##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR QUARTERLY PERIOD ENDED JUNE 30, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Commission File Number: 0-20117
 ENCYSIVE PHARMACEUTICALS INC.
  Delaware
    
    13-3532643(State or other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)
 4848 Loop Central Drive, Suite 700, Houston, Texas
    
    77081(Address of principal executive office)
    
    (Zip code)
 
  
   þ o
  o þ o
  o þ
  Class
    
    
    Outstanding at July 31, 2007Common stock, $0.005 par value
    
    
    
    71,741,702




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##### 



ENCYSIVE PHARMACEUTICALS INC.
 TABLE OF CONTENTS
  
 PAGE NO.Part I.
    
    Financial InformationItem 1: Financial Statements (Unaudited)Consolidated Balance Sheets as of June 30, 2007 and December 31, 2006
    
    
    1Consolidated Statements of Operations and Comprehensive Loss for the
three months and six months ended June 30, 2007 and 2006
    
    
    2Consolidated Statements of Cash Flows for the three and six months ended
June 30, 2007 and 2006
    
    
    3Notes to Consolidated Financial Statements
    
    
    4Item 2: Managements Discussion and Analysis of
Financial Condition and Results of Operations
    
    
    16Item 3: Quantitative and Qualitative Disclosures
About Market Risk
    
    
    26Item 4: Controls and Procedures
    
    
    26Part II.
    
    Other InformationItem 1: Legal Proceedings
    
    
    27Item 1A: Risk Factors
    
    
    28Item 2: Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    32Item 3: Defaults Upon Senior Securities
    
    
    33Item 4: Submission of Matters to a Vote of Security Holders
    
    
    33Item 5: Other Information
    
    
    33Item 6: Exhibits
    
    
    34SIGNATURES
    
    
    
    
    35Certification of CEO Pursuant to Rule 13a-14(a)Certification of CFO Pursuant to Rule 13a-14(a)Certification Pursuant to Section 1350Certification Pursuant to Section 1350




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ENCYSIVE PHARMACEUTICALS INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 ($ in thousands, except per share data)
(Unaudited)
 June 30,
    
    
    December 31,2007
    
    
    2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    65,033
    
    
    $
    43,798Restricted cash
    
    
    97
    
    
    
    Accounts receivable
    
    
    7,877
    
    
    
    5,211Other current receivables, net of
reserve of $0 and $65
    
    
    693
    
    
    
    141Inventory, net of reserve of $1,546 and $496
    
    
    2,347
    
    
    
    2,343Prepaids
    
    
    2,328
    
    
    
    1,926Total current assets
    
    
    78,375
    
    
    
    53,419Equipment and leasehold improvements, net
    
    
    5,736
    
    
    
    5,976Deferred debt origination costs, net of
accumulated amortization of $1,677 and $1,202
    
    
    6,400
    
    
    
    3,461Intangible assets, net of accumulated
amortization of $738 and $685
    
    
    228
    
    
    
    281Total assets
    
    $
    90,739
    
    
    $
    63,137LIABILITIES AND STOCKHOLDERS DEFICITCurrent liabilities:Accounts payable
    
    $
    3,338
    
    
    $
    3,435Accrued expenses
    
    
    30,032
    
    
    
    22,133Deferred revenue
    
    
    642
    
    
    
    1,286Total current liabilities
    
    
    34,012
    
    
    
    26,854Long-term debt
    
    
    186,038
    
    
    
    130,000Commitments and contingencies
    
    
    
    
    
    
    Stockholders deficit:Preferred
stock, par value $.005 per share. 5,000,000 Shares authorized; none issued or outstanding
    
    
    
    
    
    
    Common stock, par value $.005 per share.
150,000,000 shares authorized. At June 30, 2007,
72,049,188 shares issued 71,836,188 outstanding;
at December 31, 2006, 62,660,802 shares issued,
62,447,802 shares outstanding
    
    
    360
    
    
    
    313Additional paid-in capital
    
    
    358,042
    
    
    
