**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**


**____________________________**


**FORM
      10-Q**





**x 
QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE****SECURITIES
                EXCHANGE ACT OF 1934****For
                the quarterly period ended March 31, 2007****OR****o 
TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE****SECURITIES
                EXCHANGE ACT OF 1934****For
                the transition period from********to********.**





**Commission
      File Number 000-30929**


**___________________**


**KERYX
      BIOPHARMACEUTICALS, INC.**


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





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


**750
      Lexington Avenue**


**New
      York, New York 10022**


(Address
      including zip code of principal executive offices)





**(212)
      531-5965**


(Registrant's
      telephone number, including area code)





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


Yes x No £





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act). (Check
      one):





Large
      accelerated filer £    Accelerated
      filer x   Non-accelerated
      filer £





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


Yes £ No x





There
      were 43,565,133 shares of the registrant’s common stock, $0.001 par value,
      outstanding as of May 2, 2007.









**KERYX
      BIOPHARMACEUTICALS, INC.**


**FORM
      10-Q**


**FOR
      THE QUARTER ENDED MARCH 31, 2007**





**TABLE
      OF CONTENTS**








**Page**SPECIAL
                CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
            3**PART
                I**
            **FINANCIAL
                INFORMATION**Item
                1
            Financial
                Statements
            4Consolidated
                Balance Sheets as of March 31, 2007 (unaudited) andDecember
                31, 2006
            4Consolidated
                Statements of Operations for the three monthsended
                March 31, 2007 and 2006 (unaudited)
            5Consolidated
                Statement of Changes in Stockholders’ Equityfor
                the three months ended March 31, 2007 (unaudited)
            6Consolidated
                Statements of Cash Flows for the three monthsended
                March 31, 2007 and 2006 (unaudited)
            7Notes
                to Consolidated Financial Statements for the three
                monthsended
                March 31, 2007 (unaudited)
            9Item
                2
            Management's
                Discussion and Analysis of Financial Condition andResults
                of Operations
            15Item
                3
            Quantitative
                and Qualitative Disclosures About Market Risk
            22Item
                4
            Controls
                and Procedures
            22**PART
                II**
            **OTHER
                INFORMATION**Item
                1
            Legal
                Proceedings
            23Item
                1A
            Risk
                Factors
            24Item
                6
            Exhibits
            34




2




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





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




·
            expectations
                for increases or decreases in expenses;




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




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




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




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




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




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




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




·
            expected
                losses; and




·
            expectations
                for future capital requirements.




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





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




3




**PART
      I. FINANCIAL INFORMATION**





**ITEM
      1. FINANCIAL STATEMENTS**





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


Consolidated
      Balance Sheets as of March 31, 2007, and December 31, 2006





(in
      thousands, except share and per share amounts)





**March
                31, 2007**
            
            **December
                31,**
              **2006****(Unaudited)****Assets**Current
                assetsCash
                and cash equivalents
            
            $
            35,471
            
            $
            48,736Short-term
                investment securities
            
            
            57,181
            
            
            63,659Accrued
                interest receivable
            
            
            659
            
            
            525Other
                current assets
            
            
            829
            
            
            2,048Total
                current assets
            
            
            94,140
            
            
            114,968Long-term
                investment securities
            
            
            14,708
            
            
            12,690Property,
                plant and equipment, net
            
            
            10,965
            
            
            8,489Goodwill
            
            
            3,208
            
            
            3,208Other
                assets, net
            
            
            344
            
            
            958Total
                assets
            
            $
            123,365
            
            $
            140,313**Liabilities
                and stockholders’ equity**Current
                liabilitiesAccounts
                payable and accrued expenses
            
            $
            13,451
            
            $
            10,460Accrued
                compensation and related liabilities
            
            
            320
            
            
            1,534Deferred
                revenue
            
            
            197
            
            
            200Total
                current liabilities
            
            
            13,968
            
            
            12,194Contingent
                equity rights
            
            
            4,004
            
            
            4,004Other
                liabilities
            
            
            271
            
            
            294Total
                liabilities
            
            
            18,243
            
            
            16,492Stockholders’
                equityCommon
                stock, $0.001 par value per share (60,000,000 and 60,000,000 shares
                authorized, 43,580,081 and 43,516,669 shares issued, 43,518,008 and
                43,460,569 shares outstanding at March 31, 2007, and December 31,
                2006,
                respectively)
            
            
            44
            
            
            44Additional
                paid-in capital
            
            
            315,262
            
            
            312,078Treasury
                stock, at cost, 62,073 and 56,100 shares at March 31, 2007, and December
                31, 2006, respectively
            
            
            (159
            )
            
            (89
            )Deficit
                accumulated during the development stage
            
            
            (210,025
            )
            
            (188,212
            )Total
                stockholders’ equity
            
            
            105,122
            
            
            123,821Total
                liabilities and stockholders’ equity
            
            $
            123,365
            
            $
            140,313





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




4




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


Consolidated
      Statements of Operations for the


Three
      Months Ended March 31, 2007 and 2006 (Unaudited)





(in
      thousands, except share and per share amounts)





**Three
                months ended**
              **March
                31,**
            
            **Amounts**
              **accumulated**
              **during
                the**
              **development****2007**
            
            **2006**
            
            **stage**Revenue:Diagnostic
                revenue
            
            $
            30
            
            $
            –
            
            $
            133Service
                revenue
            
            
            12
            
            
            112
            
            
            1,826Management
                fees from related party
            
            
            –
            
            
            –
            
            
            300Total
                revenue
            
            
            42
            
            
            112
            
            
            2,259Operating
                expenses:Cost
                of diagnostics sold
            
            
            22
            
            
            –
            
            
            162Cost
                of services
            
            
            32
            
            
            171
            
            
            2,076Research
                and development:Non-cash
                compensation
            
            
            995
            
            
            2,724
            
            
            15,233Non-cash
                acquired in-process research and development
            
            
            –
            
            
            –
            
            
            18,800Other
                research and development
            
            
            17,446
            
            
            12,333
            
            
            137,479Total
                research and development
            
            
            18,441
            
            
            15,057
            
            
            171,512Selling,
                general and administrative:Non-cash
                compensation
            
            
            2,006
            
            
            2,817
            
            
            15,855Other
                selling, general and administrative
            
            
            2,795
            
            
            2,645
            
            
            36,991Total
                selling, general and administrative
            
            
            4,801
            
            
            5,462
            
            
            52,846Total
                operating expenses
            
            
            23,296
            
            
            20,690
            
            
            226,596Operating
                loss
            
            
            (23,254
            )
            
            (20,578
            )
            
            (224,337
            )Interest
                and other income, net
            
            
            1,441
            
            
            982
            
            
            14,803Net
                loss before income taxes
            
            
            (21,813
            )
            
            (19,596
            )
            
            (209,534
            )Income
                taxes
            
            
            –
            
            
            –
            
            
            491Net
                loss
            
            $
            (21,813
            )
            $
            (19,596
            )
            $
            (210,025
            )Basic
                and diluted loss per common share
            
            $
            (0.50
            )
            $
            (0.51
            )
            $
            (10.00
            )Weighted
                average shares used in computing basic and
              diluted
                netloss
                per common share
            
            
            43,506,236
            
            
            38,071,609
            
            
            20,995,344





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




5




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


Consolidated
      Statement of Changes in Stockholders’ Equity for the


Three
      Months Ended March 31, 2007 (Unaudited)





(in
      thousands, except share amounts)








**Common
                stock**
            
            **Additional**
              **paid-in****Shares**
            
            **Amount**
            
            **capital**Balance
                at December 31, 2006
            
            
            43,516,669
            
            $
            44
            
            $
            312,078Changes
                during the period:Purchase
                of common stock
            
            
            –
            
            
            –
            
            
            –Exercise
                of options
            
            
            63,412
            
            
            –*
            
            
            183Compensation
                in respect of options, restricted stock and warrants granted to employees,
                directors and third-parties
            
            
            –
            
            
            –
            
            
            3,001Net
                loss
            
            
            –
            
            
            –
            
            
            –Balance
                at March 31, 2007
            
            
            43,580,081
            
            $
            44
            
            $
            315,262







**Treasury
                stock**
            
            **Deficit**
              **accumulated**
              **during
                the**
              **d****evelopment****Shares**
            
            **Amount**
            
            **Stage**
            
            **Total**Balance
                at December 31, 2006
            
            
            56,100
            
            $
            (89
            )
            $
            (188,212
            )
            $
            123,821Changes
                during the period:Purchase
                of common stock
            
            
            5,973
            
            
            (70
            )
            
            –
            
            
            (70
            )Exercise
                of options
            
            
            –
            
            
            –
            
            
            –
            
            
            183Compensation
                in respect of options, restricted stock and warrants granted to employees,
                directors and third-parties
            
            
            –
            
            
            –
            
            
            –
            
            
            3,001Net
                loss
            
            
            –
            
            
            –
            
            
            (21,813
            )
            
            (21,813
            )Balance
                at March 31, 2007
            
            
            62,073
            
            $
            (159
            )
            $
            (210,025
            )
            $
            105,122





**
      Amount less than one thousand dollars.*





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




6




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


Consolidated
      Statements of Cash Flows for the Three Months Ended March 31, 2007 and 2006
      (Unaudited)





