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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2008

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 #0-14732

AMAG PHARMACEUTICALS, INC.

(Exact Name of Registrant as Specified in Its Charter)

(617) 498-3300

(Registrant’s Telephone Number, Including Area Code)

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 x 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 x

As of August 1, 2008 there were 17,001,451 shares of the registrant’s Common Stock, par value $.01 per share, outstanding.

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AMAG PHARMACEUTICALS, INC.

FORM 10-Q

TABLE OF CONTENTS

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PART I            FINANCIAL INFORMATION

Item 1. Financial Statements.

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AMAG PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF JUNE 30, 2008 AND DECEMBER 31, 2007

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

(Unaudited)

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

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AMAG PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND SIX MONTHS ENDED

JUNE 30, 2008 AND 2007

(IN THOUSANDS, EXCEPT PER SHARE DATA)

(Unaudited)

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

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AMAG PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

FOR THE THREE AND SIX MONTHS ENDED

JUNE 30, 2008 AND 2007

(IN THOUSANDS)

(Unaudited)

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

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AMAG PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED

JUNE 30, 2008 AND 2007

(IN THOUSANDS)

(Unaudited)

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

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AMAG PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2008

(Unaudited)

A.                                   Description of Business

AMAG Pharmaceuticals, Inc., a Delaware corporation, was founded in 1981.  We are a biopharmaceutical company that utilizes our proprietary nanoparticle technology for the development and commercialization of therapeutic iron compounds to treat anemia and novel imaging agents to aid in the diagnosis of cancer and cardiovascular disease.  We have two approved products, Feridex I.V.® and GastroMARK®, and we have two product candidates, ferumoxytol and Combidex®.  Ferumoxytol, our key product candidate, is being developed for use as an intravenous, or IV, iron replacement therapeutic agent for the treatment of iron deficiency anemia and as a diagnostic agent for vascular-enhanced magnetic resonance imaging, or MRI, to assess peripheral arterial disease. Combidex is our investigational functional molecular imaging agent consisting of iron oxide nanoparticles for use in conjunction with MRI to aid in the differentiation of cancerous from normal lymph nodes.  Feridex I.V., our liver contrast agent, is approved and marketed in the U.S., Europe and other countries.  GastroMARK, our oral contrast agent used for delineating the bowel in MRI, is approved and marketed in the U.S., Europe and other countries.  Throughout this Quarterly Report on Form 10-Q, AMAG Pharmaceuticals, Inc. and our consolidated subsidiary are collectively referred to as “the Company,” “we,” “us,” or “our.”

B.                                 Basis of Presentation and Significant Accounting Policies

Basis of Presentation

These condensed consolidated financial statements are unaudited and, in the opinion of management, include all adjustments necessary for a fair statement of such interim financial statements.  Such adjustments consisted only of normal recurring items.  The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.

In accordance with accounting principles generally accepted in the United States of America for interim financial reports and the instructions for Form 10-Q and the rules of the Securities and Exchange Commission, or the SEC, certain information and footnote disclosures normally included in annual financial statements have been condensed or omitted.  Our accounting policies are described in the Notes to the Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2007.  Interim results are not necessarily indicative of the results of operations for the full year.  These interim financial statements should be read in conjunction with our most recent Annual Report on Form 10-K for the fiscal year ended December 31, 2007.

Use of Estimates and Assumptions

The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period.  The most significant estimates and assumptions are used in, among other things, assessing investments and long-lived assets for potential impairment and determining values of investments, accrued expenses, income taxes and equity-based compensation expense.  Actual results could differ from those estimates.

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Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of AMAG Pharmaceuticals, Inc. and its wholly-owned subsidiary, AMAG Securities Corporation.  All significant intercompany account balances and transactions between the companies have been eliminated.

Cash and Cash Equivalents

Cash and cash equivalents consist principally of cash held in commercial bank accounts, money market funds and U.S. Treasury securities having an original maturity of less than three months.  At June 30, 2008 and December 31, 2007, substantially all of our cash and cash equivalents were held in either commercial banks or money market accounts.

