**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 June 30, 2008****OR****oTRANSITION
                  REPORT
                  PURSUANT TO SECTION 13 OR 15(d) OF THE****SECURITIES
                  EXCHANGE ACT OF 1934****For
                  the transition period from ______________****to
                  ______________****.**
 
 **Commission
        File Number 000-30929**
 **KERYX
        BIOPHARMACEUTICALS, INC.**
 **(Exact
        name of registrant as specified in its charter)**
 
 **Delaware**
                (State
                  or other jurisdiction of incorporation or organization)
              **13-4087132**
                (I.R.S.
                  Employer Identification No.)
 
 **750
        Lexington Avenue**
 **New
        York, New York 10022**
 (Address
        including zip code of principal executive offices)
 
 **(212)
        531-5965**
 (Registrant's
        telephone number, including area code)
 
 Indicate
        by check mark whether the registrant: (1) has filed all reports required
        to be
        filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
        the
        preceding 12 months (or for such shorter period that the registrant was required
        to file such reports), and (2) has been subject to such filing requirements
        for
        the past 90 days.
 Yes x No £
 
 Indicate
        by check mark whether the registrant is a large accelerated filer, an
        accelerated filer, a non-accelerated filer, or a smaller reporting company.
        See
        definition of “large accelerated filer,” “accelerated filer” and “smaller
        reporting company” in Rule 12b-2 of the Exchange Act.
 
 Large
                  accelerated filer£
              Accelerated
                  filerxNon-accelerated
                  filer£(Do not check if smaller reporting company)
              Smaller
                  reporting company£
  Indicate
        by checkmark whether the registrant is a shell company (as defined in Rule
        12b-2
        of the Exchange Act).
 Yes £ No x
 
 There
        were 45,075,559 shares of the registrant’s common stock, $0.001 par value,
        outstanding as of August 4, 2008.
  
 
 **KERYX
        BIOPHARMACEUTICALS, INC.**
 **FORM
        10-Q**
 **FOR
        THE QUARTER ENDED JUNE 30, 2008**
 
 **TABLE
        OF CONTENTS**
 
 **Page**SPECIAL
                  CAUTIONARY NOTICE REGARDING FORWARD-LOOKING
                  STATEMENTS
              1**PART
                  I**
              **FINANCIAL
                  INFORMATION**
              2Item
                  1
              Financial
                  Statements
              2Consolidated
                  Balance Sheets as of June 30, 2008 (unaudited) andDecember
                  31, 2007
              2Consolidated
                  Statements of Operations for the three and six monthsended
                  June 30, 2008 and 2007 (unaudited)
              3Consolidated
                  Statement of Changes in Stockholders’ Equityfor
                  the six months ended June 30, 2008 (unaudited)
              4Consolidated
                  Statements of Cash Flows for the six monthsended
                  June 30, 2008 and 2007 (unaudited)
              5Notes
                  to Consolidated Financial Statements (unaudited)
              7Item
                  2
              Management's
                  Discussion and Analysis of Financial Condition andResults
                  of Operations
              17Item
                  3
              Quantitative
                  and Qualitative Disclosures About Market Risk
              27Item
                  4
              Controls
                  and Procedures
              28**PART
                  II**
              **OTHER
                  INFORMATION**
              28Item
                  1
              Legal
                  Proceedings
              28Item
                  1A
              Risk
                  Factors
              30Item
                  4
              Submission
                  of Matters to a Vote of Security Holders
              40Item
                  6
              Exhibits
              40
  
  **SPECIAL
        CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS**
 
 Certain
        matters discussed in this report, including matters discussed under the caption
        “Management’s Discussion and Analysis of Financial Condition and Results of
        Operations,” may constitute forward-looking statements for purposes of the
        Securities Act of 1933, as amended, or the Securities Act, and the Securities
        Exchange Act of 1934, as amended, or the Exchange Act, and involve known
        and
        unknown risks, uncertainties and other factors that may cause our actual
        results, performance or achievements to be materially different from the
        future
        results, performance or achievements expressed or implied by such
        forward-looking statements. The words "anticipate," "believe," "estimate,"
        "may," "expect" and similar expressions are generally intended to identify
        forward-looking statements. Our actual results may differ materially from
        the
        results anticipated in these forward-looking statements due to a variety
        of
        factors, including, without limitation, those discussed under the captions
“Risk
        Factors,” “Management’s Discussion and Analysis of Financial Condition and
        Results of Operations” and elsewhere in this report, as well as other factors
        which may be identified from time to time in our other filings with the
        Securities and Exchange Commission, or the SEC, or in the documents where
        such
        forward-looking statements appear. All written or oral forward-looking
        statements attributable to us are expressly qualified in their entirety by
        these
        cautionary statements. Such forward-looking statements include, but are not
        limited to, statements about our:
  ·
              expectations
                  for increases or decreases in expenses;
  ·
              expectations
                  for the development, manufacturing, regulatory approval, and
                  commercialization of ZerenexTM(ferric citrate), KRX-0401 (perifosine), and our additional product
                  candidates or any other products we may acquire or in-license;
  ·
              expectations
                  for incurring capital expenditures to expand our research and development
                  and manufacturing capabilities;
  ·
              expectations
                  for generating revenue or becoming profitable on a sustained basis;
  ·
              expectations
                  or ability to enter into marketing and other partnership agreements;
  ·
              expectations
                  or ability to enter into product acquisition and in-licensing
                  transactions;
  ·
              expectations
                  or ability to build our own commercial infrastructure to manufacture,
                  market and sell our drug
                  candidates;
  ·
              estimates
                  of the sufficiency of our existing cash and cash equivalents and
                  investments to finance our business strategy;
  ·
              expected
                  losses;
  ·
              ability
                  to continue to satisfy the listing requirements of the NASDAQ Stock
                  Market; and
  ·
              expectations
                  for future capital requirements.
  The
        forward-looking statements contained in this report reflect our views and
        assumptions only as of the date this report is signed. Except as required
        by
        law, we assume no responsibility for updating any forward-looking statements.
 
 We
        qualify all of our forward-looking statements by these cautionary statements.
        In
        addition, with respect to all of our forward-looking statements, we claim
        the
        protection of the safe harbor for forward-looking statements contained in
        the
        Private Securities Litigation Reform Act of 1995.
  1
  **PART
        I. FINANCIAL INFORMATION**
 
 **ITEM
        1. FINANCIAL STATEMENTS**
 
 **Keryx
        Biopharmaceuticals, Inc. (A Development Stage Company)**
 Consolidated
        Balance Sheets as of June 30, 2008 and December 31, 2007
 
 (in
        thousands, except share and per share amounts)
 
 **June 30, 2008**
              
              **December 31, 2007****(Unaudited)****Assets**Current
                  assetsCash
                  and cash equivalents
              
              $
              14,037
              
              $
              19,065Short-term
                  investment securities
              
              
              10,325
              
              
              43,038Interest
                  receivable
              
              
              99
              
              
              283Other
                  current assets
              
              
              1,201
              
              
              1,330Total
                  current assets
              
              
              25,662
              
              
              63,716Long-term
                  investment securities
              
              
              10,125
              
              
              2,296Property,
                  plant and equipment, net
              
              
              254
              
              
              11,497Goodwill
              
              
              3,208
              
              
              3,208Other
                  assets, net
              
              
              102
              
              
              344Total
                  assets
              
              $
              39,351
              
              $
              81,061**Liabilities
                  and stockholders’ equity**Current
                  liabilitiesAccounts
                  payable and accrued expenses
              
              $
              9,704
              
              $
              19,134Accrued
                  compensation and related liabilities
              
              
              864
              
              
              1,254Current
                  portion of deferred revenue
              
              
              1,495
              
              
              1,023Total
                  current liabilities
              
              
              12,063
              
              
              21,411Deferred
                  revenue, net of current portion
              
              
              17,962
              
              
              11,022Contingent
                  equity rights
              
              
              4,004
              
              
              4,004Other
                  liabilities
              
              
              156
              
              
              202Total
                  liabilities
              
              
              34,185
              
              
              36,639Commitments
                  and contingencies (Note 6)Stockholders’
                  equityPreferred
                  stock, $0.001 par value per share (5,000,000 shares authorized,
                  no shares
                  issued and outstanding)
              
              
              —
              
              
              —Common
                  stock, $0.001 par value per share (95,000,000 shares authorized,
                  45,163,007 and 43,751,101 shares issued, 45,083,059 and 43,671,153
                  shares
                  outstanding at June 30, 2008 and December 31, 2007,
                  respectively)
              
              
              45
              
              
              44Additional
                  paid-in capital
              
              
              325,985
              
              
              323,009Treasury
                  stock, at cost, 79,948 shares at June 30, 2008 and December 31,
                  2007,
                  respectively
              
              
              (357
              )
              
              (357
              )Deficit
                  accumulated during the development stage
              
              
              (320,507
              )
              
              (278,274
              )Total
                  stockholders’ equity
              
              
              5,166
              
              
              44,422Total
                  liabilities and stockholders’ equity
              
              $
              39,351
              
              $
              81,061
 
 *The
        accompanying notes are an integral part of the consolidated financial
        statements.*
  2
  **Keryx
        Biopharmaceuticals, Inc. (A Development Stage Company)**
 Consolidated
        Statements of Operations
 for
        the
        Three and Six Months Ended June 30, 2008 and 2007 (Unaudited)
 (in
        thousands, except share and per share amounts)
 
 **Three months ended**
                **June 30,**
              
              **Six months ended**
                **June
                  30,**
              
              **Amounts**
                **accumulated**
                **during the**
                **development****2008**
              
              **2007**
              
              **2008**
              
              **2007**
              
              **stage**Revenue:License
                  revenue
              
              $
              327
              
              $
              —
              
              $
              526
              
              $
              —
              
              $
              730Diagnostic
                  revenue
              
              
              —
              
              
              36
              
              
              —
              
              
              66
              
              
              169Service
                  revenue
              
              
              62
              
              
              14
              
              
              62
              
              
              26
              
              
              1,928Other
                  revenue
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              1,027Total
                  revenue
              
              
              389
              
              
              50
              
              
              588
              
              
              92
              
              
              3,854Operating
                  expenses:Cost
                  of diagnostics sold
              
              
              —
              
              
              16
              
              
              —
              
              
              38
              
              
              178Cost
                  of services
              
              
              14
              
              
              30
              
              
              14
              
              
              62
              
              
              2,182Research
                  and development:Non-cash
                  compensation
              
              
              251
              
              
              1,178
              
              
              (729
              )
              
              2,173
              
              
              17,083Non-cash
                  acquired in-process research and development
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              18,800Other
                  research and development
              
              
              4,243
              
              
              15,685
              
              
              35,071
              
              
              33,131
              
              
              229,993Total
                  research and development
              
              
              4,494
              
              
              16,863
              
              
              34,342
              
              
              35,304
              
              
              265,876Selling,
                  general and administrative:Non-cash
                  compensation
              
              
              1,767
              
              
              1,407
              
              
              3,484
              
              
              3,413
              
              
              24,419Other
                  selling, general and administrative
              
              
              2,085
              
              
              2,394
              
              
              4,052
              
              
              5,189
              
              
              48,167Total
                  selling, general and administrative
              
              
              3,852
              
              
              3,801
              
              
              7,536
              
              
              8,602
              
              
              72,586Total
                  operating expenses
              
              
              8,360
              
              
              20,710
              
              
              41,892
              
              
              44,006
              
              
              340,822Operating
                  loss
              
              
              (7,971
              )
              
              (20,660
              )
              
              (41,304
              )
              
              (43,914
              )
              
              (336,968
              )Interest
                  and other income (expense), net
              
              
              274
              
              
              1,200
              
              
              (929
              )
              
              2,641
              
              
              16,988Net
                  loss before income taxes
              
              
              (7,697
              )
              
              (19,460
              )
              
              (42,233
              )
              
              (41,273
              )
              
              (319,980
              )Income
                  taxes
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              527Net
                  loss
              
              $
              (7,697
              )
              $
              (19,460
              )
              $
              (42,233
              )
              $
              (41,273
              )
              $
              (320,507
              )Basic
                  and diluted loss per common share
              
              $
              (0.17
              )
              $
              (0.45
              )
              $
              (0.96
              )
              $
              (0.95
              )
              $
              (13.66
              )Weighted
                  average shares used in computing basic and diluted netloss
                  per common share
              
              
              44,095,873
              
              
              43,556,475
              
              
              43,906,974
              
              
              43,531,495
              
              
              23,469,443
 
 *The
        accompanying notes are an integral part of the consolidated financial
        statements.*
  3
  **Keryx
        Biopharmaceuticals, Inc. (A Development Stage Company)**
 Consolidated
        Statement of Changes in Stockholders’ Equity
 for
        the
        Six Months Ended June 30, 2008 (Unaudited)
 (in
        thousands, except share amounts)
 
 **Common
                  stock**
              
              **Additional
                  paid-in****Shares**
              
              **Amount**
              
              **capital**Balance
                  at December 31, 2007
              
              
              43,751,101
              
              $
              44
              
              $
              323,009Changes
                  during the period:Issuance
                  of restricted stock
              
              
              1,401,906
              
              
              1
              
              
              —Forfeiture
                  of restricted stock
              
              
              (65,000
              )
              
              (—)
              *
              
              —Exercise
                  of options
              
              
              75,000
              
              
              —
              *
              
              222Compensation
                  in respect of options and restricted stock granted to employees,
                  directors
                  and third-parties
              
              
              —
              
              
              —
              
              
              2,754Net
                  loss
              
              
              —
              
              
              —
              
              
              —Balance
                  at June 30, 2008
              
              
              45,163,007
              
              $
              45
              
              $
              325,985
 
 **Treasury stock**
              
              **Deficit**
                **accumulated**
                **during****the**
                **development****Shares**
              
              **Amount**
              
              **Stage**
              
              **Total**Balance
                  at December 31, 2007
              
              
              79,948
              
              $
              (357
              )
              $
              (278,274
              )
              $
              44,422Changes
                  during the period:Issuance
                  of restricted stock
              
              
              —
              
              
              —
              
              
              —
              
              
              1Forfeiture
                  of restricted stock
              
              
              —
              
              
              —
              
              
              —
              
              
              (—)
              *Exercise
                  of options
              
              
              —
              
              
              —
              
              
              —
              
              
              222Compensation
                  in respect of options and restricted stock granted to employees,
                  directors
                  and third-parties
              
              
              —
              
              
              —
              
              
              —
              
              
              2,754Net
                  loss
              
              
              —
              
              
              —
              
              
              (42,233
              )
              
              (42,233
              )Balance
                  at June 30, 2008
              
              
              79,948
              
              $
              (357
              )
              $
              (320,507
              )
              $
              5,166
 
 *
        Amount
        less than one thousand dollars.
 
