10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 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 001-32335

HALOZYME THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

Delaware	88-0488686
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

11388 Sorrento Valley Road, San Diego, CA	92121
(Address of principal executive offices)	(Zip Code)

(858) 794-8889
(Registrant’s telephone number, including area code)

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 þ      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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o  Accelerated filer þ  Non-accelerated filer   o
(Do not check if a smaller reporting company) Smaller reporting company o 

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

The number of outstanding shares of the registrant’s common stock, par value $0.001 per share, was 81,443,823 as of November 3, 2008.

HALOZYME THERAPEUTICS, INC.

INDEX

	Page
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets — September 30, 2008 (Unaudited) and December 31, 2007		3
Condensed Consolidated Statements of Operations (Unaudited) — Three and Nine Months Ended September 30, 2008 and 2007		4
Condensed Consolidated Statements of Cash Flows (Unaudited) — Nine Months Ended September 30, 2008 and 2007		5
Notes to Condensed Consolidated Financial Statements (Unaudited)		6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		13
Item 3. Quantitative and Qualitative Disclosures About Market Risk		33
Item 4. Controls and Procedures		34
PART II — OTHER INFORMATION
Item 1. Legal Proceedings		34
Item 1A. Risk Factors		34
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		34
Item 3. Defaults Upon Senior Securities		35
Item 4. Submission of Matters to a Vote of Security Holders		35
Item 5. Other Information		35
Item 6. Exhibits		35
SIGNATURES		37
EX-10.5
EX-31.1
EX-31.2
EX-32

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

HALOZYME THERAPEUTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30,			December 31,
	2008			2007
	(Unaudited)			(Note)
Assets
Current assets:
Cash and cash equivalents	$	72,493,045		$	97,679,085
Accounts receivable		1,495,855			779,825
Inventory		525,428			703,468
Prepaid expenses and other assets		3,715,018			2,014,680
Total current assets		78,229,346			101,177,058
Property and equipment, net		2,523,767			2,283,316
Total assets	$	80,753,113		$	103,460,374
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	4,140,976		$	3,055,637
Accrued expenses		3,705,304			2,502,259
Deferred revenue		3,216,080			3,306,225
Total current liabilities		11,062,360			8,864,121
Deferred revenue, net of current portion		37,731,528			35,963,266
Deferred rent, net of current portion		1,073,416			865,063
Commitments and contingencies (Note 10)
Stockholders’ equity:
Preferred stock — $0.001 par value; 20,000,000 shares authorized; no shares issued and outstanding		—			—
Common stock — $0.001 par value; 150,000,000 shares authorized; 81,112,726 and 77,903,944 shares issued and outstanding at September 30, 2008 and December 31, 2007, respectively		81,113			77,904
Additional paid-in capital		127,628,664			122,685,443
Accumulated deficit		(96,823,968	)		(64,995,423	)
Total stockholders’ equity		30,885,809			57,767,924
Total liabilities and stockholders’ equity	$	80,753,113		$	103,460,374

Note: The balance sheet at December 31, 2007 has been derived from audited financial statements at that date. It does not include, however, all of the information and notes required by US generally accepted accounting principles for complete financial statements.

See accompanying notes to condensed consolidated financial statements.

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HALOZYME THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2008			2007			2008			2007
Revenues:
Revenues under collaborative agreements	$	2,194,325		$	757,629		$	5,209,897		$	1,920,192
Product sales		267,901			185,252			492,066			541,420
Total revenues		2,462,226			942,881			5,701,963			2,461,612
Operating expenses:
Cost of product sales		130,720			59,454			205,036			211,200
Research and development		10,080,775			6,352,397			27,450,454			13,265,645
Selling, general and administrative		3,450,450			2,840,683			11,454,228			7,207,544
Total operating expenses		13,661,945			9,252,534			39,109,718			20,684,389
Operating loss		(11,199,719	)		(8,309,653	)		(33,407,755	)		(18,222,777	)
Interest income		327,561			1,280,871			1,579,210			3,034,985
Net loss	$	(10,872,158	)	$	(7,028,782	)	$	(31,828,545	)	$	(15,187,792	)
Basic and diluted net loss per share	$	(0.14	)	$	(0.09	)	$	(0.40	)	$	(0.21	)
Shares used in computing basic and diluted net loss per share		80,293,800			76,502,867			79,383,614			73,259,130

See accompanying notes to condensed consolidated financial statements.

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HALOZYME THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

	Nine Months Ended
	September 30,
	2008			2007
Operating activities:
Net loss	$	(31,828,545	)	$	(15,187,792	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Share-based compensation		2,890,644			1,789,256
Depreciation and amortization		757,089			362,962
Loss on disposal of equipment		9,954			731
Changes in operating assets and liabilities:
Accounts receivable		(716,030	)		(46,820	)
Inventory		178,040			(270,811	)
Prepaid expenses and other assets		(1,700,338	)		(1,239,240	)
Accounts payable and accrued expenses		2,085,934			1,226,969
Deferred rent		310,683			531,729
Deferred revenue		1,678,117			19,860,221
Net cash (used in) provided by operating activities		(26,334,452	)		7,027,205
Investing activities:
Purchases of property and equipment		(907,374	)		(1,332,051	)
Net cash used in investing activities		(907,374	)		(1,332,051	)
Financing activities:
Proceeds from exercise of warrants, net		1,297,850			1,670,327
Proceeds from exercise of stock options, net		757,936			1,570,379
Proceeds from issuance of common stock, net		—			51,989,488
Net cash provided by financing activities		2,055,786			55,230,194
Net (decrease) increase in cash and cash equivalents		(25,186,040	)		60,925,348
Cash and cash equivalents at beginning of period		97,679,085			44,189,403
Cash and cash equivalents at end of period	$	72,493,045		$	105,114,751
Supplemental disclosure of non-cash investing and financing activities:
Accounts payable for purchases of property and equipment	$	100,120		$	450,804

See accompanying notes to condensed consolidated financial statements.

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HALOZYME THERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1. Organization and Business

     Halozyme Therapeutics, Inc. (“Halozyme” or the “Company”) is a biopharmaceutical company developing and commercializing products targeting the extracellular matrix for the drug delivery, endocrinology, oncology and dermatology markets.

     The Company’s operations to date have been limited to organizing and staffing the Company, acquiring, developing and securing its technology and undertaking product development for its existing products and a limited number of product candidates. The Company has two products: Cumulase^®, a product used for in vitro fertilization, and HYLENEX, a registered trademark of Baxter International, Inc., a product used as an adjuvant to increase the absorption and dispersion of other injected drugs and fluids. The Company has only limited revenues from the sales of these products. In addition, the Company receives revenues from collaborative agreements with F. Hoffmann-La Roche, Ltd and Hoffmann-La Roche, Inc. (collectively “Roche”) and Baxter Healthcare Corporation and Baxter Healthcare S.A. (collectively “Baxter”). The Company currently has multiple product candidates targeting several indications in various stages of development.

2. Basis of Presentation

     The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) and with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) related to a quarterly report on Form 10-Q. Accordingly, they do not include all of the information and disclosures required by U.S. GAAP for a complete set of financial statements. These interim condensed consolidated financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007. The unaudited consolidated financial information for the interim periods presented herein reflects all adjustments which, in the opinion of management, are necessary for a fair presentation of the financial condition and results of operations for the periods presented, with such adjustments consisting only of normal recurring adjustments. Operating results for interim periods are not necessarily indicative of the operating results for an entire fiscal year.

     The condensed consolidated financial statements include the accounts of Halozyme and its wholly owned subsidiary, Halozyme, Inc. All intercompany accounts and transactions have been eliminated in the condensed consolidated financial statements. Certain prior period amounts have been reclassified to conform to the current presentation.

     The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts, as well as disclosures of commitments and contingencies in the financial statements and accompanying notes. Actual results could differ from those estimates.

3. Adoption of Recent Accounting Pronouncements

     Effective January 1, 2008, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value under U.S. GAAP and enhances disclosures about fair value measurements. SFAS 157 prioritizes the inputs used in measuring fair value into the following hierarchy:

Level 1	Quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2	Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable; and
Level 3	Unobservable inputs in which little or no market activity exists, therefore requiring an entity to develop its own assumptions about the assumptions that market participants would use in pricing.

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     In February 2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) No. FAS 157-2, Effective Date of FASB Statement No. 157, which provides a one year deferral of the effective date of SFAS 157 for non-financial assets and non-financial liabilities, except those that are recognized or disclosed in the financial statements at fair value at least annually. Therefore, the Company has adopted the provisions of SFAS 157 with respect to our financial assets and liabilities only. Cash and cash equivalents are carried at fair value based on quoted market prices for identical securities (Level 1 inputs). The adoption of SFAS 157 had no effect on the Company’s consolidated financial position or results of operations.

     Effective January 1, 2008, the Company adopted SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS 159”). SFAS 159 allows an entity the irrevocable option to elect to measure specified financial assets and liabilities in their entirety at fair value on a contract-by-contract basis. If an entity elects the fair value option for an eligible item, changes in the item’s fair value must be reported as unrealized gains and losses in earnings at each subsequent reporting date. In adopting SFAS 159, the Company did not elect the fair value option for any of its financial assets or financial liabilities.

     Effective January 1, 2008, the Company adopted Emerging Issues Task Force (“EITF”) Issue No. 07-3, Accounting for Nonrefundable Advance Payments for Goods or Services Received for Use in Future Research and Development Activities (“EITF 07-3”). EITF 07-3 requires that nonrefundable advance payments for goods or services that will be used or rendered for future research and development activities be deferred and capitalized. Such amounts should be recognized as an expense as the related goods are delivered or the related services are performed or such time when the entity does not expect the goods to be delivered or services to be performed. The adoption of EITF 07-3 did not have a material impact on the Company’s consolidated financial position or results of operations.

4. Summary of Significant Accounting Policies

Revenue Recognition

     The Company generates revenues from product sales and collaborative agreements. Payments received under collaborative agreements may include nonrefundable fees at the inception of the agreements, milestone payments for specific achievements designated in the collaborative agreements, reimbursements of research and development services and/or royalties on sales of products resulting from collaborative agreements.

     The Company recognizes revenues in accordance with SEC Staff Accounting Bulletin No. 104, Revenue Recognition, and EITF Issue No. 00-21, Revenue Arrangements with Multiple Deliverables. The Company recognizes revenue when all of the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the seller’s price to the buyer is fixed and determinable; and (4) collectibility is reasonably assured.

     Product Sales — Revenues from the sales of Cumulase are recognized when the transfer of ownership occurs, which is upon shipment to the distributors. The Company is obligated to accept returns for product that does not meet product specifications. Historically, the Company has not had any product returns due to not meeting product specifications.

     In accordance with the Amended and Restated Development and Supply Agreement (the “Development and Supply Agreement”) with Baxter, the Company supplies Baxter with the active pharmaceutical ingredient (“API”) for HYLENEX at its fully burdened cost plus a margin. Baxter fills and finishes HYLENEX and holds it for subsequent distribution, at which time the Company ensures it meets product specifications and releases it as available for sale. Because of the Company’s continued involvement in the development and production process of HYLENEX, the earnings process is not considered to be complete. Accordingly, the Company defers the revenue and related product costs on the API for HYLENEX until the product is filled, finished, packaged and released. Baxter may only return the API for HYLENEX to the Company if it does not conform to the specified criteria set forth in the Development and Supply Agreement or upon termination of such agreement. The Company has historically demonstrated that the API shipped to Baxter has consistently met the specified criteria. Therefore, no allowance for product returns has been established. In addition, the Company receives product-based payments upon the sale of HYLENEX by Baxter, in accordance with the terms of the agreement with Baxter. Product sales revenues are recognized as the Company earns such revenues based on Baxter’s shipments of HYLENEX to its distributors when such amounts can be reasonably estimated.

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     Collaborative Agreements — The Company analyzes each element of its collaborative agreements to determine the appropriate revenue recognition. The Company recognizes revenue on nonrefundable upfront payments in which it has an ongoing involvement or performance obligation over the period of significant involvement under the related agreements. The Company recognizes milestone payments upon the achievement of specified milestones if (1) the milestone is substantive in nature, and the achievement of the milestone was not reasonably assured at the inception of the agreement, (2) the fees are nonrefundable and (3) our performance obligations after the milestone achievement will continue to be funded by our collaborator at a level comparable to the level before the milestone achievement. Any milestone payments received prior to satisfying these revenue recognition criteria are recorded as deferred revenue. Reimbursements of research and development services are recognized as revenue during the period in which the services are performed. Royalties to be received based on sales of licensed products by the Company’s collaborators incorporating the Company’s products will be recognized as earned.

Costs and Expenses

   The Company’s costs and expenses include the following:

     Cost of Product Sales. Cost of product sales consists primarily of raw materials, third-party manufacturing costs, fill and finish costs and freight costs associated with the sales of Cumulase, and the API for HYLENEX.

     Research and Development Expenses. Research and development expenses consist primarily of costs associated with the development and manufacturing of the Company’s product candidates, compensation and other expenses for research and development personnel, supplies and materials, costs for consultants and related contract research, clinical trials, facility costs, and depreciation. The Company charges all research and development expenses to operations as they are incurred, in accordance with SFAS No. 2, Accounting for Research and Development Costs. The Company’s research and development activities are primarily focused on the development of its product candidates based on the Company’s proprietary recombinant human PH20 enzyme (“rHuPH20”).

     The Company’s expenses related to clinical trials are based on estimates of the services received and efforts expended pursuant to contracts with multiple research institutions, clinical research organizations, and other vendors that conduct and manage clinical trials on its behalf.

     Selling, General and Administrative. Selling, general and administrative expenses consist primarily of compensation and other expenses related to the Company’s corporate operations and administrative employees, accounting and legal fees, other professional services expenses, marketing expenses, as well as other expenses associated with operating as a publicly traded company.

Share-Based Compensation

     The Company accounts for share-based awards exchanged for employee services in accordance with SFAS No. 123(R), Share-Based Payment (“SFAS 123R”). Under SFAS 123R, share-based compensation expense is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense, net of estimated forfeitures, over the employee’s requisite service period.

8

     Total share-based compensation expense related to all of the Company’s share-based awards for the three and nine months ended September 30, 2008 and 2007 was allocated as follows:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2008		2007		2008		2007
Research and development	$	453,813	$	162,169	$	1,064,582	$	465,055
Selling, general and administrative		507,038		570,623		1,826,062		1,324,201
Share-based compensation expense before tax		960,851		732,792		2,890,644		1,789,256
Related income tax benefit		—		—		—		—
Share-based compensation expense, net of tax	$	960,851	$	732,792	$	2,890,644	$	1,789,256
Net share-based compensation expense per basic and diluted share	$	0.01	$	0.01	$	0.04	$	0.02
Share-based compensation expense from:
Stock options	$	747,109	$	486,462	$	2,092,587	$	1,312,550
Restricted stock awards		213,742		246,330		798,057		476,706
	$	960,851	$	732,792	$	2,890,644	$	1,789,256

     Since the Company has a net operating loss carryforward as of September 30, 2008, no excess tax benefits for the tax deductions related to share-based awards were recognized in the interim condensed consolidated statement of operations. For the three months ended September 30, 2008 and 2007, employees exercised stock options to purchase 99,826 and 505,687 shares of common stock, respectively, for aggregate proceeds of approximately $93,000 and $109,000, respectively. For the nine months ended September 30, 2008 and 2007, employees exercised stock options to purchase 1,807,858 and 1,343,087 shares of common stock, respectively, for aggregate proceeds of approximately $758,000 and $1.6 million, respectively.

     As of September 30, 2008, total unrecognized estimated compensation cost related to non-vested stock options and non-vested restricted stock awards granted prior to that date was approximately $6.2 million and $626,000, respectively, which is expected to be recognized over a weighted-average period of 2.7 years and 0.8 year, respectively.

     Stock Options - During the three months ended September 30, 2008 and 2007, the Company granted 458,500 and 181,875 stock options, respectively, with an estimated weighted-average grant-date fair value of $4.20 and $5.17 per share, respectively. During the nine months ended September 30, 2008 and 2007, the Company granted 1,234,650 and 633,756 stock options, respectively, with an estimated weighted-average grant-date fair value of $3.54 and $5.23 per share, respectively.

     Restricted Stock Awards (“RSAs”) - During the nine months ended September 30, 2008 and 2007, the Company granted 192,500 and 105,000 RSAs with an estimated weighted-average grant-date fair value of $4.94 and $10.37 per share, respectively. There were no RSAs granted during the three months ended September 30, 2008 and 2007.

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5. Inventory

Inventory consisted of the following:

	September 30,		December 31,
	2008		2007
Raw materials	$	465,072	$	578,397
Finished goods		60,356		78,677
Work in process		—		46,394
	$	525,428	$	703,468

Inventory is stated at the lower of cost or market.

6. Property and Equipment

Property and equipment, net consisted of the following:

	September 30,			December 31,
	2008			2007
Research equipment	$	2,518,173		$	1,892,658
Computer and office equipment		953,567			789,851
Leasehold improvements		804,118			633,996
		4,275,858			3,316,505
Accumulated depreciation and amortization		(1,752,091	)		(1,033,189	)
	$	2,523,767		$	2,283,316

Depreciation and amortization expense totaled approximately $281,000 and $153,000 for the three months ended September 30, 2008 and 2007, respectively, and $757,000 and $363,000 for the nine months ended September 30, 2008 and 2007, respectively.

7. Deferred Revenue

Deferred revenue consisted of the following:

	September 30,		December 31,
	2008		2007
Collaborative agreements	$	40,694,029	$	39,079,524
Product sales		253,579		189,967
Total deferred revenue		40,947,608		39,269,491
Less current portion		3,216,080		3,306,225
Deferred revenue, net of current portion	$	37,731,528	$	35,963,266

     Roche Agreement — In December 2006, the Company entered into a license and collaboration agreement with Roche for Enhanze^™ Technology (the “Roche Agreement”). Under the terms of the Roche Agreement, Roche obtained a worldwide, exclusive license to develop and commercialize product combinations of rHuPH20, the Company’s proprietary recombinant human hyaluronidase, and up to thirteen Roche target compounds resulting from the collaboration. Roche paid $20.0 million to the Company in December 2006 as an initial upfront payment for the application of rHuPH20 to three pre-defined Roche biologic targets.

     Due to the Company’s continuing involvement obligations, revenue from the $20.0 million upfront payment was deferred and is being recognized over the term of the Roche Agreement. The Company recognized revenue from the Roche upfront payment in the amounts of approximately $290,000 for the three months ended September 30, 2008 and 2007 and $870,000 for the nine months ended September 30, 2008 and 2007.

