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**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 

**(Mark One)**

 

**x****        QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934**

 

**For thequarterly period ended: September 30, 2008**

 

**OR**

 

**o****        TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934**

 

**For thetransition period from                    to                    .**

 

**Commission file number 000-31191**

 

**THE MEDICINES COMPANY**

(Exactname of registrant as specified in its charter)

 

| **Delaware**                              | ** ** | **04-3324394**       |
|-------------------------------------------|------------|----------------------|
| (State or other  jurisdiction of          |       | (I.R.S. Employer     |
| incorporation or  organization)           |       | Identification  No.) |
|                                      |       |                 |
| **8  Campus Drive**                       | ** ** | ** **           |
| **Parsippany,  New Jersey**               | ** ** | **07054**            |
| (Address of  principal executive offices) |       | (Zip Code)           |

 

Registrant’s telephone number, including areacode:**  (973) 656-1616**

 

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

 

Yes    x      No    o

 

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

 

| Large accelerated filer x                     |   | Accelerated filer o         |
|-----------------------------------------------|--------|----------------------------------|
|                                          |   |                             |
| Non-accelerated filer o                       |   | Smaller reporting company o |
| (Do not check if a smaller reporting company) |   |                             |

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).

 

Yes    o      No    x

 

Indicate the number of sharesoutstanding of each of the issuer’s classes of common stock, as of the latestpracticable date: As of November 6, 2008, there were 52,280,006shares of Common Stock, $0.001 par value per share, outstanding.

 

 

 

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**THE MEDICINES COMPANY**

 

TABLE OF CONTENTS

 
| Part I.   Financial Information                                                            |   |
|------------------------------------------------------------------------------------------------------|--------|
|                                                                                                 |   |
| Item 1 - Financial Statements                                                                        | 3      |
|                                                                                                 |   |
| Item 2 - Management’s Discussion and Analysis of  Financial Condition and Results of Operations | 18     |
|                                                                                                 |   |
| Item 3 - Quantitative and Qualitative Disclosures  about Market Risk                                 | 31     |
|                                                                                                 |   |
| Item 4 - Controls and Procedures                                                                     | 31     |
|                                                                                                 |   |
| Part II.   Other Information                                                               | 31     |
|                                                                                                 |   |
| Item  1A - Risk Factors                                                                              | 31     |
|                                                                                                 |   |
| Item 6 -  Exhibits                                                                                   | 46     |
|                                                                                                 |   |
| Signatures                                                                                           | 47     |
|                                                                                                 |   |
| Exhibit Index                                                                                   | 48     |

 

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The Medicines Company®name and logo, Angiomax®, Angiox® and CleviprexÔ are eitherregistered trademarks or trademarks of The Medicines Company in the UnitedStates and/or other countries.  All othertrademarks, service marks or other tradenames appearing in this quarterlyreport on Form 10-Q are the property of their respective owners.  Except where otherwise indicated, or wherethe context may otherwise require, references to “Angiomax” in this quarterlyreport on Form 10-Q mean Angiomax and Angiox collectively.  References to “the Company,” “we,” “us” or “our”mean The Medicines Company, a Delaware corporation, and its subsidiaries.

 

This quarterly report onForm 10-Q includes forward-looking statements within the meaning of Section 21Eof the Securities Exchange Act of 1934, as amended. For this purpose, anystatements contained herein regarding our strategy, future operations,financial position, future revenue, projected costs, prospects, plans andobjectives of management, other than statements of historical facts, areforward-looking statements. The words “anticipates,” “believes,” “estimates,” “expects,”“intends,” “may,” “plans,” “projects,” “will,” “would” and similar expressionsare intended to identify forward-looking statements, although not allforward-looking statements contain these identifying words. We cannot guaranteethat we actually will achieve the results, plans, intentions or expectationsexpressed or implied in our forward-looking statements. There are a number ofimportant factors that could cause actual results, levels of activity,performance or events to differ materially from those expressed or implied inthe forward-looking statements we make. These important factors include our “criticalaccounting estimates” described in Part I, Item 2 of this quarterly reporton Form 10-Q and the factors set forth under the caption “Risk Factors” inPart II, Item 1A of this quarterly report on Form 10-Q. Although wemay elect to update forward-looking statements in the future, we specificallydisclaim any obligation to do so, even if our estimates change, and readersshould not rely on those forward-looking statements as representing our viewsas of any date subsequent to the date of this quarterly report on Form 10-Q.

 

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**Item 1.Financial Statements**

 

**THE MEDICINES COMPANY**

**CONSOLIDATED BALANCE SHEETS**

**(in thousands, except share and per shareamounts)**

**(unaudited)**

 
| ** **                                                                                                                                                                                      | ** ** | **September 30,   2008** | ** ** | **December 31,   2007** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------|------------|-----------------------------------|------------|
| **ASSETS**                                                                                                                                                                                      | ** ** | ** **                         | ** ** | ** **                        | ** ** |
| Current assets:                                                                                                                                                                                 |       |                               |       |                              |       |
| Cash and cash equivalents                                                                                                                                                                       |       | $                                  | 78,357     |                              | $          | 88,127 |   |
| Available for sale securities                                                                                                                                                                   |       | 127,338                            |       | 133,986                           |       |
| Accrued interest receivable                                                                                                                                                                     |       | 1,338                              |       | 1,598                             |       |
| Accounts receivable, net of allowances of  $2,228 and $1,157 at September 30, 2008 and December 31, 2007                                                                              |       | 42,906                             |       | 25,584                            |       |
| Inventory                                                                                                                                                                                       |       | 25,498                             |       | 35,468                            |       |
| Prepaid expenses and other current assets                                                                                                                                                       |       | 13,352                             |       | 7,425                             |       |
| Total current assets                                                                                                                                                                            |       | 288,789                            |       | 292,188                           |       |
| Fixed assets, net                                                                                                                                                                               |       | 6,448                              |       | 3,245                             |       |
| Intangible assets, net                                                                                                                                                                          |       | 16,495                             |       | 14,929                            |       |
| Deferred tax assets                                                                                                                                                                             |       | 45,264                             |       | 46,018                            |       |
| Other assets                                                                                                                                                                                    |       | 10,239                             |       | 5,136                             |       |
| Total assets                                                                                                                                                                                    |       | $                                  | 367,235    |                              | $          | 361,516 |   |
|                                                                                                                                                                                            |       |                               |       |                              |       |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                                                                                  |       |                               |       |                              |       |
| Current liabilities:                                                                                                                                                                            |       |                               |       |                              |       |
| Accounts payable                                                                                                                                                                                |       | $                                  | 7,044      |                              | $          | 9,793 |   |
| Accrued expenses                                                                                                                                                                                |       | 54,338                             |       | 73,827                            |       |
| Deferred revenue                                                                                                                                                                                |       | 10,005                             |       | —                            |       |
| Total current liabilities                                                                                                                                                                       |       | 71,387                             |       | 83,620                            |       |
| Commitments and contingencies                                                                                                                                                                   |       |                               |       |                              |       |
| Stockholders’ equity:                                                                                                                                                                      |       |                               |       |                              |       |
| Preferred stock, $1.00 par value per share,  5,000,000 shares authorized; no shares issued and outstanding                                                                                      |       | —                             |       | —                            |       |
| Common stock, $.001 par value per share,  125,000,000 shares authorized; 52,279,084 and 51,866,398 issued and  outstanding at September 30, 2008 and December 31, 2007,  respectively |       | 52                                 |       | 52                                |       |
| Additional paid-in capital                                                                                                                                                                      |       | 560,119                            |       | 537,027                           |       |
| Accumulated deficit                                                                                                                                                                             |       | (263,751                           | )          | (259,444                          | )          |
| Accumulated other comprehensive (loss)  income                                                                                                                                                  |       | (572                               | )          | 261                               |       |
| Total stockholders’ equity                                                                                                                                                                 |       | 295,848                            |       | 277,896                           |       |
| Total liabilities and stockholders’ equity                                                                                                                                                 |       | $                                  | 367,235    |                              | $          | 361,516 |   |

 

See accompanying notes to unaudited condensedconsolidated financial statements.

 

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**THE MEDICINES COMPANYCONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, except per share amounts)(unaudited)**

 
| ** **                                              | ** ** | **Three Months Ended September 30,** | ** ** | **Nine Months Ended September 30,** | ** ** |
|---------------------------------------------------------|------------|----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                              | ** ** | **2008**                                                 | ** ** | **2007**                                                | ** ** | **2008** | ** ** | **2007** | ** ** |
| Net revenue                                             |       | $                                                        | 88,126     |                                                    | $          | 62,191 |   | $ | 254,285 |   | $ | 185,237 |   |
| Operating  expenses:                                    |       |                                                     |       |                                                    |       |   |   |   |   |
| Cost of  revenue                                        |       | 22,089                                                   |       | 16,157                                                  |       | 63,121 |   | 49,031 |   |
| Research and  development                               |       | 44,075                                                   |       | 18,741                                                  |       | 82,518 |   | 53,948 |   |
| Selling,  general and administrative                    |       | 42,865                                                   |       | 55,499                                                  |       | 117,004 |   | 109,457 |   |
| Total  operating expenses                               |       | 109,029                                                  |       | 90,397                                                  |       | 262,643 |   | 212,436 |   |
| Loss from  operations                                   |       | (20,903                                                  | )          | (28,206                                                 | )          | (8,358 | ) | (27,199 | ) |
| Other income                                            |       | 1,070                                                    |       | 2,664                                                   |       | 5,256 |   | 7,965 |   |
| Loss before  income taxes                               |       | (19,833                                                  | )          | (25,542                                                 | )          | (3,102 | ) | (19,234 | ) |
| Benefit from  (provision for) income taxes              |       | 6,616                                                    |       | 1,899                                                   |       | (1,205 | ) | (545 | ) |
| Net loss                                                |       | $                                                        | (13,217    | )                                                       | $          | (23,643 | ) | $ | (4,307 | ) | $ | (19,779 | ) |
| Basic loss  per common share                            |       | $                                                        | (0.25      | )                                                       | $          | (0.46 | ) | $ | (0.08 | ) | $ | (0.38 | ) |
| Shares used  in computing basic loss per common share   |       | 51,941                                                   |       | 51,672                                                  |       | 51,842 |   | 51,596 |   |
| Diluted loss  per common share                          |       | $                                                        | (0.25      | )                                                       | $          | (0.46 | ) | $ | (0.08 | ) | $ | (0.38 | ) |
| Shares used  in computing diluted loss per common share |       | 51,941                                                   |       | 51,672                                                  |       | 51,842 |   | 51,596 |   |

 

See accompanying notes to unaudited condensed consolidated financialstatements.

 

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**THE MEDICINES COMPANYCONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)(unaudited)**

 
| ** **                                                                       | ** ** | **Nine Months Ended   September 30,** | ** ** |
|----------------------------------------------------------------------------------|------------|-----------------------------------------------------------|------------|
| ** **                                                                       | ** ** | **2008**                                                  | ** ** | **2007** | ** ** |
| Cash flows  from operating activities:                                           |       |                                                      |       |   |   |
| Net loss                                                                         |       | $                                                         | (4,307     | ) | $ | (19,779 | ) |
| Adjustments  to reconcile net loss to net cash provided by operating activities: |       |                                                      |       |   |   |
| Depreciation  and amortization                                                   |       | 1,916                                                     |       | 1,180 |   |
| Acquired  in-process research and development                                    |       | 21,373                                                    |       | — |   |
| Amortization  of net premiums and discounts on available for sale securities     |       | (254                                                      | )          | (851 | ) |
| Non-cash  foreign currency loss                                                  |       | 127                                                       |       | — |   |
| Non-cash  stock compensation expense                                             |       | 17,375                                                    |       | 11,285 |   |
| Loss on  sales disposal of fixed assets                                          |       | —                                                    |       | 1 |   |
| (Gain) loss  on sales of available for sale securities                           |       | (48                                                       | )          | 2 |   |
| Deferred tax  provision                                                          |       | 754                                                       |       | — |   |
| Tax benefit  from option exercises                                               |       | 193                                                       |       | — |   |
| Changes in  operating assets and liabilities:                                    |       |                                                      |       |   |   |
| Accrued  interest receivable                                                     |       | 260                                                       |       | (410 | ) |
| Accounts  receivable                                                             |       | (15,686                                                   | )          | (9,073 | ) |
| Inventory                                                                        |       | 9,930                                                     |       | 12,512 |   |
| Prepaid  expenses and other current assets                                       |       | (5,976                                                    | )          | 1,216 |   |
| Accounts  payable                                                                |       | (2,698                                                    | )          | (4,401 | ) |
| Accrued  expenses                                                                |       | (20,318                                                   | )          | 29,838 |   |
| Deferred  revenue                                                                |       | 10,005                                                    |       | (2,814 | ) |
| Net cash  provided by operating activities                                       |       | 12,646                                                    |       | 18,706 |   |
| Cash flows  from investing activities:                                           |       |                                                      |       |   |   |
| Purchases of  available for sale securities                                      |       | (118,228                                                  | )          | (108,990 | ) |
| Maturities  and sales of available for sale securities                           |       | 124,352                                                   |       | 94,060 |   |
| Purchases of  fixed assets                                                       |       | (3,624                                                    | )          | (733 | ) |
| Acquisition  of intangible assets                                                |       | (2,000                                                    | )          | (14,929 | ) |
| Investment  in pharmaceutical company                                            |       | (5,000                                                    | )          | — |   |
| Acquisition  of business, net of cash acquired                                   |       | (23,534                                                   | )          | — |   |
| Net cash  used in investing activities                                           |       | (28,034                                                   | )          | (30,592 | ) |
| Cash flows  from financing activities:                                           |       |                                                      |       |   |   |
| Proceeds  from issuances of common stock, net                                    |       | 5,525                                                     |       | 9,307 |   |
| Net cash  provided by financing activities                                       |       | 5,525                                                     |       | 9,307 |   |
| Effect of  exchange rate changes on cash                                         |       | 93                                                        |       | 21 |   |
| Decrease in  cash and cash equivalents                                           |       | (9,770                                                    | )          | (2,558 | ) |
| Cash and  cash equivalents at beginning of period                                |       | 88,127                                                    |       | 75,530 |   |
| Cash and  cash equivalents at end of period                                      |       | $                                                         | 78,357     |   | $ | 72,972 |   |
| Supplemental  disclosure of cash flow information:                               |       |                                                      |       |   |   |
| Interest  paid                                                                   |       | $                                                         | —     |   | $ | — |   |
| Taxes paid                                                                       |       | $                                                         | 2,435      |   | $ | 424 |   |
| Supplemental disclosure of non-cash  investing activities:                       |       |                                                      |       |   |   |
| Fixed asset additions included in current  liabilities                           |       | $                                                         | 201        |   | $ | — |   |

 

See accompanying notes to unaudited condensed consolidated financialstatements*.*

 

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** **

**THE MEDICINES COMPANY**

** **

**NOTES TO UNAUDITEDCONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

** **

**1.****                                      Natureof Business**

 

The Medicines Company(the Company) was incorporated in Delaware on July 31, 1996. The Companyis a global pharmaceutical company focused on advancing the treatment ofcritical care patients through the delivery of innovative, cost-effectivemedicines to the worldwide hospital marketplace. In December 2000, theU.S. Food and Drug Administration (the FDA) approved the Company’s product,Angiomax® (bivalirudin), a direct thrombin inhibitor, for use as ananticoagulant in combination with aspirin in patients with unstable anginaundergoing percutaneous transluminal coronary angioplasty (PTCA). In June 2005,the FDA approved new prescribing information for Angiomax to also includepatients undergoing percutaneous coronary intervention (PCI), in addition tothose undergoing PTCA. In November 2005, the FDA approved the expansion ofthe label to include PCI patients with or at risk of heparin–inducedthrombocytopenia and thrombosis syndrome, a complication of heparinadministration known as HIT/HITTS that can result in limb amputation,multi-organ failure and death. In September 2004, the Companyreceived authorization from the European Commission to market Angiomax asAngiox® (bivalirudin) in the member states of the European Union for use as ananticoagulant in combination with aspirin in patients undergoing PCI. In January 2008,the European Agency for the Evaluation of Medical Products (EMEA) authorizedthe use of Angiox in adult patients with acute coronary syndrome (ACS),specifically patients with unstable angina or non-ST segment elevationmyocardial infarction planned for urgent or early intervention, when used withaspirin and clopidogrel.

 

On August 1,2008, the FDA approved the Company’s product, CleviprexTM (clevidipine butyrate)injectable emulsion, a dihydropyridine calcium channel blocker, for the reductionof blood pressure when oral therapy is not feasible or not desirable.  The Company began selling Cleviprex in theUnited States in September 2008.

 

In addition toAngiomax and Cleviprex, the Company is currently developing two otherpharmaceutical products, cangrelor and CU-2010, as potential acute carehospital products. Cangrelor is an intravenous antiplatelet agent that preventsplatelet activation and aggregation, which the Company believes has potentialadvantages in the treatment of vascular disease.  In August 2008, the Company acquiredCuracyte Discovery GmbH (Curacyte Discovery) and its lead compound,CU-2010.  CU-2010 is a small moleculeserine protease inhibitor being developed for the prevention of blood lossduring surgery. The Company expects to initiate Phase I clinical trials ofCU-2010 in the first half of 2009.  TheCompany has invested, and plans to continue investing, in the development ofcangrelor and CU-2010, as well as to continue investing in development programsto expand the indications for which Angiomax and Cleviprex are approved.

 

Prior to July 1,2007, the Company concentrated its commercial sales and marketing resources onthe United States hospital market, relying on third-party distributors tomarket and distribute the product outside the United States, and revenues todate have been generated principally from sales of Angiomax in the UnitedStates. On July 1, 2007, the Company entered into a series of agreementswith Nycomed Danmark ApS (Nycomed) pursuant to which the Company terminated itsdistribution agreement with Nycomed and reacquired all rights held by Nycomedwith respect to the distribution and marketing of the Company’s product Angioxin the European Union (excluding Spain, Portugal and Greece) and the formerSoviet republics (collectively, the Territory). Under these arrangements, theCompany assumed control of the marketing of Angiox immediately and Nycomedagreed to provide, on a transitional basis, sales operations services, whichended December 31, 2007, and product distribution services through 2008.The Company assumed the control of the distribution of Angiox in the majorityof the countries in the Territory during the third quarter of 2008 and expectsto assume control of the distribution of Angiox in the remaining countries inthe Territory by December 31, 2008. To support the marketing, sale and distribution of Angiox in thecountries formerly served by Nycomed, the Company is taking the necessary stepsto develop its business infrastructure outside the United States.

 

**2.****                                      SignificantAccounting Policies**

 

***Basis ofPresentation***

*** ***

The accompanying condensed consolidated financial statements have beenprepared in accordance with U.S. generally accepted accounting principles(GAAP) for interim financial information and with the instructions to Form 10-Q.  Accordingly, they do not include all theinformation and footnotes required by GAAP for complete financialstatements.  In the opinion ofmanagement, the accompanying financial statements include all adjustments,consisting of normal recurring accruals, considered necessary for a fairpresentation of the Company’s financial position, results of operations, andcash flows for the periods presented.

 

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The condensedconsolidated financial statements include the accounts of the Company and itswholly-owned subsidiaries. All significant intercompany balances andtransactions have been eliminated in consolidation. The Company has nounconsolidated subsidiaries or investments accounted for under the equitymethod.

 

The results of operations for the three and nine months ended September 30,2008 are not necessarily indicative of the results that may be expected for theentire fiscal year or any other quarter of the fiscal year ending December 31,2008.  These condensed consolidatedfinancial statements should be read in conjunction with the audited financialstatements included in the Company’s Annual Report on Form 10-K for theyear ended December 31, 2007, filed with the Securities and ExchangeCommission (SEC).

 

***Use of Estimates***

*** ***

The preparation offinancial statements in conformity with GAAP requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities and the reported amounts of revenues and expenses during thereporting period. Actual results could differ from those estimates.

 

***Cash, CashEquivalents and Available for Sale Securities***

*** ***

The Company considers allhighly liquid investments purchased with original maturities at the date ofpurchase of three months or less to be cash equivalents. Cash and cash equivalents included cashof $39.1 million and $20.0 million at September 30, 2008 and December 31,2007, respectively.  Cash and cashequivalents at September 30, 2008 and December 31, 2007 includedinvestments of $39.3 million and $68.1 million, respectively, in money marketfunds and commercial paper with original maturities of less than three months. Theseinvestments are carried at cost, which approximates fair value. The Companymeasures all original maturities from the date the investment was originallypurchased by the Company.

 

The Company considerssecurities with original maturities at the date of purchase of greater thanthree months to be available for sale securities. Securities under thisclassification are recorded at fair market value and unrealized gains andlosses are recorded as a separate component of stockholders’ equity. Theestimated fair value of the available for sale securities is determined basedon quoted market prices or rates for similar instruments. In addition, the costof debt securities in this category is adjusted for amortization of premium andaccretion of discount to maturity. The Company evaluates securities withunrealized losses to determine whether such losses are other than temporary.

 

At September 30,2008 and December 31, 2007, the Company held available for sale securitieswith a fair value totaling $127.3 million and $134.0 million, respectively.These available for sale securities included various United States governmentagency notes, corporate debt securities and asset backed securities.  At September 30, 2008, $123.3 million ofthe Company’s available for sale securities had maturities within one year and$4.0 million had maturities which were more than one year but less than twoyears.  At December 31, 2007, all ofthe Company’s available for sale securities had maturities within one year.

