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

Forward-Looking Statements

This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and we intend that such forward-looking statements be subject to the safe harbors created thereby. Examples of these forward-looking statements include, but are not limited to:

•                   timing and amount of future contractual payments, product revenue and operating expenses;

•                   market acceptance of our products and the estimated potential size of these markets.

While these forward-looking statements made by us are based on our current beliefs and judgments, they are subject to risks and uncertainties that could cause actual results to vary from the projections in the forward-looking statements. You should consider the risks below carefully in addition to other information contained in this report before engaging in any transaction involving shares of our common stock. If any of these risks occur, they could seriously harm our business, financial condition or results of operations. In such case, the trading price of our common stock could decline, and you may lose all or part of your investment.

The discussion and analysis set forth in this document contains trend analysis, discussions of regulatory status and other forward-looking statements. Actual results could differ materially from those projected in the forward-looking statement as a result of the following factors, among others:

•                   results of research and preclinical studies may not be indicative of results in humans;

•                   ability to build out our product candidate pipeline through internal development, product in-licensing or acquisition activities;

•                   proper management of our operations will be critical to the success of the Company;

•                   ability to obtain and defend patents, protect trade secrets and avoid infringing patents held by third parties;

•                   limitations on third-party reimbursement for medical and pharmaceutical products;

•                   other factors set forth under “Risk Factors” contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2006 filed on March 16, 2007, Quarterly Reports on Form 10-Q filed on May 9, 2007 and August 3, 2007 for the first and second quarters ending March 31, 2007 and June 30, 2007, respectively, and in this Quarterly Report on Form 10-Q.

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Business Overview

Sonus Pharmaceuticals is developing novel small molecule treatments for patients with cancer.  Our objective is to identify opportunities where there is the possibility for major improvements in patient treatments and where we believe we can mitigate development risk.  We currently have one drug in clinical development and four earlier stage programs. Our plan is to continue to develop our internal pipeline of clinical compound opportunities and to evaluate possible strategic alternatives, including in-licensing, out-licensing and merger and acquisition opportunities, as a means of achieving our business strategies and enhancing stockholder value.  On October 22, 2007, we announced that we have engaged Ferghana Partners Inc., an international provider of independent financial advisory services to firms in the biotechnology, pharmaceuticals, diagnostics and specialty chemicals industries, to assist us.

Product Candidates

TOCOSOL Paclitaxel

TOCOSOL Paclitaxel is a novel formulation of paclitaxel manufactured in a ready-to-use, injectable vitamin E-based emulsion formulation. The Investigational New Drug Application (“IND”) for TOCOSOL Paclitaxel was submitted to the FDA in 2000, and Phase 1 testing was initiated shortly thereafter. On September 24, 2007 we announced that TOCOSOL Paclitaxel failed to meet the primary endpoint in Phase 3 clinical testing. We have discontinued development of TOCOSOL Paclitaxel due to results of the Phase 3 study and the time and cost that would be required to conduct the necessary clinical studies to continue development, which at a minimum, would include another Phase 3 pivotal trial. We believe that these closure activities will be substantially complete by December 31, 2007. Based on the results from the Phase 3 trial, we received a 30 day notice of termination from Bayer Schering on October 3, 2007, under the terms of the Agreement. In accordance with the terms of the Agreement, all rights to TOCOSOL Paclitaxel have reverted back to us.

SN2310

SN 2310 is an injectable Emulsion (“SN2310”). This product candidate is a novel camptothecin derivative formulated as an oil-in-water emulsion with Sonus’ proprietary TOCOSOL technology. Camptothecins are an important class of anti-cancer drugs introduced in recent years; however, the marketed camptothecin analogs, irinotecan (Camptosar®) and topotecan (Hycamtin®), have demonstrated limitations that may reduce their clinical utility. Irinotecan and topotecan are used in the treatment of colorectal, lung, and ovarian cancers. The active ingredient in SN2310 is SN-38, which is considered to be the active ingredient in irinotecan. Our objective with SN2310 is to provide a ready-to-use product that has enhanced anti-tumor activity and improved tolerability compared with the approved camptothecin-based products. An IND was submitted to the FDA for SN2310 in June 2006 and Phase 1 clinical testing was initiated in September 2006. As this product candidate is early in clinical development, we cannot give any assurance that this compound will be clinically successful.