    329,817Treasury stock, 213,000 shares at June 30, 2007
and December 31, 2006
    
    
    (1,602
    )
    
    
    (1,602
    )Accumulated other comprehensive income
    
    
    (53
    )
    
    
    33Accumulated deficit
    
    
    (486,058
    )
    
    
    (422,278
    )Total stockholders deficit
    
    
    (129,311
    )
    
    
    (93,717
    )Total liabilities and stockholders deficit
    
    $
    90,739
    
    
    $
    63,137
 See accompanying notes to consolidated financial statements
 1




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ENCYSIVE PHARMACEUTICALS INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
 ($ in thousands, except per share data)
(Unaudited)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenues:Sales
    
    $
    2,268
    
    
    $
    
    
    
    $
    3,209
    
    
    $
    Royalty income
    
    
    6,347
    
    
    
    3,340
    
    
    
    10,492
    
    
    
    6,579License fee and milestones
    
    
    322
    
    
    
    322
    
    
    
    644
    
    
    
    644Total Revenues
    
    
    8,937
    
    
    
    3,662
    
    
    
    14,345
    
    
    
    7,223Expenses:Cost of goods sold
    
    
    411
    
    
    
    
    
    
    
    477
    
    
    
    Research and development
    
    
    16,685
    
    
    
    14,676
    
    
    
    34,184
    
    
    
    33,055Sales and marketing
    
    
    9,590
    
    
    
    11,767
    
    
    
    20,476
    
    
    
    21,603General and administrative
    
    
    6,277
    
    
    
    5,364
    
    
    
    11,893
    
    
    
    11,106Restructuring
    
    
    7,942
    
    
    
    
    
    
    
    7,942
    
    
    
    Total expenses
    
    
    40,905
    
    
    
    31,807
    
    
    
    74,972
    
    
    
    65,764Operating loss
    
    
    (31,968
    )
    
    
    (28,145
    )
    
    
    (60,627
    )
    
    
    (58,541
    )Investment income
    
    
    840
    
    
    
    1,085
    
    
    
    1,635
    
    
    
    2,384Interest expense
    
    
    (2,744
    )
    
    
    (978
    )
    
    
    (4,788
    )
    
    
    (1,958
    )Loss before cumulative effect of
change in accounting principle
    
    $
    (33,872
    )
    
    $
    (28,038
    )
    
    
    (63,780
    )
    
    
    (58,115
    )Cumulative effect of change in
accounting principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    107Net loss applicable to common
shares
    
    $
    (33,872
    )
    
    $
    (28,038
    )
    
    $
    (63,780
    )
    
    $
    (58,008
    )Other comprehensive income:Reclassification adjustment for
gains included in net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Comprehensive loss
    
    $
    (33,872
    )
    
    $
    (28,038
    )
    
    $
    (63,780
    )
    
    $
    (58,008
    )Loss per share:Continuing operations, basic
and diluted
    
    $
    (0.50
    )
    
    $
    (0.48
    )
    
    $
    (0.99
    )
    
    $
    (0.99
    )Weighted average common shares used
to compute net loss per share basic
and diluted
    
    
    67,557,566
    
    
    
    58,464,618
    
    
    
    64,617,391
    
    
    
    58,367,915
 See accompanying notes to consolidated financial statements
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ENCYSIVE PHARMACEUTICALS INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 ($ in thousands)
(Unaudited)
 Six Months Ended June 30,2007
    
    
    2006Cash flows from operating activities:Net loss
    
    $
    (63,780
    )
    
    $
    (58,008
    )Adjustments to reconcile net loss to cash used
in operating activities:Depreciation and amortization
    
    
    532
    
    
    
    499Expenses paid with stock
    
    
    82
    
    
    
    50Share-based compensation expense
    
    
    1,038
    
    
    
    4,101Amortization of debt issue costs
    
    
    475
    
    
    
    329Loss on disposition of fixed assets
    
    
    4
    
    
    
    33Changes in operating assets and liabilities:Restricted cash
    
    
    (97
    )
    
