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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 June 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 August 3 2007, 59,509,697 shares of the registrants common stock, $.001 par value, were outstanding.



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##### Table of Contents

CV THERAPEUTICS, INC.

INDEX



|           |  |                                                                                                             |  |     
|---------- |  | ----------------------------------------------------------------------------------------------------------- |  | ----
|           |  |                                                                                                             |  | Page
|           |  |                                                                                                            
|           |  | PART I  FINANCIAL INFORMATION                                                                              |  |     
|           |  |                                                                                                            
|Item 1     |  | Financial Statements                                                                                        |  |     
|           |  |                                                                                                            
|           |  | Condensed Consolidated Balance Sheets  June 30, 2007 and December 31, 2006                                 |  | 3   
|           |  |                                                                                                            
|           |  | Condensed Consolidated Statements of Operations  for the three and six months ended June 30, 2007 and 2006 |  | 4   
|           |  |                                                                                                            
|           |  | Condensed Consolidated Statements of Cash Flows  for the six months ended June 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                                                  |  | 27  
|           |  |                                                                                                            
|Item 4     |  | Controls and Procedures                                                                                     |  | 29  
|           |  |                                                                                                            
|           |  | PART II  OTHER INFORMATION                                                                                 |  |     
|           |  |                                                                                                            
|Item 1     |  | Legal Proceedings                                                                                           |  | 30  
|           |  |                                                                                                            
|Item 1A    |  | Risk Factors                                                                                                |  | 30  
|           |  |                                                                                                            
|Item 4     |  | Submission of Matters to a Vote of Security Holders                                                         |  | 51  
|           |  |                                                                                                            
|Item 6     |  | Exhibits                                                                                                    |  | 51  
|           | 
|SIGNATURES |  | 52                                                                                                         



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CV THERAPEUTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands)



|                                            |  |               |            |   |                  |   |            |  
|------------------------------------------- |  | ------------- | ---------- | - | ---------------- | - | ---------- | -
|                                            |  | June 30, 2007 |            |   | December 31,2006 |  
|                                            |  | (Unaudited)   |            |   |                  |  
|Assets                                      |  |               |            |   |                  |   |            |  
|Current assets:                             |  |               |            |   |                  |   |            |  
|Cash and cash equivalents                   |  | $             | 80,640     |   |                  | $ | 77,638     |  
|Marketable securities                       |  |               | 135,901    |   |                  |   | 247,588    |  
|Accounts receivable                         |  |               | 5,403      |   |                  |   | 3,527      |  
|Inventories                                 |  |               | 19,252     |   |                  |   | 15,875     |  
|Restricted cash                             |  |               | 4,859      |   |                  |   | 6,899      |  
|Prepaid and other current assets            |  |               | 12,121     |   |                  |   | 13,968     |  
|                                            |  |               |            |   |                  |   |            |  
|Total current assets                        |  |               | 258,176    |   |                  |   | 365,495    |  
|Notes receivable from related parties       |  |               | 260        |   |                  |   | 285        |  
|Property and equipment, net                 |  |               | 21,596     |   |                  |   | 23,919     |  
|Restricted cash                             |  |               | 2,274      |   |                  |   | 4,567      |  
|Other assets                                |  |               | 25,432     |   |                  |   | 27,190     |  
|                                            |  |               |            |   |                  |   |            |  
|Total assets                                |  | $             | 307,738    |   |                  | $ | 421,456    |  
|                                            |  |               |            |   |                  |   |            |  
|Liabilities and stockholders deficit       |  |               |            |   |                  |   |            |  
|Current liabilities:                        |  |               |            |   |                  |   |            |  
|Accounts payable                            |  | $             | 926        |   |                  | $ | 10,749     |  
|Accrued and other current liabilities       |  |               | 31,054     |   |                  |   | 51,359     |  
|Deferred revenue                            |  |               |           |   |                  |   | 139        |  
|                                            |  |               |            |   |                  |   |            |  
|Total current liabilities                   |  |               | 31,980     |   |                  |   | 62,247     |  
|Convertible subordinated notes              |  |               | 399,500    |   |                  |   | 399,500    |  
|Other liabilities                           |  |               | 5,213      |   |                  |   | 5,507      |  
|                                            |  |               |            |   |                  |   |            |  
|Total liabilities                           |  |               | 436,693    |   |                  |   | 467,254    |  
|                                            |  |              
|Commitments and contingencies               |  |               |            |   |                  |   |            |  
|                                            |  |              
|Stockholders deficit:                      |  |               |            |   |                  |   |            |  
|Preferred stock                             |  |               |           |   |                  |   |           |  
|Common stock                                |  |               | 60         |   |                  |   | 59         |  
|Additional paid-in-capital                  |  |               | 1,070,408  |   |                  |   | 1,040,665  |  
|Accumulated deficit                         |  |               | (1,199,528 | ) |                  |   | (1,086,874 | )
|Accumulated other comprehensive income      |  |               | 105        |   |                  |   | 352        |  
|                                            |  |               |            |   |                  |   |            |  
|Total stockholders deficit                 |  |               | (128,955   | ) |                  |   | (45,798    | )
|                                            |  |               |            |   |                  |   |            |  
|Total liabilities and stockholders deficit |  | $             | 307,738    |   |                  | $ | 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 ended June 30, |         |   | Six months ended June 30, |  
|                                                              |  | 2007                        |         |   | 2006                      |   |         | 2007 |  |   | 2006     |  
|Revenues:                                                     |  |                             |         |   |                           |   |         |      |  |   |          |   |  |   |          |  
|Product sales, net                                            |  | $                           | 15,315  |   |                           | $ | 1,230   |      |  | $ | 27,304   |   |  | $ | 1,230    |  
|Collaborative research                                        |  |                             | 10,093  |   |                           |   | 4,869   |      |  |   | 13,354   |   |  |   | 9,245    |  
|Co-promotion                                                  |  |                             |        |   |                           |   | 751     |      |  |   |         |   |  |   | 1,439    |  
|                                                              |  |                             |         |   |                           |   |         |      |  |   |          |   |  |   |          |  
|Total revenues                                                |  |                             | 25,408  |   |                           |   | 6,850   |      |  |   | 40,658   |   |  |   | 11,914   |  
|                                                              |  |                             |         |   |                           |   |         |      |  |   |          |   |  |   |          |  
|Operating costs and expenses:                                 |  |                             |         |   |                           |   |         |      |  |   |          |   |  |   |          |  
|Cost of sales                                                 |  |                             | 2,392   |   |                           |   | 353     |      |  |   | 3,949    |   |  |   | 353      |  
|Research and development                                      |  |                             | 28,799  |   |                           |   | 33,228  |      |  |   | 55,977   |   |  |   | 64,688   |  
|Selling, general and administrative                           |  |                             | 46,504  |   |                           |   | 46,855  |      |  |   | 88,952   |   |  |   | 91,623   |  
|Restructuring charges                                         |  |                             | 5,367   |   |                           |   |        |      |  |   | 5,367    |   |  |   |         |  
|                                                              |  |                             |         |   |                           |   |         |      |  |   |          |   |  |   |          |  
|Total operating costs and expenses                            |  |                             | 83,062  |   |                           |   | 80,436  |      |  |   | 154,245  |   |  |   | 156,664  |  
|                                                              |  |                             |         |   |                           |   |         |      |  |   |          |   |  |   |          |  
|Loss from operations                                          |  |                             | (57,654 | ) |                           |   | (73,586 | )    |  |   | (113,587 | ) |  |   | (144,750 | )
|Other income (expense), net:                                  |  |                             |         |   |                           |   |         |      |  |   |          |   |  |   |          |  
|Interest and other income, net                                |  |                             | 3,222   |   |                           |   | 3,662   |      |  |   | 7,265    |   |  |   | 7,518    |  
|Interest expense                                              |  |                             | (3,166  | ) |                           |   | (3,169  | )    |  |   | (6,332   | ) |  |   | (6,335   | )
|                                                              |  |                             |         |   |                           |   |         |      |  |   |          |   |  |   |          |  
|Total other income (expense), net                             |  |                             | 56      |   |                           |   | 493     |      |  |   | 933      |   |  |   | 1,183    |  
|                                                              |  |                             |         |   |                           |   |         |      |  |   |          |   |  |   |          |  
|Net loss                                                      |  | $                           | (57,598 | ) |                           | $ | (73,093 | )    |  | $ | (112,654 | ) |  | $ | (143,567 | )
|                                                              |  |                             |         |   |                           |   |         |      |  |   |          |   |  |   |          |  
|Basic and diluted net loss per share                          |  | $                           | (0.97   | ) |                           | $ | (1.59   | )    |  | $ | (1.91    | ) |  | $ | (3.16    | )
|                                                              |  |                             |         |   |                           |   |         |      |  |   |          |   |  |   |          |  
|Shares used in computing basic and diluted net loss per share |  |                             | 59,223  |   |                           |   | 45,904  |      |  |   | 59,089   |   |  |   | 45,446   |  
|                                                              |  |                             |         |   |                           |   |         |      |  |   |          |   |  |   |          |  

