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 March 31, 2008


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

One Tower Center, 14^th Floor, 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, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


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

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 issuers’ Common Stock, par value $.01 per share, as of May 4, 2008 was 54,226,372.

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SAVIENT PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share data)


	March 31,			December 31,
	2008			2007
ASSETS
Current Assets:
Cash and cash equivalents	$	117,183		$	124,865
Short-term investments (including restricted investments)		9,867			17,557
Accounts receivable, net		1,058			1,490
Notes receivable		—			644
Inventories, net		2,370			2,636
Recoverable income taxes		9,871			8,637
Prepaid expenses and other current assets		1,660			3,105

Total current assets		142,009			158,934


Deferred income taxes, net		3,558			3,558
Property and equipment, net		1,630			1,599
Other assets (including restricted cash and investments)		3,293			3,082

Total assets	$	150,490		$	167,173


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	2,886		$	3,758
Deferred revenues		1,047			1,298
Other current liabilities		13,124			14,128

Total current liabilities		17,057			19,184

Other liabilities		9,021			8,924
Commitments and contingencies
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; 54,206,000 issued and outstanding at March 31, 2008 and 53,712,000 shares issued and outstanding at December 31, 2007		542			537
Additional paid in capital		208,760			204,659
Accumulated deficit		(84,997	)		(67,445	)
Accumulated other comprehensive income		107			1,314

Total stockholders’ equity		124,412			139,065

Total liabilities and stockholders’ equity	$	150,490		$	167,173

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)


	Three Months Ended March 31,
	2008			2007
Cash flows from operating activities:

Net loss	$	(17,552	)	$	(7,842	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation		93			154
Deferred income taxes		—			(3,148	)
Unrecognized tax benefit liability		111			—
Net realized losses		9			—
Common stock issued as payment for services		—			34
Amortization of deferred compensation related to restricted stock (including performance shares)		1,344			626
Stock option and ESPP compensation		1,207			746
Changes in:
Accounts receivable, net		432			1,075
Inventories, net		266			594
Recoverable income taxes		(1,234	)		—
Prepaid expenses and other current assets		1,445			2,909
Accounts payable		(870	)		2,235
Income taxes payable		(2	)		(1,609	)
Other current liabilities		(1,004	)		(2,819	)
Deferred revenues		(251	)		21

Net cash used in operating activities		(16,006	)		(7,024	)


Cash flows from investing activities:

Proceeds from sale of Delatestryl		644			644
Purchases of available-for-sale securities (restricted)		(109	)		—
Proceeds from sale of available-for-sale securities (restricted)		6,254			—
Proceeds from sales of available-for-sale securities		131			—
Capital expenditures		(124	)		(311	)
Changes in other long-term assets		(13	)		—

Net cash provided by investing activities		6,783			333


Cash flows from financing activities:

Proceeds from issuance of common stock		1,555			295
Additional paid in capital excess tax benefit		—			1,507
Changes in other long-term liabilities		(14	)		(5	)

Net cash provided by financing activities		1,541			1,797
Effect of exchange rate changes		—			59

Net decrease in cash and cash equivalents		(7,682	)		(4,835	)
Cash and cash equivalents at beginning of period		124,865			177,293

Cash and cash equivalents at end of period	$	117,183		$	172,458


Supplementary Information

Other information:
Income tax paid	$	2		$	1
Interest paid	$	7		$	4

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 March 31, 2008 and the results of its operations and cash flows for the three months ended March 31, 2008 and 2007. Interim financial statements are prepared on a basis consistent with the Company’s annual financial statements. Results of operations for the three months ended March 31, 2008 are not necessarily indicative of the operating results that may be expected for the year ending December 31, 2008.

The consolidated balance sheet as of December 31, 2007 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, 2007.

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.

Note 2 — Fair Value of Financial Instruments

Pursuant to the provisions as prescribed in Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair Value Measurements, the Company categorizes its financial instruments into a three-level fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure fair value fall within different levels of the hierarchy, the category level is based on the lowest priority level input that is significant to the fair value measurement of the instrument.

Financial assets recorded at fair value on the Company’s consolidated balance sheets are categorized as follows:

Level 1: Unadjusted quoted prices for identical assets in an active market.

Level 2: Quoted prices in markets that are not active or inputs that are observable either directly or indirectly for substantially the full term of the asset. Level 2 inputs include the following:

	•		Quoted prices for similar assets in active markets,

	•		Quoted prices for identical or similar assets in non-active markets,

	•		Inputs other than quoted market prices that are observable, and

	•		Inputs that are derived principally from or corroborated by observable market data through correlation or other means.

Level 3: Prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. They reflect management’s own assumptions about the assumptions a market participant would use in pricing the asset.

The following table presents the Company’s hierarchy for its financial instruments measured at fair value on a recurring basis as of March 31, 2008:


	Level 1		Level 2		Level 3		Total
			(In thousands)

Cash and cash equivalents (1)	$	117,183	$	—	$	—	$	117,183
Short-term investments (available-for-sale) (2)		128		—		—		128
Restricted investments — short-term (available-for-sale) (3)		—		9,739		—		9,739

Total cash and cash equivalents and short-term investments		117,311		9,739		—		127,050


Restricted cash (1)		1,280		—		—		1,280
Restricted investments — long-term (available-for-sale) (3)		—		2,000		—		2,000

Total long-term investments		1,280		2,000		—		3,280


Total assets measured at fair value on a recurring basis	$	118,591	$	11,739	$	—	$	130,330


(1)		The estimated fair value of cash and cash equivalents and restricted cash approximates the carrying value.

(2)		Short-term investments at March 31, 2008 are comprised of the Company’s investments in common shares of Neuro-Hitech Pharmaceuticals, Inc. and Antares Pharma, Inc. The fair values of these investments are obtained from quoted prices in active markets.

(3)		The Company’s restricted investment consists of its investment in the Columbia Strategic Cash Portfolio (“the portfolio”). During the fourth quarter of 2007, Columbia Management (“Columbia”), a unit of Bank of America (“BOA”), closed the portfolio to new investments and redemptions and began an orderly liquidation and dissolution of the portfolio’s assets for distribution to the unit holders, thereby restricting the Company’s potential to invest in and withdraw from the portfolio. At March 31, 2008, approximately $7.8 million, or 39%, of the Company’s original $20.0 million invested has been redeemed and re-invested in cash and cash equivalents. Additional redemptions of $1.0 million and $7.0 million are expected to occur in July 2008 and by the end of 2008, respectively. The remaining balance is expected to be redeemed in 2009. At March 31, 2008, the cost basis of restricted securities was $11.7 million, $9.7 million of which is reflected in the Company’s consolidated balance sheet as a component of restricted short-term investments and $2.0 million of which is reflected in the Company’s consolidated balance sheet as a component of restricted long-term other assets. At December 31, 2007, the fair market value of the Company’s investment in the portfolio was $18.0 million, $16.2 million of which is reflected in the Company’s consolidated balance sheet as restricted short-term investments and $1.8 million of which is reflected as restricted long-term other assets. The fair value of the securities held within the portfolio are independently priced by third-party pricing services.

The carrying amounts of notes receivable, accounts receivable, and accounts payable approximate fair value.

Other-than-temporary impairments

The Company regularly monitors its available-for-sale portfolio to evaluate the necessity of recording impairment losses for other-than-temporary (“OTT”) declines in the fair value of investments. Management makes this determination through the consideration of various factors such as management’s intent and ability to retain an investment for a period of time sufficient to allow for any anticipated recovery in market value. OTT impairment losses result in a permanent reduction of the cost basis of an investment. For the three months ended March 31, 2008, the Company recorded realized investment losses due to OTT declines in fair value of $0.1 million. The Company did not realize any investment losses due to OTT declines in fair value for the three months ended March 31, 2007.

Note 3 — Investments

The Company classifies its investments as “available-for-sale securities” or “trading securities” pursuant to SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, which provides that investments that are purchased and held principally for the purpose of selling them in the near-term are classified as trading securities and marked to fair value through earnings. Investments not classified as trading securities are considered to be available-for-sale securities. Changes in the fair value of available-for-sale securities are reported as a component of accumulated other comprehensive income in the consolidated statements of stockholders’ equity and are not reflected in the consolidated statements of operations until a sale transaction occurs or when declines in fair value are deemed to be OTT.

Net unrealized losses included in accumulated other comprehensive income at March 31, 2008 and December 31, 2007 were as follows:


	March 31,			December 31,
	2008			2007
	(In thousands)
Net unrealized losses arising during the period	$	(1,216	)	$	(663	)
Reclassification adjustment for net (gains) losses included in earnings		9			(6	)

Net unrealized losses included in accumulated other comprehensive income	$	(1,207	)	$	(669	)

Note 4 — Inventories

Inventories at March 31, 2008 and December 31, 2007 are summarized below:


	March 31,			December 31,
	2008			2007
	(In thousands)
Raw materials	$	2,872		$	2,875
Work-in-process		—			—
Finished goods		7,349			7,678
Inventory reserves		(7,851	)		(7,917	)

Total	$	2,370		$	2,636

Inventories are stated at the lower of cost or market. Cost is determined based on actual cost. 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 market value. These reserves are based on estimates. The aggregate inventory valuation reserve was $7.9 million at March 31, 2008 and December 31, 2007.

