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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-K



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

For the fiscal year ended December 31, 2006.

OR



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

For the transition period from                      to
                    .

Commission
file number: 0-21643



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CV THERAPEUTICS, INC.

(Exact name of Registrant as specified in its charter)



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

3172 Porter Drive, Palo Alto, California 94304

(Address of principal executive offices, including zip code)

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



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Securities registered pursuant to Section 12(b) of the Act:None

Securities registered pursuant to Section 12(g) of the Act:Common Stock, $.001 Par Value

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No ̈

Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes ̈No x

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to the best of the Registrants knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

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

Large accelerated filer x Accelerated
filer ̈Non-accelerated filer ̈

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, was
$644,069,574 as of June 30, 2006.

As of February 21, 2007, there were 59,327,444 shares of the registrants common stock
outstanding.



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DOCUMENTS INCORPORATED BY REFERENCE

Certain portions of the Registrants Definitive Proxy Statement in connection with
the Registrants 2007 annual meeting of stockholders are incorporated herein by reference to Part III of this report.



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CV THERAPEUTICS, INC.

FORM 10-K

TABLE OF CONTENTS



|                     |  |                                                                                                              |  |     
|-------------------- |  | ------------------------------------------------------------------------------------------------------------ |  | ----
|                     |  |                                                                                                              |  | Page
|PART I              
|                     |  |                                                                                                             
|Item 1.              |  | Business                                                                                                     |  | 3   
|                     |  |                                                                                                             
|Item 1A.             |  | Risk Factors                                                                                                 |  | 19  
|                     |  |                                                                                                             
|Item 1B.             |  | Unresolved Staff Comments                                                                                    |  | 45  
|                     |  |                                                                                                             
|Item 2.              |  | Properties                                                                                                   |  | 45  
|                     |  |                                                                                                             
|Item 3.              |  | Legal Proceedings                                                                                            |  | 46  
|                     |  |                                                                                                             
|Item 4.              |  | Submission of Matters to a Vote of Security Holders                                                          |  | 46  
|                    
|PART II             
|                     |  |                                                                                                             
|Item 5.              |  | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 47  
|                     |  |                                                                                                             
|Item 6.              |  | Selected Financial Data                                                                                      |  | 49  
|                     |  |                                                                                                             
|Item 7.              |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                        |  | 50  
|                     |  |                                                                                                             
|Item 7A.             |  | Quantitative and Qualitative Disclosures About Market Risk                                                   |  | 65  
|                     |  |                                                                                                             
|Item 8.              |  | Financial Statements and Supplementary Data                                                                  |  | 66  
|                     |  |                                                                                                             
|Item 9.              |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                         |  | 66  
|                     |  |                                                                                                             
|Item 9A.             |  | Controls and Procedures                                                                                      |  | 67  
|                     |  |                                                                                                             
|Item 9B.             |  | Other Information                                                                                            |  | 69  
|                    
|PART III            
|                     |  |                                                                                                             
|Item 10.             |  | Directors, Executive Officers and Corporate Governance                                                       |  | 70  
|                     |  |                                                                                                             
|Item 11.             |  | Executive Compensation                                                                                       |  | 70  
|                     |  |                                                                                                             
|Item 12.             |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters               |  | 70  
|                     |  |                                                                                                             
|Item 13.             |  | Certain Relationships and Related Transactions                                                               |  | 70  
|                     |  |                                                                                                             
|Item 14.             |  | Principal Accountant Fees and Services                                                                       |  | 70  
|                    
|PART IV             
|                     |  |                                                                                                             
|Item 15.             |  | Exhibits and Financial Statement Schedules                                                                   |  | 71  
|                     | 
|Signatures           |  | 77                                                                                                          
|                     | 
|Financial Statements |  | 78                                                                                                          



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PART I

Forward-Looking Statements

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

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

These forward-looking statements are subject to risks and uncertainties that may
cause actual results to differ materially, including but not limited to, early stage of development; regulatory review and approval of our products or product candidates; the conduct, timing, and results of clinical trials; commercialization of
products; market acceptance of products; product labeling; liquidity; intellectual property claims; litigation; and other risks discussed under the heading Item 1A. Risk Factors. You should be aware that the occurrence of any of the
events discussed under the heading Item 1A. Risk Factors and elsewhere in this report could substantially harm our business, results of operations and financial condition and that, if any of these events occurs, the trading price of our
common stock could decline and you could lose all or a part of the value of your shares of our common stock.

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



|Item 1. | Business
|------- | --------

Business Overview and Strategy

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

We currently promote Ranexa® (ranolazine extended-release tablets) with our national cardiovascular specialty sales force. Ranexa was approved in the United States in January 2006
by the U.S. Food and Drug Administration, or FDA, and was launched in the United States in March 2006 for the treatment of chronic angina in patients who have not achieved an adequate response with other antianginal drugs. Ranexa should be used in
combination with amlodipine, beta-blockers or nitrates. Ranexa represents the first new pharmaceutical approach to treat angina in the United States in more than 20 years. In addition to our marketed products, we are



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developing other drug candidates, including regadenoson, a selective A2A-adenosine receptor agonist, for potential use as a pharmacologic agent in myocardial perfusion imaging studies.

In order to potentially broaden the product labeling for Ranexa, we have conducted the Metabolic Efficiency with Ranolazine for Less Ischemia in Non-ST Elevation Acute Coronary Syndromes, or MERLIN TIMI-36, clinical
study. This study has been conducted under a special protocol assessment, or SPA, agreement with the FDA. If treatment with Ranexa is not associated with an adverse trend in death and arrhythmia compared to placebo, the study could support potential
approval of Ranexa as first-line chronic angina therapy, even if statistical significance on the primary endpoint is not achieved. In addition, if statistical significance on the primary endpoint is achieved, Ranexa could also gain potential
approval for treatment and long-term prevention of acute coronary syndromes. The MERLIN TIMI-36 study completed enrollment in May 2006 and has been conducted by the Harvard-based TIMI Study Group. Study close-out began in September 2006 and we
currently expect data late in the first quarter of 2007.

In addition to our marketed product, Ranexa, we have several clinical,
preclinical and research programs, the objectives of which are to bring additional drugs to market to help patients with unmet medical needs.

One of our drug candidates that is in late-stage clinical development is regadenoson, a selective
A2A-adenosine receptor agonist, for potential use as a pharmacologic agent in myocardial perfusion imaging studies.
We have completed two identically designed Phase 3 clinical trials of regadenoson, which both met their primary endpoints, in support of this proposed use. We completed the first study in August 2005 and the second study in December 2006. Based on
the data from these two studies, we currently anticipate submitting a new drug application to the FDA, seeking approval for this proposed use, in mid-2007.

Business Strategy

Despite the development during the past 20 years of significant new therapies for patients with
cardiovascular disease, heart disease remains one of the leading causes of death in the United States, claiming more than 2.3 million lives in 2004, according to the American Heart Association. Cardiovascular diseases, including atherosclerosis
(hardening of the arteries), hypertension (high blood pressure), and ischemia (lack of sufficient oxygen to the cells), may cause permanent damage to the heart and blood vessels, leading to angina, heart failure and myocardial infarction (heart
attack). Molecular cardiology is providing new insight into the mechanisms underlying cardiovascular diseases and creating opportunities for improved therapies. The key elements of our business strategy are as follows:

Identify, develop and commercialize drugs primarily for cardiovascular disease

By focusing primarily on one therapeutic area, even broadly defined, we believe that we can be relatively efficient in our drug discovery, development
and commercialization efforts. Our concentrated focus on cardiovascular disease potentially enhances our efforts in the following areas:



| |  |  | Sales and marketing efficienciesmarketing and promotion may focus primarily on the same cardiology specialists and other healthcare practitioners;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Clinical investigatorsinvestigators in one trial may be candidates for future trials;
| | - |  | --------------------------------------------------------------------------------------



| |  |  | Consultantsthought leaders may be engaged for numerous internal programs;
| | - |  | --------------------------------------------------------------------------



| |  |  | Clinical expertisekey employees have extensive experience and familiarity with the treatment of patients with cardiovascular disease,
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Regulatoryinteractions are primarily with a single FDA division; and
| | - |  | ---------------------------------------------------------------------



| |  |  | Researchprimary focus is on the molecular mechanisms of the cardiovascular system.
| | - |  | -----------------------------------------------------------------------------------



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Focus on small molecule drug candidates

Small molecule therapeutics can frequently be administered orally on an outpatient basis. By contrast, large molecule therapeutics, such as proteins or
monoclonal antibodies, can very rarely be formulated to accommodate oral outpatient administration. In addition, our emphasis on small molecule therapeutics means that our drug candidates can be produced by conventional pharmaceutical manufacturing
methods, using the established production capabilities of the contract pharmaceutical manufacturing industry.

In-licensing
cardiovascular products with unique potential

We believe it is important to explore in-licensing opportunities to complement our
expertise in cardiovascular disease. We expect to continue to evaluate additional products for potential in-licensing or co-promotion as well as late stage clinical programs and research and discovery partnerships.

Commercialize products through concentrated sales and marketing efforts

A focused commercialization effort can provide sales and marketing efficiencies. Patients that have severe cardiovascular conditions often are treated by
cardiologists and other specialists. We believe that a relatively small number of cardiology specialists are responsible for a significant portion of the patient visits associated with prescriptions written for important cardiovascular conditions.
We believe these market dynamics may make it possible to market and sell our products with a focused commercialization effort using our own cardiovascular specialty sales force.

Product Portfolio

We have the following portfolio of products and product candidates, primarily in
the area of cardiovascular disease:



|                                              |  |                                                                                                |  |                      
|--------------------------------------------- |  | ---------------------------------------------------------------------------------------------- |  | ---------------------
|Approved Products                             |  | Indication                                                                                     |  |                      
|Ranexa® (ranolazine extended-release tablets) |  | Chronic Angina (2nd line treatment)                                                            |  |                      
|                                              |  |                                                                                               
|Product Candidates in Clinical Development    |  | Area of Development                                                                            |  | Status               
|Ranexa®                                       |  | Chronic Angina (1stline use)                                                                   |  | Phase 3              
|                                              |  | Acute Coronary Syndrome (ACS)                                                                  |  | Phase 3              
|                                              |  |                                                                                               
|Regadenoson                                   |  | Myocardial Perfusion Imaging (MPI)                                                             |  | Phase 3              
|                                              |  |                                                                                               
|Tecadenoson                                   |  | Paroxysmal Supraventricular Tachycardias (PSVT)                                                |  | Phase 3              
|                                              |  |                                                                                               
|                                              |  | Acute Atrial Fibrillation, Atrial Fibrillation in conjunction with ultra-low dose beta blocker |  | Phase 2 andpreclincal
|                                              |  |                                                                                               
|Adentri                                      |  | Heart Failure                                                                                  |  | Phase 2              
|                                              |  |                                                                                               
|CVT-6883                                      |  | Cardiopulmonary Disease                                                                        |  | Phase 1              
|                                              |  |                                                                                               
|Preclinical Development Programs              |  | Area of Development                                                                            |  | Status               
|Partial A1agonist                             |  | Diabetes/Metabolic Syndrome                                                                    |  | Preclinical          
|                                              |  |                                                                                               
|ALDH2 antagonist                              |  | Alcohol Addiction                                                                              |  | Preclinical          
|                                              |  |                                                                                               
|Late INA                                      |  | Coronary Artery Disease                                                                        |  | Preclinical          
|                                              |  |                                                                                               
|SC Desaturase                                 |  | Obesity/Metabolic Syndrome                                                                     |  | Preclinical          
|                                              |  |                                                                                               
|A2Aantagonist                                 |  | Chemical Dependence                                                                            |  | Preclinical          
|                                              |  |                                                                                               
|ABCA1 / ApoA-I                                |  | Atherosclerosis                                                                                |  | Preclinical          
|                                              |  |                                                                                               
|Drug-Eluting Stent Program                    |  | Restenosis                                                                                     |  | Preclinical          



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In the table, under the heading Status, generally Phase 3 indicates evaluation of
clinical efficacy and safety within an expanded patient population, at geographically dispersed clinical trial sites; Phase 2 indicates clinical safety testing, dosage testing and initial efficacy testing in a limited patient population;
Phase 1 indicates initial clinical safety testing in healthy volunteers or a limited patient population, or trials directed toward understanding the mechanisms or metabolism of the drug; Preclinical indicates the program has
not yet entered human clinical trials. For purposes of the table, Status indicates the most advanced stage of development that has been completed or is on-going.

Approved Products

Ranexa® (ranolazine extended-release tablets)

Ranexa® (ranolazine extended-release tablets) is a new small molecule drug that was approved in the United States by the FDA in January 2006. Ranexa has antianginal and anti-ischemic effects
that do not depend upon reductions in heart rate or blood pressure. Ranexa represents the first new pharmaceutical approach to treat angina in the United States in more than 20 years. According to the approved product labeling, Ranexa is indicated
for the treatment of chronic angina, and because Ranexa prolongs the QT interval, it should be reserved for patients who have not achieved an adequate response with other antianginal drugs. Ranexa should be used in combination with amlodipine,
beta-blockers or nitrates. Based on the anti- ischemic properties we have observed in previous studies of Ranexa, in the MERLIN TIMI-36 study we also are gathering broad based safety data and evaluating Ranexa for potential treatment and long-term
prevention of acute coronary syndromes.

We have exclusive license rights to Ranexa in the United States and all foreign territories for
use in all human indications, including chronic angina, from Roche Palo Alto LLC.

Chronic Angina

Cardiovascular disease results from the accumulation of disease to the heart and vessels that may take decades to develop. Beginning in the early years
of life, the impact of cardiovascular risk factors such as smoking, lipid disorders, physical inactivity, obesity and others may eventually cause the heart to become unable to respond adequately to the energy demands placed on it. For some patients
with heart disease, this continuum of progressive events may ultimately result in premature death. Chronic angina is an overtand often the first physically evidentmanifestation of the heart disease continuum. The atherosclerotic plaque
of coronary artery disease narrows the vessels that carry blood throughout the heart. Myocardial ischemia ensues, making the heart unable to receive enough oxygen-rich blood to respond to increased energy demands caused by physical activity or
emotional stress. The debilitating pain or discomfort that many patients with chronic angina can experience may negatively impact physical functioning and, in turn, lead to reduced activity and decreased quality of life.

Chronic angina is a growing health problem, affecting millions of people, generally over the age of 55. Annually, it costs the United States tens of
billions of dollars in healthcare services and lost work. According to the American Heart Association, 8.9 million people in the United States live with chronic angina, with an additional 400,000 people newly diagnosed each year. The U.S.
Census Bureau projects that the over 55 population, the group most at-risk for angina, will increase by approximately 70% over the next 25 years.

Pharmaceutical and Interventional Approaches to Chronic Angina Treatment

Available drugs to treat chronic angina other
than Ranexa include beta-blockers, calcium channel blockers and long-acting nitrates, all of which treat angina by decreasing the hearts demand for oxygen by lowering heart rate, blood pressure and/or the strength of the hearts
contraction. These effects can limit or prevent the use of these other drugs in patients whose blood pressure or cardiac function is already decreased, and can have a negative impact on patients quality of life, especially when these drugs are
used in combination.



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Until now, despite the use of these other therapies, up to three-fourths of chronic angina patients in
the United States still have angina symptoms, and some patients on multiple drugs continue to experience angina attacks. Adverse effects of drug therapy may include lower extremity edema associated with calcium channel blockers, impotence and
depression associated with beta-blockers, and headaches associated with nitrates. Consequently, for some patients and physicians, these available medical treatments may not relieve angina without unacceptable effects.

Many chronic angina patients also are potential candidates for invasive revascularization therapy, including angioplasty, bare metal and drug eluting
stents and coronary artery bypass grafting, or CABG.

RanexaA New Pharmaceutical Approach to Angina Treatment

We believe that an anti-anginal drug such as Ranexa, which provides efficacy in addition to that provided by other agents without further reducing blood
pressure or heart rate, is a useful new tool to alleviate the burden of chronic angina in appropriate patients. Ranexa should be used in combination with amlodipine, beta blockers or nitrates.

The FDA approval of Ranexa in 2006 was based on an amended new drug application, or NDA, submitted in July 2005. The approved product labeling highlights
data from two Phase 3 clinical trials: CARISA and ERICA. The Combination Assessment of Ranolazine in Stable Angina, or CARISA, trial and the Evaluation of Ranolazine In Chronic Angina, or ERICA, trial were randomized, double-blind, placebo
controlled clinical trials of Ranexa in patients with chronic angina. CARISA evaluated Ranexa when used in patients who were receiving either a beta-blocker or a calcium channel blocker. In CARISA, Ranexa significantly increased patients
symptom-limited exercise duration at trough drug concentrations compared to placebo, the primary endpoint of the study. ERICA, which was conducted under the FDAs special protocol assessment, or SPA, process, evaluated the effectiveness of
Ranexa in patients with chronic angina who remained symptomatic despite daily treatment with the maximum recommended dose of amlodipine, a calcium channel blocker. In ERICA, Ranexa met the primary endpoint of significantly reducing weekly angina
frequency compared to placebo.

Ranexa is contraindicated in patients with pre-existing QT prolongation, with mild, moderate or severe
hepatic impairment, on QT prolonging drugs, and on potent and moderately potent CPY3A inhibitors, including diltiazem. Ranolazine has been shown to prolong the QTc interval in a dose-related manner. While the clinical significance of the QTc
prolongation in the case of ranolazine is unknown, other drugs with this potential have been associated with torsades de pointes-type arrhythmias and sudden death.

In clinical trials of angina patients, the most frequently reported adverse events occurring more often with Ranexa than placebo were dizziness, headache, constipation, and nausea. Fewer than 5% of patients
discontinued treatment with Ranexa due to an adverse event in studies in angina patients. The most common adverse events that led to discontinuation more frequently on Ranexa than placebo were dizziness and nausea. In ERICA and CARISA, syncope
occurred in 0.7% of patients receiving Ranexa 1000 mg twice a day, and dizziness occurred in 6% of patients receiving that dose of Ranexa.

Preclinical research indicates that Ranexa is a selective late sodium current inhibitor, although this is not noted in the approved product labeling. Because of Ranexas action to significantly reduce the late sodium current, we
believe Ranexa prevents sodium overload and subsequent calcium overload in the heart, which occur during both ischemia and heart failure but not under other conditions or in the normal heart. We believe this in turn may preserve energy and
mitochondrial function, improve contractility and diastolic function, and preserve proper ion balance during ischemia and/or heart failure.



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Ranexa Development Status

In order to potentially broaden the product labeling for Ranexa beyond its current approved indication, we have conducted the Metabolic Efficiency with
Ranolazine for Less Ischemia in Non-ST Elevation Acute Coronary Syndromes, or MERLIN TIMI-36, clinical study. This study has been conducted under a special protocol assessment, or SPA, agreement with the FDA. If treatment with Ranexa is not
associated with an adverse trend in death and arrhythmia compared to placebo, the study could support potential approval of Ranexa as first-line chronic angina therapy, even if statistical significance on the primary efficacy endpoint is not
achieved. As part of this SPA agreement, we must conduct a separate clinical evaluation of higher doses of Ranexa in order to obtain broader angina labeling (if any). In addition, if statistical significance on the primary efficacy endpoint for the
MERLIN TIMI-36 study is achieved, Ranexa could also gain approval for hospital-based and long-term prevention of acute coronary syndromes.

The studys duration was event driven. It was designed to continue until at least 730 cases of cardiovascular death, myocardial infarction or severe recurrent ischemia had been observed, and at least 310 deaths from any cause had
occurred. In September 2006, we announced that the required number of endpoints had accumulated. There were more than 310 deaths and more than 1,400 cases of cardiovascular death, myocardial infarction or severe recurrent ischemia. The MERLIN
TIMI-36 study was initiated in October 2004 and has been conducted by the Harvard-based TIMI Study Group.

MERLIN TIMI-36 has been a
multi-national, double-blind, randomized, placebo-controlled, parallel-group clinical trial designed to evaluate the efficacy and safety of Ranexa during acute and long-term treatment in approximately 6,500 patients with non-ST elevation acute
coronary syndromes treated with standard therapy. The primary efficacy endpoint in MERLIN TIMI-36 is time to first occurrence of any element of the composite of cardiovascular death, myocardial infarction or recurrent ischemia in patients with
non-ST elevation acute coronary syndromes receiving standard therapy. The safety of long-term treatment with Ranexa compared to placebo also has been evaluated in the study.

Within 48 hours of the onset of angina due to acute coronary syndromes, eligible hospitalized patients were enrolled in the study and randomized to
receive intravenous Ranexa or placebo, followed by long-term outpatient treatment with oral Ranexa or placebo. All patients also received standard therapy during both hospital-based and outpatient treatment. The oral doses of Ranexa used in MERLIN
TIMI-36 have been studied in previous Phase 3 clinical trials.

We currently expect data from MERLIN TIMI-36 late in the first quarter of
2007. The study has been accepted for presentation as a late breaking clinical trial at 8:50 a.m. Central time on Tuesday, March 27 at the American College of Cardiology Annual Scientific Session in New Orleans.

Ranexa Marketing Authorization Application in Europe

In December 2006, we submitted a marketing authorization application, or MAA, under a centralized procedure to European regulatory authorities seeking approval of ranolazine for the treatment of chronic angina in
Europe.

Previously, in March 2004, we had submitted an MAA, under a centralized procedure to European regulatory authorities seeking
approval of ranolazine for the treatment of chronic angina in Europe. In October 2005, European regulatory authorities indicated that additional clinical pharmacokinetic data were needed prior to potential approval of ranolazine for the treatment of
chronic angina in Europe. Therefore, we withdrew the MAA seeking approval of ranolazine in Europe in October 2005. The newly submitted MAA contains includes additional data and results from studies conducted after March 2004, although not the
MERLIN-TIMI 36 study.



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Product Candidates in Clinical Development

Regadenoson

Regadenoson is an A2A-adenosine receptor agonist for potential use as a pharmacologic stress agent in myocardial perfusion imaging, or MPI, studies.
As the diagnosis of coronary artery disease can present challenges to cardiologists and other practitioners, myocardial perfusion imaging studies offer an important alternative for the diagnosis of coronary artery disease. One of the most common
methods for diagnosing coronary artery disease is the exercise treadmill test. Patients exercise on a treadmill to stress the heart in order to obtain an electrocardiogram. The observation of specific changes in the electrocardiogram, with or
without the development of chronic angina pain or discomfort, signals the need for additional testing to confirm the presence of coronary artery disease. The ability of some patients to complete an exercise treadmill test may be limited because of
long-term physical inactivity and/or concomitant illness such as arthritis, peripheral vascular disease, or heart failure. MPI studies using a pharmacologic stress agent offer an effective alternative for the diagnosis of coronary artery disease in
these types of patients.

Myocardial Perfusion Imaging (MPI) Studies

MPI studies are usually performed in a nuclear medicine clinic. Medication is administered to the patient that temporarily increases coronary blood flow
through the heart, mimicking the hearts physical response to the increased energy demand caused by exercise. Once the equivalent of maximal exercise is reached, a small amount of a radioactive substance is injected into the bloodstream, where
it is absorbed into the area of the heart that is able to receive enough blood. An image of the area is then taken by a camera that specifically detects the distribution of radioactive substance in the heart during stress.

Additional images are taken of the heart at rest. If the images of the heart during stress and at rest show the same level of perfusion
through the heart, then the test result is normal. However, if a perfusion defect is seen in the image of the stressed heart while the image of the heart at rest appears normal, then it is possible the defect is the result of a partial blockage
caused by an atherosclerotic plaque associated with coronary artery disease, signaling the need for treatment and possibly additional testing to confirm the diagnosis. In 2005, approximately 9.3 million patients in the United States underwent
MPI studies.

Of those, approximately 4.3 million, or more than 45%, required a pharmacologic agent to generate maximum coronary blood
flow because peripheral vascular disease, arthritis or other limiting medical conditions prevented them from exercising on the treadmill.

In addition to MPI studies, there are other approaches for diagnosing coronary artery disease, including electrocardiogram, electron beam computed tomography (for detecting and quantifying coronary calcification), CT angiography,
echocardiography (echo), and contrast coronary angiography.

Current Approaches to Increasing Coronary Blood Flow During MPI Studies

MPI studies use pharmacological agents to increase coronary blood flow of the heart as if it were responding to the demands of
physical exercise. Traditional agents used include dipyridamole and adenosine. Both agents are administered to patients by intravenous infusion with the aid of an infusion pump. Both of these agents act nonspecifically on the heart. While they are
very effective at increasing coronary blood flow, their nonspecificity may also produce undesirable and uncomfortable side effects. For example, dipyridamole is most commonly associated with chest pain, headache, and dizziness. In addition, the long
half-life of dipyridamole may require lengthy patient monitoring following the procedure. Adenosine, while it has a short half-life, activates all adenosine receptor subtypes and, as a result, may cause flushing, dyspnea, and headache. The
activation of other adenosine receptor subtypes may also cause sustained decreases in blood pressure (hypotension), reduced heart rate, and heart block. Adenosine is contraindicated in patients with asthma because of the risk of bronchoconstriction
with the use of this agent.



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Potential Treatment with Regadenoson

Regadenoson is a selective A2A-adenosine receptor agonist administered by an intravenous bolus (without the use of an infusion pump) that stresses the heart by increasing coronary blood
flow as if the heart were responding to the demands of physical exercise. The selective and specific action of regadenoson on the A2A-adenosine receptor potentially may avoid some of the side effects caused by the less specific action of traditional agents. Bolus administration of regadenoson as well as its short half-life may also allow for more efficient
administration during MPI studies.

Regadenoson Development Status

In December 2006, we reported that the second of two identically designed Phase 3 studies of regadenoson had met its primary endpoint. This
multinational, randomized, double-blind Phase 3 study of 1,231 patients undergoing MPI studies was designed to evaluate the comparability of MPI studies conducted with regadenoson and Adenoscan® (adenosine injection).

This study and a prior identically designed Phase 3 study of 784 patients, completed in 2005, both met the primary endpoint by showing with 95 percent
confidence that MPI studies conducted with regadenoson were comparable to MPI studies conducted with Adenoscan® (adenosine injection). Regadenoson was generally well tolerated in the study and the most common adverse events reported in patients who received regadenoson were shortness of breath,
chest pain, headache, flushing and gastrointestinal discomfort.

Both Phase 3 studies were designed to evaluate the comparability of MPI
studies conducted with regadenoson and Adenoscan®
(adenosine injection). All study participants received a clinically indicated baseline MPI study using Adenoscan® (adenosine injection). Participants then were randomized in a double-blind fashion to receive either regadenoson or Adenoscan® (adenosine injection) in a subsequent MPI study. Each patients scans were
classified as indicating normal, moderate or severe ischemia. Baseline and blinded scans were then evaluated to determine if the scans were comparable. In these studies, regadenoson was generally well tolerated, and the most common adverse events
reported in patients who received regadenoson were headache, chest pain, shortness of breath, flushing and gastrointestinal discomfort.

Based on the results of these two Phase 3 clinical trials, we plan to submit a new drug application to the FDA in mid-2007 for the potential use of regadenoson as a pharmacologic agent in MPI studies. If regadenoson is approved by the FDA,
Astellas Pharma US, Inc. will be responsible for all commercial activities for regadenoson in the United States. we retain all rights to regadenoson outside of North America.

Regadenoson has not been determined by the FDA or any other regulatory authorities to be safe or effective in humans for any use.

Tecadenoson

Tecadenoson is a selective A1-adenosine receptor agonist for the potential reduction
of rapid heart rate during acute atrial arrhythmias. Atrial arrhythmias are characterized by abnormally rapid heart rates, and include the conditions of atrial fibrillation, atrial flutter and paroxysmal supraventricular tachycardias. Tecadenoson
acts selectively on the conduction system of the heart to slow electrical impulses and may offer a new approach to rapid and sustained control of acute atrial arrhythmias by reducing heart rate without lowering blood pressure.

Tecadenoson Development Status

In
2002, we completed a Phase 3 trial of patients with paroxysmal supraventricular tachycardias, or PSVT, who were given tecadenoson. In this Phase 3 trial, all five dosing regimens of tecadenoson tested converted patients with PSVT back into a normal
heart rhythm (p<0.0005 versus placebo). The most frequent adverse



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symptom was paresthesia, a tingly sensation, following administration of tecadenoson. As expected based on the pharmacology of the study drug, dose dependent
and transient atrial ventricular block was observed shortly after conversion across the highest three doses of tecadenoson.

In a Phase 2
trial of patients with atrial fibrillation or flutter, tecadenoson appeared to reduce heart rate from baseline without clinically meaningful changes in blood pressure. Hemodynamic parameters such as blood pressure and heart rate were not adversely
affected by tecadenoson. Due to side effects we observed in this trial, we began exploring alternatives to the formulation of the product.

We are currently involved in only very limited development activity relating to tecadenoson. We are currently planning for tecadenoson to re-enter the clinic over the next six to 12 months in an open label Phase 2 study of ultra-low dose
beta-blockers with intravenous tecadenoson in rapid atrial fibrillation patients. Tecadenoson has not been determined by the FDA or any other regulatory authorities to be safe or effective in humans for any use.

CVT-6883

CVT-6883, a selective A2Badenosine antagonist, represents a novel potential
approach to treating conditions caused by inflammation and fibrosis. A pre-clinical study showed that CVT-6883 significantly reduced elevated markers of inflammation, fibrosis and pulmonary injury in two in vivo preclinical models. An initial
Phase 1 study of CVT-6883 has been completed. In this randomized, double-blind, placebo-controlled, single ascending dose study in 24 healthy volunteers, CVT-6883 was well tolerated with no serious adverse events reported. We have initiated a second
Phase 1 trial, an ascending, multi-dose study in healthy volunteers that we expect to be completed in the first half of 2007.

Preclinical Research and
Development

Our research and development team is working to create new potential product opportunities through our expertise in
molecular cardiology, and we have several ongoing preclinical research programs.

Adenosine Receptors

Adenosine is a small molecule that is naturally present in the body and has many actions in many
different organs. Its effects on cells are the responses to activation by adenosine of cell-surface proteins called receptors. There are four types of adenosine receptors: A1, A2A, A2Band A3. Activation of these receptors initiates cascades of cellular biochemical events that result in specific changes of important cell functions, such as ion transport, electrical and contractile activity, and secretion of hormones and
other small molecules.

The effects of adenosine serve as the basis for many of our research and development programs, including some
preclinical programs and our regadenoson, tecadenoson and CVT-6883 clinical programs. Adenosines effect to decrease the release of fatty acids from adipose tissue serves as the rationale for our preclinical program in the area of
diabetes/metabolic syndrome to investigate the use of an adenosine-like drug to decrease free fatty acids and blood triglyceride levels. The ability of adenosine to increase inflammatory responses and to impact addictive behavior and withdrawal are
the bases for our CVT-6883 program to design antagonists of these actions for treatment of cardiopulmonary disease and our preclinical program relating to chemical dependence, respectively. The general goal of our adenosine programs is to further
investigate additional therapeutic effects of both activation and blockade of adenosine receptors.

Late Sodium Current

We believe that inhibition of the late sodium current can reduce sodium overload and minimize calcium overload. This, in turn, can preserve energy and
mitochondrial function, restore contractility and diastolic



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function, and preserve proper ion balance. We are building upon our scientific knowledge in this field to identify novel, orally bioavailable blockers of the
late sodium current that may be effective in the treatment of chronic angina, acute coronary syndromes, and the acute and chronic treatment of heart failure. The goal of our late sodium current program is to further characterize the therapeutic
potential and to discover new, proprietary potential products.

Reverse Cholesterol Transport

Our scientists and collaborators were one of several laboratories to discover that the ABCA1 protein is the rate limiting protein responsible for removal
of cholesterol from the walls of blood vessels and atherosclerotic plaque, a process called reverse cholesterol transport. The activation of ABCA1 leads to an increase in high density lipoprotein, or HDL. The goal of our reverse cholesterol
transport program is to discover a new potential proprietary product that will reduce the overall atherosclerotic burden in patients with cardiovascular disease.

Drug Eluting Stent Polymer Program

In October 2006, we announced that we had received notices of
allowance from the U.S. Patent and Trademark Office and from the European Patent Office for our proprietary biopolymer stent coating technology. Preclinical study results suggest that our proprietary biopolymer stent coating technology could
potentially improve the performance of stents coated with drugs such as paclitaxel or rapamycin by potentially limiting cracking and peeling following implantation of the stent. Preclinical studies also show that our proprietary biopolymer stent
coating does not entomb the drug and is designed to control drug release rate more precisely and allows for the complete release of drug, leaving a bare metal stent in place.

Other Programs

We have several
active discovery programs related to cardiovascular disease and associated risk factors, such as obesity and metabolic disorders, and also have an active program in alcohol addiction.

Collaborations and Licenses

We have established, and intend to continue to establish, strategic
partnerships to potentially expedite the development and commercialization of our products and drug candidates. In addition, we have licensed, and intend to continue to license, chemical compounds from academic collaborators and other companies. Our
key collaborations and licenses currently in effect include:

Roche

In March 1996, we entered into a license agreement with Roche Palo Alto LLC (formerly Syntex (U.S.A.) Inc.) covering United States and foreign patent
rights to ranolazine and related know how for the treatment of angina and other cardiovascular indications. In June 2006, we amended this agreement to add rights to ranolazine in Japan, China, Korea and other all other Asian markets not covered by
the initial license agreement. Based on this amendment, we now hold exclusive worldwide commercial rights to ranolazine. The amendment also provided us with exclusive worldwide rights to all potential indications in humans for ranolazine, including
all non-cardiovascular indications.

Under our license agreement, we paid an initial license fee and are obligated to make certain payments
to Roche, upon receipt of the first and second product approvals for Ranexa in any of the following major market countries: France, Germany, Italy, the United States and the United Kingdom. In February 2006, we paid Roche an $11.0 million payment in
connection with the FDAs approval of Ranexa in the United States in January 2006.

Unless the agreement is terminated, we are
required to make a second payment of $9.0 million upon the second product approval, if any, in one of the major market countries specified above. In addition, we are



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required to make royalty payments based on net sales of approved products that utilize the licensed technology, including Ranexa. We are required to use
commercially reasonable efforts to develop and commercialize the product for angina. Under the terms of the June 2006 amendment, we will owe an up-front fee and will make royalty payments associated with product sales in the added Asian markets.
Milestone payments are due to Roche upon approval in Japan and approval of the first additional non-cardiovascular indication.

We or Roche
may terminate the license agreement for material uncured breach, and we have the right to terminate the license agreement at any time on 120 days notice if we decide not to continue to develop and commercialize ranolazine.

Astellas Pharma US

In July 2000, we entered into a collaboration agreement with Astellas US LLC (formerly Fujisawa
Healthcare, Inc.) to develop and market second generation pharmacologic myocardial perfusion imaging stress agents. Under this agreement, Astellas received exclusive North American rights to regadenoson, a short acting selective A2A-adenosine receptor agonist, and to a backup compound. We received $10.0 million from Astellas. In addition, Astellas
reimburses us for 75% of our development costs and we reimburse Astellas for 25% of their development costs. If the product is approved by the FDA, Astellas will be responsible for sales and marketing of regadenoson, and we will receive a royalty
based on product sales of regadenoson and may receive a royalty on another product sold by Astellas.

Astellas may terminate the agreement
for any reason on 90 days written notice, and we may terminate the agreement if Astellas fails to launch a product within a specified period after marketing approval. In addition, we or Astellas may terminate the agreement in the event of
material uncured breach, or bankruptcy or insolvency.

In June 2006, we and Astellas entered into a second amendment to our collaboration
agreement, effective as of January 1, 2006. The second amendment provides that we will conduct agreed-upon additional clinical trials of the licensed compound regadenoson on terms and conditions that are different than those applicable to
clinical trials conducted to date under the agreement. The additional trials will be considered Phase 4 trials and will be subject to all terms and conditions under the agreement governing Phase 4 trials, except that we will conduct the
additional trials and have all regulatory responsibilities and responsibility for management of the additional trials, subject to Astellas review and approval of the trial protocols and the option to review the final study reports. We will provide
Astellas with all data pertaining to the additional trials and Astellas is required to reimburse us for 100% of the development costs we incur with respect to the additional trials.

Manufacturing

We do not currently operate, and have no current plans to develop, manufacturing
facilities for clinical or commercial production of our products under development. We have no direct experience in manufacturing commercial quantities of any of our products, and we currently lack the resources or capability to manufacture any of
our products on a clinical or commercial scale. As a result, we are dependent on corporate partners, licensees or other third parties for the manufacturing of clinical and commercial scale quantities of all of our products.

