10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended June 30, 2007


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

For the transition period from to

Commission File Number 0-15313

SAVIENT PHARMACEUTICALS, INC.

(Exact Name of Registrant as Specified in Its Charter)


Delaware		13-3033811
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification No.)

One Tower Center, East Brunswick, New Jersey 08816
(Address of Principal Executive Offices)

(732) 418-9300
(Registrant’s Telephone Number, Including Area Code)

(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, 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 o Accelerated filer þ Non-accelerated filer o

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

The number of shares outstanding of the registrant’s Common Stock, par value $.01 per share, as of August 6, 2007 was 53,374,024.

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SAVIENT PHARMACEUTICALS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share data)


	June 30,			December 31,
	2007			2006
ASSETS
Current Assets:
Cash and cash equivalents	$	161,130		$	177,293
Short-term investments		2,561			2,103
Accounts receivable, net		3,308			3,517
Notes receivable		630			644
Inventories, net		3,262			4,203
Recoverable income taxes (Note 8)		7,462			—
Prepaid expenses and other current assets		4,261			7,098

Total current assets		182,614			194,858

Property and equipment, net		1,531			1,139
Other assets (including restricted cash of $1,280)		1,280			1,896

Total assets	$	185,425		$	197,893


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	2,695		$	4,552
Deferred revenue		1,309			416
Other current liabilities		12,781			15,196

Total current liabilities		16,785			20,164

Other liabilities (Note 7)		5,160			43
Commitments and contingencies (Note 9)
Stockholders’ Equity:
Preferred stock—$.01 par value, 4,000,000 shares authorized; no shares issued		—			—
Common stock—$.01 par value, 150,000,000 shares authorized; 53,327,000 shares issued and outstanding at June 30, 2007 and 52,309,000 shares issued and outstanding at December 31, 2006		533			523
Additional paid in capital		196,665			189,496
Accumulated deficit		(36,252	)		(14,316	)
Accumulated other comprehensive income		2,534			1,983

Total stockholders’ equity		163,480			177,686

Total liabilities and stockholders’ equity	$	185,425		$	197,893

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

SAVIENT PHARMACEUTICALS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share data)


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2007			2006			2007			2006
Revenues:
Product sales, net	$	3,098		$	13,760		$	9,479		$	23,263
Other revenues		31			100			76			100

		3,129			13,860			9,555			23,363

Cost and expenses:
Costs of goods sold (Note 2)		645			1,361			289			2,219
Research and development (Note 4)		11,194			4,166			24,018			7,414
Selling, general and administrative		7,108			8,539			14,529			19,279
Commissions and royalties		—			4			—			5

		18,947			14,070			38,836			28,917

Operating (loss) from continuing operations		(15,818	)		(210	)		(29,281	)		(5,554	)
Investment income		2,300			916			4,670			1,806
Other income (expense), net		(165	)		465			(331	)		8,297

Income (loss) from continuing operations before income taxes		(13,683	)		1,171			(24,942	)		4,549
Income tax expense (benefit)		(4,050	)		(35	)		(7,467	)		4

Income (loss) from continuing operations		(9,633	)		1,206			(17,475	)		4,545
Income from discontinued operations, net of income taxes (Note 10)		—			2,036			—			2,675

Net income (loss)	$	(9,633	)	$	3,242		$	(17,475	)	$	7,220


Earnings (loss) per common share, from continuing operations:
Basic	$	(0.18	)	$	0.02		$	(0.33	)	$	0.07

Diluted	$	(0.18	)	$	0.02		$	(0.33	)	$	0.07


Earnings per common share, from discontinued operations:
Basic	$	—		$	0.03		$	—		$	0.04

Diluted	$	—		$	0.03		$	—		$	0.04


Earnings (loss) per common share:
Basic	$	(0.18	)	$	0.05		$	(0.33	)	$	0.11

Diluted	$	(0.18	)	$	0.05		$	(0.33	)	$	0.11


Weighted average number of common and common equivalent shares:
Basic		52,419			61,358			52,209			61,286
Diluted		52,419			62,456			52,209			62,216

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

SAVIENT PHARMACEUTICALS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(In thousands)


						Additional						Other		Total
	Common Stock					Paid In			Accumulated			Comprehensive		Stockholders’
	Shares			Par Value		Capital			Deficit			Income		Equity
Balance December 31, 2006		52,309		$	523	$	189,496		$	(14,316	)	$	1,983	$	177,686

Comprehensive loss:
Net loss		—			—		—			(17,475	)		—		(17,475	)
Unrealized gain on marketable securities, net		—			—		—			—			458		458
Currency translation adjustment		—			—		—			—			93		93

Total comprehensive loss															(16,924	)

Cumulative impact of change in accounting related to the adoption of FIN 48 (Note 8)		—			—		—			(4,461	)		—		(4,461	)
Issuance of restricted stock		588			5		(5	)		—			—		—
Amortization of deferred compensation		—			—		1,415			—			—		1,415
Forfeiture of restricted stock grants		(8	)		—		—			—			—		—
Issuance of common stock		127			2		413			—			—		415
ESPP compensation expense		—			—		76			—			—		76
Stock option compensation expense		—			—		1,555			—			—		1,555
Tax benefit of share-based compensation		—			—		1,962			—			—		1,962
Exercise of stock options		311			3		1,753			—			—		1,756

Balance, June 30, 2007 (Unaudited)		53,327		$	533	$	196,665		$	(36,252	)	$	2,534	$	163,480

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

SAVIENT PHARMACEUTICALS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)


	Six Months Ended
	June 30,
	2007			2006
Cash flows from operating activities:
Net income (loss)	$	(17,475	)	$	7,220
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		321			959
Amortization of intangible assets		—			2,025
Recoverable income taxes		(7,462	)		—
Deferred income taxes		—			(703	)
Gain on sale of Delatestryl		—			(5,884	)
Common stock issued as payment for services		51			67
Amortization of deferred compensation related to restricted stock (including performance shares)		1,415			167
Stock option and ESPP compensation		1,631			758
Changes in:
Accounts receivable, net		209			(232	)
Inventories, net		941			(110	)
Prepaid expenses and other current assets		2,837			(2,396	)
Accounts payable		288			950
Income taxes payable		(2,145	)		—
Other liabilities		(1,982	)		(2,011	)
Deferred revenues		893			1,973

Net cash provided by (used in) operating activities		(20,478	)		2,783


Cash flows from investing activities:
Proceeds from the collection of note receivable issued in connection with the sale of global biologics manufacturing business		—			6,700
Proceeds from sale of Delatestryl and collection of note receivable issued in connection with sale		644			5,531
Capital expenditures		(713	)		(1,673	)
Changes in other long-term assets		—			5

Net cash provided by (used in) investing activities		(69	)		10,563


Cash flows from financing activities:
Proceeds from issuance of common stock		2,121			418
Excess tax benefit from share-based payment arrangements		1,962			—
Changes in other long-term liabilities		208			—

Net cash provided by financing activities		4,291			418


Effect of exchange rate changes		93			417
Net increase (decrease) in cash and cash equivalents		(16,163	)		14,181
Cash and cash equivalents at beginning of period		177,293			75,181


Cash and cash equivalents at end of period	$	161,130		$	89,362


Supplementary information:
Other information:
Interest paid	$	49		$	—

Income taxes paid	$	62		$	2,251

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

SAVIENT PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 — Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the unaudited interim financial statements furnished herein include all adjustments necessary for a fair presentation of Savient Pharmaceuticals, Inc.’s (“Savient” or “the Company”) financial position at June 30, 2007 and the results of its operations and cash flows for the three and six months ended June 30, 2007 and 2006. Interim financial statements are prepared on a basis consistent with the Company’s annual financial statements. Results of operations for the three and six months ended June 30, 2007 are not necessarily indicative of the operating results that may be expected for the year ending December 31, 2007.

The consolidated balance sheet as of December 31, 2006 was derived from the audited financial statements at that date and does not include all of the information and notes required by accounting principles generally accepted in the United States of America for complete financial statements. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006.

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries Savient Pharma Holdings, Inc. and Myelos Corporation. Certain prior period amounts have been reclassified to conform to current period presentations. This reclassification includes discontinued operations related to the divestiture of the Company’s former U.K. subsidiary, Rosemont Pharmaceuticals, Ltd (“Rosemont”) (see Note 10).

Note 2 — Inventories

Inventories are stated at the lower of cost or market. If inventory costs exceed expected market value due to obsolescence or quantities in excess of expected demand, reserves are recorded for the difference between the cost and the market value. These reserves are determined based on estimates.

As a result of Oxandrin generic competition that began in December 2006, the Company analyzed the impact on inventory reserves considering the Oxandrin inventory currently on hand, inclusive of raw materials and finished goods, and the current demand forecasts. As a result, the Company recorded an additional inventory reserve of $2.6 million for the year ended December 31, 2006. The inventory obsolescence reserve was $8.4 million and $8.3 million as of June 30, 2007 and December 31, 2006, respectively.

The Company had future commitments for minimum purchase requirements of Oxandrin raw material inventory which, based on current demand forecasts, was not expected to be sold. The Company previously accrued for these costs and recorded a charge to cost of goods sold of $2.0 million for the year ended December 31, 2006. During the first quarter 2007, the Company entered into an agreement with its supplier which reduced the future purchase commitment obligation in lieu of a final contract amendment payment of $0.9 million, a portion of which is related to inventory. The final contract amendment amount of $0.9 million was paid in July 2007. As a result, the Company reduced its purchase commitment accrual and corresponding cost of goods sold by $1.1 million during the first quarter 2007.

SAVIENT PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Inventories at June 30, 2007 and December 31, 2006 are summarized below:


	June 30, 2007			December 31, 2006
	(In thousands)
Raw material	$	3,364		$	4,501
Work in process		—			186
Finished goods		8,267			7,821
Inventory reserves		(8,369	)		(8,305	)

Total	$	3,262		$	4,203

Note 3 — Revenue Recognition

Product sales

Product sales are generally recognized when title to the product has transferred to the Company’s customers in accordance with the terms of the sale. During 2006, the Company began shipping oxandrolone, the generic version of branded Oxandrin to its distributor. The Company accounts for oxandrolone shipments on a consignment basis until product is sold into the wholesale market by its distributor. The Company defers the recognition of revenue related to oxandrolone shipments until the Company’s distributor confirms to the Company that the product has been sold into the wholesale market and the Company considers that all other revenue recognition criteria has been met. The Company recognizes revenue in accordance with the Securities and Exchange Commission’s (“SEC”) Staff Accounting Bulletin (“SAB”) No. 101, Revenue Recognition in Financial Statements as amended by SAB No. 104 (together, “SAB 104”), and Statement of Financial Accounting Standards (“SFAS”) No. 48 Revenue Recognition When Right of Return Exists. SAB 104 states that revenue should not be recognized until it is realized or realizable and earned. Revenue is realized or realizable and earned when all of the following criteria are met:

	(1)		persuasive evidence of an arrangement exists,

	(2)		delivery has occurred or services have been rendered,

	(3)		the seller’s price to the buyer is fixed and determinable, and

	(4)		collectibility is reasonably assured.

SFAS No. 48 states that revenue from sales transactions where the buyer has the right to return the product shall be recognized at the time of sale only if;

	(1)		the seller’s price to the buyer is substantially fixed or determinable at the date of sale,

	(2)		the buyer has paid the seller, or the buyer is obligated to pay the seller and the obligation is not contingent on resale of the product,

	(3)		the buyer’s obligation to the seller would not be changed in the event of theft or physical destruction or damage of the product,

	(4)		the buyer acquiring the product for resale has economic substance apart from that provided by the seller,

	(5)		the seller does not have significant obligations for future performance to directly bring about resale of the product by the buyer, and

	(6)		the amount of future returns can be reasonably estimated.

The Company’s net product revenues represent total product revenues less allowances for returns, Medicaid rebates, other government rebates, other rebates, discounts, and distribution fees.

SAVIENT PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Allowance for returns — In general, the Company provides credit for unopened full bottle product returns that are returned six months prior to and up to twelve months after the product expiration date. The Company’s product sales in the United States are related to Oxandrin and its authorized generic, oxandrolone. Upon sale, the Company estimates an allowance for future product returns. The Company provides additional reserves for contemporaneous events that were not known and knowable at the time of shipment. In order to reasonably estimate future returns, the Company analyzes both quantitative and qualitative information including, but not limited to, actual return rates by lot productions, the level of product manufactured by the Company, the level of product in the distribution channel, expected shelf life of the product, current and projected product demand, the introduction of new or generic products that may erode current demand, and general economic and industry wide indicators. The Company also utilizes the guidance provided in SFAS No. 48 and SAB 104 in establishing its return estimates. SFAS No. 48 discusses potential factors that may impair the ability to make a reasonable estimate including:

	(1)		the susceptibility of the product to significant external factors, such as technological obsolescence or changes in demand,

	(2)		relatively long periods in which a particular product may be returned,

	(3)		absence of historical experience with similar types of sales of similar products, or inability to apply such experience because of changing circumstances, for example, changes in the selling enterprise’s marketing policies or relationships with its customers, and

	(4)		absence of a large volume of relatively homogeneous transactions.

SAB 104 provides additional factors that may impair the ability to make a reasonable estimate including:

	(1)		significant increases in or excess levels of inventory in a distribution channel,

	(2)		lack of “visibility” into or the inability to determine or observe the levels of inventory in a distribution channel and the current level of sales to end users,

	(3)		expected introductions of new products that may result in the technological obsolescence of and larger than expected returns of current products,

	(4)		the significance of a particular distributor to the registrant’s (or a reporting segment’s) business, sales and marketing,

	(5)		the newness of a product,

	(6)		the introduction of competitors’ products with superior technology or greater expected market acceptance, and

	(7)		other factors that affect market demand and changing trends in that demand for the registrant’s products.

As a result of Oxandrin generic competition that began in December 2006, the Company analyzed the impact on product returns considering the product currently at wholesalers and retailers, and current demand forecasts. As a result, the Company recorded an additional product returns reserve of $0.4 million for the year ended December 31, 2006. The demand forecasts were revised during the first and second quarters of 2007 due to slower than expected sales erosion of Oxandrin, and as a result, the Company lowered the product returns reserve during the three and six months ended June 30, 2007 by $0.2 million and $0.4 million, respectively. The allowance for product returns at June 30, 2007 and December 31, 2006 was $1.8 million and $2.5 million, respectively. This allowance is included in Other Current Liabilities on the Company’s balance sheet.

Allowances for Medicaid, other government rebates and other rebates — The Company’s contracts with Medicaid, other government agencies such as the Federal Supply System and other non-governmental entities obligate it to provide those entities with its most favorable pricing. This ensures that the Company’s products remain eligible for purchase or reimbursement under these programs. Based upon its contracts and the most recent experience with respect to sales through each of these channels, the Company provides an allowance for rebates. The Company monitors the sales trends and adjusts the rebate percentages on a regular basis to reflect the most recent rebate experience. The allowance for rebates as of June 30, 2007 and December 31, 2006 was $0.7 million and $1.3 million, respectively. This allowance is included in Other Current Liabilities on the Company’s balance sheet.

SAVIENT PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Commercial discounts — The Company sells directly to drug wholesalers. Terms of these sales vary, but generally provide for invoice discounts for prompt payment. These discounts are recorded by the Company at the time of sale. Gross product revenue is also reduced for promotions and pricing incentives.

Distribution fees — The Company has a distribution arrangement with a third party which includes payment terms equal to a flat monthly fee plus a per transaction fee for specified services. The Company also records distribution fees associated with wholesaler distribution services from one of its largest customers.

Other revenues — Other revenues primarily represent royalty income which is recognized as earned upon receipt of confirmation from contracting third parties.

Note 4 — Research and Development

All research and development costs are expensed as incurred. The Company entered into a manufacturing agreement in March 2007 with its former subsidiary, BTG-Israel, pursuant to which the Company incurred a non-refundable fee of $3.0 million for the reservation of manufacturing capacity associated with potential future orders of Puricase. The Company also signed a letter of intent in June 2007 with a second contract manufacturer in which it paid a $1.0 million non-refundable fee to reserve additional manufacturing capacity associated with potential future orders of Puricase. These capacity reservation fees were expensed as incurred as research and development expenses and may be applied to future potential orders of Puricase.

Note 5 — Earnings per Share of Common Stock

The Company has applied SFAS No. 128, Earnings per Share, in its calculation and presentation of earnings per share — “basic” and “diluted”. Basic earnings per share are computed by dividing income available to common stockholders (the numerator) by the weighted average number of common shares (the denominator) for the period. The computation of diluted earnings per share is similar to basic earnings per share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potentially dilutive common shares had been issued as calculated using the treasury stock method.