Investments

We account for and classify our investments as either “available-for-sale,” “trading,” or “held-to-maturity,” in accordance with the guidance outlined in Statement of Financial Accounting Standards, or SFAS, No. 115 “Accounting for Certain Investments in Debt and Equity Securities,” or SFAS 115.  The determination of the appropriate classification by us is based on a variety of factors, including management’s intent at the time of purchase.  As of June 30, 2008 and December 31, 2007, all of our investments were classified as available-for-sale securities.

Available-for-sale securities are those securities which we view as available for use in current operations, if needed.  We classify our available-for-sale securities as short-term investments, even though the stated maturity date may be one year or more beyond the current balance sheet date.  However, due to our belief that the market for auction rate securities, or ARS, may take in excess of twelve months to fully recover, we have classified those ARS for which we have not received notice of the issuer’s intent to redeem as long-term investments.  Available-for-sale investments are stated at fair value with their unrealized gains and losses included as a separate component of stockholders’ equity entitled “Accumulated other comprehensive (loss) income,” until such gains and losses are realized or until an unrealized loss is considered other-than-temporary.

Fair Value of Financial Instruments

As of January 1, 2008, we partially adopted the provisions of SFAS No. 157, “Fair Value Measurements,” or SFAS 157, for financial assets and liabilities recognized at fair value on a recurring basis.  SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with accounting principles generally accepted in the United States, and expands disclosures about fair value measurements.  The provisions of SFAS 157 related to other nonfinancial assets and liabilities will be effective for us on January 1, 2009, and will be applied prospectively.

Fair value is defined under SFAS 157 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.  Valuation techniques used to measure fair value under SFAS 157 must maximize the use of observable inputs and minimize the use of unobservable inputs.  The standard describes a fair value hierarchy to measure fair value which is based on three levels of inputs, of which the first two are considered observable and the last unobservable, as follows:

·                  Level 1 - Quoted prices in active markets for identical assets or liabilities.

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·                  Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

·                  Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

As of June 30, 2008, we held certain assets that are required to be measured at fair value on a recurring basis, including our cash equivalents and short- and long-term investments.  In accordance with SFAS 157, the following table represents the fair value hierarchy for our financial assets measured at fair value on a recurring basis as of June 30, 2008 (in thousands):

With the exception of our ARS, which are valued using Level 3 inputs as discussed below, the fair value of our investments is generally determined from quoted market prices based upon either quoted prices from active markets or other significant observable market transactions at fair value.

At June 30, 2008, all of our ARS were municipal bonds with an auction reset feature, of which greater than 90% were AAA-rated by at least one of the major securities rating agencies.  Most of these ARS were collateralized by student loans guaranteed by the U.S. government under the Federal Family Education Loan Program, with the majority of remaining securities being backed by monoline bond insurance companies.  We have traditionally recorded these investments at cost, which approximated fair market value due to their variable interest rates, which typically reset through an auction process every 7 or 28 days.  This auction mechanism generally allowed existing investors to roll over their holdings and continue to own their securities or liquidate their holdings by selling their securities at par value.  In mid-February 2008, our ARS began to experience failed auctions, and have continued to experience failed auctions.  As a result of the lack of market activity, we changed our valuation methodology for these securities to a discounted cash flow analysis.  Accordingly, these securities changed from Level 2 to Level 3 within SFAS 157’s hierarchy since our initial adoption of SFAS 157 at January 1, 2008.  Our valuation analyses consider, among other items, assumptions that market participants would use in their estimates of fair value, such as the collateral underlying the security, the creditworthiness of the issuer and any associated guarantees, the inability to sell the investment in an active market, the timing of expected future cash flows, and the expectation of the next time the security will have a successful auction or when callability features may be exercised by the issuer.  Based upon this methodology, we have recorded an unrealized loss related to our ARS of approximately $4.4 million to accumulated other comprehensive (loss) income as of June 30, 2008.  We believe that the temporary impairment related to our ARS of approximately $4.4 million is primarily attributable to the limited liquidity of these investments.  As of June 30, 2008, all of our ARS continue to pay interest according to their stated terms.

