INFORMATION REGARDING THE BOARD OF DIRECTORS AND ITS COMMITTEES

REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS^*

INFORMATION REGARDING THE BOARD OF DIRECTORS AND ITS COMMITTEES

REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS*

REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS^*

SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information regarding the ownership of our common stock as of ~~February~~April 1, ~~2005~~2007 by: (i) each director and nominee for director; (ii) each of the executive officers named in the Summary Compensation ~~Table;~~Table, referred to as the named executive officers; (iii) all of our named executive officers and directors as a group and (iv) all those known by us to be beneficial owners of more than five percent of our common stock.


	Beneficial Ownership (1)
Beneficial Owner	Number of Shares		Percent of Total
Wellington Management Co. LLP (2) 75 State Street Boston, MA 02109		3,056,600		9.5	%
Goldman Sachs & Co. (3) 85 Broad Street New York, NY 10004		1,768,004		5.5	%
Maverick Capital Ltd. (4) 300 Crescent Court, 18^th floor Dallas, Texas 75201		2,144,525		6.6	%
JPMorgan Chase & Co. (5) 270 Park Ave. New York, NY 10017		1,772,931		5.5	%
R. Michael Gendreau (6)		164,602		*
Denise Wheeler (7)		119,099		*
Sabrina Martucci Johnson (8)		186,894		*
Jay D. Kranzler (9)		1,886,395		5.6	%
Samuel D. Anderson (10)		118,374		*
Jon W. McGarity (11)		63,306		*
Jean-Pierre Millon (12)		63,306		*
Perry Molinoff (13)		63,306		*
Daniel H. Petree (14)		63,306		*
Jack H. Vaughn (15)		68,982		*
Roger L. Hawley (16)		3,068		*
Tina S. Nova (17)		3,794		*
All executive officers and directors as a group (12 persons)(18)		2,804,432		8.1	%


*		Less than one percent of the outstanding shares of our common stock.

(1)		This table is based upon information supplied by officers, directors and principal stockholders and Schedules 13D and 13G filed with the Securities and Exchange Commission (the “*SEC*”). Unless otherwise indicated in the footnotes to this table and subject to community property laws where applicable, we believe that each of the stockholders named in this table has sole voting and investment power with respect to the shares indicated as beneficially owned. Applicable percentages are based on 32,295,131 shares outstanding on April 1, 2007, adjusted as required by rules promulgated by the SEC.

(2)		Number of shares beneficially owned represents 3,056,600 shares of our common stock beneficially owned by Wellington Management Company LLP, in its capacity as investment advisor, on behalf of other persons known to have the rights to receive and to direct the receipt of dividends for such shares, and the rights to receive and to direct the receipt of proceeds from the sale of such shares.

(3)		The number of shares beneficially owned represents 1,768,004 shares of our common stock beneficially owned by Goldman, Sachs & Co., a wholly owned subsidiary of Goldman Sachs Group, Inc.

(4)		Number of shares beneficially owned represents 2.144,525 shares of our common stock beneficially owned by Maverick Capital Ltd..

(5)		Includes 1,772,931 shares of our common stock beneficially owned by JPMorgan Chase & Co.

Beneficial Ownership(1)

Beneficial Owner

Number of Shares

Percent of Total

JPMorgan Chase & Co.(2)
270 Park Avenue
New York, NY 10017

2,614,215

8.6
%

ProQuest Investments(3)
c/o Pasquale DeAngelis
600 Alexander Park, Suite 204
Princeton, NJ 08540

1,999,782

6.5
%

Gilder, Gagnon, Howe & Corporation LLC(4)
45 Fremont Street
San Francisco, CA 94105

1,919,619

6.3
%

Barclays Global Fund Advisors(5)
c/o Pasquale DeAngelis
600 Alexander Park, Suite 204
Princeton, NJ 08540

1,841,770

6.1
%

Federated Investors(6)
Federated Investors Tower
Pittsburg, PA 15222-3779

1,511,900

5.0
%

R. Michael Gendreau(7)

133,721

*
Sabrina Martucci Johnson(8)

82,014

*
Jay D. Kranzler(9)

1,134,467

3.6
%
Denise Woolard(10)

29,773

*
Samuel D. Anderson(11)

72,482

*
Jon W. McGarity(12)

35,135

*
Jean-Pierre Millon(13)

35,135

*
Perry Molinoff(14)

20,492

*
Daniel H. Petree(15)

28,295

*
Gary D. Tollefson(16)

20,492

*
Jack H. Vaughn(17)

43,016

*
All executive officers and directors as a group (11persons)(18)

1,635,021

5.1
%

* ~~Less than one percent.~~

~~(1)This table is based upon information supplied by officers, directors and principal stockholders and Schedules 13D and 13G filed with the Securities and Exchange Commission (the “~~


(6)		Includes 65,357 shares of our common stock issuable pursuant to options exercisable within 60 days of April 1, 2007 by Dr. Gendreau.

(7)		Represents 119,099 shares of our common stock issuable pursuant to options exercisable within 60 days of April 1, 2007 by Mrs. Wheeler.

(8)		Includes 185,994 shares of our common stock issuable pursuant to options exercisable within 60 days of April 1, 2007 by Mrs. Johnson.

(9)		Includes 1,629,671 shares of our common stock issuable pursuant to options exercisable within 60 days of April 1, 2007. Also includes 78,400 shares of our common stock held by our 401(k) plan for which Dr. Kranzler, as trustee of the 401(k) plan, has voting rights to such shares and 193,324 shares of our common stock held by the Kranzler Living Trust, for which Dr. Kranzler is a trustee.

(10)		Includes 114,762 shares of our common stock issuable pursuant to options exercisable within 60 days of April 1, 2007. Such shares are held by the Samuel D. Anderson Trust, for which Mr. Anderson is the sole trustee. Mr. Anderson is not standing for re-election to the Board.

(11)		Represents 63,306 shares of our common stock issuable pursuant to options exercisable within 60 days of April 1, 2007 by Mr. McGarity.

(12)		Represents 63,306 shares of our common stock issuable pursuant to options exercisable within 60 days of April 1, 2007 by Mr. Millon.

(13)		Represents 63,306 shares of our common stock issuable pursuant to options exercisable within 60 days of April 1, 2007 by Mr. Molinoff.

(14)		Represents 63,306 shares of our common stock issuable pursuant to options exercisable within 60 days of April 1, 2007 by Mr. Petree.

(15)		Includes 68,982 shares of our common stock issuable pursuant to options exercisable within 60 days of April 1, 2007 by Mr. Vaughn. Mr. Vaughn is not standing for re-election to the Board.

(16)		Represents 3,068 shares of our common stock issuable pursuant to options exercisable within 60 days of April 1, 2007 by Mr. Hawley. Mr. Hawley was granted these options in connection with his appointment to the Board on April 26, 2007.

(17)		Includes 3,068 shares of our common stock issuable pursuant to options exercisable within 60 days of April 1, 2007 by Dr. Nova. Dr. Nova was granted these options in connection with her appointment to the Board on April 26, 2007.

(18)		Number of shares beneficially owned includes 2,443,225 shares of our common stock issuable pursuant to options exercisable within 60 days of April 1, 2007 by our directors and executive officers as a group.

~~SEC~~”). Unless otherwise indicated in the footnotes to this table and subject to community property laws where applicable, we believe that each of the stockholders named in this table has sole voting and investment power with respect to the shares indicated as beneficially owned. Applicable percentages are based on 30,376,025 shares outstanding on February 1, 2005, adjusted as required by rules promulgated by the SEC.

~~(2)~~Number of shares beneficially owned represents 2,614,215 shares of our common stock beneficially owned by JPMorgan Chase & Co. on behalf of other persons known to have the rights to receive and to direct the receipt of dividends for such shares, and the rights to receive and to direct the receipt of proceeds from the sale of such shares.

~~(3)~~Includes (i) 371,338 shares of our common stock and warrants to purchase 192,718 shares of our common stock held by ProQuest Investments L.P., (ii) 4,813 shares of our common stock and warrants to purchase 2,498 shares of our common stock held by ProQuest Companion Fund, L.P., (iii) 918,276 shares of our common stock and warrants to purchase 476,574 shares of our common stock held by ProQuest Investments II, L.P., and (iv) 22,096 shares of our common stock and warrants to purchase 11,469 shares of our common stock held by ProQuest Investments II Advisors Fund, L.P. ProQuest Associates LLC, a Delaware limited liability company, is General Partner of ProQuest Investments, L.P., a Delaware limited partnership and ProQuest Companion Fund L.P., a Delaware limited partnership. ProQuest Associates II LLC, a Delaware limited liability company, is General Partner of ProQuest Investments II, L.P., a Delaware limited partnership and ProQuest Investments II Advisors Fund, L.P., a Delaware limited partnership.

~~(4)~~Number of shares beneficially owned represents (i) 1,872,670 shares of our common stock held in customer accounts over which partners and/or employees of Gilder, Gagnon, Howe & Corporation LLC (“GGH”) have discretionary authority to dispose of or direct the disposition of the shares, (ii) 2,478 shares of our common stock held in accounts owned by the partners of GGH and their families and (iii) 44,471 shares held in the account of GGH’s profit-sharing plan.

~~(5)~~Barclays Global Investors, NA. and Barclays Global Fund Advisors are funds affiliated with Barclays Global Investors, LTD. Includes 1,250,568 shares of our common stock held by Barclays Global Investors, NA. and 591,202 shares of our common stock held by Barclays Global Fund Advisors.

~~(6)~~Federated Investors, Inc. is the parent holding company of Federated Equity Management Company of Pennsylvania and Federated Investment Management Corp., which act as investment advisers to registered investment companies and separate accounts that own shares of common stock in Cypress.

~~(7)Includes 60,915 shares of our common stock issuable pursuant to options exercisable within 60 days of February 1, 2005 by Dr. Gendreau.~~

~~(8)Includes 81,114 shares of our common stock issuable pursuant to options exercisable within 60 days of February 1, 2005 by Ms. Johnson.~~

~~(9)~~Includes 921,966 shares of our common stock issuable pursuant to options exercisable within 60 days of February 1, 2005. Also includes 71,001 shares of our common stock held by our 401(k) plan for which Dr. Kranzler, as trustee of the 401(k) plan, has voting rights to such shares and 141,500 shares of our common stock held by the Kranzler Living Trust, for which Dr. Kranzler is a trustee.

~~(10)Represents 29,773 shares of our common stock issuable pursuant to options exercisable within 60 day of February 1, 2005 by Ms. Woolard.~~

~~(11)~~Includes 69,982 shares of our common stock issuable pursuant to options exercisable within 60 days of February 1, 2005. Such shares are held by the Samuel D. Anderson Trust, for which Mr. Anderson is the sole trustee.

~~(12)Represents 35,135 shares of our common stock issuable pursuant to options exercisable within 60 day of February 1, 2005 by Mr. McGarity.~~

~~(13)Represents 35,135 shares of our common stock issuable pursuant to options exercisable within 60 day of February 1, 2005 by Mr. Millon.~~

~~(14)Represents 20,492 shares of our common stock issuable pursuant to options exercisable within 60 day of February 1, 2005 by Mr. Molinoff.~~

~~(15)Represents 28,295 shares of our common stock issuable pursuant to options exercisable within 60 day of February 1, 2005 by Mr. Petree.~~

~~(16)Represents 20,492 shares of our common stock issuable pursuant to options exercisable within 60 day of February 1, 2005 by Dr. Tollefson.~~

~~(17)Includes 40,016 shares of our common stock issuable pursuant to options exercisable within 60 days of February 1, 2005 by Mr. Vaughn.~~

~~(18)~~Number of shares beneficially owned includes 1,343,313 shares of our common stock issuable pursuant to options exercisable within 60 days of February 1, 2005 by our directors and executive officers as a group.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Exchange Act requires our directors and executive officers, and persons who beneficially own more than ten percent of a registered class of our equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of common stock and other of our equity securities. Officers, directors and greater than ten percent beneficial owners are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file.