We have entered into several agreements with third party manufacturers relating to Ranexa, including for commercial-scale manufacturing of active
pharmaceutical ingredient, bulk tablet manufacturing, packaging and supply of a raw material component for the product. We currently rely on a single supplier at each step in the production cycle of Ranexa. The commercialization of Ranexa is
dependent on these third party arrangements, and the marketing and sale of Ranexa could be affected by any delays or difficulties in performance of our third party manufacturers of Ranexa. If regadenoson is approved for marketing in the United
States, Astellas will be responsible for the manufacturing and distribution of regadenoson, and in turn will be dependent on third parties for the manufacture of the product for sale and sampling.



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Patents and Proprietary Technology

Patents and other proprietary rights are important to our business. Our policy is to file patent applications in the United States and internationally in order to protect our technology, including inventions and
improvements to inventions that are commercially important to the development and sales of our products. The evaluation of the patentability of United States and foreign patent applications can take years to complete and can involve considerable
expense.

We own multiple patents issued by and/or patent applications pending with the United States Patent and Trademark Office, or US
PTO, and foreign patent authorities relating to our technology, including related to Ranexa and our clinical programs, including regadenoson. We have received issued patents from the US PTO claiming methods of using various sustained release
formulations of ranolazine (including the formulation tested in our Phase 3 clinical trials for Ranexa) for the treatment of chronic angina. These patents expire in 2019. We also have a worldwide license from Roche which gives us exclusive rights to
specified patents issued to Roche by the US PTO and foreign patent authorities related to Ranexa. The United States compound patent relating to Ranexa, which is licensed to us by Roche, expired in 2003. However, this compound patent has been granted
several one-year interim patent term extensions under the Hatch-Waxman Act, and we expect that a patent term extension under the Hatch-Waxman Act will be granted, which will extend the patent protection to May 2008 for the approved product, which is
the Ranexa extended-release tablet, for the approved use in chronic angina. In addition to patent term extension, because ranolazine is a new chemical entity, under applicable United States laws we have received marketing exclusivity until January
2011 for the ranolazine compound.

Regadenoson is the subject of two United States patents that expire in 2019.

Government Regulation

United States Regulation
of Drug Compounds

The research, testing, manufacture and marketing of drug products are extensively regulated by numerous governmental
authorities in the United States and other countries. In the United States, drugs are subject to rigorous regulation by the FDA. The Federal Food, Drug and Cosmetic Act, and other federal and state statutes, regulations and guidelines, govern, among
other things, the research, development, manufacture, testing, storage, recordkeeping, labeling, marketing, promotion and distribution of pharmaceutical products. Failure to comply with applicable regulatory requirements may subject a company to a
variety of administrative or judicially imposed sanctions.

The steps ordinarily required before a new pharmaceutical product may be
marketed in the United States include preclinical laboratory testing, formulation studies, the submission to the FDA of an Investigational New Drug Application, or IND, which must become effective before clinical testing may commence in the United
States, and adequate and well-controlled clinical trials to establish the safety and effectiveness of the product candidate for each indication for which it is being tested.

Preclinical tests include laboratory evaluations of chemistry and formulations, as well as animal studies to assess the pharmacology and toxicology of
the product candidate. The conduct of the preclinical tests and the chemistry, manufacture and testing of our product candidates must comply with federal regulations and guidelines. Results of preclinical testing are submitted to the FDA as part of
an IND.

Clinical studies involve the administration of the product candidate to healthy volunteers or patients under the supervision of
qualified investigators. Clinical studies must be conducted in compliance with federal regulations and guidelines, under protocols detailing the objectives of the trial, the parameters to be used in monitoring safety and the effectiveness criteria
to be evaluated. For clinical studies conducted in the United States, a study protocol must be submitted to the FDA as part of the IND. The study protocol and informed



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consent information for patients participating in clinical studies must also be approved by an institutional review board for each institution where the
studies will be conducted. In addition, the FDA may, at any time, impose a clinical hold on a clinical study. If the FDA imposes a clinical hold, the clinical study cannot be initiated or continued without FDA authorization and then only under terms
the FDA authorizes.

Clinical trials are typically conducted in three sequential phases, but the phases may overlap. In Phase 1, the
initial introduction of the product candidate into healthy human volunteers or a limited number of patients, the product candidate is tested to initially assess safety, toxicity and metabolism. Phase 2 usually involves studies in a limited patient
population to determine dose tolerance and the optimal dosage regimen, identify potential adverse effects and safety risks and provide preliminary support for the efficacy of the product candidate for the indication being studied.

If a product candidate appears to be effective and to have an acceptable safety profile in earlier testing, Phase 3 trials are undertaken to evaluate
clinical efficacy and further evaluate safety in an expanded patient population at geographically dispersed clinical trial sites. There can be no assurance that Phase 1, Phase 2 or Phase 3 testing of our product candidates will be completed
successfully within any specified time period, if at all.

After completion of the required clinical testing, a marketing application
called a new drug application, or NDA, is generally prepared and submitted to the FDA. FDA approval of the NDA is required before marketing of the product may begin in the United States. The NDA must include the results of virtually all preclinical
and clinical testing and data relating to the products chemistry, manufacture and testing.

The FDA has 60 days from its receipt of
the NDA to determine whether the application will be accepted for filing based on the agencys threshold determination of whether the NDA is adequate to undertake review. Additional time may pass before the FDA formally notifies the sponsoring
company whether the application will be reviewed. Assuming the submission is accepted for review, the FDA conducts an in-depth review of the NDA. As part of its review process, the FDA usually requests additional information and/or clarification
regarding information already provided in the submission. Such requests can significantly extend the review period for the NDA, particularly if the FDA requests additional information and/or clarification that is not readily available, or requires
additional studies or other time-consuming responses to requests. During the later stages of the review process, the FDA may refer the NDA to the appropriate outside advisory committee, typically a panel of clinicians and other experts, for
evaluation as to whether the application should be approved or other recommendations. The FDA is not bound by the recommendations of any of its advisory committees.

Any FDA approval of a product is subject to a number of conditions that must be met in order to maintain approval of the NDA. For example, as a condition of NDA approval, the FDA may require extensive postmarketing
testing and surveillance to monitor the products safety, or impose other conditions. Once granted, product approvals may be withdrawn or restricted if compliance with regulatory standards is not maintained or safety concerns arise.

The FDA may decide not to approve an NDA for a new product candidate for a wide variety of reasons, including, without limitation, failure to
demonstrate adequate product safety and/or efficacy. In such circumstances the FDA would typically require additional testing or information in order to satisfy the regulatory criteria for approval or may determine that the product is unapprovable.

Regulation by the FDA and other government authorities is also a significant factor in the marketing and promotion of drug products in the
United States. Under the Food, Drug and Cosmetic Act, among other things the FDA approves all product labeling. The FDA also can review promotional materials and activities through its Division of Drug Marketing, Advertising, and Communications and
may require corrective actions which are generally public, such as changes to the promotional materials. Under the Food, Drug and Cosmetic Act, the FDA has issued many detailed regulations and guidances applicable to the marketing and promotion of
drug



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products. Failure to comply with FDAs many applicable requirements may subject a company to a variety of sanctions, including product seizure or
recall.

In addition to FDA oversight, the marketing and promotion of drug products is also subject to a complex array of other federal and
state laws, regulations and guidances, including federal and state antikickback, fraud and false claims statutes and regulations, and the federal Prescription Drug Marketing Act and related regulations. Anti-kickback laws make it illegal for a
prescription drug manufacturer to offer or pay any remuneration in exchange for, or to induce, the referral of business, including the purchase or prescription of a particular drug. The federal government has published regulations that identify safe
harbors or exemptions for arrangements that do not violate the anti-kickback statutes. Fraud and false claims laws prohibit anyone from knowingly and willingly presenting, or causing to be presented for payment to third-party payers (including
Medicare and Medicaid), claims for reimbursed drugs or services that are false or fraudulent, claims for items or services not provided as claimed, or claims for medically unnecessary items or services. Our activities relating to the sale and
marketing of our products, and those of our collaborative partners such as Astellas, will be subject to scrutiny under these laws and regulations. Applicable state laws and regulations also include state licensure requirements relating to
facilities, drug distribution or drug sampling. Failure to comply with these many complex legal requirements can result in significant sanctions and penalties, both civil and criminal, as well as the possibility of exclusion of the approved product
from coverage under governmental healthcare programs (including Medicare and Medicaid).

Our ability to sell drugs will also depend on the
availability of reimbursement from government and private insurance companies.

Foreign Regulation of Drug Compounds

In countries outside the United States, approval of a product by foreign regulatory authorities is typically required prior to the commencement of
marketing of the product in those countries, whether or not FDA approval has been obtained. The approval procedure varies among countries and can involve additional testing. The time required may differ from that required for FDA approval. In
general, countries outside the United States have their own procedures and requirements, many of which are just as complex, time-consuming and expensive as those in the United States. Thus, there can be substantial delays in obtaining required
approvals from foreign regulatory authorities after the relevant applications are filed.

In Europe, marketing authorizations are generally
submitted through a centralized or other procedure. The centralized procedure provides for marketing authorization throughout the European Union member states. In addition, other procedures are also available which can result in approval of a
product in selected European Union member states. Sponsoring companies must choose an appropriate regulatory filing strategy in Europe. There can be no assurance that the chosen regulatory strategy will secure regulatory approvals on a timely basis
or at all.

Regulatory approval of prices is generally required in most foreign countries, including many countries in Europe.

Hazardous Materials

Our research
and development processes and manufacturing activities involve the controlled use of hazardous materials, chemicals and radioactive materials and produce waste products. We are subject to federal, state and local laws and regulations governing the
use, manufacture, storage, handling and disposing of hazardous materials and waste products.



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Competition

The pharmaceutical and biopharmaceutical industries are subject to intense competition and rapid
and significant technological change. Ranexa competes with several well established classes of drugs for the treatment of chronic angina in the United States, including generic and/or branded beta-blockers, calcium channel blockers and long acting
nitrates, and additional potential angina therapies may be under development. In addition, surgical treatments and interventions such as coronary artery bypass grafting and percutaneous coronary intervention can be another option for angina
patients, and may be perceived by healthcare practitioners as preferred methods to treat the cardiovascular disease that underlies and causes angina. In the United States, there are numerous marketed generic and/or branded pharmacologic stress
agents, and at least two potential A2A-adenosine receptor agonist compounds under development, that could compete
with regadenoson. We are also aware of companies that are developing products that may compete with our other drug candidates.

We believe
that the principal competitive factors in the potential markets for Ranexa include, and for regadenoson will include, the following:



| |  |  | the length of time to regulatory approval;
| | - |  | ------------------------------------------



| |  |  | approved product labeling and clinical data, especially from the MERLIN TIMI-36 study of Ranexa;
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | risk management requirements;
| | - |  | -----------------------------



| |  |  | acceptance by the medical community;
| | - |  | ------------------------------------



| |  |  | product performance;
| | - |  | --------------------



| |  |  | product price;
| | - |  | --------------



| |  |  | product supply;
| | - |  | ---------------



| |  |  | formulary acceptance;
| | - |  | ---------------------



| |  |  | marketing and sales resources and capabilities, including competitive promotional activities; and
| | - |  | -------------------------------------------------------------------------------------------------



| |  |  | enforceability of patent and other proprietary rights.
| | - |  | ------------------------------------------------------

We believe that we and our collaborative partners are or will be competitive with respect to these factors. Nonetheless, our relative competitive position in the future is difficult to predict.

Employees

As of January 31, 2007, we employed
746 individuals full-time. Of our full-time work force, 243 employees are engaged in or directly support research and development activities and 503 are engaged in sales, marketing and general and administrative activities. Our employees are not
represented by a collective bargaining agreement. We believe that our relations with our employees are good.

Research and Development

Since our inception, we have made substantial investments in research and development. In the years ended December 31, 2006, 2005 and 2004, we
incurred research and development expenses of $135.3 million, $128.5 million and $124.3 million, respectively.



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Available Information

We are subject to the information requirements of the Securities Exchange Act of 1934 and we therefore file periodic reports, proxy statements and other information with the Securities and Exchange Commission, or SEC,
relating to our business, financial statements and other matters. The reports, proxy statements and other information we file may be inspected and copied at prescribed rates at the SECs Public Reference Room at Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549. You may obtain information on the operation of the SECs Public Reference Room by calling the Securities and Exchange Commission at 1-800-SEC-0330. The SEC also maintains an Internet site that contains reports,
proxy statements and other information regarding issuers like us that file electronically with the SEC. The address of the SECs Internet site is www.sec.gov. For more information about us, please visit our website at www.cvt.com.
You may also obtain a free copy of our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports on the day the reports or amendments are filed with or furnished to the SEC by
visiting our website at www.cvt.com.



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

Risk Factors Relating to Our Business

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

We have experienced significant operating losses since our inception in 1990,
including net losses of $274.3 million in 2006, $228.0 million in 2005 and $155.1 million in 2004. As of December 31, 2006, we had an accumulated deficit of $1,086.9 million. The process of developing and commercializing our products requires
significant research and development work, preclinical testing and clinical trials, as well as regulatory approvals, significant marketing and sales efforts, and manufacturing capabilities. These activities, together with our general and
administrative expenses, require significant investments and are expected to continue to result in significant operating losses for the foreseeable future. To date, the revenues we have recognized relating to ACEON® (perindopril erbumine) Tablets, which we are no longer promoting, and to
Ranexa® (ranolazine extended-release tablets) have
been limited, and have not been sufficient for us to achieve profitability or fund our operations, including our research, development and commercialization activities relating to Ranexa and our product candidates. The revenues that we expect to
recognize for the foreseeable future relating to Ranexa may not be sufficient for us to achieve or sustain profitability or maintain operations at our current levels or at all.

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

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



| |  |  | the timing and success of product launches by us and our collaborative partners, including our launch of Ranexa in the United States in March 2006;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------



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



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



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



| |  |  | the results of our clinical studies, including our Metabolic Efficiency with Ranolazine for Less Ischemia in Non-ST Elevation Acute Coronary Syndromes, or MERLIN
TIMI-36, clinical trial of Ranexa;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



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



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



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



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



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



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



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

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

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

As of December 31, 2006, we had cash, cash equivalents and marketable securities of $325.2 million, compared to $460.2 million at December 31,
2005. We expect that our existing cash resources will be sufficient to fund our operations at our current levels of research, development and commercialization activities for at least 12 months. Our estimates of future capital use are uncertain, and
changes in our commercialization plans, partnering activities, regulatory requirements and other developments may increase our rate of spending and decrease the period of time our available resources will fund our operations. For the fiscal years
ended December 31, 2006, 2005 and 2004, our net losses were $274.3 million, $228.0 million and $155.1 million, respectively. We currently expect that our total costs and expenses, excluding cost of sales, for 2007 will be approximately $275.0
million to $285.0 million, compared to $312.5 million in 2006. Changing circumstances may cause us to consume capital significantly faster than we currently anticipate. We do not expect to generate sufficient revenues through our marketing and sales
of Ranexa in the near term to achieve profitability or to fully fund our operations, including our research, development and commercialization activities relating to Ranexa and our product candidates. We will require substantial additional funding
in the form of public or private equity offerings, debt financings, strategic partnerships and/or licensing arrangements in order to continue our research, development and commercialization activities.

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



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



| |  |  | the timing, scope and results of preclinical studies and clinical trials, especially our MERLIN TIMI-36 clinical trial of Ranexa, for which we currently expect data
late in the first quarter of 2007 (if the study is successful, we could not incorporate data from the study into FDA-approved product labeling and commence promotion based on that revised labeling, if any, until 2008 at the earliest);
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



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



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



| |  |  | our ability to establish and maintain strategic collaborative partnerships, such as our arrangement with Astellas US LLC;
| | - |  | -------------------------------------------------------------------------------------------------------------------------



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



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



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

Additional financing may not be available on acceptable terms or at all. In April 2006, we entered into a common stock purchase agreement with Azimuth Opportunity Ltd., or Azimuth, which provides that, upon the terms
and subject to the conditions set forth in the purchase agreement, Azimuth is committed to purchase up to $200.0 million of our common stock, or 9,010,404 shares, whichever occurs first, at a discount of 3.8% to 5.8%, to be determined based on our
market capitalization at the start of each sale period. The term of the purchase agreement is 36 months. Upon each sale of our common stock to Azimuth under the purchase agreement, we have also agreed to pay Reedland Capital Partners a placement fee
equal to one fifth of one percent of the aggregate dollar amount of common stock purchased by Azimuth. In 2006, Azimuth purchased an aggregate 2,744,118 shares for proceeds, net of issuance costs, of approximately $39.8 million under the purchase
agreement. Azimuth is not required to purchase our common stock when the price of our common stock is below $10 per share. Assuming that all 6,266,286 shares remaining for sale under the purchase agreement were sold at the $13.96 closing price of
our common stock on December 31, 2006, the maximum additional aggregate net proceeds that we could receive under the purchase agreement with Azimuth would be approximately $82.2 million.

If we are unable to raise additional funds, we may, among other things:



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



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



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



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



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

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

The results of our MERLIN TIMI-36 study may differ substantially from those obtained in earlier studies of Ranexa. In addition, while we have negotiated a special
protocol assessment agreement with the FDA relating to the MERLIN TIMI-36 clinical study of Ranexa, this agreement does not guarantee any particular regulatory outcome from regulatory review of the study or the product, including any changes to
product labeling or approvals.

Our MERLIN TIMI-36 clinical trial is a large clinical study of Ranexa, with approximately 6,500
patients enrolled. The trial was completed in September 2006 when more than 730 events (as defined by the composite



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study endpoint of cardiovascular death, myocardial infarction or severe recurrent ischemia), as well as 310 deaths from any cause, were observed in the study
population. We presently expect preliminary results from the trial will become available late in the first quarter of 2007.

The data and
results from the MERLIN TIMI-36 clinical study may differ substantially from those obtained in earlier clinical trials of Ranexa. For example, although our previous Phase 3 trials of Ranexa had positive results, our MERLIN TIMI-36 study of Ranexa is
in a different patient population (of patients with acute coronary syndromes) with different entry criteria and for a different potential use, and involves the use of an intravenous formulation of ranolazine that has not been approved by the FDA. In
addition, even though the MERLIN TIMI-36 study is powered at over 90% for the primary efficacy endpoint, this does not necessarily mean that there is a 90% probability that the study will meet the primary efficacy endpoint. The calculation of the
statistical power of a study is based on several assumptions, any one of which may be incorrect. Power is the probability of obtaining a statistically significant difference between the study drug and the placebo control if the study drug really is
different from control by a particular assumed amount. Therefore, if a study has a power of 90% and all of the assumptions are correct, including the assumed amount of difference between the study drug and the placebo control, then the probability
that the study will show a statistically significant difference between the study drug and the placebo control is 90%. However, if one or more of the calculations assumptions is not correct, then the probability that the study will show a
statistically significant difference between the study drug and the control may be greater or less than 90%. In the calculation of the MERLIN TIMI-36 study power for the primary efficacy endpoint, it was assumed that in the entire population of
acute coronary syndrome patients there would be a 20% difference between Ranexa and placebo (the control in the study) in the risk of cardiovascular death, myocardial infarction or recurrent ischemia occurring after an acute coronary syndrome event.
However, since Ranexa has never been studied in this patient population, we cannot assure you that the assumption of a 20% difference between Ranexa and placebo is correct. Therefore, the probability that the study will meet the primary efficacy
endpoint may be less than 90%.

The MERLIN TIMI-36 clinical study has a complicated design and there are many potential outcomes from this
study, ranging from strongly or weakly positive to strongly or weakly negative. The study results may be ambiguous and difficult to interpret. These factors and the inherent variability of clinical trial results mean that there can be no assurance
that we will obtain positive results from the MERLIN TIMI-36 clinical study.

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

Under our SPA agreement with the FDA relating to the MERLIN TIMI-36 clinical study, the FDA agreed that this study could support potential
approval of Ranexa as first-line therapy for patients suffering from chronic angina if treatment with Ranexa is not associated with an adverse trend in death and arrhythmia compared to placebo, even if statistical significance for the primary
efficacy endpoint in the study (which does not relate to chronic angina) is not achieved. However, the term no adverse trend in death and arrhythmia is not defined in the SPA agreement, we have not discussed with the FDA the potential
meaning(s) of the phrase, and we do not know how the agency will interpret this aspect of the SPA agreement in the context of the data and results from the MERLIN TIMI-36 study (assuming that we submit those data and results to the agency for review
in an



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approval application). If we submit an approval application to the FDA for review, we expect that the FDA will review all the safety data and results from
the study (including those relating to death and arrhythmia), and will exercise its broad regulatory discretion in interpreting these data and results and the terms of the SPA agreement, in determining whether the data and results demonstrate that
Ranexa is or is not associated with an adverse trend in death and arrhythmia, and in determining whether to approve the product for first-line therapy for chronic angina patients, and what labeling changes to allow, if any. As a result, there is
significant uncertainty as to whether the MERLIN TIMI-36 study would support a potential approval of Ranexa as first-line therapy for patients suffering from chronic angina and what labeling changes would result.

The SPA agreement also requires that we successfully complete a clinical evaluation of higher doses of Ranexa before any potential approval of Ranexa as
first-line therapy for patients suffering from chronic angina. We have completed the clinical evaluation of higher doses of Ranexa, and believe that the data and results from this separate study will satisfy this additional SPA requirement. However,
we have not submitted these data and results to the FDA for review in an approval application and we thus do not know if the FDA will agree that this aspect of the SPA agreement has been satisfied.

Under our SPA agreement with the FDA relating to the MERLIN TIMI-36 clinical study, this study could also result in approval of Ranexa for the treatment
and long-term prevention of acute coronary syndromes, if the study meets its primary efficacy endpoint. Typically, the FDA requires positive results from at least two Phase 3 studies to support approval for a new indication. While the FDA agreed in
our SPA agreement that positive data and results from just one Phase 3 study of patients with acute coronary syndromes (the MERLIN TIMI-36 study) could result in approval of Ranexa for the treatment and long-term prevention of this condition, the
agency retains significant discretion in interpreting these terms of the SPA agreement and the data and results from the MERLIN TIMI-36 study. As a result, we have no assurance that the MERLIN TIMI-36 data and results will allow us to expand or
otherwise improve the approved product labeling for Ranexa.

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

We do not know how the FDA will interpret the commitments under our SPA agreement relating to the MERLIN TIMI-36 clinical study (or the
related clinical evaluation of higher doses of Ranexa) as these commitments relate to the potential for first-line use in chronic angina and the potential for use in acute coronary syndromes, how the FDA will interpret the data and results from the
MERLIN TIMI-36 clinical study (or the separate clinical evaluation of higher doses of Ranexa), or whether Ranexa will receive any additional regulatory approvals or any expanded or otherwise improved product labeling as a result of these clinical
study(ies) or this SPA agreement. In particular, significant uncertainty remains regarding the potential impact on the product of any data and results from the MERLIN TIMI-36 clinical trial. Even if the study results are positive and the FDA decides
to approve expanded product labeling, such positive results could not be incorporated into any FDA-approved product labeling for Ranexa and we could not commence promotion based on that revised labeling until 2008 at the earliest. In any event, the
additional safety data we receive from the MERLIN TIMI-36 study, whether positive or negative, will require us to modify the products labeling, even if we do not submit any approval applications seeking other labeling changes based on the
study. If the MERLIN TIMI-36 study has negative or ambiguous results, our continued ability to commercialize Ranexa could be seriously impaired or stopped altogether, and we may become subject to product liability and other claims against us.
Negative or ambiguous data and results from this study could cause the FDA to further limit or restrict the approved labeling for Ranexa, or even require withdrawal of the product from the market. Any of these events would adversely affect the
market acceptance of Ranexa, our only approved product, and also adversely affect our cash position, results of operations and stock price.



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

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

The process of obtaining FDA and other required regulatory approvals, including foreign approvals,
often takes many years and can vary substantially based upon the type, complexity and novelty of the products involved. Furthermore, this approval process is extremely complex, expensive and uncertain. We may not be able to maintain our proposed
schedules for the submission of any new drug application, supplemental new drug application or equivalent foreign application seeking approval for any of our product candidates or any new uses or other changes to approved product labeling or
manufacturing. If we submit any such application to the FDA, the FDA must first decide whether to either accept or reject the submission for filing, and if we submit any such application to European regulatory authorities, they must first decide
whether to validate it for further review, so we cannot be certain that any of these submissions will be reviewed. If they are reviewed, we cannot be certain that we will be able to respond to any regulatory requests during the review period in a
timely manner without delaying potential regulatory action. We also cannot be certain that any of our products or proposed product changes, such as labeling changes, will be approved by the FDA or foreign regulatory authorities.

Delays in approvals or rejections of marketing applications in the United States or foreign markets may be based upon many factors, including regulatory
requests for additional analyses, reports, clinical inspections, clinical and/or preclinical data and/or studies, questions regarding data or results, unfavorable review by advisory committees, changes in regulatory policy during the period of
product development and/or the emergence of new information regarding our products or other products. For example, in 2005 we withdrew our marketing authorization application for ranolazine filed with the European Medicines Agency, because the
regulatory authority requested additional clinical pharmacokinetic data regarding the product prior to approval. In December 2006, we announced that we had submitted a new marketing authorization application seeking approval of ranolazine for the
treatment of chronic angina with the European Medicines Agency. This new application includes additional data and results from studies conducted after March 2004.

Data obtained from preclinical and clinical studies are subject to different interpretations, which could delay, limit or prevent regulatory review or approval of any of our products. For example, some drugs that
prolong the QT interval, which is a measurement of specific electrical activity in the heart as captured on an electrocardiogram, carry an increased risk of serious cardiac rhythm disturbances that can cause a type of fatal arrhythmia known as
torsades de pointes, while other drugs that prolong the QT interval do not carry an increased risk of this fatal arrhythmia. Ranexa causes small but statistically significant mean increases in the QT interval, as observed in clinical trials of
Ranexa. QT interval measurements are not precise and there are different methods of calculating the corrected QTc interval, which is the QT interval as adjusted for heart rate. This uncertainty in the measurement and calculation of the QT and QTc
intervals can contribute to different interpretations of these data. The clinical significance of the changes in QTc interval observed in clinical trials of Ranexa remains unclear, and other clinical and preclinical data do not suggest that Ranexa
significantly pre-disposes patients to this fatal arrhythmia. Regulatory authorities may interpret the Ranexa data differently, which could delay, limit or prevent additional regulatory approvals of Ranexa. For example, when acting on the original
new drug application for Ranexa in October 2003, the FDA did not approve the product and indicated that additional clinical information would be needed prior to approval, in part because of the FDAs safety concerns. In January 2006, the FDA
approved Ranexa for use in chronic angina, with product labeling which states that because of the potential safety risk of QT prolongation caused by Ranexa, the product should be reserved for use in chronic angina patients who have not achieved an
adequate response with other antianginal drugs, and should be used in combination with other common antianginal treatments, specifically amlodipine, beta-blockers or nitrates. Foreign regulatory authorities may have similar or other concerns which
would delay or prevent the approval of Ranexa or any of our other product candidates outside the United States.



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

Furthermore, regulatory attitudes towards the data and results required to demonstrate safety and efficacy can change over time and can be affected by
many factors, such as the emergence of new information (including on other products), changing policies and agency funding, staffing and leadership. We cannot be sure whether current or future changes in the regulatory environment will be favorable
or unfavorable to our business prospects. For example, we were informed by the FDA in 2006 that the agency has transferred responsibility for our regadenoson program to a review division at the FDA that has not previously handled the program. The
development program for regadenoson is at a late stage, with two Phase 3 studies successfully completed and a potential new drug application filing in mid-2007. The FDA transfer of review responsibility for the program could disrupt ongoing and
anticipated communications with the agency. We do not know if the new review division will adhere to key agreements on the development program that were discussed and agreed to previously with the prior review division (and with whom we did not
negotiate any SPA agreement for this program), such as the Phase 3 study design, which is a novel approach to the evaluation of a pharmacological stress agent. As a result of this transfer, our ability to submit a new drug application, if any,
and/or obtain potential product approval from the FDA for regadenoson could be negatively affected.

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

In addition, the environment in which our regulatory submissions may be reviewed changes over time. For example, average review
times at the FDA for marketing approval applications can fluctuate substantially, and we cannot predict the review time for any of our submissions with any regulatory authorities. Review times also can be affected by a variety of factors, including
budget and funding levels and statutory, regulatory and policy changes.

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

Our approved products may not achieve market acceptance or generate revenues.

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



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



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



| |  |  | the success of ongoing development programs relating to our products, especially our MERLIN TIMI-36 clinical trial of Ranexa;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------



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



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



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



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



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



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



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



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



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



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



| |  |  | the availability and level of third-party reimbursement for the product;
| | - |  | ------------------------------------------------------------------------



| |  |  | the ability to gain formulary acceptance and favorable formulary positioning, without prior authorizations or step-edits, for our approved products on government
and managed care formularies and the discounts and rebates offered in return;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



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



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



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



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

For example, we believe that the approved product labeling for Ranexa has had and will continue to have a direct impact on our marketing, promotional and sales programs for this product, and could adversely affect market acceptance of this
product. In addition, we believe that physician prescribing patterns are substantially affected by the experience of patients for whom they prescribe a product, particularly a new product such as Ranexa. For example, the approved product labeling
for Ranexa contains contraindications and warnings regarding a potential safety risk of QT prolongation and a type of fatal arrhythmia, among other potential risks. If physicians in the United States react negatively to the product because of how
they perceive the approved product labeling, or if patients for whom they prescribe Ranexa do poorly on the drug, physicians may decide that the benefit and risk of the product do not favor wider or any usage, and may reserve the use of the product
for only a small group of patients with chronic angina, or not use the product at all, resulting in lower product acceptance and lower product revenues.

Regulatory authorities approve product labeling with reference to the preclinical and clinical data that form the basis of the product approval, and as a result the scope of approved labeling is generally impacted by
the available data. The approved product labeling for Ranexa states that because Ranexa prolongs the QT interval in a dose-dependent manner, the product should be reserved for use in chronic angina patients who have not achieved an adequate response
with other antianginal drugs, and should be used in combination with other common antianginal treatments, specifically amlodipine, beta-blockers or nitrates. As a result, Ranexa is approved for only a portion of the overall angina patient population
in the United States. Any approval of Ranexa for broader use with angina patients will require, among other things, successful completion of our large MERLIN TIMI-36 clinical trial, from which preliminary results are expected late in the first
quarter of 2007. If the study is successful, we could not incorporate data from the study into FDA-approved product labeling and commence promotion based on that revised labeling, if any, until 2008 at the earliest. We cannot assure you that the
MERLIN TIMI-36 clinical trial will succeed or allow us to expand the approved labeling for Ranexa. If the MERLIN TIMI-36 study has negative or ambiguous results, our continued ability to commercialize Ranexa could be seriously impaired or stopped
altogether, and we may become subject to product liability and other claims against us.

In addition to approving product labeling, the FDA
typically reviews core promotional materials for our products. We obtained the FDAs review of our key promotional materials in connection with the 2006 launch of Ranexa, and we must submit all promotional materials to the FDA at the time of
first use. If the FDA raises concerns regarding our proposed or actual promotional materials, we may be required to modify or discontinue using them and provide corrective information to healthcare practitioners. We do not know whether our
promotional materials will allow us to effectively promote Ranexa with healthcare practitioners and managed care audiences. For example, the approved product labeling states that the mechanism of action of Ranexa is unknown, which may make it
difficult for us to address potential questions and concerns regarding the product such as safety concerns.

We may also be hampered in our
promotional efforts by a lack of familiarity with our company and our products among healthcare practitioners in the United States. Relatively few U.S. physicians served as clinical investigators in the clinical studies of Ranexa; as a result, only
a limited number of U.S. healthcare practitioners are familiar with using Ranexa, even in a clinical trial setting.

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



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

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

The success of our company is largely dependent on the success of Ranexa, which we launched in the United States in March 2006.

We launched Ranexa in the United States market in March 2006 and recognized revenues from sales of Ranexa for the first time in the quarter ended
June 30, 2006. Although we co-promoted ACEON®
in the United States until October 2006, Ranexa is now our only commercial product, and we expect that Ranexa will account for all of our product sales for the next several years unless we obtain rights to other approved products. In order for us to
successfully commercialize Ranexa, our sales of Ranexa must increase significantly from current levels. We continue to spend significant amounts of capital in connection with the commercialization of Ranexa, and to invest significant amounts of
capital in the development of Ranexa, especially through our MERLIN TIMI-36 clinical trial, which is a large and costly outcomes study. Any future labeling expansion of Ranexa is dependent on a successful outcome of the MERLIN TIMI-36 trial, for
which we expect preliminary results late in the first quarter of 2007. If the study is successful, we could not incorporate data from the study into FDA-approved product labeling and commence promotion based on that revised labeling, if any, until
2008 at the earliest. Even if our MERLIN TIMI-36 trial is successful, the data and results from the study may not be compelling enough to enable us to successfully promote the product and increase product sales. The MERLIN TIMI-36 study has a
complicated design and the data and results may range from strongly or weakly positive to strongly or weakly negative, and may be ambiguous and difficult to interpret. If the MERLIN TIMI-36 study has negative or ambiguous results, our continued
ability to commercialize Ranexa could be seriously impaired or stopped altogether, and we may become subject to product liability and other claims against us.

Our continued substantial investments in Ranexa are based in part on market forecasts, which are inherently uncertain and, in the case of Ranexa, are particularly uncertain due to the fact that Ranexa is a new and
unproven product with a novel mechanism of action and is the first new drug therapy for chronic angina in the United States in over twenty years. If we fail to significantly increase our level of Ranexa sales, or if our MERLIN TIMI-36 trial is
unsuccessful, our ability to generate product revenues, our ability to raise additional capital, and our ability to maintain our current levels of research, development and commercialization activities will all be materially impaired, and the price
of our common stock will decline. As a result, the success of our company is largely dependent on the success of Ranexa, not our other product candidates.

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

Our successful commercialization of Ranexa in the United States will depend on our ability to establish and maintain an effective sales and marketing organization in the United States. We have hired, trained and
deployed additional marketing personnel and a national cardiovascular specialty sales force of approximately 250



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personnel, which began to promote ACEON® in 2005 and Ranexa in March 2006. Prior to our launches of these two products, we had never sold or marketed any products. In October 2006, we signed a
letter agreement with Solvay Pharmaceuticals that, among other things, terminated our co-promotion agreement with Solvay Pharmaceuticals relating to ACEON®, effective as of November 1, 2006, and we ceased all commercial activities relating to ACEON®.

We may increase or decrease the size of our sales force in the future, depending on many factors, including the effectiveness of the sales force, the level of market acceptance of Ranexa, and the results of our MERLIN
TIMI-36 clinical trial of Ranexa, for which we expect preliminary results late in the first quarter of 2007. Developing and implementing key marketing messages and programs, as well as deploying, retaining and managing a national sales force and
additional personnel, is very expensive, complex and time-consuming. We do not know if our marketing strategies and programs will be effective. We also do not know if our sales force is sufficient in size, scope or effectiveness to compete
successfully in the marketplace and gain acceptance for Ranexa. Among other factors, we may not be able to gain sufficient access to healthcare practitioners, which would have a negative effect on our ability to promote Ranexa and gain market
acceptance. Even if we gain access to healthcare practitioners, we may not be able to change prescribing patterns in favor of Ranexa. For example, our marketing and sales efforts relating to ACEON® in the United States prior to our termination of our co-promotion agreement for
ACEON® did not produce a significant increase in
prescribing patterns relating to that product.