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Any future fluctuation in fair value related to these instruments that we deem to be temporary, including any recoveries of previous write-downs, would be recorded to accumulated other comprehensive (loss) income.  If we determine that any future unrealized loss is other-than-temporary, we will record a charge to earnings as appropriate.

The following table presents our ARS measured at fair value on a recurring basis using significant unobservable inputs (Level 3) as defined in SFAS 157 as of June 30, 2008:

Investments are considered to be impaired when a decline in fair value below cost basis is determined to be other-than-temporary.  We periodically evaluate whether a decline in fair value below cost basis is other-than-temporary and consider available evidence regarding our investments.  In the event that the cost basis of a security significantly exceeds its fair value, we evaluate, among other factors, the duration of the period that, and extent to which, the fair value is less than cost basis; the financial health of and business outlook for the issuer, including industry and sector performance, operational and financing cash flow factors, overall market conditions and trends, and our intent and ability to hold the investment to recovery, which may be maturity.  We also consider credit ratings with respect to our investments provided by investments ratings agencies.  All of our investments, including our ARS, are classified as available-for-sale securities and are reflected at fair value.  If a decline in fair value is determined to be other-than-temporary, we will record a write-down in our condensed consolidated statement of operations and a new cost basis in the security will be established.

There were no unrealized losses in our investments which were deemed to be other-than-temporary at June 30, 2008 and December 31, 2007.  Realized gains and losses are determined on the specific identification method and are included in interest income in our condensed consolidated statements of operations.  Interest income is accrued as earned.

Equity-Based Compensation

We account for our equity-based compensation arrangements with our employees and non-employee directors, including options granted under our 2006 Employee Stock Purchase Plan, under SFAS No. 123R, “Share-Based Payment,” or SFAS 123R, and its related implementation guidance as promulgated by both the Financial Accounting Standards Board, or the FASB, and the SEC Staff Accounting Bulletin 107.  Under these pronouncements, equity-based compensation cost is required to be measured at the grant date (based upon an estimate of the fair value of the compensation granted) and recorded to expense over the requisite service period, which generally is the vesting period.  Because

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equity-based compensation expense is based on awards ultimately expected to vest, we must make certain judgments about whether employees and directors will complete the requisite service period.  Accordingly, we have reduced the compensation expense being recognized for estimated forfeitures.  SFAS 123R requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.  Forfeitures are estimated based on historical experience.  In addition, for awards that contain performance conditions, compensation cost will only be recognized if the performance condition is considered probable of being achieved.  Management must make judgments and estimates about the probability that the performance condition will be achieved based on a number of factors, both internal and external.  If factors change and we employ different assumptions in the application of SFAS 123R in future periods, the compensation expense that we record under SFAS 123R may differ significantly from what we have recorded in the current period.

We estimate the fair value of equity-based compensation involving stock options based on the Black-Scholes option pricing model.  This model requires the input of several factors such as the expected option term, the expected risk-free interest rate over the expected option term, the expected volatility of our stock price over the expected option term, and the expected dividend yield over the expected option term and is subject to various assumptions.  We believe our valuation methodology is appropriate for estimating the fair value of stock options we grant to employees and directors which are subject to SFAS 123R requirements.  Our stock option valuations are estimates and thus may not be reflective of actual future results or amounts ultimately realized by recipients of these grants.  These amounts, and the amounts applicable to future quarters, are also subject to future quarterly adjustments based upon a variety of factors, which include, but are not limited to, changes in estimated forfeiture rates and the issuance of new options and other stock awards.  The fair value of restricted stock units granted to employees and directors is determined based upon the quoted closing market price per share on the date of grant.  As with any accounting policy that applies judgments and estimates, actual results could significantly differ from those estimates and as a result, our financial results could be materially and adversely impacted.