    
    Accounts receivable
    
    
    (2,333
    )
    
    
    1,946Inventory
    
    
    (4
    )
    
    
    (343
    )Prepaids
    
    
    (395
    )
    
    
    43Other current receivables
    
    
    (540
    )
    
    
    99Accounts payable and accrued expenses
    
    
    7,756
    
    
    
    513Deferred revenue
    
    
    (644
    )
    
    
    (644
    )Net cash used in operating activities
    
    
    (57,906
    )
    
    
    (51,382
    )Cash flows from investing activities:Purchases of investments
    
    
    
    
    
    
    (9,974
    )Purchases of equipment and leasehold improvements
    
    
    (237
    )
    
    
    (1,544
    )Net cash used in investing activities
    
    
    (237
    )
    
    
    (11,518
    )Cash flows from financing activities:Borrowing of long-term debt
    
    
    60,000
    
    
    
    Debt issue costs
    
    
    (3,414
    )
    
    
    Repayment of long-term debt
    
    
    (3,962
    )
    
    
    Proceeds from sale of common stock in
private offerings
    
    
    27,142
    
    
    
    Proceeds from option exercises
    
    
    10
    
    
    
    430Net cash provided by financing activities
    
    
    79,776
    
    
    
    430Effect of exchange rate changes on cash
    
    
    (398
    )
    
    
    Net increase (decrease) in cash and cash equivalents
    
    
    21,235
    
    
    
    (62,470
    )Cash and cash equivalents at beginning of period
    
    
    43,798
    
    
    
    127,913Cash and cash equivalents at end of period
    
    $
    65,033
    
    
    $
    65,443Supplemental schedule of cash flow information:Interest paid
    
    
    2,598
    
    
    
    1,625
 See accompanying notes to consolidated financial statements
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ENCYSIVE PHARMACEUTICALS INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL SATEMENTS
 June 30, 2007 (unaudited)
 (1) Liquidity and Managements Plans
    SM
   4




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(2) Organization and Significant Accounting Policies
 (a) Organization
   (b) Basis of Consolidation
  (c) Revenue Recognition
  (d) Debt issue costs
  5




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(e) Use of Estimates
  f) New Accounting Pronouncements
    (3) Inventory
  6




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(4) Capital Stock
  Stock option plans
    
    
    9,302,2312.50% Convertible Senior Notes due 2012
    
    
    9,322,001Total shares reserved
    
    
    18,624,232
 (5) Cash, Cash Equivalents, and Restricted Cash
   (6) Net Loss per Common Share
  (7) Income Taxes
  7




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(8) Entity-Wide Geographic Data
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Entities:GSK
    
    $
    6,347
    
    
    $
    3,340
    
    
    $
    10,492
    
    
    $
    6,579Others
    
    
    2,590
    
    
    
    322
    
    
    
    3,853
    
    
    
    644Total
    
    $
    8,937
    
    
    $
    3,662
    
    
    $
    14,345
    
    
    $
    7,223
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Geographical Area:United States
    
    $
    6,669
    
    
    $
    3,662
    
    
    $
    11,136
    
    
    $
    7,223Europe
    
    
    2,268
    
    
    
    
    
    
    
    3,209
    
    
    
    Total
    
    $
    8,937
    
    
    $
    3,662
    
    
    $
    14,345
    
    
    $
    7,223
  June 30,
    
    
    December 31,2007
    
    
    2006Geographical Area:United States
    
    $
    12,102
    
    
    $
    9,499Europe
    
    
    262
    
    
    
    219Total
    
    $
    12,364
    
    
    $
    9,718
 (9) Long-Term Debt
    8




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(10) Share-Based Payment
       9




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Three Months Ended June 30,
    
    
    Six Months Ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Options
    
    $
    343
    
    
    $
    1,343
    
    
    $
    1,191
    
    
    $
    2,966Nonvested shares
of common stock
    
    
    (955
    )
    
    
    672
    
    
    
    (153
    )
    
    
    1,242Total
    
    $
    (612
    )
    
