**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, 2007**




**OR**




**o 
TRANSITION
      REPORT
      PURSUANT TO SECTION 13 OR 15(d) OF THE**


**SECURITIES
      EXCHANGE ACT OF 1934**




**For
      the transition period from** **** **to** **** **.**




**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, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act). (Check
      one):





Large
      accelerated filer £    Accelerated
      filer x   Non-accelerated
      filer £





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 43,651,153 shares of the registrant’s common stock, $0.001 par value,
      outstanding as of October 30, 2007.








**KERYX
      BIOPHARMACEUTICALS, INC.**


**FORM
      10-Q**


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





**TABLE
      OF CONTENTS**




**Page**SPECIAL
                CAUTIONARY NOTICE REGARDING FORWARD-LOOKING
                STATEMENTS
            1**PART
                I**
            **FINANCIAL
                INFORMATION**Item
                1
            Financial
                Statements
            2Consolidated
                Balance Sheets as of September 30, 2007 (unaudited) andDecember
                31, 2006
            2Consolidated
                Statements of Operations for the three and nine monthsended
                September 30, 2007 and 2006 (unaudited)
            3Consolidated
                Statement of Changes in Stockholders’ Equityfor
                the nine months ended September 30, 2007 (unaudited)
            4Consolidated
                Statements of Cash Flows for the nine monthsended
                September 30, 2007 and 2006 (unaudited)
            5Notes
                to Consolidated Financial Statements (unaudited)
            7Item
                2
            Management's
                Discussion and Analysis of Financial Condition andResults
                of Operations
            15Item
                3
            Quantitative
                and Qualitative Disclosures About Market Risk
            24Item
                4
            Controls
                and Procedures
            24**PART
                II**
            **OTHER
                INFORMATION**Item
                1
            Legal
                Proceedings
            24Item
                1A
            Risk
                Factors
            25Item
                6
            Exhibits
            36









**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 SulonexTM,
                ZerenexTM,
                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; 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, 2007, and December 31, 2006


(in
      thousands, except share and per share amounts)





**September 30, 2007**
            
            **December 31, 2006****(Unaudited)****Assets**Current
                assetsCash
                and cash equivalents
            
            $
            28,640
            
            $
            48,736Short-term
                investment securities
            
            
            39,348
            
            
            63,659Accrued
                interest receivable
            
            
            453
            
            
            525License
                receivable
            
            
            12,000
            
            
            --Other
                current assets
            
            
            1,397
            
            
            2,048Total
                current assets
            
            
            81,838
            
            
            114,968Long-term
                investment securities
            
            
            2,295
            
            
            12,690Property,
                plant and equipment, net
            
            
            11,336
            
            
            8,489Goodwill
            
            
            3,208
            
            
            3,208Other
                assets, net
            
            
            344
            
            
            958Total
                assets
            
            $
            99,021
            
            $
            140,313**Liabilities
                and stockholders’ equity**Current
                liabilitiesAccounts
                payable and accrued expenses
            
            $
            10,343
            
            $
            10,460Accrued
                compensation and related liabilities
            
            
            1,109
            
            
            1,534Current
                portion of deferred revenue
            
            
            1,031
            
            
            200Total
                current liabilities
            
            
            12,483
            
            
            12,194Deferred
                revenue, net of current portion
            
            
            11,185
            
            
            --Contingent
                equity rights
            
            
            4,004
            
            
            4,004Other
                liabilities
            
            
            225
            
            
            294Total
                liabilities
            
            
            27,897
            
            
            16,492Stockholders’
                equityCommon
                stock, $0.001 par value per share (95,000,000 and 60,000,000 shares
                authorized,
              43,731,101
                and 43,516,669 shares issued, 43,651,153 and 43,460,569 shares outstanding
              at
                September 30, 2007, and December 31, 2006, respectively)
            
            
            44
            
            
            44Additional
                paid-in capital
            
            
            320,450
            
            
            312,078Treasury
                stock, at cost, 79,948 and 56,100 shares at September 30,
                2007,
              and
                December 31, 2006, respectively
            
            
            (357
            )
            
            (89
            )Deficit
                accumulated during the development stage
            
            
            (249,013
            )
            
            (188,212
            )Total
                stockholders’ equity
            
            
            71,124
            
            
            123,821Total
                liabilities and stockholders’ equity
            
            $
            99,021
            
            $
            140,313





*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, 2007 and 2006 (Unaudited)


(in
      thousands, except share and per share amounts)





**Three months ended**
              **September 30,**
            
            **Nine months ended**
              **September 30,**
            
            **Amountsaccumulated
                during the development****2007**
            
            **2006**
            
            **2007**
            
            **2006**
            
            **stage**Revenue:License
                revenue
            
            $
            41
            
            $
            —
            
            $
            41
            
            $
            —
            
            $
            41Diagnostic
                revenue
            
            
            —
            
            
            35
            
            
            66
            
            
            58
            
            
            169Service
                revenue
            
            
            11
            
            
            39
            
            
            37
            
            
            375
            
            
            1,851Management
                fees from related party
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            300Total
                revenue
            
            
            52
            
            
            74
            
            
            144
            
            
            433
            
            
            2,361Operating
                expenses:Cost
                of diagnostics sold
            
            
            —
            
            
            50
            
            
            38
            
            
            69
            
            
            178Cost
                of services
            
            
            28
            
            
            29
            
            
            90
            
            
            298
            
            
            2,134Research
                and development:Non-cash
                compensation
            
            
            735
            
            
            1,378
            
            
            2,908
            
            
            6,206
            
            
            17,146Non-cash
                acquired in-process research and development
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            18,800Other
                research and development
            
            
            15,967
            
            
            14,950
            
            
            49,098
            
            
            39,635
            
            
            169,131Total
                research and development
            
            
            16,702
            
            
            16,328
            
            
            52,006
            
            
            45,841
            
            
            205,077Selling,
                general and administrative:Non-cash
                compensation
            
            
            1,780
            
            
            1,481
            
            
            5,193
            
            
            7,839
            
            
            19,042Other
                selling, general and administrative
            
            
            2,087
            
            
            2,041
            
            
            7,276
            
            
            6,546
            
            
            41,472Total
                selling, general and administrative
            
            
            3,867
            
            
            3,522
            
            
            12,469
            
            
            14,385
            
            
            60,514Total
                operating expenses
            
            
            20,597
            
            
            19,929
            
            
            64,603
            
            
            60,593
            
            
            267,903Operating
                loss
            
            
            (20,545
            )
            
            (19,855
            )
            
            (64,459
            )
            
            (60,160
            )
            
            (265,542
            )Interest
                and other income, net
            
            
            1,017
            
            
            1,862
            
            
            3,658
            
            
            4,743
            
            
            17,020Net
                loss before income taxes
            
            
            (19,528
            )
            
            (17,993
            )
            
            (60,801
            )
            
            (55,417
            )
            
            (248,522
            )Income
                taxes
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            491Net
                loss
            
            $
            (19,528
            )
            $
            (17,993
            )
            $
            (60,801
            )
            $
            (55,417
            )
            $
            (249,013
            )Basic
                and diluted loss per common share
            
            $
            (0.45
            )
            $
            (0.42
            )
            $
            (1.40
            )
            $
            (1.34
            )
            $
            (11.29
            )Weighted
                average shares used in computing basic and diluted netloss
                per common share
            
            
            43,619,523
            
            
            43,177,962
            
            
            43,561,160
            
            
            41,474,449
            
            
            22,048,706





*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, 2007 (Unaudited)


(in
      thousands, except share amounts)




**Common stock**
              
              **Additionalpaid-in****Shares**
              
              **Amount**
              
              **capital**Balance
                  at December 31, 2006
              
              
              43,516,669
              
              $
              44
              
              $
              312,078Changes
                  during the period:Cancellation
                  of common stock held in escrow
              
              
              (15,646
              )
              
              (—
              )*
              
              —Issuance
                  of restricted stock
              
              
              175,000
              
              
              —
              *
              
              —Forfeiture
                  of restricted stock
              
              
              (83,334
              )
              
              (—
              )*
              
              —Surrender
                  of common stock for tax withholding
              
              
              —
              
              
              —
              
              
              —Exercise
                  of options
              
              
              138,412
              
              
              —
              *
              
              271Compensation
                  in respect of options, restricted stock and warrants granted to
                  employees,
                  directors and third-parties
              
              
              —
              
              
              —
              
              
              8,101Net
                  loss
              
              
              —
              
              
              —
              
              
              —Balance
                  at September 30, 2007
              
              
              43,731,101
              
              $
              44
              
              $
              320,450




**Treasury stock**
              
              **Deficitaccumulatedduring thedevelopment****Shares**
              
              **Amount**
              
              **Stage**
              
              **Total**Balance
                  at December 31, 2006
              
              
              56,100
              
              $
              (89
              )
              $
              (188,212
              )
              $
              123,821Changes
                  during the period:Cancellation
                  of common stock held in escrow
              
              
              —
              
              
              —
              
              
              —
              
              
              (—
              )*Issuance
                  of restricted stock
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              *Forfeiture
                  of restricted stock
              
              
              —
              
              
              —
              
              
              —
              
              
              (—
              )*Surrender
                  of common stock for tax withholding
              
              
              23,848
              
              
              (268
              )
              
              —
              
              
              (268
              )Exercise
                  of options
              
              
              —
              
              
              —
              
              
              —
              
              
              271Compensation
                  in respect of options, restricted stock and warrants granted to
                  employees,
                  directors and third-parties
              
