**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 March 31, 2008****OR****o 
TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE****SECURITIES
                EXCHANGE ACT OF 1934****For
                the transition period from********to********.**


**Commission
      File Number 000-30929**


**___________________**


**KERYX
      BIOPHARMACEUTICALS, INC.**


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





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


**750
      Lexington Avenue**


**New
      York, New York 10022**


(Address
      including zip code of principal executive offices)





**(212)
      531-5965**


(Registrant's
      telephone number, including area code)





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


Yes x No £





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





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




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


Yes £ No x





There
      were 43,696,153 shares of the registrant’s common stock, $0.001 par value,
      outstanding as of May 5, 2008.








**KERYX
      BIOPHARMACEUTICALS, INC.**


**FORM
      10-Q**


**FOR
      THE QUARTER ENDED MARCH 31, 2008**





**TABLE
      OF CONTENTS**





**Page**SPECIAL
                CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
            1**PART
                I**
            
            **FINANCIAL
                INFORMATION**
            2Item
                1
            
            Financial
                Statements
            2Consolidated
                Balance Sheets as of March 31, 2008 (unaudited) andDecember
                31, 2007
            2Consolidated
                Statements of Operations for the three monthsended
                March 31, 2008 and 2007 (unaudited)
            3Consolidated
                Statement of Changes in Stockholders’ Equityfor
                the three months ended March 31, 2008 (unaudited)
            4Consolidated
                Statements of Cash Flows for the three monthsended
                March 31, 2008 and 2007 (unaudited)
            5Notes
                to Consolidated Financial Statements (unaudited)
            7Item
                2
            
            Management's
                Discussion and Analysis of Financial Condition andResults
                of Operations
            17Item
                3
            
            Quantitative
                and Qualitative Disclosures About Market Risk
            26Item
                4
            
            Controls
                and Procedures
            27**PART
                II**
            
            **OTHER
                INFORMATION**
            27Item
                1
            
            Legal
                Proceedings
            27Item
                1A
            
            Risk
                Factors
            28Item
                5
            
            Other
              Information
            38Item
                6
            
            Exhibits
            38










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





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




·
            expectations
                for increases or decreases in expenses;




·
            expectations
                for the development, manufacturing, regulatory approval, and
                commercialization of ZerenexTM(ferric citrate), KRX-0401 (perifosine), and our additional product
                candidates or any other products we may acquire or in-license;




·
            expectations
                for incurring capital expenditures to expand our research and development
                and manufacturing capabilities;




·
            expectations
                for generating revenue or becoming profitable on a sustained basis;




·
            expectations
                or ability to enter into marketing and other partnership agreements;




·
            expectations
                or ability to enter into product acquisition and in-licensing
                transactions;




·
            expectations
                or ability to build our own commercial infrastructure to manufacture,
                market and sell our drug
                candidates;




·
            estimates
                of the sufficiency of our existing cash and cash equivalents and
                investments to finance our business strategy;




·
            expected
                losses;




·
            our
                ability to continue to satisfy the listing requirements of the NASDAQ
                Stock Market; and




·
            expectations
                for future capital requirements.





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





We
      qualify all of our forward-looking statements by these cautionary statements.
      In
      addition, with respect to all of our forward-looking statements, we claim the
      protection of the safe harbor for forward-looking statements contained in the
      Private Securities Litigation Reform Act of 1995.


1


**PART
      I. FINANCIAL INFORMATION**





**ITEM
      1. FINANCIAL STATEMENTS**





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


Consolidated
      Balance Sheets as of March 31, 2008 and December 31, 2007





(in
      thousands, except share and per share amounts)





**March
                31, 2008**
            
            **December
                31, 2007****(Unaudited)****Assets**Current
                assetsCash
                and cash equivalents
            
            $
            5,774
            
            $
            19,065Short-term
                investment securities
            
            
            20,838
            
            
            43,038Interest
                receivable
            
            
            463
            
            
            283License
                receivable
            
            
            8,000
            
            
            —Assets
                held for sale
            
            
            300
            
            
            —Other
                current assets
            
            
            1,316
            
            
            1,330Total
                current assets
            
            
            36,691
            
            
            63,716Long-term
                investment securities
            
            
            12,485
            
            
            2,296Property,
                plant and equipment, net
            
            
            288
            
            
            11,497Goodwill
            
            
            3,208
            
            
            3,208Other
                assets, net
            
            
            103
            
            
            344Total
                assets
            
            $
            52,775
            
            $
            81,061**Liabilities
                and stockholders’ equity**Current
                liabilitiesAccounts
                payable and accrued expenses
            
            $
            16,787
            
            $
            19,134Accrued
                compensation and related liabilities
            
            
            1,114
            
            
            1,254Current
                portion of deferred revenue
            
            
            1,557
            
            
            1,023Total
                current liabilities
            
            
            19,458
            
            
            21,411Deferred
                revenue, net of current portion
            
            
            18,289
            
            
            11,022Contingent
                equity rights
            
            
            4,004
            
            
            4,004Other
                liabilities
            
            
            179
            
            
            202Total
                liabilities
            
            
            41,930
            
            
            36,639Commitments
                and contingencies (Note 6)Stockholders’
                equityPreferred
                stock, $0.001 par value per share (5,000,000 shares authorized,no
                shares issued and outstanding)
            
            
            —
            
            
            —Common
                stock, $0.001 par value per share (95,000,000 shares
                authorized,43,776,101 and 43,751,101 shares issued, 43,696,153 and
                43,671,153shares outstanding at March 31, 2008 and December 31, 2007,
                respectively)
            
            
            44
            
            
            44Additional
                paid-in capital
            
            
            323,968
            
            
            323,009Treasury
                stock, at cost, 79,948 shares at March 31, 2008 and December 31,
                2007,respectively
            
            
            (357
            )
            
            (357
            )Deficit
                accumulated during the development stage
            
            
            (312,810
            )
            
            (278,274
            )Total
                stockholders’ equity
            
            
            10,845
            
            
            44,422Total
                liabilities and stockholders’ equity
            
            $
            52,775
            
            $
            81,061





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


2


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


Consolidated
      Statements of Operations


for
      the
      Three Months Ended March 31, 2008 and 2007 (Unaudited)





(in
      thousands, except share and per share amounts)





**Three
                  months ended**
                **March
                  31,**
              
              **Amountsaccumulatedduring
                  thedevelopment****2008**
              
              **2007**
              
              **stage**Revenue:License
                  revenue
              
              $
              199
              
              $
              —
              
              $
              403Diagnostic
                  revenue
              
              
              —
              
              
              30
              
              
              169Service
                  revenue
              
              
              —
              
              
              12
              
              
              1,866Other
                  revenue
              
              
              —
              
              
              —
              
              
              1,027Total
                  revenue
              
              
              199
              
              
              42
              
              
              3,465Operating
                  expenses:Cost
                  of diagnostics sold
              
              
              —
              
              
              22
              
              
              178Cost
                  of services
              
              
              —
              
              
              32
              
              
              2,168Research
                  and development:Non-cash
                  compensation
              
              
              (980
              )
              
              995
              
              
              16,832Non-cash
                  acquired in-process research and development
              
              
              —
              
              
              —
              
              
              18,800Other
                  research and development
              
              
              30,828
              
              
              17,446
              
              
              225,750Total
                  research and development
              
              
              29,848
              
              
              18,441
              
              
              261,382Selling,
                  general and administrative:Non-cash
                  compensation
              
              
              1,717
              
              
              2,006
              
              
              22,652Other
                  selling, general and administrative
              
              
              1,967
              
              
              2,795
              
              
              46,082Total
                  selling, general and administrative
              
              
              3,684
              
              
              4,801
              
              
              68,734Total
                  operating expenses
              
              
              33,532
              
              
              23,296
              
              
              332,462Operating
                  loss
              
              
              (33,333
              )
              
              (23,254
              )
              
              (328,997
              )Interest
                  and other (expense) income, net
              
              
              (1,203
              )
              
              1,441
              
              
              16,714Net
                  loss before income taxes
              
              
              (34,536
              )
              
              (21,813
              )
              
              (312,283
              )Income
                  taxes
              
              
              —
              
              
              —
              
              
              527Net
                  loss
              
              $
              (34,536
              )
              $
              (21,813
              )
              $
              (312,810
              )Basic
                  and diluted loss per common share
              
              $
              (0.79
              )
              $
              (0.50
              )
              $
              (13.59
              )Weighted
                  average shares used in computing basic and dilutednetloss
                  per common share
              
              
              43,718,077
              
              
              43,506,236
              
              
              23,012,552





*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
      Three Months Ended March 31, 2008 (Unaudited)





(in
      thousands, except share amounts)




**Common
                    stock**
                
                **Additionalpaid-in****Shares**
                
                **Amount**
                
                **capital**Balance
                    at December 31, 2007
                
                
                43,751,101
                
                $
                44
                
                $
                323,009Changes
                    during the period:Forfeiture
                    of restricted stock
                
                
                (50,000
                )
                
                (—
                )*
                
                —Exercise
                    of options
                
                
                75,000
                
                
                —
                *
                
                222Compensation
                    in respect of options and restricted stock granted to employees,
                    directors
                    and third-parties
                
                
                —
                
                
                —
                
                
                737Net
                    loss
                
                
                —
                
                
                —
                
                
                —Balance
                    at March 31, 2008
                
                
                43,776,101
                
                $
                44
                
                $
                323,968




**Treasury
                  stock**
              
              **Deficitaccumulatedduring
                  thedevelopment****Shares**
              
              **Amount**
              
              **Stage**
              
              **Total**Balance
                  at December 31, 2007
              
              
              79,948
              
              $
              (357
              )
              $
              (278,274
              )
              $
              44,422Changes
                  during the period:Forfeiture
                  of restricted stock
              
              
              —
              
              
              —
              
              
              —
              
              
              (—
              )*Exercise
                  of options
              
              
              —
              
              
              —
              
              
              —
              
              
              222Compensation
                  in respect of options and restricted stock granted to employees,
                  directors
                  and third-parties
              
              
              —
              
              
              —
              
              
              —
              
              
              737Net
                  loss
              
              
              —
              
              
              —
              
              
              (34,536
              )
              
              (34,536
              )Balance
                  at March 31, 2008
              
              
              79,948
              
              $
              (357
              )
              $
              (312,810
              )
              $
              10,845





