UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2012

OR

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

FOR THE TRANSITION PERIOD FROM                TO                

COMMISSION FILE NUMBER 000-15313

SAVIENT PHARMACEUTICALS, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware	13-3033811
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

One Tower Center, 14th Floor, East Brunswick, New Jersey 08816

(Address of Principal Executive Offices)

(732) 418-9300

(Registrant’s Telephone Number, Including Area Code)

(Former Name, Former Address and Former Fiscal Year, 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  x    NO  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    YES  x    NO  ¨

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

Large accelerated filer	x	Accelerated filer	¨
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES  ¨    NO  x

The number of shares outstanding of the issuers’ Common Stock, par value $.01 per share, as of August 5, 2012 was 72,896,447.

SAVIENT PHARMACEUTICALS, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2012

TABLE OF CONTENTS

		Page
PART I—FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited):		3
	Consolidated Balance Sheets		3
	Consolidated Statements of Operations		4
	Consolidated Statements of Comprehensive Loss		5
	Consolidated Statement of Changes in Stockholders’ Deficit		6
	Consolidated Statements of Cash Flows		7
	Notes to Consolidated Financial Statements		8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		34
Item 4.	Controls and Procedures		34
PART II—OTHER INFORMATION
Item 1.	Legal Proceedings		35
Item 1A.	Risk Factors		36
Item 6.	Exhibits		60
	Signatures		61
	Exhibit Index		62

2

PART I—FINANCIAL INFORMATION

ITEM  1. FINANCIAL STATEMENTS

SAVIENT PHARMACEUTICALS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except per share data)

	June 30, 2012			December 31, 2011
	(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	92,463		$	114,094
Short-term investments		49,748			55,694
Accounts receivable, net		5,677			4,737
Inventories, net		10,305			10,924
Prepaid expenses and other current assets		7,566			4,186
Total current assets		165,759			189,635
Property and equipment, net		884			833
Deferred financing costs, net		5,058			4,068
Restricted cash		2,970			2,580
Total assets	$	174,671		$	197,116
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current Liabilities:
Accounts payable	$	5,551		$	7,046
Deferred revenues		428			414
Warrant liability		1,490			—
Accrued interest		3,154			4,643
Other current liabilities		20,741			17,962
Total current liabilities		31,364			30,065
Convertible notes, net of discount of $27,225 at June 30, 2012 and $54,542 at December 31, 2011		95,216			175,458
Senior secured notes, net of discount of $51,103 at June 30, 2012		119,838			—
Other liabilities		1,462			3
Stockholders’ Deficit:
Preferred stock—$.01 par value 4,000,000 shares authorized; no shares issued		—			—
Common stock—$.01 par value 150,000,000 shares authorized; 72,859,000 issued and outstanding at June 30, 2012 and 71,502,000 shares issued and outstanding at December 31, 2011		728			715
Additional paid-in-capital		394,077			408,463
Accumulated deficit		(468,180	)		(417,603	)
Accumulated other comprehensive income		166			15
Total stockholders’ deficit		(73,209	)		(8,410	)
Total liabilities and stockholders’ deficit	$	174,671		$	197,116

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

3

SAVIENT PHARMACEUTICALS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share data)

	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
Revenues:
Product sales, net	$	4,626		$	1,984		$	8,160		$	3,274
Cost and expenses:
Cost of goods sold		6,727			1,008			8,447			1,424
Research and development		6,705			7,729			13,951			11,457
Selling, general and administrative		27,327			23,856			51,579			40,493
		40,759			32,593			73,977			53,374
Operating loss		(36,133	)		(30,609	)		(65,817	)		(50,100	)
Investment income, net		41			38			84			68
Interest expense on debt		(5,600	)		(5,068	)		(10,157	)		(8,307	)
Gain on extinguishment of debt		21,800			—			21,800			—
Other income (expense), net		3,513			(10	)		3,513			1,750
Loss before income taxes		(16,379	)		(35,649	)		(50,577	)		(56,589	)
Income tax benefit		—			(5,400	)		—			(12,810	)
Net loss	$	(16,379	)	$	(30,249	)	$	(50,577	)	$	(43,779	)
Loss per common share:
Basic and diluted	$	(0.23	)	$	(0.43	)	$	(0.72	)	$	(0.63	)
Weighted-average number of common shares:
Basic and diluted		70,721			70,075			70,596			70,035

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

4

SAVIENT PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

(In thousands)

	Three Months Ended June  30,						Six Months Ended June  30,
	2012			2011			2012			2011
Net loss		(16,379	)		(30,249	)		(50,577	)		(43,779	)
Other comprehensive loss:
Unrealized loss on securities		—			(1	)		—			(1	)
Foreign currency translation, net		197			—			151			—
Other comprehensive loss, net		197			(1	)		151			(1	)
Comprehensive loss		(16,182	)		(30,250	)		(50,426	)		(43,780	)

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

5

SAVIENT PHARMACEUTICALS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT

(Unaudited)

(In thousands)

	Common Stock									Accumulated Deficit			Accumulated Other Comprehensive Income		Total Stockholders’ Deficit
	Shares			Par Value			Additional Paid-in- Capital
Balance, December 31, 2011		71,502		$	715		$	408,463		$	(417,603	)	$	15	$	(8,410	)
Net loss		—			—			—			(50,577	)		—		(50,577	)
Restricted stock grants		1,596			16			(16	)		—			—		—
Amortization of deferred stock-based compensation		—			—			668			—			—		668
Forfeiture of restricted stock grants		(564	)		(6	)		6			—			—		—
Issuance of common stock from ESPP plan		325			3			334			—			—		337
ESPP compensation expense		—			—			634			—			—		634
Stock option compensation expense		—			—			2,678			—			—		2,678
Consideration for equity option component of extinguished convertible debt		—			—			(18,690	)		—			—		(18,690	)
Other comprehensive loss		—			—			—			—			151		151
Balance, June 30, 2012		72,859		$	728		$	394,077		$	(468,180	)	$	166	$	(73,209	)

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

6

SAVIENT PHARMACEUTICALS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

	Six Months Ended June 30,
	2012			2011
Cash flows from operating activities:
Net loss	$	(50,577	)	$	(43,779	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		215			194
Accretion of debt discount		4,505			3,587
Gain on extinguishment of debt		(21,800	)		—
Change in valuation of warrant liability		(3,792	)		—
Amortization of deferred financing costs		287			320
Stock compensation expense		3,980			3,546
Deferred income taxes		—			(7,710	)
Other		255			—
Changes in:
Accounts receivable, net		(940	)		(1,141	)
Inventories, net		619			(5,139	)
Prepaid expenses and other current assets		(3,541	)		(711	)
Other assets		(40	)		4
Accounts payable		(1,495	)		6,511
Accrued interest on convertible notes		(1,489	)		4,400
Other current liabilities		2,794			(609	)
Deferred revenues		14			(176	)
Other liabilities		511			(6,895	)
Net cash used in operating activities		(70,494	)		(47,598	)
Cash flows from investing activities:
Purchases of held-to-maturity securities		(29,929	)		(34,375	)
Proceeds from maturities of held-to-maturity securities		35,875			12,747
Capital expenditures		(279	)		(91	)
Change in restricted cash		(350	)		—
Net cash provided by (used in) investing activities		5,317			(21,719	)
Cash flows from financing activities:
Proceeds from issuance of common stock		337			477
Proceeds from issuance of debt, net of expenses		43,058			222,697
Net cash provided by financing activities		43,395			223,174
Effect of exchange rate changes		151			—
Net (decrease) increase in cash and cash equivalents		(21,631	)		153,857
Cash and cash equivalents at beginning of period		114,094			44,791
Cash and cash equivalents at end of period	$	92,463		$	198,648
Supplementary Information
Other information:
Income tax paid	$	—		$	—
Interest paid	$	5,470		$	20

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

7

SAVIENT PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1—Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, the unaudited interim financial statements furnished herein include all adjustments necessary for a fair presentation of Savient Pharmaceuticals, Inc.’s (“Savient” or the “Company”) financial position at June 30, 2012, the results of its operations for the six-month periods ended June 30, 2012 and 2011, and cash flows for the six-month periods ended June 30, 2012 and 2011. Interim financial statements are prepared on a basis consistent with the Company’s annual financial statements. Results of operations for the six-month period ended June 30, 2012 are not necessarily indicative of the operating results that may be expected for the year ending December 31, 2012.

The consolidated balance sheet at December 31, 2011 was derived from the audited financial statements at that date and does not include all of the information and notes required by GAAP for complete financial statements. The interim statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. Certain prior period amounts have been reclassified to conform to current year presentations.

Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Savient Pharma Holdings, Inc. and Savient Pharma Ireland Limited.

Use of estimates

The preparation of financial statements in conformity with GAAP 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. On an ongoing basis, the Company evaluates its estimates, including those related to investments, accounts receivable, reserve for product returns, inventories, rebates, share-based compensation, warrant liability, valuation of debt and income taxes. The estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Results may differ from these estimates due to actual outcomes differing from those on which the Company bases its assumptions.

Note 2— Summary of Significant Accounting Policies

The Company’s significant accounting policies are described in Note 1 of the Notes to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

Recently Issued Accounting Pronouncements

During the quarter ended June 30, 2012, there were no new accounting pronouncements or updates to recently issued accounting pronouncements disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 that affect the Company’s present or future results of operations, overall financial condition, liquidity or disclosures.

8

SAVIENT PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued

(Unaudited)

Note 3—Fair Value of Financial Instruments and Investments

The Company categorizes its financial instruments into a three-level fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure fair value fall within different levels of the hierarchy, the category level is based on the lowest priority level input that is significant to the fair value measurement of the instrument.

Financial assets recorded at fair value on the Company’s consolidated balance sheets are categorized as follows:

Level 1: Unadjusted quoted prices for identical assets in an active market.

Level 2: Quoted prices in markets that are not active or inputs that are observable either directly or indirectly for substantially the full-term of the asset. Level 2 inputs include the following:

• quoted prices for similar assets in active markets,

• quoted prices for identical or similar assets in non-active markets,

• inputs other than quoted market prices that are observable, and

• inputs that are derived principally from or corroborated by observable market data through correlation or other means.

Level 3: Prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. They reflect management’s own assumptions about the assumptions a market participant would use in pricing the asset.

9

SAVIENT PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued

(Unaudited)

Note 3—Fair Value of Financial Instruments and Investments - continued

There were no transfers between levels in the fair value hierarchy during any period presented herein. The following table presents the Company’s cash and cash equivalents, investments, embedded derivatives and warrant liability including the hierarchy for its financial instruments measured at fair value on a recurring basis at June 30, 2012 and December 31, 2011:

June 30, 2012	Carrying Amount		Estimated Fair Value		Level 1		Level 2		Level 3
	(In thousands)
Assets:
Cash and cash equivalents:
Cash	$	21,553	$	21,553	$	21,553	$	—	$	—
Money market funds		70,910		70,910		70,910		—		—
Total cash and cash equivalents		92,463		92,463		92,463		—		—
Short-term investments:
Certificates of deposit		49,748		49,748		49,748		—		—
Total short-term investments		142,211		142,211		142,211		—		—
Restricted cash:
Certificates of deposit		2,930		2,930		2,930		—		—
Total restricted cash		2,930		2,930		2,930		—		—
	$	145,141	$	145,141	$	145,141	$	—	$	—
Liabilities:
Embedded derivatives:
Debt redemption features	$	948	$	948	$	—	$	—	$	948
Total embedded derivatives		948		948		—		—		948
Warrant liability		1,490		1,490		—		—		1,490
Total	$	2,438	$	2,438	$	—	$	—	$	2,438
December 31, 2011	Carrying Amount		Estimated Fair Value		Level 1		Level 2		Level 3
	(In thousands)
Assets:
Cash and cash equivalents:
Cash	$	8,680	$	8,680	$	8,680	$	—	$	—
Money market funds		105,414		105,414		105,414		—		—
Total cash and cash equivalents		114,094		114,094		114,094		—		—
Short-term investments:
Certificates of deposit		55,694		55,694		55,694		—		—
Total short-term investments		55,694		55,694		55,694		—		—
Restricted cash:
Certificates of deposit		2,580		2,580		2,580		—		—
Total restricted cash		2,580		2,580		2,580		—		—
Total	$	172,368	$	172,368	$	172,368	$	—	$	—

10

SAVIENT PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued

(Unaudited)

Note 3—Fair Value of Financial Instruments and Investments - continued

Level 3 Valuation

Financial assets or liabilities are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable. The following table provides a summary of the changes in fair value of the Company’s financial liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the six-month period ended June 30, 2012:

	Warrant Liability			Debt Redemption Features
Level 3
Balance at December 31, 2011	$	—		$	—
Valuation on May 9, 2012 (date of debt exchange transaction, see Note 7)		5,282			948
Unrealized gain		(3,792	)		—
Balance at June 30, 2012	$	1,490		$	948

The Company determines the fair value of its warrant liability based on the Black-Sholes pricing model. Historical information is the primary basis for the selection of the expected volatility. The risk-free interest rate is selected based upon yields of United States Treasury issues with a term equal to the expected term of the warrants. The expected term is derived from the remaining contractual term of the warrant. The warrant liability is marked-to-market each reporting period with the change in fair value recorded as a gain or loss within other expense or income, net on the Company’s consolidated statement of operations.

In accordance with FASB ASC 815, Derivatives and Hedging, the Company has separately accounted for certain contingent debt features of its senior secured notes due 2019, (‘the 2019 Notes’), as described more fully in Note 7, as embedded derivative instruments, which are measured at fair value. Changes in the fair value of these embedded derivatives are recognized in earnings. Key inputs into the valuation model are interest rate volatility, risk-free interest rates, bond yields, credit spreads and certain probabilities determined by management.

11

SAVIENT PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued

(Unaudited)

Note 3—Fair Value of Financial Instruments and Investments - continued

Disclosure of Fair Value of Financial Instruments

The Company’s financial instruments mainly consist of cash and cash equivalents, accounts receivable, accounts payable, other current liabilities and debt obligations. The carrying amounts of the Company’s cash equivalents, accounts receivable, current liabilities and accounts payable approximate their fair value due to the short-term nature of these instruments.

At June 30, 2012, $122.4 million in principal amount of the 2018 Convertible Notes remained outstanding, which had a carrying value of $95.2 million and a fair value $30.3 million. At December 31, 2011, $230.0 million principal amount of the 2018 Convertible Notes was outstanding, which had a carrying value of $175.5 million and a fair value of $116.4 million. The fair value of the 2018 Convertible Notes at June 30, 2012 and December 31, 2011 was based upon the quoted market prices (Level 1) at June 27, 2012 and December 30, 2011, respectively, which was the last trading day of the each respective period ended.

At June 30, 2012, $170.9 million in principal amount of the 2019 Notes was outstanding, which had a carrying value of $119.8 million and a fair value of $118.2 million.

See Note 7 to the Company’s Consolidated Financial Statements for further discussion of the 2018 Convertible Notes and the 2019 Notes and the exchange agreement.

Note 4—Inventories

At June 30, 2012 and December 31, 2011, inventories at cost, net of reserves, were as follows:

	June 30, 2012			December 31, 2011
	(In thousands)
Raw materials	$	2,949		$	3,146
Work-in-progress		12,422			10,828
Finished goods		1,158			1,621
Inventory at cost		16,529			15,595
Inventory reserves		(6,224	)		(4,671	)
Total	$	10,305		$	10,924

12

SAVIENT PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued

(Unaudited)

Note 5—Property and Equipment, Net

Property and equipment, net at June 30, 2012 and December 31, 2011 is summarized below:

	June 30, 2012			December 31, 2011
	(In thousands)
Office equipment	$	3,038		$	3,044
Office equipment—capital leases		231			332
Leasehold improvements		1,546			1,546
Construction in progress		66			—
		4,881			4,922
Accumulated depreciation and amortization		(3,997	)		(4,089	)
Total	$	884		$	833

Depreciation and amortization expense was approximately $0.1 million for each of the three-month periods ended June 30, 2012 and 2011, respectively and approximately $0.2 million for each of the six-month periods ended June 30, 2012 and 2011, respectively.