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Pipeline Compounds

We continue to invest in the research and development of new oncology related product candidates, including those that we believe could extend the application of our technology. We have identified three areas of opportunity where we believe there is the possibility for major improvements in patient treatments and where we believe we can mitigate development risk: (1) prodrugs of existing small molecules, where the novel prodrug is designed to provide greater patient convenience and improved patient outcome; (2) novel small molecules, where an opportunity exists, using known moieties, to improve clinical shortcomings of existing approved compounds; and (3) reformulation, with the aim of improving on the safety or efficacy profile of an existing parenteral drug. We are currently working on four early stage programs with compounds under development that either use our TOCOSOL technology or other new technologies under development.

Proprietary Technology

We consider the protection of our technology to be important to our business. In addition to seeking U.S. patent protection for our inventions, we are also seeking patent protection in other selected countries in order to broadly protect our proprietary rights. We also rely upon trade secrets, know-how, continuing technological innovations and licensing opportunities to develop and maintain our competitive position.

Our success will depend, in part, on our ability to obtain and defend patents and protect trade secrets. As of September 30, 2007, sixteen United States patents and seven patents outside the U.S. have been issued relating to our proprietary technologies. Additional patent applications are pending in the United States and counterpart filings have been made in selected countries outside the U.S.

Collaboration and License Agreement with Bayer Schering Pharma AG

On October 17, 2005, we entered the Agreement with Bayer Schering Pharma AG (formerly Schering AG), a German corporation, pursuant to which, among other things, we granted Bayer Schering an exclusive, worldwide license to TOCOSOL Paclitaxel. At that time, the parties agreed to a core development program consisting of the pivotal trial in metastatic breast cancer, trials for additional indications and trials to support launch of the TOCOSOL Paclitaxel, and agreed to share equally in the costs of the core development program.

On October 3, 2007, we received notification from Bayer Schering of its decision to terminate the Agreement in accordance with its terms because the Phase 3 pivotal trial did not meet its primary endpoint and the results of the trial do not support, in Bayer Schering’s judgment, a submission for a New Drug Application with the United States Food and Drug Administration (“FDA”). The Agreement provides that the termination shall be effective within thirty days of the date on which written notice was received by us. In accordance with the terms of the Agreement, all rights to TOCOSOL Paclitaxel have reverted back to us. We have discontinued development of TOCOSOL Paclitaxel due to results of the Phase 3 study and the time and cost that would be required to conduct the necessary clinical studies to continue development, which at a minimum, would include another Phase 3 pivotal trial. We believe that these closure activities will be substantially complete by December 31, 2007. Due to the termination of the Agreement by Bayer Schering, in October 2007, we will recognize $6.9 million of revenue in the fourth quarter of 2007, which represents the balance of the unamortized deferred revenue from the upfront license fee. There will also be a final net billing to Bayer Schering in the fourth quarter of 2007 for accrued expenses related primarily to reimbursable Phase 3 activity through the date of termination and expenses associated with the termination of the Phase 3 trial. As we are still in the process of finalizing these costs, no estimate can be provided at this time. We do not expect recognition of any revenue related to the Agreement with Bayer Schering beyond 2007.

Results of Operations

As of September 30, 2007, our accumulated deficit was approximately $126.7 million. We expect to incur substantial additional operating losses over the next several years. Such losses have been and will continue to principally be the result of various costs associated with our discovery and research and development programs. Substantially all of our working capital in recent years has resulted from equity

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financings and payments received under corporate partnership agreements. Our ability to achieve a consistent, profitable level of operations depends in large part on obtaining regulatory approval for future product candidates in addition to successfully manufacturing and marketing those products if they are approved. Even if we are successful in the aforementioned activities our operations may not be profitable.

