##### Table of Contents





SECURITIES AND EXCHANGE
    COMMISSION
 Washington, DC 20549
  Form 10-K
  þ

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

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to   Commission file number 1-33734
 Ardea Biosciences,
    Inc.
 (Exact name of Registrant as
    specified in its charter)
  Delaware

94-3200380(State or Other Jurisdiction
    of
    Incorporation or Organization)

(IRS Employer
    Identification No.)4939 Directors Place
    San Diego, CA

92121(Zip code)(Address of principal executive
    offices)   Registrants telephone number, including area code:
 (858) 652-6500
  Securities registered under Section 12(b) of the
    Exchange Act:
  Title of Each Class

Name of Each Exchange on Which RegisteredCommon Stock, par value $.001 per share

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

Accelerated filer
    o

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

Smaller Reporting
    company o   Rule 12b-2 o þ
    Documents Incorporated by Reference:
  Form 10-K, Items 10-14 Form 10-K.




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##### 





TABLE OF
    CONTENTS
   
 PagePART IItem 1.


Business


1Item 1A


Risk Factors


9Item 1B


Unresolved Staff Comments


22Item 2.


Description of Property


22Item 3.


Legal Proceedings


22Item 4.


Submission of Matters to a Vote of Security
    Holders


22PART IIItem 5.


Market for Registrants Common Equity,
    Related Stockholder Matters


23Item 6.


Selected Financial Data


25Item 7.


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


26Item 7A.


Quantitative and Qualitative Disclosure About
    Market Risk


34Item 8.


Financial Statements and Supplementary Data


35Item 9.


Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure


61Item 9A.


Controls and Procedures


61Item 9B.


Other Information


62PART IIIItem 10.


Directors, Officers and Corporate Governance


62Item 11.


Executive Compensation


62Item 12.


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


62Item 13.


Certain Relationships and Related Transactions,
    and Director Independence


62Item 14.


Principal Accounting Fees and Services


62PART IVItem 15.


Exhibits and Financial Statement Schedules


63EXHIBIT 10.19EXHIBIT 23.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1   i




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PART I  CAUTIONARY
    NOTE REGARDING FORWARD LOOKING STATEMENTS
  Certain statements in this annual report on
    Form 10-K
    are forward-looking statements that involve a number of risks
    and uncertainties. In some cases, you can identify
    forward-looking statements by terminology such as
    may, might, will,
    should, intends, expects,
    plans, goals, projects,
    anticipates, believes,
    estimates, predicts,
    potential, or continue or the negative
    of these terms or other comparable terminology. Such
    forward-looking statements include statements about our plans
    for our research and development programs, the potential
    characteristics of our product candidates, the ability to
    co-formulate our product candidates with other drugs, our
    ability to initiate or complete clinical trials for any of our
    product candidates, our ability to progress product candidates
    through preclinical and clinical development and
    commercialization, our ability to file a
    U.S. Investigational New Drug application, or IND, or a
    similar filing with the applicable regulatory agency in a
    foreign country, or obtain regulatory approval for marketing of
    any product candidate, the market opportunity for any products
    we may develop and the ability of those products to meet market
    needs or participate in such markets, the milestones or
    royalties payable to Valeant Research & Development,
    our receipt of payments from Valeant under the master services
    agreement, our research and development goals for 2008, our
    near- and long-term financial outlook, our anticipated cash
    usage and resources, the safety and efficacy of our product
    candidates and any potential products, our ability to develop
    and commercialize products, our ability to acquire additional
    product candidates, our ability to rapidly develop product
    candidates, our ability to manage the risks involved with drug
    discovery, our ability to generate internal product candidates,
    our ability to develop a commercialization capability or partner
    with other companies for the development or commercialization of
    product candidates, and other statements about our strategy,
    technologies, programs and ability to develop compounds and
    commercialize drugs.
  For such statements, we claim the protection of the Private
    Securities Litigation Reform Act of 1995. These forward-looking
    statements are only predictions, are uncertain and involve
    substantial known and unknown risks, uncertainties and other
    factors which may cause our (or our industrys) actual
    results, levels of activity or performance to be materially
    different from any future results, levels of activity or
    performance expressed or implied by these forward-looking
    statements. Factors that could cause actual results to differ
    materially from those stated or implied by our forward-looking
    statements are included in Item 1A  Risk
    Factors of this annual report and disclosed in our other
    filings with the Securities and Exchange Commission. We cannot
    guarantee future results, level of activity or performance. You
    should not place undue reliance on these forward-looking
    statements. These forward-looking statements represent our
    judgment as of the time of this annual report. We disclaim any
    intent or obligation to update these forward-looking statements,
    other than as may be required under applicable law.
  Unless the context indicates otherwise, as used in this
    annual report, the terms Ardea, we,
    us and our refer to Ardea Biosciences,
    Inc., a Delaware corporation. In December 2006, Ardea changed
    its name from IntraBiotics Pharmaceuticals, Inc.
  ITEM 1.
    BUSINESS  Overview
    and Business Strategy
    Product
    Portfolio
  Product candidate

Target Indication

Development StatusRDEA806

HIV

Phase 2a2nd generation NNRTI

HIV

Entering Phase 0RDEA806

Gout

Entering Phase 2RDEA119

Cancer

Phase 1RDEA119

Inflammation

Entering Phase 12nd generation MEK inhibitor

Cancer/Inflammation

Phase 0  1




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
    RDEA806 (HIV).  RDEA806 is our lead
    non-nucleoside reverse transcriptase inhibitor (NNRTI) for the
    potential treatment of HIV. In vitropreclinical tests
    have shown RDEA806 to be a potent inhibitor of a wide range of
    HIV viral isolates, including isolates that are resistant to
    efavirenz
    (Sustiva®,
    Bristol-Myers Squibb), the most widely prescribed NNRTI, in
    addition to other currently available NNRTIs. Based on both
    preclinical and clinical data, we anticipate that this compound
    could be amenable to a patient-friendly oral dosing regimen, may
    have limited pharmacokinetic interactions with other drugs and
    may be readily co-formulated with other HIV antiviral drugs.    
    Patients receiving 400mg twice daily had a 2.0 log
    placebo-adjusted mean reduction in plasma viral load;
    Patients receiving 600 mg once daily had a 1.7 log
    placebo-adjusted mean reduction in plasma viral load;
    There were no serious adverse events reported in either cohort;
    There were no ECG-related adverse events reported in either
    cohort;
    There were no discontinuations in either cohort;
    None of the typical side effects associated with other NNRTIs
    were reported in either cohort, such as drug-related rash or
    abnormal dreams; and
    The percentage of patients with adverse events that were
    possibly drug-related was lower in patients receiving drug than
    in those receiving placebo.    
    2nd Generation NNRTI Program.  The
    compounds in our 2nd Generation NNRTI Program are from a
    chemical class that is distinct from the RDEA806 chemical class.
    Based on early preclinical data, we believe that the compounds
    in our 2nd Generation NNRTI Program may have the potential
    to share certain of the positive attributes of RDEA806, but also
    appear to have even greater activity against a wide range of
    drug-resistant viral isolates. We plan to select a clinical
    candidate based on the results of a
    first-in-human
    micro-dosing (Phase 0) study in early 2008.
    RDEA806 (Gout).  In a Phase 1
    multiple-ascending-dose study, RDEA806 demonstrated
    statistically significant, exposure-dependent reductions in
    serum uric acid in patients dosed for either 10 or 14 days.
    At the dose that resulted in the highest drug exposure, there
    was a 50.9% placebo-adjusted mean reduction in serum uric acid.
    We plan to initiate a Phase 2 dose-ranging study of RDEA806 in
    patients with hyperuricemia and a history of gout in the first
    half of 2008. We are also investigating the action moeity and
    mechanism of action responsible for this pharmacological effect.
    RDEA119 (Cancer).  In vitropreclinical
    tests have shown RDEA119 to be a potent and selective inhibitor
    of mitogen-activated ERK kinase, or MEK, which is believed to
    play an important role in cancer cell proliferation, apoptosis
    and metastasis. In vivopreclinical tests have shown
    RDEA119 to have potent anti-tumor activity. Preclinical data
    also suggest that RDEA119 may have favorable pharmaceutical
    properties, 2




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including the potential for convenient oral dosing. We initiated
    a Phase 1 study of RDEA119 in advanced cancer patients in
    November 2007.  
    RDEA119 (Inflammation).  In vitro preclinical
    tests have shown RDEA119 to be a potent and selective inhibitor
    of MEK, which is believed to play an important role in
    inflammatory cell signaling. In vivopreclinical tests
    have shown RDEA119 to have potent anti-inflammatory activity.
    Preclinical data also suggest that RDEA119 may have favorable
    pharmaceutical properties, including the potential for
    convenient oral dosing. We plan to initiate in the first half of
    2008 a Phase 1 study of RDEA119 in healthy volunteers that will
    include the evaluation of RDEA119s effect on
    pro-inflammatory biomarkers.
    2nd Generation MEK Inhibitor Program.  The
    compounds in our 2nd Generation MEK Inhibitor Program are
    from several chemical classes that are distinct from the RDEA119
    chemical class. Based on early preclinical data, we believe that
    the compounds in our 2nd Generation MEK Inhibitor Program
    may have the potential to share certain of the positive
    attributes of RDEA119, but also appear to have even greater
    potency. We assessed a 2nd Generation MEK Inhibitor in a
    Phase 0 study in the first quarter of 2008. We plan to select a
    clinical candidate from this program in 2008.  Market
    Opportunity
          Company
    History
     3




