**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, 2005****OR****o TRANSITION
                  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE****SECURITIES
                  EXCHANGE ACT OF 1934****For
                  the transition period from ____________****to
                  ____________****.**
 
 **Commission
        File Number 000-30929**
 **___________________**
 **KERYX
        BIOPHARMACEUTICALS, INC.**
 **(Exact
        name of registrant as specified in its charter)**
 
 **Delaware**
                (State
                  or other jurisdiction of incorporation or organization)
              **13-4087132**
                (I.R.S.
                  Employer Identification No.)
 **750
        Lexington Avenue**
 **New
        York, New York 10022**
 (Address
        including zip code of principal executive offices)
 
 **(212)
        531-5965**
 (Registrant's
        telephone number, including area code)
 
 
 Indicate
        by check mark whether the registrant: (1) has filed all reports required
        to be
        filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
        the
        preceding 12 months (or for such shorter period that the registrant was required
        to file such reports), and (2) has been subject to such filing requirements
        for
        the past 90 days. Yes x No £
 
 Indicate
        by check mark whether the registrant is an accelerated filer (as defined
        in Rule
        12b-2 of the Act). Yes x No £
 
 There
        were 37,453,993 shares of the registrant’s common stock, $0.001 par value,
        outstanding as of July 28, 2005.
  
 
 **KERYX
        BIOPHARMACEUTICALS, INC.**
 **FORM
        10-Q**
 **FOR
        THE QUARTER ENDED JUNE 30, 2005**
 
 **TABLE
        OF CONTENTS**
  **Page**SPECIAL
                  CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
              1**PART
                  I**
              **FINANCIAL
                  INFORMATION**Item
                  1
              Financial
                  Statements
              2Consolidated
                  Balance Sheets as of June 30, 2005 (unaudited) and
                December
                  31, 2004 (audited)
              2Interim
                  Consolidated Statements of Operations for the three and six months
                ended
                  June 30, 2005 and 2004 (unaudited)
              3Interim
                  Consolidated Statements of Cash Flows for the six months
                ended
                  June 30, 2005 and 2004 (unaudited)
              4Notes
                  to Interim Consolidated Financial Statements as of June 30, 2005
                  (unaudited)
              6Item
                  2
              Management's
                  Discussion and Analysis of Financial Condition and
                Results
                  of Operations
              10Item
                  3
              Quantitative
                  and Qualitative Disclosures About Market Risk
              28Item
                  4
              Controls
                  and Procedures
              29**PART
                  II**
              **OTHER
                  INFORMATION**Item
                  1
              Legal
                  Proceedings
              29Item
                  4
              Submission
                  of Matters to a Vote of Security Holders
              29Item
                  6
              Exhibits
              30
  
 
 **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 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, and approval of KRX-101, KRX-0401,
                  and
                  our additional product candidates or any other products we may
                  acquire or
                  in-license;
  ·
              expectations
                  for incurring additional capital expenditures to expand our research
                  and
                  development capabilities;
  ·
              expectations
                  for generating revenue or becoming profitable on a sustained basis;
  ·
              expectations
                  or ability to enter into marketing and other partnership agreements;
  ·
              expectations
                  or ability to enter into product acquisition and in-licensing
                  transactions;
  ·
              expectations
                  or ability to build our own commercial infrastructure to manufacture,
                  market and sell our drug
                  candidates;
  ·
              estimates
                  of the sufficiency of our existing cash and cash equivalents and
                  investments to finance our business strategy;
  ·
              expected
                  losses; and
  ·
              expectations
                  for future capital requirements.
  The
        forward-looking statements contained in this report reflect our views and
        assumptions only as of the date this report is signed. Except as required
        by
        law, we assume no responsibility for updating any forward-looking statements.
 
 We
        qualify all of our forward-looking statements by these cautionary statements.
        In
        addition, with respect to all of our forward-looking statements, we claim
        the
        protection of the safe harbor for forward-looking statements contained in
        the
        Private Securities Litigation Reform Act of 1995.
  1
  **PART
        I. FINANCIAL INFORMATION**
 
 **ITEM
        1. FINANCIAL STATEMENTS**
 
 **Keryx
        Biopharmaceuticals, Inc. (A Development Stage Company)**
 Consolidated
        Balance Sheets as of June 30, 2005, and December 31, 2004
 (in
        thousands, except share and per share amounts)
 **June
                  30, 2005**
              
              **December
                  31, 2004****(Unaudited)**
              
              **(Audited)****Assets**Current
                  assetsCash
                  and cash equivalents
              
              $
              17,483
              
              $
              29,699Short-term
                  investment securities
              
              
              15,635
              
              
              20,035Accrued
                  interest receivable
              
              
              147
              
              
              144Other
                  receivables and prepaid expenses
              
              
              621
              
              
              622Total
                  current assets
              
              
              33,886
              
              
              50,500Long-term
                  investment securities
              
              
              7,116
              
              
              --Property,
                  plant and equipment, net
              
              
              434
              
              
              145Other
                  assets (primarily intangible assets), net
              
              
              177
              
              
              217Total
                  assets
              
              $
              41,613
              
              $
              50,862**Liabilities
                  and stockholders’ equity**Current
                  liabilitiesAccounts
                  payable and accrued expenses
              
              $
              4,273
              
              $
              3,079Accrued
                  compensation and related liabilities
              
              
              34
              
              
              743Deferred
                  revenue
              
              
              142
              
              
              140Total
                  current liabilities
              
              
              4,449
              
              
              3,962Contingent
                  equity rights
              
              
              4,004
              
              
              4,004Other
                  liabilities
              
              
              139
              
              
              92Total
                  liabilities
              
              
              8,592
              
              
              8,058Stockholders’
                  equityCommon
                  stock, $0.001 par value per share (60,000,000 and 60,000,000 shares
                  authorized, 31,606,975 and 31,373,280 shares issued, 31,550,875
                  and
                  31,317,180 shares outstanding at June 30, 2005, and December 31,
                  2004,
                  respectively)
              
              
              32
              
              
              31Additional
                  paid-in capital
              
              
              133,831
              
              
              132,643Treasury
                  stock, at cost, 56,100 shares at June 30, 2005 and December 31,
                  2004,
                  respectively
              
              
              (89
              )
              
              (89
              )Unearned
                  compensation
              
              
              (2,416
              )
              
              (2,228
              )Deficit
                  accumulated during the development stage
              
              
              (98,337
              )
              
              (87,553
              )Total
                  stockholders’ equity
              
              
              33,021
              
              
              42,804Total
                  liabilities and stockholders’ equity
              
              $
              41,613
              
              $
              50,862
 
  *The
        accompanying notes are an integral part of the consolidated financial
        statements.*
 
  2
  **Keryx
        Biopharmaceuticals, Inc. (A Development Stage Company)**
 Interim
        Unaudited Consolidated Statements of Operations for the
 Three
        and
        Six Months Ended June 30, 2005 and 2004
 (in
        thousands, except share and per share amounts)
 **Three
                  months ended****June
                  30,**
              
              **Six
                  months ended****June
                  30,**
              
              **Amounts
                  accumulatedduring the development****2005**
              
              **2004**
              
              **2005**
              
              **2004**
              
              **stage**Revenue:Service
                  revenue
              
              $
              126
              
              $
              150
              
              $
              283
              
              $
              245
              
              $
              1,092Management
                  fees from related party
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              300Total
                  revenue
              
              
              126
              
              
              150
              
              
              283
              
              
              245
              
              
              1,392Operating
                  expenses:Cost
                  of services
              
              
              161
              
              
              123
              
              
              342
              
              
              203
              
              
              1,177Research
                  and development:Non-cash
                  compensation
              
              
              137
              
              
              23
              
              
              313
              
              
              225
              
              
              7,453Non-cash
                  acquired in-process research and development
              
              
              --
              
              
              --
              
              
              --
              
              
              18,800
              
              
              18,800Other
                  research and development
              
              
              5,180
              
              
              2,067
              
              
              9,222
              
              
              3,719
              
              
              48,934Total
                  research and development expenses
              
              
              5,317
              
              
              2,090
              
              
              9,535
              
              
              22,744
              
              
              75,187General
                  and administrative:Non-cash
                  compensation
              
              
              168
              
              
              621
              
              
              353
              
              
              806
              
              
              5,019Other
                  general and administrative
              
              
              699
              
              
              745
              
              
              1,344
              
              
              1,838
              
              
              23,014Total
                  general and administrative expenses
              
              
              867
              
              
              1,366
              
              
              1,697
              
              
              2,644
              
              
              28,033Total
                  operating expenses
              
              
              6,345
              
              
              3,579
              
              
              11,574
              
              
              25,591
              
              
              104,397Operating
                  loss
              
              
              (6,219
              )
              
              (3,429
              )
              
              (11,291
              )
              
              (25,346
              )
              
              (103,005
              )Interest
                  and other income, net
              
              
              267
              
              
              170
              
              
              507
              
              
              265
              
              
              5,159Net
                  loss before income taxes
              
              
              (5,952
              )
              
              (3,259
              )
              
              (10,784
              )
              
              (25,081
              )
              
              (97,846
              )Income
                  taxes
              
              
              --
              
              
              --
              
              
              --
              
              
              1
              
              
              491Net
                  loss
              
              $
              (5,952
              )
              $
              (3,259
              )
              $
              (10,784
              )
              $
              (25,082
              )
              $
              (98,337
              )Basic
                  and diluted loss per common share
              
              $
              (0.19
              )
              $
              (0.11
              )
              $
              (0.34
              )
              $
              (0.86
              )
              $
              (5.81
              )Weighted
                  average shares used in computing basic and diluted netloss
                  per common share
              
              
              31,528,862
              
              
              30,466,902
              
              
              31,503,469
              
              
              29,147,498
              
              
              16,919,159
 
 
 *The
        accompanying notes are an integral part of the consolidated financial
        statements.*
  3
  **Keryx
        Biopharmaceuticals, Inc. (A Development Stage Company)**
 Interim
        Unaudited Consolidated Statements of Cash Flows for the Six Months Ended
        June
        30, 2005 and 2004
 (in
        thousands)
 **Six
                  months ended**
                **June
                  30,**
              
              **Amounts**
                **accumulated**
                **during
                  the**
                **development****2005**
              
              **2004**
              
              **stage**CASH
                  FLOWS FROM OPERATING ACTIVITIESNet
                  loss
              
              $
              (10,784
              )
              $
              (25,082
              )
              $
              (98,337
              )Adjustments
                  to reconcile cash flows used in operating activities:Acquired
                  in-process research and development
              
              
              --
              
              
              18,800
              
              
              18,800Stock
                  compensation expense
              
              
              666
              
              
              1,031
              
              
              12,472Issuance
                  of common stock to technology licensor
              
              
              --
              
              
              --
              
              
              359Interest
                  on convertible notes settled through issuance of preferred
                  shares
              
              
              --
              
              
              --
              
              
              253Depreciation
                  and amortization
              
              
              86
              
              
              76
              
              
              2,507Loss
                  on disposal of property, plant and equipment
              
              
              --
              
              
              --
              
              
              170Impairment
                  charges
              
              
              --
              
              
              --
              
              
              2,482Exchange
                  rate differences
              
              
              --
              
              
              (--)*
              
              
              94Changes
                  in assets and liabilities, net of effects of acquisitions:Decrease
                  (increase) in other receivables and prepaid expenses
              