 

***Fair ValueMeasurements***

*** ***

On January 1, 2008,the Company adopted the provisions of Statement of Financial AccountingStandards (SFAS) No. 157, “Fair Value Measurement” (SFAS No. 157) forfinancial assets and liabilities.  Aspermitted by Financial Accounting Standards Board (FASB) Staff Position 157-2(FSP 157-2), the Company elected to defer until January 1, 2009 theadoption of SFAS No. 157 for all nonfinancial assets and nonfinancialliabilities, except those that are recognized or disclosed at fair value in thefinancial statements on a recurring basis. SFAS No. 157 provides a framework for measuring fair value underGAAP and requires expanded disclosures regarding fair value measurements. SFAS No. 157defines fair value as the exchange price that would be received for an asset orpaid to transfer a liability (an exit price) in the principal or mostadvantageous market for the asset or liability in an orderly transactionbetween market participants on the measurement date. SFAS No. 157 alsoestablishes a fair value hierarchy that requires an entity to maximize the useof observable inputs, where available, and minimize the use of unobservableinputs when measuring fair value. The standard describes three levels of inputsthat may be used to measure fair value:

 

**Level 1****                   **Quotedprices in active markets for identical assets or liabilities. The Company’sLevel 1 assets and liabilities include investments in available for salesecurities.

 

**Level 2****                   **Observableinputs other than Level 1 prices, such as quoted prices for similar assets orliabilities; quoted prices in markets that are not active; or other inputs thatare observable or can be corroborated by observable market data forsubstantially the full term of the assets or liabilities. At September 30,2008, the Company did not have any Level 2 assets or liabilities.

 

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**Level 3****                   **Unobservableinputs that are supported by little or no market activity and that aresignificant to the fair value of the assets or liabilities. At September 30,2008, the Company did not have any Level 3 assets or liabilities.

 

The followingtable sets forth the Company’s financial assets that were measured at fairvalue on a recurring basis at September 30, 2008 by level within the fairvalue hierarchy. The Company did not have any nonfinancial assets orliabilities that were measured or disclosed at fair value on a recurring basisat September 30, 2008. As required by SFAS No. 157, assets andliabilities measured at fair value are classified in their entirety based onthe lowest level of input that is significant to the fair value measurement.The Company’s assessment of the significance of a particular input to the fairvalue measurement in its entirety requires judgment and considers factorsspecific to the asset or liability:

 
| **Assets**                    | ** ** | **Quoted Prices In   Active Markets for   Identical Assets   (Level 1)** | ** ** | **Significant   Other   Observable   Inputs   (Level 2)** | ** ** | **Significant   Unobservable   Inputs   (Level 3)** | ** ** | **Balance at   September 30, 2008** | ** ** |
|-------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                    | ** ** | **(in thousands)**                                                                                               | ** ** |
| Available for sale securities |       | $                                                                                                                     | 127,338    |                                                                               | $          | —                                                                  |       | $                                                       | —     |   | $ | 127,338 |   |
|                               |            |                                                                                                                       |            |                                                                                    |            |                                                                         |            |                                                         |            |  |  |  |  |

 

***Investments***

*** ***

The Company accounts for its investment in aminority interest of a company over which it does not exercise significantinfluence on the cost method in accordance with Accounting Principles Board(APB) No. 18, “The Equity Method of Accounting for Investments in CommonStock.” Under the cost method, an investment is carried at cost until it issold or there is evidence that changes in the business environment or otherfacts and circumstances suggest it may be other than temporarily impaired basedon criteria outlined in FAS Staff Position Nos. FAS 115-1 and FAS 124-1 and onEmerging Issues Task Force Issue No. 03-1, “The Meaning ofOther-Than-Temporary Impairment and its Application to Certain Investments.”  These non-marketable securities have beenclassified as investments and included in other assets on the consolidatedbalance sheets.

 

***Restricted Cash***

*** ***

On October 11, 2007, the Company entered into a newlease for office space in Parsippany, New Jersey.  The Company plans to move its principalexecutive offices to the new space in the fourth quarter of 2008.  Restricted cash of $5.0 million at September 30,2008 and December 31, 2007, which is included in other assets on theconsolidated balance sheets, collateralizes outstanding letters of creditassociated with such lease.  The fundsare invested in certificates of deposit. Under the lease, the Company agreed to increase the amount of the letterof credit on the Phase I Estimated Commencement Date, as defined in the lease,by an additional $3.0 million for a total letter of credit of $8.0 million. TheCompany anticipates the Phase I Estimated Commencement Date will occurin the fourth quarter of 2008.  The letter of credit permits draws by thelandlord to cure defaults by the Company. The amount of the letter of credit issubject to further reduction upon the achievement of certain regulatory andoperational milestones relating to the Company’s products and by approximately$1.3 million on August 1, 2009 and annually for each of the following sixyears; provided, however, in no event will the amount of the letter of creditbe reduced below approximately $1.0 million.

 

***RevenueRecognition***

*** ***

*Product Sales.**** *InMarch 2007, the Company entered into an agreement with a third party todistribute Angiomax in the United States through a sole source distributionmodel.  Cleviprex, which was launched inthe United States in September 2008, is distributed under the same solesource distribution model with the same third party.  Under this model, the Company sells Angiomaxand Cleviprex to its sole source distributor, which then sells Angiomax andCleviprex to a limited number of national medical and pharmaceuticalwholesalers with distribution centers located throughout the United States andin certain cases, directly to hospitals. Prior to adopting this sole source distribution model, the Company soldAngiomax to these wholesalers directly and these wholesalers then sold Angiomaxto hospitals.  Outside of the UnitedStates, the Company sells Angiomax either directly to hospitals or towholesalers or international distributors, which then sell Angiomax tohospitals.

 

The Company does not recognize revenue from productsales until there is persuasive evidence of an arrangement, delivery hasoccurred, the price is fixed and determinable, the buyer is obligated to paythe Company, the obligation to pay is not contingent on resale of the product,the buyer has economic substance apart from the Company, the Company has noobligation to bring about sale of the product, the amount of returns can bereasonably estimated and collectibility is reasonably assured.

 

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Initial gross wholesaler orders of Cleviprex in theUnited States in the third quarter of 2008 totaled $10.0 million and wererecorded as deferred revenue as the Company could not estimate certainadjustments to gross revenue, including returns.  Under this deferred revenue model, theCompany does not recognize revenue upon product shipment to its sole sourcedistributor.  Instead, upon productshipment, the Company invoices its sole source distributor, records deferredrevenue at gross invoice sales price, classifies the cost basis of the productheld by the sole source distributor as finished goods inventory held by othersand includes such cost basis amount within prepaid expenses and other currentassets on its consolidated balance sheets. The Company expects to recognize revenue associated with Cleviprex whenhospitals purchase product from the sole source distributor or wholesaler.  The Company expects to recognize Cleviprexrevenue upon shipment to its sole source distributor in the same manner as itrecognizes Angiomax revenue when it has sufficient information to developreasonable estimates of expected returns and other adjustments to grossrevenue.

 

The Company records allowances for chargebacks andother discounts or accruals for product returns, rebates and fee-for-servicecharges at the time of sale, and reports revenue net of such amounts. Indetermining the amounts of certain allowances and accruals, the Company mustmake significant judgments and estimates. For example, in determining theseamounts, the Company estimates hospital demand, buying patterns by hospitalsand group purchasing organizations from wholesalers and the levels of inventoryheld by wholesalers and by its sole source distributor. Making thesedeterminations involves estimating whether trends in past wholesaler andhospital buying patterns will predict future product sales. The Companyreceives data periodically from its sole source distributor and wholesalers oninventory levels and levels of hospital purchases and the Company considersthis data in determining the amounts of these allowances and accruals.

 

The nature of the Company’sallowances and accruals requiring critical estimates, and the specificconsiderations it uses in estimating their amounts are as follows:

 

·                                          *Product returns*. The Company’scustomers have the right to return any unopened product during the 18-monthperiod beginning six months prior to the labeled expiration date and ending12 months after the labeled expiration date. As a result, in calculatingthe accrual for product returns, the Company must estimate the likelihood thatproduct sold might not be used within six months of expiration and analyze thelikelihood that such product will be returned within 12 months afterexpiration.

 

In estimating the likelihood of product beingreturned, the Company relies on information from the sole source distributorand wholesalers regarding inventory levels, measured hospital demand asreported by third-party sources and internal sales data. The Company alsoconsiders the past buying patterns of the sole source distributor andwholesalers, the estimated remaining shelf life of product previously shippedand the expiration dates of product currently being shipped.

 

At September 30,2008 and December 31, 2007, the Company’s accrual for Angiomax productreturns was $1.8 million and $3.1 million, respectively.  Included within the accrual at September 30,2008 and December 31, 2007 is a reserve of $1.7 million and $3.0 million,respectively, that the Company established for existing inventory at Nycomedthat Nycomed has the right to return. A 10% change in the Company’s accrual forAngiomax product returns would have had an approximate $0.2 million effect onthe Company’s reported net revenue for the three and nine months ended September 30,2008.

 

·                                          *Chargebacks and rebates*. Although the Companyprimarily sells Angiomax and Cleviprex to a sole source distributor in theUnited States, the Company typically enters into agreements with hospitals,either directly or through group purchasing organizations acting on behalf oftheir hospital members, in connection with the hospitals’ purchases of Angiomaxand Cleviprex. Based on these agreements, most of the Company’s hospitalcustomers have the right to receive a discounted price for Angiomax andCleviprex and volume-based rebates for Angiomax on product purchases.  In the case of discounted pricing, theCompany typically provides a credit to the sole source distributor, or achargeback, representing the difference between the sole source distributor’sacquisition list price and the discounted price. In the case of thevolume-based rebates, the Company typically pays the rebate directly to thehospitals.

 

As a result of these agreements, at the time ofproduct shipment, the Company estimates the likelihood that Angiomax sold tothe sole source distributor might be ultimately sold to a contracting hospitalor group purchasing organization. The Company also estimates the contractinghospital’s or group purchasing organization’s volume of purchases.

 

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The Company bases its estimates on certain industrydata, hospital purchases and the historic chargeback data it receives from itssole source distributor, most of which the sole source distributor receivesfrom wholesalers, which detail historic buying patterns and sales mix forparticular hospitals and group purchasing organizations, and the applicablecustomer chargeback rates and rebate thresholds.

 

The Company’s allowance for Angiomax chargebacks was $1.2 million at September 30,2008 and $0.6 million at December 31, 2007.  A 10% change in the Company’s allowance forAngiomax chargebacks would have had an approximate $0.1 million effect on theCompany’s reported net revenue for the three and nine months ended September 30,2008.  The Company’s accrual for Angiomaxrebates was $0.9 million at September 30, 2008 and $1.7 million at December 31,2007.  A 10% change in the Company’saccrual for Angiomax rebates would have had an approximate $0.1 million effecton the Company’s reported net revenue for the three and nine months ended September 30,2008.

 

·                                        *Fees-for-service*.  TheCompany offers discounts to certain wholesalers and its sole source distributorbased on contractually determined rates for certain services.  The Company estimates its fee-for-serviceaccruals and allowances based on historical sales, wholesaler and distributorinventory levels and the applicable discount rate.  The Company’s discounts are accrued at thetime of the sale and are typically settled with the wholesalers or sole sourcedistributor within 60 days after the end of each respective quarter.  At September 30, 2008 and December 31,2007, the Company’s Angiomax fee-for-service accruals and allowances were $2.1million and $1.7 million, respectively. A 10% change in the Company’s Angiomax fee-for-service accruals andallowances would have had an approximate $0.2 million effect on the Company’sreported net revenue for the three and nine months ended September 30,2008.

 

The Company has adjustedits allowances for chargebacks and accruals for product returns, rebates andfees-for-service in the past based on actual sales experience, and the Companywill likely be required to make adjustments to these allowances and accruals inthe future. The Company continually monitors its allowances and accruals andmakes adjustments when the Company believes actual experience may differ fromits estimates.

 

***InternationalDistributors***

*** ***

Under theCompany’s agreements with its primary international distributors, includingNycomed under the distribution agreement that was terminated in July 2007,the Company sells its product to these distributors at a fixed transfer price.The established transfer price is typically determined once per year, prior tothe first shipment of Angiomax to the distributor each year. The minimumselling price used in determining the transfer price is 50% of the average netunit selling price.

 

Revenue from the sale of distribution rights during2007 includes the amortization of milestone payments. These milestone paymentsare recorded as deferred revenue until contractual performance obligations havebeen satisfied, and they are typically recognized ratably over the term ofthese agreements. When the period of deferral cannot be specifically identifiedfrom the contract, the Company must estimate the period based upon othercritical factors contained within the contract. The Company reviews these estimatesat least annually, which could result in a change in the deferral period.  In connection with the Nycomed transaction(described in note 8 of these condensed consolidated financial statements), theCompany wrote-off approximately $2.7 million of deferred revenue during thethird quarter of 2007, which amount represented the unamortized portion ofdeferred revenue related to milestone payments received from Nycomed in 2004and 2002.

 

***Revenue from Collaborations***

 

Under the terms of the transitional distribution agreement withNycomed, the Company is entitled to receive a specified percentage of Nycomed’snet sales of Angiox to third parties.  Inthe event the Angiox sold was purchased by Nycomed from the Company prior to July 1,2007, the amount the Company is entitled to receive in connection with suchsale is reduced by the amount previously paid by Nycomed to the Company forsuch product.  Accordingly, revenuerelated to the transitional distribution agreement with Nycomed is notrecognized until the product is sold by Nycomed to a hospital customer.  For the three months ended September 30,2008, the Company recorded $0.6 million of net revenue from sales made byNycomed of approximately $1.4 million under the transitional distributionagreement.  For the nine months ended September 30,2008, the Company recorded $3.3 million of net revenue from sales made byNycomed of approximately $7.3 million under the transitional distributionagreement.  Such amounts were recorded asrevenue from collaborations and are included in net revenue on the Company’sconsolidated statements of operations.

 

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***Inventory***

 

Inventory is recorded upon the transfer of title fromthe Company’s vendors. Inventory is stated at the lower of cost or market valueand valued using first-in, first-out methodology. Angiomax and Cleviprex bulksubstance is classified as raw materials and its costs are determined usingacquisition costs from the Company’s contract manufacturers. Work-in-progresscosts of filling, finishing and packaging are recorded against specific productbatches. The Company obtains all of its Angiomax bulk drug substance from LonzaBraine, S.A. Under the terms of the Company’s agreement with Lonza Braine, theCompany provides forecasts of its annual needs for Angiomax bulk substance 18months in advance. The Company also has a separate agreement with Ben VenueLaboratories, Inc. for the fill-finish of Angiomax drug product.  As of September 30, 2008, the Companyhad inventory-related purchase commitments for Angiomax bulk drug substancetotaling $8.7 million during 2008 and $19.4 million during 2009.  The Company obtains all of its Cleviprex bulkdrug substance from Johnson Matthey Pharma Services and also has a separateagreement with Hospira, Inc. for the fill-finish of Cleviprex drugproduct.

 

The major classes of inventory were as follows:

 
| ** **       | ** ** | **September 30,**  | ** ** | **December 31,** | ** ** |
|------------------|------------|-------------------------|------------|-----------------------|------------|
| **Inventory**    | ** ** | **2008**                | ** ** | **2007**              | ** ** |
| ** **       | ** ** | **(in thousands)** | ** ** |
| Raw materials    |       | $                       | 9,864      |                  | $          | 18,573 |   |
| Work-in-progress |       | 8,348                   |       | 11,130                |       |
| Finished goods   |       | 7,286                   |       | 5,765                 |       |
| **Total**        |       | $                       | 25,498     |                  | $          | 35,468 |   |

 

The Company reviewsinventory, including inventory purchase commitments, for slow moving orobsolete amounts based on expected revenues. If annual revenues are less thanexpected, the Company may be required to make allowances for excess or obsoleteinventory in the future.

 

***Fixed Assets***

*** ***

Fixed assets are stated at cost. Depreciation isprovided using the straight-line method based on estimated useful lives or, inthe case of leasehold improvements, over the lesser of the useful lives or thelease terms.

 

***Impairment of Long-Lived Assets***

*** ***

The Company evaluates the recoverability of its long-livedassets, including amortizable intangible assets, if circumstances indicate animpairment may have occurred pursuant to SFAS No. 144, “Accounting for theImpairment or Disposal of Long-Lived Assets.” This analysis is performed bycomparing the respective carrying values of the assets to the current andexpected future cash flows, on an undiscounted basis, to be generated from suchassets. If such analysis indicates that the carrying value of these assets isnot recoverable, the carrying value of such assets is reduced to fair valuethrough a charge to the consolidated statements of income.

 

***Research andDevelopment***

*** ***

Research and development costs are expensed asincurred.

 

***Stock-Based Compensation***

*** ***

Effective January 1, 2006, the Company adoptedthe fair value recognition provisions of FASB Statement No. 123 (revised2004) “Share-Based Payment” (SFAS No. 123(R)), and is recognizing expenseusing the accelerated expense attribution method specified in FASBInterpretation No. (FIN) 28, “Accounting for Stock Appreciation Rights andOther Variable Stock Option or Award Plans.”   SFAS No. 123(R) requirescompanies to recognize compensation expense in an amount equal to the fairvalue of all share-based awards granted to employees.

 

In accordance with SFAS No. 123(R), the Companyrecorded approximately $6.0 million and $17.4 million of stock-basedcompensation expense for the three and nine months ended September 30,2008, respectively. For the three and nine months ended September 30,2007, the Company recorded approximately $4.1 million and $11.3 million ofstock-based compensation expense, respectively.   As of September 30, 2008, the Companyhad approximately $24.5 million of total unrecognized compensation costsrelated to share-based employee compensation arrangements granted under theCompany’s equity compensation plans.  The Company expects to recognizethis cost over a weighted average period of 1.48 years.

 

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During the nine months ended September 30, 2008,the Company issued 412,686 shares of its common stock in connection with theexercise of stock options, grants of restricted stock and purchases under its EmployeeStock Purchase Plan (the ESPP). During the nine months ended September 30,2007, the Company issued 613,660 shares of its common stock in connection withthe exercise of stock options, grants of restricted stock and purchases underits ESPP. Cash received from exercise of stock options and purchases throughthe ESPP during the nine months ended September 30, 2008 and 2007 wasapproximately $5.5 million and $9.3 million, respectively, and is includedwithin the financing activities section of the consolidated statements of cashflows.

 

At September 30,2008, there were 2,922,194 shares of common stock reserved for future issuanceunder the ESPP and for future grants under the Company’s amended and restated2004 stock incentive plan.

 

***Recent Accounting Pronouncements***

 

In December 2007,the FASB issued SFAS No. 141(R), “Business Combinations” (SFAS No. 141(R)),to replace SFAS No. 141, “Business Combinations.”  SFAS No. 141(R) requires use of theacquisition method of accounting, defines the acquirer, establishes theacquisition date and broadens the scope to all transactions and other events inwhich one entity obtains control over one or more other businesses. Thisstatement is effective for financial statements issued for fiscal yearsbeginning on or after December 15, 2008 with earlier adoptionprohibited.  While there will be noimpact to the Company’s financial statements on the accounting for acquisitionscompleted prior to December 31, 2008, the adoption of SFAS No. 141(R) onJanuary 1, 2009 could materially change the accounting for businesscombinations consummated after that date.

 

In December 2007,the FASB issued SFAS No. 160, “Noncontrolling Interests in ConsolidatedFinancial Statements – an amendment of ARB No. 51” (SFAS No. 160).SFAS No. 160 establishes accounting and reporting standards for thenoncontrolling interest in a subsidiary and for the retained interest and gainor loss when a subsidiary is deconsolidated. This statement is effective for financial statements issued for fiscalyears beginning on or after December 15, 2008 with earlier adoptionprohibited.  The Company does not expectthe adoption of SFAS No. 160 to have a material impact on its financialstatements as the Company currently does not have any noncontrolling interests.  However, the adoption of SFAS No. 160could materially change the accounting for such interests outstanding as of, orsubsequent to, the date of adoption.

 

***Income Taxes***

*** ***

The Companyprovides for income taxes in accordance with SFAS No. 109, “Accounting forIncome Taxes” (SFAS No. 109) and FASB Interpretation No. 48, “Accountingfor Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109”(FIN 48).

 

On January 1,2007, the Company adopted FIN 48, which requires the use of a two-step approachfor recognizing and measuring tax benefits taken or expected to be taken in atax return and disclosures regarding uncertainties in income taxpositions.  The first step isrecognition: the Company determines whether it is more likely than not that atax position will be sustained upon examination, including resolution of anyrelated appeals or litigation processes, based on the technical merits of theposition.  In evaluating whether a taxposition has met the more-likely-than-not recognition threshold, the Companypresumes that the position will be examined by the appropriate taxing authoritythat has full knowledge of all relevant information.  The second step is measurement: a taxposition that meets the more-likely-than-not recognition threshold is measuredto determine the amount of benefit to recognize in the financialstatements.  The tax position is measuredat the largest amount of benefit that is greater than 50% likely of beingrealized upon ultimate settlement.  Theadoption of FIN 48 by the Company did not have a material impact on the Company’sfinancial condition or results of operation and resulted in no cumulativeeffect of accounting change being recorded as of January 1, 2007.  On January 1, 2007, the Company reducedits deferred tax asset attributable to certain tax credits by approximately$1.2 million to appropriately measure the amount of such deferred tax asset inaccordance with FIN 48.  This adjustmentdid not affect the net deferred tax asset because such asset was subject to avaluation allowance.  The recognition ofthis tax benefit may impact the effective income tax rate if such tax benefitis more likely than not to be realized when such benefit is recognized.  The Company does not anticipate a significantchange in its unrecognized tax benefits in the next twelve months.  The Company is no longer subject to federal,state or foreign income tax audits for tax years prior to 2003, however suchtaxing authorities can review any net operating losses utilized by the Companyin years subsequent to 2003.

