**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 September 30, 2006****OR****ྑ 
                TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                THE****SECURITIES
                EXCHANGE ACT OF 1934****For
                the transition period from********to********.**





**Commission
      File Number 000-30929**


**___________________**


**KERYX
      BIOPHARMACEUTICALS, INC.**


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





**Delaware**
              (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 43,183,871 shares of the registrant’s common stock, $0.001 par value,
      outstanding as of November 2, 2006.










**KERYX
      BIOPHARMACEUTICALS, INC.**


**FORM
      10-Q**


**FOR
      THE QUARTER ENDED SEPTEMBER 30, 2006**





**TABLE
      OF CONTENTS**








**Page**SPECIAL
                CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
            1**PART
                I**
            **FINANCIAL
                INFORMATION**Item
                1
            Financial
                Statements
            2Consolidated
                Balance Sheets as of September 30, 2006 (unaudited) and
              December
                31, 2005
            2Interim
                Consolidated Statements of Operations for the three months and nine
                months
              ended
                September 30, 2006 and 2005 (unaudited)
            3Interim
                Consolidated Statements of Cash Flows for the nine months
              ended
                September 30, 2006 and 2005 (unaudited)
            4Notes
                to Interim Consolidated Financial Statements as of September 30,
                2006
                (unaudited)
            6Item
                2
            Management's
                Discussion and Analysis of Financial Condition and
              Results
                of Operations
            14Item
                3
            Quantitative
                and Qualitative Disclosures About Market Risk
            23Item
                4
            Controls
                and Procedures
            23**PART
                II**
            **OTHER
                INFORMATION**Item
                1
            Legal
                Proceedings
            24Item
                1A
            Risk
                Factors
            24Item
                6
            Exhibits
            35














**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, 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 additional 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.





1


**PART
      I. FINANCIAL INFORMATION**





**ITEM
      1. FINANCIAL STATEMENTS**





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


Consolidated
      Balance Sheets as of September 30, 2006, and December 31,
      2005





(in
      thousands, except share and per share amounts)





**September
                30,**
              **2006**
            
            **December
                31,**
              **2005*****(Unaudited)****Assets**Current
                assetsCash
                and cash equivalents
            
            $
            67,910
            
            $
            68,175Short-term
                investment securities
            
            
            60,853
            
            
            18,272Accrued
                interest receivable
            
            
            486
            
            
            336Other
                receivables, inventory and prepaid expenses
            
            
            3,711
            
            
            3,200Total
                current assets
            
            
            132,960
            
            
            89,983Long-term
                investment securities
            
            
            11,887
            
            
            13,950Property,
                plant and equipment, net
            
            
            5,257
            
            
            1,004Goodwill
            
            
            3,112
            
            
            --Other
                assets (primarily intangible assets), net
            
            
            973
            
            
            160Total
                assets
            
            $
            154,189
            
            $
            105,097**Liabilities
                and stockholders’ equity**Current
                liabilitiesAccounts
                payable and accrued expenses
            
            $
            8,399
            
            $
            5,054Accrued
                compensation and related liabilities
            
            
            592
            
            
            936Deferred
                revenue
            
            
            116
            
            
            103Total
                current liabilities
            
            
            9,107
            
            
            6,093Contingent
                equity rights
            
            
            4,004
            
            
            4,004Other
                liabilities
            
            
            285
            
            
            322Total
                liabilities
            
            
            13,396
            
            
            10,419Stockholders’
                equityCommon
                stock, $0.001 par value per share (60,000,000 and 60,000,000 shares
                authorized, 43,239,971 and 37,831,896 shares issued, 43,183,871 and
                37,775,796 shares outstanding at September 30, 2006, and December
                31,
                2005, respectively)
            
            
            43
            
            
            38Additional
                paid-in capital
            
            
            310,704
            
            
            209,177Treasury
                stock, at cost, 56,100 shares at September 30, 2006, and December
                31,
                2005, respectively
            
            
            (89
            )
            
            (89
            )Deficit
                accumulated during the development stage
            
            
            (169,865
            )
            
            (114,448
            )Total
                stockholders’ equity
            
            
            140,793
            
            
            94,678Total
                liabilities and stockholders’ equity
            
            $
            154,189
            
            $
            105,097





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





*
      Condensed from audited financial statements.




2


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


Interim
      Unaudited Consolidated Statements of Operations for the


Three
      and
      Nine months Ended September 30, 2006 and 2005





(in
      thousands, except share and per share amounts)





**Three
                months ended**
              **September
                30,**
            
            **Nine
                months ended**
              **September
                30,**
            
            **Amounts**
              **accumulated**
              **during
                the development****2006**
            
            **2005**
            
            **2006**
            
            **2005**
            
            **stage**Revenue:Diagnostic
                revenue
            
            $
            35
            
            $
            —
            
            $
            58
            
            $
            —
            
            $
            58Service
                revenue
            
            
            39
            
            
            82
            
            
            375
            
            
            365
            
            
            1,758Management
                fees from related party
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            300Total
                revenue
            
            
            74
            
            
            82
            
            
            433
            
            
            365
            
            
            2,116Operating
                expenses:Cost
                of diagnostics sold
            
            
            50
            
            
            —
            
            
            69
            
            
            —
            
            
            69Cost
                of services
            
            
            29
            
            
            197
            
            
            298
            
            
            539
            
            
            1,952Research
                and development:Non-cash
                compensation
            
            
            1,378
            
            
            226
            
            
            6,206
            
            
            539
            
            
            13,940Non-cash
                acquired in-process research and development
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            18,800Other
                research and development
            
            
            14,950
            
            
            6,501
            
            
            39,635
            
            
            15,723
            
            
            103,529Total
                research and development
            
            
            16,328
            
            
            6,727
            
            
            45,841
            
            
            16,262
            
            
            136,269Selling,
                general and administrative:Non-cash
                compensation
            
            
            1,481
            
            
            258
            
            
            7,839
            
            
            611
            
            
            13,280Other
                selling, general and administrative
            
            
            2,041
            
            
            671
            
            
            6,546
            
            
            2,015
            
            
            31,632Total
                selling, general and administrative
            
            
            3,522
            
            
            929
            
            
            14,385
            
            
            2,626
            
            
            44,912Total
                operating expenses
            
            
            19,929
            
            
            7,853
            
            
            60,593
            
            
            19,427
            
            
            183,202Operating
                loss
            
            
            (19,855
            )
            
            (7,771
            )
            
            (60,160
            )
            
            (19,062
            )
            
            (181,086
            )Interest
                and other income, net
            
            
            1,862
            
            
            823
            
            
            4,743
            
            
            1,330
            
            
            11,712Net
                loss before income taxes
            
            
            (17,993
            )
            
            (6,948
            )
            
            (55,417
            )
            
            (17,732
            )
            
            (169,374
            )Income
                taxes
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            491Net
                loss
            
            $
            (17,993
            )
            $
            (6,948
            )
            $
            (55,417
            )
            $
            (17,732
            )
            $
            (169,865
            )Basic
                and diluted loss per common share
            
            $
            (0.42
            )
            $
            (0.19
            )
            $
            (1.34
            )
            $
            (0.53
            )
            $
            (8.56
            )Weighted
                average shares used in computing basic and diluted netloss
                per common share
            
            
            43,177,962
            
            
            36,721,122
            
            
            41,474,449
            
            
            33,261,801
            
            
            19,851,358





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








3


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


Interim
      Unaudited Consolidated Statements of Cash Flows for the Nine months Ended
      September 30, 2006 and 2005





(in
      thousands)





**Nine
                months ended**
              **September
                30,**
            
            **Amounts**
              **accumulated**
              **during
                the**
              **development**
              **stage****2006**
            
            **2005**CASH
                FLOWS FROM OPERATING ACTIVITIESNet
                loss
            
            $
            (55,417
            )
            $
            (17,732
            )
            $
            (169,865
            )Adjustments
                to reconcile cash flows used in operating activities:Acquired
                in-process research and development
            
            
            —
            
            
            —
            
            
            18,800Stock
                compensation expense
            
            
            14,045
            
            
            1,150
            
            
            27,220Issuance
                of common stock to technology licensor
            
            
            —
            
            
            —
            
            
            359Interest
                on convertible notes settled through issuance of preferred
                shares
            
            
            —
            
            
            —
            
            
            253Depreciation
                and amortization
            
            
            171
            
            
            136
            
            
            2,782Loss
                on disposal of property, plant and equipment
            
            
            —
            
            
            2
            
            
            172Impairment
                charges
            
            
            —
            
            
            —
            
            
            2,482Exchange
                rate differences
            
            
            —
            
            
            —
            
            
            94Changes
                in assets and liabilities, net of effects of acquisitions:(Increase)
                in other receivables, inventory and prepaid expenses
            