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Financial
    Outlook
   4




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Research
    and Development Expenses
    Clinical
    Supplies and Manufacturing
    Sales and
    Marketing
    Customers
    and Distribution
    Competition
  best-in-class
    Intellectual
    Property
    
    obtain and maintain international and domestic patent and other
    legal protections for the proprietary technology, inventions and
    improvements we consider important to our business;
    prosecute and defend our patents;
    preserve our trade secrets; and
    operate without infringing the patents and proprietary rights of
    third parties. 5




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Government
    Regulation
  Pharmaceutical
    Regulation
      Regulation
    in the United States
    
    preclinical studies;
    submission of an IND for clinical trials;
    adequate and well-controlled human clinical trials to establish
    the safety and efficacy of the product;
    submission of a New Drug Application, or NDA, to obtain
    marketing approval;
    review of the NDA; and
    inspection of the facilities used in the manufacturing of the
    drug to assess compliance with the FDAs current Good
    Manufacturing Practices, or cGMP, regulations.   6




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follow-up follow-up follow-up
     7




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and/or
  Regulation Outside
    the United States
    Additional
    Regulation
  Third-Party
    Reimbursement
    country-by-country
  Fraud and
    Abuse Laws
    HIPAA
   8




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Other
    Laws
    Employees
    Company
    Information
  (858) 652-6500.
  ITEM 1A 
    RISK
    FACTORS  You should carefully consider the following information about
    risks and uncertainties that may affect us or our business,
    together with the other information appearing elsewhere in this
    annual report. If any of the following events, described as
    risks, actually occur, our business, financial condition,
    results of operations and future growth prospects would likely
    be materially and adversely affected. In these circumstances,
    the market price of our common stock could decline, and you may
    lose all or part of your investment in our securities. An
    investment in our securities is speculative and involves a high
    degree of risk. You should not invest in our securities if you
    cannot bear the economic risk of your investment for an
    indefinite period of time and cannot afford to lose your entire
    investment.
  Risks
    Related to Our Business
  Development
    of our products will take years; we may never attain product
    sales; and we expect to continue to incur net operating
    losses.
    We are
    not currently profitable and may never become
    profitable.
   9




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Because
    the results of preclinical studies are not necessarily
    predictive of future results, we can provide no assurances that,
    even if our product candidates are successful in preclinical
    studies, such product candidates will have favorable results in
    clinical trials or receive regulatory approval.
    Delays
    in the commencement of clinical testing of our current and
    potential product candidates could result in increased costs to
    us and delay our ability to generate revenues.
      
    demonstrating sufficient safety and efficacy to obtain
    regulatory approval to commence a clinical trial;
    reaching agreement on acceptable terms with prospective contract
    research organizations and trial sites;
    manufacturing sufficient quantities of a product candidate;
    obtaining approval of an IND from the FDA or similar foreign
    approval; and
    obtaining institutional review board approval to conduct a
    clinical trial at a prospective site.    Delays
    in the completion of, or the termination of, clinical testing of
    our current and potential product candidates could result in
    increased costs to us and delay or prevent us from generating
    revenues.
    
    ongoing discussions with the FDA or other regulatory authorities
    regarding the scope or design of our clinical trials;
    failure to conduct clinical trials in accordance with regulatory
    requirements;
    lower than anticipated retention rate of patients in clinical
    trials;
    inspection of the clinical trial operations or trial sites by
    the FDA or other regulatory authorities resulting in the
    imposition of a clinical hold;
    lack of adequate funding to continue clinical trials;
    negative results of clinical trials; 10




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
    insufficient supply or deficient quality of drug candidates or
    other materials necessary for the conduct of our clinical
    trials; or
    serious adverse events or other undesirable drug-related side
    effects experienced by participants.    If our
    internal discovery and development efforts are unsuccessful, we
    will be required to obtain rights to new products or product
    candidates from third parties, which we may not be able to
    do.
    
    we may be unable to purchase or license products or product
    candidates on terms that would allow us to make an appropriate
    return from resulting products;
    competitors may be unwilling to assign or license product or
    product candidate rights to us (in particular, if we are not
    able to successfully advance the further development of the
    product candidates we acquired from Valeant); or
    we may be unable to identify suitable products or product
    candidates within, or complementary to, our areas of interest
    relating to the treatment of HIV, cancer and inflammatory
    diseases.    Even
    if we successfully initiate and complete clinical trials for any
    product candidate, there are no assurances that we will be able
    to submit or obtain FDA approval of a new drug
    application.
    If we
    successfully develop products but those products do not achieve
    and maintain market acceptance, our business will not be
    profitable.
    
    our ability to provide acceptable evidence of safety and
    efficacy;
    relative convenience and ease of administration;
    the prevalence and severity of any adverse side effects; 11




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
    availability of alternative treatments;
    pricing and cost effectiveness; and
    our ability to obtain sufficient third-party insurance coverage
    or reimbursement.    
    new products or technologies are introduced that are more
    favorably received than our potential future products, are more
    cost effective or render our potential future products
    obsolete; or
    complications arise with respect to use of our potential future
    products.  We
    will need substantial additional funding and may be unable to
    raise capital when needed, or at all, which would force us to
    delay, reduce or eliminate our research and development programs
    or commercialization efforts.
    
    fund our research, discovery and development programs;
    advance our product candidates into and through clinical trials
    and the regulatory review and approval process;
    establish and maintain manufacturing, sales and marketing
    operations;
    commercialize our product candidates, if any, that receive
    regulatory approval; and
    acquire rights to products or product candidates, technologies
    or businesses.    
    the rate of progress and cost of our research and development
    activities;
    whether Valeant terminates our master services agreement after
    the first year or reduces the amount of services that we provide
    to Valeant;
    the scope, prioritization and number of preclinical studies and
    clinical trials we pursue;
    the costs of filing, prosecuting, defending and enforcing any
    patent claims and other intellectual property rights;
    the costs and timing of regulatory approval;
    the costs of establishing or contracting for manufacturing,
    sales and marketing capabilities;
    the effects of competing technological and market developments;
    the terms and timing of any collaborative, licensing and other
    arrangements that we may establish; and
    the extent to which we acquire or license new technologies,
    products or product candidates.   12




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Raising
    additional funds by issuing securities or through collaboration
    and licensing arrangements may cause dilution to existing
    stockholders, restrict our operations or require us to
    relinquish proprietary rights.
    We do
    not have internal manufacturing capabilities, and if we fail to
    develop and maintain internal capabilities or supply
    relationships with collaborators or other outside manufacturers,
    we may be unable to develop or commercialize any
    products.
    If we
    are unable to establish sales and marketing capabilities or
    enter into agreements with third parties to sell and market any
    products we may develop, we may be unable to generate product
    revenue.
    We
    will need to increase the size of our organization, and we may
    encounter difficulties managing our growth, which could
    adversely affect our results of operations.
   13




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If we
    are unable to attract and retain key management and scientific
    staff, we may be unable to successfully develop or commercialize
    our product candidates.
    Our
    quarterly results and stock price may fluctuate
    significantly.
    
    whether or not we achieve specified research or
    commercialization milestones under any agreement that we enter
    into with collaborators and the timely payment by potential
    commercial collaborators of any amounts payable to us or by us
    to Valeant or any other party, including the milestone payments
    that we may make to Valeant;
    whether Valeant terminates our master services agreement after
    the first year or reduces the amount of services that we provide
    to Valeant;
    the addition or termination of research or development programs
    or funding support;
    the status of development of our product candidates, including
    results of preclinical studies and any future clinical trials;
    variations in the level of expenses related to our product
    candidates or potential product candidates during any given
    period;
    our execution of collaborative, licensing or other arrangements,
    and the timing and accounting treatment of payments we make or
    receive under these arrangements;
    our recommendation of additional compounds for preclinical
    development; and
    fluctuations in the stock prices of other companies in the
    biotechnology and pharmaceuticals industries and in the
    financial markets generally.   14




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If we
    engage in any acquisition, we will incur a variety of costs, and
    we may never realize the anticipated benefits of the
    acquisition.
    
    exposure to unknown liabilities;
    disruption of our business and diversion of our
    managements time and attention to acquiring and developing
    acquired products or technologies;
    incurrence of substantial debt or dilutive issuances of
    securities to pay for acquisitions;
    higher than expected acquisition and integration costs;
    increased amortization expenses;
    negative effect on our earnings (or loss) per share;
    difficulty and cost in combining and integrating the operations
    and personnel of any acquired businesses with our operations and
    personnel;
    impairment of relationships with key suppliers, contractors or
    customers of any acquired businesses due to changes in
    management and ownership; and
    inability to retain key employees of any acquired businesses.    Moving
    our research and development operations was costly and may be
    disruptive.
    Earthquake
    damage to our facilities could delay our research and
    development efforts and adversely affect our
    business.
   15




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Valeants
    exercise of its option to repurchase commercialization rights in
    territories outside the United States and Canada could
    limit the market for our products and adversely affect our
    business.
    Failure
    to comply with our minimum commitments under the asset purchase
    agreement with Valeant could expose us to potential liability or
    otherwise adversely affect our business.
    Failure
    to achieve and maintain effective internal controls in
    accordance with Section 404 of the Sarbanes-Oxley Act could
    have a material adverse effect on our business and stock
    price.
     16




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Risks
    Related to Our Industry
  Because
    our product candidates and development and collaboration efforts
    depend on our intellectual property rights, adverse events
    affecting our intellectual property rights will harm our ability
    to commercialize products.
      
    we might not have been the first to make, conceive, or reduce to
    practice the inventions covered by any or all of our pending
    patent applications;
    we might not have been the first to file patent applications for
    these inventions;
    others may independently develop similar or alternative
    technologies or duplicate any of our technologies;
    it is possible that none of our pending patent applications will
    result in issued patents;
    our issued or acquired patents may not provide a basis for
    commercially viable products, may not provide us with any
    competitive advantages, or may be challenged by third parties;
    our issued patents may not be valid or enforceable; or
    the patents of others may have an adverse effect on our business.     17