 

In accordancewith SFAS No. 109, deferred tax assets and liabilities are determinedbased on differences between financial reporting and income tax bases of assetsand liabilities, as well as net operating loss carryforwards, and are measuredusing the enacted tax rates and laws in effect when the differences areexpected to reverse. Deferred tax assets are reduced by a valuation allowanceto reflect the uncertainty associated with ultimate realization.

 

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The Companyrecognizes potential interest and penalties relating to income tax positions asa component of the provision for income taxes.

 

**3.****                                      NetLoss per Share**

 

The following table sets forth the computation ofbasic and diluted net loss per share for the three and nine months ended September 30,2008 and 2007:

 
| ** **                                                               | ** ** | **Three Months Ended September 30,**              | ** ** | **Nine Months Ended September 30,** | ** ** |
|--------------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                                               | ** ** | **2008**                                                              | ** ** | **2007**                                           | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **                                                               | ** ** | **(in thousands, except per share amounts)** | ** ** |
| ***Basic and diluted***                                                  | * *   | * *                                                              | * *   | * *                                           | * *   | * * | * * | * * | * * |
| Net loss                                                                 |       | $                                                                     | (13,217    | )                                                  | $          | (23,643 | ) | $ | (4,307 | ) | $ | (19,779 | ) |
|                                                                     |       |                                                                  |       |                                               |       |   |   |   |   |
| Weighted average common shares outstanding,  basic                       |       | 52,136                                                                |       | 51,808                                             |       | 52,027 |   | 51,703 |   |
| Less: weighted average unvested restricted  common shares outstanding    |       | 195                                                                   |       | 136                                                |       | 185 |   | 107 |   |
|                                                                     |       |                                                                  |       |                                               |       |   |   |   |   |
| Net weighted average common shares  outstanding, basic                   |       | 51,941                                                                |       | 51,672                                             |       | 51,842 |   | 51,596 |   |
|                                                                     |       |                                                                  |       |                                               |       |   |   |   |   |
| Plus: net effect of dilutive stock options  and restricted common shares |       | —                                                                |       | —                                             |       | — |   | — |   |
|                                                                     |       |                                                                  |       |                                               |       |   |   |   |   |
| Weighted average common shares outstanding,  diluted                     |       | 51,941                                                                |       | 51,672                                             |       | 51,842 |   | 51,596 |   |
|                                                                     |       |                                                                  |       |                                               |       |   |   |   |   |
| Loss per share, basic                                                    |       | $                                                                     | (0.25      | )                                                  | $          | (0.46 | ) | $ | (0.08 | ) | $ | (0.38 | ) |
|                                                                     |       |                                                                  |       |                                               |       |   |   |   |   |
| Loss per share, diluted                                                  |       | $                                                                     | (0.25      | )                                                  | $          | (0.46 | ) | $ | (0.08 | ) | $ | (0.38 | ) |

 

Basic loss per share is computed using the weightedaverage number of shares of common stock outstanding during the period, reducedwhere applicable for outstanding yet unvested shares of restricted commonstock.  The table below provides details of the outstanding options andrestricted stock for the three and nine months ended September 30, 2008and 2007. The number of dilutive common stock equivalents was calculated usingthe treasury stock method.

 

 
|                                                                                                                                      |   | **Three Months Ended September 30,** |       | **Nine Months Ended September 30,** |       |
|-------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------|------------|---------------------------------------------------------|------------|
|                                                                                                                                      |   | **2008**                                                 | ** ** | **2007**                                                | ** ** | **2008** | ** ** | **2007** |   |
|                                                                                                                                      |   | **(in thousands)**                                  |       |
| Weighted average options outstanding                                                                                                      |   | 10,611                                                   |       | 7,519                                                   |       | 9,924 |   | 7,289 |   |
| Weighted average options included in  computation of diluted loss per share                                                               |   | —                                                   |       | —                                                  |       | — |   | — |   |
| Weighted average options considered anti-dilutive  and excluded from the computation of diluted loss per share                            |   | 10,611                                                   |       | 7,519                                                   |       | 9,924 |   | 7,289 |   |
| Weighted average restricted shares  outstanding                                                                                           |   | 195                                                      |       | 136                                                     |       | 185 |   | 107 |   |
| Weighted average restricted shares included  in computation of diluted loss per share                                                     |   | —                                                   |       | —                                                  |       | — |   | — |   |
| Weighted average unvested restricted common  shares considered anti-dilutive and excluded from the computation of diluted  loss per share |   | 195                                                      |       | 136                                                     |       | 185 |   | 107 |   |

 

**4.****                                      ComprehensiveLoss**

 

The Company reports comprehensive loss and its componentsin accordance with the provisions of SFAS No. 130, “ReportingComprehensive Income.” Comprehensive loss includes net loss, unrealized gain(loss) on available for sale securities and currency translation adjustments.  Comprehensive loss for the three and nine months ended September 30,2008 and September 30, 2007 is detailed below.

 

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** **
| ** **                                               | ** ** | **Three Months ended September 30,** | ** ** | **Nine Months ended September 30,** | ** ** |
|----------------------------------------------------------|------------|----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| **Comprehensive Loss**                              | ** ** | **2008**                                                 | ** ** | **2007**                                                | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **                                               | ** ** | **(in thousands)**                                  | ** ** |
| Net loss                                                 |       | $                                                        | (13,217    | )                                                       | $          | (23,643 | ) | $ | (4,307 | ) | $ | (19,779 | ) |
|                                                     |       |                                                     |       |                                                    |       |   |   |   |   |
| Unrealized (loss) gain on available for  sale securities |       | (680                                                     | )          | 209                                                     |       | (824 | ) | 176 |   |
|                                                     |       |                                                     |       |                                                    |       |   |   |   |   |
| Foreign currency translation adjustment                  |       | 30                                                       |       | 6                                                       |       | (9 | ) | 23 |   |
|                                                     |       |                                                     |       |                                                    |       |   |   |   |   |
| Comprehensive loss                                       |       | $                                                        | (13,867    | )                                                       | $          | (23,428 | ) | $ | (5,140 | ) | $ | (19,580 | ) |

 

**5.**             **Income Taxes**

 

During the three months ended September 30, 2008,the Company recorded a benefit from income taxes of $6.6 million based on aloss before taxes during this period of $19.8 million. This resulted in aneffective tax rate of approximately 33% for the three months ended September 30,2008. The benefit recorded during the third quarter of 2008 is attributable tothe decrease in the Company’s U.S. income since June 30, 2008. The benefitrecorded was not in excess of the provision that was recorded during the firstsix months of 2008. The Company continues to believe that the realization ofits U.S. deferred tax assets as of September 30, 2008 is more likely thannot. The Company did not record a benefit from income taxes on losses incurredfrom international operations as it is not more likely than not that theCompany will recognize a benefit from the international deferred tax assets. Duringthe three months ended September 30, 2007 the Company recorded a $1.9million tax benefit based on a loss before income taxes of $25.5 million. Thistax benefit equaled the amount of the deferred tax provision that was recordedduring the first six months of 2007.

 

For the nine months ended September 30, 2008, theCompany recorded a $1.2 million provision for income taxes based on a lossbefore taxes of $3.1 million. The provision for income taxes was recorded basedupon U.S. taxable income and the Company did not record a benefit from incometaxes on the Company’s losses incurred from its international operations as itis not more likely than not that the Company will recognize a benefit from theinternational deferred tax assets. During the nine months ended September 30,2007, the Company recorded a provision for income tax of $0.5 million basedupon a loss before income taxes during this period of $19.2 million. TheCompany did not record a deferred tax benefit for the losses incurred in thenine months ended September 30, 2007, as the Company believed that therealization of the deferred tax assets associated with those losses was notmore likely than not.

 

During the three months ended December 31, 2006,the Company reduced a portion of the valuation allowances that had beenrecorded in prior years since the realization of these future benefits wasdetermined to be more likely than not. The amount of the deferred tax assetconsidered realizable is subject to change based on estimates of future taxableincome during the carryforward period. If the Company is profitable, thesedeferred tax assets are available to offset future income taxes. Factors thatcould significantly impact the Company’s valuation allowance include but arenot limited to future projections of taxable income, tax legislation, rulingsby relevant tax authorities, the progress of ongoing tax audits, the regulatoryapproval of products currently under development, extension of the patentrights relating to Angiomax, failure to achieve future anticipated revenues orthe implementation of tax planning strategies in connection with the Company’sEuropean expansion. The Company will continue to evaluate the realizability ofits deferred tax assets and liabilities and will adjust such amounts in lightof changing facts and circumstances. Should the Company further reduce orincrease the valuation allowance on deferred tax assets, a current year taxbenefit or expense would be recognized and future periods would then includeincome taxes at a higher or lower rate than the effective rate in the periodthat the adjustment is made.

 

At December 31, 2007, net operating lossesavailable to offset future taxable income for federal income tax purposes wereapproximately $197.0 million. If not utilized, federal net operating losscarryforwards will expire at various dates beginning in 2019 and ending in2026.** **In 1998 and 2002, theCompany experienced a change in ownership as defined in Section 382 of theInternal Revenue Code. Section 382 can potentially limit a company’sability to use net operating losses, tax credits and other tax attributes inperiods subsequent to a change in ownership. Of the $197.0 million of theCompany’s federal net operating losses, $61.3 million is subject to limitationsthrough 2010. However, based on the market value of the Company at such dates,the Company believes that these ownership changes will not significantly impactits ability to use net operating losses or tax credits in the future to offsettaxable income.

 

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**6.**                       **Investment**

 

On July 2, 2008, the Company made a short termconvertible loan of $5.0 million to a specialty pharmaceutical company withexpertise in drug development. This loan converted into 2.7 million shares ofconvertible preferred stock in the third quarter of 2008. The $5.0 million hasbeen classified as investments and is included in other assets on the Company’sconsolidated balance sheets. The Company holds less than 20% of the issued andoutstanding shares of the specialty pharmaceutical company and does not havesignificant influence over the company. Accordingly, the Company has accountedfor the investment under the cost method and included it in other assets on theCompany’s consolidated balance sheets.

 

**7.**                       **Curacyte Discovery Acquisition**

 

In August 2008, the Company acquired CuracyteDiscovery, a wholly owned subsidiary of Curacyte AG. Curacyte Discovery, aGerman limited liability company, is primarily engaged in the discovery anddevelopment of small molecule serine protease inhibitors. Its lead compound,CU-2010, is being developed for the prevention of blood loss during surgery. Inconnection with the acquisition, the Company paid Curacyte AG an upfrontpayment of €14.5 million (approximately $22.9 million) and agreed to pay acontingent milestone payment of €10.5 million if the Company elects to continueto proceed with clinical development of CU-2010 and possible future salesroyalty payments and a commercial milestone payment.

 

The total cost of the acquisition was approximately$23.7 million which included a purchase price of approximately $22.9 millionand direct acquisition costs of $0.8 million. The results of Curacyte Discovery’soperations since the acquisition date have been included in the Company’sconsolidated financial statements. Below is a summary which details the assetsand liabilities acquired as a result of the acquisition:

 
| * *                            | ** ** | **(in thousands)** | ** ** |
|-------------------------------------|------------|-------------------------|------------|
| *Acquired  Assets:*                 | ** ** | ** **              | ** ** |
| Total current assets                |       | $                       | 1,970      |   |
| Fixed assets                        |       | 1,273                   |       |
| Other assets                        |       | 51                      |       |
| In-process research and development |       | 21,373                  |       |
| Total acquired assets               |       | 24,667                  |       |
| * *                            | * *   | * *                | * *   |
| *Acquired  Liabilities:*            | * *   | * *                | * *   |
| Total current liabilities           |       | (1,004                  | )          |
|                                |       |                    |       |
| Total purchase price                |       | $                       | 23,663     |   |

 

The purchase price was allocated to the estimated fairvalue of assets acquired and liabilities assumed based on a preliminaryvaluation and management estimates.  Approximately$21.4 million of the purchase price was allocated to in-process research anddevelopment and was expensed upon completion of the acquisition. This amountwas recorded as research and development in the consolidated statements ofoperations. The Company expects to finalize the purchase price allocationwithin one year from the date of the acquisition, pending final valuation.

 

**8.****                      ****Nycomed Agreements**

 

On July 1, 2007, the Company entered into a seriesof agreements with Nycomed (collectively, the Agreements) pursuant towhich the Company terminated its prior distribution agreement with Nycomed andreacquired all rights to develop, distribute and market the Company’s productAngiox in the Territory. Prior to entering into the Agreements, Nycomedserved as the exclusive distributor of Angiox in the Territory pursuant to asales, marketing and distribution agreement, dated March 25, 2002, asamended.  The Territory does not include Spain, Greece and Portugal, whichare covered by another third-party distributor.

 

Pursuant to the Agreements, the Company and Nycomed agreed totransition to the Company the Angiox rights held by Nycomed. Under thesearrangements, the Company assumed control of the marketing of Angioximmediately and Nycomed agreed to provide, on a transitional basis, salesoperations services, which ended December 31, 2007, and productdistribution services through 2008. The Company assumed control of thedistribution of Angiox in the majority of countries in the Territory during thethird quarter of 2008 and anticipates taking control of the distribution in theremaining countries in the Territory by the end of 2008.

 

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Under the terms of the transitional distribution agreement withNycomed, upon the sale by Nycomed to third parties of vials of Angiox purchasedby Nycomed from the Company prior to July 1, 2007 (the existinginventory), Nycomed is required to pay the Company a specified percentage ofNycomed’s net sales of Angiox, less the amount previously paid by Nycomed tothe Company for the existing inventory. Under the transitional distributionagreement, Nycomed had the right to return any existing inventory as of June30, 2008 for the price paid by Nycomed to the Company for such inventory. Includedwithin the Company’s accrual for product return is a reserve of $1.7 millionand $3.0 million, at September 30, 2008 and December 31, 2007, respectively.During the third quarter of 2008, the Company reduced the reserve by $1.3million as Nycomed sold a portion of its existing inventory during the thirdquarter of 2008.

 

Under the transitional services agreement the Company had entered intowith Nycomed, Nycomed agreed to perform detailing and other selling, salesmanagement, product/marketing management, medical advisor, internationalmarketing and certain pharmacovigilance services in accordance with an agreedupon marketing plan through December 31, 2007. The Company agreed to payNycomed’s personnel costs, plus an agreed upon markup, for the performance ofthe services, in accordance with a budget detailed by country andfunction.  In addition, the Company agreed to pay Nycomed’s costs, inaccordance with a specified budget, for performing specified promotionalactivities during the term of the services agreement. These amounts wereincluded in selling, general and administrative expense on the condensedconsolidated statements of operations as the Company received an identifiablebenefit from these services and could reasonably estimate their fair value. Thisagreement terminated on December 31, 2007.

 

The Company has incurred total costs of $45.7 million in connectionwith the reacquisition of the rights to develop, distribute and market Angioxin the Territory. This amount includes payments of $20.0 million, $15.0 millionand $5.0 million paid to Nycomed on July 2, 2007, January 15, 2008and July 8, 2008, respectively, as well as the $5.0 million payment madeon July 8, 2008 related to the Company obtaining European Commissionapproval to market Angiox for ACS, which occurred in January 2008.

 

In the third quarter of 2007, the Company recorded approximately $30.8million as expense attributable to the termination of the prior distributionagreement with Nycomed. The $30.8 million expense was offset in part by thewrite-off of approximately $2.7 million of deferred revenue, which amountrepresented the unamortized portion of deferred revenue related to milestonepayments received from Nycomed in 2004 and 2002. Such amounts were included inselling, general and administrative expense on the consolidated statements ofoperations for the year ended December 31, 2007. The Company allocatedapproximately $14.9 million of the costs associated with the reacquisition ofthe rights to develop, distribute and market Angiox in the European Union tointangible assets. These intangible assets are being amortized over theremaining patent life of Angiox, which expires in 2015. The period in whichamortization expense will be recorded reflects the pattern in which theeconomic benefits of the intangible assets are expected to be consumed.

 

**9.****                      IntangibleAssets**

 

The following information details the carrying amountsand accumulated amortization of our intangible assets:

 
| ** **                     | ** ** | **As of September 30, 2008** | ** ** | **As of December 31, 2007** | ** ** |
|--------------------------------|------------|--------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                     | ** ** | **Gross  Carrying  Amount**                      | ** ** | **Accumulated  Amortization**                   | ** ** | **Net  Carrying  Amount** | ** ** | **Gross  Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Net  Carrying  Amount** | ** ** |
| ** **                     | ** ** | **(in thousands)**                          | ** ** |
| Identifiable intangible assets | ** ** | ** **                                       | ** ** | ** **                                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Customer relationships         |       | $                                                | 7,457      |                                            | $          | 216 |   | $ | 7,241 |   | $ | 7,457 |   | $ | — |   | $ | 7,457 |   |
| Distribution agreement         |       | 4,448                                            |       | 128                                             |       | 4,320 |   | 4,448 |   | — |   | 4,448 |   |
| Trademarks                     |       | 3,024                                            |       | 87                                              |       | 2,937 |   | 3,024 |   | — |   | 3,024 |   |
| Cleviprex milestones           |       | 2,000                                            |       | 3                                               |       | 1,997 |   | — |   | — |   | — |   |
| **Total**                      |       | $                                                | 16,929     |                                            | $          | 434 |   | $ | 16,495 |   | $ | 14,929 |   | $ | — |   | $ | 14,929 |   |

 

The Company recorded $2.0 million of intangible assetsduring the third quarter of 2008 in connection with payments required to bemade upon the FDA’s approval on August 1, 2008 of Cleviprex for thereduction of blood pressure when oral therapy is not feasible or not desirable.As a result of such approval, the Company paid a $1.5 milestone payment toAstraZeneca under the terms of the Company’s patent license agreement withAstraZeneca and a $0.5 million payment to Hospira for development work underthe Company’s manufacturing agreement with Hospira.

 

Amortization expense wasapproximately $0.1 million and $0.4 million for the three and nine months endedSeptember 30, 2008, respectively. The Company expects amortization expenserelated to these intangible assets to be $0.1

 

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million for the remainder of 2008. The Company expectsannual amortization expense related to these intangible assets to be $1.2million, $1.8 million, $2.4 million, $2.4 million and $3.0 million for theyears ending December 31, 2009, 2010, 2011, 2012 and 2013, respectively,with the balance of $5.6 million being amortized thereafter. Amortization ofcustomer relationships, distribution agreements and trademarks will be recordedin selling, general and administrative expense on the consolidated statementsof operations. Amortization of Cleviprex milestones will be recorded in cost ofrevenue on the consolidated statements of operations.

 

**10.****               Contingencies**

 

The Company may be, from time to time, a party tovarious disputes and claims arising from normal business activities. Inaccordance with SFAS No. 5, “Accounting for Contingencies,” the Companyaccrues for loss contingencies when information available indicates that it isprobable that a liability has been incurred and the amount of such loss can bereasonably estimated. The Company believes that the ultimate resolution ofthese matters will not have a material adverse effect on the Company’sfinancial condition or liquidity. However, adjustments, if any, to the Company’sestimates could be material to operating results for the periods in whichadjustments to the liability are recorded.

 

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**Item 2.Management’s Discussion and Analysis of Financial Condition and Results ofOperations**

 

***Youshould read the following discussion and analysis of our financial conditionand results of operations together with our financial statements andaccompanying notes included elsewhere in this quarterly report. In addition tothe historical information, the discussion in this quarterly report containscertain forward-looking statements that involve risks and uncertainties. Ouractual results could differ materially from those anticipated by theforward-looking statements due to our critical accounting estimates discussedbelow and important factors set forth in this quarterly report, including under“Risk Factors” in Part II, Item 1A of this quarterly report***

*** ***

**Overview**

** **

We are a globalpharmaceutical company focused on advancing the treatment of critical carepatients through the delivery of innovative, cost-effective medicines to theworldwide hospital marketplace. We have two marketed products, Angiomax®(bivalirudin) and CleviprexTM (clevidipine butyrate) injectable emulsion, oneproduct in late-stage development, cangrelor, and one compound, CU-2010,scheduled to enter clinical development in the first half of 2009. We marketAngiomax to interventional cardiology customers for its approved uses inpatients undergoing percutaneous coronary intervention, or PCI, including inpatients with or at risk of heparin-induced thrombocytopenia andthrombosis syndrome, a complication of heparin administration known asHIT/HITTS that can result in limb amputation, multi–organ failure anddeath.  In Europe, we also marketAngiomax for use in adult patients with acute coronary syndrome, or ACS.  We market Cleviprex toanesthesiology/surgery, critical care and emergency department practitioners inthe United States for its approved use for the reduction of blood pressure whenoral therapy is not feasible or not desirable. We are also developing Angiomax and Cleviprex for additionalindications.

 

We market and sellAngiomax and Cleviprex in the United States with a joint sales force that, asof September 30, 2008, consisted of 190 representatives and managersexperienced in selling to hospital customers. In Europe, we market and sell Angiox® (bivalirudin), the name underwhich we sell Angiomax in Europe, with a sales force that we are currentlybuilding and expects to total approximately 70 sales representatives andmanagers by the end of the first quarter of 2009.  Cleviprex is not approved for sale outsidethe United States.  Our revenues to datehave been generated principally from sales of Angiomax in the United States. Weare increasing our sales force worldwide in connection with the expansion ofour sales and marketing efforts in Europe, approval of the label expansion forthe use of Angiox for ACS in Europe, and the approval by the U.S. Food and DrugAdministration, or FDA, of Cleviprex for the reduction of blood pressure whenoral therapy is not feasible or not desirable.