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

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

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



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



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



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



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



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



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

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



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Unlike other treatments for angina currently being used in the United States, the approved labeling for
Ranexa warns of the risk that because the product prolongs the QT interval, it may cause a type of fatal arrhythmia known to healthcare practitioners as torsades de pointes. This fatal arrhythmia occurs in the general population of patients with
cardiovascular disease at a low rate of incidence (although the precise rate may be debatable), and can be triggered by a wide variety of factors including drugs, genetic predisposition and medical conditions (such as low blood potassium levels or
slow heart rate) that are not uncommon among patients with cardiovascular disease. Now that Ranexa is approved in the United States, the product is being used in a wider population and in a less rigorously controlled fashion than in clinical studies
of the product, including in patients with chronic angina who may be predisposed to the occurrence of torsades de pointes or other fatal arrhythmias. These patients are often receiving other medications for a variety of conditions. In this potential
patient population for Ranexa, it is inevitable that some patients receiving Ranexa will die suddenly, that in some or even many of these cases there will not be sufficient information available to rule out Ranexa as a contributing factor or cause
of mortality, and that required safety reporting from physicians or from us to regulatory authorities may link Ranexa to torsades de pointes, sudden death or other serious adverse effects. As a result, regulatory authorities, healthcare
practitioners and/or patients may perceive or conclude that the use of Ranexa is associated with torsades de pointes, sudden death, or other serious adverse effects, any of which could mean that our ability to commercialize Ranexa could be seriously
impaired or stopped altogether, our SPA agreement with the FDA regarding our MERLIN TIMI-36 study could be negatively affected, and we may become subject to potentially significant product liability litigation and other claims against us. This would
harm our business, increase our cash requirements and result in continued operating losses and a substantial decline in our stock price.

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

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

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

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

There are numerous marketed generic and/or branded pharmacologic stress agents, and at least two
potential A2A-adenosine receptor agonist compounds under development, that could compete with regadenoson, if
approved. We are also aware of companies that are developing products that may compete with our other product



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candidates and programs. There may also be potentially competitive products of which we are not aware. Many of these potential competitors have substantially
greater product development capabilities and financial, scientific, marketing and sales resources. Other companies may succeed in developing products earlier or obtaining approvals from regulatory authorities more rapidly or broadly than either we
or our strategic partners are able to achieve. Potential competitors may also develop products that are safer, more effective or have other potential advantages compared to those under development or proposed to be developed by us and our strategic
partners. In addition, research, development and commercialization efforts by others could render our technology or our products obsolete or non-competitive.

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

Our ability and the ability of our collaborative partners to market and sell Ranexa and any of
our product candidates that receive regulatory approval in the future will depend significantly on the extent to which reimbursement for the cost of Ranexa and those product candidates and related treatments will be available from government health
administration authorities, private health insurers and other organizations. Third party payers and governmental health administration authorities are increasingly attempting to limit and/or regulate the price of medical products and services,
especially branded prescription drugs. In addition, the increased emphasis on managed healthcare in the United States will put additional pressure on product pricing and usage, which may adversely affect our product sales and revenues.

For example, under the Medicare Prescription Drug Improvement and Modernization Act of 2003, Medicare beneficiaries are now able to elect coverage for
prescription drugs under Medicare Part D, and the various entities providing such coverage have set up approved drug lists or formularies and are negotiating rebates and other price concessions from pharmaceutical manufacturers, which impacts drug
access, patient copayments and product revenues, and may increase pressure to lower prescription drug prices over time. The full impact of this new law on our business as it relates to Ranexa in the United States is not yet clear to us. However,
these changes in Medicare reimbursement could have a negative effect on the revenue that we derive from sales of Ranexa, for example, when we provide rebates and other price concessions in order for Ranexa to be placed on approved drug lists or
formularies. Any additional changes in the law, including potential changes to Medicare Part D, could also place pressure on product pricing and usage.

Even if our products are deemed to be safe and effective by regulatory authorities, third party payers and governmental health administration authorities may direct patients to generic products or other lower-priced
therapeutic alternatives, and there are an increasing number of such alternatives available, including numerous lower-priced generic products available to treat the conditions for which our products are approved. Many third-party payers establish a
preference for selected products in a category and provide higher levels of formulary acceptance and coverage for preferred products and higher co-payments for non-preferred products. Significant uncertainty exists as to the reimbursement status of
newly approved health care products, such as Ranexa. As a result, we cannot predict the availability or amount of reimbursement for Ranexa or how the product will be positioned relative to other antianginal products and therapies.

In February 2006, we set the wholesale acquisition cost of Ranexa at a higher price than the cost of any other antianginal drug currently on the market
in the United States. In 2007, we increased the wholesale acquisition cost of Ranexa to adjust for inflation. Our pricing for Ranexa may result in less favorable reimbursement and formulary positioning for the product with third party payers and
under government programs including Medicare, and may result in more or higher barriers to patient access to the product such as higher co-payments and/or prior authorization requirements. If we fail to obtain favorable reimbursement or formulary
positioning for Ranexa, health care providers may limit how much or under what circumstances they will prescribe or administer these products, and patients may resist having to pay out-of-pocket for these products. We are offering discounts or
rebates to some customers to attempt to contract for favorable formulary status, which will lower the amount of product revenues we receive. In addition, our product revenues are affected by



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our pricing for the two approved dosages for Ranexa and by the dosages most commonly prescribed by physicians. To date, the lower-priced, lower dosage of
Ranexa is the most commonly prescribed dosage, which impacts product revenues but may also support favorable formulary positioning by third party payers. These competing factors will affect the market acceptance of Ranexa in the United States as
well as the amount of product revenues we will receive for the product.

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

Our customer base is highly concentrated.

Our principal customers are a small number of wholesale
drug distributors. These customers comprise a significant part of the distribution network for pharmaceutical products in the United States. Three large wholesale distributors, AmerisourceBergen Corporation, Cardinal Health, Inc. and McKesson
Corporation, control a significant share of the market in the United States. Our ability to distribute our products, including Ranexa, to retail pharmacy chains and to recognize revenues on a timely basis will be substantially dependent on our
ability to maintain commercially reasonable agreements with each of these wholesale distributors and the extent to which these distributors, over whom we have no control, comply with such agreements. The loss or bankruptcy of any of these customers
could materially and adversely affect our future results of operations, financial condition and our ability to distribute our products.

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

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

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

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



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

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

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

The successful commercialization of our products is substantially dependent on the successful and timely performance of our strategic collaborative partners and other vendors, over whom we have little control.

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



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



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

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

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



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

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

We have no manufacturing facilities and depend on third parties to manufacture our products.

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

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

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



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other states may have comparable requirements. We cannot assure you that we will be able to obtain such licenses when and where needed.

Any delay in the development of any of our drug product candidates will harm our business. Any delay in the completion of our MERLIN TIMI-36 clinical trial of Ranexa
would increase our cash requirements and result in operating losses. In addition, data and results from clinical trials may differ substantially from those obtained in earlier studies.

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



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



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



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

Our MERLIN TIMI-36 clinical trial is a large clinical study of Ranexa, in which the completion and duration of the study is based on achieving specified numbers of events. Patient enrollment in the trial was completed
in May 2006, with approximately 6,500 patients enrolled. The trial was completed in September 2006 when more than 730 events (as defined by the composite study endpoint of cardiovascular death, myocardial infarction or severe recurrent ischemia), as
well as 310 deaths from any cause, were observed in the study population. Although we presently expect preliminary results from the trial will become available late in the first quarter of 2007, the results from our MERLIN TIMI-36 clinical trial may
be delayed due to many factors, including if we or our contract research partners experience difficulties in scheduling final patient visits to the clinic, closing out study sites, collecting data or preparing the blinded study database for
unblinding and review. The MERLIN TIMI-36 clinical trial of Ranexa is a large and expensive clinical study, and any delay in obtaining its results would adversely affect our statements of operations and increase the period of uncertainty about its
results.

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

We rely on a large number of clinical research organizations and foreign clinical sites to conduct our clinical trials, which
may adversely affect our ability to complete our clinical trials on a timely basis or the outcome of our clinical trials.

The
successful development of our products is substantially dependent on the successful and timely performance of clinical research organizations and foreign clinical sites. We use clinical research organizations to perform a variety of tasks in the
conduct of our clinical trials, including patient recruitment, project management, monitoring and auditing of clinical sites, data management, data analysis, and core laboratory services. For example, we have relied on several clinical research
organizations to conduct almost all aspects of our MERLIN TIMI-36 study of Ranexa. With approximately 450 clinical sites and over 6,500 patients enrolled in the study, the MERLIN TIMI-36 study is the largest and most complicated clinical trial that
we have



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conducted to date, and it is a complex trial to complete and close-out. We have a very limited ability to control the quality of personnel assigned by
clinical research organizations to our projects. If any of these tasks are not performed by our clinical research organizations in an accurate and timely fashion, our clinical trials may be delayed and the results of our clinical trials may be
adversely affected. In addition, our heavy reliance on clinical research organizations may subject us and the clinical research organizations to additional demanding regulatory inspections, which can delay and adversely affect the regulatory review
and approval of our products (e.g., Ranexa in the case of the MERLIN TIMI-36 study) and product candidates (e.g., regadenoson).

A
significant portion of the sites conducting clinical trials of our product candidates are outside of the United States. The use of foreign clinical sites is often subject to additional risks. For example, contracts, informed consents, study
protocols and complex medical terminology must be accurately translated into foreign languages. During the conduct of the study, study data contained in foreign-language source documents must be accurately and timely translated into English and
reported back to study authorities. In addition, standards of medical care, clinical practice and patient populations vary from country to country, as well as the degree and manner of regulatory oversight. All of these factors introduce
heterogeneity into the study, which makes the conduct of the study more complex. Due in part to the added complexity of conducting foreign clinical trials, we expect that the FDA and other regulatory authorities may be likely to conduct clinical
site inspections of foreign clinical sites in connection with the review of marketing applications covering our products. To the extent that the FDA or other regulatory authorities are not satisfied with the foreign clinical site, the data from the
affected sites may be excluded from the trials database or there may be other impacts, which can adversely affect the results of the study or the timing or results of the regulatory authoritys review of any marketing application
containing those study results. Our MERLIN TIMI-36 clinical study of Ranexa has been conducted in the United States and in 16 foreign countries. Our business would be harmed if the completion, availability or quality of the results of our MERLIN
TIMI-36 study is delayed or adversely affected by any of these factors.

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

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



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



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



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



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



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



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



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



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



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

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

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

The collaborative
arrangements that we may enter into in the future may place responsibility on a strategic partner for preclinical testing and clinical trials, manufacturing and preparation and submission of applications for regulatory approval of potential
pharmaceutical products. We cannot control the amount and timing of resources that our strategic partners devote to our programs. If a partner fails to successfully develop or commercialize any product, product launch would be delayed. In addition,
our partners may pursue competing technologies or product candidates. In addition, arrangements in our industry are extremely complex, particularly with respect to intellectual property rights, financial provisions, and other provisions such as the
parties respective rights with respect to decision-making. Disputes may arise in the future with respect to these issues, such as the ownership of rights to any technology developed with or by third parties. These and other possible
disagreements between us and our partners could lead to delays in the research, development or commercialization of product candidates, or in the amendment or termination of one or more of our license and collaboration agreements. These disputes
could also result in litigation or arbitration, which is time consuming, expensive and uncertain.

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

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



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



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



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



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

However, we cannot be certain that any patent will issue from any of our pending or future patent applications, that any issued patent will not be lost through an interference or opposition proceeding, reexamination
request, litigation or other proceeding, that any issued patent will be sufficient to protect our



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technology and investments or prevent the entry of generic or other competition into the marketplace, or that we will be able to obtain any extension of any
patent beyond its initial term. The following table shows the expiration dates in the United States for the primary compound patents for our key products and product candidates:



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

---

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

In addition to these issued patents, we seek to file patent applications relating to each of our potential products, and we seek trade name and trademark protection for our commercialized products such as Ranexa.
Although patent applications filed in the United States are now published 18 months after their filing date, as provided by federal legislation enacted in 1999, this statutory change applies only to applications filed on or after November 2000.
Applications filed in the United States prior to this date are maintained in secrecy until a patent issues. As a result, we can never be certain that others have not filed patent applications for technology covered by our pending applications or
that we were the first to invent the technology. There may be third party patents, patent applications, trademarks and other intellectual property relevant to our compounds, products, services, development efforts and technology which are not known
to us and that may block or compete with our compounds, products, services, development efforts or technology. For example, competitors may have filed applications for, or may have received or in the future may receive, patents, trademarks and/or
other proprietary rights relating to compounds, products, services, development efforts or technology that block or compete with ours.



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

In addition, generic challenges and related patent litigation are common
in the biopharmaceutical industry. Such litigation may be necessary to enforce any patents or trademarks issued to us and/or to our corporate partners, or to determine the scope and validity of the proprietary rights of us or third parties,
including our corporate partners. For example, in May 2005, Astellas, our corporate partner for the regadenoson program in North America, announced that Astellas and a third party filed a patent infringement lawsuit against several generic companies
relating to the submission of an abbreviated new drug application seeking approval of a generic version of Adenoscan® (adenosine injection), a pharmacologic stress agent
approved for marketing in the United States. Regadenoson, if approved, would be intended to be a second generation pharmacologic stress agent in the United States market. It is likely that a decision in the patent litigation relating to
Adenoscan® (adenosine injection), or the end of the up to 30-month stay related to this litigation, will occur before any potential approval, if any, of a new drug
application for regadenoson, which could impact Astellas transition from marketing one product to the second generation product. Litigation, interference and opposition proceedings, even if they are successful, are expensive, time-consuming
and risky to pursue, and we could use a substantial amount of our financial resources in any such case.

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

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

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

Litigation and disputes related to intellectual property matters are widespread in the biopharmaceutical industry. Although to date no third party has asserted a claim of infringement against us, we cannot assure you
that third parties will not assert patent or other intellectual property infringement claims against us with respect to



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our compounds, products, services, technology or other matters in the future. If they do, we may not prevail and, as a result, we may be subject to
significant liabilities to third parties, we may be required to license the disputed rights from the third parties or we may be required to cease using the technology or developing or selling the compounds or products at issue. We may not be able to
obtain any necessary licenses on economically reasonable terms, if at all. Any intellectual property-related claims against us, with or without merit, as well as claims initiated by us against third parties, may be time-consuming, expensive and
risky to defend or prosecute. If we assert a patent against an alleged infringer and the alleged infringer is successful in invalidating the patent, the protection afforded by the patent is lost.

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

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

If there is an adverse outcome in our pending litigation, such as the securities
class action litigation that has been filed against us, our business may be harmed.

We and certain of our officers and directors are
named as defendants in a purported securities class action lawsuit filed in August 2003 in the U.S. District Court for the Northern District of California captioned Crossen v. CV Therapeutics, Inc., et al. The lawsuit is brought on behalf of
a purported class of purchasers of our securities, and seeks unspecified damages. As is typical in this type of litigation, several other purported securities class action lawsuits containing substantially similar allegations were filed against the
defendants. In November 2003, the court appointed a lead plaintiff, and in December 2003, the court consolidated all of the securities class actions filed to date into a single action captioned In re CV Therapeutics, Inc. Securities
Litigation. In January 2004, the lead plaintiff filed a consolidated complaint. We and the other named defendants filed motions to dismiss the consolidated complaint in March 2004. In August 2004, these motions were granted in part and denied in
part. The court granted the motions to dismiss by two individual defendants, dismissing both individuals from the action with prejudice, but denied the motions to dismiss by us and the two other individual defendants. After the motion to dismiss was
decided, this action entered the discovery phase. In October 2006, we reached a preliminary agreement to settle this action. Under the terms of the preliminary agreement, our insurers will pay an aggregate of $13.5 million to settle all claims and
to pay the court-approved fees of plaintiffs counsel. The defendants will receive a complete release of all claims and expressly deny any wrongdoing. The preliminary agreement is subject to standard conditions, including final court approval.
There can be no assurance that final court approval will be obtained. Separately, we are participating in dispute resolution proceedings beginning in February 2007 with an insurer over whether or not we will reimburse that insurer for a portion of
the insurers contribution to the settlement. The amount of our reimbursement will not exceed $2.25 million, and may be a lesser amount or zero.

In addition, certain of our officers and directors have been named as defendants in a derivative lawsuit filed in August 2003 in California Superior Court, Santa Clara County, captioned Kangos v. Lange, et al.,
which names CV Therapeutics as a nominal defendant. The plaintiff in this action is one of our stockholders who seeks



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to bring derivative claims on behalf of CV Therapeutics against the defendants. The lawsuit alleges breaches of fiduciary duty and related claims based on
purportedly misleading statements concerning our new drug application for Ranexa. In November 2006, we reached a preliminary agreement to settle this action. Under the terms of the preliminary agreement, we agreed to implement certain non-material
corporate governance changes, and our insurers will pay the court-approved fees of plaintiffs counsel. The defendants will receive a complete release of all claims and expressly deny any wrongdoing. The preliminary agreement is subject to
standard conditions, including final court approval. There can be no assurance that final court approval will be obtained.

As with any
litigation proceeding, we cannot predict with certainty the eventual outcome of pending litigation. Accordingly, no accrual has been established for these lawsuits. In the event of an adverse outcome, our business could be harmed.

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

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

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

Some of our costs and expenses are denominated in foreign currencies. Most of our foreign expenses are associated with our clinical studies, such as our
MERLIN TIMI-36 clinical trial of Ranexa, or the operations of our United Kingdom-based wholly owned subsidiary. We are primarily exposed to changes in exchange rates with Europe and Canada. When the United States dollar weakens against these
currencies, the dollar value of the foreign-currency denominated expense increases, and when the dollar strengthens against these currencies, the dollar value of the foreign-currency denominated expense decreases. Consequently, changes in exchange
rates, and in particular a weakening of the United States dollar, may adversely affect our results of operations. We currently do not hedge against our foreign currency risks.

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

We do not carry insurance for all categories of risk that our business may encounter. For example, we do not carry earthquake insurance. In the event of
a major earthquake in our region, our business could suffer significant and uninsured damage and loss. We currently maintain general liability, property, auto, workers compensation, products liability, directors and officers,
employment practices, cargo and inventory, foreign liability, crime and fiduciary insurance policies. We do not know, however, if we will be able to maintain existing insurance at all, or if so that it will have adequate levels of coverage for any
liabilities. Premiums for many types of insurance have increased significantly over the years, and depending on market conditions and our circumstances, certain types of insurance such as directors and officers insurance or products
liability insurance may not be available on



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acceptable terms or at all. Any significant uninsured liability, or any liability that we incur in excess of our insurance coverage, may require us to pay
substantial amounts, which would adversely affect our cash position and results of operations.

Risk Factors Relating to Our Common Stock and
Convertible Debt

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

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

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

Within the last 12 months, our common stock has traded
between $9.45 and $27.48 per share. The market price of the shares of our common stock has been and may continue to be highly volatile. Announcements and other events may have a significant impact on the market price of our common stock. We may have
no control over information announced by third parties, such as our corporate partners or our competitors, which may impact our stock price.

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



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



| |  |  | regulatory actions with respect to our products or our competitors products;
| | - |  | -----------------------------------------------------------------------------



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



| |  |  | our product sales and product revenues;
| | - |  | ---------------------------------------



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



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



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



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



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



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



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



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



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



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



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



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

In addition, if we fail to reach an important research, development or commercialization milestone or result by a publicly expected deadline, even if by only a small margin, there could be a significant impact on the market price of our
common stock. In addition, as we approach the announcement of important news, such as the results of the MERLIN TIMI-36 study (for which we currently expect data late in the first quarter of 2007), and as we announce such news, we expect the price
of our common stock to be particularly volatile, and negative news would have a substantial negative impact on the price of our common stock.

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

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

As of December 31, 2006, we had approximately $399.5 million in long-term convertible debt and aggregate annual debt service obligations on this
debt of approximately $11.0 million. If we issue other debt securities in the future, our debt service obligations and interest expense will increase. We intend to fulfill our debt service obligations from our existing cash and investments. In the
future, if we are unable to generate cash or raise additional cash through financings sufficient to meet these obligations and need to use existing cash or liquidate investments in order to fund these obligations, we may have to delay or curtail
research, development and commercialization programs. In addition, our failure to comply with the covenants and conditions in the indentures covering our convertible debt, such as our failure to make timely interest payments or our failure to timely
file periodic reports required under the Securities Exchange Act of 1934, could trigger a default under our convertible debt. Any default could result in the acceleration of the payment of our approximately $399.5 million of outstanding debt, which
would have a material adverse effect on our cash position and on our ability to maintain operations at our current levels or at all.



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



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



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



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



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

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

We may from time to time issue
additional shares of common stock at a discount from the current trading price of our common stock. As a result, our existing common stockholders will experience immediate dilution upon the purchase of any shares of our common stock sold at such
discount. For example, in April 2006, we entered into a common stock purchase agreement with Azimuth, which provides that, upon the terms and subject to the conditions set forth in the purchase agreement, Azimuth is committed to purchase up to
$200.0 million of our common stock, or 9,010,404 shares, whichever occurs first, at a discount of 3.8% to 5.8%, to be determined based on our market capitalization at the start of each sale period. The term of the purchase agreement is 36 months.
Azimuth is not required to purchase shares of our common stock when the price of our common stock is below $10 per share. Upon each sale of our common stock to Azimuth under the purchase agreement, we have also agreed to pay Reedland Capital
Partners a placement fee equal to one fifth of one percent of the aggregate dollar amount of common stock purchased by Azimuth. In 2006, Azimuth purchased an aggregate 2,744,118 shares of our common stock for proceeds, net of issuance costs, of
approximately $39.8 million under the purchase agreement. Our existing common stockholders will experience immediate dilution upon the purchase of any additional shares of our common stock by Azimuth.

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

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

Our board of directors has adopted a stockholder rights plan, authorized executive
severance benefit agreements for our officers in the event of a change of control, and adopted a severance plan for all non-officer employees in the event of a change of control. We entered into such severance agreements with these executives.
Subsequently, in November 2002 the board approved additional as well as amended executive severance agreements and a severance plan. Our rights plan and these severance arrangements may delay or prevent a change in our current management team and
may render more difficult an unsolicited merger or tender offer.



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The following provisions of our Amended and Restated Certificate of Incorporation, as amended, and our
by-laws, may have the effects of delaying or preventing a change in our current management and making the acquisition of our company by a third party more difficult:



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



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



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



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

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

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

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



|Item 1B. | Unresolved Staff Comments
|-------- | -------------------------

None.



|Item 2. | Properties
|------- | ----------

We currently lease three buildings
used as laboratory and office space in Palo Alto, California. The first building has approximately 61,000 square feet of space and the second has approximately 48,000 additional square feet of space. The lease term for both buildings runs through
April 2016 with an option to renew for nine years. Our third building, leased in late 2000, has approximately 73,000 square feet of space and a lease term that



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runs through April 2012 with no renewal option. This agreement is secured by an irrevocable letter of credit. Our European subsidiary leases approximately
4,000 square feet of office space in Stevenage, Hertfordshire in the United Kingdom. That lease expires in February 2008. We believe that these facilities will be adequate to meet our needs through 2007.



|Item 3. | Legal Proceedings
|------- | -----------------

We and certain of our officers
and directors are named as defendants in a purported securities class action lawsuit filed in August 2003 in the U.S. District Court for the Northern District of California captioned Crossen v. CV Therapeutics, Inc., et al. The lawsuit
was brought on behalf of a purported class of purchasers of our securities, and seeks unspecified damages. As is typical in this type of litigation, several other purported securities class action lawsuits containing substantially similar
allegations were filed against the defendants. In November 2003, the court appointed a lead plaintiff, and in December 2003, the court consolidated all of the securities class actions filed to date into a single action captioned In re CV
Therapeutics, Inc. Securities Litigation. In January 2004, the lead plaintiff filed a consolidated complaint. We and the other named defendants filed motions to dismiss the consolidated complaint in March 2004. In August 2004, these motions were
granted in part and denied in part. The court granted the motions to dismiss by two individual defendants, dismissing both individuals from the action with prejudice, but denied the motions to dismiss by us and the two other individual defendants.
After the motions to dismiss were decided, this action entered the discovery phase. In October 2006, we reached a preliminary agreement to settle this action. Under the terms of the preliminary agreement, our insurers will pay an aggregate of $13.5
million to settle all claims and to pay the court-approved fees of plaintiffs counsel. The defendants will receive a complete release of all claims and expressly deny any wrongdoing. The preliminary agreement is subject to standard conditions,
including final court approval. There can be no assurance that final court approval will be obtained. Separately, we are participating in dispute resolution proceedings beginning in February 2007 with an insurer over whether or not we will reimburse
that insurer for a portion of the insurers contribution to the settlement. The amount of our reimbursement will not exceed $2.25 million, and may be a lesser amount or zero.

In addition, certain of our officers and directors have been named as defendants in a derivative lawsuit filed in August 2003 in California Superior
Court, Santa Clara County, captioned Kangos v. Lange, et al., which named CV Therapeutics as a nominal defendant. The plaintiff in this action is one of our stockholders who sought to bring derivative claims on behalf of CV Therapeutics
against the defendants. The lawsuit alleged breaches of fiduciary duty and related claims based on purportedly misleading statements concerning our new drug application for Ranexa. In November 2006, we reached a preliminary agreement to settle this
action. Under the terms of the preliminary agreement, we agreed to implement certain non-material corporate governance changes, and our insurers will pay the court-approved fees of plaintiffs counsel. The defendants will receive a complete
release of all claims and expressly deny any wrongdoing. The preliminary agreement is subject to standard conditions, including final court approval. There can be no assurance that final court approval will be obtained.

As with any litigation proceeding, we cannot predict with certainty the eventual outcome of pending litigation. Accordingly, no expense accrual has been
established for these lawsuits. In the event of an adverse outcome, our business could be harmed.



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

None.



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PART II



|Item 5. | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
|------- | ------------------------------------------------------------------------------------------------------------

Market Information

Our common stock trades on the
Nasdaq Global Market under the symbol CVTX.

The following table sets forth, for the periods indicated, the intraday high and
low price per share of the common stock on the Nasdaq Global Market.



|                             |  |      |       |     |   |      
|---------------------------- |  | ---- | ----- | --- | - | -----
|                             |  | High |       | Low
|Year Ended December 31, 2006 |  |      |       |     |   |      
|First Quarter                |  | $    | 27.15 |     | $ | 21.63
|Second Quarter               |  | $    | 23.16 |     | $ | 12.81
|Third Quarter                |  | $    | 13.76 |     | $ | 9.75 
|Fourth Quarter               |  | $    | 14.07 |     | $ | 10.87
|                             |  |     
|Year Ended December 31, 2005 |  |      |       |     |   |      
|First Quarter                |  | $    | 23.76 |     | $ | 19.15
|Second Quarter               |  | $    | 23.73 |     | $ | 19.39
|Third Quarter                |  | $    | 29.79 |     | $ | 22.15
|Fourth Quarter               |  | $    | 28.42 |     | $ | 23.38

On February 21, 2007, the closing price for our common stock was $13.01 per share. As of
February 21, 2007, we had approximately 68 holders of record of our common stock, one of which is Cede & Co., a nominee for Depository Trust Company, or DTC. All of the shares of our common stock held by brokerage firms, banks and
other financial institutions as nominees for beneficial owners are deposited into participant accounts at DTC, and are therefore considered to be held of record by Cede & Co. as one stockholder.

Dividends

We have never declared or paid any cash
dividends on our capital stock. We currently intend to retain any future earnings to finance the growth and development of our business and therefore, do not anticipate paying any cash dividends in the foreseeable future.

Sales and Repurchases of Securities

We did not sell
unregistered securities during our fiscal year ended December 31, 2006. We did not repurchase any of our equity securities during the fourth quarter of the year ended December 31, 2006.



47



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Performance Measurement Comparison*

The following graph and table show the cumulative total stockholder return of an investment of $100 in cash from the close of the market on December 31, 2001 through December 31, 2006 for (i) our common stock, (ii)
the Nasdaq Composite Index and (iii) the Nasdaq Biotechnology Index. All values assume reinvestment of the full amount of all dividends, although dividends have not been declared on our common stock. In prior years, we have used the Nasdaq Stock
Market (U.S.) Index as one of our comparator graphs. The Nasdaq Stock Market (U.S.) Index was discontinued in 2006. As a result, we have replaced the Nasdaq Stock Market (U.S.) Index with the Nasdaq Composite Index as one of our comparator graphs.

LOGO



|                      |  |        |  |       |  |        |  |        |  |        |  |       
|--------------------- |  | ------ |  | ----- |  | ------ |  | ------ |  | ------ |  | ------
|                      |  | 12/01  |  | 12/02 |  | 12/03  |  | 12/04  |  | 12/05  |  | 12/06 
|CV Therapeutics, Inc. |  | 100.00 |  | 35.02 |  | 28.30  |  | 44.21  |  | 47.54  |  | 26.84 
|NASDAQ Composite      |  | 100.00 |  | 71.97 |  | 107.18 |  | 117.07 |  | 120.50 |  | 137.02
|NASDAQ Biotechnology  |  | 100.00 |  | 62.08 |  | 90.27  |  | 99.08  |  | 111.81 |  | 110.06



|* | This section is not soliciting material, is not deemed filed with the Commission and is not to be incorporated by reference in any filing of the Company
under the Securities Act or the Exchange Act whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

|Item 6. | Selected Financial Data
|------- | -----------------------

The data set forth below
is not necessarily indicative of the results of future operations and should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this document and also with Managements Discussion and
Analysis of Financial Condition and Results of Operations. Certain reclassifications have been made to prior period balances in order to conform to the current presentation. We combined line items previously separately titled interest
and other income, net and other expenses into interest and other income, net. We have also reclassified certain items on our consolidated balance sheet, including non-cash consideration paid related to our operating
lease agreements.



|                                                              |  |                                          |            |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|------------------------------------------------------------- |  | ---------------------------------------- | ---------- | - | ---- | - | -------- | ---- |  | - | -------- | - |  | ---- | -------- | - |  | - | -------- | -
|                                                              |  | Year Ended December 31,                  |           
|                                                              |  | 2006                                     |            |   | 2005 |   |          | 2004 |  |   | 2003     |   |  | 2002 |         
|                                                              |  | (in thousands, except per share amounts) |           
|Consolidated Statements of Operations Data                    |  |                                          |            |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Revenues:                                                     |  |                                          |            |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Product sales, net                                            |  | $                                        | 18,423     |   |      | $ |         |      |  | $ |         |   |  | $    |         |   |  | $ |         |  
|Collaborative research                                        |  |                                          | 16,923     |   |      |   | 18,951   |      |  |   | 20,428   |   |  |      | 11,305   |   |  |   | 5,287    |  
|Co-promotion                                                  |  |                                          | 1,439      |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|                                                              |  |                                          |            |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Total revenues                                                |  |                                          | 36,785     |   |      |   | 18,951   |      |  |   | 20,428   |   |  |      | 11,305   |   |  |   | 5,287    |  
|                                                              |  |                                          |            |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Costs and expenses:                                           |  |                                          |            |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Cost of sales                                                 |  |                                          | 2,752      |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Research and development                                      |  |                                          | 135,254    |   |      |   | 128,452  |      |  |   | 124,346  |   |  |      | 80,792   |   |  |   | 90,973   |  
|Selling, general and administrative                           |  |                                          | 177,264    |   |      |   | 114,543  |      |  |   | 42,990   |   |  |      | 40,453   |   |  |   | 27,226   |  
|                                                              |  |                                          |            |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Total costs and expenses                                      |  |                                          | 315,270    |   |      |   | 242,995  |      |  |   | 167,336  |   |  |      | 121,245  |   |  |   | 118,199  |  
|                                                              |  |                                          |            |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Loss from operations                                          |  |                                          | (278,485   | ) |      |   | (224,044 | )    |  |   | (146,908 | ) |  |      | (109,940 | ) |  |   | (112,912 | )
|Other income (expenses), net                                  |  |                                          |            |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Interest and other income, net                                |  |                                          | 16,832     |   |      |   | 9,092    |      |  |   | 5,398    |   |  |      | 10,651   |   |  |   | 15,549   |  
|Interest expense                                              |  |                                          | (12,667    | ) |      |   | (13,043  | )    |  |   | (13,573  | ) |  |      | (11,662  | ) |  |   | (10,410  | )
|                                                              |  |                                          |            |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Total other income (expense), net                             |  |                                          | 4,165      |   |      |   | (3,951   | )    |  |   | (8,175   | ) |  |      | (1,011   | ) |  |   | 5,139    |  
|                                                              |  |                                          |            |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Net loss                                                      |  | $                                        | (274,320   | ) |      | $ | (227,995 | )    |  | $ | (155,083 | ) |  | $    | (110,951 | ) |  | $ | (107,773 | )
|                                                              |  |                                          |            |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Basic and diluted net loss per share                          |  | $                                        | (5.49      | ) |      | $ | (5.66    | )    |  | $ | (4.90    | ) |  | $    | (3.91    | ) |  | $ | (4.13    | )
|                                                              |  |                                          |            |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Shares used in computing basic and diluted net loss per share |  |                                          | 49,983     |   |      |   | 40,268   |      |  |   | 31,671   |   |  |      | 28,360   |   |  |   | 26,093   |  
|                                                              |  |                                          |            |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|                                                              | 
|                                                              |  | December 31,                             |           
|                                                              |  | 2006                                     |            |   | 2005 |   |          | 2004 |  |   | 2003     |   |  | 2002 |         
|                                                              |  | (in thousands)                           |           
|Consolidated Balance Sheet Data                               |  |                                          |            |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Cash, cash equivalents and marketable securities              |  | $                                        | 325,226    |   |      | $ | 460,183  |      |  | $ | 404,503  |   |  | $    | 428,498  |   |  | $ | 410,913  |  
|Working capital                                               |  |                                          | 303,248    |   |      |   | 423,539  |      |  |   | 381,205  |   |  |      | 419,507  |   |  |   | 398,958  |  
|Total assets                                                  |  |                                          | 421,456    |   |      |   | 532,561  |      |  |   | 460,085  |   |  |      | 469,177  |   |  |   | 441,002  |  
|Long-term debt                                                |  |                                          | 399,500    |   |      |   | 399,500  |      |  |   | 329,680  |   |  |      | 296,250  |   |  |   | 196,643  |  
|Accumulated deficit                                           |  |                                          | (1,086,874 | ) |      |   | (812,554 | )    |  |   | (584,559 | ) |  |      | (429,476 | ) |  |   | (318,525 | )
|Total stockholders equity (deficit)                          |  |                                          | (45,798    | ) |      |   | 60,990   |      |  |   | 79,402   |   |  |      | 148,837  |   |  |   | 218,965  |  



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|Item 7. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

Forward-Looking Statements

This Managements Discussion and Analysis of Financial Condition
and Results of Operations contain forward-looking statements that involve a number of risks and uncertainties. Although our forward-looking statements reflect the good faith judgment of our management, these statements can only be based on facts and
factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties, and actual results and outcomes may differ materially from results and outcomes discussed in the forward-looking statements.

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

These forward-looking statements are subject to risks and
uncertainties that may cause actual results to differ materially, including but not limited to, early stage of development; regulatory review and approval of our products or product candidates; the conduct, timing, and results of clinical trials;
commercialization of products; market acceptance of products; product labeling; liquidity; intellectual property claims; litigation; and other risks discussed under the heading Item 1A. Risk Factors. You should be aware that the
occurrence of any of the events discussed under the heading Item 1A. Risk Factors and elsewhere in this report could substantially harm our business, results of operations and financial condition and that, if any of these events occurs,
the trading price of our common stock could decline and you could lose all or a part of the value of your shares of our common stock.

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

Overview

The Company

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

Major Developments in 2006

In 2006,
our total revenues were $36.8 million, an increase of 94% from $19.0 million in 2005. In 2004, total revenues were $20.4 million. Our net loss in 2006 was $274.3 million, an increase of 20% from $228.0 million for 2005. Our net loss for 2004 was
$155.1 million. Net loss in 2006 includes the effect of stock-based compensation expense related to employee stock options and employee stock purchases under Statement of



50



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Financial Accounting Standards No. 123(R), Share-Based Payment (FAS 123R), which increased our net loss by $24.1 million.

