PART II — OTHER INFORMATION

Current Report on Form 8-K dated, and its press release issued, on August 2, 2002. Five nearly identical actions were filed in January and February 2003, in each instance claiming unspecified compensatory damages. In September 2003, the actions were consolidated and co-lead plaintiffs and co-lead counsel were appointed in accordance with the Private Securities Litigation Reform Act. The parties subsequently entered into a stipulation which provided for the lead plaintiff to file an amended consolidated complaint. Plaintiffs filed such amended complaint and the Company filed a motion to dismiss the action. On August 10, 2005, citing the failure of the amended complaint to set forth particularized facts that give rise to a strong inference that the defendants acted with the required state of mind, the Court granted the Company’s motion to dismiss the action without prejudice and granted plaintiffs leave to file an amended complaint. On October 11, 2005, the plaintiffs filed a second amended complaint, again seeking unspecified compensatory damages, purporting to set forth particularized facts to support their allegations of violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by the Company and its former officers. On December 13, 2005, the Company filed a motion to dismiss the second amended complaint. On October 26, 2006, the United States District Court for the District of New Jersey dismissed, with prejudice, the second amended complaint. The district court declined to allow plaintiffs to file another amended complaint. The plaintiffs have filed an appeal in the United States Court of Appeals for the Third Circuit, which is currently pending. We intend to contest the appeal vigorously. We have referred these claims to our directors and officers insurance carrier, which has reserved its rights as to coverage with respect to this action.

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

ITEM 1A. RISK FACTORS

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

      We 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. 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.

Risks Relating to Our Strategic Direction

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

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

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

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

	•		successfully completing clinical trials,
	•		successfully manufacturing fully comparable clinical and commercial drug supplies,
	•		receiving marketing approvals from the FDA and similar foreign regulatory authorities,
	•		establishing commercial manufacturing arrangements with third-party manufacturers,
	•		launching commercial sales of the product, whether alone or in collaboration with others, and
	•		acceptance of the product in the medical community and with third-party payers and consumers.

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

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

•

identifying products that fit within our product portfolio, and

•

successfully competing for early and late-stage development products.

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

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

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

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

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

	•		regulators or institutional review boards may not authorize us to commence a clinical trial or conduct a clinical trial at a prospective trial site,
	•		our clinical trials may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional preclinical testing or clinical trials or we may abandon projects that we expect to be promising,
	•		enrollment in our clinical trials may be slower than we currently anticipate, or participants may drop out of our clinical trials at higher rates than we currently anticipate,
	•		we might have to suspend or terminate our clinical trials if the participating patients are being exposed to unacceptable health risks,
	•		regulators or institutional review boards may require that we hold, suspend or terminate clinical research for various reasons, including non-compliance with regulatory requirements,
	•		the cost of our clinical trials may be greater than we currently anticipate,
	•		we may encounter difficulties or delays in obtaining sufficient quantities of clinical products or other materials necessary for the conduct of our clinical trials,
	•		any regulatory approval we ultimately obtain may be limited or subject to restrictions, and
	•		the effects of our product candidates may not be the desired effects or may include undesirable side effects or the product candidates may have other unexpected characteristics.

     Additionally, we, along with our third-party manufacturers and collaborators, may not employ, in any capacity, persons who have been debarred under the FDA’s Application Integrity Policy. Employment of such a debarred person (even if inadvertently) may result in delays in FDA review or approval of our products, or the rejection of data developed with the involvement of such person(s).

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

	•		be delayed in obtaining marketing approval for our product candidates,
	•		not be able to obtain marketing approval,
	•		obtain approval for indications that are not as broad as intended, or
	•		not obtain marketing approval before other companies are able to bring competitive products to market.