Note 5 — 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. Since 2006, the Company has shipped oxandrolone to its distributor and has accounted for these shipments on a consignment basis until product is sold into the retail market. The Company has deferred the recognition of revenue related to these shipments until the Company confirms that the product has been sold into the retail market and 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 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:

	•		persuasive evidence of an arrangement exists,

	•		delivery has occurred or services have been rendered,

	•		the seller’s price to the buyer is fixed and determinable, and

	•		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:

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

	•		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,

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

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

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

	•		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.

Allowance for returns — In general, the Company provides credit for product returns that are returned six months prior to and up to 12 months after the product expiration date. The Company’s product sales in the United States primarily relate to Oxandrin. 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:

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

	•		relatively long periods in which a particular product may be returned,

	•		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

	•		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:

	•		significant increases in or excess levels of inventory in a distribution channel,

	•		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,

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

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

	•		the newness of a product,

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

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

The Company continually analyzes the impact of generic competition on product returns considering the product at wholesalers and retailers, and demand forecasts. The allowance for product returns was $1.0 million at March 31, 2008 and $0.9 million at December 31, 2007. This allowance is included in Other Current Liabilities on the Company’s consolidated balance sheets.

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 was $0.9 million at March 31, 2008 and $1.0 million at December 31, 2007. This allowance is included in Other Current Liabilities on the Company’s consolidated balance sheets.

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 two of its largest customers.

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

Note 6 — Research and Development

All research and development costs are expensed as incurred.

Note 7 — Earnings (Loss) per Share of Common Stock

The Company accounts for and discloses net earnings (loss) per share using the treasury stock method under the provisions of SFAS No. 128, Earnings Per Share (EPS). Net earnings (loss) per common share, or basic earnings (loss) per share, is computed by dividing the Company’s reported net earnings (loss) for the period by the weighted average number of common shares outstanding at the end of the period. Net earnings (loss) per common share assuming dilutions, or diluted earnings (loss) per share, is computed by reflecting the potential dilution that could occur from the exercise of in-the-money stock options and unvested restricted stock, including service-based restricted shares, performance awards that have been achieved and market price contingent awards based on the end-of-period market price of the Company’s common stock.

The Company’s basic and diluted weighted average number of common shares outstanding at March 31, 2008 and 2007 were as follows:


	Three Months Ended
	March 31,
	2008		2007
	(In thousands)

Basic		53,276		51,997
Incremental common stock equivalents		—		—


Diluted		53,276		51,997

At March 31, 2008 and 2007, all in-the-money stock options and unvested restricted stock were excluded from the computation of diluted earnings (loss) per share as their effect would have been anti-dilutive since the Company reported a net loss for these periods.

Note 8 — Share-Based Compensation

In 2001, the Company adopted the 2001 Stock Option Plan (the “2001 Stock Option Plan”). The 2001 Stock Option Plan permits the granting of options to purchase up to an aggregate of 10 million shares of the Company’s common stock to employees (including employees who are directors) and consultants of the Company. Under the 2001 Stock Option Plan, the Company may grant either incentive stock options, at an exercise price of not less than 100% of the fair market value of the underlying shares on the date of grant, or non-qualified stock options, at an exercise price not less than 85% of the fair market value of the underlying shares on the date of grant. Options generally become exercisable ratably over two or four-year periods, with unexercised options expiring after the earlier of ten years or shortly after termination of employment. Terminated options are available for reissuance.

In 2004, the Company adopted the 2004 Incentive Plan, which superseded the 2001 Stock Option Plan. The 2004 Incentive Plan allows the Compensation Committee to award stock appreciation rights, restricted stock awards, performance-based awards and other forms of equity-based and cash incentive compensation, in addition to stock options. Under this plan, 3.2 million shares remain available for future grant at March 31, 2008.

Total compensation cost that has been charged against income related to the above plans was $2.5 million and $1.4 million for the three months ended March 31, 2008 and 2007, respectively.

Stock Options

The Company grants stock options to employees and non-employee directors (“Directors”) with exercise prices equal to the fair market value of the underlying shares of the Company’s common stock on the date that the options are granted. Options granted have a term of ten years from the grant date. Options granted to employees generally vest ratably over a four-year period and options granted to Directors vest in equal quarterly installments over a one-year period from the date of grant. Options to Directors are granted on a yearly basis and represent compensation for service performance on the board of directors. Compensation cost for stock options is charged against income on a straight-line basis between the grant date for the option and each vesting date. The Company estimates the fair value of all stock option awards as of the grant date 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 cost. The weighted average key assumptions used in determining the fair value of options granted for the three months ended March 31, 2008 and 2007, are as follows:


	Three Months Ended March 31,
	2008			2007

Weighted-average volatility		60	%		62	%
Weighted-average risk-free interest rate		2.8	%		4.6	%
Weighted average expected life in years		6.6			6.1
Dividend yield		0.0	%		0.0	%
Weighted average grant date fair value	$	12.33		$	8.63

Historical information is the primary basis for the selection of the expected volatility and expected dividend yield. The expected terms of options granted prior to December 31, 2007 were based upon the simplified method as set forth by SAB No. 107 issued by the SEC which estimates expected term as the midpoint between vesting and the grant contractual life. The expected terms of options granted subsequent to December 31, 2007 are based upon the Company’s historical experience for similar types of stock option awards. The risk-free interest rate is selected based upon yields of U.S. Treasury issues with a term equal to the expected life of the option being valued.

During the three months ended March 31, 2008, the Company issued 310,000 shares of the Company’s common stock upon the exercise of outstanding stock options and received proceeds of $1.4 million. For the three months ended March 31, 2008 and 2007, approximately $1.1 million and $0.7 million, respectively, of stock option compensation cost has been charged against income. As of March 31, 2008, there was $5.6 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.

Stock option activity during the three months ended March 31, 2008 was 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, 2007		3,016		$	7.33		7.17	$	47,176
Granted		274			20.59
Exercised		(310	)		4.48
Cancelled		—			—

Outstanding at March 31, 2008		2,980		$	8.85		7.35	$	33,403

Exercisable at March 31, 2008		1,593		$	6.21		6.16	$	21,979

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 March 31, 2008. The intrinsic value of the Company’s stock options changes based on the closing price of the Company’s common stock. The total intrinsic value of options exercised during the three months ended March 31, 2008 and 2007 was approximately $4.8 million and $0.4 million, respectively. The closing price per share of the Company’s common stock was $20.00 on March 31, 2008 and $12.02 on March 30, 2007, the last trading day of the quarter.

Restricted Stock

The Company also grants restricted stock awards to its employees and to its Directors. Restricted stock awards are recorded as deferred compensation and amortized into compensation expense, on a straight-line basis over the vesting period, which has generally ranged from one to four years in duration. Restricted stock awards to Directors are granted on a yearly basis and represent compensation for services performed on the board of directors. Restricted stock awards to Directors vest in equal quarterly installments over a one-year period from the grant date. Compensation cost for restricted stock awards is based on the awards grant date fair value, which is the closing market price of the Company’s common stock on the date the award as approved, multiplied by the number of shares awarded. During the three months ended March 31, 2008, the Company issued 96,000 shares of restricted stock at a weighted average grant date fair value of $20.21, amounting to approximately $1.9 million. During the three months ended March 31, 2008 and 2007, approximately $0.8 million and $0.5 million, respectively, of deferred restricted stock compensation cost has been charged against income. At March 31, 2008, approximately 737,000 shares remained unvested and there was approximately $7.7 million of unrecognized compensation cost related to restricted stock. The total fair value of restricted stock vested during the three months ended March 31, 2008 and 2007 was approximately $1.7 million and $1.1 million, respectively, based on the closing price of the Company’s common stock on March 31, 2008 and March 30, 2007, respectively. A summary of the status of the Company’s unvested restricted stock as of December 31, 2007, and changes during the three months ended March 31, 2008, is presented below:


				Weighted
				Average
	Number of			Grant Date
	Shares			Fair Value
	(In thousands)

Unvested at December 31, 2007		728		$	11.54
Granted		96			20.21
Vested		(87	)		10.43
Forfeited		—			—

Unvested at March 31, 2008		737		$	12.80

Restricted Stock Awards that Contain Performance or Market Conditions

Performance Conditions

The Company issues restricted stock awards that contain performance conditions to senior management personnel. These awards have the potential to vest over one to three years from the date of grant upon the achievement of specific strategic objectives associated with the achievement of pegloticase-related developmental and sales milestones and other manufacturing, commercial operations and business development objectives. Compensation cost is based on the grant date fair value of the award, which is the closing market price of the Company’s stock on the date the award is approved multiplied by the number of shares awarded. Compensation expense is recorded over the implicit or explicit requisite service period based on management’s best estimate as to whether it is probable that the shares awarded are expected to vest. Previously recognized compensation expense is fully reversed if performance targets are not satisfied.

