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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended: June 30, 2008

OR

o        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 000-31191

THE MEDICINES COMPANY

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code:  (973) 656-1616

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities 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    o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes    o      No    x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of August 7, 2008, there were 52,082,283 shares of Common Stock, $0.001 par value per share, outstanding.

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THE MEDICINES COMPANY

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The Medicines Company® name and logo, Angiomax®, Angiox® and CleviprexÔ are either registered trademarks or trademarks of The Medicines Company in the United States and/or other countries.  All other trademarks, service marks or other tradenames appearing in this quarterly report on Form 10-Q are the property of their respective owners.  Except where otherwise indicated, or where the context may otherwise require, references to “Angiomax” in this quarterly report on Form 10-Q mean Angiomax and Angiox collectively.  References to “the Company,” “we,” “us” or “our” mean The Medicines Company, a Delaware corporation, and its subsidiaries.

This quarterly report on Form 10-Q includes forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. For this purpose, any statements contained herein regarding our strategy, future operations, financial position, future revenue, projected costs, prospects, plans and objectives of management, other than statements of historical facts, are forward-looking statements. The words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “will,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We cannot guarantee that we actually will achieve the results, plans, intentions or expectations expressed or implied in our forward-looking statements. There are a number of important factors that could cause actual results, levels of activity, performance or events to differ materially from those expressed or implied in the forward-looking statements we make. These important factors include our “critical accounting estimates” described in Part I, Item 2 of this quarterly report on Form 10-Q and the factors set forth under the caption “Risk Factors” in Part II, Item 1A of this quarterly report on Form 10-Q. Although we may elect to update forward-looking statements in the future, we specifically disclaim any obligation to do so, even if our estimates change, and readers should not rely on those forward-looking statements as representing our views as of any date subsequent to the date of this quarterly report on Form 10-Q.

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Item 1. Financial Statements

THE MEDICINES COMPANY

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

(unaudited)

See accompanying notes to unaudited condensed consolidated financial statements.

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THE MEDICINES COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)

See accompanying notes to unaudited condensed consolidated financial statements.

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THE MEDICINES COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

See accompanying notes to unaudited condensed consolidated financial statements.

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THE MEDICINES COMPANY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.             Nature of Business

The Medicines Company (the Company) was incorporated in Delaware on July 31, 1996. The Company is a global pharmaceutical company focused on advancing the treatment of critical care patients through the delivery of innovative, cost-effective medicines to the worldwide hospital marketplace. In December 2000, the U.S. Food and Drug Administration (the FDA) approved the Company’s product, Angiomax® (bivalirudin), a direct thrombin inhibitor, for use as an anticoagulant in combination with aspirin in patients with unstable angina undergoing percutaneous transluminal coronary angioplasty (PTCA). In June 2005, the FDA approved new prescribing information for Angiomax to also include patients undergoing percutaneous coronary intervention (PCI), in addition to those undergoing PTCA. In November 2005, the FDA approved the expansion of the label to include PCI patients with or at risk of heparin-induced thrombocytopenia and thrombosis syndrome, a complication of heparin administration known as HIT/HITTS that can result in limb amputation, multi-organ failure and death. In September 2004, the Company received authorization from the European Commission to market Angiomax as Angiox® (bivalirudin) in the member states of the European Union for use as an anticoagulant in combination with aspirin in patients undergoing PCI. In January 2008, the European Agency for the Evaluation of Medical Products (EMEA) authorized the use of Angiox in adult patients with acute coronary syndrome (ACS), specifically patients with unstable angina or non-ST segment elevation myocardial infarction planned for urgent or early intervention, when used with aspirin and clopidogrel.

On August 1, 2008, the FDA approved the Company’s product, Cleviprex™ (clevidipine butyrate) injectable emulsion, a dihydropyridine calcium channel blocker, for the reduction of blood pressure when oral therapy is not feasible or not desirable.

Prior to July 1, 2007, the Company concentrated its commercial sales and marketing resources on the United States hospital market, relying on third-party distributors to market and distribute the product outside the United States, and revenues to date have been generated principally from sales of Angiomax in the United States. On July 1, 2007, the Company entered into a series of agreements with Nycomed Danmark ApS (Nycomed) pursuant to which the Company terminated its distribution agreement with Nycomed and reacquired all rights held by Nycomed with respect to the distribution and marketing of the Company’s product Angiox in the European Union (excluding Spain, Portugal and Greece) and the former Soviet republics (collectively, the Territory). Under these arrangements, the Company assumed control of the marketing of Angiox immediately and Nycomed agreed to provide, on a transitional basis, sales operations services, which ended December 31, 2007, and product distribution services through 2008. The Company anticipates assuming the control of the distribution of Angiox in the majority of the countries in the Territory during the third quarter of 2008 and control of the distribution of Angiox in the remaining countries in the Territory by December 31, 2008.  To support the marketing, sale and distribution of Angiox in the countries formerly served by Nycomed, the Company is taking the necessary steps to develop its business infrastructure outside the United States.

In addition to Angiomax and Cleviprex, the Company is currently developing two other pharmaceutical products, cangrelor and CU-2010, as potential acute care hospital products. Cangrelor is an intravenous antiplatelet agent that prevents platelet activation and aggregation, which the Company believes has potential advantages in the treatment of vascular disease.  On August 4, 2008, the Company acquired Curacyte Discovery GmbH (Curacyte Discovery) and its lead compound, CU-2010.  CU-2010 is a first-in-class small molecule serine protese inhibitor being developed for the prevention of surgical blood loss. The Company expects to initiate Phase I clinical trials of CU-2010 in the second half of 2008.  The Company has invested, and plans to continue investing in the development of cangrelor and CU-2010, as well as to continue investing in development programs to expand the indications for which Angiomax and Cleviprex are approved.

2.             Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-Q.  Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements.  In the opinion of management, the accompanying financial statements include all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation of the Company’s financial position, results of operations, and cash flows for the periods presented.

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The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. The Company has no unconsolidated subsidiaries or investments accounted for under the equity method.

The results of operations for the three and six months ended June 30, 2008 are not necessarily indicative of the results that may be expected for the entire fiscal year or any other quarter of the fiscal year ending December 31, 2008.  These condensed consolidated financial statements should be read in conjunction with the audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007, filed with the Securities and Exchange Commission (SEC).

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash, Cash Equivalents and Available for Sale Securities

The Company considers all highly liquid investments purchased with original maturities at the date of purchase of three months or less to be cash equivalents. Cash and cash equivalents included cash of $46.9 million and $20.0 million at June 30, 2008 and December 31, 2007, respectively.  Cash and cash equivalents at June 30, 2008 and December 31, 2007 included investments of $56.8 million and $68.1 million, respectively, in money market funds and commercial paper with original maturities of less than three months. These investments are carried at cost, which approximates fair value. The Company measures all original maturities from the date the investment was originally purchased by the Company.

The Company considers securities with original maturities at the date of purchase of greater than three months to be available for sale securities. Securities under this classification are recorded at fair market value and unrealized gains and losses are recorded as a separate component of stockholders’ equity. The estimated fair value of the available for sale securities is determined based on quoted market prices or rates for similar instruments. In addition, the cost of debt securities in this category is adjusted for amortization of premium and accretion of discount to maturity. The Company evaluates securities with unrealized losses to determine whether such losses are other than temporary.

At June 30, 2008 and December 31, 2007, the Company held available for sale securities with a fair value totaling $134.4 million and $134.0 million, respectively. These available for sale securities included various United States government agency notes, corporate debt securities and asset backed securities.  At June 30, 2008 and December 31, 2007, all of the Company’s available for sale securities had maturities within one year.

Fair Value Measurements

On January 1, 2008, the Company adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 157, “Fair Value Measurement” (SFAS No. 157) for financial assets and liabilities.  As permitted by Financial Accounting Standards Board (FASB) Staff Position 157-2 (FSP 157-2), the Company elected to defer until January 1, 2009 the adoption of SFAS No. 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis.  SFAS No. 157 provides a framework for measuring fair value under GAAP and requires expanded disclosures regarding fair value measurements. SFAS No. 157 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. SFAS No. 157 also establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs, where available, and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1       Quoted prices in active markets for identical assets or liabilities. The Company’s Level 1 assets and liabilities include investments in available for sale securities.