              
              —
              
              
              —
              
              
              —
              
              
              8,101Net
                  loss
              
              
              —
              
              
              —
              
              
              (60,801
              )
              
              (60,801
              )Balance
                  at September 30, 2007
              
              
              79,948
              
              $
              (357
              )
              $
              (249,013
              )
              $
              71,124
 
 **
        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, 2007 and 2006 (Unaudited)
 (in
        thousands)
  **Nine months ended****September 30,**
              
              
              **Amounts**
                **accumulated**
                **during the**
                **development****2007**
              
              
              **2006**
              
              
              **stage**CASH
                  FLOWS FROM OPERATING ACTIVITIESNet
                  loss
              
              $
              (60,801
              )
              $
              (55,417
              )
              $
              (249,013
              )Adjustments
                  to reconcile cash flows used in operating activities:Acquired
                  in-process research and development
              
              
              —
              
              
              —
              
              
              18,800Stock
                  compensation expense
              
              
              8,101
              
              
              14,045
              
              
              36,188Issuance
                  of common stock to technology licensor
              
              
              —
              
              
              —
              
              
              359Interest
                  on convertible notes settled through issuance of preferred
                  shares
              
              
              —
              
              
              —
              
              
              253Depreciation
                  and amortization
              
              
              116
              
              
              171
              
              
              2,951(Gain)
                  loss on disposal of property, plant and equipment
              
              
              (1
              )
              
              —
              
              
              171Impairment
                  charges
              
              
              600
              
              
              —
              
              
              3,082Exchange
                  rate differences
              
              
              —
              
              
              —
              
              
              94Changes
                  in assets and liabilities, net of effects of acquisitions:Decrease
                  (increase) in other current assets
              
              
              651
              
              
              (404
              )
              
              (925
              )Decrease
                  (increase) in accrued interest receivable
              
              
              72
              
              
              (150
              )
              
              (453
              )(Increase)
                  in license receivable
              
              
              (12,000
              )
              
              —
              
              
              (12,000
              )(Increase)
                  in security deposits
              
              
              —
              
              
              (255
              )
              
              (263
              )(Decrease)
                  increase in accounts payable and accrued expenses
              
              
              (117
              )
              
              3,002
              
              
              8,598(Decrease)
                  increase in accrued compensation and related liabilities
              
              
              (425
              )
              
              (367
              )
              
              514(Decrease)
                  increase in other liabilities
              
              
              (69
              )
              
              (37
              )
              
              70Increase
                  in deferred revenue
              
              
              12,016
              
              
              13
              
              
              11,760Net
                  cash used in operating activities
              
              
              (51,857
              )
              
              (39,399
              )
              
              (179,814
              )CASH
                  FLOWS FROM INVESTING ACTIVITIESPurchases
                  of property, plant and equipment
              
              
              (2,963
              )
              
              (4,326
              )
              
              (15,951
              )Proceeds
                  from disposals of property, plant and equipment
              
              
              15
              
              
              —
              
              
              440Increase
                  in note and accrued interest receivable from related party
              
              
              —
              
              
              —
              
              
              (356
              )Payments
                  of transaction costs
              
              
              —
              
              
              (231
              )
              
              (231
              )Decrease
                  (increase) in other assets
              
              
              —
              
              
              27
              
              
              (1,192
              )Investment
                  in held-to-maturity short-term securities
              
              
              (2,072
              )
              
              (4,049
              )
              
              (50,985
              )Proceeds
                  from maturity of held-to-maturity short-term securities
              
              
              20,006
              
              
              6,573
              
              
              72,027Investment
                  in available-for-sale short-term securities
              
              
              (21,000
              )
              
              (36,375
              )
              
              (79,100
              )Proceeds
                  from sale of available-for-sale short-term securities
              
              
              40,100
              
              
              5,225
              
              
              56,500Investment
                  in held-to-maturity long-term securities
              
              
              (2,330
              )
              
              (11,896
              )
              
              (40,277
              )Proceeds
                  from maturity of held-to-maturity long-term securities
              
              
              2
              
              
              4
              
              
              192Net
                  cash provided by (used in) investing activities
              
              
              31,758
              
              
              (45,048
              )
              
              (58,933
              )
  *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, 2007 and 2006 (Unaudited)
 (continued)
 (in
        thousands)
  **Nine months ended**
                **September 30,**
              
              **Amounts**
                **accumulated**
                **during the**
                **development****2007**
              
              **2006**
              
              **stage**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
                  the
                  ACCESS 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
              
              
              —
              
              
              82,696
              
              
              158,487Proceeds
                  from private placements, net
              
              
              —
              
              
              —
              
              
              45,795Proceeds
                  from exercise of options and warrants
              
              
              271
              
              
              1,481
              
              
              9,120Purchase
                  of treasury stock
              
              
              (268
              )
              
              —
              
              
              (357
              )Net
                  cash provided by financing activities
              
              
              3
              
              
              84,177
              
              
              267,382Cash
                  acquired in acquisition
              
              
              —
              
              
              5
              
              
              99Effect
                  of exchange rate on cash
              
              
              —
              
              
              —
              
              
              (94
              )NET
                  (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
              
              
              (20,096
              )
              
              (265
              )
              
              28,640Cash
                  and cash equivalents at beginning of year
              
              
              48,736
              
              
              68,175
              
              
              —CASH
                  AND CASH EQUIVALENTS AT END OF PERIOD
              
              $
              28,640
              
              $
              67,910
              
              $
              28,640NON
                  - CASH TRANSACTIONSIssuance
                  of common stock in connection with acquisition
              
              $
              —
              
              $
              3,310
              
              $
              9,635Contingent
                  equity rights in connection with acquisition
              
              
              —
              
              
              —
              
              
              4,004Assumption
                  of liabilities in connection with acquisition
              
              
              —
              
              
              347
              
              
              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
              
              $
              —
              
              $
              —
              
              $
              432
  *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. (“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 diabetes 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 nine months ended September 30, 2007,
      and
      2006, 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. (See Note 4).





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, 2006. The results of operations for the three and nine months
      ended September 30, 2007 are not necessarily indicative of the results that
      may
      be expected for the entire fiscal year or any other interim
      period.


7





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. 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.





***Revenue
      Recognition***





The
      Company recognizes license revenue consistent with the provisions of Staff
      Accounting Bulletin (“SAB”) No. 104 and Emerging Issues Task Force (“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 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 recognizes
      milestone payments 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 will be recognized when earned under the agreements.





***Stock-Based
      Compensation***




The
      Company adopted Statement of Financial Accounting Standards (“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, or 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, 2007, and 2006, which are not included
      in the computation of net loss per share amounts, were 10,739,700 and
      10,866,687, respectively.





***Patents***





Through
      March 31, 2006, the Company classified its patent expenses in other research
      and
      development. Effective April 1, 2006, the Company has classified its patent
      expenses in other general and administrative expense. The results of prior
      periods have not been reclassified because they were not significant.





***Accounting
      for Manufacturing Suite***





As
      of
      September 30, 2007, the Company has spent approximately $11.0 million in capital
      expenditures building its manufacturing suite for Sulonex. The Company
      anticipates that in the fourth quarter of 2007, after equipment validation
      has
      been completed, the facility will be ready for its intended use, and the Company
      will begin to depreciate this asset at that time.


8


***Income
      Taxes***




On
      January 1, 2007, the Company adopted FIN 48, Accounting for Uncertainty in
      Income Taxes. FIN 48 clarifies the criteria for recognizing tax benefits related
      to uncertain tax positions under SFAS No. 109, Accounting for Income Taxes,
      and
      requires additional financial statement disclosure. FIN 48 requires that the
      Company recognize, in its consolidated financial statements, the impact of
      a tax
      position if that position is more likely than not to be sustained upon
      examination, based on the technical merits of the position. Adoption of FIN
      48
      had no impact on the Company’s consolidated results of operations and financial
      position.





Upon
      adoption, the Company believes there are no uncertain tax positions that fail
      to
      meet the more likely than not recognition threshold under FIN 48 to be sustained
      upon examination.





Prior
      to
      the adoption of FIN 48, the Company included interest accrued on the
      underpayment of income taxes, if any, in selling, general and administrative
      expense. The Company continued to follow this policy following the adoption
      of
      FIN 48.





The
      Company files income tax returns in the U.S. and the statue of limitations
      has
      expired for years prior to 2003. In 2006, the Internal Revenue Service commenced
      an examination of the Company’s U.S. Federal income tax returns for tax years
      2004 and 2005. The Company has filed inactive returns in Israel for its
      subsidiaries in Israel since 2004. These subsidiaries in Israel had ceased
      operations and are currently in the process of being closed down. In 2007,
      the
      Israeli tax authorities commenced an examination of the Israeli tax returns
      of
      one of the Company’s subsidiaries in Israel for the tax years 2003 through 2006.
      The Company believes that the ultimate resolution of these tax matters will
      not
      have a material impact on the Company’s results of operations or financial
      condition.





The
      Company and its subsidiaries file income tax returns in the U.S. federal
      jurisdiction and in various states. The Company has tax net operating loss
      carryforwards that are subject to examination for a number of years beyond
      the
      year in which they may be utilized for tax purposes. Since a portion of these
      net operating loss carryforwards may be utilized in the future, many of these
      net operating loss carryforwards will remain subject to
      examination.





