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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended September 30, 2007.

OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from  to

Commission file number: 0-21643



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CV THERAPEUTICS, INC.

(Exact name of Registrant as specified in its charter)



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|                         |  |                                     
|------------------------ |  | ------------------------------------
|Delaware                 |  | 43-1570294                          
|(State of Incorporation) |  | (I.R.S. Employer Identification No.)

3172 Porter Drive, Palo Alto, California 94304

(Address of principal executive offices, including zip code)

Registrants telephone number, including area code: (650) 384-8500



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Indicate by check whether the Registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No ̈

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

Large accelerated
filer  x            Accelerated filer ̈Non-accelerated filer ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).    Yes ̈No  x

As of November 2, 2007, 59,666,048 shares of the registrants common stock, $.001 par value, were outstanding.



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CV THERAPEUTICS, INC.

INDEX



|           |  |                                                                                                                   |  |     
|---------- |  | ----------------------------------------------------------------------------------------------------------------- |  | ----
|           |  |                                                                                                                   |  | Page
|           |  |                                                                                                                  
|           |  | PART I  FINANCIAL INFORMATION                                                                                    |  |     
|           |  |                                                                                                                  
|Item 1     |  | Financial Statements                                                                                              |  |     
|           |  |                                                                                                                  
|           |  | Condensed Consolidated Balance Sheets  September 30, 2007 and December 31, 2006                                  |  | 3   
|           |  |                                                                                                                  
|           |  | Condensed Consolidated Statements of Operations  for the three and nine months ended September 30, 2007 and 2006 |  | 4   
|           |  |                                                                                                                  
|           |  | Condensed Consolidated Statements of Cash Flows  for the nine months ended September 30, 2007 and 2006           |  | 5   
|           |  |                                                                                                                  
|           |  | Notes to Condensed Consolidated Financial Statements                                                              |  | 6   
|           |  |                                                                                                                  
|Item 2     |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                             |  | 16  
|           |  |                                                                                                                  
|Item 3     |  | Quantitative and Qualitative Disclosures About Market Risk                                                        |  | 29  
|           |  |                                                                                                                  
|Item 4     |  | Controls and Procedures                                                                                           |  | 30  
|           |  |                                                                                                                  
|           |  | PART II  OTHER INFORMATION                                                                                       |  |     
|           |  |                                                                                                                  
|Item 1     |  | Legal Proceedings                                                                                                 |  | 31  
|           |  |                                                                                                                  
|Item 1A    |  | Risk Factors                                                                                                      |  | 31  
|           |  |                                                                                                                  
|Item 6     |  | Exhibits                                                                                                          |  | 53  
|           | 
|SIGNATURES |  | 54                                                                                                               



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CV THERAPEUTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands)



|                                            |  |                   |            |   |                  |   |            |  
|------------------------------------------- |  | ----------------- | ---------- | - | ---------------- | - | ---------- | -
|                                            |  | September 30,2007 |            |   | December 31,2006 |  
|                                            |  | (Unaudited)       |            |   |                  |  
|Assets                                      |  |                   |            |   |                  |   |            |  
|Current assets:                             |  |                   |            |   |                  |   |            |  
|Cash and cash equivalents                   |  | $                 | 84,200     |   |                  | $ | 77,638     |  
|Marketable securities                       |  |                   | 110,556    |   |                  |   | 247,588    |  
|Accounts receivable                         |  |                   | 6,506      |   |                  |   | 3,527      |  
|Inventories                                 |  |                   | 21,596     |   |                  |   | 15,875     |  
|Restricted cash                             |  |                   | 4,757      |   |                  |   | 6,899      |  
|Prepaid and other current assets            |  |                   | 8,667      |   |                  |   | 13,968     |  
|                                            |  |                   |            |   |                  |   |            |  
|Total current assets                        |  |                   | 236,282    |   |                  |   | 365,495    |  
|Notes receivable from related parties       |  |                   | 260        |   |                  |   | 285        |  
|Property and equipment, net                 |  |                   | 20,355     |   |                  |   | 23,919     |  
|Restricted cash                             |  |                   |           |   |                  |   | 4,567      |  
|Other assets                                |  |                   | 24,436     |   |                  |   | 27,190     |  
|                                            |  |                   |            |   |                  |   |            |  
|Total assets                                |  | $                 | 281,333    |   |                  | $ | 421,456    |  
|                                            |  |                   |            |   |                  |   |            |  
|Liabilities and stockholders deficit       |  |                   |            |   |                  |   |            |  
|Current liabilities:                        |  |                   |            |   |                  |   |            |  
|Accounts payable                            |  | $                 | 2,217      |   |                  | $ | 10,749     |  
|Accrued and other current liabilities       |  |                   | 30,343     |   |                  |   | 51,359     |  
|Deferred revenue                            |  |                   |           |   |                  |   | 139        |  
|                                            |  |                   |            |   |                  |   |            |  
|Total current liabilities                   |  |                   | 32,560     |   |                  |   | 62,247     |  
|Convertible subordinated notes              |  |                   | 399,500    |   |                  |   | 399,500    |  
|Other liabilities                           |  |                   | 5,829      |   |                  |   | 5,507      |  
|                                            |  |                   |            |   |                  |   |            |  
|Total liabilities                           |  |                   | 437,889    |   |                  |   | 467,254    |  
|Commitments and contingencies               |  |                   |            |   |                  |   |            |  
|Stockholders deficit:                      |  |                   |            |   |                  |   |            |  
|Preferred stock                             |  |                   |           |   |                  |   |           |  
|Common stock                                |  |                   | 60         |   |                  |   | 59         |  
|Additional paid-in-capital                  |  |                   | 1,076,887  |   |                  |   | 1,040,665  |  
|Accumulated deficit                         |  |                   | (1,233,749 | ) |                  |   | (1,086,874 | )
|Accumulated other comprehensive income      |  |                   | 246        |   |                  |   | 352        |  
|                                            |  |                   |            |   |                  |   |            |  
|Total stockholders deficit                 |  |                   | (156,556   | ) |                  |   | (45,798    | )
|                                            |  |                   |            |   |                  |   |            |  
|Total liabilities and stockholders deficit |  | $                 | 281,333    |   |                  | $ | 421,456    |  
|                                            |  |                   |            |   |                  |   |            |  

See accompanying notes



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CV THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands, Except Per Share Amounts)

(Unaudited)



|                                                              |  |                                 |         |   |                                |   |         |      |  |   |          |   |  |   |          |  
|------------------------------------------------------------- |  | ------------------------------- | ------- | - | ------------------------------ | - | ------- | ---- |  | - | -------- | - |  | - | -------- | -
|                                                              |  | Three months endedSeptember 30, |         |   | Nine months endedSeptember 30, |  
|                                                              |  | 2007                            |         |   | 2006                           |   |         | 2007 |  |   | 2006     |  
|Revenues:                                                     |  |                                 |         |   |                                |   |         |      |  |   |          |   |  |   |          |  
|Product sales, net                                            |  | $                               | 18,419  |   |                                | $ | 8,164   |      |  | $ | 45,723   |   |  | $ | 9,394    |  
|Collaborative research                                        |  |                                 | 1,344   |   |                                |   | 4,038   |      |  |   | 14,698   |   |  |   | 13,283   |  
|Co-promotion                                                  |  |                                 |        |   |                                |   |        |      |  |   |         |   |  |   | 1,439    |  
|                                                              |  |                                 |         |   |                                |   |         |      |  |   |          |   |  |   |          |  
|Total revenues                                                |  |                                 | 19,763  |   |                                |   | 12,202  |      |  |   | 60,421   |   |  |   | 24,116   |  
|                                                              |  |                                 |         |   |                                |   |         |      |  |   |          |   |  |   |          |  
|Operating costs and expenses:                                 |  |                                 |         |   |                                |   |         |      |  |   |          |   |  |   |          |  
|Cost of sales                                                 |  |                                 | 2,609   |   |                                |   | 1,163   |      |  |   | 6,558    |   |  |   | 1,516    |  
|Research and development                                      |  |                                 | 19,055  |   |                                |   | 32,465  |      |  |   | 75,032   |   |  |   | 97,152   |  
|Selling, general and administrative                           |  |                                 | 30,594  |   |                                |   | 42,684  |      |  |   | 119,546  |   |  |   | 134,308  |  
|Restructuring charges                                         |  |                                 | 1,407   |   |                                |   |        |      |  |   | 6,774    |   |  |   |         |  
|                                                              |  |                                 |         |   |                                |   |         |      |  |   |          |   |  |   |          |  
|Total operating costs and expenses                            |  |                                 | 53,665  |   |                                |   | 76,312  |      |  |   | 207,910  |   |  |   | 232,976  |  
|                                                              |  |                                 |         |   |                                |   |         |      |  |   |          |   |  |   |          |  
|Loss from operations                                          |  |                                 | (33,902 | ) |                                |   | (64,110 | )    |  |   | (147,489 | ) |  |   | (208,860 | )
|Other income (expense), net:                                  |  |                                 |         |   |                                |   |         |      |  |   |          |   |  |   |          |  
|Interest and other income, net                                |  |                                 | 2,847   |   |                                |   | 4,582   |      |  |   | 10,112   |   |  |   | 12,100   |  
|Interest expense                                              |  |                                 | (3,166  | ) |                                |   | (3,166  | )    |  |   | (9,498   | ) |  |   | (9,501   | )
|                                                              |  |                                 |         |   |                                |   |         |      |  |   |          |   |  |   |          |  
|Total other income (expense), net                             |  |                                 | (319    | ) |                                |   | 1,416   |      |  |   | 614      |   |  |   | 2,599    |  
|                                                              |  |                                 |         |   |                                |   |         |      |  |   |          |   |  |   |          |  
|Net loss                                                      |  | $                               | (34,221 | ) |                                | $ | (62,694 | )    |  | $ | (146,875 | ) |  | $ | (206,261 | )
|                                                              |  |                                 |         |   |                                |   |         |      |  |   |          |   |  |   |          |  
|Basic and diluted net loss per share                          |  | $                               | (0.58   | ) |                                | $ | (1.23   | )    |  | $ | (2.48    | ) |  | $ | (4.36    | )
|                                                              |  |                                 |         |   |                                |   |         |      |  |   |          |   |  |   |          |  
|Shares used in computing basic and diluted net loss per share |  |                                 | 59,458  |   |                                |   | 51,067  |      |  |   | 59,213   |   |  |   | 47,340   |  
|                                                              |  |                                 |         |   |                                |   |         |      |  |   |          |   |  |   |          |  

See accompanying notes



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CV THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)



|                                                                                                |  |                                |          |   |      |   |          |  
|----------------------------------------------------------------------------------------------- |  | ------------------------------ | -------- | - | ---- | - | -------- | -
|                                                                                                |  | Nine Months endedSeptember 30, |         
|                                                                                                |  | 2007                           |          |   | 2006 |  
|Cash flows from operating activities:                                                           |  |                                |          |   |      |   |          |  
|Net loss                                                                                        |  | $                              | (146,875 | ) |      | $ | (206,261 | )
|Adjustments to reconcile net loss to net cash used in operating activities:                     |  |                                |          |   |      |   |          |  
|Stock-based compensation expense                                                                |  |                                | 29,603   |   |      |   | 18,610   |  
|Depreciation and amortization, net                                                              |  |                                | 7,180    |   |      |   | 5,102    |  
|Impairment recognized for unrealized loss on marketable securities                              |  |                                | 35       |   |      |   | 2,015    |  
|Impairment recognized on long-term investment                                                   |  |                                |         |   |      |   | 94       |  
|Gain on the sale of securities available-for-sale                                               |  |                                | (43      | ) |      |   | (89      | )
|Forgiveness of related party notes receivable                                                   |  |                                |         |   |      |   | 16       |  
|Change in assets and liabilities:                                                               |  |                                |          |   |      |   |          |  
|Accounts receivable                                                                             |  |                                | (2,979   | ) |      |   | (1,414   | )
|Inventories                                                                                     |  |                                | (5,721   | ) |      |   | (7,176   | )
|Prepaid and other current assets                                                                |  |                                | 5,298    |   |      |   | 1,489    |  
|Other assets                                                                                    |  |                                | 48       |   |      |   | (12,590  | )
|Accounts payable                                                                                |  |                                | (8,532   | ) |      |   | (101     | )
|Accrued and other liabilities                                                                   |  |                                | (18,028  | ) |      |   | (13,979  | )
|Deferred revenue                                                                                |  |                                | (139     | ) |      |   | (409     | )
|                                                                                                |  |                                |          |   |      |   |          |  
|Net cash used in operating activities                                                           |  |                                | (140,153 | ) |      |   | (214,693 | )
|Cash flows from investing activities:                                                           |  |                                |          |   |      |   |          |  
|Purchases of securities available-for-sale                                                      |  |                                | (13,632  | ) |      |   | (45,851  | )
|Proceeds from sales of securities available-for-sale                                            |  |                                | 14,325   |   |      |   | 65,050   |  
|Proceeds from maturities of securities available-for-sale                                       |  |                                | 137,579  |   |      |   | 139,204  |  
|Capital expenditures                                                                            |  |                                | (2,310   | ) |      |   | (7,792   | )
|Purchase of convertible note from collaboration partner                                         |  |                                |         |   |      |   | (4,000   | )
|                                                                                                |  |                                |          |   |      |   |          |  
|Net cash provided by investing activities                                                       |  |                                | 135,962  |   |      |   | 146,611  |  
|Cash flows from financing activities:                                                           |  |                                |          |   |      |   |          |  
|Change in restricted cash                                                                       |  |                                | 6,709    |   |      |   | 8,155    |  
|Proceeds from issuance of common stock through employee stock purchases and stock options       |  |                                | 4,044    |   |      |   | 5,302    |  
|Net proceeds from issuance of common stock related to public offering and equity line of credit |  |                                |         |   |      |   | 112,031  |  
|                                                                                                |  |                                |          |   |      |   |          |  
|Net cash provided by financing activities                                                       |  |                                | 10,753   |   |      |   | 125,488  |  
|                                                                                                |  |                                |          |   |      |   |          |  
|Net increase in cash and cash equivalents                                                       |  |                                | 6,562    |   |      |   | 57,406   |  
|Cash and cash equivalents at beginning of period                                                |  |                                | 77,638   |   |      |   | 23,688   |  
|                                                                                                |  |                                |          |   |      |   |          |  
|Cash and cash equivalents at end of period                                                      |  | $                              | 84,200   |   |      | $ | 81,094   |  
|                                                                                                |  |                                |          |   |      |   |          |  

See accompanying notes



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CV THERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Summary of Significant Accounting
Policies

The Company

CV Therapeutics, Inc.,
headquartered in Palo Alto, California, is a biopharmaceutical company focused on the discovery, development and commercialization of new small molecule drugs for the treatment of cardiovascular diseases. We apply advances in molecular biology and
genetics to identify mechanisms of cardiovascular diseases and targets for drug discovery.

We
currently promote Ranexa®(ranolazine extended-release tablets) with our national cardiovascular specialty sales force. Ranexa
was approved in the United States in January 2006 for the treatment of chronic angina in patients who have not achieved an adequate response with other antianginal drugs. We launched Ranexa 500 mg tablets in the United States in March 2006, and
Ranexa 1000 mg tablets in August 2007.

We are also developing other product candidates
including regadenoson, a selective A2A-adenosine receptor agonist for potential use as a pharmacologic stress agent in myocardial perfusion imaging
studies. We submitted a new drug application for regadenoson to the Food and Drug Administration, or FDA, in May 2007.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of CV Therapeutics, Inc. have been prepared following the requirements of
the Securities and Exchange Commission, or SEC, for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. generally accepted accounting principles, or GAAP, have been
condensed or omitted. The condensed consolidated financial statements are unaudited and reflect all adjustments (consisting solely of normal recurring adjustments) which are, in the opinion of management, necessary to present fairly the financial
position at, and the results of operations for, the interim periods presented. The financial information included herein should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2006, which includes our
audited consolidated financial statements and the notes thereto.

Revenues, expenses, assets and liabilities can vary during each quarter of the year.
Therefore, the results and trends in the unaudited condensed consolidated financial statements and accompanying notes may not be the same as the results for the full year or any future period.

Principles of Consolidation

The unaudited condensed
consolidated financial statements and accompanying notes include the accounts of our company and our wholly owned subsidiary. The functional currency of our wholly-owned subsidiary (which is located in the United Kingdom) is the U.S. dollar. Foreign
currency remeasurement gains and losses are recorded in the condensed consolidated statements of operations in accordance with Statement of Financial Accounting Standards (FAS) No. 52, Foreign Currency Translation. All
intercompany transactions are eliminated in consolidation.

Use of Estimates and Reclassifications

The preparation of financial statements in conformity with GAAP requires management to make judgments, estimates and assumptions that affect the amounts reported in the
unaudited condensed consolidated financial statements and accompanying notes. Actual results could differ materially from those assumptions and estimates.

Certain reclassifications of prior period amounts have been made to our unaudited condensed consolidated financial statements and accompanying notes to conform to the current period presentation.

Accounts Receivable

Trade accounts receivable are recorded
net of allowances for cash discounts for prompt payment, doubtful accounts, healthcare providers contractual chargebacks and product returns. Estimates for cash discounts, chargebacks and product returns are based on contractual terms,
historical trends and expectations regarding utilization rates for these programs. The allowance for doubtful accounts is calculated based on our historical experience, our assessment of the customer credit risk and the application of the specific
identification method. To date, we have not recorded a bad debt allowance due to the fact that the majority of our product revenue comes from sales into a limited number of financially sound companies. The need for bad debt allowance is evaluated
each reporting period based on our assessment of the credit worthiness of our customers.



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Comprehensive Loss

Comprehensive loss consists of net loss plus the changes in unrealized gains and losses on available-for-sale investment securities. At each balance sheet date presented, our accumulated other comprehensive income consists solely of
unrealized gains on available-for-sale investment securities. Comprehensive loss for the three and nine months ended September 30, 2007 and 2006 is as follows (in thousands):



|                                                                                               |  |                                 |         |   |                                |   |         |      |  |   |          |   |  |   |          |  
|---------------------------------------------------------------------------------------------- |  | ------------------------------- | ------- | - | ------------------------------ | - | ------- | ---- |  | - | -------- | - |  | - | -------- | -
|                                                                                               |  | Three months endedSeptember 30, |         |   | Nine months endedSeptember 30, |  
|                                                                                               |  | 2007                            |         |   | 2006                           |   |         | 2007 |  |   | 2006     |  
|Net loss                                                                                       |  | $                               | (34,221 | ) |                                | $ | (62,694 | )    |  | $ | (146,875 | ) |  | $ | (206,261 | )
|Change in unrealized gains (losses) on marketable securities                                   |  |                                 | 144     |   |                                |   | 622     |      |  |   | (98      | ) |  |   | (1,345   | )
|Reclassification adjustment for (gains) losses on marketable securities recognized in earnings |  |                                 | (4      | ) |                                |   | (30     | )    |  |   | (8       | ) |  |   | 1,926    |  
|                                                                                               |  |                                 |         |   |                                |   |         |      |  |   |          |   |  |   |          |  
|Comprehensive loss                                                                             |  | $                               | (34,081 | ) |                                | $ | (62,102 | )    |  | $ | (146,981 | ) |  | $ | (205,680 | )
|                                                                                               |  |                                 |         |   |                                |   |         |      |  |   |          |   |  |   |          |  

Concentrations of Risk

We are subject to credit risk from our portfolio of cash equivalents and marketable securities. We strive to limit concentration of risk by diversifying investments among a variety of issuers in accordance with our
investment guidelines. No one issuer or group of issuers from the same holding company is to exceed 5% of market value of our portfolio except for securities issued by the U.S. Treasury or by one of its agencies. We also strive to limit risk by
specifying a minimum credit quality of A1/P1 for commercial paper and A-/A3 for all other investments.

We are also subject to credit risk from our
accounts receivable related to our product sales. All product sales are currently derived from our one approved product, Ranexa, and were made to customers within the United States. Three wholesale distributors individually comprised 41%, 33% and
18%, respectively, of Ranexa accounts receivable as of September 30, 2007. These three customers individually comprised 41%, 32% and 19%, respectively, of Ranexa gross product sales for the three months ended September 30, 2007. For the
nine months ended September 30, 2007, these three customers individually comprised 41%, 32% and 20%, respectively, of Ranexa gross product sales.

Two
customers individually comprised 64% and 26% of Ranexa accounts receivable as of September 30, 2006. These two customers also comprised 46% and 33% of Ranexa gross product sales for the three months ended September 30, 2006. These two
customers and a third customer individually comprised 39%, 16% and 40% of Ranexa gross product sales for the nine months ended September 30, 2006.

We
have not experienced any significant credit losses on cash, cash equivalents, marketable securities or trade receivables to date and do not require collateral on receivables.

Certain of the materials we utilize in our operations are obtained through one supplier. Many of the materials that we utilize in our operations are made at one facility. Since the suppliers of key components and
materials must be named in the new drug application filed with the FDA for a product, significant delays can occur if the qualification of a new supplier is required. If delivery of material from our suppliers is interrupted for any reason, we may
be unable to ship Ranexa or to supply any of our products in development for clinical trials.

Revenue Recognition

We recognize revenue from the sale of our products, co-promotion and collaborative research contract arrangements. Our revenue recognition policy has a substantial impact
on our reported results and relies on certain estimates that require difficult, subjective and complex judgments on the part of management.

Product
Sales

We recognize revenue for product sales in accordance with SEC Staff Accounting Bulletin No. 104, Revenue
Recognition. We recognize revenue for sales when substantially all the risks and rewards of ownership have transferred to our customers who are wholesale distributors, which generally occurs on the date of shipment. Product sales are
recognized as revenue when there is persuasive evidence an arrangement exists, delivery to the wholesale distributor has occurred, title has transferred to the wholesale distributor, the price is fixed or determinable and collectibility is
reasonably assured. For arrangements where the revenue recognition criteria are not met, we defer the recognition of revenue until such time that all criteria under the provision are met.



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| |  |  | We sell our product to wholesale distributors, who in turn sell to a variety of outlets where patients access their prescriptions, including but not limited to
retail pharmacies, mail order pharmacies, managed care organizations, pharmaceutical benefit managers, hospitals, nursing homes and government entities.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We recognize product revenues net of sales adjustments, which include managed care and Medicaid rebates, chargebacks, sales returns, distributor discounts, and
customer incentives such as cash discounts for prompt payment, all of which are estimated at the time of sale.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Collaboration
Research Revenue

Revenue under our collaborative research arrangements is recognized based on the performance requirements of the contract.
Amounts received under such arrangements consist of up-front license payments, periodic milestone payments and reimbursements for research activities.



| |  |  | Fees received on multiple element agreements are evaluated under the provisions of Emerging Issues Task Force (EITF) Issue No. 00-21, Revenue
Arrangements with Multiple Deliverables.For these arrangements, if we are not able to identify evidence of fair value for the undelivered elements, we recognize any consideration for the combined unit of accounting in the same manner as
the revenue is recognized for the final deliverable, which is generally ratably over the performance period.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Up-front or milestone payments which are still subject to future performance requirements are recorded as deferred revenue and are recognized over the performance
period. The performance period is estimated at the inception of the arrangement and is reevaluated at each reporting period. The reevaluation of the performance period may shorten or lengthen the period during which the deferred revenue is
recognized. We reevaluated the performance period for certain collaborative research arrangements in 2006 and 2005, which resulted in an immaterial change in revenues as compared to our original estimate. This performance period was completed in May
2007. We evaluate the appropriate performance period based on research progress attained and certain events, such as changes in the regulatory and competitive environment.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Revenues related to substantive, at-risk milestones are recognized upon achievement of the scientific, regulatory or commercial event specified in the underlying
agreement.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Revenues for research activities are recognized as the related research efforts are performed. Cost-sharing payments received from collaborative partners for a
proportionate share of our and our partners combined research and development, or R&D, expenditures pursuant to the underlying agreement are presented in the condensed consolidated statement of operations as collaborative research revenue.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Co-Promotion Revenue

Revenue under our amended co-promotion agreement with Solvay Pharmaceuticals, Inc. (Solvay Pharmaceuticals) related
to ACEON®(perindopril erbumine) Tablets was recognized based on net product sales recorded by Solvay Pharmaceuticals, our
co-promotion partner until October 2006, above a specified baseline for each reporting period. In October 2006, we signed a letter agreement with Solvay Pharmaceuticals that, among other things, terminated our co-promotion agreement with Solvay
Pharmaceuticals relating to ACEON®, effective as of November 1, 2006, and we ceased all commercial activities relating to
ACEON®.

Gross-to-Net Sales Adjustments

Gross-to-net adjustments against receivable balances primarily relate to chargebacks, cash discounts
and product returns (when applicable), and are recorded in the same period the related revenue is recognized resulting in a reduction to product sales revenue and the recording of product sales receivable net of allowance. Gross-to-net sales
adjustment accruals related to managed care rebates, Medicaid rebates and distributor discounts are recognized in the same period the related revenue is recognized, resulting in a reduction to product sales revenue, and are recorded as other accrued
liabilities.

These gross-to-net sales adjustments are based on estimates of the amounts owed or to be claimed on the related sales. These estimates take
into consideration our historical experience, industry experience, current contractual and statutory requirements, specific known market events and trends such as competitive pricing and new product introductions, and forecasted customer buying
patterns and inventory levels, including the shelf lives of our product. If actual future results vary, we may need to adjust these estimates, which could have an effect on earnings in the period of the adjustment. Our gross-to-net sales adjustments
are as follows:

Managed Care Rebates

We offer
rebates under contracts with certain managed care customers. We establish an accrual in an amount equal to our estimate of future managed care rebates attributable to our sales in the period in which we record the sale as revenue. We estimate the
managed care rebates accrual primarily based on the specific terms in each agreement, current contract prices, historical and estimated future usage by managed care organizations, and levels of inventory in the distribution channel. We analyze the
accrual each reporting period and to date, such adjustments to the accrual have not been material.



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Medicaid Rebates

We participate in the Medicaid rebate program, which was developed to provide assistance to certain vulnerable and needy individuals and families. Under the Medicaid rebate program, we pay a rebate to each participating state for our
products that their programs reimburse.