 *The
        accompanying notes are an integral part of the consolidated financial
        statements.*
  4
  **Keryx
        Biopharmaceuticals, Inc. (A Development Stage Company)**
 Consolidated
        Statements of Cash Flows
 for
        the
        Six Months Ended June 30, 2008 and 2007 (Unaudited)
 (in
        thousands)
 
 **Six months ended**
                **June
                  30,**
              
              **Amounts**
                **accumulated**
                **during the**
                **development**
                **stage****2008**
              
              **2007**CASH
                  FLOWS FROM OPERATING ACTIVITIESNet
                  loss
              
              $
              (42,233
              )
              $
              (41,273
              )
              $
              (320,507
              )Adjustments
                  to reconcile net loss to cash flows used in operating activities:Acquired
                  in-process research and development
              
              
              —
              
              
              —
              
              
              18,800Stock
                  compensation expense
              
              
              2,755
              
              
              5,586
              
              
              41,502Issuance
                  of common stock to technology licensor
              
              
              —
              
              
              —
              
              
              359Interest
                  on convertible notes settled through issuance of preferred
                  shares
              
              
              —
              
              
              —
              
              
              253Depreciation
                  and amortization
              
              
              69
              
              
              84
              
              
              3,055(Gain)
                  loss on disposal of property, plant and equipment
              
              
              —
              
              
              (1
              )
              
              171Impairment
                  of investment securities
              
              
              1,875
              
              
              —
              
              
              1,875Other
                  impairment charges
              
              
              11,037
              
              
              600
              
              
              14,119Exchange
                  rate differences
              
              
              —
              
              
              —
              
              
              94Changes
                  in assets and liabilities, net of effects of acquisitions:Decrease
                  (increase) in other current assets
              
              
              129
              
              
              1,622
              
              
              (729
              )Decrease
                  (increase) in accrued interest receivable
              
              
              184
              
              
              143
              
              
              (99
              )Decrease
                  (increase) in security deposits
              
              
              242
              
              
              —
              
              
              (21
              )(Decrease)
                  increase in accounts payable and accrued expenses
              
              
              (9,130
              )
              
              (248
              )
              
              7,959(Decrease)
                  increase in accrued compensation and related liabilities
              
              
              (390
              )
              
              (928
              )
              
              269(Decrease)
                  increase in other liabilities
              
              
              (46
              )
              
              (46
              )
              
              1Increase
                  (decrease) in deferred revenue
              
              
              7,412
              
              
              65
              
              
              19,001Net
                  cash used in operating activities
              
              
              (28,096
              )
              
              (34,396
              )
              
              (213,898
              )CASH
                  FLOWS FROM INVESTING ACTIVITIESPurchases
                  of property, plant and equipment
              
              
              (163
              )
              
              (2,763
              )
              
              (16,310
              )Proceeds
                  from disposals of property, plant and equipment
              
              
              —
              
              
              15
              
              
              740Increase
                  in note and accrued interest receivable from related party
              
              
              —
              
              
              —
              
              
              (356
              )Payments
                  of transaction costs
              
              
              —
              
              
              —
              
              
              (231
              )Increase
                  in other assets
              
              
              —
              
              
              —
              
              
              (1,192
              )Investment
                  in held-to-maturity short-term securities
              
              
              (32
              )
              
              (2,034
              )
              
              (55,081
              )Proceeds
                  from maturity of held-to-maturity short-term securities
              
              
              12,842
              
              
              8,504
              
              
              88,883Investment
                  in available-for-sale short-term securities
              
              
              (12,000
              )
              
              (10,000
              )
              
              (126,800
              )Proceeds
                  from sale of available-for-sale short-term securities
              
              
              22,200
              
              
              18,750
              
              
              114,800Investment
                  in held-to-maturity long-term securities
              
              
              (1
              )
              
              (2,329
              )
              
              (44,320
              )Proceeds
                  from maturity of held-to-maturity long-term securities
              
              
              —
              
              
              2
              
              
              193Net
                  cash provided by (used in) investing activities
              
              
              22,846
              
              
              10,145
              
              
              (39,674
              )
 
 *The
        accompanying notes are an integral part of the consolidated financial
        statements.*
  5
  **Keryx
        Biopharmaceuticals, Inc. (A Development Stage Company)**
 Consolidated
        Statements of Cash Flows
 for
        the
        Six Months Ended June 30, 2008 and 2007 (Unaudited)
 (continued)
 (in
        thousands)
 
 **Six
                  months ended**
                **June
                  30,**
              
              **Amounts**
                **accumulated**
                **during
                  the**
                **development**
                **stage****2008**
              
              **2007**CASH
                  FLOWS FROM FINANCING ACTIVITIESProceeds
                  from short-term loans
              
              $
              —
              
              $
              —
              
              $
              500Proceeds
                  from long-term loans
              
              
              —
              
              
              —
              
              
              3,251Payment
                  of assumed notes payable and accrued interest in connection with
                  the
                  ACCESS Oncology acquisition
              
              
              —
              
              
              —
              
              
              (6,322
              )Issuance
                  of convertible note, net
              
              
              —
              
              
              —
              
              
              2,150Issuance
                  of preferred shares, net
              
              
              —
              
              
              —
              
              
              8,453Receipts
                  on account of shares previously issued
              
              
              —
              
              
              —
              
              
              7Proceeds
                  from initial public offering, net
              
              
              —
              
              
              —
              
              
              46,298Proceeds
                  from subsequent public offerings, net
              
              
              —
              
              
              —
              
              
              158,487Proceeds
                  from private placements, net
              
              
              —
              
              
              —
              
              
              45,795Proceeds
                  from exercise of options and warrants
              
              
              222
              
              
              203
              
              
              9,342Purchase
                  of treasury stock
              
              
              —
              
              
              (268
              )
              
              (357
              )Net
                  cash provided by financing activities
              
              
              222
              
              
              (65
              )
              
              267,604Cash
                  acquired in acquisition
              
              
              —
              
              
              —
              
              
              99Effect
                  of exchange rate on cash
              
              
              —
              
              
              —
              
              
              (94
              )NET
                  (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
              
              
              (5,028
              )
              
              (24,316
              )
              
              14,037Cash
                  and cash equivalents at beginning of period
              
              
              19,065
              
              
              48,736
              
              
              —CASH
                  AND CASH EQUIVALENTS AT END OF PERIOD
              
              $
              14,037
              
              $
              24,420
              
              $
              14,037NON
                  - CASH TRANSACTIONSSale
                  of manufacturing facility assets
              
              $
              300
              
              $
              —
              
              $
              300Issuance
                  of common stock in connection with acquisition
              
              
              —
              
              
              —
              
              
              9,635Contingent
                  equity rights in connection with acquisition
              
              
              —
              
              
              —
              
              
              4,004Assumption
                  of liabilities in connection with acquisition
              
              
              —
              
              
              —
              
              
              9,068Conversion
                  of short-term loans into contributed capital
              
              
              —
              
              
              —
              
              
              500Conversion
                  of long-term loans into contributed capital
              
              
              —
              
              
              —
              
              
              2,681Conversion
                  of long-term loans into convertible notes of Partec
              
              
              —
              
              
              —
              
              
              570Conversion
                  of convertible notes of Partec and accrued interest into stock
                  in
                  Keryx
              
              
              —
              
              
              —
              
              
              2,973Issuance
                  of warrants to related party as finder’s fee in private
                  placement
              
              
              —
              
              
              —
              
              
              114Declaration
                  of stock dividend
              
              
              —
              
              
              —
              
              
              3SUPPLEMENTARY
                  DISCLOSURES OF CASH FLOW INFORMATIONCash
                  paid for interest
              
              $
              —
              
              $
              —
              
              $
              1,166Cash
                  paid for income taxes
              
              $
              —
              
              $
              —
              
              $
              468
 
 *The
        accompanying notes are an integral part of the consolidated financial
        statements.*
  6
  **Keryx
        Biopharmaceuticals, Inc. (A Development Stage Company)**
 Notes
        to
        Consolidated Financial Statements (unaudited)
 **NOTE
        1 - GENERAL**
 
 ***Basis
        of Presentation***
 
 Keryx
        Biopharmaceuticals, Inc. and subsidiaries (“Keryx” or the “Company”) is a
        biopharmaceutical company focused on the acquisition, development and
        commercialization of medically important, novel pharmaceutical products for
        the
        treatment of life-threatening diseases, including renal disease and cancer.
        The
        Company was incorporated in Delaware in October 1998 (under the name Paramount
        Pharmaceuticals, Inc., which was later changed to Lakaro Biopharmaceuticals,
        Inc. in November 1999, and finally to Keryx Biopharmaceuticals, Inc. in January
        2000). The Company commenced activities in November 1999, focusing on the
        development and commercialization of clinical compounds and core technologies
        for the life sciences.
 
 Until
        November 1999, most of the Company’s activities were carried out by Partec
        Limited, an Israeli corporation formed in December 1996, and its subsidiaries
        -
        SignalSite Inc. (85% owned), SignalSite Israel Ltd. (wholly-owned), Vectagen
        Inc. (87.25% owned) and Vectagen Israel Ltd. (wholly-owned) (hereinafter
        collectively referred to as “Partec”). In November 1999, the Company acquired
        substantially all of the assets and liabilities of Partec and, as of that
        date,
        the activities formerly carried out by Partec were performed by the Company.
        On
        the date of the acquisition, Keryx and Partec were entities under common
        control
        (the controlling interest owned approximately 79.7% of Keryx and approximately
        76% of Partec) and accordingly, the assets and liabilities were recorded
        at
        their historical cost basis by means of “as if” pooling, with Partec being
        presented as a predecessor company. Consequently, these financial statements
        include the activities performed in previous periods by Partec by aggregating
        the relevant historical financial information with the financial statements
        of
        the Company as if they had formed a discrete operation under common management
        for the entire development stage.
 
 The
        Company owns a 100% interest in each of ACCESS Oncology, Inc., Neryx
        Biopharmaceuticals, Inc., and Accumin Diagnostics, Inc., all U.S. corporations
        incorporated in the State of Delaware, and Keryx (Israel) Ltd. and Keryx
        Biomedical Technologies Ltd., each organized in Israel. In 2003, the Company’s subsidiaries
        in Israel ceased operations and are currently in the process of being closed
        down. Most
        of
        the Company's biopharmaceutical development and substantially all of its
        administrative operations during the three and six months ended June 30,
        2008
        and 2007, were conducted in the United States of America.
 
 On
        February 5, 2004, the Company completed the acquisition of ACCESS Oncology,
        Inc.
        and its subsidiaries (“ACCESS Oncology”). The transaction was structured as a
        merger of AXO Acquisition Corp., a Delaware corporation and the Company’s
        wholly-owned subsidiary, with and into ACCESS Oncology, with ACCESS Oncology
        remaining as the surviving corporation and a wholly-owned subsidiary of the
        Company. The transaction was accounted for under the purchase method of
        accounting. The assets and liabilities of ACCESS Oncology that the Company
        acquired and assumed pursuant to the acquisition have been included in the
        Company’s consolidated financial statements as of February 5, 2004.
 
 On
        April
        6, 2006, Accumin Diagnostics, Inc., a wholly-owned subsidiary of the Company,
        completed the acquisition of Accumin TM ,
        a
        novel, patent protected, diagnostic for the direct measurement of total,
        intact urinary albumin, from AusAm Biotechnologies, Inc. The transaction
        was
        accounted for under the purchase method of accounting. The assets and
        liabilities of Accumin that the Company acquired and assumed pursuant to
        the
        acquisition have been included in the Company’s consolidated financial
        statements as of April 6, 2006.
 
 The
        accompanying unaudited consolidated financial statements were prepared in
        accordance with U.S. generally accepted accounting principles (“GAAP”) for
        interim financial information and with the instructions to Form 10-Q and
        Article 10 of Regulation S-X. Accordingly, they do not include all of
        the information and footnotes required by GAAP for complete financial
        statements. All adjustments that are, in the opinion of management, of a
        normal
        recurring nature and are necessary for a fair presentation of the consolidated
        financial statements have been included. Nevertheless, these financial
        statements should be read in conjunction with the Company's audited consolidated
        financial statements contained in its Annual Report on Form 10-K for the
        year
        ended December 31, 2007. The results of operations for the three and six
        months ended June 30, 2008 are not necessarily indicative of the results
        that
        may be expected for the entire fiscal year or any other interim
        period.
  7
  The
        Company has incurred operating losses since its inception and expects to
        continue to incur operating losses for the foreseeable future and may never
        become profitable. The Company has not generated any revenues from its planned
        principal operations and is dependent upon significant financing to provide
        the
        working capital necessary to execute its business plan. The Company has not
        yet
        commercialized any of its drug candidates and cannot be sure if it will ever
        be
        able to do so. Even if the Company commercializes one or more of its drug
        candidates, the Company may not become profitable. The Company’s ability to
        achieve profitability depends on a number of factors, including its ability
        to
        complete its development efforts, obtain regulatory approval for its drug
        candidates, successfully complete any post-approval regulatory obligations
        and
        successfully commercialize its drug candidates. The Company may continue
        to
        incur substantial operating losses even if it begins to generate revenues
        from
        its drug candidates, if approved. If the Company determines that it is necessary
        to seek additional funding, there can be no assurance that the Company will
        be
        able to obtain any such funding on terms that are acceptable to it, if at
        all.
 