To our knowledge, based solely on a review of the copies of such reports furnished to us and written representations that no other reports were required, during the fiscal year ended December 31, ~~2004,~~2006, all Section 16(a) filing requirements applicable to our officers, directors and greater than ten percent beneficial owners were complied with, except that ~~four reports were filed late~~one Form 4 for a transaction by Mr. Vaughn ~~and one report~~ was filed ~~late by Mr. Anderson.~~

~~COMPENSATION OF DIRECTORS~~

~~Each of our directors may receive stock option grants under~~with the 1996 Equity Incentive Plan and the 2000 Equity Incentive Plan, as amended. In March 2003, our Board of Directors adopted resolutions providing for quarterly payments of $4,000 to each of our non-employee directors for such person’s service as a director, which includes participation by such person in the quarterly scheduled Board meetings. Our Board of Directors also approved: (1) the payment of an annual retainer of $3,000 to each of our non-employee directors for such person’s service on a committee of the Board; provided that such committee member must attend at least 75% of the applicable committee meetings in any calendar year in order to receive such compensation and (2) the payment of an additional $5,000 to any non-employee director who serves as chair of a committee of the Board; provided that such person must attend at least 75% of the applicable committee meetings in any calendar year in order to receive such compensation, and such meeting must be in addition to the one additional meeting per quarter included as part of the Board quarterly compensation.

On February 8, 2005, the Compensation Committee approved an amendment to the current compensation payable to the members of the Board. The amendment provides that a member of the Board will receive payment for attendance at any special meetings of either the Board or a Committee of the Board. Compensation for attendance as a Board member at special meetings of the Board or of Committees of the Board shall be set at $1,000 per such meeting or telephone meeting lasting more than 1 hour and up to one-half ofSEC one day in duration, and $2,000 per such meeting or telephone meeting lasting more than one-half of one day in duration. Board members who travel to attend special meetings as Board members shall also be compensated in an amount equal to $500 for travel time of up to one-half of one day and $1,000 for travel time of more than one-half of one day. Special meetings are defined as Board meetings or Committee meetings periodically scheduled between standard quarterly Board and Committee meetings. In addition, such special meeting must be called by the Chairman of the Board or Chairman of the Committee and must be designated in advance as a special meeting in order to qualify for the special meeting compensation.

~~During the fiscal year ended December 31, 2004, each of our non-employee directors received cash compensation for his service as a director and/or member of a committee of the Board as follows:~~

Name

Amount of
Compensation

Board Service

Committee Service

Samuel D. Anderson

$
16,000

$
14,000

Jon McGarity

$
12,000

$
8,250

Jean Pierre Millon

$
12,000

$
8,250

Perry Molinoff

$
4,000

$
875

Daniel Petree

$
8,000

$
8,000

Gary Tollefson

$
4,000

$
1,750

Jack H. Vaughn

$
12,000

$
13,250

late.

~~Directors who~~

EXECUTIVE OFFICERS

Our executive officers are ~~also our employees do not receive any fee for their service~~ as ~~directors. All of our directors are reimbursed for their out-of-pocket travel and accommodation expenses incurred in connection with their service~~follows:

Jay D. Kranzler

Jay D. Kranzler was appointed as ~~our directors.~~

In March 2003, our Board of Directors adopted resolutions providing for (1) an increase in the number of shares of our common stock granted pursuant to the automatic yearly option grants for each non-employee director from 5,000 to 13,000 shares and (2) an initial grant of an option to purchase 32,000 shares of our common stock to each non-employee director upon his or her initial election or appointment to the Board. In March 2004, Mr. Millon and Mr. McGarity each received an option to purchase 32,000 shares of our common stock upon his respective appointment to our Board. In June 2004, Mr. Petree received an option to purchase 32,000 shares of our common stock upon his appointment to our Board. In September 2004, Dr. Molinoff and Dr. Tollefson each received an option to purchase 32,000 shares of our common stock upon his respective appointment to our Board.

In April 2001, our Board of Directors adopted a resolution providing that the vesting of all existing and future automatic yearly stock options held or acquired by non-employee directors will accelerate upon a change in control of Cypress, which may include the sale of all or substantially all of our assets, specified types of merger, or other corporate reorganizations. In addition, in March 2003, our directors approved the acceleration of vesting of all future stock options granted to directors (in addition to any automatic annual grants) upon a change in control of Cypress.

In May 2004, our Board of Directors adopted the Cypress Bioscience, Inc. Severance Benefit Plan, or the severance plan, to provide severance benefits to certain eligible officers and our outside directors. Severance benefits under the severance plan are awarded on a sliding scale based on the number of years of continuous service an eligible individual has completed with us as of the date of service termination. All of our current directors are currently eligible to receive severance benefits under the severance plan. To receive severance benefits, an individual must (i) experience a covered termination, (ii) have provided service to us for at least one year on the date of such termination and (iii) execute a general waiver and release of claims. The severance plan supplements and provides benefits in addition to all other employment agreements, policies or practices previously maintained by Cypress. Severance benefits provided to outside directors include only accelerated vesting of options and restricted stock ranging from 25% to 100% of an individual’s unvested shares on the date of service termination.

~~COMPENSATION OF EXECUTIVE OFFICERS~~

~~Summary of Compensation~~

~~The following table shows for the fiscal years ended December 31, 2004, 2003 and 2002, compensation awarded or paid to, or earned by,~~ our Chief Executive Officer and ~~our three other most highly compensated executive officers, for whom salary and bonus for services rendered to us was~~Vice-Chairman in ~~excess of $100,000 (collectively, the~~ ~~“Named Executive Officers”~~):

~~Summary Compensation Table~~

Annual Compensation

Long-Term Compensation

Name and Principal Position

Fiscal
Year

Base
Salary($)

Bonus($)

Shares
Underlying
Options(#)

All Other
Compensation
($)

Jay D. Kranzler

2004

$
495,185

—

—

$
47,609
(1)
Chief Executive Officer and Chairman of the

2003

470,421

$
500,000

842,365

30,096
(2)
Board

2002

438,102

—

331,990

12,674
(3)

R. Michael Gendreau

2004

$
229,725

—

—

$
13,000
(4)
Vice President, Development and Chief

2003

211,458

$
100,000

47,452

12,000
(5)
Medical Officer

2002

194,940

—

116,951

11,000
(6)

Denise Woolard

2004

$
203,798

$
56,250

100,000

$
8,298
(7)
Vice President of Business and Legal Affairs

2003

—

—

—

—

2002

—

—

—

—

Sabrina Martucci Johnson

2004

$
183,780

—

—

$
13,000
(8)
Chief Financial Officer and Vice President

2003

165,000

$
104,000

26,490

12,000
(9)

2002

141,040

—

98,375

11,000
(10)

~~(1)~~ ~~Includes $24,609 paid by us on behalf of~~December 1995. In April 1998, Dr. Kranzler ~~for life insurance and disability insurance premiums during 2004, $10,000 paid for estate planning and $13,000 in contributions made by us on behalf of Dr. Kranzler under our 401(k) plan during 2004.~~

~~(2)~~ Includes $18,096 paid by us on behalf of Dr. Kranzler for life insurance and disability insurance premiums during 2003, and $12,000 in contributions made by us on behalf of Dr. Kranzler under our 401(k) plan during 2003.

~~(3)~~ ~~Includes $1,674 paid by us on behalf of Dr. Kranzler for life insurance premiums during 2002, and $11,000 in contributions made by us on behalf of Dr. Kranzler under our 401(k) plan during 2002~~

~~(4)~~ ~~Represents $13,000 in contributions made by us on behalf of Dr. Gendreau under our 401(k) plan during 2004.~~

~~(5)~~ ~~Represents $12,000 in contributions made by us on behalf of Dr. Gendreau under our 401(k) plan during 2003.~~

~~(6)~~ ~~Represents $11,000 in contributions made by us on behalf of Dr. Gendreau under our 401(k) plan during 2002.~~

~~(7)~~ ~~Ms. Woolard joined us on February 4, 2004. Represents $8,298 in contributions made by us on behalf of Ms. Woolard under our 401(k) plan during 2004.~~

~~(8)~~ ~~Represents $13,000 in contributions made by us on behalf of Ms. Johnson under our 401(k) plan during 2004.~~

~~(9)~~ ~~Represents $12,000 in contributions made by us on behalf of Ms. Johnson under our 401(k) plan during 2003.~~

~~(10)~~ ~~Represents $11,000 in contributions made by us on behalf of Ms. Johnson under our 401(k) plan during 2002.~~

On January 15, 2004, Dr. Kranzler, Dr. Gendreau and Ms. Johnson were issued bonuses for performance in 2003 of $500,000, $100,000 and $104,000, respectively, all of which became payable upon the execution of our collaboration agreement with Forest Laboratories. In January 2005, Ms. Woolard was ~~issued a bonus in the amount of $56,250,~~appointed as ~~provided for under her employment agreement and the other officers are eligible to receive bonuses for the year 2004 as provided under the Bonus Plan.~~

~~Stock Option Grants And Exercises in Last Fiscal Year~~

We grant options to our executive officers under our 1996 Plan and our 2000 Plan. As of December 31, 2004, options to purchase a total of 371,156 shares were outstanding under the 1996 Plan and options to purchase 16,873 shares remained available for grant under the 1996 Plan. As of December 31, 2004, options to purchase a total of 2,479,867 shares were outstanding under the 2000 Plan and options to purchase 3,538,907 shares remained available for grant under the 2000 Plan. The number of shares available for issuance under the 2000 Plan is calculated such that the total number of shares reserved for issuance under both the 1996 Plan and the 2000 Plan, in the aggregate, is increased quarterly so that the number equals 21.1% of the number of shares of our common stock issued and outstanding.

~~The following table sets forth certain information regarding options granted to the Named Executive Officers during the fiscal year ended December 31, 2004:~~

~~OPTION GRANTS IN LAST FISCAL YEAR~~

Individual Grants

Potential Realizable
Value at Assumed Annual
Rates of Stock Price
Appreciation for Option
Term(2)

Name

Shares
Underlying
Options
Granted (#)

% of Total
Options
Granted to
Employees
in Fiscal
Year(%)(1)

Exercise
Price
($/Share)

Expira-
tion
Date

5% ($)

10% ($)

Jay D. Kranzler

—

—

—

—

—

—

R. Michael Gendreau

—

—

—

—

—

—

Denise Woolard

100,000
(3)
57
%
$
11.80

2/04/2014

$
742,096

$
1,880,616

Sabrina Martucci Johnson

—

—

—

—

—

~~(1)~~ ~~Based upon options to purchase a total of 174,363 shares of our common stock granted to employees in 2004.~~

~~(2)~~ The potential realizable value is based upon the assumption that the fair market value of the common stock appreciates at the annual rate shown (compounded annually) from the date of the grant until the end of the option term. Actual realizable value, if any, on stock option exercises is dependent on the future performance of the common stock and overall market conditions, as well as the option holder’s continued employment through the vesting period.

~~(3)~~ ~~Such options vest ratably and daily over a four-year period beginning on the date of grant.~~

~~Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values~~

The following table provides information concerning option exercises by the Named Executive Officers during the year ended December 31, 2004 and the number and value of unexercised options held by the Named Executive Officers at December 31, 2004. The value realized on option exercises is calculated based on the fair market value per share of common stock on the date of exercise less the applicable exercise price.

The value of unexercised in-the-money options held at December 31, 2004 represents the total gain which the option holder would realize if he exercised all of the in-the-money options held at December 31, 2004, and is determined by multiplying the number of shares of common stock underlying the options by the difference between $14.06, which was the closing price per share of our common stock on the Nasdaq National Market on December 31, 2004, and the applicable per share option exercise price. An option is in-the-money if the fair market value of the underlying shares exceeds the exercise price of the option.