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

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

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

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

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

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

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

     As part of our strategic business plan, we are seeking an active in-licensing or partnering program to access and develop novel compounds in later clinical development. This is a highly competitive area with virtually every pharmaceutical, biotechnology and specialty pharmaceutical company publicly stating that they are seeking in-license product opportunities. Certain of these companies are also pursuing strategies to license or acquire products similar to those that we are pursuing. These companies may have a

competitive advantage over us due to their size, cash resources and greater clinical development and commercialization capabilities. Other factors that may prevent us from partnering, licensing or otherwise acquiring suitable product candidates include the following:

	•		we may be unable to identify suitable products or product candidates within our areas of expertise,
	•		we may be unable to license or acquire the relevant technology on terms that would allow us to make an appropriate return on our investment in the product, or
	•		companies that perceive us to be their competitors may be unwilling to assign or license their product rights to us.

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

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

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

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

Risks Related to Our Business

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

     Since 2004, we have incurred substantial operating losses from continuing operations. Our operating loss from continuing operations was $14.5 million for the year ended December 31, 2005, $17.0 million for the year ended December 31, 2006, and $13.5 million for the quarter ended March 31, 2007. Our operating losses from continuing operations have resulted principally from costs incurred in connection with our research and development activities, including clinical trials, and from general and administrative expenses associated with our operations. We expect to continue to incur substantial, and even increasing, operating losses from continuing operations for the foreseeable future. Our continuing operations financial results have been substantially dependent on Oxandrin sales. Sales of Oxandrin accounted for 99%, and 92% of our continuing net product sales in the years ended 2006 and 2005, respectively. Sales of Oxandrin accounted for 74% of our continuing net product sales for the quarter ended March 31, 2007. Moreover, we expect that our revenues will decline significantly, and our results of operations will be materially adversely affected as the FDA has approved generic versions of Oxandrin in December 2006 which is

currently on the market. As a result, we launched our authorized generic oxandrolone product in December 2006 which accounted for 26% of our continuing net product sales for the quarter ended March 31, 2007. In addition, our consolidated net income from 2005 and 2006 and positive cash flow was substantially attributable to the operating results of Rosemont and the gain on disposition of Rosemont which are included in our consolidated financial statements as discontinued operations.

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

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

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

     The introduction of generic forms of Oxandrin on the market by two competitors, and the possible introduction by a third competitor, will negatively affect our results of operations and may render our existing Oxandrin inventory obsolete. Net sales of Oxandrin were $47.0 million and $44.4 million for the years ended 2006 and 2005, respectively, representing approximately 99% and 92% of our continuing net product sales, respectively. For the quarter ended March 31, 2007 net sales of Oxandrin were $4.7 million, representing 74% of our continuing net product sales. We anticipate that Oxandrin will be a less significant product for our future operating results. The balance of our sales for the quarter ended March 31, 2007 was related to our authorized generic oxandrolone product which accounted for $1.7 million in net product sales, or 26% of our continuing net product sales.

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

     We have considered the demand deterioration as part of our estimates into our product return; however our demand forecasts are based upon management’s best estimates. As of March 31, 2007 and December 31, 2006, our allowance for product returns was $2.2 million and $2.5 million, respectively. Future product returns in excess of our historical reserves could reduce our revenues and adversely affect our results of operations.

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

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

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

     The pharmaceutical and biotechnology industries are intensely competitive. The technological areas in which we work continue to evolve at a rapid pace. Our future success will depend upon our ability to compete in the research, development and commercialization of products and technologies in our areas of focus. Competition from pharmaceutical, chemical and biotechnology companies, universities and research institutions is intense and we expect it to increase. Many of these competitors are substantially larger than we are and have substantially greater capital resources, research and development capabilities and experience and manufacturing, marketing, financial and managerial resources than we do. Acquisitions of competing companies by large pharmaceutical companies or other companies could enhance the financial, marketing and other resources available to these competitors.

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

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

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

testing and approval processes, and supply commercial quantities of the products to the market will be an important element of market success.

