UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q





x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE


SECURITIES  EXCHANGE
ACT OF 1934





For
the quarterly period ended March 31, 2010





OR





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


SECURITIES
EXCHANGE ACT OF 1934





For
the transition period from  to .





Commission
File Number 000-30929





KERYX
BIOPHARMACEUTICALS, INC.


(Exact
name of registrant as specified in its charter)





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





750
Lexington Avenue


New
York, New York 10022


(Address
including zip code of principal executive offices)





(212)
531-5965


(Registrant's
telephone number, including area code)





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


Yes x No  ̈





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).


 ̈
Yes          ̈ No





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





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




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


Yes  ̈ No x





There
were 58,585,555 shares of the registrant’s common stock, $0.001 par value,
outstanding as of May 5, 2010.





KERYX
BIOPHARMACEUTICALS, INC.


FORM
10-Q


FOR
THE QUARTER ENDED MARCH 31, 2010





TABLE
OF CONTENTS





PageSPECIAL
      CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
                                            3PART
      I
                                            FINANCIAL
      INFORMATION
                                            4Item
      1
                                            Financial
      Statements
                                            4Consolidated
      Balance Sheets as of March 31, 2010 (unaudited) and December 31,
      2009
                                            4Consolidated
      Statements of Operations for the three months ended March 31, 2010 and
      2009 (unaudited)
                                            5Consolidated
      Statement of Changes in Stockholders’ Equity for the three months ended
      March 31, 2010 (unaudited)
                                            6Consolidated
      Statements of Cash Flows for the three months ended March 31, 2010 and
      2009 (unaudited)
                                            7Notes
      to Consolidated Financial Statements (unaudited)
                                            8Item
      2
                                            Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
                                            17Item
      3
                                            Quantitative
      and Qualitative Disclosures About Market Risk
                                            26Item
      4
                                            Controls
      and Procedures
                                            27PART
      II
                                            OTHER
      INFORMATION
                                            27Item
      1
                                            Legal
      Proceedings
                                            27Item
      1A
                                            Risk
      Factors
                                            27Item
      6
                                            Exhibits
                                            39




2


SPECIAL
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS





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




·
            expectations
      for increases or decreases in
expenses;




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




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




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




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




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




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




·
            estimates
      of the sufficiency of our existing cash and cash equivalents and
      investments to finance our business strategy, including expectations
      regarding the value and liquidity of our
  investments;




·
            expected
      losses; and




·
            expectations
      for future capital requirements.




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





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


3


PART
I. FINANCIAL INFORMATION





ITEM
1. FINANCIAL STATEMENTS





Keryx
Biopharmaceuticals, Inc.


Consolidated
Balance Sheets as of March 31, 2010 and December 31, 2009





(in
thousands, except share and per share amounts)





March 31, 2010
                      
                      
                      December 31, 2009(Unaudited)AssetsCurrent
      assets:Cash and cash
      equivalents
                      
                      $
                      16,136
                      
                      
                      $
                      16,386Short-term investment
      securities
                      
                      
                      14,195
                      
                      
                      
                      17,548Interest
    receivable
                      
                      
                      78
                      
                      
                      
                      66Other current
    assets
                      
                      
                      1,241
                      
                      
                      
                      1,521Total current
    assets
                      
                      
                      31,650
                      
                      
                      
                      35,521Long-term
      investment securities
                      
                      
                      1,702
                      
                      
                      
                      1,914Property,
      plant and equipment, net
                      
                      
                      80
                      
                      
                      
                      94Goodwill
                      
                      
                      3,208
                      
                      
                      
                      3,208Other
      assets, net
                      
                      
                      81
                      
                      
                      
                      81Total assets
                      
                      $
                      36,721
                      
                      
                      $
                      40,818Liabilities
      and stockholders’ equityCurrent
      liabilities:Accounts payable and accrued
      expenses
                      
                      $
                      5,084
                      
                      
                      $
                      5,001Accrued compensation and related
      liabilities
                      
                      
                      138
                      
                      
                      
                      755Deferred revenue
                      
                      
                      156
                      
                      
                      
                      156Liabilities of discontinued
      operations
                      
                      
                      120
                      
                      
                      
                      120Total current
      liabilities
                      
                      
                      5,498
                      
                      
                      
                      6,032Contingent
      equity rights
                      
                      
                      2,639
                      
                      
                      
                      2,639Other
      liabilities
                      
                      
                      33
                      
                      
                      
                      50Total liabilities
                      
                      
                      8,170
                      
                      
                      
                      8,721Stockholders’
      equity:Preferred
      stock, $0.001 par value per share (5,000,000 shares authorized, no shares
      issued and outstanding)
                      
                      
                      —
                      
                      
                      
                      —Common
      stock, $0.001 par value per share (95,000,000 shares authorized,
      57,183,344 and 56,560,478 shares issued, 57,103,396 and 56,480,530 shares
      outstanding at March 31, 2010 and December 31, 2009,
      respectively)
                      
                      
                      57
                      
                      
                      
                      57Additional
      paid-in capital
                      
                      
                      354,299
                      
                      
                      
                      353,650Treasury
      stock, at cost, 79,948 shares at March 31, 2010 and December 31, 2009,
      respectively
                      
                      
                      (357
                      )
                      
                      
                      (357
                      )Accumulated
      other comprehensive income
                      
                      
                      —
                      
                      
                      
                      180Accumulated
      deficit
                      
                      
                      (325,448
                      )
                      
                      
                      (321,433
                      )Total stockholders’
      equity
                      
                      
                      28,551
                      
                      
                      
                      32,097Total liabilities and
      stockholders’ equity
                      
                      $
                      36,721
                      
                      
                      $
                      40,818





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


4


Keryx
Biopharmaceuticals, Inc.


Consolidated
Statements of Operations


for the
three months ended March 31, 2010 and 2009 (Unaudited)


(in
thousands, except share and per share amounts)





Three
      months ended
                  March 31,2010
                
                
                2009Revenue:License
      revenue
                
                $
                —
                
                
                $
                3,327Service
      revenue
                
                
                —
                
                
                
                3Total
      revenue
                
                
                —
                
                
                
                3,330Operating
      expenses:Research
      and development:Non-cash
      compensation
                
                
                242
                
                
                
                201Other
      research and development
                
                
                2,554
                
                
                
                1,374Total
      research and development
                
                
                2,796
                
                
                
                1,575General
      and administrative:Non-cash
      compensation
                
                
                407
                
                
                
                370Other
      general and administrative
                
                
                898
                
                
                
                1,041Total
      general and administrative
                
                
                1,305
                
                
                
                1,411Total
      operating expenses
                
                
                4,101
                
                
                
                2,986Operating
      (loss) income
                
                
                (4,101
                )
                
                
                344Interest
      and other income, net
                
                
                86
                
                
                
                107(Loss)
      income before income taxes
                
                
                (4,015
                )
                
                
                451Income
      taxes
                
                
                —
                
                
                
                —Net
      (loss) income
                
                $
                (4,015
                )
                
                $
                451Basic
      net (loss) income per common share
                
                $
                (0.07
                )
                
                $
                0.01Diluted
      net (loss) income per common share
                
                $
                (0.07
                )
                
                $
                0.01Weighted
      average shares used in computing basic net (loss) income per common
      share
                
                
                56,880,953
                
                
                
                47,853,895Weighted
      average shares used in computing diluted net (loss) income per common
      share
                
                
                56,880,953
                
                
                
                48,050,220





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


5


Keryx
Biopharmaceuticals, Inc.


Consolidated
Statement of Changes in Stockholders’ Equity


for the
three months ended March 31, 2010 (Unaudited)


(in
thousands, except share amounts)





AccumulatedAdditional
                  
                  
                  
                  
                  
                  
                  
                  
                  otherCommon
      stock
                  
                  
                  paid-in
                  
                  
                  Treasury
      stock
                  
                  
                  comprehensive
                  
                  
                  AccumulatedShares
                  
                  
                  Amount
                  
                  
                  capital
                  
                  
                  Shares
                  
                  
                  Amount
                  
                  
                  income
                  
                  
                  deficit
                  
                  
                  TotalBalance
      at December 31, 2009
                  
                  
                  56,560,478
                  
                  
                  $
                  57
                  
                  
                  $
                  353,650
                  
                  
                  
                  79,948
                  
                  
                  $
                  (357
                  )
                  
                  $
                  180
                  
                  
                  $
                  (321,433
                  )
                  
                  $
                  32,097Changes
      during the period:Issuance
      of restricted stock
                  
                  
                  630,500
                  
                  
                  
                  —
                  *
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  *Forfeiture
      of restricted stock
                  
                  
                  (7,634
                  )
                  
                  
                  (—
                  )*
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (—
                  )*Compensation
      in respect of options and restricted stock granted to employees, directors
      and third-parties
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  649
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  649Reduction
      of unrealized gain on long-term investment securities
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (180
                  )
                  
                  
                  
                  
                  
                  
                  (180
                  )Net
      loss
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (4,015
                  )
                  
                  
                  (4,015
                  )Balance
      at March 31, 2010
                  
                  
                  57,183,344
                  
                  
                  $
                  57
                  
                  
                  $
                  354,299
                  
                  
                  
                  79,948
                  
                  
                  $
                  (357
                  )
                  
                  $
                  —
                  
                  
                  $
                  (325,448
                  )
                  
                  $
                  28,551





* Amount
less than one thousand dollars.





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


6


Keryx
Biopharmaceuticals, Inc.


Consolidated
Statements of Cash Flows


for the
three months ended March 31, 2010 and 2009 (Unaudited)





(in
thousands)





Three
      months ended
                  March 31,2010
                
                
                2009CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      (loss) income
                
                $
                (4,015
                )
                
                $
                451Adjustments
      to reconcile net (loss) income to cash flows used in operating
      activities:Stock
      compensation expense
                
                
                649
                
                
                
                571Depreciation
      and amortization
                
                
                18
                
                
                
                25Impairment
      of investment securities
                
                
                32
                
                
                
                68Changes
      in assets and liabilities:Decrease
      in other current assets
                
                
                280
                
                
                
                53Increase
      in accrued interest receivable
                
                
                (12
                )
                
                
                (25
                )Decrease
      in other assets
                
                
                —
                
                
                
                22Increase
      (decrease) in accounts payable and accrued expenses
                
                
                83
                
                
                
                (514
                )Decrease
      in accrued compensation and related liabilities
                
                
                (617
                )
                
                
                (353
                )Decrease
      in other liabilities
                
                
                (17
                )
                
                
                (17
                )Decrease
      in deferred revenue
                
                
                —
                
                
                
                (327
                )Net
      cash used in operating activities
                
                
                (3,599
                )
                
                
                (46
                )CASH
      FLOWS FROM INVESTING ACTIVITIESPurchases
      of property, plant and equipment
                
                
                (4
                )
                
                
                —Investment
      in held-to-maturity short-term securities
                
                
                (9,214
                )
                
                
                (1
                )Proceeds
      from maturity of held-to-maturity short-term securities
                
                
                12,567
                
                
                
                —Net
      cash provided by (used in) investing activities
                
                
                3,349
                
                
                
                (1
                )CASH
      FLOWS FROM FINANCING ACTIVITIESNet
      cash provided by financing activities
                
                
                —
                
                
                
                —NET
      DECREASE IN CASH AND CASH EQUIVALENTS
                
                
                (250
                )
                
                
                (47
                )Cash
      and cash equivalents at beginning of period
                
                
                16,386
                
                
                
                13,143CASH
      AND CASH EQUIVALENTS AT END OF PERIOD
                
                $
                16,136
                
                
                $
                13,096





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


7


Keryx
Biopharmaceuticals, Inc.


Notes to
Consolidated Financial Statements (unaudited)





NOTE
1 - GENERAL





Basis
of Presentation





Keryx
Biopharmaceuticals, Inc. and subsidiaries (“Keryx” or the “Company”) is a
biopharmaceutical company focused on the acquisition, development and
commercialization of medically important pharmaceutical products for the
treatment of life-threatening diseases, including cancer and renal disease. Most
of the Company's biopharmaceutical development and substantially all of its
administrative operations during the three months ended March 31, 2010 and 2009
were conducted in the United States of America.