10

     Baxter Agreements — In September 2007, the Company and Baxter entered into an Enhanze Technology License and Collaboration Agreement (the “Gammagard License”). Under the terms of the Gammagard License, Baxter paid the Company a nonrefundable upfront payment of $10.0 million. Due to the Company’s continuing involvement obligations, the $10.0 million upfront payment was deferred and is being recognized over the term of the Gammagard License. The Company recognized revenue from the upfront payment under the Gammagard License in the amounts of approximately $152,000 and $40,000 for the three months ended September 30, 2008 and 2007, respectively, and $455,000 and $40,000 for the nine months ended September 30, 2008 and 2007, respectively.

     In February 2007, the Company amended certain agreements with Baxter for HYLENEX and entered into a new agreement for kits and co-formulations with rHuPH20 (the “Baxter Agreements”). Under the terms of the Baxter Agreements, Baxter paid the Company a nonrefundable upfront payment of $10.0 million. Due to the Company’s continuing involvement obligations, the $10.0 million upfront payment was deferred and is being recognized over the term of the Baxter Agreements. The Company recognized revenue from the upfront payment under the Baxter Agreements in the amounts of $147,000 for the three months ended September 30, 2008 and 2007 and $440,000 and $370,000 for the nine months ended September 30, 2008 and 2007, respectively.

     In addition, Baxter will make payments to the Company based on sales of the products covered under the Baxter Agreements. As of September 30, 2008, Baxter prepaid a total of $4.5 million of such product-based payments. Baxter is obligated to prepay $5.5 million of additional product-based payments on or prior to January 1, 2009. The prepaid product-based payments are deferred and are being recognized as product sales revenues as the Company earns such revenues from the sales of HYLENEX by Baxter.

8. Net Loss Per Share

     The Company calculates basic and diluted net loss per common share in accordance with SFAS No. 128, Earnings Per Share, and SEC Staff Accounting Bulletin (“SAB”) No. 98. Basic net loss per common share is computed by dividing net loss for the period by the weighted average number of common shares outstanding during the period, without consideration for common stock equivalents. Stock options, unvested stock awards and warrants are considered to be common equivalents and are only included in the calculation of diluted earnings per common share when their effect is dilutive. Because of the Company’s net loss, all outstanding stock options, unvested stock awards and warrants were excluded from the calculation. The Company has excluded the following stock options, unvested stock awards and warrants from the calculation of diluted net loss per common share as of September 30, 2008 and 2007 because their effect is anti-dilutive:

	2008		2007
Stock options and awards		7,218,070		7,963,621
Warrants		3,621,964		5,379,191
		10,840,034		13,342,812

9. Stockholders’ Equity

     During the nine months ended September 30, 2008 and 2007, holders of the Company’s outstanding options exercised rights to purchase 1,807,858 and 1,343,087 common shares, respectively, for net proceeds of approximately $758,000 and $1.6 million, respectively. Options to purchase approximately 7.0 million and 7.8 million shares of the Company’s common stock were outstanding as of September 30, 2008 and December 31, 2007, respectively.

     During the nine months ended September 30, 2008 and 2007, holders of the Company’s outstanding warrants exercised rights to purchase 1,237,066 and 1,335,212 common shares, respectively, for the net proceeds of approximately $1.3 million and $1.7 million, respectively. Warrants to purchase approximately 3.6 million and 4.9 million shares of the Company’s common stock were outstanding as of September 30, 2008 and December 31, 2007, respectively.

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10. Commitments and Contingencies

     From time to time the Company is involved in legal actions arising in the normal course of its business. The Company is not presently subject to any material litigation nor, to management’s knowledge, is any litigation threatened against the Company that collectively is expected to have a material adverse effect on the Company’s consolidated cash flows, financial condition or results of operations.

11. Pending Adoption of Recent Accounting Pronouncements

     In December 2007, the FASB ratified EITF Issue No. 07-1, Accounting for Collaborative Arrangements, which establishes how the participants in a collaborative arrangement shall report costs incurred and revenue generated from transactions with third parties in each entity’s respective statement of operations. The Company will be required to adopt EITF Issue No. 07-1 in the first quarter of 2009 and it is not expected to have a material impact on the Company’s consolidated financial position or results of operations.

     In May 2008, the FASB issued SFAS No. 162, Hierarchy of Generally Accepted Accounting Principles (“SFAS 162”). This statement is intended to improve financial reporting by identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements of nongovernmental entities that are presented in conformity with GAAP. This statement will be effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendment to AU Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles. The Company does not expect the adoption of SFAS 162 to have a material impact on its consolidated financial position or results of operations.

     In June 2008, the FASB issued FSP EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities (“FSP EITF 03-6-1”). FSP EITF 03-6-1 clarified that all outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends participate in undistributed earnings with common shareholders. Awards of this nature are considered participating securities and the two-class method of computing basic and diluted earnings per share must be applied. FSP EITF 03-6-1 is effective for fiscal years beginning after December 15, 2008. The Company does not expect the adoption of FSP EITF 03-6-1 to have a material impact on its consolidated financial position or results of operations.

     In June 2008, the FASB ratified EITF Issue No. 07-5, Determining Whether an Instrument (or an Embedded Feature) Is Indexed to an Entity’s Own Stock (“EITF 07-5”). EITF 07-5 provides that an entity should use a two step approach to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock, including evaluating the instrument’s contingent exercise and settlement provisions. It also clarifies the impact of foreign currency denominated strike prices and market-based employee stock option valuation instruments on the evaluation. EITF 07-5 is effective for fiscal years beginning after December 15, 2008. The Company does not expect the adoption of EITF 07-5 to have a material impact on its consolidated financial position or results of operations.

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

     As used in this report, unless the context suggests otherwise, the terms “we,” “our,” “ours,” and “us” refer to Halozyme Therapeutics, Inc., and its wholly owned subsidiary, Halozyme, Inc., which are sometimes collectively referred to herein as “the Company.”

     The following information should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included in Item 1 of this Quarterly Report on Form 10-Q. Past financial or operating performance is not necessarily a reliable indicator of future performance, and our historical performance should not be used to anticipate results or future period trends.

     Except for the historical information contained herein, this report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements reflect management’s current forecast of certain aspects of our future. You can identify most forward-looking statements by forward-looking words such as “believe,” “think,” “may,” “could,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “seek,” “plan,” “expect,” “should,” “would,” “potential,” “likely,” “opportunity” and similar expressions in this report. Such statements are based on currently available operating, financial and competitive information and are subject to various risks, uncertainties and assumptions that could cause actual results to differ materially from those anticipated or implied in our forward-looking statements due to a number of factors including, but not limited to, those set forth below under the section entitled “Risks Factors” and elsewhere in this Quarterly Report on Form 10-Q.

Overview

     We are a biopharmaceutical company dedicated to the development and commercialization of products targeting the extracellular matrix for the drug delivery, endocrinology, oncology and dermatology markets. Our existing products and our products under development are based on intellectual property covering the family of human enzymes known as hyaluronidases. Hyaluronidases are enzymes (proteins) that break down hyaluronic acid which is a naturally occurring space-filling, gel-like substance that is a major component of tissues throughout the body, such as skin and bone. Our technology is based on our proprietary recombinant human PH20 enzyme, or rHuPH20, a human synthetic version of hyaluronidase that degrades hyaluronic acid. The PH20 enzyme is a naturally occurring enzyme that digests hyaluronic acid to temporarily break down the gel, thereby facilitating the penetration and diffusion of other drugs and fluids that are injected under the skin or in the muscle.

     Our operations to date have been limited to organizing and staffing the Company, acquiring, developing and securing our technology and undertaking product development for our existing products and a limited number of product candidates. Over the last year, we have expanded investments in our proprietary product candidates as we increased our focus on our proprietary product pipeline. We have two marketed products: Cumulase^®, a product used for in vitro fertilization, or IVF, and HYLENEX, a registered trademark of Baxter International, Inc., a product used as an adjuvant to increase the absorption and dispersion of other injected drugs and fluids. Currently, we have only limited revenue from the sales of Cumulase and HYLENEX, in addition to revenues from collaborative agreements with Baxter Healthcare Corporation, or Baxter, and F. Hoffmann-La Roche, Ltd and Hoffmann-La Roche, Inc., or collectively Roche. Revenues from product sales depend on our ability to develop, manufacture, obtain regulatory approvals for and successfully commercialize our product candidates. We have product candidates in the research, pre-clinical and clinical stages. It may be years, if ever, before we are able to obtain the regulatory approvals necessary to generate meaningful revenue from the sale of these product candidates. We have incurred net operating losses each year since inception, with an accumulated deficit of approximately $96.8 million as of September 30, 2008.

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     We currently have an effective universal shelf registration statement which allows us to offer and sell up to $32.5 million of equity or debt securities, provided that this shelf registration will terminate pursuant to applicable securities laws on December 1, 2008. Prior or subsequent to the termination of this shelf registration statement, we may elect to file an additional shelf registration statement. Sales of a substantial number of shares of our common stock pursuant to a registration statement or in connection with other transactions could lower the market price of our common stock and impair our ability to raise capital through the sale of additional equity securities. In the future, we may issue additional options, warrants or other derivative securities convertible into our common stock to fund the continued development of our product candidates, the commercialization of our products or for other general corporate purposes.

Current Products and Product Candidates

     We have two marketed products and multiple product candidates targeting several indications in various stages of development. The following table summarizes our products and product candidates:

Products and Product Candidates	Indication (Brief Description)	Development Status
Cumulase	In vitro fertilization	Marketed
HYLENEX	Adjuvant for drug and fluid infusion	Marketed
Chemophase®	Chemoadjuvant for superficial bladder cancer	Phase I/IIa
Enhanze™ Technology	Adjuvant for enhanced drug delivery	Phase I/II
Proprietary rHuPH20	Endocrinology Oncology	Phase II Pre-Clinical
Proprietary Non-rHuPH20	Oncology, dermatology	Pre-Clinical

     Cumulase is an ex vivo (used outside the body) formulation of rHuPH20 to replace the bovine enzyme used for the preparation of oocytes prior to IVF during the process of intracytoplasmic sperm injection, in which the enzyme is an essential component. We launched Cumulase in the European Union and the United States in June 2005.

     HYLENEX is a human recombinant formulation for rHuPH20 to facilitate the absorption and dispersion of other injected drugs or fluids. When injected under the skin or in the muscle, hyaluronidase can digest the hyaluronic acid gel, allowing for temporarily enhanced penetration and dispersion of other injected drugs or fluids. We received approval from the Food and Drug Administration, or FDA, for HYLENEX in December 2005. In February 2007, we entered into an expanded collaboration agreement with Baxter under which Baxter fills and finishes HYLENEX and holds it for subsequent distribution.

     Chemophase, our lead oncology product candidate, is an investigative chemoadjuvant designed to enhance the transport of chemotherapeutic agents to tumor tissue, potentially increasing diffusion in tissues without affecting vascular permeability. Chemophase is being developed for potential use in the treatment of patients with superficial bladder cancer. In June 2008, we announced the results of a Phase I/IIa clinical trial in which the Chemophase combination treatment of mitomycin plus rHuPH20 enzyme was well tolerated and appears safe. The study reported no dose-limiting toxicities and no observed side effects attributable to the enzyme, and established the dose for subsequent clinical trials, therefore achieving the pre-defined primary objective of the study. In addition, there were no neutralizing antibodies to rHuPH20 detected and the plasma concentration of mitomycin was either non-measureable or negligible and well below the threshold that may be predictive for myelosuppression (a decrease in bone marrow activity, resulting in fewer red blood cells, white blood cells, and platelets).

     Enhanze Technology, a proprietary drug enhancement system using rHuPH20, is our broader technology opportunity that can potentially lead to partnerships with other pharmaceutical companies. We currently have Enhanze Technology partnerships with Roche and Baxter and we are currently seeking additional partnerships with pharmaceutical companies that market or develop intravenously administered drugs that could benefit from injection via the subcutaneous route of administration with this technology.

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     One of our proprietary rHuPH20 programs focuses on co-formulation of rHuPH20 and insulin for the treatment of diabetes mellitus. Combining rHuPH20 with insulin may facilitate faster insulin spreading from the subcutaneous space into the vascular compartment leading to faster insulin response and improved glycemic control potentially resulting in fewer hypoglycemic episodes. Diabetes mellitus is an increasingly prevalent, costly condition associated with substantial morbidity and mortality. Attaining and maintaining normal blood sugar levels to minimize the long term clinical risks is a key treatment goal for diabetic patients. In June 2008, we announced data from our Phase I clinical trial showing that combining rHuPH20 with Humulin^® R (regular insulin human) or Humalog^® (insulin lispro) yielded pharmacokinetics and glucodynamics that better mimicked physiologic prandial (mealtime) insulin release and activity than either Humulin R or Humalog alone. In November 2008, we started a Phase II clinical trial of rHuPH20 co-formulations with Humulin R and Humalog in Type 1 diabetic patients. By making mealtime insulin faster, i.e., shifting insulin exposure and glucose lowering activity to earlier times and away from late postprandial times, combination with rHuPH20 yielded a profile of insulin kinetics and activity more like that of natural, endogenous prandial insulin release.

     One of our proprietary non-rHuPH20 programs, HTI-501, utilizes a recombinant, human, lysomal proteinase enzyme that may have broad application in medical and aesthetic dermatology including cellulite and Dupuytren’s contracture. Data from pre-clinical studies that we have presented at medical conferences demonstrated that the enzyme can degrade collagen in a controllable and predictable manner. We plan to conduct additional pre-clinical pharmacokinetic, toxicology and animal studies to further characterize the enzyme, a new chemical entity, and to learn more about its properties.

Collaborative Agreements

Roche Agreement

     In December 2006, we entered into a License and Collaboration Agreement, or the Roche Agreement, with Roche for Enhanze Technology. Under the terms of the Roche Agreement, Roche obtained a worldwide, exclusive license to develop and commercialize product combinations of rHuPH20 and up to thirteen Roche target compounds resulting from the collaboration. Roche paid us $20 million as an initial upfront license fee for the application of rHuPH20 to three pre-defined Roche biologic targets. Pending the successful completion of a series of clinical, regulatory, and sales events, Roche will pay us further milestones which could potentially reach a value of up to $111 million. In addition, Roche will pay us royalties on product sales for these first three targets. Over the next ten years, Roche will also have the option to exclusively develop and commercialize rHuPH20 with an additional ten targets to be identified by Roche, provided that Roche will be obligated to pay continuing exclusivity maintenance fees to us in order to maintain its exclusive development rights for these targets. For each of the additional ten targets, Roche may pay us further upfront and milestone payments of up to $47 million per target, as well as royalties on product sales for each of these additional ten targets. Additionally, Roche will obtain access to our expertise in developing and applying rHuPH20 to Roche targets. In addition, in December 2006, an affiliate of Roche purchased 3,385,000 shares of common stock for approximately $11.1 million.

Baxter Agreements

     In September 2007, we entered into an Enhanze Technology License and Collaboration Agreement, or the Gammagard License, with Baxter. Under the terms of the Gammagard License, Baxter obtained a worldwide, exclusive license to develop and commercialize product combinations of rHuPH20 with a current Baxter product, Gammagard Liquid^™. Under the terms of the agreement, Baxter made an initial upfront payment of $10 million to us. Pending successful completion of a series of regulatory and sales milestones, Baxter may make further milestone payments totaling $37 million to us. In addition, Baxter will pay royalties on the sales, if any, of the products that result from the collaboration. The Gammagard License is applicable to both kit and co-formulation combinations. Baxter will assume all development, manufacturing, clinical, regulatory, sales and marketing costs under the Gammagard License, while we will be responsible for the supply of the rHuPH20 enzyme. In addition, Baxter has certain product development and commercialization obligations in major markets identified in the Gammagard License.

     In February 2007, we amended certain agreements with Baxter for HYLENEX and entered into a new agreement, collectively the Baxter Agreements, for kits and co-formulations with rHuPH20. Under the terms of the Baxter Agreements, Baxter paid us a nonrefundable upfront payment of $10 million and, pending the successful completion of a series of regulatory and sales events, Baxter will make milestone payments to us which could potentially reach a value of up to $25 million. In addition, Baxter will make payments to us based on the sales of products covered under the Baxter Agreements. In February 2007, Baxter prepaid $1.0 million of such product-

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based payments in connection with the execution of the Baxter Agreements. In January 2008, Baxter prepaid another $3.5 million of such product-based payments and is obligated to prepay $5.5 million of additional product-based payments on or prior to January 1, 2009. Baxter will also now assume development, manufacturing, clinical, regulatory, sales and marketing costs of the products covered by the Baxter Agreements. We will continue to supply Baxter with the API for HYLENEX, and Baxter will prepare, fill, finish and package HYLENEX and hold it for subsequent distribution. In addition, Baxter obtained a worldwide, exclusive license to develop and commercialize product combinations of rHuPH20 with Baxter hydration fluids and generic small molecule drugs, with the exception of combinations with (i) bisphosphonates, as well as (ii) cytostatic and cytotoxic chemotherapeutic agents, the rights to which have been retained by us. In addition, in February 2007, an affiliate of Baxter purchased 2,070,394 shares of our common stock for approximately $20 million.

Revenues

     Revenues from product sales depend on our ability to develop, manufacture, obtain regulatory approvals for and successfully commercialize our products and product candidates.

     Revenues from license and collaboration agreements are recognized based on the performance requirements of the underlying agreements. Revenue is deferred for fees received before earned. Nonrefundable upfront fees, where we have an ongoing involvement or performance obligation, are recorded as deferred revenue and recognized as revenue over the contract or development period. Milestone payments are generally recognized as revenue upon the achievement of the milestones as specified in the underlying agreement, assuming we meet certain criteria. Royalty revenues from the sale of licensed products will be recognized upon the sale of such products.

     During 2006 and 2007, we entered into the Roche Agreement, the Baxter Agreements and the Gammagard License, which consist of nonrefundable upfront license fees, reimbursements of research and development services, various clinical, regulatory or sales milestones and future product-based or royalty payments, as applicable. Due to our ongoing involvement obligations under the agreements, we recorded the nonrefundable upfront license fees as deferred revenues. Such revenues are being recognized over the terms of the underlying agreements.

Costs and Expenses

     Cost of Product Sales. Cost of product sales consists primarily of raw materials, third-party manufacturing costs, fill and finish costs, and freight costs associated with the sales of Cumulase, and the API for HYLENEX.

     Research and Development. Our research and development expenses consist primarily of costs associated with the development and manufacturing of our product candidates, compensation and other expenses for research and development personnel, supplies and materials, costs for consultants and related contract research, clinical trials, facility costs, and depreciation. We charge all research and development expenses to operations as they are incurred. Our research and development activities are primarily focused on the development of our various product candidates.