**NOTE
      2 – STOCKHOLDERS' EQUITY**




***Common
      Stock***





On
      March
      29, 2006, the Company completed a registered direct offering of 4,500,000 shares
      of its common stock to two institutional investors at $18.40 per share. Total
      proceeds to the Company from this public offering were approximately $82.7
      million, net of offering expenses of approximately $0.1 million. The shares
      were
      sold under a shelf registration statement on Form S-3 (File No. 333-130809)
      filed with the Securities and Exchange Commission, or SEC, on December 30,
      2005,
      and declared effective by the SEC on January 13, 2006, covering shares of the
      Company’s Common Stock having a value not to exceed $150 million.





The
      Company may offer the remaining securities under its shelf registration from
      time to time in response to market conditions or other circumstances if it
      believes such a plan of financing is in the best interest of the Company and
      its
      stockholders. The Company believes that the shelf registration provides it
      with
      the flexibility to raise additional capital to finance its operations as needed.





On
      June
      20, 2007, at the 2007 Annual Meeting of Stockholders, the Company’s stockholders
      approved an amendment to the Company’s amended and restated certificate of
      incorporation increasing the shares of authorized common stock from 60,000,000
      shares to 95,000,000 shares. The number of authorized shares of preferred stock
      remains unchanged at 5,000,000 shares.





***Treasury
      Stock***





On
      February 14, 2007, our former Chief Financial Officer surrendered to the Company
      5,973 shares of common stock in order to satisfy his tax withholding obligation
      upon the vesting of 16,666 shares of restricted stock. The 5,973 shares of
      common stock are being held by the Company in Treasury, at a cost of
      approximately $70,000, representing the fair market value on the date the shares
      were surrendered.




On
      April 25, 2007, our President surrendered to the
      Company 17,875 shares of common stock in order to satisfy his tax withholding
      obligation upon the vesting of 50,000 shares of restricted stock. The 17,875
      shares of common stock are being held by the Company in Treasury, at a cost
      of
      approximately $198,000, representing the fair market value on the date the
      shares were surrendered.


9




***Equity
      Incentive Plans***





In
      March
      2007, the Company adopted the 2007 Chief Accounting Officer Inducement Stock
      Option Plan (the “2007 CAO Plan”). Under the 2007 CAO Plan, the Company’s board
      of directors granted an option to the newly-appointed Chief Accounting Officer
      of the Company to purchase up to 100,000 shares of authorized but unissued
      common stock. The option has a term of 10 years from the date of the grant.
      The
      option granted to the newly appointed Chief Accounting Officer was made pursuant
      to an employment arrangement. Of these options, 25,000 vest on the one-year
      anniversary of employment and 6,250 vest every three months following the
      one-year anniversary of employment, until the 48 th month of
      employment. No additional shares of our common stock may be issued under the
      2007 CAO Plan.





In
      April
      2007, the Company adopted the 2007 General Counsel Incentive Stock Option Plan
      (the “2007 GC Plan”). Under the 2007 GC Plan, the Company’s board of directors
      granted an option to the newly-appointed General Counsel of the Company to
      purchase up to 150,000 shares of authorized but unissued common stock. The
      option has a term of 10 years from the date of the grant. The option granted
      to
      the newly appointed General Counsel was made pursuant to an employment
      arrangement. Of these options, 37,500 vest on the one-year anniversary of
      employment and 9,375 vest every three months following the one-year anniversary
      of employment, until the 48 th month of
      employment. No additional shares of our common stock may be issued under the
      2007 GC Plan.





The
      2007
      Incentive Plan was adopted in June 2007 by our stockholders. Under the 2007
      Incentive Plan, the compensation committee of the Company’s board of directors
      is authorized to grant stock-based awards to directors, consultants, employees
      and officers. The 2007 Incentive Plan authorizes grants to purchase up to
      6,000,000 shares of authorized but unissued common stock. The plan limits the
      term of each option to no more than 10 years from the date of their grant.
      As of
      September 30, 2007, up to an additional 5,795,900 shares may be issued under
      the
      2007 Incentive Plan.





The
      following table summarizes equity awards authorized by the Company as of
      September 30, 2007.


**Plan**
              
              
              **Exercise****price**
              
              
              **Authorized**
              
              
              **Outstanding**
              
              
              **Exercised**
              
              
              **Restricted****stock****vested**
              
              
              **Exercisable**
              
              
              **Available****for
                    grant**1999
                  Stock Option Plan
              
              $
              0.10 –
                  1.30
              
              
              4,230,000
              
              
              617,995
              
              
              3,506,505
              
              
              —
              
              
              617,995
              
              
              —2000
                  Stock Option Plan
              
              
              1.10
                  – 14.64
              
              
              4,455,000
              
              
              2,759,465
              
              
              1,641,156
              
              
              —
              
              
              2,315,903
              
              
              54,379Non
                  Plan
              
              
              0.33
              
              
              240,000
              
              
              60,000
              
              
              157,500
              
              
              —
              
              
              60,000
              
              
              —2002
                  CEO Incentive StockOption
                  Plan
              
              
              1.30
              
              
              2,002,657
              
              
              2,002,657
              
              
              —
              
              
              —
              
              
              2,002,657
              
              
              —2004
                  President Incentive Plan
              
              
              9.25
              
              
              1,000,000
              
              
              1,000,000
              
              
              —
              
              
              —
              
              
              500,000
              
              
              —2004
                  Long-Term Incentive Plan
              
              
              7.13
                  – 18.06*
              
              
              4,000,000
              
              
              3,648,507
              
              
              131,037
              
              
              66,666
              
              
              1,556,149
              
              
              153,7902006
                  CFO Incentive Plan
              
              
              —
              
              
              500,000
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —2007
                  CAO Inducement Plan
              
              
              11.11
              
              
              100,000
              
              
              100,000
              
              
              —
              
              
              —
              
              
              —
              
              
              —2007
                  General Counsel Incentive Stock Option Plan
              
              
              11.02
              
              
              150,000
              
              
              150,000
              
              
              —
              
              
              —
              
              
              —
              
              
              —2007
                  Incentive Plan
              
              
              9.96
              
              
              6,000,000
              
              
              204,100
              
              
              —
              
              
              —
              
              
              —
              
              
              5,795,90022,677,657
              
              
              10,542,724
              
              
              5,436,198
              
              
              66,666
              
              
              7,052,704
              
              
              6,004,069


*
            Exercise
                price range excludes restricted
                stock.





10


A
        summary
        of the status of the Company’s equity awards for all plans as of September 30,
        2007 and December 31, 2006, and changes during the period is presented in
        the
        table below.


**Outstanding
                equity awards****Shares**
              **available**
              **for grant**
            
            **Number**
              **of shares**
            
            **Weighted-**
              **average**
              **exercise price**Balance,
                December 31, 2006
            
            
            152,158
            
            
            10,849,713
            
            $
            7.82Authorized
            
            
            6,250,000
            
            
            —
            
            
            —Granted
            
            
            (855,300
            )
            
            855,300
            
            
            8.39Exercised
            
            
            —
            
            
            (138,412
            )
            
            1.96Restricted
                stock vested
            
            
            —
            
            
            (66,666
            )
            
            —Canceled
            
            
            (500,000
            )
            
            —
            
            
            —Forfeited
                and expired
            
            
            957,211
            
            
            (957,211
            )
            
            12.63Balance,
                September 30, 2007
            
            
            6,004,069
            
            
            10,542,724
            
            $
            7.56Exercisable
                at December 31, 2006
            
            
            
            
            
            6,178,994
            
            $
            3.92Exercisable
                at September 30, 2007
            
            
            
            
            
            7,052,704
            
            $
            5.38





As
      of
      September 30, 2007, there were 115,000 and 10,000 shares of restricted stock
      outstanding under the 2004 Long-Term Incentive Plan and 2007 Incentive Plan,
      respectively, which are included in the tables above.





A
      summary
      of share-based compensation activity for the nine months ended September 30,
      2007 is presented below:





Stock
      Options






**Number of
                options**
            
            
            **Exercise**
              **price per**
              **share**
            
            
            **Weighted-average**
              **exercise price**
            
            
            **Weighted-average**
              **remaining
                contractual term**
              **(years)**
            
            
            **Aggregate**
              **intrinsic value**Outstanding
                at December 31, 2006
            
            
            10,749,713
            
            $
            0.10 –
                $ 18.06
            
            $
            7.90
            
            
            7.6
            
            $
            58,048,000Granted
            
            
            680,300
            
            
            9.96
                – 11.11
            
            
            10.54Exercised
            
            
            (138,412
            )
            
            0.10
                – 9.25
            
            
            1.96Forfeited
                and expired
            
            
            (873,877
            )
            
            1.92
                – 18.00
            
            
            13.83Outstanding
                at September 30, 2007
            
            
            10,417,724
            
            $
            0.10
                – 18.06
            
            $
            7.65
            
            
            7.0
            
            $
            23,857,000Vested
                and expected to vest at
              September
                30, 2007
            
            
            10,323,355
            
            $
            0.10
                – 18.06
            
            $
            7.61
            
            
            7.0
            
            $
            24,053,000Exercisable
                at September 30, 2007
            
            
            7,052,704
            
            $
            0.10
                – 18.06
            
            $
            5.38
            
            
            6.4
            
            $
            32,160,000





The
      aggregate intrinsic value of options exercised for the nine months ended
      September 30, 2007 and 2006 was approximately $1,294,000 and $7,793,000,
      respectively. Upon the exercise of outstanding options, the Company issues
      new
      shares.