The numerator in calculating both basic and diluted earnings (loss) per common share from continuing operations for each period presented is the reported income (loss) from continuing operations. The denominator is based on the following weighted average number of common shares:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	(In thousands)				(In thousands)
	2007		2006		2007		2006
Basic		52,419		61,358		52,209		61,286
Incremental common stock equivalents		—		1,098		—		930

Diluted		52,419		62,456		52,209		62,216

The difference between basic and diluted weighted average common shares resulted from the assumption that dilutive stock options outstanding were exercised and dilutive restricted stock had vested. For the three and six months ended June 31, 2007, all outstanding options as of such date were excluded from the computation of diluted earnings per share as their effect would have been anti-dilutive since the Company reported a net loss for that period. For the three and six months ended June 30, 2006, options to purchase 584,325 and 704,469 shares respectively, of the Company’s common stock, were not included in the diluted earnings per share calculation since the exercise price of these options exceeded the average value of the Company’s stock for the period.

SAVIENT PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 6 — Stock-Based Compensation

Stock Options

Effective January 1, 2006, the Company adopted SFAS No. 123 (revised 2004), Share-Based Payment, (“SFAS No. 123(R)”) using the modified-prospective-transition method. Under this transition method, compensation cost in 2006 included costs for options granted prior to, but not amortized as of, December 31, 2005. The modified-prospective-transition method did not result in the restatement of prior periods.

The adoption of SFAS No. 123(R) resulted in a decrease in income from continuing operations and net income of approximately $0.9 million and $0.3 million for the three months ended June 30, 2007 and 2006, respectively, and $1.6 million and $0.5 million for the six months ended June 30, 2007 and 2006, respectively. As of June 30, 2007, there was $4.7 million of unrecognized compensation cost, adjusted for estimated forfeitures, related to unamortized stock option compensation which is expected to be recognized over a weighted average period of approximately 1.6 years. Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures. In addition, as future grants are made, additional compensation costs will be incurred.

Options are granted to certain employees and directors at prices equal to the closing market value of the stock on the dates the options are granted. The options granted have a term of 10 years from the grant date. Options granted to employees generally vest ratably over a four-year period and options granted to board members vest after a one-year period or in four equal three-month installments, over a one-year period. The fair value of each option is amortized into compensation expense on a straight-line basis between the grant date for the option and each vesting date. The Company has estimated the fair value of all stock option awards as of the date of the grant by applying the Black-Scholes pricing valuation model. The application of this valuation model involves assumptions that are highly subjective, judgmental and sensitive in the determination of compensation expense. The weighted average key assumptions used in determining the fair value of options granted during the three and six month periods ended June 30, 2007 and 2006, are as follows:


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2007			2006			2007			2006
Weighted-average volatility		60	%		62	%		61	%		67	%
Weighted-average risk-free interest rate		4.7	%		5.0	%		4.7	%		4.8	%
Weighted average expected life in years		5.4			5.7			6.0			6.1
Dividend yield		0.0	%		0.0	%		0.0	%		0.0	%
Weighted average fair market value	$	7.30		$	3.18		$	8.40		$	3.10

Historical information was the primary basis for the selection of the expected volatility and expected dividend yield. The expected lives of the options are based upon the simplified method as set forth by SAB No. 107 issued by the SEC which estimates expected life as the midpoint between vesting and the grant contractual life. The risk-free interest rate was selected based upon yields of U.S. Treasury issues with a term equal to the expected life of the option being valued.

SAVIENT PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Stock option activity during the six months ended June 30, 2007 is as follows:


						Weighted		Aggregate
				Weighted		Average		Intrinsic
				Average		Remaining		Value of
	Number of			Exercise		Contractual		In-the-Money
	Shares			Price		Term (in yrs)		Options
	(In thousands, except Weighted Average data)
Outstanding at December 31, 2006		3,314		$	6.29		7.29	$	17,136
Granted		374			13.77
Exercised		(311	)		5.61
Cancelled		(132	)		10.12

Outstanding at June 30, 2007		3,245		$	7.33		7.41	$	17,945

Exercisable at June 30, 2007		1,667		$	4.81		5.81	$	12,715

The aggregate intrinsic value in the previous table reflects the total pretax intrinsic value (the difference between the Company’s closing stock price on the last trading day of the period and the exercise price of the options, multiplied by the number of in-the-money stock options) that would have been received by the option holders had all option holders exercised their options on June 30, 2007. The intrinsic value of the Company’s stock options changes based on the closing price of the Company’s stock. The total intrinsic value of options exercised during the period was approximately $2.1 million. The intrinsic value is calculated as the difference between the market value as of June 30, 2007 and the exercise price of the shares. The closing price per share of the Company’s common stock on June 29, 2007, the last trading day of the quarter, was $12.42.

Restricted Stock and Performance-Based Restricted Stock

Starting in 2005, the Company issued restricted stock awards to certain of its employees. Restricted stock awards are recorded as deferred compensation and amortized to compensation expense, based on the closing market price of the Company’s stock on the date of issuance, on a straight-line basis over the life of the vesting period which has generally ranged from one to four years in duration (daily pro rata vesting is calculated for employees terminated involuntarily without cause). For the six months ended June 30, 2007, the Company issued 413,000 shares of restricted stock to its employees at a weighted average grant date fair value of $14.49 amounting to approximately $6.0 million. During the three months ended June 30, 2007 and 2006 approximately $0.7 million and $0.1 million, respectively, of deferred restricted stock compensation cost has been amortized to expense. During the six months ended June 30, 2007 and 2006 approximately $1.2 million and $0.2 million, respectively, of deferred restricted stock compensation has been amortized into expense. At June 30, 2007, approximately 761,000 shares remained unvested and there was approximately $8.7 million of unrecognized compensation cost related to restricted stock. A summary of the status of the Company’s non-vested restricted shares as of December 31, 2006, and changes during the six months ended June 30, 2007, is presented below:


	Number of			Weighted Average Grant
	Shares			Date Fair Value
	(in thousands)
Nonvested at December 31, 2006		488		$	6.65
Granted		413			14.49
Vested		(132	)		3.25
Forfeited		(8	)		6.59

Nonvested at June 30, 2007		761		$	11.50

SAVIENT PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The Company has granted performance based restricted stock to senior management personnel which could result in the vesting and issuance of common stock if performance objectives are achieved. Compensation cost related to performance shares is based upon the grant date fair value of the shares and management’s best estimate as to whether the performance shares are expected to vest. This amount is recognized ratably over the performance period. During the three and six months ended June 30, 2007 approximately $0.1 million and $0.2 million respectively of deferred performance share compensation cost has been amortized to expense. No performance share compensation cost was recorded for the three and six months ended June 30, 2006. At June 30, 2007 approximately 611,000 potential performance based restricted stock shares remain unvested. The shares encompass performance objectives set for senior management personnel through 2010 and could result in approximately $7.5 million of additional restricted stock based compensation expense if the performance objectives are met or expected to be attained. Compensation cost adjustments will be made based upon changes in estimates of whether the performance criteria will be satisfied. A summary of the status of the Company’s nonvested performance restricted shares as of December 31, 2006, and changes during the six months ended June 30, 2007, is presented below:


	Number of			Weighted Average Grant
	Shares			Date Fair Value
	(in thousands)
Nonvested at December 31, 2006		431		$	7.81
Granted		355			14.43
Vested		(175	)		4.67
Forfeited		—			—

Nonvested at June 30, 2007		611		$	12.56

Employee Stock Purchase Plan

In April 1998, the Company adopted its 1998 Employee Stock Purchase Plan (the “1998 ESPP”). The 1998 ESPP is qualified as an employee stock purchase plan under Section 423 of the Internal Revenue Code of 1986, as amended. Prior to the adoption of SFAS No. 123(R), and under the accounting guidance that preceded SFAS No. 123(R), the 1998 ESPP was considered to be non-compensatory. Under the 1998 ESPP, the Company will grant rights to purchase shares of common stock under the 1998 ESPP (“Rights”) at prices not less than 85% of the lesser of (i) the fair market value of the shares on the date of grant of such Rights or (ii) the fair market value of the shares on the date such Rights are exercised. Therefore, the 1998 ESPP is considered compensatory under SFAS No. 123(R) since, along with other factors, it includes a purchase discount of greater than 5%. During the three months ended June 30, 2007 and 2006, the Company recorded approximately $19,000 and $0.1 million, respectively, of compensation expense related to participation in the 1998 ESPP which resulted in a decrease in income from continuing operations and net income. During the six months ended June 30, 2007 and 2006, the Company recorded approximately $0.1 million and $0.2 million, respectively, of compensation expense related to participation in the 1998 FSPP which resulted in a decrease in income from continuing operations and net income.

SAVIENT PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 7 — Other Liabilities

The components of other liabilities for the periods ended June 30, 2007 and December 31, 2006 were as follows:


	June 30, 2007		December 31, 2006
	(In thousands)
Unrecognized tax benefit resulting from the implementation of FIN 48 (1)	$	4,909	$	—
Capital leases (2)		251		43

Total	$	5,160	$	43


(1)		See Note 8 to the Financial Statements for further discussion of unrecognized tax benefit resulting from the implementation of FIN 48.

(2)		The Company maintains capital leases for office equipment used at its corporate headquarters in East Brunswick, New Jersey. The leases range in terms from thirty-six to sixty months and have been entered into between 2002 and June 30, 2007.

Note 8 — Income Taxes

In June 2006, the Financial Accounting Standards Board, or FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes, or FIN 48. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109, Accounting for Income Taxes. This 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. FIN 48 also provides guidance on derecognition of tax benefits, classification on the balance sheet, interest and penalties, accounting in interim periods, disclosure, and transition. The Company adopted FIN 48 effective January 1, 2007. As a result of the implementation of FIN 48, the Company recorded a $4.5 million increase in the liability for unrecognized tax benefits which is included in Other Liabilities within the Company’s consolidated balance sheet. This increase in the liability resulted in a corresponding increase to the balance of accumulated deficit for the cumulative effect of this change. The total amount of federal, state, local and foreign unrecognized tax benefits was $4.9 million as of June 30, 2007, including accrued penalties and interest.

In accordance with FIN 48, the Company recognized accrued interest and penalties related to unrecognized tax benefits as a component of other expenses in its consolidated statements of operations, which is consistent with the recognition of these items in prior reporting periods. As of June 30, 2007 and March 31, 2007, the Company had recorded a liability of approximately $0.4 million and $0.2 million, respectively, for the payment of interest and penalties, respectively, which is included as a component of the liability for unrecognized tax benefits within Other Liabilities on its consolidated balance sheet.

The Company files income tax returns in the U.S. federal and various state jurisdictions. The Company is currently not under examination by the IRS; however, the tax years 2004 through 2006 remain open to examination.

State income tax returns are generally subject to examination for a period of 3-5 years after filing of the respective return. The Company’s state income tax returns are currently under examination by the State of New Jersey and State of New York.

The Company is also responsible for the results of an audit of its former subsidiary BTG-Israel by the Israeli taxing authority, which has advised the Company that it will audit the 2003 through 2005 tax years.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and their basis for income tax purposes and the tax effects of capital loss, net operating loss and tax credit carryforwards. Valuation allowances reduce deferred tax assets to the amounts that are more likely than not to be realized.

SAVIENT PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Based upon the uncertainty of the Company’s business, the likelihood that the Company will be fully able to realize its deferred income tax benefits against future income is uncertain. Accordingly, at June 30, 2007, the Company maintained an $11.7 million valuation allowance against its deferred income tax assets.

As of June 30, 2007, the Company has reclassified a $3.4 million deferred tax asset, which was on our balance sheet as of March 31, 2007, to recoverable income taxes. This reclassification is due to our anticipated ability to recover a portion of our 2006 tax liability by carrying back the operating loss generated in the first quarter of 2007. As of June 30, 2007, the recoverable income taxes balance increased by $4.1 million due to the increase in net operating losses generated in the second quarter of 2007. Accordingly at June 30, 2007, the Company maintains a balance of $7.5 million in recoverable income taxes.

The Company’s income tax benefit from continuing operations of $4.1 million and $7.5 million for the three and six months ended June 30, 2007, respectively, is primarily due to the anticipated carryback of the operating loss generated in this period, to recover taxes previously paid.

Note 9 — Commitments and Contingencies

Savient’s administrative offices are located in East Brunswick, New Jersey, where it leases approximately 53,000 square feet of office space. The lease has a base average annual rental expense of approximately $1.7 million and expires in March 2013. There are two five-year renewal options. In connection with this lease arrangement, the Company was required to provide a security deposit by way of an irrevocable letter of credit for $1.3 million, which is secured by a cash deposit of $1.3 million and is reflected in other assets (as restricted cash) on the balance sheet at June 30, 2007 and December 31, 2006. Effective as of March 1, 2006, the Company has subleased approximately 12,400 square feet at a base average annual rental of $0.3 million for an initial term of 5 years, terminable after 3 years at the option of the subtenant. The Company is also obligated to pay its share of operating maintenance and real estate taxes with respect to its leased property.

On December 20, 2002, a purported shareholder class action was filed against the Company and three of its former officers. The action was pending under the caption In re Bio-Technology General Corp. Securities Litigation, in the U.S. District Court for the District of New Jersey. Plaintiff alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and sought unspecified compensatory damages. The plaintiff purported to represent a class of shareholders who purchased shares of the Company between April 19, 1999 and August 2, 2002. The complaint asserted that certain of the Company’s financial statements were materially false and misleading because the Company restated its earnings and financial statements for the years ended 1999, 2000 and 2001, as described in the Company’s Current Report on Form 8-K dated, and its press release issued, on August 2, 2002. Five nearly identical actions were filed in January and February 2003, in each instance claiming unspecified compensatory damages. In September 2003, the actions were consolidated and co-lead plaintiffs and co-lead counsel were appointed in accordance with the Private Securities Litigation Reform Act. The parties subsequently entered into a stipulation which provided for the lead plaintiff to file an amended consolidated complaint. Plaintiffs filed such amended complaint and the Company filed a motion to dismiss the action. On August 10, 2005, citing the failure of the amended complaint to set forth particularized facts that give rise to a strong inference that the defendants acted with the required state of mind, the Court granted the Company’s motion to dismiss the action without prejudice and granted plaintiffs leave to file an amended complaint. On October 11, 2005, the plaintiffs filed a second amended complaint, again seeking unspecified compensatory damages, purporting to set forth particularized facts to support their allegations of violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by the Company and its former officers. On December 13, 2005, the Company filed a motion to dismiss the second amended complaint. On October 26, 2006, the U.S. District Court for the District of New Jersey dismissed, with prejudice, the second amended complaint. The plaintiffs have filed an appeal in the U.S. Court of Appeals for the Third Circuit, which is currently pending. The Company intends to contest the appeal vigorously and has referred these claims to its directors and officers’ insurance carrier, which has reserved its rights as to coverage with respect to this action.

On December 4, 2006 the Company filed a lawsuit in the U.S. District Court for the District of New Jersey (the “District Court”) against Sandoz Pharmaceuticals (“Sandoz”) and Upsher-Smith Laboratories, Inc. (“Upsher-

SAVIENT PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Smith”) claiming that the defendant’s generic oxandrolone products infringe on the Company’s patents related to various methods of using Oxandrin. The Company also filed a motion seeking a temporary restraining order and preliminary injunction to restrain Sandoz and Upsher-Smith from marketing and selling their generic formulations of Oxandrin. On December 12, 2006, the U.S. Court of Appeals for the Federal Circuit in Washington, D.C. (the “Federal Circuit”) issued an order temporarily enjoining all sales of generic oxandrolone tablets by Sandoz and Upsher-Smith until the Federal Circuit had the opportunity to review this matter. The order was issued by the Federal Circuit as a result of an appeal filed that same day by the Company of the order on December 8 of the District Court lifting its December 4 restraining order. On December 28, 2006, the Court of Appeals denied the Company’s motion. The litigation against Sandoz and Upsher-Smith is continuing in the District Court and has entered the discovery phase. Sandoz and Upsher-Smith have since filed counterclaims challenging the validity of the Company’s patents and have also asserted counterclaims for various anti-trust related issues. The Company intends to vigorously pursue its claims for the infringement of its patents with respect to the methods of using Oxandrin to the fullest extent allowable and to defend against the counterclaims filed by Sandoz and Upsher-Smith.

On December 5, 2006, the Company also filed a petition for reconsideration with the FDA regarding the rejection of its Citizen Petitions on the basis that FDA failed to adequately consider the significant safety and legal issues raised by permitting approval of generic oxandrolone drug products without the inclusion of labels that contain full geriatric dosing and safety information to date. The Company has not yet received a decision regarding the petition for reconsideration.

From time to time the Company becomes subject to legal proceedings and claims in the ordinary course of business. Such claims, even if without merit, could result in the significant expenditure of the Company’s financial and managerial resources. The Company is not aware of any legal proceedings or claims that it believes will, individually or in the aggregate, materially harm its business, results of operations, financial condition or cash flows.