 ***Cash
        and Cash Equivalents***
 
 The
        Company treats liquid investments with original maturities of less than three
        months when purchased as cash and cash equivalents.
 
 ***Investment
        Securities***
 
 The
        Company records its investments as either held-to-maturity or
        available-for-sale. Held-to-maturity investments are recorded at amortized
        cost.
        Available-for-sale investments securities (which are comprised of the auction
        rate securities we own) are recorded at fair value. See Note 2 - Fair Value
        Measurements. Other-than-temporary impairment charges are included in interest
        and other income (expense), net.
 
 The
        following table summarizes the Company’s investment securities at June 30, 2008
        and December 31, 2007:
 
 (in thousands)
              
              **June 30, 2008**
              
              **December 31, 2007**Short-term
                  investment securities:Obligations
                  of domestic governmental agencies (mature between October 2008
                  and May
                  2009) (held-to-maturity)
              
              $
              10,325
              
              $
              20,838Auction
                  rate securities (mature between 2031 and 2047)
                  (available-for-sale)
              
              
              —
              
              
              22,200Total
                  short-term investment securities
              
              $
              10,325
              
              $
              43,038Long-term
                  investment securities:Obligations
                  of domestic governmental agencies
                (held-to-maturity)
              
              $
              —
              
              $
              2,296Auction
                  rate securities (mature between 2031 and 2047)
                  (available-for-sale)
              
              
              10,125
              
              
              —Total
                  long-term investment securities
              
              $
              10,125
              
              $
              2,296
 
 ***Revenue
        Recognition***
 
 The
        Company recognizes license revenue consistent with the provisions of Staff
        Accounting Bulletin (“SAB”) No. 104 and Emerging Issues Task Force (“EITF”)
        Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables.” The
        Company analyzes each element of its licensing agreement to determine the
        appropriate revenue recognition. The Company recognizes revenue on upfront
        payments and milestone payments over the period of significant involvement
        under the related agreements unless the fee is in exchange for products
        delivered or services rendered that represent the culmination of a separate
        earnings process and no further performance obligation exists under the
        contract. The Company may recognize milestone payments in revenue upon the
        achievement of specified milestones if (1) the milestone is substantive in
        nature, and the achievement of the milestone was not reasonably assured at
        the
        inception of the agreement and (2) the fees are nonrefundable. Any
        milestone payments received prior to satisfying these revenue recognition
        criteria are recognized as deferred revenue. Sales milestones and royalties
        that
        are deferred will be recognized when earned under the agreements.
  8
  The
        Company recognizes diagnostic revenue when persuasive evidence of an arrangement
        exists, the product has been shipped, title and risk of loss have passed
        to the
        customer and collection from the customer is reasonably assured.
 
 The
        Company recognizes service revenues as the services are provided. Deferred
        revenue is recorded when the Company receives a deposit or prepayment for
        services to be performed at a later date.
 
 ***Stock-Based
        Compensation***
  The
        Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 123R,
“Share-Based Payment” (“SFAS No. 123R”) on January 1, 2006 using the modified
        prospective transition method. SFAS No. 123R requires all share-based payments
        to employees, and to non-employee directors as compensation for service on
        the
        Board of Directors, to be recognized as compensation expense in the consolidated
        financial statements based on the fair values of such payments. Stock-based
        compensation expense recognized each period is based on the value of the
        portion
        of share-based payment awards that is ultimately expected to vest during
        the
        period. SFAS No. 123R requires forfeitures to be estimated at the time of
        grant
        and revised, if necessary, in subsequent periods if actual forfeitures differ
        from those estimates.
 
 The
        Company accounts for equity instruments issued to third party service providers
        (non-employees) in accordance with the fair value method prescribed by the
        provisions of EITF Issue No. 96-18, “Accounting for Equity Instruments That Are
        Issued to Other Than Employees for Acquiring, or in Conjunction with Selling
        Goods or Services” (“EITF 96-18”).
 
 ***Net
        Loss per Share***
 
 Basic
        net
        loss per share is computed by dividing the losses allocable to common
        stockholders by the weighted average number of shares of common stock
        outstanding for the period. Diluted net loss per share does not reflect the
        effect of shares of common stock to be issued upon the exercise of stock
        options
        and warrants, as their inclusion would be anti-dilutive. The options and
        warrants outstanding as of June 30, 2008 and 2007, which are not included
        in the
        computation of net loss per share amounts, were 9,846,616 and 10,894,094,
        respectively.
 
 ***Accounting
        for Manufacturing Suite***
 
 The
        Company spent approximately $11.3 million in capital expenditures building
        a
        manufacturing suite for Sulonex. With the cessation of the Company’s development
        of Sulonex in March 2008, the Company took an impairment charge of $11.0
        million, which is included in other research and development expenses in
        the six
        months ended June 30, 2008, to write the assets down to their fair value
        of
        $300,000, the amount for which the assets were sold during the three months
        ended June 30, 2008. The
        sale
        of the assets offset a payable and, therefore, cash was not received by the
        Company. In addition, the Company recognized a $2.1 million expense,
        which is included in other research and development expenses in the six months
        ended June 30, 2008, for costs related to the required restoration of the
        leased
        facility to its original condition.
 
 ***Impairment
        of Goodwill***
 
 The
        Company accounts for impairment of goodwill using the provisions of SFAS
        No.
        142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”). This statement
        addresses how intangible assets that are acquired individually or with a
        group
        of other assets (but not those acquired in a business combination) should
        be
        accounted for in financial statements upon their acquisition. SFAS No. 142
        also
        addresses how goodwill and other intangible assets should be accounted for
        after
        they have been initially recognized in the financial statements. SFAS No.
        142
        requires goodwill be tested using a two-step process. The first step compares
        the fair value of the reporting unit with the unit's carrying value, including
        goodwill. When the carrying value of the reporting unit is greater than fair
        value, the unit’s goodwill may be impaired, and the second step must be
        completed to measure the amount of the goodwill impairment charge, if any.
        In
        the second step, the implied fair value of the reporting unit’s goodwill is
        compared with the carrying amount of the unit’s goodwill. If the carrying amount
        is greater than the implied fair value, the carrying value of the goodwill
        must
        be written down to its implied fair value. The negative outcome of the Company’s
        pivotal SUN-MICRO Phase 3 clinical trial of SulonexTM (sulodexide) for the
        treatment of diabetic nephropathy, announced on March 7, 2008, and the Company’s
        subsequent decision to terminate the ongoing SUN-MACRO Phase 4 clinical trial
        triggered an impairment test. As of March 31, 2008, management concluded
        that
        there was no impairment of the Company’s goodwill. The Company will continue to
        perform impairment tests under SFAS No. 142 annually and whenever events
        or
        changes in circumstances suggest that the carrying value of an asset may
        not be
        recoverable.
  9
  **NOTE
        2 – FAIR VALUE MEASUREMENTS**
 
 As
        of
        January 1, 2008, the Company adopted SFAS No. 157, “Fair Value Measurements”
(“SFAS No. 157”) for its financial assets and liabilities carried at fair value
        on a recurring basis in the financial statements only. SFAS No. 157 defines
        fair
        value, establishes a fair value hierarchy for assets and liabilities measured
        at
        fair value and requires expanded disclosures about fair value measurements.
        The
        SFAS No. 157 hierarchy ranks the quality and reliability of inputs, or
        assumptions, used in the determination of fair value and requires financial
        assets and liabilities carried at fair value to be classified and disclosed
        in
        one of the following three categories:
 
 ·
              Level
                  1 – quoted prices in active markets for identical assets and
                  liabilities;
 
 ·
              Level
                  2 – inputs other than Level 1 quoted prices that are directly or
                  indirectly observable; and
 
 ·
              Level
                  3 – unobservable inputs that are not corroborated by market
                  data.
 
 As
        of
        June 30, 2008, $10.1 million of the Company’s long-term investment securities
        were auction rate securities, which represent interests in student loan-backed
        securities. Auction rate securities are structured to provide liquidity through
        a Dutch auction process that resets the applicable interest rate at
        pre-determined calendar intervals, generally every 28 days. This mechanism
        has
        historically allowed existing investors either to rollover their holdings,
        whereby they would continue to own their respective securities, or liquidate
        their holdings by selling such securities at par. This auction process has
        historically provided a liquid market for these securities; however, the
        uncertainties in the credit markets have affected all of the Company’s holdings
        in auction rate securities. Since February 2008, the auctions for the auction
        rate securities held by the Company have not had sufficient buyers to cover
        investors’ sell orders, resulting in unsuccessful auctions. When an auction is
        unsuccessful, the interest rate is re-set to a level pre-determined by the
        loan
        documents and remains in effect until the next auction date, at which time
        the
        process repeats. While these investments are currently rated AA or higher,
        the
        Company is uncertain as to when, or if, the liquidity issues relating to
        these
        investments will improve. Given the complexity of auction rate securities
        and
        the lack of readily observable market quotes related to these investments,
        the
        Company obtained the assistance of an independent valuation firm, Pluris
        Valuation Advisors LLC, to assist management in assessing the fair value
        of its
        auction rate securities portfolio. As a result of this valuation process,
        the
        Company recorded impairment charges of $1.8 million and $0.1 million, in
        the
        three months ended March 31, 2008, and June 30, 2008, respectively, for
        other-than-temporary declines in the value of its auction rate securities
        to an
        estimated fair value of $10.1 million at June 30, 2008. These
        other-than-temporary impairment charges were included in interest and other
        income (expense), net. In addition, in the first quarter of 2008, the Company
        reclassified the entire auction rate securities portfolio from short-term
        to
        long-term investments due to the uncertainty of when the Company will be
        able to
        sell these securities.
 
 The
        valuation methods used to estimate the auction rate securities’ fair value were
        (1) a discounted cash flow model, where the expected cash flows of the auction
        rate securities are discounted to the present using a yield that incorporates
        compensation for illiquidity, and (2) a market comparables method, where
        the
        auction rate securities are valued based on indications, from the secondary
        market, of what discounts buyers demand when purchasing similar auction rate
        securities. The valuation included numerous assumptions such as assessments
        of
        the underlying structure of each security, expected cash flows, discount
        rates,
        credit ratings, workout periods, and overall capital market liquidity. These
        assumptions, assessments and the interpretations of relevant market data
        are
        subject to uncertainties, are difficult to predict and require significant
        judgment. The use of different assumptions, applying different judgment to
        inherently subjective matters and changes in future market conditions could
        result in significantly different estimates of fair value.
 
 The
        fair
        value of the Company’s auction rate securities could change significantly based
        on market conditions and continued uncertainties in the credit markets. If
        these
        uncertainties continue or if these securities experience credit rating
        downgrades, the Company may incur additional impairment charges with respect
        to
        its auction rate securities portfolio. The Company will continue to monitor
        the
        fair value of its auction rate securities and relevant market conditions
        and
        will recognize additional impairment charges if future circumstances warrant
        such charges.
  10
  The
        Company reviews impairments in accordance with the guidance in FSP SFAS 115-1
        and 124-1, “The Meaning of Other-Than-Temporary Impairment and Its Application
        to Certain Investments,” to determine the classification of the impairment as
        temporary or other-than-temporary. Losses are recognized in the Company’s
        statement of operations when a decline in fair value is determined to be
        other-than-temporary. The Company reviews its investments on an ongoing basis
        for indications of possible impairment. Once identified, the determination
        of
        whether the impairment is temporary or other-than-temporary requires significant
        judgment. The Company believes that the impairment charges related to its
        auction rate securities investments are other-than-temporary. The primary
        factors the Company considers in classifying an impairment include the extent
        and time the fair value of each investment has been below cost and the Company’s
        ability to hold such investment to maturity.
 
 The
        following table provides the fair value measurements of applicable Company
        financial assets according to the fair value levels defined by SFAS No. 157
        as
        of June 30, 2008:
 
 **Financial assets at fair value**
                **as of June 30, 2008**(in thousands)
              
              **Level
                  1**
              
              **Level
                  2**
              
              **Level
                  3**Money
                  market funds (1)
              
              $
              11,014
              
              $
              —
              
              $
              —Short-term
                  investment securities (held-to-maturity) (2)
              
              
              10,325
              
              
              —
              
              
              —Auction
                  rate securities (3)
              
              
              —
              
              
              —
              
              
              10,125Total
              
              $
              21,339
              
              $
              —
              
              $
              10,125
 (1)
              Included
                  in cash and cash equivalents on the Company’s consolidated balance sheet.
                  The carrying amount of money market funds is a reasonable estimate
                  of fair
                  value. (2)
              Amortized cost approximates fair
                value.
 (3)
              Included
                  in long-term investment securities on the Company’s consolidated balance
                  sheet.
 
 The
        following table summarizes the change in carrying value associated with Level
        3
        financial assets for the six months ended June 30, 2008:
 
 (in thousands)
              
              **Available-for-sale**
                **long-term******
                **investments**Balance
                  at January 1, 2008
              
              $
              —Transfer
                  into Level 3 (1)
              
              
              12,000Total
                  unrealized losses included in net loss
              
              
              (1,811
              )Balance
                  at March 31, 2008
              
              $
              10,189Total
                  unrealized losses included in net loss
              
              
              (64
              )Balance
                  at June 30, 2008
              
              $
              10,125
 
 (1)
              Based
                  on deteriorated market conditions experienced in the first quarter
                  of
                  2008, the Company changed the fair value measurement methodology
                  of its
                  auction rate securities portfolio that the Company classifies as
                  available-for-sale from quoted prices in active markets to a discounted
                  cash flow model. Accordingly, these securities were re-classified
                  from
                  Level 1 to Level 3.
 