 

Research and developmentexpenses represent costs incurred for product acquisition, clinical trials,activities relating to regulatory filings and manufacturing developmentefforts. We outsource much of our clinical trials and all of our manufacturingdevelopment activities to third parties to maximize efficiency and minimize ourinternal overhead. We expense our research and development costs as they areincurred. Selling, general and administrative expenses consist primarily ofsalaries and related expenses, general corporate activities and costsassociated with marketing and promotional activities. Research and developmentexpense, selling, general and administrative expense and cost of revenue alsoinclude stock-based compensation expense, which we allocate based on theresponsibilities of the recipients of the stock-based compensation.

 

Except for 2004 and 2006,we have incurred net losses on an annual basis since our inception. As of September 30,2008, we had an accumulated deficit of approximately $263.8 million. We expectto make substantial expenditures to further develop and commercialize ourproducts, including costs and expenses associated with clinical trials,regulatory approvals and commercialization. Although we achieved profitabilityin 2004 and in 2006, we do not expect to be profitable in 2008 primarily as aresult of the costs incurred in connection with our acquisition of CuracyteDiscovery GmbH, or Curacyte Discovery, in August 2008.  We were also not profitable in 2007,primarily as a result of the costs incurred in connection with the Nycomedtransaction, which is described below. We will likely need to generate significantly greater revenue in futureperiods to achieve and maintain profitability in light of our plannedexpenditures.

 

In March 2007, weentered into an agreement with a third party to distribute Angiomax in theUnited States through a sole source distribution model.  Cleviprex, which was launched in the UnitedStates in September 2008, is distributed under the same sole sourcedistribution model with the same third party. Under this model, we sell Angiomax and Cleviprex to our sole sourcedistributor, which then sells Angiomax and Cleviprex to a limited number ofnational medical and pharmaceutical wholesalers with distribution centerslocated throughout the United States and, in certain cases, directly tohospitals.  Prior to adopting this solesource distribution model, we sold Angiomax to these wholesalers directly andthese wholesalers then sold Angiomax to hospitals. We began selling Angiomaxunder this revised distribution system during the quarter ended March 31,2007.  Outside the United States, we sellAngiomax either directly to hospitals or to wholesalers or international distributors,which then sell Angiomax to hospitals.

 

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On July 1, 2007, we entered into a series of agreements withNycomed pursuant to which we terminated our prior distribution agreement withNycomed and reacquired all development, commercial and distribution rights forAngiox in the European Union (excluding Spain, Portugal and Greece) and theformer Soviet republics, or collectively, the Nycomed territory.  Prior to entering into the Nycomedagreements, Nycomed served as the exclusive distributor of Angiox in theNycomed territory pursuant to a sales, marketing and distribution agreement,dated March 25, 2002, as amended. Pursuant to the Nycomed agreements, we and Nycomed agreed to transitionthe Angiox rights held by Nycomed to us. Under these arrangements, we assumedcontrol of the marketing of Angiox immediately and Nycomed agreed to provide,on a transitional basis, sales operations services, which ended December 31,2007, and product distribution services through 2008. We assumed control of thedistribution of Angiox in the majority of countries in the Nycomed territoryduring the third quarter of 2008 and anticipate assuming control of thedistribution in the remaining countries by the end of 2008.

 

Under the terms of the transitional distribution agreement withNycomed, upon the sale by Nycomed to third parties of vials of Angiox purchasedby Nycomed from us prior to July 1, 2007, which we refer to as existinginventory, Nycomed agreed to pay us a specified percentage of Nycomed’s netsales of Angiox, less the amount previously paid by Nycomed for the existinginventory. Under the transitional distribution agreement, Nycomed had the rightto return to us any existing inventory as of June 30, 2008 for the price paidby Nycomed to us for such inventory. We recorded a reserve of $3.0 millionin the fourth quarter of 2007 for the existing inventory at Nycomed which wedid not believe would be sold by Nycomed prior to June 30, 2008 and would besubject to return in accordance with such agreement. During the third quarterof 2008, we reduced the reserve by $1.3 million as Nycomed sold a portion ofits existing inventory during the third quarter of 2008.

 

Under the transitional services agreement we had entered into withNycomed, Nycomed performed detailing and other selling, sales management,product/marketing management, medical advisor, international marketing andcertain pharmacovigilance services in accordance with an agreed upon marketingplan which ended December 31, 2007. Nycomed remains responsible for safetyreporting for as long as it sells Angiox in the Nycomed territory. Pursuant tothe agreement, we agreed to pay Nycomed’s personnel costs, plus an agreed uponmarkup, for the performance of the services, in accordance with a budgetdetailed by country and function. In addition, we agreed to pay Nycomed’scosts, in accordance with a specified budget, for performing specifiedpromotional activities during the term of the services agreement.   This services agreement terminated on December 31,2007.

 

We have incurred total costs of $45.7 million in connection with thereacquisition of the rights to develop, distribute and market Angiox in theNycomed territory. This amount includes the milestone payments of $20.0 millionpaid to Nycomed on June 2, 2007, $15.0 million paid to Nycomed on January 15,2008 and $5.0 million paid to Nycomed on July 8, 2008, as well as anadditional $5.0 million paid to Nycomed on July 8, 2008 for our obtainingEuropean Commission approval to market Angiox for ACS in January 2008.

 

During the third quarter of 2007, we allocated $30.8 million of thesecosts as expense attributable to the termination of the prior distributionagreement with Nycomed and $14.9 million to intangible assets. The $30.8million expense was offset in part by the write-off of approximately $2.7million of deferred revenue, which amount represented the unamortized portionof deferred revenue related to milestone payments received from Nycomed in 2004and 2002. Such amounts were included in selling, general and administrativeexpense on the consolidated statements of operations for the year ended December 31,2007.  We allocated approximately $14.9million of the costs associated with the reacquisition of the rights todevelop, distribute and market Angiox in the European Union to intangibleassets.  These intangible assets arebeing amortized over the remaining patent life of Angiox, which expires in2015.  The period in which amortizationexpense will be recorded reflects the pattern in which the economic benefits ofthe intangible assets are expected to be consumed.

 

To support the marketing,sales and distribution efforts of Angiox, we are taking the necessary steps todevelop our business infrastructure outside the United States. We haveconducted market research to examine the number of PCI procedures performedglobally and to identify key opinion leaders on a global basis. We areenhancing our worldwide development, sales and marketing capabilities, withEuropean operations being our initial focus. We believe that by establishing operations in Europe for Angiox, we willbe positioned to commercialize our pipeline of acute care product candidatesupon their approval, including Cleviprex, cangrelor and CU-2010, in Europe.

 

In August 2008, we acquired Curacyte Discovery, awholly owned subsidiary of Curacyte AG. Curacyte Discovery, a German limitedliability company, is primarily engaged in the discovery and development ofsmall molecule serine protease inhibitors. Its lead compound, CU-2010, is beingdeveloped for the prevention of blood loss during surgery. We expect toinitiate Phase I clinical trials of CU-2010 during the first half of 2009.  In connection with the acquisition, we paidCuracyte AG an upfront payment of €14.5 million (approximately $22.9 million)and agreed to pay a contingent milestone payment of €10.5 million if theCompany elects to continue to proceed with clinical development of CU-2010 andpossible future sales royalty 

 

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payments and a commercial milestone payment.

 

The total cost of the acquisition was approximately$23.7 million which included a purchase price of approximately $22.9 millionand direct acquisition costs of $0.8 million. Since the acquisition date, results of Curacyte Discovery’s operationshave been included in our consolidated financial statements.  The purchase price was allocated to theestimated fair value of assets acquired and liabilities assumed based on apreliminary valuation and management estimates. Approximately $21.4 million of the purchase price was allocated toin-process research and development and was expensed upon completion of theacquisition.  This amount was recorded asresearch and development in the consolidated statements of operations.  The remaining portion of the purchase pricewas allocated to net tangible assets.  Weexpect to complete the purchase price allocation within one year from the dateof the acquisition.

 

We have accrued for U.S.and state income taxes, for state taxes based on net worth and for a certainamount of income tax in international jurisdictions in our financial statementsto the extent these taxes apply. At December 31, 2007, net operatinglosses available to offset future taxable income for federal income taxpurposes were approximately $197.0 million. If not utilized, federal netoperating loss carryforwards will expire at various dates beginning in 2019 andending in 2026. During 2006, we reduced a portion of our valuation allowanceassociated with the deferred tax assets because at that time we considered therealization of these assets to be more likely than not. The future utilizationof net operating losses and credits may be subject to limitation based uponchanges in ownership under the rules of the Internal Revenue Code, or IRC.We experienced changes in ownership as defined by Section 382 of the IRCduring the years ended December 31, 1998 and 2002. Based on the marketvalue of our common stock at the time of those changes, we believe there willbe no impact on our ability to utilize our net operating losses and credits. Ofthe $197.0 million of our federal net operating losses, $61.3 millionis subject to limitations through 2010.

 

**Application of Critical Accounting Estimates**

** **

The discussion andanalysis of our financial condition and results of operations is based on ourunaudited condensed consolidated financial statements, which have been preparedin accordance with U.S. generally accepted accounting principles, or GAAP, forinterim financial information and with the instructions to Form 10-Q.  Accordingly, they do not include all theinformation and footnotes required by GAAP for complete financialstatements.  The preparation of thesefinancial statements requires us to make estimates and judgments that affectour reported assets and liabilities, revenues and expenses, and other financialinformation. Actual results may differ significantly from these estimates underdifferent assumptions and conditions. In addition, our reported financialcondition and results of operations could vary due to a change in theapplication of a particular accounting standard.

 

We regard an accountingestimate or assumption underlying our financial statements as a “criticalaccounting estimate” where:

 

·       the nature of the estimateor assumption is material due to the level of subjectivity and judgmentnecessary to account for highly uncertain matters or the susceptibility of suchmatters to change; and

 

·       the impact of the estimatesand assumptions on financial condition or operating performance is material.

 

Our significantaccounting policies are more fully described in note 2 of the UnauditedCondensed Consolidated Financial Statements section of this quarterly report onForm 10-Q and note 2 of the Consolidated Financial Statements in our annualreport on Form 10-K for the year ended December 31, 2007.  Notall of these significant accounting policies, however, require that we makeestimates and assumptions that we believe are “critical accounting estimates.” We have discussed our accounting policies with the audit committee of our boardof directors, and we believe that our estimates relating to revenuerecognition, inventory, stock-based compensation and income taxes describedunder the caption “Item 7. Management’s Discussion and Analysis of FinancialCondition and Results of Operations-Application of Critical AccountingEstimates” in our annual report on Form 10-K for the year ended December 31,2007 are “critical accounting estimates.” There have been no significant changes to our critical accountingestimates since December 31, 2007, except with respect to the revenue recognitionpolicy for Cleviprex and our investment in a specialty pharmaceutical company.

 

In March 2007, we entered into an agreement witha third party to distribute Angiomax in the United States through a sole sourcedistribution model.  Cleviprex, which waslaunched in the United States in September 2008, is distributed under thesame sole source distribution model with the same third party.  Under this model, we sell Angiomax andCleviprex to our sole source distributor, which then sells Angiomax andCleviprex to a limited number of national medical and pharmaceuticalwholesalers with distribution centers located throughout the United States andin certain cases, directly to hospitals. Prior to adopting this sole source distribution model, we sold Angiomaxto these wholesalers directly and these wholesalers then sold 

 

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Angiomax to hospitals. Outside of the United States,we sell Angiomax either directly to hospitals or to wholesalers orinternational distributors which then sell Angiomax to hospitals.

 

We do not recognize revenue from product sales untilthere is persuasive evidence of an arrangement, delivery has occurred, theprice is fixed and determinable, the buyer is obligated to pay us, theobligation to pay is not contingent on resale of the product, the buyer haseconomic substance apart from us, we have no obligation to bring about sale ofthe product, the amount of returns can be reasonably estimated andcollectibility is reasonably assured.

 

Initial gross wholesaler orders of Cleviprex in theUnited States in the third quarter of 2008 totaled $10.0 million and wererecorded as deferred revenue as we could not estimate certain adjustments togross revenue, including returns.  Underthis deferred revenue model, we do not recognize revenue upon productshipment.  Instead, upon productshipment, we invoice our sole source distributor, record deferred revenue atgross invoice sales price, classify the cost basis of the product held by thesole source distributor as finished goods inventory held by others and includesuch amount within prepaid expenses and other current assets on ourconsolidated balance sheets.  We expectto recognize the deferred revenue as revenue in the fourth quarter of 2008 whenhospitals purchase product from the sole source distributor or wholesaler towhich the sole source distributor sells Cleviprex at which time returns areunlikely.  We expect to recognizeCleviprex revenue upon shipment to our sole source distributor in the samemanner as we recognize Angiomax revenue when we have sufficient information todevelop reasonable estimates of expected returns and other adjustments to grossrevenue.

 

On July 2, 2008, we made a short term convertibleloan of $5.0 million to a specialty pharmaceutical company with expertise indrug development.  This loan convertedinto 2.7 million shares of convertible preferred stock in the third quarter of2008.  The $5.0 million has beenclassified as investments and is included in other assets on our consolidatedbalance sheets.  We hold less than 20% ofthe issued and outstanding shares of the specialty pharmaceutical company anddo not have significant influence over the company.  Accordingly, we have accounted for theinvestment under the cost method and included it in other assets on ourconsolidated balance sheets.  Under the cost method, an investment iscarried at cost until it is sold or there is evidence that changes in thebusiness environment or other facts and circumstances suggest it may be otherthan temporarily impaired based on criteria outlined in FAS Staff Position Nos.FAS 115-1 and FAS 124-1 and on Emerging Issues Task Force Issue No. 03-1, “TheMeaning of Other-Than-Temporary Impairment and its Application to CertainInvestments.”

 

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**Results of Operations**

** **

***ThreeMonths Ended September 30, 2008 and 2007***

*** ***

*NetRevenue.***Net revenue increased 42% to $88.1 million for the three months ended September 30,2008 as compared to $62.2million for the three months ended September 30,2007. The following table reflects the components of net revenue for the threemonths ended September 30, 2008 and 2007:

 

**NetRevenue**

 
| ** **                              | ** ** | **Three Months Ended September 30,** | ** ** |
|-----------------------------------------|------------|----------------------------------------------------------|------------|
| **Net Revenue**                    | ** ** | **2008**                                                 | ** ** | **% of Total  Revenue** | ** ** | **2007** | ** ** | **% of Total  Revenue** | ** ** |
| ** **                              | ** ** | **(in thousands)**                                  | ** ** | **(in thousands)** | ** ** |
| ***Angiomax***                          |       |                                                     |       |   |   |   |   |   |   |
| United States sales                     |       | $                                                        | 84,979     |   | 96 | % | $ | 60,730 |   | 98 | % |
| International net revenue               |       | 2,556                                                    |       | 3 | % | 305 |   | 0 | % |
| ***Revenue from collaborations,  net*** |       | 591                                                      |       | 1 | % | 1,156 |   | 2 | % |
| ***Total net revenue***                 |       | $                                                        | 88,126     |   | 100 | % | $ | 62,191 |   | 100 | % |

 

Netrevenue for the three months ended September 30, 2008 increased comparedto the three months ended September 30, 2007, primarily due to theincrease in U.S. sales of Angiomax. Sales of Angiomax in the United States increased $24.2 million, or 40%,due to increased demand by existing hospital customers, the addition of newhospital customers and the price increases we implemented in August 2007and January 2008.  Of the 40%increase in United States sales in the third quarter of 2008 compared to thesame quarter in 2007, approximately 24% was related to hospital demand byexisting and new customers and approximately 16% was attributable to the priceincreases.

 

Internationalnet revenue increased $2.3 million during the three months ended September 30,2008 compared to the three months ended September 30, 2007.  During the fourth quarter of 2007, werecorded a $3.0 million reserve for existing inventory at Nycomed, which we didnot believe would be sold by Nycomed prior to June 30, 2008 and would besubject to return in accordance with our transitional distribution agreementwith Nycomed.  During the third quarterof 2008, Nycomed sold approximately $1.3 million of its existing inventory,which resulted in an increase of $1.3 million to international net revenue anda decrease of the reserve for existing inventory. The existing inventory at September 30,2008 was $1.7 million, which represents the amount of inventory subject toreturn by Nycomed.  Approximately $0.4million of the increase in international net revenue reflects the direct saleswe made after assuming control of the distribution of Angiox in the majority ofcountries in the Nycomed territory during the third quarter of 2008.  We anticipate assuming control of thedistribution of Angiox in the remaining countries in the Nycomed territory bythe end of 2008.  The remaining increasein international net revenue is primarily related to increased orders from ourCanadian distributor.

 

During thethree months ended September 30, 2008, we recognized as revenue fromcollaborations approximately $0.6 million of net revenue from sales madeby Nycomed of approximately $1.4 million of Angiox under our transitionaldistribution agreement with Nycomed. For the three months ended September 30,2007, we recognized as revenue from collaborations approximately $1.2 millionof net revenue from sales made by Nycomed of approximately $2.7 million underthe transitional distribution agreement. Under the terms of this transitionaldistribution agreement, upon the sale by Nycomed to third parties of vials ofAngiox, Nycomed pays us a specified percentage of Nycomed’s net sales ofAngiox, less the amount previously paid by Nycomed to us for the existinginventory.  The decrease in revenue fromcollaborations is primarily a result of us assuming control of the distributionof Angiox in the majority of countries in the Nycomed territory during thethird quarter and such amounts being included in international net revenue.

 

*Cost of Revenue.***Cost of revenue during the threemonths ended September 30, 2008 was$22.1 million, or 25% of net revenue, compared to $16.2 million, or 26% of netrevenue, for the three months ended September 30, 2007. The decrease incost of revenues as a percentage of net revenue is primarily attributable to anincrease in revenue due to the above mentioned price increases we implementedin August 2007 and January 2008. Cost of revenue consisted of expenses in connection with the manufactureof Angiomax sold, royalty expenses under our agreements with Biogen Idec andHealth Research Inc. and the logistics costs of selling Angiomax, such asdistribution, storage and handling.  Costof revenue increased $5.9 million during the three months ended September 30,2008 compared to the three months ended September 30, 2007.  Approximately $4.2 million of the total costof revenue increase related to an increase in royalty expense due to higherAngiomax sales and approximately $1.7 million of the increase related to anincrease in logistics costs primarily related to higher Angiomax sales and ourcosts associated with establishing our European distribution network.

 

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**Cost of Revenue**

 
| ** **                    | ** ** | **Three Months Ended September 30,** | ** ** |
|-------------------------------|------------|----------------------------------------------------------|------------|
| **Cost of Revenue** | ** ** | **2008**                                                 | ** ** | **% of Total  Cost** | ** ** | **2007** | ** ** | **% of Total  Cost** | ** ** |
| ** **                    | ** ** | **(in thousands)**                                  | ** ** | ** ** | ** ** | **(in thousands)** | ** ** | ** ** | ** ** |
| Manufacturing                 |       | $                                                        | 5,269      |   | 24 | % | $ | 5,230 |   | 33 | % |
| Royalty                       |       | 13,747                                                   |       | 62 | % | 9,583 |   | 59 | % |
| Logistics                     |       | 3,073                                                    |       | 14 | % | 1,344 |   | 8 | % |
| ***Total Cost of Revenue***   |       | $                                                        | 22,089     |   | 100 | % | $ | 16,157 |   | 100 | % |

 

*Research and Development Expenses.*Researchand development expenses increased $25.4 million to $44.1 million for the threemonths ended September 30, 2008, from $18.7 million for the three monthsended September 30, 2007. The increase primarily reflects the acquisitionof Curacyte Discovery in August 2008, which resulted in the inclusion inresearch and development expense of $21.4 million of acquisition relatedin-process research and development.  Theremaining increase in research and development expenses resulted primarily froman increase in expenditures in connection with expenses associated with thedevelopment of Angiomax for additional indications and product lifecyclemanagement activities, increased expenses associated with our cangrelorclinical trials and increased business development expenses.  The increase in research and developmentexpenses was partially offset by decreased research and developmentexpenditures in connection with Cleviprex.

 

The following table identifies, for each of our majorresearch and development projects, our spending for the three months ended September 30,2008 and 2007. Spending for past periods is not necessarily indicative ofspending in future periods.