              
              --
              
              
              92
              
              
              (251
              )(Increase)
                  in accrued interest receivable
              
              
              (3
              )
              
              (6
              )
              
              (147
              )Increase
                  (decrease) in accounts payable and accrued expenses
              
              
              1,194
              
              
              (175
              )
              
              2,960(Decrease)
                  in accrued compensation and related liabilities
              
              
              (709
              )
              
              (646
              )
              
              (538
              )Increase
                  (decrease) in other liabilities
              
              
              47
              
              
              (29
              )
              
              (16
              )Increase
                  (decrease) in deferred revenue
              
              
              2
              
              
              21
              
              
              (314
              )Net
                  cash used in operating activities
              
              
              (9,501
              )
              
              (5,918
              )
              
              (59,506
              )CASH
                  FLOWS FROM INVESTING ACTIVITIESPurchases
                  of property, plant and equipment
              
              
              (330
              )
              
              (7
              )
              
              (4,757
              )Proceeds
                  from disposals of property, plant and equipment
              
              
              --
              
              
              --
              
              
              424(Increase)
                  in note and accrued interest receivable from related party
              
              
              --
              
              
              (4
              )
              
              (356
              )Investment
                  in other assets
              
              
              (4
              )
              
              --
              
              
              (1,200
              )Proceeds
                  from sale and maturity of (investment in) held-to-maturity short-term
                  securities
              
              
              4,425
              
              
              (784
              )
              
              (10,585
              )Investment
                  in available-for-sale short-term securities
              
              
              (25
              )
              
              --
              
              
              (6,050
              )Proceeds
                  from sale of available-for-sale short-term securities
              
              
              --
              
              
              --
              
              
              1,000(Investment
                  in) held-to-maturity long-term securities
              
              
              (7,116
              )
              
              (5,044
              )
              
              (7,116
              )Net
                  cash used in investing activities
              
              
              (3,050
              )
              
              (5,839
              )
              
              (28,640
              )
 
 *
        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)**
 Interim
        Unaudited Consolidated Statements of Cash Flows for the Six Months Ended
        June
        30, 2005 and 2004
 (continued)
 (in
        thousands)
 **Six
                  months ended****June
                  30,**
              
              **Amounts**
                **accumulated**
                **during
                  the**
                **development****2005**
              
              **2004**
              
              **stage**CASH
                  FLOWS FROM FINANCING ACTIVITIESProceeds
                  from short-term loans
              
              $
              --
              
              $
              --
              
              $
              500Proceeds
                  from long-term loans
              
              
              --
              
              
              --
              
              
              3,251Payment
                  of assumed notes payable and accrued interest in connection with
                  the
                  ACCESS Oncology acquisition
              
              
              --
              
              
              (6,322
              )
              
              (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 private placements, net
              
              
              --
              
              
              31,707
              
              
              45,795Proceeds
                  from exercise of options and warrants
              
              
              335
              
              
              3,052
              
              
              5,586Purchase
                  of treasury stock
              
              
              --
              
              
              --
              
              
              (89
              )Net
                  cash provided by financing activities
              
              
              335
              
              
              28,437
              
              
              105,629Cash
                  acquired in acquisition
              
              
              --
              
              
              94
              
              
              94Effect
                  of exchange rate on cash
              
              
              --
              
              
              --*
              
              
              (94
              )NET
                  INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
              
              
              (12,216
              )
              
              16,774
              
              
              17,483Cash
                  and cash equivalents at beginning of year
              
              
              29,699
              
              
              21,672
              
              
              --CASH
                  AND CASH EQUIVALENTS AT END OF PERIOD
              
              $
              17,483
              
              $
              38,446
              
              $
              17,483NON
                  - CASH TRANSACTIONSIssuance
                  of common stock in connection with acquisition
              
              $
              --
              
              $
              6,325
              
              $
              6,325Issuance
                  of contingent equity rights in connection with acquisition
              
              
              --
              
              $
              4,003
              
              
              4,004Assumption
                  of liabilities in connection with acquisition
              
              
              --
              
              $
              8,724
              
              
              8,723Conversion
                  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
              
              $
              --
              
              $
              1,026
              
              $
              1,166Cash
                  paid for income taxes
              
              $
              --
              
              $
              1
              
              $
              432
 
 *
        Amount
        less than one thousand dollars.
 
 *The
        accompanying notes are an integral part of the consolidated financial
        statements.*
  5
  **Keryx
        Biopharmaceuticals, Inc. (A Development Stage Company)**
 Notes
        to
        Interim Consolidated Financial Statements as of June 30, 2005
        (unaudited)
 **NOTE
        1 - GENERAL**
 
 BASIS
        OF
        PRESENTATION
 
 Keryx
        Biopharmaceuticals, Inc. (“Keryx” or the “Company”) is a biopharmaceutical
        company focused on the acquisition, development and commercialization of
        novel
        pharmaceutical products for the treatment of life-threatening diseases,
        including diabetes and cancer. The Company was incorporated in Delaware in
        October 1998 (under the name Paramount Pharmaceuticals, Inc., which was later
        changed to Lakaro Biopharmaceuticals, Inc. in November 1999, and finally
        to
        Keryx Biopharmaceuticals, Inc. in January 2000). The Company commenced
        activities in November 1999, and since then has operated in one segment of
        operations, namely 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. and Neryx
        Biopharmaceuticals, Inc., both U.S. corporations incorporated in the State
        of
        Delaware, Keryx (Israel) Ltd., organized in Israel, Keryx Biomedical
        Technologies Ltd., organized in Israel, and K.B.I. Biopharmaceuticals Ltd.,
        organized in Israel. In 2003, the Company’s three subsidiaries in Israel ceased
        operations and are currently in the process of being closed down. Substantially
        all of the Company’s biopharmaceutical development and administrative activities
        during the three and six months ended June 30, 2005, and 2004, respectively,
        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. See Note 4 - ACCESS Oncology Acquisition for additional information.
        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 effective February 5, 2004 *.*
 
 The
        accompanying unaudited interim 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 interim
        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, 2004. The results of operations for the three
        and six months ended June 30, 2005, are not necessarily indicative of the
        results that may be expected for the entire fiscal year or any other interim
        period.
 
 The
        Company has not generated any revenues from its planned principal operations
        and
        is dependent upon significant financing to provide the working capital necessary
        to execute its business plan. **** If
        the
        Company determines that it is necessary to seek additional funding, there
        can be
        no assurance that the Company will be able to obtain any such funding on
        terms
        that are acceptable to it, if at all.
 
 6
 STOCK
        -
        BASED COMPENSATION
 
 The
        Company applies the intrinsic value-based method of accounting prescribed
        by the
        Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to
        Employees” (“APB 25”), and related interpretations, including FASB
        Interpretation 44, “Accounting for Certain Transactions involving Stock
        Compensation, an Interpretation of APB Opinion No. 25,” to account for its
        fixed-plan stock options for employees and directors. Under this method,
        compensation expense is recorded on the date of grant only if the current
        market
        price of the underlying stock exceeded the exercise price. Statement of
        Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based
        Compensation” (“SFAS No. 123”) is applied to stock options and warrants granted
        to persons other than employees and directors.
 
 The
        following is a pro forma unaudited presentation of reported net loss and
        net
        loss per share, calculated to show adjusted values had the compensation expenses
        for stock options granted under the Company’s stock option plans been determined
        based on fair value at the grant dates consistent with the method of SFAS
        No.
        123:
 
 **Three
                  months ended****June
                  30,**
              
              **Six
                  months ended****June
                  30,**
              
              **Amounts
                  accumulated during the development**(in
                  thousands, except per share amounts)
              
              **2005**
              
              **2004**
              
              **2005**
              
              **2004**
              
              **stage**Net
                  loss, as reported
              
              $
              (5,952
              )
              $
              (3,259
              )
              $
              (10,784
              )
              $
              (25,082
              )
              $
              (98,337
              )Add:
                  Stock-based compensation expense to employees and directors determined
                  under the intrinsic value-based method, as included in reported
                  net
                  loss
              
              
              112
              
              
              445
              
              
              223
              
              
              445
              
              
              9,957Deduct:
                  Stock-based compensation expense to employees and directors determined
                  under fair value based method
              
              
              (1,049
              )
              
              (823
              )
              
              (1,922
              )
              
              (2,956
              )
              
              (18,341
              )Pro
                  forma net loss
              
              $
              (6,889
              )
              $
              (3,637
              )
              $
              (12,483
              )
              $
              (27,593
              )
              $
              (106,721
              )Basic
                  and diluted loss per common share:As
                  reported
              
              $
              (0.19
              )
              $
              (0.11
              )
              $
              (0.34
              )
              $
              (0.86
              )
              $
              (5.81
              )Pro
                  forma
              
              $
              (0.22
              )
              $
              (0.12
              )
              $
              (0.40
              )
              $
              (0.95
              )
              $
              (6.31
              )
 
 The
        value
        of these options has been estimated using the Black-Scholes model. The weighted
        average fair market value of options granted during the three and six months
        ended June 30, 2005, as of the date of the grant, was $7.85 and $7.75,
        respectively. The assumptions used in the calculation of the fair value of
        options granted during the three and six months ended June 30, 2005, were
        a
        weighted average expected term of 4.3 years and 4.9 years, respectively,
        a
        weighted average expected volatility rate of 83.43% and 85.00%, respectively,
        and a weighted average risk-free interest rate of 3.77% and 3.71%,
        respectively.
 
  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 exercisable as of June 30, 2005, and 2004, which are not included
        in
        the computation of net loss per share amounts, were 4,692,742 and 4,788,851,
        respectively.
 
 7
 **NOTE
        2 - RECENTLY ISSUED ACCOUNTING STANDARDS**
 
 In
        December 2004, the FASB issued SFAS No. 123R, “Share-Based Payment” (“SFAS
        123R”). SFAS 123R will replace SFAS 123, which was issued in 1995. SFAS 123R
        requires that the fair value of the grant of employee stock options be reported
        as an expense. Historically, the Company has disclosed the pro forma expense
        effect of stock options granted under the Company’s stock option plans in Note 1
        - General: Stock-Based Compensation of its financial statements. Under SFAS
        No.
        123R, the Company would have been required to implement the standard as of
        the
        beginning of the first interim or annual period that begins after June 15,
        2005.
        Calendar year-end companies, therefore, would have been permitted to follow
        the
        pre-existing accounting literature for the first and second quarters of 2005,
        but would be required to follow SFAS No. 123R for their third quarter reports.
 
 On
        April
        15, 2005, the Securities and Exchange Commission (the “SEC”) approved a new rule
        permitting companies to implement SFAS 123R at the beginning of their first
        annual period, rather than the first interim period, beginning after June
        15,
        2005. This means, for example, that the financial statements for a calendar
        year-end company do not need to comply with SFAS 123R until the interim
        financial statements for the first quarter of 2006 are filed with the SEC.
        The
        Company plans to adopt SFAS 123R in the first quarter of 2006. The estimated
        impact of adopting SFAS 123R will have a material impact on the Company’s
        consolidated financial statements.
 