The
accompanying unaudited consolidated financial statements were prepared in
accordance with U.S. generally accepted accounting principles (“GAAP”) for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they may not include all of
the information and footnotes required by GAAP for complete financial
statements. All adjustments that are, in the opinion of management, of a normal
recurring nature and are necessary for a fair presentation of the consolidated
financial statements have been included. Nevertheless, these consolidated
financial statements should be read in conjunction with the Company's audited
consolidated financial statements contained in its Annual Report on Form 10-K
for the year ended December 31, 2009. The results of operations for the three
months ended March 31, 2010, are not necessarily indicative of the results that
may be expected for the entire fiscal year or any other interim
period.





The
Company has incurred substantial operating losses since its inception, except
for 2009, and expects to continue to incur operating losses for the foreseeable
future and may never become profitable. As of March 31, 2010, the Company has an
accumulated deficit of $325.4 million. The Company is dependent upon significant
financing to provide the working capital necessary to execute its business plan.
The Company currently anticipates that its cash, cash equivalents and investment
securities as of March 31, 2010, exclusive of anticipated milestones to be
received and expected exercises of expiring options and warrants, are sufficient
to meet the Company’s anticipated working capital needs and fund its business
plan for approximately 18 to 20 months from March 31, 2010. The actual amount of
funds that the Company will need to operate is subject to many factors,
including, but are not limited to, the timing, design and conduct of clinical
trials for the Company’s drug candidates. The Company has not yet commercialized
any of its drug candidates and cannot be sure if it will ever be able to do so.
Even if the Company commercializes one or more of its drug candidates, the
Company may not become profitable. The Company’s ability to achieve
profitability depends on a number of factors, including its ability to obtain
regulatory approval for its drug candidates, successfully complete any
post-approval regulatory obligations and successfully commercialize its drug
candidates alone or in partnership. The Company may continue to incur
substantial operating losses even if it begins to generate revenues from its
drug candidates, if approved.





The
Company’s common stock is listed on the NASDAQ Capital Marketand trades
under the symbol “KERX.”





Recently
Issued Accounting Standards





In
October 2009, the FASB issued ASU No. 2009-13, Multiple-Deliverable Revenue
Arrangements. This ASU eliminates the requirement to establish the fair value of
undelivered products and services and instead provides for separate revenue
recognition based upon management’s estimate of the selling price for an
undelivered item when there is no other means to determine the fair value of
that undelivered item. The ASU also eliminates the use of the residual method
and instead requires an entity to allocate revenue using the relative selling
price method. Additionally, the guidance expands disclosure requirements with
respect to multiple-deliverable revenue arrangements. This ASU is effective
prospectively for revenue arrangements entered into or materially modified in
fiscal years beginning on or after June 15, 2010. The Company is currently
evaluating the potential impact of this standard on its consolidated financial
statements.


8


Cash
and Cash Equivalents





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





Investment
Securities





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





The
following table summarizes the Company’s investment securities at March 31,
2010, and December 31, 2009:





(in thousands)
                    
                    March 31, 2010
                    
                    
                    December 31, 2009Short-term
      investment securities:Obligations
      of domestic governmental agencies (mature June 2010)
      (held-to-maturity)
                    
                    $
                    9,163
                    
                    
                    $
                    12,532Bank
      deposits (mature July 2010) (held-to-maturity)
                    
                    
                    5,032
                    
                    
                    
                    5,016Total
      short-term investment securities
                    
                    
                    14,195
                    
                    
                    
                    17,548Long-term
      investment securities:Auction
      rate security (matures 2038 (available-for-sale))
                    
                    $
                    1,702
                    
                    
                    $
                    1,914





Revenue
Recognition





The
Company recognizes license revenue in accordance with the revenue recognition
guidance of the FASB Accounting Standards Codification, or Codification. The
Company analyzes each element of its licensing agreement to determine the
appropriate revenue recognition. The terms of the license agreement may include
payment to the Company of non-refundable up-front license fees, milestone
payments if specified objectives are achieved, and/or royalties on product
sales. The Company recognizes revenue from upfront payments over the period of
significant involvement under the related agreements unless the fee is in
exchange for products delivered or services rendered that represent the
culmination of a separate earnings process and no further performance obligation
exists under the contract. The Company recognizes milestone payments as revenue
upon the achievement of specified milestones only if (1) the milestone
payment is non-refundable, (2) substantive effort is involved in achieving
the milestone, (3) the amount of the milestone is reasonable in relation to
the effort expended or the risk associated with achievement of the milestone,
and (4) the milestone is at risk for both parties. If any of these
conditions are not met, the Company defers the milestone payment and recognizes
it as revenue over the estimated period of performance under the contract (see
Note 4).





Service
revenue consists of clinical trial management and site recruitment services.
Revenues generated from providing clinical trial management and site recruitment
services are recognized at the time such services are provided. Deferred revenue
is incurred when the Company receives a deposit or prepayment for services to be
performed at a later date.





Stock-Based
Compensation





The
Company recognizes all share-based payments to employees and to non-employee
directors as compensation for service on the Board of Directors as compensation
expense in the consolidated financial statements based on the fair values of
such payments. Stock-based compensation expense recognized each period is based
on the value of the portion of share-based payment awards that is ultimately
expected to vest during the period. Forfeitures are estimated at the time of
grant and revised, if necessary, in subsequent periods if actual forfeitures
differ from those estimates.





For
share-based payments to consultants and other third-parties, compensation
expense is determined at the “measurement date.” The expense is recognized over
the vesting period of the award. Until the measurement date is reached, the
total amount of compensation expense remains uncertain. The Company records
compensation expense based on the fair value of the award at the reporting date.
The awards to consultants and other third-parties are then revalued, or the
total compensation is recalculated based on the then current fair value, at each
subsequent reporting date.


9


Income
Taxes





As of
March 31, 2010, the Company has U.S. net operating loss carryforwards of
approximately $274 million which expire from 2019 through 2030. The Company has
established a valuation allowance against its net deferred tax assets due to the
Company’s history of pre-tax losses and the resulting likelihood that the
deferred tax assets are not realizable. Due to the Company’s various equity
transactions, the utilization of certain tax loss carryforwards could be subject
to annual limitations imposed by Internal Revenue Code Section 382 relating to
the change of control provision.





The
Company has not recorded any income tax provision for the three months ended
March 31, 2009, since the Company has estimated that its estimated annual
effective income tax rate will be zero.





The
Company is not aware of any unrecorded tax liabilities which would impact the
Company’s financial position or its results of operations.





Basic
and Diluted Net (Loss) Income per Common Share





Basic net
loss or income per share is based upon the weighted average number of common
shares outstanding during the period. Diluted net loss or income per share is
based upon the weighted average number of common shares outstanding during the
period, plus the effect of additional weighted average common equivalent shares
outstanding during the period when the effect of adding such shares is dilutive.
Common equivalent shares result from the assumed exercise of outstanding stock
options and warrants (the proceeds of which are then assumed to have been used
to repurchase outstanding stock using the treasury stock method). In addition,
the assumed proceeds under the treasury stock method include the average
unrecognized compensation expense of stock options that are in-the-money. This
results in the “assumed” buyback of additional shares, thereby reducing the
dilutive impact of stock options and warrants. Common equivalent shares have not
been included in the net loss per share calculations for three months ended
March 31, 2010, because the effect of including them would have been
anti-dilutive.





Basic and
diluted net (loss) income per share were determined as follows:





Three
      months ended
                    March 31,(in thousands, except share and per share
      amounts)
                  
                  2010
                  
                  
                  2009Basic:Net
      (loss) income
                  
                  $
                  (4,015
                  )
                  
                  $
                  451Weighted
      average shares outstanding
                  
                  
                  56,880,953
                  
                  
                  
                  47,853,895Basic
      net (loss) income per common share
                  
                  $
                  (0.07
                  )
                  
                  $
                  0.01Diluted:Net
      (loss) income
                  
                  $
                  (4,015
                  )
                  
                  $
                  451Weighted
      average shares outstanding
                  
                  
                  56,880,953
                  
                  
                  
                  47,853,895Effect
      of dilutive options and warrants
                  
                  
                  —
                  
                  
                  
                  196,325Weighted
      average shares outstanding assuming dilution
                  
                  
                  56,880,953
                  
                  
                  
                  48,050,220Diluted
      net (loss) income per common share
                  
                  $
                  (0.07
                  )
                  
                  $
                  0.01





The
Company did not include the following securities in the table below in the
computation of diluted net (loss)
income per common share because the securities were anti-dilutive during
the periods presented:





Three
      months ended
                      March 31,2010
                    
                    
                    2009Stock
      options
                    
                    
                    9,470,292
                    
                    
                    
                    8,719,865Warrants
                    
                    
                    2,908,000
                    
                    
                    
                    —Total
                    
                    
                    12,378,292
                    
                    
                    
                    8,719,865




10


Comprehensive
(Loss) Income





Comprehensive
(loss) income is composed of net (loss) income and other comprehensive (loss)
income. Other comprehensive (loss) income for the three months ended March 31,
2010, is comprised of a reduction of unrealized gains on the Company’s
available-for-sale long-term investment securities that are excluded from net
(loss) income and reported separately in stockholders’ equity. Comprehensive
(loss) income and its components are as follows:





Three
      months ended
                    March 31,(in thousands)
                  
                  2010
                  
                  
                  2009Net
      (loss) income – as reported
                  
                  $
                  (4,015
                  )
                  
                  $
                  451Other
      comprehensive (loss) income:Reduction
      of unrealized gain on available-for-sale long-term investment
      securities
                  
                  
                  (180
                  )
                  
                  
                  —Comprehensive
      (loss) income
                  
                  $
                  (4,195
                  )
                  
                  $
                  451





Impairment
of Goodwill





Goodwill
is reviewed for impairment annually, or when events arise that could indicate
that an impairment exists. The Company tests for goodwill impairment using a
two-step process. The first step compares the fair value of the reporting unit
with the unit's carrying value, including goodwill. When the carrying value of
the reporting unit is greater than fair value, the unit’s goodwill may be
impaired, and the second step must be completed to measure the amount of the
goodwill impairment charge, if any. In the second step, the implied fair value
of the reporting unit’s goodwill is compared with the carrying amount of the
unit’s goodwill. If the carrying amount is greater than the implied fair value,
the carrying value of the goodwill must be written down to its implied fair
value.





Discontinued
Operations





In
September 2008, the Company terminated its license agreement related to its
Accumin product and ceased all operations related to its Diagnostic segment. The
results of the Company’s Diagnostic segment and the related financial position
have been reflected as discontinued operations in the consolidated financial
statements. The consolidated financial statements have been reclassified to
conform to discontinued operations presentation for all historical periods
presented.





The
liabilities of discontinued operations are stated separately as of March 31,
2010, and December 31, 2009, on the accompanying consolidated balance sheets.
The major liabilities are as follows:





(in thousands)
                  
                  March 31, 2010
                  
                  
                  December 31, 2009LiabilitiesAccounts
      payable and accrued expenses
                  
                  $
                  120
                  
                  
                  $
                  120Liabilities
      of discontinued operations
                  
                  $
                  120
                  
                  
                  $
                  120





Subsequent
Events





The
Company has performed a review of events subsequent to the balance sheet date
through the date the financial statements were available for
issuance.





NOTE
2 – FAIR VALUE MEASUREMENTS





The
Company measures certain financial assets and liabilities at fair value on a
recurring basis in the financial statements. The hierarchy ranks the quality and
reliability of inputs, or assumptions, used in the determination of fair value
and requires financial assets and liabilities carried at fair value to be
classified and disclosed in one of the following three categories:





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


11


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





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





As of
March 31, 2010, the Company has a long-term investment in one auction rate
student loan-backed security ($3.0 million par value) with an estimated fair
value of $1.7 million. In May 2010, the Company sold its one remaining auction
rate security investment for $1.6 million, representing a loss of
$82,000.