(in
      thousands)





**Three
                months ended**
              **March
                31,**
            
            **Amounts**
              **accumulated**
              **during
                the**
              **development**
              **stage****2007**
            
            **2006**CASH
                FLOWS FROM OPERATING ACTIVITIESNet
                loss
            
            $
            (21,813
            )
            $
            (19,596
            )
            $
            (210,025
            )Adjustments
                to reconcile cash flows used in operating activities:Acquired
                in-process research and development
            
            
            –
            
            
            –
            
            
            18,800Stock
                compensation expense
            
            
            3,001
            
            
            5,541
            
            
            31,088Issuance
                of common stock to technology licensor
            
            
            –
            
            
            –
            
            
            359Interest
                on convertible notes settled through issuance of preferred
                shares
            
            
            –
            
            
            –
            
            
            253Depreciation
                and amortization
            
            
            49
            
            
            52
            
            
            2,884Loss
                on disposal of property, plant and equipment
            
            
            –
            
            
            –
            
            
            172Impairment
                charges
            
            
            600
            
            
            –
            
            
            3,082Exchange
                rate differences
            
            
            –
            
            
            –
            
            
            94Changes
                in assets and liabilities, net of effects of acquisitions:Decrease
                (increase) in other current assets
            
            
            1,219
            
            
            (1,297
            )
            
            (357
            )(Increase)
                decrease in accrued interest receivable
            
            
            (134
            )
            
            140
            
            
            (659
            )(Increase)
                in security deposits
            
            
            –
            
            
            (241
            )
            
            (263
            )Increase
                in accounts payable and accrued expenses
            
            
            2,991
            
            
            1,300
            
            
            11,706(Decrease)
                increase in accrued compensation and related liabilities
            
            
            (1,214
            )
            
            1,276
            
            
            (275
            )(Decrease)
                increase in other liabilities
            
            
            (23
            )
            
            (17
            )
            
            116(Decrease)
                increase in deferred revenue
            
            
            (3
            )
            
            95
            
            
            (259
            )Net
                cash used in operating activities
            
            
            (15,327
            )
            
            (12,747
            )
            
            (143,284
            )CASH
                FLOWS FROM INVESTING ACTIVITIESPurchases
                of property, plant and equipment
            
            
            (2,511
            )
            
            (526
            )
            
            (15,499
            )Proceeds
                from disposals of property, plant and equipment
            
            
            –
            
            
            –
            
            
            425(Increase)
                in note and accrued interest receivable from related party
            
            
            –
            
            
            –
            
            
            (356
            )Payments
                of transaction costs
            
            
            –
            
            
            –
            
            
            (231
            )Decrease
                (increase) in other assets
            
            
            –
            
            
            27
            
            
            (1,192
            )Investment
                in held-to-maturity short-term securities
            
            
            (22
            )
            
            (26
            )
            
            (48,935
            )Proceeds
                from maturity of held-to-maturity short-term securities
            
            
            4,500
            
            
            305
            
            
            56,521Investment
                in available-for-sale short-term securities
            
            
            (500
            )
            
            (125
            )
            
            (58,600
            )Proceeds
                from sale of available-for-sale short-term securities
            
            
            2,500
            
            
            –
            
            
            18,900Investment
                in held-to-maturity long-term securities
            
            
            (2,019
            )
            
            (3
            )
            
            (39,966
            )Proceeds
                from maturity of held-to-maturity long-term securities
            
            
            1
            
            
            2
            
            
            191Net
                cash used in investing activities
            
            
            1,949
            
            
            (346
            )
            
            (88,742
            )








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




7




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


Consolidated
      Statements of Cash Flows for the Three Months Ended March 31, 2007 and 2006
      (Unaudited)


(continued)





(in
      thousands)





**Three
                months ended**
              **March
                31,**
            
            **Amounts**
              **accumulated**
              **during
                the**
              **development**
              **stage****2007**
            
            **2006**CASH
                FLOWS FROM FINANCING ACTIVITIESProceeds
                from short-term loans
            
            $
            –
            
            $
            –
            
            $
            500Proceeds
                from long-term loans
            
            
            –
            
            
            –
            
            
            3,251Payment
                of assumed notes payable and accrued interest in connection with
                the
                ACCESS Oncology acquisition
            
            
            –
            
            
            –
            
            
            (6,322
            )Issuance
                of convertible note, net
            
            
            –
            
            
            –
            
            
            2,150Issuance
                of preferred shares, net
            
            
            –
            
            
            –
            
            
            8,453Receipts
                on account of shares previously issued
            
            
            –
            
            
            –
            
            
            7Proceeds
                from initial public offering, net
            
            
            –
            
            
            –
            
            
            46,298Proceeds
                from subsequent public offerings, net
            
            
            –
            
            
            82,741
            
            
            158,487Proceeds
                from private placements, net
            
            
            –
            
            
            –
            
            
            45,795Proceeds
                from exercise of options and warrants
            
            
            183
            
            
            1,203
            
            
            9,032Purchase
                of treasury stock
            
            
            (70
            )
            
            –
            
            
            (159
            )Net
                cash provided by financing activities
            
            
            113
            
            
            83,944
            
            
            267,492Cash
                acquired in acquisition
            
            
            –
            
            
            –
            
            
            99Effect
                of exchange rate on cash
            
            
            –
            
            
            –
            
            
            (94
            )NET
                INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
            
            
            (13,265
            )
            
            70,851
            
            
            35,471Cash
                and cash equivalents at beginning of year
            
            
            48,736
            
            
            68,175
            
            
            –CASH
                AND CASH EQUIVALENTS AT END OF PERIOD
            
            $
            35,471
            
            $
            139,026
            
            $
            35,471NON
                - CASH TRANSACTIONSIssuance
                of common stock in connection with acquisition
            
            $
            –
            
            $
            –
            
            $
            9,635Contingent
                equity rights in connection with acquisition
            
            
            –
            
            
            –
            
            
            4,004Assumption
                of liabilities in connection with acquisition
            
            
            –
            
            
            –
            
            
            9,068Conversion
                of short-term loans into contributed capital
            
            
            –
            
            
            –
            
            
            500Conversion
                of long-term loans into contributed capital
            
            
            –
            
            
            –
            
            
            2,681Conversion
                of long-term loans into convertible notes of Partec
            
            
            –
            
            
            –
            
            
            570Conversion
                of convertible notes of Partec and accrued interest into stock in
                Keryx
            
            
            –
            
            
            –
            
            
            2,973Issuance
                of warrants to related party as finder’s fee in private
                placement
            
            
            –
            
            
            –
            
            
            114Declaration
                of stock dividend
            
            
            –
            
            
            –
            
            
            3SUPPLEMENTARY
                DISCLOSURES OF CASH FLOW INFORMATIONCash
                paid for interest
            
            $
            –
            
            $
            –
            
            $
            1,166Cash
                paid for income taxes
            
            $
            –
            
            $
            –
            
            $
            432








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




8




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


Notes
      to
      Consolidated Financial Statements as of March 31, 2007 (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
      medically important, 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, focusing on the
      development and commercialization of clinical compounds and core technologies
      for the life sciences.





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





The
      Company owns a 100% interest in each of ACCESS Oncology, Inc., Neryx
      Biopharmaceuticals, Inc., and Accumin Diagnostics, Inc., all U.S. corporations
      incorporated in the State of Delaware, and Keryx (Israel) Ltd. and Keryx
      Biomedical Technologies Ltd., each organized in Israel. In 2003, the Company’s
      subsidiaries in Israel ceased operations and are currently in the process of
      being closed down. Most of the Company's biopharmaceutical development and
      substantially all of its administrative operations during the three months
      ended
      March 31, 2007, and 2006, were conducted in the United States of
      America.





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





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





The
      accompanying unaudited consolidated financial statements were prepared in
      accordance with U.S. generally accepted accounting principles (“GAAP”) for
      interim financial information and with the instructions to Form 10-Q and
      Article 10 of Regulation S-X. Accordingly, they do not include all of
      the information and footnotes required by GAAP for complete financial
      statements. All adjustments that are, in the opinion of management, of a normal
      recurring nature and are necessary for a fair presentation of the consolidated
      financial statements have been included. Nevertheless, these financial
      statements should be read in conjunction with the Company's audited consolidated
      financial statements contained in its Annual Report on Form 10-K for the year
      ended December 31, 2006. The results of operations for the three months ended
      March 31, 2007, are not necessarily indicative of the results that may be
      expected for the entire fiscal year or any other interim period.




9




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.





STOCK
      -
      BASED COMPENSATION




The
      Company adopted Statement of Financial Accounting Standards No. 123R,
“Share-Based Payment” (“SFAS 123R”) on January 1, 2006 using the modified
      prospective transition method. SFAS 123R requires all share-based payments
      to
      employees, or to non-employee directors as compensation for service on the
      Board
      of Directors, to be recognized as compensation expense in the consolidated
      financial statements based on the fair values of such payments. Stock-based
      compensation expense recognized each period is based on the value of the portion
      of share-based payment awards that is ultimately expected to vest during the
      period. SFAS 123R requires forfeitures to be estimated at the time of grant
      and
      revised, if necessary, in subsequent periods if actual forfeitures differ from
      those estimates.





