 2007 and the arbitrator issued his decision on March 25, 2008, rejecting
      Alfa Wasserman’s claims that the Company was in material breach of the License
      Agreement. The arbitrator determined that each party would bear its own costs
      for the arbitration.




15





In
      April
      2008, the Company notified Alfa Wasserman of its intention to terminate the
      License Agreement. The Company offered to transfer to Alfa Wasserman all
      regulatory applications as provided in the License Agreement and demanded
      payment by Alfa Wasserman of 25% of the Company’s development costs associated
      with sulodexide, as provided in the License Agreement. Alfa Wasserman itself
      served a notice of termination of the License Agreement on the alleged grounds
      that the Company is in material breach of the agreement for failing to
      diligently develop sulodexide by terminating the Phase 4 clinical trial. By
      seeking to terminate the License Agreement, Alfa Wasserman is thereby seeking
      to
      avoid reimbursement to Keryx of development costs. The Company intends to submit
      its claim for development costs and Alfa Wasserman’s claim of material breach to
      arbitration for resolution.





In
      April
      2008, the Company commenced an action in the U.S. District Court for the
      Southern District of New York against Panion & BF Biotech, Inc. (“Panion”)
      for breaching the manufacturing provisions of the March 14, 2008 Amended &
Restated License Agreement between the Company and Panion, and the implied
      covenant of good faith and fair dealing contained therein. The Company seeks
      declaratory and injunctive relief and damages against Panion. Panion has
      asserted counterclaims against the Company for alleged breach of the agreement
      and the implied covenant of good faith and fair dealing contained therein and
      for alleged breach of fiduciary duties, and seeks declaratory and injunctive
      relief and damages in the amount of “at least one million dollars.” The Company
      has replied, denying Panion’s counterclaims. The litigation remains pending. Discovery
      is presently stayed pending the outcome of settlement discussions between the
      parties.





The
        Company in-licensed KRX-0501 from Krenitsky Pharmaceuticals, Inc.
        (“Krenitsky”) in 2005. In October 2008, Krenitsky commenced an action in the
        United States District Court, Middle District of North Carolina, Durham
        Division, against the Company, requesting a declaratory judgment from the
        court
        determining that (i) the Company breached the 2005 License Agreement between
        Krenitsky and the Company, (ii) Krenitsky was within its legal rights to
        terminate the License Agreement for cause, (iii) the Company has no further
        rights or interests in the licensed patents, and (iv) Krenitsky has no further
        obligations to the Company under the License Agreement. The Company denies
        that
        Krenitsky is entitled to the relief it seeks and intends to defend itself
        in the
        action.





**NOTE
      7 - DISCONTINUED OPERATIONS**





In
      September 2008, the Company terminated its license agreement related to the
      Accumin product and ceased all operations related to the Diagnostic segment. The
      results of the Company’s Diagnostic segment and the related financial position
      have been reflected as discontinued operations in the consolidated financial
      statements in accordance with SFAS No. 144 and EITF Issue No. 03-13.
      The consolidated financial statements have been reclassified to conform to
      discontinued operations presentation for all historical periods presented.





Summarized
      selected financial information for discontinued operations are as
      follows:





**Three
                months ended**
              **September
                30,**
            
            **Nine
                months ended**
              **September
                30,**
            
            **Amounts
                accumulated during the development**(in
                thousands)
            
            **2008**
            
            **2007**
            
            **2008**
            
            **2007**
            
            **stage**Diagnostic
                revenue
            
            $
            --
            
            $
            --
            
            $
            --
            
            $
            66
            
            $
            169Operating
                expenses:Cost
                of diagnostics sold
            
            
            57
            
            
            --
            
            
            57
            
            
            38
            
            
            235Research
                and development
            
            
            2
            
            
            1
            
            
            4
            
            
            5
            
            
            399Selling,
                general and administrative
            
            
            27
            
            
            26
            
            
            114
            
            
            745
            
            
            1,482Total
                operating expenses
            
            
            86
            
            
            27
            
            
            175
            
            
            788
            
            
            2,116Loss
                from discontinued operations
            
            $
            (86
            )
            $
            (27
            )
            $
            (175
            )
            $
            (722
            )
            $
            (1,947
            )





The
      assets and liabilities of discontinued operations are stated separately as
      of
      September 30, 2008 and December 31, 2007 on the accompanying consolidated
      balance sheets. The major assets and liabilities categories are as
      follows:





(in
                thousands)
            
            **September
                30, 2008**
            
            **December
                31, 2007****Assets**Other
                current assets
            
            $
            --
            
            $
            73Property,
                plant and equipment, net
            
            
            --
            
            
            14Assets
                of discontinued operations
            
            $
            --
            
            $
            87**Liabilities**Accounts
                payable and accrued expenses
            
            $
            120
            
            $
            163Liabilities
                of discontinued operations
            
            $
            120
            
            $
            163




16




**NOTE
      8 - SEGMENT INFORMATION**





Until
      September 2008, the Company had three reportable segments, which included the
      Diagnostics segment. Following the termination of the Accumin diagnostic
      product, the Company now has two reportable segments: Services and Products.
      The
      Services business provides clinical trial management and site recruitment
      services to other biotechnology and pharmaceutical companies. The Products
      business focuses on the acquisition, development and commercialization of
      medically important, novel pharmaceutical products for the treatment of
      life-threatening diseases, including renal disease and cancer, and also includes
      license revenue, other revenue and associated costs.





Segment
      information for the three and nine month periods were as follows:





**Revenue****Three
                months ended**
              **September
                30,**
            
            **Nine
                months ended******
              **September
                30,**
            
            **Amounts
                accumulated during the development**(in
                thousands)
            
            **2008**
            
            **2007**
            
            **2008**
            
            **2007**
            
            **Stage**Services
            
            $
            41
            
            $
            11
            
            $
            103
            
            $
            37
            
            $
            1,969Products
            
            
            327
            
            
            41
            
            
            853
            
            
            41
            
            
            2,084Total
            
            $
            368
            
            $
            52
            
            $
            956
            
            $
            78
            
            $
            4,053





**Operating
                income (loss)****Three
                months ended**
              **September
                30,**
            
            **Nine
                months ended**
              **September
                30,**
            
            **Amounts
                accumulated during the development**(in
                thousands)
            
            **2008**
            
            **2007**
            
            **2008**
            
            **2007**
            
            **Stage**Services
            
            $
            28
            
            $
            (17
            )
            $
            76
            
            $
            (53
            )
            $
            (226
            )Products
            
            
            (6,161
            )
            
            (20,501
            )
            
            (47,424
            )
            
            (63,684
            )
            
            (341,014
            )Total
            
            $
            (6,133
            )
            $
            (20,518
            )
            $
            (47,348
            )
            $
            (63,737
            )
            $
            (341,240
            )





A
      reconciliation of the totals reported for the operating segments to the
      consolidated loss from continuing operations is as follows:





**Loss
                from continuing operations****Three
                months ended******
              **September
                30,**
            
            **Nine
                months ended**
              **September
                30,**
            
            **Amounts
                accumulated during the development**(in
                thousands)
            
            **2008**
            
            **2007**
            
            **2008**
            
            **2007**
            
            **Stage**Operating
                losses of reportable segments
            
            $
            (6,133
            )
            $
            (20,518
            )
            $
            (47,348
            )
            $
            (63,737
            )
            $
            (341,240
            )Interest
                and other income (expense), net
            
            
            (622
            )
            
            1,017
            
            
            (1,551
            )
            
            3,658
            
            
            16,366Income
                taxes
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            (527
            )Consolidated
                loss from continuing operations
            
            $
            (6,755
            )
            $
            (19,501
            )
            $
            (48,899
            )
            $
            (60,079
            )
            $
            (325,401
            )




17





**Assets
                (1)****As
                of**
            
            **As
                of**(in
                thousands)
            
            **September
                30, 2008**
            
            **December
                31, 2007**Services
            
            $
            --
            
            $
            --Products
            
            
            4,183
            
            
            16,292Total
                assets of reportable segments
            
            
            4,183
            
            
            16,292Cash,
                cash equivalents, interest receivable and investment
                securities
            
            
            26,519
            
            
            64,682Assets
                of discontinued operations
            
            
            --
            
            
            87Consolidated
                total assets
            
            $
            30,702
            
            $
            81,061


(1)
            Assets
                for our reportable segments include fixed assets, goodwill, accounts
                receivable and prepaid expenses.





The
      carrying amount of goodwill by reportable segment as of September 30, 2008
      and
      December 31, 2007, was as follows:





**Goodwill**(in
                thousands)
            
            **September
                30, 2008**
            
            **December
                31, 2007**Services
            
            $
            --
            
            $
            --Products
            
            
            3,208
            
            
            3,208Total
            
            $
            3,208
            
            $
            3,208





**ITEM
      2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS**





*Unless
      the context requires otherwise, references in this report to “Keryx,” the
“Company,” “we,” “us” and “our” refer to Keryx Biopharmaceuticals, Inc., its
      predecessor company and our subsidiaries.*





The
      following discussion and analysis contains forward-looking statements about
      our
      plans and expectations of what may happen in the future. Forward-looking
      statements are based on a number of assumptions and estimates that are
      inherently subject to significant risks and uncertainties, and our results
      could
      differ materially from the results anticipated by our forward-looking statements
      as a result of many known or unknown factors, including, but not limited to,
      those factors discussed in “Risk Factors.” See also the “Special Cautionary
      Notice Regarding Forward-Looking Statements” set forth at the beginning of this
      report.





You
      should read the following discussion and analysis in conjunction with the
      unaudited consolidated financial statements, and the related footnotes thereto,
      appearing elsewhere in this report, and in conjunction with management’s
      discussion and analysis and the audited consolidated financial statements
      included in our annual report on Form 10-K for the year ended December 31,
      2007.





**OVERVIEW**





We
      are a
      biopharmaceutical company focused on the acquisition, development and
      commercialization of medically important, novel pharmaceutical products for
      the
      treatment of life-threatening diseases, including renal disease and cancer.
      We
      are developing ZerenexTM (ferric citrate), an oral, iron-based compound that has
      the capacity to bind to phosphate and form non-absorbable complexes. Zerenex
      is
      currently in Phase 2 clinical development for the treatment of hyperphosphatemia
      (elevated phosphate levels) in patients with end-stage renal disease, or ESRD.
      We are also developing clinical-stage oncology compounds, including KRX-0401
      (perifosine), a novel, potentially first-in-class, oral anti-cancer agent that
      modulates Akt, a protein in the body associated with tumor survival and growth.
      KRX-0401 also modulates a number of other key signal transduction pathways,
      including the JNK and MAPK pathways, which are pathways associated with
      programmed cell death, cell growth, cell differentiation and cell survival.
      KRX-0401 is currently in Phase 2 clinical development for multiple tumor types.
      We also have an in-licensing and acquisition program designed to identify and
      acquire additional drug candidates. To date, we have not received approval
      for
      the sale of any of our drug candidates in any market and, therefore, have not
      generated any product sales from our drug candidates.




18





The
      table
      below summarizes the status of our product pipeline.





**Product
                candidate**
            **Target
                indication**
            **Development
                status*****Endocrine/Renal***ZerenexTM
                (ferric citrate)
            Hyperphosphatemia
                in patients withend-stage
                renal disease
            Phase
                2***Oncology***KRX-0401
                (perifosine)
            Multiple
                forms of cancer
            Phase
                2***Neurology***KRX-0701
                (dexlipotam)
            Diabetic
                neuropathy
            Phase
                2KRX-0501
            Neurological
                disorders
            Phase
                1





*General
      Corporate*





We
      are a
      development stage company and have no drug product sales to date. Our major
      sources of working capital have been proceeds from various private placements
      of
      equity securities, option and warrant exercises, public offerings of our common
      stock, interest income, and, beginning in 2007, from the upfront and milestone
      payments from our Sublicense Agreement with Japan Tobacco Inc. (“JT”) and Torii
      Pharmaceutical Co., Ltd. (“Torii”) and miscellaneous payments from our other
      prior licensing activities. We have devoted substantially all of our efforts
      to
      the identification, in-licensing and development of drug candidates. We have
      incurred negative cash flow from operations each year since our inception.
      We
      anticipate incurring negative cash flows from operating activities for the
      foreseeable future. We have spent, and expect to continue to spend, substantial
      amounts in connection with implementing our business strategy, including our
      product development efforts, our clinical trials and in-licensing and
      acquisition activities.