Comprehensive Loss

SFAS No. 130, “Reporting Comprehensive Income,” requires us to display comprehensive loss and its components as part of our condensed consolidated financial statements.  Comprehensive loss consists of net loss and other comprehensive (loss) income.  Other comprehensive (loss) income includes changes in equity that are excluded from net loss, which for all periods presented relates to unrealized holding gains and losses on available-for-sale investments.

Reclassifications

Certain amounts from the prior fiscal quarter have been reclassified to conform to the current quarter’s presentation.

C.                                   Investments

At June 30, 2008 and December 31, 2007, our short- and long-term investments totaled $208.3 million and $258.6 million, respectively, and consisted solely of securities classified as available-for-sale.

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The following is a summary of our available-for-sale securities at June 30, 2008 and December 31, 2007 (in thousands):

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At June 30, 2008, we held $64.5 million (par value of $68.9 million) of ARS, of which greater than 90% were rated AAA by at least one of the major securities rating agents, most of which were collateralized by student loans guaranteed by the U.S. government under the Federal Family Education Loan Program, with the majority of remaining securities being backed by monoline bond insurance companies.  We have traditionally recorded these investments at cost, which approximated fair market value due to their variable interest rates, which typically reset through an auction process every 7 or 28 days.  This auction mechanism generally allowed existing investors to roll over their holdings and continue to own their securities or liquidate their holdings by selling their securities at par value.  In mid-February 2008, our ARS began to experience failed auctions, and have continued to experience failed auctions.  As a result of the lack of market activity, we changed our valuation methodology for these securities to a discounted cash flow analysis.  Our valuation analyses consider, among other items, assumptions that market participants would use in their estimates of fair value such as the collateral underlying the security, the creditworthiness of the issuer and any associated guarantees, the inability to sell the investment in an active market, the timing of expected future cash flows, and the expectation of the next time the security will have a successful auction or when callability features may be exercised by the issuer.  Based upon this methodology, we have recorded an unrealized loss related to our ARS of approximately $4.4 million to accumulated other comprehensive (loss) income as of June 30, 2008.

Due to our belief that the market for ARS may take in excess of twelve months to fully recover, we have classified those ARS for which we have not received notices of the issuer’s intent to redeem as noncurrent and have included securities totaling approximately $62.1 million in long-term investments on

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our condensed consolidated balance sheet at June 30, 2008.  The remainder of our ARS, totaling approximately $2.4 million, are securities for which we have received notices of the issuer’s intent to redeem and accordingly, we have classified those securities as short-term investments on our condensed consolidated balance sheet at June 30, 2008.

We believe that the temporary impairment related to our ARS of approximately $4.4 million is primarily attributable to the limited liquidity of these investments, and we have no reason to believe that any of the underlying issuers of our ARS are presently at risk of default.  Any future fluctuation in fair value related to these instruments that we deem to be temporary, including any recoveries of previous write-downs, would be recorded to accumulated other comprehensive (loss) income.  If we determine that any future unrealized loss is other-than-temporary, we will record a charge to earnings as appropriate.  In the event that we need to access our investments in these securities, we will not be able to do so until a future auction is successful, the issuer calls the security pursuant to a mandatory tender or redemption prior to maturity, a buyer is found outside the auction process, or the securities mature.  For all of our ARS, the underlying maturity date is in excess of one year and can be as far as 40 years in the future.  We believe we will ultimately be able to liquidate our investments without significant loss primarily due to the collateral securing most of the ARS. However, it could take until final maturity of the ARS to realize our investments’ par value.