 

**Research and Development Spending**

 
| ** **                                               | ** ** | **Three Months Ended September 30,** | ** ** |
|----------------------------------------------------------|------------|----------------------------------------------------------|------------|
| **Research and Development**                   | ** ** | **2008**                                                 | ** ** | **% of  Total R&D** | ** ** | **2007** | ** ** | **% of  Total R&D** | ** ** |
| ** **                                               | ** ** | **(in thousands)**                                  | ** ** | ** ** | ** ** | **(in thousands)** | ** ** | ** ** | ** ** |
| ***Angiomax***                                           | * *   | * *                                                 | * *   | * * | * * | * * | * * | * * | * * |
| Clinical trials                                          |       | $                                                        | 1,253      |   | 3 | % | $ | 865 |   | 5 | % |
| Manufacturing development                                |       | 968                                                      |       | 2 | % | 219 |   | 1 | % |
| Administrative and headcount costs                       |       | 1,035                                                    |       | 2 | % | 1,251 |   | 7 | % |
| **Total  Angiomax**                                      |       | 3,256                                                    |       | 7 | % | 2,335 |   | 13 | % |
| ***Cleviprex***                                          | * *   | * *                                                 | * *   | * * | * * | * * | * * | * * | * * |
| Clinical trials                                          |       | 925                                                      |       | 2 | % | 835 |   | 4 | % |
| Manufacturing development                                |       | 322                                                      |       | 1 | % | 558 |   | 3 | % |
| Administrative and headcount costs                       |       | 1,301                                                    |       | 3 | % | 3,411 |   | 18 | % |
| **Total  Cleviprex**                                     |       | 2,548                                                    |       | 6 | % | 4,804 |   | 25 | % |
| ***Cangrelor***                                          | * *   | * *                                                 | * *   | * * | * * | * * | * * | * * | * * |
| Clinical trials                                          |       | 10,907                                                   |       | 25 | % | 7,585 |   | 40 | % |
| Manufacturing development                                |       | 623                                                      |       | 1 | % | 1,252 |   | 7 | % |
| Administrative and headcount costs                       |       | 1,192                                                    |       | 3 | % | 949 |   | 5 | % |
| **Total  Cangrelor**                                     |       | 12,722                                                   |       | 29 | % | 9,786 |   | 52 | % |
| ***CU-2010***                                            | * *   | * *                                                 | * *   | * * | * * | * * | * * | * * | * * |
| Clinical trials                                          |       | —                                                   |       | 0 | % | — |   | 0 | % |
| Manufacturing development                                |       | —                                                   |       | 0 | % | — |   | 0 | % |
| Administrative and headcount costs                       |       | 386                                                      |       | 1 | % | — |   | 0 | % |
| Acquisition related in-process research and  development |       | 21,373                                                   |       | 48 | % | — |   | 0 | % |
| **Total  CU-2010**                                       |       | 21,759                                                   |       | 49 | % | — |   | 0 | % |
| ***Other***                                              |       | 3,790                                                    |       | 9 | % | 1,816 |   | 10 | % |
| ***Total***                                              |       | $                                                        | 44,075     |   | 100 | % | $ | 18,7411 |   | 100 | % |

 

*Angiomax*

 

*Research and development spendingrelated to Angiomax in the three months ended September 30, 2008 increasedby approximately $0.9 million compared to in the three months ended September 30,2007.  Approximately $0.4*

 

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*million of the increase relates toan increase in clinical trial expenses. *Clinicaltrial expenses in the three months ended September 30, 2008 and 2007included research and development expenses that we incurred in connection witha study of Angiomax in the pediatric setting that we began in the first half of2007 in connection with a written request for such a study that we receivedfrom the FDA. The study consists of a single trial to clarify the pediatricdose that provides a pharmacodynamic response equivalent to that observed inthe adult population at the approved adult dose. We completed the enrollment of110 patients during the third quarter of 2008 and expect to file a clinicalstudy report for the pediatric extension with the FDA in the fourth quarter of2008.  Costs incurred in connection withthe pediatric study were comparable in the three month periods ended September 30,2008 and 2007.  T*he three months ended September 30,2007 also included clinical trial expenses for our 13,819 patient Phase IIIACUITY trial, primarily related to data analysis.*

 

During the three months ended September 30, 2008,Angiomax manufacturing development expenses increased $0.7 million compared tothe three months ended September 30, 2007, primarily due to costs incurredin connection with product lifecycle management activities. Although we plan tocontinue to incur research and development expenses relating to Angiomax inconnection with our efforts to expand the indications for which Angiomax iscurrently approved and to increase our product lifecycle management activities,w*e expect spendingfor Angiomax in the remainder of 2008 continues to decrease as a percentage ofour research and development expense.*

 

*Cleviprex*

* *

*Research and developmentexpenditures for Cleviprex decreased approximately $2.3 million during thethree months ended September 30, 2008 compared to the same period in2007.  The decrease in research anddevelopment expenditures in 2008 primarily reflects increased spending during2007 in preparation for filing our NDA with the FDA, which we submitted i*nJuly 2007.  On August 1, 2008,the FDA approved Cleviprex for the reduction of blood pressure when oraltherapy is not feasible or not desirable and we launched the product in September 2008.

 

*Cangrelor*

* *

We are developing cangrelor for potential use as anantiplatelet agent in the acute care settings of the cardiac catheterizationlaboratory, the operating room and/or the emergency department. Research anddevelopment expenditures related to cangrelor increased approximately $2.9million in the three months ended September 30, 2008 compared to the sameperiod in 2007 as a result of the two pivotal Phase III clinical trialsthat we continue to conduct for the evaluation of cangrelor’s effectiveness andsafety in preventing ischemic events in patients who require PCI. In March 2006,we commenced enrollment of our CHAMPION-PCI trial, one of the two pivotaltrials in our Phase III program which we designed to evaluate whether useof intravenous cangrelor is superior to use of clopidrogrel tablets in patientsundergoing PCI. We commenced enrollment in October 2006 of a second trial,called CHAMPION-PLATFORM, which compares cangrelor plus usual care to placeboplus usual care in patients who require PCI. We currently expect to enrollapproximately 9,000 patients in the CHAMPION-PCI trial and 6,400 patients inthe CHAMPION-PLATFORM trial.

 

As of September 30, 2008, we had enrolledapproximately 7,300 patients in our CHAMPION-PCI trial and approximately 3,400patients in our CHAMPION-PLATFORM trial. We plan to complete patient enrollment in both trials in the first halfof 2009.

 

*CU-2010*

* *

In August 2008, we acquired Curacyte Discoveryand its lead compound CU-2010, which is being developed for the prevention ofblood loss during surgery.   As a resultof the acquisition, we allocated approximately $21.4 million of the purchaseprice to in-process research and development and expensed it during the thirdquarter of 2008.  We expect to initiatePhase I clinical trials of CU-2010 in the first half of 2009.

 

*Other*

 

Spending in thiscategory consists of infrastructure costs in support of our product developmentefforts, which includes expenses for data management, statistical analysis,analysis of pre-clinical data, analysis of pharmacokinetic-pharmacodynamic(PK/PD) data and product safety as well as expenses related to business developmentactivities. We incur business development expenses in connection with ourefforts to evaluate early stage and late stage compounds for development andcommercialization and other strategic opportunities. In the three months ended September 30,2008, spending in this category increased by $2.0 million compared to the same 

 

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period in 2007,primarily related to an increase in business development activities andincreased headcount in our business development department.

 

In order to support the continued development ofAngiomax, Cleviprex and cangrelor, and due to the acquisition of CuracyteDiscovery, we expect our annual research and development expenses to increasein 2008 from 2007 levels to between $104.0 million and $109.0 million in2008.  We expect this increase inresearch and development expenses to reflect costs associated with theacquisition of Curacyte Discovery, costs of enrollment of our ongoingPhase III CHAMPION-PCI trial and CHAMPION-PLATFORM trial forcangrelor, our anticipated Phase IIIb trials for Cleviprex and additionalmanufacturing development costs for Cleviprex and cangrelor. We also anticipatethat stock-based compensation expense included in research and developmentexpenses will increase in 2008 as a result of increased stock option grants tonew and current employees.

 

Our success in expanding the approved indications forAngiomax, obtaining marketing approval for Cleviprex globally, or developingand obtaining marketing approval for cangrelor and CU-2010, is highlyuncertain. We cannot predict expenses associated with ongoing data analysis orregulatory submissions, if any. Nor can we reasonably estimate or know thenature, timing and estimated costs of the efforts necessary to complete thedevelopment of, or the period in which material net cash inflows are expectedto commence from, Cleviprex outside the United States, cangrelor or CU-2010 dueto the numerous risks and uncertainties associated with developing andcommercializing drugs, including the uncertainty of:

 

·                  the scope, rate of progress and costof our clinical trials and other research and development activities;

 

·                  future clinical trial results;

 

·                  the terms and timing of anycollaborative, licensing and other arrangements that we may establish;

 

·                  the cost and timing of regulatoryapprovals;

 

·                  the cost and timing of establishingsales, marketing and distribution capabilities;

 

·                  the cost of establishing clinical andcommercial supplies of our product candidates;

 

·                  the effect of competing technologicaland market developments; and

 

·                  the cost of filing, prosecuting,defending and enforcing any patent claims and other intellectual propertyrights.

 

*Selling, General and Administrative Expenses.*** Selling, general and administrative expensesdecreased by 23% to $42.9 million for the three months ended September 30,2008, from $55.5 million for the same period in 2007. The decrease in selling,general and administrative expenses of $12.6 million primarily reflects the$28.1 million of expenses incurred during the third quarter of 2007 related tothe termination of the prior distribution agreement with Nycomed and our reacquisitionof all the rights to develop, distribute and market Angiox in the Nycomedterritory.  The decrease in selling,general and administrative expenses was offset by a $5.9 million increase inexpenses incurred in preparation for the launch of Cleviprex in the UnitedStates that occurred in September 2008, a $7.5 million increase related toheadcount expansion, including the expansion of medical science, salesmanagement and global operations teams and a $1.6 million increase in stockbased compensation expense.

 

We expect selling,general and administrative expenses to increase in the remainder of 2008 from2007 levels primarily due to increased headcount, increased stock-basedcompensation expense, expenses to support the launch of Cleviprex and expensesrelated to our European expansion.

 

*Other Income.***Other income, which is comprised ofinterest income and gains and losses on foreign currency transactions,decreased $1.6 million to $1.1 million for the three months ended September 30,2008, from $2.7 million for the comparable period in 2007. Approximately $1.2million of the decrease in other income related to a decrease in interestincome due to lower rates of return on our available for sale securities in2008 and the remaining decrease in other income related to losses on foreigncurrency transactions.

 

*Benefit from Income Tax.* During the three monthsended September 30, 2008, we recorded a benefit from income taxesof $6.6 million based on a loss before taxes during this period of $19.8million during such period.  Thisresulted in an effective tax rate of approximately 33% for the three monthsended September 30, 2008.  Werecorded a benefit from income taxes on losses incurred in the U.S. The benefitrecorded during the third quarter of 2008 is attributable to the decrease inour U.S. income since June 30, 2008 and was not in excess of the provisionthat was recorded during the first six months of 2008. We continue to believethat the recognition of our U.S. deferred tax assets as of September 30,2008 is more likely than not.

 

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We did not record a benefit from income taxes onlosses incurred from international operations as it is not more likely than notthat we will recognize a benefit from the international deferred taxassets.  During the three months ended September 30,2007, we recorded a $1.9 million benefit from income taxes based on a lossbefore income taxes of $25.5 million during such period.  This tax benefit equaled the amount of thedeferred tax provision that was recorded during the first six months of 2007.

 

We will continue to evaluate the realizability of ourdeferred tax assets and liabilities on a periodic basis, and will adjust suchamounts in light of changing facts and circumstances, including but not limitedto future projections of taxable income, tax legislation, rulings by relevanttax authorities, the progress of ongoing tax audits, the regulatory approval ofproducts currently under development, extension of the patent rights relatingto Angiomax, failure to achieve future anticipated revenues or theimplementation of tax planning strategies in connection with our global expansion.If we further reduce or increase the valuation allowance of deferred tax assetsin future years, we would recognize a tax benefit or expense.

 

***NineMonths Ended September 30, 2008 and 2007***

*** ***

*NetRevenue.***Net revenue increased 37% to $254.3 million for the nine months ended September 30,2008, as compared to $185.2 millionfor the nine months ended September 30, 2007. The following table reflectsthe components of net revenue for the nine months ended September 30, 2008and 2007:

 

**NetRevenue**

 
| ** **                             | ** ** | **Nine Months Ended September 30,** | ** ** |
|----------------------------------------|------------|---------------------------------------------------------|------------|
| **Net Revenue**                   | ** ** | **2008**                                                | ** ** | **% of Total  Revenue** | ** ** | **2007** | ** ** | **% of Total  Revenue** | ** ** |
| ** **                             | ** ** | **(in thousands)**                                 | ** ** | ** ** | ** ** | **(in thousands)** | ** ** | ** ** | ** ** |
| ***Angiomax***                         | * *   | * *                                                | * *   | * * | * * | * * | * * | * * | * * |
| United States sales                    |       | $                                                       | 246,317    |   | 97 | % | $ | 182,210 |   | 98 | % |
| International net revenue              |       | 4,644                                                   |       | 2 | % | 1,871 |   | 1 | % |
| ***Revenue from collaborations, net*** |       | 3,324                                                   |       | 1 | % | 1,156 |   | 1 | % |
| ***Total net revenue***                |       | $                                                       | 254,285    |   | 100 | % | $ | 185,237 |   | 100 | % |

 

U.S.sales of Angiomax for the nine months ended September 30, 2008 increasedcompared to the nine months ended September 30, 2007 due to increasedsales as a result of increased demand by existing hospital customers, theaddition of new hospital customers and the price increases we implemented in August 2007and January 2008.  The increase insales of Angiomax in the United States also reflects a $1.4 million credit fromour domestic wholesalers in connection with our price increase announced January 2008.  Of the 35% increase in United States sales inthe nine months ended September 30, 2008 compared to the same period in2007, approximately 19% was attributable to price increases, 14% was related tohospital demand and 2% was related to the $1.4 million credit from our domesticwholesalers.

 

Internationalnet revenue increased $2.8 million during the nine months ended September 30,2008 compared to the nine months ended September 30, 2007.  During the fourth quarter of 2007, werecorded a $3.0 million reserve for existing inventory at Nycomed, which we didnot believe would be sold by Nycomed prior to June 30, 2008 and would besubject to return in accordance with our transitional distribution agreementwith Nycomed.  During the third quarterof 2008, Nycomed sold approximately $1.3 million of its existing inventory,which resulted in an increase of $1.3 million to international net revenue anda decrease of the reserve for existing inventory. The existing inventory at September 30,2008 was $1.7 million, which represents the amount of inventory subject toreturn by Nycomed.  Approximately $0.4million of the increase in international net revenue reflects the direct saleswe made after assuming control of the distribution of Angiox in the majority ofcountries in the Nycomed territory during the third quarter of 2008.  We anticipate assuming control of thedistribution of Angiox in the remaining countries in the Nycomed territory bythe end of 2008.  The remaining increasein international net revenue is primarily related to increased orders from ourCanadian distributor.

 

During thenine months ended September 30, 2008, we recognized as revenue fromcollaborations approximately $3.3 million of net revenue from sales madeby Nycomed of approximately $7.3 million under our transitionaldistribution agreement with Nycomed. Under the terms of this transitionaldistribution agreement, upon the sale by Nycomed to third parties of vials ofAngiox, Nycomed pays us a specified percentage of Nycomed’s net sales ofAngiox, less the amount previously paid by Nycomed to us for the existinginventory.  For the nine months ended September 30,2007, we recognized as revenue from collaborations approximately $1.2 millionof net revenue from sales made by Nycomed of approximately $2.7 million underthe transitional distribution agreement.

 

*Costof Revenue.***Cost of revenue during the nine months ended September 30, 2008 was $63.1 million, or 25% of netrevenue, compared to $49.0 million, or 26% of net revenue, for the nine monthsended September 30, 2007. The decrease 

 

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in cost of revenues as a percentage of net revenue isattributable to an increase in revenue from collaborations, net, and anincrease in U.S. sales of Angiomax. Cost of revenue during these periodsconsisted of expenses in connection with the manufacture of Angiomax sold,royalty expenses under our agreements with Biogen Idec and Health Research Inc.and the logistics costs of selling Angiomax, such as distribution, storage andhandling.

 

Cost of revenue increased $14.1 million during thenine months ended September 30, 2008 compared to the nine months ended September 30,2007.  Approximately $9.7 million of thetotal cost of revenue increase related to an increase in royalty expense due tohigher Angiomax sales and approximately $4.0 million of the increase related toan increase in logistics costs primarily related to higher sales of Angiomaxand our costs associated with establishing our European distribution network.

 

**Cost of Revenue**

 
| ** **                    | ** ** | **Nine Months Ended September 30,** | ** ** |
|-------------------------------|------------|---------------------------------------------------------|------------|
| **Cost of Revenue** | ** ** | **2008**                                                | ** ** | **% of Total  Cost** | ** ** | **2007** | ** ** | **% of Total  Cost** | ** ** |
| ** **                    | ** ** | **(in thousands)**                                 | ** ** | ** ** | ** ** | **(in thousands)** | ** ** | ** ** | ** ** |
| Manufacturing                 |       | $                                                       | 15,391     |   | 24 | % | $ | 14,939 |   | 30 | % |
| Royalty                       |       | 39,438                                                  |       | 63 | % | 29,780 |   | 61 | % |
| Logistics                     |       | 8,292                                                   |       | 13 | % | 4,312 |   | 9 | % |
| ***Total Cost of Revenue***   |       | $                                                       | 63,121     |   | 100 | % | $ | 49,031 |   | 100 | % |

 

*Researchand Development Expenses.*Research and developmentexpenses increased by 53% to $82.5 million for the nine months ended September 30,2008, from $53.9 million for the nine months ended September 30, 2007.  The increase primarily reflects theacquisition of Curacyte Discovery in August 2008, which resulted in theinclusion in research and development expense of $21.4 million of acquisitionrelated in-process research and development. The remaining increase in research and development expenses resultedprimarily from an increase in expenditures in connection with the developmentof Angiomax for additional indications and product lifecycle managementactivities, increased expenses associated with our cangrelor clinical trialsand increased business development expenses. The increase in research and development expenses was partially offsetby decreased research and development expenditures in connection withCleviprex.

 

The following table identifies, for each of our majorresearch and development projects, our spending for the nine months ended September 30,2008 and 2007. Spending for past periods is not necessarily indicative ofspending in future periods.

 

**Research and Development Spending**

 
| ** **                                               | ** ** | **Nine Months Ended September 30,** | ** ** |
|----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| **Research and Development**                   | ** ** | **2008**                                                | ** ** | **% of  Total R&D** | ** ** | **2007** | ** ** | **% of  Total R&D** | ** ** |
| ** **                                               | ** ** | **(in thousands)**                                 | ** ** | ** ** | ** ** | **(in thousands)** | ** ** | ** ** | ** ** |
| ***Angiomax***                                           |       |                                                    |       |   |   |   |   |   |   |
| Clinical trials                                          |       | $                                                       | 4,030      |   | 5 | % | $ | 3,354 |   | 6 | % |
| Manufacturing development                                |       | 2,853                                                   |       | 3 | % | 384 |   | 1 | % |
| Administrative and headcount costs                       |       | 2,436                                                   |       | 3 | % | 3,556 |   | 7 | % |
| **Total Angiomax**                                       |       | 9,319                                                   |       | 11 | % | 7,294 |   | 14 | % |
| ***Cleviprex***                                          |       |                                                    |       |   |   |   |   |   |   |
| Clinical trials                                          |       | 1,815                                                   |       | 2 | % | 2,023 |   | 4 | % |
| Manufacturing development                                |       | 1,811                                                   |       | 2 | % | 2,675 |   | 5 | % |
| Administrative and headcount costs                       |       | 3,822                                                   |       | 5 | % | 7,883 |   | 14 | % |
| **Total Cleviprex**                                      |       | 7,448                                                   |       | 9 | % | 12,581 |   | 23 | % |
| ***Cangrelor***                                          |       |                                                    |       |   |   |   |   |   |   |
| Clinical trials                                          |       | 28,551                                                  |       | 35 | % | 22,223 |   | 41 | % |
| Manufacturing development                                |       | 1,773                                                   |       | 2 | % | 3,282 |   | 6 | % |
| Administrative and headcount costs                       |       | 3,694                                                   |       | 4 | % | 2,819 |   | 5 | % |
| **Total Cangrelor**                                      |       | 34,018                                                  |       | 41 | % | 28,324 |   | 52 | % |
| ***CU-2010***                                            | * *   | * *                                                | * *   | * * | * * | * * | * * | * * | * * |
| Clinical trials                                          |       | —                                                  |       | 0 | % | — |   | 0 | % |
| Manufacturing development                                |       | —                                                  |       | 0 | % | — |   | 0 | % |
| Administrative and headcount costs                       |       | 386                                                     |       | 1 | % | — |   | 0 | % |
| Acquisition related in-process research and  development |       | 21,373                                                  |       | 26 | % | — |   | 0 | % |
| **Total  CU-2010**                                       |       | 21,759                                                  |       | 27 | % | — |   | 0 | % |
| ***Other***                                              |       | 9,974                                                   |       | 12 | % | 5,749 |   | 11 | % |
| ***Total***                                              |       | $                                                       | 82,518     |   | 100 | % | $ | 53,948 |   | 100 | % |

 

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*Angiomax*

* *

*Research and development spendingrelated to Angiomax in the nine months ended September 30, 2008 increasedapproximately $2.0 million compared to the nine months ended September 30,2007.  Angiomax clinical trial costs increasedapproximately $0.7 million primarily due to the final milestone payment of $1.5million we incurred in connection with the investigator initiated trial calledHORIZONS to study Angiomax use in adult acute myocardial infarction patientsthat we supported.  This milestonepayment was offset by decreased expenditures in connection with our Phase IIIACUITY trial. *Angiomaxmanufacturing and development increased $2.5 million compared to the ninemonths ended September 30, 2007, primarily due to product lifecyclemanagement activities*.  These increases were offset by a decrease inadministrative and headcount costs primarily related to our efforts to seekapproval from the FDA of an additional indication for Angiomax for thetreatment of patients with ACS based on results of our Phase III ACUITY trial.*

 

*Cleviprex*

* *

*Research and developmentexpenditures for Cleviprex decreased approximately $5.1 million during the ninemonths ended September 30, 2008 compared to the same period in 2007.  The decrease in research and developmentexpenditures primarily reflected spending during 2007 in preparation for filingour NDA with the FDA, which we submitted in*July 2007.

