App Pharmaceuticals 10Q 2007 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2007

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

For the transition period from to

Commission file number 0-33407

Abraxis BioScience, Inc.

(Exact name of registrant as specified in its charter)


Delaware		68-0389419
(State of Incorporation)		(I.R.S. Employer Identification No.)

11755 Wilshire Boulevard, Suite 2000 Los Angeles, CA		90025
(Address of principal executive offices)		(Zip Code)

(310) 883-1300

(Registrant’s telephone number, including area code)

N/A

(Former Name or Former Address, if Changed Since Last Report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated filer þ Accelerated Filer ¨ Non-Accelerated Filer ¨

Indicate by check mark whether the registrant is a shell company (as determined by rule 12b-2 of the Exchange Act). Yes ¨ No þ

As of October 31, 2007, the registrant had 166,627,168 shares of $0.001 par value common stock outstanding, including 6,705,116 shares held by the registrant in treasury.

Abraxis BioScience, Inc.

INDEX


		Page
PART I. Financial Information

Item 1.	Financial Statements (Unaudited)	3

	Condensed consolidated balance sheets – September 30, 2007 and December 31, 2006	3

	Condensed consolidated statements of operations – Three and Nine months ended September 30, 2007 and 2006	4

	Condensed consolidated statements of cash flows – Nine months ended September 30, 2007 and 2006	5

	Notes to condensed consolidated financial statements – September 30, 2007	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34

Item 4.	Controls and Procedures	35

PART II. Other Information

Item 1.	Legal Proceedings	37

Item 1A.	Risk Factors	37

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	47

Item 3.	Defaults Upon Senior Securities	47

Item 4.	Submission of Matters to a Vote of Security Holders	47

Item 5	Other Information	47

Item 6.	Exhibits	47

Signatures		48

PART I. FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

Abraxis BioScience, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share data)


	September 30, 2007			December 31, 2006
	(Unaudited)			(Note 1)
Assets
Current assets:
Cash and cash equivalents	$	34,020		$	39,297
Accounts receivable, less of allowances for doubtful accounts		97,594			84,684
Inventories		228,910			218,280
Prepaid expenses and other current assets		22,520			15,570
Deferred income taxes		85,222			27,168

Total current assets		468,266			384,999
Property, plant and equipment, net		274,508			217,819
Investment in Drug Source Company, LLC		8,440			5,504
Intangible assets, net of accumulated amortization		686,048			738,440
Goodwill		401,600			401,600
Other non-current assets, net of accumulated amortization		25,886			25,359

Total assets	$	1,864,748		$	1,773,721

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	73,144		$	65,471
Accrued liabilities		86,980			61,428
Income taxes payable		5,711			80,054
Deferred revenue		39,225			39,225
Minimum royalties payable		25			1,017
Notes payable		—			72,248

Total current liabilities		205,085			319,443

Long-term debt		285,000			165,000
Deferred income taxes, non-current		131,895			90,776
Long-term portion of deferred revenue		128,753			158,135
Other non-current liabilities		6,447			7,006

Total liabilities		757,180			740,360
Stockholders’ equity:
Common stock - $0.001 par value; 350,000,000 shares authorized; 166,222,925 and 165,928,134 shares issued and outstanding in 2007 and 2006, respectively		167			166
Additional paid-in capital		1,131,551			1,085,196
Retained earnings		29,905			4,483
Accumulated other comprehensive income		3,686			1,257
Less treasury stock at cost, 6,705,116 common shares in both 2007 and 2006		(57,741	)		(57,741	)

Total stockholders’ equity		1,107,568			1,033,361

Total liabilities and stockholders’ equity	$	1,864,748		$	1,773,721

See accompanying notes to condensed consolidated financial statements

Abraxis BioScience, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2007			2006			2007			2006
	(in thousands, except per share data)
Net revenue	$	240,970		$	203,144		$	695,675		$	508,411
Cost of sales		96,604			85,413			264,368			211,170

Gross profit		144,366			117,731			431,307			297,241
Operating expenses:
Research and development		40,119			21,933			97,641			68,499
Selling, general and administrative		95,685			56,332			237,047			130,544
Amortization of merger related intagibles		13,509			13,508			40,527			24,766
Merger related in-process research and development charge		—			—			—			105,777
Other merger related costs		—			2,108			—			26,375
Separation related costs		2,357			—			7,760			—
Equity in net income of Drug Source Co., LLC		(629	)		(1,242	)		(2,300	)		(2,025	)

Total operating expenses		151,041			92,639			380,675			353,936

(Loss) income from operations		(6,675	)		25,092			50,632			(56,695	)
Interest income and other		1,047			1,047			2,373			3,387
Interest expense		(3,881	)		(4,686	)		(12,854	)		(9,741	)
Minority interests		—			—			—			(11,383	)

(Loss) income before income taxes		(9,509	)		21,453			40,151			(74,432	)
(Benefit) provision for income taxes		(1,145	)		7,896			14,314			914

Net (loss) income	$	(8,364	)	$	13,557		$	25,837		$	(75,346	)

(Loss) income per common share:
Basic	$	(0.05	)	$	0.09		$	0.16		$	(0.47	)

Diluted	$	(0.05	)	$	0.08		$	0.16		$	(0.47	)

The composition of stock-based compensation included above is as follows:
Cost of sales	$	732		$	986		$	2,268		$	2,500
Research and development		2,396			1,736			8,238			3,329
Selling, general and administrative		4,131			4,033			13,824			9,151
Other merger related costs		—			—			—			8,999

	$	7,259		$	6,755		$	24,330		$	23,979

See notes to condensed consolidated financial statements.

Abraxis BioScience, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)


	Nine Months Ended September 30,
	2007			2006
	(in thousands)
Cash flows from operating activities:
Net income (loss)	$	25,837			(75,346	)
Adjustments to reconcile net income (loss) to net cash (used in), provided by operating activities:
Depreciation		21,642			13,958
Amortization		584			1,216
Amortization of product rights		12,330			4,110
Amortization of merger related inventory step-up		—			12,480
Amortization of merger related intangibles		40,527			24,766
Merger related in-process research and development charge		—			105,777
Stock-based compensation		24,330			23,979
Non-cash legal expense		14,763			—
Loss on disposal of property, plant and equipment		590			16
Excess tax benefit from stock-based compensation		(597	)		(1,220	)
Restricted stock grants/forfeitures		(2,267	)		—
Deferred income taxes		(16,935	)		(20,518	)
Minority interest		—			11,383
Equity in net income of Drug Source Company, LLC, net of dividends received		(2,301	)		(2,227	)
Changes in operating assets and liabilities:
Accounts receivable, net		(18,424	)		23,770
Inventories		(11,265	)		(32,119	)
Prepaid expenses and other current assets		(6,949	)		(15,793	)
Non-current receivables from related parties		—			214
Deferred revenue		(29,382	)		188,800
Minimum royalties payable		(992	)		(13	)
Amounts due to officer/stockholder		—			(1,255	)
Other non-current liabilities		(314	)		(311	)
Income taxes payable		(74,343	)		(5,884	)
Accounts payable and accrued expenses		33,448			38,736

Net cash provided by operating activities		10,282			294,519

Cash flows from investing activities:
Purchases of property, plant and equipment		(76,290	)		(87,101	)
Purchase of other non-current assets		(1,505	)		(2,232	)
Purchase of product rights		—			(328,797	)
Net sale of short-term investments		—			54,306

Net cash used in investing activities		(77,795	)		(363,824	)

Cash flows from financing activities:
Proceeds from the exercise of stock options		2,634			7,155
Proceeds from issuance of debt		356,000			204,500
Proceeds from the sale of stock under employee retirement and stock purchase plans		3,797			3,274
Notes payable		(66,735	)		70,910
Excess tax benefit from stock-based compensation		597			1,220
Repayment of borrowings		(236,000	)		(214,000	)
Payment of deferred financing costs		(369	)		(1,704	)
Purchase of treasury stock		—			(1,467	)

Net cash provided by financing activities		59,924			69,888

Effect of exchange rates on cash		2,312			1,313

Net (decrease) increase in cash and cash equivalents		(5,277	)		1,896
Cash and cash equivalents, at beginning of period		39,297			28,818

Cash and cash equivalents, at end of period	$	34,020		$	30,714

See notes to condensed consolidated financial statements

ABRAXIS BIOSCIENCE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2007

(Unaudited)

(1)

Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these financial statements do not include all of the information and notes required by generally accepted accounting principles in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2007 are not necessarily indicative of the results that may be expected for the year ended December 31, 2007 or for other future periods. The balance sheet information at December 31, 2006 has been derived from the audited financial statements at that date, but does not include all of the information and notes required by generally accepted accounting principles for complete financial statements. All material intercompany balances and transactions have been eliminated in consolidation and certain balances in prior periods have been reclassified to conform to the presentation adopted in the current period.

On April 18, 2006, we, Abraxis BioScience, Inc., or Abraxis, formerly known as American Pharmaceutical Partners, Inc., or APP, completed a merger with American BioScience, Inc., or ABI, our former parent. On April 18, 2006, in connection with the closing of that merger, our certificate of incorporation was amended to change our name from American Pharmaceutical Partners, Inc. to Abraxis BioScience, Inc.

For accounting purposes, the merger between APP and ABI has been treated as a downstream merger with ABI viewed as the surviving entity, although APP was the surviving entity for legal purposes. As such, the merger has been accounted for in our consolidated financial statements as an implied acquisition of our minority interests using the purchase method of accounting. Under this accounting method, our accounts, including goodwill, have been adjusted to reflect the minority interests’ share of any differences between their fair values and book values as of the merger closing date. Our total fair value was based on the weighted average market price of our common stock for the period three trading days prior to and three trading days subsequent to the merger announcement date. Pre-acquisition stockholders’ equity and earnings per share have been retroactively restated for the equivalent number of shares received by the accounting acquirer in the merger, with differences between the par value of the issuers and accounting acquirer’s stock recorded in paid-in-capital.

Furthermore, because ABI is treated as the continuing reporting entity for accounting purposes, our filed reports, as the surviving corporation in the merger, after the date of the merger will parallel the financial reporting required under generally accepted accounting principles in the United States and SEC reporting rules as if ABI were the legal successor to its reporting obligation as of the date of the merger. Accordingly, our financial statements, for all periods prior to the date of the merger, reflect this basis of accounting.

Principles of Consolidation

The unaudited condensed consolidated financial statements include our assets, liabilities and results of operations and those of our wholly owned subsidiaries, Pharmaceutical Partners of Canada, Inc., Abraxis BioScience Manufacturing, LLC, Pharmaceutical Partners Switzerland GmbH, VivoRx AutoImmune, Inc., Chicago BioScience, LLC and Transplant Research Institute, as well as our majority-owned subsidiaries, Resuscitation Technologies, LLC and Cenomed BioSciences, LLC, and our investment in Drug Source Company, LLC, which is accounted for using the equity method. All material intercompany balances and transactions have been eliminated in consolidation. Certain amounts in the accompanying condensed consolidated financial statements were reclassified to conform to current period presentation, including the reclassification of $52 million of current deferred tax assets to reduction in non-current deferred tax liability.

Drug Source Company, LLC is 50% owned by us and is a selling agent of raw material to the pharmaceutical industry, including us. Our investment in Drug Source Company is intended to both generate a return on our investment and to strengthen our strategic sourcing capabilities over time. Because our 50% ownership interest in Drug Source Company does not provide financial or operational control of Drug Source Company, we account for our interest in Drug Source Company under the equity method. Our equity income in Drug Source Company for the three and nine months ended September 30, 2007 was $0.6 million and $2.3 million, respectively, compared to $1.2 million and $2.0 million, respectively in the comparable periods of 2006. Ending inventory included raw material purchased from Drug Source Company of $7.0 million at September 30, 2007 and $4.0 million at December 31, 2006, net of intercompany profit of $1.1 million and $0.4 million, respectively.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements. Estimates may also affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Recent Accounting Pronouncements

In June 2007, the FASB ratified the consensus reached by the EITF on EITF Issue No. 07-3, “Accounting for Nonrefundable Advance Payments for Goods or Services Received for Use in Future Research and Development Activities” (or “EITF 07-3”). EITF 07-3 states that nonrefundable advance payments for goods or services that will be used or rendered for future research and development activities should be deferred and capitalized. Such amounts should be recognized as an expense as the related goods are delivered or the related services performed. If an entity does not expect the goods to be delivered or services to be rendered, the capitalized advance payment should be charged to expense. EITF 07-3 is effective for fiscal years beginning after December 15, 2007 and earlier application is not permitted. We often enter into agreements for research and development goods and service. As such, we are evaluating the impact that the adoption of EITF 07-3 will have on our consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 115.” SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. Unrealized gains and losses on items for which the fair value option has been elected will be recognized in earnings at each subsequent reporting date. SFAS No. 159 is effective for us on January 1, 2008. We are evaluating the impact that the adoption of SFAS No. 159 will have on our consolidated financial statements.

In September 2006, the FASB issued SFAS No. 157 which redefines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (“GAAP”), and expands disclosures about fair value measurements. SFAS No. 157 applies where other accounting pronouncements require or permit fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. The effects of adoption will be determined by the types of instruments carried at fair value in our financial statements at the time of adoption as well as the methods utilized to determine their fair values prior to adoption. Based on our current use of fair value measurements, SFAS No. 157 is not expected to have a material effect on our results of operations or financial position.

(2)

Earnings Per Share Information

Basic income (loss) per common share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding. Dilutive income (loss) per common share is computed by dividing net income (loss) by the weighted-average number of common shares used for the basic calculations plus potentially dilutive shares for the portion of the year that the shares were outstanding, unless the impact is anti-dilutive. Potentially dilutive common shares resulted from outstanding stock options and restricted stock awards. Calculations of basic and diluted income (loss) per common share information are based on the following:


	Three Months Ended September 30,					Nine Months Ended September 30,
	2007			2006		2007		2006
	(in thousands, except share and per share data)
Basic and dilutive numerator:
Net (loss) income	$	(8,364	)	$	13,557	$	25,837	$	(75,346	)

Denominator:
Weighted average common shares
outstanding - basic		159,458			159,002		159,495		158,755
Net effect of dilutive securities:
Stock options and restricted stock awards		—			966		1,164		—

Weighted average common shares
outstanding - diluted		159,458			159,968		160,659		158,755

(Loss) income per common share - basic	$	(0.05	)	$	0.09	$	0.16	$	(0.47	)

(Loss) income per common share - diluted	$	(0.05	)	$	0.08	$	0.16	$	(0.47	)

For the three and nine months ended September 30, 2007 and 2006, employee stock options for which the exercise price exceeded the average market price of our common stock in the respective periods were excluded from the computation of diluted income per common share as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2007		2006		2007		2006
	(in thousands, except per share data)
Number of shares excluded		3,407		2,252		2,198		2,661
Range of exercise prices per share	$	2.00-$56.02	$	23.82 -$56.02	$	22.83-$56.02	$	2.00 -$56.02

(3)

Inventories

Inventories are valued at the lower of cost or market as determined under the first-in, first-out, or FIFO, method, as follows:


	September 30, 2007						December 31, 2006
	Approved		Pending Regulatory Approval		Total Inventory		Approved		Pending Regulatory Approval		Total Inventory
	(in thousands)
Finished goods	$	66,874		—	$	66,874	$	55,248	$	—	$	55,248
Work in process		22,475		265		22,740		26,698		3,566		30,264
Raw materials		131,638		7,658		139,296		110,642		22,126		132,768

	$	220,987	$	7,923	$	228,910	$	192,588	$	25,692	$	218,280

Inventories consist of products currently approved for marketing and may include certain products pending regulatory approval. From time to time, we capitalize inventory costs associated with products prior to regulatory approval based on our judgment of probable future commercial success and realizable value. Such judgment incorporates our knowledge and best judgment of where the product is in the regulatory review process, our required investment in the product, market conditions, competing products and our economic expectations for the product post-approval relative to the risk of manufacturing the product prior to approval. In evaluating the market value of inventory pending regulatory approval as compared to its cost, we considered the market, pricing and demand for competing products, our anticipated selling price for the product and the position of the product in the regulatory review process. If final regulatory approval for such products is denied or delayed, we may need to provide for and expense such inventory.

At September 30, 2007 and December 31, 2006, inventory included $7.9 and $25.7 million, respectively, in cost relating to products pending FDA or European approval at our Grand Island and Melrose Park facilities. Included in the amount pending approval at September 30, 2007 was $7.5 million of hospital-based products pending FDA approval and $0.4 million in Abraxane^® related products. Included in the amount pending approval at December 31, 2006 were $17.7 million of paclitaxel (whole plant), and $2.6 million in other Abraxane^® related products at our Grand Island facility. Paclitaxel (whole plant) was approved for use in our Melrose Park facility as of December 21, 2006. Our Grand Island facility received FDA approval for paclitaxel (whole plant) in September 2007.

We routinely review our inventory and establish reserves when the cost of the inventory is not expected to be recovered or our product cost exceeds realizable market value. In instances where inventory is at or approaching expiry, is not expected to be saleable based on our quality and control standards or for which the selling price has fallen below cost, we reserve for any inventory impairment based on the specific facts and circumstances. Provisions for inventory reserves are reflected in the unaudited condensed consolidated financial statements as an element of cost of sales with inventories presented net of related reserves.

(4)

Separation

On July 2, 2007, we announced that our board of directors approved a plan to separate into two independent publicly-traded companies, one holding the Abraxis Pharmaceutical Products business, which focuses primarily on manufacturing and marketing our oncology, anti-infective and critical care hospital-based generic injectable products and marketing our proprietary anesthetic/analgesic products (which we refer to collectively as the “hospital-based business”), and the other holding the Abraxis Oncology and Abraxis Research businesses, which focus primarily on our internally developed proprietary product, Abraxane^®, and our proprietary product candidates (which we refer to as the “proprietary business”). We refer to the proprietary business following the separation as “New Abraxis,” which will change its name to Abraxis BioScience, Inc. We will continue to operate the hospital-based business (which we refer to as “New APP” following the separation) under the name APP Pharmaceuticals, Inc. Following the separation, stockholders as of the record date will be entitled to receive shares of both New Abraxis and New APP in connection with the separation.