 **NOTE
        3 – STOCKHOLDERS' EQUITY**
 
 ***Common
        Stock***
 
 The
        Company filed a shelf registration statement on Form S-3 (File No. 333-130809)
        with the Securities and Exchange Commission, or SEC, on December 30, 2005,
        that
        was declared effective by the SEC on January 13, 2006, covering shares of
        the
        Company’s Common Stock having a value not to exceed $150 million. At June 30,
        2008, $67 million remain available for future sale under this shelf registration
        statement. The Company may offer the remaining securities under its shelf
        registration from time to time in response to market conditions or other
        circumstances if it believes such a plan of financing is in the best interest
        of
        the Company and its stockholders. The Company believes that the shelf
        registration provides it with the flexibility to raise additional capital
        to
        finance its operations as needed. However, there are no assurances that the
        Company will be able to sell securities on acceptable terms, or at all, even
        though an effective shelf registration statement remains available. Securities
        sold via the shelf registration statement may dilute existing stockholders’
interests in the Company.
  11
  ***Equity
        Incentive Plans***
 
 The
        following table summarizes stock option activity for the six months ended
        June
        30, 2008:
 
 **Number**
                **of shares**
              
              **Weighted-**
                **average**
                **exercise price**
              
              **Weighted-**
                **average**
                **Contractual**
                **Term**
              
              **Aggregate**
                **Intrinsic**
                **Value****(in
                  years)**Outstanding
                  at December 31, 2007
              
              
              10,869,173
              
              $
              7.69Granted
              
              
              243,800
              
              
              4.28Exercised
              
              
              (75,000
              )
              
              2.96
              
              
              
              
              $
              259,900Forfeited
              
              
              (1,205,214
              )
              
              10.35Expired
              
              
              (308,119
              )
              
              8.54Outstanding
                  at June 30, 2008
              
              
              9,524,640
              
              $
              7.27
              
              
              6.0
              
              $
              119,804Vested
                  and expected to vest at June 30, 2008
              
              
              9,466,026
              
              $
              7.25
              
              
              6.0
              
              $
              119,794Exercisable
                  at June 30, 2008
              
              
              7,644,167
              
              $
              6.24
              
              
              5.4
              
              $
              119,504
 
 Upon
        the
        exercise of stock options, the Company issues new shares. As of June 30,
        2008,
        3,328,833 options issued to employees and directors, and 93,000 options issued
        to consultants, are milestone-based, of which 3,203,833 options issued to
        employees and directors, and 43,000 options issued to consultants, are vested
        and exercisable.
 
 Certain
        employees and consultants have been awarded restricted stock under the 2004
        Long-Term Incentive Plan and 2007 Incentive Plan. The restricted stock vests
        primarily over a period of two to four years. The following table summarizes
        restricted share activity for the six months ended June 30, 2008:
 
 **Number
                  of**
                **Shares**
              
              **Weighted**
                **Average**
                **Grant****Date**
                **Fair
                  Value**
              
              **Aggregate**
                **Intrinsic**
                **Value**Outstanding
                  at December 31, 2007
              
              
              138,334
              
              $
              10.09Granted
              
              
              1,401,906
              
              
              0.52Vested
              
              
              (50,000
              )
              
              10.17
              
              $
              24,500Forfeited
              
              
              (65,000
              )
              
              10.37Outstanding
                  at June 30, 2008
              
              
              1,425,240
              
              $
              0.66
              
              $
              698,368
 
 Shares
        available for the issuance of stock options or other stock-based awards under
        our stock option and incentive plans were 4,758,997 at June 30,
        2008.
 
 ***Warrants***
 
 **Warrants**
              
              **Weighted-**
                **average**
                **exercise
                  price**
              
              **Aggregate**
                **Intrinsic****Value**Outstanding
                  at December 31, 2007
              
              
              321,976
              
              $
              4.65Issued
              
              
              —
              
              
              —Exercised
              
              
              —
              
              
              —Canceled
              
              
              —
              
              
              —Outstanding
                  at June 30, 2008
              
              
              321,976
              
              $
              4.65
              
              $
              35,070
 
 ***Stock-Based
        Compensation***
 
 The
        fair
        value of stock options granted is estimated at the date of grant using the
        Black-Scholes model. The expected term of options granted is derived from
        historical data and the expected vesting period. Expected volatility is based
        on
        the historical volatility of the Company’s common stock and the Company’s
        assessment of its future volatility. The risk-free interest rate is based
        on the
        U.S. Treasury yield for a period consistent with the expected term of the
        option
        in effect at the time of the grant. The Company has assumed no expected dividend
        yield, as dividends have never been paid to stock or option holders and will
        not
        be paid for the foreseeable future.
  12
 
 **Black-Scholes
                  Option Valuation Assumptions**
              
              **Three months ended June 30,**
              
              **Six months ended June 30,****2008**
              
              **2007**
              
              **2008**
              
              **2007**Risk-free
                  interest rates
              
              
              2.9%
              
              
              4.7%
              
              
              2.6%
              
              
              4.7%Dividend
                  yield
              
              
              —
              
              
              —
              
              
              —
              
              
              —Volatility
              
              
              111.0%
              
              
              71.4%
              
              
              76.3%
              
              
              71.6%Weighted-average
                  expected term
              
              
              2.0
                  years
              
              
              4.4
                  years
              
              
              4.3
                  years
              
              
              4.5
                  years
 
 The
        weighted average grant date fair value of options granted for the three months
        ended June 30, 2008 and 2007, was $0.28 and $6.25 per option, respectively,
        and
        for the six months ended June 30, 2008 and 2007, was $2.40 and $6.42 per
        option,
        respectively. The Company used historical information, industry data and
        the
        Company’s assessment of future forfeitures to estimate forfeitures within the
        valuation model. As of June 30, 2008, there was $8.3 million and $0.9 million
        of
        total unrecognized compensation cost related to non-vested stock options
        and
        restricted stock, respectively, which is expected to be recognized over a
        weighted-average period of 2.0 years and 2.9 years, respectively. The amounts
        do
        not include, as of June 30, 2008, 175,000 options outstanding, which are
        milestone-based and vest upon certain corporate milestones, such as FDA approval
        of our drug candidates and market capitalization targets. Stock-based
        compensation will be measured and recorded if and when a milestone
        occurs.
 
 **NOTE
        4 – RESTRUCTURING**
 
 On
        March
        26, 2008, the Company implemented a strategic restructuring plan to reduce
        its
        cash burn rate and re-focus its development efforts (the “2008 Restructuring”).
        The 2008 Restructuring, which was prompted by the negative outcome of the
        Company’s pivotal SUN-MICRO Phase 3 clinical trial of SulonexTM (sulodexide) for
        the treatment of diabetic nephropathy, announced on March 7, 2008, and
        subsequent decision by the Company to terminate the ongoing SUN-MACRO Phase
        4
        clinical trial, was intended to conserve the financial resources of the Company
        and enable it to focus its efforts on programs and opportunities that management
        believed were most likely to provide long-term shareholder value. The 2008
        Restructuring included a workforce reduction of approximately 50%. Following
        the
        workforce reduction, the Company had approximately 25 full and part-time
        employees.
 
 As
        part
        of the 2008 Restructuring, on March 26, 2008, the Company notified its
        President, I. Craig Henderson, M.D., that the Company was terminating his
        employment, effective April 15, 2008. Dr. Henderson remained in his position
        as
        a member of the Company’s Board of Directors until the annual meeting in June
        2008. The Company recognized a $1,569,000 credit to expense, in the six months
        ended June 30, 2008, related to the forfeiture of stock options and restricted
        stock issued to Dr. Henderson. In addition, the Company reached a mutual
        agreement with its Chief Accounting Officer, Mark Stier, that Mr. Stier resigned
        effective June 30, 2008. His responsibilities were assumed by James F. Oliviero,
        Vice President, Finance, who was appointed Principal Financial and Accounting
        Officer on May 6, 2008.
 
 The
        following table summarizes restructuring costs that were provided for and/or
        incurred by the Company during the six months ended June 30, 2008:
 
 **Six months ended**(in thousands)
              
              **June
                  30, 2008**Research
                  and developmentImpairment
                  of manufacturing facility
              
              $
              11,037Manufacturing
                  facility restoration
              
              
              2,063Severance
              
              
              624Non-cash
                  compensation
              
              
              (1,569
              )Total
                  research and development
              
              
              12,155Selling,
                  general and administrativeSeverance
              
              
              99Total
                  selling, general and administrative
              
              
              99Total
                  restructuring costs
              
              $
              12,254
  13
  
 (in thousands)Restructuring
                  liabilities at December 31, 2007
              
              $
              —Manufacturing
                  facility restoration
              
              
              2,063Accrued
                  severance
              
              
              723Restructuring
                  liabilities at March 31, 2008
              
              $
              2,786Payment
                  of manufacturing facility restoration
              
              
              (2,063
              )Payment
                  of severance
              
              
              (395
              )Restructuring
                  liabilities at June 30, 2008
              
              $
              328
 
 The
        Company expects to pay out the remaining $328,000 of restructuring liabilities
        accrued for at June 30, 2008 over the next six months.
 
 **NOTE
        5 - LICENSE AGREEMENT**
 
 In
        September 2007, the Company entered into a Sublicense Agreement with Japan
        Tobacco Inc. (“JT”) and Torii Pharmaceutical Co., Ltd. (“Torii”), JT's
        pharmaceutical business subsidiary, under which JT and Torii obtained the
        exclusive sublicense rights for the development and commercialization of
        ferric
        citrate in Japan, which is being developed in the United States under the
        trade
        name Zerenex. JT and Torii are responsible for the future development and
        commercialization costs in Japan.
 
 An
        upfront payment of $12.0 million, which was received in October 2007, is
        being
        recognized as license revenue on a straight-line basis over the life of the
        agreement, which is through the expiration of the last-to-expire patent covered
        by the agreement in 2023, and represents the estimated period over which
        the
        Company will have certain ongoing responsibilities under the sublicense
        agreement. The Company recorded license revenue of approximately $194,000
        and
        $387,000 in the three and six months ended June 30, 2008, respectively, and,
        at
        June 30, 2008, has deferred revenue of approximately $11.4 million
        (approximately $774,000 of which has been classified as a current liability),
        associated with this $12.0 million payment.
 
 An
        additional milestone payment of $8.0 million, for the achievement of certain
        milestones reached in March 2008, was received in April 2008, and is being
        recognized as license revenue on a straight-line basis over the life of the
        agreement (as discussed above). The Company recorded license revenue of
        approximately $133,000 and $139,000 for the three and six months ended June
        30,
        2008, and, at June 30, 2008, has deferred revenue of approximately $7.9 million
        (approximately $533,000 of which has been classified as a current liability)
        associated with this $8.0 million payment. The Company may receive up to
        an
        additional $80.0 million in payments upon the achievement of pre-specified
        milestones. In addition, upon commercialization, JT and Torii will make royalty
        payments to the Company on net sales of ferric citrate in Japan.
 
 **NOTE
        6 – COMMITMENTS AND** **CONTINGENCIES**
  ***Obligations
        and Commitments***
 
 As
        of
        June 30, 2008, the Company has known contractual obligations, commitments
        and
        contingencies of $2,676,000. Of this amount, $1,290,000 relates to research
        and
        development agreements (relating to the Company’s KRX-0401 and Zerenex clinical
        programs), all of which is due within the next year. Certain of these
        commitments are contingent upon the Company’s continuing development of its drug
        candidates. The additional $1,386,000 relates to the Company’s operating lease
        obligations, of which $629,000 is due within the next year, with the remaining
        balance due as per the schedule below.
 
 **Payment
                  due by period****Contractual
                  obligations**
              
              **Total**
              
              **Less than**
                **1 year**
              
              **1-3**
                **years**
              
              **3-5**
                **years**
              
              **More than**
                **5 years**Research
                  and development agreements
              
              $
              1,290,000
              
              $
              1,290,000
              
              $
              —
              
              $
              —
              
              $
              —Operating
                  leases
              
              
              1,386,000
              
              
              629,000
              
              
              757,000
              
              
              —
              
              
              —Total
              
              $
              2,676,000
              
              $
              1,919,000
              
              $
              757,000
              
              $
              —
              
              $
              —
  14
  The
        Company has undertaken to make contingent milestone payments to certain of
        its
        licensors of up to approximately $73.0 million over the life of the licenses,
        of
        which approximately $60.5 million will be due upon or following regulatory
        approval of the licensed drugs. In certain cases, such payments will reduce
        any
        royalties due on sales of related products. In the event that the milestones
        are
        not achieved, the Company remains obligated to pay one licensor $75,000 annually
        until the license expires. The Company has also committed to pay to the former
        stockholders of ACCESS Oncology certain contingent equity rights (up to
        3,372,422 shares of the Company’s common stock) if its drug candidates meet
        certain development milestones. A substantial portion of the contingent shares
        would be payable to related parties of the Company. The contingent equity
        rights
        have been recognized as a non-current liability on the consolidated balance
        sheet. The Company has also entered into a royalty arrangement under which
        its
        wholly-owned subsidiary may be required to pay up to a maximum of $16.1 million
        to AusAm on revenue from a next generation product following FDA marketing
        approval, as part of the Company’s acquisition of Accumin. The uncertainty
        relating to the timing of the commitments described in this paragraph prevents
        the Company from including them in the table above.
  ***Litigation***
 
 In
        July
        2003, Keryx (Israel) Ltd., one of the Company’s Israeli subsidiaries, vacated
        its Jerusalem facility, after giving advance notice to RMPA Properties Ltd.,
        the
        landlord. On May 1, 2005, the landlord filed suit in the Circuit Court of
        Jerusalem in Jerusalem, Israel, claiming that Keryx (Israel) Ltd., among
        other
        parties, was liable as a result of the alleged breach of the lease agreement.
        In
        addition to Keryx (Israel) Ltd., the landlord brought suit against Keryx
        Biomedical Technologies Ltd., another of the Company’s Israeli subsidiaries,
        Keryx Biopharmaceuticals, Inc., Michael S. Weiss, the Company’s Chairman and
        Chief Executive Officer, and Robert Trachtenberg, a former employee of Keryx.
        The amount demanded by the landlord totals 4,345,313 New Israeli Shekels,
        or
        approximately $1,316,000, and includes rent for the entire remaining term
        of the
        lease, as well as property taxes and other costs allegedly incurred by the
        landlord. In August 2003, the landlord claimed a bank deposit, in the amount
        of
        $222,000, which was previously provided as security in connection with the
        lease
        agreement. The Company intends to vigorously defend the suit. In July 2005,
        Keryx (Israel) Ltd. and Keryx Biomedical Technologies Ltd. filed an answer
        to
        the landlord's complaint. In October 2005, Keryx Biopharmaceuticals, Inc.
        filed
        an answer to the landlord's complaint. Generally, each answer challenges
        the
        merits of the landlord's cause of action as to each defendant. All defendants,
        except Keryx (Israel) Ltd., have filed a motion to dismiss the complaint.
        The
        plaintiff has filed a response to each answer. At this time, the Circuit
        Court
        of Jerusalem has not issued a decision with respect to the motion to dismiss.
        A
        hearing on a motion by Keryx Biopharmaceuticals, Inc. and Michael S. Weiss
        to
        vacate service of process outside of Israel was held in June 2006. On October
        15, 2006, the Court held that the service of the claim against Mr. Weiss
        is
        vacated. Consequently, the Circuit Court of Jerusalem dismissed the suit
        against
        Mr. Weiss. However, the service against the Company was sustained. The Company
        appealed this holding. The appeal was denied on June 18, 2007, and the Company
        filed a petition for certiorari to the Supreme Court of Israel. The Company’s
        motion for certiorari was denied as well. The Company filed its testimonial
        affidavit along with an expert opinion contesting the interest and the
        accumulated debt claimed by plaintiff. The trial is scheduled for November
        2008.
        The Court will hear the motion to dismiss parallel to the trial. The Company
        has
        not yet recorded a charge to reflect any potential liability associated with
        this lawsuit, as it is too early to accurately estimate the amount of the
        charge, if any.
 