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and/or
  Our
    business depends upon not infringing the rights of
    others.
      
    cease selling, incorporating or using any of our product
    candidates that incorporate the challenged intellectual property;
    obtain a license from the holder of the infringed intellectual
    property right, which license may be costly or may not be
    available on reasonable terms, if at all; or
    redesign our processes so that they do not infringe, which could
    be costly and time-consuming and may not be possible.      Confidentiality
    agreements with employees and others may not adequately prevent
    disclosure of trade secrets and other proprietary information
    and may not adequately protect our intellectual
    property.
   18




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Many
    competitors have significantly more resources and experience,
    which may harm our commercial opportunity.
    
    research and development;
    preclinical testing;
    clinical trials;
    regulatory approvals;
    manufacturing; and
    sales and marketing of approved products.    If our
    competitors develop treatments for HIV, cancer or inflammatory
    diseases, including gout, that are approved faster, marketed
    better or demonstrated to be more effective than any products
    that we may develop, our commercial opportunity will be reduced
    or eliminated.
    If we
    cannot establish pricing of our product candidates acceptable to
    the government, insurance companies, managed care organizations
    and other payors, or arrange for favorable reimbursement
    policies, any product sales will be severely
    hindered.
   19




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Product
    liability claims may damage our reputation and, if insurance
    proves inadequate, the product liability claims may harm our
    results of operations.
    Any
    claims relating to our improper handling, storage or disposal of
    biological, hazardous and radioactive materials could be
    time-consuming and costly.
    Our
    business and operations would suffer in the event of system
    failures.
    Risks
    Related to Our Common Stock
  Directors,
    executive officers, principal stockholders and affiliated
    entities beneficially own or control approximately 70% of our
    outstanding voting common and preferred stock and together
    control our activities.
   20




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Future
    sales of our common stock may cause our stock price to
    decline.
  and/or
  The
    holders of our Series A preferred stock have a liquidation
    preference and other rights that are adverse to the interests of
    our common stockholders and could be detrimental to our
    business.
       21




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Anti-takeover
    provisions in our charter documents and under Delaware law may
    make it more difficult to acquire us.
    
    allow the authorized number of directors to be changed only by
    resolution of our Board of Directors;
    require that stockholder actions must be effected at a duly
    called stockholder meeting and prohibit stockholder action by
    written consent;
    establish advance notice requirements for nominations to our
    Board of Directors or for proposals that can be acted on at
    stockholder meetings;
    authorize our Board of Directors to issue blank check preferred
    stock to increase the number of outstanding shares; and
    limit who may call stockholder meetings.    We
    have never paid cash dividends on our common stock and we do not
    anticipate paying dividends in the foreseeable
    future.
    ITEM 1B.
    UNRESOLVED
    STAFF COMMENTS    ITEM 2.
    DESCRIPTION
    OF PROPERTY        ITEM 3.
    LEGAL
    PROCEEDINGS    ITEM 4.
    SUBMISSION
    OF MATTERS TO A VOTE OF SECURITY HOLDERS   22




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PART II  ITEM 5.
    MARKET
    FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
    AND ISSUER PURCHASES OF EQUITY SECURITIES  Market
    for Common Equity
      2007


2006First


Second


Third


Fourth


First


Second


Third


FourthStock sales prices per share:High

$
6.45


$
6.05


$
9.10


$
15.34


$
3.70


$
3.70


$
3.99


$
4.37Low

$
4.24


$
4.60


$
5.50


$
7.00


$
3.35


$
3.42


$
3.46


$
3.70   Holders
    Securities
    Authorized for Issuance Under Equity Compensation
    Plans
    Equity
    Compensation Plan Information
  Number of securitiesremaining available forNumber of securities to be





future issuance under equityissued upon exercise of


Weighted-average exercise


compensation plansoutstanding options,


price of outstanding options,


(excluding securitieswarrants and rights


warrants and rights


reflected in column (a))Plan Category

(a)


(b)


(c)Equity compensation plans approved by security holders


2,180,893


$
5.78



1,809,072
(d)Equity compensation plans not approved by security holders










128,184Total


2,180,893


$
5.78



1,937,256     (d)
    
    Includes 589,379 shares reserved for issuance under the
    Employee Stock Purchase Plan.  Dividend
    Policy
   23




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Performance
    Graph
      COMPARISON
    OF 5 YEAR CUMULATIVE TOTAL RETURN*
    
    24




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


2006


2005


2004


2003(In thousands, except per share amounts)Statement of Operations Data:Collaboration Revenues

$
3,095


$



$



$



$
Operating expenses:Research and development


23,103



72



255



11,519



7,727General and administrative


7,566



2,674



2,980



4,819



5,782Restructuring and other charges










648



858



Total operating expenses


30,669



2,746



3,883



17,196



13,509Operating loss


(27,574
)


(2,746
)


(3,883
)


(17,196
)


(13,509
)Interest income


2,128



2,377



1,502



700



166Other income/(expense), net


375



2



(1
)


(204
)


31Change in fair value on revaluation of warrants










(789
)






Net loss


(25,071
)


(367
)


(3,171
)


(16,700
)


(13,312
)Non-cash deemed dividend related to beneficial conversion
    feature of Series A preferred stock


















(1,436
)Non-cash dividends on Series A preferred stock


(240
)


(240
)


(240
)


(260
)


(182
)Net loss applicable to common stockholders

$
(25,311
)

$
(607
)

$
(3,411
)

$
(16,960
)

$
(14,930
)Basic and diluted net loss per share applicable to common
    stockholders

$
(2.55
)

$
(0.07
)

$
(0.37
)

$
(2.24
)

$
(4.01
)Shares used to compute basic and diluted net loss per share
    applicable to common stockholders


9,934



9,326



9,134



7,559



3,720Balance Sheet Data:Cash, cash equivalents, restricted cash and short-term
    investments

$
66,215


$
48,669


$
48,830


$
50,743


$
26,644Working capital


62,548



48,338



48,820



50,462



25,424Total assets


68,840



50,240



49,171



51,185



27,326Accumulated deficit


(261,488
)


(236,177
)


(235,570
)


(232,159
)


(215,199
)Total stockholders equity


63,739



49,064



48,820



50,508



25,628  25




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##### Table of Contents



ITEM 7.
    MANAGEMENTS
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATIONS  The following discussion and analysis of our financial
    condition and results of operations should be read together with
    our financial statements and related notes appearing elsewhere
    in this
    Form 10-K.
    This discussion and analysis contains forward-looking statements
    that involve risks, uncertainties and assumptions. The actual
    results may differ materially from those anticipated in these
    forward-looking statements as a result of many factors,
    including but not limited to those set forth under Risk
    Factors. All forward-looking statements included in this
    document are based on information available to us on the date of
    this document and we assume no obligation to update any
    forward-looking statements contained in this
    Form 10-K.
  Overview
    
    RDEA806 (HIV).  RDEA806 is our lead
    non-nucleoside reverse transcriptase inhibitor (NNRTI) for the
    potential treatment of HIV. In vitropreclinical tests
    have shown RDEA806 to be a potent inhibitor of a wide range of
    HIV viral isolates, including isolates that are resistant to
    efavirenz (Sustiva
    ®,
    Bristol-Myers Squibb), the most widely prescribed NNRTI, in
    addition to other currently available NNRTIs. Based on both
    preclinical and clinical data, we anticipate that this compound
    could be amenable to a patient-friendly oral dosing regimen, may
    have limited pharmacokinetic interactions with other drugs and
    may be readily co-formulated with other HIV antiviral drugs.    
    Patients receiving 400mg twice daily had a 2.0 log
    placebo-adjusted mean reduction in plasma viral load;
    Patients receiving 600 mg once daily had a 1.7 log
    placebo-adjusted mean reduction in plasma viral load;
    There were no serious adverse events reported in either cohort;
    There were no ECG-related adverse events reported in either
    cohort;
    There were no discontinuations in either cohort;
    None of the typical side effects associated with other NNRTIs
    were reported in either cohort, such as drug-related rash or
    abnormal dreams; and
    The percentage of patients with adverse events that were
    possibly drug-related was lower in patients receiving drug than
    in those receiving placebo.   26




---



##### Table of Contents




    2nd Generation NNRTI Program.  The
    compounds in our 2nd Generation NNRTI Program are from a
    chemical class that is distinct from the RDEA806 chemical class.
    Based on early preclinical data, we believe that the compounds
    in our 2nd Generation NNRTI Program may have the potential
    to share certain of the positive attributes of RDEA806, but also
    appear to have even greater activity against a wide range of
    drug-resistant viral isolates. We plan to select a clinical
    candidate based on the results of a
    first-in-human
    micro-dosing (Phase 0) study in early 2008.
    RDEA806 (Gout).  In a Phase 1
    multiple-ascending-dose study, RDEA806 demonstrated
    statistically significant, exposure-dependent reductions in
    serum uric acid in patients dosed for either 10 or 14 days.
    At the dose that resulted in the highest drug exposure, there
    was a 50.9% placebo-adjusted mean reduction in serum uric acid.
    We plan to initiate a Phase 2 dose-ranging study of RDEA806 in
    patients with hyperuricemia and a history of gout in the first
    half of 2008. We are also investigating the active moeity and
    mechanism of action responsible for this pharmacological effect.
    RDEA119 (Cancer).  In vitropreclinical
    tests have shown RDEA119 to be a potent and selective inhibitor
    of mitogen-activated ERK kinase, or MEK, which is believed to
    play an important role in cancer cell proliferation, apoptosis
    and metastasis. In vivopreclinical tests have shown
    RDEA119 to have potent anti-tumor activity. Preclinical data
    also suggest that RDEA119 may have favorable pharmaceutical
    properties, including the potential for convenient oral dosing.
    We initiated a Phase 1 study of RDEA119 in advanced cancer
    patients in November 2007.
    RDEA119 (Inflammation).  In vitropreclinical
    tests have shown RDEA119 to be a potent and selective inhibitor
    of MEK, which is believed to play an important role in
    inflammatory cell signaling. In vivopreclinical tests
    have shown RDEA119 to have potent anti-inflammatory activity.
    Preclinical data also suggest that RDEA119 may have favorable
    pharmaceutical properties, including the potential for
    convenient oral dosing. We plan to initiate in the first half of
    2008 a Phase 1 study of RDEA119 in healthy volunteers that will
    include the evaluation of RDEA119s effect on
    pro-inflammatory biomarkers.
    2nd Generation MEK Inhibitor Program.The
    compounds in our 2nd Generation MEK Inhibitor Program are
    from several chemical classes that are distinct from the RDEA119
    chemical class. Based on early preclinical data, we believe that
    the compounds in our 2nd Generation MEK Inhibitor Program
    may have the potential to share certain of the positive
    attributes of RDEA119, but also appear to have even greater
    potency. We assessed a 2nd Generation MEK Inhibitor in a
    Phase 0 study in the first quarter of 2008. We plan to select a
    clinical candidate from this program in 2008.       27