     Since our inception in 1998 through September 30, 2008, we have incurred research and development expenses of $76.4 million. From 2005 through September 30, 2008, approximately 20% of our research and development expenses were associated with the research and development of our rHuPH20 enzyme used in our Cumulase and HYLENEX products, and approximately 11% of our research and development expenses were associated with the development of our Chemophase product candidate. Due to the uncertainty in obtaining FDA approval, our reliance on third parties, and competitive pressures, we are unable to estimate with any certainty the additional costs we will incur in the continued development of our Chemophase product candidate for commercialization. However, we expect our research and development expenses to increase substantially if we are able to advance our Chemophase product candidate and our other product candidates into later stages of clinical development.

     Clinical development timelines, likelihood of success, and total costs vary widely. Although we are currently focused primarily on advancing both our proprietary rHuPH20 and proprietary non-rHuPH20 programs, we anticipate that we will make determinations as to which research and development projects to pursue and how much funding to direct to each project on an ongoing basis in response to the scientific and clinical progress of each product candidate and other market and regulatory developments.

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     Product candidate completion dates and costs vary significantly for each product candidate and are difficult to estimate. The lengthy process of seeking regulatory approvals and the subsequent compliance with applicable regulations require the expenditure of substantial resources. Any failure by us to obtain, or any delay in obtaining, regulatory approvals could cause our research and development expenditures to increase and, in turn, have a material adverse effect on our results of operations. We cannot be certain when, or if, our Chemophase product candidate, or any of our other product candidates, will receive regulatory approval or whether any net cash inflow from our Chemophase product candidate, or any of our other product candidates, or development projects, will commence.

     Selling, General and Administrative. Selling, general and administrative, or SG&A, expenses consist primarily of compensation and other expenses related to our corporate operations and administrative employees, accounting and legal fees, other professional services expenses, marketing expenses, as well as other expenses associated with operating as a publicly traded company. We anticipate continued increases in selling, general and administrative expenses as our operations continue to expand.

Critical Accounting Policies and Estimates

     Our discussion and analysis of our financial position and results of operations are based on our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP. The preparation of our consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. We review our estimates on an ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. We believe the following accounting policies to be critical to the judgments and estimates used in the preparation of our consolidated financial statements.

Revenue Recognition

     We generate revenues from product sales and collaborative agreements. Payments received under collaborative agreements may include nonrefundable fees at the inception of the agreements, milestone payments for specific achievements designated in the collaborative agreements, reimbursements of research and development services and/or royalties on sales of products resulting from collaborative arrangements.

     We recognize revenues in accordance with SEC Staff Accounting Bulletin No. 104, Revenue Recognition, and Emerging Issues Task Force, or EITF, Issue No. 00-21, Revenue Arrangements with Multiple Deliverables. Revenue is recognized when all of the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the seller’s price to the buyer is fixed and determinable; and (4) collectibility is reasonably assured.

Product Sales

     Revenues from the sale of Cumulase are recognized when the transfer of ownership occurs, which is upon shipment to the distributors. We are obligated to accept returns for product that does not meet product specifications. Historically, we have not had any product returns.

     Under the terms of the Baxter Agreements, we supply Baxter the API for HYLENEX at our fully burdened cost plus a margin. Baxter fills and finishes HYLENEX and holds it for subsequent distribution, at which time we ensure it meets product specifications and release it as available for sale. Because of our continued involvement in the development and production process of HYLENEX, the earnings process is not considered to be complete. Accordingly, we defer the revenue and related product costs on the API for HYLENEX until the product is filled, finished, packaged and released. Baxter may only return the API for HYLENEX to us if it does not conform to the specified criteria set forth in the Development and Supply Agreement or upon termination of such agreement. We

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have historically demonstrated that the API shipped to Baxter has consistently met the specified criteria. Therefore, no allowance for product returns has been established. In addition, we receive product-based payments upon the sale of HYLENEX by Baxter, in accordance with the terms of the Baxter Agreements. Product sales revenues are recognized as we earn such revenues based on Baxter’s shipments of HYLENEX to its distributors when such amounts can be reasonably estimated. Through September 30, 2008, Baxter has prepaid a total of $4.5 million of such product-based payments which was deferred and is being recognized as earned. Baxter is obligated to prepay $5.5 million of additional product-based payments on or prior to January 1, 2009.

Revenues under Collaborative Agreements

     Revenues from collaborative and licensing agreements are recognized based on the performance requirements of the underlying agreements. Revenue is deferred for fees received before earned. Nonrefundable upfront payments, in which we have an ongoing involvement or performance obligation, are recorded as deferred revenue and recognized as revenue over the contract or development period. We recognize milestone payments upon the achievement of specified milestones if (1) the milestone is substantive in nature, and the achievement of the milestone was not reasonably assured at the inception of the agreement, (2) the fees are nonrefundable and (3) our performance obligations after the milestone achievement will continue to be funded by our collaborator at a level comparable to the level before the milestone achievement. Any milestone payments received prior to satisfying these revenue recognition criteria are recorded as deferred revenue. Reimbursements of research and development services are recognized as revenue during the period in which the services are performed. Royalties to be received based on sales of licensed products by our collaborators incorporating our products will be recognized as earned in accordance with the terms of the underlying agreements.

Share-Based Compensation

     We account for share-based awards exchanged for employee services in accordance with Statement of Financial Accounting Standards, or SFAS, No. 123(R), Share-Based Payment, or SFAS 123R, which we adopted effective January 1, 2006, including the provisions of the SEC’s Staff Accounting Bulletin No. 107, or SAB 107. We use the fair value method to account for share-based payments with a modified prospective application which provides for certain changes to the method for valuing share-based compensation. The valuation provisions of SFAS 123R apply to new awards and awards that are outstanding on the effective date and subsequently modified or cancelled. Under the modified prospective application, prior periods were not revised for comparative purposes.

     The fair value of each option award is estimated on the date of grant using a Black-Scholes-Merton option pricing model, or Black-Scholes model, that uses assumptions regarding a number of complex and subjective variables. These variables include, but are not limited to, our expected stock price volatility, actual and projected employee stock option exercise behaviors, risk-free interest rate and expected dividends. Expected stock price volatility is based on historical volatility of our common stock and our peer group. The expected term of options granted is based on analyses of historical employee termination rates and option exercises. The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of the grant. Since we do not expect to pay dividends on our common stock in the foreseeable future, we estimated the dividend yield to be 0%. SFAS 123R requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. We estimate pre-vesting forfeitures based on our historical experience and those of our peer group.

     If factors change and we employ different assumptions in the application of SFAS 123R in future periods, the share-based compensation expense that we record under SFAS 123R may differ significantly from what we have recorded in the current period. There is a high degree of subjectivity involved when using option pricing models to estimate share-based compensation under SFAS 123R. Certain share-based payments, such as employee stock options, may expire worthless or otherwise result in zero intrinsic value as compared to the fair values originally estimated on the grant date and reported in our consolidated financial statements. Alternatively, values may be realized from these instruments that are significantly in excess of the fair values originally estimated on the grant date and reported in our consolidated financial statements. There is currently no market-based mechanism or other practical application to verify the reliability and accuracy of the estimates stemming from these valuation models, nor is there a means to compare and adjust the estimates to actual values. Although the fair value of employee share-based awards is determined in accordance with SFAS 123R and SAB 107 using an option-pricing model, that value may not be indicative of the fair value observed in a willing buyer/willing seller market transaction.

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Research and Development Expenses

     Research and development expenses consist of expenses incurred in performing research and development activities, including salaries and benefits, facilities and other overhead expenses, clinical trials, research-related manufacturing services, contract services and other outside expenses. Research and development expenses are charged to operations as they are incurred. Advance payments, including nonrefundable amounts, for goods or services that will be used or rendered for future research and development activities are deferred and capitalized. Such amounts will be recognized as an expense as the related goods are delivered or the related services are performed. If the goods will not be delivered, or services will not be rendered, then the capitalized advance payment is charged to expense.

     Milestone payments that we make in connection with in-licensed technology or product candidates are expensed as incurred when there is uncertainty in receiving future economic benefits from the licensed technology or product candidates. We consider the future economic benefits from the licensed technology or product candidates to be uncertain until such licensed technology or product candidates are approved for marketing by the FDA or when other significant risk factors are abated. For expense accounting purposes, management has viewed future economic benefits for all of our licensed technology or product candidates to be uncertain.

     Payments in connection with our clinical trials are often made under contracts with multiple contract research organizations that conduct and manage clinical trials on our behalf. The financial terms of these agreements are subject to negotiation and vary from contract to contract and may result in uneven payment flows. Generally, these agreements set forth the scope of work to be performed at a fixed fee, unit price or on a time-and-material basis. Payments under these contracts depend on factors such as the successful enrollment or treatment of patients or the completion of other clinical trial milestones. Expenses related to clinical trials are accrued based on our estimates and/or representations from service providers regarding work performed, including actual level of patient enrollment, completion of patient studies, and clinical trials progress. Other incidental costs related to patient enrollment or treatment are accrued when reasonably certain. If the contracted amounts are modified (for instance, as a result of changes in the clinical trial protocol or scope of work to be performed), we modify our accruals accordingly on a prospective basis. Revisions in scope of contract are charged to expense in the period in which the facts that give rise to the revision become reasonably certain. Because of the uncertainty of possible future changes to the scope of work in clinical trials contracts, we are unable to quantify an estimate of the reasonably likely effect of any such changes on our consolidated results of operations or financial position. Historically, we have had no material changes in our clinical trial expense accruals that would have had a material impact on our consolidated results of operations or financial position.

Inventory

     Inventory consists of our Cumulase product and our API for HYLENEX. Inventory primarily represents raw materials used in production, work in process, and finished goods inventory on hand, valued at actual cost. Inventory is reviewed periodically for slow-moving or obsolete items. If a launch of a new product is delayed, inventory may not be fully utilized and could be subject to impairment, at which point we would record a reserve to adjust inventory to its net realizable value.

Fair Value

     Effective January 1, 2008, we adopted SFAS No. 157, Fair Value Measurements, or SFAS 157. SFAS 157 defines fair value, establishes a framework for measuring fair value under U.S. GAAP and enhances disclosures about fair value measurements. SFAS 157 prioritizes the inputs used in measuring fair value into the following hierarchy:

Level 1	Quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2	Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable; and
Level 3	Unobservable inputs in which little or no market activity exists, therefore requiring an entity to develop its own assumptions about the assumptions that market participants would use in pricing.

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     In February 2008, the Financial Accounting Standards Board, or FASB, issued FASB Staff Position No. FAS 157-2, Effective Date of FASB Statement No. 157, which provides a one year deferral of the effective date of SFAS 157 for non-financial assets and non-financial liabilities, except those that are recognized or disclosed in the financial statements at fair value at least annually. Therefore, we have adopted the provisions of SFAS 157 with respect to our financial assets and liabilities only. Cash and cash equivalents are carried at fair value based on quoted market prices for identical securities (Level 1 inputs). The adoption of SFAS 157 had no effect on our consolidated financial position or results of operations.

     Effective January 1, 2008, we adopted SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, or SFAS 159. SFAS 159 allows an entity the irrevocable option to elect to measure specified financial assets and liabilities in their entirety at fair value on a contract-by-contract basis. If an entity elects the fair value option for an eligible item, changes in the item’s fair value must be reported as unrealized gains and losses in earnings at each subsequent reporting date. In adopting SFAS 159, we did not elect the fair value option for any of our financial assets or financial liabilities.

     The above listing is not intended to be a comprehensive list of all of our accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by U.S. GAAP. There are also areas in which our management’s judgment in selecting any available alternative would not produce a materially different result. Refer to our audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2007, which contain accounting policies and other disclosures required by U.S. GAAP.

Results of Operations

Three Months Ended September 30, 2008 Compared to Three Months Ended September 30, 2007

     Revenues Under Collaborative Agreements — Revenues under collaborative agreements were $2.2 million for the three months ended September 30, 2008 compared to $758,000 for the three months ended September 30, 2007. Revenues under collaborative agreements consisted of the amortization of upfront fees received from Baxter and Roche of $588,000 and $477,000 for the three months ended September 30, 2008 and 2007, respectively. Revenues under collaborative agreements also consisted of reimbursements for research and development services from Baxter of $847,000 and $66,000 and Roche of $760,000 and $214,000 for the three months ended September 30, 2008 and 2007, respectively. Such reimbursements are for research and development services rendered by us at the request of Baxter and Roche. Therefore, the amount of future revenues related to reimbursable research and development services is uncertain.

     Product Sales — Product sales were $268,000 for the three months ended September 30, 2008 compared to $185,000 for the three months ended September 30, 2007. The increase of $83,000 was primarily due to the increase in sales of Hylenex and the API for Hylenex.

     Cost of Product Sales — Cost of product sales were $131,000 for the three months ended September 30, 2008 compared to $59,000 for the three months ended September 30, 2007. The increase of $72,000 was due to the increase in the sales of the API for HYLENEX and an increase in the cost of Cumulase sales in the current period.

     Research and Development — Research and development expenses were $10.1 million for the three months ended September 30, 2008 compared to $6.4 million for the three months ended September 30, 2007. The increase of $3.7 million was primarily due to the increase in compensation costs of approximately $2.1 million due to the increase in our research and development headcount. At September 30, 2008, our headcount for research and development functions totaled 90 employees, compared with 43 employees at September 30, 2007. In addition, outsourced research and development expenses increased by $484,000, clinical trial expenses increased by $478,000 and research supplies expenses increased by $301,000 for the three months ended September 30, 2008 as compared to the three months ended September 30, 2007. We expect certain research and development costs to increase in future periods as we increase our research efforts and headcount, expand our clinical trials, and continue to develop and manufacture our product candidates.

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     Selling, General and Administrative — SG&A expenses were $3.5 million for the three months ended September 30, 2008 compared to $2.8 million for the three months ended September 30, 2007. The increase of approximately $610,000 was primarily due to the increase in compensation costs of $438,000 and an increase in travel and conference expenses of $95,000. At September 30, 2008, our headcount for SG&A functions totaled 32 employees, compared with 22 employees at September 30, 2007. We expect SG&A expenses to increase in future periods as we continue to expand our operations.

     Interest Income — Interest income was $328,000 for the three months ended September 30, 2008 compared to $1.3 million for the three months ended September 30, 2007. The decrease in interest income was primarily due to lower average cash and cash equivalent balances and lower interest rates during the three months ended September 30, 2008 as compared to the same period in 2007.

     Net Loss — Net loss for the three months ended September 30, 2008 was $10.9 million, or $0.14 per common share, compared to $7.0 million, or $0.09 per common share, for the three months ended September 30, 2007. The increase in net loss was primarily due to an increase in operating expenses, partially offset by increases in revenues.

Nine Months Ended September 30, 2008 Compared to Nine Months Ended September 30, 2007

     Revenues Under Collaborative Agreements — Revenues under collaborative agreements were $5.2 million for the nine months ended September 30, 2008 compared to $1.9 million for the nine months ended September 30, 2007. Revenues under collaborative agreements consisted of the amortization of upfront fees received from Baxter and Roche of $1.8 million and $1.3 million for the nine months ended September 30, 2008 and 2007, respectively. Revenues under collaborative agreements also consisted of reimbursements for research and development services from Baxter of $1.8 million and $232,000 and Roche of $1.6 million and $408,000 for the nine months ended September 30, 2008 and 2007, respectively. Such reimbursements are for research and development services rendered by us at the request of Baxter and Roche. Therefore, the amount of future revenues related to reimbursable research and development services is uncertain.

     Product Sales — Product sales were $492,000 for the nine months ended September 30, 2008 compared to $541,000 for the nine months ended September 30, 2007. The decrease of $49,000 was primarily due to a $142,000 decrease in sales of Cumulase; offset in part by a $93,000 increase in sales of the API for Hylenex.

     Cost of Product Sales — Cost of product sales were $205,000 for the nine months ended September 30, 2008 compared to $211,000 for the nine months ended September 30, 2007.

     Research and Development — Research and development expenses were $27.5 million for the nine months ended September 30, 2008 compared to $13.3 million for the nine months ended September 30, 2007. The increase of $14.2 million was primarily due to the increase in outsourced research and development costs of $4.9 million, related to our various pre-clinical programs and the manufacturing scale-up of our rHuPH20 enzyme, and increased compensation costs of $4.8 million primarily due to the increase in our research and development headcount. At September 30, 2008, our headcount for research and development functions totaled 90 employees, compared with 43 employees at September 30, 2007. Additionally, our clinical trial expenses increased by $1.4 million, facilities expenses increased by $1.2 million resulting from leasing larger facilities effective July 2007 to accommodate the increase in headcount, and research supplies expenses increased by $1.1 million for the nine months ended September 30, 2008 as compared to the nine months ended September 30, 2007. We expect certain research and development costs to increase in future periods as we increase our research efforts and headcount, expand our clinical trials and continue to develop and manufacture our product candidates.

     Selling, General and Administrative — SG&A expenses were $11.5 million for the nine months ended September 30, 2008 compared to $7.2 million for the nine months ended September 30, 2007. The increase of approximately $4.3 million was primarily due to the increase in compensation costs of $2.2 million, of which $502,000 related to share-based compensation. At September 30, 2008, our headcount for SG&A functions totaled 32 employees, compared with 22 employees at September 30, 2007. Legal expenses also increased during this period by $1.2 million of which $635,000 related to the settlement of an arbitration matter and $606,000 related to patent applications. Facilities expenses also increased by $273,000 and marketing research expenses increased by $249,000 for the nine months ended September 30, 2008 as compared to the nine months ended September 30, 2007. We expect SG&A expenses to increase in future periods as we continue to expand our operations.

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     Interest Income — Interest income was $1.6 million for the nine months ended September 30, 2008 compared to $3.0 million for the nine months ended September 30, 2007. The decrease in interest income was primarily due to lower interest rates during the nine months ended September 30, 2008 as compared to the same period in 2007.

     Net Loss — Net loss for the nine months ended September 30, 2008 was $31.8 million, or $0.40 per common share, compared to $15.2 million, or $0.21 per common share, for the nine months ended September 30, 2007. The increase in net loss was primarily due to an increase in operating expenses, partially offset by increases in revenues.

Liquidity and Capital Resources

Overview

     Our principal sources of liquidity are our existing cash and cash equivalents. As of September 30, 2008, we had cash and cash equivalents of approximately $72.5 million. We expect our cash requirements to increase as we continue to increase our research and development for, seek regulatory approvals of, and develop and manufacture our current product candidates. As we expand our research and development efforts and pursue additional product opportunities, we anticipate additional cash requirements for hiring of personnel, capital expenditures and investment in additional internal systems and infrastructure. The amount and timing of cash requirements will depend on the research, development, manufacture, regulatory and market acceptance of our product candidates, if any, and the resources we devote to researching, developing, manufacturing, commercializing and supporting our product candidates.