Level 2       Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. At June 30, 2008, the Company did not have any Level 2 assets or liabilities.

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Level 3       Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. At June 30, 2008, the Company did not have any Level 3 assets or liabilities.

The following table sets forth the Company’s financial assets that were measured at fair value on a recurring basis at June 30, 2008 by level within the fair value hierarchy. The Company did not have any nonfinancial assets or liabilities that were measured or disclosed at fair value on a recurring basis at June 30, 2008. As required by SFAS No. 157, assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability:

Restricted Cash

On October 11, 2007, the Company entered into a new lease for office space in Parsippany, New Jersey.  The Company plans to move its principal executive offices to the new space in the second half of 2008.  Restricted cash of $5.0 million at June 30, 2008 and December 31, 2007 collateralizes outstanding letters of credit associated with such lease.  The funds are invested in certificates of deposit.  The Company has agreed to increase the amount of the letter of credit by an additional $5.0 million for a total letter of credit of $10.0 million, on the Phase I Estimated Commencement Date, as defined in the lease. The Company anticipates the Phase I Estimated Commencement Date will occur in the second half of 2008.  The letter of credit permits draws by the landlord to cure defaults by the Company. The amount of the letter of credit is subject to reduction upon the achievement of certain regulatory and operational milestones relating to the Company’s products and by approximately $1.3 million on August 1, 2009 and annually for each of the following six years; provided, however, in no event will the amount of the letter of credit be reduced below approximately $1.0 million.

Revenue Recognition

Product Sales.   In March 2007, the Company entered into an agreement with a third party to distribute Angiomax in the United States through a sole source distribution model.  Under this model, the Company sells Angiomax to its sole source distributor, which then sells Angiomax to a limited number of national medical and pharmaceutical wholesalers with distribution centers located throughout the United States and in certain cases, directly to hospitals. Prior to adopting this sole source distribution model, the Company sold Angiomax to the wholesalers directly and the wholesalers then sold Angiomax to hospitals. Outside of the United States, the Company sells Angiomax to several international distributors and these distributors then sell Angiomax to hospitals. The Company does not recognize revenue from product sales until there is persuasive evidence of an arrangement, delivery has occurred, the price is fixed and determinable, the buyer is obligated to pay the Company, the obligation to pay is not contingent on resale of the product, the buyer has economic substance apart from the Company, the Company has no obligation to bring about sale of the product, the amount of returns can be reasonably estimated and collectibility is reasonably assured.

The Company records allowances for chargebacks and other discounts or accruals for product returns, rebates and fee-for-service charges at the time of sale, and reports revenue net of such amounts. In determining the amounts of certain allowances and accruals, the Company must make significant judgments and estimates. For example, in determining these amounts, the Company estimates hospital demand, buying patterns by hospitals and group purchasing organizations from wholesalers and the levels of inventory held by wholesalers and by its sole source distributor. Making these determinations involves estimating whether trends in past wholesaler and hospital buying patterns will predict future product sales. The Company receives data periodically from its sole source distributor and wholesalers on inventory levels and levels of hospital purchases and the Company considers this data in determining the amounts of these allowances and accruals.

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The nature of the Company’s allowances and accruals requiring critical estimates, and the specific considerations it uses in estimating their amounts, are as follows:

·                                          Product returns.   The Company’s customers have the right to return any unopened product during the 18-month period beginning six months prior to the labeled expiration date and ending 12 months after the labeled expiration date. As a result, in calculating the accrual for product returns, the Company must estimate the likelihood that product sold might not be used within six months of expiration and analyze the likelihood that such product will be returned within 12 months after expiration.

In estimating the likelihood of product being returned, the Company relies on information from the sole source distributor and wholesalers regarding inventory levels, measured hospital demand as reported by third-party sources and internal sales data. The Company also considers the past buying patterns of the sole source distributor and wholesalers, the estimated remaining shelf life of product previously shipped and the expiration dates of product currently being shipped.

At June 30, 2008 and December 31, 2007, the Company’s accrual for product returns was $3.1 million.  Included within the accrual at June 30, 2008 and December 31, 2007 is a reserve of $3.0 million that the Company established in the fourth quarter of 2007 for existing inventory at Nycomed that the Company estimates will not be sold prior to the termination of the transitional distribution agreement entered into in July 2007 with Nycomed and, as such, would be subject to purchase by the Company in accordance with its agreement with Nycomed. The Company assessed the Nycomed inventory reserve as of June 30, 2008 and believes that $3.0 million remains the appropriate amount for such reserve. A 10% change in the Company’s accrual for product returns would have had an approximate $0.3 million effect on the Company’s reported net revenue for the three and six months ended June 30, 2008.

·                                          Chargebacks and rebates.   Although the Company primarily sells Angiomax to a sole source distributor in the United States, the Company typically enters into agreements with hospitals, either directly or through group purchasing organizations acting on behalf of their hospital members, in connection with the hospitals’ purchases of Angiomax. Based on these agreements, most of the Company’s hospital customers have the right to receive a discounted price and volume-based rebates on product purchases.  In the case of discounted pricing, the Company typically provides a credit to the sole source distributor, or a chargeback, representing the difference between the sole source distributor’s acquisition list price and the discounted price. In the case of the volume-based rebates, the Company typically pays the rebate directly to the hospitals.

As a result of these agreements, at the time of product shipment, the Company estimates the likelihood that Angiomax sold to the sole source distributor might be ultimately sold to a contracting hospital or group purchasing organization. The Company also estimates the contracting hospital’s or group purchasing organization’s volume of purchases.

The Company bases its estimates on certain industry data, hospital purchases and the historic chargeback data it receives from its sole source distributor, most of which the sole source distributor receives from wholesalers, which detail historic buying patterns and sales mix for particular hospitals and group purchasing organizations, and the applicable customer chargeback rates and rebate thresholds.

The Company’s allowance for chargebacks was $1.1 million at June 30, 2008 and $0.6 million at December 31, 2007.  A 10% change in the Company’s allowance for chargebacks would have had an approximate $0.1 million effect on the Company’s reported net revenue for the three and six months ended June 30, 2008.  The Company’s accrual for rebates was $1.0 million at June 30, 2008 and $1.7 million at December 31, 2007.  A 10% change in the Company’s accrual for rebates would have had an approximate $0.1 million effect on the Company’s reported net revenue for the three and six months ended June 30, 2008.

·                                        Fees-for-service.  The Company offers discounts to certain wholesalers and its sole source distributor based on contractually determined rates.  The Company estimates its fee-for-service accruals and allowances based on historical sales, wholesaler and distributor inventory levels and the applicable discount rate.  The Company’s discounts are accrued at the time of the sale and are typically settled with the wholesalers or sole source distributor within 60 days after the end of each respective quarter.  At June 30, 2008 and December 31, 2007, the Company’s fee-for-service accruals and allowances were $1.6 million and $1.7 million, respectively.  A 10% change in the Company’s fee-for-service accruals and allowances would have

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had an approximate $0.2 million effect on the Company’s reported net revenue for the three and six months ended June 30, 2008.

The Company has adjusted its allowances for chargebacks and accruals for product returns, rebates and fees-for-service in the past based on actual sales experience, and the Company will likely be required to make adjustments to these allowances and accruals in the future. The Company continually monitors its allowances and accruals and makes adjustments when the Company believes actual experience may differ from its estimates.

International Distributors

Under the Company’s agreements with its primary international distributors, including Nycomed under the distribution agreement that was terminated in July 2007, the Company sells its product to these distributors at a fixed transfer price. The established transfer price is typically determined once per year, prior to the first shipment of Angiomax to the distributor each year. The minimum selling price used in determining the transfer price is 50% of the average net unit selling price.

Revenue from the sale of distribution rights during 2007 includes the amortization of milestone payments. These milestone payments are recorded as deferred revenue until contractual performance obligations have been satisfied, and they are typically recognized ratably over the term of these agreements. When the period of deferral cannot be specifically identified from the contract, the Company must estimate the period based upon other critical factors contained within the contract. The Company reviews these estimates at least annually, which could result in a change in the deferral period.  In connection with the Nycomed transaction (described in note 6 of these condensed consolidated financial statements), the Company wrote-off approximately $2.7 million of deferred revenue during the third quarter of 2007, which amount represented the unamortized portion of deferred revenue related to milestone payments received from Nycomed in 2004 and 2002.

