##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, 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 1934    
|          
|           |  | For the fiscal year ended December 31, 2005                                                 
|          
|OR        
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934
|          
|           |  | For the transition period
    from           to                                             

Commission file number: 000-50767





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 Number)
|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:


None.


Securities registered pursuant to Section 12(g) of the
Act:


Common Stock, $0.001 par value per share


(Title of Class)





o þ


o þ


þ o


S-K 10-K 10-K. o


12b-2


o þ o


12b-2 o þ






DOCUMENTS INCORPORATED BY REFERENCE












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##### 










CRITICAL THERAPEUTICS, INC.


ANNUAL REPORT


ON FORM 10-K


INDEX


|                                                                                    |  |                                                                                                                      |     |      |     | 
|----------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------- | --- | ---- | --- | 
|                                                                                    |  |                                                                                                                      |     | Page |    
|                                                                                    |  |                                                                                                                      |     |      |    
|PART I                                                                             
|Item 1.                                                                             |  | Business                                                                                                             |     |      | 1   | 
|Item 1A.                                                                            |  | Risk Factors                                                                                                         |     |      | 25  | 
|Item 1B.                                                                            |  | Unresolved Staff Comments                                                                                            |     |      | 48  | 
|Item 2.                                                                             |  | Properties                                                                                                           |     |      | 48  | 
|Item 3.                                                                             |  | Legal Proceedings                                                                                                    |     |      | 48  | 
|Item 4.                                                                             |  | Submission of Matters to a Vote of Security
    Holders                                                              |     |      | 48  | 
|EXECUTIVE OFFICERS OF THE REGISTRANT                                                |  |                                                                                                                      | 49  |     
|PART II                                                                            
|Item 5.                                                                             |  | Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities |     |      | 50  | 
|Item 6.                                                                             |  | Selected Financial Data                                                                                              |     |      | 52  | 
|Item 7.                                                                             |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                            |     |      | 53  | 
|Item 7A.                                                                            |  | Quantitative and Qualitative Disclosures
    About Market Risk                                                       |     |      | 69  | 
|Item 8.                                                                             |  | Financial Statements and Supplementary
    Data                                                                      |     |      | 70  | 
|Item 9.                                                                             |  | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure                             |     |      | 99  | 
|Item 9A.                                                                            |  | Controls and Procedures                                                                                              |     |      | 99  | 
|Item 9B.                                                                            |  | Other Information                                                                                                    |     |      | 101 | 
|                                                                                   
|PART III                                                                           
|Item 10.                                                                            |  | Directors and Executive Officers of the
    Registrant                                                               |     |      | 103 | 
|Item 11.                                                                            |  | Executive Compensation                                                                                               |     |      | 103 | 
|Item 12.                                                                            |  | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder Matters                   |     |      | 104 | 
|Item 13.                                                                            |  | Certain Relationships and Related
    Transactions                                                                   |     |      | 104 | 
|Item 14.                                                                            |  | Principal Accountant Fees and Services                                                                               |     |      | 104 | 
|                                                                                   
|PART IV                                                                            
|Item 15.                                                                            |  | Exhibits and Financial Statement
    Schedules                                                                       |     |      | 104 | 
|SIGNATURES                                                                          |  |                                                                                                                      | 105 |     
|Ex-10.4 Amend. No.1 to the 2004 Stock Incentive Plan                               
|Ex-10.19 Approval Agreement dated 3/7/06 with H. Shaw Warren, Jr. MD               
|Ex-10.20 Approval Agreement dated 3/7/06 with Kevin J. Tracey, MD                  
|Ex-10.24 The Fourth Loan Modification Agreement dated January 6, 2006              
|Ex-10.49 Non-Employee Director Compensation and Reimbursement Policy               
|Ex-10.50 Amend. No.1 to the MedImmune Exclusive License and Collaboration Agreement
|Ex-10.51 Critical Therapeutics, Inc. 2006 Company Goals                            
|Ex-10.52 Critical Therapeutics, Inc. 2005 Cash Bonuses for Executive Officers      
|Ex-10.53 Critical Therapeutics, Inc. 2006 Salaries for Executive Officers          
|Ex-10.54 Maximum Annual Cash Bonuses for Executive Officers                        
|Ex-21.1 Subsidiaries of the Registrant                                             
|Ex-23.2 Consent of Deloitte & Touche LLP                                           
|Ex-31.1 Section 302 Certification of CEO                                           
|Ex-31.2 Section 302 Certification of CFO                                           
|Ex-32.1 Section 906 Certification of CEO                                           
|Ex-32.2 Section 906 Certification of CFO                                           





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##### Table of Contents






PART I


Cautionary Statement Regarding Forward-Looking Statements


10-K ®







|        |         
|------- | --------
|ITEM 1. | BUSINESS

Overview


®


1



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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | CTI-01. We are developing a small molecule product
    candidate, CTI-01, that we believe may be effective in
    regulating the inflammatory response. Results from preclinical
    studies suggest that
    CTI-01 inhibits the
    release of protein molecules called cytokines that can amplify
    harmful immune responses. CTI-01 is currently in Phase II
    clinical development for prevention of complications that can
    occur in patients after cardiopulmonary bypass, a procedure
    commonly performed during heart surgery.                                                                                    
|
| |  | HMGB1. We believe that a protein called HMGB1, or high
    mobility group box protein 1, may be an important target
    for the development of products to treat inflammation-mediated
    diseases. We are currently collaborating with MedImmune, Inc. on
    the development of monoclonal antibodies directed towards HMGB1.
    We believe these antibodies could act to neutralize circulating
    HMGB1 and be used to target diseases such as sepsis or
    rheumatoid arthritis. In addition, we are currently
    collaborating with Beckman Coulter, Inc. on development of a
    diagnostic assay directed towards HMGB1.
|
| |  | Alpha-7. We are developing small molecules designed to
    inhibit the bodys inflammatory response by acting on the
    nicotinic alpha-7 cholinergic target, a cell receptor associated
    with the production of the cytokines that play a fundamental
    role in the inflammatory response. We believe that successful
    development of a product candidate targeting the nicotinic
    alpha-7 cholinergic receptor could lead to an oral anti-cytokine
    therapy for acute and chronic diseases.                                                                                                                         



Our Strategy






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Maximize the commercial potential of ZYFLO. We are
    focused on successfully marketing and selling ZYFLO in the
    United States. We launched ZYFLO for commercial sale in October
    2005 following FDA approval. In anticipation of this commercial
    launch, we built a sales force of approximately 80 sales
    representatives devoted to the promotion of ZYFLO. We plan to
    continue to focus our sales and marketing infrastructure on the
    promotion of ZYFLO and, upon regulatory approval from the FDA,
    the controlled-release formulation of zileuton that we are
    developing for the treatment of asthma. We believe that by
    targeting specialists rather than primary care physicians, we
    can successfully promote ZYFLO with an initial sales force of
    fewer than 100 sales representatives in the United States.

2



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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Expand the potential applications of zileuton. We believe
    that zileuton has potential therapeutic benefits in a range of
    diseases and conditions, such as acute asthma exacerbations,
    COPD and nasal polyposis. We intend to expand the potential
    applications of zileuton through development of additional
    formulations, including controlled-release and intravenous
    formulations.                                                                                                                                                                                                                                                                                               
|
| |  | Advance and expand our portfolio of product candidates.
    We intend to focus on developing products that address large
    unmet medical needs in the critical care market. We believe that
    our understanding of the cytokine cascade and its role in
    critical care diseases will enable us to continue to develop and
    discover drug candidates with novel mechanisms of action that
    may address some of the unmet medical needs in critical care
    medicine. We believe our focus on diseases associated with the
    severe inflammatory response will allow us to pursue drug
    development and discovery programs across a number of
    therapeutic areas in an efficient manner.
|
| |  | Maximize the economic value of our product portfolio. We
    believe we can maximize the potential economic benefit to us of
    our product candidates by retaining sole or shared ownership of
    our product development opportunities. We intend to undertake
    selected strategic collaborations, such as our collaborations
    with MedImmune and Beckman Coulter, to develop projects that may
    exceed our internal resources, while seeking to retain
    co-promotion or commercial rights in any such collaborations.                                                                                                                                                                      
|
| |  | Strategically in-license or acquire attractive development
    candidates or approved products. We intend to enhance our
    product pipeline and leverage our marketing and sales
    infrastructure through strategically in-licensing or acquiring
    product candidates or approved products for the critical care
    market. We believe our focus on critical care medicine and our
    targeted sales force will make us an attractive partner for
    companies seeking to out-license products or product candidates
    in our areas of focus.                                                                                                                                                   

Our Product Pipeline









Zileuton




3



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| |                        
| | -----------------------
| | Therapeutic Opportunity



® ® ® ® ®






| |                             
| | ----------------------------
| | Zileuton Product Development



| |                                          
| | -----------------------------------------
| | ZYFLO: The Tablet Formulation of Zileuton





4



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| |   |                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------
| |  | 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 two hours after the first dose.                                                                    











| |                                           
| | ------------------------------------------
| | Controlled-Release Formulation of Zileuton





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In the three-month pivotal efficacy trial, in which 409 patients
    received either the controlled-release formulation of zileuton
    or placebo, patients taking the controlled-release formulation
    of zileuton showed demonstrated statistically significant
    improvements over placebo, in objective measures of asthma
    control, such as mean forced expiratory volume. In the trial,
    patients taking the controlled-

5



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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | release formulation of zileuton showed a reduced need for
    bronchodilatory drugs as a rescue medication to alleviate
    uncontrolled symptoms. In this trial, 1.94% of the patients
    taking the controlled-release formulation of zileuton
    experienced ALT levels greater than or equal to three times the
    level normally seen in the bloodstream.                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | The efficacy component of the six-month safety trial included
    757 patients and demonstrated statistically significant
    improvements over a combination of placebo and the
    patients normal asthma therapies, in mean forced
    expiratory volume at day 169. In the trial, patients taking the
    controlled-release formulation of zileuton showed statistically
    significant mean improvements for morning peak expiratory flow
    rate, or PEFR, a method for measuring airway obstruction, at all
    visit assessments and at the majority of visit assessments for
    evening PEFR. In this trial, 2.6% of the patients taking the
    controlled-release formulation of zileuton experienced ALT
    levels greater than or equal to three times the level normally
    seen in the bloodstream.





| |                                    
| | -----------------------------------
| | Intravenous Formulation of Zileuton





6



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| |                           
| | --------------------------
| | Commercialization Strategy







| |   |                                                                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | over 18 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;
|
| |  | six months of interaction between our sales force and
    respiratory specialists who treat asthma; and                                                                                  
|
| |  | market research that we have conducted since 2004.                                                                                                                                       





| |   |                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 79% of respondents indicated that ZYFLO is an effective add-on
    therapy for patients who are still symptomatic on moderate to
    high-dose inhaled steroids;
|
| |  | 84% of respondents indicated that ZYFLO and Mercks
    Singulair®
    work differently; and                                                                    
|
| |  | 90% of respondents indicated ZYFLO should be used in patients
    who are dependent on or non-responsive to oral steroids.                                      







7



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Critical Care: The Inflammatory Response






| |   |                                                                                                                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | acute diseases and conditions that lead to admission to the ICU,
    such as sepsis, septic shock, post surgical ileus, the damage to
    vital organs resulting from cardiopulmonary bypass during
    surgery, trauma and burns; and
|
| |  | acute exacerbations of chronic diseases that frequently lead to
    hospitalization, such as rheumatoid arthritis, Crohns
    disease, acute pancreatitis and ulcerative colitis.                                                    







| |   |                                                                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a CTI-01 program directed towards the development of a small
    molecule product candidate that directly affects the release of
    cytokines through a number of different mechanisms;                                                     
|
| |  | an HMGB1 program directed towards a newly-discovered
    pro-inflammatory protein HMGB1; and                                                                                                                                                 
|
| |  | an alpha-7 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, in
    response to an inflammatory stimulus.

8



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| |               
| | --------------
| | CTI-01 Program



in vivo in vitro.




| |                        
| | -----------------------
| | Therapeutic Opportunity





| |                
| | ---------------
| | Clinical Trials





| |              
| | -------------
| | HMGB1 Program





9



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| |                        
| | -----------------------
| | Therapeutic Opportunity









| |                  
| | -----------------
| | Clinical Strategy

in vitro in
vivo.






| |                         
| | ------------------------
| | Alpha-7 Receptor Program





10



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| |                        
| | -----------------------
| | Therapeutic Opportunity





| |                     
| | --------------------
| | Development Strategy



Collaborations




| |                        
| | -----------------------
| | MedImmune Collaboration







11



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| |                              
| | -----------------------------
| | Beckman Coulter Collaboration





90-days


Research and Development






Sales and Marketing




12



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Manufacturing






13



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| |       
| | ------
| | Rhodia

18-months 12-months out-of






| |        
| | -------
| | Patheon



12-months 18-months 30-days


14



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| |           
| | ----------
| | SkyePharma

120-days


alpha-7


Distribution Network




License and Royalty Agreements




15



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| |       
| | ------
| | Abbott



®




| |       
| | ------
| | Baxter





| |                        
| | -----------------------
| | The Feinstein Institute



16



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| |           
| | ----------
| | SkyePharma



17



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| |                      
| | ---------------------
| | University of Florida

60-days




| |                         
| | ------------------------
| | University of Pittsburgh





| |        
| | -------
| | Xanthus



18



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Proprietary Rights






|         |  |        |    |  |         |  |    |         |  |  |         |  |  |       |    |  |  |  |     | 
|-------- |  | ------ | -- |  | ------- |  | -- | ------- |  |  | ------- |  |  | ----- | -- |  |  |  | --- | 
|         |  | U.S.   |    |  | Foreign |  |    |        
|         |  |        |    |  |         |  |    | Program | 
|         |  | Issued |    |  | Pending |  |    | Issued  |  |  | Pending |  |  | Total |   
|         |  |        |    |  |         |  |    |         |  |  |         |  |  |       |   
|Zileuton |  |        | 2  |  |         |  | 2  |         |  |  | 33      |  |  |       | 5  |  |  |  | 42  | 
|HMGB1    |  |        | 3  |  |         |  | 20 |         |  |  | 1       |  |  |       | 42 |  |  |  | 66  | 
|CTI-01   |  |        | 2  |  |         |  | 7  |         |  |  | 7       |  |  |       | 21 |  |  |  | 37  | 
|Alpha-7  |  |        | 3  |  |         |  | 11 |         |  |  | 4       |  |  |       | 23 |  |  |  | 41  | 
|         |  |        |    |  |         |  |    |         |  |  |         |  |  |       |   
|Total    |  |        | 10 |  |         |  | 40 |         |  |  | 45      |  |  |       | 91 |  |  |  | 186 | 
|         |  |        |    |  |         |  |    |         |  |  |         |  |  |       |   







| |                                                                
| | ---------------------------------------------------------------
| | Trademarks, Trade Secrets and Other Proprietary
    Information



19



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®




Regulatory Matters








30-day




20



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21



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head-to










22



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180-day








| |                   
| | ------------------
| | Foreign Regulation





23



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| |                    
| | -------------------
| | Hazardous Materials



Competition




® ®


® Journal of
Managed Care Pharmacy ®


®


24



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® ® ® ® ® ®


Employees




Available Information


10-K, 10-Q, 8-K







|         |             
|-------- | ------------
|ITEM 1A. | RISK FACTORS

Risks Relating to Our Business




| |                                                                                                                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If the market is not receptive to ZYFLO or, if approved
    for sale, the controlled-release formulation of zileuton, we
    will be unable to generate significant revenues unless we are
    able to successfully develop and commercialize other product
    candidates.