Our
      license revenues currently consist of license fees arising from our agreement
      with JT and Torii. We recognize these revenues ratably over the estimated period
      which we will have certain ongoing responsibilities under the sublicense
      agreement, with un-amortized amounts recorded as deferred revenue.





Our
      service revenues consist entirely of clinical trial management and site
      recruitment services. Revenues from providing these services are recognized
      as
      the services are provided. Deferred revenue is recorded when we receive a
      deposit or prepayment for services to be performed at a later date.





We
      have
      not earned any revenues from the commercial sale of any of our drug candidates.





Our
      cost
      of services consists of all costs specifically associated with our clinical
      trial management and site recruitment client programs such as salaries, benefits
      paid to personnel, payments to third-party vendors and other support facilities
      associated with delivering services to our clients. Costs of services are
      recognized as services are performed.





Our
      research and development expenses consist primarily of salaries and related
      personnel costs, fees paid to consultants and outside service providers for
      clinical and laboratory development, facilities-related and other expenses
      relating to the design, development, manufacture, testing, and enhancement
      of
      our drug candidates and technologies, as well as expenses related to
      in-licensing of new product candidates. We expense our research and development
      costs as they are incurred.





Our
      general and administrative expenses consist primarily of salaries and related
      expenses for executive, finance and other administrative personnel, recruitment
      expenses, professional fees and other corporate expenses, including investor
      relations, general legal activities and facilities-related expenses.




19





Our
      results of operations include non-cash compensation expense as a result of
      the
      grants of stock options, restricted stock and warrants. Compensation expense
      for
      awards of options and restricted stock granted to employees and directors
      represents the fair value of the award recorded over the respective vesting
      periods of the individual awards. The expense is included in the respective
      categories of expense in the statements of operations. We expect to continue
      to
      incur significant non-cash compensation as a result of Statement of Financial
      Accounting Standards (“SFAS”) No. 123R, “Share-Based Payment” (“SFAS No. 123R”),
      which we adopted on January 1, 2006. For awards of options and warrants to
      consultants and other third-parties, compensation expense is determined at
      the
“measurement date,” in accordance with the fair value method prescribed by the
      provisions of Emerging Issues Task Force (“EITF”) Issue No. 96-18, “Accounting
      for Equity Instruments That Are Issued to Other Than Employees for Acquiring,
      or
      in Conjunction with Selling Goods or Services” (“EITF 96-18”). The expense is
      recognized over the vesting period of the award. Until the measurement date
      is
      reached, the total amount of compensation expense remains uncertain. We record
      compensation expense based on the fair value of the award at the reporting
      date.
      The awards to consultants and other third-parties are then revalued, or the
      total compensation is recalculated based on the then current fair value, at
      each
      subsequent reporting date. In addition, because some of the options, restricted
      stock and warrants issued to employees, consultants and other third-parties
      vest
      upon the achievement of certain milestones, the total expense is uncertain.





Our
      ongoing clinical trials will be lengthy and expensive. Even if these trials
      show
      that our drug candidates are effective in treating certain indications, there
      is
      no guarantee that we will be able to record commercial sales of any of our
      drug
      candidates in the near future. In addition, we expect losses to continue as
      we
      continue to fund in-licensing and development of new drug candidates. As we
      continue our development efforts, we may enter into additional third-party
      collaborative agreements and may incur additional expenses, such as licensing
      fees and milestone payments. In addition, we may need to establish the
      commercial infrastructure required to manufacture, market and sell our drug
      candidates following approval, if any, by the FDA, which would result in us
      incurring additional expenses. As a result, our quarterly results may fluctuate
      and a quarter-by-quarter comparison of our operating results may not be a
      meaningful indication of our future performance.





**RESULTS
      OF OPERATIONS**





**Three
      months ended September 30, 2008 and September 30, 2007**





*License
      Revenue.* License
      revenue increased by $286,000 to $327,000 for the three months ended September
      30, 2008, as compared to $41,000 for the three months ended September 30, 2007.
      License revenue is related to the amortization of a portion of the license
      fees
      of $12.0 million and milestone payment of $8.0 million associated with our
      sublicense agreement with JT and Torii. Such amounts were recognized as license
      revenue on a straight-line basis over the life of the agreement, which is
      through the expiration of the last-to-expire patent covered by the agreement
      in
      2023, and represents the estimated period over which we will have certain
      ongoing responsibilities under the sublicense agreement. The increase in license
      revenue was due to a full quarter of amortization of both the $12.0 million
      license fee and $8.0 million milestone payment in the three months ended
      September 30, 2008, as compared to a partial quarter of amortization of only
      the
      $12.0 million license fee in the prior period.





*Service
      Revenue.* Service
      revenue increased by $30,000 to $41,000 for the three months ended September
      30,
      2008, as compared to service revenue of $11,000 for the three months ended
      September 30, 2007. We do not expect our service revenue to have a material
      impact on our financial results during the remainder of 2008.





*Cost
      of Services* .
      Cost of
      services decreased by $15,000 to $13,000 for the three months ended September
      30, 2008, as compared to an expense of $28,000 for the three months ended
      September 30, 2007. We do not expect our cost of services to have a material
      impact on our financial results during the remainder of 2008.




*Non-Cash
      Compensation Expense (Research and Development).* Non-cash
      compensation expense related to equity incentive grants decreased by $401,000
      to
      $334,000 for the three months ended September 30, 2008, as compared to an
      expense of $735,000 for the three months ended September 30, 2007. The decrease
      was primarily due to a reduction in research and development personnel following
      our March 2008 restructuring.





*Other
      Research and Development Expenses* .
      Other
      research and development expenses decreased by $13,757,000 to $2,208,000 for
      the
      three months ended September 30, 2008, as compared to $15,965,000 for the three
      months ended September 30, 2007. The decrease in other research and development
      expenses was due primarily to a $11,699,000 million reduction in expenses
      related to the cessation of the development of Sulonex in March 2008, and a
      $1,860,000 decrease in expenses related to our other clinical compounds
      following our March 2008 restructuring.




20





We
      expect
      our other research and development costs in the fourth quarter of 2008 to be
      at
      similar levels to those reported in the third quarter of 2008.





*Non-Cash
      Compensation Expense (Selling, General and Administrative).* Non-cash
      compensation expense related to equity incentive grants decreased by $118,000
      to
      $1,662,000 for the three months ended September 30, 2008, as compared to an
      expense of $1,780,000 for the three months ended September 30, 2007. The
      decrease was primarily due to a reduction in selling, general and administrative
      personnel following our March 2008 restructuring.





*Other
      Selling General and Administrative Expenses* .
      Other
      selling, general and administrative expenses increased by $222,000 to $2,284,000
      for the three months ended September 30, 2008, as compared to an expense of
      $2,062,000 for the three months ended September 30, 2007. The
      increase was primarily related to a one-time premium payment for insurance
      of
      $1,151,000, partially offset by a reduction of expenses as a result of the
      2008
      Restructuring.





We
      expect
      our other selling, general and administrative costs in the fourth quarter of
      2008 to decrease substantially as compared to those reported in the third
      quarter of 2008.





*Interest
      and Other Income (Expense), Net* .
      Interest and other income (expense), net, decreased by $1,639,000 to an expense
      of $622,000 for the three months ended September 30, 2008, as compared to income
      of $1,017,000 for the three months ended September 30, 2007. The decrease was
      primarily due to the $912,000 impairment charge we recorded in the three months
      ended September 30, 2008, related to our investments in auction rate securities.
      The decrease also resulted from a lower level of invested funds as compared
      to
      the comparable period last year, resulting in reduced interest income.





*Loss
      from Discontinued Operations* .
      Represents results from discontinued operations relating to our Diagnostic
      segment. See Note 7 - Discontinued Operations. We do not expect our discontinued
      operations to have a material impact on our financial results during the
      remainder of 2008.





**Nine
      months ended September 30, 2008 and September 30, 2007**





*License
      Revenue.* License
      revenue increased by $812,000 to $853,000 for the nine months ended September
      30, 2008 as compared to $41,000 for the nine months ended September 30, 2007.
      License revenue for the nine months ended September 30, 2008 was related to
      the
      amortization of a portion of the license fees of $12.0 million and milestone
      payment of $8.0 million associated with our sublicense agreement with JT and
      Torii. Such amounts were recognized as license revenue on a straight-line basis
      over the life of the agreement, which is through the expiration of the
      last-to-expire patent covered by the agreement in 2023, and represents the
      estimated period over which we will have certain ongoing responsibilities under
      the sublicense agreement. The increase in license revenue was due to a full
      nine
      months of amortization in 2008, as compared to a partial period of amortization
      in the comparable period in 2007.





*Service
      Revenue.* Service
      revenue increased by $66,000 to $103,000 for the nine months ended September
      30,
      2008, as compared to service revenue of $37,000 for the nine months ended
      September 30, 2007. We do not expect our service revenue to have a material
      impact on our financial results during the remainder of 2008.





*Cost
      of Services* .
      Cost of
      services decreased by $63,000 to $27,000 for the nine months ended September
      30,
      2008, as compared to an expense of $90,000 for the nine months ended September
      30, 2007. We do not expect our cost of services to have a material impact on
      our
      financial results during the remainder of 2008.





*Non-Cash
      Compensation Expense (Research and Development).* Non-cash
      compensation expense related to equity incentive grants decreased by $3,303,000
      to a credit of $395,000 for the nine months ended September 30, 2008, as
      compared to an expense of $2,908,000 for the nine months ended September 30,
      2007. The decrease was primarily attributable to $3,180,000 of compensation
      that
      was reversed related to stock options and restricted stock issued to our
      President, who was terminated as part of the 2008 Restructuring, as well as
      due
      to a reduction in research and development personnel following our 2008
      Restructuring.




21





*Other
      Research and Development Expenses* .
      Other
      research and development expenses decreased by $11,816,000 to $37,277,000 for
      the nine months ended September 30, 2008, as compared to $49,093,000 for the
      nine months ended September 30, 2007. The decrease in other research and
      development expenses was due primarily to a $8,795,000 decrease in research
      and
      development expenses related the Sulonex program which was terminated in March
      2008. Included in the research and development expenses related to Sulonex
      for
      the nine months ended September 30, 2008 are an $11,037,000 impairment charge
      related to the write-down of the assets of the Sulonex manufacturing suite
      to
      their fair value following the cessation of our development of Sulonex, and
      a
      $2,063,000 expense for costs relating to the required restoration of the leased
      manufacturing facility to its original condition. For more information regarding
      these expenses please see “Note 4 - Restructuring” above. Including the
      impairment charge and restoration expense discussed above, other research and
      development expenses related to Sulonex were $26,697,000 and $35,492,000 during
      the nine months ended September 30, 2008 and 2007, respectively. In addition
      to
      the $8,795,000 decrease in other research and development expenses related
      to
      Sulonex discussed above, there was a decrease of $2,632,000 in expenses related
      to our other clinical compounds following our March 2008
      restructuring.





*Non-Cash
      Compensation Expense (Selling, General and Administrative).* Non-cash
      compensation expense related to equity incentive grants decreased by $47,000
      to
      $5,146,000 for the nine months ended September 30, 2008, as compared to an
      expense of $5,193,000 for the nine months ended September 30, 2007.





*Other
      Selling General and Administrative Expenses* .
      Other
      selling, general and administrative expenses decreased by $282,000 to $6,249,000
      for the nine months ended September 30, 2008, as compared to an expense of
      $6,531,000 for the nine months ended September 30, 2007. The decrease was
      primarily related to a reduction of expenses as a result of the 2008
      Restructuring, partially offset by a one-time premium payment for insurance
      of
      $1,151,000.