 **NOTE
        3 - STOCKHOLDERS' EQUITY**
 
 During
        the six months ended June 30, 2005, the compensation committee of the Company’s
        board of directors granted options to purchase 907,500 shares of the Company’s
        common stock to the Company’s employees, directors and consultants. As a result
        of these grants, the Company recorded non-cash compensation expense of
        approximately $0 and $85,000 during the three and six months ended June 30,
        2005, respectively. The exercise price of the options granted during the
        six
        months ended June 30, 2005, was between $11.22 and $14.08 per share and equaled
        the market value on the date of grant. Options and warrants for the purchase
        of
        98,930 shares of the Company’s common stock were forfeited during the six months
        ended June 30, 2005. In addition, options and warrants for the purchase of
        233,695 shares of the Company’s common stock were exercised during the six
        months ended June 30, 2005.
 
 On
        July
        20, 2005, the Company completed a public offering of 5,780,000 shares of
        its
        common stock (including the exercise
        of a 750,000 over-allotment option granted to the underwriters) to investors
        at
        $14.05 per share. Total proceeds to the Company from this public offering
        were
        approximately $75.9 million, net of offering expenses of approximately $5.3
        million. The shares were sold under a shelf registration statement on Form
        S-3
        (File No. 333-119376) filed with the SEC on September 29, 2004, and declared
        effective by the SEC on October 13, 2004. As part
        of the transaction, on
        July
        11, 2005, the Company filed a registration statement on Form S-3 (File No. 333-126494 )
        with
        the SEC registering an additional 780,000 shares, which became effective
        upon
        filing.
 
 **NOTE
        4 - ACCESS ONCOLOGY ACQUISITION**
 
 On
        February 5, 2004, the Company acquired ACCESS Oncology, a related party,
        for a
        purchase price of approximately $19,502,000. The purchase price included
        the
        Company’s assumption of certain liabilities of ACCESS Oncology equal to
        approximately $8,723,000, the issuance of shares of the Company’s common stock
        valued at approximately $6,325,000, contingent equity rights valued at
        approximately $4,004,000 and transaction costs of approximately
        $450,000.
 
 At
        the
        effective time of the merger, each share of ACCESS Oncology common stock,
        including shares issuable upon the exercise of options exercised before March
        1,
        2004, and upon the exercise of outstanding warrants, was converted into the
        right to share in the contingent equity rights pro rata with the other holders
        of ACCESS Oncology common stock. Pursuant to the merger agreement, 623,145
        shares of the Company’s common stock valued at approximately $6,325,000 have
        been issued to the preferred stockholders of ACCESS Oncology. An additional
        4,433 shares of the Company’s common stock are issuable to those preferred
        stockholders of ACCESS Oncology who have yet to provide the necessary
        documentation to receive shares of the Company’s common stock.
 
 The
        contingent equity rights will be paid upon the achievement of the following
        milestones:
  8
  ·
              500,000
                  shares of the Company’s common stock upon enrollment of the first patient
                  in a Keryx-sponsored Phase III (or other pivotal) clinical trial
                  for any
                  of the acquired ACCESS Oncology drug
                  candidates;
  ·
              750,000
                  shares of the Company’s common stock upon the first new drug application
                  acceptance by the Food and Drug Administration, or FDA, for any
                  of the
                  acquired ACCESS Oncology drug candidates;
  ·
              1,750,000
                  shares of the Company’s common stock upon the first FDA approval of any of
                  the acquired ACCESS Oncology drug candidates;
                  and
  ·
              372,422
                  shares of the Company’s common stock following the first 12-month period
                  that sales of all of the acquired ACCESS Oncology drug candidates
                  combined
                  exceeds $100 million.
 
 In
        no
        event will the Company issue more than 4,000,000 shares of its common stock
        pursuant to the merger agreement. These 4,000,000 shares include 627,578
        shares
        issued or issuable to date and any contingent shares as described above.
        Accordingly, the amount of the Company’s common stock deliverable to the former
        ACCESS Oncology stockholders as milestone consideration will be no more than
        3,372,422 shares. The Company’s stockholders approved the issuance of shares of
        its common stock payable as contingent milestone consideration at the 2004
        annual meeting of stockholders, which took place on June 10, 2004.
 
 The
        ACCESS Oncology acquisition has been accounted for as a purchase by the Company
        under U.S. generally accepted accounting principles. Under the purchase method
        of accounting, the assets and liabilities assumed from ACCESS Oncology are
        recorded at the date of acquisition at their respective fair values. The
        consolidated financial statements and reported results of operations of the
        Company issued after completion of the acquisition reflect these values but
        will
        not be restated retroactively to reflect the historical financial position
        or
        results of operations of ACCESS Oncology.
 
 As
        required by FASB Interpretation No. 4, "Applicability of FASB Statement No.
        2 to
        Business Combinations Accounted for by the Purchase Method" ("FIN 4"), the
        Company recorded a charge in the three months ended March 31, 2004, of
        $18,800,000 for the portion of the purchase price allocated to acquired
        in-process research and development.
 
 The
        following unaudited pro forma financial information presents the combined
        results of operations of the Company and ACCESS Oncology as if the acquisition
        had occurred as of the beginning of the periods presented. The unaudited
        pro
        forma financial information is not necessarily indicative of what the Company’s
        consolidated results of operations actually would have been had it completed
        the
        acquisition at the dates indicated. In addition, the unaudited pro forma
        financial information does not purport to project the future results of
        operations of the combined company.
 
 (in
                  thousands, except per share amounts)
              
              **Six
                  months ended**
                **June
                  30, 2004**Revenue
              
              $
              347Net
                  loss
              
              $
              (6,225
              )Basic
                  and diluted loss per common share
              
              $
              (0.21
              )
 
 The
        unaudited pro forma financial information above reflects the elimination
        of
        balances and transactions between the Company and ACCESS Oncology, which
        upon
        completion of the merger would be considered intercompany balances and
        transactions. The entries include the elimination of certain interest income
        and
        expense and the elimination of the reimbursement of salaries and related
        facility costs of two employees of ACCESS Oncology, both of which net to
        zero.
        In addition, the unaudited pro forma financial information above excludes
        the
        non-recurring, non-cash charge of $18,800,000 related to acquired in-process
        research and development in the six months ended June 30, 2004.
 
 9
 
 **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 respective 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,
        2004.
 
 **OVERVIEW**
 
 We
        are a
        biopharmaceutical company focused on the acquisition, development and
        commercialization of novel pharmaceutical products for the treatment of
        life-threatening diseases, including diabetes and cancer. Our lead compound
        under development is KRX-101 (sulodexide), a first-in-class, oral heparinoid
        compound for the treatment of diabetic nephropathy, a life-threatening kidney
        disease caused by diabetes. KRX-101 is in a pivotal Phase III and Phase IV
        clinical program under a Special Protocol Assessment, or SPA, with the Food
        & Drug Administration, or FDA. Additionally, we are developing
        clinical-stage oncology compounds, including KRX-0401, a novel, first-in-class,
        oral modulator of Akt, a pathway associated with tumor survival and growth,
        and
        other important signal transduction pathways. KRX-0401 is currently in Phase
        II
        clinical development for multiple tumor types. We also have an active
        in-licensing and acquisition program designed to identify and acquire additional
        drug candidates. To date, we have not received approval for the sale of any
        of
        our drug candidates in any market and, therefore, have not generated any
        revenues from our drug candidates.
 
 *KRX-101*
 
 Our
        lead
        compound under development is KRX-101, to which we own the exclusive rights
        to
        use KRX-101 for the treatment of diabetic nephropathy in North America, Japan
        and certain other markets. KRX-101 has undergone testing in this indication
        in
        multiple clinical trials conducted in Europe, including a randomized 223
        patient, double-blind, placebo-controlled Phase II study, known as the DiNAS
        study. In this study, Type I and Type II diabetic nephropathy patients were
        treated daily for four months with 50, 100 and 200 milligram gelcaps of KRX-101.
        These patients showed substantial dose-dependent reduction in proteinuria
        or
        pathological urinary albumin excretion rates. The DiNAS study was published
        in
        the June 2002 issue of the *Journal
        of the American Society of Nephrology.* In 2001,
        the Food and Drug Administration, or FDA, granted KRX-101 “Fast-Track”
        designation for the treatment of diabetic nephropathy.
 
 In
        the
        third quarter of 2003, we announced that the Collaborative Study Group, or
        the
        CSG, the world’s largest standing renal clinical trial group comprised of
        academic and tertiary nephrology care centers, would conduct the U.S.-based
        Phase II/III clinical program for KRX-101 for the treatment of diabetic
        nephropathy. The CSG has conducted multiple large-scale clinical trials
        resulting in over 40 publications in peer-reviewed journals. In addition,
        the
        CSG conducted the pivotal studies for two of the three drugs, including an
        angiotension converting enzyme, or ACE, inhibitor and an angiotension receptor
        blocker, or ARB, that are currently approved for the treatment of diabetic
        nephropathy.
 
 In
        the
        fourth quarter of 2003, we initiated the Phase II portion of our Phase II/III
        clinical program for KRX-101, and in the third quarter of 2004, we completed
        the
        target enrollment for the Phase II portion of the clinical program.
 
 In
        January 2005, we announced that the CSG recommended that we proceed to the
        Phase
        III portion of our Phase II/III clinical program of KRX-101. This recommendation
        was based on the completion, by an independent Data Safety Monitoring Committee,
        or DSMC, on January 4, 2005, of a safety evaluation of the first interim
        analysis from the approximately 150-patient, randomized, double-blind,
        placebo-controlled Phase II clinical trial of KRX-101, and an efficacy
        assessment of the same data set conducted by the CSG.
 
 10
 In
        March
        2005, we announced that we had finalized a SPA agreement with the FDA, for
        the
        Phase III and Phase IV clinical trials of KRX-101.
 
 In
        May
        2005, we announced positive interim results from the Phase II clinical study
        for
        KRX-101, presented at the National Kidney Foundation's Spring Clinical Meeting.
        The Phase II study, which is currently on-going, compares two oral doses
        of
        KRX-101, 200 and 400 milligrams, versus a placebo in patients with diabetic
        microalbuminuria who are receiving an ACE inhibitor or ARBs. In this study,
        patients are treated with KRX-101 or a placebo for six months and followed
        for
        an additional two months post-treatment. The primary endpoint for the study
        is
“therapeutic success” of the two dose levels combined versus a placebo at six
        months. Therapeutic success is a binary composite endpoint defined as:
        conversion from microalbuminuria to normoalbuminuria (with at least a 25%
        reduction in microalbuminuria) as measured by the albumin/creatinine ratio,
        or
        ACR; or at least a 50% reduction in the ACR level relative to
        baseline.
 
 In
        June
        2005, we announced the initiation of our pivotal Phase III and Phase IV clinical
        program for KRX-101. We are conducting both of these trials under our SPA
        with
        the FDA. This clinical plan consists of: a single Phase III trial in patients
        with microalbuminuria based on the surrogate marker of regression of
        microalbuminuria as the primary endpoint; supportive data from previously
        conducted clinical studies; and substantial recruitment into our Phase IV
        confirmatory study that will measure clinical outcomes in patients with overt
        nephropathy, or macroalbuminuria. The Phase III portion of the program is
        a
        randomized, double-blind, placebo-controlled study comparing a 200 milligram
        daily dose of KRX-101 versus a placebo in patients with persistent
        microalbuminuria. The Phase IV portion of the program is a randomized,
        double-blind, placebo-controlled study comparing a 200 milligram daily dose
        of
        KRX-101 versus a placebo in patients with persistent macroalbuminuria. The
        CSG
        is completing the Phase II trial and is conducting the pivotal Phase III
        and
        Phase IV clinical program of KRX-101 for the treatment of diabetic nephropathy.
 