            
            (404
            )
            
            (1,103
            )
            
            (3,233
            )(Increase)
                in accrued interest receivable
            
            
            (150
            )
            
            (36
            )
            
            (486
            )(Increase)
                in security deposits
            
            
            (255
            )
            
            —
            
            
            (263
            )Increase
                in accounts payable and accrued expenses
            
            
            3,002
            
            
            1,948
            
            
            6,743(Decrease)
                in accrued compensation and related liabilities
            
            
            (367
            )
            
            (712
            )
            
            (3
            )Increase
                (decrease) increase in other liabilities
            
            
            (37
            )
            
            235
            
            
            130Increase
                (decrease) in deferred revenue
            
            
            13
            
            
            8
            
            
            (340
            )Net
                cash used in operating activities
            
            
            (39,399
            )
            
            (16,104
            )
            
            (115,155
            )CASH
                FLOWS FROM INVESTING ACTIVITIESPurchases
                of property, plant and equipment
            
            
            (4,326
            )
            
            (682
            )
            
            (9,717
            )Proceeds
                from disposals of property, plant and equipment
            
            
            —
            
            
            1
            
            
            425(Increase)
                in note and accrued interest receivable from related party
            
            
            —
            
            
            —
            
            
            (356
            )Payments
                of transaction costs
            
            
            (231
            )
            
            —
            
            
            (231
            )Decrease
                (increase) in other assets
            
            
            27
            
            
            (4
            )
            
            (1,192
            )Investment
                in held-to-maturity short-term securities
            
            
            (4,049
            )
            
            (1,109
            )
            
            (48,882
            )Proceeds
                from maturity of held-to-maturity short-term securities
            
            
            6,573
            
            
            15,039
            
            
            50,319Investment
                in available-for-sale short-term securities
            
            
            (36,375
            )
            
            (25
            )
            
            (56,100
            )Proceeds
                from sale of available-for-sale short-term securities
            
            
            5,225
            
            
            —
            
            
            14,900Investment
                in held-to-maturity long-term securities
            
            
            (11,896
            )
            
            (16,753
            )
            
            (33,166
            )Proceeds
                from maturity of held-to-maturity long-term securities
            
            
            4
            
            
            158
            
            
            189Net
                cash used in investing activities
            
            
            (45,048
            )
            
            (3,375
            )
            
            (83,811
            )




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








4


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


Interim
      Unaudited Consolidated Statements of Cash Flows for the Nine months Ended
      September 30, 2006 and 2005


(continued)





(in
      thousands)





**Nine
                months ended**
              **September
                30,**
            
            **Amounts**
              **accumulated**
              **during
                the**
              **development**
              **stage****2006**
            
            **2005**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
            
            
            82,696
            
            
            75,843
            
            
            158,486Proceeds
                from private placements, net
            
            
            —
            
            
            —
            
            
            45,795Proceeds
                from exercise of options and warrants
            
            
            1,481
            
            
            1,157
            
            
            8,342Purchase
                of treasury stock
            
            
            —
            
            
            —
            
            
            (89
            )Net
                cash provided by financing activities
            
            
            84,177
            
            
            77,000
            
            
            266,871Cash
                acquired in acquisition
            
            
            5
            
            
            —
            
            
            99Effect
                of exchange rate on cash
            
            
            —
            
            
            —
            
            
            (94
            )NET
                INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
            
            
            (265
            )
            
            57,521
            
            
            67,910Cash
                and cash equivalents at beginning of year
            
            
            68,175
            
            
            29,699
            
            
            --CASH
                AND CASH EQUIVALENTS AT END OF PERIOD
            
            $
            67,910
            
            $
            87,220
            
            $
            67,910NON
                - CASH TRANSACTIONSIssuance
                of common stock in connection with acquisition
            
            $
            3,310
            
            $
            —
            
            $
            9,635Issuance
                of contingent equity rights in connection with acquisition
            
            
            —
            
            
            —
            
            
            4,004Assumption
                of liabilities in connection with acquisition
            
            
            347
            
            
            —
            
            
            9,070Conversion
                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.*







5


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


Notes
      to
      Interim Consolidated Financial Statements as of September 30, 2006
      (unaudited)





**NOTE
      1 - GENERAL**





BASIS
      OF
      PRESENTATION





Keryx
      Biopharmaceuticals, Inc. (“Keryx” or the “Company”) is a biopharmaceutical
      company focused on the acquisition, development and commercialization of novel
      pharmaceutical products for the treatment of life-threatening diseases,
      including diabetes and cancer. The Company was incorporated in Delaware in
      October 1998 (under the name Paramount Pharmaceuticals, Inc., which was later
      changed to Lakaro Biopharmaceuticals, Inc. in November 1999, and finally to
      Keryx Biopharmaceuticals, Inc. in January 2000). The Company commenced
      activities in November 1999, 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 nine months ended
      September 30, 2006, and 2005, were conducted in the United States of
      America.





On
      February 5, 2004, the Company completed the acquisition of ACCESS Oncology
      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.





The
      accompanying unaudited interim consolidated financial statements were prepared
      in accordance with U.S. generally accepted accounting principles (“GAAP”) for
      interim financial information and with the instructions to Form 10-Q and
      Article 10 of Regulation S-X. Accordingly, they do not include all of
      the information and footnotes required by GAAP for complete financial
      statements. All adjustments that are, in the opinion of management, of a normal
      recurring nature and are necessary for a fair presentation of the interim
      consolidated financial statements have been included. Nevertheless, these
      financial statements should be read in conjunction with the Company's audited
      consolidated financial statements contained in its Annual Report on Form 10-K
      for the year ended December 31, 2005. The results of operations for the three
      and nine months ended September 30, 2006, are not necessarily indicative of
      the
      results that may be expected for the entire fiscal year or any other interim
      period.





The
      Company has not generated any revenues from its planned principal operations
      and
      is dependent upon significant financing to provide the working capital necessary
      to execute its business plan. If the Company determines that it is necessary
      to
      seek additional funding, there can be no assurance that the Company will be
      able
      to obtain any such funding on terms that are acceptable to it, if at
      all.





6


STOCK
      -
      BASED COMPENSATION





In
      December 2004, the Financial Accounting Standards Board
      (“FASB”) issued Statement of Financial Accounting Standards No. 123R,
“Share-Based Payment” (“SFAS 123R”). 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.




The
      Company adopted SFAS 123R using the modified prospective transition method.
      Under this method, compensation cost recognized in the three and nine months
      ended September 30, 2006 includes: a) compensation cost for all share-based
      payments granted prior to, but not yet vested as of January 1, 2006, based
      on the grant-date fair value estimated in accordance with the original
      provisions of Statement of Financial Accounting Standards No. 123
“Accounting for Stock-Based Compensation,” (“SFAS 123”), and b) compensation
      cost for all share-based payments granted subsequent to January 1, 2006,
      based on the grant-date fair value estimated in accordance with the provisions
      of SFAS 123R. The results for prior periods have not been restated.




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. In the Company’s pro forma disclosures required under SFAS 123
      for periods prior to 2006, the Company accounted for forfeitures as they
      occurred. Upon adoption of SFAS 123R, the Company elected to use the
      Black-Scholes model to value share-based payments granted to employees
      subsequent to January 1, 2006 and elected to attribute the value of
      stock-based compensation to expense using the straight-line single option
      method. These methods were previously used for the Company’s pro forma
      information required under SFAS 123. For additional information, see Note 3
      -
      Stockholders' Equity.





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 exercisable as of September 30, 2006, and 2005, which are not included
      in the computation of net loss per share amounts, were 6,676,748 and 4,587,096,
      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.





**NOTE
      2 - RECENTLY ISSUED ACCOUNTING STANDARDS**





In
      September 2006, the Staff of the SEC provided guidance in Staff Accounting
      Bulletin No. 108 (“SAB 108”) on the need to consider the effects of prior year
      misstatements in quantifying the materiality of current year misstatements.
      According to SAB 108, a registrant must consider both the current year effect
      of
      an accounting error as well as the earnings effect of adjusting the balance
      sheet for related previous errors that might individually have been immaterial
      but that would be material to the current year’s earnings if corrected on a
      catch-up basis. SAB 108 permits adjustment for the cumulative effect of errors
      relating to prior years in the carrying amount of assets and liabilities as
      of
      the beginning of the current fiscal year with an offsetting adjustment to the
      opening balance of retained earnings in the year of adoption. SAB 108 further
      requires the adjustment of any prior quarterly financial statements within
      the
      year of adoption for the effects of such errors on the quarters when the
      information is next presented. Such adjustments do not require reports
      previously filed with the SEC to be amended. SAB 108 is effective for annual
      financial statements covering fiscal years ending after November 15, 2006 for
      those registrants electing not to restate prior periods. The Company is
      evaluating the potential effects SAB 108 may have on its consolidated financial
      statements or results of operations, but no material consequence is
      expected.