*Interest
      and Other Income (Expense), Net* .
      Interest and other income (expense), net, decreased by $5,209,000 to an expense
      of $1,551,000 for the nine months ended September 30, 2008, as compared to
      income of $3,658,000 for the nine months ended September 30, 2007. The decrease
      was primarily due to $2,787,000 of impairment charges recorded in the nine
      months ended September 30, 2008, related to our investments in auction rate
      securities. The decrease also resulted from a lower level of invested funds
      as
      compared to the comparable period last year, resulting in reduced interest
      income.





*Loss
      from Discontinued Operations* .
      Represents results from discontinued operations relating to our Diagnostic
      segment. See Note 7 - Discontinued Operations. We do not expect our discontinued
      operations to have a material impact on our financial results during the
      remainder of 2008.





**LIQUIDITY
      AND CAPITAL RESOURCES**





We
      have
      financed our operations from inception primarily through public offerings of
      our
      common stock, various private placement transactions, option and warrant
      exercises, interest income, and, beginning in 2007, from the upfront and
      milestone payments from our sublicense agreement with JT and Torii and
      miscellaneous payments from our other prior licensing activities.





As
      of
      September 30, 2008, we had $26.5 million in cash, cash equivalents, interest
      receivable, and short-term and long-term securities (including $9.2 million
      in
      non-current auction rate securities as discussed below), a decrease of $38.2
      million from December 31, 2007. Cash used in operating activities in continuing
      operations for the nine months ended September 30, 2008 was $35.3 million,
      as
      compared to $51.7 million for the nine months ended September 30, 2007. This
      decrease was due primarily to the cessation of the Sulonex program in March
      2008
      and the 2008 Restructuring.





For
      the
      nine months ended September 30, 2008, net cash provided by investing activities
      in continuing operations of $22.9 million was primarily the result of the
      maturity and sale of short-term securities in our investment portfolio, net
      of
      purchases. For the nine months ended September 30, 2008, net cash provided
      by
      financing activities of $0.2 million was the result of proceeds from the
      exercise of stock options.




22





As
      of
      September 30, 2008, $9.2 million of our investment securities, which are
      classified as long-term investments, were auction rate securities, which
      represent interests in student loan-backed securities. Auction rate securities
      are structured to provide liquidity through a Dutch auction process that resets
      the applicable interest rate at pre-determined calendar intervals, generally
      every 28 days. This mechanism has historically allowed existing investors either
      to rollover their holdings, whereby they would continue to own their respective
      securities, or liquidate their holdings by selling such securities at par.
      This
      auction process has historically provided a liquid market for these securities;
      however, the uncertainties in the credit markets have affected all of our
      holdings in auction rate securities. Since February 2008, the auctions for
      our
      auction rate securities have not had sufficient buyers to cover investors’ sell
      orders, resulting in unsuccessful auctions. When an auction is unsuccessful,
      the
      interest rate is re-set to a level pre-determined by the loan documents and
      remains in effect until the next auction date, at which time the process
      repeats. While these investments are currently rated AA or higher, we are
      uncertain as to when, or if, the liquidity issues relating to these investments
      will improve. We assessed the fair value of our auction rate securities
      portfolio. As a result of this valuation process, as described below, we
      recorded impairment charges of $1.8 million, $0.1 million and $0.9 million,
      in
      the three months ended March 31, June 30, and September 30, 2008, respectively,
      for other-than-temporary declines in the value of our auction rate securities
      to
      an estimated fair value of $9.2 million at September 30, 2008. These
      other-than-temporary impairment charges were included in interest and other
      income (expense), net. In addition, in the first quarter of 2008, we
      reclassified the entire auction rate securities portfolio from short-term to
      long-term investments due to the uncertainty of when we will be able to sell
      these securities.





The
      valuation methods used to estimate the auction rate securities’ fair value were
      (1) a discounted cash flow model, where the expected cash flows of the auction
      rate securities are discounted to the present using a yield that incorporates
      compensation for illiquidity, and (2) a market comparables method, where the
      auction rate securities are valued based on indications, from the secondary
      market, of what discounts buyers demand when purchasing similar auction rate
      securities. The valuation included numerous assumptions such as assessments
      of
      the underlying structure of each security, expected cash flows, discount rates,
      credit ratings, workout periods, and overall capital market liquidity. These
      assumptions, assessments and the interpretations of relevant market data are
      subject to uncertainties, are difficult to predict and require significant
      judgment. The use of different assumptions, applying different judgment to
      inherently subjective matters and changes in future market conditions could
      result in significantly different estimates of fair value. Assuming a 10%
      adverse change in the fair value of these securities overall, the fair value
      would decline approximately $900,000. However, each of our auction rate security
      investments have different features and are subject to different risks and
      therefore, any market decline would impact these securities to a different
      degree.





We
      currently anticipate that our cash, cash equivalents, interest receivable and
      investment securities as of September 30, 2008, exclusive of our holdings in
      auction rate securities, are sufficient to meet our anticipated working capital
      needs and fund our business plan at least into the latter part of 2009.
      Accordingly, if we are not able to receive proceeds from some portion
      of our auction rate securities by October 1, 2009, we may not have the
      ability to continue as a going concern. We will continue to attempt to sell
      our
      auction rate securities until the auctions are successful; however, there is
      no
      assurance as to when, or if, the market for auction rate securities will
      stabilize. The fair value of our auction rate securities could change
      significantly based on market conditions and continued uncertainties in the
      credit markets. If these uncertainties continue or if these securities
      experience credit rating downgrades, we may incur additional impairment charges
      with respect to our auction rate securities portfolio, which could negatively
      affect our financial condition, cash flow and reported earnings, and the lack
      of
      liquidity of our auction rate securities could have a material impact on our
      ability to fund our operations.




The
      accompanying financial statements have been prepared assuming that we will
      continue as a going concern, which contemplates the realization of assets and
      satisfaction of liabilities in the normal course of business. The Company has
      incurred recurring losses from operations, has limited cash, cash equivalents,
      and short term securities, and illiquid investments in auction rate securities
      that raise substantial doubt about the Company’s ability to continue as a going
      concern. The financial statements do not include any adjustments that might
      be
      necessary should we be unable to continue as a going concern.





**OFF-BALANCE
      SHEET ARRANGEMENTS**





We
      have
      not entered into any transactions with unconsolidated entities whereby we have
      financial guarantees, subordinated retained interests, derivative instruments
      or
      other contingent arrangements that expose us to material continuing risks,
      contingent liabilities, or any other obligations under a variable interest
      in an
      unconsolidated entity that provides us with financing, liquidity, market risk
      or
      credit risk support.





**OBLIGATIONS
      AND COMMITMENTS**





As
      of
      September 30, 2008, we have known contractual obligations, commitments and
      contingencies of $2,258,000. Of this amount, $1,053,000 relates to research
      and
      development agreements (relating to our KRX-0401 and Zerenex clinical programs),
      of which $900,000 is due within the next year, with the remaining balance due
      as
      per the schedule below. Certain of these commitments are contingent upon our
      continuing development of our drug candidates. The additional $1,205,000 relates
      to our operating lease obligations, of which $597,000 is due within the next
      year, with the remaining balance due as per the schedule below.





**Payment
                due by period****Contractual
                obligations**
            
            **Total**
            
            **Less
                than**
              **1
                year**
            
            **1-3**
              **years**
            
            **3-5**
              **years**
            
            **More
                than**
              **5
                years**Research
                and development agreements
            
            $
            1,053,000
            
            $
            900,000
            
            $
            153,000
            
            $
            --
            
            $
            --Operating
                leases
            
            
            1,205,000
            
            
            597,000
            
            
            608,000
            
            
            --
            
            
            --Total
            
            $
            2,258,000
            
            $
            1,497,000
            
            $
            761,000
            
            $
            --
            
            $
            --




23





We
      have
      undertaken to make contingent milestone payments to certain of our licensors
      of
      up to approximately $68.4 million over the life of the licenses, of which
      approximately $57.1 million will be due upon or following regulatory approval
      of
      the licensed drugs. In certain cases, such payments will reduce any royalties
      due on sales of related products. We have also committed to pay to the former
      stockholders of ACCESS Oncology certain contingent equity rights (up to
      3,372,422 shares of our common stock) if its drug candidates meet certain
      development milestones. Of the 3,372,422 shares, 500,000 of these shares would
      be payable upon achieving the first development milestone. A substantial portion
      of the contingent shares would be payable to related parties. The contingent
      equity rights have been recognized as a non-current liability on the
      consolidated balance sheet. The uncertainty relating to the timing of the
      commitments described in this paragraph prevents us from including them in
      the
      table above.





**CRITICAL
      ACCOUNTING POLICIES**





The
      discussion and analysis of our financial condition and results of operations
      is
      based upon our consolidated financial statements, which have been prepared
      in
      accordance with U.S. generally accepted accounting principles. The preparation
      of these financial statements requires us to make estimates and judgments that
      affect the reported amount of assets and liabilities and related disclosure
      of
      contingent assets and liabilities at the date of our financial statements and
      the reported amounts of revenues and expenses during the applicable period.
      Actual results may differ from these estimates under different assumptions
      or
      conditions.





We
      define
      critical accounting policies as those that are reflective of significant
      judgments and uncertainties and which may potentially result in materially
      different results under different assumptions and conditions. In applying these
      critical accounting policies, our management uses its judgment to determine
      the
      appropriate assumptions to be used in making certain estimates. These estimates
      are subject to an inherent degree of uncertainty. Our critical accounting
      policies include the following:





*Stock
      Compensation* .
      We have
      granted stock options and restricted stock to employees, directors and
      consultants, as well as warrants to other third parties. In applying SFAS No.
      123R to employee and director grants, the value of each option award is
      estimated on the date of grant using the Black-Scholes option-pricing model.
      The
      Black-Scholes model takes into account volatility in the price of our stock,
      the
      risk-free interest rate, the estimated life of the option, the closing market
      price of our stock and the exercise price. We base our estimates of our stock
      price volatility on the historical volatility of our common stock and our
      assessment of future volatility; however, these estimates are neither predictive
      nor indicative of the future performance of our stock. For purposes of the
      calculation, we assumed that no dividends would be paid during the life of
      the
      options and warrants. The estimates utilized in the Black-Scholes calculation
      involve inherent uncertainties and the application of management judgment.
      In
      addition, we are required to estimate the expected forfeiture rate and only
      recognize expense for those equity awards expected to vest. As a result, if
      other assumptions had been used, our recorded stock-based compensation expense
      could have been materially different from that reported. In addition, because
      some of the options and warrants issued to employees, consultants and other
      third-parties vest upon the achievement of certain milestones, the total expense
      is uncertain.





In
      accordance with EITF 96-18, “Accounting for Equity Instruments that are Issued
      to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods
      or
      Services,” total compensation expense for options and restricted stock issued to
      consultants is determined at the “measurement date.” The expense is recognized
      over the vesting period for the options and restricted stock. Until the
      measurement date is reached, the total amount of compensation expense remains
      uncertain. We record stock-based compensation expense based on the fair value
      of
      the equity awards at the reporting date. These equity awards are then revalued,
      or the total compensation is recalculated based on the then current fair value,
      at each subsequent reporting date. This results in a change to the amount
      previously recorded in respect of the equity award grant, and additional expense
      or a reversal of expense may be recorded in subsequent periods based on changes
      in the assumptions used to calculate fair value, such as changes in market
      price, until the measurement date is reached and the compensation expense is
      finalized.




24





*Accruals
      for Clinical Research Organization and Clinical Site Costs.* We
      make
      estimates of costs incurred in relation to external clinical research
      organizations, or CROs, and clinical site costs. We analyze the progress of
      clinical trials, including levels of patient enrollment, invoices received
      and
      contracted costs when evaluating the adequacy of the amount expensed and the
      related prepaid asset and accrued liability. Significant judgments and estimates
      must be made and used in determining the accrued balance and expense in any
      accounting period. In addition, administrative costs related to external CROs
      are recognized on a straight-line basis over the estimated contractual period.
      With respect to clinical site costs, the financial terms of these agreements
      are
      subject to negotiation and vary from contract to contract. Payments under these
      contracts may be uneven, and depend on factors such as the achievement of
      certain events, the successful recruitment of patients, the completion of
      portions of the clinical trial or similar conditions. The objective of our
      policy is to match the recording of expenses in our financial statements to
      the
      actual services received and efforts expended. As such, expense accruals related
      to clinical site costs are recognized based on our estimate of the degree of
      completion of the event or events specified in the specific clinical study
      or
      trial contract.





