10-Q

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended: September 30, 2006

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

Commission File No: 0-10824

OSCIENT PHARMACEUTICALS CORPORATION

(Exact name of registrant as specified in its charter)

MASSACHUSETTS	04-2297484
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification no.)
1000 WINTER STREET, SUITE 2200 WALTHAM, MASSACHUSETTS	02451
(Address of principal executive offices)	(Zip code)

Registrant’s telephone number: (781) 398-2300

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

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

Large accelerated filer  ¨                Accelerated filer  x                Non-accelerated filer  ¨

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

COMMON STOCK	108,417,701 Shares
$0.10 PAR VALUE	Outstanding November 6, 2006

OSCIENT PHARMACEUTICALS CORPORATION

INDEX TO FINANCIAL INFORMATION AND OTHER INFORMATION

	Page
Part I—Financial Information (unaudited):
Consolidated Balance Sheets as of September 30, 2006 and December 31, 2005	3
Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2006 and 2005	4
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2006 and 2005	5
Notes to Consolidated Financial Statements	6
Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Quantitative and Qualitative Disclosures about Market Risk	37
Controls and Procedures	37
Part II—Other Information:
Legal Proceedings	38
Risk Factors	38
Submission of Matters to a Vote of Security Holders	51
Exhibits	51
Signature	52
Exhibit Index	53

PART I—FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

OSCIENT PHARMACEUTICALS CORPORATION

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

	September 30, 2006			December 31, 2005
	(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	42,770		$	65,618
Marketable securities (held-to-maturity)		—			2,696
Restricted cash		5,346			5,386
Interest receivable		225			461
Notes receivable		597			561
Accounts receivable (net of allowance for bad debts of $344 and $0 in 2006 and 2005, respectively)		9,218			6,206
Inventories		14,901			14,187
Prepaid expenses and other current assets		3,019			4,340
Total current assets		76,076			99,455
Property and Equipment, at cost:
Manufacturing and computer equipment		4,494			4,622
Equipment and furniture		1,160			1,160
Leasehold improvements		135			135
		5,789			5,917
Less—Accumulated depreciation		4,348			4,069
		1,441			1,848
Restricted cash		3,919			6,344
Long-term notes receivable		1,432			1,739
Other assets		4,242			4,573
Intangible assets, net		122,407			65,607
Goodwill		78,142			61,529
	$	287,659		$	241,095
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	7,735		$	6,447
Accrued expenses and other current liabilities		13,283			10,163
Current portion of accrued facilities impairment charge		3,012			2,175
Accrued restructuring charge		172			1,076
Clinical trial expense accrual		1,409			1,844
Deferred revenue		444			—
Total current liabilities		26,055			21,705
Long-term liabilities:
Long-term obligations, net of current maturities		195,060			175,060
Revenue interest liability		40,000			—
Noncurrent portion of accrued facilities impairment charge		11,506			14,029
Other long-term liabilities		3,271			2,200
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ EQUITY:
Series B restricted common stock, $0.10 par value - Authorized - 625 shares, Issued and Outstanding - None		—			—
Common stock, $0.10 par value - Authorized - 174,375 shares, Issued and Outstanding - 108,409 and 76,688 in 2006 and 2005, respectively		10,841			7,735
Additional paid-in-capital		402,303			357,968
Accumulated deficit		(401,214	)		(337,428	)
Deferred compensation		—			(11	)
Note receivable from officer		(163	)		(163	)
Total shareholders' equity		11,767			28,101
	$	287,659		$	241,095

The accompanying notes are an integral part of these consolidated financial statements.

3

OSCIENT PHARMACEUTICALS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(in thousands, except per share data)

	Three Months Ended September 30, 2006			Three Months Ended September 30, 2005			Nine Months Ended September 30, 2006			Nine Months Ended September 30, 2005
Revenues:
Product Sales	$	8,308		$	4,778		$	20,176		$	12,495
Co-promotion		3,474			1,161			6,890			1,531
Biopharmaceutical		—			2			143			96
Other Revenues		580			—			679			—
Total revenues		12,362			5,941			27,888			14,122
Costs and expenses:
Cost of product sales (1)		6,573			2,018			11,808			6,391
Research and development (1)		4,281			2,814			10,415			13,009
Selling and marketing (1)		17,215			19,460			54,897			57,278
General and administrative (1)		4,379			2,524			11,781			10,150
Total costs and expenses		32,448			26,816			88,901			86,828
Loss from operations		(20,086	)		(20,875	)		(61,013	)		(72,706	)
Other income (expense):
Interest income		842			877			2,439			2,628
Interest expense		(2,807	)		(2,055	)		(6,889	)		(6,196	)
Gain (loss) on sale of fixed assets		(1	)		8			1			51
Income from sale of intellectual property		—			—			—			2,500
Gain on disposition of investment		1,380			143			1,617			2,162
Other Income		15			—			58			43
Net other income (expense)		(571	)		(1,027	)		(2,774	)		1,188
Loss from continuing operations		(20,657	)		(21,902	)		(63,786	)		(71,518	)
Income from discontinued operations		—			—			—			35
Net loss	$	(20,657	)	$	(21,902	)	$	(63,786	)	$	(71,483	)
Loss from continuing operations per common share:
Basic and diluted	$	(0.20	)	$	(0.29	)	$	(0.70	)	$	(0.94	)
Net loss per common share:
Basic and diluted	$	(0.20	)	$	(0.29	)	$	(0.70	)	$	(0.94	)
Weighted average common shares outstanding:
Basic and diluted		101,936			76,759			91,201			76,341
(1) Includes non-cash stock-based compensation as follows:
Cost of product sales		30			—			63			—
Research and development		23			—			115			836
Selling and marketing		348			—			1,052			—
General and Administrative		620			6			1,881			163
	$	1,021		$	6		$	3,110		$	999

The accompanying notes are an integral part of these consolidated financial statements.

4

OSCIENT PHARMACEUTICALS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(in thousands)

	Nine Months Ended September 30, 2006			Nine Months Ended September 30, 2005
Cash Flows from Operating Activities:
Loss from continuing operations	$	(63,786	)	$	(71,517	)
Adjustments to reconcile net loss from continuing operations to net cash used in operating activities:
Depreciation and amortization		4,664			4,035
Provision for excess and obsolete inventories		986			—
Provision for bad debts		344			—
Non-cash interest expense		1,095			1,294
Gain on disposal of fixed assets		—			(51	)
Gain on disposition of investment		(1,617	)		(2,163	)
Stock based compensation		3,110			1,000
Changes in assets and liabilities:
Interest receivable		236			982
Accounts receivable		(3,356	)		409
Inventories		(1,700	)		(5,629	)
Prepaid expenses and other current assets		1,321			5,203
Accounts payable		1,288			(4,432	)
Accrued expenses and other liabilities		3,120			(5,517	)
Clinical trial expense accrual		(435	)		1,432
Deferred revenue		444			(1,302	)
Accrued facilities impairment charge		(2,167	)		(2,378	)
Accrued restructuring charge		(904	)		(907	)
Accrued other long-term liabilities		1,071			905
Net cash used in operating activities		(56,286	)		(78,636	)
Cash Flows from Investing Activities:
Proceeds from maturities of marketable securities		2,696			83,489
Proceeds from disposition of investment		1,617			2,388
Purchases of property and equipment		(158	)		(1,051	)
Proceeds from sale of property and equipment		1			225
Decrease in restricted cash		2,465			2,587
Increase in other assets		(284	)		(49	)
Proceeds from notes receivable		271			267
Issuance of note receivable		—			(2,740	)
Cash paid for acquisition of ANTARA		(77,513	)		—
Net cash (used in) provided by investing activities		(70,905	)		85,116
Cash Flows from Financing Activities:
Net proceeds from issuance of stock in connection with acquisition of ANTARA		9,958			—
Proceeds from exercise of stock options		166			546
Proceeds from issuance of stock under the employee stock purchase plan		740			417
Proceeds from issuance of term note		20,000			—
Proceeds from assignment of revenue interest		40,000			—
Proceeds from financing, net of issuance costs		33,478			—
Payments on long-term obligations		—			(292	)
Net cash provided by financing activities		104,342			671
Cash Flows from Discontinued Operations:
Operating cash flows		—			35
Total		—			35
Net (Decrease) Increase in Cash and Cash Equivalents		(22,848	)		7,186
Cash and Cash Equivalents, beginning of period		65,618			64,743
Cash and Cash Equivalents, end of period	$	42,770		$	71,929

The accompanying notes are an integral part of these consolidated financial statements.

5

OSCIENT PHARMACEUTICALS CORPORATION

Notes to Consolidated Financial Statements

(Unaudited)

(1) Basis of Presentation

These consolidated financial statements have been prepared by Oscient Pharmaceuticals Corporation (the Company) without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of the Company’s management, the unaudited consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of results for the interim periods. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The Company believes, however, that its disclosures are adequate to make the information presented not misleading. The accompanying consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related footnotes for the year ended December 31, 2005 which are included in the Company’s Annual Report on Form 10-K. Such Annual Report on Form 10-K was filed with the Securities and Exchange Commission on March 10, 2006.

(2) Summary of Significant Accounting Policies

The Company is a commercial-stage biopharmaceutical company marketing two FDA-approved products with its national primary care sales force—a fluoroquinolone antibiotic, FACTIVE^® (gemifloxacin mesylate) tablets, and a cardiovascular product, ANTARA^® 130 mg and ANTARA^® 43 mg (fenofibrate) capsules. FACTIVE is indicated for the treatment of community-acquired pneumonia of mild to moderate severity (CAP) and acute bacterial exacerbations of chronic bronchitis (AECB). The Company licenses the rights to gemifloxacin, the active ingredient in FACTIVE tablets, from LG Life Sciences of the Republic of Korea. FACTIVE was launched in the U.S. market in September 2004. ANTARA is approved by the U.S. Food and Drug Administration to treat hypercholesterolemia (high blood cholesterol) and hypertriglyceridemia (high triglycerides) in combination with a healthy diet. The Company began promoting ANTARA with its national sales force in late August 2006. The Company licenses the rights to ANTARA from Ethypharm S.A of France. Additionally, the Company has a novel, late-stage antibiotic candidate, Ramoplanin, under investigation for the treatment of Clostridium difficile-associated disease and has begun exploring partnering and other strategic opportunities for the continued development of Ramoplanin.

The accompanying consolidated financial statements reflect the application of certain accounting policies, as described in this note and elsewhere in the accompanying notes to the consolidated financial statements.

(a) Revenue Recognition

The Company’s principal source of revenue is the sale of FACTIVE tablets and ANTARA capsules. In the second quarter of 2005, the Company began recognizing co-promotion revenue in connection with its co-promotion agreement with Auxilium Pharmaceuticals, Inc. (Auxilium), which terminated on August 31, 2006. Other historical sources of revenue include biopharmaceutical alliances and royalties from the divested genomic services business. In future periods, the Company expects its revenues derived from biopharmaceutical alliances will continue to decrease but expects that product revenues will continue to increase based on anticipated increased volume of prescriptions of FACTIVE tablets and ANTARA capsules.

Although ANTARA revenue results should be consistent throughout the fiscal year, the Company expects demand for FACTIVE to be highest from November to March as the incidence of respiratory tract infections, including CAP and AECB, tends to increase during the winter months. In addition, fluctuations in the severity of the annual respiratory tract infection season may cause its product sales to vary from year to year. Due to these seasonal fluctuations in demand for FACTIVE, the Company’s results in any particular quarter may not be indicative of the results for any other quarter or for the entire year.

Product Sales

The Company follows the provisions of Staff Accounting Bulletin (SAB) No. 104, “Revenue Recognition (a replacement of SAB 101)” (SAB No. 104) and recognizes revenue from product sales upon delivery of product to wholesalers, when persuasive evidence of an arrangement exists, the fee is fixed or determinable, title to product and associated risk of loss has passed to the wholesaler and collectability of the related receivable is reasonably assured. All revenues from product sales are recorded net of applicable allowances for sales returns, rebates, special promotional programs, and discounts. For arrangements where the risk of loss has not passed to wholesalers or pharmacies, the Company defers the recognition of revenue by recording deferred revenue until such time that risk of loss has passed. Also, the cost of FACTIVE and ANTARA associated with amounts recorded as deferred revenue is recorded in inventory until such time as risk of loss has passed.

6

Co-Promotion Revenue

Amounts earned under the Company’s co-promotion agreement with Auxilium from the sale of TESTIM^® gel, a product developed by Auxilium, are classified as co-promotion revenue in the accompanying consolidated statements of operations. Auxilium is obligated to pay the Company a co-promotion fee based on a specified percentage of the gross profit from TESTIM sales attributable to primary care physicians in the U.S. that exceeds a specified cumulative sales threshold, determined on an annual basis. The specific percentage is based upon TESTIM sales levels attributable to primary care physicians in the U.S. and the marketing expenses incurred by the Company in connection with the promotion of TESTIM under the co-promotion agreement. Such co-promotion revenue is earned when TESTIM units are dispensed through patient prescriptions. The arrangement contains a clause that provides Auxilium the ability to recover revenue if specified cumulative sales thresholds are not met. There is no cost of goods sold associated with co-promotion revenue, and the selling and marketing expenses incurred with respect to the co-promotion arrangement are classified as selling and marketing expenses in the accompanying consolidated statements of operations. On August 31, 2006, the Company and Auxilium mutually agreed to conclude this co-promotion arrangement and agreed to share profits from primary care sales, as provided for under the Co-Promotion Agreement, through August 31, 2006. As part of the termination of the Co-Promotion Agreement, the Company received $1,800,000 from Auxilium as additional compensation for commercialization efforts by its sales force through August 31, 2006, which has been recognized as revenue in the quarter ended September 30, 2006.

Biopharmaceutical/Other Revenue

Prior to the merger with GeneSoft Pharmaceuticals, Inc. in 2004, the Company pursued biopharmaceutical revenues through alliance partnerships with pharmaceutical companies and through government grants. Biopharmaceutical revenues have consisted of government research grants and license fees, contract research and milestone payments from alliances with pharmaceutical companies. The Company also maintained a genomics services business. The Company has now shifted its focus to the development and commercialization of pharmaceutical products. The declining revenues and associated expenses for the genomics services business have been classified as discontinued operations in the accompanying consolidated financial statements.

Other revenues consist of sublicensing arrangements related to FACTIVE. The Company recognizes revenue in accordance with SAB No. 104 and Emerging Issues Task Force Issue (EITF) No . 00-21, “Revenue Arrangements with Multiple Deliverables” (EITF No. 00-21). In accordance with EITF No. 00-21, the up-front license payment related to the Pfizer Mexico license agreement will be recognized as revenue over the term of the Company’s continuing obligations, which is eighteen months. In addition, on August 1, 2006, the Company announced that it received notice from Pfizer Mexico that FACTIVE was approved by the Ministry of Health in Mexico to be marketed as FACTIVE-5 for the treatment of community-acquired pneumonia, acute bacterial exacerbations of chronic bronchitis and acute bacterial sinusitis which generated a milestone payment recognized as revenue during the three and nine months ended September 30, 2006.

(b) Sales Rebates, Discounts and Incentives

The Company’s sales of FACTIVE and ANTARA are made to pharmaceutical wholesalers for further distribution through pharmacies to the ultimate consumers of the product. When the Company delivers its product, the Company reduces the amount of gross revenue recognized from such product sales based primarily on estimates of four categories of discounts and allowances that suggest that all or part of the revenue should not be recognized at the time of the delivery—product returns, cash discounts, rebates and special promotional programs.

Product Returns

Factors that are considered in the Company’s estimate of future FACTIVE and ANTARA product returns include an analysis of the amount of product in the wholesaler and pharmacy channel, review of consumer consumption data as reported by external information management companies, return rates for similar competitive products that have a similar shelf life and are sold in the same distribution channel, the remaining time to expiration of the product, and the forecast of future sales of the Company’s product. Consistent with industry practice, the Company offers contractual return rights that allow its customers to return product within six months prior to and six months subsequent to the expiration date of the Company’s product. Each of FACTIVE tablets and ANTARA capsules have a 36-month expiration period from the date of manufacturing. At September 30, 2006 and December 31, 2005, the Company’s product return reserve was approximately $573,000 and $720,000, respectively. This reserve is evaluated on a quarterly basis, assessing each of the factors described above, and adjusted accordingly. Based on the factors noted above, the Company believes its estimate of product returns is reasonable, and changes, if any, from this estimate would not have a material impact to the Company’s financial statements.

7

Cash Discounts

The Company’s standard invoice includes a contractual cash 2% discount, net 30 days terms. Based on historical experience, the Company estimates that most of its customers will deduct the 2% discount from their balance. The cash discount reserve is presented as an allowance against trade receivables in the accompanying consolidated balance sheets. As of September 30, 2006 and December 31, 2005, the balance of the cash discounts reserve was approximately $111,000 and $50,000, respectively.

Rebates

The liability for managed care and Medicaid rebates is calculated based on historical and current rebate redemption and utilization rates contractually submitted by each state. As of September 30, 2006 and December 31, 2005, the balance of the accrual for managed care and Medicaid rebates was approximately $975,000 and $381,000, respectively. Considering the estimates made by the Company, as well as estimates prepared by third party utilization reports that are used in evaluating the required liability balance, the Company believes its estimates are reasonable. As of September 30, 2006, the significant change to the Company’s estimates for managed care and Medicaid rebates in the periods presented is primarily attributable to the acquisition of the ANTARA product line.

Special Promotional Programs:

The Company has, from time to time, offered certain promotional incentives to its customers for both FACTIVE and ANTARA and may continue this practice in the future. Such programs include: sample cards to end consumers, certain product incentives to pharmacy customers, and other sales stocking allowances. Examples of programs utilized to date follow:

Sample Card Programs for FACTIVE

During the second quarter of 2006, the Company initiated two sample card programs whereby the Company offered an incentive to patients in the form of a free full-course sample card for FACTIVE. The Company has accounted for these programs in accordance with EITF No. 01-09, “Accounting for Consideration Given by a Vendor to a Customer” (EITF No. 01-09). For the first sample card program, the Company was able to develop a reasonable and reliable estimate of the amount of expected reimbursement claims based on actual claims submitted by and processed by a third party claims processing organization. For the second sample card program, the estimate of expected reimbursement claims was based on the historical actual reimbursement claims for similar completed programs that the Company conducted in the first and second quarters of 2006. The first program expired on June 15, 2006 and the second program expired on September 30, 2006. The balance of the liability at September 30, 2006 for these sample card programs was approximately $256,000.

Voucher Rebate Program for FACTIVE

During the second and third quarters of 2006, the Company initiated three voucher rebate programs whereby it offered mail-in rebates to retail consumers. The Company has accounted for these programs in accordance with EITF No. 01-09. The liabilities the Company recorded for these voucher rebate programs were estimated based upon the historical rebate redemption rates for similar completed programs that the Company commenced in the first quarter of 2005, fourth quarter of 2005, and first quarter of 2006. The first program expired on June 30, 2006, the second program expired on August 31, 2006, and the third program expired on September 30, 2006. As of September 30, 2006 and December 31, 2005, the balance of the liabilities for these voucher programs totaled approximately $262,000 and $105,000, respectively.

Voucher Rebate Program for ANTARA

During the third quarter of 2006, the Company initiated a voucher rebate program whereby it offered a point-of-sale rebate to retail consumers. The Company has accounted for this program in accordance with EITF No. 01-09. The liability the Company recorded for this voucher rebate program was estimated based upon the historical rebate redemption rates for similar completed programs by other pharmaceutical companies. This program expires on December 31, 2006. As of September 30, 2006, the balance of the liability for this voucher program totaled approximately $339,000.

(c) Clinical Trial Expense Accrual

The Company’s clinical development trials related to FACTIVE are primarily performed by outside parties. At the end of each accounting period, the Company estimates both the total cost and time period of the trials and the percent completed as of that accounting date. The Company also adjusts these estimates when final invoices are received. For the nine months ended September 30, 2006 and the year ended December 31, 2005, the Company adjusted its accrual for clinical trial expenditures to reflect its most current estimate of liabilities outstanding to third parties. However, the possibility exists that the timing or cost of the clinical trials might be longer or shorter and cost more or less than estimated and that the associated financial adjustments would be reflected in future periods.

8

As a condition to the approval to sell FACTIVE tablets, the U.S. Food and Drug Administration (FDA) has required, as a post-marketing study commitment, that the Company conduct a prospective, randomized study, called the FORCE trial, comparing FACTIVE tablets (5,000 patients) to an active comparator (2,500 patients) in patients with acute bacterial exacerbations of chronic bronchitis and community-acquired pneumonia of mild to moderate severity. This study includes patients of different ethnicities to gain safety information in populations not substantially represented in the existing clinical trial program. This FDA-approved Phase IV trial commenced patient enrollment in the fall of 2004 and is scheduled to be completed within three to four years of commencement. Although the Company cannot predict with certainty the remaining costs associated with this study, the Company currently estimates that between $3-4 million of additional spending will be required to complete the study.

Additionally, in April of 2005, the Company completed a Phase III trial examining the potential use of FACTIVE tablets for the five-day treatment of mild to moderate community-acquired pneumonia. Based on the results of this study, in November 2005, the Company submitted a supplemental New Drug Application (sNDA) to the FDA for approval to promote the five-day treatment of FACTIVE tablets for this indication. On September 21, 2006, the Company received an approvable letter from the FDA for the sNDA seeking approval for the five-day treatment CAP with FACTIVE tablets. According to the letter, the Company is required to provide clarification and additional interpretation regarding certain data included in the application to assist the FDA in its evaluation. We recently delivered this additional information to the FDA. The receipt of the approvable letter from the FDA does not assure ultimate approval of the sNDA.

(d) Accounts Receivable

Trade accounts receivable consist of amounts due from wholesalers for the purchase of FACTIVE and ANTARA. Ongoing credit evaluations of customers are performed and collateral is generally not required. As of September 30, 2006 and December 31, 2005, the Company has reserved $34,000 and $0, respectively, for bad debts related to the sale of FACTIVE and ANTARA. The Company continuously reviews all customer accounts to determine if an allowance for uncollectible accounts is necessary. The Company currently provides substantially all of its distributors with payment terms of up to 30 days on purchases of FACTIVE and ANTARA. Amounts past due from customers are determined based on contractual payment terms. Through September 30, 2006, payments have generally been made in a timely manner. The Company also reserved $310,000 and $0, respectively, as of September 30, 2006 and December 31, 2006 related to other non-trade receivables.

The following table represents accounts receivable (in thousands):

	As of September 30, 2006		As of December 31, 2005
Trade, net	$	7,155	$	3,170
Co-promotion		1,745		1,825
Other		318		1,211
Total	$	9,218	$	6,206

(e) Restricted Cash

In connection with the convertible debt offering completed in May 2004, the Company was required to set aside cash in an amount equal to the first six semi-annual interest payments related to such debt. As of September 30, 2006, the Company’s restricted cash consists, in part, of the remaining two semi-annual interest payments totaling approximately $5,346,000 which are payable on October 15, 2006 and April 15, 2007. At September 30, 2006, the restricted cash balance related to the convertible debt offering is approximately $5,135,000 excluding accrued interest. In addition, approximately $3,697,000 of cash is restricted in connection with a letter of credit issued for the building lease at the Company’s South San Francisco, California facility and approximately $433,000 of cash is restricted in connection with a letter of credit issued for the building lease at the Company’s Waltham, Massachusetts facility. The restrictions related to the South San Francisco facility and the Waltham facility expire on February 28, 2011 and March 31, 2012, respectively.

(f) Property and Equipment

The Company records property and equipment at cost. Major replacements and improvements are capitalized, while general repairs and maintenance are expensed as incurred. The Company depreciates its property and equipment over the estimated useful life of the assets using the straight-line method starting when the asset is placed in service. The estimated useful life for leasehold improvements is the term of the lease (which is less than the useful life of the assets).

	Estimated Useful Life
Manufacturing and computer equipment	3-5 Years
Equipment and furniture	3-5 Years
Leasehold improvements	7 Years

9

Depreciation expense was approximately $564,000 and $460,000 for the nine-month periods ended September 30, 2006 and 2005, respectively.

(g) Inventories

Inventories are stated at the lower of cost or market, with cost determined under the average cost method. Products are removed from inventory and recognized as cost of goods sold on an average cost basis. For FACTIVE, inventories consist of raw material in powder form and work-in-process of approximately $5,444,000 and $9,770,000, and FACTIVE finished tablets of approximately $3,786,000 and $4,417,000, as of September 30, 2006 and December 31, 2005, respectively. For ANTARA, inventories consist of raw material and work-in-process of approximately $3,018,000 and $0, and ANTARA finished capsules of approximately $2,653,000 and $0, as of September 30, 2006 and December 31, 2005, respectively.

On a quarterly basis, the Company analyzes its inventory levels, and writes down inventory and marketing samples that have become obsolete, have a cost basis in excess of its expected net realizable value or are in excess of forecast requirements to cost of product revenues and marketing expense, respectively. Expired inventory is disposed of and the related costs are written off. At September 30, 2006 and December 31, 2005, there was approximately $1,142,000 and $2,072,000, respectively, in FACTIVE sample product to be used for FACTIVE marketing programs and approximately $498,000 and $0, respectively, in ANTARA sample product to be used for ANTARA marketing programs. These amounts are classified as other current assets in the accompanying consolidated balance sheet.

The following table represents net trade inventories (in thousands):

	As of September 30, 2006		As of December 31, 2005
Raw material	$	4,717	$	8,418
Work-in-process		3,745		1,352
Finished goods		6,439		4,417
Total	$	14,901	$	14,187

(h) Net Loss Per Share (in thousands)

Basic and diluted net loss per share was determined by dividing net loss by the weighted average shares outstanding during the period. Diluted loss per share is the same as basic loss per share for all periods presented, as the effect of the potential common stock is antidilutive. Antidilutive equivalents, which consist of stock options, securities sold under the Company’s employee stock purchase plan, directors’ deferred stock, convertible notes, warrants and unvested restricted stock that are not included in diluted net loss per share totaled 49,722 and 38,949 shares of the Company’s common stock (prior to the application of the treasury stock method) during the three and nine month periods ended September 30, 2006 and 2005, respectively.

(i) Single Source Suppliers

FACTIVE

The Company currently obtains the active pharmaceutical ingredient for its commercial requirements for FACTIVE from a single source. The Company purchases the active pharmaceutical ingredient pursuant to a long-term supply agreement. The disruption or termination of the supply of the commercial requirement for FACTIVE or a significant increase in the cost of the active pharmaceutical ingredient from this source could have a material adverse effect on the Company’s business, financial position and results of operations.

ANTARA

Pursuant to the Company’s license arrangement with Ethypharm, Ethypharm is responsible for the manufacture and supply of ANTARA finished product or ANTARA bulk product at the Company’s option. The disruption or termination of the supply of ANTARA by Ethypharm or its third party contractors could have a material adverse effect on the Company’s business, financial position and results of operations.

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(j) Concentration of Credit Risk

Statement of Financial Accounting Standards (SFAS) No. 105, “Disclosure of Information about Financial Instruments with Off-Balance-Sheet Risk and Financial Instruments with Concentrations of Credit Risk,” requires disclosure of any significant off-balance-sheet and credit risk concentrations. The Company has no off-balance-sheet or credit risk concentrations such as foreign exchange contracts, options contracts or other foreign hedging arrangements. The Company maintains its cash and cash equivalents and investment balances with several unaffiliated institutions.

The following table summarizes the number of customers that individually comprise greater than 10% of total revenues and their aggregate percentage of the Company’s total product revenues:

	Number of Significant Customers	Percentage of Total Product Revenues by Customer
		A		B		C		D
Three months ended September 30, 2006	4	28	%	31	%	11	%	19	%
Three months ended September 30, 2005	2	70	%	*		11	%	*
Nine months ended September 30, 2006	3	42	%	29	%	11	%	*
Nine months ended September 30, 2005	2	62	%	19	%	*		*

* Balance is less than 10%

The following table summarizes the number of customers that individually comprise greater that 10% of total accounts receivable and their aggregate percentage of the Company’s total trade accounts receivable:

	Number of Significant Customers	Percentage of Total Trade Accounts Receivable by Customer
		A		B		C		D
As of September 30, 2006	4	27	%	26	%	13	%	27	%
As of December 31, 2005	2	54	%	27	%	*		*

* Balance is less than 10%

To date, the Company has not written off any significant accounts receivable balances.

(k) Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated condensed financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

(l) Comprehensive Loss

The Company follows the provisions of SFAS No. 130, “Reporting Comprehensive Income” (SFAS No. 130). SFAS No. 130 requires disclosure of all components of comprehensive loss on an annual and interim basis. Comprehensive loss is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. Historically, other comprehensive income had included net loss and change in unrealized gains and losses of marketable securities. For the nine month periods ended September 30, 2006 and 2005, the net loss is equal to the comprehensive loss.

(m) Reclassifications

The Company has reclassified certain prior year information to conform with the current year’s presentation. The Company has separately disclosed the operating portion of the cash flows attributable to its discontinued operations, which in prior periods was reported on a combined basis as a single amount.

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(n) Segment Reporting

The Company follows the provisions of SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information” (SFAS No. 131). SFAS No. 131 establishes standards for reporting information regarding operating segments in annual financial statements and requires selected information for those segments to be presented in interim financial reports issued to stockholders. SFAS No. 131 also establishes standards for related disclosures about products and services and geographic areas. Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision-making group, in making decisions as to how to allocate resources and assess performance. The Company’s chief decision makers, as defined under SFAS No. 131, are the chief executive officer and chief financial officer and have determined that the Company operates in one segment. All of the Company’s assets are located in the United States. Approximately 89% of the Company’s product revenues are generated from customers based in the United States.

(o) Long-Lived Assets

The Company follows the provisions of SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (SFAS No. 144). Under SFAS No. 144, long-lived assets and identifiable intangible assets with finite lives are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If indicators of impairment exist, recoverability of assets to be held and used is assessed by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. Recoverability measurement and estimating the undiscounted cash flows is done at the lowest possible level for which there are identifiable assets. If the aggregate undiscounted cash flows are less than the carrying value of the asset, then the resulting impairment charge to be recorded is calculated based on the amount by which the carrying amount of the asset exceeds its fair value. Any write-downs are recorded as permanent reductions in the carrying amount of the asset.

The Company also follows the provisions of SFAS No. 142, “Goodwill and Other Intangible Assets,” (SFAS No. 142). Under SFAS No. 142, goodwill and purchased intangible assets with indefinite lives are not amortized but are reviewed periodically for impairment. The Company performs an annual evaluation of goodwill at the end of each fiscal year to test for impairment or more frequently if events or circumstances indicate that goodwill may be impaired. Because the Company has a single operating segment, which is its sole reporting unit, the Company performs this test by comparing the fair value of the entity with its book value, including goodwill. If the fair value exceeds the book value, goodwill is not impaired. If the book value exceeds the fair value, then the Company would calculate the potential impairment loss by comparing the implied fair value of goodwill with the book value. If the implied fair value of goodwill is less than the book value, then an impairment charge would be recorded.

As of September 30, 2006, the Company does not believe that any of its long-lived assets, goodwill, or intangible assets are impaired.

(p) Recent Accounting Pronouncements

Accounting for Uncertainty in Income Taxes

In June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement No. 109” (the “Interpretation”). The Interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes”. The Interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This Interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Interpretation is effective for fiscal years beginning after December 15, 2006. The Company has not yet completed its evaluation of the Interpretation, but does not currently believe that adoption will have a material impact on its results of operations, financial position or cash flows.

(3) Acquisition of ANTARA

On August 18, 2006, the Company acquired the U.S. rights to ANTARA, from Reliant Pharmaceuticals in a transaction being accounted for as an acquisition of a business in accordance with SFAS No. 141, “Business Combinations” and accordingly, allocated the purchase price of ANTARA based upon the estimated fair value of net assets acquired and liabilities assumed. Oscient has performed a preliminary valuation study to determine the allocation of the estimated purchase price of the Antara acquisition among the tangible and intangible assets acquired as well as their estimated amortization period. The preliminary study was performed by a third party and is unaudited. The estimated useful life of the intangible assets is assumed to be fourteen years which was based upon the remaining life of the patents covering ANTARA , the regulatory barriers to competition, and management’s knowledge of existing competitors research activities. The Company has completed a preliminary analysis of the fair values of the liabilities assumed in connection with the acquisition, including certain liabilities that qualify for recognition under EITF No. 95-3 “Recognition of Liabilities in Connection with a Purchase Business Combination” (EITF No. 95-3).

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The following is a summary of the Company’s estimate of the fair values of the assets acquired and liabilities assumed at the date of acquisition (in thousands):

Preliminary estimate of the allocation of purchase price:
Inventories	$	4,344
Prepaid expenses		2,656
Intangible assets		60,900
Goodwill		16,663
Total assets acquired		84,563
Liabilities assumed		(1,427	)
Net assets acquired	$	83,136
Consideration and direct transaction costs:
Cash	$	82,376
Estimated direct transaction costs		760
Total purchase price	$	83,136

The cash consideration consisted of the Company’s existing cash funds of $12,376,000 and $70,000,000 of funds financed with Paul Royalty Fund Holding II, LP. See further discussion in Note 13.

The following table presents the preliminary estimate of the fair value of the intangible assets acquired, their estimated useful lives and the amortization expense (in thousands):

Intangible assets	Fair value of intangibles		Estimated life (in years)	Amortization for the three and nine months ended September 30, 2006
Developed Technology	$	59,020	14	$	510
Supply Agreement		1,880	14		16
Total	$	60,900		$	526

The following table presents the estimated amortization of the intangible assets acquired (in thousands):

2006	$	1,614
2007		4,350
2008		4,350
2009		4,350
2010-2020		46,236
Total	$	60,900

The preliminary valuation of the purchased intangible assets of $60,900,000 was based on the result of a valuation using the income approach and applying a weighted average cost of capital of 17%. On an ongoing basis, Oscient will evaluate the useful life of these intangible assets and determine if any competitive, governmental or regulatory event has impaired the value of the assets or modified their estimated useful lives.

Supplemental Pro Forma Information

ANTARA’s operations, assumed as of the date of acquisition, are included in the Company’s results of operations beginning on August 18, 2006. The unaudited pro forma combined condensed statements of operations for 2006 and 2005 gives effect to the acquisition of ANTARA as if the acquisition of ANTARA had occurred on January 1, 2006 and 2005, respectively.

The unaudited pro forma combined condensed statements of operations are not necessarily indicative of the financial results that would have occurred if the ANTARA acquisition had been consummated on January 1, 2005 nor are they necessarily indicative of the financial results which may be attained in the future.

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The pro forma statements of operations are based upon available information and upon certain assumptions that the Company’s management believes are reasonable. The ANTARA acquisition is being accounted for using the purchase method of accounting (in thousands, except per share data).

	Nine months ended September 30,
	2006 (Actual)			2006 (Pro forma)			2005 (Actual)			2005 (Pro forma)
Revenue	$	27,888		$	32,383		$	14,122		$	20,008
Total costs and expenses		88,901			96,338			86,828			113,129
Net loss	$	(63,786	)	$	(71,545	)	$	(71,483	)	$	(95,517	)
Weighted average number of shares—basic and diluted		91,201			100,522			76,341			87,452
Net loss per share	$	(0.70	)	$	(0.71	)	$	(0.94	)	$	(1.09	)

(4) Restructuring Plans

In the fourth quarter of 2004, the Company relocated its corporate headquarters from one facility in Waltham, Massachusetts to a different facility in Waltham, Massachusetts. The Company completed the relocation to obtain administrative space that was needed to support the launch of FACTIVE. The abandonment of the former corporate headquarters was accounted for under SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” Accordingly, the Company recorded a restructuring charge of approximately $4.7 million which was comprised of $2.7 million related to the remaining facility costs that will continue to be incurred through the lease expiration date on November 15, 2006, net of expected sublease payments and $2.0 million for the write-off of the net book value of the leasehold improvements at the abandoned facility.

The following table summarizes the restructuring activity during the nine month period ended September 30, 2006 (in thousands):

	Balance at December 31, 2005		Cash Payments			Balance at September 30, 2006
Restructuring facility lease liability	$	1,076	$	(904	)	$	172

At the time of acquisition of Genesoft in 2004, management approved a plan to integrate certain Genesoft facilities into existing operations. In connection with the integration activities, the Company included in the purchase price allocation a restructuring liability of approximately $18,306,000, which includes $1,419,000 in severance-related costs and $16,887,000 in facility lease impairment costs pertaining to 68,000 square feet of leased space which expires on February 28, 2011. In the quarter ended December 31, 2004, in accordance with EITF No. 95-3, “Recognition of Liabilities in Connection with a Purchase Business Combination” (EITF No 95-3) the Company made an adjustment to the facilities impairment estimate based on the additional cost of utilities and other related expenses of approximately $4,730,000. The adjustment was recorded as an additional cost of the acquired company. In the quarter ended December 31, 2005, in accordance with EITF No. 95-3, the Company made an adjustment to the facilities lease liability based on revisions made to estimates of future rental income related to additional subleased space of approximately $734,000. The adjustment was recorded as a reduction to goodwill.

The following table summarizes the liability activity related to the Genesoft acquisition during the nine month period ended September 30, 2006 (in thousands):

	Balance at December 31, 2005		Cash Payments			Interest Accretion		Balance at September 30, 2006
Assumed facility lease liability	$	16,204	$	(2,166	)	$	480	$	14,518

(5) Stock-Based Compensation

Effective January 1, 2006, the Company adopted SFAS No. 123(R), “Share-Based Payment” (SFAS No. 123R) using the modified prospective transition method. SFAS No. 123R requires all share-based payments, including grants of stock options, to be recognized in the income statement as an operating expense, based on their fair values. Under the modified prospective transition method, compensation cost recognized during the nine months ended September 30, 2006 includes

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(1) compensation cost for all share-based payments granted prior to, but not vested as of December 31, 2005, based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123, “Accounting for Stock-Based Compensation”, and (2) compensation cost for all share-based payments granted subsequent to December 31, 2005, based on the grant date fair value estimated in accordance with the provisions of SFAS No. 123R. Such amounts have been reduced by its estimate of forfeitures on all unvested awards. Stock-based compensation expense primarily relates to stock options, restricted stock, and stock issued under the Company’s employee stock purchase plan. Results for prior periods are not restated.

Stock Plans

The Company grants stock options to key employees and consultants under its 1991, 1993, 1995 and 1997 Stock Option Plans, as well as the 2001 Incentive Plan (collectively, the Option Plans). The Stock Option and Compensation Committee of the Board of Directors determines the purchase price and vesting schedule applicable to each option grant. As of September 30, 2006, there are no shares reserved for future grants under the 1991, 1993, 1995 and 1997 Plans. The 2001 Incentive Plan provides for the grant of non-qualified stock options, incentive stock options, restricted stock, stock appreciation rights, unrestricted stock, deferred stock, and cash performance awards. Generally, options granted to employees vest based on service conditions over a two to four year time period and options granted to non-employees vest based on service conditions over a one to three year time period, all of which have graded vesting. All options granted to both employees and non-employees have a contractual term of ten years from date of grant and generally, the exercise price of the stock options equals the fair market value of the Company’s common stock on the date of grant. Certain option awards provide for accelerated vesting if there is a change in control. As of September 30, 2006, 14,400,000 shares were authorized and 5,867,863 shares were available under the 2001 Incentive Plan for future issuance. In addition, under separate agreements not covered by any plan, the Company has granted certain key employees and directors of the Company an aggregate of 524,046 options to purchase common stock.

Employee Stock Purchase Plan

The Company also has an Employee Stock Purchase Plan (ESPP), which was adopted in February 2000. Under the ESPP, eligible employees may contribute up to 15% of their earnings toward the semi-annual purchase of the Company’s common stock. The employees’ purchase price is 85% of the fair market value of the common stock at the time of grant of option or the time at which the option is deemed exercised, whichever is less. The most recently completed offering period began January 1, 2006 and ended on June 30, 2006; therefore, January 1, 2006 is considered the grant date for the purposes of recognizing the stock-based compensation expense for this offering period. The Company projects the estimated contributions at the beginning of the period and uses the Black-Scholes-Merton option-pricing model in order to determine the estimated fair value of the stock to be issued. At the end of the offering period, the Company adjusts the estimated contributions to actual. Under Accounting Principles Board Opinion (APB) No. 25, “Accounting for Stock Issued to Employees” (APB No. 25), the Company was not required to recognize stock-based compensation expense for the cost of stock options or shares issued under the Company’s ESPP because the ESPP was determined to be noncompensatory. Upon adoption of SFAS 123R, the Company began recording stock-based compensation expense related to the ESPP. As of September 30, 2006, 2,250,000 shares were authorized and 765,546 shares were available for future issuance under this plan.

Prior to January 1, 2006, the Company applied the intrinsic value method under APB Opinion No. 25 “Accounting for Stock Issued to Employees” (APB No. 25) and related interpretations, in accounting for its stock-based compensation plans for awards to employees, rather than the alternative fair value accounting method provided for under SFAS No. 123. Under APB No. 25, when the exercise price of options granted under these plans equals the market price of the underlying stock on the date of grant, no compensation expense is required. In accordance with EITF No. 96-18, “Accounting for Equity Instruments That are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services” (EITF No. 96-18), the Company records compensation expense equal to the fair value of options granted to non-employees over the period of service, which is generally the vesting period. The Company generally used the straight-line method of amortization for stock-based compensation. Had compensation cost for these plans been determined consistent with SFAS No. 123R, the Company’s consolidated net loss and net loss per share would have been increased to the following pro forma amounts (in thousands, except per share amounts):

	Three Months Ended September 30, 2005			Nine Months Ended September 30, 2005
Net loss as reported	$	(21,903	)	$	(71,483	)
Add: Share-based employee compensation cost, included in the determination of net loss as reported		6			1,000
Less: Total share-based compensation expense determined under the fair value method for all employee awards		(1,056	)		(6,528	)
Pro forma net loss	$	(22,953	)	$	(77,011	)
Basic and diluted net loss per share
As reported	$	(0.29	)	$	(0.94	)
Pro forma	$	(0.30	)	$	(1.01	)

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The adoption of SFAS No. 123R increased the Company’s three and nine months ended September 30, 2006 operating loss, net loss, and cash flows used in operating activities by $1,020,000 and $3,063,000, respectively and basic and diluted net loss per share by $0.01 and $0.03, respectively. The compensation expense under SFAS No. 123R is recorded in cost of product sales, research and development expense, selling and marketing expense, and general and administrative expense based on the specific allocation of employees receiving the equity awards. Additionally, the Company eliminated the January 1, 2006 deferred compensation balance against additional paid-in capital upon adoption of SFAS No. 123R.

The fair value of each option award is estimated on the grant date using the Black-Scholes-Merton option-pricing model based on the assumptions noted in the following table:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2006		2005		2006		2005
Expected volatility	56.20 – 61.62	%	52.29 – 52.75	%	52.14 – 61.62	%	48.35 – 52.75	%
Risk-free interest rate	4.68 –5.05	%	3.98 – 4.12	%	4.35 – 5.07	%	3.71 – 4.17	%
Expected life (years)	5.55 – 6.17		5		5.00 – 6.25		5
Expected dividend	—		—		—		—

The expected life of the stock options granted was estimated based on the historical exercise patterns over the option lives while considering employee exercise strategy and cancellation behavior. The expected life is applied to one group as a whole as the Company does not expect substantially different exercise or post-vesting termination behavior amongst its employee population. The Company will continue to review the expected life among the employee population to determine whether multiple groups is necessary.

Volatility is determined exclusively based on historical volatility data of the Company’s common stock from the period of time beginning with the Company’s merger with Genesoft in February 2004 through the month of grant. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant commensurate with the expected life assumption. The Company has not paid and does not anticipate paying cash dividends, therefore the expected dividend yield is assumed to be 0%.

A summary of activity related to stock options under the Option Plans as of September 30, 2006, and changes during the nine month period then ended is presented below (in thousands, except weighted average data):

	Number of Options		Weighted- Average Exercise Price		Weighted-Average Remaining Contractual Term (in Years)	Aggregate Intrinsic Value
Outstanding at December 31, 2005	8,861		$	4.06
Granted	1,818		$	1.74
Exercised	(715	)	$	0.17
Forfeited/Cancelled	(1,893	)	$	3.86
Outstanding at September 30, 2006	8,071		$	3.93	7.79	$	118
Exercisable at September 30, 2006	4,409		$	5.00	6.97	$	105

The total compensation cost that has been charged to income during the third quarter of 2006 was approximately $1,020,000. The Company’s policy is to recognize compensation cost for awards with service conditions and graded vesting using the straight-line method. Additionally the Company’s policy is to issue authorized but previously unissued shares to satisfy share option exercises, the issuance of restricted stock and stock issued under the ESPP. The amount of stock-based compensation recognized during a period is based on the value of the portion of the awards that are ultimately expected to vest. In addition, the requisite service period is generally equal to the vesting term. SFAS 123R requires forfeitures to be

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estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The term “forfeitures” is distinct from “cancellations” or “expirations” and represents only the unvested portion of the surrendered option. The Company estimates forfeitures based on historical data, adjusted for known trends, calculated with the assistance of the independent third party. The Company has applied an annual forfeiture rate of 23.24% to options in calculating total recognized compensation cost as of September 30, 2006. This analysis will be re-evaluated quarterly and the forfeiture rate will be adjusted as necessary. Ultimately, the actual expense recognized over the vesting period will only be for those shares that vest.

Using the Black-Scholes-Merton option-pricing model, the weighted average grant date fair values of options granted during the nine months ended September 30, 2006 and 2005 were $0.94 and $1.21, respectively. For the nine months ended September 30, 2006, the Company granted 1,818,000 in stock options with a weighted average exercise price of $1.74. For the nine months ended September 30, 2005, the Company granted 4,030,676 in stock options with a weighted average exercise price of $2.52.

During the nine months ended September 30, 2006 and 2005, the total intrinsic value of options exercised was $616,000 and $2,218,000, respectively. The total amount of cash received from exercise of these options during the nine months ended September 30, 2006 and 2005 was $169,000 and $546,000 respectively.

The 2001 Incentive Plan also provides for awards of nontransferable shares of restricted common stock which are subject to forfeiture. All shares of restricted stock vest based on service conditions in two equal installments over a two-year period. Generally, the fair value of each restricted stock award is equal to the market price of the Company’s stock at the date of grant. Certain restricted share awards provide for accelerated vesting if there is a change in control.

A summary of activity related to restricted stock under the Option Plans as of September 30, 2006, is indicated in the following table (in thousands, except weighted average data):

	Number of Shares		Weighted-Average Grant Date Fair Value
Nonvested at December 31, 2005	—		$	—
Granted	614		$	1.71
Vested	—			—
Forfeited	(38	)	$	1.91
Nonvested at September 30, 2006	576		$	1.70

As of September 30, 2006, there was $6,230,000 of total unrecognized compensation cost related to unvested share based awards. This cost is expected to be recognized over a weighted average remaining requisite service period of 1.7 years. The Company expects approximately 2,812,000 in unvested options to vest at some point in the future. Options expected to vest are calculated by applying an estimated forfeiture rate to the unvested options.

(6) Cash, Cash Equivalents and Marketable Securities

The Company applies the provisions of SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities.” At December 31, 2005, the Company’s investments included short-term marketable securities. Cash equivalents are short-term, highly liquid investments with maturities of 90 days or less. Marketable securities are investment securities with original maturities of greater than 90 days. Cash equivalents are carried at cost, which approximates fair value. Marketable securities that are classified as held-to-maturity are recorded at amortized cost, which approximates fair value. At September 30, 2006 and December 31, 2005, cash and cash equivalents consisted of money market funds and commercial paper, and marketable securities consisted of short-term corporate obligations. At September 30, 2006 and December 31, 2005, the average maturity of the Company’s investments was approximately 1 month and 0.9 months, respectively. At December 31, 2005, the Company had a net unrealized loss of approximately $1,000, which is the difference between the amortized cost and the fair value of the held-to-maturity investments related to government and well capitalized corporations. Therefore, the Company deemed the loss to be temporary. The fair value of the Company’s cash equivalents and marketable securities is determined based on market value.

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At September 30, 2006 and December 31, 2005, the Company’s cash, cash equivalents and marketable securities consisted of the following (in thousands):

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
September 30, 2006
Cash and Cash Equivalents:
Cash	$	39,835	$	—	$	—		$	39,835
Money market funds		2,636		—		—			2,636
Commercial paper		299		—		—			299
Total cash and cash equivalents	$	42,770	$	—	$	—		$	42,770
December 31, 2005
Cash and Cash Equivalents:
Cash	$	43,069	$	—	$	—		$	43,069
Money market funds		11,326		—		—			11,326
Commercial paper		11,223		4		—			11,227
Total cash and cash equivalents	$	65,618	$	4	$	—		$	65,622
Marketable Securities (held-to-maturity):
Short-term corporate obligations	$	2,696	$	—	$	(1	)	$	2,695
Total short-term marketable securities	$	2,696	$	—	$	(1	)	$	2,695

(7) Notes Receivable

In connection with a lease agreement associated with vehicles for the Company’s sales representatives, the Company was issued notes by the lessor totaling approximately $2,926,000 related to the repayment of security deposits made by the Company. The notes bear interest at rates ranging from 5.5% to 7.75% and have expiration dates ranging from March 2008 to December 2008. Principal and interest are repaid by the lessor to the Company over the 36 month lease term as lease payments are made on the vehicles.

(8) Long-Term Obligations

In the quarter ended June 30, 2004, the Company issued $152,750,000 in principal amount of its 3.5% senior convertible promissory notes due in April 2011. These notes are convertible into the Company’s common stock at the option of the holders at a conversion price of approximately $6.64 per share. The Company may not elect to redeem the notes before May 10, 2010. After this date, the Company can redeem all or a part of the notes for cash at a price equal to 100% of the principal amount of the notes to be redeemed plus accrued and unpaid interest. Upon the occurrence of a termination of trading of the Company’s common stock or a change of control transaction in which substantially all of the Company’s common stock is exchanged for consideration other than common stock that is listed on a U.S. national securities exchange or market (such as NASDAQ), holders of these notes have the right to require the Company to repurchase all or any portion of their notes at a price equal to 100% of the principal amount plus accrued and unpaid interest. In addition, in the case of a change of control transaction in which all of the consideration paid for the Company’s common stock consists of cash, the Company may have an obligation to pay an additional make-whole premium to the note holders based on a formula set forth in the indenture. In connection with the issuance, the Company recorded deferred financing costs of $5,708,000 which is being amortized to interest expense on a straight-line basis over the period the notes are outstanding. A portion of the net proceeds from the offering was used to purchase U.S. government securities as pledged collateral to secure the first six scheduled interest payments on the notes, the unpaid portions of which are classified as restricted cash on the September 30, 2006 and December 31, 2005 consolidated balance sheets. As part of the issuance, the Company filed a shelf registration statement relating to the resale of the notes and the common stock issuable upon conversion.

On February 6, 2004, in connection with the merger with Genesoft, the Company issued $22,309,647 in principal amount of 5% convertible promissory notes due in February 2009. These notes are convertible into the Company’s common stock at the option of the holders, at a conversion price of approximately $6.64 per share (subject to anti-dilution and other adjustments). In addition, the Company has the right to force conversion if the price of its common stock closes above 150% of the then effective conversion price for 15 consecutive trading days. At the closing of the merger, the holders of these notes also received an aggregate 4,813,547 shares of the Company’s common stock representing the payment of accrued interest and related amounts on certain outstanding notes previously issued to such holders by Genesoft.

In connection with the acquisition of ANTARA in August 2006, the Company, together with its wholly-owned subsidiary Guardian II Acquisition Corporation (the entity which holds all of the ANTARA assets), entered into several financing agreements with Paul Royalty Fund Holdings II, LP, an affiliate of Paul Capital Partners (“PRF”), including a $40 million revenue interest assignment arrangement, the issuance of a Note in the amount of $20 million and the issuance of Common Stock and Warrants in consideration for $10 million. See further discussion in Note 13.

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(9) Supply Agreement for FACTIVE

In October 2002, Genesoft, now a subsidiary of the Company, entered into a license and option agreement with LG Life Sciences to develop and commercialize FACTIVE in North America, France, Germany, the United Kingdom, Luxembourg, Ireland, Italy, Spain, Portugal, Belgium, the Netherlands, Austria, Greece, Sweden, Denmark, Finland, Norway, Iceland, Switzerland, Andorra, Monaco, San Marino and Vatican City. This agreement subsequently was assigned to the Company. The term of the agreement with respect to each country extends at least through the life of the patents covering gemifloxacin in such country. In the United States, the last of the currently issued patents for composition of matter expires in 2018. The term could extend further depending upon several factors, including the timing of the commercial sale of the product in a particular country. The product was approved for sale in the United States in April 2003 for the treatment of acute bacterial exacerbation of chronic bronchitis and community-acquired pneumonia of mild to moderate severity.

Under the terms of the agreement, LG Life Sciences has agreed to supply, and the Company is obligated to purchase, from LG Life Sciences all of the Company’s anticipated commercial requirements for FACTIVE bulk drug substance. LG Life Sciences currently supplies the FACTIVE bulk drug substance from its manufacturing facility in South Korea.

The agreement also requires the Company to achieve a minimum level of FACTIVE sales over a period of time, which if not met, would result in the technology being returned to LG Life Sciences. Under this agreement, the Company is responsible, at its expense and through consultation with LG Life Sciences, for the clinical and commercial development of gemifloxacin in the countries covered by the license, including the conduct of clinical trials, the filing of drug approval applications with the FDA and other applicable regulatory authorities and the marketing, distribution and sale of gemifloxacin in the Company’s territory; provided, that LG Life Sciences has the right to co-promote the product, on terms to be negotiated, in the Company’s territory for 2008 and periods commencing thereafter, in which case the Company’s royalty obligations to LG Life Sciences would cease. In an amendment dated March 31, 2005 as further described below, LG Life Sciences’ right to co-promote will terminate upon the Company reaching a certain level of sales.

The Company is obligated to pay a royalty on sales of FACTIVE in North America and the territories covered by the license in Europe. These royalty obligations expire with respect to each country covered by the agreement on the later of the expiration of the patents covering FACTIVE in such country or ten years following the first commercial sale of FACTIVE in such country. Pursuant to the license and option agreement, as amended to date, the Company is also obligated to make aggregate milestone payments of up to $31 million (not including upfront payments) to LG Life Sciences upon achievement of additional regulatory approvals and sales thresholds and upon consummation of sublicensing agreements.

On March 31, 2005, the Company amended its license and option agreement with LG Life Sciences. As part of the amendment of the agreement, the Company made a one time, upfront, payment of $2 million to LG Life Sciences which was recorded to general and administrative expense in the three month period ended March 31, 2005 and agreed to make certain additional milestone payments upon obtaining regulatory approvals and sales thresholds. The amended agreement also includes a reduction of future royalties payable to LG Life Sciences at certain FACTIVE revenue levels in territories covered by the agreement.

The Company further amended its agreement with LG Life Sciences on February 3, 2006, pursuant to which LG Life Sciences agreed to a reduction of future royalties payable for sales of FACTIVE tablets in Mexico and Canada and the termination of LG Life Sciences’ co-promotion rights in these countries if the Company consummates sublicense agreements in such countries prior to dates specified in the amendment. As part of the amendment to the agreement, the Company made a one-time, up front non-refundable payment to LG Life Sciences which was deferred and is being recorded to general and administrative expense over the expected term of the respective sublicensing agreement. The modified agreement also calls for additional milestone payments to LG Life Sciences upon consummation of sublicense agreements in Mexico and Canada as well as upon receipt of regulatory approval of FACTIVE in each of such countries.

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(10) Supply Agreement for ANTARA

In accordance with the acquisition of ANTARA in August of 2006, the Company was assigned rights to and assumed obligations under an exclusive license to the rights to ANTARA licensed from Ethypharm S.A. In order to maintain the exclusivity of these rights, the Company must achieve minimum annual sales in the United States and Canada until February 2012 or pay amounts to Ethypharm to compensate for any shortfall. During the term of the agreement with Ethypharm, the Company is obligated to pay a royalty on sales of ANTARA in the U.S, including a royalty on other fenofibrate monotherapy products in formulation and dosage forms that may be substantially similar or identical to ANTARA developed by the Company. The license term expires in February 2020 and, absent notice of termination by either party, automatically renews for additional two year periods. Under the terms of the agreement, at the Company’s option, Ethypharm is obligated to either manufacture and deliver to the Company finished fenofibrate product or deliver bulk product to the Company for encapsulation and packaging. Ethypharm also has a right of first refusal on any divestiture of the ANTARA rights by the Company. Additional Company obligations under the Ethypharm agreement include using commercially reasonable efforts to maintain a sales force of at least 150 representatives through February 2008 and funding a portion of the active pharmaceutical ingredient safety stock that Ethypharm is required to maintain.

(11) Co-Promotion of TESTIM

On April 11, 2005, the Company entered into a co-promotion agreement with Auxilium Pharmaceuticals, Inc. (Auxilium), under which the Company and Auxilium co-promoted in the United States Auxilium’s product, TESTIM gel, a topical 1% testosterone gel indicated for the treatment of male hypogonadism. On August 31, 2006, the Company and Auxilium mutually agreed to conclude this co-promotion arrangement and agreed to share profits from primary care sales, as provided for under the Co-Promotion Agreement, through August 31, 2006. As part of the termination of the Co-Promotion agreement, the Company received $1,800,000 from Auxilium as additional compensation for commercialization efforts by its sales force through August 31, 2006, which has been recognized as revenue during the three and nine months ended September 30, 2006.

(12) Partnering Arrangements for FACTIVE

Sublicense Agreement with Pfizer, S.A. de C.V.

On February 6, 2006, the Company entered into a Sublicensing and Distribution Agreement with Pfizer, S.A. de C.V. (Pfizer Mexico), pursuant to which the Company sublicensed its rights to sell FACTIVE tablets in Mexico to Pfizer Mexico. In exchange for those rights, Pfizer Mexico has agreed to pay the Company an up-front payment, milestone payments upon obtaining certain regulatory approvals and sales goals as well as royalties on future sales. The upfront payment is being recognized as revenue over the term of the Company’s continuing obligations under the agreement. These royalty rates are subject to reduction upon expiration of certain patents in Mexico for FACTIVE or if a generic form of gemifloxacin has a material impact on Pfizer Mexico’s sales volumes in Mexico. Pfizer Mexico is obligated to exclusively purchase from the Company, and the Company must exclusively supply, all active pharmaceutical ingredients for FACTIVE. The agreement with Pfizer Mexico may be terminated by either party upon the occurrence of certain termination events, including Pfizer Mexico’s right to terminate at any time after the first anniversary of launch of FACTIVE tablets in Mexico upon six months prior written notice. Upon termination of the Pfizer Agreement, Pfizer Mexico is obligated to assign any and all rights to regulatory approvals in Mexico to the Company or its designee.

Supply and Marketing Agreement with Abbott Laboratories

On August 9, 2006, the Company granted the commercialization rights to FACTIVE tablets in Canada to Abbott Canada, the Canadian affiliate of Abbott Laboratories. In exchange for those rights, Abbott Canada agreed to a transfer price on product purchases and to make certain payments to the Company upon achievement of certain regulatory and sales milestones. FACTIVE tablets are currently approved in Canada for the five-day treatment of AECB.

(13) Other Financial Arrangements

To finance the acquisition of ANTARA in August 2006, the Company, together with its wholly-owned subsidiary Guardian II Acquisition Corporation(“Guardian II”), entered into several financing agreements with Paul Royalty Fund Holdings II, LP, an affiliate of Paul Capital Partners (“PRF”), including a Revenue Interest Assignment Agreement, and a Note Purchase Agreement, presented under long term debt, and a Common Stock and Warrant Purchase Agreement, presented in equity, in consideration for an aggregate amount of $70 million.

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Revenue Interests Assignment Agreement

The Company and Guardian II entered into a Revenue Interest Assignment Agreement (the “Revenue Agreement”), pursuant to which it sold to PRF the right to receive specified royalties on Guardian II’s and Oscient’s net sales in the United States (and the net sales of their respective affiliates and licensees) of the ANTARA capsules and FACTIVE tablets, respectively until December 31, 2016. The royalty payable to PRF on net sales of ANTARA and FACTIVE starts each fiscal year as a high single digit royalty rate and declines to a low single digit royalty rate based on achievement of annual specified sales thresholds in each fiscal year. Once the cumulative royalty payments to PRF exceed $100 million, the royalties become nominal.

In connection with the transaction, the Company recorded a liability, referred to as the revenue interest liability, of approximately $40 million in accordance with EITF 88-18, Sales of Future Revenues. The Company will impute interest expense associated with this liability using the effective interest rate method and will record a corresponding accrued interest liability. The effective interest rate is calculated based on the rate that would enable the debt to be repaid in full over the life of the arrangement. The interest rate on this liability may vary during the term of the agreement depending on a number of factors, including the level of ANTARA and FACTIVE sales. Payments made to PRF as a result of ANTARA and FACTIVE sales levels will reduce the accrued interest liability and the principal amount of the revenue interest liability. Through September 30, 2006, there have been no payments made to PRF as a result of ANTARA or FACTIVE sales.

In the event of (i) a change of control of Oscient or Guardian II, (ii) a bankruptcy of Oscient or Guardian II, (iii) a transfer by Oscient or any of its subsidiaries of substantially all of either ANTARA or FACTIVE, (iv) subject to a cure period, breach of certain material covenants and representations in the Revenue Agreement and (v) in the event the sale of ANTARA is suspended due to a court issued injunction or the Company elects to suspend sales of ANTARA, in each case as a result of a lawsuit by certain third parties (each a “Put Event”), PRF has the right to require us to repurchase from PRF its royalty interest at a price in cash which equals the greater of (a) a specified multiple of cumulative payments made by PRF under the Revenue Agreement less the cumulative royalties previously to PRF; or (b) the amount which will provide PRF, when taken together with the royalties previously paid, a specified rate of return (the “Put/Call Price”). Upon a bankruptcy event, the Company is automatically required to repurchase the PRF royalty interest at the Put/Call Price. In the event of a change of control of Oscient, the Company has the right to repurchase the PRF royalty interest for an amount equal to the Put/Call Price. The Company has determined that PRF’s put option and the Company’s call option meet the criteria to be considered an embedded derivative and should be accounted for as such. The Company recorded a net liability of $1,005,000 related to the put/call option to reflect its estimated fair value as of the date of the agreement, in accordance with SFAS No. 133, Accounting for Derivatives Instruments and Hedging Activities. This liability will be revalued on a quarterly basis to reflect any changes in the fair value and any gain or loss resulting from the revaluation will be recorded in earnings. As of September 30, 2006, no gain or loss has been recorded.