     We believe that our current cash and cash equivalents will be sufficient to fund our operations for at least the next twelve months. Currently, we anticipate cash expenses of approximately $47.0 million to $53.0 million for the year ending December 31, 2008, depending on the progress of various pre-clinical and clinical programs and the timing of our manufacturing scale up. We do not expect our current cash and cash equivalents along with anticipated revenues to be sufficient to fund operations for at least several years. We expect to fund our operations going forward with existing cash resources, anticipated revenues from our existing collaborations and cash that we will raise through future transactions. We may finance future cash needs through any one of the following financing vehicles: (i) the public offering of securities; (ii) new collaborative agreements; (iii) expansions or revisions to existing collaborative relationships; (iv) private financings and/or (v) other equity or debt financings.

     In June 2005, we filed a shelf registration statement on Form S-3 (Registration No. 333-125731) which initially allowed us, from time to time, to offer and sell up to $50.0 million of equity or debt securities. We have sold common stock under this registration statement for an aggregate of approximately $17.5 million, so we currently have the ability to issue debt and equity securities for an aggregate of $32.5 million, provided that this shelf registration statement will terminate pursuant to applicable securities laws on December 1, 2008. Prior or subsequent to the termination of this shelf registration statement, we may elect to file an additional shelf registration statement. We cannot be certain that our existing cash and cash equivalents will be adequate for our anticipated needs or that additional financing will be available when needed or that, if available, financing will be obtained on terms favorable to us or our stockholders. Having insufficient funds may require us to delay, scale back or eliminate some or all of our research and development programs or delay the launch of our product candidates. If we raise additional funds by issuing equity securities, substantial dilution to existing stockholders could result. If we raise additional funds by incurring debt financing, the terms of the debt may involve significant cash payment obligations as well as covenants and specific financial ratios that may restrict our ability to operate our business.

Cash Flows

     Net cash used by operations was $26.3 million for the nine months ended September 30, 2008 compared to $7.0 million provided by operations for the nine months ended September 30, 2007. This change was primarily due to increased operating expenses of $18.4 million as well as reduced partnership payments of $17.5 million during the nine months ended September 30, 2008 as compared to the nine months ended September 30, 2007.

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     Net cash used in investing activities was $907,000 for the nine months ended September 30, 2008 compared to $1.3 million for the nine months ended September 30, 2007. This decrease was primarily due to the decrease in purchases of property and equipment during the nine months ended September 30, 2008 as compared to the same period in 2007.

     Net cash provided by financing activities was $2.1 million for the nine months ended September 30, 2008 compared to $55.2 million for the nine months ended September 30, 2007. Net cash provided by financing activities for the nine months ended September 30, 2008 primarily consisted of proceeds from warrant and stock option exercises. Net cash provided by financing activities during the nine months ended September 30, 2007 primarily consisted of approximately $52.0 million in proceeds, net of issuance costs, from a sale of shares of our common stock and approximately $3.2 million in proceeds from warrant and stock option exercises.

Off-Balance Sheet Arrangements

     As of September 30, 2008, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. In addition, we did not engage in trading activities involving non-exchange traded contracts. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these relationships.

Recent Accounting Pronouncements

     See Note 3, Adoption of Recent Accounting Pronouncements, and Note 11, Pending Adoption of Recent Accounting Pronouncements, in the Notes to Condensed Consolidated Financial Statements for discussions of new accounting pronouncements and their effect, if any on us.

Risk Factors

     The following information sets forth factors that could cause our actual results to differ materially from those contained in forward-looking statements we have made in this Quarterly Report on Form 10-Q and those we may make from time to time. In addition to the risk factors discussed below, we are also subject to additional risks and uncertainties not presently known to us or that we currently deem immaterial. If any of these known or unknown risks or uncertainties actually occurs, our business, financial position and results of operations could be materially and adversely affected and the value of our securities could decline significantly.

Risks Related To Our Business

     We have generated only minimal revenue from product sales to date; we have a history of net losses and negative cash flow, and we may never achieve or maintain profitability.

     We have generated only minimal revenue from product sales to date and may never generate significant revenues from future product sales. Even if we do achieve significant revenues from product sales, licensing revenues and/or milestone payments, we expect to incur significant operating losses over the next several years. We have never been profitable, and we may never become profitable. Through September 30, 2008, we have incurred aggregate net losses of approximately $96.8 million.

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If any party to a key collaboration agreement, including us, fails to perform material obligations under such agreement, or if a key collaboration agreement is terminated for any reason, our business would significantly suffer.

     We have entered into key collaboration agreements under which we may receive significant future payments in the form of maintenance fees, milestone payments and royalties. In the event that a party fails to perform under a key collaboration agreement, or if a key collaboration agreement is terminated, the reduction in anticipated revenues could delay or suspend our product development activities for some of our product candidates as well as our commercialization efforts for some or all of our products. In addition, the termination of a key collaboration agreement by one of our partners could materially impact our ability to enter into additional collaboration agreements with new partners on favorable terms, if at all. In certain circumstances, the termination of a key collaboration agreement would require us to revise our corporate strategy going forward and reevaluate the applications and value of our technology.

If our contract manufacturers are unable to manufacture significant amounts of the active pharmaceutical ingredient used in our products and product candidates, our product development and commercialization efforts could be delayed or stopped.

     We have existing supply agreements with contract manufacturing organizations Avid Bioservices, Inc., or Avid, and Cook Pharmica LLC, or Cook, to produce bulk recombinant human hyaluronidase for clinical trials and commercial use. These manufacturers will produce the active pharmaceutical ingredient used in our products and product candidates under cGMP for both clinical and commercial scale production and will provide support for the chemistry, manufacturing and controls sections for FDA regulatory filings. These manufacturers have limited experience manufacturing our active pharmaceutical ingredient batches, and we rely on their ability to successfully manufacture these batches according to product specifications. In addition, as a result of our contractual obligations to Roche, we will be required to significantly scale up our active pharmaceutical ingredient production at Cook during the next few years. We do not currently have a significant inventory of the active pharmaceutical ingredient used in our products and product candidates, so if these manufacturers do not maintain their status as FDA-approved manufacturing facilities, are unable to successfully scale up our active pharmaceutical ingredient production, or are unable to manufacture the active pharmaceutical ingredient used in our products and product candidates according to product specifications for any other reason, the commercialization of our products and the development of our product candidates will be delayed and our business will be adversely affected. We have not yet established, and may not be able to establish, favorable arrangements with additional manufacturers for these ingredients or products should the existing supplies become unavailable or in the event that our existing contract manufacturers are unable to adequately perform their responsibilities. Any delays or interruptions in the supply of materials by Avid and/or Cook could cause the delay of clinical trials and could delay or prevent the commercialization of product candidates that may receive regulatory approval. Such delays or interruptions would have a material adverse effect on our business and financial condition.

If we are unable to sufficiently develop our sales, marketing and distribution capabilities or enter into successful agreements with third parties to perform these functions, we will not be able to fully commercialize our products.

     We may not be successful in marketing and promoting our existing product candidates or any other products we develop or acquire in the future. We are currently in the process of developing our sales, marketing and distribution capabilities. However, our current capabilities in these areas are very limited. In order to commercialize any products successfully, we must internally develop substantial sales, marketing and distribution capabilities or establish collaborations or other arrangements with third parties to perform these services. We do not have extensive experience in these areas, and we may not be able to establish adequate in-house sales, marketing and distribution capabilities or engage and effectively manage relationships with third parties to perform any or all of such services. To the extent that we enter into co-promotion or other licensing arrangements, our product revenues are likely to be lower than if we directly marketed and sold our products, and any revenues we receive will depend upon the efforts of third parties, whose efforts may not meet our expectations or be successful.

     We have entered into an exclusive sales and marketing agreement with Baxter to market and sell our HYLENEX product in the United States and Puerto Rico. Baxter also has the right to market and sell HYLENEX on an exclusive basis in all territories outside of the United States, if and when we seek and receive the applicable regulatory approvals in those territories.

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     We depend upon the efforts of third parties, such as Baxter, to promote and sell our current products, but there can be no assurance that the efforts of these third parties will meet our expectations or result in any significant product sales. While these third parties are largely responsible for the speed and scope of sales and marketing efforts, they may not dedicate the resources necessary to maximize product opportunities and our ability to cause these third parties to increase the speed and scope of their efforts may be limited. In addition, sales and marketing efforts could be negatively impacted by the delay or failure to obtain additional supportive clinical trial data for our products. In some cases, third party partners are responsible for conducting these additional clinical trials and our ability to increase the efforts and resources allocated to these trials may be limited.

If we have problems with third parties that prepare, fill, finish, and package our products and product candidates for distribution, our product commercialization and development efforts for these products and product candidates could be delayed or stopped.

     We rely on third parties to prepare, fill, finish, and package our products and product candidates prior to their distribution. If we are unable to locate third parties to perform these functions on terms that are economically acceptable to us, the progress of clinical trials could be delayed or even suspended and the commercialization of approved product candidates could be delayed or prevented. We currently utilize a third-party to prepare, fill, finish, and package Cumulase and this third party has not historically demonstrated a consistent ability to manufacture Cumulase according to product specifications. We previously entered into an agreement with another third party to prepare, fill, finish and package Cumulase, but that third party did not meet the manufacturing, technical and cost targets that were originally established. In addition, we currently utilize a subsidiary of Baxter to prepare, fill, finish, and package HYLENEX under a development and supply agreement. Baxter has only limited experience manufacturing HYLENEX batches, and we rely on its ability to successfully manufacture HYLENEX batches according to product specifications. Any delays or interruptions in Baxter’s ability to manufacture HYLENEX batches in amounts necessary to meet product demand could have a material adverse impact on our business and financial condition.

If we do not receive and maintain regulatory approvals for our product candidates, we will not be able to commercialize our products, which would substantially impair our ability to generate revenues.

     With the exception of the December 2004 receipt of a CE (European Conformity) Mark for Cumulase, the April 2005 FDA clearance for Cumulase and the December 2005 FDA approval for our spreading agent, HYLENEX, none of our product candidates has received regulatory approval from the FDA or from any similar national regulatory agency or authority in any other country in which we intend to do business. Approval from the FDA is necessary to manufacture and market pharmaceutical products in the United States. Most other countries in which we may do business have similar requirements.

     Other manufacturers have FDA approved products for use as spreading agents, including ISTA Pharmaceuticals, Inc., or ISTA, with an ovine-derived hyaluronidase, Vitrase^®, Amphastar Pharmaceuticals, Inc., or Amphastar, with a bovine-derived hyaluronidase, Amphadase^™, and Primapharm, Inc., or Primapharm, also with a bovine-derived hyaluronidase, Hydase^™. The FDA has determined that Amphadase, Hydase, HYLENEX and Vitrase are each distinct new chemical entities and hence afforded five years of market exclusivity. The five year market exclusivity precludes identical new chemical entity products from being marketed for a period of five years. For so long as each of these products is established as a distinctly different new chemical entity, the marketing exclusivity granted does not prohibit the marketing of any of these products, including HYLENEX. If the FDA changes its earlier determination that HYLENEX is a distinct new chemical entity, our ability to market HYLENEX will be materially impaired.

     The process for obtaining FDA approval is extensive, time-consuming and costly, and there is no guarantee that the FDA will approve any NDAs that we intend to file with respect to any of our product candidates, or that the timing of any such approval will be appropriate for our product launch schedule and other business priorities, which are subject to change. We have not currently begun the NDA approval process for any of our other potential products, and we may not be successful in obtaining such approvals for any of our potential products.

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We may not receive regulatory approvals for our product candidates for a variety of reasons, including unsuccessful clinical trials.

     Clinical testing of pharmaceutical products is a long, expensive and uncertain process and the failure of a clinical trial can occur at any stage. Even if initial results of pre-clinical studies or clinical trial results are promising, we may obtain different results that fail to show the desired levels of safety and efficacy, or we may not obtain FDA approval for a variety of other reasons. The clinical trials of any of our product candidates could be unsuccessful, which would prevent us from obtaining regulatory approval and commercializing the product. FDA approval can be delayed, limited or not granted for many reasons, including, among others:

• FDA officials may not find a product candidate safe or effective enough to merit either continued testing or final approval;

• FDA officials may not find that the data from pre-clinical testing and clinical trials justifies approval, or they may require additional studies that would make it commercially unattractive to continue pursuit of approval;

• the FDA may reject our trial data or disagree with our interpretations of either clinical trial data or applicable regulations;

• the cost of a clinical trial may be greater than what we originally anticipate, and we may decide to not pursue FDA approval for such a trial;

• the FDA may not approve our manufacturing processes or facilities, or the processes or facilities of our contract manufacturers or raw material suppliers;

• the FDA may change its formal or informal approval requirements and policies, act contrary to previous guidance, or adopt new regulations; or

• the FDA may approve a product candidate for indications that are narrow or under conditions that place the product at a competitive disadvantage, which may limit our sales and marketing activities or otherwise adversely impact the commercial potential of a product.

     If the FDA does not approve our product candidates in a timely fashion on commercially viable terms, or if we terminate development of any of our product candidates due to difficulties or delays encountered in the regulatory approval process, it will have a material adverse impact on our business and we will be dependent on the development of our other product candidates and/or our ability to successfully acquire other products and technologies. We may not receive regulatory approval of our Chemophase product candidate or any other product candidates, in a timely manner, or at all.

     We intend to market certain of our products, and perhaps have certain of our products manufactured, in foreign countries. The process of obtaining regulatory approvals in foreign countries is subject to delay and failure for many of the same reasons set forth above as well as for reasons that vary from jurisdiction to jurisdiction. The approval process varies among countries and jurisdictions and can involve additional testing. The time required to obtain approval may differ from that required to obtain FDA approval. We may not obtain foreign regulatory approvals on a timely basis, if at all. Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one foreign regulatory authority does not ensure approval by regulatory authorities in other foreign countries or jurisdictions or by the FDA.

If we fail to comply with regulatory requirements, regulatory agencies may take action against us, which could significantly harm our business.

     Any approved products, along with the manufacturing processes, post-approval clinical data, labeling, advertising and promotional activities for these products, are subject to continual requirements and review by the FDA and other regulatory bodies. Regulatory authorities subject a marketed product, its manufacturer and the manufacturing facilities to continual review and periodic inspections. We will be subject to ongoing FDA requirements, including required submissions of safety and other post-market information and reports, registration requirements, current Good Manufacturing Processes, or cGMP, regulations, requirements regarding the distribution of samples to physicians and recordkeeping requirements. The cGMP regulations include requirements relating to quality control and quality assurance, as well as the corresponding maintenance of records and documentation. We rely on the compliance by our contract manufacturers with cGMP regulations and other regulatory requirements relating to the manufacture of our products. We are also subject to state laws and registration requirements covering the distribution of our products. Regulatory agencies may change existing requirements or adopt new requirements or policies. We may be slow to adapt or may not be able to adapt to these changes or new requirements.

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     Later discovery of previously unknown problems with our products, manufacturing processes or failure to comply with regulatory requirements, may result in any of the following:

• restrictions on our products or manufacturing processes;

• warning letters;

• withdrawal of the products from the market;

• voluntary or mandatory recall;

• fines;

• suspension or withdrawal of regulatory approvals;

• suspension or termination of any of our ongoing clinical trials;

• refusal to permit the import or export of our products;

• refusal to approve pending applications or supplements to approved applications that we submit;

• product seizure; or

• injunctions or the imposition of civil or criminal penalties.

We may wish to raise funds in the next twelve months, and there can be no assurance that such funds will be available.

     During the next twelve months, we may wish to raise additional capital to continue the development of our product candidates and to fund general operations. Our current cash position and expected revenues during the next several years will not constitute the amount of capital necessary for us to continue the development of our product candidates and to fund general operations. In addition, if we engage in acquisitions of companies, products, or technology in order to execute our business strategy, we may need to raise additional capital. We expect to raise additional capital in the future through one or more financing vehicles that may be available to us. These financing vehicles currently include: (i) the public offering of securities; (ii) new collaborative agreements; (iii) expansions or revisions to existing collaborative relationships; (iv) private financings and/or (v) other equity or debt financings.

     Currently, warrants to purchase approximately 3.3 million shares of our common stock are outstanding and this amount of outstanding warrants may make us a less desirable candidate for investment for some potential investors. Considering our stage of development and the nature of our capital structure, if we are required to raise additional capital in the future, the additional financing may not be available on favorable terms, or at all. If we are successful in raising additional capital, a substantial number of additional shares may be issued and these shares will dilute the ownership interest of our current investors.

If our product candidates are approved by the FDA but do not gain market acceptance, our business will suffer because we may not be able to fund future operations.

     Assuming that we obtain the necessary regulatory approvals, a number of factors may affect the market acceptance of any of our existing product candidates or any other products we develop or acquire in the future, including, among others:

• the price of our products relative to other therapies for the same or similar treatments;

• the perception by patients, physicians and other members of the health care community of the effectiveness and safety of our products for their prescribed treatments;

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• our ability to fund our sales and marketing efforts;

• the degree to which the use of our products is restricted by the product label approved by the FDA;

• the effectiveness of our sales and marketing efforts; and

• the introduction of generic competitors.

     If our products do not gain market acceptance, we may not be able to fund future operations, including the development or acquisition of new product candidates and/or our sales and marketing efforts for our approved products, which would cause our business to suffer.

     In addition, our ability to market and promote our product candidates will be restricted to the labels approved by the FDA. If the approved labels are restrictive, our sales and marketing efforts may be negatively affected.

Developing and marketing pharmaceutical products for human use involves product liability risks, for which we currently have limited insurance coverage.

     The testing, marketing and sale of pharmaceutical products involves the risk of product liability claims by consumers and other third parties. Although we maintain product liability insurance coverage, product liability claims can be high in the pharmaceutical industry and our insurance may not sufficiently cover our actual liabilities. If product liability claims were made against us, it is possible that our insurance carriers may deny, or attempt to deny, coverage in certain instances. If a lawsuit against us is successful, then the lack or insufficiency of insurance coverage could materially and adversely affect our business and financial condition. Furthermore, various distributors of pharmaceutical products require minimum product liability insurance coverage before purchase or acceptance of products for distribution. Failure to satisfy these insurance requirements could impede our ability to achieve broad distribution of our proposed products and the imposition of higher insurance requirements could impose additional costs on us.

Our inability to attract, hire and retain key management and scientific personnel, and to recruit qualified independent directors, could negatively affect our business.

     Our success depends on the performance of key management and scientific employees with biotechnology experience. Given our small staff size and programs currently under development, we depend substantially on our ability to hire, train, retain and motivate high quality personnel, especially our scientists and management team in this field. If we are unable to retain existing personnel or identify or hire additional personnel, we may not be able to research, develop, commercialize or market our product candidates as expected or on a timely basis and, as a result, our business may be harmed. In addition, we rely on the expertise and guidance of independent directors to develop business strategies and to guide our execution of these strategies. Due to changes in the regulatory environment for public companies over the past few years, the demand for independent directors has increased and it may be difficult for us, due to competition from both like-size and larger companies, to recruit qualified independent directors.