*Revenue
      Recognition.* We
      recognize license revenue consistent with the provisions of Staff Accounting
      Bulletin (“SAB”) No. 104 and EITF Issue No. 00-21, “Revenue
      Arrangements with Multiple Deliverables.” We analyze each element of our
      licensing agreement to determine the appropriate revenue recognition. We
      recognize revenue on upfront payments and milestone payments over the period
      of
      significant involvement under the related agreements unless the fee is in
      exchange for products delivered or services rendered that represent the
      culmination of a separate earnings process and no further performance obligation
      exists under the contract. We may recognize milestone payments in revenue upon
      the achievement of specified milestones if (1) the milestone is substantive
      in nature, and the achievement of the milestone was not reasonably assured
      at
      the inception of the agreement and (2) the fees are nonrefundable. Any
      milestone payments received prior to satisfying these revenue recognition
      criteria are recognized as deferred revenue. Sales milestones and royalties
      that
      are deferred will be recognized when earned under the agreements.





Prior
      to
      discontinuing the sale of our diagnostic product, we had recognized diagnostic
      revenue when persuasive evidence of an arrangement existed, the product had
      been
      shipped, title and risk of loss had passed to the customer and collection from
      the customer was reasonably assured. Diagnostic revenue is included in
      discontinued operations.





We
      recognize service revenues as the services are provided. Deferred revenue is
      recorded when we receive a deposit or prepayment for services to be performed
      at
      a later date.





*Accounting
      Related to Goodwill.* As of
      September 30, 2008, there was approximately $3.2 million of goodwill on our
      consolidated balance sheet. SFAS No. 142, “Goodwill and Other Intangible
      Assets,” or SFAS No. 142, addresses how intangible assets that are acquired
      individually or with a group of other assets (but not those acquired in a
      business combination) should be accounted for in financial statements upon
      their
      acquisition. This statement also addresses how goodwill and other intangible
      assets should be accounted for after they have been initially recognized in
      the
      financial statements. SFAS No. 142 requires goodwill be tested using a two-step
      process. The first step compares the fair value of the reporting unit with
      the
      unit's carrying value, including goodwill. When the carrying value of the
      reporting unit is greater than fair value, the unit’s goodwill may be impaired,
      and the second step must be completed to measure the amount of the goodwill
      impairment charge, if any. In the second step, the implied fair value of the
      reporting unit’s goodwill is compared with the carrying amount of the unit’s
      goodwill. If the carrying amount is greater than the implied fair value, the
      carrying value of the goodwill must be written down to its implied fair value.





We
      are
      required to perform impairment tests under SFAS No. 142 annually, at December
      31, and whenever events or changes in circumstances suggest that the carrying
      value of an asset may not be recoverable. For all of our acquisitions, various
      analyses, assumptions and estimates were made at the time of each acquisition
      specifically regarding cash flows that were used to determine the valuation
      of
      goodwill and intangibles. When we perform impairment tests in future years,
      the
      possibility exists that changes in forecasts and estimates from those used
      at
      the acquisition date could result in impairment charges.




25





*Impairment
      of Long-Lived Assets.* In
      accordance with the guidance in SFAS No. 144, “Accounting for the Impairment or
      Disposal of Long-Lived Assets,” or SFAS No. 144, we recognize an impairment loss
      when circumstances indicate that the carrying value of long-lived tangible
      and
      intangible assets with finite lives may not be recoverable. Management’s policy
      in determining whether an impairment indicator exists, a triggering event,
      comprises measurable operating performance criteria as well as qualitative
      measures. If an analysis is necessitated by the occurrence of a triggering
      event, we make certain assumptions in determining the impairment amount.
      Recoverability of assets to be held and used is measured by a comparison of
      the
      carrying amount of an asset to future cash flows expected to be generated by
      the
      asset or used in its disposal. If the carrying amount of an asset exceeds its
      estimated future cash flows, an impairment charge is recognized for the excess
      of the carrying value of the asset above its fair value. During the first
      quarter of 2007, management reviewed both its original and projected revenue
      estimates associated with the Accumin diagnostic tool. As a result of this
      analysis, we concluded that the asset was impaired and recorded an impairment
      charge of approximately $600,000 to write-down identifiable intangible
      long-lived assets associated with Accumin. The charge was recorded in other
      selling, general and administrative expenses within the Diagnostics segment,
      which has been reclassified as discontinued operations. Prior to the
      impairment charge taken in the first quarter of 2007, we amortized our
      identifiable intangible assets associated with Accumin over their estimated
      economic lives, which was 12 years, the life of the patents, using the
      straight-line method.





We
      had
      entered into a relationship with SPL, a U.S.-based contract manufacturer, for
      Sulonex to build a larger scale manufacturing suite within their current
      facility, which they would operate on our behalf. We spent approximately $11.3
      million in capital expenditures building the suite. In accordance with the
      guidance in SFAS No. 144, with the cessation of our development of Sulonex
      in
      March 2008, we recognized an impairment charge of $11.0 million, which is
      included in other research and development expenses in the nine months ended
      September 30, 2008, to write the assets down to their fair value of $300,000,
      the amount for which the assets were sold during the three months ended June
      30,
      2008.





*Impairment
      of Investment Securities.* As of
      September 30, 2008, $9.2 million of our investment securities, which are
      classified as long-term investments, were auction rate securities, which
      represent interests in student loan-backed securities. The uncertainties in
      the
      credit markets have affected all of our holdings in auction rate securities.
      Since February 2008, the auctions for our auction rate securities have not
      had
      sufficient buyers to cover investors’ sell orders, resulting in unsuccessful
      auctions. When an auction is unsuccessful, the interest rate is re-set to a
      level pre-determined by the loan documents and remains in effect until the
      next
      auction date, at which time the process repeats. While these investments are
      currently rated AA or higher, we are uncertain as to when, or if, the liquidity
      issues relating to these investments will improve. We assessed the fair value
      of
      our auction rate securities portfolio. As a result of this valuation process,
      we
      recorded impairment charges of $1.8 million, $0.1 million and $0.9 million,
      in
      the three months ended March 31, June 30, and September 30, 2008, respectively,
      for other-than-temporary declines in the value of our auction rate securities
      to
      an estimated fair value of $9.2 million at September 30, 2008. These
      other-than-temporary impairment charges were included in interest and other
      income (expense), net. In addition, in the first quarter of 2008, we
      reclassified the entire auction rate securities portfolio from short-term to
      long-term investments due to the uncertainty of when we will be able to sell
      these securities.





The
      valuation methods used to estimate the auction rate securities’ fair value were
      (1) a discounted cash flow model, where the expected cash flows of the auction
      rate securities are discounted to the present using a yield that incorporates
      compensation for illiquidity, and (2) a market comparables method, where the
      auction rate securities are valued based on indications, from the secondary
      market, of what discounts buyers demand when purchasing similar auction rate
      securities. The valuation included numerous assumptions such as assessments
      of
      the underlying structure of each security, expected cash flows, discount rates,
      credit ratings, workout periods, and overall capital market liquidity. These
      assumptions, assessments and the interpretations of relevant market data are
      subject to uncertainties, are difficult to predict and require significant
      judgment. The use of different assumptions, applying different judgment to
      inherently subjective matters and changes in future market conditions could
      result in significantly different estimates of fair value.





The
      fair
      value of our auction rate securities could change significantly based on market
      conditions and continued uncertainties in the credit markets. If these
      uncertainties continue or if these securities experience credit rating
      downgrades, we may incur additional impairment charges with respect to our
      auction rate securities portfolio. We will continue to monitor the fair value
      of
      our auction rate securities and relevant market conditions and will recognize
      additional impairment charges if future circumstances warrant such
      charges.




26





We
      review
      impairments in accordance with the guidance in FSP SFAS 115-1 and 124-1, “The
      Meaning of Other-Than-Temporary Impairment and Its Application to Certain
      Investments,” to determine the classification of the impairment as temporary or
      other-than-temporary. Losses are recognized in our statement of operations
      when
      a decline in fair value is determined to be other-than-temporary. We review
      our
      investments on an ongoing basis for indications of possible impairment. Once
      identified, the determination of whether the impairment is temporary or
      other-than-temporary requires significant judgment. The primary factors we
      consider in classifying an impairment include the extent and time the fair
      value
      of each investment has been below cost and our ability to hold such investment
      to maturity.





*Accounting
      For Income Taxes* .
      In
      preparing our consolidated financial statements, we are required to estimate
      our
      income taxes in each of the jurisdictions in which we operate. This process
      involves management estimation of our actual current tax exposure and assessment
      of temporary differences resulting from differing treatment of items for tax
      and
      accounting purposes. These differences result in deferred tax assets and
      liabilities. We must then assess the likelihood that our deferred tax assets
      will be recovered from future taxable income and, to the extent we believe
      that
      recovery is not likely, we must establish a valuation allowance. To the extent
      we establish a valuation allowance or increase this allowance in a period,
      we
      must include an expense within the tax provision in the statement of operations.
      Significant management judgment is required in determining our provision for
      income taxes, our deferred tax assets and liabilities and any valuation
      allowance recorded against our net deferred tax assets. We have fully offset
      our
      deferred tax assets with a valuation allowance. Our lack of earnings history
      and
      the uncertainty surrounding our ability to generate taxable income prior to
      the
      reversal or expiration of such deferred tax assets were the primary factors
      considered by management in maintaining the valuation allowance.





**ITEM
      3. QUANTI** **TATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**





The
      primary objective of our investment activities is to preserve principal while
      maximizing our income from investments and minimizing our market risk. We invest
      in government and investment-grade corporate debt and auction rate securities
      in
      accordance with our investment policy. Some of the securities in which we invest
      have market risk. This means that a change in prevailing interest rates, and/or
      credit risk, may cause the principal amount of the investment to fluctuate.
      For
      example, if we hold a security that was issued with a fixed interest rate at
      the
      then-prevailing rate and the prevailing interest rate later rises, the principal
      amount of our investment will probably decline. As of September 30, 2008, our
      portfolio of financial instruments consists of cash equivalents and short-term
      and long-term interest bearing securities, including money market funds,
      government debt and auction rate securities. The average duration to maturity
      of
      all of our held-to-maturity investments held as of September 30, 2008, was
      less
      than 12 months. Due to the short-term nature of our money market funds and
      held-to-maturity investments, we believe we have no material exposure to
      interest rate risk, and/or credit risk, arising from our money market funds
      and
      held-to-maturity investments.





As
      of
      September 30, 2008, $9.2 million of our investment securities, which are
      classified as long-term investments, were auction rate securities, which
      represent interests in student loan-backed securities. The uncertainties in
      the
      credit markets have affected all of our holdings in auction rate securities.
      Since February 2008, the auctions for our auction rate securities have not
      had
      sufficient buyers to cover investors’ sell orders, resulting in unsuccessful
      auctions. When an auction is unsuccessful, the interest rate is re-set to a
      level pre-determined by the loan documents and remains in effect until the
      next
      auction date, at which time the process repeats. While these investments are
      currently rated AA or higher, we are uncertain as to when, or if, the liquidity
      issues relating to these investments will improve. We will continue to attempt
      to sell our auction rate securities until the auctions are successful. If
      uncertainties in the credit and capital markets continue, these markets
      deteriorate further or we experience any credit rating downgrades on the auction
      rate securities in our portfolio, we may incur additional impairment charges
      with respect to our auction rate securities portfolio, which could negatively
      affect our financial condition, cash flow and reported earnings. We will
      continue to monitor the fair value of our auction rate securities and relevant
      market conditions and will recognize additional impairment charges if future
      circumstances warrant such charges. Assuming a 10% adverse change in the fair
      value of these securities overall, the fair value would decline approximately
      $900,000. However, each of our auction rate security investments have different
      features and are subject to different risks and therefore, any market decline
      would impact these securities to a different degree. In addition, the lack
      of
      liquidity of our auction rate securities could have a material impact on our
      ability to fund our operations.