Significant milestones during the year 2006 were as follows:



| |  |  | In January 2006, we received approval from the U.S. Food and Drug Administration (FDA) for Ranexa® (ranolazine extended-release tablets) for the treatment of chronic angina in patients
who have not achieved an adequate response with other antianginal drugs. Ranexa represents the first new pharmaceutical approach to treat angina in the United States in more than 20 years. We launched Ranexa in the United States in March 2006.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | From the first quarter of 2005 through October 2006, we promoted an additional product, ACEON® (perindopril erbumine) Tablets, an angiotensin converting enzyme inhibitor, or ACE inhibitor. ACEON®
is approved in the United States for use in patients with stable coronary artery disease to reduce the risk of cardiovascular mortality or nonfatal myocardial infarction, and for the treatment of patients with essential hypertension. We co-promoted
ACEON® in the United States with our partner Solvay Pharmaceuticals, Inc. (Solvay Pharmaceuticals). In October 2006, we signed a letter agreement with Solvay Pharmaceuticals
that, among other things, terminated our co-promotion agreement with Solvay Pharmaceuticals relating to ACEON®, effective as of November 1, 2006, and we ceased all
commercial activities relating to ACEON®.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In April 2006, we entered into a common stock purchase agreement with Azimuth Opportunity Ltd. (Azimuth), which provides that, upon the terms and subject to the
conditions set forth in the purchase agreement, Azimuth is committed to purchase up to $200,000,000 of our common stock, or 9,010,404 shares, whichever occurs first, over the approximately 36-month term of the purchase agreement. In 2006, Azimuth
purchased 2,744,118 shares for net proceeds of $39.8 million under this purchase agreement.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In June 2006, we announced that we had acquired the rights to ranolazine in Asia following an amendment to our licensing agreement with Roche Palo Alto LLC (Roche).
Based on this amendment, we now hold exclusive worldwide commercial rights to ranolazine for all potential indications for ranolazine in humans.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In June 2006, we entered into a collaboration and license agreement with PTC Therapeutics, Inc. (PTC) for the development of orally bioavailable small-molecule
compounds identified through the application of PTCs proprietary Gene Expression Modulation by Small Molecules technology. Pursuant to the collaboration and license agreement, we and PTC will collaborate on five jointly select therapeutic
targets and on the discovery of potential clinical candidate small-molecule compounds that act upon such targets.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In August 2006, we completed a public offering of common stock and sold 10,350,000 shares of common stock at a price of $9.50 for net proceeds of $92.2 million.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In order to potentially broaden the product labeling for Ranexa® (ranolazine extended-release tablets), we conducted the Metabolic Efficiency with Ranolazine for Less Ischemia in Non-ST Elevation Acute Coronary
Syndromes, or MERLIN TIMI-36, clinical study. This study was conducted under a special protocol assessment, or SPA, agreement with the FDA. If treatment with Ranexa is not associated with an adverse trend in death or arrhythmia compared to placebo,
under the SPA agreement the study could support potential approval of Ranexa as first-line chronic angina therapy, even if statistical significance on the primary endpoint is not achieved. In addition, if statistical significance on the primary
endpoint is achieved, Ranexa could also gain potential approval for hospital-based and long-term prevention of acute coronary syndromes. The MERLIN TIMI-36 study has been conducted by the Harvard-based
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | TIMI Study Group. In September 2006, we announced that the required number of endpoints events have been accumulated and we have proceeded to the study
close-out phase, followed by unblinding and analysis of the data.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | One of our drug candidates, regadenoson, a selective A2A-adenosine receptor agonist for potential use as a pharmacologic agent in myocardial perfusion imaging studies, is in late-stage clinical development. In
December 2006, we announced that the second of two Phase 3 clinical studies of regadenoson met its primary endpoint. A prior identically designed Phase 3 study, completed in 2005, also met its primary endpoint. Based on the positive results of these
two Phase 3 clinical trials, we plan to submit a new drug application to the FDA in mid-2007.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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

Developments Expected in the Future

We currently expect data from the MERLIN TIMI-36 study late in the first quarter of 2007.

Economic and Industry-wide Factors

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

Marketed Products

We currently promote Ranexa® (ranolazine
extended-release tablets) with our national cardiovascular specialty sales force. Ranexa was approved in the United States in January 2006 for the treatment of chronic angina in patients who have not achieved an adequate response with other
antianginal drugs. Ranexa represents the first new pharmaceutical approach to treat angina in the United States in more than 20 years. We launched Ranexa in the United States in March 2006.

Critical Accounting Policies and the Use of Estimates

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



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be the most critical to an understanding of our financial condition and results of operations because they require us to make estimates, assumptions and
judgments about matters that are inherently uncertain.

Revenue Recognition

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

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

Gross-to-Net Sales Adjustments

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





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



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



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



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



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

We believe our estimates related to chargebacks, cash discounts and distributor discounts do not have a high degree of
estimation complexity or uncertainty as the related amounts are settled within a relatively short period of time. We believe that product return allowances require a high degree of judgment. We believe that our estimates related to product return
allowances are reasonable and appropriate based on current facts and circumstances. We consider rebate accruals to be our most complex estimate, as it involves material amounts, requires a high degree of subjectivity and judgment necessary to
account for the accrual estimate and the final amount may not be settled for several quarters. As a result of the uncertainties involved in estimating rebate accruals, there is a higher likelihood that materially different amounts could be reported
under different conditions or using different assumptions.

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

All of the aforementioned categories of gross-to-net sales adjustments are evaluated each reporting period and adjusted
when trends or significant events indicate that a change in estimate is appropriate. Such changes in estimate could materially affect our results of operations or financial position. As of December 31, 2006, our consolidated balance sheet
reflected estimated gross-to-net sales reserves and accruals totaling approximately $2.3 million.

The following table summarizes revenue
allowance activity for the year ended December 31, 2006 (in thousands):



|                             |  |               |      |   |                    |   |      |                           |  |   |        |   |  |   |        |  
|---------------------------- |  | ------------- | ---- | - | ------------------ | - | ---- | ------------------------- |  | - | ------ | - |  | - | ------ | -
|                             |  | CashDiscounts |      |   | Product Returns(2) |   |      | ContractSalesDiscounts(1) |  |   | Total  |  
|Balance at December 31, 2005 |  | $             |     |   |                    | $ |     |                           |  | $ |       |   |  | $ |       |  
|Revenue allowances:          |  |               |      |   |                    |   |      |                           |  |   |        |   |  |   |        |  
|Current period               |  |               | (459 | ) |                    |   | (894 | )                         |  |   | (2,551 | ) |  |   | (3,904 | )
|Payments and credits         |  |               | 343  |   |                    |   |     |                           |  |   | 1,233  |   |  |   | 1,576  |  
|                             |  |               |      |   |                    |   |      |                           |  |   |        |   |  |   |        |  
|Balance at December 31, 2006 |  | $             | (116 | ) |                    | $ | (894 | )                         |  | $ | (1,318 | ) |  | $ | (2,328 | )
|                             |  |               |      |   |                    |   |      |                           |  |   |        |   |  |   |        |  

---

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

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

Changes in actual
experience or changes in other qualitative factors could cause our gross-to-net sales adjustments to fluctuate, particularly with our newly launched products. We review the rates and amounts in our gross-to-net sales adjustments each reporting
period. If future estimated rates and amounts are significantly greater than those reflected in our recorded reserves, the resulting adjustments to those reserves would decrease our reported net revenues. Conversely, if actual returns, rebates and
chargebacks are significantly less than those



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reflected in our recorded reserves, the resulting adjustments to those accruals or reserves would increase our reported net revenue. If we changed our
assumptions and estimates, our gross-to-net sales adjustments would change, which would impact the net revenues we report. To date, such adjustments have not been material.

Inventories

We expense costs
relating to the production of inventories as expense in the period incurred until such time as we receive an approval letter from the FDA for a new product or product configuration, and then we begin to capitalize the subsequent inventory costs
relating to that product configuration. Prior to approval of Ranexa for commercial sale in January 2006 by the FDA, we had expensed all costs associated with the production of Ranexa as R&D expense. Subsequent to receiving approval for Ranexa,
we capitalized the subsequent costs of manufacturing the commercial configuration of Ranexa as inventory, including costs to convert existing raw materials to active pharmaceutical ingredient and costs to tablet, package and label previously
manufactured inventory whose costs had already been expensed as R&D. Until we sell the inventory for which a portion of the costs were previously expensed, the carrying value of our inventories and our cost of sales will reflect only incremental
costs incurred subsequent to the approval date. Inventory which was previously expensed was $10.9 million as of December 31, 2006. We continue to expense costs associated with non-approved configurations of Ranexa and clinical trial material as
R&D expense.

The valuation of inventory requires us to estimate obsolete, expired or excess inventory. Once packaged as finished
goods, Ranexa currently has a shelf life of 48 months from the date of tablet manufacture, although some of our previously manufactured Ranexa tablets have a shelf life of 36 months from the date of tablet manufacture, which was the shelf life at
the time of product launch. The determination of obsolete, expired or excess inventory requires us to estimate the future demand for Ranexa. If our current assumptions about future production or inventory levels, demand or competition were to change
or if actual market conditions are less favorable than those we have projected, inventory write-downs may be required that could negatively impact our product margins and results of operations. We also review our inventory for quality assurance and
quality control issues identified in the manufacturing process and determine if a write-down is necessary. To date, there have been no inventory write-downs.

Valuation of Marketable Securities

We invest in short-term and long-term marketable debt securities
for use in current operations. We classify our investments as available-for-sale and report them at fair value. For securities with unrealized losses as of the period end, we evaluate whether the impairment is other-than-temporary. Unrealized gains
and temporary losses are reported in stockholders equity as a component of accumulated other comprehensive income (loss). Our assessment of unrealized losses includes a consideration of our intent and ability to hold the impaired security for
a period of time sufficient to recover its cost basis. If we conclude that an other-than-temporary impairment exists, we recognize an impairment charge to reduce the investment to fair value and record the related charge as a reduction of interest
and other income, net. We had unrealized losses of approximately $2.0 million and $3.2 million in our investment portfolio as of December 31, 2006 and 2005, respectively. After consideration of the scheduled maturities in our investment
portfolio, our policies with respect to the concentration of investments with issuers or within industries, and our forecasted needs to support our operations, we concluded that we did not have the ability and intent to hold all of our impaired
securities for a period of time sufficient to recover their cost basis. As a result, for the years ended December 31, 2006 and 2005, we recorded a non-cash impairment charge of approximately $2.0 million and $3.2 million respectively, related
to these securities. If market interest rates continue to increase in future periods, we would expect to record additional impairment charges related to our investments.

Stock Based Compensation

We currently use the Black-Scholes and other option pricing models to
estimate the fair value of employee stock options, stock appreciation rights and our employee stock purchase plan. Calculating the fair value of



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stock-based payment awards requires considerable judgment, including estimating stock price volatility, the amount of stock-based awards that are expected to
be forfeited and the expected life of the stock-based payment awards. While fair value may be readily determinable for awards of stock or restricted stock units (RSUs), market quotes are not available for long-term, non-transferable stock options or
stock appreciation rights because these instruments are not traded. The value of a stock option is derived from its potential for appreciation. The more volatile the stock, the more valuable the option becomes because of the greater possibility of
significant changes in stock price. Because there is a market for options on our common stock, we have considered implied volatilities as well as our historical realized volatilities when developing an estimate of expected volatility. We consider
many factors when estimating expected forfeitures, including types of awards, employee class, and historical experience. The expected option term also has a significant effect on the value of the option. The longer the term, the more time the option
holder has to allow the stock price to increase without a cash investment and thus, the more valuable the option. When establishing an estimate of the expected term, we consider the vesting period for the award, our historical experience of employee
stock option exercises, the expected volatility, and a comparison to relevant peer group data. We review our valuation assumptions at each grant date and, as a result, we are likely to change our valuation assumptions used to value stock based
awards granted in future periods. Actual results, and future changes in estimates, may differ substantially from our current estimates. As a result, if factors change and we use different assumptions, our stock-based compensation expense could be
materially different in the future.

Some of our RSUs provide for immediate acceleration of vesting in the event that we achieve a certain
annualized product revenue target over four consecutive quarters. As of December 31, 2006 the remaining unrecognized compensation costs related to these specific nonvested RSUs was $5.1 million, which is expected to be recognized over a period
of two years. At the point that we can estimate the probability of reaching this revenue target, the remaining unrecognized compensation costs will be recognized over a shorter period of time, which will result in higher expenses due to the
accelerated vesting. As of December 31, 2006, we cannot estimate the likelihood of achieving this target and have not recorded any accelerated compensation expense related to the performance-based component of the award.

Legal Contingencies

We are
currently, or have been, involved in certain legal proceedings as discussed in Note 10, Contingencies, in the Notes to Consolidated Financial Statements of Part II, Item 8 of this Form 10-K. We assess the likelihood of any adverse
judgments or outcomes to these legal matters as well as potential ranges of reasonably possible losses. As of the balance sheet date at December 31, 2006, we have not recorded an associated liability since the payment of contingent liability is
neither probable nor estimable. We have disclosed a range representing a reasonably possible cost of current resolution of these matters not to exceed $2.25 million, and may be a lesser amount or zero. The nature of these matters is highly uncertain
and subject to change. As a result, the amount of our liability for certain of these matters could exceed our current estimates, depending on the final outcome of these matters. An outcome of such matters different than previously estimated could
have a material effect on our financial condition or our results of operations.



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Results of Operations  Comparison of Years Ended December 31, 2006, 2005 and 2004

Revenues

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



|                       |  |                         |      |                |   |      |  |           |      |  |           |    |  |    |   
|---------------------- |  | ----------------------- | ---- | -------------- | - | ---- |  | --------- | ---- |  | --------- | -- |  | -- | --
|                       |  | Year ended December 31, |      | Percent Change |  
|                       |  | 2006                    |      | 2005           |   | 2004 |  | 2006/2005 |      |  | 2005/2004 |   
|Product sales, net     |  | $                       | 18.4 |                | $ |     |  | $         |     |  | *         |    |  | *  |   
|Collaborative research |  |                         | 16.9 |                |   | 19.0 |  |           | 20.4 |  | (11       | )% |  | (7 | )%
|Co-promotion           |  |                         | 1.4  |                |   |     |  |           |     |  | *         |    |  | *  |   
|                       |  |                         |      |                |   |      |  |           |      |  |           |    |  |    |   
|Total revenues         |  | $                       | 36.8 |                | $ | 19.0 |  | $         | 20.4 |  | 94        | %  |  | (7 | )%
|                       |  |                         |      |                |   |      |  |           |      |  |           |    |  |    |   

---

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

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

Product sales, net were $18.4 million in 2006 as a result of Ranexa product sales, which commenced in March 2006.

Collaborative research revenues of $16.9 million decreased by $2.1 million in 2006, compared to 2005, due primarily to lower reimbursable development costs incurred for our two Phase 3 clinical studies of regadenoson, undertaken in
connection with our collaboration with Astellas. In December 2006, we announced that the second of two Phase 3 clinical studies of regadenoson met its primary endpoint. A prior identically designed Phase 3 study, completed in 2005, also met its
primary endpoint.

The decrease in collaborative research revenues of $1.4 million in 2005, compared to 2004, was primarily due to
decreased reimbursable development costs incurred in connection with our two Phase 3 clinical studies of regadenoson.

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

Cost of Sales

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



|              |  |                        |     |                |   |      |  |           |   |           |   |  |  
|------------- |  | ---------------------- | --- | -------------- | - | ---- |  | --------- | - | --------- | - |  | -
|              |  | Year endedDecember 31, |     | Percent Change
|              |  | 2006                   |     | 2005           |   | 2004 |  | 2006/2005 |   | 2005/2004
|Cost of sales |  | $                      | 2.8 |                | $ |     |  | $         |  |           | * |  | *

---

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

Cost of sales includes the
cost of product (the cost to manufacture Ranexa, which includes material, labor and overhead costs) as well as costs of logistics and distribution of the product and a royalty owed to Roche, based on net product revenue (as defined in our license
agreement with Roche). Until receiving FDA marketing approval of Ranexa in January 2006, all costs associated with the manufacturing of Ranexa were included in R&D expenses when incurred. Consequently, the cost of manufacturing Ranexa reflected
in our total costs and



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expenses in 2006, and for some period thereafter, will not reflect the full cost of production because a portion of the raw materials, labor and overhead
costs incurred to produce the product sold were previously expensed. For these reasons, we anticipate that our margin on sales of Ranexa will continue to fluctuate from quarter to quarter during 2007 and for some period thereafter. Inventory that
was previously expensed was $10.9 million as of December 31, 2006. There were no cost of sales in 2005 and 2004 prior to our receiving regulatory approval and commencing commercial sale of Ranexa in the United States.

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

Research and Development Expenses

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



|                                  |  |                         |       |                |   |       |  |           |       |  |           |   |  |   |  
|--------------------------------- |  | ----------------------- | ----- | -------------- | - | ----- |  | --------- | ----- |  | --------- | - |  | - | -
|                                  |  | Year ended December 31, |       | Percent Change |  
|                                  |  | 2006                    |       | 2005           |   | 2004  |  | 2006/2005 |       |  | 2005/2004 |  
|Research and development expenses |  | $                       | 135.3 |                | $ | 128.5 |  | $         | 124.3 |  | 5         | % |  | 3 | %

The increase in R&D expenses of $6.8 million in 2006, compared to 2005, was primarily due to
higher personnel-related expenses. Our 2006 R&D-related personnel expense includes stock-based compensation as a result of our adoption of FAS 123R on January 1, 2006. This increase was partially offset by lower outside contract service
expense for our completed Phase 3 regadenoson study. Additionally, we capitalized the manufacturing costs of Ranexa as part of inventory in 2006 versus the expensing of these costs as R&D in 2005, prior to receiving FDA approval of Ranexa.

The increase in R&D expenses in 2005, compared to 2004 was primarily due to increased outside contract service expenses for our Phase
3 Ranexa studies, and to a lesser extent, higher personnel related expenses resulting from increased headcount in our research and development organization. These increases were partially offset by the accrual in 2004 of $10.1 million for a
milestone due under our license agreement with Roche for Ranexa and decreased outside contract service expenses for our regadenoson program.

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



|                   |  |                         |       |      |   |       |  |   |      
|------------------ |  | ----------------------- | ----- | ---- | - | ----- |  | - | -----
|                   |  | Year ended December 31,
|                   |  | 2006                    |       | 2005 |   | 2004 
|Ranolazine         |  | $                       | 74.3  |      | $ | 68.0  |  | $ | 69.6 
|Regadenoson        |  |                         | 23.7  |      |   | 27.9  |  |   | 29.6 
|Other projects     |  |                         | 37.3  |      |   | 32.6  |  |   | 25.1 
|                   |  |                         |       |      |   |       |  |   |      
|Total R&D expenses |  | $                       | 135.3 |      | $ | 128.5 |  | $ | 124.3
|                   |  |                         |       |      |   |       |  |   |      

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



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Selling, General and Administrative Expense

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



|                                             |  |                         |       |                |   |       |  |           |      |  |           |   |  |     |  
|-------------------------------------------- |  | ----------------------- | ----- | -------------- | - | ----- |  | --------- | ---- |  | --------- | - |  | --- | -
|                                             |  | Year ended December 31, |       | Percent Change |  
|                                             |  | 2006                    |       | 2005           |   | 2004  |  | 2006/2005 |      |  | 2005/2004 |  
|Selling, general and administration expenses |  | $                       | 177.3 |                | $ | 114.5 |  | $         | 43.0 |  | 55        | % |  | 166 | %

The increase in SG&A expenses of $62.8 million in 2006, compared to 2005, was due primarily to
higher personnel related expenses associated with maintaining a national cardiovascular specialty sales force of cardiovascular account specialists and higher personnel related expenses in other areas to support our increased commercialization and
business activities (including stock-based compensation as a result of our adoption of FAS 123R on January 1, 2006). In addition, our costs of promoting Ranexa during the year ended December 31, 2006 were significantly higher than the
costs incurred in 2005, due in part to the timing of our Ranexa launch in 2006, offset partially by lower expenses incurred to co-promote ACEON®.

The increase in SG&A expenses of
$71.5 million in 2005, compared to 2004, was primarily due to additional personnel and related expenses incurred in conjunction with establishing and maintaining a national cardiovascular specialty sales force that included approximately 250
cardiovascular account specialists at the end of 2005 as well as other ACEON® co-promotion related activities and, to a significantly lesser extent, to higher personnel-related general and administrative expenses due to increased headcount to support our increased commercialization and other
business activities.

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

Interest and Other Income, Net

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



|                               |  |                        |      |                |   |      |  |           |     |  |           |   |  |    |  
|------------------------------ |  | ---------------------- | ---- | -------------- | - | ---- |  | --------- | --- |  | --------- | - |  | -- | -
|                               |  | Year endedDecember 31, |      | Percent Change |  
|                               |  | 2006                   |      | 2005           |   | 2004 |  | 2006/2005 |     |  | 2005/2004 |  
|Interest and other income, net |  | $                      | 16.8 |                | $ | 9.1  |  | $         | 5.4 |  | 85        | % |  | 69 | %

Interest and other income, net, increased by $7.7 million in 2006, compared to 2005. The increases
were primarily due to higher interest rates earned on our investment portfolio in 2006, and higher other expense in 2005 related to the premium paid above the principal value for the August 2005 redemption of $79.6 million principal of our 4.75%
subordinated convertible notes due 2007. The increases in 2006 were partially offset by decreases in our average cash balances and non-cash investment impairment charges of approximately $2.0 million related to losses on our investment portfolio
that were deemed to be other-than-temporary.

The increase in interest and other income, net of $3.7 million in 2005, compared to 2004, was
primarily due to higher interest rates earned on our investment portfolio, partially offset by a non-cash investment impairment charge of $3.2 million related to losses on our investment portfolio that were deemed to be other-than-temporary.

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



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Interest Expense

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



|                 |  |                         |      |                |   |      |  |           |      |  |           |    |  |    |   
|---------------- |  | ----------------------- | ---- | -------------- | - | ---- |  | --------- | ---- |  | --------- | -- |  | -- | --
|                 |  | Year ended December 31, |      | Percent Change |  
|                 |  | 2006                    |      | 2005           |   | 2004 |  | 2006/2005 |      |  | 2005/2004 |   
|Interest expense |  | $                       | 12.7 |                | $ | 13.0 |  | $         | 13.6 |  | (2        | %) |  | (4 | %)

Interest expense in 2006 slightly decreased $0.3 million from 2005 due to higher average
convertible debt balances in 2005.

The decrease in interest expense in 2005, compared to 2004, was primarily due to the write-off in 2004
of $1.6 million of previously unamortized debt issuance costs associated with the May and June 2004 repurchases of $116.6 million principal amount of our 4.75% subordinated convertible notes due 2007, compared to the write-off in 2005 of $0.6
million of previously unamortized debt issuance costs associated with the August 2005 redemption of the remaining outstanding $79.6 million principal amount of our 4.75% subordinated convertible notes due 2007. These factors were partially offset by
higher interest expense in 2005 related to higher average convertible debt balances.

Our 2.0% senior subordinated convertible debentures
due 2023 accounted for $2.0 million, $2.5 million and $2.5 million of interest expense in the years ended December 31, 2006, 2005 and 2004, respectively. Our 2.75% senior subordinated convertible notes due 2012 accounted for $4.1 million, $4.7
million and $2.9 million of interest expense in the years ended December 31, 2006, 2005 and 2004, respectively. Our 3.25% senior subordinated convertible notes due 2013 accounted for $4.9 million and $2.7 million of interest expense in the year
ended December 31, 2006 and 2005, respectively. Our 4.75% convertible subordinated notes due 2007 accounted for $3.1 million and $8.1 million of interest expense in the years ended December 31, 2005 and 2004, respectively. We expect
interest expense to fluctuate in the future with average convertible debt balances.

Taxes

We have not generated taxable income to date. As of December 31, 2006, we had net operating loss carryforwards for federal income tax purposes of
approximately $1,049.3 million, which expire beginning in the year 2007. We also have California net operating loss carryforward of approximately $768.3 million, which expire beginning in the year 2007. We also have federal and California research
and development tax credits of $7.1 million and $5.8 million respectively. The federal research credits will begin to expire in the year 2008 and the California research credits can be carried forward indefinitely.

Utilization of our net operating loss may be subject to substantial annual limitation due to the ownership change limitations provided by the Internal
Revenue code and similar state provisions. As a result of annual limitations, a portion of these carryforwards may expire before becoming available to reduce such federal and state income tax liabilities.

Recent Accounting Pronouncements

In July 2006, the
Financial Accounting Standards Board (FASB) issued FASB Interpretation 48 Accounting for Uncertainty in Income Taxes, (FIN 48) an interpretation of Statement of Financial Accounting Standard No. 109,Accounting for
Income Taxes(FAS 109). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprises financial statements in accordance with FAS 109. The interpretation applies to all tax positions accounted for in
accordance with FAS 109 and requires a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken, or expected to be taken, in an income tax return. Subsequent recognition,
derecognition, and measurement is based on managements best judgment given the facts, circumstances and information available at the reporting date. FIN 48 is effective for



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fiscal years beginning after December 15, 2006. As of December 31, 2006, we have federal and state net operating loss and credit carryforwards of
approximately $1,056.4 million and $774.1 million, respectively, that may be subject to annual limitation, due to certain substantial changes in ownership, under the Internal Revenue Code and similar state provisions. The annual limitation may
result in the expiration of net operating loss and credit carryforwards before utilization. As of December 31, 2006, all of our deferred tax assets have been fully offset by a valuation allowance because the realization of these assets is
dependent on future earnings. Early adoption is permitted as of the beginning of an enterprises fiscal year, provided the enterprise has not yet issued financial statements, including financial statements for any interim period, for that
fiscal year. We are currently evaluating the effect, if any, that the adoption of FIN 48 will have on our consolidated financial statements.

Liquidity
and Capital Resources



|                                                    |  |                         |        |   |      |   |        |      |  |   |        |  
|--------------------------------------------------- |  | ----------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|(in millions)                                       |  | As of December 31,      |       
|                                                    |  | 2006                    |        |   | 2005 |   |        | 2004 | 
|Cash, cash equivalents and marketable securities    |  | $                       | 325.2  |   |      | $ | 460.2  |      |  | $ | 404.5  |  
|                                                    |  |                         |        |   |      |   |        |      |  |   |        |  
|                                                    | 
|                                                    |  | Year ended December 31, |       
|                                                    |  | 2006                    |        |   | 2005 |   |        | 2004 | 
|Cash flows:                                         |  |                         |        |   |      |   |        |      |  |   |        |  
|Net cash used in operating activities               |  | $                       | (270.8 | ) |      | $ | (188.0 | )    |  | $ | (116.1 | )
|                                                    |  |                         |        |   |      |   |        |      |  |   |        |  
|Net cash provided by (used in) investing activities |  | $                       | 176.2  |   |      | $ | (67.9  | )    |  | $ | 13.3   |  
|                                                    |  |                         |        |   |      |   |        |      |  |   |        |  
|Net cash provided by financing activities           |  | $                       | 148.5  |   |      | $ | 258.8  |      |  | $ | 107.7  |  
|                                                    |  |                         |        |   |      |   |        |      |  |   |        |  

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

As of December 31, 2006, we had cash, cash
equivalents and marketable securities of $325.2 million, compared to $460.2 million at December 31, 2005. We expect that our existing cash resources will be sufficient to fund our operations at our current levels of research, development and
commercial activities for at least 12 months. Our estimates of future capital use are uncertain, and changes in our commercialization plans, partnering activities, regulatory requirements and other developments may increase our rate of spending and
decrease the period of time our available resources will fund our operations. We currently expect total costs and expenses, not including cost of sales, for 2007, to be between $275.0 million and $285.0 million, compared to $312.5 million in 2006.
With the completion of the MERLIN TIMI-36 clinical study and the second regadenoson Phase 3 study, we expect R&D expenses in 2007 to be approximately $30.0 million below 2006 levels. In 2007, there are still substantial R&D expenses
associated with the MERLIN TIMI-36 clinical study and the planned prosecution of regulatory filings for both Ranexa and regadenoson, and those two projects still represent approximately 50% of our total R&D budget for 2007. We expect our
SG&A expenses to be largely flat in 2007 compared to 2006. We do not expect to generate sufficient revenues through our marketing and sales of Ranexa in the near term to achieve profitability or to fully fund our operations, including our
research, development and commercialization activities relating to Ranexa and our product candidates. Thus we will require substantial additional funding in the form of public or private equity offerings, debt financings, strategic partnerships or
licensing arrangements in order to continue our research, development and commercialization activities. Additional financing may not be available on acceptable terms or at all. If we are unable to raise additional funds, we may among other things
have to delay, scale back or eliminate some or all of our R&D programs or commercialization activities.

In August 2006, we completed a
public offering of common stock, in which we sold 10,350,000 shares of common stock at a price of $9.50 for net proceeds of $92.2 million.

In April 2006, we entered into a common stock purchase agreement with Azimuth Opportunity Ltd. (Azimuth), which provides that, upon the terms and subject to the conditions set forth in the purchase agreement,



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Azimuth is committed to purchase up to $200.0 million of our common stock, or 9,010,404 shares, whichever occurs first, at a discount of 3.8% to 5.8%, to be
determined based on our market capitalization at the start of each sale period. The term of the purchase agreement is 36 months. Upon each sale of our common stock to Azimuth under the purchase agreement, we have also agreed to pay Reedland Capital
Partners a placement fee equal to one fifth of one percent of the aggregate dollar amount of common stock purchased by Azimuth. In 2006, Azimuth purchased an aggregate 2,744,118 shares for gross proceeds of approximately $39.8 million under the
purchase agreement. Azimuth is not required to purchase our common stock when the price of our common stock is below $10 per share. Assuming that all 6,266,286 shares remaining for sale under the purchase agreement were sold at the $13.96 closing
price of our common stock on December 31, 2006, the maximum additional aggregate net proceeds that we could receive under the purchase agreement with Azimuth would be approximately $82.2 million.

Net cash used in operating activities was $270.8 million for the year ended December 31, 2006 and was primarily the result of our net loss adjusted
for non-cash expenses related to stock-based compensation, cash used to build inventory and financing accounts receivable associated with commercialization of Ranexa and changes in other assets related to our collaboration agreement with PTC and
Ranexa product rights (see Note 2). Net cash used in operating activities for the years ended December 31, 2005 and 2004 resulted primarily from operating losses adjusted for changes in accrued and other liabilities and non-cash expenses
related to depreciation and amortization.

Net cash provided by investing activities of $176.2 million in the year ended December 31,
2006 consisted primarily of net proceeds from purchases, maturities and sales of marketable securities of $190.1 million offset by capital expenditures of $9.8 million. Net cash used in investing activities for the year ended December 31, 2005
consisted primarily of net uses from purchases, maturities and sales of marketable securities of $58.9 million and capital expenditures of $9.0 million. Net cash provided by investing activities in the year ended December 31, 2004 consisted
primarily of net proceeds from purchases, sales and maturities of marketable securities of $17.4 million, offset by capital expenditures of $3.6 million. In the future, net cash provided by or used in investing activities may fluctuate from period
to period due to timing of payments for capital expenditures and maturities/sales and purchases of marketable securities.

Net cash
provided by financing activities of $148.5 million in the year ended December 31, 2006 was primarily due to net proceeds of approximately $92.2 million from the sale of 10,350,000 shares of common stock in our August 2006 public offering, net
proceeds of approximately $19.8 million from the sale of 1,080,828 shares of common stock to Azimuth in May 2006, net proceeds of approximately $20.0 million from the sale of 1,663,290 shares of common stock to Azimuth in November 2006, and a change
in restricted cash of $10.1 million related to interest payments made during the year associated with convertible debt. Net cash provided by financing activities of $258.8 million in the year ended December 31, 2005 was primarily due to the
completion of concurrent public equity and debt financings in July 2005 with net proceeds totaling approximately $315.0 million. We sold 8,350,000 shares of common stock at a price of $21.60 per share and $149.5 million aggregate principal amount of
3.25% senior subordinated convertible notes due 2013. In August 2005, we redeemed the remaining outstanding $79.6 million principal amount of our 4.75% convertible subordinated notes due 2007 at a premium above the principal amount of the notes.
Additionally, we sold 1,275,711 shares of common stock for net proceeds of approximately $25.0 million to Acqua Wellington North American Equities Fund, Ltd. (Acqua Wellington) in February 2005. Net cash provided by financing activities in the year
ended December 31, 2004 was primarily due to net proceeds of $145.1 million from the issuance of 2.75% senior subordinated convertible notes, net proceeds of approximately $59.9 million from the sale of 3,579,472 shares of common stock under
our financing agreement with Acqua Wellington and net proceeds of approximately $24.5 million from the sale of 1,609,186 shares of common stock under our common stock purchase agreement with Mainfield Enterprises, Inc., partially offset by the
repurchase of approximately $116.6 million principal amount of our 4.75% convertible subordinated notes due 2007.

We may from time to time
seek to retire our outstanding debt through cash purchases and/or conversions or exchanges for equity securities in open market purchases, privately negotiated transactions or otherwise. Such



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

Contractual Obligations and Significant Commercial Commitments

The following summarizes our contractual obligations and the periods in which payments are due as of December 31, 2006:



|                             |  |                |      |      |   |      |  |      |      |      |   |            |  |       |      |  |   |       |  |   |      
|---------------------------- |  | -------------- | ---- | ---- | - | ---- |  | ---- | ---- | ---- | - | ---------- |  | ----- | ---- |  | - | ----- |  | - | -----
|                             |  | 2007           |      | 2008 |   | 2009 |  | 2010 |      | 2011 |   | Thereafter |  | Total
|                             |  | (in thousands)
|Convertible notes(1)(2)      |  | $              | 11.0 |      | $ | 11.0 |  | $    | 11.0 |      | $ | 109.0      |  | $     | 9.0  |  | $ | 308.9 |  | $ | 459.9
|Manufacturing obligations(3) |  |                | 8.3  |      |   | 2.5  |  |      | 1.3  |      |   |           |  |       |     |  |   |      |  |   | 12.1 
|Operating leases(4)          |  |                | 12.0 |      |   | 13.3 |  |      | 13.6 |      |   | 15.1       |  |       | 15.4 |  |   | 22.6  |  |   | 92.0 
|                             |  |                |      |      |   |      |  |      |      |      |   |            |  |       |      |  |   |       |  |   |      
|                             |  | $              | 31.3 |      | $ | 26.8 |  | $    | 25.9 |      | $ | 124.1      |  | $     | 24.4 |  | $ | 331.5 |  | $ | 564.0
|                             |  |                |      |      |   |      |  |      |      |      |   |            |  |       |      |  |   |       |  |   |      

---

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

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

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

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

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

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

Under our license and settlement agreement
with another vendor, certain amounts were due to them upon the approval of Ranexa by the FDA for the manufacture of ranolazine active pharmaceutical ingredient (ranolazine API). Upon FDA approval of Ranexa, we were required to pay a $5.0 million
milestone and fees based upon the amount of ranolazine API manufactured prior to product approval. In exchange for these payments, we received a worldwide, royalty-free, nonexclusive perpetual license to use and practice certain proprietary
technology for the purpose of making and having made ranolazine API. In January 2006, we paid this $5.0 million milestone to this vendor. We are obligated to pay this vendor $4 per kilogram on future ranolazine API manufactured until the total
amount paid (including the previously paid $5.0 million) reaches $12.0 million.

We have a commitment related to our license agreement with
PTC. If we license and commercialize a product based on all five selected targets during the term of the agreement, PTC could earn milestone payments



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from us of up to an aggregate $335.0 million if specified development, regulatory and commercial goals set forth in the agreement are achieved over the life
cycle of each such product.

Risks and Uncertainties Related to Our Future Capital Requirements

As of December 31, 2006, we had cash, cash equivalents and marketable securities of $325.2 million, compared to $460.2 million at December 31,
2005. We expect that our existing cash resources will be sufficient to fund our operations at our current levels of research, development and commercial activities for at least 12 months. Our estimates of future capital use are uncertain, and
changes in our commercialization plans, partnering activities, regulatory requirements and other developments may increase our rate of spending and decrease the period of time our available resources will fund our operations. We currently expect
total costs and expenses, not including cost of sales, for 2007, to be between $275.0 million and $285.0 million, compared to $312.5 million in 2006. With the completion of the MERLIN TIMI-36 clinical study and the second regadenoson Phase 3 study,
we expect R&D expenses in 2007 to be approximately $30 million below 2006 levels. In 2007, there are still substantial R&D expenses associated with the MERLIN TIMI-36 clinical study and the planned prosecution of regulatory filings for both
Ranexa and regadenoson, and those two projects still represent approximately 50% of our total R&D budget for 2007. We expect our SG&A expenses to be largely flat in 2007 compared to 2006. We do not expect to generate sufficient revenues
through our marketing and sales of Ranexa in the near term to achieve profitability or to fully fund our operations, including our research, development and commercialization activities relating to these products and our product candidates. Thus we
will require substantial additional funding in the form of public or private equity offerings, debt financings, strategic partnerships or licensing arrangements in order to continue our research, development and commercialization activities.