     Furthermore, if we were to lose key management personnel, particularly Jonathan Lim, M.D., our president and chief executive officer, or Gregory Frost, Ph.D., our vice president and chief scientific officer, then we would likely lose some portion of our institutional knowledge and technical know-how, potentially causing a substantial delay in one or more of our development programs until adequate replacement personnel could be hired and trained. For example, Dr. Frost has been with us from soon after our inception, and he possesses a substantial amount of knowledge about our development efforts. If we were to lose his services, we would experience delays in meeting our product development schedules. We have not entered into any retention or other agreements specifically designed to motivate officers or other employees to remain with us, other than standard agreements relating to the vesting of stock options that every optionee of the Company must enter into as a condition of receiving an option grant.

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     We do not have key man life insurance policies on the lives of any of our employees, including Dr. Lim and Dr. Frost.

Risks Related To Ownership of Our Common Stock

Future sales of shares of our common stock upon the exercise of currently outstanding securities or pursuant to our universal shelf registration statement may negatively affect our stock price.

     As a result of our January 2004 private financing transaction, we issued warrants to private investors for the purchase of approximately 10.5 million shares of common stock at purchase prices ranging from $0.77 to $1.75 per share. Currently, approximately 1.4 million shares of common stock remain issuable upon the exercise of these warrants. As a result of our October 2004 financing transaction, we issued warrants for the purchase of approximately 2.7 million shares of common stock at a purchase price of $2.25 per share. Currently, approximately 1.9 million shares of common stock remain issuable upon the exercise of these warrants. The exercise of these warrants could result in dilution to stockholders at the time of exercise which could negatively affect our stock price.

     We currently have the ability, at any time prior to December 1, 2008, to offer and sell up to $32.5 million of additional equity or debt securities under a currently effective universal shelf registration statement. Sales of substantial amounts of shares of our common stock or other securities under our universal shelf registration statement could lower the market price of our common stock and impair our ability to raise capital through the sale of equity securities. In the future, we may issue additional options, warrants or other derivative securities convertible into our common stock.

Our stock price is subject to significant volatility.

     We participate in a highly dynamic industry which often results in significant volatility in the market price of common stock irrespective of company performance. As a result, our high and low sales prices of our common stock during the twelve months ended September 30, 2008 were $9.46 and $4.19, respectively. We expect our stock price to continue to be subject to significant volatility and, in addition to the other risks and uncertainties described elsewhere in this Quarterly Report on Form 10-Q and all other risks and uncertainties that are either not known to us at this time or which we deem to be immaterial, any of the following factors may lead to a significant drop in our stock price:

• our failure, or the failure of one of our third party partners, to comply with the terms of our collaboration agreements;

• the termination, for any reason, of any of our collaboration agreements;

• the sale of common stock by any significant stockholder, including, but not limited to, direct or indirect sales by members of management or our Board of Directors;

• general negative conditions in the healthcare industry;

• general negative conditions in the financial markets;

• the failure, for any reason, to obtain FDA approval for any of our product candidates;

• the failure, for any reason, to secure or defend our intellectual property position;

• for those products that are approved by the FDA, the failure of the FDA to approve such products in a timely manner consistent with the FDA’s historical approval process;

• the suspension of any clinical trial due to safety or patient tolerability issues;

• the suspension of any clinical trial due to market and/or competitive conditions;

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• our failure, or the failure of our third party partners, to successfully commercialize products approved by the FDA;

• our failure, or the failure of our third party partners, to generate product revenues anticipated by investors;

• problems with an API contract manufacturer or a fill and finish manufacturer for any product or product candidate;

• the sale of additional debt and/or equity securities by us; and

• the departure of key personnel.

Trading in our stock has historically been limited, so investors may not be able to sell as much stock as they want to at prevailing market prices.

     Our stock has historically traded at a low daily trading volume. If recent trading volumes decrease, it may be difficult for stockholders to sell their shares in the public market at any given time at prevailing prices.

The exercise of outstanding warrants may drive down the market price of our stock.

     Outstanding warrants that may be exercised for approximately 1.4 million shares of common stock will expire per their terms in January 2009. In addition, warrants that may be exercised for approximately 1.9 million shares of common stock will expire per their terms in October 2009. Some warrant holders may choose to sell outstanding shares of common stock in order to finance the exercise of their warrants and this pattern of selling may result in a reduction of our common stock’s market price.

Risks Related To Our Industry

Compliance with the extensive government regulations to which we are subject is expensive and time consuming and may result in the delay or cancellation of product sales, introductions or modifications.

     Extensive industry regulation has had, and will continue to have, a significant impact on our business. All pharmaceutical companies, including ours, are subject to extensive, complex, costly and evolving regulation by the federal government, principally the FDA and, to a lesser extent, the U.S. Drug Enforcement Administration, or DEA, and foreign and state government agencies. The Federal Food, Drug and Cosmetic Act, the Controlled Substances Act and other domestic and foreign statutes and regulations govern or influence the testing, manufacturing, packaging, labeling, storing, recordkeeping, safety, approval, advertising, promotion, sale and distribution of our products. Under certain of these regulations, we and our contract suppliers and manufacturers are subject to periodic inspection of our or their respective facilities, procedures and operations and/or the testing of products by the FDA, the DEA and other authorities, which conduct periodic inspections to confirm that we and our contract suppliers and manufacturers are in compliance with all applicable regulations. The FDA also conducts pre-approval and post-approval reviews and plant inspections to determine whether our systems, or our contract suppliers’ and manufacturers’ processes, are in compliance with cGMP and other FDA regulations. If we, or our contract supplier, fail these inspections, we may not be able to commercialize our product in a timely manner without incurring significant additional costs, or at all.

     In addition, the FDA imposes a number of complex regulatory requirements on entities that advertise and promote pharmaceuticals including, but not limited to, standards and regulations for direct-to-consumer advertising, off-label promotion, industry-sponsored scientific and educational activities, and promotional activities involving the internet.

     We are dependent on receiving FDA and other governmental approvals prior to manufacturing, marketing and shipping our products. Consequently, there is always a risk that the FDA or other applicable governmental authorities will not approve our products, or will take post-approval action limiting or revoking our ability to sell our products, or that the rate, timing and cost of such approvals will adversely affect our product introduction plans or results of operations.

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Our suppliers and manufacturers are subject to regulation by the FDA and other agencies, and if they do not meet their commitments, we would have to find substitute suppliers or manufacturers, which could delay the supply of our products to market.

     Regulatory requirements applicable to pharmaceutical products make the substitution of suppliers and manufacturers costly and time consuming. We have no internal manufacturing capabilities and are, and expect to be in the future, entirely dependent on contract manufacturers and suppliers for the manufacture of our products and for their active and other ingredients. The disqualification of these manufacturers and suppliers through their failure to comply with regulatory requirements could negatively impact our business because the delays and costs in obtaining and qualifying alternate suppliers (if such alternative suppliers are available, which we cannot assure) could delay clinical trials or otherwise inhibit our ability to bring approved products to market, which would have a material adverse effect on our business and financial condition.

We may be required to initiate or defend against legal proceedings related to intellectual property rights, which may result in substantial expense, delay and/or cessation of the development and commercialization of our products.

     We rely on patents to protect our intellectual property rights. The strength of this protection, however, is uncertain. For example, it is not certain that:

• our patents and pending patent applications cover products and/or technology that we invented first;

• we were the first to file patent applications for these inventions;

• others will not independently develop similar or alternative technologies or duplicate our technologies;

• any of our pending patent applications will result in issued patents; and

• any of our issued patents, or patent pending applications that result in issued patents, will be held valid and infringed in the event the patents are asserted against others.

     We currently own or license several U.S. patents and also have pending patent applications. There can be no assurance that our existing patents, or any patents issued to us as a result of our pending patent applications, will provide a basis for commercially viable products, will provide us with any competitive advantages, or will not face third party challenges or be the subject of further proceedings limiting their scope or enforceability. Such limitations in our patent portfolio could have a material adverse effect on our business and financial condition. In addition, if any of our pending patent applications do not result in issued patents, this could have a material adverse effect on our business and financial condition.

     We may become involved in interference proceedings in the U.S. Patent and Trademark Office to determine the priority of our inventions. In addition, costly litigation could be necessary to protect our patent position. We also rely on trademarks to protect the names of our products. These trademarks may be challenged by others. If we enforce our trademarks against third parties, such enforcement proceedings may be expensive. We also rely on trade secrets, unpatented proprietary know-how and continuing technological innovation that we seek to protect with confidentiality agreements with employees, consultants and others with whom we discuss our business. Disputes may arise concerning the ownership of intellectual property or the applicability or enforceability of these agreements, and we might not be able to resolve these disputes in our favor.

     In addition to protecting our own intellectual property rights, third parties may assert patent, trademark or copyright infringement or other intellectual property claims against us based on what they believe are their own intellectual property rights. If we become involved in any intellectual property litigation, we may be required to pay substantial damages, including but not limited to treble damages, for past infringement if it is ultimately determined that our products infringe a third party’s intellectual property rights. Even if infringement claims against us are without merit, defending a lawsuit takes significant time, may be expensive and may divert management’s attention from other business concerns. Further, we may be stopped from developing, manufacturing or selling our products until we obtain a license from the owner of the relevant technology or other intellectual property rights. If such a license is available at all, it may require us to pay substantial royalties or other fees.

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Future acquisitions could disrupt our business and harm our financial condition.

     In order to augment our product pipeline or otherwise strengthen our business, we may decide to acquire additional businesses, products and technologies. As we have limited experience in evaluating and completing acquisitions, our ability as an organization to make such acquisitions is unproven. Acquisitions could require significant capital infusions and could involve many risks, including, but not limited to, the following:

• we may have to issue convertible debt or equity securities to complete an acquisition, which would dilute our stockholders and could adversely affect the market price of our common stock;

• an acquisition may negatively impact our results of operations because it may require us to incur large one-time charges to earnings, amortize or write down amounts related to goodwill and other intangible assets, or incur or assume substantial debt or liabilities, or it may cause adverse tax consequences, substantial depreciation or deferred compensation charges;

• we may encounter difficulties in assimilating and integrating the business, products, technologies, personnel or operations of companies that we acquire;

• certain acquisitions may disrupt our relationship with existing customers who are competitive with the acquired business, products or technologies;

• acquisitions may require significant capital infusions and the acquired businesses, products or technologies may not generate sufficient revenue to offset acquisition costs;

• an acquisition may disrupt our ongoing business, divert resources, increase our expenses and distract our management;

• acquisitions may involve the entry into a geographic or business market in which we have little or no prior experience; and

• key personnel of an acquired company may decide not to work for us.

     If any of these risks occurred, it could adversely affect our business, financial condition and operating results. We cannot assure you that we will be able to identify or consummate any future acquisitions on acceptable terms, or at all. If we do pursue any acquisitions, it is possible that we may not realize the anticipated benefits from such acquisitions or that the market will not view such acquisitions positively.

If third party reimbursement and customer contracts are not available, our products may not be accepted in the market.

     Our ability to earn sufficient returns on our products will depend in part on the extent to which reimbursement for our products and related treatments will be available from government health administration authorities, private health insurers, managed care organizations and other healthcare providers.

     Third-party payors are increasingly attempting to limit both the coverage and the level of reimbursement of new drug products to contain costs. Consequently, significant uncertainty exists as to the reimbursement status of newly approved healthcare products. Third party payors may not establish adequate levels of reimbursement for the products that we commercialize, which could limit their market acceptance and result in a material adverse effect on our financial condition.

     Customer contracts, such as with group paying organizations and hospital formularies, will often not offer contract or formulary status without either the lowest price or substantial proven clinical differentiation. If our products are compared to animal-derived hyaluronidases by these entities, it is possible that neither of these conditions will be met, which could limit market acceptance and result in a material adverse effect on our financial condition.

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The rising cost of healthcare and related pharmaceutical product pricing has led to cost containment pressures that could cause us to sell our products at lower prices, resulting in less revenue to us.

     Any of our products that have been or in the future are approved by the FDA may be purchased or reimbursed by state and federal government authorities, private health insurers and other organizations, such as health maintenance organizations and managed care organizations. Such third party payors increasingly challenge pharmaceutical product pricing. The trend toward managed healthcare in the United States, the growth of such organizations, and various legislative proposals and enactments to reform healthcare and government insurance programs, including the Medicare Prescription Drug Modernization Act of 2003, could significantly influence the manner in which pharmaceutical products are prescribed and purchased, resulting in lower prices and/or a reduction in demand. Such cost containment measures and healthcare reforms could adversely affect our ability to sell our products. Furthermore, individual states have become increasingly aggressive in passing legislation and implementing regulations designed to control pharmaceutical product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access, importation from other countries and bulk purchasing. Legally mandated price controls on payment amounts by third party payors or other restrictions could negatively and materially impact our revenues and financial condition. We anticipate that we will encounter similar regulatory and legislative issues in most other countries outside the United States.

We face intense competition and rapid technological change that could result in the development of products by others that are superior to the products we are developing.

     We have numerous competitors in the United States and abroad including, among others, major pharmaceutical and specialized biotechnology firms, universities and other research institutions that may be developing competing products. Such competitors include, but are not limited to, Sigma-Aldrich Corporation, ISTA, Amphastar and Primapharm among others. These competitors may develop technologies and products that are more effective, safer, or less costly than our current or future product candidates or that could render our technologies and product candidates obsolete or noncompetitive. Many of these competitors have substantially more resources and product development, manufacturing and marketing experience and capabilities than we do. In addition, many of our competitors have significantly greater experience than we do in undertaking pre-clinical testing and clinical trials of pharmaceutical product candidates and obtaining FDA and other regulatory approvals of products and therapies for use in healthcare. Other manufacturers have FDA approved products for use as spreading agents, including ISTA, with an ovine-derived hyaluronidase, Vitrase, Amphastar, with a bovine-derived hyaluronidase, Amphadase, and Primapharm, also with a bovine-derived hyaluronidase, Hydase. The FDA has determined that Amphadase, Hydase, HYLENEX and Vitrase are distinct new chemical entities and hence afforded five years of market exclusivity. The five year market exclusivity precludes identical new chemical entity products from being marketed for a period of five years. As each of these products is established as distinctly different new chemical entities, the marketing exclusivity granted does not prohibit the marketing of the products.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of U.S. interest rates, particularly because the majority of our investments are in short-term marketable securities. The primary objective of our investment activities is to preserve principal while at the same time maximizing the income we receive from our investments without significantly increasing risk. Some of the securities that we invest in may be subject to market risk. This means that a change in prevailing interest rates may cause the value of the investment to fluctuate. For example, if we purchase a security that was issued with a fixed interest rate and the prevailing interest rate later rises, the value of our investment will probably decline. To minimize this risk, we intend to continue to maintain our portfolio of cash equivalents and short-term investments in a variety of securities including commercial paper, money market funds and government and non-government debt securities. In general, money market funds are not subject to market risk because the interest paid on such funds fluctuates with the prevailing interest rate. As of September 30, 2008, we did not have any holdings of derivative financial or commodity instruments, or any foreign currency denominated transactions, and all of our cash and cash equivalents were in money market mutual funds and other highly liquid investments.

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

     We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the timelines specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decision regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objectives, and in reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

     Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on
Form 10-Q.

Changes in Internal Control Over Financial Reporting

     There have been no significant changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2008, that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

     From time to time, we may be involved in litigation relating to claims arising out of operations in the normal course of our business. Any of these claims could subject us to costly litigation and, while we generally believe that we have adequate insurance to cover many different types of liabilities, our insurance carriers may deny coverage or our policy limits may be inadequate to fully satisfy any damage awards or settlements. If this were to happen, the payment of any such awards could have a material adverse effect on our consolidated results of operations and financial position. Additionally, any such claims, whether or not successful, could damage our reputation and business. We currently are not a party to any legal proceedings, the adverse outcome of which, in management’s opinion, individually or in the aggregate, would have a material adverse effect on our consolidated results of operations or financial position.

Item 1A. Risk Factors

     We have provided updated Risk Factors in the section labeled “Risk Factors” in Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. The “Risk Factors” section provides updated information in certain areas, but we do not believe those updates have materially changed the type or magnitude of the risks we face in comparison to the disclosure provided in our most recent Annual Report on Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

     During the three months ended September 30, 2008, holders of various outstanding warrants exercised rights to purchase an aggregate of 914,278 common shares for gross proceeds of approximately $1.1 million. The shares and underlying warrants were purchased for investment in a private placement exempt from the registration requirements of the Securities Act pursuant to Section 4(2) thereof.

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Item 3. Defaults Upon Senior Securities

Not applicable.

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

Not applicable

Item 5. Other Information

Not applicable.