 The
        Company prevailed in an arbitration proceeding with Alfa Wasserman concerning
        certain terms of the 1998 License Agreement between Alfa Wasserman and the
        Company related to the provision of data to Alfa Wasserman and consultation
        regarding management of the licensed patents. An arbitration hearing was
        held in
        October 2007 and the arbitrator issued his decision on March 25, 2008, rejecting
        Alfa Wasserman’s claims that the Company was in material breach of the License
        Agreement. Under the terms of the License Agreement, the Company may be entitled
        to recoup a portion of its legal fees and expenses associated with the
        arbitration from Alfa Wasserman. The Company’s claim for legal fees is presently
        before the arbitrator for determination.
  15
  In
        April
        2008, the Company notified Alfa Wasserman of its intention to terminate the
        License Agreement. The Company offered to transfer to Alfa Wasserman all
        regulatory applications as provided in the License Agreement and demanded
        payment by Alfa Wasserman of 25% of the Company’s development costs associated
        with sulodexide, as provided in the License Agreement. Alfa Wasserman itself
        served a notice of termination of the License Agreement on the alleged grounds
        that the Company is in material breach of the agreement for failing to
        diligently develop sulodexide by terminating the Phase 4 clinical trial.
        By
        seeking to terminate the License Agreement, Alfa Wasserman is thereby seeking
        to
        avoid reimbursement to Keryx of development costs. The Company intends to
        submit
        its claim for development costs and Alfa Wasserman’s claim of material breach to
        arbitration for resolution.
 
 In
        November 2007, the Company initiated an action in the US District Court for
        the
        Southern District of New York against Panion to enjoin Panion from improperly
        terminating the November 2005 License Agreement between Panion and the Company
        for an alleged breach of contract by Keryx related to certain manufacturing
        provisions of the agreement, to enjoin Panion from interfering with the
        Company’s contractual relationships with certain third-parties, as well as to
        enforce the Company’s right with respect to the prosecution of certain patents.
        On November 27, 2007, the Court granted the Company a motion for a preliminary
        injunction. Panion asserted counterclaims for breach of contract relating
        to
        certain manufacturing provisions of the license agreement. On March 17, 2008,
        the parties agreed to settle their dispute and as a result have entered into
        an
        Amended and Restated License Agreement, which resulted in an expansion of
        the
        scope of the original license grant and granted to the Company greater control
        over patent prosecution and maintenance. In consideration of these amendments
        and the settlement of the litigation, the Company paid Panion $2.5 million
        in
        March 2008, which had been accrued for in 2007. Following execution of the
        Amended and Restated License Agreement, the parties entered a voluntary
        dismissal of the action, including Panion’s asserted counterclaims.
 
 **NOTE
        7 – SEGMENT INFORMATION**
 
 The
        Company has three reportable segments: Diagnostics, Services and Products.
        The
        Diagnostics business sells diagnostic products for the direct measurement
        of
        total, intact urinary albumin. The Services business provides clinical trial
        management and site recruitment services to other biotechnology and
        pharmaceutical companies. The Products business focuses on the acquisition,
        development and commercialization of medically important, novel pharmaceutical
        products for the treatment of life-threatening diseases, including renal
        disease
        and cancer, and also includes license revenue, other revenue and associated
        costs.
 
 Segment
        information for the three and six month periods were as follows:
 
 **Revenue****Three months ended June 30,**
              
              **Six months ended June 30,**
              
              **Amounts**
                **accumulated**
                **during the**
                **development**(in thousands)
              
              **2008**
              
              **2007**
              
              **2008**
              
              **2007**
              
              **Stage**Diagnostics
              
              $
              —
              
              $
              36
              
              $
              —
              
              $
              66
              
              $
              169Services
              
              
              62
              
              
              14
              
              
              62
              
              
              26
              
              
              1,928Products
              
              
              327
              
              
              —
              
              
              526
              
              
              —
              
              
              1,757Total
              
              $
              389
              
              $
              50
              
              $
              588
              
              $
              92
              
              $
              3,854
 
 **Operating
                  loss****Three months ended June 30,**
              
              **Six months ended June 30,**
              
              **Amounts**
                **accumulated**
                **during the**
                **development**(in thousands)
              
              **2008**
              
              **2007**
              
              **2008**
              
              **2007**
              
              **Stage**Diagnostics
              
              $
              (8
              )
              $
              (21
              )
              $
              (89
              )
              $
              (695
              )
              $
              (1,861
              )Services
              
              
              48
              
              
              (16
              )
              
              48
              
              
              (36
              )
              
              (254
              )Products
              
              
              (8,011
              )
              
              (20,623
              )
              
              (41,263
              )
              
              (43,183
              )
              
              (334,852
              )Total
              
              $
              (7,971
              )
              $
              (20,660
              )
              $
              (41,304
              )
              $
              (43,914
              )
              $
              (336,967
              )
  16
  A
        reconciliation of the totals reported for the operating segments to the
        consolidated total net loss is as follows:
 
 **Net
                  loss****Three months ended June 30,**
              
              **Six months ended June 30,**
              
              **Amounts**
                **accumulated**
                **during the**
                **development**(in thousands)
              
              **2008**
              
              **2007**
              
              **2008**
              
              **2007**
              
              **Stage**Operating
                  losses of reportable segments
              
              $
              (7,971
              )
              $
              (20,660
              )
              $
              (41,304
              )
              $
              (43,914
              )
              $
              (336,968
              )Interest
                  and other income (expense), net
              
              
              274
              
              
              1,200
              
              
              (929
              )
              
              2,641
              
              
              16,988Income
                  taxes
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (527
              )Consolidated
                  net loss
              
              $
              (7,697
              )
              $
              (19,460
              )
              $
              (42,233
              )
              $
              (41,273
              )
              $
              (320,507
              )
 
 **Assets
                  (1)****As of**
              
              **As of**(in thousands)
              
              **June 30,
                  2008**
              
              **December 31, 2007**Diagnostics
              
              $
              84
              
              $
              87Services
              
              
              —
              
              
              —Products
              
              
              4,681
              
              
              16,293Total
                  assets of reportable segments
              
              
              4,765
              
              
              16,380Cash,
                  cash equivalents, interest receivable and investment
                  securities
              
              
              34,586
              
              
              64,681Consolidated
                  total assets
              
              $
              39,351
              
              $
              81,061
 
 (1)
              Assets
                  for our reportable segments include fixed assets, goodwill, as
                  well as
                  accounts receivable and inventory.
 
 The
        carrying amount of goodwill by reportable segment as of June 30, 2008 and
        December 31, 2007, was as follows:
 
 **Goodwill**(in thousands)
              
              **June 30, 2008**
              
              **December 31, 2007**Diagnostics
              
              $
              —
              
              $
              —Services
              
              
              —
              
              
              —Products
              
              
              3,208
              
              
              3,208Total
              
              $
              3,208
              
              $
              3,208
 
 **ITEM
        2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
        OPERATIONS**
 
 *Unless
        the context requires otherwise, references in this report to “Keryx,” the
“Company,” “we,” “us” and “our” refer to Keryx Biopharmaceuticals, Inc., its
        predecessor company and our subsidiaries.*
 
 The
        following discussion and analysis contains forward-looking statements about
        our
        plans and expectations of what may happen in the future. Forward-looking
        statements are based on a number of assumptions and estimates that are
        inherently subject to significant risks and uncertainties, and our results
        could
        differ materially from the results anticipated by our forward-looking statements
        as a result of many known or unknown factors, including, but not limited
        to,
        those factors discussed in “Risk Factors.” See also the “Special Cautionary
        Notice Regarding Forward-Looking Statements” set forth at the beginning of this
        report.
 
 You
        should read the following discussion and analysis in conjunction with the
        unaudited consolidated financial statements, and the related footnotes thereto,
        appearing elsewhere in this report, and in conjunction with management’s
        discussion and analysis and the audited consolidated financial statements
        included in our annual report on Form 10-K for the year ended December 31,
        2007.
  17
  **OVERVIEW**
 
 We
        are a
        biopharmaceutical company focused on the acquisition, development and
        commercialization of medically important, novel pharmaceutical products for
        the
        treatment of life-threatening diseases, including renal disease and cancer.
        We
        are developing ZerenexTM (ferric citrate), an oral, iron-based compound that has
        the capacity to bind to phosphate and form non-absorbable complexes. Zerenex
        is
        currently in Phase 2 clinical development for the treatment of hyperphosphatemia
        (elevated phosphate levels) in patients with end-stage renal disease, or
        ESRD.
        We are also developing clinical-stage oncology compounds, including KRX-0401
        (perifosine), a novel, potentially first-in-class, oral anti-cancer agent
        that
        modulates Akt, a protein in the body associated with tumor survival and growth.
        KRX-0401 also modulates a number of other key signal transduction pathways,
        including the JNK and MAPK pathways, which are pathways associated with
        programmed cell death, cell growth, cell differentiation and cell survival.
        KRX-0401 is currently in Phase 2 clinical development for multiple tumor
        types.
        We also have an in-licensing and acquisition program designed to identify
        and
        acquire additional drug candidates. To date, we have not received approval
        for
        the sale of any of our drug candidates in any market and, therefore, have
        not
        generated any product sales from our drug candidates.
 
 The
        table
        below summarizes the status of our product pipeline.
 
 **Product
                  candidate**
              **Target
                  indication**
              **Development
                  status*****Endocrine/Renal***ZerenexTM
                  (ferric citrate)
              Hyperphosphatemia
                  in patients with
                end-stage
                  renal disease
              Phase
                  2***Oncology***KRX-0401
                  (perifosine)
              Multiple
                  forms of cancer
              Phase
                  2KRX-0404
                  (ErPC)
              Multiple
                  forms of cancer
              Pre-clinical***Neurology***KRX-0701
                  (dexlipotam)
              Diabetic
                  neuropathy
              Phase
                  2KRX-0501
              Neurological
                  disorders
              Phase
                  1
 
 *Recent
        Developments*
 
 KRX-0401
        (perifosine)
 
 In
        June
        2008, Phase 2 results of KRX-0401 (perifosine) in patients with
        relapsed/refractory Waldenstroms macroglobulinemia was presented at the 44th
        Annual Meeting of the American Society of Clinical Oncology. A poster
        presentation by Dr. Irene Ghobrial, Instructor of Medicine at the Dana-Farber
        Cancer Institute, discussed the Phase 2 results on the single agent clinical
        activity of perifosine in patients with both relapsed and/or refractory
        Waldenstroms macroglobulinemia.
 
 Thirty-seven
        patients (median age 65 years) with advanced Waldenstroms macroglobulinemia
        (76%
        had at least two prior treatments) were enrolled, with most patients (>75%)
        previously treated with at least one course of therapy on rituximab. All
        patients were scheduled to receive 150 mg of perifosine daily in a 28 day
        cycle
        for at least 6 cycles. Toxicities were generally well managed and tolerated
        with
        Grade 1 & 2 gastrointestinal-related toxicities occurring in 30% of the
        patients. Thirty-six patients were evaluable for response, assessed by criteria
        established at the second consensus panel for Waldenstroms macroglobulinemia,
        with results as follows:
 
 Response
              
              N
              
              Median Duration of Therapy (wks)Partial
                  Response
              
              
              2 (5%)
              
              
              60+,
                  24+Minimal
                  Response
              
              
              10 (28%)
              
              
              36
                  (range 9 - 68+
              )ORR
                  (PR + MR)
              
              
              12 (33%)Stable
                  Disease
              
              
              22 (61%)Progression
              
              
              2 (5%)
 
 PR:
>
        50% reduction in IgM   /   MR: > 25% reduction in
        IgM   /   ORR: > Overall Response Rate
  At
        the
        time of presentation, 11 of 36 patients remained on treatment and the median
        Time to Progression (TTP) had not been reached (8 cycles with a range of
        2 -
        17+).
  18
 
 *General
        Corporate*
 
 We
        are a
        development stage company and have no drug product sales to date. Our major
        sources of working capital have been proceeds from various private placements
        of
        equity securities, option and warrant exercises, public offerings of our
        common
        stock, and, beginning in 2007, from the upfront and milestone payments from
        our
        Sublicense Agreement with Japan Tobacco Inc. (“JT”) and Torii Pharmaceutical
        Co., Ltd. (“Torii”) and miscellaneous payments from our other prior licensing
        activities. We have devoted substantially all of our efforts to the
        identification, in-licensing and development of drug candidates. We have
        incurred negative cash flow from operations each year since our inception.
        We
        anticipate incurring negative cash flows from operating activities for the
        foreseeable future. We have spent, and expect to continue to spend, substantial
        amounts in connection with implementing our business strategy, including
        our
        product development efforts, our clinical trials and in-licensing and
        acquisition activities.
 