During the first two fiscal years immediately following the fiscal year in which combined annual net sales of ANTARA and FACTIVE are equal to or greater than $125 million, the Company has the right, but not the obligation, to reduce the royalty percentages due under the Revenue Agreement to PRF by fifty percent (50%) by paying PRF a price in cash which will provide PRF, when taken together with the royalties previously paid, a specified rate of return. During the first two fiscal years immediately following the fiscal year in which combined annual net sales of ANTARA and FACTIVE are equal to or greater than $250 million, the Company has the right, but not the obligation, to repurchase the PRF royalty interest at a price in cash which will provide PRF, when taken together with the royalties previously paid, a specified rate of return.

Note Purchase Agreement

Guardian II entered into a Note Purchase Agreement (the “Note Purchase Agreement”) with PRF pursuant to which Guardian II issued and sold a $20,000,000 aggregate principal amount of 12% senior secured note (the “Note”), due on the fourth anniversary of the closing date, subject to Guardian II’s option to extend the maturity to the sixth anniversary of the closing date, provided (i) there are no defaults under the Note at the time, and (ii) the Company issues to PRF, at the time of the exercise of such option, a warrant for such number of shares of common stock equal to 10% of the principal balance plus accrued interest divided by $0.8680, with an exercise price of $.8680 per share. If the Company exercises such option, the number of shares subject to the warrant issuable to PRF would be between 2,304,147 shares and 2,940,230 shares, depending upon the amount, if any, of the interest payable on the Note the Company elects to have added to the principal of the Note rather than paid in cash as described below.

Interest is payable semi-annually in arrears on the last day of each of March and September. Guardian II has the option to pay interest in cash or to have 50% of the interest paid in cash and 50% of the interest added to principal. In the event of a change of control of Oscient or on or after the second anniversary of the closing, the Company may at its option prepay all or any part of the Note at a premium which declines over time. In the event of an event of default, with “event of default” defined as a continuing Put Event under the Revenue Agreement as described in more detail above, the outstanding principal and interest in the Note shall become immediately due and payable.

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Subject to the Revenue Agreement and the Note Purchase Agreement, without the prior written consent of PRF, the Company has agreed not to (i) amend, waive any rights under, or terminate any material license agreements, including the agreements relating to the ANTARA products and FACTIVE, (ii) enter into any new agreement or amend or fail to exercise any of its material rights under existing agreements that would adversely affect PRF’s royalty interest, and (iii) sell any material assets related to ANTARA or FACTIVE.

Pursuant to the terms of the Revenue Agreement and the Note Purchase Agreement, Guardian II and PRF entered into a Security Agreement (the “Security Agreement”) under which Guardian II granted to PRF a security interest in and to substantially all assets owned by Guardian II (including rights to the ANTARA products) in order to secure its performance under each of the Revenue Agreement, the Note Purchase Agreement and the Note. To the extent the indebtedness under certain of its pre-existing debt obligations is refinanced or replaced and such replacement or refinancing indebtedness is secured, the Company has agreed to equally and ratably secure its obligations under the Revenue Agreement.

Common Stock and Warrant Purchase Agreement

As part of the financing, the Company and PRF also entered into a Common Stock and Warrant Purchase Agreement (the “Stock and Warrant Purchase Agreement”), pursuant to which, in exchange for $10 million, the Company sold to PRF 11,111,111 shares (the “Shares”) of the Common Stock, at a price of $0.90 per share (the “Private Placement”) and issued PRF a warrant (the “Warrant”) to purchase 2,304,147 shares of Common Stock (the “Warrant Shares”) at an exercise price of $0.8680 per share. The Warrant is exercisable for seven years from the date of closing. The Warrant contains a cashless exercise option and penalties if the Company does not deliver the applicable amount of Warrant Shares within three trading days of exercise of a Warrant by PRF. The Warrant also contains provisions providing that, at PRF’s election, the Company must re-purchase the Warrant from PRF upon a sale of the Company in which the consideration for such sale is solely cash.

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ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

Certain statements contained herein related to future operating losses and our potential for profitability, the sufficiency of our cash resources, future revenues and sales of FACTIVE^® and ANTARA^®, our discount and rebate programs for FACTIVE and ANTARA, expected commercialization of ANTARA by our sales force and the continued growth of the brand, our ability to obtain approval from the U.S. Food and Drug Administration (FDA) for a five-day course of therapy for CAP, our ability to secure a long term source of bulk drug supply for Ramoplanin as well as other statements related to the progress and timing of product development, present or future licensing, collaborative or financing arrangements or that otherwise relate to future periods, are forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. These statements represent, among other things, the expectations, beliefs, plans and objectives of management and/or assumptions underlying or judgments concerning the future financial performance and other matters discussed in this document. The words “may,” “will,” “should,” “plan,” “believe,” “estimate,” “intend,” “anticipate,” “project,” and “expect” and similar expressions are intended to identify forward-looking statements. All forward-looking statements involve certain risks, estimates, assumptions, and uncertainties with respect to future revenues, cash flows, expenses and the cost of capital, among other things.

Some of the important risk factors that could cause our actual results to differ materially from those expressed in our forward-looking statements are included under the heading “Risk Factors” in this Form 10-Q. We encourage you to read these risks carefully. We caution investors not to place significant reliance on the forward-looking statements contained in this report. These statements, like all statements in this report, speak only as of the date of this report (unless another date is indicated) and we undertake no obligation to update or revise the statements.

Overview

We are a commercial-stage biopharmaceutical company marketing two FDA-approved products with our national primary care sales force—a fluoroquinolone antibiotic, FACTIVE^® (gemifloxacin mesylate) tablets, and a cardiovascular product, ANTARA^® 130 mg and ANTARA^® 43 mg (fenofibrate) capsules. FACTIVE is indicated for the treatment of community-acquired pneumonia of mild to moderate severity (CAP) and acute bacterial exacerbations of chronic bronchitis (AECB). We license the rights to gemifloxacin, the active ingredient in FACTIVE tablets, from LG Life Sciences of the Republic of Korea. FACTIVE was launched in the U.S. market in September 2004. ANTARA is approved by the U.S. Food and Drug Administration to treat hypercholesterolemia (high blood cholesterol) and hypertriglyceridemia (high triglycerides) in combination with a healthy diet. ANTARA is part of the $22 billion U.S. market for treating dyslipidemias, which includes the $1 billion fenofibrate market, and Oscient’s national sales force began marketing ANTARA in late August 2006. We license the U.S. rights to ANTARA from Ethypharm S.A. Additionally, we have a novel, late-stage antibiotic candidate, Ramoplanin, under investigation for the treatment of Clostridium difficile-associated disease and have begun exploring partnering and other strategic opportunities for the continued development of Ramoplanin.

We have incurred significant operating losses since our inception. As of September 30, 2006, we had an accumulated deficit of approximately $401 million. We expect to incur additional operating losses over the next several years due to the implementation of manufacturing, distribution, marketing and sales capabilities.

FACTIVE

Overview

FACTIVE is indicated for the treatment of community-acquired pneumonia of mild to moderate severity, or CAP, and acute bacterial exacerbations of chronic bronchitis, or AECB. The product was approved for sale in the United States in April 2003 for such indications.

In October 2002, we entered into a license and option agreement with LG Life Sciences to develop and commercialize gemifloxacin, a novel fluoroquinolone antibiotic, in North America, France, Germany, the United Kingdom, Luxembourg, Ireland, Italy, Spain, Portugal, Belgium, the Netherlands, Austria, Greece, Sweden, Denmark, Finland, Norway, Iceland, Switzerland, Andorra, Monaco, San Marino and Vatican City. The term of the agreement with respect to each country extends at least through the life of the patents covering gemifloxacin in such country. In the United States, the last of the currently issued patents for composition of matter expires in 2018.

Under the terms of the agreement, LG Life Sciences has agreed to supply and we are obligated to purchase from LG Life Sciences all of our anticipated commercial requirements for the FACTIVE bulk drug substance. LG Life Sciences currently supplies the FACTIVE bulk drug substance from its manufacturing facility in South Korea.

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The agreement with LG Life Sciences also requires a minimum sales commitment over a period of time, which if not met, would result in the technology being returned to LG Life Sciences. Under this agreement, we are responsible, at our expense and through consultation with LG Life Sciences, for the clinical and commercial development of gemifloxacin in the countries covered by the license, including the conduct of clinical trials, the filing of drug approval applications with the FDA and other applicable regulatory authorities and the marketing, distribution and sale of gemifloxacin in our territory; provided, that LG Life Sciences has the right to co-promote the product, on terms to be negotiated, in our territory commencing in 2008 and for periods thereafter, in which case our royalty obligations to LG Life Sciences would cease. Pursuant to an amendment dated March 31, 2005 as further described below, LG Life Sciences’ right to co-promote in the U.S. will terminate upon our reaching a certain level of sales.

We are obligated to pay a royalty on sales of FACTIVE in North America and the territories covered by the license in Europe. These royalty obligations expire with respect to each country covered by the agreement on the later of the expiration of the patents covering FACTIVE in such country or ten years following the first commercial sale of FACTIVE in such country. Pursuant to the license and option agreement, as amended to date, we are also obligated to make aggregate milestone payments of up to $31 million (not including upfront payments) to LG Life Sciences upon achievement of additional regulatory approvals and sales thresholds and upon consummation of sublicensing agreements.

On March 31, 2005, we amended our license and option agreement with LG Life Sciences. As part of the amendment of the agreement, we made a one time, upfront payment of $2 million to LG Life Sciences which was recorded to general and administrative expense in the three month period ended March 31, 2005 and agreed to make certain milestone payments upon obtaining regulatory approvals and sales thresholds. The amended agreement also includes a reduction of future royalties payable to LG Life Sciences at certain FACTIVE revenue levels in territories covered by the agreement.

We further amended our agreement with LG Life Sciences on February 3, 2006, pursuant to which LG Life Sciences agreed to a reduction of future royalties payable for sales of FACTIVE tablets in Mexico and Canada and the termination of LG Life Sciences’ co-promotion rights in these countries if we consummate sublicense agreements in such countries prior to dates specified in the amendment. The modified agreement also calls for milestone payments to be made to LG Life Sciences upon consummation of sublicense agreements in Mexico and Canada as well as upon receipt of regulatory approval of FACTIVE in each of such countries.

Commercialization and Development

We began selling FACTIVE tablets in September 2004 with an initial sales force of 100 representatives and, as of September 2006, utilize a full-time sales force of approximately 250 sales representatives, which are supplemented by approximately 30 part-time sales personnel who began work in June 2006.

With respect to the additional development initiatives, we have completed a clinical trial to demonstrate that a five-day course of FACTIVE for the treatment of mild to moderate CAP is as effective as the currently approved seven-day course of treatment. On September 21, 2006, we received an approvable letter from the FDA for the supplemental New Drug Application (sNDA) seeking approval for the five-day treatment of CAP with FACTIVE tablets. According to the letter, we were required to provide clarification and additional interpretation regarding certain data included in the application to assist the FDA in its evaluation. We recently delivered this additional information to the FDA and are waiting a reply from the FDA regarding the completeness of the response. The receipt of the approvable letter from the FDA does not assure ultimate approval of the sNDA.

As part of the FACTIVE development program, several studies relating to acute bacterial sinusitis, or ABS, were completed, and, in November 2005, we filed an sNDA for ABS. On September 12, 2006, the FDA’s Anti-Infective Drugs Advisory Committee voted not to recommend approval of this sNDA. We have since withdrawn our sNDA seeking approval of the ABS indication.

On February 6, 2006, we entered into a Sublicensing and Distribution Agreement with Pfizer, S.A. de C.V. (Pfizer Mexico), pursuant to which we sublicensed our rights to sell FACTIVE tablets in Mexico to Pfizer Mexico. In exchange for those rights, Pfizer Mexico has agreed to pay us an up-front license fee, milestone payments upon obtaining certain regulatory approvals and sales goals as well as royalties on future sales. In accordance with EITF No. 00-21, the up-front license payment related to the Pfizer Mexico license agreement will be recognized as revenue over eighteen months. Royalty rates are subject to reduction upon expiration of certain patents in Mexico for FACTIVE or if a generic form of gemifloxacin has a material impact on Pfizer Mexico’s sales volumes in Mexico. Pfizer Mexico is obligated to exclusively purchase from us, and we must exclusively supply, all active pharmaceutical ingredients for FACTIVE. The agreement with Pfizer Mexico may be terminated by either party upon the occurrence of certain termination events, including Pfizer Mexico’s right to terminate at any time after the first anniversary of launch of FACTIVE tablets in Mexico upon six months prior written notice. Upon termination of the Pfizer Agreement, Pfizer Mexico is obligated to assign any and all rights to regulatory

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approvals in Mexico to us or our designee. On August 1, 2006, we announced that we received notice from Pfizer Mexico that FACTIVE was approved by the Ministry of Health in Mexico to be marketed as FACTIVE-5 for the treatment of community-acquired pneumonia, acute bacterial exacerbations of chronic bronchitis and acute bacterial sinusitis. Accordingly, in October 2006, Pfizer Mexico launched the promotion of FACTIVE in Mexico utilizing three national sales forces and one specialty sales force.

On August 9, 2006, we granted the commercialization rights to FACTIVE tablets in Canada to Abbott Canada, the Canadian affiliate of Abbott. In exchange for those rights, Abbott Canada agreed to a transfer price on product purchases and to make certain payments to us upon achievement of certain regulatory and sales milestones. FACTIVE is currently approved in Canada for the five-day treatment of AECB, and Abbott Canada plans to launch FACTIVE for the treatment of AECB in the coming months.

ANTARA

ANTARA is a once daily formulation of fenofibrate approved for use in combination with a diet restricted in saturated fat and cholesterol to reduce elevated low-density lipoprotein cholesterol (LDL or “bad” cholesterol), triglyceride and Apolipoprotein B (free floating fats in the blood) levels, and to increase high-density lipoprotein cholesterol (HDL or “good” cholesterol) in adult patients with high cholesterol or an abnormal concentration of lipids in the blood. Fenofibrates work primarily to lower triglycerides and increase HDL cholesterol, which makes the drug an attractive alternative for those patients whose LDL cholesterol is well controlled. ANTARA is approved and marketed in 43 mg and 130 mg doses. ANTARA received FDA approval in November 2004.

On August 18, 2006, we acquired rights to ANTARA in the Unites States from Reliant Pharmaceuticals Inc. for $78 million plus an approximately $4.3 million payment for ANTARA inventory, exclusive of estimated transaction costs. In accordance with our acquisition of ANTARA, we were assigned rights to and assumed obligations under an exclusive license to the rights to ANTARA from Ethypharm S.A. In order to maintain the exclusivity of our rights, we must achieve minimum annual sales in the United States until February 2012 or pay amounts to Ethypharm to compensate for any shortfall. During the term of the agreement with Ethypharm, we are obligated to pay a royalty on sales of ANTARA in the U.S., including a royalty on other fenofibrate monotherapy products in formulation and dosage forms that may be substantially similar or identical to ANTARA developed by us. In addition, during the third quarter of 2006, a sales-based milestone was met which will result in the Company paying $400,000 to Ethypharm in the fourth quarter. This milestone payment was recorded as a liability in purchase accounting. The license term expires in February 2020 and, absent notice of termination by either party, automatically renews for additional two year periods. Under the terms of the agreement, at our option, Ethypharm is obligated to either manufacture and deliver to us finished fenofibrate product or deliver bulk product to us for encapsulation and packaging. Ethypharm also has a right of first refusal on any divestiture of the ANTARA rights by Oscient. Additional Oscient obligations under the Ethypharm agreement include using commercially reasonable efforts to maintain a sales force of at least 150 representatives through February 2008 and funding a portion of the active pharmaceutical ingredient safety stock that Ethypharm is required to maintain.

Pursuant to the terms of our acquisition of ANTARA from Reliant, we also acquired the NDA and the IND covering the ANTARA products in the United States, clinical data, inventory, the ANTARA^® trademark in the United States and certain related contracts and licenses covering intellectual property rights related to the ANTARA products. We also assumed certain of Reliant’s liabilities related to the ANTARA products.

We are not required to pay Reliant a royalty on the sale of the ANTARA products; however, we are required to pay a low single digit royalty to Reliant for a specified time period on net sales of any line extensions and improvements to the ANTARA products which we develop, which include all products containing fenofibrate as its active pharmaceutical ingredient. We also agreed that we would not, at any time prior to August 2016, develop or sell any product in the United States that is a combination of fenofibrate and an Omega-3 compound without the prior written consent of Reliant.

ANTARA capsules are protected by patents relating to formulations containing fenofibrate and methods of preparing the same that expire in August 2007 and August 2020. In addition, Ethypharm has filed additional patent applications which relate to the formulation and we were assigned a patent application which was filed by Reliant relating to methods of treatment. If issued, we believe these patents may provide ANTARA additional patent protection.

Co-Promotion of TESTIM

On April 11, 2005, we entered into a co-promotion agreement with Auxilium Pharmaceuticals, Inc. under which we and Auxilium co-promoted in the United States Auxilium’s product, TESTIM gel, a topical 1% testosterone gel indicated for the treatment of male hypogonadism. On August 31, 2006, we mutually agreed with Auxilium to terminate this co-promotion arrangement and agreed with Auxillium to

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share profits from primary care sales, as provided for under the Co-Promotion Agreement, through August 31, 2006. As part of the termination of the Co-Promotion agreement, we received $1,800,000 from Auxilium as additional compensation for commercialization efforts by its sales force through August 31, 2006. which has been recognized as revenue in the quarter ended September 30, 2006.

Research and Development Programs

FACTIVE

As a condition to the approval to sell FACTIVE tablets, the FDA has required, as a post-marketing study commitment, that we conduct a prospective, randomized study comparing FACTIVE tablets (5,000 patients) to an active comparator (2,500 patients) in patients with acute bacterial exacerbations of chronic bronchitis and community-acquired pneumonia of mild to moderate severity. This study includes patients of different ethnicities to gain safety information in populations not substantially represented in the existing clinical trial program. Patient enrollment for this Phase IV trial, with approval from the FDA, commenced patient enrollment during the fall of 2004 and is scheduled to be completed within three to four years from commencement of the trial. Although we cannot predict with certainty the costs necessary to complete this study, we currently estimate it will cost between $3-4 million of additional spending to complete the study.

Additionally, in April of 2005, we completed a Phase III trial examining the potential use of FACTIVE tablets for the five-day treatment of mild to moderate community-acquired pneumonia. Based on the results of this study, in November 2005 we submitted a supplemental New Drug Application to the FDA for approval to promote the five-day treatment of FACTIVE tablets for this indication. On September 21, 2006, we received an approvable letter from the FDA for the sNDA seeking approval for the five-day treatment of CAP with FACTIVE tablets. According to the terms of letter, we were required to provide clarification and additional interpretation regarding certain data included in the application to assist the FDA in its evaluation. We recently delivered this additional information to the FDA and are awaiting a reply from the FDA regarding the completeness of the response. Receipt of the approvable letter from the FDA does not assure approval of the sNDA.

Ramoplanin

We are developing a novel, late-stage investigational antibiotic candidate, Ramoplanin, under investigation for the treatment of Clostridium difficile-associated disease, or CDAD. In October 2001, we in-licensed Ramoplanin from Vicuron Pharmaceuticals Inc. (Vicuron), now a wholly-owned subsidiary of Pfizer Inc., and on February 3, 2006, acquired worldwide rights from Vicuron, assuming full rights to the manufacturing, development and commercialization of Ramoplanin.

We agreed with the FDA to a Special Protocol Assessment (SPA) regarding the specific components of a Phase III program that, if completed successfully, would support regulatory approval for the indication. During the second quarter of 2006, we initiated production of clinical trial materials and began site identification and site qualification activities for the Phase III program. With the agreement to acquire ANTARA and heightened interest in new alternatives for treating Clostridium-difficile associated disease, we have been exploring partnering and other strategic opportunities for Ramoplanin, in part to reduce the financial impact of the Phase III program. Although we are in a position to begin the Phase III program, we have decided not to commence significant investment in this program while these partnering discussions are underway.

Critical Accounting Policies & Estimates

We have identified the policies below as critical to our business operations and the understanding of our results of operations. The impact and any associated risks related to these policies on our business operations is discussed throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations where such policies affect our reported and expected financial results. For a detailed discussion on the application of these and other accounting policies, see Note 2 in the Notes to the Consolidated Financial Statements of this Quarterly Report on Form 10-Q. Our preparation of this Report requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities at the date of our consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Our critical accounting policies include the following:

(a) Revenue Recognition

Our principal source of revenue is the sale of FACTIVE tablets and ANTARA capsules. In the second quarter of 2005, we began recognizing co-promotion revenue in connection with our co-promotion agreement with Auxilium Pharmaceuticals, Inc. (Auxilium), which terminated on August 31, 2006. Other historical sources of revenue include biopharmaceutical alliances and royalties from the divested genomic services business. In future periods, we expect our revenues derived from biopharmaceutical alliances will continue to decrease, however product revenues will continue to increase based on anticipated increased volume of prescriptions of FACTIVE tablets and ANTARA capsules.

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Although ANTARA revenue results are anticipated to be steady through our fiscal year, we expect demand for FACTIVE to be highest from November to March as the incidence of respiratory tract infections, including CAP and AECB, tends to increase during the winter months. In addition, fluctuations in the severity of the annual respiratory tract infection season may cause our product sales to vary from year to year. Due to these seasonal fluctuations in demand, our results in any particular quarter may not be indicative of the results for any other quarter or for the entire year.

Product Sales

We follow the provisions of Staff Accounting Bulletin No. 104, “Revenue Recognition (a replacement of SAB 101)” (SAB 104) and recognize revenue from product sales upon delivery of product to wholesalers, when persuasive evidence of an arrangement exists, the fee is fixed or determinable, title to product and associated risk of loss has passed to the wholesaler and collectability of the related receivable is reasonably assured. All revenues from product sales are recorded net of applicable allowances for sales returns, rebates, special promotional programs, and discounts. For arrangements where the risk of loss has not passed to wholesalers or pharmacies, we defer the recognition of revenue by recording deferred revenue until such time that risk of loss has passed. Also, the cost of FACTIVE and ANTARA associated with amounts recorded as deferred revenue is recorded in inventory until such time as risk of loss has passed.

Co-Promotion Revenue

Amounts earned under our co-promotion agreement with Auxilium from the sale of TESTIM gel, a product developed by Auxilium, are classified as co-promotion revenue in our consolidated statements of operations. Auxilium is obligated to pay us a co-promotion fee based on a specified percentage of the gross profit from TESTIM sales attributable to primary care physicians in the U.S. that exceeds a specified cumulative sales threshold, determined on an annual basis. The specific percentage is based upon TESTIM sales levels attributable to primary care physicians and the marketing expenses incurred by us in connection with the promotion of TESTIM under the co-promotion agreement. Such co-promotion revenue is earned when TESTIM units are dispensed through patient prescriptions. The arrangement contains a clause that provides Auxilium the ability to recover revenue if specified cumulative sales thresholds are not met. There is no cost of goods sold associated with co-promotion revenue, and the selling and marketing expenses incurred with respect to the co-promotion arrangement are classified as selling and marketing expenses in our consolidated statements of operations. On August 31, 2006, we mutually agreed with Auxilium to conclude this co-promotion arrangement and agreed with Auxilium to share profits from primary care sales, as provided for under the Co-Promotion Agreement, through August 31, 2006. As part of the termination of the Co-Promotion agreement, we received $1,800,000 from Auxilium as additional compensation for commercialization efforts by our sales force through August 31, 2006, which has been recognized as revenue in the quarter ended September 30, 2006.

Biopharmaceutical/Other Revenue

Prior to our merger with GeneSoft Pharmaceuticals, Inc. in 2004, we pursued biopharmaceutical revenues through alliance partnerships with pharmaceutical companies and through government grants. Biopharmaceutical revenues have consisted of government research grants and license fees, contract research, and milestone payments from alliances with pharmaceutical companies. Genomics services revenues have consisted of government sequencing grants, fees and royalties received from custom gene sequencing, and analysis services. We have now shifted our focus to the development and commercialization of pharmaceutical products. The declining revenues and associated expenses for the genomics services business have been classified as discontinued operations in the consolidated financial statements.

Other revenues consist of sublicensing revenues related to FACTIVE. We recognize revenue in accordance with SAB No. 104 and Emerging Issues Task Force Issue No. (EITF) 00-21, “Revenue Arrangements with Multiple Deliverables” (EITF No. 00-21). In accordance with EITF No. 00-21, the up-front license payment related to the Pfizer Mexico license agreement will be recognized as revenue over the term of the Company’s continuing obligations, which is eighteen months. In addition, on August 1, 2006, we announced that we received notice from Pfizer Mexico that FACTIVE was approved by the Ministry of Health in Mexico to be marketed as FACTIVE-5 for the treatment of community-acquired pneumonia, acute bacterial exacerbations of chronic bronchitis and acute bacterial sinusitis which generated a milestone payment recognized as revenue during the three and nine months ended September 30, 2006.

(b) Sales Rebates, Discounts and Incentives

Our FACTIVE and ANTARA product sales are made to pharmaceutical wholesalers for further distribution through pharmacies to the ultimate consumers of the product. When we deliver our product, we reduce the amount of gross revenue

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recognized from such product sales based primarily on estimates of four categories of discounts and allowances that suggest that all or part of the revenue should not be recognized at the time of the delivery—product returns, cash discounts, rebates, and special promotional programs.

Product Returns

Factors that are considered in our estimate of future FACTIVE and ANTARA product returns include an analysis of the amount of product in the wholesaler and pharmacy channel, review of consumer consumption data as reported by external information management companies, return rates for similar competitive antibiotic products that have a similar shelf life and are sold in the same distribution channel, the remaining time to expiration of our product, and our forecast of future sales of our product. Consistent with industry practice, we offer contractual return rights that allow our customers to return product within six months prior to and six months subsequent to the expiration date of our product. FACTIVE tablets and ANTARA capsules each have a 36-month expiration period from the date of manufacturing. At September 30, 2006 and December 31, 2005, our product return reserve was approximately $573,000 and $720,000, respectively. This reserve is evaluated on a quarterly basis, assessing each of the factors described above, and adjusted accordingly. Based on the factors noted above, we believe our estimate of product returns is reasonable, and changes, if any, from this estimate would not have a material impact to our financial statements.

Cash Discounts

Our standard invoice includes a contractual cash 2% discount, net 30 days terms. Based on historical experience, we estimate that most of our customers deduct a 2% discount from their balance. The cash discount reserve is presented as an allowance against trade receivables in the consolidated balance sheet. As of September 30, 2006 and December 31, 2005, the balance for cash discounts reserve was approximately $111,000 and $50,000, respectively.

Rebates

The liability for managed care rebates is calculated based on historical and current rebate redemption and utilization rates contractually submitted by each state. As of September 30, 2006 and December 31, 2005 the balance of the accrual for managed care and Medicaid rebates for ANTARA and FACTIVE was approximately $975,000 and $381,000, respectively. Considering the estimates made by us, as well as estimates prepared by third party utilization reports that are necessary in evaluating the required liability balance, we believe our estimates are reasonable. As of September 30, 2006, the significant change to our estimates in the periods presented is primarily attributable to the acquisition of the ANTARA product line.

Special Promotional Programs:

We have from time to time, offered certain promotional incentives to our customers for both FACTIVE and ANTARA and may continue this practice in the future. Such programs include: sample cards to end consumers, certain product rebates to pharmacy customers, and other sales stocking allowances. Examples of programs utilized to date follow:

Sample Card Program for FACTIVE

During the second quarter of 2006, we initiated two sample card programs whereby we offered an incentive to patients in the form of a free full-course sample card for FACTIVE. We have accounted for these programs in accordance with EITF No. 01-09, “Accounting for Consideration Given by a Vendor to a Customer” (EITF No. 01-09). For the first sample card program, we were able to develop a reasonable and reliable estimate of the amount of expected reimbursement claims based on actual claims submitted by and processed by a third party claims processing organization. For the second sample card program, the estimate of expected reimbursement claims was based on the historical actual reimbursement claims for the similar completed programs that we conducted in the first and second quarters of 2006. The first program expired on June 15, 2006 and the second program expired on September 30, 2006. The balance of the liability as of September 30, 2006 for these sample card programs was approximately $256,000.

Voucher Rebate Program for FACTIVE

During the second and third quarters of 2006, we initiated three voucher rebate programs whereby we offered mail-in rebates to retail consumers. We have accounted for these programs in accordance with EITF No. 01-09. The liabilities we recorded for these voucher rebate programs were estimated based upon the historical rebate redemption rates for the similar completed programs that commenced in the first quarter of 2005, fourth quarter of 2005, and first quarter of 2006. The first program expired on June 30, 2006, the second program expired on August 31, 2006, and the third program expired on September 30, 2006. As of September 30, 2006 and December 31, 2005, the balance of the liabilities for these voucher programs totaled approximately $262,000 and $105,000, respectively.

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Voucher Rebate Program for ANTARA

During the third quarter of 2006, we initiated a voucher rebate program whereby we offered a point-of-sale rebate to retail consumers. We have accounted for this program in accordance with EITF No. 01-09. The liabilities we recorded for this voucher rebate program were estimated based upon the historical rebate redemption rates for the similar completed programs by other pharmaceutical companies. This program expires on December 31, 2006. As of September 30, 2006, the balance of the liabilities for this voucher program totaled approximately $339,000.

Clinical Trial Expense Accrual

Our clinical development trials related to FACTIVE are primarily performed by outside parties. At the end of each accounting period, we estimate both the total cost and time period of the trials and the percent completed as of that accounting date. We also adjust these estimates when final invoices are received. For the nine months ended September 30, 2006 and the year ended December 31, 2005, the Company adjusted its accrual for clinical trial expenditures to reflect its most current estimate of liabilities outstanding to third parties. However, the possibility exists that the timing or cost of the clinical trials might be longer or shorter and cost more or less than estimated and that the associated financial adjustments would be reflected in future periods.

Inventories

Inventories are stated at the lower of cost or market with cost determined under the average cost method. Products are removed from inventory and recognized as cost of goods sold on an average cost basis. For FACTIVE, inventories consist of raw material in powder form and work-in-process of approximately $5,444,000 and $9,770,000, and FACTIVE finished tablets of approximately $3,786,000 and $4,417,000, as of September 30, 2006 and December 31, 2005, respectively. For ANTARA, inventories consist of raw material and work-in-process of approximately $3,018,000 and $0, and ANTARA finished capsules of approximately $2,653,000 and $0, as of September 30, 2006 and December 31, 2005, respectively.

On a quarterly basis, we analyze our inventory levels, and write down inventory and marketing samples that have become obsolete, have a cost basis in excess of its expected net realizable value or are in excess of forecast requirements to cost of product revenues and marketing expense, respectively. Expired inventory is disposed of and the related costs are written off. At September 30, 2006 and December 31, 2005, there was approximately $1,142,000 and $2,072,000, in FACTIVE sample product to be used for FACTIVE marketing programs and approximately $498,000 and $0, respectively, in ANTARA samples product to be used for ANTARA marketing programs. These are classified as an other current asset in the consolidated balance sheet.

Long-Lived Assets

We follow the provisions of SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (SFAS No. 144). Under SFAS 144, long-lived assets and identifiable intangible assets with finite lives are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If indicators of impairment exist, recoverability of assets to be held and used is assessed by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. Recoverability measurement and estimating the undiscounted cash flows are each done at the lowest possible level for which there are identifiable assets. If the aggregate undiscounted cash flows are less than the carrying value of the asset, then the resulting impairment charge to be recorded is calculated based on the amount by which the carrying amount of the asset exceeds its fair value. Any write-downs are recorded as permanent reductions in the carrying amount of the asset.

We also follow the provisions of SFAS No. 142, “Goodwill and Other Intangible Assets,” (SFAS No. 142). Under SFAS 142, goodwill and purchased intangible assets with indefinite lives are not amortized but are reviewed periodically for impairment. We perform an annual evaluation of goodwill at the end of each fiscal year to test for impairment or more frequently if events or circumstances indicate that goodwill may be impaired. Because we have a single operating segment, which is our sole reporting unit, we perform this test by comparing the fair value of the entity with our book value, including goodwill. If the fair value exceeds the book value, goodwill is not impaired. If the book value exceeds the fair value, then we would calculate the potential impairment loss by comparing the implied fair value of goodwill with the book value. If the implied fair value of goodwill is less than the book value, then an impairment charge would be recorded.

As of September 30, 2006, we do not believe that any of our long-lived assets, goodwill, and other intangible assets are impaired.

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Stock-Based Compensation

Effective January 1, 2006, we adopted SFAS No. 123(R), “Share-Based Payment” (SFAS No. 123R) using the modified prospective transition method. SFAS No. 123R requires all share-based payments, including grants of stock options, to be recognized in the income statement as an operating expense, based on their fair values. Under the modified prospective transition method, compensation cost recognized during the nine months ended September 30, 2006 includes (1) compensation cost for all share-based payments granted prior to, but not vested as of December 31, 2005, based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123, “Accounting for Stock-Based Compensation” and (2) compensation cost for all share-based payments granted subsequent to December 31, 2005, based on the grant date fair value estimated in accordance with the provisions of SFAS No. 123R. Such amounts have been reduced by our estimate of forfeitures on all unvested awards. Stock-based compensation expense primarily relates to stock options, restricted stock, and stock issued under our employee stock purchase plan. Prior to the adoption of SFAS No. 123R, we accounted for our employee share-based arrangements under APB No. 25. Under the modified prospective adoption method, the results for prior periods are not restated.

Stock Plans

We grant stock to key employees and consultants under our 1991, 1993, 1995 and 1997 Stock Option Plans, as well as the 2001 Incentive Plan. The Stock Option and Compensation Committee of the Board of Directors determines the purchase price and vesting schedule applicable to each option grant. As of September 30, 2006, there are no shares reserved for future grants under the 1991, 1993, 1995 and 1997 Plans. The 2001 Incentive Plan provides for the grant of non-qualified stock options, incentive stock options, restricted stock, stock appreciation rights, unrestricted stock, deferred stock, and cash performance awards. Generally, options granted to employees vest based on service conditions over a two to four year time period and options granted to non-employees vest based on service conditions over a one to three year time period, all of which have graded vesting. In addition, the requisite service period is generally equal to the vesting term. All options granted to both employees and non-employees have a contractual term of ten years from date of grant and generally, the exercise price of the stock options equals the fair market value of our common stock. Our 2001 Incentive Plan also provides for awards of nontransferable shares of restricted common stock which are subject to forfeiture. All shares of restricted stock are time vested which is generally over two years. Generally, the fair value of each restricted stock grant is equal to the market price of our stock at the date of grant. Certain option and restricted stock awards provide for accelerated vesting if there is a change in control.

Employee Stock Purchase Plan

We also have an Employee Stock Purchase Plan (ESPP) under which eligible employees may contribute up to 15% of their earnings toward the semi-annual purchase of our common stock. The employees’ purchase price is 85% of the fair market value of the common stock at the time of grant of option or the time at which the option is deemed exercised, whichever is less. The most recently completed offering period began January 1, 2006 and ended on June 30, 2006; therefore, January 1, 2006 is considered the grant date for the purposes of recognizing the stock-based compensation expense for this offering period. We project the estimated contributions at the beginning of the period and uses the Black-Scholes-Merton option-pricing model in order to determine the estimated fair value of the stock to be issued. At the end of the offering period, we adjust the estimated contributions to actual. Under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (APB 25), we were not required to recognize stock-based compensation expense for the cost of stock options or shares issued under our ESPP because the ESPP was determined to be noncompensatory. Upon adoption of SFAS 123R, we began recording stock-based compensation expense related to the ESPP.

The fair value of each stock option award is estimated on the grant date using the Black-Scholes-Merton option-pricing model based on the assumptions of volatility, risk-free interest rates, expected life of the option, and dividends (if any). The expected life of the stock options granted was estimated based on the historical exercise patterns over the option lives while considering employee exercise strategy and cancellation behavior. The expected volatility is determined exclusively on historical volatility data of our common stock beginning with our merger with Genesoft in February 2004 through the month of grant. Our expected volatility for the nine month period ended September 30, 2006 was between 52.14% and 61.62%. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant commensurate with the expected term assumption. Our risk-free interest rate for the nine month period ended September 30, 2006 was between 4.35% and 5.07%. Our expected life using this method for the nine month period ended September 30, 2006 was 5.00 to 6.25 years. We have not paid and do not expect to pay any dividends and, as a result, our dividend yield is assumed to be 0%.

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The adoption of SFAS No. 123R increased our three and nine months ended September 30, 2006 operating loss, net loss, and cash flows from operating activities by $1,020,000 and $3,063,000, respectively, and basic and diluted net loss per share by $0.01 and $0.03, respectively. The compensation expense under SFAS No. 123R is recorded in cost of product sales, research and development expense, selling and marketing expense, and general and administrative expense based on the specific allocation of employees receiving the equity awards. Additionally, we eliminated the January 1, 2006 deferred compensation balance against additional paid-in capital upon adoption of SFAS No. 123R.

Our policy is to recognize compensation cost for awards for only service conditions and graded vesting using the straight-line method. The amount of stock-based compensation recognized during a period is based on the value of the portion of the awards that are ultimately expected to vest. 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. The term “forfeitures” is distinct from “cancellations” or “expirations” and represents only the unvested portion of the surrendered option. We have applied an annual forfeiture rate of 23.24% to all unvested options as of September 30, 2006. This analysis will be re-evaluated quarterly and the forfeiture rate will be adjusted as necessary. Ultimately, the actual expense recognized over the vesting period will only be for those shares that vest.

As of September 30, 2006, we estimate there was approximately $6,230,000 of total unrecognized compensation costs related to unvested share based awards. These cost are expected to be recognized over a weighted average remaining requisite service period of 1.7 years. We expect approximately 2,812,000 in unvested options to vest at some point in the future. The value of options expected to vest is calculated by applying an estimated forfeiture rate to the unvested options.

Results of Operations

Three Month Periods Ended September 30, 2006 and September 30, 2005

Revenues

Total revenues increased 108% to approximately $12,362,000 for the three month period ended September 30, 2006 from approximately $5,941,000 for the three month period ended September 30, 2005.

Product sales increased 74% to $8,308,000 for the three month period ended September 30, 2006 from $4,778,000 for the three month period ended September 30, 2005. This increase was primarily related to the acquisition of ANTARA® 130 mg (fenofibrate) capsules which resulted in approximately $4,256,000 in product sales.

Co-promotion revenue increased 199% to $3,474,000 for the three month period ended September 30, 2006 from $1,161,000 for the three month period ended September 30, 2005 primarily due to a $1,800,000 payment from Auxilium Pharmaceuticals in August 2006 in connection with the termination of the co-promotion arrangement.

Biopharmaceutical/Other revenues increased to $580,000 for the three month period ended September 30, 2006 from $2,000 for the three month period ended September 30, 2005 primarily due to an up-front license payment related to Pfizer Mexico which is recognized over the term of our obligation under the agreement which is 18 months, a milestone payment related to the approval to distribute and sell FACTIVE tablets in Mexico and the achievement of a milestone by the genomics business we sold to Agencourt Bioscience in 2004. We expect our revenues related to both the biopharmaceutical alliances and genomics services to be minimal in the future.

Costs and Expenses

Total costs and expenses increased 21% to approximately $32,448,000 for the three month period ended September 30, 2006 from approximately $26,816,000 for the three month ended September 30, 2005.

Cost of product sales increased by 226% to approximately $6,573,000 for the three month period ended September 30, 2006 from $2,018,000 for the three month period ended September 30, 2005. The gross margin on product sales was approximately 21% and 58% for the three month periods ended September 30, 2006 and 2005. The decrease in margin during the three month period ended September 30, 2006 is due to higher volume of FACTIVE tablets shipped to Pfizer Mexico, which resulted in lower FACTIVE margins, increased royalty rates to LG related to FACTIVE, increased costs associated with the costs of product sold related to the write up of ANTARA inventory in purchase accounting of approximately $357,000, an increase in the FACTIVE rebates redeemed and $579,000 recorded as a provision of obsolete inventory recorded in the three month period ended September 30, 2006. In addition, included in the cost of product sales is approximately $1,191,000 of amortization of intangible assets associated with FACTIVE for the three month periods ended September 30, 2006 and 2005 and approximately $526,000 and $0, respectively, of amortization of intangible assets associated with ANTARA for the three month periods ended September 30, 2006 and 2005. The gross margin excluding amortization of intangible assets was approximately 42% and 83% for the three month periods ended September 30, 2006 and 2005.

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Research and development expenses include internal research and development expenses as well as clinical development costs and expenses. Research and development expenses primarily consist of salaries and related expenses for personnel. Other research and development expenses include fees paid to consultants and outside service providers, information technology costs and facilities costs. Research and development expenses increased 52% to approximately $4,281,000 for the three month period ended September 30, 2006 from approximately $2,814,000 for the three month period ended September 30, 2005. The increase in research and development expenses is due to an increase of approximately $1,444,000 related to the FACTIVE ABS sNDA and the FDA Advisory Committee meeting in the current quarter and an increase of approximately $23,000 in stock based compensation expense.

Selling and marketing expenses decreased 12% to approximately $17,215,000 for the three month period ended September 30, 2006 from $19,460,000 for the three month period ended September 30, 2005. The decrease in selling and marketing expenses is due to a decrease of approximately $2,012,000 in sales and marketing personnel and related costs, decreased sample expenses of approximately $1,232,000, offset by an increase in other selling and marketing costs of approximately $651,000 relating to the promotion of FACTIVE, TESTIM and ANTARA and an increase in stock-based compensation expense of approximately $348,000.

General and administrative expenses increased 73% to $4,379,000 for the three months period ended September 30, 2006 from $2,524,000 for the three month period ended September 30, 2005. The increase is due to the recognition of approximately $614,000 in additional stock based compensation expense related to the adoption of FAS 123R, increased license fees of approximately $542,000 primarily attributable to our agreement granting Abbott Laboratories the rights to sell FACTIVE tablets in Canada and approval to distribute FACTIVE tablets in Mexico by Pfizer, increased allowance for a receivable of approximately $172,000 related to a government overhead audit in connection with Genesoft , increase in general and administrative personnel and related costs of approximately $441,000, and an increase in other general and administrative expenses of approximately $86,000.

Other Income and Expense

Interest income decreased 4% to approximately $842,000 for the three month period ended September 30, 2006 from approximately $877,000 for the three month period ended September 30, 2005 reflecting lower overall cash balances offset by higher interest rate yields on investments.

Interest expense increased 37% to approximately $2,807,000 for the three month period ended September 30, 2006 from approximately $2,055,000 for the three month period ended September 30, 2005. For the period ended September 30, 2006, interest expense primarily consisted of approximately $1,366,000 related to the $153 million of senior convertible notes issued in the second quarter of 2004, $313,000 related to the issuance of $22 million of convertible notes issued in connection with the Genesoft merger, $207,000 related to amortization of deferred financing costs, $82,000 of non-cash interest expense related to the facility lease liability, along with $293,000 of interest expense on the note payable to Paul Capital Partners (PRF)and $546,000 of revenue interest to PRF.

Nine Month Periods Ended September 30, 2006 and September 30, 2005

Revenues

Total revenues increased significantly to approximately $27,888,000 for the nine month period ended September 30, 2006 from approximately $14,123,000 for the nine month period ended September 30, 2005.

Product sales increased 61% to approximately $20,176,000 for the nine month period ended September 30, 2006 from $12,495,000 for the nine month period ended September 30, 2005. The increase was primarily related to the acquisition of ANTARA 130 mg (fenofibrate) capsules which resulted in approximately $4,256,000 in product sales and increased shipment of FACTIVE tablets of approximately $3,425,000.

Co-promotion revenues increased significantly to approximately $6,890,000 for the nine month period ended September 30, 2006 from $1,531,000 for the nine month period ended September 30, 2005 primarily due to the fact that we initiated our co-promotion of TESTIM in May 2005, higher gross profits related to increased TESTIM scripts and also due to a $1,800,000 payment from Auxilium Pharmaceuticals in August 2006 in connection with the termination of the co-promotion arrangement.

Biopharmaceutical/Other revenues increased significantly to $822,000 for the nine month period ended September 30, 2006 from $96,000 for the nine month period ended September 30, 2005 primarily due to the achievement of a milestone by the genomics business we sold to Agencourt Bioscience in 2004 and the recognition of revenues in connection with various milestone achievements related to Pfizer Mexico upon the regulatory approval to distribute and sell FACTIVE tablets in Mexico and an up-front payment from Pfizer Mexico which is recognized over the term of our obligation under the agreement. We expect our revenues related to both the biopharmaceutical alliances and genomics services to be minimal in the future.

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Costs and Expenses

Total costs and expenses increased 2% to approximately $88,901,000 for the nine month period ended September 30, 2006 from approximately $86,828,000 for the nine month period ended September 30, 2005.

Cost of product sales increased 85% to approximately $11,808,000 for the nine month period ended September 30, 2006 from $6,391,000 for the nine month period ended September 30, 2005. The gross margin on product sales was approximately 41% and 49% for the nine months ended September 30, 2006 and 2005, respectively. The decrease in margin during the nine months ended September 30, 2006 is due to a slightly lower volume of FACTIVE tablets shipped to wholesalers, a provision of obsolete inventory of $986,000 and increased costs associated with the costs of product sold related to the write up of ANTARA inventory in purchase accounting of approximately $357,000. In addition, included in the cost of product sales is approximately $3,573,000 of amortization of intangible assets associated with FACTIVE for each of the nine month periods ended September 30, 2006 and 2005 and approximately $526,000 and $0, respectively, of amortization of intangible assets associated with ANTARA for the nine month periods ended September 30, 2006 and 2005. The gross margin excluding amortization of intangible assets was approximately 62% and 77% for the nine month periods ended September 30, 2006 and 2005.

Research and development expenses decreased 20% to approximately $10,415,000 for the nine month period ended September 30, 2006 from approximately $13,009,000 for the nine month period ended September 30, 2005. The decrease in research and development expenses is due to a reduction of approximately $3,028,000 related to the completion of the FACTIVE 5-day clinical study in 2005, a decrease of approximately $721,000 in stock based compensation expense, a decrease of approximately $639,000 in research and development personnel and related costs, offset by increases of approximately $1,444,000 in research and development expenses related to additional costs associated with the FACTIVE ABS sNDA and the FDA Advisory Committee meeting and an increase of approximately $350,000 in technology license fee.

Selling and marketing expenses decreased 4% to approximately $54,897,000 for the nine month period ended September 30, 2006 from approximately $57,278,000 for the nine month period ended September 30, 2005. The decrease in selling and marketing expenses is due to a decrease of approximately $2,131,000 in sales and marketing personnel and related costs, decreases of approximately $1,373,000 in sample expenses, offset by an increase of approximately $71,000 in other selling and marketing costs relating to the promotion of FACTIVE, TESTIM and ANTARA and an increase of approximately $1,052,000 in stock-based compensation expense.

General and administrative expenses increased 16% to approximately $11,781,000 for the nine month period ended September 30, 2006 from approximately $10,150,000 for the nine month period ended September 30, 2005. The increase is due to the recognition of approximately $1,718,000 in additional stock based compensation expense related to the adoption of FAS 123R, increased license fees of approximately $611,000 primarily attributable to our agreement granting Abbott Laboratories the rights to sell FACTIVE tablets in Canada and approval to distribute FACTIVE tablets in Mexico by Pfizer, increased allowance for a receivable of approximately $172,000 related to a government overhead audit in connection with Genesoft, an increase of approximately $783,000 in general and administrative personnel and related costs, and increased legal costs of approximately $347,000 related to business development expenses. These increases were offset by a $2,000,000 milestone payment made to LG in 2005, with no comparable expense in 2006.

Other Income and Expense

Interest income decreased 7% to approximately $2,439,000 for the nine month period ended September 30, 2006 from approximately $2,628,000 for the nine month period ended September 30, 2005 reflecting lower overall cash balances offset by higher interest rate yields on investments.

Interest expense increased 11% to approximately $6,889,000 for the nine month period ended September 30, 2006 from $6,196,000 for the nine month period ended September 30, 2005. For the period ended September 30, 2006, interest expense primarily consisted of approximately $4,025,000 related to the $153 million of senior convertible notes issued in the second quarter of 2004, $925,000 related to the issuance of $22 million of convertible notes issued in connection with the Genesoft merger, $615,000 related to amortization of deferred financing costs, $480,000 of non-cash interest expense related to the facility lease liability, along with $293,000 of interest expense on the note payable to PRF and $546,000 of revenue interest to PRF.

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For the nine month period ended September 30, 2006, we recorded a gain of approximately $1,617,000 related to a milestone achievement pertaining to the sale of our investment in Agencourt Bioscience. For the nine month period ended September 30, 2005, we recorded a gain on the disposition of marketable securities of approximately $2,162,000 in exchange for our ownership of common stock of Agencourt Bioscience Corporation, which was recently acquired by Beckman Coulter in a cash transaction.

Liquidity and Capital Resources

Our primary sources of cash have been from the sale of debt and equity securities, product discovery alliances, the sale of FACTIVE tablets and ANTARA capsules and co-promotion revenues based on the sale of TESTIM. The co-promotion agreement was terminated on August 31, 2006.

As of September 30, 2006, we had total cash, cash equivalents, restricted cash and short-term marketable securities of approximately $52,035,000, which includes approximately $9,265,000 in restricted cash. We will need to raise additional capital in the future to fund our operations. In order to facilitate the raising of additional funds, we have filed a shelf-registration statement with the SEC that allows us to sell up to $100 million of common stock, warrants and/or debt securities. We believe that, under our current rate of investment in development and commercialization programs, our existing capital resources are adequate to support operations through the first half of 2007. There is no assurance, however, that changes in our plans or events affecting our operations will not result in accelerated or unexpected expenditures.

In recent years, we have experienced a significant increase in hiring costs in an effort to build an effective sales and marketing organization to commercialize FACTIVE tablets and co-promote TESTIM, expand the medical/development organization to support additional FACTIVE development and commercialization, support the development of Ramoplanin and to build the infrastructure necessary to support these expansions. We expect expenses in the sales and marketing areas to increase as we continue to commercialize FACTIVE, integrate the ANTARA product and seek to grow our sales.

Cash Flows

Our operating activities used cash of approximately $56,286,000 and $78,636,000 for the nine month periods ended September 30, 2006 and 2005, respectively. Cash used in our operating activities for nine month period ended September 30, 2006 was primarily a result of our net loss of approximately $63,786,000, increases in accounts receivable of approximately $3,356,000 primarily resulting from acquisition of ANTARA trade receivables, increases in inventory of approximately $1,700,000, decreases in clinical trial expense accrual of approximately $435,000 related to the FACTIVE post marketing studies, gain on disposition of investment of approximately $1,617,000, accrued facilities impairment charge of approximately $2,167,000 related to our west coast facility, and accrued restructuring charge of approximately $904,000 related to our prior facility in Waltham, Massachusetts. These uses of cash were partially offset by increases in accounts payable of $1,288,000, accrued expenses and other current liabilities of approximately $3,120,000 related to higher accrued sales reserves and allowances related to a sample card promotional program and ANTARA rebate programs, higher deferred revenue of approximately $444,000, higher other long-term liabilities of approximately $1,071,000, decreases in interest receivable of approximately $236,000 due to lower overall cash balances and lower prepaid expenses and other current assets of approximately $1,321,000 related to decreased prepaid marketing costs for the nine month period ended September 30, 2006. Offsetting our operating uses of cash were non-cash depreciation and amortization expenses of approximately $4,664,000, stock-based compensation of $3,110,000, provision for excess and obsolete inventories of approximately $986, 000, and provision for bad debts of approximately $344,000, as well as non-cash interest expenses of approximately $1,095,000.

Cash used in our operating activities for nine month period ended September 30, 2005 was primarily a result of our net loss of approximately $71,517,000, increases in inventory of approximately $5,629,000 due to anticipated increased demand of FACTIVE tablets in the second half of the year, gain on sale of fixed assets of approximately $51,000, and gain on disposition of investment of approximately $2,163,000, as well as decreases in accounts payable of approximately $4,432,000, deferred revenues of approximately $1,302,000 related to our initial stocking incentive program, accrued facilities impairment charge of approximately $2,378,000 related to our west coast facility, and accrued restructuring charge of approximately $907,000 related to our prior facility in Waltham, Massachusetts and accrued expenses and other current liabilities of approximately $5,517,000. These uses of cash were partially offset by increases in clinical trial expense accrual of approximately $1,432,000 related to the clinical trial of FACTIVE for the 5-day treatment of CAP and post marketing studies, and other long-term liabilities of approximately $905,000 related to the accruing of interest for the $22 million convertible note. Offsetting the uses of cash were also decrease of prepaid expenses and other current assets of approximately $5,203,000, interest receivable of $982,000 and accounts receivable of $409,000 as well as non-cash depreciation and amortization expenses of approximately $4,035,000, stock-based compensation of $1,000,000 and non-cash interest of approximately $1,294,000.

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Our investing activities used cash of approximately $70,905,000 for the nine month period ended September 30, 2006 and provided cash of approximately $85,116,000 for the nine month period ended September 30, 2005, respectively. Cash used by our investing activities for the nine month period ended September 30, 2006 was primarily related to the acquisition of ANTARA of approximately $77,513,000, and increases in other assets of approximately $284,000. These uses of cash were partially offset by proceeds for maturities of marketable securities of approximately $2,696,000, decreases in restricted cash of approximately $2,465,000, proceeds for the disposition of investment of approximately $1,617,000, and proceeds from notes receivable of approximately $271,000. Cash provided by our investing activities for the nine month period ended September 30, 2005 was primarily related to proceeds from maturities of marketable securities of approximately $83,489,000, proceeds of approximately $2,388,000 related to the disposition of Agencourt stock upon its acquisition by Beckman Coulter as well as decreases in restricted cash of approximately $2,587,000 related to the payment of convertible note interest, proceeds from notes receivable of approximately $267,000, and proceeds from the sale of property and equipment of approximately $225,000. Cash provided by investing activities were partially offset by the issuance of notes receivable of approximately $2,740,000 related to a deposit required in order to lease vehicles for the sale representatives, net purchases of property and equipment of approximately $1,051,000, and increases in other assets of approximately $49,000.

Our financing activities provided cash of approximately $104,342,000 for the nine month period ended September 30, 2006, primarily due to the issuance of 18,035,216 shares of common stock in connection with the completion of a private placement which generated net proceeds of approximately $33,478,000, proceeds of $20,000,000 from the issuance of notes in connection with the financing of the ANTARA acquisition, proceeds of $40,000,000 from assignment of revenue interest, net proceeds of approximately $9,958,000 from the issuance of 11,111,111 shares of common stock in connection with financing the acquisition of ANTARA, exercise of 715,648 stock options of approximately $166,000 and proceeds of approximately $740,000 from the issuance of 631,896 shares of stock under the employee stock purchase plan.

Our financing activities provided cash of approximately $671,000 for the nine month period ended September 30, 2005, primarily due to proceeds from exercise of 1,004,068 stock options of approximately $546,000 and proceeds from the issuance of 160,800 shares of stock under the employee stock purchase plan of $417,000 offset by payments of current portion of long-term obligations of approximately $292,000.

At December 31, 2005, we had net operating loss carryforwards of approximately $319,000,000 and $165,311,000 available to reduce federal and state taxable income respectively, if any. In addition, we also had tax research credit carryforwards of approximately $9,636,000 to reduce federal and state income tax, if any. Net operating loss carryforwards are subject to review and possible adjustment by the Internal Revenue Service and may be limited in the event of certain cumulative changes in ownership interests of significant shareholders over a three-year period in excess of 50%. Additionally, certain of our losses have begun to expire due to time, not limitations.

Our Outstanding Debt Obligations

In the quarter ended June 26, 2004, we issued $152,750,000 in principal amount of our 3.5% senior convertible promissory notes due April 2011. These notes are convertible into shares of our common stock at the option of the holders at a conversion price of approximately $6.64 per share. We may not elect to redeem the notes before May 10, 2010. After this date, we can redeem all or a part of the notes for cash at a price equal to 100% of the principal amount of the notes to be redeemed plus accrued and unpaid interest. Upon the occurrence of a termination of trading of our common stock or a change of control transaction in which substantially all of our common stock is exchanged for consideration other than common stock that is listed on a U.S. national securities exchange or market (such as NASDAQ), holders of these notes have the right to require us to repurchase all or any portion of their notes at a price equal to 100% of the principal amount plus accrued and unpaid interest. In addition, in the case of a change of control transaction in which all of the consideration paid for our common stock consists of cash, we may have an obligation to pay an additional make-whole premium to the note holders based on a formula set forth in the indenture.

On February 6, 2004, in connection with our merger with Genesoft, we issued $22,309,647 in principal amount of our 5% convertible five year promissory notes which were recorded in investing activities as cash flows related to acquisition. These notes are convertible into our common stock at the option of the holders, at a conversion price of approximately $6.64 per share (subject to anti-dilution and other adjustments). In addition, we have the right to force conversion if the price of our common stock closes above 150% of the then effective conversion price for 15 consecutive trading days. At the closing of the merger, the holders of these notes also received an aggregate of 4,813,547 shares of our common stock representing the payment of accrued interest and related amounts on certain outstanding notes previously issued to such holder by Genesoft. On February 6, 2004, in conjunction with the merger with Genesoft, we sold 16.8 million shares of our common stock at $5.25 per share resulting in proceeds received of approximately $81.0 million, net of issuance costs.

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Other Financial Arrangements

To finance the acquisition of ANTARA in August 2006, we, together with our wholly-owned subsidiary Guardian II Acquisition Corporation “Guardian II” (the entity which holds all of the ANTARA assets), entered into several financing agreements with Paul Royalty Fund Holdings II, LP, an affiliate of Paul Capital Partners (“PRF”), including the Revenue Interests Assignment Agreement, the Note Purchase Agreement and the Common Stock and Warrant Purchase Agreement, in consideration for an aggregate amount of $70 million. We entered into the Revenue Interests Assignment Agreement (the “Revenue Agreement”), pursuant to which we sold to PRF the right to receive specified royalties on Guardian II’s and Oscient’s net sales in the United States (and the net sales of their respective affiliates and licensees) of the ANTARA products and FACTIVE tablets until December 31, 2016. The royalty payable to PRF on net sales of ANTARA and FACTIVE starts each fiscal year as a high single digit royalty rate and declines to a low single digit royalty rate based on achievement of annual specified sales thresholds in each fiscal year. Once the cumulative royalty payments to PRF exceed $100 million, the royalties become nominal.

In the event of (i) a change of control of Oscient or Guardian II, (ii) a bankruptcy of Oscient or Guardian II, (iii) a transfer by Oscient or any of its subsidiaries of substantially all of either ANTARA or FACTIVE, (iv) subject to a cure period, breach of certain material covenants and representations in the Revenue Agreement and (v) in the event the sale of ANTARA is suspended due to a court issued injunction or we elect to suspend sales of ANTARA, in each case as a result of a lawsuit by certain third parties (each a “Put Event”), PRF has the right to require us to repurchase from PRF its royalty interest at a price in cash which equals the greater of (a) a specified multiple of cumulative payments made by PRF under the Revenue Agreement less the cumulative royalties previously to PRF; or (b) the amount which will provide PRF, when taken together with the royalties previously paid, a specified rate of return (the “Put/Call Price”). Upon a bankruptcy event, we are automatically required to repurchase the PRF royalty interest at the Put/Call Price. In the event of a change of control of Oscient, we have the right to repurchase the PRF royalty interest for an amount equal to the Put/Call Price.

During the first two fiscal years immediately following the fiscal year in which combined annual net sales of ANTARA and FACTIVE are equal to or greater than $125 million, we have the right, but not the obligation, to reduce the royalty percentages due under the Revenue Agreement to PRF by 50% by paying PRF a price in cash which will provide PRF, when taken together with the royalties previously paid, a specified rate of return. During the first two fiscal years immediately following the fiscal year in which combined annual net sales of ANTARA and FACTIVE are equal to or greater than $250 million, we have the right, but not the obligation, to repurchase the PRF royalty interest at a price in cash which will provide PRF, when taken together with the royalties previously paid, a specified rate of return.

Guardian II entered into a Note Purchase Agreement (the “Note Purchase Agreement”) with PRF pursuant to which Guardian II issued and sold a $20,000,000 aggregate principal amount of 12% senior secured note (the “Note”), due on the fourth anniversary of the closing date, subject to Guardian II’s option to extend the maturity to the sixth anniversary of the closing date, provided (i) there are no defaults under the Note at the time, and (ii) we issue to PRF, at the time of the exercise of such option, a warrant for a number of shares of common stock equal to 10% of the principal balance plus accrued interest divided by $0.8680, with an exercise price of $.8680 per share. If we exercise such option, the number of shares subject to the warrant issuable to PRF would be between 2,304,147 shares and 2,940,230 shares, depending upon the amount, if any, of the interest payable on the Note we elect to have added to the principal of the Note rather than paid in cash as described below.

Interest is payable semi-annually in arrears on the last day of each of March and September. Guardian II has the option to pay interest in cash or to have 50% of the interest paid in cash and 50% of the interest added to principal. In the event of a change of control of Oscient or on or after the second anniversary of the closing, we may at our option prepay all or any part of the Note at a premium which declines over time. In the event of an event of default, with “event of default” defined as a continuing Put Event under the Revenue Agreement as described in more detail above, the outstanding principal and interest in the Note shall become immediately due and payable.