12-month


25



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| |                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our business will depend heavily on the commercial success
    of ZYFLO and, if approved for sale, the controlled-release
    formulation of zileuton.

early-stage


26



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| |                                                                                                                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we do not successfully recruit, train and retain
    qualified sales and marketing personnel and build and maintain
    an adequate marketing and sales infrastructure, our ability to
    independently launch and market our product candidates,
    including ZYFLO, will be impaired.







| |                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------
| | 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 other 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;                                                       

27



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| |   |                                                                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | pricing and cost effectiveness;                                                                                                                                                                                           
|
| |  | the ability to be produced in commercial quantities at
    acceptable costs;                                                                                                                                              
|
| |  | 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.





| |   |                                                                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | internal research programs;                                                                                                                                                                                                         
|
| |  | sponsored research programs with academic and other research
    institutions and individual doctors, chemists and researchers;                                                                                                     
|
| |  | in-licensing or acquisition of product candidates or approved
    products for the critical care market; 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.





| |   |                                                                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the research methodology used may not be successful in
    identifying potential product candidates; or                                                                                  
|
| |  | potential product candidates may, on further study, be shown to
    have harmful side effects or other characteristics that indicate
    that they are unlikely to be effective products.





| |   |                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.

28



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| |                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We face substantial competition. If we are unable to
    compete effectively, ZYFLO and our product candidates may be
    rendered noncompetitive or obsolete.

® ® ®


®


® ® ® ®






| |   |                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.                                                                                       



29



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| |                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------
| | If we fail to effectively manage our growth, our business
    and our operating results could be adversely affected.





| |                                                                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we are unable to retain key personnel and hire
    additional qualified scientific and other management personnel,
    we may not be able to successfully achieve our goals.







| |                                                                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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;                                                                                                                                                                                                                                  

30



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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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;                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | state food and drug laws, pharmacy acts and state pharmacy board
    regulations, which govern 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.                                                                                                         





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| |                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | State pharmaceutical marketing and promotional compliance
    and reporting requirements may expose us to regulatory and legal
    action by state governments or other government
    authorities.

Code on Interactions
with Healthcare Professionals Compliance Program Guidance for Pharmaceutical
Manufacturers.






| |                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our corporate compliance and corporate governance programs
    cannot guarantee that we are in compliance with all potentially
    applicable regulations.





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







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| |                                                                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If our Medicaid rebate program practices are investigated
    or if the Medicaid portion of our ZYFLO sales grows, the costs
    could be substantial and our operating results could be
    adversely affected.







| |                                                                                                                                                                                                                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.



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| |                                                                                                                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We handle hazardous materials and must comply with laws
    and regulations, which can be expensive and restrict how we do
    business. If we are involved in a hazardous waste spill or other
    accident, we could be liable for damages, penalties or other
    forms of censure.





per-occurrence


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 the controlled-release formation of
    zileuton or our other product candidates under development, our
    business may be unsuccessful.







35



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| |                                                                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.









| |                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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;                                                                                                     

36



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| |   |                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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;                                    
|
| |  | 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 prelinical studies; or                                                    
|
| |  | the placement of a clinical hold on a trial.                                                                                                                   











| |                                                                                                                                                                                                                                                                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Even if we obtain regulatory approvals or clearances, our
    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.



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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
    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 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.





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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.                                                                                                                                                  



| |                                                                                                                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We rely on third parties to manufacture and supply the
    zileuton API, ZYFLO and our product candidates. We expect to
    continue to rely on third parties for these purposes and would
    incur significant costs to independently develop manufacturing
    facilities.





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












| |   |                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------
| |  | we may not be able to initiate or continue clinical trials of
    our product candidates that are under development;
|
| |  | we may be delayed in submitting applications for regulatory
    approvals for our product candidates;               

40



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| |   |                                                                   
| | - | ------------------------------------------------------------------
| |  | we may be required to cease distribution or issue
    recalls; and
|
| |  | we may not be able to meet commercial demands.                    





| |                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We rely on a single source supplier for one of the
    starting materials for zileuton, and the loss of that supplier
    could prevent us from selling ZYFLO.

2-ABT




| |                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------
| | Any failure to manage and maintain our distribution
    network could compromise ZYFLO sales and harm our
    business.







| |                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------
| | If we are unable to enter into additional collaboration
    agreements, we may not be able to continue development of our
    product candidates.



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| |   |                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------
| |  | 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 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.



Risks Relating to Intellectual Property and Licenses




| |                                                                                                                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we are not able to obtain and enforce patent and other
    intellectual property protection for our discoveries, 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.







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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Litigation regarding patents, patent applications and
    other proprietary rights is expensive and time consuming. If we
    are unsuccessful in litigation concerning patents or patent
    applications owned or co-owned by us or licensed to us, 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 inventions, 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.                                                 



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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 HMGB1
    products and some of our other product candidates.





| |                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------
| | Confidentiality agreements with employees and others may
    not adequately prevent disclosure of trade secrets and other
    proprietary information.



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.



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| |                                                                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 costs of ongoing sales and marketing for ZYFLO;                                                                                                                                                                       
|
| |  | the timing, receipt and amount of sales from ZYFLO;                                                                                                                                                                       
|
| |  | the costs and timing of the development, regulatory submission
    and approval and the commercial launch of the controlled-release
    formulation of zileuton, if and when it is approved by
    regulatory authorities;
|
| |  | the scope and results of our clinical trials;                                                                                                                                                                             
|
| |  | advancements of other product candidates into development;                                                                                                                                                                
|
| |  | potential acquisition or in-licensing of other products or
    technologies;                                                                                                                                              
|
| |  | the time and costs involved in preparing, submitting, obtaining
    and maintaining regulatory approvals;                                                                                                                 
|
| |  | the timing, receipt and amount of milestone and other payments,
    if any, from MedImmune, Beckman Coulter or future collaborators;                                                                                      
|
| |  | the timing, receipt and amount of sales and royalties, if any,
    from our potential products;                                                                                                                           
|
| |  | continued progress in our research and development programs, as
    well as the magnitude of these programs;                                                                                                              
|
| |  | the cost of manufacturing, marketing and sales activities;                                                                                                                                                                
|
| |  | the costs involved in preparing, filing, prosecuting,
    maintaining and enforcing patent claims;                                                                                                                        
|
| |  | the cost of obtaining and maintaining licenses to use patented
    technologies;                                                                                                                                          
|
| |  | our ability to establish and maintain additional collaborative
    arrangements; and                                                                                                                                      
|
| |  | the ongoing time and costs involved in certain corporate
    governance requirements, including work related to compliance
    with the Sarbanes-Oxley Act of 2002.                                                       





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| |                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 these reflected in our
    projections.





| |                                                                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Changes in or interpretations of accounting rules and
    regulations, such as expensing of employee stock options, could
    result in unfavorable accounting charges or require us to change
    our compensation policies.



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.



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| |                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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;                                                                                                                                                                                                 
|
| |  | 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;                                                                                                                                                                
|
| |  | the amount of rebates, discounts and chargebacks to be
    wholesalers, Medicaid and managed care organizations related to
    ZYFLO;                                                                                                    
|
| |  | the amount and timing of product returns for ZYFLO;                                                                                                                                                                                      
|
| |  | achievement of, or the failure to achieve, milestones under our
    development agreement with MedImmune, our license agreement with
    Beckman Coulter and, to the extent applicable, other licensing
    and collaboration agreements;
|
| |  | 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;                                                  
|
| |  | 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.          

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| |                                                                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.



| |                                                                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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



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EXECUTIVE OFFICERS OF THE REGISTRANT




|                        |  |     |    |  |          |                                                                                |                                       | 
|----------------------- |  | --- | -- |  | -------- | ------------------------------------------------------------------------------ | ------------------------------------- | 
|Name                    |  | Age |    |  | Position |                                                                               
|                        |  |     |    |  |          |                                                                               
|Paul D. Rubin, M.D.     |  |     | 52 |  |          |                                                                                | President and Chief Executive Officer | 
|Frederick Finnegan      |  |     | 46 |  |          | Senior Vice President of Sales and Marketing                                  
|Walter Newman, Ph.D.    |  |     | 60 |  |          | Chief Scientific Officer and Senior Vice President of Research and Development
|Trevor Phillips, Ph.D.  |  |     | 44 |  |          | Chief Operating Officer and Senior Vice President of Operations               
|Frank E. Thomas         |  |     | 36 |  |          | Chief Financial Officer, Senior Vice President of Finance and Treasurer       
|Scott B. Townsend, J.D. |  |     | 39 |  |          | Vice President of Legal Affairs and Secretary                                 

Paul Rubin, M.D.


Frederick Finnegan


Walter Newman, Ph.D.


Trevor Phillips, Ph.D.


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Frank E. Thomas


Scott B. Townsend, J.D.





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, 2005                   |  | High |      |  | Low |  
|                                               |  |      |      |  |     |  
|First Quarter (from January 1 to March 31)     |  | $    | 8.05 |  |     | $ | 6.27 | 
|Second Quarter (from April 1 to June 30)       |  | $    | 7.06 |  |     | $ | 5.00 | 
|Third Quarter (from July 1 to September 30)    |  | $    | 9.42 |  |     | $ | 5.51 | 
|Fourth Quarter (from October 1 to December 31) |  | $    | 9.18 |  |     | $ | 6.11 | 

|                                               |  |      |      |  |     |   |      | 
|---------------------------------------------- |  | ---- | ---- |  | --- | - | ---- | 
|Year Ended December 31, 2004                   |  | High |      |  | Low |  
|                                               |  |      |      |  |     |  
|Second Quarter (from May 27 to June 30)        |  | $    | 7.65 |  |     | $ | 6.71 | 
|Third Quarter (from July 1 to September 30)    |  | $    | 7.05 |  |     | $ | 4.74 | 
|Fourth Quarter (from October 1 to December 31) |  | $    | 8.49 |  |     | $ | 5.25 | 





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Calculation of Aggregate Market Value of Non-Affiliate
Shares


10-K, 10-K.


Recent Sales of Unregistered Securities; Uses of Proceeds
From Registered Securities




| |                                        
| | ---------------------------------------
| | Recent Sales of Unregistered Securities





| |                                           
| | ------------------------------------------
| | Use of Proceeds from Registered Securities

S-1 333-113727),




| |   |                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | approximately $7.4 million of these net proceeds to
    establish sales and marketing capabilities and manufacturing and
    distribution arrangements to launch ZYFLO; and
|
| |  | approximately $6.5 million of these net proceeds to fund
    preclinical and clinical development of our product candidates.                                               



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|        |                        
|------- | -----------------------
|ITEM 6. | SELECTED FINANCIAL DATA





|                                                             |                                                       |                                                 |         |            |      |   |         |            |   |   |         |         |   |      |        |         |   |   |        |         |  
|------------------------------------------------------------ | ----------------------------------------------------- | ----------------------------------------------- | ------- | ---------- | ---- | - | ------- | ---------- | - | - | ------- | ------- | - | ---- | ------ | ------- | - | - | ------ | ------- | -
|                                                             |                                                       | Year Ended December 31,                         |        
|                                                             |                                                       |                                                 |        
|                                                             |                                                       | 2005                                            |         |            | 2004 |   |         | 2003       |   |   | 2002    |         |   | 2001 |       
|                                                             |                                                       |                                                 |         |            |      |   |         |            |   |   |         |         |   |      |       
|                                                             |                                                       | (In thousands, except share and per share data) |        
|Statements of Operations Data:                               |                                                       |                                                 |         |            |      |   |         |            |   |   |         |         |   |      |        |         |   |   |        |        
|Net product sales                                            |                                                       | $                                               | 387     |            |      | $ |        |            |   | $ |        |         |   | $    |       |         |   | $ |       |        
|Revenue under collaboration agreements                       |                                                       |                                                 | 5,837   |            |      |   | 4,436   |            |   |   | 1,021   |         |   |      |       |         |   |   |       |        
|                                                             |                                                       |                                                 |         |            |      |   |         |            |   |   |         |         |   |      |       
|                                                             | Total revenues                                        |                                                 |         | 6,224      |      |   |         | 4,436      |   |   |         | 1,021   |   |      |        |        |   |   |        |        |  
|                                                             |                                                       |                                                 |         |            |      |   |         |            |   |   |         |         |   |      |       
|Cost of products sold                                        |                                                       |                                                 | 514     |            |      |   |        |            |   |   |        |         |   |      |       |         |   |   |       |        
|Research and development expenses                            |                                                       |                                                 | 29,959  |            |      |   | 25,578  |            |   |   | 17,458  |         |   |      | 3,284  |         |   |   | 957    |        
|Sales and marketing expenses                                 |                                                       |                                                 | 13,671  |            |      |   | 1,199   |            |   |   |        |         |   |      |       |         |   |   |       |        
|General and administrative expenses                          |                                                       |                                                 | 11,406  |            |      |   | 9,679   |            |   |   | 3,771   |         |   |      | 1,792  |         |   |   | 605    |        
|                                                             |                                                       |                                                 |         |            |      |   |         |            |   |   |         |         |   |      |       
|                                                             | Total costs and expenses                              |                                                 |         | 55,550     |      |   |         | 36,456     |   |   |         | 21,229  |   |      |        | 5,076   |   |   |        | 1,562   |  
|                                                             |                                                       |                                                 |         |            |      |   |         |            |   |   |         |         |   |      |       
|Loss from operations                                         |                                                       |                                                 | (49,326 | )          |      |   | (32,020 | )          |   |   | (20,208 | )       |   |      | (5,076 | )       |   |   | (1,562 | )      
|                                                             |                                                       |                                                 |         |            |      |   |         |            |   |   |         |         |   |      |       
|                                                             | Interest income                                       |                                                 |         | 2,427      |      |   |         | 1,098      |   |   |         | 191     |   |      |        | 149     |   |   |        | 119     |  
|                                                             | Interest expense                                      |                                                 |         | (191       | )    |   |         | (172       | ) |   |         | (93     | ) |      |        | (8      | ) |   |        | (5      | )
|                                                             |                                                       |                                                 |         |            |      |   |         |            |   |   |         |         |   |      |       
|Net loss                                                     |                                                       |                                                 | (47,090 | )          |      |   | (31,094 | )          |   |   | (20,110 | )       |   |      | (4,935 | )       |   |   | (1,448 | )      
|Accretion of dividends and offering costs on preferred stock |                                                       |                                                 |        |            |      |   | (2,209  | )          |   |   | (2,264  | )       |   |      | (1,032 | )       |   |   | (432   | )      
|                                                             |                                                       |                                                 |         |            |      |   |         |            |   |   |         |         |   |      |       
|Net loss available to common stockholders                    |                                                       | $                                               | (47,090 | )          |      | $ | (33,303 | )          |   | $ | (22,374 | )       |   | $    | (5,967 | )       |   | $ | (1,880 | )      
|                                                             |                                                       |                                                 |         |            |      |   |         |            |   |   |         |         |   |      |       
|Net loss per common share:                                   |                                                       |                                                 |         |            |      |   |         |            |   |   |         |         |   |      |        |         |   |   |        |        
|                                                             | Basic and diluted                                     |                                                 | $       | (1.61      | )    |   | $       | (2.28      | ) |   | $       | (33.99  | ) |      | $      | (23.74  | ) |   | $      | (2.63   | )
|                                                             |                                                       |                                                 |         |            |      |   |         |            |   |   |         |         |   |      |       
|                                                             | Weighted-average basic and diluted shares outstanding |                                                 |         | 29,276,243 |      |   |         | 14,631,371 |   |   |         | 658,204 |   |      |        | 251,346 |   |   |        | 714,820 |  
|                                                             |                                                       |                                                 |         |            |      |   |         |            |   |   |         |         |   |      |       

|                                                  |  |                    |          |   |      |   |         |      |  |   |         |   |  |      |        |   |  |   |        |  
|------------------------------------------------- |  | ------------------ | -------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------ | - |  | - | ------ | -
|                                                  |  | As of December 31, |         
|                                                  |  |                    |         
|                                                  |  | 2005               |          |   | 2004 |   |         | 2003 |  |   | 2002    |   |  | 2001 |       
|                                                  |  |                    |          |   |      |   |         |      |  |   |         |   |  |      |       
|                                                  |  | (In thousands)     |         
|Balance Sheet Data:                               |  |                    |          |   |      |   |         |      |  |   |         |   |  |      |        |   |  |   |        |  
|Cash, cash equivalents and short-term investments |  | $                  | 82,811   |   |      | $ | 78,829  |      |  | $ | 40,078  |   |  | $    | 13,539 |   |  | $ | 8,580  |  
|Working capital                                   |  |                    | 70,005   |   |      |   | 64,357  |      |  |   | 25,218  |   |  |      | 13,017 |   |  |   | 8,501  |  
|Total assets                                      |  |                    | 91,819   |   |      |   | 83,114  |      |  |   | 45,054  |   |  |      | 14,382 |   |  |   | 8,638  |  
|Long term debt, net of current portion            |  |                    | 1,489    |   |      |   | 1,367   |      |  |   | 720     |   |  |      | 202    |   |  |   |       |  
|Redeemable convertible preferred stock            |  |                    |         |   |      |   |        |      |  |   | 51,395  |   |  |      | 21,080 |   |  |   | 10,270 |  
|Accumulated deficit                               |  |                    | (105,617 | ) |      |   | (58,527 | )    |  |   | (27,433 | ) |  |      | (7,323 | ) |  |   | (1,517 | )
|Total stockholders equity (deficit)              |  |                    | 72,247   |   |      |   | 65,408  |      |  |   | (24,851 | ) |  |      | (7,554 | ) |  |   | (1,750 | )

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|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|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 accompanying notes
appearing 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 Item 1A 
Risk Factors appearing elsewhere in this report.


