##### 



UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, D.C.
    20549
  Form 10-K
  (Mark One)þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    December 31, 2006ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to   Commission File Number
    000-50851
  NEW RIVER PHARMACEUTICALS
    INC.
 (Exact name of registrant as
    specified in its charter)
  Virginia

54-1816479(State or other Jurisdiction
    of
    incorporation or organization)

(I.R.S. employer
    identification no.)1881 Grove Avenue
    Radford, Virginia(Address of principal
    executive offices)

24141(zip code)  (540)
    633-7978
 (Registrants telephone number including area code)
  Securities registered pursuant to Section 12(b) of the
    Act:
  Title of Each Class

Name of Each Exchange on Which RegisteredCommon Stock

The NASDAQ Stock Market LLC   Securities registered pursuant to Section 12(g) of the
    Act:
 (Title of
    class)
   þ o
  o þ
  þ o
  Form 10-K Form 10-K. þ
  Rule 12b-2
 o þ o
  Rule 12b-2 o þ




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TABLE OF
    CONTENTS
  PART IITEM 1.


BUSINESS


3ITEM 1A.


RISK
    FACTORS


25ITEM 1B.


UNRESOLVED STAFF
    COMMENTS


43ITEM 2.


PROPERTIES


43ITEM 3.


LEGAL
    PROCEEDINGS


43ITEM 4.


SUBMISSION OF
    MATTERS TO A VOTE OF SECURITY HOLDERS


43ITEM 5.


MARKET FOR
    REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
    ISSUER PURCHASES OF EQUITY SECURITIES


44ITEM 6.


SELECTED FINANCIAL
    DATA


46ITEM 7.


MANAGEMENTS
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATIONS


47ITEM 7A.


QUANTITATIVE AND
    QUALITATIVE DISCLOSURES ABOUT MARKET RISK


58ITEM 8.


FINANCIAL
    STATEMENTS AND SUPPLEMENTARY DATA


58ITEM 9.


CHANGES IN AND
    DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
    DISCLOSURE


58ITEM 9A.


CONTROLS AND
    PROCEDURES


59ITEM 9B.


OTHER
    INFORMATION


60ITEM 10.


DIRECTORS AND
    EXECUTIVE OFFICERS OF THE REGISTRANT


60ITEM 11.


EXECUTIVE
    COMPENSATION


66ITEM 12.


SECURITY OWNERSHIP
    OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
    STOCKHOLDER MATTERS


80ITEM 13.


CERTAIN
    RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
    INDEPENDENCE


83ITEM 14.


PRINCIPAL
    ACCOUNTANT FEES AND SERVICES


84ITEM 15.


EXHIBITS AND
    FINANCIAL STATEMENT SCHEDULES


85SIGNATURES





86    Form 10-K Form 10-K), Form 10-K Form 10-K
 2




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PART I  ITEM 1.
    BUSINESS  Overview
      Top-Up Top-Up Top-Up Top-Up Top-Up Top-Up
  and/or
   3




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##### 



Hart-Scott-Rodino
  out-of-pocket
    Form 10-K
      Form 10-K
  ®
 4




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##### 



General.
   5




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##### 



Market
    Opportunity
    higher-than-prescribed higher-than-prescribed
        Our
    Solution
   6




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##### 



Advantageous patent treatment.
  Potentially favorable development
    pathways. d-amphetamine, d-amphetamine,
  Broad applicability. sub-optimal
  Strategy
    Bringing our lead products to
    market.
 7




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##### 



Overview
  Seeking intellectual property protection for our platform
    and drug candidates.
  Seeking shortened development and regulatory approval
    pathways. d-amphetamine, d-amphetamine,
  Entering into collaborations to maximize the value of our
    Carrierwave platform with respect to other
    products.
  Our Drug
    Development Programs
      Vvyanse
  Overview.
 8




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24-month
 9




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Vyvanse Development.
    13-17
    ®
 10




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##### 



12-hour
    End-of-Phase II
        
    Vyvanse has oral bioavailability similar to a currently marketed
    amphetamine product.
    The serum concentrations of Vyvanse are within established
    parameters.
    Vyvanses side effect profile appears similar to those of
    currently marketed products.
    Vyvanse may provide once per day dosing without additional
    formulation.    
    release amphetamine in therapeutic amounts when taken orally;
    result in a significantly lower maximum drug concentration in
    the blood than amphetamine when administered in higher than
    therapeutic doses;
    have sustained release properties;
    have diminished levels of absorption when administered
    intranasally or intravenously; 11




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
    have reduced acute toxicity compared to amphetamine; and
    have resistance to mechanical, thermal and chemical methods of
    releasing the active pharmaceutical ingredient.        12-60 mg/kg),
  28-day
  NRP290
  Overview.
 12




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NRP290 Development.
            
    Comparable oral bioavailability.  In rat
    studies, we examined blood levels of hydrocodone following oral
    administration of equal amounts of hydrocodone or NRP290 at a
    dose approximating human therapeutic dose ranges. The overall
    release of hydrocodone from NRP290 (AUC) was approximately 13




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equal to that of hydrocodone, and levels of hydrocodone released
    from NRP290 remained elevated for a longer period of time. These
    results suggest that NRP290 may have bioavailability comparable
    to that of current formulations of hydrocodone.  
    Less potential for dependence and abuse.  In
    the same study, the Cmax for NRP290 was significantly reduced in
    higher than therapeutic doses as compared to hydrocodone. This
    lower Cmax suggests that our compound may provide a reduced
    potential to generate a sense of euphoria at onset when compared
    to hydrocodone, making it potentially less attractive to abusers
    and less likely to lead to psychological addiction by reducing
    the initial euphoric effect that can be achieved with
    hydrocodone. In other rat studies, we investigated the potential
    for active drug substance to be released from NRP290 when
    administered intravenously or intranasally at a dose that would
    be therapeutic if taken orally. In both cases, while some
    quantity of hydrocodone was released, the AUC, Cmax and total
    amount of active drug substance released were significantly less
    than for hydrocodone administered via the same route and in an
    equivalent quantity. As a result, we believe that NRP290 may
    reduce the incentives to abuse the product by circumventing the
    oral route of administration.
    Less potential for overdose.  We conducted rat
    studies to evaluate the effects of administering greater than
    therapeutic dose levels of both NRP290 and hydrocodone. In these
    studies increased doses of our CBD resulted in little increase
    in blood levels of hydrocodone. In contrast, blood levels of
    hydrocodone increased proportionally when increased doses of
    hydrocodone itself were administered. These studies suggest that
    NRP290 may provide substantial protection against accidental and
    intentional overdose.  NRP409
      Other
    Development Projects
     14




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Other
    Areas of Research
      Research
    and Development
    Manufacturing
    Sales and
    Marketing
  24-month
 15




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Patents
    and Proprietary Rights
    continuation-in-part and/or continuation-in-part
        continuation-in-part,
 16




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Competition
     17




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Government
    Regulation
  Summary
      New
    drug applications
    Completion of preclinical
    investigations.
  Submission of an IND.
 18




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Completion of human clinical
    trials.
    and/or
   19




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Our
    regulatory strategy
  d-amphetamine, d-amphetamine,
  and/or and/or
   20




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Other
    regulatory constraints
         21




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DEA
    regulation
        and/or
 22




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Product
    Liability Insurance
    Employees
      Executive
    Officers
  Form 10-K:
  Name

Age


PositionRandal J. Kirk


53


Chairman of the Board, President
    and Chief Executive Officer (principal executive officer)Krish S. Krishnan


42


Chief Operating Officer, Chief
    Financial Officer, Secretary and Director (principal financial
    and accounting officer)Garen Z. Manvelian, M.D.


43


Chief Medical Officer, Vice
    President Clinical and Regulatory AffairsJohn K.
    Thottathil, Ph.D.


54


Chief Scientific OfficerSuma M. Krishnan


41


Vice President, Product DevelopmentSamir D. Roy, Ph.D.


48


Vice President, Product DevelopmentOther OfficersClifton R. Herndon II


39


Vice President, Finance and
    Controller   Randal J. Kirk
 23




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Krish S. Krishnan start-up
  Garen Z. Manvelian, M.D
  John K. Thottathil, Ph.D.,
  Suma M. Krishnan
 24




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Samir D. Roy, Ph.D.,
  Clifton R. Herndon II
    Available
    Information and Corporate Governance Documents.
  Form 10-K, Form 10-Q, Form 8-K
  ITEM 1A.
    RISK
    FACTORS  Risk
    Factors Related to Our Business
  Except for the historical information contained in this
    annual report on
    Form 10-K,
    this annual report on
    Form 10-K
    contains forward-looking statements that involve risks and
    uncertainties. Our actual results may differ materially from
    those discussed here. Factors that could cause or contribute to
    differences in our actual results include those discussed in the
    following section, as well as those discussed in Item 7
    under the section entitled Managements Discussion
    and Analysis of Financial Condition and Results of
    Operations and elsewhere throughout this annual report on
    Form 10-K.
    You should consider carefully the following risk
 25




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Form 10-K.
  We
    have a history of operating losses and may incur additional
    substantial losses in 2007. We may never achieve
    profitability.
        
    developing and testing product candidates;
    receiving regulatory approvals;
    commercializing our products; and
    establishing a favorable competitive position.    Our
    product candidates are based on a technology that could
    ultimately prove ineffective or unsafe.
    13-17 years).
 26




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If we
    are unable to develop and commercialize our product candidates
    successfully, we may never achieve profitability.
    We
    face intense competition in the markets targeted by our lead
    product candidates. Many of our competitors have substantially
    greater resources than we do, and we expect that all of our
    product candidates under development will face intense
    competition from existing or future drugs.
       27




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
    successfully market products that compete with our products;
    successfully identify drug candidates or develop products
    earlier than we do; or
    develop products that are more effective, have fewer side
    effects or cost less than our products.  and/or
    If we
    fail to protect our intellectual property rights, our ability to
    pursue the development of our technologies and products would be
    negatively affected.
         28




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We
    have not commissioned an extensive investigation concerning our
    freedom to practice or the validity or enforceability of our
    Carrierwave technology and have only recently commissioned an
    investigation concerning our freedom to practice or the validity
    or the enforceability for our product candidates, and we may be
    held to infringe the intellectual property rights of
    others.
        
    cease making, using, selling, offering to sell or importing any
    products that infringe a third partys intellectual
    property through an injunction;
    obtain a license or an assignment from the holder of the
    infringed intellectual property right, which license or
    assignment may be costly or may not be available on reasonable
    terms, if at all; or
    redesign our products, which would be costly and time-consuming
    and may not be possible.  We may
    be involved in lawsuits to protect or enforce our patents, which
    could be expensive and time-consuming.
  continuations-in-part
   29




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##### 



and/or and/or
      If
    preclinical testing or clinical trials for our product
    candidates are unsuccessful or delayed, we will be unable to
    meet our anticipated development and commercialization
    timelines.
  13-17 years).
    
    demonstrating sufficient safety and efficacy to obtain
    regulatory approval to commence a clinical trial;
    reaching agreement on acceptable terms with prospective contract
    research organizations and trial sites;
    manufacturing sufficient quantities of a product
    candidate; and
    obtaining institutional review board approval to conduct a
    clinical trial at a prospective site.    
    ongoing discussions with the FDA or other regulatory authorities
    regarding the scope or design of our clinical trials; 30




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
    failure to conduct clinical trials in accordance with regulatory
    requirements;
    lower than anticipated recruitment or retention rate of patients
    in clinical trials;
    inspection of the clinical trial operations or trial sites by
    the FDA or other regulatory authorities resulting in the
    imposition of a clinical hold;
    lack of adequate funding to continue clinical trials;
    adverse effects or safety issues; or
    negative results of clinical trials.    If the
    FDA does not accept our filing for NRP290 under
    Section 505(b)(1) and we are unable to file for approval
    under Section 505(b)(2) of the Federal Food, Drug and
    Cosmetic Act or if we are required to generate additional data
    related to safety and efficacy in order to obtain approval under
    Section 505(b)(1) or 505(b)(2), we may be unable to meet
    our anticipated development and commercialization
    timelines.
      We
    will be unable to begin commercial sale of Vyvanse until the DEA
    concludes proceedings to place the drug in Schedule II
    under the CSA
   31




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The
    potential market for Vyvanse may be limited by the placement of
    the drug in Schedule II.
      We
    have engaged in extensive financial and operational transactions
    with Randal J. Kirk, our Chairman, President and Chief Executive
    Officer, and his affiliates, and therefore these transactions
    may not be as favorable to us as if we had negotiated them with
    unaffiliated third parties.
    As of
    March 6, 2007, Randal J. Kirk controlled approximately
    50.2% of our common stock and is able to control or
    significantly influence corporate actions, which may result in
    Mr. Kirk taking actions that advance his interests to the
    detriment of our other shareholders.
    We
    rely on Third Security, LLC, to provide us with certain
    services. If Third Security, LLC ceases to provide these
    services and we are unable to establish and maintain the
    necessary infrastructure to be self-sufficient, our business
    will be adversely affected.
   32