*
      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
      Three Months Ended March 31, 2008 and 2007 (Unaudited)





(in
      thousands)





**Three
                  months ended**
                **March
                  31,**
              
              **Amounts**
                **accumulated**
                **during
                  the**
                **development**
                **stage****2008**
              
              **2007**CASH
                  FLOWS FROM OPERATING ACTIVITIESNet
                  loss
              
              $
              (34,536
              )
              $
              (21,813
              )
              $
              (312,810
              )Adjustments
                  to reconcile net loss to cash flows used in operating activities:Acquired
                  in-process research and development
              
              
              —
              
              
              —
              
              
              18,800Stock
                  compensation expense
              
              
              737
              
              
              3,001
              
              
              39,484Issuance
                  of common stock to technology licensor
              
              
              —
              
              
              —
              
              
              359Interest
                  on convertible notes settled through issuance of preferred
                  shares
              
              
              —
              
              
              —
              
              
              253Depreciation
                  and amortization
              
              
              35
              
              
              49
              
              
              3,021Loss
                  on disposal of property, plant and equipment
              
              
              —
              
              
              —
              
              
              171Impairment
                  of investment securities
              
              
              1,811
              
              
              —
              
              
              1,811Other
                  impairment charges
              
              
              11,037
              
              
              600
              
              
              14,119Exchange
                  rate differences
              
              
              —
              
              
              —
              
              
              94Changes
                  in assets and liabilities, net of effects of acquisitions:Decrease
                  (increase) in other current assets
              
              
              14
              
              
              1,219
              
              
              (844
              )Increase
                  in accrued interest receivable
              
              
              (180
              )
              
              (134
              )
              
              (463
              )Increase
                  in license receivable
              
              
              (8,000
              )
              
              —
              
              
              (8,000
              )Decrease
                  (increase) in security deposits
              
              
              241
              
              
              —
              
              
              (22
              )(Decrease)
                  increase in accounts payable and accrued expenses
              
              
              (2,347
              )
              
              2,991
              
              
              15,042(Decrease)
                  increase in accrued compensation and related liabilities
              
              
              (140
              )
              
              (1,214
              )
              
              519(Decrease)
                  increase in other liabilities
              
              
              (23
              )
              
              (23
              )
              
              24Increase
                  (decrease) in deferred revenue
              
              
              7,801
              
              
              (3
              )
              
              19,390Net
                  cash used in operating activities
              
              
              (23,550
              )
              
              (15,327
              )
              
              (209,052
              )CASH
                  FLOWS FROM INVESTING ACTIVITIESPurchases
                  of property, plant and equipment
              
              
              (163
              )
              
              (2,511
              )
              
              (16,310
              )Proceeds
                  from disposals of property, plant and equipment
              
              
              —
              
              
              —
              
              
              440Increase
                  in note and accrued interest receivable from related party
              
              
              —
              
              
              —
              
              
              (356
              )Payments
                  of transaction costs
              
              
              —
              
              
              —
              
              
              (231
              )Increase
                  in other assets
              
              
              —
              
              
              —
              
              
              (1,192
              )Investment
                  in held-to-maturity short-term securities
              
              
              (21
              )
              
              (22
              )
              
              (55,070
              )Proceeds
                  from maturity of held-to-maturity short-term securities
              
              
              22
              
              
              4,500
              
              
              76,063Investment
                  in available-for-sale short-term securities
              
              
              (12,000
              )
              
              (500
              )
              
              (126,800
              )Proceeds
                  from sale of available-for-sale short-term securities
              
              
              22,200
              
              
              2,500
              
              
              114,800Investment
                  in held-to-maturity long-term securities
              
              
              (1
              )
              
              (2,019
              )
              
              (44,320
              )Proceeds
                  from maturity of held-to-maturity long-term securities
              
              
              —
              
              
              1
              
              
              193Net
                  cash provided by (used in) investing activities
              
              
              10,037
              
              
              1,949
              
              
              (52,783
              )








*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
      Three Months Ended March 31, 2008 and 2007 (Unaudited)


(continued)





(in
      thousands)





**Three
                months ended**
              **March
                31,**
            
            **Amounts**
              **accumulated**
              **during
                the**
              **development**
              **stage****2008**
            
            **2007**CASH
                FLOWS FROM FINANCING ACTIVITIESProceeds
                from short-term loans
            
            $
            —
            
            $
            —
            
            $
            500Proceeds
                from long-term loans
            
            
            —
            
            
            —
            
            
            3,251Payment
                of assumed notes payable and accrued interest in connection with
                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
            
            
            —
            
            
            —
            
            
            158,487Proceeds
                from private placements, net
            
            
            —
            
            
            —
            
            
            45,795Proceeds
                from exercise of options and warrants
            
            
            222
            
            
            183
            
            
            9,342Purchase
                of treasury stock
            
            
            —
            
            
            (70
            )
            
            (357
            )Net
                cash provided by financing activities
            
            
            222
            
            
            113
            
            
            267,604Cash
                acquired in acquisition
            
            
            —
            
            
            —
            
            
            99Effect
                of exchange rate on cash
            
            
            —
            
            
            —
            
            
            (94
            )NET
                (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
            
            
            (13,291
            )
            
            (13,265
            )
            
            5,774Cash
                and cash equivalents at beginning of period
            
            
            19,065
            
            
            48,736
            
            
            —CASH
                AND CASH EQUIVALENTS AT END OF PERIOD
            
            $
            5,774
            
            $
            35,471
            
            $
            5,774NON
                - CASH TRANSACTIONSIssuance
                of common stock in connection with acquisition
            
            $
            —
            
            $
            —
            
            $
            9,635Contingent
                equity rights in connection with acquisition
            
            
            —
            
            
            —
            
            
            4,004Assumption
                of liabilities in connection with acquisition
            
            
            —
            
            
            —
            
            
            9,068Conversion
                of short-term loans into contributed capital
            
            
            —
            
            
            —
            
            
            500Conversion
                of long-term loans into contributed capital
            
            
            —
            
            
            —
            
            
            2,681Conversion
                of long-term loans into convertible notes of Partec
            
            
            —
            
            
            —
            
            
            570Conversion
                of convertible notes of Partec and accrued interest into stock in
                Keryx
            
            
            —
            
            
            —
            
            
            2,973Issuance
                of warrants to related party as finder’s fee in private
                placement
            
            
            —
            
            
            —
            
            
            114Declaration
                of stock dividend
            
            
            —
            
            
            —
            
            
            3SUPPLEMENTARY
                DISCLOSURES OF CASH FLOW INFORMATIONCash
                paid for interest
            
            $
            —
            
            $
            —
            
            $
            1,166Cash
                paid for income taxes
            
            $
            —
            
            $
            —
            
            $
            468





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


6


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


Notes
      to
      Consolidated Financial Statements (unaudited)





**NOTE
      1 - GENERAL**





***Basis
      of Presentation***





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





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





The
      Company owns a 100% interest in each of ACCESS Oncology, Inc., Neryx
      Biopharmaceuticals, Inc., and Accumin Diagnostics, Inc., all U.S. corporations
      incorporated in the State of Delaware, and Keryx (Israel) Ltd. and Keryx
      Biomedical Technologies Ltd., each organized in Israel. In 2003, the Company’s subsidiaries
      in Israel ceased operations and are currently in the process of being closed
      down. Most
      of
      the Company's biopharmaceutical development and substantially all of its
      administrative operations during the three months ended March 31, 2008 and
      2007,
      were conducted in the United States of America.





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





On
      April
      6, 2006, Accumin Diagnostics, Inc., a wholly-owned subsidiary of the Company,
      completed the acquisition of Accumin TM ,
      a
      novel, patent protected, diagnostic for the direct measurement of total,
      intact urinary albumin, from AusAm Biotechnologies, Inc. The transaction was
      accounted for under the purchase method of accounting. The assets and
      liabilities of Accumin that the Company acquired and assumed pursuant to the
      acquisition have been included in the Company’s consolidated financial
      statements as of April 6, 2006.





The
      accompanying unaudited consolidated financial statements were prepared in
      accordance with U.S. generally accepted accounting principles (“GAAP”) for
      interim financial information and with the instructions to Form 10-Q and
      Article 10 of Regulation S-X. Accordingly, they do not include all of
      the information and footnotes required by GAAP for complete financial
      statements. All adjustments that are, in the opinion of management, of a normal
      recurring nature and are necessary for a fair presentation of the consolidated
      financial statements have been included. Nevertheless, these financial
      statements should be read in conjunction with the Company's audited consolidated
      financial statements contained in its Annual Report on Form 10-K for the year
      ended December 31, 2007. The results of operations for the three months ended
      March 31, 2008 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 incurred operating losses since its inception and expects to
      continue to incur operating losses for the foreseeable future and may never
      become profitable. The Company has not generated any revenues from its planned
      principal operations and is dependent upon significant financing to provide
      the
      working capital necessary to execute its business plan. The Company has not
      yet
      commercialized any of its drug candidates and cannot be sure if it will ever
      be
      able to do so. Even if the Company commercializes one or more of its drug
      candidates, the Company may not become profitable. The Company’s ability to
      achieve profitability depends on a number of factors, including its ability
      to
      complete its development efforts, obtain regulatory approval for its drug
      candidates, successfully complete any post-approval regulatory obligations
      and
      successfully commercialize its drug candidates. The Company may continue to
      incur substantial operating losses even if it begins to generate revenues from
      its drug candidates, if approved. If the Company determines that it is necessary
      to seek additional funding, there can be no assurance that the Company will
      be
      able to obtain any such funding on terms that are acceptable to it, if at
      all.





***Cash
      and Cash Equivalents***





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





***Investment
      Securities***





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





The
      following tables summarize the Company’s investment securities at March 31, 2008
      and December 31, 2007:





(in
                thousands)
            
            **March 31, 2008**
            
            **December 31, 2007**Short-term
                investment securities:Obligations
                of domestic governmental agencies(mature between April and October
                2008)(held-to-maturity)
            
            $
            20,838
            
            $
            20,838Auction
                rate securities (mature between 2031and 2047)
                (available-for-sale)
            
            
            —
            
            
            22,200Total
                short-term investment securities
            
            $
            20,838
            
            $
            43,038Long-term
                investment securities:Obligations
                of domestic governmental agencies(mature May 2009)
                (Held-to-maturity)
            
            $
            2,296
            
            $
            2,296Auction
                rate securities (mature between 2031and 2047)
                (available-for-sale)
            
            
            10,189
            
            
            —Total
                long-term investment securities
            
            $
            12,485
            
            $
            2,296





***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 that are deferred will be recognized when earned under the agreements.