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

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

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

     The manufacture of our products involves a number of technical steps and requires our third-party suppliers and manufacturers to meet stringent quality control and quality assurance specifications imposed by us or by governmental regulatory bodies. In the event of a natural disaster, equipment failure, strike, war or other difficulty, our suppliers may be unable to manufacture our products in a manner necessary to fulfill demand. Our inability to 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 assurance,
	•		the possible breach of the manufacturing agreement by the third-party or the inability of the third-party to meet our production schedules because of factors beyond our control, such as shortages in qualified personnel, and
	•		the possibility of termination or non-renewal of the agreement by the third-party, based on its own business priorities, at a time that is costly or inconvenient for us.

     We rely on a single source supplier for the manufacture of our product candidate Puricase. We also have a single source supplier of a key raw material contained in Puricase with which we currently have no long term supply agreement. In addition, we have entered into an arrangement with BTG-Israel, to serve as the initial primary manufacturer of our product candidate, Puricase. The continued ability of BTG-Israel to consistently perform manufacturing activities for us may be affected by economic, military and political conditions in Israel and in the Middle East in general. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and neighboring countries. These hostilities have, at times, caused security and economic problems in Israel.

     The nature and scope of the technology transfer required to manufacture the product outside of BTG-Israel make it unlikely that we will be able to initiate sources of supply of Puricase other than BTG-Israel, prior to 2010. Escalating hostilities involving Israel could adversely affect BTG-Israel’s ability to supply adequate quantities of the product under our agreement and in turn affect our ability to complete the clinical development of Puricase. While we are seeking to identify additional secondary sources of supply of Puricase and concluding a long term supply agreement with the supplier of the key raw materials for the product, the completion of the process to successfully identify and reach agreement with such additional secondary source and the time to conduct a technology transfer to enable the secondary source to scale up and validate its manufacturing processes for Puricase will be lengthy. If we experience an interruption in the supply of Puricase from BTG-Israel or the raw materials from other third-party suppliers before we have succeeded in concluding long term supply arrangements and entering into and validating a secondary

supply arrangement for Puricase, it may materially adversely affect our financial results.

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

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

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

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

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

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

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

     If we are unsuccessful in reaching an agreement with a suitable collaborator or collaborators for our current or future product candidates, we may fail to meet our business objectives for the applicable product or program. We face significant competition in seeking appropriate collaborators. Moreover, these alliance arrangements are complex to negotiate and time-consuming to document. We may not be successful in our efforts to establish strategic alliances or other alternative arrangements. The terms of any strategic alliances or other arrangements that we establish may not be favorable to us. Moreover, such strategic alliances or other arrangements may not be successful.

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

	•		strategic alliance agreements are typically for fixed terms and are subject to termination under various circumstances, including, in many cases without cause,
	•		we may rely on collaborators to manufacture the products covered by our alliances,
	•		the areas of research, development and commercialization that we may pursue, either alone or in collaboration with third parties, may be limited as a result of non-competition provisions of our strategic alliance agreements, and
	•		failure to establish steady supply of essential raw materials from vendors.

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

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

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

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

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

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

      We may incur substantial costs related to product liability.

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

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

      The ultimate outcome of pending securities litigation is uncertain.

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

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

      Tax requirements and audits could impact our results of operations.

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

Risks Related to Previous Weaknesses in our Internal Controls

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

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

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

Risks Relating to Intellectual Property

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

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

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

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

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

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

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

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

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

     As a result of patent infringement claims, or in order to avoid potential claims, we or our collaborators may choose or be required to seek a license from the third-party and be required to pay license fees or royalties or both. These licenses may not be available on acceptable terms, or at all. Even if we or our collaborators were able to obtain a license, the rights may be nonexclusive, which could result in our competitors gaining access to the same intellectual property. Ultimately, we could be prevented from commercializing a product, or be forced to cease some aspect of our business operations if, as a result of actual or threatened patent infringement claims, we or our collaborators are unable to enter into licenses on acceptable terms. This could harm our business significantly.