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





NET
      LOSS
      PER SHARE





Basic
      net
      loss per share is computed by dividing the losses allocable to common
      stockholders by the weighted average number of shares of common stock
      outstanding for the period. Diluted net loss per share does not reflect the
      effect of shares of common stock to be issued upon the exercise of stock options
      and warrants, as their inclusion would be anti-dilutive. The options and
      warrants outstanding as of March 31, 2007, and 2006, which are not included
      in
      the computation of net loss per share amounts, were 11,063,843 and 10,864,917,
      respectively.





PATENTS





Through
      March 31, 2006, the Company classified its patent expenses in other research
      and
      development. Effective April 1, 2006, the Company has classified its patent
      expenses in other general and administrative. The results of prior periods
      have
      not been reclassified because they were not significant.





ACCOUNTING
      FOR MANUFACTURING SUITE





As
      of
      March 31, 2007, the Company has spent approximately $10.6 million in capital
      expenditures building its manufacturing suite for Sulonex. The Company
      anticipates that in the second half of 2007, after equipment validation has
      been
      completed, the facility will be ready for its intended use, and the Company
      will
      begin to depreciate this asset at that time.




INCOME
      TAXES




On
      January 1, 2007, the Company adopted FIN 48, Accounting for Uncertainty in
      Income Taxes. FIN 48 clarifies the criteria for recognizing tax benefits related
      to uncertain tax positions under SFAS No. 109, Accounting for Income Taxes,
      and
      requires additional financial statement disclosure. FIN 48 requires that the
      Company recognize, in its consolidated financial statements, the impact of
      a tax
      position if that position is more likely than not to be sustained upon
      examination, based on the technical merits of the position. Adoption of FIN
      48
      had no impact on the Company’s consolidated results of operations and financial
      position.





Upon
      adoption, the Company believes there are no uncertain tax positions that fail
      to
      meet the more likely than not recognition threshold under FIN 48 to be sustained
      upon examination.




10
 
 Prior
          to
          the adoption of FIN 48, the Company included interest accrued on the
          underpayment of income taxes in interest expense and penalties, if any,
          related
          to unrecognized tax benefits in selling, general and administrative expense.
          The
          Company continued to follow this policy following the adoption of FIN
          48.
 
 The
          Company files income tax returns in the U.S. and the statute of limitations
          has
          expired for years prior to 2003. In 2006, the Internal Revenue Service
          commenced
          an examination of the Company’s U.S. Federal income tax returns for tax years
          2004 and 2005.


The
      Company and its subsidiaries file income tax returns in the U.S. federal
      jurisdiction and in various states. The Company has tax net operating loss
      carryforwards that are subject to examination for a number of years beyond
      the
      year in which they are utilized for tax purposes. Since a portion of these
      carryforwards may be utilized in the future, many of these carryforwards will
      remain subject to examination.




**NOTE
      2 - STOCKHOLDERS' EQUITY**




**COMMON
      STOCK**





On
      March
      29, 2006, the Company completed a registered direct offering of 4,500,000 shares
      of its common stock to two institutional investors at $18.40 per share. Total
      proceeds to the Company from this public offering were approximately $82.7
      million, net of offering expenses of approximately $0.1 million. The shares
      were
      sold under a shelf registration statement on Form S-3 (File No. 333-130809)
      filed with the Securities and Exchange Commission, or the SEC, on December
      30,
      2005, and declared effective by the SEC on January 13, 2006, covering shares
      of
      the Company’s Common Stock having a value not to exceed $150
      million.





The
      Company may offer the remaining securities under its shelf registration from
      time to time in response to market conditions or other circumstances if it
      believes such a plan of financing is in the best interest of the Company and
      its
      stockholders. The Company believes that the shelf registration provides it
      with
      the flexibility to raise additional capital to finance its operations as needed.




**TREASURY
      STOCK**





On
      February 14, 2007, our Chief Financial Officer surrendered to the Company 5,973
      shares of common stock in order to satisfy his tax withholding obligation upon
      the vesting of 16,666 shares of restricted stock. The 5,973 shares of common
      stock are being held by the Company in Treasury, at a cost of approximately
      $70,000, representing the fair market value on the date the shares were
      surrendered.




**STOCK
      OPTIONS, RESTRICTED STOCK AND WARRANTS**





In
      March
      2007, the Company adopted the 2007 Chief Accounting Officer Inducement Stock
      Option Plan (the “2007 CAO Plan”). Under the 2007 CAO Plan, the Company’s board
      of directors granted an option to the newly-appointed Chief Accounting Officer
      of the Company to purchase up to 100,000 shares of authorized but unissued
      common stock. The option has a term of 10 years from the date of the grant.
      The
      option granted to the newly appointed Chief Accounting Officer was made pursuant
      to an employment arrangement. Of these options, 25,000 vest on the one-year
      anniversary of employment and 6,250 vest every three months following the
      one-year anniversary of employment, until the 48th month of employment. No
      additional shares of our common stock may be issued under the 2007 CAO
      Plan.





The
      following table summarizes equity awards authorized by the Company as of March
      31, 2007.





**Plan**
            
            **Exercise**
              **price**
            
            **Authorized**
            
            **Outstanding**
            
            **Exercised**
            
            **Restricted**
              **Stock**
              **Vested**
            
            **Exercisable**
            
            **Available**
              **for
                grant**1999
                Stock Option Plan
            
            $
            0.10
                - 1.30
            
            
            4,230,000
            
            
            617,995
            
            
            3,506,505
            
            
            –
            
            
            617,995
            
            
            –2000
                Stock Option Plan
            
            
            1.10
                - 14.64
            
            
            4,455,000
            
            
            2,869,465
            
            
            1,566,156
            
            
            –
            
            
            2,257,007
            
            
            19,379Non
                Plan
            
            
            0.33
            
            
            240,000
            
            
            60,000
            
            
            157,500
            
            
            –
            
            
            60,000
            
            
            –2002
                CEO Incentive Stock
              Option
                Plan
            
            
            1.30
            
            
            2,002,657
            
            
            2,002,657
            
            
            –
            
            
            –
            
            
            2,002,657
            
            
            –2004
                President Incentive Plan
            
            
            9.25
            
            
            1,000,000
            
            
            1,000,000
            
            
            –
            
            
            –
            
            
            500,000
            
            
            –2004
                Long-Term Incentive Plan
            
            
            7.13
                - 18.06
            *
            
            4,000,000
            
            
            3,675,084
            
            
            131,037
            
            
            16,666
            
            
            1,264,614
            
            
            177,2132006
                CFO Incentive Plan
            
            
            15.30
            
            
            500,000
            
            
            500,000
            
            
            –
            
            
            –
            
            
            166,667
            
            
            –2007
                CAO Inducement Plan
            
            
            11.11
            
            
            100,000
            
            
            100,000
            
            
            –
            
            
            –
            
            
            –
            
            
            –16,527,657
            
            
            10,825,201
            
            
            5,361,198
            
            
            16,666
            
            
            6,868,940
            
            
            196,592


*
      Exercise price range excludes restricted stock.




11




A
      summary
      of the status of the Company’s equity awards as of March 31, 2007 and December
      31, 2006, and changes during the period is presented in the table
      below.





**Outstanding
                equity awards****Shares**
              **available**
            
            **Number**
              **of
                shares**
            
            **Weighted-**
              **average**
              **exercise
                price**Balance,
                December 31, 2006
            
            
            152,158
            
            
            10,849,713
            
            $
            7.82Authorized
            
            
            100,000
            
            
            –
            
            
            –Granted
            
            
            (124,900
            )
            
            124,900
            
            
            11.03Exercised
            
            
            –
            
            
            (63,412
            )
            
            2.88Restricted
                stock vested
            
            
            –
            
            
            (16,666
            )
            
            –Forfeited
                and expired
            
            
            69,334
            
            
            (69,334
            )
            
            13.54Balance,
                March 31, 2007
            
            
            196,592
            
            
            10,825,201
            
            
            7.87Exercisable
                at December 31, 2006
            
            
            
            
            
            6,178,994
            
            
            3.92Exercisable
                at March 31, 2007
            
            
            
            
            
            6,868,940
            
            
            5.05





As
      of
      March 31, 2007, there were 83,334 shares of restricted stock outstanding under
      the 2004 Long-Term Incentive Plan (included in the tables above).





A
      summary
      of share-based compensation activity for the three months ended March 31, 2007
      is presented below:





**Stock
      Options**


**Number
                of Options**
            
            **Exercise**
              **price
                per**
              **share**
            
            **Weighted-average**
              **exercise
                price**
            
            **Weighted-average**
              **remaining
                contractual term**
              **(years)**
            
            **Aggregate
                intrinsic value**Outstanding
                at January 1, 2007
            
            
            10,749,713
            
            $
            0.10
                - $ 18.06
            
            
            7.90
            
            
            7.6
            
            
            $58,048,000Granted
            
            
            124,900
            
            
            10.67
                - 11.11
            
            
            11.03Exercised
            
            
            (63,412
            )
            
            0.10
                - 9.25
            
            
            2.88Forfeited
                and expired
            
            
            (69,334
            )
            
            4.59
                - 17.16
            
            
            13.54Outstanding
                at March 31, 2007
            
            
            10,741,867
            
            
            0.10
                - 18.06
            
            
            7.93
            
            
            7.4
            
            
            27,821,000Vested
                and expected to vest at March 31, 2007
            
            
            10,688,941
            
            
            0.10
                - 18.06
            
            
            7.92
            
            
            7.4
            
            
            27,791,000Exercisable
                at March 31, 2007
            
            
            6,868,940
            
            
            0.10
                - 18.06
            
            
            5.05
            
            
            6.7
            
            
            37,573,000





The
      aggregate intrinsic value of options exercised for the three months ended 2007
      and 2006 was approximately $590,000 and $5,884,000, respectively. Upon the
      exercise of outstanding options, the Company issues new shares.