Note 6—Other Current Liabilities

The components of other current liabilities at June 30, 2012 and December 31, 2011, were as follows:

	June 30, 2012		December 31, 2011
	(In thousands)
Salaries and related expenses	$	4,379	$	4,086
Reserve for purchase and other contractual commitments		3,577		345
Selling and marketing expense accrual		2,834		721
Accrued royalties		2,014		1,783
Legal and professional fees		1,872		2,776
Returned product liability		1,204		1,087
Severance		989		1,006
Allowance for product returns		871		852
Manufacturing and technology transfer services		616		2,577
Other		2,385		2,729
Total	$	20,741	$	17,962

13

SAVIENT PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued

(Unaudited)

Note 7—Long-Term Obligations

The Company’s Long-term obligations consist of the following:

	June 30, 2012		December 31, 2011
	(In thousands)
Senior secured notes due 2019 (2019 Notes)	$	119,838	$	—
4.75% convertible notes due 2018 (2018 Convertible Notes)		95,216		175,458
Capital leases		165		38
		215,219		175,496
Less-current portion of capital leases		39		35
Total	$	215,180	$	175,461

2019 Notes

In February 2011, the Company issued the 2018 Convertible Notes at par ($230.0 million) that become due on February 1, 2018. The Company received cash proceeds from the sale of the 2018 Convertible Notes of $222.7 million, net of expenses. On May 9, 2012, the Company issued 2019 Notes and warrants (as discussed below) in exchange for a portion of the existing 2018 Convertible Notes and $46.8 million in cash. Certain Holders exchanged their 2018 Convertible Notes, having an outstanding principal amount of $107.6 million, for units of the Company, or the Units, comprised of the 2019 Notes, having a principal amount at maturity of $107.9 million and warrants to purchase 4,000,019 shares of the Company’s common stock at an exercise price of $1.863 per share. A Unit consists of $1,000 principle amount of Notes and warrants to purchase 23.4 shares of common stock. The 2019 Notes are senior to the 2018 Convertible Notes.

All of the Units and the 2019 Notes and Warrants comprising the Units were issued by the Company without registration in reliance on the exemption provided by Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”), and were offered only to qualified institutional buyers and accredited investors. The Units, 2019 Notes and Warrants have not been registered under the Securities Act or any state or other securities laws and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements of the Securities Act and applicable state securities laws. The 2019 Notes and the Warrants comprising the Units will become separable 180 days after the date of issuance. The 2019 Notes have a cash coupon interest rate of 3% in the first three years and a cash coupon interest rate of 12% per year thereafter.

The 2019 Notes were issued at a discount and will contractually reach their fully accreted principal amount on May 9, 2015, and will mature on May 9, 2019. At any time prior to May 9, 2015, the Company may redeem all or part of the New Notes at a redemption price equal to 100% of the aggregate principal amount of the 2019 Notes to be redeemed, plus the Applicable Premium (as defined in the Indenture). At any time prior to May 9, 2015, the Company may redeem up to 35% of the aggregate principal amount of the 2019 Notes at a redemption price of 106% of the principal amount of the 2019 Notes to be redeemed, with the net cash proceeds of one or more equity offerings. At any time after May 9, 2015 and before May 9, 2016, the Company may redeem all or part of the 2019 Notes at a redemption price of 106% of the principal amount of the 2019 Notes to be redeemed. At any time after May 9, 2016 and before May 9, 2017, the Company may redeem all or part of the 2019 Notes at a redemption price of 103% of the principal amount of the 2019 Notes to be redeemed. At any time after May 9, 2017 and before maturity, the Company may redeem all or part of the 2019 Notes at a redemption price of 100% of the principal amount of the 2019 Notes to be redeemed. All of the above redemptions include accrued but unpaid interest to the redemption date.

The 2019 Indenture contains certain other agreements and restrictions, including, but not limited to: (i) restrictions on the Company’s ability to pay dividends, repurchase the Company’s stock, make early payments on indebtedness that is junior to the 2019 Notes, and make certain investments; (ii) an obligation for the Company to repurchase the 2019 Notes at 101% of the aggregate principle amont, at the option of the Holders, in the event of certain asset sales, change-in-control and other fundamental change events described in the 2019 Indenture; and (iii) restrictions on the Company’s ability to incur additional debt and liens.

The New Notes are secured by substantially all of the assets of the Company and by the assets and securities of certain of the Company’s subsidiaries pursuant to a Pledge and Security Agreement dated as of May 9, 2012 (the “Pledge and Security Agreement”), subject to certain exclusions described in the Indenture and Pledge and Security Agreement.

14

SAVIENT PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued

(Unaudited)

Note 7—Long-Term Obligations - continued

Accounting for the 2019 Notes

The Company has accounted for the 2019 Notes in accordance with the guidance as set forth in FASB ASC 470, Debt and ASC 815 Derivatives and Hedging. Accordingly, the Company recorded a gain of $21.8 million upon the extinguishment of the exchanged 2018 Convertible Notes. The gain results from the carrying value of the 2018 Convertible Notes exceeding its fair value. The debt issuance costs related to the 2018 Convertible Notes that were exchanged in the amount of approximately $2.2 million are netted against the gain. The 2019 Notes were recorded at fair value. The 2019 Notes contain certain redemption features, noted below, that are considered to be embedded derivatives under ASC 815 and require bifurcation from the host debt.

Equity Offering Redemption Right. At any time prior to May 9, 2015, the Company may, at its option, redeem up to 35% of the aggregate principal amount of New Notes issued by it at a redemption price equal to the Equity Offering Redemption Price of such 2019 Notes (as defined in the 2019 Indenture), plus accrued and unpaid interest to the applicable redemption date, with the net cash proceeds of one or more equity offerings (as defined in the 2019 Indenture); provided that at least 65% of the sum of the aggregate principal amount of the securities originally issued under the 2019 Notes remains outstanding immediately after the occurrence of each such redemption; provided further that each such redemption occurs within 90 days of the date of closing of each such Equity Offering. Notice of any redemption upon any equity offering may be given not less than 30 and not more than 60 days prior to the redemption thereof, and any such redemption or notice

Change of Control Redemption Right. In the event any Fundamental Change (as defined in the 2019 Indenture), which includes certain asset sales and change-in-control, each holder of the 2019 Notes shall a have the right, at such Holder’s option, to require the Company to repurchase all of such Holder’s Notes at a price equal to 101% of the outstanding principal amount at maturity of the Notes (or portions thereof) plus accrued and unpaid interest.

In accordance with FASB ASC 815, Derivatives and Hedging, the Company has separately accounted for the above redemption features as an embedded derivative, which is measured at fair value and included as a component of other liabilities on the Company’s consolidated balance sheets. Changes in the fair value of the embedded derivative are recognized in earnings.

2018 Convertible Notes

The 2018 Convertible Notes bear cash interest at a rate of 4.75% per year, payable semiannually in arrears on February 1 and August 1 of each year, beginning on August 1, 2011. At June 30, 2012, the 2018 Convertible Notes could be converted into shares of the Company’s common stock based on an initial conversion rate of 86.6739 shares per $1,000 principal amount of 2018 Convertible Notes. The Company may not redeem the 2018 Convertible Notes prior to February 1, 2015. On or after February 1, 2015 and prior to the maturity date, the Company may redeem for cash all or part of the 2018 Convertible Notes at a redemption price equal to 100% of the principal amount of the 2018 Convertible Notes to be redeemed, plus accrued and unpaid interest. This conversion rate will be adjusted if the Company makes specified types of distributions or enter into certain other transactions with respect to the Company’s common stock. The 2018 Convertible Notes are unsecured and subordinate to the 2019 Notes.

The 2018 Convertible Notes may only be converted: (1) during any calendar quarter commencing after June 30, 2011 (and only during such calendar quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five business day period after any five consecutive trading day period, or the measurement period, in which the trading price per $1,000 principal amount of 2018 Convertible Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day; (3) if the Company calls any or all of the 2018 Convertible Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or (4) upon the occurrence of specified corporate events. At June 30, 2012, the 2018 Convertible Notes were not convertible.

After the May 9, 2019 exchange transaction by certain Holders of the 2018 Convertible Notes, The remaining outstanding principle balance at June 30, 2012 was $122.4 million with a remaining discount of $27.2 million for a net balance at June 30, 2012 of $95.2 million.

15

SAVIENT PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued

(Unaudited)

Note 7—Long-Term Obligations - continued

The principal balance, unamortized discount and net carrying amount of the 2019 Notes and 2018 Convertible Notes are as follows:

	Liability Component
	Principal Balance		Unamortized Discount		Net Carrying Amount
	(In thousands)
Senior secured notes due 2019	$	170,941	$	51,103	$	119,838
4.75% convertible notes due 2018		122,441		27,225		95,216
	$	293,382	$	78,328	$	215,054

Total interest expense under the Company’s long-term debt obligations is as follows:

	Three Months Ended June  30,				Six Months Ended June 30,
Total Interest Expense	2012		2011		2012		2011
Accretion of debt discount	$	2,852	$	2,152	$	4,505	$	3,587
Amortization of debt issue costs		114		192		287		320
Non-cash interest expense		2,966		2,344		4,792		3,907
Accrued interest		2,634		2,724		5,365		4,400
Total Interest Expense	$	5,600	$	5,068	$	10,157	$	8,307

16

SAVIENT PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued

(Unaudited)

Note 8—Commitments and Contingencies

Commitments

The Company has committed to a plan of reorganization pursuant to which it intends to reduce annual operating expenses by approximately $54 million by 2013, when compared to the Company’s actual annualized operating expenses for the first half of 2012, excluding the $4.9 million non-cash charge to cost of goods sold during the second quarter of 2012 by reducing non-workforce related operating expenses across all functional areas and by reducing its salary, bonus and benefit related operating costs. In addition, the Company has committed to cash retention payments to certain key employees during 2012 and 2013. The Company’s potential commitment, if all recipients are employed at the time of payment, would be approximately $1.1 million during 2012 and $1.1 million during 2013.

At June 30, 2012, the Company had employment agreements with eight senior officers. Under these agreements, the Company has committed to total aggregate base compensation per year of approximately $3.0 million plus other benefits and bonuses. These employment agreements generally have an initial-term of three years and are automatically renewed thereafter for successive one-year periods unless either party gives the other notice of non-renewal. The Company also currently has in place a severance arrangement with a former President, of which $0.4 million is to be paid in equal installments over the next 5 months. We have also recorded severance expense of $0.6 million in the current period for the Company’s former CFO based on his notification of resignation on March 30, 2012. In addition, in order to secure the retention of executive’s and certain other employees key to the functioning of the Company and prevent any disruption to the strategic development of the Company, the Company granted cash and stock retention awards which vest as to 50% of the award on specific dates over a two-year period to these employees. The Company’s potential commitment, if all recipients are employed at the time of vesting, would be approximately $0.2 million during 2012, $0.9 during 2013 and $0.9 million during 2014.

On January 23, 2012, the Company entered into a lease agreement for office space consisting of approximately 48,000 rentable square feet in Bridgewater, NJ, which will be used as the Company’s principal offices and corporate headquarters. The Company intends to relocate all of its operations to the new facility during the third quarter of 2012. The term of the new lease is 123 months, and the Company has rights to extend the term for two additional five-year terms at fair market value subject to specified terms and conditions. The aggregate minimum lease commitment over the 123-month term of the new lease is approximately $15.2 million. The Company has arranged for a bank to provide the landlord a letter of credit of $1.6 million, to secure he Company’s obligations under the lease.

The new lease agreement includes fixed escalations of minimum annual lease payments and accordingly, the Company will recognize rent expense on a straight-line basis over the lease-term. Additionally, in connection with the lease, the property owner provided a lease inducement to the Company in the form of a $2.0 million tenant improvement allowance. The leasehold improvement asset and the lease incentive liability will be amortized on a straight-line basis over the term of the lease to depreciation expense and as an offset to rent expense, respectively. Rent expense from operations was approximately $0.9 million and $0.5 million for the three-month periods ended June 30, 2012 and 2011, respectively. Rent expense from operations was approximately $1.6 million and $1.0 million for the six-month periods ended June 30, 2012 and 2011, respectively.

The future annual minimum lease payments for each of the following calendar years are as follows:

June 30, 2012	(In thousands)
Remainder of 2012	$	1,618
2013		1,850
2014		1,408
2015		1,432
2016		1,456
2017		1,480
Thereafter		7,228
Total minimum payments	$	16,472

17

SAVIENT PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued

(Unaudited)

Note 8—Commitments and Contingencies - continued

Contingencies

In May 2007, the Company filed a notice of appeal with the New Jersey Division of Taxation contesting a New Jersey Sales & Use Tax assessment of $1.2 million for the tax periods 1999 through 2003. The Company believes it is not subject to taxes on services that were provided to the Company. In May 2010, the Company attended an appeals conference with the Conference and Appeals Branch of the New Jersey Division of Taxation to discuss its case in contesting the Sales & Use Tax assessment. After discussions with the New Jersey appellate division, the Company’s appeal was denied. The previous assessment of $1.2 million was increased by $0.5 million to $1.7 million reflecting additional interest and penalties. The Company filed a timely appeal with the New Jersey Tax Court to continue the appeal process on December 13, 2010. Settlement discussions took place throughout 2011 and in December a settlement agreement was reached with New Jersey Division of Taxation in which the Company paid $327,000 that included penalty and interest. This matter is now considered closed and the lawsuit has been dismissed.

In a civil action filed in the Fayette Circuit Court in Kentucky on August 31, 2007 ( Joseph R. Berger vs. Savient Pharmaceuticals, Inc .), Dr. Joseph Berger alleged that he had entered into an agreement with the Company in December 1993, under which he assigned an invention and patent rights relating to the use of oxandrolone to treat an HIV-related disorder, the “Invention”, to the Company in exchange for its agreement to use him as a researcher in certain clinical trials relating to the Invention, and that the Company had breached that agreement. Berger’s verified complaint requested disgorgement of profits and assignment to Berger of the patents obtained on the Invention. During fact discovery in the action, the Company uncovered an April 6, 1992 Consulting Agreement between Berger and Savient’s predecessor, Gynex Pharmaceuticals (“Gynex”), wherein Berger assigned the Invention to Gynex in consideration of, among other things, $20,000 from Gynex. After the April 6, 1992 agreement was presented to Berger, he filed an amended verified complaint which acknowledged the April 6, 1992 agreement, but contended that the $20,000 paid to him under the Agreement was not consideration for the assignment of the Invention. The Company filed a motion for summary judgment on Berger’s claims and, on August 17, 2009, the Court issued an order granting the Company’s motion and dismissing Berger’s complaint and amended complaint with prejudice. Berger appealed the decision of the trial court granting the Company’s motion for summary judgment, and the Company filed a notice of cross-appeal solely with respect to the decision of the trial court to apply Kentucky law to the facts of the case. On January 4, 2011, the Kentucky Appellate Court issued an order taking up Berger’s appeal and the Company’s cross-appeal on the papers, and on October 14, 2011, the Court upheld the lower court’s decision dismissing Berger’s complaint and amended complaint with prejudice.

In November 2008, Richard Sagall, an alleged stockholder, commenced an action in the U.S. District Court for the Southern District of New York seeking to certify a class of shareholders who held Savient securities between December 13, 2007 and October 24, 2008. The suit alleges that the Company made false and misleading statements relating to the GOUT1 and GOUT2 phase 3 clinical trials, and that the Company failed to disclose in a timely manner serious adverse events which occurred in five patients in these trials. In March 2009, the Court issued an order appointing a lead plaintiff and the law firm Pomerantz Haudek Block Grossman & Gross LLP as lead counsel. The action was also re-captioned as Lawrence J. Koncelik vs. Savient Pharmaceuticals, et al . Thereafter, the lead plaintiff filed his amended complaint in April 2009, seeking unspecified monetary damages. In June 2009, Savient and the other named defendants moved to dismiss the complaint. The lead plaintiff subsequently filed an opposition to the Company’s motion to dismiss and the Company filed its reply in October 2009. Oral arguments were heard by the Court in February 2010 relating to the Company’s motion to dismiss. On September 29, 2010, the Court issued a memorandum decision and order granting the Company’s motion to dismiss the amended complaint in its entirety. On October 28, 2010, the lead plaintiff timely filed a notice of appeal of the Court’s decision with the United States Court of Appeals for the Second Circuit and the briefing on that appeal was completed in June 2011 with oral arguments scheduled for November 8, 2011. On January 13, 2012, the Second Circuit issued a summary order affirming the dismissal.

On April 30, 2012, a creditor derivative action complaint was filed by one of the holders of the Company’s 4.75% Convertible Notes, Tang Capital Partners, LP, against the Company and its current directors and one former director in the Court of Chancery of the State of Delaware. On May 21, 2012, Tang Capital amended its complaint to add new claims against us and our current and former directors and also to add additional noteholders as plaintiffs. On June 29, 2012, the plaintiffs amended their complaint for a second time to add claims against us relating to an alleged event of default under the 2018 Indenture. As with the April 30 and May 21 complaints, the June 29 complaint also alleges, among other things, that the Company is insolvent, and seeks the appointment of a receiver. The Company filed a motion to dismiss the receiver claim in the June 29 complaint on the grounds that the noteholders did not have standing to bring that claim and a motion for summary judgment that an event of default has not occurred under the Company’s convertible notes. On July 23, 2012, the Delaware Court of Chancery issued a bench ruling granting both of the Company’s motions. Specifically, the Court determined that the noteholders do not have standing to bring an action to appoint a receiver for the Company and that an event of default has not occurred under the Company’s convertible notes. The Court’s decision is subject to appeal by the plaintiffs. The Company has moved to dismiss the remaining claims in the June 29 complaint, but that motion has not yet been decided. On June 8, 2012, the Company filed a cross-complaint against Tang Capital for declaratory and other relief to remedy Tang Capital’s tortious interference with the 2018 Indenture, which remains outstanding.