8


The
      Company recognizes diagnostic revenue 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.





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





***Stock-Based
      Compensation***




The
      Company adopted 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, and to non-employee directors as compensation for service on
      the
      Board of Directors, to be recognized as compensation expense in the consolidated
      financial statements based on the fair values of such payments. Stock-based
      compensation expense recognized each period is based on the value of the portion
      of share-based payment awards that is ultimately expected to vest during the
      period. SFAS No. 123R requires forfeitures to be estimated at the time of grant
      and revised, if necessary, in subsequent periods if actual forfeitures differ
      from those estimates.





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





***Net
      Loss per Share***





Basic
      net
      loss per share is computed by dividing the losses allocable to common
      stockholders by the weighted average number of shares of common stock
      outstanding for the period. Diluted net loss per share does not reflect the
      effect of shares of common stock to be issued upon the exercise of stock options
      and warrants, as their inclusion would be anti-dilutive. The options and
      warrants outstanding as of March 31, 2008 and 2007, which are not included
      in
      the computation of net loss per share amounts, were 10,687,140 and 11,098,843,
      respectively.





***Accounting
      for Manufacturing Suite***





As
      of
      March 31, 2008, the Company has spent approximately $11.3 million in capital
      expenditures building its manufacturing suite for Sulonex. With the cessation
      of
      the Company’s development of Sulonex, the Company took an impairment charge of
      $11.0 million, which is included in other research and development expenses
      in
      the three months ended March 31, 2008, to write the assets down to their
      estimated fair value of $300,000, which are being classified as assets held
      for
      sale. In addition, the Company recognized a $2.1 million provision, which is
      included in other research and development expenses in the three months ended
      March 31, 2008, for estimated costs relating to the required restoration of
      the
      facility to its original condition.





***Impairment
      of Goodwill***





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





9


**NOTE
      2 – FAIR VALUE MEASUREMENTS**





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





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





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





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





As
      of
      March 31, 2008, $10.2 million of the Company’s long-term investment securities
      were invested in auction rate securities, which represent interests in student
      loan-backed securities. Auction rate securities are structured to provide
      liquidity through a Dutch auction process that resets the applicable interest
      rate at pre-determined calendar intervals, generally every 28 days. This
      mechanism has historically allowed existing investors either to rollover their
      holdings, whereby they would continue to own their respective securities, or
      liquidate their holdings by selling such securities at par. This auction process
      has historically provided a liquid market for these securities; however, the
      uncertainties in the credit markets have affected all of the Company’s holdings
      in auction rate securities. Since February 2008, the auctions for the auction
      rate securities held by the Company have not had sufficient buyers to cover
      investors’ sell orders, resulting in unsuccessful auctions. When an auction is
      unsuccessful, the interest rate is re-set to a level pre-determined by the
      loan
      documents and remains in effect until the next auction date, at which time
      the
      process repeats. While these investments are currently rated AA or higher,
      the
      Company is uncertain as to when the liquidity issues relating to these
      investments will improve. Given the complexity of auction rate securities and
      the lack of readily observable market quotes related to these investments,
      the
      Company obtained the assistance of an independent valuation firm, Pluris
      Valuation Advisors LLC, to assist management in assessing the fair value of
      its
      auction rate securities portfolio. As a result of this valuation process, the
      Company recorded an impairment charge of $1.8 million for an
      other-than-temporary decline in the value of its auction rate securities to
      estimated fair value of $10.2 million at March 31, 2008. This
      other-than-temporary impairment charge was included in interest and other income
      (expense), net. In addition, the Company reclassified the entire auction rate
      securities portfolio from short-term to long-term investments due to the
      uncertainty of when the Company can sell these securities.





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





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





The
      Company reviews impairments in accordance with the guidance in EITF Issue 03-1
      and FSP SFAS 115-1 and 124-1, “The Meaning of Other-Than-Temporary Impairment
      and Its Application to Certain Investments,” to determine the classification of
      the impairment as temporary or other-than-temporary. Losses are recognized
      in
      the Company’s statement of operations when a decline in fair value is determined
      to be other-than-temporary. The Company reviews its investments on an ongoing
      basis for indications of possible impairment. Once identified, the determination
      of whether the impairment is temporary or other-than-temporary requires
      significant judgment. The Company believes that the impairment charge related
      to
      its auction rate securities investments are other-than-temporary. The primary
      factors the Company considers in classifying an impairment include the extent
      and time the fair value of each investment has been below cost and the Company’s
      ability to hold such investment to maturity.





10


The
      following table provides the fair value measurements of applicable Company
      financial assets according to the fair value levels defined by SFAS No. 157
      as
      of March 31, 2008:





**Financial
                assets at fair value**
              **as
                of March 31, 2008**(in
                thousands)
            
            **Level
                1**
            
            **Level
                2**
            
            **Level
                3**Money
                market funds (1)
            
            $
            2,542
            
            $
            —
            
            $
            —Auction
                rate securities (2)
            
            
            —
            
            
            —
            
            
            10,189Total
            
            $
            2,542
            
            $
            —
            
            $
            10,189


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


(2)
            Included
                in long-term investment securities on the Company’s consolidated balance
                sheet.





The
      following table summarizes the change in carrying value associated with Level
      3
      financial assets for the three months ended March 31, 2008:





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


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




**NOTE
      3 – STOCKHOLDERS' EQUITY**




***Common
      Stock***





The
      Company filed a shelf registration statement on Form S-3 (File No. 333-130809)
      with the Securities and Exchange Commission, or SEC, on December 30, 2005,
      that
      was 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. At March 31,
      2008, $67 million remain available for future sale under this shelf registration
      statement. 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.





***Equity
      Incentive Plans***





The
      following table summarizes stock option activity for the three months ended
      March 31, 2008:





**Number**
              **of
                shares**
            
            **Weighted-**
              **average**
              **exercise
                price**
            
            **Weighted-**
              **average**
              **Contractual****Term**
            
            **AggregateIntrinsic****Value****(in
                years)**Outstanding at December 31, 2007
            
            
            10,869,173
            
            $
            7.69Granted
            
            
            183,800
            
            
            5.52Exercised
            
            
            (75,000
            )
            
            2.96
            
            
            
            
            $
            259,900Forfeited
            
            
            (611,013
            )
            
            9.80Expired
            
            
            (1,796
            )
            
            13.56Outstanding
                at March 31, 2008
            
            
            10,365,164
            
            $
            7.56
            
            
            6.5
            
            $
            152,800Vested
                and expected to vest at March 31, 2008
            
            
            10,277,328
            
            $
            7.52
            
            
            6.5
            
            $
            152,800Exercisable
                at March 31, 2008
            
            
            7,581,095
            
            $
            6.07
            
            
            5.7
            
            $
            152,800





11


Upon
      the
      exercise of stock options, the Company issues new shares. As of March 31, 2008,
      3,453,833 options issued to employees and directors, and 93,000 options issued
      to consultants, are milestone-based, of which 3,218,833 options issued to
      employees and directors, and 43,000 options issued to consultants, are vested
      and exercisable.





Certain
      employees and consultants have been awarded restricted stock under the 2004
      Long-Term Incentive Plan and 2007 Incentive Plan. The restricted stock vests
      primarily over a period of two to four years. The following table summarizes
      restricted share activity for the three months ended March 31,
      2008:





**Number
                of****Shares**
            
            **WeightedAverageGrant
                Date****Fair
                Value**
            
            **AggregateIntrinsic****Value**Outstanding at December 31, 2007
            
            
            138,334
            
            $
            10.09Granted
            
            
            —
            
            
            —Vested
            
            
            (50,000
            )
            
            10.17
            
            $
            24,500Forfeited
            
            
            (50,000
            )
            
            10.17Outstanding
                at March 31, 2008
            
            
            38,334
            
            $
            9.88
            
            $
            23,000





Shares
      available for the issuance of stock options or other stock-based awards under
      our stock option and incentive plans were 5,486,629 at March 31,
      2008.





***Warrants***





**Warrants**
            
            **Weighted-**
              **average**
              **exercise
                price**
            
            **AggregateIntrinsic****Value**Outstanding at December 31, 2007
            
            
            321,976
            
            $
            4.65Issued
            
            
            —
            
            
            —Exercised
            
            
            —
            
            
            —Canceled
            
            
            —
            
            
            —Outstanding
                at March 31, 2008
            
            
            321,976
            
            $
            4.65
            
            $
            43,052





***Stock-Based
      Compensation***





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





**Black-Scholes Option Valuation Assumptions**
            
            **Three months ended March 31,****2008**
            
            **2007**Risk-free
                interest rates
            
            
            2.5
            %
            
            4.5
            %Dividend
                yield
            
            
            —
            
            
            —Volatility
            
            
            65.0
            %
            
            72.2
            %Weighted-average
                expected term
            
            
            5.0
                years
            
            
            5.0
                years




12




The
      weighted average grant date fair value of options granted was $3.10 and $6.92
      per option for the three months ended March 31, 2008, and 2007, respectively.
      The Company used historical information and the Company’s assessment of future
      forfeitures to estimate forfeitures within the valuation model. As of March
      31,
      2008, there was $13.2 million and $0.3 million of total unrecognized
      compensation cost related to non-vested stock options and restricted stock,
      respectively, which is expected to be recognized over a weighted-average period
      of 2.3 years and 2.7 years, respectively. The amounts do not include, as of
      March 31, 2008, 285,000 options outstanding, which are milestone-based and
      vest
      upon certain corporate milestones, such as FDA approval of our drug candidates
      and market capitalization targets. Stock-based compensation will be measured
      and
      recorded if and when a milestone occurs.