---



##### Table of Contents



Capitalization
  Common
    Stock
    Preferred
    Stock
     28




---



##### Table of Contents



Warrants
    Common
    Stock Reserved for Future Issuance
    Equity incentive plans


3,528,770Employee stock purchase plan


589,379Warrants


354,800Series A convertible preferred stock


1,578,346Total shares reserved for future issuance


6,051,295   Critical
    Accounting Policies and Estimates
        Revenue
    Recognition
    Stock-Based
    Compensation
   29




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##### Table of Contents



Contract
    Accruals
    Results
    of Operations  Comparison of Years Ended
    December 31, 2007, 2006, and 2005 ($
    in thousands)
  Collaboration
    Revenues
  2007


Change


Change


2006


Change


Change


2005$


%





$


%$
3,095


$
3,095



>100%















     Expenses
  Research
    and Development
  2007


Change


Change


2006


Change


Change


2005$


%





$


%$
23,103


$
23,031



>100%


$
72


$
(183
)


−71.8%


$
255    30




---



##### Table of Contents



General
    and Administrative
  2007


Change


Change


2006


Change


Change


2005$


%





$


%$
7,566


$
4,892



182.9%


$
2,674


$
(306
)


−10.3%


$
2,980       Restructuring
    and Other Charges
  2007


Change


Change


2006


Change


Change


2005$


%





$


%










$



$
(648
)


100.0%


$
648   Accounting for Costs Associated with Exit or Disposal
    Activities.
  Interest
    Income and Expense
  2007


Change


Change


2006


Change


Change


2005$


%





$


%$
2,128


$
(249
)


−10.5%


$
2,377


$
875



58.3%


$
1,502     Other
    Income/(Expense), net
  2007


Change


Change


2006


Change


Change


2005$


%





$


%(In thousands)Other income/(loss), net

$
375


$
373



>100%


$
2


$
3



−300.0%


$
(1
)Change in fair value on revaluation of warrants

$



$




−%


$



$
789



−100.0%


$
(789
)      31




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##### Table of Contents



paid-in-capital
  Loss
    Applicable to Common Stockholders
    Income
    Taxes
  Form 10-K
  Liquidity
    and Capital Resources
  2007


Change


2006


Change


2005(Dollars in thousands)Cash, cash equivalents, restricted cash and short-term
    investments

$
66,215



36.1%


$
48,669



−0.3
%

$
48,830     2007


2006


2005(In thousands)Net cash provided by (used in) operating activities

$
(20,720
)

$
505


$
(2,460
)Net cash provided by investing activities


13,999



11,482



2,981Net cash provided by financing activities


38,326



20



496Net increase in cash and equivalents

$
31,605


$
12,007


$
1,017    32




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##### Table of Contents




    On December 19, 2007, we raised $40.0 million by
    selling 3,018,868 unregistered shares of newly issued common
    stock, $0.001 par value, at $13.25 per share. This resulted
    in net cash proceeds of $37.2 million after placement fees
    and issuance costs of $2.8 million. On January 18,
    2008, we filed a registration statement with the SEC covering
    the resale of these shares. This registration statement was
    declared effective by the SEC on February 1, 2008.
    Cash proceeds from exercises of stock options were $282,000,
    $20,000, and $496,000 for the years ended December 31,
    2007, 2006, and 2005, respectively.
    In June 2007, warrants issued in connection with our
    Series A convertible preferred stock offering on
    May 1, 2003, were exercised in full for 789,171 shares
    of common stock at $1.033 per share. We received cash of
    approximately $816,000 as a result of this exercise and
    subsequent purchase of our common stock.  Investment
    Policy
    
    Safety and preservation of the invested funds.
    Liquidity that is sufficient to meet operating and investment
    cash requirements.
    Appropriate concentrations of funds.
    Good yields on invested funds, consistent with our stated
    investment objectives.    
    A1/P1, Short-term
    Aa3/AA-, Long-term
    Pre-refunded bonds and bonds that are escrowed to maturity
    (backed 100% by U.S. Government Securities +/or cash) are
    permissible irrespective of rating.     33




---



##### Table of Contents



Contractual
    Obligations
    Payments Due by PeriodLess than


1 to 3


3 to 5


More thanTotal


1 Year


Years


Years


5 Years(In thousands)Tenant improvement obligations

$
751,152


$
751,152


$



$



$
Operating lease obligations


7,633,670



1,106,240



1,991,808



2,113,801



2,421,821Total

$
8,384,822


$
1,857,392


$
1,991,808


$
2,113,801


$
2,421,821       Off-Balance
    Sheet Arrangements
  Regulation S-K)
  Indemnifications
    Recent
    Accounting Pronouncements
  Form 10-K.
  ITEM 7A.
    QUANTITATIVE
    AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK   34




---



##### 



ITEM 8.
    FINANCIAL
    STATEMENTS AND SUPPLEMENTARY DATA  ARDEA
    PHARMACEUTICALS, INC.
  INDEX TO
    FINANCIAL STATEMENTS
   
 Report of Stonefield Josephson, Inc., Independent
    Registered Public Accounting Firm


36Balance Sheets


37Statements of Operations


38Statements of Stockholders Equity


39Statements of Cash Flows


40Notes to Financial Statements


41   35




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM  TO THE
    STOCKHOLDERS AND BOARD OF DIRECTORS OF
    ARDEA BIOSCIENCES, INC. (Formerly IntraBiotics Pharmaceuticals,
    Inc.)
           
 36




---



##### Table of Contents



ARDEA
    BIOSCIENCES, INC.

(formerly IntraBiotics Pharmaceuticals, Inc.)



BALANCE SHEETS  December 31,


December 31,2007


2006(In thousands)ASSETSCurrent assets:Cash and cash equivalents

$
46,384


$
14,779Short-term investments


19,831



33,890Receivables


1,224



405Prepaid expenses and other current assets


210



440Total current assets


67,649



49,514Property and equipment, net


879



726Other assets


312



Total assets

$
68,840


$
50,240LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable

$
2,200


$
234Accrued clinical liabilities


456



4Accrued payroll and employee liabilities


1,612



219Other accrued liabilities


833



719Total current liabilities


5,101



1,176Commitments and contingencies (Note 7)Stockholders equity:Convertible preferred stock, $0.001 par value:
    5,000,000 shares authorized; 300 shares outstanding
    and $3,000 aggregate liquidation preference at December 31,
    2007 and December 31, 2006


1,634



1,634Common stock, $0.001 par value: 70,000,000 shares
    authorized at December 31, 2007 and December 31, 2006;
    13,312,686 and 9,362,191 shares outstanding at
    December 31, 2007 and December 31, 2006, respectively


13



9Additional paid-in capital


323,566



283,594Accumulated other comprehensive income


14



4Accumulated deficit


(261,488
)


(236,177
)Total stockholders equity


63,739



49,064Total liabilities and stockholders equity

$
68,840


$
50,240    37




---



##### Table of Contents



ARDEA
    BIOSCIENCES, INC.
    (formerly IntraBiotics Pharmaceuticals, Inc.)
    STATEMENTS OF OPERATIONS  Year Ended December 31,2007


2006


2005(In thousands,except per share amounts)Collaboration revenues

$
3,095


$



$
Operating expenses:Research and development


23,103



72



255General and administrative


7,566



2,674



2,980Restructuring charge










648Total operating expenses


30,669



2,746



3,883Operating loss


(27,574
)


(2,746
)


(3,883
)Interest income


2,128



2,377



1,502Other income (expense), net


375



2



(1
)Change in fair value on revaluation of warrants










(789
)Net loss


(25,071
)


(367
)


(3,171
)Non-cash dividends on Series A preferred stock


(240
)


(240
)


(240
)Net loss applicable to common stockholders

$
(25,311
)

$
(607
)

$
(3,411
)Basic and diluted net loss per share applicable to common
    stockholders

$
(2.55
)

$
(0.07
)

$
(0.37
)Shares used to compute basic and diluted net loss per share
    applicable to common stockholders


9,934



9,326



9,134    38




---



##### Table of Contents



ARDEA
    BIOSCIENCES, INC.
    (formerly IntraBiotics Pharmaceuticals, Inc.)STATEMENTS OF STOCKHOLDERS EQUITY
  Convertible














AccumulatedPreferred








Additional


Deferred


Other





TotalStock


Common Stock


Paid-In


Stock


Comprehensive


Accumulated


StockholdersAmount


Shares


Amount


Capital


Compensation


Income (Loss)