 

*Cangrelor*

* *

Research and development expenditures related tocangrelor increased approximately $5.7 million in the nine months ended September 30,2008 compared to the same period in 2007 as a result of our CHAMPION-PCI trialand our CHAMPION-PLATFORM trial that we continue to conduct for theevaluation of cangrelor’s effectiveness and safety in preventing ischemicevents in patients who require PCI.

 

*CU-2010*

* *

In August 2008, we acquired Curacyte Discoveryand its lead compound CU-2010, which is being developed for the prevention ofblood loss during surgery.  As a resultof the acquisition, we allocated approximately $21.4 million of the purchaseprice to in-process research and development and expensed it during the thirdquarter of 2008.  We expect to initiatePhase I clinical trials of CU-2010 in the first half of 2009.

 

*Other*

 

Expense in thiscategory consists of infrastructure costs in support of our product developmentefforts, which includes expenses for data management, statistical analysis,analysis of pre-clinical data, analysis of pharmacokinetic-pharmacodynamic(PK/PD) data and product safety as well as expenses related to businessdevelopment activities. In the nine months ended September 30, 2008,expense in this category increased by $4.2 million compared to the same periodin 2007 primarily related to an increase in business development activities andincreased headcount in our business development department.

 

*Selling,General and Administrative Expenses.*** Selling, general and administrative expensesincreased by 7% to $117.0 million for the nine months ended September 30,2008, from $109.5 million for the same period in 2007.   The increase in selling, general andadministrative expense of $7.5 million includes $12.0 million of expenses inpreparation for the launch of Cleviprex, a $4.4 million increase in expensesrelating to marketing of Angiomax, $4.9 million in fees related to the buildingof a business infrastructure in Europe, a $9.8 million increase related toheadcount expansion, including the expansion of medical science, salesmanagement and global operations teams and a $5.3 million increase instock-based compensation expense.  Theincrease in selling, general and administrative expenses was partially offsetby the $28.1 million of expenses incurred during the third quarter of 2007related to the termination of the prior distribution agreement with Nycomed andour reacquisition of all the rights to develop, distribute and market Angiox inthe European Union (excluding Spain, Portugal and Greece) and the former Sovietrepublics.

 

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*OtherIncome.***Otherincome, which is comprised of interest income and gains and losses on foreigncurrency transactions, decreased $2.7 million to $5.3 million for the ninemonths ended September 30, 2008, from $8.0 million for the comparableperiod in 2007. Approximately $2.4 of the decrease in other income related to adecrease in interest income due to lower rates of return on our available forsale securities in 2008 and the remaining decrease in other income related tolosses on foreign currency transactions.

 

*Provisionfor Income Tax.* During the nine months ended September 30,2008 we recorded a $1.2 million provision for income taxes based on a lossbefore taxes of $3.1 million during the period. The provision for income taxes was recorded based upon U.S. taxableincome and a benefit from income taxes was not recorded on our losses incurredfrom international operations as it is not more likely than not that we willrecognize a benefit from the international deferred tax assets.   During the nine months ended September 30,2007, we recorded a provision for income tax of $0.5 million based upon lossbefore income taxes of $19.2 million.  Wedid not record a deferred tax benefit for the losses incurred in the ninemonths ended September 30, 2007, as we believed that the realization ofthe deferred tax assets associated with those losses was not more likely thannot.

 

**Liquidity and Capital Resources**

** **

*Sources of Liquidity.***Sinceour inception, we have financed our operations principally through the sale ofcommon and preferred stock, sales of convertible promissory notes and warrants,interest income and revenues from sales of Angiomax. Except for 2006 and 2004,we have incurred losses on an annual basis since our inception. We had $205.7million in cash, cash equivalents and available for sale securities as of September 30,2008.

 

*Cash Flows.***Asof September 30, 2008, we had $78.4 million in cash and cash equivalents,as compared to $88.1 million as of December 31, 2007. Our decrease in cashand cash equivalents during the nine months ended September 30, 2008included $28.0 million in cash used in investing activities, which waspartially offset by $12.6 million in net cash provided by operating activitiesand $5.5 million in net cash provided by financing activities.

 

Net cash provided byoperating activities was $12.6 million for the nine months ended September 30,2008, compared to net cash provided by operating activities of $18.7 millionfor the nine months ended September 30, 2007.  The net cash providedby operating activities during the nine months ended September 30, 2008includes a decrease in cash flow from operations reflecting a net loss of $4.3million, offset by non-cash items included in net loss totaling $41.4 millionmainly attributable to the in-process research and development charge of $21.4million in connection with the Curacyte Discovery acquisition, stock-basedcompensation expense of $17.4 million and deferred tax provision of $0.8million.  Cash provided by operatingactivities also reflected a $24.5 million reduction in cash provided byoperating activities associated with changes in working capital items.  Included within the changes in workingcapital items was a $20.3 million decrease in accrued expenses primarily due topayments made to Nycomed under our transitional distribution agreement.  We paid Nycomed $15.0 million on January 15,2008 and $5.0 million on July 8, 2008, as well as an additional $5.0million on July 8, 2008 for our obtaining European Commission approval tomarket Angiox for ACS in January 2008.

 

For the nine months endedSeptember 30, 2008, $28.0 million in net cash was used in investingactivities, which included the purchase of $118.0 million of available for salesecurities, and purchases of $3.6 million of fixed assets, offset by $124.4million in proceeds from the maturity and sale of available for salesecurities.  Net cash used in investingactivities also included $2.0 million of milestone payments due upon theapproval of Cleviprex, a $5.0 million investment in a specialty pharmaceuticalcompany and a net cash expenditure of $23.5 million in connection with theCuracyte Discovery acquisition.

 

For the nine months endedSeptember 30, 2008, we received $5.5 million in cash provided by financingactivities, which consisted of net proceeds to us from purchases of our stockpursuant to option exercises and our employee stock purchase plan.

 

*Funding Requirements.*  We expect to devote substantial resources toour research and development efforts and to our sales, marketing andmanufacturing programs associated with the commercialization of our products.Our funding requirements will depend on numerous factors including:

 

·                  the extent to which Angiomax iscommercially successful globally;

 

·                  the extent to which Cleviprex iscommercially successful in the United States;

 

·                  the extent to which we cansuccessfully establish a commercial infrastructure outside the United States;

 

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·                  the expansion of our sales force inconnection with the expansion of our sales and marketing efforts in Europe andthe launch of Cleviprex in the United States;

 

·                  our plan to continue to evaluatepossible acquisitions of development-stage products, approved products, orbusinesses and possible additional strategic or licensing arrangements withcompanies that fit within our growth strategy;

 

·                  the progress, level and timing of ourresearch and development activities related to our clinical trials with respectto Angiomax, Cleviprex, cangrelor and CU-2010;

 

·                  the cost and outcomes of regulatorysubmissions and reviews, including our efforts to obtain approval of theexpansion of the Angiomax product label in the United States to include anadditional dosing regimen in the treatment of ACS initiated in the emergencyroom in the United States and approval of Cleviprex in Europe;

 

·                  the continuation or termination ofthird-party manufacturing or sales and marketing arrangements;

 

·                  the size, cost and effectiveness ofour sales and marketing programs in the United States and outside the UnitedStates;

 

·                  the status of competitive products;and

 

·                  our ability to defend and enforce ourintellectual property rights.

 

If our existing resources are insufficient tosatisfy our liquidity requirements due to slower than anticipated revenues fromAngiomax and Cleviprex, or higher than anticipated costs in Europe, if weacquire additional product candidates, or if we otherwise believe that raisingadditional capital would be in our interests and the interests of ourstockholders, we may sell equity or debt securities or seek financing throughother arrangements. Any sale of additional equity or debt securities may resultin dilution to our stockholders, and debt financing may involve covenantslimiting or restricting our ability to take specific actions, such as incurringadditional debt or making capital expenditures. We cannot be certain thatpublic or private financing will be available in amounts or on terms acceptableto us, if at all. If we seek to raise funds through collaboration or licensingarrangements with third parties, we may be required to relinquish rights toproducts, product candidates or technologies that we would not otherwiserelinquish or grant licenses on terms that may not be favorable to us. If weare unable to obtain additional financing, we may be required to delay, reducethe scope of, or eliminate one or more of our planned research, development andcommercialization activities, which could harm our financial condition andoperating results.

 

**Contractual Obligations**

 

Our long-term contractualobligations include commitments and estimated purchase obligations entered intoin the normal course of business.  Theseinclude commitments related to purchase of inventory of our products, researchand development service agreements, operating leases, and selling, general andadministrative obligations.  A summary of these aggregate contractualobligations was included in our Annual Report on Form 10-K for the yearended December 31, 2007. During the nine months ended September 30,2008, we incurred additional commitments related to the purchase of inventory;as of September 30, 2008, we have inventory-related purchase commitmentstotaling $8.7 million during 2008 and $19.4 million during 2009 forAngiomax bulk drug substance. In addition, in connection with the CuracyteDiscovery acquisition in August 2008, we agreed to pay a contingentmilestone payment of €10.5million if we elect to continue to proceed with clinical development of CU-2010and possible future sales royalty payments and a commercial milestone payment.

 

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**Item 3. Quantitative andQualitative Disclosures about Market Risk**

** **

Market risk is the risk of change in fairvalue of a financial instrument due to changes in interest rates, equityprices, creditworthiness, financing, exchange rates or other factors. Ourprimary market risk exposure relates to changes in interest rates in our cash,cash equivalents and available for sale securities. We place our investments inhigh-quality financial instruments, primarily money market funds, corporatedebt securities, asset backed securities and U.S. government agency notes withmaturities of less than two years, which we believe are subject to limitedinterest rate and credit risk. We currently do not hedge interest rateexposure. At September 30, 2008 we held $205.7 million in cash, cashequivalents and available for sale securities which had an average interestrate of approximately 2.7% and a 10% change in such average interest rate wouldhave had an approximate $0.2 million impact on our interest income. At September 30,2008, $201.7 million of our cash, cash equivalents and available for salesecurities were due on demand or within one year and $4.0 million hadmaturities which were more than one year but less than two years.

 

Most of our transactions are conducted inU.S. dollars. We do have certain agreements with parties located outside theUnited States. Transactions under certain of these agreements are conducted inU.S. dollars, subject to adjustment based on significant fluctuations incurrency exchange rates. Transactions under certain other of these agreementsare conducted in the local foreign currency. As of September 30, 2008, weheld cash denominated in currencies other than the U.S. dollar.  If the applicable currency exchange rateundergoes a change of 10.0%, we would have had an approximate $1.0 millionimpact on our other income and cash.

 

**Item 4. Controls andProcedures**

** **

*DisclosureControls and Procedures*

* *

Our management, with theparticipation of our chief executive officer and chief financial officer,evaluated the effectiveness of our disclosure controls and procedures as of September 30,2008. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and15d-15(e) under the Exchange Act, means controls and other procedures of acompany that are designed to ensure that information required to be disclosedby us in the reports that we file or submit under the Exchange Act is recorded,processed, summarized and reported within the time periods specified in the SEC’srules and forms. Disclosure controls and procedures include, withoutlimitation, controls and procedures designed to ensure that informationrequired to be disclosed by a company in the reports that it files or submitsunder the Exchange Act is accumulated and communicated to the company’smanagement, including its principal executive and principal financial officers,as appropriate to allow timely decisions regarding required disclosure.Management recognizes that any controls and procedures, no matter how welldesigned and operated, can provide only reasonable assurance of achieving theirobjectives and management necessarily applies its judgment in evaluating thecost-benefit relationship of possible controls and procedures. Based on theevaluation of our disclosure controls and procedures as of September 30,2008, our chief executive officer and chief financial officer concluded that,as of such date, our disclosure controls and procedures were effective at thereasonable assurance level.

 

*Changes in Internal Control over Financial Reporting*

* *

No change in our internalcontrol over financial reporting (as defined in Rules 13a-15(f) and15d-15(f) under the Exchange Act) occurred during the quarter ended September 30,2008 that has materially affected, or is reasonably likely to materiallyaffect, our internal control over financial reporting.

 

**Part II.Other Information**

 

**Item 1A. RiskFactors**

 

*Investing in our common stock involves a highdegree of risk. You should carefully consider the risks and uncertaintiesdescribed below in addition to the other information included or incorporatedby reference in this quarterly report. If any of the following risks actuallyoccur, our business, financial condition or results of operations would likelysuffer. In that case, the trading price of our common stock could fall.*

 

*An updated description of the risk factorsassociated with our business is set forth below. These risk factors have beenupdated from those included in our Annual Report on Form 10-K, to, amongother things, include an additional risk factors related to thecommercialization of Cleviprex, as well as update the risk factor regarding ourrevenue being substantially dependent on our sole source distributor and alimited number of domestic wholesalers and international distributors.*

 

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**RisksRelated to Our Financial Results**

 

***We have a history of net losses and may notmaintain profitability on an annual basis***

 

Except for 2004 and 2006, we have incurrednet losses on an annual basis since our inception. As of September 30,2008, we had an accumulated deficit of approximately $263.8 million. We expectto make substantial expenditures to further develop and commercialize ourproducts, including costs and expenses associated with clinical trials,regulatory approvals and commercialization. Although we achieved profitabilityin 2004 and in 2006, we do not expect to be profitable in 2008 primarily as aresult of the costs incurred in connection with our acquisition of CuracyteDiscovery in August 2008.  We werealso not profitable in 2007, primarily as a result of the costs incurred inconnection with the Nycomed transaction. We will likely need to generatesignificantly greater revenue in future periods to achieve and maintainprofitability in light of our planned expenditures. We may not achieveprofitability in future periods or at all, and we may not be able to maintainprofitability for any substantial period of time. If we fail to achieveprofitability or maintain profitability on a quarterly or annual basis withinthe time frame expected by investors or securities analysts, the market priceof our common stock may decline.

 

***Our business is verydependent on the commercial success of Angiomax***

 

Angiomax has accounted for substantially allof our revenue since we began selling Angiomax in 2001 and, until the approvalof Cleviprex by the FDA for the reduction of blood pressure when oral therapyis not feasible or not desirable on August 1, 2008, Angiomax was our onlycommercial product. The commercial success of Angiomax depends upon:

 

·                  its continued acceptance byregulators, physicians, patients and other key decision-makers as a safe,therapeutic and cost-effective alternative to heparin and other products usedin current practice or currently being developed;

 

·                  our ability to expand the indicationsfor which we can market Angiomax and the clinical data we generate to supportexpansion of the product label, including our ability to obtain FDA approval ofthe expansion of the product label for Angiomax in the United States to includean additional dosing regimen in the treatment of ACS initiated in the emergencydepartment and the expansion of the use of Angiomax in the pediatric setting;

 

·                  the overall number of PCI proceduresperformed;

 

·                  our ability to develop our Europeansales and marketing infrastructure and to successfully transition from Nycomedthe European sales and marketing of Angiox; and

 

·                  the extent to which we and ourinternational distributors are successful in marketing Angiomax.

 

We plan to continue to seek to expand theindications for which we may market Angiomax. Even if we are successful inexpanding the Angiomax label, we cannot assure you that the expanded label willresult in higher revenue or income on a continuing basis.

 

As of September 30, 2008, our inventorywas $25.5 million. In addition, we have inventory-related purchase commitmentsto Lonza Braine totaling $8.7 million for 2008 and $19.4 million for2009 for Angiomax bulk drug substance. If sales of Angiomax were to decline, wecould be required to make an allowance for excess or obsolete inventory orincrease our accrual for product returns.

 

***Our revenue has beensubstantially dependent on our sole source distributor and a limited number ofdomestic wholesalers and international distributors involved in the sale of ourproducts, and such revenue may fluctuate from quarter to quarter based on thebuying patterns of such distributor, wholesalers and distribution partners***

 

In March 2007, we entered into anagreement with a third party to distribute Angiomax in the United Statesthrough a sole source distribution model. We have been distributing Cleviprexunder this arrangement since we began selling Cleviprex in September 2008.  Under this model, we sell Angiomax and Cleviprexto our sole source distributor, which then sells Angiomax and Cleviprex to alimited number of national medical and pharmaceutical wholesalers withdistribution centers located throughout the United States and, in certaincases, directly to hospitals. Prior to adopting this sole source distributionmodel, we sold Angiomax to these wholesalers directly and these wholesalersthen sold Angiomax to hospitals. We began selling Angiomax and Cleviprex underthis distribution model during the quarter ended March 31, 2007 and in September 2008,respectively. For the quarter ended September 30, 2008, the sales to oursole source distributor accounted 

 

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for all of our U.S sales. As our revenue from sales of Angiomax andCleviprex in the United States is now exclusively from sales to the sole sourcedistributor, we expect that our revenue will continue to be subject to fluctuationfrom quarter to quarter based on the buying pattern of this sole sourcedistributor.

 

In August 2008, we assumed control ofthe distribution of Angiomax in the majority of the countries in which Nycomeddistributed Angiomax.  We plan to assumecontrol of the distribution in the remaining countries of the Nycomed territoryby the end of 2008.  In these remainingcountries and in other countries globally, we sell Angiomax to internationaldistributors and these distributors then sell Angiomax to hospitals. Ourreliance on a small number of distributors could cause our revenue to fluctuatefrom quarter to quarter based on the buying patterns of these distributors,regardless of underlying hospital demand.

 

If inventory levels at our sole sourcedistributor or at our international distributors become too high, thesedistributors may seek to reduce their inventory levels by reducing purchasesfrom us, which could have a materially adverse effect on our revenue in periodsin which such purchase reductions occur.

 

***Failure to achieveour revenue targets or raise additional funds in the future may require us todelay, reduce the scope of, or eliminate one or more of our planned activities***

 

We will need to generate significantlygreater revenue to achieve and maintain profitability on an annual basis. Thedevelopment of Angiomax for additional indications, the commercialization ofCleviprex and the development of cangrelor, including clinical trials,manufacturing development and regulatory approvals, and the acquisition anddevelopment of additional product candidates by us, such as CU-2010, willrequire a commitment of substantial funds. Our future funding requirements,which may be significantly greater than we expect, will depend upon manyfactors, including:

 

·                  the extent to which Angiomax iscommercially successful globally;

 

·                  the extent to which Cleviprex iscommercially successful in the United States;

 

·                  the extent to which we cansuccessfully establish a commercial infrastructure outside the United States;

 

·                  the expansion of our sales force inconnection with the expansion of our sales and marketing efforts in Europe andthe launch of Cleviprex in the United States;

 

·                  our plan to continue to seek possibleacquisitions of development-stage products, approved products, or businessesand possible additional strategic or licensing arrangements with companies thatfit within our growth strategy;

 

·                  the progress, level and timing of ourresearch and development activities related to our clinical trials with respectto Angiomax, Cleviprex, cangrelor and CU-2010;

 

·                  the cost and outcomes of regulatorysubmissions and reviews, including our efforts to obtain approval of theexpansion of the Angiomax product label in the United States to include anadditional dosing regimen in the treatment of ACS initiated in the emergencyroom in the United States and approval of Cleviprex internationally;

 

·                  thecontinuation or termination of third-party manufacturing or sales and marketingarrangements;

 

·                  thesize, cost and effectiveness of our sales and marketing programs in the UnitedStates and internationally;

 

·                  thestatus of competitive products; and

 

·                  ourability to defend and enforce our intellectual property rights.

 

If our existing resources are insufficient tosatisfy our liquidity requirements due to slower than anticipated sales ofAngiomax and Cleviprex, or higher than anticipated costs in Europe, if weacquire additional product candidates or businesses, or if we determine thatraising additional capital would be in our interest and the interests of ourstockholders, we may sell equity or debt securities or seek additionalfinancing through other arrangements. Any sale of additional equity or debtsecurities may result in dilution to our stockholders, and debt financing mayinvolve covenants limiting or restricting our ability to take specific actions,such as incurring additional debt or making capital expenditures. We cannot becertain that 

 

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public or private financing will be available in amounts or on termsacceptable to us, if at all. If we seek to raise funds through collaboration orlicensing arrangements with third parties, we may be required to relinquishrights to products, product candidates or technologies that we would nototherwise relinquish or grant licenses on terms that may not be favorable tous. If we are unable to obtain additional financing, we may be required todelay, reduce the scope of, or eliminate one or more of our planned research,development and commercialization activities, which could harm our financialcondition and operating results.

 

**Risks Related to Commercialization**

 

***Angiomax competeswith all categories of anticoagulant drugs, which may limit the use of Angiomax***

 

Because different anticoagulant drugs act ondifferent components of the clotting process, we believe that continuedclinical work will be necessary to determine the best combination of drugs forclinical use. We recognize that Angiomax competes with other anticoagulantdrugs to the extent Angiomax and any of these anticoagulant drugs are approvedfor the same or similar indications.

 

In addition, other anticoagulant drugs maycompete with Angiomax for hospital financial resources. For example, many U.S.hospitals receive a fixed reimbursement amount per procedure for theangioplasties and other treatment therapies they perform. Because this amountis not based on the actual expenses the hospital incurs, hospitals may chooseto use either Angiomax or other anticoagulant drugs, but not necessarilyseveral of the drugs together.