Number of Shares
Underlying Unexercised
Options at Fiscal Year End
(#)

Value of Unexercised In-the-
Money Options at Fiscal
Year End ($)(1)

Name

Shares
Acquired on
Exercise

Value
Realized
($)

Exercisable

Unexercisable

Exercisable

Unexercisable

Jay D. Kranzler

286,770

$
3,000,681

837,788

579,582

$
9,147,602

$
5,953,940

R. Michael Gendreau

132,133

$
1,450,401

49,981

50,665

555,060

567,988

Denise Woolard

0

0

22,655

77,345

51,200

174,800

Sabrina Martucci Johnson

26,814

$
268,536

72,235

39,566

781,237

435,141

~~Employment, Severance and Change of Control Agreements~~

~~In August 2003, we entered into an amended and restated employment agreement with Jay D. Kranzler, M.D., Ph.D., our~~ Chairman of the ~~Board of Directors and~~Board. From January 1989 until August 1995, Dr. Kranzler served as President, Chief Executive Officer ~~which superseded the employment agreement entered into with him in December 1995. The initial term~~and a director of the amended and restated agreement expires in August 2006, subject to automatic renewal for two one year periods following August 2006. The amended and restated agreement provides for an annual base salary, which may be adjusted periodically in the sole discretion of the Board of Directors. As of April 1, 2005, Dr. Kranzler’s current salary is set at $508,551. In addition to his base salary,Cytel Corporation, a publicly held biotechnology company. Dr. Kranzler is ~~eligible for (i)~~currently a ~~special cash bonus~~lecturer at The Rady School of ~~$500,000, payable~~Business of the University of California-San Diego, where he serves as Executive in ~~a lump sum, upon the announcement of a strategic transaction for the development and commercialization of milnacipran approved by the Board of Directors (such bonus was paid on~~Residence. Before joining Cytel, from 1985 to January ~~15, 2004), and (ii) an annual bonus equal to an amount up to 66~~²/₃% of his base salary within ninety days after the end of each fiscal year. The annual bonus amount, if any, shall be based on Dr. Kranzler’s performance as evaluated by the Board of Directors in its sole discretion. Pursuant to the amended and restated agreement,1989, Dr. Kranzler was ~~also granted an option to purchase 500,000 shares of common stock under~~employed by McKinsey & Company, a management-consulting firm, as a consultant specializing in the ~~2000 Equity Incentive Plan. In addition, we are required to provide~~pharmaceutical industry. Dr. Kranzler has an M.D. with ~~$2 million~~a concentration in psychiatry and a Ph.D. in pharmacology from Yale University. He graduated summa cum laude from Yeshiva University.

Sabrina Martucci Johnson

Sabrina Martucci Johnson was appointed as our interim Chief Financial Officer in February 2002 and in April 2002, she was appointed as our Vice President and Chief Financial Officer. In April 2005, she was promoted to Senior Vice President. In February 2006, she was promoted to Executive Vice President and Chief Business Officer. Mrs. Johnson served as our Vice President of ~~life insurance coverage. The amended~~Marketing from March 2001 to April 2002. Mrs. Johnson joined us in August of 1998 and restated agreement is terminable by Dr. Kranzler at any time upon 30 days’ prior written notice. In the event that Dr. Kranzler is terminated without cause, Dr. Kranzler terminates his employment for good reason (as set forthheld various positions from 1998 through 2000, including Product Director, Executive Director of Marketing and Sales, and Vice President of Marketing and Sales. From 1993 to 1998, Mrs. Johnson held marketing and sales positions with Advanced Tissue Sciences and Clonetics. Mrs. Johnson began her career in the ~~agreement)~~biotechnology industry in 1990 as a research scientist with Baxter Healthcare, Hyland Division. Mrs. Johnson has an MBA from the American Graduate School of International Management (Thunderbird), ~~or his agreement expires~~a MSc. in Biochemical Engineering from the University of London and hea BSc. in biomedical engineering from Tulane University.

R. Michael Gendreau

R. Michael Gendreau was appointed as our Vice President of Research and Development and Chief Medical Officer in December 1996 and is ~~not rehired,~~currently serving as the Vice President of Clinical Development and Chief Medical Officer. Dr. ~~Kranzler~~Gendreau joined us in 1994 and held various positions from 1994 through 1996, including Executive Director of Scientific Affairs. From 1991 to 1994, Dr. Gendreau was Vice President of Research and Development and Chief Medical Officer for MicroProbe Corporation, a developer and manufacturer of DNA probe-based diagnostic equipment. Dr. Gendreau has a B.S. in chemistry from Ohio University and an M.D./Ph.D. in medicine and pharmacology from the Ohio State University.

Denise Wheeler

Denise Wheeler is ~~entitled to severance payments equal to eighteen months~~our Vice President of his base salary, with twelve months of the base salary payable in a lump sum within ten days following the termination date, and the remaining six months of base salary payable ratably over the six months following the termination date; provided that the entire eighteen months of base salary is payable in a lump sum if the termination occurs following a change in control. In addition, in the event that Dr. Kranzler is terminated without cause or terminates his employment for good reason, Dr. Kranzler will also be entitled to (i) accelerated vesting of all of his outstanding stock options, and (ii) continued coverage under group life, health, accident, disability and hospitalization insurance at the levels in effect for Dr. Kranzler at the termination date for a period of two years. In the event that Dr. Kranzler dies, we are required to pay Dr. Kranzler’s legal representatives payments equal to twelve months of his

base salary reduced by any amounts paid or to be paid by the insurance coverage that we provide for the benefit of Dr. Kranzler, including life insurance. In the event that Dr. Kranzler becomes disabled (as set forth in the agreement) and we elect to terminate his employment, Dr. Kranzler is entitled to receive his base salary until disability insurance payments commence, subject to maximum payments by us equal to twelve months of his base salary. In addition, all of Dr. Kranzler’s outstanding options will immediately vest upon his death or disability. In the event that any amounts paid to Dr. Kranzler constitute excess parachute payments under Section 280G of the Internal Revenue Code of 1986 (the ~~“Code”~~~~), we will pay to Dr. Kranzler an amount equal to any excise taxes payable by him with respect to such payments, up to a total of $250,000.~~

~~In February 2004, we entered into an employment agreement with Denise Woolard,~~Legal Affairs. Mrs. Wheeler was appointed as our Vice President of Business and Legal Affairs and Corporate Secretary in February 2004 and in August 2006, assumed a part time role as our Vice President of Legal Affairs, Corporate Secretary. ~~The initial term~~Prior to joining us, from September 1997 until January 2004, Mrs. Wheeler worked as a corporate attorney at the law firm of Cooley Godward LLP. Mrs. Wheeler has a B.A. from Old Dominion University and a J.D. from the University of San Diego, School of Law.

EXECUTIVE COMPENSATION

COMPENSATION DISCUSSION AND ANALYSIS

Introduction

This Compensation Discussion and Analysis, or CD&A, provides an overview of our executive compensation program along with a description of the ~~agreement expires~~material factors underlying the decisions which resulted in ~~February 2006, subject~~the compensation provided to automatic renewal for one year periods following February 2006. Pursuant to the agreement, Ms. Woolard’s base salary is currently set at $231,075 per year. For 2004, Ms. Woolard is entitled to receive a minimum cash bonus equal to 25% of her then-effective base salary, which was paid in February 2005. For future years, in addition to her base salary, Ms. Woolard is eligible to receive a cash bonus based on her performance during each fiscal year, as evaluated by our Chief Executive Officer and ~~the board in their discretion. Pursuant~~our other named executive officers for 2006.

Executive Compensation Philosophy and Objectives

We believe that a competitive, goal-oriented compensation policy is critically important to the creation of value for stockholders. To that end, we have created an incentive compensation program intended to reward outstanding individual performance. The goals of the compensation program are to align compensation with business objectives and performance to enable us to attract and retain the highest quality executive officers and other key employees, reward them for our progress and motivate them to enhance long-term stockholder value. Our compensation program is intended to implement the following principles:

	•		Compensation should be related to the value created for stockholders;

	•		Compensation programs should support our short-term and long-term strategic goals and our objectives;

	•		Compensation programs should reflect and promote our values and reward individuals for outstanding contributions to our success; and

	•		Short-term and long-term compensation programs play a critical role in attracting and retaining well-qualified executives.

While compensation opportunities are based in part upon individual contribution, the actual amounts earned by executives in variable compensation programs are also based upon how we perform as a company. The executive compensation for the Chief Executive Officer and all other executives is comprised of three components, each of which is intended to serve our compensation principles.

Role of Our Compensation Committee

Our Compensation Committee of the Board of Directors is responsible for establishing and administering our executive compensation arrangements. Our Compensation Committee reviews and approves corporate performance goals and objectives relevant to the compensation of our executive officers and other senior management; reviews and approves the compensation and other terms of employment of our Chief Executive Officer; reviews and approves the compensation and other terms of employment of our other executive officers; and administers our stock option plans and bonus plans. Our Compensation Committee is appointed by our Board of Directors, and consists entirely of directors who are “outside directors” for purposes of Section 162(m) of the Internal Revenue Code and “non-employee directors” for purposes of Rule 16b-3 under the Exchange Act. Three directors currently comprise the Compensation Committee: Mr. Anderson (Chairman), Mr. McGarity and Mr. Vaughn. Due to the decision of Mr. Anderson and Mr. Vaughn not to stand for re-election as members of the Board, and their resignations effective immediately prior to the 2007 Annual Meeting of Stockholders, we anticipate that as of the date of the 2007 Annual Meeting of Stockholders, one director will comprise the Compensation Committee.

Our Compensation Committee reviews and makes recommendations to our Board to ensure that our executive compensation and benefit program is consistent with our compensation philosophy and corporate governance guidelines and, subject to the approval of our Board, is responsible for establishing the executive compensation packages offered to our named executive officers. Our executives’ base salary, target annual bonus levels and target annual long-term incentive award values are set at competitive levels.

Our Compensation Committee has taken the following steps to ensure that our executive compensation and benefit program is consistent with both our compensation philosophy and our corporate governance guidelines:

	•		maintained a practice of reviewing the performance and determining the total compensation earned, paid or awarded to our Chief Executive Officer independent of input from him;

	•		reviewed on an annual basis the compensation for executives at similar companies that are located in San Diego, as well as those located across the United States (as covered in a compensation survey of the San Diego biotechnology industry, such as the information provided by the Biotech Education Development Coalition, or in industry-wide surveys, such as those provided by the BioWorld Executive Compensation Report);

	•		reviewed on an annual basis the performance of our other named executive officers and other key employees with assistance from our Chief Executive Officer, and determined what we believe to be appropriate total compensation based on competitive levels as measured against our peer group; and

	•		maintained the practice of holding executive sessions without management present at Compensation Committee meetings.

2006 Executive Compensation Program

Components of our Compensation Program.

Our compensation program consists of three components:

	•		base salary;

	•		annual cash bonuses; and

	•		long term incentives.

We also adopted a Severance Benefits Plan under which we provide post-employment severance payments and benefits in the event of termination under certain circumstances. The terms of the Severance Benefits Plan are described under the Section titled “—Severance Benefit Plan.” The Committee believes that the Severance Benefits Plan provides an incentive to the named executive officers to remain with Cypress and serves to align the interests of the named executive officers and stockholders in the event of a potential acquisition of Cypress.

Base Salaries

The Committee believes that salaries should be reasonable and similar to that of companies in our industry. Base salary is targeted at the competitive median for similar companies in the biotechnology industry. For the purpose of establishing these levels, the Compensation Committee compares our compensation structure on an annual basis with similar companies that are located in San Diego, as well as those located across the United States (as covered in a compensation survey of the San Diego biotechnology industry, such as the information provided by the Biotech Education Development Coalition, or in industry-wide surveys, such as those provided by the BioWorld Executive Compensation Report).

Based upon its review of industry data, the Compensation Committee determined that the base salaries of the Chief Executive Officer and all other named executive officers were appropriate and necessary to attract and retain individuals of such high caliber within the biotechnology industry. The Compensation Committee reviews the salaries of the Chief Executive Officer and other executive officers each year, and such salaries may be increased based upon (i) the individual’s performance and contribution, (ii) the Company’s performance, (iii) availability of capital, and (iv) increases in median competitive pay levels. Generally, executive salaries are adjusted effective January 1 of each year. In January 2006, in light of Cypress’ stage of development, the named executive officers were all simply provided with a cost of living adjustment to their salaries equal to a 4.1% increase.

Annual Incentive Bonus Program

On February 17, 2006, we adopted a Bonus Plan for the officers of the Company. The Bonus Plan was adopted to provide an outcome-based annual cash incentive to the officers of the Company contingent upon the Company’s achievement of certain corporate goals related to new product opportunities and an increase in stockholder value, as outlined in further detail under the Section titled “Employment, Bonus And Severance Agreements.” These goals were not achieved and therefore, no awards were payable under the Bonus Plan for 2006.

Long-term Compensation

Long-term incentive compensation is provided through grants of options to purchase shares of our common stock to the Chief Executive Officer, other named executive officers and other employees. The stock options are intended to retain and motivate all employees to improve our long-term performance, and is common practice in our industry. Executives and other employees receive value from these grants only if our common stock appreciates over the long-term. Additionally, stock options provide a means of ensuring the retention of key executives, inasmuch as they are in almost all cases subject to vesting over an extended period of time. The Compensation Committee believes the amount and value of such grants are based upon levels similar to other companies in the biotechnology industry. All stock options are granted with an exercise price equal to prevailing market value. The stock options generally vest in increments over a period of four years.