**NOTE
      4 – RESTRUCTURING**





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





As
      part
      of the 2008 Restructuring, on March 26, 2008, the Company notified its
      President, I. Craig Henderson, M.D., that the Company was terminating his
      employment, effective April 15, 2008. Dr. Henderson will remain in his position
      as a member of the Company’s Board of Directors until the next annual meeting.
      The Company recognized a $1,569,000 credit to expense, in the three months
      ended
      March 31, 2008, related to the forfeiture of stock options and restricted stock
      issued to Dr. Henderson. In addition, the Company reached a mutual agreement
      with its Chief Accounting Officer, Mark Stier, that Mr. Stier will resign
      effective June 30, 2008. His responsibilities have been assumed by James F.
      Oliviero, Vice President, Finance, who was appointed Principal Financial and
      Accounting Officer on May 6, 2008.





The
      following table summarizes restructuring costs that were provided for and/or
      incurred by the Company during the three months ended March 31, 2008:





**Three months ended**(in thousands)
            
            **March 31, 2008**Research
                    and development Impairment of manufacturing
                    facility
            
            $
            11,037Manufacturing
                facility restoration provision
            
            
            2,063Severance
            
            
            624Non-cash
                compensation
            
            
            (1,569
            )Total
                research and development
            
            
            12,155Selling,
                  general and administrative Severance
            
            
            99Total
                selling, general and administrative
            
            
            99Total
                restructuring costs
            
            $
            12,254





(in thousands)Restructuring liabilities at December 31, 2007
            
            $
            —Provision
                for manufacturing facility restoration costs
            
            
            2,063Accrued
                severance costs
            
            
            723Restructuring
                liabilities at March 31, 2008
            
            $
            2,786





The
      Company expects to pay out the restructuring liabilities accrued for at March
      31, 2008 over the next six months.





13




**NOTE
      5 - LICENSE AGREEMENT**





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





An
      upfront payment of $12.0 million, which was received in October 2007, is being
      recognized as license revenue on a straight-line basis over the life of the
      agreement, which is through the expiration of the last-to-expire patent covered
      by the agreement in 2023, and represents the estimated period over which the
      Company will have certain ongoing responsibilities under the sublicense
      agreement. The Company recorded license revenue of approximately $193,500 in
      the
      three months ended March 31, 2008, and, at March 31, 2008, has deferred revenue
      of approximately $11.6 million (approximately $774,000 of which has been
      classified as a current liability), associated with this $12.0 million payment.





An
      additional milestone payment of $8.0 million, for the achievement of certain
      milestones reached in March 2008, was received in April 2008, and is being
      recognized as license revenue on a straight-line basis over the life of the
      agreement (as discussed above). The Company recorded license revenue of
      approximately $5,800 for the three months ended March 31, 2008, and, at March
      31, 2008, has license receivable of $8.0 million and deferred revenue of
      approximately $8.0 million (approximately $533,000 of which has been classified
      as a current liability) associated with this $8.0 million payment. The Company
      may receive up to an additional $80.0 million in payments upon the achievement
      of pre-specified milestones. In addition, upon commercialization, JT and Torii
      will make royalty payments to the Company on net sales of ferric citrate in
      Japan.





**NOTE** **6 –
      COMMITMENTS AND** **CONTINGENCIES**




***Obligations
      and Commitments***





As
      of
      March 31, 2008, the Company has known contractual obligations, commitments
      and
      contingencies of $3,662,000. Of this amount, $2,079,000 relates to research
      and
      development agreements (primarily relating to the Company’s Phase 2 KRX-0401
      clinical program), all of which is due within the next year. The additional
      $1,583,000 relates to the Company’s operating lease obligations, of which
      $676,000 is due within the next year, with the remaining balance due as per
      the
      schedule below.





**Payment
                  due by period****Contractual
                  obligations**
              
              **Total**
              
              **Less
                  than**
                **1
                  year**
              
              **1-3**
                **years**
              
              **3-5**
                **years**
              
              **More
                  than**
                **5
                  years**Research
                  and development agreements
              
              $
              2,079,000
              
              $
              2,079,000
              
              $
              —
              
              $
              —
              
              $
              —Operating
                  leases
              
              
              1,583,000
              
              
              676,000
              
              
              907,000
              
              
              —
              
              
              —Total
              
              $
              3,662,000
              
              $
              2,755,000
              
              $
              907,000
              
              $
              —
              
              $
              —





The
      table
      above includes certain commitments that are contingent upon the Company’s
      continuing development of its drug candidates.





The
      Company has undertaken to make contingent milestone payments to certain of
      its
      licensors of up to approximately $72.8 million over the life of the licenses,
      of
      which approximately $60.4 million will be due upon or following regulatory
      approval of the licensed drugs. In certain cases, such payments will reduce
      any
      royalties due on sales of related products. In the event that the milestones
      are
      not achieved, the Company remains obligated to pay one licensor $75,000 annually
      until the license expires. The Company has also committed to pay to the former
      stockholders of ACCESS Oncology certain contingent equity rights (up to
      3,372,422 shares of the Company’s common stock) if its drug candidates meet
      certain development milestones. A substantial portion of the contingent shares
      would be payable to related parties of the Company. The Company has also entered
      into a royalty arrangement under which its wholly-owned subsidiary may be
      required to pay up to a maximum of $16.1 million to AusAm on revenue from a
      next
      generation product following FDA marketing approval, as part of the Company’s
      acquisition of Accumin. The uncertainty relating to the timing of the
      commitments described in this paragraph prevents the Company from including
      them
      in the table above.




14




***Litigation***





In
      July
      2003, Keryx (Israel) Ltd., one of the Company’s Israeli subsidiaries, vacated
      its Jerusalem facility, after giving advance notice to RMPA Properties Ltd.,
      the
      landlord. On May 1, 2005, the landlord filed suit in the Circuit Court of
      Jerusalem in Jerusalem, Israel, claiming that Keryx (Israel) Ltd., among other
      parties, was liable as a result of the alleged breach of the lease agreement.
      In
      addition to Keryx (Israel) Ltd., the landlord brought suit against Keryx
      Biomedical Technologies Ltd., another of the Company’s Israeli subsidiaries,
      Keryx Biopharmaceuticals, Inc., Michael S. Weiss, the Company’s Chairman and
      Chief Executive Officer, and Robert Trachtenberg, a former employee of Keryx.
      The amount demanded by the landlord totals 4,345,313 New Israeli Shekels, or
      approximately $1,257,000, and includes rent for the entire remaining term of
      the
      lease, as well as property taxes and other costs allegedly incurred by the
      landlord. In August 2003, the landlord claimed a bank deposit, in the amount
      of
      $222,000, which was previously provided as security in connection with the
      lease
      agreement. The Company intends to vigorously defend the suit. In July 2005,
      Keryx (Israel) Ltd. and Keryx Biomedical Technologies Ltd. filed an answer
      to
      the landlord's complaint. In October 2005, Keryx Biopharmaceuticals, Inc. filed
      an answer to the landlord's complaint. Generally, each answer challenges the
      merits of the landlord's cause of action as to each defendant. All defendants,
      except Keryx (Israel) Ltd., have filed a motion to dismiss the complaint. The
      plaintiff has filed a response to each answer. At this time, the Circuit Court
      of Jerusalem has not issued a decision with respect to the motion to dismiss.
      A
      hearing on a motion by Keryx Biopharmaceuticals, Inc. and Michael S. Weiss
      to
      vacate service of process outside of Israel was held in June 2006. On October
      15, 2006, the Court held that the service of the claim against Mr. Weiss is
      vacated. Consequently, the Circuit Court of Jerusalem dismissed the suit against
      Mr. Weiss. However, the service against the Company was sustained. The Company
      appealed this holding. The appeal was denied on June 18, 2007, and the Company
      filed a petition for certiorari to the Supreme Court of Israel. The Company’s
      motion for certiorari was denied as well. The next preliminary hearing is
      scheduled for June 26, 2008. The Company filed its testimonial affidavit along
      with an expert opinion contesting the interest and the accumulated debt claimed
      by plaintiff. The Company has not yet recorded a charge to reflect any potential
      liability associated with this lawsuit, as it is too early to accurately
      estimate the amount of the charge, if any.





The
      Company prevailed in an arbitration proceeding with Alfa Wasserman concerning
      certain terms of the License Agreement related to the provision of data to
      Alfa
      Wasserman and consultation regarding management of the licensed patents. An
      arbitration proceeding was held in October 2007 and the arbitrator issued his
      decision on March 25, 2008, rejecting Alfa Wasserman’s claims that the Company
      was in breach of the License Agreement. Under the terms of the License
      Agreement, the Company may be entitled to recoup a portion of its legal fees
      and
      expenses associated with the arbitration.





The
      Company has notified Alfa Wasserman of its intention to terminate the License
      Agreement as of June 1, 2008, and that the Company will transfer to Alfa
      Wasserman all regulatory applications as provided in the License Agreement
      and
      demanding payment by Alfa Wasserman of 25% of the Company’s development costs
      associated with sulodexide, as provided in the License Agreement. Alfa Wasserman
      has itself served a notice of termination of the License Agreement on the
      grounds that the Company is in material breach of the agreement for failing
      to
      diligently develop sulodexide by terminating the Phase 4 clinical trial and
      seeking to terminate the License Agreement, thereby seeking to avoid
      reimbursement to Keryx of development costs. The Company intends to submit
      its
      claim for reimbursement of legal fees and development costs and Alfa Wasserman’s
      claim of material breach to the sole arbitrator for resolution.





In
      November 2007, the Company initiated an action in the US District Court for
      the
      Southern District of New York against Panion to enjoin Panion from improperly
      terminating the November 2005 License Agreement for an alleged breach of
      contract by Keryx related to certain manufacturing provisions of the agreement,
      to enjoin Panion from interfering with the Company’s contractual relationships
      with certain third-parties, as well as to enforce the Company’s right with
      respect to the prosecution of certain patents. On November 27, 2007, the Court
      granted the Company a motion for a preliminary injunction. Panion asserted
      counterclaims for breach of contract relating to certain manufacturing
      provisions of the license agreement. On March 17, 2008, the parties agreed
      to
      settle their dispute and as a result have entered into an Amended and Restated
      License Agreement, which resulted in an expansion of the scope of the original
      license grant and granted to the Company  greater control over patent
      prosecution and maintenance. In consideration of these amendments and the
      settlement of the litigation, the Company paid Panion $2.5 million in March
      2008. Following execution of the Amended and Restated License Agreement, the
      parties entered a voluntary dismissal of the action, including Panion’s
      asserted counterclaims.





