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UNITED STATES
    SECURITIES AND EXCHANGE COMMISSIONWashington, DC
    20549
     Form 10-K
  ANNUAL REPORT
 PURSUANT TO SECTION 13 OR
    15(d)
 OF THE SECURITIES EXCHANGE ACT
    OF 1934
  (Mark One)þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    December 31, 2007ORo

TRANSITION REPORT PURSUANT TO
    SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
    1934For the transition period
    from          to   Commission file number:
    000-50767
      CRITICAL THERAPEUTICS,
    INC.
 (Exact Name of Registrant as
    Specified in Its Charter)
  Delaware

04-3523569(State or Other Jurisdiction
    of
    Incorporation or Organization)

(IRS Employer
    Identification No.)60 Westview Street, Lexington,
    Massachusetts(Address of Principal
    Executive Offices)

02421(Zip Code)   Registrants telephone number,
    including area code:
 (781) 402-5700
      Securities registered pursuant to
    Section 12(b) of the Act:
  Title of Each Class

Name of Each Exchange on Which RegisteredCommon Stock, $0.001 par value per share

The NASDAQ Stock Market LLC   Securities registered pursuant to
    Section 12(g) of the Act:
 None.
      o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. o
    Large accelerated filer
    o

Accelerated filer
    þ

Non-accelerated
    filer o
    (Do not check if a smaller reporting company)

Smaller Reporting
    company o   Rule 12b-2 o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE




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##### 





CRITICAL
    THERAPEUTICS, INC.
    ANNUAL REPORT
    ON
    FORM 10-K
    INDEX
  PagePART IItem 1.

Business

2Item 1A.

Risk Factors

28Item 1B.

Unresolved Staff Comments

54Item 2.

Properties

54Item 3.

Legal Proceedings

54Item 4.

Submission of Matters to a Vote of Security
    Holders

54EXECUTIVE OFFICERS OF THE REGISTRANT

54PART IIItem 5.

Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities

56Item 6.

Selected Financial Data

58Item 7.

Managements Discussion and Analysis of
    Financial Condition and Results of Operations

60Item 7A.

Quantitative and Qualitative Disclosures About
    Market Risk

82Item 8.

Financial Statements and Supplementary Data

84Item 9.

Changes in and Disagreements With Accountants on
    Accounting and Financial Disclosure

119Item 9A.

Controls and Procedures

119Item 9B.

Other Information

122PART IIIItem 10.

Directors, Executive Officers and Corporate
    Governance

123Item 11.

Executive Compensation

123Item 12.

Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters

124Item 13.

Certain Relationships and Related Transactions,
    and Director Independence

124Item 14.

Principal Accountant Fees and Services

124PART IVItem 15.

Exhibits and Financial Statement Schedules

124SIGNATURES

125EXHIBIT INDEXEx-10.53 Critical Therapeutics, Inc. 2007 Cash Bonuses for Executive OfficersEx-10.54 Critical Therapeutics, Inc. 2008 Salaries for Executive OfficersEx-10.55 Critical Therapeutics, Inc. Maximum Annual Cash Bonuses for Executive OfficersEx-21.1 Subsidiaries of the registrantEx-23.1 Consent of Deloitte & Touche LLPEx-31.1 Section 302 Certification of Principal Executive OfficerEx-31.2 Section 302 Certification of Principal Financial OfficerEx-32.1 Section 906 Certification of Principal Executive OfficerEx-32.2 Section 906 Certification of Principal Financial Officer




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PART I  Cautionary
    Statement Regarding Forward-Looking Statements
  Form 10-K tm ® tm Form 10-K Form 10-K Form 10-K, 10-K
 1




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ITEM 1.
    BUSINESS  Overview
             2




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Review of
    Strategic Alternatives
    
    engage in one or more potential transactions, such as the sale
    or divestiture of certain of our assets, the merger or sale of
    our company or other strategic transactions; or
    continue to operate our business in accordance with our existing
    business strategy.    Our
    Product Pipeline


*
    
    Being developed with MedImmune
    under an exclusive license and collaboration agreement.
    Diagnostic assays directed towards HMGB1 are being developed
    with Beckman Coulter under a license agreement.


Zileuton
     3




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Therapeutic
    Opportunity
    ® ® ® ®
    Zileuton
    Product Development
  ZYFLO:
    The Tablet Formulation of Zileuton
      
    rapid and sustained improvement for patients over a six-month
    period in objective and subjective measures of asthma control;
    reduction of exacerbations and need for either bronchodilatory
    or steroid rescue medications; and
    acute bronchodilatory effect within two hours after the first
    dose. 4




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six-months
  
    submission of healthcare a professional letter to the FDAs
    drug shortage group for posting on the FDA website;
    communication to wholesalers, who will provide notification to
    retail pharmacies, of the discontinuation of ZYFLO and
    availability of ZYFLO CR;
    delivery by our sales representatives of communications to
    pharmacists, doctors and other associated healthcare
    professionals;
    managed care notification and communication to health plans; and
    direct mail notification to identified providers who have
    prescribed ZYFLO in the last 12 months.  ZYFLO CR:
    The Extended-Release Formulation of Zileuton
   5




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
    In a three-month pivotal efficacy trial, in which
    397 patients received either ZYFLO CR or placebo, patients
    taking ZYFLO CR demonstrated statistically significant
    improvements over placebo in objective measures of asthma
    control, such as mean forced expiratory volume in one second, or
    FEV1.
    In the trial, patients taking ZYFLO CR showed a reduced need for
    bronchodilatory drugs as a rescue medication to alleviate
    uncontrolled symptoms. In this trial, 2.5% of the patients
    taking ZYFLO CR experienced ALT levels greater than or equal to
    three times the level normally seen in the bloodstream, compared
    to 0.5% of the patients taking placebo.
    In a six-month safety trial, in which 706 patients received
    either a combination of ZYFLO CR and their usual asthma
    medications or a combination of placebo and their usual asthma
    medications, 1.78% of the patients taking ZYFLO CR and their
    usual asthma medications experienced ALT levels greater than or
    equal to three times the level normally seen in the bloodstream,
    compared to 0.65% of the patients taking placebo and their usual
    asthma medications.      Injectable
    Formulation of Zileuton
    1
 6




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1 60-minute 1
  1 40-80%
  Commercialization
    Strategy
    out-of-pocket
    
    more than 33 months of in-depth interaction between our
    team of medical science liaisons, or MSLs, and key opinion
    leaders in the treatment of respiratory diseases, including
    asthma;
    more than two years of interaction between our sales force and
    respiratory specialists who treat asthma; and
    qualitative and quantitative market research that we have
    conducted since 2004. 7




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
    70% of specialists responded that the release of ZYFLO CR would
    greatly facilitate the acceptance of the product by the
    specialist community; and
    66% of primary care physicians responded that they would be
    interested in using ZYFLO CR as part of their treatment regimen,
    despite the fact that only one in 10 of these physicians had
    ever prescribed ZYFLO in the past.              R(+)
    Isomer of Zileuton
   8




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Critical
    Care: The Inflammatory Response
    
    acute diseases and conditions that lead to admission to the ICU,
    such as sepsis and septic shock; and
    acute exacerbations of chronic diseases that frequently lead to
    hospitalization, such as asthma, lupus and rheumatoid arthritis.      
    an alpha-7 nicotinic acetylcholine receptor program directed
    towards a receptor that we believe regulates the release of the
    cytokines that play a fundamental role in the inflammatory
    response, including TNF alpha, in response to an inflammatory
    stimulus; and
    an HMGB1 program directed towards the pro-inflammatory protein
    HMGB1.    Alpha-7
    Receptor Program
     9




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Therapeutic
    Opportunity
    Development
    Strategy
    HMGB1
    Program
        Therapeutic
    Opportunity
     10




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Clinical
    Strategy
  in vitro in
    vivo.
    Collaborations
  Zileuton
    Co-Promotion Agreement with DEY
    out-of-pocket
   11




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PERFOROMIST
    Co-Promotion Agreement with DEY
        90-days 90-days
 12




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MedImmune
    Collaboration
      product-by-product country-by-country
       13




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Beckman
    Coulter Collaboration
      90-days
  Research
    and Development
      Sales and
    Marketing
     14




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Manufacturing
      Shasun
    Pharma Solutions
  18-months 12-months out-of-pocket
 15




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SkyePharma
  12-month 24-months 36-months 30-days 12-months
  Patheon
    Pharmaceuticals
  12-months 18-months 30-days 90-days
  CyDex
  ®
 16




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75-days
  Other
    Distribution
    Network
        License
    and Royalty Agreements
    Abbott
   17




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country-by-country
  ® country-by-country
  Baxter
    The
    Feinstein Institute
   18




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19




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SkyePharma
    Innovative
    Metabolics
      
    make a one-time milestone payment to us of $1.0 million
    upon the achievement of all regulatory approvals from the FDA or
    any foreign counterpart agency required for the marketing and
    sale in the applicable country of any product or method covered
    by the licensed patent rights; 20




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
    pay us royalties based on net sales of licensed products and
    methods by IMI and its affiliates until the expiration of the
    patent rights covering the licensed product or method in the
    country of actual or intended use; and
    pay us a percentage of any royalties, fees and payments actually
    received from third parties, with limited exceptions, in
    connection with sublicenses by IMI of its rights under the
    licensed patent rights and know-how.      
    amounts payable to The Feinstein Institute in connection with
    the filing of any U.S. patent application or issuance of a
    U.S. patent relating to the field of cholinergic
    anti-inflammatory technology; and
    minimum annual royalties payable to The Feinstein Institute
    beginning in the first year after termination of research
    activities under the sponsored research agreement.  90-days
    Proprietary
    Rights
      U.S.


Foreign


ProgramIssued


Pending


Issued


Pending


TotalZileuton


2



1



18



2



23HMGB1


10



13



20



39



82Alpha-7


4



9



7



26



46Total


16



23



45



67



151  21




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Trademarks,
    Trade Secrets and Other Proprietary Information
  ®
    Regulatory
    Matters
     22




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30-day
        and/or
 23




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head-to-head
   24




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180-day
   25




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Foreign
    Regulation
      Hazardous
    Materials
    Competition
    ® ®
 26




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®
    ® ® ® ®
  ®
  ® ® ® ® ® ® ® ® ®
    
    significantly greater financial, technical and human resources
    than we have and may be better equipped to discover, develop,
    manufacture and commercialize products;
    more extensive experience than we have in conducting preclinical
    studies and clinical trials, obtaining regulatory approvals and
    manufacturing and marketing pharmaceutical products;
    competing products that have already received regulatory
    approval or are in late-stage development; and
    collaborative arrangements in our target markets with leading
    companies and research institutions.   27




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Employees
    Available
    Information
  Form 10-K, Form 10-Q, Form 8-K
  ITEM 1A.
    RISK
    FACTORS  Form 10-K
  Risks
    Relating to Our Business
  Our
    business depends heavily on the commercial success of ZYFLO
    CR.
      If
    ZYFLO CR does not achieve market acceptance, we may not be able
    to generate significant revenues unless we are able to
    successfully develop and commercialize other product
    candidates.
   28




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We are
    considering alternatives to our current business strategy that
    could significantly impact our future operations and financial
    position.
   29




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If our
    marketing and sales infrastructure and presence are not adequate
    or our collaborative marketing arrangements are not successful,
    our ability to market and sell our products will be
    impaired.
      tm
   30




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A
    failure to maintain appropriate inventory levels could harm our
    reputation and subject us to financial losses.
      If the
    market is not receptive to our product candidates, we will be
    unable to generate revenues from sales of these
    products.
    