Market Conditions

During the year ended December 31, 2007, the Company issued to its President and Chief Executive Officer, a restricted stock award, the vesting of which is contingent upon the price of the Company’s common stock achieving a certain pre-established target. Compensation cost is based upon the grant date fair value of the shares awarded and charged against income over the derived service period. Compensation cost is charged against income regardless of whether the market condition is ever achieved and is reversed only if the derived service period is not met by the senior executive. The Company used a Monte Carlo simulation model to calculate both the grant date fair value and the derived service period of the award. Based on the simulation, the grant date fair value of the award is $8.98 per share and compensation cost is being charged against income ratably over a two-year derived service period.

During the three months ended March 31, 2008 and 2007, approximately $0.5 million and $0.1 million, respectively, of compensation cost has been charged against income related to restricted stock awards that contain performance or market conditions. The total fair value of restricted stock containing performance conditions vested during the three months ended March 31, 2008 and 2007 was approximately $1.5 million and $2.1 million, respectively, based on the closing price of the Company’s common stock on March 31, 2008 and March 30, 2007, respectively. At March 31, 2008, approximately 676,000 potential shares of restricted stock with performance or market conditions remain unvested. Restricted stock awards with performance conditions encompass performance targets set for senior management personnel through 2011 and could result in approximately $4.7 million of additional compensation expense if the performance targets are met or expected to be attained. At March 31, 2008, there was approximately $0.8 million of unrecognized compensation cost related to restricted stock awards that contain market conditions which is expected to be recognized ratably over the next 11 months. A summary of the status of the Company’s unvested restricted stock awards that contain performance or market conditions as of December 31, 2007, and changes during the three months ended March 31, 2008, is presented below:


				Weighted
				Average
	Number of			Grant Date
	Shares			Fair Value
	(In thousands)

Unvested at December 31, 2007		611		$	11.77
Granted		140			20.59
Vested		(75	)		12.91
Forfeited		—			—

Unvested at March 31, 2008		676		$	13.48

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), Share-Based Payment 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%. For the three months ended March 31, 2008 and 2007, approximately $0.1 million of compensation expense was charged against income in each three-month period related to participation in the 1998 ESPP.

Note 9 — Other Liabilities

The components of Other Liabilities at March 31, 2008 and December 31, 2007 were as follows:


	March 31,		December 31,
	2008		2007
	(In thousands)

Unrecognized tax benefit (1)	$	8,812	$	8,701
Capital leases (2)		209		223

Total	$	9,021	$	8,924


(1)		See Note 10 to the Financial Statements for further discussion of unrecognized tax benefits resulting from 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 36 to 60 months and were entered into between 2002 and 2007.

Note 10 — Income Taxes

The income tax benefit for the three months ended March 31, 2008 and 2007 reflects the Company’s current estimate of the effective tax rate for the full year, adjusted for any discrete events that are reported in the quarterly period in which they occur.

The Company’s effective tax rate of 6.5% for the three months ended March 31, 2008 resulted in an income tax benefit from operations of $1.2 million. The $1.2 million income tax benefit is primarily due to the net operating loss generated in the three months ended March 31, 2008 and the ability to carry back this loss to recover a portion of the Company’s 2006 tax liability. In anticipation of receiving an additional refund of $1.2 million of the 2006 tax liability, the Company has reflected an increase in recoverable income taxes on its consolidated balance sheet as of March 31, 2008. Subsequent to March 31, 2008, the Company received a refund of $8.6 million, which was the result of carrying back the 2007 net operating loss to recover 2006 taxes paid.

The Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, (“FIN 48”), on January 1, 2007. 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.

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 $8.9 million at March 31, 2008 and $8.7 million at December 31, 2007, including accrued penalties and interest.

In accordance with FIN 48, paragraph 19, the Company recognized accrued interest and penalties related to unrecognized tax benefits as a component of Other Expense, net in its consolidated statements of operations, which is consistent with the recognition of these items in prior reporting periods. From inception to date, the Company has recorded a liability of approximately $0.7 million and $0.3 million 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 sheets. The accrued interest and penalties for unrecognized tax benefits increased by approximately $0.2 million in each of the three-month periods ended March 31, 2008 and 2007.

The Company files income tax returns in the U.S. and various state jurisdictions. The Company’s federal tax returns have been audited by the Internal Revenue Service through fiscal year ended December 31, 2003. The audit of the U.S. federal income tax return for the fiscal year ended December 31, 2005 has been completed and the Company has received a notice of no change for this fiscal period. The Company still has open the 2004, 2006 and 2007 tax years, which could be subject to federal income tax examination.

State income tax returns are generally subject to examination for a period of three to five years subsequent to the filing of the respective tax return. The Company recently settled its income tax examination for the 2000 through 2003 tax years with the State of New Jersey for $0.1 million. The Company is also in the process of settling its income tax audit with the State of New York for the 2001 through 2003 tax years. The Company estimates that settlement will result in a tax payment to the State of New York of less than $0.1 million. The Company previously recorded a reserve related to this audit.

In connection with the 2005 sale agreement of its former subsidiary, BTG-Israel, the Company is responsible for the results of any audit of BTG-Israel by any taxing jurisdiction through July 18, 2005. Currently, BTG-Israel is under audit in Israel for the years 2003 through 2005.

In connection with the 2006 sale agreement of its former U.K. subsidiary, Rosemont Pharmaceuticals, Ltd, the Company is responsible for the results of any audit of Rosemont Pharmaceuticals, Ltd by any taxing jurisdiction through August 4, 2006. Although not under audit at this time, the 2006 tax year still remains open for examination in the United Kingdom.

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.

Based upon the uncertainty of the Company’s business, the likelihood of the Company being able to fully realize its deferred income tax benefits against future income is uncertain. Accordingly, at March 31, 2008 and December 31, 2007, the Company's valuation allowance against its deferred income tax assets was $41.0 million.

Note 11 — Commitments and Contingencies

Savient’s administrative offices are located in East Brunswick, New Jersey, where it has leased 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. The lease provides Savient with two renewal options to extend the lease by five years each. 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 Company’s consolidated balance sheets at March 31, 2008 and December 31, 2007. Currently, the Company subleases approximately 7,090 square feet at a base average annual rental of $0.2 million.

At March 31, 2008, the Company had employment agreements with six senior officers. Under these agreements, the Company has committed to total aggregate base compensation per year of approximately $2.2 million plus other normal customary fringe benefits and bonuses. These employment agreements generally have an initial term of three years and are automatically renewed thereafter for successive one-year periods unless either party gives the other notice of non-renewal.

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 (the “District Court”). The 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. The 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 District Court 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 U.S. Court of Appeals for the Third Circuit, which is currently pending. Oral argument of the appeal has been tentatively scheduled for late June 2008, and a decision on this case is not expected until later in 2008. 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 District Court against Sandoz Pharmaceuticals (“Sandoz”) and Upsher-Smith Laboratories, Inc. (“Upsher-Smith”) claiming that the defendants’ 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. The temporary restraining order was granted by the District Court, but the preliminary injunction was denied and the Company appealed shortly thereafter to the U.S. Court of Appeals for the Federal Circuit in Washington, D.C.(the “Federal Circuit”), which issued an order temporarily enjoining all sales of generic oxandrolone tablets by Sandoz and Upsher-Smith until December 28, 2006. Thereafter, the Company, through its distribution partner, Watson Pharmaceuticals, launched an authorized generic of oxandrolone tablets, USP, CIII, an Oxandrin-brand equivalent product, in both the 2.5 mg and 10 mg dosages, in response to generic competition to Oxandrin from Sandoz and Upsher-Smith. The litigation against Sandoz has been dismissed without prejudice and the litigation with Upsher-Smith is continuing in the District Court and is now in the discovery phase. Upsher-Smith filed counterclaims challenging the validity of the Company’s patents and for various anti-trust related issues. The Company intends to vigorously pursue its claims of infringement and to defend the counterclaims filed by Upsher-Smith.

On September 4, 2007, Joseph R. Berger filed a complaint against the Company in the Fayette County Circuit Court in Kentucky alleging breach of contract in connection with the assignment of certain inventions related to the method of using oxandrolone to treat HIV/AIDS patients. The complaint alleged several causes of action, all of which were premised on the existence of an oral agreement between the Company and Berger, which Berger alleges were breached. Berger sought, among other things, damages and recession of the assignment of the inventions. Effective March 7, 2008, Berger filed an amended complaint which dropped certain causes of action, while continuing to seek damages and recession of the invention assignments. On March 7, 2008, the Court granted the Company’s motion to limit discovery to liability issues for a period of 150 days in contemplation of the Company bringing a motion for summary judgment at the conclusion of that period. The Company intends to vigorously defend against this lawsuit.

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 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 to date. The Company has not yet received a decision regarding the petition for reconsideration.

In May 2007, the Company filed a notice of appeal with the New Jersey Division of Taxation contesting a New Jersey Sales & Use Tax assessment of $1.2 million for the tax periods 1999 through 2003. The Company believes it is not subject to taxes on services that were provided to the Company. An acknowledgement was received from The Conference and Appeals Branch and an appeal conference is expected to be scheduled in the future.