As
      of
      September 30, 2007, 3,493,833 options issued to directors and employees, and
      93,000 options issued to consultants, are milestone-based, of which 3,268,833
      options issued to directors and employees, and 43,000 options issued to
      consultants, are vested and exercisable.





Restricted
      Stock




**Number of**
              **shares**
            
            **Average**
              **grant date**
              **fair value**Nonvested
                at December 31, 2006
            
            
            100,000
            
            $
            15.30Granted
            
            
            175,000
            
            
            10.47Vested
            
            
            (66,666
            )
            
            12.09Forfeited
            
            
            (83,334
            )
            
            15.30Nonvested
                at September 30, 2007
            
            
            125,000
            
            $
            10.26





11


***Warrants***




**Warrants**
            
            **Weighted-**
              **average**
              **exercise price**Outstanding
                at December 31, 2006
            
            
            321,976
            
            $
            4.65Issued
            
            
            —
            
            
            —Exercised
            
            
            —
            
            
            —Canceled
            
            
            —
            
            
            —Outstanding
                at September 30, 2007
            
            
            321,976
            
            $
            4.65


***Stock-Based
      Compensation***





The
      value
      of options granted has been estimated 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 for
      the foreseeable future.





The
      weighted average fair market value of options granted during the three months
      ended September 30, 2007, and 2006, as of the date of the grant, was $6.10
      and
      $6.98, respectively. The assumptions used in the calculation of the fair
      value of options granted during the three months ended September 30, 2007,
      and
      2006, were a weighted average expected term of 5.1 and 3.4 years, respectively,
      a weighted average expected volatility rate of 69.70% and 76.77%, respectively,
      and a weighted average risk-free interest rate of 4.36% and 4.70%, respectively.





The
      weighted average fair market value of options granted during the nine months
      ended September 30, 2007, and 2006, as of the date of the grant, was $6.33
      and
      $7.81, respectively. The assumptions used in the calculation of the fair
      value of options granted during the nine months ended September 30, 2007, and
      2006, were a weighted average expected term of 4.7 and 3.0 years, respectively,
      a weighted average expected volatility rate of 71.04% and 79.10%, respectively,
      and a weighted average risk-free interest rate of 4.58% and 4.76%, respectively.





The
      Company used historical information to estimate forfeitures within the valuation
      model. As of September 30, 2007, there was $19.3 million of total unrecognized
      compensation cost, related to nonvested stock options and restricted stock,
      which is expected to be recognized over a weighted-average period of 2.4
      years.





**NOTE 3
      – BONUS TO OFFICER**





Pursuant
      to his employment agreement, the Chief
      Executive Officer of the Company
      was entitled to receive a one-time $2 million cash bonus due to the achievement
      of a corporate milestone that occurred ,
      and was
      expensed, in
      the
      first quarter of 2006 and paid in the second quarter of 2006. Of this amount,
      $1
      million was included in other research and development expenses and $1,000,000
      was included in other selling, general and administrative expenses for the
      nine
      months ended September 30, 2006.





**NOTE
      4 – ACCUMIN TRANSACTION**





On
      April
      6, 2006, Accumin Diagnostics, Inc. (“ADI”), 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. (“AusAm”). The Company
      believes that the acquisition of Accumin could help increase the Company’s
      exposure to physicians that treat diabetes, the target market for Sulonex,
      by,
      among other things, highlighting the need for and importance of early detection
      of microalbuminuria, which, if successful, could ultimately improve market
      perception and utilization of Sulonex. This acquisition also provided the
      Company with an incidental revenue stream associated with Accumin’s diagnostic
      tool.




The
      purchase price of Accumin was $3,996,000, which included the issuance of 245,024
      shares of the Company’s common stock, the assumption of certain liabilities of
      AusAm equal to approximately $345,000 and transaction costs and cash settlement
      costs of approximately $341,000. ADI also entered into a royalty arrangement
      under which ADI may be required to pay up to a maximum of $16.1 million to
      AusAm
      on revenue from a next generation product following Food and Drug Administration
      marketing approval. Keryx filed a registration statement on Form S-3 with the
      SEC on April 6, 2006 with respect to the shares issued to AusAm which was
      declared effective on June 23, 2006 (the “Effective Date”). On the Effective
      Date, 245,024 shares were released from escrow to AusAm.





The
      excess of the purchase price over the net assets acquired in the Accumin
      transaction represented goodwill of approximately $3,208,000, which has been
      allocated to our Products segment based on the proposed synergies associated
      with Sulonex.


12


Subsequent
      to the closing, disputes arose between AusAm and Keryx relating to the
      determination of the purchase consideration under the acquisition
      agreement. On July 31, 2006, AusAm filed a motion purporting to seek to
      enforce the terms of the acquisition agreement and alleging damages in the
      amount of $818,145. (In re:  AusAm Biotechnologies, Inc., Chapter 11 Case
      No. 06-10214 (RDD) (Bankr. S.D.N.Y.)). The matter has been settled pursuant
      to a settlement agreement approved by the Bankruptcy Court on April 10, 2007.
      In
      April 2007, under the settlement, Keryx paid AusAm $110,075 in full settlement
      of all claims made by AusAm in the action. Following completion of the
      settlement, 15,646 shares of the Company’s common stock, which were issued and
      outstanding and held in escrow, were canceled.





In
      accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of
      Long-Lived Assets,” the Company recognizes 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 reviews various
      quantitative and qualitative factors in determining whether an impairment
      indicator exists, a triggering event. If an analysis is necessitated by the
      occurrence of a triggering event, the Company makes 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. The Company continues to derive incidental
      revenue from the sale of the Accumin diagnostic tool. During the first quarter
      of 2007, management reviewed both its original and projected revenue estimates
      associated with the diagnostic tool. As a result of the projected cash flows
      of
      the diagnostic tool, the Company concluded that the intangible 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.





Unaudited
      pro forma financial information has not been presented as the AusAm information
      is immaterial to our results of operations.





**NOTE
      5 – LICENSE AGREEMENT**





In
      September 2007, the Company entered into a licensing 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 rights for the development and commercialization of Zerenex in Japan.
      JT and Torii will be 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 significant
      responsibilities under the license agreement. As of September 30, 2007, the
      Company has recognized approximately $41,000 of license revenue. At September
      30, 2007, the Company recorded a license receivable of $12.0 million and
      deferred revenue of approximately $12.0 million (approximately $774,000 of
      which
      has been classified as a current liability) associated with this license
      agreement. The Company may receive up to an additional $88.0 million in up-front
      license fees and 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 Zerenex in Japan.





13


**NOTE
        6 – SEGMENT INFORMATION**
 
 The
        Company has three reportable segments: Diagnostics, Services and Products.
        The
        Diagnostics business sells diagnostic products for the direct measurement
        of
        total, intact urinary albumin. 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 diabetes
        and
        cancer, and also includes license 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)
            
            **2007**
            
            **2006**
            
            **2007**
            
            **2006**
            
            **stage**Diagnostics
            
            $
            —
            
            $
            35
            
            $
            66
            
            $
            58
            
            $
            169Services
            
            
            11
            
            
            39
            
            
            37
            
            
            375
            
            
            1,851Products
            
            
            41
            
            
            —
            
            
            41
            
            
            —
            
            
            41Total
            
            $
            52
            
            $
            74
            
            $
            144
            
            $
            433
            
            $
            2,061





**Operating
                loss****Three months ended September 30,**
            
            **Nine months ended September 30,**
            
            **Amounts**
              **accumulated
                during the development**(in
                thousands)
            
            **2007**
            
            **2006**
            
            **2007**
            
            **2006**
            
            **Stage**Diagnostics
            
            $
            (26
            )
            $
            (348
            )
            $
            (722
            )
            $
            (762
            )
            $
            (1,738
            )Services
            
            
            (17
            )
            
            10
            
            
            (53
            )
            
            77
            
            
            (283
            )Products
            
            
            (20,502
            )
            
            (19,517
            )
            
            (63,684
            )
            
            (59,475
            )
            
            (263,521
            )Total
            
            $
            (20,545
            )
            $
            (19,855
            )
            $
            (64,459
            )
            $
            (60,160
            )
            $
            (265,542
            )





A
      reconciliation of the totals reported for the operating segments to the
      consolidated total net loss is as follows:





**Net
                loss****Three months ended September 30,**
            
            **Nine months ended September 30,**
            
            **Amounts**
              **accumulated**
              **during the**
              **development**(in
                thousands)
            
            **2007**
            
            **2006**
            
            **2007**
            
            **2006**
            
            **stage**Operating
                loss of reportable segments
            
            $
            (20,545
            )
            $
            (19,855
            )
            $
            (64,459
            )
            $
            (60,160
            )
            $
            (265,542
            )Interest
                and other income
            
            
            1,017
            
            
            1,862
            
            
            3,658
            
            
            4,743
            
            
            17,020Income
                taxes
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (491
            )Consolidated
                net loss
            
            $
            (19,528
            )
            $
            (17,993
            )
            $
            (60,801
            )
            $
            (55,417
            )
            $
            (249,013
            )





The
      carrying amount of goodwill by reportable segment as of September 30, 2007
      and
      December 31, 2006 was as follows:





**Goodwill**(in
                thousands)
            
            **September 30, 2007**
            
            **December 31, 2006**Diagnostics
            
            —
            
            —Services
            
            
            —
            
            
            —Products
            
            $
            3,208
            
            $
            3,208Total
            
            $
            3,208
            
            $
            3,208




14


**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,
      2006.





**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 diabetes and cancer. Our
      lead
      compound under development is SulonexTM (sulodexide), which we previously
      referred to as KRX-101, an oral heparinoid compound for the treatment of
      diabetic nephropathy, a life-threatening kidney disease caused by diabetes.
      Sulonex is in a pivotal Phase 3 and Phase 4 clinical program under a Special
      Protocol Assessment, or SPA, with the Food and Drug Administration, or FDA.
      Additionally, we are developing ZerenexTM, 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 phosphorous levels) in patients with end stage renal disease, or
      ESRD.
      We are also developing clinical-stage oncology compounds, including KRX-0401
      (perifosine), a novel, oral anti-cancer agent that inhibits activation of Akt,
      a
      protein in the body associated with tumor survival and growth, and 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 active
      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
      revenues from our drug candidates.