    the timing of our receipt of any marketing approvals, the terms
    of any approval and the countries in which approvals are
    obtained;
    the safety, efficacy and ease of administration;
    the therapeutic benefit or other improvement over existing
    comparable products;
    pricing and cost effectiveness;
    the ability to be produced in commercial quantities at
    acceptable costs; 31




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
    the availability of reimbursement from third-party payors such
    as state and Federal governments, under programs such as
    Medicare and Medicaid, and private insurance plans and managed
    care organizations; and
    the extent and success of our sales and marketing efforts.    We may
    not be successful in our efforts to advance and expand our
    portfolio of product candidates.
    
    preclinical studies to evaluate product candidates;
    sponsored research programs with academic and other research
    institutions and individual doctors, chemists and
    researchers; and
    collaborations with other pharmaceutical or biotechnology
    companies with complementary clinical development or
    commercialization capabilities or capital to assist in funding
    product development and commercialization.    
    we may be unable to license or acquire the relevant technology
    on terms that would allow us to make an appropriate return from
    the product;
    companies that perceive us as a competitor may be unwilling to
    assign or license their product rights to us;
    we may be unable to identify suitable products or product
    candidates within our areas of expertise; and
    we may have inadequate cash resources or may be unable to access
    public or private financing to obtain rights to suitable
    products or product candidates from third parties.    We
    face substantial competition. If we are unable to compete
    effectively, ZYFLO CR, PERFOROMIST and our product candidates
    may be rendered noncompetitive or obsolete.
    ® ®
 32




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®
    ® ® ® ®
  ®
  ® ® ® ® ® ®
    
    significantly greater financial, technical and human resources
    than we have and may be better equipped to discover, develop,
    manufacture and commercialize products;
    more extensive experience than we have in conducting preclinical
    studies and clinical trials, obtaining regulatory approvals and
    manufacturing and marketing pharmaceutical products;
    competing products that have already received regulatory
    approval or are in late-stage development; and
    collaborative arrangements in our target markets with leading
    companies and research institutions.   33




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If we
    are unable to retain key personnel and hire additional qualified
    personnel, we may not be able to achieve our
    goals.
           34




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We
    identified a material weakness in our internal control over
    financial reporting for the second quarter and third quarter of
    2007. If we fail to achieve and maintain effective internal
    control over financial reporting, we could face difficulties in
    preparing timely and accurate financial reports, which could
    result in a loss of investor confidence in our reported results
    and a decline in our stock price.
  Form 10-K Form 10-Q
  We
    will spend considerable time and money complying with Federal
    and state laws and regulations, and, if we are unable to fully
    comply with such laws and regulations, we could face substantial
    penalties.
    
    Federal Medicare and Medicaid anti-kickback laws, which prohibit
    persons from knowingly and willfully soliciting, offering,
    receiving or providing remuneration, directly or indirectly, in
    cash or in kind, to induce either the referral of an individual,
    or furnishing or arranging for a good or service, for which
    payment may be made under Federal healthcare programs such as
    the Medicare and Medicaid programs;
    other Medicare laws and regulations that establish the
    requirements for coverage and payment for our products,
    including the amount of such payments;
    the Federal False Claims Act, which imposes civil and criminal
    liability on individuals and entities who submit, or cause to be
    submitted, false or fraudulent claims for payment to the
    government;
    the Federal Health Insurance Portability and Accountability Act
    of 1996, or HIPAA, which prohibits executing a scheme to defraud
    any healthcare benefit program, including private payors and,
    further, requires us to comply with standards regarding privacy
    and security of individually identifiable health information and
    conduct certain electronic transactions using standardized code
    sets;
    the Federal False Statements statute, which prohibits knowingly
    and willfully falsifying, concealing or covering up a material
    fact or making any materially false statement in connection with
    the delivery of or payment for healthcare benefits, items or
    services;
    the Federal Food, Drug and Cosmetic Act, which regulates
    development, manufacturing, labeling, marketing, distribution
    and sale of prescription drugs and medical devices;
    the Federal Prescription Drug Marketing Act of 1987, which
    regulates the distribution of drug samples to physicians and
    other prescribers who are authorized under state law to receive
    and dispense drug samples;
    state and foreign law equivalents of the foregoing; 35




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
    state food and drug laws, pharmacy acts and state pharmacy board
    regulations, which govern the sale, distribution, use,
    administration and prescribing of prescription drugs; and
    state laws that prohibit practice of medicine by non-physicians
    and fee-splitting arrangements between physicians and
    non-physicians, as well as state law equivalents to the Federal
    Medicare and Medicaid anti-kickback laws, which may not be
    limited to government reimbursed items or services.          State
    pharmaceutical marketing and promotional compliance and
    reporting requirements may expose us to regulatory and legal
    action by state governments or other government
    authorities.
   36




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Code on Interactions with Healthcare Professionals Compliance Program Guidance for Pharmaceutical
    Manufacturers.
    Recently
    enacted legislation may make it more difficult and costly for us
    to obtain regulatory approval of our product candidates and to
    produce, market and distribute our existing
    products.
    Our
    corporate compliance and corporate governance programs cannot
    guarantee that we are in compliance with all potentially
    applicable regulations.
     37




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Our
    sales depend on payment and reimbursement from third-party
    payors, and a reduction in the payment rate or reimbursement
    could result in decreased use or sales of our
    products.
       38




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Our
    business has a substantial risk of product liability claims. If
    we are unable to obtain appropriate levels of insurance, a
    product liability claim against us could interfere with the
    development and commercialization of our product candidates or
    subject us to unanticipated damages or settlement
    amounts.
    Risks
    Relating to Development, Clinical Testing and Regulatory
    Approval of Our Product Candidates
  If we
    do not obtain the regulatory approvals or clearances required to
    market and sell our product candidates under development, our
    business may be unsuccessful.
        If
    clinical trials for our product candidates are not successful,
    we may not be able to develop, obtain regulatory approval for
    and commercialize these product candidates
    successfully.
   39




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If
    clinical trials for our product candidates are delayed, we would
    be unable to commercialize our product candidates on a timely
    basis, which would require us to incur additional costs and
    delay the receipt of any revenues from product
    sales.
      
    ongoing discussions with the FDA or comparable foreign
    authorities regarding the scope or design of our clinical trials;
    delays or the inability to obtain required approvals from
    institutional review boards or other governing entities at
    clinical sites selected for participation in our clinical trials;
    delays in enrolling patients and volunteers into clinical trials;
    lower than anticipated retention rates of patients and
    volunteers in clinical trials;
    the need to repeat clinical trials as a result of inconclusive
    or negative results or poorly executed testing;
    insufficient supply or deficient quality of product candidate
    materials or other materials necessary to conduct our clinical
    trials;
    unfavorable FDA inspection and review of a clinical trial site
    or records of any clinical or preclinical investigation; 40




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
    serious and unexpected drug-related side effects experienced by
    participants in ongoing or past clinical trials for the same or
    a different indication;
    serious and unexpected drug-related side effects observed during
    ongoing or past preclinical studies; or
    the placement of a clinical hold on a trial.            Even
    if we obtain regulatory approvals or clearances, our products
    and product candidates will be subject to ongoing regulatory
    requirements and review. If we fail to comply with continuing
    U.S. and applicable foreign regulations, we could lose
    permission to manufacture and distribute our products and the
    sale of our product candidates could be suspended.
     41




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If we
    or our third-party manufacturers or service providers fail to
    comply with applicable laws and regulations, we or they could be
    subject to enforcement actions, which could adversely affect our
    ability to market and sell our product candidates and may harm
    our reputation.
    
    product seizures;
    voluntary or mandatory recalls;
    suspension of review or refusal to approve pending applications;
    voluntary or mandatory patient or physician notification;
    withdrawal of product approvals;
    restrictions on, or prohibitions against, marketing our product
    candidates;
    restrictions on applying for or obtaining government bids;
    fines;
    restrictions on importation of our product candidates;
    injunctions; and
    civil and criminal penalties.  Risks
    Relating to Our Dependence on Third Parties
  We
    depend on DEY to jointly promote and market ZYFLO CR. This
    co-promotion arrangement may not be successful.
   42




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We
    depend on MedImmune and Beckman Coulter and expect to depend on
    additional collaborators in the future for a portion of our
    revenues and to develop, conduct clinical trials with, obtain
    regulatory approvals for, and manufacture, market and sell some
    of our product candidates. These collaborations may not be
    successful.
     43




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90-days
    
    our collaborators may be pursuing alternative technologies or
    developing alternative products, either on their own or in
    collaboration with others, that may be competitive with the
    product on which they are collaborating with us or that could
    affect our collaborators commitment to us;
    reductions in marketing or sales efforts or a discontinuation of
    marketing or sales of our products by our collaborators would
    reduce our revenues, which we expect will be based on a
    percentage of net sales by collaborators;
    our collaborators may terminate their collaborations with us,
    which could make it difficult for us to attract new
    collaborators or adversely affect how we are perceived in the
    business and financial communities;
    our collaborators may not devote sufficient time and resources
    to any collaboration with us, which could prevent us from
    realizing the potential commercial benefits of that
    collaboration; and
    our collaborators may pursue higher priority programs or change
    the focus of their development programs, which could affect
    their commitments to us.      IMI
    may not be successful in developing a product under the patent
    rights and know-how that we licensed to IMI relating to the
    mechanical and electrical stimulation of the vagus
    nerve.
   44




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We
    rely on third parties to manufacture and supply the zileuton
    API, ZYFLO CR and our product candidates. We expect to continue
    to rely on these sole source suppliers for these purposes and
    would incur significant costs to independently develop
    manufacturing facilities.
    2-ABT, 2-ABT, 2-ABT 2-ABT
        
    we may not be able to meet commercial demands for ZYFLO CR;
    we may be required to cease distribution or issue recalls;
    we may not be able to initiate or continue clinical trials of
    our product candidates that are under development; and
    we may be delayed in submitting applications for regulatory
    approvals for our product candidates.   45




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third-party
  third-party
      Any
    failure to manage and maintain our distribution network could
    compromise sales of ZYFLO CR and harm our
    business.
     46




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If we
    are unable to enter into additional collaboration agreements, we
    may not be able to continue development of our product
    candidates.
  and/or
  
    we may be required to expend our own funds to advance the
    product candidate to commercialization;
    revenue from product sales could be delayed; or
    we may elect not to develop or commercialize the product
    candidate.  We
    plan to rely significantly on third parties to market some
    product candidates, and these third parties may not successfully
    commercialize these product candidates.
   47




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Risks
    Relating to Intellectual Property and Licenses
  If we
    or our licensors are not able to obtain and enforce patent and
    other intellectual property protection for our discoveries or
    discoveries we have in-licensed, our ability to prevent third
    parties from using our inventions and proprietary information
    will be limited and we may not be able to operate our business
    profitably.
             48




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Litigation
    regarding patents, patent applications and other proprietary
    rights is expensive and time consuming. If we are unsuccessful
    in litigation or other adversarial proceedings concerning
    patents or patent applications, we may not be able to protect
    our products from competition or we may be precluded from
    selling our products. If we are involved in such litigation, it
    could cause delays in, or prevent us from, bringing products to
    market and harm our ability to operate.
    
    the patentability of our applications, including those relating
    to our products; or
    the enforceability, validity or scope of protection offered by
    our patents, including those relating to our products.      
    incur substantial monetary damages, potentially including treble
    damages, if we are found to have willfully infringed on such
    parties patent rights;
    encounter significant delays in bringing our product candidates
    to market; or
    be precluded from participating in the manufacture, use or sale
    of our products or methods of treatment.       49