From time to time, the Company becomes subject to legal proceedings and claims in the ordinary course of business. Such claims, even if without merit, could result in the significant expenditure of the Company’s financial and managerial resources. The Company is not aware of any legal proceedings or claims that it believes will, individually or in the aggregate, materially harm its business, results of operations, financial condition or cash flows.

18

SAVIENT PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued

(Unaudited)

Note 8—Commitments and Contingencies - continued

The Company is obligated under certain circumstances to indemnify certain customers for certain or all expenses incurred and damages suffered by them as a result of any infringement of third-party patents. In addition, the Company is obligated to indemnify its officers and directors against all reasonable costs and expenses related to stockholder and other claims pertaining to actions taken in their capacity as officers and directors which are not covered by the Company’s directors and officer’s insurance policy. These indemnification obligations are in the regular course of business and in most cases do not include a limit on maximum potential future payments, nor are there any recourse provisions or collateral that may offset the cost.

Note 9—Stockholders’ Equity

Warrant Liability

On May 9, 2012 the Company issued warrants in connection with a debt exchange transaction between the Company and certain holders of its 2018 Convertible Notes, described more fully in Note7. Pursuant to the terms of the exchange transaction, the Company issued warrants to purchase an aggregate of 4,000,019 shares of the Company’s Common Stock at an exercise price equal to $1.863 per share . The Company may, at its or the warrant-holder’s election, issue net shares in lieu of a cash payment of the exercise price by the warrant-holder upon exercise.

Due to a clause that adjusts the warrants exercise price, in accordance with ASC 815, the Company is required to record the fair value of the warrants as a liability. The Company’s warrant liability is marked-to-market each reporting period with the change in fair value recorded as a gain or loss within Other income or expense, net on the Company’s consolidated statement of operations until the warrants are exercised, expire or other facts and circumstances lead the warrant liability to be reclassified as an equity instrument.

The Company determines the fair value of its warrant liability based on the Black-Sholes pricing model. Historical information is the primary basis for the selection of the expected volatility. The risk-free interest rate is selected based upon yields of United States Treasury issues with a term equal to the expected term of the warrants. The expected term is derived from the remaining contractual term of the warrant. At the date of the transaction, the fair value of the warrant liability was $5.3 million. At June 30, 2012 the fair value of the warrant liability was $1.5 million.

During the three and six-month periods ended June 30, 2012, the Company recorded an unrealized gain of $3.8 million within Other Income (Expense), net on its consolidated statement of operations to reflect the decrease in the fair vaue of the warrants.

19

SAVIENT PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued

(Unaudited)

Note 10—Earnings (Loss) per Share of Common Stock

The Company accounts for and discloses net earnings (loss) per share using the treasury stock method. Net earnings (loss) per common share, or basic earnings (loss) per share, is computed by dividing net earnings (loss) by the weighted-average number of common shares outstanding. Net earnings (loss) per common share assuming dilutions, or diluted earnings (loss) per share, is computed by reflecting the potential dilution from the exercise of in-the-money stock options, non-vested restricted stock and non-vested restricted stock units.

The Company’s basic and diluted weighted-average number of common shares outstanding as of June 30, 2012 and 2011 were as follows:

	Three Months Ended June, 30				Six Months Ended June, 30
	2012		2011		2012		2011
	(In thousands)
Basic		70,721		70,075		70,596		70,035
Incremental common stock equivalents		—		—		—		—
Diluted		70,721		70,075		70,596		70,035

At June 30, 2012, and 2011, all in-the-money stock options and unvested restricted stock amounting to 1.8 million and 2.6 million shares, respectively, were excluded from the computation of diluted earnings (loss) per share as their effect would have been anti-dilutive, since the Company reported a net loss for these periods. At June 30, 2012 and 2011, approximately 9.3 million and 19.9 million shares related to the Company’s 2018 Convertible Notes, calculated “as if” the 2018 Convertible Notes had been converted, were excluded from the computation of diluted earnings (loss) per share as their effect would have been anti-dilutive, since the Company reported a net loss for the period. In addition, 4.0 million shares related to the warrants that were granted in conjunction with the debt exchange transaction described more fully in Note 7 were excluded from the computation of diluted earnings (loss) per share as their effect would have been anti-dilutive.

Note 11—Income Taxes

The Company did not record an income tax provision or benefit for the six-month period ended June 30, 2012, due to the fact that the Company can no longer currently benefit from its net operating losses. The Company no longer has the ability to carry back losses to previous years to recover taxes paid and future utilization of these losses is uncertain.

The total amount of federal, foreign, state and local unrecognized tax benefits was $2.7 million at June 30, 2012 and $2.7 million at December 31, 2011. Interest and penalty expense has not been accrued as the company has significant tax benefits to utilize if the liability is actually realized.

The Company files income tax returns in the United States, Ireland and various state jurisdictions. The Company’s federal tax returns have been audited by the Internal Revenue Service through fiscal year ended December 31, 2008. State income tax returns are generally subject to examination for a period of three to five years subsequent to the filing of the respective tax return. The Company is not currently being audited by any state taxing jurisdiction.

Valuation allowances reduce deferred tax assets to the amounts that are more likely than not to be realized. At June 30, 2012, the Company has recorded additional deferred tax assets which are fully offset by a valuation allowance. Realization of the deferred tax assets is dependent on generating sufficient taxable income in the future. At present, the likelihood of the Company being able to fully realize its deferred income tax benefits against future income is uncertain.

In connection with the debt exchange transaction (see Note 7), the Company estimates a tax gain of approximately $54 million, on the cancellation of debt, which exceeds the Company’s book gain of $21.8 million.

20

SAVIENT PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued

(Unaudited)

Note 12—Share-Based Compensation

In 2011, the Company adopted its 2011 Incentive Plan, pursuant to which up to an aggregate of 7.75 million shares of the Company’s common stock may be issued. Awards may be granted as incentive and non-statutory stock options, stock appreciation rights, restricted stock awards and restricted stock unit awards, performance-based stock option and restricted stock awards, and other forms of equity-based and cash incentive compensation. Under this plan, 2,614,002 shares remain available for issuance pursuant to future grants at June 30, 2012.

Total compensation cost charged against operations for the three-month period ended June 30, 2012 and 2011 was $2.8 million and $1.9 million, respectively. Total compensation cost charged against operations for the six-month periods ended June 30, 2012 and 2011 was $4.0 million and $3.5 million, respectively The following table summarizes the components of share-based compensation expense in the consolidated statements of operations for the three and six-month periods ended June 30, 2012 and 2011:

	Three Months Ended June 30,				Six Months Ended June 30,
	2012		2011		2012		2011
	(In thousands)
Research and development	$	507	$	383	$	758	$	726
Selling, general and administrative		2,255		1,495		3,222		2,820
Total non-cash compensation expense related to share-based compensation included in operating expense	$	2,762	$	1,878	$	3,980	$	3,546

Stock Options

The weighted-average key assumptions used in determining the fair value of stock options granted for the three and six-month periods ended June 30, 2012 and 2011 were as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
Weighted-average volatility		95	%		100	%		94	%		92	%
Weighted-average risk-free interest rate		0.8	%		2.5	%		1.0	%		2.5	%
Weighted-average expected life in years		4.9			3.7			5.4			3.7
Dividend yield		0.0	%		0.0	%		0.0	%		0.0	%
Weighted-average grant date fair value per share	$	0.60		$	6.57		$	1.27		$	6.27

Historical information is the primary basis for the selection of the expected volatility of options granted. The risk-free interest rate is selected based upon yields of United States Treasury issues with a term equal to the expected life of the option being valued. The expected term of options granted is derived from the output of a lattice option valuation model and represents the period of time that options granted are expected to be outstanding. The Company uses historical data to estimate option exercise behavior and employee termination within the valuation model.

The Company did not issue any shares of common stock upon the exercise of stock options for the three and six-month periods ended June 30, 2012. For the three and six-month periods ended June 30, 2011, the Company issued 18,500 and 33,000 shares of common stock, respectively, upon the exercise of outstanding stock options and received proceeds of $0.1 million and $0.2 million, respectively. For the three month periods ended June 30, 2012 and 2011, approximately $1.8 million and $0.7 million, respectively, of stock option compensation expense were charged against operations. For the six month periods ended June 30, 2012 and 2011, approximately $3.1 million and $1.6 million, respectively, of stock option compensation expense were charged against operations. As of June 30, 2012, there was $4.6 million of unrecognized compensation cost, adjusted for estimated forfeitures, related to unamortized stock option compensation which is expected to be recognized over a weighted-average period of approximately 2.6 years.

21

SAVIENT PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued

(Unaudited)

Note 12—Share-Based Compensation - continued

The following table summarizes the activity related to the Company’s stock options for the six-month period ended June 30, 2012:

	Number of Shares			Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Term (in yrs)		Aggregate Intrinsic Value of In-the- Money Options
	(In thousands, except weighted-average data)
Outstanding at December 31, 2011		3,648		$	7.98		7.81	$	—
Granted		1,196			1.74		—		—
Exercised					—		—		—
Cancelled		(740	)		8.88		—		—
Outstanding at June 30, 2012		4,104		$	6.05		7.96	$
Exercisable at June 30, 2012		1,782		$	7.28		6.40	$	—

The aggregate intrinsic value in the previous table reflects the total pre-tax intrinsic value (the difference between the Company’s closing stock price on the last trading day of the period and the exercise price of the options, multiplied by the number of in-the-money stock options) that would have been received by the option holders had all option holders exercised their options on June 30, 2012. The intrinsic value of the Company’s stock options changes based on the closing price of the Company’s common stock.

Stock Options that Contain Performance or Market-Based Conditions

For the three-month period ended June 30, 2012 the company did not recognize any compensation expense related to stock options that contain performance or market based conditions (“performance options”). For the three month period ended June 30, 2011 approximately $0.2 million of compensation expense related to performance options was charged against operations. For the six-month period ended June 30, 2012 the company recognized approximately $0.5 million of income as a result of reversal of previous recorded compensation expense. For the six month period ended June 30, 2011 approximately $0.3 million of compensation expense related to performance options was charged against operations. As of June 30, 2012, approximately 190,000 performance options remain unvested.

The following table summarizes the activity related to the Company’s performance options for the six-month period ended June 30, 2012:

	Number of Shares			Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Term (in yrs)		Aggregate Intrinsic Value of In-the-Money Options
	(In thousands, except weighted-average data)
Outstanding at December 31, 2011		440		$	9.75		9.07	$	—
Granted		—			—		—		—
Exercised		—			—		—		—
Cancelled		(250	)		9.23		—		—
Outstanding at June 30, 2012		190		$	10.43		8.55	$	—
Exercisable at June 30, 2012		40		$	13.81		7.42	$	—

22

SAVIENT PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued

(Unaudited)

Note 12—Share-Based Compensation - continued

Restricted Stock and Restricted Stock units

During the three-month periods ended June 30, 2012 and 2011, the Company issued 304,000 and 288,000 shares of restricted stock amounting to $0.2 million and $2.2 million in total aggregate fair market value. During the six-month periods ended June 30, 2012 and 2011, the Company issued 1,597,000 and 751,000 shares of restricted stock amounting to $3.0 million and $ 6.6 million in total aggregate fair market value. For the three-month periods ended June 30, 2012 and 2011, approximately $0.7 million and $0.6 million, respectively, of deferred restricted stock compensation cost were charged against operations. For the six-month periods ended June 30, 2012 and 2011, approximately $1.3 million and $1.2 million, respectively, of deferred restricted stock compensation cost were charged against operations. At June 30, 2012, approximately 1,964,000 shares remained unvested and there was approximately $5.1 million of unrecognized compensation cost related to restricted stock and restricted stock units (“RSU’s”).

The following table summarizes the activity related to the Company’s restricted stock and RSU’s for the six-month period ended June 30, 2012:

	Number of Shares			Weighted-Average Grant Date Fair Value Per Share
	(Shares in thousands)
Unvested at December 31, 2011		811		$	8.75
Granted		1,597			1.87
Vested		(180	)		9.45
Forfeited		(264	)		8.57
Unvested at June 30, 2012		1,964		$	3.12

The total grant date fair value of restricted shares vested for the six-month periods ended June 30, 2012 and 2011, was $1.7 million and $1.4 million, respectively.

Restricted Stock Awards that Contain Performance or Market Conditions

For the three-month period ended June 30, 2012 the Company did not recognize any expense related to restricted stock awards that contain performance or market conditions (“performance awards”). For the six-month period ended June 30, 2012, the Company recognized approximately $0.7 million of income as a result of the reversal of previously recorded compensation. For the three-month period ended June 30, 2011 approximately $0.2 million of compensation expense related to performance awards was charged against operations. For the six-month period ended June 30, 2011, approximately $0.2 million of compensation expense related to performance awards was charged against operations.

The following table summarizes the activity related to the Company’s performance awards for the six-month period ended June 30, 2012:

	Number of Shares			Weighted- Average Grant Date Fair Value Per Share
	(Shares in thousands)
Unvested at December 31, 2011		306		$	9.44
Granted		—			—
Vested		—			—
Forfeited		(300	)		9.23
Unvested at June 30, 2012		6		$	20.59

23

SAVIENT PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—Continued

(Unaudited)

Note 12—Share-Based Compensation - continued

Employee Stock Purchase Plan

In 1998, the Company adopted its 1998 Employee Stock Purchase Plan (the “1998 ESPP”). The 1998 ESPP is qualified as an employee stock purchase plan under Section 423 of the Internal Revenue Code of 1986, as amended. Under the 1998 ESPP, the Company grants rights to purchase shares of common stock (“Rights”) at prices not less than 85% of the lesser of (i) the fair market value of the shares on the date of grant of such Rights or (ii) the fair market value of the shares on the date such Rights are exercised. Therefore, the 1998 ESPP is considered compensatory since, along with other factors, it includes a purchase discount of greater than 5%. For the three-month periods ended June 30, 2012 and 2011, approximately $0.3 million and $0.2 million, respectively of compensation expense was charged against income related to participation in the 1998 ESPP. For the six-month periods ended June 30, 2012 and 2011, approximately $0.7 million and $0.3 million of compensation expense was charged against income related to participation in the 1998 ESPP.

Note 13—Other income (expense), Net

The Company’s other income (expense), net for the three and six-month periods ended June 30, 2012 and 2011, was as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
	(In thousands)
Unrealized gain on change in fair value of warrant liability	$	3,792		$	—		$	3,792		$	—
Reversal of interest expense and penalties on unrecognized tax liability		—			—			—			1,762
Foreign currency transaction adjustments		(273	)		—			(257	)		—
Other non-operating expenses		(6	)		(10	)		(22	)		(12	)
Total other income (expense), net	$	3,513		$	(10	)	$	3,513		$	1,750

Note 14 – Subsequent Events

On August 6, 2012 the Company adopted a stockholder rights plan (the “Rights Plan”), pursuant to which, and in accordance with its certificate of incorporation, the Company designated a new series of preferred stock titled “Series A Junior Participating Preferred Stock” and declared a dividend of one right to buy one one-thousandth of a share of such newly authorized Series A Junior Participating Preferred Stock (each a “Right” and, collectively, the “Rights”) for each share of Savient’s common stock outstanding on August 17, 2012 (the “Record Date”).

The Company elected to implement the Rights Plan in light of the current market environment, including the recent effort by certain holders of the Company’s 2018 Convertible Notes that were adverse to the best interests of the Company and its security holders. The Rights Plan is intended to enable all of the Company’s stockholders to realize the full value of their investment in the Company and to reduce the likelihood that any person or group would gain control of the Company by open market accumulation or other coercive takeover tactics without paying a control premium for all shares. The Rights Plan is not intended to deter offers that are fair and otherwise in the best interests of the Company’s stockholders.

Under the Rights Plan, the Rights in general become initially exercisable if a person or group (i) acquires beneficial ownership of 15% or more of Savient’s common stock or (ii) commences a tender or exchange offer the consummation of which would result in such person or group owning 15% or more of the Company’s common stock. In that situation, each holder of a Right (other than the acquiring person or group of acquiring persons, whose Rights will become void and will not be exercisable) will be entitled to purchase a number of shares of Savient’s common stock equal to the exercise price of the Right divided by one-half of the current market price of such common stock as of the date of the event that resulted in the Rights becoming exercisable. The Rights may be redeemed for a nominal amount at any time before any person or group becomes an acquiring person or group of acquiring persons.