See accompanying notes



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CV THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)



|                                                                                          |  |                           |          |   |      |   |          |  
|----------------------------------------------------------------------------------------- |  | ------------------------- | -------- | - | ---- | - | -------- | -
|                                                                                          |  | Six Months ended June 30, |         
|                                                                                          |  | 2007                      |          |   | 2006 |  
|Cash flows from operating activities:                                                     |  |                           |          |   |      |   |          |  
|Net loss                                                                                  |  | $                         | (112,654 | ) |      | $ | (143,567 | )
|Adjustments to reconcile net loss to net cash used in operating activities:               |  |                           |          |   |      |   |          |  
|Stock-based compensation expense                                                          |  |                           | 24,372   |   |      |   | 12,769   |  
|Depreciation and amortization, net                                                        |  |                           | 4,476    |   |      |   | 3,195    |  
|Impairment recognized for unrealized loss on marketable securities                        |  |                           | 25       |   |      |   | 2,005    |  
|Gain on securities available-for-sale                                                     |  |                           | (29      | ) |      |   | (48      | )
|Forgiveness of related party notes receivable                                             |  |                           |         |   |      |   | 3        |  
|Change in assets and liabilities:                                                         |  |                           |          |   |      |   |          |  
|Accounts receivable                                                                       |  |                           | (1,876   | ) |      |   | (7,746   | )
|Inventories                                                                               |  |                           | (3,377   | ) |      |   | (5,393   | )
|Prepaid and other current assets                                                          |  |                           | 1,851    |   |      |   | (1,637   | )
|Other assets                                                                              |  |                           | 84       |   |      |   | (12,228  | )
|Accounts payable                                                                          |  |                           | (9,823   | ) |      |   | (2,273   | )
|Accrued and other liabilities                                                             |  |                           | (17,845  | ) |      |   | (14,681  | )
|Deferred revenue                                                                          |  |                           | (139     | ) |      |   | 5,752    |  
|                                                                                          |  |                           |          |   |      |   |          |  
|Net cash used in operating activities                                                     |  |                           | (114,935 | ) |      |   | (163,849 | )
|                                                                                          |  |                          
|Cash flows from investing activities:                                                     |  |                           |          |   |      |   |          |  
|Purchases of securities available-for-sale                                                |  |                           | (4,000   | ) |      |   |         |  
|Proceeds from sales of securities available-for-sale                                      |  |                           | 6,701    |   |      |   | 49,655   |  
|Proceeds from maturities of securities available-for-sale                                 |  |                           | 109,727  |   |      |   | 75,500   |  
|Capital expenditures                                                                      |  |                           | (1,573   | ) |      |   | (6,187   | )
|Purchase of convertible note from collaboration partner                                   |  |                           |         |   |      |   | (4,000   | )
|                                                                                          |  |                           |          |   |      |   |          |  
|Net cash provided by investing activities                                                 |  |                           | 110,855  |   |      |   | 114,968  |  
|                                                                                          |  |                          
|Cash flows from financing activities:                                                     |  |                           |          |   |      |   |          |  
|Change in restricted cash                                                                 |  |                           | 4,333    |   |      |   | 5,797    |  
|Proceeds from issuance of common stock through employee stock purchases and stock options |  |                           | 2,749    |   |      |   | 3,811    |  
|Net proceeds from issuance of common stock related to equity line of credit               |  |                           |         |   |      |   | 19,825   |  
|                                                                                          |  |                           |          |   |      |   |          |  
|Net cash provided by financing activities                                                 |  |                           | 7,082    |   |      |   | 29,433   |  
|                                                                                          |  |                           |          |   |      |   |          |  
|Net increase (decrease) in cash and cash equivalents                                      |  |                           | 3,002    |   |      |   | (19,448  | )
|Cash and cash equivalents at beginning of period                                          |  |                           | 77,638   |   |      |   | 23,688   |  
|                                                                                          |  |                           |          |   |      |   |          |  
|Cash and cash equivalents at end of period                                                |  | $                         | 80,640   |   |      | $ | 4,240    |  
|                                                                                          |  |                           |          |   |      |   |          |  

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 in the United States in March 2006.

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 (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 (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 (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 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 (loss) consists solely of
unrealized gains and losses on available-for-sale investment securities. Comprehensive loss for the three and six months ended June 30, 2007 and 2006 is as follows (in thousands):



|                                                                                               |  |                             |         |   |                           |   |         |      |  |   |          |   |  |   |          |  
|---------------------------------------------------------------------------------------------- |  | --------------------------- | ------- | - | ------------------------- | - | ------- | ---- |  | - | -------- | - |  | - | -------- | -
|                                                                                               |  | Three months ended June 30, |         |   | Six months ended June 30, |  
|                                                                                               |  | 2007                        |         |   | 2006                      |   |         | 2007 |  |   | 2006     |  
|Net loss                                                                                       |  | $                           | (57,598 | ) |                           | $ | (73,093 | )    |  | $ | (112,654 | ) |  | $ | (143,567 | )
|Change in unrealized gains (losses) on marketable securities                                   |  |                             | (213    | ) |                           |   | 839     |      |  |   | (243     | ) |  |   | 1,947    |  
|Reclassification adjustment for gains (losses) on marketable securities recognized in earnings |  |                             | 8       |   |                           |   | (819    | )    |  |   | (4       | ) |  |   | (1,957   | )
|                                                                                               |  |                             |         |   |                           |   |         |      |  |   |          |   |  |   |          |  
|Comprehensive loss                                                                             |  | $                           | (57,803 | ) |                           | $ | (73,073 | )    |  | $ | (112,901 | ) |  | $ | (143,577 | )
|                                                                                               |  |                             |         |   |                           |   |         |      |  |   |          |   |  |   |          |  

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 43%, 30% and
20%, respectively, of Ranexa accounts receivable as of June 30, 2007. These three customers individually comprised 43%, 29% and 21%, respectively, of Ranexa gross product sales for the three months ended June 30, 2007. For the six months
ended June 30, 2007, these three customers individually comprised 41%, 31% and 20%, respectively, of Ranexa gross product sales.