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We
    in-license a significant portion of our principal proprietary
    technologies, and if we fail to comply with our obligations
    under any of the related agreements, we could lose license
    rights that are necessary to develop and market our zileuton
    products, our HMGB1 products and some of our other product
    candidates.
    Risks
    Relating to Our Financial Results and Need for Additional
    Financing
  We
    have incurred losses since inception and we anticipate that we
    will continue to incur losses for the foreseeable future. If we
    do not generate significant revenues, we will not be able to
    achieve profitability.
    We
    will require substantial additional capital to fund our
    operations. If additional capital is not available, we may need
    to delay, limit or eliminate our development and
    commercialization processes.
    
    the ongoing costs of marketing ZYFLO CR;
    the scope, costs and results of our clinical trials on ZYFLO CR
    and zileuton injection;
    the amount and timing of sales and returns of ZYFLO CR and ZYFLO;
    the costs of ongoing sales, marketing and manufacturing
    activities for ZYFLO CR;
    the time and costs involved in preparing, submitting, obtaining
    and maintaining regulatory approvals for our other product
    candidates;
    the timing, receipt and amount of milestone and other payments,
    if any, from DEY, MedImmune, Beckman Coulter, IMI or future
    collaborators or licensees;
    the timing, receipt and amount of sales and royalties, if any,
    from our product candidates;
    continued progress in our research and development programs, as
    well as the magnitude of these programs, including milestone
    payments to third parties under our license agreements;
    the costs involved in preparing, filing, prosecuting,
    maintaining and enforcing patent claims;
    the cost of obtaining and maintaining licenses to use patented
    technologies;
    potential acquisition or in-licensing of other products or
    technologies;
    our ability to establish and maintain additional collaborative
    or co-promotion arrangements; and 50




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##### Table of Contents




    the ongoing time and costs involved in corporate governance
    requirements, including work related to compliance with the
    Sarbanes-Oxley Act of 2002.          If the
    estimates we make, or the assumptions on which we rely, in
    preparing our financial statements prove inaccurate, our actual
    results may vary from those reflected in our
    projections.
   51




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##### Table of Contents



Risks
    Relating to Our Common Stock
  Our
    stock price is subject to fluctuation, which may cause an
    investment in our stock to suffer a decline in
    value.
    If we
    fail to continue to meet all applicable continued listing
    requirements of The NASDAQ Global Market and NASDAQ determines
    to delist our common stock, the market liquidity and market
    price of our common stock could decline.
      If our
    quarterly results of operations fluctuate, this fluctuation may
    subject our stock price to volatility, which may cause an
    investment in our stock to suffer a decline in
    value.
    
    the amount and timing of sales of ZYFLO CR;
    the timing of operating expenses, including selling and
    marketing expenses and the costs of maintaining a direct sales
    force;
    the availability and timely delivery of a sufficient supply of
    ZYFLO CR;
    the amount of rebates, discounts and chargebacks to wholesalers,
    Medicaid and managed care organizations related to ZYFLO CR;
    the amount and timing of product returns for ZYFLO CR and ZYFLO; 52




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##### Table of Contents




    achievement of, or the failure to achieve, milestones under our
    development agreement with MedImmune, our license agreements
    with Beckman Coulter and IMI and, to the extent applicable,
    other licensing and collaboration agreement;
    the results of ongoing and planned clinical trials of our
    product candidates;
    production problems occurring at our third-party manufacturers;
    the results of regulatory reviews relating to the development or
    approval of our product candidates; and
    general and industry-specific economic conditions that may
    affect our research and development expenditures.    If
    significant business or product announcements by us or our
    competitors cause fluctuations in our stock price, an investment
    in our stock may suffer a decline in value.
    
    our operating results, including the amount and timing of sales
    of ZYFLO CR;
    our licensing and collaboration agreements and the products or
    product candidates that are the subject of those agreements;
    the results of discovery, preclinical studies and clinical
    trials by us or our competitors;
    the acquisition of technologies, product candidates or products
    by us or our competitors;
    the development of new technologies, product candidates or
    products by us or our competitors;
    regulatory actions with respect to our product candidates or
    products or those of our competitors; and
    significant acquisitions, strategic partnerships, joint ventures
    or capital commitments by us or our competitors.  Insiders
    have substantial control over us and could delay or prevent a
    change in corporate control, including a transaction in which
    our stockholders could sell or exchange their shares for a
    premium.
    
    delaying, deferring or preventing a change in control of our
    company;
    impeding a merger, consolidation, takeover or other business
    combination involving our company; or
    discouraging a potential acquirer from making a tender offer or
    otherwise attempting to obtain control of our company. 53




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Anti-takeover
    provisions in our charter documents and under Delaware law could
    prevent or frustrate attempts by our stockholders to change our
    management or our board and hinder efforts by a third party to
    acquire a controlling interest in us.
        ITEM 1B.
    UNRESOLVED
    STAFF COMMENTS    ITEM 2.
    PROPERTIES    ITEM 3.
    LEGAL
    PROCEEDINGS    ITEM 4.
    SUBMISSION
    OF MATTERS TO A VOTE OF SECURITY HOLDERS   EXECUTIVE
    OFFICERS OF THE REGISTRANT    Name

Age

PositionFrank E. Thomas


38


President and Chief Executive OfficerTrevor Phillips, Ph.D.


46


Chief Operating Officer and Senior Vice President of Operations
    and DirectorThomas P. Kelly


37


Chief Financial Officer and Senior Vice President of Finance and
    Corporate DevelopmentScott B. Townsend, J.D.


41


Senior Vice President of Legal Affairs, General Counsel and
    SecretaryJeffrey E. Young


35


Vice President of Finance, Chief Accounting Officer and
    Treasurer  54




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##### Table of Contents



Frank E. Thomas
  Trevor Phillips, Ph.D.
  Thomas P. Kelly
  Scott B. Townsend, J.D.
  Jeffrey E. Young
 55




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##### Table of Contents



PART II  ITEM 5.
    MARKET
    FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
    AND ISSUER PURCHASES OF EQUITY SECURITIES  Market
    Price of and Dividends on Critical Therapeutics Common
    Stock and Related Stockholder Matters
    Year Ended December 31, 2007

High


LowFirst Quarter (from January 1 to March 31)

$
2.59


$
1.50Second Quarter (from April 1 to June 30)

$
3.23


$
1.60Third Quarter (from July 1 to September 30)

$
2.51


$
1.71Fourth Quarter (from October 1 to December 31)

$
2.52


$
1.27   Year Ended December 31, 2006

High


LowFirst Quarter (from January 1 to March 31)

$
7.20


$
4.92Second Quarter (from April 1 to June 30)

$
5.43


$
3.37Third Quarter (from July 1 to September 30)

$
4.14


$
2.15Fourth Quarter (from October 1 to December 31)

$
2.79


$
1.52       Recent
    Sales of Unregistered Securities; Uses of Proceeds From
    Registered Securities
   56




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##### Table of Contents



Stock
    Performance Graph
      Critical
    Therapeutics, Inc.
    Performance Graph


5/27/04


6/30/04


9/30/04


12/31/04


3/31/05


6/30/05


9/30/05


12/31/05


3/31/06


6/30/06


9/30/06


12/31/06


3/31/07


6/30/07


9/30/07


12/31/07Critical Therapeutics, Inc.


$
100.00



$
98.59



$
82.39



$
112.68



$
95.63



$
98.87



$
132.68



$
101.13



$
71.69



$
50.70



$
33.80



$
28.73



$
30.70



$
30.70



$
25.91



$
17.89NASDAQ Composite Index


$
100.00



$
103.30



$
95.82



$
110.06



$
101.31



$
104.42



$
109.41



$
112.40



$
119.55



$
111.18



$
115.78



$
124.06



$
124.60



$
134.20



$
139.52



$
137.27NASDAQ Biotech Index


$
100.00



$
99.17



$
93.34



$
100.39



$
84.99



$
90.21



$
102.56



$
103.28



$
109.94



$
97.10



$
98.61



$
104.39



$
101.60



$
104.98



$
111.76



$
109.24AMEX Biotech Index


$
100.00



$
101.39



$
101.84



$
105.72



$
95.73



$
109.64



$
125.97



$
132.26



$
138.49



$
128.96



$
130.08



$
146.51



$
148.44



$
151.02



$
159.62



$
152.77  57




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##### Table of Contents





ITEM 6.
    SELECTED
    FINANCIAL DATA  
  Form 10-K
      Year Ended December 31,2007


2006


2005


2004


2003(In thousands, except share and per share data)Statements of Operations Data:Net product sales

$
11,008


$
6,647


$
387


$



$
Revenue under collaboration and license agreements


1,861



6,431



5,837



4,436



1,021Total revenues


12,869



13,078



6,224



4,436



1,021Cost of products sold


4,233



2,222



514







Research and development


21,655



26,912



29,959



25,578



17,458Sales and marketing


12,193



18,284



13,671



1,199



General and administrative


13,572



13,456



11,406



9,679



3,771Restructuring charges






3,498











Total costs and expenses


51,653



64,372



55,550



36,456



21,229Operating loss


(38,784
)


(51,294
)


(49,326
)


(32,020
)


(20,208
)Interest income


2,020



2,726



2,427



1,098



191Interest expense


(209
)


(214
)


(191
)


(172
)


(93
)Net loss


(36,973
)


(48,782
)


(47,090
)


(31,094
)


(20,110
)Accretion of dividends and offering costs on preferred stock














(2,209
)


(2,264
)Net loss available to common stockholders

$
(36,973
)

$
(48,782
)

$
(47,090
)

$
(33,303
)

$
(22,374
)Net loss per common share:Basic and diluted

$
(0.87
)

$
(1.37
)

$
(1.61
)

$
(2.28
)

$
(33.99
)Weighted-average basic and diluted shares outstanding


42,580,884



35,529,048



29,276,243



14,631,371



658,204   58




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##### Table of Contents



As of December 31,2007


2006


2005


2004


2003(In thousands)Balance Sheet Data:Cash, cash equivalents and short-term investments

$
33,828


$
49,038


$
82,811


$
78,829


$
40,078Working capital


26,380



47,738



70,005



64,357



25,218Total assets


44,924



58,182



91,819



83,114



45,054Long-term debt, net of current portion






421



1,489



1,367



720Redeemable convertible preferred stock


















51,395Accumulated deficit


(191,372
)


(154,399
)


(105,617
)


(58,527
)


(27,433
)Total stockholders equity (deficit)


17,091



49,906



72,247



65,408



(24,851
)  59




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##### Table of Contents



ITEM 7.
    MANAGEMENTS
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATIONS  You should read the following discussion and analysis of
    financial condition and results of operations together with the
    Selected Consolidated Financial Data section of this
    annual report on
    Form 10-K
    and our consolidated financial statements and the related notes
    included in this report. In addition to historical information,
    the following discussion contains forward-looking statements
    that involve risks, uncertainties and assumptions. Our actual
    results could differ materially from those anticipated by the
    forward-looking statements due to important factors including,
    but not limited to, those set forth in the Risk
    Factors section of this report.
  Summary
      
    engage in one or more potential transactions, such as the sale
    or divestiture of certain of our assets, the merger or sale of
    our company, or other strategic transactions; or
    continue to operate our business in accordance with our existing
    business strategy.  Form 10-K
    tm
 60




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##### Table of Contents



61




---



##### Table of Contents



Recent
    Developments
      Financial
    Operations Overview
  Revenues.
 62




---



##### Table of Contents



Cost of Products Sold.
  Research and Development Expenses. project-by-project
    Sales and Marketing Expenses.
 63