Our revenue was $4.1 million for the three months ended September 30, 2007 as compared with $4.9 million for the same period in 2006. We had revenue of $12.4 million for the nine months ended September 30, 2007 compared with $16.5 million for the same period in 2006. Revenue in both periods was fully attributable to the Agreement with Bayer Schering. We recognized $1.4 million and $4.1 million in amortization of an upfront license fee received from Bayer Schering for the three and nine month periods ended September 30, 2007, respectively and an additional $2.7 million and $8.3 million in research and development reimbursements for the three month and nine month periods ended September 30, 2007, respectively. Due to the termination of the Agreement by Bayer Schering in October 2007, we will recognize $6.9 million of revenue in the fourth quarter of 2007, which represents the balance of the unamortized deferred revenue from the upfront license fee. There will also be a final net billing to Bayer Schering in the fourth quarter of 2007 for accrued expenses related primarily to reimbursable Phase 3 activity through the date of termination and expenses associated with the termination of the Phase 3 trial. As we are still in the process of finalizing these costs, no estimate can be provided at this time. We do not expect recognition of any revenue related to the Agreement with Bayer Schering beyond 2007.

Our research and development (“R&D”) expenses were $8.9 million for the three months ended September 30, 2007 compared with $10.3 million for the same period in 2006. Our R&D expenses were $23.5 million for the nine months ended September 30, 2007 compared with $29.6 million for the same period in 2006. The decrease for both periods was primarily the result of lower spending on clinical trials and drug supply and manufacturing costs related to the Phase 3 trial for TOCOSOL Paclitaxel. We expect R&D costs to increase in the fourth quarter of 2007 due to expected costs we will incur for terminating all TOCOSOL Paclitaxel related clinical trials, in addition to costs associated with planned staff reductions. We expect R&D expenses in 2008 to be significantly lower than levels experienced in 2007, absent any strategic transaction which could affect R&D expenses.

Our general and administrative (“G&A”) expenses were $1.6 million for the three months ended September 30, 2007 compared with $1.8 million for the same period in 2006. Our G&A expenses were $5.7 million for the nine months ended September 30, 2007 compared with $5.4 million for the same period in 2006. The fluctuations for both periods were primarily related to normal variations in personnel and market research type expenses. We expect G&A costs to increase in the fourth quarter of 2007 due to costs associated with planned staff reductions. We expect G&A expenses in 2008 to be lower than levels experienced in 2007, absent any strategic transaction which could affect G&A expenses.

We expect our total operating expenses during the fourth quarter of 2007 to increase due to expected costs associated with the termination of all TOCOSOL Paclitaxel related clinical trials and planned staff reductions. We estimate that R&D spending will comprise approximately 80%-90% of the anticipated spending in 2007. A significant portion of the R&D spending will be devoted to the cessation of TOCOSOL Paclitaxel programs in addition to development activities related to other compounds in our pipeline. These estimates and actual expenses are subject to change depending on many factors. We expect operating expenses in 2008 to be significantly lower than levels experienced in 2007, absent any strategic transaction which could affect operating expenses.

Our other income, net, was $546,000 for the three months ended September 30, 2007 compared with $843,000 for the same period in 2006. Our other income, net, was $1.8 million for the nine month period ended September 30, 2007 compared with $2.0 million for the same period in 2006. The

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decrease for both periods was due primarily to lower levels of invested cash in 2007 compared to the same periods in 2006.

The Company had no income tax expense for the three and nine month periods ended September 30, 2007 or 2006 as it had incurred pretax losses.

Liquidity and Capital Resources

We have historically financed operations with proceeds from equity financings and payments under corporate partnerships with third parties. At September 30, 2007, we had cash, cash equivalents and marketable securities totaling $40.7 million compared to $58.3 million at December 31, 2006. The decrease was primarily due to the net loss for the nine month period ended September 30, 2007 of $15.0 million, in addition to timing of items accrued in 2006 and paid in 2007.

Net cash used in operating activities for the nine months ended September 30, 2007, and 2006, was $17.6 million and $16.8 million, respectively. Expenditures in all periods were a result of R&D expenses, including clinical trial costs, and G&A expenses in support of our operations and product development activities primarily related to TOCOSOL Paclitaxel and to a lesser extent other potential product candidates. The increase in net cash used in operating activities from the nine months ended September 30, 2007 to the nine months ended September 30, 2006 was primarily due timing of invoices and related payments.