Deficit


Equity(In thousands)Balances at December 31, 2004

$
1,771



8,880


$
9


$
281,068


$
(114
)

$
(67
)

$
(232,159
)

$
50,508Issuance of common stock upon exercise ofstock options for cash






179







496















496Issuance of common stock as dividend on series A preferred
    stock






66







245











(240
)


5Issuance of common stock upon conversion of series A
    preferred stock


(137
)


132







137















Issuance of common stock upon exercise of warrants






31Change due to revaluation of warrants














789















789Amortization of deferred stock compensation


















50











50Stock compensation for variable option awards














(38
)














(38
)Stock compensation for consultant services














150















150Cancellation of stock options related to employee terminations














(19
)


19











Comprehensive loss:Net loss


























(3,171
)


(3,171
)Unrealized gain on securities






















31







31Comprehensive loss






























(3,140
)Balances at December 31, 2005

$
1,634



9,288


$
9


$
282,828


$
(45
)

$
(36
)

$
(235,570
)

$
48,820Issuance of common stock upon exercise of stock options for cash






8







20















20Issuance of common stock as dividend on series A preferred
    stock






66







240











(240
)


Issuance of directors and employee stock compensation














558















558Amortization of deferred stock compensation














(45
)


45











Stock compensation  other














(7
)














(7
)Comprehensive loss:Net loss


























(367
)


(367
)Unrealized gain on securities






















40







40Comprehensive loss






























(327
)Balances at December 31, 2006

$
1,634



9,362


$
9


$
283,594


$



$
4


$
(236,177
)

$
49,064Issuance of common stock for cash in a private offering, net of
    $2,772 issuance costs






3,019



3



37,225















37,228Issuance of common stock upon exercise of warrants






789



1



815















816Issuance of common stock upon exercise of stock options for cash






99







282















282Issuance of common stock as dividend on series A preferred
    stock






44







240










$
(240
)


Issuance of directors and employee stock compensation














1,362















1,362Compensation costs arising from the Employee Stock Purchase Plan














48















48Comprehensive loss:Net loss


























(25,071
)


(25,071
)Unrealized gain on securities






















10







10Comprehensive loss






























(25,061
)Balances at December 31, 2007

$
1,634



13,313


$
13


$
323,566


$



$
14


$
(261,488
)

$
63,739    39




---



##### Table of Contents



ARDEA
    BIOSCIENCES, INC.
    (formerly IntraBiotics Pharmaceuticals, Inc.)
    STATEMENTS OF CASH FLOWS  Year Ended December 31,2007


2006


2005(In thousands)Operating activitiesNet loss

$
(25,071
)

$
(367
)

$
(3,171
)Adjustments to reconcile net loss to net cash used in operating
    activities:Change due to revaluation of warrants










789Stock compensation for employee services


1,362



558



Stock compensation arising from Employee Stock Purchase Plan


48







Stock compensation for consultant services






2



150Stock compensation for variable option awards






(9
)


(38
)Amortization of deferred stock compensation










50Depreciation and amortization


249







9(Gain)/Loss on disposal of property and equipment


(332
)






27Change in assets and liabilities:Receivables


(819
)


(188
)


(217
)Prepaid expenses and other current assets


230



(316
)


272Other assets


(312
)






Accounts payable


1,966



176



(96
)Accrued clinical liabilities


452



(95
)


(62
)Accrued employee liabilities


1,392



219



(89
)Accrued restructuring charges










(5
)Other accrued liabilities


115



525



(79
)Net cash provided by (used in) operating activities


(20,720
)


505



(2,460
)Investing activitiesCapital expenditures


(401
)


(726
)


Proceeds from sale of property and equipment


332







10Purchase of short-term investments


(48,364
)


(200,024
)


(193,022
)Proceeds from sale or maturity of short-term investments


62,432



212,232



195,993Net cash provided by investing activities


13,999



11,482



2,981Financing activityProceeds from issuance of common stock, net of issuance costs


37,228







Proceeds from issuance of common stock upon exercise of warrants


816







Proceeds from issuance of common stock upon exercise of options


282



20



496Net cash provided by financing activities


38,326



20



496Net increase in cash and cash equivalents


31,605



12,007



1,017Cash and cash equivalents at beginning of the year


14,779



2,772



1,755Cash and cash equivalents at end of the year

$
46,384


$
14,779


$
2,772Supplemental disclosure of non-cash information:Net deferred stock compensation (cancellations due to employee
    termination)

$



$



$
(19
)Issuance of common stock dividend on Series A preferred
    stock

$
(240
)

$
(240
)

$
(240
)Issuance of common stock upon conversion of Series A
    preferred stock

$



$



$
(137
)    40




---



##### Table of Contents



ARDEA
    BIOSCIENCES, INC.
    (Formerly IntraBiotics Pharmaceuticals, Inc.)NOTES TO FINANCIAL STATEMENTS
  1.
    Description
    of Business    
    RDEA806 (HIV).  RDEA806 is our lead
    non-nucleoside reverse transcriptase inhibitor (NNRTI) for the
    potential treatment of HIV. In vitropreclinical tests
    have shown RDEA806 to be a potent inhibitor of a wide range of
    HIV viral isolates, including isolates that are resistant to
    efavirenz
    (Sustiva®,
    Bristol-Myers Squibb), the most widely prescribed NNRTI, in
    addition to other currently available NNRTIs. Based on both
    preclinical and clinical data, we anticipate that this compound
    could be amenable to a patient-friendly oral dosing regimen, may
    have limited pharmacokinetic interactions with other drugs and
    may be readily
    co-formulated
    with other HIV antiviral drugs.  We successfully completed Phase 1 single-ascending-dose,
    multiple-ascending-dose, food effect, and drug-interaction
    clinical studies of RDEA806 in August 2007 and initiated a Phase
    2a proof-of-concept trial in the fourth quarter of 2007. The
    Phase 2a, randomized, double-blind, placebo-controlled trial is
    evaluating the antiviral activity, pharmacokinetics, safety and
    tolerability of RDEA806 versus placebo in HIV-positive patients
    who are naive to antiretroviral treatment. Nine out of
    12 patients in each cohort will receive RDEA806; the
    remaining three will receive placebo. The primary efficacy
    endpoint is the change from baseline in plasma viral load.
    Preliminary results, which include those from the first ten
    evaluable patients in the 400mg twice daily cohort and the first
    eight evaluable patients in the 600mg once daily cohort, showed
    the following:  
    Patients receiving 400mg twice daily had a 2.0 log
    placebo-adjusted mean reduction in plasma viral load;
    Patients receiving 600 mg once daily had a 1.7 log
    placebo-adjusted mean reduction in plasma viral load;
    There were no serious adverse events reported in either cohort;
    There were no ECG-related adverse events reported in either
    cohort;
    There were no discontinuations in either cohort;
    None of the typical side effects associated with other NNRTIs
    were reported in either cohort, such as drug-related rash or
    abnormal dreams; and
    The percentage of patients with adverse events that were
    possibly drug-related was lower in patients receiving drug than
    in those receiving placebo.  Based on these preliminary results, further cohorts of patients
    will be evaluated and a Phase 2b, dose-ranging study in
    HIV-positive patients who are naive to antiretroviral treatment
    will be planned for initiation in the second quarter of 2008.  
    2nd Generation NNRTI Program.  The
    compounds in our 2nd Generation NNRTI Program are from a
    chemical class that is distinct from the RDEA806 chemical class.
    Based on early preclinical data, we believe that the compounds
    in our 2nd Generation NNRTI Program may have the potential
    to share certain of the positive attributes of RDEA806, but also
    appear to have even greater activity against a wide range of
    drug-resistant viral isolates. We plan to select a clinical
    candidate based on the results of a
    first-in-human
    micro-dosing (Phase 0) study in early 2008. 41




---



##### Table of Contents



ARDEA
    BIOSCIENCES, INC.
    (Formerly IntraBiotics Pharmaceuticals, Inc.)
    NOTES TO FINANCIAL
    STATEMENTS  (Continued)
   
    RDEA806 (Gout).  In a Phase 1
    multiple-ascending-dose study, RDEA806 demonstrated
    statistically significant, exposure-dependent reductions in
    serum uric acid in patients dosed for either 10 or 14 days.
    At the dose that resulted in the highest drug exposure, there
    was a 50.9% placebo-adjusted mean reduction in serum uric acid.
    We plan to initiate a Phase 2 dose-ranging study of RDEA806 in
    patients with hyperuricemia and a history of gout in the first
    half of 2008. We are also investigating the active moeity and
    mechanism of action responsible for this pharmacological effect.
    RDEA119 (Cancer).  In vitropreclinical
    tests have shown RDEA119 to be a potent and selective inhibitor
    of mitogen-activated ERK kinase, or MEK, which is believed to
    play an important role in cancer cell proliferation, apoptosis
    and metastasis. In vivopreclinical tests have shown
    RDEA119 to have potent anti-tumor activity. Preclinical data
    also suggest that RDEA119 may have favorable pharmaceutical
    properties, including the potential for convenient oral dosing.
    We initiated a Phase 1 study of RDEA119 in advanced cancer
    patients in November 2007.
    RDEA119 (Inflammation).  In vitropreclinical
    tests have shown RDEA119 to be a potent and selective inhibitor
    of MEK, which is believed to play an important role in
    inflammatory cell signaling. In vivopreclinical tests
    have shown RDEA119 to have potent anti-inflammatory activity.
    Preclinical data also suggest that RDEA119 may have favorable
    pharmaceutical properties, including the potential for
    convenient oral dosing. We plan to initiate in the first half of
    2008 a Phase 1 study of RDEA119 in healthy volunteers that will
    include the evaluation of RDEA119s effect on
    pro-inflammatory biomarkers.
    2nd Generation MEK Inhibitor Program.  The
    compounds in our 2nd Generation MEK Inhibitor Program are
    from several chemical classes that are distinct from the RDEA119
    chemical class. Based on early preclinical data, we believe that
    the compounds in our 2nd Generation MEK Inhibitor Program
    may have the potential to share certain of the positive
    attributes of RDEA119, but also appear to have even greater
    potency. We assessed a 2nd Generation MEK Inhibitor in a
    Phase 0 study in the first quarter of 2008. We plan to select a
    clinical candidate from this program in 2008.       42