In general, stock options are granted each January based on a formula, and are subject to vesting based on the executive’s continued employment. Along these lines, we authorized the grant of options on the first business day in 2006 to purchase common stock to each of our officers, including Dr. Kranzler. This is done to ensure that the exercise price of our options will not be influenced by non-public information.

Ultimately, awards to senior executives are driven by their sustained performance over time, their ability to impact our results that drive stockholder value, their organization level, their potential to take on roles of increasing responsibility in Cypress, and competitive equity award levels for similar positions and organization levels in our peer companies.

Stock Ownership/Retention Guidelines.

We do not require our named executive officers to maintain a minimum ownership interest in Cypress; however, we do issue stock options to our named executive officers.

Other Compensation and Perquisite Benefits.

In addition to the principal categories of compensation described above, we provide our named executive officers with coverage under our health and welfare benefit plans, including medical, dental, disability and life insurance. We also sponsor a 401(k) Plan. Our 401(k) Plan is a tax-qualified retirement savings plan pursuant to which all employees, including the named executive officers, are able to contribute up to the limit prescribed by the Internal Revenue Code on a before-tax basis. We match 100% of the employee’s contributions semi-annually on the last day of each of June and December in Cypress stock which is valued as of the contribution date. All contributions made by the participant vest immediately and the matching contribution of Cypress stock (i) becomes fully vested six months after the contribution date for employees with less than five years of employment with us and (ii) becomes fully vested immediately upon the contribution date for employees with five years or more of employment with us.

These benefits are designed to retain the services of our employees and we believe they are appropriate given our overall compensation package. Our Chief Executive Officer has also negotiated additional benefits, which are outlined in his employment agreement ~~Ms. Woolard~~and are described under the heading “Employment, Bonus And Severance Agreements.”

Compensation of the Chief Executive Officer

We meet each year to evaluate the performance of the Chief Executive Officer, the results of which are used to determine his compensation. Dr. Kranzler’s base salary for 2006 was ~~also~~set at $529,406.

In connection with our annual option grants to all employees, we granted an option to purchase ~~100,000~~374,582 shares of common stock ~~under~~at an exercise price of $5.78 per share to Dr. Kranzler on January 2, 2006. These options vest over four years and were granted to ensure the retention of the services of Dr. Kranzler.

Employment Agreements

We have entered into employment agreements with our ~~2000 Plan. The agreement is terminable by Ms. Woolard at any time upon 30 days’ prior written notice. In addition,~~Chief Executive Officer and our Vice President of Legal Affairs. These agreements are described in more detail elsewhere in the ~~event that Ms. Woolard is~~proxy, including the Section titled “Employment, Bonus And Severance Agreements.” These agreements provide for severance compensation to be paid if the executives are terminated without cause, Ms. Woolard terminates her employment for good reason (as set forth in the agreement), or her agreement expires and is not renewed after February 2006, Ms. Woolard is entitled to a severance payment equal to an amount that may range from six months of her base salary to twelve months of her base salary depending on her date of termination, payable in a lump sum. In addition, if Ms. Woolard is terminated without cause or terminates her employment for good reason, Ms. Woolard will also be entitled to (i) up to 12 months’ accelerated vesting of her outstanding stock options, in each case depending on her date of termination, and (ii) continued coverage under group health insurance at the levels in effect for Ms. Woolard at the termination date for a period of 12 months. If Ms. Woolard is terminated without cause within one month before or within 13 months after a change in control, she is entitled to (i) severance payments equal to twelve months of her base salary, payable in a lump sum, (ii) accelerated vesting of all of her outstanding stock options and (iii) continued coverage under group health insurance at the levels in effect for Ms. Woolard at the termination date for a period of 12 months.

~~Pursuant to resolutions approved by our Board of Directors in April 2001 and March 2003, upon~~certain conditions, such as a change in control of ~~Cypress, which includes~~ the ~~sale of all~~Company or ~~substantially all of our assets, specified types of merger, or other corporate reorganizations, all options to purchase our common stock held~~a termination without cause by ~~our directors and officers will immediately vest.~~

us, each as is defined in the agreements.

Severance Benefit Plan

In June 2004, we adopted the Cypress Bioscience, Inc. Severance Benefit Plan, or the severance plan, to provide severance benefits to certain eligible officers and our outside directors. Severance benefits under the severance plan are awarded on a sliding scale based on the number of years of continuous service an eligible individual has completed with us as of the date of service termination. Dr. Kranzler, Dr. Gendreau, ~~Ms. Woolard~~Mrs. Johnson, Mrs. Wheeler, all of our outside directors (other than Mr. Hawley and ~~Ms. Johnson~~Dr. Nova, who became directors on April 26, 2007) and one other key employee are currently eligible to receive severance benefits under the severance plan. To receive severance benefits, an individual must (i) experience a covered termination, (ii) have provided service to us for at least one year on the date of such termination and (iii) execute a general waiver and release of claims. The severance plan supplements and provides benefits in addition to all other employment agreements, policies or practices previously maintained by Cypress. Covered terminations for officers include a termination without cause or a resignation for good reason. Covered terminations for outside directors include selected board service terminations. All severance benefits provided to officers under the severance plan include a cash payment ranging from three to twelve months of base salary, health benefit continuation coverage ranging from three to twelve months and accelerated vesting of options and restricted stock ranging from 25% to 100% of an individual’s unvested shares on the date of service termination. Officers receive the maximum severance benefits on a covered termination in connection with a change in control of Cypress. Severance benefits provided to outside directors include only accelerated vesting of options and restricted stock ranging from 25% to 100% of an individual’s unvested shares on the date of service termination.

~~On February 8, 2005,~~ Outside directors also receive the maximum severance benefit in connection with a change in control of Cypress.

Tax and Accounting Implications

Payments made during 2006 to our ~~Compensation Committee adopted a Bonus Plan for our officers to provide our officers an outcome-based annual cash incentive. Pursuant~~executives under the various programs discussed above were made with regard to the ~~Bonus Plan, our officers are eligible to receive cash bonuses up to between 25% to 66 2/3%~~provisions of base salary, depending on the applicable participant’s position, for the year ended December 31, 2004 and the year ending December 31, 2005. The bonuses are contingent upon our achievement of certain corporate goals related to clinical developmentSection 162(m) of the ~~Company’s current product,~~

milnacipran, new product opportunities and an increase in stockholder value. Our Compensation Committee established these corporate goals and the timelines for their achievement at a meeting held on February 8, 2005. Individual awards will be pro rated for a partial year of service. Awards based on the applicable participants’ base salaries for the year ended December 31, 2004, if any, will be paid upon achievement of the corporate goals we established. Awards, if any, based on the applicable participants’ base salaries for the year ending December 31, 2005 will be paid upon the earlier of (1) achievement of all the corporate goals established by the Compensation Committee or (2) January 31, 2006 with respect to the corporate goals established by the Compensation Committee and achieved by that date. These awards are only payable if the participant continues to be employed on the date of payment.

~~REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS~~
~~ON EXECUTIVE COMPENSATION~~^*

The Compensation Committee of our Board of Directors is currently composed of Mr. Anderson, Mr. McGarity, Dr. Molinoff and Mr. Vaughn, directors who are not our employees. The Compensation Committee is responsible for establishing and administering our executive compensation arrangements.

~~Compensation Philosophy~~

• ~~Compensation should be related to the value created for stockholders;~~

• ~~Compensation programs should support the short-term and long-term strategic goals and our objectives;~~

• ~~Compensation programs should reflect and promote our values and reward individuals for outstanding contributions to our success; and~~

• ~~Short-term and long-term compensation programs play a critical role in attracting and retaining well-qualified executives.~~

While compensation opportunities are based in part upon individual contribution, the actual amounts earned by executives in variable compensation programs are also based upon how we perform. The executive compensation for the Chief Executive Officer and all other executives is based upon three components, each of which is intended to serve our compensation principles.

~~Base Salary~~

Base salary is targeted at the competitive median for similar companies in the biotechnology industry. For the purpose of establishing these levels, the Compensation Committee compares our compensation structure from time to time with companies that are located in San Diego, as well as those located across the United States, as covered in a compensation survey of the San Diego biotechnology industry, such as the information provided by the Biotech Education Development Coalition, or in industry wide surveys, such as those provided by the BioWorld Executive Compensation Report.

Based upon its reviews of industry data, the Compensation Committee determined that the base salaries of the Chief Executive Officer and all other executive officers were appropriate and necessary to attract individuals of such high caliber within the biotechnology industry. The Compensation Committee reviews the salaries of the Chief Executive Officer and other executive officers each year and such salaries may be increased based upon (i) the individual’s performance and contribution, (ii) our performance and (iii) increases in median competitive pay levels.

~~Annual Incentives~~

On February 8, 2005, we adopted a Bonus Plan for the officers of the Company. The Bonus Plan was adopted to provide an outcome-based annual cash incentive to the officers of the Company. Pursuant to the Bonus Plan, our chief executive officer is eligible to receive cash bonuses up to 66 2/3% of his base salary, for the year ended December 31, 2004 and the year ending December 31, 2005. The bonuses are contingent upon the Company’s

* The material in this report is not “soliciting material,” is not deemed filed with the SEC and is not to be incorporated by reference in any of our filings under the Securities Act or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.

achievement of certain corporate goals related to clinical development of the Company’s current product, milnacipran, new product opportunities and an increase in stockholder value. We established these corporate goals and the timelines for their achievement at a meeting held on February 8, 2005. Awards based on Dr. Kranzler’s base salary for the year ended December 31, 2004, if any, will be paid upon achievement of the corporate goals we established. Awards, if any, based on Dr. Kranzler’s base salary for the year ending December 31, 2005 will be paid upon the earlier of (1) achievement of all the corporate goals established by the Compensation Committee or (2) January 31, 2006 with respect to the corporate goals established by the Compensation Committee and achieved by that date. These awards are only payable if Dr. Kranzler continues to be employed on the date of payment.

~~Long-Term Incentives~~

Long-term incentive compensation is provided through grants of options to purchase shares of our common stock to the Chief Executive Officer, other executive officers and other employees. The stock options are intended to retain and motivate all employees to improve our long-term performance. It is common in the biotechnology industry to grant stock options to all employees. Stock options have been granted to all of our full-time employees. Executives and other employees receive value from these grants only if our common stock appreciates over the long-term. The Compensation Committee believes the amount and value of such grants are based upon levels similar to other companies in the biotechnology industry. Generally, stock options are granted with an exercise price equal to prevailing market value. The stock options generally vest in increments over a period of years. At our meeting on February 8, 2005, in keeping with similar companies in the biotechnology industry, we granted options to purchase common stock to each of our officers, including Dr. Kranzler, in amounts equal to 25% of the historical option grants made to our officers.

~~Compensation of the Chief Executive Officer~~

We meet each year to evaluate the performance of the Chief Executive Officer, the results of which are used to determine his compensation. Dr. Kranzler, our Chief Executive Officer, was instrumental in our achieving significant goals in 2004. During 2004, we completed a public offering of shares of our common stock, resulting in gross proceeds to us of approximately $80 million. Under Dr. Kranzler’s leadership, we completed enrollment in our first Phase III clinical trial evaluating milnacipran as a treatment for fibromyalgia syndrome, and in conjunction with Forest Laboratories, commenced the second Phase III trial. Additionally, Dr. Kranzler was instrumental in identifying new target development opportunities for the Company, both in terms of specific indications that represent unmet medial needs, as well as potential product candidates for those indications. Dr. Kranzler’s base salary for 2004 was set at $495,185. ~~Additionally, Dr. Kranzler is eligible to receive a bonus for 2004 upon achievement of the remaining corporate goals we established for the year.~~

We granted an option to purchase 459,584 shares of common stock at an exercise price of $13.30 per share to Dr. Kranzler, our Chief Executive Officer on February 8, 2005. This grant was equal to 25% of the historical option grants Dr. Kranzler has received. The options vest over four years and were granted to ensure the retention of the services of Dr. Kranzler.