Auction
rate securities are recorded at their fair value and classified as long-term
investments. Auction rate securities are structured to provide liquidity through
a Dutch auction process that resets the applicable interest rate at
pre-determined calendar intervals, generally every 28 days. This mechanism has
historically allowed existing investors either to rollover their holdings,
whereby they would continue to own their respective securities, or liquidate
their holdings by selling such securities at par. This auction process has
historically provided a liquid market for these securities; however, the
uncertainties in the credit markets have affected the Company’s holdings in
auction rate securities. Since February 2008, the auctions for the auction rate
securities held by the Company have not had sufficient buyers to cover
investors’ sell orders, resulting in unsuccessful auctions. When an auction is
unsuccessful, the interest rate is re-set to a level pre-determined by the loan
documents and remains in effect until the next auction date, at which time the
process repeats. Quarterly, the Company has assessed the fair value of its
auction rate securities portfolio. As a result of this valuation process, as
described below, the Company reported an other comprehensive loss of $180,000 in
the three months ended March 31, 2010, for a reduction of a temporary unrealized
gain related to the estimated fair value of its auction rate security, and
recorded impairment charges totaling $32,000 and $68,000 during the three months
ended March 31, 2010 and 2009, respectively, for other-than-temporary declines
in the value of its auction rate securities. These other-than-temporary
impairment charges were included in interest and other income, net.





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





The
Company reviews investment securities for impairment and to determine the
classification of the impairment as temporary or other-than-temporary. Losses
are recognized in the Company’s consolidated statement of operations when a
decline in fair value is determined to be other-than-temporary. The Company
reviews its investments on an ongoing basis for indications of possible
impairment. Once identified, the determination of whether the impairment is
temporary or other-than-temporary requires significant judgment. The Company
believes that the impairment charges related to its auction rate securities
investments are other-than-temporary.   The primary factors the
Company considers in classifying an impairment include the extent and time the
fair value of each investment has been below cost and the Company’s ability to
hold such investment to maturity.





The
following table provides the fair value measurements of applicable Company
financial assets as of March 31, 2010:





Financial assets at fair value
                    as of March 31, 2010(in thousands)
                  
                  Level 1
                  
                  
                  Level 2
                  
                  
                  Level 3Money
      market funds (1)
                  
                  $
                  10,891
                  
                  
                  $
                  —
                  
                  
                  $
                  —Obligations
      of domestic governmental agencies (held-to-maturity) (2)
                  
                  
                  9,163
                  
                  
                  
                  —
                  
                  
                  
                  —Bank
      deposits (held-to-maturity)
                  
                  
                  5,032
                  
                  
                  
                  —
                  
                  
                  
                  —Auction
      rate security (3)
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  1,702Total
                  
                  $
                  25,086
                  
                  
                  $
                  —
                  
                  
                  $
                  1,702




(1)
              Included
      in cash and cash equivalents on the Company’s consolidated balance sheet.
      The carrying amount of money market funds is a reasonable estimate of fair
      value.
 (2)
              Amortized
      cost approximates fair value.
 (3)
              Included
      in long-term investment securities on the Company’s consolidated balance
      sheet.




12










The
following table summarizes the change in carrying value associated with Level 3
financial assets for the three months ended March 31, 2010:





(in thousands)
                      
                      Available-for-sale
                        long-term
                        investmentsBalance
      at January 1, 2010
                      
                      $
                      1,914Total
      impairment charges included in net (loss) income
                      
                      
                      (32
                      )Other
      comprehensive loss (reduction of temporary unrealized
gain)
                      
                      
                      (180
                      )Balance
      at March 31, 2010
                      
                      $
                      1,702





NOTE
3 – STOCKHOLDERS' EQUITY





Common
Stock





On
September 30, 2009, the Company completed a registered direct offering to
certain investors of 8,000,000 shares of its common stock and warrants to
purchase up to a total of 2,800,000 shares of its common stock for gross
proceeds of approximately $20 million. The common stock and warrants were sold
in units, with each unit consisting of one share of common stock and a warrant
to purchase 0.35 of a share of common stock. The purchase price per unit was
$2.50. Subject to certain ownership limitations, the warrants are exercisable at
any time on or after the initial issue date and on or prior to October 1, 2010,
at an exercise price of $2.65 per warrant share. In addition, the placement
agent received a warrant to purchase up to 108,000 shares of common stock at an
exercise price of $3.125 per warrant share, exercisable at any time on or prior
to October 1, 2010. Total proceeds to the Company from this public offering were
approximately $18.4 million, net of offering costs of approximately $1.6
million. The shares and warrants were sold under a shelf registration statement
on Form S-3 (File No. 333-161607) filed with the SEC on August 28, 2009, and
declared effective by the SEC on September 23, 2009. The registration statement
provides for the offering of up to $40 million of the Company's common stock and
warrants.





Subsequent
to this registered direct offering, there remains approximately $12.2 million of
the Company's common stock and warrants available for sale under the shelf
registration statement. The Company may offer the remaining securities under its
shelf registration from time to time in response to market conditions or other
circumstances if it believes such a plan of financing is in the best interest of
the Company and its stockholders.   The Company believes that the
shelf registration provides it with the flexibility to raise additional capital
to finance its operations as needed.





Equity
Incentive Plans





Shares
available for the issuance of stock options or other stock-based awards under
the Company’s stock option and incentive plans were 1,888,432 shares at March
31, 2010.


13




Stock
Options
 
 The
following table summarizes stock option activity for the three months ended
March 31, 2010:


Number
                  of shares
                
                
                Weighted-
                  average
                  exercise price
                
                
                Weighted-
                  average
                  contractual
                  term
                
                
                Aggregate
                  intrinsic
                  value(in
      years)Outstanding
      at December 31, 2009
                
                
                9,353,572
                
                
                $
                6.63
                
                
                
                3.3
                
                
                $
                6,513,185Granted
                
                
                143,840
                
                
                
                2.55
                
                
                
                4.0Exercised
                
                
                —
                
                
                
                —
                
                
                
                
                
                
                $
                —Forfeited
                
                
                (2,120
                )
                
                
                9.80Expired
                
                
                (25,000
                )
                
                
                13.76Outstanding
      at March 31, 2010
                
                
                9,470,292
                
                
                $
                6.55
                
                
                
                3.1
                
                
                $
                7,691,143Vested
      and expected to vest at March 31, 2010
                
                
                9,434,572
                
                
                $
                6.56
                
                
                
                3.1
                
                
                $
                7,639,820Exercisable
      at March 31, 2010
                
                
                8,331,130
                
                
                $
                6.87
                
                
                
                2.4
                
                
                $
                6,159,121





Upon the
exercise of stock options, the Company issues new shares of its common stock. As
of March 31, 2010, 3,328,833 options issued to employees, and 93,000 options
issued to consultants, are milestone-based, of which 3,203,833 options issued to
employees, and 43,000 options issued to consultants, are vested and
exercisable.





Restricted
Stock





Certain
employees, directors and consultants have been awarded restricted stock under
the 2004 Long-Term Incentive Plan and 2007 Incentive Plan. Generally, the
restricted stock vests over a period of two to four years. The following table
summarizes restricted share activity for the three months ended March 31,
2010:





Number of
                    shares
                  
                  
                  Weighted
                    average
                    grant date
                    fair value
                  
                  
                  Aggregate
                    intrinsic
                    valueOutstanding
      at December 31, 2009
                  
                  
                  1,492,136
                  
                  
                  $
                  0.59
                  
                  
                  $
                  3,730,340Granted
                  
                  
                  630,500
                  
                  
                  
                  2.63Vested
                  
                  
                  (159,481
                  )
                  
                  
                  1.57
                  
                  
                  $
                  432,703Forfeited
                  
                  
                  (7,634
                  )
                  
                  
                  1.41Outstanding
      at March 31, 2010
                  
                  
                  1,955,521
                  
                  
                  $
                  1.16
                  
                  
                  $
                  5,358,128





On
September 14, 2009, the Company entered in an employment agreement with Ron
Bentsur, its Chief Executive Officer. The agreement terminates on May 20, 2012,
provided, however, that Mr. Bentsur’s opportunity to earn the milestone awards
described below will be effective until May 20, 2014, subject to certain early
termination events.  As of March 31, 2010, Mr. Bentsur has been granted a
total of 350,000 shares of restricted stock based on the achievement of certain
milestone awards described in his employment agreement. In addition, as of March
31, 2010, Mr. Bentsur has the opportunity to earn certain milestone awards as
follows:





(1)
400,000 shares of restricted stock will be granted to Mr. Bentsur upon the
first to occur of (a) the Company’s filing of an accepted new drug application,
or NDA, with the U.S. Food and Drug Administration for Zerenex or Perifosine, or
(b) the Company’s outlicensing of Zerenex or Perifosine in the U.S. to a third
party.   Such restricted stock will vest in equal installments over
each of the first three anniversaries of the date of grant provided that Mr.
Bentsur remains an employee of the Company during such vesting period. 
This milestone #1 may be achieved with respect to NDAs or qualifying outlicenses
for multiple indications of the same product, but not for subsequent outlicenses
of the product relating to an indication for which the milestone is met. Upon
achievement of milestone #2 below with respect to a product, the restricted
stock granted for one indication of the product under milestone #1 above will
vest in full.





(2) 500,000
shares of restricted stock will be granted to Mr. Bentsur, upon the first
to occur of (a) the Company’s first commercial sale of Zerenex or Perifosine in
the U.S. off an approved NDA, (b) the Company’s receipt of the first royalty
upon the commercial sale of Zerenex or Perifosine in the U.S. by a partner to
whom the Company has sold exclusive or non-exclusive commercial rights, or (c)
the Company’s complete outlicensing of the entire product rights of Zerenex or
Perifosine in the U.S.  Such restricted stock will vest on the first
anniversary of the date of grant provided that Mr. Bentsur remains an employee
of the Company during such vesting period.




(3) 100,000
shares of restricted stock will be granted to Mr. Bentsur upon each event
of the Company’s outlicensing Zerenex in a foreign market, other than Japan,
resulting in a greater than $10 million non-refundable cash payment to the
Company with a gross deal value to the Company of at least $50 million. 
 Such restricted stock will vest in equal installments over each of the
first three anniversaries of the date of grant provided that Mr. Bentsur remains
an employee of the Company during such vesting period.


14


Warrants





Warrants
                        
                        
                        Weighted-
                          average
                          exercise price
                        
                        
                        Aggregate
                          intrinsic
                          valueOutstanding
      at December 31, 2009
                        
                        
                        2,908,000
                        
                        
                        $
                        2.67
                        
                        
                        $
                        —Issued
                        
                        
                        —
                        
                        
                        
                        —Exercised
                        
                        
                        —
                        
                        
                        
                        —Canceled
                        
                        
                        —
                        
                        
                        
                        —Outstanding
      at March 31, 2010
                        
                        
                        2,908,000
                        
                        
                        $
                        2.67
                        
                        
                        $
                        252,000





As
discussed above, as part of the registered direct offering completed on
September 30, 2009, the Company issued warrants to purchase up to 2,800,000
shares of the Company's common stock. The warrants have an exercise price of
$2.65 per warrant share and, subject to certain ownership limitations, are
exercisable at any time on or after the initial issue date and on or prior to
October 1, 2010. The grant date fair value was $1.03 per warrant, for a total
fair value of $2,877,000, which is included in additional paid-in capital on the
consolidated balance sheet. In addition, the Company issued to the placement
agent in the transaction warrants to purchase up to 108,000 shares of its common
stock at an exercise price of $3.125 per warrant share, exercisable at any time
on or prior to October 1, 2010, with a grant date fair value of $0.93 per
warrant. The fair value of the warrants described above is estimated at the date
of grant using the Black-Scholes pricing model. For as long as the warrants
issued in the registered direct offering are outstanding, if there is no
effective registration statement covering the resale of the warrant shares by
the holders, such warrants may be exercisable, in whole or in part, at such time
by means of a “cashless exercise.”