Net cash used in investing activities for the nine months ended September 30, 2007 and 2006 was $16.1 million and $17.3 million, respectively. The net cash used in investing activities during both nine month periods ended September 30, 2007 and 2006 was primarily due to transactions involving marketable securities in the normal course of business in addition to purchases of fixed assets. Activity related to marketable securities relates primarily to the investment of money raised in equity financings or received under collaborative agreements. The related maturities and sales of those investments provide us with working capital on an as needed basis. We also initiate shifts between cash equivalent securities and marketable securities based on our cash needs and the prevailing interest rate environment.

Net cash provided by financing activities for the nine months ended September 30, 2007, and 2006 was $218,000 and $29.0 million, respectively. The net cash provided by financing activities during the nine month period ended September 30, 2007 was primarily due to the issuance of common stock under employee benefit plans and the exercise of common stock warrants. The net cash provided by financing activities during the same period in the prior year was primarily due to proceeds raised in our May 2, 2006 equity financing and the exercise of common stock warrants.

We expect that our cash requirements will decrease in 2008 due to the termination of development of TOCOSOL Paclitaxel and related staff reductions. Under our current forecasted cash needs, which assume continued development of SN2310 and other earlier stage product candidates, we believe that existing cash, cash equivalents and marketable securities, in addition to final payments from Bayer Schering, will be sufficient to fund expected operations through at least the third quarter of 2009. We will need additional capital in 2009 to support the continued development SN2310, other product candidates and to fund continuing operations. Our future capital requirements depend on many factors including:

•                   timing and cost of drug discovery and research and development;

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We have contractual obligations in the form of operating leases which expire between 2010 and 2017. We signed a new facility lease in November 2006. The new facility lease has a term of 10 years with a provision for two additional five year renewals. The estimated commencement date for the new lease is December 2007. The following table summarizes our contractual obligations under these agreements as of September 30, 2007:

The decline in assets from December 31, 2006 primarily relates to declines in cash, cash equivalents and marketable securities used to fund operations and timing of collections of receivables. The decline in liabilities from December 31, 2006 relates primarily to generally lower accrued liabilities on reduced manufacturing activity and the reversal of 2007 bonus accruals and lower deferred revenue on normal amortization. The decline in shareholders equity is primarily due to the net loss for the year. We expect that the termination of the Agreement with Bayer Schering in October 2007 will have a material financial impact in future periods as that Agreement was our only source of revenue.

Critical Accounting Policies and Estimates

We previously identified certain policies and estimates as critical to our business operations and the understanding of our past or present results of operations in our Annual Report on Form 10-K for the year ended December 31, 2006 and filed with the Securities and Exchange Commission on March 16, 2007. These policies and estimates are considered critical because they had a material impact, or they have the potential to have a material impact, on our financial statements and because they require significant judgments, assumptions or estimates. Our preparation of financial statements requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of our financial statements, and the reported amounts of revenue and expenses during the reporting period.

Foreign currency exchange risk:

We are exposed to risks associated with foreign currency transactions on certain contracts denominated in foreign currencies (primarily Euro and Pound Sterling denominated contracts) and we have not hedged these amounts. As our unhedged foreign currency transactions fluctuate, our earnings might be negatively affected. Accordingly, changes in the value of the U.S. dollar relative to the Euro/Pound Sterling might have an adverse effect on our reported results of operations and financial condition, and fluctuations in exchange rates might harm our reported results and accounts from period to period. The impact of foreign currency fluctuations related to realized gains and losses during the three month and nine month periods ended September 30, 2007 and 2006, respectively, was not material.

The success of our potential products in research and preclinical studies does not guarantee that these results will be replicated in humans.

Several of our drug development programs are currently in the research stage or in preclinical development. Our only product in clinical trials, SN2310, began Phase 1 clinical testing in September 2006 and is still in the early stages of clinical testing. Although our clinical development-stage drug candidate has shown favorable results in preclinical studies, these results may not be replicated in our clinical trials. Before we make any products from our research and development programs commercially available, we will need to conduct further research and development, including laboratory testing, animal studies, clinical studies, and obtain product approval from the appropriate regulatory authorities. These programs may not move beyond their current stages of development. Even if our research does advance, we will need to engage in certain additional preclinical development efforts to determine whether a product is sufficiently safe and effective to enter clinical trials. Consequently, there is no assurance that the results in our research and preclinical studies are predictive of the results that we may see in our clinical trials, that they are predictive of whether any resulting products will be safe and effective in humans, or that the resulting products will be approved by regulatory authorities.