27





**ITEM
      4. CONTROLS AND PROCEDURES**





**Evaluation
      of Disclosure Controls and Procedures**





As
      of
      September 30, 2008, management carried out, under the supervision and with
      the
      participation of our Chief Executive Officer and Principal Financial and
      Accounting Officer, an evaluation of the effectiveness of the design and
      operation of our disclosure controls and procedures (as defined in Rules
      13a-15(e) and 15d-15(e) under the Exchange Act). Our disclosure controls and
      procedures are designed to provide reasonable assurance that information we
      are
      required to disclose in the reports that we file or submit under the Exchange
      Act is recorded, processed, summarized and reported within the time periods
      specified in applicable rules and forms. Based upon that evaluation, our Chief
      Executive Officer and Principal Financial and Accounting Officer concluded
      that,
      as of September 30, 2008, our disclosure controls and procedures were effective.





**Internal
      Control Over Financial Reporting**





There
      were no changes in our internal control over financial reporting during
      the quarter ended September 30, 2008, that have materially affected, or are
      reasonably likely to materially affect, our internal control over financial
      reporting.




**PART
      II. OTHER INFORMATION**





**ITEM
      1. LEGAL PROCEEDINGS**





We,
      and
      our subsidiaries, are not a party to, and our property is not the subject of,
      any material pending legal proceedings, other than as noted below.





In
      July
      2003, Keryx (Israel) Ltd., one of our Israeli subsidiaries, vacated its
      Jerusalem facility, after giving advance notice to RMPA Properties Ltd., the
      landlord. On May 1, 2005, the landlord filed suit in the Circuit Court of
      Jerusalem in Jerusalem, Israel, claiming that Keryx (Israel) Ltd., among other
      parties, was liable as a result of the alleged breach of the lease agreement.
      In
      addition to Keryx (Israel) Ltd., the landlord brought suit against Keryx
      Biomedical Technologies Ltd., another of our Israeli subsidiaries, Keryx
      Biopharmaceuticals, Inc., Michael S. Weiss, our Chairman and Chief Executive
      Officer, and Robert Trachtenberg, a former employee of Keryx. The amount
      demanded by the landlord totals 4,345,313 New Israeli Shekels, or approximately
      $1,309,000, and includes rent for the entire remaining term of the lease, as
      well as property taxes and other costs allegedly incurred by the landlord.
      In
      August 2003, the landlord claimed a bank deposit, in the amount of $222,000,
      which was previously provided as security in connection with the lease
      agreement. We intend to vigorously defend the suit. In July 2005, Keryx (Israel)
      Ltd. and Keryx Biomedical Technologies Ltd. filed an answer to the landlord's
      complaint. In October 2005, Keryx Biopharmaceuticals, Inc. filed an answer
      to
      the landlord's complaint. Generally, each answer challenges the merits of the
      landlord's cause of action as to each defendant. All defendants, except Keryx
      (Israel) Ltd., have filed a motion to dismiss the complaint. The plaintiff
      has
      filed a response to each answer. At this time, the Circuit Court of Jerusalem
      has not issued a decision with respect to the motion to dismiss. A hearing
      on a
      motion by Keryx Biopharmaceuticals, Inc. and Michael S. Weiss to vacate service
      of process outside of Israel was held in June 2006. On October 15, 2006, the
      Court held that the service of the claim against Mr. Weiss is vacated.
      Consequently, the Circuit Court of Jerusalem dismissed the suit against Mr.
      Weiss. However, the service against us was sustained. We appealed this holding.
      The appeal was denied on June 18, 2007, and the Company filed a petition for
      certiorari to the Supreme Court of Israel. The Company’s motion for certiorari
      was denied as well. We filed our testimonial affidavit along with an expert
      opinion contesting the interest and the accumulated debt claimed by plaintiff.
      The trial is scheduled for November 2008. The Court will hear the motion to
      dismiss parallel to the trial. We have not yet recorded a charge to reflect
      any
      potential liability associated with this lawsuit, as it is too early to
      accurately estimate the amount of a charge, if any.





We
      prevailed in an arbitration proceeding with Alfa Wasserman concerning certain
      terms of the 1998 License Agreement between Alfa Wasserman and the Company
      related to the provision of data to Alfa Wasserman and consultation regarding
      management of the licensed patents. An arbitration hearing was held in October
      2007 and the arbitrator issued his decision on March 25, 2008, rejecting Alfa
      Wasserman’s claims that we were in material breach of the License Agreement. The
      arbitrator determined that each party would bear its own costs for the
      arbitration.





In
      April
      2008, we notified Alfa Wasserman of our intention to terminate the License
      Agreement. We offered to transfer to Alfa Wasserman all regulatory applications
      as provided in the License Agreement and demanded payment by Alfa Wasserman
      of
      25% of our development costs associated with sulodexide, as provided in the
      License Agreement. Alfa Wasserman itself served a notice of termination of
      the
      License Agreement on the alleged grounds that we are in material breach of
      the
      agreement for failing to diligently develop sulodexide by terminating the Phase
      4 clinical trial. By seeking to terminate the License Agreement, Alfa Wasserman
      is thereby seeking to avoid reimbursing us our development costs. We intend
      to
      submit our claim for development costs and Alfa Wasserman’s claim of material
      breach to arbitration for resolution.




28





In
      April
      2008, we commenced an action in the U.S. District Court for the Southern
      District of New York against Panion & BF Biotech, Inc. (“Panion”) for
      breaching the manufacturing provisions of the March 14, 2008 Amended &
Restated License Agreement between the Company and Panion, and the implied
      covenant of good faith and fair dealing contained therein. We seek declaratory
      and injunctive relief and damages against Panion. Panion has asserted
      counterclaims against us for alleged breach of the agreement and the implied
      covenant of good faith and fair dealing contained therein and for alleged breach
      of fiduciary duties, and seeks declaratory and injunctive relief and damages
      in
      the amount of “at least one million dollars.” We have replied, denying Panion’s
      counterclaims. The litigation remains pending. Discovery is presently stayed
      pending the outcome of settlement discussions between the parties.


We
        in-licensed KRX-0501 from Krenitsky Pharmaceuticals, Inc. (“Krenitsky”) in 2005.
        In October 2008, Krenitsky commenced an action in the United States District
        Court, Middle District of North Carolina, Durham Division, against the Company,
        requesting a declaratory judgment from the court determining that (i) we
        breached the 2005 License Agreement between Krenitsky and the Company, (ii)
        Krenitsky was within its legal rights to terminate the License Agreement
        for
        cause, (iii) we have no further rights or interests in the licensed patents,
        and
        (iv) Krenitsky has no further obligations to us under the License Agreement.
        We
        deny that Krenitsky is entitled to the relief it seeks and intend to defend
        ourself in the action.





**ITEM
      1A. RISK FACTORS**





You
      should carefully consider the following risks and uncertainties. If any of
      the
      following occurs, our business, financial condition or operating results could
      be materially harmed. These factors could cause the trading price of our common
      stock to decline, and you could lose all or part of your investment.





**Risks
      Related to Our Business**





***We
      have a limited operating history and have incurred substantial operating losses
      since our inception. We expect to continue to incur losses in the future and
      may
      never become profitable.***





We
      have a
      limited operating history. You should consider our prospects in light of the
      risks and difficulties frequently encountered by early stage companies. In
      addition, we have incurred operating losses since our inception and expect
      to
      continue to incur operating losses for the foreseeable future and may never
      become profitable. As of September 30, 2008, we had an accumulated deficit
      of
      approximately $327.3 million. As we continue our research and development
      efforts, we will incur increasing losses. We may continue to incur substantial
      operating losses even if we begin to generate revenues from our drug
      candidates.





We
      have
      not yet commercialized any of our drug candidates and cannot be sure we will
      ever be able to do so. Even if we commercialize one or more of our drug
      candidates, we may not become profitable. Our ability to achieve profitability
      depends on a number of factors, including our ability to complete our
      development efforts, obtain regulatory approval for our drug candidates,
      successfully complete any post-approval regulatory obligations and successfully
      commercialize our drug candidates.




**Risks
      Associated with Our Product Development Efforts**





***If
      we are unable to successfully complete our clinical trial programs, or if such
      clinical trials take longer to complete than we project, our ability to execute
      our current business strategy will be adversely
      affected.***





Whether
      or not and how quickly we complete clinical trials is dependent in part upon
      the
      rate at which we are able to engage clinical trial sites and, thereafter, the
      rate of enrollment of patients, and the rate we collect, clean, lock and analyze
      the clinical trial database. Patient enrollment is a function of many factors,
      including the size of the patient population, the proximity of patients to
      clinical sites, the eligibility criteria for the study, the existence of
      competitive clinical trials, and whether existing or new drugs are approved
      for
      the indication we are studying. We are aware that other companies are planning
      clinical trials that will seek to enroll patients with the same diseases as
      we
      are studying. Certain clinical trials are designed to continue until a
      pre-determined number of events have occurred to the patients enrolled. Trials
      such as this are subject to delays stemming from patient withdrawal and from
      lower than expected event rates and may also incur increased costs if enrollment
      is increased in order to achieve the desired number of events. If we experience
      delays in identifying and contracting with sites and/or in patient enrollment
      in
      our clinical trial programs, we may incur additional costs and delays in our
      development programs, and may not be able to complete our clinical trials on
      a
      cost-effective or timely basis. In addition, conducting multi-national studies
      adds another level of complexity and risk as we are subject to events affecting
      countries outside the United States. Moreover, negative or inconclusive
      results from the clinical trials we conduct or adverse medical events could
      cause us to have to repeat or terminate the clinical trials. Accordingly, we
      may
      not be able to complete the clinical trials within an acceptable time frame,
      if
      at all.




29





Additionally,
      we have never filed a new drug application, or NDA, or similar application
      for
      approval in the United States or in any country, which may result in a delay
      in,
      or the rejection of, our filing of an NDA or similar application. During the
      drug development process, regulatory agencies will typically ask questions
      of
      drug sponsors. While we endeavor to answer all such questions in a timely
      fashion, or in the NDA filing, some questions may not be answered by the time
      we
      file our NDA. Unless the FDA waives the requirement to answer any such
      unanswered questions, submission of an NDA may be delayed or rejected.





***Pre-clinical
      testing and clinical development are long, expensive and uncertain processes.
      If
      our drug candidates do not receive the necessary regulatory approvals, we will
      be unable to commercialize our drug candidates.***





We
      have
      not received, and may never receive, regulatory approval for the commercial
      sale
      of any of our drug candidates. We will need to conduct significant additional
      research and human testing before we can apply for product approval with the
      FDA
      or with regulatory authorities of other countries. Pre-clinical testing and
      clinical development are long, expensive and uncertain processes. Satisfaction
      of regulatory requirements typically depends on the nature, complexity and
      novelty of the product and requires the expenditure of substantial resources.
      Data obtained from pre-clinical and clinical tests can be interpreted in
      different ways, which could delay, limit or prevent regulatory approval. It
      may
      take us many years to complete the testing of our drug candidates and failure
      can occur at any stage of this process. Negative or inconclusive results or
      medical events during a clinical trial could cause us to delay or terminate
      our
      development efforts.





Furthermore,
      interim results of preclinical or clinical studies do not necessarily predict
      their final results, and acceptable results in early studies might not be
      obtained in later studies. Safety signals detected during clinical studies
      and
      pre-clinical animal studies, such as the gastrointestinal bleeding that has
      been
      seen in some high-dose, ferric citrate canine studies, may require us to do
      additional studies, which could delay the development of the drug or lead to
      a
      decision to discontinue development of the drug. Drug candidates in the later
      stages of clinical development may fail to show the desired safety and efficacy
      traits despite positive results in initial clinical testing. Results from
      earlier studies may not be indicative of results from future clinical trials
      and
      the risk remains that a pivotal program may generate efficacy data that will
      be
      insufficient for the approval of the drug, or may raise safety concerns that
      may
      prevent approval of the drug. Interpretation of the prior safety and efficacy
      data of our drug candidates may be flawed and there can be no assurance that
      safety and/or efficacy concerns from the prior data were overlooked or
      misinterpreted, which in subsequent, larger studies appear and prevents approval
      of such drug candidates. We are currently preparing to re-input our safety
      information on KRX-0401 into a GCP-compliant database and can provide no
      assurance that safety concerns will not subsequently arise.