Financial Operations Overview
















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Revenues.


Cost of products sold.


Research and Development Expenses.




Sales and Marketing.


General and Administrative Expenses.


54



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Deferred Stock-Based Compensation Expense.




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 financial
    condition or operating performance is material.                                                                                                         



Revenue Recognition. Revenue


55



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Recognition When Right of Return Exists




Inventory. first-in, work-in


Accrued Expenses.


56



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Short-term investments.


Stock-Based Compensation. 96-18,




57



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Income Taxes.


Results of Operations




| |                                       
| | --------------------------------------
| | Years Ended December 31, 2005 and 2004

Revenue from Product Sales.


Revenue under Collaboration Agreements.


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Cost of products sold.


Research and Development Expenses.




|                                          |  |                |        |  |      |   |        | 
|----------------------------------------- |  | -------------- | ------ |  | ---- | - | ------ | 
|                                          |  | Year Ended     |       
|                                          |  | December 31,   |       
|                                          |  |                |       
|                                          |  | 2005           |        |  | 2004 |  
|                                          |  |                |        |  |      |  
|                                          |  | (In thousands) |       
|Zileuton                                  |  | $              | 14,326 |  |      | $ | 12,369 | 
|CTI-01                                    |  |                | 3,045  |  |      |   | 3,329  | 
|Alpha-7                                   |  |                | 2,434  |  |      |   | 1,533  | 
|HMGB1                                     |  |                | 2,030  |  |      |   | 1,702  | 
|General research and development expenses |  |                | 7,260  |  |      |   | 4,637  | 
|Stock-based compensation expense          |  |                | 864    |  |      |   | 2,008  | 
|                                          |  |                |        |  |      |  
|Total research and development expenses   |  | $              | 29,959 |  |      | $ | 25,578 | 
|                                          |  |                |        |  |      |  





| |                                                                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Zileuton. During 2005, we incurred $14.3 million in
    expenses related to our zileuton program as compared to
    $12.4 million during 2004, a 16% increase. This increase
    was primarily due to the following:



| |   |                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------
| |  | manufacturing costs related to the product registration of ZYFLO;                                              
|
| |  | our completed Phase II clinical trial of ZYFLO for moderate
    to severe inflammatory acne;                   
|
| |  | the initiation of the ZYFLO open-label study in patients with
    asthma or mastocytosis;                      
|
| |  | the development and manufacturing costs related to our
    intravenous and controlled-release formulations; and

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| |   |                                                                                                   
| | - | --------------------------------------------------------------------------------------------------
| |  | the payment of several milestones related to our license
    agreements with Abbott and Skypharma.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | CTI-01. During 2005, we incurred $3.0 million in
    expenses related to our CTI-01 program as compared to
    $3.3 million during 2004, a 9% decrease. This decrease was
    primarily due to lower preclinical costs in 2005, partially
    offset by higher clinical and manufacturing costs. We expect to
    incur additional costs for this program in 2006 as we continue
    enrollment of a Phase II clinical trial of CTI-01 in
    patients undergoing major cardiac surgery including the use of a
    cardiopulmonary bypass machine.                                                                                                                                                                                                                                                                                                             
|
| | Alpha-7. During 2005, we incurred $2.4 million of
    expenses in connection with our alpha-7 program as compared to
    $1.5 million during 2004, a 59% increase. The increase was
    primarily due to an increase in the number of employees working
    on the alpha-7 program and higher contract research costs
    associated with our efforts to discover and develop small
    molecule product candidates.                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| | HMGB1. During 2005, we incurred $2.0 million of
    expenses for our HMGB1 program as compared to $1.7 million
    during 2004, a 19% increase. This increase was primarily due to
    higher license fees, sponsored research and lab supplies for our
    continued testing under our collaboration agreement with
    MedImmune offset in part by lower personnel costs devoted to
    this program. In 2005, we paid a $250,000 milestone payment to
    the licensor of HMGB1 for establishing preclinical
    proof-of-concept. The collaboration revenue recognized by us in
    2005 for this program totaled $5.8 million. We currently
    anticipate that certain research and development costs relating
    to HMGB1 in 2006 will be covered by funding and potential
    milestone payments from MedImmune under our collaboration
    agreement.





Sales and Marketing Expenses.




| |   |                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------
| |  | hiring and training our 80-person specialty sales force, the
    majority of whom we hired in August 2005;       
|
| |  | hiring our sales and customer management team;                                                                   
|
| |  | market research conducted in anticipation of the approval and
    launch of ZYFLO; and                           
|
| |  | marketing, product samples, promotional materials and other
    costs associated with our recent launch of ZYFLO.



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General and Administrative Expenses.




| |   |                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Personnel costs increased $476,000 as a result of an increase in
    the number of employees performing general and administrative
    functions.                                   
|
| |  | Directors and officers insurance and general business insurance
    costs increased $291,000 due to an increase in premiums.                                                        
|
| |  | Audit fees related to our Sarbanes-Oxley compliance and
    consulting increased $724,000 as we prepared for the audit of
    our internal controls systems as of December 31, 2005.

Other Income.




| |                                       
| | --------------------------------------
| | Years Ended December 31, 2004 and 2003

Revenue Under Collaboration Agreement.


Research and Development Expenses.


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|                                          |  |                |        |  |      |   |        | 
|----------------------------------------- |  | -------------- | ------ |  | ---- | - | ------ | 
|                                          |  | Year Ended     |       
|                                          |  | December 31,   |       
|                                          |  |                |       
|                                          |  | 2004           |        |  | 2003 |  
|                                          |  |                |        |  |      |  
|                                          |  | (In thousands) |       
|Zileuton                                  |  | $              | 12,369 |  |      | $ | 3,269  | 
|CTI-01                                    |  |                | 3,329  |  |      |   | 1,579  | 
|HMGB1                                     |  |                | 1,702  |  |      |   | 3,483  | 
|Alpha-7                                   |  |                | 1,533  |  |      |   | 630    | 
|General research and development expenses |  |                | 4,637  |  |      |   | 3,589  | 
|Stock-based compensation expense          |  |                | 2,008  |  |      |   | 4,908  | 
|                                          |  |                |        |  |      |  
|Total research and development expenses   |  | $              | 25,578 |  |      | $ | 17,458 | 
|                                          |  |                |        |  |      |  





| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Zileuton. During 2004, we incurred $12.4 million in
    expenses related to our zileuton program as compared to
    $3.3 million during 2003. This increase was primarily due
    to substantial costs for the development and commercialization
    of both ZYFLO and the controlled-release formulation of
    zileuton, including costs associated with the technology
    transfer and scale-up
    of manufacturing of API and tablets for both formulations. The
    aggregate technology transfer and validation costs associated
    with the change of manufacturing sites for ZYFLO and the
    controlled-release formulation of zileuton were
    $7.2 million in 2004. In addition, we initiated a
    Phase II clinical trial in moderate to severe inflammatory
    acne patients during 2004.
|
| | CTI-01. Expenses for CTI-01 increased by
    $1.8 million in 2004 as compared to 2003. This increase is
    primarily due to costs associated with the completion of the
    first Phase I clinical trial that we initiated in 2003 and
    completed in 2004 in the United Kingdom and the costs of our
    second Phase I clinical trial that we initiated and
    completed in 2004 in the United States. In addition, we incurred
    costs in 2004 related to manufacturing of clinical supplies of
    CTI-01 in preparation for our Phase II clinical trial,
    which we initiated in February 2005.                                                                                                                                                                                                 
|
| | HMGB1. Expenses for HMGB1 decreased by $1.8 million
    in 2004 as compared to 2003. The increase in expenses is
    primarily due to the collaboration agreement entered into with
    MedImmune in the second half of 2003. As part of the agreement,
    MedImmune is funding a significant portion of the development
    costs including those incurred by us subject to certain annual
    limitations.                                                                                                                                                                                                                                                                                                                                                                                                
|
| | Alpha-7. During 2004, we incurred $1.5 million of
    expenses in connection with our alpha-7 program as compared to
    $630,000 during 2003. The increase is primarily due to costs
    associated with our efforts to develop small molecules.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            





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Sales and Marketing Expenses. 10-K


General and Administrative Expenses.




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Personnel costs increased approximately $2.0 million
    primarily as a result of the increase in the number of employees
    performing general and administrative functions from nine
    employees at December 31, 2003 to thirty-two employees at
    December 31, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | Professional services fees increased $349,000 associated with
    our licensing and other corporate development activities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | Directors and officers insurance and general business insurance
    costs increased $415,000 as a result of an increase in premiums
    following our initial public offering.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | Facility and equipment costs increased by $1.7 million as a
    result of our move in April 2004 to a larger facility.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | Cancellation of employee loans increased $419,000 plus the costs
    associated with
    gross-up payments for
    state and federal taxes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | Stock-based compensation expense increased $1.4 million
    primarily as a result of additional amortization on the issuance
    of certain employee stock options granted during 2003 and the
    first half of 2004 with an exercise price deemed to be below the
    fair value at the date of grant prior to our initial public
    offering. This difference has been recorded as deferred
    stock-based compensation expense and is being amortized over the
    vesting period of the related stock awards. Therefore, the
    effect of such amortization, together with the effect of
    previously issued stock awards, resulted in an increase in
    stock-based compensation expense for the year ended
    December 31, 2004.

Other Income.


Accretion of Dividends and Offering Costs on Preferred
Stock.


Liquidity and Capital Resources


Sources of Liquidity




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Credit Agreement with Silicon Valley Bank.






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Cash Flows


Operating Activities.


Investing Activities.


Financing Activities.




| |             
| | ------------
| | Income Taxes





| |                     
| | --------------------
| | Funding Requirements





| |   |                                                    
| | - | ---------------------------------------------------
| |  | the costs of ongoing sales and marketing for ZYFLO;
|
| |  | the timing, receipt and amount of sales from ZYFLO;

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| |   |                                                                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the costs and timing of the development, regulatory submission
    and approval and the commercial launch of the controlled-release
    formulation of zileuton, if and when it is approved by
    regulatory authorities;
|
| |  | the scope and results of our clinical trials;                                                                                                                                                                             
|
| |  | advancements of other product candidates into development;                                                                                                                                                                
|
| |  | potential acquisition or in-licensing of other products or
    technologies;                                                                                                                                              
|
| |  | the time and costs involved in preparing, submitting, obtaining
    and maintaining regulatory approvals;                                                                                                                 
|
| |  | the timing, receipt and amount of milestone and other payments,
    if any, from MedImmune, Beckman Coulter or future collaborators;                                                                                      
|
| |  | the timing, receipt and amount of sales and royalties, if any,
    from our potential products;                                                                                                                           
|
| |  | continued progress in our research and development programs, as
    well as the magnitude of these programs;                                                                                                              
|
| |  | the cost of manufacturing, marketing and sales activities;                                                                                                                                                                
|
| |  | the costs involved in preparing, filing, prosecuting,
    maintaining and enforcing patent claims;                                                                                                                        
|
| |  | the cost of obtaining and maintaining licenses to use patented
    technologies;                                                                                                                                          
|
| |  | our ability to establish and maintain additional collaborative
    arrangements; and                                                                                                                                      
|
| |  | the ongoing time and costs involved in certain corporate
    governance requirements, including work related to compliance
    with the Sarbanes-Oxley Act of 2002.                                                       







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| |                        
| | -----------------------
| | Contractual Obligations



|                                            |  |                        |        |           |          |   |        |             |  |          |            |  |       |            |     |  |  |   |       | 
|------------------------------------------- |  | ---------------------- | ------ | --------- | -------- | - | ------ | ----------- |  | -------- | ---------- |  | ----- | ---------- | --- |  |  | - | ----- | 
|                                            |  | Payments Due by Period |       
|                                            |  |                        |       
|                                            |  |                        |        | Less Than |          |   | One to |             |  | Three to |            |  | After |           
|Contractual Obligations                     |  | Total                  |        |           | One Year |   |        | Three Years |  |          | Five Years |  |       | Five Years |    
|                                            |  |                        |        |           |          |   |        |             |  |          |            |  |       |            |    
|                                            |  | (In thousands)         |       
|Short- and long-term debt                   |  | $                      | 2,837  |           |          | $ | 1,310  |             |  | $        | 1,527      |  |       | $          |    |  |  | $ |      | 
|Research and license agreements             |  |                        | 7,389  |           |          |   | 263    |             |  |          | 201        |  |       |            | 384 |  |  |   | 6,541 | 
|Consulting agreements                       |  |                        | 404    |           |          |   | 377    |             |  |          | 27         |  |       |            |    |  |  |   |      | 
|Manufacturing and clinical trial agreements |  |                        | 13,097 |           |          |   | 11,966 |             |  |          | 1,131      |  |       |            |    |  |  |   |      | 
|Lease obligations                           |  |                        | 6,367  |           |          |   | 2,186  |             |  |          | 4,181      |  |       |            |    |  |  |   |      | 
|                                            |  |                        |        |           |          |   |        |             |  |          |            |  |       |            |    
|Total contractual cash obligations          |  | $                      | 30,094 |           |          | $ | 16,102 |             |  | $        | 7,067      |  |       | $          | 384 |  |  | $ | 6,541 | 
|                                            |  |                        |        |           |          |   |        |             |  |          |            |  |       |            |    















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Effects of Inflation




Recent Accounting Pronouncements






68



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|         |                                                               
|-------- | --------------------------------------------------------------
|ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
    RISK



69



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|        |                                            
|------- | -------------------------------------------
|ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