The Company is obligated under certain circumstances to indemnify certain customers for certain or all expenses incurred and damages suffered by them as a result of any infringement of third-party patents. In addition, the Company is obligated to indemnify its officers and directors against all reasonable costs and expenses related to stockholder and other claims pertaining to actions taken in their capacity as officers and directors which are not covered by the Company’s directors and officers’ insurance policy. These indemnification obligations are in the regular course of business and in most cases do not include a limit on maximum potential future payments, nor are there any recourse provisions or collateral that may offset the cost. As of June 30, 2007, the Company has not recorded a liability for any obligations arising as a result of these indemnification obligations.

Note 10 — Discontinued Operations

On August 4, 2006, the Company entered into a Purchase and Sale Agreement with Ingleby (1705) Limited (Close Brothers Private Equity) (“Close Brothers”) for the sale of Rosemont, the Company’s oral liquid pharmaceuticals business in the United Kingdom. Under the terms of the sale, Close Brothers paid to the Company an aggregate purchase price of $176.0 million for the issued share capital of Rosemont’s parent company and certain other related assets. Net proceeds from the transaction after selling costs and taxes were $151.6 million. Additionally, Close Brothers purchased certain intellectual property and other assets and rights from the Company which relate to the business of Rosemont, including certain intellectual property related to the Soltamox product. The pretax gain on disposition of Rosemont was $77.2 million.

SAVIENT PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

A summary statement of discontinued operations of the former Rosemont business for the three and six months ended June 30, 2006, as it was included in the consolidated financial statements of the Company, is shown below:


	Three Months Ended		Six Months Ended
	June 30, 2006		June 30, 2006
Revenues:
Product sales, net	$	10,141	$	19,544

		10,141		19,544

Cost and expenses:
Costs of goods sold		3,655		6,652
Research and development		652		1,391
Selling, general and administrative		2,687		5,313
Amortization of intangibles		1,012		2,025

		8,006		15,381


Operating income from discontinued operations		2,135		4,163
Other income, net		124		257


Income from discontinued operations before income taxes		2,259		4,420
Income tax expense		223		1,745


Income from discontinued operations	$	2,036	$	2,675

All revenues included in discontinued operations primarily relate to non-U.S. customers.

Note 11 — Segment Information

The Company has identified one reportable segment which is Specialty Pharmaceuticals. Prior to the sale of Rosemont in August 2006, the Company identified two reportable segments including Specialty Pharmaceuticals and Oral Liquids (Rosemont). The Specialty Pharmaceuticals segment includes products which are branded prescription pharmaceuticals including Oxandrin, the Company’s former product Delatestryl and the Company’s Oxandrin-brand generic, oxandrolone. Certain research and development expenses related to Puricase^{^®} are included in the Specialty Pharmaceuticals segment. The Company’s former Rosemont business is included as discontinued operations.

Historically, the Company allocated management fees between its Specialty Pharmaceuticals segment and Rosemont based on various factors, including management time. These fees were eliminated in consolidation. With the disposition of Rosemont, the Company has reclassified certain corporate allocations from discontinued operations into continuing operations.

The Company’s Specialty Pharmaceuticals segment is operated primarily in the United States. All Specialty Pharmaceuticals product revenue was generated in the United States.

SAVIENT PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

As of and for the three months ended June 30, 2007 and 2006, the Company’s one segment as reconciled to enterprise totals, is presented below:


	Three Months Ended June 30, 2007
	Specialty			Discontinued
	Pharmaceuticals			Operations		Total
	(In thousands)
Revenues	$	3,129				$	3,129
Operating loss before depreciation and amortization		(15,651	)				(15,651	)
Less:
Depreciation and amortization		167					167

Operating loss as reported		(15,818	)				(15,818	)
Other income, net		2,135					2,135
Income tax benefit		4,050					4,050

Loss from continuing operations		(9,633	)				(9,633	)

Net loss	$	(9,633	)		—	$	(9,633	)

Segment assets	$	185,425			—	$	185,425

Expenditures for segment assets	$	402			—	$	402


	Three Months Ended June 30, 2006
	Specialty			Discontinued
	Pharmaceuticals			Operations		Total
	(In thousands)
Revenues	$	13,860				$	13,860
Operating loss before depreciation and amortization		(19	)				(19	)
Less:
Depreciation and amortization		191					191

Operating loss as reported		(210	)				(210	)
Other income, net		1,381					1,381
Income tax benefit		35					35

Income from continuing operations	$	1,206				$	1,206
Income from discontinued operations		—		$	2,036	$	2,036

Net income	$	1,206		$	2,036	$	3,242

Segment assets	$	103,469		$	128,818	$	232,287

Expenditures for segment assets	$	68		$	800	$	868

SAVIENT PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

As of and for the six months ended June 30, 2007 and 2006, the Company’s one segment as reconciled to enterprise totals is presented below:


	Six Months Ended June 30, 2007
	Specialty			Discontinued
	Pharmaceuticals			Operations		Total
	(In thousands)
Revenues	$	9,555				$	9,555
Operating loss before depreciation and amortization		(28,960	)				(28,960	)
Less:
Depreciation and amortization		321					321

Operating loss as reported		(29,281	)				(29,281	)
Other income, net		4,339					4,339
Income tax benefit		7,467					7,467

Loss from continuing operations		(17,475	)				(17,475	)

Net loss	$	(17,475	)		—	$	(17,475	)

Segment assets	$	185,425			—	$	185,425

Expenditures for segment assets	$	713			—	$	713


	Six Months Ended June 30, 2006
	Specialty			Discontinued
	Pharmaceuticals			Operations		Total
	(In thousands)
Revenues	$	23,363				$	23,363
Operating loss before depreciation and amortization		(5,164	)				(5,164	)
Less:
Depreciation and amortization		390					390

Operating loss as reported		(5,554	)				(5,554	)
Other income, net		10,103					10,103
Income tax expense		(4	)				(4	)

Income from continuing operations	$	4,545				$	4,545
Income from discontinued operations		—		$	2,675	$	2,675

Net income	$	4,545		$	2,675	$	7,220

Segment assets	$	103,469		$	128,818	$	232,287

Expenditures for segment assets	$	325		$	1,348	$	1,673

SAVIENT PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 12 — Investment Income, Net


	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2007		2006			2007		2006
Interest and dividend income from cash equivalents	$	2,300	$	928		$	4,670	$	1,806
Realized and unrealized gains on short-term investment		—		(12	)		—		—

Total investment income, net	$	2,300	$	916		$	4,670	$	1,806

Note 13 — Other Income (Expense), Net


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2007			2006			2007			2006
Novo Nordisk settlement	$	—		$	—		$	—		$	500
Ross commission payment		—			—			—			1,300
Gain on sale of Delatestryl		—			(113	)		—			5,884
Expected receipt of Omrix stock		—			575			—			575
Other non-operating income (expenses)		(165	)		3			(331	)		38

Total income (expense), net	$	(165	)	$	465		$	(331	)	$	8,297

On January 9, 2006, the Company completed the sale of Delatestryl, an injectable testosterone product for male hypogonadism, to Indevus Pharmaceuticals Inc., or Indevus. Under the terms of the sale, Indevus paid to the Company an initial payment of $5.0 million, subject to adjustment based on outstanding trade inventory, and Indevus agreed to pay a portion of the net sales of the product for the first three years following closing of the transaction based on an escalating scale. Additionally, Indevus purchased the entire inventory of finished product from the Company in three instalments totalling approximately $1.9 million of which $0.6 million was repaid during the six months ended June 30, 2007. As of June 30, 2007, the remaining balance of $0.6 million is included in the consolidated balance sheet as Other Current Assets. The Company recorded a gain of $5.9 million on the sale of Delatestryl in 2006.

In December 2005, the Oxandrin co-promotion agreement with Ross terminated. Final reconciliation of the agreement determined that Ross had overcharged Savient in error by approximately $1.3 million. Ross agreed to compensate the Company for this error and as such, the Company recognized the $1.3 million in the first quarter of 2006, which is included in other income. Ross satisfied its obligation to the Company in October 2006 via a combination of a cash payment and an accounts receivable credit.

In January 2005, the Company concluded a partial settlement of its patent infringement and patent interference litigation against Novo Nordisk, receiving $3.0 million for the resolution of the Company’s claims for lost profits and attorney’s fees. In February 2006, the Company received an additional payment of $0.5 million related to this litigation. The proceeds were included in other income.

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

Our management’s discussion and analysis of financial condition and results of operations contains statements which constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements that set forth anticipated results based on management’s plans and assumptions. From time to time, we also provide forward-looking statements in other materials we release to the public as well as oral forward-looking statements. Such statements discuss our strategy, expected future financial position, results of operations, cash flows, financing plans, development of products, strategic alliances, intellectual property, competitive position, plans and objectives of management. We often use words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “will” and similar expressions to identify forward-looking statements. In particular, the statements regarding our new strategic direction and its potential effects on our business, and the development of our lead drug candidate Puricase^® are forward-looking statements. Additionally, forward-looking statements include those relating to future actions, prospective products or product approvals, future performance, financing needs, liquidity or results of current and anticipated products, sales efforts, expenses, interest rates, foreign exchange rates and the outcome of contingencies, such as legal proceedings and financial results.

We cannot guarantee that any forward-looking statement will be realized. Achievement of future results is subject to risks, uncertainties and potentially inaccurate assumptions. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could differ materially from past results and those anticipated, estimated or projected.

We undertake no obligation to publicly update forward-looking statements. You are advised, however, to consult any further disclosures we make on related subjects in our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.

Overview

We are a specialty biopharmaceutical company engaged in developing and marketing pharmaceutical products that target unmet medical needs in both niche and broader markets.

We currently sell and distribute branded and generic versions of oxandrolone, which are used to promote weight gain following involuntary weight loss. We distribute the branded version of oxandrolone in the United States under the name Oxandrin^® and we distribute our authorized generic version of oxandrolone through an agreement with Watson Pharmaceuticals, Inc., or Watson. We launched oxandrolone in December 2006 in response to the approval and launch of generic competition to Oxandrin. We plan to continue to distribute the Oxandrin brand product directly through wholesalers.

We are currently developing Puricase^®, a drug targeting the control of elevated levels of uric acid in the blood, or hyperuricemia, in patients with symptomatic gout in whom conventional treatment is contraindicated or has been shown to be ineffective. Puricase is in Phase 3 clinical development and has received “orphan drug” designation by the Food and Drug Administration, or the FDA. Orphan drug designation may prevent competitive products of the same class that are not shown to be clinically superior from receiving FDA approval for the same indication for a period of seven years from time of FDA authorization for marketing. Our strategic plan is to advance the development of Puricase and expand our product portfolio by in-licensing late-stage compounds and exploring co-promotion and co-development opportunities that fit our expertise in specialty pharmaceuticals and biopharmaceuticals with an initial focus in rheumatology.

Prior to August 2006, we also marketed more than 100 pharmaceutical products in oral liquid form in the United Kingdom and some European Union countries through our former United Kingdom subsidiary, Rosemont Pharmaceuticals, Ltd, which we refer to as Rosemont. We sold Rosemont in August 2006 to Ingleby (1705) Limited (Close Brothers Private Equity), or Close Brothers, for $176.0 million.

In January 2006, we completed the sale of Delatestryl, our former injectable testosterone product for male hypogonadism, to Indevus Pharmaceuticals, Inc., or Indevus. Under the terms of the sale, Indevus paid us an initial payment of $5.0 million and a portion of net sales of the product for the first three years following closing of the transaction based on an escalating scale. A $5.9 million gain on the sale of Delatestryl was recorded for the six months ended June 30, 2006.

We have restructured our commercial operations in 2006 and 2007 such that we currently operate within one “Specialty Pharmaceutical” segment which includes sales of Oxandrin and oxandrolone, and the research and development activities of Puricase. As part of this restructuring, we discontinued our 19 person Oxandrin field sales force in January 2007. The results of our former Rosemont subsidiary are included as discontinued operations in our consolidated financial statements.

We were founded in 1980 as Bio-Technology General Corp. and changed our name to Savient Pharmaceuticals, Inc. in June 2003. We conduct our administration, finance, business development, clinical development, sales, marketing, quality assurance and regulatory affairs activities primarily from our headquarters in East Brunswick, New Jersey.

Specialty Pharmaceuticals

Our financial results have been dependent on sales of Oxandrin since its launch in December 1995. Sales of Oxandrin accounted for 48% and 100% of our continuing net product sales for the three months ended June 30, 2007 and 2006, respectively and 65% and 99% for the six months ended June 30, 2007 and 2006, respectively, Generic competition for Oxandrin began in December 2006. The introduction of generic products has caused a significant decrease in our Oxandrin revenues, which will adversely affect us financially and has required us to scale back some of our business activities related to the product. As a result, we anticipate that Oxandrin will be a less significant product for our future operating results. We believe we have sufficient cash on hand to fund our ongoing operations including the development of Puricase for at least the next twenty-four months. Our generic competitors are Sandoz Pharmaceuticals, Upsher-Smith, Roxane Laboratories and Kali Laboratories.

In response to the December 2006 introduction of generic competition for Oxandrin, we, through our distribution partner Watson, began distributing an authorized generic of oxandrolone tablets, (USP) C-III, an Oxandrin brand equivalent product manufactured and supplied by us. Sales of oxandrolone accounted for 52% and 35% of our net product sales for the three and six months ended June 30, 2007, respectively. Watson has captured approximately 46% of the generic market as of June 30, 2007. The authorized generic of oxandrolone tablets has met all quality control standards of the Oxandrin brand and will contain the same active and inactive pharmaceutical ingredients. We have a supply and distribution agreement in effect with Watson which provides for us to receive a significant portion of the gross margin earned by Watson on sales of oxandrolone.

In May 2006, we received written notification of approval from the FDA of a Special Protocol Assessment for Puricase. We have implemented Phase 3 protocols in support of a marketing application for the orphan drug indication of the control of hyperuricemia in patients with symptomatic gout in whom conventional therapy is contraindicated or has been shown to be ineffective. In June 2006, we began patient dosing in our Phase 3 clinical trials of Puricase. Patient recruitment for the clinical trials was completed in March 2007. Subject to successful completion of our Phase 3 clinical trials, we are targeting to file a Biologic License Application for Puricase with the FDA in early 2008 and expect an FDA action date by early 2009, assuming a standard FDA review.

In January 2006, we completed the sale to Indevus of Delatestryl, our former injectable testosterone product for male hypogonadism. Under the terms of the sale, Indevus paid us an initial payment of $5.0 million and a portion of net sales of the product for the first three years following closing of the transaction based on an escalating scale. A $5.9 million gain on the sale of Delatestryl was recorded for the six months ended June 30, 2006. Prior to the sale, product sales of Delatestryl had decreased significantly as a result of the reintroduction of a generic version of Delatestryl into the market in March 2004.

Impact of Oxandrin Generic Competition

Generic competition for Oxandrin began in December 2006. Introduction of generic products has resulted in a significant decrease in our Oxandrin revenues for the three and six months ended June 30, 2007, which has adversely affected us financially and has required us to scale back some of our business activities related to the product. As a result, we anticipate that revenues from Oxandrin will be less significant for our future operating results.

We have evaluated the impact of the generic competition on current demand for Oxandrin. In December 2006, we increased valuation reserves related to Oxandrin inventory in the amount of $2.6 million, increased reserves related to product returns in the amount of $0.4 million and recorded purchase commitment accruals in the amount of $2.0 million for inventory that we have agreed to purchase in the future. During the first quarter 2007, we entered

into an agreement with our supplier which reduced the purchase commitment obligation in lieu of a final contract amendment payment of $0.9 million, a portion of which is related to inventory. Accordingly, we reduced our purchase commitment accrual and cost of goods sold by $1.1 million during the first quarter 2007. Additionally, based on revised more favorable demand forecasts for Oxandrin, we decreased our reserve for product returns by $0.4 million as of the six months ended June 30, 2007. These reserves are subject to revision depending on the accuracy of our estimates.

The introduction of Oxandrin generics has lowered the demand for Oxandrin. We anticipate that sales will continue to trend downward and that in near term, shipments will decline in order to ensure that product currently at the wholesalers and retailers will have ample expiration dating.

Our authorized generic oxandrolone is currently competing with third-party generics. As a generic product, it is yielding lower selling prices than our Oxandrin product and therefore is not totally offsetting the reduction in Oxandrin revenues.