Our success is dependent on the proper management of our current and future business operations, and the expenses associated with them given our limited resources.

Our business strategy requires us to manage our operations to provide for the continued development and potential commercialization of our drug candidates. If we are unable to effectively manage our current operations given our limited resources, we may not be able to implement our business strategy and our financial condition and results of operations may be adversely affected. If we are unable to effectively manage our expenses, we may find it necessary to reduce our expenses through a reduction in our workforce and/or cancellation of research & development programs, which could adversely affect our operations.

If we fail to develop new products, then we may never realize revenue from product commercialization.

Most of our attention and resources at this time are directed to the development of SN2310, a novel camptothecin derivative as well as earlier stage oncology product candidates. Camptothecins are a class of anti-cancer drugs used in the treatment of colorectal, lung, and ovarian cancers. Significant expenditures in additional research and development, clinical testing, regulatory, manufacturing, and sales and marketing activities will be necessary in order for us to gain marketing approval for our product candidates and subsequently commercialize them. There can be no assurance that product candidates under development or any future products will be safe and efficacious. If the product candidates under development are ultimately ineffective in treating cancer, do not receive the necessary regulatory approvals or do not obtain commercial acceptance, we will incur additional losses, our accumulated deficit will increase and our business will be materially adversely affected.

Even if we are successful in developing our products, there is no assurance that such products will receive regulatory approval or that a commercially viable market will develop.

We may merge with or acquire other companies or drug candidates, and our failure to receive the anticipated benefits in these transactions could harm our business.

We are actively seeking strategic opportunities, which may include a merger or acquisition, among other things. The success of any merger or acquisition depends, in part, on our ability to realize the anticipated synergies, cost savings and growth opportunities from integrating the business of the merged or acquired company with our business. The integration of two independent companies is a complex, costly and time-consuming process. The difficulties of combining the operations of two companies include, among others:

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There can be no assurance that we will find any attractive strategic opportunities, or that if we find them, that we will be able to consummate a transaction on favorable terms, or at all. If we do enter into a transaction, there can be no assurance that we will receive all of the anticipated benefits of any transaction, or that any of the risks described above will not occur. Our failure to receive anticipated benefits of and our exposure to inherent risks in, any such transaction could significantly harm our business, financial condition and operating results.

Failure to satisfy NASDAQ Global Market listing requirements may result in our common stock being delisted from The NASDAQ Global Market.

Our common stock is currently listed on The NASDAQ Global Market under the symbol “SNUS.”  For continued inclusion on The NASDAQ Global Market, we must maintain, among other requirements, stockholders’ equity of at least $10.0 million, a minimum bid price of $1.00 per share and a market value of our public float of at least $5.0 million; or market capitalization of at least $50 million, a minimum bid price of $1.00 per share and a market value of our public float of at least $15.0 million. Between September 24, 2007 and November 5, 2007, the closing price of our common stock, as reported on the NASDAQ Global Market, has traded in a range of $0.49 and $0.78 per share.  On November 5, 2007, we received notice from NASDAQ that we do not comply with NASDAQ’s continued listing standards because the closing bid price of our common stock has been below the required minimum bid price of $1.00 for 30 consecutive business days.  We have until May 5, 2008 to regain compliance.  If we do not regain compliance by May 5, 2008, our common stock will be delisted if we do not appeal NASDAQ’s determination to delist our common stock.  Alternatively, we may apply for listing on The NASDAQ Capital Market if we meet the initial listing standards for that market, in which case we would have an additional 180 days to regain compliance.  In addition, as of September 30, 2007, we had stockholders’ equity of approximately $29.6 million. In the event that we fail to satisfy any of the listing standards on a continuous basis, our common stock may be removed from listing on The NASDAQ Global Market. If our common stock were delisted from The NASDAQ Global Market, our common stock may be transferred to The NASDAQ Capital Market if we satisfy the listing criteria for The NASDAQ Capital Market or trading of our common stock, if any, may be conducted in the over-the-counter market in the so-called “pink sheets” or, if available, the National Association of Securities Dealer’s “Electronic Bulletin Board.”  Consequently, broker-dealers may be less willing or able to sell and/or make a market in our common stock. Additionally, an investor would find it more difficult to dispose of, or to obtain accurate quotations for the price of, our common stock. As a result of a delisting, it may become more difficult for us to raise funds through the sale of our securities.