Subject to the Revenue Agreement and the Note Purchase Agreement, without the prior written consent of PRF, we have agreed not to (i) amend, waive any rights under, or terminate any material license agreements, including the agreements relating to the ANTARA products and FACTIVE, (ii) enter into any new agreement or amend or fail to exercise any of its material rights under existing agreements that would adversely affect PRF’s royalty interest, and (iii) sell any material assets related to ANTARA or FACTIVE.

Pursuant to the terms of the Revenue Agreement and the Note Purchase Agreement, Guardian II and PRF entered into a Security Agreement (the “Security Agreement”) under which Guardian II granted to PRF a security interest in and to substantially all assets owned by Guardian II (including rights to the ANTARA products) in order to secure its performance under each of the Revenue Agreement, the Note Purchase Agreement and the Note. To the extent the indebtedness under certain of our pre-existing debt obligations is refinanced or replaced and such replacement or refinancing indebtedness is secured, we have agreed to equally and ratably secure its obligations under the Revenue Agreement.

As part of the financing, we and PRF also entered into a Common Stock and Warrant Purchase Agreement (the “Stock and Warrant Purchase Agreement”), pursuant to which, in exchange for $10 million, Oscient sold to PRF 11,111,111 shares (the “Shares”) of the Common Stock, at a price of $0.90 per share (the “Private Placement”) and issued PRF a warrant (the

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“Warrant”) to purchase 2,304,147 shares of Common Stock (the “Warrant Shares”) at an exercise price of $0.8680 per share. The Warrant is exercisable for seven years from the date of closing. The Warrant contains a cashless exercise option and penalties if Oscient does not deliver the applicable amount of Warrant Shares within three trading days of exercise of a Warrant by PRF. The Warrant also contains provisions providing that, at PRF’s election, Oscient must re-purchase the Warrant from PRF upon a sale of the Company in which the consideration for such sale is solely cash.

We agreed pursuant to the Stock and Warrant Purchase Agreement to elect one person designated by PRF to our Board of Directors following the closing and to continue to nominate one person designated by PRF for election to our Board of Directors by our shareholders. The director designated by PRF shall resign and we shall no longer be required to nominate a director designated by PRF upon the later of the following events: (1) if PRF ceases to own at least five percent of the our Common Stock or securities convertible into our Common Stock; (2) if we owe PRF less than $5,000,000 under the Note pursuant to the Note Purchase Agreement; (3) the cumulative payments to PRF made by us under the terms of the Revenue Agreement first exceed 250% of the consideration paid to us by PRF; or (4) if the amounts due by us pursuant to the Revenue Agreement cease to be due. If at any time PRF’s designee is not elected to our Board of Directors, PRF’s designee will have a right to participate in all meetings of our Board of Directors in a nonvoting observer capacity.

Contractual Obligations

To finance the acquisition of ANTARA in August 2006, we, together with our wholly-owned subsidiary Guardian II Acquisition Corporation, entered into several financing agreements with Paul Royalty Fund Holdings II, LP, an affiliate of Paul Capital Partners, including the Revenue Interests Assignment Agreement, the Note Purchase Agreement and the Common Stock and Warrant Purchase Agreement, in consideration for an aggregate amount of $70 million. The terms and conditions of the Revenue Interest Assignment Agreement, the Note Purchase Agreement and the Common Stock and Warrant Purchase Agreement are reviewed in detail above under the Section entitled “Liquidity and Capital Resources—Cash Flows.”

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our market risks, and the ways we manage them, are summarized under the captions “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Quantitative and Qualitative Disclosures About Market Risk”, each included in our Form 10-K for the year ended December 31, 2005. There have been no material changes in information affecting our market risk since the end of the fiscal year ended December 31, 2005. Our Annual Report on Form 10-K was filed with the Securities and Exchange Commission on March 10, 2006.

ITEM 4: CONTROLS AND PROCEDURES

Our management, under the supervision and with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), has evaluated the effectiveness of our disclosure controls and procedures as defined in Securities and Exchange Commission (“SEC”) Rule 13a-15(e) as of the end of the period covered by this report. Based upon that evaluation, management has concluded that our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 is communicated to management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

During the period covered by this report, there have been no significant changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

ITEM 1: LEGAL PROCEEDINGS

None

ITEM 1A: RISK FACTORS

Some of the important risk factors that could cause our actual results to differ materially from those expressed in our forward-looking statements include, but are not limited to, the following:

RISKS RELATED TO OUR BUSINESS

We have a history of significant operating losses and expect these losses to continue in the future.

We have experienced significant operating losses each year since our inception and expect these losses to continue for the foreseeable future. We had a net loss of approximately $63,786,000 for the nine months ended September 30, 2006 and had an accumulated deficit of approximately $401,214,000. The losses have resulted primarily from costs incurred in research and development, including our clinical trials and product acquisitions, from sales and marketing, and from general and administrative costs associated with our operations and product sales of FACTIVE tablets. These costs have exceeded our revenues which to date have been generated principally from sales of FACTIVE, co-promotion revenues based on the sale of TESTIM gel, collaborations, government grants and sequencing services.

We anticipate that we will incur additional losses in the current year and in future years and cannot predict when, if ever, we will achieve profitability. These losses are expected to continue and potentially increase as we continue significant levels of expenditures, principally in the sales and marketing area as we seek to grow sales of FACTIVE tablets and ANTARA capsules (including efforts to successfully integrate of ANTARA) and as we seek to acquire additional product candidates. Additionally, our partners’ product development efforts that utilize our genomic discoveries are at an early stage and, accordingly, we do not expect our losses to be substantially mitigated by revenues from milestone payments or royalties under those agreements for a number of years, if ever.

Our business will be very dependent on the commercial success of FACTIVE and ANTARA.

FACTIVE tablets and ANTARA capsules are currently our only commercial products and we expect that they will likely account for substantially all of our product revenues for at least the next several years.

FACTIVE tablets have FDA marketing approval for the treatment of community-acquired pneumonia of mild to moderate severity, or CAP, and acute bacterial exacerbations of chronic bronchitis, or AECB. ANTARA is approved by the FDA to treat hypercholesterolemia (high blood cholesterol) and hypertriglyceridemia (high triglycerides) in combination with a healthy diet. The commercial success of FACTIVE and ANTARA will depend upon their continued acceptance by regulators, physicians, patients and other key decision-makers as a safe, therapeutic and cost-effective alternative to other products used, or currently being developed, to treat CAP and AECB, in the case of FACTIVE tablets, or hypercholesterolemia and hypertriglyceridemia, in the case of ANTARA capsules. If FACTIVE and ANTARA are not commercially successful, we will have to find additional sources of funding or curtail or cease operations.

If third parties challenge the validity of the patents or proprietary rights of our marketed products or assert that we have infringed their patents or proprietary rights, we may become involved in intellectual property disputes and litigation that would be costly, time consuming, and prevent the commercialization of ANTARA and/or FACTIVE.

The intellectual property rights of biopharmaceutical companies, including us, are generally uncertain and involve complex legal, scientific and factual questions. Our success in developing and commercializing biopharmaceutical products may depend, in part, on our ability to operate without infringing on the intellectual property rights of others and to prevent others from infringing on our intellectual property rights. There has been substantial litigation regarding patents and other intellectual property rights in the biopharmaceutical industry. We may become party to patent litigation or proceedings at the U.S. Patent and Trademark Office or a foreign patent office to determine our patent rights with respect to third parties which may include competitors in the biopharmaceutical industry. Interference proceedings in the U.S. Patent and Trademark Office or opposition proceedings in a foreign patent office may be necessary to establish which party was the first to discover such intellectual property. We may become involved in patent litigation against third parties to enforce our patent rights, to invalidate patents held by such third parties, or to defend against such claims. The cost to us of any patent litigation or similar proceeding could be substantial, and it may absorb significant management time. We do not expect to maintain separate

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insurance to cover intellectual property infringement. Our general liability insurance policy does not cover our infringement of the intellectual property rights of others. If infringement litigation against us is resolved unfavorably, we may be enjoined from manufacturing or selling certain of our products or services without a license from a third party. We may not be able to obtain such a license on commercially acceptable terms, or at all.

For instance, we are aware of United States patents that are owned by third parties that may be construed to encompass ANTARA. However, we believe that, if these patents were asserted against us, it is likely that we would not be found to infringe any valid claim of these patents or that the patents would be found to be unenforceable. Nonetheless, in order to successfully challenge the validity of any United States patent, we would need to overcome the presumption of validity or enforceability which is accorded to issued patents in the United States. If any of these patents were found to be valid and enforceable and we were found to infringe any of them, or any other patent rights of third parties, we would be required to pay damages, cease the sale of ANTARA or pay additional royalties on manufacture and sales of ANTARA. If we are unable to market or sell ANTARA, or if we are obligated to pay significant damages or additional royalties, our earnings attributable to ANTARA would be reduced and our business could be materially adversely affected. Even if we prevail, the cost to us of any patent litigation would likely be substantial, and it may absorb significant management time.

We will likely need to raise additional funds in the future.

We believe our existing funds and anticipated cash flows from operations would be sufficient to support our current plans through the first half of 2007. We will likely raise additional capital in the future to fund our operations, to support our sales and marketing activities, fund clinical trials and other research and development activities, and other potential commercial or development opportunities. We may seek funding through additional public or private equity offerings, debt or other strategic financings or agreement with customers or vendors. In order to facilitate the raising of additional funds, we have filed a shelf registration statement that allows us to sell up to $100,000,000 of our common stock, warrants and debt securities. Our ability to raise additional capital, however, will be heavily influenced by, among other factors, the investment market for biopharmaceutical companies and the progress of the FACTIVE, ANTARA and Ramoplanin commercial and clinical development programs. Additional financing may not be available to us when needed, or, if available, may not be available on favorable terms. If we cannot obtain adequate financing on acceptable terms when such financing is required, our business will be adversely affected.

Future fund raising could dilute the ownership interests of our stockholders.

In order to raise additional funds, we may issue equity or convertible debt securities in the future. Depending upon the market price of our shares at the time of any transaction, we may be required to sell a significant percentage of the outstanding shares of our common stock in order to fund our operating plans, potentially requiring a stockholder vote. In addition, we may have to sell securities at a discount to the prevailing market price, resulting in further dilution to our stockholders.

We will need to continue to develop marketing and sales capabilities to successfully commercialize FACTIVE tablets, ANTARA capsules and our other product candidates, including effectively integrating the ANTARA product into our commercial operations.

FACTIVE tablets and ANTARA capsules are the first two FDA approved products which we own and promote. To date, we still have limited marketing and sales experience. The launch of FACTIVE occurred in September of 2004, and we recently acquired the rights to ANTARA in August 2006. The continued development of these marketing and sales capabilities, including the expansion of our sales force, will require significant expenditures, management resources and time.

The integration of the ANTARA product and continued development of our marketing and sales capabilities with respect to this new line of product, including the possibility of expansion of our sales force, will require significant expenditures, management resources and time. Failure to successfully integrate ANTARA and establish sufficient sales and marketing capabilities in a timely and regulatory compliant manner may adversely affect our ability to assume and continue to grow the ANTARA brand and related product sales.

Our product and product candidates will face significant competition in the marketplace.

ANTARA

ANTARA is a fenofibrate product approved by the FDA to treat hypercholesterolemia and hypertriglyceridemia in combination with a healthy diet. The marketing of branded versions of fenofibrate could reduce our net sales of ANTARA and adversely impact our revenues. The primary competition for ANTARA for the treatment of dyslipidemias is Tricor 145 mg, a product manufactured by Abbott Laboratories, which accounted for approximately 94% of U.S. fenofibrate sales for the twelve month period ended September 30, 2006. ANTARA also competes with Triglide, a fenofibrate marketed by Sciele Pharma, Inc., which accounted for approximately 0.86% of U.S. fenofibrate sales for the twelve month period ended September 30, 2006. Additionally, several generic versions fenofibrate in varying strengths are also available for the treatment of dyslipidemias. In May 2005, Teva Pharmaceutical Industries, Ltd. obtained final FDA approval to market a generic version of Abbott Laboratories’ 160 mg Tricor tablet (which is no longer marketed or sold), which contains the same active pharmaceutical ingredient as ANTARA 130 mg capsules. In January 2006, Cipher Pharmaceuticals, Inc. obtained final FDA approval to market a 150 mg strength of fenofibrate.

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There are also several non-fenofibrate FDA approved products with similar indications as ANTARA which could compete with ANTARA. Reliant Pharmaceuticals, Inc., for example, markets Omacor, an omega-3 fatty acid product used for the treatment of hypertriglyceridemia. Additionally, Kos Pharmaceuticals, Inc. markets Niaspan, an extended-release niacin product used to raise HDL as well as Advicor, a fixed-dose combination of niacin and simvastatin, used to treat mixed-lipid disorders.

We are also aware that LifeCycle Pharma A/S has a 120 mg fenofibrate product currently in development and submitted a new drug application to the FDA in October 2006. In addition, several companies may be developing fixed-dose combination products containing fenofibrate with HMG-CoA reductase inhibitors, such as simvastatin or atorvastatin, which may also compete with ANTARA. We are also aware of other Companies developing fenofibrate products. The marketing of generic fenofibrate products could result in pressure on the price at which we are able to sell ANTARA, reduce our profit margins, reduce our net sales of ANTARA and adversely impact our revenues.

FACTIVE

FACTIVE tablets are approved for the treatment of community-acquired pneumonia of mild to moderate severity and acute bacterial exacerbations of chronic bronchitis. There are several classes of antibiotics that are primary competitors for the treatment of these indications, including:

• other fluoroquinolones such as Levaquin^® (levofloxacin), a product of Ortho-McNeil Pharmaceutical, Inc., and Cipro^® (ciprofloxacin) and Avelox^® (moxifloxacin), both products of Bayer Corporation as well as generic equivalents of Cipro;

• macrolides such as Biaxin^® (clarithromycin), a product of Abbott Laboratories and Zithromax^® (azithromycin), a product of Pfizer Inc., as well as generic equivalents of both products;

• Ketek^® (telithromycin), a ketolide from Sanofi-Aventis Pharmaceuticals; and

• penicillins such as Augmentin^® (amoxicillin/clavulanate potassium), a product of GlaxoSmithKline, as well as generic equivalents of this product.

Many generic antibiotics are also currently prescribed to treat these infections. Moreover, a number of the antibiotic products that are competitors of FACTIVE tablets have gone or will be going off patent at dates ranging from 2003 to 2015. As these competitors lose patent protection, their manufacturers will likely decrease their promotional efforts. However, makers of generic drugs will likely begin to produce some of these competing products and this could result in pressure on the price at which we are able to sell FACTIVE tablets and reduce our profit margins.

Ramoplanin

Ramoplanin is in clinical development for the treatment of Clostridium difficile-associated disease (CDAD). We are aware of two products currently utilized in the marketplace—Vancocin^® pulvules (vancomycin), a product marketed by ViroPharma Inc., and metronidazole, a generic product—for treatment of this indication. We are also aware of at least eight companies with products in development for the treatment of CDAD. It is also possible that other companies are developing competitive products for this indication.

Many of our competitors have substantially greater capital resources, facilities and human resources than us. Furthermore, many of those competitors are more experienced than us in drug discovery, clinical development and commercialization, and in obtaining regulatory approvals. As a result, those competitors may discover, develop and commercialize pharmaceutical products or services before us. In addition, our competitors may discover, develop and commercialize products or services that are more effective than, or otherwise render non-competitive or obsolete, the products or services that we or our collaborators are seeking to develop and commercialize. Moreover, these competitors may obtain patent protection or other intellectual property rights that would limit our rights or the ability of our collaborators to develop or commercialize pharmaceutical products or services.

Our failure to acquire and develop additional product candidates or approved products will impair our ability to grow.

As part of our growth strategy, we intend to acquire, develop and commercialize additional product candidates or approved products. The success of this strategy depends upon our ability to identify, select and acquire biopharmaceutical products that meet our criteria. We may not be able to acquire the rights to additional product candidates and approved products on terms that we find acceptable, or at all. The acquisition of rights to additional products would likely require us to make significant upfront cash payments which could adversely affect our liquidity and/or accelerate our need to raise additional capital.

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New product candidates acquired or in-licensed by us may require additional research and development efforts prior to commercial sale, including extensive preclinical and/or clinical testing and approval by the FDA and corresponding foreign regulatory authorities. All product candidates are prone to the risks of failure inherent in pharmaceutical product development, including the possibility that the product candidate will not be safe, effective or approved by regulatory authorities. In addition, it is uncertain whether any approved products that we develop or acquire will be:

• manufactured or produced economically;

• successfully commercialized; or

• widely accepted in the marketplace.

We cannot expand the indications for which we will market FACTIVE unless we receive FDA approval for each additional indication. Failure to expand these indications will limit the size of the commercial market for FACTIVE.

In April 2003, FACTIVE tablets were approved by the FDA for the seven-day treatment of community-acquired pneumonia of mild to moderate severity (CAP) and the five-day treatment of acute bacterial exacerbations of chronic bronchitis (AECB). In our attempt to continue to develop the market for FACTIVE, we completed a clinical trial to demonstrate that a five-day course of FACTIVE for the treatment of mild to moderate CAP is as effective as the currently approved seven-day course of treatment. On September 21, 2006, we received an approvable letter from the U.S. Food and Drug Administration (FDA) for the supplemental New Drug Application (sNDA) seeking approval for the five-day treatment CAP with FACTIVE tablets. According to the letter, we are required to provide clarification and additional interpretation regarding certain data included in the application to assist the FDA in its evaluation. We recently delivered this additional information to the FDA. We cannot be certain whether additional data will be required or if the five-day CAP sNDA will ultimately be approved. If we are unsuccessful in expanding the approved indications for the use of FACTIVE, the size of the commercial market for FACTIVE will be limited.

Seasonal fluctuations in demand for FACTIVE may cause our operating results to vary significantly from quarter to quarter.

We expect demand for FACTIVE to be highest between November 1 and March 31 as the incidence of respiratory tract infections, including CAP and AECB, tend to increase during the winter months. In addition, fluctuations in the duration and severity of the annual respiratory tract infection season may cause our product sales to vary from year to year. Due to these seasonal fluctuations in demand, our results in one quarter may not be indicative of the results for any other quarter or for the entire year.

We, as well as our partners, are subject to numerous complex regulatory requirements and failure to comply with these regulations, or the cost of compliance with these regulations, may harm our business.

The testing, development and manufacturing and distribution of our products are subject to regulation by numerous governmental authorities in the U.S., Europe, Mexico and elsewhere. These regulations govern or affect the testing, manufacture, safety, labeling, storage, record-keeping, approval, distribution, advertising and promotion of FACTIVE, ANTARA, Ramoplanin and our other product candidates, as well as safe working conditions and the experimental use of animals. Noncompliance with any applicable regulatory requirements can result in refusal of the government to approve products for marketing, criminal prosecution and fines, recall or seizure of products, total or partial suspension of production, prohibitions or limitations on the commercial sale of products or refusal to allow the entering into of federal and state supply contracts. The U.S. government agencies include, but are not limited to, the FDA, the Office of Inspector General and the Department of Justice. Our corporate compliance program cannot ensure that we are in compliance with all applicable laws and regulations, and a failure to comply with such regulations or a failure to prevail in litigation related to noncompliance could harm our business.

The FDA and comparable governmental authorities have the authority to withdraw product approvals that have been previously granted. Currently, there is a substantial amount of congressional and administrative review of the FDA and the regulatory approval process for drug candidates in the U.S. As a result, there may be significant changes made to the regulatory approval process as well as post-marketing surveillance for drug safety in the U.S. In addition, the regulatory requirements relating to the manufacturing, testing, and promotion, marketing and distribution of our products may change in the U.S. or the other jurisdictions in which we may have obtained or be seeking regulatory approval for our products or product candidates. Such changes may increase our costs and adversely affect our operations.

In addition, pharmaceutical companies are subject to extensive laws and regulations, including but not limited to the Prescription Drug Advertising and Marketing Acts, health care “fraud and abuse” laws, such as the Federal False Claims Act, the Federal Anti-kickback Statute, and other state and federal laws and regulations. In addition certain states such as California, Vermont, Minnesota and West Virginia have enacted their own regulations and guidelines relating to sales and marketing of pharmaceutical products while many other states have legislation pending relating to the same. While we have developed and implemented a corporate compliance program based upon what we believe to be current best practices, we cannot guarantee that this program will protect us from future lawsuits or investigations.

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Failure to comply with or changes to the regulatory requirements that are applicable to FACTIVE, ANTARA or our other product candidates may result in a variety of consequences, including the following:

• restrictions on our products or manufacturing processes;

• warning letters regarding promotional and marketing materials and activities;

• withdrawal of FACTIVE, ANTARA or a product candidate from the market;

• voluntary or mandatory recall of FACTIVE, ANTARA or a product candidate;

• fines against us or our partners;

• suspension or withdrawal of regulatory approvals for FACTIVE, ANTARA or a product candidate;

• suspension or termination of any of our ongoing clinical trials of a product candidate;

• refusal to permit import or export of our products;

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

• denial of permission to file an application or supplement in a jurisdiction;

• product seizure; and

• injunctions or the imposition of civil or criminal penalties against us or our partners.

We will depend on third parties to manufacture and distribute our products and product candidates, including FACTIVE tablets, ANTARA capsules and Ramoplanin.

We do not have the internal capability to manufacture pharmaceutical products. Under our agreement with LG Life Sciences, LG Life Sciences manufactures the active pharmaceutical ingredient of FACTIVE and we use Patheon to produce the finished FACTIVE tablets. Currently, our only source of supply of bulk capsules of ANTARA is Ethypharm, and we have an agreement with Cardinal Health PTS, LLC to package finished ANTARA capsules. We cannot be certain that LG Life Sciences, Ethypharm, Patheon, Cardial or future manufacturers will be able to deliver commercial quantities of product or that such deliveries will be made on a timely basis. The only source of supply for FACTIVE bulk drug substance is LG Life Sciences’ facility in South Korea, and Patheon is currently our only source of finished FACTIVE tablets. The only source of supply for ANTARA capsules is Ethypharm. If these facilities are damaged or otherwise unavailable, we could incur substantial costs and delay in the commercialization of our products and our ability to generate revenue from FACTIVE and ANTARA may be adversely affected.

Each of LG Life Sciences, Patheon, Ethypharm and Cardinal is subject to periodic and ongoing unannounced inspections by the FDA and other federal and state agencies to ensure strict compliance with current Good Manufacturing Practices, or cGMP, and other applicable government regulations. Future inspections may find deficiencies in the facilities or processes that may delay or prevent the manufacture or sale of FACTIVE or ANTARA.

Pursuant to our acquisition from Vicuron of worldwide rights to Ramoplanin, we assumed all responsibility for manufacture of Ramoplanin and are currently in discussions with potential third-party manufacturers for Ramoplanin in order to secure long term product supply. If there is a significant delay in securing a qualified supplier on commercially favorable terms, we could experience a supply shortage of Ramoplanin bulk drug, possibly affecting our ability to consummate partnering arrangements for the commercialization of Ramoplanin. Depending upon our discussions regarding a long-term source supplier for Ramoplanin or other product candidates, we could also incur substantial costs and delays in the further commercialization of such products. We may not be able to enter into alternative supply arrangements at commercially acceptable rates, if at all. Also, if we change the source or location of supply or modify the manufacturing process, regulatory authorities will require us to demonstrate that the product produced by the new source or from the modified process is equivalent to the product used in any clinical trials that we had conducted.

Moreover, while we may choose to manufacture products in the future, we have no experience in the manufacture of pharmaceutical products for clinical trials or commercial purposes. If we decide to manufacture products, it would be subject to the regulatory requirements described above. In addition, we would require substantial additional capital and would be subject to delays or difficulties encountered in manufacturing pharmaceutical products. No matter who manufactures the products, we will be subject to continuing obligations regarding the submission of safety reports and other post-market information.

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We will depend on third parties to manage our product supply chain for FACTIVE tablets and ANTARA capsules.

We do not have the internal capability to perform product supply chain services including warehousing, inventory management and distribution of commercial and sample quantities of FACTIVE tablets and ANTARA capsules. We have an exclusive arrangement with Integrated Commercial Solutions, Inc. (ICS) to perform such supply chain services services through the second quarter of 2007.

We cannot be certain that ICS will be able to perform uninterrupted supply chain services. If ICS were unable to perform their services for any period, we may incur substantial loss of sales to wholesalers and other purchasers of our products. If we are forced to find an alternative supply chain service provider for FACTIVE and ANTARA, in addition to loss of sales, we may also incur costs in establishing a new arrangement.

Wholesalers, pharmacies and hospitals may not maintain adequate distribution for our products.

We sell FACTIVE and ANTARA to wholesale drug distributors who generally sell products to retail pharmacies and other institutional customers. We do not promote FACTIVE and ANTARA to these wholesalers, and they do not determine such products prescription demand. However, approximately 89% of our product shipments during the nine months ended September 30, 2006 were to only three wholesalers. Our ability to commercialize FACTIVE and/or ANTARA will depend, in part, on the extent to which we maintain adequate distribution of FACTIVE tablets ANTARA capsules via wholesalers, pharmacies and hospitals, as well as other customers. Although a majority of the larger wholesalers and retailers distribute and stock FACTIVE and ANTARA, they may be reluctant to do so in the future if demand is not established. Further, it is possible that wholesalers could decide to change their policies or fees, or both, at some time in the future. This could result in their refusal to distribute smaller volume products, or cause higher product distribution costs, lower margins or the need to find alternative methods of distributing products. Such alternative methods may not exist or may not be economically viable. If we do not maintain adequate distribution of FACTIVE tablets or ANTARA capsules, the commercialization of FACTIVE and/or ANTARA and our anticipated revenues and results of operations could be adversely affected.

The development and commercialization of our products may be terminated or delayed, and the costs of development and commercialization may increase, if third parties upon whom we rely to support the development and commercialization of our products do not fulfill their obligations.

In addition to using third parties to fulfill our manufacturing, distribution and supply chain services, our development and commercialization strategy entails entering into arrangements with corporate collaborators, contract research organizations, licensors, licensees and others to conduct development work, manage our clinical trials and market and sell our products outside of the United States. We do not have the expertise or the resources to conduct such activities on our own and, as a result, we will be particularly dependent on third parties in these areas.

For instance, in February 2006, we entered into a sublicense arrangement with Pfizer, S.A. de C.V. (Pfizer Mexico), whereby Pfizer Mexico will commercialize FACTIVE tablets in Mexico in exchange for which Pfizer Mexico made an up-front payment, and will pay milestones upon obtaining certain regulatory approvals and sales goals as well as royalties on future sales. Additionally, in August 2006, we granted the commercialization rights to FACTIVE tablets in Canada to Abbott Canada. In exchange for those rights, Abbott Canada agreed to commercialize FACTIVE in Canada for a transfer price on product purchases and to make certain payments to us upon achievement of certain regulatory and sales milestones.

We may not be able to maintain our existing arrangements with respect to the commercialization of our existing products, FACTIVE and ANTARA, or establish and maintain arrangements or partnerships to develop and commercialize Ramoplanin or any additional product candidates or products we may acquire on terms that are acceptable to us. Any current or future arrangements for development and commercialization may not be successful. If we are not able to establish or maintain agreements relating to our current products, Ramoplanin or any additional products we may acquire on terms which we deem favorable, our results of operations would be materially adversely affected.

Third parties may not perform their obligations as expected. The amount and timing of resources that third parties devote to developing and commercializing our products are not within our control. Furthermore, our interests may differ from those of third parties that commercialize our products. Disagreements that may arise with these third parties could delay or lead to the termination of the development or commercialization of our product candidates, or result in litigation or arbitration, which would be time consuming and expensive.

If any third party that supports the development or commercialization of our products breaches or terminates its agreement with us, or fails to conduct its activities in a timely and regulatory compliant manner, such breach, termination or failure could:

• delay or otherwise adversely impact the development or commercialization of FACTIVE tablets, ANTARA capsules, Ramoplanin, our other product candidates or any additional product candidates that we may acquire or develop;

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• require us to undertake unforeseen additional responsibilities or devote unforeseen additional resources to the development or commercialization of our products; or

• result in the termination of the development or commercialization of our products.

Clinical trials are costly, time consuming and unpredictable, and we have limited experience conducting and managing necessary preclinical and clinical trials for our product candidates.

The Phase II trial for our product candidate, Ramoplanin, to assess the safety and efficacy of treating Clostridium difficile-associated disease, or CDAD, was completed in 2004. Prior clinical and preclinical trials for Ramoplanin were conducted by Vicuron and its licensees, from whom we acquired rights to Ramoplanin. We, or any third party with whom we may partner our rights to Ramoplanin, may not be able to complete future trials or make the filings within the timeframes we currently expect. If the trials or the filings are delayed, our business may be adversely affected.

We are currently conducting a Phase IV post-approval clinical trial relating to FACTIVE tablets in compliance with FDA requirements pursuant to the product’s approval. Clinical trials may also be necessary to gain approval to market the product for the treatment of other indications.

We may not be able to demonstrate the safety and efficacy of FACTIVE in indications other than those for which it has already been approved or of our other products including Ramoplanin, in each case, to the satisfaction of the FDA, or other regulatory authorities. We may also be required to demonstrate that our proposed products represent an improved form of treatment over existing therapies and we may be unable to do so without conducting further clinical studies. Negative, inconclusive or inconsistent clinical trial results could prevent regulatory approval, increase the cost and timing of regulatory approval or require additional studies or a filing for a narrower indication.

The speed with which we are able to complete our clinical trials and our applications for marketing approval will depend on several factors, including the following:

• the rate of patient enrollment, which is a function of many factors, including the size of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the study and the nature of the protocol;

• fluctuations in the infection rates for patients available to enroll in our trials;

• compliance of patients and investigators with the protocol and applicable regulations;

• prior regulatory agency review and approval of our applications and procedures;

• analysis of data obtained from preclinical and clinical activities which are susceptible to varying interpretations, which interpretations could delay, limit or prevent regulatory approval;

• changes in the policies of regulatory authorities for drug approval during the period of product development; and

• the availability of skilled and experienced staff to conduct and monitor clinical studies, to accurately collect data and to prepare the appropriate regulatory applications.

In addition, the cost of human clinical trials varies dramatically based on a number of factors, including the order and timing of clinical indications pursued, the extent of development and financial support from alliance partners, the number of patients required for enrollment, the difficulty of obtaining clinical supplies of the product candidate, and the difficulty in obtaining sufficient patient populations and clinicians.

We have limited experience in conducting and managing the preclinical and clinical trials necessary to obtain regulatory marketing approvals. We may not be able to obtain the approvals necessary to conduct clinical studies. Also, the results of our clinical trials may not be consistent with the results obtained in preclinical studies or the results obtained in later phases of clinical trials may not be consistent with those obtained in earlier phases. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials, even after experiencing promising results in early animal and human testing.

Even if a product gains regulatory approval, the product and the manufacturer of the product will be subject to continuing regulatory review, including the requirement to conduct post-approval clinical studies. We may be restricted or prohibited from marketing or manufacturing a product, even after obtaining product approval, if previously unknown problems with the product or its manufacture are subsequently discovered.

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Our intellectual property protection and other protections may be inadequate to protect our products.

Our success will depend, in part, on our ability to obtain commercially valuable patent claims and protect our intellectual property. We currently own or license approximately 73 issued U.S. patents, approximately 85 pending U.S. patent applications, 146 issued foreign patents and approximately 199 pending foreign patent applications. These patents and patent applications primarily relate to (1) the chemical composition, use, and method of manufacturing FACTIVE, (2) pharmaceutical compositions, methods of their use and treatment, and methods of manufacturing ANTARA, (3) metalloenzyme inhibitors, their uses, their targets, (4) anti-infective compounds and their uses, and (5) the field of human and pathogen genetics. Our material patents are as follows:

• U.S. Patent No. 4,800,079 granted January 24, 1989, relating to pharmaceutical compositions containing fenofibrate and methods of preparing the same; licensed from Ethypharm, S.A.; expiring August 10, 2007.

• U.S. Patent No. 5,633,262 granted May 27, 1997, relating to quinoline carboxylic acid derivatives having 7-(4-amino-methyl-3-oxime) pyrrolidine substituent; licensed from LG Life Sciences; expiring June 15, 2015;

• U.S. Patent No. 5,776,944 granted July 7, 1998, relating to 7-(4-aminomethyl-3-methyloxyiminopyrroplidin-1-yl)-1-cyclopropyl-6-fluoro-4-oxo-1,4-dihydro-1, 8-naphthyridine-3-carboxylic acid; licensed from LG Life Sciences; expiring April 4, 2017;

• U.S. Patent No. 5,869,670 granted February 9, 1999, relating to 7-(4-aminomethyl-3-methyloxyiminopyrrolidin-1-yl)-1-cyclopropyl-6-fluoro-4-oxo-1,4-dihydro-1, 8-naphthyridine-3-carboxylic acid; licensed from LG Life Sciences; expiring June 15, 2015;

• U.S. Patent No. 5,962,468 granted October 5, 1999, relating to 7-(4-aminomethyl-3-methyloxyiminopyrrolidin-1-yl)-1-cyclopropyl-6-fluoro-4-oxo-1,4-dihydro-1, 8-naphthyridine-3 carboxylic acid; licensed from LG Life Sciences; expiring June 15, 2015;

• U.S. Patent No. 6,340,689 granted January 22, 2002, relating to methods of using quinolone compounds against atypical upper respiratory pathogenic bacteria; licensed from LG Life Sciences; expiring September 14, 2019;

• U.S. Patent No. 6,262,071 granted July 17, 2001, relating to methods of using antimicrobial compounds against pathogenic Mycoplasma bacteria; licensed from LG Life Sciences; expiring September 21, 2019;

• U.S. Patent No. 6,331,550 granted December 18, 2001, relating to methods of using of quinolone compounds against anaerobic pathogenic bacteria; licensed from LG Life Sciences; expiring September 21, 2019;

• U.S. Patent No. 6,455,540 granted September 24, 2002, relating to methods of use of quinolone compounds against anaerobic pathogenic bacteria; licensed from LG Life Sciences; expiring September 21, 2019;

• U.S. Patent No. 6,723,734 granted April 20, 2004, relating to the salt of naphythyridine carboxylic acid derivative; licensed from LG Life Science; expiring March 20, 2018;

• U.S. Patent No. 6,803,376 granted October 12, 2004, relating to methods of use of quinolone compounds against pneumococcal pathogenic bacteria; licensed from LG Life Science; expiring September 21, 2019; and

• U.S. Patent No. 7,101,574 granted September 5, 2006, relating to pharmaceutical compositions containing fenofibrate and methods of preparing the same; licensed from Ethypharm, S.A.; expiring August 20, 2020.

We are not currently involved in any litigation, settlement negotiations, or other legal action regarding patent issues and we are not aware of any patent litigation threatened against us. Our patent position involves complex legal and factual questions, and legal standards relating to the validity and scope of claims in the applicable technology fields are still evolving. Therefore, the degree of future protection for our proprietary rights is uncertain.

Under our license agreement with LG Life Sciences, we obtained an exclusive license to develop and market gemifloxacin in certain territories. This license covers 18 issued U.S. patents and a broad portfolio of corresponding foreign patents and pending patent applications. These patents include claims that relate to the chemical composition of FACTIVE, methods of manufacturing and its use for the prophylaxis and treatment of bacterial infections. We have received a Notice of Final Determination from the U.S.PTO on our patent term extension application for U.S. Patent 5,776,944 extending its patent term 659 days to April 4, 2017. The U.S. patents are currently set to expire at various dates, ranging from 2018, in the case of the principal patents relating to FACTIVE tablets, to 2019.

Under our development, license and supply agreement with Ethypharm, S.A., we assumed all of the rights and obligations related to the development, manufacturing, marketing and sale of ANTARA in the United States. This license includes two issued U.S. patents and several pending patent applications. These patents and applications include claims that relate to pharmaceutical compositions containing fenofibrate, the drug delivery technologies incorporated in ANTARA, methods of their uses and treatment, and methods of preparing the same. The U.S. patents are currently set to expire in 2007 and 2020.

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We also have the exclusive right to use FACTIVE trademarks, trade names, domain names and logos in conjunction with the use or sale of the product in the territories covered by the license. We acquired exclusive rights to ANTARA trademarks, trade names, domain names and logos.

The patents to Ramoplanin, which we recently acquired from Pfizer Inc., include claims relating to methods of manufacturing Ramoplanin as well as methods increasing the yield of the active compound. We also have applications pending relating to various novel uses of Ramoplanin as well as a formulation containing Ramoplanin. The patent covering the chemical composition of Ramoplanin has expired. To provide additional protection for Ramoplanin, we rely on proprietary know-how relating to maximizing yields in the manufacture of Ramoplanin, and intend to rely on the five years of data exclusivity under the Hatch-Waxman Act in the U.S. and the ten years of market exclusively in Europe available through the European Commission.

The risks and uncertainties that we will face with respect to our patents and other proprietary rights include the following:

• the pending patent applications that we have filed or to which we have exclusive rights may not result in issued patents, may result in issued patents with narrower claims than anticipated or may take longer than expected to result in issued patents;

• the claims of any patents which are issued may be limited from those in the patent applications and may not provide meaningful protection;

• we may not be able to develop additional proprietary technologies that are patentable;

• the patents licensed or issued to us or our partners may not provide a competitive advantage;

• other companies may challenge patents licensed or issued to us or our partners;

• patents issued to other companies may harm our ability to do business;

• other companies may independently develop similar or alternative technologies or duplicate our technologies; and

• the patents may be narrow in scope and accordingly other companies may design around technologies we have licensed or developed.

International patent protection is uncertain.

Patent law outside the United States is uncertain and is currently undergoing review and revision in many countries. Further, the laws of some foreign countries may not protect our intellectual property rights to the same extent as U.S. laws. We may participate in opposition proceedings to determine the validity of our or our competitors’ foreign patents, which could result in substantial costs and diversion of our efforts.

Our proprietary position may depend on our ability to protect our proprietary confidential information and trade secrets.

We rely upon certain proprietary confidential information, trademarks, unpatented trade secrets and improvements, unpatented know-how and continuing technological innovation to develop and maintain our competitive position. We generally protect this information with confidentiality agreements that provide that all confidential information developed or made known to others during the course of the employment, consulting or business relationship shall be kept confidential except in specified circumstances. Agreements with employees provide that all inventions conceived by an individual while employed by us are our exclusive property. We cannot guarantee, however, that these agreements will be honored, that we will have adequate remedies for breach if they are not honored or that our proprietary confidential information and trade secrets will not otherwise become known or be independently discovered by competitors.

We will bear substantial responsibilities under our license agreements for FACTIVE and ANTARA and our sublicense agreements to Pfizer, S.A. de C.V. and Abbott Laboratories, Ltd., and there can be no assurance that we will successfully fulfill our responsibilities.

FACTIVE

We have an exclusive license from LG Life Sciences to develop and market FACTIVE in North America and France, Germany, the United Kingdom, Luxembourg, Ireland, Italy, Spain, Portugal, Belgium, the Netherlands, Austria, Greece, Sweden, Denmark, Finland, Norway, Iceland, Switzerland, Andorra, Monaco, San Marino and Vatican City. Under this

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agreement, we are responsible, at our expense and through consultation with LG Life Sciences, for the clinical and commercial development of FACTIVE in the countries covered by the license, including the conduct of clinical trials, the filing of drug approval applications with the FDA and other applicable regulatory authorities and the marketing, distribution and sale of FACTIVE in our territory. The agreement also requires a minimum sales commitment over a period of time, which if not met, would result in the technology being returned to LG Life Sciences. We believe that we are currently in compliance with our obligations under the agreement with LG Life Sciences, but there can be no assurance that we will be able to remain in compliance due to the limitations on our resources and the many risks of conducting clinical trials, as described above in “Clinical trials are costly, time consuming and unpredictable, and we have limited experience conducting and managing necessary preclinical and clinical trials for our product candidates” and the challenges inherent in the commercialization of new products as described above in “Our product candidates will face significant competition in the marketplace.”

LG Life Sciences has the obligation under the agreement to diligently maintain its patents and the patents of third parties to which it has rights that, in each case relating to gemifloxacin, the active ingredient in FACTIVE tablets. We have the right, at our expense, to control any litigation relating to suits brought by a third party alleging that the manufacture, use or sale of gemifloxacin in its licensed field in the territories covered by the license infringes upon our rights. We also have the primary right to pursue actions for infringement of any patent licensed from LG Life Sciences under the license agreement within the territories covered by the license. If we elect not to pursue any infringement action, LG Life Sciences has the right to pursue it. The costs of any infringement actions are first paid out of any damages recovered. If we are the plaintiff, the remainder of the damages are retained by us, subject to our royalty obligations to LG Life Sciences. If LG Life Sciences is the plaintiff, the remainder of the damages are divided evenly between us and LG Life Sciences, subject to our royalty obligations to LG Life Sciences. The costs of pursuing any such action could substantially diminish our resources.

Further, in February 2006, we entered into a Sublicensing and Distribution Agreement with Pfizer, S.A. de C.V. whereby we sublicensed our rights to commercialize FACTIVE tablets in Mexico to Pfizer Mexico. Under this agreement, we are obligated to exclusively supply all active pharmaceutical ingredients for FACTIVE required by Pfizer Mexico in Mexico. In August 2006, we entered into a Supply, Development and Marketing Agreement with Abbott Laboratories Canadian affiliate. Under this agreement, we are obligated to exclusively supply all finished packaged FACTIVE product required by Abbott in Canada. We believe that, together with our manufacturing partners, we will be able to meet such supply and other obligations under these sublicense and supply agreements but can make no assurances to that we will be able to remain in compliance with such responsibilities.

ANTARA

Our exclusive rights to ANTARA are licensed to us by Ethypharm, S.A. If we breach the development, license and supply agreement with Ethypharm, it may be entitled to terminate the agreement. Further, in order to maintain our exclusive rights, we must achieve certain minimum annual sales of ANTARA until February 2012 or make payments to Ethypharm to compensate for the difference. We believe that we are currently in compliance with our obligations under the Ethypharm agreement, but there can be no assurance that we will be able to remain in compliance or that we will be able to meet the milestones required for extension of the agreement.

We will depend on key personnel in a highly competitive market for skilled personnel.

We will be highly dependent on the principal members of our senior management and key scientific and technical personnel. The loss of any of our personnel could have a material adverse effect on our ability to achieve our goals. We currently maintain employment agreements with the following executive officers: Steven M. Rauscher, President and Chief Executive Officer; Philippe M. Maitre, Senior Vice President and Chief Financial Officer; and Dominick Colangelo, Esq., Executive Vice President, Corporate Development and Operations. The term of each employment agreement continues until it is terminated by the officer or Oscient.

Our future success is dependent upon our ability to attract and retain additional qualified sales and marketing, clinical development, scientific and managerial personnel. Like others in our industry, we may face, and in the past we have faced from time to time, difficulties in attracting and retaining certain employees with the requisite expertise and qualifications. We believe that our historical recruiting periods and employee turnover rates are similar to those of others in our industry; however, we cannot be certain that we will not encounter greater difficulties in the future.

Changes in the expensing of stock-based compensation will result in unfavorable accounting charges and may require us to change our compensation practices. Any change in our compensation practices may adversely affect our ability to attract and retain qualified scientific, technical and business personnel.

We rely heavily on stock options to compensate existing employees and attract new employees. As a result of new accounting rules implemented by the Financial Accounting Standards Board, as of January 1, 2006, we were required to

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record expense for the fair value of stock options and the fair value of purchase rights under our employee stock purchase plan, thereby increasing our operating expenses and reported losses. Although we intend to continue to include various forms of equity in our compensation plans, if the extent to which we use forms of equity in our plans is reduced due to the negative effects on earnings, it may be difficult for us to attract and retain qualified scientific, technical and business personnel.

Sales of FACTIVE in European countries in which we do not have rights to market the product could adversely affect sales in the European countries in which we have exclusive rights to market the product.

Our exclusive rights to market FACTIVE in Europe are limited to France, Germany, the United Kingdom, Luxembourg, Ireland, Italy, Spain, Portugal, Belgium, the Netherlands, Austria, Greece, Sweden, Denmark, Finland, Norway, Iceland, Switzerland, Andorra, Monaco, San Marino and Vatican City. These countries included all of the members of the European Union on the date of the original agreement to license FACTIVE. However, in 2004, a number of additional European countries in which we do not have rights to market FACTIVE were admitted as members of the European Union. If LG Life Sciences were to sell FACTIVE or license a third party to sell FACTIVE in such countries, our ability to maintain our projected profit margins based on sales in the territories covered by the LG Life Sciences license agreement may be adversely affected because customers in our territory may purchase FACTIVE from neighboring countries in the European Union and our ability to prohibit such purchases may be limited under European Union antitrust restrictions.

Failure to secure distribution partners or obtain regulatory approval in foreign jurisdictions will prevent us from marketing FACTIVE abroad.

We have entered into commercialization relationships with Pfizer, S.A. de C.V. (Pfizer Mexico) and Abbott Laboratories, Ltd. (Abbott Canada) whereby we sublicensed our rights to sell FACTIVE tablets in Mexico to Pfizer Mexico and in Canada to Abbott Canada, respectively. We intend to further market FACTIVE through distribution partners in the Europe Union. We may not be able to secure distribution partners at all, or those that we do secure, including our relationships with Pfizer Mexico and Abbott Canada, may not be successful in obtaining regulatory approval or in marketing and distributing FACTIVE. If we are not able to secure distribution partners or those partners are unsuccessful in their efforts, it would significantly limit the revenues that we expect to obtain from the sales of FACTIVE.

Further, in order to market FACTIVE in the European Union, we or our distribution partners must obtain separate regulatory approvals. Obtaining foreign approvals may require additional trials and expense. For instance, our predecessor’s original regulatory filing in the UK was rejected. We may not be able to obtain approval or may be delayed in obtaining approval from any or all of the jurisdictions in which we seek approval to market FACTIVE.

Our debt obligations expose us to risks that could adversely affect our business, operating results and financial condition.

We have a substantial level of debt. As of September 30, 2006, we had approximately $239,000,000 of indebtedness outstanding (including accrued interest and excluding trade payables, accrued liabilities and accrued facilities impairment charges), which includes $40 million in revenue interest that entitles Paul Capital to receive a royalty on the sales of both ANTARA and FACTIVE. Approximately $23 million of outstanding indebtedness will mature in 2009, approximately $20 million of outstanding indebtedness will mature in 2010 and approximately $153 million of indebtedness will mature in 2011. The level and nature of our indebtedness, among other things, could:

• make it difficult for us to make payments on our debt outstanding from time to time or to refinance it while arriving at maturity;

• make it difficult for us to obtain any necessary financing in the future for working capital, capital expenditures, debt service, acquisitions or general corporate purposes;

• limit our flexibility in planning for or reacting to changes in our business;

• reduce funds available for use in our operations;

• impair our ability to incur additional debt because of financial and other restrictive covenants;

• make us more vulnerable in the event of a downturn in our business;

• place us at a possible competitive disadvantage relative to less leveraged competitors and competitors that have better access to capital resources;

• restrict the operations of our business due to provisions in the Revenue Interest Agreement with Paul Capital that restrict our ability to (i) amend, waive any rights under, or terminate any material license agreements, including the agreements relating to the ANTARA products and FACTIVE, (ii) enter into any new agreement or amend or fail to exercise any of our material rights under existing agreements that would adversely affect Paul Capital’s royalty interest, and (iii) sell any material assets related to ANTARA or FACTIVE; or

• impair our ability to merge or otherwise effect the sale of the Company due to the right of the holders of certain of our indebtedness to accelerate the maturity date of the indebtedness in the even of a change of control of the Company. .

If we do not grow our revenues as we expect to due to any of the factors described in this report or for other reasons, we could have difficulty making required payments on our indebtedness. If we are unable to generate sufficient cash flow or otherwise obtain funds necessary to make required payments, or if we fail to comply with the various requirements of our indebtedness, we would be in default, which would permit the holders of our indebtedness to accelerate the maturity of the indebtedness and could cause defaults under any indebtedness we may incur in the future. Any default under our indebtedness could have a material adverse effect on our business, operating results and financial condition.

48

Our ability to meet our debt service obligations will depend upon our future performance, which will be subject to financial, business and other factors affecting our operations, many of which are beyond our control.

RISKS RELATED TO OUR INDUSTRY

Health care insurers and other payers may not pay for our products or may impose limits on reimbursement.

Our ability to commercialize FACTIVE tablets, ANTARA capsules, Ramoplanin and our future products will depend, in part, on the extent to which reimbursement for such products will be available from third-party payers, such as Medicare, Medicaid, health maintenance organizations, health insurers and other public and private payers. We cannot assure you that third-party payers will pay for such products or will establish and maintain price levels sufficient for realization of an appropriate return on our investment in product development. If adequate coverage and reimbursement levels are not provided by government and private payers for use of our products, our products may fail to achieve market acceptance and our results of operations may be materially adversely affected. Under the Medicare Part D outpatient prescription drug benefit, Medicare beneficiaries (primarily the elderly over 65 and the disabled) may enroll in private drug plans offering a variety of benefit packages. The profitability of our products may depend on the extent to which they enjoy preferred status on the formularies of a significant portion of the largest Part D prescription drug plans. Our ability to obtain such preferred status on favorable economic terms cannot be assured. Additionally, the Part D program has been the subject of much controversy since its inception in 2003, and significant amendments, including an amendment to authorize the Federal Government to directly negotiate drug prices with manufacturers, are possible. Such amendments could adversely affect our anticipated revenues and results of operations, possibly materially.

Many health maintenance organizations and other third-party payers use formularies, or lists of drugs for which coverage is provided under a health care benefit plan, to control the costs of prescription drugs. Each payer that maintains a drug formulary makes its own determination as to whether a new drug will be added to the formulary and whether particular drugs in a therapeutic class will have preferred status over other drugs in the same class. This determination often involves an assessment of the clinical appropriateness of the drug and sometimes the cost of the drug in comparison to alternative products. We cannot assure you that FACTIVE tablets, ANTARA capsules, Ramoplanin or any of our future products will be added to payers’ formularies, whether our products will have preferred status to alternative therapies, nor whether the formulary decisions will be conducted in a timely manner. We may also decide to enter into discount or formulary fee arrangements with payers, which could result in our receiving lower or discounted prices for our products.

Wholesalers, pharmacies and hospitals may not provide adequate distribution for our products.

Our ability to commercialize our products will depend, in part, on the extent to which we obtain adequate distribution of our products via wholesalers, pharmacies and hospitals, as well as other customers. Wholesalers and larger retailers may be reluctant to stock and distribute Oscient products since we are not a large, well-established company. If we do not obtain adequate distribution of our products, the commercialization of FACTIVE and ANTARA and our anticipated revenues and results of operations could be adversely affected.

If a successful product liability claim or series of claims is brought against us for uninsured liabilities or in excess of insured liabilities, we could be forced to pay substantial damage awards.

The use of any of our product candidates in clinical trials, and the sale of any approved products, might expose us to product liability claims. We currently maintain, and we expect that we will continue to maintain, product liability insurance coverage in the amount of $10 million per occurrence and $10 million in the aggregate. Such insurance coverage might not protect us against all of the claims to which we might become subject. We might not be able to maintain adequate insurance coverage at a reasonable cost or in sufficient amounts or scope to protect us against potential losses. In the event a claim is brought against us, we might be required to pay legal and other expenses to defend the claim, as well as uncovered damage awards resulting from a claim brought successfully against us. Furthermore, whether or not we are ultimately successful in defending any such claims, we might be required to direct financial and managerial resources to such defense and adverse publicity could result, all of which could harm our business.

In addition, a product recall or excessive warranty claims (in any such case, whether arising from manufacturing deficiencies, labeling errors or other safety or regulatory reasons) could have an adverse effect on our product sales or require a change in the indications for which our products may be used.

49

RISKS RELATED TO THE SECURITIES MARKET

Our stock price is highly volatile.

The market price of our stock has been and is likely to continue to be highly volatile due to the risks and uncertainties described in this section of the report, as well as other factors, including:

• our ability to successfully commercialize FACTIVE tablets and ANTARA capsules;

• the revenues that we may derive from the sale of FACTIVE tablets and ANTARA, as compared to analyst estimates;

• the results of our clinical trials for Ramoplanin and additional indications for FACTIVE and the pace of our progress in those clinical trials;

• whether we will be able to successfully integrate ANTARA into our sales and marketing efforts;

• our ability to license or develop other compounds for clinical development;

• the timing of the achievement of our development milestones and other payments under our strategic alliance agreements;

• termination of, or an adverse development in, our strategic alliances;

• conditions and publicity regarding the biopharmaceutical industry generally;

• price and volume fluctuations in the stock market at large which do not relate to our operating performance;

• sales of shares of our common stock in the public market; and

• comments by securities analysts, or our failure to meet market expectations.

Over the two-year period ending September 30, 2006 the closing price of our common stock as reported on the Nasdaq National Market ranged from a high of $3.80 to a low of $0.60. The stock market has from time to time experienced extreme price and volume fluctuations that are unrelated to the operating performance of particular companies. In the past, companies that have experienced volatility have sometimes been the subject of securities class action litigation. If litigation were instituted on this basis, it could result in substantial costs and a diversion of management’s attention and resources. These broad market fluctuations may adversely affect the price of our securities, regardless of our operating performance.

Multiple factors beyond our control may cause fluctuations in our operating results and may cause our business to suffer.

Our revenues and results of operations may fluctuate significantly, depending on a variety of factors, including the following:

• the pace of our commercialization of FACTIVE tablets and ANTARA capsules;

• the level of acceptance by physicians and third party payors of FACTIVE and ANTARA;

• the progress of our clinical trials for FACTIVE, Ramoplanin and our other product candidates;

• our success in concluding deals to acquire additional approved products and product candidates;

• the introduction of new products and services by our competitors;

• regulatory actions; and

• expenses related to, and the results of, litigation and other proceedings relating to intellectual property rights.

We will not be able to control many of these factors. In addition, if our revenues in a particular period do not meet expectations, we may not be able to adjust our expenditures in that period, which could cause our business to suffer. We believe that period-to-period comparisons of our financial results will not necessarily be meaningful. You should not rely on these comparisons as an indication of our future performance. If our operating results in any future period fall below the expectations of securities analysts and investors, our stock price may fall, possibly by a significant amount.

ITEM 2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Please see our Current Report on Form 8-K as filed with the Securities and Exchange Commission on August 21, 2006 and incorporated herein by reference.

ITEM 3: DEFAULTS UPON SENIOR SECURITIES

None

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ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Board of Directors has called a Special Meeting of Shareholders of Oscient Pharmaceuticals Corporation to be held on November 14, 2006 at 10:00 a.m., local time, at the offices of Ropes & Gray LLP, One International Place, 36th floor, Boston, Massachusetts. At the Special Meeting, shareholders will be asked to vote on a proposal to approve an amendment to Oscient’s Amended and Restated Articles of Organization, as amended to date, to effect a reverse stock split of the issued and outstanding shares of Oscient’s common stock (such split to combine eight (8) shares of our outstanding Common Stock into one (1) share of our Common Stock), which may be filed at the discretion of our Board of Directors at any time prior to the Company’s next annual meeting of shareholders without further approval or authorization of the Company’s shareholders. Following the implementation of such amendment, the par value and the number of authorized shares of our Common Stock will remain unchanged. This proposal is presented in full in a proxy statement filed with the Securities and Exchange Commission on October 10, 2006.

ITEM 5: OTHER INFORMATION

None.

ITEM 6: EXHIBITS

Description
10.1	Supply, Distribution and Marketing Agreement dated as of August 9, 2006 by and among Oscient Pharmaceuticals Corporation, Abbott International, LLC, Abbott Laboratories, Ltd. and Abbott Laboratories*
10.2	Revenue Interest Assignment Agreement dated as of July 21, 2006 and restated on August 18, 2006 by and among Oscient Pharmaceuticals Corporation, Guardian II Acquisition Corporation and Paul Royalty Fund Holding II *
10.3	Note Purchase Agreement dated as of July 21, 2006 by and between Guardian II Acquisition Corporation and Paul Royalty Fund Holding II
10.4	Common Stock and Warrant Purchase Agreement dated as of July 21, 2006 by and between Oscient Pharmaceuticals Corporation and Paul Royalty Fund Holding II
10.5	Letter Agreement August 31, 2006 by and between Oscient Pharmaceuticals Corporation and Gary Patou, M.D.
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act.
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act.
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act.
32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act.

* Confidential information has been omitted from this exhibit and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request.

51

SIGNATURE

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 who also serves in the capacity of principal financial officer.

Oscient Pharmaceuticals Corporation

/s/    PHILIPPE M. MAITRE

Philippe M. Maitre

Senior Vice President & Chief Financial Officer

(Principal Financial Officer)

November 9, 2006

52

OSCIENT PHARMACEUTICALS CORPORATION

EXHIBIT INDEX

Description
10.1	Supply, Distribution and Marketing Agreement dated as of August 9, 2006 by and among Oscient Pharmaceuticals Corporation, Abbott International, LLC, Abbott Laboratories, Ltd. and Abbott Laboratories*
10.2	Revenue Interest Assignment Agreement dated July 21, 2006 and restated on August 18, 2006 by and among Oscient Pharmaceuticals Corporation, Guardian II Acquisition Corporation and Paul Royalty Fund Holding II *
10.3	Note Purchase Agreement dated as of July 21, 2006 by and between Guardian II Acquisition Corporation and Paul Royalty Fund Holding II
10.4	Common Stock and Warrant Purchase Agreement dated July 21, 2006 by and between Oscient Pharmaceuticals Corporation and Paul Royalty Fund Holding II
10.5	Letter Agreement dated August 31, 2006 by and between Oscient Pharmaceuticals Corporation and Gary Patou, M.D.
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act.
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act.
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act.
32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act.

* Confidential information has been omitted from this exhibit and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request.

53

EX-10.1

Exhibit 10.1

SUPPLY, DISTRIBUTION AND MARKETING AGREEMENT

THIS SUPPLY, DISTRIBUTION AND MARKETING AGREEMENT (this “Agreement”) is made effective as of August 9, 2006 (the “Effective Date”) by and among Oscient Pharmaceuticals Corporation, a Massachusetts corporation with a principal place of business at 1000 Winter Street, Suite 2200, Waltham, Massachusetts (“Supplier”), Abbott International, LLC, a U.S. limited liability company with a place of business at 200 Abbott Park Road, Dept 64E, AP34-1, Abbott Park, IL 60064-6194 (“Purchaser”) and, solely for the purposes of Sections 1.1, 2.3, 2.5, 3.2(b), 3.3(c), 7, 8.2, 8.4, 9.4, 11, 13.3, 16, 18 and 19 herein, Abbott Laboratories, Ltd., a Canadian corporation with a place of business at 8401, Autoroute Trans Canada, Saint-Laurent, Québec (“Abbott Canada”) and solely for the purposes of Section 20, Abbott Laboratories, an Illinois corporation with a place of business at 100 Abbott Park Road, Abbott Park, Illinois 60064. Supplier, Purchaser and Abbott Canada are each hereafter referred to individually as a “Party” and together as the “Parties”.

WHEREAS, Supplier has the capability to manufacture the Products (as defined below); and

WHEREAS, the Parties desire that Supplier supply Purchaser with the Products under this Agreement on the terms and subject to the conditions set forth below.

NOW THEREFORE, in consideration of the mutual covenants contained herein, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Parties hereby agree as follows:

1. DEFINITIONS AND INTERPRETATION

1.1 Definitions. Whenever used in the Agreement with an initial capital letter, the terms defined in this Article 1 shall have the meanings specified.

(a) “ABS” shall mean acute bacterial sinusitis.

(b) “Actual Selling Price” shall be equal to the aggregate Net Sales for all Product in the applicable month divided by the number of tablets sold by Purchaser and Abbott Canada to wholesalers, pharmacies or hospitals in such applicable month.

(c) “Actual Transfer Price” shall have the meaning ascribed thereto in Section 10.2(b).

(d) “AECB” shall mean acute bacterial exacerbations of chronic bronchitis.

(e) “Affiliate” shall mean in respect of any Party any corporation, firm, limited liability company, partnership or other entity which directly Controls or is Controlled by or is under common Control with such Party. For purposes of this definition only, “control” means ownership, directly or indirectly through one or more Affiliates, of fifty percent (50%) or more of the shares of stock entitled to vote for the election of directors, in the case of a corporation, or fifty percent

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[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

(50%) or more of the equity interests in the case of any other type of legal entity, status as a general partner in any partnership, or any other arrangement whereby a party controls or has the right to control the Board of Directors or equivalent governing body of a corporation or other entity.

(f) “Adverse Event” shall mean a noxious and unintended response in a patient (human or animal) being administered a drug, whether or not such response is related to the drug, which occurs at doses normally used or tested for the diagnosis, treatment or prevention of a disease or the modification of an organic function.

(g) “Applicable Percentage” shall equal (i) [*]% for the period prior to Purchaser’s achievement of Product Net Sales of $[*] Million (calculated in Canadian dollars); (ii) thereafter, [*]% until Purchaser’s achievement of Product Net Sales of $[*] Million (calculated in Canadian dollars); and (iii) [*]% for any period thereafter.

(h) “Business Day” any day which is not a Saturday, Sunday or day observed as a holiday under the laws of the Province of Quebec or the federal laws of Canada applicable therein or under the laws of Massachusetts or the federal laws of the United States of America applicable therein.

(i) “Call” shall mean a personal visit by a Sales Representative to a member of the Target Audience in the Territory during which such Sales Representative Details a Product.

(j) “CAP” shall mean community-acquired pneumonia of mild-to-moderate severity.

(k) “Certificate of Analysis and Compliance” means a written certification, substantially in the form attached as Exhibit A, delivered by Supplier to Purchaser with each shipment of Finished Products that (i) sets forth the analytical test results for said shipment of Finished Product, and (ii) states that the said shipment of Finished Product was manufactured in compliance with the Specifications and the GMP.

(l) “Commercialize” and “Commercialization” shall mean, with respect to the Product, all activities relating to the marketing, promotion, handling, distribution, storage, sale, shipping, offer for sale and importation for sale of the Product in the Territory.