The
      table
      below summarizes the status of our product pipeline.





**Product
                candidate**
            
            **Target
                indication**
            
            **Development
                status*****Endocrine/Renal***SulonexTM
            
            Diabetic
                nephropathy
            
            Phase
                3 & Phase 4ZerenexTM
            
            Hyperphosphatemia
                in patients withend-stage
                renal disease
            
            Phase
                2***Oncology***KRX-0401
            
            Multiple
                forms of cancer
            
            Phase
                2KRX-0402
            
            Brain
                cancer
            
            Phase
                2KRX-0601
            
            Multiple
                forms of cancer
            
            Phase
                2KRX-0404
            
            Multiple
                forms of cancer
            
            Pre-clinical***Neurology***KRX-0701
            
            Diabetic
                neuropathy
            
            Phase
                2KRX-0501
            
            Neurological
                disorders
            
            Phase
                1





15


*Recent
        Developments*
 
 Sulonex




During
      the third quarter, the independent Data Safety Monitoring Committee, or DSMC,
      responsible for monitoring Sulonex in the Phase 3 microalbuminuria and Phase
      4
      macroalbuminuria studies met to evaluate the safety data from the ongoing Phase
      3 and Phase 4 trials. Following a review of the blinded and unblinded data
      from
      both studies, the DSMC once again found no reason to recommend alteration or
      termination of either trial. The DSMC raised no safety concerns regarding
      Sulonex or the trials.





Prior
      to
      this most recent meeting, the DSMC had previously convened in November 2006
      and
      in March 2007 to review cumulative safety data from the Phase 3 and Phase 4
      studies. At each of these meetings, the DSMC raised no safety concerns.





Zerenex





In
      September 2007, we entered into a licensing 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 rights
      for
      the development and commercialization of Zerenex in Japan. The licensing
      arrangement calls for JT and Torii to pay us up to $100 million in up-front
      license fees and payments upon the achievement of pre-specified milestones,
      including up to $20 million in up-front payments and near-term milestones,
      of
      which we received $12 million in October 2007. In addition, upon
      commercialization, JT and Torii will make royalty payments to Keryx on net
      sales
      of Zerenex in Japan. JT and Torii will be responsible for the future development
      and commercialization costs in Japan.





*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, and from public offerings
      of
      our common stock. 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 from JT and Torii. We
      recognize these revenues ratably over the estimated period which we will have
      significant responsibilities under the license 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.





Our
      diagnostic revenue is based on the sale of a diagnostic product for the direct
      measurement of total, intact urinary albumin. Diagnostic revenue is recognized
      when persuasive evidence of an arrangement exists, the product has been shipped,
      title and risk of loss have passed to the customer and collection from the
      customer is reasonably assured.





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





Our
      cost
      of services consist 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. Cost of services are
      recognized as services are performed.





Our
      cost
      of diagnostics sold consist specifically of costs associated with the
      manufacture of the diagnostic products such as payments to third-party vendors,
      material costs and other support facilities associated with delivering of the
      diagnostics to our customers. Cost of diagnostics sold are recognized as
      diagnostic revenue is recognized.





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, 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.


16


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.





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 stock options. 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 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. These awards 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 will 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, 2007 and September 30, 2006**





*License
      Revenue.* License
      revenue was $41,000 for the three months ended September 30, 2007, as compared
      to no revenue for the three months ended September 30, 2006. License revenue
      for
      the three months ended September 30, 2007 was related to the amortization of
      a
      portion of an upfront payment of $12.0 million associated with our license
      agreement with JT and Torii. Such amount will be recognized as license revenue
      on a straight-line basis over the life of the license 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
      significant responsibilities under the license agreement.





*Diagnostic
      Revenue.* We
      recognized no diagnostic revenue for the three months ended September 30, 2007,
      as compared to diagnostic revenue of $35,000 for the three months ended
      September 30, 2006. We do not expect our diagnostic revenue to have a material
      impact on our financial results during the remainder of 2007.





*Service
      Revenue.* Service
      revenue decreased by $28,000 to $11,000 for the three months ended September
      30,
      2007, as compared to service revenue of $39,000 for the three months ended
      September 30, 2006. The decrease in service revenue was primarily due to the
      timing and extent of services performed in accordance with our service
      contracts. We do not expect our service revenue to have a material impact on
      our
      financial results during the remainder of 2007.


17


*Cost
      of Diagnostics Sold* .
      We
      recognized no cost of diagnostics sold for the three months ended September
      30,
      2007, as compared to an expense of $50,000 for the three months ended September
      30, 2006. We do not expect our cost of diagnostics sold to have a material
      impact on our financial results during the remainder of 2007.





*Cost
      of Services* .
      Cost of
      services decreased by $1,000 to $28,000 for the three months ended September
      30,
      2007, as compared to an expense of $29,000 for the three months ended September
      30, 2006. The decrease in cost of services was primarily due to the timing
      and
      extent of services performed in accordance with our service contracts. We do
      not
      expect our cost of services to have a material impact on our financial results
      during the remainder of 2007.





*Non-Cash
      Compensation Expense (Research and Development).* Non-cash
      compensation expense related to stock option and restricted stock grants
      decreased by $643,000 to $735,000 for the three months ended September 30,
      2007,
      as compared to an expense of $1,378,000 for the three months ended September
      30,
      2006. In the three months ended September 30, 2006, based on his activities
      in
      this area, a portion of the compensation expense relating to our chief executive
      officer included an allocation to non-cash compensation expense (research and
      development). Beginning in 2007, based on his current activities, this expense
      is being charged to non-cash compensation expense (selling, general and
      administrative). This change accounted for approximately $599,000 of the
      difference.





*Other
      Research and Development Expenses* .
      Other
      research and development expenses increased by $1,017,000 to $15,967,000 for
      the
      three months ended September 30, 2007, as compared to $14,950,000 for the three
      months ended September 30, 2006. The increase in other research and development
      expenses was due primarily to a $627,000 increase in expenses related to our
      Sulonex pivotal Phase 3 and Phase 4 clinical programs, and due to a $346,000
      increase in expenses related to our other clinical compounds.





We
      expect
      our other research and development costs to increase modestly during the
      remainder of 2007 as a result of the expansion of the clinical program for
      KRX-0401, as well as possible development programs for our other drug
      candidates.





*Non-Cash
      Compensation Expense (Selling, General and Administrative).* Non-cash
      compensation expense related to stock option and restricted stock grants
      increased by $299,000 to $1,780,000 for the three months ended September 30,
      2007, as compared to an expense of $1,481,000 for the three months ended
      September 30, 2006. In the three months ended September 30, 2006, based on
      his
      activities in this area, a portion of the compensation expense relating to
      our
      chief executive officer included an allocation to non-cash compensation expense
      (research and development). Beginning in 2007, based on his current activities,
      this expense is being charged to non-cash compensation expense (selling, general
      and administrative), accounting for approximately $599,000 of increased expense.
      This increase was partially offset by a decrease of approximately $464,000
      of
      expense related to options and restricted stock issued to our chief financial
      officer in 2006, who resigned in the second quarter of 2007.





*Other
      Selling General and Administrative Expenses* .
      Other
      selling, general and administrative expenses increased by $46,000 to $2,087,000
      for the three months ended September 30, 2007, as compared to an expense of
      $2,041,000 for the three months ended September 30, 2006. We
      expect
      our other selling, general and administrative costs to increase modestly over
      the remainder of 2007.





*Interest
      and Other Income, Net* .
      Interest and other income, net, decreased by $845,000 to $1,017,000 for the
      three months ended September 30, 2007, as compared to income of $1,862,000
      for
      the three months ended September 30, 2006. The decrease resulted from a lower
      level of invested funds as compared to the comparable period last year.





**Nine
      months ended September 30, 2007 and September 30, 2006**





*License
      Revenue.* License
      revenue was $41,000 for the nine months ended September 30, 2007, as compared
      to
      no revenue for the nine months ended September 30, 2006. License revenue for
      the
      nine months ended September 30, 2007 was related to the amortization of a
      portion of an upfront payment of $12.0 million associated with our license
      agreement with JT and Torii. Such amount will be recognized as license revenue
      on a straight-line basis over the life of the license 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
      significant responsibilities under the license agreement.