~~Limitation on Deduction of Compensation Paid to Certain Executive Officers~~

Internal Revenue Code. Section 162(m) of the Code limits us to a deduction for federal income tax purposes of no more than $1 million of compensation paid to certain executive officers in a taxable year. Compensation above $1 million may be deducted if it is “performance-based compensation” within the meaning of the Code.

The definition of performance-based compensation includes compensation deemed paid on the exercise of certain stock options. The exercised stock options must have an exercise price equal to the fair market value of the option shares on the grate date to qualify as performance-based compensation. Our 2000 Equity Incentive Plan is intended to ensure that the exercise of such stock options will qualify as performance-based compensation. Through December 31, 2006, this provision has not affected our tax deductions. The Committee intends to continue to evaluate the effects of the statute and any applicable regulations and to comply with Internal Revenue Code Section 162(m) in the future to the extent consistent with the best interests of Cypress.

The statute containing this law and the applicable Treasury regulations offer a number of transitional exceptions to this deduction limit for pre-existing compensation plans, arrangements and binding contracts. As a result,

REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION*

Three directors comprise the Compensation ~~Committee believes~~Committee: Mr. Anderson (Chairman), Mr. McGarity and Mr. Vaughn. Due to the decision of Mr. Anderson and Mr. Vaughn not to stand for re-election as members of the Board, and their resignations effective immediately prior to the 2007 Annual Meeting of Stockholders, we anticipate that at the ~~present~~ time itof the 2007 Annual Meeting of Stockholders one director will comprise the Compensation Committee. The Compensation Committee is ~~quite unlikely~~responsible for establishing and administering our executive compensation arrangements. The Compensation Committee of our Board of Directors has reviewed and discussed the foregoing Compensation Discussion and Analysis, which is required by Item 402(b) of Regulation S-K, with management. Based on our review and discussions with management, we recommend to the Board of Directors that the ~~compensation paid to any executive officer~~Compensation Discussion and Analysis be included in ~~a taxable~~this Proxy Statement and in our Annual Report on Form 10-K for the fiscal year ~~which is subject to the deduction limit will exceed $1 million. Therefore,~~ended December 31, 2006.


*		The material in this report is not “soliciting material,” is not deemed filed with the SEC and is not to be incorporated by reference in any of our filings under the Securities Act or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.

Members of the Compensation Committee ~~has not yet established a policy for determining which forms of incentive compensation awarded to our executive officers shall be designed to qualify as “performance-based compensation.”~~
26

~~Compensation Committee~~

Samuel Anderson (Chair)
Jon W. McGarity
~~Perry Molinoff~~
Jack Vaughn

COMPENSATION OF DIRECTORS

Each of our directors may receive stock option grants under the 2000 Equity Incentive Plan, as amended. In March 2003, our Compensation Committee ~~Interlocks~~adopted resolutions providing for quarterly payments of $4,000 to each of our non-employee directors for such person’s service as a director, which includes participation by such person in the quarterly scheduled Board meetings. Our Board of Directors also approved: (1) the payment of an annual retainer of $3,000 to each of our non-employee directors for such person’s service on a committee of the Board; provided that such committee member must attend at least 75% of the applicable committee meetings in any calendar year in order to receive such compensation and ~~Insider Participation~~

(2) the payment of an additional $5,000 to any non-employee director who serves as chair of a committee of the Board; provided that such person must attend at least 75% of the applicable committee meetings in any calendar year in order to receive such compensation.

On February 8, 2005, the Compensation Committee approved an amendment to the current compensation payable to the members of the Board. The amendment provides that a member of the Board will receive payment for attendance at any special meetings of either the Board or a Committee of the Board. Compensation for attendance as a Board member at special meetings of the Board or of Committees of the Board is set at $1,000 per such meeting or telephone meeting lasting more than 1 hour and up to one-half of one day in duration, and $2,000 per such meeting or telephone meeting lasting more than one-half of one day in duration. Board members who travel to attend special meetings as Board members shall also be compensated in an amount equal to $500 for travel time of up to one-half of one day and $1,000 for travel time of more than one-half of one day. Special meetings are defined as Board meetings or Committee meetings periodically scheduled between standard quarterly Board and Committee meetings. In addition, such special meeting must be called by the Chairman of the Board or Chairman of the Committee, must be designated in advance as a special meeting in order to qualify for the special meeting compensation and such meeting must be in addition to the one additional meeting per quarter included as part of the Board quarterly compensation.

In addition to the compensation listed above, on July 22, 2005, the Board of Directors approved the payment of an annual retainer to the lead director of $5,000. The Board of Directors previously created the position of lead director and appointed Jean-Pierre Millon to fill such role.

During the fiscal year ended December 31, 2006, each of our non-employee directors who were members of our Board during such period received cash compensation and option grants for his service as a director and/or member of a committee of the Board as follows:

~~There~~


			Special
	Board		Committee		Option
Name	Service		Service(1)		Awards(2)		Total
Samuel D. Anderson	$	16,000	$	12,000	$	52,160	$	80,160
Jon McGarity	$	16,000	$	22,000	$	52,160	$	90,160
Jean Pierre Millon	$	16,000	$	19,000	$	52,160	$	87,160
Perry Molinoff	$	16,000	$	6,000	$	52,160	$	74,160
Daniel H. Petree	$	16,000	$	14,000	$	52,160	$	82,160
Gary Tollefson	$	16,000	$	3,000	$	52,160	$	71,160	��
Jack H. Vaughn	$	16,000	$	10,000	$	52,160	$	78,160


(1)		Includes amounts paid for special meetings outside the quarterly meeting and meetings that included only the chairman of various committees.

(2)		Reflects compensation expense for financial reporting purposes under SFAS 123R for the year ended December 31, 2006.

Directors who are also our employees do not receive any fee for their service as directors. All of our directors are reimbursed for their out-of-pocket travel and accommodation expenses incurred in connection with their service as our directors.

The table below shows the aggregate numbers of stock awards and option awards outstanding for each non-employee director (other than Mr. Hawley and Dr. Nova, who were ~~no interlocks~~appointed to our Board on April 26, 2007) as of December 31, 2006.


Name	Number of Options
Samuel D. Anderson(1)		109,456
Jon McGarity		58,000
Jean Pierre Millon		58,000
Perry Molinoff		58,000
Daniel Petree		58,000
Gary Tollefson(2)		58,000
Jack H. Vaughn(1)		63,676


(1)		Mr. Anderson and Mr. Vaughn are not standing for re-election to the Board.

(2)		Dr. Tollefson resigned from the Board in February 2007.

In March 2003, our Board of Directors adopted resolutions providing for (1) an increase in the number of shares of our common stock granted pursuant to the automatic yearly option grants for each non-employee director from 5,000 to 13,000 shares and (2) an initial grant of an option to purchase 32,000 shares of our common stock to each non-employee director upon his or ~~other relationships with other entities among our executive officers~~her initial election or appointment to the Board. The options granted to directors vest daily and ~~directors that are required~~ratably over one year. In January 2007, Mr. Anderson, Mr. McGarity, Mr. Millon, Dr. Molinoff, Mr. Petree, Dr. Tollefson (a former board member) and Mr. Vaughn each received an automatic yearly option to ~~be disclosed under applicable SEC regulations relating to compensation committee interlocks and insider participation.~~

~~PERFORMANCE MEASUREMENT COMPARISON~~^*

~~The following graph compares our cumulative total stockholder return on~~purchase 13,000 shares of our common stock for his respective service on our Board. On April 26, 2007, Mr. Hawley and Dr. Nova each received an option to purchase 32,000 shares of our common stock in connection with their appointment to the ~~periods indicated~~Board.

Pursuant to resolutions approved by our Board of Directors in April 2001 and March 2003, upon a change in control of Cypress, which includes the sale of all or substantially all of our assets, specified types of mergers, or other corporate reorganizations, all options to purchase our common stock held by our directors and officers will immediately vest.

receive severance benefits under the severance plan. To receive severance benefits, an individual must (i) experience a covered termination, (ii) have provided service to us for at least one year on the date of such termination and (iii) execute a general waiver and release of claims. The severance plan supplements and provides benefits in addition to all other employment agreements, policies or practices previously maintained by Cypress. Severance benefits provided to outside directors include only accelerated vesting of options and restricted stock ranging from 25% to 100% of an individual’s unvested shares on the date of service termination. Outside directors also receive the maximum severance benefit in connection with a change in control of Cypress.

COMPENSATION OF EXECUTIVE OFFICERS

Summary of Compensation

The following table shows for the fiscal years ended December 31, 2006, 2005 and 2004, compensation awarded or paid to, or earned by, our Chief Executive Officer and our three other most highly compensated executive officers, for whom salary and bonus for services rendered to us was in excess of $100,000, referred as the named executive officers:

SUMMARY COMPENSATION TABLE


										All Other
								Stock Option		Compensation
Name and Principal Position	Year		Base Salary ($)			Bonus($)		Awards($)(1)		($)			Total ($)
Jay D. Kranzler Chief Executive Officer and Chairman of the Board		2006	$	529,406			—	$	2,443,948	$	41,939	(2)	$	3,015,293
R. Michael Gendreau Vice President, Development and Chief Medical Officer		2006	$	286,275			—	$	253,802	$	15,000	(3)	$	555,077
Sabrina Martucci Johnson Chief Business Officer, Chief Financial Officer and Executive Vice President		2006	$	247,818			—	$	264,195	$	15,000	(4)	$	527,013
Denise Wheeler Vice President of Legal Affairs		2006	$	193,400	(5)		—	$	340,962	$	15,000	(6)	$	549,362


(1)		These amounts reflect the dollar amount recognized for financial statement reporting purposes for the year ended December 31, 2006 in accordance with FAS 123(R) for awards pursuant to our 2000 Equity Incentive Plan. Assumptions used in the calculation of this amount for years ended December 31, 2004, 2005 and 2006 are included in footnote 3 to our audited financial statements for the year ended December 31, 2006 in our annual report on Form 10-K filed with the Securities and Exchange Commission on March 14, 2007. In addition, in January 2007, the Compensation Committee granted the following options awards: for Dr. Kranzler, options to purchase 516,137 shares of common stock; for Dr. Gendreau, options to purchase 49,633 shares of common stock; for Mrs. Johnson, options to purchase 56,140 shares of common stock; and for Mrs. Wheeler, options to purchase 46,060 shares of common stock. Each of these options has an exercise price of $7.75 per share. These options vest ratably and daily over four years and expire ten years from the date of grant.

(2)		Includes $16,939 paid by us on behalf of Dr. Kranzler for life insurance and disability insurance premiums during 2006, $15,000 in contributions made by us on behalf of Dr. Kranzler under our 401(k) plan during 2006 and $10,000 paid for estate planning for the years 2005 and 2006.

(3)		Represents $15,000 in contributions made by us on behalf of Dr. Gendreau under our 401(k) plan during 2006.

(4)		Represents $15,000 in contributions made by us on behalf of Mrs. Johnson under our 401(k) plan during 2006.

(5)		Mrs. Wheeler was out during a portion of the year on maternity leave with unpaid leave. In addition, in August 2006, Mrs. Wheeler assumed part time status.

(6)		Represents $15,000 in contributions made by us on behalf of Mrs. Wheeler under our 401(k) plan during 2006.

Stock ~~Market (for United States companies)~~Option Grants

We grant options to our executive officers under our 2000 Equity Incentive Plan, or the 2000 Plan. As of December 31, 2006, options to purchase a total of 71,887 shares were outstanding under the 1996 Plan, which has expired so there are no new options being granted under this plan. As of December 31, 2006, options to purchase a total of 3,715,436 shares were outstanding under the 2000 Plan and options to purchase 2,983,543 shares remained available for grant under the 2000 Plan. The number of shares available for issuance under the 2000 Plan is calculated such that the total number of shares reserved for issuance under both the 1996 Plan and the ~~Nasdaq Pharmaceuticals Stock Index (for United States~~2000 Plan, in the aggregate, is increased quarterly so that the number equals 21.1% of the number of shares of our common stock issued and ~~foreign companies). We have not declared any dividends since~~outstanding.