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##### Table of Contents



General and Administrative Expenses.
  Lease
    Abandonment.
  Costs Associated with an Exit or
    Disposal Activity
  Critical
    Accounting Policies
      
    the nature of the estimate or assumption is material due to the
    level of subjectivity and judgment necessary to account for
    highly uncertain matters or the susceptibility of such matters
    to change; and
    the impact of the estimates and assumptions on our financial
    condition or operating performance is material.  Form 10-K.
  Revenue Recognition. Revenue Recognition When Right of
    Return Exists
 64




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##### Table of Contents



Product Returns. 12-months
  Inventory. first-in,
 65




---



##### Table of Contents



work-in-process
  Accrued Expenses.
    Investments.
   66




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##### Table of Contents



Stock-Based Compensation. Share-Based Payment,
    No. 96-18, Accounting for Equity Instruments That Are Issued to Other
    Than Employees for Acquiring, or in Conjunction with Selling,
    Goods or Services No. 96-18,
  Income Taxes.
  Accounting for Uncertainty in Income Taxes
 67




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##### Table of Contents



Results
    of Operations
  Years
    Ended December 31, 2007 and 2006
  Revenues
  Revenue from Product Sales.
  Revenue under Collaboration and License
    Agreements.
    Costs
    and Expenses
  Cost of Products Sold.
 68




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##### Table of Contents



Research and Development Expenses.
    Year EndedDecember 31,2007


2006(In thousands)Zileuton (ZYFLO and ZYFLO CR)

$
14,479


$
11,975Zileuton injection


1,373



2,336CTI-01


(77
)


2,960Alpha-7


3,239



3,903HMGB1


343



1,829General research and development expenses


1,275



2,600Stock-based compensation expense


1,023



1,309Total research and development expenses

$
21,655


$
26,912     Zileuton (ZYFLO and ZYFLO CR).
  
    $3.1 million in milestone fees paid to third parties as a
    result of the FDAs approval of the NDA for ZYFLO CR in May
    2007;
    $3.5 million in accrued milestone payments to third parties
    as a result of the FDAs approval of the NDA for ZYFLO CR
    in May 2007, which are due on the first and second year
    anniversary of the FDAs approval;
    $2.2 million increase in clinical and manufacturing costs
    related to our Phase IV clinical trial for ZYFLO
    CR; and
    $863,000 increase in clinical and manufacturing costs related to
    our R(+) Isomer program for zileuton.    
    $2.6 million reduction in clinical and manufacturing costs
    for ZYFLO and our NDA registration batches for ZYFLO CR;
    $1.9 million reduction in milestone fees paid to third
    parties as a result of the filing of the ZYFLO CR NDA in July
    2006; 69




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##### Table of Contents




    $1.2 million reduction in operating expenses incurred by
    our medical affairs and medical information functions, related
    to our scientific support of ZYFLO, as a result of our 2006
    restructurings;
    $1.2 million reduction in salaries, other personnel related
    costs and overhead related to our 2006 restructurings; and
    $305,000 reduction in consulting and scientific advisor fees
    related to the ZYFLO CR NDA registration batches.    Zileuton Injection.
  CTI-01.
  Alpha-7.
  HMGB1.
 70




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##### Table of Contents



Sales and Marketing Expenses.
  
    a decrease of approximately $4.3 million in salary and
    other costs related to the May 2006 and October 2006 reductions
    in our specialty sales force and sales and customer management
    team;
    a decrease of $1.3 million in employee travel and other
    employee expenses following our personnel reductions in 2006;
    a decrease of $903,000 in infrastructure costs to support the
    sales force, including leased vehicle, computer and software
    costs;
    a decrease of $567,000 related to amortization of our deferred
    sales and marketing expense;
    a decrease of $302,000 in severance costs and $525,000 of lower
    stock-based compensation expense related to the departure of our
    former Senior Vice President of Sales and Marketing in
    2006; and
    a decrease of $222,000 in stock-based compensation expense
    primarily related to our employee reductions in 2006.    
    an increase of approximately $1.5 million related to
    promotional materials, advertising and other costs associated
    with the launch of ZYFLO CR that we incurred to support our
    co-promotion agreement with DEY; and
    $680,000 in co-promotion fees paid to DEY in accordance our
    co-promotion agreement.   71




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##### Table of Contents



General and Administrative Expenses.
  
    an increase of $1.2 million in advisory fees paid in
    connection with the upfront and milestones payments that DEY
    paid us in 2007;
    an increase of $529,000 in consulting and other expenses
    primarily related to our review of strategic alternatives;
    an increase of $503,000 in legal fees primarily related to our
    review of strategic alternatives;
    an increase of $417,000 related to the additional bonus accrued
    at December 31, 2007 in accordance with our agreement with
    our current President and Chief Executive Officer;
    an increase of $199,000 in audit and accounting related fees
    primarily related to our 2007 filing on
    Form S-3,
    our co-promotion agreement with DEY and our first 401(k)
    audit; and
    an increase of $196,000 in overhead and facility related charges
    as a result of our facility abandonment that are allocated to
    general and administrative expenses.    
    $670,000 of severance costs and $1.3 million of stock-based
    compensation expense related to the departure of our former
    President and Chief Executive Officer in June 2006;
    $370,000 related to stock-based compensation as a result of our
    May 2006 and October 2006 restructurings; and
    $351,000 in salary and other related costs as a result of the
    May 2006 and October 2006 employee reductions.  Restructuring Charges.
  
    severance, benefit and related payments of approximately
    $2.1 million;
    asset impairment charges of $501,000 related to computer and
    laboratory equipment with a net realizable value below its net
    book value;
    stock-based compensation expense of $622,000 related to the
    acceleration of vesting of stock options from the departure of
    our former Senior Vice President of Research and Development and
    Chief Scientific Officer; and
    approximately $335,000 related to the termination of leases on
    vehicles used by our sales force and outplacement services.   72




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##### Table of Contents



Other
  Other Income.
  Years
    Ended December 31, 2006 and 2005
  Revenues
  Revenue from Product Sales.
  Revenue under Collaboration Agreements.
    Costs
    and Expenses
  Effective January 1, 2006, we adopted the fair value
    recognition provisions of SFAS 123(R), using the modified
    prospective method, which allows us to recognize compensation
    cost for shares granted, but unvested, stock awards, new stock
    awards and stock awards modified, repurchased, or cancelled
    after January 1, 2006. The discussion below is impacted by
    the fact that 2005 amounts do not include the impact of
    SFAS 123(R).
 73




---



##### Table of Contents



Cost of Products Sold.
  Research and Development Expenses.
    Year EndedDecember 31,2006


2005(In thousands)Zileuton (ZYFLO and ZYFLO CR)

$
11,975


$
12,670Zileuton injection


2,336



1,656CTI-01


2,960



3,045Alpha-7


3,903



2,434HMGB1


1,829



2,030General research and development expenses


2,600



7,260Stock-based compensation expense


1,309



864Total research and development expenses

$
26,912


$
29,959     Zileuton (ZYFLO and ZYFLO CR).
  
    lower manufacturing costs related to the product registration of
    ZYFLO, which was approved for commercial sale in September
    2005; and
    reduced costs related to clinical trials of zileuton in 2006
    compared to 2005, when we conducted a Phase II clinical
    trial in patients with moderate to severe inflammatory acne.    
    completion of certain clinical trials related to the
    pharmacokinetic profile of ZYFLO CR in the bloodstream; and
    initiation of the development of our R(+) isomer program for
    zileuton.  Zileuton Injection.
  CTI-01.
 74




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##### Table of Contents



Alpha-7.
  HMGB1.
      Sales and Marketing Expenses.
  
    an increase of approximately $2.2 million in salary costs
    related to our specialty sales force and our sales and customer
    management team, the majority of whom we hired in August 2005;
    $513,000 of additional stock-based compensation expense
    primarily related to our adoption of SFAS 123(R) and the
    increased number of employees during most of 2006;
    higher infrastructure costs to support the sales force including
    leased vehicle, computer and software costs; 75




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##### Table of Contents




    severance costs of $302,000 and additional stock-based
    compensation expense of $525,000 related to the departure of our
    former Senior Vice President of Sales and Marketing; and
    higher product samples, promotional materials and other costs
    associated with ZYFLO that we incurred to support our sales
    effort.    General and Administrative Expenses.
  
    severance costs of $670,000 and additional stock-based
    compensation expense of $1.3 million related to the
    departure of our former President and Chief Executive Officer
    Dr. Rubin; and
    $1.7 million of additional stock-based compensation expense
    primarily related to our adoption of SFAS 123(R).    Restructuring Charges.
  Other
  Other Income.
  Liquidity
    and Capital Resources
  Sources
    of Liquidity
   76




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##### Table of Contents



Credit Agreement with Silicon Valley Bank.
      Cash
    Flows
  Operating Activities.
  
    stock-based compensation expense of $3.9 million;
    depreciation, amortization expense and accretion of premiums of
    $645,000;
    lease abandonment charge of $426,000;
    loss on disposal of fixed assets and other charges of
    $385,000; and
    preferred stock received in license agreement of $400,000. 77




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##### Table of Contents



Investing Activities.
  Financing Activities.
  Funding
    Requirements      
    the ongoing costs of the marketing of ZYFLO CR;
    the scope, costs and results of our clinical trials of ZYFLO CR
    and zileuton injection;
    the amount and timing of sales and returns of ZYFLO CR and ZYFLO;
    the costs of ongoing sales, marketing and manufacturing
    activities for ZYFLO CR;
    the time and costs involved in preparing, submitting, obtaining
    and maintaining regulatory approvals for our other product
    candidates;
    the timing, receipt and amount of milestone and other payments,
    if any, from DEY, MedImmune, Beckman Coulter, IMI or future
    collaborators or licensees;
    the timing, receipt and amount of sales and royalties, if any,
    from our product candidates;
    continued progress in our research and development programs, as
    well as the magnitude of these programs, including milestone
    payments to third parties under our license agreements;
    the costs involved in preparing, filing, prosecuting,
    maintaining and enforcing patent claims;
    the cost of obtaining and maintaining licenses to use patented
    technologies;
    potential acquisition or in-licensing of other products or
    technologies;
    our ability to establish and maintain additional collaborative
    or co-promotion arrangements; and 78




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##### Table of Contents




    the ongoing time and costs involved in corporate governance
    requirements, including work related to compliance with the
    Sarbanes-Oxley Act of 2002.        Contractual
    Obligations
    Payments Due by PeriodLess Than


One to


Three to


More thanContractual Obligations

Total


One Year


Three Years


Five Years


Five Years(In thousands)Short and long-term debt

$
373


$
373


$



$



$
Research and license agreements


10,094



2,002



2,556



764



4,772Consulting agreements


583



583











Manufacturing and clinical trial agreements


30,143



17,061



12,099



983



Marketing costs


9,034



3,034



6,000







Lease obligations


735



673



62







Total contractual cash obligations

$
50,962


$
23,726


$
20,717


$
1,747


$
4,772      79




---



##### Table of Contents



12-month 24-months 36-months 30-days AB-rated 12-months
     80




---



##### Table of Contents



Effects
    of Inflation
    Recent
    Accounting Pronouncements
  07-01, Accounting for Collaborative Arrangements EITF 07-01 EITF 07-01 01-9, Accounting for Consideration Given by a Vendor to a
    Customer 07-01 07-01
  No. 07-3, Accounting for Nonrefundable Advance Payments for Goods or
    Services to Be Used in Future Research and Development
    Activities EITF 07-3. EITF 07-3
 81