    $
    2,015
    
    
    $
    1,038
    
    
    $
    4,208
    Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2007
    
    2006
    
    2007
    
    2006Expected dividend yield
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %Risk-free interest rate
    
    
    4.6
    %
    
    
    5.1
    %
    
    
    4.7
    %
    
    
    4.7
    %Expected volatility
    
    
    77.1
    %
    
    
    71.8
    %
    
    
    77.6
    %
    
    
    64.9
    %Expected life in years
    
    
    5.0
    
    
    
    4.0
    
    
    
    5.0
    
    
    
    3.9
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Weighted
    
    
    Weighted Average
    
    
    AggregateStock
    
    
    Average
    
    
    Remaining
    
    
    Intrinsic ValueOptions
    
    
    Exercise Price
    
    
    Contractual Term
    
    
    (in Thousands)Outstandingat December 31, 2006
    
    
    5,614,455
    
    
    $
    8.14
    
    
    
    5.70
    
    
    $
    1,496Grants
    
    
    714,532
    
    
    $
    2.995Forfeited or expired
    
    
    (222,206
    )
    
    $
    6.26Exercises
    
    
    (4,166
    )
    
    $
    0.93Outstandingat March 31, 2007
    
    
    6,102,615
    
    
    $
    7.61
    
    
    
    6.15
    
    
    $
    708Grants
    
    
    560,000
    
    
    $
    2.06Forfeited or expired
    
    
    (317,821
    )
    
    $
    5.66Exercises
    
    
    (6,666
    )
    
    $
    0.93OutstandingAt June 30, 2007
    
    
    6,338,128
    
    
    $
    7.22
    
    
    
    6.16
    
    
    $
    308Vested and expected to vest
in the future at
June 30, 2007
    
    
    6,288,010
    
    
    $
    7.25
    
    
    
    0.47
    
    
    $
    308Exercisable
at June 30, 2007
    
    
    4,394,840
    
    
    $
    7.96
    
    
    
    4.90
    
    
    $
    308Available for grant at
June 30, 2007
    
    
    2,964,103
   Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2007
    
    2006
    
    2007
    
    2006Weighted average:Grant date fair value
per option
    
    $
    1.35
    
    
    $
    2.05
    
    
    $
    1.70
    
    
    $
    4.34Total intrinsic value of
options exercised
    
    $
    18,000
    
    
    $
    41,000
    
    
    $
    30,000
    
    
    $
    532,000
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Weighted AverageGrant DateShares
    
    
    Fair ValueNonvested at December 31, 2006
    
    
    823,675
    
    
    $
    8.83Activity during quarter ended March 31, 2007Grants
    
    
    1,762,572
    
    
    $
    3.04Vested
    
    
    (35,783
    )
    
    $
    8.59Forfeited
    
    
    (11,537
    )
    
    $
    9.17Nonvested at March 31, 2007
    
    
    2,538,927
    
    
    $
    4.81Activity during quarter ended June 30, 2007Grants
    
    
    63,231
    
    
    $
    3.44Vested
    
    
    (23,137
    )
    
    $
    10.26Forfeited
    
    
    (1,231,645
    )
    
    $
    4.37Nonvested at June 30, 2007
    
    
    1,347,376
    
    
    $
    5.05
  Weighted Average GrantPhantom Units
    
    
    Date Fair ValueUnvested at January 1, 2007
    
    
    124,682
    
    
    $
    4.10Grants
    
    
    170,943
    
    
    
    3.00Vested
    
    
    
    
    
    
    Forfeited
    
    
    (10,504
    )
    
    
    4.10Unvested at March 31, 2007
    
    
    285,121
    
    
    
    3.44Grants
    
    
    21,803
    
    
    
    3.44Vested
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Unvested at June 30, 2007
    
    
    306,924
    
    
    $
    3.44
  12




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(11) Accrued expenses
  June 30, 2007
    
    
    December 31, 2006Accrued compensation and benefits
    
    $
    971
    
    
    $
    4,498Accrued research and development
costs
    
    
    13,093
    
    
    