Revenue from Collaborations

Under the terms of the transitional distribution agreement with Nycomed, the Company is entitled to receive a specified percentage of Nycomed’s net sales of Angiox to third parties.  In the event the Angiox sold was purchased by Nycomed from the Company prior to July 1, 2007, the amount the Company is entitled to receive in connection with such sale is reduced by the amount previously paid by Nycomed to the Company for such product.  Accordingly, revenue related to the transitional distribution agreement with Nycomed is not recognized until the product is sold by Nycomed to a hospital customer.  For the three months ended June 30, 2008, the Company recorded $1.4 million of net revenue from sales made by Nycomed of approximately $3.1 million under the transitional distribution agreement.  For the six months ended June 30, 2008, the Company recorded $2.7 million of net revenue from sales made by Nycomed of approximately $6.0 million under the transitional distribution agreement.  Such amounts were recorded as revenue from collaborations and are included in net revenue on the Company’s consolidated statements of operations.

Inventory

Inventory is recorded upon the transfer of title from the Company’s vendors. Inventory is stated at the lower of cost or market value and valued using first-in, first-out methodology. Angiomax bulk substance is classified as raw materials and its costs are determined using acquisition costs from the Company’s contract manufacturer. Work-in-progress costs of filling, finishing and packaging are recorded against specific product batches. The Company obtains all of its Angiomax bulk drug substance from Lonza Braine, S.A. Under the terms of the Company’s agreement with Lonza Braine, the Company provides forecasts of its annual needs for Angiomax bulk substance 18 months in advance. The Company also has a separate agreement with Ben Venue Laboratories, Inc. for the fill-finish of Angiomax drug product.  As of June 30, 2008, the Company had inventory-related purchase commitments for Angiomax bulk drug substance totaling $8.7 million during 2008 and $19.4 million during 2009.

The major classes of inventory were as follows:

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The Company reviews inventory, including inventory purchase commitments, for slow moving or obsolete amounts based on expected revenues. If annual revenues are less than expected, the Company may be required to make allowances for excess or obsolete inventory in the future.

Fixed Assets

Fixed assets are stated at cost. Depreciation is provided using the straight-line method based on estimated useful lives or, in the case of leasehold improvements, over the lesser of the useful lives or the lease terms.

Impairment of Long-Lived Assets

The Company evaluates the recoverability of its long-lived assets, including amortizable intangible assets, if circumstances indicate an impairment may have occurred pursuant to SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” This analysis is performed by comparing the respective carrying values of the assets to the current and expected future cash flows, on an undiscounted basis, to be generated from such assets. If such analysis indicates that the carrying value of these assets is not recoverable, the carrying value of such assets is reduced to fair value through a charge to the consolidated statements of income.

Research and Development

Research and development costs are expensed as incurred.

Stock-Based Compensation

Effective January 1, 2006, the Company adopted the fair value recognition provisions of FASB Statement No. 123 (revised 2004) “Share-Based Payment” (SFAS No. 123(R)), and is recognizing expense using the accelerated expense attribution method specified in FASB Interpretation No. (FIN) 28, “Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans”.   SFAS No. 123(R) requires companies to recognize compensation expense in an amount equal to the fair value of all share-based awards granted to employees.

In accordance with SFAS No. 123(R), the Company recorded approximately $6.9 million and $11.4 million of stock-based compensation expense for the three and six months ended June 30, 2008, respectively. For the three and six months ended June 30, 2007, the Company recorded approximately $3.7 million and $7.2 million of stock-based compensation expense, respectively.   As of June 30, 2008, the Company had approximately $26.5 million of total unrecognized compensation costs related to non-vested share-based employee compensation arrangements granted under the Company’s equity compensation plans.  The Company expects to recognize this cost over a weighted average period of 1.55 years.

During the six months ended June 30, 2008, the Company issued 188,545 shares of its common stock in connection with the exercise of stock options, issuance of restricted stock grants and purchases under its Employee Stock Purchase Plan (the ESPP). During the six months ended June 30, 2007, the Company issued 547,512 shares of its common stock in connection with the exercise of stock options, issuance of restricted stock grants and purchases under the ESPP.  Cash received from exercise of stock options and purchases through the ESPP during the six months ended June 30, 2008 and 2007 was approximately $1.5 million and $8.3 million, respectively, and is included within the financing activities section of the consolidated statements of cash flows.

At June 30, 2008, there were 3,445,038 shares of common stock reserved for future issuance under the ESPP and for future grants under the Company’s amended and restated 2004 stock incentive plan.

Recent Accounting Pronouncements

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (SFAS No. 141(R)), to replace SFAS No. 141, “Business Combinations”.  SFAS No. 141(R) requires use of the acquisition method of accounting, defines the acquirer, establishes the acquisition date and broadens the scope to all transactions and other events in which one entity obtains control over one or more other businesses. This statement is effective for financial statements issued for fiscal years beginning on or after December 15, 2008 with earlier adoption prohibited.  While there will be no impact to the Company’s financial statements on the accounting for acquisitions completed prior to December 31, 2008, the adoption of SFAS No. 141(R) on January 1, 2009 could materially change the accounting for business combinations consummated after that date.

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In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51” (SFAS No. 160). SFAS No. 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the retained interest and gain or loss when a subsidiary is deconsolidated.  This statement is effective for financial statements issued for fiscal years beginning on or after December 15, 2008 with earlier adoption prohibited.  The Company does not expect the adoption of SFAS No. 160 to have a material impact on its financial statements as the Company currently does not have any noncontrolling interests.  However, the adoption of SFAS No. 160 could materially change the accounting for such interests outstanding as of, or subsequent to, the date of adoption.

Income Taxes

The Company provides for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes” (SFAS No. 109) and FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (FIN 48).

On January 1, 2007, the Company adopted FIN 48, which requires the use of a two-step approach for recognizing and measuring tax benefits taken or expected to be taken in a tax return and disclosures regarding uncertainties in income tax positions.  The first step is recognition: the Company determined whether it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position.  In evaluating whether a tax position has met the more-likely-than-not recognition threshold, the Company presumed that the position will be examined by the appropriate taxing authority that has full knowledge of all relevant information.  The second step is measurement: a tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit to recognize in the financial statements.  The tax position is measured at the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement.  The adoption of FIN 48 by the Company did not have a material impact on the Company’s financial condition or results of operation and resulted in no cumulative effect of accounting change being recorded as of January 1, 2007.  On January 1, 2007, the Company reduced its deferred tax asset attributable to certain tax credits by approximately $1.2 million to appropriately measure the amount of such deferred tax asset in accordance with FIN 48.  This adjustment did not affect the net deferred tax asset because such asset was subject to a valuation allowance.  The recognition of this tax benefit may impact the effective income tax rate if such tax benefit is more likely than not to be realized when such benefit is recognized.  The Company does not anticipate a significant change in its unrecognized tax benefits in the next twelve months.  The Company is no longer subject to federal, state or foreign income tax audits for tax years prior to 2003, however such taxing authorities can review any net operating losses utilized by the Company in years subsequent to 2003.

In accordance with SFAS No. 109, deferred tax assets and liabilities are determined based on differences between financial reporting and income tax bases of assets and liabilities, as well as net operating loss carryforwards, and are measured using the enacted tax rates and laws in effect when the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to reflect the uncertainty associated with ultimate realization.

The Company recognizes potential interest and penalties relating to income tax positions as a component of the provision for income taxes.

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3.             Net Income per Share

The following table sets forth the computation of basic and diluted net income per share for the three and six months ended June 30, 2008 and 2007:

Basic earnings per share is computed using the weighted average number of shares of common stock outstanding during the period, reduced where applicable for outstanding yet unvested shares of restricted common stock.  The table below provides details of the outstanding options and restricted stock which were included in the calculation of weighted average common shares outstanding, diluted, for the three and six months ended June 30, 2008 and 2007. The number of dilutive common stock equivalents was calculated using the treasury stock method.

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4.                                      Comprehensive Income

The Company reports comprehensive income and its components in accordance with the provisions of SFAS No. 130, “Reporting Comprehensive Income”.  Comprehensive income includes net income, unrealized gain (loss) on available for sale securities and currency translation adjustments.   Comprehensive income for the three and six months ended June 30, 2008 and June 30, 2007 is detailed below.