The following table sets forth certain information regarding options granted to the named executive officers during the fiscal year ended December 31, 2006:


					All Other
					Option
					Awards:
					Number of				Closing
					Securities		Exercise or		Price on		Grant Date Fair
			Approval		Underlying		Base Price		Grant		Value of Option
Name	Grant date(1)		date		Options(2)		of Options		Date(3)		Awards(4)
Jay D. Kranzler		01/03/2006		10/27/2005		374,582	$	5.78	$	6.19	$	1,552,380
R. Michael Gendreau		01/03/2006		10/27/2005		40,000	$	5.78	$	6.19	$	165,772
Sabrina Martucci Johnson		01/03/2006		10/27/2005		40,000	$	5.78	$	6.19	$	165,772
Sabrina Martucci Johnson		02/01/2006		01/31/2006		73,060	$	6.06	$	6.16	$	322,158
Denise Wheeler		01/03/2006		10/27/2005		30,000	$	5.78	$	6.19	$	124,329


(1)		All options, other than the second award to Mrs. Johnson, were made in connection with our annual officer grants, which are typically approved by the Compensation Committee in the fall and awarded on the first business day of each year. The award to Mrs. Johnson that was approved on January 31, 2006 was made in connection with her promotion.

(2)		The options vest ratably and daily over a four-year period beginning on the date of grant.

(3)		Under our option plan the fair market value is determined as the closing price on the date prior to the grant date.

(4)		Reflects the grant date fair value of the stock options as calculated in accordance with SFAS 123R using a Black Scholes option valuation model. Assumptions used in the calculation of this amount are included in footnote 3 to our audited financial statements for the year ended December 31, 2006 in our annual report on Form 10-K filed with the Securities and Exchange Commission on March 14, 2007 regarding weighted-average assumptions underlying valuation of equity awards.

Outstanding Equity Awards

The following table provides information concerning the number and value of unexercised options held by the named executive officers at December 31, 2006.


	Number of Shares		Number of Shares
	Underlying		Underlying
	Unexercised		Unexercised
	Options –		Options –		Option Exercise		Option
Name	Exercisable		Unexercisable		Price		Expiration Date
Jay Kranzler		297,691		—	$	3.25		04/29/12
		327,249		15,116	$	2.51		03/27/13
		423,682		76,318	$	4.53		08/11/13
		217,366		242,218	$	13.30		02/08/15
		186,264		188,318	$	5.78		01/02/16
Sabrina Johnson		1,760		—	$	1.41		03/20/11
		35,100		—	$	3.10		01/27/12
		25,000		—	$	3.65		04/18/12
		37,375		—	$	3.25		04/29/12
		11,396		1,170	$	2.51		03/27/13
		17,683		19,705	$	13.30		02/08/15
		19,890		20,110	$	5.78		01/02/16
		16,652		56,408	$	6.06		02/01/16


	Number of Shares		Number of Shares
	Underlying		Underlying
	Unexercised		Unexercised
	Options –		Options –		Option Exercise		Option
Name	Exercisable		Unexercisable		Price		Expiration Date
Michael Gendreau		14,066		—	$	2.60		02/12/12
		51,551		—	$	3.25		04/29/12
		32,934		2,095	$	2.51		03/27/13
		29,359		32,717	$	13.30		02/08/15
		19,890		20,110	$	5.78		01/02/16
Denise Wheeler		72,621		27,379	$	11.80		02/04/14
		11,824		13,176	$	13.30		02/08/15
		14,917		15,083	$	5.78		01/02/16

Option Exercises

The following table provides information concerning option exercises by the named executive officers during the year ended December 31, 2006.


	Number of Shares			Value Realized
Name	Acquired on Exercise			on Exercise
Jay Kranzler		160,260	(1)	$	509,627	(1)
Jay Kranzler		24,679		$	118,092
Sabrina Johnson		—			—
Michael Gendreau		—			—
Denise Wheeler		—			—


(1)		Stock swap whereby 70,536 shares of Common Stock of Cypress were surrendered to purchase 160,260 options of our common stock at $2.50 per share.

POTENTIAL PAYMENTS UPON A CHANGE IN CONTROL

The table below reflects the amount of compensation to each of the named executive officers pursuant to each executive’s employment agreement, or in the absence of such an agreement, our ~~inception. Our~~Severance Benefit Plan, in the event of termination of such executive’s employment. The amount of compensation payable to each named executive officer upon termination without cause or for good reason and upon termination following a change of control is shown below. The amounts shown assume that such termination was effective as of December 31, 2006, and thus include amounts earned through such time and are estimates of the amounts which would be paid out to the executives upon their termination. The actual amounts to be paid out can only be determined at the time of such executive’s separation from Cypress.


							Life /
	Base				Healthcare		disability		Accrued		Parachute
Name	salary(1)		Options(2)		benefits(3)		insurance		vacation		payment			Total
Jay Kranzler	$	794,110	$	2,896,412	$	25,704	$	33,878	$	47,034	$	250,000	(4)	$	4,047,138
R. Michael Gendreau	$	286,275	$	304,762	$	17,943		—	$	31,013		—		$	639,993
Sabrina Johnson	$	250,000	$	540,434	$	14,280		—		—		—		$	804,714
Denise Wheeler (5)	$	150,343	$	308,735	$	13,159		—	$	5,949		—		$	478,186


(1)		For Dr. Kranzler, the amount reflects 18 months of base salary, for all the other named executive officers, the amount reflects 12 months of base salary.

(2)		We valued stock options using the closing price of our common stock on the Nasdaq Global Market on December 29, 2006, which was $7.75 per share, utilizing the same assumptions that we utilize under SFAS 123R for our financial reporting.

(3)		For Dr. Kranzler, the amount reflects 2 years of healthcare benefits, for all the other named executive officers, the amount reflects 12 months of healthcare benefits.


(4)		Under Dr. Kranzler’s employment agreement, we pay an amount equal to any excise taxes payable by him with respect to such event and we assumed the entire payment would be required.

(5)		Mrs. Wheeler is part time and her payments reflect such status.

In addition, pursuant to resolutions approved by our Board of Directors in April 2001 and March 2003, upon a change in control of Cypress, which includes the sale of all or substantially all of our assets, specified types of mergers, or other corporate reorganizations, all options to purchase our common stock held by our directors and officers will immediately vest.

EMPLOYMENT, BONUS AND SEVERANCE AGREEMENTS

Employment Agreements

In August 2003, we entered into an amended and restated employment agreement with Jay D. Kranzler, M.D., Ph.D., our Chairman of the Board of Directors and Chief Executive Officer, which superseded the employment agreement entered into with him in December 1995. On January 26, 2007, we amended Dr. Kranzler’s employment agreement to provide that agreement would automatically renew for one year periods unless notice is provided by either party. The amended and restated agreement provides for an annual base salary, which may be adjusted periodically in the sole discretion of the Board of Directors. As of April 1, 2007, Dr. Kranzler’s current salary is set at $529,406. In addition to his base salary, Dr. Kranzler is eligible for (i) a special cash bonus of $500,000, payable in a lump sum, upon the announcement of a strategic transaction for the development and commercialization of milnacipran approved by the Board of Directors (such bonus was paid on January 15, 2004), and (ii) an annual bonus equal to an amount up to 662 / 3 % of his base salary within ninety days after the end of each fiscal year. The annual bonus amount, if any, shall be based on Dr. Kranzler’s performance as evaluated by the Board of Directors in its sole discretion. Pursuant to the amended and restated agreement, Dr. Kranzler was also granted an option to purchase 500,000 shares of common stock under the 2000 Equity Incentive Plan. In addition, we are required to provide Dr. Kranzler with $2 million of life insurance coverage. The amended and restated agreement is terminable by Dr. Kranzler at any time upon 30 days’ prior written notice. In the event that Dr. Kranzler is terminated without cause or Dr. Kranzler terminates his employment for good reason (as set forth in the agreement), Dr. Kranzler is entitled to severance payments equal to eighteen months of his base salary, with twelve months of the base salary payable in a lump sum within ten days following the termination date, and the remaining six months of base salary payable ratably over the six months following the termination date; provided that the entire eighteen months of base salary is payable in a lump sum if the termination occurs following a change in control. In addition, in the event that Dr. Kranzler is terminated without cause or terminates his employment for good reason, Dr. Kranzler will also be entitled to (i) accelerated vesting of all of his outstanding stock options, and (ii) continued coverage under group life, health, accident, disability and hospitalization insurance at the levels in effect for Dr. Kranzler at the termination date for a period of two years. In the event that Dr. Kranzler dies, we are required to pay Dr. Kranzler’s legal representatives payments equal to twelve months of his base salary reduced by any amounts paid or to be paid by the insurance coverage that we provide for the benefit of Dr. Kranzler, including life insurance. In the event that Dr. Kranzler becomes disabled (as set forth in the agreement) and we elect to terminate his employment, Dr. Kranzler is entitled to receive his base salary until disability insurance payments commence, subject to maximum payments by us equal to twelve months of his base salary. In addition, all of Dr. Kranzler’s outstanding options will immediately vest upon his death or disability. In the event that any amounts paid to Dr. Kranzler constitute excess parachute payments under Section 280G of the Internal Revenue Code of 1986 (the“Code”), we will pay to Dr. Kranzler an amount equal to any excise taxes payable by him with respect to such payments, up to a total of $250,000.

In February 2004, we entered into an employment agreement with Denise Wheeler, our Vice President of Legal Affairs and Secretary. The initial term of the agreement expired in February 2006, subject to automatic renewal for one year periods following February 2006. Pursuant to the agreement, Mrs. Wheeler’s base salary is currently set at $156,357 per year, which reflects her 62% time status. The agreement is terminable by Mrs. Wheeler at any time upon 30 days’ prior written notice. In addition, in the event that Mrs. Wheeler is terminated without cause, or Mrs. Wheeler terminates her employment for good reason (as set forth in the agreement), Mrs. Wheeler is entitled to a severance payment equal to an amount that may range from six months of her base salary to twelve months of her base salary depending on her date of termination, payable in a lump sum. In addition, if Mrs. Wheeler is terminated without cause or terminates her employment for good reason, Mrs. Wheeler will also be entitled to (i) up to 12 months’ accelerated vesting of her outstanding stock options, in each case depending on her date of termination, and (ii) continued coverage under group health insurance at the levels in effect for Mrs. Wheeler at the termination date for a period of 12 months. If Mrs. Wheeler is terminated without cause within one month before or within 13 months after a change in control, she is entitled to (i) severance payments equal to twelve months of her base salary, payable in a lump sum, (ii) accelerated vesting of all of her outstanding stock options and (iii) continued coverage under group health insurance at the levels in effect for Mrs. Wheeler at the termination date for a period of 12 months.

Severance Benefit Plan

In June 2004, we adopted the Cypress Bioscience, Inc. Severance Benefit Plan, or the severance plan, to provide severance benefits to certain eligible officers and our outside directors. Severance benefits under the severance plan are awarded on a sliding scale based on the number of years of continuous service an eligible individual has completed with us as of the date of service termination. Dr. Kranzler, Dr. Gendreau, Mrs. Johnson, Mrs. Wheeler, all of our current outside directors (other than Mr. Hawley and Dr. Nova who became directors on April 26, 2007) and one other key employee are currently eligible to receive severance benefits under the severance plan. To receive severance benefits, an individual must (i) experience a covered termination, (ii) have provided service to us for at least one year on the date of such termination and (iii) execute a general waiver and release of claims. The severance plan supplements and provides benefits in addition to all other employment agreements, policies or practices previously maintained by Cypress. Covered terminations for officers include a termination without cause or a resignation for good reason. Covered terminations for outside directors include selected board service terminations. All severance benefits provided to officers under the severance plan include a cash payment ranging from three to twelve months of base salary, health benefit continuation coverage ranging from three to twelve months and accelerated vesting of options and restricted stock ranging from 25% to 100% of an individual’s unvested shares on the date of service termination. Officers receive the maximum severance benefits on a covered termination in connection with a change in control of Cypress. Severance benefits provided to outside directors include only accelerated vesting of options and restricted stock ranging from 25% to 100% of an individual’s unvested shares on the date of service termination. Outside directors also receive the maximum severance benefit in connection with a change in control of Cypress.

Bonus Plans

2006 Bonus Plan

On February 17, 2006, our Compensation Committee adopted a Bonus Plan for our officers to provide our officers an outcome-based annual cash incentive. Pursuant to the Bonus Plan, our officers were eligible to receive cash bonuses up to between 25% to 66 2/3% of base salary, depending on the applicable participant’s position, for the year ending December 31, 2006. The bonuses were contingent upon our achievement of certain corporate goals related to new product opportunities and an increase in stockholder value. No payments were made to any of the eligible participants under the 2006 Bonus Plan because all the corporate goals that had been established by the Compensation Committee ~~recognize~~were not achieved.