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ARDEA
    BIOSCIENCES, INC.
    (Formerly IntraBiotics Pharmaceuticals, Inc.)
    NOTES TO FINANCIAL
    STATEMENTS  (Continued)
        2.
    Summary
    of Significant Accounting Policies and Concentrations of
    Risk  Revenue
    Recognition
    Reclassifications
    Stock-Based
    Compensation
   43




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##### Table of Contents



ARDEA
    BIOSCIENCES, INC.
    (Formerly IntraBiotics Pharmaceuticals, Inc.)
    NOTES TO FINANCIAL
    STATEMENTS  (Continued)
  Use of
    Estimates
      Concentrations
    of Credit Risk and Fair Value of Financial
    Instruments
      Cash
    Equivalents and Short-Term Investments
    Property
    and Equipment
    Research
    and Development
   44




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##### Table of Contents



ARDEA
    BIOSCIENCES, INC.
    (Formerly IntraBiotics Pharmaceuticals, Inc.)
    NOTES TO FINANCIAL
    STATEMENTS  (Continued)
  Restructuring
    Charges
    Clinical
    Trial Accruals
    Income
    Taxes
  Accounting for
    Income Taxes
  with-and-without
  Accounting for Uncertainty in Income
    Taxes  an Interpretation of FASB Statement
    No. 109
 45




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##### Table of Contents



ARDEA
    BIOSCIENCES, INC.
    (Formerly IntraBiotics Pharmaceuticals, Inc.)
    NOTES TO FINANCIAL
    STATEMENTS  (Continued)
  Comprehensive
    Loss
    Year Ended December 31,2007


2006


2005Net loss

$
(25,071
)

$
(367
)

$
(3,171
)Unrealized gain on available-for-sale securities


10



40



31Comprehensive loss

$
(25,061
)

$
(327
)

$
(3,140
)   Net
    Loss Per Share
  Earnings Per Share
  Recent
    Accounting Pronouncements
  
    In February 2006, the FASB issued SFAS No. 155,
    Accounting for Certain Hybrid Financial Instruments(SFAS 133), which amends SFAS 133 and
    SFAS 140. SFAS No. 155 requires entities to
    evaluate and identify whether interests in securitized financial
    assets are freestanding derivatives or hybrid financial
    instruments that contain an embedded derivative that may require
    bifurcation. SFAS No. 155 also permits fair value
    measurement for any hybrid financial instrument that contains an
    embedded derivative that otherwise would require bifurcation.
    This statement was effective for all financial instruments
    acquired or issued by us on or after January 1, 2007. The
    adoption of this statement did not have a material impact on our
    financial condition, results of operations, or liquidity.
    In July 2006, the FASB issued FIN No. 48, which is a
    change in accounting for income taxes. FIN No. 48
    specifies how tax benefits for uncertain tax positions are to be
    recognized, measured and derecognized in financial statements;
    requires certain disclosures of uncertain tax matters; specifies
    how reserves for uncertain tax positions should be classified on
    the balance sheet; and provides transition and interim period
    guidance, among other provisions. We adopted FIN 48
    effective January 1, 2007, and it did not have any material
    impact on our financial condition or results of operations.
    In September 2006, the FASB issued SFAS No. 157,
    Fair Value Measurements(SFAS No. 157). Among other
    requirements, SFAS No. 157 defines fair value and
    establishes a framework for measuring fair value and also
    expands disclosure about the use of fair value to measure assets
    and liabilities. SFAS No. 157 is effective beginning
    the first fiscal year after November 15, 2007. We currently
    are evaluating the impact of SFAS No. 157 on our
    financial position and results of operations.
    Effective January 1, 2007, we adopted FASB Staff Position
    No. EITF 00-19-2,
    Accounting for Registration Payment Arrangements(FSP). This FSP addresses how to account for
    registration payment arrangements and clarifies that a financial
    instrument subject to a registration payment arrangement should
    be accounted for in accordance with GAAP without regard to the
    contingent obligation to transfer consideration pursuant to the
    registration payment arrangement. This accounting pronouncement
    further clarifies that a liability for 46




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##### Table of Contents



ARDEA
    BIOSCIENCES, INC.
    (Formerly IntraBiotics Pharmaceuticals, Inc.)
    NOTES TO FINANCIAL
    STATEMENTS  (Continued)
  liquidated damages resulting from registration payment
    obligations should be recorded in accordance with
    SFAS No. 5, Accounting for Contingencies(SFAS No. 5), when the payment of
    liquidated damages becomes probable and can be reasonably
    estimated. We do not believe that we have any
    SFAS No. 5 contingencies as of December 31, 2007
    relating to our registration payment arrangements, nor do we
    believe that there is a material impact on our financial
    statements as a result of implementing this FSP.  
    In February 2007, the FASB issued SFAS No. 159, The
    Fair Value Option for Financial Assets and Financial Liabilities(SFAS No. 159). SFAS No. 159
    amends SFAS No. 115 and permits fair value measurement
    of financial instruments and certain other items.
    SFAS No. 159 is effective beginning the first fiscal
    year that begins after November 15, 2007. We currently are
    evaluating the impact of SFAS No. 159 on our financial
    position and results of operations.
    In June 2007, the FASB ratified EITF Issue
    No. 07-3,
    Accounting for Non-refundable Advance Payments for Goods or
    Services to Be Used in Future Research and Development
    Activities(EITF 07-3).
    EITF 07-3
    requires non-refundable advance payments for goods and services
    to be used in future research and development
    (R&D) activities to be recorded as assets and
    the payments to be expensed when the R&D activities are
    performed.
    EITF 07-3
    applies prospectively for new contractual arrangements entered
    into in fiscal years beginning after December 15, 2007. We
    currently are evaluating the impact of
    EITF 07-3,
    and anticipate that it will not have a material impact on our
    financial condition, results of operations, or cash flows.
    In December 2007, the FASB issued Summary of Statement
    No. 141 (revised 2007),which replaces
    SFAS No. 141, Business Combinations, to improve
    the relevance and comparability of the information that a
    reporting entity provides in its financial reports about a
    business combination and its effects. Statement No. 141
    retains the fundamental requirements that the acquisition method
    of accounting (which SFAS No. 141 called the purchase
    method) be used for all business combinations and for an
    acquirer to be identified for each business combination. This
    statement requires an acquirer to recognize the assets acquired,
    the liabilities assumed, and any noncontrolling interest in the
    acquiree at the acquisition date, measured at their fair values
    as of that date, with limited exceptions. This replaces
    SFAS No. 141s cost-allocation process, which
    required the cost of an acquisition to be allocated to the
    individual assets acquired and liabilities assumed based on
    their estimated fair values. SFAS No. 141s
    guidance resulted in not recognizing some assets and liabilities
    at the acquisition date, and it also resulted in measuring some
    assets and liabilities at amounts other than their fair values
    at the acquisition date. This Summary Statement applies
    prospectively to business combinations for which the acquisition
    date is on or after the beginning of the first annual reporting
    period beginning on or after December 15, 2008. It may not
    be applied before that date.
    In December 2007, the FASB issued SFAS No. 160,
    Noncontrolling Interests in Consolidated Financial
    Statements  an amendment of ARB No. 51(SFAS No. 160), which establishes
    accounting and reporting standards for the noncontrolling
    interest (minority interest) in a subsidiary and for the
    deconsolidation of a subsidiary. It clarifies that a
    noncontrolling interest in a subsidiary is an ownership interest
    in the consolidated entity that should be reported as equity in
    the consolidated financial statements. The amount of net income
    attributable to the noncontrolling interest is to be included in
    consolidated net income on the face of the income statement.
    SFAS No. 160 also includes expanded disclosure requirements
    regarding the interests of the parent and its noncontrolling
    interest. SFAS No. 160 is effective for fiscal years,
    and interim periods within those fiscal years, beginning on or
    after December 15, 2008. It may not be applied before that
    date. 47




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ARDEA
    BIOSCIENCES, INC.
    (Formerly IntraBiotics Pharmaceuticals, Inc.)
    NOTES TO FINANCIAL
    STATEMENTS  (Continued)
   3.
    Available-For-Sale
    Investments    December 31, 2007Gross


GrossAmortized


Unrealized


Unrealized


EstimatedCost


Gains


Losses


Fair ValueUS government agencies

$
17,829


$
14


$



$
17,843Corporate bonds


1,988











1,988Money market funds


46,115











46,115Total available-for-sale investments

$
65,932


$
14


$




65,946Less: amounts classified as cash equivalents














(46,115
)$
19,831   December 31, 2006Gross


GrossAmortized


Unrealized


Unrealized


EstimatedCost


Gains


Losses


Fair ValueUS government agencies

$
31,876


$
2


$



$
31,878Commercial paper


2,010



2







2,012Money market funds


14,662











14,662Total available-for-sale investments

$
48,548


$
4


$




48,552Less: amounts classified as cash equivalents














(14,662
)$
33,890       December 31, 2007


December 31, 2006Amortized


Estimated


Amortized


EstimatedCost


Fair Value


Cost


Fair ValueDue in less than one year

$
65,932


$
65,946


$
48,548


$
48,552Due in one year or more














Total available-for-sale investments

$
65,932


$
65,946


$
48,548


$
48,552  48




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##### Table of Contents



ARDEA
    BIOSCIENCES, INC.
    (Formerly IntraBiotics Pharmaceuticals, Inc.)
    NOTES TO FINANCIAL
    STATEMENTS  (Continued)
  4.
    Receivables  Receivables consist of the following (in thousands):
  Year Ended December 31,2007