As
      of
      March 31, 2007, 3,654,944 options issued to directors and employees, and 93,000
      options issued to consultants, are milestone-based, of which 3,379,944 options
      issued to directors and employees, and 43,000 options issued to consultants,
      are
      vested and exercisable.





**Restricted
      Stock**


**Number
                of**
              **Shares**
            
            **Average
                Grant Date**
              **Fair
                Value**Nonvested
                at January 1, 2007
            
            
            100,000
            
            $
            15.30Granted
            
            
            –
            
            
            –Vested
            
            
            16,666
            
            $
            15.30Forfeited
            
            
            –
            
            
            –Nonvested
                at March 31, 2007
            
            
            83,334
            
            $
            15.30




12




As
      of
      March 31, 2007, 50,000 shares of restricted stock, issued to our Chief Financial
      Officer, are milestone-based.





**Warrants**


**Warrants**
            
            **Weighted-**
              **average**
              **exercise
                price**Outstanding
                at January 1, 2007
            
            
            321,976
            
            $
            4.65Issued
            
            
            –
            
            
            –Exercised
            
            
            –
            
            
            –Canceled
            
            
            –
            
            
            –Outstanding
                at March 31, 2007
            
            
            321,976
            
            $
            4.65





*Stock-based
      Compensation*





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





The
      weighted average fair market value of options granted during the three months
      ended March 31, 2007, and 2006, as of the date of the grant, was $6.92 and
      $8.43, respectively.  The assumptions used in the calculation of the fair
      value of options granted during the three months ended March 31, 2007, and
      2006,
      were a weighted average expected term of 5.0 and 3.3 years, respectively, a
      weighted average expected volatility rate of 72.23% and 79.25%, respectively,
      and a weighted average risk-free interest rate of 4.51% and 4.74%, respectively.
      The Company used historical information to estimate forfeitures within the
      valuation model. As of March 31, 2007, there was $24.1 million of total
      unrecognized compensation cost, related to nonvested stock options and
      restricted stock, which is expected to be recognized over a weighted-average
      period of 2.9 years.





**NOTE 3
      - BONUS TO OFFICER**





Pursuant
      to his employment agreement, the Chief
      Executive Officer of the Company
      was entitled to receive a one-time $2 million cash bonus due to the achievement
      of a corporate milestone that occurred ,
      and was
      expensed, in
      the
      first quarter of 2006 and paid in the second quarter of 2006. Of this amount,
      $1,000,000 was included in other research and development expenses and
      $1,000,000 was included in other selling, general and administrative expenses
      for the three months ended March 31, 2006.





**NOTE
      4 - ACCUMIN TRANSACTION**





On
      April
      6, 2006, Accumin Diagnostics, Inc. (“ADI”), a wholly-owned subsidiary of the
      Company, completed the acquisition of Accumin TM ,
      a
      novel, patent protected, diagnostic for the direct measurement of total,
      intact urinary albumin, from AusAm Biotechnologies, Inc. (“AusAm”). The Company
      believes that the acquisition of Accumin could help increase the Company’s
      exposure to physicians that treat diabetes, the target market for Sulonex,
      by,
      among other things highlighting the need for and importance of early detection
      of microalbuminuria, which, if successful, could ultimately improve market
      perception and utilization of Sulonex. This acquisition also provided the
      Company with an incidental revenue stream associated with Accumin’s diagnostic
      tool.




The
      purchase price of Accumin was $3,996,000, which included the issuance of 245,024
      shares of the Company’s common stock, the assumption of certain liabilities of
      AusAm equal to approximately $345,000 and transaction costs and cash settlement
      costs of approximately $341,000. ADI also entered into a royalty arrangement
      under which ADI may be required to pay up to a maximum of $16.1 million to
      AusAm
      on revenue from a next generation product following FDA marketing approval.
      Keryx filed a registration statement on Form S-3 with the Securities and
      Exchange Commission, or SEC, on April 6, 2006 with respect to the shares issued
      to AusAm which was declared effective on June 23, 2006 (the “Effective Date”).
      On the Effective Date, 245,024 shares were released from escrow to AusAm.




13




The
      excess of the purchase price over the net assets acquired in the Accumin
      transaction represented goodwill of approximately $3,208,000, which has been
      allocated to our Products segment based on the proposed synergies associated
      with Sulonex.





Subsequent
      to the closing, disputes arose between the debtor and Keryx relating to the
      determination of the purchase consideration under the acquisition
      agreement. On July 31, 2006, the debtor filed a motion purporting to seek
      to enforce the terms of the acquisition agreement and alleging damages in the
      amount of $818,145. (In re:  AusAm Biotechnologies, Inc., Chapter 11 Case
      No. 06-10214 (RDD) (Bankr. S.D.N.Y.)). The matter has been settled pursuant
      to a settlement agreement approved by the Bankruptcy Court on April 10, 2007.
      In
      April 2007, under the settlement, Keryx paid AusAm $110,075 in full settlement
      of all claims made by AusAm in the action.





In
      accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of
      Long-Lived Assets,” the Company recognizes an impairment loss when circumstances
      indicate that the carrying value of long-lived tangible and intangible assets
      with finite lives may not be recoverable. Management reviews various
      quantitative and qualitative factors in determining whether an impairment
      indicator exists, a triggering event. If an analysis is necessitated by the
      occurrence of a triggering event, the Company makes certain assumptions in
      determining the impairment amount. Recoverability of assets to be held and
      used
      is measured by a comparison of the carrying amount of an asset to future cash
      flows expected to be generated by the asset or used in its disposal. If the
      carrying amount of an asset exceeds its estimated future cash flows, an
      impairment charge is recognized. The Company continues to derive incidental
      revenue from the sale of the Accumin diagnostic tool. During the first quarter
      of 2007, management reviewed both its original and projected revenue estimates
      associated with the diagnostic tool. As a result of the cash flows of the
      diagnostic tool, the Company concluded that the asset was impaired and recorded
      an impairment charge of approximately $600,000 to write-down identifiable
      intangible long-lived assets associated with Accumin. The charge was recorded
      in
      other selling, general and administrative expenses within the Diagnostics
      segment.





Unaudited
      pro forma financial information has not been presented as the Aug Am information
      is immaterial to our results of operations.





**NOTE
      5 - SEGMENT INFORMATION**





The
      Company has three reportable segments: Diagnostics, Services and Products.
      The
      Diagnostics business sells diagnostic products for the direct measurement of
      total, intact urinary albumin. The Services business provides clinical trial
      management and site recruitment services to other biotechnology and
      pharmaceutical companies. The Products business focuses on the acquisition,
      development and commercialization of medically important, novel pharmaceutical
      products for the treatment of life-threatening diseases, including diabetes
      and
      cancer.





Segment
      information for the three month periods were as follows:





**Revenue****Three
                months ended March 31,**
            
            **Amounts**
              **accumulated**
              **during
                the**
              **development**(in
                thousands)
            
            **2007**
            
            **2006**
            
            **Stage**Diagnostics
            
            $
            30
            
            $
            –
            
            $
            133Services
            
            
            12
            
            
            112
            
            
            1,826Products
            
            
            –
            
            
            –
            
            
            –Total
            
            $
            42
            
            $
            112
            
            $
            1,959






14




**Operating
                loss****Three
                months ended March 31,**
            
            **Amounts**
              **accumulated**
              **during
                the**
              **development**(in
                thousands)
            
            **2007**
            
            **2006**
            
            **Stage**Diagnostics
            
            $
            (674
            )
            $
            –
            
            $
            (1,690
            )Services
            
            
            (20
            )
            
            (59
            )
            
            (250
            )Products
            
            
            (22,560
            )
            
            (20,519
            )
            
            (222,397
            )Total
            
            $
            (23,254
            )
            $
            (20,578
            )
            $
            (224,337
            )






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





**Net
                loss****Three
                months ended March 31,**
            
            **Amounts**
              **accumulated**
              **during
                the**
              **development**(in
                thousands)
            
            
            **2007**
            
            
            **2006**
            
            
            **Stage**Operating
                losses of reportable segments
            
            $
            (23,254
            )
            $
            (20,578
            )
            $
            (224,337
            )Interest
                and other income
            
            
            1,441
            
            
            982
            
            
            14,803Income
                taxes
            
            
            –
            
            
            –
            
            
            (491
            )Consolidated
                net loss
            
            $
            (21,813
            )
            $
            (19,596
            )
            $
            (210,025
            )





The
      carrying amount of goodwill by reportable segment as of March 31, 2007 and
      December 31, 2006 was as follows:





**Goodwill**(in
                thousands)
            
            **March
                31, 2007**
            
            **December
                31, 2006**Diagnostics
            
            
            –
            
            
            –Services
            
            
            –
            
            
            –Products
            
            $
            3,208
            
            $
            3,208Total
            
            $
            3,208
            
            $
            3,208





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





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




15




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,
      2006.