15


**NOTE
      7 – 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 renal disease
      and cancer, and also includes license revenue, other revenue and associated
      costs.





Segment
      information for the three month periods were as follows:


**Revenue****Three months ended March 31,**
              
              **Amountsaccumulatedduring thedevelopment**(in thousands)
              
              **2008**
              
              **2007**
              
              **Stage**Diagnostics
              
              $
              —
              
              $
              30
              
              $
              169Services
              
              
              —
              
              
              12
              
              
              1,866Products
              
              
              199
              
              
              —
              
              
              1,430Total
              
              $
              199
              
              $
              42
              
              $
              3,465




**Operating
                  loss****Three months ended March 31,**
              
              **Amountsaccumulatedduring thedevelopment**(in thousands)
              
              **2008**
              
              **2007**
              
              **Stage**Diagnostics
              
              $
              (81
              )
              $
              (674
              )
              $
              (1,853
              )Services
              
              
              —
              
              
              (20
              )
              
              (302
              )Products
              
              
              (33,252
              )
              
              (22,560
              )
              
              (326,842
              )Total
              
              $
              (33,333
              )
              $
              (23,254
              )
              $
              (328,997
              )





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


**Net
                  loss****Three months ended March 31,**
              
              **Amountsaccumulatedduring thedevelopment**(in thousands)
              
              **2008**
              
              **2007**
              
              **Stage**Operating
                  losses of reportable segments
              
              $
              (33,333
              )
              $
              (23,254
              )
              $
              (328,997
              )Interest
                  and other income (expense), net
              
              
              (1,203
              )
              
              1,441
              
              
              16,714Income
                  taxes
              
              
              —
              
              
              —
              
              
              (527
              )Consolidated
                  net loss
              
              $
              (34,536
              )
              $
              (21,813
              )
              $
              (312,810
              )




16
 
  **Assets
                    (1)****As
                    of**
                
                **As
                    of**(in
                    thousands)
                
                **March 31,2008**
                
                **December 31, 2007**Diagnostics
                
                $
                85
                
                $
                87Services
                
                
                —
                
                
                —Products
                
                
                5,130
                
                
                16,293Total
                    assets of reportable segments
                
                
                5,215
                
                
                16,380Cash,
                    cash equivalents, interest receivable, license receivable and
                    investment
                    securities
                
                
                47,560
                
                
                64,681Consolidated
                    total assets
                
                $
                52,775
                
                $
                81,061




(1)
            Assets
                for our reportable segments include fixed assets, goodwill, as well
                as
                accounts receivable and inventory.





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





**Goodwill**(in thousands)
              
              **March 31, 2008**
              
              **December 31, 2007**Diagnostics
              
              $
              —
              
              $
              —Services
              
              
              —
              
              
              —Products
              
              
              3,208
              
              
              3,208Total
              
              $
              3,208
              
              $
              3,208





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





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





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





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





**OVERVIEW**





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





17




The
      table
      below summarizes the status of our product pipeline.




**Product
                  candidate**
              
              **Target
                  indication**
              
              **Development
                  status*****Endocrine/Renal***ZerenexTM
                  (ferric citrate)
              
              Hyperphosphatemia
                  in patients withend-stage
                  renal disease
              
              Phase
                  2***Oncology***KRX-0401
                  (perifosine)
              
              Multiple
                  forms of cancer
              
              Phase
                  2KRX-0404
                  (ErPC)
              
              Multiple
                  forms of cancer
              
              Pre-clinical***Neurology***KRX-0701
                  (dexlipotam)
              
              Diabetic
                  neuropathy
              
              Phase
                  2KRX-0501
              
              Neurological
                  disorders
              
              Phase
                  1





*Recent
      Developments*





2008
      Restructuring





On
      March
      26, 2008, we implemented a strategic restructuring plan to reduce our cash
      burn
      rate and re-focus our development efforts (the “2008 Restructuring”). The 2008
      Restructuring, which was prompted by the negative outcome of our pivotal
      SUN-MICRO Phase 3 clinical trial of SulonexTM (sulodexide) for the treatment of
      diabetic nephropathy, announced on March 7, 2008, and our subsequent decision
      to
      terminate the ongoing SUN-MACRO Phase 4 clinical trial, is intended to conserve
      our financial resources and enable us to focus our efforts on programs and
      opportunities that we believe are most likely to provide long-term shareholder
      value. The 2008 Restructuring includes a workforce reduction of approximately
      50%. Following the workforce reduction, we will have approximately 25 full
      and
      part-time employees.





As
      part
      of the 2008 Restructuring, on March 26, 2008, we notified our President, I.
      Craig Henderson, M.D., that we were terminating his employment, effective April
      15, 2008. Dr. Henderson will remain in his position as a member of our Board
      of
      Directors until our next annual meeting. In addition, we reached a mutual
      agreement with our Chief Accounting Officer, Mark Stier, that Mr. Stier will
      resign effective June 30, 2008. His responsibilities have been assumed by James
      F. Oliviero, Vice President, Finance, who was appointed Principal Financial
      and
      Accounting Officer on May 6, 2008.





*General
      Corporate*





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





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





Our
      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.





18


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





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





Our
      cost
      of 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
      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
      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.





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 (“EITF”) Issue No.
      96-18, “Accounting for Equity Instruments That Are Issued to Other Than
      Employees for Acquiring, or in Conjunction with Selling Goods or Services”
(“EITF 96-18”). The expense is recognized over the vesting period of the award.
      Until the measurement date is reached, the total amount of compensation expense
      remains uncertain. We record compensation expense based on the fair value of
      the
      award at the reporting date. The awards to consultants and other third-parties
      are then revalued, or the total compensation is recalculated based on the then
      current fair value, at each subsequent reporting date. In addition, because
      some
      of the options, restricted stock and warrants issued to employees, consultants
      and other third-parties vest upon the achievement of certain milestones, the
      total expense is uncertain.





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





19




**RESULTS
      OF OPERATIONS**





**Three
      months ended March 31, 2008 and March 31, 2007**





*License
      Revenue.* License
      revenue was $199,000 for the three months ended March 31, 2008 as compared
      to no
      revenue for the three months ended March 31, 2007. License revenue for the
      three
      months ended March 31, 2008 was related to the amortization of a portion of
      the
      license fees of $12.0 million and $8.0 million associated with our sublicense
      agreement with JT and Torii. Such amount is recognized as license revenue on
      a
      straight-line basis over the life of the agreement, which is through the
      expiration of the last-to-expire patent covered by the agreement in 2023, and
      represents the estimated period over which we will have certain ongoing
      responsibilities under the sublicense agreement.





*Diagnostic
      Revenue.* We
      recognized no diagnostic revenue for the three months ended March 31, 2008,
      as
      compared to diagnostic revenue of $30,000 for the three months ended March
      31,
      2007. We do not expect our diagnostic revenue to have a material impact on
      our
      financial results during 2008.





*Service
      Revenue.* We
      recognized no service revenue for the three months ended March 31, 2008, as
      compared to service revenue of $12,000 for the three months ended March 31,
      2007. We do not expect our service revenue to have a material impact on our
      financial results during the remainder of 2008.





*Cost
      of Diagnostics Sold* .
      We
      recognized no cost of diagnostics sold for the three months ended March 31,
      2008, as compared to an expense of $22,000 for the three months ended March
      31,
      2007. We do not expect our cost of diagnostics sold to have a material impact
      on
      our financial results during the remainder of 2008.





*Cost
      of Services* .
      We
      recognized no cost of services for the three months ended March 31, 2008, as
      compared to an expense of $32,000 for the three months ended March 31, 2007.
      We
      do not expect our cost of services to have a material impact on our financial
      results during the remainder of 2008.





*Non-Cash
      Compensation Expense (Research and Development).* Non-cash
      compensation expense related to stock option and restricted stock grants
      decreased by $1,975,000 to a credit of $980,000 for the three months ended
      March
      31, 2008, as compared to an expense of $995,000 for the three months ended
      March
      31, 2007. The decrease was primarily attributable to a $1,968,000 decrease
      in
      expense related to stock options and restricted stock issued to our President,
      who was terminated as part of the 2008 Restructuring.





*Other
      Research and Development Expenses* .
      Other
      research and development expenses increased by $13,382,000 to $30,828,000 for
      the three months ended March 31, 2008, as compared to $17,446,000 for the three
      months ended March 31, 2007. The increase in other research and development
      expenses was due primarily to an $11,037,000 impairment charge related to the
      write-down of the assets of the Sulonex manufacturing suite to their estimated
      fair value following the cessation of our development of Sulonex, and a
      $2,063,000 provision for estimated costs relating to the required restoration
      of
      the manufacturing facility to its original condition. For more information
      regarding these expenses please see “Overview – Recent Developments — 2008
      Restructuring” above. Including the impairment charge and provision discussed
      above, other research and development expenses related to Sulonex were
      $25,826,000 and $12,533,000 during the three months ended March 31, 2008 and
      2007, respectively.





We
      expect
      our other research and development costs to decrease substantially during the
      remainder of 2008 as a result of the termination of the Sulonex clinical
      development program, as well as the 2008 Restructuring, which is intended to
      conserve our financial resources.




*Non-Cash
      Compensation Expense (Selling, General and Administrative).* Non-cash
      compensation expense related to stock option and restricted stock grants
      decreased by $289,000 to $1,717,000 for the three months ended March 31, 2008,
      as compared to an expense of $2,006,000 for the three months ended March 31,
      2007. The decrease was primarily related to expense incurred during the three
      months ended March 31, 2007 related to stock options and restricted stock
      outstanding to our former chief financial officer, who resigned in the second
      quarter of 2007.





*Other
      Selling General and Administrative Expenses* .
      Other
      selling, general and administrative expenses decreased by $828,000 to $1,967,000
      for the three months ended March 31, 2008, as compared to an expense of
      $2,795,000 for the three months ended March 31, 2007. The
      decrease was primarily related to an impairment charge, in the three months
      ended March 31, 2007, of approximately
      $600,000 related to certain intangibles associated with Accumin’s diagnostic
      product.





We
      expect
      our other selling, general and administrative costs to decrease over the
      remainder of 2008 as a result of the 2008 Restructuring, which is intended
      to
      conserve our financial resources.