 Our
        license revenues currently consist of license fees arising from our agreement
        with JT and Torii. We recognize these revenues ratably over the estimated
        period
        which we will have certain ongoing responsibilities under the sublicense
        agreement, with un-amortized amounts recorded as deferred revenue.
 
 Our
        diagnostic revenue is based on the sale of a diagnostic product for the direct
        measurement of total, intact urinary albumin. Diagnostic revenue is recognized
        when persuasive evidence of an arrangement exists, the product has been shipped,
        title and risk of loss have passed to the customer and collection from the
        customer is reasonably assured.
 
 Our
        service revenues consist entirely of clinical trial management and site
        recruitment services. Revenues from providing these services are recognized
        as
        the services are provided. Deferred revenue is recorded when we receive a
        deposit or prepayment for services to be performed at a later date.
 
 We
        have
        not earned any revenues from the commercial sale of any of our drug candidates.
 
 Our
        cost
        of diagnostics sold consists specifically of costs associated with the
        manufacture of the diagnostic products such as payments to third-party vendors,
        material costs and other support facilities associated with delivering of
        the
        diagnostics to our customers. Cost of diagnostics sold are recognized as
        diagnostic revenue is recognized.
 
 Our
        cost
        of services consists of all costs specifically associated with our clinical
        trial management and site recruitment client programs such as salaries, benefits
        paid to personnel, payments to third-party vendors and other support facilities
        associated with delivering services to our clients. Costs of services are
        recognized as services are performed.
 
 Our
        research and development expenses consist primarily of salaries and related
        personnel costs, fees paid to consultants and outside service providers for
        clinical and laboratory development, facilities-related and other expenses
        relating to the design, development, testing, and enhancement of our drug
        candidates and technologies, as well as expenses related to in-licensing
        of new
        product candidates. We expense our research and development costs as they
        are
        incurred.
 
 Our
        general and administrative expenses consist primarily of salaries and related
        expenses for executive, finance and other administrative personnel, recruitment
        expenses, professional fees and other corporate expenses, including investor
        relations, general legal activities and facilities-related expenses.
 
 Our
        results of operations include non-cash compensation expense as a result of
        the
        grants of stock options, restricted stock and warrants. Compensation expense
        for
        awards of options and restricted stock granted to employees and directors
        represents the fair value of the award recorded over the respective vesting
        periods of the individual stock options. The expense is included in the
        respective categories of expense in the statements of operations. We expect
        to
        continue to incur significant non-cash compensation as a result of Statement
        of
        Financial Accounting Standards (“SFAS”) No. 123R, “Share-Based Payment” (“SFAS
        No. 123R”), which we adopted on January 1, 2006. For awards of options and
        warrants to consultants and other third-parties, compensation expense is
        determined at the “measurement date,” in accordance with the fair value method
        prescribed by the provisions of Emerging Issues Task Force (“EITF”) Issue No.
        96-18, “Accounting for Equity Instruments That Are Issued to Other Than
        Employees for Acquiring, or in Conjunction with Selling Goods or Services”
(“EITF 96-18”). The expense is recognized over the vesting period of the award.
        Until the measurement date is reached, the total amount of compensation expense
        remains uncertain. We record compensation expense based on the fair value
        of the
        award at the reporting date. The awards to consultants and other third-parties
        are then revalued, or the total compensation is recalculated based on the
        then
        current fair value, at each subsequent reporting date. In addition, because
        some
        of the options, restricted stock and warrants issued to employees, consultants
        and other third-parties vest upon the achievement of certain milestones,
        the
        total expense is uncertain.
  19
  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 June 30, 2008 and June 30, 2007**
 
 *License
        Revenue.* License
        revenue was $327,000 for the three months ended June 30, 2008 as compared
        to no
        revenue for the three months ended June 30, 2007. License revenue for the
        three
        months ended June 30, 2008 was related to the amortization of a portion of
        the
        license fees of $12.0 million and milestone payment of $8.0 million associated
        with our sublicense agreement with JT and Torii. Such amounts were recognized
        as
        license revenue on a straight-line basis over the life of the agreement,
        which
        is through the expiration of the last-to-expire patent covered by the agreement
        in 2023, and represents the estimated period over which we will have certain
        ongoing responsibilities under the sublicense agreement.
 
 *Diagnostic
        Revenue.* We
        recognized no diagnostic revenue for the three months ended June 30, 2008,
        as
        compared to diagnostic revenue of $36,000 for the three months ended June
        30,
        2007. We do not expect our diagnostic revenue to have a material impact on
        our
        financial results during 2008.
 
 *Service
        Revenue.* Service
        revenue increased by $48,000 to $62,000 for the three months ended June 30,
        2008, as compared to service revenue of $14,000 for the three months ended
        June
        30, 2007. We do not expect our service revenue to have a material impact
        on our
        financial results during the remainder of 2008.
 
 *Cost
        of Diagnostics Sold* .
        We
        recognized no cost of diagnostics sold for the three months ended June 30,
        2008,
        as compared to an expense of $16,000 for the three months ended June 30,
        2007.
        We do not expect our cost of diagnostics sold to have a material impact on
        our
        financial results during the remainder of 2008.
 
 *Cost
        of Services* .
        Cost of
        services decreased by $16,000 to $14,000 for the three months ended June
        30,
        2008, as compared to an expense of $30,000 for the three months ended June
        30,
        2007. We do not expect our cost of services to have a material impact on
        our
        financial results during the remainder of 2008.
 
 *Non-Cash
        Compensation Expense (Research and Development).* Non-cash
        compensation expense related to equity incentive grants decreased by $927,000
        to
        $251,000 for the three months ended June 30, 2008, as compared to an expense
        of
        $1,178,000 for the three months ended June 30, 2007. The decrease was primarily
        attributable to $674,000 of expense in the three months ended June 30, 2007
        related to restricted stock granted to our former President, as well as due
        to a
        reduction in research and development personnel following our March 2008
        restructuring.
 
 *Other
        Research and Development Expenses* .
        Other
        research and development expenses decreased by $11,442,000 to $4,243,000
        for the
        three months ended June 30, 2008, as compared to $15,685,000 for the three
        months ended June 30, 2007. The decrease in other research and development
        expenses was due primarily to a $10,390,000 million reduction in expenses
        related to the cessation of the development of Sulonex in March 2008, and
        an
        $852,000 decrease in expenses related to our other clinical
        compounds.
  20
  We
        expect
        our other research and development costs to decrease during the remainder
        of
        2008 as a result of the 2008 Restructuring, which was intended to reduce
        our
        cash burn rate and re-focus our development efforts.
 
 *Non-Cash
        Compensation Expense (Selling, General and Administrative).* Non-cash
        compensation expense related to equity incentive grants increased by $360,000
        to
        $1,767,000 for the three months ended June 30, 2008, as compared to an expense
        of $1,407,000 for the three months ended June 30, 2007. The increase was
        primarily related to a reduction of expense, in the three months ended June
        30,
        2007, of $479,000 associated with stock option forfeitures following the
        resignation of our chief financial officer in June 2007.
 
 *Other
        Selling General and Administrative Expenses* .
        Other
        selling, general and administrative expenses decreased by $309,000 to $2,085,000
        for the three months ended June 30, 2008, as compared to an expense of
        $2,394,000 for the three months ended June 30, 2007. The
        decrease was primarily related to a reduction of expenses as a result of
        the
        2008 Restructuring.
 
 We
        expect
        our other selling, general and administrative costs to decrease over the
        remainder of 2008 as a result of the 2008 Restructuring, which was intended
        to
        reduce our cash burn rate and re-focus our development efforts.
 
 *Interest
        and Other Income (Expense), Net* .
        Interest and other income (expense), net, decreased by $926,000 to $274,000
        for
        the three months ended June 30, 2008, as compared to $1,200,000 for the three
        months ended June 30, 2007. The decrease resulted from a lower level of invested
        funds and market interest rates as compared to the comparable period last
        year.
        The decrease was also due to a $64,000 impairment charge recorded in the
        three
        months ended June 30, 2008, related to our investments in auction rate
        securities.
 
 **Six
        months ended June 30, 2008 and June 30, 2007**
 
 *License
        Revenue.* License
        revenue was $526,000 for the six months ended June 30, 2008 as compared to
        no
        revenue for the six months ended June 30, 2007. License revenue for the six
        months ended June 30, 2008 was related to the amortization of a portion of
        the
        license fees of $12.0 million and milestone payment of $8.0 million associated
        with our sublicense agreement with JT and Torii. Such amounts were recognized
        as
        license revenue on a straight-line basis over the life of the agreement,
        which
        is through the expiration of the last-to-expire patent covered by the agreement
        in 2023, and represents the estimated period over which we will have certain
        ongoing responsibilities under the sublicense agreement.
 
 *Diagnostic
        Revenue.* We
        recognized no diagnostic revenue for the six months ended June 30, 2008,
        as
        compared to diagnostic revenue of $66,000 for the six months ended June 30,
        2007. We do not expect our diagnostic revenue to have a material impact on
        our
        financial results during 2008.
 
 *Service
        Revenue.* Service
        revenue increased by $36,000 to $62,000 for the six months ended June 30,
        2008,
        as compared to service revenue of $26,000 for the six months ended June 30,
        2007. We do not expect our service revenue to have a material impact on our
        financial results during the remainder of 2008.
 
 *Cost
        of Diagnostics Sold* .
        We
        recognized no cost of diagnostics sold for the six months ended June 30,
        2008,
        as compared to an expense of $38,000 for the six months ended June 30, 2007.
        We
        do not expect our cost of diagnostics sold to have a material impact on our
        financial results during the remainder of 2008.
 
 *Cost
        of Services* .
        Cost of
        services decreased by $48,000 to $14,000 for the six months ended June 30,
        2008,
        as compared to an expense of $62,000 for the six months ended June 30, 2007.
        We
        do not expect our cost of services to have a material impact on our financial
        results during the remainder of 2008.
 
 *Non-Cash
        Compensation Expense (Research and Development).* Non-cash
        compensation expense related to equity incentive grants decreased by $2,902,000
        to a credit of $729,000 for the six months ended June 30, 2008, as compared
        to
        an expense of $2,173,000 for the six months ended June 30, 2007. The decrease
        was primarily attributable to a $2,840,000 decrease in expense related to
        stock
        options and restricted stock issued to our President, who was terminated
        as part
        of the 2008 Restructuring, as well as due to a reduction in research and
        development personnel following our 2008 Restructuring.
  21
  *Other
        Research and Development Expenses* .
        Other
        research and development expenses increased by $1,940,000 to $35,071,000
        for the
        six months ended June 30, 2008, as compared to $33,131,000 for the six months
        ended June 30, 2007. The increase in other research and development expenses
        was
        due primarily to a $2,904,000 increase in research and development expenses
        related the Sulonex program which was terminated in March 2008. Included
        in the
        research and development expenses related to Sulonex for the six months ended
        June 30, 2008 are an $11,037,000 impairment charge related to the write-down
        of
        the assets of the Sulonex manufacturing suite to their fair value following
        the
        cessation of our development of Sulonex, and a $2,063,000 expense for costs
        relating to the required restoration of the leased manufacturing facility
        to its
        original condition. For more information regarding these expenses please
        see
“Note 4 - Restructuring” above. Including the impairment charge and restoration
        expense discussed above, other research and development expenses related
        to
        Sulonex were $26,726,000 and $23,822,000 during the six months ended June
        30,
        2008 and 2007, respectively. Offsetting the $2,904,000 increase in other
        research and development expenses related to Sulonex discussed above, was
        a
        decrease of $772,000 in expenses related to our other clinical
        compounds.
 
 We
        expect
        our other research and development costs to decrease substantially during
        the
        remainder of 2008, as compared to the six months ended June 30, 2008 costs,
        as a
        result of the cessation of the development of Sulonex in March 2008, as well
        as
        the 2008 Restructuring, which was intended to reduce our cash burn rate and
        re-focus our development efforts.
 
 *Non-Cash
        Compensation Expense (Selling, General and Administrative).* Non-cash
        compensation expense related to equity incentive grants increased by $71,000
        to
        $3,484,000 for the six months ended June 30, 2008, as compared to an expense
        of
        $3,413,000 for the six months ended June 30, 2007.
 
 *Other
        Selling General and Administrative Expenses* .
        Other
        selling, general and administrative expenses decreased by $1,137,000 to
        $4,052,000 for the six months ended June 30, 2008, as compared to an expense
        of
        $5,189,000 for the six months ended June 30, 2007. The decrease was primarily
        related to an impairment charge, in the six months ended June 30, 2007, of approximately
        $600,000 related to certain intangibles associated with Accumin’s diagnostic
        product and due to reduced
        expenses as a result of the 2008 Restructuring .
 
 We
        expect
        our other selling, general and administrative costs to decrease over the
        remainder of 2008 as a result of the 2008 Restructuring, which was intended
        to
        reduce our cash burn rate and re-focus our development efforts.
 