    11,498Accrued interest on long-term debt
    
    
    2,667
    
    
    
    953Accrued sales and marketing expenses
    
    
    3,026
    
    
    
    1,676Reserve for future Argatroban returns
    
    
    1,322
    
    
    
    1,149Accrued legal and professional fees
    
    
    553
    
    
    
    231Restructuring
    
    
    7,942
    
    
    
    Other accrued expenses
    
    
    458
    
    
    
    2,128Total
    
    $
    30,032
    
    
    $
    22,133
 (12) Commitments and Contingencies
 (a) Litigation
     13




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(b) Restructuring
    (c) Subsequent Event
  14




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(d) Foreign Currency Exchange Risk
  (e) Other contingencies
  15




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Item 2.
 ENCYSIVE PHARMACEUTICALS INC. AND SUBSIDIARIES
 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
 Three and Six Months Ended June 30, 2007, and June 30, 2006
 OVERVIEW
  16




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
  17




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18




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Critical Accounting Policies
 Revenue Recognition
 
    
    We recognize revenue from sales of Thelin when product is shipped and ownership
transfers to the customer. Sales revenue includes value added taxes billed to customers,
and is reported net of applicable discounts, allowances and returns.
    
    We recognize royalty revenue as a licensee sells products and we have received
sufficient information to record a receivable. Our royalty revenue is based on net sales
of product, that is, sales net of discounts, returns and allowances. Argatroban is
licensed to GSK, which distributes and sells the product, and from which we receive a
quarterly royalty payment. At the time of each payment, GSK provides us with limited
quarterly data related to the products gross sales, sales returns, discounts and
allowances. While we are informed of the amount of product returns recorded each quarter,
we do not have information necessary to identify the period or periods to which such
returns correspond. We believe that substantially all discounts and allowances pertain to
current period sales. We also believe that a portion of sales recorded in each period
will ultimately be returned, and therefore estimate future returns and their impact on
royalty revenues. In the pharmaceutical industry, product returns are primarily
influenced by remaining or expired shelf life, product withdrawals or recalls, significant
price changes from competitors or the introduction of generic products or other new
competition. We are not aware
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of any pending product recalls or withdrawals, significant price fluctuations or generic
competition. Accordingly, we have estimated only the impact of product dating on returns.Since we do not manufacture, sell or distribute Argatroban, we do not have information
related to levels of inventory in the distribution channels. However, due to the cost of
the drug and pressures on hospitals to minimize operating expenditures, we believe
inventory levels are maintained at a minimally acceptable level. Inventory level is
therefore not a part of the Companys estimate process.We have estimated remaining shelf life, which is an important reason for product returns,
based upon the fact that Argatroban has an expiration date of two years from manufacture.
Common industry practice is that prescription drugs can be returned to the manufacturer at
any time; however, product is normally returned when the remaining shelf life is reduced to
six months or less. Our reserve is therefore based upon an estimate of the percentage of
sales made in the preceding 18-month period that may be returned in future periods.
Initially, lacking any historical sales data for Argatroban and based upon managements
experience with other pharmaceutical products in the industry, management estimated that
four percent of gross sales of Argatroban would be returned during future periods. Based
upon subsequent analysis of historical sales data, we believe that differences between
estimated and actual future returns will not have a material effect on our results of
operations or financial condition.
    
    Revenue from collaborative research and development activities is recognized as
services are performed.
    
    We defer the recognition of milestone payments related to contractual agreements that
are still in the development stage. Such deferred revenues are amortized into income over
the estimated remaining development period. Milestone payments received under contractual
agreements which have completed the development stage are evaluated, and either recognized
into income when earned, or amortized over a future period, depending upon whether we
continue to have obligations under the terms of the arrangement.
    
    License fees received under the terms of licensing agreements for our intellectual
property are deferred and amortized into income over the estimated development period of
the licensed item or items.
    