The following is a summary of the gross unrealized losses and fair value of our investments with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at June 30, 2008 and December 31, 2007 (in thousands):

With the exception of the ARS as discussed above, the unrealized losses on our investments at June 30, 2008 and December 31, 2007 were primarily caused by the recent uncertainty in the capital markets coupled with interest rate increases.  Since the decline in market value is primarily attributable to

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changes in these factors, and we have the ability and intent to hold these investments until a recovery of fair value, we do not consider these investments to be other-than-temporarily impaired at June 30, 2008.

D.                                   Inventories

The major classes of inventories were as follows at June 30, 2008 and December 31, 2007 (in thousands):

E.                                     Income Taxes

Deferred tax assets and deferred tax liabilities are recognized based on temporary differences between the financial reporting and tax basis of assets and liabilities using statutory rates.  A valuation allowance is recorded against deferred tax assets if it is more likely than not that some or all of the deferred tax assets will not be realized.

There were no significant income tax provisions or benefits for the three and six months ended June 30, 2008 and 2007.  Due to the uncertainty surrounding the realization of the favorable tax attributes in future tax returns, we have recorded a full valuation allowance against our otherwise recognizable net deferred tax assets.

F.                                     Net Loss per Share

We compute basic net loss per share by dividing net loss by the weighted average number of common shares outstanding during the relevant period.  The following table sets forth the potential common shares issuable upon the exercise of outstanding options and restricted stock units (prior to consideration of the treasury stock method) excluded from our computation of diluted net loss per share because such options and restricted stock units were anti-dilutive due to a net loss in the relevant periods (in thousands):

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The components of basic and diluted net loss per share were as follows (in thousands, except per share data):

G.                                   Common Stock Transactions

At our Annual Meeting of Stockholders held on May 6, 2008, a proposal to amend our Certificate of Incorporation, as amended, to increase the number of shares of our common stock authorized thereunder from 25,000,000 to 58,750,000, was approved by a vote of our stockholders.

In May 2007, we sold an aggregate of 2.5 million shares of our common stock, $.01 par value per share, in an underwritten public offering at a price to the public of $65.14 per common share, resulting in gross proceeds to us of approximately $162.9 million.  Net proceeds to us after deducting fees, commissions and other expenses related to the offering were approximately $154.5 million.  The shares were issued pursuant to a shelf registration statement on Form S-3 which became effective upon filing.

H.                                   Equity-Based Compensation

We maintain several equity-based compensation plans, including our 2007 Equity Incentive Plan, or 2007 Plan, our Amended and Restated 2000 Stock Plan, or 2000 Plan, and our 2006 Employee Stock Purchase Plan.

Under our 2007 Plan, which was approved by our stockholders in November 2007, as of June 30, 2008 we have granted options and restricted stock units covering 621,046 shares of common stock of which 11,180 stock options and no restricted stock units have expired or terminated, and of which no options or restricted stock units have been exercised.  The number of options and restricted stock units outstanding under this plan as of June 30, 2008 was 609,866.  The remaining number of shares available for future grants as of June 30, 2008 was 1,429,859, not including shares subject to outstanding awards under the 2000 Plan, which will be added to the total number of shares available for issuance under the 2007 Plan to the extent that such awards expire or terminate for any reason prior to exercise.  All outstanding options granted under our 2007 Plan have an exercise price equal to the closing price of our common stock on the grant date and a ten-year term.

In February 2008, we granted 100,000 performance-based stock options to our Chief Executive Officer at an exercise price of $47.08.  These options will vest in equal annual installments over a three-year period but will only begin vesting upon the achievement of a performance target with respect to our commercial sale of ferumoxytol by the end of the first quarter of 2009.  We have also previously granted 110,000 performance-based stock options to certain of our executive officers with a weighted average exercise price of $63.00.  These performance options will vest if, and only if, our New Drug Application, or NDA, for ferumoxytol is approved by the U.S. Food and Drug Administration, or FDA, on or prior to December 31, 2008.  For awards that contain performance conditions, compensation cost is only recognized if the performance conditions are considered probable of being achieved.