 *KRX-0401*
 
 KRX-0401
        is a novel, first-in-class, oral modulator of Akt and other important pathways.
        This compound has demonstrated preliminary single agent anti-tumor activity
        and
        is currently in a Phase II clinical program where it is being studied both
        as a
        single agent and in combination with other anti-cancer treatments for multiple
        forms of cancer.
 
 Five
        Phase I studies of KRX-0401 have been completed, including two in the U.S.
        by
        the National Cancer Institute, or NCI, a department of the National Institutes
        of Health, or NIH, as part of a Cooperative Research and Development Agreement,
        or CRADA. These trials demonstrated that KRX-0401 can be safely given to
        humans
        with an acceptable toxicity profile and no observed myelosuppression, or
        bone
        marrow suppression. We believe that the Phase I data provides clinical evidence
        of the anti-cancer effects of KRX-0401.
 
 The
        NCI
        has completed a number of Phase II clinical trials studying KRX-0401 as a
        single
        agent, including studies in prostate, breast, head and neck and pancreatic
        cancers, as well as melanoma and sarcomas. In total, nine clinical trials
        have
        been conducted across the six tumor types mentioned. The NCI and its
        collaborators have presented data from four of their Phase II studies, including
        from Phase II studies involving prostate, sarcoma, head and neck and breast
        cancers. Findings from these studies led the investigators to conclude that
        the
        drug was safe and well-tolerated at the Phase II dose utilized. In the sarcoma
        study, the investigators reported a partial response (greater than 50% decrease
        in tumor mass) as well as several disease stabilizations. With the responses
        seen in the Phase I trials, there are now three sarcoma patients with durable
        partial responses. This has led us to consider exploring additional studies
        in
        sarcoma.
 
 During
        the second quarter of 2004, we announced the initiation of a Phase II program
        utilizing KRX-0401 as a single agent and in combination with a number of
        standard anti-cancer therapies in multiple tumor types. To date, we have
        initiated several trials under this program, including single agent studies
        in
        lung cancer and sarcoma, and combination studies in a number of standard
        chemotherapies (gemcitabine, paclitaxel and docetaxel), and with Herceptin®
        and
        endocrine therapy. We have also initiated an “all-comers” Phase II clinical
        trial evaluating KRX-0401 as a single-agent, administered either weekly or
        daily
        in a variety of tumor types.
 
 11
 In
        May
        2005, we announced that Phase II data presented at the annual meeting of
        the
        American Society of Clinical Oncology in Orlando, Florida demonstrated the
        tolerability and potential efficacy of KRX-0401 in the treatment of patients
        with biochemically recurrent hormone-sensitive prostate cancer, or HSPC,
        patients. The investigators concluded that KRX-0401 in HSPC patients is
        feasible, well-tolerated and has been shown to reduce prostate-specific antigen
        levels in some patients. Because of its inhibitory effects on the Akt and
        related pathways, we believe that further studies of KRX-0401 in combination
        with androgen ablation and chemotherapy are warranted.
 
 *Additional
        Product Candidates*
 
 Our
        cancer portfolio also includes KRX-0402, an inhibitor of DNA repair, which
        is
        also being studied by the NCI under a CRADA arrangement in multiple clinical
        trials.
 
 During
        2004 and in the first quarter of 2005, we in-licensed two pre-clinical compounds
        in accordance with our acquisition and in-licensing strategy, which have
        been
        designated as KRX-0404 and KRX-0501, respectively. These compounds are in
        the
        areas of oncology and neurology, respectively.
 
 *General
        Corporate*
 
 We
        were
        incorporated in Delaware in October 1998. We commenced operations in November
        1999, following our acquisition of substantially all of the assets and certain
        of the liabilities of Partec Ltd., our predecessor company that began operations
        in January 1997. Since commencing operations, our activities have been primarily
        devoted to developing our technologies and drug candidates, acquiring
        clinical-stage compounds, raising capital, purchasing assets for our facilities,
        and recruiting personnel.
 
 In
        the
        first quarter of 2004, we completed the acquisition of ACCESS Oncology, Inc.,
        or
        ACCESS Oncology, a privately-held, cancer-focused biotechnology company.
        The
        acquired drug portfolio included three clinical stage oncology compounds,
        designated as KRX-0401, KRX-0402 and KRX-0403. As a part of the acquisition
        of
        ACCESS Oncology, we acquired the Online Collaborative Oncology Group, Inc.,
        or
        OCOG, a subsidiary of ACCESS Oncology, which provides clinical trial management
        and site recruitment services to us, as well as other biotechnology and
        pharmaceutical companies.
 
 We
        are a
        development stage company and have no product sales to date. Our major sources
        of working capital have been proceeds from various private placements of
        equity
        securities, option and warrant exercises, and from public offerings of our
        common stock. We have devoted substantially all of our efforts to the discovery,
        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 planned product
        development efforts, our clinical trials and potential in-licensing and
        acquisition opportunities.
 
 Our
        revenues consist of clinical trial management and site recruitment services.
        Revenues from providing these services are recognized as the services are
        provided. Deferred revenue is incurred when we receive a deposit or prepayment
        for services to be performed at a later date.
 
 Our
        cost
        of services consist of all costs specifically associated with client programs
        such as salaries, benefits paid to personnel, payments to third-party vendors
        and systems and other support facilities associated with delivering services
        to
        our clients. Cost of services are recognized as services are
        performed.
 
 Our
        research and development expenses consist primarily of salaries and related
        personnel costs, fees paid to consultants and outside service providers for
        clinical and laboratory development, facilities-related and other expenses
        relating to the design, development, testing, and enhancement of our product
        candidates, as well as expenses related to in-licensing and acquisition of
        new
        product candidates. We expense our research and development costs as they
        are
        incurred.
 
 12
 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 and warrants. Compensation expense for fixed award
        options and warrants granted to employees and directors represents the intrinsic
        value (the difference between the stock price of the common stock and the
        exercise price of the options or warrants) of the options and warrants at
        the
        date of grant. For variable awards, we consider the difference between the
        stock
        price at reporting date and the exercise price, in the case where a measurement
        date has not been reached. The compensation cost is recorded over the respective
        vesting periods of the individual stock options and warrants. The expense
        is
        included in the respective categories of expense in the statement of operations.
        We expect to incur significant non-cash compensation expense in the future;
        however, because some of the options and warrants issued to employees,
        consultants and other third-parties either do not vest immediately or vest
        upon
        the achievement of certain milestones, the total expense is uncertain.
 
 Our
        ongoing clinical trials will be lengthy and expensive. Even if these trials
        show
        that our drug candidates are effective in treating certain indications, there
        is
        no guarantee that we will be able to record commercial sales of any of our
        product 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 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, 2005 and June 30, 2004**
 
 *Revenue.* Service
        revenue decreased by $24,000 to $126,000 for the three months ended June
        30,
        2005, as compared to revenue of $150,000 for the three months ended June
        30,
        2004. The decrease in service revenue was primarily due to the timing of
        services provided for our existing contracts in each of the current and
        comparable periods. We do not expect our service revenues to have a material
        impact on our financial results during the remainder of 2005.
 
 *Cost
        of Services Expense* .
        Cost of
        services expense increased by $38,000 to $161,000 for the three months ended
        June 30, 2005, as compared to expense of $123,000 for the three months ended
        June 30, 2004. The increase in cost of services expense was primarily due
        to an
        increase in personnel costs. We do not expect our cost of service expense
        to
        have a material impact on our financial results during the remainder of 2005.
 
 *Non-Cash
        Compensation Expense (Research and Development).* Non-cash
        compensation expense related to stock option grants and warrant issuances
        was
        $137,000 for the three months ended June 30, 2005, as compared to an expense
        of
        $24,000 for the three months ended June 30, 2004. The expenses in the three
        months ended June 30, 2005 and June 30, 2004, were due to the adjustment
        to fair
        market value of previously-issued options to consultants.
 
 *Non-Cash
        Acquired In-Process Research and Development Expense* .
        We did
        not record a charge for the three months ended June 30, 2005 and 2004,
        respectively.
 
 *Other
        Research and Development Expenses* .
        Other
        research and development expenses increased by $3,113,000 to $5,180,000 for
        the
        three months ended June 30, 2005, as compared to expenses of $2,067,000 for
        the
        three months ended June 30, 2004. The increase in other research and development
        expenses was due primarily to a $1,882,000 increase in expenses related to
        the
        KRX-101 clinical program, including set-up costs associated with the recent initiation
        of our pivotal Phase III and Phase IV clinical trials, and a
        $1,103,000 increase in expenses related to our clinical stage, oncology drug
        portfolio, primarily the KRX-0401 clinical program.
 
 13
 We
        expect
        our other research and development costs to increase during the year as a
        result
        of the pivotal Phase III and Phase IV clinical program for KRX-101 and the
        expansion of the clinical program for KRX-0401, including the planned
        commencement of additional single agent and combination trials, as well as
        possible development programs for our other drug candidates.
 
 *Non-Cash
        Compensation Expense (General and Administrative).* Non-cash
        compensation expense related to stock option grants and warrant issuances
        was
        $168,000 for the three months ended June 30, 2005, as compared to an expense
        of
        $621,000 for the three months ended June 30, 2004. For the three months ended
        June 30, 2005 and June 30, 2004, adjustment to fair market value of
        previously-issued options to consultants accounted for expenses of $57,000
        and
        $176,000, respectively, and the continued vesting of options granted to certain
        directors below market value on the date of issuance (but equal to market
        price
        at grant date) accounted for expenses of $111,000 and $445,000,
        respectively.
 
 *Other
        General and Administrative Expenses* .
        Other
        general and administrative expenses decreased by $46,000 to $699,000 for
        the
        three months ended June 30, 2005, as compared to expenses of $745,000 for
        the
        three months ended June 30, 2004. The decrease in general and administrative
        expenses was due primarily to reduced costs related to the preparation of
        our
        proxy statement.
 
 We
        expect
        our other general and administrative costs to increase modestly over the
        year
        primarily as a result of our support for our clinical development programs,
        as
        well as increased costs associated with being a public company.
 
 *Interest
        and Other Income, Net* .
        Interest and other income, net, increased by $97,000 to $267,000 for the
        three
        months ended June 30, 2005, as compared to income of $170,000 for the three
        months ended June 30, 2004. The increase resulted from the general increase
        in
        short-term market interest rates when compared to the comparable period last
        year.
 
 *Income
        Taxes* .
        We did
        not record any income tax expense for the three months June 30, 2005 and
        2004,
        respectively.
  **Six
        months ended June 30, 2005 and June 30, 2004**
 
 *Revenue.* Service
        revenue increased by $38,000 to $283,000 for the six months ended June 30,
        2005,
        as compared to revenue of $245,000 for the six months ended June 30, 2004.
        The
        increase in service revenue was primarily due to the timing of services provided
        for our existing contracts in each of the current and comparable periods.
        We do
        not expect our service revenues to have a material impact on our financial
        results during the remainder of 2005.
 