We establish an accrual in the amount equal to our estimate of future Medicaid rebates attributable to our sales
in the period in which we record the sale as revenue. Although we record a liability for estimated Medicaid rebates at the time we record the sale, the actual Medicaid rebate related to that sale is typically not billed to us for up to four to six
months after the prescription is filled that is covered by the Medicaid rebate program. In determining the appropriate accrual amount we consider the then-current Medicaid rebate laws and interpretations; the historical and estimated future
percentage of our products that are sold to Medicaid recipients by pharmacies, hospitals, and other retailers that buy from our wholesale distributors; our product pricing and current rebate and/or discount contracts; and the levels of inventory in
the distribution channel. We analyze the accrual each reporting period and to date, such adjustments to the accrual have not been material.

Chargebacks

Federal law requires that any company that participates in the Medicaid program must extend comparable discounts to
qualified purchasers under the Public Health Services (PHS) pharmaceutical pricing program. The PHS pricing program extends discounts to a variety of community health clinics and other entities that receive health services grants from the PHS, as
well as hospitals that serve a disproportionate share of poor Medicare and Medicaid beneficiaries. We also make our product available to authorized users of the Federal Supply Schedule (FSS) of the General Services Administration under an FSS
contract negotiated by the Department of Veterans Affairs. The Veterans Health Care Act of 1992 (VHCA) establishes a price cap, known as the federal ceiling price, for sales of covered drugs to the Veterans Administration, the Department
of Defense, the Coast Guard, and the PHS. Specifically, our sales to these federal groups are discounted by a minimum of 24% compared to the average manufacturer price we charge to non-federal customers. These federal groups purchase product from
the wholesale distributors at the discounted price; the wholesale distributors then charge back to us the difference between the current retail price and the price the federal entity paid for the product.

We establish a reserve in an amount equal to our estimate of future chargeback claims attributable to our sales in the period in which we record the sale as revenue.
Although we accrue a reserve for estimated chargebacks at the time we record the sale, the actual chargeback related to that sale is not processed until the federal group purchases the product from the wholesale distributors. We estimate the rate of
chargebacks based on historical experience and changes to current contract prices. We also consider our claim processing lag time and the level of inventory held by our wholesale distributors. We analyze the reserve each reporting period and adjust
the balance as needed. The inventory held by retail pharmacies, which represents the rest of our distribution channel, is not considered in this reserve, as the federal groups eligible for chargebacks buy directly from the wholesale distributors.

Distributor Discounts

We offer discounts to
certain wholesale distributors based on contractually determined rates. Our distributor discounts are calculated based on quarterly product purchases multiplied by a fixed percentage. Our distributor discounts are accrued at the time of the sale and
are typically settled with the wholesale distributor within 60 days after the end of a quarter.

Product Returns

Our product returns allowance is primarily based on estimates of future product returns over the period during which wholesale distributors have a right of return, which
in turn is based in part on estimates of the remaining shelf life of our product. Once packaged as finished goods, Ranexa 500 mg tablets currently have a shelf life of 48 months from the date of tablet manufacture, although some of our previously
manufactured Ranexa 500 mg tablets had a shelf life of 36 months from the date of tablet manufacture, which was the shelf life at the time of product launch. As of December 31, 2006, we did not have any of the Ranexa 500 mg tablets with a 36
month shelf life in our inventory, as they have been sold to our wholesale distributors. Ranexa 1000 mg tablets, which became available in August 2007, currently have a shelf life of 24 months from the date of tablet manufacture. We allow wholesale
distributors and pharmacies to return unused product stocks that are within six months before and up to one year after their expiration date for a credit at the then-current wholesale price. At the time of sale, we estimate the quantity and value of
goods that may ultimately be returned pursuant to these rights.



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As Ranexa is a recently approved product, we estimate future product returns based on the industry trends for other
products with similar characteristics and similar return policies. Our actual experience and the qualitative factors that we use to determine the necessary reserve for product returns are susceptible to change based on unforeseen events and
uncertainties. In the three months ended September 30, 2007, we reduced our estimate for future product returns for the Ranexa 500 mg product, which resulted in our recognizing an additional $1.1 million of net revenue for the three months
ended September 30, 2007. We will continue to assess the trends that could affect our estimates and make changes to the allowance each reporting period as needed.

Cash Discounts

We offer cash discounts to wholesale distributors, generally 2% of the sales price, as an
incentive for prompt payment. We account for cash discounts by reducing accounts receivable by the full amount of the discounts we expect wholesale distributors to take. Based upon our expectation that wholesale distributors will comply with the
terms to earn the cash discount, we reserve, at the time of original sale, 100% of the cash discount related to the sale.

The following table summarizes
revenue allowance activity for the three and nine months ended September 30, 2007 (in thousands):



|                              |  |                            |        |   |                    |   |        |               |  |   |       |   |  |   |        |  
|----------------------------- |  | -------------------------- | ------ | - | ------------------ | - | ------ | ------------- |  | - | ----- | - |  | - | ------ | -
|                              |  | ContractSalesDiscounts (1) |        |   | ProductReturns (2) |   |        | CashDiscounts |  |   | Total |  
|Balance at December 31, 2006  |  | $                          | (1,318 | ) |                    | $ | (894   | )             |  | $ | (116  | ) |  | $ | (2,328 | )
|Revenue allowances:           |  |                            |        |   |                    |   |        |               |  |   |       |   |  |   |        |  
|Current period                |  |                            | (1,516 | ) |                    |   | (575   | )             |  |   | (287  | ) |  |   | (2,378 | )
|Payments and credits          |  |                            | 808    |   |                    |   |       |               |  |   | 265   |   |  |   | 1,073  |  
|                              |  |                            |        |   |                    |   |        |               |  |   |       |   |  |   |        |  
|Balance at March 31, 2007     |  | $                          | (2,026 | ) |                    | $ | (1,469 | )             |  | $ | (138  | ) |  | $ | (3,633 | )
|Revenue allowances:           |  |                            |        |   |                    |   |        |               |  |   |       |   |  |   |        |  
|Current period                |  |                            | (2,373 | ) |                    |   | (752   | )             |  |   | (376  | ) |  |   | (3,501 | )
|Payments and credits          |  |                            | 1,337  |   |                    |   |       |               |  |   | 339   |   |  |   | 1,676  |  
|                              |  |                            |        |   |                    |   |        |               |  |   |       |   |  |   |        |  
|Balance at June 30, 2007      |  | $                          | (3,062 | ) |                    | $ | (2,221 | )             |  | $ | (175  | ) |  | $ | (5,458 | )
|Revenue allowances:           |  |                            |        |   |                    |   |        |               |  |   |       |   |  |   |        |  
|Current period                |  |                            | (2,503 | ) |                    |   | (424   | )             |  |   | (414  | ) |  |   | (3,341 | )
|Payments and credits          |  |                            | 1,795  |   |                    |   |       |               |  |   | 403   |   |  |   | 2,198  |  
|Adjustment (3)                |  |                            |       |   |                    |   | 1,094  |               |  |   |      |   |  |   | 1,094  |  
|                              |  |                            |        |   |                    |   |        |               |  |   |       |   |  |   |        |  
|Balance at September 30, 2007 |  | $                          | (3,770 | ) |                    | $ | (1,551 | )             |  | $ | (186  | ) |  | $ | (5,507 | )
|                              |  |                            |        |   |                    |   |        |               |  |   |       |   |  |   |        |  

---

|(1) | Includes certain customary launch related discounts, managed care rebates, Medicaid rebates, chargebacks and distributor discounts
|--- | ----------------------------------------------------------------------------------------------------------------------------------



|(2) | Reserve for return of expired products
|--- | --------------------------------------



|(3) | Adjustment represents a reduction in estimate of future product returns
|--- | -----------------------------------------------------------------------

Inventory

Inventory is stated at the lower of cost or market. Our estimate of the net realizable value of our inventories is subject
to judgment and estimation. The actual net realizable value of our inventories could vary significantly from our estimates and could have a material effect on our financial condition and result of operations in any reporting period. On a quarterly
basis, we analyze our inventory levels to determine whether we have any obsolete, expired or excess inventory. The determination of obsolete, expired or excess inventory requires us to estimate the future demand for Ranexa and consider our
manufacturing commitments with third parties. If our current assumptions about future production or inventory levels, demand or competition were to change or if actual market conditions are less favorable than those we have projected, inventory
write-downs may be required that could negatively impact our product margins and results of operations. We also review our inventory for quality assurance and quality control issues identified in the manufacturing process and determine if a
write-down is necessary. To date, there have been no inventory write-downs.

Clinical Trial Accruals

We record accruals for estimated clinical study costs. Most of our clinical studies are performed by third-party contract research organizations, or CROs. These costs
have been a significant component of external R&D expenses. We accrue costs for clinical studies performed by CROs based on our estimates of work performed during the period, and adjust our estimates, if required after the period, based upon our
on-going review of the actual level of activities and costs incurred by the CRO. In many cases, we are also required to estimate the liability associated with any subcontractors that the CRO may have working on our behalf. In the case of large
pivotal trials, the subcontractors and activities are typically operating globally, in many countries and in many sites. Accordingly, there is a significant degree of estimation involved in quantifying the accrual for these liabilities, as the
complexity and magnitude of the activities and expenses can be significant and detailed study components frequently change during the studies, especially for large pivotal trials.



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Net Loss Per Share

In accordance with FAS No. 128, Earnings Per Share (FAS 128), basic and diluted net loss per share have been computed using the weighted average number of shares of common stock outstanding during each period.
Our calculation of diluted net loss per share excludes potentially dilutive shares, as these shares were antidilutive for all periods presented. Our calculation of diluted net loss per share may be affected in future periods by dilutive impact of
our outstanding stock options, restricted stock units, stock appreciation rights, warrants or by our convertible notes and debentures.

Recent
Pronouncements

In July 2006, the FASB issued FASB Interpretation 48, Accounting for Uncertainty in Income Taxes (FIN 48), an
interpretation of FAS No. 109, Accounting for Income Taxes(FAS 109). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprises financial statements in accordance with FAS 109. The
interpretation applies to all tax positions accounted for in accordance with FAS 109 and requires a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken, or expected to be
taken, in an income tax return. Subsequent recognition, derecognition and measurement is based on managements best judgment given the facts, circumstances and information available at the reporting date. FIN 48 is effective for fiscal years
beginning after December 15, 2006. Our adoption of FIN 48 on January 1, 2007 did not have a material impact on our financial results.

2.
Restructuring Charges

In May 2007, we initiated a restructuring plan to lower annual operating expenses that included the elimination of 138 positions,
of which 85 were part of the field sales organization and 53 were part of Palo Alto headquarters. In addition, we incurred charges related to contract termination and other restructuring related charges such as professional fees. During the quarter
ended September 30, 2007, we also reduced our restructuring accrual by $0.1 million based on revised estimates in employee benefits.

In September
2007, we recorded an additional restructuring charge of $1.5 million related to a sublease of excess leased office space. In August 2007, we entered into a sublease agreement with a third party to sublease a portion of one of our Palo Alto
buildings. The sublease has a two year term that began September 1, 2007. The restructuring amount represents the fair value of the lease payments and expenses less sublease income through August 2009.

The following table summarizes the accrual balance and utilization by cost type for the restructuring (in thousands):



|                                           |  |                       |       |    |                              |   |        |                         |  |   |                         |   |  |       |      |   |  |   |        |  
|------------------------------------------ |  | --------------------- | ----- | -- | ---------------------------- | - | ------ | ----------------------- |  | - | ----------------------- | - |  | ----- | ---- | - |  | - | ------ | -
|                                           |  | ExcessFacilitiesCosts |       |    | EmployeeSeveranceandBenefits |   |        | ContractTerminationFees |  |   | OtherRestructuringCosts |   |  | Total |     
|Restructuring charges accrued              |  | $                     |      |    |                              | $ | 4,291  |                         |  | $ | 804                     |   |  | $     | 272  |   |  | $ | 5,367  |  
|Cash payments                              |  |                       |      |    |                              |   | (2,257 | )                       |  |   | (804                    | ) |  |       | (205 | ) |  |   | (3,266 | )
|                                           |  |                       |       |    |                              |   |        |                         |  |   |                         |   |  |       |      |   |  |   |        |  
|Balance as of June 30, 2007                |  |                       |      |    |                              |   | 2,034  |                         |  |   |                        |   |  |       | 67   |   |  |   | 2,101  |  
|Restructuring charges accrued              |  |                       | 1,517 |    |                              |   |        |                         |  |   |                         |   |  |       |      |   |  |   | 1,517  |  
|Cash payments                              |  |                       | (66   | )* |                              |   | (1,876 | )                       |  |   |                        |   |  |       | (64  | ) |  |   | (2,006 | )
|Adjustments                                |  |                       |      |    |                              |   | (109   | )                       |  |   |                        |   |  |       |      |   |  |   | (109   | )
|                                           |  |                       |       |    |                              |   |        |                         |  |   |                         |   |  |       |      |   |  |   |        |  
|Balance as of September 30, 2007           |  |                       | 1,451 |    |                              |   | 49     |                         |  |   |                        |   |  |       | 3    |   |  |   | 1,503  |  
|Less current portion                       |  |                       | (758  | )  |                              |   | (49    | )                       |  |   |                         |   |  |       | (3   | ) |  |   | (810   | )
|                                           |  |                       |       |    |                              |   |        |                         |  |   |                         |   |  |       |      |   |  |   |        |  
|Long-term portion as of September 30, 2007 |  | $                     | 693   |    |                              | $ |       |                         |  | $ |                        |   |  | $     |     |   |  | $ | 693    |  
|                                           |  |                       |       |    |                              |   |        |                         |  |   |                         |   |  |       |      |   |  |   |        |  



|* | Cash payments less sublease payments received.
|- | ----------------------------------------------

3. Stock-Based
Compensation

We have a stock-based compensation program that provides our board of directors broad discretion in creating employee equity incentives.
This program includes incentive and non-statutory stock options, restricted stock units, or RSUs, stock appreciation rights, or SARs, and an employee stock purchase plan, or ESPP.

In May 2007, the board of directors approved an aggregate pool of 454,350 shares as retention grants (options and RSUs) to certain employees who were not terminated as part of our restructuring plan (see Note 2). All
these retention grants have a grant date of June 1, 2007 and all option grants have an exercise price of $10.54 which equals the closing price of our common stock on the day before the grant date, as required under the relevant stock option
plan. These option grants vest over 2 years, 25% after one year and 75% after two years, and the RSUs vest annually over a three-year period with annual settlement. No retention grants were made to executive officers.



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In August 2007, the board of directors approved a grant of 687,500 shares for RSUs and 2,062,500 shares for options to
our Chairman and CEO and 7 senior executives who were not included in the May 2007 retention grants. All these equity grants have a grant date of August 22, 2007 and all option grants have an exercise price of $10.45 which equals the closing
price of our common stock on the day before the grant date, as required under the relevant stock option plan. Notwithstanding the change in control provisions under the relevant stock option plan, all of these grants are subject to double trigger
accelerated vesting upon certain terminations within thirteen months following a change in control. The RSUs vest over 3 years with 7.5% vesting after 6 months, 7.5% vesting after 1 year, 25% vesting after 2 years and the remaining 60% vesting after
3 years. The option grants vest monthly over 3 years.

In August 2007, the board of directors approved a grant of 116,250 shares for RSUs and 348,750
shares for options to certain employees. All these equity grants have a grant date of August 22, 2007 and all option grants have an exercise price of $10.45 which equals the closing price of our common stock on the day before the grant date, as
required under the relevant stock option plan. Notwithstanding the change in control provisions under the relevant stock option plan, all of these grants are subject to double trigger accelerated vesting upon certain terminations within thirteen
months following a change in control. The RSUs vest over 3 years with 7.5% vesting after 6 months, 7.5% vesting after 1 year, 25% vesting after 2 years and the remaining 60% vesting after 3 years. The option grants vest monthly over 3 years.

The following table presents the total stock-based employee compensation expense resulting from stock-based compensation included in our condensed
consolidated statements of operations (in thousands):



|                                    |  |                                 |       |                                |   |       |  |      |        |  |   |       
|----------------------------------- |  | ------------------------------- | ----- | ------------------------------ | - | ----- |  | ---- | ------ |  | - | ------
|                                    |  | Three months endedSeptember 30, |       | Nine months endedSeptember 30,
|                                    |  | 2007                            |       | 2006                           |   | 2007  |  | 2006
|Cost of sales                       |  | $                               | 2     |                                | $ |      |  | $    | 115    |  | $ |      
|Research and development            |  |                                 | 1,655 |                                |   | 1,855 |  |      | 9,766  |  |   | 5,718 
|Selling, general and administrative |  |                                 | 3,303 |                                |   | 3,924 |  |      | 19,260 |  |   | 12,359
|                                    |  |                                 |       |                                |   |       |  |      |        |  |   |       
|Total                               |  | $                               | 4,960 |                                | $ | 5,779 |  | $    | 29,141 |  | $ | 18,077
|                                    |  |                                 |       |                                |   |       |  |      |        |  |   |       

In May 2007, as part of our restructuring plan, the board of directors approved the acceleration of vesting of all
options with an exercise price of $10.00 or greater granted to our employees prior to May 31, 2007. Excluded from the accelerated vesting were any and all grants to members of our board of directors, including our Chairman and CEO, all
retention grants approved by the board of directors in May 2007 and all options granted to new hires on or after May 31, 2007. A total of 1,526,696 options were included in the accelerated vesting with an average price of $27.73. Approximately
$11.9 million of stock compensation expense related to the accelerated vesting of these options was recognized during the nine months ended September 30, 2007.

In addition, in May 2007, the board of directors also approved the cancellation of outstanding SAR awards provided that the individual SAR holder also voluntarily consented to such cancellation. Excluded from the
cancellation of outstanding SAR awards were any and all grants to our Chairman and CEO. In accordance with FAS No. 123R, Share-Based Payments (FAS 123R), a cancellation of an award that is not accompanied by a concurrent
grant of (or offer to grant) a replacement award or other valuable consideration shall be accounted for as a repurchase for no consideration. Accordingly, any previously unrecognized compensation cost shall be recognized at the cancellation date. A
total of 650,000 SARs were voluntarily forfeited and we recognized $1.3 million as stock compensation expense for the unrecognized compensation costs for those awards. In addition, another individual SAR holder resigned from the company in June 2007
and as a result of this resignation, 75,000 SARs were automatically cancelled and no additional stock compensation expense was recognized. As of September 30, 2007, a total of 225,000 SARs remain outstanding.



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The following table presents the stock-based employee compensation expense resulting from the acceleration of vesting of
options and cancellation of SAR awards (in thousands):



|                                    |  |                                |        |      |   |  
|----------------------------------- |  | ------------------------------ | ------ | ---- | - | -
|                                    |  | Nine months endedSeptember 30,
|                                    |  | 2007                           |        | 2006
|Cost of sales                       |  | $                              | 109    |      | $ | 
|Research and development            |  |                                | 4,606  |      |   | 
|Selling, general and administrative |  |                                | 8,471  |      |   | 
|                                    |  |                                |        |      |   |  
|Total                               |  | $                              | 13,186 |      | $ | 
|                                    |  |                                |        |      |   |  

Stock Option Activity

The following table summarizes stock option activity for the three and nine months ended September 30, 2007 under all our stock option plans:



|                                          |  |                               |   |  |                                |       |                                         |           |                                          |   |    
|----------------------------------------- |  | ----------------------------- | - |  | ------------------------------ | ----- | --------------------------------------- | --------- | ---------------------------------------- | - | ---
|                                          |  | Number ofShares(in thousands) |   |  | Weighted-Average ExercisePrice |       | WeightedAverageRemainingContractualTerm |           | Aggregate Intrinsic Value (in thousands)
|Balance at December 31, 2006              |  | 8,019                         |   |  | $                              | 25.71 |                                         |           |                                          |   |    
|Granted                                   |  | 48                            |   |  |                                | 13.13 |                                         |           |                                          |   |    
|Exercised                                 |  | (52                           | ) |  |                                | 9.67  |                                         |           |                                          |   |    
|Forfeited or expired                      |  | (230                          | ) |  |                                | 27.44 |                                         |           |                                          |   |    
|                                          |  |                               |   |  |                                |       |                                         |           |                                          |   |    
|Balance at March 31, 2007                 |  | 7,785                         |   |  | $                              | 25.69 |                                         |           |                                          |   |    
|Granted                                   |  | 420                           |   |  |                                | 10.24 |                                         |           |                                          |   |    
|Exercised                                 |  | (10                           | ) |  |                                | 7.70  |                                         |           |                                          |   |    
|Forfeited or expired                      |  | (395                          | ) |  |                                | 20.19 |                                         |           |                                          |   |    
|                                          |  |                               |   |  |                                |       |                                         |           |                                          |   |    
|Balance at June 30, 2007                  |  | 7,800                         |   |  | $                              | 25.16 |                                         |           |                                          |   |    
|Granted                                   |  | 2,492                         |   |  |                                | 10.46 |                                         |           |                                          |   |    
|Exercised                                 |  | (26                           | ) |  |                                | 8.67  |                                         |           |                                          |   |    
|Forfeited or expired                      |  | (633                          | ) |  |                                | 28.93 |                                         |           |                                          |   |    
|                                          |  |                               |   |  |                                |       |                                         |           |                                          |   |    
|Options outstanding at September 30, 2007 |  | 9,633                         |   |  |                                | 21.15 |                                         | 6.7 years |                                          | $ | 389
|                                          |  |                               |   |  |                                |       |                                         |           |                                          |   |    
|Exercisable at September 30, 2007         |  | 6,765                         |   |  | $                              | 25.59 |                                         | 5.3 years |                                          | $ | 348
|                                          |  |                               |   |  |                                |       |                                         |           |                                          |   |    

As of September 30, 2007, there was $18.7 million of total unrecognized compensation expense related to
unvested stock options. This expense is expected to be recognized over a weighted-average period of approximately 2.8 years.

Restricted Stock Units

Our stock compensation plans permit the granting of restricted stock and/or RSUs.

Some of the RSUs provide for immediate acceleration of vesting in the event that we achieve a certain product revenue target over four consecutive quarters. As of September 30, 2007, we reached this revenue
target. During the three and nine months ended September 30, 2007, we recorded $1.3 million and $2.5 million, respectively, of accelerated compensation expense related to the performance-based component of these awards.

The following table presents a summary of the status of our nonvested RSUs for the three and nine months ended September 30, 2007:



|                               |  |                                |   |  |                              |      
|------------------------------ |  | ------------------------------ | - |  | ---------------------------- | -----
|                               |  | Outstanding RSUs(in thousands) |   |  | Weighted -Average Grant-Date
|Balance at December 31, 2006:  |  | 1,040                          |   |  | $                            | 22.08
|Granted                        |  |                               |   |  |                              |     
|Vested                         |  | (92                            | ) |  |                              | 22.67
|Forfeited                      |  | (14                            | ) |  |                              | 25.76
|                               |  |                                |   |  |                              |      
|Balance at March 31, 2007:     |  | 934                            |   |  | $                            | 21.97
|Granted                        |  | 744                            |   |  |                              | 8.91 
|Vested                         |  | (103                           | ) |  |                              | 20.12
|Forfeited                      |  | (137                           | ) |  |                              | 16.37
|                               |  |                                |   |  |                              |      
|Balance at June 30, 2007:      |  | 1,438                          |   |  | $                            | 15.90
|Granted                        |  | 804                            |   |  |                              | 10.45
|Vested                         |  | (220                           | ) |  |                              | 21.19
|Forfeited                      |  | (60                            | ) |  |                              | 16.20
|                               |  |                                |   |  |                              |      
|Balance at September 30, 2007: |  | 1,962                          |   |  | $                            | 13.06
|                               |  |                                |   |  |                              |      



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##### Table of Contents

As of September 30, 2007, there was approximately $25.6 million of total unrecognized compensation cost for the
remaining nonvested RSUs granted under our stock compensation plans. That cost is expected to be recognized over a period of 2.9 years.

Employee
Stock Purchase Plan

For the three and nine months ended September 30, 2007, we recorded approximately $0.4 million and $1.6 million,
respectively, of compensation expense related to the ESPP. For the three and nine months ended September 30, 2006, we recorded approximately $0.6 million and $1.4 million, respectively, of compensation expense related to the ESPP. For the three
and nine months ended September 30, 2007, 124,811 and 374,408 shares, respectively, were purchased under the ESPP. During the three and nine months ended September 30, 2006, 143,672 and 398,867 shares, respectively, were purchased under
the ESPP.

Stock Appreciation Rights

As of
September 30, 2007, a total of 225,000 SARs were outstanding, of which there was approximately $0.3 million of total unrecognized compensation cost related to nonvested SARs. That cost is expected to be recognized over a period of 1.25 years.

We recorded $0.1 million and $2.1 million of compensation expense related to SARs in the three and nine months ended September 30, 2007,
respectively. For the three and nine months ended September 30, 2006, we recorded $0.5 million and $1.6 million of compensation expense, respectively.

As of September 30, 2007 payments to date have been less than $0.1 million related to the SAR grants.

Valuation Assumptions

The fair value of our options granted to employees was estimated assuming no expected dividends and the following weighted-average assumptions:



|                        |  |                                 |   |  |                                |   |  |      |   |  |      |  
|----------------------- |  | ------------------------------- | - |  | ------------------------------ | - |  | ---- | - |  | ---- | -
|                        |  | Three monthsended September 30, |   |  | Nine monthsended September 30, |  
|                        |  | 2007                            |   |  | 2006                           |   |  | 2007 |   |  | 2006 |  
|Expected life (years)   |  | 6.2                             |   |  | 6.2                            |   |  | 6.2  |   |  | 6.2  |  
|Risk-free interest rate |  | 4.4                             | % |  | 4.7                            | % |  | 4.5  | % |  | 4.8  | %
|Volatility              |  | 61                              | % |  | 60                             | % |  | 61   | % |  | 60   | %

The fair value of awards issued under the ESPP is measured using assumptions similar to those used for stock
options, except that the term of the award is 1.0 year. We value the RSUs at the market price of our common stock on the date of the award. Compensation expense related to SARs is measured at the grant date fair value using an option pricing model,
using assumptions similar to those used for employee stock options. Any incremental fair value resulting from modifications of the SARs is also measured at fair value and amortized over the remaining service period for the award.