7


The
      FASB
      issued Statement of Financial Accounting Standards No. 157, “Fair Value
      Measurements” (“SFAS No. 157”), in September 2006. The new standard provides
      guidance on the definition of and how to measure fair value and what sources
      of
      information are to be used in such measurements. It also prescribes expanded
      disclosures about fair value measurements contained in the financial statements.
      The pronouncement, including the new disclosures, is effective for the Company
      as of the first quarter of 2008. The Company is evaluating the
      potential impact of the new standard; however, the Company does not expect
      the
      adoption of this standard will have a material effect on its consolidated
      financial statements.





**NOTE
      3 - 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 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.




*Stock
      Option Plans*





The
      Company has in effect the following stock option plans. Options granted
      typically vest over a three to four year period.





a.
      The
      1999 Stock Option Plan was adopted in November 1999. Under the 1999 Stock Option
      Plan, the Company’s board of directors could grant stock-based awards to
      directors, consultants and employees. The plan authorizes grants to purchase
      up
      to 4,230,000 shares of authorized but unissued common stock. The plan limits
      the
      term of each option, to no more than 25 years from the date of the grant, unless
      otherwise authorized by the board. The plan permits the board of directors
      or a
      committee appointed by the board to administer the plan. The administrator
      has
      the authority, in its discretion, to determine the terms and conditions of
      any
      option granted to a Company service provider, including the vesting schedule.
      No
      additional shares of our common stock may be issued under the 1999 Stock Option
      Plan.





b.
      The
      2000 Stock Option Plan was adopted in June 2000. Under the 2000 Stock Option
      Plan the compensation committee of the Company’s board of directors is
      authorized to grant stock-based awards to directors, consultants and employees.
      The 2000 plan authorizes grants to purchase up to 4,455,000 shares of authorized
      but unissued common stock. The plan limits the term of each option, to no more
      than 10 years from the date of the grant, unless authorized by the board. As
      of
      September 30, 2006, up to 52,318 additional shares may be issued under the
      2000
      Stock Option Plan.





c.
      The
      Non-Plan was adopted in February 2000. Under the Non-Plan, the Company’s board
      of directors granted options, which are not part of any plan, to non-employee
      directors of the Company to purchase up to 240,000 shares of authorized but
      unissued common stock. The options issued by the board of directors pursuant
      to
      the Non-Plan have a life of 10 years from the date of their grant. No additional
      shares of our common stock may be issued under the Non-Plan.





8


d.
      The
      2002 CEO Incentive Stock Option Plan was adopted in December 2002. Under the
      2002 CEO Incentive Stock Option Plan the Company’s board of directors granted an
      option to the newly-appointed Chief Executive Officer of the Company to purchase
      up to 2,002,657 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 Executive Officer was part of a total grant of options issued
      pursuant to the 1999 Stock Option Plan, the 2000 Stock Option Plan and the
      2002
      CEO Incentive Stock Option Plan, to purchase a total of 4,050,000 shares of
      the
      Company’s common stock. As of September 30, 2006, all of the options granted
      under the 2002 CEO Incentive Stock Option Plan have vested. In the event of
      a
      merger, acquisition or other change of control or in the event that the Company
      terminates the Chief Executive Officer’s employment, either without cause or as
      a result of his death or disability, or he terminates his employment for good
      reason, the time period during which he shall be allowed to exercise such
      options shall be extended to the shorter of two years from the date of the
      termination of his employment or December 24, 2012. No additional shares of
      our
      common stock may be issued under the 2002 CEO Incentive Stock Option
      Plan.





e.
      The
      2004 President Incentive Stock Option Plan was adopted in February 2004. Under
      the 2004 President Incentive Stock Option Plan the Company’s board of directors
      granted an option to the newly-appointed President of the Company to purchase
      up
      to 1,000,000 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 President was made pursuant to an employment agreement following
      the
      acquisition of ACCESS Oncology in February 2004. Of these options, 166,667
      vest
      over a three-year period and 833,333 vest upon the earlier of the achievement
      of
      certain performance-based milestones or February 5, 2011. As of September 30,
      2006, 472,222 options have vested under this plan. In addition, in the event
      of
      a merger, acquisition or other change of control or in the event that the
      Company terminates the President’s employment, either without cause or as a
      result of his death or disability, or he terminates his employment for good
      reason, the exercisability of any of the options described in this paragraph
      that are unexercisable at the time of such event or termination shall accelerate
      and the time period during which he shall be allowed to exercise such options
      shall be extended to the shorter of two years from the date of the termination
      of his employment or February 5, 2014. Additionally, the Company’s board of
      directors shall have the discretion to accelerate all or a portion of these
      options at any time. No additional shares of our common stock may be issued
      under the 2004 President Incentive Stock Option Plan.





f.
      The
      2004 Long-Term Incentive Plan was adopted in June 2004 by our stockholders.
      Under the 2004 Long-Term Incentive Plan, the compensation committee of the
      Company’s board of directors is authorized to grant stock-based awards to
      directors, consultants and employees. The 2004 plan authorizes grants to
      purchase up to 4,000,000 shares of authorized but unissued common stock. The
      plan limits the term of each option, to no more than 10 years from the date
      of
      their grant. As of September 30, 2006, up to an additional 607,040 shares may
      be
      issued under the 2004 Long-Term Incentive Plan.





g.
      The
      2006 CFO Incentive Plan was adopted in February 2006. Under the 2006 CFO
      Incentive Plan the Company’s board of directors granted an option to the
      newly-appointed Chief Financial Officer of the Company to purchase up to 500,000
      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 Financial Officer was made pursuant to an employment agreement. Of these
      options, 55,556 vest on the one-year anniversary of employment and 13,889 vest
      every three months following the one-year anniversary of employment until the
      36 th month of
      employment; and 333,333 vest after seven years, provided that the newly
      appointed Chief Financial Officer remains employed by the Company on such date.
      The 333,333 stock options may vest earlier upon the achievement of certain
      milestones, of which 111,111 have vested as of September 30, 2006. No additional
      shares of our common stock may be issued under the 2006 CFO Incentive
      Plan.




9


The
      following table summarizes activity for the Company’s stock option plans during
      the nine months ended September 30, 2006:





Number
                of
              options
            
            Weighted-average
              exercise
                price
            
            Weighted-average
              remaining
              contractual
                term
              (years)
            
            Aggregate
              intrinsic
                valueOutstanding
                at January 1, 2006
            
            
            8,024,652
            
            $
            4.46
            
            
            7.2
            
            $
            119,097,000Granted
            
            
            3,268,960
            
            
            14.22Exercised
            
            
            (547,405
            )
            
            2.71Forfeited
                and expired
            
            
            (101,496
            )
            
            2.70Outstanding
                at September 30, 2006
            
            
            10,644,711
            
            
            7.56
            
            
            7.7
            
            
            45,423,000Vested
                and expected to vest at September 30, 2006
            
            
            10,601,812
            
            
            7.53
            
            
            7.7
            
            
            45,547,000Exercisable
                at September 30, 2006
            
            
            6,354,772
            
            
            3.74
            
            
            7.0
            
            
            51,432,000




The
      aggregate intrinsic value in the table above represents the total intrinsic
      value (the difference between the Company’s closing common stock price of $11.83
      on September 29, 2006 and the exercise price, multiplied by the number of
      in-the-money options) that would have been received by the option holders had
      all option holders exercised their options as of that date. Upon the exercise
      of
      outstanding options, the Company intends to issue new shares.




As
      of
      September 30, 2006, there were 100,000 shares of restricted stock outstanding.
      All 100,000 shares were granted to the Company’s newly-appointed Chief Financial
      Officer on February 14, 2006, at a grant-date fair value of $15.30 per share.
      50,000 of the restricted shares will vest in three equal installments on the
      first, second and third anniversary of the grant date. For the remaining 50,000
      restricted shares, vesting is contingent upon meeting a certain performance
      goal. For the nine months ended September 30, 2006, the Company has recorded
      $318,000 of expense associated with the restricted stock.





*Stock-based
      Compensation*





The
      Company incurred additional non-cash compensation expense during the three
      and
      nine months ended September 30, 2006, of $106,000, relating to a previous grant
      made to a former director.  The Company incurred additional non-cash
      compensation expense during the nine months ended September 30, 2006, of
      $1,697,000, relating to previous grants made to a former officer and two
      additional former directors.  The Board of Directors agreed to modify their
      option agreements such that their vesting and exercisability has been extended
      beyond the terms of their original agreements.