20


*Interest
      and Other Income (Expense), Net* .
      Interest and other income (expense), net, decreased by $2,644,000 to an expense
      of $1,203,000 for the three months ended March 31, 2008, as compared to income
      of $1,441,000 for the three months ended March 31, 2007. The decrease was
      primarily due to the $1,811,000 impairment charge we recorded in the three
      months ended March 31, 2008, related to our investments in auction rate
      securities. The decrease also resulted from a lower level of invested funds
      and
      market interest rates 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, option and warrant
      exercises, and, beginning in 2007, from the upfront and milestone payments
      from
      our sublicense agreement with JT and Torii and miscellaneous payments from
      our
      other prior licensing activities.





As
      of
      March 31, 2008, we had $47.6 million in cash, cash equivalents, interest
      receivable, short-term and long-term securities and license receivable
      (including $10.2 million in auction rate securities as discussed below), a
      decrease of $17.1 million from December 31, 2007. Cash used in operating
      activities for the three months ended March 31, 2008 was $23.6 million, as
      compared to $15.3 million for the three months ended March 31, 2007. This
      increase was due primarily to a $2.3 million decrease in accounts payable and
      accrued expenses in the three months ended March 31, 2008, as compared to a
      $3.0
      million increase in accounts payable and accrued expenses in the comparable
      period last year, a result of the timing of payments. The $2.3 million decrease
      in accounts payable and accrued expenses in the three months ended March 31,
      2008 was primarily the result of a $2.5 million litigation
      settlement payment for Zerenex. For the three months ended March 31, 2008,
      net cash provided by investing activities of $10.0 million was primarily the
      result of the maturity and sale of short-term securities in our investment
      portfolio, net of purchases, of approximately $10.2 million, offset by purchases
      of property, plant and equipment of approximately $0.2 million. For the three
      months ended March 31, 2008, net cash provided by financing activities of $0.2
      million was the result of proceeds from the exercise of stock
      options.





As
      of
      March 31, 2008, $10.2 million of our long-term investment securities were
      invested in auction rate securities, which represent interests in student
      loan-backed securities. Auction rate securities are structured to provide
      liquidity through a Dutch auction process that resets the applicable interest
      rate at pre-determined calendar intervals, generally every 28 days. This
      mechanism has historically allowed existing investors either to rollover their
      holdings, whereby they would continue to own their respective securities, or
      liquidate their holdings by selling such securities at par. This auction process
      has historically provided a liquid market for these securities; however, the
      uncertainties in the credit markets have affected all of our holdings in auction
      rate securities. Since February 2008, the auctions for our auction rate
      securities have not had sufficient buyers to cover investors’ sell orders,
      resulting in unsuccessful auctions. When an auction is unsuccessful, the
      interest rate is re-set to a level pre-determined by the loan documents and
      remains in effect until the next auction date, at which time the process
      repeats. While these investments are currently rated AA or higher, we are
      uncertain as to when the liquidity issues relating to these investments will
      improve. Given the complexity of auction rate securities and the lack of readily
      observable market quotes related to these investments, we obtained the
      assistance of an independent valuation firm, Pluris Valuation Advisors LLC,
      to
      assist us in assessing the fair value of our auction rate securities portfolio.
      As a result of this valuation process, we recorded an impairment charge of
      $1.8
      million for an other-than-temporary decline in the value of our auction rate
      securities to estimated fair value of $10.2 million at March 31, 2008. This
      other-than-temporary impairment charge was included in interest and other income
      (expense), net. In addition, we reclassified the entire auction rate securities
      portfolio from short-term to long-term investments due to the uncertainty of
      when we can sell these securities.





The
      valuation methods used to estimate the auction rate securities’ fair value were
      (1) a discounted cash flow model, where the expected cash flows of the auction
      rate securities are discounted to the present using a yield that incorporates
      compensation for illiquidity, and (2) a market comparables method, where the
      auction rate securities are valued based on indications, from the secondary
      market, of what discounts buyers demand when purchasing similar auction rate
      securities. The valuation included numerous assumptions such as assessments
      of
      the underlying structure of each security, expected cash flows, discount rates,
      credit ratings, workout periods, and overall capital market liquidity. These
      assumptions, assessments and the interpretations of relevant market data are
      subject to uncertainties, are difficult to predict and require significant
      judgment. The use of different assumptions, applying different judgment to
      inherently subjective matters and changes in future market conditions could
      result in significantly different estimates of fair value. Assuming a 10%
      adverse change in the fair value of these securities overall, the fair value
      would decline approximately $1.0 million. However, each of our auction rate
      security investments have different features and are subject to different risks
      and therefore, any market decline would impact these securities to a different
      degree.





21


We
      currently anticipate that our cash, cash equivalents, interest receivable,
      investment securities and license receivable as of March 31, 2008, exclusive
      of
      our holdings in auction rate securities, are sufficient to meet our anticipated
      working capital needs and fund our business plan for approximately the next
      12
      to 18 months. We will continue to attempt to sell our auction rate securities
      until the auctions are successful; however, there is no assurance as to when
      the
      market for auction rate securities will stabilize. The fair value of our auction
      rate securities could change significantly based on market conditions and
      continued uncertainties in the credit markets. If these uncertainties continue
      or if these securities experience credit rating downgrades, we may incur
      additional impairment charges with respect to our auction rate securities
      portfolio, which could negatively affect our financial condition, cash flow
      and
      reported earnings, and the lack of liquidity of our auction rate securities
      could have a material impact on our ability to fund our operations.





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.





**OFF-BALANCE
      SHEET ARRANGEMENTS**





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





**OBLIGATIONS
      AND COMMITMENTS**





As
      of
      March 31, 2008, we have known contractual obligations, commitments and
      contingencies of $3,662,000. Of this amount, $2,079,000 relates to research
      and
      development agreements (primarily relating to our Phase 2 KRX-0401 clinical
      program), all of which is due within the next year. The additional $1,583,000
      relates to our operating lease obligations, of which $676,000 is due within
      the
      next year, with the remaining balance due as per the schedule
      below.




**Payment
                  due by period****Contractual
                  obligations**
              
              **Total**
              
              **Less
                  than**
                **1
                  year**
              
              **1-3**
                **years**
              
              **3-5**
                **years**
              
              **More
                  than**
                **5
                  years**Research
                  and development agreements
              
              $
              2,079,000
              
              $
              2,079,000
              
              $
              —
              
              $
              —
              
              $
              —Operating
                  leases
              
              
              1,583,000
              
              
              676,000
              
              
              907,000
              
              
              —
              
              
              —Total
              
              $
              3,662,000
              
              $
              2,755,000
              
              $
              907,000
              
              $
              —
              
              $
              —





The
      table
      above includes certain commitments that are contingent upon our continuing
      development of our drug candidates.





We
      have
      undertaken to make contingent milestone payments to certain of our licensors
      of
      up to approximately $72.8 million over the life of the licenses, of which
      approximately $60.4 million will be due upon or following regulatory approval
      of
      the licensed drugs. In certain cases, such payments will reduce any royalties
      due on sales of related products. In the event that the milestones are not
      achieved, we remain obligated to pay one licensor $75,000 annually until the
      license expires. We have also committed to pay to the former stockholders of
      ACCESS Oncology certain contingent equity rights (up to 3,372,422 shares of
      our
      common stock) if its drug candidates meet certain development milestones. A
      substantial portion of the contingent shares would be payable to related
      parties. We have also entered into a royalty arrangement under which our
      wholly-owned subsidiary may be required to pay up to a maximum of $16.1 million
      to AusAm on revenue from a next generation product following FDA marketing
      approval, as part of our acquisition of Accumin. The uncertainty relating to
      the
      timing of the commitments described in this paragraph prevents us from including
      them in the table above.





22


**CRITICAL
      ACCOUNTING POLICIES**





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





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





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





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





*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 and expense in any
      accounting period. In addition, administrative costs related to external CROs
      are recognized on a straight-line basis over the estimated contractual period.
      With respect to clinical site costs, the financial terms of these agreements
      are
      subject to negotiation and vary from contract to contract. Payments under these
      contracts may be uneven, and depend on factors such as the achievement of
      certain events, the successful recruitment of patients, the completion of
      portions of the clinical trial or similar conditions. The objective of our
      policy is to match the recording of expenses in our financial statements to
      the
      actual services received and efforts expended. As such, expense accruals related
      to clinical site costs are recognized based on our estimate of the degree of
      completion of the event or events specified in the specific clinical study
      or
      trial contract.





23


*Revenue
      Recognition.* We
      recognize license revenue consistent with the provisions of Staff Accounting
      Bulletin (“SAB”) No. 104 and EITF Issue No. 00-21, “Revenue
      Arrangements with Multiple Deliverables.” We analyze each element of our
      licensing agreement to determine the appropriate revenue recognition. We
      recognize revenue on upfront payments 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 that are deferred will
      be
      recognized when earned under the agreements.





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





*Accounting
      Related to 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.





As
      of
      March 31, 2008, there was approximately $3.2 million of goodwill on our
      consolidated balance sheet. SFAS No. 142, “Goodwill and Other Intangible
      Assets,” or SFAS No. 142, addresses how intangible assets that are acquired
      individually or with a group of other assets (but not those acquired in a
      business combination) should be accounted for in financial statements upon
      their
      acquisition. This statement also addresses how goodwill and other intangible
      assets should be accounted for after they have been initially recognized in
      the
      financial statements. SFAS No. 142 requires goodwill be tested using a two-step
      process. The first step compares the fair value of the reporting unit with
      the
      unit's carrying value, including goodwill. When the carrying value of the
      reporting unit is greater than fair value, the unit’s goodwill may be impaired,
      and the second step must be completed to measure the amount of the goodwill
      impairment charge, if any. In the second step, the implied fair value of the
      reporting unit’s goodwill is compared with the carrying amount of the unit’s
      goodwill. If the carrying amount is greater than the implied fair value, the
      carrying value of the goodwill must be written down to its implied fair value.





We
      are
      required to perform impairment tests under SFAS No. 142 annually 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.





24


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





We
      had
      entered into a relationship with SPL, a U.S.-based contract manufacturer, for
      Sulonex to build a larger scale manufacturing suite within their current
      facility, which they would operate on our behalf. We believed this suite would
      be suitable to manufacture and produce initial commercialization quantities
      of
      Sulonex (for approximately one to three years from launch). As of March 31,
      2008, we have spent approximately $11.3 million in capital expenditures building
      the suite. In accordance with the guidance in SFAS No. 144, with the cessation
      of our development of Sulonex, we recognized an impairment charge of $11.0
      million, which is included in other research and development expenses in the
      three months ended March 31, 2008, to write the assets down to their estimated
      fair value of $300,000, which are being classified as assets held for
      sale.