    Revenue from grants is recognized as earned under the terms of the related grant
agreements, typically as expenses are incurred.
  Cost of goods sold
  Stock Options
  20




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Drug Manufacturing and Packaging
  Costs Related to Issue of Long-Term Debt
  Results of Operations
     Three and six month periods ended June 30, 2007 and 2006
 Sales
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Royalties
  Total Revenues
  Cost of Goods Sold
  Research and Development Expense
  Sales and Marketing Expense
  22




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General and Administrative Expense
  Restructuring Expense
     Total Operating Expenses
  Operating Loss
  Interest Expense
  Investment Income
  23




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Cumulative effect of Change in Accounting Principle
  Net Loss
  Liquidity and Capital Resources
  Outlook for the Balance of 2007
   24




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Cash Used in Operating Activities:
  Cash used in Investing Activities:
  Cash provided by Financing Activities:
  25




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##### Table of Contents



Material Commitments:
   Lessthan 1
    
    
    1-3
    
    
    3-5
    
    
    After 5Total
    
    
    year
    
    
    Years
    
    
    Years
    
    
    yearsContractual
ObligationsLong-term debt
    
    $
    186,038
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    186,038Severance and
retention
    
    
    4,843
    
    
    
    4,843Operating leases
    
    
    3,872
    
    
    
    2,090
    
    
    
    1,708
    
    
    
    74
    
    
    
    Total
    
    $
    194,753
    
    
    $
    6,933
    
    
    $
    1,708
    
    
    $
    74
    
    
    $
    186,038
 Off-Balance Sheet Arrangements:
  Impact of Inflation and Changing Prices
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Foreign Currency Exchange Risk
  
 Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
    26




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Changes in Internal Controls Over Financial Reporting
  
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
      27




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Item 1A. Risk Factors
 The following risks should be read in conjunction with other risk factors disclosed under Item 1A.
Risk Factors, in our Annual Report on Form 10-K for the year ended December 31, 2006.
 If we are unable to raise significant additional capital, we will not be able to continue to
operate as a going concern.
  Our restructuring efforts may have an adverse impact on our current employees and on our ability to
retain and attract management and other key personnel.
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We have recently experienced significant turnover in senior management.
  We have a history of losses and we may never become profitable.
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If we are unable to raise additional capital, we will be unable to conduct our operations and
develop our potential products.
  
    
    We have incurred and will continue to incur significant commercialization-related
expenses for Thelin. These costs include:
 -
    
    building a commercial infrastructure in Europe, Canada and other key geographic areas;-
    
    rebuilding a commercial infrastructure in the U.S. if Thelin receives FDA approval;-
    
    investing in market launch and market development activities in Europe,
Canada and other key geographic areas;-
    
    expenses related to reimbursement submissions and approvals;-
    
    market research;-
    
    building the necessary infrastructure in our support services functions, such
as finance, human resources and legal;-
    
    building the depth and breadth of our management team;-
    
    preparing and producing educational and promotional materials; and-
    
    establishing additional contractual relationships with manufacturing,
distribution and logistics services providers to support the commercialization of
Thelin.
 
    
    We expect to incur significant expenses in conjunction with additional clinical trial
costs for Thelin and TBC3711 and are incurring costs for clinical trials related to an
additional drug compound. These costs include:
 -
    
    hiring personnel to direct and execute clinical trials;-
    
    costs incurred by clinical investigators;-
    
    services of contract research organizations; and-
    
    purchasing and formulating quantities of drug compound to be used in such
clinical trials.
  