5.             Income Taxes

For the three months ended June 30, 2008 and 2007, the Company recorded a $4.0 million and $0.7 million provision for income taxes, respectively, based upon its estimated tax liability for the year. The Company’s effective tax rate for the three months ended June 30, 2008 and 2007 is approximately 49% and 45%, respectively.   For the six months ended June 30, 2008 and 2007, the Company recorded a $7.8 million and $2.4 million provision for income taxes, respectively, based upon its estimated tax liability for the year.  The Company’s effective tax rate for the six months ended June 30, 2008 and 2007 is approximately 47% and 39%, respectively.  The provision for income taxes is based on federal, state and foreign income taxes.

During the three months ended December 31, 2006, the Company reduced a portion of the valuation allowances that had been recorded in prior years since the realization of these future benefits was determined to be more likely than not. The amount of the deferred tax asset considered realizable is subject to change based on estimates of future taxable income during the carryforward period. If the Company maintains profitability, these deferred tax assets are available to offset future income taxes. Factors that could significantly impact the Company’s valuation allowance include but are not limited to future projections of taxable income, tax legislation, rulings by relevant tax authorities, the progress of ongoing tax audits, the regulatory approval of products currently under development, extension of the patent rights relating to Angiomax, failure to achieve future anticipated revenues or the implementation of tax planning strategies in connection with the Company’s European expansion. The Company will continue to evaluate the realizability of its deferred tax assets and liabilities and will adjust such amounts in light of changing facts and circumstances.  Should the Company further reduce or increase the valuation allowance on deferred tax assets, a current year tax benefit or expense would be recognized and future periods would then include income taxes at a higher or lower rate than the effective rate in the period that the adjustment is made.

At December 31, 2007, net operating losses available to offset future taxable income for federal income tax purposes were approximately $197.0 million. If not utilized, federal net operating loss carryforwards will expire at various dates beginning in 2019 and ending in 2026. In 1998 and 2002, the Company experienced a change in ownership as defined in Section 382 of the Internal Revenue Code. Section 382 can potentially limit a company’s ability to use net operating losses, tax credits and other tax attributes in periods subsequent to a change in ownership.  Of the $197.0 million of the Company’s federal net operating losses, $61.3 million is subject to limitations through 2010. However, based on the market value of the Company at such dates, the Company believes that these ownership changes will not significantly impact its ability to use net operating losses or tax credits in the future to offset taxable income.

6.                       Nycomed Agreements

On July 1, 2007, the Company entered into a series of agreements with Nycomed (collectively, the Agreements) pursuant to which the Company terminated its prior distribution agreement with Nycomed and reacquired all rights to develop, distribute and market the Company’s product Angiox in the Territory. Prior to entering into the Agreements, Nycomed served as the exclusive distributor of Angiox in the Territory pursuant to a sales, marketing and distribution

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agreement, dated March 25, 2002, as amended.  The Territory does not include Spain, Greece and Portugal, which are covered by another third-party distributor.

Pursuant to the Agreements, the Company and Nycomed agreed to transition to the Company the Angiox rights held by Nycomed. Under these arrangements, the Company assumed control of the marketing of Angiox immediately and Nycomed agreed to provide, on a transitional basis, sales operations services, which ended December 31, 2007, and product distribution services through 2008. The term of this agreement has been extended and the Company anticipates it will assume control of the distribution of Angiox in the majority of countries in the Territory during the third quarter of 2008 and control of the distribution in the remaining countries by the end of 2008.

Under the terms of the transitional distribution agreement with Nycomed, upon the sale by Nycomed to third parties of vials of Angiox purchased by Nycomed from the Company prior to July 1, 2007 (the existing inventory), Nycomed is required to pay the Company a specified percentage of Nycomed’s net sales of Angiox, less the amount previously paid by Nycomed to the Company for the existing inventory. Under the transitional distribution agreement, Nycomed has the right to require the Company to repurchase any existing inventory at the price paid by Nycomed to the Company for such inventory.  The Company recorded a $3.0 million reserve in the fourth quarter of 2007 for the existing inventory at Nycomed which the Company does not believe will be sold prior to the termination of the transitional distribution agreement and would be subject to purchase in accordance with such agreement. The Company assessed the Nycomed inventory reserve as of June 30, 2008 and believes that $3.0 million remains the appropriate amount for such reserve.

Under the services agreement the Company entered into with Nycomed, Nycomed agreed to perform detailing and other selling, sales management, product/marketing management, medical advisor, international marketing and certain pharmacovigilance services in accordance with an agreed upon marketing plan through December 31, 2007.  The Company agreed to pay Nycomed’s personnel costs, plus an agreed upon markup, for the performance of the services, in accordance with a budget detailed by country and function.  In addition, the Company agreed to pay Nycomed’s costs, in accordance with a specified budget, for performing specified promotional activities during the term of the services agreement.  These amounts were included in selling, general and administrative expense on the condensed consolidated statements of operations as the Company received an identifiable benefit from these services and could reasonably estimate their fair value.  This agreement terminated on December 31, 2007.

The Company has incurred total costs of $45.7 million in connection with the reacquisition of the rights to develop, distribute and market Angiox in the Territory.  This amount includes milestone payments of $20.0 million, $15.0 million and $5.0 million paid to Nycomed on July 2, 2007, January 15, 2008 and July 8, 2008, respectively, as well as the $5.0 million payment on July 8, 2008 related to the Company obtaining European Commission approval to market Angiox for ACS, which occurred in January 2008.

In the third quarter of 2007, the Company recorded approximately $30.8 million as expense attributable to the termination of the prior distribution agreement with Nycomed.  The $30.8 million expense was offset in part by the write-off of approximately $2.7 million of deferred revenue, which amount represented the unamortized portion of deferred revenue related to milestone payments received from Nycomed in 2004 and 2002.  Such amounts were included in selling, general and administrative expense on the consolidated statements of operations for the year ended December 31, 2007.  The Company allocated approximately $14.9 million of the costs associated with the reacquisition of the rights to develop, distribute and market Angiox in the European Union to intangible assets.  These intangible assets are being amortized over the remaining patent life of Angiox, which expires in 2015.  The period in which amortization expense will be recorded reflects the pattern in which the economic benefits of the intangible assets are expected to be consumed.

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The components of intangible assets, net, are as follows:

Amortization expense was approximately $0.1 million and $0.3 million for the three and six months ended June 30, 2008, respectively.  The Company expects amortization expense related to these intangible assets to be $0.3 million for the remainder of 2008.  The Company expects annual amortization expense related to these intangible assets to be $1.1 million, $1.7 million, $2.3 million, $2.3 million and $2.9 million for the years ending December 31, 2009, 2010, 2011, 2012 and 2013, respectively, with the balance of $4.0 million being amortized thereafter.  Such amounts will be recorded in selling, general and administrative expense on the consolidated statements of operations.

7.                      Contingencies

The Company may be, from time to time, a party to various disputes and claims arising from normal business activities. In accordance with SFAS No. 5, “Accounting for Contingencies”, the Company accrues for loss contingencies when information available indicates that it is probable that a liability has been incurred and the amount of such loss can be reasonably estimated. The Company believes that the ultimate resolution of these matters will not have a material adverse effect on the Company’s financial condition or liquidity. However, adjustments, if any, to the Company’s estimates could be material to operating results for the periods in which adjustments to the liability are recorded.

8.                      Subsequent Events

On July 2, 2008, the Company made a short term convertible loan of $5.0 million to a specialty pharmaceutical company with expertise in drug development.  The loan will convert to equity upon the completion of such specialty pharmaceutical company’s current round of equity financing. The specialty pharmaceutical company is also assisting the Company with its continued activity of product lifecycle management.

On August 1, 2008, the FDA approved the Company’s product, Cleviprex, a dihydropyridine calcium channel blocker, for the reduction of blood pressure when oral therapy is not feasible or not desirable.  As a result of such approval, the Company is required to pay a $1.5 million milestone payment to AstraZeneca in the third quarter of 2008 under the terms of the Company’s patent license agreement with AstraZeneca.