We may not achieve our projected development goals in the time frames we announce and anticipate.

We set goals for and make public statements regarding the timing of certain accomplishments, such as the commencement and completion of clinical trials, anticipated regulatory approval dates and time of product launch, which we sometimes refer to as milestones. These milestones may not be achieved, and the actual timing of these events can vary dramatically due to a number of factors such as delays or failures in our clinical trials, disagreements with future collaborative partners, the uncertainties inherent in the regulatory approval process and manufacturing scale-up and delays in achieving manufacturing or marketing arrangements sufficient to commercialize our products. There can be no assurance that our clinical trials will be completed, that we will make regulatory submissions or receive regulatory approvals as planned or that we will be able to launch any of our products in anticipated timeframes. If we fail to achieve one or more of these milestones as planned, our business will be materially adversely affected, and the price of our shares will decline.

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We have not yet commercialized any of our drug candidates; our ability to commercialize products is unproven.

We have not yet commercialized any of our product candidates. Our commercialization of products is subject to several risks, including but not limited to:

Even if a product candidate is approved for commercial sale, significant strategic planning and resources will be necessary to effectively coordinate commercial launch of the product in the approved indication or indications, and to effectively market, distribute and sell the product for use in the approved indication or indications. We currently have limited marketing and no distribution capability.

We will need additional capital in the future to support the continued development of our product candidates and to fund continuing operations.

We expect that our cash requirements will decrease in future periods due to the discontinuation of development of TOCOSOL Paclitaxel. We believe that existing cash, cash equivalents and marketable securities, in addition to final payments expected from Bayer Schering, will be sufficient to fund operations through at least the third quarter of 2009. We will need additional capital in 2009 to support the continued development SN2310, other product candidates and to fund continuing operations. Our future capital requirements depend on many factors including:

•                   our ability to obtain, and the timing of payments under, debt or equity financings;

•                   timing and costs of preclinical development, clinical trials and regulatory approvals;

Any future debt or equity financing, if available, may result in substantial dilution to existing stockholders, and debt financing, if available, may include restrictive covenants.

We have a history of operating losses which we expect will continue and we may never become profitable.

We have experienced significant accumulated losses since our inception, and expect to incur net losses for the foreseeable future. These losses have resulted primarily from expenses associated with our research and development activities, including nonclinical and clinical trials, and general and administrative expenses. As of September 30, 2007, our accumulated deficit totaled $126.7 million. We anticipate that our operating losses will continue as we further invest in research and development for our products. Our results of operations have varied and will continue to vary significantly and depend on, among other factors:

•                   our ability to obtain and timing of payments under debt or equity financings;

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Governmental regulatory requirements are lengthy and expensive and failure to obtain necessary approvals will prevent us from commercializing our product candidates.

We are subject to uncertain governmental regulatory requirements and a lengthy approval process for our products prior to any commercial sales of our products. The development and commercial use of our products are regulated by the FDA, the European Medicines Evaluation Agency, or EMEA, and comparable regulatory agencies in other countries. The regulatory approval process for new products is lengthy and expensive. Before we can submit an application to the FDA and comparable international agencies, the product candidate must undergo extensive testing, including animal studies and clinical trials that can take many years and require substantial expenditures. Data obtained from such testing may be susceptible to varying interpretations, which could delay, limit or prevent regulatory approval. In addition, changes in regulatory policy for product approval may cause additional costs in our efforts to secure necessary approvals.

Our product candidates are subject to significant uncertainty because they are in early stages of development and are subject to regulatory approval. The results of preclinical and clinical testing of our products are uncertain and regulatory approval of our products may take longer or be more expensive than anticipated, which could have a material adverse effect on our business, financial condition and results of operations. We cannot predict if or when any of our products under development will be commercialized, if at all.

The development of oncology related pharmaceutical products is extremely competitive, and if we fail to compete effectively, it would negatively impact our business.

Competition in the development of pharmaceutical products is intense and expected to increase. We also believe that other medical and pharmaceutical companies will compete with us in the areas of research and development, acquisition of products and technology licenses, and the manufacturing and marketing of our products. Success of products in these fields will be based primarily on:

Many of our competitors and potential competitors, including large pharmaceutical, chemical and biotechnology concerns and universities and other research institutions, have substantially greater financial, technical and human resources than we do and have substantially greater experience in developing products, obtaining regulatory approvals and marketing and manufacturing medical products. Accordingly, these competitors may succeed in obtaining FDA approval for their products more rapidly than we do. In addition, other technologies or products may be developed that have an entirely different approach that would render our technology and products noncompetitive or obsolete. If we fail to compete effectively, it would have a material adverse effect on our business, financial condition and results of operations.

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If we fail to secure adequate intellectual property protection or become involved in an intellectual property dispute, it could significantly harm our financial results and ability to compete.

Our success will depend, in part, on our ability to obtain and defend patents and protect trade secrets. As of September 30, 2007, we held sixteen United States patents and seven patents outside the U.S. relating to our proprietary technologies. Additional patent applications are pending in the United States and counterpart filings have been made in Europe, Canada and key countries in Asia and Latin America. The patent position of medical and pharmaceutical companies is highly uncertain and involves complex legal and factual questions. There can be no assurance that any claims which are included in pending or future patent applications will be issued, that any issued patents will provide us with competitive advantages or will not be challenged by third parties, or that the existing or future patents of third parties will not have an adverse effect on our ability to commercialize our products. Furthermore, there can be no assurance that other companies will not independently develop similar products, duplicate any of our products or design around patents that may be issued to us. Litigation may be necessary to enforce any patents issued to us or to determine the scope and validity of others’ proprietary rights in court or administrative proceedings. Any litigation or administrative proceeding could result in substantial costs to us and distraction of our management. An adverse ruling in any litigation or administrative proceeding could have a material adverse effect on our business, financial condition and results of operations.

If we encounter difficulties enrolling patients in our clinical trials, our trials could be delayed or otherwise adversely affected.

Clinical trials for our drug candidates require that we identify and enroll patients with the disorder or condition under investigation. We may not be able to enroll a sufficient number of patients to complete our clinical trials in a timely manner.

Patient enrollment is affected by factors including:

If we have difficulty enrolling a sufficient number of patients to conduct our clinical trials as planned, we may need to delay or terminate ongoing or planned clinical trials, either of which would have a negative effect on our business.

We may face fluctuations in operating results.

Our operating results may rise or fall significantly from period to period as a result of many factors, including:

•                   the amount of research and development we engage in;

•                   outcome related to strategic activities currently being evaluated;

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As a result, we may experience fluctuations in our operating results from quarter to quarter and continue to generate losses. Quarterly comparisons of our financial results may not necessarily be meaningful, and investors should not rely upon such results as an indication of our future performance. In addition, investors may react adversely if our reported operating results are less favorable than in a prior period or are less favorable than those anticipated by investors or the financial community, which may result in a drop in the market price of our common stock.

The impact of the recall by Bristol-Myers Squibb Pharmaceuticals of certain batches of Taxol.

In March 2007, Bristol-Myers Squibb Pharmaceuticals recalled certain batches of Taxol due to potential lack of sterility assurance. At the time of the recall, there had been no reports of non-sterile product and no stability failures had been detected. Among the recalled batches were those being used in the reference arm of the Phase 3 TOCOSOL Paclitaxel pivotal study. Based on the available information, Sonus has no reason to believe that the recalled batches had an adverse impact on patients treated with those batches in the Phase 3 study.

The Company plans to return all of the recalled material to its suppliers in accordance with the recall notice. While we believe that we will receive a full refund for the returned material, there can be no assurance that we will receive that refund or that it will be received in a timely basis.