Clinical
      trials have a high risk of failure. A number of companies in the pharmaceutical
      industry, including biotechnology companies, have suffered significant setbacks
      in advanced clinical trials, even after achieving what appeared to be promising
      results in earlier trials. If we experience delays in the testing or approval
      process or if we need to perform more or larger clinical trials than originally
      planned, our financial results and the commercial prospects for our drug
      candidates may be materially impaired. In addition, we have limited experience
      in conducting and managing the clinical trials necessary to obtain regulatory
      approval in the United States and abroad and, accordingly, may encounter
      unforeseen problems and delays in the approval process. Though we may engage
      a
      clinical research organization with experience in conducting regulatory trials,
      errors in the conduct, monitoring and/or auditing could invalidate the results
      from a regulatory perspective.





***Because
      all of our proprietary technologies are licensed to us by third parties,
      termination of these license agreements would prevent us from developing our
      drug candidates.***





We
      do not
      own any of our drug candidates. We have licensed the rights, patent or
      otherwise, to our drugs candidates from third parties. These license agreements
      require us to meet development milestones and impose development and
      commercialization due diligence requirements on us. In addition, under these
      agreements, we must pay royalties on sales of products resulting from licensed
      technologies and pay the patent filing, prosecution and maintenance costs
      related to the licenses. If we do not meet our obligations in a timely manner
      or
      if we otherwise breach the terms of our license agreements, our licensors could
      terminate the agreements, and we would lose the rights to our drug candidates.
      From time to time, in the ordinary course of business, we may have disagreements
      with our licensors or collaborators regarding the terms of our agreements or
      ownership of proprietary rights, which could lead to delays in the research,
      development and commercialization of our drug candidates or could require or
      result in litigation or arbitration, which would be time-consuming and
      expensive.




30





***We
      rely on third parties to manufacture and analytically test our products. If
      these third parties do not successfully manufacture and test our products,
      our
      business will be harmed.***





We
      have
      limited experience in manufacturing products for clinical or commercial
      purposes. We intend to continue, in whole or in part, to use third parties
      to
      manufacture and analytically test our products for use in clinical trials and
      for future sales. We may not be able to enter into future contract agreements
      with these third-parties on terms acceptable to us, if at all.





Contract
      manufacturers often encounter difficulties in scaling up production, including
      problems involving raw material supplies, production yields, quality control
      and
      assurance, shortage of qualified personnel, compliance with FDA and foreign
      regulations, production costs and development of advanced manufacturing
      techniques and process controls. These risks become more acute as we scale
      up
      for commercial quantities, where a reliable source of raw material supplies
      becomes critical to commercial success. For example, given the large quantity
      of
      materials required for ferric citrate production, as we approach
      commercialization for Zerenex we will need to ensure an adequate supply of
      starting materials that meet quality, quantity and cost standards. Failure
      to
      achieve this level of supply can jeopardize the successful commercialization
      of
      the product.





Our
      third-party manufacturers may not perform as agreed or may not remain in the
      contract manufacturing business for the time required by us to successfully
      produce and market our drug candidates. In addition, our contract manufacturers
      will be subject to ongoing periodic and unannounced inspections by the FDA
      and
      corresponding foreign governmental agencies to ensure strict compliance with
      current Good Manufacturing Practices, as well as other governmental regulations
      and corresponding foreign standards. The same issues apply to contract
      analytical services which we use for testing of our products. We will not have
      control over, other than by contract and periodic oversight, third-party
      manufacturers' compliance with these regulations and standards. We are currently
      developing analytical tools for ferric citrate active pharmaceutical ingredient
      testing. Failure to develop effective analytical tools could result in
      regulatory or technical delay or could jeopardize our ability to obtain FDA
      approval. Switching or engaging multiple third-party contractors to produce
      our
      products may be difficult because the number of potential manufacturers may
      be
      limited and the process by which multiple manufacturers make the drug substance
      must be identical at each manufacturing facility. It may be difficult for us
      to
      find and engage replacement or multiple manufacturers quickly and on terms
      acceptable to us, if at all. Moreover, if we need to change manufacturers,
      the
      FDA and corresponding foreign regulatory agencies must approve these
      manufacturers in advance, which will involve testing and additional inspections
      to ensure compliance with FDA and foreign regulations and
      standards.





***If
      we do not establish or maintain manufacturing, drug development and marketing
      arrangements with third parties, we may be unable to commercialize our
      products.***





We
      do not
      possess all of the capabilities to fully commercialize our products on our
      own.
      From time to time, we may need to contract with third parties to:


·
              manufacture
                  our product candidates;
 
 ·
              assist
                  us in developing, testing and obtaining regulatory approval for
                  and
                  commercializing some of our compounds and technologies;
                  and
 
 ·
              market
                  and distribute our drug products.




We
      can
      provide no assurance that we will be able to successfully enter into agreements
      with such third parties on terms that are acceptable to us, if at all. If we
      are
      unable to successfully contract with third parties for these services when
      needed, or if existing arrangements for these services are terminated, whether
      or not through our actions, or if such third parties do not fully perform under
      these arrangements, we may have to delay, scale back or end one or more of
      our
      drug development programs or seek to develop or commercialize our products
      independently, which could result in delays. Furthermore, such failure could
      result in the termination of license rights to one or more of our products.
      If
      these manufacturing, development or marketing agreements take the form of a
      partnership or strategic alliance, such arrangements may provide our
      collaborators with significant discretion in determining the efforts and
      resources that they will apply to the development and commercialization of
      our
      products. Accordingly, to the extent that we rely on third parties to research,
      develop or commercialize our products, we are unable to control whether such
      products will be scientifically or commercially successful. Additionally, if
      these third parties fail to perform their obligations under our agreements
      with
      them or fail to perform their work in a satisfactory manner, in spite of our
      efforts to monitor and ensure the quality of such work, we may face delays
      in
      achieving the regulatory milestones required for commercialization of one or
      more drug candidates.




31





Given
      the
      current market conditions for raising capital, and given our limited resources,
      we may be forced to further restructure our workforce, and thus rely
      predominantly or entirely on our ability to contract with third parties for
      our
      manufacturing, drug development and marketing. If we are unable to contract
      with
      such third parties, we may be forced to limit or suspend or terminate the
      development of some or all of our product candidates, including, without
      limitation, suspending development of KRX-0401 (perifosine) and/or Zerenex
      (ferric citrate).




***Our
      reliance on third parties, such as clinical research organizations, or CROs,
      may
      result in delays in completing, or a failure to complete, clinical trials if
      they fail to perform under our agreements with them.***





In
      the
      course of product development, we engage CROs to conduct and manage clinical
      studies and to assist us in guiding our products through the FDA review and
      approval process. If the CROs fail to perform their obligations under our
      agreements with them or fail to perform clinical trials in a satisfactory
      manner, we may face delays in completing our clinical trials, as well as
      commercialization of one or more drug candidates. Furthermore, any loss or
      delay
      in obtaining contracts with such entities may also delay the completion of
      our
      clinical trials and the market approval of drug candidates.





**Other
      Risks Related to Our Business**





***If
      we are unable to develop adequate sales, marketing or distribution capabilities
      or enter into agreements with third parties to perform some of these functions,
      we will not be able to commercialize our products
      effectively.***





In
      the
      event that one or more of our drug candidates are approved by the FDA, we
      currently plan to conduct our own sales and marketing effort to support the
      drugs. We currently have limited experience in sales, marketing or distribution.
      To directly market and distribute any products, we must build a sales and
      marketing organization with appropriate technical expertise and distribution
      capabilities. We may attempt to build such a sales and marketing organization
      on
      our own or with the assistance of a contract sales organization. For some market
      opportunities, we may want or need to enter into co-promotion or other licensing
      arrangements with larger pharmaceutical or biotechnology firms in order to
      increase the commercial success of our products. We may not be able to establish
      sales, marketing and distribution capabilities of our own or enter into such
      arrangements with third parties in a timely manner or on acceptable terms.
      To
      the extent that we enter into co-promotion or other licensing arrangements,
      our
      product revenues are likely to be lower than if we directly marketed and sold
      our products, and some or all of the revenues we receive will depend upon the
      efforts of third parties, and these efforts may not be successful. Additionally,
      building marketing and distribution capabilities may be more expensive than
      we
      anticipate, requiring us to divert capital from other intended purposes or
      preventing us from building our marketing and distribution capabilities to
      the
      desired levels.





Notwithstanding
      our current plans to commercialize our drug candidates, from time to time we
      may
      consider offers or hold discussions with companies for partnerships or the
      acquisition of our company or any of our products. Any accepted offer may
      preclude us from the execution of our current business plan.





32




***Even
      if we obtain FDA approval to market our drug products, if they fail to achieve
      market acceptance, we will never record meaningful
      revenues.***





Even
      if
      our products are approved for sale, they may not be commercially successful
      in
      the marketplace. Market acceptance of our drug products will depend on a number
      of factors, including:




·
              perceptions
                  by members of the health care community, including physicians,
                  of the
                  safety and efficacy of our product
                  candidates;
  ·
              the
                  rates of adoption of our products by medical practitioners and
                  the target
                  populations for our products;
 
 ·
              the
                  potential advantages that our products offer over existing treatment
                  methods;
 
 ·
              the
                  cost-effectiveness of our products relative to competing
                  products;
 
 ·
              the
                  availability of government or third-party payor reimbursement for
                  our
                  products;
 
 ·
              the
                  side effects or unfavorable publicity concerning our products or
                  similar
                  products; and
 
 ·
              the
                  effectiveness of our sales, marketing and distribution efforts.


Because
      we expect sales of our products, if approved, to generate substantially all
      of
      our revenues in the long-term, the failure of our drugs to find market
      acceptance would harm our business and could require us to seek additional
      financing or other sources of revenue.





***If
      our competitors develop and market products that are less expensive, more
      effective or safer than our drug products, our commercial opportunities may
      be
      reduced or eliminated.***





The
      pharmaceutical industry is highly competitive. Our competitors include
      pharmaceutical companies and biotechnology companies, as well as universities
      and public and private research institutions. In addition, companies that are
      active in different but related fields represent substantial competition for
      us.
      Many of our competitors have significantly greater capital resources, larger
      research and development staffs and facilities and greater experience in drug
      development, regulation, manufacturing and marketing than we do. These
      organizations also compete with us to recruit qualified personnel, attract
      partners for joint ventures or other collaborations, and license technologies
      that are competitive with ours. As a result, our competitors may be able to
      more
      easily develop technologies and products that could render our drug products
      obsolete or noncompetitive. To compete successfully in this industry we must
      identify novel and unique drugs or methods of treatment and then complete the
      development of those drugs as treatments in advance of our
      competitors.





The
      drugs
      that we are attempting to develop will have to compete with existing therapies.
      For example, Zerenex, if approved in the United States, would compete with
      other
      FDA approved phosphate binders such as Renagel® (sevelamer hydrochloride) and
      Renvela® (sevelamer carbonate), both marketed by Genzyme Corporation, PhosLo®
(calcium acetate), marketed by Fresenius Medical Care, and Fosrenol® (lanthanum
      carbonate), marketed by Shire Pharmaceuticals Group plc, as well as
      over-the-counter calcium carbonate products such as TUMS® and metal-based
      options such as aluminum and magnesium. KRX-0401 (perifosine), if approved
      in
      the United States would compete with other anti-cancer agents, such as mTOR
      inhibitors. Wyeth Corp., Novartis AG and Ariad Pharmaceuticals are developing
      mTOR inhibitors for use in cancer and Wyeth’s mTOR inhibitor, temsirolimus, has
      been approved to treat patients with advanced kidney disease. Biotechnology
      companies such as Amgen Inc., Biogen-Idec, Inc., ImClone Systems, Inc.,
      Millennium Pharmaceuticals, Inc., Onyx Pharmaceuticals, Inc., OSI
      Pharmaceuticals, Inc. and Vertex Pharmaceuticals, Inc. are developing and,
      in
      some cases, marketing drugs to treat various diseases, including cancer, by
      inhibiting cell-signaling pathways. In addition, we are aware of a number of
      small and large companies developing competitive products that target the Akt
      pathway.