On August 4, 2008, the Company acquired Curacyte Discovery, a wholly owned subsidiary of Curacyte AG.  Curacyte Discovery, a German limited liability company, is primarily engaged in the discovery and development of small molecule serine protease inhibitors. The Company expects to initiate Phase I clinical trials of Curacyte Discovery’s lead compound,CU-2010, for the prevention of surgical blood loss during the second half of 2008.  In connection with the agreement, the Company paid Curacyte AG an upfront payment of €14.5 million and agreed to pay a contingent milestone payment of €10.5 million and possible future sales royalty payments and a commercial milestone payment.  The Company expects to complete the allocation of the purchase price within one year from the date of the acquisition.  The Company expects that it will record the majority of the purchase price as acquisition related in-process research and development expense in the third quarter of 2008.

Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and accompanying notes included elsewhere in this quarterly report. In addition to the historical information, the discussion in this quarterly report contains certain forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated by the forward-looking statements due to our critical accounting estimates discussed below and important factors set forth in this quarterly report, including under “Risk Factors” in Part II, Item 1A of this quarterly report.

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Overview

We are a global pharmaceutical company focused on advancing the treatment of critical care patients through the delivery of innovative, cost-effective medicines to the worldwide hospital marketplace. We have two marketed products, Angiomax® (bivalirudin) and Cleviprex™ (clevidipine butyrate) injectable emulsion, one product in late-stage development, cangrelor, and one compound, CU-2010, scheduled to enter clinical development in the second half of 2008. We market Angiomax to interventional cardiology customers for its approved uses in patients undergoing percutaneous coronary intervention, or PCI, including in patients with or at risk of heparin-induced thrombocytopenia and thrombosis syndrome, a complication of heparin administration known as HIT/HITTS that can result in limb amputation, multi-organ failure and death as well as for acute coronary syndrome, or ACS, in Europe. We market and sell Angiomax, and plan to market and sell Cleviprex, in the United States with a sales force that, as of June 30, 2008, consisted of 153 representatives and managers experienced in selling to hospital customers.  In the European Union and other foreign jurisdictions, we currently sell Angiox to third-party distributors that market and distribute the product to hospitals.  Cleviprex is not approved for sale outside the United States.  Our revenues to date have been generated principally from sales of Angiomax in the United States. We are increasing our sales force worldwide in connection with the expansion of our sales and marketing efforts in Europe, approval of the label expansion for the use of Angiox® (bivalirudin), the name under which we sell Angiomax in Europe, for ACS in Europe, and the approval by the U.S. Food and Drug Administration, or FDA, of Cleviprex for the reduction of blood pressure when oral therapy is not feasible or not desirable.

We are also developing Angiomax and Cleviprex for additional indications.  In December 2006 and July 2007, we submitted an application to the European Agency for the Evaluation of Medical Products, or the EMEA, and a supplemental new drug application, or sNDA, to the FDA, respectively, seeking approval of an additional indication for Angiomax for an additional dosing regimen in the treatment of ACS initiated in the emergency department.  These applications were based on the results of our Phase III ACUITY clinical trial in which we studied Angiomax in patients presenting in the emergency department with ACS.  In January 2008, the EMEA authorized the use of Angiox in adult patients with ACS, specifically patients with unstable angina or non-ST segment elevation myocardial infarction planned for urgent or early intervention, when used with aspirin and clopidogrel. In May 2008, we received a non-approvable letter from the FDA with respect to the Angiomax sNDA. In its letter, the FDA indicated that the basis of their decision involved the appropriate use and interpretation of non-inferiority trials, including ACUITY.  We disagree with the FDA on these issues and have initiated discussions to address them.

Research and development expenses represent costs incurred for product acquisition, clinical trials, activities relating to regulatory filings and manufacturing development efforts. We outsource much of our clinical trials and all of our manufacturing development activities to third parties to maximize efficiency and minimize our internal overhead. We expense our research and development costs as they are incurred. Selling, general and administrative expenses consist primarily of salaries and related expenses, general corporate activities and costs associated with marketing and promotional activities. Research and development expense, selling, general and administrative expense and cost of revenue also include stock-based compensation expense, which we allocate based on the responsibilities of the recipients of the stock-based compensation.

Except for 2004 and 2006, we have incurred net losses on an annual basis since our inception. As of June 30, 2008, we had an accumulated deficit of approximately $250.5 million. We expect to make substantial expenditures to further develop and commercialize our products, including costs and expenses associated with clinical trials, regulatory approvals and commercialization. Although we achieved profitability in 2004 and in 2006, and expect to be profitable in 2008, we were not profitable in 2007, primarily as a result of the costs incurred in connection with our transaction with Nycomed Danmark ApS, or Nycomed, and we were not profitable in 2005.  We will likely need to generate significantly greater revenue in future periods to achieve and maintain profitability in light of our planned expenditures.

In March 2007, we entered into an agreement with a third party to distribute Angiomax in the United States through a sole source distribution model.  Under this model, we sell Angiomax to our sole source distributor, which then sells Angiomax to a limited number of national medical and pharmaceutical wholesalers with distribution centers located throughout the United States and, in certain cases, directly to hospitals.    Prior to adopting this sole source distribution model, we sold Angiomax to these wholesalers directly and these wholesalers then sold Angiomax to hospitals. We began selling Angiomax under this revised distribution system during the quarter ended March 31, 2007.  We plan to distribute Cleviprex through the same sole source distributor as we use for Angiomax.

Outside the United States, we sell Angiomax to several international distributors, which then sell Angiomax to hospitals.  To date, in the European Union and other foreign jurisdictions, we have sold Angiomax to third-party distributors that market and distribute the product to hospitals.

On July 1, 2007, we entered into a series of agreements with Nycomed pursuant to which we terminated the prior distribution agreement with Nycomed and reacquired all development, commercial and distribution rights for Angiox in the European Union (excluding Spain, Portugal and Greece) and the former Soviet republics, or collectively, the Nycomed

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territory.  Prior to entering into the Nycomed agreements, Nycomed served as the exclusive distributor of Angiox in the Nycomed territory pursuant to a sales, marketing and distribution agreement, dated March 25, 2002, as amended.  Pursuant to the Nycomed agreements, we and Nycomed agreed to transition the Angiox rights held by Nycomed to us. Under these arrangements, we assumed control of the marketing of Angiox immediately and Nycomed agreed to provide, on a transitional basis, sales operations services, which ended December 31, 2007, and product distribution services through 2008. We anticipate that we will assume control of the distribution of Angiox in the majority of countries in the Nycomed territory during the third quarter of 2008 and the control of the distribution in the remaining countries by the end of 2008.

Under the terms of the transitional distribution agreement with Nycomed, upon the sale by Nycomed to third parties of vials of Angiox purchased by Nycomed from us prior to July 1, 2007, which we refer to as existing inventory, Nycomed agreed to pay us a specified percentage of Nycomed’s net sales of Angiox, less the amount previously paid by Nycomed to us for the existing inventory. Under the transitional distribution agreement, Nycomed has the right to require us to repurchase any existing inventory at the price paid by Nycomed to us for such inventory. We recorded a reserve of $3.0 million in the fourth quarter of 2007 for the existing inventory at Nycomed which we do not believe will be sold prior to the termination of the transitional distribution agreement and would be subject to purchase in accordance with this agreement. We assessed the Nycomed inventory reserve as of June 30, 2008 and believe that $3.0 million remains the appropriate amount for such reserve.

Under the services agreement we entered into with Nycomed, Nycomed performed detailing and other selling, sales management, product/marketing management, medical advisor, international marketing and certain pharmacovigilance services in accordance with an agreed upon marketing plan which ended December 31, 2007. Nycomed remains responsible for safety reporting for as long as it sells Angiox in the Nycomed territory. Pursuant to the agreement, we agreed to pay Nycomed’s personnel costs, plus an agreed upon markup, for the performance of the services, in accordance with a budget detailed by country and function. In addition, we agreed to pay Nycomed’s costs, in accordance with a specified budget, for performing specified promotional activities during the term of the services agreement.   This services agreement terminated on December 31, 2007.

We have incurred total costs of $45.7 million in connection with the reacquisition of the rights to develop, distribute and market Angiox in the Nycomed territory. This amount includes the milestone payments of $20.0 million paid to Nycomed on June 2, 2007, $15.0 million paid to Nycomed on January 15, 2008 and $5.0 million paid to Nycomed on July 8, 2008, as well as an additional $5.0 million paid to Nycomed on July 8, 2008 for our obtaining European Commission approval to market Angiox for ACS in January 2008.