Two customers
individually comprised 36% and 57% of Ranexa accounts receivable and 34% and 63%, respectively, of Ranexa deferred revenue as of June 30, 2006. One of these two customers and a third customer individually comprised 40% and 39% of Ranexa gross
product sales for the three and six months ended June 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



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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.



| |  |  | 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. We will continue to reevaluate the
performance period for our collaborative arrangements in future periods. 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 ours and our partners combined research and development (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.



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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.

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.



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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 currently has a shelf life of 48 months from the date of tablet manufacture, although some of our previously manufactured Ranexa 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 do not have any of these tablets in our inventory, as they have been sold to our wholesale distributors. 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.

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. We assess the trends that could affect our estimates and make changes to the allowance each reporting period.

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 six
months ended June 30, 2007 (in thousands):



|                             |  |                            |        |   |                     |   |        |               |  |   |       |   |  |   |        |  
|---------------------------- |  | -------------------------- | ------ | - | ------------------- | - | ------ | ------------- |  | - | ----- | - |  | - | ------ | -
|                             |  | ContractSalesDiscounts (1) |        |   | Product Returns (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 | )
|                             |  |                            |        |   |                     |   |        |               |  |   |       |   |  |   |        |  

---

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

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

Clinical Trial Accruals

We record accruals for estimated clinical study costs. Most of our clinical studies are performed by third-party contract research organizations
(CROs). These costs are 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 through 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 addition, we incurred charges related to contract termination and other restructuring related charges such as professional fees. For the three months ended June 30, 2007, we recorded an expense of $5.4 million
related to these restructuring activities.

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



|                              |  |                                 |        |   |                          |   |      |                           |  |   |       |   |  |   |        |  
|----------------------------- |  | ------------------------------- | ------ | - | ------------------------ | - | ---- | ------------------------- |  | - | ----- | - |  | - | ------ | -
|                              |  | Employee Severance and Benefits |        |   | ContractTermination Fees |   |      | Other Restructuring Costs |  |   | Total |  
|Restructuring charges accrued |  | $                               | 4,291  |   |                          | $ | 804  |                           |  | $ | 272   |   |  | $ | 5,367  |  
|Cash payments                 |  |                                 | (2,257 | ) |                          |   | (804 | )                         |  |   | (205  | ) |  |   | (3,266 | )
|Adjustments                   |  |                                 |       |   |                          |   |     |                           |  |   |      |   |  |   |       |  
|                              |  |                                 |        |   |                          |   |      |                           |  |   |       |   |  |   |        |  
|Balance as of June 30, 2007   |  | $                               | 2,034  |   |                          | $ |     |                           |  | $ | 67    |   |  | $ | 2,101  |  
|                              |  |                                 |        |   |                          |   |      |                           |  |   |       |   |  |   |        |  

The remaining accrual as of June 30, 2007 is primarily related to employee severance and benefits that are
expected to be paid within the next six months. As such, the restructuring accrual is recorded as a current liability within accrued liabilities on the condensed consolidated balance sheets. We do not expect to incur significant additional charges
in the future under this restructuring.

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 (RSUs), stock appreciation rights (SARs) and an employee stock purchase plan (ESPP).

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 ended June 30, |        | Six months ended June 30,
|                                    |  | 2007                        |        | 2006                      |   | 2007  |  | 2006
|Cost of sales                       |  | $                           | 111    |                           | $ |      |  | $    | 113    |  | $ |      
|Research and development            |  |                             | 6,148  |                           |   | 1,894 |  |      | 8,111  |  |   | 3,651 
|Selling, general and administrative |  |                             | 11,702 |                           |   | 4,127 |  |      | 15,957 |  |   | 8,645 
|                                    |  |                             |        |                           |   |       |  |      |        |  |   |       
|Total                               |  | $                           | 17,961 |                           | $ | 6,021 |  | $    | 24,181 |  | $ | 12,296
|                                    |  |                             |        |                           |   |       |  |      |        |  |   |       



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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 three months ended June 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 June 30, 2007, a total of 225,000 SARs remain outstanding.

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):



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

Stock Option Activity

In May 2007, the board of directors approved a total 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 retention grants had a grant date of June 1, 2007 and option exercise price of $10.54 equal to the closing price the day before the grant date. Options vest over 2 years, 25% after one year and 75% after two years. RSUs vest annually over a
three-year period with annual settlement. No retention grants were made to executive officers.

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



|                             |  |                                 |   |  |                                 |       |                                             |           |                                          |   |      
|---------------------------- |  | ------------------------------- | - |  | ------------------------------- | ----- | ------------------------------------------- | --------- | ---------------------------------------- | - | -----
|                             |  | Number of Shares (in thousands) |   |  | Weighted-Average Exercise Price |       | Weighted Average Remaining Contractual Term |           | 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 |                                             | 5.5 years |                                          | $ | 2,749
|                             |  |                                 |   |  |                                 |       |                                             |           |                                          |   |      
|Exercisable at June 30, 2007 |  | 7,279                           |   |  | $                               | 26.10 |                                             | 5.3 years |                                          | $ | 1,827
|                             |  |                                 |   |  |                                 |       |                                             |           |                                          |   |      



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As of June 30, 2007, there was $5.9 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 2.4 years.

Employee Stock Purchase Plan

For the three and six months ended June 30, 2007, we recorded approximately $0.2 million and $1.3 million, respectively, of compensation expense
related to the ESPP. For the three and six months ended June 30, 2006, we recorded approximately $0.4 million and $0.8 million, respectively, of compensation expense related to the ESPP. For the three and six months ended June 30, 2007,
124,859 and 249,597 shares, respectively, were purchased under the ESPP. During the three and six months ended June 30, 2006, 146,190 and 255,195 shares, respectively, were purchased under the ESPP.

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 June 30, 2007, we have estimated that there is a probable likelihood of reaching this revenue target by September 30, 2007. The remaining unrecognized compensation costs related
to these specific nonvested RSUs of $0.9 million will be recognized ratably through September 30, 2007. During the three and six months ended June 30, 2007, we have recorded $0.6 million and $1.2 million, respectively, of accelerated
compensation expense related to the performance-based component of the award.

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



|                              |  |                                |   |  |                                       |      
|----------------------------- |  | ------------------------------ | - |  | ------------------------------------- | -----
|                              |  | Outstanding RSUs(in thousands) |   |  | Weighted-AverageGrant-Date Fair Value
|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
|                              |  |                                |   |  |                                       |      

As of June 30, 2007, there was approximately $21.7 million of total unrecognized compensation cost, net
of accelerated compensation expense related to the performance component of our RSUs, for the remaining nonvested RSUs granted under our stock compensation plans. That cost is expected to be recognized over a period of 2.6 years.

Stock Appreciation Rights

As of June 30, 2007, a total
of 225,000 SARs were outstanding, of which there was approximately $0.4 million of total unrecognized compensation cost related to nonvested SARs. That cost is expected to be recognized over a period of 1.5 years.

We recorded $1.6 million and $2.0 million of compensation expense related to SARs in the three and six months ended June 30, 2007, respectively. For the three and
six months ended June 30, 2006, we recorded $0.6 million and $1.1 million of compensation expense, respectively.

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



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Valuation Assumptions

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



|                        |  |                             |   |  |                           |   |  |      |   |  |      |  
|----------------------- |  | --------------------------- | - |  | ------------------------- | - |  | ---- | - |  | ---- | -
|                        |  | Three months ended June 30, |   |  | Six months ended June 30, |  
|                        |  | 2007                        |   |  | 2006                      |   |  | 2007 |   |  | 2006 |  
|Expected life (years)   |  | 6.2                         |   |  | 6.2                       |   |  | 6.2  |   |  | 6.2  |  
|Risk-free interest rate |  | 4.8                         | % |  | 5.0                       | % |  | 4.8  | % |  | 4.8  | %
|Volatility              |  | 60                          | % |  | 60                        | % |  | 60   | % |  | 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 0.9 years. 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 three months ended June 30, 2007.