**OVERVIEW**





We
      are a
      biopharmaceutical company focused on the acquisition, development and
      commercialization of medically important, novel pharmaceutical products for
      the
      treatment of life-threatening diseases, including diabetes and cancer. Our
      lead
      compound under development is SulonexTM (sulodexide), which we previously
      referred to as KRX-101, a first-in-class, oral heparinoid compound for the
      treatment of diabetic nephropathy, a life-threatening kidney disease caused
      by
      diabetes. Sulonex is in a pivotal Phase III and Phase IV clinical program under
      an SPA with the FDA. Additionally, we are developing ZerenexTM, an oral,
      inorganic, iron-based compound that has the capacity to bind to phosphorous
      and
      form non-absorbable complexes. Zerenex is currently in Phase II clinical
      development for the treatment of hyperphosphatemia (elevated phosphate levels)
      in patients with ESRD. We are also developing clinical-stage oncology compounds,
      including KRX-0401, a novel, first-in-class, oral anti-cancer agent that
      modulates Akt, a protein in the body associated with tumor survival and growth,
      and a number of other key signal transduction pathways, including the JNK and
      MAPK pathways, which are pathways associated with programmed cell death, cell
      growth, cell differentiation and cell survival. KRX-0401 is currently in Phase
      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.





The
      table
      below summarizes the status of our product pipeline.





**Product
                candidate**
            **Target
                indication**
            **Development
                status*****Endocrine/Renal***SulonexTM
            Diabetic
                nephropathy
            Phase
                III & Phase IVZerenexTM
            Hyperphosphatemia
                in patients with
              end-stage
                renal disease
            Phase
                II***Oncology***KRX-0401
            Multiple
                forms of cancer
            Phase
                IIKRX-0402
            Brain
                cancer
            Phase
                IIKRX-0601
            Multiple
                forms of cancer
            Phase
                IIKRX-0404
            Multiple
                forms of cancer
            Pre-clinical***Neurology***KRX-0501
            Neurological
                disorders
            Pre-clinical





*Recent
      Developments*





Appointment
      of General Counsel





On
      April
      25, 2007, we announced the appointment of Beth Levine to serve as our Senior
      Vice President, General Counsel, Chief Compliance Officer and
      Secretary.





Appointment
      of Chief Accounting Officer





On
      March
      27, 2007, we announced the appointment of Mark Stier to serve as our Vice
      President and Chief Accounting Officer.




16




*General
      Corporate*




We
      are a
      development stage company and have no drug product sales to date. Our major
      sources of working capital have been proceeds from various private placements
      of
      equity securities, option and warrant exercises, and from public offerings
      of
      our common stock. We have devoted substantially all of our efforts to the
      identification, in-licensing and development of drug candidates. We have
      incurred negative cash flow from operations each year since our inception.
      We
      anticipate incurring negative cash flows from operating activities for the
      foreseeable future. We have spent, and expect to continue to spend, substantial
      amounts in connection with implementing our business strategy, including our
      product development efforts, our clinical trials and in-licensing and
      acquisition activities.





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





Our
      diagnostic revenue is based on the sale of a diagnostic product for the direct
      measurement of total, intact urinary albumin. Diagnostic revenue is recognized
      when persuasive evidence of an arrangement exists, the product has been shipped,
      title and risk of loss have passed to the customer and collection from the
      customer is reasonably assured.





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





Our
      cost
      of services consist of all costs specifically associated with our clinical
      trial
      management and site recruitment client programs such as salaries, benefits
      paid
      to personnel, payments to third-party vendors and other support facilities
      associated with delivering services to our clients. Cost of services are
      recognized as services are performed.





Our
      cost
      of diagnostics sold consist specifically of costs associated with the
      manufacture of the diagnostic products such as payments to third-party vendors,
      material costs and other support facilities associated with delivering of the
      diagnostics to our customers. Cost of diagnostics sold are recognized as
      diagnostic revenue is recognized.





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





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





Our
      results of operations include non-cash compensation expense as a result of
      the
      grants of stock options and warrants. Compensation expense for awards of options
      granted to employees and directors represents the fair value of the award
      recorded over the respective vesting periods of the individual stock options.
      The expense is included in the respective categories of expense in the
      statements of operations. For awards of options and warrants to consultants
      and
      other third-parties, compensation expense is determined at the “measurement
      date.” The expense is recognized over the vesting period of the award. Until the
      measurement date is reached, the total amount of compensation expense remains
      uncertain. We record compensation expense based on the fair value of the award
      at the reporting date. These awards are then revalued, or the total compensation
      is recalculated based on the then current fair value, at each subsequent
      reporting date. We expect to continue to incur significant non-cash compensation
      as a result of Statement of Financial Accounting Standards (“SFAS”) No. 123R,
“Share-Based Payment” (“SFAS No. 123R”), which we adopted on January 1, 2006. In
      addition, because some of the options and warrants issued to employees,
      consultants and other third-parties vest upon the achievement of certain
      milestones, the total expense is uncertain.





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




17




**RESULTS
      OF OPERATIONS**





**Three
      months ended March 31, 2007 and March 31, 2006**





*Diagnostic
      Revenue.* Diagnostic revenue for
      the
      three months ended March 30, 2007 was $30,000 as compared to no diagnostic
      revenue for the three months ended March 30, 2006. Diagnostic revenue for the
      three months ended March 31, 2007 was a result of our acquisition of Accumin
      during the second quarter of 2006. We
      do not
      expect our diagnostic revenue to have a material impact on our financial results
      during the remainder of 2007.





*Service
      Revenue.* Service
      revenue decreased by $100,000 to $12,000 for the three months ended March 31,
      2007, as compared to service revenue of $112,000 for the three months ended
      March 31, 2006. The decrease in service revenue was primarily due to the timing
      of services performed in accordance with our service contracts. We do not expect
      our service revenue to have a material impact on our financial results during
      the remainder of 2007.





*Cost
      of Diagnostics Sold* .
      Cost of
      diagnostics sold for the three months ended March 31, 2007 was $22,000 as
      compared to no cost of diagnostics sold for the three months ended March 31,
      2006. Cost
      of
      diagnostics sold for the three months ended March 31, 2007 was a result of
      our
      acquisition of Accumin during the second quarter of 2006. We
      do not
      expect our cost of diagnostics sold to have a material impact on our financial
      results during the remainder of 2007.





*Cost
      of Services* .
      Cost of
      services decreased by $139,000 to $32,000 for the three months ended March
      31,
      2007, as compared to an expense of $171,000 for the three months ended March
      31,
      2006. The decrease in cost of services was primarily due to the timing of
      services performed in accordance with our service contracts. We do not expect
      our cost of services to have a material impact on our financial results during
      the remainder of 2007.





*Non-Cash
      Compensation Expense (Research and Development).* Non-cash
      compensation expense related to stock option and restricted stock grants was
      $995,000 for the three months ended March 31, 2007, as compared to an expense
      of
      $2,724,000 for the three months ended March 31, 2006. This difference was
      primarily attributable to, during the three months ended March 31, 2006,
      approximately $1,128,000 of expense for the accelerated vesting of options,
      due
      to the achievement of a financial milestone, and additionally, in the three
      months ended March 31, 2006, based on his activities in this area, a portion
      of
      the compensation expense relating to our chief executive officer included an
      allocation to non-cash compensation expense (research and development).
      Beginning in 2007, based on his current activities, this expense is being
      charged to non-cash compensation expense (selling, general and administrative).
      This change accounted for approximately $612,000 of the difference.





*Other
      Research and Development Expenses* .
      Other
      research and development expenses increased by $5,113,000 to $17,446,000 for
      the
      three months ended March 31, 2007, as compared to $12,333,000 for the three
      months ended March 31, 2006. The increase in other research and development
      expenses was due primarily to a $2,823,000 increase in expenses related to
      our
      Sulonex pivotal
      Phase III and Phase IV clinical programs, and due to a $1,919,000 increase
      in
      expenses related to our other clinical compounds (including $1,136,000 of
      expenses relating to the purchase of an option to the patent rights and related
      inventory for a clinical compound). The
      comparative period last year included one-half, or $1,000,000, of a one-time
      bonus paid to our Chief Executive Officer pursuant to his employment agreement
      for the achievement of a corporate milestone.





We
      expect
      our other research and development costs to increase modestly during the
      remainder of 2007 as a result of the pivotal Phase III and Phase IV clinical
      program for Sulonex and the expansion of the clinical program for KRX-0401,
      as
      well as possible development programs for our other drug
      candidates.