New APP and New Abraxis expect to enter into a series of agreements, including a separation and distribution agreement, a transition services agreement, an employee matters agreement, a tax allocation agreement, a manufacturing agreement and various real estate leases. The transaction, which is expected to close in the fourth quarter of 2007, is subject to obtaining a favorable private letter ruling from the Internal Revenue Service and an opinion from tax counsel with respect to the U.S. federal income tax consequences of certain aspects of the proposed separation. We received the private letter ruling from the Internal Revenue Service on October 5, 2007. Consummation of the separation is also subject to certain other conditions. Approval by our stockholders is not required as a condition to the consummation of the proposed separation.

Also, in connection with the separation, it is anticipated that we and/or one or more of our subsidiaries will incur approximately $1.0 billion of indebtedness and, in addition, will enter into a $150 million revolving credit facility. Approximately $265 million of the proceeds of this indebtedness will be used to repay in full our existing revolving credit facility; approximately $20 million will be used to pay fees and expenses related to the debt financing; and approximately $715 million will be contributed to New Abraxis. New APP will be solely responsible for servicing the debt following the transactions.

The separation is scheduled to close on November 13, 2007.

(5)

Acquisitions and Other Transactions

Acquisition of Puerto Rico Manufacturing Facility

In February, 2007, we completed the acquisition of the Pfizer Inc. Cruce Davila manufacturing facility in Barceloneta, Puerto Rico for $32.5 million in cash. This 56-acre site consists of a 172,000 square foot validated manufacturing plant with capabilities of producing EU- and US-compliant injectable pharmaceuticals, as well as protein-based biologics and metered-dosed inhalers. In addition, the acquisition included a state-of-the-art, computer-controlled 90,000 square foot active pharmaceutical ingredients manufacturing plant, and two support facilities with quality assurance and laboratories, totaling 262,000 square feet. Under the terms of the agreement, we leased the active pharmaceuticals ingredients plant back to Pfizer. Commercial operations began at this site in the fourth quarter of 2007 following completion of an FDA inspection. The acquisition was accounted for as an asset purchase, and the purchase price was allocated based upon independent fair values of the acquired assets.

Cenomed Joint Venture

In April 2007, we formed a joint venture with Cenomed, Inc. to create Cenomed BioSciences, LLC. This venture is designed to further the research and development of novel drugs that interact with the central nervous system focused on psychiatric and neurological diseases, including the treatment of schizophrenia, neuroprotection, mild cognitive impairment and memory/attention impairment associated with aging, attention deficit hyperactivity disorder and pain. We hold a 70% membership interest in the joint venture. We made an initial contribution of $0.5 million to the joint venture and will help to fund further development of these drugs. Cenomed BioSciences, LLC is consolidated in our condensed consolidated financial statements.

Exclusive License of Intellectual Property Portfolio

In May 2007, we entered into an agreement with the University of Southern California (USC) that provides us with the exclusive worldwide development and commercialization rights for an intellectual property portfolio of diagnostic protein biomarkers for therapy response, therapy toxicity and disease recurrence in colorectal cancers (CRCs).

Biocon Agreements

In June 2007, we entered into an agreement with Biocon Limited under which we licensed the right to develop and commercialize a biosimilar version of G-CSF (granulocyte-colony stimulating factor) in North America and the European Union. G-CSF is an haematopoietic growth factor that works by encouraging the bone marrow to produce white blood cells. Therapeutic G-CSF is primarily used for the treatment of neutropenia, the lowering of the white blood cells that fight infections. Biocon has received regulatory approval from the Indian DCGI for its G-CSF product for the treatment of neutropenia in cancer patients. Under the terms of the agreement, we paid Biocon a $7.5 million licensing fee and, following regulatory approval in the licensed territories, we will pay royalties to Biocon based on a percentage of net sales under the agreement.

In June 2007, we also entered into an agreement with Biocon Limited under which we granted Biocon the right to market and sell Abraxane^® in India, Pakistan, Bangladesh, Sri Lanka, United Arab Emirates, Saudi Arabia, Kuwait and certain other South Asian and Persian Gulf countries. We will receive payments from Biocon based on the higher of a percentage of net sales or a specified profit split under the license agreement. In October 2007, we received regulatory approval from India’s Drug Controller General to market Abraxane^® for the treatment of metastic breast cancer in India. Commercial introduction of Abraxane^® in the Indian market is expected in 2008 following completion of appropriate importation certifications.

Acquisition of Manufacturing Facility in Phoenix, Arizona

In July 2007, we acquired Watson Pharmaceuticals, Inc.’s sterile injectable manufacturing facility in Phoenix, Arizona. This fully-equipped facility, comprising approximately 200,000 square feet, includes manufacturing as well as chemistry and microbiology laboratories and has the ability to manufacture lyophilized powders, suspension products, and aqueous and oil solutions. In connection with the acquisition, we have agreed to contract manufacture certain injectable products for and on behalf of Watson for a specified period of time.

California NanoSystems Institute

In July 2007, we entered into a research collaboration agreement with the California NanoSystems Institute, or CNSI, at UCLA under which the parties agreed to collaborate on early research in nanobiotechnology for the advancement of new technologies in medicine. Under the agreement, we agreed to contribute $5 million over five years to fund collaborative projects in the new CNSI building at UCLA. At the end of the five-year term, we will evaluate a second five-year period with similar terms. The partnership provides CNSI and our researchers the opportunity to jointly pursue innovative approaches to the diagnosis and treatment of life-threatening diseases, leveraging the complementary resources and skills of both organizations.

(6)

Accrued Liabilities

Accrued liabilities consist of the following at:


	September 30, 2007		December 31, 2006
	(in thousands)
Sales and marketing	$	32,227	$	26,876
Payroll and employee benefits		31,331		27,417
Legal and insurance		18,091		2,045
Other		5,331		5,090

	$	86,980	$	61,428

Additionally, non-recurring legal expense of $23.8 million is accounted for in selling, general and administrative expense in the current quarter.

(7)

Income Taxes

In 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109” (“FIN 48”), which provides specific guidance on the financial statement recognition, measurement, reporting and disclosure of uncertain tax positions taken or expected to be taken in a tax return. FIN 48 addresses the determination of whether tax benefits, either permanent or temporary, should be recorded in the financial statements. We adopted FIN 48 as of January 1, 2007 and as a result recognized a $0.1 million increase to retained earnings from the cumulative effect of adoption.

As of the nine months ended September 30, 2007, the total amount of gross unrecognized tax benefits, which are reported in other liabilities in our unaudited condensed consolidated balance sheet, was $2.7 million. This entire amount would impact our effective tax rate over time, if recognized. In addition, we accrue interest and any necessary penalties related to unrecognized tax positions in our provision for income taxes.

Our effective tax rate for the three and nine months ended September 30, 2007 was 12.0% and 35.7%, respectively. Our tax rate during the nine month period ended September 30, 2007 was favorably impacted by a $1.1 million net reduction of reserves relating to FIN 48 due to closure of IRS examinations for the 2004 and 2005 tax years. Excluding the impact of the FIN 48 adjustment, our effective tax rate for the three and nine months ended September 30, 2007 would have been 18.8% and 38.3%, respectively.

We or one of our subsidiaries files income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. In the second quarter of 2007, the Internal Revenue Service (IRS) concluded an examination of our U.S. income tax returns for tax years 2004 and 2005. This resulted in our paying approximately $0.5 million of assessed tax resulting from our method of inventory capitalization. This amount was fully reserved. In addition, we recently received a “no adjustment” closing letter from the IRS in regard to an audit of our previous parent company (American BioScience, Inc.) related to a 2002 net operating loss carry back to consolidated tax years 1997, 1998, 1999, 2000 and 2001.

The Illinois Department of Revenue has commenced an audit of the Combined Unitary Tax Returns for tax years 2003 through 2005. The previous Illinois audit for tax years 2000, 2001 and 2002 resulted in a refund of approximately $1.0 million. In addition, we received notice of intent to examine income tax returns from California (tax years 2004-2006), Massachusetts (2005-2006) and North Carolina (2003-2006). The California and Massachusetts audits began in the fourth quarter of 2007, and the North Carolina audit is expected to being in the first quarter of 2008. There are no other open federal, state or foreign government income tax audits at this time.

(8)

Comprehensive (loss) income

Elements of comprehensive (loss) income, net of income taxes, were as follows:


	Three Months Ended September 30,						Nine Months Ended September 30,
	2007			2006			2007		2006
	(in thousands)
Foreign currency translation adjustments	$	1,303		$	652		$	2,388	$	1,313
Unrealized (loss) gain on marketable equity securities		(107	)		(1,146	)		41		(1,546	)

Other comprehensive gain, net of tax and minority interests		1,196			(494	)		2,429		(233	)
Net (loss) income		(8,364	)		13,557			25,837		(75,346	)

Comprehensive (loss) income	$	(7,168	)	$	13,063		$	28,266	$	(75,579	)

At September 30, 2007 and 2006, we had cumulative foreign currency translation gain adjustments of $3.1 million and $1.3 million, respectively. In addition, at September 30, 2007 and 2006, we had cumulative unrealized gains on marketable equity securities of $0.6 million and $0.1 million, respectively.

(9)

Contingencies

Litigation

In December 2004, a former officer and employee and a former director of ABI filed a demand for arbitration with the American Arbitration Association against us and our Chief Executive Officer. In the arbitration, this individual asserted that we improperly terminated his employment and that the defendants breached various promises allegedly made to him. This individual sought various forms of relief, including monetary damages and equity interests in our common stock. In addition, in May 2006, this same former officer filed an action against us, ABI and certain of our directors in Cook County, Illinois relating to the 2006 merger between us and ABI alleging that the defendants breached fiduciary duties to our stockholders by causing us to enter into the merger agreement. The complaint sought $12 million in damages. In July 2007, the Court dismissed this action on the grounds of forum non-conveniens. In September 2007, this same individual filed a substantially identical action in Los Angeles Superior Court, County of Los Angeles. The parties entered into a settlement agreement and release in October 2007 with respect to all disputes between the parties. Pursuant to the indemnification provisions of the definitive agreements for the merger between us and ABI, the former ABI shareholders indemnified us for approximately two-thirds of the obligations under the settlement agreement and the amount is recorded as a non-cash legal expense in our condensed financial statements.

On or about December 7, 2005, several stockholder derivative and class action lawsuits were filed against us, our directors and ABI in the Delaware Court of Chancery relating to the 2006 merger between us and ABI. We were a nominal defendant in the stockholder derivative actions. The lawsuits allege that our directors breached their fiduciary duties to stockholders by causing us to enter into the merger agreement, which, it is alleged unjustly enriched ABI’s stockholders and caused the value of the shares held by our public stockholders to be significantly diminished. The lawsuits seek, among other things, an unspecified amount of damages and the rescission of the merger. In May 2007, the plaintiffs voluntarily dismissed the derivative and unjust enrichment claims, and the action is proceeding as a putative class action solely against the individual defendants.

On July 19, 2006, Élan Pharmaceutical Int’l Ltd. filed a lawsuit against us in the U.S. District Court for the District of Delaware alleging that we willfully infringed upon two of their patents by asserting that Abraxane^® uses technology protected by Élan-owned patents. Élan seeks unspecified damages and an injunction. In August 2006, we filed a response to Élan’s complaint contending that we did not infringe on the Élan patents and that the Élan patents are invalid. The trial has been set to begin in June 2008.

We are from time to time subject to claims and litigation arising in the ordinary course of business. These claims have included assertions that our products infringe existing patents, product liability and also claims that the use of our products has caused personal injuries. We intend to defend vigorously any such litigation that may arise under all defenses that would be available to us. In the opinion of management, the ultimate outcome of proceedings of which management is aware, even if adverse to us, will not have a material adverse effect on our consolidated financial position or results of operations.

We record accruals for contingencies to the extent that we conclude their occurrence is probable and the related damages are estimable. As of September 30, 2007, $10.9 million remained accrued for litigation matters described above. We cannot otherwise reasonably estimate the maximum potential exposure or the range of possible loss in excess of amounts accrued for the remaining contingencies, nor is it possible to accurately predict or determine the eventual outcome of these matters. These assessments involve complex judgments about future events and rely on estimates and assumptions. Although we believe we have substantial defenses in these matters, litigation is inherently unpredictable and we could in the future incur judgments or enter into settlements that could have a material adverse effect on our results of operations.

Regulatory Matters

We are subject to regulatory oversight by the United States Food and Drug Administration and other regulatory authorities with respect to the development, manufacturing and marketing of our products. Failure to comply with regulatory requirements can have a significant effect on our business and operations. Management has designed and operates a system of controls to attempt to ensure compliance with regulatory requirements.

In late December 2006, we received a warning letter from the FDA regarding our Melrose Park facility following a periodic review of the facility earlier in the year. The FDA completed its re-inspection of the facility in September 2007. Based on that re-inspection, in October 2007, the FDA informed us that it had satisfactorily resolved the issues associated with the warning letter and began approving our pending product applications at that facility.

(10)

Segment Information

Abraxis BioScience is comprised of Abraxis Pharmaceutical Products, Abraxis Oncology and Abraxis Research. Beginning in the fourth quarter of 2006, we re-aligned our segment presentation to better reflect how the business is managed. We operate in two business segments: Abraxis BioScience (ABI) representing the combined operations of Abraxis Oncology and Abraxis Research; and Abraxis Pharmaceutical Products (APP), representing the hospital-based operations. ABI focuses primarily on our internally developed proprietary product Abraxane and our proprietary product pipeline. APP manufactures and markets one of the broadest portfolio of injectable drugs, including oncology, critical care, and anti-infectives, and markets our proprietary anesthetic/analgesic products. Prior period’s segment information has been reclassified to conform to the current period presentation. Information regarding these two segments is summarized below.

General and administrative costs, which consist of executive management, accounting and finance, human resources, information technology, investor relations, legal and business development, are not allocated to the individual segments. Information regarding these two segments, which operate primarily in North America, is summarized below:


	Segment						Unallocated Costs⁽¹⁾			Total
	APP			ABI			Unallocated Costs⁽¹⁾			Total
	(in thousands)
Three months ended September 30, 2007
Hospital-based products	$	153,179		$	451		$	—		$	153,630
Abraxane revenue		—			86,368			—			86,368
Research revenue and other		—			972			—			972

Total revenue		153,179			87,791			—			240,970
Cost of sales		80,295			11,468			4,841			96,604

Gross profit		72,884			76,323			(4,841	)		144,366
Percent to total revenue		*47.6*	%		*86.9*	%					*59.9*	%
Operating expenses:
Research and development		10,630			27,093			2,396			40,119
Selling and marketing		4,334			35,657			—			39,991
Equity income in Drug Source Company		—			(629	)		—			(629	)

Total operating expenses		14,964			62,121			2,396			79,481

Pretax segment operating income (loss)⁽²⁾	$	57,920		$	14,202		$	(7,237	)	$	64,885

Percent to total revenue		*37.8*	%		*16.2*	%					*26.9*	%
Depreciation and amortization	$	2,088		$	4,201		$	19,902		$	26,191
Capital expenditures	$	16,083		$	7,908		$	187		$	24,178
Long lived assets	$	798,907		$	528,176		$	69,398		$	1,396,481

Three months ended September 30, 2006
Hospital-based products	$	149,768			283		$	—		$	150,051
Abraxane revenue		—			52,320			—			52,320
Research revenue		—			773			—			773

Total revenue		149,768			53,376			—			203,144
Cost of sales		67,886			7,751			9,776			85,413

Gross profit		81,882			45,625			(9,776	)		117,731
Percent to total revenue		*54.7*	%		*85.5*	%					*58.0*	%
Operating expenses:
Research and development		7,934			12,263			1,736			21,933
Selling and marketing		3,482			29,956			—			33,438
Equity income in Drug Source Company		—			(1,242	)		—			(1,242	)

Total operating expenses		11,416			40,977			1,736			54,129

Pretax segment operating income (loss)⁽²⁾	$	70,466		$	4,648		$	(11,512	)	$	63,602

Percent to total revenue		*47.1*	%		*8.7*	%					*31.3*	%
Depreciation and amortization	$	2,625		$	763		$	24,205		$	27,593
Capital expenditures	$	6,694		$	1,748		$	47,151		$	55,593
Long lived assets	$	777,460		$	535,809		$	87,288		$	1,400,557


	Segment						Unallocated Costs⁽¹⁾			Total
	APP			ABI			Unallocated Costs⁽¹⁾			Total
	(in thousands)
Nine months ended September 30, 2007
Hospital-based products	$	452,773		$	1,366		$	—		$	454,139
Abraxane revenue		—			235,919			—			235,919
Research revenue and other		—			5,617			—			5,617

Total revenue		452,773			242,902			—			695,675
Cost of sales		224,674			25,098			14,596			264,368

Gross profit		228,099			217,804			(14,596	)		431,307
Percent to total revenue		*50.4*	%		*89.7*	%					*62.0*	%
Operating expenses:
Research and development		33,705			55,698			8,238			97,641
Selling and marketing		12,106			103,757			—			115,863
Equity income in Drug Source Company		—			(2,300	)		—			(2,300	)

Total operating expenses		45,811			157,155			8,238			211,204

Pretax segment operating income (loss)⁽²⁾	$	182,288		$	60,649		$	(22,834	)	$	220,103

Percent to total revenue		*40.3*	%		*25.0*	%					*31.6*	%
Depreciation and amortization	$	3,996		$	11,548		$	59,539		$	75,083
Capital expenditures	$	56,605		$	18,263		$	1,306		$	76,176
Long lived assets	$	798,907		$	528,176		$	69,398		$	1,396,481

Nine months ended September 30, 2006
Hospital-based products	$	383,495		$	777		$	—		$	384,272
Abraxane revenue		—			118,763			—			118,763
Research revenue and other		—			5,376			—			5,376

Total revenue		383,495			124,916			—			508,411
Cost of sales		173,998			18,082			19,090			211,170

Gross profit		209,497			106,834			(19,090	)		297,241
Percent to total revenue		*54.6*	%		*85.5*	%					*58.5*	%
Operating expenses:
Research and development		17,853			47,317			3,329			68,499
Selling and marketing		10,597			58,491			—			69,088
Equity income in Drug Source Company		—			(2,025	)		—			(2,025	)

Total operating expenses		28,450			103,783			3,329			135,562

Pretax segment operating income (loss)⁽²⁾	$	181,047		$	3,051		$	(22,419	)	$	161,679

Percent to total revenue		*47.2*	%		*2.4*	%					*31.8*	%
Depreciation and amortization	$	3,169		$	7,611		$	45,750		$	56,530
Capital expenditures	$	17,514		$	4,804		$	64,783		$	87,101
Long lived assets	$	777,460		$	535,809		$	87,288		$	1,400,557

(1)

Segment costs not allocated for the three months ended September 30, 2007 included $4.1 million of purchase price amortization for acquired products and $0.7 million of stock compensation expense, both included in cost of sales, and $2.4 million of stock compensation expense included in research and development. For the three months ended September 30, 2006, $4.1 million of purchase price amortization for acquired products, $4.7 million of inventory step-up amortization and $1.0 million of stock compensation expense was not allocated in cost of sales and $1.7 million of stock compensation expense was not allocated to research and development. Segment costs not allocated for the nine months ended September 30, 2007 included $12.3 million of purchase price amortization for acquired products and $2.3 million of stock compensation expense, both included in cost of sales, and $8.2 million of stock compensation expense included in research and development. For the nine months ended September 30, 2006, $12.5 million of inventory setup amortization, $4.1 million of purchase price amortization for acquired products and $2.5 million of stock compensation expense was not allocated in cost of sales and $3.3 million of stock compensation expense was not allocated to research and development. Additionally, depreciation and amortization expense, capital expenditures and long lived assets related to corporate activities were not allocated to the segments.