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.

6. Inventories

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



|                |  |               |        |                   |   |       
|--------------- |  | ------------- | ------ | ----------------- | - | ------
|                |  | June 30, 2007 |        | December 31, 2006
|Raw materials   |  | $             | 3,265  |                   | $ | 3,469 
|Work in process |  |               | 11,864 |                   |   | 9,968 
|Finished goods  |  |               | 4,123  |                   |   | 2,438 
|                |  |               |        |                   |   |       
|Total           |  | $             | 19,252 |                   | $ | 15,875
|                |  |               |        |                   |   |       

7. Litigation

Certain of our officers and directors were named as defendants in a derivative lawsuit filed in August 2003 in California Superior Court, Santa Clara County, captioned Kangos v. Lange, et al., which named CV Therapeutics, Inc. as a
nominal defendant. The plaintiff in this action was a stockholder who sought to bring derivative claims on our behalf against the defendants. In November 2006, we reached a preliminary agreement to settle this action. Under the terms of the
agreement, we agreed to implement certain non-material corporate governance changes, and our insurers paid the court-approved fees of plaintiffs counsel. The defendants received a complete release of all claims and expressly denied any
wrongdoing. Final court approval for the settlement was obtained in April 2007, and the appeals period has expired.

Separately, 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 both probable or estimable. Therefore in accordance with FAS
No. 5,Accounting for Contingencies, we have not recorded an associated liability.



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##### Table of Contents

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 states jurisdictions. To date we have not been audited by the Internal Revenue Service (IRS) or any state 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 which has been fully offset by
a valuation allowance. During the three and six months ended June 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. There have been no material changes in our unrecognized tax benefit during the three and six
months ended June 30, 2007.



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##### Table of Contents

|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, early stage of development; regulatory review and approval of our products or product candidates; the conduct, timing, and results of clinical trials; commercialization of products; market acceptance of products;
product labeling; liquidity; intellectual property claims; litigation; 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 June 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 second
quarter of 2007

In the second quarter of 2007, our total revenues were $25.4 million, an increase of 268% from total revenues of $6.9 million in
the second quarter of 2006, and our net loss was $57.6 million, a decrease of 21% from a net loss of $73.1 million in the second quarter of 2006. For the six months ended June 30, 2007, our total revenues were $40.7 million, an increase of 242%
from $11.9 million for the six months ended June 30, 2006, and our net loss was $112.7 million, a decrease of 22% from $143.6 million for the six months ended June 30, 2006.

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



| |  | Net product sales of Ranexa for the quarter ended June 30, 2007 were $15.3 million which represented an increase of 28%, compared to $12.0 million of net
product sales revenue recorded in the quarter ended March 31, 2007.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | 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 Astellas and have recognized this as collaboration revenue in the quarter ended June 30, 2007.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

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. We recorded approximately $5.4 million in restructuring charges in the quarter ended June 30, 2007, including charges
related to employee severance and benefits, contract termination fees and other restructuring-related charges.

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 previously 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 three months ended June 30, 2007.

In May 2007, the board of directors 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 June 30, 2007, a total of 225,000 SARs remain outstanding.

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. A response to our application
is expected in the first half of 2008.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Based the results of the MERLIN TIMI-36 study of ranolazine obtained in the first quarter of 2007, we intend to file a supplemental new drug application with the
FDA for Ranexa in the fall of 2007, seeking to modify the existing product labeling and expand the indication to include first line angina treatment.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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

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 in the United States
in March 2006.



17



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##### Table of Contents

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.

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. We will continue to reevaluate
the performance period for our collaborative arrangements in future periods. 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 ours 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
| | - |  | ------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

| |  |  | 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. We believe that our 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.

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 June 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 six months ended
June 30, 2007 (in thousands):



|                             |  |                            |        |   |                     |   |        |               |  |   |       |   |  |   |        |  
|---------------------------- |  | -------------------------- | ------ | - | ------------------- | - | ------ | ------------- |  | - | ----- | - |  | - | ------ | -
|                             |  | ContractSalesDiscounts (1) |        |   | Product Returns (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 | )
|                             |  |                            |        |   |                     |   |        |               |  |   |       |   |  |   |        |  

---

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

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

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. For
example, to date, we have received no product returns related to product expiration. We will continue to monitor channel inventory levels, and evaluate the returns received in future periods. If conditions or other circumstances change we may take
actions to revise our estimate of product returns in future periods. We estimate returns reserve as a percentage of product sales. If we increase or decrease that returns reserve by 1% in the current quarter the cumulative financial statement impact
in that quarter would have been $0.6 million. 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. To date, such adjustments have not been material.



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##### Table of Contents

Clinical Trial Accruals

We record accruals for estimated clinical study costs. Most of our clinical studies are performed by third-party CROs. These costs are 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 June 30, 2007, we have estimated that there is a probable likelihood of reaching this revenue target by September 30, 2007. The remaining unrecognized
compensation costs related to these specific nonvested RSUs of $0.9 million will be recognized ratably through September 30, 2007. During the three and six months ended June 30, 2007, we have recorded $0.6 million and $1.2 million,
respectively, of accelerated compensation expense related to the performance-based component of the award.

Legal Contingencies

As discussed in Note 7, Litigation, in the Notes to Condensed Consolidated Financial Statements, we have been involved in certain legal proceedings that
are now settled, and we are participating in dispute resolutions with an insurer relating to the settlement of a securities class action lawsuit. We assessed the likelihood of any adverse judgments or outcomes to these legal matters as well as
potential ranges of reasonably possible losses. As of the balance sheet date at June 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 matters under the alternative dispute resolution which is not to exceed $2.25 million, and may be a lesser amount or zero. The nature of these matters is highly uncertain and
subject to change. As a result, the amount of our liability for certain of these matters could exceed our current estimates, depending on the final outcome of these matters. An outcome of such matters 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. 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.

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



|                              |  |                                |        |   |                          |   |      |                          |  |   |       |   |  |   |        |  
|----------------------------- |  | ------------------------------ | ------ | - | ------------------------ | - | ---- | ------------------------ |  | - | ----- | - |  | - | ------ | -
|                              |  | Employee Severance andBenefits |        |   | ContractTermination Fees |   |      | OtherRestructuring Costs |  |   | Total |  
|Restructuring charges accrued |  | $                              | 4,291  |   |                          | $ | 804  |                          |  | $ | 272   |   |  | $ | 5,367  |  
|Cash payments                 |  |                                | (2,257 | ) |                          |   | (804 | )                        |  |   | (205  | ) |  |   | (3,266 | )
|Adjustments                   |  |                                |       |   |                          |   |     |                          |  |   |      |   |  |   |       |  
|                              |  |                                |        |   |                          |   |      |                          |  |   |       |   |  |   |        |  
|Balance as of June 30, 2007   |  | $                              | 2,034  |   |                          | $ |     |                          |  | $ | 67    |   |  | $ | 2,101  |  
|                              |  |                                |        |   |                          |   |      |                          |  |   |       |   |  |   |        |  