Additional financing may not be available on acceptable terms or at all. In April 2006, we entered into a common stock purchase agreement
with Azimuth which provides that, upon the terms and subject to the conditions set forth in the purchase agreement, Azimuth is committed to purchase up to $200.0 million of our common stock, or 9,010,404 shares, whichever occurs first, at a discount
as provided under the purchase agreement. In 2006, Azimuth purchased an aggregate 2,744,118 shares for gross proceeds of approximately $39.8 million under the purchase agreement. Azimuth is not required to purchase our common stock when the price of
our common stock is below $10 per share. Assuming that all 6,266,286 shares remaining for sale under the purchase agreement were sold at the $13.96 closing price of our common stock on December 31, 2006, the maximum additional aggregate net
proceeds that we could receive under the purchase agreement with Azimuth would be approximately $82.2 million.

We have experienced
significant operating losses since our inception in 1990, including net losses of $274.3 million in 2006, $228.0 million in 2005 and $155.1 million in 2004. As of December 31, 2006, we had an accumulated deficit of $1,086.9 million. The process
of developing and commercializing our products requires significant R&D work, preclinical testing and clinical trials, as well as regulatory approvals, significant marketing and sales efforts, and manufacturing capabilities. These activities,
together with our general and administrative expenses, require significant investments and are expected to continue to result in significant operating losses for the foreseeable future. To date, the revenues we have recognized relating to our only
approved product, Ranexa, have been limited, and have not been sufficient for us to achieve profitability or fund our operations, including our research, development and commercialization activities relating to Ranexa and our product candidates. The
revenues that we expect to recognize for the foreseeable future relating to Ranexa will not be sufficient for us to achieve or sustain profitability or maintain operations at our current levels or at all.

As we have transitioned from a R&D-focused company to a company with commercial operations and revenues, we expect that our operating results will
continue to fluctuate. Our product revenues are unpredictable and may fluctuate due to many factors, many of which we cannot control. For example, our ability (and the ability of our collaborative partners) to market and sell our products will
depend significantly on the market acceptance of our products as well as the extent to which reimbursement for the cost of our products will be available from government health administration authorities, private health insurers and other
organizations. If our products fail



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to achieve market acceptance or are unfavorably reimbursed, this would result in lower product sales and lower product revenues. As a result, we may have
increased capital requirements in the future and we may be required to delay, scale back or eliminate some or all of our R&D programs or commercialization activities, or we may be required to raise additional capital, which may not be available
on acceptable terms or at all.

Our future capital requirements and our ability to raise capital in the future will depend on many other
factors, including our product revenues, the costs of commercializing our products, progress in our R&D programs, the size and complexity of these programs, the timing, scope and results of preclinical studies and clinical trials, our ability to
establish and maintain collaborative partnerships, the time and costs involved in obtaining regulatory approvals, the costs involved in filing, prosecuting and enforcing patent claims, competing technological and market developments, the cost of
manufacturing commercial and clinical materials and other factors not within our control. In particular, any future labeling expansion of Ranexa is dependent on a successful outcome of the MERLIN TIMI-36 trial, for which we currently expect data
late in the first quarter of 2007. If the study is successful, we will not be able to incorporate data from the study into FDA-approved product labeling, if any, until 2008 at the earliest. If our MERLIN TIMI-36 trial is unsuccessful, our ability to
generate product revenues, our ability to raise additional capital, and our ability to maintain our current levels of research, development and commercialization activities will all be materially impaired. Insufficient funds may require us to delay,
scale back or eliminate some or all of our research, development or commercialization programs, to lose rights under existing licenses or to relinquish greater or all rights to product candidates on less favorable terms than we would otherwise
choose, or may adversely affect our ability to operate as a going concern.

Other Information

In November 2006, we announced that in accordance with Nasdaq Marketplace Rule 4350, we granted 35 non-executive employees inducement stock options
covering an aggregate of 95,900 shares of common stock under our 2004 Employment Commencement Incentive Plan. In January 2007, in association with December 2006 grants, we announced that in accordance with Nasdaq Marketplace Rule 4350, we granted 24
non-executive employees inducement stock options covering an aggregate of 84,500 shares of common stock under our 2004 Employment Commencement Incentive Plan. All of these inducement stock options are classified as non-qualified stock options with
an exercise price equal to the fair market value on the grant date. The options have a ten-year term and vest over four years as follows: 20% of these options will vest on the date one year from the optionees hire date, 20% of the options will
vest in monthly increments during each of the second and third years, and 40% of the options will vest in monthly increments during the fourth year (in all cases subject to the terms and conditions of our 2004 Employment Commencement Incentive
Plan).



|Item 7A. | Quantitative and Qualitative Disclosures About Market Risk
|-------- | ----------------------------------------------------------

Interest Rate Risk

Our exposure to market rate risk for changes in interest rates relates primarily to our investment
portfolio and our long-term debt. We do not use derivative financial instruments. We place our investments with high quality issuers and, by policy, limit the amount of credit exposure to any one issuer except for United States (U.S.) government
securities. We are averse to principal loss and strive to ensure the safety and preservation of our invested funds by limiting default, market and reinvestment risk. We classify our cash equivalents and marketable securities as
fixed-rate if the rate of return on such instruments remains fixed over their term. These fixed-rate investments include U.S. government securities, commercial paper, asset backed securities, corporate bonds, and foreign
bonds. Fixed-rate securities may have their fair market value adversely affected due to a rise in interest rates and we may suffer losses in principal if forced to sell securities that have declined in market value due to a change in interest rates.
We classify our cash equivalents and marketable securities as variable-rate if the rate of return on such investments varies based on the change in a predetermined index or set of indices during their term.



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Our long-term debt at December 31, 2006 includes $100.0 million of our 2.0% senior subordinated
convertible debentures due May 2023, $150.0 million of our 2.75% senior subordinated convertible notes due May 2012, and $149.5 million of our 3.25% senior subordinated convertible notes due August 2013. Interest on the 2.0% senior
subordinated convertible debentures is fixed and payable semi-annually on May 16 and November 16 each year. Interest on the 2.75% senior subordinated convertible notes is fixed and payable semi-annually on May 16 and November 16
each year. Interest on the 3.25% senior subordinated convertible notes due 2013 is fixed and payable semi-annually on February 16 and August 16 each year. All the notes and debentures are convertible into shares of our common stock at any
time prior to maturity, unless previously redeemed or repurchased, subject to adjustment in certain events.

The table below presents the
amounts and related average interest rates of our investment portfolio and our long-term debt as of December 31, 2006 and 2005:



|                                                    |  |                      |   |      |                      |         |                      |      |   |                      |   |        
|--------------------------------------------------- |  | -------------------- | - | ---- | -------------------- | ------- | -------------------- | ---- | - | -------------------- | - | -------
|                                                    |  | 2006                 |   | 2005
|                                                    |  | AverageInterest Rate |   |      | EstimatedMarketValue |         | AverageInterest Rate |      |   | EstimatedMarketValue
|                                                    |  | ($ in thousands)    
|Cash equivalents:                                   |  |                      |   |      |                      |         |                      |      |   |                      |   |        
|Fixed rate                                          |  | 5.33                 | % |      | $                    | 34,066  |                      | 4.08 | % |                      | $ | 15,879 
|Variable rate                                       |  | 3.44                 | % |      |                      | 41,202  |                      | 4.04 | % |                      |   | 6,830  
|Marketable securities portfolio:                    |  |                      |   |      |                      |         |                      |      |   |                      |   |        
|Fixed rate (mature in 2006)                         |  |                     |   |      |                      |        |                      | 3.26 | % |                      |   | 197,393
|Fixed rate (mature in 2007)                         |  | 4.42                 | % |      |                      | 159,950 |                      | 4.14 | % |                      |   | 155,106
|Variable rate (mature in 2007)                      |  | 5.36                 | % |      |                      | 4,001   |                      | 4.39 | % |                      |   | 8,769  
|Fixed rate (mature in 2008)                         |  | 4.44                 | % |      |                      | 59,521  |                      | 4.16 | % |                      |   | 73,226 
|Variable rate (mature in 2008)                      |  | 5.37                 | % |      |                      | 2,000   |                      | 4.41 | % |                      |   | 2,000  
|Fixed rate (mature in 2009)                         |  | 4.91                 | % |      |                      | 22,116  |                      |     |   |                      |   |       
|Long-term debt:                                     |  |                      |   |      |                      |         |                      |      |   |                      |   |        
|Senior subordinated convertible debentures due 2023 |  | 2.00                 | % |      |                      | 84,500  |                      | 2.00 | % |                      |   | 89,680 
|Senior subordinated convertible notes due 2012      |  | 2.75                 | % |      |                      | 101,100 |                      | 2.75 | % |                      |   | 225,000
|Senior subordinated convertible notes due 2013      |  | 3.25                 | % |      |                      | 88,200  |                      | 3.25 | % |                      |   | 166,274

Foreign Currency Risk

We are exposed to foreign currency exchange rate fluctuations related to the operation of our European subsidiary in the United Kingdom. At the end of
each reporting period, expenses of the subsidiary are remeasured into U.S. dollars using the average currency rate in effect for the period and assets and liabilities are remeasured into U.S. dollars using either historical rates or the exchange
rate in effect at the end of the period. Additionally, we are exposed to foreign currency exchange rate fluctuations relating to payments we make to vendors and suppliers using foreign currencies. In particular, we have foreign expenses associated
with our clinical studies, such as the MERLIN-TIMI 36 clinical trial of Ranexa. We currently do not hedge against this foreign currency risk. Fluctuations in exchange rates may impact our financial condition and results of operations. For the year
ended December 31, 2006, 2005 and 2004, we incurred approximately $7.3 million, $7.2 million and $4.7 million, respectively, of non-U.S. dollar expenses. As reported in U.S. dollars, we have recorded foreign currency losses for the year ended
December 31, 2006, 2005 and 2004, of $0.4 million, $0.1 million and $0.2 million, respectively.



|Item 8. | Financial Statements and Supplementary Data
|------- | -------------------------------------------

Our
financial statements and notes thereto appear beginning on page 78 of this report.



|Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
|------- | ------------------------------------------------------------------------------------

Not Applicable.



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|Item 9A. | Controls and Procedures
|-------- | -----------------------



|(a) | Evaluation of Disclosure Controls and Procedures:
|--- | -------------------------------------------------

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

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



|(b) | Managements Annual Report on Internal Control Over Financial Reporting:
|--- | ------------------------------------------------------------------------

Internal control over financial reporting refers to the process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer, and effected by our board of directors, management and
other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, and includes those
policies and procedures that:

(1) Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the
transactions and dispositions of the assets of the company;

(2) Provide reasonable assurance that transactions are recorded as necessary
to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and

(3) Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of
the companys assets that could have a material effect on the financial statements.

Management is responsible for establishing and
maintaining adequate internal control over financial reporting for the company.

Our management is responsible for establishing and
maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including our Chief Executive Officer and
Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2006 based on the framework in Internal ControlIntegrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). Based on that evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2006.

Managements assessment of the effectiveness of our internal control over financial reporting as of December 31, 2006 has been audited by
Ernst & Young LLP, an independent registered public accounting firm.



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|(c) | Report of Independent Registered Public Accounting Firm
|--- | -------------------------------------------------------

The Board of Directors and Stockholders of CV Therapeutics, Inc.:

We have audited managements
assessment, included in the accompanying Managements Annual Report on Internal Control Over Financial Reporting that CV Therapeutics, Inc. maintained effective internal control over financial reporting as of December 31, 2006, based on
criteria established in the Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). CV Therapeutics, Inc.s management is responsible for maintaining
effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on managements assessment and an opinion on the
effectiveness of the Companys internal control over financial reporting based on our audit.

We conducted our audit in accordance
with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating managements assessment, testing and evaluating the design and operating effectiveness of internal
control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A companys internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. A companys internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, managements assessment that CV Therapeutics, Inc. maintained effective internal control over financial reporting as of
December 31, 2006, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, CV Therapeutics, Inc. maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2006, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheets of CV Therapeutics, Inc. as of December 31, 2006 and 2005, and the related consolidated statements of operations, stockholders equity (deficit) and cash flows for
each of the three years in the period ended December 31, 2006 and our report dated February 14, 2007 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Palo Alto, California

February 14, 2007



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|(d) | Changes in Internal Control Over Financial Reporting:
|--- | -----------------------------------------------------

We received FDA approval for Ranexa in January 2006, resulting in our implementation of new significant accounting policies during the year ended December 31, 2006 with respect to revenue recognition and capitalization of inventory.
These new significant accounting policies caused changes in certain of our business processes and associated internal controls over financial reporting. There have been no changes in our internal controls over financial reporting during our most
recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.



|Item 9B. | Other Information
|-------- | -----------------

None.



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PART III



|Item 10. | Directors, Executive Officers and Corporate Governance
|-------- | ------------------------------------------------------

The information required by this item, insofar as it relates to directors, executive officers and corporate governance, will be contained under the captions Election of Directors, Management and Compliance with
Section 16(a) of the Securities Exchange Act of 1934 in the definitive proxy statement for our 2007 annual meeting of stockholders, which we anticipate will be filed no later than 120 days after the end of our fiscal year pursuant to
Regulation 14A, and is hereby incorporated by reference thereto.



|Item 11. | Executive Compensation
|-------- | ----------------------

The information required
by this item will be contained under the caption Executive Compensation, in the definitive proxy statement for our 2007 annual meeting of stockholders, which we anticipate will be filed no later than 120 days after the end of our fiscal
year pursuant to Regulation 14A, and is hereby incorporated by reference thereto.



|Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|-------- | ----------------------------------------------------------------------------------------------

The information required by this item will be contained under the caption Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters in the definitive proxy statement for our 2007 annual meeting of stockholders, which we anticipate will be filed no later than 120 days after the end of our fiscal year pursuant to Regulation 14A, and is hereby
incorporated by reference thereto.



|Item 13. | Certain Relationships and Related Transactions
|-------- | ----------------------------------------------

The information required by this item will be contained under the caption Certain Relationships and Related Transactions, in the definitive proxy statement for our 2007 annual meeting of stockholders, which we anticipate will be
filed no later than 120 days after the end of our fiscal year pursuant to Regulation 14A, and is hereby incorporated by reference thereto.



|Item 14. | Principal Accountant Fees and Services
|-------- | --------------------------------------

The
information required by this item will be contained under the caption Principal Accountant Fees and Services in the definitive proxy statement to our 2007 annual meeting of stockholders, which we anticipate will be filed no later than
120 days after the end of our fiscal year pursuant to Regulation 14A, and is hereby incorporated by reference thereto.



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PART IV



|Item | 15. Exhibits and Financial Statement Schedules
|---- | ----------------------------------------------

(a)(1) Index to Financial Statements and Reports of Independent Registered Public Accounting Firm

The Consolidated
Financial Statements required by this item are submitted in a separate section beginning on page 79 of this report.



|                                                                                             |  |     
|-------------------------------------------------------------------------------------------- |  | ----
|                                                                                             |  | Page
|Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements |  | 78  
|Consolidated Balance Sheets                                                                  |  | 79  
|Consolidated Statements of Operations                                                        |  | 80  
|Consolidated Statement of Stockholders Equity (Deficit)                                     |  | 81  
|Consolidated Statements of Cash Flows                                                        |  | 82  
|Notes to Consolidated Financial Statements                                                   |  | 83  

(a)(2) Index to Financial Statements Schedules

All financial statement schedules are omitted because they are not applicable, or the information is included in the financial statements or notes
thereto.

(a)(3) Exhibits



|              |  |                                                                                                                                                                                                                                                                                                                                          
|------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  |                                                                                                                                                                                                                                                                                                                                          
|              | 
|3.1           |  | Amended and Restated Certificate of Incorporation of the Company (Filed as Exhibit 4.1 to the Companys Registration Statement on Form S-8, File No. 333-136373, and incorporated herein
by reference).                                                                                                                                  
|              | 
|3.2           |  | Certificate of Designation of Series A Junior Participating Preferred Stock dated September 9, 2006 (Filed as Exhibit 3.1 to the Companys Current Report on Form 8-K, filed by the
Company October 2, 2006, and incorporated herein by reference).                                                                                      
|              | 
|3.3           |  | Restated Bylaws of the Company (Filed as Exhibit 3.5 to the Companys Registration Statement on Form S-1, File No. 333-12675, and incorporated herein by reference).                                                                                                                                                                     
|              | 
|4.1           |  | Indenture between the Company and Wells Fargo Bank, N.A. dated as of June 18, 2003 (Filed as Exhibit 4.2 to the Companys Quarterly Report on Form 10-Q for the Second Quarter 2003, and
incorporated herein by reference).                                                                                                              
|              | 
|4.2           |  | Form of 2.0% Senior Convertible Subordinated Debenture (Filed as Exhibit 4.3 to the Companys Quarterly Report on Form 10-Q for the Second Quarter 2003, and incorporated herein by
reference).                                                                                                                                          
|              | 
|4.3           |  | Indenture between the Company and Wells Fargo Bank Minnesota, N.A. dated May 18, 2004 (Filed as Exhibit 4.1 to the Companys Quarterly Report on Form 10-Q for the Second Quarter 2004,
and incorporated herein by reference).                                                                                                           
|              | 
|4.4           |  | Form of 2.75% Senior Convertible Subordinated Note dated May 18, 2004 (Filed as Exhibit 4.2 to the Companys Quarterly Report on Form 10-Q for the Second Quarter 2004, and incorporated
herein by reference).                                                                                                                           
|              | 
|4.5           |  | Warrant to Purchase Shares of Common Stock dated April 1, 2003 issued to The Wheatley Family Limited Partnership dba Matadero Creek, successor in interest to Jack R. Wheatley dba Matadero
Creek (Filed as Exhibit 4.1 to the Companys Quarterly Report on Form 10-Q for the First Quarter 2003, and incorporated herein by reference).



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|              |  |                                                                                                                                                                                                                                                                                                                                                                                           
|------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  |                                                                                                                                                                                                                                                                                                                                                                                           
|              | 
|4.6           |  | Amendment to Warrant to Purchase Shares of Common Stock entered into as of April 1, 2003 issued to The Wheatley Family Limited Partnership dba Matadero Creek, successor in interest to
Jack R. Wheatley dba Matadero Creek and the Company (Filed as Exhibit 4.5 to the Companys Annual Report on Form 10-K for the year ended December 31, 2003, and incorporated herein by reference).
|              | 
|4.7           |  | Warrant to Purchase Shares of Common Stock dated July 9, 2003 issued to Qfinance, Inc. (Filed as Exhibit 4.1 to the Companys Current Report on Form 8-K filed by the Company on July 11,
2003, and incorporated herein by reference).                                                                                                                                                    
|              | 
|4.8           |  | Warrant to Purchase Shares of Common Stock dated January 19, 2006 issued by the Company to The Wheatley Family Limited Partnership (Filed as Exhibit 4.10 to the Companys Annual Report
on Form 10-K for the year ended December 31, 2005, and incorporated herein by reference).                                                                                                        
|              | 
|4.9           |  | Warrant to Purchase Shares of Common Stock dated January 19, 2006 issued by the Company to The Board of Trustees of the Leland Stanford Junior University (Filed as Exhibit 4.11 to the
Companys Annual Report on Form 10-K for the year ended December 31, 2005, and incorporated herein by reference).                                                                                 
|              | 
|4.10          |  | First Amended and Restated Rights Agreement dated July 19, 2000 between the Company and Wells Fargo Bank Minnesota, N.A. (Filed as Exhibit 10.77 to the Companys Quarterly Report on Form
10-Q for the Second Quarter 2000, and incorporated herein by reference).                                                                                                                       
|              | 
|4.11          |  | Form of Right Certificate dated July 19, 2000 (Filed as Exhibit 10.79 to the Companys Quarterly Report on Form 10-Q for the Second Quarter 2000, and incorporated herein by
reference).                                                                                                                                                                                                  
|              | 
|4.12          |  | Summary of Rights to Purchase Preferred Shares dated July 19, 2000 (Filed as Exhibit 10.80 to the Companys Quarterly Report on Form 10-Q for the Second Quarter 2000, and incorporated
herein by reference).                                                                                                                                                                             
|              | 
|4.13          |  | Indenture, dated July 1, 2005 between the Company and Wells Fargo Bank, National Association, as Trustee (Filed as Exhibit 4.1 to the Companys Current Report on Form 8-K filed by the
Company on July 6, 2005, and incorporated herein by reference).                                                                                                                                   
|              | 
|4.14          |  | Form of 3.75% Senior Subordinated Convertible Note dated July 1, 2005 (Filed as Exhibit 4.2 to the Companys Current Report on Form 8-K filed by the Company on July 6, 2005, and
incorporated herein by reference).                                                                                                                                                                      
|              | 
|10.1*         |  | 1992 Stock Option Plan, as amended (Filed as Exhibit 10.1 to the Companys Registration Statement on Form S-1, File No 333-12675, and incorporated herein by reference).                                                                                                                                                                                                                  
|              | 
|10.2*         |  | 1994 Equity Incentive Plan, as amended (Filed as Exhibit 10.46 to the Companys Registration Statement on Form S-8, File No 333-44717, and incorporated herein by
reference).                                                                                                                                                                                                             
|              | 
|10.3          |  | Amended and Restated Non-Employee Directors Stock Option Plan (Filed as Exhibit 10.1 to the Companys Quarterly Report on Form 10-Q for the First Quarter 2005, and incorporated
herein by reference).                                                                                                                                                                                   
|              | 
|10.4*         |  | Form of Restricted Stock Unit Agreement under the 2000 Equity Incentive Plan, as amended (Filed as Exhibit 4.9 to the Companys Registration Statement on Form S-8, File No 333-121328,
and incorporated herein by reference).                                                                                                                                                            
|              | 
|10.5*         |  | Form of Stock Appreciation Rights Agreement under the 2000 Equity Incentive Plan (Filed as Exhibit 10.5 to the Companys Annual Report on Form 10-K for the year ended December 31, 2005,
and incorporated herein by reference).                                                                                                                                                          
|              | 
|10.6*         |  | Form of Notice of Grant of Stock Option and Stock Option Terms and Conditions under the 2000 Equity Incentive Plan, as amended (Filed as Exhibit 4.11 to the Companys Registration
Statement on Form S-8, File No 333-121328, and incorporated herein by reference).                                                                                                                     



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|              |  |                                                                                                                                                                                                                                                                                                                                                                 
|------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  |                                                                                                                                                                                                                                                                                                                                                                 
|              | 
|10.7*         |  | Employee Stock Purchase Plan, as amended (Filed as Appendix A to the Companys Definitive Proxy Statement on Schedule 14A, filed May 1, 2006, and incorporated herein by
reference).                                                                                                                                                                            
|              | 
|10.8*         |  | Amended and Restated 2000 Equity Incentive Plan (Filed as Exhibit 10.8 to the Companys Annual Report on Form 10-K for the year ended December 31, 2004, and incorporated herein by
reference).                                                                                                                                                                 
|              | 
|10.9*         |  | 2000 Nonstatutory Incentive Plan, as amended (Filed as Exhibit 10.49 to the Companys Annual Report on Form 10-K for the year ended December 31, 2002, and incorporated herein by
reference).                                                                                                                                                                   
|              | 
|10.10*        |  | CV Therapeutics, Inc. Long-Term Incentive Plan (Filed as Exhibit 10.3 to the Companys Quarterly Report on Form 10-Q for the Second Quarter 2003, and incorporated herein by
reference).                                                                                                                                                                        
|              | 
|10.11*        |  | 2004 Employee Commencement Incentive Plan (Filed as Exhibit 10.1 to the Companys Current Report on Form 8-K filed by the Company on December 16, 2004, and incorporated herein by
reference).                                                                                                                                                                  
|              | 
|10.12*        |  | Employment Agreement dated as of December 22, 2005 between the Company and Louis G. Lange, M.D., Ph.D. (Filed as Exhibit 10.13 to the Companys Annual Report on Form 10-K for the year
ended December 31, 2005, and incorporated herein by reference).                                                                                                         
|              | 
|10.13*        |  | Amended and Restated Executive Severance Benefits Agreement between the Company and Brent K. Blackburn, dated December 31, 2002 (Filed as Exhibit 10.56 to the Companys Annual Report on
Form 10-K for the year ended December 31, 2002, and incorporated herein by reference).                                                                                
|              | 
|10.14*        |  | Amended and Restated Executive Severance Benefits Agreement between the Company and Daniel K. Spiegelman, dated December 31, 2002 (Filed as Exhibit 10.58 to the Companys Annual Report
on Form 10-K for the year ended December 31, 2002, and incorporated herein by reference).                                                                              
|              | 
|10.15*        |  | Amended and Restated Executive Severance Benefits Agreement between the Company and Tricia Borga Suvari, dated September 20, 2005 (Filed as Exhibit 10.1 to the Companys Quarterly Report
on Form 10-Q for the Third Quarter 2005, and incorporated herein by reference).                                                                                      
|              | 
|10.16*        |  | Amended and Restated Executive Severance Benefits Agreement between the Company and David C. McCaleb, dated September 20, 2005 (Filed as Exhibit 10.2 to the Companys Quarterly Report on
Form 10-Q for the Third Quarter 2005, and incorporated herein by reference).                                                                                         
|              | 
|10.17*        |  | CV Therapeutics, Inc. Change in Control Plan with Respect to Options and Severance (and Summary Plan Description) (Filed as Exhibit 10.61 to the Companys Annual Report on Form 10-K for
the year ended December 31, 2002, and incorporated herein by reference).                                                                                              
|              | 
|10.18*        |  | Form of Indemnification Agreement between Company and its directors and officers (Filed as Exhibit 10.10 to the Companys Registration Statement on Form S-1, File No. 333-12675, and
incorporated herein by reference).                                                                                                                                        
|              | 
|10.19         |  | Lease Agreement between the Company and Matadero Creek, dated August 6, 1993 and addendum thereto; Letter Amendment to Lease Agreement, dated June 30, 1994 and Second Amendment to Lease
Agreement, dated June 30, 1994 (Filed as Exhibit 10.25 to the Companys Registration Statement on Form S-1, File No. 333-12675, and incorporated herein by reference).
|              | 
|10.20         |  | Third Amendment to Lease, dated February 16, 2001, between the Company and Jack R. Wheatley dba Matadero Creek (Filed as Exhibit 10.72 to the Companys Quarterly Report on Form 10-Q for
the First Quarter 2001, and incorporated herein by reference).                                                                                                        
|              | 
|10.21         |  | Fourth Amendment to Lease, dated as of April 1, 2003, between the Company and The Wheatley Family Limited Partnership dba Matadero Creek, successor in interest to Jack R. Wheatley dba
Matadero Creek (Filed as Exhibit 10.62 to the Companys Quarterly Report on Form 10-Q for the First Quarter 2003, and incorporated herein by reference).                



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|              |  |                                                                                                                                                                                                                                                                                                                                                                                      
|------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  |                                                                                                                                                                                                                                                                                                                                                                                      
|              | 
|10.22         |  | Fifth Amendment to Lease, dated as of April 1, 2003, between the Company and the Wheatley Family Partnership, a California Limited Partnership dba Matadero Creek, successor in interest to
Jack R. Wheatley dba Matadero Creek (Filed as Exhibit 10.63 to the Companys Annual Report on Form 10-K for the year ended December 31, 2003, and incorporated herein by reference).     
|              | 
|10.23         |  | Sixth Amendment to Lease, dated as of December 22, 2004, between the Company and the Wheatley Family Partnership, a California Limited Partnership dba Matadero Creek, successor in
interest to Jack R. Wheatley dba Matadero Creek (Filed as Exhibit 10.28 to the Companys Annual Report on Form 10-K for the year ended December 31, 2004, and incorporated herein by reference). 
|              | 
|10.24         |  | Seventh Amendment to Lease, dated as of January 19, 2006, between the Company and the Wheatley Family Partnership, a California Limited Partnership dba Matadero Creek, successor in interest
to Jack R. Wheatley dba Matadero Creek (Filed as Exhibit 10.26 to the Companys Annual Report on Form 10-K for the year ended December 31, 2005, and incorporated herein by reference).
|              | 
|10.25         |  | Lease between the Company and Kaiser Marquardt, Inc. dated as of December 1, 2000 (Filed as Exhibit 10.69 to the Companys Annual Report on Form 10-K for the year ended December 31,
2000, and incorporated herein by reference).                                                                                                                                                   
|              | 
|10.26**       |  | License Agreement between Company and University of Florida Research Foundation, Inc., dated June 7, 1994 (Filed as Exhibit 10.21 to the Companys Registration Statement on Form S-1,
File No. 333-12675, and incorporated herein by reference).                                                                                                                                    
|              | 
|10.27**       |  | Research Agreement between Company and University of Florida, dated June 27, 1994 (Filed as Exhibit 10.72 to the Companys Registration Statement on Form S-1, File No. 333-12675, and
incorporated herein by reference).                                                                                                                                                            
|              | 
|10.28**       |  | Letter Agreement, dated March 7, 1997, between the Company and the University of Florida Research Foundation, Inc. (Filed as Exhibit 10.43 to the Companys Quarterly Report on Form 10-Q
for the Second Quarter 1997, and incorporated herein by reference).                                                                                                                        
|              | 
|10.29**       |  | License Agreement between the Company and Syntex (U.S.A.) Inc., dated March 27, 1996 (Filed as Exhibit 10.25 to the Companys Amendment No. 2 to Registration Statement on Form S-3,
File No. 333-59318, and incorporated herein by reference).                                                                                                                                      
|              | 
|10.30**       |  | First amendment to License Agreement, effective as of July 3, 1997, between the Company and Syntex (U.S.A.) Inc. (Filed as Exhibit 10.32 to the Companys Amendment No. 2 to Registration
Statement on Form S-3, File No. 333-59318, and incorporated herein by reference).                                                                                                          
|              | 
|10.31         |  | Amendment No. 2 to License Agreement, effective as of November 30, 1999, between the Company and Syntex (U.S.A.), Inc. (Filed as Exhibit 10.73 to the Companys Amendment No. 2 to
Registration Statement on Form S-3, File No. 333-59318, and incorporated herein by reference).                                                                                                    
|              | 
|10.32         |  | Amendment No. 3 to License Agreement dated as of March 25, 2005, between the Company and Roche Palo Alto LLC. (Filed as Exhibit 10.1 to the Companys Current Report on Form 8-K filed by
Company on March 30, 2005, and incorporated herein by reference).                                                                                                                          
|              | 
|10.33***      |  | Amendment No. 4 to License Agreement dated June 20, 2006 between the Company and Roche Palo Alto LLC. (Filed as Exhibit 10.4 to the Companys Quarterly Report on Form 10-Q for the Second
Quarter 2006, and incorporated herein by reference).                                                                                                                                      
|              | 
|10.34**       |  | Research Collaboration and License Agreement (U.S.) between the Company and Biogen, Inc., dated March 7, 1997 (Filed as Exhibit 10.39 to the Companys Quarterly Report on Form 10-Q for
the First Quarter 1997, and incorporated herein by reference).                                                                                                                              
|              | 
|10.35**       |  | Research Collaboration and License Agreement (Europe) between the Company and Biogen Manufacturing Ltd., dated March 7, 1997 (Filed as Exhibit 10.40 to the Companys Quarterly Report on
Form 10-Q for the First Quarter 1997, and incorporated herein by reference).                                                                                                               



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|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|              | 
|10.36         |  | Amendment to Research Collaboration and License Agreement (U.S.), dated June 12, 1998, between the Company and Biogen, Inc. (Filed as Exhibit 10.54 to the Companys Quarterly Report on
Form 10-Q for the Second Quarter 1998, and incorporated herein by reference).                                                                                                                                                                                                                                  
|              | 
|10.37**       |  | Letter agreement regarding termination of research program of the Research Collaboration and License Agreement, dated June 12, 1998, between the Company and Biogen, Inc. (Filed as
Exhibit 10.56 to the Companys Quarterly Report on Form 10-Q for the Second Quarter 1998, and incorporated herein by reference).                                                                                                                                                                                    
|              | 
|10.38**       |  | Collaboration and License Agreement between the Company and Fujisawa Healthcare, Inc. dated as of July 10, 2000 (Filed as Exhibit 10.83 to the Companys Quarterly Report on Form
10-Q for the Second Quarter 2000, and incorporated herein by reference).                                                                                                                                                                                                                                              
|              | 
|10.39**       |  | Amendment to Collaboration and License Agreement dated as of August 30, 2005, between the Company and Astellas US LLC (successor-in-interest to Fujisawa Healthcare, Inc.). (Filed as Exhibit
10.1 to the Companys current Report on Form 8-K filed by Company on September 6, 2005, and incorporated herein by reference).                                                                                                                                                                            
|              | 
|10.40         |  | Second Amendment to Collaboration and License Agreement effective January 1, 2006 between the Company and Astellas US LLC. (Filed as Exhibit 10.2 to the Companys Quarterly Report on
Form 10-Q for the Second Quarter 2006, and incorporated herein by reference).                                                                                                                                                                                                                                    
|              | 
|10.41***      |  | Collaboration and License Agreement dated June 7, 2006 between the Company and PTC Therapeutics, Inc. (Filed as Exhibit 10.3 to the Companys Quarterly Report on Form 10-Q for the Second
Quarter 2006, and incorporated herein by reference).                                                                                                                                                                                                                                                         
|              | 
|10.42***      |  | Co-Promotion Agreement between the Company and Solvay Pharmaceuticals, Inc., dated as of December 6, 2004 (Filed as Exhibit 10.42 to the Companys Annual Report on Form 10-K for the year
ended December 31, 2004, and incorporated herein by reference).                                                                                                                                                                                                                                              
|              | 
|10.43***      |  | Amendment dated March 6, 2006, to the Co-Promotion Agreement between the Company and Solvay Pharmaceuticals, Inc. (Filed as Exhibit 10.42 to the Companys Annual Report on Form 10-K for
the year ended December 31, 2005, and incorporated herein by reference).                                                                                                                                                                                                                                      
|              | 
|10.44         |  | Letter Agreement dated October 31, 2006, between CV Therapeutics, Inc. and Solvay Pharmaceuticals, Inc. (Filed as Exhibit 99.1 to the Companys current Report on Form 8-K filed by
Company on November 3, 2006, and incorporated herein by reference).                                                                                                                                                                                                                                                 
|              | 
|10.45         |  | Purchase Agreement, dated as of June 13, 2003, by and among the Company and Citigroup Global Markets, Inc., CIBC World Markets Corp., Deutsche Bank Securities Inc., First Albany Corporation,
Needham & Company, Inc. and SG Cowen Securities Corporation, as representatives of the Initial Purchasers named in Schedule I thereto (Filed as Exhibit 10.66 to the Companys Quarterly Report on Form 10-Q for the Second Quarter 2003, and
incorporated herein by reference).                         
|              | 
|10.46         |  | Purchase Agreement, dated May 12, 2004, by and among the Company and Merrill Lynch & Co., Citigroup Global Markets Inc., Deutsche Bank Securities Inc., First Albany Capital Inc., J.P.
Morgan Securities Inc., Needham & Company, Inc., Piper Jaffray & Co. and SG Cowen & Co., LLC, as representatives of the Initial Purchasers named in Schedule A thereto (Filed as Exhibit 10.1 to the Companys Quarterly Report on Form
10-Q for the Second Quarter 2004, and incorporated herein by reference).
|              | 
|10.47         |  | Common Stock Purchase Agreement, dated as of April 18, 2006, between CV Therapeutics, Inc. and Azimuth Opportunity Ltd. (Filed as Exhibit 10.1 to the Companys current Report on
Form 8-K filed by Company on April 18, 2006, and incorporated herein by reference).                                                                                                                                                                                                                                   



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|              |  |                                                                                                                                                                                                                                                                                                                                                                          
|------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  |                                                                                                                                                                                                                                                                                                                                                                          
|              | 
|10.48         |  | Purchase Agreement, dated August 15, 2006, by and among CV Therapeutics, Inc., Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Lehman Brothers Inc. (Filed
as Exhibit 1.1 to the Companys current Report on Form 8-K filed by Company on August 16, 2006, and incorporated herein by reference).                                            
|              | 
|10.49         |  | Pledge and Escrow Agreement dated as of June 18, 2003, by and among the Company, Wells Fargo Bank Minnesota, N.A., as Trustee and Wells Fargo Bank Minnesota, N.A. as Escrow Agent (Filed as
Exhibit 10.68 to the Companys Quarterly Report on Form 10-Q for the Second Quarter 2003, and incorporated herein by reference).                                            
|              | 
|10.50         |  | Pledge and Escrow Agreement dated as of May 18, 2004, by and among the Company, Wells Fargo Bank, N.A., as Trustee and Wells Fargo Bank, N.A. as Escrow Agent (Filed as Exhibit 10.3 to
the Companys Quarterly Report on Form 10-Q for the Second Quarter 2004, and incorporated herein by reference).                                                                  
|              | 
|10.51         |  | Amended and Restated Sales and Marketing Services Agreement dated as of July 9, 2003, by and between the Company, Innovex (North America), Inc., as successor to Innovex Inc., Innovex LP, and
Quintiles Transnational Corp. (Filed as Exhibit 10.1 to the Companys Current Report on Form 8-K filed by Company on July 11, 2003, and incorporated herein by reference).
|              | 
|23.1          |  | Consent of Independent Registered Public Accounting Firm.                                                                                                                                                                                                                                                                                                                
|              | 
|31.1          |  | Certificate of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                        
|              | 
|31.2          |  | Certificate of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                        
|              | 
|32.1          |  | Certificate of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                         
|              | 
|32.2          |  | Certificate of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                         

---

|* | Management contract or compensatory plan or arrangement.
|- | --------------------------------------------------------

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

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

(b) Exhibits

See Exhibits listed under Item 15(a)(3) above.