CRITICAL THERAPEUTICS, INC. AND SUBSIDIARY


TABLE OF CONTENTS


|                                                            |                                                                                      |      |    |    | 
|----------------------------------------------------------- | ------------------------------------------------------------------------------------ | ---- | -- | -- | 
|                                                            |                                                                                      | Page |   
|                                                            |                                                                                      |      |   
|REPORT OF INDEPENDENT REGISTERED PUBLIC
    ACCOUNTING FIRM |                                                                                      |      | 71 |   
|CONSOLIDATED FINANCIAL STATEMENTS                           |                                                                                      |      |    |   
|                                                            | Consolidated Balance Sheets                                                          |      |    | 72 | 
|                                                            | Consolidated Statements of Operations                                                |      |    | 73 | 
|                                                            | Consolidated Statements of
    Stockholders Equity (Deficit) and Comprehensive Loss |      |    | 74 | 
|                                                            | Consolidated Statements of Cash Flows                                                |      |    | 75 | 
|                                                            | Notes to Consolidated Financial
    Statements                                       |      |    | 76 | 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM












Internal Control 
Integrated Framework








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CRITICAL THERAPEUTICS, INC. AND SUBSIDIARY





CONSOLIDATED BALANCE SHEETS


|                                                                       |                                                                                                                                                                               |                            |        |          |        |   |        |         |        | 
|---------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------ | -------- | ------ | - | ------ | ------- | ------ | 
|                                                                       |                                                                                                                                                                               | December 31,               |       
|                                                                       |                                                                                                                                                                               |                            |       
|                                                                       |                                                                                                                                                                               | 2005                       |        |          | 2004   |  
|                                                                       |                                                                                                                                                                               |                            |        |          |        |  
|                                                                       |                                                                                                                                                                               | (In thousands except share |       
|                                                                       |                                                                                                                                                                               | and per share data)        |       
|ASSETS:                                                               
|Current assets:                                                        |                                                                                                                                                                               |                            |        |          |        |   |        |        
|                                                                       | Cash and cash equivalents                                                                                                                                                     |                            | $      | 57,257   |        |   | $      | 11,980  |       
|                                                                       | Accounts receivable, net                                                                                                                                                      |                            |        | 1,024    |        |   |        |        |       
|                                                                       | Amount due under collaboration agreements                                                                                                                                     |                            |        | 205      |        |   |        | 16      |       
|                                                                       | Short-term investments                                                                                                                                                        |                            |        | 25,554   |        |   |        | 66,849  |       
|                                                                       | Inventory, net                                                                                                                                                                |                            |        | 1,869    |        |   |        |        |       
|                                                                       | Prepaid expenses and other                                                                                                                                                    |                            |        | 2,179    |        |   |        | 1,851   |       
|                                                                       |                                                                                                                                                                               |                            |        |          |        |  
|                                                                       |                                                                                                                                                                               | Total current assets       |        |          | 88,088 |   |        |         | 80,696 | 
|                                                                       |                                                                                                                                                                               |                            |        |          |        |  
|Fixed assets, net                                                      |                                                                                                                                                                               |                            | 3,563  |          |        |   | 2,205  |        
|Other assets                                                           |                                                                                                                                                                               |                            | 168    |          |        |   | 213    |        
|                                                                       |                                                                                                                                                                               |                            |        |          |        |  
|Total assets                                                           |                                                                                                                                                                               | $                          | 91,819 |          |        | $ | 83,114 |        
|                                                                       |                                                                                                                                                                               |                            |        |          |        |  
|                                                                      
|LIABILITIES AND STOCKHOLDERS EQUITY:                                 
|Current liabilities:                                                   |                                                                                                                                                                               |                            |        |          |        |   |        |        
|                                                                       | Current portion of long-term debt and capital lease obligations                                                                                                               |                            | $      | 1,179    |        |   | $      | 837     |       
|                                                                       | Accounts payable                                                                                                                                                              |                            |        | 4,615    |        |   |        | 4,218   |       
|                                                                       | Accrued compensation                                                                                                                                                          |                            |        | 1,836    |        |   |        | 1,034   |       
|                                                                       | Accrued expenses                                                                                                                                                              |                            |        | 3,040    |        |   |        | 1,707   |       
|                                                                       | Revenue deferred under collaboration agreements                                                                                                                               |                            |        | 5,706    |        |   |        | 8,543   |       
|                                                                       | Deferred product revenue                                                                                                                                                      |                            |        | 1,707    |        |   |        |        |       
|                                                                       |                                                                                                                                                                               |                            |        |          |        |  
|                                                                       |                                                                                                                                                                               | Total current liabilities  |        |          | 18,083 |   |        |         | 16,339 | 
|                                                                       |                                                                                                                                                                               |                            |        |          |        |  
|Long-term debt and capital lease obligations, less current
    portion |                                                                                                                                                                               |                            | 1,489  |          |        |   | 1,367  |        
|                                                                       |                                                                                                                                                                               |                            |        |          |        |  
|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 34,126,977 and
    24,085,481 shares at December 31, 2005 and 2004,
    respectively |                            |        | 34       |        |   |        | 24      |       
|                                                                       | Additional paid-in capital                                                                                                                                                    |                            |        | 181,718  |        |   |        | 130,374 |       
|                                                                       | Deferred stock-based compensation                                                                                                                                             |                            |        | (3,794   | )      |   |        | (6,101  | )     
|                                                                       | Accumulated deficit                                                                                                                                                           |                            |        | (105,617 | )      |   |        | (58,527 | )     
|                                                                       | Accumulated other comprehensive loss                                                                                                                                          |                            |        | (94      | )      |   |        | (362    | )     
|                                                                       |                                                                                                                                                                               |                            |        |          |        |  
|                                                                       |                                                                                                                                                                               | Total stockholders equity |        |          | 72,247 |   |        |         | 65,408 | 
|                                                                       |                                                                                                                                                                               |                            |        |          |        |  
|Total liabilities and stockholders equity                             |                                                                                                                                                                               | $                          | 91,819 |          |        | $ | 83,114 |        
|                                                                       |                                                                                                                                                                               |                            |        |          |        |  



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CRITICAL THERAPEUTICS, INC. AND SUBSIDIARY





CONSOLIDATED STATEMENTS OF OPERATIONS


|                                                             |                                        |                                                |            |        |        |   |            |        |        |   |         |        |        | 
|------------------------------------------------------------ | -------------------------------------- | ---------------------------------------------- | ---------- | ------ | ------ | - | ---------- | ------ | ------ | - | ------- | ------ | ------ | 
|                                                             |                                        | Year Ended December 31,                        |           
|                                                             |                                        |                                                |           
|                                                             |                                        | 2005                                           |            |        | 2004   |   |            | 2003   |       
|                                                             |                                        |                                                |            |        |        |   |            |        |       
|                                                             |                                        | (In thousands except share and per share data) |           
|Revenues:                                                    |                                        |                                                |            |        |        |   |            |        |        |   |         |       
|                                                             | Net product sales                      |                                                | $          | 387    |        |   | $          |       |        |   | $       |       |       
|                                                             | Revenue under collaboration agreements |                                                |            | 5,837  |        |   |            | 4,436  |        |   |         | 1,021  |       
|                                                             |                                        |                                                |            |        |        |   |            |        |       
|                                                             |                                        | Total revenues                                 |            |        | 6,224  |   |            |        | 4,436  |   |         |        | 1,021  | 
|                                                             |                                        |                                                |            |        |        |   |            |        |       
|Costs and expenses:                                          |                                        |                                                |            |        |        |   |            |        |        |   |         |       
|                                                             | Cost of products sold                  |                                                |            | 514    |        |   |            |       |        |   |         |       |       
|                                                             | Research and development               |                                                |            | 29,959 |        |   |            | 25,578 |        |   |         | 17,458 |       
|                                                             | Sales and marketing                    |                                                |            | 13,671 |        |   |            | 1,199  |        |   |         |       |       
|                                                             | General and administrative             |                                                |            | 11,406 |        |   |            | 9,679  |        |   |         | 3,771  |       
|                                                             |                                        |                                                |            |        |        |   |            |        |       
|                                                             |                                        | Total costs and expenses                       |            |        | 55,550 |   |            |        | 36,456 |   |         |        | 21,229 | 
|                                                             |                                        |                                                |            |        |        |   |            |        |       
|Operating loss                                               |                                        |                                                | (49,326    | )      |        |   | (32,020    | )      |        |   | (20,208 | )     
|Other income (expense):                                      |                                        |                                                |            |        |        |   |            |        |        |   |         |       
|                                                             | Interest income                        |                                                |            | 2,427  |        |   |            | 1,098  |        |   |         | 191    |       
|                                                             | Interest expense                       |                                                |            | (191   | )      |   |            | (172   | )      |   |         | (93    | )     
|                                                             |                                        |                                                |            |        |        |   |            |        |       
|                                                             |                                        | Total other income                             |            |        | 2,236  |   |            |        | 926    |   |         |        | 98     | 
|                                                             |                                        |                                                |            |        |        |   |            |        |       
|Net loss                                                     |                                        |                                                | (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                    |                                        | $                                              | (47,090    | )      |        | $ | (33,303    | )      |        | $ | (22,374 | )     
|                                                             |                                        |                                                |            |        |        |   |            |        |       
|Net loss per share available to common stockholders          |                                        | $                                              | (1.61      | )      |        | $ | (2.28      | )      |        | $ | (33.99  | )     
|                                                             |                                        |                                                |            |        |        |   |            |        |       
|Basic and diluted weighted-average common shares outstanding |                                        |                                                | 29,276,243 |        |        |   | 14,631,371 |        |        |   | 658,204 |       
|                                                             |                                        |                                                |            |        |        |   |            |        |       