(m) “Compound” shall mean the form of gemifloxacin mesylate having the molecular formula [*].

(n) “Contract Year” shall mean for the purpose of this Agreement, a period consisting of twelve (12) consecutive calendar months commencing on the first day of December in each calendar year, provided, however that the first and last Contract Year for the purpose of this Agreement may be shorter than twelve (12) months whereby (i) the first Contract Year thereof shall commence on the

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[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

Effective Date and terminate on the earlier to occur of November 30 following the Effective date or the commencement of Manufacture of the Product by the Purchaser pursuant to the Purchaser’s exercise of its Manufacturing option set forth in Section 5 below, and (ii) the last Contract Year thereof shall terminate on the earlier to occur of the last day of the Term or the commencement of the Manufacture of the Product by the Purchaser pursuant to the Purchaser’s exercise of its Manufacturing option set forth in Section 5 below.

(o) “Copyrights” shall mean all copyright works including literary and artistic works utilized in the Commercialization of the Products.

(p) “Confidential Information” shall mean with respect to a Party (the “Receiving Party”), all information which is disclosed by another Party (the “Disclosing Party”) to the Receiving Party hereunder or to any of its employees, consultants, Affiliates, licensees or Sub-Distributors, except to the extent that the Receiving Party can demonstrate by written record or other suitable physical evidence that such information, (a) as of the date of disclosure is demonstrably known to the Receiving Party or its Affiliates other than by virtue of a prior confidential disclosure to the Receiving Party or its Affiliates by the Disclosing Party; (b) as of the date of disclosure is in, or subsequently enters, the public domain, through no fault or omission of the Receiving Party; (c) is obtained from a third party having a lawful right to make such disclosure free from any obligation of confidentiality to the Disclosing Party; or (d) is independently developed by or for the Receiving Party without reference to or reliance upon any Confidential Information of the Disclosing Party.

(q) “Detail” or “Detailing” shall mean, with respect to the Product, the communication by a Sales Representative during a Call to a member of the Target Audience (i) involving face-to-face contact, (ii) describing in a fair and balanced manner the approved indicated uses and other relevant characteristics of such Product, (iii) using marketing, promotional and educational materials in an effort to increase the Target Audience prescribing and/or hospital ordering preferences of a Product for its approved indicated uses, and (iv) made at the Target Audience member’s office, in a hospital, at marketing meetings sponsored by the Purchaser or Abbott Canada for the Products or other appropriate venues conducive to pharmaceutical product informational communication where the principal objective is to place an emphasis, either primary, secondary or tertiary, on a Product and not simply to discuss a Product with a member of the Target Audience.

(r) “Develop” shall mean, with respect to any Product, all activities relating to seeking, obtaining and/or maintaining Regulatory Approvals and public and private formulary listings, regulatory affairs, statistical analysis and report writing and the preparation, submission, review and development of data related thereto and all other pre-approval activities, but excluding (i) the Manufacture of the Product; or (ii) clinical or non-clinical research and drug development activities of the Product.

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[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

(s) “Diligent Efforts” means using reasonable efforts, consistent with prudent business judgment, including the carrying out of obligations or tasks consistent with the standard of practice in the pharmaceutical industry in the Territory for the Commercialization of a pharmaceutical product having similar market potential, profit potential or strategic value as the Product, based on conditions then prevailing, including, without limitation, the maturity of the Product and the intellectual property protection surrounding the Product and furthermore requires that each of Supplier, Purchaser or Abbott Canada, at a minimum, provided that such actions are commercially reasonable: (i) determine the general industry practices with respect to the applicable activities; (ii) reasonably promptly assign responsibility for such obligations to specific employee(s) who are held accountable for progress, and monitor such progress on an on-going basis; (iii) set and consistently seek to achieve specific and meaningful objectives for carrying out such obligations; and (iv) make and implement decisions and allocate resources designed to advance progress with respect to such objectives.

(t) “Estimated Exchange Rate” means the rate of exchange of Canadian dollars to U.S. dollars as determined by Purchaser, in good faith, for each applicable Contract Year using historic exchange rate information from nationally published sources for the preceding year. Each Estimated Exchange Rate will be established by Purchaser at least thirty (30) days prior to the applicable Contract Year.

(u) “Estimated Transfer Price means the aggregate Net Sales for the Product during the three (3) month period ending August 31 immediately preceding the new Contract Year divided by the number of Product tablets sold during such three month period, multiplied by the Applicable Percentage (as calculated based on Net Sales commencing from the First Commercial Sale through and including the period covered by such new Contract Year), multiplied by the Estimated Exchange Rate; provided that, the Estimated Transfer Price may be revised to reflect any adjustments to Actual Selling Price resulting from new competition or material changes in the market dynamics.

(v) “Excess Run Quantities” shall mean the amount of Product remaining and held by Supplier after processing the Minimum Run Quantities pursuant to a Purchaser Order after subtracting the amount of Product actually Purchased by Purchaser and the amount of Product designated from such Minimum Run Quantities to Safety Stock Inventory.

(w) “Exhibits” means the exhibits to this Agreement, unless otherwise specified, and the following are the Exhibits attached to and incorporated in this Agreement by reference and deemed to be part hereof:

Exhibit	Description
A	Certificate of Analysis and Compliance
B	Form of Purchase Order

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[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

(x) “First Commercial Sale” shall mean the date of the first arm’s length sale of the Product by or on behalf of Purchaser or Abbott Canada in the Territory, other than sales by Purchaser to Abbott Canada.

(y) “Final Packaging” means the labeling and packaging of Processed Product in accordance with Laws, including the package inserts and other components reasonably necessary for the sale or distribution of the Product to wholesalers, pharmacies and physicians in the Territory.

(z) “Finished Product” shall mean a Product in its finished form in Final Packaging, ready for sale to the market or distribution as Professional Samples.

(aa) “Generic” shall mean a pharmaceutical product that has the same active ingredient as the Product (gemifloxacin), has the same route of administration, is bioequivalent to the Product and is approved for the same indications by the relevant Canadian governmental authority (other than the Product sold by Purchaser).

(bb) “Good Manufacturing Practices” or “GMP” shall mean the good manufacturing practices and standards as set forth in Division 2 of the Food and Drug Regulations and the GMP Guidelines and as otherwise established or required by applicable Regulatory Authorities in effect at the time and place for activities relating to the Product, and subject to any arrangements, additions or clarifications agreed from time to time between the Supplier and Purchaser.

(cc) “HC” shall mean Health Canada, Health Products and Food Branch, Therapeutic Products Directorate, or any replacement or successor authority with jurisdiction over the sale of the Product in Canada.

(dd) “Improvements” shall mean any and all changes to the Product, including, without limitation, any technical improvement, modification, invention or discovery, whether patented or unpatented, including without limitation, methods, formulae and processes made, discovered, conceived, developed or acquired by either Party or their Affiliates, sublicensees, subcontractors or employees thereof, constituting additions and/or betterments to the Product.

(ee) “Intellectual Property” shall mean the Patent Rights, Trademarks and Copyrights.

(ff) “Laws” shall mean all applicable statutes and regulations in Canada as well as all applicable standards, policies, guidelines or codes of conduct issued by Regulatory Authorities, including Good Manufacturing Practices.

(gg) “Manufacture” shall mean, with respect to any Product, all activities relating to synthesis, manufacture or otherwise making or having made any Product, the Compound, or any component or formulation thereof (including, without limitation, process development work).

-5-

[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

(hh) “Minimum Run Quantities” shall mean a standard lot size of Product typically run by Supplier in its usual course of business; provided that, the Supplier and Purchaser agree that the actual amount of tablets delivered by Supplier may vary from lot to lot due to final yield variations, but in any case may never be more than [*] to [*] tablets.

(ii) “Monthly Average Exchange Rate” shall mean the quotient determined by dividing (i) the sum of the conversion rate existing in the United States (as reported in The Wall Street Journal) on the last business day preceding the applicable month immediately preceding the date upon which the Estimated Transfer Price or Actual Transfer Price, as the case may be, is to be calculated, and the last business day of such applicable month, by (ii) two. If The Wall Street Journal ceases to be published, then the rate of exchange to be used shall be that reported in such other business publication of national circulation in the United States as the Supplier and Purchaser reasonably agree.

(jj) “Monthly Sales Report” means a report signed and certified as correct by a duly authorized senior officer of Abbott Canada containing with respect to each applicable month: (i) all gross to Net Sales figures of the Product and the number of units of the Product sold; (ii) inventory status of the Product; (iii) a computation of the Actual Transfer Price for such month; and (iv) such other information required to confirm the correctness and accuracy of any payment made hereunder.

(kk) “Net Sales” shall mean the gross invoiced sales price for all Products sold by Purchaser or Abbott Canada to third parties throughout the Territory, less the following amounts incurred or paid by Purchaser or Abbott Canada to third parties with respect to sales of Products regardless of the calendar quarter in which such sales were made:

(i) trade, cash and quantity discounts or rebates, including, price reductions, distribution services agreement fees, cash sales incentives, cash discounts, government mandated rebates and similar types of rebates, actually allowed or taken, where permitted by law;

(ii) credits or allowances actually given or made for rejection of Products;

(iii) third party freight, transport and delivery charges indicated separately directly related to sales of Product by Purchaser to wholesalers;

(iv) any tax, tariff, duty or governmental charge levied on the sales, transfer, transportation or delivery of a Product to a third party, other than franchise or income tax of any kind whatsoever, to the extent included in the gross invoiced sales price; and

(v) uncollectible amounts on return of previously sold Products and returned Products.

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[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

Deductions due to (i), (ii), (iii) and (v) above shall not exceed a total of [*] percent ([*]%) of the gross invoiced sales. “Net Sales” shall not include Professional Samples or sales or transfers between Purchaser and Abbott Canada and their respective Affiliates, unless the Product is consumed by such Affiliate.

(ll) “Patent Rights” shall mean any of the patents and patent applications issued or pending in the Territory during the Term related to the Products, including those listed in Schedule C hereto, and all provisional applications, substitutions, continuations, continuations-in-part, divisions and renewals related thereto and all re-issues, re-examinations and extensions thereof to the extent these are or become available under the patent Laws of the Territory.

(mm) “PDE” shall mean either (i) one (1) Primary Detail or (ii) two (2) Secondary Details or (iii) six (6) Tertiary Details conducted by Purchaser.

(nn) “Person” or “person” means any individual, firm, corporation, partnership, limited or unlimited liability company, trust, joint venture, governmental entity, or other entity or organization.

(oo) “Primary Detail” shall mean a Detail in the first mention position and consuming at least 60% of the time spent during a Call.

(pp) “Printed Materials” means printed packaging materials relating to any Processed Product and product labels, printed packaging materials or packaging inserts relating to any Finished Product.

(qq) “Processing Activities” means activities relating to production of the Products, including purchasing raw materials, manufacturing, processing, quality control, filling, labeling, packaging, finishing, release and storage and other activities required to be undertaken by Supplier or its suppliers and its subcontractors in order to produce Finished Product, and the tests and analyses conducted in connection therewith.

(rr) “Processed Product” means a Product that has undergone the Processing Activities, prior to being in, and as released for, Final Packaging.

(ss) “Professional Samples” means Processed Product in Final Packaging intended for distribution as professional samples.

(tt) “Product” or “Products” shall mean all oral human pharmaceutical tableted products containing the Compound (commonly distributed under the trademark “Factive”), but specifically excluding any single enantiomer-based product or non-oral formulations, including all different dosages, strengths, presentations, and indications thereof .

(uu) “Regulatory Approval” shall mean any and all approvals, product and establishment licenses, registrations or authorizations of any kind of any Regulatory Authority necessary for the Development or Commercialization of a

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[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

Product, including, without limiting the generality of the foregoing, the notice of compliance issued by HC and the drug identification number assigned by HC.

(vv) “Regulatory Authorities” shall mean any applicable Canadian federal, provincial or local regulatory agency, department, bureau or other governmental entity of any jurisdiction or any non-governmental regulator having responsibility in Canada for any Regulatory Approvals of any kind or the regulation of any aspect of the Commercialization of pharmaceuticals and any successor agency or authority thereto. For greater certainty, this includes without limitation, HC, provincial Ministries of Health, the Patented Medicine Prices Review Board (“PMPRB”), Pharmaceutical Advertising Advisory Board (“PAAB”), Advertising Standards Canada (“ASC”), Rx&D and Canadian Agencies for Drugs and Technologies in Health (formerly Canadian Coordinating Office for Health Technology Assessment).

(ww) “Sale” by Purchaser or Abbott Canada shall be deemed to occur at the earliest of a Product being (i) shipped by Purchaser or Abbott Canada, (ii) invoiced by Purchaser or Abbott Canada, or (iii) paid for by or on behalf of Purchaser’s or Abbott Canada’s customer.

(xx) “Sales Representative” shall mean a professional pharmaceutical sales representative engaged or employed by Purchaser or Abbott Canada to conduct, among other sales responsibilities, Detailing and other promotional efforts with respect to the Products.

(yy) “Schedules” means the schedules to this Agreement, unless otherwise specified, and the following are the Schedules attached to and incorporated in this Agreement by reference and deemed to be part hereof:

Schedule	Description
A	Specifications
B	Trademarks
C	Patents
D	Next Year Estimated Transfer Price Determination
E	Actual Transfer Price Quarterly Reconciliation

(zz) “Secondary Detail” shall mean a Detail in the second mention position and consuming at least 30% of time spent during a Call.

(aaa) “Specifications” means, for each Product, such specifications as set forth in Schedule A, as such specifications may be supplemented or modified from time to time hereafter in accordance with the provisions of this Agreement.

(bbb) “Steering Committee” shall have the meaning ascribed thereto in Section 8.3.

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[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

(ccc) “Sub-Distributor” shall mean Abbott Canada or any Person to whom Purchaser has granted the right to distribute Products under the Trademarks in the Territory pursuant to the terms of this Agreement.

(ddd) “Target Audience” shall mean, for the Product, a licensed medical physician, authorized to write prescriptions for the Product pursuant to provincial statutes who prescribes pharmaceutical products or issues hospital orders for pharmaceutical products in the Territory as identified in the Marketing Plan for the Product.

(eee) “Trademarks” shall mean the trademarks described in Schedule B attached hereto.

(fff) “Term” shall have the meaning ascribed thereto in Section 16 hereof.

(ggg) “Tertiary Detail” shall mean a Detail in the third mention position and consuming at least ten percent (10%) of the time spent during a Call.

(hhh) “Territory” shall mean Canada.

(iii) “Valid Claim” shall mean a claim in any unexpired and issued Patent Right that has not been disclaimed, revoked or held invalid by a final unappealable decision of a court or government agency of competent jurisdiction.

1.2 Interpretation

In this Agreement a reference to:

(1) Article and Section numbers refer to Articles and Sections of this Agreement, and all references to Schedules and Exhibits refer to the Schedules and Exhibits attached hereto;

(2) the singular shall include the plural and vice versa and a reference to any gender shall include all genders;

(3) a statutory provision includes a reference to the statutory provision as modified or re-enacted or both from time to time before or after the date of this Agreement and any subordinate legislation made under the statutory provision (as so modified or re-enacted) before or after the date of this Agreement;

(4) a document (or section thereof) is a reference to that document as modified, amended, restated or replaced from time to time;

(5) a “month” is a reference to a calendar month;

(6) “herein”, “hereof”, “hereunder”, “hereafter”, and words of similar import refer to this Agreement as a whole and not to any particular Article or Section hereof;

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(7) money herein or “$” are references to United States Dollars unless otherwise specifically noted and

(8) “include”, “includes”, “including” and “such as” are to be construed as if they were immediately followed by the words “without limitation”.

1.3 If any payment is required to be made or other action required to be taken pursuant to this Agreement on a day which is not a Business Day, then such payment or action shall be made or taken on the next Business Day.

1.4 In calculating interest payable under this Agreement for any period of time, the first day of such period shall be included and the last day of such period shall be excluded.

1.5 The table of contents hereto and the headings of any Article, Section or part thereof are inserted for purposes of convenience only and do not form part of this Agreement.

2. DISTRIBUTOR RIGHTS

2.1 Appointment and Acceptance. Subject to the terms and conditions of this Agreement, in connection with the distribution, marketing and Sale of the Products, Supplier hereby appoints Purchaser as its distributor with the exclusive right to Commercialize the Products in the Territory, and Purchaser hereby accepts such appointment. Supplier hereby grants to Purchaser, and Purchaser hereby accepts, a non-royalty bearing license to use the Trademarks and Copyrights solely in connection with the Commercialization of the Products in the Territory.

2.2 Right to Appoint Sub-Distributor. Purchaser may appoint a Sub-Distributor; provided, however, that (a) Supplier shall be notified of and shall have consented to such grant, which consent not to be unreasonably withheld or delayed; provided, however, Supplier confirms its consent to the appointment of Abbott Canada as the Sub-Distributor, (b) the terms of the agreement with the Sub-Distributor shall be equivalent to the terms and conditions of this Agreement, except for the financial terms and except that Sub-Distributor shall have no right to further appoint a Sub-Distributor, nor to assign or delegate all or any part of its rights, (c) Purchaser shall remain obligated for the payment to Supplier of all of its payment obligations hereunder, (d) Purchaser shall make its best efforts to require Sub-Distributor to fulfill all of its obligations as described in this Agreement; (e) except as Supplier may in its discretion agree in writing, any agreement with the Sub-Distributor shall provide for termination upon termination of this Agreement, and (f) Purchaser shall provide Supplier with a copy of each such agreement within thirty (30) days of execution. If Sub-Distributor is any person other than Abbott Canada, then such person shall replace Abbott Canada as a Party to this Agreement and all references hereunder to Abbott Canada shall be deemed to be a reference to Sub-Distributor.

2.3 Retained Rights. Subject to the other terms of this Agreement, Supplier retains all rights not expressly granted under this Agreement, including the right to use and exploit the Trademarks and Copyrights for (i) uses in the Territory relating to governmental obligations or requirements and investor promotions (i.e., Supplier exhibit booths or magazine publications discussing Supplier’s business), and (ii) any and all uses outside of the Territory. All rights not expressly granted under this Agreement to Purchaser or Abbott Canada are reserved to Supplier.

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[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

2.4 Modification of Product.

Supplier reserves the right to make Improvements during the Term and shall give prior notice to the Purchaser of any Improvement, which could require approval by Regulatory Authorities under applicable Laws. For greater certainty, prior notice to the Purchaser is required for Improvements that are considered a “Level 1 Change” (i.e. change requiring a Supplement to a New Drug Submission), a “Level 2 Change” (i.e. Notifiable Change) or a “Level 3 Change” (i.e. Notice of Change) under HC’s Changes to Marketed New Drug Products Policy. For a “Level 4 Change” as described in HC’s Changes to Marketed New Drug Policy, Supplier will provide to Purchaser a copy of revised batch documents for Canadian GMP Product release purposes as and when they are revised. For a “Level 1 Change” and a “Level 2 Change”, Supplier and Purchaser shall agree upon the procedure and a reasonable period of time for the implementation of the Improvements, including, without limitation, for obtaining any necessary Regulatory Approvals with regard to any such Improvement pursuant to Section 7 hereof and the launch thereof. In the event that material changes are made to HC’s Changes to Marketed New Drug Products Policy, then the following applies: For any Improvement that requires prior notice to HC or approval from HC prior to implementation, the Parties shall agree in advance upon the procedure and a reasonable period of time for the implementation of the Improvements. For all other Improvements, Oscient shall provide Abbott Canada with regular updates and documentation of any Improvements made, including whenever requested by Abbott Canada due to an upcoming or actual inspection by HC or a request by HC.

2.5 Grant of Rights to Supplier. Each of Purchaser and Abbott Canada hereby grant to Supplier a non-exclusive, perpetual, fully paid-up, irrevocable, fully sub-licensable, worldwide (not including the Territory during the Term) license to use the information, materials, data, documents and plans relating to Products, including regulatory applications and Regulatory Approvals and, pursuant to Purchaser’s election under Section 3.2(d) herein, packaging documents, data and plans (“Purchaser Information”), which come into the possession or under the control of Purchaser and/or Abbott Canada in the course of and as a result of (i) Purchaser’s participation in the Development and Commercialization of the Product pursuant to Purchaser’s rights under this Agreement, and (ii) Abbott Canada’s participation in the Development and Commercialization of the Product pursuant to Abbott’s Canada’s rights under this Agreement.

3. SUPPLY OF PRODUCT.

3.1 Supply Terms. Until expiration of the Term, Supplier will use commercially reasonable efforts to supply to Purchaser, and Purchaser will exclusively purchase, all of Purchaser’s requirements for Finished Product pursuant to purchase orders delivered from time to time by Purchaser to Supplier in accordance with Section 4.2. During the Term, neither Supplier nor any of its Affiliates shall have the right to manufacture or supply any Product for or to any other Person in the Territory. Unless otherwise specified herein or expressly consented to in writing by Purchaser and Supplier, as between Purchaser and Supplier, Supplier shall have control of and discretion over performance of all activities necessary to supply Purchaser with Finished Product as contemplated hereunder, in each case which shall be exercised in Supplier’s reasonable judgment in the ordinary course of business. Unless provided otherwise and only as and if permitted herein, a Party’s sublicensing, subcontracting or delegating activities to be performed under this Agreement to an Affiliate or third party shall not release such Party from the performance of any of its responsibilities hereunder.

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[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

3.2 Packaging.

(a) Packaging Layout. Supplier shall package the Products with the Trademarks and the trademarks of Purchaser’s Affiliate in accordance with the applicable Law, and such packaging shall indicate that Supplier, or its applicable Affiliate, is the fabricator thereof. The packaging and any other Printed Materials shall bear notices bearing trademark ownership. Supplier shall provide Purchaser with information regarding the dimensions and parameters of the Printed Materials. At least one hundred and fifty (150) days prior to the Required Delivery Date (as defined below), Purchaser shall provide Supplier with all artwork, copy or other material developed or produced by Purchaser or Abbott Canada for the Printed Materials. Supplier will review such suggested layout and make any reasonable objections or comments that it may have to such layout in writing no more than ten (10) Business Days after receipt. Notwithstanding this, Purchaser is responsible for ensuring Printed Material complies with Laws. The Supplier and Purchaser will then discuss the merits of such objections or comments and use their respective commercially reasonable efforts to mutually agree upon any disputed items with respect to the final layout and content of the Printed Materials. Supplier shall, at Purchaser’s sole cost and expense, provide Purchaser with proofs or samples of the Printed Materials to be used with Product for Purchaser’s prior review and approval; provided that, Purchaser shall prepare or arrange for the production of camera-ready artwork for the agreed Printed Materials.

(b) Changes to Packaging. Purchaser may from time to time request changes to the Printed Materials, which request shall be handled in accordance with Section 3.2(a). In addition, pursuant to the provisions of Section 7.1 below, Abbott Canada shall submit for approval changes to the approved labeling (including package inserts and primary packages) for the Product with the Regulatory Authority, to the extent approval is required, at Purchaser’s sole cost and expense.

(c) Obsolete Packaging. Supplier shall promptly implement any agreed change or approved change, as the case may be, to the Printed Materials pursuant to Section 3.2(b), or on such other specific timeframe as agreed by the Supplier and Purchaser on a case-by-case basis. In the event that Abbott Canada requests or is required by an applicable Law or Regulatory Authority to make changes in the Printed Materials for the Product, and Supplier has components for such Printed Materials in stock that it has purchased specifically for such Product, Purchaser shall have the obligation to purchase, at Supplier’s cost, the lesser of (a) six months’ supply of such components based on forecasts made by Purchaser for the Product with respect to the next six months, and (b) all of the Supplier stock of such components; provided that, the Parties agree, within 90 days of the date hereof, to re-negotiate this provision in good faith, so that, upon a change to Printed Materials, Purchaser bears the economic burden of components purchased on the basis of Purchaser’s Forecast in a minimum order quantity and which can only be used by Supplier to manufacture Product in the Territory (i.e., foil, cartons and product inserts).

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[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

(d) Option to Package Finished Product. Supplier hereby grants to Purchaser the option to acquire the right to package Products, including an option to acquire a sublicense to the necessary Trademarks to complete packaging. Purchaser shall notify Supplier in writing of its decision to exercise its rights under this Section 3.2(d), and the Purchaser and Supplier (i) shall thereby enter into good faith negotiations regarding the terms and conditions of such sublicense and (ii) agree to negotiate revisions to the Initial Transfer Price or the Actual Transfer Price (each as defined in Section 10 below), as the case may be, that are fair and reasonable given the reduction in packaging services provided by Supplier.

3.3 Quality Agreement. The Supplier and Purchaser shall negotiate and agree within sixty (60) days following the date hereof a quality agreement (the “Quality Agreement”), which shall (a) be on terms consistent with applicable Law and those terms standard in the industry for transactions similar to this Agreement and (b) become effective as of the Effective Date. Each Party agrees to comply with the procedures set forth in the Quality Agreement regarding quality and GMP related responsibilities and complaints. To the extent there are any inconsistencies or conflicts between this Agreement and the Quality Agreement, the terms and conditions of this Agreement shall control unless otherwise agreed to in writing by Supplier and Purchaser in the form of an amendment to this Agreement. In the event that the Quality Agreement contains material provisions that differ from applicable Law, the applicable Law shall control.

3.4 Documentation, Monitoring and Recordkeeping. To the extent responsible for any Processing Activities hereunder, the Supplier, Purchaser and/or Abbott Canada shall maintain complete and accurate documentation of all validation data, stability testing data, batch records, quality control and laboratory testing, as applicable, and any other data required under applicable Law and other requirements of any relevant Regulatory Authority in connection with the performance of any Processing Activities hereunder. Throughout the term of this Agreement, and for so long thereafter as is required by applicable Law, Supplier shall monitor and maintain reasonable records respecting its compliance with GMP, including through the establishment and implementation of such operating procedures as are reasonably necessary to assure such compliance.

4. FORECASTING, ORDERING AND SHIPPING

4.1 Rolling Forecasts. Throughout the Term of this Agreement, Purchaser shall provide Supplier, at the beginning of each month, with a non-binding rolling forecast (“Forecast”) prepared in good faith by Purchaser projecting Purchaser’s requirements of Finished Product, for the [*] ([*]) month period commencing on the first day of the aforementioned month, specifically indicating such projected requirements for each month during such [*] ([*]) month period

4.2 Submission of Purchase Orders. Purchaser acknowledges that Supplier is obligated to produce only Minimum Run Quantities of Product upon orders of Finished Product from Purchaser. Supplier hereby agrees to use commercially reasonable efforts to facilitate a smaller minimum run quantity. Purchaser may order Finished Product in quantities other than the Minimum Run Quantities (each a “Split Batch”) upon payment, in addition to the transfer price set forth in Section 10 herein, to Supplier of any additional costs incurred by Supplier in delivering such Split Batch, including the price charged to Supplier by a third party manufacturer

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[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

for the fill and finish of the Product tablets from its third party vendors related to such Split Batch (such costs not to exceed $[*] for each Split Batch ordered) provided, however, that no additional costs shall be payable with respect to any changeover between commercial pack and sample pack. On or before the [*] day preceding the commencement of each calendar month, Purchaser shall issue a purchase order, in the format attached hereto as Exhibit B (each a “Purchase Order”), for the Products to be manufactured and shipped to it on a date (the “Required Delivery Date”) not less than [*] ([*]) days from the first day of the calendar month immediately following the date that the purchase order is submitted; provided that, Purchaser has delivered all camera ready art for the final packaging of the Product as set forth in Section 3.2(a) herein. The quantities of Products ordered in each such purchase order shall be firm and binding on Purchaser and shall not be subject to reduction by Purchaser. All purchase orders shall be sent by Purchaser to the attention of the employee of Supplier as may from time to time be designated by Supplier. To the extent the terms of any purchase order or acknowledgment thereof are inconsistent with, or additional to, the terms of this Agreement, such terms are of no force and effect. Notwithstanding anything to the contrary contained herein, the terms and conditions of this Agreement shall prevail over any terms and conditions contained on the Purchase Order and any and all terms and conditions contained in a Purchase Order shall be null and void.

4.3 Terms of Delivery. Supplier shall execute all accepted purchase orders consistent with this Agreement and deliver Finished Product to Purchaser’s designated carrier at Supplier’s facility, to be delivered on the delivery date specified in Purchaser’s purchase orders, and in no event more than five (5) days before the delivery date specified in Purchaser’s purchase orders, in accordance with Section 4.2; provided that, if Supplier shall engage a new third party vendor to package Finished Products and such vendor shall require additional time to complete orders due to Purchaser’s packaging requirements, the Parties shall in good faith mutually agree to extend each Required Delivery Date for such order only by a reasonable amount of time to accommodate Supplier’s arrangements with its new Finished Product packager. Purchaser shall be responsible for arranging, at its expense, all shipping, freight and insurance for its orders of Finished Product. Title and risk of loss will pass to Purchaser when each order of Finished Product is delivered to Purchaser’s designated carrier at Supplier’s facility. If Purchaser does not timely indicate in writing its selection of a carrier to Supplier, Supplier shall be entitled to select an appropriate carrier. Supplier shall package each order of Finished Product for shipment in accordance with its customary practices therefor, unless otherwise reasonably specified in writing by Purchaser.

4.4 Accompanying Documentation. With each shipment of Finished Product, Supplier shall provide Purchaser with commercially appropriate shipping documentation (including Purchaser’s purchase order number and the quantity of the Finished Product) and with a Certificate of Analysis and Compliance identifying the applicable lot and batch numbers and indicating conformance of the shipment with the Specifications.

4.5 Retention of Samples. Supplier shall properly store and retain appropriate samples (identified by lot and batch number) of Finished Product that it supplies to Purchaser in conditions and for times consistent with all applicable Law and to permit appropriate or required internal and regulatory checks and references (collectively, the “Shipment Samples”).

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[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

4.6 Shortage and Safety Stock. Supplier shall maintain (a) [*] months of safety stock inventory of Finished Product for Product to be sold to wholesalers, pharmacies or hospitals, and (b) [*] month of safety stock inventory of Finished Product for Professional Samples, determined pursuant to written notice to be delivered by Purchaser to Supplier on a monthly basis concurrently with the delivery of its Forecast (the “Safety Stock Inventory”); provided, however, that (i) Safety Stock Inventory shall be depleted on a first in first out basis to satisfy Purchase Orders submitted by Purchaser, (ii) pursuant to Section 16.6(f) below and subject to the terms thereof, Purchaser shall purchase all Safety Stock Inventory at the price determined pursuant to the terms of Section 10 below and (iii) specific terms and condition regarding the logistics, delivery and warehousing requirements and inventory management costs relating to such Safety Stock Inventory shall be agreed to by the Parties in good faith within thirty (30) days of the date hereof. In the event that Finished Product is in short supply, Supplier shall notify Purchaser of such shortage as soon as possible and firstly use Safety Stock Inventory to fill Purchaser’s orders and once depleted, secondly allocate to Purchaser a prorated share of same available to Supplier taking into consideration Purchaser’s relative sales volume in relation to Supplier and Supplier’s other customers. Supplier shall take commercially reasonable efforts to eliminate, cure or overcome such shortage and to resume performance of its obligations hereunder as soon as reasonably possible. The Safety Stock Inventory shall, subject to Section to 4.7 below, have a shelf life of no less than twenty four (24) months from the date of delivery of Product from such Safety Stock Inventory. The Parties agree that on the second anniversary of the date hereof, they shall, in good faith, discuss the financial obligations and logistics relating to the Safety Stock Inventory.

4.7 Shelf Life. All Products Manufactured by Supplier shall have a shelf life of no less than thirty-six (36) months from the date of Manufacturing and no less than twenty four (24) months from the date of delivery. Notwithstanding the foregoing, Purchaser shall accept Product with more than [*] months of shelf life but less than twenty four (24) months of shelf life (the “Risk-Dated Product”). Purchaser’s obligation to accept Risk-Dated Product, however, shall not exceed more than [*] Product tablets per Minimum Run Quantity; provided that, Supplier shall be obligated to repurchase from Purchaser [*]% of any Risk-Dated Product that has less than [*] months of shelf-life at the price paid by Purchaser and credit Purchaser for the difference between the Actual Transfer Price paid and/or calculated for such Risk-Dated Product and Supplier’s cost for the other [*]%.

5. OPTION TO MANUFACTURE FINISHED PRODUCT.

5.1 Supplier hereby grants to Purchaser the option, subject to Sections 5.2 to 5.5 below, to be exercised by notice in writing (the “Purchaser’s Option Notice”) to Supplier to acquire the right to Manufacture Products, including an option to acquire a sublicense to the Patents to the extent necessary to Manufacture Products, whether in the Territory or outside the Territory solely for the purpose of Commercialization in the Territory (the “Manufacturing License”), to be exercised solely in the event that (x) Regulatory Approval is obtained by another drug manufacturer to market a Generic in the Territory, (y) an interruption in the supply of the Products continues for more than [*] days beyond the ninety (90) day delivery schedule, or (z) the Actual Transfer Price calculated for any applicable month is less than $[*] per tablet for more than six (6) consecutive months due to changes in the Monthly Average Exchange Rate.

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[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

5.2 Purchaser hereby acknowledges that the Manufacturing License may require the prior written approval of LG Life Sciences, Ltd. and that the grant by Supplier of such Manufacturing License is subject to Supplier’s receipt of written consent from and the rights of LG Life Sciences, Ltd. Consequently, in the event Purchaser exercises its option under Section 5.1, (i) Supplier shall grant to Purchaser any and all rights it may lawfully have regarding the Manufacture of Products in accordance with Section 5.1 above, and (ii) Supplier shall provide to Purchaser such commercially reasonable efforts as may be necessary to obtain from LG Life Sciences, Ltd., or its successor-in-title, if applicable, all other required rights necessary for the Manufacture of Products in accordance with this Section 5; provided that, Supplier shall not be required to make any payments or agree to any material undertakings in connection therewith.

5.3 Upon the grant of the Manufacturing License, Purchaser shall, at its expense, obtain all Regulatory Approvals necessary to Manufacture the Product in accordance with the Specifications and Supplier shall subject to any restrictions pursuant to the rights secured from LG Life Sciences, Ltd. pursuant to Section 5.2(ii), promptly provide all Product information in its possession required to be provided by Purchaser to any Regulatory Authority in order to obtain such Regulatory Approvals.

5.4 The obligations under Sections 3 and 4 shall terminate when Purchaser is capable and lawfully authorized to Manufacture the Products.

5.5 Royalty. As consideration for the Manufacturing License, prior to Purchaser receiving the rights set forth under Section 5.1 above, Purchaser and Supplier shall enter into good faith negotiations regarding the terms and conditions of such Manufacturing License and further agree to negotiate a royalty that is fair and reasonable to both Parties and consistent with all applicable Laws and the economics of the transactions contemplated hereunder.

5.6 Relationship. The Parties hereto agree that any royalty determined pursuant to Section 5.5 above shall not constitute a sharing of profits between Purchaser and Supplier. The collection, holding and remittance of any such royalty by Purchaser shall in no way constitute Supplier as an agent or partner of Purchaser and the Parties hereto specifically renounce any intent to form a partnership or joint venture that may be inferred in connection with such royalty. Neither Party hereto has any authority to assume or create any obligation or liability, express or implied, on behalf of or in the name of the other Party in connection with the collection, holding and remittance of such royalty.

5.7 Changes to Specifications. Subject to such restrictions as may be imposed by LG Life Sciences, Ltd., at any time after Purchaser commences Manufacture of the Product pursuant to the rights set forth in this Section 5, the Purchaser may, at its sole risk and expense, make changes to the Specifications, subject, however, to the following:

(a) no change shall be made unless sixty (60) days’ prior written notice thereof is given to Supplier, together with any and all information requested from time to time by Supplier in order to assess, review, validate and approve same;

(b) any and all such changes must be evaluated and approved by Supplier;

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[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

(c) any regulatory filings required due to any changes approved by Supplier shall be the sole responsibility of Purchaser; and

(d) all changes to the Specifications, as between the Parties, shall be deemed to be part of the Specifications for the purpose of this Agreement and Supplier shall acquire and maintain all proprietary rights in respect thereto without any reservation of, or compensation to, Purchaser.

5.8 Save and except as modified by this Section 5, the obligations and rights as set forth herein shall continue in full force and effect in accordance with the provisions hereof.

6. INSPECTION AND DEFECTIVE PRODUCTS

6.1 Receipt of Finished Product by Purchaser. Purchaser shall be entitled to reject any portion or all of any shipment of Finished Product that does not conform to the Certificate of Analysis and Compliance or otherwise fails to comply with the warranties set forth in Article 13 of this Agreement (unless such non-conformity was attributable to an act or omission of Purchaser, Abbott Canada or the common carrier once the Finished Product was delivered by Supplier to such common carrier); provided, that (i) Purchaser shall notify Supplier within [*] days after receipt of such shipment if it is rejecting a shipment due to physical damage, packaging defect or quantity discrepancies that are evident upon visual inspection of the packaged Finished Product as shipped by Supplier and (ii) in the case of Finished Product having defects not reasonably susceptible to discovery upon customary inspection upon receipt of Finished Product, Purchaser shall notify Supplier within [*] days after discovery of such defect (but in no event after expiration of the Product). If no notice is provided by Purchaser within the relevant time periods, then Purchaser shall be deemed to have accepted the shipment. Any notice of rejection by Purchaser shall be accompanied by a reasonably detailed statement of its reasons for rejection and a report of any pertinent analysis performed by Purchaser on the allegedly nonconforming Finished Product, together with the methods and procedures used. Supplier shall notify Purchaser as promptly as reasonably possible, but in any event within [*] Business Days after receipt of such notice of rejection, whether it accepts Purchaser’s assertions of nonconformity.

6.2 Replacement Finished Product. Whether or not Supplier accepts Purchaser’s assertion of nonconformity, promptly upon receipt of a notice of rejection, unless otherwise specified by Purchaser, Supplier shall use its commercially reasonable efforts to provide replacement Finished Product for those rejected by Purchaser in the original shipment. If the Finished Product rejected by Purchaser from such original shipment ultimately is found to be nonconforming (whether pursuant to Section 6.3 or if Supplier so acknowledges in writing), Supplier shall bear all expenses for such replacement Finished Product (including all transportation and/or disposal charges and cost of manufacture for such nonconforming Finished Product) to the extent Purchaser previously paid for any corresponding nonconforming Finished Product. If it is determined subsequently that such Finished Product was in fact conforming (whether pursuant to Section 6.3 or if Purchaser so acknowledges in writing), then Purchaser shall be responsible not only for the purchase price of the allegedly nonconforming Finished Product (including all transportation charges), but also, upon receipt and acceptance by Purchaser in accordance with the procedures (and at the same price charged in the original shipment) set forth above, the replacement Finished Product. Replacement shipments shall also be subject to the procedures contained in Section 4.

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[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

6.3 Independent Laboratory Analysis. If Supplier disagrees with any alleged nonconformity timely notified to Supplier under Section 6.1, then an independent laboratory (or other expert) of recognized repute reasonably acceptable to Supplier and Purchaser (the “Independent Laboratory”) shall analyze (i) a sample from the relevant shipment provided by Purchaser and (ii) a Shipment Sample as retained by Supplier in accordance with Section 4.5, as may be necessary to substantiate whether the shipment rejected by Purchaser conformed in all material respects to the Certificate of Analysis and Compliance and any other pertinent Specifications or otherwise failed to comply with the warranties set forth in Article 13 of this Agreement at the time of delivery to the common carrier. At the same time each of Supplier and Purchaser furnishes to the Independent Laboratory its sample, such party shall also furnish to the other party a split sample of such sample. In conducting its analysis hereunder, the Independent Laboratory shall use the same analytical methodology used by Supplier. Supplier shall provide a reasonably detailed description of such analytical methodology to the Independent Laboratory. Both Supplier and Purchaser agree to cooperate with the Independent Laboratory’s reasonable requests for assistance in connection with its analysis hereunder. The Independent Laboratory’s results of analysis, absent manifest error, shall be deemed final as to any dispute over compliance of the Finished Product in all material respects with the Certificate of Analysis and Compliance and/or any other pertinent Specifications and/or the warranties set forth in Article 13 of this Agreement. If the analysis of the Independent Laboratory shows that the Finished Product did not at the material time(s) conform in all material respects to the Certificate of Analysis and Compliance or any other pertinent Specifications or the warranties set forth in Article 13 of this Agreement at the time of delivery to the common carrier, the costs of such analysis shall be paid by Supplier. If the analysis of the Independent Laboratory shows that the Finished Product did at the material time(s) conform in all material respects to the Certificate of Analysis and Compliance and any other pertinent Specifications and the warranties set forth in Article 13 of this Agreement at the time of delivery to the common carrier, the costs of such analysis shall be paid by Purchaser.

6.4 Disposition of Non-Conforming Finished Product. If Supplier acknowledges an alleged nonconformity (or if the Independent Laboratory concludes that the Finished Product was nonconforming in accordance with Section 6.3), Supplier promptly (and in any case within thirty (30) days thereafter) shall make arrangements for the return, reworking or disposal, at Supplier’s option, of the nonconforming Finished Product. If Supplier requests that Purchaser dispose of such nonconforming Finished Product, Supplier shall give Purchaser written instructions as to how Purchaser or its agent shall, at Supplier’s expense, lawfully dispose of any non-conforming Finished Product, and Purchaser shall provide Supplier with written certification of such destruction. Supplier shall pay, or reimburse Purchaser, for any reasonable return shipping charges or out-of-pocket costs incurred by Purchaser for such return shipment or lawful disposal of such nonconforming Finished Product in accordance with Supplier’s instructions.

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[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

7. DEVELOPMENT OF PRODUCTS

7.1 Regulatory Approval of Supplier.

(a) Notwithstanding any other provision in this Agreement, any regulatory filings during the Term for a notice of compliance or drug identification number relating to Product shall be filed on behalf of Supplier, and any notice of compliance or drug identification number issued by HC for Product shall be issued in the name of Supplier. For greater certainty, this means that during the Term, Purchaser and Abbott Canada shall not make any regulatory filings for a notice of compliance or drug identification number relating to Product unless the notice of compliance or drug identification number will be issued in the name of Supplier.

(b) In connection with Purchaser’s anticipation of granting rights to Abbott Canada pursuant to Section 2.2 above, Abbott Canada shall use Diligent Efforts in, and be responsible for, all activities relating to obtaining and/or maintaining Regulatory Approvals, listing on public and private formularies and patent lists (as defined under Patented Medicines (Notice of Compliance) Regulations, relating to Product, including without limitation, using Diligent Efforts to secure [*] and [*] indications for the Product. Abbott Canada agrees (i) to inform Supplier of all activities, including providing all correspondence, applications, or other documentation or information submitted to or received from Regulatory Authorities and drafts of any documents, filings, data or other correspondence pertaining to Regulatory Approvals, formulary listings and patent lists in Supplier’s name, and Supplier shall review and approve or otherwise provide comments to Abbott Canada (which shall be incorporated into the filings) with respect to the substance of such filings no more than ten (10) Business Days after receipt (unless the nature and circumstances of such filing reasonably necessitate a longer review period by Oscient); (ii) to give reasonable prior notice to Supplier in order to allow Supplier to attend all material meetings with Regulatory Authorities; (iii) to conduct all regulatory and Development activities in accordance with applicable Laws; and (iv) that Supplier shall have the ability, in a collaborative manner with Abbott Canada, to contact and correspond directly with Regulatory Authorities with respect to Regulatory Approvals in Supplier’s name and issues related to same, upon providing reasonable notice to Abbott Canada. All activities relating to Development under this Agreement shall be undertaken at Abbott Canada’s and/or Purchaser’s sole cost and expense.

(c) Abbott Canada agrees not to request from HC any confidential Drug Master File information relating to Product.

(d) In the event that changes are to be made to the Product, including changes relating to the Product’s indications, Improvements or other claims, labeling or manufacture, Abbott Canada shall be responsible for preparing and filing, as applicable, on behalf of Supplier and in Supplier’s name, any required supplements to new drug submissions, notifiable changes or notices of changes (all as defined under the Law). Supplier shall use reasonable efforts to provide Abbott Canada at least ten (10) Business Days before an application and/or a response is due to a Regulatory Authority with all necessary technical data, information and other assistance in support of such supplements to new drug submissions, notifiable changes or notices of changes. Changes to be made to the Product include, without limitation, changing the site of manufacture of the Product from [*] to [*], adding an indication for [*] and/or [*], and adding additional indications beyond [*], [*] or [*] (subject to Section 7.6 below).

(e) Any information which Abbott Canada receives from Supplier pursuant to this provision, including clinical data and U.S. regulatory filings, shall be used by Abbott Canada solely for the purpose of this Agreement and shall be subject to the terms and conditions of this Agreement, and such information shall be treated as Confidential Information.

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[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

7.2 Regulatory Approval of Abbott Canada. In connection with Purchaser’s anticipation of granting rights to Abbott Canada pursuant to Section 2.2 above, Abbott Canada shall use Diligent Efforts in, and be responsible for, all activities relating to obtaining and/or maintaining the establishment/product license on behalf of Abbott Canada required to distribute and import into Canada the Product. However, in the event HC requires a dissolution assay or similar testing as a condition precedent to granting the establishment/product license, then Supplier shall use Diligent Efforts to forthwith complete and remit to HC, through Abbott Canada, the results thereof and other information relating thereto required by HC.

7.3 Regulatory Authorities. Abbott Canada shall be responsible for communications with the Regulatory Authorities with respect to the Product. Supplier shall use reasonable efforts (i) to assist Abbott Canada in responding to any queries from a Regulatory Authority, (ii) to provide Abbott Canada with all necessary documents, data and information which Supplier has assembled and is in its possession that will assist Abbott Canada in preparing the regulatory documents for the Territory, and (iii) to provide at least ten (10) Business Days before a response is due to such Regulatory Authority all the necessary documents, data, and information which Supplier has assembled and is in its possession that will assist Abbott Canada in preparing for such response. Abbott Canada shall advise Supplier of material developments and events relating to regulatory issues in writing within two (2) Business Days after notice of such material developments and events. Abbott Canada shall take the steps necessary to ensure that information submitted to Regulatory Authorities is kept confidential.

7.4 Clinical Trials. Neither Purchaser nor Abbott Canada shall conduct any clinical study or any other study or trial with respect to the Product or any product containing the Compound without Supplier’s prior written consent.

7.5 Inspections, Inquiries and Complaints

(a) Purchaser and/or Abbott Canada shall advise Supplier of any Regulatory Authority visit to, or written or oral inquiry about, any facilities or procedures relating to the Commercialization of the Product, promptly (but in no event later than one (1) Business Day) after notice of such visit or inquiry. Purchaser and/or Abbott Canada shall, within two (2) business days of receipt or submission, furnish to Supplier any report or correspondence issued by or provided to the Regulatory Authority in connection with such visit or inquiry.

(b) Supplier shall advise Purchaser of any Regulatory Authority visit to, or written or oral inquiry about, any facilities or procedures relating to the manufacture of the Product, promptly (but in no event later than one (1) Business Day) after notice of such visit or inquiry.

(c) Each of Purchaser and Abbott Canada shall advise Supplier within twenty four (24) hours of any investigation, complaint, claim or potential claim, whether from a Regulatory Authority or not, about Product relating to a safety issue, and shall also advise Supplier within two (2) Business Days of any issue that may give rise to a potential recall.

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[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

7.6 Additional Development. Notwithstanding anything else in this Agreement, all Development activities in the Territory will, at the time of such activities, be consistent with the U.S. label in regard to duration of therapy, dose, or indication, unless otherwise approved in writing by Supplier; provided that, the Parties agree that (i) the regulatory filing for [*] in the Territory will be based on 5-day duration of therapy and (ii) Abbott Canada may pursue a regulatory filing for [*] based on 5-day duration of therapy in the Territory.

8. COMMERCIALIZATION OF PRODUCT

8.1 Responsibility. From and after the Effective Date, Purchaser or Abbott Canada shall have full control and authority over the Commercialization of Products in the Territory, and shall exercise Diligent Efforts in Commercializing the Products in the Territory, including diligently seeking formulary listings. All activities relating to Commercialization under this Agreement shall be undertaken at Purchaser’s or Abbott Canada’s sole cost and expense.

8.2 Marketing Plan. Abbott Canada shall submit, no later than ninety (90) days from the Effective Date, to the Steering Committee for approval a marketing plan (the “Marketing Plan”), for Commercialization of the Product in the Territory, which will include, among other things, the annual number of Details to be performed and aggregate amount of Commercializing expenses to be incurred for the first year after the First Commercial Sale. At least sixty (60) days prior to each Contract Year commencing with the Contract year commencing December 1, 2007, Abbott Canada shall submit the Marketing Plan for such Contract Year. Purchaser shall ensure that Abbott Canada will have agreed in writing to the Marketing Plan prior to its implementation.

8.3 Joint Steering Committee.

(a) Within thirty (30) days of the date of this Agreement, a joint steering committee, comprised of equal representation by Supplier and Purchaser (the “Steering Committee”), shall be established to perform such functions as appropriate to further the purposes of this Agreement. Accordingly, Purchaser shall keep Supplier informed of the following matters through the Steering Committee:

(i) Plans and updates relating to the Commercialization or Development of the Product, including updates on achievement of objectives set forth in the Marketing Plan, progress towards sales goals, and related sales and marketing and regulatory activities; and

(ii) Summary and analysis of any Adverse Event information, other medical inquires, complaints, or other issues further defined in the Quality Agreement.

(b) Purchaser must ensure that it keeps itself informed of the matters in Section 8.3 above, and to the extent it is not informed, it must seek such information from Abbott Canada.

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[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

(c) Supplier or Purchaser may change or replace its representatives on the Steering Committee as it deems appropriate, by notice to the other. The Steering Committee shall hold meetings at such times and places as shall be determined by the co-chairpersons. The meetings shall be held no less frequently than once every six (6) months during the first twenty-four (24) months of the Agreement and a minimum of once every twelve (12) months thereafter. Steering Committee meetings may be held in person or by telephone or video conference.

(d) The Steering Committee shall only have such powers as are expressly delegated to it in this Agreement. The Steering Committee is not a substitute for the rights or obligations of the Parties and shall not have the authority to amend this Agreement.

(e) Each of Supplier and Purchaser will designate one of its members of the Steering Committee to act as a co-chairperson to facilitate the performance of its rights and satisfaction of its obligations hereunder.

8.4 Standards and Sales Activities Purchaser and Abbott Canada shall, at their sole expense, Commercialize the Product in accordance with good commercial practice with respect to regulated pharmaceutical products, including applicable Laws. Purchaser and Abbott Canada shall avoid using any practice that would prejudice Supplier’s name, the Trademarks, and the quality of the Products. Purchaser and Abbott Canada shall market (including price) Product in a manner that maximizes the goodwill and the value over the long term of Product.

8.5 Training. Purchaser shall ensure that each of its and its Sub-Distributors’ sales force and employees are fully trained with respect to the Product and Supplier’s policies and procedures regarding sale, distribution and use of the Product and reporting of Event information.

8.6 Sales Outside the Territory. Purchaser and Abbott Canada shall not: (a) establish any branch, sales offices, warehouse or other facilities outside of the Territory with respect to the Product, (b) adopt a policy of selling the Product outside the Territory nor undertake the sale or promotion of sales of the Product outside the Territory, (c) seek customers or solicit orders from any prospective customer whose principal address or place of business is located outside the Territory, and/or (d) provide any price quotations for the Product to any prospective customer whose principal address or place of business is located outside the Territory. Purchaser and its Sub-Distributors shall, to the extent permitted by Law, use Diligent Efforts not to directly or indirectly knowingly sell to any person (including a pharmacy or wholesaler) that directly or indirectly sells to any person outside of the Territory. If Purchaser or Abbott Canada receives an order from a prospective customer located outside the Territory, Purchaser and Abbott Canada shall immediately refer that order to Supplier. Without Supplier’s prior consent, Purchaser or Abbott Canada may not deliver or tender, or cause to be delivered or tendered, the Product (or any sample of the Product) outside the Territory. Neither Purchaser nor Abbott Canada shall sell any Product to any purchaser if (A) it knows, has reason to believe, or has been informed by Supplier that such purchaser intends to remove the Product from the Territory, either directly or indirectly, or if (B) such purchaser is known to remove pharmaceuticals from the Territory, either directly or indirectly. Notwithstanding anything hereunder to the contrary, in the event that Purchaser or Abbott Canada becomes aware either through Supplier or through its own market intelligence that any customer of Purchaser or Abbott Canada is purchasing Product for resale outside the Territory, then Purchaser’s sole obligation and restraint with respect thereto shall be

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[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

to ensure that Purchaser and/or Abbott Canada conducts such reasonable enquiries consistent with the Law and takes such measures with respect to such customer that are consistent with the measures adopted and applied by Purchaser and/Abbott Canada with respect to its own products in order to comply, to the extent commercially reasonable and to the extent permitted by Law, with the provisions of this Section 8.6.

8.7 Marketing, Promotional and Educational Materials. Marketing, promotional and educational materials related to the Product and prepared for use in the Territory by Purchaser or Abbott Canada shall be prepared in a manner consistent with Canadian Law (the “Promotional Materials”). Notwithstanding this, Purchaser and Abbott Canada are responsible for ensuring compliance with Laws. Upon request of Supplier, Supplier shall be presented and described as the party that developed the Product in all Promotional Materials. All Promotional Materials shall display the Trademarks in a manner that promotes the Product and each of the Parties in a manner consistent with good commercial practice in dealing with regulated pharmaceutical products, and shall indicate that FACTIVE is a trademark and sublicensed by Supplier and used under license to the extent permitted by applicable Law and the prominence of such notice shall depend on space and other physical limitations and all other commercially reasonable limitations. Supplier shall have the right to reproduce, distribute and otherwise use outside the Territory all Promotional Materials with the prior written consent of the Purchaser. Purchaser and Abbott Canada shall provide and distribute to customers and prospective customers marketing, promotional and educational materials reasonably necessary to promote the Product in the Territory. Purchaser and Abbott Canada shall be responsible for all expenses relating to the advertising, promotion or sales of the Product. Supplier shall provide Purchaser with Product-related marketing and promotional materials prepared by Supplier, including related logos and graphics, for use by Purchaser in connection with the development of Promotional Materials.

9. RECORDS AND REPORTS

9.1 Records. Purchaser and Abbott Canada shall each maintain complete and accurate records of all inventories, Product in storage, movements, shipments, sales and potential problems involving the Product by unit, by batch number and by customer so that all such matters can be traced quickly and effectively. Upon request, Purchaser and Abbott Canada shall provide copies of such records to Supplier, and shall provide Supplier, or its representatives, with access to the place where the Product is stored and/or shipped and other facilities used by Purchaser or Abbott Canada in carrying out this Agreement, during normal business hours and upon reasonable notice, for the purpose of inspecting such facilities for compliance with the terms of this Agreement. Purchaser and Abbott Canada shall maintain all such records for at least three (3) years.

9.2 Reports. Purchaser and Abbott Canada shall provide Supplier with written reports no less frequently than annually during the Term summarizing Purchaser and Abbott Canada’s efforts to Develop and Commercialize Products hereunder. In addition, Purchaser shall provide Supplier with prompt written notice of the occurrence of the First Commercial Sale of any Product in the Territory. All reports, updates, Adverse Events and other information provided by one Party to another Party under this Agreement shall be considered Confidential Information of the Disclosing Party, subject to the terms of Section 11 hereof.

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[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

9.3 Annual Plan. On or before the First Commercial Sale and not later than each anniversary date of the First Commercial Sale, Purchaser and Abbott Canada shall submit to Supplier a business and marketing plan for the following year (the “Annual Plan”). The Annual Plan shall be in a form reasonably required by Supplier, and shall include: (i) a description of the market and marketing, promotional and customer service programs anticipated for the following year and budgets for each, and (ii) such other information concerning the market, the status of customers and competitors, the business of Purchaser or Abbott Canada or such other matters related to the Product as Supplier may reasonably request.

9.4 Adverse Events. Within a period of sixty (60) days after the Effective Date, the Parties shall agree upon a Safety Data Exchange Agreement, which will set out in detail the handling of post-market Adverse Event information relating to this Agreement and be on terms consistent with those standard in the industry for transactions similar to this Agreement. The Safety Data Exchange Agreement will include, and be consistent with, the following:

(a) Abbott Canada shall be responsible for providing to Supplier any Adverse Event information relating to Product that Abbott Canada or Purchaser receives, within two (2) Business Days of receipt of such information by Abbott Canada or Purchaser.

(b) To the extent required, Purchaser and Abbott Canada shall seek additional information regarding Adverse Events upon request from Supplier.

(c) Supplier shall provide to Abbott Canada details of any information relating to the Adverse Events that is in Supplier’s possession that Abbott Canada requires to comply with Law.

(d) Abbott Canada shall file with Regulatory Authorities any Adverse Event information required by Law. Filings shall be made in accordance with Law, including with respect to timing of filings.

Each Party shall comply with the Safety Data Exchange Agreement. To the extent there are any inconsistencies or conflicts between this Agreement and the Safety Data Exchange Agreement, the terms and conditions of this Agreement shall control unless otherwise agreed to in writing by Supplier and Purchaser in the form of an amendment to this Agreement. In the event that the Safety Data Exchange Agreement contains material provisions that differ from the Law, the Law shall control.

9.5 Purchase Information. Upon request, Purchaser or Abbott Canada shall provide to Supplier copies of any and all reasonably required purchase information regarding the Product, to the extent such information is easily available and in Purchaser’s or Abbott Canada’s possession.

10. PAYMENTS AND FEES

10.1 Initial Transfer Price. Purchaser shall pay Supplier $[*] per tablet for Finished Product (the “Initial Transfer Price”) ordered during the Contract Year ending November 30 in each of 2006, 2007 and 2008. Upon delivery, Supplier shall invoice Purchaser for the price of the

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[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

Finished Products delivered. Each invoice shall specify the purchase order number to which it corresponds and shall reflect the price set forth in this Section 10.1. All amounts due to Supplier pursuant to this Section 10.1 shall be paid by Purchaser within thirty (30) days following the date of invoice pursuant to Section 10.5 below.

10.2 Subsequent Transfer Price.

(a) For each Contract Year during the remainder of the Term, commencing on December 1, 2008, Purchaser shall pay Supplier an amount per tablet equal to the Estimated Transfer Price. For purposes of clarification, Schedules D and E are attached hereto to provide hypothetical forecasted examples of the calculation of Estimated Transfer Price and Actual Transfer Price. The Estimated Transfer Price shall be delivered to Supplier at least thirty (30) days prior to each such Contract Year. Each invoice for Finished Product shall specify the purchase order number to which it corresponds. All amounts due to Supplier pursuant to this Section 10.2(a) shall be paid by Purchaser within thirty (30) days following the date of invoice pursuant to Sections 10.5 and 10.6 below.

(b) Within fifteen (15) days following the end of every month, Purchaser shall send a Monthly Report to Supplier detailing the adjustment of the Estimated Transfer Price which shall be calculated as follows: (the “Actual Transfer Price”)

Actual Transfer Price = [*]

(c) Notwithstanding anything hereunder to the contrary, in no event shall the Estimated Transfer Price or Actual Transfer Price be less than $[*] per tablet or more than $[*] per tablet.

(d)(i) If the Actual Transfer Price is greater than the Estimated Transfer Price for the applicable month, then Purchaser shall owe Supplier an amount equal to the difference between the Actual Transfer Price and the Estimated Transfer Price multiplied by the number of tablets sold in the applicable month to be paid to Supplier pursuant to the provisions of Section 10.2(e) below (the “Supplier Credited Amount”).

(ii) If the Estimated Transfer Price is greater than the Actual Transfer Price for the applicable month, then Supplier shall owe to Purchaser an amount equal to the difference between the Estimated Transfer Price and the Actual Transfer Price multiplied by the number of tablets ordered in the applicable to be paid to Purchaser pursuant to the provisions of Section 10.2(e) below (the “Purchaser Credited Amount”).

(e)(i) If the sum of the Supplier Credited Amount for each of the three months in the applicable Contract Year quarter is greater than the sum of the Purchaser Credited Amount for each of the three months in such Contract Year quarter, then Purchaser shall pay to Supplier an amount equal to the difference between the sum of the Supplier Credited Amounts and the sum of the Purchaser Credited Amounts within thirty (30) days following the end of such quarter.

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[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

(ii) If the sum of the Purchaser Credited Amount for each of the three months in the applicable Contract Year quarter is greater than the sum of the Supplier Credited Amount for each of the three months in such Contract Year quarter, then Supplier shall pay to Purchaser an amount equal to the difference between the sum of the Purchaser Credited Amounts and the sum of the Supplier Credited Amounts within thirty (30) days following the end of such quarter.

(f) In the event of any investigations or orders by any Regulatory Authority relating to pricing of Product that causes Purchaser to retroactively adjust any prices or to otherwise make payments relating to any improperly charged prices or discounts relating to Product, any payments already calculated and paid to Supplier under this Article 10 shall be adjusted.

(g) In the event the Actual Transfer Price calculated for any Contract Year quarter is less than $[*] per tablet (without regard to the limits set forth in Section 10.2(c)) due to changes in the Monthly Average Exchange Rate, the Supplier may notify the Purchaser in writing that it wishes to negotiate in good faith a new minimum floor price which is mutually acceptable to both Parties. In establishing such new minimum floor price, the Parties shall take into consideration all relevant factors, including, without limitation, changes in manufacturing costs and costs of raw materials and packaging materials resulting from fluctuation in the United States currency. In the event that, within three (3) months of such notice, the Parties are unable to establish a new minimum floor price for the Product, then the matter shall be referred to the most senior officers of each of the Parties who shall for an additional thirty (30) days negotiate in good faith to establish a new minimum floor price for the Product. At any time during the negotiations, Purchaser may elect to exercise its rights under Section 5. In the event (i) the most senior officers of the Parties fail to agree on a new minimum floor price for the Product, and (ii) pursuant to the terms of Section 5 above, Purchaser has not been granted the right to Manufacture the Product, then Supplier shall have the right to terminate the Agreement upon one (1) year prior written notice to Purchaser and the Actual Transfer Price during such one (1) year’s period shall be $[*].