During the three months ended March 31, 2008, one of the Company’s customers requested a $0.7 million reimbursement for Oxandrin returned goods that were not in compliance with the Company’s returned goods policy. The Company is in the process of contesting this matter.

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 March 31, 2008, the Company has not recorded a liability for any obligations arising as a result of these indemnification obligations.

Note 12 — Segment Information

The Company has one reportable segment which is Specialty Pharmaceutical. The Specialty Pharmaceutical 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^® (pegloticase) are included in the Specialty Pharmaceutical segment. The Company’s Specialty Pharmaceutical segment is operated primarily in the United States and all Specialty Pharmaceutical product revenue is generated in the United States. The Company’s one segment is equal to its enterprise totals.

Note 13 — Investment Income, Net

The components of investment income, net for the three months ended March 31, 2008 and 2007 were as follows:


	Three Months Ended March 31,
	2008			2007
	(in thousands)

Interest and dividend income	$	962		$	2,370
Realized gains on investments		131			—
Realized losses on investments		(140	)		—

Total investment income, net	$	953		$	2,370

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 pegloticase, 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. You should bear this in mind as you consider forward-looking statements.

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 Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K .

Overview

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

We are currently developing Puricase^®, which we refer to as pegloticase, for the control of uric acid in patients with gout whose signs and symptoms are inadequately controlled by conventional urate lowering therapy due to ineffectiveness, dose limiting toxicity, hypersensitivity or other contraindications.

In 2001, pegloticase received “orphan drug” designation by the U.S. Food and Drug Administration, or FDA, which may allow it to receive orphan drug exclusivity if and when pegloticase is approved. Orphan drug exclusivity may prevent competitive versions of the same drug for the same indication from entering the market for a period of seven years from the time of FDA approval of pegloticase, unless the competitive product is proven to be superior to the original product. In October 2007, we completed the in-life portion of our two replicate Phase 3 clinical trials of pegloticase and announced positive top-line clinical results in December 2007. In February 2008, we observed positive results for additional secondary endpoints in our two replicate Phase 3 studies.

On April 17, 2008, we met with the FDA to discuss our planned Biologics License Application, or BLA. As a result of the meeting, we now intend to file our BLA with the FDA by the end of the third quarter of 2008 based on the positive results from our Phase 3 clinical studies. We plan to request a priority review by the FDA when we file our BLA. If we are granted a priority review and the FDA adheres to the established action date, we would expect an FDA action letter in the first half of 2009.

We are conducting an open label extension study enrolling patients who completed the Phase 3 protocols. In the extension study, patients may opt to go on study drug pegloticase every two weeks, or every four weeks, or participate in an observation only arm of the study. We are also conducting a small study in patients at four clinical sites that participated in pegloticase early development studies. These patients have not had pegloticase treatment since completing the Phase 1 or Phase 2 study in which they participated.

Our strategic plan is to advance the development of pegloticase, launch the product in the United States and Canada and partner the product outside the United States and Canada. We seek to expand our product portfolio by in-licensing compounds and exploring co-promotion and co-development opportunities that fit our expertise in specialty pharmaceuticals and biopharmaceuticals with an initial focus in rheumatology.

Currently, we 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 and currently have five competitors in the oxandrolone market. Our generic competitors are Sandoz Pharmaceuticals, Upsher-Smith Laboratories, Par Pharmaceuticals, Roxane Laboratories and Kali Laboratories. We plan to continue to distribute the Oxandrin brand product directly through wholesalers.

The introduction of Oxandrin generics has led to significant decreases in demand for Oxandrin. We believe that sales of Oxandrin will continue to decrease, and that, in the near term, shipments will continue to decline.

Our authorized generic, oxandrolone, is currently competing with third-party generics, as well as with our Oxandrin product. As a generic product, oxandrolone is yielding lower selling prices than our Oxandrin product, and therefore its impact is minimal in offsetting the reduction in Oxandrin revenues. In addition, because our Oxandrin product and our generic oxandrolone products both face competition from other providers of Oxandrin generics, we believe that our partial market share of the Oxandrin and oxandrolone market, together with decreasing selling prices, will continue to lead to lower Oxandrin and oxandrolone revenues. Our authorized generic is directly competing with other low-priced generics and therefore any revenue combined with our branded Oxandrin revenue will still continue to decline.

We currently operate within one “Specialty Pharmaceutical” segment which includes sales of Oxandrin and oxandrolone, and the research and development activities of pegloticase.

Results of Operations

Our revenues were derived primarily from Oxandrin and oxandrolone for the three months ended March 31, 2008 and 2007. Our product revenues and expenses have in the past displayed, and may 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,

	•		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,

	•		the timing of the introduction of new products,

	•		the timing and amount of expenses relating to our manufacturing activities, and

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

We believe that our product performance 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.

During 2008 and 2009, we expect the expense associated with our regulatory, clinical and commercial development of pegloticase to be the most significant factors affecting our results of operations.

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 March 31,
	2008				2007
Oxandrin	$	179	15.6	%	$	4,699	73.6	%
Oxandrolone (1)		965	84.4	%		1,682	26.4	%


	$	1,144	100.0	%	$	6,381	100.0	%

Results of Operations for the Three Months Ended March 31, 2008 and March 31, 2007

Revenues

Total revenues decreased $5.2 million, or 82% to $1.2 million for the three months ended March 31, 2008, from $6.4 million for the three months ended March 31, 2007. This decrease resulted from lower product sales of Oxandrin and our authorized generic product, oxandrolone, through our distribution agreement with Watson.

Sales of Oxandrin decreased $4.5 million, or 96%, to $0.2 million for the three months ended March 31, 2008, from $4.7 million for the three months ended March 31, 2007. This decrease was primarily attributable to generic competition to Oxandrin. We expect that sales will continue to decline in future periods, and that the rate of decline will be dependent on various factors, including the pricing of competing generic products and the number of competing products in the marketplace.

Revenues from oxandrolone, our Oxandrin generic, decreased $0.7 million, or 43%, to $1.0 million for the three months ended March 31, 2008 from $1.7 million for the three months ended March 31, 2007. We expect that revenues of oxandrolone will decrease or remain flat in future periods, due to generic competition.

Cost of goods sold

Cost of Goods Sold increased $0.7 million to $0.3 million for the three months ended March 31, 2008, from a net credit balance of $0.4 million for the three months ended March 31, 2007. The increase was attributable to a one-time adjustment in the prior period related to a reduction in purchase commitments offset by a decrease in Cost of Goods Sold due to lower product sales.

Research and development expenses

Research and development expenses decreased $1.6 million, or 13% to $11.2 million for the three months ended March 31, 2008 from $12.8 million for the three months ended March 31, 2007. The decrease was substantially due to lower clinical trial expenses of $2.2 million and lower manufacturing capacity reservation fees of $3.0 million. Our Phase 3 clinical trials for pegloticase were completed in late 2007 and we did not incur any manufacturing capacity reservation fees during the three months ended March 31, 2008. Partially offsetting the above decreases are current period expenses of $1.4 million related to the technology transfer of active pharmaceutical ingredient, or API, to our secondary source supplier of pegloticase and $0.8 million of manufacturing process validation costs. Additionally, technical consulting expenses related to our BLA filing, which is expected to occur in the third quarter of 2008, were higher by approximately $1.1 million and compensation expenses increased by $0.4 million quarter over quarter due to higher employee headcount.

Selling, general and administrative expenses

Selling, general and administrative expenses increased $1.9 million, or 25% to $9.3 million for the three months ended March 31, 2008 from $7.4 million for the three months ended March 31, 2007. The increase is primarily due to litigation costs of $1.2 million and stock-based compensation expense, net of $0.7 million. Partially offsetting these additional costs is a $0.4 million decrease in severance expense as a result of our terminated Oxandrin sales force in 2007.

Investment income

Investment income decreased $1.4 million, or 60%, to $1.0 million for the three months ended March 31, 2008 from $2.4 million for the three months ended March 31, 2007. This decrease was primarily attributable to decreased dividend and interest income on lower cash, cash equivalent and investment balances and as a result of lower yields earned on these investments. During the fourth quarter of 2007, we shifted a significant portion of our cash and cash equivalents to U.S. Treasury money market funds from higher-yielding enhanced yield money market funds.

Income tax benefit

Our income tax benefit decreased $2.2 million, or 64%, to $1.2 million for the three months ended March 31, 2008 from $3.4 million for the three months ended March 31, 2007. The 2008 and 2007 income tax benefit reflects the tax effects of the carryback of our net operating losses to the 2006 tax year to recover 2006 income taxes paid. The decrease in the benefit is a result of a decrease in our annual effective tax rate.

We will carry back our 2008 federal net operating losses, to the extent allowable, against 2006 taxable income and anticipate receiving an additional refund of approximately $1.2 million in 2009 based on our loss before income taxes for the three months ended March 31, 2008. If we continue to generate operating losses in the remainder of 2008, our maximum federal income tax refund to be received in 2009 would be $5.5 million, when carrying back our 2008 federal net operating losses against 2006 taxable income. Recently we filed a tentative refund claim with the Internal Revenue Service, in which we carried back our 2007 federal net operating loss to recover $8.6 million in 2006 taxes paid. The anticipated refunds are reflected in Recoverable Income Taxes on our consolidated balance sheets as of March 31, 2008 and December 31, 2007. Subsequent to March 31, 2008, we received our $8.6 million refund of our 2006 taxes paid.