As of June 30, 2008, we granted options and restricted stock units covering 2,182,700 shares of common stock under our 2000 Plan of which 221,675 stock options and 750 restricted stock units have

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expired or terminated, and of which stock options and restricted stock units covering 689,520 and 16,750 shares of common stock, respectively, have been exercised.  The remaining number of shares underlying outstanding options and restricted stock units pursuant to our 2000 Plan as of June 30, 2008 was 1,227,505 and 26,500, respectively.  All outstanding options granted under our 2000 Plan have an exercise price equal to the closing price of our common stock on the grant date and a ten-year term.  In November 2007, the 2000 Plan was succeeded by our 2007 Plan and, accordingly, no further grants may be made under this plan.  Any shares that remained available for issuance under the 2000 Plan as of the date of adoption of the 2007 Plan are included in the number of shares that may be issued under the 2007 Plan.  Any shares subject to outstanding awards granted under the 2000 Plan that expire or terminate for any reason prior to exercise will be added to the total number of shares available for issuance under the 2007 Plan.

Equity-based compensation expense as reflected in our condensed consolidated statements of operations was approximately as follows (in thousands):

Equity-based compensation expense for the six months ended June 30, 2008 and 2007 included approximately $1.5 million and $1.0 million, respectively, in equity-based compensation expense associated with performance grants.

At June 30, 2008, the amount of unrecorded equity-based compensation expense for stock options attributable to future periods was approximately $29.8 million, of which $28.8 million was associated with stock options and $1.0 million was associated with restricted stock units.  Such amounts will be amortized, in varying amounts, primarily to research and development or selling, general and administrative expense, on a straight line basis over a weighted average amortization period of approximately 3.1 years.  These future estimates are subject to change based upon a variety of future events which include, but are not limited to, changes in estimated forfeiture rates, changes in whether a performance condition is considered probable, and the issuance of new options and other stock awards.

I.                                      Concentration of Credit Risk

Our operations are located solely within the U.S.  We are focused principally on developing and manufacturing IV iron replacement therapeutic agents and contrast agents for use in MRI.  We perform ongoing credit evaluations of our customers and generally do not require collateral.  The following table sets forth customers who represented 10% or more of our revenues for the six months ended June 30, 2008 and 2007.  No other company accounted for more than 10% of our total revenues for the six months ended June 30, 2008 and 2007.

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All of the revenue attributable to Cytogen Corporation, or Cytogen, and a large portion of the revenue attributable to Bayer Healthcare Pharmaceuticals, or Bayer, in both periods was the result of previously deferred revenue related to up-front license fees that were either amortized into revenue on a straight-line basis or amortized over the period of the estimated performance obligation.

Revenues from customers outside of the U.S., principally in Europe, amounted to 45% and 26% of our total revenues for the six months ended June 30, 2008 and 2007, respectively.

J.                                     Recently Issued Accounting Pronouncements

In September 2006, the FASB issued SFAS 157.  This statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements.  SFAS 157 applies under other accounting pronouncements that require or permit fair value measurements, the FASB having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute.  Accordingly, SFAS 157 does not require any new fair value measurements but rather eliminates inconsistencies in guidance found in various prior accounting policies.  SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years.  In February 2008, the FASB issued FASB FSP 157-2, which delays the effective date of SFAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), until fiscal years beginning after November 15, 2008, and interim periods within those fiscal years.  These nonfinancial items include assets and liabilities such as reporting units measured at fair value in a goodwill impairment test and nonfinancial assets acquired and liabilities assumed in a business combination.  Effective January 1, 2008, we partially adopted SFAS 157 for financial assets and liabilities recognized at fair value on a recurring basis.  The partial adoption of SFAS 157 for financial assets and liabilities did not have a material impact on our condensed consolidated financial statements.  The provisions of SFAS 157 related to other nonfinancial assets and liabilities will be effective for us on January 1, 2009, and will be applied prospectively.  We are currently evaluating the impact that these additional SFAS 157 provisions will have on our condensed consolidated financial statements.