Stock-Based
Compensation





The
Company incurred $649,000 and $571,000 of non-cash compensation expense related
to equity incentive grants during the three months ended March 31, 2010 and
2009, respectively. The fair value of stock options granted is estimated at the
date of grant using the Black-Scholes pricing model. The expected term of
options granted is derived from historical data and the expected vesting period.
Expected volatility is based on the historical volatility of the Company’s
common stock. The risk-free interest rate is based on the U.S. Treasury yield
for a period consistent with the expected term of the option in effect at the
time of the grant. The Company has assumed no expected dividend yield, as
dividends have never been paid to stock or option holders and will not be paid
for the foreseeable future.





Black-Scholes Option Valuation Assumptions
                        
                        Three months ended March 31,2010
                        
                        
                        2009Risk-free
      interest rates
                        
                        
                        2.1
                        %
                        
                        
                        —Dividend
      yield
                        
                        
                        —
                        
                        
                        
                        —Volatility
                        
                        
                        129.3
                        %
                        
                        
                        —Weighted-average
      expected term
                        
                        4.0
      years
                        
                        
                        
                        —





The
weighted average grant date fair value of options granted for the three months
ended March 31, 2010 was $2.07. There were no grants of options during the three
months ended March 31, 2009. The Company used historical information to estimate
forfeitures within the valuation model. As of March 31, 2010, there was $1.1
million and $2.1 million of total unrecognized compensation cost related to
non-vested stock options and restricted stock, respectively, which is expected
to be recognized over weighted-average periods of 2.0 years and 2.6 years,
respectively. These amounts do not include, as of March 31, 2010, 175,000
options outstanding which are milestone-based and vest upon certain corporate
milestones, such as FDA approval of the Company’s drug candidates, market
capitalization targets, and change in control. Stock-based compensation will be
measured and recorded if and when a milestone occurs.





On April
23, 2009, the Company’s Board of Directors voted to terminate the employment of
Michael S. Weiss as the Company’s former Chairman and Chief Executive Officer.
Under the terms of Mr. Weiss’ employment agreement, 1,800,000 shares of
restricted stock vested and all of Mr. Weiss’ outstanding stock options vested
and will remain exercisable for two years following
termination.


15


NOTE
4 - LICENSE AGREEMENTS





In
September 2007, the Company entered into a Sublicense Agreement with Japan
Tobacco Inc. (“JT”) and Torii Pharmaceutical Co., Ltd. (“Torii”), JT's
pharmaceutical business subsidiary, under which JT and Torii obtained the
exclusive sublicense rights for the development and commercialization of ferric
citrate in Japan, which is being developed in the United States under the trade
name Zerenex. JT and Torii are responsible for the future development and
commercialization costs in Japan. Effective as of June 8, 2009, the Company
entered into an Amended and Restated Sublicense Agreement (the “Revised
Agreement”) with JT and Torii, which, among other things, provided for the
elimination of all significant on-going obligations under the sublicense
agreement. Accordingly, in accordance with the Company’s revenue recognition
policies, all remaining deferred revenue pertaining to this sublicense has been
recognized in the second quarter of 2009.





Prior to
the Revised Agreement, an upfront payment of $12.0 million, which was received
in October 2007, was being recognized as license revenue on a straight-line
basis over the life of the agreement, which is through the expiration of the
last-to-expire patent covered by the agreement in 2023, and represented the
estimated period over which the Company had certain significant ongoing
responsibilities under the original sublicense agreement. An additional
milestone payment of $8.0 million, for the achievement of certain milestones
reached in March 2008, was received in April 2008, and was being recognized as
license revenue on a straight-line basis over the life of the original agreement
(as discussed above).





In March
2009, JT and Torii informed the Company that they had initiated a Phase 2
clinical study of Zerenex in Japan, which triggered a $3.0 million
non-refundable milestone payment, which was received by the Company in March
2009. As a result, the Company recorded license revenue of $3.0 million in
accordance with its revenue recognition policy, which is included in the three
months ended March 31, 2009.





The
Company may receive up to an additional $77.0 million in payments upon the
achievement of pre-specified milestones. In addition, upon commercialization, JT
and Torii will make royalty payments to the Company on net sales of ferric
citrate in Japan.





In July
2009, the Company settled a dispute with Alfa Wassermann S.p.A. over issues
arising from the terminated license agreement for Sulonex (sulodexide). Under
the terms of the settlement agreement, Alfa Wassermann will pay the Company
$3,500,000 (of which $2,750,000 was received on July 31, 2009, and $750,000 will
be paid on or before July 30, 2010), and the Company is required to deliver to
Alfa Wassermann all of its data, information and other intellectual property
related to Sulonex.





NOTE
5 – SEGMENT INFORMATION





The
Company has two reportable segments: Services and Products. The Services
business provides clinical trial management and site recruitment services to
other biotechnology and pharmaceutical companies. The Products business focuses
on the acquisition, development and commercialization of medically important
pharmaceutical products for the treatment of life-threatening diseases,
including cancer and renal disease, and also includes license revenue, other
revenue and associated costs.





Segment
information for the three month periods were as follows:





RevenueThree months ended March
31,(in thousands)
                  
                  2010
                  
                  
                  2009Services
                  
                  $
                  —
                  
                  
                  $
                  3Products
                  
                  
                  —
                  
                  
                  
                  3,327Total
                  
                  $
                  —
                  
                  
                  $
                  3,330





Operating
      (loss) incomeThree months ended March
31,(in thousands)
                  
                  2010
                  
                  
                  2009Services
                  
                  $
                  —
                  
                  
                  $
                  3Products
                  
                  
                  (4,101
                  )
                  
                  
                  341Total
                  
                  $
                  (4,101
                  )
                  
                  $
                  344




16


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





Net
      (loss) incomeThree months ended March
31,(in thousands)
                  
                  2010
                  
                  
                  2009Operating
      (loss) income of reportable segments
                  
                  $
                  (4,101
                  )
                  
                  $
                  344Interest
      and other income, net
                  
                  
                  86
                  
                  
                  
                  107Income
      taxes
                  
                  
                  —
                  
                  
                  
                  —Consolidated
      (loss) income
                  
                  $
                  (4,015
                  )
                  
                  $
                  451





Assets
      (1)(in thousands)
                      
                      March 31, 2010
                      
                      
                      December 31, 2009Services
                      
                      $
                      —
                      
                      
                      $
                      —Products
                      
                      
                      4,610
                      
                      
                      
                      4,904Total
      assets of reportable segments
                      
                      
                      4,610
                      
                      
                      
                      4,904Cash,
      cash equivalents, interest receivable and investment
      securities
                      
                      
                      32,111
                      
                      
                      
                      35,914Consolidated
      total assets
                      
                      $
                      36,721
                      
                      
                      $
                      40,818


(1)
            Assets
      for the Company’s reportable segments include fixed assets, goodwill,
      accounts receivable and prepaid
expenses.





The
carrying amount of goodwill by reportable segment as of March 31, 2010 and
December 31, 2009 was as follows:





Goodwill(in thousands)
                  
                  March 31, 2010
                  
                  
                  December 31, 2009Services
                  
                  $
                  —
                  
                  
                  $
                  —Products
                  
                  
                  3,208
                  
                  
                  
                  3,208Total
                  
                  $
                  3,208
                  
                  
                  $
                  3,208





NOTE
6 – SUBSEQUENT EVENT





Subsequent
to March 31, 2010, the Company has received approximately $2.7 million of cash
proceeds from the exercise of options and warrants, which were outstanding as of
March 31, 2010.





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





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





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





You
should read the following discussion and analysis in conjunction with the
unaudited consolidated financial statements, and the related footnotes thereto,
appearing elsewhere in this report, and in conjunction with management’s
discussion and analysis and the audited consolidated financial statements
included in our annual report on Form 10-K for the year ended December 31,
2009.


17


OVERVIEW





We are a
biopharmaceutical company focused on the acquisition, development and
commercialization of medically important pharmaceutical products for the
treatment of life-threatening diseases, including cancer and renal disease. We
are developing KRX-0401 (perifosine), a novel, potentially first-in-class, oral
anti-cancer agent that inhibits Akt activation in the phosphoinositide 3-kinase
(PI3K) pathway, and also affects a number of other key signal transduction
pathways, including the JNK pathway, all of which are pathways associated with
programmed cell death, cell growth, cell differentiation and cell survival.
KRX-0401 has demonstrated both safety and clinical efficacy in several tumor
types, both as a single agent and in combination with novel therapies. KRX-0401
is currently in Phase 3 clinical development for both refractory advanced
colorectal cancer and multiple myeloma, and in Phase 1 and 2 clinical
development for several other tumor types. Each of the KRX-0401 Phase 3 programs
are being conducted under Special Protocol Assessment (SPA) agreements with the
FDA.





We are
also developing ZerenexTM (ferric citrate), an oral, iron-based compound that has
the capacity to bind to phosphate and form non-absorbable complexes. Zerenex is
currently in Phase 3 clinical development, under an SPA, as a treatment for
hyperphosphatemia (elevated phosphate levels) in patients with end-stage renal
disease, or ESRD. Zerenex has also completed Phase 2 development in Japan by our
Japanese partner, Japan Tobacco Inc. (“JT”) and Torii Pharmaceutical Co., Ltd.
(“Torii”).





We also
actively engage in business development activities that include seeking
strategic relationships for our product candidates, as well as evaluating
compounds and companies for in-licensing or acquisition. To date, we have not
received approval for the sale of any of our drug candidates in any market and,
therefore, have not generated any product sales from our drug candidates. We
have generated, and expect to continue to generate, revenue from the licensing
of rights to Zerenex in Japan to our Japanese partner, JT and
Torii.





The table
below summarizes the status of our product pipeline.





Product
      candidate
                                      
                                      Target
      indication
                                      
                                      Development
      statusKRX-0401
      (perifosine)
                                      
                                      Colorectal
      cancer
                                      
                                      Phase
      3 trial ongoing, under SPAMultiple
      myeloma
                                      
                                      Phase
      3 trial ongoing, under SPAMultiple
      other forms of cancer
                                      
                                      Phase
      2 trials ongoingZerenexTM
      (ferric citrate)
                                      
                                      Hyperphosphatemia
      in patients with
                                      
                                      U.S.
      Phase 3 program ongoing, under SPAend-stage
      renal disease
                                      
                                      Japan
      Phase 2 completed by sublicensee (JT and
Torii)





KRX-0401
(perifosine)





Refractory Advanced
Colorectal Cancer





In April
2010, we announced the initiation of a Phase 3 registration clinical trial for
KRX-0401 (perifosine) for the treatment of patients with refractory advanced
colorectal cancer. This trial is being conducted pursuant to a Special Protocol
Assessment (SPA) with the Food and Drug Administration. The Phase 3 trial,
entitled the “X-PECT” (Xeloda® + Perifosine Evaluation in Colorectal cancer
Treatment) trial, is a randomized (1:1), double-blind trial comparing the
efficacy and safety of perifosine + capecitabine vs. placebo + capecitabine in
approximately 430 patients with refractory advanced colorectal cancer. Patients
must have failed available therapy including 5-fluorouracil (5-FU), oxaliplatin
(Eloxatin®), irinotecan (Camptosar®), bevacizumab (Avastin®) and, if KRAS
wild-type, failed therapy with prior cetuximab (Erbitux®) or panitumumab
(Vectibix®). For oxaliplatin-based therapy, failure of therapy will also include
patients who discontinued due to toxicity. The primary endpoint is overall
survival, with secondary endpoints including overall response rate (complete +
partial responses), progression-free survival and safety. The median overall
survival for the X-PECT study's targeted patient population, that has failed
prior therapies as described above, is approximately 5 months. The X-PECT study
will be powered at 90% to detect a statistically significant difference in
overall survival, with an assumed median overall survival for the control arm of
5-6 months and 7-8 months for the perifosine arm. Approximately 360 events of
death will trigger the un-blinding of the study.