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 loss, working capital requirements and financings, if any. At March 31, 2008, we had $129.1 million in cash, cash equivalents and short and long-term investments. We primarily invest our cash equivalents and short-term investments in highly liquid, interest-bearing, U.S. Treasury money market funds in order to preserve principal.

Cash Flows for the Three Months Ended March 31, 2008

Our cash and cash equivalents decreased by $7.7 million in the three months ended March 31, 2008 to $117.2 million.

Cash used in operating activities was $16.0 million primarily from the net loss from operations.

Cash provided by investing activities was $6.8 million for the three months ended March 31, 2008 due to redemptions of our investment in the Columbia Strategic Cash portfolio. The proceeds from the redemptions were re-invested in cash and cash equivalents and used to fund operations.

Cash provided by financing activities was $1.5 million for the three months ended March 31, 2008 due to proceeds from the issuance of common stock from the exercise of stock options.

Other Liquidity and Capital Resources

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 continued development of pegloticase will require substantial capital and will have a negative impact on our financial resources in 2008 and beyond, until such time that we receive FDA approval, if at all, and are able to successfully launch pegloticase into the marketplace.

In April 2008, the Company received a refund of 2006 federal income taxes in the amount of $8.6 million, which is shown on our March 31, 2008 and December 31, 2007 consolidated balance sheets as Recoverable Income Taxes, and which was the direct result of carrying back our 2007 net operating loss to the 2006 fiscal year. If we continue to generate net operating losses in the remainder of 2008, our maximum federal income tax refund to be received in 2009 would be $5.5 million, when carrying back our 2008 net operating losses against 2006 taxable income.

During the three months ended March 31, 2008, the fair market value of our investment in shares of Neuro-Hitech, Inc. common stock decreased to $0.1 million from $1.3 million at December 31, 2007. We believe that the fair market value of this investment will remain similar to its current fair market value for the foreseeable future. We carry a zero cost basis in this security as we recorded an OTT impairment in 2004 for the full amount of the investment.

We believe that our cash resources as of March 31, 2008, together with anticipated revenues and expenses, will be sufficient to fund our ongoing operations for at least the next 18 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 timing of, and the costs involved in, obtaining FDA approval of pegloticase,

	•		the cost of commercialization activities, including product marketing, manufacturing, 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 level of sales deterioration as a result of Oxandrin generic competition,

	•		our ability to establish and maintain a collaboration arrangement with a strategic partner to commercialize pegloticase outside of the United States,

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

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 and funding for research and development expenses. However, we may not be able to enter into any such agreements.

In September 2007, we filed a shelf registration statement on Form S-3 under the Securities Act of 1933, as amended, which we refer to as the Securities Act. Under this shelf registration statement, we may issue up to $200 million aggregate amount of common stock, preferred stock, debt securities and warrants. We may sell these securities to or through underwriters, to investors or through agents and use the net proceeds for funding related to general corporate purposes including but not limited to: research and development expenses, costs related to clinical trials, supply of our products, general and administrative expenses and for potential acquisition of, or investment in, companies, technologies, products or assets that compliment our business.

Contractual Obligations

We have a liability for unrecognized tax benefits of $8.9 million as of March 31, 2008. We are unable to reasonably estimate the amount or timing of payments for this liability, if any. There have been no material changes to our contractual obligations as presented in our Annual Report on Form 10-K for the year ended December 31, 2007.

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.

While our significant accounting policies are more fully described in Note 1 to our consolidated financial statements included in Item 8 of our Annual Report on Form 10-K, we believe the following accounting policies are the 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 and have accounted for this on a consignment basis until the product is sold into the retail market. We have deferred the recognition of revenue related to these shipments until we confirm that the product has been sold into the retail market and all other revenue recognition criteria has been met. We recognize revenue in accordance with SEC’s, Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements, as amended by SAB No. 104, which we refer to together as SAB 104, and Statement of Financial Accounting Standards No. 48 Revenue Recognition When Right of Return Exists, or SFAS No. 48. 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:

	•		persuasive evidence of an arrangement exists,

	•		delivery has occurred or services have been rendered,

	•		the seller’s price to the buyer is fixed and determinable, and

	•		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:

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

	•		the buyer has paid and the obligation is not contingent on resale of the product,

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

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

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

	•		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 12 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) (2)		3 — 4
Delatestryl (3)		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)		In 2007, we determined, based on our review of stability data, that the Oxandrin and oxandrolone 10 mg dosage form demonstrated stability over a four-year shelf life and thus we modified the product’s label to indicate a four-year expiration date. Oxandrolone product with four-year expiration dating was first sold to our customers in August 2007. Oxandrin product with four-year expiration dating has not yet been sold to our customers.

(3)		On January 9, 2006, we completed our sale of Delatestryl to Indevus Pharmaceuticals, Inc. 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. These reserves are subject to revision from time to time based on our current estimates. 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 production 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 12 months of expiry dating will not be sold into the distribution channel. However, beginning in April of 2008 and continuing for approximately three months, we commenced shipment of a small amount of our 2.5 mg strength Oxandrin with less than 12 months of expiry dating 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 12 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. However, beginning in April of 2008 and continuing for approximately three months, we commenced shipment of a small amount of our 2.5 mg strength Oxandrin with less than 12 months of expiry dating into the distribution channel. 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:

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

	•		relatively long periods in which a particular product may be returned,

	•		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

	•		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:

	•		significant increases in or excess levels of inventory in a distribution channel,

	•		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,

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

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

	•		the newness of a product,

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

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

The allowance for product returns was $1.0 million at March 31, 2008 and $0.9 million at December 31, 2007.

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 balance was $0.9 million at March 31, 2008 and $1.0 million at December 31, 2007.

Inventory valuation. We state inventories at the lower of cost or market. Cost is determined based on actual cost. 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. The aggregate net inventory valuation reserve was $7.9 million at March 31, 2008 and December 31, 2007.

Share-Based Compensation. We grant stock options to employees and non-employee directors, which we refer to as Directors, with exercise prices equal to the fair market value of the underlying shares of our common stock on the date that the options are granted. Options granted have a term of ten years from the grant date. Options granted to employees generally vest ratably over a four-year period and options granted to Directors vest in equal quarterly installments over a one-year period from the date of grant. Options to Directors are granted on a yearly basis and represent compensation for service performance on the board of directors. Compensation cost for stock options is charged against income on a straight-line basis between the grant date for the option and each vesting date. We estimate the fair value of all stock option awards as of the grant date 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 cost. During the three months ended March 31, 2008 we issued 310,000 shares of our common stock upon the exercise of outstanding stock options and received proceeds of $1.4 million. For the three months ended March 31, 2008 and 2007, approximately $1.1 million and $0.7 million, respectively, of stock option compensation cost has been charged against income. As of March 31, 2008, there was $5.6 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, we expect to incur additional compensation costs.

We also grant restricted stock awards to some of our employees and to our directors. Restricted stock awards are recorded as deferred compensation and amortized into compensation expense, on a straight-line basis over the life of the vesting period, which has generally ranged from one to four years in duration. Restricted stock awards to Directors are granted on a yearly basis and represent compensation for services performed on the board of directors. Restricted stock awards to Directors vest in equal quarterly installments over a one-year period from the grant date. Compensation cost for restricted stock awards is based on the grant date fair value of the award, which is the closing market price of our common stock on the date the award was approved, multiplied by the number of shares awarded. During the three months ended March 31, 2008, we issued 96,000 shares of restricted stock at a weighted average grant date fair value of $20.21 amounting to approximately $1.9 million. During the three months ended March 31, 2008 and 2007, approximately $0.8 million and $0.5 million, respectively, of deferred restricted stock compensation cost has been charged against income. At March 31, 2008, approximately 737,000 shares remained unvested and there was approximately $7.7 million of unrecognized compensation cost related to restricted stock.

We issue restricted stock awards that contain performance conditions to senior management personnel. These awards have the potential to vest over one to three years from the date of grant upon the achievement of specific strategic objectives associated with the achievement of pegloticase-related developmental and sales milestones and other manufacturing, commercial operations and business development objectives. Compensation cost is based on the grant date fair value of the award, which is the closing market price of our common stock on the date the award is approved multiplied by the number of shares awarded. Compensation expense is recorded over the implicit or explicit requisite service period based on management’s best estimate as to whether it is probable that the shares awarded are expected to vest. Previously recognized compensation expense is fully reversed if performance targets are not satisfied.

During 2007, we issued a restricted stock to our President and Chief Executive Officer, the vesting of which is contingent upon the price of our common stock achieving a certain pre-established stock price target. Compensation cost is based upon the grant date fair value of the shares awarded and charged against income over the derived service period. Compensation cost is charged against income regardless of whether the market condition is ever achieved and is reversed only if the derived service period is not met by the senior executive. We used a Monte Carlo simulation model to calculate both the grant date fair value and the derived service period of the award. Based on the simulation, the grant date fair value of the award is $8.98 per share and compensation cost is being charged against income ratably over a two-year service derived service period.