*Impairment
      of Investment Securities.* As of
      March 31, 2008, $10.2 million of our long-term investment securities were
      invested in auction rate securities, which represent interests in student
      loan-backed securities. The uncertainties in the credit markets have affected
      all of our holdings in auction rate securities. Since February 2008, the
      auctions for our auction rate securities have not had sufficient buyers to
      cover
      investors’ sell orders, resulting in unsuccessful auctions. When an auction is
      unsuccessful, the interest rate is re-set to a level pre-determined by the
      loan
      documents and remains in effect until the next auction date, at which time
      the
      process repeats. While these investments are currently rated AA or higher,
      we
      are uncertain as to when the liquidity issues relating to these investments
      will
      improve. Given the complexity of auction rate securities and the lack of readily
      observable market quotes related to these investments, we obtained the
      assistance of an independent valuation firm, Pluris Valuation Advisors LLC,
      to
      assist us in assessing the fair value of our auction rate securities portfolio.
      As a result of this valuation process, we recorded an impairment charge of
      $1.8
      million for an other-than-temporary decline in the value of our auction rate
      securities to estimated fair value of $10.2 million at March 31, 2008. This
      other-than-temporary impairment charge was included in interest and other income
      (expense), net. In addition, we reclassified the entire auction rate securities
      portfolio from short-term to long-term investments due to the uncertainty of
      when we can sell these securities.





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





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





25


We
      review
      impairments in accordance with the guidance in EITF Issue No. 03-1 and FSP
      SFAS
      115-1 and 124-1, “The Meaning of Other-Than-Temporary Impairment and Its
      Application to Certain Investments,” to determine the classification of the
      impairment as temporary or other-than-temporary. Losses are recognized in our
      statement of operations when a decline in fair value is determined to be
      other-than-temporary. We review our investments on an ongoing basis for
      indications of possible impairment. Once identified, the determination of
      whether the impairment is temporary or other-than-temporary requires significant
      judgment. We believe that the impairment charge related to our auction rate
      securities investments are other-than-temporary. The primary factors we consider
      in classifying an impairment include the extent and time the fair value of
      each
      investment has been below cost and our ability to hold such investment to
      maturity.





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





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





The
      primary objective of our investment activities is to preserve principal while
      maximizing our income from investments and minimizing our market risk. We invest
      in government and investment-grade corporate debt and auction rate securities
      in
      accordance with our investment policy. Some of the securities in which we invest
      have market risk. This means that a change in prevailing interest rates 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 March 31, 2008, our
      portfolio of financial instruments consists of cash equivalents and short-term
      and long-term interest bearing securities, including money market funds,
      government debt and auction rate securities. The average duration of all of
      our
      held-to-maturity investments held as of March 31, 2008, was less than 12 months.
      Due to the short-term nature of our money market funds and held-to-maturity
      investments, we believe we have no material exposure to interest rate risk
      arising from our money market funds and held-to-maturity investments.





As
      of
      March 31, 2008, $10.2 million of our long-term investment securities were
      invested in auction rate securities, which represent interests in student
      loan-backed securities. The uncertainties in the credit markets have affected
      all of our holdings in auction rate securities. Since February 2008, the
      auctions for our auction rate securities have not had sufficient buyers to
      cover
      investors’ sell orders, resulting in unsuccessful auctions. When an auction is
      unsuccessful, the interest rate is re-set to a level pre-determined by the
      loan
      documents and remains in effect until the next auction date, at which time
      the
      process repeats. While these investments are currently rated AA or higher,
      we
      are uncertain as to when the liquidity issues relating to these investments
      will
      improve. We will continue to attempt to sell our auction rate securities until
      the auctions are successful. If uncertainties in the credit and capital markets
      continue, these markets deteriorate further or we experience any ratings
      downgrades on the auction rate securities in our portfolio, we may incur
      additional impairment charges with respect to our auction rate securities
      portfolio, which could negatively affect our financial condition, cash flow
      and
      reported earnings. We will continue to monitor the fair value of our auction
      rate securities and relevant market conditions and will recognize additional
      impairment charges if future circumstances warrant such charges. Assuming
      a 10% adverse change in fair value of these securities overall, the fair value
      would decline approximately $1.0 million. However, each of our auction rate
      security investments have different features and are subject to different risks
      and therefore, any market decline would impact these securities to a different
      degree.In addition, the lack of liquidity of our auction rate securities
      could have a material impact on our ability to fund our operations.





26




**ITEM
      4. CONTROLS AND PROCEDURES**





**Evaluation
      of Disclosure Controls and Procedures**





As
      of
      March 31, 2008, management carried out, under the supervision and with the
      participation of our Chief Executive Officer and Principal Financial and
      Accounting Officer, an evaluation of the effectiveness of the design and
      operation of our disclosure controls and procedures (as defined in Rules
      13a-15(e) and 15d-15(e) under the Exchange Act). Our disclosure controls and
      procedures are designed to provide reasonable assurance that information we
      are
      required to disclose in the reports that we file or submit under the Exchange
      Act is recorded, processed, summarized and reported within the time periods
      specified in applicable rules and forms. Based upon that evaluation, our Chief
      Executive Officer and Principal Financial and Accounting Officer concluded
      that,
      as of March 31, 2008, our disclosure controls and procedures were effective.





**Internal
      Control Over Financial Reporting**





There
      were no changes in our internal control over financial reporting during
      the quarter ended March 31, 2008, that have materially affected, or are
      reasonably likely to materially affect, our internal control over financial
      reporting.





**PART
      II. OTHER INFORMATION**





**ITEM
      1. LEGAL PROCEEDINGS**





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





In
      July
      2003, Keryx (Israel) Ltd., one of our Israeli subsidiaries, vacated its
      Jerusalem facility, after giving advance notice to RMPA Properties Ltd., the
      landlord. On May 1, 2005, the landlord filed suit in the Circuit Court of
      Jerusalem in Jerusalem, Israel, claiming that Keryx (Israel) Ltd., among other
      parties, was liable as a result of the alleged breach of the lease agreement.
      In
      addition to Keryx (Israel) Ltd., the landlord brought suit against Keryx
      Biomedical Technologies Ltd., another of our Israeli subsidiaries, Keryx
      Biopharmaceuticals, Inc., Michael S. Weiss, our Chairman and Chief Executive
      Officer, and Robert Trachtenberg, a former employee of Keryx. The amount
      demanded by the landlord totals 4,345,313 New Israeli Shekels, or approximately
      $1,257,000, and includes rent for the entire remaining term of the lease, as
      well as property taxes and other costs allegedly incurred by the landlord.
      In
      August 2003, the landlord claimed a bank deposit, in the amount of $222,000,
      which was previously provided as security in connection with the lease
      agreement. We intend to vigorously defend the suit. In July 2005, Keryx (Israel)
      Ltd. and Keryx Biomedical Technologies Ltd. filed an answer to the landlord's
      complaint. In October 2005, Keryx Biopharmaceuticals, Inc. filed an answer
      to
      the landlord's complaint. Generally, each answer challenges the merits of the
      landlord's cause of action as to each defendant. All defendants, except Keryx
      (Israel) Ltd., have filed a motion to dismiss the complaint. The plaintiff
      has
      filed a response to each answer. At this time, the Circuit Court of Jerusalem
      has not issued a decision with respect to the motion to dismiss. A hearing
      on a
      motion by Keryx Biopharmaceuticals, Inc. and Michael S. Weiss to vacate service
      of process outside of Israel was held in June 2006. On October 15, 2006, the
      Court held that the service of the claim against Mr. Weiss is vacated.
      Consequently, the Circuit Court of Jerusalem dismissed the suit against Mr.
      Weiss. However, the service against us was sustained. We appealed this holding.
      The appeal was denied on June 18, 2007, and the Company filed a petition for
      certiorari to the Supreme Court of Israel. The Company’s motion for certiorari
      was denied as well. The next preliminary hearing is scheduled for June 26,
      2008.
      We filed our testimonial affidavit along with an expert opinion contesting
      the
      interest and the accumulated debt claimed by plaintiff. 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.





We
      prevailed in an arbitration proceeding with Alfa Wasserman concerning certain
      terms of the License Agreement related to the provision of data to Alfa
      Wasserman and consultation regarding management of the licensed patents. An
      arbitration proceeding was held in October 2007 and the arbitrator issued his
      decision on March 25, 2008, rejecting Alfa Wasserman’s claims that we were in
      breach of the License Agreement. Under the terms of the License Agreement,
      we
      may be entitled to recoup a portion of our legal fees and expenses associated
      with the arbitration.





27


We
      have
      notified Alfa Wasserman of our intention to terminate the License Agreement
      as
      of June 1, 2008 and that we will transfer to Alfa Wasserman all regulatory
      applications as provided in the License Agreement and demanding payment by
      Alfa
      Wasserman of 25% of our development costs associated with sulodexide, as
      provided in the License Agreement. Alfa Wasserman has itself served a notice
      of
      termination of the License Agreement on the grounds that we are in material
      breach of the agreement for failing to diligently develop sulodexide by
      terminating the Phase 4 clinical trial and seeking to terminate the License
      Agreement, thereby seeking to avoid reimbursing us our development costs. We
      intend to submit our claim for reimbursement of legal fees and development
      costs
      and Alfa Wasserman’s claim of material breach to the sole arbitrator for
      resolution.





In
      November 2007, we initiated an action in the US District Court for the Southern
      District of New York against Panion to enjoin Panion from improperly terminating
      the November 2005 License Agreement for an alleged breach of contract by us
      related to certain manufacturing provisions of the agreement, to enjoin Panion
      from interfering with our contractual relationships with certain third-parties,
      as well as to enforce our right with respect to the prosecution of certain
      patents. On November 27, 2007, the Court granted us a motion for a preliminary
      injunction. Panion asserted counterclaims for breach of contract relating to
      certain manufacturing provisions of the license agreement. On March 17, 2008,
      the parties agreed to settle their dispute and as a result have entered into
      an
      Amended and Restated License Agreement, which resulted in an expansion of the
      scope of the original license grant and granted us greater
      control over patent prosecution and maintenance. In consideration of these
      amendments and the settlement of the litigation, we paid Panion $2.5
      million in March 2008. Following execution of the Amended and Restated License
      Agreement, the parties entered a voluntary dismissal of the action,
      including Panion’s asserted counterclaims.