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##### Table of Contents



EITF 07-3 No. 07-03
  Business Combinations, Business Combinations,
  Noncontrolling Interest in Consolidated Financial
    Statements  an amendment of ARB No. 51,
  The
    Fair Value Option for Financial Assets and Financial
    Liabilities, Including an Amendment of SFAS 115,
  Fair Value Measurements, No. FAS 157-2, FSP 157-2, FSP 157-2
  
 ITEM 7A.
    QUANTITATIVE
    AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK   82




---



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83




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##### Table of Contents



ITEM 8.
    FINANCIAL
    STATEMENTS AND SUPPLEMENTARY DATA  INDEX TO
    CONSOLIDATED FINANCIAL STATEMENTS
  CRITICAL THERAPEUTICS, INC. AND SUBSIDIARY
  TABLE OF CONTENTS
  PageREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


85CONSOLIDATED FINANCIAL STATEMENTS


86Consolidated Balance Sheets


86Consolidated Statements of Operations


87Consolidated Statements of Stockholders Equity and
    Comprehensive Loss


88Consolidated Statements of Cash Flows


89Notes to Consolidated Financial Statements


90  84




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
              Share-Based Payment
  Internal Control  Integrated Framework
      85




---



##### Table of Contents



CRITICAL
    THERAPEUTICS, INC. AND SUBSIDIARY
  CONSOLIDATED BALANCE SHEETS
  December 31,2007


2006(In thousands, except shareand per share data)ASSETS:Current assets:Cash and cash equivalents

$
33,828


$
48,388Accounts receivable, net


1,273



877Amount due under collaboration agreements


31



650Short-term investments






650Inventory


5,599



4,048Prepaid expenses and other


2,174



980Total current assets


42,905



55,593Fixed assets, net


1,151



2,421Other assets


868



168Total assets

$
44,924


$
58,182LIABILITIES AND STOCKHOLDERS EQUITY:Current liabilities:Current portion of long-term debt and capital lease obligations

$
370


$
1,012Accounts payable


5,283



1,049Accrued compensation


2,051



1,865Accrued expenses


5,103



2,076Current portion of accrued license fees


1,838



Current portion of deferred co-promotion fees


1,880



Deferred collaboration revenue






675Deferred product revenue






1,178Total current liabilities


16,525



7,855Long-term debt and capital lease obligations, less current
    portion






421Long-term portion of accrued license fees, less current portion


1,754



Long-term portion of deferred co-promotion fees


9,554



Commitments and contingencies (Note 13)Stockholders equity:Preferred stock, par value $0.001; authorized
    5,000,000 shares; no shares issued and outstanding






Common stock, par value $0.001; authorized
    90,000,000 shares; issued and outstanding
    42,805,348 shares and 42,345,642 shares at
    December 31, 2007 and 2006, respectively.


43



43Additional paid-in capital


208,420



204,378Deferred stock-based compensation






(99
)Accumulated deficit


(191,372
)


(154,399
)Accumulated other comprehensive loss






(17
)Total stockholders equity


17,091



49,906Total liabilities and stockholders equity

$
44,924


$
58,182    86




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##### Table of Contents



CRITICAL
    THERAPEUTICS, INC. AND SUBSIDIARY
  CONSOLIDATED STATEMENTS OF OPERATIONS
  Year Ended December 31,2007


2006


2005(In thousands, except share and per share data)Revenues:Net product sales

$
11,008


$
6,647


$
387Revenue under collaboration and license agreements


1,861



6,431



5,837Total revenues


12,869



13,078



6,224Costs and expenses:Cost of products sold


4,233



2,222



514Research and development


21,655



26,912



29,959Sales and marketing


12,193



18,284



13,671General and administrative


13,572



13,456



11,406Restructuring charges






3,498



Total costs and expenses


51,653



64,372



55,550Operating loss


(38,784
)


(51,294
)


(49,326
)Other income (expense):Interest income


2,020



2,726



2,427Interest expense


(209
)


(214
)


(191
)Total other income


1,811



2,512



2,236Net loss

$
(36,973
)

$
(48,782
)

$
(47,090
)Net loss per share

$
(0.87
)

$
(1.37
)

$
(1.61
)Basic and diluted weighted-average common shares outstanding


42,580,884



35,529,048



29,276,243    87




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##### Table of Contents





CRITICAL
    THERAPEUTICS, INC. AND SUBSIDIARY
  CONSOLIDATED STATEMENTS OF
    STOCKHOLDERS EQUITY AND COMPREHENSIVE LOSS
    YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
  Additional


Deferred Stock-








TotalCommon


Paid-in


Based


Accumulated


Accumulated Other


Stockholders


ComprehensiveStock


Capital


Compensation


Deficit


Comprehensive Loss


Equity


Loss(In thousands, except share data)BALANCE  January 1, 2005

$
24


$
130,374


$
(6,101
)

$
(58,527
)

$
(362
)

$
65,408Issuance of 96,235 shares of common stock, upon exercise of
    options under stock purchase plan






158















158Deferred stock-based compensation to non-employees






(458
)


458











Amortization of deferred stock-based compensation










2,141











2,141Reversal of deferred stock based compensation






(221
)


221











Issuance of 9,945,261 shares of common stock and warrants
    to purchase 3,480,842 shares of common stock in private
    placement, net of $3.1 million in placement fees


10



51,352















51,362Grant of stock options to non-employees






513



(513
)










Net loss














(47,090
)






(47,090
)

$
(47,090
)Unrealized gain on investments


















268



268



268Comprehensive loss

























$
(46,822
)BALANCE  December 31, 2005


34



181,718



(3,794
)


(105,617
)


(94
)


72,247Issuance of 752,241 shares of common stock, upon exercise
    of options under stock purchase plan


1



613















614Issuance of common stock to employees under stock purchase plan






22















22Deferred stock-based compensation to non-employees






(904
)


904











Amortization of deferred stock-based compensation










105











105Reversal of deferred stock based compensation in adopting
    SFAS No. 123(R)






(2,686
)


2,686











Issuance of 7,455,731 shares of common stock and warrants
    to purchase 3,727,865 of common stock in a registered offering,
    net of $1.5 million in issuance costs


7



18,479















18,486Restricted stock buyback






(1
)














(1
)Issuance of restricted stock


1



















1Stock-based compensation to employees






7,137















7,137Net loss














(48,782
)






(48,782
)

$
(48,782
)Unrealized gain on investments


















77



77



77Comprehensive loss

























$
(48,705
)BALANCE  December 31, 2006


43



204,378



(99
)


(154,399
)


(17
)


49,906Issuance of 419,557 shares of common stock, upon exercise
    of options and vested restricted stock






147















147Deferred stock-based compensation to non-employees






(74
)


74











Amortization of deferred stock-based compensation










22











22Reversal of deferred stock-based compensation






(3
)


3











Issuance of common stock to employees under stock-purchase plan






63















63Stock-based compensation to employees and non-employees






3,909















3,909Net loss














(36,973
)






(36,973
)

$
(36,973
)Unrealized gain on investments


















17



17



17Comprehensive loss

























$
(36,956
)BALANCE  December 31, 2007

$
43


$
208,420


$



$
(191,372
)

$



$
17,091    88




---



##### Table of Contents





CRITICAL
    THERAPEUTICS, INC. AND SUBSIDIARY
  CONSOLIDATED STATEMENTS OF CASH FLOWS
  Year Ended December 31,2007


2006


2005(In thousands)Cash flows from operating activities:Net loss

$
(36,973
)

$
(48,782
)

$
(47,090
)Adjustments to reconcile net loss to net cash used in operating
    activities:Depreciation and amortization expense


531



939



800Accretion (amortization) of premiums on short-term investments
    and other


114



(69
)


903Loss on disposal of fixed assets and other


385



86



149Non-cash restructuring charge






1,109



Lease abandonment charge


426







Preferred stock received in license agreement, net


(400
)






Stock-based compensation expense


3,931



6,620



2,141Changes in assets and liabilities:Accounts receivable


(396
)


140



(1,024
)Amount due under collaboration agreements


619



(445
)


(189
)Inventory


(1,551
)


(2,179
)


(1,869
)Prepaid expenses and other


(1,194
)


1,199



(283
)Accounts payable


4,234



(3,566
)


397Accrued expenses


2,787



(935
)


2,135Accrued license fees


3,495







Deferred collaboration revenue


(675
)


(5,031
)


(2,837
)Deferred product revenue


(1,178
)


(529
)


1,707Deferred co-promotion fees


11,434







Net cash used in operating activities


(14,411
)


(51,443
)


(45,060
)Cash flows from investing activities:Proceeds from sale of fixed assets


371







Purchases of fixed assets


(17
)


(370
)


(2,182
)Proceeds from sales and maturities of short-term investments


650



36,859



72,915Purchases of investments


(300
)


(11,802
)


(32,255
)Net cash provided by investing activities


704



24,687



38,478Cash flows from financing activities:Net proceeds from private placement of common stock






18,486



51,362Proceeds from the issuance of common stock and other


210



636



158Proceeds from long-term debt










1,300Repayments of long-term debt and capital lease obligation


(1,063
)


(1,235
)


(961
)Net cash (used in) provided by financing activities


(853
)


17,887



51,859Net (decrease) increase in cash and cash equivalents


(14,560
)


(8,869
)


45,277Cash and cash equivalents at beginning of year


48,388



57,257



11,980Cash and cash equivalents at end of year

$
33,828


$
48,388


$
57,257Supplemental disclosures of cash flow information:Cash paid during the period for:Interest

$
120


$
221


$
172Non-cash investing and financing activities:Fixed assets acquired under capital lease obligation

$



$



$
125    89




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##### Table of Contents



CRITICAL
    THERAPEUTICS, INC. AND SUBSIDIARY
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  (1)
    Basis of
    Presentation    TM ®
  Managements
    Plans
       90




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##### Table of Contents



CRITICAL
    THERAPEUTICS, INC. AND SUBSIDIARY
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Going
    Concern Assumption
    (2)
    Summary
    of Significant Accounting Policies  Basis
    of Presentation
    Use of
    Estimates
    Cash
    Equivalents
    Investments
     91




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##### Table of Contents



CRITICAL
    THERAPEUTICS, INC. AND SUBSIDIARY
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    As of December 31, 2006Amortized


Unrealized


Unrealized


FairCost


Gains


Losses


Value(In thousands)Cash and cash equivalents:Cash

$
12,840


$



$



$
12,840Commercial paper


32,678



1



(18
)


32,661Money market mutual funds


2,887











2,887Cash and cash equivalents


48,405



1



(18
)


48,388Short-term investments:Auction rate securities


650











650Short-term investments


650











650Cash and cash equivalents and short-term investments

$
49,055


$
1


$
(18
)

$
49,038     Inventory
  first-in,
  Fixed
    Assets
    Asset Description

Useful Life (Years)Furniture and fixtures


7Office equipment


5Lab equipment


5Computer hardware and software


3    92




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##### Table of Contents



CRITICAL
    THERAPEUTICS, INC. AND SUBSIDIARY
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Impairment
    of Long-Lived Assets
    Research
    and Development
  project-by-project
  Revenue
    Recognition and Deferred Revenue
  Revenue Recognition in
    Financial Statements Revenue
    Recognition
  Net product sales.
 93




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##### Table of Contents



CRITICAL
    THERAPEUTICS, INC. AND SUBSIDIARY
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Revenue Recognition When Right of
    Return Exists
        Revenue under collaboration and license
    agreements.
 94