 *Interest
        and Other Income (Expense), Net* .
        Interest and other income (expense), net, decreased by $3,570,000 to an expense
        of $929,000 for the six months ended June 30, 2008, as compared to income
        of
        $2,641,000 for the six months ended June 30, 2007. The decrease was primarily
        due to $1,875,000 of impairment charges recorded in the six months ended
        June
        30, 2008, related to our investments in auction rate securities. The decrease
        also resulted from a lower level of invested funds and market interest rates
        as
        compared to the comparable period last year.
 
 **LIQUIDITY
        AND CAPITAL RESOURCES**
 
 We
        have
        financed our operations from inception primarily through public offerings
        of our
        common stock, various private placement transactions, option and warrant
        exercises, and, beginning in 2007, from the upfront and milestone payments
        from
        our sublicense agreement with JT and Torii and miscellaneous payments from
        our
        other prior licensing activities.
 
 As
        of
        June 30, 2008, we had $34.6 million in cash, cash equivalents, interest
        receivable, and short-term and long-term securities (including $10.1 million
        in
        non-current auction rate securities as discussed below), a decrease of $30.1
        million from December 31, 2007. Cash used in operating activities for the
        six
        months ended June 30, 2008 was $28.1 million, as compared to $34.4 million
        for
        the six months ended June 30, 2007. This decrease was due primarily to the
        cessation of the Sulonex program in March 2008. For the six months ended
        June
        30, 2008, net cash provided by investing activities of $22.8 million was
        primarily the result of the maturity and sale of short-term securities in
        our
        investment portfolio, net of purchases. For the six months ended June 30,
        2008,
        net cash provided by financing activities of $0.2 million was the result of
        proceeds from the exercise of stock options.
  22
  As
        of
        June 30, 2008, $10.1 million of our long-term investment securities were
        auction
        rate securities, which represent interests in student loan-backed securities.
        Auction rate securities are structured to provide liquidity through a Dutch
        auction process that resets the applicable interest rate at pre-determined
        calendar intervals, generally every 28 days. This mechanism has historically
        allowed existing investors either to rollover their holdings, whereby they
        would
        continue to own their respective securities, or liquidate their holdings
        by
        selling such securities at par. This auction process has historically provided
        a
        liquid market for these securities; however, the uncertainties in the credit
        markets have affected all of our holdings in auction rate securities. Since
        February 2008, the auctions for our auction rate securities have not had
        sufficient buyers to cover investors’ sell orders, resulting in unsuccessful
        auctions. When an auction is unsuccessful, the interest rate is re-set to
        a
        level pre-determined by the loan documents and remains in effect until the
        next
        auction date, at which time the process repeats. While these investments
        are
        currently rated AA or higher, we are uncertain as to when, or if, the liquidity
        issues relating to these investments will improve. Given the complexity of
        auction rate securities and the lack of readily observable market quotes
        related
        to these investments, we obtained the assistance of an independent valuation
        firm, Pluris Valuation Advisors LLC, to assist us in assessing the fair value
        of
        our auction rate securities portfolio. As a result of this valuation process,
        we
        recorded impairment charges of $1.8 million and $0.1 million, in the three
        months ended March 31, 2008, and June 30, 2008, respectively, for
        other-than-temporary declines in the value of our auction rate securities
        to an
        estimated fair value of $10.1 million at June 30, 2008. These
        other-than-temporary impairment charges were included in interest and other
        income (expense), net. In addition, in the first quarter of 2008, we
        reclassified the entire auction rate securities portfolio from short-term
        to
        long-term investments due to the uncertainty of when we will be able to sell
        these securities.
 
 The
        valuation methods used to estimate the auction rate securities’ fair value were
        (1) a discounted cash flow model, where the expected cash flows of the auction
        rate securities are discounted to the present using a yield that incorporates
        compensation for illiquidity, and (2) a market comparables method, where
        the
        auction rate securities are valued based on indications, from the secondary
        market, of what discounts buyers demand when purchasing similar auction rate
        securities. The valuation included numerous assumptions such as assessments
        of
        the underlying structure of each security, expected cash flows, discount
        rates,
        credit ratings, workout periods, and overall capital market liquidity. These
        assumptions, assessments and the interpretations of relevant market data
        are
        subject to uncertainties, are difficult to predict and require significant
        judgment. The use of different assumptions, applying different judgment to
        inherently subjective matters and changes in future market conditions could
        result in significantly different estimates of fair value. Assuming a 10%
        adverse change in the fair value of these securities overall, the fair value
        would decline approximately $1.0 million. However, each of our auction rate
        security investments have different features and are subject to different
        risks
        and therefore, any market decline would impact these securities to a different
        degree.
 
 We
        currently anticipate that our cash, cash equivalents, interest receivable
        and
        investment securities as of June 30, 2008, exclusive of our holdings in auction
        rate securities, are sufficient to meet our anticipated working capital needs
        and fund our business plan for approximately the next 12 months. We will
        continue to attempt to sell our auction rate securities until the auctions
        are
        successful; however, there is no assurance as to when, or if, the market
        for
        auction rate securities will stabilize. The fair value of our auction rate
        securities could change significantly based on market conditions and continued
        uncertainties in the credit markets. If these uncertainties continue or if
        these
        securities experience credit rating downgrades, we may incur additional
        impairment charges with respect to our auction rate securities portfolio,
        which
        could negatively affect our financial condition, cash flow and reported
        earnings, and the lack of liquidity of our auction rate securities could
        have a
        material impact on our ability to fund our operations.
 
 On
        December 30, 2005, we filed a shelf registration statement on Form S-3 with
        the
        SEC that was declared effective by the SEC on January 13, 2006. The registration
        statement provides for the offering of up to $150 million of our common stock.
        Subsequent to the registered direct offering that was completed in March
        2006,
        there remains approximately $67 million of our common stock available for
        sale
        on this shelf registration statement. We may offer these securities from
        time to
        time in response to market conditions or other circumstances if we believe
        such
        a plan of financing is in the best interest of Keryx and our stockholders.
        We
        believe that the availability to conduct such offerings enhances our ability
        to
        raise additional capital to finance our operations. However, there are no
        assurances that we will be able to sell securities on acceptable terms, or
        at
        all, even though an effective shelf registration statement remains available.
        Securities sold via the shelf registration statement may dilute our existing
        stockholders’ interests.
 
 **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.
  23





**OBLIGATIONS
      AND COMMITMENTS**





As
      of
      June 30, 2008, we have known contractual obligations, commitments and
      contingencies of $2,676,000. Of this amount, $1,290,000 relates to research
      and
      development agreements (relating to our KRX-0401 and Zerenex clinical programs),
      all of which is due within the next year. Certain of these commitments are
      contingent upon our continuing development of our drug candidates. The
      additional $1,386,000 relates to our operating lease obligations, of which
      $629,000 is due within the next year, with the remaining balance due as per
      the
      schedule below.





**Payment due by period****Contractual obligations**
            
            **Total**
            
            **Less than**
              **1 year**
            
            **1-3**
              **years**
            
            **3-5**
              **years**
            
            **More than**
              **5 years**Research
                and development agreements
            
            $
            1,290,000
            
            $
            1,290,000
            
            $
            —
            
            $
            —
            
            $
            —Operating
                leases
            
            
            1,386,000
            
            
            629,000
            
            
            757,000
            
            
            —
            
            
            —Total
            
            $
            2,676,000
            
            $
            1,919,000
            
            $
            757,000
            
            $
            —
            
            $
            —





We
      have
      undertaken to make contingent milestone payments to certain of our licensors
      of
      up to approximately $73.0 million over the life of the licenses, of which
      approximately $60.5 million will be due upon or following regulatory approval
      of
      the licensed drugs. In certain cases, such payments will reduce any royalties
      due on sales of related products. In the event that the milestones are not
      achieved, we remain obligated to pay one licensor $75,000 annually until the
      license expires. We have also committed to pay to the former stockholders of
      ACCESS Oncology certain contingent equity rights (up to 3,372,422 shares of
      our
      common stock) if its drug candidates meet certain development milestones. A
      substantial portion of the contingent shares would be payable to related
      parties. The contingent equity rights have been recognized as a non-current
      liability on the consolidated balance sheet. We have also entered into a royalty
      arrangement under which our wholly-owned subsidiary may be required to pay
      up to
      a maximum of $16.1 million to AusAm on revenue from a next generation product
      following FDA marketing approval, as part of our acquisition of Accumin. The
      uncertainty relating to the timing of the commitments described in this
      paragraph prevents us from including them in the table above.





**CRITICAL
      ACCOUNTING POLICIES**





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





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





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


24


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





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





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





We
      recognize diagnostic revenue when persuasive evidence of an arrangement exists,
      the product has been shipped, title and risk of loss have passed to the customer
      and collection from the customer is reasonably assured.





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





25




*Accounting
        Related to the Valuation of Intangible Assets.* In
        accounting for acquisitions, we allocate the purchase price to the fair value
        of
        the acquired tangible and intangible assets. This allocation requires us
        to make
        several significant judgments and estimates. For example, we estimated the
        value
        of the acquired intangible assets of Accumin utilizing the income approach,
        which requires us to make assumptions and estimates about, among other
        things: **
 
 ·
              revenue
                  that is likely to result from the asset, including estimated selling
                  price, estimated market share and year-over-year growth
                  rates;
 
 ·
              operating
                  margin; and


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





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





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





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





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





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





*Impairment
      of Investment Securities.* As of
      June 30, 2008, $10.1 million of our long-term investment securities were auction
      rate securities, which represent interests in student loan-backed securities.
      The uncertainties in the credit markets have affected all of our holdings in
      auction rate securities. Since February 2008, the auctions for our auction
      rate
      securities have not had sufficient buyers to cover investors’ sell orders,
      resulting in unsuccessful auctions. When an auction is unsuccessful, the
      interest rate is re-set to a level pre-determined by the loan documents and
      remains in effect until the next auction date, at which time the process
      repeats. While these investments are currently rated AA or higher, we are
      uncertain as to when, or if, the liquidity issues relating to these investments
      will improve. Given the complexity of auction rate securities and the lack
      of
      readily observable market quotes related to these investments, we obtained
      the
      assistance of an independent valuation firm, Pluris Valuation Advisors LLC,
      to
      assist us in assessing the fair value of our auction rate securities portfolio.
      As a result of this valuation process, we recorded impairment charges of $1.8
      million and $0.1 million, in the three months ended March 31, 2008, and June
      30,
      2008, respectively, for other-than-temporary declines in the value of our
      auction rate securities to an estimated fair value of $10.1 million at June
      30,
      2008. These other-than-temporary impairment charges were included in interest
      and other income (expense), net. In addition, in the first quarter of 2008,
      we
      reclassified the entire auction rate securities portfolio from short-term to
      long-term investments due to the uncertainty of when we will be able to sell
      these securities.


26


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





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





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





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





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





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


27


As
      of
      June 30, 2008, $10.1 million of our long-term investment securities were auction
      rate securities, which represent interests in student loan-backed securities.
      The uncertainties in the credit markets have affected all of our holdings in
      auction rate securities. Since February 2008, the auctions for our auction
      rate
      securities have not had sufficient buyers to cover investors’ sell orders,
      resulting in unsuccessful auctions. When an auction is unsuccessful, the
      interest rate is re-set to a level pre-determined by the loan documents and
      remains in effect until the next auction date, at which time the process
      repeats. While these investments are currently rated AA or higher, we are
      uncertain as to when, or if, the liquidity issues relating to these investments
      will improve. We will continue to attempt to sell our auction rate securities
      until the auctions are successful. If uncertainties in the credit and capital
      markets continue, these markets deteriorate further or we experience any credit
      rating downgrades on the auction rate securities in our portfolio, we may incur
      additional impairment charges with respect to our auction rate securities
      portfolio, which could negatively affect our financial condition, cash flow
      and
      reported earnings. We will continue to monitor the fair value of our auction
      rate securities and relevant market conditions and will recognize additional
      impairment charges if future circumstances warrant such charges. Assuming a
      10%
      adverse change in the fair value of these securities overall, the fair value
      would decline approximately $1.0 million. However, each of our auction rate
      security investments have different features and are subject to different risks
      and therefore, any market decline would impact these securities to a different
      degree. In addition, the lack of liquidity of our auction rate securities could
      have a material impact on our ability to fund our operations.





**ITEM
      4. CONTROLS AND PROCEDURES**





**Evaluation
      of Disclosure Controls and Procedures**





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





**Internal
      Control Over Financial Reporting**





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








**PART
      II. OTHER INFORMATION**





**ITEM
      1. LEGAL PROCEEDINGS**





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





In
      July
      2003, Keryx (Israel) Ltd., one of our Israeli subsidiaries, vacated its
      Jerusalem facility, after giving advance notice to RMPA Properties Ltd., the
      landlord. On May 1, 2005, the landlord filed suit in the Circuit Court of
      Jerusalem in Jerusalem, Israel, claiming that Keryx (Israel) Ltd., among other
      parties, was liable as a result of the alleged breach of the lease agreement.
      In
      addition to Keryx (Israel) Ltd., the landlord brought suit against Keryx
      Biomedical Technologies Ltd., another of our Israeli subsidiaries, Keryx
      Biopharmaceuticals, Inc., Michael S. Weiss, our Chairman and Chief Executive
      Officer, and Robert Trachtenberg, a former employee of Keryx. The amount
      demanded by the landlord totals 4,345,313 New Israeli Shekels, or approximately
      $1,316,000, and includes rent for the entire remaining term of the lease, as
      well as property taxes and other costs allegedly incurred by the landlord.
      In
      August 2003, the landlord claimed a bank deposit, in the amount of $222,000,
      which was previously provided as security in connection with the lease
      agreement. We intend to vigorously defend the suit. In July 2005, Keryx (Israel)
      Ltd. and Keryx Biomedical Technologies Ltd. filed an answer to the landlord's
      complaint. In October 2005, Keryx Biopharmaceuticals, Inc. filed an answer
      to
      the landlord's complaint. Generally, each answer challenges the merits of the
      landlord's cause of action as to each defendant. All defendants, except Keryx
      (Israel) Ltd., have filed a motion to dismiss the complaint. The plaintiff
      has
      filed a response to each answer. At this time, the Circuit Court of Jerusalem
      has not issued a decision with respect to the motion to dismiss. A hearing
      on a
      motion by Keryx Biopharmaceuticals, Inc. and Michael S. Weiss to vacate service
      of process outside of Israel was held in June 2006. On October 15, 2006, the
      Court held that the service of the claim against Mr. Weiss is vacated.
      Consequently, the Circuit Court of Jerusalem dismissed the suit against Mr.
      Weiss. However, the service against us was sustained. We appealed this holding.
      The appeal was denied on June 18, 2007, and the Company filed a petition for
      certiorari to the Supreme Court of Israel. The Company’s motion for certiorari
      was denied as well. We filed our testimonial affidavit along with an expert
      opinion contesting the interest and the accumulated debt claimed by plaintiff.
      The trial is scheduled for November 2008. The Court will hear the motion to
      dismiss parallel to the trial. We have not yet recorded a charge to reflect
      any
      potential liability associated with this lawsuit, as it is too early to
      accurately estimate the amount of the charge, if any.