During the three months ended March 31, 2008 and 2007, approximately $0.5 million and $0.1 million, respectively, of compensation cost was charged against income related to restricted stock awards that contain performance or market conditions. At March 31, 2008, approximately 676,000 potential shares of restricted stock with performance or market conditions remain unvested. Restricted stock awards with performance conditions encompass performance targets set for senior management personnel through 2011 and could result in approximately $4.7 million of additional compensation expense if the performance targets are met or expected to be attained. At March 31, 2008, there was approximately $0.8 million of unrecognized compensation cost related to restricted stock awards that contain market conditions which is expected to be recognized ratably over the next 11 months.

Research and development. All research and development costs are expensed as incurred.

Income taxes. In July 2006, the Financial Accounting Standards Board, or FASB, issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes, which we refer to as 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 consolidated 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, in 2007, we recorded a $4.5 million increase in the liability for unrecognized tax benefits, including $0.2 million of accrued interest and penalties, which is included in other liabilities on our consolidated balance sheet. This increase in liability resulted in a corresponding increase to accumulated deficit. The total amount of federal, state, local and foreign unrecognized tax benefits was $8.9 million at March 31, 2008 and $8.7 million at December 31, 2007, including accrued penalties and interest.

Fair Values of Financial Instruments, 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. The fair values of our financial instruments reflect the amounts that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The carrying amounts of cash and cash equivalents, notes receivable, accounts receivable and accounts payable approximate fair value. See Note 2 to our consolidated financial statements for further discussion of the fair value of financial instruments.

Other-Than-Temporary Impairment Losses on Investments. We regularly monitor our available-for-sale portfolio to evaluate the necessity of recording impairment losses for other-than-temporary, or OTT, decreases in the fair value of investments. Management makes this determination through the consideration of various factors such as management’s intent and ability to retain an investment for a period of time sufficient to allow for any anticipated recovery in market value. OTT impairment losses result in a permanent reduction to the cost basis of the investment. For the three months ended March 31, 2008, we recorded $0.1 million of realized investment losses due to OTT declines in fair value. We did not realize any investment losses due to OTT declines in fair value for the three months ended March 31, 2007.

Accounting Pronouncements Adopted

In December 2007, the SEC issued SAB No. 110 which expresses the views of the SEC staff regarding the use of a “simplified” method, as discussed in SAB No. 107 and which provides guidance in developing an estimate of the expected term of “plain vanilla” share options in accordance with SFAS 123(R). In particular, the staff of the SEC indicated in SAB 107 that it will accept a company’s election to use the simplified method, regardless of whether the company has sufficient information to make more refined estimates of expected term. At the time SAB 107 was issued, the staff of the SEC believed that more detailed external information about employee exercise behavior (e.g., employee exercise patterns by industry and/or other categories of companies) would, over time, become readily available to companies. Therefore, the staff of the SEC stated in SAB 107 that it would not expect a company to use the simplified method for share option grants after December 31, 2007. The staff of the SEC understands that such detailed information about employee exercise behavior may not be widely available by December 31, 2007. Accordingly, the staff of the SEC will continue to accept, under certain circumstances, the use of the simplified method after December 31, 2007. We employed the simplified method for all stock options granted prior to December 31, 2007. We utilize historical experience as the basis for the expected term for all options grated subsequent to December 31, 2007.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, or SFAS 157, which 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 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 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 157 are effective for fiscal years beginning after November 15, 2007. FASB Staff Position, or FSP, No. 157-2, which was effective February 12, 2008, delays the effective date of SFAS 157 for non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis, and at least annually. The delay is intended to allow the FASB and its constituents additional time to consider the effect of various implementation issues that have arisen, or that may arise, from the application of SFAS 157. We adopted the provisions of SFAS 157 on January 1, 2008. Our adoption of SFAS 157 did not have a material effect on our consolidated financial statements. See Note 2 to our consolidated financial statements for further discussion of our adoption of SFAS 157.

In June 2007, the Emerging Issues Task Force, or EITF, reached a final consensus on Issue No. 07-03, Accounting for Nonrefundable Advance Payments for Goods or Services to Be Used in Future Research and Development Activities. The EITF 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 EITF reached a final consensus that is effective for financial statements issued for fiscal years beginning after December 15, 2007, and interim periods within those fiscal years. Since we currently are not party to any agreements that contain nonrefundable advance payments for goods or services to be used in future research and development activities, EITF Issue No. 07-03 has not had an effect on our financial statements. However, in the future, we may enter into agreements that contain nonrefundable advance payments for goods or services to be used in future research and development activities and will apply the provisions as prescribed by EITF Issue No. 07-03.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, or SFAS 159, which provides companies with an option to report selected financial assets and liabilities at fair value. The objective of SFAS 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 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 159 does not eliminate any disclosure requirements included in other accounting standards. SFAS 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. We adopted the provisions of SFAS 159 on January 1, 2008. Our adoption of SFAS 159 did not have an effect on our consolidated financial statements since we did not elect the fair value option for any of our existing assets or liabilities.

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 U.S. Treasury and other money market funds, 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 March 31, 2008 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

Intellectual Property-Related Litigation

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 FDA 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, or 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 labeling 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., or Sandoz, for 2.5 mg and 10 mg, and by Upsher-Smith Laboratories, Inc., or 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, or the District Court, against Sandoz 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. The temporary restraining order was granted by the District Court, but the preliminary injunction was denied and we appealed shortly thereafter to the United States Court of Appeals for the Federal Circuit in Washington, D.C., or the Federal Circuit, which issued an order temporarily enjoining all sales of generic oxandrolone tablets by Sandoz and Upsher-Smith until December 28, 2006. Thereafter, we, through our distribution partner, Watson Pharmaceuticals, launched an authorized generic of oxandrolone tablets, USP, CIII, an Oxandrin-brand equivalent product, in both the 2.5 mg and 10 mg dosages, in response to generic competition to Oxandrin from Sandoz and Upsher-Smith. The litigation against Sandoz has been dismissed without prejudice and the litigation with Upsher-Smith is continuing in the District Court and is now in the discovery phase. Upsher-Smith filed counterclaims challenging the validity of our patents and for various anti-trust related issues. We intend to vigorously pursue our claims of infringement and to defend the counterclaims filed by Upsher-Smith.

On September 4, 2007, Joseph R. Berger filed a complaint against us in the Fayette County Circuit Court in Kentucky alleging breach of contract in connection with the assignment of certain inventions related to the method of using oxandrolone to treat HIV/AIDS patients. The complaint alleged several causes of action, all of which were premised on the existence of an oral agreement between us and Berger, which Berger alleges we breached. Berger sought, among other things, damages and recession of the assignment of the inventions. Effective March 7, 2008, Berger filed an amended complaint which dropped certain causes of action, while continuing to seek damages and recession of the invention assignments. On March 7, 2008, the Court granted our motion to limit discovery to liability issues for a period of one hundred and fifty (150) days in contemplation of our bringing a motion for summary judgment at the conclusion of that period. We believe there are strong defenses to Berger’s claims and intend to vigorously defend against this lawsuit.

Other Litigation

On December 20, 2002, a purported shareholder class action was filed against us and three of our 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, or the District Court. The 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 our shares between April 19, 1999 and August 2, 2002. The complaint asserted that certain of our financial statements were materially false and misleading because we restated our earnings and financial statements for the years ended 1999, 2000 and 2001, as described in our 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. The plaintiffs filed such amended complaint and we 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 our 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 us and our former officers. On December 13, 2005, we filed a motion to dismiss the second amended complaint. On October 26, 2006, the District Court 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 U.S. Court of Appeals for the Third Circuit, which is currently pending. Oral arguments for the appeal have been tentatively scheduled for late June 2008 and a decision on this case is not expected until sometime later in 2008. We intend to contest the appeal vigorously and 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 pegloticase, 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, 2007.

Risks Relating to Our Business

Our company focuses primarily on the development of a single product, Puricase, which we refer to as pegloticase. If we are unable to complete the development of and commercialize pegloticase, or if we experience significant delays or unanticipated costs in doing so, our ability to generate product revenue and our likelihood of success will be materially harmed.

Much of our near term results depend on the commercial launch of pegloticase and its further clinical development for expanded uses. While we announced positive top-line Phase 3 clinical trial results in December 2007, there can be no guarantee that the FDA will approve our BLA, or if it will issue a conditional approval. Failure to receive FDA approval, or the cost and delay associated with a conditional approval, will harm our ability to generate product revenue and our business, possibly materially.

In addition, our ability to commercialize pegloticase will depend on several factors, including:

	•		successfully completing the analysis of our Phase 3 clinical trial results,

	•		successfully manufacturing drug supplies,

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

	•		maintaining commercial manufacturing arrangements with third-party manufacturers,

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

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

	•		successfully completing future clinical trials.

There is no guarantee that we will successfully accomplish any or all of the above goals, and our inability to do so may result in significant delays, unanticipated costs or the failure of the clinical development and commercialization of pegloticase or future product candidates, which would have a material adverse effect on our business.

