##### Table of Contents

---

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



---

FORM 10-Q



---



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

For the quarterly period ended March 31, 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



---

CV
THERAPEUTICS, INC.

(Exact name of Registrant as specified in its charter)



---



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



---

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 April 27, 2007, 59,368,596 shares of the registrants common stock, $.001 par value, were outstanding.



---



---

##### Table of Contents

CV THERAPEUTICS, INC.

INDEX



|                               |  |                                                                                                      |  |   
|------------------------------ |  | ---------------------------------------------------------------------------------------------------- |  | --
|                               |  | Page                                                                                                
|PART I  FINANCIAL INFORMATION |  |                                                                                                     
|                               |  |                                                                                                     
|Item 1                         |  | Financial Statements                                                                                 |  |   
|                               |  |                                                                                                     
|                               |  | Condensed Consolidated Balance Sheets  March 31, 2007 and December 31, 2006                         |  | 3 
|                               |  |                                                                                                     
|                               |  | Condensed Consolidated Statements of Operations  for the three months ended March 31, 2007 and 2006 |  | 4 
|                               |  |                                                                                                     
|                               |  | Condensed Consolidated Statements of Cash Flows  for the three months ended March 31, 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                |  | 14
|                               |  |                                                                                                     
|Item 3                         |  | Quantitative and Qualitative Disclosures About Market Risk                                           |  | 24
|                               |  |                                                                                                     
|Item 4                         |  | Controls and Procedures                                                                              |  | 26
|                               | 
|PART II  OTHER INFORMATION    |  |                                                                                                     
|                               |  |                                                                                                     
|Item 1                         |  | Legal Proceedings                                                                                    |  | 27
|                               |  |                                                                                                     
|Item 1A                        |  | Risk Factors                                                                                         |  | 27
|                               |  |                                                                                                     
|Item 6                         |  | Exhibits                                                                                             |  | 48
|                               | 
|SIGNATURES                     |  | 49                                                                                                  



2



---

##### Table of Contents

CV THERAPEUTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands)



|                                            |  |               |            |   |                  |   |            |  
|------------------------------------------- |  | ------------- | ---------- | - | ---------------- | - | ---------- | -
|                                            |  | March 31,2007 |            |   | December 31,2006 |  
|                                            |  | (Unaudited)   |            |   |                  |  
|Assets                                      |  |               |            |   |                  |   |            |  
|Current assets:                             |  |               |            |   |                  |   |            |  
|Cash and cash equivalents                   |  | $             | 77,346     |   |                  | $ | 77,638     |  
|Marketable securities                       |  |               | 180,588    |   |                  |   | 247,588    |  
|Accounts receivable                         |  |               | 4,346      |   |                  |   | 3,527      |  
|Inventories                                 |  |               | 18,778     |   |                  |   | 15,875     |  
|Restricted cash                             |  |               | 6,914      |   |                  |   | 6,899      |  
|Prepaid and other current assets            |  |               | 16,163     |   |                  |   | 13,968     |  
|                                            |  |               |            |   |                  |   |            |  
|Total current assets                        |  |               | 304,135    |   |                  |   | 365,495    |  
|Notes receivable from related parties       |  |               | 285        |   |                  |   | 285        |  
|Property and equipment, net                 |  |               | 22,739     |   |                  |   | 23,919     |  
|Restricted cash                             |  |               | 2,211      |   |                  |   | 4,567      |  
|Other assets                                |  |               | 26,299     |   |                  |   | 27,190     |  
|                                            |  |               |            |   |                  |   |            |  
|Total assets                                |  | $             | 355,669    |   |                  | $ | 421,456    |  
|                                            |  |               |            |   |                  |   |            |  
|Liabilities and stockholders deficit       |  |               |            |   |                  |   |            |  
|Current liabilities:                        |  |               |            |   |                  |   |            |  
|Accounts payable                            |  | $             | 2,658      |   |                  | $ | 10,749     |  
|Accrued and other current liabilities       |  |               | 38,310     |   |                  |   | 51,359     |  
|Deferred revenue                            |  |               | 46         |   |                  |   | 139        |  
|                                            |  |               |            |   |                  |   |            |  
|Total current liabilities                   |  |               | 41,014     |   |                  |   | 62,247     |  
|Convertible subordinated notes              |  |               | 399,500    |   |                  |   | 399,500    |  
|Other liabilities                           |  |               | 5,427      |   |                  |   | 5,507      |  
|                                            |  |               |            |   |                  |   |            |  
|Total liabilities                           |  |               | 445,941    |   |                  |   | 467,254    |  
|                                            |  |              
|Commitments and contingencies               |  |               |            |   |                  |   |            |  
|                                            |  |              
|Stockholders deficit:                      |  |               |            |   |                  |   |            |  
|Preferred stock                             |  |               |           |   |                  |   |           |  
|Common stock                                |  |               | 59         |   |                  |   | 59         |  
|Additional paid-in-capital                  |  |               | 1,051,289  |   |                  |   | 1,040,665  |  
|Accumulated deficit                         |  |               | (1,141,930 | ) |                  |   | (1,086,874 | )
|Accumulated other comprehensive income      |  |               | 310        |   |                  |   | 352        |  
|                                            |  |               |            |   |                  |   |            |  
|Total stockholders deficit                 |  |               | (90,272    | ) |                  |   | (45,798    | )
|                                            |  |               |            |   |                  |   |            |  
|Total liabilities and stockholders deficit |  | $             | 355,669    |   |                  | $ | 421,456    |  
|                                            |  |               |            |   |                  |   |            |  

See accompanying notes



3



---

##### Table of Contents

CV THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands, Except Per Share Amounts)

(Unaudited)



|                                                              |  |                         |         |   |      |   |         |  
|------------------------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | -
|                                                              |  | Quarter ended March 31, |        
|                                                              |  | 2007                    |         |   | 2006 |  
|Revenues:                                                     |  |                         |         |   |      |   |         |  
|Product sales, net                                            |  | $                       | 11,989  |   |      | $ |        |  
|Collaborative research                                        |  |                         | 3,261   |   |      |   | 4,376   |  
|Co-promotion                                                  |  |                         |        |   |      |   | 688     |  
|                                                              |  |                         |         |   |      |   |         |  
|Total revenues                                                |  |                         | 15,250  |   |      |   | 5,064   |  
|                                                              |  |                         |         |   |      |   |         |  
|Costs and expenses:                                           |  |                         |         |   |      |   |         |  
|Cost of sales                                                 |  |                         | 1,557   |   |      |   |        |  
|Research and development                                      |  |                         | 27,178  |   |      |   | 31,460  |  
|Selling, general and administrative                           |  |                         | 42,448  |   |      |   | 44,768  |  
|                                                              |  |                         |         |   |      |   |         |  
|Total costs and expenses                                      |  |                         | 71,183  |   |      |   | 76,228  |  
|                                                              |  |                         |         |   |      |   |         |  
|Loss from operations                                          |  |                         | (55,933 | ) |      |   | (71,164 | )
|Other income (expense), net:                                  |  |                         |         |   |      |   |         |  
|Interest and other income, net                                |  |                         | 4,043   |   |      |   | 3,856   |  
|Interest expense                                              |  |                         | (3,166  | ) |      |   | (3,166  | )
|                                                              |  |                         |         |   |      |   |         |  
|Total other income(expense), net                              |  |                         | 877     |   |      |   | 690     |  
|                                                              |  |                         |         |   |      |   |         |  
|Net loss                                                      |  | $                       | (55,056 | ) |      | $ | (70,474 | )
|                                                              |  |                         |         |   |      |   |         |  
|Basic and diluted net loss per share                          |  | $                       | (0.93   | ) |      | $ | (1.57   | )
|                                                              |  |                         |         |   |      |   |         |  
|Shares used in computing basic and diluted net loss per share |  |                         | 58,953  |   |      |   | 44,982  |  
|                                                              |  |                         |         |   |      |   |         |  

See accompanying notes



4



---

##### Table of Contents

CV THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)



|                                                                                          |  |                         |         |   |      |   |         |  
|----------------------------------------------------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | -
|                                                                                          |  | Quarter ended March 31, |        
|                                                                                          |  | 2007                    |         |   | 2006 |  
|Cash flows from operating activities                                                      |  |                         |         |   |      |   |         |  
|Net loss                                                                                  |  | $                       | (55,056 | ) |      | $ | (70,474 | )
|Adjustments to reconcile net loss to net cash used in operating activities:               |  |                         |         |   |      |   |         |  
|Stock-based compensation expense                                                          |  |                         | 6,347   |   |      |   | 6,655   |  
|Depreciation and amortization, net                                                        |  |                         | 2,195   |   |      |   | 1,378   |  
|Impairment recognized for unrealized loss on marketable securities                        |  |                         | 3       |   |      |   | 1,157   |  
|Gain on the sale of available-for-sale securities                                         |  |                         | (15     | ) |      |   | (21     | )
|Forgiveness of related party notes receivable                                             |  |                         |        |   |      |   | 3       |  
|Change in assets and liabilities:                                                         |  |                         |         |   |      |   |         |  
|Accounts receivable                                                                       |  |                         | (819    | ) |      |   | (7,157  | )
|Inventories                                                                               |  |                         | (2,903  | ) |      |   | (4,302  | )
|Prepaid and other current assets                                                          |  |                         | (2,191  | ) |      |   | (5,281  | )
|Other assets                                                                              |  |                         | (14     | ) |      |   | (5,799  | )
|Accounts payable                                                                          |  |                         | (8,091  | ) |      |   | 375     |  
|Accrued and other liabilities                                                             |  |                         | (10,248 | ) |      |   | (9,720  | )
|Deferred revenue                                                                          |  |                         | (93     | ) |      |   | 5,836   |  
|                                                                                          |  |                         |         |   |      |   |         |  
|Net cash used in operating activities                                                     |  |                         | (70,885 | ) |      |   | (87,350 | )
|Cash flows from investing activities                                                      |  |                         |         |   |      |   |         |  
|Proceeds from sales of available-for-securities                                           |  |                         | 3,072   |   |      |   | 33,749  |  
|Maturities of investments                                                                 |  |                         | 64,477  |   |      |   | 50,300  |  
|Capital expenditures                                                                      |  |                         | (887    | ) |      |   | (3,679  | )
|                                                                                          |  |                         |         |   |      |   |         |  
|Net cash provided by investing activities                                                 |  |                         | 66,662  |   |      |   | 80,370  |  
|                                                                                          |  |                        
|Cash flows from financing activities                                                      |  |                         |         |   |      |   |         |  
|Change in restricted cash                                                                 |  |                         | 2,341   |   |      |   | 2,876   |  
|Proceeds from issuance of common stock through employee stock purchases and stock options |  |                         | 1,590   |   |      |   | 1,878   |  
|                                                                                          |  |                         |         |   |      |   |         |  
|Net cash provided by financing activities                                                 |  |                         | 3,931   |   |      |   | 4,754   |  
|                                                                                          |  |                         |         |   |      |   |         |  
|Net decrease in cash and cash equivalents                                                 |  |                         | (292    | ) |      |   | (2,226  | )
|Cash and cash equivalents at beginning of period                                          |  |                         | 77,638  |   |      |   | 23,688  |  
|                                                                                          |  |                         |         |   |      |   |         |  
|Cash and cash equivalents at end of period                                                |  | $                       | 77,346  |   |      | $ | 21,462  |  
|                                                                                          |  |                         |         |   |      |   |         |  

See accompanying notes



5



---

##### Table of Contents

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.

Basis of Presentation

The
accompanying 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 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 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 generally accepted accounting
principles requires management to make judgments, estimates and assumptions that affect the amounts reported in the 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 condensed consolidated financial statements to conform to the current
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.



6



---

##### Table of Contents

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 cumulative other comprehensive income (loss) consists solely of
unrealized gains and losses on available-for-sale investment securities. Comprehensive loss for the quarter ended March 31, 2007 and 2006 is as follows (in thousands):



|                                                                                               |  |                         |         |   |      |   |         |  
|---------------------------------------------------------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | -
|                                                                                               |  | Quarter Ended March 31, |        
|                                                                                               |  | 2007                    |         |   | 2006 |  
|Net loss                                                                                       |  | $                       | (55,056 | ) |      | $ | (70,474 | )
|Increase in unrealized losses on marketable securities                                         |  |                         | (30     | ) |      |   | (1,166  | )
|Reclassification adjustment for (gains) losses on marketable securities recognized in earnings |  |                         | (12     | ) |      |   | 1,136   |  
|                                                                                               |  |                         |         |   |      |   |         |  
|Comprehensive loss                                                                             |  | $                       | (55,098 | ) |      | $ | (70,504 | )
|                                                                                               |  |                         |         |   |      |   |         |  

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 40%, 33% and
20%, respectively, of Ranexa accounts receivable as of March 31, 2007. These three customers individually comprised 37%, 32% and 23%, respectively, of Ranexa accounts receivable as of December 31, 2006. For the quarter ended March 31,
2007, these three customers individually comprised 40%, 34% and 19%, respectively, of Ranexa gross product sales.

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 were interrupted for any reason, we may be unable to ship Ranexa or to supply any of our
products in development for clinical trials.

Revenue Recognition

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

Product Sales

We recognize revenue for product sales in accordance with SEC Staff Accounting Bulletin No. 104, Revenue Recognition. We recognize revenue for
sales when substantially all the risks and rewards of ownership have transferred to our customers who are wholesale distributors, which generally occurs on the date of shipment. Product sales are recognized as revenue when there is persuasive
evidence an arrangement exists, delivery to the wholesale distributor has occurred, title has transferred to the wholesale distributor, the price is fixed and 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.



7



---

##### Table of Contents

| |  |  | 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 and
through retail pharmacies, mail order pharmacies, managed care organizations, pharmaceutical benefit managers, hospitals, nursing homes and government entities.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We recognize product revenues net of gross-to-net 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, 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 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 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.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Co-Promotion Revenue

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

Gross-to-Net Sales Adjustments

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

These gross-to-net sales adjustments are based on
estimates of the amounts earned 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:



8



---

##### Table of Contents

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.

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 have a shelf life of 36 months from
the date of tablet manufacture, which was the shelf life at the time of product launch. 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.



9



---

##### Table of Contents

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.

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 fixed percentage. Our distributor discounts are accrued at the time of the sale and are typically granted to a wholesale distributor within 60 days after the end of a quarter.

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 quarter ended March 31, 2007 (in thousands):



|                             |  |               |      |   |                     |   |        |                            |  |   |        |   |  |   |        |  
|---------------------------- |  | ------------- | ---- | - | ------------------- | - | ------ | -------------------------- |  | - | ------ | - |  | - | ------ | -
|                             |  | CashDiscounts |      |   | Product Returns (1) |   |        | ContractSalesDiscounts (2) |  |   | Total  |  
|Balance at December 31, 2006 |  | $             | (116 | ) |                     | $ | (894   | )                          |  | $ | (1,318 | ) |  | $ | (2,328 | )
|Revenue allowances:          |  |               |      |   |                     |   |        |                            |  |   |        |   |  |   |        |  
|Current period               |  |               | (287 | ) |                     |   | (575   | )                          |  |   | (1,516 | ) |  |   | (2,378 | )
|Payments and credits         |  |               | 265  |   |                     |   |       |                            |  |   | 808    |   |  |   | 1,073  |  
|                             |  |               |      |   |                     |   |        |                            |  |   |        |   |  |   |        |  
|Balance at March 31, 2007    |  | $             | (138 | ) |                     | $ | (1,469 | )                          |  | $ | (2,026 | ) |  | $ | (3,633 | )
|                             |  |               |      |   |                     |   |        |                            |  |   |        |   |  |   |        |  

---

|(1) | Reserve for return of expired products
|--- | --------------------------------------

|(2) | Includes certain customary launch related discounts, distributor discounts, Medicaid rebates, managed care rebates and chargebacks
|--- | ----------------------------------------------------------------------------------------------------------------------------------

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.

Net Loss Per Share

In accordance with FAS 128 Earnings Per Share (FAS No. 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.



10



---

##### Table of Contents

2. 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):



|                                    |  |                        |       |      |   |      
|----------------------------------- |  | ---------------------- | ----- | ---- | - | -----
|                                    |  | Quarter endedMarch 31,
|                                    |  | 2007                   |       | 2006
|Research and development            |  | $                      | 1,965 |      | $ | 1,757
|Selling, general and administrative |  |                        | 4,255 |      |   | 4,518
|                                    |  |                        |       |      |   |      
|Total                               |  | $                      | 6,220 |      | $ | 6,275
|                                    |  |                        |       |      |   |      

Stock-based compensation related to cost of sales was less than $0.1 million each for the quarter ended
March 31, 2007 and 2006.

Stock Option Activity

The following table summarizes stock option activity for the quarter ended March 31, 2007 under all our stock compensation plans:



|                                      |  |                                |   |  |                                 |       |                                             |            |                                          |   |      
|------------------------------------- |  | ------------------------------ | - |  | ------------------------------- | ----- | ------------------------------------------- | ---------- | ---------------------------------------- | - | -----
|                                      |  | Number ofShares (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 |                                             |            |                                          |   |      
|                                      |  |                                |   |  |                                 |       |                                             |            |                                          |   |      
|Options outstanding at March 31, 2007 |  | 7,785                          |   |  | $                               | 25.69 |                                             | 5.99 years |                                          | $ | 175.2
|                                      |  |                                |   |  |                                 |       |                                             |            |                                          |   |      
|Exercisable at March 31, 2007         |  | 5,714                          |   |  | $                               | 28.18 |                                             | 5.08 years |                                          | $ | 175.2
|                                      |  |                                |   |  |                                 |       |                                             |            |                                          |   |      

As of March 31, 2007, there was $14.0 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 2.0 years.

Employee Stock Purchase Plan

For the quarters ended March 31, 2007 and 2006, we recorded approximately $1.1 million and $0.4 million, respectively, of compensation expense
related to the ESPP. During the quarter ended March 31, 2007 and 2006, 124,738 and 109,005 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
March 31, 2007, we have estimated that there is a probable likelihood of reaching this revenue target by December 31, 2007. The remaining unrecognized compensation costs related to these specific nonvested RSUs of $3.7 million will be
recognized ratably through December 31, 2007. During the quarter ended March 31, 2007, we have recorded $0.6 million 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 quarter ended March 31, 2007:



11



---

##### Table of Contents

|                              |  |                                 |   |  |                                        |      
|----------------------------- |  | ------------------------------- | - |  | -------------------------------------- | -----
|Nonvested RSUs                |  | 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
|                              |  |                                 |   |  |                                        |      

As of March 31, 2007, there was approximately $19.9 million of total unrecognized compensation cost
related to all nonvested RSUs granted under our stock compensation plans. That cost is expected to be recognized over a period of 2.0 years.

Stock
Appreciation Rights

As of March 31, 2007, there was approximately $2.1 million of total unrecognized compensation cost related to nonvested
SARs. That cost is expected to be recognized over a period of 1.75 years. We recorded $0.4 million and $0.5 million of compensation expense related to these SARs in the quarter ended March 31, 2007 and 2006, respectively. As of March 31,
2007 payments to date have been less than $0.1 million related to the 2005 SAR grants.

Valuation Assumptions

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



|                        |  |                         |   |  |      |  
|----------------------- |  | ----------------------- | - |  | ---- | -
|                        |  | Quarter Ended March 31, |  
|                        |  | 2007                    |   |  | 2006 |  
|Expected life (years)   |  | 6.2                     |   |  | 6.2  |  
|Risk-free interest rate |  | 4.7                     | % |  | 4.5  | %
|Volatility              |  | 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.

3. Condensed Consolidated Financial Statement Detail

Inventories

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



|                |  |                |        |                  |   |       
|--------------- |  | -------------- | ------ | ---------------- | - | ------
|                |  | March 31, 2007 |        | December 31 2006
|Raw materials   |  | $              | 3,234  |                  | $ | 3,469 
|Work in process |  |                | 12,106 |                  |   | 9,968 
|Finished goods  |  |                | 3,438  |                  |   | 2,438 
|                |  |                |        |                  |   |       
|Total           |  | $              | 18,778 |                  | $ | 15,875
|                |  |                |        |                  |   |       

The total stock-based compensation expense capitalized to inventory was less than $0.1 million each for the
quarters ended March 31, 2007 and 2006.

4. Litigation

We and certain of our officers and directors were named as defendants in a purported securities class action lawsuit filed in August 2003 in the U.S. District Court for the Northern District of California captioned Crossen v. CV
Therapeutics, Inc., et



12



---

##### Table of Contents

al. The lawsuit was brought on behalf of a purported class of purchasers of our securities, seeking unspecified damages. In December 2003, the court
consolidated all of the securities class actions filed to date into a single action captioned In re CV Therapeutics, Inc. Securities Litigation. In October 2006, we reached a preliminary agreement to settle this action. Under the terms of the
preliminary agreement, our insurers paid an aggregate of $13.5 million to settle all claims and to pay the court-approved fees of plaintiffs counsel, and the defendants received a complete release of all claims and expressly denied any
wrongdoing. Final court approval for the settlement was obtained in March 2007, and the appeals period expired in April 2007.

In addition, 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 as a nominal defendant. The
plaintiff in this action was a stockholder who sought to bring derivative claims on behalf of CV Therapeutics against the defendants. In November 2006, we reached a preliminary agreement to settle this action. Under the terms of the preliminary
agreement, we agreed to implement certain non-material corporate governance changes, and our insurers will pay 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 expires in May 2007.

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 the securities class action lawsuit. 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 5Accounting for
Contingencies, we have not recorded an associated liability.

5. Income Taxes

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 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. In the quarter ended March 31, 2007 we did not recognize any interest and penalties 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 quarter ended
March 31, 2007.



13



---

##### 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.

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 first quarter of 2007

In the first quarter of 2007, our total revenues were $15.3 million, an increase of 200% from total revenues of $5.1 million in the first quarter of 2006 and our net loss
was $55.1 million, a decrease of 22% from a net loss of $70.5 million in the first quarter of 2006.

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



| |  | In March 2007, we announced initial results for the MERLIN TIMI-36 clinical study of ranolazine, which showed that there was no adverse trend in death or
arrhythmias in patients on ranolazine, and that the study did not meet the primary efficacy endpoint relating to treatment of acute coronary syndromes (ACS). Based on these data and results, we do not plan to file a new drug application seeking
approval for Ranexa for the treatment of ACS. However, in accordance with our special protocol assessment agreement with the FDA relating to the MERLIN TIMI-36 clinical study, we believe the data and results could support FDA approval of expanded
labeling for Ranexa for first-line angina treatment.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Net product sales for the quarter ended March 31, 2007 was $12.0 million which represents an increase of 33%, compared to $9.0 million of net product sales
revenue recorded in the quarter ended December 31, 2006.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



14



---

##### Table of Contents

Developments Expected in the Future



| |  | One of our drug candidates, regadenoson, a selective A2A-adenosine receptor agonist for potential use as a pharmacologic agent in myocardial perfusion imaging studies, is in late-stage development. 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. Based on the positive results of these two Phase 3
clinical trials, we plan to submit a new drug application to the FDA in mid-2007 seeking approval for regadenoson for use as a pharmacologic stress agent in myocardial perfusion imaging studies.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| |  | 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 to reduce cautionary language and expand the indication to include first line angina treatment.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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.

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 and 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.



15



---

##### Table of Contents

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 earned or to be claimed on the related sales. In order to
prepare our condensed consolidated financial statements, we are required to make estimates regarding the amounts earned or to be claimed on the related product sales, including the following:



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



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



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



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



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

We believe our estimates related to chargebacks, cash discounts and distributor discounts do not have a high degree of estimation
complexity or uncertainty as the related amounts are settled within a relatively short period of time. We believe that product return allowances require a high degree of judgment. 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.



16



---

##### Table of Contents

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 March 31, 2007, our condensed consolidated balance
sheet reflected estimated gross-to-net sales reserves and accruals totaling approximately $3.6 million.

The following table summarizes revenue allowance
activity for the quarter ended March 31, 2007 (in thousands):



|                             |  |               |      |   |                     |   |        |                            |  |   |        |   |  |   |        |  
|---------------------------- |  | ------------- | ---- | - | ------------------- | - | ------ | -------------------------- |  | - | ------ | - |  | - | ------ | -
|                             |  | CashDiscounts |      |   | Product Returns (1) |   |        | ContractSalesDiscounts (2) |  |   | Total  |  
|Balance at December 31, 2006 |  | $             | (116 | ) |                     | $ | (894   | )                          |  | $ | (1,318 | ) |  | $ | (2,328 | )
|                             |  |               |      |  
|Revenue allowances:          |  |               |      |   |                     |   |        |                            |  |   |        |   |  |   |        |  
|Current period               |  |               | (287 | ) |                     |   | (575   | )                          |  |   | (1,516 | ) |  |   | (2,378 | )
|Payments and credits         |  |               | 265  |   |                     |   |       |                            |  |   | 808    |   |  |   | 1,073  |  
|                             |  |               |      |   |                     |   |        |                            |  |   |        |   |  |   |        |  
|Balance at March 31, 2007    |  | $             | (138 | ) |                     | $ | (1,469 | )                          |  | $ | (2,026 | ) |  | $ | (3,633 | )
|                             |  |               |      |   |                     |   |        |                            |  |   |        |   |  |   |        |  

---

|(1) | Reserve for return of expired products
|--- | --------------------------------------

|(2) | Includes certain customary launch related discounts, distributor discounts, Medicaid rebates, managed care rebates and chargebacks
|--- | ----------------------------------------------------------------------------------------------------------------------------------

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. We may revise our estimate of product returns in future periods. 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.

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.

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 March 31, 2007, we have estimated that there is a probable likelihood of reaching this revenue target by December 31, 2007. The remaining unrecognized
compensation costs related to these specific nonvested RSUs of $3.7 million will be recognized ratably through December 31, 2007. During the quarter ended March 31, 2007, we have recorded $0.6 million of accelerated compensation expense
related to the performance-based component of the award.

Legal Contingencies

As discussed in Note 4, 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 assess 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 March 31, 2007, we have not



17



---

##### Table of Contents

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.

Results of Operations

Revenues

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



|                       |  |                         |      |                        |   |     |  |   |      |   |  |      
|---------------------- |  | ----------------------- | ---- | ---------------------- | - | --- |  | - | ---- | - |  | -----
|                       |  | Quarter ended March 31, |      | Change from prior year
|                       |  | 2007                    |      | 2006                   |   | $   |  |   | %   
|Product sales, net     |  | $                       | 12.0 |                        | $ |    |  | $ | 12.0 |   |  | *    
|Collaborative research |  |                         | 3.3  |                        |   | 4.4 |  |   | (1.1 | ) |  | (25)%
|Co-promotion           |  |                         |     |                        |   | 0.7 |  |   | (0.7 | ) |  | *    
|                       |  |                         |      |                        |   |     |  |   |      |   |  |      
|Total revenues         |  | $                       | 15.3 |                        | $ | 5.1 |  | $ | 10.2 |   |  | 200% 
|                       |  |                         |      |                        |   |     |  |   |      |   |  |      

---

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

Product sales, net were $12.0 million in the
quarter ended March 2007 as a result of Ranexa product sales, which commenced in March 2006. Due to customary product launch return privileges on product sales to wholesalers during March 2006, we deferred recognition of Ranexa net product sales of
$5.0 million for the quarter ended March 31, 2006.

The decrease in collaborative research revenues was primarily due to a decrease in the amount of
reimbursable development costs incurred in connection with the completion of our two Phase 3 clinical trials undertaken in our collaboration with Astellas US LLC for the development of regadenoson. 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 the quarter ended March 31, 2006, we received co-promotion revenue of $0.7 million 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 dollar and percentage changes as compared to the prior year are as follows (dollar amounts are presented in millions):



|              |  |                         |     |                        |   |   |  |   |     |  |  
|------------- |  | ----------------------- | --- | ---------------------- | - | - |  | - | --- |  | -
|              |  | Quarter ended March 31, |     | Change from prior year
|              |  | 2007                    |     | 2006                   |   | $ |  | %
|Cost of sales |  | $                       | 1.6 |                        | $ |  |  | $ | 1.6 |  | *

---

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

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 $10.3
million as of March 31, 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.



18



---

##### Table of Contents

Research and Development Expenses

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



|                                  |  |                         |      |                        |   |      |  |   |      |   |  |      
|--------------------------------- |  | ----------------------- | ---- | ---------------------- | - | ---- |  | - | ---- | - |  | -----
|                                  |  | Quarter ended March 31, |      | Change from prior year
|                                  |  | 2007                    |      | 2006                   |   | $    |  |   | %   
|Research and development expenses |  | $                       | 27.2 |                        | $ | 31.5 |  | $ | (4.3 | ) |  | (14)%

The decrease in R&D expenses in the quarter ended March 31, 2007 compared to the quarter ended
March 31, 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 higher personnel related expenses in our R&D organization.

With the completion of the MERLIN TIMI-36 clinical study and the second
regadenoson Phase 3 study, we expect R&D expenses in 2007 to be approximately $30 million below 2006 levels. However, in 2007, we still expect to incur substantial R&D expenses associated with the MERLIN TIMI-36 clinical study and the
planned 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, and those projects still represent approximately 50% of our total R&D budget for 2007.

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):



|                  |  |                         |      |      |   |     
|----------------- |  | ----------------------- | ---- | ---- | - | ----
|                  |  | Quarter ended March 31,
|                  |  | 2007                    |      | 2006
|Ranolazine        |  | $                       | 13.6 |      | $ | 16.1
|Regadenoson       |  |                         | 5.0  |      |   | 6.7 
|Other projects    |  |                         | 8.6  |      |   | 8.7 
|                  |  |                         |      |      |   |     
|Total R&D expense |  | $                       | 27.2 |      | $ | 31.5
|                  |  |                         |      |      |   |     

Selling, General and Administrative Expense

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



|                                             |  |                         |      |                        |   |      |  |   |      |   |  |     
|-------------------------------------------- |  | ----------------------- | ---- | ---------------------- | - | ---- |  | - | ---- | - |  | ----
|                                             |  | Quarter ended March 31, |      | Change from prior year
|                                             |  | 2007                    |      | 2006                   |   | $    |  |   | %   
|Selling, general and administrative expenses |  | $                       | 42.4 |                        | $ | 44.8 |  | $ | (2.4 | ) |  | (5)%

The decrease in SG&A expenses in the quarter ended
March 31, 2007 compared to the quarter ended March 31, 2006 was primarily due to lower external marketing expenses relating to ACEON®, which we no longer co-promote offset by additional personnel and related expenses incurred in conjunction with maintaining a national cardiovascular specialty sales force and
higher headcount related expenses in other areas to support our increased commercialization activities.

We expect our SG&A expenses to be largely flat
in 2007 compared to 2006.

Interest and Other Income, Net

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



|                               |  |                         |     |                        |   |     |  |   |     |  |   
|------------------------------ |  | ----------------------- | --- | ---------------------- | - | --- |  | - | --- |  | --
|                               |  | Quarter ended March 31, |     | Change from prior year
|                               |  | 2007                    |     | 2006                   |   | $   |  | %
|Interest and other income, net |  | $                       | 4.0 |                        | $ | 3.9 |  | $ | 0.1 |  | 3%



19



---

##### Table of Contents

The increase in interest and other income, net in the quarter ended March 31, 2007 compared to the quarter ended
March 31, 2006 was primarily due to higher bond premium amortization offset by 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 dollar and percentage changes as compared to the prior year are as follows (dollar amounts are presented in millions):



|                 |  |                         |     |                        |   |     |  |   |     |  |   
|---------------- |  | ----------------------- | --- | ---------------------- | - | --- |  | - | --- |  | --
|                 |  | Quarter ended March 31, |     | Change from prior year
|                 |  | 2007                    |     | 2006                   |   | $   |  | %
|Interest expense |  | $                       | 3.2 |                        | $ | 3.2 |  | $ | 0.0 |  | 0%

Interest expense in the quarter ended March 31, 2007 compared to the quarter ended March 31, 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.

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. In the quarter ended
March 31, 2007 we did not recognize any interest and penalties recognized 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 has been no material changes in our unrecognized tax benefit during the quarter ended March 31, 2007.

Liquidity and Capital Resources



|                                                 |  |                         |       |   |                   |   |       |  
|------------------------------------------------ |  | ----------------------- | ----- | - | ----------------- | - | ----- | -
|                                                 |  | As of                   |      
|(in millions)                                    |  | March 31, 2007          |       |   | December 31, 2006 |  
|Cash, cash equivalents and marketable securities |  | $                       | 257.9 |   |                   | $ | 325.2 |  
|                                                 |  |                         |       |   |                   |   |       |  
|                                                 | 
|                                                 |  | Quarter ended March 31, |      
|                                                 |  | 2007                    |       |   | 2006              |  
|Cash flows:                                      |  |                         |       |   |                   |   |       |  
|Net cash used in operating activities            |  | $                       | (70.9 | ) |                   | $ | (87.4 | )
|Net cash provided by investing activities        |  | $                       | 66.7  |   |                   | $ | 80.4  |  
|Net cash provided by financing activities        |  | $                       | 3.9   |   |                   | $ | 4.8   |  

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



20



---

##### Table of Contents

As of March 31, 2007, we had cash, cash equivalents and marketable securities of $257.9 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.
We are currently reviewing all of our operating expenses with the goal of identifying and implementing reductions in operating expenses over the coming quarters. Until our review is completed and potential reductions are identified, we are
estimating total costs and expenses for 2007, not including cost of sales, to be between $275.0 million and $285.0 million, compared to $312.5 million in 2006. With the completion of the MERLIN TIMI-36 clinical study and the second regadenoson Phase
3 study, we expect R&D expenses in 2007 to be approximately $30.0 million below 2006 levels. However, in 2007, we still expect to incur substantial R&D expenses associated with the MERLIN TIMI-36 clinical study and the planned 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,
and those projects still represent approximately 50% of our total R&D budget for 2007. We expect our SG&A expenses to be largely flat in 2007 compared to 2006. 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 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 $7.87 closing price of our common stock on
March 30, 2007, the maximum additional aggregate net proceeds that we could receive under the purchase agreement with Azimuth would be approximately $46.4 million.

Net cash used in operating activities was $70.9 million for the quarter ended March 31, 2007, and resulted primarily from our net loss, adjusted for changes in accrued and other liabilities primarily related to
year-end payouts for certain compensation-related accruals and payments to our clinical trial vendors related to the MERLIN TIMI-36 clinical study, accounts payable, prepaids, cash used in inventory production and other current assets. These were
offset in part by changes in non-cash expenses primarily related to stock-based compensation and depreciation. Net cash used in operating activities was $87.4 million for the quarter ended March 31, 2006, and resulted primarily from our net
loss adjusted for changes in accrued and other liabilities, increases in accounts receivable and inventory balances associated with the companies product launch and changes in prepaid and other assets offset by and non-cash expenses primarily
related to stock-based compensation and cash from recognition of deferred revenue.

Net cash provided by investing activities of $66.7 million in the
quarter ended March 31, 2007 consisted primarily of maturities and sales of marketable securities of $67.5 million offset by capital expenditures of $0.9 million. Net cash provided by investing activities of $80.4 million in the quarter ended
March 31, 2006 consisted primarily of proceeds from sales and maturities of marketable securities of $84.0 million, partially offset capital expenditures of $3.7 million. In the future, net cash provided by or used in investing activities may
fluctuate from period to period due to the timing of maturities, sales or purchases of marketable securities and payments for capital expenditures.

Net
cash provided by financing activities of $3.9 million in the quarter ended March 31, 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 $4.8 million in the quarter ended March 31, 2006 was primarily due to changes in restricted cash and net proceeds related to stock issued through our ESPP and
exercises of employee stock options.



21



---

##### Table of Contents

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 March 31, 2007 (in thousands):



|                              |  |      |      |      |   |      |  |      |      |      |   |            |  |       |      |  |   |       |  |   |      
|----------------------------- |  | ---- | ---- | ---- | - | ---- |  | ---- | ---- | ---- | - | ---------- |  | ----- | ---- |  | - | ----- |  | - | -----
|                              |  | 2007 |      | 2008 |   | 2009 |  | 2010 |      | 2011 |   | Thereafter |  | Total
|Convertible notes (1) (2)     |  | $    | 8.3  |      | $ | 11.0 |  | $    | 11.0 |      | $ | 109.0      |  | $     | 9.0  |  | $ | 308.9 |  | $ | 457.2
|Manufacturing obligations (3) |  |      | 7.9  |      |   | 2.7  |  |      | 1.2  |      |   |           |  |       |     |  |   |      |  |   | 11.8 
|Operating leases (4)          |  |      | 8.7  |      |   | 13.3 |  |      | 13.6 |      |   | 15.2       |  |       | 15.4 |  |   | 22.6  |  |   | 88.8 
|                              |  |      |      |      |   |      |  |      |      |      |   |            |  |       |      |  |   |       |  |   |      
|                              |  | $    | 24.9 |      | $ | 27.0 |  | $    | 25.8 |      | $ | 124.2      |  | $     | 24.4 |  | $ | 331.5 |  | $ | 557.8
|                              |  |      |      |      |   |      |  |      |      |      |   |            |  |       |      |  |   |       |  |   |      

---

|(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 the cardiovascular indication, as defined in the agreement, in a major market country or Japan, we
will owe a payment of $5.0 million to Roche. We are also obligated to make royalty payments to Roche on worldwide net product sales of any licensed products, including any net product sales in Asia.

Under our license and settlement agreement with another vendor, we are obligated to pay this vendor $4 per kilogram on ranolazine API 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
Therapeutics, Inc. (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 March 31, 2007, we had cash, cash equivalents and marketable securities of $257.9 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



22



---

##### Table of Contents

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. We are currently reviewing all of
our operating expenses with the goal of identifying and implementing reductions in operating expenses over the coming quarters. Until our review is completed and potential reductions are identified, we are estimating total costs and expenses for
2007, not including cost of sales, to be between $275.0 million and $285.0 million, compared to $312.5 million in 2006. With the completion of the MERLIN TIMI-36 clinical study and the second regadenoson Phase 3 study, we currently expect R&D
expenses in 2007 to be approximately $30 million below 2006 levels. However in 2007, we still expect to incur substantial R&D expenses associated with the MERLIN TIMI-36 clinical study and the planned 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 and those projects still
represent approximately 50% of our total R&D budget for 2007. We expect our SG&A expenses to be largely flat in 2007 compared to 2006. 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 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. 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 $7.87 closing price of our common stock on March 30, 2007, the maximum additional aggregate net proceeds that we could receive under the purchase agreement with Azimuth
would be approximately $46.4 million.

We have experienced significant operating losses since our inception in 1990, including net losses of $55.1 million
for the quarter ended March 31, 2007, $274.3 million in 2006, $228.0 million in 2005 and $155.1 million in 2004. As of March 31, 2007, we had an accumulated deficit of $1,141.9 million. The process of developing and commercializing our
products requires significant R&D work, including preclinical testing and clinical trials, as well as regulatory submissions and approvals, significant marketing and sales efforts, and manufacturing capabilities. These activities, together with
our general and administrative expenses, require significant investments and are expected to continue to result in significant operating losses for the foreseeable future. To date, the revenues we have recognized relating to our only approved
product, Ranexa, have been limited, and have not been sufficient for us to achieve profitability or fund our operations, including our research, development and commercialization activities relating to Ranexa and our product candidates. The revenues
that we expect to recognize for the foreseeable future relating to Ranexa will not be sufficient for us to achieve or sustain profitability or maintain operations at our current levels or at all.

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

Our future capital requirements and our ability to raise capital in the future will depend on many other factors, including our product revenues, the costs of
commercializing our products, progress in our R&D programs, the size and complexity of these programs, the timing, scope and results of preclinical studies and clinical trials, our ability to establish and maintain collaborative partnerships,
the time and costs involved in obtaining regulatory approvals, the costs involved in filing, prosecuting and enforcing patent claims, competing technological and market developments, the cost of manufacturing commercial and clinical materials and
other factors not within our control. If we are not able to obtain FDA approval of 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



23



---

##### Table of Contents

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 January 2007, in association with December 2006 grants, we announced that in accordance
with Nasdaq Marketplace Rule 4350, we granted 24 non-executive employees inducement stock options covering an aggregate of 84,500 shares of common stock under our 2004 Employment Commencement Incentive Plan. All of 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). In February 2007, in accordance with Nasdaq Marketplace Rule 4350, we granted 23 non-executive employees inducement stock options covering an aggregate of 32,600 shares of common stock under our
2004 Employment Commencement Incentive Plan. These inducement stock options are classified as non-qualified stock options with an exercise price equal to the fair market value on the grant date. The 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 United States (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 March 31, 2007, there were no material changes in these
market risks since December 31, 2006.

Our long-term debt at March 31, 2007 includes $100.0 million of our 2.0% senior subordinated convertible
debentures due May 2023, $150.0 million of our 2.75% senior subordinated convertible notes due May 2012, and $149.5 million of our 3.25% senior subordinated convertible notes due August 2013. Interest on the 2.0% senior subordinated
convertible debentures is fixed and payable semi-annually on May 16 and November 16 each year. Interest on the 2.75% senior subordinated convertible notes is fixed and payable semi-annually on May 16 and November 16 each year.
Interest on the 3.25% senior subordinated convertible notes due 2013 is fixed and payable semi-annually on February 16 and August 16 each year. All the notes and debentures are convertible into shares of our common stock at any time prior
to maturity, unless previously redeemed or repurchased, subject to adjustment in certain events.

The table below presents the amounts and related average
interest rates of our investment portfolio and our long-term debt as of March 31, 2007:



|                                                    |  |                      |   |  |                       |       
|--------------------------------------------------- |  | -------------------- | - |  | --------------------- | ------
|                                                    |  | AverageInterest Rate |   |  | Estimated MarketValue
|($ in thousands)                                    |  |                      |   |  |                      
|Cash equivalents:                                   |  |                      |   |  |                       |       
|Fixed rate                                          |  | 5.29                 | % |  | $                     | 60,969
|Variable rate                                       |  | 5.20                 | % |  |                       | 15,105
|Marketable securities portfolio:                    |  |                      |   |  |                       |       
|Fixed rate (mature in 2007)                         |  | 4.50                 | % |  |                       | 95,536
|Variable rate (mature in 2007)                      |  | 5.35                 | % |  |                       | 4,000 
|Fixed rate (mature in 2008)                         |  | 4.79                 | % |  |                       | 57,730
|Variable rate (mature in 2008)                      |  | 5.35                 | % |  |                       | 2,000 
|Fixed rate (mature in 2009)                         |  | 4.89                 | % |  |                       | 21,322
|Long-term debt:                                     |  |                      |   |  |                       |       
|Senior subordinated convertible debentures due 2023 |  | 2.00                 | % |  |                       | 83,250
|Senior subordinated convertible notes due 2012      |  | 2.75                 | % |  |                       | 80,375
|Senior subordinated convertible notes due 2013      |  | 3.25                 | % |  |                       | 76,500



24



---

##### Table of Contents

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 quarter ended March 31, 2007 and 2006, we incurred less than $0.1 million of
non-U.S. dollar expenses. As reported in U.S. dollars, our foreign currency losses for the quarter ended March 31, 2007 and 2006, were less than $0.1 million.



25



---

##### Table of Contents

|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.



26



---

##### Table of Contents

PART II. OTHER INFORMATION



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

We and certain of our officers and directors
were named as defendants in a purported securities class action lawsuit filed in August 2003 in the U.S. District Court for the Northern District of California captioned Crossen v. CV Therapeutics, Inc., et al. The lawsuit was brought on
behalf of a purported class of purchasers of our securities, seeking unspecified damages. In December 2003, the court consolidated all of the securities class actions filed to date into a single action captioned In re CV Therapeutics, Inc.
Securities Litigation. In October 2006, we reached a preliminary agreement to settle this action. Under the terms of the preliminary agreement, our insurers paid an aggregate of $13.5 million to settle all claims and to pay the court-approved
fees of plaintiffs counsel and the defendants received a complete release of all claims and expressly denied any wrongdoing. Final court approval for the settlement was obtained in March 2007, and the appeals period expired in April 2007.

In addition, 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 as a nominal defendant. The plaintiff in this action was a stockholder who sought to bring derivative claims on behalf of CV Therapeutics against the
defendants. In November 2006, we reached a preliminary agreement to settle this action. Under the terms of the preliminary agreement, we agreed to implement certain non-material corporate governance changes, and our insurers will pay 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 expires in May
2007.

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 the securities class action lawsuit. 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 $55.1 million for the quarter ended March 31, 2007, $274.3 million in 2006, $228.0 million in 2005 and $155.1 million in 2004. As of March 31, 2007, we had an accumulated deficit of $1,141.9 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;
| | - |  | ---------------------------------------------------------------



27



---

##### Table of Contents

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



| |  |  | 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 commercialize our products or continue our research and development activities or other operations at current levels.

As of March 31, 2007, we had cash, cash equivalents and marketable securities of $257.9 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. 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 2007, not including cost of sales, to be between $275.0 million and $285.0 million, compared to $312.5 million in 2006. With the completion of the MERLIN TIMI-36 clinical study and the second regadenoson Phase 3 study, we currently
expect R&D expenses in 2007 to be approximately $30 million below 2006 levels. However, in 2007, we still expect to incur substantial R&D expenses associated with the MERLIN TIMI-36 clinical study and the planned submission and prosecution
of regulatory approval applications in the United State for both Ranexa and regadenoson, as well as ongoing prosecution of the approval application for ranolazine already submitted to European regulatory authorities, and those projects still
represent approximately 50% of our total R&D budget for 2007. We expect our SG&A expenses to be largely flat in 2007 compared to 2006. However, changing circumstances may cause us to consume capital significantly faster than we currently
anticipate.

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 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.



28



---

##### Table of Contents

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



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



| |  |  | 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. 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 proceeds, net of issuance costs, 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 $7.87 closing price of our common stock on March 30, 2007,
the maximum additional aggregate net proceeds that we could receive under the purchase agreement with Azimuth would be approximately $46.4 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. Although we co-promoted ACEON®in the
United States until October 2006, Ranexa is currently our only commercial product, and we expect that Ranexa will account for all of our product sales for the next several years unless we obtain rights to other approved products. In order for us to
successfully commercialize Ranexa, our



29



---

##### Table of Contents

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 to invest significant amounts of capital in the development of Ranexa, especially through our MERLIN TIMI-36 clinical trial, which was a large and costly outcomes study.

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 and
unproven 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. 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.

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 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 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. In addition, exploratory analyses of secondary efficacy endpoints showed significant reductions in worsening angina and the need to
increase anti-anginal medications 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. There were
175 deaths from any cause in the placebo-treated group, compared with 172 deaths from any cause in the Ranexa-treated group. Sudden cardiac death occurred in 65 patients receiving placebo, compared with 56 patients receiving Ranexa. Symptomatic
documented arrhythmias were reported in 102 patients receiving placebo and 99 patients receiving Ranexa, and there was a significant reduction in clinically significant arrhythmias observed during 7-day Holter monitoring in patients receiving
Ranexa, compared to patients receiving placebo. Patients receiving Ranexa also experienced significant reductions in clinically significant ventricular arrhythmias, as observed during 7-day Holter monitoring, compared to patients receiving placebo.
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.

Under our special protocol assessment agreement with the FDA relating to the MERLIN TIMI-36 clinical study, the FDA
agreed that this study could support potential approval of Ranexa as first-line therapy for patients suffering from chronic angina if treatment with Ranexa is not associated with an adverse trend in death and arrhythmia compared to placebo, even if
statistical significance for the primary efficacy endpoint in the study is not achieved. 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



30



---

##### Table of Contents

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 for review in the fall of 2007, 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 will result. Even if the FDA approves 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).

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 the 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.

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. We also 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 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 the data and results from the MERLIN TIMI-36 clinical study (or the separate
clinical evaluation of higher doses of Ranexa), or whether Ranexa will receive any additional regulatory approvals or any expanded or otherwise improved product labeling as a result of these clinical study(ies) 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 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, and 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 market acceptance, 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;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the success of ongoing development programs relating to our products, especially our MERLIN TIMI-36 clinical trial of Ranexa, for which we obtained initial data and
results in March 2007;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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 in the fall of 2007 including data and results from the MERLIN TIMI-36 clinical study;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



31



---

##### Table of Contents

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



| |  |  | the extent to which physicians do or do not prescribe a product to the full extent encompassed by 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 could adversely affect 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 treatment angina 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.



32



---

##### Table of Contents

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 benefit and risk of the product do not favor wider or any usage, and may reserve the use of the product for only a small group of patients with chronic angina, or not use the product at all,
resulting in lower product acceptance and lower product revenues.

In addition to approving product labeling, the FDA typically reviews core promotional
materials for our products. We obtained the FDAs review of our key promotional materials in connection with the 2006 launch of Ranexa, and 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.

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. Relatively few U.S. physicians served as investigators in the clinical studies of Ranexa; as a result, only a relatively limited number of U.S. healthcare practitioners
are familiar with using Ranexa, even in a clinical trial setting.

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.

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.

We may increase or decrease the size of
our sales force in the future, depending on many factors, including the effectiveness of the sales force, the level of market acceptance of Ranexa, and 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, which we plan to submit to the FDA in the fall of 2007. Developing and implementing key marketing messages and programs, as well as deploying, retaining and managing a
national sales force and additional personnel, is very expensive, complex and time-consuming. We do not know if our marketing strategies and programs will be effective. We also do not know if our sales force is sufficient in size, scope or
effectiveness to compete successfully in the marketplace and gain acceptance for Ranexa. Among other factors, we may not be able to gain sufficient access to healthcare practitioners, which would have a negative effect on our ability to promote
Ranexa and gain market acceptance. Even if we gain access to healthcare practitioners, we may not be able to change prescribing patterns in favor of Ranexa. For example, our marketing and sales efforts relating to ACEON®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.



33



---

##### Table of Contents

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 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



34



---

##### Table of Contents

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. There may also be potentially competitive products of which we are not aware. 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 may 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. If we fail to obtain 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



35



---

##### Table of Contents

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 will be 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. 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 exclusion of the product from coverage under governmental healthcare programs, including Medicare and Medicaid. If the government
were to investigate or make allegations against us or any of our employees, or sanction or convict us or any of our employees, for violations of any of these legal requirements, this could have a material adverse effect on our business, including
our stock price. Similarly, under our license and collaboration arrangement with respect to regadenoson, if Astellas becomes subject to investigation, allegation or sanction, our ability to continue to obtain revenues from its sale, if approved,
could be seriously impaired or stopped altogether.



36



---

##### Table of Contents

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 is substantially dependent on the successful and timely performance of our strategic collaborative partners and other vendors, over whom we have little 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 LLC (formerly Fujisawa Healthcare, Inc.)a 2000 collaboration and license agreement to develop and commercialize second generation pharmacologic
cardiac stress agents, including regadenoson.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The successful commercialization of our regadenoson program and of the Adentri
program each depend significantly on the efforts of our collaborative partners for each of these programs. For example, under our agreement with Astellas, Astellas is responsible for the commercial manufacture and distribution, marketing and sales
of regadenoson in North America, if regadenoson is approved. Biogen Idec has sole responsibility for all worldwide development and commercialization of products from the Adentri program, if any.

We cannot control the amount and timing of resources that any of our strategic partners devote to these programs. Conflicting priorities may cause any of our strategic
partners to deemphasize our programs or to pursue competing technologies or product candidates. 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, 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.



37



---

##### Table of Contents

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

We do not operate, and have no current plans to develop, any manufacturing facilities, and we currently lack the resources and capability to
manufacture any of our products ourselves on a clinical or commercial scale. As a result, we are dependent on corporate partners, licensees, contract manufacturers and other third parties for the manufacturing 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. In addition, under our agreement with Astellas relating to regadenoson, Astellas is 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 contract manufacturers 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.

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 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 European regulatory authorities, including additional data and results from studies conducted after March 2004.



38



---

##### Table of Contents

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 intend to submit a new drug application to this FDA review division in mid-2007. The
FDA transfer of review responsibility for the program could disrupt ongoing and anticipated communications with the FDA. We do not know if the new review division will adhere to key agreements on the development program that were discussed and
agreed to previously with the prior review division (and with whom we did not negotiate any special protocol assessment agreement for this program), such as the Phase 3 study design, which is a novel approach to the evaluation of a pharmacological
stress agent. As a result of this transfer, our ability to submit a new drug application, if any, and/or 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.



39



---

##### Table of Contents

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 test 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 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 complete and 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



40



---

##### Table of Contents

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 has been
conducted in the United States and in 16 foreign countries. Our regadenoson development program has also included numerous foreign clinical trial sites. Our business would be harmed if the completion, availability or quality of the results of our
MERLIN TIMI-36 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.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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



41



---

##### Table of Contents

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 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 presently 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
that relate to intravenous ranolazine product(s) or 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
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



42



---

##### Table of Contents

| | 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 patent filings.

In addition,
generic challenges and related patent litigation are common in the biopharmaceutical industry. 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 a third party filed a
patent infringement lawsuit against several generic companies 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. A decision in the patent litigation relating to Adenoscan®(adenosine injection), or the end of the up to 30-month stay related to this litigation, should occur before any potential approval,
if any, of a new drug application for regadenoson, which could negatively impact Astellas transition from marketing one product to the second generation regadenoson product, if it is approved. 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.

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.

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



43



---

##### Table of Contents

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 chief executive officer. 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 data and results of our MERLIN TIMI-36
study, the reactions of employees, customers and regulatory authorities to these data and results, and our ability to substantially increase sales of Ranexa over time.

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

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

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

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



44



---

##### Table of Contents

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 Securities and Exchange Commission, or 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. In addition, we are required to have our independent auditors attest to and report on managements assessment of the effectiveness of our 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 collaborative partners 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 $19.73 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;
| | - |  | ---------------------------------------



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



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



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



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



45



---

##### Table of Contents

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



| |  |  | 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, such as the results of the MERLIN TIMI-36 study (for which we announced initial results in March 2007), 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 March 31, 2007, we had approximately $399.5 million in long-term convertible debt and
aggregate annual debt service obligations on this debt of approximately $11.0 million. If we issue other debt securities in the future, our debt service obligations and interest expense will increase. We intend to fulfill our debt service
obligations from our existing cash and investments. In the future, if we are unable to generate cash or raise additional cash through financings sufficient to meet these obligations and need to use existing cash or liquidate investments in order to
fund these obligations, we may have to delay or curtail research, development and commercialization programs. In addition, our failure to comply with the covenants and conditions in the indentures covering our convertible debt, such as our failure
to make timely interest payments or our failure to timely file periodic reports required under the Securities Exchange Act of 1934, as amended, could trigger a default under our convertible debt. Any default could result in the acceleration of the
payment of all of our outstanding debt, which would have a material adverse effect on our cash position and on our ability to maintain operations at our current levels or at all.

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



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



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



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



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

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

We may from time to time issue additional shares of
common stock at a discount from the current trading price of our common stock. As a result, our existing common stockholders will experience immediate dilution upon the purchase of any shares of our common stock sold at such discount. For example,
in April 2006, we entered into a common stock purchase agreement with Azimuth, which provides that, upon the terms and subject to the conditions set forth in the purchase



46



---

##### Table of Contents

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. We entered into such severance agreements with these executives. Subsequently, in November 2002 the board
approved additional as well as amended executive severance agreements and a severance plan, and 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 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.



47



---

##### Table of Contents

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



|               |  |                                                                                                                                                                                                                                                    
|-------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  |                                                                                                                                                                                                                                                    
|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).                                                                               
|               | 
|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.                                                                                                   



48



---

##### Table of Contents

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



49