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##### Table of Contents



CRITICAL
    THERAPEUTICS, INC. AND SUBSIDIARY
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Fair
    Value of Financial Instruments
    Concentrations
    of Credit Risk and Limited Suppliers
  Disclosure of Information about
    Financial Instruments with Off-Balance-Sheet Risk and Financial
    Instruments with Concentrations of Credit Risk,
       95




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##### Table of Contents



CRITICAL
    THERAPEUTICS, INC. AND SUBSIDIARY
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year Ended December 312007 Billings


2006 Billings


2005 BillingsCompany A


39
%


40
%


26
%Company B


37
%


37
%


29
%Company C


19
%


18
%


30
%Total


95
%


95
%


85
%   December 31,2007 Accounts


2006 AccountsReceivable


ReceivableCompany A


65
%


42
%Company B


15
%


19
%Company C


15
%


37
%Total


95
%


98
%   Income
    Taxes
  Accounting for Uncertainty in
    Income Taxes  an interpretation of FASB Statement
    No. 109
   Stock-Based
    Compensation
  Accounting for Stock Issued to Employees Form S-1 (Form S-1),
  Share-Based
    Payments
 96




---



##### Table of Contents



CRITICAL
    THERAPEUTICS, INC. AND SUBSIDIARY
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Form S-1
    Year EndedDecember 31,2005(In thousands,except lossper sharedata)Net loss  as reported

$
(47,090
)Add: Stock-based compensation expense included in reported net
    loss


1,757Deduct: Stock-based compensation expense determined under fair
    value method


(3,398
)Net loss  pro forma

$
(48,731
)Net loss per share (basic and diluted):As reported

$
(1.61
)Pro forma

$
(1.67
)     Year EndedDecember 31,2007


2006


2005Risk-free interest rate


4.4
%


4.8
%


4.1
%Expected dividend yield


0
%


0
%


0
%Expected life


6.1 years



6.25 years



4 yearsExpected volatility


72
%


61
%


59
%Weighted-average fair value of options granted with exercise
    prices equal to fair value

$
1.43


$
2.58


$
3.26   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 No. 96-18).
 97




---



##### Table of Contents



CRITICAL
    THERAPEUTICS, INC. AND SUBSIDIARY
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Basic
    and Diluted Loss per Share
    Comprehensive
    Loss
    Disclosure
    about Segments of an Enterprise
  Disclosures about Segments of an Enterprise and Related
    Information
  Recent
    Accounting Pronouncements
  07-01, Accounting for Collaborative Arrangements EITF 07-01 No. 07-01 01-9, Accounting for Consideration Given by a Vendor to a
    Customer EITF No. 07-01
 98




---



##### Table of Contents



CRITICAL
    THERAPEUTICS, INC. AND SUBSIDIARY
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  No. 07-01
  No. 07-3, Accounting for Nonrefundable Advance Payments for Goods or
    Services to Be Used in Future Research and Development
    Activities (EITF 07-3). EITF 07-3 EITF 07-3 EITF No. 07-03
  Business Combinations SFAS 141(R) Business
    Combinations,
  Noncontrolling Interest in Consolidated Financial
    Statements  an amendment of ARB No. 51
  The
    Fair Value Option for Financial Assets and Financial
    Liabilities, Including an Amendment of SFAS 115
  Fair Value Measurements No. FAS 157-2 (FSP 157-2)
 99




---



##### Table of Contents



CRITICAL
    THERAPEUTICS, INC. AND SUBSIDIARY
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  FSP 157-2
  (3)
    Collaboration
    Agreements  MedImmune
        Beckman
    Coulter
     100




---



##### Table of Contents



CRITICAL
    THERAPEUTICS, INC. AND SUBSIDIARY
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Innovative
    Metabolics, Inc.
      (4)
    Inventory    2007


2006Raw material

$
2,587


$
3,662Work-in-process


3,062



83Finished goods


766



422Total


6,415



4,167Less reserve


(816
)


(119
)Inventory

$
5,599


$
4,048  101




---



##### Table of Contents



CRITICAL
    THERAPEUTICS, INC. AND SUBSIDIARY
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (5)
    Fixed
    Assets    2007


2006Laboratory equipment

$
759


$
1,219Computer and office equipment


685



689Equipment-in-process


2



686Furniture and fixtures


332



488Software


464



484Leasehold improvements


186



280Assets held under capital lease


32



32Total


2,460



3,878Less accumulated depreciation and amortization


(1,309
)


(1,457
)Fixed assets  net

$
1,151


$
2,421       (6)
    Accrued
    Expenses    2007


2006Research and development contracts

$
973


$
363Product returns


873



Marketing and promotion costs


784



Professional fees


624



365Other


1,849



1,348Total

$
5,103


$
2,076   (7)
    Long-Term
    Debt   102




---



##### Table of Contents



CRITICAL
    THERAPEUTICS, INC. AND SUBSIDIARY
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Principal


Interest


Total2008

$
369


$
4


$
373$
369


$
4


$
373     (8)
    Stockholders
    Equity  2006
    Registered Offering
      2005
    Private Placement
     103




---



##### Table of Contents



CRITICAL
    THERAPEUTICS, INC. AND SUBSIDIARY
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Authorized
    Capital
    Restricted
    Common Stock Issuances to Non-Employees
            (9)
    Equity
    Incentive Plans  2006
    Stock Purchase Plan
   104




---



##### Table of Contents



CRITICAL
    THERAPEUTICS, INC. AND SUBSIDIARY
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        2004
    Stock Incentive Plan
          2003
    Stock Incentive Plan
     105




---



##### Table of Contents



CRITICAL
    THERAPEUTICS, INC. AND SUBSIDIARY
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  2000
    Equity Incentive Plan
        Weighted-AverageNumber of


ExerciseShares


PriceOutstanding  January 1, 2005


4,500,270


$
4.23Granted


2,025,900



6.70Exercised


(96,235
)


1.64Cancelled


(229,829
)


5.54Outstanding  December 31, 2005


6,200,106



5.03Granted


3,428,000



4.10Exercised


(752,241
)


0.82Cancelled


(3,169,600
)


5.81Outstanding  December 31, 2006


5,706,265



4.60Granted


1,011,800



2.12Exercised


(247,386
)


1.04Cancelled


(1,449,776
)


4.84Outstanding  December 31, 2007


5,020,903


$
4.20Vested or expected to vest  December 31, 2007


4,387,001


$
4.25Exercisable  December 31, 2005


1,809,920


$
3.42Exercisable  December 31, 2006


2,047,280


$
4.91Exercisable  December 31, 2007


2,379,213


$
4.85  106




---



##### Table of Contents



CRITICAL
    THERAPEUTICS, INC. AND SUBSIDIARY
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    OutstandingWeighted-





ExercisableAverage


Weighted-





Weighted-Contractual Life


Average





AverageNumber of Options


Outstanding


Exercise


Options


ExerciseExercise Price

Outstanding


(In Years)


Price


Exercisable


Price$0.38-$1.80


617,992



7.7


$
1.38



353,251


$
1.09$1.88


644,159



9.0


$
1.88



164,049


$
1.88$1.93-$2.33


503,400



9.1


$
2.14



14,166


$
2.11$2.38-$3.71


188,900



9.2


$
2.87



23,324


$
3.03$3.80


817,196



8.4


$
3.80



310,318


$
3.80$4.31-$5.63


507,144



6.5


$
5.35



419,374


$
5.39$5.75-5.99


548,750



6.5


$
5.97



348,292


$
5.97$6.00-$6.83


592,781



6.9


$
6.55



367,636


$
6.58$6.85-$7.75


528,081



7.3


$
7.27



318,783


$
7.31$7.78-$8.96


72,500



7.2


$
8.14



60,020


$
8.055,020,903



7.8


$
4.20



2,379,213


$
4.85        107




---



##### Table of Contents



CRITICAL
    THERAPEUTICS, INC. AND SUBSIDIARY
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2007


2006


2005Weighted-





Weighted-





Weighted-Average





Average





AverageGrant-





Grant-





Grant-Number


Date Fair


Number


Date Fair


Number


Date Fairof Shares


Value


of Shares


Value


of Shares


ValueNonvested at beginning of year


556,100


$
2.00



40,803


$
0.38



103,613


$
0.38Granted


442,600



1.86



556,100



2.00







Vested


(240,100
)


1.47



(38,536
)


0.38



(62,810
)


0.38Forfeited


(149,350
)


1.97



(2,267
)


0.38







Nonvested at end of year


609,250


$
1.90



556,100


$
2.00



40,803


$
0.38       2007


2006


2005Deferred Compensation Balance  Beginning

$
(99
)

$
(3,794
)

$
(6,101
)EmployeesAmortization of deferred stock-based compensation


61



500



1,757Reversal of deferred stock-based compensation


3



2,686



221Non-employeesAmortization of deferred stock-based compensation










384Deferred stock-based compensation

$
(39
)


(395
)


(513
)Re-measure deferred stock-based compensation


74



904



458Deferred Compensation Balance  Ending

$



$
(99
)

$
(3,794
)      108




---



##### Table of Contents



CRITICAL
    THERAPEUTICS, INC. AND SUBSIDIARY
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2007


2006


2005Stock-based compensationEmployeesStock-based compensation  adoption of 123(R)

$
3,714


$
7,137


$
Stock compensation  Intrinsic value awards


61



500



1,757Non-employeesStock-based compensation  adoption of 123(R)


195







Stock-based compensation (reversals)


(39
)


(395
)


384Total

$
3,931


$
7,242


$
2,141   No. 96-18.
  S-1
     109




---



##### Table of Contents



CRITICAL
    THERAPEUTICS, INC. AND SUBSIDIARY
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (10)
    Employee
    Benefit Plan    (11)
    Income
    Taxes       110




---



##### Table of Contents



CRITICAL
    THERAPEUTICS, INC. AND SUBSIDIARY
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2007


2006Deferred tax assets:Net operating loss carryforward

$
65,007


$
52,396Research and experimentation credits


1,898



2,110Depreciation and amortization


1,602



673Stock-based compensation


1,513



822Deferred revenue






756Other


480



385Total


70,500



57,142Less valuation allowance


(70,500
)


(57,142
)Total

$



$
         and/or
  (12)
    Research
    and License Agreements    Abbott
   111




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##### Table of Contents



CRITICAL
    THERAPEUTICS, INC. AND SUBSIDIARY
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      SkyePharma
    The
    Feinstein Institute
   112




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##### Table of Contents



CRITICAL
    THERAPEUTICS, INC. AND SUBSIDIARY
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
          Patheon
    Pharmaceuticals Inc.
    12-months 18-months
 113




---



##### Table of Contents



CRITICAL
    THERAPEUTICS, INC. AND SUBSIDIARY
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Shasun
    Pharma Solutions Ltd.
    18-months 12-months
      (13)
    Commitments
    and Contingencies    Lease
    Obligations
   114




---



##### Table of Contents



CRITICAL
    THERAPEUTICS, INC. AND SUBSIDIARY
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
            Operating


CapitalYear Ending

Leases


Leases2008


668



52009


62



Total minimum lease payments

$
730


$
5Less amount representing interest






(0
)Present value of future minimum lease payments






5Less current portion






(5
)Long-term portion





$
   Founders
    Consulting Agreements
   115




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##### Table of Contents



CRITICAL
    THERAPEUTICS, INC. AND SUBSIDIARY
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Consulting
    Agreement with Director
  change-of-control
  (14)
    DEY
    Co-Promotion and Marketing Services Agreements     116