(h) In the event the Actual Transfer Price calculated for any Contract Year quarter is greater than $[*] per tablet (without regard to the limits set forth in Section 10.2(c)) due to changes in the Monthly Average Exchange Rate, either Party may notify the other in writing that it wishes to negotiate in good faith a new maximum ceiling price which is mutually acceptable to both Parties. In establishing such new maximum ceiling price, the Parties shall take into consideration all relevant factors, including, without limitation, changes in manufacturing costs and costs of raw materials and packaging materials as well as changes in Supplier’s overall rate of return (relative to such Actual Transfer Price) resulting from fluctuation in the United States currency. In the event that, within three (3) months of such notice, the Parties are unable to establish a new maximum ceiling price for the Product, then the matter shall be referred to the most senior officers of each of the Parties who shall for an additional thirty (30) days negotiate in good faith to establish a new maximum ceiling price for the Product and pending resolution of such matter, the maximum ceiling price for the Product shall remain at $[*] per tablet.

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[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

10.3 License Fees

(a) Approval License Fees. In further consideration of the rights granted hereunder and subject to the other terms and conditions of this Agreement, Purchaser shall make the following non-refundable, non-creditable payments to Supplier within thirty (30) days of the occurrence of each of the following events by Purchaser or Abbott Canada:

Milestone	Payment
Regulatory Approval of [*] as the manufacturer of the Product	[*] Dollars ($[*])
Regulatory Approval for the Product in the Territory for either [*] or [*]	[*] Dollars ($[*])
Regulatory Approval for a Product in any indication other than [*] or [*]	[*] Dollars ($[*])

provided that, Purchaser shall forthwith upon signing this Agreement pay to Supplier [*] dollars ($[*]) to be credited as an advance against the first payment for the licensee fees payable upon occurrence of the first milestone.

(b) Sales License Fees. In further consideration of the rights granted hereunder and subject to the other terms and conditions of this Agreement, Purchaser shall make the following non-refundable, non-creditable payments to Supplier within thirty (30) days of the initial occurrence of each of the following milestones by Purchaser or Abbott Canada:

Milestone	Payment
Annual Net Sales of the Product in the Territory of greater than $[*] dollars (calculated based on Canadian Dollars)	[*] Dollars ($[*])
Annual Net Sales of the Product in the Territory of greater than $[*] dollars (calculated based on Canadian Dollars)	[*] Dollars ($[*])
Annual Net Sales of the Product in the Territory of greater than $[*] dollars (calculated based on Canadian Dollars)	[*] Dollars ($[*])

(c) Determination that Payments are Due. Purchaser shall promptly (and in any event within ten (10) Business Days) provide Supplier with written notice upon its achievement of each of the milestones set forth in Sections (a) and (b). In the event that Supplier believes any license fee is due pursuant to Sections (a) and (b) in spite of not having received notice from Purchaser, it shall so notify Purchaser and shall provide to Purchaser the data and

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[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

information supporting its belief that the conditions for payment have been achieved. If Purchaser does not provide adequate evidence that such milestone has not been achieved within thirty (30) days of receipt of the data and information from Supplier, the conditions for payment shall be deemed to have been achieved.

(d) License Fees Terms. Unless otherwise expressly provided, Purchaser shall make any payment owed to Supplier as license fees hereunder in arrears, within thirty (30) days from the achievement of such milestone.

10.4 Reimbursement of Marketing Support. Within forty-five (45) days after Regulatory Approval in the Territory is obtained for either [*] or [*], Supplier shall pay to Purchaser the sum of [*] dollars ($[*]), as Supplier’s contribution to the expenses to be incurred by Purchaser and Abbott Canada in obtaining Regulatory Approvals and Commercializing the Product.

10.5 Payment Terms. All sums shall be payable in the United States in United States dollars by bank wire transfer in immediately available funds to the following account unless Purchaser is otherwise notified in writing by Supplier:

Bank Account:	Citizens Bank
	28 State Street
	Boston, MA 02109
	USA
	1-877-471-1961
Account Number:	1135568364
Bank ABA Number:	011500120

10.6 Overdue Payments. Subject to the other terms of this Agreement, any payments not paid within the time period set forth in this Section 10 shall bear interest at a rate of LIBOR plus [*] percent ([*]%) for the applicable month from the due date until paid in full, provided that in no event shall said annual rate exceed the maximum interest rate permitted by law in regard to such payments. Such payment when made shall be accompanied by all interest so accrued. Said interest and the payment and acceptance thereof shall not negate or waive the right of Supplier to any other remedy, legal or equitable, to which it may be entitled because of the delinquency of the payment.

10.7 Tax Withholding; Restrictions on Payment. It is the Parties’ understanding that no withholding taxes shall be assessed on the payment made to Supplier pursuant to this Section 10. Any payments payable by either the Supplier or Purchaser (the “Withholding Party”) to the other under this Agreement may be reduced by the amount required to be paid or withheld pursuant to any applicable Law (“Withholding Taxes”); provided however, that Withholding Party shall withhold taxes at the lowest tax rate allowed in the applicable tax treaties. The Withholding Party shall submit to the other Party a copy of an original receipt received by the Withholding Party showing payment thereof, or if such receipt is not available, other reasonable proof of payment of any Withholding Taxes paid or withheld, together with an accounting of the

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[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

calculations of such taxes, as promptly as practicable but in no case later than thirty (30) days after such Withholding Taxes are remitted to the proper governmental authority. Supplier and Purchaser will cooperate reasonably in completing and filing documents required under the provisions of any applicable tax law or under any other Applicable Law in connection with the making of any required tax payment or withholding payment, or in connection with any claim to a refund of or credit for any such payment.

10.8 Records Retention; Review

(a) Records. Commencing as of the date of First Commercial Sale of the Product hereunder, Purchaser and Sub-Distributor shall keep for at least three (3) years from the end of the calendar year to which they pertain complete and accurate records of sales by Purchaser or Sub-Distributor, as the case may be, of the Product, in sufficient detail to allow the accuracy of the payments hereunder to be confirmed.

(b) Review. Subject to the other terms of this Section 10.8, at the request of Supplier, which shall not be made more frequently than once per calendar year during the Term, upon at least thirty (30) days’ prior written notice from Supplier, and at the expense of Supplier (except as otherwise provided herein), Purchaser shall permit independent accountants (who may be certified public accountants or chartered accountants) reasonably selected by Supplier to inspect (during regular business hours) the relevant records required to be maintained by Purchaser under this Section 10.8. Results of any such review shall be binding on all Parties absent manifest error. Each Party agrees to treat the results of any such accountant’s review of another Party’s records under this Section 10.8 as Confidential Information of such other Party subject to the terms of Article 11. If any review reveals a deficiency in the calculation and/or payment of royalties by Purchaser, then (a) Purchaser shall promptly pay Supplier the amount remaining to be paid, and (b) if such underpayment is by ten percent (10%) or more, Purchaser shall pay the reasonable out-of-pocket costs and expenses incurred by Supplier in connection with the review.

(c) Other Parties. Purchaser shall include in any agreement with each Sub-Distributor terms requiring such party to retain records as required in this Section 10.8 and to permit Supplier to inspect such records as required by this Section 10.8.

11. TREATMENT OF CONFIDENTIAL INFORMATION

11.1 Confidential Obligations. Supplier, Purchaser and Abbott Canada each recognize that another Party’s Confidential Information constitutes highly valuable and proprietary confidential information. Supplier, Purchaser and Abbott Canada each agree that during the Term and for seven (7) years thereafter, it will keep confidential, and will cause its employees, consultants and Affiliates to keep confidential, all Confidential Information of another party. Neither Supplier, Purchaser or Abbott Canada, nor any of their respective employees, consultants or Affiliates shall use Confidential Information of another party for any purpose whatsoever other than exercising any rights granted to it or reserved by it hereunder. Without limiting the foregoing, each of Supplier, Purchaser and Abbott Canada may disclose information to the extent such disclosure is reasonably necessary to (a) file and prosecute patent applications and/or maintain patents which are filed or prosecuted in accordance with the provisions of this Agreement, or (b)

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file, prosecute or defend litigation in accordance with the provisions of this Agreement or (c) comply with applicable laws, regulations or court orders; provided, however, that if a Party is required to make any such disclosure of another Party’s Confidential Information in connection with any of the foregoing, it will give reasonable advance notice to such other Party of such disclosure requirement and will use reasonable efforts to assist such other Party in efforts to secure confidential treatment of such information required to be disclosed.

11.2 Limited Disclosure and Use. Supplier, Purchaser and Abbott Canada each agree that any disclosure of any one Party’s Confidential Information to any officer, employee, consultant or agent of another Party or any of its Affiliates shall be made only if and to the extent necessary to carry out its rights and responsibilities under this Agreement, shall be limited to the maximum extent possible consistent with such rights and responsibilities and shall only be made to the extent any such persons are bound by written confidentiality obligations to maintain the confidentiality thereof and not to use such Confidential Information except as expressly permitted by this Agreement. Supplier, Purchaser and Abbott Canada each further agree not to disclose or transfer another Party’s Confidential Information to any third parties under any circumstance without the prior written approval from such other Party (such approval not to be unreasonably withheld), except as otherwise required by law, and except as otherwise expressly permitted by this Agreement. Supplier, Purchaser and Abbott Canada each shall take such action, and shall cause its Affiliates to take such action, to preserve the confidentiality of each other’s Confidential Information as it would customarily take to preserve the confidentiality of its own Confidential Information, using, in all such circumstances, not less than reasonable care. Each of Supplier, Purchaser and Abbott Canada, upon the request of another party, will return all the Confidential Information disclosed or transferred to it by such other party pursuant to this Agreement, including all copies and extracts of documents and all manifestations in whatever form, within sixty (60) days of such request or, if earlier, the termination or expiration of this Agreement; provided however, that a Party may retain (a) any Confidential Information of an other Party relating to any license which expressly survives such termination and (b) one (1) copy of all other Confidential Information in inactive archives solely for the purpose of establishing the contents thereof.

11.3 Publicity. Neither Supplier, Purchaser nor Abbott Canada may publicly disclose the existence or terms or any other matter of fact regarding this Agreement without the prior written consent of the other Parties, which consent shall not be unreasonably withheld or delayed; provided, however, that any Party may make such a disclosure (a) to the extent required by law or by the requirements of any nationally recognized securities exchange, quotation system or over-the-counter market on which such Party has its securities listed or traded, or (b) to any investors, prospective investors, lenders and other potential financing sources who are obligated to keep such information confidential. In the event that such disclosure is, in the opinion of the disclosing Party’s counsel, required as aforesaid, the disclosing Party shall submit the proposed disclosure in writing to the other Party at least five (5) days prior to the date of disclosure for an opportunity to comment thereon and the Parties shall coordinate with the other Parties with respect to the wording and timing of any such disclosure. The Parties, upon the execution of this Agreement, will mutually agree to a press release with respect to this transaction for publication. Once such press release or any other written statement is approved for disclosure by the Parties, any Party may make subsequent public disclosure of the contents of such statement without the further approval of the other Parties.

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[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

11.4 Use of Name. No Party shall employ or use the name of another Party in any promotional materials or advertising relating to this Agreement without the prior express written permission of the other party or as specifically set out in this Agreement.

11.5 Access to Information. If Purchaser or Abbott Canada receives an access to information or freedom of information request relating to Product, it shall notify Supplier within two days of such request, and provide a copy of its proposed response to such request to Supplier at least five days before the deadline for responding. If Supplier suggests that the proposed response should be amended to keep additional information confidential, Purchaser or Abbott Canada, as applicable, shall amend the proposed response accordingly.

12. INTELLECTUAL PROPERTY RIGHTS

12.1 Patent Filing, Prosecution and Maintenance. Supplier shall be responsible for preparing, filing, prosecuting, obtaining and maintaining, at its sole cost, expense and discretion, all Patent Rights in the Territory. Supplier will keep Purchaser reasonably informed of the status of such filing, prosecution and maintenance.

12.2 Trademark Filing, Prosecution and Maintenance. Supplier may seek and maintain (or cause to be sought and maintained, in the case of trademarks used under license) such registrations as it deems advisable in respect of the Trademarks in the Territory, and will keep Purchaser reasonably informed of the status of such registrations and applications therefore. Supplier (or the trademark owner, in the case of trademarks used under license) may from time to time add to, modify or delete any Trademarks.

12.3 Notice of Infringement. If, during the Term, any Party learns of any actual, alleged or threatened infringement by a Third Party of any of the Intellectual Property, including without limitation if a Notice of Allegation pursuant to the Patented Medicines (Notice of Compliance) Regulations is received, such Party shall promptly notify the other Parties and shall provide the other Parties with available evidence of such infringement.

12.4 Violation of Intellectual Property. Purchaser shall have the first right (but not the obligation), at its own expense and with legal counsel of its own choice, to bring suit (or take other appropriate legal action) against any actual, alleged or threatened infringement or other violation of the Intellectual Property in the Territory. Supplier shall have the right, at its own expense, to be independently represented in any such action by Purchaser by counsel of Supplier’s own choice; provided, however, that under no circumstances shall the foregoing affect the right of Purchaser to control the suit as described in the first sentence of this Section 12.4. If Purchaser does not notify Supplier of its decision as to whether it intends to file an action or proceeding against a material infringement or other violation (including a Notice of Allegation pursuant to the Patented Medicines (Notice of Compliance) Regulations) (the “Notice”) within [*] days after the later of (i) Purchaser’s notice to Supplier under Section 12.3 above, or (ii) a written request from Supplier to take action with respect to such infringement (the “Notice Date”), then Supplier shall have the right (but not the obligation), at its own expense, to bring suit (or take other appropriate legal action) against such actual, alleged or threatened infringement, with legal counsel of its own choice. If (a) Purchaser does not actually file any action or proceeding against a material infringement or other violation within [*] days after the

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[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

Notice Date, or (b) Purchaser elects not to pursue any action or proceeding against a material infringement or other violation pursuant to the Notification, then Supplier shall have the right (but not the obligation), at its own expense, to bring suit (or take other appropriate legal action) against such actual, alleged or threatened infringement, with legal counsel of its own choice . Purchaser acknowledges that L.G. Life Sciences Ltd (or its successors or assigns thereof), as the person licensing certain of the Intellectual Property to the Supplier, is entitled to be represented in suits or actions involving the Intellectual Property in the Territory, and to have its costs and expenses incurred in respect of such litigation reimbursed, pro rata with Supplier, from any damages, monetary awards, costs or other amounts recovered through such suits or actions, or settlement thereof; subject to any deductions required to be made in order to reimburse Supplier’s licensor as aforesaid. Any damages, monetary awards, costs or other amounts recovered, whether by judgment or settlement, pursuant to any suit, proceeding or other legal action taken under this Section 12.4, shall applied as follows:

(a) First, to reimburse the Supplier and Purchaser for their respective costs and expenses (including reasonable legal fees, expert fees and other disbursements) incurred in prosecuting such enforcement action;

(b) Second, to Purchaser for reimbursement for Purchaser’s profits on lost sales associated with Products and to Supplier for reimbursement for Supplier’s profits on lost sales to Purchaser and Quarterly Payments, royalties and license fees owing hereunder based on such lost sales;

(c) Third, any amounts remaining shall be allocated as follows: (A) if Supplier is the Party bringing such suit or proceeding or taking such other legal action, [*] percent ([*]%) to Supplier, (B) if Purchaser is the Party bringing such suit or proceeding or taking such other legal action, [*] percent ([*]%) to Purchaser, and (C) if the suit is brought jointly, [*] percent ([*]%) to each of Supplier and Purchaser.

If either of Supplier or Purchaser brings any such action or proceeding hereunder, the other agrees to be joined as party plaintiff if necessary to prosecute such action or proceeding, and to give the Party bringing such action or proceeding reasonable assistance and authority to file and prosecute the suit; provided, however, that neither Supplier nor Purchaser shall be required to transfer any right, title or interest in or to any property to the other, to Sub-Distributor or any Third Party to confer standing on a Party hereunder.

12.5 Right to Use Intellectual Property. Purchaser acknowledges that it has no interest in, and agrees that it will not at any time assert or claim any interest in, nor register or attempt to register any form of intellectual property which would infringe or otherwise violate any of Intellectual Property, and will cooperate with Supplier to secure Supplier’s rights under the Intellectual Property in the Territory. The Intellectual Property (whether owned by Supplier or licensed to Supplier) shall as among the Parties remain the exclusive property of Supplier. All benefit and goodwill arising from Purchaser’s or Sub-Distributor’s use of the Trademarks shall, as among the Parties, inure to the benefit of Supplier.

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[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

13. REPRESENTATIONS AND WARRANTIES

13.1 Supplier Representations. Supplier represents and warrants to Purchaser that:

(a) the execution and delivery of this Agreement and the performance of the transactions contemplated hereby have been duly authorized by all appropriate Supplier corporate action;

(b) this Agreement is a legal and valid obligation binding upon Supplier and enforceable in accordance with its terms, and the execution, delivery and performance of this Agreement by the Parties does not conflict with any agreement, instrument or understanding to which Supplier is a party or by which it is bound;

(c) Supplier has the full right and legal capacity to grant the rights granted to Purchaser hereunder in the Territory without violating the rights of any Third Party;

(d) Supplier is not aware of any Third Party patent, patent application or other intellectual property rights in the Territory that would be infringed (i) by using the Trademark, or (ii) by making, using, offering for sale, selling or importing Product;

(e) Supplier is not aware of any information that would render invalid and/or unenforceable claims for the Product in the Patent Rights; and

(f) Supplier warrants exclusively to Purchaser that all of the Products shipped by Supplier or its third party manufacturer in accordance with this Agreement: (i) shall meet Supplier’s specifications for the shelf life of such Product when stored and handled in accordance with Supplier’s labeled conditions, (ii) shall be manufactured in accordance with the GMP and the Law in effect at the time of manufacture, and (iii) shall not be adulterated or misbranded as a result of acts or omissions by Supplier; provided, that, (i) the Parties agree that the warranty set forth in this Section 13.1(f) shall not apply to any Product Manufactured by Purchaser pursuant to Section 5 above, and (ii) subject to Supplier’s indemnification obligations in the event of a product liability claim, Supplier’s sole obligation and the sole remedy under this warranty is replacement of any Product or a refund of the purchase price that Supplier reasonably determines to be covered by this warranty.

13.2 Purchaser Representations. Purchaser represents and warrants to Supplier that:

(a) the execution and delivery of this Agreement and the performance of the transactions contemplated hereby have been duly authorized by all appropriate Purchaser corporate action;

(b) this Agreement is a legal and valid obligation binding upon Purchaser and Abbott Canada and enforceable in accordance with its terms, and the execution, delivery

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[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

and performance of this Agreement by the Parties does not conflict with any agreement, instrument or understanding to which Purchaser is a party of or by which it is bound.

(c) Purchaser has the capacity to fulfill all the obligations under this Agreement.

(d) Purchaser warrants that Abbott Canada shall Commercialize and Develop Product in accordance with Laws.

13.3 Abbott Canada. Abbott Canada represents and warrants to Supplier that:

(a) the execution and delivery of this Agreement and the performance of the transactions contemplated hereby have been duly authorized by all appropriate Abbott Canada corporate action;

(b) this Agreement is a legal and valid obligation binding upon Abbot Canada and enforceable in accordance with its terms, and the execution, delivery and performance of this Agreement by the Parties does not conflict with any agreement, instrument or understanding to which Abbott Canada is a party of or by which it is bound.

(c) Abbott Canada has the capacity to fulfill all the obligations under this Agreement and all obligations pursuant to its appointment as a Sub-Distributor.

(d) Abbott Canada warrants that it shall Commercialize and Develop Product in accordance with Laws.

13.4 No Warranties

(a) Nothing in this Agreement is or shall be construed as:

(i) a warranty or representation by any Party as to the validity or scope of any patent application or patent licensed hereunder; or

(ii) a warranty or representation that anything made, used, sold or otherwise disposed of under any license granted pursuant to this Agreement is or will be free from infringement of patents, copyrights, and other rights of third parties.

(b) Except as expressly set forth in this Agreement, NO PARTY MAKES ANY REPRESENTATION OR EXTENDS ANY WARRANTIES OR CONDITIONS OF ANY KIND, EITHER EXPRESS OR IMPLIED. THERE ARE NO EXPRESS OR IMPLIED WARRANTIES OR CONDITIONS OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, OR OF NON-INFRINGEMENT OF ANY PATENT, COPYRIGHT, TRADEMARK, OR OTHER RIGHTS OF THIRD PARTIES, OR ANY OTHER EXPRESS OR IMPLIED WARRANTIES.

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[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

14. PRODUCT RECALL

In the event that (i) the Regulatory Authority or any other governmental agency or authority issues a request or orders that the Product be recalled, (ii) a court of competent jurisdiction in Territory orders that the Product be recalled, or (iii) Supplier reasonably determines, after consultation with Purchaser, that the Product should be recalled in the Territory or a notice is required relating to restrictions on use of the Product, Purchaser and Abbott Canada shall attend to the same, as determined by the mutual agreement of Supplier and Purchaser, and the Parties shall take all appropriate corrective action. In the event such action results from: (a) Supplier’s negligence or willful misconduct, Supplier shall be responsible for the expenses thereof, (b) Purchaser’s and/or Abbott Canada’s negligence or willful misconduct, Purchaser shall be responsible for the expenses thereof; and (c) otherwise, the Supplier and Purchaser shall share equally the expenses of the action. For purposes of this Agreement, the expenses of the action shall be the expenses of notification and return or destruction (if authorized by Supplier) of the Product, the cost of replacement of the Product, and any costs directly associated with the distribution of replacement Products. Supplier, Purchaser and Abbott Canada shall cooperate fully with one another in carrying out such action.

15. INDEMNIFICATION

15.1 Indemnification

(a) Purchaser Indemnity. Purchaser shall indemnify, defend and hold harmless Supplier, its Affiliates and their respective directors, officers, employees, stockholders and agents and their respective successors, heirs and assigns (the “Supplier Indemnitees”) from and against any liability, damage, loss or expense (including reasonable legal fees and expenses of litigation) incurred by or imposed upon such Supplier Indemnitees, or any of them, in connection with any Third Party claims, suits, actions, demands or judgments, including, without limitation, personal injury and product liability matters, to the extent arising out of (i) the Development or Commercialization of the Product by Purchaser or Sub-Distributors including, (A) any actions taken or inactions or omissions by Purchaser, Abbott Canada or its Sub-Distributors related to obtaining or filing for Regulatory Approvals, or (B) any actual or alleged injury to a Person or property or death resulting from Purchaser’s, Abbott Canada’s or its Sub-Distributors negligence in the storage, handling, transportation, maintenance or other activity related to the Development and/or Commercialization of the Product, (ii) any material breach of this Agreement by Purchaser or Abbott Canada, (iii) the gross negligence or willful misconduct on the part of Purchaser or Sub-Distributor, or (iv) the Manufacturing of the Product pursuant to Purchaser’s exercise of its rights under Section 5 above or the packaging of the Product pursuant to Purchaser’s exercise of its rights under Section 3.2(d) above.

(b) Supplier Indemnity. Supplier shall indemnify, defend and hold harmless Purchaser, its Affiliates and their respective directors, officers, employees, and agents,

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and their respective successors, heirs and assigns (the “Purchaser Indemnitees”), from and against any liability, damage, loss or expense (including reasonable legal fees and expenses of litigation) incurred by or imposed upon such Purchaser Indemnitees, or any of them, in connection with (y) any claims, suits, actions, demands or judgments to the extent arising out of (i) any material breach of this Agreement by Supplier, (ii) the gross negligence or willful misconduct on the part of Supplier, or (iii) any breach or inaccuracy of any representation, warranty, or guarantee given by Supplier contained in this Agreement or (z) any Third Party product liability claims resulting from the use or consumption in accordance with the product insert by any person of any Product supplied by Supplier under this Agreement, unless (A) the Third Party damages were caused or materially contributed to by Purchaser’s or Abbott Canada’s storage, handling, transportation, manufacture, maintenance or other activity related to the Development and/or Commercialization of the Product by Purchaser or Abbott Canada, or (B) such Third Party product liability claim is for reimbursement for the purchase price or disgorgement of Purchaser’s or Abbott Canada’s profits or revenues.

(c) In order to provide for just, equitable and conscionable contribution in circumstances in which the indemnification provided for in Sections 15.1(a) and 15.1(b) both apply in accordance with their respective terms, the Parties agree to the extent mandated by a court of law or as otherwise ordered or agreed to by the Parties to contribute proportionally to the aggregate losses resulting from demands, claims, actions, causes of action, suits, proceedings, hearings or investigations of Third Parties.

15.2 Indemnification Procedures. In the event that any Indemnitee is seeking indemnification under Section 15.1 above from a Party (the “Indemnifying Party”), the other Party shall notify the Indemnifying Party of such claim with respect to such Indemnitee as soon as reasonably practicable after the Indemnitee receives notice of the claim, and the Party (on behalf of itself and such Indemnitee) shall permit the Indemnifying Party to assume direction and control of the defense of the claim (including the right to settle the claim solely for monetary consideration) and shall cooperate as requested (at the expense of the Indemnifying Party) in the defense of the claim. The indemnification obligations under Article 15 shall not apply to any harm suffered as a direct result of any delay in notice to the Indemnifying Party hereunder or to amounts paid in settlement of any claim, demand, action or other proceeding if such settlement is effected without the consent of the Indemnifying Party, which consent shall not be withheld or delayed unreasonably. The Indemnitee, its employees and agents, shall reasonably cooperate with the Indemnifying Party and its legal representatives in the investigation of any claim, demand, action or other proceeding covered by Section 15.1.

16. TERM AND TERMINATION

16.1 Term. Unless earlier terminated in accordance with the terms of this Section 16, the term of this Agreement shall commence on the Effective Date and shall mean the period commencing on the Effective Date and continuing until the expiration of the last Valid Claim of the Patent Rights in the Territory to the extent necessary for the Manufacture, use or sale of the Product (the “Initial Term”) and shall automatically renew for successive [*] year periods (each, a “Renewal Term”; the Initial Term and any Renewal Term are hereinafter collectively referred to as the “Term”), unless Purchaser gives written notice of termination to Supplier at least one hundred and eighty (180) days prior to the end of the Initial Term or Renewal Term, as the case may be.

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[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

16.2 Termination Rights for Breach. Subject to the other terms of this Agreement, this Agreement and the rights and options granted herein may be terminated (i) by Supplier upon any material breach by Purchaser or Abbott Canada, or (ii) by Purchaser upon any material breach by Supplier, of any material obligation or condition, effective ten (10) days after giving written notice to the breaching Party of such termination in the case of a payment breach and thirty (30) days after giving written notice to the breaching Party of such termination in the case of any other breach, which notice shall describe such breach in reasonable detail. The foregoing notwithstanding, if such default or breach is cured or remedied or shown to be non-existent within the aforesaid ten (10) or thirty (30) day period, the notice shall be automatically withdrawn and of no effect.

16.3 Termination for Bankruptcy. In the event that either Supplier or Purchaser files for protection under bankruptcy laws, makes an assignment for the benefit of creditors, appoints or suffers appointment of a receiver or trustee over its property, files a petition under any bankruptcy or insolvency act or has any such petition filed against it which is not discharged within sixty (60) days of the filing thereof, then the other may terminate this Agreement effective immediately upon written notice to such Party.

16.4 Supplier Right to Terminate. Subject to Section 19.8, Supplier shall have the right to terminate this Agreement, if: (i) Purchaser or Abbott Canada challenges the validity of any of the Intellectual Property related to the Product, (ii) Abbott Canada has not launched the Product in the Territory on or before [*] months from the date of execution of this Agreement, (iii) Purchaser does not spend at least $[*] million on advertising and promotional expenses for the Product during the first year after First Commercial Sale, (iv) Purchaser does not spend during the second year after First Commercial Sale, an amount equal to at least [*]% of the actual advertising and promotional expenses incurred by Purchaser during the first year after First Commercial Sale; (v) Purchaser does not spend during the third year after First Commercial Sale, an amount equal to at least [*]% of the actual advertising and promotional expenses incurred by Purchaser during the first year after First Commercial Sale, or (vi) the annual minimum Detailing thresholds (calculated on a PDE basis) set forth below is not achieved by Purchaser:

First Launch Date Year	Number of Planned Details
First year after Launch Date	[*] Planned PDEs
Second year after Launch Date	[*]% of the number of PDEs actually conducted by Purchaser during the first year after Launch
Third Year after Launch Date	[*]% of the number of PDEs actually conducted by Purchaser during the first year after Launch

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[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

Calculation of the amounts set out in the table above shall be based on Purchaser’s internal automated call reporting system reports, and may be verified by Supplier pursuant to Supplier’s audit rights provided herein.

16.5 Purchaser Right to Terminate. Purchaser shall have the right to terminate this Agreement upon ten (10) days notice to the Supplier in the event Regulatory Approval is not obtained for the Product for the [*] indication within [*] months of submission for such Regulatory Approval.

16.6 Effects of Termination.

(a) Termination for Breach. Upon termination of this Agreement pursuant to this Section 16, as of the effective date of such termination, all relevant licenses and sublicenses granted by Supplier to Purchaser hereunder shall terminate automatically and Purchaser and Abbott Canada shall cease Commercializing or Developing the Product or using the Trademarks.

(b) Within ten (10) days of delivery or receipt of a notice of termination by Purchaser pursuant to Section 16.2 or 16.3, Purchaser shall have the option to terminate all unfilled orders for Products and, if such option is exercised, then all unfilled orders for Products shall be deemed cancelled without any rights or recourses whatsoever against any party hereto.

(c) Sell-off Period. Notwithstanding the foregoing, Purchaser and Abbott Canada shall have the right, for sixty (60) days or such longer time period (if any) on which the Parties mutually agree in writing taking into account the Product purchased pursuant to Sections 16.6(d) and 16.6(f), to sell or otherwise dispose of all Products ordered pursuant to this Agreement and then on hand.

(d) Upon the expiration of the Term or in the event of the termination of this Agreement by Supplier pursuant to Section 16.2 or 16.3, Purchaser agrees to purchase from Supplier a maximum of [*] tablets of Product having a shelf life of no less than [*] months, at a price per Product tablet equal to Supplier’s actual cost to Manufacturer and package such Product. Notwithstanding the foregoing, Purchaser shall accept Risk-Dated Product in accordance with the terms set out in Section 4.7 and shall accept Product with more than [*] months of shelf life but less than [*] months of shelf life (the “Liquidation Product”) at the time of delivery in which case Purchaser will use Diligent Efforts to sell the Liquidation Product in the ordinary course of its business and Supplier shall be obligated to repurchase from Purchaser all of the Liquidation Product the Purchaser is unable to sell and which has less than [*] months of shelf life at the price paid for such Liquidation Product.

(e) Transfer of Documentation. Upon the expiration of the Term or in the event of the termination of this Agreement for any other reason, Purchaser and Abbott Canada shall immediately deliver to Supplier, or such other person as it may designate, all promotional material, including catalogues, Product price lists, and any other

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documents or material (including any material delivered in electronic form and Confidential Information) provided by Supplier to Purchaser or Abbott Canada with respect to the Product or its Commercialization in the Territory.

(f) Sale of Safety Stock Inventory. Upon the expiration of the Term or in the event of the termination of this Agreement by the Purchaser pursuant to Section 16.5 or by Supplier pursuant to Section 16.2, 16.3 or 16.4, Purchaser agrees to purchase from Supplier all of the Safety Stock Inventory in accordance with the terms and conditions set forth in Sections 4.6 and 4.7.

16.7 Remedies. Except as otherwise expressly set forth in this Agreement, the termination provisions of this Article 16 are in addition to any other relief and remedies available to the Parties at law.

16.8 Surviving Provisions. Notwithstanding any provision herein to the contrary, the rights and obligations of the Parties set forth in Sections 1, 2.2(d), 2.3, 2.5, 9.1, 10, 11, 13.4, 15, 16, 17, 19 and 20 (solely with respect to guaranty of obligations which survive termination or expiration of the Agreement, as well as any rights or obligations otherwise accrued hereunder (including any accrued payment obligations), shall survive the expiration or termination of the Term. Without limiting the generality of the foregoing, Purchaser shall have no obligation to make any milestone or royalty payment to Supplier that has not accrued prior to the effective date of any termination of this Agreement, but shall remain liable for all such payment obligations accruing prior to the effective date of such termination.

17. DISPUTES

17.1 Negotiation. The Parties recognize that a bona fide dispute as to certain matters may from time to time arise during the term of this Agreement which relates to any Party’s rights and/or obligations hereunder. In the event of the occurrence of such a dispute, any Party may, by written notice to the other Parties, have such dispute referred to their respective senior officials designated below or their successors, for attempted resolution by good faith negotiations within thirty (30) days after such notice is received. Said designated senior officials are as follows:

For Purchaser: General Manager of Abbott Canada or a delegate with similar authority to bind Purchaser and Abbott Canada

For Supplier: Chief Executive Officer

For Abbott Canada: General Manager of Abbott Canada or a delegate with similar authority to bind Purchaser and Abbott Canada

In the event the designated senior officials are not able to resolve such dispute within the thirty (30) day period, such dispute shall be referred to arbitration in accordance with Section 17.2 hereof.

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[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

17.2 Arbitration. Subject to Section 17.1, any dispute, controversy or claim initiated by any Party arising out of, resulting from or relating to this Agreement, or the performance by another Party of its obligations under this Agreement (other than bona fide third party actions or proceedings filed or instituted in an action or proceeding by a third party against a Party), whether before or after termination of this Agreement, shall be finally resolved by binding arbitration. Whenever a Party shall decide to institute arbitration proceedings, it shall give written notice to that effect to the other Parties. Any such arbitration shall be conducted under the Commercial Arbitration Rules of the American Arbitration Association by a panel of three arbitrators appointed in accordance with such rules. Any such arbitration shall be held in Boston Massachusetts. The method and manner of discovery in any such arbitration proceeding shall be governed by the laws of the Commonwealth of Massachusetts. The arbitrators shall have the authority to grant injunctions and/or specific performance and to allocate amongst the Parties the costs of arbitration in such equitable manner as they determine. Judgment upon the award so rendered may be entered in any court having jurisdiction or application may be made to such court for judicial acceptance of any award and an order of enforcement, as the case may be. In no event shall a demand for arbitration be made after the date when institution of a legal or equitable proceeding based upon such claim, dispute or other matter in question would be barred by the applicable statute of limitations. Notwithstanding the foregoing, any Party shall have the right, without waiving any right or remedy available to such Party under this Agreement or otherwise, to seek and obtain from any court of competent jurisdiction any interim or provisional relief that is necessary or desirable to protect the rights or property of such Party, pending the selection of the arbitrators hereunder or pending the arbitrators’ determination of any dispute, controversy or claim hereunder.

18. NON-COMPETITION

During the Term, each of Purchaser, Abbott Canada and any of their respective Affiliates agree for itself and on behalf of their directors, officers and employees that it and they shall not directly or indirectly Commercialize or Develop in the Territory the following products:

(a) products which are members of the [*]; provided that, Purchaser, Abbott Canada and their respective Affiliates may directly or indirectly Commercialize or Develop products approved by the Canadian Regulatory Authorities for [*] upon rejection by the Canadian Regulatory Authorities of a supplemental drug application for the Product for the [*] indication; and

(b) products which are members of the [*] provided, that (i) Supplier files prior to August 1, 2009 a new or supplemental drug application with the Canadian Regulatory Authorities for the Product in such indication, and (ii) a notice of compliance with respect thereto is obtained within twenty-four (24) months of such submission.

19. MISCELLANEOUS

19.1 Notification. All notices, requests and other communications hereunder shall be in writing, shall be addressed to the receiving Party’s address set forth below or to such other address as a Party may designate by notice hereunder, and shall be either (i) delivered by hand, (ii) made by facsimile transmission (to be followed with written fax confirmation), (iii) sent by private courier service providing evidence of receipt, or (iv) sent by registered or certified mail,

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[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

return receipt requested, postage prepaid. The addresses and other contact information for the Parties are as follows:

If to Supplier:	Oscient Pharmaceutical Corporation 1000 Winter Street, Suite 2200 Waltham, MA 02451 Attention: Chief Executive Officer
With a copy to:	Oscient Pharmaceutical Corporation 1000 Winter Street, Suite 2200 Waltham, MA 02451 Attention: Legal
If to Purchaser:	Abbott International, LLC 200 Abbott Park Road Dept 64E, AP34-1 Abbott Park, IL 60064-6194
If to Abbott Canada	Abbott Laboratories, Limited 8401 Trans-Canada Highway St. Laurent, Québec H4S 1Z1 Attention: The President
With a copy to:	Abbott Laboratories, Limited 8401 Trans-Canada Highway St. Laurent, Québec H4S 1Z1 Attention: Legal

All notices, requests and other communications hereunder shall be deemed to have been given either (i) if by hand, at the time of the delivery thereof to the receiving party at the address of such party set forth above, (ii) if made by telecopy or facsimile transmission, at the time that receipt thereof has been acknowledged by the recipient, (iii) if sent by private courier, on the day such notice is delivered to the recipient, or (iv) if sent by registered or certified mail, on the fifth (5^th) business day following the day such mailing is made.

19.2 Language. This Agreement has been prepared in the English language and the English language shall control its interpretation.

19.3 Governing Law. This Agreement will be construed, interpreted and applied in accordance with the laws of the State of New York (excluding its body of law controlling conflicts of law).

19.4 Entire Agreement. This is the entire Agreement between the Parties with respect to the subject matter hereof and supersedes all prior representations, understandings and agreements between the Parties with respect to the subject matter hereof. No modification shall be effective unless in writing with specific reference to this Agreement and signed by the Parties.

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[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

19.5 Waiver. The terms or conditions of this Agreement may be waived only by a written instrument executed by the Party waiving compliance. The failure of any Party at any time or times to require performance of any provision hereof shall in no manner affect its rights at a later time to enforce the same. No waiver by any Party of any condition or term shall be deemed as a continuing waiver of such condition or term or of another condition or term.

19.6 Headings. Section and subsection headings are inserted for convenience of reference only and do not form part of this Agreement.

19.7 Assignment. Neither this Agreement nor any right or obligation hereunder may be assigned, delegated or otherwise transferred, in whole or part, by any Party without the prior express written consent of the others; provided, however, that Supplier or Purchaser may without the written consent of the other or of any Sub-Distributor, assign this Agreement and its rights and delegate its obligations hereunder to its Affiliates, or in connection with the transfer or sale of all or substantially all of such Party’s assets or business, or in the event of its merger, consolidation, change in control or similar transaction. Any permitted assignee shall assume all obligations of its assignor under this Agreement. Any purported assignment in violation of this Section 19.7 shall be void. The terms and conditions of this Agreement shall be binding upon and inure to the benefit of the permitted successors and assigns of the Parties.

19.8 Force Majeure.

(a) No Party shall be liable for failure of or delay in performing obligations set forth in this Agreement (excluding any payment obligation under this Agreement), and no Party shall be deemed in breach of its obligations, if such failure or delay is due to natural disasters, labour strikes or any causes beyond the reasonable control of such Party. In event of such force majeure, the Party affected thereby shall given prompt notice to the other Parties and use reasonable efforts to cure or overcome the same and resume performance of its obligations hereunder.

(b) It is agreed and understood by the Parties that a product liability claim or clinical trial results sponsored by Supplier that have negative safety results in respect of the Product which would reasonably be expected to a have material adverse event on the Commercialization of the Product in the Territory shall constitute an event of force majeure and in any such event, the Parties may collaborate with each other and meet in order to discuss and conclude arrangements in order to minimize the consequences of such force majeure and ensure that the spirit and intent of this Agreement are respected to the extent possible. Such collaborative efforts shall also include, to the extent necessary, good faith negotiation of the milestones, performance criteria and other terms and conditions of this Agreement to ensure that the rights and entitlements of each Party under this Agreement are not materially affected by the continuation of such event of force majeure.

19.9 Construction. The Parties hereto acknowledge and agree that: (i) each Party and its counsel reviewed and negotiated the terms and provisions of this Agreement and have contributed to its revision; (ii) the rule of construction to the effect that any ambiguities are resolved against the drafting Party shall not be employed in the interpretation of this Agreement;

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[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

and (iii) the terms and provisions of this Agreement shall be construed fairly as to all Parties hereto and not in favor of or against any Party, regardless of which Party was generally responsible for the preparation of this Agreement.

19.10 Severability. If any provision(s) of this Agreement are or become invalid, are ruled illegal by any court of competent jurisdiction or are deemed unenforceable under then current applicable law from time to time in effect during the Term hereof, it is the intention of the Parties that the remainder of this Agreement shall not be affected thereby. The Parties hereto covenant and agree to renegotiate any such term, covenant or application thereof in good faith in order to provide a reasonably acceptable alternative to the term, covenant or condition of this Agreement or the application thereof that is invalid, illegal or unenforceable, it being the intent of the Parties that the basic purposes of this Agreement are to be effectuated.

19.11 Status. Nothing in this Agreement is intended or shall be deemed to constitute a partner, agency, employer-employee, or joint venture relationship among the Parties.

19.12 Limitation of Liability. EXCEPT FOR ANY BREACH OF ANY CONFIDENTIALITY OBLIGATIONS OR DUE TO A PARTY’S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, IN NO EVENT SHALL ANY PARTY BE LIABLE TO THE OTHERS OR ANY OF THEIR AFFILIATES FOR ANY CONSEQUENTIAL, INCIDENTAL, INDIRECT, SPECIAL, PUNITIVE OR EXEMPLARY DAMAGES (INCLUDING LOST PROFITS, BUSINESS OR GOODWILL) SUFFERED OR INCURRED BY SUCH OTHER PARTY OR ITS AFFILIATES IN CONNECTION WITH A BREACH OR ALLEGED BREACH OF THIS AGREEMENT, WHETHER IN CONTRACT, WARRANTY, TORT, STRICT LIABILITY OR OTHERWISE.

19.13 Export Compliance.

(a) Purchaser and/ Abbott Canada shall be responsible for the importation of the Product into the Territory, in its name as importer of record, and shall obtain at its expense, all permits and authorizations, and shall comply with all Canadian customs laws, regulations and official standards applicable to such importation. Supplier agrees to provide a certificate of origin for the Product, as requested by Purchaser for purposes of importing the Product into the Territory.

(b) Purchaser and Abbott Canada shall comply with all Canadian and United States laws and regulations controlling the export of certain commodities and technical data, including without limitation all Export Administration Regulations of the United States Department of Commerce (collectively, “Export Control Laws”). Among other things, these laws and regulations prohibit or require a license for the export of certain types of commodities and technical data to specified countries. Purchaser hereby gives written assurance that it will comply with, and will cause its Affiliates and Sub-Distributor to comply with, all Export Control Laws, that it bears sole responsibility for any violation thereof by itself or its Affiliates or Sub-Distributors, and that it will indemnify, defend, and hold Supplier harmless (in accordance with Section 15) for the consequences of any such violation.

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[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

19.14 Further Assurances. Each Party agrees to execute, acknowledge and deliver such further instructions, and to do all such other acts, as may be necessary or appropriate in order to carry out the purposes and intent of this Agreement.

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

19.16 Third Party Beneficiaries. None of the provisions of this Agreement shall be for the benefit of or enforceable by any third party, including any creditor of any Party. No such third party shall obtain any right under any provision of this Agreement or shall by reasons of any such provision make any claim in respect of any debt, liability or obligation (or otherwise) against any Party.

19.17 Non-Solicitation Until the one (1) year anniversary of the termination or expiration of this Agreement, no Party nor its respective Affiliates shall, and shall cause each of its Affiliates not to, directly or indirectly, without the other Parties’ prior written consent, solicit the employment of any employee (or former employee bound by a non-competition obligation) of the other Parties or their respective Affiliates with whom it has come in contact in conducting activities under this Agreement; provided, however, that the foregoing provisions shall not apply to a general advertisement or solicitation program that is not specifically targeted at such persons.

19.18 United Nations Convention on Sale of Goods. The United Nations Convention on Sale of Goods is hereby expressly excluded from application to this Agreement.

20. PARENT OBLIGATIONS.

Abbott Laboratories (“Abbott US”) hereby guarantees for the benefit of Supplier the performance by Purchaser of Purchaser’s obligations under this Agreement. If Purchaser fails to perform when due any of its obligations to Supplier under this Agreement, upon notice from Supplier, Abbott U.S. shall promptly assume or cause the performance of such obligation(s). The obligations of Abbott U.S. under this Section 20 are continuing and irrevocable, and Abbott U.S. waives any failure or delay by Supplier in asserting or enforcing any of its rights or making any claims or demands against Purchaser before demanding performance by Abbott U.S. hereunder.

[Remainder of page intentionally left blank]

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[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by their duly authorized representative in two (2) originals.

ABBOTT INTERNATIONAL, LLC		OSCIENT PHARMACEUTICALS CORPORATION
By:	/s/ Stafford O’Kelly	By:	/s/ Steven M. Rauscher
Title:	Vice President	Title:	President and Chief Executive Officer

ABBOTT LABORATORIES,LTD. (for purposes of Sections 1.1, 2.3, 2.5, 3.2(b), 3.3(c), 7, 8.2, 8.4, 9.4, 11, 13.3, 16, 18 and 19 only)

By:	/s/ Marcelo Vizio
Title:	General Manager

ABBOTT LABORATORIES (for the purpose of Section 20 only)

By:	/s/ Stafford O’Kelly
Title:	Vice President

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[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

Schedule A

Specifications

[*] [2 pages omitted]

Schedule B

Trademarks

[*]

Schedule C

Patents

FACTIVE^® Patent Portfolio in Canada

[*]

Schedule D

Next Year Transfer Price Determination

[*] [1 page omitted]

Schedule E

Transfer Price Quarterly Reconciliation

[*] [1 page omitted]

EX-10.2

Exhibit 10.2

REVENUE INTERESTS ASSIGNMENT AGREEMENT

Dated as of July 21, 2006

and

Restated as of August 18, 2006

between

OSCIENT PHARMACEUTICALS CORPORATION,

GUARDIAN II ACQUISITION CORPORATION

and

PAUL ROYALTY FUND HOLDINGS II

[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

Table of Contents

		Page
ARTICLE I DEFINITIONS		1
Section 1.01	Definitions	1
ARTICLE II ASSIGNMENT OF INTERESTS		15
Section 2.01	Assignment	15
Section 2.02	Payments by the Assignors	15
Section 2.03	Purchase Price	16
Section 2.04	No Assumed Obligations	16
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE ASSIGNORS		16
Section 3.01	Organization	16
Section 3.02	Corporate Authorization	16
Section 3.03	Governmental Authorization	17
Section 3.04	Ownership	17
Section 3.05	Financial Statements	18
Section 3.06	No Undisclosed Liabilities	18
Section 3.07	Solvency	18
Section 3.08	Litigation	18
Section 3.09	Compliance with Laws	18
Section 3.10	Conflicts	19
Section 3.11	Subordination	19
Section 3.12	Intellectual Property	19
Section 3.13	Regulatory Approval	22
Section 3.14	Material Contracts	23
Section 3.15	Place of Business	24
Section 3.16	Broker’s Fees	24
Section 3.17	Insurance	24
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PRF		24
Section 4.01	Organization	24
Section 4.02	Authorization	24
Section 4.03	Broker’s Fees	24
Section 4.04	Conflicts	24

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[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

Table of Contents

(continued)

		Page
ARTICLE V COVENANTS		25
Section 5.01	Consents and Waivers	25
Section 5.02	Access; Information	25
Section 5.03	Material Contracts	26
Section 5.04	Confidentiality; Public Announcement	26
Section 5.05	Security Agreement	27
Section 5.06	Best Efforts; Further Assurance	27
Section 5.07	Call, Put and Buy-Down Options	28
Section 5.08	Remittance to Deposit Accounts	29
Section 5.09	Out-License Agreements	32
Section 5.10	Intellectual Property.	32
Section 5.11	Negative Covenants	32
Section 5.12	Other Agreements	33
Section 5.13	Genesoft Consent/Cash Balance	33
Section 5.14	Insurance	34
Section 5.15	Notice	34
Section 5.16	Use of Proceeds.	34
ARTICLE VI THE CLOSING; CONDITIONS TO CLOSING		35
Section 6.01	Closing	35
Section 6.02	Conditions Applicable to PRF	35
Section 6.03	Conditions Applicable to the Assignors	37
ARTICLE VII TERMINATION		38
Section 7.01	Termination Date	38
Section 7.02	Effect of Termination	38
ARTICLE VIII MISCELLANEOUS		38
Section 8.01	Survival	38
Section 8.02	Specific Performance	39
Section 8.03	Notices	39
Section 8.04	Successors and Assigns	40

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[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

Table of Contents

(continued)

		Page
Section 8.05	Indemnification	40
Section 8.06	Independent Nature of Relationship	41
Section 8.07	Federal Tax	42
Section 8.08	Entire Agreement	42
Section 8.09	Amendments; No Waivers	42
Section 8.10	Interpretation	43
Section 8.11	Headings and Captions	43
Section 8.12	Counterparts; Effectiveness	43
Section 8.13	Severability	43
Section 8.14	Expenses	43
Section 8.15	Governing Law; Jurisdiction	43
Section 8.16	Waiver of Jury Trial	44

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[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

EXHIBITS

Exhibit A	–	Antara Purchase Agreement
Exhibits B-1 and B-2	–	Forms of Assignments of Interests
Exhibits C-1 and C-2	–	Forms of Deposit Agreements
Exhibit D	–	Form of Security Agreement
Exhibit E	–	Legal Opinion of Ropes & Gray LLP (transaction opinion)
Exhibit F-1	–	Legal Opinion of Ropes & Gray LLP (IP opinion-Antara)
Exhibit F-2	–	Legal Opinion of Hamilton Brook Smith and Reynolds (IP opinion-Factive)
Exhibit G	–	Stock Purchase Agreement
Exhibit H	–	Note Purchase Agreement
Exhibit I	–	Form of Warrant

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REVENUE INTERESTS ASSIGNMENT AGREEMENT

This REVENUE INTERESTS ASSIGNMENT AGREEMENT (as amended, supplemented or otherwise modified from time to time, this “Agreement”) is made and entered into as of July 21, 2006 by and among Oscient Pharmaceuticals Corporation, a Massachusetts corporation (the “Company”), Guardian II Acquisition Corporation, a wholly-owned Delaware subsidiary of the Company, and Paul Royalty Fund Holdings II, a California general partnership (“PRF”).

WHEREAS, each of the Assignors (as defined below) wishes to sell, assign, convey and transfer to PRF, and PRF wishes to purchase from the Assignors, the Assigned Interests (as hereinafter defined), upon and subject to the terms and conditions hereinafter set forth.

NOW, THEREFORE, in consideration of the mutual covenants, agreements representations and warranties set forth herein, the parties hereto agree as follows:

ARTICLE I

DEFINITIONS

Section 1.01 Definitions.

The following terms, as used herein, shall have the following meanings:

“Affiliate” shall mean any Person that controls, is controlled by, or is under common control with another Person. For purposes of this definition, “control” shall mean (i) in the case of corporate entities, direct or indirect ownership of at least fifty percent (50%) of the stock or shares having the right to vote for the election of directors, and (ii) in the case of non-corporate entities, direct or indirect ownership of at least fifty percent (50%) of the equity interest with the power to direct the management and policies of such non-corporate entities.

“Aggregate Deposit Funds” shall mean any and all financial assets, funds, monies, checks or other items deposited into the Joint Accounts.

“Agreement” shall have the meaning set forth in the first paragraph hereof.

“Antara” shall mean any product used for treating patients with hypercholesterolemia, mixed dyslipidemia or hypertriglyceridemia which includes: (i) the formulation of fenofibrate, known as 2-[4-(4-chlorobenzoyl) phenoxy]-2-methyl-propanoic acid, 1-methylethyl ester; or (ii) any formulation, reformulation or line extension containing fenofibrate as an active ingredient, or any derivative or closely related analogs of fenofibrate (including but not limited to any stereoisomers, either separated or combined, any hydrates, any polymorphs, any salts, any solvates and any crystal forms) approved by the FDA as monotherapy or in combination with any other pharmaceutical substance that is made, developed, sold, offered for sale, distributed, marketed or promoted by the Company, its Affiliates or Licensees.

“Antara Purchase Agreement” shall mean that certain Asset Purchase Agreement by and among the Company, Guardian and Reliant Pharmaceuticals, Inc. dated as of the date hereof, including the exhibits specifically listed therein, attached hereto as Exhibit A.

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“applicable Deposit Accounts” shall have the meaning set forth in Section 5.08(h).

“Applicable Percentage” shall mean, as of any date of determination, on a Fiscal Year-by-Fiscal Year basis (or applicable portion thereof in the first and last Fiscal Years under this Agreement), during the Revenue Interest Period,

(a) prior to the date that the cumulative payments received and retained (i.e., not refunded by PRF) by PRF under Sections 2.02, 5.07(c) and 5.08 first exceed [*] percent ([*]%) of the cumulative payments made by PRF under Section 2.03, the following:

(i) with respect to Net Revenues of up to and including [*]dollars ($[*]),[*] percent ([*]%);

(ii) with respect to Net Revenues in excess of [*]dollars ($[*]) but less than and including [*] dollars ($[*]), [*] percent ([*]%); and

(iii) with respect to Net Revenues in excess of [*] dollars ($[*]),[*] percent ([*]%); and

(b) from and after the date that the cumulative payments received and retained (i.e., not refunded by PRF) by PRF under Sections 2.02, 5.07(c) and 5.08 are at least [*] percent ([*]%) of the cumulative payments made by PRF under Section 2.03, [*] percent ([*]%).

For the avoidance of doubt, the percentages set forth in this definition of “Applicable Percentage” are subject to reduction by fifty percent (50%) pursuant to Section 5.07(c).

“Assigned Interests” shall mean PRF’s right to receive amounts equal to the Applicable Percentage of the Net Revenues pursuant to the terms and conditions of this Agreement.

“Assignments of Interests” shall mean those Assignments of Interests dated the Closing Date pursuant to which each of the Assignors shall assign to PRF all of its rights and interests in and to the Assigned Interests purchased hereunder, which Assignments of Interests shall be substantially in the forms of Exhibit B-1 and Exhibit B-2.

“Assignors” shall mean collectively the Company and Guardian.

“Audit Costs” shall mean, with respect to any audit of the books and records of the Company and its Subsidiaries with respect to amounts payable or paid under this Agreement, the out – of – pocket cost of such audit payable to third parties, including all fees, costs and expenses incurred in connection therewith.

“Bankruptcy Event” shall mean the occurrence of any of the following:

(i) an Assignor shall commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization, relief of debtors or the like, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or

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[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any portion of its assets, or an Assignor shall make a general assignment for the benefit of its creditors;

(ii) there shall be commenced against an Assignor any case, proceeding or other action of a nature referred to in clause (i) above which remains undismissed, undischarged or unbonded for a period of sixty (60) Business Days;

(iii) there shall be commenced against an Assignor any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against (A) all or any substantial portion of its assets and/or (B) the Products or any substantial portion of the Intellectual Property related to the Products, which results in the entry of an order for any such relief which shall not have been vacated, discharged, stayed, satisfied or bonded pending appeal within sixty (60) Business Days from the entry thereof;

(iv) the failure of an Assignor to take action to object to any of the acts set forth in clauses (ii) or (iii) above within ten (10) days of such Assignor receiving written notice of such act; or

(v) an Assignor shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its respective debts as they become due.

“Business Day” shall mean any day other than a Saturday, a Sunday, any day which is a legal holiday under the laws of the State of New York, or any day on which banking institutions located in the State of New York are required by law or other governmental action to close.

“Call Option” shall have the meaning set forth in Section 5.07(a).

“Call Option Closing Date” shall have the meaning set forth in Section 5.07(a).

“Change of Control” shall mean:

(i) the bona fide acquisition by any Person or group (within the meaning of Sections 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934) of beneficial ownership of any capital stock of the Company, if after such acquisition, such Person or group would be the “beneficial owner” (as defined in Rule 13d-3 under the Securities Exchange Act of 1934), directly or indirectly, of securities of the Company representing more than fifty percent (50%) of the combined voting power of the Company’s then outstanding securities entitled to vote generally in the election of directors;

(ii) the consummation after approval by the Company’s stockholders of a bona fide merger or consolidation of the Company, with any other Person, other than a merger or consolidation which would result in the Company’s voting securities outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than fifty percent (50%) of the combined voting power of the Company’s voting securities or such surviving entity’s voting securities outstanding immediately after such merger or consolidation;

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[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

(iii) during any period of two (2) consecutive years, individuals who at the beginning of such period constitute the board of directors of the Company (together with any new directors (other than a director designated by a Person who has entered into an agreement with the Company to effect a transaction described in clause (i) or (ii) of this definition of “Change of Control”), whose election by such board of directors or nomination for election by the Company’s stockholders, as applicable, was approved by a vote of a majority of the directors then still in office who either were directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute at least a majority of the board of directors of the Company then in office, provided that the circumstances described in this clause (iii) shall not be deemed to be a Change of Control if the directors constituting a majority of the Board of Directors of the Company were elected or appointed in connection with a merger or consolidation of the Company which is not, pursuant to clause (ii) of this definition, a Change of Control; or

(iv) the bona fide sale, lease, transfer, exclusive license or other disposition, in a single transaction or series of related transactions, by the Company or any of its Subsidiaries of all or substantially all the assets of the Company and its Subsidiaries taken as a whole or the sale or disposition (whether by merger or otherwise) of one or more Subsidiaries of the Company if substantially all of the assets of the Company and its Subsidiaries taken as a whole are held by such Subsidiary or Subsidiaries, except where such sale, lease, transfer, exclusive license or other disposition is to a wholly owned (direct or indirect) Subsidiary of the Company.

“Change of Control Notice” shall have the meaning set forth in Section 5.07(b).

“Change of Control Period” shall have the meaning set forth in Section 5.07(b).

“Closing” shall have the meaning set forth in Section 6.01.

“Closing Date” shall have the meaning set forth in Section 6.01.

“Collateral” shall mean the property included in the definition of “Collateral” in the Security Agreement.

“Company” shall have the meaning set forth in the first paragraph hereof.

“Confidential Information” shall mean, as it relates to the Company and its Affiliates and the Products, the Intellectual Property, confidential business information, financial data and other like information (including ideas, research and development, know-how, formulas, schematics, compositions, technical data, specifications, customer and supplier lists, pricing and cost information, and business and marketing plans and proposals), inventory, ideas, algorithms, processes, computer software programs or applications (in both source code and object code form), client lists and tangible or intangible proprietary information or material, or such other information that either party identifies to the other as confidential or the nature of which or the circumstances of the disclosure of which would reasonably indicate that such information is confidential. Notwithstanding the foregoing definition, Confidential Information shall not include information that (i) is already in the public domain at the time the information is disclosed, (ii) thereafter is obtained from other sources not subject to confidentiality, or (iii) is required to be disclosed under securities laws, rules and regulations applicable to the Company or its Affiliates or PRF, as the case may be, or pursuant to the rules and regulations of any

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[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

securities exchange or trading system or pursuant to any other laws, rules or regulations of any Governmental Authority having jurisdiction over the Company, its Affiliates or PRF.

“Consolidated Cash” shall mean, as of the end of each fiscal month end close, the aggregate balance of cash and cash equivalents of Assignors on a consolidated basis, less any Restricted Cash.

“Daily Amount” shall have the meaning set forth in Section 2.02(a)(ii).

“Debt Condition” shall have the meaning set forth in Section 6.02(k).

“Default” shall mean the occurrence of any event or circumstance that would, with the giving of notice, lapse of time, or both, be an Event of Default.

“Deposit Account (Antara)” shall mean, collectively, any deposit and segregated deposit accounts established and maintained at the Deposit Bank pursuant to a Deposit Account Control Agreement (Antara) and this Agreement. The Deposit Account (Antara) shall be the account into which all payments made in respect of the sale or other disposition of Antara are to be remitted.

“Deposit Account (Factive)” shall mean, collectively, any deposit and segregated deposit accounts established and maintained at the Deposit Bank pursuant to a Deposit Account Agreement (Factive) and this Agreement. The Deposit Account (Factive) shall be the account into which all payments made in respect of the sale or other disposition of Factive are to be remitted.

“Deposit Accounts” shall mean, collectively, the Deposit Account (Antara) and the Deposit Account (Factive).

“Deposit Account Control Agreement (Antara)” shall mean, any agreement entered into by a Deposit Bank, Guardian and PRF as of the Closing Date, substantially, in the form of Exhibit C-1 attached hereto, pursuant to which, among other things, the Deposit Account (Antara), the Joint Concentration Account (Antara), the PRF Concentration Account (Antara), and Guardian Concentration Account shall be established and maintained.

“Deposit Account Agreement (Factive)” shall mean any agreement entered into by a Deposit Bank, the Assignors and PRF as of the Closing Date, substantially in the form of Exhibit C-2 attached hereto, pursuant to which, among other things, the Deposit Account (Factive), the Joint Concentration Account (Factive), the PRF Concentration Account (Factive), and the Oscient Concentration Account shall be established and maintained.

“Deposit Agreements” shall mean, collectively, the Deposit Account Control Agreement (Antara) and the Deposit Account Agreement (Factive).

“Deposit Bank” shall mean JPMorgan Chase Bank or such other bank or financial institution approved by each of PRF and the Company and a party to any Deposit Agreement.

“Disputes” shall have the meaning set forth in Section 3.12(j).

-5-

[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

“Drug Approval Application” shall mean an application for Regulatory Approval required before commercial sale or use of either Product as a drug in a regulatory jurisdiction, including with respect to an NDA or supplemental NDA, or a prior approval supplement to an NDA or any amendments thereto submitted to the FDA.

“Equity Condition” shall have the meaning set forth in Section 6.02(k).

“Event of Default” shall mean the occurrence of any Put Option Event and any other breach by the Assignors of this Agreement, whether or not constituting a Put Option Event.

“Excluded Liabilities and Obligations” shall have the meaning set forth in Section 2.04.