**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 March 31, 2008, we had an accumulated deficit of
      approximately $312.8 million. As we continue our research and development
      efforts, we will incur increasing losses. We may continue to incur substantial
      operating losses even if we begin to generate revenues from our drug
      candidates.





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





**Risks
      Associated with Our Product Development Efforts**





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





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





28


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





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





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





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





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





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





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





29


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





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





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




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





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





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




●
            manufacture
                our product candidates;





●
            assist
                us in developing, testing and obtaining regulatory approval for and
                commercializing some of our compounds and technologies;
                and





●
            market
                and distribute our drug products.





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





30


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





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





**Other
      Risks Related to Our Business**





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





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





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





***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.





31


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





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





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





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




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





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





As
      of May
      5, 2008, we had 28 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.





32


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





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





●  government
      and health administration authorities;





●  private
      health insurers;





●  managed
      care programs; and





●  other
      third-party payors.





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





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





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





***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.




33





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





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





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





The
      development, manufacturing, pricing, sales, and reimbursement of our products,
      together with our general operations, are subject to extensive regulation by
      federal, state and other authorities within the United States and numerous
      entities outside of the United States. We are a relatively small company with
      28
      full and part-time employees as of May 5, 2008. We also have significantly
      fewer
      employees than many other companies that have a product candidate in clinical
      development, and we rely heavily on third parties to conduct many important
      functions. While we believe that our corporate compliance program is sufficient
      to ensure compliance with applicable regulations, we cannot assure you that
      we
      are or will be in compliance with all potentially applicable regulations. If
      we
      fail to comply with any of these regulations we could be subject to a range
      of
      regulatory actions, including suspension or termination of clinical trials,
      the
      failure to approve a product candidate, restrictions on our products or
      manufacturing processes, withdrawal of products from the market, significant
      fines, or other sanctions or litigation.





**Risks
      Related to Our Financial Condition**





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





We
      currently anticipate that our cash, cash equivalents, interest receivable,
      license receivable and investment securities as of March 31, 2008, exclusive
      of
      our holdings of auction rate securities, are sufficient to meet our anticipated
      working capital needs and fund our business plan for approximately the next
      12
      to 18 months. Our forecast of the period of time through which our cash, cash
      equivalents, interest receivable, license receivable and investment securities
      will be adequate to support our operations is a forward-looking statement that
      involves risks and uncertainties. The actual amount of funds we will need to
      operate is subject to many factors, some of which are beyond our control. These
      factors include the following:





●
            the
                timing of completion and results from clinical trials for our drug
                candidates;





●
            the
                timing of expenses associated with manufacturing and product development
                of the proprietary drug candidates within our portfolio and those
                that may
                be in-licensed, partnered or
                acquired;





●
            the
                timing of the in-licensing, partnering and acquisition of new product
                opportunities;





●
            the
                progress of the development efforts of parties with whom we have
                entered,
                or may enter, into research and development
                agreements;





●
            our
                ability to achieve our milestones under our licensing arrangements;
                and





●
            the
                costs involved in prosecuting and enforcing patent claims and other
                intellectual property rights.





34


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





As
      of
      March 31, 2008, $10.2 million of our long-term investment securities were
      invested in auction rate securities, which represent interests in student
      loan-backed securities. Auction rate securities are structured to provide
      liquidity through a Dutch auction process that resets the applicable interest
      rate at pre-determined calendar intervals, generally every 28 days. This
      mechanism has historically allowed existing investors either to rollover their
      holdings, whereby they would continue to own their respective securities, or
      liquidate their holdings by selling such securities at par. This auction process
      has historically provided a liquid market for these securities; however, the
      uncertainties in the credit markets have affected all of our holdings in auction
      rate securities. Since February 2008, the auctions for our auction rate
      securities have not had sufficient buyers to cover investors’ sell orders,
      resulting in unsuccessful auctions. When an auction is unsuccessful, the
      interest rate is re-set to a level pre-determined by the loan documents and
      remains in effect until the next auction date, at which time the process
      repeats. While these investments are currently rated AA or higher, we are
      uncertain as to when the liquidity issues relating to these investments will
      improve. Given the complexity of auction rate securities and the lack of readily
      observable market quotes related to these investments, we obtained the
      assistance of an independent valuation firm, Pluris Valuation Advisors LLC,
      to
      assist us in assessing the fair value of our auction rate securities portfolio.
      As a result of this valuation process, we recorded an impairment charge of
      $1.8
      million for an other-than-temporary decline in the value of our auction rate
      securities to estimated fair value of $10.2 million at March 31, 2008. This
      other-than-temporary impairment charge was included in interest and other income
      (expense), net. In addition, we reclassified the entire auction rate securities
      portfolio from short-term to long-term investments due to the uncertainty of
      when we can sell these securities.





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





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





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





In
      July
      2003, Keryx (Israel) Ltd., one of our Israeli subsidiaries, vacated its
      Jerusalem facility, after giving advance notice to RMPA Properties Ltd., the
      landlord. On May 1, 2005, the landlord filed suit in the Circuit Court of
      Jerusalem in Jerusalem, Israel, claiming that Keryx (Israel) Ltd., among other
      parties, was liable as a result of the alleged breach of the lease agreement.
      In
      addition to Keryx (Israel) Ltd., the landlord brought suit against Keryx
      Biomedical Technologies Ltd., another of our Israeli subsidiaries, Keryx
      Biopharmaceuticals, Inc., Michael S. Weiss, our Chairman and Chief Executive
      Officer, and Robert Trachtenberg, a former employee of Keryx. The amount
      demanded by the landlord totals 4,345,313 New Israeli Shekels, or approximately
      $1,257,000, 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
      June 26, 2008. We filed our testimonial affidavit along with an expert opinion
      contesting the interest and the accumulated debt claimed by plaintiff. 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.





35


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





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





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





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





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





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





**Risks
      Related to Our Common Stock**





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





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





36


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





In
      addition, we may be required to issue up
      to
      3,372,422 shares of our common stock to
      former stockholders of ACCESS Oncology upon the achievement of certain
      milestones, of which 500,000 shares may be payable in 2008 if we reach the
      first
      milestone, or we may conclude, under certain circumstances, that it is in our
      best interests to settle this contingent share obligation for all or
      substantially all of such shares in advance of reaching any of the milestones.
      A
      substantial portion of the contingent shares would be payable to related
      parties.





***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.





37


***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. 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.





***We
      may not be able to continue to meet the minimum listing requirements of the
      NASDAQ Stock Market, and as a result may be de-listed which would significantly
      and adversely affect the liquidity of the market for our common
      stock.***





We
      recently received notice from the NASDAQ Stock Market that we were not in
      compliance with the $1.00 minimum bid price requirement for continued inclusion
      on the NASDAQ Global Market pursuant to Marketplace Rule 4450 (a)(5). This
      notification, which was received in a letter dated April 22, 2008, is a standard
      communication when the bid price of a NASDAQ-listed company closes below the
      minimum $1.00 per share requirement for 30 consecutive business days. In
      accordance with Marketplace Rule 4450(e)(2), we will be provided 180 calendar
      days to regain compliance by having the bid price of our common stock close
      at
      $1.00 per share or more for a minimum of 10 consecutive business days.





Shortly
      after receiving the notice, we applied for a transfer of our listing to the
      NASDAQ Capital Market. Our listing was accepted to the NASDAQ Capital Market
      as
      of May 6, 2008. As such, we are now subject to the continued listing
      requirements of the NASDAQ Capital Market, and are no longer subject to the
      continued listing requirements of the NASDAQ Global Market.





We
      cannot
      provide assurance that in the future we will continue to meet the listing
      requirements of the NASDAQ Capital Market, including, without limitation, bid
      price, stockholders' equity and/or market value of listed securities minimum
      requirements. Under the rules of the NASDAQ Capital Market, the Company may
      have
      an additional 180-calendar day compliance period through April 17, 2009 to
      comply with the $1.00 minimum closing bid price requirement on the NASDAQ
      Capital Market, provided the Company otherwise meets the initial listing
      requirements for the NASDAQ Capital Market on the 180 th day of
      the first 180-calendar day compliance period.




**ITEM 5.
      OTHER
      INFORMATION**




On
      March 17, 2008, we entered into an Amended
      and Restated License Agreement with Panion & BF Biotech, Inc., a drug
      development company based in Taiwan that holds the rights to ZerenexTM, an oral, iron-based
      compound. Pursuant to the agreement, Panion has granted us a worldwide
      (excluding certain Asia-Pacific countries) exclusive license to sublicense,
      develop, use, sell, import and export ZerenexTM.





**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*
            Amended
                and Restated License Agreement by and between Panion & BF Biotech,
                Inc. and Keryx Biopharmaceuticals, Inc. dated March 17,
                2008.31.1
            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
                May 12, 2008.31.2
            Certification
                of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a),
                as
                adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,
                dated
                May 12, 2008.




38




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, datedMay
                12, 2008.32.2
            Certification
                of Chief Financial Officer pursuant to 18 U.S.C. §1350, as adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, datedMay
                12, 2008.








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


39


**SIGNATURES**





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




KERYX
                BIOPHARMACEUTICALS, INC.Date:May
                12, 2008
            By:
            /s/
                James F. OlivieroVice
                President, FinancePrincipal
                Financial and Accounting
                Officer


40





**EXHIBIT
      INDEX**





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




10.1*
            Amended
                and Restated License Agreement by and between Panion & BF Biotech,
                Inc. and Keryx Biopharmaceuticals, Inc. dated March 17,
                2008.31.1
            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
                May 12, 2008.31.2
            Certification
                of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a),
                as
                adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,
                dated
                May 12, 2008.32.1
            Certification
                of Chief Executive Officer pursuant to 18 U.S.C. §1350, as adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, datedMay
                12, 2008.32.2
            Certification
                of Chief Financial Officer pursuant to 18 U.S.C. §1350, as adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, datedMay
                12, 2008.




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




41