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Our
    executive officers and other key personnel are critical to our
    business, and our future success depends on our ability to
    retain them.
    We
    rely on third parties to manufacture the compounds used in our
    trials, and we intend to rely on them for the manufacture of any
    approved products for commercial sale. If these third parties do
    not manufacture our product candidates in sufficient quantities
    and at an acceptable cost, clinical development and
    commercialization of our product candidates could be delayed,
    prevented or impaired.
      Failure
    by our third-party manufacturers to comply with the regulatory
    guidelines set forth by the FDA and DEA with respect to our
    product candidates could delay or prevent the completion of
    clinical trials, the approval of any product candidates or the
    commercialization of our products.
   33




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##### 




    Manufacturers are obligated to operate in accordance with
    FDA-mandated current good manufacturing practice (cGMP)
    requirements. A failure of any of our third-party manufacturers
    to establish and follow cGMP requirements and to document their
    adherence to such practices may lead to significant delays in
    the availability of material for clinical trials, may delay or
    prevent filing or approval of marketing applications for our
    products, and may cause delays or interruptions in the
    availability of our products for commercial distribution
    following FDA approval.
    Replacing our third-party manufacturers or contracting with
    additional manufacturers may require re-validation of the
    manufacturing processes and procedures in accordance with cGMP
    and compliance with supplemental approval requirements. Any such
    necessary re-validation and supplemental approvals may be costly
    and time-consuming.    We may
    need additional capital in the future. If additional capital is
    not available or is available at unattractive terms, we may be
    forced to delay, reduce the scope of or eliminate our research
    and development programs, reduce our commercialization efforts
    or curtail our operations.
    
    successful commercialization of our product candidates;
    continued progress of research and development of product
    candidates utilizing our Carrierwave technology;
    the time and costs involved in obtaining regulatory approval for
    our product candidates;
    costs associated with protecting our intellectual property
    rights;
    development of marketing and sales capabilities;
    payments received under our collaboration agreements with Shire
    and any future collaborative agreements, if any;
    market acceptance of our products; and
    conversion of our outstanding Notes   34




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##### 



Even
    if we obtain regulatory approval to market our product
    candidates, our product candidates may not be accepted by the
    market.
    
    cost-effectiveness;
    the safety and effectiveness of our products, including any
    potential side effects, as compared to alternative products or
    treatment methods;
    the timing of market entry as compared to competitive products;
    the rate of adoption of our products by doctors and nurses;
    product labeling or product insert required by the FDA for each
    of our products;
    determination of scheduled or unscheduled status by the FDA and
    DEA;
    reimbursement policies of government and third-party payors;
    effectiveness of our sales, marketing and distribution
    capabilities and the effectiveness of such capabilities of our
    collaborative partners; and
    unfavorable publicity concerning our products or any similar
    products.    If we
    fail to establish marketing, sales and distribution
    capabilities, or fail to enter into arrangements with third
    parties to do this on our behalf, we will not be able to create
    a market for our product candidates.
   35




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In the
    event that we are successful in bringing any products to market,
    our revenues may be adversely affected if we fail to obtain
    acceptable prices or adequate reimbursement for our products
    from third-party payors.
    
    government and health administration authorities;
    private health insurers; and
    other third-party payors, including Medicare.      We
    could be forced to pay substantial damage awards if product
    liability claims that may be brought against us are
    successful.
    We use
    hazardous chemicals in our business. Potential claims relating
    to improper handling, storage or disposal of these chemicals
    could be time-consuming and costly.
   36




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If
    Shire, our collaboration partner on Vyvanse, or any other
    collaborative partners we retain, do not satisfy their
    obligations, we will be unable to develop our partnered product
    candidates.
  day-to-day day-to-day
  Our
    indebtedness could adversely affect our financial health and
    limit our ability to react to changes in our industry or to
    implement our strategic initiatives.
    
    require us to dedicate a substantial portion of our cash flow
    from operations to payments on our indebtedness, thereby
    reducing the availability of our cash flow to fund our business
    activities, including our research and development programs;
    limit our ability to secure additional financing to implement
    our strategic initiatives;
    increase our vulnerability to general adverse economic and
    industry conditions;
    limit our flexibility in planning for, or reacting to, changes
    in our business and the industry in which we operate; 37




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
    place us at a disadvantage compared to our competitors that may
    have proportionately less debt; and
    restrict us from making strategic acquisitions, introducing new
    technologies or otherwise exploiting business opportunities.    Risks
    Related to the Notes
  The
    Notes rank junior in right of payment to our senior debt and
    effectively junior to the liabilities of our existing subsidiary
    or any future subsidiaries.
      There
    are no restrictive covenants in the indenture for the Notes
    relating to our ability to incur future indebtedness or complete
    other transactions.
    Fluctuations
    in the price of our common stock may prevent you from being able
    to convert the Notes and may impact the price of the Notes and
    make them more difficult to resell.
   38




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##### 



The
    make whole premium that may be payable upon conversion in
    connection with a fundamental change may not adequately
    compensate you for the lost option time value of your Notes as a
    result of such fundamental change.
    Because
    your right to require repurchase of the Notes is limited, the
    market price of the Notes may decline if we enter into a
    transaction that does not constitute a fundamental change under
    the indenture.
    If you
    hold Notes, you are not entitled to any rights with respect to
    our common stock, but you are subject to all changes made with
    respect to our common stock.
    We may
    not have the ability to purchase Notes when required under the
    terms of the Notes.
     39




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##### 



You
    should consider the U.S. federal income tax consequences of
    owning the Notes.
    You
    may have to pay taxes with respect to distributions on our
    common stock that you do not receive.
    The
    convertible note hedge and warrant transactions may affect the
    value of the Notes and our common stock.
    
    will enter into various
    over-the-counter
    derivative transactions with respect to our common stock, and
    may purchase our common stock; and
    may enter into, or may unwind, various
    over-the-counter
    derivatives
    and/or
    purchase or sell our common stock in secondary market
    transactions (including during any conversion reference period
    related to a conversion of Notes).  over-the-counter
   40




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There
    is no established trading market for the Notes and no guarantee
    that a market will develop or that you will be able to sell your
    Notes.
    The
    conditional conversion feature of the Notes could result in your
    receiving less than the value of the common stock into which a
    note is convertible.
    Certain
    provisions of Virginia law, and our amended and restated
    articles of incorporation and amended and restated bylaws could
    make it more difficult for our shareholders to remove our board
    of directors and management.
    
    a provision allowing our board of directors to issue preferred
    stock with rights senior to those of the common stock without
    any vote or action by the holders of our common stock. The
    issuance of preferred stock could adversely affect the rights
    and powers, including voting rights, of the holders of common
    stock;
    a provision allowing the removal of directors only for cause;
    the requirement in our bylaws that shareholders provide advance
    notice when nominating our directors or submitting other
    shareholder proposals; and
    the inability of shareholders to convene a shareholders
    meeting without the chairman of the board, the chief executive
    officer or a majority of the board of directors first calling
    the meeting.  The price
    of our common stock may be volatile.
    
    our operating and financial performance and prospects;
    announcement of FDA approval or disapproval of our products or
    other product-related actions; 41




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
    decisions by the DEA regarding the assignment of scheduling to
    our products;
    developments involving our discovery efforts and clinical trials;
    developments or disputes concerning patents or proprietary
    rights, including announcements of infringement, interference or
    other litigation against us or our potential licensees;
    developments involving our efforts to commercialize our
    products, including developments impacting the timing of
    commercialization;
    announcements concerning our competitors, or the biotechnology,
    pharmaceutical or drug delivery industry in general;
    public concerns as to the safety or efficacy of our products or
    our competitors products;
    changes in government regulation of the pharmaceutical or
    medical industry;
    changes in the reimbursement policies of third party insurance
    companies or government agencies;
    actual or anticipated fluctuations in our operating results;
    developments involving corporate collaborators, if any;
    changes in accounting principles;
    the loss of any of our key scientific or management personnel;
    quarterly variations in key financial performance measures, such
    as earnings per share, net income and revenue;
    changes in revenue or earnings estimates or publication of
    research reports by financial analysts;
    speculation in the press or investment community;
    strategic actions by us or our competitors, such as acquisitions
    or restructurings;
    sales of our common stock or other actions by investors with
    significant shareholdings;
    general market conditions for pharmaceutical companies; and
    domestic and international economic, legal, political and
    regulatory factors unrelated to our performance.    Risks
    Related to the Merger
  The
    pending merger with Shire may create uncertainty for our
    employees and business partners.
    The
    merger with Shire is subject to various approvals and may not
    occur.
   42




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Hart-Scott-Rodino
  
    managements attention from our
    day-to-day
    business may be diverted;
    we may lose key employees;
    our business relationships may be disrupted as a result of
    uncertainties with regard to our business and prospects;
    we may be required to pay significant transaction costs related
    to the proposed Merger, such as a transaction termination
    (break-up)
    fee of up to $70 million to Shire and reimburse Shire for
    documented
    out-of-pocket
    transaction-related expenses of up to $8 million in the
    aggregate; and
    the market price of shares of our common stock may decline to
    the extent that the current market price of those shares
    reflects a market assumption that the proposed merger will be
    completed.    ITEM 1B.
    UNRESOLVED
    STAFF COMMENTS    ITEM 2.
    PROPERTIES      ITEM 3.
    LEGAL
    PROCEEDINGS    ITEM 4.
    SUBMISSION
    OF MATTERS TO A VOTE OF SECURITY HOLDERS   43




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PART II
  ITEM 5.
    MARKET
    FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
    AND ISSUER PURCHASES OF EQUITY SECURITIES      High


LowFiscal year ended
    January 1, 2006Quarter ended April 3, 2005

$
16.06


$
7.73Quarter ended July 3, 2005

$
16.96


$
12.47Quarter ended October 2, 2005

$
23.97


$
14.04Quarter ended January 1, 2006

$
27.10


$
21.60Fiscal year ended
    December 31, 2006Quarter ended April 2, 2006

$
35.00


$
26.28Quarter ended July 2, 2006

$
35.60


$
23.35Quarter ended October 1, 2006

$
28.85


$
21.32Quarter ended December 31,
    2006

$
59.14


$
24.33       Total Number of


Approximate DollarShares Purchased as


Value that May YetPart of Publicly


be Purchased UnderTotal Number of


Average Price Paid


Announced Plans or


the Plans orPeriod

Shares Purchased


per Share


Programs


ProgramsOctober 2, 2006 through
    November 5, 2006













$
10,000,000November 6, 2006 through
    December 3, 2006













$
10,000,000December 4, 2006 through
    December 31, 2006













$
10,000,000     (1)
    
    In connection with the sale of the Notes in July 2006, the
    Companys Board of Directors authorized a stock repurchase
    program whereby management may direct the repurchase of up to
    $10 million in common stock. There have been no repurchases
    under this program. 44




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PERFORMANCE
    GRAPH
    
  NASDAQ


NASDAQMarket


BiotechnologyDate


New River


Index


IndexAugust 5, 2004


$
100.00



$
100.00



$
100.00January 2, 2005



187.00




119.42




118.46January 1, 2006



648.50




121.06




121.82December 31,
    2006



1,367.75




132.59




123.06  45




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##### 



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


January 1,


January 2,


December 28,


December 29,2006


2006


2005


2003


2002(In thousands, except share and per share data)Statements of operations
    data(1):Collaboration revenues

$
34,333


$



$



$



$
Sales, net


















177Total revenues


34,333















177Operating costs and
    expenses:Cost of goods sold


















51Selling, general and administrative


48,992



13,229



5,933



1,529



1,940Research and development


40,963



18,366



10,235



3,139



2,683Depreciation and amortization of
    property and equipment


153



157



119



140



175Amortization of intangible assets


















39Total operating expenses


90,108



31,752



16,287



4,808



4,888Operating loss


(55,775
)


(31,752
)


(16,287
)


(4,808
)


(4,711
)Other income (expense):Gain on settlement










1,764







Loss on disposal of property and
    equipment


(10
)






(19
)






(89
)Interest expense


(2,349
)


(5
)


(11
)


(13
)


(59
)Write-off of debt issuance costs


(4,255
)














Interest income


5,984



1,890



218



4



30Total other income (expense), net


(630
)


1,885



1,952



(9
)


(118
)Loss before income taxes and
    cumulative effect of change in accounting principle


(56,405
)


(29,866
)


(14,335
)


(4,817
)


(4,829
)Income tax expense (benefit)


311















Loss before cumulative effect of
    change in accounting principle


(56,716
)


(29,866
)


(14,335
)


(4,817
)


(4,829
)Cumulative effect of change in
    accounting principle


(711
)














Net loss

$
(57,427
)

$
(29,866
)

$
(14,335
)

$
(4,817
)

$
(4,829
)Net loss per share (basic and
    diluted)(2)

$
(1.60
)

$
(0.83
)

$
(0.48
)

$
(0.20
)