The
      application of SFAS 123R had the following effect on reported amounts, for
      the
      three and nine months ended September 30, 2006, relative to amounts that would
      have been reported using the intrinsic value method under previous
      accounting:





**Three
                months ended**
            
            **Nine
                months ended**(in
                thousands, except per share amounts)
            
            **September
                30, 2006**
            
            **September
                30, 2006**Net
                loss, using previous accounting method
            
            $
            (15,447
            )
            $
            (44,079
            )Basic
                and diluted loss per ordinary share, using previous method
            
            
            (0.36
            )
            
            (1.06
            )Impact
                of the adoption of SFAS No. 123R
            
            
            (2,546
            )
            
            (11,338
            )Net
                loss, as reported
            
            
            (17,993
            )
            
            (55,417
            )Basic
                and diluted loss per ordinary share, as reported
            
            $
            (0.42
            )
            $
            (1.34
            )





The
      value
      of these options 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 September 30, 2006, as of the date of the grant, was $6.98.  The
      assumptions used in the calculation of the fair value of options granted during
      the three months ended September 30, 2006 were a weighted average expected
      term
      of 3.4 years, a weighted average expected volatility rate of 76.77% and a
      weighted average risk-free interest rate of 4.70%. The weighted average fair
      market value of options and restricted stock granted during the nine months
      ended September 30, 2006, as of the date of the grant, was $7.81 and $15.30,
      respectively.  The assumptions used in the calculation of the fair value of
      options granted during the nine months ended September 30, 2006 were a weighted
      average expected term of 3.0 years, a weighted average expected volatility
      rate
      of 79.10% and a weighted average risk-free interest rate of
      4.76%.  The Company used historical information to estimate
      forfeitures within the valuation model. As of September 30, 2006, there was
      $31.4 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 2.8 years.





10


Prior
      to
      January 1, 2006, the Company applied the intrinsic value-based method of
      accounting prescribed by the Accounting Principles Board Opinion No. 25,
“Accounting for Stock Issued to Employees” (“APB 25”), and related
      interpretations, including Financial Accounting Standards Board (“FASB”)
      Interpretation 44, “Accounting for Certain Transactions involving Stock
      Compensation, an Interpretation of APB Opinion No. 25,” to account for its
      fixed-plan stock options for employees and non-employee directors. Under this
      method, compensation expense was recorded on the date of grant only if the
      current market price of the underlying stock exceeded the exercise price. Prior
      to January 1, 2006, the Company provided pro forma disclosure amounts in
      accordance with SFAS 123, as amended by Statement of Financial Accounting
      Standards No. 148 “Accounting for Stock-Based Compensation — Transition and
      Disclosure,” (“SFAS 148”). As compensation expense was disclosed but not
      recognized in periods prior to January 1, 2006, no cumulative adjustment
      for forfeitures was recorded in 2006. The following is a pro forma unaudited
      presentation illustrating the effect on net loss and net loss per share if
      the
      Company had applied the fair value recognition provisions of SFAS 123 to
      stock-based employee compensation in the prior three- and nine-month period
      ended September 30, 2005:





**Three
                months ended**
            
            **Nine
                months ended**(in
                thousands, except per share amounts)
            
            **September
                30, 2005**
            
            **September
                30, 2005**Net
                loss, as reported
            
            $
            (6,948
            )
            $
            (17,732
            )Add:
                Stock-based compensation expense to employees and directors determined
                under the intrinsic value-based method, as included in reported net
                loss
            
            
            111
            
            
            334Deduct:
                Stock-based compensation expense to employees and directors determined
                under fair value based method
            
            
            (931
            )
            
            (2,853
            )Pro
                forma net loss
            
            $
            (7,768
            )
            $
            (20,251
            )Basic
                and diluted loss per common share:As
                reported
            
            $
            (0.19
            )
            $
            (0.53
            )Pro
                forma
            
            $
            (0.21
            )
            $
            (0.61
            )





The
      value
      of these options had been estimated using the Black-Scholes model. The weighted
      average fair market value of options granted during the three and nine months
      ended September 30, 2005, as of the date of the grant, was $9.68 and $7.84,
      respectively.  The assumptions used in the calculation of the fair value of
      options granted during the three and nine months ended September 30, 2005 were
      a
      weighted average expected term of 5.0 years and 4.92 years, respectively, a
      weighted average expected volatility rate of 82.47% and 84.88%, respectively,
      and a weighted average risk-free interest rate of 3.91% and 3.72%,
      respectively.





**NOTE 4
      - 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 nine months ended September 30, 2006.





**NOTE
      5 - 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”). We believe
      that the acquisition of Accumin will help leverage the Company’s exposure to
      physicians that treat diabetes, the target market for Sulonex, by emphasizing
      the importance of detecting microalbuminuria earlier.





11


The
      purchase price of Accumin was $3,907,000, which included the issuance of 245,024
      shares of the Company’s common stock, the assumption of certain liabilities of
      AusAm equal to approximately $347,000 and transaction costs of approximately
      $250,000. 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. Keryx filed a
      registration statement on Form S-3 with the SEC on April 6, 2006 with respect
      to
      the shares issued to AusAm which was declared effective on June 23, 2006 (the
      “Effective Date”). At closing, 300,000 shares were issued to AusAm by Keryx, but
      were held in escrow until the Effective Date. On the Effective Date, 245,024
      shares were released from escrow to AusAm.





The
      Accumin transaction has been accounted for as a purchase by the Company under
      GAAP. Under the purchase method of accounting, the assets and liabilities
      assumed from AusAm are recorded at the date of acquisition at their respective
      fair values. The consolidated financial statements and reported results of
      operations of the Company issued after completion of the transaction reflect
      these values but will not be restated retroactively to reflect the historical
      financial position or results of operations of AusAm.





The
      following represents the purchase price for Accumin:





(in
                thousands, except share and per share amounts)Assumed
                liabilities
            
            
            
            
            $
            347Number
                of shares of Keryx common stock issued
            
            
            245,024Multiplied
                by Keryx’s average closing bid price per share as quoted on NASDAQ over a
                period of 5 trading days (2 days prior to the Effective Date, the
                Effective Date, and 2 days after the Effective Date)
            
            $
            13.51
            
            
            3,310Other
                transaction costs
            
            
            
            
            
            250Total
                purchase price
            
            
            
            
            $
            3,907





The
      excess of the purchase price over the net assets acquired represented goodwill
      of approximately $3,112,000, which has been allocated to our Products segment,
      which is expected to benefit from the synergies of the Accumin
      acquisition.





The
      above
      estimated purchase price has been preliminarily allocated based on an estimate
      of the fair value of net assets acquired. The final valuation of net assets
      is
      expected to be completed as soon as possible but no later than one year from
      the
      acquisition date. To the extent that these estimated amounts need to be
      adjusted, the Company will do so.





(in
                thousands)Allocation
                of purchase price:Tangible
                assets acquired
            
            $
            139Amortizable
                intangibles (over 12 years - patent life)
            
            
            656Goodwill
            
            
            3,112Purchase
                price
            
            $
            3,907





A
      valuation using the guidance in SFAS No. 141, “Business Combinations” was
      performed with the assistance of independent valuation specialists to determine
      the fair value of certain identifiable intangible assets of Accumin.





The
      fair
      value of certain identifiable intangible assets was determined using the income
      approach. This method starts with a forecast of the expected future net cash
      flows. These cash flows are then adjusted to present value by applying an
      appropriate discount rate that reflects the risk of achieving the asset’s
      projected cash flows. The present value of the estimated cash flows are then
      added to the present value equivalent of the residual value of the asset, if
      any, at the end of the discrete projection period to estimate the fair value.





The
      forecast of future cash flows required the following assumptions to be
      made:




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




12


·
            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.





**NOTE
      6 - 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 novel pharmaceutical products for the
      treatment of life-threatening diseases, including diabetes and cancer.