During the third quarter of 2007, we allocated $30.8 million of these costs as expense attributable to the termination of the prior distribution agreement with Nycomed and $14.9 million to intangible assets. The $30.8 million expense was offset in part by the write-off of approximately $2.7 million of deferred revenue, which amount represented the unamortized portion of deferred revenue related to milestone payments received from Nycomed in 2004 and 2002. Such amounts were included in selling, general and administrative expense on the consolidated statements of operations for the year ended December 31, 2007.  We allocated approximately $14.9 million of the costs associated with the reacquisition of the rights to develop, distribute and market Angiox in the European Union to intangible assets.  These intangible assets are being amortized over the remaining patent life of Angiox, which expires in 2015.  The period in which amortization expense will be recorded reflects the pattern in which the economic benefits of the intangible assets are expected to be consumed.

To support the marketing, sales and distribution efforts of Angiox, we are taking the necessary steps to develop our business infrastructure outside the United States. We have conducted market research to examine the number of PCI procedures performed globally and to identify key opinion leaders on a global basis. We are enhancing our worldwide development, sales and marketing capabilities, with European operations being our initial focus.  We believe that by establishing operations in Europe for Angiox, we will be positioned to commercialize our pipeline of acute care product candidates, including Cleviprex, cangrelor and CU-2010, in Europe.

We have accrued for U.S. and state income taxes, for state taxes based on net worth and for a certain amount of income tax in international jurisdictions in our financial statements to the extent these taxes apply. At December 31, 2007, net operating losses available to offset future taxable income for federal income tax purposes were approximately $197.0 million. If not utilized, federal net operating loss carryforwards will expire at various dates beginning in 2019 and ending in 2026. During 2006, we reduced a portion of our valuation allowance associated with the deferred tax assets because at that time we considered the realization of these assets to be more likely than not. The future utilization of net operating losses and credits may be subject to limitation based upon changes in ownership under the rules of the Internal Revenue Code, or IRC. We experienced changes in ownership as defined by Section 382 of the IRC during the years ended December 31, 1998 and 2002. Based on the market value of our common stock at the time of those changes, we believe there will be no impact on our

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ability to utilize our net operating losses and credits. Of the $197.0 million of our federal net operating losses, $61.3 million is subject to limitations through 2010.

On August 4, 2008, we acquired Curacyte Discovery GmbH, or Curacyte Discovery, a wholly owned subsidiary of Curacyte AG.  Curacyte Discovery, a German limited liability company, is primarily engaged in the discovery and development of small molecule serine protease inhibitors. We expect to initiate Phase I clinical trials of Curacyte Discovery’s lead compound CU-2010 for the prevention of surgical blood loss during the second half of 2008.  In connection with the agreement, we paid Curacyte AG an upfront payment of €14.5 million and agreed to pay a contingent milestone payment of €10.5 million and possible future sales royalty payments and a commercial milestone payment.  We expect to complete the allocation of the purchase price within one year from the date of the acquisition.  We expect the majority of the purchase price to be recorded as acquisition related in-process research and development expense in the third quarter of 2008.

Application of Critical Accounting Estimates

The discussion and analysis of our financial condition and results of operations is based on our unaudited condensed consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP, for interim financial information and with the instructions to Form 10-Q.  Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements.  The preparation of these financial statements requires us to make estimates and judgments that affect our reported assets and liabilities, revenues and expenses, and other financial information. Actual results may differ significantly from these estimates under different assumptions and conditions. In addition, our reported financial condition and results of operations could vary due to a change in the application of a particular accounting standard.

We regard an accounting estimate or assumption underlying our financial statements as a “critical accounting estimate” where:

·       the nature of the estimate or assumption is material due to the level of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change; and

·       the impact of the estimates and assumptions on financial condition or operating performance is material.

Our significant accounting policies are more fully described in note 2 of the Unaudited Condensed Consolidated Financial Statements section of this quarterly report on Form 10-Q and note 2 of the Consolidated Financial Statements in our annual report on Form 10-K for the year ended December 31, 2007.  Not all of these significant accounting policies, however, require that we make estimates and assumptions that we believe are “critical accounting estimates.”  We have discussed our accounting policies with the audit committee of our board of directors, and we believe that our estimates relating to revenue recognition, inventory, stock-based compensation and income taxes described under the caption “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations-Application of Critical Accounting Estimates” in our annual report on Form 10-K for the year ended December 31, 2007 are “critical accounting estimates.”

Results of Operations

Three Months Ended June 30, 2008 and 2007

Net Revenue.   Net revenue increased 54% to $86.7 million for the three months ended June 30, 2008 as compared to $56.4 million for the three months ended June 30, 2007. The following table reflects the components of net revenue for the three months ended June 30, 2008 and 2007:

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Net Revenue

Net revenue for the three months ended June 30, 2008 increased compared to the three months ended June 30, 2007 primarily due to the increase in U.S. sales of Angiomax.  Sales of Angiomax in the United States increased $29.3 million, or 53%, due to increased demand by existing hospital customers, the addition of new hospital customers and the price increases we implemented in August 2007 and January 2008.  Of the 53% increase in net revenue in the second quarter of 2008 compared to the same quarter in 2007, approximately 29% was related to hospital demand by existing and new customers and approximately 24% was attributable to the price increases.

International net revenue decreased $0.4 million during the three months ended June 30, 2008 compared to the three months ended June 30, 2007 primarily related to decreased orders from our Canadian distributor.

During the three months ended June 30, 2008, we recognized as revenue from collaborations approximately $1.4 million of net revenue from sales made by Nycomed of approximately $3.1 million of Angiox under our transitional distribution agreement with Nycomed. Under the terms of this transitional distribution agreement, upon the sale by Nycomed to third parties of vials of Angiox, Nycomed pays us a specified percentage of Nycomed’s net sales of Angiox, less the amount previously paid by Nycomed to us for the existing inventory.  We anticipate that we will assume control of the distribution of Angiox in the majority of countries in the Nycomed territory during the third quarter and control of the distribution in the remaining countries by the end of 2008.

Cost of Revenue.   Cost of revenue during the three months ended June 30, 2008 was $21.9 million, or 25% of net revenue, compared to $15.1 million, or 27% of net revenue, for the three months ended June 30, 2007. The decrease in cost of revenues as a percentage of net revenue is primarily attributable to an increase in revenue from collaborations, net.  Cost of revenue consisted of expenses in connection with the manufacture of Angiomax sold, royalty expenses under our agreements with Biogen Idec and Health Research Inc. and the logistics costs of selling Angiomax, such as distribution, storage and handling.  Cost of revenue increased $6.8 million during the three months ended June 30, 2008 compared to the three months ended June 30, 2007.  Approximately $4.1 million of the total cost of revenue increase related to an increase in royalty expense due to higher Angiomax sales and approximately $2.0 million of the increase related to increase in logistics costs primarily related to higher Angiomax sales and our costs associated with establishing our European distribution network.

Cost of Revenue

Research and Development Expenses.   Research and development expenses increased by 26% to $19.8 million for the three months ended June 30, 2008, from $15.7 million for the three months ended June 30, 2007. The increase in research and development expenses resulted primarily from an increase in expenditures in connection with the development of Angiomax for additional indications and product lifecycle management activities, increased investment in our cangrelor development program and an increase in business development expenses.  The increase in research and development expenses was partially offset by decreased research and development expenditures in connection with Cleviprex.

The following table identifies, for each of our major research and development projects, our spending for the three months ended June 30, 2008 and 2007. Spending for past periods is not necessarily indicative of spending in future periods.

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Research and Development Spending

Angiomax

Research and development spending in the three months ended June 30, 2008 related to Angiomax increased by approximately $2.7 million compared to in the three months ended June 30, 2007.  Angiomax clinical trial expenses increased approximately $1.5 million reflecting the final milestone payment we incurred in connection with the investigator-initiated trial called HORIZONS to study Angiomax use in adult acute myocardial infarction, or AMI, patients that we supported. HORIZONS was designed to evaluate whether Angiomax with provisional use of glycoprotein IIb/IIIa, or GPIIb/IIIa inhibitors, is as safe and effective as heparin or enoxaparin with planned use of GPIIb/IIIa inhibitors in AMI patients.