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CRITICAL THERAPEUTICS, INC. AND SUBSIDIARY





CONSOLIDATED STATEMENTS OF


STOCKHOLDERS EQUITY (DEFICIT) AND COMPREHENSIVE
LOSS


YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003


|                                                                                                                                                                           |                                |                                  |         |   |        |   |            |         |  |          |              |   |  |              |        |   |             |   |     |               |  |   |               |         |   |               |      |      |   |   |         |         |   |  |   |         |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------ | -------------------------------- | ------- | - | ------ | - | ---------- | ------- |  | -------- | ------------ | - |  | ------------ | ------ | - | ----------- | - | --- | ------------- |  | - | ------------- | ------- | - | ------------- | ---- | ---- | - | - | ------- | ------- | - |  | - | ------- | -
|                                                                                                                                                                           |                                |                                  |         |   |        |   |            |         |  |          |              |   |  | Accumulated  |        |   |             |   |    
|                                                                                                                                                                           |                                | Redeemable                       |         |   |        |   | Additional |         |  | Deferred |              |   |  |              |        |   | Other       |   |     | Total         |  |   |              
|                                                                                                                                                                           |                                | Convertible                      |         |   | Common |   |            | Paid-In |  |          | Stock-Based  |   |  | Due from     |        |   | Accumulated |   |     | Comprehensive |  |   | Stockholders |         |   | Comprehensive |     
|                                                                                                                                                                           |                                | Preferred Stock                  |         |   | Stock  |   |            | Capital |  |          | Compensation |   |  | Stockholders |        |   | Deficit     |   |     | Loss          |  |   | Equity        |         |   | Loss          |     
|                                                                                                                                                                           |                                |                                  |         |   |        |   |            |         |  |          |              |   |  |              |        |   |             |   |     |               |  |   |               |         |   |               |     
|                                                                                                                                                                           |                                | (In thousands except share data) |        
|BALANCE  January 1, 2003                                                                                                                                                  |                                | $                                | 21,080  |   |        | $ | 1          |         |  | $        | 4            |   |  | $            | (197   | ) |             | $ | (40 | )             |  | $ | (7,323        | )       |   |               |     |      |   | $ | (7,555  | )       |   |  |   |        
|Issuance of 20,055,167 shares of Series B preferred
    stock for cash                                                                                                     |                                |                                  | 27,906  |   |        |   |           |         |  |          |             |   |  |              |       |   |             |   |    |               |  |   |              |         |   |               |     |      |   |   |        |         |   |  |   |        
|Issuance of 16,980 shares of common stock, upon exercise of
    options under stock plan                                                                                   |                                |                                  |        |   |        |   | 1          |         |  |          | 6            |   |  |              |       |   |             |   |    |               |  |   |              |         |   |               |     |      |   |   | 7       |         |   |  |   |        
|Repurchase of 3,221 shares of common stock                                                                                                                                 |                                |                                  |        |   |        |   |           |         |  |          | (8           | ) |  |              | 7      |   |             |   |    |               |  |   |              |         |   |               |     |      |   |   | (1      | )       |   |  |   |        
|Deferred stock-based compensation to employees                                                                                                                             |                                |                                  |        |   |        |   |           |         |  |          | 6,673        |   |  |              | (6,672 | ) |             |   |    |               |  |   |              |         |   |               |     |      |   |   | 1       |         |   |  |   |        
|Deferred stock-based compensation to non-employees                                                                                                                         |                                |                                  |        |   |        |   |           |         |  |          | 6,745        |   |  |              | (6,745 | ) |             |   |    |               |  |   |              |         |   |               |     |      |   |   |        |         |   |  |   |        
|Accretion of preferred stock dividends and issuance costs                                                                                                                  |                                |                                  | 2,264   |   |        |   |           |         |  |          | (2,264       | ) |  |              |       |   |             |   |    |               |  |   |              |         |   |               |     |      |   |   | (2,264  | )       |   |  |   |        
|Amortization of deferred stock-based compensation                                                                                                                          |                                |                                  |        |   |        |   |           |         |  |          |             |   |  |              | 5,071  |   |             |   |    |               |  |   |              |         |   |               |     |      |   |   | 5,071   |         |   |  |   |        
|Payment from stockholder                                                                                                                                                   |                                |                                  | 145     |   |        |   |           |         |  |          |             |   |  |              |       |   |             |   |    |               |  |   |              |         |   |               |     |      |   |   |        |         |   |  |   |        
|                                                                                                                                                                           | Net loss                       |                                  |         |  |        |   |            |        |  |          |              |  |  |              |        |  |             |   |     |              |  |   |               | (20,110 | ) |               |      |     |   |   |         | (20,110 | ) |  | $ | (20,110 | )
|                                                                                                                                                                           |                                |                                  |         |   |        |   |            |         |  |          |              |   |  |              |        |   |             |   |     |               |  |   |               |         |   |               |     
|                                                                                                                                                                           | Comprehensive loss             |                                  |         |   |        |   |            |         |  |          |              |   |  |              |        |   |             |   |     |               |  |   |               |         |   |               |      |      |   |   |         |         |   |  | $ | (20,110 | )
|                                                                                                                                                                           |                                |                                  |         |   |        |   |            |         |  |          |              |   |  |              |        |   |             |   |     |               |  |   |               |         |   |               |     
|BALANCE  December 31, 2003                                                                                                                                                |                                |                                  | 51,395  |   |        |   | 2          |         |  |          | 11,156       |   |  |              | (8,536 | ) |             |   | (40 | )             |  |   | (27,433       | )       |   |               |     |      |   |   | (24,851 | )       |   |  |   |        
|Issuance of 20,055,160 shares of Series B preferred
    stock for cash                                                                                                     |                                |                                  | 28,050  |   |        |   |           |         |  |          |             |   |  |              |       |   |             |   |    |               |  |   |              |         |   |               |     |      |   |   |        |         |   |  |   |        
|Issuance of 221,902 shares of common stock, upon exercise
    of options under stock plan                                                                                  |                                |                                  |         |   |        |   |            |         |  |          | 175          |   |  |              |        |   |             |   |     |               |  |   |               |         |   |               |      |      |   |   | 175     |         |   |  |   |        
|Issuance of 66,666 shares of common stock in connection
    with license agreement                                                                                         |                                |                                  |        |   |        |   |           |         |  |          | 485          |   |  |              |       |   |             |   |    |               |  |   |              |         |   |               |     |      |   |   | 485     |         |   |  |   |        
|Deferred stock-based compensation to employees                                                                                                                             |                                |                                  |        |   |        |   |           |         |  |          | 523          |   |  |              | (523   | ) |             |   |    |               |  |   |              |         |   |               |     |      |   |   |        |         |   |  |   |        
|Deferred stock-based compensation to non-employees                                                                                                                         |                                |                                  |        |   |        |   |           |         |  |          | 348          |   |  |              | (348   | ) |             |   |    |               |  |   |              |         |   |               |     |      |   |   |        |         |   |  |   |        
|Accretion of preferred stock dividends and issuance costs                                                                                                                  |                                |                                  | 2,209   |   |        |   |           |         |  |          | (2,209       | ) |  |              |       |   |             |   |    |               |  |   |               |         |   |               |     |      |   |   | (2,209  | )       |   |  |   |        
|Amortization of deferred stock-based compensation                                                                                                                          |                                |                                  |        |   |        |   |           |         |  |          |             |   |  |              | 3,562  |   |             |   |    |               |  |   |              |         |   |               |     |      |   |   | 3,562   |         |   |  |   |        
|Reversal of deferred stock based compensation                                                                                                                              |                                |                                  |        |   |        |   |           |         |  |          | (21          | ) |  |              | 21     |   |             |   |    |               |  |   |              |         |   |               |     |      |   |   |        |         |   |  |   |        
|Forgiveness of officer notes                                                                                                                                               |                                |                                  | 145     |   |        |   |           |         |  |          |             |   |  |              |       |   |             |   | 40  |               |  |   |              |         |   |               |     |      |   |   | 40      |         |   |  |   |        
|Issuance of 6,110,000 shares of common stock in initial
    public offering, including underwriters over-allotment,
    net of $2.0 million in offering costs             |                                |                                  |        |   |        |   | 6          |         |  |          | 37,811       |   |  |              |       |   |             |   |    |               |  |   |              |         |   |               |     |      |   |   | 37,817  |         |   |  |   |        
|Conversion of 60,410,327 shares of preferred stock into
    16,109,403 shares of common stock                                                                              |                                |                                  | (81,799 | ) |        |   | 16         |         |  |          | 81,783       |   |  |              |       |   |             |   |    |               |  |   |              |         |   |               |     |      |   |   | 81,799  |         |   |  |   |        
|Issuance of 12,157 shares of common stock related to
    exercise of warrant                                                                                               |                                |                                  |        |   |        |   |           |         |  |          | 46           |   |  |              |       |   |             |   |    |               |  |   |              |         |   |               |     |      |   |   | 46      |         |   |  |   |        
|Grant of stock options to non-employees                                                                                                                                    |                                |                                  |        |   |        |   |           |         |  |          | 277          |   |  |              | (277   | ) |             |   |    |               |  |   |              |         |   |               |     |      |   |   |        |         |   |  |   |        
|                                                                                                                                                                           | Net loss                       |                                  |         |  |        |   |            |        |  |          |              |  |  |              |        |  |             |   |     |              |  |   |               | (31,094 | ) |               |      |     |   |   |         | (31,094 | ) |  | $ | (31,094 | )
|                                                                                                                                                                           | Unrealized loss on investments |                                  |         |   |        |   |            |         |  |          |              |   |  |              |        |   |             |   |     |               |  |   |               |         |   |               |      | (362 | ) |   |         | (362    | ) |  |   | (362    | )
|                                                                                                                                                                           |                                |                                  |         |   |        |   |            |         |  |          |              |   |  |              |        |   |             |   |     |               |  |   |               |         |   |               |     
|                                                                                                                                                                           | Comprehensive loss             |                                  |         |   |        |   |            |         |  |          |              |   |  |              |        |   |             |   |     |               |  |   |               |         |   |               |      |      |   |   |         |         |   |  | $ | (31,456 | )
|                                                                                                                                                                           |                                |                                  |         |   |        |   |            |         |  |          |              |   |  |              |        |   |             |   |     |               |  |   |               |         |   |               |     
|BALANCE  December 31, 2004                                                                                                                                                |                                |                                  |        |   |        |   | 24         |         |  |          | 130,374      |   |  |              | (6,101 | ) |             |   |    |               |  |   | (58,527       | )       |   |               | (362 | )    |   |   | 65,408  |         |   |  |   |        
|Issuance of 96,235 shares of common stock, upon exercise of
    options under stock plan                                                                                   |                                |                                  |        |   |        |   |           |         |  |          | 158          |   |  |              |       |   |             |   |    |               |  |   |              |         |   |               |     |      |   |   | 158     |         |   |  |   |        
|Deferred stock-based compensation to non-employees                                                                                                                         |                                |                                  |        |   |        |   |           |         |  |          | (458         | ) |  |              | 458    |   |             |   |    |               |  |   |              |         |   |               |     |      |   |   |        |         |   |  |   |        
|Amortization of deferred stock-based compensation                                                                                                                          |                                |                                  |         |   |        |   |            |         |  |          |              |   |  |              | 2,141  |   |             |   |     |               |  |   |               |         |   |               |      |      |   |   | 2,141   |         |   |  |   |        
|Reversal 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       |   |  |              |       |   |             |   |    |               |  |   |              |         |   |               |     |      |   |   | 51,362  |         |   |  |   |        
|Grant of stock options to non-employees                                                                                                                                    |                                |                                  |        |   |        |   |           |         |  |          | 513          |   |  |              | (513   | ) |             |   |    |               |  |   |              |         |   |               |     |      |   |   |        |         |   |  |   |        
|                                                                                                                                                                           | Net loss                       |                                  |         |  |        |   |            |        |  |          |              |  |  |              |        |  |             |   |     |              |  |   |               | (47,090 | ) |               |      |     |   |   |         | (47,090 | ) |  | $ | (47,090 | )
|                                                                                                                                                                           | Unrealized loss on investments |                                  |         |   |        |   |            |         |  |          |              |   |  |              |        |   |             |   |     |               |  |   |               |         |   |               |      | 268  |   |   |         | 268     |   |  |   | 268     |  
|                                                                                                                                                                           |                                |                                  |         |   |        |   |            |         |  |          |              |   |  |              |        |   |             |   |     |               |  |   |               |         |   |               |     
|                                                                                                                                                                           | Comprehensive loss             |                                  |         |   |        |   |            |         |  |          |              |   |  |              |        |   |             |   |     |               |  |   |               |         |   |               |      |      |   |   |         |         |   |  | $ | (46,822 | )
|                                                                                                                                                                           |                                |                                  |         |   |        |   |            |         |  |          |              |   |  |              |        |   |             |   |     |               |  |   |               |         |   |               |     
|BALANCE  December 31, 2005                                                                                                                                                |                                | $                                |        |   |        | $ | 34         |         |  | $        | 181,718      |   |  | $            | (3,794 | ) |             | $ |    |               |  | $ | (105,617      | )       |   | $             | (94  | )    |   | $ | 72,247  |         |   |  |   |        
|                                                                                                                                                                           |                                |                                  |         |   |        |   |            |         |  |          |              |   |  |              |        |   |             |   |     |               |  |   |               |         |   |               |     



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CRITICAL THERAPEUTICS, INC. AND SUBSIDIARY





CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                     |                                                                                  |                                                              |                                                 |                                                     |       |        |         |          |       |        |         |         |       |        |        |  
|---------------------------------------------------- | -------------------------------------------------------------------------------- | ------------------------------------------------------------ | ----------------------------------------------- | --------------------------------------------------- | ----- | ------ | ------- | -------- | ----- | ------ | ------- | ------- | ----- | ------ | ------ | -
|                                                     |                                                                                  | Year Ended December 31,                                      |                                                
|                                                     |                                                                                  |                                                              |                                                
|                                                     |                                                                                  | 2005                                                         |                                                 |                                                     | 2004  |        |         | 2003     |      
|                                                     |                                                                                  |                                                              |                                                 |                                                     |       |        |         |          |      
|                                                     |                                                                                  | (In thousands)                                               |                                                
|Cash flows from operating activities:                |                                                                                  |                                                              |                                                 |                                                     |       |        |         |          |       |        |         |        
|                                                     | Net loss                                                                         |                                                              | $                                               | (47,090                                             | )     |        | $       | (31,094  | )     |        | $       | (20,110 | )    
|                                                     | Adjustments to reconcile net loss to net cash used in operating
    activities:  |                                                              |                                                 |                                                     |       |        |         |          |       |        |         |         |      
|                                                     |                                                                                  | Depreciation and amortization expense                        |                                                 |                                                     | 800   |        |         |          | 1,092 |        |         |         | 482   |       
|                                                     |                                                                                  | Amortization of premiums on short-term investments and other |                                                 |                                                     | 903   |        |         |          | 755   |        |         |         |      |       
|                                                     |                                                                                  | Loss on disposal of fixed assets                             |                                                 |                                                     | 149   |        |         |          | 278   |        |         |         |      |       
|                                                     |                                                                                  | Loss on conversion of warrants                               |                                                 |                                                     |      |        |         |          | 46    |        |         |         |      |       
|                                                     |                                                                                  | Stock-based compensation expense                             |                                                 |                                                     | 2,141 |        |         |          | 3,562 |        |         |         | 5,072 |       
|                                                     |                                                                                  | Forgiveness of notes receivable                              |                                                 |                                                     |      |        |         |          | 185   |        |         |         |      |       
|                                                     |                                                                                  | Changes in assets and liabilities:                           |                                                 |                                                     |       |        |         |          |       |        |         |         |       |       
|                                                     |                                                                                  |                                                              | Accounts receivable                             |                                                     |       | (1,024 | )       |          |       |       |         |         |       |       |       
|                                                     |                                                                                  |                                                              | Amount due under collaboration agreement        |                                                     |       | (189   | )       |          |       | 2,484  |         |         |       | (2,500 | )     
|                                                     |                                                                                  |                                                              | Inventory                                       |                                                     |       | (1,869 | )       |          |       |       |         |         |       |       |       
|                                                     |                                                                                  |                                                              | Prepaid expenses and other                      |                                                     |       | (328   | )       |          |       | (1,421 | )       |         |       | (622   | )     
|                                                     |                                                                                  |                                                              | Other assets                                    |                                                     |       | 45     |         |          |       | 277    |         |         |       |       |       
|                                                     |                                                                                  |                                                              | Accounts payable                                |                                                     |       | 397    |         |          |       | 3,895  |         |         |       | (94    | )     
|                                                     |                                                                                  |                                                              | Accrued expenses                                |                                                     |       | 2,135  |         |          |       | (2,211 | )       |         |       | 5,267  |       
|                                                     |                                                                                  |                                                              | Revenue deferred under collaboration agreements |                                                     |       | (2,837 | )       |          |       | (2,935 | )       |         |       | 11,479 |       
|                                                     |                                                                                  |                                                              | Deferred product revenue                        |                                                     |       | 1,707  |         |          |       |       |         |         |       |       |       
|                                                     |                                                                                  |                                                              |                                                 |                                                     |       |        |         |          |      
|                                                     |                                                                                  |                                                              |                                                 | Net cash used in operating activities               |       |        | (45,060 | )        |       |        | (25,087 | )       |       |        | (1,026 | )
|                                                     |                                                                                  |                                                              |                                                 |                                                     |       |        |         |          |      
|Cash flows from investing activities:                |                                                                                  |                                                              |                                                 |                                                     |       |        |         |          |       |        |         |        
|                                                     | Purchases of fixed assets                                                        |                                                              |                                                 | (2,182                                              | )     |        |         | (2,019   | )     |        |         | (1,492  | )    
|                                                     | Proceeds from sales and maturities of short-term investments                     |                                                              |                                                 | 72,915                                              |       |        |         | 52,900   |       |        |         |        |      
|                                                     | Purchases of short-term investments                                              |                                                              |                                                 | (32,255                                             | )     |        |         | (120,866 | )     |        |         |        |      
|                                                     |                                                                                  |                                                              |                                                 |                                                     |       |        |         |          |      
|                                                     |                                                                                  |                                                              |                                                 | Net cash provided by (used in) investing activities |       |        | 38,478  |          |       |        | (69,985 | )       |       |        | (1,492 | )
|                                                     |                                                                                  |                                                              |                                                 |                                                     |       |        |         |          |      
|Cash flows from financing activities:                |                                                                                  |                                                              |                                                 |                                                     |       |        |         |          |       |        |         |        
|                                                     | Net proceeds from private placement of common stock                              |                                                              |                                                 | 51,362                                              |       |        |         |         |       |        |         |        |      
|                                                     | Proceeds from exercise of stock options and other                                |                                                              |                                                 | 158                                                 |       |        |         | 175      |       |        |         | 5       |      
|                                                     | Net proceeds from the initial public offering of common stock                    |                                                              |                                                 |                                                    |       |        |         | 37,817   |       |        |         |        |      
|                                                     | Net proceeds from issuance of convertible preferred stock                        |                                                              |                                                 |                                                    |       |        |         | 28,050   |       |        |         | 27,906  |      
|                                                     | Proceeds from long-term debt and other                                           |                                                              |                                                 | 1,300                                               |       |        |         | 1,623    |       |        |         | 1,533   |      
|                                                     | Repayments of long-term debt and capital lease obligation                        |                                                              |                                                 | (961                                                | )     |        |         | (691     | )     |        |         | (387    | )    
|                                                     |                                                                                  |                                                              |                                                 |                                                     |       |        |         |          |      
|                                                     |                                                                                  |                                                              |                                                 | Net cash provided by financing activities           |       |        | 51,859  |          |       |        | 66,974  |         |       |        | 29,057 |  
|                                                     |                                                                                  |                                                              |                                                 |                                                     |       |        |         |          |      
|Net increase (decrease) in cash and cash equivalents |                                                                                  |                                                              | 45,277                                          |                                                     |       |        | (28,098 | )        |       |        | 26,539  |        
|Cash and cash equivalents at beginning of period     |                                                                                  |                                                              | 11,980                                          |                                                     |       |        | 40,078  |          |       |        | 13,539  |        
|                                                     |                                                                                  |                                                              |                                                 |                                                     |       |        |         |          |      
|Cash and cash equivalents at end of period           |                                                                                  | $                                                            | 57,257                                          |                                                     |       | $      | 11,980  |          |       | $      | 40,078  |        
|                                                     |                                                                                  |                                                              |                                                 |                                                     |       |        |         |          |      
|Supplemental disclosures of cash flow information:   |                                                                                  |                                                              |                                                 |                                                     |       |        |         |          |       |        |         |        
|                                                     | Cash paid during the period for:                                                 |                                                              |                                                 |                                                     |       |        |         |          |       |        |         |         |      
|                                                     |                                                                                  | Interest                                                     |                                                 | $                                                   | 172   |        |         | $        | 126   |        |         | $       | 94    |       
|                                                     |                                                                                  |                                                              |                                                 |                                                     |       |        |         |          |      
|Non-cash investing and financing activities:         |                                                                                  |                                                              |                                                 |                                                     |       |        |         |          |       |        |         |        
|                                                     | Fixed assets acquired under capital lease obligation                             |                                                              | $                                               | 125                                                 |       |        | $       |         |       |        | $       |        |      
|                                                     |                                                                                  |                                                              |                                                 |                                                     |       |        |         |          |      
|                                                     | Adjustment to deferred stock-based compensation for services to
    be performed |                                                              | $                                               | (285                                                | )     |        | $       | 1,127    |       |        | $       | 13,417  |      
|                                                     |                                                                                  |                                                              |                                                 |                                                     |       |        |         |          |      
|                                                     | Unrealized gain (loss) on investments                                            |                                                              | $                                               | 268                                                 |       |        | $       | 362      |       |        | $       |        |      
|                                                     |                                                                                  |                                                              |                                                 |                                                     |       |        |         |          |      
|                                                     | Conversion of redeemable convertible preferred stock into common
    stock       |                                                              | $                                               |                                                    |       |        | $       | 81,799   |       |        | $       |        |      
|                                                     |                                                                                  |                                                              |                                                 |                                                     |       |        |         |          |      
|                                                     | Dividends forfeited on preferred stock conversion into common
    stock          |                                                              | $                                               |                                                    |       |        | $       | 5,713    |       |        | $       |        |      
|                                                     |                                                                                  |                                                              |                                                 |                                                     |       |        |         |          |      
|                                                     | Accretion of dividends and offering costs on preferred stock                     |                                                              | $                                               |                                                    |       |        | $       | 2,209    |       |        | $       | 2,264   |      
|                                                     |                                                                                  |                                                              |                                                 |                                                     |       |        |         |          |      
|                                                     | Settlement of accrued licensing fee with common stock                            |                                                              | $                                               |                                                    |       |        | $       | 485      |       |        | $       |        |      
|                                                     |                                                                                  |                                                              |                                                 |                                                     |       |        |         |          |      