Segment
      information for the three and nine month periods were as follows:





**Revenue****Three
                months ended September 30,**
            
            **Nine
                months ended September 30,**
            
            **Amounts**
              **accumulated**
              **during
                the**
              **development**(in
                thousands)
            
            **2006**
            
            **2005**
            
            **2006**
            
            **2005**
            
            **Stage**Diagnostics
            
            $
            35
            
            $
            —
            
            $
            58
            
            $
            —
            
            $
            58Services
            
            
            39
            
            
            82
            
            
            375
            
            
            365
            
            
            1,758Products
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Total
            
            $
            74
            
            $
            82
            
            $
            433
            
            $
            365
            
            $
            1,816






**Operating
                loss****Three
                months ended September 30,**
            
            **Nine
                months ended September 30,**
            
            **Amounts**
              **accumulated**
              **during
                the**
              **development**(in
                thousands)
            
            **2006**
            
            **2005**
            
            **2006**
            
            **2005**
            
            **Stage**Diagnostics
            
            $
            (348
            )
            $
            —
            
            $
            (762
            )
            $
            —
            
            $
            (762
            )Services
            
            
            10
            
            
            (115
            )
            
            77
            
            
            (174
            )
            
            (194
            )Products
            
            
            (19,517
            )
            
            (7,656
            )
            
            (59,475
            )
            
            (18,888
            )
            
            (180,130
            )Total
            
            $
            (19,855
            )
            $
            (7,771
            )
            $
            (60,160
            )
            $
            (19,062
            )
            $
            (181,086
            )





13


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





**Net
                loss****Three
                months ended September 30,**
            
            **Nine
                months ended September 30,**
            
            **Amounts**
              **accumulated**
              **during
                the**
              **development**(in
                thousands)
            
            **2006**
            
            **2005**
            
            **2006**
            
            **2005**
            
            **Stage**Operating
                loss of reportable segments
            
            $
            (19,855
            )
            $
            (7,771
            )
            $
            (60,160
            )
            $
            (19,062
            )
            $
            (181,086
            )Interest
                and other income
            
            
            1,862
            
            
            823
            
            
            4,743
            
            
            1,330
            
            
            11,712Income
                taxes
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (491
            )Consolidated
                net loss
            
            $
            (17,993
            )
            $
            (6,948
            )
            $
            (55,417
            )
            $
            (17,732
            )
            $
            (169,865
            )





All
      long-lived assets, other than the acquired intangibles for Accumin and other
      immaterial assets, reside in the Products segment.





The
      excess of the purchase price over the net assets acquired in the Accumin
      transaction represented goodwill of approximately $3,112,000, which has been
      allocated to our Products segment, which is expected to benefit from the
      synergies of the acquisition. The carrying amount of goodwill by reportable
      segment as of September 30, 2006 and December 31, 2005 was as
      follows:





**Goodwill**(in
                thousands)
            
            **September
                30,**
              **2006**
            
            **December
                31,**
              ******2005**Diagnostics
            
            
            —
            
            
            —Services
            
            
            —
            
            
            —Products
            
            $
            3,112
            
            
            —Total
            
            $
            3,112
            
            
            —





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





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





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





You
      should read the following discussion and analysis in conjunction with the
      unaudited, consolidated financial statements, and the related footnotes thereto,
      appearing elsewhere in this report, and in conjunction with management’s
      discussion and analysis and the audited, consolidated financial statements
      included in our annual report on Form 10-K for the year ended December 31,
      2005.





**OVERVIEW**





We
      are a
      biopharmaceutical company focused on the acquisition, development and
      commercialization of novel pharmaceutical products for the treatment of
      life-threatening diseases, including diabetes and cancer. Our lead compound
      under development is 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 a Special
      Protocol Assessment, or SPA, with the Food & Drug Administration, or 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
      end-stage renal disease, or 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.





14


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*





Sulonex:
      Meeting of Independent Data Safety Monitoring Committee





The
      Independent Data Safety Monitoring Committee, or DSMC, responsible for
      monitoring Sulonex in the Phase III microalbuminuria and Phase IV
      macroalbuminuria studies recently met. Following a review of the blinded and
      unblinded data from both studies, the DSMC concluded that it saw no cogent
      reason to recommend alteration or termination of either trial. The DSMC raised
      no safety concerns regarding Sulonex or the trials.





KRX-0601
      (7-hydroxystaurosporine)





In
      September 2006, we entered into an exclusive license agreement with Kyowa Hakko
      Kogyo Co., Ltd. of Tokyo, Japan (“Kyowa”), for the worldwide development and
      commercialization rights, excluding Japan, to KRX-0601 (7-hydroxystaurosporine),
      formerly referred to as UCN-01. KRX-0601 is a novel multi-kinase inhibitor
      for
      the treatment of cancer which, in pre-clinical models, has demonstrated a
      synergistic effect with agents inhibiting the PI3K pathway, including KRX-0401.
      KRX-0601 is currently in several Phase II clinical trials both as a single
      agent
      and in combination with other anticancer agents which are being conducted under
      the direction and sponsorship of the National Cancer Institute. In accordance
      with the terms of the license agreement, Keryx made an up-front payment to
      Kyowa
      and will make milestone payments as well as pay royalties on product sales,
      if
      any. KRX-0601 is an anticancer drug that belongs to the family of drugs called
      staurosporine analogs which have demonstrated an ability to inhibit multiple
      kinases involved in cell-cycle progression and apoptosis, including Chk-1 and
      PDK1. In pre-clinical studies, KRX-0601 has demonstrated synergistic effect
      with
      DNA-damaging agents including chemotherapy and radiation therapy. In-vitro,
      KRX-0601 has been shown to be synergistic with agents affecting the PI3-K
      pathway including KRX-0401 and mTOR inhibitors. In clinical trials, as reported
      by investigators at the National Cancer Institute, durable single-agent
      responses have been seen in patients with anaplastic large-cell
      lymphoma.





*General
      Corporate*





We
      were
      incorporated in Delaware in October 1998. We commenced operations in November
      1999, following our acquisition of substantially all of the assets and certain
      of the liabilities of Partec Ltd., our predecessor company that began operations
      in January 1997. Since commencing operations, our activities have been primarily
      devoted to developing our technologies and drug candidates, acquiring
      clinical-stage compounds, raising capital, purchasing assets for our facilities,
      and recruiting personnel.





15


We
      are a
      development stage company and have no product sales to date. Our major sources
      of working capital have been proceeds from various private placements of equity
      securities, option and warrant exercises, and from public offerings of our
      common stock. We have devoted substantially all of our efforts to the discovery,
      in-licensing and development of drug candidates. We have incurred negative
      cash
      flow from operations each year since our inception. We anticipate incurring
      negative cash flows from operating activities for the foreseeable future. We
      have spent, and expect to continue to spend, substantial amounts in connection
      with implementing our business strategy, including our 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 diagnostic products 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 systems 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
      and systems, 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 product
      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 statement
      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 incur significant non-cash compensation as a result
      of adopting 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 either do not vest immediately or vest upon the achievement
      of certain milestones, the total expense is uncertain.





16


For
      periods presented prior to our adoption of SFAS 123R, compensation expense
      for
      fixed award options and warrants granted to employees and directors represents
      the intrinsic value (the difference between the stock price of the common stock
      and the exercise price of the options or warrants) of the options and warrants
      at the date of grant. For variable awards, we considered the difference between
      the stock price at reporting date and the exercise price, in the case where
      a
      measurement date has not been reached. The compensation cost was recorded over
      the respective vesting periods of the individual stock options and warrants.
      The
      expense was included in the respective categories of expense in the statement
      of
      operations.





Our
      ongoing clinical trials will be lengthy and expensive. Even if these trials
      show
      that our drug candidates are effective in treating certain indications, there
      is
      no guarantee that we will be able to record commercial sales of any of our
      product candidates in the near future. In addition, we expect losses to continue
      as we continue to fund in-licensing and development of new drug candidates.
      As
      we continue our development efforts, we may enter into additional third-party
      collaborative agreements and may incur additional expenses, such as licensing
      fees and milestone payments. In addition, we 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.





**RESULTS
      OF OPERATIONS**





**Three
      months ended September 30, 2006 and September 30, 2005**





*Diagnostic
      Revenue.* Diagnostic revenue for
      the
      three months ended September 30, 2006 was $35,000 as compared to no diagnostic
      revenue for the three months ended September 30, 2005. Diagnostic revenue for
      the three months ended September 30, 2006 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 2006.





*Service
      Revenue.* Service
      revenue decreased by $43,000 to $39,000 for the three months ended September
      30,
      2006, as compared to service revenue of $82,000 for the three months ended
      September 30, 2005. 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 2006.





*Cost
      of Diagnostics Sold Expense* .
      Cost of
      diagnostics sold expense for the three months ended September 30, 2006 was
      $50,000 as compared to no cost of diagnostics sold expense for the three months
      ended September 30, 2005. Cost
      of
      diagnostics sold expense for the three months ended September 30, 2006 was
      a
      result of our acquisition of Accumin during the second quarter of 2006. We
      do not
      expect our cost of diagnostics sold expense to have a material impact on our
      financial results during the remainder of 2006.





*Cost
      of Services Expense* .
      Cost of
      services expense decreased by $168,000 to $29,000 for the three months ended
      September 30, 2006, as compared to an expense of $197,000 for the three months
      ended September 30, 2005. The decrease in cost of services was primarily due
      to
      a reduction in the amount of time necessary to service client contracts. We
      do
      not expect our cost of service expense to have a material impact on our
      financial results during the remainder of 2006.