“Factive” shall mean any orally administered product used for the treatment of bacterial infections, which includes: (i) the formulation of gemifloxacin mesylate, known as (R,S)-7-[(4Z)-3-(aminomethyl)-4-(methoxyimino)-1-pyrrolidinyl]- 1-cyclopropyl-6-fluoro-1,4-dihydro-4-oxo-1,8-naphthyridine-3-carboxylic acid; or (ii) any formulation, reformulation or line extension containing gemifloxacin mesylate as an active ingredient, or any derivative or closely related analogs of gemifloxacin mesylate (including but not limited to any stereoisomers, either separated or combined, any hydrates, any polymorphs, any salts, any solvates and any crystal forms) approved by the FDA as monotherapy or in combination with any other pharmaceutical substance that is made, developed, sold, offered for sale, distributed, marketed or promoted by the Company, its Affiliates or Licensees.

“FDA” shall mean the United States Food and Drug Administration or any successor federal agency thereto.

“FDA Approval” shall mean approval by the FDA of the formulation, manufacture, marketing, sale and distribution of the Products.

“Final Payments” shall mean, for any Fiscal Quarter, the product of the Applicable Percentage and Net Revenues for such quarter.

“Financial Statements” shall mean the audited consolidated balance sheets of the Company and its Subsidiaries at December 31, 2003, December 31, 2004, and December 31, 2005 and the related audited consolidated statements of operations and cash flows and the related audited consolidated statements of shareholders’ equity and comprehensive income of the Company and its Subsidiaries for the fiscal years ended December 31, 2003, December 31, 2004, and December 31, 2005, and the unaudited consolidated balance sheet of the Company and its Subsidiaries at March 31, 2006 and the related unaudited consolidated statements of operations and cash flows and the related unaudited consolidated statement of shareholders’ equity and comprehensive income of the Company and its Subsidiaries for the fiscal quarter ended March 31, 2006 and in each case, the accompanying footnotes thereto.

“Fiscal Quarter” shall mean a calendar quarter.

“Fiscal Year” shall mean a calendar year.

“Full Buy-Down Option” shall have the meaning set forth in Section 5.07(d).

-6-

[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

“Full Buy-Down Option Closing Date” shall have the meaning set forth in Section 5.07(d).

“Full Buy-Down Price” shall mean an amount, when taken together with Payments made prior to the payment of the Full Buy-Down Price, that would generate an internal rate of return (utilizing the same methodology utilized by the IRR function in Microsoft Excel 2003) to PRF of [*] percent ([*]%) in respect of the PRF Payments.

“GAAP” shall mean generally accepted accounting principles in the United States in effect from time to time.

“Genesoft Consent” shall have the meaning set forth in Section 5.13.

“Genesoft Note Purchase Agreement” shall mean Note Amendment and Exchange Agreement among Genesoft Pharmaceuticals, Inc., Genome Therapeutics Corp. and the Genesoft Noteholders listed on schedules A and B thereto, dated as of November 17, 2003.

“Genesoft Noteholder” shall mean the noteholders listed on schedules A and B to the Genesoft Note Purchase Agreement.

“Governmental Authority” shall mean any government, court, regulatory or administrative agency or commission, or other governmental authority, agency or instrumentality, whether foreign, federal, state or local (domestic or foreign), including the United States Patent and Trademark Office, the FDA, the United States National Institutes of Health, or any other government authority in any country.

“Gross Product Revenues” with respect to the Products means, for any period of determination, the sum of the following for such period: (i) the amounts invoiced by the Assignors or any of their Affiliates or licensees or sublicensees to a Third Party with respect to the sale of Products in the Territory by the Assignors or any of their Affiliates or licensees or sublicensees, respectively, and (ii) collections in respect of write-offs or allowances for bad debts in respect of items described in the preceding clause (i). For the avoidance of doubt, Gross Product Revenues shall not include (x) any amounts invoiced by the Assignors or any of their Affiliates to a Third Party in connection with any marketing, royalty, co-promotion, development, manufacturing, equity investment, cost sharing or other strategic investment arrangement, or (y) any revenues, investments or service fees in connection with a rights transfer with respect to either Product permitted hereunder. For purposes of prevention of duplication, “Gross Product Revenue” shall not include amounts invoiced by distributors, wholesalers or other Persons acting in similar capacities.

“Guardian” shall mean Guardian II Acquisition Corporation, a Delaware corporation.

“Guardian Concentration Account” shall mean a segregated account established and maintained at the Deposit Bank pursuant to the terms of the Deposit Account Control Agreement (Antara) and this Agreement. The Guardian Concentration Account shall be the account into which the funds remaining in the Joint Concentration Account (Antara) after payment therefrom of the amounts payable to PRF pursuant to this Agreement are swept in accordance with the terms of this Agreement and the Deposit Account Control Agreement (Antara).

-7-

[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

“In-License Agreement” shall have the meaning set forth in the definition of “Material Contract”.

“Intellectual Property” shall mean (i) all proprietary information; trade secrets; know-how; confidential information; inventions (whether patentable or unpatentable and whether or not reduced to practice or claimed in a pending patent application) and improvements thereto; registered or unregistered trademarks, trade names, service marks, including all goodwill associated therewith; registered and unregistered copyrights and all applications thereof; in each case that are owned, controlled by, issued to, licensed to, licensed by or hereafter acquired by or licensed by the Company or its Subsidiaries, in each case directly relating to a Product, and (ii) the Patents.

“Interim Applicable Percentage” shall mean, as of any date of determination, on a Fiscal Year-by-Fiscal Year basis (or applicable portion thereof in the first and last Fiscal Years under this Agreement), during the Revenue Interest Period,

(a) prior to the date that the cumulative payments received and retained (i.e., not refunded by PRF) by PRF under Sections 2.02, 5.07(c) and 5.08 are less than [*] percent ([*]%) the cumulative payments made by PRF under Section 2.03, the following:

(i) with respect to Aggregate Deposit Funds in each fiscal year of up to and including [*] dollars ($[*]),[*] percent ([*]%);

(ii) with respect to Aggregate Deposit Funds in each fiscal year in excess of [*] dollars ($[*]) but less than and including [*] dollars ($[*]),[*] percent ([*]%); and

(iii) with respect to Aggregate Deposit Funds in each fiscal year in excess of [*] dollars ($[*]), [*] percent ([*]%); and

(b) from and after the date that the cumulative payments received and retained (i.e., not refunded by PRF) by PRF under Sections 2.02, 5.07(c) and 5.08 are at least [*] percent ([*]%) the cumulative payments made by PRF under Section 2.03, [*] percent ([*]%).

For the avoidance of doubt, the percentages set forth in this definition of “Interim Applicable Percentage” are subject to reduction by fifty percent (50%) as and to the extent provided in Section 5.07(c) and subject to adjustment pursuant to Section 5.08(f).

“Interim Payments” shall mean for any Fiscal Quarter, the product of the Interim Applicable Percentage and the Aggregate Deposit Funds received in such quarter.

“Joint Accounts” shall mean, collectively, the Joint Concentration Account (Antara) and the Joint Concentration Account (Factive).

“Joint Concentration Account (Antara)” shall mean a segregated account, subject to a control agreement in favor of PRF, established for the benefit of the Company and PRF and maintained at the Deposit Bank pursuant to the terms of the Deposit Control Agreement (Antara) and this Agreement. The Joint Concentration Account (Antara) shall be the account into which the Deposit Bank sweeps the funds held in the Deposit Account (Antara).

-8-

[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

“Joint Concentration Account (Factive)” shall mean a segregated account established for the benefit of the Company and PRF and maintained at the Deposit Bank pursuant to the terms of the Deposit Account Agreement (Factive) and this Agreement. The Joint Concentration Account (Factive) shall be the account into which the Deposit Bank sweeps the funds held in the Deposit Account (Factive).

“Knowledge” shall mean the actual knowledge of an officer or employee of the Company or any Affiliates thereof relating to a particular matter. Notwithstanding the foregoing, an officer or employee of the Company or any Affiliate thereof charged with responsibility for the aspect of the business relevant or related to the matter at issue shall be deemed to have knowledge of a particular matter if, in the prudent exercise of his or her duties and responsibilities in the ordinary course of business, such officer or employee should have known of such matter.

“Licensees” shall mean, collectively, the licensees, sublicensees or distributors under the Out-License Agreements; each a “Licensee”.

“Liens” shall mean any mortgage, deed of trust, pledge, hypothecation, assignment, security interest, lien (whether statutory or otherwise), charge, claim or encumbrance, or preference, priority or other security agreement or preferential arrangement held or asserted in respect of any asset of any kind or nature whatsoever including, without limitation, any conditional sale or other title retention agreement, any lease having substantially the same economic effect as any of the foregoing, and the filing of, or agreement to give, any financing statement under the UCC except:

(a) Liens for taxes, assessments or governmental charges not then due and delinquent;

(b) Liens incidental to the conduct of business or the ownership of properties and assets (including landlords’, lessors’, carriers’, warehousemen’s, mechanics’, materialmen’s and encumbrances in the nature of leases, subleases, zoning restrictions, easements, right of way and other rights and restrictions of record on the use of real property and defects in title arising or incurred in the ordinary course of business, which, individually and in the aggregate, do not materially impair the use or value of the property or assets subject thereto or which relate only to assets that in the aggregate are not material) and Liens to secure the performance of bids, tenders, lease or trade contracts, or to secure statutory obligations (including obligations under workers compensation, unemployment insurance and other social security legislation), surety or appeal bonds or other Liens of like general nature incurred in the ordinary course of business and not in connection with the borrowing of money;

(c) Any attachment or judgment Lien, unless the judgment it secures has not, within 60 days after the entry thereof, been discharged or execution thereof stayed pending appeal, or has not been discharged within 60 days after the expiration of any such stay; and

(d) Liens securing the Transaction Documents.

“Losses” shall mean collectively, any and all claims, damages, losses, judgments, liabilities, costs and expenses (including reasonable expenses of investigation and reasonable attorneys’ fees and expenses in connection with any action, suit or proceeding).

-9-

[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

“Material Adverse Effect” shall mean (i) a material adverse change in the business, operations, assets or business or financial condition of any of the Company or its Subsidiaries, (ii) a material adverse effect on the validity or enforceability of any of the Transaction Documents, (iii) a material adverse effect on the ability of an Assignor to perform any of its obligations under any of the Transaction Documents, (iv) a material adverse effect on the rights or remedies of PRF under any of the Transaction Documents, (v) a material adverse effect on the right of PRF to receive the Assigned Interests or any payment due to PRF hereunder and (vi) a material adverse effect on the Products or the ability of the Company to distribute, market and/or sell the Products; provided, however the Material Adverse Effect shall exclude any effect resulting from (a) changes to general economic conditions or any occurrence or condition affecting the pharmaceutical industry generally, (b) war, hostilities, military actions or acts of terrorism or (c) any decision or commitment by the FDA (or any FDA advisory committee) with respect to any of the Company’s pending supplemental NDAs with respect to Factive.

“Material Contract” shall mean any contract, agreement or other arrangement to which either the Company or any of its Subsidiaries is a party or any of the Company’s or its Subsidiaries’ respective assets or properties are bound or committed (other than the Transaction Documents) pursuant to which an Assignor is granted a license to Intellectual Property covering the Products (each an “In-License Agreement”) or pursuant to which the Product is manufactured or packaged.

“NDA” shall mean a new drug application and all amendments and supplements thereto, submitted to the FDA with respect to the Products.

“Net Revenues” with respect to the Products shall mean, for any period of determination, the difference of

(a) Gross Product Revenues for such period, less

(b) the sum, with respect to the items described in clause (i) of the definition of Gross Product Revenues, of

(i) cash, trade discounts and wholesaler fee-for service amounts,

(ii) Medicaid and Medicare and managed market rebates and chargebacks,

(iii) accruals related to ordinary course of business consumer cash vouchers, sample coupon cards and similar types of revenue reserves,

(iv) allowances and adjustments actually credited to customers for Products that are spoiled, damaged, outdated, obsolete, returned or otherwise recalled, but only if and to the extent the same are in accordance with sound business practices and not in excess of customary industry standards,

(v) charges for freight, postage, shipping, delivery, service and insurance charges, to the extent invoiced,

(vi) taxes, duties or other governmental charges to the extent invoiced, and

-10-

[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

(vii) write-offs or allowances for bad debts.

Net Revenues shall be determined in accordance with GAAP as applied by the Company on the date of this Agreement.

“Note Purchase Agreement” shall have the meaning set forth in Section 6.02(l).

“Note” shall have the meaning set forth in the Note Purchase Agreement.

“Obligations” shall mean any and all obligations of the Assignors under the Transaction Documents.

“Oscient Concentration Account” shall mean a segregated account established and maintained at the Deposit Bank pursuant to the terms of the Deposit Account Agreement (Factive) and this Agreement. The Oscient Concentration Account shall be the account into which the funds remaining in the Joint Concentration Account (Factive) after payment therefrom of the amounts payable to PRF pursuant to this Agreement are swept in accordance with the terms of this Agreement and the Deposit Account Agreement (Factive).

“Oscient Indemnified Party” shall have the meaning set forth in Section 8.05(b).

“Out-License Agreement” shall mean any existing or future license, development, commercialization, co-promotion, collaboration, distribution, manufacturing, marketing or partnering agreement entered into by an Assignor or any of its Affiliates relating to either of the Products pursuant to which the Assignors or any of their Affiliates grant a license to distribute or sell either of the Products in the Territory.

“Partial Buy-Down Option” shall have the meaning set forth in Section 5.07(c).

“Partial Buy-Down Option Closing Date” shall have the meaning set forth in Section 5.07(c).

“Partial Buy-Down Price” shall mean an amount, when taken together with fifty percent (50%) of the Payments made prior to the payment of the Partial Buy-Down Price, that would generate an internal rate of return (utilizing the same methodology utilized by the IRR function in Microsoft Excel 2003) to PRF of [*] percent ([*]%) in respect of fifty percent (50%) of the PRF Payments.

“Patent Office” shall mean the respective patent office, including the United States Patent and Trademark Office and any comparable foreign patent office, for any Patents.

“Patents” shall mean all patents, patent rights, patent applications, patent disclosures and invention disclosures issued or filed, together with all reissues, divisions, continuations, continuations-in-part, revisions, extensions, and reexaminations thereof relating to the Product, composition of matter, formulation, or methods of manufacture or use thereof that are issued or filed as of the date hereof or during the Revenue Interest Period, including, without limitation, those identified in Schedule 3.12 in each case, which are owned, controlled by, issued to, licensed to or licensed by the Company or any of its Affiliates.

-11-

[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

“Payments” shall mean cumulative payments made by the Assignors to and received and retained by PRF pursuant to Sections 2.02, 5.07(c) and 5.08, as applicable. Payments made pursuant to Sections 2.02 and 5.08 shall be deemed to have been received by PRF on the 45th day of the Fiscal Quarter in which such payments were made. Payments made pursuant to Section 5.07(c) shall be deemed to have been received by PRF on the date such payments were made.

“Person” shall mean an individual, corporation, partnership, limited liability company, association, trust or other entity or organization, but not including a government or political subdivision or any agency or instrumentality of such government or political subdivision.

“PRF” shall have the meaning set forth in the first paragraph hereof.

“PRF Concentration Account (Antara)” shall mean a segregated account established for the benefit of PRF and maintained at the Deposit Bank pursuant to the terms of the Deposit Account Control Agreement (Antara) and this Agreement. The PRF Concentration Account (Antara) shall be the account into which the funds held in the Joint Concentration Account (Antara) which are payable to PRF pursuant to this Agreement are swept by the Deposit Bank in accordance with the terms of this Agreement and the Deposit Account Control Agreement (Antara).

“PRF Concentration Account (Factive)” shall mean a segregated account established for the benefit of PRF and maintained at the Deposit Bank pursuant to the terms of the Deposit Account Agreement (Factive) and this Agreement. The PRF Concentration Account (Factive) shall be the account into which the funds held in the Joint Concentration Account (Factive) which are payable to PRF pursuant to this Agreement are swept by the Deposit Bank in accordance with the terms of this Agreement and the Deposit Account Agreement (Factive).

“PRF Indemnified Party” shall have the meaning set forth in Section 8.05(a).

“PRF Payments” shall mean cumulative payments made by PRF pursuant to Section 2.03.

“Products” shall mean Antara and Factive; individually, each a “Product”.

“Put/Call Price” shall mean the greater of:

(a) (i) if the Partial Buy-Down Option has not been exercised, an amount, when taken together with Payments made prior to the payment of the Put/Call Price, that would generate an internal rate of return (utilizing the same methodology utilized by the IRR function in Microsoft Excel 2003) to PRF of [*] percent ([*]%) in respect of the PRF Payments, or

(ii) if the Partial Buy-Down Option has been exercised and the Partial Buy-Down Price has been paid, an amount, when taken together with fifty percent (50%) of the Payments (exclusive of payments made under Section 5.07(c)) made prior to the payment of the Put/Call Price, that would generate an internal rate of return (utilizing the same methodology utilized by the IRR function in Microsoft Excel 2003) to PRF of [*] percent ([*]%) in respect of [*] percent ([*]%) of the PRF Payments.

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[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

(b) if the date of exercise of the Call Option or Put Option, as applicable, is

(i) on or before December 31, 2007, an amount equal to [*] percent ([*]%) of the PRF Payments as of such date, less an amount equal to the Payments prior to the payment of the Put/Call Price, or

(ii) after December 31, 2007, an amount equal to [*] percent ([*]%) of the PRF Payments as of such date, less an amount equal to the Payments made prior to the payment of the Put/Call Price.

“Put Option” shall have the meaning set forth in Section 5.07(b).

“Put Option Closing Date” shall have the meaning set forth in Section 5.07(b).

“Put Option Event” shall mean any one of the following events:

(i) any Change of Control;

(ii) any Bankruptcy Event;

(iii) any Transfer by the Company or any of its Subsidiaries of all or substantially all of either Product;

(iv) any breach by an Assignor in any material respect of any of its covenants in Section 2.02(a)(ii) (unless such breach results from any action or omission by any Person other than an Assignor), Section 5.08(c) (unless such breach results from any action or omission by any Person other than an Assignor) or Section 5.08(g), which breach in each case, is not cured within sixty (60) days following delivery by PRF to the Assignors of written notice of such breach;

(v) any (A) breach by an Assignor in any material respect of any of its covenants in Sections 5.03, 5.05, 5.08(d), 5.09, 5.10, 5.11, 5.13 or 5.16, or (B) representation made by an Assignor in any of Sections 3.04, 3.10, 3.12, 3.13(b) or 3.14 proves after the Closing Date, based on facts or circumstances which PRF was not aware of on or prior to the Closing Date, to have been false or incorrect in any material respect when made; in each case if and only if such breach or falseness or incorrectness (x) is not cured (if such breach or falseness or incorrectness is capable of being cured) within seventy (70) days following delivery by PRF to the Assignors of written notice thereof, and (y) results in a Material Adverse Effect; or

(vi)(A) any permanent injunction issued by a Governmental Authority as a result of a lawsuit instituted by [*] or their successors, assignees or affiliates (each individually, a “Potential Plaintiff” and collectively, the “Potential Plaintiffs”) that suspends the sale of Antara and remains in effect and not stayed for more than 60 days, (B) any preliminary or temporary injunction issued by a Governmental Authority as a result of a lawsuit instituted by a Potential Plaintiff that suspends the sale of Antara and remains in effect and not stayed for more than 90 days, or (C) a voluntary withdrawal by an Assignor of Antara from the market that suspends sales of Antara for more than 30 days as a result of a Dispute involving a Potential Plaintiff and an Assignor.

-13-

[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

“Quarterly Report” shall mean, with respect to the relevant Fiscal Quarter of the Company, (i) a report showing all payments made by the Assignors to PRF under this Agreement during such quarter and showing in reasonable detail the basis for the calculation of such payments, (ii) a reconciliation of such report referred to in clause (i) above to all information and data deliverable to the Company, PRF or their Affiliates by the parties to any Out-License Agreement, together with relevant supporting documentation, and (iii) such additional information as PRF may reasonably request.

“Regulatory Agency” shall mean a Governmental Authority with responsibility for the approval of the marketing and sale of pharmaceuticals in the United States or other regulation of pharmaceuticals.

“Regulatory Approval” shall mean all approvals (including, without limitation, where applicable, pricing and reimbursement approval and schedule classifications), product and/or establishment licenses, registrations or authorizations of any Governmental Authority of a Drug Approval Application necessary for the manufacture, use, storage, import, export, transport, offer for sale, or sale of the Products in a regulatory jurisdiction.

“Restricted Cash” shall mean any cash required under GAAP to be reflected on the consolidated balance sheet of the Company (or the notes thereto) as restricted cash.

“Revenue Interest Period” shall mean the period from and including the date hereof through and including December 31, 2016, unless earlier terminated upon a full repurchase of the Assigned Interests by the Company pursuant to Section 5.07 or otherwise in accordance with the terms of this Agreement.

“Revenue Interests” shall mean (A) with respect to any Out-License Agreement, all of the Company’s and its Affiliates’ rights under such Out-License Agreement, including, without limitation, rights to receive payments in respect of sale of the Products in the Territory and (B) otherwise, all of the Company’s and its Affiliates’ rights, however derived, to receive payments in respect of sales of the Products in the Territory.

“Security Agreement” shall mean the Security Agreement dated the Closing Date by and between Guardian and PRF providing for, among other things, the grant by Guardian in favor of PRF of a valid continuing, perfected lien on and security interest in, certain of the Assigned Interests and the other Collateral described therein, which Security Agreement shall be substantially in the form of Exhibit D.

“Stock Purchase Agreement” shall have the meaning set forth in Section 6.02(k).

“Subsidiary” or “Subsidiaries” shall mean with respect to any Person (i) any corporation of which the outstanding capital stock having at least a majority of votes entitled to be cast in the election of directors under ordinary circumstances shall at the time owned, directly or indirectly, by such Person or (ii) any other Person of which at least a majority voting interest under ordinary circumstances is at the time, directly or indirectly, owned by such Person.

“Term” shall mean the term of this Agreement, as provided in Section 7.01 hereof.

-14-

[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

“Territory” shall mean, with respect to Factive, the United States, and, with respect to Antara, the “Territory”, as defined in the Antara Purchase Agreement.

“Third Party” shall mean any Person other than the Company, Guardian or PRF or their respective Affiliates.

“Transaction Documents” shall mean, collectively, this Agreement, the Assignments of Interests, the Security Agreement and the Deposit Agreements.

“Transfer” or “Transferred” shall mean any sale, conveyance, assignment, disposition, pledge, hypothecation or transfer (other than a transfer to an Affiliate to which PRF has consented, which consent shall not be unreasonably withheld, delayed or conditioned).

“True-Up Statement” shall have the meaning set forth in Section 5.08(g)(i).

“UCC” shall mean the Uniform Commercial Code (or any similar or equivalent legislation) as in effect in any applicable jurisdiction.

“United States” shall mean the United States of America, its territories and possessions, including, without limitation, Puerto Rico.

“Waived Consent” shall have the meaning set forth in Section 6.02 (n).

“Year-to-Date Net Revenues” shall have the meaning set forth in Section 5.08(g)(i).

ARTICLE II

ASSIGNMENT OF INTERESTS

Section 2.01 Assignment.

Upon the terms and subject to the conditions set forth in this Agreement, each of the Assignors agrees to sell, assign, transfer and convey to PRF, and PRF agrees to purchase from the Assignors, free and clear of all Liens (except those Liens created in favor of PRF pursuant to the Security Agreement and any other Transaction Document and those Liens of the Company set forth on Schedule 2.01) and subject to the conditions set forth in Article VI, all of the Assignors’ rights and interests in and to the Assigned Interests on the Closing Date. PRF’s ownership interest in the Assigned Interests so acquired shall vest immediately upon the Assignors’ receipt of payment for such Assigned Interests pursuant to Section 2.03.

Section 2.02 Payments by the Assignors.

(a) Payments in Respect of the Assigned Interests.

(i) PRF shall be entitled to receive the Applicable Percentage in respect of Net Revenues made during the Revenue Interest Period.

(ii) Commencing on the date hereof, the Interim Applicable Percentage of the Aggregate Deposit Funds in each Fiscal Year shall be swept from the Joint Accounts into the PRF Concentration Account (Antara) and the PRF Concentration Account (Factive), as applicable, on a daily basis (the “Daily Amount”) pursuant to Section 5.08.

-15-

[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

(b) Payment Procedure. Other than payments made pursuant to the Deposit Agreements, any payments to be made by the Assignors to PRF hereunder or under any other Transaction Document shall be made by wire transfer of immediately available funds.

Section 2.03 Purchase Price.

(a) Assigned Interests. In full consideration for the assignment by the Assignors of the Assigned Interests, and subject to the terms and conditions set forth herein, PRF shall pay to the Assignors forty million dollars ($40,000,000) by wire transfer of immediately available funds at the time of Closing to an account designated in writing by the Assignors.

(b) Payment Procedure. The payment to be made by PRF under this Section 2.03 shall be paid by wire transfer of immediately available funds to the account(s) designated by the Assignors.

Section 2.04 No Assumed Obligations.

Notwithstanding any provision in this Agreement or any other writing to the contrary, PRF is acquiring only the Assigned Interests and is not assuming any liability or obligation of the Company or any of its Affiliates of whatever nature, whether presently in existence or arising or asserted hereafter, whether under any Transaction Document or otherwise. All such liabilities and obligations shall be retained by and remain obligations and liabilities of the Company or its Affiliates (the “Excluded Liabilities and Obligations”).

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE ASSIGNORS

The Assignors hereby jointly and severally represent and warrant to PRF the following as of the date of this Agreement:

Section 3.01 Organization.

Each Assignor is a corporation duly incorporated, validly existing and in good standing under the laws of its state of organization, and has all corporate powers and all licenses, authorizations, consents and approvals required to carry on its business as now conducted and as proposed to be conducted in connection with the transactions contemplated by the Transaction Documents. Each Assignor is duly qualified to do business as a foreign corporation and is in good standing in every jurisdiction in which the failure to do so would have a Material Adverse Effect.

Section 3.02 Corporate Authorization.

Each Assignor has all necessary power and authority to enter into, execute and deliver the Transaction Documents and to perform all of the obligations to be performed by it hereunder and thereunder and to consummate the transactions contemplated hereunder and thereunder. The

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Transaction Documents have been duly authorized, executed and delivered by each Assignor and each Transaction Document constitutes the valid and binding obligation of such Assignor, enforceable against it in accordance with their respective terms, subject, as to enforcement of remedies, to bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’ rights generally or general equitable principles.

Section 3.03 Governmental Authorization.

Except as set forth on Schedule 3.03, the execution and delivery by the Assignors of the Transaction Documents, and the performance by them of their obligations hereunder and thereunder, does not require any notice to, action or consent by, or in respect of, or filing with, any Governmental Authority, except for the filing of financing statements under the UCC.

Section 3.04 Ownership. The Assignors hereby jointly and severally represent and warrant to PRF the following (provided, however, with respect to Antara, only after giving effect to the closing of the transaction contemplated by the Antara Purchase Agreement):

(a) Except as set forth on Schedule 3.04(a), the Assignors own, or hold a valid license under, all of the Intellectual Property and the Regulatory Approvals with respect to the Products free and clear of all Liens, and no license or covenant not to sue under any Intellectual Property or Regulatory Approvals has been granted to any Third Party.

(b) Except as set forth on Schedule 3.04(b), the Assignors, immediately prior to the assignment of the Assigned Interests, own, and are the sole holders of, all the Revenue Interests; and the Assignors own, and are the sole holders of, and/or have and hold a valid, enforceable and subsisting license to, all of those other assets that are required to produce or receive any payments from any Licensee or payor under and pursuant to, and subject to the terms of any Out-License Agreement, in each case free and clear of any and all Liens, except those Liens created in favor of PRF pursuant to the Security Agreement or any other Transaction Document, and those Liens of the Company set forth on Schedule 2.01. Except as set forth on Schedule 3.04(b), neither Assignor has transferred, sold, or otherwise disposed of, or agreed to transfer, sell, or otherwise dispose of any portion of the Revenue Interests other than as contemplated by this Agreement. No Person other than the Assignors has any right to receive the payments payable under any Out-License Agreement, other than PRF’s rights with respect to the Assigned Interests, from and after the Closing Date. Each Assignor has the full right to sell, transfer, convey and assign to PRF all of its rights and interests in and to the Assigned Interests being sold, transferred, conveyed and assigned to PRF pursuant to this Agreement without any requirement to obtain the consent of any Person. By the delivery to PRF of the executed Assignments of Interests, each Assignor shall transfer, convey and assign to PRF all of its rights and interests in and to the Assigned Interests being sold, transferred, conveyed and assigned to PRF pursuant to this Agreement, free and clear of any Liens, except those Liens created in favor of PRF pursuant to the Security Agreement and any other Transaction Document and the Liens of the Company set forth on Schedule 2.01. At the Closing, and upon the delivery of the Assignments of Interests to PRF by the Assignors, PRF shall have acquired good and valid rights and interests of the Assignors in and to the Assigned Interests being sold, transferred, conveyed and assigned to PRF pursuant to this Agreement, free and clear of any and all Liens, except those Liens created in favor of PRF pursuant to the Security Agreement and any other Transaction Document and the Liens of the Company set forth on Schedule 2.01.

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Section 3.05 Financial Statements.

The Financial Statements are complete and accurate in all material respects, were prepared in conformity with GAAP and present fairly in all material respects the financial position and the financial results of the Company and its Subsidiaries as of the dates and for the periods covered thereby.

Section 3.06 No Undisclosed Liabilities.

Except as disclosed in the Financial Statements, the Company or its Subsidiaries does not have any material liabilities, except: (a) liabilities incurred since the date of the most recent balance sheet in the ordinary course of business, (b) liabilities with respect to matters disclosed in this Agreement (including matters disclosed in the schedules hereto), (c) liabilities under the agreements listed as Exhibits in the Company’s Annual Report on Form 10-K for the year ending December 31, 2005 or its Quarterly Report on Form 10-Q for the quarter ending March 31, 2006, (d) liabilities under the Antara Purchase Agreement and (e) liabilities under, or incurred in connection with, this Agreement.

Section 3.07 Solvency.

Neither Assignor is insolvent as defined in any statute of the United States Bankruptcy Code or in the fraudulent conveyance or fraudulent transfer statutes of the Commonwealth of Massachusetts or the States of New York or Delaware. Assuming consummation of the transactions contemplated by the Transaction Documents, (i) the present fair saleable value of each Assignor’s assets is greater than the amount required to pay its debts as they become due, (ii) neither Assignor has unreasonably small capital with which to engage in its business, and (iii) neither Assignor has incurred, nor does it have present plans to or intend to incur, debts or liabilities beyond its ability to pay such debts or liabilities as they become absolute and matured.

Section 3.08 Litigation.

There is no (i) action, suit, arbitration proceeding, claim, investigation or other proceeding pending or, to the Knowledge of the Company, threatened against the Company or its Subsidiaries or (ii) any governmental inquiry pending or, to the Knowledge of the Company, threatened against the Company or its Subsidiaries, in each case with respect to clauses (i) and (ii) above, which, if adversely determined, would question the validity of, or would adversely affect the transactions contemplated by any of the Transaction Documents or would reasonably be expected to have a Material Adverse Effect. There is no action, suit, claim, proceeding or investigation pending or, to the Knowledge of the Company, threatened against the Company, its Subsidiaries or any other Person relating to the Products, the Intellectual Property, the Regulatory Approvals, the Revenue Interests or the Assigned Interests.

Section 3.09 Compliance with Laws.

None of the Company and its Subsidiaries (i) is in violation of, has not violated, or to the Knowledge of the Company, is not under investigation with respect to, and (ii) to the Company’s Knowledge has not been threatened to be charged with or been given notice of any violation of any law, rule, ordinance or regulation of, or any judgment, order, writ, decree, permit or license

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entered by any Governmental Authority applicable to the Company, the Assigned Interests or the Revenue Interests which would reasonably be expected to have a Material Adverse Effect.

Section 3.10 Conflicts.

(a) Neither the execution and delivery of any of the Transaction Documents nor the performance or consummation of the transactions contemplated hereby and thereby will: (i) contravene, conflict with, result in a breach or violation of, constitute a default under, or accelerate the performance provided by, in any material respects any provisions of: (A) any law, rule, ordinance or regulation of any Governmental Authority, or any judgment, order, writ, decree, permit or license of any Governmental Authority, to which the Company or any of its Subsidiaries or any of their respective assets or properties may be subject or bound; or (B) any contract, agreement, commitment or instrument to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries or any of their respective assets or properties is bound or committed; (ii) contravene, conflict with, result in a breach or violation of, constitute a default under, or accelerate the performance provided by, any provisions of the certificate of incorporation or by-laws (or other organizational or constitutional documents) of the Company or any of its Subsidiaries; (iii) except for the filing of the UCC-1 financing statements required hereunder and filings with the United States Patent and Trademark Office, require any notification to, filing with, or consent of, any Person or Governmental Authority; (iv) give rise to any right of termination, cancellation or acceleration of any right or obligation of the Company or any of its Subsidiaries or any other Person or to a loss of any benefit relating to the Revenue Interests or the Assigned Interests; or (v) result in the creation or imposition of any Lien on (A) the assets or properties of the Company or any of its Subsidiaries or (B) the Assigned Interests, the Revenue Interests, or any other Collateral, other than, with respect to clause (v) above, pursuant to the Security Agreement.

(b) None of the Company and its Subsidiaries has granted, nor does there exist, any Lien on the Revenue Interests, the Assigned Interests or any other Collateral other than pursuant to the Security Agreement or as set forth on Schedule 2.01.

Section 3.11 Subordination. The claims and rights of PRF created by any Transaction Document in and to the Assigned Interests and the Revenue Interests of the Company are not subordinated to any creditor of the Company; and the claims and rights of PRF created by any Transaction Document in and to the Assigned Interests, the Revenue Interests and any other Collateral of Guardian are not subordinated to any creditor of Guardian other than, in each case, as set forth on Schedule 2.01.

Section 3.12 Intellectual Property. The Assignors hereby jointly and severally represent and warrant to PRF the following (provided, however, with respect to Antara, only after giving effect to the closing of the transaction contemplated by the Antara Purchase Agreement):

(a) For each Product, Schedule 3.12(a) sets forth an accurate, true and complete list (by category and family) of all (1) Patents and utility models, (2) trade names, common law trademarks, common law service marks, registered trademarks, registered service marks, and applications for trademark registration or service mark registration (in each case used in connection with a Product), (3) registered and unregistered copyrights and (4) domain name

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registrations and websites, in each case with respect to clauses (1), (2), (3) and (4) above in this subsection (a) that are necessary to make, have made, use, sell, have sold, offer for sale, import, develop, promote, market, distribute, manufacture, commercialize or otherwise exploit each Product for FDA approved indications in the Territory by the Assignors, their Affiliates, manufacturers, suppliers, or distributors. For each item of intellectual property listed on Schedule 3.12(a), the Assignors have identified (i) the record owner, (ii) the application number, (iii) the patent number, (v) the expiration date, as applicable, including any applicable term extensions, if applicable, (vi) the earliest relied upon priority filing date used to calculate the expiration date, and (vii) the due date(s) for any applicable maintenance, annuity or renewal fee. Except as disclosed therein, each listed Intellectual Property item on Schedule 3.12(a) is not invalid and not unenforceable and no listed Intellectual Property item has lapsed, expired, been cancelled or become abandoned. To the Company’s Knowledge, the Patent applications listed in Schedule 3.12(a) have been and continue to be prosecuted by competent patent counsel in a diligent manner.

(b) Schedule 3.12(b) sets forth an accurate, true and complete list of all agreements, whether oral or written, express or implied, including, without limitation, assignments, licenses, options, franchise, distribution, marketing and manufacturing agreements, sponsorships, project agreements, collaboration agreements, joint development agreements, agreements not to enforce, consents, settlements, security interests, liens and other encumbrances or mortgages, and any amendments(s) renewal(s), novation(s) and termination(s) pertaining thereto, pursuant to which the Company has the legal right to exploit Intellectual Property that is owned by another Person or a Third Party. To the Assignors’ Knowledge, there are no unpaid fees or royalties under any agreement listed on Schedule 3.12(b) that have become due, or are expected to become overdue, as of the Closing Date, except as disclosed on Schedule 3.12(b).

(c) Each agreement listed in Schedule 3.12(b) is legal, valid, binding, enforceable, and in full force and effect. The Assignors are not in breach of such listed agreements and, no circumstances or grounds exist that would give rise to a claim of breach or right of rescission, termination, revision, or amendment of any of the agreements specified in Schedule 3.12(b), including, without limitation, the execution, delivery and performance of this Agreement and the other Transaction Documents, except as disclosed on Schedule 3.12(c).

(d) Except for Intellectual Property licensed to the Company or Guardian, as the case may be, pursuant to any agreement listed on Schedule 3.12(b) and Intellectual Property owned by the Company or Guardian, as the case may be, no other Intellectual Property is necessary to make, have made, offer to sell, sell, have sold, use, import, make public, reproduce, transmit, extract, distribute, commercialize or market the Product for FDA approved indications. The Assignors have the full, legal right to make, have made, use, sell, have sold, offer for sale, import, develop, distribute, manufacture, commercialize, or market the Products in the Territory, without infringing any valid and enforceable intellectual property right that is owned by another Person or a Third Party.

(e) The Assignors possess sole, exclusive, valid, marketable and unencumbered title to the Intellectual Property for which it is listed as the owner on Schedule 3.12(a), and is a party to the agreements listed on Schedule 3.12(b); all assignments from each inventor, as the case may be, to the Assignors or to a predecessor in interest of the Assignors, have been executed and recorded for each of the Patents; there are no Liens, mortgages or encumbrances on or to any Intellectual Property listed on Schedule 3.12(a) that it owns or agreement listed on Schedule 3.12(b), except as disclosed on Schedule 3.12(e).

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(f) There are no unpaid fees currently overdue for any of the Intellectual Property listed on Schedule 3.12(a), nor have any applications or registrations therefor lapsed or become abandoned, been cancelled or expired.

(g) To the Assignors’ Knowledge and except as set forth on Schedule 3.12(g), each owner and inventor of each Patent and the Assignors (to the extent that either Assignor is an applicant or is otherwise involved in the patent prosecution of any Patent) have complied in all material respects with all applicable duties of candor and good faith in dealing with the U.S. Patent Office, including the duty to disclose all information known to be material to patentability.

(h) To the Assignors’ Knowledge, no payments by the Assignors are, or at any time in the future expected to, become due to any other Person in respect of the Product or the Intellectual Property, except as disclosed on Schedule 3.12(h).

(i) Neither the Assignors nor to the Assignors’ Knowledge any Person, has undertaken or omitted to undertake any acts, and to the Assignors’ Knowledge, no circumstance or grounds exist, that would invalidate, reduce or eliminate, in whole or in part, the enforceability or scope of (i) any Intellectual Property or, in the case of Intellectual Property owned or licensed by either of the Assignors, the Assignors’ entitlement to exclusively exploit such Intellectual Property, or (ii) the Company’s right to enjoy payments made in respect of sales of the Product or other revenues from any Intellectual Property.

(j) Except as disclosed on Schedule 3.12(j), there is, and has been, no pending, decided or settled opposition, interference proceeding, reexamination proceeding, cancellation proceeding, injunction, claim, lawsuit, proceeding, hearing, investigation, complaint, arbitration, mediation, demand, International Trade Commission investigation, decree, or any other dispute, disagreement, or claim (collectively referred to hereinafter as “Disputes”), nor, to the Assignors’ Knowledge, has any such Dispute been threatened, challenging the legality, validity, enforceability or ownership of any Intellectual Property or which would give rise to a credit against the revenues of Assignors as a result of the manufacture, sale offer for sale, use, importation or exportation of the Product or the exploitation of the licensed Intellectual Property and, to the Company’s Knowledge, no circumstances or grounds exist that would give rise to such a Dispute. There are no Disputes by any Person or Third Party against the Company, and to the Assignors’ Knowledge, its licensors. The Assignors have not received any written notice or claim of any such Dispute, and, to the Assignors’ Knowledge, there exists no circumstances or grounds upon which any such claim could be asserted, as pertaining to the Product. Neither the Assignors, nor to the Assignors’ Knowledge its licensor, have sent any notice of any Dispute to a Third Party, and to the Assignors’ Knowledge, there exists no circumstance or grounds upon which the Assignors or their licensor could assert any such Dispute, as pertaining to the Product. No Intellectual Property or the Product is subject to any outstanding injunction, judgment, order, decree, ruling charge, settlement or other disposition of Dispute, and the Assignors have fully complied with, paid and otherwise satisfied all such obligations, except as disclosed on Schedule 3.12 (j).

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(k) There is no pending or, to the Assignors’ Knowledge, threatened action, suit, or proceeding, or any investigation or claim by any Governmental Authority to which either Assignor is a party (1) that would be the subject of a claim for indemnification by any Person or Third Party under any Out-License Agreement or In-License Agreement, or (2) that the marketing, sale or distribution of the Product in the United States by the Assignors pursuant to the related License Agreement, as applicable, does or will infringe on any valid and enforceable patent or other intellectual property rights of any other Person, and, to the Assignors’ Knowledge, there is no basis for any such action, suit, proceeding, investigation or claim of the type described in clause (1) or (2) above. To the Assignors’ Knowledge, there are no pending published or unpublished United States, international or foreign patent applications owned by any other Person, which, if issued, would be valid and enforceable, and would limit or prohibit the manufacture, use, sale or importation of the Products for FDA approved indications or the licensed Intellectual Property relating to the Products.

(l) The Assignors have taken, and will continue to take, all commercially reasonable measures and precautions necessary to protect and maintain (1) the confidentiality of all Intellectual Property (except such Intellectual Property whose value would be unimpaired by public disclosure) that it owns and (2) the value of all Intellectual Property and assets related to the Product.

(m) No material trade secret of the Assignors relating to the Product has been published or disclosed to any Person except pursuant to a written agreement requiring such Person to keep such trade secret confidential.

(n) Assignors have previously provided to PRF, pursuant to a Joint Defense/Common Interest Agreement, copies of all written opinions of counsel with respect to any Third Party intellectual property rights relating to the Products, including all freedom-to-operate, product clearance or right-to-use opinions and assessments.

Section 3.13 Regulatory Approval. The Assignors hereby jointly and severally represent and warrant to PRF the following (provided, however, with respect to Antara, only after giving effect to the closing of the transaction contemplated by the Antara Purchase Agreement):

(a) The Company and its Subsidiaries have made available to PRF all of the following documents that the Company and its Subsidiaries have possession of in any form from any contract party to any Out-License Agreement or In-License Agreement that have been requested by PRF:

all correspondence with a Regulatory Agency, including, without limitation, written notes in respect of telephone communications, electronic communications, copies of all submissions to any active regulatory files regarding preclinical, clinical, manufacturing, adverse events, any notices and forms received by a contract party from appropriate Regulatory Agencies relating to compliance, developmental (including safety, efficacy and potency), marketing, promotion or manufacturing activities concerning the Intellectual Property or Products;

correspondence or reports from both internal corporate employees and non-governmental consultants relating to any of the regulatory and/or product liability exposures, marketing and reimbursement strategies, manufacturing (i.e., annual audit reports), preclinical and clinical data issues concerning the Products; and

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any information or communication that would indicate that any Regulatory Agency (A) is not likely to approve any application with respect to the Products, (B) is likely to revise or revoke any current approval granted by any Regulatory Agency with respect to the Products, or (C) is likely to pursue compliance actions against the Company, its Subsidiaries or any contract party relating to an In-License Agreement or Out-License Agreement.

(b) The Company and its Subsidiaries are in material compliance with, and have materially complied with, all applicable federal, state, local and foreign laws, rules, regulations, standards, orders and decrees governing its business, including all regulations promulgated by each Regulatory Agency, the failure of compliance with which would reasonably be expected to result in a Material Adverse Effect; the Company and its Subsidiaries have not received any notice citing action or inaction by any of them that would constitute any material non-compliance with any applicable federal, state, local and foreign laws, rules, regulations, or standards, which could reasonably be expected to result in a Material Adverse Effect; and to the Company’s Knowledge, no prospective change in any applicable federal, state, local or foreign laws, rules, regulations or standards has been adopted which, when made effective, would reasonably be expected to result in a Material Adverse Effect.

(c) To the Knowledge of the Assignors, the studies, tests and preclinical and clinical trials conducted relating to the Products by or on behalf of the Company or its Subsidiaries were and, if still pending, are being conducted in all material respects in accordance with experimental protocols, procedures and controls pursuant to, where applicable, accepted professional and scientific standards; the descriptions of the results of such studies, tests and trials provided to PRF are accurate in all material respects; and the Company and its Subsidiaries have not received any notices or correspondence from any Regulatory Agency or comparable authority requiring the termination, suspension, or material modification or clinical hold of any such studies, tests or preclinical or clinical trials conducted by or on behalf of the Company or its Subsidiaries, which termination, suspension, material modification or clinical hold would reasonably be expected to result in a Material Adverse Effect.

Section 3.14 Material Contracts.

Neither the Company nor any of its Subsidiaries is in breach of or in default under any Material Contract or any Out-License Agreement, which default, individually or in the aggregate, would result in a Material Adverse Effect. Except as disclosed on Schedule 3.14 to the Knowledge of the Company, nothing has occurred and no condition exists that would permit any other party thereto to terminate any Material Contract with respect to the Products in the Territory. Neither the Company nor any of its Subsidiaries has received any notice or, to the Knowledge of the Company, any threat of termination of any such Material Contract. To the Knowledge of the Company, no other party to a Material Contract is in breach of or in default under such Material Contract. All Material Contracts are valid and binding on the Company and its Subsidiaries and, to the Knowledge of the Company, on each other party thereto, and are in full force and effect.

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Section 3.15 Place of Business.

The Company’s principal place of business and chief executive office are set forth on Schedule 3.15.

Section 3.16 Broker’s Fees.

The Company and its Subsidiaries have not taken any action that would entitle any Person to any commission or broker’s fee in connection with the transactions contemplated by the Transaction Documents.

Section 3.17 Insurance.

The Company and its Subsidiaries maintain the insurance policies listed on Schedule 3.17 which policies are in full force and effect.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF PRF

PRF represents and warrants to the Assignors the following:

Section 4.01 Organization.

PRF is a general partnership duly formed and validly existing under the laws of the State of California.

Section 4.02 Authorization.

PRF has all necessary power and authority to enter into, execute and deliver the Transaction Documents and to perform all of the obligations to be performed by it hereunder and thereunder and to consummate the transactions contemplated hereunder and thereunder. The Transaction Documents have been duly authorized, executed and delivered by PRF and each Transaction Document constitutes the valid and binding obligation of PRF, enforceable against PRF in accordance with their respective terms, subject, as to enforcement of remedies, to bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’ rights generally or general equitable principles.

Section 4.03 Broker’s Fees.

PRF has not taken any action that would entitle any Person to any commission or broker’s fee in connection with the transactions contemplated by the Transaction Documents.

Section 4.04 Conflicts.

Neither the execution and delivery of this Agreement or any other Transaction Document nor the performance or consummation of the transactions contemplated hereby or thereby will: (i) contravene, conflict with, result in a breach or violation of, constitute a default under, or accelerate the performance provided by, in any material respects any provisions of: (A) any law, rule or regulation of any Governmental Authority, or any judgment, order, writ, decree, permit or license of any Governmental Authority, to which PRF or any of its assets or properties may be

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subject or bound; or (B) any contract, agreement, commitment or instrument to which PRF is a party or by which PRF or any of its assets or properties is bound or committed; (ii) contravene, conflict with, result in a breach or violation of, constitute a default under, or accelerate the performance provided by, any provisions of the organizational or constitutional documents of PRF; or (iii) require any notification to, filing with, or consent of, any Person or Governmental Authority.

ARTICLE V

COVENANTS

During the Term, the following covenants shall apply:

Section 5.01 Consents and Waivers.

Each Assignor shall use its commercially reasonable efforts to obtain and maintain any required consents, acknowledgements, certificates or waivers so that the transactions contemplated by this Agreement or any other Transaction Document may be consummated and shall not result in any default or breach or termination of any of the Material Contracts or any Out-License Agreements, if any.

Section 5.02 Access; Information.

(a) Promptly after receipt by an Assignor of notice of any action, claim, investigation, proceeding (commenced or threatened), certificate, offer, proposal, material correspondence or other material written communication (in each case other than that received in the ordinary course of business) relating to the transactions contemplated by this Agreement, any other Transaction Document, the Revenue Interests, Material Contracts or any Out-License Agreement, then, the Assignor shall inform PRF of the receipt of such notice and the substance of such action, claim, investigation, proceeding, certificate, offer, proposal, correspondence or other written communication and, if in writing shall furnish PRF with a copy of such notice and any related materials with respect to such action, claim, investigation, proceeding, certificate, offer, proposal, correspondence or other written communication.

(b) The Assignors shall keep and maintain, or cause to be kept and maintained, at all times accurate and complete books and records. The Assignors shall keep and maintain, or cause to be kept and maintained, at all times full and accurate books of account and records adequate to correctly reflect all payments paid and/or payable with respect to Revenue Interests and Assigned Interests and all deposits made into the applicable Deposit Accounts.

(c) PRF and any of PRF’s representatives shall have the right, once a year (and at any other time a Default or Event of Default shall have occurred or be continuing), to visit the Company and its Subsidiaries’ offices and properties where the Company and its Subsidiaries keep and maintain its books and records relating or pertaining to the Revenue Interests, the Assigned Interests and the other Collateral for purposes of conducting an audit of such books and records, and to inspect, copy and audit such books and records, during normal business hours, and, upon five (5) Business Days’ written notice given by PRF to the Company (provided one (1) Business Day’s notice shall be required if a Default or Event of Default shall have occurred and be continuing), the Company will provide PRF and any of PRF’s representatives reasonable

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access to such books and records, and shall permit PRF and any of PRF’s representatives to discuss the business, operations, properties and financial and other condition of the Company or any of its Affiliates including, but not limited to, matters relating or pertaining to the Revenue Interests, the Assigned Interests and the other Collateral with officers of such parties, and with their independent certified public accountants (to the extent such independent certified accountants agree to discuss such matters with PRF).

(d) In the event any audit of the books and records of the Company and its Subsidiaries relating to the Revenue Interests, Assigned Interests, and the other Collateral by PRF and/or any of PRF’s representatives reveals that the amounts paid to PRF hereunder for the period of such audit have been understated by more than five percent (5%) of the amounts determined to be due for the period subject to such audit, then the Audit Costs in respect of such audit shall be borne by the Company; and in all other cases, such Audit Costs shall be borne by PRF.

(e) The Company shall, promptly after the end of each Fiscal Quarter (but in no event later than forty-five (45) days following the end of such Fiscal Quarter), produce and deliver to PRF a Quarterly Report for such quarter, together with a certificate of the Company, certifying that to the knowledge of the Company (i) such Quarterly Report is a true and complete copy and (ii) any statements and any data and information therein prepared by the Company are true, correct and accurate in all material respects.

(f) The Company shall maintain a system of accounting established and administered in accordance with sound business practices to permit preparation of financial statements in conformity with GAAP.

(g) The Company shall deliver to PRF the following financial statements: Within forty-five (45) calendar days after the end of each Fiscal Quarter, copies of the unaudited consolidated financial statements of the Company and its Subsidiaries for such Fiscal Quarter; and

Within ninety (90) calendar days after the end of each Fiscal Year, copies of the audited consolidated financial statements of the Company and its Subsidiaries for such Fiscal Year.

Section 5.03 Material Contracts.

The Assignors shall comply with all material terms and conditions of and fulfill all of its obligations under all the Material Contracts. The Assignors shall not amend any Material Contract or issue any consents or other approvals under any Material Contract (other than consents or approvals given in the ordinary course of business) without the prior written consent of PRF not to be unreasonably withheld, delayed or conditioned.

Section 5.04 Confidentiality; Public Announcement.

(a) All information furnished by PRF to the Company or by the Company to PRF, including the Confidential Information, in connection with this Agreement and any other Transaction Document and the transactions contemplated hereby and thereby, as well as the

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terms, conditions and provisions of this Agreement and any other Transaction Document, shall be kept confidential by the Company and PRF, and shall be used by the Company and PRF only in connection with this Agreement and any other Transaction Document and the transactions contemplated hereby and thereby. Notwithstanding the foregoing, the Company and PRF may disclose such information to their partners, directors, employees, managers, officers, investors, bankers, advisors, trustees and representatives, provided that such Persons shall be informed of the confidential nature of such information and shall be obligated to keep such information confidential pursuant to the terms of this Section 5.04(a). The Company will consult with PRF, and PRF will consult the Company, on the form, content and timing of any such disclosures of Confidential Information including, without limitation, any disclosures made pursuant to applicable securities laws or made to investment or other analysts.

(b) Except as required by law or the rules and regulations of any securities exchange or trading system or the FDA or any Governmental Authority with similar regulatory authority, or except with the prior written consent of the other party (which consent shall not be unreasonably withheld), no party shall issue any press release or make any other public disclosure with respect to the transactions contemplated by this Agreement or any other Transaction Document; provided, however, that the Company and PRF may jointly prepare a press release for dissemination promptly following the date hereof and the Closing Date.

Section 5.05 Security Agreement.

Guardian shall, at all times until the Obligations are paid and performed in full, grant in favor of PRF a valid, continuing, first perfected lien on and security interest in the Revenue Interests and the Assigned Interests relating to it and the other Collateral described in the Security Agreement.

Section 5.06 Best Efforts; Further Assurance.

(a) Subject to the terms and conditions of this Agreement, each of PRF and the Assignors will use their best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary under applicable laws and regulations to consummate the transactions contemplated by this Agreement and any other Transaction Document. PRF and the Assignors agree to execute and deliver such other documents, certificates, agreements and other writings (including any financing statement filings requested by PRF) and to take such other actions as may be reasonably necessary in order to consummate or implement expeditiously the transactions contemplated by this Agreement and any other Transaction Document and to vest in PRF good, valid and marketable rights and interests in and to the Assigned Interests free and clear of all Liens, except those Liens created in favor of PRF pursuant to the Security Agreement and any other Transaction Document and those Liens set forth on Schedule 2.01.

(b) PRF and the Assignors shall execute and deliver such additional documents, certificates and instruments, and perform such additional acts, as may be reasonably requested and necessary or appropriate to carry out and effectuate all of the provisions of this Agreement and any other Transaction Document and to consummate all of the transactions contemplated by this Agreement and any other Transaction Document.

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[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

(c) PRF and the Assignors shall cooperate and provide assistance as reasonably requested by the other respective party in connection with any litigation, arbitration or other proceeding (whether threatened, existing, initiated, or contemplated prior to, on or after the date hereof) to which any party hereto or any of its officers, directors, shareholders, agents or employees is or may become a party or is or may become otherwise directly or indirectly affected or as to which any such Persons have a direct or indirect interests, in each case relating to this Agreement, any other Transaction Document, the Assigned Interests or any other Collateral, or the transactions described herein or therein.

Section 5.07 Call, Put and Buy-Down Options.

(a) Call Option. In the event that a Change of Control shall occur during the Term, the Assignors shall have the right, but not the obligation (the “Call Option”), to repurchase the Assigned Interests from PRF for a repurchase price in cash equal to the Put/Call Price. In order to exercise the Call Option, the Company shall deliver written notice to PRF of its election to so repurchase the Assigned Interests on the closing date of the Change of Control (the “Call Option Closing Date”); provided, that such notice shall be delivered no later than ten (10) Business Days prior to the Call Option Closing Date. On the Call Option Closing Date, the Assignors shall repurchase from PRF the Assigned Interests at the Put/Call Price in cash, the payment of which shall be made by wire transfer of immediately available funds to the account designated by PRF.

(b) Put Option. In the event that a Put Option Event shall occur during the Term, PRF shall have the right, but not the obligation (the “Put Option”), to require the Assignors to repurchase from PRF the Assigned Interests at the Put/Call Price in cash. In order to exercise the Put Option, PRF shall deliver written notice to the Assignors of PRF’s election within one hundred eighty (180) days following the receipt of written notice from Assignors of the occurrence of a Put Option Event (other than a Put Option Event arising as a result of a Change of Control) or within thirty (30) days (the “Change of Control Period”) following PRF’s receipt of written notice from the Assignors of a bona fide offer from a Third Party that would result in a Change of Control (the “Change of Control Notice”). In the event PRF elects to exercise its Put Option, PRF shall deliver written notice to the Company specifying the closing date (the “Put Option Closing Date”), which date shall (i) in the event of a Change of Control, be the date of consummation of such Change of Control, and (ii) otherwise, not be earlier than thirty (30) days nor later than forty-five (45) days after the occurrence of the Put Option Event. On the Put Option Closing Date, the Assignors shall repurchase from PRF the Assigned Interests at the Put/Call Price in cash, the payment of which shall be made by wire transfer of immediately available funds to the account designated by PRF. Notwithstanding anything to the contrary contained herein, immediately upon the occurrence of a Bankruptcy Event, PRF shall be deemed to have automatically and simultaneously elected to have the Assignors repurchase from PRF the Assigned Interests for the Put/Call Price in cash and the Put/Call Price shall be immediately due and payable without any further action or notice by any party. The Change of Control Notice shall describe in reasonable detail the terms of the proposed Change of Control transaction, including the identity of the other party or parties to such transaction. The Company shall supplement the Change of Control Notice during the Change of Control Period as necessary to reflect changes in terms of the proposed transaction. If following receipt of PRF’s determination of whether or not to elect to exercise its Put Option with respect to the transaction described in the Change of Control Notice, the terms of the proposed transaction change materially, the Company shall provide PRF a new Change of Control Notice.

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[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

(c) Partial Buy-Down Option. During the first two Fiscal Years immediately following the Fiscal Year in which annual Net Revenues were equal to or greater than [*] dollars ($[*]), the Assignors shall have the right, but not the obligation (the “Partial Buy-Down Option”), to cause a reduction hereunder of each of the percentages set forth in the definitions of “Applicable Percentage” and the “Interim Applicable Percentage” by fifty percent (50%) (thereby reducing by fifty percent (50%) the amounts payable by the Assignors under Section 2.03) by paying to PRF an amount of cash equal to the Partial Buy-Down Price. In order to exercise the Partial Buy-Down Option, the Company shall deliver written notice to PRF to such effect indicating the closing date (the “Partial Buy-Down Option Closing Date”); provided, that such notice shall be delivered no later than twenty (20) Business Days prior to the Partial Buy-Down Option Closing Date. On the Partial Buy-Down Option Closing Date, the Assignors shall pay to PRF the Partial Buy-Down Price in cash by wire transfer of immediately available funds to the account designated by PRF, and the percentages set forth in the definitions of “Applicable Percentage” and “Interim Applicable Percentage” shall automatically be reduced hereunder without further action to [*] percent ([*]%) of the amounts set forth in their respective definitions hereunder.

(d) Full Buy-Down Option. During the first two Fiscal Years immediately following the Fiscal Year in which annual Net Revenues were equal to or greater than [*] dollars ($[*]), the Assignors shall have the right, but not the obligation (the “Full Buy-Down Option”), to repurchase the Assigned Interests from PRF for a repurchase price in cash equal to the Full Buy-Down Price. In order to exercise the Full Buy-Down Option, the Company shall deliver written notice to PRF to such effect indicating the closing date (the “Full Buy-Down Option Closing Date”); provided, that such notice shall be delivered no later than twenty (20) Business Days prior to the Full Buy-Down Option Closing Date. On the Full Buy-Down Option Closing Date, the Assignors shall repurchase from PRF the Assigned Interests at the Full Buy-Down Price in cash, the payment of which shall be made by wire transfer of immediately available funds to the account designated by PRF.

(e) Further Assurance. In connection with the consummation of a repurchase of the Assigned Interests pursuant to the Call Option, the Put Option or the Full Buy-Down Option, PRF agrees that it will (i) promptly execute and deliver to Guardian such UCC termination statements and other documents as may be necessary to release PRF’s Lien on the Collateral and otherwise give effect to such repurchase and (ii) take such other actions or provide such other assistance as may be necessary to give effect to such repurchase.

Section 5.08 Remittance to Deposit Accounts.

(a) On or before the Closing Date, the parties hereto shall enter into the Deposit Account Control Agreement (Antara) and the Deposit Account Agreement (Factive) in form and substance reasonably satisfactory to the parties hereto and the Deposit Bank, which Deposit Agreements will provide for, among other things, the establishment and maintenance of a Deposit Account (Antara), Deposit Account (Factive), a Joint Concentration Account (Antara), a Joint Concentration Account (Factive), an Oscient Concentration Account, an Guardian Concentration Account and a PRF Concentration Account (Antara) and a PRF Concentration Account (Factive) in accordance with the terms herein and therein. The PRF Concentration Account (Antara) shall be held solely for the benefit of PRF, but shall be subject to the terms and conditions of this Agreement, the Security Agreement and the other Transaction Documents.

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[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

Funds deposited into the Deposit Accounts shall be swept by the Deposit Bank on a daily basis into the Joint Concentration Account (Antara) or the Joint Concentration Account (Factive), as applicable, and subsequent thereto, the Daily Amount shall be swept into the PRF Concentration Account (Antara) or the PRF Concentration Account (Factive), as applicable. PRF shall have immediate and full access to any funds held in the PRF Concentration Account (Antara) or the PRF Concentration Account (Factive) and such funds shall not be subject to any conditions or restrictions whatsoever. After the Daily Amount is swept into the PRF Concentration Account (Antara) or the PRF Concentration Account (Factive), as applicable, the amounts remaining in the Joint Concentration Account (Antara) or the Joint Concentration Account (Factive) shall then be swept, at the direction of the Company, into the Oscient Concentration Account or the Guardian Concentration Account, as applicable. The Assignors shall have immediate and full access to any funds held in the Oscient Concentration Account and the Guardian Concentration Account, as applicable, and such funds shall not be subject to any conditions or restrictions whatsoever other than those of the Deposit Bank; provided, however, that nothing herein shall (i) affect or reduce the Assignors’ obligations to pay in full all amounts due to PRF under this Agreement, or (ii) in any manner limit the recourse of PRF to the Collateral to satisfy the Assignors’ Obligations.