(2)	General and administrative expense, merger related costs and amortization, interest income and other, interest expense, minority interest and income tax expense were not allocated to the segments.

Following is a reconciliation of pretax segment operating income as reported above to net (loss) income as reported in our condensed consolidated statement of operations.


	Three months ended September 30						Nine months ended September 30
	2007			2006			2007			2006
Segment operating income (loss) from above:
APP segment	$	57,920		$	70,466		$	182,288		$	181,047
ABI segment		14,202			4,648			60,649			3,051
Segment costs not allocated		(7,237	)		(11,512	)		(22,834	)		(22,419	)

		64,885			63,602			220,103			161,679
General and administrative expense		(55,694	)		(22,894	)		(121,184	)		(61,456	)
Amortization of merger related intangibles		(13,509	)		(13,508	)		(40,527	)		(24,766	)
Merger related in-process research and development		—			—			—			(105,777	)
Other merger related costs		—			(2,108	)		—			(26,375	)
Separation related costs		(2,357	)		—			(7,760	)		—

Income (loss) from operations		(6,675	)		25,092			50,632			(56,695	)
Interest income and other		1,047			1,047			2,373			3,387
Interest expense		(3,881	)		(4,686	)		(12,854	)		(9,741	)
Minority interests		—			—			—			(11,383	)
Benefit (provision) for income taxes		1,145			(7,896	)		(14,314	)		(914	)

Net (loss) income	$	(8,364	)	$	13,557		$	25,837		$	(75,346	)

(11)

Total Revenue By Product Line

Total revenues by product line were as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2007		2006		2007		2006
Hospital-Based Products
Critical Care	$	91,747	$	86,374	$	266,935	$	179,626
Anti-infective		43,032		50,662		133,561		157,290
Oncology		14,073		10,786		39,927		40,932
Contract manufacturing		4,778		2,229		13,716		6,424

Total hospital-based revenue		153,630		150,051		454,139		384,272
Abraxane^®		86,368		52,320		235,919		118,763
Research revenue		972		773		5,617		5,376

Total revenue	$	240,970	$	203,144	$	695,675	$	508,411

Critical care products included $44.2 million, $41.0 million, $124.3 million and $41.0 million in revenue for anesthetic/analgesic products for the three months ended September 30, 2007 and 2006 and the nine months ended September 30, 2007 and 2006, respectively.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q and other documents we file with the Securities and Exchange Commission contain forward-looking statements, as the term is defined in the Private Securities Litigation Reform Act of 1995. In addition, we may make forward-looking statements in press releases or written statements, or in our communications and discussions with investors and analysts in the normal course of business through meetings, webcasts, phone calls and conference calls. Such forward-looking statements, whether expressed or implied, are subject to risks and uncertainties which can cause actual results to differ materially from those currently anticipated, due to a number of factors, which include, but are not limited to:

•

the market adoption of and demand for our existing and new pharmaceutical products, including Abraxane^{^®}and our proprietary anesthetic/analgesic products;

•

the amount and timing of costs associated with Abraxane^{^®};

•

the actual results achieved in further clinical trials of Abraxane^{^®}may or may not be consistent with the results achieved to date;

•

the impact of competitive products and pricing;

•

the impact of any adverse litigation;

•

the ability to successfully manufacture products in an efficient, time-sensitive and cost effective manner;

•

the impact on our products and revenues of patents and other proprietary rights licensed or owned by us, our competitors and other third parties;

•

our ability, and that of our suppliers, to comply with laws, regulations and standards, and the application and interpretation of those laws, regulations and standards, that govern or affect the pharmaceutical industry, the non-compliance with which may delay or prevent the sale of our products;

•

the difficulty in predicting the timing or outcome of product development efforts and regulatory approvals;

•

the availability and price of acceptable raw materials and components from third-party suppliers;

•

evolution of the fee-for-service arrangements being adopted by our major wholesale customers;

•

inventory reductions or fluctuations in buying patterns by wholesalers or distributors; and

•

the impact of recent legislative changes to the governmental reimbursement system.

Additionally, there are several factors and assumptions that could affect our plan to separate into two independent publicly-traded companies and cause actual results to differ materially from those expressed in our forward looking statements:

•

increased demands on our management team as a result of the proposed separation; and

•

our ability to satisfy certain conditions precedent.

Forward-looking statements also include the assumptions underlying or relating to any of the foregoing or other such statements. When used in this report, the words “may,” “will,” “should,” “could,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict” and similar expressions are generally intended to identify forward-looking statements.

Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s opinions only as of the date hereof. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, whether as a result of new information, changes in assumptions, future events or otherwise. Readers should carefully review the factors described in“Item 1A: Risk Factors”of Part II of this Form 10-Q and“Item 1A: Risk Factors” of our Form 10-K for the period ended December 31, 2006”and other documents we file from time to time with the Securities and Exchange Commission. Readers should understand that it is not possible to predict or identify all such factors. Consequently, readers should not consider any such list to be a complete set of all potential risks or uncertainties.

OVERVIEW

The following management’s discussion and analysis of financial condition and results of operations, or MD&A, is intended to assist the reader in understanding our company. The MD&A is provided as a supplement to, and should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2006, including “Item 1: Business”; “Item 1A: Risk Factors”, “Item 6: Selected Financial Data”; and “Item 8: Financial Statements and Supplemental Data.”

Background

Abraxis BioScience, Inc., formerly known as American Pharmaceutical Partners, Inc., or APP, is an integrated global biopharmaceutical company dedicated to meeting the needs of critically ill patients. We develop, manufacture and market one of the broadest portfolios of injectable products and leverage revolutionary technology such as ournab™ platform to discover and deliver breakthrough therapeutics that transform the treatment of cancer and other life-threatening diseases. The first FDA approved product to use thisnab™ platform, Abraxane^®, was launched in 2005 for the treatment of metastatic breast cancer. We believe that we are the only independent U.S. public company with a primary focus on the injectable oncology, anti-infective, anesthetic/analgesic and critical care markets, and we further believe that we offer one of the most comprehensive injectable product portfolios in the pharmaceutical industry. We manufacture products in each of the three basic forms in which injectable products are sold: liquid, powder and lyophilized, or freeze-dried.

We are a Delaware corporation that was formed in 2001 as successor to a California corporation formed in 1996. On April 18, 2006, we completed a merger with American BioScience, Inc., or ABI. In connection with the closing of that merger, our certificate of incorporation was amended to change our name from American Pharmaceutical Partners, Inc. to Abraxis BioScience, Inc.

We operate in two business segments: Abraxis BioScience (ABI), representing the combined operations of Abraxis Oncology and Abraxis Research; and Abraxis Pharmaceutical Products (APP), representing the hospital-based operations. ABI focuses primarily on our internally developed proprietary product, Abraxane^®, and our proprietary product pipeline. APP manufactures and markets one of the broadest portfolios of injectable drugs, including oncology, critical care, anti-infectives, and markets our proprietary anesthetic/analgesic products. Comparative segment revenues and related financial information for the three and nine months ended September 30, 2007 and 2006 are presented in “Note 10, Segment Information” to our unaudited condensed consolidated financial statements.

Separation

On July 2, 2007, we announced that our board of directors approved a plan to separate into two independent publicly-traded companies, one holding the Abraxis Pharmaceutical Products business, which focuses primarily on manufacturing and marketing our oncology, anti-infective and critical care hospital-based generic injectable products and marketing our proprietary anesthetic/analgesic products (which we refer to collectively as the “hospital-based business”), and the other holding the Abraxis Oncology and Abraxis Research businesses, which focus primarily on our internally developed proprietary product, Abraxane^®, and our proprietary product candidates (which we refer to as the “proprietary business”). We refer to the proprietary business following the separation as “New Abraxis,” which will change its name to Abraxis BioScience, Inc. We will continue to operate the hospital-based business (which we refer to as “New APP” following the separation) under the name APP Pharmaceuticals, Inc. following the separation the stockholders as of the record date will be entitled to receive shares of both New Abraxis and New APP in connection with the separation.

The transaction is scheduled to close on November 13, 2007.

Recent Developments

Exclusive License of Intellectual Property Portfolio

In July 2007, we entered into an agreement with the University of Southern California (USC) that provides us with the exclusive worldwide development and commercialization rights for an intellectual property portfolio of diagnostic protein biomarkers for therapy response, therapy toxicity and disease recurrence in colorectal cancers (CRCs). The intellectual property licensed is based on USC research by Associate Professor of Medicine Heinz-Joseph Lenz and colleagues.

Biocon Agreements

In June 2007, we entered into an agreement with Biocon Limited under which we licensed the right to develop and commercialize a biosimilar version of G-CSF (granulocyte-colony stimulating factor) in North America and the European Union. G-CSF is an haematopoietic growth factor that works by encouraging the bone marrow to produce more white blood cells. Therapeutic G-CSF is primarily used for the treatment of neutropenia, the lowering of the white blood cells that fight infections. Biocon has received regulatory approval from the Indian DCGI for the treatment of neutropenia in cancer patients. Under the terms of the agreement, we paid Biocon a $7.5 million licensing fee upon achieving the only milestone under the agreement and, following regulatory approval in the licensed territories, we will pay royalties to Biocon based on a percentage of net sales under the agreement.

Acquisition of Manufacturing Facility in Phoenix, Arizona

In July 2007, we acquired Watson Pharmaceuticals, Inc.’s sterile injectable manufacturing facility in Phoenix, Arizona. This fully-equipped facility, comprising approximately 200,000 square feet, includes manufacturing as well as chemistry and microbiology laboratories and has the ability to manufacture lyophilized powders, suspension products, and aqueous and oil solutions. In connection with the acquisition, we have agreed to contract manufacture certain products for and on behalf of Watson for a specified period of time.

California NanoSystems Institute

In July 2007, we entered into a research collaboration agreement with the California NanoSystems Institute, or “CNSI”, at UCLA under which the parties agreed to collaborate on early research in nanobiotechnology for the advancement of new technologies in medicine. Under the agreement, we agreed to contribute $5 million over five years to fund collaborative projects in the new CNSI building at UCLA. At the end of the five-year term, we will evaluate a second five-year period with similar terms.

RESULTS OF OPERATIONS

Three Months Ended September 30, 2007 and September 30, 2006

The following table sets forth the results of our operations for each of the three months ended September 30, 2007 and 2006, and forms the basis for the following discussion of our operating activities:

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited, in thousands, except per share amounts)


	Three Months Ended September 30,						Change Favorable (Unfavorable)
	2007			2006			$			%
Hospital-based products
Critical care	$	91,747		$	86,374		$	5,373		6.2	%
Anti-infective		43,032			50,662			(7,630	)	-15.1	%
Oncology		14,073			10,786			3,287		30.5	%
Contract manufacturing		4,778			2,229			2,549		114.4	%

Total hospital-based revenue		153,630			150,051			3,579		2.4	%
Abraxane^®		86,368			52,320			34,048		65.1	%
Research revenue		972			773			199		25.7	%

Total revenue		240,970			203,144			37,826		18.6	%
Cost of sales		96,604			85,413			(11,191	)	-13.1	%

Gross profit		144,366			117,731			26,635		22.6	%

Percent to total revenue		*59.9*	%		*58.0*	%
Operating expenses:
Research and development		40,119			21,933			(18,186	)	-82.9	%
Selling, general and administrative		95,685			56,332			(39,353	)	-69.9	%
Amortization of merger related intangible assets		13,509			13,508			(1	)	0.0	%
Other merger related costs		—			2,108			2,108		100.0	%
Separation related costs		2,357			—			(2,357	)	—
Equity income in Drug Source Company		(629	)		(1,242	)		(613	)	49.4	%

Total operating expenses		151,041			92,639			(58,402	)	-63.0	%

Percent to total revenue		*62.7*	%		*45.6*	%
Income (loss) from operations		(6,675	)		25,092			(31,767	)	-126.6	%
Percent to total revenue		*-2.8*	%		*12.4*	%
Interest income and other		1,047			1,047			—		0.0	%
Interest expense		(3,881	)		(4,686	)		805		-17.2	%

Income (loss) before income taxes		(9,509	)		21,453			(30,962	)	-144.3	%
(Benefit) provision for income taxes		(1,145	)		7,896			9,041		-114.5	%

Net (loss) income	$	(8,364	)	$	13,557		$	(21,921	)	-161.7	%

Net (loss) income per share:
Basic	$	(0.05	)	$	0.09

Diluted	$	(0.05	)	$	0.08

Weighted average common shares outstanding:
Basic		159,458			159,002

Diluted		159,458			159,968

Total Revenue

Total revenue for the three months ended September 30, 2007 increased $37.8 million, or 18.6%, to $241.0 million as compared to the same 2006 quarter.

Abraxane^® revenue for the three months ended September 30, 2007 increased $34.0 million to $86.4 million as compared to $52.3 million in the same quarter of 2006. The increase was primarily due to increased market penetration. The three months ended September 30, 2007 and 2006 each included $9.1 million of deferred revenue recognized relating to the co-promotion agreement with AstraZeneca. Excluding the recognition of previously deferred revenue for both periods, total Abraxane^® revenue for the three months ended September 20, 2007 increased to $77.3 million, or 78.8%, from $43.2 million in the previous year’s comparable quarter.

Total revenue of our core hospital-based products, which excludes Abraxane^®, for the third quarter of 2007 increased $3.6 million, or 2.4%, to $153.6 million, versus $150.0 million for the same quarter of 2006. This increase was due primarily to product sales relating to the products acquired from AstraZeneca in June 2006. The 2.4% increase in total revenue from our core hospital-based products, which excludes Abraxane, over the prior year quarter was comprised of a 2.5% overall unit volume decrease offset by a 4.8% overall increase in unit prices. Third quarter 2007 sales of critical care products, which include the portfolio of products acquired from AstraZeneca, increased $5.4 million, or 6.2%, to $91.7 million as compared to the prior year third quarter. Net sales of anti-infective products in the third quarter of 2007 decreased $7.6 million, or 15.1%, to $43.0 million due mainly to our cephalosporin products, which were on backorder during the quarter due to the voluntary precautionary distribution hold we placed on product manufactured with certain materials. The required testing has been completed, all internal issues have been satisfactorily resolved and we resumed distribution of these products in August 2007. Net sales of oncology products, excluding Abraxane^®, in the third quarter of 2007 increased $3.3 million, or 30.5%, to $14.1 million primarily as a result of new product launches in 2006 and 2007 and favorable market conditions.

Research revenue for the third quarter of 2007 increased slightly to $1.0 million from $0.8 million in the prior year comparable quarter. Research revenue includes revenue generated from our licensing agreement for Abraxane in Japan with Taiho Pharmaceutical Co., Ltd.

Gross Profit

Gross profit for the three months ended September 30, 2007 was $144.4 million, or 59.9% of total revenue, as compared to $117.7 million, or 58.0% of total revenue in the same quarter of 2006. The three-month periods ended September 30, 2007 and 2006 each included the recognition of $9.1 million of revenue previously deferred under the AstraZeneca co-promotion agreement, and a $4.1 million charge relating to the amortization of intangible product rights associated with the AstraZeneca product acquisition. Additionally, the three month period ending September 30, 2006 included $4.7 million of one-time charges related to the write-up of finished goods in the merger. Excluding the deferred revenue recognized as part of the co-promotion agreement, and non-cash items associated with the product acquisition, gross margin as a percentage of total revenue for the quarter ended September 30, 2007 was 60.5%. Excluding the non-cash items related to the merger and the AstraZeneca agreement, gross profit as a percentage of revenue was 59.9% for the three month period ending September 30, 2006. The increase over the same quarter of 2006 due primarily to product mix as Abraxane^® represented a greater percentage of sales during the current quarter as compared to the prior year third quarter. Abraxane^® sales, net of deferred revenue, represented 33.3% of consolidated net sales during the three months ended September 30, 2007 as compared to 22.3% for the third quarter of 2006. The favorable change in product mix was partially offset by costs associated with an extended line shutdown at our Melrose Park facility as part of our routine maintenance and higher costs associated with our cephalosporin production at our Grand Island facility.