Item 6. Exhibits

Exhibit	Title
2.1	Agreement and Plan of Merger, dated November 14, 2007, by and between the Registrant and the Registrant’s predecessor Nevada corporation (1)
3.1	Amended and Restated Certificate of Incorporation, as filed with the Delaware Secretary of State on October 7, 2007 (2)
3.2	Certificate of Designation, Preferences and Rights of the terms of the Series A Preferred Stock (1)
3.3	Bylaws (2)
4.1	Amended Rights Agreement between Corporate Stock Transfer, as rights agent, and Registrant, dated November 12, 2007 (20)
10.1	License Agreement between University of Connecticut and Registrant, dated November 15, 2002 (3)
10.2	First Amendment to the License Agreement between University of Connecticut and Registrant, dated January 9, 2006 (9)
10.3*	Commercial Supply Agreement with Avid Bioservices, Inc. and Registrant, dated February 16, 2005 (7)
10.4*	First Amendment to the Commercial Supply Agreement between Avid Bioservices, Inc. and Registrant, dated December 15, 2006 (14)
10.5*	Clinical Supply Agreement between Cook Pharmica, LLC and Registrant, dated August 15, 2008
10.6	Form of Callable Stock Purchase Warrant (4)
10.7	Form of Common Stock Purchase Warrant (5)
10.8#	DeliaTroph Pharmaceuticals, Inc. 2001 Amended and Restated Stock Plan and form of Stock Option Agreements for options assumed thereunder (6)
10.9	Nonstatutory Stock Option Agreement With Andrew Kim (6)
10.10#	2004 Stock Plan and Form of Option Agreement thereunder (4)
10.11#	Halozyme Therapeutics, Inc. 2005 Outside Directors’ Stock Plan (8)
10.12#	Form of Stock Option Agreement (2005 Outside Directors’ Stock Plan) (12)
10.13#	Form of Restricted Stock Agreement (2005 Outside Directors’ Stock Plan) (12)
10.14#	Halozyme Therapeutics, Inc. 2006 Stock Plan (11)
10.15#	Form of Stock Option Agreement (2006 Stock Plan) (12)
10.16#	Form of Restricted Stock Agreement (2006 Stock Plan) (12)
10.17#	Halozyme Therapeutics, Inc. 2008 Stock Plan (21)
10.18#	Halozyme Therapeutics, Inc. 2008 Outside Directors’ Stock Plan (21)
10.19#	Form of Indemnity Agreement for Directors and Executive Officers (19)
10.20#	Outside Director Compensation Plan (23)
10.21#	2007 Senior Executive Incentive Plan (23)
10.22#	2008 Senior Executive Incentive Structure (22)
10.23#	Change in Control Policy (22)
10.24#	Severance Policy (23)
10.25*	Amended and Restated Exclusive Distribution Agreement between Baxter Healthcare Corporation, Baxter Healthcare S.A. and Registrant, dated February 14, 2007 (15)
10.26*	Amended and Restated Development and Supply Agreement between Baxter Healthcare Corporation, Baxter Healthcare S.A. and Registrant, dated February 14, 2007 (15)

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Exhibit	Title
10.27*	License and Collaboration Agreement between Baxter Healthcare Corporation, Baxter Healthcare S.A. and Registrant, dated February 14, 2007 (15)
10.28*	Enhanze Technology License and Collaboration Agreement between Baxter Healthcare Corporation, Baxter Healthcare S.A. and Registrant, dated September 7, 2007 (18)
10.29*	License and Collaboration Agreement between F. Hoffmann-La Roche Ltd, Hoffmann-La Roche Inc. and Registrant dated December 5, 2006 (13)
10.30	Stock Purchase Agreement between Roche Finance Ltd and Registrant, dated December 5, 2006 (13)
10.31	Stock Purchase Agreement between Baxter International, Inc. and Registrant, dated February 14, 2007 (15)
10.32	Stock Purchase Agreement between New River Management V, LP and Registrant, dated April 23, 2007(16)
10.33	Sublease Agreement (11404 Sorrento Valley Road), effective as of July 2, 2007 (17)
10.34	Sublease Agreement (11388 Sorrento Valley Road), effective as of July 2, 2007 (17)
10.35	Standard Industrial Net Lease (11388 Sorrento Valley Road), effective as of July 26, 2007 (17)
21.1	Subsidiaries of Registrant (10)
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended
32	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(1)	Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed November 20, 2007.
(2)	Incorporated by reference to the Registrant’s definitive proxy statement filed with the SEC on Form DEF14A on October 11, 2007.
(3)	Incorporated by reference to the Registrant’s Registration Statement on Form SB-2 filed with the Commission on April 23, 2004.
(4)	Incorporated by reference to the Registrant’s amendment number two to the Registration Statement on Form SB-2 filed with the Commission on July 23, 2004.
(5)	Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed October 15, 2004.
(6)	Incorporated by reference to the Registrant’s Registration Statement on Form S-8 filed with the Commission on October 26, 2004.
(7)	Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed February 22, 2005.
(8)	Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed July 6, 2005.
(9)	Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed January 12, 2006.
(10)	Incorporated by reference to the Registrant’s Annual Report on Form 10-KSB/A, filed March 29, 2005.
(11)	Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed March 24, 2006.
(12)	Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q, filed August 8, 2006.
(13)	Incorporated by reference to the Registrant’s Current Report on Form 8-K/A, filed December 15, 2006.
(14)	Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed December 21, 2006.
(15)	Incorporated by reference to the Registrant’s Current Report on Form 8-K/A, filed February 20, 2007.
(16)	Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed April 24, 2007.
(17)	Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed July 31, 2007.
(18)	Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed September 12, 2007.
(19)	Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed December 20, 2007.
(20)	Incorporated by reference to the Registrant’s Annual Report on Form 10-K, filed March 14, 2008.
(21)	Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed March 19, 2008.
(22)	Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed April 21, 2008.
(23)	Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q, filed May 9, 2008.
*	Confidential treatment has been requested for certain portions of this exhibit. These portions have been omitted from this agreement and have been filed separately with the Securities and Exchange Commission.
#	Indicates management contract or compensatory plan or arrangement.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Halozyme Therapeutics, Inc., a Delaware corporation
Dated: November 7, 2008	/s/ Jonathan E. Lim
	Jonathan E. Lim, MD
	President and Chief Executive Officer (Principal Executive Officer)

Dated: November 7, 2008	/s/ David A. Ramsay
	David A. Ramsay
	Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

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EX-10.5

Exhibit 10.5

Confidential Treatment Requested — Redacted Copy

CONFIDENTIAL TREATMENT REQUESTED: INFORMATION FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED IS OMITTED AND NOTED WITH “***.” AN UNREDACTED VERSION OF THIS DOCUMENT HAS BEEN SUBMITTED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION.

CLINICAL SUPPLY AGREEMENT

     This CLINICAL SUPPLY AGREEMENT (this “Agreement”) is entered into as of the 15th day of August, 2008 (“Effective Date”), by and between Cook Pharmica LLC a Delaware Limited Liability Company with offices at 1300 South Patterson Drive, Bloomington, Indiana 47403 (“COOK”) and HALOZYME, INC. a California corporation with an office at 11388 Sorrento Valley Road, San Diego, CA 92121 (“CLIENT”). In this Agreement, COOK and CLIENT each may be referred to individually as a “Party” and together as “Parties.”

RECITALS

     WHEREAS, COOK is in the business of manufacturing and testing biological products; and

     WHEREAS, CLIENT is the proprietor of a certain enzyme known as rHuPH20; and

     WHEREAS, COOK has expertise in the production of monoclonal antibodies and recombinant proteins for therapeutic use using cell lines; and

     WHEREAS, subject to the terms and conditions set forth in this Agreement, CLIENT wishes to have COOK manufacture for CLIENT a clinical stage biological Product (hereinafter defined); and

     WHEREAS, subject to the terms and conditions set forth in this Agreement, COOK wishes to manufacture Product for CLIENT.

     NOW, THEREFORE, the Parties hereto, intending to be legally bound, hereby agree as follows:

1. Definitions. For purposes of this Agreement, the following terms will have the meanings set forth below:

     1.1 “Affiliates” means, with respect to any Person, another Person that, directly or indirectly, controls, is controlled by or is under common control with such Person. The term “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. The direct or indirect ownership of at least fifty percent (50%) or, if smaller, the maximum allowed by applicable law, of the voting securities of a business entity or of an interest in the assets, profits or earnings of a Person shall be deemed to constitute “control” of the Person.

     1.2 “Applicable Laws” means all ordinances, rules and regulations of any kind whatsoever of any governmental or regulatory authority, including, without limitation, the FDCA, that are applicable with respect to the context in which the term is used.

Page 1 of 22

Confidential Treatment Requested — Redacted Copy

     1.3 “Audit” means an audit pursuant to which CLIENT or their appointed representatives (such representatives to be reasonably acceptable to COOK) may (a) review the processes, procedures and documents of COOK that are used or maintained by COOK to provide the Services, (b) assess COOK’s compliance with CGMP, Applicable Laws and quality assurance standards associated with performing the Services, and (c) discuss any related issues with COOK’ personnel and management involved in performing the Services.

     1.4 “Cell Line” means ***.

     1.5 “CGMP” means Current Good Manufacturing Practices and General Biologics Products Standards as promulgated under the FDCA.

     1.6 “CLIENT Information” means all confidential and proprietary technical information not in the public domain relating to the Cell Line, the Process and the Product, from time to time supplied by CLIENT to COOK, or arranged by CLIENT to be supplied by a third party (such as a prior manufacturer) to COOK. The CLIENT Information shall be the Confidential Information of CLIENT.

     1.7 “CLIENT Intellectual Property Rights” means all patent and other intellectual property rights owned or controlled by CLIENT, other than those patents and patent applications subject to Section 9.4, that claim, cover, or are otherwise related to or useful for the Process, a Product or any other technology provided by CLIENT hereunder.

     1.8 “CLIENT Materials” means the materials supplied by CLIENT to COOK as outlined in the signed and accepted Project Plan.

     1.9 “CLIENT Tests” means the tests to be carried out on the Product immediately following receipt of the Product by CLIENT as determined by CLIENT in its sole discretion.

     1.10 “Confidential Information” means all confidential or proprietary information of a Party that the other Party receives or learns under this Agreement. Confidential Information shall include without limitation the manufacturing processes transferred to, used by or improved by COOK under this Agreement.

     Confidential Information shall not include any information to the extent that it:

          (a) is now, or hereafter becomes, through no act or failure to act on the part of the receiving Party in breach of Article 7, generally known or available;

          (b) is known by the receiving Party at the time of receiving such information, as shown by written records predating such receipt;

          (c) is furnished after the Effective Date to the receiving Party by a third party, without breach of and not subject to any obligation of confidentiality; or

*** Portions of this page have been omitted pursuant to a request for Confidential Treatment filed separately with the Commission.

Page 2 of 22

Confidential Treatment Requested — Redacted Copy

          (d) is independently developed by the receiving Party without use of or reference to Confidential Information of the other Party, as shown by independent written records, contemporaneous with such development.

     The Parties agree that the material financial, commercial, scientific and technical terms of the Agreement will be considered Confidential Information of both Parties. Notwithstanding the foregoing, either Party may disclose such terms to bona fide potential corporate partners, potential investors or merger or acquisition partners, and to financial underwriters and legal and financial advisors, provided that all such disclosures shall be made only to such Parties under commercially reasonable obligations of confidentiality equivalent to the obligations set forth in Article 7.

     1.11 “COOK Intellectual Property Rights” means all patent and other intellectual property rights owned or controlled by COOK, including without limitation, COOK Know-How other than those patents or patent applications covered by Section 9.4, that claim or cover any method, process, know-how, trade secret or other technology that COOK incorporates or uses in the course of performing the Services (other than a Project Invention) that is necessary or useful to utilize any method, process or other work product developed or refined in the course of the Services.

     1.12 “COOK Know-How” means unpatented and/or unpatentable technical information, including ideas, concepts, inventions, discoveries, data, designs, formulas, specifications, procedures for experiments and tests and other protocols, results of experimentation and testing, cell culture and purification techniques, and assay protocols owned by COOK as of the Effective Date which may be necessary for the performance of the Services. All COOK Know-How shall be Confidential Information of COOK.

     1.13 “Damages” means any and all costs, losses, claims, actions, liabilities, fines, penalties, costs and expenses, court costs, and fees and disbursements of counsel, consultants and expert witnesses incurred by a Party hereto (including interest which may be imposed in connection therewith).

     1.14 “FDA” means the United States Food and Drug Administration, any comparable agency in any Foreign Jurisdiction, and any successor agency or entity to any of the foregoing that may be established hereafter.

     1.15 “FDCA” means the Federal Food, Drug and Cosmetic Act (21 U.S.C. (S).301 et seq.).

     1.16 “Field” shall mean hyaluronidase enzymes, including without limitation, the Product, CLIENT Materials, practice of the Process, any improvements, modifications or derivatives thereof, as well as all uses thereof and/or methods of manufacture therefor.

     1.17 “Foreign Jurisdiction” means any jurisdiction, not governed by the United States or any political subdivision thereof, as agreed upon by the Parties.

Page 3 of 22

Confidential Treatment Requested — Redacted Copy

     1.18 “IND” means an Investigation New Drug application or any comparable application required by a Foreign Jurisdiction filed for the Product by CLIENT with the FDA and all subsequent submissions, supplements or amendments related thereto.

     1.19 “Inventions” means all innovations, inventions, improvements, original works of authorship, developments, concepts, know-how or trade secrets, whether or not patentable, that, are created or conceived and reduced to practice during the term of this Agreement and that arise out of the activities contemplated hereunder.

     1.20 “Master Batch Records” means the document that contains the instructions for manufacturing the Product, and the related Product Specifications. Prior to the initiation of the first CGMP manufacturing run, the Master Batch Record shall be approved by CLIENT in writing. CLIENT’s written approval of the Master Batch Record is also an acknowledgement that CLIENT adopts the Master Batch Record as its own specification in accordance with Section 6.7 of this agreement. Any changes or additions to the Master Batch Record after initial approval by CLIENT shall be made by the written agreement of COOK and CLIENT.

     1.21 “NDA” means New Drug Application or any comparable application required by a Foreign Jurisdiction filed for the Product by CLIENT with the FDA and all subsequent submissions, supplements or amendments related thereto.

     1.22 “Person” means a natural person, a corporation, a partnership, a trust, a joint venture, a limited liability company, any governmental authority or any other entity or organization.

     1.23 “Price” means the price(s) specified in the signed and accepted Project Plan attached hereto.

     1.24 “Process” means the process for the production of the Product from the Cell Line using the Master Batch Records, including any improvements thereto from time to time made as a result of the Services.

     1.25 “Process Development Agreement” means that certain Process Development Agreement entered into between the Parties and dated April 3, 2008.

     1.26 “Product” means the rHuPH20 Enzyme derived from the Cell Line manufactured by COOK utilizing the Process.

     1.27 “Product Specifications” means the product specifications listed under the column “Acceptance Criteria” as set forth in the Master Batch Records.

     1.28 “Project Inventions” means any Invention arising out of or relating to the Services performed by COOK under this Agreement and/or the use of CLIENT Materials. For the avoidance of doubt, a Project Invention shall include Inventions made solely by employees of COOK, CLIENT or jointly by such employees.

     1.29 “Project Plan” means the binding addendum to this Agreement to be signed by both Parties setting forth the the proposed scope of work for the manufacture of Product. Any

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changes or additions to the Project Plan shall be made by written agreement of COOK and CLIENT.

     1.30 “Services” means all or any part of the services, including the manufacture of Product for sale to CLIENT, to be provided by COOK (or any permitted subcontractor) for the benefit of CLIENT pursuant to this Agreement as further described in the signed and accepted Project Plan.

     1.31 “Termination Fee” means, with respect to each manufacturing run that is cancelled by CLIENT, or this Agreement is otherwise terminated, within *** of the scheduled run date, a sum equal to the total batch price of all such manufacturing runs which were not produced, as outlined in the Project Plan. With respect to any such cancelled or otherwise terminated manufacturing runs, Cook shall use commercially reasonable efforts to sell the applicable manufacturing capacity to its other customers and some portion, or all, of the Termination Fee may be refunded to CLIENT in the event that Cook is able to sell the manufacturing capacity that corresponds to such manufacturing runs that were cancelled. For the avoidance of doubt, no Termination Fee accrues with respect to a manufacturing run that is cancelled or otherwise terminated more than *** prior to the scheduled run date.

     1.32 “Terms of Payment” means the terms of payment specified in Section 5.

     1.33 “Testing Laboratories” means any third party instructed by COOK to carry out tests on the Cell Line or the Product.

     1.34 “United States” means the fifty (50) states, the District of Columbia and all of the territories of the United States of America.

     1.35 “Quality Agreement” means the written agreement, signed by both Parties, that sets forth the safety, quality control, and quality assurance aspects of the manufacture and supply of the Product. The Quality Agreement shall be executed by both Parties prior to the initiation of the first batch of Product.

2. SUPPLY BY CLIENT.

     2.1 Prior to or immediately following the Effective Date of this Agreement CLIENT shall supply to COOK, certain CLIENT Information necessary for COOK to perform the Services, as determined by CLIENT in its sole discretion, together with full details of any known hazards relating to CLIENT Materials with respect to their storage and use. COOK shall not use the CLIENT Materials or CLIENT Information (or any part thereof) for any other purpose without the prior written consent of CLIENT. Following review of this CLIENT Information and details, CLIENT shall provide the CLIENT Materials to COOK at COOK’s request when COOK has satisfactorily determined that CLIENT Materials do not pose a hazard to COOK. CLIENT shall render all reasonable assistance to COOK in making such determination. All

*** Portions of this page have been omitted pursuant to a request for Confidential Treatment filed separately with the Commission.

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property rights in the CLIENT Intellectual Property Rights, CLIENT Information and/or CLIENT Materials supplied to COOK shall remain solely vested in CLIENT, except as set forth in Section 9.3(b).

     2.2 COOK shall:

          2.2.1 at all times use all reasonable efforts to keep the CLIENT Materials secure and safe from loss or damage but in no case in a lesser manner than COOK stores material of similar nature;

          2.2.2 not transfer to a third party any part of the CLIENT Materials or the Product, except to a permitted subcontractor or for the purpose of any tests at the Testing Laboratories, provided, that, CLIENT is given prior notification or if CLIENT has given prior written consent to such transfer; and

          2.2.3 provide that any such subcontractor and Testing Laboratories are subject to obligations of confidence, restrictions on use and ownership of resulting intellectual property materially in the form of, and no less restrictive than, those obligations of confidence, restrictions on use and ownership of resulting intellectual property imposed on COOK under this Agreement.

     2.3 CLIENT warrants to COOK that CLIENT is and shall at all times throughout the duration of this Agreement remain entitled to supply the CLIENT Materials and Client Intellectual Property Rights to COOK for the performance of the Services.

     2.4 CLIENT warrants that, to CLIENT’s knowledge, the use by COOK of CLIENT Materials and Client Intellectual Property Rights for the Services and the Product produced thereby will not infringe or is not alleged to infringe any rights (including, without limitation, any intellectual or other proprietary rights) vested in any third party.

     2.5 CLIENT shall indemnify, defend and hold harmless COOK against any loss, damage, costs and expenses of any nature (including court costs and legal and other fees incurred by COOK or ordered as payable by COOK), whether or not foreseeable or in the contemplation of COOK or CLIENT, that COOK may suffer as a result of any third party claims, suits or actions arising out of or incidental to (a) any breach of the warranties given in Sections 2.4 and 2.5 above, (b) any breach of any covenants herein by CLIENT, (c) the distribution or use of the Product by CLIENT, except to the extent such loss, damage, costs and expenses are caused by COOK’s gross negligence or willful misconduct or breach of any term of this Agreement, or (d) any claims by third parties alleging COOK’s use of the Cell Line, CLIENT Materials or Client Intellectual Property Rights, in each case strictly in accordance with the terms of the Project Plan, infringes any rights (including, without limitation, any intellectual or other proprietary rights) vested in any third party (whether or not CLIENT knew or should have known about such alleged infringement) except to the extent COOK infringes any rights of any third parties by application of its production techniques while performing the Services unless such application or production technique has been developed as part of the Services. For the purposes of Sections 2.6 and 2.7, the term, production technique(s), is limited to all and any physical arrangement and use of plant, equipment and processes in the provision of Services.

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     2.6 COOK shall indemnify, defend and hold harmless CLIENT against any loss, damage, costs and expenses of any nature (including court costs and legal and other fees incurred by CLIENT or ordered as payable by CLIENT), whether or not foreseeable or in the contemplation of CLIENT or COOK, that CLIENT may suffer as a result of any third party claims, suits or actions arising from COOK’s breach of any representation, warranty or covenant in this Agreement except to the extent the loss or damage is a result of (a) CLIENT’s gross negligence or willful misconduct or (b) COOK’s use of an application or production technique that has been developed as part of the Services for CLIENT or is supplied by CLIENT. For the avoidance of doubt where COOK’s application or production techniques, existed prior to the Effective Date, are not developed as part of the Services hereto and whether or not included in the Master Batch Records, then they are covered by COOK’s undertaking of indemnity and hold harmless.