 *Cost
        of Services Expense* .
        Cost of
        services expense increased by $139,000 to $342,000 for the six months ended
        June
        30, 2005, as compared to expense of $203,000 for the six months ended June
        30,
        2004. The increase in cost of services expense was primarily due to an increase
        in personnel costs. We do not expect our cost of services expense to have
        a
        material impact on our financial results during the remainder of 2005.
 
 *Non-Cash
        Compensation Expense (Research and Development).* Non-cash
        compensation expense related to stock option grants and warrant issuances
        was
        $313,000 for the six months ended June 30, 2005, as compared to an expense
        of
        $225,000 for the six months ended June 30, 2004. For the six months ended
        June
        30, 2005 and June 30, 2004, adjustment to fair market value of previously-issued
        options to consultants accounted for expenses of $228,000 and $212,000,
        respectively, and the issuance of options to consultants accounted for using
        the
        fair value method accounted for expenses of $85,000 and $13,000, respectively.
 
 14
 *Non-Cash
        Acquired In-Process Research and Development Expense* .
        We did
        not record a charge for the six months ended June 30, 2005. As required by
        Financial Accounting Standards Board Interpretation No. 4, “Applicability of
        FASB Statement No. 2 to Business Combinations Accounted for by the Purchase
        Method," or FIN 4, the Company recorded a charge of $18,800,000 in the six
        months ended June 30, 2004 for the estimate of the portion of the purchase
        price
        of ACCESS Oncology allocated to acquired in-process research and development.
        A
        project-by-project valuation was performed with the assistance of independent
        valuation specialists to determine the fair value of research and development
        projects of ACCESS Oncology which were in-process, but not yet
        completed.
 
 *Other
        Research and Development Expenses* .
        Other
        research and development expenses increased by $5,503,000 to $9,222,000 for
        the
        six months ended June 30, 2005, as compared to expenses of $3,719,000 for
        the
        six months ended June 30, 2004. The increase in other research and development
        expenses was due primarily to a $2,775,000 increase in expenses related to
        the
        KRX-101 clinical program, including set-up costs associated with the recent initiation
        of our pivotal Phase III and Phase IV clinical trials ,
        and a
        $2,267,000 increase in expenses related to our clinical stage, oncology drug
        portfolio, primarily the KRX-0401 clinical program (the $2,267,000 increase
        includes $159,000 for the purchase of license rights and interests covering
        patent rights for KRX-0402). The comparative period last year included one-half,
        or $500,000, of a one-time bonus paid to our Chief Executive Officer pursuant
        to
        his employment agreement for
        the
        achievement of a milestone .
 
 We
        expect
        our other research and development costs to increase during the year as a
        result
        of the pivotal Phase III and Phase IV clinical program for KRX-101 and the
        expansion of the clinical program for KRX-0401, including the planned
        commencement of additional single agent and combination trials, as well as
        possible development programs for our other drug candidates.
 
 *Non-Cash
        Compensation Expense (General and Administrative).* Non-cash
        compensation expense related to stock option grants and warrant issuances
        was
        $353,000 for the six months ended June 30, 2005, as compared to an expense
        of
        $806,000 for the six months ended June 30, 2004. For the six months ended
        June
        30, 2005 and June 30, 2004, adjustment to fair market value of previously-issued
        options to consultants accounted for expenses of $131,000 and $236,000,
        respectively, the issuance of options to consultants accounted for using
        the
        fair value method accounted for expenses of $0 and $125,000, respectively,
        and
        the continued vesting of options granted to certain directors below market
        value
        on the date of issuance (but equal to market price at grant date) accounted
        for
        expenses of $222,000 and $445,000, respectively.
 
 *Other
        General and Administrative Expenses* .
        Other
        general and administrative expenses decreased by $494,000 to $1,344,000 for
        the
        six months ended June 30, 2005, as compared to expenses of $1,838,000 for
        the
        six months ended June 30, 2004. The decrease in general and administrative
        expenses was due primarily to the absence of payroll expenses incurred in
        the
        comparable period last year relating to one-half, or $500,000, of a one-time
        bonus to our Chief Executive Officer for the achievement of a certain milestone
        pursuant to his employment agreement. The compensation of our Chief Executive
        Officer is allocated equally between other research and development expenses
        and
        other general and administrative expenses to reflect the allocation of his
        responsibilities and activities for Keryx.
 
 We
        expect
        our other general and administrative costs to increase modestly over the
        year
        primarily as a result of our support for our clinical development programs,
        as
        well as increased costs associated with being a public company.
 
 *Interest
        and Other Income, Net* .
        Interest and other income, net, increased by $242,000 to $507,000 for the
        six
        months ended June 30, 2005, as compared to income of $265,000 for the six
        months
        ended June 30, 2004. The increase resulted from the general increase in
        short-term market interest rates when compared to the comparable period last
        year.
 
 *Income
        Taxes* .
        We did
        not record any income tax expense for the six months ended June 30, 2005.
        For
        the six months ended June 30, 2004, income tax expense was $1,000. Our income
        tax expense for the six months ended June 30, 2004 resulted from state taxes
        imposed on our capital.
 
 15
 **LIQUIDITY
        AND CAPITAL RESOURCES**
 
 We
        have
        financed our operations from inception primarily through our public offerings,
        various private placement transactions, and option and warrant exercises.
        As of
        June 30, 2005, we had received net proceeds of $46.3 million from our initial
        public offering, net proceeds of approximately $60.4 million from private
        placements of our common and preferred stock and convertible notes, including
        the conversion of $3.2 million of loans into contributed capital, and proceeds
        of $5.6 million from the exercise of options and warrants.
 
 As
        of
        June 30, 2005, we had $40.4 million in cash, cash equivalents, interest
        receivable, and short-term and long-term securities, a decrease of $9.5 million
        from December 31, 2004. Cash used in operating activities for the six months
        ended June 30, 2005 was $9.5 million, as compared to $5.9 million for the
        six
        months ended June 30, 2004. This increase in cash used in operating activities
        was due primarily to increased expenditures associated with the execution
        of our
        business plan, including set-up
        costs associated with the recent initiation
        of our pivotal Phase III and Phase IV clinical program for KRX-101, and
        expansion of the KRX-0401 clinical program. For the six months ended June
        30,
        2005, net cash used in investing activities of $3.1 million was primarily
        the
        result of an investment in securities. For the six months ended June 30,
        2005,
        net cash provided by financing activities of $0.3 million was the result
        of net
        proceeds from the exercise of options and warrants.
 
 On
        July
        20, 2005, we completed a public offering of 5,780,000 shares of our common
        stock
        (including the exercise
        of a 750,000 over-allotment option granted to the underwriters) to investors
        at
        $14.05 per share. We received approximately $75.9 million in proceeds, net
        of
        offering expenses of approximately $5.3 million.
 
 We
        believe that our $40.4 million in cash, cash equivalents, interest receivable
        and investment securities as of June 30, 2005 and the proceeds from our recent
        public offering will be sufficient to enable us to meet our planned operating
        needs and capital expenditures for at least the next 24 months. Additionally,
        we
        also believe that our cash position provides us with added flexibility in
        our
        in-licensing and product acquisition program to potentially strengthen our
        portfolio with additional clinical-stage drug candidates.
 
 Our
        cash
        and cash equivalents and investment securities as of June 30, 2005 are invested
        in highly liquid investments such as cash, money market accounts and short-term
        and long-term U.S. corporate and government debt and auction note securities.
        As
        of June 30, 2005, we are unaware of any known trends or any known demands,
        commitments, events, or uncertainties that will, or that are reasonably likely
        to, result in a material increase or decrease in our required liquidity.
        We
        expect that our liquidity needs throughout 2005 will continue to be funded
        from
        existing cash, cash equivalents, and short-term marketable securities.
 
 **OFF-BALANCE
        SHEET ARRANGEMENTS**
 
 We
        have
        not entered into any transactions with unconsolidated entities whereby we
        have
        financial guarantees, subordinated retained interests, derivative instruments
        or
        other contingent arrangements that expose us to material continuing risks,
        contingent liabilities, or any other obligations under a variable interest
        in an
        unconsolidated entity that provides us with financing, liquidity, market
        risk or
        credit risk support.
 
 **OBLIGATIONS
        AND COMMITMENTS**
 
 As
        of
        June 30, 2005, we have known contractual obligations, commitments and
        contingencies of $68,626,000. Of this amount, $65,583,000 relates to research
        and development agreements (primarily relating to our pivotal Phase III and
        Phase IV clinical program for KRX-101), of which $18,930,000 is due within
        the
        next year, with the remaining balance due as per the schedule below. The
        additional $3,043,000 relates to our current and recently signed operating
        lease
        obligations, of which $460,000 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
              
              $
              65,583,000
              
              $
              18,930,000
              
              $
              30,257,000
              
              $
              16,396,000
              
              $
              --Operating
                  leases
              
              
              3,043,000
              
              
              460,000
              
              
              1,202,000
              
              
              1,193,000
              
              
              188,000Total
              
              $
              68,626,000
              
              $
              19,390,000
              
              $
              31,459,000
              
              $
              17,589,000
              
              $
              188,000
 
 16
 Additionally,
        we have undertaken to make contingent milestone payments to certain of our
        licensors of up to approximately $67.1 million over the life of the licenses,
        of
        which approximately $47.7 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 $50,000 annually until
        the
        license expires. We have also committed to pay to the former stockholders
        of
        ACCESS Oncology certain contingent equity rights if its drug candidates meet
        certain development milestones. In addition, pursuant to his employment
        agreement, our Chief Executive Officer is entitled to receive a one-time
        $2.0
        million performance-based cash bonus upon our achievement of certain levels
        of
        market capitalization or working capital. The commitments described in this
        paragraph are not reflected in the table above.
 
 During
        2004, we entered into a temporary lease arrangement with our President for
        the
        utilization of part of his residence for office space associated with our
        employees in San Francisco, California.  We have expensed a total
        of
        $62,000 (which includes $12,000 for the first quarter of 2005) pursuant to
        the
        terms of this arrangement, which amount has been included in accounts payable
        and accrued expenses in the accompanying balance sheet as of June 30,
        2005.  In April 2005, we moved our San Francisco operations to new
        office
        space and terminated our temporary lease arrangement with our
        President.
 
 **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 disclosures
        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 options to employees, directors and consultants, as well as warrants
        to
        other third parties. In applying Statement of Financial Accounting Standards
        No.
        123, “Accounting for Stock-Based Compensation,” or SFAS 123, we use the
        Black-Scholes pricing model to calculate the fair market value of our options
        and warrants. 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
        or
        warrant, the closing market price of our stock and the exercise price. We
        have
        assumed for the purposes of the Black-Scholes calculation that an option
        will be
        exercised one year and two years after it fully vests for consultants and
        employees, respectively. We base our estimates of our stock price volatility
        on
        the volatility during the period prior to the grant of the option or warrant;
        however, this estimate is neither predictive nor indicative of the future
        performance of our stock. For purposes of the calculation, we assumed that
        no
        dividends would be paid during the life of the options and warrants.
 
 In
        accordance with EITF 96-18 “Accounting for Equity Instruments that are Issued to
        Other Than Employees for Acquiring, or in Conjunction with Selling, Goods
        or
        Services,” total compensation expense for options issued to consultants is
        determined at the “measurement date.” The expense is recognized over the vesting
        period for the options. Until the measurement date is reached, the total
        amount
        of compensation expense remains uncertain. We record option compensation
        based
        on the fair value of the options at the reporting date. These options are
        then
        revalued, or the total compensation is recalculated based on the then current
        fair value, at each subsequent reporting date. This results in a change to
        the
        amount previously recorded in respect of the option grant, and additional
        expense or a negative expense may be recorded in subsequent periods based
        on
        changes in the assumptions used to calculate fair value, such as changes
        in
        market price, until the measurement date is reached and the compensation
        expense
        is finalized.
 