Our
      commercial opportunities may be reduced or eliminated if our competitors develop
      and market products that are less expensive, more effective or safer than our
      drug products. Other companies have drug candidates in various stages of
      pre-clinical or clinical development to treat diseases for which we are also
      seeking to discover and develop drug products. Some of these potential competing
      drugs are further advanced in development than our drug candidates and may
      be
      commercialized earlier. Even if we are successful in developing effective drugs,
      our products may not compete successfully with products produced by our
      competitors.





***If
      we lose our key personnel or are unable to attract and retain additional
      personnel, our operations could be disrupted and our business could be
      harmed.***





As
      of
      November 3, 2008, we had 21 full and part-time employees. To successfully
      develop our drug candidates, we must be able to attract and retain highly
      skilled personnel. In addition, if we lose the services of our current
      personnel, in particular, Michael S. Weiss, our Chairman and Chief Executive
      Officer, our ability to continue to execute on our business plan could be
      materially impaired. Although we have an employment agreement with Mr. Weiss,
      this agreement does not prevent him from terminating his employment with
      us.




33





***Any
      acquisitions we make may require a significant amount of our available cash
      and
      may not be scientifically or commercially successful.***





As
      part
      of our business strategy, we may effect acquisitions to obtain additional
      businesses, products, technologies, capabilities and personnel. If we make
      one
      or more significant acquisitions in which the consideration includes cash,
      we
      may be required to use a substantial portion of our available cash.





Acquisitions
      involve a number of operational risks, including:




·
              difficulty
                  and expense of assimilating the operations, technology and personnel
                  of
                  the acquired business;
 
 ·
              our
                  inability to retain the management, key personnel and other employees
                  of
                  the acquired business;
 
 ·
              our
                  inability to maintain the acquired company's relationship with
                  key third
                  parties, such as alliance partners;
 
 ·
              exposure
                  to legal claims for activities of the acquired business prior to
                  the
                  acquisition;
 
 ·
              the
                  diversion of our management's attention from our core business;
                  and
 
 ·
              the
                  potential impairment of goodwill and write-off of in-process research
                  and
                  development costs, adversely affecting our reported results of
                  operations.


***The
      status of reimbursement from third-party payors for newly approved health care
      drugs is uncertain and failure to obtain adequate reimbursement could limit
      our
      ability to generate revenue.***





Our
      ability to commercialize pharmaceutical products may depend, in part, on the
      extent to which reimbursement for the products will be available
      from:




·
              government
                  and health administration authorities;
 
 ·
              private
                  health insurers;
 
 ·
              managed
                  care programs; and
 
 ·
              other
                  third-party payors.





Significant
      uncertainty exists as to the reimbursement status of newly approved health
      care
      products. Third-party payors, including Medicare, are challenging the prices
      charged for medical products and services. Government and other third-party
      payors increasingly are attempting to contain health care costs by limiting
      both
      coverage and the level of reimbursement for new drugs and by refusing, in some
      cases, to provide coverage for uses of approved products for disease indications
      for which the FDA has not granted labeling approval. Third-party insurance
      coverage may not be available to patients for our products. If government and
      other third-party payors do not provide adequate coverage and reimbursement
      levels for our products, their market acceptance may be reduced.





***Health
      care reform measures could adversely affect our
      business.***





The
      business and financial condition of pharmaceutical and biotechnology companies
      are affected by the efforts of governmental and third-party payors to contain
      or
      reduce the costs of health care. In the United States and in foreign
      jurisdictions there have been, and we expect that there will continue to be,
      a
      number of legislative and regulatory proposals aimed at changing the health
      care
      system, such as proposals relating to the reimportation of drugs into the U.S.
      from other countries (where they are then sold at a lower price) and government
      control of prescription drug pricing. The pendency or approval of such proposals
      could result in a decrease in our stock price or limit our ability to raise
      capital or to obtain strategic partnerships or licenses.




34





***We
      face product liability risks and may not be able to obtain adequate
      insurance.***





The
      use
      of our drug candidates in clinical trials, the future sale of any approved
      drug
      candidates and new technologies, and our sale of Accumin prior to its
      discontinuation, exposes us to liability claims. Although we are not aware
      of
      any historical or anticipated product liability claims against us, if we cannot
      successfully defend ourselves against product liability claims, we may incur
      substantial liabilities or be required to cease clinical trials of our drug
      candidates or limit commercialization of any approved products.





We
      believe that we have obtained sufficient product liability insurance coverage
      for our clinical trials and the sale of Accumin prior to its discontinuation.
      We
      intend to expand our insurance coverage to include the commercial sale of any
      approved products if marketing approval is obtained; however, insurance coverage
      is becoming increasingly expensive. We may not be able to maintain insurance
      coverage at a reasonable cost. We also may not be able to obtain additional
      insurance coverage that will be adequate to cover product liability risks that
      may arise. Regardless of merit or eventual outcome, product liability claims
      may
      result in:




·
              decreased
                  demand for a product;
 
 ·
              injury
                  to our reputation;
 
 ·
              our
                  inability to continue to develop a drug candidate;
 
 ·
              withdrawal
                  of clinical trial volunteers; and
 
 ·
              loss
                  of revenues.




Consequently,
      a product liability claim or product recall may result in losses that could
      be
      material.





***In
      connection with providing our clinical trial management and site recruitment
      services, we may be exposed to liability that could have a material adverse
      effect on our financial condition and results of
      operations.***





The
      Online Collaborative Oncology Group, Inc., or OCOG, a subsidiary we acquired
      through our acquisition of ACCESS Oncology, provides clinical trial management
      and site recruitment services to us as well as other biotechnology and
      pharmaceutical companies. In conducting the activities of OCOG, any failure
      on
      our part to comply with applicable governmental regulations or contractual
      obligations could expose us to liability to our clients and could have a
      material adverse effect on us. We also could be held liable for errors or
      omissions in connection with the services we perform. In addition, the wrongful
      or erroneous delivery of health care information or services may expose us
      to
      liability. If we were required to pay damages or bear the costs of defending
      any
      such claims, the losses could be material.





***Our
      corporate compliance efforts cannot guarantee that we are in compliance with
      all
      potentially applicable regulations.***





The
      development, manufacturing, pricing, sales, and reimbursement of our products,
      together with our general operations, are subject to extensive regulation by
      federal, state and other authorities within the United States and numerous
      entities outside of the United States. We are a relatively small company with
      21
      full and part-time employees as of November 3, 2008. We also have significantly
      fewer employees than many other companies that have a product candidate in
      clinical development, and we rely heavily on third parties to conduct many
      important functions. While we believe that our corporate compliance program
      is
      sufficient to ensure compliance with applicable regulations, we cannot assure
      you that we are or will be in compliance with all potentially applicable
      regulations. If we fail to comply with any of these regulations we could be
      subject to a range of regulatory actions, including suspension or termination
      of
      clinical trials, the failure to approve a product candidate, restrictions on
      our
      products or manufacturing processes, withdrawal of products from the market,
      significant fines, or other sanctions or litigation.




35





**Risks
      Related to Our Financial Condition**





***Our
      current cash, cash equivalents, interest receivable, and investment securities
      may not be adequate to support our operations for the length of time that we
      have estimated.***





We
      currently anticipate that our cash, cash equivalents, interest receivable,
      and
      investment securities as of September 30, 2008, exclusive of our holdings of
      auction rate securities, are sufficient to meet our anticipated working capital
      needs and fund our business plan at least into the latter part of 2009.
      Accordingly, if we are not able to receive proceeds from some portion
      of our auction rate securities by October 1, 2009, we may not have the
      ability to continue as a going concern. Our forecast of the period of time
      through which our cash, cash equivalents, interest receivable, and investment
      securities will be adequate to support our operations is a forward-looking
      statement that involves risks and uncertainties. The actual amount of funds
      we
      will need to operate is subject to many factors, some of which are beyond our
      control. These factors include the following:




·
              the
                  timing of completion and results from clinical trials for our drug
                  candidates;
 
 ·
              the
                  timing of expenses associated with manufacturing and product development
                  of the proprietary drug candidates within our portfolio and those
                  that may
                  be in-licensed, partnered or
                  acquired;
 
 ·
              the
                  timing of the in-licensing, partnering and acquisition of new product
                  opportunities;
 
 ·
              the
                  progress of the development efforts of parties with whom we have
                  entered,
                  or may enter, into research and development
                  agreements;
 
 ·
              our
                  ability to achieve our milestones under our licensing arrangements;
                  and
 
 ·
              the
                  costs involved in prosecuting and enforcing patent claims and other
                  intellectual property rights.





If
      our
      capital resources are insufficient to meet future capital requirements, we
      will
      have to raise additional funds. If we are unable to obtain additional funds
      on
      terms favorable to us or at all, we may be required to cease or reduce our
      operating activities or sell or license to third parties some or all of our
      intellectual property. If we raise additional funds by selling additional shares
      of our capital stock, the ownership interests of our stockholders will be
      diluted. If we need to raise additional funds through the sale or license of
      our
      intellectual property, we may be unable to do so on terms favorable to us,
      if at
      all.





With
      respect to our auction rate securities, we will continue to attempt to sell
      these securities until the auctions are successful. If uncertainties in the
      credit and capital markets continue, these markets deteriorate further or we
      experience any credit rating downgrades on the auction rate securities in our
      portfolio, we may incur additional impairment charges with respect to our
      auction rate securities portfolio, which could negatively affect our financial
      condition, cash flow and reported earnings. We will continue to monitor the
      fair
      value of our auction rate securities and relevant market conditions and will
      recognize additional impairment charges if future circumstances warrant such
      charges. In addition, the lack of liquidity of our auction rate securities
      could
      have a material impact on our ability to fund our operations.





***Our
      prior restructurings may result in additional Israeli-related
      liabilities.***





In
      July
      2003, Keryx (Israel) Ltd., one of our Israeli subsidiaries, vacated its
      Jerusalem facility, after giving advance notice to RMPA Properties Ltd., the
      landlord. On May 1, 2005, the landlord filed suit in the Circuit Court of
      Jerusalem in Jerusalem, Israel, claiming that Keryx (Israel) Ltd., among other
      parties, was liable as a result of the alleged breach of the lease agreement.
      In
      addition to Keryx (Israel) Ltd., the landlord brought suit against Keryx
      Biomedical Technologies Ltd., another of our Israeli subsidiaries, Keryx
      Biopharmaceuticals, Inc., Michael S. Weiss, our Chairman and Chief Executive
      Officer, and Robert Trachtenberg, a former employee of Keryx. The amount
      demanded by the landlord totals 4,345,313 New Israeli Shekels, or approximately
      $1,309,000, and includes rent for the entire remaining term of the lease, as
      well as property taxes and other costs allegedly incurred by the landlord.
      In
      August 2003, the landlord claimed a bank deposit, in the amount of $222,000,
      which was previously provided as security in connection with the lease
      agreement. We intend to vigorously defend the suit. In July 2005, Keryx (Israel)
      Ltd. and Keryx Biomedical Technologies Ltd. filed an answer to the landlord's
      complaint. In October 2005, Keryx Biopharmaceuticals, Inc. filed an answer
      to
      the landlord's complaint. Generally, each answer challenges the merits of the
      landlord's cause of action as to each defendant. All defendants, except Keryx
      (Israel) Ltd., have filed a motion to dismiss the complaint. The plaintiff
      has
      filed a response to each answer. At this time, the Circuit Court of Jerusalem
      has not issued a decision with respect to the motion to dismiss. A hearing
      on a
      motion by Keryx Biopharmaceuticals, Inc. to vacate service of process outside
      of
      Israel was held in September 2006. On October 15, 2006, the Circuit Court of
      Jerusalem held that the service of process on Keryx was sustained. We appealed
      this holding. The appeal was denied on September 18, 2007, and we filed a
      petition for certiorari to the Supreme Court of Israel. Our motion for
      certiorari was denied as well. We filed our testimonial affidavit along with
      an
      expert opinion contesting the interest and the accumulated debt claimed by
      plaintiff. The trial is scheduled for November 2008. The Court will hear the
      motion to dismiss parallel to the trial. We have not yet recorded a charge
      to
      reflect any potential liability associated with this lawsuit, as it is too
      early
      to accurately estimate the amount of a charge, if any.