*Non-Cash
      Compensation Expense (Selling, General and Administrative).* Non-cash
      compensation expense related to stock option and restricted stock grants was
      $2,006,000 for the three months ended March 31, 2007, as compared to an expense
      of $2,817,000 for the three months ended March 31, 2006. This difference was
      primarily attributable to, during the three months ended March 31, 2006,
      approximately $1,636,000 of expense for the accelerated vesting of options,
      due
      to the achievement of a financial milestone, and additionally, in the three
      months ended March 31, 2006, based on his activities in this area, a
      portion
      of the compensation
      expense relating to our chief executive officer, included an allocation to
      non-cash compensation expense (research and development). Beginning in 2007,
      based on his current activities, this expense is being charged to non-cash
      compensation expense (selling, general and administrative). This change
      accounted for approximately $612,000 of the difference.




18


*Other
      Selling, General and Administrative Expenses* .
      Other
      selling, general and administrative expenses increased by $150,000 to $2,795,000
      for the three months ended March 31, 2007, as compared to an expense of
      $2,645,000 for the three months ended March 31, 2006. Other selling, general
      and
      administrative expenses for the three months ended March 31, 2007 includes
      an
      impairment charge of approximately $600,000 related to certain intangibles
      associated with Accumin’s diagnostic product. The comparative period last year
      included one-half, or $1,000,000, of a one-time bonus paid to our Chief
      Executive Officer pursuant to his employment agreement for the achievement
      of a
      corporate milestone.





We
      expect
      our other selling, general and administrative costs to increase over the
      remainder of 2007 as we scale-up our operations and infrastructure to prepare
      to
      commercialize our drug candidates.





*Interest
      and Other Income, Net* .
      Interest and other income, net, increased by $459,000 to $1,441,000 for the
      three months ended March 31, 2007, as compared to income of $982,000 for the
      three months ended March 31, 2006. The increase resulted from a higher level
      of
      invested funds due to the completion of the registered direct offering that
      closed in March 2006.





**LIQUIDITY
      AND CAPITAL RESOURCES**





We
      have
      financed our operations from inception primarily through public offerings of
      our
      common stock, various private placement transactions, and option and warrant
      exercises.





As
      of
      March 31, 2007, we had $108.0 million in cash, cash equivalents, interest
      receivable, and short-term and long-term securities, a decrease of $17.6 million
      from December 31, 2006. Cash used in operating activities for the three months
      ended March 31, 2007 was $15.3 million, as compared to $12.7 million for the
      three months ended March 31, 2006. This increase in cash used in operating
      activities was due primarily to increased expenditures associated with the
      execution of our business plan, including costs associated with our pivotal
      Phase III and Phase IV clinical program for Sulonex and the expansion of our
      other clinical programs. For the three months ended March 31, 2007, net cash
      provided by in investing activities of $1.9 million was primarily the result
      of
      the maturity of marketable securities in our investment portfolio of
      approximately $4.5 million, partially offset by purchases of property, plant
      and
      equipment of approximately $2.5 million. For the three months ended March 31,
      2007, net cash provided by financing activities of $0.1 million was primarily
      the result of proceeds from the exercise of options.





As
      of
      March 31, 2007, we have spent approximately $10.6 million in capital
      expenditures building our manufacturing suite for Sulonex. We anticipate that
      in
      the second half of 2007, after equipment validation has been completed, the
      facility will be ready for its intended use.





We
      believe that our $108.0 million in cash, cash equivalents, interest receivable
      and investment securities as of March 31, 2007 will be sufficient to enable
      us
      to meet our planned operating needs and capital expenditures for approximately
      the next 18 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 March 31, 2007 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 March 31, 2007, 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 2007 will continue to be funded
      from
      existing cash, cash equivalents, and short-term marketable securities.




19





On
      December 30, 2005, we filed a shelf registration statement on Form S-3 with
      the
      SEC that was declared effective by the SEC on January 13, 2006. The registration
      statement provides for the offering of up to $150 million of our common stock.
      Subsequent to the registered direct offering that was completed in March 2006,
      there remains approximately $67 million of our common stock available for sale
      on this shelf registration statement. We may offer these securities from time
      to
      time in response to market conditions or other circumstances if we believe such
      a plan of financing is in the best interest of Keryx and our stockholders.
      We
      believe that the availability to conduct such offerings enhances our ability
      to
      raise additional capital to finance our operations.





**OFF-BALANCE
      SHEET ARRANGEMENTS**





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





**OBLIGATIONS
      AND COMMITMENTS**





Our
      material contractual obligations were summarized and included in our Annual
      Report on Form 10-K for the fiscal year ended December 31, 2006. There have
      been
      no material changes outside the ordinary course of business in the contractual
      obligations since December 31, 2006.





**CRITICAL
      ACCOUNTING POLICIES**





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





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





*Stock
      Compensation* .
      We have
      granted stock options and restricted stock to employees, directors and
      consultants, as well as warrants to other third parties. In applying SFAS No.
      123R, the value of each option award is estimated on the date of grant using
      the
      Black-Scholes option-pricing model. The Black-Scholes model takes into account
      volatility in the price of our stock, the risk-free interest rate, the estimated
      life of the option, the closing market price of our stock and the exercise
      price. We base our estimates of our stock price volatility on the historical
      volatility of our common stock and our assessment of future volatility; however,
      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. The estimates utilized
      in
      the Black-Scholes calculation involve inherent uncertainties and the application
      of management judgment. In addition, we are required to estimate the expected
      forfeiture rate and only recognize expense for those options expected to vest.
      As a result, if other assumptions had been used, our recorded stock-based
      compensation expense could have been materially different from that reported.
      In
      addition, because some of the options and warrants issued to employees,
      consultants and other third-parties vest upon the achievement of certain
      milestones, the total expense is uncertain.





In
      accordance with EITF 96-18 “Accounting for Equity Instruments that are Issued to
      Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or
      Services,” total compensation expense for options 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.




20




*Accruals
      for Clinical Research Organization and Clinical Site Costs.* We
      make
      estimates of costs incurred to date in relation to external clinical research
      organizations, or CROs, and clinical site costs. We analyze the progress of
      clinical trials, including levels of patient enrollment, invoices received
      and
      contracted costs when evaluating the adequacy of the amount expensed and the
      related prepaid asset and accrued liability. Significant judgments and estimates
      must be made and used in determining the accrued balance in any accounting
      period. In addition, administrative costs related to external CROs are
      recognized on a straight-line basis over the estimated contractual
      period.





*Accounting
      Related to the Valuation of Intangible Assets.* In
      accounting for acquisitions, we allocate the purchase price to the fair value
      of
      the acquired tangible and intangible assets. This allocation requires us to
      make
      several significant judgments and estimates. For example, we estimated the
      value
      of the acquired intangible assets of Accumin utilizing the income approach,
      which requires us to make assumptions and estimates about, among other
      things: **





·
              revenue
                  that is likely to result from the asset, including estimated selling
                  price, estimated market share and year-over-year growth
                  rates;





·
              operating
                  margin; and





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





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





As
      of
      March 31, 2007, there was approximately $3.2 million of net goodwill on our
      consolidated balance sheet. Prior to the impairment, we amortized our
      identifiable intangible assets associated with Accumin over their estimated
      economic lives, which was 12 years, the life of the patents, using the
      straight-line method.





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





SFAS
      No.
      142, “Goodwill and Other Intangible Assets,” or SFAS No. 142, requires periodic
      tests of goodwill for impairment and that other intangible assets be amortized
      over their useful lives unless these lives are determined to be indefinite.
      SFAS
      No. 142 requires goodwill be tested using a two-step process. The first step
      compares the fair value of the reporting unit with the unit's carrying value,
      including goodwill. When the carrying value of the reporting unit is greater
      than fair value, the unit’s goodwill may be impaired, and the second step must
      be completed to measure the amount of the goodwill impairment charge, if any.
      In
      the second step, the implied fair value of the reporting unit’s goodwill is
      compared with the carrying amount of the unit’s goodwill. If the carrying amount
      is greater than the implied fair value, the carrying value of the goodwill
      must
      be written down to its implied fair value.




21


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





*Accounting
      For Income Taxes* .
      In
      preparing our consolidated financial statements, we are required to estimate
      our
      income taxes in each of the jurisdictions in which we operate. This process
      involves management estimation of our actual current tax exposure and assessment
      of temporary differences resulting from differing treatment of items for tax
      and
      accounting purposes. These differences result in deferred tax assets and
      liabilities. We must then assess the likelihood that our deferred tax assets
      will be recovered from future taxable income and, to the extent we believe
      that
      recovery is not likely, we must establish a valuation allowance. To the extent
      we establish a valuation allowance or increase this allowance in a period,
      we
      must include an expense within the tax provision in the statement of operations.
      Significant management judgment is required in determining our provision for
      income taxes, our deferred tax assets and liabilities and any valuation
      allowance recorded against our net deferred tax assets. We have fully offset
      our
      U.S. deferred tax assets with a valuation allowance. Our lack of earnings
      history and the uncertainty surrounding our ability to generate taxable income
      prior to the reversal or expiration of such deferred tax assets were the primary
      factors considered by management in establishing the valuation allowance. In
      prior periods, our wholly-owned Israeli subsidiaries had generated taxable
      income in respect of services provided within the group, and therefore we
      believed in the past that our deferred tax assets relating to the Israeli
      subsidiaries would be realized. With the cessation of operating activities
      in
      Israel during 2003 and the resulting absence of taxable income from the Israeli
      subsidiaries, the deferred tax asset was written off in 2003.