The Company intends to solicit stockholder approval for the Rights Plan on or prior to the close of business on August 6, 2013, the twelve month anniversary of the Rights Plan’s adoption by the Company’s Board of Directors (the “Rights Plan Proposal”). If the Rights Plan Proposal does not receive the affirmative vote of the majority of shares present in person or represented by proxy at a meeting of stockholders duly called for such purpose and entitled to vote on the matter, then the Rights Plan will automatically terminate at the close of business on August 6, 2013. Otherwise, under the Rights Plan’s terms, it will expire at the close of business on August 6, 2015.

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

Our management’s discussion and analysis of financial condition and results of operations contains statements which constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934, as amended, that involve substantial risks and uncertainties. All statements, other than statements of historical fact, including statements regarding our strategy, future operations, future financial position, future results of operations, future cash flows, projected costs, financing plans, product development, commercialization of KRYSTEXXA, possible strategic alliances, competitive position, prospects, plans and objectives of management, are forward-looking statements. We often use words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “may,” “predict,” “will,” and “would,” and similar expressions, to identify forward-looking statements. In particular, any statements about our ability to complete the development of and execute upon our commercial strategy for KRYSTEXXA, market demand and our ability to gain market acceptance for KRYSTEXXA among physicians, patients, health care payors and others in the medical community, our ability to execute on our plans for the expansion of clinical utility for KRYSTEXXA, our market expansion plans for KRYSTEXXA outside the United States, including our Marketing Authorization Application, which we filed with the European Medicine Agency last year, our ability to service our outstanding debt obligations, market acceptance of reimbursement risks with third-party payors, and the risk that the market for KRYSTEXXA is smaller than we have anticipated, our financing needs and liquidity, and the market size for KRYSTEXXA and its expected degree of market acceptance are forward-looking statements. Additionally, forward-looking statements include those relating to future actions, future performance, sales efforts, expenses, interest rates, and the outcome of contingencies, such as legal proceedings, and financial results.

We cannot guarantee that any forward-looking statement will be realized. Achievement of future results is subject to risks, uncertainties and potentially inaccurate assumptions. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could differ materially from past results and those anticipated, estimated or projected. You should bear this in mind as you consider forward-looking statements.

We undertake no obligation to publicly update forward-looking statements. You are advised, however, to consult any further disclosures we make on related subjects in our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.

Overview

We are a specialty biopharmaceutical company focused on commercializing KRYSTEXXA^® (pegloticase) in the United States, completing the launch planning, and seeking regulatory approval, for KRYSTEXXA outside of the United States, particularly in the European Union, via collaborations and partnerships, and investigating the expansion of the clinical utility for KRYSTEXXA. In Europe and the rest of the world, we continue to see significant opportunity and great interest in KRYSTEXXA. At the current time, we are exploring partnership opportunities for the launch of KRYSTEXXA in Europe and other foreign markets in those regions. KRYSTEXXA was approved for marketing by the U.S. Food and Drug Administration, or FDA, on September 14, 2010 and became commercially available in the United States by prescription on December 1, 2010, when we commenced sales and shipments to our network of specialty and wholesale distributors. We implemented the first phase of the promotional launch of KRYSTEXXA in the United States during the first quarter of 2011 with our sales force commencing field promotion to physicians on February 28, 2011. Beginning in January 2012, we began the second phase of the launch with commercial activities which include outreach by our sales force to nephrologists and podiatrists, as well as previously targeted rheumatologists.

KRYSTEXXA is indicated for the treatment of chronic gout in adult patients refractory to conventional therapy, a condition referred to as Refractory Chronic Gout, or RCG. RCG occurs in patients who have failed to normalize serum uric acid and whose signs and symptoms are inadequately controlled with xanthine oxidase inhibitors at the maximum medically appropriate dose or for whom these drugs are contraindicated. KRYSTEXXA is not recommended for the treatment of asymptomatic hyperuricemia, an elevation of blood concentration of uric acid that is not accompanied by signs or symptoms of gout.

Gout develops when urate accumulates in the tissues and joints as a result of elevated uric acid concentrations in the blood, and is usually associated with bouts of severe joint pain and disability, referred to as gout flares, and deposits of crystalline urate in joints, skin or cartilage, which may occur in concentrated forms, referred to as gout tophi. The active pharmaceutical ingredient, or API, in KRYSTEXXA is a PEGylated uric acid specific enzyme that converts uric acid to allantoin, which is readily eliminated primarily through the kidney. We believe that treatment with KRYSTEXXA provides clinical benefits by eliminating uric acid in the blood and tissue deposits of urate.

25

During the first quarter of 2011, we worked together with a leading independent life science consulting firm to conduct a comprehensive market research study to determine the number of adult patients in the United States who are suffering from RCG, which we refer to as the KRYSTEXXA Market Study. The KRYSTEXXA Market Study was conducted using both secondary data sources and primary market research. The secondary data sources were used to quantify the diagnosed prevalent gout population and the treated gout population and included all available published literature, the National Health and Nutrition Examination Survey, or NHANES, a program of studies sponsored by the United States Centers for Disease Control and Prevention designed to assess the health and nutritional status of adults and children in the United States, Medicare claims data and commercial insurance claims data. The KRYSTEXXA Market Study was completed in July 2011 and indicated that there are approximately 120,000 RCG patients in the United States, which represents approximately 4.2% of the overall annual treated gout population in the United States. The total available market opportunity for KRYSTEXXA will ultimately depend on, among other things, our marketing and sales efforts, reimbursement environment, market acceptance by physicians, infusion site personnel, healthcare payors and others in the medical community, and referrals by various specialty physicians to administering clinicians. The FDA granted KRYSTEXXA orphan drug designation in 2001, which we expect will provide the drug with orphan drug marketing exclusivity in the United States until September 2017, seven years from the date of its approval. The composition, manufacture and methods of use and administration of KRYSTEXXA are also the subject of a broad portfolio of patents and patent applications, which we expect will provide patent protection through 2026, assuming issuance of patents from currently pending patent applications.

On July 9, 2012, we initiated a reorganization plan which includes organizational changes designed to improve our operational efficiencies while ensuring continued focus on the commercialization of KRYSTEXXA and the advancement of our clinical development programs. As part of the initiative, we decreased our work-force by approximately 35%, including vacancies, effective September 10, 2012. After the effective date of the reduction in force, we will have a sales force consisting of 37 key account managers, three regional directors, four managed care executives and four area business specialists. To support the safe and effective use of KRYSTEXXA in the commercial setting, we have a field-based medical affairs function consisting of 6 regional medical scientists, or RMSs, who educate clinicians through reactive presentations of the clinical data. As we proceed forward with the commercialization of KRYSTEXXA, we may adjust the size of our organization as necessary. Our sales force targets rheumatologists and nephrologists with access to infusion centers and healthcare institutions, each of which treat adult patients suffering from RCG, as well as podiatrists who may also treat patients with RCG.

Our reorganization plan is expected to generate approximately $54 million in annual operating expense savings by 2013 as compared to our actual annualized operating expenses for the first half of 2012, excluding the $4.9 million non-cash charge to cost of goods sold during the second quarter of 2012. Additionally, we expect to incur approximately $9.2 million in lower operating expenses during 2012, net of approximately $2.7 million in employee severance and retention program costs, as part of the reorganization plan. Savings from these actions is expected to support our future growth strategies.

To date, our sales force has reached over 90% of key rheumatologists, and 57% of key nephrologists located in private practices, infusion centers, hospitals, academic institutions and U.S. Department of Veterans Affairs, or the VA, medical centers. However, we believe that sales of KRYSTEXXA have been hampered by the lack of information that was available to prescribers at the time of the commercial launch of KRYSTEXXA and concerns over Medicare Part B reimbursement. In an effort to address the lack of information available to prescribers, in August 2011 we published in the Journal of the American Medical Association, or JAMA, data from our two pivotal KRYSTEXXA Phase 3 clinical trials in patients with RCG. The data published in JAMA demonstrated that treatment with KRYSTEXXA resulted in significant and sustained reductions in uric acid levels along with clinical improvements in a substantial percentage of RCG patients for six months, a timeframe for demonstrating clinical improvement that is unique in randomized controlled studies of urate-lowering therapies. In addition, 40% of patients with gouty tophi at baseline receiving KRYSTEXXA every two weeks experienced complete resolution of one or more tophi by the final study visit, compared to 7% of patients on placebo. The data published also included a summary of adverse events that occurred in at least 5% of the patients in the trial, including gout flares, infusion reactions, nausea, contusion or ecchymosis, nasopharyngitis, constipation, chest pain, anaphylaxis and vomiting. In addition, a manuscript showing the improvement in patient reported outcomes following treatment with KRYSTEXXA has been published in the June 27, 2012 Journal of Rheumatology. Unlike the objective end points of a clinical trial, such as the lowering of serum uric acid, the patient reported outcomes measure subjective aspects, such as reduction in pain, or improvement in the patient’s quality of life.

We have submitted data from our open label long-term extension trial to a major rheumatology journal. This report provides key clinical data on patients who have been receiving KRYSTEXXA for an additional 30 months and is critical for clinicians as they better determine the clinical benefits of long-term use of KRYSTEXXA for their patients and how to manage possible side effects. Additionally, a review article on RCG and the use of pegloticase was published in the April 2012 issue of the International Journal of Clinical Rheumatology. Furthermore, an appraisal of the role of pegloticase in the management of gout was published in the 2012 issue of Open Access Rheumatology: Research and Reviews.

In June 2012, we presented data at an oral session conducted by the European League Against Rheumatism (EULAR) 2012 congress that demonstrated that patients with RCG who also suffer from chronic kidney disease, or CKD, stages one through four, responded to treatment with KRYSTEXXA. We believe this is a significant finding as there are currently limited treatment options available for gout patients with CKD because impaired kidney function can reduce the ability of conventional gout treatments to lower uric acid and decrease a patient’s threshold for treatment-related toxicity. Six additional abstracts, including a study measuring the impact of gout pain on quality of life in Western Europe, were accepted for presentation or publication at EULAR. We published data in the July 2012 issue of The Journal of Rheumatology showing that adult patients with RCG treated bi-weekly with KRYSTEXXA experienced statistically significant and clinically meaningful improvements in health-related quality of life, or HRQOL, pain and physical function.

26

We received a permanent Medicare Part B reimbursement code, effective as of January 1, 2012, which facilitates reimbursement to providers who treat patients suffering with RCG and who rely on Medicare and Medicaid. We were also awarded a contract from the VA which covered KRYSTEXXA reimbursement for VA member patients as of April 1, 2011 at an approximate 24% discount to our list selling price. In addition, KRYSTEXXA currently enjoys broad coverage for RCG patients through managed care and private payor organizations.

In June 2011, we implemented the KRYSTEXXA Patient Initiation Program, or KPIP, which provided RCG patients with two free doses of KRYSTEXXA through September 30, 2011. We believe that this initiative allowed patients to begin therapy and experience the potential benefits of KRYSTEXXA with no or minimal out of pocket expense, and re-introduced the KPIP in March 2012 for a one year period.

Since the launch of KRYSTEXXA, we conducted 210 speaker programs, 104 of which were conducted in the second quarter of 2012 alone, reaching over 2,600 healthcare professionals.

We have built an inventory of finished KRYSTEXXA product at June 30, 2012, that is packaged and labeled for distribution, and additional supplies of bulk API drug substance that are scheduled to be packaged and labeled as part of our ongoing FDA approved commercial manufacturing process. Based on our inventory on hand and in process, we believe we have sufficient inventory to meet our internal market estimates until at least 2014.

In December 2010, the Pediatric Committee of the European Medicines Agency, or EMA, approved our pediatric investigation plan for the treatment and prevention of hyperuricemia in pediatric patients undergoing chemotherapy for hematologic malignancies, which is a condition to filing for marketing approval for KRYSTEXXA in the European Union.

In support of our launch planning activities for KRYSTEXXA outside of the United States, in May 2011 we submitted a Marketing Authorization Application, or MAA, for centralized review in the European Union. Also in May 2011, we received validation of the MAA that was filed with the EMA for KRYSTEXXA for the treatment of RCG in adult patients, which resulted in the initiation of the EMA’s regulatory review process. We anticipate an EMA approval of our MAA for KRYSTEXXA during the second half of 2012. In March 2012, KRYSTEXXA was made available in the European Union to healthcare professionals and their patients suffering from RCG through a Named Patient Program. The program was initially offered on a for-fee basis but has been offered free of charge since July 2012. This program is sponsored by our wholly-owned subsidiary, Savient Pharma Ireland Limited and managed by a third-party service provider.

In further support of our launch planning activities for KRYSTEXXA in Europe, we have advanced the development of reimbursement and pricing plans for the region and engaged RMS’s for our key markets and commenced Key Opinion Leader, or KOL, interactions. In addition, in January of 2012, we appointed David Veitch as President of our European subsidiary, Savient Pharma Ireland Limited. Mr. Veitch is leading our European organization and efforts focused on KOL development in key European markets and launch planning activities as well as assisting us with our exploration of partnership opportunities in Europe and the rest of the world.

We also sell and distribute branded and generic versions of oxandrolone, a drug used to promote weight gain following involuntary weight loss. We launched our authorized generic version of oxandrolone in December 2006 in response to the approval and launch of generic competition to our branded product, Oxandrin^®. The introduction of oxandrolone generics has led to significant decreases in demand for Oxandrin and our authorized generic version of oxandrolone. We believe that revenues from Oxandrin and our authorized generic version of oxandrolone will continue to decrease in future periods primarily as a result of the expiration of our contract agreement with our third-party manufacturer. We do not actively market and do not plan on seeking a new third-party manufacturer of Oxandrin or oxandrolone.

On May 9, 2012, holders of our currently outstanding 2018 Convertible Notes exchanged approximately $108.0 million (principal amount) of such notes for Units, comprised of 2019 Notes, having a principal amount upon full accretion equivalent to the principal amount of the corresponding exchanged 2018 Convertible Notes, and warrants to purchase approximately 4.0 million shares of our common stock at an exercise price of $1.863 per share. The 2019 Notes were recorded at a discount of approximately 70%. In addition to the accretion of principal, the 2019 Notes have a cash coupon interest rate of 3% in the first three years and a cash coupon interest rate of 12% per year thereafter until their maturity date. The 2019 Notes contractually reach their fully accreted principal amount on May 9, 2015, and will mature on May 9, 2019. Simultaneously, the holders of the 2018 Convertible Notes which were exchanged also purchased additional Units, comprised of 2019 Notes and warrants, the purchase price was $46.8 million. The principal amount of the 2019 Notes issued upon the exchange of the 2018 Convertible Notes, plus the 2019 Notes issued to the holders upon purchase of the additional Units, is $170.9 million. The 2019 Notes are secured by substantially all of our assets and by the assets and securities of certain of our subsidiaries.

Recent Changes in our Senior Management

On July 9, 2012, the Company’s board of directors (the “Board”) named Louis Ferrari as President and Chief Executive Officer of the Company. Mr Ferrari was also appointed to serve as a member of the Board.

On May 29, 2012, David Gionco was named Group Vice President - Chief Accounting Officer and Treasurer, upon the departure of Kenneth Zuerblis, who resigned as our Executive Vice President and Chief Financial Officer. Mr. Zuerblis is currently serving as an advisor to the Company on a consulting basis while we are actively searching for a new CFO.

27

Results of Operations

For six-month period ended June 30, 2012, our operating results were substantially driven by expenses related to the commercialization of KRYSTEXXA. We anticipate net operating losses for the remainder of 2012 and foreseeable future as we continue to commercialize and develop KRYSTEXXA. Our expenses relating to the commercialization and development of KRYSTEXXA will depend on many factors, including:

• the cost of commercialization activities, including product marketing, sales and distribution,

• the cost of manufacturing activities,

• the cost of our post-approval commitments to the FDA, including an observational study and a risk evaluation and mitigation strategy, or REMS, program, and

• the timing of, and the costs involved in, obtaining regulatory approvals for KRYSTEXXA in countries other than the United States.

The following table summarizes our costs and expenses and indicates the significance of selling, general and administrative costs related to our commercialization of KRYSTEXXA, as well as percentage of total cost of expenses for the periods indicated:

	Three Months Ended June 30,								Six Months Ended June 30,
	2012				2011				2012				2011
	(In thousands)
Cost of goods sold	$	6,727	16.5	%	$	1,008	3.1	%	$	8,447	11.4	%	$	1,424	2.6	%
Research and development		6,705	16.5	%		7,729	23.7	%		13,951	18.9	%		11,457	21.5	%
Selling, general & administrative		27,327	67.0	%		23,856	73.2	%		51,579	69.7	%		40,493	75.9	%
Total costs and expenses	$	40,759	100.0	%	$	32,593	100.0	%	$	73,977	100.0	%	$	53,374	100.0	%

Our net revenues of $4.6 million and $8.2 million for the three and six-month periods ended June 30, 2012 were derived primarily from product sales of KRYSTEXXA. Following the full commercial launch of KRYSTEXXA in February 2011, sales levels have increased and we expect continued sales momentum for the remainder of 2012 and into 2013.