Research and Development

Research and development expense for the three months ended September 30, 2007 increased $18.2 million, or 82.9%, to $40.1 million as compared to $21.9 million in the same quarter in 2006. The increase was due primarily to increased spending on biosimilar development, costs associated with the transfer of products to the Puerto Rico facility and expenses related to our newly acquired manufacturing facility in Phoenix, Arizona.

Selling, General and Administrative

Selling, general and administrative expense for the three months ended September 30, 2007 increased $39.4 million to $95.7 million, or 39.7% of total revenue, from $56.3 million, or 27.7% of total revenue, for the same period in 2006. The increase was due primarily to non-recurring legal expense, increased Abraxane^® costs for commission expense to support the expanded revenue base, the expanded marketing activities relating to Abraxane^®, and costs associated with expected launch of Abraxane^® in the European Union. The increase in selling, general and administrative expense was partially offset by the cost sharing agreement between us and AstraZeneca pursuant to the co-promotion agreement.

Amortization, Merger Costs and Separation Costs

The three months ended September 30, 2007 and 2006 both included $13.5 million of merger related amortization, reflecting the merger between APP and ABI which occurred on April 18, 2006. The three months ended September 30, 2007 included $2.4 million in direct professional fees and transaction related costs relating to the proposed separation of our proprietary business while the three months ended September 30, 2006 included $2.1 million in direct merger and transactions costs relating to the merger between APP and ABI.

Other Income

Drug Source Company, LLC is 50% owned by us and is a selling agent of raw material to the pharmaceutical industry, including us. Our investment in Drug Source Company is intended to both generate a return on our investment and to strengthen our strategic sourcing capabilities over time. Because our 50% ownership interest in Drug Source Company does not provide financial or operational control of Drug Source Company, we account for our interest in Drug Source Company under the equity method. Our equity income in Drug Source Company for the three and nine months ended September 30, 2007 was $0.6 million compared to $1.2 million for the comparable period of 2006. Ending inventory included raw material purchased from Drug Source Company of $7.0 million at September 30, 2007 and $4.0 million at December 31, 2006.

Other Non-Operating Items

Interest income and other consists primarily of interest earned on invested cash the impact of foreign currency charges on intercompany trading accounts and other financing costs. Interest income was $1.0 million for both the three months ended September 30, 2007 and September 30, 2006.

Interest expense decreased to $3.9 million for the three months ended September 30, 2007 as compared to $4.7 million for the three months ended September 30, 2006. The decrease in interest expense was primarily the result of lower average debt levels and reduced interest expense related to the AstraZeneca note payable which was paid-off in the third quarter 2007.

Provision for Income Taxes

Our effective tax rate for the three month period ended September 30, 2007 was 12.0%. Our tax rate was favorably impacted by a $1.1 million net reduction of reserves relating to FIN 48 due to closure of IRS examinations for the 2004 and 2005 tax years. Excluding the impact of the FIN 48 adjustment, our effective tax rate for the three months ended September 30, 2007 would have been 18.8%.

Net Income (loss)

Net loss for the three months ended September 30, 2007 was $8.4 million as compared to net income of $13.6 million for the same period in 2006. Results were impacted by strong sales of Abraxane^®, offset by increased research and development costs and selling, general and administrative expense, as well as our co-promotion with AstraZeneca.

RESULTS OF OPERATIONS

Nine Months Ended September 30, 2007 and September 30, 2006

The following table sets forth the results of our operations for each of the nine months ended September 30, 2007 and 2006, and forms the basis for the following discussion of our operating activities:


	Nine Months Ended September 30,						Change Favorable (Unfavorable)
	2007			2006			$			%
Hospital-based products
Critical care	$	266,935		$	179,626		$	87,309		48.6	%
Anti-infective		133,561			157,290			(23,729	)	-15.1	%
Oncology		39,927			40,932			(1,005	)	-2.5	%
Contract manufacturing		13,716			6,424			7,292		113.5	%

Total hospital-based revenue		454,139			384,272			69,867		18.2	%
Abraxane^®		235,919			118,763			117,156		98.6	%
Research revenue		5,617			5,376			241		4.5	%

Total revenue		695,675			508,411			187,264		36.8	%
Cost of sales		264,368			211,170			(53,198	)	-25.2	%

Gross profit		431,307			297,241			134,066		45.1	%

Percent to total revenue		*62.0*	%		*58.5*	%
Operating expenses:
Research and development		97,641			68,499			(29,142	)	-42.5	%
Selling, general and administrative		237,047			130,544			(106,503	)	-81.6	%
Amortization of merger related intangible assets		40,527			24,766			(15,761	)	-63.6	%
Merger-related in-process research and development charge		—			105,777			105,777		100.0	%
Other merger related costs		—			26,375			26,375		100.0	%
Separation related costs		7,760			—			(7,760	)	—
Equity income in Drug Source Company		(2,300	)		(2,025	)		275		-13.6	%

Total operating expenses		380,675			353,936			(26,739	)	-7.6	%

Percent to total revenue		*54.7*	%		*69.6*	%
Income (loss) from operations		50,632			(56,695	)		107,327		-189.3	%
Percent to total revenue		*7.3*	%		*-11.2*	%				0.0	%
Interest income and other		2,373			3,387			(1,014	)	-29.9	%
Interest expense		(12,854	)		(9,741	)		(3,113	)	32.0	%
Minority interests		—			(11,383	)		11,383		-100.0	%

Income (loss) before income taxes		40,151			(74,432	)		114,583		-153.9	%
Provision (benefit) for income tax		14,314			914			(13,400	)	1466.1	%

Net income (loss)	$	25,837		$	(75,346	)	$	101,183		-134.3	%

Net income (loss) per share:
Basic	$	0.16		$	(0.47	)

Diluted	$	0.16		$	(0.47	)

Weighted average common shares outstanding:
Basic		159,495			158,755

Diluted		160,659			158,755

Total Revenue

Total revenue for the nine months ended September 30, 2007 increased $187.3 million, or 36.8%, to $695.7 million as compared to the same period of 2006.

Abraxane^{^®}revenue for the nine months ended September 30, 2007 increased $117.1 million to $235.9 million as compared to $118.8 million in the same period of 2006. The increase was primarily due to increased market penetration and the inclusion of $27.3 million and $9.1 million of previously deferred revenue recognized in 2007 and 2006, respectively, relating to the co-promotion agreement with AstraZeneca in June 2006. Excluding the recognition of previously deferred revenue, total Abraxane^{^®}revenue increased to $208.6 million for the nine months ended September 30, 2007, or 90.2%, from $109.7 million in the previous year’s period.

Total revenue of our core hospital-based products, which excludes Abraxane^®, for the nine-month period ended September 30, 2007 increased $69.9 million, or 18.2%, to $454.1 million, versus $384.3 million for the same period of 2006. This increase was due primarily to sales relating to the products we acquired from AstraZeneca on June 28, 2006. The 18.2% increase in total revenue from our core hospital-based products, which excludes Abraxane, for the nine months ended September 30, 2007 over the prior year period was comprised of a 19% overall unit volume increase partially reduced by a 1% overall decrease in unit prices. Sales of critical care products for the nine months ended September 30, 2007 increased $87.3 million, or 48.6%, to $266.9 million as compared to the prior year comparable period due primarily to $123.8 million of net sales relating to the products we acquired from AstraZeneca on June 28, 2006. Net sales of anti-infective products for the nine months ended September 30, 2007 decreased $23.7 million, or 15.1%, to $133.6 million due mainly to our cephalosporin products, which were on backorder during portions of the period due to the voluntary precautionary distribution hold we placed on product manufactured with certain materials. The required testing has been completed, all internal issues have been satisfactorily resolved and we resumed distribution of these products in August 2007. Net sales of oncology products, excluding Abraxane^®, for the nine months ended September 30, 2007 decreased $1.0 million, or 2.5%, to $39.9 million due to continued decreased demand for pamidronate as a result new competition in the market and market price pressure on several higher volume products.

Gross Profit

Gross profit for the nine months ended September 30, 2007 was $431.3 million, or 62.0% of total revenue, inclusive of the recognition of $27.3 million of revenue previously deferred under the AstraZeneca co-promotion agreement, and a $12.3 million charge relating to the amortization of intangible product rights associated with the AstraZeneca product purchase, as compared to $297.2 million, or 58.5% of total revenue, in the same period of 2006, inclusive of the recognition of $9.1 million of revenue previously deferred under the AstraZeneca co-promotion agreement, a $12.5 million charge related to the one-time write-up of finished goods associated with the merger, and a $4.1 million charge relating to the amortization of AstraZeneca intangible product rights. Excluding the deferred revenue recognized as part of the co-promotion agreement, and non-cash items associated with the AstraZeneca product acquisition, gross margin as a percentage of total revenue was 62.3% for the nine months ended September 30, 2007. Excluding the non-cash items related to the merger and the AstraZeneca agreement, gross profit as a percentage of revenue was 61.0% for the nine month period ending September 30, 2006. The increase over the same period of 2006 due primarily to product mix as Abraxane^® represented a greater percentage of sales during the current period as compared to the prior year period. Abraxane^® sales, net of deferred revenue, represented 31.2% of consolidated net sales during the first nine months of 2007 as compared to 22% for the comparable period of 2006.

Research and Development

Research and development expense for the nine months ended September 30, 2007 increased $29.1 million, or 42.5%, to $97.6 million as compared to $68.5 million in the same period in 2006. The increase was due primarily to expense associated with the transfer of products to our Puerto Rico facility, increased spending on biosimilar development, increased stock compensation associated with the RSU I and II plans and Abraxane^{^®}scale-up toward EU-compliant production in our Grand Island facility. These costs were partially offset by lower research spending related to our Abraxis Research division due to the timing of clinical trial activity.

Selling, General and Administrative

Selling, general and administrative expense for the nine months ended September 30, 2007 increased $106.5 million to $237.0 million, or 34.1% of total revenue, from $130.5 million, or 25.7% of total revenue, for the same period in 2006. The increase was due primarily to non-recurring legal expense, additional Abraxane^{^®}costs for commission expense relating to the co-promotion agreement with AstraZeneca, which went into effect on June 28, 2006, and the expanded marketing activities relating to Abraxane^{^®,}cost associated with expected launch of Abraxane^® in the European Union. The increase in selling, general and administrative expense was partially offset by the cost sharing agreement between us and AstraZeneca pursuant to the co-promotion agreement.

Amortization and Merger Costs

The nine months ended September 30, 2007 included $40.5 million of merger related amortization compared to approximately $24.8 million for the nine months ended September 30, 2006 reflecting the merger between APP and ABI on April 18, 2006. The nine months ended September 30, 2007 included $7.8 million in direct professional fees and transaction related costs relating to the proposed separation of our proprietary business while the nine months ended September 30, 2006 included $26.4 million in direct merger and transactions costs relating to the merger between APP and ABI. In addition, the nine months ended September 30, 2006 included a $105.8 million charge relating to the step up of in process research and development associated with the merger between APP and ABI.

Other Income

Drug Source Company, LLC is 50% owned by us and is a selling agent of raw material to the pharmaceutical industry, including us. Our investment in Drug Source Company is intended to both generate a return on our investment and to strengthen our strategic sourcing capabilities over time. Because our 50% ownership interest in Drug Source Company does not provide financial or operational control of Drug Source Company, we account for our interest in Drug Source Company under the equity method. Our equity income in Drug Source for the nine months ended September 30, 2007 and 2006 was $2.3 million, and $2.0 million, respectively. Ending inventory included raw material purchased from Drug Source Company of $7.0 million at September 30, 2007 and $4.0 million at December 31, 2006.

Other Non-Operating Items

Interest income and other consists primarily of interest earned on invested cash the impact of foreign currency charges on intercompany trading accounts and other financing costs. Interest income and other decreased to $2.4 million for the nine months ended September 30, 2007 from $3.4 million for the comparable period in 2006.

Interest expense increased to $12.9 million for the nine months ended September 30, 2007 as compared to $9.7 million for the nine months ended September 30, 2006. The increase in interest expense was primarily the result of higher average debt levels and interest expense related to the note payable due to AstraZeneca in June 2007.

Minority interest charges represent the net earnings attributable to minority shareholders prior to the closing of the merger between APP and ABI. Subsequent to the merger, no minority interests charges have been recorded. The nine-month period ended September 30, 2006 included a $11.4 million charge relating to minority interests.

Provision for Income Taxes

Our effective tax rate for the nine months ended September 30, 2007 was 35.7%. Our tax rate during this period was favorably impacted by a $1.1 million reduction of reserves relating to FIN 48 due to the closure of IRS examinations for the 2004 tax year. Excluding the impact of the FIN 48 adjustment, our effective rate would have been 38.3%. Prior to our merger with ABI, ABI and APP had filed separate, stand-alone federal income tax returns. As a result, ABI did not expect to realize the benefit of $17.9 million of net operating loss carry forwards. These net operating loss carry forwards are now available and were recognized in the second quarter of 2006 in connection with the closing of the merger. Excluding this $17.9 million benefit, the impact of minority interests and other merger related tax adjustments, our effective rate would have been 34% for the nine months ended September 30, 2006.

Segment Information

Pre-tax segment operating income does not include general and administrative expense, merger related costs and amortization, interest income, interest expense and other income, minority interests and income tax expense. Additionally, pre-tax segment operating income does not include amortization of intangible product rights associated with the AstraZeneca product purchase, stock compensation and merger costs, which are not allocated to cost of sales and research and development for the segments.

The following table sets forth the results of our pre-tax segment operations for the three and nine months ended September 30, 2007 and 2006, and forms the basis for the following discussion:


	Three Months Ended September 30,						Change favorable (unfavorable)
	2007			2006			$			%
	(unaudited, in thousands)
APP Segment
Total revenue	$	153,179		$	149,768		$	3,411		2.3	%
Cost of sales		80,295			67,886			(12,409	)	-18.3	%

Gross profit		72,884			81,882			(8,998	)	-11.0	%
Percent to total revenue		47.6	%		54.7	%
Operating expenses:
Research and development		10,630			7,934			(2,696	)	-34.0	%
Selling and marketing		4,334			3,482			(852	)	-24.5	%

Total operating expenses		14,964			11,416			(3,548	)	-31.1	%

Pre-tax segment operating income	$	57,920		$	70,466		$	(12,546	)	-17.8	%


ABI Segment
Total revenue	$	87,791		$	53,376		$	34,415		64.5	%
Cost of sales		11,468			7,751			(3,717	)	-48.0	%

Gross profit		76,323			45,625			30,698		67.3	%
Percent to total revenue		86.9	%		85.5	%
Operating expenses:
Research and development		27,093			12,263			(14,830	)	-120.9	%
Selling and marketing		35,657			29,956			(5,701	)	-19.0	%
Equity income in Drug Source Company		(629	)		(1,242	)		(613	)	49.4	%

Total operating expenses		62,121			40,977			(21,144	)	-51.6	%

Pre-tax segment operating income	$	14,202		$	4,648		$	9,554		205.6	%

APP Segment

The pre-tax operating income of the APP segment decreased $12.5 million, or 17.8%, to $57.9 million in the three months ended September 30, 2007 as compared to pre-tax operating income of $70.5 million in the comparable 2006 period. The decrease was primarily due to a $12.4 million increase in cost of sales primarily as a result of an extended line shutdown at our Melrose Park facility as part of our routine maintenance in the third quarter of 2007, higher costs associated with our cephalosporin production at our Grand Island facility, increased fuel costs, higher distribution costs related to expedited shipments to our customers, and increased utilization of climate controlled shipping relating to certain products, and product mix. These higher costs impacted our gross margin as a percentage of total revenue for the three months ended September 30, 2007, which was 47.6%, a decrease from the prior year’s period of 54.7%. Revenue for the three months ended September 30, 2007 as compared to the prior year period showed a modest increase to $153.2 million, or 2.3% greater than the prior year’s period of $149.8 million. Our increased research and development spending is a result of the transfer of products to our Puerto Rico facility. Commercial operations at the Puerto Rico facility began in the fourth quarter of 2007 following an FDA inspection. Selling and marketing expenses for the three months ended September 30, 2007 increased by $0.9 million supporting the increased revenue base. As a percentage of total revenue, selling and marketing expenses for the three months ended September 30, 2007 and 2006 were 2.8% and 2.3%, respectively.

ABI Segment

The pre-tax operating income of the ABI segment increased $9.6 million to $14.2 million for the three months ended September 30, 2007 as compared to pre-tax operating income of $4.6 million in the comparable 2006 period. Revenue increased $34.4 million, or 64.5%, to $87.8 million for the three months ended September 30, 2007 as compared to $53.4 million in the prior year period primarily due to increased market penetration. Both the three months ended September 30, 2007 and 2006 included the impact of the $9.1 million of deferred revenue recognized relating to the co-promotion agreement with AstraZeneca.

Research and development expense increased by $14.8 million, or 120.9%, for the three months ended September 30, 2007 to $27.1 million as compared to $12.3 million in the comparable 2006 period. The increase was primarily due to increased biosimilar development activities and costs associated with the start-up of our Phoenix, Arizona manufacturing facility.

Selling and marketing expense increased by $5.7 million for the three months ended September 30, 2007 to $35.7 million as compared to $30.0 million in prior year comparable period. The increase was due primarily to commission expense supporting the increased revenue base and the expanded marketing activities relating to Abraxane^® and cost associated with expected launch of Abraxane^® in the European Union. The increase in selling and marketing expense was partially offset by the cost sharing arrangement in our co-promotion agreement with AstraZeneca.