During the three months ended June 30, 2007, we continued to incur research and development expenses for our 13,819 patient Phase III ACUITY trial, primarily related to data analysis.  In July 2007, we submitted an application to the FDA seeking approval of an additional indication for Angiomax for an additional dosing regimen in the treatment of ACS initiated in the emergency department based on the results of our Phase III ACUITY trial.  In May 2008, we received a non-approvable letter from the FDA with respect to this sNDA.  In its letter, the FDA indicated that the basis of their decision involved the appropriate use and interpretation of non-inferiority trials, including ACUITY.  We disagree with the FDA on these issues and have initiated discussions to address them.

Clinical trial expenses in the three months ended June 30, 2008 also included research and development expenses that we incurred in connection with a study of Angiomax in the pediatric setting that we began in the first half of 2007 in connection with a written request for such a study that we received from the FDA. The study consists of a single trial to clarify the pediatric dose that provides a pharmacodynamic response equivalent to that observed in the adult population at the approved adult dose. We completed the enrollment of 100 patients during the second quarter of 2008 and expect to file a clinical study report for the pediatric extension with the FDA in the second half of 2008.  Costs incurred in connection with the pediatric study were comparable in the three month periods ended June 30, 2008 and 2007.

During the three months ended June 30, 2008, Angiomax manufacturing and development expenses increased $1.3 million compared to the three months ended June 30, 2007, primarily due to costs incurred in connection with product lifecycle management activities. Although we plan to continue to incur research and development expenses relating to Angiomax in connection with our efforts to expand the indications for which Angiomax is currently approved and to increase our product lifecycle management activities, we expect spending for Angiomax in the remainder of 2008 to decrease as a percentage of our research and development expense.

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Cleviprex

Research and development expenditures for Cleviprex decreased approximately $0.9 million during the three months ended June 30, 2008 compared to the same period in 2007.  The decrease in research and development expenditures primarily related to spending during 2007 in preparation for filing our NDA with the FDA, which we submitted in July 2007.  On August 1, 2008, the FDA approved Cleviprex for the reduction of blood pressure when oral therapy is not feasible or not desirable.

We expect research and development expenses for Cleviprex in the remainder of 2008 will primarily include a $1.5 million milestone payment to AstraZeneca in connection with the FDA’s approval of Cleviprex, costs associated with our anticipated exploratory efficacy and safety related Phase IIIb trials of Cleviprex and an observational study and clinical survey on characteristics of patients with acute, severe hypertension and treatment practices for acute severe hypertension conducted by third-party researchers.

Cangrelor

We are developing cangrelor for potential use as an antiplatelet agent in the acute care settings of the cardiac catheterization laboratory, the operating room and/or the emergency department. Research and development expenditures related to cangrelor increased in the three months ended June 30, 2008 compared to the same period in 2007 as a result of the two pivotal Phase III clinical trials that we continue to conduct for the evaluation of cangrelor’s effectiveness and safety in preventing ischemic events in patients who require PCI. In March 2006, we commenced enrollment of our CHAMPION-PCI trial, one of the two pivotal trials in our Phase III program which we designed to evaluate whether use of intravenous cangrelor is superior to use of clopidrogrel tablets in patients undergoing PCI. We commenced enrollment in October 2006 of a second trial, called CHAMPION-PLATFORM, which compares cangrelor plus usual care to placebo plus usual care in patients who require PCI. We currently expect to enroll approximately 9,000 patients in the CHAMPION-PCI trial and 6,400 patients in the CHAMPION-PLATFORM trial.

As of June 30, 2008, we had enrolled approximately 6,500 patients in our CHAMPION-PCI trial and approximately 2,900 patients in our CHAMPION-PLATFORM trial.  We plan to complete patient enrollment in both trials in the first half of 2009.

Other

Spending in this category consists of infrastructure costs in support of our product development efforts, which includes expenses for data management, statistical analysis, analysis of pre-clinical data, analysis of pharmacokinetic-pharmacodynamic (PK/PD) data and product safety as well as expenses related to business development activities. We incur business development expenses in connection with our efforts to evaluate early stage and late stage compounds for development and commercialization and other strategic opportunities. In the three months ended June 30, 2008, spending in this category increased by $1.1 million compared to the same period in 2007 primarily related to an increase in business development activities.

In order to support the continued development of Angiomax, Cleviprex and cangrelor, we expect our annual research and development expenses to increase in 2008 from 2007 levels to between $79.0 million and $83.0 million in 2008.  We expect this increase in research and development expenses to include costs associated with enrollment of our ongoing Phase III CHAMPION-PCI trial and CHAMPION-PLATFORM trial for cangrelor, our anticipated Phase IIIb trials for Cleviprex and additional manufacturing development costs for Cleviprex and cangrelor. We also anticipate that stock-based compensation expense included in research and development expenses will increase in 2008 as a result of anticipated stock option grants to new and current employees.  We also expect research and development costs to increase in the second half of 2008 beyond our $79.0 million and $83.0 range due to the acquisition of Curacyte Discovery and CU-2010, as we believe that we will have an additional $2.0 to $3.0 million of expenses for the continued operation of Curacyte Discovery and we will record the majority of the purchase price as acquisition related in-process research and development expense in the third quarter of 2008.

Our success in expanding the approved indications for Angiomax, launching Cleviprex in the United States, or developing and obtaining marketing approval for cangrelor and CU-2010, is highly uncertain. We cannot predict expenses associated with ongoing data analysis or regulatory submissions, if any. Nor can we reasonably estimate or know the nature, timing and estimated costs of the efforts necessary to complete the development of, or the period in which material net cash inflows are expected to commence from, Cleviprex outside the United States, cangrelor or CU-2010 due to the numerous risks and uncertainties associated with developing drugs, including the uncertainty of:

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·                  the scope, rate of progress and cost of our clinical trials and other research and development activities;

·                  future clinical trial results;

·                  the terms and timing of any collaborative, licensing and other arrangements that we may establish;

·                  the cost and timing of regulatory approvals;

·                  the cost and timing of establishing sales, marketing and distribution capabilities;

·                  the cost of establishing clinical and commercial supplies of our product candidates;

·                  the effect of competing technological and market developments; and

·                  the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights.

Selling, General and Administrative Expenses.   Selling, general and administrative expenses increased by 45% to $38.8 million for the three months ended June 30, 2008, from $26.8 million for the same period in 2007. The increase in selling, general and administrative expenses of $12.0 million was primarily due to $3.2 million of fees related to building a business infrastructure in Europe, a $2.6 million increase in stock-based compensation expense, a $1.5 million increase in Angiomax marketing, a $2.0 million increase related to headcount expansion, including the expansion of medical science, sales management and global operations teams, and an increase in Cleviprex expenses of $1.3 million in preparation for the anticipated launch of the product in the United States.

We expect selling, general and administrative expenses to increase in the remainder of 2008 from 2007 levels primarily due to increased headcount, increased stock-based compensation expense, expenses to support the launch of Cleviprex and expenses related to our European expansion.

Other Income.   Other income, which is primarily comprised of interest income, decreased approximately 34% to $1.8 million for the three months ended June 30, 2008, from $2.7 million for the comparable period in 2007. The decrease in other income of $0.9 million was primarily due to lower rates of return on our available for sale securities in 2008.

Provision for Income Tax.   The provision for income taxes increased to $4.0 million based on income before taxes of $8.0 million for the three months ended June 30, 2008 which compares to a $0.7 million provision based on income before taxes of $1.5 million for the three months ended June 30, 2007.  The increase in provision for income taxes primarily relates to an increase in income before taxes during the three months ended June 30, 2008 compared to the same period in 2007.  This resulted in an effective tax rate of 49% and 45% for the three months ended June 30, 2008 and 2007, respectively.  The increase in effective tax rate is primarily related to losses incurred from our international operations for which we did not record a corresponding tax benefit as we currently estimate it is not more likely than not that we will recognize a benefit from the international deferred tax assets.

We will continue to evaluate the realizability of our deferred tax assets and liabilities on a periodic basis, and will adjust such amounts in light of changing facts and circumstances, including but not limited to future projections of taxable income, tax legislation, rulings by relevant tax authorities, the progress of ongoing tax audits, the regulatory approval of products currently under development, extension of the patent rights relating to Angiomax, failure to achieve future anticipated revenues or the implementation of tax planning strategies in connection with our European expansion. If we further reduce or increase the valuation allowance of deferred tax assets in future years, we would recognize a tax benefit or expense.