Effective January 1, 2008, we adopted SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115,” or SFAS 159.  SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value, thereby providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions.  The amendment to SFAS 115 applies to all entities with available-for-sale and trading securities.  We did not elect to adopt the fair value option under this statement.

Effective January 1, 2008, we adopted EITF 07-3, “Accounting for Nonrefundable Advance Payments for Goods or Services Received for Use in Future Research and Development Activities,” or EITF 07-3.  EITF 07-3 requires that nonrefundable advance payments for goods or services that will be used or rendered for future research and development activities be deferred and capitalized and recognized as an expense as the goods are delivered or the related services are performed.  The adoption of EITF 07-03 did not have a material impact on our condensed consolidated financial statements.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133.”  SFAS 161 is intended to improve financial standards for derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows.  Entities are required to provide enhanced disclosures about: (a) how and why an entity uses derivative instruments; (b) how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations; and (c) how derivative instruments and related hedged items affect

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an entity’s financial position, financial performance, and cash flows.  SFAS 161 is effective for financial statements issued for fiscal years beginning after November 15, 2008, with early adoption encouraged.  We are in the process of evaluating the impact of SFAS 161, but we do not expect it to have a significant impact on our condensed consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations,” or SFAS 141R.  SFAS 141R establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the goodwill acquired.  SFAS 141R also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination.  SFAS 141R is effective for financial statements issued for years beginning after December 15, 2008.  We are in the process of evaluating the impact of SFAS 141R, but we do not expect it to have a significant impact on our condensed consolidated financial statements.

In June 2008, the FASB issued FASB Staff Position, or FSP, EITF No. 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.” The FSP addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and therefore need to be included in the earnings allocation in calculating earnings per share under the two-class method described in SFAS No. 128, “Earnings per Share.” The FSP requires companies to treat unvested share-based payment awards that have non-forfeitable rights to dividend or dividend equivalents as a separate class of securities in calculating earnings per share. The FSP is effective for fiscal years beginning after December 15, 2008 and earlier application is not permitted. We are in the process of evaluating the impact of FSP EITF No. 03-6-1, but we do not expect it to have a significant impact on our condensed consolidated financial statements.

K.                                    Collaborations

On May 25, 2008, we entered into a Collaboration and Exclusive License Agreement, or License Agreement, and a Supply Agreement with 3SBio Inc., or 3SBio, with respect to the development and commercialization of ferumoxytol as an IV iron replacement therapeutic agent in China.  The License Agreement grants 3SBio an exclusive license for an initial term of thirteen years to develop and commercialize ferumoxytol as a therapeutic agent in China for an initial indication in the treatment of iron deficiency anemia in patients with chronic kidney disease, or CKD, and an option to expand into additional therapeutic indications.  In consideration for the grant of the license, we received an upfront payment of $1 million, the recognition of which has been deferred, and we are eligible to receive certain other specified milestone payments upon regulatory approval of ferumoxytol in China for CKD and other indications.  We are also entitled to receive tiered, double-digit royalties, of up to 25% based on sales of ferumoxytol by 3SBio in China. We retain all manufacturing rights for ferumoxytol. In addition, pursuant to the Supply Agreement, 3SBio has agreed to purchase from us, and we have agreed to supply to 3SBio, ferumoxytol at a predetermined supply price for clinical and commercial use in connection with 3SBio’s development and commercialization obligations described above for so long as the License Agreement is in effect.

L.                                    Commitments and Contingencies

Facility Lease

On May 27, 2008, we entered into a lease agreement for certain real property located at 100 Hayden Avenue, Lexington, Massachusetts to be utilized as our principal executive offices.  The term of the lease began on May 22, 2008 and will continue until August 31, 2016 with two successive five year extension terms at our option.  The lease requires us to pay rent as follows:

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