18


Dr.
Johanna Bendell, Director of GI Oncology Research for the Sarah Cannon Research
Institute, Nashville, Tennessee, is leading the Phase 3 investigational team
that includes Dr. Cathy Eng, Associate Medical Director for the Colorectal
Center at MD Anderson Cancer Center in Houston, Texas. Approximately 40 to 50
U.S. sites will participate in the study.





KRX-0401
has also been granted Fast Track designation for the treatment of refractory
advanced colorectal cancer.





Zerenex
(ferric citrate)





In April
2010, we reported updated long-term efficacy and safety data on ZerenexTM (ferric
citrate), our iron-based phosphate binder for the treatment of hyperphosphatemia
(elevated phosphate levels) from an open-label extension study in patients with
end-stage renal disease (ESRD) who are on dialysis.   This data was
presented at the National Kidney Foundation (NKF) 2010 Spring Clinical Meeting
in a poster entitled “Long-Term Use of Ferric Citrate in End-Stage Renal Disease
Patients.”





After the
completion of a 28-day fixed dose Phase 2 clinical trial of ferric citrate in
ESRD patients, 29 patients who had participated in this trial at the site in
Taiwan were offered to continue onto an Open-Label Extension (OLE) trial for up
to one year. There was approximately a two month period between the completion
of the Phase 2 dose-ranging trial and enrollment into the OLE trial. During this
time interval, no patient was exposed to ferric citrate as a phosphate binder.
Patients were immediately switched back to ferric citrate from other phosphate
binders and there was no washout period prior to starting ferric citrate
treatment in the OLE trial. Of the 29 patients enrolled, 28 were exposed to
ferric citrate. The patients were started on doses of ferric citrate of 2 to 6
g/day. The maximum allowed dose was 6 g/day. The average dose per patient
throughout the study was approximately 4.5 g/day. The average duration of the
patient’s participation in the trial was 306 +/- 85 days. The primary objective
of this OLE trial of ferric citrate was to assess the long-term efficacy and
safety of ferric citrate as a phosphate binder in ESRD patients for up to one
year. The secondary objective of this OLE trial was to assess for the potential
for iron absorption.





The
therapeutic goal of the study was to achieve and maintain a serum phosphorus
level below 5.5 mg/dL.   The mean levels of serum phosphorus (SP) and
phosphorus x calcium product (PxC) for the evaluable patients at each time point
over the treatment period were as follows:





SP (mg/dL)
                          
                          PxC (mg/dL)2Baseline
      (sd)
                          5.63
      (1.22)
                          
                          50.79
      (12.74)3
      months (sd)
                          5.48
      (1.33)
                          
                          51.84
      (12.67)6
      months (sd)
                          5.16
      (1.20)
                          
                          48.40  (9.60)9
      months (sd)
                          5.24
      (1.20)
                          
                          48.72
      (12.04)12
      months (sd)
                          5.21
      (1.09)
                          
                          50.05
      (11.82)





Iron
parameters were measured at baseline and then quarterly through month 9. On
average, slight increases were observed over time, across all key parameters, as
follows:





Baseline (sd)
                        
                        9 Months (sd)Ferritin
      (ng/mL)
                        520   328)
                        
                        781  (364)TSAT
      (%)
                        39.2
      (19.7)
                        
                        45.5
      (21.1)Iron
      (mcg/dL)
                        87.8
      (37.9)
                        
                        88.3
      (37.2)HCT
      (%)
                        30.8  (6.9)
                        
                        32.9  (9.7)





If a
patient had a ferritin greater than 600 ng/mL and a TSAT greater than 50%, the
use of IV iron was withheld until the patient’s ferritin and TSAT were below the
above levels during the treatment period.   If a patient had a
hematocrit (HCT) greater than 36%, the use of EPO was withheld until the HCT was
greater than 36% during the treatment period.


19


There
were 8 patients that had IV iron supplements withheld for approximately 3 to 6
months and there were 8 patients that had EPO withheld for approximately 1 to 10
months during the OLE trial. Out of the 16 patients in the two groups, three
patients had both IV iron and EPO withheld.





Ferric
citrate was well-tolerated throughout the OLE study.   There were no
patient deaths during the OLE and no serious adverse events reported related to
ferric citrate.





The
investigators concluded that in this OLE trial of ferric citrate with doses as
high as 6 g/day, ferric citrate demonstrated the potential to be used long-term
as a phosphate binder in ESRD patients. Ferric citrate appeared to be
efficacious in controlling serum phosphorus and well-tolerated and safe for up
to one year. Additionally, it is the investigators’ opinion that this OLE trial,
along with data from both animal studies and the Phase 2 high dose trial
supports the notion that some iron absorption may be occurring with the use of
ferric citrate as a phosphate binder in ESRD patients and that if a reduction in
the use of IV-iron supplements and/or EPO are documented in future long-term
clinical trials, the cost-benefit and cost-effectiveness of ferric citrate as a
phosphate binder, as compared to currently marketed phosphate binders, would be
significant.





In May
2010, we announced the initiation of our short-term Phase 3 study of Zerenex as
a treatment of elevated serum phosphorous levels, or hyperphosphatemia, in
patients with end-stage renal disease on dialysis.   The initiation of
this study marked the commencement of our Phase 3 registration program for
Zerenex, which is being conducted in accordance with a SPA agreement with the
FDA. Pursuant to our SPA agreement, the Zerenex Phase 3 registration program
will consist of a short-term efficacy study and 58-week long-term safety and
efficacy study. Patients completing the short term study are eligible to be
enrolled into the long-term study.





The
short-term efficacy study recently initiated is a multicenter, randomized,
open-label clinical trial with a planned enrollment of approximately 150
patients on hemodialysis. All patients will undergo a 2-week washout period,
following which the patients will be randomized 1:1:1 to receive a fixed dose of
Zerenex (1 gram, 6 grams or 8 grams per day) for a treatment period of 28 days.
The primary endpoint of the study is to demonstrate a dose response in the
change of serum phosphorous from baseline (end of washout period) to end of the
treatment period (day 28). Approximately 15 sites in the U.S. will participate
in the study.





General
Corporate





Our major
sources of working capital have been proceeds from various private placements of
equity securities, option and warrant exercises, public offerings of our common
stock, interest income, and, beginning in 2007, from the upfront and milestone
payments from our Sublicense Agreement with JT and Torii and miscellaneous
payments from our other prior licensing activities. We have devoted
substantially all of our efforts to the identification, in-licensing,
development and partnering of drug candidates. We have incurred negative cash
flow from operations each year since our inception. We anticipate incurring
negative cash flows from operating activities for the foreseeable future. We
have spent, and expect to continue to spend, substantial amounts in connection
with implementing our business strategy, including our product development
efforts, our clinical trials, partnership and licensing activities.





Our
license revenues currently consist of license fees and milestone payments
arising from our agreement with JT and Torii. We recognize upfront license fee
revenues ratably over the estimated period in which we will have certain
significant ongoing responsibilities under the sublicense agreement, with
unamortized amounts recorded as deferred revenue. We recognize milestone
payments as revenue upon the achievement of specified milestones only if
(1) the milestone payment is non-refundable, (2) substantive effort is
involved in achieving the milestone, (3) the amount of the milestone is
reasonable in relation to the effort expended or the risk associated with
achievement of the milestone, and (4) the milestone is at risk for both
parties. If any of these conditions are not met, we defer the milestone payment
and recognize it as revenue over the estimated period of performance under the
contract as we complete our performance obligations.





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





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


20


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





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





Our
results of operations include non-cash compensation expense as a result of the
grants of stock options and restricted stock. Compensation expense for awards of
options and restricted stock granted to employees and directors represents the
fair value of the award recorded over the respective vesting periods of the
individual awards. The expense is included in the respective categories of
expense in the consolidated statements of operations. We expect to continue to
incur significant non-cash compensation expenses.





For
awards of options and restricted stock to consultants and other third-parties,
compensation expense is determined at the “measurement date.” The expense is
recognized over the vesting period of the award. Until the measurement date is
reached, the total amount of compensation expense remains uncertain. We record
compensation expense based on the fair value of the award at the reporting date.
The awards to consultants and other third-parties are then revalued, or the
total compensation is recalculated based on the then current fair value, at each
subsequent reporting date. This results in a change to the amount previously
recorded in respect of the equity award grant, and additional expense or a
reversal of expense may be recorded in subsequent periods based on changes in
the assumptions used to calculate fair value, such as changes in market price,
until the measurement date is reached and the compensation expense is
finalized.





In
addition, certain options and restricted stock issued to employees, consultants
and other third-parties vest upon the achievement of certain milestones,
therefore the total expense is uncertain until the milestone is
met.





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





RESULTS
OF OPERATIONS





Three
months ended March 31, 2010 and March 31, 2009





License Revenue. License
revenue decreased by $3,327,000 to $0 for the three months ended March 31, 2010,
as compared to $3,327,000 for the three months ended March 31, 2009. The
decrease in license revenue was due primarily to the recognition in the three
months ended March 31, 2009, of a $3.0 million milestone payment received from
JT and Torii due to their initiation of a Phase 2 clinical study of Zerenex in
Japan.





Service Revenue. There was no
service revenue in the three months ended March 31, 2010, as compared to service
revenue of $3,000 for the three months ended March 31, 2009. We do not expect
our service revenue to have a material impact on our financial results during
the remainder of 2010.





Non-Cash Compensation Expense
(Research and Development). Non-cash compensation expense (research and
development) related to equity incentive grants increased by $41,000 to $242,000
for the three months ended March 31, 2010, as compared to $201,000 for the three
months ended March 31, 2009. The increase in non-cash compensation expense in
the three months ended March 31, 2010, as compared to March 31, 2009, was
primarily related to grants of equity awards to research and development
personnel and the recording of the related fair value of the awards over the
respective vesting periods of the individual awards.


21


Other Research and Development
Expenses. Other research and development expenses increased by $1,180,000
to $2,554,000 for the three months ended March 31, 2010, as compared to
$1,374,000 for the three months ended March 31, 2009. The increase in other
research and development expenses was due primarily to a $574,000 increase in
research and development expenses related to KRX-0401, primarily due to the
initiations of two Phase 3 clinical trials, as well to a $502,000 increase in
research and development expenses related to Zerenex. We expect our other
research and development costs to increase substantially over the remainder of
2010, due to our Phase 3 clinical programs for KRX-0401 and
Zerenex.





Non-Cash Compensation Expense
(General and Administrative). Non-cash compensation expense (general and
administrative) related to equity incentive grants increased by $37,000 to
$407,000 for the three months ended March 31, 2010, as compared to an expense of
$370,000 for the three months ended March 31, 2009. The increase in non-cash
compensation expense in the three months ended March 31, 2010, as compared to
March 31, 2009, was primarily related to grants of equity awards to general and
administrative personnel and the recording of the related fair value of the
awards over the respective vesting periods of the individual
awards.





Other General and Administrative
Expenses. Other general and administrative expenses decreased by $143,000
to $898,000 for the three months ended March 31, 2010, as compared to an expense
of $1,041,000 for the three months ended March 31, 2009. The decrease was due
primarily to reduced legal expenses in the current period. We expect our other
general and administrative expenses to remain at a comparable level over the
reminder of 2010 to those reported in the three months ended March 31,
2010.





Interest and Other Income,
Net. Interest and other income, net, decreased by $21,000 to $86,000 for
the three months ended March 31, 2010, as compared to $107,000 for the three
months ended March 31, 2009. The decrease was due primarily to a lower effective
interest earned on our investment portfolio.