 

***Because the marketfor thrombin inhibitors is competitive, our product may not obtain widespreaduse***

 

We have positioned Angiomax as a replacementfor heparin, which is a widely used, inexpensive, generic drug used in patientswith arterial thrombosis. Because heparin is inexpensive and has been widelyused for many years, physicians and medical decision-makers may be hesitant toadopt Angiomax. In addition, due to the high incidence and severity ofcardiovascular diseases, competition in the market for thrombin inhibitors isintense and growing. We cannot assure you that the rate of Angiomax salesgrowth will not slow or decline in future years. There are a number of directand indirect thrombin inhibitors currently on the market, awaiting regulatoryapproval and in development, including orally administered agents. The thrombininhibitors on the market include products for use in the treatment of patientswith HIT/HITTS, patients with unstable angina and patients with deep veinthrombosis.

 

***Cleviprex competeswith all categories of IV antihypertensive, or IV-AHT, drugs, which may limitthe use of Cleviprex***

 

Because different IV-AHT drugs act indifferent ways on the factors contributing to elevated blood pressure,physicians have several therapeutic options at their disposal to reduce acutelyelevated blood pressure and related conditions. We believe that continuedclinical work will be necessary to determine the best combination of drugs forthe various patient types and clinical settings. We recognize that Cleviprexcompetes with other IV-AHT drugs to the extent Cleviprex and any of theseIV-AHT drugs are approved for the same or similar indications.

 

In addition, other IV-AHT drugs may competewith Cleviprex for hospital financial resources. For example, many U.S.hospitals receive a fixed reimbursement amount per procedure for the proceduresand emergency treatments they perform. Because this amount is not based on theactual expenses the hospital incurs, hospitals may choose to use eitherCleviprex or other IV-AHT drugs, but not necessarily several of the drugstogether.

 

***Because many of theIV-AHT drugs with which we expect Cleviprex to compete have been widely used inpatient care for many years and are generic, our product may not obtainwidespread use***

 

We have positioned Cleviprex as analternative to multiple older products, all but one of which are inexpensivegenerics used widely in patients with acute hypertension or requiring acuteblood pressure management. Because these therapies are inexpensive and havebeen widely used for many years, physicians and decision-makers for hospitalresource allocation may be hesitant to adopt Cleviprex. We cannot assure you ofthe rate of Cleviprex sales growth immediately post launch and the longer-termoutlook for future years. While we are not aware of any IV-AHT drugs currentlyawaiting regulatory approval or in development, this remains a possiblescenario, the impact of which on Cleviprex sales we cannot estimate.

 

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***The market for Cleviprex will dependsignificantly on access to hospital formularies***

 

Many hospitals establish formularies, whichare lists of drugs approved for use in the hospital. If we fail to secure andmaintain formulary coverage for Cleviprex on favorable terms or aresignificantly delayed in doing so, we will have difficultly achieving marketacceptance of Cleviprex and our business could be materially adverselyaffected.  We cannot estimate the extentand uptake rate of which Cleviprex will be accepted on hospital formularies.

 

***We face substantialcompetition, which may result in others discovering, developing orcommercializing competing products before or more successfully than we do***

 

Our industry is highly competitive. Oursuccess will depend on our ability to acquire and develop products and applytechnology, and our ability to establish and maintain markets for our products.Potential competitors in the United States and other countries include majorpharmaceutical and chemical companies, specialized pharmaceutical companies andbiotechnology firms, universities and other research institutions. Many of ourcompetitors have substantially greater research and development capabilitiesand experience, and greater manufacturing, marketing and financial resources,than we do. Accordingly, our competitors may develop or license products orother novel technologies that are more effective, safer, more convenient orless costly than existing products or technologies or products or technologiesthat are being developed by us or may obtain regulatory approvals for productsmore rapidly than we are able. Technological developments by others may renderour products or product candidates noncompetitive. We may not be successful inestablishing or maintaining technological competitiveness.

 

***Near-term growth in our sales of Angiomax isdependent on acceptance by physicians, patients and other key decision-makersof Angiomax clinical data, as well as other clinical trial data***

 

We believethat the near-term commercial success of Angiomax will depend upon the extentto which physicians, patients and other key decision-makers accept the resultsof the Angiomax clinical trials. For example, since the original results ofREPLACE-2 were announced in 2002, additional hospitals have granted Angiomaxformulary approval and hospital demand for the product has increased. We cannotbe certain, however, that these trends will continue. Some commentators havechallenged various aspects of the trial design of REPLACE-2, the conduct of thestudy and the analysis and interpretation of the results from the study.Similarly, we cannot be certain of the extent to which physicians, patients andother key decision-makers will accept the results of the ACUITY and HORIZONStrials. The FDA, in denying our sNDA for an additional dosing regimen in thetreatment of ACS initiated in the emergency department, indicated that the basisof their decision involved the appropriate use and interpretation ofnon-inferiority trials such as our ACUITY trial.  If physicians, patients and other keydecision-makers do not accept the REPLACE-2, ACUITY or HORIZONS trial results,adoption of Angiomax may suffer, and our business will be materially adverselyaffected.

 

We believethat as a result of data from a clinical trial that was published in March 2007in the New England Journal of Medicine entitled “Clinical Outcomes UtilizingRevascularization and Aggressive Drug Evaluation,” or “COURAGE”, and thecontroversy regarding the use of drug-eluting stents, the number of PCIprocedures performed in the United States declined in 2007. The decline in thenumber of procedures has had a direct impact on our net revenues. PCI procedurevolume might decline further and might not return to its previous level overtime or at all.  In the event that thenumber of procedures further declines, sales of Angiomax may be impactednegatively.

 

***Our ability togenerate future revenue from products will be affected by our ability todevelop our global operations***

 

To support the international sales andmarketing of Angiomax and of Cleviprex, cangrelor and CU-2010, if and when theyare approved for sale outside the United States, we are taking the necessarysteps to develop our business infrastructure globally, with European operationsbeing our initial focus. If we are unable to expand our internationaloperations successfully and in a timely manner, the growth of our business maybe limited and our business, operating results and financial condition may beharmed. Such expansion may be more difficult, be more expensive or take longerthan we anticipate, and we may not be able to successfully market and sell ourproducts internationally. Future rapid expansion could strain our operational,human and financial resources. In order to manage expansion, we must:

 

·                  continue to improve operating,administrative, and information systems;

 

·                  accurately predict future personneland resource needs to meet client contract commitments;

 

·                  track the progress of ongoing clientprojects; and

 

·                  attract and retain qualifiedmanagement, sales, professional, scientific and technical operating personnel.

 

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If we do not take these actions and are notable to manage our global business, then our international operations may beless successful than anticipated, and we may be required to allocate additionalresources to the expanded business, which we would have otherwise allocated toanother part of our business.

 

***Our future growthdepends, in part, on our ability to penetrate foreign markets, particularly inEurope. However, we have limited experience marketing, servicing anddistributing our products and otherwise conducting our business outside theUnited States, where we are subject to additional regulatory burdens and otherrisks***

 

Our future profitability will depend in parton our ability to grow and ultimately maintain our product sales in foreignmarkets, particularly in Europe. However, we have limited experience inmarketing, servicing and distributing our products outside of the U.S. Inaddition, we recently acquired Curacyte Discovery and are conducting researchand development activities through this German subsidiary.  These foreign operations subject us toadditional risks and uncertainties, including:

 

·                  our customers’ ability to obtainreimbursement for procedures using our products in foreign markets;

 

·                  the burden of complying with complexand changing foreign legal, tax, accounting and regulatory requirements;

 

·                  language barriers and otherdifficulties in providing long-range customer support and service;

 

·                  longer accounts receivable collectiontimes;

 

·                  significant currency fluctuations;

 

·                  reduced protection of intellectualproperty rights in some foreign countries; and

 

·                  the interpretation of contractualprovisions governed by foreign laws in the event of a contract dispute.

 

Our foreign sales of our products could alsobe adversely affected by export license requirements, the imposition ofgovernmental controls, political and economic instability, trade restrictions,changes in tariffs and difficulties in staffing and managing foreignoperations. In addition, we are subject to the Foreign Corrupt Practices Act,any violation of which could create a substantial liability for us and alsocause a loss of reputation in the market.

 

***Our ability togenerate future revenue from products will be affected by reimbursement anddrug pricing***

 

Acceptable levels of reimbursement of drugtreatments by government authorities, private health insurers and otherorganizations will have an effect on our ability to successfully commercialize,and attract collaborative partners to invest in the development of, productcandidates. We cannot be sure that reimbursement in the United States, Europeor elsewhere will be available for any products we may develop or, if alreadyavailable, will not be decreased in the future. If reimbursement is notavailable or is available only to limited levels, we may not be able tocommercialize our products, or may not be able to obtain a satisfactoryfinancial return on our products.

 

In certain countries, particularly thecountries of the European Union, the pricing of prescription pharmaceuticalsand the level of reimbursement are subject to governmental control. In somecountries, it can take an extended period of time to establish and obtainreimbursement, and reimbursement approval may be required at the individualpatient level, which can lead to further delays. In addition, in somecountries, it may take an extended period of time to collect payment even afterreimbursement has been established.

 

Third-party payers increasingly arechallenging prices charged for medical products and services. Also, the trendtoward managed health care in the United States and the changes in healthinsurance programs, as well as legislative proposals, may result in lowerprices for pharmaceutical products, including any products that may be offeredby us. Cost-cutting measures that health care providers are instituting, andthe effect of any health care reform, could materially adversely affect ourability to sell any products that are successfully developed by us and approvedby regulators. Moreover, we are unable to predict what additional legislationor regulation, if any, relating to the health care industry or third-partycoverage and reimbursement may be enacted in the future or what effect suchlegislation or regulation would have on our business.

 

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***We must comply withfederal, state and foreign laws and regulations relating to the health carebusiness, and, if we do not fully comply with such laws and regulations, wecould face substantial penalties***

 

We and our customers are subject to extensiveregulation by the federal government, and the governments of the states andforeign countries in which we may conduct our business. In the United States,the laws that directly or indirectly affect our ability to operate our businessinclude the following:

 

·                  the Federal Anti-Kickback Law, whichprohibits persons from knowingly and willfully soliciting, offering, receivingor providing remuneration, directly or indirectly, in cash or in kind, toinduce either the referral of an individual or furnishing or arranging for agood or service for which payment may be made under federal health careprograms such as Medicare and Medicaid;

 

·                  other Medicare laws and regulationsthat prescribe the requirements for coverage and payment for services performedby our customers, including the amount of such payment;

 

·                  the Federal False Claims Act, whichimposes civil and criminal liability on individuals and entities who submit, orcause to be submitted, false or fraudulent claims for payment to thegovernment; and

 

·                  the Federal False Statements Act,which prohibits knowingly and willfully falsifying, concealing or covering up amaterial fact or making any materially false statement in connection withdelivery of or payment for health care benefits, items or services.

 

If our operations are found to be inviolation of any of the laws and regulations described above or any other lawor governmental regulation to which we or our customers are or will be subject,we may be subject to civil and criminal penalties, damages, fines, exclusionfrom the Medicare and Medicaid programs and the curtailment or restructuring ofour operations. Similarly, if our customers are found to be non-compliant withapplicable laws, they may be subject to sanctions, which could also have anegative impact on us. Any penalties, damages, fines, curtailment orrestructuring of our operations would adversely affect our ability to operateour business and our financial results. Any action against us for violation ofthese laws, even if we successfully defend against it, could cause us to incursignificant legal expenses, divert our management’s attention from theoperation of our business and damage our reputation.

 

***We could be exposedto significant liability if we are unable to obtain insurance at acceptablecosts and adequate levels or otherwise protect ourselves against potentialproduct liability claims***

 

Our business exposes us to potential productliability risks which are inherent in the testing, manufacturing, marketing andsale of human healthcare products. Product liability claims might be made bypatients in clinical trials, consumers, health care providers or pharmaceuticalcompanies or others that sell our products. These claims may be made even withrespect to those products that are manufactured in licensed and regulatedfacilities or otherwise possess regulatory approval for commercial sale.

 

These claims could expose us to significantliabilities that could prevent or interfere with the development orcommercialization of our products. Product liability claims could require us tospend significant time and money in litigation or pay significant damages. Withrespect to our commercial sales and our clinical trials, we are covered byproduct liability insurance in the amount of $20.0 million per occurrenceand $20.0 million annually in the aggregate on a claims-made basis. Thiscoverage may not be adequate to cover any product liability claims.

 

As we continue to commercialize our products,we may wish to increase our product liability insurance. Product liabilitycoverage is expensive. In the future, we may not be able to maintain or obtainsuch product liability insurance on reasonable terms, at a reasonable cost orin sufficient amounts to protect us against losses due to product liability claims.

 

**Risks Related to Regulatory Matters**

 

***If we do not obtainregulatory approvals for our product candidates we will not be able to marketour product candidates and our ability to generate additional revenue could bematerially impaired***

 

Except for Angiomax and Cleviprex, we do nothave any other product approved for sale in the United States or any foreignmarket.  Angiomax has been approved forsale in the United States for use as an anticoagulant in combination withaspirin in patients with unstable angina undergoing PCI and patients undergoingPCI with or at risk of HIT/HITTS, for sale in the European Union forindications similar to those approved by the FDA and for adult patients withACS and for sale in other countries for indications similar to those approvedby the FDA. Cleviprex was approved for sale in the United States on August 1,2008 for the reduction of blood pressure when oral therapy is not feasible ornot desirable. We must obtain 

 

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approval from the FDA in order to sell our product candidates in theUnited States and from foreign regulatory authorities in order to sell ourproduct candidates in other countries. Obtaining regulatory approval is uncertain, time-consuming andexpensive. Any regulatory approval we ultimately obtain may be limited orsubject to restrictions or post-approval commitments that render the productcommercially non-viable. Securing regulatory approval requires the submissionof extensive pre-clinical and clinical data, information about productmanufacturing processes and inspection of facilities and supporting informationto the regulatory authorities for each therapeutic indication to establish theproduct’s safety and efficacy. If we are unable to submit the necessary dataand information, for example, because the results of clinical trials are notfavorable, or if the applicable regulatory authority delays reviewing or doesnot approve our applications, we will be unable to obtain regulatory approval.Delays in obtaining or failure to obtain regulatory approvals may:

 

·                  delay or prevent the successfulcommercialization of any of our product candidates;

 

·                  diminish our competitive advantage;and

 

·                  defer or decrease our receipt ofrevenue.

 

The regulatoryreview and approval process to obtain marketing approval for a new drug orindication takes many years and requires the expenditure of substantialresources. This process can vary substantially based on the type, complexity,novelty and indication of the product candidate involved. The regulatoryauthorities in the United States and internationally have substantialdiscretion in the approval process and may refuse to accept any application ormay decide that data is insufficient for approval and require additionalpre-clinical, clinical or other studies. In addition, varying interpretationsof the data obtained from pre-clinical and clinical testing could delay, limitor prevent regulatory approval of a product candidate.

 

***We cannot expand theindications for which we are marketing Angiomax unless we receive regulatoryapproval for each additional indication. Failure to expand these indicationswill limit the size of the commercial market for Angiomax***

 

The FDA has approved Angiomax for use as ananticoagulant in combination with aspirin in patients with unstable anginaundergoing PCI and patients undergoing PCI with or at risk of HIT/HITTS. Angioxis approved for patients undergoing PCI and for adult patients with ACS in theEuropean Union. One of our key objectives is to expand the indications forwhich Angiomax is approved for marketing by the FDA, including for ACS in theUnited States and for use in the pediatric setting. In order to market Angiomaxfor expanded indications, we will need to conduct appropriate clinical trials,obtain positive results from those trials and obtain regulatory approval forsuch proposed indications. Obtaining regulatory approval is uncertain, time-consumingand expensive. The regulatory review and approval process to obtain marketingapproval for a new indication can take many years and require the expenditureof substantial resources. This process can vary substantially based on thetype, complexity, novelty and indication of the product candidate involved. Theregulatory authorities have substantial discretion in the approval process andmay refuse to accept any application or may decide that any data submitted isinsufficient for approval and require additional pre-clinical, clinical orother studies. In addition, varying interpretations of the data obtained frompre-clinical and clinical testing could delay, limit or prevent regulatoryapproval of a new indication product candidate. For example, in 2006 wereceived a non-approvable letter from the FDA in connection with ourapplication to market Angiomax in patients with or at risk of HIT/HITTSundergoing cardiac surgery. While we have indicated to the FDA that we areevaluating potential next steps, the FDA may require additional studies whichmay require the expenditure of substantial resources. Even if any such studiesare undertaken, we might not be successful in obtaining regulatory approval forthis indication in a timely manner or at all.  In addition, in May 2008, we received anon-approvable letter from the FDA with respect to an sNDA that we submitted to the FDA seekingapproval of an additional indication for Angiomax for the treatment of patientswith ACS. In its letter, the FDA indicated that the basis of their decisioninvolved the appropriate use and interpretation of non-inferiority trials,including the ACUITY trial.  We disagree with the FDA on these issues andhave initiated discussions to address them. We might not be successful inobtaining regulatory approval for these indications or any other indications ina timely manner or at all.  If we areunsuccessful in expanding the Angiomax product label, the size of thecommercial market for Angiomax will be limited.

 

***Clinical trials ofproduct candidates are expensive and time-consuming, and the results of thesetrials are uncertain***

 

Before we can obtain regulatory approvals tomarket any product for a particular indication, we will be required to completepre-clinical studies and extensive clinical trials in humans to demonstrate thesafety and efficacy of such product for such indication.

 

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Clinical testing is expensive, difficult todesign and implement, can take many years to complete and is uncertain as tooutcome. Success in pre-clinical testing or early clinical trials does notensure that later clinical trials will be successful, and interim results of aclinical trial do not necessarily predict final results. An unexpected resultin one or more of our clinical trials can occur at any stage of testing. We mayexperience numerous unforeseen events during, or as a result of, the clinicaltrial process that could delay or prevent us from receiving regulatory approvalor commercializing our products, including:

 

·      our clinical trials mayproduce negative or inconclusive results, and we may decide, or regulators mayrequire us, to conduct additional clinical trials which even if undertakencannot ensure we will gain approval;

 

·      data obtained from pre-clinical testing andclinical trials may be subject to varying interpretations, which could resultin the FDA or other regulatory authorities deciding not to approve a product ina timely fashion, or at all;

 

·      the cost of clinical trials may be greater thanwe currently anticipate;

 

·      regulators or institutional review boards may notauthorize us to commence a clinical trial or conduct a clinical trial at aprospective trial site;

 

·      we, or the FDA or other regulatory authorities,might suspend or terminate a clinical trial at any time on various grounds, includinga finding that participating patients are being exposed to unacceptable healthrisks. For example, we have in the past voluntarily suspended enrollment in oneof our clinical trials to review an interim analysis of safety data from thetrial; and

 

·      the effects of our product candidates may not bethe desired effects or may include undesirable side effects or the productcandidates may have other unexpected characteristics.

 

The rate of completion of clinical trialsdepends in part upon the rate of enrollment of patients. Patient enrollment isa function of many factors, including the size of the patient population, theproximity of patients to clinical sites, the eligibility criteria for thetrial, the existence of competing clinical trials and the availability ofalternative or new treatments. In particular, the patient population targetedby some of our clinical trials may be small. Delays in patient enrollment inany of our current or future clinical trials may result in increased costs andprogram delays.

 

***If we or ourcontract manufacturers fail to comply with the extensive regulatoryrequirements to which we, our contract manufacturers and our products aresubject, our products could be subject to restrictions or withdrawal from themarket and we could be subject to penalties***

 

The testing, manufacturing, labeling, safety,advertising, promotion, storage, sales, distribution, export and marketing,among other things, of our products, both before and after approval, aresubject to extensive regulation by governmental authorities in the UnitedStates, Europe and elsewhere throughout the world. Both before and afterapproval of a product, quality control and manufacturing procedures mustconform to current good manufacturing practice, or cGMP. Regulatoryauthorities, including the FDA, periodically inspect manufacturing facilitiesto assess compliance with cGMP. Our failure or the failure of our contractmanufacturers to comply with the laws administered by the FDA, the EuropeanMedicines Agency or other governmental authorities could result in, among otherthings, any of the following:

 

·      delay in approving or refusal to approve aproduct;

 

·      product recall or seizure;

 

·      suspension or withdrawal of an approved productfrom the market;

 

·      interruption of production;

 

·      operating restrictions;

 

·      warning letters;

 

·      injunctions;

 

·      fines and other monetary penalties;

 

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·      criminal prosecutions; and

 

·      unanticipated expenditures.

 

**Risks Related to our Dependence on ThirdParties for Manufacturing, Research and Development, and DistributionActivities**

 

***We depend on singlesuppliers for the production of Angiomax, Cleviprex and cangrelor bulk drugsubstance and a limited number of suppliers to carry out all fill-finishactivities***

 

We do not manufacture any of our products anddo not plan to develop any capacity to manufacture them. We currently obtainall of our Angiomax bulk drug substance from one manufacturer, Lonza Braine,and rely on another manufacturer, Ben Venue Laboratories, to carry out allfill-finish activities for Angiomax, which includes final formulation andtransfer of the drug into vials where it is then freeze-dried and sealed. Theterms of our agreement with Lonza Braine require us to purchase from LonzaBraine a substantial portion of our Angiomax bulk drug product manufacturedusing the Chemilog process, a chemical synthesis process that we developed withUCB Bioproducts S.A., the predecessor to Lonza Braine.

 

We currently obtain all of our Cleviprex bulkdrug substance from one manufacturer, Johnson Matthey Pharma Services. We relyon a different single supplier, Hospira, Inc., and its proprietaryformulation technology, for the manufacture of all finished Cleviprex product,as well as for release testing and commercial packaging.