Our future revenues depend on our success in the commercialization of KRYSTEXXA including:

• whether we are successful in executing our commercial strategy for KRYSTEXXA

• market acceptance of KRYSTEXXA by physicians and patients in the largely previously untreated RCG patient population,

• market acceptance of the price that we charge for KRYSTEXXA and under what conditions private and public payors will reimburse patients for KRYSTEXXA,

• whether and to what extent our label expansion activities for KRYSTEXXA are successful,

• whether and when we face generic or other competition with respect to KRYSTEXXA,

• the timing and costs of regulatory approval for KRYSTEXXA in any countries other than the United States, and

• our ability to maintain a sufficient inventory of KRYSTEXXA to meet commercial demand.

The following table summarizes net product sales of our commercialized products and their percentage of total net product sales for the periods indicated:

	Three Months Ended June 30,								Six Months Ended June 30,
	2012				2011				2012				2011
	(In thousands)
KRYSTEXXA	$	3,997	86.4	%		1,091	55.0	%	$	7,065	86.6	%	$	1,350	41.2	%
Oxandrolone		544	11.8	%		748	37.7	%		966	11.8	%		1,812	55.4	%
Oxandrin		85	1.8	%		145	7.3	%		129	1.6	%		112	3.4	%
	$	4,626	100.0	%	$	1,984	100.0	%	$	8,160	100.0	%	$	3,274	100.0	%

28

Results of Operations for the Three-Month Periods Ended June 30, 2012 and June 30, 2011

Revenues

Net revenues increased $2.6 million, or 133%, to $4.6 million for the three-month period ended June 30, 2012, from $2.0 million for the three-month period ended June 30, 2011, as a result of the continued sales momentum of KRYSTEXXA.

Sales of Oxandrin, and our authorized generic version of Oxandrin, oxandrolone, decreased by $0.3 million, or 30%, to $0.6 million for the three month-period ended June 30, 2012. We expect that sales of Oxandrin and oxandrolone will decline in future periods due to the continued impact of generic competition coupled with the expiration of our agreement with our third-party manufacturer of these products. We do not plan on seeking a new third-party manufacturer of Oxandrin and oxandrolone and we are not actively marketing these products.

Cost of goods sold

Cost of goods sold increased $5.7 million, or 567%, to $6.7 million for the three-month period ended June 30, 2012, from $1.0 million for the three-month period ended June 30, 2011. During the second quarter 2012, we recorded a $4.9 million charge against operations primarily related to in process and finished goods KRYSTEXXA inventory that we do not believe we will be able to sell through to commerce, prior to expiration. Additionally, a portion of the charge relates to certain future minimum purchase commitments of raw material for use in manufacturing of KRYSTEXXA finished product that we do not believe will be required based upon future estimated production levels. We did not have a similar charge in the second quarter 2011.

Research and development expenses

Research and development expenses decreased $1.0 million, or 13%, to $6.7 million for the three-month period ended June 30, 2012, from $7.7 million for the three-month period ended June 30, 2011. The decrease is primary due to prior year costs associated with our potential secondary source supplier of pegloticase drug substance relating to validation batch production coupled with fees to reserve manufacturing capacity, partially offset by current year expenses related our post-FDA approval clinical studies for KRYSTEXXA.

Selling, general and administrative expenses

Selling, general and administrative expenses increased $3.4 million, or 15%, to $27.3 million for the three-month period ended June 30, 2012, from $23.9 million for the three-month period ended June 30, 2011, primarily due to increased selling and marketing expenses associated with our marketing and commercialization efforts for KRYSTEXXA and an increase in legal expenses.

Gain on extinguishment of debt

We recorded a gain of approximately $21.8 million upon the extinguishment of our 2018 Convertible Notes during the three-month period ended June 30, 2012. The gain arose as the fair value of the 2018 Convertible Notes was less than its carry value at the time of the transaction. The debt issuance costs related to the 2018 Convertible Notes exchanged are approximately $2.2 million and are netted against the gain on extinguishment of debt recorded in our financial statements. See Note 7 to our consolidated financial statements for further discussion of the debt exchange transaction.

Interest expense

Interest expense on our 2018 Convertible Notes and 2019 Notes increased $0.5 million, or 10%, to $5.6 million for the three-month period ended June 30, 2012, from $5.1 million for the three-month period ended June 30, 2011. The increase in interest expense reflects the 2019 Notes that were issued on May 9, 2012. Interest expense for the three-month period ended June 30, 2012 primarily reflects $2.6 million of cash interest expense from our 2018 Convertible Notes and 2019 Notes coupled with $3.0 million of non-cash interest expense. Interest expense for the three-month period ended June 30, 2011, reflected $2.7 million of cash interest expense from our 2018 Convertible Notes coupled with $2.3 million of non-cash interest expense.

Other income (expense), net

Other income, net increased $3.5 million for the three-month period ended June 30, 2012 related to the decrease in the fair value of our warrant liability as a result of the mark-to-market valuation adjustment in the current reporting period, primary driven by our lower underlying common stock price since the date of issuance of the warrants.

Income tax benefit

We recorded no income tax benefit or provision for the three-month period ended June 30, 2012.

29

Results of Operations for the Six-Month Periods Ended June 30, 2012 and June 30, 2011

Revenues

Net revenues increased $4.9 million, or 149%, to $8.2 million for the six-month period ended June 30, 2012, from $3.3 million for the six-month period ended June 30, 2011, as a result of the continued sales momentum of KRYSTEXXA.

Sales of Oxandrin, and our authorized generic version of Oxandrin, oxandrolone, decreased by $0.8 million, or 43%, to $1.1 million for the six-month-period ended June 30, 2012. We expect that sales of Oxandrin and oxandrolone will decline in future periods due to the continued impact of generic competition coupled with the expiration of our agreement with our third-party manufacturer of these products. We do not plan on seeking a new third-party manufacturer of Oxandrin and oxandrolone and we are not actively marketing these products.

Cost of goods sold

Cost of goods sold increased $7.0 million, or 493%, to $8.4 million for the six-month period ended June 30, 2012, from $1.4 million for the six-month period ended June 30, 2011. During the six month periods ended 2012, we recorded a $4.9 million charge against operations primarily related to in process and finished goods KRYSTEXXA inventory that we do not believe we will be able to sell through to commerce, prior to expiration. Additionally, a portion of the charge relates to certain future minimum purchase commitments of raw material for use in manufacturing of KRYSTEXXA finished product that we do not believe will be required based upon future estimated production levels. We did not have a similar charge in the six month periods ended 2011.

Research and development expenses

Research and development expenses increased $2.5 million, or 22%, to $14.0 million for the six-month period ended June 30, 2012, from $11.5 million for the six-month period ended June 30, 2011 primary due to expenses related our post-FDA approval clinical studies for KRYSTEXXA, and higher compensation expenses as a result of increased headcount.

Selling, general and administrative expenses

Selling, general and administrative expenses increased $11.1 million, or 27%, to $51.6 million for the six-month period ended June 30, 2012, from $40.5 million for the six-month period ended June 30, 2011, primarily due to increased selling and marketing expenses associated with KRYSTEXXA, our marketing and commercialization efforts coupled with higher compensation expenses as a result of increased headcount that we had been adding prior to committing to our reduction in workforce plan described previously and increased legal related expenses.

Gain on extinguishment of debt

We recorded a gain of approximately $21.8 million upon the extinguishment of our 2018 Convertible Notes during the six-month period ended June 30, 2012. The gain arose as the fair value of the 2018 Convertible Notes was less than its carry value at the time of the transaction. The debt issuance costs related to the 2018 Convertible Notes exchanged are approximately $2.2 million and are netted against the gain on extinguishment of debt recorded in our financial statements. See Note 7 to our consolidated financial statements for further discussion of the debt exchange transaction.

Interest expense

Interest expense on our 2018 Convertible Notes and 2019 Notes increased $1.9 million, or 22%, to $10.2 million for the six-month period ended June 30, 2012, from $8.3 million for the six-month period ended June 30, 2011. The increase in interest expense reflects the 2019 Notes that were issued on May 9, 2012. Interest expense for the six-month period ended June 30, 2012 primarily reflects $5.4 million of cash interest expense from our 2018 Convertible Notes and 219 Notes coupled with $4.8 million of non-cash interest expense. Interest expense for the six-month period ended June 30, 2011, reflected $4.4 million of interest expense from our 2018 Convertible Notes coupled with $3.9 million of non-cash interest expense.

Other income (expense), net

Other income, net increased $1.8 million for the six-month period ended June 30, 2012 primarily related to the decrease in the fair value of our warrant liability as a result of the mark-to-market valuation adjustment in the current reporting period, primary driven by our lower underlying common stock price since the date of issuance of the warrants. In addition, the six-month period ended June 30, 2011 reflects a benefit received as a result of the reversal of a $1.8 million liability for accrued interest and penalties relating to the reversal of an unrecognized tax benefit liability.

Income tax benefit

We recorded no income tax benefit or provision for the six-month period ended June 30, 2012.

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Liquidity and Capital Resources

At June 30, 2012, we had $142.2 million in cash, cash equivalents and short-term investments as compared to $169.8 million at December 31, 2011. We primarily invest our cash equivalents and short-term investments in highly liquid, interest-bearing, U.S. Treasury money market funds and bank certificates of deposit in order to preserve principal.

In February 2011, the Company issued the 2018 Convertible Notes at par ($230 million) that become due on February 1, 2018. The Company received cash proceeds from the sale of the 2018 Convertible Notes of $222.7 million, net of expenses. On May 9, 2012, the Company issued 2019 Notes and warrants (as discussed below) in exchange for a portion of the existing 2018 Convertible Notes and $46.8 million in cash. Certain Holders exchanged their 2018 Convertible Notes, having an outstanding principal amount of $107.6 million, for units of the Company, or the Units, comprised of the 2019 Notes, having a principal amount at maturity of $107.9 million and warrants to purchase 4,000,019 shares of the Company’s common stock at an exercise price of $1.863 per share. A Unit consists of $1,000 principle amount of Notes and warrants to purchase 23.4 shares of common stock. The 2019 Notes are senior to the 2018 Convertible Notes. In connection with the debt exchange discussed above, certain discount amortization and interest will be permanently disallowed for income tax purposes over the life of the 2019 Notes.

We have used and will continue to use in the future, the net proceeds from the issuance of our debt to commercialize KRYSTEXXA in the United States, including for marketing activities, funding clinical development activities directed to potential label expansion for KRYSTEXXA in the United States, to further develop and seek regulatory approval for KRYSTEXXA in jurisdictions outside the United States particularly in the European Union, and for general corporate purposes, including working capital. As a result, our management has broad discretion to use the net proceeds from our debt issuances. Pending the application of the net proceeds, we invest the net proceeds in short-term U.S. Treasury money market funds and bank certificates of deposit.

Based on our current commercialization plans for KRYSTEXXA, including our anticipated expenses relating to sales and marketing activities, the cost of purchasing additional inventory, the cost of clinical development activities directed to potential label expansion for KRYSTEXXA in the United States, the cost of pursuing regulatory approval in the European Union, and the cost of reimbursement and KOL development activities in the European Union, and assuming that we are able to generate KRYSTEXXA revenues at the level that we are currently expecting but excluding any cash which may be generated from the consummation of a partnership transaction for Europe or other markets, we believe that our available cash, cash equivalents and short-term investments, which includes the net proceeds of the transactions discussed above, will be sufficient to fund anticipated levels of operations for at least the next two years. Our management has broad discretion in the use of our financial resources and may adjust our anticipated plans as circumstances warrant.

Cash Flows

Cash used in operating activities for the six-month period ended June 30, 2012 was $70.5 million, which substantially reflects our $50.6 million net loss for the period and the non-cash activity resulting from the $21.8 million gain on extinguishment of debt and the $3.8 million mark-to-market valuation adjustment to our warrant liability. Cash provided by investing activities of $5.3 million for the six-month period ended June 30, 2012 reflects the net impact of purchases and maturities of held-to-maturity securities consisting of bank certificates of deposit. Cash provided by financing activities of $43.4 million for the six-month period ended June 30, 2012 primarily reflects cash proceeds received from the 2019 Notes.

Cash used in operating activities for the six months ended June 30, 2011 was $47.6 million, which reflects our net loss for the period of $43.8 million, as well as a non-cash gain of $1.8 million as a result of an unrecognized tax benefit. Cash used in investing activities of $21.7 million during the six months ended June 30, 2011 reflects the purchase of held-to-maturity securities consisting of bank certificates of deposit. Cash provided by financing activities for the six months ended June 30, 2011 was $223.1 million mainly due to the cash proceeds received from the issuance of the 2018 Convertible Notes for $222.7 million.

Funding Requirements

We continue to focus our efforts on commercializing KRYSTEXXA, supporting our development activities and exploring partnership opportunities while seeking regulatory approval outside of the United States for KRYSTEXXA, particularly in the European Union, and undertaking clinical trials and other research and development activities to pursue label expansion for KRYSTEXXA:

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

• whether we are successful in executing out commercial strategy for KRYSTEXXA,

• the cost of our post-approval commitments to the FDA, including an observational study and a REMS program,

• the cost of clinical trials directed to potential expansion of clinical utility opportunities for KRYSTEXXA,

• the cost of commercialization activities, including product marketing, sales and distribution,

• the cost of manufacturing activities,

• market acceptance of KRYSTEXXA by physicians and patients in this largely previously untreated patient population,

• market acceptance of the price that we charge for KRYSTEXXA and under what conditions private and public payors will reimburse patients for KRYSTEXXA, and

• the timing and cost involved in obtaining regulatory approvals for KRYSTEXXA in countries other than the United States.

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As we continue to commercialize KRYSTEXXA, we expect that our cash needs will increase, and we may need to seek additional funding through customary methods, or to explore a strategic licensing or co-promotion transaction in certain territories as a means of raising additional funding. Should we elect to seek additional funding through customary methods, we may not be able to obtain additional funds or, if such funds are available, such funding may not be on terms that are acceptable to us. If we raise additional funds by issuing equity securities, dilution to our then-existing stockholders will result. If we issue preferred stock, it would likely include a liquidation preference and other terms that would adversely affect our common stockholders. Our ability to raise additional funds through the issuance of debt securities or borrowings is limited by our current indebtedness, and any new indebtedness we may incur could become subject to substantial interest expense and financial and other covenants that could restrict our ability to take specified actions, such as incurring additional debt or making capital expenditures. If we explore a strategic licensing or co-promotion transaction, one may not be available to us or may only be available on terms that are not acceptable to us. If funds are not available on favorable terms, or at all, our business, results of operations and financial condition may be materially adversely affected and we may be required to curtail or cease operations.

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Contractual Obligations

Below is a table that presents our contractual obligations and commitments as of June 30, 2012:

	Payments Due by Period
Contractual Obligations	Total		Less Than One Year		1-3 Years		3 -5 Years		More Than 5 Years
	(In thousands)
Long-term debt obligations	$	293,382	$	—	$	—	$	—	$	293,382
Interest on long-term debt obligations		129,663		10,944		24,080		52,658		41,981
Capital lease obligations		165		39		64		62		—
Operating lease obligations		16,645		2,827		2,901		2,944		7,973
Purchase commitment obligations (1)		73,021		41,564		17,842		13,615		—
Other commitments (2)		6,885		5,394		1,491		—		—
Total	$	519,761	$	60,768	$	46,378	$	69,279	$	343,336

(1) Purchase commitment obligations represent our contractually obligated minimum purchase requirements based on our current manufacturing and supply and other agreements in place with third parties. The table does not include potential future purchase commitments for which the amounts and timing of payments cannot be reasonably predicted. Our obligation to pay certain of these amounts may be reduced or eliminated based on future events.

(2) Other commitments include an aggregate of approximately $1.0 million in sales-based milestone payments that will become due and payable to Duke University, or Duke, and Mountain View Pharmaceuticals, or MVP, on the attainment of specified KRYSTEXXA sales targets. Other commitments also reflects the following severance and retentions arrangements:

i. As a part of the reorganization plan, we have committed to cash retention payments to certain key employees during 2012, and 2013. Our potential commitment, if all recipients are employed at the time of payment, would be approximately $1.1 million during 2012 and an additional $1.1 million during 2013.

ii. We have in place a severance arrangement with a former President, of which $0.4 million is to be paid in equal installments over the next 5 months. We have also recorded severance expense of $0.6 million in the current period for our former CFO based on his notification of resignation on March 30, 2012. In addition, in order to secure the retention of executive’s and certain other employees key to the functioning of our Company and prevent any disruption to the strategic development of our Company, we granted cash and stock retention awards to senior management employees which vest as to 50% of the award on specific dates over a two-year period. Our potential commitment, if all recipients are employed at the time of vesting, would be approximately $0.2 million during 2012, $0.9 during 2013 and $0.9 million during 2014.