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CRITICAL THERAPEUTICS, INC. AND SUBSIDIARY





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




|    |                   
|--- | ------------------
|(1) | Nature of Business







|    |                                           
|--- | ------------------------------------------
|(2) | Summary of Significant Accounting Policies



| |                      
| | ---------------------
| | Basis of Presentation





| |                 
| | ----------------
| | Use of Estimates





| |                                            
| | -------------------------------------------
| | Cash Equivalents and Short-Term Investments





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CRITICAL THERAPEUTICS, INC. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                     |                                       |                           |        |        |            |   |   |            |   |   |       |     |     |   |        |        |        | 
|---------------------------------------------------- | ------------------------------------- | ------------------------- | ------ | ------ | ---------- | - | - | ---------- | - | - | ----- | --- | --- | - | ------ | ------ | ------ | 
|                                                     |                                       | As of December 31, 2005   |       
|                                                     |                                       |                           |       
|                                                     |                                       | Amortized                 |        |        | Unrealized |   |   | Unrealized |   |   | Fair  |    
|                                                     |                                       | Cost                      |        |        | Gains      |   |   | Losses     |   |   | Value |    
|                                                     |                                       |                           |        |        |            |   |   |            |   |   |       |    
|                                                     |                                       | (In thousands)            |       
|Cash and cash equivalents:                           |                                       |                           |        |        |            |   |   |            |   |   |       |     |     |   |        |       
|                                                     | Cash                                  |                           | $      | 490    |            |   | $ |           |   |   | $     |    |     |   | $      | 490    |       
|                                                     | Commercial Paper                      |                           |        | 51,181 |            |   |   | 3          |   |   |       | (43 | )   |   |        | 51,141 |       
|                                                     | Money market mutual funds             |                           |        | 3,231  |            |   |   |           |   |   |       |    |     |   |        | 3,231  |       
|                                                     | U.S. government and agency securities |                           |        | 2,395  |            |   |   |           |   |   |       |    |     |   |        | 2,395  |       
|                                                     |                                       |                           |        |        |            |   |   |            |   |   |       |    
|                                                     |                                       | Cash and cash equivalents |        |        | 57,297     |   |   |            | 3 |   |       |     | (43 | ) |        |        | 57,257 | 
|                                                     |                                       |                           |        |        |            |   |   |            |   |   |       |    
|Short-term investments:                              |                                       |                           |        |        |            |   |   |            |   |   |       |     |     |   |        |       
|                                                     | U.S. government and agency securities |                           |        | 2,689  |            |   |   |           |   |   |       | (1  | )   |   |        | 2,688  |       
|                                                     | Corporate bonds                       |                           |        | 16,668 |            |   |   |           |   |   |       | (52 | )   |   |        | 16,616 |       
|                                                     | Auction rate securities               |                           |        | 6,250  |            |   |   |           |   |   |       |    |     |   |        | 6,250  |       
|                                                     |                                       |                           |        |        |            |   |   |            |   |   |       |    
|                                                     |                                       | Short-term investments    |        |        | 25,607     |   |   |            |  |   |       |     | (53 | ) |        |        | 25,554 | 
|                                                     |                                       |                           |        |        |            |   |   |            |   |   |       |    
|Cash and cash equivalents and short-term investments |                                       | $                         | 82,904 |        |            | $ | 3 |            |   | $ | (96   | )   |     | $ | 82,811 |       
|                                                     |                                       |                           |        |        |            |   |   |            |   |   |       |    

|                                                     |                                       |                           |        |        |            |   |            |   |   |       |      |      |      |   |        |        |        | 
|---------------------------------------------------- | ------------------------------------- | ------------------------- | ------ | ------ | ---------- | - | ---------- | - | - | ----- | ---- | ---- | ---- | - | ------ | ------ | ------ | 
|                                                     |                                       | As of December 31, 2004   |       
|                                                     |                                       |                           |       
|                                                     |                                       | Amortized                 |        |        | Unrealized |   | Unrealized |   |   | Fair  |     
|                                                     |                                       | Cost                      |        |        | Gains      |   | Losses     |   |   | Value |     
|                                                     |                                       |                           |        |        |            |   |            |   |   |       |     
|                                                     |                                       | (In thousands)            |       
|Cash and cash equivalents:                           |                                       |                           |        |        |            |   |            |   |   |       |      |      |      |   |        |       
|                                                     | Cash                                  |                           | $      | 4,319  |            |   | $          |  |   |       | $    |     |      |   | $      | 4,319  |       
|                                                     | Commercial Paper                      |                           |        | 2,019  |            |   |            |  |   |       |      |     |      |   |        | 2,019  |       
|                                                     | Money market mutual funds             |                           |        | 5,642  |            |   |            |  |   |       |      |     |      |   |        | 5,642  |       
|                                                     |                                       |                           |        |        |            |   |            |   |   |       |      |     
|                                                     |                                       | Cash and cash equivalents |        |        | 11,980     |   |            |   |  |       |      |      |     |   |        |        | 11,980 | 
|                                                     |                                       |                           |        |        |            |   |            |   |   |       |      |     
|Short-term investments:                              |                                       |                           |        |        |            |   |            |   |   |       |      |      |      |   |        |       
|                                                     | U.S. government and agency securities |                           |        | 17,056 |            |   |            |  |   |       |      | (42  | )    |   |        | 17,014 |       
|                                                     | Corporate bonds                       |                           |        | 32,349 |            |   |            |  |   |       |      | (316 | )    |   |        | 32,033 |       
|                                                     | Municipal bonds                       |                           |        | 1,006  |            |   |            |   |   |       |      | (4   | )    |   |        | 1,002  |       
|                                                     | Auction rate securities               |                           |        | 16,800 |            |   |            |  |   |       |      |     |      |   |        | 16,800 |       
|                                                     |                                       |                           |        |        |            |   |            |   |   |       |      |     
|                                                     |                                       | Short-term investments    |        |        | 67,211     |   |            |   |  |       |      |      | (362 | ) |        |        | 66,849 | 
|                                                     |                                       |                           |        |        |            |   |            |   |   |       |      |     
|Cash and cash equivalents and short-term investments |                                       | $                         | 79,191 |        |            | $ |           |   |   | $     | (362 | )    |      | $ | 78,829 |       
|                                                     |                                       |                           |        |        |            |   |            |   |   |       |      |     



| |          
| | ---------
| | Inventory

first-in,


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CRITICAL THERAPEUTICS, INC. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |             
| | ------------
| | Fixed Assets





| |                                
| | -------------------------------
| | Impairment of Long-Lived Assets





| |                         
| | ------------------------
| | Research and Development





| |                                         
| | ----------------------------------------
| | Revenue Recognition and Deferred Revenue





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CRITICAL THERAPEUTICS, INC. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










| |                                    
| | -----------------------------------
| | Fair Value of Financial Instruments





| |                                                    
| | ---------------------------------------------------
| | Concentrations of Credit Risk and Limited Suppliers





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CRITICAL THERAPEUTICS, INC. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|          |  |                   |     | 
|--------- |  | ----------------- | --- | 
|          |  | Year Ended        |    
|          |  | December 31, 2005 |    
|          |  | Billings          |    
|          |  |                   |    
|Company A |  |                   | 30% | 
|Company B |  |                   | 29% | 
|Company C |  |                   | 26% | 
|          |  |                   |    
|Total     |  |                   | 85% | 
|          |  |                   |    

|          |  |                     |     | 
|--------- |  | ------------------- | --- | 
|          |  | December 31, 2005   |    
|          |  | Accounts Receivable |    
|          |  |                     |    
|Company B |  |                     | 61% | 
|Company D |  |                     | 11% | 
|          |  |                     |    
|Total     |  |                     | 72% | 
|          |  |                     |    



| |             
| | ------------
| | Income Taxes





| |                         
| | ------------------------
| | Stock-Based Compensation



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CRITICAL THERAPEUTICS, INC. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








|                                                                                         |             |                         |         |       |      |   |         |       |   |   |         |        |  
|---------------------------------------------------------------------------------------- | ----------- | ----------------------- | ------- | ----- | ---- | - | ------- | ----- | - | - | ------- | ------ | -
|                                                                                         |             | Year Ended December 31, |        
|                                                                                         |             |                         |        
|                                                                                         |             | 2005                    |         |       | 2004 |   |         | 2003  |  
|                                                                                         |             |                         |         |       |      |   |         |       |  
|Net loss available to common stockholders  as reported                                  |             | $                       | (47,090 | )     |      | $ | (33,303 | )     |   | $ | (22,374 | )     
|Add: Employee stock-based compensation expense included in
    reported net loss         |             |                         | 1,757   |       |      |   | 1,784   |       |   |   | 165     |       
|Deduct: Employee stock-based compensation expense determined
    under fair value method |             |                         | (3,398  | )     |      |   | (1,162  | )     |   |   | (201    | )     
|                                                                                         |             |                         |         |       |      |   |         |       |  
|Net loss available to common stockholders  pro forma                                    |             | $                       | (48,731 | )     |      | $ | (32,681 | )     |   | $ | (22,410 | )     
|                                                                                         |             |                         |         |       |      |   |         |       |  
|Net loss per share (basic and diluted):                                                  |             |                         |         |       |      |   |         |       |   |   |         |       
|                                                                                         | As reported |                         | $       | (1.61 | )    |   | $       | (2.28 | ) |   | $       | (33.99 | )
|                                                                                         |             |                         |         |       |      |   |         |       |  
|                                                                                         | Pro forma   |                         | $       | (1.67 | )    |   | $       | (2.23 | ) |   | $       | (34.05 | )
|                                                                                         |             |                         |         |       |      |   |         |       |  



|                                                                       |  |              |         |   |      |   |         |      |  |   |         |  
|---------------------------------------------------------------------- |  | ------------ | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                       |  | December 31, |        
|                                                                       |  |              |        
|                                                                       |  | 2005         |         |   | 2004 |   |         | 2003 | 
|                                                                       |  |              |         |   |      |   |         |      | 
|Weighted average risk free interest rate                               |  |              | 4.1     | % |      |   | 3.3     | %    |  |   | 2.4     | %
|Expected dividend yield                                                |  |              | 0       | % |      |   | 0       | %    |  |   | 0       | %
|Expected lives                                                         |  |              | 4 years |   |      |   | 4 years |      |  |   | 4 years |  
|Expected volatility                                                    |  |              | 59      | % |      |   | 100     | %    |  |   | 100     | %
|Weighted-average fair value of options granted equal to fair
    value |  | $            | 3.26    |   |      | $ | 4.38    |      |  | $ | 0.26    |  
|Weighted-average fair value of options granted below fair value        |  |              | N/A     |   |      | $ | 3.73    |      |  | $ | 6.26    |  



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CRITICAL THERAPEUTICS, INC. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








| |                                 
| | --------------------------------
| | Basic and Diluted Loss per Share





|                                                             |  |                         |            |  |      |  |            |      |  |  |           | 
|------------------------------------------------------------ |  | ----------------------- | ---------- |  | ---- |  | ---------- | ---- |  |  | --------- | 
|                                                             |  | Year Ended December 31, |           
|                                                             |  |                         |           
|                                                             |  | 2005                    |            |  | 2004 |  |            | 2003 | 
|                                                             |  |                         |            |  |      |  |            |      | 
|Weighted-average common shares outstanding                   |  |                         | 29,405,045 |  |      |  | 15,077,169 |      |  |  | 1,553,309 | 
|Less: weighted-average restricted common shares Outstanding  |  |                         | 128,802    |  |      |  | 445,798    |      |  |  | 895,105   | 
|                                                             |  |                         |            |  |      |  |            |      | 
|Basic and diluted weighted-average common shares Outstanding |  |                         | 29,276,243 |  |      |  | 14,631,371 |      |  |  | 658,204   | 
|                                                             |  |                         |            |  |      |  |            |      | 



| |                                                                 
| | ----------------------------------------------------------------
| | Accretion of Dividends and Offering Costs on Preferred
    Stock



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CRITICAL THERAPEUTICS, INC. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                   
| | ------------------
| | Comprehensive Loss





| |                                           
| | ------------------------------------------
| | Disclosure about Segments of an Enterprise





|    |                         
|--- | ------------------------
|(3) | Collaboration Agreements



| |          
| | ---------
| | MedImmune





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CRITICAL THERAPEUTICS, INC. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








| |                
| | ---------------
| | Beckman Coulter







|    |          
|--- | ---------
|(4) | Inventory



|                |                |      |       |       | 
|--------------- | -------------- | ---- | ----- | ----- | 
|                |                | 2005 |      
|                |                |      |      
|Raw material    |                | $    | 1,425 |      
|Work in process |                |      | 332   |      
|Finished goods  |                |      | 392   |      
|                |                |      |      
|                | Total          |      |       | 2,149 | 
|Less: reserve   |                |      | (280  | )    
|                |                |      |      
|                | Inventory, net |      | $     | 1,869 | 
|                |                |      |      

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CRITICAL THERAPEUTICS, INC. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |             
|--- | ------------
|(5) | Fixed Assets



|                                               |                    |      |        |       |      |   |       |       | 
|---------------------------------------------- | ------------------ | ---- | ------ | ----- | ---- | - | ----- | ----- | 
|                                               |                    | 2005 |        |       | 2004 |  
|                                               |                    |      |        |       |      |  
|Laboratory equipment                           |                    | $    | 2,087  |       |      | $ | 1,591 |      
|Computer and office equipment                  |                    |      | 747    |       |      |   | 473   |      
|Equipment in process                           |                    |      | 599    |       |      |   |      |      
|Furniture and fixtures                         |                    |      | 550    |       |      |   | 471   |      
|Software                                       |                    |      | 443    |       |      |   | 107   |      
|Leasehold improvements                         |                    |      | 280    |       |      |   | 203   |      
|Assets held under capital lease                |                    |      | 125    |       |      |   |      |      
|                                               |                    |      |        |       |      |  
|                                               | Total              |      |        | 4,831 |      |   |       | 2,845 | 
|Less accumulated depreciation and amortization |                    |      | (1,268 | )     |      |   | (640  | )    
|                                               |                    |      |        |       |      |  
|                                               | Fixed assets  net |      | $      | 3,563 |      |   | $     | 2,205 | 
|                                               |                    |      |        |       |      |  





|    |               
|--- | --------------
|(6) | Long Term Debt







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CRITICAL THERAPEUTICS, INC. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|     |  |           |       |  |          |   |     |       |  |   |       | 
|---- |  | --------- | ----- |  | -------- | - | --- | ----- |  | - | ----- | 
|     |  | Principal |       |  | Interest |   |     | Total | 
|     |  |           |       |  |          |   |     |       | 
|2006 |  | $         | 1,131 |  |          | $ | 179 |       |  | $ | 1,310 | 
|2007 |  |           | 1,010 |  |          |   | 83  |       |  |   | 1,093 | 
|2008 |  |           | 420   |  |          |   | 14  |       |  |   | 434   | 
|     |  |           |       |  |          |   |     |       | 
|     |  | $         | 2,561 |  |          | $ | 276 |       |  | $ | 2,837 | 
|     |  |           |       |  |          |   |     |       | 





|    |                               
|--- | ------------------------------
|(7) | Stockholders Equity (Deficit)



| |                  
| | -----------------
| | Private Placement









| |                                        
| | ---------------------------------------
| | Initial Public Offering of Common Stock





| |                    
| | -------------------
| | Reverse Stock Split



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CRITICAL THERAPEUTICS, INC. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                   
| | ------------------
| | Authorized Capital





| |                                                   
| | --------------------------------------------------
| | Restricted Common Stock Issuances to Non-Employees













| |                                               
| | ----------------------------------------------
| | Restricted Common Stock Issuances to Employees