$
(0.23
)Weighted average number of common
    shares outstanding (basic and diluted)(2)


36,009,295



35,943,596



29,694,742



23,685,626



21,379,822  46




---



##### 



(1)
    
    All of our sales, net, recognized in the fiscal years ended
    December 29, 2002 were from sales of drugs, which were
    transferred to an affiliated party at the end of 2002.(2)
    
    As adjusted to give effect to a
    one-for-two
    reverse stock split effective as of August 3, 2004 and a
    two-for-one
    stock split effected in the form of a stock dividend effective
    January 13, 2006.  As ofDecember 31,


January 1,


January 2,


December 28,


December 30,2006


2006


2005


2003


2002Balance sheet data:Cash and cash equivalents

$
87,006


$
3,516


$
4,019


$
264


$
614Short-term investments


60,000



49,250



21,150







Working capital (deficit)


(18,869
)


46,689



21,124



(1,422
)


(294
)Total assets


151,536



53,960



25,770



636



1,019Capital lease obligation


27



49











Convertible notes


137,750















Total shareholders equity
    (deficit)


(109,703
)


(6,482
)


21,385



(1,139
)


90   ITEM 7.
    MANAGEMENTS
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATIONS  Form 10-K.
  Information
    Regarding Forward-Looking Statements
  Form 10-K Form 10-K
  
    the likelihood that the Merger will close and the timeframe with
    respect thereto;
    the ability to execute successfully our collaboration with Shire
    Pharmaceuticals Group plc within a reasonable timeframe or at
    all;
    the progress of our product development programs;
    the status of our preclinical and clinical development of
    potential drugs;
    the likely success of our product candidates in clinical trials
    and the regulatory approval process, particularly whether and
    under what circumstances any of our product candidates will be
    approved by the FDA;
    the likely scheduling and labeling of our product candidates;
    our estimates for future revenues and profitability;
    our estimates regarding our capital requirements and our needs
    for additional financing;
    our ability to attract partners with acceptable development,
    regulatory and commercialization expertise on favorable terms; 47




---



##### 




    the likelihood of regulatory approval under the Federal Food,
    Drug and Cosmetic Act without having to conduct long and costly
    trials to generate all of the data often required in connection
    with a traditional new chemical entity;
    the ability to develop, manufacture, launch and market any of
    our drug candidates;
    our ability to develop safer and improved versions of widely
    prescribed drugs using our Carrierwave technology;
    the expected benefits of our Carrierwave technology such as
    abuse resistance and decreased toxicity;
    our success in developing our own sales and marketing
    capabilities for Vyvanse; and
    our ability to obtain favorable patent claims.  Form 10-K Form 10-K.
  Form 10-K
  Overview
  Hart-Scott-Rodino Form 10-K.
   48




---



##### 



Revenues.
 49




---



##### 



Selling, General and Administrative
    Expenses.
  Research and Development Expenses.
  project-by-project project-by-project
    Fiscal Years Ended


Inception toDecember 31,


January 1,


January 2,


December 31,2006


2006


2005


2006(In thousands)Vyvanse

$
21,481


$
12,046


$
7,064


$
41,260NRP290


1,402



1,146



690



3,342NRP409


1,393



167







1,560Other preclinical development


540



637



153



1,329Carrierwave/thyroid














5,488Total

$
24,816


$
13,996


$
7,907


$
52,979      50




---



##### 



Other Income (Expense).
  Cumulative Effect of Change in Accounting
    Principle.
  Results
    of Operations
    Fiscal
    Year Ended December 31, 2006 Compared to Fiscal Year Ended
    January 1, 2006
  Revenues.
  Selling, General and Administrative
    Expenses.
  Research and Development Expenses.
 51




---



##### 



Fiscal Year EndedResearch and development expenses

December 31, 2006


January 1, 2006(In thousands)Direct project costs:Personnel, benefits and related
    costs

$
14,724


$
3,079Consultants, supplies, materials
    and other direct costs


931



944External development costs


24,816



13,996Total direct costs


40,471



18,019Indirect costs


492



347Total

$
40,963


$
18,366   Other Income (Expense).
  Cumulative Effect of Change in Accounting
    Principle. (l)
  Income Taxes.
  Fiscal
    Year Ended January 1, 2006 Compared to Fiscal Year Ended
    January 2, 2005
  Selling, General and Administrative
    Expenses.
  Research and Development Expenses.
 52




---



##### 



Fiscal Year EndedResearch and development expenses

January 1, 2006


January 2, 2005(In thousands)Direct project costs:Personnel, benefits and related
    costs

$
3,079


$
1,525Consultants, supplies, materials
    and other direct costs


944



598External development costs


13,996



7,907Total direct costs


18,019



10,030Indirect costs


347



205Total

$
18,366


$
10,235   Other Income (Expense).
  Liquidity
    and Capital Resources
    Number of


Price perFiscal Year

Shares(1)


Share(1)


Gross Proceeds2001


300,000


$
3.33


$
1,000,0002002


2,245,000



1.25



2,806,2502002


4,077,720
(2)


1.25



5,097,1512003


2,823,200



1.25



3,529,0002004


1,940,000



2.50



4,850,0002004  Initial public
    offering


8,400,000



4.00



33,600,0002005  Shire
    collaboration










50,000,0002006  Shire
    collaboration










50,000,0002006  Convertible notes










137,750,00019,785,920






$
288,632,401     (1)
    
    As adjusted for a
    one-for-two
    reverse stock split effective August 3, 2004 and a
    two-for-one
    stock split effected in the form of a stock dividend effective
    January 13, 2006. 53




---



##### 



(2)
    
    Represents shares issued upon the conversion of a convertible
    promissory note by RJK, L.L.C., an entity controlled by
    Mr. Kirk, our Chairman, President and Chief Executive
    Officer, in the original amount of $5,000,000 plus accrued
    interest of $97,151. We received the $5,000,000 of proceeds from
    the note issuance in August 2001.        Due within


Due 1 toTotal


1 Year


5 Years


Thereafter(In thousands)Operating lease obligations

$
211


$
211


$



$
Capital lease obligations


27



25



2



Research and development contracts


20,536



20,536







Inventory purchase commitments


6,427



6,427







Accrued stock-based compensation


34,536







34,536Interest payments on convertible
    notes


33,829



4,902



24,106



4,821Convertible notes


137,750











137,750Total contractual cash obligations

$
233,316


$
32,101


$
58,644


$
142,571   24-month
   54




---



##### 



55




---



##### 



Off-Balance
    Sheet Arrangements
    Effects
    of Inflation
    Recent
    Accounting Pronouncements
  Fair Value
    Measurements
  Considering the Effects of Prior
    Year Misstatements when Quantifying Misstatements in Current
    Year Financial Statements
  Accounting for Uncertainty in
    Income Taxes
 56




---



##### 



Critical
    Accounting Policies and Estimates
      Revenue Recognition. Revenue Recognition When the Right of Return
    Exists,
  00-21, Revenue Arrangements with Multiple
    Deliverables 00-21). 00-21,
  Accrued Expenses.
 57




---



##### 



Stock-Based Compensation.
  Income Taxes.
    ITEM 7A.
    QUANTITATIVE
    AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK    ITEM 8.
    FINANCIAL
    STATEMENTS AND SUPPLEMENTARY DATA    ITEM 9.
    CHANGES
    IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
    FINANCIAL DISCLOSURE   58




---



##### 



ITEM 9A.
    CONTROLS
    AND PROCEDURES  Evaluation
    of Disclosure Controls and Procedures
  Rule 13a-15(b) Rule 13a-15(e)
    Managements
    Report on Internal Control Over Financial Reporting
  Rule 13a-15(f)
  
    Pertain to the maintenance of records that, in reasonable
    detail, accurately and fairly reflect the transactions and
    dispositions of our assets;
    Provide reasonable assurance that transactions are recorded as
    necessary to permit preparation of financial statements in
    accordance with generally accepted accounting principles in the
    United States of America, and that our receipts and expenditures
    are being made only in accordance with authorization of our
    management and directors; and
    Provide reasonable assurance regarding prevention or timely
    detection of unauthorized acquisition, use or disposition of our
    assets that could have a material effect on the consolidated
    financial statements.      Internal
    Control  Integrated Framework Internal Control  Integrated Framework
 59




---



##### 



Form 10-K.
  
   
   
       ITEM 9B.
    OTHER
    INFORMATION.   PART III  ITEM 10.
    DIRECTORS
    AND EXECUTIVE OFFICERS OF THE REGISTRANT  Information
    About the Directors
    Randal J.
    Kirk
 Age 53
  page C-27);
 60




---



##### 



Krish S.
    Krishnan
 Age 42
  page C-27), start-up
  Cesar L.
    Alvarez
 Age 59
    David S.
    Barlow
 Age 50
    Larry D.
    Horner
 Age 72
   61




---



##### 



Burton E.
    Sobel, M.D
 Age 69
    Executive
    Officers
  Form 10-K.
  Section 16(a)
    Beneficial Ownership Reporting Compliance
    Code of
    Conduct
  Form 8-K
 62




---



##### 



www.nrpharma.com .
  Audit
    Committee
  www.nrpharma.com.
  Rule 10A-3(b)(1)
  Regulation S-K
  Compensation
    Committee
  Rule 16b-3
 63




---



##### 



www.nrpharma.com.
  Nominating
    and Governance Committee
  www.nrpharma.com.
  Director
    Nominating Process
  Director Candidate Recommendations and Nominations by
    Shareholders.
      
    as to each person whom the shareholder proposes to nominate for
    election as a director:  
    all information relating to such person that is required to be
    disclosed in solicitations of proxies for election of directors
    in an election contest, or is otherwise, required in each case
    pursuant to Regulation 14A under the Exchange Act; and
    such persons written consent to being named in the proxy
    statement as a nominee and to serving as such a director if
    elected; 64




---



##### 




    as to the shareholder giving the notice and the beneficial
    owner, if any, on whose behalf the nomination or proposal is
    made:  
    the name and address of such shareholder, as they appear on the
    Companys books, and of such beneficial owner;
    the class and number of shares of capital stock of the Company
    that are owned beneficially and of record by such shareholder
    and such beneficial owner;
    a representation that the shareholder is a holder of record of
    stock of the Company entitled to vote at such meeting and
    intends to appear in person or by proxy at the meeting to
    propose such business or nomination; and
    a representation whether the shareholder or the beneficial
    owner, if any, intends or is part of a group that intends
    (a) to deliver a proxy statement
    and/or form
    of proxy to holders of at least the percentage of the
    Companys outstanding capital stock required to approve or
    adopt the proposal or elect the nominee
    and/or
    (b) otherwise to solicit proxies from shareholders in
    support of such proposal or nomination.  Rule 14a-8
    www.nrpharma. com.
  Nominating and Governance Committee Process for Identifying
    and Evaluating Director Candidates.
   65




---



##### 



Shareholder
    Communications with Directors
      ITEM 11.
    EXECUTIVE
    COMPENSATION  Compensation
    Discussion and Analysis
  Board and Committee Process.
       66




---



##### 



Guiding Philosophy.
  
    provide a competitive total compensation opportunity that will
    enable the Company to attract, retain and motivate highly
    qualified executives;
    align compensation opportunities with shareholder interests by
    making the executive compensation program highly sensitive to
    the Companys performance, which is defined in terms of
    performance objectives associated with achieving profitability
    and growth of the Company and creating shareholder
    value; and
    provide a strong emphasis on equity-based compensation and
    equity ownership, creating a direct link between shareholder and
    management interests.    Elements of Executive Compensation.
     67




---



##### 



Base
    Salaries
        Name and Title

2006 Base SalariesRandal J. Kirk

$
660,000Chairman, Chief Executive Officer
    and PresidentKrish S. Krishnan

$
540,000Chief Operating Officer, Chief
    Financial Officer and SecretarySuma M. Krishnan

$
360,000Vice President, Product DevelopmentGaren Z. Manvelian, M.D.

$
250,000Chief Medical Officer, Vice
    President Clinical and Regulatory AffairsJohn K. Thottathl, PhD.