4. Milestone Achievement for Regadenoson

In May 2007, we submitted a new drug application to the FDA for one of our drug candidates, regadenoson, a selective A2A-adenosine receptor agonist for potential use as a pharmacologic agent in myocardial perfusion imaging studies. As a result of reaching this milestone, we received a $7.0 million milestone payment from our collaborative partner, Astellas US
LLC (Astellas), and have recognized this as collaboration revenue in the nine months ended September 30, 2007.



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5. Amendment to PTC Therapeutics License and Collaboration Agreement

In June 2007, we amended our collaboration and license agreement with PTC Therapeutics (PTC). The amendment changed the maturity date of our convertible note receivable
with PTC from October 2008 to January 31, 2011, as well as added new terms giving us an option to defer work on additional targets and related changes to the collaboration and license agreement.

In September 2007, PTC completed a Series F financing which triggered the conversion of our convertible note into shares of Series F preferred stock of PTC. On the date
of closing of this conversion, we held a convertible note balance of $ 4.0 million and $0.2 million of accrued interest, which converted to 256,503 shares of PTCs Series F preferred stock.

6. Inventories

The components of inventory were as follows (in
thousands):



|                |  |                    |        |                   |   |       
|--------------- |  | ------------------ | ------ | ----------------- | - | ------
|                |  | September 30, 2007 |        | December 31, 2006
|Raw materials   |  | $                  | 2,813  |                   | $ | 3,469 
|Work in process |  |                    | 14,724 |                   |   | 9,968 
|Finished goods  |  |                    | 4,059  |                   |   | 2,438 
|                |  |                    |        |                   |   |       
|Total           |  | $                  | 21,596 |                   | $ | 15,875
|                |  |                    |        |                   |   |       

7. Litigation

We are participating in dispute resolution proceedings with an insurer over whether or not we will reimburse that insurer for a portion of the insurers contribution to the settlement of a previous securities class action lawsuit
involving us and certain of our officers and directors. The amount of our reimbursement will not exceed $2.25 million, and may be a lesser amount or zero. We do not believe that an estimated loss from this contingency is either probable or
estimable. Therefore in accordance with FAS No. 5,Accounting for Contingencies, we have not recorded an associated liability.

8. Income Taxes

In July 2006, the FASB issued FIN 48, an interpretation of FAS 109. FIN 48 clarifies the accounting for uncertainty in
income taxes recognized in an enterprises financial statements in accordance with FAS 109. The interpretation applies to all tax positions accounted for in accordance with FAS 109 and requires a recognition threshold and measurement attribute
for the financial statement recognition and measurement of a tax position taken, or expected to be taken, in an income tax return. Subsequent recognition, derecognition, and measurement is based on managements best judgment given the facts,
circumstances and information available at the reporting date. FIN 48 is effective for fiscal years beginning after December 15, 2006. Our adoption of FIN 48 on January 1, 2007 did not have a material impact on our financial results.

We file income tax returns in the U.S. federal jurisdiction and various state jurisdictions. To date we have not been audited by the Internal Revenue
Service, or IRS, or any state income tax jurisdictions.

We have generated net losses since inception and as a result have not owed payments to the IRS for
taxes. As of December 31, 2006, our total deferred tax assets were $450.3 million. The deferred tax assets are primarily comprised of federal and state tax net operating loss, or NOL, carryforwards. Due to uncertainties surrounding our ability
to generate future taxable income to realize these tax assets, a full valuation allowance has been established to offset our deferred tax assets. Additionally, the future utilization of our NOL carryforwards to offset future taxable income may be
subject to an annual limitation as a result of ownership changes that may have occurred previously or that could occur in the future. We have not yet determined whether such an ownership change has occurred. If necessary, the deferred tax assets
will be reduced by any carryforwards that expire to utilization as a result of such limitations, with a corresponding reduction of the valuation allowance.

During the three and nine months ended September 30, 2007, no interest and penalties were recognized in the statement of operations and there was no accrued interest and penalties recognized in the statement of financial position. Our
policy will be to recognize interest accrued related to unrecognized tax benefits in tax expenses once we have an associated tax liability.



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|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

Forward-Looking Statements

This Quarterly Report on Form 10-Q and the information incorporated herein by reference
contain forward-looking statements that involve a number of risks and uncertainties. Although our forward-looking statements reflect the good faith judgment of our management, these statements can only be based on facts and factors currently known
by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties, and actual results and outcomes may differ materially from results and outcomes discussed in the forward-looking statements.

Forward-looking statements can be identified by the use of forward-looking words such as believe, expect, hope, may,
will, plan, intend, estimate, could, should, would, continue, seek, pro forma or anticipate, or other similar words
(including their use in the negative), or by discussions of future matters such as our future clinical or product development, financial performance, conduct and timing of clinical studies, study results, regulatory review and approval of our
products or product candidates, commercialization of products, possible changes in legislation and other statements that are not historical. These statements are within the meaning of the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995 and include but are not limited to statements under the captions Risk Factors, Managements Discussion and Analysis of Financial Condition and Results of Operations, as well as other
sections in this report.

These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially,
including but not limited to, operating losses and fluctuations in operating results; capital requirements; regulatory review and approval of our products; special protocol assessment agreement; the conduct and timing of clinical trials;
commercialization of products; market acceptance of products; product labeling; concentrated customer base; reliance on strategic partnerships and collaborations; uncertainties in drug development; uncertainties regarding intellectual property; and
other risks discussed under the heading Item 1A. Risk Factors. You should be aware that the occurrence of any of the events discussed under the heading Item 1A. Risk Factors and elsewhere in this report could substantially
harm our business, results of operations and financial condition and that, if any of these events occurs, the trading price of our common stock could decline and you could lose all or a part of the value of your shares of our common stock.

The cautionary statements made in this report are intended to be applicable to all related forward-looking statements wherever they may appear in this
report. We urge you not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new
information, future events or otherwise.

You should read the following managements discussion and analysis of our financial condition and results of
operations in conjunction with our audited consolidated financial statements and related notes thereto included as part of our Annual Report on Form 10-K for the year ended December 31, 2006, and our unaudited condensed consolidated
financial statements for the three months ended September 30, 2007 and other disclosures (including the disclosures under Item 1A. Risk Factors) included in this Quarterly Report on Form 10-Q. Our condensed consolidated
financial statements have been prepared in accordance with GAAP and are presented in U.S. dollars.

Overview

The Company

CV Therapeutics, Inc., headquartered in Palo Alto,
California, is a biopharmaceutical company focused on the discovery, development and commercialization of new small molecule drugs for the treatment of cardiovascular diseases. We apply advances in molecular biology and genetics to identify
mechanisms of cardiovascular diseases and targets for drug discovery.

Major Developments in the third quarter of 2007

In the third quarter of 2007, our total revenues were $19.8 million, an increase of 62% from total revenues of $12.2 million in the third quarter of 2006, and our net
loss was $34.2 million, a decrease of 45% from a net loss of $62.7 million in the third quarter of 2006. For the nine months ended September 30, 2007, our total revenues were $60.4 million, an increase of 151% from $24.1 million for the nine
months ended September 30, 2006, and our net loss was $146.9 million, a decrease of 29% from $206.3 million for the nine months ended September 30, 2006.

Significant milestones during the third quarter of 2007 were as follows:



| |  |  | Net product sales of Ranexa for the quarter ended September 30, 2007 were $18.4 million which represented an increase of 20%, compared to $15.3 million of net
product sales revenue recorded in the quarter ended June 30, 2007.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | In August 2007, we launched the sale of 1000 mg tablets of Ranexa.
| | - |  | ------------------------------------------------------------------



| |  |  | Based on the results of the MERLIN TIMI-36 study of ranolazine obtained in the first quarter of 2007, we submitted a supplemental new drug application for Ranexa to
the division of cardiovascular and renal products of the FDA in September 2007, seeking to modify the existing product labeling and expand the indication to include first line angina treatment.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Developments Expected in the Future



| |  |  | In December 2006, we submitted a marketing application to the European Medicines Agency which seeks approval of ranolazine for the treatment of chronic angina. This
application includes data previously submitted to these European regulatory authorities (as part of the marketing approval application for ranolazine which we withdrew in 2005), as well as additional data and results. Regulatory action on our
application is expected in the first half of 2008.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In May 2007, we submitted a new drug application for regadenoson to the FDA for potential use as a pharmacologic agent in myocardial perfusion imaging studies.
Regulatory action on our application is expected in the first half of 2008.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In September 2007, we submitted a supplemental new drug application for Ranexa to the division of cardiovascular and renal products of the FDA seeking to modify the
existing product labeling and expand the indication to include first line angina treatment. In November 2007, we announced that the FDA requested that we pay a second filing user fee and officially notified us that the metabolism and endocrinology
products division of the FDA will undertake a formal review of the diabetes data, as a separate new drug application filing to that division. Specifically, the FDA informed us that a new drug application has been administratively unbundled from the
parent new drug application (which is held by the division of cardiovascular and renal products of the FDA) to provide for clinical review by the metabolism and endocrinology products division of the FDA for our proposed labeling change to add
reduction of HbA1c in coronary artery disease patients with diabetes to the approved labeling for Ranexa. Assuming that the division of cardiovascular and renal products of the FDA accepts the supplemental new drug application submission for review,
and assuming that the metabolism and endocrinology products division of the FDA accepts the new drug application for review, each application would have a filing date of September 27, 2007. Assuming these applications are accepted for review,
regulatory action on our application is expected in 2008.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Economic and Industry-wide Factors

We are subject to risks common to biopharmaceutical companies, including risks inherent in our research, development and commercialization efforts, preclinical testing,
clinical trials, uncertainty of regulatory approvals, market acceptance of our products, reliance on collaborative partners, enforcement of patent and proprietary rights, continued operating losses, fluctuating operating results, the need for future
capital, potential competition, use of hazardous materials and retention of key employees. In order for a product to be commercialized successfully in our industry, it is necessary for us and, in some cases, our collaborative partners, to conduct
preclinical tests and clinical trials, demonstrate the efficacy and safety of our product candidate to the satisfaction of regulatory authorities and potential customers, obtain marketing approval (and, in some cases, pricing approval) from
regulatory authorities, enter into manufacturing, distribution and marketing arrangements, achieve market acceptance and, in many cases, obtain adequate reimbursement from government and private insurers. We cannot provide assurance that we will
generate sufficient revenues to achieve or sustain profitability in the future.

Marketed Products

We currently promote Ranexa with our national cardiovascular specialty sales force. Ranexa was approved in the United States in January 2006 for the treatment of chronic
angina in patients who have not achieved an adequate response with other antianginal drugs. Ranexa represents the first new pharmaceutical approach to treat angina in the United States in more than 20 years. We launched Ranexa 500 mg tablets in the
United States in March 2006, and Ranexa 1000 mg tablets in August 2007.

Critical Accounting Policies and the Use of Estimates

The accompanying discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements and the
related disclosures, which have been prepared in accordance with GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts in our condensed
consolidated financial statements and accompanying notes. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities. We base our estimates, assumptions and judgments on historical
experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates. We believe the following policies to be the most critical to an understanding of our
financial condition and results of operations because they require us to make estimates, assumptions and judgments about matters that are inherently uncertain.



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Revenue Recognition

Product sales are recognized as revenue when there is persuasive evidence an arrangement exists, delivery to our customers, who are wholesale distributors, has occurred, title has transferred to the wholesale distributors, the price is
fixed or determinable and collectibility is reasonably assured, in accordance with SEC Staff Accounting Bulletin No. 104, Revenue Recognition. For arrangements where the revenue recognition criteria are not met, we defer the
recognition of revenue until such time that all criteria under the provision are met.

Revenue under our collaborative research arrangements is recognized
based on the performance requirements of the contract. Amounts received under such arrangements consist of up-front license payments, periodic milestone payments and reimbursements for research activities. For multiple element arrangements, we
follow the guidance of EITF Issue No. 00-21, Revenue Arrangements with Multiple Deliverables. For these arrangements, we generally are not able to identify evidence of fair value for the undelivered elements and we therefore
recognize any consideration for the combined unit of accounting in the same manner as the revenue is recognized for the final deliverable, which is generally ratably over the performance period. Up-front or milestone payments which are still subject
to future performance requirements are recorded as deferred revenue and are amortized over the performance period. The performance period is estimated at the inception of the arrangement and is reevaluated at each reporting period. The reevaluation
of the performance period may shorten or lengthen the period during which the deferred revenue is recognized. We reevaluated the performance period for certain collaborative research arrangements in 2005 and 2006, which resulted in an immaterial
change in revenues as compared to our original estimate. This performance period was completed in May 2007. We evaluate the appropriate performance period based on research progress attained and certain events, such as changes in the regulatory and
competitive environment. Revenues related to substantive, at-risk milestones are recognized upon achievement of the scientific or regulatory event specified in the underlying agreement. Revenues for research activities are recognized as the related
research efforts are performed. Cost-sharing payments received from collaborative partners for a proportionate share of our and our partners combined R&D expenditures pursuant to the underlying agreement are presented in the condensed
consolidated statement of operations as collaborative research revenue.

Gross-to-Net Sales Adjustments

Revenues from product sales are recorded net of sales adjustments for estimated managed care rebates and Medicaid rebates, chargebacks, product returns, wholesale
distributor discounts and cash discounts, all of which are established at the time of sale. These gross-to-net sales adjustments are based on estimates of the amounts owed or to be claimed on the related sales. In order to prepare our condensed
consolidated financial statements, we are required to make estimates regarding the amounts earned or to be claimed on the related product sales, including the following:



| |  |  | Rebates are contractual price adjustments payable to healthcare providers and organizations such as clinics, pharmacies and pharmacy benefit managers that do not
purchase products directly from us;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Chargebacks are the result of contractual commitments by us to provide products to government or commercial healthcare entities at specified prices or discounts
that do not purchase products directly from us;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Product return allowances are established in accordance with our product returns policy. Our returns policy allows product returns within the period beginning six
months prior to expiration and ending twelve months following product expiration;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Distributor discounts are discounts to certain wholesale distributors based on contractually determined rates; and
| | - |  | ------------------------------------------------------------------------------------------------------------------



| |  |  | Cash discounts are credits granted to wholesale distributors for remitting payment on their purchases within established cash payment incentive periods.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------

We believe our estimates related to chargebacks, cash discounts and distributor discounts do not have a high degree of estimation
complexity or uncertainty as the related amounts are settled within a relatively short period of time. We believe that product return allowances require a high degree of judgment and are subject to change based on our experience and certain
qualitative factors. During the three months ended September 30, 2007, we reduced our estimate for future product returns for the Ranexa 500 mg product, which resulted in our recognizing an additional $1.1 million in net revenue. We believe
that our current estimates related to product return allowances are reasonable and appropriate based on current facts and circumstances. We consider rebate accruals to be our most complex estimate, as it involves material amounts, requires a high
degree of subjectivity and judgment necessary to account for the accrual estimate and the final amount may not be settled for several quarters. As a result of the uncertainties involved in estimating rebate accruals, there is a higher likelihood
that materially different amounts could be reported under different conditions or using different assumptions.



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Our rebate accruals are based upon definitive contractual agreements or legal requirements (such as Medicaid) after the
final dispensing of the product by a pharmacy, clinic or hospital to a medical benefit plan participant. Rebate accruals are primarily determined based on estimates of current and future patient usage and applicable contractual or legal rebate
rates. Rebate accrual estimates are evaluated each reporting period and may require adjustments to better align our estimates with actual results and with new information that may affect our estimates. As part of this evaluation, we review changes
in legislation, changes in the level of contracts and associated discounts, and changes in product sales trends. Although rebates are accrued at the time of sale, rebates are typically paid out several months after the sale.

All of the aforementioned categories of gross-to-net sales adjustments are evaluated each reporting period and adjusted when trends or significant events indicate that a
change in estimate is appropriate. Such changes in estimate could materially affect our results of operations or financial position. As of September 30, 2007, our condensed consolidated balance sheet reflected estimated gross-to-net sales
reserves and accruals totaling approximately $5.5 million.

The following table summarizes revenue allowance activity for the three and nine months ended
September 30, 2007 (in thousands):



|                              |  |                            |        |   |                    |   |        |               |  |   |       |   |  |   |        |  
|----------------------------- |  | -------------------------- | ------ | - | ------------------ | - | ------ | ------------- |  | - | ----- | - |  | - | ------ | -
|                              |  | ContractSalesDiscounts (1) |        |   | ProductReturns (2) |   |        | CashDiscounts |  |   | Total |  
|Balance at December 31, 2006  |  | $                          | (1,318 | ) |                    | $ | (894   | )             |  | $ | (116  | ) |  | $ | (2,328 | )
|Revenue allowances:           |  |                            |        |   |                    |   |        |               |  |   |       |   |  |   |        |  
|Current period                |  |                            | (1,516 | ) |                    |   | (575   | )             |  |   | (287  | ) |  |   | (2,378 | )
|Payments and credits          |  |                            | 808    |   |                    |   |       |               |  |   | 265   |   |  |   | 1,073  |  
|                              |  |                            |        |   |                    |   |        |               |  |   |       |   |  |   |        |  
|Balance at March 31, 2007     |  | $                          | (2,026 | ) |                    | $ | (1,469 | )             |  | $ | (138  | ) |  | $ | (3,633 | )
|Revenue allowances:           |  |                            |        |   |                    |   |        |               |  |   |       |   |  |   |        |  
|Current period                |  |                            | (2,373 | ) |                    |   | (752   | )             |  |   | (376  | ) |  |   | (3,501 | )
|Payments and credits          |  |                            | 1,337  |   |                    |   |       |               |  |   | 339   |   |  |   | 1,676  |  
|                              |  |                            |        |   |                    |   |        |               |  |   |       |   |  |   |        |  
|Balance at June 30, 2007      |  | $                          | (3,062 | ) |                    | $ | (2,221 | )             |  | $ | (175  | ) |  | $ | (5,458 | )
|Revenue allowances:           |  |                            |        |   |                    |   |        |               |  |   |       |   |  |   |        |  
|Current period                |  |                            | (2,503 | ) |                    |   | (424   | )             |  |   | (414  | ) |  |   | (3,341 | )
|Payments and credits          |  |                            | 1,795  |   |                    |   |       |               |  |   | 403   |   |  |   | 2,198  |  
|Adjustment (3)                |  |                            |       |   |                    |   | 1,094  |               |  |   |      |   |  |   | 1,094  |  
|                              |  |                            |        |   |                    |   |        |               |  |   |       |   |  |   |        |  
|Balance at September 30, 2007 |  | $                          | (3,770 | ) |                    | $ | (1,551 | )             |  | $ | (186  | ) |  | $ | (5,507 | )
|                              |  |                            |        |   |                    |   |        |               |  |   |       |   |  |   |        |  

---

|(1) | Includes certain customary launch related discounts, managed care rebates, Medicaid rebates, chargebacks and distributor discounts
|--- | ----------------------------------------------------------------------------------------------------------------------------------



|(2) | Reserve for return of expired products
|--- | --------------------------------------



|(3) | Adjustment represents a reduction in estimate of future product returns
|--- | -----------------------------------------------------------------------

Changes in actual experience or changes in other qualitative factors could cause our gross-to-net sales adjustments to fluctuate, particularly with our newly launched products. We review the rates and amounts in our gross-to-net sales
adjustments each reporting period. If future estimated rates and amounts are significantly greater than those reflected in our recorded reserves, the resulting adjustments to those reserves would decrease our reported net revenues. Conversely, if
actual returns, rebates and chargebacks are significantly less than those reflected in our recorded reserves, the resulting adjustments to those accruals or reserves would increase our reported net revenue. If we changed our assumptions and
estimates, our gross-to-net sales adjustments would change, which would impact the net revenues we report. For example, we estimate our returns reserved as a percentage of product sales. If we had increased or decreased that returns reserve by 1% in
the quarter ended September 30, 2007, the cumulative financial statement impact in that quarter would have been $0.8 million.

We will continue to
monitor channel inventory levels and evaluate the risk of returns in future periods. If conditions or other circumstances change we may take actions to revise our estimate of product returns in future periods. For example, during the three months
ended September 30, 2007, we reduced our estimate for future product returns for the Ranexa 500 mg product, which resulted in our recognizing an additional $1.1 million of net revenue. This revised estimate was based on limited actual returns
from customers since launch, our current assessment of the trends that impact our estimate including percentage of channel inventory reserved, long product dating and industry benchmark data. We believe that our current estimates related to product
return allowances are reasonable and appropriate based on our assessment of the qualitative factors considered.

Inventory

Inventory is stated at the lower of cost or market. Our estimate of the net realizable value of our inventories is subject to judgment and estimation. The actual net
realizable value of our inventories could vary significantly from our estimates and could have a material effect on our financial condition and result of operations in any reporting period. On a quarterly basis, we analyze our inventory levels to
determine whether we have any obsolete, expired or excess inventory. The determination



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of obsolete, expired or excess inventory requires us to estimate the future demand for Ranexa and consider our manufacturing commitments with third parties.
If our current assumptions about future production or inventory levels, demand or competition were to change or if actual market conditions are less favorable than those we have projected, inventory write-downs may be required that could negatively
impact our product margins and results of operations. We also review our inventory for quality assurance and quality control issues identified in the manufacturing process and determine if a write-down is necessary. To date, there have been no
inventory write-downs.

Clinical Trial Accruals

We record accruals for estimated clinical study costs. Most of our clinical studies are performed by third-party CROs. These costs have been a significant component of external R&D expenses. We accrue costs for clinical studies
performed by CROs based on our estimates of work performed during the period, and adjust our estimates, if required after the period, based upon our on-going review of the actual level of activities and costs incurred by the CRO. In many cases, we
are also required to estimate the liability associated with any subcontractors that the CRO may have working on our behalf. In the case of large pivotal trials, the subcontractors and activities are typically operating globally, in many countries
and in many sites. Accordingly, there is a significant degree of estimation involved in quantifying the accrual for these liabilities, as the complexity and magnitude of the activities and expenses can be significant and detailed study components
frequently change during the studies, especially for large pivotal trials.

Stock Based Compensation

Our stock compensation plans permit the granting of restricted stock and/or RSUs. Some of the RSUs provide for immediate acceleration of vesting in the event that we
achieve a certain product revenue target over four consecutive quarters. As of September 30, 2007, we reached this revenue target. During the three and nine months ended September 30, 2007, we have recorded $1.3 million and $2.5 million,
respectively, of accelerated compensation expense related to the performance-based component of these awards.

Legal Contingencies

As discussed in Note 7, Litigation, in the Notes to Condensed Consolidated Financial Statements, we are participating in dispute
resolution proceeding with an insurer relating to the settlement of a securities class action lawsuit. We assessed the likelihood of any adverse judgments or outcomes to this legal matter as well as the potential range of reasonably possible loss.
As of the balance sheet date at September 30, 2007, we have not recorded an associated liability since the payment of contingent liability is neither probable nor estimable. We have disclosed a range representing a reasonably possible cost of
current resolution of the matter under the dispute resolution which is not to exceed $2.25 million, and may be a lesser amount or zero. The nature of this matter is highly uncertain and subject to change. As a result, the amount of our liability for
this matter could exceed our current estimate, depending on the final outcome of this matter. An outcome of this matter different than previously estimated could have a material effect on our financial condition or our results of operations.

Restructuring Charges

As defined in
FAS No.146, Accounting for Costs Associated with Exit or Disposal Activities (FAS 146), we record costs and liabilities associated with exit and disposal activities at fair value in the period the liability is incurred.
Restructuring charges consist of charges related to employee severance and benefits, contract termination fees and other restructuring related charges. Charges related to employee severance and benefits are determined based on the estimated
severance and fringe benefit charge for identified employees. Our estimates of future liabilities may change, requiring us to record additional restructuring charges or reduce the amount of liabilities recorded. For the three months ended
September 30, 2007, we recorded an additional restructuring charge relating to a sublease of excess leased office space of $1.5 million. This represents the fair value of the lease payments and expenses less sublease income through August 2009.
We also reduced our restructuring accrual by $0.1 million based on revised estimates in employee benefits. We will reassess restructuring accruals on a quarterly basis to reflect changes in the costs of the restructuring activities and we will
record new restructuring accruals as liabilities are incurred.