Discontinued Operations

During August 2006, we sold our U.K. oral liquid pharmaceuticals business, Rosemont, to Close Brothers. Under the terms of the sale, Close Brothers paid to us an aggregate purchase price of $176.0 million for the issued share capital of Rosemont’s parent company and certain other related assets. Net proceeds from the transaction after selling costs and taxes were $151.6 million. Additionally, Close Brothers purchased certain intellectual property and other assets and rights from us which relate to the business of Rosemont, including certain intellectual property related to the Soltamox product. The approximate pretax gain on the disposition of Rosemont was $77.2 million.

Revenue from discontinued operations, operating income from discontinued operations, and income from discontinued operations for the three months ended June 30, 2006 was $10.1 million, $2.1 million and $2.0 million, respectively, and $19.5 million, $4.2 million and $2.7 million, respectively, for the six months ended June 30, 2006, each of which is attributable to the operations of Rosemont. We did not have discontinued operations during the six months ended June 30, 2007 as Rosemont was sold in August 2006. The results of discontinued operations are not included in the discussion entitled “Results of Operations.”

Results of Operations

The results of operations discussion relates to continuing operations. The results of our discontinued operations were discussed above in the section entitled “Discontinued Operations.” We have historically derived our revenues from product sales as well as from collaborative arrangements with third parties. Our revenues and expenses have in the past displayed, and may in the future continue to display, significant variations. These variations may result from a variety of factors, including:

	•		the timing and amount of product sales,

	•		changing demand for our products including seasonal buying and usage patterns,

	•		our inability to provide adequate supply for our products,

	•		changes in wholesaler buying patterns,

	•		returns of expired product,

	•		changes in government or private payor reimbursement policies for our products,

	•		increased competition from new or existing products, including generic products,

	•		the timing of the introduction of new products,

	•		the timing and realization of milestone and other payments relating to license agreements,

	•		the timing and amount of expenses relating to our operations,

	•		the extent and timing of costs of obtaining, enforcing and defending intellectual property rights, and

	•		any charges related to acquisitions or divestitures.

The following table summarizes net sales of our commercialized products and their percent of net product sales and revenues for the periods indicated:


	Three Months Ended June 30,								Six Months Ended June 30,
	2007				2006				2007				2006
	(Unaudited)
	(Dollars in thousands)
Oxandrin	$	1,485	47.9	%	$	13,760	100	%	$	6,185	65.2	%	$	23,132	99.4	%
Oxandrolone (1)		1,613	52.1	%		—	0.0	%		3,294	34.8	%		—	0.0	%
Delatestryl (2)		—	0.0	%		—	0.0	%		—	0.0	%		131	0.6	%

	$	3,098	100.0	%	$	13,760	100	%	$	9,479	100.0	%	$	23,263	100	%


(1)		On December 29, 2006, we launched our authorized generic of Oxandrin which is distributed through Watson.

(2)		On January 9, 2006, we completed the sale of Delatestryl to Indevus.

We believe that sales of our products will vary from period to period based on the purchasing patterns of our customers, particularly related to wholesaler inventory management trends, and our focus on:

	•		maintaining or increasing business with our existing products,

	•		expanding into new markets, and

	•		commercializing additional products.

Results of Operations for the Three Months Ended June 30, 2007 and June 30, 2006

Revenues

Total revenues were $3.1 million and $13.9 million for the three months ended June 30, 2007 and 2006, respectively, a decrease of $10.8 million, or 78%. This decrease resulted primarily from lower product sales of Oxandrin partially offset by revenues from our authorized generic product, oxandrolone, through our distribution agreement with Watson.

	•		Sales of Oxandrin were $1.5 million and $13.8 million for the three months ended June 30, 2007 and 2006, respectively, a decrease of $12.3 million. This decrease is primarily attributable to generic competition which began in December 2006. Total prescription volume for Oxandrin declined by 77% for the three months ended June 30, 2007 as compared to the three months ended June 30, 2006. Partially offsetting the lower Oxandrin sales were price increases in November 2006 and January 2007. Due to the generic competition for Oxandrin, we expect that sales will continue to decline in future periods. The rate of decline will be dependent on factors including the pricing of generic products and the number of generic products in the marketplace.

	•		Revenues from oxandrolone were $1.6 million for the three months ended June 30, 2007, an increase of 100% from the same period in 2006 as our authorized generic product was launched in December 2006. We expect that revenues of oxandrolone will modestly increase or remain flat in future periods but will not totally offset the decline in Oxandrin sales.

Cost of goods sold

Cost of goods sold was $0.6 million and $1.4 million for the three months ended June 30, 2007 and 2006, respectively, a decrease of $0.8 million. The decrease is primarily due to the decrease in sales as a result of generic competition. Partially offsetting the decrease were approximately $0.2 million of stability testing costs incurred in the current period related to Oxandrin and oxandrolone batches. Excluding the impact of these costs, cost of goods sold was $0.4 million or 12.9% of net sales as compared to $1.4 million or 10.1% of net sales for the three months ended June 30, 2007 and 2006, respectively.

Research and development expenses

Research and development expenses were $11.2 million and $4.2 million for the three months ended June 30, 2007 and 2006, respectively, an increase of $7.0 million. This increase was primarily attributable to Puricase Phase 3 clinical trial costs of $2.2 million and Puricase manufacturing-related validation batch and process development expenses of $3.1 million. In addition, in June 2007, we entered into a letter of intent pursuant to which we paid a non-refundable fee of $1.0 million to reserve manufacturing capacity for Puricase. This fee will earn interest on behalf of Savient and will be applied as credits towards future purchases of Puricase. Also contributing to the higher costs were increases in stock based compensation, salaries and benefits due to increased headcount and legal expenses related to the patenting of Puricase of $0.4 million, $0.1 million and $0.3 million, respectively.

Selling, general and administrative expenses

Selling, general and administrative expenses were $7.1 million and $8.5 million for the three months ended June 30, 2007 and 2006, respectively, a decrease of $1.4 million, or 16%. This decrease is primarily attributable to a reduction in audit, financial consulting and Sarbanes-Oxley consulting fees of $0.2 million, $0.6 million and $0.6 million, respectively, and a $0.3 million reduction in advertising, promotion and marketing costs for Oxandrin as these activities were terminated due to generic competition. Sales force compensation and benefits expenses were lower by $0.4 million due to the termination of our Oxandrin sales force in January 2007. These decreases were partially offset by an increase of $0.8 million in stock based compensation expense.

Investment income

Investment income was $2.3 million and $0.9 million for the three months ended June 30, 2007 and 2006, respectively, an increase of $1.4 million. This increase primarily resulted from interest income on higher cash balances and higher effective interest rates as compared to the prior year quarter.

Other income (expense)

Other income (expense), represented expense of $0.2 million and income of $0.5 million for the three months ended June 30, 2007 and 2006, respectively, a decrease in income of $0.7 million. This decrease is primarily attributable to $0.2 million of current year expenses for interest and tax penalties associated with our liability for unrecognized tax benefits and income recorded during the three months ended June 30, 2006 associated with the receipt of Omrix stock from Catalyst Investments, L.P., as part of a February 2005 agreement between Catalyst and Savient.

Income tax expense

The provision for income taxes for the three months ended June 30, 2007 and 2006 was a tax benefit of $4.1 million and an expense of $35,000, respectively. The reduction in income tax expense was primarily attributable to the loss from continuing operations for the three months ended June 30, 2007.

Results of Operations for the Six Months Ended June 30, 2007 and June 30, 2006.

Revenues

Total revenues were $9.6 million and $23.4 million for the six months ended June 30, 2007 and 2006, respectively, a decrease of $13.8 million, or 59%. This decrease resulted primarily from lower product sales of Oxandrin partially offset by revenues from our authorized generic product, oxandrolone, through our distribution agreement with Watson.

•

Sales of Oxandrin were $6.2 million and $23.1 million for the six months ended June 30, 2007 and 2006, respectively, a decrease of $16.9 million, or 73%. This decrease is primarily attributable to generic competition which began in December 2006. Total prescription volume for Oxandrin declined by 66% for the six months ended June 30, 2007 as compared to the six months ended June 30, 2006. Partially offsetting the lower Oxandrin sales were price increases in November 2006 and January 2007. Due to generic competition for Oxandrin, we expect that sales will continue to decline in future periods.

			The rate of decline will be dependent on factors including the pricing of generic products and the number of generic products in the marketplace.

	•		Revenues from oxandrolone were $3.3 million for the six months ended June 30, 2007, an increase of 100% from 2006 as our authorized generic product was launched in December 2006. We expect that revenues of oxandrolone will modestly increase or remain flat in future periods but will not totally offset the decline in Oxandrin sales.

Cost of goods sold

Cost of goods sold was $0.3 million and $2.2 million for the six months ended June 30, 2007 and 2006, respectively, a decrease of $1.9 million. The decrease is primarily due to the lower sales of Oxandrin in 2007 as a result of generic competition. Additionally, a $1.1 million reversal of an inventory obsolescence reserve was recorded in the first quarter of 2007. This reserve was originally recorded in 2006 and related to minimum purchase commitments of Oxandrin raw material inventory. During the first quarter 2007, we entered into an agreement with our supplier reducing the future commitment in lieu of a final contract amendment payment of $0.9 million. The impact of the adjustment positively impacted cost of sales for the six months ended June 30, 2007. Partially offsetting the favorable impact of this inventory adjustment were approximately $0.2 million of stability testing costs related to oxandrolone batches and $0.3 million of costs associated with two failed batches of oxandrolone. Excluding the impact of the inventory adjustment and the oxandrolone costs noted above, cost of goods sold was $0.9 million or 9.5% of net sales as compared to $2.2 million or 9.4% of net sales for the six months ended June 30, 2007 and 2006 respectively.

Research and development expenses

Research and development expenses were $24.0 million and $7.4 million for the six months ended June 30, 2007 and 2006, respectively, an increase of $16.6 million. This increase was primarily attributable to approximately $11.1 million of higher expenses for Puricase Phase 3 clinical trials and Puricase manufacturing-related validation batch and process development expenses. In addition, we entered into a manufacturing agreement in March 2007 with our former subsidiary, BTG-Israel, pursuant to which we incurred a non-refundable fee of $3.0 million for the reservation of manufacturing capacity associated with potential future orders of Puricase. We also signed a letter of intent in June 2007 with a second contract manufacturer in which we paid a $1.0 million non-refundable fee to reserve additional manufacturing capacity associated with potential future orders of Puricase. These capacity reservation fees were expensed as incurred as research and development expenses and may be applied to future potential orders of Puricase. The current period was further impacted by increased stock based compensation expense of $0.7 million, salaries and benefits of $0.4 million as a result of increased headcount and higher intellectual property legal expenses of $0.5 million for Puricase.

Selling, general and administrative expenses

Selling, general and administrative expenses were $14.5 million and $19.3 million for the six months ended June 30, 2007 and 2006, respectively, a decrease of $4.8 million, or 25%. This decrease is primarily attributable to reductions in audit, legal, financial consulting and Sarbanes-Oxley consulting fees of $1.4 million, $1.3 million, $1.1 million and $0.8 million, respectively, as well as a $1.4 million reduction in advertising, promotion and marketing costs for Oxandrin as these activities were terminated due to generic competition. Sales force compensation and benefits expenses were lower by $0.9 million due to the termination of our Oxandrin sales force in January 2007 offset by $0.4 million in severance payments related to the cost of the termination. Additionally, expenses for SEC filings were lower than prior year by $0.6 million. Partially offsetting the lower costs was increased stock based compensation expense of $1.5 million and a $1.0 million increase in pre-launch marketing expenses related to Puricase.

Investment income

Investment income was $4.7 million and $1.8 million for the six months ended June 30, 2007 and 2006, respectively, an increase of $2.9 million. This increase primarily resulted from interest income on higher cash balances and higher effective interest rates in the current period.

Other income (expense)

Other income (expense) represented expense of $0.3 million for the six months ended June 30, 2007 and income of $8.3 million for the six months ended June 30, 2006, a decrease in income of $8.6 million. This decrease is primarily attributable to $0.3 million of current year expenses for interest and tax penalties associated with our liability for unrecognized tax benefits and income recorded during the six months ended June 30, 2006 related to the gain on the sale of Delatestryl of $5.9 million, a $1.3 million settlement with Ross Pharmaceutical Limited related to commission payment overcharges, $0.6 million of income from the expected receipt of Omrix stock from Catalyst Investments, L.P., as part of the February 2005 agreement between Catalyst and Savient and $0.5 million related to the Novo Nordisk litigation settlement.

Income tax expense

The provision for income taxes for the six months ended June 30, 2007 and 2006 was a tax benefit of $7.5 million and an expense of $4,000, respectively, a reduction in income tax expense of $7.5 million. The reduction in income tax expense was primarily attributable to the loss from continuing operations for the six months ended June 30, 2007.

Liquidity and Capital Resources

Our historic cash flows have fluctuated significantly as a result of changes in our revenues, operating expenses, capital spending, working capital requirements, the issuance of common stock, the divestiture of subsidiaries, the repurchase of our common stock, and other financing activities. We expect that cash flows in the near future will be primarily determined by the levels of our net income or losses, working capital requirements, asset purchases and/or divestitures and milestone payment obligations and financings, if any.

At June 30, 2007, we had $163.7 million in cash, cash equivalents and short-term investments, which represented a decrease of $15.7 million from December 31, 2006. This decrease was primarily due to our $17.5 million net loss for the six months ended June 30, 2007, offset partially by the receipt of $2.5 million from a tax refund for BTG-Israel, our former wholly owned subsidiary, and the receipt of $0.6 million from the note receivable from Indevus related to the sale of Delatestryl inventory.

We expect that we will incur substantial operating losses in 2007 which may result in a refund claim for a significant portion of the federal income taxes paid in 2006 which were $20.0 million. The taxes paid in 2006 primarily related to the gain on the sale of Rosemont and was recorded as income tax expense within discontinued operations during 2006. It is anticipated that any refund of 2006 taxes paid would be refunded to us in 2008 or 2009.

The impact of generic competition has had and will continue to have a negative impact on our operations and our cash reserves. We have reduced or eliminated expenses primarily related to selling and marketing activities for Oxandrin, none of which in total will offset the decline in revenues. We anticipate that the development of Puricase will require substantial capital and will have a negative impact on our financial resources in 2007 and beyond. Additionally, we entered into a manufacturing agreement in March 2007 with our former subsidiary, BTG-Israel, pursuant to which we incurred a non-refundable fee of $3.0 million for the reservation of manufacturing capacity associated with potential future orders of Puricase. We also signed a letter of intent in June 2007 with a second contract manufacturer in which we paid a $1.0 million non-refundable fee to reserve additional manufacturing capacity associated with potential future orders of Puricase. These capacity reservation fees were expensed as incurred as research and development expenses and may be applied to future potential orders of Puricase. We also made a one-time payment of $0.9 million in July 2007, to our supplier of oxandrolone for the settlement of a future inventory commitment.

We believe that our cash sources as of June, 2007, together with anticipated revenues and expenses, will be sufficient to fund our ongoing operations for at least the next twenty-four months. However, we may fail to achieve our anticipated liquidity levels as a result of unexpected events or failure to achieve our goals.

Our future capital requirements will depend on many factors, including the following:

	•		the level of sales deterioration as a result of Oxandrin generic competition,

	•		continued progress in our research and development programs, particularly with respect to Puricase,

	•		the timing of, and the costs involved in, obtaining regulatory approvals, including regulatory approvals for Puricase, and any other product candidates that we may seek to develop in the future,

	•		the quality and timeliness of the performance of our third-party suppliers and distributors,

	•		the cost of commercialization activities, including product marketing, sales and distribution,

	•		the costs involved in preparing, filing, prosecuting, maintaining, and enforcing patent claims and other patent related costs, including litigation costs and the results of such litigation,

	•		the outcome of pending legal actions and the litigation costs with respect to such actions,

	•		our ability to establish and maintain collaborative arrangements, and

	•		our ability to in-license other products or technology which will require marketing or clinical development resources.

If we are required to seek additional funding for our operations, we might not be able to obtain such additional funds or, if such funds are available, such funding might be on unacceptable terms. We continue to seek additional collaborative research and development and licensing arrangements in order to provide revenue from sales of certain products and funding for a portion of the research and development expenses relating to the products covered. However, we may not be able to enter into any such agreements.