$
200,000Chief Scientific Officer     *
    
    Messrs. Kirks and Krishnans salaries were
    effective as of August 21, 2006. Dr. Manvelians
    salary was effective as of October 3, 2006, the date he
    began employment with us, and Dr. Thottathils salary
    was effective as of April 10, 2006, the date he began
    employment with us. 68




---



##### 



Annual
    Bonuses
    
    a primary emphasis in the oversight of pipeline product
    development and management of our collaboration relationships;
    a significant emphasis on stock-price appreciation;
    a qualitative assessment of our strategic achievements in areas
    of management;
    a structured, objective approach to determine awards; and
    recognition of individual achievement and contribution of
    participants.        2006AnnualName

Cash BonusRandal J. Kirk

$
924,000Krish S. Krishman


756,000Suma M. Krishnan


504,000Garen Z. Manvelian, M.D.*


15,625John K. Thottathil, Ph.D.*


66,667     *
    
    Dr. Manvelians bonus was prorated for the year
    starting with October 3, 2006, the date he began employment
    with us, and Dr. Thottathils bonus was prorated for
    the year starting with April 10, 2006, the date he began
    employment with us.  Equity-Based
    Compensation
    
    authorizes the granting of stock options, SARs, stock awards and
    incentive awards (payable in cash or shares), all of which may
    be made subject to the attainment of performance goals
    established by the Committee; 69




---



##### 




    provides for the enumeration of the business criteria on which
    performance goals (if applicable) are to be based; and
    establishes the maximum amount of stock options, SARs, stock
    awards and incentive awards that can be paid to an Incentive
    Compensation Plan participant.        Number ofName

SARsRandal J. Kirk

200,000, payable in cash119,500, payable in cashKrish S. Krishnan

95,850, payable in cash95,850, payable in restricted stockSuma M. Krishnan

63,900, payable in cash63,900, payable in restricted
    stock   15-month
 70




---



##### 



Perquisites;
    Other Compensation
    
    Health and dental insurance (portion of costs);
    Basic life insurance;
    Long-term disability insurance; and
    Participation in the Companys 401(k) plan, including
    company matching.    Deductibility
    of Compensation
   71




---



##### 



Stock
    Ownership Guidelines
    Compensation
    Committee Report on Executive Compensation
    Compensation
    Committee
       72




---



##### 



Summary
    Compensation Table
    Name and Principal










Option


All OtherPosition

Year


Salary ($)


Bonus ($)(1)


Awards ($)


Compensation ($)


Total ($)Randal J. Kirk


2006


$
621,957


$
924,000


$
20,028,110
(2)

$
7,940
(3)

$
21,582,007Chairman of the Board,
    President and Chief
    Executive OfficerKrish S. Krishnan


2006



482,935



756,000



6,892,343
(4)


8,042
(5)


8,139,320Chief Operating Officer,
    Chief Financial Officer and SecretarySuma M. Krishnan


2006



360,000



504,000



9,967,324
(6)


8,042
(5)


10,839,366Vice President, Product DevelopmentGaren Z. Manvelian, M.D.


2006



60,606
(7)


15,625



34,513
(8)


11,411
(9)


122,155Chief Medical Officer,
    Vice President Clinical
    and Regulatory AffairJohn K. Thottathil, Ph.D


2006



141,667
(10)


66,667



229,760
(11)


30,100
(12)


468,194Chief Scientific Officer     (1)
    
    Represents discretionary bonuses awarded by the Compensation
    Committee. For a discussion of these awards, please see
    Compensation Discussion and Analysis set forth above.(2)
    
    Represents the dollar amount recognized for financial statement
    reporting purposes with respect to the 2006 fiscal year for the
    fair value of the cash-settled SARs granted to Mr. Kirk in
    2006 as well as prior fiscal years, in accordance with
    FAS 123(R). The amounts are based on the compensation
    expense recognized for the award pursuant to FAS 123(R).
    Pursuant to SEC rules, the amounts shown exclude the impact of
    estimated forfeitures related to service-based vesting
    conditions. These amounts reflect the Companys accounting
    expense for these awards, and do not correspond to the actual
    value that will be recognized by Mr. Kirk. The relevant
    assumptions used pursuant to FAS 123(R) are (i) risk
    free interest rate of 4.61%, (ii) volatility of 60% and
    (iii) an expected term of three years. See
    note 2(1) to our consolidated financial statements.(3)
    
    Includes matching contribution of $6,600 to the New Rivers
    401(k) plan, $930 for premiums on life insurance, and $410 for
    health club dues and long term disability premiums.(4)
    
    Represents the dollar amount recognized for financial statement
    reporting purposes with respect to the 2006 fiscal year for the
    fair value of the cash-settled SARs and stock-settled SARs
    granted to Mr. Krishnan in 2006 as well grants of SARs and
    options granted in prior fiscal years, in accordance with
    FAS 123(R). The amounts are based on the compensation
    expense recognized for the award pursuant to FAS 123(R).
    Pursuant to SEC rules, the amounts shown exclude the impact of
    estimated forfeitures related to service-based vesting
    conditions. These amounts reflect the Companys accounting
    expense for these awards, and do not correspond to the actual
    value that will be recognized by Mr. Krishnan. The relevant
    assumptions used pursuant to FAS 123(R) for the
    cash-settled SARs are (i) risk free interest rate of 4.61%,
    (ii) volatility of 60% and (iii) an expected term of
    three years. The relevant assumptions used pursuant to
    FAS 123(R) for the stock-settled SARs granted in 2005 are
    (i) risk free interest rate of 4.3%, (ii) volatility
    of 70% and (iii) an expected term of five years. The
    relevant assumptions used pursuant to FAS 123(R) for the
    stock-settled SARs granted 73




---



##### 



in 2006 are (i) three tranches valued within the grant
    based on the year of vesting, (ii) risk free interest rate
    of 4.08% to 4.25%, (iii) volatility of 70% and (iv) an
    expected term of three to five years. The relevant assumptions
    used pursuant to FAS 123(R) for options granted in 2004 are
    (i) risk free interest rate of 4.32%, (ii) volatility
    of 70% and (iii) and an expected term of ten years. See
    note 2(1) to our consolidated financial statements.  (5)
    
    Includes matching contribution of $6,600 to New Rivers
    401(k) plan, $930 for premiums on life insurance, and $512 for
    health club dues and long term disability premiums.(6)
    
    Represents the dollar amount recognized for financial statement
    reporting purposes with respect to the 2006 fiscal year for the
    fair value of the cash-settled SARs and stock-settled SARs
    granted to Mrs. Krishnan in 2006 as well grants of SARs and
    options granted in prior fiscal years, in accordance with
    FAS 123(R). The amounts are based on the compensation
    expense recognized for the award pursuant to FAS 123(R).
    Pursuant to SEC rules, the amounts shown exclude the impact of
    estimated forfeitures related to service-based vesting
    conditions. These amounts reflect the Companys accounting
    expense for these awards, and do not correspond to the actual
    value that will be recognized by Mrs. Krishnan. In August
    2006, taking into consideration the outstanding dedication,
    devotion and performance of Mrs. Krishnan in advancing
    Vyvanse through pre-clinical and clinical development, the
    Compensation Committee accelerated the vesting of all of her
    then-outstanding and unvested stock options and SARs. In
    accordance with FAS 123(R), those awards that were not
    expected to vest at the time under their original vesting terms
    were treated as new awards. As a result of the modification the
    incremental fair value of the modified awards over the original
    awards was as follows:  Original Fair Value


Modified Fair Value


Incremental Fair Value2004 Options

$
91,332,42


$
773,992


$
682,6602005 Stock-Settled SARs


938,052,00



1,961,730



1,023,6732006 Stock-Settled SARs


812,595,00



93,294



(719,301
)   (1)
  (7)
    
    Dr. Manvelian began employment on October 4, 2006. His
    2006 annualized salary is $250,000.(8)
    
    Represents the amount recognized in fiscal 2006 for financial
    statement reporting purposes in accordance with FAS 123(R)
    for options granted to Dr. Manvelian upon commencement of
    employment in October 2006, except that estimates of forfeitures
    related to service-based vesting conditions have been
    disregarded. The amounts are based on the compensation expense
    recognized for the award pursuant to FAS 123(R). These
    amounts reflect the Companys accounting expense for these
    awards, and do not correspond to the actual value that will be
    recognized by Dr. Manvelian. The relevant assumptions used
    pursuant to FAS 123(R) for the options granted in 2006 are
    (i) risk free interest rate of 4.37% to 4.42%,
    (ii) volatility of 70% and (iii) an expected term of
    51/2
    to
    61/2 years.
    See note 2(1) to our consolidated financial
    statements.(9)
    
    Includes $11,260 in relocation expenses, $78 for premiums on
    life insurance, and $73 for health club dues and long term
    disability premiums.(10)
    
    Dr. Thottathil began employment on April 10, 2006. His
    2006 annualized salary is $200,000.(11)
    
    Represents the amount recognized in fiscal 2006 for financial
    statement reporting purposes in accordance with FAS 123(R)
    for options granted to Dr. Thottathil upon commencement of
    employment in April 2006, except that estimates of forfeitures
    related to service-based vesting conditions have been
    disregarded. The amounts are based on the compensation expense
    recognized for the award pursuant to FAS 123(R). These
    amounts reflect the Companys accounting expense for these
    awards, and do not correspond to the actual value that will be
    recognized by Dr. Thottathil. The relevant assumptions used
    pursuant to FAS 123(R) for the options granted in 2006 are
    (i) risk free interest rate of 4.78% to 4.82%,
    (ii) volatility of 70% and (iii) an expected term of
    51/2
    to
    61/2 years.
    See note 2(1) to our consolidated financial
    statements.(12)
    
    Includes matching contribution of $3,000 to the New Rivers
    401(k) plan, $26,203 in relocation expenses, $543 for premiums
    on life insurance, and $354 for health club dues and long term
    disability premiums. 74




---



##### 



Grants of
    Plan-Based Awards in Fiscal 2006
    All Other OptionAwards: Number of


Exercise or Base


Grant Date FairSecurities


Price of Option


Value of Stock andName

Grant Date


Underlying Options(#)


Awards ($)(sh)


Option Awards($)Randal J. Kirk


January 19, 2006



319,500
(1)

$
32.71


$
4,135,395
(2)Krish S. Krishnan


January 19, 2006



95,850
(3)


32.71



1,240,619
(2)January 19, 2006



95,850
(4)


32.71



1,731,371
(5)Suma M. Krishnan


January 19, 2006



63,900
(3)


32.71



827,079
(6)January 19, 2006



63,900
(4)


32.71



1,154,247
(7)Garen Z. Manvelian, M.D.


October 4, 2006



15,000



25.47



234,013
(8)John K. Thottathil, Ph.D.


April 10, 2006



25,000



33.55



517,234
(9)     (1)
    
    Represents cash-settled SAR awards. The SARs were granted with a
    base value equal to the fair market value of our Common Stock on
    the date of grant. Of the 319,500 SARs granted to Mr. Kirk,
    200,000 were granted under the Incentive Compensation Plan and
    119,500 were granted outside of the Incentive Compensation Plan.
    For a discussion concerning the SAR awards, please see
    Compensation Discussion and Analysis above.(2)
    
    Reflects the full grant date fair market value calculated
    pursuant to FAS 123(R) of 319,500 cash-settled SARs granted
    in January 2006. Assumes a price per share of $32.71, which
    represents the closing price of our Common Stock as of the date
    of grant. The SAR award is payable in cash upon exercise. The
    relevant assumptions used pursuant to FAS 123(R) are
    (i) three tranches valued within the grant based upon the
    year of vesting, (ii) risk free interest rate of 4.24% to
    4.35%, (iii) volatility of 70% and (iv) an expected
    term of one to three years.(3)
    
    Represents cash-settled SAR awards granted under the Incentive
    Compensation Plan. The SARs were granted with a base value equal
    to the fair market value of our Common Stock on the date of
    grant. For a discussion concerning the SAR awards, please see
    Compensation Discussion and Analysis above.(4)
    
    Represents stock-settled SAR awards granted under the Incentive
    Compensation Plan. The SARs were granted with a base value equal
    to the fair market value of our Common Stock on the date of
    grant. For a discussion concerning the SAR awards, please see
    Compensation Discussion and Analysis above.(5)
    
    Reflects the full grant date fair market value calculated
    pursuant to FAS 123(R) of the stock-settled SARs granted in
    January 2006. Assumes a price per share of $32.71 which
    represents the closing price of our Common Stock as of the date
    of grant. The SAR award is payable in restricted shares upon
    exercise. The relevant assumptions used pursuant to
    FAS 123(R) are (i) three tranches valued within the
    grant based upon the year of vesting, (ii) risk free
    interest rate of 4.08% to 4.25%, (iii) volatility of 70%
    and (iv) an expected term of three to five years. See
    note 2(1) to our consolidated financial statements.(6)
    
    Reflects the full grant date fair market value calculated
    pursuant to FAS 123(R) of the cash-settled SARs granted in
    January 2006. Assumes a price per share of $32.71, which
    represents the closing price of our Common Stock as of the date
    of grant. The SAR award is payable in cash upon exercise. The
    relevant assumptions used pursuant to FAS 123(R) are
    (i) three tranches valued within the grant based upon the
    year of vesting, (ii) risk free interest rate of 4.24% to
    4.35%, (iii) volatility of 70% and (iv) an expected
    term of one to three years. In August 2006, the Compensation
    Committee accelerated the vesting of all of her then-outstanding
    and unvested stock options and SARs. For a discussion of the
    acceleration of this award, please see footnote 6 to the
    Summary Compensation Table above.(7)
    
    Reflects the full grant date fair market value calculated
    pursuant to FAS 123(R) of the stock-settled SARs granted in
    January 2006. Assumes a price per share of $32.71, which
    represents the closing price of our Common Stock as of the date
    of grant. The SAR award is payable in restricted shares upon
    exercise. The relevant assumptions used pursuant to
    FAS 123(R)are (i) three tranches valued within the
    grant based upon 75