28


We
      prevailed in an arbitration proceeding with Alfa Wasserman concerning certain
      terms of the 1998 License Agreement between Alfa Wasserman and the Company
      related to the provision of data to Alfa Wasserman and consultation regarding
      management of the licensed patents. An arbitration hearing was held in October
      2007 and the arbitrator issued his decision on March 25, 2008, rejecting Alfa
      Wasserman’s claims that we were in material breach of the License Agreement.
      Under the terms of the License Agreement, we may be entitled to recoup a portion
      of our legal fees and expenses associated with the arbitration from Alfa
      Wasserman. Our claim for legal fees is presently before the arbitrator for
      determination.





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





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




29




**ITEM
        1A. RISK FACTORS**
 
 You
        should carefully consider the following risks and uncertainties. If any of
        the
        following occurs, our business, financial condition or operating results
        could
        be materially harmed. These factors could cause the trading price of our
        common
        stock to decline, and you could lose all or part of your investment.




**Risks
      Related to Our Business**





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





We
      have a
      limited operating history. You should consider our prospects in light of the
      risks and difficulties frequently encountered by early stage companies. In
      addition, we have incurred operating losses since our inception and expect
      to
      continue to incur operating losses for the foreseeable future and may never
      become profitable. As of June 30, 2008, we had an accumulated deficit of
      approximately $320.5 million. As we continue our research and development
      efforts, we will incur increasing losses. We may continue to incur substantial
      operating losses even if we begin to generate revenues from our drug
      candidates.





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





**Risks
      Associated with Our Product Development Efforts**





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





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





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





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





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


30


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





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





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





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





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





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





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





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


31


***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.





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





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




32




**Other
      Risks Related to Our Business**





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




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





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





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





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





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





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





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





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





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





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





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





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.


33


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





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





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





As
      of
      July 31, 2008, we had 21 full and part-time employees. To successfully develop
      our drug candidates, we must be able to attract and retain highly skilled
      personnel. In addition, if we lose the services of our current personnel, in
      particular, Michael S. Weiss, our Chairman and Chief Executive Officer, our
      ability to continue to execute on our business plan could be materially
      impaired. Although we have an employment agreement with Mr. Weiss, this
      agreement does not prevent him from terminating his employment with
      us.





***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.


34




***The
        status of reimbursement from third-party payors for newly approved health
        care
        drugs is uncertain and failure to obtain adequate reimbursement could limit
        our
        ability to generate revenue.***
 
 Our
        ability to commercialize pharmaceutical products may depend, in part, on
        the
        extent to which reimbursement for the products will be available
        from:


●
            government
                and health administration authorities;





●
            private
                health insurers;




●
            managed
                care programs; and




●
            other
                third-party payors.





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





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





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





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





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





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





●
            decreased
                demand for a product;





●
            injury
                to our reputation;





●
            our
                inability to continue to develop a drug candidate;





●
            withdrawal
                of clinical trial volunteers; and





●
            loss
                of revenues.





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




35




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




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





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





The
      development, manufacturing, pricing, sales, and reimbursement of our products,
      together with our general operations, are subject to extensive regulation by
      federal, state and other authorities within the United States and numerous
      entities outside of the United States. We are a relatively small company with
      21
      full and part-time employees as of July 31, 2008. We also have significantly
      fewer employees than many other companies that have a product candidate in
      clinical development, and we rely heavily on third parties to conduct many
      important functions. While we believe that our corporate compliance program
      is
      sufficient to ensure compliance with applicable regulations, we cannot assure
      you that we are or will be in compliance with all potentially applicable
      regulations. If we fail to comply with any of these regulations we could be
      subject to a range of regulatory actions, including suspension or termination
      of
      clinical trials, the failure to approve a product candidate, restrictions on
      our
      products or manufacturing processes, withdrawal of products from the market,
      significant fines, or other sanctions or litigation.





**Risks
      Related to Our Financial Condition**





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





We
      currently anticipate that our cash, cash equivalents, interest receivable,
      and
      investment securities as of June 30, 2008, exclusive of our holdings of auction
      rate securities, are sufficient to meet our anticipated working capital needs
      and fund our business plan for approximately the next 12 months. Our forecast
      of
      the period of time through which our cash, cash equivalents, interest
      receivable, and investment securities will be adequate to support our operations
      is a forward-looking statement that involves risks and uncertainties. The actual
      amount of funds we will need to operate is subject to many factors, some of
      which are beyond our control. These factors include the following:





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





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





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





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





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





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





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


36


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





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





In
      July
      2003, Keryx (Israel) Ltd., one of our Israeli subsidiaries, vacated its
      Jerusalem facility, after giving advance notice to RMPA Properties Ltd., the
      landlord. On May 1, 2005, the landlord filed suit in the Circuit Court of
      Jerusalem in Jerusalem, Israel, claiming that Keryx (Israel) Ltd., among other
      parties, was liable as a result of the alleged breach of the lease agreement.
      In
      addition to Keryx (Israel) Ltd., the landlord brought suit against Keryx
      Biomedical Technologies Ltd., another of our Israeli subsidiaries, Keryx
      Biopharmaceuticals, Inc., Michael S. Weiss, our Chairman and Chief Executive
      Officer, and Robert Trachtenberg, a former employee of Keryx. The amount
      demanded by the landlord totals 4,345,313 New Israeli Shekels, or approximately
      $1,316,000, and includes rent for the entire remaining term of the lease, as
      well as property taxes and other costs allegedly incurred by the landlord.
      In
      August 2003, the landlord claimed a bank deposit, in the amount of $222,000,
      which was previously provided as security in connection with the lease
      agreement. We intend to vigorously defend the suit. In July 2005, Keryx (Israel)
      Ltd. and Keryx Biomedical Technologies Ltd. filed an answer to the landlord's
      complaint. In October 2005, Keryx Biopharmaceuticals, Inc. filed an answer
      to
      the landlord's complaint. Generally, each answer challenges the merits of the
      landlord's cause of action as to each defendant. All defendants, except Keryx
      (Israel) Ltd., have filed a motion to dismiss the complaint. The plaintiff
      has
      filed a response to each answer. At this time, the Circuit Court of Jerusalem
      has not issued a decision with respect to the motion to dismiss. A hearing
      on a
      motion by Keryx Biopharmaceuticals, Inc. to vacate service of process outside
      of
      Israel was held in September 2006. On October 15, 2006, the Circuit Court of
      Jerusalem held that the service of process on Keryx was sustained. We appealed
      this holding. The appeal was denied on September 18, 2007, and we filed a
      petition for certiorari to the Supreme Court of Israel. Our motion for
      certiorari was denied as well. We filed our testimonial affidavit along with
      an
      expert opinion contesting the interest and the accumulated debt claimed by
      plaintiff. The trial is scheduled for November 2008. The Court will hear the
      motion to dismiss parallel to the trial. We have not yet recorded a charge
      to
      reflect any potential liability associated with this lawsuit, as it is too
      early
      to accurately estimate the amount of the charge, if any.





**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.


37


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





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





**Risks
      Related to Our Common Stock**





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





Sales
      of
      a substantial number of shares of our common stock, or the perception by the
      market that those sales could occur, could cause the market price of our common
      stock to decline or could make it more difficult for us to raise funds through
      the sale of equity in the future. On December 30, 2005, we filed with the SEC
      a
      shelf registration statement on Form S-3, that was declared effective by the
      SEC
      on January 13, 2006, providing for the offering of up to $150 million of our
      common stock. Following our registered direct offering of common stock to two
      institutional investors that was completed in March 2006, there remains
      approximately $67 million available for sale on this shelf registration
      statement. Future sales pursuant to this registration statement could depress
      the market for our common stock.





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





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





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





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





●
            developments
                concerning our drug candidates;





●
            announcements
                of technological innovations by us or our competitors;





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





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





●
            changes
                in financial estimates by securities analysts;





●
            actual
                or anticipated variations in quarterly operating results;





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




●
              conditions
                  or trends in the regulatory climate and the biotechnology and
                  pharmaceutical industries;
 
 ●
              changes
                  in the market valuations of similar companies; and
 
 ●
              additions
                  or departures of key personnel.


38




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.





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





On
      April
      22, 2008, we received notice from the NASDAQ Stock Market that we were not
      in
      compliance with the $1.00 minimum bid price requirement for continued inclusion
      on the applicable NASDAQ market. This notification is a standard communication
      when the bid price of a NASDAQ-listed company closes below the minimum $1.00
      per
      share requirement for 30 consecutive business days. In accordance with NASDAQ
      rules, we will be provided 180 calendar days (until October 20, 2008) to regain
      compliance by having the bid price of our common stock close at $1.00 per share
      or more for a minimum of 10 consecutive business days.





We
      cannot
      provide assurance that in the future we will continue to meet the listing
      requirements of the NASDAQ Capital Market, including, without limitation, bid
      price, stockholders’ equity and/or market value of listed securities minimum
      requirements. Under the rules of the NASDAQ Capital Market, the Company has
      until October 20, 2008 to comply with the $1.00 minimum closing bid price
      requirement, and may have an additional 180-calendar day compliance period
      through April 17, 2009 to comply with the $1.00 minimum closing bid price
      requirement, provided the Company otherwise meets the initial listing
      requirements for the NASDAQ Capital Market on the 180 th day of
      the first 180-calendar day compliance period (October 20,
      2008).


39




**ITEM
        4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**
 
 On
        June
        17, 2008, we held our annual meeting of stockholders. The following matters
        were
        voted on by the stockholders: the election of directors, and the approval
        of an
        amendment to our certificate of incorporation to provide the Board of Directors
        with the authority to issue series of preferred stock. At the meeting, Kevin
        J.
        Cameron, Wyche Fowler, Jr., Malcolm Hoenlein, Jack Kaye, Eric Rose, Michael
        P.
        Tarnok and Michael S. Weiss were re-elected to our board of directors.


The
      vote
      with respect to each nominee is set forth below:





Nominee
            
            Total Votes For
            
            Total Votes WithheldKevin J.
                Cameron
            
            
            27,657,806
            
            
            2,040,434Wyche
                Fowler, Jr.
            
            
            27,610,045
            
            
            2,088,195Malcolm
                Hoenlein
            
            
            27,613,104
            
            
            2,085,136Jack
                Kaye, CPA
            
            
            27,524,902
            
            
            2,173,338Eric
                Rose, M.D.
            
            
            27,618,865
            
            
            2,079,375Michael
                P. Tarnok
            
            
            27,657,690
            
            
            2,040,550Michael
                S. Weiss
            
            
            26,017,050
            
            
            3,681,190





The
      vote
      with respect to the approval of an amendment to our certificate of incorporation
      to authorize the Board of Directors to issue preferred stock is set forth
      below.





Total
                Votes For
            
            Total
                Votes Against
            
            Abstention
                and Broker Non-Votes1,541,526
            
            
            5,233,440
            
            
            22,923,270





**ITEM
      6. EXHIBITS** ****





**The
                exhibits listed on the Exhibit Index are included with this
                report.**3.1
            
            Amended
                and Restated Certificate of Incorporation of Keryx Biopharmaceuticals,
                Inc., filed as Exhibit 3.1 to the Registrant's Annual Report on Form
                10-Q
                for the quarter ended September 30, 2004, filed on August 12, 2004,
                and
                incorporated herein by reference.3.2
            
            Amended
                and Restated Bylaws of Keryx Biopharmaceuticals, Inc., filed as Exhibit
                3.2 to the Registrant’s Annual Report on Form 10-K for the year ended
                December 31, 2001, filed on March 26, 2002, and incorporated herein
                by
                reference.3.3
            
            Amendment
                to Amended and Restated Certificate of Incorporation of Keryx
                Biopharmaceuticals, Inc., dated July 24, 2007, filed as Exhibit 3.3
                to the
                Registrant's Quarterly Report on Form 10-Q for the quarter ended
                June 30,
                2007, filed on August 9, 2007 and incorporated herein by
                reference.31.1
            
            Certification
                of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a),
                as
                adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,
                dated
                August 11, 2008.31.2
            
            Certification
                of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a),
                as
                adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,
                dated
                August 11, 2008.32.1
            
            Certification
                of Chief Executive Officer pursuant to 18 U.S.C. §1350, as adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, datedAugust
                11, 2008.32.2
            
            Certification
                of Chief Financial Officer pursuant to 18 U.S.C. §1350, as adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, datedAugust
                11, 2008.


40


**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:August
                11, 2008
            By:
            /s/
                James F. OlivieroVice
                President, FinancePrincipal Financial and Accounting Officer


41





**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
                August 11, 2008.31.2
            
            Certification
                of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a),
                as
                adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,
                dated
                August 11, 2008.32.1
            
            Certification
                of Chief Executive Officer pursuant to 18 U.S.C. §1350, as adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, datedAugust
                11, 2008.32.2
            
            Certification
                of Chief Financial Officer pursuant to 18 U.S.C. §1350, as adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, datedAugust
                11, 2008.




42