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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 June 30, |      |      |   |          | Six months ended June 30, |      |      | 
|                       |  | 2007                        |      | 2006 |   | % Change |                           |      | 2007 |  | 2006 |      | % Change |  
|Product sales, net     |  | $                           | 15.3 |      | $ | 1.2      |                           | 1175 | %    |  | $    | 27.3 |          | $ | 1.2  |  | 2175 | %
|Collaborative research |  |                             | 10.1 |      |   | 4.9      |                           | 106  | %    |  |      | 13.4 |          |   | 9.3  |  | 44   | %
|Co-promotion           |  |                             |     |      |   | 0.8      |                           | *    |      |  |      |     |          |   | 1.4  |  | *    |  
|                       |  |                             |      |      |   |          |                           |      |      |  |      |      |          |   |      |  |      |  
|Total revenues         |  | $                           | 25.4 |      | $ | 6.9      |                           | 268  | %    |  | $    | 40.7 |          | $ | 11.9 |  | 242  | %
|                       |  |                             |      |      |   |          |                           |      |      |  |      |      |          |   |      |  |      |  

---

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

Product sales, net were $15.3 and $27.3
million in the three and six months ended June 30, 2007, respectively, compared to product sales of $1.2 million for each of the same periods in the prior year. Product sales relate to our sales of Ranexa which was launched in March 2006. The
lower product sales in 2006 was due in part to the deferral of recognition of net product sales of $5.0 million from the quarter ended March 31, 2006 relating to customary product launch return privileges on product sales to wholesalers
extended during the first quarter of 2006. We continued to defer recognition of first quarter 2006 Ranexa product sales until the third quarter of 2006 when the product launch return privileges expired.

The increase in collaborative research revenues was primarily due to a $7.0 million milestone payment we received 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 reimburseable development costs incurred in connection with the completion of our Phase 3 clinical trials. 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.

In the three and six months ended June 30, 2006, we received co-promotion revenue of $0.8
million and $1.4 million, respectively, from sales of ACEON®, which we co-promoted with our collaborative partner, Solvay Pharmaceuticals. 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 June 30, |     |      |   |          | Six months ended June 30, |     |      | 
|              |  | 2007                        |     | 2006 |   | % Change |                           |     | 2007 |  | 2006 |     | % Change |  
|Cost of sales |  | $                           | 2.4 |      | $ | 0.4      |                           | 500 | %    |  | $    | 3.9 |          | $ | 0.4 |  | 875 | %

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 thereafter, will not reflect the full cost of production because a portion of the raw 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 thereafter. Inventory that was previously expensed was $9.6 million as of June 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. Cost of sales in the three and six
months ended June 30, 2007 also included stock-based compensation expense related to accelerated vesting of employee stock options associated with our restructuring plan and validation costs associated with a second-source supplier.



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##### Table of Contents

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 June 30, |      |      |   |          | Six months ended June 30, |     |      | 
|                                  |  | 2007                        |      | 2006 |   | % Change |                           |     | 2007 |  | 2006 |      | % Change |  
|Research and development expenses |  | $                           | 28.8 |      | $ | 33.2     |                           | (13 | )%   |  | $    | 56.0 |          | $ | 64.7 |  | (13 | )%

The decrease in R&D expenses in the three and six months ended June 30, 2007 compared to the same periods
for June 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 and lower expenses for our Phase 3 regadenoson studies. 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 connection with our restructuring activities.

We expect our R&D expenses to decrease in the next two quarters compared to the first half of 2007 due to the completion of the MERLIN TIMI-36 clinical study and the
second regadenoson Phase 3 study and the planned reduction in R&D expenditures associated with the restructuring that occurred during the second quarter of 2007. However, in the second half of 2007, we still expect to incur substantial R&D
expenses associated with the submission and prosecution of regulatory approval applications in the United States for both Ranexa and regadenoson, as well as in connection with ongoing prosecution 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 regulatory
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 June 30, |      | Six months ended June 30,
|                         |  | 2007                        |      | 2006                      |   | 2007 |  | 2006
|Ranexa                   |  | $                           | 12.1 |                           | $ | 17.9 |  | $    | 25.7 |  | $ | 34.1
|Regadenoson              |  |                             | 5.3  |                           |   | 6.6  |  |      | 10.4 |  |   | 13.3
|Other projects           |  |                             | 11.4 |                           |   | 8.7  |  |      | 19.9 |  |   | 17.3
|                         |  |                             |      |                           |   |      |  |      |      |  |   |     
|Research and development |  | $                           | 28.8 |                           | $ | 33.2 |  | $    | 56.0 |  | $ | 64.7
|                         |  |                             |      |                           |   |      |  |      |      |  |   |     

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 June 30, |      |      |   |          | Six months ended June 30, |    |      | 
|                                             |  | 2007                        |      | 2006 |   | % Change |                           |    | 2007 |  | 2006 |      | % Change |  
|Selling, general and administrative expenses |  | $                           | 46.5 |      | $ | 46.9     |                           | (1 | )%   |  | $    | 89.0 |          | $ | 91.6 |  | (3 | )%

The decrease in SG&A expenses in the three and six
months ended June 30, 2007 compared to the same periods for June 30, 2006 was primarily due to lower external marketing expenses relating to ACEON® , which we no longer
co-promote, offset by stock-based compensation expense related to accelerated vesting of employee stock options and the voluntary forfeiture of certain stock appreciation rights in connection with our restructuring activities.

We expect our SG&A expenses to decrease in the next two quarters compared to the first half of 2007 as the result of significant reorganization of the companys
field sales organization.



22



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##### Table of Contents

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 June 30, |     |      |   | Six months ended June 30, |  |     
|                      |  | 2007                        |     | 2006 |   | % Change                  |  | 2007 |  | 2006 |     | % Change
|Restructuring charges |  | $                           | 5.4 |      | $ |                          |  | *    |  | $    | 5.4 |          | $ |  |  | *

---

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

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 SG&A 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. 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 June 30, 2007, we recorded an expense of $5.4 million related to these restructuring activities. There were no comparable expense for the three or six months ended June 30, 2006.

We do not expect to incur significant additional charges in the future under this restructuring.

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 June 30, |     |      |   |          | Six months ended June 30, |     |      | 
|                               |  | 2007                        |     | 2006 |   | % Change |                           |     | 2007 |  | 2006 |     | % Change |  
|Interest and other income, net |  | $                           | 3.2 |      | $ | 3.7      |                           | (14 | )%   |  | $    | 7.3 |          | $ | 7.5 |  | (3 | )%

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

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

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 June 30, |     |      |   |          | Six months ended June 30, |   |      | 
|                 |  | 2007                        |     | 2006 |   | % Change |                           |   | 2007 |  | 2006 |     | % Change |  
|Interest expense |  | $                           | 3.2 |      | $ | 3.2      |                           | 0 | %    |  | $    | 6.3 |          | $ | 6.3 |  | 0 | %

Interest expense in the three and six months ended June 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 states jurisdictions. To date we have not been audited by the IRS or any state jurisdictions.



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##### Table of Contents

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 which has been fully offset by a valuation allowance. For the three and six months ended June 30, 2007 we did not recognize any interest and penalties in the statement of
operations and there were 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. There have been no material changes in our unrecognized tax benefit during the three and six months ended June 30, 2007.