---



##### 



the year of vesting, (ii) risk free interest rate of 4.08%
    to 4.25%, (iii) volatility of 70% and (iv) an expected
    term of three to five years. In August 2006, the Compensation
    Committee accelerated the vesting of all of her then-outstanding
    and unvested stock options and SARs. Due to this modification of
    the award in August 2006, the fair value of the modified portion
    of the award decreased by $719,301, with the following
    assumptions: (i) risk free interest rate of 4.91%,
    (iv) volatility of 70% and (v) an expected term of
    98 days. For other assumptions, please see
    Compensation Discussion and Analysis above. See
    note 2(1) to our consolidated financial statements.  (8)
    
    Reflects the full grant date fair market value calculated
    pursuant to FAS 123(R) of the option granted in October
    2006. Assumes a price per share of $25.47, which represents the
    closing price of our Common Stock as of the date of grant. The
    relevant assumptions used pursuant to FAS 123(R)are
    (i) risk free interest rate of 4.37% to 4.42%,
    (ii) volatility of 70% and (iii) an expected term of
    51/2
    to
    61/2 years.
    See note 2(1) to our consolidated financial
    statements.(9)
    
    Reflects the full grant date fair market value calculated
    pursuant to FAS 123(R) of the option granted in April 2006.
    Assumes a price per share of $33.55, which represents the
    closing price of our Common Stock as of the date of grant. The
    relevant assumptions used pursuant to FAS 123(R) are
    (i) risk free interest rate of 4.78% to 4.82%,
    (ii) volatility of 70% and (iii) an expected term of
    51/2
    to
    61/2 years.
    See note (2)1 to our consolidated financial
    statements.  Outstanding
    Equity Awards at the End of Fiscal 2006
    Option AwardsEquity IncentivePlan Awards:Number of


Number of


NumberSecurities


Securities


of SecuritiesUnderlying


Underlying


Underlying


OptionUnexercised


Unexercised


Unexercised


Exercise


OptionOptions


Options


unearned


Price


ExpirationName

Exercisable($)


Unexercisable(#)


Options (#)


($)


DateRandal J. Kirk










200,000
(1)

$
32.71



January 18, 2016200,000
(2)


12.00



March 28, 2015119,500
(3)






32.71



January 18, 2016439,000
(4)






12.00



March 28, 2015Krish S. Krishnan


1,626











1.25



March 11, 2013180,000











4.00



August 10, 201495,850
(5)


32.71



January 18, 201695,850
(6)


32.71



January 18, 20168,300
(7)


12.00



March 28, 2015191,700
(8)


12.00



March 28, 2015183,400
(4)






12.00



March 28, 2015Suma M. Krishnan


45,000











4.00



August 10, 201463,900
(1)


32.71



January 18, 201663,900
(6)










32.71



January 18, 2016127,800
(9)










12.00



March 28, 20158,300
(2)


12.00



March 28, 201555,600
(4)






12.00



March 28, 2015Garen Z. Manvelian, M.D.






15,000
(10)






25.47



October 3, 2016John K. Thottathil, Ph.D.






25,000
(11)






33.55



April 9, 2016     (1)
    
    Reflects cash-settled SARs granted in January 2006 pursuant to
    the Incentive Compensation Plan. For a description of the terms
    and vesting conditions with respect to this award, please see
    Compensation Discussion and Analysis above. 76




---



##### 



(2)
    
    Reflects cash-settled SARs granted in March 2005 pursuant to the
    Incentive Compensation Plan. The SARs vest on the third
    anniversary of the date of the grant, provided the applicable
    named executive officer has been continuously employed by us
    from the date of grant through each such anniversary. A
    condition to the exercise of the SARs payable is the
    satisfaction of the following formula: (i) our quick ratio
    equals or exceeds 1.25 and (ii) the combined balance of our
    cash and short-term investments equals or exceeds our trailing
    15-month net
    operating cash requirements (such formula to be determined as of
    the most recent fiscal annual or quarterly reporting period, but
    determined as if the SARs had already been paid). In calculating
    the quick ratio and combined balance of our cash and short-term
    investments for purposes of the conditions to the exercise of
    the cash-based SARs, our 3.5% Convertible Subordinated
    Notes due 2013 will not be considered a current liability. All
    of the SARs become vested and nonforfeitable upon a change in
    control of the Company.(3)
    
    Reflects cash-settled SARs granted in January 2006 on a
    stand-alone basis. For a description of the terms and vesting
    conditions with respect to this award, please see
    Compensation Discussion and Analysis above.(4)
    
    Reflects cash-settled SARs granted in March 2005 on a
    stand-alone basis. For a description of the terms and vesting
    conditions with respect to this award, please see
    footnote 2 above.(5)
    
    Reflects cash-settled SARs granted in January 2006 pursuant to
    the Incentive Compensation Plan. For a description of the terms
    and vesting conditions with respect to this award, please see
    Compensation Discussion and Analysis above.(6)
    
    Reflects stock-settled SARs granted in January 2006 pursuant to
    the Incentive Compensation Plan. For a description of the terms
    and vesting conditions with respect to this award, please see
    Compensation Discussion and Analysis above.(7)
    
    Reflects cash-settled SARs granted in March 2005 pursuant to the
    Incentive Compensation Plan. For a description of the terms and
    vesting conditions with respect to this award, please see
    footnote 2 above.(8)
    
    Reflects stock-settled SARs granted in March 2005 pursuant to
    the Incentive Compensation Plan. The SARs vest on the third
    anniversary of the date of the grant, provided the applicable
    named executive officer has been continuously employed by us
    from the date of grant through each such anniversary. With
    respect to the SARs payable in restricted shares, restricted
    shares paid upon exercise of the SARs will become vested and
    nonforfeitable on the second anniversary of the date of exercise
    of the SARs pursuant to which the restricted shares are paid,
    provided the applicable named executive officer has been
    continuously employed by the Company from the date of payment of
    the restricted shares through such second anniversary. All of
    the SARs have a ten-year term. All of the SARs become vested and
    nonforfeitable upon a change in control of the Company.(9)
    
    Reflects stock-settled SARs granted in March 2005 pursuant to
    the Incentive Compensation Plan. The vesting schedule with
    respect to these SARs has been accelerated, including the
    removal of any holding period restriction with respect to the
    shares issuable upon exercise of the SARs. All of the SARs have
    a ten-year term.(10)
    
    On October 4, 2006, the date on which Dr. Manvelian
    commenced employment with New River, the Compensation Committee
    granted him options to purchase 15,000 shares at an
    exercise price of $25.47, the closing price of our Common Stock
    on such date. Such options vest in three equal annual
    installments beginning on the first anniversary of the date of
    grant. This vesting schedule is accelerated in the event of a
    change in control of New River.(11)
    
    On April 10, 2006, the date on which Dr. Thottathil
    commenced employment with New River, the Compensation Committee
    granted him options to purchase 25,000 shares at an
    exercise price of $33.55, the closing price of our Common Stock
    on such date. Such options vest in three equal annual
    installments beginning on the first anniversary of the date of
    grant. This vesting schedule is accelerated in the event of a
    change in control of New River. 77




---



##### 



Option
    Exercises And Stock Vested In Fiscal 2006
    Option AwardsNumber of Shares


Value Realized onName

Acquired on Exercise(#)


Exercise($)Randal J. Kirk


10,000


$
261,700Krish S. Krishnan


100,000



2,857,141Suma M. Krishnan


182,900



6,728,945Garen Z. Manvelian, M.D.






John K. Thottathil, Ph.D.






     (1)
    
    On March 22, 2006, Mr. Kirk exercised options for
    10,000 shares at an exercise price of $3.33 per Share.
    The closing price of our Common Stock on the NASDAQ Global
    Market on such date was $29.50.(2)
    
    On February 13, 2006, Mr. Krishnan exercised options
    for 17,464 shares at an exercise price of $1.25 per
    share and sold the underlying shares on the open market on such
    date at an average price per share of $30.1167. On
    February 14, 2006, Mr. Krishnan exercised options for
    62,536 shares at an exercise price of $1.25 per share
    and 20,000 shares at an exercise price of $4.00 per
    share. Mr. Krishnan then sold the 82,536 underlying shares
    on the open market on such date at an average price per share of
    $30.00. The closing price of our common stock on the NASDAQ
    Global Market on February 13, 2006 and February 14,
    2006 was $30.00 and $30.45, respectively.(3)
    
    On March 20, 2006, Mrs. Krishnan, pursuant to her
    Rule 10b5-1
    plan, exercised options for 30,000 shares at an exercise
    price of $1.25 per share and sold the underlying shares on
    the open market on such date at an average price per share of
    $30.8579. The closing price of our Common Stock on the NASDAQ
    Global Market on such date was $30.50. On May 18, 2006,
    Mrs. Krishnan, pursuant to her
    Rule 10b5-1
    plan, exercised options for 667 shares at an exercise price
    of $1.25 per share and 29,333 shares at an exercise
    price of $4.00 per share. Mrs. Krishnan then sold the
    underlying shares on the open market on such date at an average
    price per share of $29.2068. The closing price of our Common
    Stock on the NASDAQ Global Market on such date was $28.60. On
    October 25, 2006, Mrs. Krishnan exercised 63,900 cash
    settled SARs at an exercise price of $12 per share. The
    closing price of our Common Stock on the NASDAQ Global Market on
    such date was $48.65. On November 9, 2006,
    Mrs. Krishnan exercised options for 33,333 shares at
    an exercise price of $1.25 per share and 25,667 shares at
    an exercise price of $4.00 per share. Mrs. Krishnan
    sold 54,783 of these shares on the open market on such date at
    an average price per share of $49.0106 per share and sold
    the remaining 4,217 shares on the open market on
    November 10, 2006 at an average price per share of
    $48.2297. The closing price of our Common Stock on the NASDAQ
    Global Market on such date was $49.39.  Director
    Compensation
   78




---



##### 



Director
    Compensation Table
  FeesEarned orPaid in


OptionName

Cash($)(1)


Awards($)(2)


Total($)Cesar L. Alvarez

$
53,500


$
392,829


$
446,329David S. Barlow

$
46,500


$
392,829



439,329Larry D. Homer

$
46,500


$
392,829



439,329Burton E. Sobel, M.D.

$
46,500


$
392.829



439.329     (1)
    
    Directors do not receive fees for meetings held by unanimous
    written consent.(2)
    
    The awards shown in this column constitute 20,000 options
    granted to each of our non-employee directors under our
    Incentive Compensation Plan in January 2006 that vested in
    January 2007. This column represents the dollar amount
    recognized for financial statement reporting purposes with
    respect to the 2006 fiscal year for the fair value of stock
    options granted to the directors. The fair value was estimated
    using the Black-Scholes option-pricing model in accordance with
    Statement of Financial Accounting Standards No. 123(R)
    (FAS 123(R)). The amounts are based on the
    compensation expense recognized for the award pursuant to
    FAS 123(R). These options had a grant date fair market
    value of $414,400. The relevant assumptions used in calculating
    grant date fair value pursuant to FAS 123(R) are
    (i) grant date of January 19, 2006, (ii) risk
    free interest rate of 4.08%, (iii) volatility of 70% and
    (iv) an expected term of 51/2 years. The number of
    outstanding options as of December 31, 2006, was as
    follows: Alvarez: 90,000, Barlow: 100,200, Horner: 75,000 and
    Sobel: 22,500.  Compensation
    Committee Interlocks and Insider Participation
     79




---



##### 



ITEM 12.
    SECURITY
    OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
    RELATED STOCKHOLDER MATTERS  Stock
    Ownership Of Certain Beneficial Owners And Management
  Security
    Ownership of Certain Beneficial Owners
    Name and

Number ofAddress of

Shares of


Percent ofBeneficial Owners

Common Stock


Class(1)Mr. Randal J. Kirk


18,610,416



50.2
%1881 Grove Avenue
    Radford, Virginia 24141FMR Corp.


4,176,061
(2)


11.3
%82 Devonshire Street
    Boston, Massachusetts 02109S.A.C. Capital Advisors


3,212,231
(3)


8.7
%72 Cummings Point Road
    Stamford, Connecticut 06902     (1)
    
    The percentages were calculated based on 37,051,564 shares
    outstanding as of March 1, 2007.(2)
    
    Based solely on the disclosures made in a report on
    Schedule 13G/A filed with the SEC by FMR Corp. on
    February 14, 2007.(3)
    
    Based solely on the disclosures made in a report on
    Schedule 13G/A filed with the SEC by S.A.C. Capital
    Advisors, LLC on February 14, 2007.  Security
    Ownership by Management
    
    each of the executive officers named in the Summary Compensation
    Table;
    each of the directors; and
    all of the executive officers and directors as a group.      80




---



##### 



Aggregate Number ofShares Beneficially


PercentName of Beneficial Owner or Number of Persons in Group

Owned(1)


of ClassCesar L. Alvarez


90,000



*David S. Barlow


90,200



*Larry D. Homer(2)


65,000



*Randal J. Kirk(3)


18,610,416



50.2
%Krish S Krishnan(4)


419,326



1.1
%Suma M. Krishnan(5)


419,326



1.1
%Garen Z. Manvelian, M.D.