 17
 We
        account for stock-based employee and director compensation arrangements in
        accordance with the provisions of APB Opinion No. 25, “Accounting for Stock
        Issued to Employees,” and the Financial Accounting Standards Board, or FASB,
        Interpretation No. 44, “Accounting for Certain Transactions Involving Stock
        Compensation,” as permitted by SFAS 123. We also comply with the disclosure
        provisions of SFAS 123 and Statement of Financial Accounting Standards No.
        148,
“Accounting for Stock-Based Compensation-Transition and
        Disclosure.”
 
 *Accounting
        Related to the Valuation of Acquired In-Process Research and
        Development.* As
        required by FASB Interpretation No. 4, “Applicability of FASB Statement No. 2 to
        Business Combinations Accounted for by the Purchase Method," or FIN 4, we
        recorded a charge for the three months ended March 31, 2004, of $18,800,000
        for
        the estimate of the portion of the ACCESS Oncology purchase price allocated
        to
        acquired in-process research and development.
 
 A
        project-by-project valuation using the guidance in Statement of Financial
        Accounting Standards No. 141, “Business Combinations” and the AICPA Practice Aid
“Assets Acquired in a Business Combination to Be Used In Research and
        Development Activities: A Focus on Software, Electronic Devices and
        Pharmaceutical Industries” was performed with the assistance of independent
        valuation specialists to determine the fair value of research and development
        projects of ACCESS Oncology which were in-process, but not yet
        completed.
 
 The
        fair
        value was determined using the income approach on a project-by-project basis.
        This method starts with a forecast of the expected future net cash flows.
        These
        cash flows are then adjusted to present value by applying an appropriate
        discount rate that reflects the project’s stage of completion and other risk
        factors. These other risk factors can include the nature of the product,
        the
        scientific data associated with the technology, the current patent situation
        and
        market competition.
 
 The
        following assumptions were made in order to forecast future net cash
        flows:
  ·
              revenue
                  that is likely to result from specific in-process research and
                  development
                  projects, including estimated patient populations, estimated selling
                  prices, estimated market penetration and estimated market share
                  and
                  year-over-year growth rates over the product life
                  cycles;
  ·
              cost
                  of sales related to the potential products using industry data
                  or other
                  sources of market data;
  ·
              sales
                  and marketing expense using industry data or other market
                  data;
  ·
              general
                  and administrative expenses; and
  ·
              research
                  and development expenses.
  The
        valuations are based on information that was available as of the acquisition
        date and the expectations and assumptions 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.
 
 *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
        requires management to estimate our actual current tax exposure and assess
        temporary differences resulting from differing treatment of items for tax
        and
        accounting purposes. These differences result in deferred tax assets and
        liabilities. We must then assess the likelihood that our deferred tax assets
        will be recovered from future taxable income and, to the extent we believe
        that
        recovery is not likely, we must establish a valuation allowance. To the extent
        we establish a valuation allowance or increase this allowance in a period,
        we
        must include an expense within the tax provision in the statement of operations.
        Significant management judgment is required in determining our provision
        for
        income taxes, our deferred tax assets and liabilities and any valuation
        allowance recorded against our net deferred tax assets. We have fully offset
        our
        U.S. deferred tax assets with a valuation allowance. Our lack of earnings
        history and the uncertainty surrounding our ability to generate taxable income
        prior to the reversal or expiration of such deferred tax assets were the
        primary
        factors considered by management in establishing the valuation allowance.
        Our
        income tax expense during the six months ended June 30, 2004 resulted from
        state
        taxes imposed on our capital.
 
 18
 **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, 2005, we had an accumulated deficit of
        approximately $98.3 million. As we expand our research and development efforts,
        we will incur increasing losses. We may continue to incur substantial operating
        losses even if we begin to generate revenues from our drug candidates or
        technologies.
 
 We
        have
        not yet commercialized any products or technologies and cannot be sure we
        will
        ever be able to do so. Even if we commercialize one or more of our drug
        candidates or technologies, 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 and technologies.
 
 ***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. Patient enrollment is a function of many
        factors, including the size of the patient population, the proximity of patients
        to clinical sites, the eligibility criteria for the study, the existence
        of
        competitive clinical trials, and whether existing or new drugs are approved
        for
        the indication we are studying. We are aware that other companies are planning
        clinical trials that will seek to enroll patients with the same diseases
        as we
        are studying. In addition, one of our current trials for KRX-101 is designed
        to
        continue until a pre-specified 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 basis.
 
 Additionally,
        we have finalized with the FDA our SPA, regarding a subpart H clinical
        development plan for the clinical development of KRX-101 for diabetic
        nephropathy. This clinical plan consists of: a single Phase III trial in
        patients with microalbuminuria based on the surrogate marker of regression
        of
        microalbuminuria as the primary endpoint; supportive data from previously
        conducted clinical studies; and substantial recruitment into our Phase IV
        confirmatory study that will measure clinical outcomes in patients with overt
        nephropathy, or macroalbuminuria, before filing a New Drug Application, or
        NDA,
        with the agency. The subpart H process is complex and requires careful execution
        and no assurance can be given that we will be able to meet the requirements
        set
        forth in the SPA. Even if we meet those requirements, the FDA is not obligated
        to grant approval of our NDA for KRX-101. If the FDA approves KRX-101 for
        marketing on the basis of our SPA, our Phase IV clinical trial may yield
        insufficient efficacy data or give rise to safety concerns, which could result
        in withdrawal of such approval or could cause us to withdraw the product
        from
        the market. Many companies who have been granted the right to utilize an
        accelerated approval approach have failed to obtain approval. Moreover, negative
        or inconclusive results from the clinical trials we hope to conduct or adverse
        medical events could cause us to have to repeat or terminate the clinical
        trials. Accordingly, we may not be able to complete the clinical trials within
        an acceptable time frame, if at all.
 
 19
 ***If
        our drug candidates do not receive the necessary regulatory approvals, we
        will
        be unable to commercialize our drug candidates.***
 
 We
        have
        not received, and may never receive, regulatory approval for the commercial
        sale
        of any of our drug candidates. We will need to conduct significant additional
        research and human testing before we can apply for product approval with
        the FDA
        or with regulatory authorities of other countries. Pre-clinical testing and
        clinical development are long, expensive and uncertain processes. Satisfaction
        of regulatory requirements typically depends on the nature, complexity and
        novelty of the product and requires the expenditure of substantial resources.
        Data obtained from pre-clinical and clinical tests can be interpreted in
        different ways, which could delay, limit or prevent regulatory approval.
        It may
        take us many years to complete the testing of our drug candidates and failure
        can occur at any stage of this process. Negative or inconclusive results
        or
        medical events during a clinical trial could cause us to delay or terminate
        our
        development efforts.
 
 Furthermore,
        interim results of preclinical or clinical studies do not necessarily predict
        their final results, and acceptable results in early studies might not be
        obtained in later studies. Drug candidates in the later stages of clinical
        development may fail to show the desired safety and efficacy traits despite
        having progressed through initial clinical testing. Specifically, we received
        the recommendation to proceed, as planned, into our pivotal Phase III and
        Phase
        IV program for KRX-101 from the CSG based on a safety and efficacy assessment
        of
        a first interim analysis of data from our ongoing Phase II study for KRX-101,
        and we recently announced further interim results from this trial. There
        can be
        no assurance that the full data from the Phase II study will track the data
        from
        these interim analyses of the Phase II study. Moreover, the recommendation
        to
        move into our pivotal program, as well as the announced interim data, may
        not be
        indicative of results from future clinical trials and the risk remains that
        the
        pivotal program for KRX-101 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.
 
 Clinical
        trials also 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 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.
 
 ***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 patent rights to these
        drugs candidates from others. These license agreements require us to meet
        development or financing 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.
 
 ***We
        rely on third parties to manufacture our products. If these third parties
        do not
        successfully manufacture our products, our business will be
        harmed.***
 
 We
        have
        no experience in manufacturing products for clinical or commercial purposes
        and
        do not have any manufacturing facilities. We intend to continue, in whole
        or in
        part, to use third parties to manufacture our products for use in clinical
        trials and for future sales. We may not be able to enter into future third-party
        contract manufacturing agreements on acceptable terms to us, if at
        all.
 
 Contract
        manufacturers often encounter difficulties in scaling up production, including
        problems involving production yields, quality control and assurance, shortage
        of
        qualified personnel, compliance with FDA and foreign regulations, production
        costs and development of advanced manufacturing techniques and process controls.
        Our third-party manufacturers may not perform as agreed or may not remain
        in the
        contract manufacturing business for the time required by us to successfully
        produce and market our drug candidates. In addition, our contract manufacturers
        will be subject to ongoing periodic, unannounced inspections by the FDA and
        corresponding foreign governmental agencies to ensure strict compliance with,
        among other things, current good manufacturing practices, in addition to
        other
        governmental regulations and corresponding foreign standards. We will not
        have
        control over, other than by contract, third-party manufacturers' compliance
        with
        these regulations and standards. Switching or engaging multiple manufacturers
        may be difficult because the number of potential manufacturers is limited
        and,
        particularly in the case of KRX-101, 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.
 
 20
 If
        third-party manufacturers fail to deliver the required quantities of our
        drug
        candidates on a timely basis and at commercially reasonable prices, we will
        not
        be able to commercialize our products as planned.
 
 We
        have
        entered into a contract manufacturing relationship with a U.S.-based contract
        manufacturer for KRX-101 which we believe will be adequate to satisfy our
        current clinical and initial commercial supply needs; however, as we scale-up
        for commercial manufacturing, we will need to ensure that the manufacturing
        process matches the established process on a larger scale. As with all
        heparin-like compounds, the end product is highly sensitive to the manufacturing
        process utilized. Accordingly, as we scale-up, reproducibility will
        be
        required for the successful commercialization of KRX-101. There can be no
        assurance that we will be successful in this endeavor.
 
 ***If
        we are not able to obtain the raw materials required for the manufacture
        of our
        lead product candidate, KRX-101, our ability to develop and market this product
        candidate will be substantially harmed.***
 
 Source
        materials for KRX-101, our lead product candidate, are derived from porcine
        mucosa. Long-term supplies for KRX-101 could be affected by limitations in
        the
        supply of porcine mucosa and the demand for other heparin products, over
        which
        we will have no control. Additionally, diseases affecting the world supply
        of
        pigs could have an actual or perceived negative impact on our ability, or
        the
        ability of our contract manufacturers, to source, make and/or sell KRX-101.
        Such
        negative impact could materially affect the commercial success of
        KRX-101.
 
 ***If
        we do not establish or maintain drug development and marketing arrangements
        with
        third parties, we may be unable to commercialize our
        products.***
 
 We
        are an
        emerging company and do not possess all of the capabilities to fully
        commercialize our products on our own. From time to time, we may need to
        contract with third parties to:
 
 ●
              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 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.
 