Excluded from the above table are employment agreements with eight senior officers. Under these agreements, the Company has committed to total aggregate base compensation per year of approximately $3.0 million plus other benefits and bonuses. These employment agreements generally have an initial-term of three years and are automatically renewed thereafter for successive one-year period unless either party gives the other notice of non-renewal.

Also excluded from the above table are sales-based royalty payments to Duke and MVP due to the contingent nature of such obligations as the amounts and timing of these payments cannot be reasonably predicted. The royalty rate owed to Duke and MVP for any particular quarter ranges between 8% and 12% of net sales based on the amount of cumulative net sales made by us. We are also required to pay royalties of 20% of any milestones, revenues or other consideration we receive from sub-licensees during any quarter.

In addition, we have previously received financial support of research and development from the Office of the Chief Scientist of the State of Israel, or OCS, and the Bi-national Industrial Research and Development Foundation, or BIRD, of approximately $2.6 million for the development of KRYSTEXXA. The potential royalty payments pursuant to these grant agreements are excluded from the above table due to the contingent nature of such obligations as the amounts and timing of these payments cannot be reasonably predicted. In addition, under The Israeli Law of Encouragement of Research and Development in Industry, as amended, as a result of funding received from OCS, if we do not manufacture 100% of our annual worldwide bulk product requirements in Israel, we may be subject to total payments, based upon the percentage of manufacturing that does not occur in Israel. These payments have been excluded from the table above due to the uncertainties surrounding the potential future cash flows from the commercialization of KRYSTEXXA.

We have a liability for unrecognized tax benefits of $2.7 million at June 30, 2012. We are unable to estimate the timing of any future payments for this liability, if any.

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Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which we have prepared in accordance with accounting principles generally accepted in the United States. Applying these principles requires our judgment in determining the appropriateness of acceptable accounting principles and methods of application in diverse and complex economic activities. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of revenues, expenses, assets and liabilities, and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and other assumptions that we believe are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

For a discussion of our critical accounting estimates, see the MD&A in our 2011 Annual Report on Form 10-K filed with the Securities and Exchange Commission, or SEC, on February 29, 2012. There were no material changes in our critical accounting estimates or accounting policies from December 31, 2011.

Accounting Pronouncements

During the quarter ended June 30, 2012, there were no new accounting pronouncements or updates to recently issued accounting pronouncements disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 that materially affect the Company’s present or future results of operations, overall financial condition, liquidity or disclosures.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the exposure to loss resulting from changes in interest rates, foreign currency exchange rates, commodity prices and equity prices. To date our exposure to market risk has been limited. We do not currently hedge any market risk, although we may do so in the future. We do not hold or issue any derivative financial instruments for trading or other speculative purposes.

ITEM 4. CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended, or 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, or CEO, and our Chief Accounting Officer, or CAO, as appropriate, to allow timely decisions regarding required disclosure.

We do not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control systems are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in a cost-effective control system, no evaluation of internal control over financial reporting can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within our Company have been detected.

These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of control effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

Our management, with the participation of our CEO and our CAO, evaluated the effectiveness of our disclosure controls and procedures. Based on this evaluation, as of the end of the period covered by this Quarterly Report on Form 10-Q, our CEO and our CAO have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are effective.

There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter and six month period ended June 30, 2012 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Other Litigation

On April 30, 2012, a creditor derivative action complaint was filed by one of the holders of the our 4.75% Convertible Notes, Tang Capital Partners, LP, against us and our current and former directors in the Court of Chancery of the State of Delaware. On May 21, 2012, Tang Capital amended its complaint to add new claims against us and our current directors and also to add additional noteholders as plaintiffs. On June 29, 2012, the plaintiffs amended their complaint for a second time to add claims against us relating to an alleged event of default under the 2018 Indenture. As with the April 30 and May 21 complaints, the June 29 complaint also alleged, among other things, that we are insolvent, and sought the appointment of a receiver for us. We filed a motion to dismiss the receiver claim in the June 29 complaint on the grounds that the noteholders did not have standing to bring that claim and a motion for summary judgment that an event of default has not occurred under our convertible notes. On July 23, 2012, the Delaware Court of Chancery issued a bench ruling granting both of our motions. Specifically, the Court determined that the noteholders do not have standing to bring an action to appoint a receiver for us and that an event of default has not occurred under our convertible notes. The Court’s decision is subject to appeal by the plaintiffs. We have moved to dismiss the remaining claims in the June 29 complaint, but that motion has not yet been decided. On June 8, 2012, we filed a cross-complaint against Tang Capital for declaratory and other relief to remedy Tang Capital’s tortious interference with the 2018 Indenture, which remains outstanding. From time to time, we are subject to other legal proceedings and claims in the ordinary course of business. Such claims, even if without merit, could result in the significant expenditure of our financial and managerial resources. We are not aware of any legal proceedings or claims that it believes will, individually or in the aggregate, materially harm its business, results of operations, financial condition or cash flows.

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ITEM 1A. RISK FACTORS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934, as amended, that involve substantial risks and uncertainties. All statements, other than statements of historical fact, including statements regarding our strategy, future operations, future financial position, future results of operations, future cash flows, projected costs, financing plans, product development, commercialization of KRYSTEXXA, possible strategic alliances, competitive position, prospects, plans and objectives of management, are forward-looking statements. We often use words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “may,” “predict,” “will,” and “would,” and similar expressions, to identify forward-looking statements. ,

These forward-looking statements include, among other things, statements about:

• our ability to complete the development of and execute upon our commercial strategy for KRYSTEXXA,

• market demand and our ability to gain market acceptance for KRYSTEXXA among physicians, patients, health care payors and others in the medical community,

• our ability to execute on our plans for the expansion of the clinical utility for KRYSTEXXA,

• our market expansion plans for KRYSTEXXA outside the United States, including our Marketing Authorization Application, or MAA, which we filed with the European Medicine Agency, or EMA, last year,

• market acceptance of reimbursement risks with third-party payors during the initial phases of market introduction,

• the risk that the market for KRYSTEXXA is smaller than we have anticipated, our ability to achieve profitability and raise the additional capital needed to achieve our business objectives,

• our reliance on third parties to manufacture KRYSTEXXA,

• our ability to service our outstanding debt obligations, and

• risks associated with stringent government regulation of the biopharmaceutical industry.

We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements that we make. We have included important factors in various cautionary statements included in this Quarterly Report on Form 10-Q, particularly in the “Risk Factors” section, that we believe could cause actual results or events to differ materially from the forward-looking statements that we make.

You should read this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect.

Although we may elect to update forward-looking statements in the future, we specifically disclaim any obligation to do so, even if our estimates or assumptions change, and readers should not rely on our forward-looking statements as representing our views as of any date subsequent to the date of this Quarterly Report on Form 10-Q.

The following risk factors have been updated to reflect developments subsequent to the filing of our Annual Report on Form 10-K for the year ended December 31, 2011, and we have denoted with an asterisk (*) in the following discussion those risk factors that are materially revised.

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Risks relating to the commercialization and further development of KRYSTEXXA^® and our ability to accomplish our future business objectives

* Our business focuses primarily on the commercialization of KRYSTEXXA in the United States. Commercializing KRYSTEXXA in the United States is complex and requires substantial capital resources. If our U. S. commercialization strategy is unsuccessful, market acceptance of KRYSTEXXA may be harmed, and we will not achieve the revenues that we anticipate and may need additional funding.

Our business focuses primarily on the commercialization of KRYSTEXXA in the United States. The secondary focus of our business is the pursuit of regulatory approval, reimbursement and development activities for KRYSTEXXA in the European Union and other foreign jurisdictions through potential partnerships and collaborations, and the investigation of the expansion of the clinical utility for KRYSTEXXA. We do not have any material assets other than KRYSTEXXA. As a result of our reliance on this single product and our primary focus on the U.S. market in the near-term, much of our near-term results and value as a company depend on our ability to execute our commercial strategy for KRYSTEXXA in the United States.

During 2011, we implemented the first phase of the promotional launch of KRYSTEXXA in the United States with our sales force commencing field promotion to physicians on February 28, 2011. Beginning in January 2012, we began the second phase of the launch with commercial activities including increased outreach by our sales force to specialties other than rheumatologists, such as nephrologists and podiatrists that may also see patients with Refractory Chronic Gout, or RCG. The successful execution of our commercial strategy continues to be a complex and ongoing process and requires substantial capital resources. We have no prior experience commercializing a biologic drug product. If we are not successful in executing our commercialization strategy, market acceptance of KRYSTEXXA may be harmed, we will not achieve the revenues that we anticipate and we may need additional funding or seek a strategic licensing or co-promotion transaction in certain territories as a means of raising additional funds.

Our business also focuses on the worldwide clinical development and commercialization of KRYSTEXXA outside of the United States, particularly in the European Union. If we fail to achieve regulatory approval for KRYSTEXXA in the European Union or in other jurisdictions outside of the United States, or if regulatory approval in those jurisdictions is delayed, market acceptance of KRYSTEXXA in those markets will be harmed and we will not achieve the revenues that we anticipate.

We intend to market KRYSTEXXA outside the United States through the use of partners or collaborators. In order to market KRYSTEXXA in the European Union and other foreign jurisdictions, we must obtain separate regulatory approvals and comply with numerous and varying regulatory requirements. In early May 2011, we submitted our Marketing Authorization Application, or MAA, for marketing authorization for KRYSTEXXA in the European Union. In late May 2011, the European Medicines Agency, or EMA, validated and accepted for review our MAA and initiated the regulatory review process of KRYSTEXXA in the European Union. In March 2012, KRYSTEXXA became available in the European Union through a Named Patient Program, which permits the administration of treatments that are pending approval by the EMA to patients suffering from serious diseases prior to the treatment’s commercial availability in each market. However, our MAA could fail to be approved by the EMA, or such approval could be delayed. If our MAA is not approved, or if such approval is delayed, market acceptance of KRYSTEXXA in the European Union will be harmed and we will not achieve the revenues that we anticipate.

The procedures for obtaining foreign marketing approvals vary among countries and can involve additional clinical trials or other pre-filing requirements. The time required to obtain foreign regulatory approval may differ from that required to obtain U.S. Food and Drug Administration, or FDA, approval. The foreign regulatory approval process may include all the risks associated with obtaining FDA approval, or different or additional risks, and we may not obtain foreign regulatory approvals on a timely basis, if at all. Approval by the FDA does not ensure approval by regulatory authorities in other countries, and approval by one foreign regulatory authority does not ensure approval by regulatory authorities in other foreign countries. Further, the initiation of our Named Patient Program in the European Union does not ensure approval of our MAA by the EMA. We expect to pursue the commercialization of KRYSTEXXA outside the United States through development and commercialization collaborations, pursuant to which third parties may be responsible for obtaining such foreign regulatory approvals. We and our collaborators may not be able to file for regulatory approvals and may not receive necessary approvals to commercialize KRYSTEXXA in any foreign market. If we fail to receive approval in these jurisdictions, we will not generate revenue from sales of KRYSTEXXA in these jurisdictions.

* If we are not successful in retaining our existing sales and marketing personnel in the United States and maintaining an appropriate sales and marketing infrastructure in the United States, our ability to commercialize KRYSTEXXA and generate product sales in the United States will be impaired.

We have re-established our internal sales, marketing and commercialization infrastructure and capabilities, directed toward our commercialization of KRYSTEXXA in the United States. These efforts have been and will continue to be difficult, expensive and time consuming. We may not have accurately estimated the size or capabilities of the sales force necessary to successfully commercialize KRYSTEXXA in the U. S. and may not be able to attract, hire, train and retain the qualified sales and marketing personnel necessary to achieve or maintain an effective sales and marketing force for the sale of KRYSTEXXA in the U. S., or we may have underestimated the time and expense to achieve this objective. Similarly, we may not be successful in establishing necessary commercial infrastructure and capabilities, including managed care, medical affairs and pharmacovigilance teams. If our internal sales, marketing, and commercialization infrastructure proves to be inadequate, our ability to market and sell KRYSTEXXA and generate revenue from sales to customers in the U. S. will be impaired and result in lower than expected revenues.

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Our business and ability to repay our obligations may be harmed if we have inaccurately predicted the market size for KRYSTEXXA.

The market size for KRYSTEXXA is difficult to predict with accuracy. We currently estimate the total addressable market for KRYSTEXXA to be approximately 120,000 patients in the United States, based on a KRYSTEXXA Market Study that was completed in July 2011. However, the actual number of adult patients with RCG in the United States market may be substantially lower than our estimate. While we have also initiated a clinical development plan to expand the clinical utility of KRYSTEXXA into populations beyond RCG, we do not currently have an estimate of the size of the potential expanded market. Ultimately, the total addressable market opportunity for KRYSTEXXA will depend on, among other things, our marketing and sales efforts, the potential success of label expansion activities, reimbursement and market acceptance by physicians, infusion site personnel, healthcare payors and others in the medical community. In addition, we are also currently engaged in market sizing studies for KRYSTEXXA with respect to the European Union and the rest of the world.

If we have overestimated the market size for KRYSTEXXA, we could incur significant unrecoverable costs from creating excess manufacturing capacity or commercial sales and marketing capabilities and commercial infrastructure, and our revenues will be lower than expected, possibly materially so. Alternatively, if we underestimated the market size for KRYSTEXXA, we may not be able to manufacture sufficient quantities of KRYSTEXXA to enable us to realize full revenue potential from sales of KRYSTEXXA. Any of these results could materially harm our business.

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* The commercial success of KRYSTEXXA will depend upon the degree of its market acceptance by RCG patients, physicians, infusion site personnel, healthcare payors and others in the medical community. If KRYSTEXXA does not achieve an adequate level of market acceptance, we may not generate sufficient revenues to achieve or maintain profitability.

Those patients who suffer from RCG comprise a patient population that has previously failed other treatments. However, KRYSTEXXA may not gain or maintain market acceptance by these RCG patients, or by physicians, infusion site personnel, healthcare payors or others in the medical community. Additionally, we believe that a significant number of potential patients for KRYSTEXXA may be treated by nephrologists and podiatrists whom we have recently begun to educate about KRYSTEXXA in order to facilitate referrals of patients to rheumatologists or other infusion providers who will administer KRYSTEXXA. If we are unsuccessful in educating these specialists about KRYSTEXXA, or if they do not refer patients to sites of care, we do not expect to achieve an appropriate level of market acceptance for KRYSTEXXA. We could incur substantial and unanticipated additional expense in an effort to increase market acceptance, which would increase the cost of commercializing KRYSTEXXA and could limit its commercial success and result in lower than expected revenues. We believe the degree of market acceptance of KRYSTEXXA will depend on a number of factors, including:

• its efficacy and potential advantages over other treatments,

• the extent to which physicians are successful in treating patients with other products or treatments, such as allopurinol and Uloric^® (febuxostat), which, because they are pills, offer greater convenience and ease of administration and are substantially less expensive compared to KRYSTEXXA,

• whether patients remain on KRYSTEXXA or are able to be successfully managed with allopurinol or Uloric following treatment with KRYSTEXXA,

• the extent to which physicians and patients experience similar or improved clinical results to that reported on the approved product labeling,

• market acceptance of the per vial cost at which we sell KRYSTEXXA in the United States of approximately $2,576 for a single dose of treatment once every two weeks,

• the extent to which sales of KRYSTEXXA are limited by concern among physicians and patients over the boxed warning on the approved product label for KRYSTEXXA warning of anaphylaxis and infusion reactions,

• the prevalence and severity of other side effects that we have observed to date or that we may observe in the future,

• the extent to which the risk evaluation and mitigation strategy, or REMS, program required as part of the FDA’s approval of KRYSTEXXA is perceived by physicians to be burdensome,

• the timing of the release of competitive products or treatments,

• our marketing and sales resources, the quantity of our supplies of KRYSTEXXA and our ability to establish a distribution infrastructure for KRYSTEXXA in available markets,

• whether third-party and government payors cover or reimburse for KRYSTEXXA, and if so, to what extent and in what amount, and

• the willingness of the target patient population to be referred by primary care physicians to rheumatologists, nephrologists or infusion centers.

If market acceptance of KRYSTEXXA is adversely affected by any of these or other factors, then sales of KRYSTEXXA may be reduced and our business will be materially harmed.

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* The FDA approved our Biologics License Application, or BLA, with a final label that prescribes safety limits and warnings, including a boxed warning, and we are required to implement post-approval commitments and a REMS program to minimize the potential risks of the treatment of KRYSTEXXA. Such additional obligations and commitments may increase the cost of commercializing KRYSTEXXA, limit the commercial success of KRYSTEXXA and result in lower than expected future earnings.