(c) Financial Statements and Schedules

All financial statement schedules are omitted because they are not applicable, or the information is included in the financial statements or notes thereto.



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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant has duly caused this report on Form 10-K to be signed on its behalf, by the undersigned, thereunto duly authorized, in the City of Palo Alto, County of Santa Clara, State of California, on February 27, 2007.



CV THERAPEUTICS, INC.By:

/S/    LOUIS G.
LANGELouis G. Lange, M.D., Ph.D. Chairman of the Board of CV Therapeutics Chief Executive
Officer


POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Louis G. Lange and Daniel K. Spiegelman, and each of them, as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place,
and stead, in any and all capacities, to sign any and all amendments to this report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming that all said attorneys-in-fact and agents, or any of them or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report on Form 10-K has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.



|                                                        |  |                                                                                 |  |                  
|------------------------------------------------------- |  | ------------------------------------------------------------------------------- |  | -----------------
|Signature                                               |  | Title                                                                           |  | Date             
|                                                        |  |                                                                                
|/S/    LOUIS G.
LANGE Louis G. Lange, M.D., Ph.D.       |  | Chairman of the Board and Chief Executive Officer (Principal Executive Officer) |  | February 27, 2007
|                                                        |  |                                                                                
|/S/    DANIEL K.
SPIEGELMAN Daniel K. Spiegelman        |  | Chief Financial Officer (Principal Financial and Accounting Officer)            |  | February 27, 2007
|                                                        |  |                                                                                
|/S/    SANTO J.
COSTA Santo J. Costa                    |  | Director                                                                        |  | February 27, 2007
|                                                        |  |                                                                                
|/S/    JOSEPH M.
DAVIE Joseph M. Davie, M.D., Ph.D.     |  | Director                                                                        |  | February 27, 2007
|                                                        |  |                                                                                
|/S/    THOMAS L.
GUTSHALL Thomas L. Gutshall            |  | Director                                                                        |  | February 27, 2007
|                                                        |  |                                                                                
|/S/    PETER BARTON
HUTT Peter Barton Hutt              |  | Director                                                                        |  | February 27, 2007
|                                                        |  |                                                                                
|/S/    KENNETH B. LEE,
JR. Kenneth B. Lee, Jr.          |  | Director                                                                        |  | February 27, 2007
|                                                        |  |                                                                                
|/S/    BARBARA J.
MCNEIL Barbara J. McNeil, M.D., Ph.D. |  | Director                                                                        |  | February 27, 2007
|                                                        |  |                                                                                
|/S/    THOMAS E.
SHENK Thomas E. Shenk, Ph.D.           |  | Director                                                                        |  | February 27, 2007



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Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements

The Board of Directors and Stockholders of

CV Therapeutics, Inc.

We have audited the accompanying consolidated balance sheets of CV Therapeutics, Inc. as of December 31, 2006 and 2005, and the related consolidated
statements of operations, stockholders equity (deficit), and cash flows for each of the three years in the period ended December 31, 2006. These financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the
standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the
financial statements referred to above present fairly, in all material respects, the consolidated financial position of CV Therapeutics, Inc. at December 31, 2006 and 2005, and the consolidated results of its operations and its cash flows for
each of the three years in the period ended December 31, 2006, in conformity with U.S. generally accepted accounting principles.

As
discussed in Note 12 to the consolidated financial statements, in 2006, CV Therapeutics, Inc. changed its method of accounting for stock-based compensation in accordance with guidance provided in Statement of Financial Accounting Standards
No. 123(R), Share-Based Payment.

We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of CV Therapeutics, Inc.s internal control over financial reporting as of December 31, 2006, based on criteria established in Internal ControlIntegrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 14, 2007 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Palo Alto, California

February 14, 2007



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CV THERAPEUTICS, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)



|                                                                                                                                                                  |  |              |            |   |      |   |          |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ---------- | - | ---- | - | -------- | -
|                                                                                                                                                                  |  | December 31, |           
|                                                                                                                                                                  |  | 2006         |            |   | 2005 |  
|Assets                                                                                                                                                            |  |              |            |   |      |   |          |  
|Current assets:                                                                                                                                                   |  |              |            |   |      |   |          |  
|Cash and cash equivalents                                                                                                                                         |  | $            | 77,638     |   |      | $ | 23,688   |  
|Marketable securities                                                                                                                                             |  |              | 247,588    |   |      |   | 436,495  |  
|Accounts receivable                                                                                                                                               |  |              | 3,527      |   |      |   |         |  
|Inventories                                                                                                                                                       |  |              | 15,875     |   |      |   |         |  
|Restricted cash                                                                                                                                                   |  |              | 6,899      |   |      |   | 10,587   |  
|Prepaid and other current assets                                                                                                                                  |  |              | 13,968     |   |      |   | 16,296   |  
|                                                                                                                                                                  |  |              |            |   |      |   |          |  
|Total current assets                                                                                                                                              |  |              | 365,495    |   |      |   | 487,066  |  
|Notes receivable from related parties                                                                                                                             |  |              | 285        |   |      |   | 75       |  
|Property and equipment, net                                                                                                                                       |  |              | 23,919     |   |      |   | 20,491   |  
|Restricted cash                                                                                                                                                   |  |              | 4,567      |   |      |   | 10,990   |  
|Other assets                                                                                                                                                      |  |              | 27,190     |   |      |   | 13,939   |  
|                                                                                                                                                                  |  |              |            |   |      |   |          |  
|Total assets                                                                                                                                                      |  | $            | 421,456    |   |      | $ | 532,561  |  
|                                                                                                                                                                  |  |              |            |   |      |   |          |  
|Liabilities and stockholders equity (deficit)                                                                                                                    |  |              |            |   |      |   |          |  
|Current liabilities:                                                                                                                                              |  |              |            |   |      |   |          |  
|Accounts payable                                                                                                                                                  |  | $            | 10,749     |   |      | $ | 4,690    |  
|Accrued and other current liabilities                                                                                                                             |  |              | 51,359     |   |      |   | 58,172   |  
|Deferred revenue                                                                                                                                                  |  |              | 139        |   |      |   | 665      |  
|                                                                                                                                                                  |  |              |            |   |      |   |          |  
|Total current liabilities                                                                                                                                         |  |              | 62,247     |   |      |   | 63,527   |  
|Convertible subordinated notes                                                                                                                                    |  |              | 399,500    |   |      |   | 399,500  |  
|Other liabilities                                                                                                                                                 |  |              | 5,507      |   |      |   | 8,544    |  
|                                                                                                                                                                  |  |              |            |   |      |   |          |  
|Total liabilities                                                                                                                                                 |  |              | 467,254    |   |      |   | 471,571  |  
|Commitments and contingencies (Notes 7 and 10)                                                                                                                    |  |              |            |   |      |   |          |  
|Stockholders equity (deficit):                                                                                                                                   |  |              |            |   |      |   |          |  
|Preferred stock, $0.001 par value, 5,000,000 shares authorized, none issued and outstanding                                                                       |  |              |           |   |      |   |         |  
|Common stock, $0.001 par value, 85,000,000 shares authorized, 58,735,839 and 44,858,060 shares issued and outstanding at December 31,
2006 and 2005, respectively |  |              | 59         |   |      |   | 45       |  
|Additional paid-in-capital                                                                                                                                        |  |              | 1,040,665  |   |      |   | 891,679  |  
|Deferred stock-based compensation                                                                                                                                 |  |              |           |   |      |   | (18,218  | )
|Accumulated deficit                                                                                                                                               |  |              | (1,086,874 | ) |      |   | (812,554 | )
|Accumulated other comprehensive income                                                                                                                            |  |              | 352        |   |      |   | 38       |  
|                                                                                                                                                                  |  |              |            |   |      |   |          |  
|Total stockholders equity (deficit)                                                                                                                              |  |              | (45,798    | ) |      |   | 60,990   |  
|                                                                                                                                                                  |  |              |            |   |      |   |          |  
|Total liabilities and stockholders equity (deficit)                                                                                                              |  | $            | 421,456    |   |      | $ | 532,561  |  
|                                                                                                                                                                  |  |              |            |   |      |   |          |  

See accompanying notes



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CV THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)



|                                                              |  |                         |          |   |      |   |          |      |  |   |          |  
|------------------------------------------------------------- |  | ----------------------- | -------- | - | ---- | - | -------- | ---- |  | - | -------- | -
|                                                              |  | Year ended December 31, |         
|                                                              |  | 2006                    |          |   | 2005 |   |          | 2004 | 
|Revenues:                                                     |  |                         |          |   |      |   |          |      |  |   |          |  
|Product sales, net                                            |  | $                       | 18,423   |   |      | $ |         |      |  | $ |         |  
|Collaborative research                                        |  |                         | 16,923   |   |      |   | 18,951   |      |  |   | 20,428   |  
|Co-promotion                                                  |  |                         | 1,439    |   |      |   |         |      |  |   |         |  
|                                                              |  |                         |          |   |      |   |          |      |  |   |          |  
|Total revenues                                                |  |                         | 36,785   |   |      |   | 18,951   |      |  |   | 20,428   |  
|                                                              |  |                         |          |   |      |   |          |      |  |   |          |  
|Costs and expenses:                                           |  |                         |          |   |      |   |          |      |  |   |          |  
|Cost of sales                                                 |  |                         | 2,752    |   |      |   |         |      |  |   |         |  
|Research and development                                      |  |                         | 135,254  |   |      |   | 128,452  |      |  |   | 124,346  |  
|Selling, general and administrative                           |  |                         | 177,264  |   |      |   | 114,543  |      |  |   | 42,990   |  
|                                                              |  |                         |          |   |      |   |          |      |  |   |          |  
|Total costs and expenses                                      |  |                         | 315,270  |   |      |   | 242,995  |      |  |   | 167,336  |  
|                                                              |  |                         |          |   |      |   |          |      |  |   |          |  
|Loss from operations                                          |  |                         | (278,485 | ) |      |   | (224,044 | )    |  |   | (146,908 | )
|Other income (expense), net:                                  |  |                         |          |   |      |   |          |      |  |   |          |  
|Interest and other income, net                                |  |                         | 16,832   |   |      |   | 9,092    |      |  |   | 5,398    |  
|Interest expense                                              |  |                         | (12,667  | ) |      |   | (13,043  | )    |  |   | (13,573  | )
|                                                              |  |                         |          |   |      |   |          |      |  |   |          |  
|Total other income (expense), net                             |  |                         | 4,165    |   |      |   | (3,951   | )    |  |   | (8,175   | )
|                                                              |  |                         |          |   |      |   |          |      |  |   |          |  
|Net loss                                                      |  | $                       | (274,320 | ) |      | $ | (227,995 | )    |  | $ | (155,083 | )
|                                                              |  |                         |          |   |      |   |          |      |  |   |          |  
|Basic and diluted net loss per share                          |  | $                       | (5.49    | ) |      | $ | (5.66    | )    |  | $ | (4.90    | )
|                                                              |  |                         |          |   |      |   |          |      |  |   |          |  
|Shares used in computing basic and diluted net loss per share |  |                         | 49,983   |   |      |   | 40,268   |      |  |   | 31,671   |  
|                                                              |  |                         |          |   |      |   |          |      |  |   |          |  





See accompanying notes



80



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CV THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)

(in thousands, except share amounts)



|                                                                                                               |        |              |  |           |                            |    |  |                                 |   |           |                    |  |   |                                            |   |  |                                   |            |   |  |   |        |   |  |   |          |  
|-------------------------------------------------------------------------------------------------------------- | ------ | ------------ |  | --------- | -------------------------- | -- |  | ------------------------------- | - | --------- | ------------------ |  | - | ------------------------------------------ | - |  | --------------------------------- | ---------- | - |  | - | ------ | - |  | - | -------- | -
|                                                                                                               |        | Common Stock |  |           | Additional Paid-in Capital |    |  | DeferredStock-BasedCompensation |   |           | AccumulatedDeficit |  |   | AccumulatedOtherComprehensiveIncome (Loss) |   |  | TotalStockholdersEquity(Deficit) |           
|                                                                                                               | Shares |              |  | Par Value |                            |    |  |                                 |   |          
|Balances at December 31, 2003                                                                                  |        | 29,087,718   |  |           | $                          | 29 |  |                                 | $ | 577,755   |                    |  | $ |                                           |   |  | $                                 | (429,476   | ) |  | $ | 529    |   |  | $ | 148,837  |  
|Issuance of common stock related to equity line of credit, net of issuance costs                               |        | 3,579,472    |  |           |                            | 4  |  |                                 |   | 59,876    |                    |  |   |                                           |   |  |                                   |           |   |  |   |       |   |  |   | 59,880   |  
|Issuance of common stock related to 401(k) contribution                                                        |        | 60,391       |  |           |                            |   |  |                                 |   | 886       |                    |  |   |                                           |   |  |                                   |           |   |  |   |       |   |  |   | 886      |  
|Issuance of common stock related to employee stock purchase plan and stock option exercises                    |        | 297,960      |  |           |                            |   |  |                                 |   | 3,061     |                    |  |   |                                           |   |  |                                   |           |   |  |   |       |   |  |   | 3,061    |  
|Issuance of common stock related to purchase agreement with Mainfield Enterprises, Inc., net of issuance costs |        | 1,609,186    |  |           |                            | 2  |  |                                 |   | 24,498    |                    |  |   |                                           |   |  |                                   |           |   |  |   |       |   |  |   | 24,500   |  
|Non-employee stock compensation                                                                                |        |             |  |           |                            |   |  |                                 |   | 8         |                    |  |   |                                           |   |  |                                   |           |   |  |   |       |   |  |   | 8        |  
|Comprehensive loss:                                                                                            |        |              |  |           |                            |    |  |                                 |   |           |                    |  |   |                                            |   |  |                                   |            |   |  |   |        |   |  |   |          |  
|Net loss                                                                                                       |        |             |  |           |                            |   |  |                                 |   |          |                    |  |   |                                           |   |  |                                   | (155,083   | ) |  |   |       |   |  |   | (155,083 | )
|Net unrealized losses on investments                                                                           |        |             |  |           |                            |   |  |                                 |   |          |                    |  |   |                                           |   |  |                                   |           |   |  |   | (2,687 | ) |  |   | (2,687   | )
|                                                                                                               |        |              |  |           |                            |    |  |                                 |   |           |                    |  |   |                                            |   |  |                                   |            |   |  |   |        |   |  |   |          |  
|Total comprehensive loss                                                                                       |        |              |  |           |                            |    |  |                                 |   |           |                    |  |   |                                            |   |  |                                   |            |   |  |   |        |   |  |   | (157,770 | )
|                                                                                                               |        |              |  |           |                            |    |  |                                 |   |           |                    |  |   |                                            |   |  |                                   |            |   |  |   |        |   |  |   |          |  
|Balances at December 31, 2004                                                                                  |        | 34,634,727   |  |           |                            | 35 |  |                                 |   | 666,084   |                    |  |   |                                           |   |  |                                   | (584,559   | ) |  |   | (2,158 | ) |  |   | 79,402   |  
|Issuance of common stock related to equity line of credit, net of issuance costs                               |        | 1,275,711    |  |           |                            | 1  |  |                                 |   | 24,949    |                    |  |   |                                           |   |  |                                   |           |   |  |   |       |   |  |   | 24,950   |  
|Issuance of common stock related to 401(k) contribution                                                        |        | 35,716       |  |           |                            |   |  |                                 |   | 691       |                    |  |   |                                           |   |  |                                   |           |   |  |   |       |   |  |   | 691      |  
|Issuance of common stock related to employee stock purchase plan and stock option exercises                    |        | 561,906      |  |           |                            | 1  |  |                                 |   | 7,127     |                    |  |   |                                           |   |  |                                   |           |   |  |   |       |   |  |   | 7,128    |  
|Issuance of common stock related to follow-on offering, net of issuance costs                                  |        | 8,350,000    |  |           |                            | 8  |  |                                 |   | 170,217   |                    |  |   |                                           |   |  |                                   |           |   |  |   |       |   |  |   | 170,225  |  
|Non-employee stock compensation                                                                                |        |             |  |           |                            |   |  |                                 |   | 956       |                    |  |   |                                           |   |  |                                   |           |   |  |   |       |   |  |   | 956      |  
|Deferred stock-based compensation related to issuance of restricted stock units                                |        |             |  |           |                            |   |  |                                 |   | 21,655    |                    |  |   | (21,655                                    | ) |  |                                   |           |   |  |   |       |   |  |   |         |  
|Amortization of stock-based compensation                                                                       |        |             |  |           |                            |   |  |                                 |   |          |                    |  |   | 3,437                                      |   |  |                                   |           |   |  |   |       |   |  |   | 3,437    |  
|Comprehensive loss:                                                                                            |        |              |  |           |                            |    |  |                                 |   |           |                    |  |   |                                            |   |  |                                   |            |   |  |   |       |   |  |   |          |  
|Net loss                                                                                                       |        |             |  |           |                            |   |  |                                 |   |          |                    |  |   |                                           |   |  |                                   | (227,995   | ) |  |   |       |   |  |   | (227,995 | )
|Net unrealized gains on investments                                                                            |        |             |  |           |                            |   |  |                                 |   |          |                    |  |   |                                           |   |  |                                   |           |   |  |   | 2,196  |   |  |   | 2,196    |  
|                                                                                                               |        |              |  |           |                            |    |  |                                 |   |           |                    |  |   |                                            |   |  |                                   |            |   |  |   |        |   |  |   |          |  
|Total comprehensive loss                                                                                       |        |              |  |           |                            |    |  |                                 |   |           |                    |  |   |                                            |   |  |                                   |            |   |  |   |        |   |  |   | (225,799 | )
|                                                                                                               |        |              |  |           |                            |    |  |                                 |   |           |                    |  |   |                                            |   |  |                                   |            |   |  |   |        |   |  |   |          |  
|Balances at December 31, 2005                                                                                  |        | 44,858,060   |  |           |                            | 45 |  |                                 |   | 891,679   |                    |  |   | (18,218                                    | ) |  |                                   | (812,554   | ) |  |   | 38     |   |  |   | 60,990   |  
|Issuance of common stock related to equity line of credit, net of issuance costs                               |        | 2,744,118    |  |           |                            | 3  |  |                                 |   | 39,782    |                    |  |   |                                           |   |  |                                   |           |   |  |   |       |   |  |   | 39,785   |  
|Issuance of common stock related to 401(k) contribution                                                        |        | 51,922       |  |           |                            |   |  |                                 |   | 1,304     |                    |  |   |                                           |   |  |                                   |           |   |  |   |       |   |  |   | 1,304    |  
|Issuance of common stock related to employee stock purchase plan and stock option exercises                    |        | 731,739      |  |           |                            | 1  |  |                                 |   | 5,658     |                    |  |   |                                           |   |  |                                   |           |   |  |   |       |   |  |   | 5,659    |  
|Issuance of common stock related to follow-on offering, net of issuance costs                                  |        | 10,350,000   |  |           |                            | 10 |  |                                 |   | 92,160    |                    |  |   |                                           |   |  |                                   |           |   |  |   |       |   |  |   | 92,170   |  
|Non-employee stock compensation                                                                                |        |             |  |           |                            |   |  |                                 |   | 646       |                    |  |   |                                           |   |  |                                   |           |   |  |   |       |   |  |   | 646      |  
|Issuance of common stock warrant in connection with a leasing transaction                                      |        |             |  |           |                            |   |  |                                 |   | 3,530     |                    |  |   |                                           |   |  |                                   |           |   |  |   |       |   |  |   | 3,530    |  
|Reclassification of deferred stock-based compensation upon adoption of FAS 123R                                |        |             |  |           |                            |    |  |                                 |   | (18,218   | )                  |  |   | 18,218                                     |   |  |                                   |           |   |  |   |       |   |  |   |         |  
|Employee stock-based compensation                                                                              |        |             |  |           |                            |   |  |                                 |   | 24,124    |                    |  |   |                                           |   |  |                                   |           |   |  |   |       |   |  |   | 24,124   |  
|Comprehensive loss:                                                                                            |        |              |  |           |                            |    |  |                                 |   |           |                    |  |   |                                            |   |  |                                   |            |   |  |   |        |   |  |   |          |  
|Net loss                                                                                                       |        |             |  |           |                            |   |  |                                 |   |          |                    |  |   |                                           |   |  |                                   | (274,320   | ) |  |   |       |   |  |   | (274,320 | )
|Net unrealized gains on investments                                                                            |        |             |  |           |                            |   |  |                                 |   |          |                    |  |   |                                           |   |  |                                   |           |   |  |   | 314    |   |  |   | 314      |  
|                                                                                                               |        |              |  |           |                            |    |  |                                 |   |           |                    |  |   |                                            |   |  |                                   |            |   |  |   |        |   |  |   |          |  
|Total comprehensive loss                                                                                       |        |              |  |           |                            |    |  |                                 |   |           |                    |  |   |                                            |   |  |                                   |            |   |  |   |        |   |  |   | (274,006 | )
|                                                                                                               |        |              |  |           |                            |    |  |                                 |   |           |                    |  |   |                                            |   |  |                                   |            |   |  |   |        |   |  |   |          |  
|Balances at December 31, 2006                                                                                  |        | 58,735,839   |  |           | $                          | 59 |  |                                 | $ | 1,040,665 |                    |  | $ |                                           |   |  | $                                 | (1,086,874 | ) |  | $ | 352    |   |  | $ | (45,798  | )
|                                                                                                               |        |              |  |           |                            |    |  |                                 |   |           |                    |  |   |                                            |   |  |                                   |            |   |  |   |        |   |  |   |          |  



See accompanying notes



81



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##### Table of Contents

CV THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)



|                                                                                                |  |                         |          |   |      |   |          |      |  |   |          |  
|----------------------------------------------------------------------------------------------- |  | ----------------------- | -------- | - | ---- | - | -------- | ---- |  | - | -------- | -
|                                                                                                |  | Year Ended December 31, |         
|                                                                                                |  | 2006                    |          |   | 2005 |   |          | 2004 | 
|Cash flows from operating activities                                                            |  |                         |          |   |      |   |          |      |  |   |          |  
|Net loss                                                                                        |  | $                       | (274,320 | ) |      | $ | (227,995 | )    |  | $ | (155,083 | )
|Adjustments to reconcile net loss to net cash used in operating activities:                     |  |                         |          |   |      |   |          |      |  |   |          |  
|Stock-based compensation expense                                                                |  |                         | 24,770   |   |      |   | 4,626    |      |  |   | 299      |  
|Depreciation and amortization, net                                                              |  |                         | 7,108    |   |      |   | 10,751   |      |  |   | 14,343   |  
|Impairment recognized for unrealized loss on marketable securities                              |  |                         | 2,037    |   |      |   | 3,180    |      |  |   |         |  
|(Gain) loss on the sale of available-for-sale securities                                        |  |                         | (118     | ) |      |   | 656      |      |  |   | 621      |  
|Loss on redemption of convertible subordinated notes                                            |  |                         |         |   |      |   | 621      |      |  |   | 1,615    |  
|Impairment recognized on long-term investment                                                   |  |                         | 94       |   |      |   |         |      |  |   |         |  
|Forgiveness of related party notes receivable                                                   |  |                         | 43       |   |      |   | 64       |      |  |   | 73       |  
|Change in assets and liabilities:                                                               |  |                         |          |   |      |   |          |      |  |   |          |  
|Accounts receivable                                                                             |  |                         | (3,527   | ) |      |   |         |      |  |   |         |  
|Inventories                                                                                     |  |                         | (15,875  | ) |      |   |         |      |  |   |         |  
|Prepaid and other current assets                                                                |  |                         | 2,313    |   |      |   | 1,015    |      |  |   | (7,474   | )
|Other assets                                                                                    |  |                         | (12,580  | ) |      |   | (1,455   | )    |  |   | 3,492    |  
|Accounts payable                                                                                |  |                         | 6,059    |   |      |   | (2,055   | )    |  |   | 2,729    |  
|Accrued and other liabilities                                                                   |  |                         | (6,232   | ) |      |   | 23,541   |      |  |   | 24,333   |  
|Deferred revenue                                                                                |  |                         | (526     | ) |      |   | (907     | )    |  |   | (1,029   | )
|                                                                                                |  |                         |          |   |      |   |          |      |  |   |          |  
|Net cash used in operating activities                                                           |  |                         | (270,754 | ) |      |   | (187,958 | )    |  |   | (116,081 | )
|                                                                                                |  |                         |         
|Cash flows from investing activities                                                            |  |                         |          |   |      |   |          |      |  |   |          |  
|Purchases of available-for securities                                                           |  |                         | (61,689  | ) |      |   | (354,006 | )    |  |   | (385,156 | )
|Proceeds from sales of available-for-securities                                                 |  |                         | 75,410   |   |      |   | 212,058  |      |  |   | 379,326  |  
|Maturities of investments                                                                       |  |                         | 176,364  |   |      |   | 83,041   |      |  |   | 23,255   |  
|Capital expenditures                                                                            |  |                         | (9,846   | ) |      |   | (8,963   | )    |  |   | (3,604   | )
|Notes receivable from related parties                                                           |  |                         |         |   |      |   |         |      |  |   | 500      |  
|Equity investment in collaboration partner                                                      |  |                         |         |   |      |   |         |      |  |   | (1,000   | )
|Purchase of convertible note from collaborative partner                                         |  |                         | (4,000   | ) |      |   |         |      |  |   |         |  
|                                                                                                |  |                         |          |   |      |   |          |      |  |   |          |  
|Net cash provided by (used in) investing activities                                             |  |                         | 176,239  |   |      |   | (67,870  | )    |  |   | 13,321   |  
|                                                                                                |  |                         |         
|Cash flows from financing activities                                                            |  |                         |          |   |      |   |          |      |  |   |          |  
|Change in restricted cash                                                                       |  |                         | 10,111   |   |      |   | (8,655   | )    |  |   | (8,036   | )
|Payments on capital lease obligations                                                           |  |                         |         |   |      |   |         |      |  |   | (440     | )
|Borrowings on capital lease obligations                                                         |  |                         |         |   |      |   |         |      |  |   | 178      |  
|Repurchase of convertible subordinated notes                                                    |  |                         |         |   |      |   | (79,645  | )    |  |   | (116,605 | )
|Borrowings under senior subordinated convertible notes, net of issuance costs                   |  |                         |         |   |      |   | 144,727  |      |  |   | 145,141  |  
|Proceeds from issuance of common stock through employee stock purchases and stock options       |  |                         | 6,399    |   |      |   | 7,128    |      |  |   | 3,061    |  
|Net proceeds from issuance of common stock related to public offering and equity line of credit |  |                         | 131,955  |   |      |   | 195,202  |      |  |   | 84,380   |  
|                                                                                                |  |                         |          |   |      |   |          |      |  |   |          |  
|Net cash provided by financing activities                                                       |  |                         | 148,465  |   |      |   | 258,757  |      |  |   | 107,679  |  
|                                                                                                |  |                         |          |   |      |   |          |      |  |   |          |  
|Net increase in cash and cash equivalents                                                       |  |                         | 53,950   |   |      |   | 2,929    |      |  |   | 4,919    |  
|Cash and cash equivalents at beginning of year                                                  |  |                         | 23,688   |   |      |   | 20,759   |      |  |   | 15,840   |  
|                                                                                                |  |                         |          |   |      |   |          |      |  |   |          |  
|Cash and cash equivalents at end of year                                                        |  | $                       | 77,638   |   |      | $ | 23,688   |      |  | $ | 20,759   |  
|                                                                                                |  |                         |          |   |      |   |          |      |  |   |          |  
|                                                                                                |  |                         |         
|Supplemental disclosure of cash flow information                                                |  |                         |          |   |      |   |          |      |  |   |          |  
|Cash paid for interest                                                                          |  | $                       | 10,984   |   |      | $ | 9,550    |      |  | $ | 11,751   |  
|                                                                                                |  |                         |         
|Supplemental schedule of non-cash investing and financing activities                            |  |                         |          |   |      |   |          |      |  |   |          |  
|Accrued cost for acquisition of property and equipment                                          |  | $                       | (80      | ) |      | $ | 866      |      |  | $ |         |  

See accompanying notes



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1.    Summary of Significant Accounting Policies

The Company

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

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

We are also developing other product candidates including regadenoson, a selective A2A-adenosine receptor agonist for potential use as a pharmacologic stress agent in myocardial perfusion imaging studies.

Reclassifications

Certain reclassifications of prior period amounts have been made to our consolidated financial statements to conform to the current presentation. We have combined line items in the consolidated statements of operations previously separately
titled interest and other income, net and other expenses into interest and other income, net. We have also reclassified certain items on our consolidated balance sheet, including non-cash consideration paid
related to our operating lease agreements.

Principles of Consolidation

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

Use of
Estimates

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

Cash Equivalents and Marketable Securities

We consider all highly liquid debt investments with a maturity from date of purchase of three months or less to be cash equivalents. All other liquid investments are classified as marketable securities.

We invest in marketable debt securities that we consider to be available for use in current operations. Accordingly, we have classified all investments
as current assets, even though the stated maturity date may be one year or more beyond the current balance sheet date. We classify our investment in debt securities as available-for-sale. Available-for-sale securities are carried at fair value,
based upon quoted market prices for



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1.    Summary of Significant Accounting Policies (Continued)



these or similar instruments, with unrealized gains and temporary unrealized losses reported in stockholders equity as a component of accumulated other
comprehensive income (loss). The amortized cost of these securities is adjusted for amortization of premiums and accretions of discounts to maturity. Such amortization, as well as realized gains and losses are included in interest and other income,
net. The cost of securities sold is based on the specific identification method. If we conclude that an other-than-temporary impairment exists, we recognize an impairment charge to reduce the investment to fair value and record the related charge as
a reduction of interest and other income, net. In determining whether to recognize an impairment charge, we consider factors such as the length of time and extent to which the fair market value has been below the cost basis, the current financial
condition of the investee, the financial condition, future cash flow needs and business outlook for our company and our intent and ability to hold the investment for a sufficient period of time to allow for any anticipated recovery in market value.

Restricted Cash

Restricted cash includes the current and non-current portions in the funding of escrow accounts to secure interest payments for our $150.0 million aggregate principal amount of senior subordinated convertible notes due 2012 and $149.5
million of our 3.25% senior subordinated convertible notes due 2013 (see Note 8). These escrow accounts consist of held-to-maturity U.S. Treasury securities that are carried at amortized cost, which approximates fair market value.

Accounts Receivable

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

Inventory

We expense costs relating to the production of inventories as research and development (R&D) expense in the period incurred until
such time as we receive an approval letter from the U.S. Food and Drug Administration (FDA) for a new product or product configuration, and then we begin to capitalize the subsequent inventory costs relating to that product or product configuration.
Prior to approval of Ranexa® (ranolazine
extended-release tablets) for commercial sale in January 2006 by the FDA, we had expensed all costs associated with the production of Ranexa as R&D expense. Subsequent to receiving approval for Ranexa, we capitalized the subsequent costs of
manufacturing the commercial configuration of Ranexa as inventory, including costs to convert existing raw materials to active pharmaceutical ingredient and costs to tablet, package and label previously manufactured inventory whose costs had already
been expensed as R&D. Until we sell the inventory for which a portion of the costs were previously expensed, the carrying value of our inventories and our cost of sales will reflect only incremental costs incurred subsequent to the approval
date. We continue to expense costs associated with non-approved configurations of Ranexa and all clinical trial material as R&D expense.

The valuation of inventory requires us to estimate obsolete, expired or excess inventory. Once packaged as finished goods, Ranexa currently has a shelf life of 48 months from the date of tablet manufacture, although



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some of our previously manufactured Ranexa tablets have a shelf life of 36 months from the date of tablet manufacture, which was the shelf life at the time
of product launch. The determination of obsolete, expired or excess inventory requires us to estimate the future demand for Ranexa. If our current assumptions about future production or inventory levels, demand or competition were to change or if
actual market conditions are less favorable than those we have projected, inventory write-downs may be required that could negatively impact our product margins and results of operations. We also review our inventory for quality assurance and
quality control issues identified in the manufacturing process and determine whether a write-down is necessary. To date, there have been no inventory write-downs.

Inventory is stated at the lower of cost or market. Cost is determined on a standard cost method which approximates the first-in-first-out method.

Non-Marketable Investments

Our
non-marketable investments consist of investments in privately held companies in which we own less than 20% of the outstanding voting stock and do not otherwise have the ability to exert significant influence over the investees. Accordingly, these
investments in privately-held companies are accounted for under the cost method. Non-marketable investments are classified as other assets on the consolidated balance sheets and had a carrying value of $6.0 million and $2.0 million as of
December 31, 2006 and 2005, respectively.

We periodically evaluate the carrying value of our ownership interests in privately-held
cost method investees by reviewing conditions that might indicate an impairment, including the following:



| |  |  | Financial performance of the investee;
| | - |  | --------------------------------------



| |  |  | Achievement of business plan objectives and milestones including the hiring of key employees, obtaining key business partnerships, and progress related to research
and development activities;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Available financial resources; and
| | - |  | ----------------------------------



| |  |  | Completion of debt and equity financings.
| | - |  | -----------------------------------------

If our review of these factors indicates that an impairment of our investment has occurred, we estimate the fair value of our investment. When the carrying value of our investments is greater than the estimated fair value of our investment,
we record an impairment charge to reduce our carrying value. Impairment charges are recorded in the period when the related triggering condition becomes known to management. Impairment charges recorded to date have been less than $0.1 million.

Valuation of Long-Lived Assets

Long-lived assets to be held and used are reviewed for impairment when events or changes in circumstances indicate the carrying amount of an asset may not be recoverable, or its estimated useful life has changed
significantly. When an assets expected future undiscounted cash flows are less than its carrying value, an impairment loss is recognized and the asset is written down to its estimated value. Long-lived assets to be disposed of are reported at
the lower of the carrying amount of fair value less cost to dispose.

Property and Equipment

Property and equipment are recorded at cost and depreciated using the straight-line method over their estimated useful lives, generally three to five
years. Leasehold improvements are amortized over the shorter of



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their estimated useful lives or the remaining term of the lease. Repairs and maintenance costs are charged to expense as incurred.

Comprehensive Loss

Comprehensive
loss consists of net loss plus the changes in unrealized gains and losses on available-for-sale investment securities. At each balance sheet date presented, our cumulative other comprehensive income (loss) consists solely of unrealized gains and
losses on available-for-sale investment securities. Comprehensive loss for the years ended December 31, 2006, 2005 and 2004 are as follows (in thousands):



|                                                                                               |  |                         |          |   |      |   |          |      |  |   |          |  
|---------------------------------------------------------------------------------------------- |  | ----------------------- | -------- | - | ---- | - | -------- | ---- |  | - | -------- | -
|                                                                                               |  | Year Ended December 31, |         
|                                                                                               |  | 2006                    |          |   | 2005 |   |          | 2004 | 
|Net loss                                                                                       |  | $                       | (274,320 | ) |      | $ | (227,995 | )    |  | $ | (155,083 | )
|Increase in unrealized losses on marketable securities                                         |  |                         | (1,605   | ) |      |   | (1,640   | )    |  |   | (3,308   | )
|Reclassification adjustment for (gains) losses on marketable securities recognized in earnings |  |                         | 1,919    |   |      |   | 3,836    |      |  |   | 621      |  
|                                                                                               |  |                         |          |   |      |   |          |      |  |   |          |  
|Comprehensive loss                                                                             |  | $                       | (274,006 | ) |      | $ | (225,799 | )    |  | $ | (157,770 | )
|                                                                                               |  |                         |          |   |      |   |          |      |  |   |          |  

Concentrations of Risk

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

We are also subject to credit risk from our accounts receivable related to our product sales. All product sales are currently derived from our one approved product, Ranexa, and were made to customers within the United
States. Three wholesale distributors individually comprised 37%, 32% and 23%, respectively, of Ranexa accounts receivable as of December 31, 2006. These three customers individually comprised 40%, 34% and 19%, respectively, of Ranexa gross
product sales for the year ended December 31, 2006.