2007 Bonus Plan

On October 27, 2006, our Compensation Committee approved a Bonus Plan for the officers of the Company for the year 2007, referred to as the 2007 Bonus Plan. The 2007 Bonus Plan was adopted to provide an outcome-based annual cash incentive to the officers of the Company. Payments under the 2007 Bonus Plan, if any, are contingent upon the Company’s achievement of certain corporate objectives described below, and the relevant officers’ continued employment with us on the date of payment.

The 2007 Bonus Plan includes a “primary” 2007 corporate objective, which is achievement of statistical significance in the results for the on-going second Phase III clinical trial evaluating milnacipran for Fibromyalgia Syndrome, as evidenced by a top-line data announcement of such results to the public (the“Milnacipran Objective”). Bonuses payable for achievement of the Milnacipran Objective would equal 100% of the Target Bonus amounts defined below.

The 2007 Bonus Plan also includes two “annual” 2007 corporate objectives: (i) completion of a major corporate event as determined by the Committee, such as an in-license or product acquisition, referred to as the Major Event Objective and (ii) an increase in shareholder value, defined as an average 50% or greater increase in Cypress’ stock price from the December 31, 2006 closing price for any 20 consecutive trading days and on December 31, 2007, referred to as the Shareholder Value Objective. Bonuses payable for achievement of the Major Event Objective would equal 70% of the Target Bonus. Bonuses payable for achievement of the Shareholder Value Objective would equal 30% of the Target Bonus.

Achievement of, and payment for, each of the foregoing objectives will be considered independently. However, even in the event that more than one objective is achieved, the ~~market price~~aggregate bonuses payable would not be greater than 125% of the Target Bonus. The “Target Bonus” for each of our ~~common stock is influenced by many factors, only one of which is our performance. The historical stock price performance shown on~~officers covered under the ~~graph below is not necessarily indicative of our future stock price performance.~~

~~Legend~~

Symbol

CRSP Total Returns Index for:

12/1999

12/2000

12/2001

12/2002

12/2003

12/2004

Cypress Bioscience, Inc.

100.0

32.8

28.4

18.6

103.7

97.0

Nasdaq Stock Market (US Companies)

100.0

60.8

47.8

33.1

49.4

53.8

Nasdaq Pharmaceuticals Stocks

100.0

124.7

106.3

68.7

100.7

107.2

SIC 2880 – 2889 US & Foreign

~~Notes:~~

~~A. The lines represent monthly index levels derived from compounded daily returns that include all dividends.~~

~~B. The indexes~~2007 Bonus Plan are ~~reweighted daily, using the market capitalization on the previous trading day.~~

~~C. If the monthly interval,~~as follows, with any such bonus to be calculated based on annual base salaries as of the ~~fiscal year – end, is not a trading day,~~earlier of the ~~preceding trading day is used.~~

~~D. The index level for all series was set to $100.0 on 12/31/1999.~~

achievement of the relevant objective or December 31, 2007:

* The material in this section is not “soliciting material,” is not deemed filed with the SEC and is not to be incorporated by reference in any of our filings under the Securities Act or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.


Officer		Target Bonus
Jay D. Kranzler		66 2/3% x annual base salary
Sabrina Martucci Johnson		35% x annual base salary
R. Michael Gendreau		25% x annual base salary
Denise Wheeler		25% x annual base salary (prorated to reflect part-time status)

~~Certain Transactions~~CERTAIN TRANSACTIONS

We have entered into an employment ~~agreements~~agreement with our Chief Executive Officer and our Vice President of ~~Business and~~ Legal Affairs, as described under the caption “Employment, ~~Severance~~Bonus and ~~Change of Control~~Severance Agreements.” We have also granted stock options to ~~certain of~~ our directors and executive officers. See “Compensation of Directors” and “Compensation of Executive Officers.”

We employ the services of Dr. Judy Gendreau as a consultant and for the year ended December 31, ~~2004,~~2006, we paid her an aggregate of ~~$142,275~~$197,550 for her services. Dr. Judy Gendreau is the wife of Dr. Michael Gendreau, our Chief Medical Officer.

~~On March 25, 2004, we entered into consulting agreements (the “2004 Consulting Agreements”) with our prior directors, Drs. Martin B. Keller, Lawrence J. Kessel and Charles B. Nemeroff (the~~ ~~“Consultants~~”) in connection with their resignations from our Board of Directors to assume roles as our consultants. The 2004 Consulting Agreements superseded the consulting agreements previously entered into with these individuals in 2003. Under the terms of the 2004 Consulting Agreements, each of the Consultants agreed to provide us with consulting services for a period of two years, with Drs. Keller and Nemeroff continuing to serve on our Scientific Advisory Board and Dr. Kessel serving as an independent consultant. Under the 2004 Consulting Agreements, we are required to pay each Consultant a fee of $50,000 per year for services rendered up to and including two days per fiscal quarter. In addition, we may request each Consultant to perform additional services at the rate of $5,000 per day. Payment of the consulting fees are made on a quarterly basis, provided that each Consultant has the right, by providing notice to us at any time during the last two weeks of any fiscal quarter, to receive payment of his consulting fees in the form of fully vested stock options. If a Consultant elects to receive payment in stock options, the quarterly grant will cover the number of shares that results from dividing the then accrued but unpaid fees earned by such Consultant in the applicable fiscal quarter by the closing share price of our common stock as reported on The Nasdaq National Market for the last trading day of such fiscal quarter. Such option grants will be made pursuant to the terms of our 2000 Plan. The exercise price of such option grants will be equal to the closing sales price of our common stock on The Nasdaq National Market for the last trading day of such fiscal quarter. In addition, pursuant to the 2004 Consulting Agreements, all unvested shares held by each Consultant under his outstanding option grants shall vest in equal monthly installments over a period of two years from the effective date of the agreements. If we terminate a 2004 Consulting Agreement without cause, or there is a corporate transaction (as defined in our 2000 Plan), then (i) we are required to pay the affected Consultant, within 30 days of such event, all remaining consideration such Consultant would have received during the remainder of the term of the agreement, (ii) all of the Consultant’s remaining unvested option shares will immediately vest in full, and (iii) the Consultant will be allowed to exercise such option grants through the second anniversary of the effective date of such Consultant’s agreement.

In June 2004, we implemented the Cypress Bioscience, Inc. Severance Benefit Plan, which provides severance benefits to certain eligible officers and our eligible outside directors. ~~In addition,~~The Severance Benefit Plan is described in ~~February 2005, we adopted~~further detail under the Section “Employment, Bonus And Severance Agreements.”

On October 27, 2006, our Compensation Committee approved a Bonus Plan for ~~our officers. See “Employment, Severance~~the officers of the Company for the year 2007. The Bonus Plan was adopted to provide an outcome-based annual cash incentive to the officers of the Company. Payments under the Bonus Plan, if any, are contingent upon the Company’s achievement of certain corporate objectives and ~~Change~~the relevant officers’ continued employment with us on the date of ~~Control Agreements.”~~

payment.

Our bylaws provide that we will indemnify our directors and executive officers and may indemnify our other officers, employees and other agents to the fullest extent permitted by Delaware law. We are also empowered under our bylaws to enter into indemnification contracts with our directors and officers and to purchase insurance on behalf of any person who we are required or permitted to indemnify. ~~Pursuant to this provision, we have entered into indemnity agreements with each of our directors and officers and~~We currently maintain directors’ and officers’ insurance coverage.

Dr. Tollefson, a former member of our board, accepted the position of CEO of Orexigen Therapeutics, Inc. in April 2005. We entered into an agreement with Orexigen in January 2005 with respect to the in-license of certain patents. Under this agreement we have paid Orexigen an aggregate of $1.5 million.

Due to potential conflicts of interest related to his role as the Chief Executive Officer of Orexigen Therapeutics, Inc. Dr. Tollefson resigned from our Board of Directors, effective February 2007, and agreed to serve as a consultant to us concurrently with his resignation from our Board.

Our Audit Committee reviews and approves all related party transactions as required by Nasdaq rules.

~~Householding of Proxy Materials~~

HOUSEHOLDING OF PROXY MATERIALS

The SEC has adopted rules that permit companies and intermediaries (e.g., brokers) to satisfy the delivery requirements for proxy statements and annual reports with respect to two or more stockholders sharing the same address by delivering a single proxy statement addressed to those stockholders. This process, which is commonly referred to as “householding,” potentially means extra convenience for stockholders and cost savings for companies.

This year, a number of brokers with account holders who are Cypress stockholders will be “householding” our proxy materials. A single proxy statement will be delivered to multiple stockholders sharing an address unless contrary instructions have been received from the affected stockholders. Once you have received notice from your broker that they will be “householding” communications to your address, “householding” will continue until you are notified otherwise or until you revoke your consent. If, at any time, you no longer wish to participate in “householding” and would prefer to receive a separate proxy statement and annual report, please notify your broker, direct your written request to Cypress Bioscience, Inc., Attention: Investor Relations, 4350 Executive Drive, Suite 325, San Diego, California 92121 or contact Investor Relations via telephone at (858) 452-2323. Stockholders who currently receive multiple copies of the proxy statement at their address and would like to request “householding” of their communications should contact their broker.

~~Other Matters~~OTHER MATTERS

The Board of Directors knows of no other matters that will be presented for consideration at the Annual Meeting. If any other matters are properly brought before the meeting, it is the intention of the persons named in the accompanying proxy to vote on such matters in accordance with their best judgment.


		By Order of the Board of Directors

		~~/S/ DENISE L. WOOLARD~~

		Denise L. ~~Woolard~~ Wheeler
		Vice President of ~~Business and~~
		Legal Affairs and ~~Corporate Secretary~~

~~April 27, 2005~~		Corporate Secretary

May 4, 2007

A copy of our Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year ended December 31, ~~2004~~2006 is available without charge upon written request to: Corporate Secretary, Cypress Bioscience, Inc., 4350 Executive Drive, Suite 325, San Diego, California 92121.

CYPRESS BIOSCIENCE, INC.

PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ~~2005~~2007 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE ~~6, 2005~~11, 2007

The undersigned hereby appointsJay D. Kranzler, Denise ~~Woolard~~Wheeler and Sabrina Martucci Johnson, and each of them, as attorneys and proxies of the undersigned, with full power of substitution, to vote all of the shares of stock of Cypress Bioscience, Inc. (the “Company”) which the undersigned may be entitled to vote at the ~~2005~~2007 Annual Meeting of Stockholders of the Company to be held at the principal executive offices of the Company, 4350 Executive Drive, Suite 325, San Diego, California 92121 on Monday, June ~~6, 2005~~11, 2007 at 8:30 a.m. (local time), and at any and all postponements, continuations and adjournments thereof, with all powers that the undersigned would possess if personally present, upon and in respect of the following matters and in accordance with the following instructions, with discretionary authority as to any and all other matters that may properly come before the meeting.

UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR ~~ALL~~THE NOMINEES LISTED IN PROPOSAL 1 AND FOR PROPOSAL 2 AS MORE SPECIFICALLY DESCRIBED IN THE PROXY STATEMENT. IF SPECIFIC INSTRUCTIONS ARE INDICATED, THIS PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.

(Continued and to be Signed and Dated on the Reverse Side)

Please date, sign and mail your proxy card in the envelope provided as soon as possible!

~~2005~~2007 Annual Meeting of Stockholders
CYPRESS BIOSCIENCE, INC.

June ~~6, 2005~~11, 2007

ê Please Detach and Mail in the Envelope Providedê

~~The Board of Directors recommends a vote for the nominees for director listed below.~~THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE NOMINEES FOR DIRECTOR LISTED BELOW.

~~Proposal 1~~: PROPOSAL 1:To elect ~~three~~two directors to hold office until the ~~2008~~2010 Annual Meeting of Stockholders.


Nominees:		~~Jon W. McGarity, Jean-Pierre Millon and Gary D. Tollefson~~ Roger L. Hawley Tina S. Nova

To withhold authority to vote for any ~~nominee(s)~~nominee, write such ~~nominee(s)’ name(s) below:~~nominee’s name below

~~The Board of Directors recommends a vote for Proposal~~THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 2.