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CRITICAL THERAPEUTICS, INC. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                                                
| | -----------------------------------------------
| | Conversion of Preferred Stock into Common Stock





| |                                       
| | --------------------------------------
| | Redeemable Convertible Preferred Stock





|    |                       
|--- | ----------------------
|(8) | Equity Incentive Plans



| |                          
| | -------------------------
| | 2004 Stock Incentive Plan











| |                          
| | -------------------------
| | 2003 Stock Incentive Plan



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CRITICAL THERAPEUTICS, INC. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








| |                           
| | --------------------------
| | 2000 Equity Incentive Plan





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CRITICAL THERAPEUTICS, INC. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                |           |           |           |           |          |   |      |      | 
|------------------------------- | --------- | --------- | --------- | --------- | -------- | - | ---- | ---- | 
|                                |           |           |           | Weighted- |         
|                                |           |           |           | Average   |         
|                                |           | Number of |           |           | Exercise |  
|                                |           | Shares    |           |           | Price    |  
|                                |           |           |           |           |          |  
|Outstanding  January 1, 2003   |           |           | 447,173   |           |          | $ | 0.37 |     
|                                | Granted   |           |           | 1,433,436 |          |   |      | 1.02 | 
|                                | Exercised |           |           | (16,980   | )        |   |      | 0.38 | 
|                                | Cancelled |           |           | (1,400    | )        |   |      | 0.38 | 
|                                |           |           |           |           |          |  
|Outstanding  December 31, 2003 |           |           | 1,862,229 |           |          |   | 0.87 |     
|                                | Granted   |           |           | 2,906,621 |          |   |      | 6.12 | 
|                                | Exercised |           |           | (221,902  | )        |   |      | 0.80 | 
|                                | Cancelled |           |           | (46,678   | )        |   |      | 4.39 | 
|                                |           |           |           |           |          |  
|Outstanding  December 31, 2004 |           |           | 4,500,270 |           |          |   | 4.23 |     
|                                | Granted   |           |           | 2,025,900 |          |   |      | 6.70 | 
|                                | Exercised |           |           | (96,235   | )        |   |      | 7.54 | 
|                                | Cancelled |           |           | (229,829  | )        |   |      | 5.54 | 
|                                |           |           |           |           |          |  
|Outstanding  December 31, 2005 |           |           | 6,200,106 |           |          | $ | 5.03 |     
|                                |           |           |           |           |          |  
|Exercisable  December 31, 2003 |           |           | 496,744   |           |          | $ | 0.79 |     
|                                |           |           |           |           |          |  
|Exercisable  December 31, 2004 |           |           | 717,176   |           |          | $ | 1.10 |     
|                                |           |           |           |           |          |  
|Exercisable  December 31, 2005 |           |           | 1,809,920 |           |          | $ | 3.42 |     
|                                |           |           |           |           |          |  



|               |  |                   |           |                  |             |  |           |          |  |   |             |           |  |          |           |  |  |   |      | 
|-------------- |  | ----------------- | --------- | ---------------- | ----------- |  | --------- | -------- |  | - | ----------- | --------- |  | -------- | --------- |  |  | - | ---- | 
|               |  | Outstanding       |           |                  |            
|               |  |                   |           |                  | Exercisable | 
|               |  |                   |           | Weighted-        |             |  |           |          |  |  
|               |  |                   |           | Average          |             |  | Weighted- |          |  |   |             | Weighted- | 
|               |  |                   |           | Contractual Life |             |  | Average   |          |  |   |             | Average   | 
|               |  | Number of Options |           |                  | Outstanding |  |           | Exercise |  |   | Options     |           |  | Exercise |          
|Exercise Price |  | Outstanding       |           |                  | (In Years)  |  |           | Price    |  |   | Exercisable |           |  | Price    |          
|               |  |                   |           |                  |             |  |           |          |  |   |             |           |  |          |          
|$0.01          |  |                   | 2,724     |                  |             |  | 5.0       |          |  | $ | 0.01        |           |  |          | 2,724     |  |  | $ | 0.10 | 
|$0.38          |  |                   | 305,950   |                  |             |  | 6.8       |          |  | $ | 0.38        |           |  |          | 246,217   |  |  | $ | 0.38 | 
|$1.05          |  |                   | 1,199,430 |                  |             |  | 8.0       |          |  | $ | 1.05        |           |  |          | 695,288   |  |  | $ | 1.05 | 
|$1.88-$5.98    |  |                   | 864,039   |                  |             |  | 8.8       |          |  | $ | 5.39        |           |  |          | 231,293   |  |  | $ | 5.31 | 
|$5.99          |  |                   | 1,431,688 |                  |             |  | 8.7       |          |  | $ | 5.99        |           |  |          | 341,111   |  |  | $ | 5.99 | 
|$6.00-$6.45    |  |                   | 494,500   |                  |             |  | 9.5       |          |  | $ | 6.29        |           |  |          | 21,266    |  |  | $ | 6.21 | 
|$6.50          |  |                   | 333,825   |                  |             |  | 8.6       |          |  | $ | 6.50        |           |  |          | 95,636    |  |  | $ | 6.50 | 
|$6.51-$6.77    |  |                   | 281,000   |                  |             |  | 9.7       |          |  | $ | 6.65        |           |  |          |          |  |  |   |     | 
|$6.80-$6.85    |  |                   | 440,000   |                  |             |  | 10.0      |          |  | $ | 6.83        |           |  |          | 5,000     |  |  | $ | 6.80 | 
|$6.89-$7.52    |  |                   | 359,000   |                  |             |  | 9.2       |          |  | $ | 7.06        |           |  |          | 45,500    |  |  | $ | 7.01 | 
|$7.75          |  |                   | 308,000   |                  |             |  | 9.0       |          |  | $ | 7.75        |           |  |          | 85,750    |  |  | $ | 7.75 | 
|$7.78-$8.10    |  |                   | 76,000    |                  |             |  | 8.9       |          |  | $ | 7.91        |           |  |          | 40,135    |  |  | $ | 7.90 | 
|$8.55-$9.05    |  |                   | 103,950   |                  |             |  | 9.8       |          |  | $ | 8.67        |           |  |          |          |  |  |   |     | 
|               |  |                   |           |                  |             |  |           |          |  |   |             |           |  |          |          
|               |  |                   | 6,200,106 |                  |             |  | 8.7       |          |  | $ | 5.03        |           |  |          | 1,809,920 |  |  | $ | 3.42 | 
|               |  |                   |           |                  |             |  |           |          |  |   |             |           |  |          |          

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CRITICAL THERAPEUTICS, INC. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








change-of change-of change-of change-of




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CRITICAL THERAPEUTICS, INC. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|    |                  
|--- | -----------------
|(9) | Loans to Officers

S-1




|     |                      
|---- | ---------------------
|(10) | Employee Benefit Plan



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CRITICAL THERAPEUTICS, INC. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|     |             
|---- | ------------
|(11) | Income Taxes



|                                                       |                                      |      |         |        |      |  |         |        | 
|------------------------------------------------------ | ------------------------------------ | ---- | ------- | ------ | ---- |  | ------- | ------ | 
|                                                       |                                      | 2005 |         |        | 2004 | 
|                                                       |                                      |      |         |        |      | 
|Deferred tax assets:                                   |                                      |      |         |        |      |  |         |       
|                                                       | Net operating loss carryforward      |      | $       | 30,033 |      |  | $       | 13,581 | 
|                                                       | Deferred revenue                     |      |         | 2,483  |      |  |         | 2,990  | 
|                                                       | Research and experimentation credits |      |         | 1,245  |      |  |         | 619    | 
|                                                       | Start-up expenses                    |      |         | 98     |      |  |         | 113    | 
|                                                       | Depreciation and amortization        |      |         | 135    |      |  |         | 151    | 
|                                                       | Other                                |      |         | (90    | )    |  |         | 122    | 
|                                                       |                                      |      |         |        |      | 
|                                                       | Total                                |      |         | 33,904 |      |  |         | 17,576 | 
|Deferred tax liability  depreciation and amortization |                                      |      |        |        |      |  |        |       
|                                                       |                                      |      |         |        |      | 
|                                                       | Net deferred tax asset               |      |         | 33,904 |      |  |         | 17,576 | 
|Less valuation allowance                               |                                      |      | (33,904 | )      |      |  | (17,576 | )     
|                                                       |                                      |      |         |        |      | 
|                                                       | Total                                |      | $       |       |      |  | $       |       | 
|                                                       |                                      |      |         |        |      | 







|     |                                
|---- | -------------------------------
|(12) | Research and License Agreements





| |       
| | ------
| | Abbott



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CRITICAL THERAPEUTICS, INC. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |           
| | ----------
| | SkyePharma





| |        
| | -------
| | Xanthus





| |                        
| | -----------------------
| | The Feinstein Institute





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CRITICAL THERAPEUTICS, INC. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










| |                             
| | ----------------------------
| | Patheon Pharmaceuticals Inc.



12-months 18-months




| |                             
| | ----------------------------
| | Rhodia Pharma Solutions Ltd.



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CRITICAL THERAPEUTICS, INC. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




18-months 12-months








|     |                              
|---- | -----------------------------
|(13) | Commitments and Contingencies





| |                  
| | -----------------
| | Lease Obligations

made-to


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CRITICAL THERAPEUTICS, INC. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                  |                                                |           |       |       |         |   |     |     | 
|--------------------------------- | ---------------------------------------------- | --------- | ----- | ----- | ------- | - | --- | --- | 
|                                  |                                                | Operating |       |       | Capital |  
|Year Ending                       |                                                | Leases    |       |       | Leases  |  
|                                  |                                                |           |       |       |         |  
|2006                              |                                                | $         | 2,127 |       |         | $ | 59  |    
|2007                              |                                                |           | 2,111 |       |         |   | 59  |    
|2008                              |                                                |           | 1,790 |       |         |   | 5   |    
|2009                              |                                                |           | 216   |       |         |   |    |    
|                                  |                                                |           |       |       |         |  
|                                  | Total minimum lease payments                   |           | $     | 6,244 |         |   | $   | 123 | 
|                                  |                                                |           |       |       |         |  
|Less Amount representing interest |                                                |           |       |       |         |   | (16 | )  
|                                  |                                                |           |       |       |         |  
|                                  | Present value of future minimum lease payments |           |       |       |         |   |     | 107 | 
|Less current portion              |                                                |           |       |       |         |   | (48 | )  
|                                  |                                                |           |       |       |         |  
|                                  | Long-term portion                              |           |       |       |         |   | $   | 59  | 
|                                  |                                                |           |       |       |         |  



| |                                
| | -------------------------------
| | Founders Consulting Agreements



|            |  |          |     | 
|----------- |  | -------- | --- | 
|Year Ending |  | Payments |    
|            |  |          |    
|2006        |  | $        | 321 | 
|2007        |  |          | 26  | 
|            |  |          |    
|Total       |  | $        | 347 | 
|            |  |          |    



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CRITICAL THERAPEUTICS, INC. AND SUBSIDIARY


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|     |                                   
|---- | ----------------------------------
|(14) | Unaudited Quarterly Financial Data



|     |                                                              |                                                |                          |         |               |         |   |               |       |         |               |        |       |         |   |        |       |         |  
|---- | ------------------------------------------------------------ | ---------------------------------------------- | ------------------------ | ------- | ------------- | ------- | - | ------------- | ----- | ------- | ------------- | ------ | ----- | ------- | - | ------ | ----- | ------- | -
|     |                                                              | Quarter Ended                                  |                          |         | Quarter Ended |         |   | Quarter Ended |       |         | Quarter Ended |       
|     |                                                              | December 31,                                   |                          |         | September 30, |         |   | June 30,      |       |         | March 31,     |       
|     |                                                              |                                                |                          |         |               |         |   |               |       |         |               |       
|     |                                                              | (Unaudited)                                    |                         
|     |                                                              | (In thousands except share and per share data) |                         
|2005 |                                                              |                                                |                          |         |               |         |   |               |       |         |               |        |       |         |   |       
|     | Revenues:                                                    |                                                |                          |         |               |         |   |               |       |         |               |        |       |         |   |        |      
|     |                                                              | Net product sales                              |                          | $       | 387           |         |   | $             |      |         |               | $      |      |         |   | $      |      |        
|     |                                                              | Revenue under collaboration agreements         |                          |         | 1,712         |         |   |               | 1,335 |         |               |        | 1,431 |         |   | $      | 1,359 |        
|     |                                                              |                                                |                          |         |               |         |   |               |       |         |               |       
|     |                                                              |                                                | Total revenues           |         |               | 2,099   |   |               |       | 1,335   |               |        |       | 1,431   |   |        |       | 1,359   |  
|     |                                                              |                                                |                          |         |               |         |   |               |       |         |               |       
|     |                                                              |                                                | Total costs and expenses |         |               | (17,544 | ) |               |       | (16,025 | )             |        |       | (11,148 | ) |        |       | (10,833 | )
|     |                                                              |                                                |                          |         |               |         |   |               |       |         |               |       
|     | Operating loss                                               |                                                |                          | (15,445 | )             |         |   | (14,690       | )     |         |               | (9,717 | )     |         |   | (9,474 | )    
|     | Other income, net                                            |                                                |                          | 758     |               |         |   | 733           |       |         |               | 390    |       |         |   | 355    |      
|     |                                                              |                                                |                          |         |               |         |   |               |       |         |               |       
|     | Net loss                                                     |                                                | $                        | (14,687 | )             |         | $ | (13,957       | )     |         | $             | (9,327 | )     |         | $ | (9,119 | )    
|     |                                                              |                                                |                          |         |               |         |   |               |       |         |               |       
|     | Net loss per share                                           |                                                | $                        | (0.43   | )             |         | $ | (0.41         | )     |         | $             | (0.37  | )     |         | $ | (0.38  | )    
|     |                                                              |                                                |                          |         |               |         |   |               |       |         |               |       
|2004 |                                                              |                                                |                          |         |               |         |   |               |       |         |               |        |       |         |   |       
|     | Revenues:                                                    |                                                |                          |         |               |         |   |               |       |         |               |        |       |         |   |        |      
|     |                                                              | Net product sales                              |                          | $       |              |         |   | $             |      |         |               | $      |      |         |   | $      |      |        
|     |                                                              | Revenue under collaboration agreements         |                          |         | 964           |         |   |               | 1,886 |         |               |        | 781   |         |   | $      | 805   |        
|     |                                                              |                                                |                          |         |               |         |   |               |       |         |               |       
|     |                                                              |                                                | Total revenues           |         |               | 964     |   |               |       | 1,886   |               |        |       | 781     |   |        |       | 805     |  
|     |                                                              |                                                |                          |         |               |         |   |               |       |         |               |       
|     |                                                              |                                                | Total costs and expenses |         |               | (12,463 | ) |               |       | (8,768  | )             |        |       | (7,951  | ) |        |       | (7,274  | )
|     |                                                              |                                                |                          |         |               |         |   |               |       |         |               |       
|     | Operating loss                                               |                                                |                          | (11,499 | )             |         |   | (6,882        | )     |         |               | (7,170 | )     |         |   | (6,469 | )    
|     | Other income, net                                            |                                                |                          | 320     |               |         |   | 298           |       |         |               | 225    |       |         |   | 83     |      
|     |                                                              |                                                |                          |         |               |         |   |               |       |         |               |       
|     | Net loss                                                     |                                                |                          | (11,179 | )             |         |   | (6,584        | )     |         |               | (6,945 | )     |         |   | (6,386 | )    
|     | Accretion of dividends and offering costs on preferred stock |                                                |                          |        |               |         |   |              |       |         |               | (1,049 | )     |         |   | (1,160 | )    
|     |                                                              |                                                |                          |         |               |         |   |               |       |         |               |       
|     | Net loss available to common stockholders                    |                                                | $                        | (11,179 | )             |         | $ | (6,584        | )     |         | $             | (7,994 | )     |         | $ | (7,546 | )    
|     |                                                              |                                                |                          |         |               |         |   |               |       |         |               |       
|     | Net loss per share available to common stockholders          |                                                | $                        | (0.47   | )             |         | $ | (0.28         | )     |         | $             | (0.81  | )     |         | $ | (6.85  | )    
|     |                                                              |                                                |                          |         |               |         |   |               |       |         |               |       



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|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|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


13a-15(e) 15d-15(e)


Managements Report on Internal Control Over Financial
Reporting


13a-15(f)










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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM






Internal Control  Integrated Framework






100



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Internal
Control  Integrated Framework Internal Control  Integrated
Framework










Changes in Internal Control Over Financial Reporting


13a-15(f) 15d-15(f)







|         |                  
|-------- | -----------------
|ITEM 9B. | OTHER INFORMATION





| |   |                                                                                                                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Drs. Warren and Tracey continuing to maintain an ownership
    interest in the new entity;                                                                                                                                                 
|
| |  | the completion within one year of a financing transaction by the
    new entity; and                                                                                                                                                       
|
| |  | the negotiation and execution within one year by us and the new
    entity of a license agreement for our technology related to
    physical and electrical stimulation of the vagus nerve on terms
    agreeable to us and the new entity.