LIQUIDITY
AND CAPITAL RESOURCES





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





On
September 30, 2009, we completed a registered direct offering to certain
investors of 8,000,000 shares of our common stock and warrants to purchase up to
a total of 2,800,000 shares of our common stock for gross proceeds of
approximately $20 million. The common stock and warrants were sold in units,
with each unit consisting of one share of common stock and a warrant to purchase
0.35 of a share of common stock. The purchase price per unit was $2.50. Subject
to certain ownership limitations, the warrants are exercisable at any time on or
after the initial issue date and on or prior to October 1, 2010, at an exercise
price of $2.65 per warrant share. In addition, the placement agent received a
warrant to purchase up to 108,000 shares of our common stock at an exercise
price of $3.125 per warrant share, exercisable at any time on or prior to
October 1, 2010. Total proceeds to us from this public offering were
approximately $18.4 million, net of offering costs of approximately $1.6
million. The shares and warrants were sold under a shelf registration statement
on Form S-3 (File No. 333-161607) filed with the SEC on August 28, 2009, and
declared effective by the SEC on September 23, 2009. The registration statement
provides for the offering of up to $40 million of our common stock and warrants.
Subsequent to this registered direct offering, there remains approximately $12.2
million of our common stock and warrants available for sale under the shelf
registration statement. We may offer the remaining securities under our shelf
registration from time to time in response to market conditions or other
circumstances if we believe such a plan of financing is in our best interests
and the best interests of our stockholders. We believe that the shelf
registration provides us with the flexibility to raise additional capital to
finance our operations as needed.





As of
March 31, 2010, we had $30.4 million in cash, cash equivalents, interest
receivable, and short-term investment securities, a decrease of $3.6 million
from December 31, 2009. In addition, at March 31, 2010, we had $1.7 million
invested in a non-current auction rate security, as discussed below. We
currently anticipate that our cash, cash equivalents and investment securities
as of March 31, 2010, exclusive of our anticipated milestones to be received and
expected exercises of expiring options and warrants, are sufficient to meet our
anticipated working capital needs and fund our business plan for approximately
18 to 20 months from March 31, 2010.


22




Cash used
in operating activities for the three months ended March 31, 2010 was $3.6
million, as compared to $46,000 for the three months ended March 31, 2009. This
decrease in cash used in operating activities was due primarily to a $3 million
milestone payment received from JT and Torii in the three months ended March 31,
2009, as discussed above, as well as increased expenditures on our clinical
programs.





For the
three months ended March 31, 2010, net cash provided by investing activities of
$3.3 million was primarily the result of the maturity of held-to-maturity
short-term securities, partially offset by investments in held-to-maturity
short-term securities. For the three months ended March 31, 2010, no net cash
was provided by financing activities.





As of
March 31, 2010, we have a long-term investment in one auction rate student
loan-backed security ($3.0 million par value) with an estimated fair value of
$1.7 million. In May 2010, we sold our one remaining auction rate security
investment for $1.6 million, representing a loss of $82,000.





Auction
rate securities are recorded at their fair value and classified as long-term
investments. Auction rate securities are structured to provide liquidity through
a Dutch auction process that resets the applicable interest rate at
pre-determined calendar intervals, generally every 28 days. This mechanism has
historically allowed existing investors either to rollover their holdings,
whereby they would continue to own their respective securities, or liquidate
their holdings by selling such securities at par. This auction process has
historically provided a liquid market for these securities; however, the
uncertainties in the credit markets have affected our investments in auction
rate securities. Since February 2008, the auctions for our auction rate
securities have not had sufficient buyers to cover investors’ sell orders,
resulting in unsuccessful auctions. When an auction is unsuccessful, the
interest rate is re-set to a level pre-determined by the loan documents and
remains in effect until the next auction date, at which time the process
repeats. Quarterly, we have assessed the fair value of our auction rate
securities portfolio. As a result of this valuation process, we reported an
other comprehensive loss of $180,000 in the three months ended March 31, 2010,
for a reduction of a temporary unrealized gain related to the estimated fair
value of our auction rate security, and recorded impairment charges totaling
$32,000 and $68,000 during the three months ended March 31, 2010 and 2009,
respectively, for other-than-temporary declines in the value of our auction rate
securities. These other-than-temporary impairment charges were included in
interest and other income, net.





OFF-BALANCE
SHEET ARRANGEMENTS





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





CRITICAL
ACCOUNTING POLICIES





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





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


23


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





Total
compensation expense for options and restricted stock issued to consultants is
determined at the “measurement date.” The expense is recognized over the vesting
period for the options and restricted stock. Until the measurement date is
reached, the total amount of compensation expense remains uncertain. We record
stock-based compensation expense based on the fair value of the equity awards at
the reporting date. These equity awards are then revalued, or the total
compensation is recalculated based on the then current fair value, at each
subsequent reporting date. This results in a change to the amount previously
recorded in respect of the equity award grant, and additional expense or a
reversal of expense may be recorded in subsequent periods based on changes in
the assumptions used to calculate fair value, such as changes in market price,
until the measurement date is reached and the compensation expense is
finalized.





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





Revenue Recognition.We
recognize license revenue in accordance with the revenue recognition guidance of
the Codification. We analyze each element of our licensing agreement to
determine the appropriate revenue recognition. The terms of the license
agreement may include payment to us of non-refundable up-front license fees,
milestone payments if specified objectives are achieved, and/or royalties on
product sales. We recognize revenue from upfront payments over the period of
significant involvement under the related agreements unless the fee is in
exchange for products delivered or services rendered that represent the
culmination of a separate earnings process and no further performance obligation
exists under the contract. We recognize milestone payments as revenue upon the
achievement of specified milestones only if (1) the milestone payment is
non-refundable, (2) substantive effort is involved in achieving the
milestone, (3) the amount of the milestone is reasonable in relation to the
effort expended or the risk associated with achievement of the milestone, and
(4) the milestone is at risk for both parties. If any of these conditions
are not met, we defer the milestone payment and recognize it as revenue over the
estimated period of performance under the contract.





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





We
recognize other revenues at the time such fees and payments are
earned.





Accounting Related to
Goodwill. As of March 31, 2010, there was approximately $3.2 million of
goodwill on our consolidated balance sheet. Goodwill is reviewed for impairment
annually, or when events arise that could indicate that an impairment exists. We
test for goodwill impairment using a two-step process. The first step compares
the fair value of the reporting unit with the unit's carrying value, including
goodwill. When the carrying value of the reporting unit is greater than fair
value, the unit’s goodwill may be impaired, and the second step must be
completed to measure the amount of the goodwill impairment charge, if any. In
the second step, the implied fair value of the reporting unit’s goodwill is
compared with the carrying amount of the unit’s goodwill. If the carrying amount
is greater than the implied fair value, the carrying value of the goodwill must
be written down to its implied fair value.


24





We are
required to perform impairment tests annually, at December 31, and whenever
events or changes in circumstances suggest that the carrying value of an asset
may not be recoverable. For all of our acquisitions, various analyses,
assumptions and estimates were made at the time of each acquisition that were
used to determine the valuation of goodwill and intangibles. In future years,
the possibility exists that changes in forecasts and estimates from those used
at the acquisition date could result in impairment indicators.





Impairment of Long-Lived
Assets.  We recognize an impairment loss when circumstances
indicate that the carrying value of long-lived tangible and intangible assets
with finite lives may not be recoverable. Management’s policy in determining
whether an impairment indicator exists, a triggering event, comprises measurable
operating performance criteria as well as qualitative measures. If an analysis
is necessitated by the occurrence of a triggering event, we make certain
assumptions in determining the impairment amount. Recoverability of assets to be
held and used is measured by a comparison of the carrying amount of an asset to
future cash flows expected to be generated by the asset or used in its disposal.
If the carrying amount of an asset exceeds its estimated future cash flows, an
impairment charge is recognized for the excess of the carrying value of the
asset above its fair value.





Impairment of Investment
Securities. As of March 31, 2010, we have a long-term investment in one
auction rate student loan-backed security ($3.0 million par value) with an
estimated fair value of $1.7 million. In May 2010, we sold our one remaining
auction rate security investment for $1.6 million, representing a loss of
$82,000. Auction rate securities are recorded at their fair value and classified
as long-term investments. The uncertainties in the credit markets have affected
our investments in auction rate securities. Since February 2008, the auctions
for our auction rate securities have not had sufficient buyers to cover
investors’ sell orders, resulting in unsuccessful auctions. When an auction is
unsuccessful, the interest rate is re-set to a level pre-determined by the loan
documents and remains in effect until the next auction date, at which time the
process repeats. Quarterly, we have assessed the fair value of our auction rate
securities portfolio. As a result of this valuation process, as described below,
we reported an other comprehensive loss of $180,000 in the three months ended
March 31, 2010, for a reduction of a temporary unrealized gain related to the
estimated fair value of our auction rate security, and recorded impairment
charges totaling $32,000 and $68,000 during the three months ended March 31,
2010 and 2009, respectively, for other-than-temporary declines in the value of
our auction rate securities. These other-than-temporary impairment charges were
included in interest and other income, net.





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





We review
investment securities for impairment and to determine the classification of the
impairment as temporary or other-than-temporary. Losses are recognized in our
consolidated statement of operations when a decline in fair value is determined
to be other-than-temporary. We review our investments on an ongoing basis for
indications of possible impairment. Once identified, the determination of
whether the impairment is temporary or other-than-temporary requires significant
judgment. The primary factors we consider in classifying an impairment include
the extent and time the fair value of each investment has been below cost and
our ability to hold such investment to maturity.


25





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





RECENTLY
ISSUED ACCOUNTING STANDARDS





In
October 2009, the FASB issued ASU No. 2009-13, Multiple-Deliverable Revenue
Arrangements. This ASU eliminates the requirement to establish the fair value of
undelivered products and services and instead provides for separate revenue
recognition based upon management’s estimate of the selling price for an
undelivered item when there is no other means to determine the fair value of
that undelivered item. The ASU also eliminates the use of the residual method
and instead requires an entity to allocate revenue using the relative selling
price method. Additionally, the guidance expands disclosure requirements with
respect to multiple-deliverable revenue arrangements. This ASU is effective
prospectively for revenue arrangements entered into or materially modified in
fiscal years beginning on or after June 15, 2010. We are currently evaluating
the potential impact of this standard on our consolidated financial
statements.





ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK





The
primary objective of our investment activities is to preserve principal while
maximizing our income from investments and minimizing our market risk. We invest
in government and investment-grade corporate debt in accordance with our
investment policy, and also have an illiquid investment in an auction rate
security as of March 31, 2010, which was sold in May 2010. Some of the
securities in which we invest have market risk. This means that a change in
prevailing interest rates, and/or credit risk, may cause the fair value of the
investment to fluctuate. For example, if we hold a security that was issued with
a fixed interest rate at the then-prevailing rate and the prevailing interest
rate later rises, the fair value of our investment will probably decline. As of
March 31, 2010, our portfolio of financial instruments consists of cash
equivalents and short-term interest bearing securities, including money market
funds and government debt, and a long-term auction rate security investment. Due
to the short-term nature of our money market funds and held-to-maturity
investments, we believe we have no material exposure to interest rate risk,
and/or credit risk, arising from our money market funds and held-to-maturity
investments.





As of
March 31, 2010, we have a $1.7 million long-term investment in one auction rate
student loan-backed security. In May 2010, we sold our one remaining auction
rate security investment for $1.6 million, representing a loss of $82,000.
Auction rate securities are recorded at their fair value and classified as
long-term investments. The uncertainties in the credit markets have affected our
investments in auction rate securities. Since February 2008, the auctions for
our auction rate securities have not had sufficient buyers to cover investors’
sell orders, resulting in unsuccessful auctions. When an auction is
unsuccessful, the interest rate is re-set to a level pre-determined by the loan
documents and remains in effect until the next auction date, at which time the
process repeats.





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


26





ITEM
4. CONTROLS AND PROCEDURES





Evaluation
of Disclosure Controls and Procedures





As of
March 31, 2010, management carried out, under the supervision and with the
participation of our Chief Executive Officer and Chief Financial Officer, an
evaluation of the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Exchange Act). Our disclosure controls and procedures are designed to provide
reasonable assurance that information we are required to disclose in the reports
that we file or submit under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified in applicable rules and forms.
Based upon that evaluation, our Chief Executive Officer and Chief Financial
Officer concluded that, as of March 31, 2010, our disclosure controls and
procedures were effective.





Internal
Control Over Financial Reporting





There
were no changes in our internal control over financial reporting during the
quarter ended March 31, 2010, that have materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting.