*Accounting
      For Our Manufacturing Suite* .
      We have
      entered into a relationship with a U.S.-based contract manufacturer for Sulonex
      to build a larger scale manufacturing suite within their current facility,
      which
      they will operate on our behalf. We believe this suite will be suitable to
      manufacture and produce initial commercialization quantities of Sulonex (for
      approximately one to three years from launch). As of March 31, 2007, we have
      spent approximately $10.6 million in capital expenditures building the suite.
      We
      anticipate that in the second half of 2007, after equipment validation has
      been
      completed, the facility will be ready for its intended use and we will begin
      to
      depreciate this asset at that time.





**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 March 31, 2007, 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 March 31, 2007, was less
      than 12 months. 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.





**ITEM
      4. CONTROLS AND PROCEDURES**





**Evaluation
      of Disclosure Controls and Procedures**





As
      of
      March 31, 2007, management carried out, under the supervision and with the
      participation of our Chief Executive Officer and Chief Financial Officer, an
      evaluation of the effectiveness of the design and operation of our disclosure
      controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under
      the
      Exchange Act). Our disclosure controls and procedures are designed to provide
      reasonable assurance that information we are required to disclose in the reports
      that we file or submit under the Exchange Act is recorded, processed, summarized
      and reported within the time periods specified in applicable rules and forms.
      Based upon that evaluation, our Chief Executive Officer and Chief Financial
      Officer concluded that, as of March 31, 2007, our disclosure controls and
      procedures were effective.




22




**Internal
      Control Over Financial Reporting**





There
      were no changes in our internal control over financial reporting during
      the quarter ended March 31, 2007, that have materially affected, or are
      reasonably likely to materially affect, our internal control over financial
      reporting.






**PART
      II. OTHER INFORMATION**





**ITEM
      1. LEGAL PROCEEDINGS**





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





In
      July
      2003, Keryx (Israel) Ltd., one of our Israeli subsidiaries, vacated its
      Jerusalem facility, after giving advance notice to RMPA Properties Ltd., the
      landlord.  On May 1, 2005, the landlord filed suit in the Circuit Court of
      Jerusalem in Jerusalem, Israel, claiming that Keryx (Israel) Ltd., among other
      parties, was liable as a result of the alleged breach of the lease
      agreement.  In addition to Keryx (Israel) Ltd., the landlord brought suit
      against Keryx Biomedical Technologies Ltd., another of our Israeli subsidiaries,
      Keryx Biopharmaceuticals, Inc., Michael S. Weiss, our Chairman and Chief
      Executive Officer, and Robert Trachtenberg, a former employee of Keryx. 
The amount demanded by the landlord totals 4,345,313 New Israeli Shekels, or
      approximately $1,046,000, and includes rent for the entire remaining term of
      the
      lease, as well as property taxes and other costs allegedly incurred by the
      landlord. In August 2003, the landlord claimed a bank deposit, in the amount
      of
      $222,000, which was previously provided as security in connection with the
      lease
      agreement.  We intend to vigorously defend the suit. In July 2005, Keryx
      (Israel) Ltd. and Keryx Biomedical Technologies Ltd. filed an answer to the
      landlord’s complaint.  In October 2005, Keryx Biopharmaceuticals, Inc.
      filed an answer to the landlord’s complaint.  Generally, each answer
      challenges the merits of the landlord’s cause of action as to each
      defendant. All defendants, except Keryx (Israel) Ltd., have filed a motion
      to dismiss the complaint. The plaintiff has filed a response to each answer.
      At
      this time, the Circuit Court of Jerusalem has not issued a decision with respect
      to the motion to dismiss.  A hearing on a motion by Keryx
      Biopharmaceuticals, Inc. and Michael S. Weiss to vacate service of process
      outside of Israel was held in June 2006. In October 2006, the Circuit Court
      of
      Jerusalem held that the service of process on Keryx Biopharmaceuticals, Inc.
      was
      valid. We appealed this determination and the appeal is currently
      pending. The Circuit Court of Jerusalem held that the service of process on
      Michael S. Weiss was invalid. Consequently, the Circuit Court of Jerusalem
      dismissed the suit against Mr. Weiss. To date, we have not yet recorded a charge
      to reflect any potential liability associated with this lawsuit, as it is too
      early to accurately estimate the amount of the charge, if any.





In
      April
      2006, we acquired the assets of the diagnostics business of AusAm
      Biotechnologies, Inc., a debtor in a pending Chapter 11 proceeding, in a
      court-approved transaction.  Subsequent to the closing, disputes arose
      between the debtor and Keryx relating to the determination of the purchase
      consideration under the acquisition agreement. On July 31, 2006, the debtor
      filed a motion purporting to seek to enforce the terms of the acquisition
      agreement and alleging damages in the amount of $818,145. (In re:  AusAm
      Biotechnologies, Inc., Chapter 11 Case No. 06-10214 (RDD) (Bankr.
      S.D.N.Y.)). The matter has been settled pursuant to a settlement agreement
      approved by the Bankruptcy Court on April 10, 2007. Under the settlement, Keryx
      paid AusAm $110,075 on April 12, 2007 in full settlement of all claims made
      by
      AusAm in the action.




23


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




**Risks
      Related to Our Business**





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





We
      have a
      limited operating history. You should consider our prospects in light of the
      risks and difficulties frequently encountered by early stage companies. In
      addition, we have incurred operating losses since our inception and expect
      to
      continue to incur operating losses for the foreseeable future and may never
      become profitable. As of March 31, 2007, we had an accumulated deficit of
      approximately $210.0 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.





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





**Risks
      Associated with Our Product Development Efforts**





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





Whether
      or not and how quickly we complete clinical trials is dependent in part upon
      the
      rate at which we are able to engage clinical trial sites and, thereafter, the
      rate of enrollment of patients. 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 Sulonex is designed
      to
      continue until a pre-determined number of events have occurred to the patients
      enrolled. Trials such as this are subject to delays stemming from patient
      withdrawal and from lower than expected event rates and may also incur increased
      costs if enrollment is increased in order to achieve the desired number of
      events. If we experience delays in identifying and contracting with sites and/or
      in patient enrollment in our clinical trial programs, we may incur additional
      costs and delays in our development programs, and may not be able to complete
      our clinical trials on a cost-effective or timely basis. In addition, conducting
      multi-national studies adds another level of complexity and risk as we are
      subject to events affecting countries outside the United States.





Additionally,
      we have finalized an SPA agreement with the FDA for the Phase III and Phase
      IV
      clinical trials of Sulonex. The clinical plan to support a new drug application,
      or NDA, approval for Sulonex under subpart H, as agreed upon with the FDA under
      an SPA, consists of: (i) a single Phase III trial in patients with
      microalbuminuria based on the surrogate marker of regression of microalbuminuria
      as the primary endpoint;


(ii)
      supportive data from previously conducted clinical studies; and (iii)
      substantial recruitment into our Phase IV confirmatory study that will measure
      clinical outcomes in patients with overt nephropathy, or macroalbuminuria.
      The
      subpart H process is complex and requires careful execution. 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 Sulonex. If the FDA approves Sulonex for marketing on the basis of
      our
      Phase III trial, 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.




24


*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
      positive results in initial clinical testing. There can be no assurance that
      the
      results from the Sulonex Phase III study will track the data from the pilot
      CSG
      Phase II study or the DiNAS Phase II study, or that the results from the Sulonex
      Phase IV study will yield sufficient efficacy data. Results from these earlier
      Sulonex studies may not be indicative of results from future clinical trials
      and
      the risk remains that the pivotal program for Sulonex may generate efficacy
      data
      that will be insufficient for the approval of the drug, or may raise safety
      concerns that may prevent approval of the drug. Interpretation of the prior
      safety data of Sulonex, or our other drug candidates, may also be flawed and
      there can be no assurance that safety concerns from the prior data were
      overlooked or misinterpreted, which in subsequent, larger studies appear and
      prevents approval of Sulonex or our other drugs candidates.





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 rights, patent or
      otherwise, to our drugs candidates from third parties. 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.
      From time to time, in the ordinary course of business, we may have disagreements
      with our licensors or collaborators regarding the terms of our agreements or
      ownership of proprietary rights, which could lead to delays in the research,
      development and commercialization of our drug candidates or could require or
      result in litigation or arbitration, which would be time-consuming and
      expensive.





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





We
      have
      limited experience in manufacturing products for clinical or commercial
      purposes. We intend to continue, in whole or in part, to use third parties
      to
      manufacture 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 Sulonex, 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.




25




***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 relationship with a U.S.-based contract manufacturer for Sulonex
      which we believe will be adequate to satisfy our current clinical supply needs.
      In addition, we have entered into an agreement with the same manufacturer to
      build a larger scale manufacturing suite within their current facility, which
      they will operate on our behalf. We believe this suite will be suitable to
      manufacture launch and initial commercialization (approximately one to three
      years from launch) quantities of Sulonex. As we move forward, we plan to build
      additional manufacturing capacity to meet the future demands for Sulonex. As
      with all heparin-like compounds, the end product is highly sensitive to the
      manufacturing process utilized. Accordingly, as we scale-up we will need to
      accurately reproduce the established process on the larger scale to ensure
      successful commercialization of Sulonex. There can be no assurance that we
      will
      be successful in this endeavor. Additionally, as we scale-up, we have incurred,
      and will continue to incur, capital expenditures to enable larger scale
      production. Through March 31, 2007, we have spent approximately $10.6 million
      in
      capital expenditures building the current manufacturing suite.