Six Months Ended June 30, 2008 and 2007

Net Revenue.   Net revenue increased 35% to $166.2 million for the six months ended June 30, 2008, as compared to $123.0 million for the six months ended June 30, 2007. The following table reflects the components of net revenue for the six months ended June 30, 2008 and 2007:

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Net Revenue

U.S. sales of Angiomax for the six months ended June 30, 2008 increased compared to the six months ended June 30, 2007 due to increased sales as a result of increased demand by existing hospital customers and the addition of new hospital customers and the price increases we implemented in August 2007 and January 2008.  The increase in sales of Angiomax in the United States also reflects a $1.4 million credit from our domestic wholesalers in connection with our price increase announced January 2008.  Of the 35% increase in net revenue in the six months ended June 30, 2008 compared to the same period in 2007, approximately 23% was attributable to price increases, 10% was related to hospital demand and 2% was related to the $1.4 million credit from our domestic wholesalers.

The increase of $0.5 million in international sales in the six months ended June 30, 2008 compared to the six months ended June 30, 2007 primarily related to increased orders from our Canadian distributor.

During the six months ended June 30, 2008, we recognized as revenue from collaborations approximately $2.7 million of net revenue from sales made by Nycomed of approximately $6.0 million under our transitional distribution agreement with Nycomed. Under the terms of this transitional distribution agreement, upon the sale by Nycomed to third parties of vials of Angiox, Nycomed pays us a specified percentage of Nycomed’s net sales of Angiox, less the amount previously paid by Nycomed to us for the existing inventory.

Cost of Revenue.   Cost of revenue during the six months ended June 30, 2008 was $41.0 million, or 25% of net revenue, compared to $32.9 million, or 27% of net revenue, for the six months ended June 30, 2007. The decrease in cost of revenues as a percentage of net revenue is attributable to an increase in revenue from collaborations, net, and an increase in U.S. sales of Angiomax, which reflects the $1.4 million credit from our domestic wholesalers in connection with our price increase announced in January 2008.  Cost of revenue during these periods consisted of expenses in connection with the manufacture of Angiomax sold, royalty expenses under our agreements with Biogen Idec and Health Research Inc. and the logistics costs of selling Angiomax, such as distribution, storage and handling.

Cost of revenue increased $8.2 million during the six months ended June 30, 2008 compared to the six months ended June 30, 2007.  Approximately $5.5 million of the total cost of revenue increase related to an increase in royalty expense due to higher Angiomax sales and approximately $2.3 million of the increase related to an increase in logistics costs primarily related to higher sales of Angiomax and our costs associated with establishing our European distribution network.

Cost of Revenue

Research and Development Expenses.   Research and development expenses increased by 9% to $38.4 million for the six months ended June 30, 2008, from $35.2 million for the six months ended June 30, 2007. The increase in research and development expenses resulted primarily from an increase in expenditures in connection with the development of Angiomax for additional indications and product lifecycle management activities, increased investment in our cangrelor development program and an increase in business development expenses.  The increase in research and development expenses was partially offset by decreased research and development expenditures in connection with Cleviprex.

The following table identifies, for each of our major research and development projects, our spending for the six months ended June 30, 2008 and 2007. Spending for past periods is not necessarily indicative of spending in future periods.

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Research and Development Spending

Angiomax

Research and development spending in the six months ended June 30, 2008 related to Angiomax increased approximately $1.1 million compared to the six months ended June 30, 2007.  Angiomax clinical trial costs increased approximately $0.3 million primarily due to the final milestone payment of $1.5 million we incurred in connection with the HORIZONS study.  This milestone payment was offset by decreased expenditures in connection with the ACUITY trial.  Angiomax manufacturing and development increased $1.7 million compared to the six months ended June 30, 2007, primarily due to product lifecycle management activities.  These increases were offset by a decrease in administrative and headcount costs primarily related to our efforts to seek approval from the FDA of an additional indication for Angiomax for the treatment of patients with ACS based on results of our Phase III ACUITY trial.

Cleviprex

Research and development expenditures for Cleviprex decreased approximately $2.9 million during the six months ended June 30, 2008 compared to the same period in 2007.  The decrease in research and development expenditures primarily related to spending during 2007 in preparation for filing our NDA with the FDA, which we submitted in July 2007.

Cangrelor

Research and development expenditures related to cangrelor increased in the six months ended June 30, 2008 compared to the same period in 2007 as a result of our CHAMPION-PCI trial and our CHAMPION-PLATFORM trial that we continue to conduct for the evaluation of cangrelor’s effectiveness and safety in preventing ischemic events in patients who require PCI.

Other

Expense in this category consists of infrastructure costs in support of our product development efforts, which includes expenses for data management, statistical analysis, analysis of pre-clinical data, analysis of pharmacokinetic-pharmacodynamic (PK/PD) data and product safety as well as expenses related to business development activities. In the six months ended June 30, 2008, expense increased by $2.3 million compared to the same period in 2007 primarily related to an increase in business development activities.

Selling, General and Administrative Expenses.   Selling, general and administrative expenses increased by 37% to $74.1 million for the six months ended June 30, 2008, from $54.0 million for the same period in 2007. The increase in selling, general and administrative expenses of $20.1 million includes an increase in expenses of $5.5 million in preparation for the launch of Cleviprex, $5.4 million of fees related to the building of a business infrastructure in Europe, a $4.0 million

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increase in expenses relating to marketing of Angiomax, including an increase in the size of the sales force and a $4.2 million increase in stock-based compensation expense.  The balance of the increase was primarily due to other headcount related costs.

Other Income.   Other income, which is primarily comprised of interest income, decreased approximately 21% to $4.2 million for the six months ended June 30, 2008, from $5.3 million for the comparable period in 2007. The decrease in other income of $1.1 million was primarily due to lower rates of return on our available for sale securities in 2008.

Provision for Income Tax.   The provision for income taxes increased to $7.8 million based on income before taxes of $16.7 million for the six months ended June 30, 2008, compared to $2.4 million based on income before taxes of $6.3 million for the six months ended June 30, 2007. Our effective income tax rate for the six months ended June 30, 2008 was 47% compared to 39% for the six months ended June 30, 2007.  The increase in effective tax rate is primarily related to losses incurred from our international operations for which we did not record a corresponding tax benefit as we currently estimate it is not more likely than not that we will recognize a benefit from the international deferred tax assets.

Liquidity and Capital Resources

Sources of Liquidity.   Since our inception, we have financed our operations principally through the sale of common and preferred stock, sales of convertible promissory notes and warrants, interest income and revenues from sales of Angiomax. Except for 2006 and 2004, we have incurred losses on an annual basis since our inception. We had $238.1 million in cash, cash equivalents and available for sale securities as of June 30, 2008.

Cash Flows.   As of June 30, 2008, we had $103.7 million in cash and cash equivalents, as compared to $88.1 million as of December 31, 2007. Our increase in cash and cash equivalents during the six months ended June 30, 2008 included $16.1 million in net cash provided by operating activities and $1.5 million in net cash provided by financing activities, which was partially offset by $2.0 million of net cash used in investing activities.

Net cash provided by operating activities was $16.1 million for the six months ended June 30, 2008, compared to net cash provided by operating activities of $11.3 million for the six months ended June 30, 2007.  The net cash provided by operating activities during the six months ended June 30, 2008 includes an increase in cash flow from operations reflecting an increase in net income to $8.9 million and non-cash items included in net income totaling $18.7 million mainly attributable to stock-based compensation expense of $11.4 million and deferred tax provision of $6.6 million.  Cash provided by operating activities also reflected a $11.5 million reduction in cash provided by operating activities associated with changes in working capital items.  Included within the changes in working capital items was a $12.7 million decrease in accrued expenses primarily due to the $15 million payment made to Nycomed on January 15, 2008 under our transitional distribution agreement with Nycomed.

For the six months ended June 30, 2008, $2.0 million in net cash was used in investing activities, which consisted of the purchase of $88.2 million of available for sale securities, and purchases of $1.9 million of fixed assets, offset by $88.1 million in proceeds from the maturity and sale of available for sale securities.

For the six months ended June 30, 2008, we received $1.5 million in cash provided by financing activities, which consisted of net proceeds to us from purchases of our stock pursuant to option exercises and our employee stock purchase plan.

Funding Requirements.  We expect to devote substantial resources to our research and development efforts and to our sales, marketing and manufacturing programs associated with the commercialization of our products. Our funding requirements will depend on numerous factors including: