For the quarterly period ended: September 30, 2010

OR

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

For the transition period from                      to

Commission file number 000-31191

Registrant’s telephone number, including area code: (973) 290-6000

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

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

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

As of November 5, 2010, there were 53,386,166 shares of Common Stock, $0.001 par value per share, outstanding.

 

 

THE MEDICINES COMPANY

TABLE OF CONTENTS

Part I. Financial Information
Item 1 - Financial Statements			3
Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations			16
Item 3 - Quantitative and Qualitative Disclosures about Market Risk			33
Item 4 - Controls and Procedures			34
Part II. Other Information			35
Item 1 - Legal Proceedings			35
Item 1A - Risk Factors			37
Item 6 - Exhibits			54
Signatures			55
Exhibit Index
EX-10.1
EX-10.2
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT

Item 1. Financial Statements

THE MEDICINES COMPANY
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)

		September 30,				December 31,
		2010				2009
		(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	105,169			$	72,225
Available for sale securities			122,284				103,966
Accrued interest receivable			922				922
Accounts receivable, net of allowances of approximately $21.4 million and $6.4 million at September 30, 2010 and December 31, 2009, respectively			34,070				29,789
Inventory			29,624				25,836
Prepaid expenses and other current assets			7,367				9,984
Total current assets			299,436				242,722
Fixed assets, net			21,387				25,072
Intangible assets, net			83,363				84,678
Goodwill			14,671				14,934
Restricted cash			5,764				7,049
Other assets			269				321
Total assets		$	424,890			$	374,776
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	12,788			$	8,431
Accrued expenses			64,545				77,088
Deferred revenue			434				1,100
Total current liabilities			77,767				86,619
Contingent purchase price			25,932				23,667
Deferred tax liabilities			19,105				18,395
Other liabilities			5,829				5,706
Total liabilities			128,633				134,387
Stockholders’ equity:
Preferred stock, $1.00 par value per share, 5,000,000 shares authorized; no shares issued and outstanding			—				—
Common stock, $0.001 par value per share, 125,000,000 shares authorized; 53,373,836 and 52,830,376 issued and outstanding at September 30, 2010 and December 31, 2009, respectively			53				53
Additional paid-in capital			594,296				584,678
Accumulated deficit			(298,114	)			(344,177	)
Accumulated other comprehensive income (loss)			22				(165	)
Total stockholders’ equity			296,257				240,389
Total liabilities and stockholders’ equity		$	424,890			$	374,776

See accompanying notes to unaudited condensed consolidated financial statements.

See accompanying notes to unaudited condensed consolidated financial statements .

THE MEDICINES COMPANY

notes to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009 for a discussion of the Company’s critical accounting estimates.

      Reclassifications

     Certain prior year amounts have been reclassified to conform to the current year presentation.

      Recent Accounting Pronouncements

     In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)”, which was later superseded by the FASB Codification and included in ASC topic 810-10 (ASC 810-10), which modifies how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. ASC 810-10 clarifies that the determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purpose and design and a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance. ASC 810-10 requires an ongoing reassessment of whether a company is the primary beneficiary of a variable interest entity. ASC 810-10 also requires additional disclosures about a company’s involvement in variable interest entities and any significant changes in risk exposure due to that involvement. This guidance is effective for fiscal years beginning after November 15, 2009 and was effective for the Company on January 1, 2010. The Company adopted this accounting pronouncement as of January 1, 2010 and it did not have a material impact on its consolidated financial statements.

3. Stock-Based Compensation

     The Company recorded approximately $1.8 million and $6.9 million of stock-based compensation expense for the three and nine months ended September 30, 2010, respectively. For the three and nine months ended September 30, 2009, the Company recorded approximately $4.4 million and $15.3 million of stock-based compensation expense, respectively. As of September 30, 2010, there was approximately $8.4 million of total unrecognized compensation costs related to non-vested share-based employee compensation arrangements granted under the Company’s equity compensation plans. This cost is expected to be recognized over a weighted average period of 1.24 years.

     During the nine months ended September 30, 2010, the Company issued a total of 543,460 shares of its common stock upon the exercise of stock options, pursuant to restricted stock grants and pursuant to purchases under employee stock purchase plans (the ESPP). During the nine months ended September 30, 2009, the Company issued a total of 596,818 shares of its common stock upon the exercise of stock options, pursuant to restricted stock grants and pursuant to purchases under the ESPP. Cash received from exercise of stock options and purchases through the ESPP during the nine months ended September 30, 2010 and 2009 was approximately $2.8 million and $1.8 million, respectively, and is included within the financing activities section of the consolidated statements of cash flows.

     At September 30, 2010, there were a total of 6,726,585 shares of common stock reserved for future issuance under the ESPP and for future grants under the Company’s amended and restated 2004 stock incentive plan.

4. Earnings per Share

     The following table sets forth the computation of basic and diluted earnings per share for the three and nine months ended September 30, 2010 and 2009:

     Basic earnings per share is computed using the weighted average number of shares of common stock outstanding during the period, reduced where applicable for outstanding yet unvested shares of restricted common stock. The number of dilutive common stock equivalents was calculated using the treasury stock method. For the three months ended September 30, 2010 and 2009, options to purchase 7,150,519 shares and 10,887,737 shares, respectively, of common stock that could potentially dilute basic earnings per share in the future were excluded from the calculation of diluted earnings per share as their effect would have been anti-dilutive because their exercise price was in excess of the average closing price of the common stock during the period. For the nine months ended September 30, 2010 and 2009, options to purchase 8,684,283 shares and 11,032,956 shares, respectively, of common stock that could potentially dilute basic earnings per share in the future were excluded from the calculation of diluted earnings per share as their effect would have been anti-dilutive.

     For the three months ended September 30, 2010 and 2009, 6,750 and 0 shares, respectively, of unvested restricted stock that could potentially dilute basic earnings per share in the future were excluded from the calculation of diluted earnings per common share as their effect would have been anti-dilutive. For the nine months ended September 30, 2010 and 2009, 8,500 and 116,870 shares, respectively, of unvested restricted stock that could potentially dilute basic earnings per share in the future were excluded from the calculation of diluted earnings per common share as their effect would have been anti-dilutive.

5. Comprehensive Income (Loss)

     Comprehensive income (loss) includes net income (loss), unrealized gain (loss) on available for sale securities and currency translation adjustments. Comprehensive income (loss) for the three and nine months ended September 30, 2010 and September 30, 2009 is detailed below.

6. Income Taxes

     For the three months ended September 30, 2010 and 2009, the Company recorded a provision for income taxes of $1.0 million and $4.0 million, respectively, based upon its estimated tax liability for the year. The Company’s effective tax rate for the three months ended September 30, 2010 and 2009 was approximately 4% and 495%, respectively. For the nine months ended September 30, 2010 and 2009, the Company recorded a provision for income taxes of $2.6 million and $4.5 million, respectively, based upon its estimated tax liability for the year. The Company’s effective tax rate for the nine months ended September 30, 2010 and 2009 was approximately 5% and 258%, respectively. The provision for income taxes is based on federal, state and foreign income taxes.

     In the fourth quarter of 2009, the Company established a full valuation allowance against its deferred tax assets. It continues to evaluate their future realizability on a periodic basis in light of changing facts and circumstances, including but not limited to projections of future taxable income, tax legislation, rulings by relevant tax authorities, the progress of ongoing tax audits, the regulatory approval of products currently under development, extension of the patent rights relating to Angiomax and the ability to achieve future anticipated revenues. If the Company reduces the valuation allowance on deferred tax assets in future periods, the Company would recognize an income tax benefit.

7. Acquisition

      Targanta Therapeutics Corporation

     In February 2009, the Company acquired Targanta Therapeutics Corporation (Targanta), a biopharmaceutical company focused on developing and commercializing innovative antibiotics to treat serious infections in the hospital and other institutional settings.

     Under the terms of the Company’s agreement with Targanta, it paid Targanta shareholders an aggregate of approximately $42.0 million at closing, and agreed to pay contingent cash payments up to an additional $90.4 million in the aggregate, as described below:

	•		Upon approval from the European Medicines Agency (EMA) for a Marketing Authorization Application (MAA) for oritavancin for the treatment of serious gram-positive bacterial infections, including acute bacterial skin and skin structure infections (ABSSSI) (which were formerly referred to as complicated skin and skin structure infections, or cSSSI) on or before December 31, 2013, approximately $10.5 million if such approval is granted between July 1, 2010 and December 31, 2013. As of September 30, 2010, the Company has not filed an application with the EMA for oritavancin for the treatment of ABSSSI.
	•		Upon final approval from the FDA for a new drug application, or NDA, for oritavancin for the treatment of ABSSSI (1) within 40 months after the date the first patient is enrolled in a Phase 3 clinical trial of ABSSSI that is initiated by the Company and (2) on or before December 31, 2013, approximately $10.5 million in the aggregate.
	•		Upon final FDA approval for an NDA for the use of oritavancin for the treatment of ABSSSI administered by a single dose intravenous infusion (1) within 40 months after the date the first patient is enrolled in a Phase 3 clinical trial of ABSSSI that is initiated by the Company and (2) on or before December 31, 2013, approximately $14.7 million in the aggregate. This payment may become payable simultaneously with the payment described in the previous bullet above.
	•		If aggregate net sales of oritavancin in four consecutive calendar quarters ending on or before December 31, 2021 reach or exceed $400.0 million, approximately $49.4 million in the aggregate.

     The Company expensed transaction costs as incurred, capitalized as an indefinite lived intangible asset the value of acquired in-process research and development and recorded contingent payments at their estimated fair value. The results of Targanta’s operations have been included in the Company’s consolidated financial statements since the acquisition date. The purchase price of approximately $64 million, which includes $42 million of cash paid upon acquisition and $23 million that represents the fair market value of the contingent purchase price on the date of acquisition, was allocated to the net tangible and intangible assets of Targanta based on their estimated fair values. Below is a summary which details the assets and liabilities acquired as a result of the acquisition:

     The purchase price was allocated to the estimated fair value of assets acquired and liabilities assumed based on a valuation and management estimates. The Company recorded a deferred tax liability for the difference in basis of the identifiable intangible assets.

     In determining the fair value of all of the Company’s in-process research and development projects related to oritavancin, the Company used the income approach, specifically a probability weighting to the estimated future net cash flows that are derived from projected sales revenues and estimated costs. These projections are based on factors such as relevant market size, patent protection, historical pricing of similar products and expected industry trends. This method requires a forecast of cash inflows, cash outflows, and pro forma charges for economic returns of and on tangible assets employed, including working capital, fixed assets and assembled workforce. Cash outflows include direct and indirect expenses for clinical trials, manufacturing, sales, marketing, general and administrative expenses and taxes. For purposes of these forecasts, the Company assumed that cash outflows for research and development, general administrative and marketing expenses from February 2009 and continuing through 2012 would not exceed $165 million. All internal and external research and development expenses are expensed as incurred.

     The Company expects its oritavancin development efforts to have a material impact on its research and development expenses.

     The Company defines an in-process research and development project by specific therapeutic treatment indication. At this time, the Company is pursuing four therapeutic treatment indications for oritavancin. After applying a risk adjusted discount rate of 13% to each project’s expected cash flow stream, the Company determined a preliminary value for each project as set forth below. In determining these values, the Company assumed that it would generate cash inflows from oritavancin for ABSSSI in 2012 and from the other projects thereafter.

     The Company’s success in developing and obtaining marketing approval for oritavancin for ABSSSI and for any of the other indications is highly uncertain. Subject to the completion of ongoing discussions with the FDA, the Company expects to commence such a Phase 3 study of oritavancin in the fourth quarter of 2010. The Company cannot know or predict the nature, timing and estimated costs of the efforts necessary to complete the development of, or the period in which material net cash inflows are expected to commence from, oritavancin due to the numerous risks and uncertainties associated with developing and commercializing drugs. These risks and uncertainties, including their impact on the timing of completing clinical trial and development work and obtaining regulatory approval, would have a material impact on each project’s value.

     If the acquisition of Targanta had occurred as of January 1, 2009, the Company’s pro forma results for the three and nine months ended September 30, 2010 and 2009 would have been as follows:

     The above pro forma information was determined based on historical GAAP results adjusted for the elimination of interest foregone on net cash and cash equivalents used to pay the closing consideration and transaction related costs. Such amount was offset by the elimination of interest expense on third party debt that is assumed to be repaid in full prior to the completion of the acquisition.

8. Cash, Cash Equivalents and Available for Sale Securities

     The Company considers all highly liquid investments purchased with original maturities at the date of purchase of three months or less to be cash equivalents. Cash and cash equivalents at September 30, 2010 and December 31, 2009 included investments of $10.6 million and $47.5 million, respectively, in money market funds and commercial paper with original maturities of less than three months. These investments are carried at cost, which approximates fair value.

     At September 30, 2010 and December 31, 2009, the Company held available for sale securities with a fair value totaling $122.3 million and $104.0 million, respectively. These available for sale securities included various U.S. government agency notes and corporate debt securities. At September 30, 2010, approximately $117.1 million of available for sale securities were due on demand or within one year and the remaining $5.2 million were due within two years. At December 31, 2009, approximately $100.3 million of available for sale securities were due on demand or within one year and the remaining $3.7 million were due within two years.

     Available for sale securities, including carrying value and estimated fair values, are summarized as follows:

Restricted Cash

     The Company had restricted cash of $5.8 million at September 30, 2010 and $7.0 million at December 31, 2009, which is included in restricted cash on the consolidated balance sheets. On October 11, 2007, the Company entered into a new lease for office space in Parsippany, New Jersey. The Company relocated its principal executive offices to the new space in the first quarter of 2009. Restricted cash of $5.5 million and $6.8 million at September 30, 2010 and December 31, 2009, respectively, collateralizes outstanding letters of credit associated with such lease. The funds are invested in certificates of deposit. The letter of credit permits draws by the landlord to cure defaults by the Company. The amount of the letter of credit is subject to reduction upon the achievement of certain regulatory and operational milestones relating to the Company’s products. However, in no event will the amount of the letter of credit be reduced below approximately $1.0 million. In addition, as a result of the Targanta acquisition in 2009, the Company has restricted cash of $0.3 million in the form of a guaranteed investment certificate collateralizing an available credit facility.

9. Inventory

     The Company obtains all of its Angiomax bulk drug substance from Lonza Braine, S.A. (Lonza Braine). Under the terms of the Company’s agreement with Lonza Braine, the Company provides forecasts of its annual needs for Angiomax bulk substance 18 months in advance. The Company also has a separate agreement with Ben Venue Laboratories, Inc. for the fill-finish of Angiomax drug product. As of September 30, 2010, the Company had inventory-related purchase commitments totaling $2.8 million during 2010, $25.3 million during 2011 and $14.7 million during 2012 for Angiomax bulk drug substance. The Company obtains all of its Cleviprex bulk drug substance from Johnson Matthey Pharma Services and also has a separate agreement with Hospira, Inc. for the fill-finish of Cleviprex drug product.

     The major classes of inventory were as follows:

     The Company reviews inventory, including inventory purchase commitments, for slow moving or obsolete amounts based on expected revenues. If annual revenues are less than expected, the Company may be required to make additional allowances for excess or obsolete inventory in the future.

10. Intangible Assets and Goodwill

     The following information details the carrying amounts and accumulated amortization of the Company’s amortizing intangible assets:

     The Company expects amortization expense related to these intangible assets to be $0.4 million for the remainder of 2010. The Company expects annual amortization expense related to these intangible assets to be $2.4 million, $2.4 million, $3.0 million, $3.6 million and $0.8 for the years ending December 31, 2011, 2012, 2013, 2014 and 2015, respectively, with the balance of $1.2 million being amortized thereafter. Amortization of customer relationships, distribution agreements and trademarks will be recorded in selling, general and administrative expense on the consolidated statements of operations. Amortization of Cleviprex milestones will be recorded in cost of revenue on the consolidated statements of operations.

     The following information details the carrying amounts of the Company’s intangible assets not subject to amortization:

     The changes in goodwill for the nine months ended September 30, 2010 and for the year ended December 31, 2009 are as follows:

11. Fair Value Measurements

     ASC 820-10 provides a framework for measuring fair value under GAAP and requires expanded disclosures regarding fair value measurements. ASC 820-10 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820-10 also establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs, where available, and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

     The following table sets forth the Company’s assets and liabilities that were measured at fair value on a recurring basis at September 30, 2010 by level within the fair value hierarchy. As required by ASC 820-10, assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability:

     The changes in fair value of the Company’s Level 3 contingent purchase price during the nine months ended September 30, 2010 were as follows:

     No changes in valuation techniques or inputs occurred during the nine months ended September 30, 2010. No transfers of assets between Level 1 and Level 2 of the fair value measurement hierarchy occurred during the nine months ended September 30, 2010.

12. Restructuring Costs and Other, Net

     On January 7, 2010 and February 9, 2010, the Company commenced two separate workforce reductions to improve efficiencies and better align its costs and structure for the future. As a result of the first workforce reduction, the Company reduced its office-based personnel by 30 employees. The second workforce reduction resulted in a reduction of 42 primarily field-based employees. Upon signing release agreements, affected employees received reduction payments, earned 2009 bonuses, fully paid health care coverage for six months and outplacement services. The Company completed these workforce reductions in February 2010.

     The Company recorded, in the aggregate, charges of $6.9 million associated with the workforce reductions. These charges were recorded in research and development and selling, general and administrative costs in the Company’s financial statements.

     Of the approximately $6.9 million of charges related to the workforce reductions, $1.0 million were noncash charges, $5.7 million was paid during the nine months ended September 30, 2010 and approximately $0.2 million are expected to be paid out during the remainder of 2010.

     Details of the activities described above during the nine-month period ended September 30, 2010 are as follows:

13. Segment and Geographic Information

     The Company manages its business and operations as one segment and is focused on advancing the treatment of critical care patients through the delivery of innovative, cost-effective medicines to the worldwide hospital marketplace. Revenues reported to date are derived primarily from the sales of Angiomax in the United States.

     The geographic information provided below is classified based on the major geographic regions in which the Company operates.

14. Relocation of Principal Offices

     On January 12, 2009, the Company moved its principal executive offices to new office space in Parsippany, New Jersey. The lease for the Company’s previous office facility expires in January 2013. As a result of vacating the previous facility, the Company triggered a cease-use date on January 12, 2009 and incurred estimated lease termination costs. Estimated lease termination costs include the net present value of future minimum lease payments from the cease-use date to the end of the remaining lease term net of estimated sublease rental income. As of September 30, 2010, the Company has accrued approximately $1.1 million for its estimate of the net present value of these estimated lease termination costs. Additionally, certain other costs such as leasing commissions and legal fees were expensed as incurred in conjunction with the sublease of the vacated office space.

15. Contingencies

     The Company may be, from time to time, a party to various disputes and claims arising from normal business activities. The Company accrues for loss contingencies when information available indicates that it is probable that a liability has been incurred and the amount of such loss can be reasonably estimated. The Company believes that the ultimate resolution of these matters will not have a material adverse effect on the Company’s financial condition or liquidity. However, adjustments, if any, to the Company’s estimates could be material to operating results for the periods in which adjustments to the liability are recorded.

     The U.S. Patent and Trademark Office (PTO) rejected the Company’s application under the Hatch-Waxman Act for an extension of the term of U.S. Patent No. 5,196,404 (‘404 patent), the principal U.S. patent that covers Angiomax (the patent term extension application filing), because in the PTO’s view the application was not timely filed. The Company filed suit against the PTO, the FDA and U.S. Department of Health and Human Services (HHS) seeking to set aside the denial of the patent term extension application filing. On August 3, 2010, the court granted the Company’s motion for summary judgment and ordered the PTO to consider the patent term extension application timely filed. On August 5, 2010, the PTO granted an interim extension of the term of the ‘404 patent until August 13, 2011. The period for the government to appeal the court’s August 3, 2010 decision expired on October 5, 2010 without government appeal. The PTO has sent the patent term extension application to the FDA for a determination on the length of the extension of the ‘404 patent.

     On August 19, 2010, APP Pharmaceuticals, LLC (APP) filed a motion to intervene for the purpose of appeal in the Company’s case against the PTO, the FDA and HHS. On September 13, 2010, the court issued an order denying APP’s motion to intervene. On September 1, 2010, as amended on September 17, 2010, APP filed a notice of appeal to the United States Court of Appeals for the Federal Circuit of the district court’s August 3 ^, 2010 and September 13, 2010 orders (and all related and underlying orders). On October 5, 2010, the Company filed a motion to dismiss APP’s appeal and the Company is awaiting a decision by the court.

     The Company has entered into agreements with the law firms involved in the patent term extension application filing that suspend the statute of limitations on any claims against them for failing to make a timely filing. The Company has entered into a similar agreement with Biogen Idec, one of its licensors for Angiomax, relating to any claims, including claims for damages and/or license termination, that Biogen Idec may bring relating to the patent term extension application filing. Such claims by Biogen Idec could have a material adverse effect on the Company’s financial condition, results of operations, liquidity or business. The Company is currently in discussions with the law firms involved in the patent term extension application filing and with Biogen Idec and Health Research Inc. with respect to the possible resolution of potential claims among the parties.

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

      You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and accompanying notes included elsewhere in this quarterly report. In addition to the historical information, the discussion in this quarterly report contains certain forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated by the forward-looking statements due to our critical accounting estimates discussed below and important factors set forth in this quarterly report, including under “Risk Factors” in Part II, Item 1A of this quarterly report.

Overview

      Our Business

     We are a global pharmaceutical company focused on advancing the treatment of intensive and critical care patients through the delivery of innovative, cost-effective medicines to the worldwide hospital marketplace. We have two marketed products, Angiomax ^® (bivalirudin) and Cleviprex ^® (clevidipine butyrate) injectable emulsion, and a pipeline of critical care hospital products in development, including two late-stage development product candidates, cangrelor and oritavancin, two early stage development product candidates, MDCO-2010 (formerly known as CU2010) and MDCO-216 (formerly known as ApoA-I Milano) and marketing rights in the United States and Canada to a ready-to-use formulation of Argatroban for which a new drug application, or NDA, has been submitted to the U.S. Food and Drug Administration, or FDA. We believe that Angiomax, Cleviprex and our products in development possess favorable attributes that competitive products do not provide, can satisfy unmet medical needs in the critical care hospital product market and offer, or, in the case of our products in development, have the potential to offer, improved performance to patients and hospital businesses. During the three months ended September 30, 2010, we did not sell Cleviprex due to a lack of supply as a result of product recalls and manufacturing issues.

     The following chart identifies each of our marketed products and our products in development, their stage of development, their mechanism of action and the indications which they address or are intended to address. All of our marketed products and products in development are administered intravenously.

     We market and sell Angiomax and Cleviprex in the United States with a sales force that, as of September 30, 2010, consisted of 106 representatives, which we refer to as engagement partners and managers, experienced in selling to hospital customers. In Europe, we market and sell Angiox with a sales force that, as of September 30, 2010, consisted of 44 engagement partners and managers experienced in selling to hospital customers. Our revenues to date have been generated primarily from sales of Angiomax in the United States, but we continue to expand our sales and marketing efforts in Europe. We believe that by establishing operations in Europe for Angiox, we will be positioned to commercialize our pipeline of critical care product candidates in Europe, if and when they are approved.

     Research and development expenses represent costs incurred for company acquisitions and license of rights to products, clinical trials, nonclinical and preclinical studies, activities relating to regulatory filings and manufacturing development efforts. We outsource much of our clinical trials, nonclinical and preclinical studies and all of our manufacturing development activities to third parties to maximize efficiency and minimize our internal overhead. We expense our research and development costs as they are incurred. Selling, general and administrative expenses consist primarily of salaries and related expenses, general corporate activities and costs associated with marketing and promotional activities. Research and development expense, selling, general and administrative expense and cost of revenue also include stock-based compensation expense, which we allocate based on the responsibilities of the recipients of the stock-based compensation.

     Except for 2004 and 2006, we have incurred net losses on an annual basis since our inception. As of September 30, 2010, we had an accumulated deficit of approximately $298.1 million. We expect to make substantial expenditures to further develop and commercialize our products, including costs and expenses associated with clinical trials, nonclinical and preclinical studies, regulatory

approvals and commercialization. Although we achieved profitability in 2004 and 2006 and expect to be profitable in 2010, we have not been profitable on an annual basis since 2006. We will likely need to generate significantly greater revenue in future periods to achieve and maintain profitability in light of our planned expenditures.

      Angiomax Patent Term

     The principal U.S. patent covering Angiomax, U.S. patent No. 5,196,404, or the ‘404 patent, was set to expire in March 2010, but has been extended in connection with our litigation against the U.S. Patent and Trademark Office, or PTO, the FDA and the U.S. Department of Health and Human Services, or HHS. We applied, under the Hatch-Waxman Act, for an extension of the term of the ‘404 patent. However, the PTO rejected our application because in its view the application was not timely filed. As a result, we filed suit against the PTO, the FDA and HHS seeking to set aside the denial of our application to extend the term of the ‘404 patent. In response to court orders, the PTO first extended the term of the patent to May 2010 and then to the date at least 10 days after the court issued an order deciding the case. On August 3, 2010, the court granted our motion for summary judgment and ordered the PTO to consider our patent term extension application timely filed. On August 5, 2010, the PTO granted an interim extension of the term of the ‘404 patent until August 13, 2011. On October 5, 2010, the period for the government to appeal the court’s August 3, 2010 summary judgment decision expired without government appeal. The PTO has sent our application to the FDA for a determination on the length of the extension of the ‘404 patent.

     On August 19, 2010, APP Pharmaceuticals, LLC, or APP, filed a motion to intervene for the purpose of appeal in our case against the PTO, the FDA and HHS. On September 13, 2010, the court issued an order denying APP’s motion to intervene. On September 1, 2010, as amended on September 17, 2010, APP filed a notice of appeal to the United States Court of Appeals for the Federal Circuit of the district court’s August 3 ^, 2010 and September 13, 2010 orders (and all related and underlying orders). On October 5, 2010, we filed a motion to dismiss APP’s appeal and we are awaiting a decision by the court.

     We also continue to pursue legislative action to address the matter. In addition, we will have a six-month period of market exclusivity for Angiomax in the United States due to our study of Angiomax in the pediatric setting following the expiration of the U.S. patents covering Angiomax.

     The PTO has recently issued two patents to us covering a more consistent and improved Angiomax drug product and the processes by which it is made. In October 2009, January 2010 and June 2010, we filed suit against pharmaceutical companies which have filed abbreviated new drug applications, or ANDAs, with the FDA for generic versions of Angiomax, alleging infringement of the two recently issued patents.

     If the August 3, 2010 court order requiring the PTO to consider our application to extend the term of the ‘404 patent timely filed is successfully challenged, either by APP in its pending appeal or in a separate challenge. If we are otherwise unsuccessful in further extending the term of the ‘404 patent, or if we are unable to maintain our market exclusivity for Angiomax in the United States through enforcement of our other U.S. patents covering Angiomax, Angiomax could be subject to generic competition in the United States following the expiration of the six-month period of market exclusivity resulting from our pediatric study of Angiomax. In Europe, the principal patent covering Angiox expires in 2015.

      Cleviprex Resupply

     In December 2009 and March 2010, we conducted voluntary recalls of manufactured lots of Cleviprex due to the presence of visible particulate matter that was deposited at the bottom of some vials. As a result, since the first quarter of 2010 we have not been able to supply the market with Cleviprex with existing inventory or to use the current manufacturing method to manufacture Cleviprex. We are cooperating with the FDA and our contract manufacturer to remedy the problem at the manufacturing site that resulted in the recalls. We expect to be able to resupply the market with drug product and to resume selling Cleviprex in the third quarter of 2011.

      Distribution and Sales

     We distribute Angiomax and Cleviprex in the United States through a sole source distribution model. Under this model, we sell Angiomax and Cleviprex to our sole source distributor, Integrated Commercialization Solutions, Inc., or ICS, which then sells

Angiomax and Cleviprex to a limited number of national medical and pharmaceutical wholesalers with distribution centers located throughout the United States and in certain cases, directly to hospitals. Our agreement with ICS, which we initially entered into February 2007, provides that ICS will be our exclusive distributor of Angiomax and Cleviprex in the United States. Under the terms of this fee-for-service agreement, ICS places orders with us for sufficient quantities of Angiomax and Cleviprex to maintain an appropriate level of inventory based on our customers’ historical purchase volumes. ICS assumes all credit and inventory risks, is subject to our standard return policy and has sole responsibility for determining the prices at which it sells Angiomax and Cleviprex, subject to specified limitations in the agreement. The agreement terminates on February 28, 2012, but will automatically renew for additional one-year periods unless either party gives notice at least 120 days prior to the automatic extension. We may also terminate the agreement at any time and for any reason upon prior written notice to ICS and payment of a termination fee of between $100,000 and $250,000.

     In Europe, we market and sell Angiox with a sales force that, as of September 30, 2010, consisted of 44 engagement partners and managers. We also market and sell Angiomax outside the United States through distributors, including Sunovion Pharmaceuticals Inc., which distributes Angiomax in Canada, and affiliates of Grupo Ferrer Internacional, which distribute Angiox in Greece, Portugal and Spain and in a number of countries in Central America and South America. We also have agreements with other third parties for other countries outside of the United States and Europe, including Israel and Australia. We are developing a global strategy for Cleviprex in preparation for its potential approval outside of the United States but do not expect to launch Cleviprex in other countries until the manufacturing issues regarding the product have been resolved.

     To support the marketing, sales and distribution efforts of Angiomax, we are continuing to develop our business infrastructure outside the United States. We currently have subsidiaries in the Australia, Austria, Belgium, Brazil, Canada, Denmark, Finland, France, Germany, Italy, the Netherlands, Norway, Poland, Spain, Sweden, Switzerland and the United Kingdom, in connection with the development of a business infrastructure to conduct the international sales and marketing of Angiomax. We also obtained licenses and authorizations necessary to distribute Angiomax in the various countries outside the United States, hired personnel and entered into third-party arrangements to provide services, such as importation, packaging, quality control and distribution. We believe that by establishing operations outside the United States for Angiomax, we will be positioned to commercialize our products in development, if and when they are approved.

      Business Development Activity

     Our core strategy is to acquire, develop and commercialize products that we believe help hospitals treat patients more efficiently by improving the effectiveness and safety of treatment while reducing cost. Since the beginning of 2009, we have acquired or licensed a portfolio of critical care products that we are developing.

      Targanta Acquisition. In February 2009, we acquired Targanta, a biopharmaceutical company focused on developing and commercializing innovative antibiotics to treat serious infections in the hospital and other institutional settings. Targanta’s product pipeline included an intravenous version of oritavancin and a program to develop an oral version of oritavancin for the possible treatment of Clostridium difficile infections, or C. difficile.

     Under the terms of our agreement with Targanta, we paid Targanta shareholders an aggregate of approximately $42.0 million at closing, and agreed to pay contingent cash payments up to an additional $90.4 million in the aggregate, as described below:

	•		Upon approval from the European Medicines Agency, or EMA, for a MAA for oritavancin for the treatment of ABSSSI on or before December 31, 2013, approximately $10.5 million if such approval is granted between July 1, 2010 and December 31, 2013. As of September 30, 2010, we had not filed an application with the EMA for oritavancin for the treatment of ABSSSI.
	•		Upon final approval from the FDA for a new drug application, or NDA, for oritavancin for the treatment of ABSSSI (1) within 40 months after the date the first patient is enrolled in a Phase 3 clinical trial of ABSSSI that is initiated by us and (2) on or before December 31, 2013, approximately $10.5 million in the aggregate.
	•		Upon final FDA approval for an NDA for the use of oritavancin for the treatment of ABSSSI administered by a single dose intravenous infusion (1) within 40 months after the date the first patient is enrolled in a Phase 3 clinical trial of ABSSSI that is initiated by us and (2) on or before December 31, 2013, approximately $14.7 million in the aggregate. This payment may become payable simultaneously with the payment described in the previous bullet above.

•

If aggregate net sales of oritavancin in four consecutive calendar quarters ending on or before December 31, 2021 reach or exceed $400 million, approximately $49.4 million in the aggregate.

     We expensed the transaction costs as incurred and capitalized the value of acquired in-process research and development as an indefinite lived intangible asset. We recorded contingent payments at their estimated fair value. We included the results of Targanta’s operations in our consolidated financial statements since the acquisition. The purchase price of approximately $64 million, which includes $42 million of cash paid upon acquisition and $23 million that represents the fair market value of the contingent purchase price on the date of acquisition, was allocated to the net tangible and intangible assets of Targanta based on their estimated fair values.

     As a result of our acquisition of Targanta, we are a party to an asset purchase agreement that Targanta entered into with InterMune, Inc., or InterMune, in connection with Targanta’s December 2005 acquisition of the worldwide rights to oritavancin from InterMune. Under the agreement, we are obligated to use commercially reasonable efforts to develop oritavancin and to make a $5.0 million cash payment to InterMune if and when we receive from the FDA all approvals necessary for the commercial launch of oritavancin. We have no other milestone or royalty obligations to InterMune.

      Licensing Arrangement with Eagle. In September 2009, we licensed marketing rights in the United States and Canada to a ready-to-use formulation of Argatroban developed by Eagle Pharmaceuticals, Inc., or Eagle, for which Eagle submitted an NDA to the FDA in 2008. We and Eagle are currently in discussions with the FDA regarding the NDA. Under the license agreement with Eagle, we paid Eagle a $5.0 million technology license fee. We also agreed to pay additional approval and commercialization milestones up to a total of $15.0 million and royalties. Eagle has agreed to supply us with the ready-to-use product under a supply agreement we entered into with it in September 2009.

      Licensing Arrangement with Pfizer. In December 2009, we licensed exclusive worldwide rights to MDCO-216 (formerly known as ApoA-I Milano) from Pfizer Inc., or Pfizer. Under the terms of the agreement, we paid Pfizer an up-front payment of $10.0 million and agreed to make additional payments upon the achievement of clinical, regulatory and sales milestones up to a total of $410 million. We also agreed to pay Pfizer single-digit royalty payments on worldwide net sales of MDCO-216. We also paid $7.5 million to third parties in connection with the license and agreed to make additional payments to them of up to $12.0 million in the aggregate upon the achievement of specified development milestones and continuing payments based on sales of MDCO-216.

      Workforce Reductions

     On January 7, 2010 and February 9, 2010, we commenced two separate workforce reductions to improve efficiencies and better align our costs and structure for the future. As a result of the first workforce reduction, we reduced our office-based personnel by 30 employees. The second workforce reduction resulted in a reduction of 42 primarily field-based employees. In the nine months ended September 30, 2010, we recorded, in the aggregate, charges of $6.9 million associated with these workforce reductions. Of the approximately $6.9 million of charges related to the workforce reductions, $1.0 million were noncash charges, $5.7 million was paid during the nine months ended September 30, 2010 and approximately $0.2 million is expected to be paid out during the remainder of 2010. We expect to realize estimated annualized cost savings from the workforce reductions in the range of $14.5 to $16.5 million.

Results of Operations

Three Months Ended September 30, 2010 and 2009

      Net Revenue:

     Net revenue increased 7% to $105.7 million for the three months ended September 30, 2010 as compared to $98.8 million for the three months ended September 30, 2009. The following table reflects the components of net revenue for the three months ended September 30, 2010 and 2009:

     Net revenue during the three months ended September 30, 2010 increased $7.0 million compared to the three months ended September 30, 2009 primarily due to an increase in sales of Angiomax in the United States and an increase in sales of Angiox in Europe. Increased Angiomax net sales in the United States were offset by higher chargebacks related to the 340B Drug Pricing Program under the Public Health Service Act, pursuant to which we offer qualifying entities a discount off the commercial price of Angiomax for patients undergoing PCI on an outpatient basis. U.S. sales for the three months ended September 30, 2010 do not include any sales of Cleviprex, reflecting our lack of supply of Cleviprex due to manufacturing problems, compared to $1.1 million from sales of Cleviprex in the three months ended September 30, 2009.

     International net revenue was relatively unchanged during the three months ended September 30, 2010 compared to the three months ended September 30, 2009 since decreased sales of Angiomax in Canada offset the increased sales of Angiomax in Europe.

     If the August 3, 2010 court order requiring the PTO to consider our application to extend the term of the ‘404 patent timely filed is successful challenged either by APP in its pending appeal or in a separate challenge, if we are otherwise unsuccessful in further extending the term of the ‘404 patent, or if we are unable to maintain our market exclusivity for Angiomax in the United States through enforcement of our other U.S. patents covering Angiomax, Angiomax could be subject to generic competition in the United States following the expiration of the six-month period of market exclusivity resulting from our pediatric study of Angiomax. Competition from generic equivalents sold at a price that is less than the price at which we currently sell Angiomax could reduce our revenues, possibly materially.

     Since the first quarter of 2010, we have not been able to supply the market with Cleviprex with existing inventory or to use the current manufacturing method to manufacture Cleviprex related to the December 2009 and March 2010 recalls of the drug product. We expect to be able to resupply the market with drug product and to resume selling Cleviprex in the third quarter of 2011.

      Cost of Revenue:

     Cost of revenue in the three months ended September 30, 2010 was $31.6 million, or 30% of net revenue, compared to $28.3 million, or 29% of net revenue, in the three months ended September 30, 2009. Cost of revenue consisted of expenses in connection with the manufacture of Angiomax and Cleviprex sold, royalty expenses under our agreements with Biogen Idec and Health Research Inc., or HRI, related to Angiomax and with AstraZeneca AB, or AstraZeneca, related to Cleviprex and the logistics costs related to Angiomax and Cleviprex, including distribution, storage and handling costs.

     Cost of revenue increased $3.3 million during the three months ended September 30, 2010 compared to the three months ended September 30, 2009. The increase in cost of revenue is primarily related to the higher volume of goods sold and an increase in royalty expense due to a higher effective royalty rate to Biogen Idec and was partially offset by a $0.5 million decrease related to manufacturing costs of Angiomax reflecting higher manufacturing costs in the third quarter of 2009 due to production failures at the third-party manufacturer for Angiomax that occurred in the third quarter of 2009.

      Research and Development Expenses:

     Research and development expenses decreased by 26% to $16.7 million for the three months ended September 30, 2010, compared to $22.5 million for the three months ended September 30, 2009. The decrease primarily reflects reduced clinical activity for cangrelor as the CHAMPION clinical trial program for cangrelor was ongoing until we discontinued enrollment in May 2009. The decrease also reflects reduced regulatory and clinical activity for Cleviprex as we suspend our clinical trials as a result of the recalls and lack of supply. These decreases were offset by an increase in manufacturing development cost for Angiomax, costs incurred in preparation for Phase 3 trials of cangrelor and oritavancin and costs associated with the development of MDCO-2010 and MDCO-216.

     We expect to continue to invest in the development of Angiomax, Cleviprex, cangrelor, oritavancin, MDCO-2010 and MDCO-216 during 2010. We expect research and development expenses in the fourth quarter of 2010 to reflect costs associated with our anticipated Phase 3 clinical trials of oritavancin and the Phase 3 clinical trials of cangrelor we began in October 2010, manufacturing development activities for Angiomax, Cleviprex, cangrelor and MDCO-216, our Phase 1 clinical trial program for MDCO-2010 and product lifecycle management activities.

     The following table identifies, for each of our major research and development projects, our spending for the three months ended September 30, 2010 and 2009. Spending for past periods is not necessarily indicative of spending in future periods.

Research and Development Spending

		Three Months Ended September 30,
						% of								% of
		2010				Total R&D				2009				Total R&D
		(in thousands)								(in thousands)
Research and Development
Angiomax
Clinical trials		$	1,781				11	%		$	1,008				5	%
Manufacturing development			622				4	%			2,896				13	%
Administrative and headcount costs			417				2	%			926				4	%
Total Angiomax			2,820				17	%			4,830				22	%
Cleviprex
Clinical trials			229				1	%			563				3	%
Manufacturing development			488				3	%			744				3	%
Administrative and headcount costs			521				3	%			1,158				5	%
Total Cleviprex			1,238				7	%			2,465				11	%
Cangrelor
Clinical trials			1,611				10	%			2,796				12	%
Manufacturing development			763				5	%			512				2	%
Administrative and headcount costs			1,082				6	%			1,036				5	%
Total Cangrelor			3,456				21	%			4,344				19	%

		Three Months Ended September 30,
						% of								% of
		2010				Total R&D				2009				Total R&D
		(in thousands)								(in thousands)
Oritavancin
Clinical trials			1,186				7	%			—				0	%
Manufacturing development			383				3	%			—				0	%
Administrative and headcount			2,034				12	%			2,542				11	%
Total Oritavancin			3,603				22	%			2,542				11	%
MDCO-2010
Clinical trials			861				5	%			833				4	%
Manufacturing development			575				3	%			—				0	%
Administrative and headcount			1,077				7	%			742				3	%
Government subsidy			(530	)			(3	)%			(1,024	)			(4	)%
Total MDCO-2010			1,983				12	%			551				3	%
MDCO-216
Clinical trials			86				0	%			—				0	%
Manufacturing development			655				4	%			—				0	%
Administrative and headcount			121				1	%			—				0	%
Total MDCO-216			862				5	%			—				0	%
Ready-to-Use Argatroban
Manufacturing development			139				1	%			—				0	%
Acquisition license fee			—				0	%			5,000				22	%
Total Ready-to-Use Argatroban			139				1	%			5,000				22	%
Other			2,575				15	%			2,732				12	%
Total		$	16,676				100	%		$	22,464				100	%

      Angiomax

     Research and development spending related to Angiomax during the three months ended September 30, 2010 decreased by approximately $2.0 million compared to the three months ended September 30, 2009, primarily due to a decrease in manufacturing development expenses of $2.3 million related to product lifecycle management activities and a decrease in administrative costs in the third quarter of 2010 of $0.5 million primarily reflecting the increased costs incurred in the three months ended September 30, 2009 in connection with the regulatory filing related to a clinical study report for the pediatric extension filed with the FDA in the second quarter of 2009. These decreases were partially offset by an increase in clinical trial costs of approximately $0.8 million primarily due to increased expenditures in connection with our ongoing Phase 4 EUROMAX and EUROVISION clinical trials. We are conducting the Phase 4 EUROMAX clinical trial to assess whether the early administration of Angiox in ST-segment elevation myocardial infarction, or STEMI, patients intended for primary PCI presenting either via ambulance or to referral centers where PCI is not performed improves 30-day outcomes when compared to the current standard of care, heparin plus an optional GP IIb/IIIa inhibitor. We expect to enroll approximately 3,680 patients in the EUROMAX trial, in up to ten European countries. We commenced enrollment in the trial in March 2010. We are conducting the EUROVISION study to assess Angiox dosing practices in Europe. We commenced enrollment in this study in May 2009 and in October 2010 we completed enrollment, with 2,022 patients at 70 sites in six European countries.

     We plan to incur increased research and development expenses relating to Angiomax in connection with our efforts to further develop Angiomax for use in additional patient populations, as well as to continue to incur research and development expenses related to our product lifecycle management activities.

      Cleviprex

     Research and development expenditures for Cleviprex decreased approximately $1.2 million during the three months ended September 30, 2010 compared to the three months ended September 30, 2009. The decrease in research and development expenditures is primarily due to the recalls and lack of supply of Cleviprex and the discontinuation in late 2009 of our Phase 4 clinical trials and the observational studies conducted by hospitals and third-party researchers until such time that we are able to resupply the market with Cleviprex.

      Cangrelor

     Research and development expenditures related to cangrelor decreased by approximately $0.9 million in the three months ended September 30, 2010 compared to the three months ended September 30, 2009. The decrease in research and development expenditures primarily reflects lower clinical trial expenses related to our Phase 3 CHAMPION clinical trial program. In May 2009, we discontinued enrollment in our Phase 3 CHAMPION clinical trial program for cangrelor but continued to have administrative and

headcount costs related to the trial in the third quarter of 2009. In October 2010, we commenced a Phase 3 clinical trial of cangrelor, which we refer to as the PHOENIX clinical trial. We initially expect to enroll approximately 10,900 patients, and may enroll up to 15,000 patients in this double-blind parallel group randomized study which compares cangrelor to clopidogrel given according to institutional practice.

      Oritavancin

     Research and development expenditures related to oritavancin increased by approximately $1.1 million in the three months ended September 30, 2010 compared to the three months ended September 30, 2009. The increase in research and development expenditures for oritavancin primarily relates to manufacturing costs, headcount expenses and our preparation for our SOLO I and SOLO II Phase 3 clinical trials incurred during the third quarter of 2010. With our acquisition of Targanta in February 2009, we acquired a worldwide exclusive license to oritavancin. Subject to the completion of ongoing discussions with the FDA regarding finalizing a special protocol assessment, we expect to commence two identical Phase 3 clinical trials of oritavancin for the treatment of ABSSSI in the fourth quarter of 2010, SOLO I and SOLO II. The SOLO I and SOLO II clinical trials are expected to each enroll approximately 2,000 patients and will test the use of a simplified dosing regimen involving a single dose of oritavancin. In August 2009, we withdrew the European MAA for oritavancin.

      MDCO-2010

     Research and development expenditures related to MDCO-2010 increased by approximately $1.4 million in the three months ended September 30, 2010 compared to the three months ended September 30, 2009 due primarily to increased manufacturing expenses related to the production of drug product in preparation for our Phase 1b trial for MDCO-2010. Costs incurred during the third quarter of 2010 primarily relate to our Phase 1a clinical trial of MDCO-2010, which we commenced in July 2009, and headcount related costs. Our costs were partially offset by a $0.5 million German government research and development subsidy.

      MDCO-216

     Research and development expenditures related to MDCO-216 increased by approximately $0.9 million in the three months ended September 30, 2010 compared to the three months ended September 30, 2009. In December 2009, we acquired exclusive worldwide rights to MDCO-216 from Pfizer. Costs incurred during the third quarter of 2010 primarily relate to manufacturing development related to preclinical activities, administrative and headcount expenses and our preparation for clinical trials.

      Ready-to-Use Argatroban

     Research and development expenditures related to ready-to-use Argatroban decreased by approximately $4.9 million in the three months ended September 30, 2010 compared to the three months ended September 30, 2009, reflecting the $5.0 million technology license fee paid to Eagle in September 2009 in connection with the acquisition of marketing rights for a ready-to-use formulation of Argatroban in the United States and Canada. Costs incurred during the third quarter of 2010 were primarily related to manufacturing development activities.

      Other

     Spending in this category includes infrastructure costs in support of our product development efforts, which includes expenses for data management, statistical analysis, analysis of pre-clinical data, analysis of pharmacokinetic-pharmacodynamic (PK/PD) data and product safety as well as expenses related to business development activities in connection with our efforts to evaluate early stage and late stage compounds for development and commercialization and other strategic opportunities. Spending in this category decreased by approximately $0.2 million during the third quarter of 2010 compared to the third quarter of 2009, primarily due to a reduction of business development expenses.

     Our success in further developing Angiomax and Cleviprex, obtaining marketing approvals for Angiomax in additional countries and for Cleviprex outside the United States, and developing and obtaining marketing approval for our products in development, is highly uncertain. We cannot predict expenses associated with ongoing data analysis or regulatory submissions, if any. Nor can we reasonably estimate or know the nature, timing and estimated costs of the efforts necessary to continue the development of Angiomax

and Cleviprex, or the period in which material net cash inflows are expected to commence from the further development of Angiomax and Cleviprex, obtaining marketing approvals for Angiomax in additional countries and Cleviprex outside the United States, or our products in development due to the numerous risks and uncertainties associated with developing and commercializing drugs, including the uncertainty of:

	•		the scope, rate of progress and cost of our clinical trials and other research and development activities;
	•		future clinical trial results;
	•		the terms and timing of any collaborative, licensing and other arrangements that we may establish;
	•		the cost and timing of regulatory approvals;
	•		the cost and timing of establishing and maintaining sales, marketing and distribution capabilities;
	•		the cost of establishing and maintaining clinical and commercial supplies of our products and product candidates;
	•		the effect of competing technological and market developments; and
	•		the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights.

      Selling, General and Administrative Expenses:

		Three Months Ended September 30,
										Change				Change
		2010				2009				$				%
		(in thousands)
Selling, general and administrative expenses		$	35,788			$	47,358			$	(11,570	)			(24.4	)%

     The decrease in selling, general and administrative expenses of $11.6 million includes a reduction of $8.3 million in selling, marketing and promotional spending, a $3.6 million decrease in general administrative expenses, and a $2.0 million decrease in stock-based compensation expense. Selling, general and administrative expenses decreased due to a reduction in personnel costs caused by our first quarter 2010 reductions in force and a reduction in Cleviprex promotional activities as a result of the recalls. These decreases were offset in part by higher expenses associated with ongoing Angiomax patent restoration efforts.

      Other Income:

		Three Months Ended September 30,
										Change				Change
		2010				2009				$				%
		(in thousands)
Other income		$	483			$	151			$	332				219.9	%

     Other income, which is comprised of interest income and gains and losses on foreign currency transactions, increased by $0.3 million to $0.5 million for the three months ended September 30, 2010, from $0.2 million of income for the three months ended September 30, 2009. This increase was primarily due to gains on foreign currency transactions and partially offset by lower rates of return on our available for sale securities in the three months ended September 30, 2010.

      Provision for Income Tax:

		Three Months Ended September 30,
										Change				Change
		2010				2009				$				%
		(in thousands)
Provision for income tax		$	989			$	4,007			$	(3,018	)			(75.3	)%

     We recorded a $1.0 million provision for income taxes for the three months ended September 30, 2010 based on income before taxes of $22.2 million. We recorded a $4.0 million provision for the three months ended September 30, 2009 based on income before taxes of $0.8 million. Our effective income tax rate for the three months ended September 30, 2010 and 2009 was approximately 4% and 495%, respectively. The effective tax rate for 2010 currently assumes utilization of U.S. net operating loss carryforwards against projected taxable income and a liability for alternative minimum tax. It also includes a non-cash tax expense arising from purchase accounting for in-process research and development acquired in the Targanta acquisition. It is possible that our full-year effective tax rate could change because of discrete events, specific transactions or receipt of new information affecting our current projections.

     In 2009, we established a full valuation allowance against our deferred tax assets and continue to evaluate their future realizability on a periodic basis in light of changing facts and circumstances. These would include but are not limited to projections of future taxable income, tax legislation, rulings by relevant tax authorities, the progress of ongoing tax audits, the regulatory approval of products currently under development, the extension of the patent rights relating to Angiomax and the ability to achieve future anticipated revenues. If we reduce the valuation allowance on deferred tax assets in a future period, we would recognize an income tax benefit.

Nine months Ended September 30, 2010 and 2009

      Net Revenue:

     Net revenue increased 5% to $318.0 million for the nine months ended September 30, 2010, as compared to $302.2 million for the nine months ended September 30, 2009. The following table reflects the components of net revenue for the nine months ended September 30, 2010 and 2009:

     Net revenue during the nine months ended September 30, 2010 increased $15.8 million compared to the nine months ended September 30, 2009 primarily due to an increase in sales of Angiox in Europe and an increase in sales of Angiomax in the United States. Increased Angiomax net sales in the United States were offset by higher chargebacks related to the 340B Drug Pricing Program under the Public Health Services Act. U.S. sales also include net revenue of $0.8 million from sales of Cleviprex in the nine months ended September 30, 2010 compared to $2.5 million in the nine months ended September 30, 2009, as a result of the recalls. The $0.8 million in sales of Cleviprex in the nine months ended September 30, 2010 reflects an offset of $0.7 million due to returns related to the Cleviprex recall.

     International net revenue increased by $3.8 million during the nine months ended September 30, 2010 compared to the nine months ended September 30, 2009 primarily as a result of increased demand in France, Italy, Sweden and the United Kingdom, partially offset by decreased sales of Angiomax in Canada.

      Cost of Revenue:

     Cost of revenue in the nine months ended September 30, 2010 was $94.0 million, or 30% of net revenue, compared to $87.0 million, or 29% of net revenue, in the nine months ended September 30, 2009. Cost of revenue consisted of expenses in connection with the manufacture of Angiomax and Cleviprex sold, royalty expenses under our agreements with Biogen Idec and HRI related to Angiomax and with AstraZeneca related to Cleviprex and the logistics costs of selling Angiomax and Cleviprex, such as distribution, storage, and handling.

     Cost of revenue increased $6.9 million during the nine months ended September 30, 2010 compared to the nine months ended September 30, 2009. The increase in cost of revenue is primarily related to the higher volume of goods sold, an increase in royalty expense due to a higher effective royalty rate to Biogen Idec, and $0.5 million related to inventory write offs associated with the Cleviprex recall. These increases were partially offset by $0.9 million related to a reversal of certain charges originally recorded in the fourth quarter of 2009 in connection with production failures at the third-party manufacturer for Angiomax.

      Research and Development Expenses:

     Research and development expenses decreased by 21% to $54.1 million for the nine months ended September 30, 2010, compared to $68.7 million for the nine months ended September 30, 2009. The decrease primarily reflects reduced clinical activity for cangrelor as the CHAMPION clinical trial program for cangrelor was ongoing until we discontinued enrollment in May 2009. The decrease also reflects reduced regulatory and clinical activity for Cleviprex. These decreases were offset by an increase in costs incurred in preparation for Phase 3 trials of cangrelor and oritavancin, costs associated with the development of MDCO-2010 and MDCO-216 and charges of approximately $1.7 million associated with our workforce reductions in the first quarter of 2010.

     The following table identifies, for each of our major research and development projects, our spending for the nine months ended September 30, 2010 and 2009. Spending for past periods is not necessarily indicative of spending in future periods.

Research and Development Spending