***If
      we are not able to obtain the raw materials required for the manufacture of
      our
      lead product candidate, Sulonex, our ability to develop and market this product
      candidate will be substantially harmed.***





Key
      raw
      materials for Sulonex, our lead product candidate, are derived from porcine
      mucosa. Long-term supplies for Sulonex 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. We estimate, in part, based on the number of pigs
      killed worldwide and estimates of projected supplies of porcine
      mucosa, that there is enough potential supply of this raw
      material to commercialize Sulonex. If our estimates of the
      potential supply of this key raw material are not accurate or we cannot secure
      adequate amounts of the potential supply of such material, then the market
      potential of Sulonex will not be realized. 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 Sulonex. Such negative impact could materially affect
      the commercial success of Sulonex.





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





We
      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:





●
            manufacture
                our product candidates;





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





●
            market
                and distribute our drug products.





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




26




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





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





**Other
      Risks Related to Our Business**





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





In
      the
      event Sulonex is approved by the FDA, we currently plan to conduct 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




27




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





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





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





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





The
      drugs
      that we are attempting to develop will have to compete with existing therapies.
      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.***





As
      of
      April 24, 2007, we had 42 full and part-time employees. To successfully develop
      our drug candidates, we must be able to attract and retain highly skilled
      personnel. In addition, if we lose the services of our current personnel, in
      particular, Michael S. Weiss, our Chairman and Chief Executive Officer, our
      ability to continue to execute on our business plan could be materially
      impaired. Although we have an employment agreement with Mr. Weiss, this
      agreement does not prevent him from terminating his employment with
      us.





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





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





Acquisitions
      involve a number of operational risks, including:





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





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





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





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




28




●
            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. In
      particular, we are currently projecting that the price of Sulonex will be at
      a
      significant premium to the currently marketed products that are approved for
      the
      treatment of diabetic nephropathy. The inability to obtain adequate
      reimbursement for Sulonex would limit our ability to generate revenue and
      prevent us from realizing the market potential of Sulonex.





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





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





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





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





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





●
            decreased
                demand for a product;




29




●
            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.





***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
      42
      full and part-time 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 believe that our corporate compliance program is sufficient
      to ensure compliance with applicable regulations, we cannot assure you that
      we
      are or will be in compliance with all potentially applicable regulations. If
      we
      fail to comply with any of these regulations we could be subject to a range
      of
      regulatory actions, including suspension or termination of clinical trials,
      the
      failure to approve a product candidate, restrictions on our products or
      manufacturing processes, withdrawal of products from the market, significant
      fines, or other sanctions or litigation.





**Risks
      Related to Our Financial Condition**





***Our
      current cash, cash equivalents and investment securities may not be adequate
      to
      support our operations for approximately the next 18 months as we have
      estimated.***





We
      believe that our $108.0 million in cash, cash equivalents, interest receivable
      and investment securities as of March 31, 2007 will be sufficient to enable
      us
      to meet our planned operating needs and capital expenditures for approximately
      the next 18 months. Our forecast of the period of time through which our cash,
      cash equivalents, interest receivable and investment securities will be adequate
      to support our operations is a forward-looking statement that involves risks
      and
      uncertainties. The actual amount of funds we will need to operate is subject
      to
      many factors, some of which are beyond our control. These factors include the
      following:





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





●
            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;




30




●
            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, cash equivalents,
      interest receivable and investment securities will be sufficient to fund our
      operating expenses and capital requirements for approximately the next 18
      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
                timing of completion and results from clinical trials for our drug
                candidates, especially Sulonex;





●
            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;





●
            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 New
      Israeli Shekels, or approximately $ 1,046,000 ,
      and
      includes rent for the entire remaining term of the lease, as well as property
      taxes and other costs allegedly incurred by the landlord. In August 2003, the
      landlord claimed a bank deposit, in the amount of $222,000, which was previously
      provided as security in connection with the lease agreement. We intend to
      vigorously defend the suit. In July 2005, Keryx (Israel) Ltd. and Keryx
      Biomedical Technologies Ltd. filed an answer to the landlord’s complaint. In
      October 2005, Keryx filed an answer to the landlord’s complaint. Generally, each
      answer challenges the merits of the landlord’s cause of action as to each
      defendant. All defendants, except Keryx (Israel) Ltd., have also filed a motion
      to dismiss the complaint. The plaintiff has filed a response to each answer.
      At
      this time, the Circuit Court of Jerusalem has not issued a decision with respect
      to the motion to dismiss. A hearing on a motion by Keryx
      Biopharmaceuticals, Inc. to vacate service of process outside of Israel was
      held
      in June 2006. In October 2006, the Circuit Court of Jerusalem held that the
      service of process on Keryx was valid. We appealed this determination and the
      appeal is currently pending. To date, we have not yet recorded a charge to
      reflect any potential liability associated with this lawsuit as it is too early
      to accurately estimate the amount of the charge, if any.




31




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.





***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 our drug products or technologies could subject us to
      monetary liability and require our licensors or us to obtain a license to
      continue to use our drug products or technologies. We cannot predict whether
      our
      licensors or we would prevail in any of these types of actions or that any
      required license would be made available on commercially acceptable terms,
      if at
      all.




32


**Risks
        Related to Our Common Stock**
 
 ***Future
        sales or other issuances of our common stock could depress the market for
        our
        common stock.***


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





If
      we
      make one or more significant acquisitions in which the consideration includes
      stock or other securities, our stockholders may be significantly diluted. We
      may
      be required to issue up
      to
      3,372,422 shares of our common stock to
      former stockholders of ACCESS Oncology upon the achievement of certain
      milestones. In addition, we may enter into arrangements with third parties
      permitting us to issue shares of common stock in lieu of certain cash payments
      upon the achievement of milestones.





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





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





●
            developments
                concerning our drug candidates;





●
            announcements
                of technological innovations by us or our competitors;





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





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





●
            changes
                in financial estimates by securities analysts;





●
            actual
                or anticipated variations in quarterly operating results;





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





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





●
            changes
                in the market valuations of similar companies; and





●
            additions
                or departures of key personnel.





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





***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.




33




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





The
      following exhibits are included with this report.





3.1
            Amended
                and Restated Certificate of Incorporation of Keryx Biopharmaceuticals,
                Inc., filed as Exhibit 3.1 to the Registrant's Annual Report on Form
                10-Q
                for the quarter ended September 30, 2004, filed on August 12, 2004,
                and
                incorporated herein by reference.3.2
            Amended
                and Restated Bylaws of Keryx Biopharmaceuticals, Inc., filed as Exhibit
                3.2 to the Registrant’s Annual Report on Form 10-K for the year ended
                December 31, 2001, filed on March 26, 2002 (File No. 000-30929),
                and
                incorporated herein by reference.10.1†
            Employment
                Arrangement between Mark Stier and Keryx Biopharmaceuticals, Inc.,
                dated
                as of March 23, 200710.2†
            Employment
                Agreement between Beth F. Levine and Keryx Biopharmaceuticals, Inc.
                dated
                April 25, 200710.3†
            Employment
                Agreement between Dr. I. Craig Henderson and Keryx Biopharmaceuticals,
                Inc. dated April 25, 200710.4†
            2007
                Chief Accounting Officer Inducement Stock Option Plan dated March
                23,
                200710.5†
            2007
                General Counsel Incentive Stock Option Plan dated April 25,
                200731.1
            Certification
                of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a),
                as
                adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,
                dated
                May 7, 2007.31.2
            Certification
                of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a),
                as
                adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,
                dated
                May 7, 2007.32.1
            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
                May 7,
                2007.32.2
            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
                May 7,
                2007.




*______________*


†Indicates
      management contract or compensatory plan or arrangement.




34




**SIGNATURES**





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


KERYX
                BIOPHARMACEUTICALS, INC.Date:
                May 7, 2007
            By:
            /s/ Ronald
              C.
              Renaud, Jr.Senior
                Vice President, Chief Financial Officer, and
              Treasurer
              Principal
                  Financial Officer




35


**EXHIBIT
      INDEX**





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




10.1†
            Employment
                Arrangement between Mark Stier and Keryx Biopharmaceuticals, Inc.,
                dated
                as of March 23, 200710.2†
            Employment
                Agreement between Beth F. Levine and Keryx Biopharmaceuticals, Inc.
                dated
                April 25, 200710.3†
            Employment
                Agreement between Dr. I. Craig Henderson and Keryx Biopharmaceuticals,
                Inc. dated April 25, 200710.4†
            2007
                Chief Accounting Officer Inducement Stock Option Plan dated March
                23,
                200710.5†
            2007
                General Counsel Incentive Stock Option Plan dated April 25,
                200731.1
            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,
                datedMay
                7, 2007.31.2
            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,
                datedMay
                7, 2007.32.1
            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
                May 7,
                2007.32.2
            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
                May 7,
                2007.


*______________*


†Indicates
      management contract or compensatory plan or arrangement.




36