18


*Diagnostic
      Revenue.* Diagnostic revenue increased by $8,000 to $66,000 for the nine months ended
      September 30, 2007, as compared to diagnostic revenue of $58,000 for the nine
      months ended September 30, 2006. The increase in diagnostic revenue was
      primarily due to the inclusion of nine months of Accumin’s results in the period
      ended September 30, 2007. The prior period included results from April 6, 2006,
      the acquisition date. We
      do not
      expect our diagnostic revenue to have a material impact on our financial results
      during the remainder of 2007.





*Service
      Revenue.* Service
      revenue decreased by $338,000 to $37,000 for the nine months ended September
      30,
      2007, as compared to service revenue of $375,000 for the nine months ended
      September 30, 2006. The decrease in service revenue was primarily due to the
      timing and extent of services performed in accordance with our service
      contracts. We do not expect our service revenue to have a material impact on
      our
      financial results during the remainder of 2007.





*Cost
      of Diagnostics Sold* .
      Cost of
      diagnostics sold decreased by $31,000 to $38,000 for the nine months ended
      September 30, 2007, as compared to an expense of $69,000 for the nine months
      ended September 30, 2006. The decrease in cost of diagnostics sold was
      primarily due to a reduction of overhead associated with our diagnostics
      segment. We
      do not
      expect our cost of diagnostics sold to have a material impact on our financial
      results during the remainder of 2007.





*Cost
      of Services* .
      Cost of
      services decreased by $208,000 to $90,000 for the nine months ended September
      30, 2007, as compared to an expense of $298,000 for the nine months ended
      September 30, 2006. The decrease in cost of services was primarily due to the
      timing and extent of services performed in accordance with our service
      contracts. We do not expect our cost of services to have a material impact
      on
      our financial results during the remainder of 2007.





*Non-Cash
      Compensation Expense (Research and Development).* Non-cash
      compensation expense related to stock option and restricted stock grants
      decreased by $3,298,000 to $2,908,000 for the nine months ended September 30,
      2007, as compared to an expense of $6,206,000 for the nine months ended
      September 30, 2006. This difference was primarily attributable to, during the
      nine months ended September 30, 2006, approximately $1,128,000 of expense for
      the accelerated vesting of options due to the achievement of a financial
      milestone, and additionally, in the nine months ended September 30, 2006, based
      on his activities in this area, a portion of the compensation expense relating
      to our chief executive officer included an allocation to non-cash compensation
      expense (research and development). Beginning in 2007, based on his current
      activities, this expense is being charged to non-cash compensation expense
      (selling, general and administrative). This change accounted for approximately
      $1,748,000 of the difference.





*Other
      Research and Development Expenses* .
      Other
      research and development expenses increased by $9,463,000 to $49,098,000 for
      the
      nine months ended September 30, 2007, as compared to $39,635,000 for the nine
      months ended September 30, 2006. The increase in other research and development
      expenses was due primarily to a $5,610,000 increase in expenses related to
      our
      Sulonex pivotal Phase 3 and Phase 4 clinical programs (the comparative period
      last year included one-half, or $1,000,000, of a one-time bonus paid to our
      Chief Executive Officer pursuant to his employment agreement for the achievement
      of a corporate milestone). In addition, the increase was due to a $3,834,000
      increase in expenses related to our other clinical compounds (including
      $1,127,000 of expenses relating to the in-licensing and purchase of related
      inventory for KRX-0701).





We
      expect
      our other research and development costs to increase modestly during the
      remainder of 2007 as a result of the expansion of the clinical program for
      KRX-0401, as well as possible development programs for our other drug
      candidates.





*Non-Cash
      Compensation Expense (Selling, General and Administrative).* Non-cash
      compensation expense related to stock option and restricted stock grants
      decreased by $2,646,000 to $5,193,000 for the nine months ended September 30,
      2007, as compared to an expense of $7,839,000 for the nine months ended
      September 30, 2006. This difference was primarily attributable to, during the
      nine months ended September 30, 2006, approximately $1,636,000 of expense for
      the accelerated vesting of options, due to the achievement of a financial
      milestone, and approximately $1,697,000 of expense for modifications made by
      the
      Board of Directors of the vesting and exercisability of certain grants during
      the second quarter of 2006. In the nine months ended September 30, 2006, based
      on his activities in this area, a portion of the compensation expense relating
      to our chief executive officer included an allocation to non-cash compensation
      expense (research and development). Beginning in 2007, based on his current
      activities, this expense is being charged to non-cash compensation expense
      (selling, general and administrative), accounting for approximately $1,748,000
      of increased expense, which offsets the decrease discussed above. In addition,
      during the nine months ended September 30, 2007, we recorded a reduction of
      expense of approximately $1,178,000 associated with stock options and restricted
      stock issued to our former chief financial officer in 2006, who resigned in
      the
      second quarter of 2007.


19


*Other
      Selling, General and Administrative Expenses* .
      Other
      selling, general and administrative expenses increased by $730,000 to $7,276,000
      for the nine months ended September 30, 2007, as compared to an expense of
      $6,546,000 for the nine months ended September 30, 2006. Other selling, general
      and administrative expenses for the nine months ended September 30, 2007
      includes an impairment charge of approximately $600,000 related to certain
      intangibles associated with Accumin’s diagnostic product. Additionally, there
      was an increase in legal fees of approximately $828,000 associated with the
      maintenance of our products. The comparative period last year included one-half,
      or $1,000,000, of a one-time bonus paid to our Chief Executive Officer pursuant
      to his employment agreement for the achievement of a corporate milestone. In
      addition, during the nine months ended September 30, 2007, we incurred
      additional expenses associated with the scale-up of our operations and
      infrastructure to prepare for commercialization of our drug candidates. We
      expect our other selling, general and administrative costs to increase modestly
      over the remainder of 2007.




*Interest
      and Other Income, Net* .
      Interest and other income, net, decreased by $1,085,000 to $3,658,000 for the
      nine months ended September 30, 2007, as compared to income of $4,743,000 for
      the nine months ended September 30, 2006. The decrease resulted from a lower
      level of invested funds as compared to the comparable period last year.





**LIQUIDITY
      AND CAPITAL RESOURCES**





We
      have
      financed our operations from inception primarily through public offerings of
      our
      common stock, various private placement transactions, and option and warrant
      exercises.





As
      of
      September 30, 2007, we had $82.7 million in cash, cash equivalents, interest
      receivable, short-term and long-term securities and license receivable, a
      decrease of $42.9 million from December 31, 2006. In September 2007, we entered
      into a licensing agreement with JT and Torii, JT's pharmaceutical business
      subsidiary, under which JT and Torii obtained the exclusive rights for the
      development and commercialization of Zerenex in Japan. JT and Torii will be
      responsible for the future development and commercialization costs in Japan.
      An
      upfront payment of $12.0 million was received in October 2007. At September
      30,
      2007, we recorded a license receivable of $12.0 million and deferred revenue
      of
      approximately $12.0 million (approximately $774,000 of which has been classified
      as a current liability) associated with this license agreement. We may receive
      up to an additional $88.0 million in up-front license fees and payments upon
      the
      achievement of pre-specified milestones. In addition, upon commercialization,
      JT
      and Torii will make royalty payments to Keryx on net sales of Zerenex in Japan.





Cash
      used
      in operating activities for the nine months ended September 30, 2007 was $51.9
      million, as compared to $39.4 million for the nine months ended September 30,
      2006. This increase was due primarily to increased expenditures associated
      with
      the execution of our business plan, including costs associated with our pivotal
      Phase 3 and Phase 4 clinical program for Sulonex and the expansion of our other
      clinical programs. For the nine months ended September 30, 2007, net cash
      provided by in investing activities of $31.8 million was primarily the result
      of
      the maturity and sale of marketable securities in our investment portfolio,
      net
      of purchases, of approximately $34.7 million, partially offset by purchases
      of
      property, plant and equipment of approximately $3.0 million. For the nine months
      ended September 30, 2007, net cash provided by financing activities of $3,000
      was primarily the result of $271,000 of proceeds from the exercise of options,
      offset by the surrendering to Keryx of 23,848 shares of common stock, at a
      cost
      of approximately $268,000, by our President and former Chief Financial Officer,
      in order to satisfy tax withholding obligations upon the vesting of their
      restricted stock.





We
      have
      entered into a relationship with a U.S.-based contract manufacturer for Sulonex
      to build a larger scale manufacturing suite within their current facility,
      which
      they will operate on our behalf. We believe this suite will be suitable to
      manufacture and produce initial commercialization quantities of Sulonex (for
      approximately one to three years from launch). As of September 30, 2007, we
      have
      spent approximately $11.0 million in capital expenditures building our
      manufacturing suite for Sulonex. We anticipate that in the fourth quarter of
      2007, after equipment validation has been completed, the facility will be ready
      for its intended use.


20


We
      believe that our $82.7 million in cash, cash equivalents, interest receivable,
      investment securities and license receivable as of September 30, 2007 will
      be
      sufficient to enable us to meet our planned operating needs and capital
      expenditures through the date of the release of our Phase 3 Sulonex data, which
      is expected in the first quarter of 2008. Depending on the outcome of our Phase
      3 study, our cash requirements will vary dramatically. In the event of a
      negative outcome, we believe our current capital resources will enable us to
      meet our revised operating needs and capital expenditures for at least 12 to
      24
      months from January 2008.