Contractual Obligations

As a result of the adoption of FIN 48 on January 1, 2007, we have a liability for unrecognized tax benefits of $4.9 million. We are unable to reasonably estimate the amount or timing of payments for this liability, if any. Other than the adoption of FIN 48, there have been no significant changes to the Contractual Obligations table, other than those previously discussed related to the purchase commitment, which was included in our Annual Report on Form 10-K for the year ended December 31, 2006.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which we have prepared in accordance with accounting principles generally accepted in the United States. Applying these principles requires our judgment in determining the appropriateness of acceptable accounting principles and methods of application in diverse and complex economic activities. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of revenues, expenses, assets and liabilities, and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and other assumptions that we believe are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

The following accounting policies include management estimates that are most critical to our reported financial results:

Product revenue recognition. Product sales are generally recognized when title to the product has transferred to our customers in accordance with the terms of the sale. During 2006, we began shipping oxandrolone to our distributor. We will account for oxandrolone shipments on a consignment basis until the product is sold into the wholesale market. We will defer the recognition of revenue related to these oxandrolone shipments until our distributor confirms to us that the product has been sold into the wholesale market and we consider that all other revenue recognition criteria have been met. We recognize revenue in accordance with the Securities and Exchange Commission’s (SEC) Staff Accounting Bulletin, or SAB, No. 101, Revenue Recognition in Financial Statements, as amended by SAB No. 104, or together, SAB 104, and Statement of Financial Accounting Standards, or SFAS, No. 48. Revenue Recognition When Right of Return Exists. SAB 104 states that revenue should not be recognized until it is realized or realizable and earned.

Revenue is realized or realizable and earned when all of the following criteria are met:

	(1)		persuasive evidence of an arrangement exists,

	(2)		delivery has occurred or services have been rendered

	(3)		the seller’s price to the buyer is fixed and determinable, and

	(4)		collectibility is reasonably assured.

SFAS No. 48 states that revenue from sales transactions where the buyer has the right to return the product shall be recognized at the time of sale only if:

	(1)		the seller’s price to the buyer is substantially fixed or determinable at the date of sale,

	(2)		the buyer has paid and the obligation is not contingent on resale of the product,

	(3)		the buyer’s obligation to the seller would not be changed in the event of theft or physical destruction or damage of the product,

	(4)		the buyer acquiring the product for resale has economic substance apart from that provided by the seller,

	(5)		the seller does not have significant obligations for future performance to directly bring about resale of the product by the buyer, and

	(6)		the amount of future returns can be reasonably estimated.

Our net product revenues represent total product revenues less allowances for returns, Medicaid rebates, other government rebates, discounts, and distribution fees.

Allowances for returns. In general, we provide credit for product returns that are returned six months prior to or up to twelve months after the product expiration date. Our product sales in the United States primarily relate to the following products:


	Expiration
Product	(in years)
Oxandrin and oxandrolone 2.5 mg		5
Oxandrin and oxandrolone 10 mg (1)		3
Delatestryl (2)		5


(1)		In 2006, we determined, based on our review of stability data, that the Oxandrin 10 mg dosage form demonstrated stability over a three-year shelf life and thus we modified the product’s label to indicate a three-year expiration date. Product with three-year expiration dating was first sold to our customers in May 2006.

(2)		On January 9, 2006, we completed our sale of Delatestryl to Indevus. We continue to evaluate product returns on sales of Delatestryl that occurred prior to the sale date to Indevus.

Upon sale, we estimate an allowance for future returns. We provide additional reserves for contemporaneous events that were not known and knowable at the time of shipment. In order to reasonably estimate future returns, we analyze both quantitative and qualitative information including, but not limited to, actual return rates by lot productions, the level of product manufactured by us, the level of product in the distribution channel, expected shelf life of the product, current and projected product demand, the introduction of new or generic products that may erode current demand, and general economic and industry-wide indicators. Certain specifics regarding these analyses are as follows:

	•		Actual return rates — We track actual returns by product and analyze historical return trends. We use these historical trends as part of our overall process of estimating future returns.

	•		The level of product manufactured — The level of product produced has an impact on the valuation of that product. For productions that exceed anticipated future demand, a valuation adjustment will be required. Generally, this valuation adjustment occurs as an offset to gross inventory. Currently, we have mandated that product with less than twelve months of expiry dating will not be sold into the distribution channel.

	•		Level of product in the distribution channel — We review wholesaler inventory and third-party prescription data to ensure that the level of product in the distribution channel is at a reasonable level. Currently, the level of product in the distribution channel appears reasonable for five-year and three-year expiration product. The five-year expiration product currently has higher levels of inventory in the distribution channel as compared to historical trends.

	•		Estimated shelf life — Product returns generally occur due to product expiration. Therefore, it is important for us to ensure that product sold into the distribution channel has excess dating that will allow the product to be sold through the distribution channel without nearing its expiration date. Currently we have mandated that product with less than twelve months of expiry dating will not be sold into the distribution channel. We have taken the appropriate measures to enforce this policy, including setting up certain controls with our third-party distributor. In addition, we entered into a distributor service agreement with one of our large wholesalers which limits the level of product at the wholesaler. The terms of this agreement are consistent with the industry’s movement toward a fee-for-service approach which we believe has resulted in better distribution channel inventory management, higher levels of distribution channel transparency, and more consistent buying and selling patterns. Since a majority of our sales flow through three large wholesalers, we expect that these industry changes will have a direct impact on our future sales to wholesalers, inventory management, product returns and estimation capabilities.

	•		Current and projected demand — We analyze prescription demand data provided by industry standard third-party sources. This data is used to estimate the level of product in the distribution channel and to determine future sales trends.

	•		Product launches and new product introductions — For future product launches, we will analyze projected product demand and production levels in order to estimate return and inventory reserve allowances. New product introductions, including generics, will be monitored for market erosion and adjustments to return estimates will be made accordingly.

We also utilize the guidance provided in SFAS No. 48 and SAB 104 in establishing our return estimates. SFAS No. 48 discusses potential factors that may impair the ability to make a reasonable estimate including:

	(1)		the susceptibility of the product to significant external factors, such as technological obsolescence or changes in demand,

	(2)		relatively long periods in which a particular product may be returned,

	(3)		absence of historical experience with similar types of sales of similar products, or inability to apply such experience because of changing circumstances, for example, changes in the selling enterprise’s marketing policies or relationships with its customers, and

	(4)		absence of a large volume of relatively homogeneous transactions.

SAB 104 provides additional factors that may impair the ability to make a reasonable estimate including:

	(1)		significant increases in or excess levels of inventory in a distribution channel,

	(2)		lack of “visibility” into or the inability to determine or observe the levels of inventory in a distribution channel and the current level of sales to end users,

	(3)		expected introductions of new products that may result in the technological obsolescence of and larger than expected returns of current products,

	(4)		the significance of a particular distributor to our business, sales and marketing,

	(5)		the newness of a product,

	(6)		the introduction of competitors’ products with superior technology or greater expected market acceptance, and

	(7)		other factors that affect market demand and changing trends in that demand for our products.

As a result of Oxandrin generic competition that began in December 2006, we analyzed the impact on product returns considering the product currently at wholesalers and retailers, and current demand forecasts. As a result, we increased our product return reserve by $0.4 million for the year ended December 31, 2006. The demand forecasts were revised during the first and second quarters of 2007 due to slower than expected sales erosion of Oxandrin, and as a result, we lowered the product returns reserve during the three and six months ended June 30, 2007 by $0.2 million and $0.4 million respectively. The aggregate net return allowance reserve as of June 30, 2007 and December 31, 2006 was $1.8 million and $2.5 million, respectively.

Allowances for Medicaid and other government rebates. Our contracts with Medicaid and other government agencies such as the Federal Supply System commit us to providing those agencies with our most favorable pricing. This ensures that our products remain eligible for purchase or reimbursement under these government-funded programs. Based upon our contracts and the most recent experience with respect to sales through each of these channels, we provide an allowance for rebates. We monitor the sales trends and adjust the rebate percentages on a regular basis to reflect the most recent rebate experience. The aggregate net rebate accrual balances as of June 30, 2007 and December 31, 2006 was $0.7 million and $1.3 million, respectively.

Inventory valuation. We state inventories at the lower of cost or market. If inventory costs exceed expected market value due to obsolescence or quantities in excess of expected demand, we record reserves for the difference between the cost and the market value. We determine these reserves based on estimates.

As a result of Oxandrin generic competition that began in December 2006, we analyzed the impact on inventory reserves considering the Oxandrin inventory currently on hand, inclusive of raw materials and finished goods, and the current demand forecasts. The aggregate net inventory valuation reserve as of June 30, 2007 and December 31, 2006 was $8.4 million and $8.3 million, respectively.

In addition, we had committed to minimum purchase requirements of Oxandrin raw material inventory in the future which, based on current demand forecasts, were not expected to be sold. We previously accrued for these costs and recorded a charge to cost of goods sold of $2.0 million for the year ended December 31, 2006. During the first quarter 2007, we entered into an agreement with our supplier which reduced the purchase commitment obligation in lieu of a one-time payment of $0.9 million. We have reduced our purchase commitment accrual and cost of goods sold by $1.1 million during the six months ended June 30, 2007.

Share-based Compensation. Options are granted to certain employees and directors at prices equal to the market value of the stock on the dates the options are granted. The options granted have a term of 10 years from the grant date and granted options for employees generally vest rateably over a four-year period. The fair value of each option is amortized into compensation expense on a straight-line basis between the grant date for the option and each vesting date. We have estimated the fair value of all stock option awards as of the date of the grant by applying the Black-Scholes pricing valuation model. The application of this valuation model involves assumptions that are highly subjective, judgmental and sensitive in the determination of compensation expense, including the option’s expected term and the price volatility of the underlying stock. The cumulative effect on income from continuing operations and net income for the three months ended June 30, 2007 and 2006 was approximately $0.9 million and $0.3 million, respectively, and $1.6 million and $0.5 million for the six months ended June 30, 2007 and 2006, respectively, which includes both stock option and employee stock purchase plan expenses. As of June 30, 2007, there was $4.7 million of unrecognized compensation cost, adjusted for estimated forfeitures, related to unamortized stock option compensation which is expected to be recognized over a weighted average period of approximately 1.6 years. Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures.

Restricted stock awards are granted to certain of its employees and directors. Restricted stock awards are recorded as deferred compensation and amortized to compensation expense, based on the closing market price of the Company’s stock on the date of issuance, on a straight-line basis over the life of the vesting period which has generally ranged from one to four years in duration (daily pro rata vesting is calculated for employees terminated involuntarily without cause). For the six months ended June 30, 2007, the Company issued 413,000 shares of restricted stock to its employees at a weighted average grant date fair value of $14.49 amounting to approximately $6.0 million. During the three months ended June 30, 2007 and 2006 approximately $0.7 million and $0.1 million, respectively, of deferred restricted stock compensation cost has been amortized to expense. During the six months

ended June 30, 2007 and 2006 approximately $1.2 million and $0.2 million, respectively, of deferred restricted stock compensation has been amortized into expense. At June 30, 2007, approximately 761,000 shares remained unvested and there was approximately $8.7 million of unrecognized compensation cost related to restricted stock.

Through June 30, 2007, we granted performance share awards to certain employees which could result in the vesting and issuance of restricted stock if identified performance objectives are achieved. Compensation cost related to these performance shares is based upon the grant date fair value of the shares and management’s best estimate as to whether the performance shares are expected to vest. This amount is recognized rateably over the performance period. During the three and six months ended June 30, 2007, approximately $0.1 million and $0.2 million of deferred performance share compensation cost has been amortized to expense. No performance share compensation cost was recorded for the three and six months ended June 30, 2006. At June 30, 2007 approximately 611,000 potential performance based restricted stock shares remain unvested. The shares encompass performance objectives set for senior management personnel through 2010 and could result in approximately $7.5 million of additional restricted stock based compensation expense if the performance objectives are met or expected to be attained. Compensation cost adjustments will be made based upon changes in estimates of whether the performance criteria will be satisfied.

Research and development. All research and development costs are expensed as incurred. We entered into a manufacturing agreement in March 2007 with our former subsidiary, BTG-Israel, pursuant to which we incurred a non-refundable fee of $3.0 million for the reservation of manufacturing capacity associated with potential future orders of Puricase. We also signed a letter of intent in June 2007 with a second contract manufacturer in which we paid a $1.0 million non-refundable fee to reserve additional manufacturing capacity associated with potential future orders of Puricase. These capacity reservation fees were expensed as incurred as research and development expenses and may be applied to future potential orders of Puricase.

Income taxes. In June 2006, the Financial Accounting Standards Board, or FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes, or FIN 48. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109, Accounting for Income Taxes. This 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. FIN 48 also provides guidance on derecognition of tax benefits, classification on the balance sheet, interest and penalties, accounting in interim periods, disclosure, and transition. We adopted FIN 48 effective January 1, 2007. As a result of the implementation of FIN 48, we recorded a $4.5 million increase in the liability for unrecognized tax benefits which is included in Other Liabilities within our consolidated balance sheet. This increase in the liability resulted in a corresponding increase to the balance of accumulated deficit for the cumulative effect of this change. The total amount of federal, state, local and foreign unrecognized tax benefits was $4.9 million as of June 30, 2007, including accrued penalties and interest.

Recently Issued Accounting Standards

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS No. 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 does not require any new fair value measurements; rather, it applies under other accounting pronouncements that require or permit fair value measurements. The provisions of SFAS No. 157 are to be applied prospectively as of the beginning of the fiscal year in which it is initially applied, with any transition adjustment recognized as a cumulative-effect adjustment to the opening balance of retained earnings. The provisions of SFAS No. 157 are effective for fiscal years beginning after November 15, 2007. We are currently evaluating the standard.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, which provides companies with an option to report selected financial assets and liabilities at fair value. The objective of SFAS No. 159 is to reduce both complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. SFAS No. 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. SFAS No. 159 does not eliminate any disclosure requirements included in other accounting standards. We have not yet determined if we will elect to apply

the options presented in SFAS No. 159, the earliest effective date that we can make such an election is January 1, 2008.

In June 2007, the Emerging Issues Task Force (“EITF”) reached a final consensus on EITF Issue No. 07-3, Accounting for Nonrefundable Advance Payments for Goods or Services to Be Used in Future Research and Development Activities. The Task Force affirmed as a consensus the tentative conclusion that nonrefundable advance payments for future research and development activities should be deferred and capitalized. Such amounts should be recognized as an expense as the goods are delivered or the related services are performed. The Task Force reached a final consensus that this Issue is effective for financial statements issued for fiscal years beginning after December 15, 2007, and interim periods within those fiscal years. Earlier application is not permitted and the effects of applying the consensus in this issue should be reported prospectively. During 2007 we incurred non-refundable fees with our third-party manufacturers for Puricase. These fees were for the reservation of manufacturing capacity and may be applied to potential future orders of Puricase. We accounted for these payments under FASB Statement No. 2, Accounting for Research and Development Costs, and expensed them as incurred. We intend to defer and capitalize all new non refundable contracts of this type, if any, that we may enter into after the effective date of this issue.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the exposure to loss resulting from changes in interest rates, foreign currency exchange rates, commodity prices and equity prices. To date our exposure to market risk has been limited. We do not currently hedge any market risk, although we may do so in the future. We do not hold or issue any derivative financial instruments for trading or other speculative purposes.

Our material interest-bearing assets consist of cash and cash equivalents and short-term investments, including investments in commercial paper, time deposits and other debt instruments. Our investment income is sensitive to changes in the general level of interest rates, primarily U.S. interest rates, and other market conditions.

ITEM 4. CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO, as appropriate, to allow timely decisions regarding required disclosure.

We do not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control systems are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in a cost-effective control system, no evaluation of internal control over financial reporting can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within our company have been detected.

These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

Our management, with the participation of our CEO and CFO, evaluated the effectiveness of our disclosure controls and procedures. Based on this evaluation, as of the end of the period covered by this Form 10-Q, our CEO and CFO have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) are effective.

There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended June 30, 2007 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are aware of patent applications filed by, or patents issued to, other entities with respect to technology potentially useful to us and, in some cases, related to products and processes being developed by us. We cannot presently assess the effect, if any, that these patents may have on our operations. The extent to which efforts by other researchers have resulted or will result in patents and the extent to which the issuance of patents to others would have a materially adverse effect on us or would force us to obtain licenses from others is currently unknown. See “Item 1A. Risk Factors — Risks Relating to Intellectual Property” for further discussion.

On December 1, 2006, the Food and Drug Administration denied two Citizens Petitions filed by us, which had been pending since February 2004 and September 2005, requesting that the Commissioner of Food and Drugs not approve any abbreviated new drug applications (“ANDAs”) for generic oral products containing oxandrolone until (i) agency adopted bioequivalence standards and a requirement for any generic product to have completed a trial determining whether it may safely be used by patients who take the prescription blood thinner warfarin are satisfied and (ii) prior to the expiration of our exclusive labelling for geriatric dosing of Oxandrin on June 20, 2008. Also on December 1, 2006, the FDA approved the ANDAs previously filed by Sandoz Pharmaceuticals Corp. (“Sandoz”) for 2.5 mg and 10 mg, and Upsher-Smith Laboratories, Inc. (“Upsher-Smith”) for 2.5 mg, dosage forms of generic oral products containing oxandrolone. On December 5, 2006, we filed a petition for reconsideration with the FDA regarding their rejection of our Citizen Petitions on the basis that the FDA failed to adequately consider the significant safety and legal issues raised by permitting approval of generic oxandrolone drug products without the inclusion of labels that contain full geriatric dosing and safety information. We have not received a decision or other communication regarding this petition for reconsideration to date.