The following table sets forth the results of our pre-tax segment operations for the nine months ended September 30, 2007 and 2006, and forms the basis for the following discussion:


	Nine Months Ended September 30,						Change favorable (unfavorable)
	2007			2006			$			%
	(unaudited, in thousands)
APP Segment
Total revenue	$	452,773		$	383,495		$	69,278		18.1	%
Cost of sales		224,674			173,998			(50,676	)	-29.1	%

Gross profit		228,099			209,497			18,602		8.9	%
Percent to total revenue		50.4	%		54.6	%
Operating expenses:
Research and development		33,705			17,853			(15,852	)	-88.8	%
Selling and marketing		12,106			10,597			(1,509	)	-14.2	%

Total operating expenses		45,811			28,450			(17,361	)	-61.0	%

Pre-tax segment operating income	$	182,288		$	181,047		$	1,241		0.7	%

ABI Segment
Total revenue	$	242,902		$	124,916		$	117,986		94.5	%
Cost of sales		25,098			18,082			(7,016	)	-38.8	%

Gross profit		217,804			106,834			110,970		103.9	%
Percent to total revenue		89.7	%		85.5	%
Operating expenses:
Research and development		55,698			47,317			(8,381	)	-17.7	%
Selling and marketing		103,757			58,491			(45,266	)	-77.4	%
Equity income in Drug Source Company		(2,300	)		(2,025	)		275		13.6	%

Total operating expenses		157,155			103,783			(53,372	)	-51.4	%

Pre-tax segment operating income	$	60,649		$	3,051		$	57,598		1,887.8	%

APP Segment

The pre-tax operating income of the APP segment increased $1.2 million to $182.3 million for the nine months ended September 30, 2007 as compared to pre-tax operating income of $181.1 million for the comparable 2006 period. Total revenue for the nine months ended September 30, 2007 increased 18.1% to $452.8 million, versus $383.5 for the prior year period. Gross margin as a percentage of total revenue decreased to 50.4% for the nine months ended September 30, 2007, as compared to 54.6% in the prior year comparable period due to an extended line shutdown of our Melrose Park facility

as part of routine maintenance in the third quarter of 2007, higher costs associated with our Cephalosporin Production at our Grand Island facility, increased fuel costs, higher distribution costs related to expedited shipments to our customers, and increased utilization of climate controlled shipping relating to certain products, and product mix. Margins were also impacted by lower volume and higher plant costs associated with the voluntary precautionary distribution hold we placed on our cephalosporin products manufactured with certain materials while addition testing was completed and product mix. The required testing of these products has completed, all internal issues have been satisfactorily resolved, and we resumed distribution of these products in August 2007. The increase in revenue and gross margin dollars were partially offset by higher research and development spending related to the transfer of products to our Puerto Rico facility. Commercial operations began at this facility in the fourth quarter of 2007 following completion of an FDA inspection. Selling and marketing expenses for the nine months ended September 30, 2007 increased $1.5 million supporting the increased revenue base. As a percentage of total revenue, selling and marketing expenses for the nine months ended September 30, 2007 and 2006 were 2.7% and 2.8%, respectively.

ABI Segment

The pre-tax operating income of the ABI segment increased $57.6 million to $60.6 million for the nine months ended September 30, 2007 as compared to $3.1 million in the comparable 2006 period. Revenue increased $118.0 million, or 94.5%, to $242.9 million for the nine months ended September 30, 2007 as compared to $124.9 million in the prior year period primarily due to increased market penetration and the inclusion of $27.3 million of previously deferred revenue recognized in the nine months ended September 30, 2007 compared to $9.1 million of previously deferred revenue recognized in the prior year period relating to the co-promotion agreement with AstraZeneca.

Research and development expense increased by 8.4 million, or 17.7%, for the nine months ended September 30, 2007 to $55.7 million as compared to $47.3 million for the comparable 2006 period. The increase was primarily due to increased spending in biosimilar development and costs associated with the start-up of our Phoenix, Arizona manufacturing facility, partially offset by decreased clinical trial spending as a result of the timing of Phase III clinical trials.

Selling and marketing expense for the nine months ended September 30, 2007 increased by $45.3 million to $103.8 million as compared to $58.5 million in prior year comparable period. The increase was due primarily to additional Abraxane^® costs for commission expense relating to the co-promotion agreement with AstraZeneca, which went into effect on June 28, 2006, and the expanded marketing activities relating to Abraxane^® and cost associated with expected launch of Abraxane^® in the European Union. The increase in selling and marketing expense was partially offset by the cost sharing arrangement in our co-promotion agreement with AstraZeneca.

LIQUIDITY AND CAPITAL RESOURCES

Overview

The following table summarizes key elements of our financial position and sources and (uses) of cash and cash equivalents for the nine months ended September 30, 2007 and 2006:


	September 30, 2007			December 31, 2006
	(unaudited, in thousands)
Summary Financial Position:
Cash, cash equivalents and short-term investments	$	34,020		$	39,297

Working capital	$	263,181		$	65,556

Total assets	$	1,864,748		$	1,773,721

Total stockholders’ equity	$	1,107,568		$	1,033,361


	Nine Months Ended September 30,
	2007			2006
	(unaudited, in thousands)
Summary of Sources and (Uses) of Cash and Cash Equivalents:
Operating activities	$	10,282		$	294,519

Purchase of property, plant and equipment	$	(76,290	)	$	(87,101	)

Purchase of other non-current assets	$	(1,505	)	$	(331,029	)

Sale of short-term investments	$	—		$	54,306

Financing activities	$	59,924		$	69,888

Sources and Uses of Cash

Operating Activities

Net cash provided by operating activities was $10.3 million for the nine months ended September 30, 2007 as compared to cash provided by operations of $294.5 million for the same period in 2006. This $284.2 million decrease in cash provided by operating activities for the 2007 period was due primarily to the fact that the 2006 period included the receipt of $200.0 million associated with the Abraxane co-promotion agreement with AstraZeneca and the payment of 2006 federal income taxes in the first quarter of 2007. The impact of the tax payment on operating cash flows was partially offset by strong operating results after eliminating non-cash expenses associated with depreciation, amortization of intangibles associated with prior merger with ABI, our product rights purchase from AstraZeneca and stock compensation.

Investing Activities

Our investing activities have included capital expenditures necessary to expand and maintain our manufacturing capabilities and infrastructure and outlays necessary to acquire various product or intellectual property rights. Cash used in investing activities during the nine months ended September 30, 2007 included approximately $32.5 million relating to the acquisition of our manufacturing facility in Puerto Rico as well as approximately $45.2 million relating to the purchase of property, plant and equipment primarily as investment in our core manufacturing and development capabilities. Cash used in investing activities for the nine months ended September 30, 2006 primarily related to the purchase of product rights from AstraZeneca, partially offset by $54.3 million of sales of short term municipal variable rate demand notes. Investing activities in 2006 also included $87.1 million relating to the purchase of property, plant and equipment primarily as investment in our core manufacturing and development capabilities as well as the purchase of our aircraft.

Financing Activities

Financing activities generally include borrowings under our credit facility, the issuance or repurchase of our common stock and proceeds from the exercise of employee stock options. Net cash provided by financing activities was $59.9 million for the nine months ended September 30, 2007, which included net borrowings on our line of credit of $120.0 million and a $66.7 million repayment of the note payable to AstraZeneca.

Net cash provided by financing activities totaled $69.9 million for the nine months ended September 30, 2006, consisting of $70.9 million relating to the issuance of a note payable to AstraZeneca as part of the product purchase and $11.6 million in proceeds relating to stock transactions. These cash inflows were partially offset by a $9.5 million of net cash payments on credit facilities.

Sources of Financing and Capital Requirements

We have historically funded our research and development activities through product license fees, including milestones, and borrowings, whereas our primary source of liquidity has been cash flow from operations.

We have a three-year, $450 million, unsecured credit facility, with a sub-limit of $10 million letters of credit and $20 million for swing line loans. Interest rates under the facility are based on the type of loan made and the leverage ratio as defined in the credit agreement. The agreement contains various restrictive covenants pertaining to the maintenance of minimum net worth, leverage and interest coverage ratios. In addition, the agreement restricts our ability to declare or pay dividends, make advances or loans to third parties and incur any additional indebtedness.

As of September 30, 2007, $285 million was outstanding on our credit facility with a weighted average interest rate of 6.12%. As we are not obligated to repay our outstanding balances prior to termination of the facility in 2009, borrowings are classified as non-current on the balance sheet. Outstanding letters of credit, which reduce overall available borrowings, were $2.6 million at September 30, 2007. We were in compliance with all covenants at September 30, 2007.

As discussed in “Separation” above, we have received commitments for $1.15 billion of senior credit facilities comprised of a funded $1.0 billion term loan and an unfunded $150 million revolving credit facility. A portion of the proceeds raised through the debt financing will be used to repay in full our existing indebtedness and approximately $715 million will be contributed to New Abraxis immediately prior to the separation.

Capital Requirements

Our future capital requirements will depend on numerous factors, including:

•

expansion of sales to new international territories;

•

working capital requirements and production, sales, marketing and development costs required to support Abraxane^{^®}, our proprietary anesthetic/analgesic products and our hospital-based products;

•

R&D, including clinical trials, spending to develop further product candidates and ongoing studies;

•

the need for manufacturing expansion and improvement;

•

the transfer of products to our Puerto Rico manufacturing facility;

•

the requirements of the planned separation of our company into two independent publicly-traded companies;

•

the requirements of any potential future acquisitions, asset purchases or equity investments; and

•

the amount of cash generated by operations, including potential milestone and license revenue.

We anticipate that cash and short-term investments, cash generated from operations and funds available under our credit facility will be sufficient to finance operations of our company, including ongoing activity relating to Abraxane^®, product development and capital expenditures for at least the next twelve months. In the event we engage in future acquisitions or capital projects, we may have to raise additional capital through additional borrowings or the issuance of debt or equity securities.

Following the proposed separation, we (as New APP) will be responsible for servicing the debt of up to $1.15 billion contemplated to be raised in connection with the separation. We expect to pay the principal and interest on the outstanding debt with funds generated by our operations. Our ability to meet our debt service obligations will depend on our future performance, which will be affected by financial, business, economic and other factors, including potential changes in customer preferences, the success of product and marketing innovations and pressure from competitors. If we do not have enough money to pay our debt service obligations, we may be required to refinance all or part of our existing debt, sell assets or borrow more money. We may not be able to, at any given time, refinance this debt, sell assets or borrow more money on terms acceptable to us or at all, the failure to do any of which could have adverse consequences for our business, financial condition and results of operations.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The most significant estimates in our unaudited condensed consolidated financial statements are discussed below. Actual results could vary from those estimates.

Revenue Recognition

Research Revenue Recognition

Research revenue generally consists of amounts earned from the development and research to advance the commercial application of pharmaceutical compounds for third parties. Such research revenue may include upfront license fees, milestone payments and reimbursement of development and other costs, and royalties. Non-refundable upfront license fees under which we have continuing involvement in the form of development, manufacturing or commercialization are recognized as revenue ratably over either the development period, if the development risk is significant, or the estimated product useful life, if development risk has been substantially eliminated. Achievement based milestone payments are recognized as revenue when the milestone objective is attained because the earnings process relating to such payment is complete upon attainment and because the payments are non-refundable and are not dependent upon future activities or the achievement of future objectives. These milestone payments are at risk and require substantive activity to achieve. Reimbursement of development and other costs are recognized as revenue as the related costs are incurred. Royalties are recognized as earned in accordance with the contract terms when royalties from licensees can be reliably measured and collectibility is reasonably assured. Royalty estimates are made in advance of amounts collected using historical and forecasted trends.

Product Revenue Recognition

We recognize revenue from the sale of a product when title and risk of loss have transferred to the customer, collection is reasonably assured and we have no further performance obligation. This is typically when the product is received by the customer. At the time of sale, as further described below, we reduce sales and provide for estimated chargebacks, contractual allowances or customer rebates, product returns and customer credits and cash discounts. Our

methodology used to estimate and provide for these sales provisions was consistent across all periods presented. Accruals for sales provisions are presented in our financial statements as a reduction of net revenue and accounts receivable and, for contractual allowances, an increase in accrued liabilities. We regularly review information related to these estimates and adjust our reserves accordingly if, and when, actual experience differs from estimates.

We have internal historical information on chargebacks, rebates and customer returns and credits which we use as the primary factor in determining the related reserve requirements. As further described below, due to the nature of our injectable products and their primary use in hospital and clinical settings with generally consistent demand, we believe that this internal historical data, in conjunction with periodic review of available third-party data and updated for any applicable changes in available information provides a reliable basis for such estimates.

We periodically review the wholesale supply levels of our more significant products by reviewing inventory reports purchased or available from wholesalers, evaluating our unit sales volume, and incorporating data from third-party market research firms. Based on these activities, we attempt to keep a consistent wholesale stocking level of approximately two- to six-weeks across our hospital-based products. The buying patterns of our customers do vary from time to time, both from customer to customer and product to product, but we believe that historic wholesale stocking or speculative buying activity in our hospital-based distribution channels has not had a significant impact on our historic sales comparisons or sales provisions.

Other Deferred Revenue

Other revenue consists of revenue recognized related to upfront payments earned from our co-promotion agreement with AstraZeneca and our agreement with Taiho Pharmaceutical Co., LTD. Such revenue is initially deferred and is recognized as earned ratably over the life of each agreement. For the nine months ended September 30, 2007 and 2006, the amortization of the upfront payment of product rights purchased from AstraZeneca totaled $27.3 million and $9.1 million, respectively.

Sales Provisions

Our sales provisions totaled $788.4 million and $538.5 million for the nine months ended September 30, 2007 and 2006, respectively, and related reserves totaled $96.2 million and $112.5 million at September 30, 2007 and December 31, 2006, respectively. The increase in reserves relates primarily to chargeback reserves associated with the sales of products purchased from AstraZeneca as well as the timing of the related chargeback payments.

Chargebacks

Following industry practice, we typically sell our products to independent pharmaceutical wholesalers at wholesale list price. The wholesaler in turn sells our products to an end user, normally a hospital or alternative healthcare facility, at a lower contractual price previously established between us and the end user via a group purchasing organization, or GPO. GPOs enter into collective purchasing contracts with pharmaceutical suppliers to secure more favorable product pricing on behalf of their end-user members.

Our initial sale to the wholesaler, and the resulting receivable, are recorded at our wholesale list price. However, as most of these selling prices will be reduced to a lower end-user contract price, at the time of sale revenue is reduced by, and a provision recorded for, the difference between the list price and estimated end-user contract price multiplied by the estimated wholesale units outstanding pending chargeback that will ultimately be sold under end-user contracts. When the wholesaler ultimately sells the product to the end user at the end-user contract price, the wholesaler charges us, a chargeback, for the difference between the list price and the end-user contract price and such chargeback is offset against our initial estimated contra asset. The most significant estimates inherent in the initial chargeback provision relate to wholesale units pending chargeback and the ultimate end-user contract-selling price. We base our estimation for these factors primarily on internal, product-specific sales and chargeback processing experience, estimated wholesaler inventory stocking levels, current contract pricing, IMS data and our expectation for future contract pricing changes.

Our net chargeback reserve totaled $61.6 million and $81.4 million at September 30, 2007 and December 31, 2006, respectively. The $19.8 million decline in the reserve primarily relates to the change in estimated levels of inventory in the channel between periods. The methodology used to estimate and provide for chargebacks was improved in the period ended September 30, 2006, to incorporate IMS reported sell through information related to channel activity for our proprietary products. Due to information constraints in the distribution channel, it has not been practical, and has not been necessary, for us to capture and quantify the impact of current versus prior year activity on the chargeback provision. Information constraints within the distribution channel primarily relate to our inability to track product through the channel on a unit or specific lot basis. In addition, for the most part, we do not receive information from our customers with respect to what level of their sales are subject to chargeback. The lack of information on a specific lot basis precludes us from tracking actual chargeback activity to the period of our initial sale. As a result, we rely on internal data, external IMS data and management estimates in order

to estimate the amount of customer inventory in the distribution channel subject to future chargeback. The amount of customer inventory in the distribution channel is comprised of physical inventory at the wholesaler and that the wholesaler has yet to report as end user sales. We estimate yet to be reported end user sales based on a historical average number of days to process chargeback activities from the date of the end user sale. We also review current year chargeback activity to determine whether material changes in the provision relate to prior period sales; such changes have not been material to our statements of operations. A one percent decrease in our estimated end-user contract-selling prices would reduce total revenue in the nine months ended September 30, 2007 by $0.4 million and a one percent increase in wholesale units pending chargeback at September 30, 2007 would decrease total revenue in the nine months ended September 30, 2007 by $0.4 million.

Contractual Allowances, Returns and Credits, Cash discounts and Bad Debts

Contractual allowances, generally rebates or administrative fees, are offered to certain wholesale customers, GPOs and end-user customers, consistent with pharmaceutical industry practices. Settlement of rebates and fees may generally occur from one to 15 months from date of sale. We provide a general provision for contractual allowances at the time of sale based on the historical relationship between sales and such allowances. Upon receipt of chargeback, due to the availability of product and customer specific information on these programs, we then establish a specific provision for fees or rebates based on the specific terms of each agreement. Our reserve for contractual allowances totaled $18.8 million at September 30, 2007 and $16.2 million at December 31, 2006. A one percent increase in the estimated rate of contractual allowances to total revenue at September 30, 2007 would decrease net sales by $0.8 million at that point in time. Contractual allowances are reflected in the financial statements as a reduction of total revenue and as a current accrued liability.

Consistent with industry practice, our return policy permits our customers to return products within a window of time before and after the expiration of product dating. We provide for product returns and other customer credits at the time of sale by applying historical experience factors generally based on our historic data on credits issued by credit category or product, relative to related sales and we provide specifically for known outstanding returns and credits. Our reserve for customer credits and product returns totaled $10.7 million and $9.5 million at September 30, 2007 and December 31, 2006, respectively. At September 30, 2007, a one percent increase in the estimated reserve requirements for customer credits and product returns would have decreased total revenue for the nine months ended September 30, 2007 by $1.6 million.

We generally offer our customers a standard cash discount on our hospital-based products for prompt payments and, from time-to-time, may offer a greater discount and extended terms in support of product launches or other promotional programs. A provision for cash discounts is established at the time of sale based on the terms of sale.

We establish a reserve for bad debts based on general and identified customer credit exposure. Our historic bad debt losses have been insignificant.