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

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

Revenue Recognition

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



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1.    Summary of Significant Accounting Policies (Continued)



Product Sales

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



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



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

Collaboration Research Revenue

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



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



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



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



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



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1.    Summary of Significant Accounting Policies (Continued)



Co-Promotion Revenue

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

Gross-to-Net Sales Adjustments

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

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

Managed Care Rebates

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

Medicaid Rebates

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

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



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1.    Summary of Significant Accounting Policies (Continued)



Chargebacks

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

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

Product Returns

Our product returns allowance is primarily based on estimates of future product
returns over the period during which wholesale distributors have a right of return, which in turn is based in part on estimates of the remaining shelf life of our product. Once packaged as finished goods, Ranexa currently has a shelf life of 48
months from the date of tablet manufacture, although some of our previously manufactured Ranexa tablets have a shelf life of 36 months from the date of tablet manufacture, which was the shelf life at the time of product launch. We allow wholesale
distributors and pharmacies to return unused product stocks that are within six months before and up to one year after their expiration date for a credit at the then-current wholesale price. At the time of sale, we estimate the quantity and value of
goods that may ultimately be returned pursuant to these rights.

As Ranexa is a recently approved product, we estimate future product
returns based on the industry trends for other products with similar characteristics and similar return policies. Our actual experience and the qualitative factors that we use to determine the necessary reserve for product returns are susceptible to
change based on unforeseen events and uncertainties. We assess the trends that could affect our estimates and make changes to the allowance each reporting period.

Distributor Discounts

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



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1.    Summary of Significant Accounting Policies (Continued)



Cash Discounts

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

The following table summarizes revenue allowance activity for the year ended December 31, 2006 (in thousands):



|                             |  |               |      |   |                 |   |      |                        |  |   |        |   |  |   |        |  
|---------------------------- |  | ------------- | ---- | - | --------------- | - | ---- | ---------------------- |  | - | ------ | - |  | - | ------ | -
|                             |  | CashDiscounts |      |   | Product Returns |   |      | ContractSalesDiscounts |  |   | Total  |  
|                             |  |               |      |   | (2)             |   |      | (1)                    |  |   |        |  
|Balance at December 31, 2005 |  | $             |     |   |                 | $ |     |                        |  | $ |       |   |  | $ |       |  
|Revenue allowances:          |  |               |      |   |                 |   |      |                        |  |   |        |   |  |   |        |  
|Current period               |  |               | (459 | ) |                 |   | (894 | )                      |  |   | (2,551 | ) |  |   | (3,904 | )
|Payments and credits         |  |               | 343  |   |                 |   |     |                        |  |   | 1,233  |   |  |   | 1,576  |  
|                             |  |               |      |   |                 |   |      |                        |  |   |        |   |  |   |        |  
|Balance at December 31, 2006 |  | $             | (116 | ) |                 | $ | (894 | )                      |  | $ | (1,318 | ) |  | $ | (2,328 | )
|                             |  |               |      |   |                 |   |      |                        |  |   |        |   |  |   |        |  

---

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

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

Shipping and
Handling Costs

Shipping and handling costs incurred for inventory purchases and product shipments are recorded in Cost of
sales in the consolidated statement of operations.

Research and Development Expenses and Accruals

Research and development expenses include personnel and facility related expenses, outside contract services including clinical trial costs,
manufacturing and process development costs, research costs and other consulting services. Research and development costs are expensed as incurred. In instances where we enter into agreements with third parties for clinical trials, manufacturing and
process development, research and other consulting activities, costs are expensed as services are performed. Amounts due under such arrangements may be either fixed fee or fee for service, and may include upfront payments, monthly payments, and
payments upon the completion of milestones or receipt of deliverables.

Our accruals for clinical trials are based on estimates of the
services received and pursuant to contracts with numerous clinical trial centers and clinical research organizations. In the normal course of business we contract with third parties to perform various clinical trial activities in the ongoing
development of potential products. The financial terms of these agreements are subject to negotiation and variation from contract to contract and may result in uneven payment flows. Payments under the contracts depend on factors such as the
achievement of certain events, the successful accrual of patients, and the completion of portions of the clinical trial or similar conditions. The objective of our accrual policy is to match the recording of expenses in our consolidated financial



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statements to the actual services received. As such, expense accruals related to clinical trials are recognized based on our estimate of the degree of
completion of the event or events specified in the specific clinical study or trial contract.

Advertising Costs

All costs associated with advertising are expensed in the year incurred. Advertising expense for the years ended December 31, 2006 and 2005 were
$1.5 million and $0.2 million, respectively. There was no advertising expense for the year ended December 31, 2004.

Net Loss Per
Share

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

Fair Value of Financial Instruments

Our financial instruments consist principally of cash and cash equivalents, marketable securities, restricted cash, and convertible subordinated notes. Cash, cash equivalents, and marketable securities are reported at
their respective fair values, as determined by market quotes or pricing models using current market rates. Restricted cash is reported at the amortized cost basis, which approximates fair value, as determined by market quotes. The fair value of the
convertible subordinated notes was determined by obtaining quotes from a market maker for the notes (see Note 8).

Segments

We operate in one segment, as defined in accordance with FAS 131 Disclosures about Segments of an Enterprise and Related
Information. For the years ended December 31, 2006, 2005 and 2004, all revenue recognized was from customers within the United States.

Recent Accounting Pronouncements

In July 2006, the Financial Accounting Standards Board (FASB)
issued FASB Interpretation 48 Accounting for Uncertainty in Income Taxes,(FIN 48) an interpretation of FAS 109, Accounting for Income Taxes(FAS 109). FIN 48 clarifies the accounting for uncertainty in income
taxes recognized in an enterprises financial statements in accordance with FAS 109. The interpretation applies to all tax positions accounted for in accordance with FAS 109 and requires a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken, or expected to be taken, in an income tax return. Subsequent recognition, derecognition, and measurement is based on managements best judgment given the facts,
circumstances and information available at the reporting date. FIN 48 is effective for fiscal years beginning after December 15, 2006. As of December 31, 2006, we have federal and state net operating loss and credit carryforwards of
approximately $1,056.4 million and $774.1 million, respectively that may be subject to annual limitation, due to certain substantial changes in ownership, under the Internal Revenue Code and similar state



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provisions. The annual limitation may result in the expiration of net operating loss and credit carryforwards before utilization. As of December 31,
2006, all of our deferred tax assets have been fully offset by a valuation allowance because the realization of these assets is dependent on future earnings. Early adoption is permitted as of the beginning of an enterprises fiscal year,
provided the enterprise has not yet issued financial statements, including financial statements for any interim period, for that fiscal year. We are currently evaluating the effect, if any, that the adoption of FIN 48 will have on our consolidated
financial statements.

2.    License and Collaboration Agreements

Astellas Pharma US

In July 2000, we entered into a collaboration agreement with Astellas US LLC (formerly Fujisawa
Healthcare, Inc.) to develop and market second generation pharmacologic myocardial perfusion imaging stress agents. Under this agreement, Astellas received exclusive North American rights to regadenoson, a short acting selective A2A-adenosine receptor agonist, and to a backup compound. We received $10.0 million from Astellas consisting of a $6.0 million
up-front payment, which is being recognized as revenue over the expected development term of the agreement, and $4.0 million for the sale of our common stock. In addition, Astellas reimburses us for 75% of our development costs and we reimburse
Astellas for 25% of their development costs. If the product is approved by the FDA, Astellas will be responsible for sales and marketing of regadenoson, and we will receive a royalty based on product sales of regadenoson and may receive a royalty on
another product sold by Astellas. Collaborative research revenues for the reimbursement of development costs were $12.7 million, $17.9 million, and $19.4 million for 2006, 2005 and 2004, respectively. As of December 31, 2006, $2.6 million
was due from Astellas for reimbursement of our development costs.

Astellas may terminate the agreement for any reason on 90 days
written notice, and we may terminate the agreement if Astellas fails to launch a product within a specified period after marketing approval. In addition, we or Astellas may terminate the agreement in the event of material uncured breach, or
bankruptcy or insolvency.

In June 2006, we and Astellas entered into a second amendment to the collaboration and license agreement,
effective as of January 1, 2006. The second amendment provides that we will conduct agreed-upon additional clinical trials of the licensed compound regadenoson on terms and conditions that are different than those applicable to clinical trials
conducted to date under the agreement. The additional trials will be considered Phase 4 trials and will be subject to all terms and conditions under the agreement governing Phase 4 trials, except that we will conduct the additional trials and have
all regulatory responsibilities and responsibility for management of the additional trials, subject to Astellas review and approval of the trial protocols and the option to review the final study reports. We shall provide Astellas with all data
pertaining to the additional trials and Astellas shall reimburse us for 100% of the development costs we incur with respect to the additional trials. We recognized $2.7 million of collaborative research revenue for the year ended December 31,
2006 related to these trials. As of December 31,2006 $0.6 million was due from Astellas related to these trials.

PTC Therapeutics,
Inc.

In June 2006, we entered into a collaboration and license agreement with PTC Therapeutics Inc. (PTC) for the development of
orally bioavailable small-molecule compounds identified through the application of PTCs proprietary Gene Expression Modulation by Small Molecules technology. Pursuant to the collaboration and license agreement, we and PTC will collaborate on
five jointly select therapeutic targets and on the discovery of potential clinical candidate small-molecule compounds that act upon such targets. The research term of the



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2.    License and Collaboration Agreements (Continued)



collaboration and license agreement is 42 months. For the year ended December 31, 2006, we recognized $0.2 million of revenue related to this
collaboration.

In June 2006, we made an initial payment to PTC of $10.0 million, consisting of an upfront non-refundable cash payment of
$2.0 million, a forgivable loan of $4.0 million, and a $4.0 million convertible note receivable. For accounting purposes, we have aggregated the upfront non-refundable cash payment of $2.0 million and the forgivable loan of $4.0 million and consider
this to represent a $6.0 million fee for the access to the PTCs technology. The $6.0 million access fee will be amortized over the research term of the collaboration. The forgivable loan may be forgiven over the course of the research term as
follows: on each of the 14-month and 28-month anniversary of the loans issue date, $2.0 million in aggregate principal amount, together with all accrued but unpaid interest to that anniversary date, will be forgiven, so long as the agreement
remains in effect on that anniversary date. The convertible note receivable is convertible into PTC equity if PTC completes an initial public offering or a qualified private placement prior to the loans maturity. Both the forgivable loan and
the convertible note receivable are in the principal amount of $4.0 million, bear interest at an annual rate of 4.85%, compounded annually, and mature on the 28-month anniversary of their respective June 7, 2006 issue dates. If we license and
commercialize a product based on all five selected targets during the term of the agreement, PTC could earn milestone payments from us of up to an aggregate $335.0 million if specified development, regulatory and commercial goals set forth in the
agreement are achieved over the life cycle of each such product. PTC retains the option to co-fund further R&D on any targets licensed by us in return for increased royalties or co-promotion rights. In addition, PTC may develop and commercialize
compounds that are active against any target that is not licensed by us, and PTC may be obligated to pay us royalties on worldwide net sales of any such PTC products.

Ranexa Product Rights

Under our license agreement, as amended, relating to ranolazine with Roche
Palo Alto LLC (Roche), successor-in-interest to Syntex (U.S.A.) Inc., we paid an initial license fee, and are obligated to make certain payments to Roche, upon receipt of the first and second product approvals for Ranexa in any of the following
major market countries: France, Germany, Italy, the United States and the United Kingdom. As of December 31, 2005, we had accrued $10.1 million of the $11.0 million payment, and expensed this amount as R&D expenses in the year ended
December 31, 2004. In February 2006, we paid $11.0 million to Roche in accordance with this agreement, of which $0.9 million was capitalized as an other asset on our consolidated balance sheet. The $0.9 million is being amortized over its
useful patent life, which expires in May 2019 or approximately 13 years.

In June 2006, we entered into a fourth amendment to the license
agreement with Roche. This amendment provided us with exclusive worldwide commercial rights to ranolazine for all potential indications in humans. Prior to the fourth amendment, the agreement provided us with exclusive commercial rights to
ranolazine for all cardiovascular indications in all markets other than specified countries in Asia. Under the terms of the fourth amendment, we made an upfront payment to Roche and are obligated to make royalty payments to Roche on worldwide net
product sales of any licensed products, including any net product sales in Asia. The royalty rates applicable to net product sales of licensed products in Asia are the same royalty rates that existed under the agreement prior to the fourth
amendment. Within 30 days of the approval of a new drug application or equivalent in Japan, we are obligated to pay Roche an additional $3.0 million. Within 30 days of the approval of the first supplemental new drug application for an indication
other than a cardiovascular indication in a major market country or Japan, we are obligated to pay Roche an additional $5.0 million.

Under
our license and settlement agreement with another vendor, certain amounts were due to them upon the approval of Ranexa by the FDA for the manufacture of ranolazines active pharmaceutical ingredient



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2.    License and Collaboration Agreements (Continued)



(ranolazine API). Upon FDA approval of Ranexa, we were required to pay a $5.0 million milestone and fees based upon the amount of ranolazine API manufactured
prior to product approval. In exchange for these payments, we received a worldwide, royalty-free, nonexclusive perpetual license to use and practice certain proprietary technology for the purpose of making and having made ranolazine API. In January
2006, we paid this $5.0 million milestone to this vendor and have capitalized this amount as an other asset on our balance sheet. We are amortizing the asset over its useful patent life which expires in May 2019 or approximately 13 years. We are
obligated to pay this vendor $4 per kilogram on future ranolazine API manufactured until the total amount paid (including the previously paid $5.0 million) reaches $12.0 million.

Amortization expense for the year ended December 31, 2006 was $0.4 million. The expected future annual amortization related to these product rights
is $0.5 million per year through 2011.

Solvay Pharmaceuticals

In December 2004, we entered into an agreement with Solvay Pharmaceuticals to co-promote ACEON® (perindopril erbumine) Tablets, an angiotensin-converting enzyme inhibitor, or ACE
inhibitor, in the United States. Under the agreement, we are responsible for brand marketing activities and for establishing a cardiovascular specialty sales force to promote the product. Under the agreement, Solvay Pharmaceuticals continues to
handle the manufacturing and distribution of the product, and its primary care sales force continues to promote the product.

In October 2006, we signed a letter agreement with Solvay Pharmaceuticals that, among other
things, terminated our co-promotion agreement with Solvay Pharmaceuticals relating to ACEON®, effective as of November 1, 2006, and we ceased all commercial activities
relating to ACEON®.

For the year ended December 31, 2006,
we have recognized $1.4 million of revenue related to this agreement.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



3.    Marketable Securities

The following is a summary of available-for-sale securities at December 31, 2006 and 2005:



|                           |  |                     |         |                      |   |     |                       |  |   |                     |  |  |   |        
|-------------------------- |  | ------------------- | ------- | -------------------- | - | --- | --------------------- |  | - | ------------------- |  |  | - | -------
|December 31, 2006          |  | AmortizedCost Basis |         | GrossUnrealizedGains |   |     | GrossUnrealizedLosses |  |   | EstimatedFair Value
|                           |  | (in thousands)     
|Cash equivalents:          |  |                     |         |                      |   |     |                       |  |   |                     |  |  |   |        
|Money market funds         |  | $                   | 21,202  |                      | $ |    |                       |  | $ |                    |  |  | $ | 21,202 
|Repurchase agreements      |  |                     | 20,000  |                      |   |    |                       |  |   |                    |  |  |   | 20,000 
|Commercial paper           |  |                     | 29,063  |                      |   | 5   |                       |  |   |                    |  |  |   | 29,068 
|U.S. government securities |  |                     | 4,997   |                      |   | 1   |                       |  |   |                    |  |  |   | 4,998  
|                           |  |                     |         |                      |   |     |                       |  |   |                     |  |  |   |        
|                           |  | $                   | 75,262  |                      | $ | 6   |                       |  | $ |                    |  |  | $ | 75,268 
|                           |  |                     |         |                      |   |     |                       |  |   |                     |  |  |   |        
|Marketable securities:     |  |                     |         |                      |   |     |                       |  |   |                     |  |  |   |        
|U.S. government securities |  | $                   | 99,625  |                      | $ | 139 |                       |  | $ |                    |  |  | $ | 99,764 
|Asset backed securities    |  |                     | 24,821  |                      |   | 13  |                       |  |   |                    |  |  |   | 24,834 
|Corporate bonds            |  |                     | 122,796 |                      |   | 194 |                       |  |   |                    |  |  |   | 122,990
|                           |  |                     |         |                      |   |     |                       |  |   |                     |  |  |   |        
|                           |  | $                   | 247,242 |                      | $ | 346 |                       |  | $ |                    |  |  | $ | 247,588
|                           |  |                     |         |                      |   |     |                       |  |   |                     |  |  |   |        
|                           |  |                     |         |                     
|December 31, 2005          |  | AmortizedCost Basis |         | GrossUnrealizedGains |   |     | GrossUnrealizedLosses |  |   | EstimatedFair Value
|                           |  | (in thousands)     
|Cash equivalents:          |  |                     |         |                      |   |     |                       |  |   |                     |  |  |   |        
|Money market funds         |  | $                   | 6,830   |                      | $ |    |                       |  | $ |                    |  |  | $ | 6,830  
|U.S. government securities |  |                     | 15,875  |                      |   | 3   |                       |  |   |                    |  |  |   | 15,878 
|                           |  |                     |         |                      |   |     |                       |  |   |                     |  |  |   |        
|                           |  | $                   | 22,705  |                      | $ | 3   |                       |  | $ |                    |  |  | $ | 22,708 
|                           |  |                     |         |                      |   |     |                       |  |   |                     |  |  |   |        
|Marketable securities:     |  |                     |         |                      |   |     |                       |  |   |                     |  |  |   |        
|U.S. government securities |  | $                   | 152,062 |                      | $ | 1   |                       |  | $ |                    |  |  | $ | 152,063
|Asset backed securities    |  |                     | 44,166  |                      |   | 22  |                       |  |   |                    |  |  |   | 44,188 
|Corporate bonds            |  |                     | 240,232 |                      |   | 12  |                       |  |   |                    |  |  |   | 240,244
|                           |  |                     |         |                      |   |     |                       |  |   |                     |  |  |   |        
|                           |  | $                   | 436,460 |                      | $ | 35  |                       |  | $ |                    |  |  | $ | 436,495
|                           |  |                     |         |                      |   |     |                       |  |   |                     |  |  |   |        

As of December 31, 2006, we had marketable securities with maturities of one year or less of
$164.0 million and greater than one year of $83.6 million. The average contractual maturity as of December 31, 2006 was approximately eight months with no single investments maturity exceeding thirty-six months.

Realized gains on available-for-sale securities included in the consolidated statements of operations were $0.2 million, $0.1 million and $0.3 million
for 2006, 2005 and 2004, respectively, while realized losses for those years were less than $0.1 million, $0.8 million and $0.9 million, respectively.

We review and analyze our marketable securities portfolio to determine whether declines in the fair value of individual marketable securities that were below amortized cost are other-than-temporary. In order to
determine whether a decline in fair value is other-than temporary, we evaluated, among other factors, the duration and extent to which the fair value has been less than the amortized cost; the financial condition of and business outlook for our
company, including future cash flow needs; and our intent and ability to hold the investment for a period of time sufficient to allow for a recovery of fair value to its amortized cost. As a result of increases in



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

3.    Marketable Securities (Continued)



market interest rates during 2006 and 2005, we experienced an increase in unrealized losses in our investment portfolio. After consideration of the scheduled
maturities in our investment portfolio, our policies with respect to the concentration of investments with issuers or within industries, and our forecasted needs to support our operations, we concluded that we did not have the ability to hold
impaired securities for a period of time sufficient to recover their cost basis. As of each impairment assessment, management did not determine which individual securities we would sell in order to meet our future cash requirements. As a result, we
determined that all individual marketable securities in our portfolio with fair values below amortized cost were other-than-temporarily impaired. Accordingly, we recorded a non-cash impairment charge of approximately $2.0 million and $3.2 million as
an offset to interest and other income, net for the years ended December 31, 2006 and 2005, respectively, to write down the carrying value of these securities to fair value.

4.    Inventories

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



|                |  |                  |       
|--------------- |  | ---------------- | ------
|                |  | December 31,2006
|Raw materials   |  | $                | 3,469 
|Work in process |  |                  | 9,968 
|Finished goods  |  |                  | 2,438 
|                |  |                  |       
|Total           |  | $                | 15,875
|                |  |                  |       

Prior to approval of Ranexa for commercial sale in January 2006 by the FDA, all costs associated
with the production of Ranexa were expensed as R&D costs.

The total stock-based compensation expense capitalized to inventory was
approximately $0.4 million for the year ended December 31, 2006.

5.    Property and Equipment

Property and equipment are recorded at cost and consist of the following:



|                                               |  |                |         |   |      |   |         |  
|---------------------------------------------- |  | -------------- | ------- | - | ---- | - | ------- | -
|                                               |  | December 31,   |        
|                                               |  | 2006           |         |   | 2005 |  
|                                               |  | (in thousands) |        
|Machinery and equipment                        |  | $              | 29,049  |   |      | $ | 24,646  |  
|Furniture and fixtures                         |  |                | 2,939   |   |      |   | 2,429   |  
|Construction in progress                       |  |                | 1,521   |   |      |   | 3,292   |  
|Leasehold improvements                         |  |                | 18,311  |   |      |   | 11,687  |  
|                                               |  |                |         |   |      |   |         |  
|                                               |  |                | 51,820  |   |      |   | 42,054  |  
|Less accumulated depreciation and amortization |  |                | (27,901 | ) |      |   | (21,563 | )
|                                               |  |                |         |   |      |   |         |  
|                                               |  | $              | 23,919  |   |      | $ | 20,491  |  
|                                               |  |                |         |   |      |   |         |  

Depreciation expense was $4.8 million, $3.5 million and $3.6 million for 2006, 2005 and 2004,
respectively. Amortization expense for leasehold improvements was $1.5 million, $1.1 million and $1.0 million for 2006, 2005 and 2004, respectively.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



6.    Accrued Liabilities

Accrued liabilities consist of the following:



|                                        |  |                |        |      |   |       
|--------------------------------------- |  | -------------- | ------ | ---- | - | ------
|                                        |  | December 31,  
|                                        |  | 2006           |        | 2005
|                                        |  | (in thousands)
|Accrued interest                        |  | $              | 2,588  |      | $ | 3,195 
|Accrued marketing and promotional costs |  |                | 5,830  |      |   | 5,447 
|Accrued compensation                    |  |                | 16,936 |      |   | 12,680
|Accrued clinical trial costs            |  |                | 16,519 |      |   | 17,510
|Roche Palo Alto LLC milestone accrual   |  |                |       |      |   | 10,080
|Other                                   |  |                | 9,486  |      |   | 9,260 
|                                        |  |                |        |      |   |       
|                                        |  | $              | 51,359 |      | $ | 58,172
|                                        |  |                |        |      |   |       

7.    Commitments

Operating Leases

We have
noncancelable operating leases related to our facilities. Most of our lease agreements include renewal periods at our option. We recognize rent holiday periods and scheduled rent increases on a straight-line basis over the lease term beginning with
the date we take possession of the leased space for construction and other purposes. As of December 31, 2006, these leases expire between February 2008 and April 2016. One of the leases is secured by a $6.0 million irrevocable letter of credit.
As security for this letter of credit, we are obligated to maintain $6.0 million in compensating balances in deposit with the counterparty. Because the compensating balance is not restricted as to withdrawal, it is not classified as restricted cash
in our consolidated balance sheet.

In January 2006, we extended the lease on our Porter Drive buildings in Palo Alto, California. The
lease term was extended to April 2016 with an option to renew for nine years, and the lease provided for net rent reductions of $3.7 million over five years in return for the issuance of warrants to the landlord and the ground lessor to purchase an
aggregate total of 200,000 shares of our common stock at a price of $24.04. The warrant was valued using the Black-Scholes model, assuming a term of ten years, a risk-free interest rate of 4.4% and volatility of 61%. We are accounting for the value
of the warrant as non-cash rent expense over the life of the lease.

Rent expense for the years ended December 31, 2006, 2005, and
2004 was $13.3 million, $13.5 million and $12.9 million, respectively. As of December 31, 2006, minimum payments under operating lease arrangements were as follows (in thousands):



|           |  |   |       
|---------- |  | - | ------
|2007       |  | $ | 12,006
|2008       |  |   | 13,280
|2009       |  |   | 13,589
|2010       |  |   | 15,158
|2011       |  |   | 15,369
|Thereafter |  |   | 22,624
|           |  |   |       
|           |  | $ | 92,026
|           |  |   |       



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

7.    Commitments (Continued)



Manufacturing Obligations

We have entered into manufacturing supply arrangements, under which we have non-cancelable orders and minimum commitments related to the manufacturing of
Ranexa. Our minimum payments as of December 31, 2006 under these supply agreements were as follows (in thousands):



|     |  |   |       
|---- |  | - | ------
|2007 |  | $ | 8,278 
|2008 |  |   | 2,521 
|2009 |  |   | 1,251 
|     |  |   |       
|     |  | $ | 12,050
|     |  |   |       

8.    Convertible Subordinated Notes

Convertible subordinated notes consist of the following:



|                                                         |  |                |         |      |   |        
|-------------------------------------------------------- |  | -------------- | ------- | ---- | - | -------
|                                                         |  | December 31,  
|                                                         |  | 2006           |         | 2005
|                                                         |  | (in thousands)
|2.0% Senior Subordinated Convertible Debentures Due 2023 |  |                | 100,000 |      |   | 100,000
|2.75% Senior Subordinated Convertible Notes Due 2012     |  |                | 150,000 |      |   | 150,000
|3.25% Senior Subordinated Convertible Notes Due 2013     |  |                | 149,500 |      |   | 149,500
|                                                         |  |                |         |      |   |        
|                                                         |  | $              | 399,500 |      | $ | 399,500
|                                                         |  |                |         |      |   |        

2.0% Senior Subordinated Convertible Debentures Due 2023

In June 2003, we completed a private placement of $100.0 million aggregate principal amount of 2.0% senior subordinated convertible debentures due
May 16, 2023. The holders of the debentures, at their option, may require us to purchase all or a portion of their debentures on May 16, 2010, May 16, 2013 and May 16, 2018, in each case at a price equal to the principal
amount of the debentures to be purchased, plus accrued and unpaid interest, if any, to the purchase date. The debentures are unsecured and subordinated in right of payment to all existing and future senior debt, as defined in the indenture governing
the debentures, equal in right of payment to our future senior subordinated debt and senior in right of payment to our existing and future subordinated debt. We are required to pay interest semi-annually on May 16 and November 16 of each
year. The initial conversion rate of the debentures, which is subject to adjustment in certain circumstances, is 21.0172 shares of common stock per $1,000 principal amount of debentures, which is equivalent to an initial conversion price of $47.58
per share. We may, at our option, redeem all or a portion of the debentures in cash at any time at pre-determined prices from 101.143% to 100.000% of the face value of the debentures per $1,000 of principal amount, plus accrued and unpaid interest
to the date of redemption. We can elect to settle these debentures with shares of common stock or cash at our option.

At December 31,
2006, we have reserved 2,101,720 shares of common stock for issuance upon conversion of the debentures. We incurred issuance costs related to this private placement of approximately $3.4 million, which have been recorded as other assets and are
being amortized to interest expense ratably over the life of the debentures.

Holders may convert their debentures into shares of our
common stock only under any of the following circumstances: (i) during any calendar quarter if the sale price of our common stock, for at least 20 trading days



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8.    Convertible Subordinated Notes (Continued)



during the period of 30 consecutive trading days ending on the last trading day of the previous calendar quarter, is greater than or equal to 120% of the
conversion price per share of our common stock, (ii) during the five business-day period after any five consecutive trading-day period in which the trading price per debenture for each day of that period was less than 97% of the product of the
sale price of our common stock and the conversion rate on each such day, (iii) if the debentures have been called for redemption by us, or (iv) upon the occurrence of specified corporate transactions.

The fair value of our senior subordinated convertible debentures, based on the estimated market price of a market maker for the debentures at
December 31, 2006, was approximately $84.5 million.

2.75% Senior Subordinated Convertible Notes Due 2012

In May and June 2004, we sold $150.0 million aggregate principal amount of 2.75% senior subordinated convertible notes due 2012 through a private
placement to qualified institutional buyers in reliance on Rule 144A. The net proceeds to us were approximately $145.2 million, which was net of the initial purchasers discount of $4.5 million and approximately $0.3 million in legal,
accounting and printing expenses. Costs relating to the issuances of these notes were capitalized and are being amortized ratably over the term of the debt. The notes are unsecured and subordinated to all of our existing and future senior debt,
equal in right of payment with our existing and future senior subordinated debt, and senior in right of payment to our existing and future subordinated debt. We are required to pay interest semi-annually on May 16 and November 16 of each
year. The notes are convertible, at the option of the holder, at any time on or prior to maturity, into shares of our common stock. The notes are convertible at a conversion rate of 56.5475 shares of common stock per $1,000 principal amount of
notes, which is equal to an initial conversion price of approximately $17.68 per share. At December 31, 2006, we have reserved 8,482,125 shares of common stock for issuance upon conversion of the notes. We may redeem some or all of the notes
for cash at any time on or after May 20, 2009 at specified redemption prices, together with accrued and unpaid interest. A portion of the net proceeds from the offering were used to repurchase approximately $116.6 million principal amount of
our 4.75% convertible subordinated notes due 2007 and to fund the interest escrow account. As of December 31, 2006, we had approximately $2.1 million of restricted cash classified as current restricted cash in the accompanying consolidated
balance sheets. The restricted cash secures the next interest payment due on the notes. We can elect to settle these notes with shares of common stock or cash at our option.

The fair value of our senior subordinated convertible notes, based on the market price for the notes at December 31, 2006, was approximately $101.1
million.

3.25% Senior Subordinated Convertible Notes Due 2013

In July 2005, we sold $149.5 million aggregate principal amount of 3.25% senior subordinated convertible notes due 2013. The net proceeds to us were
approximately $144.7 million, which was net of the initial purchasers discount of $4.5 million and approximately $0.3 million in legal, accounting and printing expenses. Costs relating to the issuances of these notes were capitalized and are
being amortized ratably over the term of the debt. The notes are unsecured and subordinated to all of our existing and future senior debt, equal in right of payment with our existing and future senior subordinated debt, and senior in right of
payment to our existing and future subordinated debt. We are required to pay interest semi-annually on February 16 and August 16 of each year. We used approximately $14.2 million of the net proceeds from the convertible note offering to
fund an escrow account to provide security for the first six scheduled interest payments on the notes. As of December 31, 2006, approximately $4.9 million is classified as current restricted cash and approximately $4.5 million is



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

8.    Convertible Subordinated Notes (Continued)



classified as long-term restricted cash in the accompanying consolidated balance sheets. The restricted cash secures the next four interest payments due on
the notes. The notes are convertible, at the option of the holder, at any time prior to maturity, at a conversion rate of 37.037 shares per $1,000 principal amount of notes, which is equal to a conversion price of approximately $27.00 per share,
subject to adjustment. At December 31, 2006, we have reserved 5,537,032 shares of common stock for issuance upon conversion of the notes. We may redeem some or all of the notes for cash at any time on or after August 20, 2010 at specified
redemption prices, together with accrued and unpaid interest.



The
fair value of our senior subordinated convertible notes, based on the market price for the notes at December 31, 2006, was approximately $88.2 million.

9.    Related Party Transactions

Loans to non-executive officers and employees aggregating $0.3
million and $0.4 million were outstanding at December 31, 2006 and 2005, respectively. These loans bear interest at 3.65% to 5.07% per annum. The amounts are repayable on various dates through February 2011. Loans outstanding at
December 31, 2006 are secured by secondary deeds of trust on real estate.

10.    Contingencies

We and certain of our officers and directors are named as defendants in a purported securities class action lawsuit filed in August 2003 in the U.S.
District Court for the Northern District of California captioned Crossen v. CV Therapeutics, Inc., et al. The lawsuit was brought on behalf of a purported class of purchasers of our securities, and seeks unspecified damages. As is typical in
this type of litigation, several other purported securities class action lawsuits containing substantially similar allegations were filed against the defendants. In November 2003, the court appointed a lead plaintiff, and in December 2003, the court
consolidated all of the securities class actions filed to date into a single action captioned In re CV Therapeutics, Inc. Securities Litigation. In January 2004, the lead plaintiff filed a consolidated complaint. We and the other named
defendants filed motions to dismiss the consolidated complaint in March 2004. In August 2004, these motions were granted in part and denied in part. The court granted the motions to dismiss by two individual defendants, dismissing both individuals
from the action with prejudice, but denied the motions to dismiss by us and the two other individual defendants. After the motions to dismiss were decided, this action entered the discovery phase. In October 2006, we reached a preliminary agreement
to settle this action. Under the terms of the preliminary agreement, our insurers will pay an aggregate of $13.5 million to settle all claims and to pay the court-approved fees of plaintiffs counsel. The defendants will receive a complete
release of all claims and expressly deny any wrongdoing. The preliminary agreement is subject to standard conditions, including final court approval. There can be no assurance that final court approval will be obtained. Separately, we are
participating in dispute resolution proceedings beginning in February 2007 with an insurer over whether or not we will reimburse that insurer for a portion of the insurers contribution to the settlement. The amount of our reimbursement will
not exceed $2.25 million, and may be a lesser amount or zero. We do not believe that an estimated loss from this contingency is both probable or estimable. Therefore in accordance with FAS 5 Accounting for Contingencies, we have
not recorded an associated liability.

In addition, certain of our officers and directors have been named as defendants in a derivative
lawsuit filed in August 2003 in California Superior Court, Santa Clara County, captioned Kangos v. Lange, et al., which named CV Therapeutics as a nominal defendant. The plaintiff in this action is one of our stockholders who



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10.    Contingencies (Continued)



sought to bring derivative claims on behalf of CV Therapeutics against the defendants. The lawsuit alleged breaches of fiduciary duty and related claims
based on purportedly misleading statements concerning our new drug application for Ranexa. In November 2006, we reached a preliminary agreement to settle this action. Under the terms of the preliminary agreement, we agreed to implement certain
non-material corporate governance changes, and our insurers will pay the court-approved fees of plaintiffs counsel. The defendants will receive a complete release of all claims and expressly deny any wrongdoing. The preliminary agreement is
subject to standard conditions, including final court approval. There can be no assurance that final court approval will be obtained.

As
with any litigation proceeding, we cannot predict with certainty the eventual outcome of pending litigation. Accordingly, no loss accrual has been established for these lawsuits. In the event of an adverse outcome, our business could be harmed.

11.    Stockholders Equity

Preferred Stock

Of the 5,000,000 shares of preferred stock that we are authorized to issue,
1,800,000 shares are designated Series A junior participating preferred stock and are reserved for issuance pursuant to our Stockholders Rights Plan. Our board of directors may increase the number of shares designated as Series A junior
participating preferred stock without further stockholder action. Under our Restated Certificate of Incorporation, our board of directors is authorized without further stockholder action to provide for the issuance of up to 5,000,000 shares of our
preferred stock, in one or more series, with such voting powers, full or limited, and with such designations, preferences and relative participating, optional or other special rights, and qualifications, limitations or restrictions thereof, as shall
be stated in the resolution or resolutions providing for the issue of a series of such stock adopted, at any time or from time to time, by our board of directors. The rights of the holders of each series of the preferred stock will be subordinate to
those of our general creditors.

Significant Equity Transactions

In July 2003, we entered into a new financing arrangement with Acqua Wellington to purchase our common stock. Under this purchase agreement, we had the
ability to sell up to $100.0 million of our common stock, or 5,686,324 shares of our common stock, whichever occurred first, to Acqua Wellington through November 2005. In February 2005, the purchase agreement with Acqua Wellington automatically
terminated when we reached the $100.0 million limit of this financing arrangement. We issued an aggregate of 5,442,932 shares of common stock to Acqua Wellington for aggregate gross proceeds of $100.0 million under this arrangement.

In February 2004, we entered into a Common Stock Purchase Agreement with Mainfield Enterprises, Inc., pursuant to which we could sell up to 1,609,186
shares of our common stock to Mainfield. In March 2004, we sold 1,609,186 shares of common stock to Mainfield for net proceeds of $24.5 million.