Liquidity and
Capital Resources



|                                                 |  |                           |        |   |                   |   |        |  
|------------------------------------------------ |  | ------------------------- | ------ | - | ----------------- | - | ------ | -
|                                                 |  | As of                     |       
|(in millions)                                    |  | June 30, 2007             |        |   | December 31, 2006 |  
|Cash, cash equivalents and marketable securities |  | $                         | 216.5  |   |                   | $ | 325.2  |  
|                                                 |  |                           |        |   |                   |   |        |  
|                                                 | 
|                                                 |  | Six months ended June 30, |       
|                                                 |  | 2007                      |        |   | 2006              |  
|Cash flows:                                      |  |                           |        |   |                   |   |        |  
|Net cash used in operating activities            |  | $                         | (114.9 | ) |                   | $ | (163.8 | )
|Net cash provided by investing activities        |  | $                         | 110.9  |   |                   | $ | 115.0  |  
|Net cash provided by financing activities        |  | $                         | 7.1    |   |                   | $ | 29.4   |  

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 June 30, 2007, we had cash, cash equivalents and marketable securities of
$216.5 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 estimate that operating expenses for the second half of 2007 (the third and fourth calendar quarters), not including
cost of sales, to be between $105.0 million and $110.0 million. 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 is 36 months. 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 $13.21 closing price of our common stock on June 29, 2007, the additional aggregate net proceeds, assuming the largest possible discount, that we could receive
under the purchase agreement with Azimuth would be approximately $77.8 million.

Net cash used in operating activities was $114.9 million for the six
months ended June 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 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 and depreciation. Net cash used in operating activities was $163.8 million for the six months ended June 30, 2006, 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, changes in other assets primarily related to the PTC collaboration and Ranexa product rights, cash used in accounts receivable and inventory production adjusted for non-cash expenses primarily related to stock-based compensation and
depreciation and changes in deferred revenue.



24



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##### Table of Contents

Net cash provided by investing activities of $110.9 million in the six months ended June 30, 2007 consisted
primarily of maturities and sales of marketable securities of $116.4 million offset by purchases of securities available for sale of $4.0 million and capital expenditures of $1.6 million. Net cash provided by investing activities of $115.0 million
in the six months ended June 30, 2006 consisted primarily of maturities and sales of marketable securities of $125.2 million, offset by capital expenditures of $6.2 million and an investment in a convertible note receivable issued by a
collaboration partner of $4.0 million.

Net cash provided by financing activities of $7.1 million in the six months ended June 30, 2007 was related to
changes in the restricted cash balance associated with an interest payment 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 $29.4 million in the six
months ended June 30, 2006 was primarily due to 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 $5.8 million and net proceeds from stock issued through
our ESPP and exercises of employee stock options.

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.

Contractual Obligations and Significant Commercial Commitments

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



|                              |  |      |      |      |   |      |  |      |      |      |   |            |  |       |      |  |   |       |  |   |      
|----------------------------- |  | ---- | ---- | ---- | - | ---- |  | ---- | ---- | ---- | - | ---------- |  | ----- | ---- |  | - | ----- |  | - | -----
|                              |  | 2007 |      | 2008 |   | 2009 |  | 2010 |      | 2011 |   | Thereafter |  | Total
|Convertible notes (1) (2)     |  | $    | 5.5  |      | $ | 11.0 |  | $    | 11.0 |      | $ | 109.0      |  | $     | 9.0  |  | $ | 311.3 |  | $ | 456.8
|Manufacturing obligations (3) |  |      | 4.8  |      |   | 2.4  |  |      | 1.1  |      |   |           |  |       |     |  |   |      |  |   | 8.3  
|Operating leases (4)          |  |      | 6.1  |      |   | 13.3 |  |      | 13.6 |      |   | 15.1       |  |       | 15.4 |  |   | 22.6  |  |   | 86.1 
|                              |  |      |      |      |   |      |  |      |      |      |   |            |  |       |      |  |   |       |  |   |      
|                              |  | $    | 16.4 |      | $ | 26.7 |  | $    | 25.7 |      | $ | 124.1      |  | $     | 24.4 |  | $ | 333.9 |  | $ | 551.2
|                              |  |      |      |      |   |      |  |      |      |      |   |            |  |       |      |  |   |       |  |   |      

---

|(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. 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 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.



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##### Table of Contents

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 (including a previously paid $5.0 million milestone) reaches $12.0 million.

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 June 30, 2007, we had cash, cash equivalents and marketable securities of
$216.5 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 estimate that operating expenses for the second half of 2007 (the third and fourth calendar quarters), not including
cost of sales, to be between $105.0 million and $110.0 million. 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.

Additional financing may not
be available on acceptable terms or at all. 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 $13.21 closing price of our common stock on June 29, 2007, the additional aggregate net proceeds, assuming the largest possible discount, that we could receive under the purchase agreement with Azimuth would be approximately $77.8
million.

We have experienced significant operating losses since our inception in 1990, including net losses of $112.7 million for the six months ended
June 30, 2007, $274.3 million in 2006, $228.0 million in 2005 and $155.1 million in 2004. As of June 30, 2007, we had an accumulated deficit of $1,199.5 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.



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##### Table of Contents

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 a supplemental new drug application 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 June 2007, in accordance with Nasdaq
Marketplace Rule 4350, we granted 23 non-executive employees inducement stock options covering an aggregate of 137,300 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 options 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).



|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 June 30, 2007, there were no material changes in these market risks
since December 31, 2006.

Our long-term debt at June 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.



27



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##### Table of Contents

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



|                                                    |  |                       |   |  |                       |       
|--------------------------------------------------- |  | --------------------- | - |  | --------------------- | ------
|                                                    |  | Average Interest Rate |   |  | Estimated MarketValue
|($ in thousands)                                    |  |                       |   |  |                       |       
|Cash equivalents:                                   |  |                       |   |  |                       |       
|Fixed rate                                          |  | 5.34                  | % |  | $                     | 52,449
|Variable rate                                       |  | 3.79                  | % |  |                       | 27,483
|Marketable securities portfolio:                    |  |                       |   |  |                       |       
|Fixed rate (mature in 2007)                         |  | 4.41                  | % |  |                       | 52,473
|Variable rate (mature in 2007)                      |  | 5.39                  | % |  |                       | 2,000 
|Fixed rate (mature in 2008)                         |  | 4.85                  | % |  |                       | 60,481
|Variable rate (mature in 2008)                      |  | 5.35                  | % |  |                       | 2,000 
|Fixed rate (mature in 2009)                         |  | 4.93                  | % |  |                       | 18,947
|Long-term debt:                                     |  |                       |   |  |                       |       
|Senior subordinated convertible debentures due 2023 |  | 2.00                  | % |  |                       | 83,920
|Senior subordinated convertible notes due 2012      |  | 2.75                  | % |  |                       | 96,840
|Senior subordinated convertible notes due 2013      |  | 3.25                  | % |  |                       | 87,450

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 six months ended June 30, 2007, we incurred $4.3
million and $7.9 million, respectively, of non-U.S. dollar expenses. For the three and six months ended June 30, 2006, we incurred $5.7 million and $9.0 million of non-U.S. dollar expenses, respectively. As reported in U.S. dollars, our foreign
currency losses for the three and six months ended June 30, 2007 were approximately $0.1 million. Foreign currency losses for the three and six months ended June 30, 2006 was $0.1 million and $0.2 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
|------- | -----------------

Certain of our officers and directors were named
as defendants in a derivative lawsuit filed in August 2003 in California Superior Court, Santa Clara County, captioned Kangos v. Lange, et al., which named CV Therapeutics, Inc. as a nominal defendant. The plaintiff in this action was a
stockholder who sought to bring derivative claims on our behalf against the defendants. In November 2006, we reached a preliminary agreement to settle this action. Under the terms of the agreement, we agreed to implement certain non-material
corporate governance changes, and our insurers paid the court-approved fees of plaintiffs counsel. The defendants received a complete release of all claims and expressly denied any wrongdoing. Final court approval for the settlement was
obtained in April 2007, and the appeals period has expired.