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The following table summarizes the accrual balance and utilization by cost type for the restructuring (in thousands):



|                                           |  |                       |       |    |                              |   |        |                         |  |   |                         |   |  |       |      |   |  |   |        |  
|------------------------------------------ |  | --------------------- | ----- | -- | ---------------------------- | - | ------ | ----------------------- |  | - | ----------------------- | - |  | ----- | ---- | - |  | - | ------ | -
|                                           |  | ExcessFacilitiesCosts |       |    | EmployeeSeveranceandBenefits |   |        | ContractTerminationFees |  |   | OtherRestructuringCosts |   |  | Total |     
|Restructuring charges accrued              |  | $                     |      |    |                              | $ | 4,291  |                         |  | $ | 804                     |   |  | $     | 272  |   |  | $ | 5,367  |  
|Cash payments                              |  |                       |      |    |                              |   | (2,257 | )                       |  |   | (804                    | ) |  |       | (205 | ) |  |   | (3,266 | )
|                                           |  |                       |       |    |                              |   |        |                         |  |   |                         |   |  |       |      |   |  |   |        |  
|Balance as of June 30, 2007                |  |                       |      |    |                              |   | 2,034  |                         |  |   |                        |   |  |       | 67   |   |  |   | 2,101  |  
|Restructuring charges accrued              |  |                       | 1,517 |    |                              |   |        |                         |  |   |                         |   |  |       |      |   |  |   | 1,517  |  
|Cash payments                              |  |                       | (66   | )* |                              |   | (1,876 | )                       |  |   |                        |   |  |       | (64  | ) |  |   | (2,006 | )
|Adjustments                                |  |                       |      |    |                              |   | (109   | )                       |  |   |                        |   |  |       |      |   |  |   | (109   | )
|                                           |  |                       |       |    |                              |   |        |                         |  |   |                         |   |  |       |      |   |  |   |        |  
|Balance as of September 30, 2007           |  |                       | 1,451 |    |                              |   | 49     |                         |  |   |                        |   |  |       | 3    |   |  |   | 1,503  |  
|Less current portion                       |  |                       | (758  | )  |                              |   | (49    | )                       |  |   |                         |   |  |       | (3   | ) |  |   | (810   | )
|                                           |  |                       |       |    |                              |   |        |                         |  |   |                         |   |  |       |      |   |  |   |        |  
|Long-term portion as of September 30, 2007 |  | $                     | 693   |    |                              | $ |       |                         |  | $ |                        |   |  | $     |     |   |  | $ | 693    |  
|                                           |  |                       |       |    |                              |   |        |                         |  |   |                         |   |  |       |      |   |  |   |        |  



|* | Cash payments less sublease payments received
|- | ---------------------------------------------



21



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##### Table of Contents

Results of Operations

Revenues

Revenues and percentage changes as compared to the prior year are as follows (dollar amounts are presented in millions):



|                       |  |                                  |      |      |   |          |                                 |     |      |  |      |      |          |   |      |  |     |  
|---------------------- |  | -------------------------------- | ---- | ---- | - | -------- | ------------------------------- | --- | ---- |  | ---- | ---- | -------- | - | ---- |  | --- | -
|                       |  | Three months ended September 30, |      |      |   |          | Nine months ended September 30, |     |      | 
|                       |  | 2007                             |      | 2006 |   | % Change |                                 |     | 2007 |  | 2006 |      | % Change |  
|Product sales, net     |  | $                                | 18.4 |      | $ | 8.2      |                                 | 124 | %    |  | $    | 45.7 |          | $ | 9.4  |  | 386 | %
|Collaborative research |  |                                  | 1.3  |      |   | 4.0      |                                 | (68 | %)   |  |      | 14.7 |          |   | 13.3 |  | 11  | %
|Co-promotion           |  |                                  |     |      |   |         |                                 | *   |      |  |      |     |          |   | 1.4  |  | *   |  
|                       |  |                                  |      |      |   |          |                                 |     |      |  |      |      |          |   |      |  |     |  
|Total revenues         |  | $                                | 19.8 |      | $ | 12.2     |                                 | 62  | %    |  | $    | 60.4 |          | $ | 24.1 |  | 151 | %
|                       |  |                                  |      |      |   |          |                                 |     |      |  |      |      |          |   |      |  |     |  

---

|* | Calculation not meaningful
|- | --------------------------



| | The values shown above are exact, which may lead to the appearance of footing errors.
| | -------------------------------------------------------------------------------------

Product sales, net were $18.4 million and $45.7 million in the three and nine months ended September 30, 2007, respectively, compared to product sales of $8.2 million and $9.4 million for each of the same periods
in the prior year, respectively. Product sales relate to our sales of Ranexa which was launched in March 2006. The $18.4 million of net product sales for the three months ended September 30, 2007 includes $1.1 million resulting from a reduction
in our estimate of future product returns reserve.

The decrease in collaborative research revenue for the three months ended September 30, 2007 was
due to lower reimbursable development costs incurred in connection with the completion of our Phase 3 trials of regadenoson undertaken in our collaboration agreement with Astellas, as compared to the same period in the prior year.

The increase in collaborative research revenue for the nine months ended September 30, 2007 was primarily due to a $7.0 million milestone payment we received in
June 2007 from Astellas as a result of our submission of a new drug application to the FDA for regadenoson. This was offset partially by a decrease in the amount of reimbursable development costs incurred in connection with the completion of our
Phase 3 clinical trials of regadenoson undertaken in our collaboration agreement with Astellas. In December 2006, we announced that the second of two Phase 3 clinical studies of regadenoson met its primary endpoint. A prior identically designed
Phase 3 study, completed in 2005, also met its primary endpoint. In May 2007, we submitted a new drug application for regadenoson to the FDA.

We received co-promotion revenue from sales of ACEON®, which we co-promoted with our collaborative partner, Solvay Pharmaceuticals during of the nine months ended September 30, 2006, which totaled $1.4
million. In October 2006, we signed a letter agreement with Solvay Pharmaceuticals that, among other things, terminated our co-promotion agreement with Solvay Pharmaceuticals relating to ACEON®, effective as of November 1, 2006, and we ceased all commercial activities relating to ACEON®.

Cost of Sales

Cost of sales and percentage changes as compared to the prior year are as follows (dollar amounts are presented in millions):



|              |  |                                  |     |      |   |          |                                 |     |      |  |      |     |          |   |     |  |     |  
|------------- |  | -------------------------------- | --- | ---- | - | -------- | ------------------------------- | --- | ---- |  | ---- | --- | -------- | - | --- |  | --- | -
|              |  | Three months ended September 30, |     |      |   |          | Nine months ended September 30, |     |      | 
|              |  | 2007                             |     | 2006 |   | % Change |                                 |     | 2007 |  | 2006 |     | % Change |  
|Cost of sales |  | $                                | 2.6 |      | $ | 1.2      |                                 | 117 | %    |  | $    | 6.6 |          | $ | 1.5 |  | 340 | %

The increase in cost of sales in the three and nine months ended September 30, 2007 compared to the same
periods in the prior year correspond primarily to increases in product sales of Ranexa. Cost of sales in the nine months ended September 30, 2007 also included stock-based compensation expense related to accelerated vesting of employee stock
options associated with our restructuring in the second quarter of 2007 and validation costs associated with a second-source supplier.

Cost of sales
includes the cost of product (the cost to manufacture Ranexa, which includes material, labor and overhead costs) as well as costs of logistics and distribution of the product and a royalty owed to Roche Palo Alto LLC (formerly Syntex (U.S.A) Inc.)
(Roche), based on net product revenue (as defined in our license agreement with Roche). Until receiving FDA marketing approval of Ranexa in January 2006, all costs associated with the manufacturing of Ranexa were included in R&D expenses when
incurred. Consequently, the cost of manufacturing Ranexa reflected in our total costs and expenses in 2006, and for some period of time thereafter, will not reflect the full cost of production because a portion of the raw



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##### Table of Contents

materials, labor and overhead costs incurred to produce the product sold were previously expensed. For these reasons, we anticipate that our margin on sales
of Ranexa will continue to fluctuate from quarter to quarter during 2007 and for some period of time thereafter. Inventory that was previously expensed was $8.4 million as of September 30, 2007.

In addition to the variable costs referenced above, there are also fixed costs, which include the amortization of product rights of Ranexa. Fixed cost of sales as a
percentage of net product revenue are expected to decline as revenues increase (and increase as revenues decrease) due to the changing impact of the fixed cost elements of cost of sales as a percentage of revenues.

Research and Development Expenses

R&D expenses and
percentage changes as compared to the prior year are as follows (dollar amounts are presented in millions):



|                                  |  |                                  |      |      |   |          |                                 |     |      |  |      |      |          |   |      |  |     |   
|--------------------------------- |  | -------------------------------- | ---- | ---- | - | -------- | ------------------------------- | --- | ---- |  | ---- | ---- | -------- | - | ---- |  | --- | --
|                                  |  | Three months ended September 30, |      |      |   |          | Nine months ended September 30, |     |      | 
|                                  |  | 2007                             |      | 2006 |   | % Change |                                 |     | 2007 |  | 2006 |      | % Change |  
|Research and development expenses |  | $                                | 19.1 |      | $ | 32.5     |                                 | (41 | %)   |  | $    | 75.0 |          | $ | 97.2 |  | (23 | %)

The decrease in R&D expenses in the three months ended September 30, 2007 compared to the three months
ended for September 30, 2006 was primarily due to lower outside contract service expenses for our clinical trial expenses related to the completion of the MERLIN TIMI-36 study of Ranexa, lower personnel related expenses, lower expenses for our
Phase 3 regadenoson studies and lower expenses in other R&D projects.

The decrease in R&D expenses in the nine months ended September 30,
2007 compared to the same period for September 30, 2006 was primarily due to lower outside contract service expenses for our clinical trial expenses related to the completion of the MERLIN TIMI-36 study of Ranexa, lower expenses for our Phase 3
regadenoson studies and lower expenses for other R&D projects. The decrease was partially offset by stock-based compensation expense related to accelerated vesting of employee stock options and the voluntary forfeiture of certain stock
appreciation rights in the second quarter of 2007.

R&D expenses decreased 34% in the quarter ended September 30, 2007 compared to the previous
quarter. We expect expenses in the fourth quarter to be lower than the first and second quarter of 2007 and comparable to the third quarter of 2007 due to the completion of the MERLIN TIMI-36 clinical study and the second regadenoson Phase 3 study
and the reduction in R&D expenditures associated with the restructuring in the second quarter of 2007. However, in the fourth quarter of 2007, we still expect to incur substantial R&D expenses associated with the submission and review of
regulatory approval applications in the United States for both Ranexa and regadenoson, as well as in connection with ongoing review of the approval application for ranolazine already submitted to European regulatory authorities. Those projects still
represent approximately 50% of our total R&D budget for 2007. We also expect to have ongoing R&D expenses in the future associated with maintaining our current marketing approval of Ranexa.

Management categorizes R&D expenses by project. The table below shows R&D expenses for our two primary clinical development projects, ranolazine and regadenoson,
as well as expenses associated with all other projects in our R&D pipeline. Other projects consist primarily of numerous pre-clinical research projects, none of which individually constitutes more than 10% of our total research and development
expenses for the periods presented (dollar amounts are presented in millions):



|                         |  |                                  |      |                                 |   |      |  |      |      |  |   |     
|------------------------ |  | -------------------------------- | ---- | ------------------------------- | - | ---- |  | ---- | ---- |  | - | ----
|                         |  | Three months ended September 30, |      | Nine months ended September 30,
|                         |  | 2007                             |      | 2006                            |   | 2007 |  | 2006
|Ranexa                   |  | $                                | 9.4  |                                 | $ | 17.4 |  | $    | 35.0 |  | $ | 51.5
|Regadenoson              |  |                                  | 2.4  |                                 |   | 5.3  |  |      | 12.7 |  |   | 18.6
|Other projects           |  |                                  | 7.3  |                                 |   | 9.8  |  |      | 27.3 |  |   | 27.1
|                         |  |                                  |      |                                 |   |      |  |      |      |  |   |     
|Research and development |  | $                                | 19.1 |                                 | $ | 32.5 |  | $    | 75.0 |  | $ | 97.2
|                         |  |                                  |      |                                 |   |      |  |      |      |  |   |     



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##### Table of Contents

Selling, General and Administrative Expense

Selling, general and administrative expenses (SG&A) and percentage changes as compared to the prior year are as follows (dollar amounts are presented in millions):



|                                             |  |                                  |      |      |   |          |                                 |     |      |  |      |       |          |   |       |  |     |   
|-------------------------------------------- |  | -------------------------------- | ---- | ---- | - | -------- | ------------------------------- | --- | ---- |  | ---- | ----- | -------- | - | ----- |  | --- | --
|                                             |  | Three months ended September 30, |      |      |   |          | Nine months ended September 30, |     |      | 
|                                             |  | 2007                             |      | 2006 |   | % Change |                                 |     | 2007 |  | 2006 |       | % Change |  
|Selling, general and administrative expenses |  | $                                | 30.6 |      | $ | 42.7     |                                 | (28 | %)   |  | $    | 119.5 |          | $ | 134.3 |  | (11 | %)

The decrease in SG&A expenses in the three months ended
September 30, 2007 compared to the same period for September 30, 2006 was primarily due to lower sales and marketing expense to promote Ranexa, a reduction of personnel related expenses associated with our restructuring in the second
quarter of 2007, and lower sales and marketing expenses relating to ACEON®, which we no longer co-promote.

The decrease in SG&A expenses in the nine months ended September 30, 2007 compared to the same period for
September 30, 2006 was primarily due to lower sales and marketing expenses relating to ACEON®, which we no longer
co-promote, lower sales and marketing expenses to promote Ranexa, and a reduction of field personnel related expenses associated with our restructuring in the second quarter of 2007, offset by stock-based compensation expense related to accelerated
vesting of employee stock options and the voluntary forfeiture of certain stock appreciation rights.

SG&A expenses decreased 34% in the quarter
ended September 30, 2007 compared to the prior quarter. We expect our SG&A expenses in the fourth quarter to be lower than the first quarter and second quarter of 2007 and comparable to the third quarter of 2007, as a result of significant
reorganization of the companys field sales organization in the second quarter of 2007.

Restructuring Charges

Restructuring charges and percentage changes as compared to the prior year are as follows (dollar amounts are presented in millions):



|                      |  |                                  |     |      |   |                                 |  |      |  |      |     |          |   |   |  |  
|--------------------- |  | -------------------------------- | --- | ---- | - | ------------------------------- |  | ---- |  | ---- | --- | -------- | - | - |  | -
|                      |  | Three months ended September 30, |     |      |   | Nine months ended September 30, |  |     
|                      |  | 2007                             |     | 2006 |   | % Change                        |  | 2007 |  | 2006 |     | % Change
|Restructuring charges |  | $                                | 1.4 |      | $ |                                |  | *    |  | $    | 6.8 |          | $ |  |  | *

---

|* | Calculation not meaningful
|- | --------------------------

In May 2007, we initiated a restructuring to
lower annual operating expenses through significant optimization of our field sales organization, enhanced focus of R&D activities and reductions in SG&A spending. The restructuring included the elimination of 138 positions, of which 85 were
part of the field sales organization and 53 were part of Palo Alto headquarters. As part of the restructuring, we incurred charges related to contract termination and other restructuring related charges such as professional fees. For the three
months ended September 30, 2007, we recorded an additional restructuring charge related to a sublease of excess leased office space of $1.5 million. This represents the fair value of the lease payments and expenses less sublease income through
August 2009. We also reduced our restructuring accrual by $0.1 million in the three months ended September 30, 2007 based on revised estimates in employee benefits. For the nine months ended September 30, 2007, we recorded $6.8 million
associated with this restructuring. There were no comparable expenses for the three or nine months ended September 30, 2006.

Interest and Other
Income, Net

Interest and other income, net and percentage changes as compared to the prior year are as follows (dollar amounts are presented in
millions):



|                               |  |                                  |     |      |   |          |                                 |     |      |  |      |      |          |   |      |  |     |   
|------------------------------ |  | -------------------------------- | --- | ---- | - | -------- | ------------------------------- | --- | ---- |  | ---- | ---- | -------- | - | ---- |  | --- | --
|                               |  | Three months ended September 30, |     |      |   |          | Nine months ended September 30, |     |      | 
|                               |  | 2007                             |     | 2006 |   | % Change |                                 |     | 2007 |  | 2006 |      | % Change |  
|Interest and other income, net |  | $                                | 2.8 |      | $ | 4.6      |                                 | (39 | %)   |  | $    | 10.1 |          | $ | 12.1 |  | (17 | %)

The decrease in interest and other income, net in the three and nine months ended September 30, 2007 compared
to the same periods in September 30, 2006 was primarily due to lower interest income due to lower investment balances and lower bond premium amortization.

We expect interest and other income, net to fluctuate in the future with changes in average investment balances and market interest rates.



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##### Table of Contents

Interest Expense

Interest expense and percentage changes as compared to the prior year are as follows (dollar amounts are presented in millions):



|                 |  |                                  |     |      |   |          |                                 |   |      |  |      |     |          |   |     |  |   |  
|---------------- |  | -------------------------------- | --- | ---- | - | -------- | ------------------------------- | - | ---- |  | ---- | --- | -------- | - | --- |  | - | -
|                 |  | Three months ended September 30, |     |      |   |          | Nine months ended September 30, |   |      | 
|                 |  | 2007                             |     | 2006 |   | % Change |                                 |   | 2007 |  | 2006 |     | % Change |  
|Interest expense |  | $                                | 3.2 |      | $ | 3.2      |                                 | 0 | %    |  | $    | 9.5 |          | $ | 9.5 |  | 0 | %

Interest expense in the three and nine months ended September 30, 2007 compared to the same periods in 2006
was flat due to constant average convertible subordinated note balances.

Recent Accounting Pronouncements

In July 2006, the FASB issued FASB Interpretation 48, Accounting for Uncertainty in Income Taxes (FIN 48), an interpretation of FAS 109,
Accounting for Income Taxes(FAS 109). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprises financial statements in accordance with FAS 109. The interpretation applies to all tax
positions accounted for in accordance with FAS 109 and requires a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken, or expected to be taken, in an income tax return.
Subsequent recognition, derecognition and measurement is based on managements best judgment given the facts, circumstances and information available at the reporting date. FIN 48 is effective for fiscal years beginning after December 15,
2006. Our adoption of FIN 48 on January 1, 2007 did not have a material impact on our financial results.

We file income tax returns in the U.S.
federal jurisdiction and various state jurisdictions. To date we have not been audited by the IRS or any state income tax jurisdictions.

We have generated
net losses since inception and as a result have not owed payments to the IRS for taxes. As of December 31, 2006, our total deferred tax assets were $450.3 million. The deferred tax assets are primarily comprised of federal and state tax net
operating loss (NOL) carryforwards. Due to uncertainties surrounding our ability to generate future taxable income to realize these tax assets, a full valuation allowance has been established to offset our deferred tax assets. Additionally, the
future utilization of our NOL carryforwards to offset future taxable income may be subject to an annual limitation as a result of ownership changes that may have occurred previously or that could occur in the future. We have not yet determined
whether such an ownership change has occurred. If necessary, the deferred tax assets will be reduced by any carryforwards that expire to utilization as a result of such limitations, with a corresponding reduction of the valuation allowance.

Liquidity and Capital Resources



|                                                 |  |                                 |        |   |                   |   |        |  
|------------------------------------------------ |  | ------------------------------- | ------ | - | ----------------- | - | ------ | -
|                                                 |  | As of                           |       
|(in millions)                                    |  | September 30, 2007              |        |   | December 31, 2006 |  
|Cash, cash equivalents and marketable securities |  | $                               | 194.8  |   |                   | $ | 325.2  |  
|                                                 | 
|                                                 |  | Nine months ended September 30, |       
|                                                 |  | 2007                            |        |   | 2006              |  
|Cash flows:                                      |  |                                 |        |   |                   |   |        |  
|Net cash used in operating activities            |  | $                               | (140.2 | ) |                   | $ | (214.7 | )
|Net cash provided by investing activities        |  | $                               | 136.0  |   |                   | $ | 146.6  |  
|Net cash provided by financing activities        |  | $                               | 10.8   |   |                   | $ | 125.5  |  

We have financed our operations since inception primarily through public offerings and private placements of debt
and equity securities and payments under corporate collaborations.

As of September 30, 2007, we had cash, cash equivalents and marketable securities
of $194.8 million, compared to $325.2 million at December 31, 2006. We expect that our existing cash resources will be sufficient to fund our operations at our current levels of research, development and commercial activities for at least 12
months. Our estimates of future capital use are uncertain, and changes in our revenues, operating profit and loss, commercialization plans, partnering activities, regulatory requirements and other developments may increase our rate of spending and
decrease the period of time our available resources will fund our operations. In May 2007, we initiated a restructuring plan to lower annual operating expenses. We expect to maintain a level of operating expenses, not including cost of sales, of
approximately $50 million per quarter in the quarter that ends December 31, 2007 and into 2008. Based on growth in sales of our approved product Ranexa



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##### Table of Contents

at the levels seen in 2007 and assuming approval and launch of our product candidate regadenoson in 2008, we expect total top line revenues to exceed $100
million in 2008. However, we do not expect to generate sufficient revenues through our marketing and sales of Ranexa in the near term to achieve profitability or to fully fund our operations, including our research, development and commercialization
activities relating to Ranexa and our product candidates. Thus we will likely require substantial additional funding in the form of public or private equity offerings, debt financings, strategic partnerships or licensing arrangements in order to
continue our research, development and commercialization activities. Additional financing may not be available on acceptable terms or at all. If we are unable to raise additional funds, we may among other things have to delay, scale back or
eliminate some or all of our R&D programs and/or commercialization activities.

In April 2006, we entered into a common stock purchase agreement with
Azimuth Opportunity Ltd. (Azimuth), which provides that, upon the terms and subject to the conditions set forth in the purchase agreement, Azimuth is committed to purchase up to $200.0 million of our common stock, or 9,010,404 shares, whichever
occurs first, at a discount of 3.8% to 5.8%, to be determined based on our market capitalization at the start of each sale period. The term of the purchase agreement ends May 1, 2009. Upon each sale of our common stock to Azimuth under the
purchase agreement, we have also agreed to pay Reedland Capital Partners a placement fee equal to one fifth of one percent of the aggregate dollar amount of common stock purchased by Azimuth. In 2006, Azimuth purchased an aggregate 2,744,118 shares
for gross proceeds of approximately $39.8 million under the purchase agreement. Azimuth is not required to purchase our common stock when the price of our common stock is below $10 per share. Assuming that all 6,266,286 shares remaining for sale
under the purchase agreement were sold at the $8.98 closing price of our common stock on September 28, 2007 (and assuming that Azimuth agreed to purchase our common stock at this price), the additional aggregate net proceeds, assuming the
largest possible discount, that we could receive under the purchase agreement with Azimuth would be approximately $52.9 million.

Net cash used in
operating activities was $140.2 million for the nine months ended September 30, 2007, and resulted primarily from our net loss and changes in accrued and other liabilities primarily related to payments to our clinical trial vendors related to
the MERLIN TIMI-36 clinical study and year-end payouts for certain compensation-related accruals and accounts payable, cash used in inventory production, and increases in accounts receivable. These were offset in part by changes in non-cash expenses
primarily related to stock-based compensation, which was largely related to the accelerated option vesting and the voluntary SAR cancellation that occurred in the second quarter of 2007, depreciation and decreases to prepaid and other current
assets. Net cash used in operating activities was $214.7 million for the nine months ended September 30, 2006, and resulted primarily from our net loss and changes in accrued and other liabilities, other assets and inventory. These were offset
in part by changes in non-cash expenses primarily related to stock-based compensation, depreciation and impairment recognized for unrealized loss on marketable securities.

Net cash provided by investing activities of $136.0 million in the nine months ended September 30, 2007 consisted primarily of maturities and sales of marketable securities of $151.9 million offset by purchases
of securities available for sale of $13.6 million and capital expenditures of $2.3 million. Net cash provided by investing activities of $146.6 million in the nine months ended September 30, 2006 consisted primarily of maturities and sales of
marketable securities of $204.3 million, offset by purchases of available-for-sale securities of $45.9 million, capital expenditures of $7.8 million and purchase of a convertible note from a collaboration partner of $4.0 million.

Net cash provided by financing activities of $10.8 million in the nine months ended September 30, 2007 was related to changes in the restricted cash balance
associated with interest payments on our debt and net proceeds from stock issued through our ESPP and exercises of employee stock options. Net cash provided by financing activities of $125.5 million in the nine months ended September 30, 2006
was primarily due to net proceeds of approximately $92.2 million from the sale of 10,350,000 shares of common stock in our August 2006 public offering, net proceeds of approximately $19.8 million from the sale of 1,080,828 shares of common stock to
Azimuth and changes in restricted cash of $8.2 million.

We may from time to time seek to retire our outstanding debt through cash purchases and/or
conversions or exchanges for equity securities in open market purchases, privately negotiated transactions or otherwise. Such purchases, conversions or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements,
contractual restrictions and other factors. The amounts involved may be material. Alternatively, we may from time to time seek to restructure our outstanding debt through exchanges for new debt securities in open market transactions, privately
negotiated transactions, or otherwise. The amounts involved may be material.



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##### Table of Contents

Contractual Obligations and Significant Commercial Commitments

The following summarizes our contractual obligations and the periods in which payments are due as of September 30, 2007 (in thousands):



|                              |  |      |     |      |   |      |  |      |      |      |   |            |  |       |      |  |   |       |  |   |      
|----------------------------- |  | ---- | --- | ---- | - | ---- |  | ---- | ---- | ---- | - | ---------- |  | ----- | ---- |  | - | ----- |  | - | -----
|                              |  | 2007 |     | 2008 |   | 2009 |  | 2010 |      | 2011 |   | Thereafter |  | Total
|Convertible notes (1) (2)     |  | $    | 3.1 |      | $ | 11.0 |  | $    | 11.0 |      | $ | 109.0      |  | $     | 9.0  |  | $ | 311.3 |  | $ | 454.4
|Manufacturing obligations (3) |  |      | 2.2 |      |   | 2.8  |  |      | 1.3  |      |   |           |  |       |     |  |   |      |  |   | 6.3  
|Operating leases (4)          |  |      | 2.7 |      |   | 12.9 |  |      | 13.3 |      |   | 15.1       |  |       | 15.4 |  |   | 22.6  |  |   | 82.0 
|                              |  |      |     |      |   |      |  |      |      |      |   |            |  |       |      |  |   |       |  |   |      
|                              |  | $    | 8.0 |      | $ | 26.7 |  | $    | 25.6 |      | $ | 124.1      |  | $     | 24.4 |  | $ | 333.9 |  | $ | 542.7
|                              |  |      |     |      |   |      |  |      |      |      |   |            |  |       |      |  |   |       |  |   |      

---

|(1) | Convertible notes consist of principal and interest payments on our 2.0% senior subordinated convertible debentures due 2023, our 2.75% senior subordinated convertible
notes due 2012 and our 3.25% senior subordinated convertible notes due 2013.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | The holders of our 2.0% senior subordinated convertible debentures due 2023, at their option, may require us to purchase all or a portion of their debentures on May 16,
2010, May 16, 2013 and May 16, 2018, in each case at a price equal to the principal amount of the debentures to be purchased, plus accrued and unpaid interest, if any, to the purchase date. The principal for these debentures is shown
in the 2010 column.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | Manufacturing obligations include significant non-cancelable orders and minimum commitments under our agreements related to the manufacturing of Ranexa.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | Operating leases consists of minimum lease payments related to real estate leases for our facilities covering 186,000 square feet less payments received for the sublease
of 10,740 square feet. These leases expire between February 2008 and April 2016. One of the leases is secured by a $6.0 million irrevocable letter of credit. The sublease agreement expires August 2009.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The table above excludes any commitments that are contingent upon future events.