In July 2005, we completed a public equity financing with gross equity proceeds of $180.4 million. We sold 8,350,000 shares of common stock at a price of $21.60 per share for net proceeds of approximately $170.2 million.

In April 2006, we entered into a common stock purchase agreement with Azimuth Opportunity Ltd. (Azimuth), which provides that, upon the terms and subject
to the conditions set forth in the purchase



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11.    Stockholders Equity (Continued)



agreement, Azimuth is committed to purchase up to $200.0 million of our common stock, or 9,010,404 shares, whichever occurs first, at a discount as provided
under the purchase agreement. In 2006, Azimuth purchased 2,744,118 shares for net proceeds of approximately $39.8 million under the purchase agreement. Azimuth is not required to purchase our common stock when the price of our common stock is below
$10 per share.

In August 2006, we completed a public offering of common stock and sold 10,350,000 shares of common stock at a price of
$9.50 for net proceeds of $92.2 million.

Warrants

In January 2006, we issued warrants to purchase an aggregate total of 200,000 shares of our common stock at a price of $24.04 in connection with a lease arrangement. Each warrant is exercisable, in whole or in part,
until the later of (i) the tenth anniversary of January 19, 2006 if (but only if) at any time prior to the fifth anniversary of January 19, 2006 the closing price of our common stock on the Nasdaq Global Market has not been more than
$48.08 for each trading day during any period of twenty consecutive trading days or (ii) the fifth anniversary of January 19, 2006.

In July 2003, we issued a fully vested, non-forfeitable warrant, with a five-year term, to purchase 200,000 shares of our common stock at an exercise price of $32.93 per share in connection with a commercialization agreement. The warrant is
exercisable until July 2008.

Employee Stock Purchase Plan

Our Employee Stock Purchase Plan (Purchase Plan) currently provides that the number of shares of common stock reserved for issuance under the Purchase
Plan shall, on the day after each annual meeting of the Companys stockholders for three years beginning with the annual meeting in 2006 and continuing through and including the annual meeting in 2008, be increased automatically by the lesser
of (a) 500,000 shares of common stock or (b) a number of shares of common stock as determined by the Board. Under the terms of the Purchase Plan, eligible employees may purchase shares of our common stock at quarterly intervals through
their periodic payroll deductions, which may not exceed 15% of any employees compensation and may not exceed a value of $25,000 in any calendar year, at a price not less than the lesser of an amount equal to 85% of the fair market value of our
common stock at the beginning of the offering period or an amount equal to 85% of the fair market value of our common stock on each purchase date. Employees may end their participation in the offering at any time during the offering period, and
participation ends automatically on termination of employment with us. The maximum aggregate number of shares that may be purchased by all eligible employees on any quarterly purchase date is 125,000 shares of our common stock. If the aggregate
purchase of shares on any quarterly purchase date would exceed such maximum aggregate number, the Board (or a duly authorized committee of the Board) shall make a pro rata allocation of the shares available to all eligible employees on such purchase
date in as nearly a uniform manner as shall be practicable and as it shall deem to be equitable. We have reserved 314,349 shares for issuance under the Purchase Plan.

Stock Option Plans

We reserved 345,000 shares of common stock for issuance under our amended and
restated 1992 Stock Option Plan, which provided for common stock options to be granted to employees, consultants, officers, and directors. No additional grants will be made under this plan.



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We reserved 1,800,000 shares of common stock for issuance under our amended and restated 1994 Equity
Incentive Plan which provided for common stock options to be granted to employees of and consultants to us and our affiliates. No additional grants will be made under this plan.

Non-Employee Directors Stock Option Plan

We have reserved an aggregate of 365,300 shares of our common stock for issuance under our Non-Employee Directors Stock Option Plan (Directors Plan) to our directors who are not otherwise an employee of,
or consultant of ours or any affiliate of ours. Options granted under our Directors Plan expire no later than 10 years from the date of grant. The exercise price of each option is the fair market value of the stock subject to such option
on the date such option is granted. Following an August 2000 amendment to the Directors Plan approved by our board of directors, generally (i) options covered by initial grants to new members of our board of directors vest in increments
over a period of three years from the date of grant for new directors and (ii) options covered by replenishment grants to existing members of our board of directors vest in increments over a period of one year from the date of grant for
existing directors. In the event of a change of control of the Company, each outstanding option under the Directors Plan shall, automatically and without further action by us, become fully vested and exercisable with respect to all
of the shares of common stock subject thereto no later than five (5) business days before the closing of such change of control event. Our Directors Plan was terminated by our stockholders in May 2005, and no additional grants will be
made under the Directors Plan. Following approval by our board of directors and stockholders in April and May 2005, respectively, up to 20,335 shares of common stock previously reserved and available for issuance under the Directors Plan
as of March 31, 2005 and all shares of common stock that would have again become available for issuance under the Directors Plan in the future in connection with the expiration or termination of options granted before March 31, 2005
under the Directors Plan will be available for issuance under our 2000 Equity Incentive Plan.

2000 Equity Incentive Plan

As amended and restated by our stockholders effective May 26, 2005, our 2000 Equity Incentive Plan authorizes the issuance of a
number of shares of common stock equal to the sum of (i) 4,450,000 shares of common stock, (ii) that number of shares of common stock available for issuance as of March 29, 2004 under our 2000 Nonstatutory Incentive Plan (Nonstatutory
Plan), which was terminated in 2004 (not to exceed 404,685 shares of common stock), and all shares of common stock that would have again become available for issuance under the Nonstatutory Plan in the future in connection with the expiration or
termination of options granted before March 29, 2004 under the Nonstatutory Plan, and (iii) that number of shares of common stock available for issuance as of March 31, 2005 under the Directors Plan, which was terminated by our
stockholders in May 2005 (not to exceed 20,335 shares of common stock), and all shares of common stock that would have again become available for issuance under the Directors Plan in the future in connection with the expiration or termination
of options granted before March 31, 2005 under the Directors Plan.

The 2000 Equity Incentive Plan provides for the grant of
stock awards consisting of incentive stock options, nonstatutory stock options, restricted stock and/or restricted stock units, and stock appreciation rights. Options granted under the 2000 Equity Incentive Plan expire no later than 10 years from
the date of grant. The exercise price of an option shall be not less than 100% of the fair market value of the stock subject to the option on the date the option is granted, unless granted to a person who owns 10% or more of the fair market value of
the stock of the company and its affiliates, in which case the exercise price shall be not less than 110% of the fair market value of the stock subject to the option on the date of grant. The vesting provisions of individual options may vary but in
each case will provide for vesting of at least 20% of the total number of shares subject to the option



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11.    Stockholders Equity (Continued)



per year. Restricted stock and/or restricted stock units granted under the 2000 Equity Incentive Plan shall have such terms and conditions as are approved by
the board of directors. Grants of restricted stock and/or restricted stock units may have a purchase price or no purchase price, as determined by the board of directors, and shall be subject to a vesting schedule or forfeiture or share repurchase
option as determined by the board of directors. Stock appreciation rights granted under the 2000 Equity Incentive Plan shall have such terms and conditions as are approved by the board of directors. Grants of stock appreciation rights shall have a
term and exercise price as set by the board of directors, and a participant exercising a stock appreciation right shall receive consideration as determined by the board of directors. In the event of a change of control of the Company,
each outstanding stock award under the 2000 Equity Incentive Plan shall, automatically and without further action by us, become fully vested and exercisable with respect to all of the shares of common stock subject thereto no later than
five business days before the closing of such change of control event.

2000 Nonstatutory Incentive Plan

We have reserved an aggregate of 2,665,216 shares of our common stock for issuance under our 2000 Nonstatutory Incentive Plan to our employees and
consultants and those of our affiliates. The Nonstatutory Plan allowed for the grant of nonstatutory stock options. Options granted under our Nonstatutory Plan expire no later than 10 years from the date of grant. The exercise price of each
nonstatutory option is not less than 100% of the fair market value of the stock subject to the option on the date the option is granted. The vesting provisions of individual options may vary but in each case provided for vesting of at least 20% of
the total number of shares subject to the option per year. In the event of a change of control of the Company, each outstanding option under the Incentive Plan shall, automatically and without further action by us, become fully vested
and exercisable with respect to all of the shares of common stock subject thereto no later than five (5) business days before the closing of such change of control event. Our Nonstatutory Plan was terminated by our stockholders in May 2004, and
no additional grants will be made under the Nonstatutory Plan. Following approval by our board of directors and stockholders in April and May 2004, respectively, up to 404,685 shares of common stock previously reserved and available for issuance
under the Nonstatutory Plan as of March 29, 2004 and all shares of common stock that would have again become available for issuance under the Nonstatutory Plan in the future in connection with the expiration or termination of options granted
before March 29, 2004 under the Nonstatutory Plan will be available for issuance under our 2000 Equity Incentive Plan.

2004
Employee Commencement Incentive Plan

In December 2004, the board of directors approved the 2004 Employee Commencement Incentive Plan
(Commencement Plan), which provides for the grant of nonstatutory stock options, restricted stock awards and restricted stock units, referred to collectively as awards. The awards granted pursuant to the Commencement Plan are intended to be
stand-alone inducement awards pursuant to NASDAQ Marketplace Rule 4350(i)(1)(A)(iv). The Commencement Plan is not subject to the approval of the our stockholders. Any employee who has not previously been an employee or director of the Company or an
affiliate, or following a bona fide period of non-employment by the Company or an affiliate, is eligible to participate in the Commencement Plan only if he or she is granted an award in connection with his or her commencement of employment with the
Company or an affiliate and such grant is an inducement material to his or her entering into employment with the Company or an affiliate. The board of directors administers the Commencement Plan. Subject to the provisions of the Commencement Plan,
the board of directors has the power to construe and interpret the Commencement Plan and to determine the persons to whom and the dates on which awards will be granted, the number of shares of common stock to be subject to each award, the time or
times during the term of each award within which all or a portion of such award may be exercised, the exercise price, the type of consideration and other terms of the



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award. Awards may be granted under the Commencement Plan upon the approval of a majority of the boards independent directors or upon the approval of
the compensation committee of the board of directors. Prior to or concurrently with the grant of any awards under the Commencement Plan, our board of directors reserves for issuance pursuant to the Commencement Plan the number of shares of common
stock as may be necessary in order to accommodate such awards. Each award granted under the Commencement Plan shall be in such form and shall contain such terms and conditions as the board of directors shall deem appropriate. The provisions of
separate awards need not be identical. As of December 31, 2006, we have reserved 1,717,945 shares of our common stock for issuance pursuant to outstanding awards under the Commencement Plan.

Stockholders Rights Plan

In
February 1999, we announced that the board of directors approved the adoption of a Stockholders Rights Plan under which all stockholders of record as of February 23, 1999 received and all stockholders receiving newly issued shares after that
date have or will receive rights to purchase shares of a new series of preferred stock.

This plan is designed to enable all company
stockholders to realize the full value of their investment and to provide for fair and equal treatment for all stockholders in the event that an unsolicited attempt is made to acquire the company. The adoption of this plan is intended as a means to
guard against abusive takeover tactics and was not in response to any particular proposal.

The rights were distributed as a non-taxable
dividend and will expire on February 1, 2009, unless such date is extended or the rights are earlier exchanged or redeemed as provided in the plan. The rights will be exercisable only if a person or group acquires 20% or more of the
companys common stock or announces a tender offer of the companys common stock. If a person acquires 20% or more of the companys stock, all rightsholders except the buyer will be entitled to acquire the companys common stock
at discount. The effect will be to discourage acquisitions of more than 20% of the companys common stock without negotiations with the board of directors.

In July 2000, the board of directors approved certain amendments to this plan, including lowering the trigger percentage from 20% to 15%, and raising the exercise price for each right from $35.00 to $500.00.

12.    Stock-Based Compensation

We have a stock-based compensation program that provides our Board of Directors broad discretion in creating employee equity incentives. This program includes incentive and non-statutory stock options, RSUs, SARs and
an employee stock purchase plan. The following table presents the total stock-based employee compensation expense resulting from stock-based compensation included in our consolidated statements of operations (in thousands):



|                                    |  |                        |        |      |   |       |  |   |  
|----------------------------------- |  | ---------------------- | ------ | ---- | - | ----- |  | - | -
|                                    |  | Year endedDecember 31,
|                                    |  | 2006                   |        | 2005 |   | 2004 
|Research and development            |  | $                      | 7,656  |      | $ | 1,280 |  | $ | 
|Selling, general and administrative |  |                        | 16,468 |      |   | 2,205 |  |   | 
|                                    |  |                        |        |      |   |       |  |   |  
|Total                               |  | $                      | 24,124 |      | $ | 3,485 |  | $ | 
|                                    |  |                        |        |      |   |       |  |   |  

Stock-based compensation related to cost of sales was less than $0.1 million for the year ended
December 31, 2006.



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12.    Stock-Based Compensation (Continued)



As of December 31, 2006, we had 10,690,528 shares of common stock reserved for future issuance
under our stock compensation plans and Purchase Plan. Cash received from option exercises and purchases under our employee stock purchase plan for the year ended December 31, 2006, 2005, and 2004 were $6.4 million, $7.2 million and $3.1 million
respectively.

We also recognized compensation for options, RSUs and SARs granted to consultants in accordance with EITF 96-18,
Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services.

Stock Option Activity

Stock options generally vest over four years and expire no later than ten
years from the grant date. Stock options are generally granted with an exercise price equal to or above the market value of a share of common stock on the date of grant. For the years ended December 31, 2006, approximately $12.1 million of
compensation expense related to stock options was recorded.

The following table summarizes stock option activity for the years ended
December 31, 2006, 2005 and 2004 under all option plans:



|                                          |  |                                |   |  |                                |       |                                         |            |                                         |   |      
|----------------------------------------- |  | ------------------------------ | - |  | ------------------------------ | ----- | --------------------------------------- | ---------- | --------------------------------------- | - | -----
|                                          |  | Number ofShares (in thousands) |   |  | Weighted-Average ExercisePrice |       | WeightedAverageRemainingContractualTerm |            | AggregateIntrinsic Value (in thousands)
|Options outstanding at December 31, 2003: |  | 6,756                          |   |  | $                              | 28.12 |                                         |            |                                         |   |      
|Granted                                   |  | 384                            |   |  |                                | 14.86 |                                         |            |                                         |   |      
|Exercised                                 |  | (120                           | ) |  |                                | 8.39  |                                         |            |                                         |   |      
|Forfeited or expired                      |  | (766                           | ) |  |                                | 33.20 |                                         |            |                                         |   |      
|                                          |  |                                |   |  |                                |       |                                         |            |                                         |   |      
|Balance at December 31, 2004:             |  | 6,254                          |   |  | $                              | 27.04 |                                         |            |                                         |   |      
|Granted                                   |  | 1,868                          |   |  |                                | 23.39 |                                         |            |                                         |   |      
|Exercised                                 |  | (286                           | ) |  |                                | 12.86 |                                         |            |                                         |   |      
|Forfeited or expired                      |  | (172                           | ) |  |                                | 24.88 |                                         |            |                                         |   |      
|                                          |  |                                |   |  |                                |       |                                         |            |                                         |   |      
|Balance at December 31, 2005              |  | 7,664                          |   |  | $                              | 26.73 |                                         |            |                                         |   |      
|Granted                                   |  | 991                            |   |  |                                | 15.88 |                                         |            |                                         |   |      
|Exercised                                 |  | (95                            | ) |  |                                | 8.74  |                                         |            |                                         |   |      
|Forfeited or expired                      |  | (541                           | ) |  |                                | 25.26 |                                         |            |                                         |   |      
|                                          |  |                                |   |  |                                |       |                                         |            |                                         |   |      
|Options outstanding at December 31, 2006  |  | 8,019                          |   |  | $                              | 25.71 |                                         | 6.29 years |                                         | $ | 4,294
|                                          |  |                                |   |  |                                |       |                                         |            |                                         |   |      
|Exercisable at December 31, 2006          |  | 5,658                          |   |  | $                              | 28.47 |                                         | 5.31 years |                                         | $ | 3,082
|                                          |  |                                |   |  |                                |       |                                         |            |                                         |   |      

The weighted average grant-date fair value of options granted during the years ended
December 31, 2006, 2005, and 2004 were $9.61, $13.42 and $8.30, respectively. The total intrinsic value of options exercised for the years ended December 31, 2006, 2005 and 2004 was $0.5 million, $3.4 million and $1.8 million,
respectively.

The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between the fair
market value of our common stock, as defined in our stock compensation plans, on December 29, 2006 (the last trading day of 2006) of $14.04 and the exercise price of options, times the number of shares subject to such options), which would have
been received by the option holders had all option holders exercised their



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12.    Stock-Based Compensation (Continued)



options as of that date. The total number of in-the-money options exercisable on December 31, 2006 was approximately 1.2 million. As of
December 31, 2006, there was $15.8 million of total unrecognized compensation expense related to unvested stock options. This expense is expected to be recognized over a weighted-average period of approximately 1.4 years.

Compensation expense related to non-employees for stock options was $0.4 million for year ended December 31, 2006.

Employee Stock Purchase Plan

Under
the terms of the ESPP, eligible employees may purchase shares of our common stock at quarterly intervals through their periodic payroll deductions, which may not exceed 15% of any employees compensation and may not exceed a value of $25,000 in
any calendar year, at a price not less than the lesser of an amount equal to 85% of the fair market value of our common stock at the beginning of the offering period or an amount equal to 85% of the fair market value of our common stock on each
purchase date. For the year ended December 31, 2006, we recorded approximately $2.4 million of compensation expense related to the ESPP. During the years ended December 31, 2006, 2005 and 2004, 523,635, 274,732 and 177,311 shares,
respectively, were purchased under the ESPP.

Restricted Stock Units

Our stock compensation plan permits the granting of restricted stock and/or RSUs. We have granted RSUs to eligible employees, including executives and to
certain consultants, at fair market value at the date of grant. Our RSUs grants generally vest monthly over a period of 48 months and are settled and issued on specific distribution dates. RSUs are payable in shares of our common stock upon vesting
and have a purchase price of zero.

Some of the RSUs provide for immediate acceleration of vesting in the event that we achieve a certain
annualized product revenue target over four consecutive quarters. As of December 31, 2006, the remaining unrecognized compensation costs related to these specific nonvested RSUs was $5.1 million, which is expected to be recognized over a period
of two years. At the point that we can estimate the probability of reaching this revenue target, the remaining unrecognized compensation costs will be recognized over a shorter period of time, which will result in higher expenses due to the
accelerated vesting. As of December 31, 2006, we cannot estimate the likelihood of achieving this target and have not recorded any accelerated compensation expense related to the performance-based component of the award.



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12.    Stock-Based Compensation (Continued)



The following table presents a summary of the status of our nonvested RSUs for the years ended
December 31, 2006 and 2005:



|                              |  |                                 |   |  |                                        |      
|----------------------------- |  | ------------------------------- | - |  | -------------------------------------- | -----
|Nonvested RSUs                |  | Outstanding RSUs (in thousands) |   |  | Weighted-Average Grant-Date Fair Value
|Balance at December 31, 2004: |  |                                |   |  | $                                      |     
|Granted                       |  | 921                             |   |  |                                        | 23.93
|Vested                        |  | (142                            | ) |  |                                        | 23.32
|Forfeited                     |  | (8                              | ) |  |                                        | 23.00
|                              |  |                                 |   |  |                                        |      
|Balance at December 31, 2005: |  | 771                             |   |  |                                        | 24.05
|Granted                       |  | 619                             |   |  |                                        | 21.12
|Vested                        |  | (306                            | ) |  |                                        | 24.36
|Forfeited                     |  | (44                             | ) |  |                                        | 24.89
|                              |  |                                 |   |  |                                        |      
|Balance at December 31, 2006  |  | 1,040                           |   |  | $                                      | 22.08
|                              |  |                                 |   |  |                                        |      

As of December 31, 2006, there was approximately $23.0 million of total unrecognized
compensation cost related to all nonvested RSUs granted under our stock compensation plans. That cost is expected to be recognized over a period of 2.6 years. Compensation expense related to RSUs was $7.5 million for the year ended December 31,
2006. For the year ended December 31, 2005, compensation expense related to RSUs was $3.4 million. At December 31, 2006, we had 1,317,193 RSUs outstanding, of which 277,487 are vested but unissued.

Compensation expense related to non-employees for RSUs was $0.2 million for year ended December 31, 2006.

Stock Appreciation Rights

During
2005, we granted 950,000 SARs to certain executives. The SARs generally vest annually over four years and are automatically exercised upon each vesting date. The SAR base value is a predetermined strike price of $26.45. Under the original SAR terms,
during 2005, when an award vested, employees received compensation equal to the amount by which the volume weighted average market price of the shares covered by the SAR exceeded the SAR base value for each SAR vested. In January 2006, the board of
directors amended the terms of the SARs. For the period of 2006 through 2008 covered by the amended SARs, in addition to receiving compensation equal to the amount, if any, by which the volume weighted average market price of the shares covered by
the SAR exceeds the SAR base value for each SAR vested for the current year, for that current year the employee will also receive compensation, if any, equal to the amount(s), if any, settled and received in prior years, including 2005. We expect to
settle all amounts due under the SARs, if any, using shares of our common stock. As of December 31, 2006, a total of 237,500 SARs were vested. As of December 31, 2006, there was approximately $2.5 million of total unrecognized compensation
cost related to nonvested SARs. That cost is expected to be recognized over a period of 2 years. We recorded $2.2 million of compensation expense related to these SARs in the year ended December 31, 2006. As of December 31, 2006 payments
to date have been less than $0.1 million related to the 2005 SAR grants.

Compensation expense related to non-employees for SARs was less
than $0.1 million for the year ended December 31, 2006.



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12.    Stock-Based Compensation (Continued)



Adoption of FAS 123R

On January 1, 2006, we adopted the fair value recognition provisions of FAS 123(R), Share-Based Payment, (FAS123R) which requires
the measurement and recognition of compensation expense at fair value for all share-based payment awards made to employees and directors. We adopted FAS 123R using the modified-prospective transition method. Under that transition method,
compensation expense recognized in the year ended December 31, 2006 includes (a) compensation expense for share-based payment awards granted prior to, but not yet vested as of January 1, 2006, based on the grant-date fair value
estimated in accordance with the pro forma provisions of FAS 123 and (b) compensation expense for the share-based payment awards granted subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the
provisions of FAS 123R.

Prior to the adoption of FAS 123R, we presented deferred compensation, which represented the value of RSUs granted
to employees as of the grant date remaining to be amortized as the services are performed, as a separate component of stockholders equity. Upon the adoption of FAS 123R, we reclassified the balance in deferred compensation (which totaled
approximately $18.2 million) to common stock on our consolidated balance sheet. We have elected to use the simplified method to calculate the beginning pool of excess tax benefits as described in FASB FSP 123(R)-3.

Pro Forma Information for Periods Prior to Adoption of FAS 123R

Prior to January 1, 2006, we accounted for share-based payment awards under the recognition and measurement provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees(APB 25). The following table illustrates the effect on net loss and net loss per share if we had applied the fair value recognition provisions of FAS 123 stock-based compensation for the year ended December 31, 2005 and
December 31, 2004 (in thousands, except per share amounts):



|                                                                                                                    |  |      |          |   |      |   |          |  
|------------------------------------------------------------------------------------------------------------------- |  | ---- | -------- | - | ---- | - | -------- | -
|                                                                                                                    |  | 2005 |          |   | 2004 |  
|Net loss:                                                                                                           |  |      |          |   |      |   |          |  
|As reported                                                                                                         |  | $    | (227,995 | ) |      | $ | (155,083 | )
|Add: Stock-based employee compensation (related to RSUs and SARs) included in reported net loss                     |  |      | 3,485    |   |      |   |         |  
|Deduct: Total stock-based employee compensation expense determined under the fair value based method for all awards |  |      | (21,286  | ) |      |   | (15,338  | )
|                                                                                                                    |  |      |          |   |      |   |          |  
|Pro forma net loss                                                                                                  |  | $    | (245,796 | ) |      | $ | (170,421 | )
|                                                                                                                    |  |      |          |   |      |   |          |  
|Net loss per share basic and diluted:                                                                               |  |      |          |   |      |   |          |  
|As reported                                                                                                         |  | $    | (5.66    | ) |      | $ | (4.90    | )
|                                                                                                                    |  |      |          |   |      |   |          |  
|Pro forma                                                                                                           |  | $    | (6.10    | ) |      | $ | (5.38    | )
|                                                                                                                    |  |      |          |   |      |   |          |  



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CV THERAPEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

12.    Stock-Based Compensation (Continued)



Valuation Assumptions

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



|                        |  |      |   |  |      |   |  |      |  
|----------------------- |  | ---- | - |  | ---- | - |  | ---- | -
|                        |  | 2006 |   |  | 2005 |   |  | 2004 |  
|Expected life (years)   |  | 6.2  |   |  | 5.4  |   |  | 5.0  |  
|Risk-free interest rate |  | 4.7  | % |  | 4.1  | % |  | 3.5  | %
|Volatility              |  | 60   | % |  | 61   | % |  | 65   | %

The expected term of options granted is derived from historical data on employee exercise and
post-vesting employment termination behavior. The risk-free rate for periods within the contractual life of the option is based on the yield at the time of grant of a U.S. Treasury security. Expected volatility is based on both the implied
volatilities from traded options on our common stock and historical volatility on our common stock.

The fair value of awards issued under
the ESPP is measured using assumptions similar to those used for stock options, except that the term of the award is 1.1 years. We value the RSUs at the market price of our common stock on the date of the award. Under APB 25, compensation related to
SARs was measured at the end of each period as the amount by which the volume weighted average market price of the shares covered by the SAR exceeds the SAR base value (the predetermined strike price of $26.45). Changes in the SAR value were
reflected as an adjustment of compensation expense in the periods in which the changes occurred. Under FAS 123R, compensation expense related to SARs is measured at the grant date fair value using an option pricing model, using assumptions similar
to those used for employee stock options. Any incremental fair value resulting from modifications of the SARs is also measured at fair value and amortized over the remaining service period for the award.

The Black-Scholes option valuation model requires the input of highly subjective assumptions, including the expected life of the stock-based award and
stock price volatility. The assumptions listed above represent managements best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if other assumptions had been used, our
recorded and pro forma stock-based compensation expense could have been materially different.

Expense Recognition

For options granted prior to January 1, 2006, and valued in accordance with FAS 123, we used the accelerated method for expense attribution and we
recognized option forfeitures as they occurred as allowed by FAS 123. For options granted after January 1, 2006, and valued in accordance with FAS 123R, we used the straight-line method for expense attribution, and we estimate forfeitures and
only recognize expense for those shares expected to vest. Estimates of pre-vesting option forfeitures are based on our historical forfeiture experience. We will adjust our estimate of forfeitures over the requisite service period based on the extent
to which actual forfeitures differ, or are expected to differ, from such estimates. Changes in estimated forfeitures will be recognized through a cumulative catch-up adjustment in the period of change and will also impact the amount of compensation
expense to be recognized in future periods. Our annualized estimated forfeiture rate is approximately 7%. If our actual forfeiture rate is materially different from our estimate, the share-based compensation expense could be materially different.

We recognize the stock compensation expense for RSUs, using the straight-line method, over the period the services are performed, which is
generally 48 months. We recognize stock compensation expense for SARs using



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CV THERAPEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

12.    Stock-Based Compensation (Continued)



the accelerated attribution method over the period the related services were performed, which is generally 48 months.

13.    Income Taxes

Our net
loss includes the following components (in thousands):



|         |  |                         |          |   |      |   |          |      |  |   |          |  
|-------- |  | ----------------------- | -------- | - | ---- | - | -------- | ---- |  | - | -------- | -
|         |  | Year ended December 31, |         
|         |  | 2006                    |          |   | 2005 |   |          | 2004 | 
|Domestic |  | $                       | (274,428 | ) |      | $ | (228,373 | )    |  | $ | (155,173 | )
|Foreign  |  |                         | 108      |   |      |   | 378      |      |  |   | 90       |  
|         |  |                         |          |   |      |   |          |      |  |   |          |  
|Total    |  | $                       | (274,320 | ) |      | $ | (227,995 | )    |  | $ | (155,083 | )
|         |  |                         |          |   |      |   |          |      |  |   |          |  

A reconciliation of income taxes at the statutory federal income tax rate to net income taxes
included in the accompanying statements of operation is as follows (in thousands):



|                                           |  |                         |         |   |      |   |         |      |  |   |         |  
|------------------------------------------ |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                           |  | Year ended December 31, |        
|                                           |  | 2006                    |         |   | 2005 |   |         | 2004 | 
|U.S. federal tax benefit at statutory rate |  | $                       | (93,269 | ) |      | $ | (77,518 | )    |  | $ | (52,759 | )
|Unutilized net operating losses            |  |                         | 93,579  |   |      |   | 77,480  |      |  |   | 53,089  |  
|Stock-based compensation                   |  |                         | (614    | ) |      |   | (167    | )    |  |   | (441    | )
|Other                                      |  |                         | 304     |   |      |   | 205     |      |  |   | 111     |  
|                                           |  |                         |         |   |      |   |         |      |  |   |         |  
|Total                                      |  | $                       |        |   |      | $ |        |      |  | $ |        |  
|                                           |  |                         |         |   |      |   |         |      |  |   |         |  

Deferred income taxes reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the amount used for income tax purposes. Significant components of our deferred tax assets as of December 31, 2006 and 2005 are as follows (in thousands):



|                                              |  |      |          |   |      |   |          |  
|--------------------------------------------- |  | ---- | -------- | - | ---- | - | -------- | -
|                                              |  | 2006 |          |   | 2005 |  
|Deferred tax assets:                          |  |      |          |   |      |   |          |  
|Net operating loss carryforwards              |  | $    | 393,180  |   |      | $ | 299,501  |  
|Research and other tax credit carryforwards   |  |      | 11,208   |   |      |   | 10,246   |  
|Non deductible accrued expenses               |  |      | 27,621   |   |      |   | 18,392   |  
|Capitalized research and development expenses |  |      | 8,648    |   |      |   | 10,411   |  
|Stock-based compensation expense              |  |      | 9,668    |   |      |   |         |  
|                                              |  |      |          |   |      |   |          |  
|Total deferred tax assets                     |  |      | 450,325  |   |      |   | 338,550  |  
|Less valuation allowance                      |  |      | (450,466 | ) |      |   | (338,565 | )
|                                              |  |      |          |   |      |   |          |  
|Subtotal                                      |  |      | (141     | ) |      |   | (15      | )
|Deferred tax liabilities:                     |  |      |          |   |      |   |          |  
|Unrealized gains on investments               |  |      | 141      |   |      |   | 15       |  
|                                              |  |      |          |   |      |   |          |  
|Net deferred tax assets                       |  | $    |         |   |      | $ |         |  
|                                              |  |      |          |   |      |   |          |  



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CV THERAPEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

13.    Income Taxes (Continued)



Realization of deferred tax assets is dependent upon future earnings, if any, the timing and amount
of which are uncertain. Accordingly, the net deferred assets have been fully offset by a valuation allowance. The valuation allowance increased by $111.9 million, $89.4 million and $65.4 million during 2006, 2005 and 2004, respectively. Excess tax
benefits from employee stock option exercises of $18.2 million are included in the deferred tax asset balances at December 31, 2005 as a component of the Companys net operating loss carryovers. The entire balance is offset by a full valuation
allowance. As a result of FAS 123R, the deferred tax asset balances at December 31, 2006 do not include excess tax benefits from stock option exercises. The amount excluded at December 31, 2006 is $18.9 million. Equity will be increased by $18.9
million if and when such excess tax benefits are ultimately realized.

As of December 31, 2006, we had net operating loss
carryforwards for federal income tax purposes of approximately $1,049.3 million, which expire beginning in the year 2007. We also have California net operating loss carryforward of approximately $768.3 million, which expire beginning in the year
2007. We also have federal and California research and development tax credits of $7.1 million and $5.8 million respectively. The federal research credits will begin to expire in the year 2008 and the California research credits can be carried
forward indefinitely.

Utilization of our net operating loss may be subject to substantial annual limitation due to the ownership change
limitations provided by the Internal Revenue code and similar state provisions. As a result of annual limitations, a portion of these carryforwards may expire before becoming available to reduce such federal and state income tax liabilities.

14.    401(k) Plan

Our 401(k) plan covers all of our eligible employees. Under the plan, employees may contribute specified percentages or amounts of their eligible compensation, subject to certain Internal Revenue Service restrictions. For 2006, 2005 and
2004, the board of directors approved a discretionary matching contribution under the 401(k) plan for eligible employees having an aggregate value equal to up to seven percent of each such employees eligible compensation. For the 2006 match,
100% of the matching contribution was in the form of fully vested shares of our common stock. For both the 2005 and 2004 matches, 50% of the matching contribution was paid in cash, and 50% of the matching contribution was in the form of fully vested
shares of our common stock. For the 2006 match, which was paid out January 2007, we issued a total of 292,217 shares of our common stock with an aggregate value of $3.8 million. For the 2005 match, which was paid out in January 2006, we contributed
a total of $1.3 million in cash and issued a total of 51,922 shares of our common stock, which stock had an aggregate value of $1.3 million. For the 2004 match, which was paid out in January 2005, we contributed a total of $0.7 million in cash and
issued a total of 35,716 shares of our common stock, which stock had an aggregate value of $0.7 million.



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CV THERAPEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



15.    Quarterly Financial Data (Unaudited)

The following tables summarize the unaudited quarterly financial data for the last two fiscal years (in thousands, except per share data):



|                                     |  |                                          |         |   |         |   |         |         |  |   |         |   |  |   |         |  
|------------------------------------ |  | ---------------------------------------- | ------- | - | ------- | - | ------- | ------- |  | - | ------- | - |  | - | ------- | -
|                                     |  | Fiscal 2006 Quarter Ended                |        
|                                     |  | Mar. 31                                  |         |   | Jun. 30 |   |         | Sep. 30 |  |   | Dec. 31 |  
|                                     |  | (in thousands, except per share amounts) |        
|Product sales, net                   |  | $                                        |        |   |         | $ | 1,230   |         |  | $ | 8,164   |   |  | $ | 9,029   |  
|Total revenues                       |  |                                          | 5,064   |   |         |   | 6,850   |         |  |   | 12,202  |   |  |   | 12,669  |  
|Gross profit on product sales        |  |                                          |        |   |         |   | 877     |         |  |   | 7,001   |   |  |   | 7,793   |  
|Loss from operations                 |  |                                          | (71,164 | ) |         |   | (73,586 | )       |  |   | (64,110 | ) |  |   | (69,625 | )
|Net loss                             |  |                                          | (70,474 | ) |         |   | (73,093 | )       |  |   | (62,694 | ) |  |   | (68,060 | )
|Basic and diluted net loss per share |  | $                                        | (1.57   | ) |         | $ | (1.59   | )       |  | $ | (1.23   | ) |  | $ | (1.18   | )
|                                     | 
|                                     |  | Fiscal 2005 Quarter Ended                |        
|                                     |  | Mar. 31                                  |         |   | Jun. 30 |   |         | Sep. 30 |  |   | Dec. 31 |  
|                                     |  | (in thousands, except per share amounts) |        
|Revenues                             |  | $                                        | 5,630   |   |         | $ | 5,747   |         |  | $ | 4,142   |   |  | $ | 3,432   |  
|Loss from operations                 |  |                                          | (45,838 | ) |         |   | (50,995 | )       |  |   | (55,266 | ) |  |   | (71,945 | )
|Net loss                             |  |                                          | (46,422 | ) |         |   | (51,601 | )       |  |   | (55,920 | ) |  |   | (74,052 | )
|Basic and diluted net loss per share |  | $                                        | (1.31   | ) |         | $ | (1.43   | )       |  | $ | (1.26   | ) |  | $ | (1.65   | )

The quarterly financial information above has been individually rounded and may not sum to full year amounts.

Certain reclassifications have been made to prior period balances to conform to the current presentation.

16.    Subsequent Events

In
January 2007, we filed a registration statement on Form S-3 to register an additional $98.3 million of our common stock for use under our existing equity line of credit with Azimuth. In April 2006, we entered into a $200.0 million equity line of
credit with Azimuth of which $160.0 million remains available. We previously filed a registrations statement on Form S-3 covering $200.0 million of our common stock, of which $61.7 million of common stock remains to be issues. We filed the January
2007 registration statement on Form S-3 to enable us to utilize the $160.0 maximum remaining amount of the Azimuth equity line of credit arrangement.



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