*Non-Cash
      Compensation Expense (Research and Development).* Non-cash
      compensation expense related to stock option grants was $1,378,000 for the
      three
      months ended September 30, 2006, as compared to an expense of $226,000 for
      the
      three months ended September 30, 2005. The increase in non-cash compensation
      expense was due primarily to a $1,317,000 increase in expense related to the
      adoption of SFAS 123R on January 1, 2006. In addition, expenses during the
      three
      months ended September 30, 2006, and September 30, 2005, of $27,000 and
      $196,000, respectively, were due to the adjustment to fair market value of
      previously-issued options to consultants.





*Other
      Research and Development Expenses* .
      Other
      research and development expenses increased by $8,449,000 to $14,950,000 for
      the
      three months ended September 30, 2006, as compared to an expense of $6,501,000
      for the three months ended September 30, 2005. The increase in other research
      and development expenses was due primarily to a $5,935,000 increase in expenses
      related to our Sulonex pivotal
      Phase III and Phase IV clinical program, and due to a $2,218,000 increase in
      expenses related to our other clinical compounds, including a $600,000 expense
      relating to the in-licensing of KRX-0601.





17


We
      expect
      our other research and development costs to increase during the remainder of
      2006 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, including the
      planned commencement of additional single agent and combination trials, as
      well
      as possible development programs for our other drug candidates.





*Non-Cash
      Compensation Expense (General and Administrative).* Non-cash
      compensation expense related to stock option grants and warrant issuances was
      $1,481,000 for the three months ended September 30, 2006, as compared to an
      expense of $258,000 for the three months ended September 30, 2005. The increase
      in non-compensation expense was due primarily to a $1,229,000 increase in
      expense related to the adoption of SFAS 123R on January 1, 2006. Additionally,
      expenses during the three months ended September 30, 2006, and September 30,
      2005, of $45,000 and $125,000, respectively were due to the adjustment to fair
      market value of previously-issued options to consultants.





*Other
      Selling, General and Administrative Expenses* .
      Other
      selling, general and administrative expenses increased by $1,370,000 to
      $2,041,000 for the three months ended September 30, 2006, as compared to an
      expense of $671,000 for the three months ended September 30, 2005. The increase
      in other selling, general and administrative expenses was due primarily to
      increases of $400,000 and $386,000 in market research and legal expenses,
      respectively, and due to $175,000 of sales and marketing expenses associated
      with Accumin, which was acquired in April 2006.





We
      expect
      our other selling, general and administrative costs to increase modestly over
      the remainder of 2006 primarily as a result of our clinical development
      programs.





*Interest
      and Other Income, Net* .
      Interest and other income, net, increased by $1,039,000 to $1,862,000 for the
      three months ended September 30, 2006, as compared to income of $823,000 for
      the
      three months ended September 30, 2005. The increase resulted from a higher
      level
      of invested funds due to the completion of the registered direct offering that
      closed in March 2006, as well as due to the general increase in short-term
      market interest rates when compared to the comparable period last year.





**Nine
      months ended September 30, 2006 and September 30, 2005**





*Diagnostic
      Revenue.* Diagnostic revenue for
      the
      nine months ended September 30, 2006 was $58,000 as compared to no diagnostic
      revenue for the nine months ended September 30, 2005. Diagnostic revenue for
      the
      nine months ended September 30, 2006 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 2006.





*Service
      Revenue.* Service
      revenue increased by $10,000 to $375,000 for the nine months ended September
      30,
      2006, as compared to service revenue of $365,000 for the nine months ended
      September 30, 2005. The increase 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 2006.





*Cost
      of Diagnostics Sold Expense* .
      Cost of
      diagnostics sold expense for the nine months ended September 30, 2006 was
      $69,000 as compared to no cost of diagnostics sold expense for the nine months
      ended September 30, 2005. Cost
      of
      diagnostics sold expense for the nine months ended September 30, 2006 was a
      result of our acquisition of Accumin during the second quarter of 2006. We
      do not
      expect our cost of diagnostics sold expense to have a material impact on our
      financial results during the remainder of 2006.





*Cost
      of Services Expense* .
      Cost of
      services expense decreased by $241,000 to $298,000 for the nine months ended
      September 30, 2006, as compared to an expense of $539,000 for the nine months
      ended September 30, 2005. The decrease in cost of services was primarily due
      to
      a reduction in the amount of time necessary to service client contracts. We
      do
      not expect our cost of service expense to have a material impact on our
      financial results during the remainder of 2006.





*Non-Cash
      Compensation Expense (Research and Development).* Non-cash
      compensation expense related to stock option grants was $6,206,000 for the
      nine
      months ended September 30, 2006, as compared to an expense of $539,000 for
      the
      nine months ended September 30, 2005. The increase in non-cash compensation
      expense was due primarily to a $5,803,000 increase in expense related to the
      adoption of SFAS 123R on January 1, 2006. In addition, expenses during the
      nine
      months ended September 30, 2006, and September 30, 2005, of $363,000 and
      $424,000, respectively were due to the adjustment to fair market value of
      previously-issued options to consultants.





18


*Other
      Research and Development Expenses* .
      Other
      research and development expenses increased by $23,912,000 to $39,635,000 for
      the nine months ended September 30, 2006, as compared to an expense of
      $15,723,000 for the nine months ended September 30, 2005. The increase in other
      research and development expenses was due primarily to a $19,025,000 increase
      in
      expenses related to our Sulonex pivotal
      Phase III and Phase IV clinical program ,
      which
      includes one-half, or $1,000,000, of a one-time bonus to our Chief Executive
      Officer pursuant to his employment agreement for the achievement of a corporate
      milestone, and
      a
      $4,393,000 increase in expenses related to our other clinical compounds,
      including a $500,000 milestone expense relating to Zerenex and a $600,000
      expense relating to the in-licensing of KRX-0601.





We
      expect
      our other research and development costs to increase during the remainder of
      2006 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, including the
      planned commencement of additional single agent and combination trials, as
      well
      as possible development programs for our other drug candidates.





*Non-Cash
      Compensation Expense (General and Administrative).* Non-cash
      compensation expense related to stock option grants and warrant issuances was
      $7,839,000 for the nine months ended September 30, 2006, as compared to an
      expense of $611,000 for the nine months ended September 30, 2005. The increase
      in non-compensation expense was due primarily to a $5,535,000 increase in
      expense related to the adoption of SFAS 123R on January 1, 2006. In addition,
      modifications made by the Board of Directors of the vesting and exercisability
      of certain grants during the second and third quarters resulted in additional
      expense of $1,803,000 for the nine months ended September 30, 2006.
      Additionally, expenses during the nine months ended September 30, 2006, and
      September 30, 2005, of $276,000 and $256,000, respectively were due to the
      adjustment to fair market value of previously-issued options to consultants.





*Other
      Selling, General and Administrative Expenses* .
      Other
      selling, general and administrative expenses increased by $4,531,000 to
      $6,546,000 for the nine months ended September 30, 2006, as compared to an
      expense of $2,015,000 for the nine months ended September 30, 2005. The increase
      in selling, general and administrative expenses was due primarily to one-half,
      or $1,000,000, of a one-time bonus to our Chief Executive Officer for the
      achievement of a corporate milestone pursuant to his employment agreement.
      The
      compensation of our Chief Executive Officer is allocated equally between other
      research and development expenses and other general and administrative expenses
      to reflect the allocation of his responsibilities and activities for Keryx.
      The
      increase was also due to increases of $1,063,000 of legal expenses, $470,000
      of
      expenses incurred in the first quarter of 2006 related to the acquisition of
      Accumin, which closed on April 6, 2006, $420,000 of sales and marketing expenses
      associated with Accumin and $400,000 of market research expenses.





We
      expect
      our other selling, general and administrative costs to increase modestly over
      the remainder of 2006 primarily as a result of our clinical development
      programs.





*Interest
      and Other Income, Net* .
      Interest and other income, net, increased by $3,413,000 to $4,743,000 for the
      nine months ended September 30, 2006, as compared to income of $1,330,000 for
      the nine months ended September 30, 2005. The increase resulted from a higher
      level of invested funds due to the completion of the registered direct offering
      that closed in March 2006, as well as due to the general increase in short-term
      market interest rates when compared to the comparable period last year.





**LIQUIDITY
      AND CAPITAL RESOURCES**





We
      have
      financed our operations from inception primarily through public offerings of
      our
      common stock, various private placement transactions, and option and warrant
      exercises. This includes net proceeds of $82.7 million from our March 2006
      registered direct offering and $75.8 million from our July 2005 public offering.