 21
 ***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 KRX-101 receives marketing approval, we anticipate conducting our own
        sales and marketing effort to support the drug, and we may adopt this strategy
        with respect to future drug products. We currently have no experience in
        sales,
        marketing or distribution. To directly market and distribute any products,
        we
        must build a sales and marketing organization with appropriate technical
        expertise and distribution capabilities. We may attempt to build such a sales
        and marketing organization on our own or with the assistance of a contract
        sales
        organization. For some market opportunities, we may need to enter into
        co-promotion or other licensing arrangements with larger pharmaceutical or
        biotechnology firms in order to increase the commercial success of our products.
        We may not be able to establish sales, marketing and distribution capabilities
        of our own or enter into such arrangements with third parties in a timely
        manner
        or on acceptable terms. To the extent that we enter into co-promotion or
        other
        licensing arrangements, our product revenues are likely to be lower than
        if we
        directly marketed and sold our products, and some or all of the revenues
        we
        receive will depend upon the efforts of third parties, and these efforts
        may not
        be successful. Additionally, building marketing and distribution capabilities
        may be more expensive than we anticipate, requiring us to divert capital
        from
        other intended purposes or preventing us from building our marketing and
        distribution capabilities to the desired levels.
 
 ***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.
 
 22
 The
        drugs
        that we are attempting to develop will have to compete with existing therapies.
        In addition, our commercial opportunities may be reduced or eliminated if
        our
        competitors develop and market products that are less expensive, more effective
        or safer than our drug products. Other companies have drug candidates in
        various
        stages of pre-clinical or clinical development to treat diseases for which
        we
        are also seeking to discover and develop drug products. Some of these potential
        competing drugs are further advanced in development than our drug candidates
        and
        may be commercialized earlier. Even if we are successful in developing effective
        drugs, our products may not compete successfully with products produced by
        our
        competitors.
 
 ***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.***
 
 We
        currently have 30 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. In
        addition, while we have an employment agreement with Mr. Weiss, this agreement
        would not prevent him from terminating his employment with us.
 
 ***Any
        acquisitions we make may require a significant amount of our available cash
        and
        may not be scientifically or commercially successful.***
 
 As
        part
        of our business strategy, we may effect acquisitions to obtain additional
        businesses, products, technologies, capabilities and personnel. If we make
        one
        or more significant acquisitions in which the consideration includes cash,
        we
        may be required to use a substantial portion of our available cash.
 
 Acquisitions
        involve a number of operational risks, including:
 
 ●
              difficulty
                  and expense of assimilating the operations, technology and personnel
                  of
                  the acquired business;
 
 ●
              our
                  inability to retain the management, key personnel and other employees
                  of
                  the acquired business;
 
 ●
              our
                  inability to maintain the acquired company's relationship with
                  key third
                  parties, such as alliance partners;
 
 ●
              exposure
                  to legal claims for activities of the acquired business prior to
                  the
                  acquisition;
 
 ●
              the
                  diversion of our management's attention from our core business;
                  and
 
 ●
              the
                  potential impairment of goodwill and write-off of in-process research
                  and
                  development costs, adversely affecting our reported results of
                  operations.
 
 ***The
        status of reimbursement from third-party payors for newly approved health
        care
        drugs is uncertain and failure to obtain adequate reimbursement could limit
        our
        ability to generate revenue.***
 
 Our
        ability to commercialize pharmaceutical products may depend, in part, on
        the
        extent to which reimbursement for the products will be available
        from:
 
 ●
              government
                  and health administration authorities;
 
 ●
              private
                  health insurers;
 
 ●
              managed
                  care programs; and
 
 ●
              other
                  third-party payors.
 
 Significant
        uncertainty exists as to the reimbursement status of newly approved health
        care
        products. Third-party payors, including Medicare, are challenging the prices
        charged for medical products and services. Government and other third-party
        payors increasingly are attempting to contain health care costs by limiting
        both
        coverage and the level of reimbursement for new drugs and by refusing, in
        some
        cases, to provide coverage for uses of approved products for disease indications
        for which the FDA has not granted labeling approval. Third-party insurance
        coverage may not be available to patients for our products. If government
        and
        other third-party payors do not provide adequate coverage and reimbursement
        levels for our products, their market acceptance may be reduced.
 
 23
 ***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 those relating to reimportation of drugs into the U.S. from
        other countries where they are 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, and the future sale of any approved
        products, 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. 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 may not be able
        to
        obtain additional insurance coverage that will be adequate to cover product
        liability risks that may arise. Regardless of merit or eventual outcome,
        product
        liability claims may result in:
 
 ●
              decreased
                  demand for a product;
 
 ●
              injury
                  to our reputation;
 
 ●
              our
                  inability to continue to develop a drug candidate;
 
 ●
              withdrawal
                  of clinical trial volunteers; and
 
 ●
              loss
                  of revenues.
 
 Consequently,
        a product liability claim or product recall may result in losses that could
        be
        material.
 
 ***In
        connection with providing our clinical trial management and site recruitment
        services, we may be exposed to liability that could have a material adverse
        effect on our financial condition and results of
        operations.***
 
 The
        Online Collaborative Oncology Group, Inc., or OCOG, a subsidiary we acquired
        through our acquisition of ACCESS Oncology, provides clinical trial management
        and site recruitment services to us as well as other biotechnology and
        pharmaceutical companies. In conducting the activities of OCOG, any failure
        on
        our part to comply with applicable governmental regulations or contractual
        obligations could expose us to liability to our clients and could have a
        material adverse effect on us. We also could be held liable for errors or
        omissions in connection with the services we perform. In addition, the wrongful
        or erroneous delivery of health care information or services may expose us
        to
        liability. If we were required to pay damages or bear the costs of defending
        any
        such claims, the losses could be material.
 
 24
 ***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 30
        employees. We also have significantly fewer employees than many other companies
        that have a product candidate in late-stage clinical development, and we
        rely
        heavily on third parties to conduct many important functions. While we have
        developed and instituted a corporate compliance program based on what we
        believe
        are the current best practices, we cannot assure you that we are or will
        be in
        compliance with all potentially applicable regulations. If we fail to comply
        with any of these regulations we could be subject to a range of regulatory
        actions, including suspension or termination of clinical trials, the failure
        to
        approve a product candidate, restrictions on our products or manufacturing
        processes, withdrawal of products from the market, significant fines, or
        other
        sanctions or litigation.
  **Risks
        Related to Our Financial Condition**
 
 ***Our
        current cash, cash equivalents and investment securities may not be adequate
        to
        support our operations for the next 24 months as we have
        estimated.***
 
 We
        believe that our $40.4 million in cash, cash equivalents, interest receivable
        and investment securities as of June 30, 2005, and the $75.9 million of net
        proceeds from our recent public offering, will be sufficient to enable us
        to
        meet our planned operating needs and capital expenditures for at least the
        next
        24 months. Our forecast of the period of time through which our cash, cash
        equivalents and investment securities will be adequate to support our operations
        is a forward-looking statement that involves risks and uncertainties. The
        actual
        amount of funds we will need to operate is subject to many factors, some
        of
        which are beyond our control. These factors include the following:
 
 ●
              the
                  timing of expenses associated with manufacturing and product development
                  of the proprietary drug candidates within our portfolio and those
                  that may
                  be in-licensed, partnered or
                  acquired;
 
 ●
              the
                  timing of the in-licensing, partnering and acquisition of new product
                  opportunities;
 
 ●
              the
                  progress of the development efforts of parties with whom we have
                  entered,
                  or may enter, into research and development
                  agreements;
 
 ●
              our
                  ability to achieve our milestones under our licensing arrangements;
                  and
 
 ●
              the
                  costs involved in prosecuting and enforcing patent claims and other
                  intellectual property rights.
 
 ***If
        we are unable to obtain additional funds on terms favorable to us, or at
        all,
        our business would be harmed.***
 
 We
        expect
        to use, rather than generate, funds from operations for the foreseeable future.
        Based on our current plans, we believe our existing cash and cash equivalents,
        interest receivable and investment securities and the $75.9 million of net
        proceeds from our recent public offering will be sufficient to fund our
        operating expenses and capital requirements for at least the next 24 months;
        however, the actual amount of funds that we will need prior to or after that
        date will be determined by many factors, some of which are beyond our control.
        As a result, we may need funds sooner or in different amounts than we currently
        anticipate, depending upon:
 
 ●
              the
                  progress of our development activities;
 
 ●
              the
                  progress of our research activities;
 
 ●
              the
                  number and scope of our development programs;
 
 ●
              the
                  costs associated with commercialization activities, including
                  manufacturing, marketing and sales;
 
 ●
              our
                  ability to establish and maintain current and new licensing or
                  acquisition
                  arrangements;
 
 ●
              our
                  ability to achieve our milestones under our licensing
                  arrangements;
  25
  ●
              the
                  costs involved in enforcing patent claims and other intellectual
                  property
                  rights; and
 
 ●
              the
                  costs and timing of regulatory approvals.
 
 If
        our
        capital resources are insufficient to meet future capital requirements, we
        will
        have to raise additional funds. If we are unable to obtain additional funds
        on
        terms favorable to us or at all, we may be required to cease or reduce our
        operating activities or sell or license to third parties some or all of our
        intellectual property. If we raise additional funds by selling additional
        shares
        of our capital stock, the ownership interests of our stockholders will be
        diluted. If we need to raise additional funds through the sale or license
        of our
        intellectual property, we may be unable to do so on terms favorable to
        us.
 
 ***Our
        prior restructurings may result in additional Israeli-related
        liabilities.***
 
 In
        July
        2003, our Israeli subsidiary vacated its Jerusalem facility, after giving
        advance notice to the landlord. On May 1, 2005, the landlord of the Jerusalem
        facility filed suit in Israel claiming that we were liable as a result of
        the
        alleged breach of the lease agreement by our subsidiary. The amount demanded
        by
        the landlord totals 4,345,313 NIS or approximately $960,000 at the July 31,
        2005
        exchange rate, 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, and in July 2005, Keryx
        (Israel) Ltd. and Keryx Biomedical Technologies Ltd. filed an answer to the
        landlord’s complaint. Generally, the answer challenges the merits of the
        landlord’s cause of action as to each defendant. To date, we have not yet
        recorded a charge to reflect any potential liability associated with this
        suit.
 
 In
        September 2001, one of our Israeli subsidiaries received the status of an
        "Approved Enterprise," a status which grants certain tax benefits in Israel
        in
        accordance with the "Law for the Encouragement of Capital Investments, 1959."
        Through December 31, 2003, our Israeli subsidiary, which ceased operations
        in
        2003, has received tax benefits in the form of exemptions of approximately
        $744,000 as a result of our subsidiary's status as an "Approved Enterprise."
        As
        part of the restructuring implemented during 2003, we closed down our Jerusalem
        laboratory facility. In October 2003, the subsidiary received a letter from
        the
        Israeli Ministry of Industry and Trade that its Approved Enterprise status
        was
        cancelled as of July 2003 and that past benefits would not need to be repaid.
        The Israeli tax authorities have yet to confirm this position; however, we
        believe that, based on the letter received from the Ministry of Industry
        and
        Trade, it is unlikely that past benefits will need to be repaid, and therefore,
        we have not recorded any charge with respect to this potential liability.
        There
        can be no assurances that the Israeli tax authorities will confirm this
        position. As a result, we may be liable to repay some or all of the tax benefits
        received to date, which could adversely affect our cash flow and results
        of
        operations.
 