2006Amounts due from Valeant

$
971


$
Interest


79



381Other


174



24Total

$
1,224


$
405     5.
    Property
    and Equipment    December 31,2007


2006Property and equipment

$
1,128


$
726Less: accumulated depreciation


(249
)


Property and equipment, net

$
879


$
726     6.
    Other
    Accrued Liabilities    December 31,2007


2006Accrued professional fees

$
365


$
28Accrued dividends on Series A convertible stock


60



60Legal fees


232



316Accrued accounts payable


128



237Other accrued liabilities


48



78Total other accrued liabilities

$
833


$
719   7.
    Commitments
    and Contingencies   49




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##### Table of Contents



ARDEA
    BIOSCIENCES, INC.
    (Formerly IntraBiotics Pharmaceuticals, Inc.)
    NOTES TO FINANCIAL
    STATEMENTS  (Continued)
          Contractual
    Obligations
    Payments Due by PeriodLess than


1 to 3


3 to 5


More thanTotal


1 Year


Years


Years


5 Years(In thousands)Tenant improvement obligations

$
751,152


$
751,152


$



$



$
Operating lease obligations


7,633,670



1,106,240



1,991,808



2,113,801



2,421,821Total

$
8,384,822


$
1,857,392


$
1,991,808


$
2,113,801


$
2,421,821   8.
    Restructuring
    and Other Charges    9.
    Acquisition     50




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##### Table of Contents



ARDEA
    BIOSCIENCES, INC.
    (Formerly IntraBiotics Pharmaceuticals, Inc.)
    NOTES TO FINANCIAL
    STATEMENTS  (Continued)
        
    Fixed assets of approximately $4.3 million,
    Intangible assets of approximately $300,000, and
    Goodwill of approximately $500,000.    10.
    Stockholders
    Equity  Preferred
    Stock
     51




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##### Table of Contents



ARDEA
    BIOSCIENCES, INC.
    (Formerly IntraBiotics Pharmaceuticals, Inc.)
    NOTES TO FINANCIAL
    STATEMENTS  (Continued)
              Common
    Stock
   52




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##### Table of Contents



ARDEA
    BIOSCIENCES, INC.
    (Formerly IntraBiotics Pharmaceuticals, Inc.)
    NOTES TO FINANCIAL
    STATEMENTS  (Continued)
    Common
    Stock Reserved for Future Issuance
    Equity incentive plans


3,528,770Employee stock purchase plan


589,379Warrants


354,800Series A preferred stock


1,578,346Total shares reserved for future issuance


6,051,295   Warrants
  paid-in-capital
      11.
    Employee
    Benefit Plans  Stock
    Option Plans and Stock-Based Compensation
  2004
    Stock Incentive Plan
   53




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##### Table of Contents



ARDEA
    BIOSCIENCES, INC.
    (Formerly IntraBiotics Pharmaceuticals, Inc.)
    NOTES TO FINANCIAL
    STATEMENTS  (Continued)
    2002
    Non-Officer Equity Incentive Plan
      Stock
    Compensation Expense
       54




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##### Table of Contents



ARDEA
    BIOSCIENCES, INC.
    (Formerly IntraBiotics Pharmaceuticals, Inc.)
    NOTES TO FINANCIAL
    STATEMENTS  (Continued)
    Determining
    Fair Value
    Amortization Method
    Expected Term
  Expected Volatility
  Risk-Free Interest Rate
  Expected Dividend
  Estimated Forfeiture
    Year Ended December 31,2007


2006


2005Risk-free interest rate


4.20
%


4.66
%


3.79
%Volatility


73
%


25
%


25
%Dividend yield


0.00
%


0.00
%


0.00
%Expected life of option


6.25 years



6.1 years



6.1 years    55




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##### Table of Contents



ARDEA
    BIOSCIENCES, INC.
    (Formerly IntraBiotics Pharmaceuticals, Inc.)
    NOTES TO FINANCIAL
    STATEMENTS  (Continued)
   Stock
    Options and Awards Activities
    Outstanding OptionsWeighted Average


AggregateNumber of


Exercise


Remaining


IntrinsicShares


Price


Contract Life


Value (000s)Balance at December 31, 2006


1,345,834


$
5.45



8.58


$
755Granted


1,479,500



5.51Exercised


(98,941
)


2.85Forfeitures and cancellations


(545,500
)


4.76Balance at December 31, 2007


2,180,893


$
5.78



8.64


$
20,856Ourstanding at December 31, 2007


2,180,893


$
5.78



8.64


$
20,856Exercisable at December 31, 2007


640,226


$
7.38



7.36


$
5,164     Options OutstandingWeighted-AverageRemaining





Options exercisableNumber of


Contractual Life


Weighted-Average


Number of


Weighted-AverageRange of Exercise Prices

Shares


(years)


Exercise Price


Shares


Exercise Price$2.76


116,893



5.10


$
2.76



116,893$3.50


25,000



8.12



3.50



25,000$3.90


585,000



8.98



3.90



153,750$4.08


20,000



7.01



4.08



20,000$4.24


341,000



9.01



4.24



$4.36


37,500



9.00



4.36



37,500$5.10


270,000



9.26



5.10



$5.20


190,000



9.22



5.20



$5.40


10,000



9.32



5.40



10,000$5.85


106,500



9.44



5.85



70,000$5.95


91,000



9.53



5.95



$6.70


67,500



9.59



6.70



$8.50


38,000



9.77



8.50



$8.90


11,500



9.68



8.90



$9.10


21,000



9.86



9.10



$13.00


30,000



9.92



13.00



$13.06


100,000



6.35



13.06



89,583$13.93


40,000



6.44



13.93



40,000$16.49


80,000



6.09



16.49



77,500Totals


2,180,893



8.64


$
5.78



640,226


$
7.38  56




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##### Table of Contents



ARDEA
    BIOSCIENCES, INC.
    (Formerly IntraBiotics Pharmaceuticals, Inc.)
    NOTES TO FINANCIAL
    STATEMENTS  (Continued)
   Pro-forma
    Disclosure
    Year EndedDecember 31,2005(In thousands, exceptper share amounts)Net loss applicable to common stockholders, as reported

$
(3,411
)Add: stock-based employee compensation expense (recovery)
    included in reported net loss applicable to common stockholders


12Deduct: total stock-based employee compensation expense
    determined under fair value based method for all awards


(1,824
)Net loss applicable to common stockholders, pro forma

$
(5,223
)Net loss per share applicable to common stockholders:Basic and diluted  as reported

$
(0.37
)Basic and diluted  pro forma

$
(0.57
)     2000
    Employee Stock Purchase Plan
        24-month
 57




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##### Table of Contents



ARDEA
    BIOSCIENCES, INC.
    (Formerly IntraBiotics Pharmaceuticals, Inc.)
    NOTES TO FINANCIAL
    STATEMENTS  (Continued)
  Retirement
    Savings Plan
    12.
    Income
    Taxes  non-U.S. income
    2007Balance, January 1, 2007

$
Additions based on tax positions related to current year


Additions for tax positions of prior years


Reductions for tax positions of prior years


Settlements


Balance, December 31, 2007

$
     Year Ended December 31,2007


2006


2005U.S. federal taxes (benefit) at statutory rate

$
(8,524
)

$
(124
)

$
(1,078
)State










Unutilized net operating losses


8,405



115



753Stock-based compensation


110



9



55Non-deductible warrant expense










268Other


9







2Total

$



$



$
  58




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##### Table of Contents



ARDEA
    BIOSCIENCES, INC.
    (Formerly IntraBiotics Pharmaceuticals, Inc.)
    NOTES TO FINANCIAL
    STATEMENTS  (Continued)
    Year Ended December 31,2007


2006Deferred tax assets:Net operating loss carryforwards

$
9,360


$
16,200Research and development credits






5,700Capitalized research and development costs






8,600Intangibles


980



720Stock compensation


690



350Other, net


470



130Total deferred tax assets

$
11,500


$
31,700Valuation allowance

$
(11,500
)

$
(31,700
)Net deferred tax assets

$



$
         13.
    Legal
    Proceedings   59




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##### Table of Contents



ARDEA
    BIOSCIENCES, INC.
    (Formerly IntraBiotics Pharmaceuticals, Inc.)
    NOTES TO FINANCIAL
    STATEMENTS  (Continued)
  14.
    Quarterly
    Financial Data (in thousands, except for per share
    amounts)  2007


2006First


Second


Third


Fourth


First


Second


Third


FourthOperating loss

$
(4,164
)

$
(5,943
)

$
(7,822
)

$
(9,645
)

$
(667
)

$
(554
)

$
(463
)

$
(1,062
)Net income (loss)


(3,369
)


(5,375
)


(7,309
)


(9,018
)


(150
)


23



176



(416
)Net income (loss) applicable to common stockholders


(3,429
)


(5,435
)


(7,369
)


(9,078
)


(210
)


(37
)


116



(476
)Basic and diluted income (loss) per share applicable to common
    stockholders

$
(0.37
)

$
(0.57
)

$
(0.72
)

$
(0.86
)

$
(0.02
)