On
      December 30, 2005, we filed a shelf registration statement on Form S-3 with
      the
      SEC that was declared effective by the SEC on January 13, 2006. The registration
      statement provides for the offering of up to $150 million of our common stock.
      Subsequent to the registered direct offering that was completed in March 2006,
      there remains approximately $67 million of our common stock available for sale
      on this shelf registration statement. We may offer these securities from time
      to
      time in response to market conditions or other circumstances if we believe
      such
      a plan of financing is in the best interest of Keryx and our stockholders.
      We
      believe that the availability to conduct such offerings enhances our ability
      to
      raise additional capital to finance our operations.





Our
      cash
      and cash equivalents and investment securities as of September 30, 2007 are
      invested in highly liquid investments such as cash, money market accounts and
      short-term and long-term U.S. corporate and government debt and auction note
      securities. As of September 30, 2007, we are unaware of any known trends or
      any
      known demands, commitments, events, or uncertainties that will, or that are
      reasonably likely to, result in a material increase or decrease in our
      liquidity. We expect that our liquidity needs throughout 2007 will continue
      to
      be funded from existing cash, cash equivalents, and short-term marketable
      securities.





**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**





Our
      material contractual obligations were summarized and included in our Annual
      Report on Form 10-K for the fiscal year ended December 31, 2006. There have
      been
      no material changes outside the ordinary course of business in our contractual
      obligations since December 31, 2006.





**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, 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,
      this estimate is 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 options 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.


21


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 issued to consultants is
      determined at the “measurement date.” The expense is recognized over the vesting
      period for the options. Until the measurement date is reached, the total amount
      of compensation expense remains uncertain. We record option compensation based
      on the fair value of the options at the reporting date. These options 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 option grant, and additional
      expense or a negative 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.





*Accruals
      for Clinical Research Organization and Clinical Site Costs.* We
      make
      estimates of costs incurred to date 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 in any accounting
      period. In addition, administrative costs related to external CROs are
      recognized on a straight-line basis over the estimated contractual
      period.





*Revenue
      Recognition.* We
      recognize license revenue consistent with the provisions of Staff Accounting
      Bulletin (“SAB”) No. 104 and Emerging Issues Task Force (“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 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 recognize milestone payments 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 will be recognized when
      earned under the agreements.





*Accounting
      Related to the Valuation of Intangible Assets.* In
      accounting for acquisitions, we allocate the purchase price to the fair value
      of
      the acquired tangible and intangible assets. This allocation requires us to
      make
      several significant judgments and estimates. For example, we estimated the
      value
      of the acquired intangible assets of Accumin utilizing the income approach,
      which requires us to make assumptions and estimates about, among other
      things: **





·
            revenue
                that is likely to result from the asset, including estimated selling
                price, estimated market share and year-over-year growth
                rates;





·
            operating
                margin; and





·
            sales
                and marketing and general and administrative expenses using historical
                and
                industry or other sources of market
                data;





The
      valuations are based on information that is available as of the acquisition
      date
      and the expectations and assumptions that have been deemed reasonable by our
      management. No assurance can be given, however, that the underlying assumptions
      or events associated with such assets will occur as projected. For these
      reasons, among others, the actual results may vary from the projected results.


22





As
      of
      September 30, 2007, there was approximately $3.2 million of net goodwill on
      our
      consolidated balance sheet. 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.





*Impairment.* In
      accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of
      Long-Lived Assets,” the Company recognizes 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, the Company makes
      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. The Company continues to derive
      revenue from the sale of the Accumin diagnostic tool. During the first quarter
      of 2007, management reviewed both its original and projected revenue estimates
      associated with the diagnostic tool. As a result of this analysis, the Company
      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.




SFAS
      No.
      142, “Goodwill and Other Intangible Assets,” or SFAS No. 142, requires periodic
      tests of goodwill for impairment and that other intangible assets be amortized
      over their useful lives unless these lives are determined to be indefinite.
      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 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.





*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
      U.S. 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 establishing the valuation allowance. In
      prior periods, our wholly-owned Israeli subsidiaries had generated taxable
      income in respect of services provided within the group, and therefore we
      believed in the past that our deferred tax assets relating to the Israeli
      subsidiaries would be realized. With the cessation of operating activities
      in
      Israel during 2003 and the resulting absence of taxable income from the Israeli
      subsidiaries, the deferred tax asset was written off in 2003.





*Accounting
      For Our Manufacturing Suite* .
      We have
      entered into a relationship with a U.S.-based contract manufacturer for Sulonex
      to build a larger scale manufacturing suite within their current facility,
      which
      they will operate on our behalf. We believe this suite will be suitable to
      manufacture and produce initial commercialization quantities of Sulonex (for
      approximately one to three years from launch). As of September 30, 2007, we
      have
      spent approximately $11.0 million in capital expenditures building the suite.
      We
      anticipate that in the fourth quarter of 2007, after equipment validation has
      been completed, the facility will be ready for its intended use and we will
      begin to depreciate this asset at that time. Significant estimates and judgments
      were made, and will continue to be made, relating to the appropriate in-service
      date of these assets and the related asset retirement
      obligation.


23





**ITEM
      3. QUANTITATIVE 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 note securities
      in
      accordance with our investment policy. Some of the securities in which we invest
      may have market risk. This means that a change in prevailing interest rates
      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, 2007, our
      portfolio of financial instruments consists of cash equivalents and short-term
      and long-term interest bearing securities, including corporate debt, money
      market funds, government debt and auction note securities. The average duration
      of all of our held-to-maturity investments held as of September 30, 2007, was
      less than 12 months. Additionally, the re-pricing of our auction notes within
      thirty days allows these securities to function as short-term investments.
      Due
      to the short-term nature of our investments, we believe we have no material
      exposure to interest rate risk arising from our investments.





**ITEM
      4. CONTROLS AND PROCEDURES**





**Evaluation
      of Disclosure Controls and Procedures**





As
      of
      September 30, 2007, management carried out, under the supervision and with
      the
      participation of our Chief Executive Officer and Chief 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 Chief Accounting
      Officer concluded that, as of September 30, 2007, 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, 2007, 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
      $1,104,000, 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 we filed a petition for certiorari
      to the Supreme Court of Israel. Our motion for certiorari was denied as well.
      The next preliminary hearing is scheduled for February 7, 2008. To date, 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 the
      charge, if any.


24


**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, 2007, we had an accumulated deficit
      of
      approximately $249.0 million. As we expand 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. In addition, one of our current trials for Sulonex is 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.


25


Additionally,
      we have finalized an SPA agreement with the FDA for the Phase 3 and Phase 4
      clinical trials of Sulonex. The clinical plan to support a new drug application,
      or NDA, approval for Sulonex under subpart H, as agreed upon with the FDA under
      an SPA, consists of: (i) a single Phase 3 trial in patients with
      microalbuminuria based on the surrogate marker of regression of microalbuminuria
      as the primary endpoint; (ii) supportive data from previously conducted clinical
      studies; and (iii) substantial recruitment into our Phase 4 confirmatory study
      that will measure clinical outcomes in patients with overt nephropathy, or
      macroalbuminuria. The subpart H process is complex and requires careful
      execution. No assurance can be given that we will be able to meet the
      requirements set forth in the SPA. Even if we meet those requirements, the
      FDA
      is not obligated to grant approval of our NDA for Sulonex. Many companies who
      have been granted an SPA and/or the right to utilize an accelerated approval
      approach have failed to obtain approval. Since we are seeking accelerated
      approval under an SPA, we may be subject to enhanced scrutiny. Additionally,
      even if the primary endpoint is achieved, an SPA does not guarantee approval.
      The FDA may raise issues of safety, study conduct, changes in scientific or
      medical evidence or sentiment or internal inconsistency in the data prior to
      making their final decision. The FDA may also seek the guidance of an advisory
      panel prior to making their final decision. In addition, the FDA will have
      access to, and will review, the safety database for our Phase 4 clinical trial
      prior to granting approval. Any concerns arising from that review could delay
      or
      prevent the approval of Sulonex. If the FDA approves Sulonex for marketing
      on
      the basis of our Phase 3 trial, our Phase 4 clinical trial may yield
      insufficient efficacy data or give rise to safety concerns, which could result
      in withdrawal of such approval or could cause us to withdraw the product from
      the market. Moreover, negative or inconclusive results from the clinical trials
      we hope to 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.


Additionally,
        we have never filed an 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,
        our NDA may be delayed or rejected. For example, with respect to Sulonex,
        during
        the development process, the FDA has raised certain non-clinical questions.
        To
        answer some of these questions requires a bioassay for which the analytical
        tools do not currently exist. The FDA has requested that we diligently pursue
        such an assay. We believe that we have diligently pursued, and will continue
        to
        diligently pursue, such an assay. If the FDA determines that we have not
        been
        diligent, or otherwise determines that our NDA fails to answer required
        questions, then our NDA could 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. 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. There can be no assurance that
      the
      results from the Sulonex Phase 3 study will track the data from the pilot
      Collaborative Study Group Phase 2 study or the DiNAS Phase 2 study, or that
      the
      results from the Sulonex Phase 4 study will yield sufficient efficacy data.
      Results from these earlier Sulonex studies may not be indicative of results
      from
      future clinical trials and the risk remains that the pivotal program for Sulonex
      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 Sulonex, or our other
      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 Sulonex or our
      other drugs candidates.





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. While we have engaged
      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.