    
    the outcome and timing of reimbursement approvals for Thelin in the EU, Canada and
Australia, including pricing levels;
    
    competitive activity, including the timing of regulatory approvals and approved product
labels for products competitive with Thelin;
    
    our success in commercializing Thelin;
    
    scientific progress in our drug discovery programs;
    
    the number and magnitude of these research and development programs;
    
    progress with preclinical testing and clinical trials of new drug compounds;
    
    the costs and our success in filing, prosecuting and enforcing patent claims;
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##### Table of Contents




    
    competing technological and market developments and changes in our existing research
relationships;
    
    administrative costs and costs to commercialize Thelin as new product markets are
developed;
    
    working capital requirements to support inventory and accounts receivable;
    
    our ability to maintain and establish additional collaborative arrangements; and
    
    effective and sustained commercialization activities and arrangements.
 We make business decisions based on forecasts of future sales of Thelin in markets where we have
approval that may be inaccurate.
  We are the subject of securities class action and shareholder derivative lawsuits that may result
in substantial expenditures, and divert managements attention.
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Legislative changes or regulatory decisions in Europe may adversely impact our orphan drug status
which may result in loss of revenues in the European Union.
  We depend on third parties in the conduct of our clinical trials for our product candidates and any
failure of those parties to fulfill their obligations could adversely affect our development plans.
  Issuance of shares in connection with financing transactions or under stock plans will dilute
current stockholders.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  32




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Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  Number of Votes
    
    Number of VotesName of Nominee
    
    Voted For
    
    WithheldRon J. Anderson, M.D.
    
    
    48,954,856
    
    
    
    5,056,158J. Kevin Buchi
    
    
    48,977,479
    
    
    
    5,033,535Robert J. Cruikshank
    
    
    48,873,124
    
    
    
    5,137,890John H. Dillon II
    
    
    48,985,721
    
    
    
    5,025,293Richard A. F. Dixon, Ph.D.
    
    
    48,923,125
    
    
    
    5,087,889Bruce D. Given, M.D.
    
    
    48,822,633
    
    
    
    5,188,381Suzanne Oparil, M.D.
    
    
    48,997,359
    
    
    
    5,013,655John M. Pietruski
    
    
    48,919,354
    
    
    
    5,091,660James A. Thomson, Ph.D.
    
    
    48,843,136
    
    
    
    5,167,878James T. Willerson, M.D.
    
    
    48,830,121
    
    
    
    5,180,893
  Number of Votes
    
    Number of Votes
    
    Number of Votes
    
    Number ofVoted For
    
    Voted Against
    
    Abstaining
    
    Broker Non-Votes15,037,559
    
    
    6,789,658
    
    
    
    340,671
    
    
    
    31,843,126
  Number of Votes
    
    Number of Votes
    
    Number of VotesVoted For
    
    Voted Against
    
    Abstaining52,204,776
    
    
    1,622,606
    
    
    
    183,632
 
 Item 5. Other Information
  33




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Item 6. Exhibits
 Exhibit No.
    
    Description10.1
    
    Encysive Pharmaceuticals Inc. 2007 Incentive Plan, as amended (incorporated by
reference to Exhibit 4.1 to the Companys Registration Statement on Form S-8 (Commission
File No. 333-142764) filed with the Commission on May 9, 2007).10.2
    
    Letter Agreement dated June 24, 2007, between the Company and George W. Cole
(incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K
(Commission File No. 000-20117) filed with the Commission on June 26, 2007).31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) / Rule
15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended.31.2
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) / Rule
15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended.32.1
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
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ENCYSIVE PHARMACEUTICALS INC.
 August 8, 2007
 
 SIGNATURES
  ENCYSIVE PHARMACEUTICALS INC.By:
    /s/ George ColeGeorge ColePresident and Chief Executive OfficerBy:
    /s/ Richard A. GoeggelRichard A. GoeggelTreasurer

(Principal Financial and Accounting Officer) 35




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INDEX TO EXHIBITS
 Exhibit No.
    
    Description10.1
    
    Encysive Pharmaceuticals Inc. 2007 Incentive Plan, as amended (incorporated by
reference to Exhibit 4.1 to the Companys Registration Statement on Form S-8 (Commission
File No. 333-142764) filed with the Commission on May 9, 2007).10.2
    
    Letter Agreement dated June 24, 2007, between the Company and George W. Cole
(incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K
(Commission File No. 000-20117) filed with the Commission on June 26, 2007).31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) / Rule
15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended.31.2
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) / Rule
15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended.32.1
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
 36