We have a commitment related to our license agreement with Roche for Ranexa. Under our license agreement, as amended, relating to ranolazine, we owe the following future potential milestone payments to Roche relating to Ranexa:
(i) within 30 days of the second approval of a new drug application or equivalent for Ranexa in one of the remaining major market countries (which are France, Germany, Italy, and the United Kingdom), we will owe a payment of $9.0 million to
Roche; (ii) within 30 days of the approval of a new drug application or equivalent for Ranexa in Japan, we will owe a payment of $3.0 million to Roche; and (iii) within 30 days of the approval of the first supplemental new drug application
for an indication other than a cardiovascular indication, as defined in the agreement, in a major market country or Japan, we will owe a payment of $5.0 million to Roche. We are also obligated to make royalty payments to Roche on worldwide net
product sales of any licensed products, including any net product sales in Asia.

Under our license and settlement agreement with another vendor, we are
obligated to pay this vendor $4 per kilogram on bulk ranolazine manufactured until the total amount paid reaches $12.0 million. As of September 30, 2007, we have paid $5.5 million to this vendor.

We have a commitment related to our license agreement with PTC. If we license and commercialize a product based on all five selected targets during the term of the
agreement, PTC could earn milestone payments from us of up to an aggregate $335.0 million if specified development, regulatory and commercial goals set forth in the agreement are achieved over the life cycle of each such product.

Risks and Uncertainties Related to Our Future Capital Requirements

As of September 30, 2007, we had cash, cash equivalents and marketable securities of $194.8 million, compared to $325.2 million at December 31, 2006. We expect that our existing cash resources will be sufficient to fund our
operations at our current levels of research, development and commercial activities for at least 12 months. Our estimates of future capital use are uncertain, and changes in our commercialization plans, partnering activities, regulatory requirements
and other developments may increase our rate of spending and decrease the period of time our available resources will fund our operations. In May 2007, we initiated a restructuring plan to lower annual operating expenses. We expect to maintain a
level of operating expenses, not including cost of sales, of approximately $50 million per quarter in the quarter that ends December 31, 2007 and into 2008. We do not expect to generate sufficient revenues through our marketing and sales of
Ranexa in the near term to achieve profitability or to fully fund our operations, including our research, development and commercialization activities relating to Ranexa and our product candidates. Thus we will likely require substantial additional
funding in the form of public or private equity offerings, debt financings, strategic partnerships or licensing arrangements in order to continue our research, development and commercialization activities. Additional financing may not be available
on acceptable terms or at all. If we are unable to raise additional funds, we may among other things have to delay, scale back or eliminate some or all of our R&D programs and/or commercialization activities.



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In April 2006, we entered into a common stock purchase agreement with Azimuth which provides that, upon the terms and
subject to the conditions set forth in the purchase agreement, Azimuth is committed to purchase up to $200.0 million of our common stock, or 9,010,404 shares, whichever occurs first, at a discount as provided under the purchase agreement. In 2006,
Azimuth purchased an aggregate 2,744,118 shares for gross proceeds of approximately $39.8 million under the purchase agreement. Azimuth is not required to purchase our common stock when the price of our common stock is below $10 per share. Assuming
that all 6,266,286 shares remaining for sale under the purchase agreement were sold at the $8.98 closing price of our common stock on September 28, 2007 (and assuming that Azimuth agreed to purchase our common stock at this price), the
additional aggregate net proceeds, assuming the largest possible discount, that we could receive under the purchase agreement with Azimuth would be approximately $52.9 million.

We have experienced significant operating losses since our inception in 1990, including net losses of $146.9 million for the nine months ended September 30, 2007, $274.3 million in 2006, $228.0 million in 2005
and $155.1 million in 2004. As of September 30, 2007, we had an accumulated deficit of $1,233.7 million. The process of developing and commercializing our products requires significant R&D work, including preclinical testing and clinical
trials, as well as regulatory submissions and approvals, significant marketing and sales efforts and manufacturing capabilities. These activities, together with our general and administrative expenses, require significant investments and are
expected to continue to result in significant operating losses for the foreseeable future. To date, the revenues we have recognized relating to our only approved product, Ranexa, have been limited and have not been sufficient for us to achieve
profitability or fund our operations, including our research, development and commercialization activities relating to Ranexa and our product candidates. The revenues that we expect to recognize for the foreseeable future relating to Ranexa will not
be sufficient for us to achieve or sustain profitability or maintain operations at our current levels or at all.

As we have transitioned from a
R&D-focused company to a company with commercial operations and revenues, we expect that our operating results will continue to fluctuate. Our product revenues are unpredictable and may fluctuate due to many factors, many of which we cannot
control. For example, our ability (and the ability of our collaborative partners) to market and sell our products will depend significantly on the market acceptance of our products as well as the extent to which reimbursement for the cost of our
products will be available from government health administration authorities, private health insurers and other organizations. If our products fail to achieve market acceptance or are unfavorably reimbursed, this would result in lower product sales
and lower product revenues. As a result, we may have increased capital requirements and we may be required to delay, scale back or eliminate some or all of our R&D programs or commercialization activities, and/or we may be required to raise
additional capital, which may not be available on acceptable terms or at all.

Our future capital requirements and our ability to raise capital in the
future will depend on many other factors, including our product revenues, the costs of commercializing our products, progress in our R&D programs, the size and complexity of these programs, the timing, scope and results of preclinical studies
and clinical trials, our ability to establish and maintain collaborative partnerships, the time and costs involved in obtaining regulatory approvals, the costs involved in filing, prosecuting and enforcing patent claims, competing technological and
market developments, the cost of manufacturing commercial and clinical materials and other factors not within our control. If we are not able to obtain FDA approval of application(s) based on the MERLIN TIMI-36 clinical trial data and results, or if
the FDA approves revised product labeling that continues to contain prominent cautionary wording regarding the use of the product, our ability to generate product revenues, our ability to raise additional capital and our ability to maintain our
current levels of research, development and commercialization activities will all be materially impaired. Insufficient funds may require us to delay, scale back or eliminate some or all of our research, development or commercialization programs, to
lose rights under existing licenses or to relinquish greater or all rights to product candidates on less favorable terms than we would otherwise choose, or may adversely affect our ability to operate as a going concern.

Other Information

In September 2007, in accordance with
Nasdaq Marketplace Rule 4350, we granted 14 non-executive employees inducement stock options covering an aggregate of 23,600 shares of common stock under our 2004 Employment Commencement Incentive Plan. These inducement stock options are classified
as non-qualified stock options with an exercise price equal to the fair market value on the grant date. The option grants have a ten-year term and vest over four years as follows: 20% of these options will vest on the date one year from the
optionees hire date, 20% of the options will vest in monthly increments during each of the second and third years, and 40% of the options will vest in monthly increments during the fourth year (in all cases subject to the terms and conditions
of our 2004 Employment Commencement Incentive Plan).



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##### Table of Contents

|Item 3. | Quantitative and Qualitative Disclosures About Market Risk
|------- | ----------------------------------------------------------

Interest Rate Risk

Our exposure to market rate risk for changes in interest rates relates primarily to our investment portfolio and
our long-term debt. We do not use derivative financial instruments. We place our investments with high quality issuers and, by policy, limit the amount of credit exposure to any one issuer except for U.S. government securities. We are averse to
principal loss and strive to ensure the safety and preservation of our invested funds by limiting default, market and reinvestment risk. We classify our cash equivalents and marketable securities as fixed-rate if the rate of return on
such instruments remains fixed over their term. These fixed-rate investments include U.S. government securities, commercial paper, asset backed securities, corporate bonds and foreign bonds. Fixed-rate securities may have their fair
market value adversely affected due to a rise in interest rates and we may suffer losses in principal if forced to sell securities that have declined in market value due to a change in interest rates. We classify our cash equivalents and marketable
securities as variable-rate if the rate of return on such investments varies based on the change in a predetermined index or set of indices during their term. As of September 30, 2007, there were no material changes in these market
risks since December 31, 2006.

Our long-term debt at September 30, 2007 includes $100.0 million of our 2.0% senior subordinated convertible
debentures due May 2023, $150.0 million of our 2.75% senior subordinated convertible notes due May 2012, and $149.5 million of our 3.25% senior subordinated convertible notes due August 2013. Interest on the 2.0% senior subordinated
convertible debentures is fixed and payable semi-annually on May 16 and November 16 each year. Interest on the 2.75% senior subordinated convertible notes is fixed and payable semi-annually on May 16 and November 16 each year.
Interest on the 3.25% senior subordinated convertible notes due 2013 is fixed and payable semi-annually on February 16 and August 16 each year. All the notes and debentures are convertible into shares of our common stock at any time prior
to maturity, unless previously redeemed or repurchased, subject to adjustment in certain events.

The table below presents the amounts and related average
interest rates of our investment portfolio and our long-term debt as of September 30, 2007:



|                                                    |  |                       |   |  |                       |       
|--------------------------------------------------- |  | --------------------- | - |  | --------------------- | ------
|($ in thousands)                                    |  | Average Interest Rate |   |  | Estimated MarketValue
|Cash equivalents:                                   |  |                       |   |  |                       |       
|Fixed rate                                          |  | 5.46                  | % |  | $                     | 27,454
|Variable rate                                       |  | 5.18                  | % |  |                       | 56,163
|Marketable securities portfolio:                    |  |                       |   |  |                       |       
|Fixed rate (mature in 2007)                         |  | 4.29                  | % |  |                       | 24,784
|Fixed rate (mature in 2008)                         |  | 4.84                  | % |  |                       | 59,578
|Variable rate (mature in 2008)                      |  | 5.16                  | % |  |                       | 2,001 
|Fixed rate (mature in 2009)                         |  | 5.18                  | % |  |                       | 24,193
|Long-term debt:                                     |  |                       |   |  |                       |       
|Senior subordinated convertible debentures due 2023 |  | 2.00                  | % |  |                       | 87,880
|Senior subordinated convertible notes due 2012      |  | 2.75                  | % |  |                       | 83,500
|Senior subordinated convertible notes due 2013      |  | 3.25                  | % |  |                       | 80,880

Foreign Currency Risk

We are exposed to foreign currency exchange rate fluctuations related to the operation of our European subsidiary in the United Kingdom. At the end of each reporting period, expenses of the subsidiary are remeasured
into U.S. dollars using the average currency rate in effect for the period and assets and liabilities are remeasured into U.S. dollars using either historical rates or the exchange rate in effect at the end of the period. Additionally, we are
exposed to foreign currency exchange rate fluctuations relating to payments we make to vendors and suppliers using foreign currencies. In particular, we have foreign expenses associated with our clinical studies, such as the MERLIN-TIMI 36 clinical
trial of Ranexa. We currently do not hedge against this foreign currency risk. Fluctuations in exchange rates may impact our financial condition and results of operations. For the three and nine months ended September 30, 2007, we incurred $2.1
million and $10.0 million, respectively, of non-U.S. dollar expenses. For the three and nine months ended September 30, 2006, we incurred $5.6 million and $14.6 million of non-U.S. dollar expenses, respectively. As reported in U.S. dollars, our
foreign currency losses for the three and nine months ended September 30, 2007 were approximately $20,000 and $0.2 million, respectively. Foreign currency losses for the three and nine months ended September 30, 2006 were $0.1 million and
$0.3 million, respectively.



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|Item 4. | Controls and Procedures
|------- | -----------------------

(a)Evaluation of Disclosure
Controls and Procedures:

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in
our reports pursuant to the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms, and that such information is accumulated and communicated
to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes
that any controls and procedures, no matter how well designed and utilized, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily is required to apply its judgment in evaluating disclosure
controls and procedures.

As required by SEC Rule 13a-15(b), we carried out an evaluation, under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, our
Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level.

(b)Changes in Internal Control Over Financial Reporting:

There have been no changes in our internal controls over financial
reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.



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##### Table of Contents

PART II. OTHER INFORMATION



|Item 1. | Legal Proceedings
|------- | -----------------

We are participating in dispute resolution proceedings with an insurer over whether or not we
will reimburse that insurer for a portion of the insurers contribution to the settlement of a previous securities class action lawsuit involving us and certain of our officers and directors. The amount of our reimbursement will not exceed
$2.25 million, and may be a lesser amount or zero.



|Item 1A. | Risk Factors
|-------- | ------------

Risk Factors Relating to Our Business

We expect to continue to operate at a loss, we may not be able to maintain our current levels of research, development and commercialization activities, and we may
never achieve profitability.

We have experienced significant operating losses since our
inception in 1990, including net losses of $146.9 million for the nine month period ended September 30, 2007, $274.3 million in 2006, $228.0 million in 2005 and $155.1 million in 2004. As of September 30, 2007, we had an accumulated
deficit of $ 1,233.7 million. The process of developing and commercializing our products requires significant research and development work, preclinical testing and clinical trials, as well as regulatory approvals, significant marketing and sales
efforts, and manufacturing capabilities. These activities, together with our general and administrative expenses, require significant investments and are expected to continue to result in significant operating losses for the foreseeable future. To
date, the product revenues we have recognized, including those relating to our only approved product, Ranexa®(ranolazine
extended release tablets), have been limited, and have not been sufficient for us to achieve profitability or fund our operations, including our research, development and commercialization activities relating to Ranexa and our product candidates.
The revenues that we expect to recognize for the foreseeable future relating to Ranexa may not be sufficient for us to achieve or sustain profitability or maintain operations at our current levels or at all.

Our operating results are subject to fluctuations that may cause our stock price to decline.

As we transition from a research and development-focused company to a company with commercial operations and revenues, we expect that our operating results will continue to fluctuate. Our expenses, including payments
owed by us under licensing, collaborative or manufacturing arrangements, are highly variable and may fluctuate from quarter to quarter. Our product revenues are unpredictable and may fluctuate due to many factors, many of which we cannot control.
For example, factors affecting the revenues we receive relating to our only commercial product, Ranexa, and which also impact the revenues received relating to any pharmaceutical product, include:



| |  |  | the timing and success of product launches by us and our collaborative partners;
| | - |  | --------------------------------------------------------------------------------



| |  |  | the level of demand for our products, including physician prescribing patterns;
| | - |  | -------------------------------------------------------------------------------



| |  |  | wholesaler buying patterns, product returns and contract terms;
| | - |  | ---------------------------------------------------------------



| |  |  | reimbursement rates or policies;
| | - |  | --------------------------------



| |  |  | the results of our clinical studies, including our MERLIN TIMI-36 clinical trial of Ranexa, for which we obtained initial data and results in March 2007;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | whether or not the division of cardiovascular and renal products of the FDA decides to accept the supplemental new drug application submission for Ranexa for
review, whether or not the metabolism and endocrinology products division of the FDA decides to accept the new drug application for the Ranexa diabetes data for review, and whether or not the FDA approves these applications;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the length of time it takes for an approved product to achieve market acceptance, if at all;
| | - |  | --------------------------------------------------------------------------------------------



| |  |  | the rebates, discounts and administrative fees on sales of our approved products that we provide to customers and other third parties;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the extent to which patients fill prescriptions written by their doctors for our approved products, the dosages prescribed, and the amount of co-payments patients
are required to make to fill their prescriptions;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | regulatory constraints on, or delays in the review of, our product promotional materials and programs;
| | - |  | ------------------------------------------------------------------------------------------------------



| |  |  | government regulations or regulatory actions, such as product recalls;
| | - |  | ----------------------------------------------------------------------



| |  |  | increased competition from new or existing products or therapies, including lower-priced generic products and alternatives to drug treatment such as interventional
medicine;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | changes in our contract manufacturing activity, including the availability or lack of commercial supplies of products and samples for promotion and distribution;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | timing of non-recurring license fees and the achievement of milestones under new and existing license and collaborative agreements; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our product marketing, promotion, distribution, sales and pricing strategies and programs, including product discounts and rebates extended to customers.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------

Inventory levels of Ranexa held by wholesalers can also cause our operating results to fluctuate unexpectedly. Although we attempt to
monitor wholesaler inventory of our products, we rely upon information provided by third parties to quantify the inventory levels maintained by wholesalers. In addition, we and the wholesalers may not be effective in matching inventory levels to
end-user demand. Significant differences between actual and estimated inventory levels may result in inadequate or excessive inventory production, product supply in distribution channels, product availability at the retail level, and unexpected
increases or decreases in orders from our major customers. Any of these events may cause our revenues to fluctuate significantly from quarter to quarter, and in some cases may cause our operating results for a particular quarter to be below
expectations. If our operating results do not meet the expectations of securities analysts or investors, the market price of our securities may decline significantly. We believe that quarter-to-quarter comparisons of our operating results may not be
a good indicator of our future performance and should not be relied upon to predict our future performance.

We will need substantial additional capital
in the future. If we are unable to secure additional financing, we may be unable to continue to commercialize our products or continue our research and development activities or continue any of our other operations at current levels, or we may need
to limit, scale back or cease our operations.

As of September 30, 2007, we had cash, cash equivalents and marketable securities of $194.8 million,
compared to $325.2million at December 31, 2006. We expect that our existing cash resources will be sufficient to fund our operations at our current levels of research, development and commercialization activities for at least 12 months.
However, our estimates of future capital use are uncertain, and changes in our commercialization plans, partnering activities, regulatory requirements and other developments may increase our rate of spending and decrease the period of time our
available resources will fund our operations. We expect to maintain a level of operating expenses, not including cost of sales, of approximately $50 million per quarter in the quarter that ends December 31, 2007 and into 2008.

In May 2007, we initiated a restructuring plan to lower annual operating expenses, through significant optimization of our field sales organization, enhanced focus of
R&D activities and reductions in selling, general and administrative spending. The restructuring plan included the elimination of 138 positions, of which 85 were part of the field sales organization and 53 were part of Palo Alto headquarters. In
2007, we still expect to incur substantial R&D expenses in connection with the supplemental new drug application for Ranexa (as well as the new drug application that has been administratively unbundled from the supplemental new drug application)
we submitted to the FDA in September 2007, and in connection with the new drug application for regadenoson we filed with the FDA in May 2007, as well as in connection with ongoing review of the marketing approval application for ranolazine submitted
to European regulatory authorities in late 2006.

Even with the reductions in operating expenses announced in May 2007, we do not expect to generate
sufficient revenues through our marketing and sales of Ranexa in the near term to achieve profitability or to fully fund our operations, including our research, development and commercialization activities relating to Ranexa and our product
candidates. Thus we will likely require substantial additional funding in the form of public or private equity offerings, debt financings, strategic partnerships and/or licensing arrangements in order to continue our research, development and
commercialization activities.

The amount of additional funding that we will require depends on many factors, including, without limitation:



| |  |  | the amount of revenue that we are able to obtain from approved products, and the time and costs required to achieve those revenues;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------



| |  |  | whether or not the division of cardiovascular and renal products of the FDA decides to accept the supplemental new drug application submission for Ranexa for
review, whether or not the metabolism and endocrinology products division of the FDA decides to accept the new drug application for the Ranexa diabetes data for review, and whether or not the FDA approves these applications;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the timing, scope and results of preclinical studies and clinical trials;
| | - |  | -------------------------------------------------------------------------



| |  |  | the costs of commercializing our products, including marketing, promotional and sales costs, product pricing and discounts, rebates and product return rights
extended to customers;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the costs of manufacturing or obtaining preclinical, clinical and commercial materials;
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | the size and complexity of our programs;
| | - |  | ----------------------------------------



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| |  |  | the time and costs involved in obtaining and maintaining regulatory approvals;
| | - |  | ------------------------------------------------------------------------------



| |  |  | our ability to establish and maintain strategic collaborative partnerships, such as our arrangement with Astellas
relating to regadenoson (including Astellass level of promotional activity and degree of success, if any, in gaining market acceptance for regadenoson, if approved and launched, and in convincing physicians to switch from its current
pharmacologic stress agent for use in myocardial perfusion imaging studies, Adenoscan®(adenosine injection) or other agents to
regadenoson);
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | competing technological and market developments;
| | - |  | ------------------------------------------------



| |  |  | the costs involved in filing, prosecuting, maintaining and enforcing patents; and
| | - |  | ---------------------------------------------------------------------------------



| |  |  | progress in our research and development programs.
| | - |  | --------------------------------------------------

In April 2006, we entered into a common stock purchase agreement with Azimuth which provides that, upon the terms and subject to the conditions set forth in the purchase agreement, Azimuth is committed to purchase up to $200.0 million of
our common stock, or 9,010,404 shares, whichever occurs first, at a discount of 3.8% to 5.8%, to be determined based on our market capitalization at the start of each sale period. The term of the purchase agreement ends May 1, 2009, and in 2006
Azimuth purchased an aggregate of 2,744,118 shares for proceeds, net of issuance costs, of approximately $39.8 million under the purchase agreement. Upon each sale of our common stock to Azimuth under the purchase agreement, we have also agreed to
pay Reedland Capital Partners a placement fee equal to one fifth of one percent of the aggregate dollar amount of common stock purchased by Azimuth. Azimuth is not required to purchase our common stock when the price of our common stock is below $10
per share. Assuming that all 6,266,286 shares remaining for sale under the purchase agreement were sold at the $8.98 closing price of our common stock on September 28, 2007 (and assuming that Azimuth agreed to purchase our common stock at this
price), the additional aggregate net proceeds, assuming the largest possible discount, that we could receive under the purchase agreement with Azimuth would be approximately $52.9 million.

Additional financing may not be available on acceptable terms or at all. If we are unable to raise additional funds, we may, among other things:



| |  |  | have to delay, scale back or eliminate some or all of our research and/or development programs;
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | have to delay, scale back or eliminate some or all of our commercialization activities;
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | lose rights under existing licenses;
| | - |  | ------------------------------------



| |  |  | have to relinquish more of, or all of, our rights to products or product candidates on less favorable terms than we would otherwise seek; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | be unable to operate as a going concern.
| | - |  | ----------------------------------------

If
additional funds are raised by issuing equity or convertible debt securities, including sales of common stock under our equity line of credit, our existing stockholders will experience dilution.

The success of our company is largely dependent on the success of Ranexa.

We launched Ranexa in the United States market in March 2006 and recognized revenues from sales of Ranexa for the first time in the quarter ended June 30, 2006. Ranexa is currently our only commercial product, and we expect that Ranexa
will account for all of our product sales at least for the next several years, unless we obtain rights to other approved products. In order for us to successfully commercialize Ranexa, our sales of Ranexa must increase significantly from current
levels. We continue to spend significant amounts of capital in connection with the commercialization of Ranexa, and we continue to invest significant amounts of capital in the development of Ranexa, including in connection with the review of the
supplemental new drug application for Ranexa (as well as the new drug application that has been administratively unbundled from the supplemental new drug application) that we submitted in the United States in September 2007, and in connection with
on-going review of the marketing approval application for ranolazine submitted to European regulatory authorities in late 2006.

Our continued substantial
investments in Ranexa are based in part on market forecasts, which are inherently uncertain. Market forecasts are particularly uncertain in the case of Ranexa because Ranexa is a new product with a novel mechanism of action and is the first new drug
therapy for chronic angina in the United States in over twenty years. In addition, we announced significant operating expense reductions in May 2007, which included significant reductions in the field sales organization and headquarters sales and
marketing personnel and significant reductions in sales and marketing program expenditures. We significantly reduced the number of sales territories (from approximately 250 to approximately 145), which has resulted in less overall coverage for our
sales territories in the aggregate as well as larger territories for many sales personnel. If we fail to significantly increase our level of Ranexa sales, our ability to generate product revenues, our ability to raise additional capital and our
ability to maintain our current levels of research, development and commercialization activities will all be materially impaired, and the price of our common stock will decline. As a result, the success of our company is largely dependent on the
success of Ranexa.



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Our success in commercializing Ranexa in key territories such as the United States and Europe is likely to depend on our
ability to enter into one or more strategic arrangements relating to the product. The negotiation, consummation and implementation of strategic arrangements relating to pharmaceutical products are complex and time-consuming, and assuming that we
seek strategic arrangements relating to the product in key territories, we may not be able to reach mutually acceptable terms, which may delay or prevent us from achieving or maximizing successful commercialization of the product in one or more key
territories.

For example, we believe that the product may have potential in the general practitioner market in the United States if, for example, the FDA
approves Ranexa as first-line therapy for patients suffering from chronic angina as contemplated under our special protocol assessment agreement with the FDA relating to the MERLIN TIMI-36 clinical study, as well as if the FDA approves adding
reduction of HbA1c in coronary artery disease patients with diabetes to the product labeling. However, we do not presently have the resources to market and promote in broad markets in the United States, and the revenues we expect to recognize for
the foreseeable future from Ranexa may not be sufficient for us to reach broader markets on our own. As a result we may be dependent on being able to enter into one or more strategic partnership, collaboration and/or co-promotion arrangements in
order to reach broader markets in the United States, and we may not be able to successfully enter into any such arrangement with third parties on terms that are favorable to us, if at all. In addition, under any such arrangement, our future
revenues for Ranexa may depend heavily on the success of any such third party and we may have limited or no control over their resources and activities.

With regards to the potential European market for ranolazine, we have only very limited personnel in Europe and at the present time we do not have the resources to commercialize ranolazine in Europe on our own. In late 2006 we submitted a
marketing approval application for ranolazine to the European regulatory authorities. However, the cost of goods for ranolazine (which includes a royalty we owe to Roche on sales of the product) may make it challenging or prohibitive to profitably
commercialize the product in one or more key countries in Europe, if it is approved by European regulatory authorities, in light of various national price control arrangements. We will be dependent on being able to enter into one or more strategic
partnership, collaboration and/or co-promotion arrangements in order to reach the European market, and we may not be able to successfully enter into any such arrangement with third parties on terms that are favorable to us, if at all. In
addition, under any such arrangement, our future revenues for ranolazine in Europe would depend heavily on the success of any such third party and we may have limited or no control over their resources and activities under any such arrangement.

While we have negotiated a special protocol assessment agreement with the FDA relating to the MERLIN TIMI-36 clinical study of Ranexa, this agreement
does not guarantee any particular regulatory outcome from regulatory review of the study or the product, including any changes to product labeling or approvals.