36





**Risks
      Related to Our Intellectual Property and Third-Party
      Contracts**





***If
      we are unable to adequately protect our intellectual property, third parties
      may
      be able to use our intellectual property, which could adversely affect our
      ability to compete in the market.***





Our
      commercial success will depend in part on our ability and the ability of our
      licensors to obtain and maintain patent protection on our drug products and
      technologies and successfully defend these patents against third-party
      challenges. The patent positions of pharmaceutical and biotechnology companies
      can be highly uncertain and involve complex legal and factual questions. No
      consistent policy regarding the breadth of claims allowed in biotechnology
      patents has emerged to date. Accordingly, the patents we use may not be
      sufficiently broad to prevent others from practicing our technologies or from
      developing competing products. Furthermore, others may independently develop
      similar or alternative drug products or technologies or design around our
      patented drug products and technologies. The patents we use may be challenged
      or
      invalidated or may fail to provide us with any competitive
      advantage.





We
      rely
      on trade secrets to protect our intellectual property where we believe patent
      protection is not appropriate or obtainable. Trade secrets are difficult to
      protect. While we require our employees, collaborators and consultants to enter
      into confidentiality agreements, this may not be sufficient to adequately
      protect our trade secrets or other proprietary information. In addition, we
      share ownership and publication rights to data relating to some of our drug
      products and technologies with our research collaborators and scientific
      advisors. If we cannot maintain the confidentiality of this information, our
      ability to receive patent protection or protect our trade secrets or other
      proprietary information will be at risk.





***Litigation
      or third-party claims could require us to spend substantial time and money
      defending such claims and adversely affect our ability to develop and
      commercialize our products.***





We
      may be
      forced to initiate litigation to enforce our contractual and intellectual
      property rights, or we may be sued by third parties asserting claims based
      on
      contract, tort or intellectual property infringement. In addition, third parties
      may have or obtain patents in the future and claim that our drug products or
      technologies infringe their patents. If we are required to defend against suits
      brought by third parties, or if we sue third parties to protect our rights,
      we
      may be required to pay substantial litigation costs, and our management's
      attention may be diverted from operating our business. In addition, any legal
      action against our licensors or us that seeks damages or an injunction of our
      commercial activities relating to our drug products or technologies could
      subject us to monetary liability and require our licensors or us to obtain
      a
      license to continue to use our drug products or technologies. We cannot predict
      whether our licensors or we would prevail in any of these types of actions
      or
      that any required license would be made available on commercially acceptable
      terms, if at all.





**Risks
      Related to Our Common Stock**





***Future
      sales or other issuances of our common stock could depress the market for our
      common stock.***





Sales
      of
      a substantial number of shares of our common stock, or the perception by the
      market that those sales could occur, could cause the market price of our common
      stock to decline or could make it more difficult for us to raise funds through
      the sale of equity in the future.





If
      we
      make one or more significant acquisitions in which the consideration includes
      stock or other securities, our stockholders may be significantly diluted. In
      addition, we may enter into arrangements with third parties permitting us to
      issue shares of common stock in lieu of certain cash payments upon the
      achievement of milestones.





In
      addition, we may be required to issue up
      to
      3,372,422 shares of our common stock to
      former stockholders of ACCESS Oncology upon the achievement of certain
      milestones, of which 500,000 shares may be payable in the next 12 months if
      we
      reach the first milestone, or we may conclude, under certain circumstances,
      that
      it is in our best interest to settle this contingent share obligation for all
      or
      substantially all of such shares in advance of reaching any milestones. A
      substantial portion of the contingent shares would be payable to related
      parties.





37




***Our
      stock price can be volatile, which increases the risk of litigation, and may
      result in a significant decline in the value of your
      investment.***





The
      trading price of our common stock is likely to be highly volatile and subject
      to
      wide fluctuations in price in response to various factors, many of which are
      beyond our control. These factors include:




·
              developments
                  concerning our drug candidates;
 
 ·
              announcements
                  of technological innovations by us or our competitors;
 
 ·
              introductions
                  or announcements of new products by us or our
                  competitors;
 
 ·
              announcements
                  by us of significant acquisitions, strategic partnerships, joint
                  ventures
                  or capital commitments;
 
 ·
              changes
                  in financial estimates by securities analysts;
 
 ·
              actual
                  or anticipated variations in quarterly operating results;
 
 ·
              expiration
                  or termination of licenses, research contracts or other collaboration
                  agreements;
 
 ·
              conditions
                  or trends in the regulatory climate and the biotechnology and
                  pharmaceutical industries;
 
 ·
              changes
                  in the market valuations of similar companies; and
 
 ·
              additions
                  or departures of key personnel.


In
      addition, equity markets in general, and the market for biotechnology and life
      sciences companies in particular, have experienced extreme price and volume
      fluctuations that have often been unrelated or disproportionate to the operating
      performance of companies traded in those markets. These broad market and
      industry factors may materially affect the market price of our common stock,
      regardless of our development and operating performance. In the past, following
      periods of volatility in the market price of a company's securities, securities
      class-action litigation has often been instituted against that company. Such
      litigation, if instituted against us, could cause us to incur substantial costs
      to defend such claims and divert management's attention and resources, which
      could seriously harm our business.





***Certain
      anti-takeover provisions in our charter documents and Delaware law could make
      a
      third-party acquisition of us difficult. This could limit the price investors
      might be willing to pay in the future for our common
      stock.***





Provisions
      in our amended and restated certificate of incorporation and bylaws could have
      the effect of making it more difficult for a third party to acquire, or of
      discouraging a third party from attempting to acquire, or control us. These
      factors could limit the price that certain investors might be willing to pay
      in
      the future for shares of our common stock. Our amended and restated certificate
      of incorporation allows us to issue preferred stock with the approval of our
      stockholders. The issuance of preferred stock could decrease the amount of
      earnings and assets available for distribution to the holders of our common
      stock or could adversely affect the rights and powers, including voting rights,
      of such holders. In certain circumstances, such issuance could have the effect
      of decreasing the market price of our common stock. Our amended and restated
      bylaws eliminate the right of stockholders to call a special meeting of
      stockholders, which could make it more difficult for stockholders to effect
      certain corporate actions. Any of these provisions could also have the effect
      of
      delaying or preventing a change in control.




38




***We
        are currently not in compliance with NASDAQ rules for continued listing on
        the
        NASDAQ Capital Market and are at risk of being delisted, which may subject
        us to
        the SEC’s penny stock rules and decrease the liquidity of our common stock.***
 
 On
        April
        22, 2008, we received notice from The NASDAQ Stock Market that we were not
        in
        compliance with the $1.00 minimum bid price requirement for continued inclusion
        on the applicable NASDAQ market. This notification is a standard communication
        when the bid price of a NASDAQ-listed company closes below the minimum $1.00
        per
        share requirement for 30 consecutive business days. In accordance with NASDAQ
        rules, we were provided 180 calendar days to regain compliance by having
        the bid
        price of our common stock close at $1.00 per share or more for a minimum
        of 10
        consecutive business days. On October 21, 2008, we received notice from The
        NASDAQ Stock Market that the bid price and market value of publicly traded
        securities requirements for continued listing on a NASDAQ market had been
        temporarily suspended. Due to this action, NASDAQ informed us that we now
        have
        until January 23, 2009, to achieve compliance with the $1.00 minimum closing
        bid
        price requirement.
 
 As
        reflected on the consolidated balance sheet included in this report, as of
        September 30, 2008, we no longer meet the stockholders’ equity requirement for
        continued listing on the NASDAQ Capital Market under Standard 1 of those
        requirements. We expect to receive notice from the NASDAQ Capital Market
        that we
        are no longer in compliance with the stockholders' equity requirement for
        continued listing, however, we intend to work with the market to try to find
        an
        acceptable manner in which our common stock can remain listed on the NASDAQ
        Capital Market. However, we cannot provide assurance that we will be successful
        in that effort, or that in the future we will continue to meet the listing
        requirements of the NASDAQ Capital Market, including, without limitation,
        bid
        price, stockholders’ equity and/or market value of listed securities minimum
        requirements. Additionally, our efforts to continue to meet the listing
        requirements may be limited by current market conditions, including volatility
        in the market.
 
 If
        we are
        delisted from The NASDAQ Stock Market, our common stock may be traded
        over-the-counter on the OTC Bulletin Board or in the “pink sheets.” These
        alternative markets, however, are generally considered to be less efficient
        than, and not as broad as, the NASDAQ Capital Market. Many OTC stocks trade
        less
        frequently and in smaller volumes than securities traded on the NASDAQ markets,
        which could have a material adverse effect on the liquidity of our common
        stock, and impair  our
        ability to raise additional capital.
 
 In
        addition, our common stock may become subject to penny stock rules. The SEC
        generally defines “penny stock” as an equity security that has a market price of
        less than $5.00 per share, subject to certain exceptions. We are not currently
        subject to the penny stock rules because our common stock qualifies for an
        exception to the SEC’s penny stock rules for companies that have an equity
        security that is quoted on the NASDAQ Stock Market. However, if we were
        delisted, our common stock would become subject to the penny stock rules,
        which
        impose additional sales practice requirements on broker-dealers who sell
        our
        common stock. If our common stock were considered penny stock, the ability
        of
        broker-dealers to sell our common stock and the ability of our stockholders
        to
        sell their shares in the secondary market would be limited and, as a result,
        the
        market liquidity for our common stock would be adversely affected. We cannot
        assure you that trading in our securities will not be subject to these or
        other
        regulations in the future.
 **ITEM
        6. EXHIBITS** ****





The
      exhibits listed on the Exhibit Index are included with this report.





3.1
            Amended
                and Restated Certificate of Incorporation of Keryx Biopharmaceuticals,
                Inc., filed as Exhibit 3.1 to the Registrant's Annual Report on Form
                10-Q
                for the quarter ended September 30, 2004, filed on August 12, 2004,
                and
                incorporated herein by reference.3.2
            Amended
                and Restated Bylaws of Keryx Biopharmaceuticals, Inc., filed as Exhibit
                3.2 to the Registrant’s Annual Report on Form 10-K for the year ended
                December 31, 2001, filed on March 26, 2002, and incorporated herein
                by
                reference.3.3
            Amendment
                to Amended and Restated Certificate of Incorporation of Keryx
                Biopharmaceuticals, Inc., dated July 24, 2007, filed as Exhibit 3.3
                to the
                Registrant's Quarterly Report on Form 10-Q for the quarter ended
                June 30,
                2007, filed on August 9, 2007 and incorporated herein by
                reference.31.1
            Certification
                of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a),
                as
                adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,
                dated
                November 10, 2008.31.2
            Certification
                of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a),
                as
                adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,
                dated
                November 10, 2008.32.1
            Certification
                of Chief Executive Officer pursuant to 18 U.S.C. §1350, as adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, datedNovember
                10, 2008.32.2
            Certification
                of Chief Financial Officer pursuant to 18 U.S.C. §1350, as adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, datedNovember
                10, 2008.




39




**SIGNATURES**





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


KERYX
                BIOPHARMACEUTICALS, INC.Date:November
                10, 2008
            By:
            /s/
                James F. OlivieroVice
                President, FinancePrincipal
                Financial and Accounting Officer




40




**EXHIBIT
      INDEX**





The
      following exhibits are included as part of this Quarterly Report on Form
      10-Q: ****




31.1
            Certification
                of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a),
                as
                adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,
                dated
                November 10, 2008.31.2
            Certification
                of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a),
                as
                adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,
                dated
                November 10, 2008.32.1
            Certification
                of Chief Executive Officer pursuant to 18 U.S.C. §1350, as adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, datedNovember
                10, 2008.32.2
            Certification
                of Chief Financial Officer pursuant to 18 U.S.C. §1350, as adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, datedNovember
                10, 2008.


.


41