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##### Table of Contents



CRITICAL
    THERAPEUTICS, INC. AND SUBSIDIARY
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    tm
  (15)
    Restructurings
    Charges           117




---



##### Table of Contents



CRITICAL
    THERAPEUTICS, INC. AND SUBSIDIARY
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (16)
    Quarterly
    Financial Data (Unaudited)    Quarter Ended


Quarter Ended


Quarter Ended


Quarter EndedDecember 31,


September 30,


June 30,


March 31,(Unaudited) (In thousands except per share data)2007Revenues:Net product sales

$
2,697


$
3,126


$
2,291


$
2,894Revenue under collaboration agreements


31



93



1,136



601Total revenues


2,728



3,219



3,427



3,495Cost of goods sold


(1,580
)


(1,232
)


(680
)


(741
)Gross profit


1,148



1,987



2,747



2,754Total operating expenses


(13,062
)


(10,166
)


(16,237
)


(7,955
)Operating loss


(11,914
)


(8,179
)


(13,490
)


(5,201
)Other income, net


333



393



534



551Net loss

$
(11,581
)

$
(7,786
)

$
(12,956
)

$
(4,650
)Net loss per share  basic and diluted

$
(0.27
)

$
(0.18
)

$
(0.30
)

$
(0.11
)2006Revenues:Net product sales

$
1,937


$
1,879


$
1,809


$
1,022Revenue under collaboration agreements


985



2,499



1,696



1,251Total revenues


2,922



4,378



3,505



2,273Cost of goods sold


(561
)


(267
)


(890
)


(504
)Gross profit


2,361



4,111



2,615



1,769Total operating expenses


(11,694
)


(13,549
)


(17,679
)


(19,228
)Operating loss


(9,333
)


(9,438
)


(15,064
)


(17,459
)Other income, net


581



558



661



712Net loss

$
(8,752
)

$
(8,880
)

$
(14,403
)

$
(16,747
)Net loss per share  basic and diluted

$
(0.22
)

$
(0.26
)

$
(0.42
)

$
(0.49
)    118




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##### Table of Contents



ITEM 9.
    CHANGES
    IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
    FINANCIAL DISCLOSURE    ITEM 9A.
    CONTROLS
    AND PROCEDURES  Conclusion
    Regarding the Effectiveness of Disclosure Controls and
    Procedures
  Rules 13a-15(e) 15d-15(e)
  Managements
    Report on Internal Control Over Financial Reporting
  Rule 13a-15(f)
    Internal Control-Integrated
    Framework.
     119




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##### Table of Contents



Changes
    in Internal Control Over Financial Reporting
  Rules 13a-15(f) 15d-15(f) Rules 13a-15(f) 15d-15(f)
     120




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
       Internal Control 
    Integrated Framework
        Internal Control  Integrated Framework
   121




---



##### Table of Contents



ITEM 9B.
    OTHER
    INFORMATION   122




---



##### Table of Contents



PART III  ITEM 10.
    DIRECTORS,
    EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE  Directors
    and Executive Officers
  Form 10-K.
  Compliance
    With Section 16(a) of the Exchange Act
    Code of
    Ethics
    Director
    Nominees
    Audit
    Committee
    Audit
    Committee Financial Expert
  Regulation S-K
  ITEM 11.
    EXECUTIVE
    COMPENSATION    Form 10-K
 123




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##### Table of Contents



ITEM 12.
    SECURITY
    OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
    RELATED STOCKHOLDER MATTERS    ITEM 13.
    CERTAIN
    RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
    INDEPENDENCE    ITEM 14.
    PRINCIPAL
    ACCOUNTANT FEES AND SERVICES   PART IV  ITEM 15.
    EXHIBITS AND
    FINANCIAL STATEMENT SCHEDULES  Financial Statements.
  Form 10-K.
  Financial Statement Schedules.
      Exhibits.
  Form 10-K
  ® ® tm
 124




---



##### Table of Contents



SIGNATURES      By:
    /s/  FRANK
    E. THOMAS           Signature

Title

Date/s/  FRANK
    E. THOMASFrank
    E. Thomas

President and Chief Executive Officer (Principal Executive
    Officer)

March 28, 2008/s/  THOMAS
    P. KELLYThomas
    P. Kelly

Chief Financial Officer and
    Senior Vice President of Finance and
    Corporate Development
    (Principal Financial Officer)

March 28, 2008/s/  JEFFREY
    E. YOUNGJeffrey
    E. Young

Vice President of Finance, Chief Accounting Officer and
    Treasurer
    (Principal Accounting Officer)

March 28, 2008/s/  RICHARD
    W. DUGANRichard
    W. Dugan

Director

March 28, 2008/s/  JEAN
    GEORGEJean
    George

Director

March 28, 2008/s/  CHRISTOPHER
    MIRABELLIChristopher
    Mirabelli, Ph.D.

Director

March 28, 2008/s/  TREVOR
    PHILLIPSTrevor
    Phillips, Ph.D.

Director

March 28, 2008  125




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##### Table of Contents



Exhibit Index  Exhibit No.

Description3
.1

Amended and Restated Certificate of Incorporation of the
    Registrant (Incorporated by reference to Exhibit 3.1 to the
    Registrants Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2004 (SEC File
    No. 000-50767)).3
.2

Third Amended and Restated Bylaws of the Registrant dated
    October 4, 2007 (Incorporated by reference to
    Exhibit 3.1 to the Registrants Current Report on
    Form 8-K
    dated October 4, 2007 (SEC File
    No. 000-50767)).10
.1*

2000 Equity Incentive Plan, as amended, of the Registrant
    (Incorporated by reference to Exhibit 10.1 to the
    Registrants Registration Statement on
    Form S-1
    (SEC File
    No. 333-113727)).10
.2*

2003 Stock Incentive Plan, as amended, of the Registrant
    (Incorporated by reference to Exhibit 10.2 to the
    Registrants Registration Statement on
    Form S-1
    (SEC File
    No. 333-113727)).10
.3*

2004 Stock Incentive Plan of the Registrant (Incorporated by
    reference to Exhibit 10.3 to the Registrants
    Registration Statement on
    Form S-1
    (SEC File
    No. 333-113727)).10
.4*

Amendment No. 1 to the 2004 Stock Incentive Plan of the
    Registrant (Incorporated by reference to Exhibit 10.4 to
    the Registrants Annual Report on
    Form 10-K
    for the year ended December 31, 2005 (SEC File
    No. 000-50767)).10
.5*

2006 Employee Stock Purchase Plan (Incorporated by reference to
    Exhibit 99.1 to the Registrants Current Report on
    Form 8-K
    dated April 27, 2006 (SEC File
    No. 000-50767)).10
.6

Amended and Restated Investor Rights Agreement by and among the
    Registrant and the Investors named therein dated as of
    October 3, 2003 (Incorporated by reference to
    Exhibit 10.4 to the Registrants Registration
    Statement on
    Form S-1
    (SEC File
    No. 333-113727)).10
.7+

License Agreement between the Registrant and The Feinstein
    Institute For Medical Research (formerly known as The North
    Shore-Long Island Jewish Research Institute) dated July 1,
    2001, as amended by the First Amendment Agreement dated
    May 15, 2003 (Incorporated by reference to
    Exhibit 10.5 to the Registrants Registration
    Statement on
    Form S-1
    (SEC File
    No. 333-113727)).10
.8+

Sponsored Research and License Agreement between the Registrant
    and The Feinstein Institute for Medical Research (formerly known
    as The North Shore-Long Island Jewish Research Institute) dated
    July 1, 2001, as amended by the First Amendment Agreement
    dated July 1, 2003 (Incorporated by reference to
    Exhibit 10.6 to the Registrants Registration
    Statement on
    Form S-1
    (SEC File No. 333-113727)).10
.9+

Sponsored Research and License Agreement between the Registrant
    and The Feinstein Institute for Medical Research (formerly known
    as The North Shore-Long Island Jewish Research Institute) dated
    January 1, 2003 (Incorporated by reference to
    Exhibit 10.7 to the Registrants Registration
    Statement on
    Form S-1
    (SEC File
    No. 333-113727)).10
.10+

Amendment No. 2, dated January 8, 2007, to Sponsored
    Research and License Agreement between the Registrant and The
    Feinstein Institute For Medical Research (formerly known as The
    North
    Shore-Long
    Island Jewish Research Institute) dated January 1, 2003
    (Incorporated by reference to Exhibit 10.8 to the
    Registrants Annual Report on
    Form 10-K
    for the year ended December 31, 2006 (SEC File
    No. 000-50767)).10
.11+

Amendment No. 3, dated June 29, 2007, to Sponsored
    Research and License Agreement effective January 1, 2003,
    between the Registrant and The Feinstein Institute for Medical
    Research. (Incorporated by reference to Exhibit 10.6 to the
    Registrants Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2007 (SEC File
    No. 000-50767)).10
.12+

Exclusive License and Collaboration Agreement between the
    Registrant and MedImmune, Inc. dated July 30, 2003
    (Incorporated by reference to Exhibit 10.8 to the
    Registrants Registration Statement on
    Form S-1
    (SEC File
    No. 333-113727)).10
.13

Amendment No. 1, dated December 7, 2005, to the
    Registrants Exclusive License and Collaboration Agreement
    with MedImmune, Inc. dated July 30, 2003 (Incorporated by
    reference to Exhibit 10.50 to the Registrants Annual
    Report on
    Form 10-K
    for the year ended December 31, 2005
    (SEC File No. 000-50767)).10
.14+

License Agreement between the Registrant and Abbott Laboratories
    dated December 18, 2003 (Incorporated by reference to
    Exhibit 10.10 to the Registrants Registration
    Statement on
    Form S-1
    (SEC File
    No. 333-113727)).




---



##### Table of Contents



Exhibit No.

Description10
.15

Amendment No. 1, dated April 13, 2005, to License
    Agreement between the Registrant and Abbott Laboratories dated
    December 18, 2003 (Incorporated by reference to
    Exhibit 10.14 to the Registrants Annual Report on
    Form 10-K
    for the year ended December 31, 2006 (SEC File
    No. 000-50767)).10
.16+

License Agreement between the Registrant and Abbott Laboratories
    dated March 19, 2004 (Incorporated by reference to
    Exhibit 10.11 to the Registrants Registration
    Statement on
    Form S-1
    (SEC File
    No. 333-113727)).10
.17

Amendment No. 1, dated September 15, 2004, to License
    Agreement between the Registrant and Abbott Laboratories dated
    March 19, 2004 (Incorporated by reference to
    Exhibit 10.16 to the Registrants Annual Report on
    Form 10-K
    for the year ended December 31, 2006 (SEC File
    No. 000-50767)).10
.18+

Agreement between the Registrant and Jagotec AG dated
    December 3, 2003 (Incorporated by reference to
    Exhibit 10.13 to the Registrants Registration
    Statement on
    Form S-1
    (SEC File
    No. 333-113727)).10
.19+

Development and
    Scale-Up
    Agreement between the Registrant and Jagotec AG dated
    May 6, 2004 (Incorporated by reference to
    Exhibit 10.25 to the Registrants Registration
    Statement on
    Form S-1
    (SEC File
    No. 333-113727)).10
.20++

Manufacturing and Supply Agreement dated as of August 20,
    2007 by and among the Registrant, Jagotec AG and SkyePharma PLC
    (Incorporated by reference to Exhibit 10.1 to the
    Registrants Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2007 (SEC File
    No. 000-50767)).10
.21+

License and Supply Agreement, dated May 16, 2007, by and
    between CyDex, Inc. and the Registrant (Incorporated by
    reference to Exhibit 10.4 to the Registrants
    Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2007 (SEC File
    No. 000-50767)).10
.22+