~~Proposal~~PROPOSAL 2:To ratify the selection of Ernst & Young LLP by the Audit Committee of the Company’s Board of Directors as the independent registered public accounting firm of the Company for the fiscal year ending December 31, ~~2005.~~

2007.

~~For~~

~~Against~~

~~Abstain~~

FOR

AGAINST

ABSTAIN

(Continued and to be dated and signed on other side)

Please sign exactly as your name appears hereon. If the stock is registered in the names of two or more persons, each should sign. Executors, administrators, trustees, guardians and attorneys-in-fact should add their titles. If signer is a corporation, please give full corporate name and have a duly authorized officer sign, stating title. If signer is a partnership, please sign in partnership name by authorized person.

Please vote, date and promptly return this proxy in the enclosed return envelope which is postage prepaid if mailed in the United States.

o	~~UNITED STATES~~
			~~SECURITIES AND EXCHANGE COMMISSION~~
			~~Washington, D.C. 20549~~



~~SCHEDULE 14A~~

~~Proxy Statement Pursuant to Section 14(a) of~~ ~~the Securities Exchange Act of 1934 (Amendment No. )~~

~~Filed by the Registrant~~ ý

~~Filed by a Party other than the Registrant~~ o

~~Check the appropriate box:~~
o	Preliminary Proxy Statement
o		Confidential, for Use of the Commission Only (as permitted by Rule ~~14a-6(e)~~14a-6(e)(2))
ý þ		Definitive Proxy Statement
o		Definitive Additional Materials
o		Soliciting Material Pursuant to §240.14a-12


~~Cypress Bioscience, Inc.~~
~~(Name of Registrant as Specified In Its Charter)~~


~~(Name of Person(s) Filing Proxy Statement, if other than the Registrant)~~

~~Payment of Filing Fee (Check the appropriate box):~~
ý þ		No fee required.
o		Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

Name	Audit	Compensation	Non- Executive Officer Stock Option	Nominating and Corporate Governance
Jay D. Kranzler			X
Samuel D. Anderson	X	X		X
Jon W. McGarity(1)		X
Jean-Pierre Millon(2)	X			X
Perry Molinoff(3)		X
Daniel H. Petree(4)	X
Gary Tollefson(5)
Jack H. Vaughn(6)	X	X		X
Total meetings in fiscal year 2004(7)	6	7	4	2


	Fiscal Year Ended
	2005		2006
Audit Fees (1)	$	213,000	$	202,500
Audit-Related Fees (2)		—		—
Tax Fees (3)		36,350		23,200
All Other Fees (4)		—		—

Total Fees	$	249,350	$	225,700

	Fiscal Year Ended
	2003		2004
Audit Fees(1)	$	126,912	$	274,231
Audit-Related Fees(2)	—		—
Tax Fees(3)	19,509		$	44,587
All Other Fees(4)	—		$	61,471
Total Fees	$	146,421	$	380,289

	(1)	Title of each class of securities to which transaction applies:

	~~(2)~~


	(2)	Aggregate number of securities to which transaction applies:

	~~(3)~~


	(3)	Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

	~~(4)~~


	(4)	Proposed maximum aggregate value of transaction:

	~~(5)~~


	(5)	Total fee paid:

o

o		Fee paid previously with preliminary materials.

o		Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

(1)		Amount Previously Paid:

~~(2)~~


(2)		Form, Schedule or Registration Statement No.:

~~(3)~~	~~Filing Party:~~

~~(4)~~	~~Date Filed:~~
(3)		Filing Party:

	~~Persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number.~~


(4)		Date Filed:


NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
QUESTIONS AND ANSWERS ABOUT THIS PROXY MATERIAL AND VOTING
PROPOSAL 1
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THE NOMINEES
INFORMATION REGARDING THE BOARD OF DIRECTORS AND ITS COMMITTEES
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS*
PROPOSAL 2
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
EXECUTIVE OFFICERS
EXECUTIVE COMPENSATION
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION*
SUMMARY COMPENSATION TABLE
CERTAIN TRANSACTIONS
HOUSEHOLDING OF PROXY MATERIALS
OTHER MATTERS

1.		To elect two directors to hold office until the 2010 Annual Meeting of Stockholders.

2.		To ratify the selection of Ernst & Young LLP by the Audit Committee of our Board of Directors as the independent registered public accounting firm of the Company for its fiscal year ending December 31, 2007.

3.		To conduct any other business properly brought before the meeting.


	By Order of the Board of Directors

	~~/s/~~

	Denise L. ~~Woolard~~	Wheeler


	~~Denise L. Woolard~~
	Vice President of ~~Business and~~ Legal Affairs and Corporate ~~Secretary~~

~~San Diego, California~~ Secretary
~~April 27, 2005~~

	•		Election of two directors to hold office until the 2010 Annual Meeting of Stockholders; and

	•		Ratification of the selection of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2007.

	•		To vote in person, come to the annual meeting, where a ballot will be made available to you.

	•		To vote using the proxy card, simply complete, sign and date the enclosed proxy card and return it promptly in the envelope provided. If you return your signed proxy card to us before the annual meeting, we will vote your shares as you direct.

	•		You may submit another properly completed proxy card with a later date.

	•		You may send a written notice that you are revoking your proxy to our Secretary at 4350 Executive Drive, Suite 325, San Diego, CA 92121.

	•		You may attend the meeting and vote in person. Simply attending the annual meeting will not, by itself, revoke your proxy.

	•		For Proposal 1, the election of two directors to hold office until the 2010 Annual Meeting of Stockholders, the nominees receiving the most “For” votes (among votes properly cast in person or by proxy) will be elected. Only votes “For” or “Withheld” will affect the outcome.

	•		To be approved, Proposal No. 2, the ratification of the selection of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2007, must receive a “For” vote from the majority of shares present either in person or by proxy and entitled to vote. If you “Abstain” from voting, it will have the same effect as an “Against” vote. Broker non-votes will have no effect.


*		Committee Chairperson

(1)		Dr. Molinoff resigned from the Compensation Committee in April 2006.

(2)		Dr. Tollefson resigned from the Board of Directors in February 2007.

(3)		Mr. Anderson and Mr. Vaughn are not standing for re-election to the Board.

(4)		Mr. Hawley and Dr. Nova were appointed to the Board on April 26, 2007.

(5)		Includes actions taken by written consent.


*		This report is not “soliciting material,” is not deemed filed with the SEC and is not to be incorporated by reference in any of our filings under the Securities Act of 1933, as amended (the“Securities Act”) or the Securities Exchange Act of 1934, as amended (the“Exchange Act”), whether before or after the date hereof and irrespective of any general incorporation language in any such filing.


(1)		Audit Fees consist of fees for professional services rendered for audit of the Company’s annual financial statements and review of the interim financial statements included in quarterly reports, review of procedures related to the adoption of FAS 123R and services that are normally provided by Ernst & Young LLP in connection with regulatory filings. In 2005 and 2006, Audit Fees also include fees for professional services rendered for audits of (1) management’s assessment of the effectiveness of internal control over financial reporting and (2) the effectiveness of internal control over financial reporting.

(2)		Audit-Related Fees consist of fees for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and are not reported under “Audit Fees.” There were no Audit-Related Fees for 2005 or 2006.

(3)		Tax Fees consist of fees for professional services rendered for assistance with federal and state tax compliance and tax planning. All of the fees in 2005 and 2006 were related to tax compliance.

(4)		All Other Fees consist of fees for services other than the services reported above. There were no Other Fees in 2005 or 2006.

	Beneficial Ownership(1)
Beneficial Owner	Number of Shares	Percent of Total
JPMorgan Chase & Co.(2) 270 Park Avenue New York, NY 10017	2,614,215	8.6	%

ProQuest Investments(3) c/o Pasquale DeAngelis 600 Alexander Park, Suite 204 Princeton, NJ 08540	1,999,782	6.5	%

Gilder, Gagnon, Howe & Corporation LLC(4) 45 Fremont Street San Francisco, CA 94105	1,919,619	6.3	%

Barclays Global Fund Advisors(5) c/o Pasquale DeAngelis 600 Alexander Park, Suite 204 Princeton, NJ 08540	1,841,770	6.1	%

Federated Investors(6) Federated Investors Tower Pittsburg, PA 15222-3779	1,511,900	5.0	%

R. Michael Gendreau(7)	133,721		*
Sabrina Martucci Johnson(8)	82,014		*
Jay D. Kranzler(9)	1,134,467	3.6	%
Denise Woolard(10)	29,773		*
Samuel D. Anderson(11)	72,482		*
Jon W. McGarity(12)	35,135		*
Jean-Pierre Millon(13)	35,135		*
Perry Molinoff(14)	20,492		*
Daniel H. Petree(15)	28,295		*
Gary D. Tollefson(16)	20,492		*
Jack H. Vaughn(17)	43,016		*
All executive officers and directors as a group (11persons)(18)	1,635,021	5.1	%

Name	Amount of Compensation
	Board Service		Committee Service
Samuel D. Anderson	$	16,000	$	14,000
Jon McGarity	$	12,000	$	8,250
Jean Pierre Millon	$	12,000	$	8,250
Perry Molinoff	$	4,000	$	875
Daniel Petree	$	8,000	$	8,000
Gary Tollefson	$	4,000	$	1,750
Jack H. Vaughn	$	12,000	$	13,250

	Annual Compensation					Long-Term Compensation
Name and Principal Position	Fiscal Year	Base Salary($)		Bonus($)		Shares Underlying Options(#)	All Other Compensation ($)

Jay D. Kranzler	2004	$	495,185	—		—	$	47,609	(1)
Chief Executive Officer and Chairman of the	2003	470,421		$	500,000	842,365	30,096		(2)
Board	2002	438,102		—		331,990	12,674		(3)

R. Michael Gendreau	2004	$	229,725	—		—	$	13,000	(4)
Vice President, Development and Chief	2003	211,458		$	100,000	47,452	12,000		(5)
Medical Officer	2002	194,940		—		116,951	11,000		(6)

Denise Woolard	2004	$	203,798	$	56,250	100,000	$	8,298	(7)
Vice President of Business and Legal Affairs	2003	—		—		—	—
	2002	—		—		—	—

Sabrina Martucci Johnson	2004	$	183,780	—		—	$	13,000	(8)
Chief Financial Officer and Vice President	2003	165,000		$	104,000	26,490	12,000		(9)
	2002	141,040		—		98,375	11,000		(10)

	Individual Grants							Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Option Term(2)
Name	Shares Underlying Options Granted (#)		% of Total Options Granted to Employees in Fiscal Year(%)(1)		Exercise Price ($/Share)		Expira- tion Date	5% ($)		10% ($)
Jay D. Kranzler	—		—		—		—	—		—
R. Michael Gendreau	—		—		—		—	—		—
Denise Woolard	100,000	(3)	57	%	$	11.80	2/04/2014	$	742,096	$	1,880,616
Sabrina Martucci Johnson	—		—		—			—		—

				Number of Shares Underlying Unexercised Options at Fiscal Year End (#)		Value of Unexercised In-the- Money Options at Fiscal Year End ($)(1)
Name	Shares Acquired on Exercise	Value Realized ($)		Exercisable	Unexercisable	Exercisable		Unexercisable
Jay D. Kranzler	286,770	$	3,000,681	837,788	579,582	$	9,147,602	$	5,953,940
R. Michael Gendreau	132,133	$	1,450,401	49,981	50,665	555,060		567,988
Denise Woolard	0	0		22,655	77,345	51,200		174,800
Sabrina Martucci Johnson	26,814	$	268,536	72,235	39,566	781,237		435,141

Symbol	CRSP Total Returns Index for:	12/1999	12/2000	12/2001	12/2002	12/2003	12/2004
	Cypress Bioscience, Inc.	100.0	32.8	28.4	18.6	103.7	97.0
	Nasdaq Stock Market (US Companies)	100.0	60.8	47.8	33.1	49.4	53.8
	Nasdaq Pharmaceuticals Stocks	100.0	124.7	106.3	68.7	100.7	107.2
	SIC 2880 – 2889 US & Foreign

Jay D. Kranzler, M.D., Ph.D.

Chief Executive Officer and Chairman of the Board of Directors

Sabrina Martucci Johnson

Chief Financial Officer, Executive Vice President and Chief Business Officer

R. Michael Gendreau, M.D., Ph.D.

Vice President of Clinical Development and Chief Medical Officer

Denise Wheeler

Vice President of Legal Affairs