Pegloticase, 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 have completed the in-life portion of Phase 3 clinical trials for pegloticase. We announced positive top-line results in December 2007 and February 2008, including that the pre-specified primary efficacy endpoint in the Phase 3 clinical trials were met, and that an analysis of secondary endpoints showed statistical significance in the reduction of gout tophi and the number of tender and swollen joints, and other secondary endpoints. We also announced information related to the safety profile for pegloticase, including the incidence of infusion reactions and deaths of patients in the Phase 3 clinical trials. In addition, we announced that eighteen of one hundred and sixty-nine pegloticase treated patients in the Phase 3 clinical trials, or 11%, had an infusion reaction assessed as being either severe or severe and serious, with intensity levels assessed as severe, moderate or mild. Only eleven of these patients were assessed as being serious adverse events by the clinical investigators.

We also announced in February 2008 that a total of six patient deaths occurred after randomization during the pegloticase Phase 3 clinical trial or following its completion. One patient died after screening and randomization to the placebo arm but died before administration of the first placebo dose. Three patients died during the pegloticase Phase 3 clinical trials and did not complete the study — two patients in the every two-week dosing arm and one patient in the monthly dosing arm. These deaths occurred nine days, three weeks and four weeks, respectively, after last exposure to pegloticase. Two patients died after they completed their participation in the clinical trials, three and four months, respectively, after receiving their final clinical trial infusion. One patient was assigned to a pegloticase treatment arm and the other patient was assigned to the placebo treatment arm. All patients who died had underlying severe, multiple co-morbidities and polypharmacy, with proximate cause of death other than the study drug. In all cases, neither the investigator nor our internal medical monitors attributed death to exposure to pegloticase.

These announcements are based on preliminary results and reflect our views and opinions regarding the preliminary data. Based on our preliminary results and the outcome of the pre-BLA meeting with the FDA, we will not be required to conduct additional clinical trials in connection with the filing of our BLA, and we do not anticipate the need to conduct additional clinical trials in connection with the approval of our BLA. However, we cannot forecast how the FDA or other regulatory authorities will view or consider the data upon review, or how any of the data set will be translated into label language, if approved. The FDA typically conducts its own analyses from the original data sets and may possibly come to different conclusions than those we reached with respect to the efficacy or safety of pegloticase. Accordingly, there can be no guarantee that the FDA will not require additional testing. Moreover, we may conduct additional clinical trials in support of expanded product labeling, additional indications and additional trials may be required prior to sales of pegloticase in the European Union and other foreign jurisdictions.

Clinical testing is expensive, is difficult to design and implement, can take many years to complete and is uncertain as to the 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 pegloticase or future product candidates, 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,

	•		regulators or institutional review boards may require that we hold, suspend or terminate clinical research for various reasons, including a finding that subjects are being exposed to an unacceptable health risk or non-compliance with regulatory requirements,

	•		the cost of our clinical trials may be greater than we 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 pegloticase or future product candidates beyond those that we 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. 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 product candidates.

We may not be successful in establishing strategic alliances, which could adversely affect the implementation of our strategic business plan.

If we are unsuccessful in reaching an agreement with a suitable collaborator or collaborators for our 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 strategic business plan includes a licensing initiative to collaborate with a partner for the development and commercialization of pegloticase outside the United States and Canada. If we are not successful in our efforts to partner pegloticase, then the full potential of pegloticase may not be realized.

Although we may determine to enter certain markets outside of the United States and Canada ourselves, we are seeking to establish a development and commercialization partnership for pegloticase outside the United States and Canada as part of our strategic business plan. To date, however, we have not identified a suitable partner that meets the criteria we are seeking, and we may continue to have difficulty doing so for a number of reasons. In particular, certain companies may not want to partner with us to commercialize pegloticase 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 and Canada, 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. These companies may have a competitive advantage over us due to their size, cash resources and greater clinical development and commercialization capabilities. If we are unsuccessful in partnering pegloticase outside the United States and Canada and are unable to fully exploit the commercial opportunity for the product ourselves in these markets, the full potential of pegloticase may not be realized.

If we do not successfully recruit and train qualified sales and marketing personnel and build a marketing and sales infrastructure, our ability to independently launch and market pegloticase will be impaired. We will be required to incur significant costs and devote significant efforts to establish a direct sales force.

If it receives regulatory approval, we intend to independently launch and market pegloticase in the United States and Canada. We currently have no distribution capabilities and have limited sales and marketing capabilities. We may not be able to attract, hire and train qualified sales and marketing personnel to build a significant or successful sales force. If we are not successful in our efforts to develop an internal sales force, our ability to independently launch and market pegloticase will be impaired.

We will have to invest significant amounts of money and management resources to develop internal sales and marketing capabilities. Because we plan to minimize sales and marketing expenditures and activities, including the hiring and training of sales personnel, prior to obtaining the regulatory approval for pegloticase, we may have insufficient time to build our sales and marketing capabilities in advance of the launch of pegloticase. If we are not successful in building adequate sales and marketing capabilities in advance of the launch of pegloticase, our ability to successfully commercialize the product may be impaired. If we develop these capabilities in advance of the launch of pegloticase and approval of pegloticase is delayed substantially or not granted at all, we will have incurred significant unrecoverable expenses.

Our strategic business plan 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 product portfolio 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, we may not be able to fully achieve our strategic business plan and our business could suffer.

The full development and commercialization of pegloticase 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, however, our product sales have decreased to $1.1 million for the three months ended March 31, 2008 from $6.4 million for the three months ended March 31, 2007, and we do not have further non-core assets to divest. 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, either under our shelf registration statement or otherwise, 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 our commercialization efforts or future 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.

We incurred an operating loss from continuing operations for the year ended December 31, 2007 and the first quarter of 2008 and anticipate that we may incur operating losses from continuing operations for the foreseeable future, particularly as a result of decreasing Oxandrin sales, which in the past accounted for a significant portion of our revenues. If we are unable to obtain regulatory approval for or commercialize pegloticase or any other product candidates we may pursue, we may never achieve operating profitability.

Since 2004, we have incurred substantial operating losses from continuing operations. Our operating losses from continuing operations were $19.6 million for the three months ended March 31, 2008, $69.2 million for the year ended December 31, 2007 and $17.0 million for the year ended December 31, 2006. Our operating losses from continuing operations are the result of the interaction of two factors: increasing operating costs and decreasing revenues. We have and expect to continue to incur significant costs in connection with our research and development activities, including clinical trials, and from general and administrative expenses associated with our operations. We have and expect to continue to experience decreasing revenues from sales of Oxandrin and, since its launch in December 2006, our generic Oxandrin brand equivalent product, oxandrolone, on which our continuing operations have been substantially dependent. Sales of Oxandrin and, since December 2006, oxandrolone accounted for 100% of our continuing net product sales. If we do not commercially launch pegloticase, we expect that our revenues will continue to decline significantly, and our results of operations will be materially adversely affected, as the FDA has approved multiple generic versions of oxandrolone since December 2006.

In addition to market erosion due to generic competition, our sales of Oxandrin and oxandrolone in the United States are impacted by fluctuations in the buying patterns of the three major drug wholesalers to whom we principally sell these products. In the past, wholesalers have reduced their inventories of Oxandrin and we expect that they will continue to reduce inventories as a result of generic competition, further decreasing our revenues from these products.

Sales of Oxandrin and oxandrolone have also decreased as a result of the elimination or limited reimbursement practices of some states under their AIDS Drug Assistance Programs via their state Medicaid programs for prescription drugs for HIV and AIDS, including Oxandrin and oxandrolone. There can be no assurances that other state formularies will not follow suit. 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, further decreasing demand for Oxandrin and oxandrolone.

We have considered the demand deterioration of Oxandrin and oxandrolone as part of our estimates into our product return; however, our demand forecasts are based upon management’s best estimates. As of March 31, 2008 and December 31, 2007, our allowance for product returns was $1.0 million and $0.9 million, respectively. Future product returns in excess of our historical reserves could reduce our revenues even further and adversely affect our results of operations.

Our ability to generate operating profitability in the future is dependent on the successful commercialization of pegloticase and any other product candidate that we may develop, license, partner or acquire. If we do not receive regulatory approval for and are unable to successfully commercialize pegloticase or any other product candidate, 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.

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 and depend on our distribution partner, Watson Pharmaceuticals, to distribute this product for us. 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 oxandrolone product may not compete successfully against other generics, and our results of operations could be harmed.

We rely on third parties to conduct our clinical development activities for pegloticase and those third parties may not perform satisfactorily.

We do not independently conduct clinical development activities for pegloticase, including any additional clinical trials we may conduct in the future in support of expanded product labeling and additional indications. 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 development activities 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 pegloticase and may not be able to, or may be delayed in our efforts to, successfully commercialize pegloticase.

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

Manufacturing our products requires us to meet stringent quality control and quality assurance standards. In addition, we depend on third parties to manufacture pegloticase and intend to rely on third parties to manufacture and supply any future products. If these third-party manufacturers and suppliers, and particularly our sole source supplier for pegloticase, fail to meet applicable regulatory requirements or 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 pegloticase. Failure of any third-party to meet applicable regulatory requirements and stringent quality control and quality assurance standards may adversely affect our results of operations or result in unforeseen delays or other problems beyond our control.