Separately, 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 $112.7
million for the six month period ended June 30, 2007, $274.3 million in 2006, $228.0 million in 2005 and $155.1 million in 2004. As of June 30, 2007, we had an accumulated deficit of $1,199.5 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 lead 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 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;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



| |  |  | 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 June 30, 2007, we had cash, cash equivalents and marketable securities of $216.5 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 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 currently estimate total costs and expenses for the third and fourth calendar quarters of 2007, not including cost of sales, to be between $105.0 million and $110.0 million.

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 associated with close-out of the now-completed MERLIN TIMI-36 clinical study and with the planned submission and prosecution of new drug applications in the United States for both Ranexa
and regadenoson, as well as in connection with ongoing prosecution of the marketing approval application for ranolazine submitted to European regulatory authorities in late 2006. Those projects still represent approximately 50% of our total R&D
budget for 2007.

In May 2007, we announced a restructuring plan and reductions in operating expenses that are intended to conserve our net operating cash,
assuming that we achieve the operating expense reductions we estimated, and assuming that prescriptions for our only approved product, Ranexa, continue to grow during such period at the rate of prescription growth that occurred prior to the
publication of the MERLIN TIMI-36 clinical study results in April 2007, and assuming that our new drug application for regadenoson is approved by the FDA for product marketing in 2008 and that Astellas launches the product and we receive modest
royalties under our licensing and collaboration arrangement with Astellas. However, actual circumstances may vary from any of those assumptions, and changing circumstances may cause us to consume capital significantly faster than we currently
anticipate.

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



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



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



| |  |  | 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 their degree of success, if any, in gaining market acceptance for regadenoson, if approved, 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.
| | - |  | --------------------------------------------------

Additional financing may not be available on acceptable terms or at all. 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 is 36 months, and in 2006 Azimuth purchased an aggregate 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 $13.21 closing price of our common stock on June 29, 2007, the
additional aggregate net proceeds, assuming the largest possible discount, that we could receive under the purchase agreement with Azimuth would be approximately $77.8 million.

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, especially through our planned submission to the
FDA of a new drug application in the United States for Ranexa in the fall of 2007, as well as ongoing prosecution 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



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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.

Our success in commercializing Ranexa in key territories such as the United States or Europe may depend on our ability to enter into one or more
strategic arrangements relating to the product. 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. However, we do not presently have the resources to market and promote in that broad market, and the
revenues we expect to recognize for the foreseeable future from Ranexa may not be sufficient for us to reach that broader market on our own. With regards to the potential European market for ranolazine, in late 2006 we submitted a marketing approval
application for ranolazine to the European regulatory authorities. We have only very limited personnel in Europe and at the present time we do not have the resources to commercialize the product in Europe on our own. In addition, 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, even if it is approved by European regulatory
authorities, in light of various national price control arrangements. 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.

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 in 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 July 2004, we announced that we reached written agreement with 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. In particular, 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. Even after a special protocol assessment agreement is finalized, the agreement may be changed later. 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.

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 file a new drug application with the FDA seeking approval for Ranexa (including any intravenous formulation of the product) for the treatment of ACS.

Also under our special protocol assessment agreement with the FDA relating to the MERLIN TIMI-36 clinical study, the



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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. We believe the MERLIN TIMI-36 data and results could 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. We intend to file a supplemental new drug application with the FDA in the fall
of 2007 seeking to modify the existing product labeling to expand the product indication to include first-line angina treatment and to reduce cautionary language. However, 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, after we submit those data and results to the FDA
for review in the planned supplemental new drug application. When we submit the planned supplemental new drug application to the FDA, assuming that the FDA decides to accept the submission for review, we expect that the FDA will review all the
safety data and results from the study (including those relating to death and arrhythmia), and will exercise its broad regulatory discretion in interpreting these data and results and 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, and what other labeling changes to allow, if any. Regulatory authorities approve product labeling with reference to the data that form the basis of the product approval, and as a result the scope of
approved labeling is generally impacted by the available data. 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 that we plan to submit in the fall of 2007, we would not have FDA-approved modified labeling that we can use for
promotional purposes until mid-2008 (assuming that the FDA accepts the planned supplemental new drug application for review and provides its approval at the end of one standard review cycle).

The special protocol assessment agreement 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 will be submitted to the FDA for review in the planned supplemental new drug application, and thus we do not know if the FDA will agree that this aspect of the special protocol assessment
agreement has been satisfied.

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.

In general, we do not know how the FDA will interpret the commitments under
our special protocol assessment agreement relating to the MERLIN TIMI-36 clinical study (or the related clinical evaluation of higher doses of Ranexa) as these commitments relate to the potential for first-line use in chronic angina, how the FDA
will interpret any of these data and results, or whether Ranexa will receive any additional regulatory approvals or any expanded or otherwise improved product labeling as a result of these clinical studies or this special protocol assessment
agreement. Depending on the results of the FDAs decisions regarding whether to accept for review, and whether or not to approve, our planned supplemental new drug application including data and results from the MERLIN TIMI-36 clinical study,
as well as the FDAs decisions with respect to labeling modifications we plan to propose seeking to expand the product indication to include first-line angina treatment and reduce cautionary language, 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 the planned supplemental new drug application, 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 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 be adversely affected. Many factors may affect the rate and level of market acceptance of Ranexa
in the United States, including:



| |  |  | our product marketing, promotion, distribution sales and pricing strategies and programs;
| | - |  | -----------------------------------------------------------------------------------------



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



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| |  |  | new data or adverse event information relating to the product or any similar products and any resulting regulatory actions resulting therefrom, especially our
MERLIN TIMI-36 clinical trial of Ranexa, including the FDAs actions relating to the supplemental new drug application that we intend to file with the FDA including data and results from the MERLIN TIMI-36 clinical study;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



| |  |  | the effectiveness of our sales and marketing efforts;
| | - |  | -----------------------------------------------------



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



| |  |  | any 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;
| | - |  | ------------------------------------------------------------------------



| |  |  | the ability to gain formulary acceptance and favorable formulary positioning, without prior authorizations or step-edits, for our approved products 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 on acceptable terms, and the continued ability to
manufacture commercial-scale quantities of the product successfully and on a timely basis;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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

For example,
we believe that the 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 intend to file a supplemental new drug application with the FDA in the fall of
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, this planned
supplemental new drug application. Even if the FDA does approve the supplemental new drug application that we plan to submit in the fall of 2007, we will not have FDA-approved modified labeling that we can use for promotional purposes until mid-2008
(assuming that the FDA accepts the planned supplemental new drug application for review and provides its approval at the end of one standard review cycle). Ranexa is currently approved for only a portion of the overall angina patient population in
the United States, and any approval of Ranexa for broader use with angina patients will require FDA review and approval.

In addition, we believe that
physician prescribing patterns are substantially affected by the experience of patients for whom they prescribe a product, particularly a new product such as Ranexa. If physicians in the United States react negatively to the product because of how
they perceive the approved product labeling or if patients for whom they prescribe Ranexa do poorly on the drug, physicians may decide that the relative benefit and risk of the product do not favor wider usage or any usage at all, and may reserve
the use of the product for only a small group of patients or not use the product at all, resulting in lower product acceptance and lower product revenues.



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We must submit all promotional materials to the FDA at the time of first use. 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. For example, ACEON® (perindopril erbumine) Tablets,
which we co-promoted until October 2006, is a member of the highly competitive class of drugs known as ACE inhibitors. Although the FDA approved ACEON® for the treatment of patients with
stable coronary artery disease to reduce the risk of cardiovascular mortality or nonfatal myocardial infarction in August 2005, our marketing and promotional efforts did not materially increase overall market acceptance beyond minimal product sales
levels. As a result, in October 2006, we terminated our co-promotion agreement for ACEON®.