 **Risks
        Related to Our Intellectual Property**
 
 ***If
        we are unable to adequately protect our intellectual property, third parties
        may
        be able to use our intellectual property, which could adversely affect our
        ability to compete in the market.***
 
 Our
        commercial success will depend in part on our ability and the ability of
        our
        licensors to obtain and maintain patent protection on our drug products and
        technologies and successfully defend these patents against third-party
        challenges. The patent positions of pharmaceutical and biotechnology companies
        can be highly uncertain and involve complex legal and factual questions.
        No
        consistent policy regarding the breadth of claims allowed in biotechnology
        patents has emerged to date. Accordingly, the patents we use may not be
        sufficiently broad to prevent others from practicing our technologies or
        from
        developing competing products. Furthermore, others may independently develop
        similar or alternative drug products or technologies or design around our
        patented drug products and technologies. The patents we use may be challenged
        or
        invalidated or may fail to provide us with any competitive
        advantage.
 
 We
        rely
        on trade secrets to protect our intellectual property where we believe patent
        protection is not appropriate or obtainable. Trade secrets are difficult
        to
        protect. While we require our employees, collaborators and consultants to
        enter
        into confidentiality agreements, this may not be sufficient to adequately
        protect our trade secrets or other proprietary information. In addition,
        we
        share ownership and publication rights to data relating to some of our drug
        products and technologies with our research collaborators and scientific
        advisors. If we cannot maintain the confidentiality of this information,
        our
        ability to receive patent protection or protect our trade secrets or other
        proprietary information will be at risk.
 
 26
 ***Litigation
        or third-party claims of intellectual property infringement could require
        us to
        spend substantial time and money defending such claims and adversely affect
        our
        ability to develop and commercialize our products.***
 
 Third
        parties may assert that we are using their proprietary intellectual property
        without authorization. In addition, third parties may have or obtain patents
        in
        the future and claim that our drug products or technologies infringe their
        patents. If we are required to defend against patent suits brought by third
        parties, or if we sue third parties to protect our patent rights, we may
        be
        required to pay substantial litigation costs, and our management's attention
        may
        be diverted from operating our business. In addition, any legal action against
        our licensors or us that seeks damages or an injunction of our commercial
        activities relating to the affected 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 the affected 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**
 
 ***Concentration
        of ownership of our common stock among our existing executive officers,
        directors and principal stockholders may prevent new investors from influencing
        significant corporate decisions.***
 
 Currently,
        our executive officers, directors and principal stockholders (including their
        affiliates) beneficially owned, in the aggregate, approximately 21.4% of
        our
        outstanding common stock, including, for this purpose, currently exercisable
        options and warrants held by our executive officers, directors and principal
        stockholders. As a result, these persons, acting together, may have the ability
        to significantly influence the outcome of all matters submitted to our
        stockholders for approval, including the election and removal of directors
        and
        any merger, consolidation or sale of all or substantially all of our assets.
        In
        addition, such persons, acting together, may have the ability to effectively
        control our management and affairs. Accordingly, this concentration of ownership
        may depress the market price of 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.
 
 If
        we
        make one or more significant acquisitions in which the consideration includes
        stock or other securities, your equity in us may be significantly diluted.
        We
        may be required to issue up to 3,372,422 shares of our common stock to former
        shareholders of ACCESS Oncology upon achievement of certain milestones. In
        addition, in the past we have entered and in the future we may enter into
        arrangements permitting us to issue shares of common stock in lieu of certain
        cash payments such as milestones.
 
 Currently,
        our executive officers, directors, and principal stockholders beneficially
        own,
        in the aggregate, approximately 21.4% of our common stock, including currently
        exercisable warrants and options held by them. If some or all of them should
        decide to sell a substantial number of their holdings, it could have a material
        adverse effect on the market for our common stock.
 
 ***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;
  27
  ●
              announcements
                  of technological innovations by us or our competitors;
 
 ●
              introductions
                  or announcements of new products by us or our
                  competitors;
 
 ●
              announcements
                  by us of significant acquisitions, strategic partnerships, joint
                  ventures
                  or capital commitments;
 
 ●
              changes
                  in financial estimates by securities analysts;
 
 ●
              actual
                  or anticipated variations in quarterly operating results;
 
 ●
              expiration
                  or termination of licenses, research contracts or other collaboration
                  agreements;
 
 ●
              conditions
                  or trends in the regulatory climate and the biotechnology and
                  pharmaceutical industries;
 
 ●
              changes
                  in the market valuations of similar companies; and
 
 ●
              additions
                  or departures of key personnel.
 
 In
        addition, equity markets in general, and the market for biotechnology and
        life
        sciences companies in particular, have experienced extreme price and volume
        fluctuations that have often been unrelated or disproportionate to the operating
        performance of companies traded in those markets. These broad market and
        industry factors may materially affect the market price of our common stock,
        regardless of our development and operating performance. In the past, following
        periods of volatility in the market price of a company's securities, securities
        class-action litigation has often been instituted against that company. Such
        litigation, if instituted against us, could cause us to incur substantial
        costs
        to defend such claims and divert management's attention and resources, which
        could seriously harm our business.
 
 ***Certain
        anti-takeover provisions in our charter documents and Delaware law could
        make a
        third-party acquisition of us difficult. This could limit the price investors
        might be willing to pay in the future for our common
        stock.***
 
 Provisions
        in our amended and restated certificate of incorporation and bylaws could
        have
        the effect of making it more difficult for a third party to acquire, or of
        discouraging a third party from attempting to acquire, or control us. These
        factors could limit the price that certain investors might be willing to
        pay in
        the future for shares of our common stock. Our amended and restated certificate
        of incorporation allows us to issue preferred stock with rights senior to
        those
        of the common stock. The issuance of preferred stock could decrease the amount
        of earnings and assets available for distribution to the holders of our common
        stock or could adversely affect the rights and powers, including voting rights,
        of such holders. In certain circumstances, such issuance could have the effect
        of decreasing the market price of our common stock. Our amended and restated
        bylaws eliminate the right of stockholders to call a special meeting of
        stockholders, which could make it more difficult for stockholders to effect
        certain corporate actions. Any of these provisions could also have the effect
        of
        delaying or preventing a change in control.
 
 **ITEM
        3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**
 
 The
        primary objective of our investment activities is to preserve principal while
        maximizing our income from investments and minimizing our market risk. We
        invest
        in government and investment-grade corporate debt and auction note securities
        in
        accordance with our investment policy. Some of the securities in which we
        invest
        may have market risk. This means that a change in prevailing interest rates
        may
        cause the principal amount of the investment to fluctuate. For example, if
        we
        hold a security that was issued with a fixed interest rate at the
        then-prevailing rate and the prevailing interest rate later rises, the principal
        amount of our investment will probably decline. As of June 30, 2005, our
        portfolio of financial instruments consists of cash equivalents and short-term
        and long-term interest bearing securities, including corporate debt, money
        market funds, government debt and auction note securities. The average duration
        of all of our held-to-maturity investments held as of June 30, 2005, was
        less
        than one year. Additionally, the re-pricing of our auction notes within thirty
        days allows these securities to function as short-term investments. Due to
        the
        short-term nature of our investments, we believe we have no material exposure
        to
        interest rate risk arising from our investments.
 
 28
 **ITEM
        4. CONTROLS AND PROCEDURES**
 
 Our
        disclosure controls and procedures are designed to ensure that information
        required to be disclosed in our periodic filings with the SEC is (1) recorded,
        processed, summarized and reported properly, within the time periods specified
        in the SEC’s rules and forms and (2) accumulated and communicated to our
        management, including our Chief Executive Officer and Principal Financial
        Officer, on a timely basis so that proper disclosure can be made. Our Chief
        Executive Officer and Principal Financial Officer conducted an evaluation
        of our
        disclosure controls and procedures as of June 30, 2005, and concluded that
        our
        disclosure controls and procedures were effective.
 
 There
        were no changes in our internal controls over financial reporting during
        the
        three months ended June 30, 2005, that have materially affected, or are
        reasonably likely to materially affect our internal controls over financial
        reporting.
 
 Our
        management, including our Chief Executive Officer and Principal Financial
        Officer, does not expect that our disclosure controls and procedures or our
        internal controls over financial reporting will prevent all errors and all
        fraud. A control system, no matter how well conceived and operated, can provide
        only reasonable, not absolute, assurance that the objectives of the control
        system are met. Further, the design of a control system must reflect the
        fact
        that there are resource constraints, and the benefits of controls must be
        considered relative to their costs. Because of the inherent limitations in
        all
        control systems, no evaluation of controls can provide absolute assurance
        that
        all control issues and instances of fraud, if any, within our company have
        been
        detected.
 
 **PART
        II. OTHER INFORMATION**
 
 **ITEM
        1. LEGAL PROCEEDINGS**
 
 In
        July
        2003, Keryx (Israel) Ltd., one of our Israeli subsidiaries, vacated its
        Jerusalem facility, after giving advance notice to RAMPA 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 NIS or approximately $960,000 at
        the
        July 31, 2005 exchange rate, 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, and in July 2005, Keryx
        (Israel) Ltd. and Keryx Biomedical Technologies Ltd. filed an answer to the
        landlord’s complaint. Generally, the answer challenges the merits of the
        landlord’s cause of action as to each defendant. To date, we have not yet
        recorded a charge to reflect any potential liability associated with this
        suit.
 
 **ITEM
        4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**
 
 On
        June
        8, 2005, we held our annual meeting of stockholders. The only matters before
        the
        stockholders were the election of directors and the ratification of auditors.
        At
        the meeting, Eric Rose, M.D. was elected and I. Craig Henderson, M.D., Malcolm
        Hoenlein, Lawrence Jay Kessel, M.D., Lindsay A. Rosenwald, M.D., Peter Salomon,
        M.D., 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 WithheldI.
                  Craig Henderson, M.D.
              
              
              20,841,370
              
              
              4,686,072Malcolm
                  Hoenlein
              
              
              24,572,227
              
              
              955,215Lawrence
                  Jay Kessel, M.D.
              
              
              24,572,426
              
              
              955,016Eric
                  Rose,M.D.
              
              
              25,111,133
              
              
              416,309Lindsay
                  A. Rosenwald, M.D.
              
              
              24,553,956
              
              
              973,486Peter
                  Salomon, M.D.
              
              
              25,112,233
              
              
              415,209Michael
                  S. Weiss
              
              
              20,672,885
              
              
              4,854,557
 
 29
 The
        vote
        with respect to the ratification of the appointment of KPMG LLP as our
        independent registered accounting firm is as follows:
 
 Total
                  Votes For
              Total
                  Votes Against
              Abstention
                  and Broker Non-Votes25,121,020
              66,125
              5,750
 
 **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 June 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 (File No. 000-30929),
                  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 5, 2005.31.2
              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,
                  August
                  5, 2005.32.1
              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, August
                  5, 2005.32.2
              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, dated
                  August 5,
                  2005.
 
  30
  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 5, 2005
              By:
              /s/
                  Ron BentsurRon
                  BentsurVice
                  President, Finance and Investor Relations
                (Principal
                  Financial and Accounting Officer)
   31
  
 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 5, 2005.31.2
              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 5, 2005.32.1
              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, dated
                  August 5,
                  2005.32.2
              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, dated
                  August 5,
                  2005.
 ***_______________***