Following the FDA’s actions, on December 4, 2006 we filed a lawsuit in the U.S. District Court for the District of New Jersey (the “District Court”) against and Upsher-Smith claiming that their generic oxandrolone products infringe our patents related to various methods of using Oxandrin. We also filed a motion seeking a temporary restraining order and preliminary injunction to restrain Sandoz and Upsher-Smith from marketing and selling their generic formulations of Oxandrin. On December 12, 2006 the United States Court of Appeals for the Federal Circuit in Washington, D.C. (the “Federal Circuit”) issued an order temporarily enjoining all sales of generic oxandrolone tablets by Sandoz and Upsher-Smith until the Federal Circuit had the opportunity to review this matter. The order was issued by the Federal Circuit as a result of an appeal filed that same day by us of the order on December 8 of the District Court lifting its December 4 restraining order. On December 28, 2006 the Court of Appeals denied our motion for a preliminary injunction. Following this, we launched an authorized generic of oxandrolone tablets, (USP) C-III, an Oxandrin-brand equivalent product in both the 2.5 mg and 10 mg dosages in December 2006 which is distributed by Watson Pharmaceuticals. The launch of oxandrolone is in response to generic competition to Oxandrin from Sandoz and Upsher-Smith. The litigation against Sandoz and Upsher-Smith is continuing in the District court and has entered the discovery phase. Sandoz and Upsher-Smith have filed counterclaims challenging the validity of the Company’s patents and have also asserted counterclaims for various anti-trust related issues. We intend to vigorously pursue our claims for the infringement of our patents with respect to the methods of using Oxandrin to the fullest extent allowable and to defend against the counterclaims filed by Sandoz and Upsher-Smith.

Non-Patent Related Litigation

into a stipulation which provided for the lead plaintiff to file an amended consolidated complaint. Plaintiffs filed such amended complaint and the Company filed a motion to dismiss the action. On August 10, 2005, citing the failure of the amended complaint to set forth particularized facts that give rise to a strong inference that the defendants acted with the required state of mind, the Court granted the Company’s motion to dismiss the action without prejudice and granted plaintiffs leave to file an amended complaint. On October 11, 2005, the plaintiffs filed a second amended complaint, again seeking unspecified compensatory damages, purporting to set forth particularized facts to support their allegations of violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by the Company and its former officers. On December 13, 2005, the Company filed a motion to dismiss the second amended complaint. On October 26, 2006, the United States District Court for the District of New Jersey dismissed, with prejudice, the second amended complaint. The district court declined to allow plaintiffs to file another amended complaint. The plaintiffs have filed an appeal in the United States Court of Appeals for the Third Circuit, which is currently pending. We intend to contest the appeal vigorously. We have referred these claims to our directors and officers insurance carrier, which has reserved its rights as to coverage with respect to this action.

From time to time we become subject to legal proceedings and claims in the ordinary course of business. Such claims, even if without merit, could result in the significant expenditure of our financial and managerial resources.

ITEM 1A. RISK FACTORS

Our Quarterly Report on Form 10-Q contains statements which constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements that set forth anticipated results based on management’s plans and assumptions. From time to time, we also provide forward-looking statements in other materials we release to the public as well as oral forward-looking statements. Such statements discuss our strategy, expected future financial position, results of operations, cash flows, financing plans, development of products, strategic alliances, intellectual property, competitive position, plans and objectives of management. We often use words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “will” and similar expressions to identify forward-looking statements. In particular, the statements regarding our new strategic direction and its potential effects on our business and the development of our lead drug candidate Puricase are forward-looking statements. Additionally, forward-looking statements include those relating to future actions, prospective products or product approvals, future performance, financing needs, liquidity or results of current and anticipated products, sales efforts, expenses, interest rates, foreign exchange rates and the outcome of contingencies, such as legal proceedings, and financial results.

We undertake no obligation to publicly update forward-looking statements. We provide the following cautionary discussion of risks, uncertainties and possibly inaccurate assumptions relevant to our businesses.

These are important factors that, individually or in the aggregate, we think could cause our actual results to differ materially from expected and historical results. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider the following to be a complete discussion of all potential risks or uncertainties.

You should carefully consider the following risk factors, in addition to other information included in this quarterly report on Form 10-Q, in evaluating us and our business. If any of the following risks occur, our business, financial condition and operating results could be materially adversely affected. The following risk factors restate and supersede the risk factors previously disclosed in Item 1A. of our Annual Report on form 10-K for the year ended December 31, 2006 and our Quarterly Report on Form -Q for quarter ended March 31, 2007.

Risks Relating to Our Strategic Direction

We have repositioned our company to focus on product development, particularly Puricase. If we are unable to develop and commercialize this product candidate or any other product candidate that we may pursue in the future, or if we experience significant delays or unanticipated costs in doing so, our business will be materially harmed.

Much of our near term results will depend on our successfully completing clinical testing of Puricase and, if successful, commercial launch of this product. In December 2004, we administered the last patient dose in a Phase 2 clinical trial of Puricase and we completed the full analysis of the results of this study in April 2005. In May 2005, we reported positive top-line Phase 2 clinical trial results for Puricase. The results from the Phase 2 clinical trial showed that Puricase showed promising efficacy in reducing uric acid levels. Based on the results of our end of Phase 2 meeting with the FDA and post-meeting interactions, in December 2005, we submitted a Special Protocol Assessment, or SPA, of our Phase 3 protocols. On May 3, 2006, we announced we had received written notification from the FDA that the SPA was approved. After receipt of this approval, we implemented the protocols in support of a marketing application for the indication of the control of hyperuricemia in patients with symptomatic gout in whom conventional treatment is contraindicated or has been shown to be ineffective. We commenced Phase 3 patient dosing in June 2006 and completed patient recruitment for the clinical trials in March 2007.

Although we may determine to enter certain markets outside of the United States ourselves, we are concentrating our business development efforts principally on identifying and entering into a transaction with a partner for the clinical development and commercialization of Puricase outside of the United States. Moreover, we continue to identify and evaluate late stage compounds and technologies for possible in-licensing or partnering transactions in certain specialty areas as part of our business strategy.

Our ability to commercialize Puricase or any other product candidate that we may develop in the future will depend on several factors, including:

	•		successfully completing clinical trials,

	•		successfully manufacturing drug supplies,

	•		receiving marketing approvals from the FDA and similar foreign regulatory authorities,

	•		establishing commercial manufacturing arrangements with third-party manufacturers,

	•		launching commercial sales of the product, whether alone or in collaboration with others, and

	•		acceptance of the product in the medical community and with third-party payers and consumers.

There is no guarantee that we will successfully accomplish any or all of the above factors, and our inability to do so may result in significant delays, unanticipated costs or the failure of the clinical development and commercialization of Puricase, which would have a material adverse effect our business. We will face similar drug development risks for any other product candidates that we may develop in the future.

Our ability to engage in in-licensing or partnering transactions in certain specialty areas in the future will depend on several factors, including:

	•		identifying products that fit within our product portfolio, and

	•		successfully competing for early and late-stage development products

There is no guarantee that we will successfully accomplish any of the above factors, and our inability to do so may result in our not fully or partially implementing our business strategy, which may have a material adverse effect on our business.

Puricase, and any other product candidate that we may develop in the future, must satisfy rigorous standards of safety and efficacy before it can be approved for sale. To satisfy these standards, we must engage in expensive and lengthy clinical trials and extensive manufacturing quality assessments to obtain regulatory approval.

We must successfully complete clinical trials for Puricase before we can apply for its marketing approval. Completion of our clinical trials does not assure FDA approval.

The Phase 3 clinical trials are being conducted in the United States, Canada and Mexico. Our Phase 3 trials may be unsuccessful, which would materially harm our business. Even if these trials are successful, we may be required to conduct additional clinical trials or additional manufacturing quality assessments before a Biologics License Application, or BLA, can be filed with the FDA for marketing approval or as a condition of approval.

Clinical testing is expensive, is difficult to design and implement, can take many years to complete and is uncertain as to outcome. Success in early phases of clinical trials does not ensure that later clinical trials will be successful and interim results of a clinical trial do not necessarily predict final results. A failure of one or more of our clinical trials can occur at any stage of testing. We may experience numerous unforeseen events during, or as a result of, the clinical trial process that could delay or prevent our ability to receive regulatory approval or commercialize Puricase, including:

	•		regulators or institutional review boards may not authorize us to commence a clinical trial or conduct a clinical trial at a prospective trial site,

	•		our clinical trials may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional preclinical testing or clinical trials or we may abandon projects that we expect to be promising,

	•		enrollment in our clinical trials may be slower than we currently anticipate, or participants may drop out of our clinical trials at higher rates than we currently anticipate,

	•		we might have to suspend or terminate our clinical trials if the participating patients are being exposed to unacceptable health risks,

	•		regulators or institutional review boards may require that we hold, suspend or terminate clinical research for various reasons, including non-compliance with regulatory requirements,

	•		the cost of our clinical trials may be greater than we currently anticipate,

	•		we may encounter difficulties or delays in obtaining sufficient quantities of clinical products or other materials necessary for the conduct of our clinical trials,

	•		any regulatory approval we ultimately obtain may be limited or subject to restrictions, and

	•		the effects of our product candidates may not be the desired effects or may include undesirable side effects or the product candidates may have other unexpected characteristics.

If we are required to conduct additional clinical trials or other testing of our product candidates beyond those that we currently contemplate, if we are unable to successfully complete our clinical trials or other testing or if the results of these trials or tests are not positive or are only modestly positive, we may:

	•		be delayed in obtaining marketing approval for our product candidates,

	•		not be able to obtain marketing approval,

	•		obtain approval for indications that are not as broad as intended,

	•		not obtain marketing approval before other companies are able to bring competitive products to market, or

	•		be required to conduct post-approval clinical trials or registry studies.

Our product development costs will also increase if we experience delays in testing or approvals. We do not know whether our ongoing clinical trials will be completed on schedule. Similarly, we do not know whether our clinical trials will begin as planned or will need to be restructured, if at all. Significant delays in clinical trials could also allow our competitors to bring products to market before we do and impair our ability to commercialize our products or product candidates.

We rely on third parties to conduct our clinical trials of Puricase and those third parties may not perform satisfactorily, including failing to meet established deadlines for the completion of such trials.

We do not independently conduct clinical trials for our product candidate, Puricase. We rely on third parties, such as contract research organizations, clinical data management organizations, medical institutions, bio-analytical laboratories and clinical investigators, to perform this function. Our reliance on these third parties for clinical development activities reduces our control over these activities. We are responsible for ensuring that each of our clinical trials is conducted in accordance with the general investigational plan and protocols for the trial. Moreover, the FDA requires us and third parties acting on our behalf to comply with standards, commonly referred to as Good Clinical Practices, for conducting, recording, and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the rights, integrity and confidentiality of trial participants are protected. Our reliance on third parties that we do not control does not relieve us of these responsibilities and requirements. Furthermore, these third parties may also have relationships with other entities, some of which may be our competitors. If these third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct our clinical trials in accordance with regulatory requirements or our stated protocols, we may not be able to obtain, or may be delayed in obtaining, regulatory approvals for Puricase and may not be able to, or may be delayed in our efforts to, successfully commercialize Puricase.

We also rely on other third parties to store and distribute drug supplies for our clinical trials. Any performance failure on the part of our existing or future distributors could delay clinical development or regulatory approval of Puricase or commercialization of Puricase, producing additional losses and depriving us of potential product revenue.

Our strategic focus includes a licensing initiative to partner our Puricase product candidate outside the United States. We may not be successful in our efforts to partner our Puricase product candidate.

Although we may determine to enter certain markets outside of the United States ourselves, we are seeking to explore a development and commercialization partner for Puricase outside the United States as part of our strategic business plan. To date, we have not identified a suitable partner outside the United States that meets the criteria we are seeking, and we may continue to have difficulty in this area for a number of reasons. In particular, certain companies may not want to partner Puricase because it is a biologic and they focus on small molecule products or in some instances gout therapy is outside their preferred therapeutic area focus. Other companies only wish to partner for global rights, including the United States, a transaction structure that we do not wish to pursue. Additionally, the licensing and partnering of biopharmaceutical and pharmaceutical products is a competitive area with numerous companies pursuing strategies similar to those that we are pursuing to license and partner products. If we are unsuccessful in partnering Puricase outside the United States and are unable to fully exploit the commercial opportunity for the product ourselves in these markets, the full potential of Puricase may not be realized.

Our strategic focus includes an initiative to in-license or partner other novel compounds to build our development portfolio. We may not be successful in our efforts to expand our portfolio of products in this manner.

As part of our strategic business plan, we are seeking an active in-licensing or partnering program to access and develop novel compounds in later clinical development. This is a highly competitive area with virtually every pharmaceutical, biotechnology and specialty pharmaceutical company publicly stating that they are seeking in-license product opportunities. Certain of these companies are also pursuing strategies to license or acquire products similar to those that we are pursuing. These companies may have a competitive advantage over us due to their size, cash resources and greater clinical development and commercialization capabilities. Other factors that may prevent us from partnering, licensing or otherwise acquiring suitable product candidates include the following:

	•		we may be unable to identify suitable products or product candidates within our areas of expertise,

	•		we may be unable to license or acquire the relevant technology on terms that would allow us to make an appropriate return on our investment in the product, or

	•		companies that perceive us to be their competitors may be unwilling to assign or license their product rights to us.

If we are unable to develop suitable potential product candidates by obtaining rights to novel compounds from third parties, our business could suffer.

The full development and commercialization of our development drug products and execution of our strategic business plan will require substantial capital, and we may be unable to obtain such capital. If we are unable to obtain additional financing, our business, results of operations and financial condition may be adversely affected.

The development and commercialization of pharmaceutical products requires substantial funds. In addition, we may require cash to acquire new product candidates and to fully execute on our strategic business plan. In recent periods, we have satisfied our cash requirements primarily through product sales, the divestiture of assets that are not core to our strategic business plan and the monetization of underperforming investments. Historically, we have also obtained capital through collaborations with third parties, contract fees, government funding and equity and debt financings. These financing alternatives might not be available in the future to satisfy our cash requirements.

We may not be able to obtain additional funds or, if such funds are available, such funding may be on unacceptable terms. If we raise additional funds by issuing equity securities, dilution to our then existing stockholders will result. If we raise additional funds through the issuance of debt securities or borrowings, we may incur substantial interest expense and could become subject to financial and other covenants that could restrict our ability to take specified actions, such as incurring additional debt or making capital expenditures. If adequate funds are not available, we may be required to significantly curtail one or more of our commercialization efforts or development programs or obtain funds through sales of assets or arrangements with collaborative partners or others on less favorable terms than might otherwise be available.

Risks Related to Our Business

We incurred an operating loss from continuing operations for the year ended 2006 and the first half of 2007 and anticipate that we may incur operating losses from continuing operations for the foreseeable future. If we are unable to commercialize Puricase or any other product candidates, we may never achieve operating profitability.

Since 2004, we have incurred substantial operating losses from continuing operations. Our operating loss from continuing operations was $14.5 million for the year ended December 31, 2005, $17.0 million for the year ended December 31, 2006, and $15.8 million and $29.3 million for the three and six months ended June 30, 2007. Our operating losses from continuing operations have resulted principally from costs incurred in connection with our research and development activities, including clinical trials, and from general and administrative expenses associated with our operations. We expect to continue to incur substantial, and even increasing, operating losses from continuing operations for the foreseeable future. Our continuing operations financial results have been substantially dependent on Oxandrin sales. Sales of Oxandrin accounted for 99%, and 92% of our continuing net product sales in the years ended 2006 and 2005, respectively. Sales of Oxandrin accounted for 48% and 65% of our continuing net product sales for the three and six months ended June 30, 2007. Moreover, we expect that our revenues will decline significantly, and our results of operations will be materially adversely affected as the FDA has approved generic versions of Oxandrin in December 2006 which is currently on the market. As a result, we launched our authorized generic oxandrolone product in December 2006 which accounted for 52% and 35% of our continuing net product sales for the three and six months ended June 30, 2007. In addition, our consolidated net income from 2005 and 2006 and positive cash flow was substantially attributable to the operating results of Rosemont and the gain on disposition of Rosemont which are included in our consolidated financial statements as discontinued operations.

Our ability to generate operating profits is dependent on the completion of development and successful commercialization of Puricase and any other product candidates that we may develop, license, partner or acquire. If we are unable to successfully develop and commercialize Puricase or any other product candidates, or if we experience significant delays or unanticipated costs in doing so, or if sales revenue from any product candidate that receives marketing approval is insufficient, we may never achieve operating profitability. Even if we do become profitable, we may not be able to sustain or increase our profitability on a quarterly or annual basis.