PART
II. OTHER INFORMATION





ITEM
1.  LEGAL PROCEEDINGS





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





In
October 2009, we filed a statement of claim with the Financial Institution
Regulatory Authority (“FINRA”) to commence an arbitration proceeding against an
SEC registered broker-dealer. In this arbitration proceeding, we seek
damages arising from that broker-dealer’s recommendations and purchases of
auction rate securities for our cash management account. The claim will be
determined by a panel of three FINRA arbitrators. In January 2010, the
broker-dealer filed an answer to the statement of claim and denied liability.
The arbitration panel has been selected and the parties are in the process of
exchanging documents relevant to the claims. The date for the arbitration
hearing has not yet been set by the arbitration panel.





ITEM
1A. RISK FACTORS





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





Risks Related to Our
Business





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





We have a
limited operating history. You should consider our prospects in light of the
risks and difficulties frequently encountered by early stage companies. In
addition, we have incurred substantial operating losses since our inception and
expect to continue to incur operating losses for the foreseeable future and may
never become profitable. As of March 31, 2010, we had an accumulated deficit of
approximately $325.4 million. As we continue our research and development
efforts, we will incur increasing losses. We may continue to incur substantial
operating losses even if we begin to generate revenues from our drug
candidates.


27


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





Risks Associated with Our
Product Development Efforts





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





Whether
or not and how quickly we complete clinical trials is dependent in part upon the
rate at which we are able to engage clinical trial sites and, thereafter, the
rate of enrollment of patients, and the rate we collect, clean, lock and analyze
the clinical trial database. Patient enrollment is a function of many factors,
including the size of the patient population, the proximity of patients to
clinical sites, the eligibility criteria for the study, the existence of
competitive clinical trials, and whether existing or new drugs are approved for
the indication we are studying. We are aware that other companies are planning
clinical trials that will seek to enroll patients with the same diseases we are
studying. Certain clinical trials are designed to continue until a
pre-determined number of events have occurred in the patients enrolled. Trials
such as this are subject to delays stemming from patient withdrawal and from
lower than expected event rates. They may also incur additional costs if
enrollment is increased in order to achieve the desired number of events. If we
experience delays in identifying and contracting with sites and/or in patient
enrollment in our clinical trial programs, we may incur additional costs and
delays in our development programs, and may not be able to complete our clinical
trials in a cost-effective or timely manner. In addition, conducting
multi-national studies adds another level of complexity and risk.  We
are subject to events affecting countries outside the United
States. Negative or inconclusive results from the clinical trials we
conduct or unanticipated adverse medical events could cause us to have to repeat
or terminate the clinical trials. We may also opt to change the delivery method,
formulation or dosage which could affect efficacy results for the drug
candidate. For example, our new one gram caplet formulation for Zerenex has not
been tested in our previous clinical trials, and therefore, there is no
assurance that this new formulation will be safe and efficacious in a clinical
trial setting. Accordingly, we may not be able to complete the clinical trials
within an acceptable time frame, if at all.





In
December 2009, we initiated a Phase 3 clinical trial for KRX-0401 (perifosine)
in relapsed / refractory multiple myeloma patients pursuant to a SPA with the
FDA. In April 2010, we initiated a Phase 3 clinical trial for KRX-0401
(perifosine) in patients with refractory advanced colorectal cancer pursuant to
a SPA with the FDA. In May 2010, we initiated a Phase 3 clinical program for
Zerenex (ferric citrate) as a treatment of hyperphosphatemia in patients with
end-stage renal disease pursuant to a SPA with the FDA. Many companies which
have been granted SPAs and/or the right to utilize fast track or accelerated
approvals have ultimately failed to obtain final approval to market their drugs.
Since we are seeking approvals under SPAs, based on protocol designs negotiated
with the agency, we may be subject to enhanced scrutiny. Additionally, even if
the primary endpoint is achieved, a SPA does not guarantee approval. The FDA may
raise issues of safety, study conduct, bias, deviation from the protocol,
statistical power, patient completion rates, changes in scientific or medical
parameters or internal inconsistencies in the data prior to making its final
decision. The FDA may also seek the guidance of an outside advisory committee
prior to making its final decision.





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





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





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


28





Furthermore,
interim results of preclinical or clinical studies do not necessarily predict
their final results, and acceptable results in early studies might not be
obtained in later studies. Safety signals detected during clinical studies and
pre-clinical animal studies, such as the gastrointestinal bleeding that has been
seen in some high-dose, ferric citrate canine studies, may require us to perform
additional safety studies or analyses, which could delay the development of the
drug or lead to a decision to discontinue development of the drug. The
submission of data to the FDA from our long-term rat and canine pre-clinical
studies are prerequisites for our initiation of a long-term Phase 3 clinical
trial for Zerenex, and any safety signals could potentially delay the start of
such clinical trial or lead to a decision to discontinue development of the
drug. Drug candidates in the later stages of clinical development may fail to
show the desired traits of safety and efficacy despite positive results in
initial clinical testing. Results from earlier studies may not be indicative of
results from future clinical trials. The risk remains that a pivotal program may
generate efficacy data that will be insufficiently persuasive for the approval
of the drug, or may raise safety concerns that may prevent approval of the drug.
The risk also remains that a clinical program conducted by one of our partners
may raise efficacy or safety concerns that may prevent approval of the drug.
Interpretation of the prior pre-clinical and clinical safety and efficacy data
of our drug candidates may be flawed. There can be no assurance that safety
and/or efficacy concerns from the prior data were not overlooked or
misinterpreted, which in subsequent, larger studies might appear and prevent
approval of such drug candidates. We may not be able to replicate in our Phase 3
clinical program for Zerenex, the efficacy and safety results for Zerenex
observed in the previous Phase 2 clinical trials and the Open Label Extension
(OLE) clinical trial. The positive effects of Zerenex on IV iron and EPO use
observed in the OLE clinical trial may not be reproducible. In addition, we may
not be able to replicate in the Phase 3 trials for KRX-0401, the efficacy and
safety results for KRX-0401 observed in previous clinical trials. In addition,
we will need to re-input our safety information on KRX-0401 into a database
compliant with Good Clinical Practice.  We can provide no assurance
that safety concerns will not subsequently arise.





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





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





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





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





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


29





Contract
manufacturers often encounter difficulties in scaling up production, including
problems involving raw material supplies, production yields, quality control and
assurance, shortage of qualified personnel, compliance with FDA and foreign
regulations, production costs and development of advanced manufacturing
techniques and process controls.  These risks become more acute as we
scale up for commercial quantities, where a reliable source of raw material
supplies becomes critical to commercial success.  For example, given
the large quantity of materials required for ferric citrate production, as we
approach commercialization for Zerenex we will need to ensure an adequate supply
of starting materials that meet quality, quantity and cost
standards.  Failure to achieve this level of supply can jeopardize the
successful commercialization of the product.  Moreover, issues that
may arise in our current transition to a commercial batch manufacturer for
Zerenex can lead to delays in our planned clinical trials and development
timelines, and could affect our ability to complete our clinical trials on a
cost-effective or timely basis, if at all.





Our
third-party manufacturers may not perform as agreed or may not remain in the
contract manufacturing business for the time required by us to successfully
produce and market our drug candidates. In addition, our contract manufacturers
will be subject to ongoing periodic and unannounced inspections by the FDA and
corresponding foreign governmental agencies to ensure strict compliance with
current Good Manufacturing Practices, as well as other governmental regulations
and corresponding foreign standards. The same issues apply to contract
analytical services which we use for testing of our products. We will not have
control over, other than by contract and periodic oversight, third-party
manufacturers' compliance with these regulations and standards. We are currently
developing analytical tools for ferric citrate active pharmaceutical ingredient
and drug product testing. Failure to develop effective analytical tools could
result in regulatory or technical delay or could jeopardize our ability to
complete Phase 3 clinical trials and/or obtain FDA approval. Switching or
engaging multiple third-party contractors to produce our products may be
difficult because the number of potential manufacturers may be limited and the
process by which multiple manufacturers make the drug substance must be
identical at each manufacturing facility. It may be difficult for us to find and
engage replacement or multiple manufacturers quickly and on terms acceptable to
us, if at all. For Zerenex, we currently rely on a sole source of ferric citrate
active pharmaceutical ingredient. The loss of this sole source of supply would
result in significant additional costs and delays in our development program.
Moreover, if we need to change manufacturers after commercialization, the FDA
and corresponding foreign regulatory agencies must approve these manufacturers
in advance, which will involve testing and additional inspections to ensure
compliance with FDA and foreign regulations and standards.





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





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




·
            manufacture
      our product candidates;




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




·
            market
      and distribute our drug products.




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


30





If, in
the future, the market conditions for raising capital deteriorate, we may be
forced to rely predominantly or entirely on our ability to contract with third
parties for our manufacturing, drug development and marketing. If we are unable
to contract with such third parties, we may be forced to limit or suspend or
terminate the development of some or all of our product candidates.





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





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





Other Risks Related to Our
Business





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





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





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





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





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





·
            perceptions
      by members of the health care community, including physicians, of the
      safety and efficacy of our product
candidates;





·
            the
      rates of adoption of our products by medical practitioners and the target
      populations for our products;





·
            the
      potential advantages that our products offer over existing treatment
      methods;





·
            the
      cost-effectiveness of our products relative to competing
      products;


31





·
            the
      availability of government or third-party payor reimbursement for our
      products;





·
            the
      side effects or unfavorable publicity concerning our products or similar
      products; and





·
            the
      effectiveness of our sales, marketing and distribution
      efforts.





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





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





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





The drugs
that we are attempting to develop will have to compete with existing therapies.
For example, KRX-0401 (perifosine), if approved in the United States would
compete with other anti-cancer agents, such as mTOR inhibitors. Pfizer Inc.,
Novartis AG and Ariad Pharmaceuticals are developing mTOR inhibitors for use in
cancer and Pfizer’s mTOR inhibitor, temsirolimus, and Novartis’ mTOR inhibitor,
everolimus, have been approved to treat patients with advanced kidney disease.
Biotechnology companies such as Amgen Inc., Biogen-Idec, Inc., ImClone Systems,
Inc. (a wholly-owned subsidiary of Eli Lilly and Company), Merck & Co.,
Inc., Millennium Pharmaceuticals, Inc. (a wholly-owned subsidiary of Takeda
Pharmaceutical Company), Novartis AG, Onyx Pharmaceuticals, Inc. and OSI
Pharmaceuticals, Inc. are developing and, in some cases, marketing drugs to
treat various diseases, including cancer, by inhibiting cell-signaling pathways.
In addition, we are aware of a number of small and large companies developing
competitive products that target Akt and the phosphoinositide 3-kinase (PI3K)
pathway. Zerenex, if approved in the United States, would compete with other FDA
approved phosphate binders such as Renagel® (sevelamer hydrochloride) and
Renvela® (sevelamer carbonate), both marketed by Genzyme Corporation, PhosLo®
(calcium acetate), marketed by Fresenius Medical Care, and Fosrenol® (lanthanum
carbonate), marketed by Shire Pharmaceuticals Group plc, as well as
over-the-counter calcium carbonate products such as TUMS® and metal-based
options such as aluminum and magnesium. A generic formulation of PhosLo®
manufactured by Roxane Laboratories, Inc. was launched in the United States in
October 2008.





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





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





As of May
5, 2010, we had 15 full and part-time employees. To successfully develop our
drug candidates, we must be able to attract and retain highly skilled personnel.
Our limited resources may hinder our efforts to attract and retain highly
skilled personnel. In addition, if we lose the services of our current
personnel, in particular, Ron Bentsur, our Chief Executive Officer, our ability
to continue to execute on our business plan could be materially impaired.
Although we have an employment agreement with Mr. Bentsur, such agreement does
not prevent him from terminating his employment with us.