Agreement for Manufacturing and Supply of ZILEUTON by and
    between Rhodia Pharma Solutions Ltd. and the Registrant dated
    February 8, 2005 (Incorporated by Reference to
    Exhibit 10.25 to the Registrants Annual Report on
    Form 10-K
    for the year ended December 31, 2004 (SEC File
    No. 000-50767)).10
.23+

Amendment No. 1, dated May 9, 2007, to Agreement for
    Manufacturing and Supply of Zileuton effective February 8,
    2005, by and between Shasun Pharma Solutions Limited and the
    Registrant (Incorporated by reference to Exhibit 10.4 to
    the Registrants Quarterly Report on
    Form 10-Q
    for the period ended March 31, 2007, as filed with the SEC
    on May 10, 2007 (SEC File
    No. 000-50767)).10
.24

Loan and Security Agreement dated June 28, 2002, as
    modified by the Loan Modification Agreement dated as of
    December 11, 2002, the Second Loan Modification Agreement
    dated as of April 10, 2003, and the Third Loan Modification
    Agreement dated as of June 30, 2004 (Incorporated by
    reference to Exhibit 10.1 to the Registrants
    Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2004 (SEC File
    No. 000-50767)).10
.25

The Fourth Loan Modification Agreement dated as of
    January 6, 2006 to the Loan and Security Agreement by and
    between the Registrant and Silicon Valley Bank dated
    June 28, 2002 (Incorporated by reference to
    Exhibit 10.24 to the Registrants Annual Report on
    Form 10-K
    for the year ended December 31, 2005 (SEC File
    No. 000-50767)).10
.26+

Feasibility Study Agreement between Baxter Healthcare
    Corporation and the Registrant effective June 9, 2004
    (Incorporated by Reference to Exhibit 10.25 to the
    Registrants Annual Report on
    Form 10-K
    for the year ended December 31, 2004 (SEC File
    No. 000-50767)).10
.27*

Form of Incentive Stock Option Agreement granted under 2004
    Stock Incentive Plan (Incorporated by Reference to
    Exhibit 10.25 to the Registrants Annual Report on
    Form 10-K
    for the year ended December 31, 2004 (SEC File
    No. 000-50767)).10
.28*

Form of Nonstatutory Stock Option Agreement granted under 2004
    Stock Incentive Plan (Incorporated by Reference to
    Exhibit 10.25 to the Registrants Annual Report on
    Form 10-K
    for the year ended December 31, 2004 (SEC File
    No. 000-50767)).10
.29*

Form of Restricted Stock Agreement granted under 2004 Stock
    Incentive Plan, as amended (Incorporated by Reference to
    Exhibit 99.1 to the Registrants Current Report on
    Form 8-K
    dated December 26, 2006 (SEC File
    No. 000-50767)).




---



##### Table of Contents



Exhibit No.

Description10
.30*

Form of Nonstatutory Stock Option Agreement for a Non-Employee
    Director granted under the 2004 Stock Incentive Plan
    (Incorporated by Reference to Exhibit 10.25 to the
    Registrants Annual Report on
    Form 10-K
    for the year ended December 31, 2004 (SEC File
    No. 000-50767)).10
.31*

Employment Agreement, dated August 21, 2007 by and between
    the Registrant and Thomas P. Kelly (Incorporated by reference to
    Exhibit 99.1 to the Registrants Current Report on
    Form 8-K
    dated August 20, 2007 (SEC File
    No. 000-50767)).10
.32*

Amended and Restated Employment Agreement dated November 5,
    2007 by and between the Registrant and Jeffrey E. Young
    (Incorporated by reference to Exhibit 10.7 to the
    Registrants Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2007 (SEC File
    No. 000-50767)).10
.33*

Amended and Restated Employment Agreement dated November 6,
    2007 by and between the Registrant and Trevor
    Phillips, Ph.D. (Incorporated by reference to
    Exhibit 10.5 to the Registrants Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2007 (SEC File
    No. 000-50767)).10
.34*

Amended and Restated Employment Agreement dated November 6,
    2007 by and between the Registrant and Frank E. Thomas
    (Incorporated by reference to Exhibit 10.4 to the
    Registrants Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2007 (SEC File
    No. 000-50767)).10
.35*

Amended and Restated Employment Agreement dated November 6,
    2007 by and between the Registrant and Scott B. Townsend
    (Incorporated by reference to Exhibit 10.6 to the
    Registrants Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2007 (SEC File
    No. 000-50767)).10
.36+

License Agreement between the Registrant and Beckman Coulter,
    Inc. dated January 10, 2005 (Incorporated by Reference to
    Exhibit 10.1 to the Registrants Quarterly Report on
    Form 10-Q
    for the quarter ended March 31, 2004 (SEC File
    No. 000-50767)).10
.37

Warrant Agreement between the Registrant and Mellon Investor
    Services LLC as Warrant Agent, dated June 20, 2005
    (Incorporated by reference to Exhibit 99.1 to the
    Registrants Current Report on
    Form 8-K
    filed on June 23, 2005 (SEC File
    No. 000-50767)).10
.38

Form of Warrant (Included in Exhibit 10.37).10
.39

Form of Securities Purchase Agreement between the Registrant and
    certain Purchasers, dated June 6, 2005 (Incorporated by
    reference to Exhibit 99.1 to the Registrants Current
    Report on
    Form 8-K
    filed on June 7, 2005 (SEC File
    No. 000-50767)).10
.40

Warrant Agreement dated October 31, 2006 by and between the
    Registrant and Mellon Investor Services (Incorporated by
    reference to Exhibit 10.2 to the Registrants
    Quarterly Report on
    Form 10-Q
    for the period ended September 30, 2006 (SEC File
    No. 000-50767)).10
.41+

Manufacturing Services Agreement between Patheon Pharmaceuticals
    Inc. and the Registrant dated May 9, 2007 (Incorporated by
    reference to Exhibit 10.5 to the Registrants
    Quarterly Report on
    Form 10-Q
    for the period ended March 31, 2007, as filed with the SEC
    on May 10, 2007 (SEC File
    No. 000-50767)).10
.42++

First Amendment dated November 5, 2007 to the Manufacturing
    Services Agreement by and between Patheon Pharmaceuticals Inc.
    and the Registrant dated May 9, 2007 (Incorporated by
    reference to Exhibit 10.2 to the Registrants
    Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2007 (SEC File
    No. 000-50767)).10
.43*

Critical Therapeutics, Inc. Non-Employee Director Compensation
    and Reimbursement Policy (Incorporated by reference to
    Exhibit 10.38 to the Registrants Annual Report on
    Form 10-K
    for the year ended December 31, 2006 (SEC File
    No. 000-50767)).10
.44+

Exclusive License Agreement, dated as of January 29, 2007,
    between the Registrant and Innovative Metabolics, Inc.
    (Incorporated by reference to Exhibit 99.1 to the
    Registrants Current Report on
    Form 8-K
    dated January 29, 2007 (SEC File
    No. 000-50767)).10
.45+

First Amendment, dated June 29, 2007, to Exclusive License
    Agreement effective January 29, 2007, by and between the
    Registrant and Innovative Metabolics, Inc. (Incorporated by
    reference to Exhibit 10.6 to the Registrants
    Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2007 (SEC File
    No. 000-50767)).




---



##### Table of Contents



Exhibit No.

Description10
.46+

Co-Promotion and Marketing Services Agreement by and between the
    Registrant and Dey, L.P. dated March 13, 2007 (Incorporated
    by reference to Exhibit 10.2 to the Registrants
    Quarterly Report on
    Form 10-Q
    for the quarter ended March 31, 2007 (SEC File
    No. 000-50767)).10
.47+

Amendment No. 1, dated June 25, 2007, to Co-Promotion
    and Marketing Services Agreement, effective March 13, 2007,
    by and between the Registrant and Dey, L.P. (Incorporated by
    reference to Exhibit 10.5 to the Registrants
    Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2007 (SEC File
    No. 000-50767)).10
.48+

FFIS Co-Promotion Agreement, dated June 25, 2007, by and
    between Dey, L.P. and the Registrant (Incorporated by reference
    to Exhibit 10.3 to the Registrants Quarterly Report
    on
    Form 10-Q
    for the quarter ended June 30, 2007 (SEC File
    No. 000-50767)).10
.49

Sublease by and between Microbia Precision Engineering, Inc. and
    the Registrant dated as of January 16, 2008. (Incorporated
    by reference to Exhibit 99.1 to the Registrants
    Current Report on
    Form 8-K
    dated January 16, 2008 (SEC File
    No. 000-50767)).10
.50

Agreement for Termination of Lease and Voluntary Surrender of
    Premises by and between ARE  60 WESTVIEW, LLC and
    Registrant dated as of January 16, 2008 (Incorporated by
    reference to Exhibit 99.2 to the Registrants Current
    Report on
    Form 8-K
    dated January 16, 2008 (SEC File
    No. 000-50767)).10
.51

Lease Agreement between ARE  60 Westview Street,
    LLC and the Registrant dated as of November 18, 2003
    (Incorporated by reference to Exhibit 10.21 to the
    Registrants Registration Statement on
    Form S-1
    (SEC File
    No. 333-113727)).10
.52*

Critical Therapeutics, Inc. 2008 Company Goals (Incorporated by
    reference to the Registrants Current Report on
    Form 8-K
    dated February 20, 2008 (SEC File
    No. 000-50767)).10
.53*

Critical Therapeutics, Inc. 2007 Cash Bonuses for Executive
    Officers.10
.54*

Critical Therapeutics, Inc. 2008 Salaries for Executive Officers.10
.55*

Critical Therapeutics, Inc. Annual Target Cash Bonuses for
    Executive Officers.21
.1

Subsidiaries of the Registrant.23
.1

Consent of Deloitte & Touche LLP.31
.1

Certification of Principal Executive Officer pursuant to
    Rule 13a-14(a)
    and 15d-14(a) of the Securities Exchange Act of 1934, as adopted
    pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31
.2

Certification of Principal Financial Officer pursuant to
    Rule 13a-14(a)
    and 15d-14(a) of the Securities Exchange Act of 1934, as adopted
    pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32
.1

Certification of Principal Executive Officer pursuant to
    18 U.S.C. Section 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.32
.2

Certification of Principal Financial Officer pursuant to
    18 U.S.C. Section 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.     *
    
    Management contract or compensation plan or arrangement.+
    
    Confidential treatment granted as to certain portions, which
    portions have been omitted and separately filed with the
    Securities and Exchange Commission.++
    
    Confidential treatment requested as to certain portions, which
    portions have been omitted and filed separately with the
    Securities and Exchange Commission.




---



##### Table of Contents



Schedule II 
    Valuation and Qualifying Accounts
  Balance at








Balance atBeginning








End ofof Period


Additions


Deletions


PeriodAllowance for doubtful accounts and cash discounts(1)(2):For the year ended December 31, 2007

$
23,552



258,844



253,581


$
28,815For the year ended December 31, 2006

$
20,867



155,596



152,911


$
23,552For the year ended December 31, 2005

$




20,867






$
20,867Allowances for product returns(3):For the year ended December 31, 2007

$




1,411,280



537,992


$
873,288For the year ended December 31, 2006

$











$
For the year ended December 31, 2005

$











$
   (1)
    
    Additions to allowances for doubtful accounts are recorded as an
    expense.(2)
    
    Additions to allowance for cash discounts are charged as a
    reduction of revenue.(3)
    
    Additions to product returns are recorded as a reduction of
    revenue. II-1