A significant portion of our revenues was attributable to sales of Oxandrin in 2006. The 2006 launch of generic competition to Oxandrin has caused a significant decrease in Oxandrin sales in 2007 and future years and may render our existing Oxandrin inventory obsolete. In addition, Oxandrin sales in particular reporting periods may be affected by wholesalers’ buying patterns and product returns. Future returns of Oxandrin, our authorized generic of Oxandrin or other products could also affect our results of operations.

Our sales of Oxandrin in the United States are principally to three major drug wholesalers. These sales are affected by fluctuations in the buying patterns of these wholesalers and the corresponding changes in inventory levels that they maintain. In the past, wholesalers have reduced their inventories of Oxandrin and we expect that wholesalers will continue to reduce inventories as a result of generic competition of Oxandrin. Generic competition for Oxandrin began in December 2006 following the denial by the Court of Appeals for the Federal Circuit of our motion for a stay pending appeal from the District Court’s denial of injunctive relief in connection with our lawsuit against Sandoz Pharmaceuticals and Upsher-Smith Laboratories for infringement of our patents related to various methods of using Oxandrin (oxandrolone). Moreover, we may face additional generic competition from Barr Laboratories, Inc. (“Barr”) which filed an Abbreviated New Drug Application (ANDA) with the FDA seeking approval to engage in the commercial manufacture, use or sale of specified dosages of oxandrolone tablets prior to the expiration of our patents. In February 2007, Barr notified us that it amended its ANDA to carve out of its proposed labelling uses for the generic oxandrolone tablet that would infringe our issued use patents. As a result, we have agreed to dismiss the action without prejudice.

The introduction of generic forms of Oxandrin on the market by multiple competitors will negatively affect our results of operations and may render our existing Oxandrin inventory obsolete. Net sales of Oxandrin were $47.0 million and $44.4 million for the years ended 2006 and 2005, respectively, representing approximately 99% and 92% of our continuing net product sales, respectively. For the three and six months ended June 30, 2007, net sales of Oxandrin were $1.5 million and $6.2 million respectively, representing 48% and 65%, respectively, of our continuing net product sales. We anticipate that Oxandrin will be a less significant product for our future operating results. The balance of our sales for the three and six months ended June 30, 2007 was related to our authorized generic oxandrolone product which accounted for $1.6 million and $3.3 million, respectively, in net product sales, or 52% and 35% of our continuing net product sales.

In addition to the impact of generic competition, some states, including New York, California and Florida, have eliminated or limited reimbursement of prescription drugs for HIV and AIDS, including Oxandrin and oxandrolone, under their AIDS Drug Assistance Programs (ADAP) or via their state Medicaid programs. There can be no assurances that other state formularies will delete Oxandrin. In addition, the implementation of the Medicare Part D program has created disruption in the market as patients switch to a variety of new prescription coverage programs in all states across the United States.

We have considered the demand deterioration as part of our estimates into our product return; however our demand forecasts are based upon management’s best estimates. As of June 30, 2007 and December 31, 2006, our allowance for product returns was $1.8 million and $2.5 million, respectively. Future product returns in excess of our historical reserves could reduce our revenues and adversely affect our results of operations.

If third parties on which we rely for distribution of our generic version of oxandrolone do not perform as contractually required or as we expect, our results of operations may be harmed.

We do not have the ability to independently distribute our generic version of oxandrolone tablets. In response to the generic competition that Oxandrin experienced in December 2006, we immediately launched, through our distribution partner, Watson Pharmaceuticals, a generic version of oxandrolone tables, (USP) C-III, an Oxandrin brand equivalent product manufactured and supplied by us. We depend on Watson to distribute this product for us, and we have a supply and distribution agreement with Watson. We do not control many aspects of Watson’s activities. If Watson fails to carry out its obligations, does not devote sufficient resources to the distribution of oxandrolone, or does not carry out its responsibilities in the manner we expect, our generic version of oxandrolone may not compete successfully against other generics of oxandrolone, and our results of operations could be harmed.

We operate in a highly competitive market. Our competitors may develop alternative technologies or safer or more effective products before we are able to do so.

The pharmaceutical and biotechnology industries are intensely competitive. The technological areas in which we work continue to evolve at a rapid pace. Our future success will depend upon our ability to compete in the research, development and commercialization of products and technologies in our areas of focus. Competition from

pharmaceutical, chemical and biotechnology companies, universities and research institutions is intense and we expect it to increase. Many of these competitors are substantially larger than we are and have substantially greater capital resources, research and development capabilities and experience and manufacturing, marketing, financial and managerial resources than we do. Acquisitions of competing companies by large pharmaceutical companies or other companies could enhance the financial, marketing and other resources available to these competitors.

Rapid technological development may result in our product candidates in development becoming obsolete before we can begin marketing these product candidates or before we are able to recover a significant portion of the research, development and commercialization expenses incurred in the development of those products. For example, since our launch of Oxandrin, a significant portion of Oxandrin sales has been for treatment of patients suffering from HIV-related weight loss. These patients’ needs for Oxandrin have decreased as a result of the development of safer or more effective treatments, such as protease inhibitors. In fact, since January 2001, growth in the AIDS-related weight loss market has slowed substantially and actually began to decline as a result of improved therapies to treat HIV-related weight loss.

If and when commercialized, Puricase will be launched in the gout treatment-failure population, an indication for which there is currently no product commercially available. Products used to treat the symptoms of gout, such as gout flares and synovitis, could be used concomitantly in patients also using Puricase, as long as symptoms and signs of the disease persist. Other uric acid lowering therapies, such as probenecid, and allopurinol, have not been tested for use in combination with Puricase.

Our products must compete favorably to gain market acceptance and market share. An important factor in determining how well our products compete is the timing of market introduction of competitive products. For example, the most recent competitors to enter the oxandrolone market were Sandoz and Upsher-Smith with their introductions of generic oral products containing oxandrolone. We expect these products, as well as our generic version of oxandrolone, to displace Oxandrin. Additional competition also occurs with the entry of therapeutic options, for example, Par Pharmaceutical Companies, Inc. (“Par”) introduced megace ES in June 2005. Megace ES is primarily displacing generic megace which represents 75% of the involuntary weight loss market, but also has an effect on Oxandrin sales. Accordingly, the relative speed with which we and competing companies can develop other products, complete the clinical testing and approval processes, and supply commercial quantities of the products to the market will be an important element of market success.

Our competitors may develop safer, more effective or more affordable products or achieve earlier product development completion, patent protection, regulatory approval or product commercialization than we do. These companies also compete with us to attract qualified personnel and to attract third parties for acquisitions, joint ventures or other collaborations. Our competitors’ achievement of any of these goals could have a material adverse effect on our business.

Manufacturing our products requires us to meet stringent quality control standards. In addition, we depend on third parties to manufacture our products and plan to rely on third parties to manufacture any future products. If these third-party suppliers, and particularly our sole source supplier for Puricase, fail to supply us for any reason, our revenues and product development efforts may be materially adversely affected.

We depend on third parties for the supply of our products. Failure of any third-party to meet applicable regulatory requirements may adversely affect our results of operations or result in unforeseen delays or other problems beyond our control.

The manufacture of our products involves a number of technical steps and requires our third-party suppliers and manufacturers to meet stringent quality control and quality assurance specifications imposed by us or by governmental regulatory bodies. In the event of a natural disaster, equipment failure, strike, war or other difficulty, our suppliers may be unable to manufacture our products in a manner necessary to fulfill demand. Our inability to fulfil market demand, or the inability of our third-party manufacturers to meet our demands will have a direct and adverse impact on our sales and may also permit our licensees and distributors to terminate their agreements.

Other risks involved with engaging third-party suppliers include:

•

reliance on the third-party for regulatory compliance and quality control assurance,

	•		the possible breach of the manufacturing agreement by the third-party or the inability of the third-party to meet our production schedules because of factors beyond our control, such as shortages in qualified personnel, and

	•		the possibility of termination or non-renewal of the agreement by the third-party, based on its own business priorities, at a time that is costly or inconvenient for us.

We rely on a single source supplier for the manufacture of our product candidate Puricase. We also have a single source supplier of a key raw material contained in Puricase. In addition, we have entered into an arrangement with BTG-Israel, to serve as the initial primary manufacturer of our product candidate, Puricase. The continued ability of BTG-Israel to consistently perform manufacturing activities for us may be affected by economic, military and political conditions in Israel and in the Middle East in general. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and neighboring countries. These hostilities have, at times, caused security and economic problems in Israel.

The nature and scope of the technology transfer required to manufacture the product outside of BTG-Israel makes it unlikely that we will be able to initiate sources of supply of Puricase other than BTG-Israel, prior to 2010. Escalating hostilities involving Israel could adversely affect BTG-Israel’s ability to supply adequate quantities of the product under our agreement and in turn affect our ability to complete the clinical development of Puricase. While we have identified additional secondary sources of supply of Puricase the time to conduct a technology transfer to enable the secondary source to scale up and validate its manufacturing processes for Puricase will be lengthy. If we experience an interruption in the supply of Puricase from BTG-Israel or the raw materials from other third-party suppliers may materially adversely affect our financial results.

We rely on numerous vendors for developing analytical methods, characterizing raw materials and finished products, writing regulatory documents, filing electronic submissions and for advice on technical issues. These services may not produce results that are acceptable to regulatory agencies and/or on time for Puricase marketing applications.

The manufacture and packaging of pharmaceutical products are subject to the requirements of the FDA and similar foreign regulatory bodies. If we or our third-party suppliers fail to satisfy these requirements, our business operations may be materially harmed.

The manufacturing process for pharmaceutical products is highly regulated. Manufacturing activities must be conducted in accordance with the FDA’s current Good Manufacturing Practices, and comparable requirements of foreign regulatory bodies.

Failure by our third-party suppliers to comply with applicable regulations, requirements, or guidelines could result in sanctions being imposed on us, including fines, injunctions, civil penalties, failure of regulatory authorities to grant marketing approval of our products, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of products, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect our business. Other than by contract, we do not have control over the compliance by our third-party suppliers with these regulations and standards.

Changes in manufacturing processes or procedures, including changes in the location where an API or a finished product is manufactured or changes in a third-party supplier may require prior FDA or other governmental review or approval or revalidation of the manufacturing process. This is particularly an issue with biologic products, such as our product candidate Puricase. This review or revalidation may be costly and time-consuming.

Because there are a limited number of manufacturers that operate under applicable regulatory requirements, it may be difficult for us to change a third-party supplier if we are otherwise required to do so.

We may not be successful in establishing strategic alliances, which could adversely affect our ability to develop and commercialize products and services.

Part of our strategic plan to focus on product development involves entering into strategic alliances for the development and commercialization of products and services when we believe that doing so will maximize product value. For example, we plan to seek development and commercial partners to commercialize Puricase outside the United States.

If we are unsuccessful in reaching an agreement with a suitable collaborator or collaborators for our current or future product candidates, we may fail to meet our business objectives for the applicable product or program. We

face significant competition in seeking appropriate collaborators. Moreover, these alliance arrangements are complex to negotiate and time-consuming to document. We may not be successful in our efforts to establish strategic alliances or other alternative arrangements. The terms of any strategic alliances or other arrangements that we establish may not be favorable to us. Moreover, such strategic alliances or other arrangements may not be successful.

The risks that we are likely to face in connection with any future strategic alliances include the following:

	•		strategic alliance agreements are typically for fixed terms and are subject to termination under various circumstances, including, in many cases without cause,

	•		we may rely on collaborators to manufacture the products covered by our alliances,

	•		the areas of research, development and commercialization that we may pursue, either alone or in collaboration with third parties, may be limited as a result of non-competition provisions of our strategic alliance agreements, and

	•		failure to establish a steady supply of essential raw materials from vendors.

Our sales depend on payment and reimbursement from third-party payors and a reduction in the payment or reimbursement rate could result in decreased use or sales of our products.

Most patients rely on Medicare and Medicaid, private health insurers and other third-party payors to pay for their medical needs, including any drugs we or our collaborators may market. If third-party payors do not provide adequate coverage or reimbursement for any products that we may develop, our revenues and prospects for profitability will suffer. The United States Congress enacted a limited prescription drug benefit for Medicare recipients in the Medicare Prescription Drug and Modernization Act of 2003 which was expanded by the Medicare Part D prescription plan that went into effect January 1, 2006. As a result, in some cases our prices are negotiated with drug procurement organizations for Medicare beneficiaries and are likely to be lower than if we did not participate in this program. Non-Medicare third-party drug procurement organizations may also base the price they are willing to pay on the rate paid by drug procurement organizations for Medicare beneficiaries.

A primary trend in the United States healthcare industry is toward cost containment. In addition, in some foreign countries, particularly the countries of the European Union, the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take six to twelve months or longer after the receipt of regulatory marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost effectiveness of our product candidates or products to other available therapies. The conduct of such a clinical trial could be expensive and result in delays in commercialization of our products.

Third-party payors, states, and federally subsidized programs are challenging the prices charged for medical products and services, and many third-party payors, states, and federally subsidized programs consistently limit reimbursement for healthcare products, including Oxandrin and our authorized generic version of oxandrolone. In particular, third-party payors may limit the indications for which they will reimburse patients who use any products we may develop. Cost control initiatives could decrease the price we might establish for products that we may develop, which would result in lower product revenues to us.

If we fail to attract and keep senior management and key scientific personnel, we may be unable to successfully develop or commercialize our product candidates.

Our ability to successfully develop and commercialize our products will depend on our ability to attract, retain and motivate highly qualified personnel and to establish and maintain continuity and stability within our management team. There is a great deal of competition from other companies and research and academic institutions for the limited number of pharmaceutical development professionals with expertise in the areas of our activities. We generally do not enter into employment agreements with any of our product development personnel. In addition, we do not maintain, and have no current intention of obtaining, “key man” life insurance on any of our employees. If we cannot continue to attract and retain, on acceptable terms, the qualified personnel necessary for the continued development of our business and products, we may not be able to sustain our operations and execute our business plan.

We may incur substantial costs related to product liability.

The testing and marketing of our products entail an inherent risk of product liability and associated adverse publicity. Pharmaceutical product liability exposure could be extremely large and poses a material risk.

We currently have product liability insurance coverage in place, which is subject to coverage limits and deductibles. We might not be able to maintain existing insurance or obtain additional insurance on acceptable terms, or at all. It is possible that a single product liability claim could exceed our insurance coverage limits, and multiple claims are possible. Any successful product liability claim made against us could substantially reduce or eliminate any stockholders’ equity we may have and could materially harm our financial results. Product liability claims, regardless of their merit, could be costly, divert management’s attention, and adversely affect our reputation and the demand for our products.

The ultimate outcome of pending securities litigation is uncertain.

After the restatement of our financial statements for the years ended December 31, 1999, 2000 and 2001 and the first two quarters of 2002, we and some of our former officers were named in a series of similar purported securities class action lawsuits. The complaints in these actions, which have been consolidated into one action, allege violations of U.S. securities law through alleged material misrepresentations and omissions and seek an unspecified award of damages.

In August 2005, citing the failure of the plaintiff’s amended complaint to set forth particularized facts that give rise to a strong inference that the defendants acted with the required state of mind, the district court granted our motion to dismiss the action, without prejudice, and granted plaintiffs leave to file an amended complaint. In October 2005 the plaintiffs filed a second amended complaint, again seeking unspecified compensatory damages, purporting to set forth particularized facts to support their allegations of violations of Sections 10(b) and 20(a) of the Exchange Act by us and our former officers. In December 2005 we filed a motion to dismiss the second amended complaint which has now been fully briefed by both us and the plaintiffs and is pending a decision by the Court. On October 26, 2006, the district court granted our motion to dismiss, with prejudice, plaintiff’s second amended complaint. The district court declined to allow plaintiffs to file another amended complaint. The plaintiffs have filed an appeal in the United States Court of Appeals for the Third Circuit, which is currently pending. We intend to contest the appeal vigorously. However, should the appeal prove successful and an adverse decision in this case is ultimately made, we could be adversely affected financially. We have referred these claims to our directors and officers insurance carrier, which has reserved its rights as to coverage with respect to this action.

Tax requirements and audits could impact our results of operations.

The Company is subject to the tax laws of various jurisdictions. Our results of operations could be materially affected with a change in tax law or in the interpretation of tax law. This also includes the risk of changes in tax rates and the risk of failure to comply with procedures required by the taxing authorities. Failure to manage our tax strategies could lead to an additional tax charge. We are currently under examination by various state taxing authorities for certain tax years. Any material disagreement with taxing authorities could result in cash expenditures and adversely affect our results of operations and financial condition.