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. 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.

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 will depend on our
ability to establish and maintain an effective sales and marketing organization in the United States. We have hired, trained and deployed additional marketing personnel and a national cardiovascular specialty sales force, which promoted ACEON® until the fall of 2006, and which began promoting Ranexa in March 2006. Prior to our launches of these products, we had never sold or marketed any products.

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, the results of the FDAs acceptance (if any) and review of our planned supplemental new drug application including data and results from the MERLIN TIMI-36 clinical study, 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. In May 2007 we announced
that we have substantially reduced our commercialization personnel expenditures, with attendant reductions in our marketing and promotional programs going forward. 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



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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® 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 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 rigorously 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



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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 can be another option for angina patients, 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 regadenoson, 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. 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 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 newly approved health care products, such as Ranexa. As a result, it is 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. 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



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reimbursement or formulary positioning for Ranexa, we may not be able to maintain this 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-priced, lower dosage of Ranexa 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 contains 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.

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
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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, our ability to continue to obtain revenues from its sale, if approved, 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.

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 our products. 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 examples, Biogen Idec has sole responsibility for all worldwide development and
commercialization of products from the Adentri program, if any. Similarly, after product approval (if any), commercialization of regadenoson is solely the responsibility of Astellas. 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, 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, 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).

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 (6) 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 the product, if approved.



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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 it is 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 and warehousing 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.

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, and Astellas in turn is dependent on third parties for the manufacture of the active pharmaceutical ingredient
and the drug product. Our ability to commercialize Ranexa, and Astellas ability to commercialize regadenoson, if it is 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 and could negatively affect our operating results. For example, a quality problem in the Ranexa supply chain could result in an inventory write-off, and a lack of supply could negatively affect product
revenues.

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.



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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 of any new drug application, supplemental new drug application or equivalent foreign application seeking approval for Ranexa or any of our product candidates or for any new uses or other changes to approved product labeling or
manufacturing. If we submit any such 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, so we cannot be certain that any of these submissions will be reviewed. If they are reviewed, 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.

Delays in approvals or rejections of marketing applications 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 have 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, as observed in clinical trials of Ranexa. QT interval measurements are not precise and there are different methods of calculating the corrected QTc interval, which is the QT interval as adjusted for
heart rate. This uncertainty in the measurement and calculation of the QT and QTc intervals can contribute to different interpretations of these data. The clinical significance of the changes in QTc interval observed in clinical trials of Ranexa
remains unclear, and other clinical and preclinical data do not suggest that Ranexa significantly pre-disposes patients to this fatal arrhythmia. Regulatory authorities may interpret the Ranexa data differently, which could delay, limit or prevent
additional regulatory approvals of Ranexa. For example, when acting on the original new drug application for Ranexa in October 2003, the FDA did not approve the product and indicated that additional clinical information would be needed prior to
approval, in part because of the FDAs safety concerns. In January 2006, the FDA approved Ranexa for use in chronic angina, with product labeling which states that because of the potential safety risk of QT prolongation caused by Ranexa, 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. Foreign regulatory authorities, such as the European Medicines Agency that is reviewing our marketing authorization application for ranolazine, may have similar or other concerns which could delay or prevent the approval of Ranexa or
any of our other product candidates outside the United States.

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, a new review division



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with 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 we have submitted. We did not negotiate any special protocol assessment agreement for the regadenoson program, and our ability to obtain potential product approval from the FDA for regadenoson could be negatively affected.

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 the data will be sufficient to obtain marketing approval for regadenoson in the United States or abroad.

In addition, the
environment in which our regulatory submissions may be reviewed changes over time. For example, average review times at the FDA for marketing approval applications can fluctuate substantially, and 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.

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 the FDA and other regulatory agencies. In addition, we may be unable to maintain our



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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, 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 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, and core laboratory services. 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 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).

A significant portion of the sites conducting clinical trials of our product candidates are 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. 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 MERLIN TIMI-36 clinical study of Ranexa was conducted in the United States and in 16 foreign countries. Our regadenoson development program also included numerous foreign clinical trial sites. 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) 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.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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| | 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, 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 under the laws of the United States will no longer be available for ranolazine, 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, may be time-consuming, expensive and risky to defend or prosecute. 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) is diminished or lost.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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 18 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.

In addition, 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. The stay of FDA action regarding the abbreviated new drug application will end on the sooner to occur of the 30-month mark (in October 2007) or a decision by the judge in the
patent litigation relating to Adenoscan® (adenosine injection), which means that in any event the stay of FDA action will end prior to any potential approval of regadenoson. This 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) is 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.



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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.

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 and to the operating expense reductions announced in May 2007, and on 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.



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



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



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



| |  |  | 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 June 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



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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 is 36 months. 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.

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 4. | Submission of Matters to a Vote of Security Holders
|------- | ---------------------------------------------------

At our Annual Meeting of Stockholders held on May 31, 2007, three matters were voted upon. A description of each matter and a tabulation of the votes for each of the matters follow:



| | 1. | Proposal to elect two (2) directors, each to serve until the 2010 Annual Meeting of Stockholders and until his successor is elected and qualified or until his earlier
resignation or removal:
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                   |  |            |  |          
|------------------ |  | ---------- |  | ---------
|Nominee            |  | For        |  | Withheld 
|Thomas L. Gutshall |  | 47,787,787 |  | 901,235  
|Kenneth B. Lee, Jr |  | 45,844,599 |  | 2,844,423

Louis G. Lange, M.D., Ph.D., Peter Barton Hutt, Esq, Thomas E. Shenk, Ph.D., Santo J. Costa,
Joseph M. Davie, M.D., Ph.D. and Barbara J. McNeil, M.D., Ph.D. also continued as directors after the Annual Meeting.



| | 2. | Proposal to approve the amendment and restatement to our 2000 Equity Incentive Plan:
| | -- | ------------------------------------------------------------------------------------



|           |  |           |  |        
|---------- |  | --------- |  | -------
|For        |  | Against   |  | Abstain
|20,414,194 |  | 4,831,010 |  | 99,386 

There were 23,344,432 broker non-votes.



| | 3. | Proposal to ratify the selection of Ernst & Young, LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2007:
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------



|           |  |         |  |        
|---------- |  | ------- |  | -------
|For        |  | Against |  | Abstain
|48,129,134 |  | 460,394 |  | 99,494 

There were no broker non-votes.



|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 2000 Equity Incentive Plan (Filed as Appendix A to the Companys Definitive Proxy Statement on Schedule 14A, filed April 24, 2007, and incorporated herein by
reference).                                                     
|              | 
|10.2          |  | 2004 Employee Commencement Incentive Plan (Amended and restated May 31, 2007).                                                                                                                                                                     
|              | 
|*10.3         |  | Amendment No. 1 dated as of June 12, 2007 to the Collaboration and License Agreement between the Company and PTC Therapeutics, Inc.                                                                                                                
|              | 
|10.4          |  | Convertible Promissory Note Amendment No. 1 dated as of June 12, 2007 between the Company and PTC Therapeutics, Inc.                                                                                                                               
|              | 
|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.                                                                                                   

---

|* | Confidential treatment has been requested for portions of this exhibit.
|- | -----------------------------------------------------------------------



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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: August 7, 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: August 7, 2007 |  | By:                   |  | /s/ DANIEL K. SPIEGELMAN                                                     
|                     |  |                       |  | Daniel K. Spiegelman                                                         
|                     |  |                       |  | Chief Financial Officer (Principal Financial and Accounting Officer)         



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