The manufacture of pegloticase 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. Moreover, prior to the approval of our BLA our third-party manufacturers are subject to preapproval inspection by the FDA. 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 fulfill 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 and 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, BTG-Israel, for the manufacture of the active pharmaceutical ingredient, or API, of pegloticase, and a single source drug manufacturer, Enzon. Although we have contracted with an additional supplier of pegloticase API, Diosynth RTP, Inc., we do not expect Diosynth to commence its commercial supply to us until mid-2010 at the earliest.

In addition, 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. 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 pegloticase API other than BTG-Israel prior to 2010. Escalating hostilities involving Israel could adversely affect BTG-Israel’s ability to supply adequate quantities of pegloticase API under our agreement. While we have secured a secondary source of supply of pegloticase API, Diosynth RTP, Inc., the time to conduct a technology transfer to enable Diosynth to scale up and validate its manufacturing processes, or the failure to successfully complete a technology transfer to Diosynth or to validate the manufacturing process in their facility, for pegloticase will be lengthy, and supply of pegloticase API from this secondary source is not expected to commence until mid-2010 at the earliest. An interruption in the supply of pegloticase API from BTG-Israel or raw materials from other third-party suppliers may materially adversely affect our ability to market pegloticase, which would harm our financial results.

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 current or future product candidates becoming obsolete before we can begin marketing these products or are able to recover a significant portion of the research, development and commercialization expenses incurred in the development of these 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, pegloticase will be launched in the gout treatment-failure population, an orphan 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 pegloticase, as long as symptoms and signs of the disease persist. Other uric acid lowering therapies, such as febuxostat, probenecid, and allopurinol, have not been tested for use in combination with pegloticase.

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, multiple competitors have entered into the oxandrolone market. These products, as well as our generic version of oxandrolone, have largely displaced Oxandrin. Additional competition also occurs with the entry of therapeutic options, for example, Par Pharmaceutical Companies, Inc., or Par, introduced megace ES in June 2005. Megace ES is primarily displacing generic megace which represents a substantial portion 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.

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 and manufacturers to comply with applicable regulations, requirements, or guidelines, or to meet FDA preapproval requirements, could result in sanctions being imposed on us, or our third-party manufacturers or suppliers, including fines, injunctions, civil penalties, failure of regulatory authorities to grant marketing approval of pegloticase or future product candidates, 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 manufacturers or 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 (such as the process we are engaged in with Diosynth) 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 pegloticase. 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.

Our sales depend on payment and reimbursement from third-party payers 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 payers to pay for their medical needs, including any drugs we or our collaborators may market. If third-party payers 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 6 to 12 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 payers, states, and federally subsidized programs are challenging the prices charged for medical products and services, and many third-party payers, states, and federally subsidized programs consistently limit reimbursement for healthcare products, including Oxandrin and our authorized generic version of oxandrolone. In particular, third-party payers 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 retain 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 three 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 Sections 10(b) and 20(a) of the Exchange Act through alleged material misrepresentations and omissions and seek an unspecified award of damages. Following a series of dismissals, the plaintiffs filed an appeal in the U.S. Court of Appeals for the Third Circuit, and an oral argument of the appeal has been scheduled for late June 2008. 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.

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 are party to various license agreements and we intend to enter into additional license agreements in the future. For example, we licensed worldwide rights to the technology related to pegloticase and the trademark Puricase from Duke University and Mountain View Pharmaceuticals. Our existing licenses impose various diligence, milestone payment, royalty, insurance and other obligations on us and we expect that future licenses that we may enter into would impose additional requirements 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 were introduced to the market in late 2006. As a result, our results of operations have been harmed. The patents and patent applications related to pegloticase, if issued, would expire between 2019 and 2028. 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 eighteen 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, our contract manufacturers, suppliers and contract research organizations, are subject to stringent governmental regulation, and our or their 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, including 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, labeling, promotion and distribution of pharmaceutical products for human use. All of our current and future product candidates, manufacturing processes and facilities require governmental licensing, registration or approval prior to commercial use, and maintenance of those approvals during commercialization. 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 a new drug application or a BLA are substantial. The approval process applicable to pegloticase and products of the type we may develop 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 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, effective and of quality, for the treatment of the target indication. The timing of completion of clinical development activities 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 obtain and maintain requisite governmental approvals, or failure to obtain approvals of the scope requested, could delay or preclude us from marketing our products, limit the commercial use of the products and allow competitors time to introduce competing products ahead of product introductions by us. Even after regulatory approval is obtained, use of the products could reveal side effects that, if serious, could result in suspension of existing approvals and delays in obtaining approvals in other jurisdictions.

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.

Recently enacted legislation may make it more difficult and costly for us to obtain regulatory approval of our product candidates and to produce, market and distribute products after approval.

In September 2007, the U.S. President signed the Food and Drug Administration Amendments Act of 2007, or FDAAA. The FDAAA grants a variety of new powers to the FDA, many of which are aimed at improving the safety of drug products before and after approval. Under the FDAAA, companies that violate the new law are subject to substantial civil monetary penalties. Although we expect the FDAAA to have a substantial effect on the pharmaceutical industry, the extent of that effect is not yet known. As the FDA issues regulations, guidance and interpretations relating to the new legislation, the impact on the industry, as well as our business, will become clearer. The new requirements and other changes that the FDAAA imposes may make it more difficult, and likely more costly, to obtain approval of new pharmaceutical products and to produce, market and distribute products after approval.

In addition, 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 generic or “follow-on” biologics products, require changes to manufacturing methods or facilities, expanded or different labeling, 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, 2006, our common stock had traded as high as $24.91 per share and as low as $3.58 per share. The market price of our common stock may be influenced by many factors, including:

	•		the timing of obtaining regulatory approval of pegloticase,

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

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

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

	•		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 payer 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, which expires in October 2008, 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.


		Page

PART I — FINANCIAL INFORMATION

Item 1.	Financial Statements:
	Consolidated Balance Sheets		3
	Consolidated Statements of Operations		4
	Consolidated Statement of Changes in Stockholders’ Equity		5
	Consolidated Statements of Cash Flows		6
	Notes to Consolidated Financial Statements		7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		27
Item 4.	Controls and Procedures		27

PART II — OTHER INFORMATION

Item 1.	Legal Proceedings		28
Item 1A.	Risk Factors		29
Item 6.	Exhibits		41
	Signatures		42
	Exhibit Index		43
EX-31.1: CERTIFICATION
EX-31.2: CERTIFICATION
EX-32.1: CERTIFICATION
EX-32.2: CERTIFICATION


	Three Months Ended March 31,
	2008			2007
Revenues:
Product sales, net	$	1,144		$	6,381
Other revenues		44			45

		1,188			6,426

Cost and expenses:
Cost of goods sold		333			(356	)
Research and development		11,161			12,824
Selling, general and administrative		9,264			7,421

		20,758			19,889


Operating loss		(19,570	)		(13,463	)
Investment income, net		953			2,370
Other expense, net		(150	)		(166	)


Loss before income taxes		(18,767	)		(11,259	)
Income tax benefit		(1,215	)		(3,417	)


Net loss	$	(17,552	)	$	(7,842	)


Loss per common share:
Basic	$	(0.33	)	$	(0.15	)

Diluted	$	(0.33	)	$	(0.15	)


Weighted average number of common and common equivalent shares:
Basic		53,276			51,997
Diluted		53,276			51,997


	Common Stock									Accumulated
					Additional					Other			Total
			Par		Paid in		Accumulated			Comprehensive			Stockholders’
	Shares		Value		Capital		Deficit			Income			Equity
Balance, December 31, 2007		53,712	$	537	$	204,659	$	(67,445	)	$	1,314		$	139,065

Comprehensive loss:
Net loss								(17,552	)					(17,552	)
Unrealized loss on marketable securities, net											(1,207	)		(1,207	)

Total comprehensive loss														(18,759	)


Restricted stock grants		171		2										2
Amortization of deferred compensation						1,344								1,344
Issuance of common stock		13				167								167
ESPP compensation expense						129								129
Stock option compensation expense						1,078								1,078
Exercise of stock options		310		3		1,383								1,386


Balance, March 31, 2008		54,206	$	542	$	208,760	$	(84,997	)	$	107		$	124,412


	SAVIENT PHARMACEUTICALS, INC. (Registrant)
	By:	/s/ Christopher G. Clement
		Christopher G. Clement
		President and Chief Executive Officer (Principal Executive Officer)

	By:	/s/ Brian Hayden
		Brian Hayden
		Chief Financial Officer (Principal Financial Officer)


Exhibit No.		Description

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

	1.		I have reviewed this Quarterly Report on Form 10-Q of Savient Pharmaceuticals, Inc.;

	2.		Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

	3.		Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

	4.		The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

	a)		designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	b)		designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with generally accepted accounting principles;

	c)		evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	d)		disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

	a)		all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	b)		any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


	By:	/s/ Christopher G. Clement
		President and Chief Executive Officer

1.		The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.		The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.