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

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

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

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

	•		cease selling products or undertaking processes that are claimed to be infringing a third-party’s intellectual property,
	•		obtain licenses to make, use, sell, offer for sale or import the relevant technologies from the intellectual property’s owner, which licenses may not be available on reasonable terms, or at all,
	•		redesign those products or processes that are claimed to be infringing a third-party’s intellectual property, or
	•		pursue legal remedies with third parties to enforce our indemnification rights, which may not adequately protect our interests.

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

Regulatory Risks

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

     Virtually all aspects of our business are subject to extensive regulation by numerous federal and state governmental authorities in the United States, such as the FDA, as well as by foreign countries where we manufacture or distribute our products. Of particular significance are the requirements covering research and development, testing, manufacturing, quality control, labelling, promotion and distribution of

pharmaceutical products for human use. All of our products, manufacturing processes and facilities require governmental licensing, registration or approval prior to commercial use, and maintenance of those approvals during commercialization. Our prescription pharmaceutical products cannot be marketed in the United States until they have been approved by the FDA, and then can only be marketed for the indications and claims approved by the FDA. As a result of these requirements, the length of time, the level of expenditures and the laboratory and clinical information required for approval of an NDA or a BLA are substantial. The approval process applicable to products of the type being developed by us usually takes many years from the commencement of human clinical trials and typically requires substantial expenditures. We may encounter significant delays or excessive costs in our or their respective efforts to secure necessary approvals or licenses. Before obtaining regulatory approval for the commercial sale of our products, we are required to conduct pre-clinical and clinical trials to demonstrate that the product is safe and efficacious for the treatment of the target indication. The timing of completion of clinical trials depends on a number of factors, many of which are outside our control. In addition, we may encounter delays or rejections based upon changes in the policies of regulatory authorities. The FDA and foreign regulatory authorities have substantial discretion to terminate clinical trials, require additional testing, delay or withhold registration and marketing approval, and mandate product withdrawals.

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

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

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

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

Risks Relating to an Investment in Our Common Stock

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

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

	•		our ability to successfully implement our strategic business plan,
	•		announcements of technological innovations or new commercial products by us or our competitors,

	•		announcements by us or our competitors of results in pre-clinical testing and clinical trials,
	•		regulatory developments,
	•		patent or proprietary rights developments,
	•		public concern as to the safety or other implications of biotechnology products,
	•		changes in our earnings estimates and recommendations by securities analysts,
	•		period-to-period fluctuations in our financial results, and
	•		general economic, industry and market conditions.

     The volatility of our common stock imposes a greater risk of capital losses on our stockholders than a less volatile stock would. In addition, volatility makes it difficult to ascribe a stable valuation to a stockholder’s holdings of our common stock. The stock market in general and the market for pharmaceutical and biotechnology companies in particular have also experienced significant price and volume fluctuations that are often unrelated to the operating performance of particular companies. In the past, following periods of volatility in the market price of the securities of pharmaceutical and biotechnology companies, securities class action litigation has often been instituted against these companies. Such litigation would result in substantial costs and a diversion of management’s attention and resources, which could adversely affect our business.

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

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

	•		the amount and timing of product sales,
	•		changing demand for our products,
	•		our inability to provide adequate supply for our products,
	•		changes in wholesaler buying patterns,
	•		returns of expired product,
	•		changes in government or private payor reimbursement policies for our products,
	•		increased competition from new or existing products, including generic products,
	•		the timing of the introduction of new products,
	•		the timing and realization of milestone and other payments from licensees,
	•		the timing and amount of expenses relating to research and development, product development and manufacturing activities,
	•		the timing and amount of expenses relating to sales and marketing,
	•		the timing and amount of expenses relating to general and administrative activities,
	•		the extent and timing of costs of obtaining, enforcing and defending intellectual property rights, and
	•		any charges related to acquisitions.

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

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

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

	•		our board of directors approves the transaction before the third-party acquires 15% of our stock,
	•		the third-party acquires at least 85% of our stock at the time its ownership goes past the 15% level, or
	•		our board of directors and two-thirds of the shares of our common stock not held by the third-party vote in favor of the transaction.

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

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