32





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





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





Acquisitions involve a number of
operational risks, including:





·
            difficulty
      and expense of assimilating the operations, technology and personnel of
      the acquired business;





·
            our
      inability to retain the management, key personnel and other employees of
      the acquired business;





·
            our
      inability to maintain the acquired company's relationship with key third
      parties, such as alliance partners;





·
            exposure
      to legal claims for activities of the acquired business prior to the
      acquisition;





·
            the
      diversion of our management's attention from our core business;
      and





·
            the
      potential impairment of goodwill and write-off of in-process research and
      development costs, adversely affecting our reported results of
      operations.





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





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





·
            government
      and health administration
authorities;





·
            private
      health insurers;





·
            managed
      care programs; and





·
            other
      third-party payors.





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


33





Health care
reform measures could adversely affect our business.





The
business and financial condition of pharmaceutical and biotechnology companies
are affected by the efforts of governmental and third-party payors to contain or
reduce the costs of health care. In the United States and in foreign
jurisdictions there have been, and we expect that there will continue to be, a
number of legislative and regulatory proposals aimed at changing the health care
system, such as proposals relating to the pricing of healthcare products and
services in the United States or internationally, the reimportation of drugs
into the U.S. from other countries (where they are then sold at a lower price),
and the amount of reimbursement available from governmental agencies or other
third party payors. In the United States, health care reform legislation titled
the Patient Protection and Affordable Care Act and the Reconciliation Act was
signed into law on March 23, 2010. This comprehensive legislation will affect
the terms of public and private health insurance and have a substantial impact
on the pharmaceutical industry. For example, the new law will impose an annual
fee on manufacturers of branded prescription pharmaceuticals that will impact
our products. Regulations to implement this and other provisions related to the
research, marketing and sale of prescription pharmaceutical products could
result in a decrease in our stock price or limit our ability to raise capital or
to obtain strategic partnerships or licenses.  Government-financed
comparative efficacy research could also result in new practice guidelines,
labeling or reimbursement policies that discourages use of our
products.





For
example, the Centers for Medicare & Medicaid Services has proposed that
Medicare payment for phosphate binders be bundled into the packaged composite
rate paid by Medicare to dialysis clinics as reimbursement for most of the
dialysis-related services provided to Medicare patients. If these product
classes are bundled into the composite rate as proposed, separate Medicare
reimbursement will no longer be available for phosphate binders. It is too early
to project the impact bundling may have on the phosphate binder
industry.





On
September 27, 2007, the Food and Drug Administration Amendments Act of 2007 was
enacted, giving the FDA enhanced post-market authority, including the authority
to require post-marketing studies and clinical trials, labeling changes based on
new safety information, and compliance with risk evaluations and mitigation
strategies approved by the FDA. The FDA's exercise of this authority may result
in delays or increased costs during the period of product development, clinical
trials and regulatory review and approval, which may also increase costs related
to complying with new post-approval regulatory requirements, and increase
potential FDA restrictions on the sale or distribution of approved
products.





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





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





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





·
            decreased
      demand for a product;





·
            injury
      to our reputation;





·
            our
      inability to continue to develop a drug
  candidate;





·
            withdrawal
      of clinical trial volunteers; and





·
            loss
      of revenues.





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





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


The
Online Collaborative Oncology Group, Inc., or OCOG, a subsidiary we acquired
through our acquisition of ACCESS Oncology in 2004, provides clinical trial
management and site recruitment services to us as well as other biotechnology
and pharmaceutical companies. OCOG has not entered into a new third-party
service contracts since 2005 and does not plan to enter into any further service
contracts. In conducting the activities of OCOG, any failure on our part to
comply with applicable governmental regulations or contractual obligations could
expose us to liability to our clients and could have a material adverse effect
on us. We also could be held liable for errors or omissions in connection with
the services we perform. In addition, the wrongful or erroneous delivery of
health care information or services may expose us to liability. If we were
required to pay damages or bear the costs of defending any such claims, the
losses could be material.




34




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





The
development, manufacturing, pricing, sales, and reimbursement of our products,
together with our general operations, are subject to extensive regulation by
federal, state and other authorities within the United States and numerous
entities outside of the United States. We are a relatively small company with 15
full and part-time employees as of May 5, 2010. We also have significantly fewer
employees than many other companies that have a product candidate in clinical
development, and we rely heavily on third parties to conduct many important
functions. While we believe that our corporate compliance program is sufficient
to ensure compliance with applicable regulations, we cannot assure you that we
are or will be in compliance with all potentially applicable regulations. If we
fail to comply with any of these regulations we could be subject to a range of
regulatory actions, including suspension or termination of clinical trials, the
failure to approve a product candidate, restrictions on our products or
manufacturing processes, withdrawal of products from the market, significant
fines, or other sanctions or litigation.





Risks Related to Our
Financial Condition





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





We
currently anticipate that our cash, cash equivalents and investment securities
as of March 31, 2010, exclusive of our anticipated milestones to be received and
expected exercises of expiring options and warrants, are sufficient to meet our
anticipated working capital needs and fund our business plan for approximately
18 to 20 months from March 31, 2010. Our forecast of the period of time through
which our cash, cash equivalents and investment securities will be adequate to
support our operations is a forward-looking statement that involves risks and
uncertainties. The actual amount of funds we will need to operate is subject to
many factors, some of which are beyond our control. These factors include, but
are not limited to, the following:





·
            the
      timing, design and conduct of, and results from, clinical trials for our
      drug candidates;





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





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





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





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





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





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


35





Risks Related to Our
Intellectual Property and Third-Party Contracts





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





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





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





The
intellectual property that we own or have licensed relating to our product
candidates are limited, which could adversely affect our ability to compete in
the market and adversely affect the value of our product
candidates.





The
patent rights that we own or have licensed relating to our product candidates
are limited in ways that may affect our ability to exclude third parties from
competing against us if we obtain regulatory approval to market these product
candidates. In particular:





·
            Our
      composition of matter patent covering KRX-0401 (perifosine) expires in
      2013 and we cannot assure you that we can obtain an extension to 2018 (the
      maximum term of extension under the patent term restoration program). We
      do not hold a composition of matter patent covering Zerenex. Composition
      of matter patents can provide protection for pharmaceutical products to
      the extent that the specifically covered compositions are important. Upon
      expiration of our composition of matter patent for KRX-0401, or for
      Zerenex, where we do not have a composition of matter patent, competitors
      who obtain the requisite regulatory approval can offer products with the
      same composition as our products so long as the competitors do not
      infringe any other patents that we may hold, such as method of use
      patents.





·
            Our
      method of use patents only protect the products when used or sold for the
      specified method. However, this type of patent does not limit a competitor
      from making and marketing a product that is identical to our product that
      is labeled for an indication that is outside of the patented method, or
      for which there is a substantial use in commerce outside the patented
      method.





Proof of
direct infringement by a competitor for method of use patents can also prove
difficult because the competitors making and marketing a product typically do
not engage in the patented use.  Additionally, proof that a competitor
contributes to or induces infringement of a patented method of use by another
can also prove difficult because an off-label use of a product could prohibit a
finding of contributory infringement and inducement of infringement requires
proof of intent by the competitor.





Moreover,
physicians may prescribe such a competitive identical product for indications
other than the one for which the product has been approved, or off-label
indications, that are covered by the applicable patents. Although such off-label
prescriptions may directly infringe or contribute to or induce infringement of
method of use patents, such infringement is difficult to prevent or
prosecute.





In
addition, the limited patent protection described above may adversely affect the
value of our product candidates and may inhibit our ability to obtain a
corporate partner at terms acceptable to us, if at all.


36





In
addition to patent protection, we may utilize orphan drug regulations or other
provisions of the Food, Drug and Cosmetic Act to provide market exclusivity for
certain of our drug candidates. Orphan drug regulations provide incentives to
pharmaceutical and biotechnology companies to develop and manufacture drugs for
the treatment of rare diseases, currently defined as diseases that exist in
fewer than 200,000 individuals in the United States, or, diseases that affect
more than 200,000 individuals in the United States but that the sponsor does not
realistically anticipate will generate a net profit. Under these provisions, a
manufacturer of a designated orphan drug can seek tax benefits, and the holder
of the first FDA approval of a designated orphan product will be granted a
seven-year period of marketing exclusivity for such FDA-approved orphan product.
In September 2009, we announced that KRX-0401 (perifosine) has received
Orphan-Drug designation from the FDA for the treatment of multiple myeloma. We
believe that KRX-0401 (perifosine) may be eligible for additional orphan drug
designations; however, we cannot assure that KRX-0401, or any other drug
candidates we may acquire or in-license, will obtain such orphan drug
designations.





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





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





Risks Related to Our Common
Stock





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





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





On August
28, 2009, we filed with the SEC a shelf registration statement on Form S-3 (File
No. 333-161607)), that was declared effective by the SEC on September 23, 2009,
providing for the offering of up to $40 million of our common stock and warrants
to purchase our common stock. Subsequent to the registered direct offering that
was completed on September 30, 2009, there remains approximately $12.2 million
of our common stock and warrants available for sale on this shelf registration
statement. Future sales pursuant to this registration statement could depress
the market for our common stock.





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





In
addition, we may be required to issue up to 2,872,422 shares of our common stock
to former stockholders of ACCESS Oncology upon the achievement of certain
development and sales milestones.





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





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





·
            developments
      concerning our drug candidates;





·
            announcements
      of technological innovations by us or our
  competitors;


37





·
            introductions
      or announcements of new products by us or our
  competitors;





·
            announcements
      by us of significant acquisitions, strategic partnerships, joint ventures
      or capital commitments;





·
            changes
      in financial estimates by securities
analysts;





·
            actual
      or anticipated variations in quarterly operating results and
      liquidity;





·
            expiration
      or termination of licenses, research contracts or other collaboration
      agreements;





·
            conditions
      or trends in the regulatory climate and the biotechnology and
      pharmaceutical industries;





·
            changes
      in the market valuations of similar companies;
  and





·
            additions
      or departures of key personnel.





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





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





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





38


ITEM 6. EXHIBITS
 
 The
exhibits listed on the Exhibit Index are included with this
report.
 
 3.1
                Amended
      and Restated Certificate of Incorporation of Keryx Biopharmaceuticals,
      Inc., filed as Exhibit 3.1 to the Registrant's Annual Report on Form 10-Q
      for the quarter ended September 30, 2004, filed on August 12, 2004, and
      incorporated herein by
reference.
 
 3.2
                Amended
      and Restated Bylaws of Keryx Biopharmaceuticals, Inc., filed as Exhibit
      3.2 to the Registrant’s Annual Report on Form 10-K for the year ended
      December 31, 2001, filed on March 26, 2002, and incorporated herein by
      reference.
 
 3.3
              Amendment
      to Amended and Restated Certificate of Incorporation of Keryx
      Biopharmaceuticals, Inc., dated July 24, 2007, filed as Exhibit 3.3 to the
      Registrant's Quarterly Report on Form 10-Q for the quarter ended September
      30, 2007, filed on August 9, 2007 and incorporated herein by
      reference.


31.1
            Certification
      of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a), as
      adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated
      May 11, 2010.




31.2
            Certification
      of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a), as
      adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated
      May 11, 2010.




32.1
              Certification
      of Chief Executive Officer pursuant to 18 U.S.C. §1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, datedMay
      11, 2010.




32.2
              Certification
      of Chief Financial Officer pursuant to 18 U.S.C. §1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, datedMay
      11, 2010.





39


SIGNATURES





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





KERYX
      BIOPHARMACEUTICALS, INC.Date:May 11,
      2010
                By:
                /s/ James F.
      OlivieroChief
      Financial OfficerPrincipal
      Financial and Accounting
Officer


40





EXHIBIT
INDEX





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





31.1
            Certification
      of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a), as
      adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated
      May 11, 2010.




31.2
            Certification
      of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a), as
      adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated
      May 11, 2010.




32.1
              Certification
      of Chief Executive Officer pursuant to 18 U.S.C. §1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, datedMay
      11, 2010.




32.2
              Certification
      of Chief Financial Officer pursuant to 18 U.S.C. §1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, datedMay
      11, 2010.


41