*Burton E. Sobel, M.D.


15,000



*John K.
    Thottathil, Ph.D.


8,333



*All directors and executive
    officers as a group (9 persons)(6)


19,298,275



52.1
%     (*)
    
    Unless a specific percentage is noted in this column, each
    person owns less than 1% of the outstanding shares.(1)
    
    The amounts in this column include shares with respect to which
    certain persons had the right to acquire beneficial ownership
    within 60 days after March 1, 2007, pursuant to the
    exercise of options: Cesar L. Alvarez: 90,000 shares; David
    S. Barlow: 90,200 shares; Larry D. Horner:
    60,000 shares; Krish S. Krishnan: 181,626 shares; Suma
    M. Krishnan: 236,700 shares; Burton E. Sobel, M.D.:
    15,000 shares; John K. Thottathil: 8,333 shares and
    executive officers and directors as a group: 673,526 shares.(2)
    
    Includes 5,000 shares held directly by his spouse.(3)
    
    Includes shares held by the following entities over which
    Mr. Kirk (or an entity over which he exercises exclusive
    control) exercises exclusive control: 5,764,637 shares held
    by RJK; 4,415,278 shares held by NRM II;
    1,498,144 shares held by R.J. Kirk Declaration of Trust;
    1,471,806 shares held by Third Security Staff 2001, LLC;
    1,466,218 shares held by New River Management III, LP;
    1,182,665 shares held by Kirkfield, L.L.C.;
    523,650 shares held by Randal J. Kirk (2000) Limited
    Partnership; and 9,350 shares held by Lotus Capital
    (2000) Company Inc.(4)
    
    Includes 236,700 shares with respect to which his spouse,
    Suma M. Krishnan, had the right to acquire beneficial ownership
    within 60 days after March 1, 2007 pursuant to the
    exercise of options or SARs.(5)
    
    Includes 1,000 shares held directly by her spouse, Krish S.
    Krishnan, and 181,626 shares with respect to which her
    spouse had the right to acquire beneficial ownership within
    60 days after March 1, 2007 pursuant to the exercise
    of options or SARs.(6)
    
    Represents the sum of the shares and percent of class
    beneficially owned by all directors, nominees and executive
    officers named in the table above as a group. The overlap in
    beneficial ownership caused by the shared beneficial ownership
    by Mr. Krishnan and Mrs. Krishnan has been eliminated
    in calculating the 19,298,275 shares listed above. This
    overlap, however, has not been eliminated in calculating the
    amount and percentage of outstanding voting shares beneficially
    owned by each of Mr. Krishnan and Mrs. Krishnan. 81




---



##### 



Equity
    Compensation Plans
    Number ofNumber of


Weighted


SecuritiesSecurities to be


Average


RemainingIssued Upon


Exercise


AvailableExercise of


Price of


for FutureOutstanding


Outstanding


IssuanceOptions,


Options,


Under EquityWarrants


Warrants


CompensationPlan Category

and Rights


and Rights


PlansEquity Compensation Plans Approved
    by Shareholders


1,271,336


$
15.63



537,376Equity Compensation Plans Not
    Approved by Shareholders










Total


1,271,336


$
15.63



537,376   Change in
    Control
    Rule 14f-1
 82




---



##### 



ITEM 13.
    CERTAIN
    RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
    INDEPENDENCE  Certain
    Relationships And Related Transactions
        Regulation S-K,
  mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, sister-in-law
 83




---



##### 



Director
    Independence
              ITEM 14.
    PRINCIPAL
    ACCOUNTANT FEES AND SERVICES    84




---



##### 



2006


2005Audit Fees

$
267,000


$
277,500Audit Related Fees


105,000



Tax Fees


25,166



5,750All Other Fees






Total fees

$
397,166


$
283,250   Audit Fees. Form 10-Q,
  Audit Related Fees.
  Tax Fees.
  Audit Committee Pre-Approval Policy.
  PART IV
  ITEM 15.
    EXHIBITS AND
    FINANCIAL STATEMENT SCHEDULES    FINANCIAL STATEMENTS. page F-1:
  (i)
    Managements Report on Internal Control Over Financial
    Reporting (page 59).  (ii)
    Reports of Independent Registered Public Accounting Firm.  (iii)
    Consolidated Balance Sheets at December 31, 2006 and
    January 1, 2006.  (iv)
    Consolidated Statements of Operations for the fiscal years ended
    December 31, 2006, January 1, 2006, and
    January 2, 2005.  (v)
    Consolidated Statements of Shareholders Equity (Deficit)
    for the fiscal years ended December 31, 2006,
    January 1, 2006, and January 2, 2005.  (vi)
    Consolidated Statements of Cash Flows for the fiscal years ended
    December 31, 2006, January 1, 2006, and
    January 2, 2005.  (vii)
    Notes to Consolidated Financial Statements.  FINANCIAL STATEMENT SCHEDULES.
    EXHIBITS.
   85




---



##### 



SIGNATURES    
  By:
    /s/  Randal
    J. Kirk  Randal J. Kirk
 Chairman of the Board, President and Chief
 Executive Officer (Principal Executive Officer)
    Signature

Title/s/  Randal
    J. KirkRandal
    J. Kirk

Chairman of the Board, President
    and 
    Chief Executive Officer
    (Principal Executive Officer)/s/  Krish
    S. KrishnanKrish
    S. Krishnan

Chief Operating Officer, Chief
    Financial Officer,
    Secretary and Director
    (Principal Financial and Accounting Officer)/s/  Cesar
    L. AlvarezCesar
    L. Alvarez

Director/s/  David
    S. BarlowDavid
    S. Barlow

Director/s/  Larry
    D. HornerLarry
    D. Horner

Director/s/  Burton
    E. SobelBurton
    E. Sobel

Director  86




---



##### 



Report of
    Independent Registered Public Accounting Firm
             Share-Based Payment.
      F-1




---



##### 



Report of
    Independent Registered Public Accounting Firm
     Form 10-K,
                F-2




---



##### 



NEW RIVER
    PHARMACEUTICALS INC. AND SUBSIDIARY
  Consolidated
    Balance Sheets
 December 31,
    2006 and January 1, 2006
  December 31,


January 1,2006


2006ASSETSCurrent assets:Cash and cash equivalents

$
87,006,357


$
3,515,572Short-term investments


60,000,000



49,250,000Other receivables


214,208



135,755Prepaid expenses and other current
    assets


1,089,903



798,090Total current assets


148,310,468



53,699,417Property and equipment:Leasehold improvements


114,644



94,609Machinery and equipment


1,544,473



819,472Construction in progress


1,208,825



2,867,942



914,081Less accumulated depreciation and
    amortization


709,732



653,427Property and equipment, net


2,158,210



260,654Deferred tax asset


1,067,238



Total assets

$
151,535,916


$
53,960,071LIABILITIES AND
    SHAREHOLDERS DEFICITCurrent liabilities:Capital lease obligation, current

$
24,941


$
22,298Accounts payable


5,737,665



1,548,473Unpaid and accrued research and
    development expenses


11,120,473



3,201,732Accrued compensation


2,697,147



2,203,898Due to affiliates


253,511



34,138Income taxes payable


310,666



Deferred tax liability, current


1,067,238



Interest payable


2,071,750



Deferred revenue, current


6,146,355



Convertible notes, current


137,750,000



Total current liabilities


167,179,746



7,010,539Capital lease obligation,
    noncurrent


2,207



27,148Accrued stock-based compensation


34,536,098



3,404,435Deferred revenue


59,520,548



50,000,000Total liabilities


261,238,599



60,442,122Shareholders Deficit:Preferred stock, par value
    $0.001 per share. Authorized 25,000,000 shares; none
    issued and outstanding






Common stock, par value
    $0.001 per share. Authorized 150,000,000 shares;
    issued and outstanding 36,957,064 shares in 2006 and
    36,367,064 shares in 2005


36,957



36,367Additional paid-in capital


17,532,590



63,326,824Accumulated deficit


(127,272,230
)


(69,845,242
)Total shareholders deficit


(109,702,683
)


(6,482,051
)Commitments and contingenciesTotal liabilities and
    shareholders deficit

$
151,535,916


$
53,960,071    F-3




---



##### 



NEW RIVER
    PHARMACEUTICALS INC. AND SUBSIDIARY
  Consolidated
    Statements of Operations
 Fiscal
    years ended December 31, 2006, January 1, 2006 and
    January 2, 2005
  2006


2005


2004Collaboration revenues

$
34,333,097







Operating costs and expenses:Selling, general, and
    administrative

$
48,992,486



13,228,644



5,932,839Research and development


40,962,678



18,366,376



10,235,111Depreciation and amortization of
    property and equipment


152,840



156,597



119,450Total operating expenses


90,108,004



31,751,617



16,287,400Operating loss


(55,774,907
)


(31,751,617
)


(16,287,400
)Other income (expense):Gain on settlement of litigation










1,764,043Loss on disposal of property and
    equipment


(10,226
)






(18,776
)Interest expense


(2,349,216
)


(4,976
)


(11,422
)Write-off of debt issuance costs


(4,254,890
)






Interest income


5,983,814



1,890,273



218,645Total other income (expense), net


(630,518
)


1,885,297



1,952,490Loss before income taxes and
    cumulative effect of change in accounting principle


(56,405,425
)


(29,866,320
)


(14,334,910
)Income taxes


310,666







Loss before cumulative effect of
    change in accounting principle


(56,716,091
)


(29,866,320
)


(14,334,910
)Cumulative effect of change in
    accounting principle


(710,897
)






Net loss

$
(57,426,988
)


(29,866,320
)


(14,334,910
)Net loss per share:Basic and diluted

$
(1.60
)


(0.83
)


(0.48
)    F-4




---



##### 



NEW RIVER
    PHARMACEUTICALS INC. AND SUBSIDIARY
  Consolidated
    Statements of Shareholders Equity (Deficit)
 Fiscal
    years ended December 31, 2006, January 1, 2006, and
    January 2, 2005
  AdditionalCommon Stock


Paid in


AccumulatedShares


Dollars


Capital


Deficit


TotalBalances at December 28, 2003


25,185,776


$
25,186


$
24,479,789


$
(25,644,012
)

$
(1,139,037
)Issuance of common stock-prior to
    initial public offering ($2.50 per share)


1,940,000



1,940



4,848,060







4,850,000Stock-based compensation










1,386,000







1,386,000Contribution of services by
    related party










576,229







576,229Initial public offering
    ($4.00 per share), net of issuance costs


8,400,000



8,400



29,969,036







29,977,436Exercise of stock options


23,332



23



69,142







69,165Net loss














(14,334,910
)


(14,334,910
)Balances at January 2, 2005


35,549,108



35,549



61,328,256



(39,978,922
)


21,384,883Stock-based compensation










680,887







680,887Exercise of stock options


817,956



818



1,317,681







1,318,499Net loss














(29,866,320
)


(29,866,320
)Balances at January 1, 2006


36,367,064



36,367



63,326,824



(69,845,242
)


(6,482,051
)Stock-based compensation










7,008,496







7,008,496Exercise of stock options


590,000



590



2,247,770







2,248,360Prepaid forward purchase of common
    stock










(41,000,000
)






(41,000,000
)Purchase of convertible note hedge










(43,529,000
)






(43,529,000
)Issuance of warrants










29,478,500







29,478,500Net loss














(57,426,988
)


(57,426,988
)Balances at December 31, 2006


36,957,064


$
36,957


$
17,532,590


$
(127,272,230
)

$
(109,702,683
)    F-5




---



##### 



NEW RIVER
    PHARMACEUTICALS INC. AND SUBSIDIARY
  Consolidated
    Statements of Cash Flows
 Fiscal
    years ended December 31, 2006, January 1, 2006, and
    January 2, 2005
  2006


2005


2004Cash flows from operating
    activities:Net loss

$
(57,426,988
)

$
(29,866,320
)

$
(14,334,910
)Cumulative effect of change in
    accounting principle


710,897







Loss before cumulative effect of
    change in accounting principle


(56,716,091
)


(29,866,320
)


(14,334,910
)Adjustments to reconcile net loss
    to net cash provided by (used in) operating activities:Depreciation and amortization of
    property and equipment


152,840



156,597



119,450Amortization of debt issuance costs


277,308







Write-off of debt issuance costs


4,254,620







Loss on disposal of property and
    equipment


10,226







18,776Stock-based compensation


7,008,496



680,887



1,386,000Contribution of services by related
    party










576,229Changes in operating assets and
    liabilities:Due from affiliates










88,381Other receivables


(78,453
)


(111,008
)


(24,747
)Prepaid expenses and other current
    assets


(291,813
)