Our MERLIN TIMI-36 clinical trial was a large clinical study of Ranexa which enrolled approximately 6,500 patients. We obtained and announced initial data and results from the trial in March 2007, which showed that the study did not meet
the primary efficacy endpoint relating to treatment of acute coronary syndromes (ACS), a potential new indication, despite an overall trend favoring Ranexa for the composite primary endpoint of cardiovascular death, myocardial infarction and
recurrent ischemia. These results also showed that Ranexa did not have a significant effect on the rate of cardiovascular death or myocardial infarction, individually or as a composite, but the cumulative incidence of recurrent ischemia was
significantly lower in patients receiving Ranexa, compared to patients receiving placebo. The initial data and results obtained in March 2007 also showed no adverse trend in death or arrhythmias in patients receiving Ranexa. The primary results from
the MERLIN TIMI-36 clinical study were published in the scientific literature in April 2007. Analysis of additional data and results from the MERLIN TIMI-36 study is ongoing.

In 2004 we reached written agreement with the division of cardiovascular and renal products of the FDA on a special protocol assessment agreement for the MERLIN TIMI-36 clinical trial of Ranexa. The FDAs special
protocol assessment process is used to create a written agreement between the sponsoring company and the FDA regarding clinical trial design, clinical endpoints, study conduct, data analyses and other clinical trial matters. It is intended to
provide assurance that if pre-specified trial results are achieved, they may serve as the primary basis for an efficacy claim in support of a new drug application. However, a special protocol assessment agreement is not a guarantee of a product
approval, or of any labeling claims about the product. For example, a special protocol assessment agreement is not binding on the FDA if public health concerns unrecognized at the time the agreement was entered into become evident, other new
scientific concerns regarding product safety or efficacy arise, or if the sponsor company fails to comply with the agreed upon trial protocols.

Under our
special protocol assessment agreement with the FDA relating to the MERLIN TIMI-36 clinical study, if this study had met its primary efficacy endpoint, it could have resulted in approval of Ranexa for the treatment and long-term prevention of ACS.
However, based on the MERLIN TIMI-36 data and results, which showed that the study did not meet its primary efficacy endpoint, we do not plan to submit a new drug application with the FDA seeking approval for Ranexa (including any intravenous
formulation of the product) for the treatment of ACS.



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Also under our special protocol assessment agreement with the FDA relating to the MERLIN TIMI-36 clinical study, the
division of cardiovascular and renal products of the FDA agreed that this study could support potential approval of Ranexa as first-line therapy for patients suffering from chronic angina if treatment with Ranexa is not associated with an adverse
trend in death and arrhythmia compared to placebo, even if statistical significance for the primary efficacy endpoint in the study is not achieved. The term no adverse trend in death and arrhythmia is not defined in the special protocol
assessment agreement, and the FDA will interpret this aspect of the special protocol assessment agreement in the context of the data and results from the MERLIN TIMI-36 study. We believe the MERLIN TIMI-36 data and results should support expansion
of the existing Ranexa approved indication to include first-line treatment of angina, in accordance with our special protocol assessment agreement with the FDA, and we submitted a supplemental new drug application to the division of cardiovascular
and renal products of the FDA in September 2007 seeking approval to modify the existing product labeling to expand the product indication to include first-line angina treatment, to reduce cautionary language and to obtain other product labeling
changes for the product. Of course, the FDA retains significant latitude and discretion in interpreting the terms of any special protocol assessment agreement, as well as in interpreting the data and results from any study that is the subject of
such an agreement, such as the MERLIN TIMI-36 clinical study. As a result, the existence of our special protocol assessment agreement with the division of cardiovascular and renal products of the FDA relating to the MERLIN TIMI-36 clinical trial is
not a guarantee of approval of the supplemental new drug application we submitted in September 2007.

Similarly, the existence of this special protocol
assessment agreement is not a guarantee of particular labeling claims relating to product safety, such as the reduced cautionary wording we are seeking, or product efficacy, such as reductions in anti-diabetic parameters or ventricular arrhythmias.
In November 2007, we announced that the FDA requested that we pay a second filing user fee and officially notified us that the metabolism and endocrinology products division of the FDA will undertake a formal review of the diabetes data, as a
separate new drug application filing to that division. Specifically, the FDA informed us that a new drug application has been administratively unbundled from the parent new drug application (which is held by the division of cardiovascular and renal
products of the FDA) to provide for clinical review by the metabolism and endocrinology products division of the FDA of our proposed labeling change to add reduction of HbA1c in coronary artery disease patients with diabetes to the approved labeling
for Ranexa. We do not have any special protocol assessment agreement in place with the metabolism and endocrinology products division of the FDA.

Assuming
that the division of cardiovascular and renal products of the FDA decides to accept the supplemental new drug application submission for review, and assuming that the metabolism and endocrinology products division of the FDA decides to accept the
new drug application for review, each application would have a filing date of September 27, 2007. In connection with these applications, assuming they are each accepted for review we expect that the FDA divisions will review all the safety data
and results from the MERLIN TIMI-36 study (including those relating to death and arrhythmia) and other studies included in the applications, and that the FDA will exercise its broad regulatory discretion in interpreting these data and results, as
well as the terms of the special protocol assessment agreement, in determining whether the data and results demonstrate that Ranexa is not associated with an adverse trend in death and arrhythmia, and in determining whether to approve the product
for first-line therapy for chronic angina patients, whether to reduce cautionary language in the product labeling, whether to add reduction of HbA1c in coronary artery disease patients with diabetes to the product labeling, whether to add labeling
related to reductions in ventricular arrhythmias, and what other labeling changes to allow, if any. As a result of these various factors, uncertainty remains as to whether the MERLIN TIMI-36 study will support a potential approval of Ranexa as
first-line therapy for patients suffering from chronic angina and what labeling changes, if any, will result. Even if the FDA approves the supplemental new drug application (as well as the separate new drug application that has been administratively
unbundled from the supplemental new drug application) submitted in September 2007, we would not have FDA-approved modified labeling that we can use for promotional purposes until mid-2008 (assuming that the FDA accepts our supplemental new drug
application and new drug application for review and provides its approval(s) at the end of one standard review cycle).

The special protocol assessment
agreement with the FDA also requires that we successfully complete a clinical evaluation of higher doses of Ranexa before any potential approval of Ranexa as first-line therapy for patients suffering from chronic angina. We have completed a clinical
evaluation of higher doses of Ranexa, and we believe that the data and results from this separate study will satisfy this additional special protocol assessment requirement. These data and results were submitted to the FDA for review in our
supplemental new drug application submitted to the division of cardiovascular and renal products of the FDA, and we do not know if the FDA will agree that this aspect of the special protocol assessment agreement has been satisfied.



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Also in connection with our special protocol assessment agreement relating to the MERLIN TIMI-36 clinical study, we
expect that the FDA will review our compliance with the study protocol. In addition, we expect that the FDA will conduct inspections of some of the approximately 450 MERLIN TIMI-36 clinical sites, most of which are located in 16 foreign countries.
We do not know whether the clinical sites will pass such FDA inspections, and negative inspection results or regulatory questions arising from such inspections (for example, relating to data from clinical sites), could significantly delay or prevent
any potential regulatory approval or expansion of the product labeling for Ranexa.

Depending on the results of the FDAs decisions regarding whether
to accept for review, and whether or not to approve, our supplemental new drug application (as well as the separate new drug application that has been administratively unbundled from the supplemental new drug application) submitted in September
2007, as well as the decisions of the FDA review divisions with respect to any labeling modifications, our ability to generate product revenues, raise additional capital, and maintain our current levels of research, development and commercialization
activities could be materially negatively affected. If the FDA does not approve our applications, our continued ability to commercialize Ranexa could be seriously impaired or stopped altogether.

Ranexa may not achieve market acceptance or generate revenues.

Ranexa is currently our only approved product. If Ranexa fails to achieve broader market acceptance than it has to date, our product sales and our ability to maintain our current levels of research, development and commercialization
activities, as well as our ability to become profitable in the future, will all be adversely affected. Many factors may affect the rate and level of market acceptance of Ranexa in the United States, including:



| |  |  | product labeling;
| | - |  | -----------------



| |  |  | our product marketing, promotion, distribution sales and pricing strategies and programs and the effectiveness of our sales and marketing efforts;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to provide acceptable evidence of the products safety, efficacy, cost-effectiveness and convenience compared to that of competing products or
therapies;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | new data or adverse event information relating to the product or any similar products, especially our MERLIN TIMI-36 clinical trial of Ranexa;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | regulatory actions resulting from new data or information or other factors, especially the FDAs actions relating to our supplemental new drug application (as
well as the new drug application that has been administratively unbundled from the supplemental new drug application) submitted in September 2007, in which we are seeking to modify the existing product labeling to expand the product indication to
include first-line angina treatment, to reduce cautionary language, to add reduction of HbA1c in coronary artery disease patients with diabetes to the product labeling, and to make other product labeling changes;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the extent to which physicians do or do not prescribe a product to the full extent encompassed by product labeling or prescribe a product inconsistently with
product labeling;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | regulatory constraints on, or delays in the review of, our product promotional materials and programs;
| | - |  | ------------------------------------------------------------------------------------------------------



| |  |  | the perception of physicians and other members of the healthcare community of the products safety, efficacy, cost-effectiveness and convenience compared to
that of alternative or competing products or therapies;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | patient and physician satisfaction with the product;
| | - |  | ----------------------------------------------------



| |  |  | publicity concerning the product or similar products;
| | - |  | -----------------------------------------------------



| |  |  | the introduction, availability and acceptance of alternative or competing treatments, including lower-priced generic products;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------



| |  |  | the availability and level of third-party reimbursement for the product, including the ability to gain formulary acceptance and favorable formulary positioning,
without prior authorizations or step-edits, for the product on government and managed care formularies and the discounts and rebates offered in return;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to satisfy post-marketing safety surveillance responsibilities and safety reporting requirements;
| | - |  | -------------------------------------------------------------------------------------------------------------



| |  |  | whether regulatory authorities impose risk management programs on the product, which can vary widely in scope, complexity and impact on market acceptance of a
product, and can include education and outreach programs, controls on the prescribing, dispensing or use of the product, and/or restricted access systems;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the continued availability of third parties to manufacture and distribute the product and product samples for us on acceptable terms, and their continued ability to
manufacture commercial-scale quantities of the product successfully and on a timely basis;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | the size of the overall market for the product;
| | - |  | -----------------------------------------------



| |  |  | the outcome of patent or product liability litigation, if any, related to the product;
| | - |  | --------------------------------------------------------------------------------------



| |  |  | regulatory developments relating to the development, manufacture, commercialization or use of the product; and
| | - |  | --------------------------------------------------------------------------------------------------------------



| |  |  | changes in the regulatory or business environment.
| | - |  | --------------------------------------------------

For example, we believe that the currently approved product labeling for Ranexa has had and will continue to have a direct impact on our marketing, promotional and sales programs for this product, and has adversely affected market
acceptance of this product. For example, the current approved product labeling for Ranexa contains contraindications and warnings regarding a potential safety risk of QT prolongation and a type of fatal arrhythmia, among other potential risks. In
addition, the current indication statement in the labeling states that because Ranexa prolongs the QT interval in a dose-dependent manner, the product should be reserved for use in chronic angina patients who have not achieved an adequate response
with other antianginal drugs, and should be used in combination with other common antianginal treatments, specifically amlodipine, beta-blockers or nitrates. Based on the MERLIN TIMI-36 clinical study results, we submitted a supplemental new drug
application with the FDA in September 2007 seeking to modify the existing product labeling to expand the indication to include first-line angina treatment and reduce cautionary language. However, we do not know if the FDA will accept for review, or
will approve, our supplemental new drug application (or the new drug application that has been administratively unbundled from the supplemental new drug application). Even if the FDA does approve our supplemental new drug application (and the new
drug application that has been administratively unbundled from the supplemental new drug application), we will not have FDA-approved modified labeling that we can use for promotional purposes until mid-2008 (assuming that the FDA accepts the
applications for review and provides approvals at the end of one standard review cycle). Even if the FDA approves modified product labeling for Ranexa that provides for first-line angina treatment with reduced cautionary wording and other labeling
improvements such as a reduction of HbA1c in coronary artery disease patients with diabetes, we may not be able to significantly increase sales of Ranexa with the resources available to us.

In addition, we believe that physician prescribing patterns are substantially affected by their perceptions of a product, particularly a new product such as Ranexa. We
believe that many physicians perceptions of Ranexa have been negatively impacted by the currently approved product labeling for Ranexa. Even if the FDA approves modified product labeling for Ranexa that provides for first-line angina treatment
with reduced cautionary wording and other labeling improvements, such as a reduction of HbA1c in coronary artery disease patients with diabetes, favorably modifying physician perceptions for the product may prove very difficult for us with the
resources available to us, which would impact product acceptance and revenues over time.

We must submit all promotional materials to the FDA at the time
of first use, including in connection with any potential FDA approval of the supplemental new drug application we submitted in September 2007. If the FDA raises concerns regarding our proposed or actual promotional materials, we may be required to
modify or discontinue using them and provide corrective information to healthcare practitioners. We do not know whether our promotional materials will allow us to effectively promote Ranexa with healthcare practitioners and managed care audiences.
For example, the current approved product labeling states that the mechanism of action of Ranexa is unknown, which may make it difficult for us to address potential questions and concerns regarding the product such as safety concerns.

The pharmaceutical and biopharmaceutical industries, and the market for cardiovascular drugs in particular, are intensely competitive. Ranexa and any of our product
candidates that receive regulatory approval will compete with well-established, proprietary and generic cardiovascular therapies that have generated substantial sales over a number of years and are widely used and accepted by health care
practitioners.

In addition to direct competition, our products will also have to compete against the promotional efforts for other products in order to be
noticed by physicians and patients. The level of promotional effort in the pharmaceutical and biopharmaceutical markets has increased substantially over time. Market acceptance of our products will be affected by the level of promotional effort that
we are able to provide. The level of our promotional efforts will depend in part on our ability to train, deploy and retain an effective sales and marketing organization, as well as our ability to secure additional financing. We cannot assure you
that the level of promotional effort that we will be able to provide for our products or the levels of additional financing we are able to secure, if any, will be sufficient to obtain market acceptance of our products. We may also be hampered in our
promotional efforts by a lack of familiarity with our company and our products among healthcare practitioners in the United States.



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The commercialization of our products is substantially dependent on our ability to develop effective sales and
marketing capabilities.

Our successful commercialization of Ranexa in the United States depends on our ability to maintain an effective sales and
marketing organization in the United States. We have hired, trained and deployed our first sales force, which is a national cardiovascular specialty sales force, and which began promoting Ranexa in March 2006.

In May 2007 we announced significant reductions in our field sales organization and headquarters sales and marketing personnel as well as significant reductions in sales
and marketing program expenditures. We significantly reduced the number of sales territories (from approximately 250 to approximately 145), which has resulted in less overall coverage for our sales territories in the aggregate as well as larger
territories for many sales personnel. These significant reductions in personnel and expenditures may result in failure to adequately cover our current sales territories, or to cover through alternative marketing efforts the territories in which we
have elected not to have sales representation, and may result in reduced sales force productivity, a negative effect on product prescribing and less revenues from Ranexa. The success of our marketing and promotional strategies will also depend on
our ability to retain and recruit the caliber of sales representatives necessary to implement our strategy, which focuses on promotion to cardiologists. The territory realignment and operating expense and headcount reductions we announced in May
2007 could significantly limit our ability to successfully retain and recruit qualified sales personnel with the level of technical, selling and institutional experience typical of specialty pharmaceutical sales personnel. Any failure to retain or
attract qualified personnel could significantly delay or hinder the success of our commercial strategies, and could result in lower market acceptance and product revenues for Ranexa.

We may increase or decrease the size of our sales force in the future, or change territory alignments in the
future, depending on many factors, including the effectiveness of the sales force, the level of market acceptance of Ranexa, whether the FDA accepts and reviews our supplemental new drug application (and the new drug application that has been
administratively unbundled from the supplemental new drug application) submitted in September 2007 and the results of any such regulatory reviews, and any partnering arrangements we may enter into from time to time. Developing and implementing key
marketing messages and programs, as well as deploying, retaining and managing a national sales force and additional personnel, is very expensive, complex and time-consuming. We do not know if our marketing strategies and programs will be effective.
We also do not know if our sales force is sufficient in size, scope or effectiveness to compete successfully in the marketplace and gain acceptance for Ranexa. Among other factors, we may not be able to gain sufficient access to healthcare
practitioners, which would have a negative effect on our ability to promote Ranexa and gain market acceptance. Even if we gain access to healthcare practitioners, we may not be able to change prescribing patterns in favor of Ranexa. For example, our
marketing and sales efforts relating to ACEON®(perindopril erbumine) Tablets in the United States prior to our termination of
our co-promotion agreement for that product did not produce a significant increase in prescribing patterns relating to that product.

Even after
a product has been approved for commercial sale, if we or others identify previously known or unknown side effects or manufacturing problems occur, approval could be withdrawn or sales of the product could be significantly reduced.

Once a product is approved for marketing, adverse effects whether known or new and unknown must be reported to regulatory authorities on an ongoing basis, and usage of
any drug product in the general population is less well-controlled than in the pre-approval setting of carefully monitored clinical trial testing. In addition, once a product is approved, others are free to generate new data regarding the product,
which they may publish in the scientific literature or otherwise publicize, without any control by the drug manufacturer.

If we or others identify
previously unknown side effects for Ranexa or any products perceived to be similar to Ranexa, or if any already known side effect becomes a more serious or frequent concern than was previously thought on the basis of new data or other developments,
or if manufacturing problems occur, then in any of those circumstances:



| |  |  | sales of the product may decrease significantly;
| | - |  | ------------------------------------------------



| |  |  | regulatory approval for the product may be restricted or withdrawn;
| | - |  | -------------------------------------------------------------------



| |  |  | we may decide to, or be required to, send product warning letters or field alerts to physicians and pharmacists;
| | - |  | ----------------------------------------------------------------------------------------------------------------



| |  |  | reformulation of the product, additional preclinical or clinical studies, changes in labeling of the product or changes to or re-approvals of manufacturing
facilities may be required;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our reputation in the marketplace may suffer; and
| | - |  | -------------------------------------------------



| |  |  | investigations and lawsuits, including class action suits, may be brought against us.
| | - |  | -------------------------------------------------------------------------------------

Any of the above occurrences would harm or prevent sales of Ranexa and increase our costs and expenses, and could mean that our ability to commercialize the product is
seriously impaired or stopped altogether.

Unlike other treatments for angina currently being used in the United States, the approved labeling for Ranexa
warns of the risk that because the product prolongs the QT interval, it may cause a type of fatal arrhythmia known to healthcare practitioners as torsades de pointes. This fatal arrhythmia occurs in the general population of patients with
cardiovascular



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disease at a low rate of incidence (although the precise rate may be debatable), and can be triggered by a wide variety of factors including drugs, genetic
predisposition and medical conditions (such as low blood potassium levels or slow heart rate) that are not uncommon among patients with cardiovascular disease. Now that Ranexa is approved in the United States, the product is being used in a wider
population and in a less controlled fashion than in clinical studies of the product, including in patients with chronic angina who may be predisposed to the occurrence of torsades de pointes or other fatal arrhythmias. These patients are often
receiving other medications for a variety of conditions. In this potential patient population for Ranexa, it is inevitable that some patients receiving Ranexa will die suddenly, that in some or even many of these cases there will not be sufficient
information available to rule out Ranexa as a contributing factor or cause of mortality, and that required safety reporting from physicians or from us to regulatory authorities may link Ranexa to torsades de pointes, sudden death or other serious
adverse effects. As a result, regulatory authorities, healthcare practitioners and/or patients may perceive or conclude that the use of Ranexa is associated with torsades de pointes, sudden death, or other serious adverse effects, any of which could
mean that our ability to commercialize Ranexa could be seriously impaired or stopped altogether, and we may become subject to potentially significant product liability litigation and other claims against us. This would harm our business, increase
our cash requirements and result in continued operating losses and a substantial decline in our stock price.

We may be subject to product liability
claims and we have only limited product liability insurance.

The manufacture and sale of human drugs and other therapeutic products involve an inherent
risk of product liability claims and associated adverse publicity. The approved labeling for Ranexa includes warnings regarding QT prolongation and the risk of arrhythmias and sudden death, and regarding tumor promotion. We may be subject to product
liability claims in the future, including if patients who have taken Ranexa die, experience arrhythmias, contract cancer, or suffer some other serious adverse effect. Any product liability claims could have a material negative effect on the market
acceptance and sales of our products. We currently have only limited product liability insurance for clinical trials testing and only limited commercial product liability insurance. We do not know if we will be able to maintain existing or obtain
additional product liability insurance on acceptable terms or with adequate coverage against potential liabilities. This type of insurance is expensive and may not be available on acceptable terms or at all. If we are unable to obtain or maintain
sufficient insurance coverage on reasonable terms or to otherwise protect against potential product liability claims, we may be unable to continue to develop or commercialize our products or any product candidates that may receive regulatory
approval in the future. A successful product liability claim brought against us in excess of our insurance coverage, if any, may require us to make substantial payments. This could adversely affect our cash position and results of operations and
could increase the volatility of our stock price.

If we are unable to compete successfully in our market, it will harm our business.

There are many existing drug therapies approved for the treatment of the diseases targeted by our products, and we are also aware of companies that are developing new
potential drug products that will compete in the same markets as our products. Ranexa competes with several well established classes of drugs for the treatment of chronic angina in the United States, including generic and/or branded beta-blockers,
calcium channel blockers and long acting nitrates, and additional potential angina therapies may be under development. In addition, surgical treatments and interventions such as coronary artery bypass grafting and percutaneous coronary intervention
are another option for angina patients (especially in the United States), and may be perceived by healthcare practitioners as preferred methods to treat the cardiovascular disease that underlies and causes angina.

There are numerous marketed generic and/or branded pharmacologic stress agents, and at least two potential A2A-adenosine receptor agonist compounds under development, that could compete with our regadenoson product candidate, if it is approved for marketing. We are
also aware of companies that are developing products that may compete with our other product candidates and programs. We may also be unaware of other potentially competitive products, product candidates or programs. Many of these potential
competitors have substantially greater product development capabilities and financial, scientific, marketing and sales resources. Other companies may succeed in developing products earlier or obtaining approvals from regulatory authorities more
rapidly or broadly than either we or our strategic partners are able to achieve. Potential competitors may also develop products that are safer, more effective or have other potential advantages compared to those under development or proposed to be
developed by us and our strategic partners. In addition, research, development and commercialization efforts by others could render our technology or our products obsolete or non-competitive.

Failure to obtain adequate reimbursement from government health administration authorities, private health insurers and other organizations could materially adversely
affect our future business, market acceptance of our products, results of operations and financial condition.

Our ability and the ability of our
collaborative partners to market and sell Ranexa and any of our product candidates that receive regulatory approval in the future will depend significantly on the extent to which reimbursement for the cost of Ranexa and those product candidates and
related treatments will be available from government health administration authorities, private health insurers and other organizations. Third-party payers and governmental health administration



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authorities are increasingly attempting to limit and/or regulate the price of medical products and services, especially branded prescription drugs. In
addition, the increased emphasis on managed healthcare in the United States will put additional pressure on product pricing and usage, which may adversely affect our product sales and revenues.

For example, under the Medicare Prescription Drug Improvement and Modernization Act of 2003, Medicare beneficiaries are now able to elect coverage for prescription drugs
under Medicare Part D, and the various entities providing such coverage have set up approved drug lists or formularies and are negotiating rebates and other price concessions from pharmaceutical manufacturers, which impacts drug access, patient
copayments and product revenues, and may increase pressure to lower prescription drug prices over time. These changes in Medicare reimbursement could have a negative effect on the revenue that we derive from sales of Ranexa, for example, when we
provide rebates and other price concessions in order for Ranexa to be placed on approved drug lists or formularies. Any additional statutory or regulatory changes, including potential changes to Medicare Part D, could also place pressure on product
pricing and usage.

Even if our products are deemed to be safe and effective by regulatory authorities, third-party payers and governmental health
administration authorities commonly direct patients to generic products or other lower-priced therapeutic alternatives, and there are an increasing number of such alternatives available, including numerous lower-priced generic products available to
treat the condition for which Ranexa is approved. Many third-party payers establish a preference for selected products in a category and provide higher levels of formulary acceptance and coverage for preferred products and higher co-payments for
non-preferred products. Significant uncertainty exists as to the reimbursement status of recently approved health care products, such as Ranexa. As a result, it can be difficult to predict the availability or amount of reimbursement for Ranexa or
how the product will be positioned relative to other antianginal products and therapies.

In February 2006, we set the wholesale acquisition cost of Ranexa
at a higher price than the cost of any other antianginal drug currently on the market in the United States. In 2007, we increased the wholesale acquisition cost of Ranexa to adjust for inflation, and launched and priced a new dosage form of the
product consistent with this pricing strategy. Our pricing for Ranexa may result in less favorable reimbursement and formulary positioning for the product with third-party payers and under government programs including Medicare, and may result in
more or higher barriers to patient access to the product such as higher co-payments and/or prior authorization requirements. Even if we obtain favorable reimbursement or formulary positioning for Ranexa, we may not be able to maintain this
positioning if the product does not meet utilization expectations. If we fail to obtain or maintain favorable reimbursement or formulary positioning for Ranexa, health care providers may limit how much or under what circumstances they will prescribe
or administer the product, and patients may resist having to pay out-of-pocket for it. We are offering discounts or rebates to some customers to attempt to contract for favorable formulary status, which will lower the amount of product revenues we
receive. In addition, our product revenues are affected by our pricing for the approved dosing and approved dosage strengths for Ranexa and by the dosage regimens and strengths most commonly prescribed by physicians. To date, the lower dosage form
of Ranexa, which is lower priced than the higher dosage form, is the most commonly prescribed dosage, which impacts product revenues but may also support favorable formulary positioning by third-party payers. These competing factors will affect the
market acceptance of Ranexa in the United States as well as the amount of product revenues we will receive for the product.