     2.7 A Party (the “Indemnitee”) that intends to claim indemnification under this Section 2 or under Section 6.6 shall promptly notify the other Party (the “Indemnitor”) of any claim, demand, action or other proceeding for which the Indemnitee intends to claim such indemnification. The Indemnitor shall have the right to participate in, and to the extent the Indemnitor so desires, to assume the defense thereof with counsel selected by the Indemnitor; provided, however, that the Indemnitee shall have the right to retain its own counsel, with the fees and expenses to be paid by the Indemnitor, if representation of the Indemnitee by the counsel retained by the Indemnitor would be inappropriate due to actual or potential differing interests between the Indemnitee and any other Party represented by such counsel in such proceeding. The indemnity obligations under this Section 2 or under Section 6.6 shall not apply to amounts paid in settlement of any claim, demand, action or other proceeding if such settlement is effected without the prior express written consent of the Indemnitor, which consent shall not be unreasonably withheld or delayed. The failure to deliver notice to the Indemnitor within a reasonable time after notice of any such claim or demand, or the commencement of any such action or other proceeding, if prejudicial to its ability to defend such claim, demand, action or other proceeding, shall relieve such Indemnitor of any liability to the Indemnitee under this Section 2 or under Section 6.6 with respect thereto, but the omission so to deliver notice to the Indemnitor shall not relieve it of any liability that it may have to the Indemnitee otherwise than under this Section 2 or under Section 6.6. The Indemnitor may not settle or otherwise consent to an adverse judgment in any such claim, demand, action or other proceeding that diminishes the rights or interests of the Indemnitee without the prior express written consent of the Indemnitee, which consent shall not be unreasonably withheld or delayed. The Indemnitee, its employees and agents shall reasonably cooperate with the Indemnitor and its legal representatives in the investigation and defense of any claim, demand, action or other proceeding covered by this Section 2 or under Section 6.6.

     2.8 Notwithstanding the above, COOK shall be at liberty to use CLIENT Information as it sees fit in providing the Services subject to nondisclosure pursuant to Article 7.

     2.9 The obligations of each Party under this Article 2 shall survive the termination of this Agreement for whatever reason.

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3. Provision of the Services

     3.1 COOK shall provide sufficient manufacturing capacity and diligently perform the Services as provided in the signed and accepted Project Plan (Appendix A) and shall use all reasonable commercial efforts to achieve the estimated schedules and amounts of Product. Furthermore, COOK shall keep CLIENT regularly informed of any changes to the estimated schedules for performance of the Services and provide regular reports, in a form agreed by the Parties.

     3.2 COOK shall manufacture all Product under this Agreement pursuant to the Master Batch Records, the Product Specifications, and in accordance with CGMP and all applicable laws and regulations.

     3.3 COOK shall keep and maintain all data, information and records regarding the manufacture of the Product, including, without limitation, analytical and manufacturing documentation and quality control information as set forth in the Quality Agreement.

     3.4 Except as set forth in Section 8, due to the unpredictable nature of the biological processes involved in the Services, the schedules set down for the performance of the Services (including, without limitation, the dates for production and delivery of Product) set out in the signed and accepted Project Plan are good faith estimates only.

     3.5 Unless otherwise agreed, COOK shall package and label Product for delivery in accordance with its standard operating procedures, and as authorized and directed by a completed shipment request form (as defined in the Project Plan). It shall be the responsibility of CLIENT to provide prior written notice to COOK of any special packaging and labeling requirements for Product. If additional costs and expenses would be incurred by COOK in complying with such special requirements, a revised proposal would be generated to encompass the change in scope and additional costs would be borne by CLIENT.

     3.6 Joint Communication on Manufacturing: COOK and CLIENT shall communicate and cooperate on a regular basis during the provision of Services herein and in the event that the Parties observe the need for a regular and active committee, such body shall be established and meet regularly to discuss and communicate the progress of the Services.

     3.7 Person in Plant: CLIENT shall be allowed to have, at its cost, a maximum of two (2) employees of CLIENT at the COOK facility, escorted by COOK personnel, with reasonable access to the facility used for the performance of the Services for the purpose of observing, reporting on, and consulting as to such Services. COOK will reasonably cooperate in enabling (e.g., providing necessary training to allow for compliance with COOK procedures) such employees of CLIENT to carry out their responsibilities and will make adequate temporary desk space and other reasonable resources available to these employees during the periods they are working at the facility. Notwithstanding the confidentiality provisions of this agreement, CLIENT acknowledges that certain portions of the facility will not be accessible at times due to the confidential requirements of COOK’s other customers. COOK will try to reasonably accommodate CLIENT’s requests for access to such areas, but CLIENT acknowledges that COOK, with respect to granting of requests for such access, has contractual obligations for the

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protection of other customer’s information. CLIENT will carry adequate workers compensation insurance for each of its employees at the COOK facility, and provide a waiver of subrogation to COOK for claims made not as a result of COOK’s gross negligence or willful misconduct.

     3.8 COOK shall provide CLIENT, as outlined in the Project Plan, with all documents CLIENT reasonably requests regarding COOK’s performance of the Services and conducting the Process of manufacturing the Product; provided, however, in the event that CLIENT requests any documentation beyond that which COOK is expressly required to maintain pursuant to this Agreement, or which is otherwise already prepared by COOK and related to the Products or the Process, a revised proposal would be generated to encompass the change in scope and additional costs would be borne by CLIENT.

     3.9 Once per annum, or more frequently to conduct ‘for cause’ Audits to address Product quality or safety problems discovered through Product quality issues, or as otherwise needed to ensure issues identified in a previous Audit have been rectified, and in each case with adequate notice, CLIENT shall have the right to have CLIENT representatives (including licensees and collaborators of CLIENT to whom CLIENT is obligated to supply Product) Audit COOK’s manufacturing facilities during normal business hours. Notwithstanding the foregoing notice period, for purposes of confidentiality, safety and to avoid the possibility of contamination, if a third party’s product is being produced during the time that CLIENT intends to conduct an Audit, such Audit may be reasonably delayed upon prior written notice to CLIENT. The form, participants and procedures of the Audit shall be subject to COOK’s reasonable approval. The number of Audits shall be reasonable in number and shall in no event unduly interfere with the conduct of Cook’s business operations. The number of Audits shall be reasonable in number and shall in no event unduly interfere with the conduct of Cook’s business operations. When conducting an Audit, CLIENT and as applicable, each of CLIENT’s representatives will: (a) be subject to a nondisclosure obligation comparable in scope to Article 7, (b) follow such security and facility access procedures as are reasonably designated by COOK, (c) be accompanied by a COOK representative, (d) not enter areas of any COOK facility at times when any third party’s products are being manufactured to assure protection of COOK’s or third party confidential information; provided, however, that COOK will attempt to reasonably accommodate requests for access to any portion of COOK’s facility that relates to the manufacture of Product during the period of a planned Audit, and (e) use good faith efforts to avoid disrupting COOK’s operations. In addition to an Audit, COOK agrees to reasonably cooperate with all regulatory authorities and shall submit to reasonable Product-specific inspections by such authorities (“Regulatory Inspection”).

4. CLIENT Tests and Return Procedures

     4.1 Except where CLIENT has accepted COOK Product tests and provided written notice to COOK of such acceptance, promptly following delivery of Product (in any event within fifteen (15) days), or a sample of Product (if such sample is requested by CLIENT), CLIENT shall carry out CLIENT Tests. If CLIENT Tests show that the Product fails to meet Product Specifications, CLIENT shall give COOK written notice thereof as soon as practicable but in no case later than thirty (30) days from the date CLIENT takes delivery of the Product (or sample of the Product, if applicable) and shall return such Product (or sample) to COOK’s premises for further testing. In the absence of such written notice Product shall be deemed to have been

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accepted by CLIENT as meeting Product Specifications. If COOK agrees that Product is Nonconforming Product (as defined below), then it shall at CLIENT’s discretion replace such Product at its own cost and expense, subject to Section 4.3. “Nonconforming Product” means any Product that has been delivered to CLIENT but fails to meet Product Specifications, and such failure is not due (in whole or in part) to (a) material acts or omissions of CLIENT, (b) the inherent nature of the biological product and processes to the extent outside the reasonable control of COOK, or (c) any third party after delivery of such Product to CLIENT.

     FOR THE AVOIDANCE OF DOUBT, WHERE THE SPECIFICATION HAS NOT BEEN AGREED BY THE PARTIES HERETO COOK SHALL BE OBLIGED ONLY TO USE ITS REASONABLE ENDEAVOURS TO PRODUCE PRODUCT THAT MEETS DRAFT PRODUCT SPECIFICATIONS.

     4.2 If there is any dispute concerning whether Product is Nonconforming Product, such dispute shall be referred for decision to an independent expert (acting as an expert and not as an arbitrator) to be appointed by agreement between COOK and CLIENT.

          4.2.1 The costs of such independent expert shall be borne by the Parties equally; provided that the Party that is determined to be incorrect in the dispute shall be responsible for all such costs and shall indemnify the correct Party for its share of the costs incurred. The decision of such independent expert shall be in writing and shall be binding on both COOK and CLIENT.

     4.3 In the event Product is determined to be Nonconforming Product (whether by agreement of COOK pursuant to Section 4.1 or by an independent expert pursuant to Section 4.2), COOK shall replace the Nonconforming Product with Product that conforms to the Product Specifications at its own cost and expense and shall use commercially reasonable efforts to replace such Product as soon as reasonably practicable given any contractually obligated capacity constraints.

     4.4 In the event that the Parties hereto agree that a shipment or batch of Product fails to meet Product Specifications, the entire shipment or batch of Product that failed to meet Product Specifications shall either be returned to COOK or destroyed, at COOK’s option.

     4.5 The provisions of this Article 4 shall be the sole remedies available to CLIENT in respect of replacement of Product that fails to meet Product Specifications.

5. Price and Terms of Payment/Insurance

     5.1 CLIENT shall pay the Price for Services rendered by COOK in accordance with the signed and accepted Project Plan.

     Each of CLIENT and COOK shall during the term of this Agreement maintain in full force and effect insurance coverage adequate in scope for: (a) as to COOK, the Services performed by it, and (b) as to CLIENT, the development, marketing and commercialization of Products (including products liability coverage).

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     COOK shall generate monthly invoices for all fees and cost reimbursements. Billings for engineering and CGMP production batches will be submitted after the completion and COOK quality release of each batch. Invoices for cost reimbursement will include appropriate documentation of costs incurred. Unless otherwise indicated in writing by COOK, all prices and charges are exclusive of any applicable taxes, levies, import duties and fees of whatever nature imposed by or under the authority of any government or public authority, which shall be paid by CLIENT (other than taxes on COOK’s net income). CLIENT shall pay invoices within thirty (30) days of invoice date. Payment shall be made without deduction, deferment, set-off, lien or counterclaim of any nature. If any inconsistencies or mistakes are discovered in an invoice, the Parties shall make immediate adjustment, by reimbursement or credit, as applicable. Invoices that remain unpaid more than fifteen (15) days beyond the scheduled payment due date may be subject to an interest charge equal to one and a half percent (1.5%) per month, calculated from the scheduled payment due date forward; provided that in no event shall such annual rate exceed the maximum interest rate permitted by law in regard to such payments. Such payments when made shall be accompanied by all interest so accrued. Payments may either be made by check or wire transfer of immediately available funds to the following account:

ABA (routing): ***
Account: ***
Account Title: ***

Cook Pharmica LLC
1300 South Patterson Drive
PO Box 970
Bloomington, Indiana 47402
Attention: Accounting Dept.

6. Warranty and Limitation of Liability

     6.1 Each Party represents and warrants that:

          6.1.1 It is a corporation (in the case of CLIENT) or a limited liability company (in the case of COOK) duly organized, validly existing and in good standing under the laws of the state in which it is incorporated or organized, as applicable and the full corporate or company power and authority and the legal right to own and operate its property and assets to carry on its business as it is now being conducted and as contemplated in this Agreement.

          6.1.2 As of the date of this Agreement (a) it has the corporate or company power and authority and the legal right to enter into this Agreement and perform its obligations hereunder; and (b) this Agreement has been duly executed and delivered on behalf of such Party, and constitutes a legal, valid and binding obligation of such Party and is enforceable against it in accordance with its terms.

*** Portions of this page have been omitted pursuant to a request for Confidential Treatment filed separately with the Commission.

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     6.2 COOK warrants that:

          6.2.1 the Services shall be performed in accordance with Section 3.1; and

          6.2.2 the Product when made available at COOK’s shipping docks shall meet Product Specifications, except where the Product Specifications has not been agreed between the Parties hereto in which case COOK shall be obliged only to use its reasonable commercial efforts to produce Product that meets draft Product Specifications; and

          6.2.3 the Product delivered to CLIENT pursuant to this Agreement shall conform to the Product Specifications and that such Product shall (a) be free from defects in material and workmanship, (b) be manufactured in accordance with CGMP and Applicable Laws and (c) be manufactured in accordance with the Master Batch Records as agreed and accepted in the Project Plan.

     6.3 Section 6.2 is in lieu of all conditions, representations and warranties and statements in respect of the Services and/or the Product warranties whether expressed or implied by statute, custom of the trade or otherwise (including but without limitation any such condition, warranty or statement relating to the description or quality of the Product, its fitness for a particular purpose or use under any conditions whether or not known to COOK) and any such condition, warranty or statement is hereby excluded. COOK MAKES NO OTHER WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO THE PRODUCT AND/OR THE SERVICES. ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE ARE HEREBY DISCLAIMED BY COOK.

     6.4 Without prejudice or modification to the terms of Sections 6.1 and 6.2, and specifically excluding COOK’s liability arising under Section 2.7, or Articles 7 or 9, the liability of COOK to CLIENT, its permitted assigns and successors in interest, for any loss suffered by CLIENT or its permitted assigns and successors in interest, arising as a direct result of a breach of this Agreement, or of any other liability, including without limitation, misrepresentation and negligence (whether active, passive or imputed), arising out of this Agreement and Services provided thereunder, including without limitation the production and/or supply of the Product, shall be limited to the payment of damages which shall not exceed in US Dollars THE PRICE FOR SERVICES PAID BY CLIENT UNDER THE AGREEMENT; provided, however, if and to the extent such damages are caused by COOK’s willful or intentional breach of this Agreement or willful or intentional misconduct in the performance of the Services, then the damage limitation in this Section 6.4 shall not apply.

     6.5 Neither Party shall in any event be liable for the following loss or damage howsoever caused (even if foreseeable or in the contemplation of COOK or CLIENT):

          6.5.1 loss of profits, business or revenue suffered by the other Party or any other person who may be subrogated to, or assigned rights in the loss or damage; or

          6.5.2 special, indirect or consequential loss, whether suffered by the other Party or any other person.

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     6.6 CLIENT shall indemnify, defend and hold harmless and maintain COOK indemnified and held harmless against all Damages in respect of:

          6.6.1 any product liability in respect of Product provided to CLIENT hereunder, except for COOK’s obligations to indemnify in Section 2.7 above; and

          6.6.2 any negligent (active, passive or imputed), gross negligence or intentional act or omission of CLIENT in relation to the use, processing, storage or sale of the Product provided to CLIENT hereunder.

     CLIENT represents and warrants that unless already expressly agreed in a written and executed document immediately prior to the initiation of the first CGMP manufacturing run, CLIENT will adopt the Master Batch Records as its own specification. Any changes or additions to the Master Batch Records shall be made with the written approval of CLIENT.

     The obligations of CLIENT under this Article 6 shall survive the termination for whatever reason of this Agreement.

7. Confidentiality

     7.1 Confidential Information. Except as expressly provided herein, the Parties agree that, for the term of this Agreement and for fifteen (15) years thereafter, each of them shall keep completely confidential and shall not publish or otherwise disclose and shall not use for any purpose except for the purposes contemplated by this Agreement (including without limitation to exercise the rights set forth herein) any Confidential Information of the other Party. Any information developed in the performance of the Services (regardless of whether solely or jointly developed) that relates solely to the Field and is not reasonably understood or anticipated by the Parties to have relevance outside the Field, is CLIENT Confidential Information for the purposes of this Article 7, and is included within the scope of the license grant to CLIENT under Section 9.4(b).

     7.2 Permitted Use and Disclosures. The receiving Party may use or disclose Confidential Information to the extent such use or disclosure is reasonably necessary in complying with any applicable law, regulation or court order or in conducting clinical trials; provided that if the receiving Party is required to make any such disclosure of Confidential Information, other than pursuant to a confidentiality agreement, it will give reasonable advance notice to the disclosing Party of such disclosure and will use its reasonable efforts to secure confidential treatment of such Confidential Information prior to its disclosure (whether through protective orders, requests for confidential treatment or otherwise).

     7.3 Confidential Terms. Except as expressly provided herein, each Party agrees not to disclose any terms of this Agreement to any third party without the consent of the other Party; provided that disclosures may be made as required by securities or other applicable laws or regulations, or court order, or as reasonably necessary to actual or prospective business partners pursuant to a confidentiality agreement with terms at least as stringent as those in this Agreement, or to a Party’s accountants, attorneys and other professional advisors owing a contractual or other duty of confidentiality to such Party. Upon the reasonable written request of the disclosing Party, the receiving Party shall promptly return or destroy, and certify the same in

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writing, all Confidential Information of the other Party; provided that the receiving Party may retain one (1) copy of any such Confidential Information in its files for purposes of maintaining appropriate records of its activities in connection with this Agreement.

     7.4 Use of Name. Neither Party shall use the name or trademarks of the other Party, except to the extent that a Party is permitted to use the Confidential Information of the other Party or required to do so pursuant to this Article 7, without the prior written consent of such other Party, such consent not to be unreasonably withheld, provided, however, that CLIENT may use COOK’s name and logo when referring to the use of COOK’s process development or contract manufacturing services and COOK may use CLIENT’s name and logo when referring to participants in its process development or contract manufacturing program.

8. Termination

     8.1 If it becomes apparent to either COOK or CLIENT at any stage in the provision of the Services that it will not be possible to complete the Services for technical reasons due solely to the uncertainty of the biological processes involved that are outside the reasonable control of COOK and independent from those reasons attributable to the fault or non-performance of either Party, the Parties will use good faith commercially reasonable efforts for up to a sixty (60) day period to mutually resolve such problems. If, after using the foregoing level of effort, the Parties are unable to resolve such problems within the sixty (60) day period, COOK and CLIENT shall each have the right to terminate this Agreement upon written notice to the other Party. In the event of such termination, CLIENT will reimburse COOK for all reasonable and appropriate costs under this Agreement incurred by COOK to the effective date of termination for services performed, for reasonable commitments that cannot be cancelled, for reasonable resources and materials on hand that cannot be reallocated, the Termination Fee and for all other reasonable costs that COOK incurs in transferring the technology to CLIENT as requested by CLIENT in writing.