26


***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.





***We
      rely on third parties to manufacture and 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 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 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.
      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, unannounced inspections by the FDA and
      corresponding foreign governmental agencies to ensure strict compliance with,
      among other things, current Good Manufacturing Practices, in addition to other
      governmental regulations and corresponding foreign standards. The same issues
      apply to contract analytical services which we use for release 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.
      Switching or engaging multiple third-party contractors to produce our products may
      be
      difficult because the number of potential manufacturers is limited, particularly
      in the case of Sulonex, 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
      third-party manufacturers fail to deliver the required quantities of our drug
      candidates on a timely basis and at commercially reasonable prices, we will
      not
      be able to commercialize our products as planned.***





We
      have
      entered into a relationship with a U.S.-based contract manufacturer for Sulonex
      which we believe will be adequate to satisfy our current clinical supply needs.
      In addition, we have entered into an agreement with the same manufacturer to
      build a larger scale manufacturing suite within their current facility, which
      they will operate on our behalf. We believe this suite will be suitable to
      manufacture launch and initial commercialization (approximately one to three
      years from launch) quantities of Sulonex. As we move forward, we plan to build
      additional manufacturing capacity to meet the future demands for Sulonex. As
      with all heparin-like compounds, the end product is sensitive to the
      manufacturing process utilized. Accordingly, as we scale-up we will need to
      accurately reproduce the established process on the larger scale to ensure
      successful commercialization of Sulonex. There can be no assurance that we
      will
      be successful in this endeavor. In
      addition, because we do not have a bioassay for Sulonex, we may have difficulty
      qualifying materials from multiple sources, including materials produced from
      our larger scale facility and/or from additional facilities, which could delay
      or impair our commercialization efforts. Additionally, as we
      scale-up, we have incurred, and will continue to incur, capital expenditures
      to
      enable larger scale production. Through September 30, 2007, we have spent
      approximately $11.0 million in capital expenditures building the current
      manufacturing suite. If we fail to obtain regulatory approval for Sulonex,
      we
      may incur significant losses disposing of the assets associated with our
      manufacturing suite.




27




***If
      we are not able to obtain the raw materials required for the manufacture of
      our
      lead product candidate, Sulonex, our ability to develop and market this product
      candidate will be substantially harmed.***





Key
      raw
      materials for Sulonex, our lead product candidate, are derived from porcine
      mucosa. Long-term supplies for Sulonex could be affected by limitations in
      the
      supply of porcine mucosa and the demand for other heparin products, over which
      we will have no control. We estimate, in part, based on the number of pigs
      killed worldwide and estimates of projected supplies of porcine
      mucosa, that there is enough potential supply of this raw
      material to commercialize Sulonex. If our estimates of the
      potential supply of this key raw material are not accurate or we cannot secure
      adequate amounts of the potential supply of such material, then the market
      potential of Sulonex will not be realized. Additionally,
      diseases affecting the world supply of pigs could have an actual or perceived
      negative impact on our ability, or the ability of our contract manufacturers,
      to
      source, make and/or sell Sulonex. Such negative impact could materially affect
      the commercial success of Sulonex.





***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
      are an
      emerging company and 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.





***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 Sulonex is approved by the FDA, we currently plan to conduct our own
      sales
      and marketing effort to support the drug, and we may adopt this strategy with
      respect to future drug products. We currently have no 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 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.





28




Notwithstanding
      our current plans to commercialize Sulonex and our other 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.





***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.
      In addition, 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.





29




***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
      October 30, 2007, we had 41 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.





***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. In
      particular, we are currently projecting that the price of Sulonex will be at
      a
      significant premium to the currently marketed products that are approved for
      the
      treatment of diabetic nephropathy. The inability to obtain adequate
      reimbursement for Sulonex would limit our ability to generate revenue and
      prevent us from realizing the market potential of Sulonex.





30




***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.





***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 the sale of Accumin, 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. 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.





31




***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
      41
      full and part-time employees. We also have significantly fewer employees than
      many other companies that have a product candidate in late-stage 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.





**Risks
      Related to Our Financial Condition**





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





We
      believe that our $82.7 million in cash, cash equivalents, interest receivable,
      investment securities and license receivable as of September 30, 2007 will
      be
      sufficient to enable us to meet our planned operating needs and capital
      expenditures through the date of the release of our Phase 3 Sulonex data,
      expected in the first quarter of 2008. Depending on the outcome of our Phase
      3
      study, our cash requirements will vary dramatically. In the event of a negative
      outcome, we believe our current capital resources will enable us to meet our
      revised operating needs and capital expenditures for at least 12 to 24 months
      from January 2008. Our forecast of the period of time through which our cash,
      cash equivalents, interest receivable, investment securities and license
      receivable 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, especially Sulonex;·
              
              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
      we are unable to obtain additional funds on terms favorable to us, or at all,
      our business would be harmed.***





We
      expect
      to use, rather than generate, funds from operations for the foreseeable future.
      Based on our current plans, we believe our existing cash, cash equivalents,
      interest receivable, investment securities and license receivable will be
      sufficient to fund our operating expenses and capital requirements through
      the
      date of the release of our Phase 3 Sulonex data, expected in the first quarter
      of 2008. Depending on the outcome of our Phase 3 study, our cash requirements
      will vary dramatically. In the event of a negative outcome, we believe our
      current capital resources will enable us to meet our revised operating needs
      and
      capital expenditures for at least 12 to 24 months from January 2008. However,
      the actual amount of funds that we will need prior to or after that date will
      be
      determined by many factors, some of which are beyond our control. As a result,
      we may need funds sooner or in different amounts than we currently anticipate,
      depending upon:


·
              
              the
                  timing of completion and results from clinical trials for our drug
                  candidates, especially Sulonex;·
              
              the
                  progress of our development activities;·
              
              the
                  progress of our research
                  activities;
  32
  ·
              
              the
                  number and scope of our development programs;·
              
              the
                  costs associated with commercialization activities, including
                  manufacturing, marketing and sales;·
              
              our
                  ability to establish and maintain current and new licensing or
                  acquisition
                  arrangements;·
              
              our
                  ability to achieve our milestones under our licensing
                  arrangements;·
              
              the
                  costs involved in enforcing patent claims and other intellectual
                  property
                  rights; and·
              
              the
                  costs and timing of regulatory
                  approvals.


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.





***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
      $1,104,000, 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. The next preliminary hearing is scheduled for
      February 7, 2008. To date, 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 the charge, if any.





In
      September 2001, one of our Israeli subsidiaries received the status of an
      "Approved Enterprise," a status which grants certain tax benefits in Israel
      in
      accordance with the "Law for the Encouragement of Capital Investments, 1959."
      Through December 31, 2003, our Israeli subsidiary, which ceased operations
      in
      2003, has received tax benefits in the form of exemptions of approximately
      $744,000 as a result of our subsidiary's status as an "Approved Enterprise."
      As
      part of the restructuring implemented during 2003, we closed down our Jerusalem
      laboratory facility. In October 2003, the subsidiary received a letter from
      the
      Israeli Ministry of Industry and Trade that its Approved Enterprise status
      was
      cancelled as of July 2003 and that past benefits would not need to be repaid.
      The Israeli tax authorities have yet to confirm this position; however, we
      believe that, based on the letter received from the Ministry of Industry and
      Trade, it is unlikely that past benefits will need to be repaid, and therefore,
      we have not recorded any charge with respect to this potential liability. There
      can be no assurances that the Israeli tax authorities will confirm this
      position. In 2007, the Israeli tax authorities commenced an examination of
      the
      Israeli tax returns of one of the Company’s subsidiaries in Israel for the tax
      years 2003 through 2006.





33




**Risks
      Related to Our Intellectual Property**





***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 of intellectual property infringement could require us
      to
      spend substantial time and money defending such claims and adversely affect
      our
      ability to develop and commercialize our products.***





Third
      parties may assert that we are using their proprietary intellectual property
      without authorization. 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 patent suits brought by third
      parties, or if we sue third parties to protect our patent 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. On December 30, 2005, we filed with the SEC
      a
      shelf registration statement on Form S-3, that was declared effective by the
      SEC
      on January 13, 2006, providing for the offering of up to $150 million of our
      common stock. Following our registered direct offering of common stock to two
      institutional investors that was completed in March 2006, there remains
      approximately $67 million available for sale on this shelf registration
      statement. Future sales pursuant to this registration statement could depress
      the market for our common stock.





If
      we
      make one or more significant acquisitions in which the consideration includes
      stock or other securities, our stockholders may be significantly diluted. 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. 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.





34




***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 rights senior to those
      of the common stock. 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.





35


**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.10.1*
            Sub-license
                Agreement by and among Keryx Biopharmaceuticals, Inc., Japan Tobacco
                Inc.,
                and Torii Pharmaceutical Co., Ltd. dated September 26,
                2007.31.1
            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 9, 2007.31.2
            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 9, 2007.32.1
            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
                9,
                2007.32.2
            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
                9,
                2007.




*
      Confidential treatment has been requested with respect to the omitted portions
      of this exhibit.


36


**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
                9, 2007
            By:
            /s/
                Mark StierChief
                Accounting OfficerPrincipal
                Financial Officer




37





**EXHIBIT
      INDEX**





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




10.1*
            Sub-license
                Agreement by and among Keryx Biopharmaceuticals, Inc., Japan Tobacco
                Inc.,
                and Torii Pharmaceutical Co., Ltd. dated September 26,
                2007.31.1
            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 9,2007.31.2
            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 9,2007.32.1
            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
                9,2007.32.2
            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 9,2007.




*
      Confidential treatment has been requested with respect to the omitted portions
      of this exhibit.




38