Inventories

Inventories consist of products currently approved for marketing and may include certain products pending regulatory approval. From time to time, we capitalize inventory costs associated with products prior to regulatory approval based on our judgment of probable future commercial success and realizable value. Such judgment incorporates our knowledge and best judgment of where the product is in the regulatory review process, our required investment in the product, market conditions, competing products and our economic expectations for the product post-approval relative to the risk of manufacturing the product prior to approval. If final regulatory approval for such products is denied or delayed, we may need to provide for and expense such inventory.

At September 30, 2007 and December 31, 2006, inventory included $7.9 and $25.7 million respectively in cost relating to products pending FDA or European approval at our Grand Island and Melrose Park facilities. Included in the amount pending approval at September 30, 2007 was $7.5 million of hospital-based products pending FDA approval and $0.4 million in Abraxane^® related products. Included in the amount pending approval at December 31, 2006 were $17.7 million of paclitaxel (whole plant), and $2.6 million in other Abraxane^® related products at our Grand Island facility. Paclitaxel (whole plant) was approved for use in our Melrose Park facility as of December 21, 2006. Our Grand Island facility received FDA approval for paclitaxel (whole plant) in September 2007.

We routinely review our inventory and establish reserves when the cost of the inventory is not expected to be recovered or our product cost exceeds realizable market value. In instances where inventory is at or approaching expiry, is not expected to be saleable based on our quality and control standards or for which the selling price has fallen below cost, we reserve for any inventory impairment based on the specific facts and circumstances. In evaluating the market value of inventory pending regulatory approval as compared to its cost, we consider the market, pricing and demand for competing products, our anticipated selling price for the product and the position of the product in the regulatory review process. Provisions for inventory reserves are reflected in the financial statements as an element of cost of sales with inventories presented net of related reserves.

Expense Recognition

Cost of sales represents the costs of the products which we have sold and consists of labor, raw materials, components, packaging, quality assurance and quality control, shipping and manufacturing overhead costs and the cost of finished products purchased from third parties. In addition, for the nine months ended September 30, 2007 and 2006, cost of sales included amortization of product rights purchased from AstraZeneca of $12.3 million and $4.1 million, respectively. The period ended September 30, 2006 also included a $12.5 million charge related to the one-time write-up of finished goods associated with the merger.

Research and development costs are expensed as incurred or consumed and consist primarily of salaries and other personnel-related expenses, as well as depreciation of equipment, allocable facility, raw material and production expenses and contract and consulting fees. Research and development costs also include costs associated with our Puerto activities prior to commercial production.

Selling, general and administrative expenses consist primarily of salaries, commissions and other personnel-related expenses, as well as costs for travel, trade shows and conventions, promotional material and catalogs, advertising and promotion, co-promotion commissions to AstraZeneca, facilities, risk management and professional fees.

Stock-Based Compensation

We account for stock based compensation in accordance with FAS 123R, which requires the recognition of compensation cost for all share-based payments (including employee stock options) at fair value. Effective January 1, 2006, we adopted the provisions of FAS 123R. We use the straight-line attribution method to recognize share-based compensation expenses over the applicable vesting period of the award. Options currently granted generally expire ten years from the grant date and vest ratably over a four year period, while awards under the RSU II plan generally vest with respect to one half of the units granted on the second anniversary of the merger between APP and ABI and with respect to the remaining one half of the units on the fourth anniversary of the merger.

To determine stock-based compensation, we use the Black-Scholes option pricing model to estimate the fair value of options granted under equity incentive plans and rights to acquire stock granted under our stock participation plan. Awards under RSU Plan I and RSU Plan II entitle the holders on each vesting date to convert the vested portion of their awards into that number of shares of our common stock equal to the value of the vested portion of the award divided by the lower of (i) the average closing price of our common stock over the three consecutive trading days ending on and including the second full trading day preceding the vesting date and (ii) $28.27. Accordingly, compensation expense related to the RSU plans is based on the lower of the market price or $28.27 and is expensed under the liability method in accordance with FAS 123(R) on a straight-line basis over the applicable vesting period. Pre-tax stock-based compensation costs for the nine months ended September 30, 2007 and 2006 were $24.3 million, including $13.5 million relating to the RSU Plans, and $24.0 million, including $14.6 million relating to the RSU Plans, respectively.

Income taxes

Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases as well as net operating loss and capital loss carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of deferred tax assets and liabilities of a change in tax rates is recognized in the consolidated financial statements in the period that includes the legislative enactment date.

In 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109” (“FIN 48”),which provides specific guidance on the financial statement recognition, measurement, reporting and disclosure of uncertain tax positions taken or expected to be taken in a tax return. FIN 48 addresses the determination of whether tax benefits, either permanent or temporary, should be recorded in the financial statements. We adopted FIN 48 as of January 1, 2007 and as a result recognized a $0.1 million increase to retained earnings from the cumulative effect of adoption.

As of September 30, 2007, the total amount of gross unrecognized tax benefits, which are reported in other liabilities in our unaudited condensed consolidated balance sheet, was $2.7 million. This entire amount would impact our effective tax rate over time, if recognized. In addition, we accrue interest and any necessary penalties related to unrecognized tax positions in our provision for income taxes.

We or one of our subsidiaries files income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. In the second quarter of 2007, the Internal Revenue Service (IRS) concluded an examination of our U.S. income tax returns for tax years 2004 and 2005. This resulted in our paying approximately $0.5 million of assessed tax resulting from our method of inventory capitalization. This amount was fully reserved. In addition, we recently received a “no adjustment” closing letter from the IRS in regard to an audit for our former previous parent company (American BioScience, Inc.) related to a 2002 net operating loss carry back to consolidated tax years 1997, 1998, 1999, 2000 and 2001.

The Illinois Department of Revenue has commenced an audit of the Combined Unitary Tax Returns for tax years 2003 through 2005. The previous Illinois audit for tax years 2000, 2001, and 2002 resulted in a refund of approximately $1.0 million. In addition, we have received notice of intent to examine income tax returns from California (tax years 2004-2006), Massachusetts (2005-2006) and North Carolina (2003-2006). The California and Massachusetts audits began in the fourth quarter of 2007, and the North Carolina audit is anticipated to begin in the first quarter of 2008. There are no other open federal, state, or foreign government income tax audits at this time.

RECENT ACCOUNTING PRONOUNCEMENTS

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 115.” SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. Unrealized gains and losses on items for which the fair value option has been elected will be recognized in earnings at each subsequent reporting date. SFAS No. 159 is effective for our Company January 1, 2008. We are evaluating the impact that the adoption of SFAS No. 159 will have on our consolidated financial statements.

In September 2006, the FASB issued SFAS No. 157 which redefines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (“GAAP”), and expands disclosures about fair value measurements. SFAS No. 157 applies where other accounting pronouncements require or permit fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. The effects of adoption will be determined by the types of instruments carried at fair value in the Company’s financial statements at the time of adoption as well as the methods utilized to determine their fair values prior to adoption. Based on our current use of fair value measurements, SFAS No. 157 is not expected to have a material effect on our results of operations or financial position.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risks associated with changes in interest rates and foreign currency exchange rates. Interest rate changes affect primarily our investments in marketable securities and our debt obligations. Changes in foreign currency exchange rates can affect our operations outside of the United States.

Foreign Currency Risk: We have operations in Canada, Switzerland and other parts of the world; however, both revenue and expenses of those operations are typically denominated in the currency of the country of operations, providing

a partial hedge. Nonetheless, these foreign subsidiaries are presented in our financial statement in U.S. dollars and can be impacted by foreign currency exchange fluctuations through both (i) translation risk, which is the risk that the financial statements for a particular period or as of a certain date depend on the prevailing exchange rates of the various currencies against the U.S. dollar, and (ii) transaction risk, which is the risk that the currency impact of transactions denominated in currencies other than the subsidiaries functional currency may vary according to currency fluctuations.

With respect to translation risk, even though there may be fluctuations of currencies against the U.S. dollar, which may impact comparisons with prior periods, the translation impact is included in accumulated other comprehensive income, a component of stockholders’ equity, and does not affect the underlying results of operations. Gains and losses related to transactions denominated in a currency other than the functional currency of the countries in which we operate are included in the consolidated statements of operations. As of September 30, 2007, there were no outstanding hedge arrangements.

Investment Risk: The primary objective of our investment activities is to preserve principal while at the same time maximizing the income we receive from our activities without increasing risk. Some of the securities that we invest in may have interest rate risk. This means that a change in prevailing interest rates may cause the fair value of the principal amount of the investment to fluctuate. For example, if we hold a security that was issued with a fixed interest rate at the prevailing rate and the prevailing rate later rises, the fair value of the principal amount of our investment will probably decline.

To minimize this risk, we maintain an investment portfolio of cash equivalents and short-term investments consisting of high credit quality securities, including commercial paper, government and non-government debt securities and money market funds. We do not use derivative financial instruments. The average maturity of the debt securities in which we invest has been less than 90 days and the maximum maturity has been three months.

Interest Rate Risk: We are also exposed to changes in interest rates on our borrowings. We have a $450 million credit facility, which bears interest at a variable rate. As of September 30, 2007, $285 million was outstanding on our credit facility bearing interest at a weighted average interest rate of 6.12%. If our interest rates were to increase 1%, our interest expense for the remainder of 2007 would increase $0.7 million based on our outstanding debt balances at September 30, 2007.

ITEM 4.

CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures, as such term is defined under Exchange Act Rules 13a-15(e) and 15d-15(e), that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and our Chief Financial Officer, to allow timely decisions regarding required disclosures. In designing and evaluating our disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objectives and in reaching a reasonable level of assurance we necessarily are required to apply judgment in evaluating the cost-benefit relationship of possible controls and procedures. Management, with participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation and due to the material weakness in our internal control over financial reporting related to income taxes identified and disclosed in our Annual Report on Form 10-K for the year end December 31, 2006, management has concluded that our disclosure controls and procedures were not effective as of September 30, 2007. To address this control weakness, we performed additional analysis and performed other procedures in order to prepare the unaudited quarterly condensed consolidated financial statements in accordance with generally accepted accounting principles. Accordingly, management believes that the unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial condition, results of operation and cash flows for the periods presented.

In response to the material weakness identified, we have taken steps to strengthen our internal control over financial reporting. In particular, we evaluated and continue to evaluate the roles and functions within the tax department and added permanent personnel resources to support internal control over financial reporting relative to income tax. Management has contracted technical resources to enhance existing policies and procedures and management performed additional control procedures relative to financial reporting of income taxes. Additionally, we plan to provide additional training related to internal control over financial reporting and accounting for income taxes. Management believes the additional personnel, together with the current accounting staff, will improve existing policies and procedures to enable proper control over financial reporting procedures.

Management believes that the above measures, when fully implemented, will address the material weaknesses described in our Annual Report on Form 10-K for the year ended December 31, 2006 in the near and long-term. Management will continue to monitor the effectiveness of our internal controls and procedures on an ongoing basis and will take further action, as appropriate.

Except as otherwise described herein, management determined that, as of September 30, 2007, there were no changes in our internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f), that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

In preparation for our proposed separation into two separate publicly-traded companies, we will need to evaluate and install the necessary controls to allow the two new entities to properly function as independent public companies. Additionally, we will need to begin migrating certain processes, applications and functions previously performed by us to these two entities.

PART II. OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

In October 2007, we entered into a settlement agreement and release with respect to all disputes with a former officer and employee. Pursuant to the indemnification provisions of the definitive agreements for the merger between us and ABI, the former ABI shareholders indemnified us for approximately two-thirds of the obligations under the settlement agreement.

ITEM 1A.

RISK FACTORS

You should carefully consider the risks described below before investing in our publicly traded securities. The risks described below are not the only ones facing us. Our business is also subject to the risks that affect many other companies, such as competition and, general economic conditions. Additional risks not currently known to us or that we currently believe are immaterial also may impair our business operations and our liquidity.

Risks Relating to the Proposed Separation

The cost to complete the transaction could be significant.

Management estimates that the total cost to complete the proposed separation will be significant and could have a materially negative impact on our operating results and cash flows. Also, there is no guarantee that the proposed separation will be finalized as completion is subject to a number of factors and conditions, including:

•

receipt of an opinion from our tax counsel with respect to the U.S. federal income tax consequences of certain aspects of the proposed separation and related transactions; and

•

our ability to satisfy certain conditions precedent.

Increased demands on our management team as a result of the proposed separation could distract management’s attention from operating performance in the near term.

Management estimates that the proposed separation will be completed in the fourth quarter of 2007. The complexity of the transaction will require a substantial amount of resources, as well as the use of several cross-functional project teams. We have developed a resource plan to meet such demands; however, there is no guarantee that our business will be uninterrupted during the transition period.

Debt incurred in connection with the separation could adversely affect our operations and financial condition.

We, as New APP following the separation, will be highly leveraged as a result of the separation of New Abraxis. We and/or one or more of our subsidiaries will incur up to $1.0 billion of indebtedness and additionally enter into a $150 million revolving credit facility. Such indebtedness, coupled with the restrictions on our ability to issue equity securities following completion of the separation without jeopardizing the intended tax consequences of the separation, could have adverse consequences for our business, financial condition and results of operations, such as:

•

making more difficult the satisfaction of our obligations to our lenders, resulting in possible defaults on and acceleration of such indebtedness;

•

limiting our ability to obtain additional financing to fund growth, working capital, capital expenditures, debt service requirements, acquisitions or other cash requirements;

•

limiting our operational flexibility in planning for or reacting to changing conditions in our business and industry;

•

requiring dedication of a substantial portion of our cash flows from operations to make payments on our debt, which would reduce the availability of such cash flows to fund working capital, capital expenditures and other general corporate purposes; and

•

limiting our ability to compete with companies that are not as highly leveraged, or whose debt is at more favorable interest rates and that, as a result, may be better positioned to withstand economic downturns; and

•

increasing our vulnerability to economic downturns and changing market conditions or preventing us from carrying out capital spending that is necessary or important to our growth strategy and efforts to improve operating margins.

We expect to pay our expenses and to pay the principal and interest on our outstanding debt with funds generated by our operations. Our ability to meet our expenses and debt service obligations will depend on our future performance, which will be affected by financial, business, economic and other factors, including potential changes in customer preferences, the success of product and marketing innovations and pressure from competitors. If we do not have enough money to pay our debt service obligations, we may be required to refinance all or part of our existing debt, sell assets or borrow more money. We may not be able to, at any given time, refinance our debt, sell assets or borrow more money on terms acceptable to us or at all, the failure to do any of which could have adverse consequences for our business, financial condition and results of operations.

We expect the financing arrangements to be entered into in connection with the separation to contain restrictions and limitations that could significantly impact our ability to operate our business.

We expect the agreements governing the indebtedness that we will incur in connection with the separation will contain covenants that, among other things, will limit our ability and/or one or more of our subsidiaries to dispose of assets, to incur additional indebtedness, to incur guarantee obligations, to pay dividends, to create liens on assets, to enter into sale and leaseback transactions, to make investments (including joint ventures), loans or advances, to engage in mergers, consolidations or sales of all or substantially all of their respective assets, to change the business conducted by us or engage in certain transactions with affiliates.

Various risks, uncertainties and events beyond our control could affect our ability to comply with the covenants contained in its debt agreements. Failure to comply with any of the covenants in our existing or future financing agreements could result in a default under those agreements and under other agreements containing cross-default provisions. A default would permit lenders to accelerate the maturity of the debt under these agreements and to foreclose upon any collateral securing the debt. Under these circumstances, we might not have sufficient funds or other resources to satisfy all of our obligations. In addition, the limitations imposed by financing agreements on our ability to incur additional debt and to take other actions might significantly impair our ability to obtain other financing. We cannot assure you that we will be granted waivers or amendments to these agreements if for any reason it is unable to comply with these agreements or that it will be able to refinance our debt on terms acceptable to it, or at all.

Although the terms of the debt agreements have not been finalized and are subject to changes that may be material, we expect that restrictions in our debt agreements may prevent us from taking actions that would be in the best interest of our business, and may make it difficult to successfully execute our business strategy or effectively compete with companies that are not similarly restricted. We expect that our debt agreements may include restrictions such as:

•

restrictions on acquisitions, which may limit our ability to make attractive acquisitions;

•

restrictions on investments, which may prevent us from investing in other companies or entering into joint ventures;

•

restrictions on guarantees, which may prevent us from providing commercially desirable credit support to suppliers, customers or other business partners; and

•

restrictions on incurrence of additional debt, which may further restrict our ability to make acquisitions or investments or to otherwise expand our business.

We cannot assure you that we will be able to generate sufficient cash flow needed to service our indebtedness.

Our ability to make scheduled payments on the expected indebtedness and to fund planned capital expenditures will depend on our ability and that of our subsidiaries to generate cash flow in the future. Our future performance is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. In the event that the debt needs to be refinanced, we cannot assure you that we will be able to do so or obtain additional financing. We cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings will be available in an amount sufficient to enable us to service this debt and fund our other liquidity needs.

If our cash flow and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell assets or seek to obtain additional equity capital, or refinance indebtedness or obtain additional financing. In the future, our cash flow and capital resources may not be sufficient for payments of interest on and principal of this anticipated debt and there can be no assurance that any of, or a combination of, such alternative measures would provide us with sufficient cash flows. In addition, such alternative measures could have an adverse effect on our business, financial condition and results of operations. In the absence of sufficient operating results and resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our anticipated debt service and other obligations or otherwise risk default under the agreements governing our anticipated indebtedness.

Factors That May Affect Future Results of Operations

If Abraxane^{^®}does not achieve strong market acceptance, our future profitability could be adversely affected and we would be unable to recoup the investments made to commercialize this product.