In clinical trials of KRYSTEXXA, anaphylaxis and infusion reactions in patients were reported to occur during and after administration of KRYSTEXXA. In the Phase 3 trial for KRYSTEXXA, anaphylactic reactions were reported in 6.5% of patients treated with KRYSTEXXA, compared to 0% with placebo, and infusion reactions were reported to occur in 26% of patients treated with KRYSTEXXA, compared to 5% of patients treated with placebo. Physicians may be reluctant to treat patients with KRYSTEXXA because of concern regarding the occurrence of these anaphylactic and infusion reactions. In addition, the approved United States full prescribing information, or labeling, for KRYSTEXXA contains safety information, including a prominent warning on the full prescription information, or package insert, referred to as a “black box warning,” regarding anaphylaxis and infusion reactions, as well as contraindications, warnings and precautions. The prevalence and severity of these adverse reactions and the related labeling for KRYSTEXXA may reduce the market for the product and increase the costs associated with the marketing, sale and use of the product.

We are also required to implement a REMS program to minimize the potential risks of KRYSTEXXA treatment. The current REMS program includes a Communication Plan to healthcare providers and an Assessment Plan to survey patients’ and providers’ understanding of the serious risks of KRYSTEXXA. The FDA may further revise the REMS program at any time, which could impose significant additional obligations and commitments on us in the future or may require post-approval clinical or non-clinical studies. The FDA is also requiring that we conduct an observational trial, which is currently underway, in 500 patients treated with KRYSTEXXA for one-year to further evaluate and identify if there are any other serious adverse events associated with the administration of KRYSTEXXA. In addition, the FDA is requiring us to conduct several post-approval non-clinical and chemistry, manufacturing and control, or CMC, studies currently underway. Such additional obligations and commitments may increase the cost of commercializing KRYSTEXXA, limit the commercial success of KRYSTEXXA, result in revised safety labeling or REMS requirements and result in lower than expected future revenues.

* Although a number of private managed care organizations and government payors have added medical benefits coverage for KRYSTEXXA, we are continuing to seek reimbursement arrangements with them and additional third-party payors. If we are unable to obtain adequate reimbursement from third-party payors, or acceptable prices, for KRYSTEXXA, our revenues and prospects for profitability will suffer.

Our future revenues and ability to become profitable will depend heavily upon the availability of adequate reimbursement for the use of KRYSTEXXA from government-funded and private third-party payors. Reimbursement by a third-party payor depends on a number of factors, including the third-party payor’s determination that use of a product is:

• a covered benefit under its health plan,

• safe, effective and medically necessary,

• appropriate for the specific patient,

• cost effective, and

• neither experimental nor investigational.

Obtaining reimbursement approval for KRYSTEXXA from each government-funded and private third-party payor is a time-consuming and costly process, which in some cases requires us to provide to the payor supporting scientific, clinical and cost-effectiveness data for KRYSTEXXA’s use. We may not be able to provide data sufficient to gain acceptance with respect to reimbursement.

For instance, if state-specific Medicaid programs do not provide adequate, or any, coverage and reimbursement for KRYSTEXXA, it may have a negative impact on our operations. Recently enacted legislation has increased the amount that pharmaceutical manufacturers are required to rebate to Medicaid and this may have a negative effect on our revenues. Specifically, the minimum rebate for single-source covered outpatient drugs in the Medicaid program was increased from 15.1% to 23.1% of average manufacturer price on January 1, 2010.

In March 2011, we were awarded a contract from the U.S. Department of Veterans Affairs, or the VA, for KRYSTEXXA to be covered for reimbursement for VA member patients. This contract award became effective on April 1, 2011 and calls for us to sell KRYSTEXXA to the VA at an approximate 24% discount to our list price. If we are unable to negotiate smaller discounts to the list price for KRYSTEXXA with other third-party payors, our profitability will be materially and adversely affected.

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Even when a third-party payor determines that a product is generally eligible for reimbursement, third-party payors may impose coverage limitations that preclude payment for some product uses that are approved by the FDA or similar authorities or impose patient co-insurance or co-pay amounts that may result in lower market acceptance, which would lower our revenues. Where third-party payors require substantial co-insurance or co-pay amounts, we subsidize these amounts for some economically disadvantaged patients, which reduces our profit margin on KRYSTEXXA for those patients. Some payors establish prior authorization programs and procedures requiring physicians to document several different parameters, which may impede patient access to therapy. Moreover, eligibility for coverage does not necessarily mean that KRYSTEXXA will be reimbursed in all cases or at a rate that allows us to sell KRYSTEXXA at a price adequate to make a profit or even cover our costs. If we are not able to obtain coverage and adequate reimbursement promptly from third-party payors for KRYSTEXXA, our ability to generate revenues and become profitable will be compromised.

The scope of coverage and payment policies varies among private third-party payors, including indemnity insurers, employer group health insurance programs and managed care plans. These third-party payors may base their coverage and reimbursement on the coverage and reimbursement rate paid by carriers for Medicare beneficiaries, which are traditionally at a substantially discounted rate. Furthermore, many such payors are investigating or implementing methods for reducing healthcare costs, such as the establishment of capitated or prospective payment systems. Cost containment pressures have led to an increased emphasis on the use of cost-effective products by healthcare providers. If third-party payors do not provide adequate coverage or reimbursement for KRYSTEXXA, it could have a negative effect on our revenues, results of operations and liquidity.

* Current and future legislation may increase the difficulty and cost of commercializing KRYSTEXXA, affect the prices we may obtain and limit reimbursement amounts.

In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could restrict or regulate post-approval activities and affect our ability to profitably sell KRYSTEXXA.

The Medicare Modernization Act, or MMA, enacted in December 2003, has altered the way in which some physician-administered drugs and biologics, such as KRYSTEXXA, are reimbursed by Medicare Part B. Under this reimbursement methodology, physicians are reimbursed based on a product’s “average sales price.” This reimbursement methodology has generally led to lower reimbursement levels. This legislation also added an outpatient prescription drug benefit to Medicare, which went into effect in January 2006. These benefits are provided primarily through private entities, which we expect will attempt to negotiate price concessions from pharmaceutical manufacturers.

The Patient Protection and Affordable Care Act of 2010, or the PPACA, may have a significant impact on the healthcare system. As part of this legislative initiative, Congress enacted a number of provisions that are intended to reduce or limit the growth of healthcare costs, which could significantly change the market for pharmaceuticals and biological products. The provisions of the PPACA could, among other things, increase pressure on drug pricing or make it more costly for patients to gain access to prescription drugs like KRYSTEXXA at affordable prices. This could lead to fewer prescriptions for KRYSTEXXA and could force individuals who are prescribed KRYSTEXXA to pay significant out-of-pocket costs or pay for the prescription entirely by themselves. As a result of such initiatives, market acceptance and commercial success of our product may be limited and our business may be harmed.

While Medicaid coverage for KRYSTEXXA is available, if state-specific Medicaid programs do not provide adequate coverage and reimbursement, if any, for KRYSTEXXA, it may have a negative impact on our operations.

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If we fail to comply with regulatory requirements or experience unanticipated problems with KRYSTEXXA, the product could be subject to restrictions and be withdrawn from the United States market and we may be subject to penalties, which would materially harm our business.

The marketing approval for KRYSTEXXA in the Unites States, along with the manufacturing processes, reporting of safety and adverse events, post-approval commitments, product labeling, advertising and promotional activities, and REMS program, are subject to continual requirements of, and review by, the FDA, including thorough inspections of third-party manufacturing and testing facilities.

These requirements include submission of safety and other post-marketing information and reports, registration requirements, current Good Manufacturing Practices, or cGMP, relating to quality control, quality assurance and corresponding maintenance of records and documents, and recordkeeping. The FDA enforces compliance with cGMP and other requirements through periodic unannounced inspections of manufacturing and laboratory facilities. The FDA is authorized to inspect manufacturing and testing facilities, marketing literature, records, files, papers, processes, and controls at reasonable times and within reasonable limits and in a reasonable manner, and we cannot refuse to permit entry or inspection.

If, in connection with any future inspection, the FDA finds that we or any of our third-party manufacturers or testing laboratories are not in substantial compliance with cGMP requirements, the FDA may undertake enforcement action against us.

In addition, the approval of KRYSTEXXA is subject to limitations on the indicated uses for which it may be marketed. The approval of KRYSTEXXA also contains requirements for post-marketing testing and surveillance to monitor KRYSTEXXA’s safety and/or efficacy, as well as a commitment for the observational trial in 500 patients treated with KRYSTEXXA for one year to further evaluate the identification of any serious adverse events associated with the administration of KRYSTEXXA. Subsequent discovery of previously unknown problems with KRYSTEXXA or its manufacturing processes, such as known or unknown safety or adverse events, or failure to comply with regulatory requirements, may result in, for example:

• revisions of or adjustments to the product labeling,

• restrictions on the marketing or manufacturing of KRYSTEXXA,

• imposition of post-marketing study or post-marketing clinical trial requirements,

• imposition of new or revised REMS requirements, including distribution and use restrictions,

• public notice of regulatory violations,

• costly corrective advertising,

• warning letters,

• withdrawal of KRYSTEXXA from the market,

• refusal to approve pending applications or supplements to approved applications,

• voluntary or mandatory product recall,

• fines or disgorgement of profits or revenue,

• suspension or withdrawal of regulatory approvals, including license revocation,

• shutdown, or substantial limitations on the operations of manufacturing facilities,

• refusal to permit the import or export of products,

• product seizure,

• debarment from submitting certain abbreviated applications, and

• injunctions or the imposition of civil or criminal penalties.

If any of these events were to occur, our business would be materially harmed.

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We may face substantial competition and our competitors may develop or commercialize alternative technologies or products more successfully than we do.

The pharmaceutical and biotechnology industries are intensely competitive. We face competition with respect to KRYSTEXXA from major pharmaceutical companies and biotechnology companies worldwide. Potential competitors also include academic institutions and other public and private research institutions that conduct research, seek patent protection and establish collaborative arrangements for research, development, manufacturing and commercialization. Our competitors may develop products that are safer, are more effective, have fewer side effects, are more convenient or are less costly than KRYSTEXXA.

In September 2010, we received FDA approval for KRYSTEXXA for the treatment of chronic gout in adult patients suffering from RCG. By far, the most prevalent current treatment for gout is allopurinol, which can lower uric acid levels by inhibiting uric acid formation. Allopurinol is a generic and inexpensive treatment which has achieved widespread acceptance by payors, physicians and patients. A small number of patients with gout are treated with probenecid, which can lower uric acid levels by promoting excretion of uric acid. In addition, Uloric was approved by the FDA in early 2009 for the chronic management of hyperuricemia in patients with gout. Febuxostat lowers uric acid levels by inhibiting uric acid formation through a similar mechanism of action as allopurinol. Although febuxostat, is labeled for the chronic management of hyperuricemia in patients with gout, febuxostat is also used in patients who cannot tolerate allopurinol or where allopurinol is contraindicated, if patients are given febuxostat prior to treatment with KRYSTEXXA, the market demand for KRYSTEXXA may be affected. Each of these approved treatments is both less expensive than KRYSTEXXA and available as a pill. Pills are significantly more convenient for patients than KRYSTEXXA, which requires a visit to an infusion center. If KRYSTEXXA does not achieve an adequate level of market acceptance, we may not generate sufficient additional revenues to achieve or maintain profitability.

There are also a number of companies developing new treatments for gout. Some of these development stage treatments are currently in late stage clinical trials. Depending on their cost, safety, efficacy and convenience, one or more of these new therapies, if approved, could provide substantial competition for KRYSTEXXA.

Moreover, the PPACA permits the FDA to, among other things, approve biosimilar or interchangeable versions of biological products like KRYSTEXXA through an abbreviated approval pathway following periods of data and marketing exclusivity. The approval of such versions could result in the earlier entry of similar, competing, and less costly products by our foreign and domestic competitors, including products that may be interchangeable with our own approved biological products. The market entry of these competing products could decrease the revenue we receive for any approved products, which, in turn, could adversely affect our operating results, our overall financial condition and liquidity.

Many of our competitors have significantly greater financial resources and expertise in research and development, manufacturing, pre-clinical testing, conducting clinical trials, obtaining regulatory approvals and marketing and distributing approved products than we do. Smaller or early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These competitors also compete with us in recruiting and retaining qualified scientific, commercial and management personnel, as well as in acquiring products, product candidates and technologies complementary to, or necessary for, our programs or advantageous to our business.

If we are unable to maintain orphan drug exclusivity for KRYSTEXXA, we may face increased competition.

Under the Orphan Drug Act of 1983, the FDA may designate a product as an orphan drug if it is a drug intended to treat a rare disease or condition affecting fewer than 200,000 people in the United States. A company that first obtains FDA approval for a designated orphan drug for the specified rare disease or condition receives orphan drug marketing exclusivity for that drug for a period of seven years from the date of its approval. This orphan drug exclusivity prevents the approval of another drug containing the same active ingredient and used for the same orphan indication except in very limited circumstances, based upon the FDA’s determination that a subsequent drug is safer, more effective or makes a major contribution to patient care, or if the manufacturer is unable to assure that a sufficient quantity of the orphan drug is available to meet the needs of patients with the rare disease or condition. Orphan drug exclusivity may also be lost if the FDA later determines that the initial request for designation was materially defective.

KRYSTEXXA was granted orphan drug designation by the FDA in 2001, which we expect will provide the drug with orphan drug marketing exclusivity in the United States until September 2017, seven years from the date of its approval. However, such exclusivity may not effectively protect the product from competition if the FDA determines that a subsequent pegloticase drug for the same indication is safer, more effective or makes a major contribution to patient care, or if we are unable to assure the FDA that sufficient quantities of KRYSTEXXA are available to meet patient demand. In addition, orphan drug exclusivity does not prevent the FDA from approving competing drugs for the same or similar indication containing a different active ingredient. If a subsequent drug is approved for marketing for the same or similar indication we may face increased competition, and our revenues from the sale of KRYSTEXXA will be adversely affected.

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* If we do not obtain protection under the PPACA by obtaining data and marketing exclusivity for KRYSTEXXA, our business may be materially harmed.

The PPACA permits the FDA to, among other things, approve biosimilar or interchangeable versions of biological products like KRYSTEXXA through an abbreviated approval pathway following periods of data and marketing exclusivity. Biological products that are considered to be “reference products” are granted two overlapping periods of data and marketing exclusivity: a four-year period during which no abbreviated biologics license application, or BLA, relying upon the reference product may be submitted, and a 12-year period during which no abbreviated BLA relying upon the reference product may be approved by FDA. For purposes of the PPACA, a reference product is defined as the single biological product licensed under a full BLA against which a biological product is evaluated in an application submitted under an abbreviated BLA.

We believe that KRYSTEXXA is a “reference product” that is entitled to both four-year and 12-year exclusivity under the PPACA. The FDA, however, has not issued any regulations or final guidance explaining how it will implement the PPACA, including the exclusivity provisions for reference products. In February 2012, the FDA issued three draft guidance documents that provide its preliminary thoughts on how to interpret and implement the abbreviated BLA provisions of the PPACA. The FDA has requested public comments on these draft guidance documents, including the proper interpretation of PPACA’s exclusivity provisions for reference. It is thus possible that the FDA will decide to interpret the PPACA in such a way that KRYSTEXXA is not considered to be a reference product for purposes of the PPACA or be entitled to any period of data or marketing exclusivity. Even if KRYSTEXXA is considered to be a reference product and obtains exclusivity under the PPACA, another company nevertheless could also market another version of the biologic if such company can complete, and the FDA permits the submission of and approves, a full BLA with a complete human clinical data package. Although protection under the PPACA will not prevent the submission or approval of another “full” BLA, the applicant would be required to conduct its own pre-clinical and adequate and well-controlled clinical trials to demonstrate safety, purity, and potency (i.e., effectiveness). The market entry of such competing products could decrease the revenue we receive for KRYSTEXXA, which, in turn, could adversely affect our operating results and our overall financial condition.

We may need to raise additional capital to execute upon our commercial strategy for KRYSTEXXA. Such financing may only be available on terms unacceptable to us, or not at all. If we are unable to obtain financing on favorable terms, our business, results of operations and financial condition may be materially adversely affected.

At June 30, 2012, we had $142.2 million in cash, cash equivalents and short-term investments, as compared to $169.8 million at December 31, 2011 and $240.3 million at June 30, 2011. At June 30, 2012, we had an accumulated deficit of $468.1 million.

The development and commercialization of pharmaceutical products requires substantial funds and we currently have no committed external sources of capital. Historically, we have satisfied our cash requirements primarily through equity and debt offerings, product sales and the divestiture of assets that were not core to our strategic business plan. Most recently, in May 2012, we increased our cash position through the net proceeds received from the sale of Units comprised of our 2019 Notes and accompanying warrants and in February 2011 from the offer and sale of our 2018 Convertible Notes , a portion of which were exchanged by their holders for Units. We have been less successful in increasing our cash position in recent years through product sales of Oxandrin^® and our authorized generic Oxandrin brand equivalent product, oxandrolone, due to a substantial decline in sales. Although we may consider divesting Oxandrin and oxandrolone, any proceeds of that divestiture would not significantly improve our cash position and we do not have further non-core assets to divest.