Risks Related to Previous Weaknesses in our Internal Controls

We previously identified material weaknesses in our internal controls over financial reporting. Although these material weaknesses have been fully remediated, we may experience additional material weaknesses in the future. Any material weaknesses in our internal control over financial reporting or our failure to remediate such material weaknesses could result in a material misstatement in our financial statements not being prevented or detected and could adversely affect investor confidence in the accuracy and completeness of our financial statements, as well as our stock price.

We previously identified material weaknesses in our internal control over financial reporting. These material weaknesses have been fully remediated as described further in Item 9A of our 2006 Annual Report on Form 10-K. In our 2006 Annual Report on Form 10-K, and updated in this Quarterly Report on Form 10-Q (Item 4), we have determined that out disclosure controls and procedures are effective.

Additional material weaknesses in our internal control over financial reporting could result in material misstatements in our financial statements not being prevented or detected and could harm investor confidence in the accuracy and completeness of our financial statements, which in turn could harm our business and have an adverse effect on our stock price and our ability to raise additional funds.

Risks Relating to Intellectual Property

If we fail to comply with our obligations in our intellectual property licenses with third parties, we could lose license rights that are important to our business.

We intend to become a party to various license agreements. We expect that our future licenses will impose various diligence, milestone payment, royalty, insurance and other obligations on us. If we fail to comply with these obligations, the licensor may have the right to terminate the license, in which event we might not be able to market any product that is covered by the licensed patents.

If we are unable to obtain and maintain protection for the intellectual property relating to our technology and products, the value of our technology and products will be adversely affected.

Our success will depend in large part on our ability to obtain and maintain protection in the United States and other countries for the intellectual property covering or incorporated into our technology and products. The patent situation in the field of biotechnology and pharmaceuticals is highly uncertain and involves complex legal and scientific questions. We may not be able to obtain additional issued patents relating to our technology or products. Even if issued, patents may be challenged, narrowed, invalidated or circumvented, which could limit our ability to stop competitors from marketing similar products or limit the length of term of patent protection we may have for our products. Generic forms of our product Oxandrin are now being introduced, and as a result, our results of operations have been harmed. Changes in either patent laws or in interpretations of patent laws in the United States and other countries may diminish the value of our intellectual property or narrow the scope of our patent protection.

Our patents also may not afford us protection against competitors with similar technology. Because patent applications in the United States and many foreign jurisdictions are typically not published until 18 months after filing, or in some cases not at all, and because publications of discoveries in the scientific literature often lag behind actual discoveries, neither we nor our licensors can be certain that we or they were the first to make the inventions claimed in issued patents or pending patent applications, or that we or they were the first to file for protection of the inventions set forth in these patent applications.

If we are unable to protect the confidentiality of our proprietary information and know-how, the value of our technology and products could be adversely affected.

In addition to patented technology, we rely upon unpatented proprietary technology, processes and know-how. We seek to protect this information in part by confidentiality agreements with our employees, consultants and third parties. These agreements may be breached and we may not have adequate remedies for any such breach. In addition, our trade secrets may otherwise become known or be independently developed by competitors. If our confidential information or trade secrets become publicly known, they may lose their value to us.

If we infringe or are alleged to infringe intellectual property rights of third parties, our business may be adversely affected.

Our development and commercialization activities, as well as any product candidates or products resulting from these activities, may infringe or be claimed to infringe patents or patent applications under which we do not hold licenses or other rights. We are aware of patent applications filed by, or patents issued to, other entities with respect to technology potentially useful to us and, in some cases, related to products and processes being developed by us. Third parties may own or control these patents and patent applications in the United States and abroad. These third parties could bring claims against us or our collaborators that would cause us to incur substantial expenses and, if successful against us, could cause us to pay substantial damages. Further, if a patent infringement suit were brought against us or our collaborators, we or they could be forced to stop or delay research, development, manufacturing or sales of the product or product candidate that is the subject of the suit.

As a result of patent infringement claims, or in order to avoid potential claims, we or our collaborators may choose or be required to seek a license from the third-party and be required to pay license fees, royalties, or both. These licenses may not be available on acceptable terms, or at all. Even if we or our collaborators were able to obtain a license, the rights may be nonexclusive, which could result in our competitors gaining access to the same

intellectual property. Ultimately, we could be prevented from commercializing a product, or be forced to cease some aspect of our business operations if, as a result of actual or threatened patent infringement claims, we or our collaborators are unable to enter into licenses on acceptable terms. This could harm our business significantly.

There has been substantial litigation and other proceedings regarding patent and other intellectual property rights in the pharmaceutical and biopharmaceutical industries. In addition to infringement claims against us, we may become a party to other patent litigation and other proceedings, including interference proceedings declared by the United States Patent and Trademark Office and opposition proceedings in the European Patent Office or in another patent office, regarding intellectual property rights with respect to our products and technology. The cost to us of any patent litigation or other proceeding, even if resolved in our favor, could be substantial. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their substantially greater financial resources.

Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could adversely affect our ability to compete in the marketplace. Patent litigation and other proceedings may also absorb significant management time.

In the future we may be involved in costly legal proceedings to enforce or protect our intellectual property rights or to defend against claims that we infringe the intellectual property rights of others.

Litigation is inherently uncertain and an adverse outcome could subject us to significant liability for damages or invalidate our proprietary rights. Legal proceedings that we initiate to protect our intellectual property rights could also result in counterclaims or countersuits against us. Any litigation, regardless of its outcome, could be time-consuming and expensive to resolve and could divert our management’s time and attention. Any intellectual property litigation also could force us to take specific actions, including:

	•		cease selling products or undertaking processes that are claimed to be infringing a third-party’s intellectual property,

	•		obtain licenses to make, use, sell, offer for sale or import the relevant technologies from the intellectual property’s owner, which licenses may not be available on reasonable terms, or at all,

	•		redesign those products or processes that are claimed to be infringing a third-party’s intellectual property, or

	•		pursue legal remedies with third parties to enforce our indemnification rights, which may not adequately protect our interests.

We have been involved in several lawsuits and disputes regarding intellectual property in the past. We could be involved in similar disputes or litigation with other third parties in the future. An adverse decision in any intellectual property litigation could have a material adverse effect on our business, results of operations and financial condition.

Regulatory Risks

We are subject to stringent governmental regulation, and our failure to comply with applicable regulations could adversely affect our ability to conduct our business.

Virtually all aspects of our business are subject to extensive regulation by numerous federal and state governmental authorities in the United States, such as the FDA, as well as by foreign countries where we manufacture or distribute our products. Of particular significance are the requirements covering research and development, testing, manufacturing, quality control, labelling, promotion and distribution of pharmaceutical products for human use. All of our products, manufacturing processes and facilities require governmental licensing, registration or approval prior to commercial use, and maintenance of those approvals during commercialization. Our prescription pharmaceutical products cannot be marketed in the United States until they have been approved by the FDA, and then can only be marketed for the indications and claims approved by the FDA. As a result of these requirements, the length of time, the level of expenditures and the laboratory and clinical information required for approval of an NDA or a BLA are substantial. The approval process applicable to products of the type being developed by us usually takes many years from the commencement of human clinical trials and typically requires substantial expenditures. We may encounter significant delays or excessive costs in our or their respective efforts to secure necessary approvals or licenses. Before obtaining regulatory approval for the commercial sale of our

products, we are required to conduct pre-clinical and clinical trials to demonstrate that the product is safe and efficacious for the treatment of the target indication. The timing of completion of clinical trials depends on a number of factors, many of which are outside our control. In addition, we may encounter delays or rejections based upon changes in the policies of regulatory authorities. The FDA and foreign regulatory authorities have substantial discretion to terminate clinical trials, require additional testing, delay or withhold registration and marketing approval, and mandate product withdrawals.

Regulation by governmental authorities in the United States and other countries is a significant factor affecting our ability to commercialize our products, the timing of such commercialization, and our ongoing research and development activities. The timing of regulatory approvals, if any, is not within our control.

Failure to comply with applicable regulatory requirements can, among other things, result in significant fines or other sanctions, termination of clinical trials, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, imposition of operating restrictions, civil penalties and criminal prosecutions. We or our employees might not be, or might fail to be, in compliance with all potentially applicable federal and state regulations, which could adversely affect our business.

In addition, all pharmaceutical product promotion and advertising activities are subject to stringent regulatory requirements and continuing regulatory review. Violations of these regulations could result in substantial monetary penalties, and civil penalties which can include costly mandatory compliance programs and exclusion from federal healthcare programs.

Further, FDA policy or similar policies of regulatory agencies in other countries may change and additional governmental requirements may be established that could prevent or delay regulatory approval of our products. Moreover, from time to time legislation is drafted and introduced in Congress that could provide for a reduced regulatory threshold for the approval of generic competition, especially with respect to biologic products. We cannot predict what effect changes in regulations, enforcement positions, statutes or legal interpretations, when and if promulgated, adopted or enacted, may have on our business in the future. Changes could, among other things, provide for a reduced regulatory threshold for the approval of generic competition, especially with regard to biologics products, require changes to manufacturing methods or facilities, expanded or different labelling, new approvals, the recall, replacement or discontinuance of certain products, additional record keeping and expanded scientific substantiation requirements. These changes, or new legislation, could adversely affect our business.

Risks Relating to an Investment in Our Common Stock

Our stock price is volatile, which could adversely affect your investment.

Our stock price is volatile. Since January 1, 2005, our common stock had traded as high as $15.75 per share and as low as $2.25 per share. The market price of our common stock may be influenced by many factors, including:

	•		our ability to successfully implement our strategic business plan,

	•		announcements of technological innovations or new commercial products by us or our competitors,

	•		announcements by us or our competitors of results in pre-clinical testing and clinical trials,

	•		regulatory developments,

	•		patent or proprietary rights developments,

	•		public concern as to the safety or other implications of biotechnology products,

	•		changes in our earnings estimates and recommendations by securities analysts,

	•		period-to-period fluctuations in our financial results, and

	•		general economic, industry and market conditions.

The volatility of our common stock imposes a greater risk of capital losses on our stockholders than a less volatile stock would. In addition, volatility makes it difficult to ascribe a stable valuation to a stockholder’s holdings of our common stock. The stock market in general and the market for pharmaceutical and biotechnology companies in particular have also experienced significant price and volume fluctuations that are often unrelated to the operating performance of particular companies. In the past, following periods of volatility in the market price of the securities

of pharmaceutical and biotechnology companies, securities class action litigation has often been instituted against these companies. Such litigation would result in substantial costs and a diversion of management’s attention and resources, which could adversely affect our business.

We expect our quarterly results to fluctuate, which may cause volatility in our stock price.

Our revenues and expenses have in the past and may in the future continue to display significant variations. These variations may result from a variety of factors, including:

	•		the amount and timing of product sales,

	•		changing demand for our products,

	•		our inability to provide adequate supply for our products,

	•		changes in wholesaler buying patterns,

	•		returns of expired product,

	•		changes in government or private payor reimbursement policies for our products,

	•		increased competition from new or existing products, including generic products,

	•		the timing of the introduction of new products,

	•		the timing and realization of milestone and other payments from licensees,

	•		the timing and amount of expenses relating to research and development, product development and manufacturing activities,

	•		the timing and amount of expenses relating to sales and marketing,

	•		the timing and amount of expenses relating to general and administrative activities,

	•		the extent and timing of costs of obtaining, enforcing and defending intellectual property rights, and

	•		any charges related to acquisitions.

Because many of our expenses are fixed, particularly in the short-term, any decrease in revenues will adversely affect our earnings until revenues can be increased or expenses reduced. We also expect that our revenues and earnings will be adversely affected now that generic versions of Oxandrin have been introduced. Because of fluctuations in revenues and expenses, it is possible that our operating results for a particular quarter or quarters will not meet the expectations of public market analysts and investors, which could cause the market price of our common stock to decline. We believe that period-to-period comparisons of our operating results are not a good indication of our future performance and stockholders should not rely on those comparisons to predict our future operating or share price performance.

Effecting a change of control of our company could be difficult, which may discourage offers for shares of our common stock.

Our certificate of incorporation and the Delaware General Corporation Law contain provisions that may delay or prevent an attempt by a third-party to acquire control of us. These provisions include the requirements of Section 203 of the Delaware General Corporation Law. In general, Section 203 prohibits designated types of business combinations, including mergers, for a period of three years between us and any third-party that owns 15% or more of our common stock. This provision does not apply if:

	•		our board of directors approves the transaction before the third-party acquires 15% of our stock,

	•		the third-party acquires at least 85% of our stock at the time its ownership goes past the 15% level, or

	•		our board of directors and two-thirds of the shares of our common stock not held by the third-party vote in favor of the transaction.

We have also adopted a stockholder rights plan intended to deter hostile or coercive attempts to acquire us. Under the plan, if any person or group acquires more than 20% of our common stock without approval of our board of directors under specified circumstances, our other stockholders have the right to purchase shares of our common stock, or shares of the acquiring company, at a substantial discount to the public market price. As a result, the plan makes an acquisition much more costly to a potential acquirer.

Our certificate of incorporation also authorizes us to issue up to 4 million shares of preferred stock in one or more different series with terms fixed by our board of directors. Stockholder approval is not necessary to issue preferred stock in this manner. Issuance of these shares of preferred stock could have the effect of making it more difficult for a person or group to acquire control of us. No shares of our preferred stock are currently outstanding. While our board of directors has no current intention or plan to issue any preferred stock, issuance of these shares could also be used as an anti-takeover device.

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

We held our 2007 Annual Meeting of Stockholders on May 15, 2007 at which our stockholders elected all of the director nominees to serve as our directors until our 2008 Annual Meeting of Stockholders and until his or her successor is elected and qualified, and ratified the appointment of McGladrey & Pullen, LLP as our independent auditor for the fiscal year ending December 31, 2007.

The matters acted upon at the 2007 Annual Meeting of Stockholders, and the voting tabulation for each matter, are as follows:

Item No. 1: To elect seven directors for terms of one year each:


Nominee	Votes For		Votes Withheld
Christopher G. Clement		46,788,896		523,643
Herbert Conrad		46,781,228		531,311
Alan L. Heller		46,849,362		463,177
Stephen O. Jaeger		46,871,372		441,167
Joseph Klein III		46,816,891		495,648
Lee S. Simon, M.D.		46,851,669		460,870
Virgil Thompson		46,646,712		665,827

Item No. 2: To ratify the appointment of McGladrey & Pullen, LLP as our independent auditor for the fiscal year ending December 31, 2007:


Votes For	Votes Against	Abstain
47,043,669	60,305	208,564

ITEM 6. EXHIBITS

a) Exhibits

The exhibits listed in the Exhibit Index are included in this report.


		Page
PART I — FINANCIAL INFORMATION

Item 1.	Financial Statements:
	Consolidated Balance Sheets		1
	Consolidated Statements of Operations		2
	Consolidated Statement of Changes in Stockholders’ Equity		3
	Consolidated Statements of Cash Flow		4
	Notes to Consolidated Financial Statements		5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		19
Item 3.	Quantitative and Qualitative Disclosure About Market Risk		31
Item 4.	Controls and Procedures		32

PART II — OTHER INFORMATION
Item 1.	Legal Proceedings		33
Item 1A.	Risk Factors		34
Item 4	Submission of Matters to a Vote of Security Holders		48
Item 6.	Exhibits		48

	Signatures		49

	Exhibit Index		50
EX-10.1: AMENDED AND RESTATED INCENTIVE PLAN
EX-10.2: FORM OF BOARD OF DIRECTORS RESTRICTED STOCK AGREEMENT
EX-10.3: FORM OF BOARD OF DIRECTORS NON-QUALIFIED STOCK OPTION AGREEMENT
EX-31.1: CERTIFICATION
EX-31.2: CERTIFICATION
EX-32.1: CERTIFICATION
EX-32.2: CERTIFICATION



		SAVIENT PHARMACEUTICALS, INC.
				(Registrant)

		By:		/s/ Christopher Clement

				Christopher Clement
				President and Chief Executive Officer
				(Principal Executive Officer)

		By:		/s/ Brian Hayden

				Brian Hayden
				Chief Financial Officer
				(Principal Financial Officer)


Exhibit No.		Description

10.1		Savient Pharmaceuticals, Inc. Amended and Restated 2004 Incentive Plan

10.2		Form of Savient Pharmaceuticals, Inc. Board of Directors Restricted Stock Agreement

10.3		Form of Savient Pharmaceuticals, Inc. Board of Directors Non-Qualified Stock Option Agreement

31.1		Certification of principal executive officer pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as amended

31.2		Certification of the principal financial officer pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as amended

32.1		Statement pursuant to 18 U.S.C. §1350

32.2		Statement pursuant to 18 U.S.C. §1350