 

We have transferred the manufacturing processfor all of our cangrelor bulk drug substance from AstraZeneca to JohnsonMatthey Pharma Services for scale up and manufacture for Phase IIIclinical trials and commercial supplies. We also plan to rely on differentsuppliers, Baxter Pharmaceutical Solutions LLC and Ben Venue Laboratories, Inc.,for the manufacture of all finished cangrelor drug product for allPhase III clinical trials and to carry out release testing.

 

A limited number of manufacturers are capableof manufacturing Angiomax, Cleviprex and cangrelor. We do not currently havealternative sources for production of bulk drug substance or to carry outfill-finish activities. Consolidation within the pharmaceutical manufacturingindustry could further reduce the number of manufacturers capable of producingour products, or otherwise affect our existing contractual relationships.

 

In the event that any of Lonza Braine,Johnson Matthey, Hospira, Ben Venue or Baxter is unable or unwilling to carryout its respective manufacturing obligations or terminates or refuses to renewits arrangements with us, we may be unable to obtain alternative manufacturing,or obtain such manufacturing on commercially reasonable terms or on a timelybasis. If we were required to transfer manufacturing processes to otherthird-party manufacturers, we would need to satisfy various regulatory requirements,which could cause us to experience significant delays in receiving an adequatesupply of Angiomax, Cleviprex or cangrelor. Moreover, we may not be able totransfer processes that are proprietary to the manufacturer. Any delays in themanufacturing process may adversely impact our ability to meet commercialdemands for Angiomax on a timely basis and supply product for clinical trialsof Angiomax, Cleviprex or cangrelor.

 

***The development andcommercialization of our products may be terminated or delayed, and the costsof development and commercialization may increase, if third parties on whom werely to manufacture and support the development and commercialization of ourproducts do not fulfill their obligations***

 

Our development and commercializationstrategy involves entering into arrangements with corporate and academiccollaborators, contract research organizations, distributors, third partymanufacturers, licensors, licensees and others to conduct development work,manage or conduct our clinical trials, manufacture our products and market andsell our products outside of the United States. We do not have the expertise orthe resources to conduct such activities on our own and, as a result, areparticularly dependent on third parties in most areas.

 

We may not be able to maintain our existingarrangements with respect to the commercialization or manufacture of Angiomaxand Cleviprex or establish and maintain arrangements to develop, manufactureand commercialize cangrelor, CU-2010 or any additional product candidates orproducts we may acquire on terms that are acceptable to us. Any current orfuture arrangements for development and commercialization may not besuccessful. If we are not able to establish or maintain agreements relating toAngiomax, Cleviprex, cangrelor, CU-2010 or any additional products we mayacquire on terms that we deem favorable, our results of operations would bematerially adversely affected.

 

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Third parties may not perform theirobligations as expected. The amount and timing of resources that third partiesdevote to developing, manufacturing and commercializing our products are not withinour control. Our collaborators may develop, manufacture or commercialize,either alone or with others, products and services that are similar to orcompetitive with the products that are the subject of the collaboration withus. Furthermore, our interests may differ from those of third parties thatmanufacture or commercialize our products. Our collaborators may reevaluatetheir priorities from time to time, including following mergers andconsolidations, and change the focus of their development, manufacturing orcommercialization efforts. Disagreements that may arise with these thirdparties could delay or lead to the termination of the development orcommercialization of our product candidates, or result in litigation orarbitration, which would be time consuming and expensive.

 

If any third party that manufactures orsupports the development or commercialization of our products breaches orterminates its agreement with us, or fails to commit sufficient resources toour collaboration or conduct its activities in a timely manner, or fails tocomply with regulatory requirements, such breach, termination or failure could:

 

·      delay or otherwise adverselyimpact the manufacturing, development or commercialization of Angiomax,Cleviprex, cangrelor, CU-2010 or any additional products that we may acquire ordevelop;

 

·      require us to seek a new collaborator orundertake unforeseen additional responsibilities or devote unforeseenadditional resources to the manufacturing, development or commercialization ofour products; or

 

·      result in the termination of the development orcommercialization of our products.

 

***Use of third-partymanufacturers may increase the risk that we will not have appropriate suppliesof our product candidates***

 

Reliance on third-party manufacturers entailsrisks to which we would not be subject if we manufactured product candidates orproducts ourselves, including:

 

·      reliance on the third party for regulatorycompliance and quality assurance;

 

·      the possible breach of the manufacturing agreementby the third party; and

 

·      the possible termination or nonrenewal of theagreement by the third party, based on its own business priorities, at a timethat is costly or inconvenient for us.

 

Angiomax and Cleviprex and our other productcandidates may compete with products and product candidates of third partiesfor access to manufacturing facilities. If we are not able to obtain adequatesupplies of Angiomax, Cleviprex, cangrelor and CU-2010, it will be moredifficult for us to compete effectively and develop our product candidates.

 

Our contract manufacturers are subject toongoing, periodic, unannounced inspection by the FDA and corresponding stateand foreign agencies or their designees to evaluate compliance with the FDA’scGMP, regulations and other governmental regulations and corresponding foreignstandards. We cannot be certain that our present or future manufacturers willbe able to comply with cGMP regulations and other FDA regulatory requirementsor similar regulatory requirements outside the United States. We do not controlcompliance by our contract manufacturers with these regulations and standards.Failure of our third-party manufacturers or us to comply with applicableregulations could result in sanctions being imposed on us, including fines andother monetary penalties, injunctions, civil penalties, failure of regulatoryauthorities to grant marketing approval of our product candidates, delays,suspension or withdrawal of approvals, license revocation, seizures or recallsof product candidates or products, interruption of production, warning letters,operating restrictions and criminal prosecutions, any of which couldsignificantly and adversely affect supplies of Angiomax, Cleviprex, cangrelor,CU-2010 and our other product candidates.

 

**Risks Related to Our Intellectual Property**

 

***A breach of any ofthe agreements under which we license commercialization rights to products ortechnology from others could cause us to lose license rights that are importantto our business or subject us to claims by our licensors***

 

We license rights to products and technologythat are important to our business, and we expect to enter into additionallicenses in the future. For instance, we have exclusively licensed patents andpatent applications relating to Angiomax from Biogen Idec and HealthResearch Inc. and relating to Cleviprex and cangrelor from AstraZeneca.Under 

 

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these agreements, we aresubject to commercialization and development, sublicensing, royalty, patentprosecution and maintenance, insurance and other obligations. For instance, wewere required under our license of Cleviprex to file an NDA for Cleviprex by September 30,2007, which we submitted in July 2007, and to satisfy additionalmilestones under such agreement. We are similarly required under our license ofcangrelor to file an NDA for cangrelor by December 31, 2009. Any failureby us to comply with any of these obligations or any other breach by us of ourlicense agreements could give the licensor the right to terminate the licensein whole, terminate the exclusive nature of the license or bring a claimagainst us for damages. Any such termination or claim, particularly relating toour agreements with respect to Angiomax, could have a material adverse effecton our business. We have entered into an agreement with Biogen Idec thatsuspends the statute of limitations relating to any claims for damages and/orlicense termination that they may bring in the event that a dispute arisesbetween us and Biogen Idec relating to the late filing of our application underthe Hatch-Waxman Act for an extension of the term of the principal patent thatcovers Angiomax. Even if we contest any such termination or claim and areultimately successful, our stock price could suffer. In addition, upon anytermination of a license agreement, we may be required to license to thelicensor any related intellectual property that we developed.

 

***If we are unable to obtain or maintain patentprotection for the intellectual property relating to our products, the value ofour products will be adversely affected***

 

The patentpositions of pharmaceutical companies like us are generally uncertain andinvolve complex legal, scientific and factual issues. Our success dependssignificantly on our ability to:

 

·      obtain and maintain U.S. and foreign patents,including defending those patents against adverse claims;

 

·      protect trade secrets;

 

·      operate without infringing the proprietary rightsof others; and

 

·      prevent others from infringing our proprietaryrights.

 

We may nothave any additional patents issued from any patent applications that we own orlicense. If additional patents are granted, the claims allowed may not besufficiently broad to protect our technology. In addition, issued patents thatwe own or license may be challenged, narrowed, invalidated or circumvented,which could limit our ability to stop competitors from marketing similar productsor limit the length of term of patent protection we may have for our products.Changes in patent laws or in interpretations of patent laws in the UnitedStates and other countries may diminish the value of our intellectual propertyor narrow the scope of our patent protection.

 

Our patentsalso may not afford us protection against competitors with similar technology.Because patent applications in the United States and many foreign jurisdictionsare typically not published until eighteen months after filing, or in somecases not at all, and because publications of discoveries in the scientificliterature often lag behind actual discoveries, neither we nor our licensorscan be certain that others have not filed or maintained patent applications fortechnology used by us or covered by our pending patent applications without ourbeing aware of these applications.

 

We exclusivelylicense U.S. patents, patent applications and patent rights and correspondingforeign patents, patent applications and patent rights relating to Angiomax,Cleviprex and cangrelor. We exclusively license six issued U.S. patentsrelating to Angiomax, three issued U.S. patents relating to Cleviprex and therights relating to cangrelor under six issued U.S. patents. We have filed severalindependent patent applications.  Inaddition, we obtained a portfolio of patents and patent applications inconnection with our acquisition of Curacyte Discovery.

 

The principal U.S. patent that coversAngiomax expires in 2010. The U.S. Patent and Trademark Office, or PTO,rejected our application under the Hatch-Waxman Act for an extension of theterm of the patent beyond 2010 because the application was not filed on time byour counsel. In October 2002, we filed a request with the PTO forreconsideration of the denial of the application. On April 26, 2007, wereceived a decision from the PTO denying our application for patent termextension. We continue to explore alternatives to extend the term of the patentbut we can provide no assurance that we will be successful in doing so.

 

On June 23, 2008, the United States House ofRepresentatives passed a bill that, if enacted, would provide the PTO withdiscretion to consider patent extension applications filed late unintentionallyunder the Hatch-Waxman Act.  This legislation remains subject to theapproval of the United States Senate and the President of the United States.Even if this legislation is enacted, the PTO might not consider our applicationand we might not be successful in extending the term of the patent.

 

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We have entered into agreements with thecounsel involved in the late filing that suspend the statute of limitations onour claims against them for failing to make a timely filing. We have enteredinto a similar agreement with Biogen Idec relating to any claims for damagesand/or license termination they may bring in the event that a dispute arises betweenus and Biogen Idec relating to the late filing. These agreements may beterminated by either party upon 30 days’ notice. We cannot assure you thatBiogen Idec will not terminate this agreement.

 

***We may be unable toutilize the Chemilog process if Lonza Braine breaches our agreement***

 

Our agreement with Lonza Braine for thesupply of Angiomax bulk drug substance requires that Lonza Braine transfer thetechnology that was used to develop the Chemilog process to a secondarysupplier of Angiomax bulk drug substance or to us or an alternate supplier atthe expiration of the agreement, which is currently scheduled to occur in September 2010,but is subject to automatic renewals of consecutive three-year periods unlesseither party provides notice of non-renewal within one year prior to theexpiration of the initial term or any renewal term.  If Lonza Braine fails or is unable totransfer successfully this technology, we would be unable to employ theChemilog process to manufacture our Angiomax bulk drug substance, which couldcause us to experience delays in the manufacturing process and increase ourmanufacturing costs in the future.

 

***If we are not ableto keep our trade secrets confidential, our technology and information may beused by others to compete against us***

 

We rely significantly upon unpatentedproprietary technology, information, processes and know-how. We seek to protectthis information by confidentiality agreements with our employees, consultantsand other third-party contractors, as well as through other security measures.We may not have adequate remedies for any breach by a party to theseconfidentiality agreements. In addition, our competitors may learn orindependently develop our trade secrets. If our confidential information ortrade secrets become publicly known, they may lose their value to us.

 

***If we infringe orare alleged to infringe intellectual property rights of third parties, it willadversely affect our business***

 

Our research, development andcommercialization activities, as well as any product candidates or productsresulting from these activities, may infringe or be claimed to infringe patentsor patent applications under which we do not hold licenses or other rights.Third parties may own or control these patents and patent applications in theUnited States and abroad. These third parties could bring claims against us orour collaborators that would cause us to incur substantial expenses and, ifsuccessful against us, could cause us to pay substantial damages. Further, if apatent infringement suit were brought against us or our collaborators, we orthey could be forced to stop or delay research, development, manufacturing orsales of the product or product candidate that is the subject of the suit.

 

As a result of patent infringement claims, orin order to avoid potential claims, we or our collaborators may choose or berequired to seek a license from the third party and be required to pay licensefees or royalties or both. These licenses may not be available on acceptableterms, or at all. Even if we or our collaborators were able to obtain alicense, the rights may be nonexclusive, which could result in our competitorsgaining access to the same intellectual property. Ultimately, we could beprevented from commercializing a product, or be forced to cease some aspect ofour business operations, if, as a result of actual or threatened patentinfringement claims, we or our collaborators are unable to enter into licenseson acceptable terms. This could harm our business significantly.

 

There has been substantial litigation andother proceedings regarding patent and other intellectual property rights inthe pharmaceutical and biotechnology industries. In addition to infringementclaims against us, we may become a party to other patent litigation and otherproceedings, including interference proceedings declared by the PTO andopposition proceedings in the European Patent Office, regarding intellectualproperty rights with respect to our products and technology. The cost to us ofany patent litigation or other proceeding, even if resolved in our favor, couldbe substantial. Some of our competitors may be able to sustain the costs ofsuch litigation or proceedings more effectively than we can because of theirsubstantially greater financial resources. Uncertainties resulting from theinitiation and continuation of patent litigation or other proceedings couldhave a material adverse effect on our ability to compete in the marketplace.Patent litigation and other proceedings may also absorb significant managementtime.

 

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**Risks Related to Growth and Employees**

 

***If we fail toacquire and develop additional product candidates or approved products it willimpair our ability to grow***

 

We sell and generate revenue from twoproducts, Angiomax and Cleviprex, which was launched in September 2008 inthe United States. In order to generate additional revenue, we intend toacquire and develop additional product candidates or approved products. Forexample, in August 2008, we acquired Curacyte Discovery, which isdeveloping CU-2010 for the prevention of blood loss during surgery. The successof this growth strategy depends upon our ability to identify, select andacquire pharmaceutical products that meet the criteria we have established.Because we have only the limited internal scientific research capabilities thatwe acquired in our acquisition of Curacyte Discovery and we do not anticipateestablishing additional scientific research capabilities, we are dependent uponpharmaceutical and biotechnology companies and other researchers to sell orlicense product candidates to us. We will be required to integrate any acquiredproducts into our existing operations. Managing the development of a newproduct entails numerous financial and operational risks, includingdifficulties in attracting qualified employees to develop the product.

 

Any productcandidate we acquire will require additional research and development effortsprior to commercial sale, including extensive pre-clinical and/or clinicaltesting and approval by the FDA and corresponding foreign regulatoryauthorities. All product candidates are prone to the risks of failure inherentin pharmaceutical product development, including the possibility that theproduct candidate will not be safe and effective or approved by regulatoryauthorities. In addition, we cannot assure you that any approved products thatwe develop or acquire will be:

 

·      manufactured or produced economically;

 

·      successfully commercialized; or

 

·      widely accepted in the marketplace.

 

We have previously acquired rights toproducts and, after having conducted development activities, determined not todevote further resources to those products. We cannot assure you that anyadditional products that we acquire will be successfully developed. Inaddition, proposing, negotiating and implementing an economically viableacquisition is a lengthy and complex process. Other companies, including thosewith substantially greater financial, marketing and sales resources, maycompete with us for the acquisition of product candidates and approvedproducts. We may not be able to acquire the rights to additional product candidatesand approved products on terms that we find acceptable, or at all.

 

***We may undertakestrategic acquisitions in the future and any difficulties from integrating suchacquisitions could damage our ability to attain or maintain profitability***

 

We may acquire additional businesses andproducts that complement or augment our existing business. Integrating anynewly acquired business or product could be expensive and time-consuming. Wemay not be able to integrate any acquired business or product successfully oroperate any acquired business profitably. Moreover, we may need to raiseadditional funds through public or private debt or equity financing to acquireany businesses or products, which may result in dilution for stockholders orthe incurrence of indebtedness.

 

***We may not be ableto manage our business effectively if we are unable to attract and retain keypersonnel and consultants***

 

Our industry has experienced a high rate ofturnover of management personnel in recent years. We are highly dependent onour ability to attract and retain qualified personnel for the acquisition,development and commercialization activities we conduct or sponsor. If we loseone or more of the members of our senior management, including our Chairman andChief Executive Officer, Clive A. Meanwell, our President and Chief OperatingOfficer, John P. Kelley, our Executive Vice President and Chief FinancialOfficer, Glenn P. Sblendorio, or other key employees or consultants, ourability to implement successfully our business strategy could be seriouslyharmed. Our ability to replace these key employees may be difficult and maytake an extended period of time because of the limited number of individuals inour industry with the breadth of skills and experience required to acquire,develop and commercialize products successfully. Competition to hire from thislimited pool is intense, and we may be unable to hire, train, retain ormotivate such additional personnel.

 

**Risks Related to Our Common Stock**

 

***Fluctuations in ouroperating results could affect the price of our common stock***

 

Our operating results may vary from period toperiod based on factors including the amount and timing of sales of Angiomax,underlying hospital demand for Angiomax, our customers’ buying patterns, thetiming, expenses and results of 

 

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clinical trials, announcementsregarding clinical trial results and product introductions by us or ourcompetitors, the availability and timing of third-party reimbursement,including in Europe, sales and marketing expenses and the timing of regulatoryapprovals. If our operating results do not meet the expectations of securitiesanalysts and investors as a result of these or other factors, the trading priceof our common stock will likely decrease.

 

***Our stock price has been and may in thefuture be volatile. This volatility may make it difficult for you to sellcommon stock when you want or at attractive prices***

 

Our commonstock has been and in the future may be subject to substantial pricevolatility. From January 1, 2008 to November 7, 2008, the lastreported sale price of our common stock ranged from a high of $27.68 per shareto a low of $14.31 per share. The value of your investment could decline due tothe effect of any of the following factors upon the market price of our commonstock:

 

·      changes in securities analysts’ estimates of ourfinancial performance;

 

·      changes in valuations of similar companies;

 

·      variations in our operating results;

 

·      acquisitions and strategic partnerships;

 

·      announcements of technological innovations or newcommercial products by us or our competitors;

 

·      disclosure of results of clinical testing orregulatory proceedings by us or our competitors;

 

·      the timing, amount and receipt of revenue fromsales of our products and margins on sales of our products;

 

·      governmental regulation and approvals;

 

·      developments in patent rights or otherproprietary rights;

 

·      changes in our management; and

 

·      general market conditions.

 

In addition,the stock market has experienced significant price and volume fluctuations, andthe market prices of specialty pharmaceutical companies have been highlyvolatile. Moreover, broad market and industry fluctuations that are not withinour control may adversely affect the trading price of our common stock. Youmust be willing to bear the risk of fluctuations in the price of our commonstock and the risk that the value of your investment in our securities coulddecline.

 

***Our corporategovernance structure, including provisions in our certificate of incorporationand by-laws and Delaware law, may prevent a change in control or managementthat security holders may consider desirable***

 

Section 203 of the General CorporationLaw of the State of Delaware and our certificate of incorporation and by-lawscontain provisions that might enable our management to resist a takeover of ourcompany or discourage a third party from attempting to take over our company.These provisions include the inability of stockholders to act by writtenconsent or to call special meetings, a classified board of directors and theability of our board of directors to designate the terms of and issue newseries of preferred stock without stockholder approval.

 

These provisions could have the effect ofdelaying, deferring, or preventing a change in control of us or a change in ourmanagement that stockholders may consider favorable or beneficial. Theseprovisions could also discourage proxy contests and make it more difficult forstockholders to elect directors and take other corporate actions. Theseprovisions could also limit the price that investors might be willing to pay inthe future for shares of our common stock or our other securities.

 

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**Item 6. Exhibits**

** **

Exhibits

 

See the Exhibit Indexon the page immediately preceding the exhibits for a list of exhibitsfiled as part of this quarterly report, which Exhibit Index isincorporated herein by this reference.

** **

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** **

**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 theundersigned, thereunto duly authorized.

 
|                                     |   | THE  MEDICINES COMPANY |
|------------------------------------------|--------|------------------------|
|                                     |   |                   |   |
| Date:  November 10,  2008 |   | By:                    | /s/ Glenn P.  Sblendorio |
|                                     |   |                   | Glenn P.  Sblendorio |
|                                     |   |                   | Executive  Vice President and Chief Financial  Officer (Principal Financial and Accounting Officer) |

 

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**EXHIBIT INDEX**

 
| Exhibit Number | ** ** | **Description**                                                                                                                                                                                                           |
|---------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **          | ** ** | ** **                                                                                                                                                                                                                |
| 2.1†           |       | Sale and Purchase Agreement, dated August 4,  2008, between the Company and Curacyte AG (incorporated by reference to  Exhibit 2.1 of the Current Report on Form 8-K/A, filed on  November 10, 2008). |
|                |       |                                                                                                                                                                                                                      |
| 31.1                |       | Chairman and Chief Executive Officer Certification  pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934,  as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002               |
|                |       |                                                                                                                                                                                                                      |
| 31.2                |       | Chief Financial Officer Certification pursuant to  Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                            |
|                |       |                                                                                                                                                                                                                      |
| 32.1                |       | Chairman and Chief Executive Officer Certification  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002                                                   |
|                |       |                                                                                                                                                                                                                      |
| 32.2                |       | Chief Financial Officer Certification pursuant to 18  U.S.C. Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002                                                                |

 

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†              Confidential treatment requested as tocertain portions, which portions have been omitted and filed separately withthe Securities and Exchange Commission

 

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