(b) The Company shall pay for all fees, expenses and charges of the Deposit Bank.

(c) Each Out-License Agreement, if any, shall, within twenty (20) Business Days after the date of Closing, be amended to contain a provision providing for all payments in respect of sales of the Products and in respect of royalties received from Licensees to be remitted directly by the applicable party into the applicable Deposit Account and the Assignors shall cause such payments to be remitted directly by the applicable party into such Deposit Account. The Assignors shall cause all other payments in respect of sales of the Products to be remitted directly by the applicable party into the applicable Deposit Account. Without in any way limiting the foregoing, commencing on the Closing Date and thereafter, any and all payments in respect of sales of the Products received by the Company or its Subsidiaries shall be deposited into the applicable Deposit Account within three (3) Business Days of the Company or its Subsidiaries’ receipt thereof.

(d) With respect to any Out-License Agreement entered into by the Company or any of its Subsidiaries from and after the date hereof, the Company shall, or shall cause its Subsidiaries to, (i) at the time of the execution and delivery of such agreement, instruct any party thereto under such agreement to remit to the applicable Deposit Account when due all applicable payments in respect of sales and licensing revenue in respect of the Products and in respect of royalties received from Licensees that are due and payable to the Company and its Subsidiaries in respect of or derived from such agreement during the Term and (ii) deliver to PRF evidence of such instruction and of such applicable party’s agreement thereto.

(e) The Assignors shall not have any right to terminate the Deposit Bank without PRF’s prior written consent. Any such consent, which PRF may grant or withhold in its sole and absolute discretion, shall be subject to the satisfaction of each of the following conditions to the satisfaction of PRF:

(i) the successor Deposit Bank shall be acceptable to PRF;

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[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

(ii) PRF, the Assignors and the successor Deposit Bank shall have entered into deposit agreements substantially in the form of the Deposit Agreements initially entered into;

(iii) all funds and items in the accounts subject to the Deposit Agreements to be terminated shall be transferred to the new accounts held at the successor Deposit Bank prior to the termination of the then existing Deposit Bank; and

(iv) PRF shall have received evidence that all of the applicable parties making payments in respect of sales of the Products have been instructed to remit all future payments in respect of sales of the Products to the new accounts held at the successor Deposit Bank.

(f) Interim Applicable Percentage Adjustment. Each of PRF and the Company shall, following June 30 of each year during the Term (commencing June 30, 2007), agree to adjust the Interim Applicable Percentage such that the Interim Payments more accurately reflect the Final Payments. The adjustment shall be made based on the Interim Payments and Final Payments made in the twelve month period proceeding each June 30th and shall be adjusted to minimize in future quarters the difference between Interim Payments made in such quarter and the Final Payments in such quarter. Each such adjustment shall become effective September 1 of each year during the Term (Commencing September 1, 2007).

(g) True-Up.

(i) Following the end of each Fiscal Quarter, as soon as the Company shall have determined the Net Revenues for such Fiscal Quarter and for each other Fiscal Quarter in the Fiscal Year in which the then most recently ended Fiscal Quarter occurred (the “Year-to-Date Net Revenues”) and in any event no later than forty-five (45) days after the end of such Fiscal Quarter (unless such Fiscal Quarter is the last Fiscal Quarter of a Fiscal Year in which case no later than ninety (90) days after the end of such Fiscal Quarter), the Company shall present PRF a certificate, in reasonable detail with supporting calculations and information, detailing the Year-to-Date Net Revenues (the “True-Up Statement”).

(ii) If PRF has received on or prior to the last day of the most recently ended Fiscal Quarter payments from the Company under Section 2.02 or this Section 5.08 in respect of the Fiscal Year for which Year-to-Date Net Revenues is calculated under clause (i) above which are in excess of the Applicable Percentage of Year-to-Date Net Revenues, PRF shall pay such excess to the Company within twenty (20) days of receipt by PRF of the True-Up Statement.

(iii) If the Applicable Percentage of Year-to-Date Net Revenues is in excess of the amounts PRF has received on or prior to the last day of the most recently ended Fiscal Quarter in respect of the Fiscal Year for which Year-to-Date Net Revenues is calculated under clause (i) above under Section 2.02 or this Section 5.08, the Company shall pay such excess to PRF within twenty (20) days of the receipt by PRF of the True-Up Statement.

(h) As used herein “applicable Deposit Accounts” shall mean the Deposit Account (Antara) (with respect to Deposit Funds and Net Revenues in respect of Antara) and the Deposit Account (Factive) (with respect to Deposit Funds and Net Revenues in respect of Factive), as applicable.

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[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

Section 5.09 Out-License Agreements.

Each Assignor shall use its commercially reasonable efforts to duly perform and observe all of its covenants and obligations under each Out-License Agreement in all material respects. Upon the occurrence of a material breach of any of the Out-License Agreements by any other party thereto, which is not cured as provided therein, each Assignor thereto shall use its commercially reasonable efforts to seek to enforce its rights and remedies thereunder.

Section 5.10 Intellectual Property.

(a) Except with respect to the patents set forth on Schedule 5.10, each Assignor shall, at its sole expense, either directly or by causing any Licensee or licensor to do so, take any and all actions (including taking legal action to specifically enforce the applicable terms of any License Agreement) and prepare, execute, deliver and file any and all agreements, documents or instruments which are necessary or desirable to (A) diligently maintain the applicable Intellectual Property and the Patents and (B) diligently defend or assert such Intellectual Property and such Patents against infringement or interference by any other Persons, and against any claims of invalidity or unenforceability, in any jurisdiction (including, without limitation, by bringing any legal action for infringement or defending any counterclaim of invalidity or action of a Third Party for declaratory judgment of non-infringement or non-interference). Except with respect to the patents set forth on Schedule 5.10, neither Assignor shall, and shall use its commercially reasonable efforts to cause any Licensee or licensor not to, disclaim or abandon, or fail to take any action necessary or desirable to prevent the disclaimer or abandonment of, the applicable Patents or other Intellectual Property; provided however, this Section shall not apply to abandonment of any Patents made in the ordinary course of prosecution (e.g., abandonment of a pending application in favor of a continuation application).

(b) In the event that the Assignors become aware that any Product infringes or violates any valid and enforceable intellectual property of a Third Party in the Territory, the Assignors shall promptly use commercially reasonable efforts to attempt to secure the right to use such intellectual property on behalf of itself and shall pay all costs and amounts associated with obtaining any such right to use, without any reduction in the Assigned Interests.

(c) Each Assignor shall directly, or through a Licensee, take any and all actions and prepare, execute, deliver and file any and all agreements, documents or instruments that are necessary or commercially reasonable or desirable to secure and maintain all Regulatory Approvals. Neither Assignor shall withdraw or abandon, or fail to take any action necessary to prevent the withdrawal or abandonment of, any Regulatory Approval once obtained.

Section 5.11 Negative Covenants.

Until the earlier of (i) the end of the Term, (ii) the exercise of the Company of the Full Buy-Down Option and payment in full of the Full Buy Down Option Price, or (iii) receipt by PRF of cumulative payments under Sections 2.02, 5.07(c) and 5.08 of at least [*] percent ([*]%) of the amounts paid by PRF under Section 2.03, the Company shall not, nor shall it permit any of its Subsidiaries to, without the prior written consent of PRF:

(a) with respect to the Company, borrow money in order to acquire the right to distribute or sell any pharmaceutical product other than within a Subsidiary of the Company, which Subsidiary maintains a separateness on a basis similar to Guardian under the Note Purchase Agreement;

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[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

(b) with respect to the Company or any Subsidiary, guarantee in any manner any obligation of any such Subsidiary referred to in clause (a) above unless all of the Obligations of Guardian are equally and ratably guaranteed by the Company;

(c) fail to maintain the separate corporate existence of Guardian or any Subsidiary referred to in clause (a) above, or with respect to the Company, consolidate or merge with Guardian or any Subsidiary referred to in clause (a) above or permit Guardian or any such Subsidiary to convey, transfer, sell or lease all or substantially all of its assets in a single transaction or series of transactions to the Company or any Third Party;

(d) other than in the ordinary course of business, forgive, release or compromise any amount owed to the Company or its Subsidiaries and relating to the Assigned Interests;

(e) other than in the ordinary course of business, waive, amend, cancel or terminate, exercise or fail to exercise, any of its material rights constituting or relating to the Revenue Interests;

(f) amend, modify, restate, cancel, supplement, terminate or waive any material provision of any Out-License Agreement or In-License Agreement, or grant any consent thereunder, or agree to do any of the foregoing, including, without limitation, entering into any agreement with any Licensee or licensor, as applicable under the provisions of such Out-License Agreement or In-License Agreement; or

(g) create, incur, assume or suffer to exist any Lien, or exercise any right of rescission, offset, counterclaim or defense, upon or with respect to the Assigned Interests, the Revenue Interests or the other Collateral, or agree to do or suffer to exist any of the foregoing, except for any Lien or agreements in favor of PRF granted under or pursuant to this Agreement, the other Transaction Documents, or that certain Note Purchase Agreement by and between Guardian and PRF and the transactions contemplated thereby.

Section 5.12 Other Agreements.

The Company shall not enter into, nor shall it permit any of its Subsidiaries to enter into, any agreement that would be reasonably expected to have a Material Adverse Effect without PRF’s prior written consent, which consent shall not to be unreasonably withheld, delayed or conditioned.

Section 5.13 Genesoft Consent/Cash Balance.

(a) The Company shall use commercially reasonable efforts (which shall not require the Company to make any payments or agree to any material undertakings) to obtain, within one hundred eighty (180) days following the Closing Date, Genesoft Noteholder consent under the Genesoft Note Purchase Agreement (the “Genesoft Consent”) to permit a grant in favor of PRF, of a valid continuing, perfected lien on and security in all of the Company’s assets securing Guardian’s obligations under the Note Purchase Agreement and this Agreement. In addition, to the extent the indebtedness under the Genesoft Note Purchase Agreement is refinanced or

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[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

replaced and the replacement or refinancing indebtedness is secured, the obligations of the Company hereunder shall be equally and ratably secured unless and until (i) the Waived Consent referenced in 6.02(n) has been obtained, or (ii) the Company markets Antara that uses a formulation of fenofibrate that is not micronized.

(b) Until such time as the Company obtains the Genesoft Consent, at least [*] percent ([*]%) of Consolidated Cash shall be in a deposit account in the name of Guardian, provided that in no event shall the amount of consolidated cash in a Guardian deposit account be required to exceed the sum of the outstanding principal amount of and the unpaid interest on the Note.

Section 5.14 Insurance.

The Company shall (i) maintain the current insurance policies with its current insurance company or with companies having at least the same rating from A.M. Best Company, Inc., including product liability insurance and directors and officers insurance and insurance against litigation, liability, subject only to such exclusions and deductible items as are usual and customary in insurance policies of such type, and (ii) maintain PRF as an additional insured party with respect to its general liability and product liability insurance policies. From time to time (with reasonable frequency) the Company will revise its insurance policy so as to maintain coverage in amounts customary for companies of comparable size and condition similarly situated in the same industry as the Company.

Section 5.15 Notice.

The Company shall provide PRF with written notice as promptly as practicable (and in any event within three (3) Business Days) after becoming aware of any of the following:

(a) the occurrence of a Bankruptcy Event;

(b) any material breach or default by an Assignor of any covenant, agreement or other provision of this Agreement or any other Transaction Document;

(c) any representation or warranty made or deemed made by an Assignor in any of the Transaction Documents or in any certificate delivered to PRF pursuant hereto shall prove to be untrue, inaccurate or incomplete in any material respect on the date as of which made or deemed made;

(d) the occurrence of a Change of Control;

(e) the occurrence of a Put Option Event; or

(f) any sublicense by a Licensee of any rights licensed pursuant to any Out-License Agreement.

Section 5.16 Use of Proceeds.

The Assignors shall use all proceeds received from PRF pursuant to Section 2.03 to fund the purchase price of and related transaction expenses in connection with the transactions contemplated by the Antara Purchase Agreement. The Assignors shall not use any such proceeds for any other purpose.

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[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

Section 5.17 Antara Products.

In the event the Assignors acquire rights to additional products which are included within the definition of “Antara”, such rights shall be acquired by Guardian unless otherwise agreed by PRF.

ARTICLE VI

THE CLOSING; CONDITIONS TO CLOSING

Section 6.01 Closing.

Subject to the closing conditions set forth in Sections 6.02 and 6.03, the closing of the assignment of the Assigned Interests (the “Closing”) shall take place at the offices of Ropes & Gray LLP, Boston, Massachusetts at 10:00 a.m. (Eastern Time) on the second (2nd) Business Day following the satisfaction or waiver of the conditions precedent specified in this Article VI (other than the conditions to be satisfied on the Closing Date, but subject to the waiver or satisfaction of such conditions), or at such other time and place as the parties hereto may mutually agree. The date on which the Closing shall occur is referred to herein as the “Closing Date”.

Section 6.02 Conditions Applicable to PRF.

The obligation of PRF to effect the Closing shall be subject to the satisfaction of each of the following conditions, any of which may be waived by PRF in its sole discretion:

(a) Accuracy of Representations and Warranties. The representations and warranties of the Assignors set forth in the Transaction Documents shall be true, correct and complete in all material respects as of the Closing Date.

(b) No Adverse Circumstances. There shall not have occurred or be continuing any event or circumstance (including any development with respect to the efficacy of the Products or the Intellectual Property or the use or expected future use of the same as opposed to competing products) that could reasonably be expected to have a Material Adverse Effect.

(c) Litigation. No action, suit, litigation, proceeding or investigation shall have been instituted, be pending or threatened (i) challenging or seeking to make illegal, to delay or otherwise directly or indirectly to restrain or prohibit the consummation of the transactions contemplated by this Agreement, or seeking to obtain damages in connection with the transactions contemplated by this Agreement, or (ii) seeking to restrain or prohibit PRF’s acquisition or future receipt of the Assigned Interests.

(d) Consents. All notices to, consents, approvals, authorizations and waivers from Third Parties and Government Authorities that are required for the consummation of the transactions contemplated by this Agreement or any of the Transaction Documents shall have been obtained or provided for and shall remain in effect.

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[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

(e) Deposit Agreements. The Deposit Agreements (together with any necessary account control agreements) shall have been executed and delivered by the Assignors, PRF and the Deposit Bank, and PRF shall have received the same.

(f) Assignments of Interests. The Assignments of Interests shall have been executed and delivered by each Assignor to PRF, and PRF shall have received the same.

(g) Security Agreement. The Security Agreement shall have been duly executed and delivered by all the parties thereto, together with proper financing statements (including Form UCC-1s) for filing under the UCC and/or any other applicable law, rule, statute or regulation relating to the perfection of a security interest in filing offices in the jurisdictions listed on Schedule 6.02(g), and such agreements shall be in full force and effect.

(h) Legal Opinions.

(i) PRF shall have received the opinion of Ropes & Gray LLP, transaction counsel to the Company, to the effect set forth in Exhibit E.

(ii) PRF shall have received opinions of Ropes & Gray LLP, intellectual property counsel to the Company, and Hamilton Brook Smith and Reynolds, intellectual property counsel to the Company, to the effect set forth in Exhibits F-1 and F-2 respectively.

(i) Corporate Documents of the Assignors. PRF shall have received on the Closing Date, certificates, dated as of the Closing Date, of an executive officer of each Assignor (the statements made in which shall be true and correct on and as of the Closing Date): (i) attaching copies, certified by such officer as true and complete, of each Assignor’s certificate of incorporation or other organizational documents (together with any and all amendments thereto) certified by the appropriate Governmental Authority as being true, correct and complete copies; (ii) attaching copies, certified by such officer as true and complete, of resolutions of the board of directors of each Assignor authorizing and approving the execution, delivery and performance by such Assignor of the Transaction Documents and the transactions contemplated herein and therein; (iii) setting forth the incumbency of the officer or officers of such Assignor who have executed and delivered the Transaction Documents including therein a signature specimen of each such officer or officers; and (iv) attaching copies, certified by such officer as true and complete, of a certificate of the appropriate Governmental Authority of each Assignor’s jurisdiction of incorporation, stating that such Assignor is in good standing under the laws of its incorporation.

(j) Covenants. Each Assignor shall have complied in all material respects with its covenants set forth in the Transaction Documents.

(k) Closing of Equity Financing. The Company shall have consummated the transactions contemplated by that certain Common Stock and Warrant Purchase Agreement dated the date hereof by and between PRF and the Company (the “Stock Purchase Agreement”), attached hereto as Exhibit G (the “Equity Condition”).

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[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

(l) Closing of Debt Financing. Guardian shall have consummated the transactions contemplated by that certain Note Purchase Agreement dated the date hereof by and between Guardian and PRF (the “Note Purchase Agreement”), attached hereto as Exhibit H (the “Debt Condition”).

(m) Issuance of Warrant. The Company shall have issued that certain Warrant to Purchase Common Stock of the Company, in the form attached hereto as Exhibit I.

(n) Closing of Acquisition. The transactions contemplated by the Antara Purchase Agreement shall have been consummated or shall be consummated substantially simultaneously with the Closing; provided that PRF acknowledges that the parties to the Antara Purchase Agreement have waived receipt of one of the Required Consents (as defined in the Antara Purchase Agreement) (the “Waived Consent”).

Section 6.03 Conditions Applicable to the Assignors.

The obligation of the Assignors to effect the Closing shall be subject to the satisfaction of each of the following conditions, any of which may be waived by the Assignors in their sole discretion:

(a) Accuracy of Representations and Warranties. The representations and warranties of PRF set forth in this Agreement shall be true, correct and complete in all material respects as of the Closing Date.

(b) Litigation. No action, suit, litigation, proceeding or investigation shall have been instituted, be pending or threatened (i) challenging or seeking to make illegal, to delay or otherwise directly or indirectly to restrain or prohibit the consummation of the transactions contemplated by this Agreement, or seeking to obtain damages in connection with the transactions contemplated by this Agreement, or (ii) seeking to restrain or prohibit PRF’s acquisition or future receipt of the Assigned Interests.

(c) Closing Certificate. The Company shall have received at the Closing a certificate of an authorized representative of PRF certifying that the conditions set forth in Sections 6.03(a) and (b) have been satisfied in all material respects as of the Closing Date.

(d) Other Financing. The Equity Condition and the Debt Condition shall have been satisfied.

(e) Closing of Acquisition. The transactions contemplated by the Antara Purchase Agreement shall have been consummated or shall be consummated substantially simultaneously with the Closing.

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[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

ARTICLE VII

TERMINATION

Section 7.01 Termination Date.

Except as otherwise provided in this Section 7.01 and in Sections 7.02 and 8.01, this Agreement shall terminate upon expiration of the Revenue Interest Period. If any payments are required to be made by one of the parties hereunder after that date, this Agreement shall remain in full force and effect until any and all such payments have been made in full, and (except as provided in Section 7.02) solely for that purpose. In addition, this Agreement shall sooner terminate if the Company shall have exercised the Call Option or the Full Buy-Down Option or if PRF shall have exercised the Put Option, in each case pursuant to Section 5.07, with the termination date in that event being the date on which the Company completes the repurchase of the Assigned Interests with payment in full to PRF.

Section 7.02 Effect of Termination.

In the event of the termination of this Agreement pursuant to Section 7.01, this Agreement shall forthwith become void and have no effect without any liability on the part of any party hereto or its Affiliates, directors, officers, stockholders, partners, managers or members other than the provisions of this Section 7.02 and Sections 5.04, 5.05, 8.01, and 8.05 hereof, which shall survive any termination as set forth in Section 8.01. Nothing contained in this Section 7.02 shall relieve any party from liability for any breach of this Agreement.

ARTICLE VIII

MISCELLANEOUS

Section 8.01 Survival.

(a) All representations and warranties made herein and in any other Transaction Document, any certificates or in any other writing delivered pursuant hereto or in connection herewith shall survive the execution and delivery of this Agreement and the Closing and shall continue to survive until the termination of this Agreement in accordance with Article VII. Notwithstanding anything in this Agreement or implied by law to the contrary, all the agreements contained in Sections 5.04, 5.05, 8.01, shall survive indefinitely following the execution and delivery of this Agreement and the Closing and the termination of this Agreement.

(b) Any investigation or other examination that may have been made or may be made at any time by or on behalf of the party to whom representations and warranties are made shall not limit, diminish or in any way affect the representations and warranties in the Transaction Documents, and the parties may rely on the representations and warranties in the Transaction Documents irrespective of any information obtained by them by any investigation, examination or otherwise.

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[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

Section 8.02 Specific Performance.

Each of the parties hereto acknowledges that the other party will have no adequate remedy at law if it fails to perform any of its obligations under any of the Transaction Documents. In such event, each of the parties agrees that the other party shall have the right, in addition to any other rights it may have (whether at law or in equity), to specific performance of this Agreement.

Section 8.03 Notices.

All notices, consents, waivers and communications hereunder given by any party to the other shall be in writing (including facsimile transmission) and delivered personally, by telegraph, telecopy, telex or facsimile, by a recognized overnight courier, or by dispatching the same by certified or registered mail, return receipt requested, with postage prepaid, in each case addressed:

If to PRF to:

Paul Royalty Fund Holdings II

c/o Paul Capital Partners

140 East 45th Street, 44th Floor

New York, NY 10017

Attention: Gregory B. Brown, MD

Facsimile No.: (646) 264-1101

with a copy to:

McDermott Will & Emery LLP

227 West Monroe Street

Chicago, IL 60606-5096

Attention: Timothy R.M. Bryant

Facsimile No.: (312) 984-7700

If to the Company or any of its Subsidiaries to:

Oscient Pharmaceuticals Corporation

1000 Winter Street, Suite 2200

Waltham, MA 02451

Attention: Legal Department

Facsimile No.: 781-398-2530

with a copy to:

Ropes & Gray LLP

One International Place

Boston, MA 02110

Attention: Patrick O’Brien

Facsimile No.: (617) 951-7050

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[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

or to such other address or addresses as PRF or the Company or its Subsidiaries may from time to time designate by notice as provided herein, except that notices of changes of address shall be effective only upon receipt. All such notices, consents, waivers and communications shall: (a) when posted by certified or registered mail, postage prepaid, return receipt requested, be effective three (3) Business Days after dispatch, unless such communication is sent trans-Atlantic, in which case they shall be deemed effective three (3) Business Days after dispatch, (b) when telegraphed, telecopied, telexed or facsimiled, be effective upon receipt by the transmitting party of confirmation of complete transmission, or (c) when delivered by a recognized overnight courier or in person, be effective upon receipt when hand delivered.

Section 8.04 Successors and Assigns.

The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Neither Company nor Guardian shall be entitled to assign any of its obligations and rights under the Transaction Documents without the prior written consent of PRF. Upon advanced written notice to the Company, PRF may assign without consent of the Company or Guardian any of its obligations and rights under the Transaction Documents without restriction; provided, however, that PRF, notwithstanding such assignment, will remain liable under Sections 5.08(g) (to the extent of any amounts subject thereto during the Fiscal Quarter as of the date of such assignment) and 8.05 hereunder.

Section 8.05 Indemnification.

(a) The Assignors hereby indemnify and hold PRF and its Affiliates and any of their respective partners, directors, managers, members, officers, employees and agents (each a “PRF Indemnified Party”) harmless from and against any and all Losses (including all Losses in connection with any product liability claims or claims of infringement or misappropriation of any intellectual property rights of any Third Parties) incurred or suffered by any PRF Indemnified Party arising out of (i) any breach of any representation, warranty or certification made by the Assignors in any of the Transaction Documents or certificates given by either Assignor in writing pursuant hereto or thereto or any breach of or default under any covenant or agreement by either Assignor pursuant to any Transaction Document, including any failure by any Assignor to satisfy any of the Excluded Liabilities and Obligations; or (ii) any claim or action instituted by the Potential Plaintiffs thereof against a PRF Indemnified Party which is related to Antara.

(b) PRF hereby indemnifies and holds the Company, its Affiliates and any of their respective partners, directors, managers, officers, employees and agents (each an “Oscient Indemnified Party”) harmless from and against any and all Losses incurred or suffered by an Oscient Indemnified Party arising out of any breach of any representation, warranty or certification made by PRF in any of the Transaction Documents or certificates given by PRF in writing pursuant hereto or thereto or any breach of or default under any covenant or agreement by PRF pursuant to any Transaction Document.

(c) If any claim, demand, action or proceeding (including any investigation by any Governmental Authority) shall be brought or alleged against an indemnified party in respect of which indemnity is to be sought against an indemnifying party pursuant to the preceding paragraphs, the indemnified party shall, promptly after receipt of notice of the commencement of

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[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

any such claim, demand, action or proceeding, notify the indemnifying party in writing of the commencement of such claim, demand, action or proceeding, enclosing a copy of all papers served, if any; provided, that the omission to so notify such indemnifying party will not relieve the indemnifying party from any liability that it may have to any indemnified party under the foregoing provisions of this Section 8.05 unless, and only to the extent that, such omission results in the forfeiture of, or has an adverse effect on the exercise or prosecution of, substantive rights or defenses by the indemnifying party. In case any such action is brought against an indemnified party and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party (who may be counsel to the indemnifying party unless such counsel determines it would be inappropriate due to conflict of interest), and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party under this Section 8.05 for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation. In any such proceeding, an indemnified party shall have the right to retain its own counsel, but the reasonable fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel, (ii) the indemnifying party has assumed the defense of such proceeding and has failed within a reasonable time to retain counsel reasonably satisfactory to such indemnified party or (iii) the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party and representation of both parties by the same counsel would be inappropriate due to actual or potential conflicts of interests between them based on the advice of such counsel. It is agreed that the indemnifying party shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees and expenses of more than one separate law firm (in addition to local counsel where necessary) for all such indemnified parties. The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such proceeding.

Section 8.06 Independent Nature of Relationship.

(a) The relationship between the Company and its Subsidiaries, on the one hand, and PRF, on the other hand, is solely that of seller and purchaser, and neither PRF, on the one hand, nor the Company or its Subsidiaries, on the other hand, has any fiduciary or other special relationship with the other or any of their respective Affiliates. Nothing contained herein or in any other Transaction Document shall be deemed to constitute the Company and its Subsidiaries and PRF as a partnership, an association, a joint venture or other kind of entity or legal form.

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[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

(b) No officer or employee of PRF will be located at the premises of the Company or any of its Affiliates, except in connection with an audit performed pursuant to Section 5.02. No officer, manager or employee of PRF shall engage in any commercial activity with the Company or any of its Affiliates other than as contemplated herein and in the other Transaction Documents.

(c) The Company and/or any of its Affiliates shall not at any time obligate PRF, or impose on PRF any obligation, in any manner or respect to any Person not a party hereto.

Section 8.07 Federal Tax.

Notwithstanding the accounting treatment thereof, for United States federal, state and local tax purposes, the Assignors and PRF shall treat the transactions contemplated by the Transaction Documents as debt for United States tax purposes. The parties hereto agree not to take any position that is inconsistent with the provisions of this Section 8.07 on any tax return or in any audit or other administrative or judicial proceeding unless (i) the other party to this Agreement has consented to such actions, which consent shall not be unreasonably withheld, or (ii) the party that contemplates taking such an inconsistent position has been advised by counsel in writing that it is more likely than not (x) that there is no “reasonable basis” (within the meaning of Treasury Regulation Section 1.6662-3(b)(3)) for the position specified in this Section 8.07 or (y) that taking such a position would otherwise subject the party to penalties under the Internal Revenue Code of 1986, as amended.

Section 8.08 Entire Agreement.

This Agreement, together with the Exhibits and Schedules hereto (which are incorporated herein by reference), and the other Transaction Documents constitute the entire agreement between the parties with respect to the subject matter hereof and supersede all prior agreements (including the Term Sheet for Purchase of Revenue Interest, Debt and Equity from Oscient Pharmaceuticals Corporation dated June 29, 2006 between Paul Capital Advisors, LLC and the Company), understandings and negotiations, both written and oral, between the parties with respect to the subject matter of this Agreement; provided, however, the terms of that certain Confidential Disclosure Agreement by and between the Company and Paul Capital Advisors, LLC dated as of June 8, 2006 shall continue in effect. No representation, inducement, promise, understanding, condition or warranty not set forth herein (or in the Exhibits, Schedules or other Transaction Documents) has been made or relied upon by either party hereto. None of this Agreement, nor any provision hereof, is intended to confer upon any Person other than the parties hereto any rights or remedies hereunder.

Section 8.09 Amendments; No Waivers.

(a) This Agreement or any term or provision hereof may not be amended, changed or modified except with the written consent of the parties hereto. No waiver of any right hereunder shall be effective unless such waiver is signed in writing by the party against whom such waiver is sought to be enforced.

(b) No failure or delay by either party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law.

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[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

Section 8.10 Interpretation.

When a reference is made in this Agreement to Articles, Sections, Schedules or Exhibits, such reference shall be to an Article, Section, Schedule or Exhibit to this Agreement unless otherwise indicated. The words “include”, “includes” and “including” when used herein shall be deemed in each case to be followed by the words “without limitation”. Neither party hereto shall be or be deemed to be the drafter of this Agreement for the purposes of construing this Agreement against one party or the other.

Section 8.11 Headings and Captions.

The headings and captions in this Agreement are for convenience and reference purposes only and shall not be considered a part of or affect the construction or interpretation of any provision of this Agreement.

Section 8.12 Counterparts; Effectiveness.

This Agreement may be executed in two or more counterparts, each of which shall be an original, but all of which together shall constitute one and the same instrument. This Agreement shall become effective when each party hereto shall have received a counterpart hereof signed by the other parties hereto. Any counterpart may be executed by facsimile or pdf signature and such facsimile or pdf signature shall be deemed an original.

Section 8.13 Severability.

If any provision of this Agreement is held to be invalid or unenforceable, the remaining provisions shall nevertheless be given full force and effect.

Section 8.14 Expenses.

Each party hereto will pay all of its own fees and expenses in connection with entering into and consummating the transactions contemplated by this Agreement; provided, that the Company agrees to reimburse PRF for fifty percent (50%) of PRF’s actual, reasonable and documented out-of-pocket expenses to cover due diligence and other, including legal, expenses associated with the transactions contemplated hereby; and provided, further, that the Company agrees to reimburse and indemnify PRF for any expenses (including reasonable fees and expenses of legal counsel) incurred by PRF in connection with asserting or enforcing of PRF’s rights hereunder, including, without limitation, in connection with any insolvency, bankruptcy or similar proceeding involving the Company.

Section 8.15 Governing Law; Jurisdiction.

(a) This Agreement shall be governed by, and construed, interpreted and enforced in accordance with, the laws of the state of New York, without giving effect to the principles of conflicts of law thereof.

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[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

(b) Any legal action or proceeding with respect to this Agreement or any other Transaction Document may be brought in any state or federal court of competent jurisdiction in the state, county and city of New York. By execution and delivery of this Agreement, each party hereto hereby irrevocably consents to and accepts, for itself and in respect of its property, generally and unconditionally the non-exclusive jurisdiction of such courts. Each party hereto hereby further irrevocably waives any objection, including any objection to the laying of venue or based on the grounds of forum non conveniens, which it may now or hereafter have to the bringing of any action or proceeding in such jurisdiction in respect of any Transaction Document.

(c) Each party hereto hereby irrevocably consents to the service of process out of any of the courts referred to in subsection (b) above of this Section 8.15 in any such suit, action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to it at its address set forth in this Agreement. Each party hereto hereby irrevocably waives any objection to such service of process and further irrevocably waives and agrees not to plead or claim in any suit, action or proceeding commenced hereunder or under any other Transaction Document that service of process was in any way invalid or ineffective. Nothing herein shall affect the right of a party to serve process on the other party in any other manner permitted by law.

Section 8.16 Waiver of Jury Trial.

Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any action, proceeding, claim or counterclaim arising out of or relating to any Transaction Document or the transactions contemplated under any Transaction Document. This waiver shall apply to any subsequent amendments, renewals, supplements or modifications to any Transaction Document.

Section 8.17 Restatement

This restated Revenue Interests Assignment Agreement amends, restates in its entirety and replaces, without novation, the Revenue Interests Assignment Agreement, dated July 21, 2006; provided, however, that the execution and delivery of this restated Revenue Interests Assignment Agreement shall not (a) operate as a waiver of any right, power or remedy of PRF or the Assignors under the Revenue Interests Assignment Agreement, dated as of July 21, 2006 or (b) extinguish or impair any obligations of the Assignors or PRF under the Revenue Interests Assignment Agreement, dated as of July 21, 2006. Notwithstanding the foregoing, for all purposes of the Transaction Documents and the Note Purchase Agreement Schedule 3.12 attached hereto shall be deemed to be Schedule 3.12 attached to the Revenue Interest Assignment Agreement dated as of July 21, 2006.

[SIGNATURE PAGE FOLLOWS]

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[*] = Portions of this exhibit have been omitted pursuant to a confidential treatment request. An unredacted version of this exhibit has been filed separately with the Commission.

IN WITNESS WHEREOF, the parties hereto have caused this Amended and Restated Revenue Interests Assignment Agreement to be duly executed by their respective authorized officers as of the date first above written.

OSCIENT PHARMACEUTICALS CORPORATION
By:	/s/ Dominick C. Colangelo
Name:	Dominick C. Colangelo
Title:	Executive Vice President
GUARDIAN II ACQUISITION CORPORATION
By:	/s/ Dominick C. Colangelo
Name:	Dominick C. Colangelo
Title:	Vice President
PAUL ROYALTY FUND HOLDINGS II
By:	Paul Royalty Fund II, LP, its Managing Partner
By:	Paul Capital Royalty Management, LLC, its General Partner
By:	Paul Capital Advisors, LLC, its Manager
By:	/s/ Gregory B. Brown
Name:	Gregory B. Brown, MD
Title:	Member

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EX-10.3

Exhibit 10.3

GUARDIAN II ACQUISITION CORPORATION

$20,000,000 12% Senior Secured Note

NOTE PURCHASE AGREEMENT

Dated as of July 21, 2006

TABLE OF CONTENTS

1.	AUTHORIZATION OF NOTE		1
	1.1	Amount	1
	1.2	Maturity Date	1
	1.3	Interest	2
2.	SALE AND PURCHASE OF NOTES		2
3.	CLOSING		2
4.	CONDITIONS TO CLOSING		3
	4.1	Accuracy of Representations and Warranties	3
	4.2	Performance; No Default	3
	4.3	Litigation	3
	4.4	Consents	3
	4.5	Secretary’s Certificate	4
	4.6	Opinions of Counsel	4
	4.7	Purchase Permitted By Applicable Law, etc.	4
	4.8	Due Diligence	4
	4.9	Proceedings and Documents	4
	4.10	Financing Transactions	4
5.	REPRESENTATIONS AND WARRANTIES OF THE COMPANY		4
	5.1	Authorization	5
	5.2	Governmental Authorization	5
	5.3	Organization and Ownership of Shares of Subsidiaries	5
	5.4	Use of Proceeds	5
	5.5	Existing Debt	5
	5.6	Foreign Assets Control Regulations, etc.	5
	5.7	Status under Certain Statutes	6
	5.8	Additional Representations and Warranties	6
6.	REPRESENTATIONS OF PAUL ROYALTY FUND HOLDINGS II		6
7.	FINANCIAL AND BUSINESS INFORMATION		7
8.	PREPAYMENT OF THE NOTES		8
	8.1	Required Prepayments	8
	8.2	Optional Prepayments	8
	8.3	Maturity; Surrender, etc.	8
9.	AFFIRMATIVE COVENANTS		8
	9.1	Insurance	8
	9.2	Corporate Existence, etc.	8
	9.3	Security Agreement	9
	9.4	Further Assurance	9

10.	NEGATIVE COVENANTS		9
	10.1	Liens	9
	10.2	Sale of Assets	10
	10.3	Mergers, Consolidations, etc	10
	10.4	Separateness Covenants	10
	10.5	Nature of Business	11
	10.6	Debt	11
	10.7	Transactions with Affiliates	11
11.	EVENTS OF DEFAULT		11
12.	REMEDIES ON DEFAULT, ETC		12
	12.1	Acceleration	12
	12.2	Other Remedies	12
	12.3	Rescission	12
	12.4	No Waivers or Election of Remedies, Expenses, etc	13
13.	REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES		13
	13.1	Registration of Note	13
	13.2	Transfer and Exchange of Note	13
	13.3	Replacement of Note	14
14.	PAYMENTS ON NOTES		14
	14.1	Place of Payment	14
	14.2	Home Office Payment	14
15.	AMENDMENT AND WAIVER		15
	15.1	Requirements	15
16.	NOTICES		15
17.	MISCELLANEOUS		16
	17.1	Survival	16
	17.2	Specific Performance	16
	17.3	Successors and Assigns	16
	17.4	Payments Due on Non-Business Days	17
	17.5	Entire Agreement	17
	17.6	Interpretation	17
	17.7	Headings and Captions	17
	17.8	Counterparts; Effectiveness	17
	17.9	Severability	18
	17.10	Governing Law; Jurisdiction	18
	17.11	Waiver of Jury Trial	19

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TABLE OF CONTENTS

SCHEDULE A	Defined Terms
SCHEDULE 5.3	Pro Forma Assets and Liabilities
SCHEDULE 10.1	Liens
EXHIBIT 1.1	Form of Senior Secured Note
EXHIBIT 4.6	Opinion Matters
EXHIBIT 9.3	Form of Security Agreement
EXHIBIT 10.4	Form of Servicing Agreement

Guardian II Acquisition Corporation

1000 Winter Street, Suite 2200

Waltham, MA 02451

Phone: (781) 398-2300

Fax: (781) 398-2530

$20,000,000 12% Senior Secured Note

Dated as of July 21, 2006

Paul Royalty Fund Holdings II

140 East 45th Street, 44th Floor

New York, NY 10017

Ladies and Gentlemen:

Guardian II Acquisition Corporation, a Delaware corporation (the “Company”), agrees with you as follows:

1. AUTHORIZATION OF NOTE.

1.1 Amount.

The Company has authorized the issue and sale of a $20,000,000 aggregate principal amount Senior Secured Note (the “Note,” such term to include any such notes issued in substitution therefor pursuant to Section 13 of this Agreement). The Note shall be substantially in the form set out in Exhibit 1.1, with such changes therefrom, if any, as may be approved by you and the Company.

1.2 Maturity Date.

The initial maturity date of the Note shall be fourth anniversary of the Closing Date. So long as no Default or Event of Default then exists, the Company may, after the Closing, request (on a one time basis) an extension of the maturity date of the Note to the sixth anniversary of the Closing Date by providing at least 30 and not more than 60 days’ prior written notice to the holders of record of the Note of such requested extension, specifying the effective date of such requested extension. Such request, when made, shall be irrevocable. In order for such request to be made effective, (i) no Default or Event of Default shall exist on the effective date for such requested extension as specified by the Company and (ii) on or before the specified effective date, the Company shall have (A) delivered Extension Warrants to the holder of record of the Note which Extension Warrants shall, in respect of such holder, (1) be for the acquisition of a number of shares of common stock, par value $0.10 per share, of the Parent equal to 10% of the outstanding principal amount of the Note (inclusive of any interest accrued by unpaid hereunder) held by such holder divided by the exercise price per share for the warrants (determined per clause (2) immediately following) and (2) have an exercise price per share equal to the exercise

price per share of the Warrants delivered to you on the Closing (as such exercise price may have been adjusted for any subsequent events as provided in such Warrants), and (B) delivered to the holder of record of the Note such other documents, opinions and agreements as are consistent with the deliveries made to you on the Closing with respect to the Warrants received by you on the Closing (all of which shall be in form and substance reasonably satisfactory to such holder); provided that the condition in clause (i) above may be waived by the holder of the Note, in such holder’s sole discretion.

1.3 Interest.

The Note shall, subject to the addition of any default interest, bear interest at a per annum rate of 12%. Interest shall be payable, in cash, semi-annually in arrears on the last day of each March and September; provided that, unless either prohibited by applicable law or the Company otherwise notifies the holders of the Note of its intention to pay all interest due on the next scheduled due date for interest payments in cash (which notice shall be in writing and irrevocable with respect to the interest payable on the scheduled due date) at least ten (10) days prior to then next scheduled due date for interest payments in respect of the Note, so long has no Default or Event of Default has then occurred and is continuing, 50% of the interest payable on such next scheduled date shall be paid in cash and the remaining 50% of such interest payable shall be added to the principal amount owing under the Note (effective from and after such next scheduled interest payment date). In no event shall the interest charged in respect of the Note, including any interest on amounts added to the principal of the Note pursuant to the preceding sentence, exceed the highest maximum amount chargeable as interest under applicable law, provided that if applicable law limits the amount chargeable as interest hereunder and applicable law subsequently permits a rate of interest in respect of the Note which is higher than the stated rate chargeable under the terms of the Note, the Note shall bear interest at such higher rate until the aggregate interest, including any interest on amounts added to the principal of the Note pursuant to the preceding sentence, charged in respect of the Note equals the amount which would have been charged if the rate chargeable in respect of the Note had not been so previously limited and thereafter the rate chargeable in respect of the Note shall reduce from such higher rate to the stated rate of interest hereunder.

2. SALE AND PURCHASE OF NOTES.

Subject to the terms and conditions of this Agreement, the Company will issue and sell to you and you will purchase from the Company, at the Closing provided for in Section 3, the Note in the aggregate principal amount specified in Section 1.1 at the purchase price of 100% of the principal amount thereof.

3. CLOSING.

The sale and purchase of the Note to be purchased by you shall occur at the offices of Ropes & Gray LLP, Boston, Massachusetts at 9:00 a.m., New York time, at a closing (the “Closing”) on such Business Day on or prior to October 30, 2006 as may be agreed upon by you and the Company (the “Closing Date”). At the Closing, the Company will deliver to you the Note to be purchased by you in the form of a single Note dated the date of the Closing and registered in your name (or in the name of your nominee), against delivery by you to the

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Company or its order of immediately available funds in the amount of the purchase price therefor by wire transfer of immediately available funds for the account of the Company to an account provided in writing to the Company. If at the Closing the Company fails to tender the Note to you as provided above in this Section 3, or any of the conditions specified in Section 4 shall not have been fulfilled to your satisfaction, you shall, at your election, be relieved of all further obligations under this Agreement, without thereby waiving any rights you may have by reason of such failure or such nonfulfillment. At the Closing, the dates left blank in this Agreement (i.e., the issuance date of the Note and maturity date of the same) shall be completed based on the date of the Closing.

4. CONDITIONS TO CLOSING.

Your obligation to purchase and pay for the Note to be sold to you at the Closing is subject to the fulfillment to your satisfaction, prior to or at the Closing, of the following conditions:

4.1 Accuracy of Representations and Warranties.

The representations and warranties of the Company set forth in this Agreement shall be true, correct and complete in all material respects as of the date of Closing.

4.2 Performance; No Default.

The Company shall have performed and complied with all agreements and conditions contained in this Agreement required to be performed or complied with by it prior to or at the Closing and after giving effect to the issue and sale of the Note (and the application of the proceeds thereof as contemplated by Section 5.5) no Default or Event of Default shall have occurred and be continuing.

4.3 Litigation.

No action, suit, litigation, proceeding or investigation shall have been instituted, be pending or threatened (i) challenging or seeking to make illegal, to delay or otherwise directly or indirectly to restrain or prohibit the consummation of the transactions contemplated by this Agreement, or seeking to obtain damages in connection with the transactions contemplated by this Agreement, or (ii) seeking to restrain or prohibit your rights or performance under the Revenue Interests Assignment Agreement.

4.4 Consents.

All notices to, consents, approvals, authorizations and waivers from third parties and Government Authorities that are required for the consummation of the transactions contemplated by this Agreement shall have been obtained or provided for and shall remain in effect.

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4.5 Secretary’s Certificate.

The Company shall have delivered to you a certificate certifying as to the resolutions attached thereto and any other corporate proceedings relating to the authorization, execution and delivery of the Note and this Agreement.

4.6 Opinions of Counsel.

You shall have received opinions in form and substance satisfactory to you, dated the date of the Closing from Ropes & Gray LLP, covering the matters set forth in Exhibit 4.6.

4.7 Purchase Permitted By Applicable Law, etc.

On the date of the Closing your purchase of Note shall (i) not violate any applicable law or regulation (including, without limitation, Regulation T, U or X of the Board of Governors of the Federal Reserve System) and (ii) not subject you to any tax, penalty or liability under or pursuant to any applicable law or regulation, which law or regulation was not in effect on the date hereof. If requested by you at least three Business Days prior to the Closing, you shall have received an Officer’s certificate certifying as to such matters of fact as you may reasonably specify to enable you to determine whether such purchase is so permitted.

4.8 Due Diligence.

Your due diligence review of the Company shall have been completed to your reasonable satisfaction.

4.9 Proceedings and Documents.

All corporate and other proceedings in connection with the transactions contemplated by this Agreement and in connection with the Acquisition and all documents and instruments incident to such transactions shall be reasonably satisfactory to you and your special counsel, and you and your special counsel shall have received all such counterpart originals or certified or other copies of such documents as you or they may reasonably request, including without limitation, the Security Agreement.

4.10 Financing Transactions.

The Company shall have consummated the transactions contemplated by the Acquisition and the Revenue Interests Assignment Agreement and the Stock Purchase Agreement shall contemporaneously be consummated, all on the terms and conditions described therein. The Company shall have issued the Warrant to Paul Royalty Fund Holdings II.

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5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

As of the date hereof (it being understood that the representations and warranties contained herein shall be deemed to be made both before and after giving effect to the Acquisition and the consummation of the transactions contemplated under the Revenue Interests Assignment Agreement and the Stock Purchase Agreement), the Company represents and warrants to you that:

5.1 Authorization

The Company has all necessary power and authority to enter into, execute and deliver the this Agreement and the Note and to perform all of the obligations to be performed by it hereunder and thereunder and to consummate the transactions contemplated hereunder and thereunder. This Agreement and the Note each have been duly authorized, executed and delivered by the Company and each of this Agreement and the Note constitutes the valid and binding obligation of the Company, enforceable against it in accordance with their respective terms, subject, as to enforcement of remedies, to bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’ rights generally or general equitable principles.

5.2 Governmental Authorization

The execution and delivery by the Company of this Agreement and the Note, and the performance by it of its obligations hereunder and thereunder, does not require any notice to, action or consent by, or in respect of, or filing with, any Governmental Authority, except for the filing of financing statements under the UCC.

5.3 Organization and Ownership of Shares of Subsidiaries.

The Company has no Subsidiaries and owns no equity interests or debt interests of any other Person. Immediately following the Closing, the sole assets and liabilities of the Company will consist of the assets and liabilities as set forth in the Antara Purchase Agreement, an equity investment in the Company by Parent, and amounts payable by the Company to Parent. The Company is a wholly-owned Subsidiary of Parent and there are no options, warrants, convertible instruments or other rights held by any Person other than Parent to acquire any equity interest (or interest convertible or exchangeable for any equity interest) in the Company.

5.4 Use of Proceeds.

The Company shall use all proceeds from the issuance of the Note to fund the purchase price of and related transaction expenses in connection with the Acquisition. The Company shall not use any such proceeds for any other purpose.

5.5 Existing Debt.

Other than with respect to its obligations in respect of the Note, the Revenue Interests Assignment Agreement, the Antara Purchase Agreement and subordinated intercompany indebtedness owing to Parent or its Affiliates, the Company has no Debt.

5.6 Foreign Assets Control Regulations, etc.

(a) Neither the sale of the Note by the Company hereunder nor its use of the proceeds thereof will violate the Trading with the Enemy Act, as amended, or any of the foreign assets control regulations of the United States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling legislation or executive order relating thereto.

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(b) The Company (i) is not a Person described or designated in the Specially Designated Nationals and Blocked Persons List of the Office of Foreign Assets Control or in Section 1 of the Anti-Terrorism Order or (ii) does not engage in any dealings or transactions with any such Person. The Company is in compliance, in all material respects, with the USA Patriot Act.

(c) No part of the proceeds from the sale of the Note hereunder will be used, directly or indirectly, for any payments to any governmental official or employee, political party, official of a political party, candidate for political office, or anyone else acting in an official capacity, in order to obtain, retain or direct business or obtain any improper advantage, in violation of the United States Foreign Corrupt Practices Act of 1977, as amended, assuming in all cases that such Act applies to the Company.

5.7 Status under Certain Statutes.

The Company is not subject to regulation under the Investment Company Act of 1940, as amended, the Public Utility Holding Company Act of 2006, as amended, the Interstate Commerce Act, as amended by the ICC Termination Act of 1995, as amended, or the Federal Power Act, as amended.

5.8 Additional Representations and Warranties.

The representations and warranties of the Company contained in Sections 3.06 through 3.15, inclusive, of the Revenue Interests Assignment Agreement are hereby incorporated by reference as if such sections were set forth in full herein, mutatis mutandis.

6. REPRESENTATIONS OF PAUL ROYALTY FUND HOLDINGS II.

You represent that (i) the Note is being acquired for the your own account and without a view to the resale or distribution of the Note or any interest therein other than in a transaction exempt from registration under the Securities Act; (ii) you are an “accredited investor” as such term is defined in Rule 501(a) of Regulation D under the Securities Act; (iii) you understand that the Note being sold hereby has not been registered under the Securities Act, or applicable state securities laws, and is being issued in reliance on exemptions for private offerings contained in Section 4(2) of the Securities Act and in reliance on exemptions from the registration requirements of certain state securities laws. Because the Note has not been registered under the Securities Act or applicable state securities laws, the Note may not be re-offered or resold except through a valid and effective registration statement or pursuant to a valid exemption from the registration requirements under the Securities Act and applicable state securities laws; (iv) you have sufficient knowledge and experience in financial and business matters so as to be capable of evaluating the merits and risks of its investment in the Note and are capable of bearing the economic risks of such investment, including a complete loss of its investment in the Note; and (v) you understand that your investment in the Note involves a high degree of risk.

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7. FINANCIAL AND BUSINESS INFORMATION.

Following the termination of the Revenue Interests Assignment Agreement, the Company agrees to deliver to you and to perform the following:

(a) Promptly after receipt by the Company or Parent of notice of any action, claim, investigation, proceeding (commenced or threatened), certificate, offer, proposal, material correspondence or other material written communication relating to the transactions contemplated by this Agreement, the Revenue Interests Assignment Agreement, the Stock Purchase Agreement or documents related thereto or transactions contemplated thereby, then, the Company shall inform you of the receipt of such notice and the substance of such action, claim, investigation, proceeding, certificate, offer, proposal, correspondence or other written communication and, if in writing shall furnish you with a copy of such notice and any related materials with respect to such action, claim, investigation, proceeding, certificate, offer, proposal, correspondence or other written communication.

(b) The Company and Parent shall keep and maintain, or cause to be kept and maintained, at all times accurate and complete books and records.

(c) The Company and its Parent shall maintain a system of accounting established and administered in accordance with sound business practices to permit preparation of financial statements in conformity with GAAP.

(d) The Company shall deliver to you the following financial statements:

(i) Within forty-five (45) calendar days after the end of each Fiscal Quarter, copies of the unaudited consolidated financial statements of Parent and its Subsidiaries for such Fiscal Quarter; and

(ii) Within ninety (90) calendar days after the end of each Fiscal Year, copies of the audited consolidated financial statements of Parent and its Subsidiaries for such Fiscal Year.

(e) You and any of your representatives shall have the right, once a year (and at any other time a Default or an Event of Default shall have occurred or be continuing), upon five (5) Business Day’s written notice given by you to the Company (provided one (1) Business Day’s notice shall be required if a Default or Event of Default shall have occurred and be continuing), to visit the Company and Parent’s offices and properties where the Company and Parent keep and maintain books and records relating or pertaining to this Agreement for purposes of conducting an audit of such books and records, and to inspect, copy and audit such books and records, during normal business hours, and the Company will provide you and any of your representatives reasonable access to such books and records, and shall permit you and any of your representatives to discuss the business, operations, properties and financial and other condition of the Company or any of its Affiliates including, but not limited to, matters relating or pertaining to this Agreement with officers of such parties, and with their independent certified public accountants (to the extent such independent certified accountants agree to discuss such matters with you) whose reasonable fees and expenses shall be paid by the Company.

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8. PREPAYMENT OF THE NOTES.

8.1 Required Prepayments.

No regularly scheduled prepayments are due on the Note prior to their stated maturity.

8.2 Optional Prepayments.

The Company may, at its option, upon notice as provided below, prepay at any time after (a) the occurrence of Change of Control (as defined in the Revenue Interests Assignment Agreement) or (b) on or after the second anniversary of the Closing Date, all or any part of the Note in an amount not less than $1,000,000 in the aggregate in the case of a partial prepayment, at (i) 101% of the principal amount so prepaid if the prepayment is made, in each case, before the third anniversary of the Closing Date or (ii) 100% of the principal amount so prepaid if the prepayment is made on or after the third anniversary of the Closing Date. The Company will give the holder of the Note written notice of each optional prepayment under this Section 8.2 not less than 30 days and not more than 60 days prior to the date fixed for such prepayment. Each such notice shall specify such date (which shall be a Business Day), the principal amount of the Note to be prepaid on such date, and the interest to be paid on the prepayment date with respect to such principal amount being prepaid.

8.3 Maturity; Surrender, etc.

In the case of each prepayment of the Note pursuant to this Section 8, the principal amount of the Note to be prepaid shall mature and become due and payable on the date fixed for such prepayment (which shall be a Business Day), together with interest on such principal amount accrued to such date and prepayment premium, if any. From and after such date, unless the Company shall fail to pay such principal amount when so due and payable, together with the interest and prepayment premium, if any as aforesaid, interest on such principal amount shall cease to accrue. If the Note is paid or prepaid in full, it shall be surrendered to the Company and canceled and shall not be reissued.

9. AFFIRMATIVE COVENANTS.

The Company covenants that so long as any of the Note are outstanding:

9.1 Insurance.

The Company shall be as an additional insured party with respect to insurance policies currently maintained by the Parent.

9.2 Corporate Existence, etc.

The Company will at all times preserve and keep in full force and effect its corporate existence.

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9.3 Security Agreement.

The Company shall, at all times until the Note has been paid and performed in full, grant in favor of you a valid, continuing, first perfected Lien on and security interest in the collateral described in the Security Agreement.

9.4 Further Assurance.

(a) Subject to the terms and conditions of this Agreement, you and the Company will use reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary under applicable laws and regulations to consummate the transactions contemplated by this Agreement.

(b) You and the Company shall execute and deliver such additional documents, certificates and instruments, and to perform such additional acts, as may be reasonably requested and necessary or appropriate to carry out and effectuate all of the provisions of this Agreement and to consummate all of the transactions contemplated by this Agreement.

(c) You and the Company shall cooperate and provide assistance as reasonably requested by the other respective party in connection with any litigation, arbitration or other proceeding (whether threatened, existing, initiated, or contemplated prior to, on or after the date hereof) to which any party hereto or any of its officers, directors, shareholders, agents or employees is or may become a party or is or may become otherwise directly or indirectly affected or as to which any such Persons have a direct or indirect interests, in each case relating to this Agreement or the transactions described herein.

10. NEGATIVE COVENANTS.

The Company covenants that so long as any of the Note are outstanding:

10.1 Liens.

The Company will not permit to exist, create, assume or incur, directly or indirectly, any Lien on its properties or assets, whether now owned or hereafter acquired, except:

(a) Liens for taxes, assessments or governmental charges not then due and delinquent;

(b) Liens incidental to the conduct of business or the ownership of properties and assets (including landlords’, lessors’, carriers’, warehousemen’s, mechanics’, materialmen’s and encumbrances in the nature of leases, subleases, zoning restrictions, easements, rights of way and other rights and restrictions of record on the use of real property and defects in title arising or incurred in the ordinary course of business, which, individually and in the aggregate, do not materially impair the use or value of the property or assets subject thereto or which relate only to assets that in the aggregate are not material) and Liens to secure the performance of bids, tenders, leases or trade

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contracts, or to secure statutory obligations (including obligations under workers compensation, unemployment insurance and other social security legislation), surety or appeal bonds or other Liens of like general nature incurred in the ordinary course of business and not in connection with the borrowing of money;

(c) any attachment or judgment Lien, unless the judgment it secures has not, within 60 days after the entry thereof, been discharged or execution thereof stayed pending appeal, or has not been discharged within 60 days after the expiration of any such stay;

(d) Liens securing the Note; and

(e) Liens set forth on Schedule 10.1.

10.2 Sale of Assets.

Except as permitted by the terms of the Revenue Interests Assignment Agreement (whether or not the same shall have been terminated), the Company will not sell, lease, transfer or otherwise dispose of, including by way of merger, any assets, in one or a series of transactions, to any Person, other than dispositions in the ordinary course of business (including inventory and used, worn-out or surplus equipment).

10.3 Mergers, Consolidations, etc.

The Company will not consolidate with or merge with any other Person or convey, transfer, sell or lease all or substantially all of its assets in a single transaction or series of transactions to any Person.

10.4 Separateness Covenants.

(a) The Company shall not direct or participate in the management of the Other Companies or any of the Other Companies’ operations or any other Person’s operations.

(b) The Company shall at all times be adequately capitalized in light of its contemplated business.

(c) The Company shall maintain its assets and transactions separately from those of the Other Companies and any other Person and reflect such assets and transactions in financial statements separate and distinct from those of the Other Companies and any other Person and evidence such assets and transactions by appropriate entries in books and records separate and distinct from those of the Other Companies and any other Person. Notwithstanding anything in the foregoing to the contrary, the holder of the Note acknowledges that the Parent maintains and reports financial statements including assets and operations of the Company and Other Companies on a consolidated basis. The Company shall not hold itself out as having agreed to pay, or as being liable, primarily or secondarily, for, any obligations of the Other Companies and any other Person.

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(d) The Company shall not grant a Lien on any of its assets to secure any obligation of any Other Company and any other Person.

(e) The Company shall hold regular duly noticed meetings of its Board of Directors and make and retain minutes of such meetings.

(f) Other than pursuant to the Servicing Agreement, the Company shall not engage in any transaction with any of the Other Companies, except as permitted by this Agreement and as contemplated by the Revenue Interests Assignment Agreement, Stock Purchase Agreement and related agreements.

10.5 Nature of Business.

The Company will not engage in any business if, as a result, the general nature of the business in which the Company would then be engaged would be substantially changed from the general nature of the business and related services in which the Company is engaged on the date of this Agreement (after giving effect to the Acquisition). Except to the extent permitted under the Revenue Interests Assignment Agreement, the Company shall not acquire, directly, by contribution or by any other means, any Subsidiaries or make any investments (whether in the form of debt or equity or combination thereof) in any Person or acquire any assets (other than (i) pursuant to and in accordance with the terms of the Acquisition and (ii) for the acquisition of inventory and equipment by the Company in the ordinary course of business).

10.6 Debt.

The Company shall not incur any Debt other than Debt in respect of the Note, the Revenue Interests Assignment Agreement and subordinated borrowings from the Company.

10.7 Transactions with Affiliates.

Other than pursuant to the Servicing Agreement, the Company will not, directly or indirectly, purchase, acquire or lease any property from, or sell, transfer or lease any property (other than shares of stock of Company) to, or otherwise deal with, in the ordinary course of business or otherwise (a) any Affiliate, or (b) any corporation in which an Affiliate or the Company owns 10% or more of the outstanding Voting Stock, except that (i) any Affiliate may be a director, officer or employee of the Company and may be paid reasonable compensation in connection therewith and (ii) such acts and transactions prohibited by this Section 10.7 may be performed or engaged in if (A) specifically authorized by the Company’s Board of Directors (exclusive of any Affiliate who is a director and who has a direct or indirect interest in such transaction) or pursuant to any unrescinded general resolution of such Board or the By-laws of the Company or (B) upon terms not less favorable to the Company than if no such relationship described in clauses (a) or (b) above existed.

11. EVENTS OF DEFAULT.

An “Event of Default” shall exist if any “Put Option Event,” as defined in the Revenue Interests Assignment Agreement, shall occur and be continuing.

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12. REMEDIES ON DEFAULT, ETC.

12.1 Acceleration.

(a) If an Event of Default with respect to the Company described in Section 11 has occurred, the outstanding principal and interest on the Note shall automatically become immediately due and payable.

(b) Upon the Note becoming due and payable under this Section 12.1, the Note will forthwith mature and the entire unpaid principal amount of such Note, plus (y) all accrued and unpaid interest thereon and (z) any applicable prepayment premium (to the full extent permitted by applicable law), shall all be immediately due and payable, in each and every case without presentment, demand, protest or further notice, all of which are hereby waived. The Company acknowledges, and the parties hereto agree, that the holder of the Note has the right to maintain its investment in the Note free from repayment by the Company (except as herein specifically provided for) and that the provision for payment of a prepayment premium by the Company in the event that the Note is prepaid or is accelerated as a result of an Event of Default, is intended to provide compensation for the deprivation of such right under such circumstances.

12.2 Other Remedies.

If any Default or Event of Default has occurred and is continuing, and irrespective of whether the Note has become or has been declared immediately due and payable under Section 12.1, the holder of the Note at the time outstanding may proceed to protect and enforce the rights of the holder by an action at law, suit in equity or other appropriate proceeding, whether for the specific performance of any agreement contained herein or in the Note, or for an injunction against a violation of any of the terms hereof or thereof, or in aid of the exercise of any power granted hereby or thereby or by law or otherwise.

12.3 Rescission.

At any time after the Note has been declared due and payable pursuant to Section 12.1, the holder of the Note outstanding, by written notice to the Company, may rescind and annul any such declaration and its consequences if (a) the Company has paid all overdue interest on the Note, all principal of and any prepayment premium on the Note that is due and payable and is unpaid other than by reason of such declaration, and all interest on such overdue principal and any prepayment premium, and (to the extent permitted by applicable law) any overdue interest in respect of the Note, at the Default Rate, (b) all Events of Default and Defaults, other than non-payment of amounts that have become due solely by reason of such declaration, have been cured or have been waived pursuant to Section 15, and (c) no judgment or decree has been entered for the payment of any monies due pursuant hereto or to the Note. No rescission and annulment under this Section 12.3 will extend to or affect any subsequent Event of Default or Default or impair any right consequent thereon.