We have made and will continue to make a significant investment in Abraxane^{^®}, including costs associated with conducting clinical trials and obtaining necessary regulatory approvals for the use of Abraxane^{^®}in other indications and settings and in other jurisdictions, expansion of our marketing, sales and manufacturing staff, the acquisition of paclitaxel raw material, and the manufacture of finished product. The success of Abraxane^{^®}in the Phase III trial for metastatic breast cancer and other clinical trials may not be representative of the future clinical trial results for Abraxane^{^®}with respect to other clinical indications. The results from clinical, pre-clinical studies and early clinical trials conducted to date may not be predictive of results to be obtained in later clinical trials, including those ongoing at present. Further, the commencement and completion of clinical trials may be delayed by many factors that are beyond our control, including:

•

slower than anticipated patient enrollment;

•

difficulty in finding and retaining patients fitting the trial profile or protocols; and

•

adverse events occurring during the clinical trials.

Although approved by the U.S. Food and Drug Association, or the FDA, for the indication of metastatic breast cancer in January 2005, Abraxane^{^®}may not generate sales sufficient to recoup our investment. For the nine months ended September 30, 2007, total Abraxane^{^®}revenue was $235.9 million, including $27.3 million of previously deferred revenue recognized relating to the co-promotion agreement with AstraZeneca. For the year ended December 31, 2006, total Abraxane^{^®}revenue was $174.9 million, including $18.2 million of previously deferred revenue recognized relating to the co-promotion agreement with AstraZeneca. Abraxane^{^®}revenue represented approximately 34% and 23% of our total revenue for the nine months ended September 30, 2007 and the year ended December 31, 2006, respectively. We anticipate that sales of Abraxane^{^®}will remain a significant portion of our total revenue over the next several years and pending completion of the proposed separation. However, a number of pharmaceutical companies are working to develop alternative formulations of paclitaxel and other cancer drugs and therapies, any of which may compete directly or indirectly with Abraxane^{^®}and which might adversely affect the commercial success of Abraxane^{^®}. Our inability to successfully manufacture, market and commercialize Abraxane^{^®}could cause us to lose some of the investment we have made and will continue to make to commercialize this product.

If we are unable to develop and commercialize new products, our financial condition will deteriorate.

Profit margins for a pharmaceutical product generally decline as new competitors enter the market. As a result, our future success will depend on our ability to commercialize the product candidates we are currently developing, as well as develop new products in a timely and cost-effective manner. With respect to our hospital-based operations, we currently have over 25 ANDAs pending with the FDA and over 60 product candidates under development. Successful development and commercialization of our product candidates will require significant investment in many areas, including research and development and sales and marketing, and we may not realize a return on those investments. In addition, development and commercialization of new products are subject to inherent risks, including:

•

failure to receive necessary regulatory approvals;

•

difficulty or impossibility of manufacture on a large scale;

•

prohibitive or uneconomical costs of marketing products;

•

inability to secure raw material or components from third-party vendors in sufficient quantity or quality or at a reasonable cost;

•

failure to be developed or commercialized prior to the successful marketing of similar or superior products by third parties;

•

lack of acceptance by customers;

•

impact of authorized generic competition;

•

infringement on the proprietary rights of third parties;

•

grant of new patents for existing products may be granted, which could prevent the introduction of newly-developed products for additional periods of time; and

•

grant to another manufacturer by the FDA of a 180-day period of marketing exclusivity under the Drug Price Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Act, as patents or other exclusivity periods for brand name products expire.

The timely and continuous introduction of new products is critical to our business. Our financial condition will deteriorate if we are unable to successfully develop and commercialize new products.

If sales of our key products decline, our business may be adversely affected.

Our top ten products, including Abraxane^®, comprised approximately 66% and 56% of our total revenue for the nine months ended September 30, 2007 and year ended December 31, 2006, respectively. Our key products could lose market share or revenue due to numerous factors, many of which are beyond our control, including:

•

lower prices offered on similar products by other manufacturers;

•

substitute or alternative products or therapies;

•

development by others of new pharmaceutical products or treatments that are more effective than our products;

•

introduction of other generic equivalents or products which may be therapeutically interchanged with our products;

•

interruptions in manufacturing or supply;

•

changes in the prescribing practices of physicians;

•

changes in third-party reimbursement practices; and

•

migration of key customers to other manufacturers or sellers.

Any factor adversely affecting the sale of our key products may cause our revenues to decline.

Proprietary product development efforts may not result in commercial products.

We intend to maintain an aggressive research and development program for our proprietary pharmaceutical products. Successful product development in the biotechnology industry is highly uncertain, and statistically very few research and development projects produce a commercial product. Product candidates that appear promising in the early phases of development, such as in early stage human clinical trials, may fail to reach the market for a number of reasons, including:

•

the product candidate did not demonstrate acceptable clinical trial results even though it demonstrated positive pre-clinical trial results;

•

the product candidate was not effective in treating a specified condition or illness;

•

the product candidate had harmful side effects in humans or animals;

•

the necessary regulatory bodies, such as the FDA, did not approve a product candidate for an intended use;

•

the product candidate was not economical to manufacture and commercialize;

•

other companies or people have or may have proprietary rights to a product candidate, such as patent rights, and will not let the product candidate be sold on reasonable terms, or at all; or

•

the product candidate is not cost effective in light of existing therapeutics.

If we or our suppliers are unable to comply with ongoing and changing regulatory standards, sales of our products could be delayed or prevented.

Virtually all aspects of our business, including the development, testing, manufacturing, processing, quality, safety, efficacy, packaging, labeling, record-keeping, distribution, storage and advertising and promotion of our products and disposal of waste products arising from these activities, are subject to extensive regulation by federal, state and local governmental authorities in the United States, including the FDA and the Department of Health and Humans Services Office of Inspector General (OIG). Our business is also subject to regulation in foreign countries. Compliance with these regulations is costly and time-consuming.

Our manufacturing facilities and procedures and those of our suppliers are subject to ongoing regulation, including periodic inspection by the FDA and foreign regulatory agencies. For example, manufacturers of pharmaceutical products must comply with detailed regulations governing current good manufacturing practices, including requirements relating to quality control and quality assurance. We must spend funds, time and effort in the areas of production, safety, quality control and quality assurance to ensure compliance with these regulations. In late December 2006, we received a warning letter from the FDA regarding the Melrose Park facility following a periodic review of the facility earlier in the year. The FDA completed its re-inspection of the facility in September 2007. Based on that re-inspection, in October 2007, the FDA informed us that we had satisfactorily resolved the issues associated with the warning letter and began approving our pending product applications at that facility. We cannot assure that our manufacturing facilities or those of our suppliers will not be subject to regulatory action in the future.

Our products generally must receive appropriate regulatory clearance before they can be sold in a particular country, including the United States. We may encounter delays in the introduction of a product as a result of, among other things, insufficient or incomplete submissions to the FDA for approval of a product, objections by another company with respect to our submissions for approval, new patents by other companies, patent challenges by other companies which result in a 180-day exclusivity period, and changes in regulatory policy during the period of product development or during the regulatory approval process. The FDA has the authority to revoke drug approvals previously granted and remove from the market previously approved products for various reasons, including issues related to current good manufacturing practices for that particular product or in general. We may be subject from time to time to product recalls initiated by us or by the FDA. Delays in obtaining regulatory approvals, the revocation of a prior approval, or product recalls could impose significant costs on us and adversely affect our ability to generate revenue.

Our inability or the inability of our suppliers to comply with applicable FDA and other regulatory requirements can result in, among other things, warning letters, fines, consent decrees restricting or suspending our manufacturing operations, delay of approvals for new products, injunctions, civil penalties, recall or seizure of products, total or partial suspension of sales and criminal prosecution. Any of these or other regulatory actions could materially adversely affect our business and financial condition.

State pharmaceutical marketing compliance and reporting requirements may expose us to regulatory and legal action by state governments or other government authorities.

In recent years, several states, including California, Vermont, Maine, Minnesota, New Mexico and West Virginia, in addition to the District of Columbia, have enacted legislation requiring pharmaceutical companies to establish marketing compliance programs and file periodic reports on sales, marketing, pricing and other activities. Similar legislation is being considered in other states. Many of these requirements are new and uncertain, and available guidance is limited. We are continuing to assess our compliance with these state laws. Unless we are in full compliance with these laws, we could face enforcement action and fines and other penalties and could receive adverse publicity, all of which could harm our business.

We may be required to perform additional clinical trials or change the labeling of our products if side effects or manufacturing problems are identified after the products are on the market.

If side effects are identified after any of our products are on the market, or if manufacturing problems occur, regulatory approval may be withdrawn and reformulation of products, additional clinical trials, changes in labeling of products, and changes to or re-approvals of our manufacturing facilities may be required, any of which could have a material adverse effect on sales of the affected products and on our business and results of operations.

After any of our products are approved for commercial use, we or regulatory bodies could decide that changes to our product labeling are required. Label changes may be necessary for a number of reasons, including the identification of actual or theoretical safety or efficacy concerns by regulatory agencies or the discovery of significant problems with a similar product that implicates an entire class of products. Any significant concerns raised about the safety or efficacy of

our products could also result in the need to reformulate those products, to conduct additional clinical trials, to make changes to our manufacturing processes, or to seek re-approval of our manufacturing facilities. Significant concerns about the safety and effectiveness of a product could ultimately lead to the revocation of its marketing approval. The revision of product labeling or the regulatory actions described above could be required even if there is no clearly established connection between the product and the safety or efficacy concerns that have been raised. The revision of product labeling or the regulatory actions described above could have a material adverse effect on sales of the affected products and on our business and results of operations.

The manufacture of our products is highly exacting and complex, and if we or our suppliers encounter production problems, our business may suffer.

Almost all of the pharmaceutical products we make are sterile, injectable drugs. We also purchase some such products from other companies. Additionally, the process for manufacturing the nanometer-sized product Abraxane^{^®}is relatively new and unique. The manufacture of all our products is highly exacting and complex, due in part to strict regulatory requirements and standards which govern both the manufacture of a particular product and the manufacture of these types of products in general. Problems may arise during their manufacture due to a variety of reasons including equipment malfunction, failure to follow specific protocols and procedures and environmental factors. If problems arise during the production of a batch of product, that batch of product may have to be discarded. This could, among other things, lead to loss of the cost of raw materials and components used, lost revenue, time and expense spent in investigating the cause and, depending on the cause, similar losses with respect to other batches or products. If such problems are not discovered before the product is released to the market, recall costs may also be incurred. To the extent we experience problems in the production of our pharmaceutical products, this may be detrimental to our business, operating results and reputation. Additionally, we could incur additional costs if we fail to smoothly transfer products to our Puerto Rico manufacturing facility.

Our markets are highly competitive and, if we are unable to compete successfully, our revenue will decline and our business will be harmed.

The markets for injectable pharmaceutical products are highly competitive, rapidly changing and undergoing consolidation. Most of our products are generic injectable versions of brand name products that are still being marketed by proprietary pharmaceutical companies. The first company to market a generic product is often initially able to achieve high sales, profitability and market share with respect to that product. Prices, revenue and market size for a product typically decline, however, as additional generic manufacturers enter the market.

We face competition from major, brand name pharmaceutical companies as well as generic manufacturers such as Hospira, Inc., Bedford Laboratories, Baxter Laboratories (including Elkin-Sinn), SICOR Inc. (acquired by Teva Pharmaceuticals USA) and Mayne Pharma (acquired by Hospira, Inc.) and, in the future, increased competition from new, foreign competitors. Smaller and foreign companies may also prove to be significant competitors, particularly through collaboration arrangements with large and established companies. Abraxane^{^®}competes, directly or indirectly, with the primary taxanes in the market place, including Bristol-Myers Squibb’s Taxol^{^®}and its generic equivalents, Sanofi-Aventis’ Taxotere^{^®}and other cancer therapies. Many pharmaceutical companies have developed and are marketing, or are developing, alternative formulations of paclitaxel and other cancer therapies that may compete directly or indirectly with Abraxane^{^®}. Many of our competitors have significantly greater research and development, financial, sales and marketing, manufacturing, regulatory and other resources than us. As a result, they may be able to devote greater resources to the development, manufacture, marketing or sale of their products, receive greater resources and support for their products, initiate or withstand substantial price competition, more readily take advantage of acquisition or other opportunities, or otherwise more successfully market their products.

Any reduction in demand for our products could lead to a decrease in prices, fewer customer orders, reduced revenues, reduced margins, reduced levels of profitability, or loss of market share. These competitive pressures could adversely affect our business and operating results.

We face uncertainty related to pricing and reimbursement and health care reform.

In both domestic and foreign markets, sales of our products will depend in part on the availability of reimbursement from third-party payors such as government health administration authorities, private health insurers, health maintenance organizations and other health care-related organizations. Effective January 1, 2006, we received a unique reimbursement “J” code for Abraxane^® from the Centers for Medicare and Medicaid Services. That code allows providers to bill Medicare for the use of Abraxane^®. We believe that most major insurers reimburse providers for Abraxane^® use consistent with the FDA-approved indication, which we believe is consistent with the reimbursement practices of major insurers for other drugs containing paclitaxel for the same indication. However, reimbursement by such payors is presently undergoing reform, and there is significant uncertainty at this time how this will affect sales of certain pharmaceutical

products. There is possible U.S. legislation or regulatory action affecting, among other things, pharmaceutical pricing and reimbursement, including under Medicaid and Medicare, the importation of prescription drugs that are marketed outside the U.S. and sold at prices that are regulated by governments of various foreign countries.

Medicare, Medicaid and other governmental reimbursement legislation or programs govern drug coverage and reimbursement levels in the United States. Federal law requires all pharmaceutical manufacturers to rebate a percentage of their revenue arising from Medicaid-reimbursed drug sales to individual states. Generic drug manufacturers’ agreements with federal and state governments provide that the manufacturer will remit to each state Medicaid agency, on a quarterly basis, 11% of the average manufacturer price for generic products marketed and sold under abbreviated new drug applications covered by the state’s Medicaid program. For proprietary products, which are marketed and sold under new drug applications, manufacturers are required to rebate the greater of (a) 15.1% of the average manufacturer price or (b) the difference between the average manufacturer price and the lowest manufacturer price for products sold during a specified period.

Both the federal and state governments in the United States and foreign governments continue to propose and pass new legislation, rules and regulations designed to contain or reduce the cost of health care. Existing regulations that affect the price of pharmaceutical and other medical products may also change before any of our products are approved for marketing. Cost control initiatives could decrease the price that we receive for any product we develop in the future. In addition, third-party payers are increasingly challenging the price and cost-effectiveness of medical products and services and litigation has been filed against a number of pharmaceutical companies in relation to these issues. Additionally, significant uncertainty exists as to the reimbursement status of newly approved injectable pharmaceutical products. Our products may not be considered cost effective or adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to realize an adequate return on our investment.

If we are unable to maintain our key customer arrangements, sales of our products and revenue would decline.

Almost all injectable pharmaceutical products are sold to customers through arrangements with group purchasing organizations, or GPOs, and distributors. The majority of hospitals contract with the GPO of their choice for their purchasing needs. We currently derive, and expect to continue to derive, a large percentage of our revenue from customers that are members of a small number of GPOs. Currently, fewer than ten GPOs control a large majority of sales to hospital customers.

We have purchasing arrangements with the major GPOs in the United States, including AmeriNet, Inc., Broadlane Healthcare Corporation, Consorta, Inc., MedAssets Inc., Novation, LLC, Owen Healthcare, Inc., PACT, LLC, Premier Purchasing Partners, LP, International Oncology Network, or ION, National Oncology Alliance, or NOA, and U.S. Oncology, Inc. In order to maintain these relationships, we believe we need to be a reliable supplier, offer a broad product line, remain price competitive, comply with FDA regulations and provide high-quality products. The GPOs through which we sell our products also have purchasing agreements with other manufacturers that sell competing products and the bid process for products such as ours is highly competitive. Most of our GPO agreements may be terminated on short notice. If we are unable to maintain our arrangements with GPOs and key customers, sales of our products and revenue would decline.

The strategy to license rights to or acquire and commercialize proprietary, biological injectable or other specialty injectable products may not be successful, and we may never receive any return on our investment in these product candidates.

We may license rights to or acquire products or technologies from third parties. Additionally, we are in the process of establishing our capabilities in biologic generic products so that we may be able to offer such products when regulatory approvals and patents allow for such products. Other companies, including those with substantially greater financial and sales and marketing resources, will compete with us to license rights to or acquire these products. We may not be able to license rights to or acquire these proprietary or other products or technologies on acceptable terms, if at all. Even if we obtain rights to a pharmaceutical product and commit to payment terms, including, in some cases, significant up-front license payments, we may not be able to generate product sales sufficient to create a profit or otherwise avoid a loss.

A product candidate may fail to result in a commercially successful drug for other reasons, including the possibility that the product candidate may:

•

be found during clinical trials to be unsafe or ineffective;

•

fail to receive necessary regulatory approvals;

•

be difficult or uneconomical to produce in commercial quantities;

•

be precluded from commercialization by proprietary rights of third parties; or

•

fail to achieve market acceptance.

The marketing strategy, distribution channels and levels of competition with respect to any licensed or acquired product may be different from those of our current products, and we may not be able to compete favorably in any new product category.

We are subject to restrictive and negative covenants under our $450 million three-year revolving credit facility, which may prevent us from capitalizing on business opportunities and taking some actions.

In April 2006, we entered into a credit agreement with a syndicate of banks for a $450 million three-year unsecured revolving credit facility, with a sub-limit for up to $10 million for standby and commercial letters of credit and $20 million for swing line loans. Among other things, the credit agreement restricts the payment of dividends by us, and restricts our ability to incur indebtedness and make advances or loans to third parties. In addition, our ability to borrow under this credit facility is subject to our ongoing compliance with certain financial and other covenants, such as minimum net worth, maximum funded debt to EBITDA ratio and maximum EBITDA to interest expense ratio. These operational and financial covenants could hinder our ability to finance future operations or capital needs or to pursue available business opportunities, including the possible purchase of additional facilities. A breach of any of these covenants or our inability to maintain the required financial ratios could result in a default under this credit facility. If a default occurs, the relevant lenders could elect to declare the outstanding indebtedness, together with accrued interest and other fees, to be immediately due and payable. Further, we may require additional capital in the future to expand business operations, acquire businesses or facilities, or replenish cash expended sooner than anticipated and such additional capital may not otherwise be available on satisfactory terms. We were in compliance with all covenants under the credit agreement as of September 30, 2007.