     8.2 Notwithstanding anything in this Agreement to the contrary, if the Process Development Agreement entered into between COOK and CLIENT is terminated by either party for failure to successfully complete the process development services described therein for reasons other than a breach by CLIENT, then no Termination Fee shall be owing by CLIENT under this Agreement.

     8.3 CLIENT shall be entitled to terminate this Agreement at any time for any reason with written notice to COOK at least one hundred twenty (120) days prior to such termination. For any termination under this Section 8.2 CLIENT shall be responsible to pay to COOK the Termination Fee. In addition, CLIENT will reimburse COOK for all reasonable and appropriate costs under this Agreement incurred by COOK to the effective date of termination for services performed, for reasonable commitments that cannot be cancelled, and for reasonable resources and materials on hand that cannot be reallocated, and for all other costs that COOK incurs in transferring the technology to CLIENT as requested by CLIENT in writing.

     8.4 COOK and CLIENT may each terminate this Agreement by notice in writing to the other upon the occurrence of any of the following events:

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          8.4.1 if the other commits a breach of this Agreement which (in the case of a breach capable of remedy) is not remedied within thirty (30) days of the receipt by the other of written notice identifying the breach with specificity and requiring its remedy; provided, however, if the breach is as a result of nonpayment of any amounts owing, the breaching Party must remedy the breach within fifteen (15) days after receiving such written notice; or

          8.4.2 if the other ceases for any reason to carry on business or convenes a meeting of its creditors or has a receiver or manager appointed in respect of all or any part of its assets or is the subject of an application for an administration order or of any proposal for a voluntary arrangement or enters into liquidation (whether compulsorily or voluntarily) or undergoes any analogous act or proceedings under foreign law; provided, however, either Party may merge with or into another equity pursuant to which the obligations of this Agreement will be assumed or effect the sale of all its assets or substantially all of its assets pursuant to which the acquiring party will assume such Party’s obligations under this Agreement without notice to or waiver by the other Party; and

          8.4.3 if the Product meets the specifications of the Master Batch Records but fails clinical trials, or if the CLIENT abandons the Product for whatever reason. In these cases, in addition to being responsible to pay COOK the Termination Fee, CLIENT is responsible to pay for reimbursement of all reasonable and appropriate costs under this Agreement incurred by COOK to the effective date of termination for services performed, for reasonable commitments that cannot be cancelled, and for reasonable resources and materials on hand that cannot be reallocated, and for all other costs that COOK incurs in transferring the technology to CLIENT as requested by CLIENT in writing.

     If this Agreement is terminated due to CLIENT’s breach (which CLIENT fails to cure as described in Section 8.3.1), then CLIENT, in addition to the Termination Fee, shall be responsible for reimbursement of all reasonable and appropriate costs under this Agreement incurred by COOK to the effective date of termination for services performed, for reasonable commitments that cannot be cancelled, and for reasonable resources and materials on hand that cannot be reallocated, and for all other costs that COOK incurs in transferring the technology to CLIENT as requested by CLIENT in writing.

     8.5 Unless terminated earlier pursuant to Sections 8.1 through 8.3, this Agreement shall terminate upon CLIENT’s completion of the Services as outlined in the Project Plan.

     8.6 Upon the termination of this Agreement for whatever reason:

          8.6.1 COOK shall promptly return all CLIENT Information to CLIENT and shall dispose of or return to CLIENT all CLIENT Materials, and any materials therefrom, as directed by CLIENT;

          8.6.2 CLIENT shall promptly return to COOK all COOK Know-How it has received from COOK except that CLIENT may retain one (1) copy and use such COOK Know- How pursuant to the licenses granted under Section 9 of this Agreement and/or under the Process Development Agreement;

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          8.6.3 Except as provided for above, CLIENT shall not have any continuing rights under this Agreement to use or exploit the COOK Know-How in any way whatsoever in the case of termination for non-payment or other breach, or for production by CLIENT or production by a third party. If CLIENT determines to manufacture or have manufactured by a third party the Products, COOK will give CLIENT and/or such third party all reasonably necessary information and cooperation to enable CLIENT to manufacture Products in connection with the Master Batch Records and in conformance with the Product Specifications. CLIENT shall pay any and all of COOK’s reasonable costs and expenses in connection with such cooperation including compensating COOK at a COOK designated hourly rate to the extent COOK is required to dedicate time and resources to such cooperation.

          8.6.4 Except for the licenses granted under Section 9, COOK thereafter will not be restricted under this Agreement from any use or exploitation of the COOK Intellectual Property Rights in any way whatsoever; and

          8.6.5 COOK and CLIENT shall do all such acts and things and shall sign and execute all such deeds and documents as the other may reasonably require to evidence compliance with this Section 8.5.

     8.7 Termination of this Agreement for whatever reason shall not affect the accrued rights of either COOK or CLIENT arising under or out of this Agreement and Section 3.10, and Articles 2, 4, 5, 6, 7, 8, 9, 10, 11, 12 and any definitions in Article 1 required to interpret such surviving provisions, and all provisions which are expressly to survive this Agreement or have a continuing obligation shall remain in full force and effect.

9. Intellectual Property.

     9.1 Disclosure. Each Party shall disclose to the other Party any and all Inventions made pursuant to the activities undertaken relating to this Agreement at least quarterly or as may otherwise be agreed to in writing by the Parties.

     9.2 COOK Intellectual Property Rights. COOK shall solely own all right, title and interest in and to the COOK Intellectual Property Rights. COOK hereby grants to CLIENT under the COOK Intellectual Property Rights a perpetual, worldwide, royalty-free, paid-up, non-exclusive license, to practice, use and modify the COOK Intellectual Property Rights as necessary or useful for CLIENT, directly or through multiple tiers of third parties, to make, use, sell, offer for sale or import Product (or any modification or derivative of the Product). The grant provided for by this Section 9.2 shall include the right, as is reasonably necessary for CLIENT to exercise the rights granted pursuant to this Section 9.2 to grant, on terms and conditions equivalent to those provided for herein, through multiple tiers of third parties, non-royalty bearing sublicenses. CLIENT has no rights under and shall not use, without COOK’s prior written consent, the COOK Intellectual Property Rights for any other purpose.

     9.3 CLIENT Intellectual Property Rights.

          (a) CLIENT shall solely own all right, title and interest in and to the CLIENT Intellectual Property Rights.

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          (b) During the term of this Agreement, CLIENT hereby grants to COOK a worldwide, non-exclusive, royalty-free, paid-up, non-transferable (except for assignments pursuant to Section 10.1) license, or as applicable sublicense, under the CLIENT Intellectual Property Rights to use the CLIENT Materials and CLIENT Information solely for the purpose of performing its obligations under this Agreement. COOK shall not, without CLIENT’s prior written consent, (i) use the Process for any purpose other than Services as contemplated herein, or (ii) seek to patent any Project Invention other than as specifically permitted under Section 9.4 below.

     9.4 Project Inventions.

          (a) All Project Inventions shall be jointly owned by COOK and CLIENT. COOK shall have the primary responsibility to file, prosecute and maintain any patents or patent applications claiming or covering any Project Invention directed to subject matter that is primarily outside the Field. CLIENT shall have the primary responsibility to file, prosecute and maintain any patents or patent applications claiming any Project Inventions directed to subject matter that is primarily within the Field. Each Party will use commercially reasonable and diligent efforts to disclose to the other Party any Inventions as to which this Section 9.4 may apply and will provide prior notice and an opportunity to comment on any proposed patent application to be filed by such Party. The Parties will cooperate with each other with respect to the coordination of the filing, prosecution and maintenance of patent applications or patents in each Party’s respective areas of responsibility. In the event there is a disagreement with respect to whether a Project Invention is primarily within or without the Field, the matter shall be referred to a mutually acceptable neutral and independent patent attorney who shall definitively determine the matter. Each Party shall bear the expense of activities relating to its own filing, prosecution and maintenance of any patent or patent applications provided for by this Section 9.4. If either Party elects not to file, prosecute or continue to maintain any patent application or patent covering a Project Invention, it shall give thirty (30) days prior notice thereof to the other Party who, subject to the other provisions of this Agreement and at their own expense, shall be free to undertake the filing, prosecution and maintenance of any such patent or patent application. Each Party shall execute all writings or take such acts, at the other Party’s expense, as may be reasonably required for either Party to fully enjoy the rights and licenses granted pursuant to this Section 9.4.

          (b) With respect to its undivided interest in the Project Inventions, COOK hereby grants to CLIENT, without any obligation of an accounting, in the Field, a perpetual, worldwide, royalty-free, paid-up, exclusive license, with the right to grant sublicenses, to make, have made, use, sell, offer for sale or import any composition of matter or article of manufacture. For the avoidance of doubt, such license shall expressly include the right to bring infringement actions against any third party and any recoveries, settlements, damages and/or license fees or royalties arising therefrom shall be the sole and exclusive right and property of CLIENT. For the avoidance of doubt, the grant of license provided for by Section 9.4(b) shall include any patent, patent application or other intellectual property right governed by this Section 9.4(b).

          (c) With respect to its undivided fifty (50%) percent interest in the Project Inventions and subject to the license grant provided to COOK in this Section 9.4(c), CLIENT hereby grants to COOK, without any obligation of an accounting, outside the Field, a perpetual,

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worldwide, royalty-free, paid-up, exclusive license, with the right to grant sublicenses, to make, have made, use, sell, offer for sale or import any composition of matter or article of manufacture. Notwithstanding the forgoing, CLIENT shall retain, and COOK hereby grants to CLIENT, a perpetual, worldwide, royalty-free, paid-up, license, outside the Field, to make, have made, use, sell, offer for sale or import any composition of matter or article of manufacture developed and/or sold by or on behalf of CLIENT. CLIENT shall be permitted to grant sublicenses under the grant and retained right provided for by the prior sentence of this Section 9.4(c) solely as is reasonably necessary for CLIENT, its sublicensees and/or development or marketing partners to make or have made any composition of matter or article of manufacture properly the subject of the grant of the license at a third party manufacturing site, including, without limitation, a contract manufacturing facility. For the avoidance of doubt, the grant provided to CLIENT pursuant to this Section 9.4(c) is not intended to permit CLIENT or its sublicensees and/or development or marketing partners to operate a contract manufacturing or process development business. Within the scope of each Party’s rights to the Project Inventions provided for by this Section 9.4(c), each Party shall have the right to bring infringement actions against any third party for actual or threatened damages suffered by such Party arising from such infringement and any recoveries, settlements, damages and/or license fees or royalties arising therefrom shall be the sole and exclusive right and property of the Party initiating such action.

     9.5 No Implied Licenses. Except as expressly set forth in this Agreement, nothing contained in this Agreement shall be construed as granting, by implication, estoppel or otherwise, any licenses or rights under any patents or other intellectual property rights. Only licenses and rights granted expressly herein shall be of legal force and effect.

10. Force Majeure

     10.1 Neither Party shall be deemed to be in default nor be liable for loss, damage, or delay in performance, when and to the extent due to causes beyond its reasonable control including without limitation from fire, strike, labor difficulties, insurrection or riot, embargo, or inability to obtain materials from usual sources, or any other/unforeseeable cause or causes beyond the reasonable control and without the fault or negligence of the Party so affected, or from defects or delays in the performance of its suppliers or subcontractors due to any of the foregoing enumerated causes (each a “Force Majeure”). If either Party is prevented or delayed in the performance of any of its obligations under this Agreement by Force Majeure and shall give written notice thereof to the other Party specifying the matters constituting Force Majeure together with such evidence as the affected Party reasonably can give and specifying the period for which it is estimated that such prevention or delay will continue, the affected Party shall be excused from the performance or the punctual performance of such obligations as the case may be from the date of such notice for so long as such cause of prevention or delay shall continue, provided that within sixty (60) days from the date of such notice, the affected Party shall provide the other Party with written notice of the anticipated date of resumption of performance. If an event of Force Majeure continues and causes the affected Party to delay its performance of its obligations for more than sixty (60) days, then the other Party shall have the right upon written notice to terminate this Agreement without any liability to the other Party.

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11. Governing Law, Jurisdiction and Enforceability

     11.1 This Agreement shall be governed and interpreted, and all rights and obligations of the Parties shall be determined, in accordance with the laws of the State of New York and the United States of America without regard to principles of conflicts of law.

     11.2 No failure or delay on the part of either COOK or CLIENT to exercise or enforce any rights conferred on it by this Agreement shall be construed or operate as a waiver thereof nor shall any single or partial exercise of any right, power or privilege or further exercise thereof operate so as to bar the exercise or enforcement thereof at any time or times thereafter of any other right.

12. Miscellaneous

     12.1 Assignment. Neither Party may assign this Agreement without the prior written consent of the other Party, which consent will not be unreasonably withheld. Notwithstanding the foregoing, either Party may, without the prior consent of the other Party, assign this Agreement to its parent, affiliate or successor, or to an entity acquiring all or substantially all of the product line, business operations or assets of the assigning Party to which this Agreement pertains.

     12.2 Publicity. The text of any press release or other communication to be published by or in the media concerning the subject matter of this Agreement shall require the prior written approval of COOK and CLIENT.

     12.3 Notices. Any consent, notice or report required or permitted to be given or made under this Agreement by one of the Parties hereto to the other shall be in writing, delivered personally or by facsimile (and promptly confirmed by personal delivery, first class air mail or courier), first class air mail or courier, postage prepaid (where applicable), addressed to such other Party at its address indicated below, or to such other address as the addressee shall have last furnished in writing to the address or in accordance with this Section 9.3 and (except as otherwise provided in this Agreement) shall be effective upon receipt by the addressee.

If to Cook Pharmica LLC:

Cook Pharmica LLC
1300 South Patterson Drive
Bloomington, Indiana 47403
Attention: Tedd M. Green
Vice President of Business Operations, CFO

If to CLIENT:

Halozyme, Inc.
11388 Sorrento Valley Road
San Diego, California 92121
Attention: William J. Fallon
Vice President, Manufacturing and Operations

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     12.4 Headings. All section headings and numbering contained in this Agreement are for convenience of reference only, do not form a part of this Agreement and shall not affect in any way the meaning or interpretation of this Agreement.

     12.5 Illegality; Unenforceability. In the event that any provision of this Agreement shall be determined to be illegal or unenforceable, that provision will be limited or eliminated to the minimum extent necessary so that this Agreement shall otherwise remain in full force and effect and enforceable.

     12.6 Waiver. No waiver of any rights shall be effective unless consented to in writing by the Party to be charged and the waiver of any breach or default shall not constitute a waiver of any other right hereunder or any subsequent breach or default.

     12.7 Independent Contractors. COOK and CLIENT each acknowledge that they shall be independent contractors and that the relationship between the two Parties shall not constitute a partnership, joint venture, agency or any type of fiduciary relationship. Neither Cook nor CLIENT shall have the authority to make any statements, representations or commitments of any kind, or to take any action, which shall be binding on the other Party, without the prior consent of the other Party to do so.

     12.8 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

     12.9 Severability and Invalidity. Each Party hereby agrees that it does not intend to violate any public policy, statutory or common laws, rules, regulations, treaty or decision of any government agency or executive body thereof of any country or community or association of countries. Should one or more provisions of this Agreement be or become invalid, the Parties hereto shall substitute, by mutual consent, valid provisions for such invalid provisions which valid provisions in their economic effect are sufficiently similar to the invalid provisions that it can be reasonably assumed that the Parties would have entered into this Agreement with such provisions. In case such provisions cannot be agreed upon, the invalidity of one or several provisions of this Agreement shall not affect the validity of this Agreement as a whole, unless the invalid provisions are of such essential importance to this Agreement that it is to be reasonably assumed that the Parties would not have entered into this Agreement without the invalid provisions.

     12.10 Entire Agreement. This Agreement constitutes the entire and exclusive agreement between the Parties with respect to the subject matter hereof (manufacture of clinical stage product) and supersedes and cancels all previous discussions, agreements, representations, commitments and writing in respect thereof. No amendment or addition to this Agreement shall be effective unless reduced to writing and executed by the authorized representatives of the Parties.

     12.11 Exporter of Record. CLIENT shall be the exporter of record for any active pharmaceutical ingredient shipped out of the United States in connection with this Agreement. CLIENT warrants that all shipments of active pharmaceutical ingredient exported from the

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United States will be made in compliance with all export laws and regulations and all applicable import laws and regulations of the country of importation. CLIENT shall be responsible for obtaining any licenses or government authorization(s) necessary for exportation from the United States. CLIENT’s designated carrier and freight forwarder shall solely be CLIENT’s agent. CLIENT shall select and pay the freight forwarder and such designated shall solely be responsible for preparing and filing any relevant declarations or other documents required for the export. CLIENT shall bear all costs and expenses associated with this Section 12.11.

     IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first above written.

COOK PHARMICA LLC			HALOZYME, INC.
By:	/s/ Tedd M. Green		By:	/s/ William J. Fallon
	Name:	Tedd M. Green		Name:	William J. Fallon
	Title:	Vice President of Business Operations, CFO		Title:	Vice President of Manufacturing and Operations
	Date: August 15, 2008			Date: August 15, 2008

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PROJECT PLAN (APPENDIX A)

TO BE PROVIDED

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EX-31.1

EXHIBIT 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Jonathan E. Lim, President and Chief Executive Officer of Halozyme Therapeutics, Inc. (the “Registrant”), certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Halozyme Therapeutics, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
4.	The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusion about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of Registrant’s board of directors (or persons performing the equivalent functions):

a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Dated: November 7, 2008	/s/ Jonathan E. Lim
	Jonathan E. Lim, MD
	President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, David A. Ramsay, Vice President and Chief Financial Officer of Halozyme Therapeutics, Inc. (the “Registrant”), certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Halozyme Therapeutics, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
4.	The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusion about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of Registrant’s board of directors (or persons performing the equivalent functions):

a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Dated: November 7, 2008	/s/ David A. Ramsay
	David A. Ramsay
	Vice President and Chief Financial Officer

EX-32

EXHIBIT 32

CERTIFICATION OF
CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Halozyme Therapeutics, Inc. (the “Registrant”) on Form 10-Q for the quarter ended September 30, 2008, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jonathan E. Lim, MD, Chief Executive Officer of the Registrant, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1)	The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

Dated: November 7, 2008	/s/ Jonathan E. Lim
	Jonathan E. Lim, MD
	President and Chief Executive Officer

In connection with the Quarterly Report of Halozyme Therapeutics, Inc. (the “Registrant”) on Form 10-Q for the quarter ended September 30, 2008, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David A. Ramsay, Chief Financial Officer of the Registrant, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1)	The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

Dated: November 7, 2008	/s/ David A. Ramsay
	David A. Ramsay
	Vice President and Chief Financial Officer