(482,446
)


(315,644
)Accounts payable


4,189,192



847,298



233,433Unpaid and accrued research and
    development expenses


7,918,741



1,101,311



1,192,916Accrued compensation


493,249



697,485



1,469,640Due to affiliates


219,373



(42,782
)


64,237Income taxes payable


310,666







Accrued interest payable


2,071,750







Accrued stock-based compensation


32,762,701



3,404,435



Exercise of stock appreciation
    rights


(2,341,935
)






Deferred revenue


15,666,903



50,000,000



Net cash provided by (used in)
    operating activities


15,907,773



26,385,457



(9,526,239
)Cash flows from investing
    activities:Proceeds from sale of short-term
    investments


91,550,000



66,125,000



6,000,000Purchases of short-term investments


(102,300,000
)


(94,225,000
)


(27,150,000
)Proceeds from sale of property and
    equipment






91



7,545Purchases of property and equipment


(2,060,622
)


(87,499
)


(123,744
)Net cash used in investing
    activities


(12,810,622
)


(28,187,408
)


(21,266,199
)Cash flows from financing
    activities:Proceeds from notes payable to
    shareholder










1,450,000Repayment of notes payable to
    shareholder










(1,800,000
)Proceeds from issuance of warrants


29,478,500







Prepaid forward purchase of Company
    stock


(41,000,000
)






Proceeds from convertible notes
    offering, net of issuance costs


137,750,000







Payment of convertible notes
    issuance costs


(4,531,928
)






Purchase of convertible note hedges


(43,529,000
)






Principal payments on capital lease
    obligation


(22,298
)


(19,532
)


Net proceeds from issuance of
    common stock prior to initial public offering of common stock










4,850,000Net proceeds from initial public
    offering of common stock










29,977,436Net proceeds from issuances of
    common stock from exercise of stock options


2,248,360



1,318,499



69,165Net cash provided by financing
    activities


80,393,634



1,298,967



34,546,601Net increase (decrease) in cash and
    cash equivalents


83,490,785



(502,984
)


3,754,163Cash and cash equivalents at
    beginning of period


3,515,572



4,018,556



264,393Cash and cash equivalents at end of
    period

$
87,006,357


$
3,515,572


$
4,018,556Supplemental cash flow information:Interest paid

$
4,439


$
4,976


$
11,422Noncash investing and financing
    activities:      F-6




---



##### 



NEW RIVER
    PHARMACEUTICALS INC. AND SUBSIDIARY
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 Fiscal years ended December 31, 2006, January 1,
    2006, and January 2, 2005
  (1)  ORGANIZATION
    AND NATURE OF BUSINESS
  Organization
    Nature
    of Business
  tm
  (2)  SUMMARY
    OF SIGNIFICANT ACCOUNTING POLICIES
  (a)
    Principles
    of Consolidation    (b)
    Fiscal
    Year  52/53-week
  (c)
    Cash
    and Cash Equivalents   F-7




---



##### 



NEW RIVER
    PHARMACEUTICALS INC. AND SUBSIDIARY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   (d)
    Short-term
    Investments  Accounting for Certain Investments in
    Debt and Equity Securities. available-for-sale.
  (e)
    Inventories  Accounting for
    Research and Development Costs,
    (f)
    Property
    and Equipment    (g)
    Impairment
    or Disposal of Long-Lived Assets   F-8




---



##### 



NEW RIVER
    PHARMACEUTICALS INC. AND SUBSIDIARY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (h)
    Fair
    Value of Financial Instruments    (i)
    Income
    Taxes    Accounting for Uncertainty in
    Income Taxes
  (j)
    Revenue
    Recognition, Cost of Goods Sold and Sales Returns  Revenue Recognition When the Right of Return
    Exists,
  00-21, Revenue Arrangements with Multiple Deliverables 00-21). 00-21,
 F-9




---



##### 



NEW RIVER
    PHARMACEUTICALS INC. AND SUBSIDIARY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (k)
    Research
    and Development      (l)
    Stock-Based
    Compensation  Share-Based
    Payment,
     F-10




---



##### 



NEW RIVER
    PHARMACEUTICALS INC. AND SUBSIDIARY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    January 1,


January 2,2006


2005Net loss:As reported

$
(29,866,320
)

$
(14,334,910
)Add stock-based employee
    compensation expense included in reported net loss, net of
    related tax effects


680,887



3,600Deduct total stock-based employee
    compensation expense determined under fair-value-based method
    for all awards, net of related tax effects


(2,738,634
)


(458,381
)Pro forma

$
(31,924,067
)

$
(14,789,691
)Net loss per share:Basic and diluted:As reported

$
(0.83
)

$
(0.48
)Pro forma

$
(0.89
)

$
(0.50
)     Fiscal Years EndedDecember 31,

January 1,

January 2,2006

2006

2005Expected dividend yield

0%

0%

0%Risk-free interest
    rate  all awards

4.07%  4.91%

4.25%  4.61%

4.10%  4.53%Expected life of options

5.5 
    6.5 years

6  10 years

10 yearsExpected life of SARs

0.25  5 years

3   5 years

Expected volatility 
    all awards*

60%  70%

70%

70%  F-11




---



##### 



NEW RIVER
    PHARMACEUTICALS INC. AND SUBSIDIARY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    *
    
    The expected volatility assumption for options issued during the
    fiscal year ended January 2, 2005 prior to the
    Companys initial public offering that was completed on
    August 10, 2004 was 0%. The volatility assumption in the
    table represents the assumption used for options issued upon or
    subsequent to the completion of the Companys initial
    public offering.  (m)
    Net
    Loss Per Share    (n)
    Reclassifications    (o)
    Use of
    Estimates    (3)  COLLABORATION
    ARRANGEMENT AND OTHER AGREEMENTS
    00-21
 F-12




---



##### 



NEW RIVER
    PHARMACEUTICALS INC. AND SUBSIDIARY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    24-month
       F-13




---



##### 



NEW RIVER
    PHARMACEUTICALS INC. AND SUBSIDIARY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (4)  CONVERTIBLE
    NOTES
         F-14




---



##### 



NEW RIVER
    PHARMACEUTICALS INC. AND SUBSIDIARY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
            Form S-3ASR. Form S-3ASR
 F-15




---



##### 



NEW RIVER
    PHARMACEUTICALS INC. AND SUBSIDIARY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
             F-16




---



##### 



NEW RIVER
    PHARMACEUTICALS INC. AND SUBSIDIARY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (5)  LIQUIDITY
    AND INITIAL PUBLIC OFFERING
           F-17




---



##### 



NEW RIVER
    PHARMACEUTICALS INC. AND SUBSIDIARY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    one-for-two
  (6)  ROYALTY
    OBLIGATIONS
      (7)  LEASES
    (8)  RELATED
    PARTY TRANSACTIONS
   F-18




---



##### 



NEW RIVER
    PHARMACEUTICALS INC. AND SUBSIDIARY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (9)  INCOME
    TAXES
      2006


2005


2004Computed expected
    income tax benefit

$
(19,177,845
)


(10,154,548
)


(4,873,869
)(Increase) reduction in income tax
    benefit resulting from:State income tax benefit, net of
    effect of federal income taxes


(2,120,653
)


(1,138,369
)


(489,830
)Change in effective state income
    tax rate










(241,817
)Stock-based compensation


796,169







470,016Non-deductible compensation


248,913



375,595



Contribution of services from
    related party










195,917R&D tax credits


(2,414,010
)


(1,191,106
)


(141,496
)Other, net


7,442



5,082



28,310Change in valuation allowance for
    deferred tax assets


22,970,650



12,103,346



5,052,769Total income tax expense

$
310,666







    F-19




---



##### 



NEW RIVER
    PHARMACEUTICALS INC. AND SUBSIDIARY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     2006


2005Deferred tax assets:Other receivable

$
97,091



Property and equipment


234,526



218,405Debt issuance costs


1,672,586



Stock-based compensation


15,180,411



1,729,146Accrued expenses


353,367



Deferred revenue


18,980,000



Federal alternative minimum tax
    credit


280,741



251,934Research tax credit carryforwards


3,746,612



1,332,602Net operating loss carryforwards


22,006,960



27,379,579Total gross deferred tax assets


62,552,294



30,911,666Less valuation allowance


(61,477,616
)


(30,676,079
)Net deferred tax assets


1,074,678



235,587Deferred tax liabilities:Prepaid expenses


(328,530
)


(235,587
)Convertible notes


(746,148
)


Net deferred tax asset

$




   Accounting for Income Taxes.
   F-20




---



##### 



NEW RIVER
    PHARMACEUTICALS INC. AND SUBSIDIARY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   (10)  NET
    LOSS PER SHARE
    Net Loss


Shares


Per Share(Numerator)


(Denominator)


AmountFiscal year ended January 2,
    2005:Basic net loss per share

$
(14,334,910
)


29,694,742


$
(0.48
)Effect of dilutive stock options






Diluted net loss per share

$
(14,334,910
)


29,694,742


$
(0.48
)Fiscal year ended January 1,
    2006:Basic net loss per share

$
(29,866,320
)


35,943,596


$
(0.83
)Effect of dilutive stock options






Diluted net loss per share

$
(29,866,320
)


35,943,596


$
(0.83
)Fiscal year ended
    December 31, 2006:Basic net loss per share

$
(57,426,988
)


36,009,295


$
(1.60
)Effect of dilutive stock options
    and SARs






Diluted net loss per share

$
(57,426,988
)


36,009,295


$
(1.60
)     (11)  STOCK-BASED
    COMPENSATION
   F-21




---



##### 



NEW RIVER
    PHARMACEUTICALS INC. AND SUBSIDIARY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Number


Weightedof


AverageShares


Exercise PriceBalance at December 28, 2003


1,328,126



1.55Granted


417,000



4.09Exercised


(23,332
)


2.96Balance at January 2, 2005


1,721,794



2.15Granted


343,000



16.34Exercised


(817,956
)


1.61Expired or Forfeited


(30,002
)


2.55Balance at January 1, 2006


1,216,836



6.50Granted


208,250



30.73Exercised


(590,000
)


3.81Expired or Forfeited


(43,000
)


29.12Balance at December 31, 2006


792,086



13.65     Options OutstandingRemaining


Options ExercisableRange of

Number of


Weighted-Average


Contractual Life


Number of


Weighted-AverageExercise Prices

Options


Exercise Price


(In Years)


Options


Exercise Price$ 1.25 - $ 1.29


53,626


$
1.29



4.31



53,626


$
1.29$ 3.33 - $ 4.00


302,700


$
3.93



7.26



229,367


$
3.91$ 7.11 - $11.60


157,168


$
11.47



8.22



154,834


$
11.53$22.31 - $26.17


143,342


$
23.55



8.99



17,009


$
22.87$28.67 - $33.55


135,000


$
32.32



9.15






$
$49.31


250


$
49.31



9.93






$
792,086


$
13.65



7.89



454,836


$
6.91      F-22




---



##### 



NEW RIVER
    PHARMACEUTICALS INC. AND SUBSIDIARY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
           (12)  CONTINGENCIES
     F-23




---



##### 



NEW RIVER
    PHARMACEUTICALS INC. AND SUBSIDIARY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     (13)  RECENT
    ACCOUNTING PRONOUNCEMENTS
  Fair Value
    Measurements
  Considering the Effects of Prior
    Year Misstatements when Quantifying Misstatements in Current
    Year Financial Statements
  (14)  QUARTERLY
    RESULTS OF OPERATIONS (UNAUDITED)
    Quarter endedApril 2,


July 2,


October 1,


December 31,Fiscal Year Ended December 31, 2006

2006


2006


2006


2006Collaboration revenues

$
21,327,376



5,497,701



5,025,453



2,482,567Income (loss) before income taxes
    and cumulative effect of change in accounting principle


8,424,933



(4,253,347
)


(13,608,602
)


(46,968,409
)Net income (loss)


7,714,036



(4,253,347
)


(13,608,602
)


(47,279,075
)Basic and diluted net income
    (loss) per share

$
0.21



(0.12
)


(0.38
)


(1.34
)   April 3,


July 3,


October 2,


January 1,Fiscal Year Ended January 1, 2006

2005


2005


2005


2006Net loss

$
(6,672,232
)


(6,354,434
)


(9,101,462
)


(7,738,192
)Basic and diluted net (loss) per
    share

$
(0.19
)


(0.18
)


(0.25
)


(0.21
)   (15)  STOCK
    SPLIT
  two-for-one two-for-one
 F-24




---



##### 



NEW RIVER
    PHARMACEUTICALS INC. AND SUBSIDIARY
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   (16)  DEFINITIVE
    AGREEMENT OF MERGER (SUBSEQUENT EVENT)
  Hart-Scott-Rodino
 F-25




---



##### 



EXHIBIT INDEX
  ExhibitNumber

Exhibit Title2
.1

Agreement and Plan of Merger,
    dated as of February 20, 2007, by and among Shire plc,
    Shuttle Corporation and New River Pharmaceuticals Inc.,
    including the form of Tender and Support Agreement, dated as of
    February 20, 2007, by and among Shire plc, Randal J. Kirk,
    Kirkfield, L.L.C., New River Management II, LP, New River
    Management III, LP, RJK, L.L.C., Third Security Staff 2001
    LLC, Randal J. Kirk (2000) Limited Partnership, Trust under
    R.J. Kirk Declaration of Trust, dated March 29, 2000,
    between Randal J. Kirk, as settlor, and Randal J. Kirk, as
    trustee, and Lotus Capital (2000) Company Inc. as
    Exhibit A and the Plan of Merger as Exhibit B thereto
    (incorporated by reference to Exhibit 2.1 to New River
    Pharmaceutical Inc.s Current Report on
    Form 8-K
    filed by the Company with the SEC on February 23, 2007)3
.1

Amended and Restated Articles of
    Incorporation of New River Pharmaceuticals Inc., as amended
    (previously filed as Exhibit 3.1 to New River
    Pharmaceuticals Inc.s Registration Statement on
    Form S-1
    (Registration
    No. 333-115207)
    and incorporated herein by reference).3
.2

Amended and Restated Bylaws of New
    River Pharmaceuticals Inc. (previously filed as Exhibit 3.2
    to New River Pharmaceuticals Inc.s Registration Statement
    on
    Form S-1
    (Registration
    No. 333-115207)
    and incorporated herein by reference).4
.1

Indenture, dated as of
    July 25, 2006, between New River Pharmaceuticals Inc. and
    Wilmington Trust Company, as trustee (previously filed as
    Exhibit 4.1 to New River Pharmaceutical Inc.s Current
    Report on
    Form 8-K
    filed on July 27, 2006, and incorporated herein by
    reference)4
.2

Form of Convertible Subordinated
    Notes (contained in Exhibit 4.1)4
.3

Registration Rights Agreement,
    dated as of July 25, 2006, between New River
    Pharmaceuticals Inc. and Merrill Lynch, Pierce,
    Fenner & Smith Incorporated (previously filed as
    Exhibit 4.2 to New River Pharmaceutical Inc.s Current
    Report on
    Form 8-K
    filed on July 27, 2006, and incorporated herein by
    reference)10
.1+

New River Pharmaceuticals Inc.
    Incentive Compensation Plan (previously filed as
    Exhibit 10.1 to New River Pharmaceuticals Inc.s
    Registration Statement on
    Form S-1
    (Registration
    No. 333-115207)
    and incorporated herein by reference).10
.2+

Form of Stock Option Agreement for
    Employees (previously filed as Exhibit 10.1 to New River
    Pharmaceuticals Inc.s Registration Statement on
    Form S-8
    (Registration
    No. 333-121102)
    and incorporated herein by reference).10
.3+

Form of Stock Option Agreement for
    Non-Employee Directors (previously filed as Exhibit 10.2 to
    New River Pharmaceuticals Inc.s Registration Statement on
    Form S-8
    (Registration
    No. 333-121102)
    and incorporated herein by reference).10
.4

Administrative Services Agreement,
    dated as of August 10, 2004, by and between New River
    Pharmaceuticals Inc. and Third Security, LLC (previously filed
    as Exhibit 10.4 to New River Pharmaceuticals Inc.s
    Annual Report on
    Form 10-K
    for the year ended January 2, 2005, and incorporated herein
    by reference).10
.5

Lease Agreement, dated as of
    August 10, 2004, by and between New River Pharmaceuticals
    Inc. and Third Security, LLC, as amended on September 20,
    2004 (previously filed as Exhibit 10.5 to New River
    Pharmaceuticals Inc.s Annual Report on
    Form 10-K
    for the year ended January 2, 2005, and incorporated herein
    by reference).10
.6

Lease Agreement, dated
    May 15, 2000, by and between Virginia Tech Foundation, Inc.
    and Lotus Biochemical Corporation, as amended by that certain
    Modification and Renewal of Lease, dated April 25, 2001,
    that certain Modification of Lease, dated February 4, 2002,
    that certain Renewal of Lease, dated April 29, 2002, and
    that certain Renewal of Lease, dated June 25, 2003
    (previously filed as Exhibit 10.1 to New River
    Pharmaceuticals Inc.s Registration Statement on
    Form S-1
    (Registration
    No. 333-115207)
    and incorporated herein by reference)10
.6.1

Modification of Lease, effective
    August 1, 2004, and that certain modification of Lease,
    effective November 1, 2004, which amend the Lease
    Agreement, dated May 15, 2000, by and between Virginia Tech
    Foundation, Inc. and Lotus Biochemical Corporation, as amended
    (which has been filed as Exhibit 10.6) (previously filed as
    Exhibit 10.6.1 to New River Pharmaceuticals Inc.s
    Annual Report on
    Form 10-K
    for the year ended January 2, 2005, and incorporated herein
    by reference). E-1




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##### 



ExhibitNumber

Exhibit Title10
.7

Sublease Agreement, dated as of
    July 23, 2001, as amended, by and among Veterinary
    Technologies Corporation, New River Pharmaceuticals Inc. and
    Virginia Tech Foundation, Inc. (previously filed as
    Exhibit 10.1 to New River Pharmaceuticals Inc.s
    Registration Statement on
    Form S-1
    (Registration
    No. 333-115207)
    and incorporated herein by reference).10
.7.1

Renewal of Sublease, effective
    December 21, 2004, which amends the Sublease Agreement,
    dated as of July 23, 2001, as amended, by and among
    Veterinary Technologies Corporation, New River, Pharmaceuticals
    Inc. and Virginia Tech Foundation, Inc. (which has been filed as
    Exhibit 10.7) (previously filed as Exhibit 10.7.1 to
    New River Pharmaceuticals Inc.s Annual Report on
    Form 10-K
    for the year ended January 2, 2005, and incorporated herein
    by reference).10
.8

Credit Agreement, dated
    April 23, 2004, by and between New River Pharmaceuticals
    Inc. and Randal J. Kirk (2000) Limited Partnership
    (previously filed as Exhibit 10.1 to New River
    Pharmaceuticals Inc.s Registration Statement on
    Form S-1
    (Registration
    No. 333-115207)
    and incorporated herein by reference).10
.9

Assignment, dated November 9,
    2000, by Thomas Piccariello, Randal J. Kirk and Lawrence P. Olon
    in favor of Lotus Biochemical Corporation (previously filed as
    Exhibit 10.7 to New River Pharmaceuticals Inc.s
    Registration Statement on
    Form S-1
    (Registration
    No. 333-115207)
    and incorporated herein by reference).10
.10

Assignment, dated
    December 26, 2001, by Thomas Piccariello, Randal J. Kirk
    and Lawrence P. Olon in favor of New River Pharmaceuticals Inc.
    (previously filed as Exhibit 10.8 to New River
    Pharmaceuticals Inc.s Registration Statement on
    Form S-1
    (Registration
    No. 333-115207)
    and incorporated herein by reference).10
.11

Assignment, dated July 16,
    2003, by Thomas Piccariello, Randal J. Kirk and Lawrence P. Olon
    in favor of New River Pharmaceuticals Inc. (previously filed as
    Exhibit 10.9 to New River Pharmaceuticals Inc.s
    Registration Statement on
    Form S-1
    (Registration
    No. 333-115207)
    and incorporated herein by reference).10
.12

Agreement, dated June 30,
    2004, by and among New River Pharmaceuticals Inc., Innovative
    Technologies, L.L.C. and Keith Latham (previously filed as
    Exhibit 10.10 to New River Pharmaceuticals Inc.s
    Registration Statement on
    Form S-1
    (Registration
    No. 333-115207)
    and incorporated herein by reference).10
.13*

United States Collaboration
    Agreement, dated as of March 31, 2005, by and among New
    River Pharmaceuticals Inc., Shire LLC and Shire Pharmaceuticals
    Group plc. (previously filed as Exhibit 10.13 to New River
    Pharmaceuticals Inc.s Annual Report on
    Form 10-K
    for the year ended January 2, 2005, and incorporated herein
    by reference).10
.14*

ROW Collaboration Agreement, dated
    as of March 31, 2005, by and among New River
    Pharmaceuticals Inc., Shire Pharmaceuticals Ireland Limited and
    Shire Pharmaceuticals Group plc. (previously filed as
    Exhibit 10.14 to New River Pharmaceuticals Inc.s
    Annual Report on
    Form 10-K
    for the year ended January 2, 2005, and incorporated herein
    by reference).10
.15*

Active Pharmaceutical Ingredient
    Supply Agreement, dated May 18, 2006, by and between
    Organichem Corporation and New River Pharmaceuticals Inc.
    (previously filed as Exhibit 10.17 to New River
    Pharmaceutical Inc.s Current Report on
    Form 8-K
    filed on July 13, 2006 and incorporated herein by
    reference).10
.16*

Manufacturing Services Agreement
    between Patheon Pharmaceuticals, Inc and New River
    Pharmaceuticals Inc., dated as of August 18, 2006
    (previously filed as Exhibit 10.23 to New River
    Pharmaceuticals Inc.s Report on
    Form 10-Q
    for the quarter ended October 1, 2006, and incorporated
    herein by reference).10
.17

Calculation of U.S. product
    profit share for Schedule II Classification (previously
    filed as Exhibit 10.22 to New River Pharmaceutical
    Inc.s Current Report on
    Form 8-K
    filed on October 10, 2006, and incorporated herein by
    reference).10
.18

Lease Agreement, dated
    June 19, 2006 by and between Virginia Tech Foundation, Inc.
    and New River Pharmaceuticals Inc. (previously filed as
    Exhibit 10.21 to New River Pharmaceuticals Inc.s
    Report on
    Form 10-Q
    for the quarter ended July 2, 2006, and incorporated herein
    by reference). E-2




---



##### 



ExhibitNumber

Exhibit Title10
.19

Purchase Agreement, dated as of
    July 19, 2006, among New River Pharmaceuticals Inc. and
    Merrill Lynch & Co., Merrill Lynch, Pierce,
    Fenner & Smith Incorporated and W.R. Hambrecht+ Co.,
    LLC (previously filed as Exhibit 10.18 to New River
    Pharmaceutical Inc.s Current Report on
    Form 8-K
    filed on July 27, 2006, and incorporated herein by
    reference)10
.20

Confirmation of OTC Convertible
    Note Hedge, effective July 25, 2006 (previously filed
    as Exhibit 10.19 to New River Pharmaceutical Inc.s
    Current Report on
    Form 8-K
    filed on July 27, 2006, and incorporated herein by
    reference).10
.21

Confirmation of OTC Warrant
    Transaction, effective July 25, 2006 (previously filed as
    Exhibit 10.20 to New River Pharmaceutical Inc.s
    Current Report on
    Form 8-K
    filed on July 27, 2006, and incorporated herein by
    reference).10
.22+

Summary of Director Compensation.10
.23+

Summary of Compensation for the
    Chairman of the Board, President and Chief Executive Officer and
    the Chief Financial Officer, Chief Operating Officer and
    Secretary for Fiscal 2006 (previously filed under Item 1.01
    to New River Pharmaceuticals Inc.s Current Report on
    Form 8-K
    on August 29, 2006, and incorporated herein by reference).21
.1

Subsidiaries of New River
    Pharmaceuticals Inc.23
.1

Consent of KPMG LLP.31
.1

Certification of Randal J. Kirk,
    Chairman of the Board, President and Chief Executive Officer
    (Principal Executive Officer) of New River Pharmaceuticals Inc.,
    pursuant to
    Rules 13a-14(a)
    and
    15d-14(a)
    promulgated under the Securities Exchange Act of 1934, as
    adopted pursuant to Section 302 of the Sarbanes-Oxley Act
    of 2002.31
.2

Certification of Krish S.
    Krishnan, Chief Operating Officer, Chief Financial Officer,
    Secretary and Director (Principal Financial and Accounting
    Officer) of New River Pharmaceuticals Inc., pursuant to
    Rules 13a-14(a)
    and
    15d-14(a)
    promulgated under the Securities Exchange Act of 1934, as
    adopted pursuant to Section 302 of the Sarbanes-Oxley Act
    of 2002.32
.1

Certification of Randal J. Kirk,
    Chairman of the Board, President and Chief Executive Officer
    (Principal Executive Officer) of New River Pharmaceuticals Inc.,
    pursuant to 18 U.S.C. Section 1350, as adopted
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32
.2

Certification of Krish S.
    Krishnan, Chief Operating Officer, Chief Financial Officer,
    Secretary and Director (Principal Financial and Accounting
    Officer) of New River Pharmaceuticals Inc., pursuant to
    18 U.S.C. Section 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.     *
    
    The Securities and Exchange Commission has granted confidential
    treatment with respect to certain information in these exhibits.
    The confidential portions of these exhibits have been omitted. A
    complete version of this exhibit has been filed separately with
    the Securities and Exchange Commission.+
    
    Denotes compensatory plans or arrangements or management
    contracts E-3