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12.4 No Waivers or Election of Remedies, Expenses, etc.

No course of dealing and no delay on the part of the holder of the Note in exercising any right, power or remedy shall operate as a waiver thereof or otherwise prejudice the holder’s rights, powers or remedies. No right, power or remedy conferred by this Agreement or by the Note upon any holder thereof shall be exclusive of any other right, power or remedy referred to herein or therein or now or hereafter available at law, in equity, by statute or otherwise. The Company will pay to the holder of the Note on demand such further amount as shall be sufficient to cover all costs and expenses of such holder incurred in any enforcement or collection under this Section 12, including, without limitation, reasonable attorneys’ fees, expenses and disbursements.

13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES.

13.1 Registration of Note.

The Company shall keep at its principal executive office a register for the registration and registration of transfers of the Note. The name and address of the holder the Note, each transfer thereof and the name and address of each transferee of the Note shall be registered in such register. Prior to due presentment for registration of transfer, the Person in whose name the Note shall be registered shall be deemed and treated as the owner and holder thereof for all purposes hereof, and the Company shall not be affected by any notice or knowledge to the contrary. The Company shall give to a holder of a Note (if the Note shall have been sold or assigned in part), promptly upon request therefor, a complete and correct copy of the names and addresses of all other registered holders of the Notes, if any.

13.2 Transfer and Exchange of Note.

Upon surrender of the Note at the principal executive office of the Company for registration of transfer or exchange (and in the case of a surrender for registration of transfer, duly endorsed or accompanied by a written instrument of transfer duly executed by the registered holder of such Note or his attorney duly authorized in writing and accompanied by the address for notices of each transferee of such Note or part thereof), the Company shall execute and deliver, at the Company’s expense (except as provided below), one or more new Notes (as requested by the holder thereof) in exchange therefor, in an aggregate principal amount equal to the unpaid principal amount of the surrendered Note. Each such new Note shall be payable to such Person as such holder may request. Each such new Note shall be dated and bear interest from the date to which interest shall have been paid on the surrendered Note or dated the date of the surrendered Note if no interest shall have been paid thereon. The Company may require payment of a sum sufficient to cover any stamp tax or governmental charge imposed in respect of any such transfer of Note. No Note shall be transferred in denominations of less than $5,000,000, provided that if necessary to enable the registration of transfer by a holder of its entire holding of Note, one Note may be in a denomination of less than $5,000,000. Any transferee, by its acceptance of a Note registered in its name (or the name of its nominee), shall be deemed to have made the representation set forth in Section 6.1. If the Note initially issued hereunder is transferred in part, rather than in whole, each reference herein or in the Note to the “holder of the Note” or like reference shall be deemed to be a reference to the “holders of the Notes” or a similar reference, as appropriate.

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13.3 Replacement of Note.

Upon receipt by the Company of evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of the Note (which evidence shall be notice from the holder of such ownership and such loss, theft, destruction or mutilation), and

(a) in the case of loss, theft or destruction, of indemnity reasonably satisfactory to it (provided that if the holder of the Note is you or your nominee, such Person’s own unsecured agreement of indemnity shall be deemed to be satisfactory), or

(b) in the case of mutilation, upon surrender and cancellation thereof,

the Company at its own expense shall execute and deliver, in lieu thereof, a new Note of the same series or tranche, dated and bearing interest from the date to which interest shall have been paid on such lost, stolen, destroyed or mutilated Note or dated the date of such lost, stolen, destroyed or mutilated Note if no interest shall have been paid thereon.

14. PAYMENTS ON NOTES.

14.1 Place of Payment.

Subject to Section 14.2, payments of principal, prepayment premium, if any, and interest becoming due and payable on the Note shall be made to the holder of the Note in immediately available funds by wire transfer to an account designated in writing by the holder of the Note.

14.2 Home Office Payment.

So long as you or your nominee shall be the holder of any Note, and notwithstanding anything contained in the Note to the contrary, the Company will pay all sums becoming due on the Note for principal and prepayment premium, if any, and interest by the method and at the address specified for such purpose in Section 14.1, or by such other method or at such other address as you shall have from time to time specified to the Company in writing for such purpose, without the presentation or surrender of such Note or the making of any notation thereon, except that upon written request of the Company made concurrently with or reasonably promptly after payment or prepayment in full of any Note, you shall surrender such Note for cancellation, reasonably promptly after any such request, to the Company at its principal executive office or at the place of payment most recently designated by the Company pursuant to Section 14.1. Prior to any sale or other disposition of any Note held by you or your nominee you will, at your election, either endorse thereon the amount of principal paid thereon and the last date to which interest has been paid thereon or surrender such Note to the Company in exchange for a new Note or Note pursuant to Section 13.2.

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15. AMENDMENT AND WAIVER.

15.1 Requirements.

(a) This Agreement or any term or provision hereof may not be amended, changed or modified except with the written consent of the parties hereto. No waiver of any right hereunder shall be effective unless such waiver is signed in writing by the party against whom such waiver is sought to be enforced.

(b) No failure or delay by either party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law.

16. NOTICES.

All notices, consents, waivers and communications hereunder given by any party to the other shall be in writing (including facsimile transmission) and delivered personally, by telegraph, telecopy, telex or facsimile, by a recognized overnight courier, or by dispatching the same by certified or registered mail, return receipt requested, with postage prepaid, in each case addressed:

If to you to:

Paul Royalty Fund Holdings II

c/o Paul Capital Partners

140 East 45th Street, 44th Floor

New York, NY 10017

Attention: Gregory B. Brown, MD, Partner

Facsimile No.: (646) 264-1101

with a copy to:

McDermott Will & Emery LLP

227 West Monroe Street

Chicago, IL 60606-5096

Attention: Timothy R.M. Bryant

Facsimile No.: (312) 984-7700

If to the Company to:

Guardian II Acquisition Corporation

c/o Oscient Pharmaceuticals Corporation

1000 Winter Street, Suite 2200

Waltham, MA 02451

Attention: Legal Department

Facsimile No.: (781) 398-2530

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with a copy to:

Ropes & Gray LLP

One International Place

Boston, MA 02110

Attention: Patrick O’Brien

Facsimile No.: (617) 951-7050

or to such other address or addresses as you or the Company may from time to time designate by notice as provided herein, except that notices of changes of address shall be effective only upon receipt. All such notices, consents, waivers and communications shall: (a) when posted by certified or registered mail, postage prepaid, return receipt requested, be effective three (3) Business Days after dispatch, unless such communication is sent trans-Atlantic, in which case they shall be deemed effective three (3) Business Days after dispatch, (b) when telegraphed, telecopied, telexed or facsimiled, be effective upon receipt by the transmitting party of confirmation of complete transmission, or (c) when delivered by a recognized overnight courier or in person, be effective upon receipt when hand delivered.

17. MISCELLANEOUS.

17.1 Survival

All representations and warranties and covenants made or contained herein, any certificates or in any other writing delivered pursuant hereto or in connection herewith shall survive the execution and delivery of this Agreement and the Note and shall continue to survive until the termination of this Agreement upon the full payment and discharge of all amounts due under the Note. Any investigation or other examination that may have been made or may be made at any time by or on behalf of the party to whom representations and warranties are made shall not limit, diminish or in any way affect the representations and warranties in this Agreement, and the parties may rely on the representations and warranties in this Agreement irrespective of any information obtained by them by any investigation, examination or otherwise.

17.2 Specific Performance.

Each of the parties hereto acknowledges that the other party will have no adequate remedy at law if it fails to perform any of its obligations under this Agreement. In such event, each of the parties agrees that the other party shall have the right, in addition to any other rights it may have (whether at law or in equity), to specific performance of this Agreement.

17.3 Successors and Assigns

The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. The Company shall not be entitled to assign any of its obligations and rights under this Agreement without the prior written consent of you. You may assign without consent of the Company or Parent any of your rights under the this Agreement without restriction; provided that you shall provide prompt written notice to the Company of any such assignment, but the failure to provide notice to the Company shall not affect the effectiveness of any such assignment.

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17.4 Payments Due on Non-Business Days.

Anything in this Agreement or the Note to the contrary notwithstanding, any payment of principal of, prepayment premium or interest on any Note that is due on a date other than a Business Day shall be made on the next succeeding Business Day including the additional days elapsed in the computation of the interest payable on such next succeeding Business Day.

17.5 Entire Agreement.

This Agreement, together with the Exhibits and Schedules hereto (which are incorporated herein by reference), the Note, the Security Agreement and the agreements referenced herein and therein constitute the entire agreement between the parties with respect to the subject matter hereof and supersede all prior agreements (including the Term Sheet for Purchase of Revenue Interest, Debt and Equity from Oscient Pharmaceuticals Corporation dated June 29, 2006 between Paul Capital Advisors, LLC and Parent), understandings and negotiations, both written and oral, between the parties with respect to the subject matter of this Agreement; provided, however, the terms of that certain Confidentiality Agreement by and between Parent and you dated as of June 8, 2006 shall continue in effect. No representation, inducement, promise, understanding, condition or warranty not set forth herein (or in the Exhibits, Schedules or the Note) has been made or relied upon by either party hereto. None of this Agreement, nor any provision hereof, is intended to confer upon any Person other than the parties hereto any rights or remedies hereunder.

17.6 Interpretation.

When a reference is made in this Agreement to Articles, Sections, Schedules or Exhibits, such reference shall be to an Article, Section, Schedule or Exhibit to this Agreement unless otherwise indicated. The words “include”, “includes” and “including” when used herein shall be deemed in each case to be followed by the words “without limitation”. Neither party hereto shall be or be deemed to be the drafter of this Agreement for the purposes of construing this Agreement against one party or the other.

17.7 Headings and Captions.

The headings and captions in this Agreement are for convenience and reference purposes only and shall not be considered a part of or affect the construction or interpretation of any provision of this Agreement.

17.8 Counterparts; Effectiveness.

This Agreement may be executed in two or more counterparts, each of which shall be an original, but all of which together shall constitute one and the same instrument. This Agreement shall become effective when each party hereto shall have received a counterpart hereof signed by the other parties hereto. Any counterpart may be executed by facsimile or pdf signature and such facsimile or pdf signature shall be deemed an original.

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17.9 Severability

If any provision of this Agreement is held to be invalid or unenforceable, the remaining provisions shall nevertheless be given full force and effect.

17.10 Governing Law; Jurisdiction.

(a) This Agreement shall be governed by, and construed, interpreted and enforced in accordance with, the laws of the State of New York, without giving effect to the principles of conflicts of law thereof.

(b) Any legal action or proceeding with respect to this Agreement may be brought in any state or federal court of competent jurisdiction in the state, county and city of New York. By execution and delivery of this Agreement, each party hereto hereby irrevocably consents to and accepts, for itself and in respect of its property, generally and unconditionally the non-exclusive jurisdiction of such courts. Each party hereto hereby further irrevocably waives any objection, including any objection to the laying of venue or based on the grounds of forum non conveniens, which it may now or hereafter have to the bringing of any action or proceeding in such jurisdiction in respect of this Agreement.

(c) Each party hereto hereby irrevocably consents to the service of process out of any of the courts referred to in subsection (b) above of this Section 17.10 in any such suit, action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to it at its address set forth in this Agreement. Each party hereto hereby irrevocably waives any objection to such service of process and further irrevocably waives and agrees not to plead or claim in any suit, action or proceeding commenced hereunder that service of process was in any way invalid or ineffective. Nothing herein shall affect the right of a party to serve process on the other party in any other manner permitted by law.

[Remainder of page intentionally left blank]

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17.11 Waiver of Jury Trial.

Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any action, proceeding, claim or counterclaim arising out of or relating to this Agreement or the transactions contemplated hereunder. This waiver shall apply to any subsequent amendments, renewals, supplements or modifications to this Agreement.

If you are in agreement with the foregoing, please sign the form of agreement on the accompanying counterpart of this Agreement and return it to the Company, whereupon the foregoing shall become a binding agreement between you and the Company.

Very truly yours,
GUARDIAN II ACQUISITION CORPORATION
By:	/s/ Steven M. Rauscher
Name:	Steven M. Rauscher
Title:	President

The foregoing is agreed

to as of the date thereof:

PAUL ROYALTY FUND HOLDINGS II
By:	Paul Royalty Fund II, LP, its Managing Partner
By:	Paul Capital Royalty Management, LLC, its General Partner
By:	Paul Capital Advisors, LLC, its Manager
By:	/s/ Gregory B. Brown
Name:	Gregory B. Brown, MD
Title:	Member

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SCHEDULE A

DEFINED TERMS

As used herein, the following terms have the respective meanings set forth below or set forth in the Section hereof following such term:

“Acquisition” shall mean the acquisition pursuant to the Antara Purchase Agreement (as defined in the Revenue Interests Assignment Agreement) and any transactions related thereto.

“Affiliate” shall mean any Person that controls, is controlled by, or is under common control with another Person. For purposes of this definition, “control” shall mean (i) in the case of corporate entities, direct or indirect ownership of at least fifty percent (50%) of the stock or shares having the right to vote for the election of directors, and (ii) in the case of non-corporate entities, direct or indirect ownership of at least fifty percent (50%) of the equity interest with the power to direct the management and policies of such non-corporate entities.

“Agreement” and references thereto, shall mean this Note Purchase Agreement as it may from time to time be amended or supplemented.

“Antara Purchase Agreement” shall mean that certain Asset Purchase Agreement by and among Parent, the Company and Reliant Pharmaceuticals, Inc. dated July 21, 2006, including the exhibits specifically listed therein.

“Anti-Terrorism Order” shall mean Executive Order 13224 of September 23, 2001 Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or Support Terrorism (66 Fed. Reg. 49079 (2001)), as amended.

“Business Day” shall mean any day other than a Saturday, a Sunday, any day which is a legal holiday under the laws of the State of New York, or any day on which banking institutions located in the State of New York are required by law or other governmental action to close.

“Closing” shall have the meaning set forth in Section 3.

“Company” shall mean Guardian II Acquisition Corporation, a Delaware corporation, together with its successors and assigns.

“Debt” with respect to any Person, shall mean, at any time, without duplication, (a) all indebtedness for borrowed money; (b) all obligations issued, undertaken or assumed as the deferred purchase price of property or services (other than (i) trade payables entered into, and accruals arising, in the ordinary course of business on ordinary terms and (ii) rebates and chargebacks under managed care contracts owing to Reliant Pharmaceuticals, Inc. under the Antara Purchase Agreement); (c) all non-contingent reimbursement or payment obligations with respect to surety instruments; (d) all obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection with the acquisition of property, assets or businesses; (e) all indebtedness created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to property acquired by the Person (even though the rights and remedies of the seller under such agreement

in the event of default are limited to repossession or sale of such property, in which case the amount of the Debt with respect thereto shall be equal to the fair market value of such property); (f) all capital lease obligations; (g) all indebtedness referred to in foregoing clauses (a) through (f) secured by (or for which the holder of such Debt has an existing right, contingent or otherwise, to be secured by) any Lien upon or in property (including accounts and contracts rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Debt; provided, the amount of such Debt for this purposes of this clause (g) shall be the amount stipulated in any agreement or instrument evidencing such Person’s obligation; (h) obligations arising in connection with the transfer of an interest in accounts or notes receivable which transfer constitutes a true sale, including securitizations, and (i) all Guaranty Obligations in respect of indebtedness or obligations of others of the kinds referred to in clauses (a) through (h) above.

“Default” shall mean an event or condition the occurrence or existence of which would, with the lapse of time or the giving of notice or both, become an Event of Default.

“Default Rate” shall mean that rate of interest that is the greater of (i) 2% per annum above the rate of interest stated in clause (a) of the first paragraph of the Note or (ii) 2% over the rate of interest publicly announced by JPMorgan Chase Bank, N.A. (or its successor) from time to time in New York, New York as its “base” or “prime” rate.

“Event of Default” shall have the meaning set forth in Section 11.

“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

“Extension Warrants” shall mean the warrants issued to the holder of the Note, pursuant to Section 1.2 in consideration for the holder extending the maturity date of the Note hereunder.

“Fiscal Quarter” shall mean a calendar quarter.

“Fiscal Year” shall mean a calendar year.

“GAAP” shall mean generally accepted accounting principles in the United States in effect from time to time.

“Governmental Authority” shall mean any government, court, regulatory or administrative agency or commission, or other governmental authority, agency or instrumentality, whether foreign, federal, state or local (domestic or foreign), including the United States Patent and Trademark Office, the United States Food and Drug Administration, the United States National Institutes of Health, or any other government authority in any country.

“Guaranty Obligation” shall mean, as to any Person, any direct or indirect liability of that Person, whether or not contingent, with or without recourse, without duplication, with respect to any Debt, lease, dividend, letter of credit or other obligation (the “primary obligations”) of another Person (the “primary obligor”), including any obligation of that Person (a) to purchase, repurchase or otherwise acquire such primary obligations or any security therefor, (b) to advance or provide funds for the payment or discharge of any such primary obligation, or to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or

solvency or any balance sheet item, level of income or financial condition of the primary obligor, (c) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation, or (d) otherwise to assure or hold harmless the holder of any such primary obligation against loss in respect thereof.

“holder” shall mean, with respect to the Note, the Person in whose name the Note is registered in the register maintained by the Company pursuant to Section 13.1.

“Lien” shall mean any mortgage, deed of trust, pledge, hypothecation, assignment, security interest, lien (whether statutory or otherwise), charge, claim or encumbrance, or preference, priority or other security agreement or preferential arrangement held or asserted in respect of any asset of any kind or nature whatsoever including, without limitation, any conditional sale or other title retention agreement, any lease having substantially the same economic effect as any of the foregoing, and the filing of, or agreement to give, any financing statement under the Uniform Commercial Code or comparable law of any jurisdiction.

“Losses” shall mean collectively, any and all claims, damages, losses, judgments, liabilities, costs and expenses (including reasonable expenses of investigation and reasonable attorneys’ fees and expenses in connection with any action, suit or proceeding).

“Note” shall have the meaning set forth in Section 1.1.

“Other Companies” shall mean Parent and all of its Subsidiaries except the Company.

“Parent” shall mean Oscient Pharmaceuticals Corporation, a Massachusetts corporation.

“Person” shall mean an individual, corporation, partnership, limited liability company, association, trust or other entity or organization, but not including a government or political subdivision or any agency or instrumentality of such government or political subdivision.

“Revenue Interests Assignment Agreement” shall mean the Revenue Interests Assignment Agreement of even date herewith among the Parent, the Company and Paul Royalty Fund Holdings II.

“Securities Act” shall mean the Securities Act of 1933, as amended from time to time.

“Security Agreement” shall mean the Security Agreement, in the form of Exhibit 4.9, executed by the Company in favor of Paul Royalty Fund Holdings II.

“Servicing Agreement” shall mean the Servicing Agreement, in the form of Exhibit 10.4, by and between the Parent and the Company.

“Stock Purchase Agreement” shall mean the Common Stock and Warrant Purchase Agreement of even date herewith among the Parent and Paul Royalty Fund Holdings II.

“Subsidiary” shall mean with respect to any Person (i) any corporation of which the outstanding capital stock having at least a majority of votes entitled to be cast in the election of

directors under ordinary circumstances shall at the time owned, directly or indirectly, by such Person or (ii) any other Person of which at least a majority voting interest under ordinary circumstances is at the time, directly or indirectly, owned by such Person.

“USA Patriot Act” shall mean United States Public Law 107-56, Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT ACT) Act of 2001, as amended from time to time, and the rules and regulations promulgated thereunder from time to time in effect.

“Voting Stock” shall mean securities of any class or classes, the holders of which are ordinarily, in the absence of contingencies, entitled to elect a majority of the corporate directors (or Persons performing similar functions).

“Warrant” shall mean the warrant issued to the initial holder of the Note pursuant to the Stock Purchase Agreement, in consideration for such holder’s acquiring the Note hereunder.

EXHIBIT 1.1

[FORM OF SENIOR SUBORDINATED NOTE]

GUARDIAN II ACQUISITION CORPORATION

12% Senior Secured Note

No. [        ]	[Date	]
$20,000,000

FOR VALUE RECEIVED, the undersigned, Guardian II Acquisition Corporation (the “Company”), a corporation organized and existing under the laws of the State of Delaware, promises to pay to Paul Royalty Fund Holdings II, or its registered assigns, the principal sum of $20,000,000 on [                            ], 2010 (or such later date as permitted in accordance with the terms of the Note Purchase Agreement (referred to below)), with interest (computed on the basis of a 360-day year of twelve 30-day months) (a) on the unpaid balance thereof at the rate of 12% per annum from the date hereof, payable semiannually, on the last day of each of March and September in each year, commencing with September 30, 2006 (except that such the payment of interest in cash shall be subject to the provisions of the Note Purchase Agreement (referred to below)), until the principal hereof shall have become due and payable, and (b) to the extent permitted by law on any overdue payment (including any overdue prepayment) of principal, any overdue payment of interest, payable semiannually as aforesaid (or, at the option of the registered holder hereof, on demand), at a rate per annum from time to time equal to the greater of (i) 14% or (ii) 2% over the rate of interest publicly announced by JPMorgan Chase Bank, N.A. (or its successor) from time to time in New York, New York as its “base” or “prime” rate.

Payments of principal of, interest on and any premium with respect to this Note are to be made in lawful money of the United States of America at an account designated by written notice of the holder of this Note to the Company as provided in the Note Purchase Agreement referred to below.

This Note is one of the notes (herein called the “Note”) issued pursuant to a Note Purchase Agreement, dated as of July 21, 2006 (as from time to time amended and supplemented, the “Note Purchase Agreement”), between the Company and Paul Royalty Fund Holdings II and is entitled to the benefits thereof. The holder of this Note will be deemed, by its acceptance hereof, to have made the representations set forth in Section 6 of the Note Purchase Agreement.

This Note is a registered Note and, as provided in the Note Purchase Agreement, upon surrender of this Note for registration of transfer, duly endorsed, or accompanied by a written instrument of transfer duly executed, by the registered holder hereof or such holder’s attorney duly authorized in writing, a new Note for a like principal amount will be issued to, and registered in the name of, the transferee. Prior to due presentment for registration of transfer, the Company may treat the person in whose name this Note is registered as the owner hereof for the

purpose of receiving payment and for all other purposes, and the Company will not be affected by any notice to the contrary.

This Note also is subject to optional prepayment, in whole or from time to time in part, at the times and on the terms specified in the Note Purchase Agreement but not otherwise.

If an Event of Default, as defined in the Note Purchase Agreement, occurs and is continuing, the principal of this Note may be declared or otherwise become due and payable in the manner, at the price and with the effect provided in the Note Purchase Agreement.

This Note shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the law of the State of New York excluding choice-of-law principles of the law of such State that would require the application of the laws of a jurisdiction other than such State.

Guardian II Acquisition Corporation

By: 

Name: 

Title: 

EX-10.4

Exhibit 10.4

COMMON STOCK AND WARRANT PURCHASE AGREEMENT

Dated as of July 21, 2006

between

OSCIENT PHARMACEUTICALS CORPORATION

and

PAUL ROYALTY FUND HOLDINGS II

TABLE OF CONTENTS

		Page
ARTICLE I	DEFINITIONS AND INTERPRETATION	1
1.1.	Definitions	1
ARTICLE II	AUTHORIZATION AND SALE OF COMMON STOCK AND WARRANT	4
2.1.	Purchase and Sale of Common Stock and Warrant	4
2.2.	Delivery of Shares and Warrant; Payment of Purchase Price	4
ARTICLE III	CONDITIONS TO CLOSING	4
3.1.	Representations and Warranties True	4
3.2.	Closing pursuant to the Revenue Interests Assignment Agreement	5
3.3.	Registration Rights Agreement	5
3.4.	Asset Purchase Agreement	5
ARTICLE IV	COVENANTS	5
4.1.	Compliance with Agreements	5
4.2.	Current Public Information; Listing	5
4.3.	Reservation of Common Stock	5
4.4.	Termination	5
4.5.	Board Representative	5
4.6.	Schedule 13D and 13G	6
4.7.	Use of Proceeds	7
ARTICLE V	TRANSFER OF RESTRICTED SECURITIES	7
5.1.	General Provisions	7
5.2.	Rule 144A	7
5.3.	Legend	7
5.4.	Legend Removal	7
ARTICLE VI	REPRESENTATIONS AND WARRANTIES OF THE COMPANY	8
6.1.	Organization	8
6.2.	Corporate Authorization	8
6.3.	Authorized Capital Stock	8
6.4.	Conflict.	8
6.5.	SEC Documents; Financial Statements	9

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TABLE OF CONTENTS

(continued)

		Page
6.6.	Incorporation of Representations and Warranties	9
6.7.	Absence of Certain Changes	9
6.8.	No General Solicitation	10
6.9.	No Integrated Offering	10
6.10.	Absence of Further Requirements	10
ARTICLE VII	REPRESENTATIONS AND WARRANTIES OF PRF	10
7.1.	Organization	10
7.2.	Authorization	10
7.3.	Investment Representations	11
7.4.	Brokers	11
7.5.	Absence of Further Requirements	11
ARTICLE VIII	MISCELLANEOUS	11
8.1.	Survival of Representations and Warranties	11
8.2.	Specific Performance	12
8.3.	Notices	12
8.4.	Successors and Assigns	13
8.5.	Indemnification	13
8.6.	Entire Agreement	15
8.7.	Amendments; No Waivers	15
8.8.	Interpretation	15
8.9.	Headings and Captions	15
8.10.	Counterparts; Effectiveness	15
8.11.	Severability	16
8.12.	Governing Law; Jurisdiction	16
8.13.	Waiver of Jury Trial	16

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EXHIBITS

Exhibit A	—   Form of Warrant
Exhibit B	—   Form of Registration Rights Agreement
Exhibit C	—   Form of Revenue Interests Assignment Agreement

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COMMON STOCK AND WARRANT PURCHASE AGREEMENT

COMMON STOCK AND WARRANT PURCHASE AGREEMENT (this “Agreement”), dated as of July 21, 2006 between Oscient Pharmaceuticals Corporation, a Massachusetts corporation (the “Company”) and Paul Royalty Fund Holdings II, a California general partnership (“PRF”).

RECITALS

WHEREAS, the Company desires to issue and sell to PRF, and PRF desires to purchase from the Company, an aggregate of 11,111,111 shares of the authorized and unissued shares of common stock, par value $0.10 per share, of the Company (the “Common Stock”) and a warrant to purchase 2,304,147 shares of Common Stock in the form attached hereto as Exhibit A (the “Warrant”).

NOW, THEREFORE, in consideration of the foregoing and the mutual representations, warranties, covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:

ARTICLE I

DEFINITIONS AND INTERPRETATION

1.1. Definitions. For the purposes of this Agreement, the following terms have the meanings specified or referred to in this Section 1.1:

“Affiliate” shall mean any Person that controls, is controlled by, or is under common control with another Person. For purposes of this definition, “control” shall mean (i) in the case of corporate entities, direct or indirect ownership of at least fifty percent (50%) of the stock or shares having the right to vote for the election of directors, and (ii) in the case of non-corporate entities, direct or indirect ownership of at least fifty percent (50%) of the equity interest with the power to direct the management and policies of such non-corporate entities.

“Agreement” has the meaning set forth in the first paragraph of this Agreement.

“Antara Purchase Agreement” shall mean that certain Asset Purchase Agreement by and among the Company, Guardian and Reliant Pharmaceuticals, Inc. dated as of July 21, 2006, including the exhibits specifically listed therein.

“Board” shall mean the Board of Directors of the Company.

“By-laws” shall mean the Company’s By-laws, as amended.

“Closing” shall have the meaning set forth in the Revenue Interests Assignment Agreement.

“Closing Date” shall have the meaning set forth in the Revenue Interests Assignment Agreement.

“Common Stock” has the meaning set forth in the Recitals.

“Company” has the meaning set forth in the first paragraph of this Agreement.

“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC thereunder, all as the same shall be in effect at that time.

“GAAP” shall mean generally accepted accounting principles in the United States in effect from time to time.

“Governmental Authority” shall mean any government, court, regulatory or administrative agency or commission, or other governmental authority, agency or instrumentality, whether foreign, federal, state or local (domestic or foreign), including the United States Patent and Trademark Office, the FDA, the United States National Institutes of Health, or any other government authority in any country.

“Guardian” shall mean Guardian II Acquisition Corporation, a Delaware corporation and wholly-owned subsidiary of the Company formed to acquire all of the “Acquired Assets”, as defined in the Antara Purchase Agreement.

“Indemnified Liabilities” has the meaning set forth in Section 8.6.

“Indemnitees” has the meaning set forth in Section 8.6.

“Indemnitor” has the meaning set forth in Section 8.6.

“Lien” shall mean any lien, hypothecation, charge, instrument, license, preference, priority, security agreement, security interest, interest, mortgage, option, privilege, pledge, liability, covenant, order, tax, right of recovery, trust or deemed trust (whether contractual, statutory or otherwise arising) or any encumbrance, right or claim of any other person of any kind whatsoever whether choate or inchoate, filed or unfiled, noticed or unnoticed, recorded or unrecorded, contingent or non-contingent, material or non-material, known or unknown.

“Losses” shall mean collectively, any and all claims, damages, losses, judgments, liabilities, costs and expenses (including reasonable expenses of investigation and reasonable attorneys’ fees and expenses in connection with any action, suit or proceeding).

“Material Adverse Effect” shall have the meaning set forth in the Revenue Interests Assignment Agreement.

“Oscient Indemnified Party” has the meaning set forth in Section 8.5.

“Party” or “Parties” shall mean the Company and PRF.

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“Person” shall mean an individual, corporation, partnership, limited liability company, association, trust or other entity or organization, but not including a government or political subdivision or any agency or instrumentality of such government or political subdivision.

“PRF” has the meaning set forth in the first paragraph of this Agreement.

“Purchase Price” has the meaning set forth in Section 2.2(b).

“Registration Rights Agreement” shall mean the Registration Rights Agreement, dated as of the Closing Date, by and between the Company and PRF, attached hereto as Exhibit B.

“Restated Articles of Organization” shall mean the Company’s Restated Articles of Organization as amended to date.

“Restricted Securities” shall mean the Shares, the Warrant, Common Stock underlying the Warrant issued hereunder and all shares of Common Stock issued or issuable in respect thereof by way of a stock dividend, stock split, combination, subdivision or other similar event. As to any particular Restricted Securities, such securities shall cease to be Restricted Securities when they have (a) been effectively registered under the Securities Act and disposed of in accordance with the registration statement covering them, (b) been distributed to the public through a broker, dealer or market maker pursuant to Rule 144 (or any similar provision then in force) under the Securities Act or become eligible for sale pursuant to Rule 144(k) (or any similar provision then in force) under the Securities Act, or (c) been otherwise transferred and new certificates for them not bearing the Securities Act legend set forth in Section 5.3 have been delivered by the Company in accordance with Section 5.4. Whenever any particular securities cease to be Restricted Securities, the holder thereof shall be entitled to receive from the Company, without expense, new securities of like tenor not bearing a Securities Act legend of the character set forth in Section 5.3. Any holder requesting the removal of such legend shall deliver or cause to be delivered to the Company a certificate executed by the holder and an opinion of such holder’s counsel, such certificate and opinion to be in form and substance reasonably satisfactory to the Company.

“Revenue Interests Assignment Agreement” shall mean the Revenue Interests Assignment Agreement, dated July 21, 2006, among the Company, the Guardian and PRF, attached hereto as Exhibit C.

“SEC” shall mean the Securities and Exchange Commission and includes any governmental authority or agency succeeding to the functions thereof.

“SEC Documents” has the meaning set forth in Section 6.5.

“Securities Act” shall mean the Securities Act of 1933, as amended, and the rules and regulations of the SEC thereunder, all as the same shall be in effect at that time.

“Shares” has the meaning set forth in Section 2.1.

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“Subsidiary” or “Subsidiaries” shall mean with respect to any Person (i) any corporation of which the outstanding capital stock having at least a majority of votes entitled to be cast in the election of directors under ordinary circumstances shall at the time owned, directly or indirectly, by such Person or (ii) any other Person of which at least a majority voting interest under ordinary circumstances is at the time, directly or indirectly, owned by such Person.

“Transaction Documents” shall mean the agreements, documents and instruments expressly contemplated hereby and thereby, including the Registration Rights Agreement.

“Warrant” has the meaning set forth in the Recitals.

ARTICLE II

AUTHORIZATION AND SALE OF COMMON STOCK AND WARRANT

2.1. Purchase and Sale of Common Stock and Warrant. At the Closing, and in reliance upon the representations and warranties of the Company set forth herein or in any certificate or other document delivered pursuant hereto, the Company shall issue, sell and deliver to PRF, and PRF shall purchase from the Company at a purchase price of $0.90 per share, 11,111,111 shares of Common Stock (the “Shares”) and the Warrant.

2.2. Delivery of Shares and Warrant; Payment of Purchase Price.

(a) At the Closing, the Company shall issue and deliver to PRF, (i) one or more stock certificates, duly executed by the Company and registered in the Company’s stock ledger in PRF’s name, evidencing the Shares and (ii) a duly executed copy of the Warrant.

(b) At the Closing, as payment in full for the Shares and Warrant being purchased by it under this Agreement, and against delivery of the stock certificate(s) and Warrant therefor as described in subparagraph (a) above, PRF shall transfer to the account of the Company by wire transfer $10,000,000 (the “Purchase Price”).

ARTICLE III

CONDITIONS TO CLOSING

The obligations of the Parties to this Agreement to consummate the transactions contemplated by this Agreement and the Transaction Documents shall be subject to the satisfaction of (or waiver in writing) of the following conditions precedent:

3.1. Representations and Warranties True. The representations and warranties of each Party contained in this Agreement that are qualified as to materiality shall be true and correct, and all other representations and warranties of each Party contained in this Agreement shall be true and correct in all material respects, in each such case on and as of the Closing Date, with the same effect as though made on and as of the Closing Date.

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3.2. Closing pursuant to the Revenue Interests Assignment Agreement. The Closing as contemplated under the Revenue Interests Assignment Agreement shall have occurred.

3.3. Registration Rights Agreement. The Company and PRF shall have entered into the Registration Rights Agreement.

3.4. Asset Purchase Agreement. The Company shall have consummated the transactions contemplated by the Asset Purchase Agreement by and among the Company, Oscient/Antara Subsidiary and Reliant Pharmaceuticals, Inc.

ARTICLE IV

COVENANTS

4.1. Compliance with Agreements. The Company shall perform and observe all of its obligations to each holder of the Shares and the Warrant set forth in the Restated Articles of Organization, as amended, and the By-laws.

4.2. Current Public Information; Listing. The Company shall use commercially reasonable efforts to file all reports required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations adopted by the SEC thereunder and shall take such further action as PRF may reasonably request, all to the extent required to enable PRF to sell Restricted Securities pursuant to Rule 144 adopted by the SEC under the Securities Act (as such rule may be amended from time to time) or any similar rule or regulation hereafter adopted by the SEC. Promptly after the Closing, the Company will file with the Nasdaq National Market, if required, the appropriate notification form for the listing of additional shares under the rules and regulations of such exchange (and otherwise in a form reasonably acceptable to PRF), in respect of the Shares and the Common Stock underlying the Warrant and the Company shall use commercially reasonable efforts to cause the Shares and the Common Stock underlying the Warrant to at all times be listed (or traded) on one of the New York Stock Exchange, American Stock Exchange, or the Nasdaq National Market.

4.3. Reservation of Common Stock. The Company shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of issuance upon the exercise of the Warrant, such number of shares of Common Stock issuable upon the exercise of the Warrant.

4.4. Termination. Notwithstanding any other provision of this Article IV, upon such time as PRF no longer owns any Shares or Common Stock underlying the Warrant, the Company’s obligations pursuant to this Article IV shall terminate (provided that the Company shall remain liable for any breach thereof prior to such termination).

4.5. Board Representative. At the Closing, the Company shall

(a) cause the size of the Board of Directors to be increased and one director designated by PRF, which shall initially be Gregory B. Brown, MD, to be elected by the Board

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of Directors to fill the vacancy so created for a term ending at the Company’s next annual meeting. Following such initial term, the Company shall use its best efforts to nominate one director designated by PRF to the Company’s Board of Directors for election by the Company’s shareholders at every shareholder meeting at which his term would otherwise expire. In the absence of any designation from PRF, the Company shall nominate the director previously designated by PRF and then serving if such director is still eligible to serve to be elected to the Company’s Board of Directors. If any vacancy created by the resignation, removal or death of a director elected pursuant to this Section 4.5 occurs, PRF shall designate a new director to fill the vacancy created by such resignation, removal or death and the Company shall use its best efforts to cause the Board of Directors to appoint such director to the Board of Directors for a term ending at the Company’s next annual meeting, at which time the Company will use its best effort to nominate such director to the Company’s Board of Directors for election by the Company’s Board of Directors and for election by the Company’s shareholders at every shareholder meeting at which his term would otherwise expire. The director designated by PRF shall resign and the Company shall no longer be required to nominate a director designated by PRF upon the later of the following events: (1) if PRF ceases to own at least five (5%) percent of the Company’s Common Stock or securities convertible into the Company’s Common Stock; (2) if the Company owes PRF less than five million dollars ($5,000,000) under the Note pursuant to the Note Purchase Agreement among the Parties dated as of the date hereof; (3) the provisions of part (b) of the definition of Applicable Percentage, as defined in Section 1.01 of the Revenue Interests Assignment Agreement, have been triggered; or (4) if the amounts due by the Company pursuant to the Revenue Interests Assignment Agreement cease to be due under such agreement. The Company shall reimburse the director designated by PRF, if elected to the Board of Directors as provided herein, for all reasonable out-of-pocket travel and other expenses as are reimbursed to other directors on the Board, all in accordance with the Company’s policies for reimbursement of directors. The director designated by PRF and elected to the Board of Directors as provided herein shall also be entitled to compensation paid to the non-employee directors of the Company.

(b) If at any time during the period pursuant to Section 4.5(a) in which PRF shall be entitled to designate a nominee for election to the Company’s Board of Directors and the director designated by PRF is not a member of the Board of Directors, the Company shall invite a PRF’s designee to attend and participate in all meetings of its Board of Directors in a nonvoting observer capacity and, in this respect, shall give such designee copies of all notices, minutes, consents, and other materials that it provides to its directors at the same time and in the same manner as provided to such directors; provided, however, that the Company reserves the right to exclude the PRF designee from access to any notices, minutes, consents and other materials or meetings or portion thereof if the Company believes upon advice of counsel that such exclusion is reasonably necessary to preserve the attorney-client privilege, to protect confidential information or for other similar reasons. The Company shall reimburse the PRF designee for all reasonable out-of-pocket travel and other expenses as are reimbursed to other directors on the Board, all in accordance with the Company’s policies for reimbursement of directors.

4.6. Schedule 13D and 13G. PRF agrees to provide the Company with a copy of any Schedule 13D or 13G that PRF intends to file with the SEC in connection with its purchase of Shares and the Warrant in advance of such filing and such 13D or 13G shall be true and correct when filed with the SEC.

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4.7. Use of Proceeds. The Company shall use the proceeds from the sale of the Shares and the Warrant to fund the purchase price of and related transaction expenses in connection with the transactions contemplated by the Antara Purchase Agreement. The Company shall not use any such proceeds for any other purpose.

ARTICLE V

TRANSFER OF RESTRICTED SECURITIES

5.1. General Provisions. Restricted Securities are transferable only pursuant to (a) public offerings registered and declared effective pursuant to a registration statement under the Securities Act, (b) Rule 144 or Rule 144A of the SEC (or any similar rule or rules then in force) if such rule is available and (c) any other legally available means of transfer.

5.2. Rule 144A. Upon the request of PRF, the Company shall promptly supply to PRF all information regarding the Company required to be delivered in connection with a transfer pursuant to Rule 144A of the SEC.

5.3. Legend. Each certificate or instrument representing Restricted Securities shall be imprinted with a legend in substantially the following form:

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE CONDITIONS SPECIFIED IN THE COMMON STOCK AND WARRANT PURCHASE AGREEMENT, DATED AS OF JULY 21, 2006, AND MODIFIED FROM TIME TO TIME, BETWEEN OSCIENT PHARMACEUTICALS CORPORATION (THE “COMPANY”) AND PAUL ROYALTY FUND HOLDINGS II, AND THE COMPANY RESERVES THE RIGHT TO REFUSE THE TRANSFER OF SUCH SECURITIES UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED WITH RESPECT TO SUCH TRANSFER. A COPY OF SUCH CONDITIONS SHALL BE FURNISHED BY THE COMPANY TO THE HOLDER HEREOF UPON WRITTEN REQUEST AND WITHOUT CHARGE.”

5.4. Legend Removal. If any Restricted Securities become eligible for sale pursuant to Rule 144(k), the Company shall, upon the request of the holder of such Restricted Securities, remove the legend set forth in Section 5.3 from the certificates for such Restricted Securities. Any holder requesting the removal of such legend shall deliver or cause to be delivered to the Company a certificate executed by the holder and an opinion of such holder’s counsel, such certificate and opinion to be in form and substance reasonably satisfactory to the Company.

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ARTICLE VI

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

As an inducement to PRF to enter into this Agreement and to purchase the Shares and the Warrant, the Company hereby represents and warrants to PRF and agrees as follows:

6.1. Organization. The Company is a corporation duly incorporated, validly existing and in good standing under the laws of The Commonwealth of Massachusetts, and has all corporate powers and all licenses, authorizations, consents and approvals required to carry on its business as now conducted and as proposed to be conducted in connection with the transactions contemplated by the Agreement and the Transaction Documents. The Company is duly qualified to do business as a foreign corporation and is in good standing in every jurisdiction in which the failure to do so would have a Material Adverse Effect.

6.2. Corporate Authorization. The Company has all necessary power and authority to enter into, execute and deliver the Agreement and the Transaction Documents and to perform all of the obligations to be performed by it hereunder and thereunder and to consummate the transactions contemplated hereunder and thereunder. The Agreement and the Transaction Documents have been duly authorized, executed and delivered by the Company and the Agreement and each Transaction Document constitutes the valid and binding obligation of the Company, enforceable against it in accordance with their respective terms, subject, as to enforcement of remedies, to bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’ rights generally or general equitable principles and except to the extent that rights to indemnification contained in this Agreement may be limited by federal or state securities laws or public policy relating thereto.

6.3. Authorized Capital Stock.

(a) The authorized capital stock of the Company consists of (i) 174,375,000 shares of Common Stock, of which 96,878,379 shares were issued and outstanding as of July 19, 2006, and of which 7,769,073 have been reserved for issuance upon exercise of granted stock options; and (ii) 625,000 shares of Series B restricted common stock, $0.10 par value per share, of which no shares are issued and outstanding.

(b) The Shares, when issued, sold and delivered in accordance with the terms of this Agreement and the Restated Articles of Organization, will be duly and validly issued, fully paid, non-assessable and free and clear of all Liens, except any Liens created by or through PRF.

(c) The Common Stock issuable upon exercise of the Warrant will, when issued, be duly and validly issued, fully paid, non assessable and free and clear of all Liens, except any Liens created by or through PRF.

6.4. Conflict.

(a) Neither the execution and delivery of the Agreement or any of the Transaction Documents nor the performance or consummation of the transactions contemplated

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hereby and thereby will in any material respect: (i) contravene, conflict with, result in a breach or violation of, constitute a default under, or accelerate the performance provided by any provisions of: (A) to the Company’s knowledge, any law, rule, ordinance or regulation of any Governmental Authority, or any judgment, order, writ, decree, permit or license of any Governmental Authority, to which the Company or any of its Subsidiaries or any of their respective assets or properties may be subject or bound; or (B) any contract, agreement, commitment or instrument to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries or any of their respective assets or properties is bound; (ii) contravene, conflict with, result in a breach or violation of, constitute a default under, or accelerate the performance provided by, any provisions of the certificate of incorporation or by-laws (or other organizational or constitutional documents) of the Company or any of its Subsidiaries; or (iii) result in the creation or imposition of any Lien on the assets or properties of the Company or any of its Subsidiaries.

6.5. SEC Documents; Financial Statements. Since January 1, 2005, the Company has filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the Exchange Act (all of the foregoing filed prior to the date hereof and all exhibits included therein and financial statements and schedules thereto and documents incorporated by reference therein being hereinafter referred to as the “SEC Documents”). As of their respective dates (or in the case of any amended SEC Document, as of the date of amendment), each SEC Document complied in all material respects with the requirements of the Exchange Act and the rules and regulations of the SEC promulgated thereunder applicable to such SEC Document, and none of the SEC Documents, at the time they were filed with the SEC (or in the case of any amended SEC Document, as of the date of amendment), contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. As of their respective dates, the consolidated financial statements of the Company included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto. Such consolidated financial statements have been prepared in accordance with generally accepted accounting principles, consistently applied, during the periods involved (except (i) as may be otherwise indicated in such consolidated financial statements or the notes thereto, or (ii) in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or summary statements) and fairly present in all material respects the consolidated financial position of the Company as of the dates thereof and the consolidated results of its operations and consolidated cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). As of the date hereof, the Company is not aware of any unresolved comments issued by the SEC with respect to the SEC Documents.

6.6. Incorporation of Representations and Warranties. The representations and warranties of the Company contained in Sections 3.06 through 3.17 of the Revenue Interests Assignment Agreement are hereby incorporated by reference as if such sections were set forth in full herein, mutatis mutandis.

6.7. Absence of Certain Changes. Since the most recent filing by the Company with the SEC, except as set forth in any SEC Document, there has been no event or

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change that, individually or in the aggregate, whether or not arising in the ordinary course of business, would have a Material Adverse Effect.

6.8. No General Solicitation. Neither the Company, nor any of its Affiliates, nor any Person acting on its or their behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D under the Securities Act) in connection with the offer or sale of the Shares and the Warrant.

6.9. No Integrated Offering. Neither the Company, nor any of its Affiliates, nor any Person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would cause this offering of the Shares and the Warrant to be integrated with prior offerings by the Company in violation of the Securities Act.

6.10. Absence of Further Requirements. Other than filings with SEC or otherwise with respect to federal or state securities law, to the Company’s knowledge no filing with, or authorization, approval, consent, license, order, registration, qualification or decree of, any governmental entity, other than those that have been made or obtained, is necessary or required for the performance by the Company of its obligations under the Transaction Documents or the consummation by the Company of the transactions contemplated by the Transaction Documents.

ARTICLE VII

REPRESENTATIONS AND WARRANTIES OF PRF

As an inducement to the Company to enter into this Agreement and to issue and sell the Shares and the Warrant, PRF hereby represents and warrants to the Company and agrees as follows:

7.1. Organization. PRF is a general partnership duly formed and validly existing under the laws of the State of California and has all powers and all licenses, authorizations, consents and approvals required to carry on its business as now conducted and as proposed to be conducted in connection with the transactions contemplated by the Agreement and the Transaction Documents.

7.2. Authorization. PRF has all necessary power and authority to enter into, execute and deliver the Agreement and the Transaction Documents and to perform all of the obligations to be performed by it hereunder and thereunder and to consummate the transactions contemplated hereunder and thereunder. The Agreement and the Transaction Documents have been duly authorized, executed and delivered by PRF and each Agreement and Transaction Document constitutes the valid and binding obligation of PRF, enforceable against it in accordance with their respective terms, subject, as to enforcement of remedies, to bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’ rights generally or general equitable principles.

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7.3. Investment Representations.

(a) The Shares and the Warrant are being acquired for PRF’s own account and without a view to the resale or distribution of the Shares or the Warrant or any interest therein other than in a transaction exempt from registration under the Securities Act.

(b) PRF is an “accredited investor” as such term is defined in Rule 501(a) of Regulation D under the Securities Act.

(c) PRF understands that the Restricted Securities being sold hereby have not been registered under the Securities Act, or applicable state securities laws, and are being issued in reliance on exemptions for private offerings contained in Section 4(2) of the Securities Act and in reliance on exemptions from the registration requirements of certain state securities laws. Because the Restricted Securities have not been registered under the Securities Act or applicable state securities laws, the Restricted Securities may not be re-offered or resold except through a valid and effective registration statement or pursuant to a valid exemption from the registration requirements under the Securities Act and applicable state securities laws.

(d) PRF has sufficient knowledge and experience in financial and business matters so as to be capable of evaluating the merits and risks of its investment in the Shares and the Warrant and is capable of bearing the economic risks of such investment, including a complete loss of its investment in the Shares and the Warrant. PRF understands that its investment in the Shares and the Warrant involves a high degree of risk.

7.4. Brokers. PRF has not taken any action that would entitle any Person to any commission or broker’s fee in connection with the transactions contemplated by the Agreement and the Transaction Documents.

7.5. Absence of Further Requirements. Other than filings with the SEC or otherwise with respect to federal or state securities law, no filing with, or authorization, approval, consent, license, order, registration, qualification or decree of, any governmental entity, other than those that have been made or obtained, is necessary or required for the performance by PRF its obligations under the Transaction Documents or the consummation by PRF of the transactions contemplated by the Transaction Documents.

ARTICLE VIII

MISCELLANEOUS

8.1. Survival of Representations and Warranties.

(a) All representations and warranties made herein and in any other Transaction Document, any certificates or in any other writing delivered pursuant hereto or in connection herewith shall survive the execution and delivery of this Agreement and the Closing for a period of three (3) years.

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(b) Any investigation or other examination that may have been made or may be made at any time by or on behalf of the party to whom representations and warranties are made shall not limit, diminish or in any way affect the representations and warranties in the Transaction Documents, and the parties may rely on the representations and warranties in the Transaction Documents irrespective of any information obtained by them by any investigation, examination or otherwise. All representations and warranties contained herein, incorporated by reference herein or made in writing by any Party in connection herewith shall survive until the first anniversary of the date of this Agreement.

8.2. Specific Performance. Each of the parties hereto acknowledges that the other party will have no adequate remedy at law if it fails to perform any of its obligations under the Agreement or any of the Transaction Documents. In such event, each of the parties agrees that the other party shall have the right, in addition to any other rights it may have (whether at law or in equity), to specific performance of this Agreement.

8.3. Notices. All notices, consents, waivers and communications hereunder given by any party to the other shall be in writing (including facsimile transmission) and delivered personally, by telegraph, telecopy, telex or facsimile, by a recognized overnight courier, or by dispatching the same by certified or registered mail, return receipt requested, with postage prepaid, in each case addressed:

If to PRF to:

Paul Royalty Fund Holdings II

c/o Paul Capital Partners

140 East 45th Street, 44th Floor

New York, NY 10017

Attention: Gregory B. Brown, MD, Partner

Facsimile No.: (646) 264-1101

with a copy to:

McDermott Will & Emery LLP

227 West Monroe Street

Chicago, IL 60606-5096

Attention: Timothy R.M. Bryant

Facsimile No.: (312) 984-7700

If to the Company or any of its Subsidiaries to:

Oscient Pharmaceuticals Corporation

1000 Winter Street, Suite 2200

Waltham, MA 02451

Attention: Legal Department

Facsimile No.: (781) 398-2530

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with a copy to:

Ropes & Gray LLP

One International Place

Boston, MA 02110

Attention: Patrick O’Brien, Esq.

Facsimile No.: (617) 951-7050

or to such other address or addresses as PRF or the Company or its Subsidiaries may from time to time designate by notice as provided herein, except that notices of changes of address shall be effective only upon receipt. All such notices, consents, waivers and communications shall: (a) when posted by certified or registered mail, postage prepaid, return receipt requested, be effective three (3) Business Days after dispatch, unless such communication is sent trans-Atlantic, in which case they shall be deemed effective three (3) Business Days after dispatch, (b) when telegraphed, telecopied, telexed or facsimiled, be effective upon receipt by the transmitting party of confirmation of complete transmission, or (c) when delivered by a recognized overnight courier or in person, be effective upon receipt when hand delivered.

8.4. Successors and Assigns. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. The Company shall not be entitled to assign any of its obligations and rights under the Agreement or the Transaction Documents without the prior written consent of PRF. PRF shall not be entitled to assign without the consent of the Company any of its obligations and rights under the Agreement without the prior written consent of the Company.

8.5. Indemnification.

(a) The Company hereby indemnifies and holds PRF and its Affiliates and any of their respective partners, directors, managers, members, officers, employees and agents (each a “Investor Indemnified Party”) harmless from and against any and all Losses (including all Losses in connection with any product liability claims or claims of infringement or misappropriation of any intellectual property rights of any Third Parties) incurred or suffered by any Investor Indemnified Party arising out of any breach of any representation, warranty or certification made by the Company in the Agreement or any of the Transaction Documents or certificates given by the Company in writing pursuant hereto or thereto or any breach of or default under any covenant or agreement by the Company pursuant to the Agreement or any Transaction Document.

(b) PRF hereby indemnifies and holds the Company, its Affiliates and any of their respective partners, directors, managers, officers, employees and agents (each an “Oscient Indemnified Party”) harmless from and against any and all Losses incurred or suffered by an Oscient Indemnified Party arising out of any breach of any representation, warranty or certification made by PRF in the Agreement or any of the Transaction Documents or certificates given by PRF in writing pursuant hereto or thereto or any breach of or default under any covenant or agreement by PRF pursuant to the Agreement or any Transaction Document.

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(c) If any claim, demand, action or proceeding (including any investigation by any Governmental Authority) shall be brought or alleged against an indemnified party in respect of which indemnity is to be sought against an indemnifying party pursuant to the preceding paragraphs, the indemnified party shall, promptly after receipt of notice of the commencement of any such claim, demand, action or proceeding, notify the indemnifying party in writing of the commencement of such claim, demand, action or proceeding, enclosing a copy of all papers served, if any; provided, that the omission to so notify such indemnifying party will not relieve the indemnifying party from any liability that it may have to any indemnified party under the foregoing provisions of this Section 8.5 unless, and only to the extent that, such omission results in the forfeiture of, or has a Material Adverse Effect on the exercise or prosecution of, substantive rights or defenses by the indemnifying party. In case any such action is brought against an indemnified party and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party under this Section 8.5 for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation. In any such proceeding, an indemnified party shall have the right to retain its own counsel, but the reasonable fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel, (ii) the indemnifying party has assumed the defense of such proceeding and has failed within a reasonable time to retain counsel reasonably satisfactory to such indemnified party or (iii) the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party and representation of both parties by the same counsel would be inappropriate due to actual or potential conflicts of interests between them based on the advice of such counsel. It is agreed that the indemnifying party shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees and expenses of more than one separate law firm (in addition to local counsel where necessary) for all such indemnified parties. The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such proceeding.

(d) No claim may be made for indemnification pursuant to this Section 8 unless written notice of such claim, in reasonable detail, is given to the Company or to PRF, as the case may be, (i) with respect to any breach of any representation, warranty or certification made by the Company in the Agreement or any of the Transaction Documents, within the three-year period following the Closing Date or (ii) with respect to all other matters, including any default under any covenant or agreement by the Company pursuant to the Agreement or any Transaction Document, at any time following the Closing Date.

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8.6. Entire Agreement. This Agreement, together with the Exhibits hereto (which are incorporated herein by reference), and the other Transaction Documents constitute the entire agreement between the parties with respect to the subject matter hereof and supersede all prior agreements (including the Term Sheet for Purchase of Revenue Interest, Debt and Equity from Oscient Pharmaceuticals Corporation dated June 29, 2006 between Paul Capital Advisors, LLC and the Company), understandings and negotiations, both written and oral, between the parties with respect to the subject matter of this Agreement; provided, however, the terms of that certain Confidential Disclosure Agreement by and between the Company and PRF dated as of June 8, 2006 shall continue in effect. No representation, inducement, promise, understanding, condition or warranty not set forth herein (or in the Exhibits or other Transaction Documents) has been made or relied upon by either party hereto. None of this Agreement, nor any provision hereof, is intended to confer upon any Person other than the parties hereto any rights or remedies hereunder.

8.7. Amendments; No Waivers.

(a) This Agreement or any term or provision hereof may not be amended, changed or modified except with the written consent of the parties hereto. No waiver of any right hereunder shall be effective unless such waiver is signed in writing by the party against whom such waiver is sought to be enforced.

(b) No failure or delay by either party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law.

8.8. Interpretation. When a reference is made in this Agreement to Articles, Sections, Schedules or Exhibits, such reference shall be to an Article, Section, Schedule or Exhibit to this Agreement unless otherwise indicated. The words “include”, “includes” and “including” when used herein shall be deemed in each case to be followed by the words “without limitation”. Neither party hereto shall be or be deemed to be the drafter of this Agreement for the purposes of construing this Agreement against one party or the other.

8.9. Headings and Captions. The headings and captions in this Agreement are for convenience and reference purposes only and shall not be considered a part of or affect the construction or interpretation of any provision of this Agreement.

8.10. Counterparts; Effectiveness. This Agreement may be executed in two or more counterparts, each of which shall be an original, but all of which together shall constitute one and the same instrument. This Agreement shall become effective when each party hereto shall have received a counterpart hereof signed by the other parties hereto. Any counterpart may be executed by facsimile or pdf signature and such facsimile or pdf signature shall be deemed an original.

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8.11. Severability. If any provision of this Agreement is held to be invalid or unenforceable, the remaining provisions shall nevertheless be given full force and effect.

8.12. Governing Law; Jurisdiction.

(a) This Agreement shall be governed by, and construed, interpreted and enforced in accordance with, the laws of the State of New York, without giving effect to the principles of conflicts of law thereof.

(b) Any legal action or proceeding with respect to this Agreement or any other Transaction Document may be brought in any state or federal court of competent jurisdiction in the state, county and city of New York. By execution and delivery of this Agreement, each party hereto hereby irrevocably consents to and accepts, for itself and in respect of its property, generally and unconditionally the non-exclusive jurisdiction of such courts. Each party hereto hereby further irrevocably waives any objection, including any objection to the laying of venue or based on the grounds of forum non conveniens, which it may now or hereafter have to the bringing of any action or proceeding in such jurisdiction in respect of any Transaction Document.

(c) Each party hereto hereby irrevocably consents to the service of process out of any of the courts referred to in subsection (b) above of this Section 8.12 in any such suit, action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to it at its address set forth in this Agreement. Each party hereto hereby irrevocably waives any objection to such service of process and further irrevocably waives and agrees not to plead or claim in any suit, action or proceeding commenced hereunder or under any other Transaction Document that service of process was in any way invalid or ineffective. Nothing herein shall affect the right of a party to serve process on the other party in any other manner permitted by law.

8.13. Waiver of Jury Trial. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any action, proceeding, claim or counterclaim arising out of or relating to the Agreement or any Transaction Document or the transactions contemplated hereunder or under any Transaction Document. This waiver shall apply to any subsequent amendments, renewals, supplements or modifications to the Agreement or any Transaction Document.

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IN WITNESS WHEREOF, the Parties have caused this Common Stock and Warrant Purchase Agreement to be executed the day and year first above written by its duly authorized officer or agent.

OSCIENT PHARMACEUTICALS CORPORATION
By:	/s/ Steven M. Rauscher
Name:	Steven M. Rauscher
Title:	President and Chief Executive Officer
PAUL ROYALTY FUND HOLDINGS II
By:	Paul Royalty Fund II, LP, its Managing Partner
By:	Paul Capital Royalty Management, LLC, its General Partner
By:	Paul Capital Advisors, LLC, its Manager
By:	/s/ Gregory B. Brown
Name:	Gregory B. Brown, MD
Title:	Member

EX-10.5

Exhibit 10.5

Gary Patou, M.D.

26353 Esperanza Drive

Los Altos, CA 94022

Dear Gary,

As we have discussed, with respect to the Letter Agreement signed by you and the Company dated January 11, 2004 (the “Letter Agreement”), we both agree that the Letter Agreement will continue to govern any consulting services you agree to provide to the Company and that effective July 1, 2006 Section 2(iii) of the Letter Agreement signed is amended to reflect (i) an increase in the hourly consulting rate from $350 to $450 and (ii) $4,000 daily maximum compensation.

Please confirm your agreement with the change by countersigning as provided below.

We look forward to your continued guidance and leadership on the Advisory Committee project team.

Sincerely,

/s/ Joseph Pane

Joe Pane

Vice President

Human Resources

AGREED AND ACKNOWLEDGED:

/s/ Gary Patou

Gary Patou, M.D.

EX-31.1

Exhibit 31.1

OSCIENT PHARMACEUTICALS CORPORATION

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

I, Steven M. Rauscher, President and Chief Executive Officer of Oscient Pharmaceuticals Corporation, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Oscient Pharmaceuticals Corporation;

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(s) 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 conclusions 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(s) 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 the 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.

By:	/s/    STEVEN M. RAUSCHER
	Steven M. Rauscher President and Chief Executive Officer
	Dated: November 9, 2006

EX-31.2

Exhibit 31.2

OSCIENT PHARMACEUTICALS CORPORATION

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

I, Philippe M. Maitre, Senior Vice President and Chief Financial Officer of Oscient Pharmaceuticals Corporation, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Oscient Pharmaceuticals Corporation;

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(s) 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 conclusions 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(s) 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 the 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.

By:	/s/    PHILIPPE M. MAITRE
	Philippe M. Maitre Senior Vice President and Chief Financial Officer
	Dated: November 9, 2006

EX-32.1

Exhibit 32.1

OSCIENT PHARMACEUTICALS CORPORATION

CERTIFICATION 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 report of Oscient Pharmaceuticals Corporation (the “Company”) on Form 10-Q for the quarter ended September 30, 2006 as filed with the Securities and Exchange Commission (the “Report”), I, Steven M. Rauscher, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

By:	/s/    STEVEN M. RAUSCHER
	Steven M. Rauscher President and Chief Executive Officer
	Dated: November 9, 2006

EX-32.2

Exhibit 32.2

OSCIENT PHARMACEUTICALS CORPORATION

CERTIFICATION 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 report of Oscient Pharmaceuticals Corporation (the “Company”) on Form 10-Q for the quarter ended September 30, 2006 as filed with the Securities and Exchange Commission (the “Report”), I, Philippe M. Maitre, Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

By:	/s/    PHILIPPE M. MAITRE
	Philippe M. Maitre Senior Vice President and Chief Financial Officer
	Dated: November 9, 2006