For sales of any of our
products in Europe, if approved, we will be required to seek reimbursement approvals on a country-by-country basis. We cannot be certain that any products approved for marketing will be considered cost effective, that reimbursement will be
available, or that allowed reimbursement will be adequate in these markets. In addition, in Europe, various government entities control the prices of prescription pharmaceuticals and often expect prices of prescription pharmaceuticals to decline
over the life of the product or as volumes increase. As a result, reimbursement policies and pricing controls could adversely affect our or any strategic partners ability to sell our products on a profitable basis in Europe.

Our customer base is highly concentrated.

Our principal customers
are a small number of wholesale drug distributors. These customers comprise a significant part of the distribution network for pharmaceutical products in the United States. Three large wholesale distributors, AmerisourceBergen Corporation, Cardinal
Health, Inc. and McKesson Corporation, control a significant share of the market in the United States. Our ability to distribute any product, including Ranexa, to retail pharmacy chains and to recognize revenues on a timely basis is substantially
dependent on our ability to maintain commercially reasonable agreements with each of these wholesale distributors and the extent to which these distributors, over whom we have no control, comply with such agreements. Our agreements with wholesaler
distributors may contain terms that are not favorable, given our relative lack of market leverage (as a company with only one approved product) or other factors, which could adversely affect our commercialization of Ranexa. The loss or bankruptcy of
any of these customers could materially and adversely affect our future results of operations, financial condition and our ability to distribute our products.



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Guidelines and recommendations published by various organizations may affect the use of our products.

Government agencies issue regulations and guidelines directly applicable to us and to our products. In addition, professional societies, practice management groups,
private health/science foundations, and organizations involved in various diseases from time to time publish guidelines or recommendations to the health care and patient communities. These various sorts of recommendations may relate to such matters
as product usage, dosage, route of administration, and use of related or competing therapies. These organizations have in the past made recommendations about our products or products that compete with our products, such as the treatment guidelines
of the American Heart Association. These sorts of recommendations or guidelines could result in decreased usage of our products. In addition, the perception by the investment community or stockholders that any such recommendations or guidelines will
result in decreased usage of our products could adversely affect the market price of our common stock.

We may be required to defend lawsuits or pay
damages in connection with the alleged or actual violation of healthcare statutes such as fraud and abuse laws, and our corporate compliance programs can never guarantee that we are in compliance with all relevant laws and regulations.

Our commercialization efforts in the United States are subject to various federal and state laws pertaining to pharmaceutical promotion and healthcare
fraud and abuse, including the Food, Drug and Cosmetic Act, the Prescription Drug Marketing Act, and federal and state anti-kickback, fraud and false claims laws. Anti-kickback laws make it illegal for a prescription drug manufacturer to offer or
pay any remuneration in exchange for, or to induce, the referral of business, including the purchase or prescription of a drug. The federal government has published many regulations relating to the anti-kickback statutes, including numerous safe
harbors or exemptions for certain arrangements. False claims laws prohibit anyone from knowingly and willingly presenting, or causing to be presented for payment to third-party payers (including Medicare and Medicaid), claims for reimbursed drugs or
services that are false or fraudulent, claims for items or services not provided as claimed, or claims for medically unnecessary items or services.

Our
activities relating to the sale and marketing of our products, and those of our strategic partners (such as Astellas in the case of our regadenoson arrangement), will be subject to scrutiny under these laws and regulations. It may be difficult to
determine whether or not our activities, or those of our strategic partners, comply with these complex legal requirements. Violations are punishable by significant criminal and/or civil fines and other penalties, as well as the possibility of
exclusion of the product from coverage under governmental healthcare programs, including Medicare and Medicaid. If the government were to investigate or make allegations against us or any of our employees, or sanction or convict us or any of our
employees, for violations of any of these legal requirements, this could have a material adverse effect on our business, including our stock price. Similarly, under our license and collaboration arrangement with respect to regadenoson, if Astellas
becomes subject to investigation, allegation or sanction relating to its commercialization of regadenoson (if any), our ability to continue to obtain revenues from the sale of regadenoson (if approved and launched) could be seriously impaired or
stopped altogether.

Our activities and those of our strategic partners could be subject to challenge for many reasons, including the broad scope and
complexity of these laws and regulations, the difficulties in interpreting and applying these legal requirements, and the high degree of prosecutorial resources and attention being devoted to the biopharmaceutical industry and health care fraud by
law enforcement authorities. During the last few years, numerous biopharmaceutical companies have paid multi-million dollar fines and entered into burdensome settlement agreements for alleged violation of these requirements, and other companies are
under active investigation. Although we have developed and implemented corporate and field compliance programs as part of our commercialization of Ranexa, we cannot assure you that we or our employees, directors or agents were, are or will be in
compliance with all laws and regulations or that we will not come under investigation, allegation or sanction.

In addition, we are required to prepare and
report product pricing-related information to federal and state governmental authorities, such as the Department of Veterans Affairs and under the Medicaid program. The calculations used to generate the pricing-related information are complex and
require the exercise of judgment. If we fail to accurately and timely report product pricing-related information or to comply with any of these or any other laws or regulations, various negative consequences could result, including criminal and/or
civil prosecution, substantial criminal and/or civil penalties, exclusion of the approved product from coverage under governmental healthcare programs (including Medicare and Medicaid), costly litigation and restatement of our financial statements.
In addition, our efforts to comply with this wide range of laws and regulations are, and will continue to be, time-consuming and expensive.



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The successful commercialization of our products, including regadenoson if it is approved for marketing in the United
States, is substantially dependent on the successful and timely performance of our strategic collaborative partners and other vendors, over whom we have little or no control.

We are dependent on the performance of our key strategic collaborative partners for the successful commercialization of some of our product candidates. Our key collaborative partnerships include the following:



| |  |  | Biogen Idec Inc. (formerly Biogen Inc.)a 1997 license agreement under which we licensed rights to Biogen to
develop and commercialize products produced based on our A1adenosine receptor antagonist patents or technologies, which Biogen Idec has labeled its
Adentri program; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Astellas US LLP. (formerly Fujisawa Healthcare, Inc.)a 2000 collaboration and license agreement to develop and commercialize second generation pharmacologic
cardiac stress agents, including regadenoson.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The successful commercialization of
our regadenoson program and of the Adentri program each depend significantly on the efforts of our collaborative partners for each of these programs. For example, in May 2007 we submitted a new drug application to the FDA seeking approval for
regadenoson for potential use as a pharmacologic stress agent in myocardial perfusion imaging studies. If the new drug application is approved by the FDA, under our agreement with Astellas we must transfer the new drug application, and all
responsibility for the product, to Astellas immediately after such FDA approval. Our agreement with Astellas also provides that Astellas is solely responsible for, and has sole decision-making authority regarding, all aspects of the commercial
manufacture, distribution, pricing, reimbursement, marketing, promotion and sales of regadenoson in North America, if regadenoson is approved anywhere in that territory. As a result, we cannot control and will not necessarily know the level of
investment Astellas makes or the degree of priority that Astellas places on the regadenoson program compared to its other products and programs, including compared to its current product for use in myocardial perfusion imaging studies,
Adenoscan®(adenosine injection). Among other things, we will not be able to control Astellas level of activity or
expenditure relating to the launch, manufacture (including inventory build-up) or commercialization of regadenoson, if approved, or the degree of motivation or success of Astellas, if any, in gaining market acceptance for regadenoson, if approved
and launched, and in convincing physicians to switch from Astellas current pharmacologic stress agent Adenoscan®or other
agents to regadenoson. Similarly, Biogen Idec has sole responsibility for all worldwide development and commercialization of products from the Adentri program, if any.

We cannot control the amount and timing of resources that any of our strategic partners devote to these programs. Conflicting priorities, competing demands, other
product opportunities or other factors that we cannot control and of which we may not be aware may cause any of our strategic partners to deemphasize our programs or to pursue competing technologies or product candidates. For example, under our
agreement with Astellas, Astellas is obligated to use commercially reasonable diligent efforts consistent with industry standards to carry out its responsibilities to manufacture, market, promote and sell regadenoson in the United States if it is
approved by the FDA, and Astellas is required to launch regadenoson within six months after FDA approval (if any), except if commercial supplies are not available for launch for reasons reasonably outside the control of Astellas, in which case
Astellas has up to an additional six months in which to launch the product in the United States. The agreement does not obligate Astellas to satisfy any minimum detailing or commercialization expenditure requirements with respect to regadenoson, if
approved.

In addition, these arrangements are each complex, and disputes may arise between the parties, which could lead to delays in the development or
commercialization of the products involved. If Astellas fails to successfully manufacture, launch, market and sell regadenoson in North America, if approved, we will receive minimal or even no revenues under the arrangement. If Biogen Idec fails to
successfully develop and commercialize any product from the Adentri program, we will receive no revenues under the arrangement. To the extent that we enter into additional co-promotion or other commercialization arrangements in the future, our
revenues will depend upon the efforts of third parties over which we will have little control.

Our successful commercialization of Ranexa depends on the
performance of numerous third-party vendors over which we have little control. For example, we rely entirely on third-party vendors to manufacture and distribute Ranexa in the United States, to administer our physician sampling programs relating to
Ranexa, and to perform some important sales and marketing operations functions, such as our product call centers, warehousing and the logistics related to product ordering and distribution. As a result, our level of success in commercializing Ranexa
depends significantly on the efforts of these third parties, as well as our strategic partners. If these third parties fail to perform as expected, our ability to market and promote Ranexa would be significantly compromised.



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We have no manufacturing facilities and depend on third parties to manufacture and distribute Ranexa, and to
manufacture our product candidates.

We do not operate, and have no current plans to develop, any manufacturing or distribution facilities, and we
currently lack the resources and capability to manufacture or distribute any of our products ourselves on a commercial scale or to manufacture clinical supplies of product candidates. As a result, we are dependent on corporate partners, licensees,
contract manufacturers and other third parties for the manufacturing and distribution of clinical and commercial scale quantities of all of our products and product candidates, including Ranexa.

For example, we have entered into several agreements with third-party manufacturers relating to Ranexa, including for commercial-scale active pharmaceutical ingredient,
bulk tablet manufacturing, packaging and supply of an important raw material component of the product. We currently rely on a single supplier at each step in the production cycle for Ranexa, and a single party for distribution of Ranexa to
wholesalers. In addition, under our agreement with Astellas relating to regadenoson, Astellas is solely responsible for the commercial manufacture and supply of regadenoson, if approved, in their territory and Astellas in turn is dependent on third
parties for the manufacture of the active pharmaceutical ingredient and the drug product, including a single supplier for the active pharmaceutical ingredient. Our ability to commercialize Ranexa, and Astellas ability to commercialize
regadenoson, if approved, are each entirely dependent on these arrangements, and would be affected by any delays or difficulties in performance on the part of the parties involved. For example, in the case of our Ranexa supply chain, because we rely
on a single manufacturer at each step in the production cycle for the product, the failure of any manufacturers to supply product on a timely basis or at all, or to manufacture our product in compliance with product specifications or applicable
quality or regulatory requirements, or to manufacture product or samples in volumes sufficient to meet market demand, would adversely affect our ability to commercialize Ranexa, could result in inventory write-offs, and could negatively affect
product revenues and our operating results.

Furthermore, we and our third-party manufacturers, laboratories and clinical testing sites may be required to
pass pre-approval inspections of facilities by the FDA and corresponding foreign regulatory authorities before obtaining marketing approvals. Even after product approval, our facilities and those of our contract manufacturers remain subject to
periodic inspection by the FDA and other domestic and foreign regulatory authorities. We cannot guarantee that any such inspections will not result in compliance issues that could prevent or delay marketing approval or negatively impact our ability
to maintain product approval or distribution, or require us to expend money or other resources to correct. In addition, we or our third-party manufacturers are required to adhere to stringent federal regulations setting forth current good
manufacturing practices for pharmaceuticals. These regulations require, among other things, that we manufacture our products and maintain our records in a carefully prescribed manner with respect to manufacturing, testing and quality control
activities. In addition, drug product manufacturing facilities in California must be licensed by the State of California, and other states may have comparable requirements. We cannot assure you that we will be able to obtain such licenses when and
where needed.

All of our products in development require regulatory review and approval prior to commercialization. Any delay in the regulatory review
or approval of any of our product candidates will harm our business.

All of our products in development require regulatory review and approval prior to
commercialization. Any delays in the regulatory review or approval of our product candidates in development would delay market launch, increase our cash requirements, increase the volatility of our stock price and result in additional operating
losses.

The process of obtaining FDA and other required regulatory approvals, including foreign approvals, often takes many years and can vary
substantially based upon the type, complexity and novelty of the products involved. Furthermore, this approval process is extremely complex, expensive and uncertain. We may not be able to maintain our proposed schedules for the submission or review
of any new drug application, supplemental new drug application or equivalent foreign application seeking approval for Ranexa, regadenoson or any of our other product candidates or for any new uses or other changes to approved product labeling or
manufacturing.

If we submit any new drug application or supplemental new drug application to the FDA, the FDA must first decide whether to either accept
or reject the submission for filing, and if we submit any such application to European regulatory authorities, they must first decide whether to validate it for further review. As a result, we cannot be certain that any of our submissions will be
reviewed. If the FDA accepts our submission for review, the agency will also determine whether the application will undergo review on a standard ten-month review cycle or on a priority six-month review cycle. The FDA has broad regulatory discretion
in granting priority review to an application, and a decision to grant priority review is never a guarantee of any particular regulatory outcome (such as approval), since the regulatory standard for making a decision to grant priority review is
entirely different from the regulatory standards for deciding whether or not to approve an application for marketing. If any of our submissions are reviewed, including our supplemental new drug application (and the new drug application that has been
administratively unbundled from the supplemental new drug application) submitted in September 2007 for Ranexa, we cannot be certain that we will be able to respond to any regulatory requests during the review period in a timely manner without
delaying potential regulatory action. We also cannot be certain that any of our products or proposed product changes, such as labeling changes, will be approved by the FDA or foreign regulatory authorities.



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A delay in approval, or a rejection, of a marketing application in the United States or foreign markets may be based upon
many factors, including regulatory requests for additional analyses, reports, clinical inspections, clinical and/or preclinical data and/or studies, questions regarding data or results, unfavorable review by advisory committees, changes in
regulatory policy during the period of product development and/or the emergence of new information regarding our products or other products. For example, in 2005 we withdrew our marketing authorization application for ranolazine filed with the
European regulatory authorities because regulators requested additional clinical pharmacokinetic data regarding the product prior to approval. In December 2006, we announced that we submitted a new marketing authorization application seeking
approval of ranolazine for the treatment of chronic angina with the European regulatory authorities, including additional data and results from studies conducted after March 2004. We do not know if the additional data and results included in our
application will result in favorable action by the European regulatory authorities with respect to the marketing approval application, or whether such authorities will view the second application more favorably than the original application which we
withdrew.

Data obtained from preclinical and clinical studies are subject to different interpretations, which could delay, limit or prevent regulatory
review or approval of any of our products by the FDA or foreign regulatory authorities. For example, some drugs that prolong the QT interval, which is a measurement of specific electrical activity in the heart as captured on an electrocardiogram,
carry an increased risk of serious cardiac rhythm disturbances that can cause a type of fatal arrhythmia known as torsades de pointes, while other drugs that prolong the QT interval do not carry an increased risk of this fatal arrhythmia. Ranexa
causes small but statistically significant mean increases in the QT interval. However, other clinical and preclinical data, including the results of the MERLIN TIMI-36 study (which showed no adverse trend in death or arrhythmias in patients
receiving Ranexa) indicate that Ranexa does not pre-dispose patients to this fatal arrhythmia. Regulatory authorities may interpret the Ranexa data differently than we do, which could delay, limit or prevent additional regulatory approvals relating
to Ranexa.

Similarly, as a routine part of the evaluation of any product candidate, clinical studies are generally conducted to assess the potential for
drug-drug interactions that could impact potential product safety. While we believe that the interactions between Ranexa and other drugs have been well characterized as part of our clinical development program, these data are subject to regulatory
interpretation and an unfavorable interpretation by regulatory authorities could delay, limit or prevent additional regulatory approvals of Ranexa.

Furthermore, regulatory attitudes towards the data and results required to demonstrate safety and efficacy can change over time and can be affected by many factors, such as the emergence of new information (including as relates to other
drugs and/or other medical therapies), changing policies and agency funding, staffing and leadership. We cannot be sure whether current or future changes in the regulatory environment will be favorable or unfavorable to our business prospects. For
example, we were informed by the FDA in 2006 that the agency has transferred responsibility for our regadenoson program to a review division at the FDA that has not previously handled the program. The development program for regadenoson is at a late
stage, with two Phase 3 studies successfully completed, and we have submitted a new drug application to this FDA review division in May 2007. As a result of the FDA transfer of review responsibility for the program, this review division, which has
no prior involvement in the design or implementation of our regadenoson program, is responsible for making the decision as to whether or not to approve the new drug application submitted in May 2007, and our ability to obtain potential product
approval from the FDA for regadenoson could be negatively affected. We do not have any special protocol assessment agreement in place for the regadenoson program.

The fact that the design of our two successful Phase 3 studies of regadenoson is novel may also delay or prevent any potential approval of a new drug application for regadenoson. The two identical Phase 3 studies are non-inferiority
studies, using a complex comparison based on multiple readings of reperfusion imaging scans by various blinded human scan readers. This is an unusual study design and there is an inherently high degree of variability in the reading of reperfusion
imaging scans (meaning that a single scan reviewed by two different readers, or even a single scan reviewed twice by the same reader, can produce different results). These studies also required blinded human readers to review and interpret
electrocardiographic data, a process that is also subject to inherent interpretative variability. Even though both Phase 3 studies of regadenoson had positive results, there can be no assurance that these Phase 3 study data, or the other data,
results and information included in our new drug application submitted in May 2007, will be sufficient to obtain marketing approval for regadenoson in the United States, or abroad if any approval for regadenoson is sought outside the United States.

We cannot predict the review time for any of our submissions with any regulatory authorities. Review times also can be affected by a variety of factors,
including budget and funding levels and statutory, regulatory and policy changes.



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We intend to file applications for regulatory approval of our products in various foreign jurisdictions from time to time
in the future. However, we have not received any regulatory approvals in any foreign jurisdiction for the commercial sale of any of our products. There are potentially important substantive differences in reviews of approval applications in the
United States and foreign jurisdictions such as Europe. For example, preclinical and/or clinical trials and data that are accepted by the FDA in support of a new drug application may not be accepted by foreign regulatory authorities, and trials and
data acceptable to foreign regulatory authorities in support of a product approval may not be accepted by the FDA. In addition, approval of a product in one jurisdiction is no guarantee that any other regulatory authorities will also approve it.

The successful development of drug products is highly uncertain and requires significant expenditures and time. Any delay in the development of any of
our drug product candidates will harm our business.

Successful development of drug products is highly uncertain. Product candidates that appear
potentially promising in research or development may be delayed or fail to reach later stages of development or the market for many reasons, including:



| |  |  | preclinical tests may show the product candidate to be toxic or lack efficacy in animal models;
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | clinical study results may show the product candidate to be less effective than desired or to have harmful or problematic side effects;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------



| |  |  | we may fail to receive the necessary regulatory approvals, or experience a delay in receiving such approvals;
| | - |  | -------------------------------------------------------------------------------------------------------------



| |  |  | we may encounter difficulties in formulating the product candidate, or in obtaining clinical supplies or source(s) of commercial-scale supply;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | manufacturing costs, pricing or reimbursement issues or other factors may make the product candidate uneconomical; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------



| |  |  | third parties may have proprietary or contractual rights that may prevent or discourage the product candidate from being developed.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------

All of our product candidates in development require further preclinical studies and/or clinical trials, and will require regulatory review and approval, prior to
marketing and sale. Any delays in the development of our product candidates would delay our ability to seek and obtain regulatory approvals, increase our cash requirements, increase the volatility of our stock price and result in additional
operating losses. One potential cause of a delay in product development is a delay in clinical trials. Many factors could delay completion of any of our clinical trials, including, without limitation:



| |  |  | slower than anticipated patient enrollment and/or event rates;
| | - |  | --------------------------------------------------------------



| |  |  | difficulty in obtaining sufficient supplies of clinical trial materials; and
| | - |  | ----------------------------------------------------------------------------



| |  |  | adverse events occurring during the clinical trials.
| | - |  | ----------------------------------------------------

We may be unable to maintain our proposed schedules for investigational new drug applications, which are regulatory filings made by a drug sponsor to the FDA to allow human clinical testing in the United States, and equivalent foreign
applications and clinical protocol submissions to other regulatory agencies. In addition, we may be unable to maintain our proposed schedules for initiation and completion of clinical trials as a result of FDA or other regulatory action or other
factors, such as lack of funding, the occurrence of adverse safety effects or other complications that may arise in any phase of a clinical trial program.

We rely on a large number of clinical research organizations and foreign clinical sites to conduct our clinical trials, including the MERLIN TIMI-36 clinical trial of Ranexa and the Phase 3 studies of regadenoson, which may adversely
affect our ability to complete our clinical trials on a timely basis or the outcome of our clinical trials.

The successful development of our products
is substantially dependent on the successful and timely performance of contract research organizations, or CROs, and foreign clinical sites. We use CROs to perform a variety of tasks in the conduct of our clinical trials, including patient
recruitment, project management, monitoring and auditing of clinical sites, data management, data analysis, core laboratory services, site close-out and inspection readiness. For example, we have relied on several clinical CROs to conduct almost all
aspects of our MERLIN TIMI-36 study of Ranexa. With approximately 450 clinical sites in the United States and 16 foreign countries and over 6,500 patients enrolled in the study, the MERLIN TIMI-36 study is the largest and most complicated clinical
trial that we have conducted to date, and it is a complex trial to close-out. We have a very limited ability to control the quality of personnel assigned by CROs to our projects. If any of these tasks are not performed by our CROs in an accurate and
timely fashion, our clinical trials may be delayed and the results of our clinical trials may be adversely affected. In addition, our heavy reliance on CROs may subject us and the CROs to additional demanding regulatory inspections, which can delay
and adversely affect the regulatory review and approval of our products (such as Ranexa in the case of the MERLIN TIMI-36 study) and product candidates (such as regadenoson).



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A significant portion of the sites conducting clinical trials of our product candidates, including the Phase 3 studies of
regadenoson, are or were outside of the United States. The use of foreign clinical sites is often subject to additional risks. For example, contracts, informed consents, study protocols and complex medical terminology must be accurately translated
into foreign languages. During the conduct of the study, study data contained in foreign-language source documents must be accurately and timely translated into English and reported back to study authorities. In addition, standards of medical care,
clinical practice and patient populations vary from country to country, as well as the degree and manner of regulatory oversight. All of these factors introduce heterogeneity into the study, which makes the conduct of the study more complex. Due in
part to the added complexity of conducting foreign clinical trials, we expect that the FDA and other regulatory authorities may be likely to conduct clinical site inspections of foreign clinical sites in connection with the review of marketing
applications covering our products and product candidates. To the extent that the FDA or other regulatory authorities are not satisfied with the foreign clinical site, the data from the affected sites may be excluded from the trials database
or there may be other impacts, which can adversely affect the results of the study or the timing or results of the regulatory authoritys review of any marketing application containing those study results. Our business could be harmed if the
availability or quality of the results of any of our material clinical studies (such as our MERLIN TIMI-36 clinical study and our Phase 3 studies of regadenoson) is delayed or adversely affected by any of these factors.

If we are unable to satisfy governmental regulations relating to the development and commercialization of our drug candidates, we may be subject to significant FDA
sanctions.

The research, testing, manufacturing and marketing of drug products are subject to extensive regulation by numerous regulatory authorities
in the United States, including the FDA, and in other countries. Failure to comply with FDA or other applicable regulatory requirements may subject a company to administrative or judicially imposed sanctions, including, without limitation:



| |  |  | warning letters and other regulatory authority communications objecting to matters such as promotional materials and requiring corrective action such as corrective
communications to healthcare practitioners;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | civil penalties;
| | - |  | ----------------



| |  |  | criminal penalties;
| | - |  | -------------------



| |  |  | injunctions;
| | - |  | ------------



| |  |  | product seizure or detention;
| | - |  | -----------------------------



| |  |  | product recalls;
| | - |  | ----------------



| |  |  | total or partial suspension of manufacturing; and
| | - |  | -------------------------------------------------



| |  |  | FDA refusal to review or approve pending new drug applications for unapproved products or supplemental new drug applications for previously approved products,
and/or similar rejections of marketing applications or supplements by foreign regulatory authorities.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

If we are unable to attract and
retain collaborators, licensors and licensees, the development of our products could be delayed and our future capital requirements could increase substantially.

We may not be able to retain or attract corporate and academic collaborators, licensors, licensees and other strategic partners. Our business strategy requires us to enter into various arrangements with these parties,
and we are dependent upon the success of these parties in performing their obligations. If we fail to enter into and maintain these arrangements, the development and/or commercialization of our products would be delayed, we may be unable to proceed
with the development, manufacture or sale of products or we might have to fund development of a particular product candidate internally. If we have to fund the development and commercialization of substantially all of our products internally, our
future capital requirements will increase substantially.

We or our strategic partners may also have to meet performance milestones, and other obligations
under our collaborative arrangements. If we fail to meet our obligations under our collaborative arrangements, our partners could terminate their arrangements or we could suffer other consequences such as losing our rights to the compounds at issue.
For example, under our agreement with Astellas relating to regadenoson, we are responsible for development activities and must meet development milestones in order to receive development milestone payments. Under our license agreement with Roche
relating to Ranexa, we are required to use commercially reasonable efforts to develop and commercialize ranolazine for angina, and have milestone payment obligations.

The collaborative arrangements that we may enter into in the future may place responsibility on a strategic partner for preclinical testing and clinical trials, manufacturing and preparation and submission of
applications for regulatory approval of potential pharmaceutical products. We cannot control the amount and timing of resources that our strategic partners devote to our programs. If a partner fails to successfully develop or commercialize any
product, product launch would be delayed. In addition, our partners may pursue competing technologies or product candidates. In addition, arrangements in our industry are extremely complex, particularly with respect to intellectual property rights,
financial provisions, and other provisions



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such as the parties respective rights with respect to decision-making. Disputes may arise in the future with respect to these issues, such as the
ownership of rights to any technology developed with or by third parties. These and other possible disagreements between us and our partners could lead to delays in the research, development or commercialization of product candidates, or in the
amendment or termination of one or more of our license and collaboration agreements. These disputes could also result in litigation or arbitration, which is time consuming, expensive and uncertain.