As
      of
      September 30, 2006, we had $141.1 million in cash, cash equivalents, interest
      receivable, and short-term and long-term securities, an increase of $40.4
      million from December 31, 2005. Cash used in operating activities for the nine
      months ended September 30, 2006 was $39.4 million, as compared to $16.1 million
      for the nine months ended September 30, 2005. 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 nine months ended September 30, 2006, net
      cash
      used in investing activities of $45.0 million was primarily the result of the
      investment of a portion of the proceeds of our registered direct offering that
      closed in March 2006 in marketable securities. For the nine months ended
      September 30, 2006, net cash provided by financing activities of $84.2 million
      was the result of our $82.7 million registered direct offering of our common
      stock completed in March 2006, and $1.5 million of proceeds from the exercise
      of
      options and warrants.





19


In
      March
      2006, we completed a registered direct offering of 4,500,000 shares of our
      common stock to two institutional investors at $18.40 per share. We received
      approximately $82.7 million in proceeds, net of offering expenses of
      approximately $0.1 million.





We
      believe that our $141.1 million in cash, cash equivalents, interest receivable
      and investment securities as of September 30, 2006 will be sufficient to enable
      us to meet our planned operating needs and capital expenditures for at least
      the
      next 24 months. Additionally, we also believe that our cash position provides
      us
      with added flexibility in our in-licensing and product acquisition program
      to
      potentially strengthen our portfolio with additional clinical-stage drug
      candidates.





Our
      cash
      and cash equivalents and investment securities as of September 30, 2006 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 September 30, 2006, 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 2006 will continue
      to
      be funded from existing cash, cash equivalents, and short-term marketable
      securities.





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 $67.2 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 the company 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.





**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:





20


*Stock
      Compensation* .
      We have
      granted options to employees, directors and consultants, as well as warrants
      to
      other third parties. In December 2004, the FASB issued SFAS 123R. SFAS 123R
      is a revision of SFAS 123 “Accounting for Stock-Based Compensation” and amends
      SFAS No. 95 “Statement of Cash Flows.” SFAS 123R supersedes APB Opinion
      No. 25 “Accounting for Stock Issued to Employees,” and its related
      implementation guidance. SFAS 123R covers a wide range of share-based
      compensation arrangements including stock options, restricted share plans,
      performance-based awards, share appreciation rights, and employee share purchase
      plans. The new standard is effective as of the beginning of the first interim
      or
      annual reporting period that begins after December 15, 2005. We adopted
      SFAS 123R effective January 1, 2006. See Note 1 - “Stock Based
      Compensation.”





In
      applying SFAS 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
      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.





*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.





21


As
      of
      September 30, 2006, there was approximately $3.1 million of net goodwill and
      $0.6 million of net other intangible assets on our consolidated balance sheet.
      We amortize our identifiable intangible assets over their estimated economic
      lives, which is 12 years, the life of the patents, using the straight-line
      method.





*Impairment.* SFAS No.
      144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” or SFAS
      No. 144, requires that long-lived assets be reviewed for impairment whenever
      events or changes in circumstances indicate that the carrying amount of an
      asset
      may not be recoverable. 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. Assets to be disposed of are reported at the lower of the carrying
      amount or fair value less costs to sell.





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. We determine the implied fair value by discounting, to present value,
      the
      estimated future cash flow of the reporting unit, which includes various
      analyses, assumptions and estimates including discount rates, projected results
      and estimated cash flows.





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.





**SECTION
      16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE**





In
      April
      2005, following a review of the Section 16(a) reports filed by certain of our
      directors and executive officers, we filed reports on Form 3 and Form 4 with
      respect to transactions in our securities by such individuals that were not
      previously reported. In our proxy statement for our annual meeting in 2005,
      we
      disclosed these late filings. In order to ensure the accuracy of such
      disclosure, below we are providing a comprehensive disclosure of the late
      filings made in April 2005. Since April 2005, we believe that all Section 16(a)
      filing requirements applicable to our directors, executive officers and 10%
      stockholders were complied with in a timely manner. We believe that during
      the
      fiscal years ended December 31, 2005, 2004, 2003, 2002 and 2001, all Section
      16(a) filing requirements applicable to our directors, executive officers and
      10% stockholders were complied with in a timely manner, except in the following
      instances: (1) each of Dr. Craig Henderson, Mr. Malcolm Hoenlein, Dr. Larry
      Kessel (a former director), Dr. Peter Salomon (a former director) and Mr.
      Michael Weiss failed to file a Form 3; (2) Mr. Ron Bentsur (our former
      vice-president finance and investor relations) failed to file one transaction
      in
      2005, one transaction in 2004, and one transaction in 2003; (3) Dr. Henderson
      failed to file one transaction in 2005 and one transaction in 2004; (4) Mr.
      Hoenlein failed to file one transaction in 2003, one transaction in 2002, and
      three transactions in 2001; (5) Dr. Kessel failed to file one transaction in
      2004 and one transaction in 2003; (6) Dr. Lindsay Rosenwald (a former director)
      failed to file one transaction in 2003 and one transaction in 2002; (7) Dr.
      Salomon failed to file one transaction in 2004 and one transaction in 2003;
      and
      (8) Mr. Weiss failed to file one transaction in 2005, one transaction in
      2003, and one transaction in 2002.





22


**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 September 30, 2006, 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 September 30, 2006, 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
      September 30, 2006, 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
      Securities Exchange Act of 1934). Our disclosure controls and procedures are
      designed to provide reasonable assurance that information required to be
      disclosed by the Company in the reports that it files or submits under the
      Securities Exchange Act of 1934, as amended 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 September 30, 2006, our disclosure controls and
      procedures were effective.





**Internal
      Control Over Financial Reporting**





There
      were no changes in our internal control over financial reporting that
      occurred during
      the Company's quarter ended September 30, 2006, that have materially affected,
      or are reasonably likely to materially affect, our internal control over
      financial reporting.







23
 
 **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 $1,015,000 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 intend to appeal this holding.  The Circuit Court of
      Jerusalem held that the service of process on Michael S. Weiss was invalid.
      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.)).   We intend to defend this action vigorously and do not
      believe that it will have a material adverse effect on Keryx.





**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 September 30, 2006, we had an accumulated deficit
      of
      approximately $169.9 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.





24


**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 U.S.





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.





***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 Phase III study will track the data from the Phase II study,
      or
      that the results from the Phase IV study will yield sufficient efficacy data.
      With respect to Sulonex, the recommendation to move into our pivotal program,
      as
      well as the announced Phase II data, 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.





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.





25


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





We
      do not
      own any of our drug candidates. We have licensed the patent rights to these
      drugs candidates from others. These license agreements require us to meet
      development or financing milestones and impose development and commercialization
      due diligence requirements on us. In addition, under these agreements, we must
      pay royalties on sales of products resulting from licensed technologies and
      pay
      the patent filing, prosecution and maintenance costs related to the licenses.
      If
      we do not meet our obligations in a timely manner or if we otherwise breach
      the
      terms of our license agreements, our licensors could terminate the agreements,
      and we would lose the rights to our drug candidates.





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





We
      have
      no experience in manufacturing products for clinical or commercial purposes
      and
      do not have any manufacturing facilities. We intend to continue, in whole or
      in
      part, to use third parties to manufacture our products for use in clinical
      trials and for future sales. We may not be able to enter into future third-party
      contract manufacturing agreements on acceptable terms to us, if at
      all.





Contract
      manufacturers often encounter difficulties in scaling up production, including
      problems involving production yields, quality control and assurance, shortage
      of
      qualified personnel, compliance with FDA and foreign regulations, production
      costs and development of advanced manufacturing techniques and process controls.
      Our third-party manufacturers may not perform as agreed or may not remain in
      the
      contract manufacturing business for the time required by us to successfully
      produce and market our drug candidates. In addition, our contract manufacturers
      will be subject to ongoing periodic, unannounced inspections by the FDA and
      corresponding foreign governmental agencies to ensure strict compliance with,
      among other things, current good manufacturing practices, in addition to other
      governmental regulations and corresponding foreign standards. We will not have
      control over, other than by contract, third-party manufacturers' compliance
      with
      these regulations and standards. Switching or engaging multiple manufacturers
      may be difficult because the number of potential manufacturers is limited and,
      particularly in the case of 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.





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.
      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 will incur
      capital expenditures to enable larger scale production.





***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.***





Source
      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. 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.





26


***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.





***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. Because we have engaged and intend to continue to engage
      CROs
      to help us obtain market approval for our drug candidates, many important
      aspects of this process have been and will be out of our direct control. 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.





27


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





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





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





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





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





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





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





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





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





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





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





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





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
      November 2, 2006, we had 39 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.