$



$
0.01


$
(0.05
)Stock sales prices per share:High

$
6.45


$
6.05


$
9.10


$
15.34


$
3.70


$
3.70


$
3.99


$
4.37Low

$
4.24


$
4.60


$
5.50


$
7.00


$
3.35


$
3.42


$
3.46


$
3.70   15.
    Subsequent
    Event   60




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##### Table of Contents



ITEM 9.
    CHANGES
    IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
    FINANCIAL DISCLOSURE    ITEM 9A.
    CONTROLS
    AND PROCEDURES    Conclusion
    Regarding the Effectiveness of Disclosure Controls and
    Procedures
  Section 13a-15(e) 15d-15(e)
      Managements
    Report on Internal Control Over Financial Reporting
  Rule 13a-15(f). Internal
    Control  Integrated Framework Internal Control  Integrated
    Framework
   61




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##### Table of Contents



ITEM 9B.
    OTHER
    INFORMATION   PART III  ITEM 10.
    DIRECTORS,
    OFFICERS AND CORPORATE GOVERNANCE.    http://www.ardeabiosciences.com.
  (858) 652-6500
  ITEM 11.
    EXECUTIVE
    COMPENSATION.    ITEM 12.
    SECURITY
    OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
    RELATED STOCKHOLDER MATTERS.    ITEM 13.
    CERTAIN
    RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
    INDEPENDENCE.    ITEM 14.
    PRINCIPAL
    ACCOUNTING FEES AND SERVICES.   62




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##### Table of Contents



PART IV  ITEM 15.
    EXHIBITS AND
    FINANCIAL STATEMENT SCHEDULES  Financial Statements
  Form 10-K. Form 10-K.
  Financial Statement Schedules
  Form 10-K.
  Exhibit Index
  Form 10-K.
  Exhibits
  Form 10-K.
  Financial Statement Schedules
   63




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##### Table of Contents



SIGNATURES      By:
    /s/  BARRY
    D. QUART, PHARM.D.     POWER OF
    ATTORNEY
  Form 10-K,
    Signature

Title

Date/s/  BARRY
    D. QUART, PHARM. D.Barry
    D. Quart, Pharm. D.

Chief Executive Officer(Principal Executive Officer)

March 24, 2008/s/  DENIS
    HICKEYDenis
    Hickey

Chief Financial Officer(Principal Financial and
    Accounting Officer)

March 24, 2008/s/  JOHN
    W. BECK, CPAJohn
    W. Beck, CPA

Director

March 24, 2008/s/  HENRY
    J. FUCHS, M.D.Henry
    J. Fuchs, M.D.

Director

March 24, 2008/s/  JOHN
    POYHONENJohn
    Poyhonen

Director

March 24, 2008/s/  JACK
    S. REMINGTON, M.D.Jack
    S. Remington, M.D.

Director

March 24, 2008/s/  KEVIN
    C. TANGKevin
    C. Tang

Director

March 24, 2008  64




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##### Table of Contents



EXHIBIT INDEX
  Exhibit

Document Description2
.1

Asset Purchase Agreement with Valeant Research &
    Development and Valeant Pharmaceuticals International dated
    December 21, 2006.(12)3
.1

Amended and Restated Certificate of Incorporation and
    Certificate of Amendment of Amended and Restated Certificate of
    Incorporation.(3)3
.2

Amended and Restated Bylaws.(13)3
.3

Certificate of Amendment to Amended and Restated Certificate of
    Incorporation.(8)3
.4

Certificate of Designation filed with the Delaware Secretary of
    State on May 1, 2003.(8)3
.5

Certificate of Ownership and Merger filed with the Delaware
    Secretary of State December 21, 2006.(12)3
.6

Certificate of Amendment to Amended and Restated Certificate of
    Incorporation.(13)4
.1

Form of Warrant issued by the Company pursuant to the Common
    Stock and Warrant Purchase Agreement of October 6, 2003.(7)4
.2

Registration Rights Agreement, dated December 19, 2007, by
    and among Ardea Biosciences, Inc. and the Purchasers listed on
    the signature pages thereto.(17)4
.3

Registration Rights Agreement, dated January 4, 2008, by
    and among Ardea Biosciences, Inc. and the stockholders listed on
    the signature pages thereto.(18)10
.1

Form of Indemnity Agreement.(1)10
.2

Senior Executive Severance Benefit Plan, as amended and restated
    on August 1, 2002.(4)(5)10
.3

Executive Severance Benefit Plan, as amended and restated on
    August 1, 2002.(4)(5)10
.4

Summary of Officer Incentive Bonus Plan.(2)(5)10
.5

2002 Non-Officer Equity Incentive Plan and related documents, as
    amended on February 3, 2003.(5)(6)10
.6

Services Agreement between the Company and Hickey &
    Hill.(5)(9)10
.7

Amendment to Services Agreement, between the Company and
    Hickey & Hill, Inc.(5)(10)10
.8

Third Amendment to Services Agreement, dated as of
    November 1, 2006, by and between the Company and
    Hickey & Hill, Inc.(5)(11)10
.9

Master Services Agreement with Valeant Research &
    Development dated December 21, 2006.(12)10
.10

Noncompetition Agreement with Valeant Research &
    Development dated December 21, 2006.(12)10
.11

Lease Agreement with Valeant Pharmaceuticals North America dated
    December 21, 2006.(12)10
.12

Employment Agreement with Barry Quart.(5)(12)10
.13

Employment Agreement with Zhi Hong.(5)(12)10
.14

Employment Agreement with Kimberly J Manhard.(5)(12)10
.15

Ardea Biosciences, Inc. 2000 Employee Stock Purchase Plan.(5)(14)10
.16

Employment Agreement with Christopher W. Krueger.(5)(15)10
.17

Amended and Restated 2004 Stock Incentive Plan.(5)(16)10
.18

Securities Purchase Agreement, dated December 19, 2007, by
    and among Ardea Biosciences, Inc. and the Purchasers listed on
    the signature pages thereto.(17)10
.19

Sublease by and between Verenium Corporation and the Company
    dated October 2007.23
.1

Consent of Independent Registered Public Accounting Firm.24
.1

Power of Attorney (included in the signature page to this
    Form 10-K).31
.1

Certification of Chief Executive Officer pursuant to
    Section 302 of the Public Company Accounting Reform and
    Investor Protection Act of 2002 (18 U.S.C. §1350, as
    adopted). 65




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##### Table of Contents



Exhibit

Document Description31
.2

Certification of Chief Financial Officer pursuant to
    Section 302 of the Public Company Accounting Reform and
    Investor Protection Act of 2002 (18 U.S.C. §1350, as
    adopted).32
.1

Certification of Chief Executive Officer and Chief Financial
    Officer pursuant to Section 906 of the Public Company
    Accounting Reform and Investor Protection Act of 2002
    (18 U.S.C. §1350, as adopted).     
    
    Confidential treatment request has been granted with respect to
    certain portions of this exhibit. Omitted portions have been
    filed separately with the Securities and Exchange Commission(1)
    
    Incorporated by reference to our Registration Statement on
    Form S-1
    (File
    No. 333-95461)
    initially filed with the Securities and Exchange Commission on
    January 27, 2000 as subsequently amended.(2)
    
    Incorporated by reference to our
    Form 10-Q
    (File
    No. 000-29993)
    filed with the Securities and Exchange Commission on
    August 14, 2001.(3)
    
    Incorporated by reference to our Registration Statement on
    Form S-3
    (File
    No. 333-82934)
    filed with the Securities and Exchange Commission on
    February 15, 2002.(4)
    
    Incorporated by reference to our
    Form 10-Q
    (File
    No. 000-29993)
    filed with the Securities and Exchange Commission on
    November 14, 2002.(5)
    
    Management contract or compensatory plan, contract or
    arrangement.(6)
    
    Incorporated by reference to our
    Form 10-K
    (File
    No. 000-29993)
    filed with the Securities and Exchange Commission on
    March 31, 2003.(7)
    
    Incorporated by reference to our
    Form 8-K
    (File
    No. 000-29993)
    filed with the Securities and Exchange Commission on
    October 9, 2003.(8)
    
    Incorporated by reference to our
    Form 10-Q
    (File
    No. 000-29993)
    filed with the Securities and Exchange Commission on
    November 12, 2003.(9)
    
    Incorporated by reference to our
    Form 10-Q
    (File
    No. 000-29993)
    filed with the Securities and Exchange Commission on
    July 21, 2005.(10)
    
    Incorporated by reference to our
    Form 8-K
    (File
    No. 000-29993)
    filed with the Securities and Exchange Commission on
    June 29, 2006.(11)
    
    Incorporated by reference to our
    Form 10-Q
    (File
    No. 000-29993)
    filed with the Securities and Exchange Commission on
    November 7, 2006.(12)
    
    Incorporated by reference to our
    Form 8-K
    (File
    No. 000-29993)
    filed with the Securities and Exchange Commission on
    December 28, 2006.(13)
    
    Incorporated by reference to our
    Form 8-K
    (File
    No. 000-29993)
    filed with the Securities and Exchange Commission on
    August 2, 2007.(14)
    
    Incorporated by reference to our
    Form 8-K
    (File
    No. 001-33734)
    filed with the Securities and Exchange Commission on
    October 15, 2007.(15)
    
    Incorporated by reference to our
    Form 10-Q
    (File
    No. 000-29993)
    filed with the Securities and Exchange Commission on May 8,
    2007.(16)
    
    Incorporated by reference to our
    Form 8-K
    (File
    No. 000-29993)
    filed with the Securities and Exchange Commission on
    July 3, 2007.(17)
    
    Incorporated by reference to our
    Form 8-K
    (File
    No. 001-33734)
    filed with the Securities and Exchange Commission on
    December 20, 2007.(18)
    
    Incorporated by reference to our
    Form 8-K
    (File
    No. 001-33734)
    filed with the Securities and Exchange Commission on
    January 10, 2008. 66