If we are unable to effectively protect our intellectual property, we may be unable to complete development of any products and we may be put at a competitive
disadvantage; and, if we are involved in an intellectual property rights dispute, we may not prevail and may be subject to significant liabilities or required to license rights from a third party, or cease one or more product programs.

Our success will depend to a significant degree on, among other things, our ability to:



| |  |  | obtain patents and licenses to patent rights;
| | - |  | ---------------------------------------------



| |  |  | maintain trade secrets;
| | - |  | -----------------------



| |  |  | obtain trademarks; and
| | - |  | ----------------------



| |  |  | operate without infringing on the proprietary rights of others.
| | - |  | ---------------------------------------------------------------

However, we cannot be certain that any patent will issue from any of our pending or future patent applications, that any issued patent will not be lost through an interference or opposition proceeding, reexamination
request, litigation or other proceeding, that any issued patent will be sufficient to protect our technology and investments or prevent the entry of generic or other competition into the marketplace, or that we will be able to obtain any extension
of any patent beyond its initial term. The following table shows the expiration dates in the United States for the primary compound patents for our key products and product candidates:



|                          |  |                                                  |  
|------------------------- |  | ------------------------------------------------ | -
|Product/Product Candidate |  | United States Primary Compound Patent Expiration |  
|Ranexa                    |  | 2003                                             | *
|Regadenoson               |  | 2019                                             |  

---



|* | Because ranolazine is a new chemical entity, under applicable United States laws we have received marketing exclusivity for the ranolazine compound as a new chemical entity until
January 2011. In addition, the United States compound patent relating to Ranexa has been granted several one-year interim patent term extensions under the Hatch-Waxman Act, and we expect that a patent term extension under the Hatch-Waxman Act will
be granted that will extend the patent protection to May 2008 for the approved product, which is the Ranexa extended-release tablet, for the use in chronic angina approved by the FDA in January 2006. Also, the United States Patent and Trademark
Office has issued patents claiming various sustained release formulations of ranolazine and methods of using sustained release formulations of ranolazine, including the formulation tested in our Phase 3 trials for Ranexa, for the treatment of
chronic angina. These patents expire in 2019. We do not have any issued patent claims covering any intravenous formulation of ranolazine on a stand-alone basis, or any issued patent claims covering Ranexa for use in diabetes or diabetes-related
conditions, and we may not be able to obtain any issued patent claims based on data and results from the MERLIN TIMI-36 study. After January 2011, patent term extension and new chemical entity exclusivity will no longer be available for ranolazine
in the United States, and unless additional exclusivity relating to a successful supplemental new drug application can be obtained and that exclusivity period extends past January 2011, we will be entirely reliant on our owned or licensed patents
claiming uses and formulations of Ranexa, especially the formulation and method of use patents described above, to continue to protect our substantial investments in Ranexas development and commercialization. It is possible that one or more
competitors could develop competing products that do not infringe these patent claims, or could succeed in invalidating or rendering unenforceable all or any of these issued patent claims. One or more of these patents could be lost through a reissue
or reexamination submission and subsequent evaluation by the United States Patent and Trademark Office or through litigation (or other proceeding) wherein issues of validity and/or enforceability such as inequitable conduct, inventorship, ownership,
prior art, and/or enablement can be raised. These patents could also be lost as a result of interference or opposition proceedings. Any intellectual property-related claims against us relating to any of these patents, with or without merit, as well
as any claims initiated by us against third parties, if any, would be time-consuming, expensive and risky to defend or prosecute, and could negatively affect our ability to commercialize Ranexa, product revenues and our operating results. In
general, if we assert a patent against an alleged infringer and the alleged infringer is successful in invalidating one, more or all of the patents, or in having one, more or all of the patents declared unenforceable, the protection afforded by the
patent(s) would be diminished or lost.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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In addition to these issued patents, we seek to file patent applications relating to each of our potential products, and
we seek trade name and trademark protection for our commercialized products such as Ranexa. Although patent applications filed in the United States are now published eighteen months after their filing date, this statutory change applies only to
applications filed on or after November 2000. Applications filed in the United States prior to this date are maintained in secrecy until a patent issues. As a result, we can never be certain that others have not filed patent applications for
technology covered by our pending applications or that we were the first to invent the technology. There may be third-party patents, patent applications, trademarks and other intellectual property relevant to our compounds, products, services,
development efforts and technology which are not known to us and that may block or compete with our compounds, products, services, development efforts or technology. For example, competitors may have filed applications for, or may have received or
in the future may receive, patents, trademarks and/or other proprietary rights relating to compounds, products, services, development efforts or technology that block or compete with ours.

In addition, we may have to participate in interference proceedings declared by the United States Patent and Trademark Office. These proceedings determine the priority
of invention and, thus, the right to a patent for the claimed technology in the United States. We may also become involved in opposition proceedings in connection with foreign patents.

Generic challenges and related patent litigation are common in the biopharmaceutical industry. Litigation,
interference and opposition proceedings, even if they are successful, are expensive, time-consuming and risky to pursue, and we could use a substantial amount of our financial resources in any such case. Such litigation may be necessary to enforce
any patents or trademarks issued to us and/or to our strategic partners, or to determine the scope and validity of the proprietary rights of us or third parties, including our strategic partners. For example, in May 2005, Astellas, our strategic
partner for the regadenoson program in North America, announced that Astellas and third parties filed patent infringement lawsuits relating to the submission of an abbreviated new drug application seeking approval of a generic version of
Adenoscan®(adenosine injection), a pharmacologic stress agent approved for marketing in the United States. Regadenoson, if it is
approved, would be intended to be a second generation pharmacologic stress agent in the United States market. In October 2007, Astellas announced a preliminary settlement of these lawsuits, under the terms of which a third party generic
pharmaceutical manufacturer will be able to launch their generic version of Adenoscan pursuant to a license in September 2012, or earlier under certain conditions (which have not been disclosed publicly). This settlement remains subject to court
approval. These developments could negatively impact Astellas transition from marketing Adenoscan®(adenosine injection) to
marketing the second generation regadenoson product (if approved), including if a generic version of Adenoscan®(adenosine
injection) comes on the market prior to the launch and establishment of regadenoson on the market (if approved).

We also must not
infringe valid patents or trademarks of others that might cover our compounds, products, services, development efforts or technology. If third parties own or have valid proprietary rights to technology or other intellectual property that we need in
our product development and commercialization efforts, we may need to obtain licenses to those rights. We cannot assure you that we will be able to obtain such licenses on economically reasonable terms, if at all. If we fail to obtain any necessary
licenses, we may be unable to complete any of our current or future product development and commercialization activities. If any such infringement of third party proprietary rights or inability to obtain any necessary licenses related to our lead
product Ranexa, this could negatively affect our ability to commercialize Ranexa, product revenues and our operating results.

We also rely on proprietary
technology and information, including trade secrets, to develop and maintain our competitive position. Although we seek to protect all of our proprietary technology and information, in part by confidentiality agreements with employees, consultants,
collaborators, advisors and corporate partners, these agreements may be breached. We cannot assure you that the parties to these agreements will not breach them or that these agreements will provide meaningful protection or adequate remedies in the
event of unauthorized use or disclosure of our proprietary technology or information. In addition, we routinely grant publication rights to our scientific collaborators. Although we may retain the right to delay publication to allow for the
preparation and filing of a patent application covering the subject matter of the proposed publication, we cannot assure you that our collaborators will honor these agreements. Publication prior to the filing of a patent application could mean that
we would lose the ability to patent the technology in most countries outside the United States (and could also lose that ability in the United States if a patent application is not filed there within one year after such publication), and third
parties or competitors could exploit the technology. Although we strive to take the necessary steps to protect our proprietary technology, including trade secrets, we may not be able to do so. As a result, third parties may gain access to our trade
secrets and other proprietary technology, or our trade secrets and other proprietary technology or information may become public. In addition, it is possible that our proprietary technology or information will otherwise become known or be discovered
independently by third parties, including our competitors.

In addition, we may also become subject to claims that we are using or misappropriating trade
secrets of others without having the right to do so. Such claims can result in litigation, which can be expensive, time-consuming and risky to defend.



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Litigation and disputes related to intellectual property matters are widespread in the biopharmaceutical industry.
Although to date no third party has asserted a claim of infringement against us, we cannot assure you that third parties will not assert patent or other intellectual property infringement claims against us with respect to our compounds, products,
services, technology or other matters in the future. If they do, we may not prevail and, as a result, we may be subject to significant liabilities to third parties, we may be required to license the disputed rights from the third parties or we may
be required to cease using the technology or developing or selling the compounds or products at issue. We may not be able to obtain any necessary licenses on economically reasonable terms, if at all. Any intellectual property-related claims against
us, with or without merit, as well as claims initiated by us against third parties, may be time-consuming, expensive and risky to defend or prosecute. If we assert a patent against an alleged infringer and the alleged infringer is successful in
invalidating the patent, the protection afforded by the patent is lost.

Our business depends on certain key personnel, the loss of whom could weaken
our management team, and on attracting and retaining qualified personnel.

The growth of our business and our success depends in large part on our
ability to attract and retain key management, research and development, sales and marketing and other operating and administrative personnel. Our key personnel include all of our executive officers and vice presidents, many of whom have very
specialized scientific, medical or operational knowledge regarding one or more of our key products. We have entered into an employment agreement with our Chairman and CEO that contains severance and change-of-control provisions. We have entered into
executive severance agreements with certain key personnel, and have a severance plan that covers our full-time employees. We do not maintain key-person life insurance on any of our employees. The loss of the services of one or more of our key
personnel or the inability to attract and retain additional personnel and develop expertise as needed could limit our ability to develop and commercialize our existing and future product candidates. Such persons are in high demand and often receive
competing employment offers. Our ability to retain our key personnel will also be dependent on the reactions of employees, customers and regulatory authorities to the MERLIN TIMI-36 clinical study results (including the regulatory outcome with
respect to the applications we submitted in September 2007 with these results) and our ability to substantially increase sales of Ranexa over time.

Our
operations involve hazardous materials, which could subject us to significant liability.

Our research and development and manufacturing activities
involve the controlled use of hazardous materials, including hazardous chemicals, radioactive materials and pathogens, and the generation of waste products. Accordingly, we are subject to federal, state and local laws governing the use, handling and
disposal of these materials. We may have to incur significant costs to comply with additional environmental and health and safety regulations in the future. We currently do not carry insurance for hazardous materials claims. We do not know if we
will be able to obtain insurance that covers hazardous materials claims on acceptable terms with adequate coverage against potential liabilities, if at all. Although we believe that our safety procedures for handling and disposing of hazardous
materials comply in all material respects with regulatory requirements, we cannot eliminate the risk of accidental contamination or injury from these materials. In the event of an accident or environmental discharge, we may be held liable for any
resulting damages, which may exceed our financial resources and may materially adversely affect our business, financial condition and results of operations. Although we believe that we are in compliance in all material respects with applicable
environmental laws and regulations, there can be no assurance that we will not be required to incur significant costs to comply with environmental laws and regulations in the future. There can also be no assurance that our operations, business or
assets will not be materially adversely affected by current or future environmental laws or regulations.

We are exposed to risks related to foreign
currency exchange rates.

Some of our costs and expenses are denominated in foreign currencies. Most of our foreign expenses are associated with our
clinical studies or the operations of our United Kingdom-based wholly owned subsidiary. We are primarily exposed to changes in exchange rates with Europe and Canada. When the United States dollar weakens against these currencies, the dollar value of
the foreign-currency denominated expense increases, and when the dollar strengthens against these currencies, the dollar value of the foreign-currency denominated expense decreases. Consequently, changes in exchange rates, and in particular a
weakening of the United States dollar, may adversely affect our results of operations. We currently do not hedge against our foreign currency risks.

Our insurance policies are expensive and protect us only from some business risks, which will leave us exposed to significant, uninsured liabilities.

We do not carry insurance for all categories of risk that our business may encounter. For example, we do not carry earthquake insurance. In the event of a major earthquake in our region, our business could suffer
significant and uninsured damage and loss. We currently maintain general liability, property, auto, workers compensation, products liability, directors and officers, employment practices, cargo and inventory, foreign liability,
crime and fiduciary insurance policies. We do not know, however, if we will be able to maintain existing insurance at all, or if so that it will have adequate levels of coverage



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for any liabilities. Premiums for many types of insurance have increased significantly over the years, and depending on market conditions and our
circumstances, certain types of insurance such as directors and officers insurance or products liability insurance may not be available on acceptable terms or at all. Any significant uninsured liability, or any liability that we incur in
excess of our insurance coverage, may require us to pay substantial amounts, which would adversely affect our cash position and results of operations.

Risk Factors Relating to Our Common Stock and Convertible Debt

Investor confidence and share value may be adversely impacted if
our independent auditors provide to us an adverse opinion or a disclaimer of opinion regarding the effectiveness of our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002.

As directed by Section 404 of the Sarbanes-Oxley Act of 2002, the SEC adopted rules requiring public companies to include in annual reports on Form 10-K an
assessment by management of the effectiveness of internal control over financial reporting. This requirement applies to each of our annual report filings on Form 10-K. If we are not successful in maintaining adequate internal control over financial
reporting, or if our service providers fail to maintain adequate internal controls on which we rely to prepare our financial statements, our management may determine that our internal control over financial reporting is not effective. In addition,
if our independent auditors are not satisfied with the effectiveness of our internal control over financial reporting, including the level at which these controls are documented, designed, operated or monitored, then they may issue an adverse
opinion or a disclaimer of opinion. Any of these events could result in an adverse reaction in the financial marketplace due to a loss of investor confidence in the reliability of our financial statements, which ultimately could negatively impact
the market price of our shares, increase the volatility of our stock price and adversely affect our ability to raise additional funding.

The market
price of our stock has been and may continue to be highly volatile, and the value of an investment in our common stock may decline.

Within the last 12
months, our common stock has traded between $6.43 and $14.67 per share. The market price of the shares of our common stock has been and may continue to be highly volatile. Announcements and other events may have a significant impact on the market
price of our common stock. We may have no control over information announced by third parties, such as our corporate partners or our competitors, which may impact our stock price.

Other announcements and events that can impact the market price of the shares of our common stock include, without limitation:



| |  |  | results of our clinical trials and preclinical studies, or those of our corporate partners or our competitors;
| | - |  | --------------------------------------------------------------------------------------------------------------



| |  |  | regulatory actions with respect to our products or our competitors products, including whether or not the division of cardiovascular and renal products of the
FDA decides to accept the supplemental new drug application submission for Ranexa for review, whether or not the metabolism and endocrinology products division of the FDA decides to accept the new drug application for the Ranexa diabetes data for
review, and whether or not the FDA approves these applications;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our operating results;
| | - |  | ----------------------



| |  |  | our product sales and product revenues, including prescribing patterns and trends for Ranexa;
| | - |  | ---------------------------------------------------------------------------------------------



| |  |  | achievement of other research or development milestones, such as completion of enrollment of a clinical trial or making a regulatory filing;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | adverse developments regarding the safety and efficacy of our products, our product candidates, or third-party products that are similar to our products or our
product candidates;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | developments in our relationships with corporate partners;
| | - |  | ----------------------------------------------------------



| |  |  | developments affecting our corporate partners;
| | - |  | ----------------------------------------------



| |  |  | government regulations, reimbursement changes and governmental investigations or audits related to us or to our products;
| | - |  | -------------------------------------------------------------------------------------------------------------------------



| |  |  | changes in regulatory policy or interpretation;
| | - |  | -----------------------------------------------



| |  |  | developments related to our patents or other proprietary rights or those of our competitors;
| | - |  | --------------------------------------------------------------------------------------------



| |  |  | changes in the ratings of our securities by securities analysts;
| | - |  | ----------------------------------------------------------------



| |  |  | operating results or other developments that do not meet the expectations of public market analysts and investors;
| | - |  | ------------------------------------------------------------------------------------------------------------------



| |  |  | purchases or sales of our securities by investors who seek to exploit the volatility of our common stock price;
| | - |  | ---------------------------------------------------------------------------------------------------------------



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| |  |  | rumors or inaccurate information;
| | - |  | ---------------------------------



| |  |  | market conditions for biopharmaceutical or biotechnology stocks in general; and
| | - |  | -------------------------------------------------------------------------------



| |  |  | general economic and market conditions.
| | - |  | ---------------------------------------

In
addition, if we fail to reach an important research, development or commercialization milestone or result by a publicly expected deadline, even if by only a small margin, there could be a significant negative impact on the market price of our common
stock. In addition, as we approach the announcement of important news, we expect the price of our common stock to be particularly volatile.

The stock
market has from time to time experienced extreme price and volume fluctuations, which have particularly affected the market prices for emerging biotechnology and biopharmaceutical companies, and which have often been unrelated to their operating
performance. These broad market fluctuations may adversely affect the market price of our common stock. In addition, sales of substantial amounts of our common stock in the public market could lower the market price of our common stock.

Our indebtedness and debt service obligations may adversely affect our cash flow, cash position and stock price.

As of September 30, 2007, we had approximately $399.5 million in long-term convertible debt and aggregate annual debt service obligations on this debt of
approximately $11.0 million. If we issue other debt securities in the future, our debt service obligations and interest expense will increase. We intend to fulfill our debt service obligations from our existing cash and investments. In the future,
if we are unable to generate cash or raise additional cash through financings sufficient to meet these obligations and need to use existing cash or liquidate investments in order to fund these obligations, we may have to delay or curtail research,
development and commercialization programs. In addition, our failure to comply with the covenants and conditions in the indentures covering our convertible debt, such as our failure to make timely interest payments or our failure to timely file
periodic reports required under the Securities Exchange Act of 1934, as amended, could trigger a default under our convertible debt. Any default could result in the acceleration of the payment of all of our outstanding debt, which would have a
material adverse effect on our cash position and on our ability to maintain operations at our current levels or at all.

Our indebtedness could have
significant additional negative consequences, including, without limitation:



| |  |  | requiring the dedication of a portion of our cash to service our indebtedness and to pay off the principal at maturity, thereby reducing the amount of our expected
cash available for other purposes, including funding our commercialization efforts, research and development programs and other capital expenditures;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | increasing our vulnerability to general adverse economic conditions;
| | - |  | --------------------------------------------------------------------



| |  |  | limiting our ability to obtain additional financing; and
| | - |  | --------------------------------------------------------



| |  |  | placing us at a possible competitive disadvantage to less leveraged competitors and competitors that have better access to capital resources.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------

If we sell shares of our common stock under our equity line of credit arrangement or in other future financings, existing common
stockholders will experience immediate dilution and, as a result, our stock price may go down.

We may from time to time issue additional shares of
common stock at a discount from the current trading price of our common stock. As a result, our existing common stockholders will experience immediate dilution upon the purchase of any shares of our common stock sold at such discount. For example,
in April 2006, we entered into a common stock purchase agreement with Azimuth, which provides that, upon the terms and subject to the conditions set forth in the purchase agreement, Azimuth is committed to purchase up to $200.0 million of our common
stock, or 9,010,404 shares, whichever occurs first, at a discount. The term of the purchase agreement ends May 1, 2009. Azimuth is not required to purchase shares of our common stock when the price of our common stock is below $10 per share. In
2006, Azimuth purchased an aggregate 2,744,118 shares of our common stock for proceeds, net of issuance costs, of approximately $39.8 million under the purchase agreement. Our existing common stockholders will experience immediate dilution upon the
purchase of any additional shares of our common stock by Azimuth.

In addition, as opportunities present themselves, we may enter into financing or similar
arrangements in the future, including the issuance of debt securities, preferred stock or common stock. If we issue common stock or securities convertible into common stock, our common stockholders will experience dilution.



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Provisions of Delaware law and in our charter, by-laws and our rights plan may prevent or frustrate any attempt by our
stockholders to replace or remove our current management and may make the acquisition of our company by another company more difficult.

Our board of
directors has adopted a stockholder rights plan, authorized executive severance benefit agreements for our officers in the event of a change of control, and adopted a severance plan for all non-officer employees in the event of a change of control.
In December 2005 the board approved an employment agreement with our chairman and chief executive officer that contains severance and change-of-control provisions. Our rights plan and these various severance-related arrangements may delay or prevent
a change in our current management team and may render more difficult an unsolicited merger or tender offer.

In addition, the following provisions of our
amended and restated certificate of incorporation, as amended, and our by-laws, may have the effects of delaying or preventing a change in our current management and making the acquisition of our company by a third party more difficult:



| |  |  | our board of directors is divided into three classes with approximately one third of the directors to be elected each year, necessitating the successful completion
of two proxy contests in order for a change in control of the board to be effected;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | any action required or permitted to be taken by our stockholders must be effected at a duly called annual or special meeting of the stockholders and may not be
effected by a consent in writing;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | advance written notice is required for a stockholder to nominate a person for election to the board of directors and for a stockholder to present a proposal at any
stockholder meeting; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | directors may be removed only for cause by a vote of a majority of the stockholders and vacancies on the board of directors may only be filled by a majority of the
directors in office.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In addition, our board of directors has the authority to issue shares of preferred stock without stockholders
approval, which also could make it more difficult for stockholders to replace or remove our current management and for another company to acquire us. We are subject to the provisions of Section 203 of the Delaware General Corporation Law, an
anti-takeover law, which could delay a merger, tender offer or proxy contest or make a similar transaction more difficult. In general, this statute prohibits a publicly held Delaware corporation from engaging in a business combination with an
interested stockholder for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner.

If any or all of our existing notes and debentures are converted into shares of our common stock, existing common stockholders will experience immediate dilution and,
as a result, our stock price may go down.

Our existing convertible debt is convertible, at the option of the holder, into shares of our common stock at
varying conversion prices, subject to the satisfaction of certain conditions. We have reserved shares of our authorized common stock for issuance upon conversion of our existing convertible notes and convertible debentures. If any or all of our
existing notes and debentures are converted into shares of our common stock, our existing stockholders will experience immediate dilution and our common stock price may be subject to downward pressure. If any or all of our notes and debentures are
not converted into shares of our common stock before their respective maturity dates, we will have to pay the holders of such notes or debentures the full aggregate principal amount of the notes or debentures, as applicable, then outstanding. Any
such payment would have a material adverse effect on our cash position. Alternatively, from time to time we might need to modify the terms of the notes and/or the debentures prior to their maturity in ways that could be dilutive to our stockholders,
assuming we can negotiate such modified terms. In addition, the existence of these notes and debentures may encourage short selling of our common stock by market participants.



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|Item 6. | Exhibits
|------- | --------



|              |  |                                                                                                                                                                                                                                                    
|------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                                                                                                        
|              | 
|3.1           |  | Amended and Restated Certificate of Incorporation of the Company (Filed as Exhibit 4.1 to the Companys Registration Statement on Form S-8, File No. 333-136373, and incorporated herein by
reference).                                            
|              | 
|3.2           |  | Certificate of Designation of Series A Junior Participating Preferred Stock dated September 9, 2006 (Filed as Exhibit 3.1 to the Companys Current Report on Form 8-K, filed by the Company
October 2, 2006, and incorporated herein by reference).
|              | 
|3.3           |  | Restated Bylaws of the Company (Filed as Exhibit 3.5 to the Companys Registration Statement on Form S-1, File No. 333-12675, and incorporated herein by reference).                                                                               
|              | 
|10.1          |  | Amended and Restated Executive Severance Benefits Agreement between the Company and Lewis J. Stuart, dated July 16, 2007.                                                                                                                          
|              | 
|10.2          |  | Amended and Restated CV Therapeutics, Inc. Long-Term Incentive Plan, amended effective as of December 31, 2007.                                                                                                                                    
|              | 
|10.3          |  | CV Therapeutics, Inc. Change in Control Plan with Respect to Options and Severance, amended effective as of December 31, 2007.                                                                                                                     
|              | 
|10.4          |  | Amended and Restated Executive Severance Benefits Agreement between the Company and Daniel K. Spiegelman, dated as of September 14, 2007.                                                                                                          
|              | 
|10.5          |  | Amended and Restated Executive Severance Benefits Agreement between the Company and Brent K. Blackburn, dated as of September 14, 2007.                                                                                                            
|              | 
|10.6          |  | Amended and Restated Executive Severance Benefits Agreement between the Company and Tricia Borga Suvari, dated as of September 14, 2007.                                                                                                           
|              | 
|10.7          |  | Amended and Restated Executive Severance Benefits Agreement between the Company and Lewis J. Stuart, dated as of September 14, 2007.                                                                                                               
|              | 
|31.1          |  | Certificate of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                  
|              | 
|31.2          |  | Certificate of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                  
|              | 
|32.1          |  | Certificate of 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          |  | Certificate of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                   



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SIGNATURES

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



|                       |  |  |  |                       |  |                                 |  |                                                
|---------------------- |  |  |  | --------------------- |  | ------------------------------- |  | -----------------------------------------------
|                       |  |  |  | CV THERAPEUTICS, INC.
|                       |  |  | 
|Date: November 8, 2007 |  |  |  | By:                   |  | /s/ LOUIS G. LANGE, M.D., PH.D.
|                       |  |  |  |                       |  |                                 |  | Louis G. Lange, M.D., Ph.D.                    
|                       |  |  |  |                       |  |                                 |  | Chairman of the Board & Chief Executive Officer
|                       |  |  |  |                       |  |                                 |  | (Principal Executive Officer)                  
|                       |  |  | 
|Date: November 8, 2007 |  |  |  | By:                   |  | /s/ DANIEL K. SPIEGELMAN       
|                       |  |  |  |                       |  |                                 |  | Daniel K. Spiegelman                           
|                       |  |  |  |                       |  |                                 |  | Chief Financial Officer                        
|                       |  |  |  |                       |  |                                 |  | (Principal Financial and Accounting Officer)   



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