28


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





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





Acquisitions
      involve a number of operational risks, including:





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





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





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





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





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





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





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





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





●
            government
                and health administration authorities;





●
            private
                health insurers;





●
            managed
                care programs; and





●
            other
                third-party payors.





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





***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.





29


***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 may not be able to obtain additional insurance coverage
      that
      will be adequate to cover product liability risks that may arise. Regardless
      of
      merit or eventual outcome, product liability claims may result in:





●
            decreased
                demand for a product;





●
            injury
                to our reputation;





●
            our
                inability to continue to develop a drug candidate;





●
            withdrawal
                of clinical trial volunteers; and





●
            loss
                of revenues.





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





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





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





***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
      39
      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 have developed and instituted a corporate compliance program
      based on what we believe are the current best practices, we cannot assure you
      that we are or will be in compliance with all potentially applicable
      regulations. If we fail to comply with any of these regulations we could be
      subject to a range of regulatory actions, including suspension or termination
      of
      clinical trials, the failure to approve a product candidate, restrictions on
      our
      products or manufacturing processes, withdrawal of products from the market,
      significant fines, or other sanctions or litigation.





30


**Risks
      Related to Our Financial Condition**





***Our
      stock option granting practices were the subject of a comprehensive review
      including one conducted by an independent director during the second quarter
      of
      2006.  The Securities and Exchange Commission or other legal or regulatory
      body could initiate an inquiry into our stock option practices, which could
      require significant attention by management and could result in significant
      legal expenses.***





At
      the
      direction of our Board of Directors, during the second quarter of 2006 we
      commenced an internal review into our historical stock option practices from
      the
      date of our initial public offering to the present under the stock option plans
      in effect, including a review of the underlying option grant documentation
      and
      procedures. This internal review was completed during the second quarter of
      2006. Information about the internal review can be found in our quarterly
      report on Form 10-Q for the quarter ended June 30, 2006. Certain historical
      documentation and procedural deficiencies were noted. We have determined
      that the compensation expense adjustments resulting from those deficiencies
      are
      immaterial, however there can be no assurance that the Securities and Exchange
      Commission or any other regulatory body would agree with this
      finding.





In
      addition to this review, the Board of Directors conducted a review led by one
      of
      the independent members of the Board of the facts and circumstances surrounding
      a stock option grant in the first quarter of 2004 and a May 1, 2003 grant to
      employees.  The review was completed during the second quarter of 2006. The
      review did not discover any evidence of intentional fraud or wrongdoing in
      connection with these option grants, however, there can be no assurance that
      the
      Securities and Exchange Commission or any other regulatory body would agree
      with
      this finding. As of the date of this filing, we have not been contacted by
      the Securities and Exchange Commission or any other regulatory body or by The
      Nasdaq Stock Market regarding our stock option practices.  We cannot,
      however, provide any assurance that we will not be the subject of such an
      inquiry, or other legal or regulatory action.  If that occurs, it could
      result in the need to devote a significant amount of management’s time in
      responding to such an inquiry and could also result in significant legal
      expenses, regulatory fines or penalties or other contingent liabilities.





***Our
      current cash, cash equivalents and investment securities may not be adequate
      to
      support our operations for the next 24 months as we have
      estimated.***





We
      believe that our $141.1 million in cash, cash equivalents, interest receivable
      and investment securities as of September 30, 2006 will be sufficient to enable
      us to meet our planned operating needs and capital expenditures for at least
      the
      next 24 months. Our forecast of the period of time through which our cash,
      cash
      equivalents, 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 expenses associated with manufacturing and product development
                of the proprietary drug candidates within our portfolio and those
                that may
                be in-licensed, partnered or
                acquired;





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





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





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





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





***If
      we are unable to obtain additional funds on terms favorable to us, or at all,
      our business would be harmed.***





We
      expect
      to use, rather than generate, funds from operations for the foreseeable future.
      Based on our current plans, we believe our existing cash, cash equivalents,
      interest receivable and investment securities will be sufficient to fund our
      operating expenses and capital requirements for at least the next 24 months;
      however, the actual amount of funds that we will need prior to or after that
      date will be determined by many factors, some of which are beyond our control.
      As a result, we may need funds sooner or in different amounts than we currently
      anticipate, depending upon:





31


●
            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 $1,015,000,
      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 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
      Biopharmaceuticals, Inc. was valid.  We intend to appeal this
      holding. 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
      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.





32


***We
      are party to a motion filed by AusAm Biotechnologies, Inc. in Bankruptcy Court
      that may result in us making an additional payment to AusAm Biotechnologies,
      Inc.***





We
      acquired the assets of the diagnostics business of AusAm Biotechnologies, Inc.,
      a debtor in a pending Chapter 11 bankruptcy proceedings, 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.





**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.





**Risks
      Related to Our Common Stock**





***Concentration
      of ownership of our common stock among our existing executive officers and
      directors may prevent new investors from influencing significant corporate
      decisions.***





As
      of
      September 30, 2006, our executive officers and directors (including their
      affiliates) beneficially owned, in the aggregate, approximately 17.72% of our
      outstanding common stock, including, for this purpose, currently exercisable
      options and warrants held by our executive officers and directors. As a result,
      these persons, acting together, may have the ability to significantly influence
      the outcome of all matters submitted to our stockholders for approval, including
      the election and removal of directors and any merger, consolidation or sale
      of
      all or substantially all of our assets. In addition, such persons, acting
      together, may have the ability to effectively control our management and
      affairs. Accordingly, this concentration of ownership may depress the market
      price of our common stock.





33


***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 $67.2
      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, your equity in us may be significantly diluted.
      We
      may be required to issue up to 3,372,422 shares of our common stock to former
      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.





As
      of
      September 30, 2006, our executive officers and directors, beneficially own,
      in
      the aggregate, approximately 17.72% of our common stock, including currently
      exercisable warrants and options held by them. If some or all of them should
      decide to sell a substantial number of their holdings, it could have a material
      adverse effect on the market for our common stock.





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





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





●
            developments
                concerning our drug candidates;





●
            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.





34


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





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





**ITEM
      6. EXHIBITS**





The
      exhibits listed on the Exhibit Index are included with this report.





3.1
            Amended
                and Restated Certificate of Incorporation of Keryx Biopharmaceuticals,
                Inc., filed as Exhibit 3.1 to the Registrant's Annual Report on Form
                10-Q
                for the quarter ended September 30, 2004, filed on August 12, 2004,
                and
                incorporated herein by reference.3.2
            Amended
                and Restated Bylaws of Keryx Biopharmaceuticals, Inc., filed as Exhibit
                3.2 to the Registrant’s Annual Report on Form 10-K for the year ended
                December 31, 2001, filed on March 26, 2002 (File No. 000-30929),
                and
                incorporated herein by reference.10.1*
            License
                Agreement by and between Kyowa Hakko Kogyo Co., Ltd. and Keryx
                Biopharmaceuticals, Inc. dated as of September 29,
                2006.10.2
            Assignment
                and Assumption Agreement (related to the License Agreement by and
                between
                Kyowa Hakko Kogyo Co., Ltd. and Keryx Biopharmaceuticals, Inc. dated
                as of
                September 29, 2006) by and among Keryx Biopharmaceuticals, Inc. and
                AOI
                Pharmaceuticals, Inc. dated as of October 25, 2006.31.1
            Certification
                of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a),
                as
                adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,
                dated
                November 8, 2006.31.2
            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
                November 8, 2006.32.1
            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
                November8,
                2006.32.2
            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
                November8,
                2006.







*Confidential
      treatment has been requested with respect to the omitted portions of this
      exhibit.




35


**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:
                November8,
                2006
            By:
            /s/
                Ronald C. Renaud, JrSenior
                Vice President, Chief Financial Officer, Secretary and
                Treasurer(Principal
                Financial and Accounting Officer)














EXHIBIT
      INDEX





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




10.1*
            License
                Agreement by and between Kyowa Hakko Kogyo Co., Ltd. and Keryx
                Biopharmaceuticals, Inc. dated as of September 29,
                2006.10.2
            Assignment
                and Assumption Agreement (related to the License Agreement by and
                between
                Kyowa Hakko Kogyo Co., Ltd. and Keryx Biopharmaceuticals, Inc. dated
                as of
                September 29, 2006) by and among Keryx Biopharmaceuticals, Inc. and
                AOI
                Pharmaceuticals, Inc. dated as of October 25, 2006.31.1
            Certification
                of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a),
                as
                adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,
                dated
                November 8, 2006.31.2
            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
                November 8, 2006.32.1
            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
                November8,
                2006.32.2
            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
                November8,
                2006.





*
      Confidential treatment has been requested with respect to the omitted portions
      of this exhibit.