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10-K.


8-K.


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PART III







|         |                                                   
|-------- | --------------------------------------------------
|ITEM 10. | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Directors and Executive Officers




Audit Committee




Audit Committee Financial Expert


S-K


Director Nominees




Section 16(a) Beneficial Ownership Reporting
Compliance




Code of Ethics









|         |                       
|-------- | ----------------------
|ITEM 11. | EXECUTIVE COMPENSATION



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|         |                                                                                                   
|-------- | --------------------------------------------------------------------------------------------------
|ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
    MANAGEMENT AND RELATED STOCKHOLDER MATTERS








|         |                                               
|-------- | ----------------------------------------------
|ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS








|         |                                       
|-------- | --------------------------------------
|ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES






PART IV







|         |                                           
|-------- | ------------------------------------------
|ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

Financial Statements.




Financial Statement Schedules.




List of Exhibits.


10-K


® ®


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SIGNATURES






| |                            
| | ---------------------------
| | CRITICAL THERAPEUTICS, INC.



| |     |                  
| | --- | -----------------
| | By: | /s/ PAUL D. RUBIN

| |                                      
| | -------------------------------------
| |                                      
| | Paul D. Rubin, M.D.                  
| | President and Chief Executive Officer
| | Date: March 7, 2006                  





|                                                      |  |                                                                                                                          |  |               |  | 
|----------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------ |  | ------------- |  | 
|Signature                                             |  | Title                                                                                                                    |  | Date         
|                                                      |  |                                                                                                                          |  |              
|                                                     
|/s/ PAUL D. RUBINPaul D. Rubin, M.D.                  |  | President and Chief Executive Officer (Principal Executive
    Officer)                                                  |  | March 7, 2006
|                                                     
|/s/ FRANK E. THOMASFrank E. Thomas                    |  | Chief Financial Officer, Senior Vice President of Finance and
    Treasurer (Principal Financial and Accounting Officer) |  | March 7, 2006
|                                                     
|/s/ RICHARD W. DUGANRichard W. Dugan                  |  | Director                                                                                                                 |  | March 7, 2006
|                                                     
|/s/ NICHOLAS GALAKATOSNicholas Galakatos, Ph.D.       |  | Director                                                                                                                 |  | March 7, 2006
|                                                     
|/s/ JEAN GEORGEJean George                            |  | Director                                                                                                                 |  | March 7, 2006
|                                                     
|/s/ CHRISTOPHER MIRABELLIChristopher Mirabelli, Ph.D. |  | Director                                                                                                                 |  | March 7, 2006
|                                                     
|/s/ JAMES B. TANANBAUMJames B. Tananbaum, M.D.        |  | Director                                                                                                                 |  | March 7, 2006

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|                                              |  |          |  |               |  | 
|--------------------------------------------- |  | -------- |  | ------------- |  | 
|Signature                                     |  | Title    |  | Date         
|                                              |  |          |  |              
|                                             
|/s/ CHRISTOPHER WALSHChristopher Walsh, Ph.D. |  | Director |  | March 7, 2006
|                                             
|/s/ H. SHAW WARRENH. Shaw Warren, M.D.        |  | Director |  | March 7, 2006
|                                             
|/s/ ROBERT H. ZEIGERRobert H. Zeiger          |  | Director |  | March 7, 2006

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Exhibit Index


|            |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                    
|----------- | -- | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |    | Description
|            |    |            
|            | 3  | .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          |  | Amended and Restated Bylaws of the Registrant (Incorporated by
    reference to Exhibit 3.2 to the Registrants Quarterly
    Report on Form 10-Q for the quarter ended June 30,
    2004 (SEC File No. 000-50767)).                                                                                                                                                                                                               
|           
|            | 10 | .1*         |  | 2000 Equity Incentive Plan, as amended (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 (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 (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.                                                                                                                                                                                                                                                                                                                                                            
|           
|            | 10 | .5          |  | Amended and Restated Investor Rights Agreement by and between
    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 | .6+         |  | 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 | .7+         |  | 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 | .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
    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 | .9+         |  | 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 | .10+        |  | Exclusive License Agreement between the Registrant and Xanthus
    Life Sciences, Inc. (formerly known as Phenome Sciences, Inc.)
    dated December 15, 2000 (Incorporated by reference to
    Exhibit 10.9 to the Registrants Registration
    Statement on Form S-1 (SEC File No. 333-113727)).                                                                                                                                
|           
|            | 10 | .11+        |  | 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)).                                                                                                                                                                                                
|           
|            | 10 | .12+        |  | License Agreement between the Registrant and Abbott Laboratories
    dated March 17, 2004 (Incorporated by reference to
    Exhibit 10.11 to the Registrants Registration
    Statement on Form S-1 (SEC File No. 333-113727)).                                                                                                                                                                                                   
|           
|            | 10 | .13+        |  | License Agreement between the Registrant and the University of
    Pittsburgh of the Commonwealth System of Higher Education dated
    November 15, 2002 (Incorporated by reference to
    Exhibit 10.12 to the Registrants Registration
    Statement on Form S-1 (SEC File No. 333-113727)).                                                                                                                                    
|           
|            | 10 | .14+        |  | 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)).                                                                                                                                                                                                                  



---



##### Table of Contents



|            |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|----------- | -- | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |    | Description
|            |    |            
|            | 10 | .15+        |  | Proposal by and between the Registrant and Rhodia Pharma
    Solutions for qualification of Zileuton dated August 14,
    2003 (Incorporated by reference to Exhibit 10.14 to the
    Registrants Registration Statement on Form S-1 (SEC
    File No. 333-113727)).                                                                                                                                                                                        
|           
|            | 10 | .16         |  | Consulting Agreement by and between the Registrant and H. Shaw
    Warren, Jr., M.D. dated January 31, 2001, as
    amended on February 6, 2003 (Incorporated by reference to
    Exhibit 10.15 to the Registrants Registration
    Statement on Form S-1 (SEC File No. 333-113727)).                                                                                                                                                                       
|           
|            | 10 | .17         |  | Consulting Agreement by and between the Registrant and Mitchell
    Fink, M.D. dated January 31, 2001, as amended on
    January 22, 2003 (Incorporated by reference to
    Exhibit 10.16 to the Registrants Registration
    Statement on Form S-1 (SEC File No. 333-113727)).                                                                                                                                                                             
|           
|            | 10 | .18         |  | Consulting Agreement by and between the Registrant and Kevin J.
    Tracey, M.D. dated January 31, 2001, as amended on
    January 16, 2003 (Incorporated by reference to
    Exhibit 10.17 to the Registrants Registration
    Statement on Form S-1 (SEC File No. 333-113727)).                                                                                                                                                                           
|           
|            | 10 | .19         |  | Approval Agreement dated March 7, 2006 by and between the
    Registrant and H. Shaw Warren, Jr., M.D.                                                                                                                                                                                                                                                                                                                                                       
|           
|            | 10 | .20         |  | Approval Agreement dated March 7, 2006 by and between the
    Registrant and Kevin J. Tracey, M.D.                                                                                                                                                                                                                                                                                                                                                           
|           
|            | 10 | .21         |  | 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 | .22+        |  | 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 | .23         |  | 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 | .24         |  | 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 (as previously amended).                                                                                                                                                                                                                                         
|           
|            | 10 | .25+        |  | Standard Exclusive License Agreement with Sublicense Terms
    between Registrant and the University of Florida Research
    Foundation, Inc. effective September 2, 2004 (Incorporated
    by reference to Exhibit 10.1 to the Registrants
    Quarterly Report on Form 10-Q for the quarter ended
    September 30, 2004 (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 (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 | .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)).                                                                                                                                                              



---



##### Table of Contents



|            |    |             |  |                                                                                                                                                                                                                                                                                                                         
|----------- | -- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |    | Description
|            |    |            
|            | 10 | .31*        |  | Incentive Stock Option Agreement between Registrant and Paul
    Rubin dated September 8, 2004 (Incorporated by reference to
    Exhibit 10.4 to the Registrants Quarterly Report on
    Form 10-Q for the quarter ended September 30, 2004
    (SEC File No. 000-50767)).                                             
|           
|            | 10 | .32*        |  | Incentive Stock Option Agreement between Registrant and Trevor
    Phillips dated September 8, 2004 (Incorporated by reference
    to Exhibit 10.5 to the Registrants Quarterly Report
    on Form 10-Q for the quarter ended September 30, 2004
    (SEC File No. 000-50767)).                                        
|           
|            | 10 | .33*        |  | Incentive Stock Option Agreement between Registrant and Walter
    Newman dated September 8, 2004 (Incorporated by reference
    to Exhibit 10.6 to the Registrants Quarterly Report
    on Form 10-Q for the quarter ended September 30, 2004
    (SEC File No. 000-50767)).                                          
|           
|            | 10 | .34*        |  | Incentive Stock Option Agreement between Registrant and
    Frederick Finnegan dated September 8, 2004 (Incorporated by
    reference to Exhibit 10.7 to the Registrants
    Quarterly Report on Form 10-Q for the quarter ended
    September 30, 2004 (SEC File No. 000-50767)).                                     
|           
|            | 10 | .35*        |  | Incentive Stock Option Agreement between Registrant and Frank
    Thomas dated September 8, 2004 (Incorporated by reference
    to Exhibit 10.8 to the Registrants Quarterly Report
    on Form 10-Q for the quarter ended September 30, 2004
    (SEC File No. 000-50767)).                                           
|           
|            | 10 | .36*        |  | Employment Agreement dated December 21, 2004 by and between
    the Registrant and Paul D. Rubin, M.D. (Incorporated by
    reference to Exhibit 99.1 to the Registrants Current
    Report on Form 8-K dated December 21, 2004 (SEC File
    No. 000-50767)).                                                         
|           
|            | 10 | .37*        |  | Employment Agreement dated December 21, 2004 by and between
    the Registrant and Walter Newman, Ph.D. (Incorporated by
    reference to Exhibit 99.2 to the Registrants Current
    Report on Form 8-K dated December 21, 2004 (SEC File
    No. 000-50767)).                                                        
|           
|            | 10 | .38*        |  | Employment Agreement dated December 21, 2004 by and between
    the Registrant and Trevor Phillips, Ph.D. (Incorporated by
    reference to Exhibit 99.3 to the Registrants Current
    Report on Form 8-K dated December 21, 2004 (SEC File
    No. 000-50767)).                                                      
|           
|            | 10 | .39*        |  | Employment Agreement dated December 21, 2004 by and between
    the Registrant and Frederick Finnegan (Incorporated by reference
    to Exhibit 99.4 to the Registrants Current Report on
    Form 8-K dated December 21, 2004 (SEC File
    No. 000-50767)).                                                          
|           
|            | 10 | .40*        |  | Employment Agreement dated December 21, 2004 by and between
    the Registrant and Frank E. Thomas (Incorporated by reference to
    Exhibit 99.5 to the Registrants Current Report on
    Form 8-K dated December 21, 2004 (SEC File
    No. 000-50767)).                                                             
|           
|            | 10 | .41*        |  | Employment Agreement dated December 21, 2004 by and between
    the Registrant and Scott B. Townsend (Incorporated by reference
    to Exhibit 99.6 to the Registrants Current Report on
    Form 8-K dated December 21, 2004 (SEC File
    No. 000-50767)).                                                           
|           
|            | 10 | .42+        |  | 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 | .43+        |  | 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 | .44         |  | 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 | .45         |  | Form of Warrant (Included in Exhibit 10.42).                                                                                                                                                                                                                                                                            
|           
|            | 10 | .46         |  | 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 | .47         |  | Management Rights Letter Agreement between the Registrant and
    Prospect Venture Partners III, L.P., dated June 20,
    2005 (Incorporated by reference to Exhibit 99.2 to the
    Registrants Current Report on Form 8-K filed on
    June 23, 2005 (SEC File No. 000-50767)).                                      
|           
|            | 10 | .48++       |  | Manufacturing Services Agreement between Patheon Pharmaceuticals
    Inc. and the Registrant, dated June 28, 2005 (Incorporated
    by Reference to Exhibit 10.3 to the Registrants
    Quarterly Report on Form 10-Q for the quarter ended
    June 30, 2005 ((SEC File No. 000-50767)).                              



---



##### Table of Contents



|            |    |             |  |                                                                                                                                                                                                                
|----------- | -- | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |    | Description
|            |    |            
|            | 10 | .49         |  | Critical Therapeutics, Inc. Non-Employee Director Compensation
    and Reimbursement Policy.                                                                                                                   
|           
|            | 10 | .50         |  | Amendment No. 1, dated December 7, 2005, to the
    Registrants Exclusive License and Collaboration Agreement
    with MedImmune, Inc. dated July 30, 2003.                                                   
|           
|            | 10 | .51*        |  | Critical Therapeutics, Inc. 2006 Company Goals.                                                                                                                                                                
|           
|            | 10 | .52*        |  | Critical Therapeutics, Inc. 2005 Cash Bonuses for Executive
    Officers.                                                                                                                                      
|           
|            | 10 | .53*        |  | Critical Therapeutics, Inc. 2006 Salaries for Executive Officers.                                                                                                                                              
|           
|            | 10 | .54*        |  | Critical Therapeutics, Inc. Maximum Annual Cash Bonuses for
    Executive Officers.                                                                                                                            
|           
|            | 21 | .1          |  | Subsidiaries of the Registrant.                                                                                                                                                                                
|           
|            | 23 | .1          |  | Consent of Deloitte & Touche LLP.                                                                                                                                                                              
|           
|            | 31 | .1          |  | Certification of the Chief 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 the Chief 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 the Chief 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 the Chief 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.