Our chief executive officer and entities affiliated with him own a significant percentage of our common stock and could exercise significant influence over matters requiring stockholder approval, regardless of the wishes of other stockholders.

As of September 30, 2007, our chief executive officer and entities affiliated with him owned approximately 84% of our common stock, excluding treasury shares. Accordingly, they have the ability to significantly influence all matters requiring stockholder approval, including the election and removal of directors and approval of significant corporate transactions such as mergers, consolidations and sales of assets. Although these entities have executed a corporate governance and voting agreement in connection with the merger, that agreement will terminate by its terms no later than the 2007 annual stockholders’ meeting. This concentration of ownership could have the effect of delaying, deferring or preventing a change in control or impeding a merger or consolidation, takeover or other business combination, which could cause the market price of our common stock to fall or prevent our stockholders from receiving a premium in such a transaction. This significant concentration of stock ownership may adversely affect the market for and trading price of our common stock if investors perceive that conflicts of interest may exist or arise.

We depend heavily on the principal members of our management and research and development teams, the loss of whom could harm our business.

We depend heavily on the principal members of our management and research and development teams. Each of the members of the executive management team is employed “at will.” Only Carlo Montagner, president of the Abraxis Oncology division, and Lisa Gopalakrishnan, our chief financial officer, have employment agreements with us. The loss of the services of any member of the executive management team may significantly delay or prevent the achievement of product development or business objectives.

To be successful, we must attract, retain and motivate key employees, and the inability to do so could seriously harm our operations.

To be successful, we must attract, retain and motivate executives and other key employees. We face competition for qualified scientific, technical and other personnel, which may adversely affect our ability to attract and retain key personnel. We also must continue to attract and motivate employees and keep them focused on our strategies and goals.

We depend on third parties to supply raw materials and other components and may not be able to obtain sufficient quantities of these materials, which will limit our ability to manufacture our products on a timely basis and harm our operating results.

The manufacture of our products requires raw materials and other components that must meet stringent FDA requirements. Some of these raw materials and other components are available only from a limited number of sources. Additionally, our regulatory approvals for each particular product denote the raw materials and components, and the suppliers for such materials, we may use for that product. Obtaining approval to change, substitute or add a raw material or component, or the supplier of a raw material or component, can be time consuming and expensive, as testing and regulatory

approval are necessary. If our suppliers are unable to deliver sufficient quantities of these materials on a timely basis or we encounter difficulties in our relationships with these suppliers, the manufacture and sale of our products may be disrupted, and our business, operating results and reputation could be adversely affected.

Other companies may claim that we infringe their intellectual property or proprietary rights, which could cause us to incur significant expenses or prevent us from selling our products.

Our success depends in part on our ability to operate without infringing the patents and proprietary rights of third parties. The manufacture, use, offer for sale and sale of pharmaceutical products have been subject to substantial litigation in the pharmaceutical industry. These lawsuits relate to the enforceability, validity and infringement of patents or proprietary rights of third parties. Infringement litigation is prevalent with respect to generic versions of products for which the patent covering the brand name product is expiring, particularly since many companies which market generic products focus their development efforts on products with expiring patents. A number of pharmaceutical companies, biotechnology companies, universities and research institutions may have filed patent applications or may have been granted patents that cover aspects of our products or our licensors’ products, product candidates or other technologies.

Future or existing patents issued to third parties may contain claims that conflict with our products. We are subject to infringement claims from time to time in the ordinary course of our business, and third parties could assert infringement claims against us in the future with respect to our current products, products we may develop or products we may license. In addition, our patents and patent applications, or those of our licensors, could face other challenges, such as interference, opposition and reexamination proceedings. Any such challenge, if successful, could result in the invalidation of, or a narrowing of scope of, any such patents and patent applications. Litigation or other proceedings could force us to:

•

stop or delay selling, manufacturing or using products that incorporate or are made using the challenged intellectual property;

•

pay damages; or

•

enter into licensing or royalty agreements that may not be available on acceptable terms, if at all.

Any litigation or interference proceedings, regardless of their outcome, would likely delay the regulatory approval process, be costly and require significant time and attention of key management and technical personnel.

We are currently involved in a patent infringement lawsuit with Élan Pharmaceutical Int’l Ltd. See “Item 1—Legal Proceedings” of this section above.

Our inability to protect our intellectual property rights in the United States and foreign countries could limit our ability to manufacture or sell our products.

We rely on trade secrets, unpatented proprietary know-how, continuing technological innovation and patent protection to preserve our competitive position. Our patents and those for which we have or will license rights, including for Abraxane^®, may be challenged, invalidated, infringed or circumvented, and the rights granted in those patents may not provide proprietary protection or competitive advantages to us. We and our licensors may not be able to develop patentable products. Even if patent claims are allowed, the claims may not issue, or in the event of issuance, may not be sufficient to protect the technology owned by or licensed to us. Third-party patents could reduce the coverage of the patents licensed, or that may be license to or owned by us. If patents containing competitive or conflicting claims are issued to third parties, we may be prevented from commercializing the products covered by such patents, or may be required to obtain or develop alternate technology. In addition, other parties may duplicate, design around or independently develop similar or alternative technologies.

We may not be able to prevent third parties from infringing or using our intellectual property. We generally control and limit access to, and the distribution of, our product documentation and other proprietary information. Despite our efforts to protect this proprietary information, however, unauthorized parties may obtain and use information that we regard as proprietary. Other parties may independently develop similar know-how or may even obtain access to our technologies.

The laws of some foreign countries do not protect proprietary information to the same extent as the laws of the United States, and many companies have encountered significant problems and costs in protecting their proprietary information in these foreign countries.

The U.S. Patent and Trademark Office and the courts have not established a consistent policy regarding the breadth of claims allowed in pharmaceutical patents. The allowance of broader claims may increase the incidence and cost of patent interference proceedings and the risk of infringement litigation. On the other hand, the allowance of narrower claims may limit the value of our proprietary rights.

We may become subject to federal false claims or other similar litigation brought by private individuals and the government.

The Federal False Claims Act allows persons meeting specified requirements to bring suit alleging false or fraudulent Medicare or Medicaid claims and to share in any amounts paid to the government in fines or settlement. These suits, known as qui tam actions, have increased significantly in recent years and have increased the risk that a health care company will have to defend a false claim action, pay fines and/or be excluded from Medicare and Medicaid programs. Federal false claims litigation can lead to civil monetary penalties, criminal fines and imprisonment and/or exclusion from participation in Medicare, Medicaid and other federally funded health programs. Other alternate theories of liability may also be available to private parties seeking redress for such claims. A number of parties have brought claims against numerous pharmaceutical manufacturers, and we cannot be certain that such claims will not be brought against us, or if they are brought, that such claims might not be successful.

We may need to change our business practices to comply with changes to, or may be subject to charges under, the fraud and abuse laws.

We are subject to various federal and state laws pertaining to health care fraud and abuse, including the federal Anti-Kickback Statute and its various state analogues, the federal False Claims Act and marketing and pricing laws. Violations of these laws are punishable by criminal and/or civil sanctions, including, in some instances, imprisonment and exclusion from participation in federal and state health care programs such as Medicare and Medicaid. We may have to change our advertising and promotional business practices, or our existing business practices could be challenged as unlawful due to changes in laws, regulations or rules or due to administrative or judicial findings, which could materially adversely affect our business.

We may be required to defend lawsuits or pay damages for product liability claims.

Product liability is a major risk in testing and marketing biotechnology and pharmaceutical products. We may face substantial product liability exposure in human clinical trials and for products that we sell after regulatory approval. Historically, we have carried product liability insurance and we expect to continue to carry such policies. Product liability claims, regardless of their merits, could exceed policy limits, divert management’s attention and adversely affect our reputation and the demand for our products.

Future sales of substantial amounts of our common stock may adversely affect our market price.

In connection with our merger with ABI, we issued a significant number of additional shares of our common stock to a small number of former ABI shareholders. Although such shares are not immediately freely tradable, we have granted registration rights to the former ABI shareholders to permit the resale of the shares of our common stock that they have received in the merger. Future sales of substantial amounts of our common stock into the public market, or perceptions in the market that such sales could occur, may adversely affect the prevailing market price of our common stock.

Our stock price has been volatile in response to market and other factors.

The market price for our common stock has been and may continue to be volatile and subject to price and volume fluctuations in response to market and other factors, including the following, some of which are beyond our control:

•

the concentration of the ownership of our shares by a limited number of affiliated stockholders may limit interest in our securities;

•

variations in quarterly operating results from the expectations of securities analysts or investors;

•

revisions in securities analysts’ estimates or reductions in security analysts’ coverage;

•

announcements of technological innovations or new products or services by us or our competitors;

•

reductions in the market share of our products;

•

the inability to increase the market share of Abraxane^® at a sufficient rate;

•

announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;

•

general technological, market or economic trends;

•

investor perception of our industry or prospects;

•

insider selling or buying;

•

investors entering into short sale contracts;

•

regulatory developments affecting our industry; and

•

additions or departures of key personnel.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5.

OTHER INFORMATION

None.

ITEM 6.

EXHIBITS

The exhibits are as set forth in the Exhibit Index.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


ABRAXIS BIOSCIENCE, INC.

By:		/s/ LISA GOPALAKRISHNAN
		Lisa Gopalakrishnan
		Executive Vice President and Chief
		Financial Officer
		(Principal Financial and Accounting Officer)

Date: November 9, 2007

Exhibit Index


Exhibit Number		Description

2.1		Agreement and Plan of Merger, dated as of November 27, 2005, by and among American Pharmaceutical Partners, Inc., American BioScience, Inc. and, with respect to specified matters, Patrick Soon-Shiong and certain other ABI shareholders (Incorporated by reference to the Registrant’s report on Form 8-K filed with the Securities and Exchange Commission on November 29, 2005)

3.1		Amended and Restated Certificate of Incorporation of the Registrant (Incorporated by reference to Registrant’s Registration Statement filed on Form S-1/A, file number 333-70900, filed with the Securities and Exchange Commission on December 11, 2001)

3.2		Amended Bylaws of the Registrant (Incorporated by reference to Registrant’s report on Form 10-K filed with the Securities and Exchange Commission on March 1, 2007)

3.3		Certificate of Merger of American BioScience, Inc. into American Pharmaceutical Partners, Inc., dated April 18, 2006 Bylaws of the Registrant (Incorporated by reference to Registrant’s report on Form 10-Q filed with the Securities and Exchange Commission on May 10, 2006)

4.1		Reference is made to Exhibits 3.1, 3.2 and 3.3

4.2		Specimen Stock Certificate of the Registrant (Incorporated by reference to Registrant’s report on Form 10-Q filed with the Securities and Exchange Commission on May 10, 2006)

4.3		First Amended Registration Rights Agreement, dated as of June 1, 1998, between the Registrant and certain holders of the Registrant’s capital stock (Incorporated by reference to the Registrant’s Registration Statement filed on Form S-1, file number 333-70900, filed with the Securities and Exchange Commission on October 3, 2001)

4.4		Registration Rights Agreement, dated April 18, 2006, by and among APP, Patrick Soon-Shiong and certain other ABI shareholders set forth therein (Incorporated by reference to Registrant’s report on Form 10-Q filed with the Securities and Exchange Commission on May 10, 2006)

4.5		Corporate Governance and Voting Agreement, dated April 18, 2006, by and among APP, Patrick Soon-Shiong and certain other ABI shareholders set forth therein (Incorporated by reference to Registrant’s report on Form 10-Q filed with the Securities and Exchange Commission on May 10, 2006)

10.1		Form of Indemnification Agreement between the Registrant and each of its executive officers and directors (Incorporated by reference to Registrant’s Registration Statement filed on Form S-1/A, file number 333-70900, filed with the Securities and Exchange Commission on November 20, 2001)

10.2		1997 Stock Option Plan (Incorporated by reference to the Registrant’s Registration Statement filed on Form S-1, file number 333-70900, filed with the Securities and Exchange Commission on October 3, 2001)

10.3		2001 Stock Incentive Plan, including forms of agreements thereunder (Incorporated by reference to the Registrant’s Definitive Proxy Statement on Form 14A filed with the Securities and Exchange Commission on April 29, 2005)

10.4		2001 Employee Stock Purchase Plan, including forms of agreements thereunder (Incorporated by reference to the Registrant’s Registration Statement filed on Form S-1, file number 333-70900, filed with the Securities and Exchange Commission on October 3, 2001)

10.5		Lease Agreement dated December 4, 2000, between the Registrant and AMB Property II, L.P. (Incorporated by reference to the Registrant’s Registration Statement filed on Form S-1, file number 333-70900, filed with the Securities and Exchange Commission on October 3, 2001)

10.6		Lease Agreement between Manufacturers Life Insurance Company (U.S.A.) and the Registrant for 1501 E. Woodfield Road, Suite 300 East Schaumburg, Illinois, known as Schaumburg Corporate Center (Incorporated by reference to the Registrant’s report on Form 8-K filed with the Securities and Exchange Commission on February 23, 2005)

10.7		Description of Non-Employee Director Cash Compensation Program (Incorporated by reference to the Registrant’s report on Form 8-K filed with the Securities and Exchange Commission on July 25, 2005)



10.8		Amended and Restated 2001 Non-Employee Director Option Program (Incorporated by reference to the Registrant’s report on Form 8-K filed with the Securities and Exchange Commission on July 25, 2005)

10.9		American BioScience, Inc. Restricted Stock Unit Plan I, including a form of agreement thereunder (Incorporated by reference to the Registrant’s Registration Statement file on Form S-8, file number 333-133364, filed with the Securities and Exchange Commission on April 18, 2006)

10.10		American BioScience, Inc. Restricted Stock Unit Plan II, including a form of agreement thereunder (Incorporated by reference to the Registrant’s Registration Statement file on Form S-8, file number 333-133364, filed with the Securities and Exchange Commission on April 18, 2006)

10.11		Escrow Agreement, dated April 18, 2006, by and among APP, Patrick Soon-Shiong and Fifth Third Bank (Incorporated by reference to Registrant’s report on Form 10-Q filed with the Securities and Exchange Commission on May 10, 2006)

10.12		Credit Agreement, dated April 18, 2006, among the Registrant, Fifth Third Bank, Wachovia Bank and various lenders (Incorporated by reference to Registrant’s report on Form 10-Q filed with the Securities and Exchange Commission on May 10, 2006)

10.13		Purchase and Sale Agreement, dated April 24, 2006, between the Registrant and Pfizer, Inc. (Incorporated by reference to Registrant’s report on Form 10-Q filed with the Securities and Exchange Commission on May 10, 2006)

10.14		Employment Agreement, dated January 25, 2006, between the Registrant and Carlo Montagner (Incorporated by reference to Registrant’s report on Form 10-Q/A filed with the Securities and Exchange Commission on August 10, 2006)

10.15*		Co-Promotion Strategic Marketing Services Agreement, dated April 26, 2006, between the Registrant and AstraZeneca UK Limited (Incorporated by reference to Registrant’s report on Form 10-Q/A filed with the Securities and Exchange Commission on August 10, 2006)

10.16*		Asset Purchase Agreement, dated April 26, 2006, between the Registrant and AstraZeneca UK Limited (Incorporated by reference to Registrant’s report on Form 10-Q/A filed with the Securities and Exchange Commission on August 10, 2006)

10.17*		Amendment to the Asset Purchase Agreement, dated June 28, 2006, between the Registrant and AstraZeneca UK Limited (Incorporated by reference to Registrant’s report on Form 10-Q/A filed with the Securities and Exchange Commission on August 10, 2006)

10.18		Agreement, dated April 18, 2006, between the Registrant and RSU LLC (Incorporated by reference to Registrant’s report on Form 10-Q/A filed with the Securities and Exchange Commission on August 10, 2006)

10.19*		Manufacturing and Supply Agreement, dated June 28, 2006, between the Registrant and AstraZeneca LP. (Incorporated by reference to Registrant’s report on Form 10-Q/A filed with the Securities and Exchange Commission on August 10, 2006)

10.20*		Manufacturing and Supply Agreement, dated June 28, 2006, between the Registrant and AstraZeneca Pharmaceuticals LP. (Incorporated by reference to Registrant’s report on Form 10-Q/A filed with the Securities and Exchange Commission on August 10, 2006)

10.21		Employment Agreement, dated July 3, 2006, between the Registrant and Lisa Gopalakrishnan (Incorporated by reference to Registrant’s report on Form 8-Q filed with the Securities and Exchange Commission on August 7, 2006)

10.22		Standard Form Office Lease, dated March 24, 2006, between the Registrant and California State Teacher’s Retirement System, as amended on May 26, 2006, for the premises located at 11755 Wilshire Boulevard, Los Angeles, California (Incorporated by reference to Registrant’s report on Form 10-Q filed with the Securities and Exchange Commission on November 9, 2006)

10.23*		Aircraft Purchase and Sale Agreement (Incorporated by reference to Registrant’s report on Form 10-Q filed with the Securities and Exchange Commission on November 9, 2006)



10.24		Retention Agreement, dated as of November 20, 2006, between the Registration and Thomas H. Silberg (Incorporated by reference to Registrant’s report on Form 10-K filed with the Securities and Exchange Commission on March 1, 2007)

10.25		Retention Agreement, dated as of November 20, 2006, between the Registration and Frank Harmon (Incorporated by reference to Registrant’s report on Form 10-K filed with the Securities and Exchange Commission on March 1, 2007)

31.1†		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2†		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1†		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002

32.2†		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002

*	Certain portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission.

†	Filed herewith.

Positive
Negative
Uncertain
Constraining
Legalese
Litigious
Readability	H.S. sophomore Avg

App Pharmaceuticals (ABBI) Inactive 10-Q2007 Q3 Quarterly report

Content analysis