Although our Board of Directors may from time-to-time evaluate strategic alternatives available to us to maximize value, we are proceeding with our commercial launch of KRYSTEXXA in the United States, have submitted and had validated and accepted for review by the EMA our MAA for KRYSTEXXA in the European Union and exploring partnership opportunities in the European Union and other foreign jurisdictions. Our future capital requirements will depend on many factors, including:

• the cost of commercialization activities, including product marketing, sales and distribution,

• the cost of clinical development activities directed to potential label expansion for KRYSTEXXA in the United States,

• the cost and results of our post-approval commitments to the FDA,

• our ability to establish and maintain additional collaborative arrangements relating to the commercialization of KRYSTEXXA in the European Union or in other jurisdictions outside of the United States, and

• the cost of manufacturing activities.

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Based on our current commercialization plans for KRYSTEXXA, including, among other things, our anticipated expenses relating to sales and marketing activities and the cost of clinical development activities directed to potential label expansion for KRYSTEXXA in the United States, and assuming that we are able to generate KRYSTEXXA revenues at the level that we are currently expecting, we believe that our existing cash, cash equivalents and short-term investments will be sufficient to fund our anticipated operations for at least the next two years.

We expect that the cash needed to successfully commercialize KRYSTEXXA in the United States and seek regulatory approvals in countries other than the United States will be substantial, and we may need to seek additional funding through customary methods or explore a strategic licensing or co-promotion transaction in certain territories as a means of raising additional funding. Should we elect to seek additional funding through customary methods, we may not be able to obtain additional financing or, if such financing is available, such financing may not be on terms that are acceptable to us. If we raise additional funds by issuing equity securities, dilution to our then-existing stockholders will result. If we issue preferred stock, it would likely include a liquidation preference and other terms that would adversely affect our common stockholders. If we raise additional funds through the issuance of debt securities or borrowings, we may incur substantial interest expense and could become subject to financial and other covenants that could restrict our ability to take specified actions, such as incurring additional debt or making capital expenditures. If we pursue a strategic licensing or co-promotion transaction, one may not be available to us or may only be available on terms that are not acceptable to us. If additional funds are not available on favorable terms, or at all, our business, results of operations and financial condition may be materially adversely affected, and we may be required to curtail or cease operations.

Current economic conditions may adversely affect our liquidity and financial condition.

The economies of the United States and other countries, particularly in the European Union, continue to be affected by the economic conditions that began with the financial and credit liquidity crisis in late 2008. Although economic conditions began to improve during fiscal 2011 and continued to improve in 2012, there continues to be significant uncertainty as to whether this improvement is sustainable. Furthermore, energy costs, geopolitical issues, sovereign debt issues, and the depressed state of global real estate markets have contributed to increased market volatility. Continued market volatility could adversely affect our stock price, liquidity and overall financial condition.

Our business partners, including the suppliers on which we depend, may be adversely affected by a worsening of the current economic conditions. We cannot fully predict to what extent our business partners and suppliers may be negatively affected and thus to what extent our operations would in turn be affected. We invest our cash and cash equivalents primarily in demand deposits and other short-term instruments with maturities of three months or less at the date of purchase. Since the advent of the global financial crisis in the first calendar quarter of 2008, we have maintained a balance in our investment strategy between objectives of safety of principal, liquidity and return by investing primarily in United States Treasury obligations.

* If we market KRYSTEXXA in a manner that violates healthcare fraud and abuse laws, or if we violate false claims laws or fail to comply with our reporting and payment obligations under the Medicaid Rebate Program or other governmental pricing programs, we may be subject to civil or criminal penalties or additional reimbursement requirements and sanctions, which could have a material adverse effect on our business, financial condition, results of operations and growth prospects.

In addition to FDA restrictions on the marketing of pharmaceutical products, several other types of state and federal healthcare fraud and abuse laws have been applied in recent years to restrict certain marketing practices in the pharmaceutical industry. These laws include anti-kickback statutes and false claims statutes. Because of the breadth of these laws and the narrowness of the safe harbors, it is possible that some of our business activities could be subject to challenge under one or more of these laws.

The federal healthcare program anti-kickback statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce, or in return for, purchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare item or service reimbursable, in whole or in part, under Medicare, Medicaid or other federally financed healthcare program. This statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers and formulary managers on the other. Although there are several statutory exemptions and regulatory safe harbors protecting certain common activities from prosecution, the exemptions and safe harbors are drawn narrowly and practices that involve remuneration intended to induce prescribing, purchasing or recommending such healthcare items or services may be subject to scrutiny if they do not qualify for an exemption or safe harbor. Our practices may not in all cases meet all of the criteria for safe harbor protection from anti-kickback liability.

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Federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government or knowingly making, or causing to be made, a false statement in order to have a claim paid. In recent years, several pharmaceutical and other healthcare companies have been prosecuted under these laws for a variety of alleged promotional and marketing activities, such as providing free trips, free goods, sham consulting fees and grants and other monetary benefits to prescribers, reporting inflated average wholesale prices to pricing services that were then used by federal programs to set reimbursement rates and engaging in off-label promotion that caused claims to be submitted to Medicaid for non-covered, off-label uses. Such activities have been alleged to cause the resulting claims for reimbursement to be “false” claims. Most states also have statutes or regulations similar to the federal anti-kickback and false claims laws, which apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor.

We participate in the federal Medicaid Rebate Program established by the Omnibus Budget Reconciliation Act of 1990, as well as several state supplemental rebate programs. Under the Medicaid Rebate Program, we pay a rebate to each state Medicaid program for our products that are reimbursed by those programs. Federal law requires that any company that participates in the Medicaid Rebate Program extend comparable discounts to qualified purchasers under the Public Health Service Act pharmaceutical pricing program, which requires us to sell our products to certain customers at prices lower than we otherwise might be able to charge. If products are made available to authorized users of the Federal Supply Schedule, additional pricing laws and requirements apply. Pharmaceutical companies have been prosecuted under federal and state false claims laws in connection with allegedly inaccurate information submitted to the Medicaid Rebate Program, for knowingly submitting or using allegedly inaccurate pricing information in connection with federal pricing and discount programs or for failing to file or timely file periodic drug pricing reports to the Medicaid Rebate Program.

Pricing and rebate calculations vary among products and programs. The calculations are complex and are often subject to interpretation by us or our contractors, governmental or regulatory agencies and the courts. Our methodologies for calculating these prices could be challenged under false claims laws or other laws. We or our contractors could make a mistake in calculating reported prices and required discounts, revisions to those prices and discounts, determining whether a revision is necessary or we or our contractors may fail to timely file such calculations which could result in retroactive rebates (and interest, if any). Governmental agencies may also make changes in program interpretations, requirements or conditions of participation, some of which may have implications for amounts previously estimated or paid. If this were to occur or if we were to fail to file or timely file periodic drug pricing reports as required, we could face, in addition to prosecution under federal and state false claims laws, substantial liability and civil monetary penalties, exclusion of our products from reimbursement under government programs, criminal fines or imprisonment or the entry into a Corporate Integrity Agreement, Deferred Prosecution Agreement, or similar arrangement.

In addition, federal legislation now imposes additional requirements. For example, as part of the PPACA, a federal physician payment disclosure provision based on the Physician Payments Sunshine Act was enacted, which requires pharmaceutical manufacturers to report certain gifts and payments to physicians beginning in 2013. These reports will then be placed on a public database. Failure to so report could subject companies to significant financial penalties.

Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations could be costly. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations, including anticipated activities conducted by our sales team in the sale of KRYSTEXXA, are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, exclusion from government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations. If any of the physicians or other providers or entities with whom we expect to do business are found to be not in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs.

Our conduct of the observational study in a commercial patient population contemplates that participating clinical sites will bill third-party payors for the cost of KRYSTEXXA and physician and infusion services which are incidental to the normal and ordinary therapeutic use of KRYSTEXXA. The clinical trial sites will separately bill us, and we will pay for, any additional tests and services which are required by the study protocol and not incidental to the normal and ordinary use of KRYSTEXXA. Under certain circumstances a payment being made to a physician or other healthcare provider who is using a commercially available product and billing third parties for its use may be found to be in violation of the federal Anti-Kickback Statute, the federal False Claims Act, and various other federal and state laws. If our conduct of the observational study for KRYSTEXXA is found to be in violation of these laws or any other governmental regulations, we may be subject to significant civil, criminal and administrative penalties, damages, fines, or exclusion from government funded healthcare programs, such as Medicare and Medicaid, which could result in the curtailment or restructuring of our operations.

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Foreign governments tend to impose strict price controls, which may adversely affect our revenues.

In some foreign countries, particularly the countries of the European Union and Canada, the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take, at a minimum, an additional six to 12 months after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval for KRYSTEXXA in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our product candidate to other available therapies. The conduct of such a clinical trial would be expensive and result in delays in commercialization of KRYSTEXXA in such markets. If reimbursement is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our business could be adversely affected.

Moreover, the MMA contains provisions that may change United States importation laws and expand pharmacists’ and wholesalers’ ability to import lower priced versions of certain drugs from Canada, where there are government price controls. Controlled substances, biological products and certain other drugs that are infused, inhaled or intravenously injected are exempt from these provisions, but it is possible that changes to the law could be made that would impact the ability to import these types of products. These changes to United States importation laws will not take effect unless and until the Secretary of Health and Human Services, or HHS, certifies that the changes will pose no additional risk to the public’s health and safety and will result in a significant reduction in the cost of products to consumers. This certification has not yet been made, and the Secretary of HHS has not announced any plans to do so. Even if the importation provisions of the MMA do not become effective, a number of other federal legislative proposals have been offered to implement similar changes to United States importation laws and to broaden permissible imports in other ways, such as expanding the number of countries from which importation is allowed. If the MMA importation provisions become effective, or if similar legislation or regulatory changes are enacted, this could permit more widespread importation of drugs from foreign countries into the United States. This may include re-importation from foreign countries where the drugs are sold at lower prices than in the United States. Such legislation, or similar regulatory changes, could decrease the revenue we receive for any approved products, which, in turn, could adversely affect our operating results, our overall financial condition and liquidity.

We may elect or be required to perform additional clinical trials for other indications or in support of applications for regulatory marketing approval of KRYSTEXXA in jurisdictions outside the United States. These additional trials could be costly and could result in findings inconsistent with or contrary to the data from the clinical trials that supported our United States filings with the FDA, which could restrict our marketing approval of KRYSTEXXA.

Before obtaining regulatory approval for the sale of KRYSTEXXA in their respective jurisdictions, we must provide foreign regulatory authorities with clinical data to demonstrate that KRYSTEXXA is safe and effective. We may also be required, or we may elect, to conduct additional clinical trials or pre-clinical animal studies for or in support of our applications for regulatory marketing approval in jurisdictions outside the United States, such as the EMA. Regulatory authorities in jurisdictions outside the United States may require us to submit data from supplemental clinical trials, or pre-clinical animal studies, in addition to data from the clinical trials that supported our United States filings with the FDA. For example, in December 2010, the Pediatric Committee of the EMA approved our pediatric investigation plan for the treatment and prevention of hyperuricemia, which was a condition to our ability to file for marketing approval in the European Union. Further, we may decide, or be required by regulators, to conduct additional clinical trials or testing of KRYSTEXXA following its approval in other jurisdictions. For example, we have made a post-approval commitment to the FDA that we will conduct the observational trial to further evaluate and identify any serious adverse events associated with the administration of KRYSTEXXA therapy. Finally, we intend to conduct additional clinical trials in connection with our efforts to expand the clinical utility of KRYSTEXXA into populations beyond RCG. Clinical trials of KRYSTEXXA must comply with regulation by numerous regulatory agencies in other countries. Clinical testing is expensive and difficult to design and implement. Clinical testing can also take many years to complete and the outcome of such testing is uncertain. Success in pre-clinical testing and early clinical trials does not ensure that later clinical trials will be successful and interim results of a clinical trial do not necessarily predict final results.

Any requirements to conduct supplemental trials would add to the cost of developing KRYSTEXXA, and we may not be able to complete such supplemental trials. Additional trials could also produce findings that are inconsistent with the trial results we have previously submitted to the FDA, in which case we would be obligated to report those findings to the FDA. This could result in additional restrictions on the marketing approval of KRYSTEXXA, including new safety labeling. Inconsistent trial results could also lead to delays in obtaining marketing approval in the United States for other indications for KRYSTEXXA and could cause regulators to impose restrictive conditions on marketing approvals, including but not limited to the expansion of our REMS program to include distribution and use restrictions, and could even cause our marketing approval to be revoked.

Any of these results would materially harm our business and impair our ability to generate revenues and achieve or maintain profitability and adversely effect our liquidity.

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* If we fail to attract and retain senior management and key personnel, we may not be able to complete the development of or execute upon our commercial and worldwide strategy for KRYSTEXXA.

We depend on key members of our management team. In addition, in recent years, due to challenges we have faced and changes in our senior management, we have relied at various times more heavily on our Board of Directors, particularly our Chairman, Stephen O. Jaeger, and more recently, David Norton, who has served as our interim Chief Executive Officer, or CEO, from February 1, 2012 to July 9, 2012, when Mr. Ferrari was appointed as our President and CEO. The loss of the services of Messrs. Jaeger or Ferrari, or any member of our senior management team, could harm our ability to complete the development of and execute our commercial strategy for KRYSTEXXA and the strategic objectives for our company. We have employment agreements with key members of our management team, but these agreements are terminable by the individuals on short or no notice at any time without penalty. In addition, we do not maintain, and have no current intention of obtaining, “key man” life insurance on any member of our management team.

Recruiting and retaining qualified scientific and commercial personnel, including clinical development, regulatory, sales and marketing executives and field personnel, is also critical to our success. We may not be able to attract and retain these personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel and based on our company profile. For example, Kenneth Zuerblis resigned as our Executive Vice President and Chief Financial Officer on May 29, 2012, and is currently serving on a consulting basis to assist in the transition of his responsibilities. We are actively searching for a new Chief Financial Officer. We also experience competition for the hiring of scientific personnel from universities and research institutions. If we fail to recruit and then retain these personnel, we may not be able to effectively pursue the development of and execute our commercial strategy for KRYSTEXXA.

As we expand our development and commercialization activities outside of the United States, we will be subject to an increased risk of inadvertently conducting activities in a manner that violates the U.S. Foreign Corrupt Practices Act. If that occurs, we may be subject to civil or criminal penalties which could have a material adverse effect on our business, financial condition, results of operations and growth prospects.

We are subject to the U.S. Foreign Corrupt Practices Act, or FCPA, which prohibits corporations and individuals from paying, offering to pay, or authorizing the payment of anything of value to any foreign government official, government staff member, political party, or political candidate in an attempt to obtain or retain business or to otherwise influence a person working in an official capacity.

In the course of establishing and expanding our commercial operations and seeking regulatory approvals outside of the United States, we will need to establish and expand business relationships with various third parties, such as consultants, advocacy groups and physicians, and we will interact more frequently with foreign officials, including regulatory authorities and physicians employed by state-run healthcare institutions who may be deemed to be foreign officials under the FCPA. Any interactions with any such parties or individuals where compensation is provided which are found to be in violation of the FCPA could result in substantial fines and penalties and could materially harm our business. If our business practices outside the United States are found to be in violation of the FCPA, we may be subject to significant civil and criminal penalties which could have a material adverse effect on our business, financial condition, results of operations, liquidity and growth prospects.

Risks relating to our reliance on third parties

We have no manufacturing capabilities and limited manufacturing personnel. We depend on third parties to manufacture KRYSTEXXA. If these manufacturers fail to meet our manufacturing requirements at acceptable quality levels and at acceptable cost, and if we are unable to identify suitable replacements, our commercialization efforts may be materially harmed.

We have limited personnel with experience in, and we do not own facilities for, the manufacturing of any of our products. We depend on third parties to manufacture KRYSTEXXA. We have entered into commercial supply agreements with third-party manufacturers, including:

• Bio-Technology General (Israel) Ltd., or BTG, for the production of the pegloticase drug substance,

• NOF Corporation of Japan, or NOF, for the supply of mPEG-NPC, a key raw material in the manufacture of the pegloticase drug substance, or drug substance, and

• Sigma-Tau PharmaSource, Inc., or Sigma-Tau, for the production of the KRYSTEXXA drug product.

These companies are our sole source suppliers for the mPEG-NPC, the drug substance and the KRYSTEXXA drug product.

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Our third-party manufacturers have limited experience manufacturing KRYSTEXXA on a sustained basis and at a capacity that would support our market projections for KRYSTEXXA. In addition, in order to produce KRYSTEXXA in the quantities necessary to meet our long-range anticipated market demand, our contract manufacturers will need to increase the overall manufacturing capacity for the drug substance. If we are unable to increase our manufacturing capacity or qualify an additional supplier, or if the cost of the increased capacity is uneconomical to us, we may not be able to produce KRYSTEXXA in a sufficient quantity to meet future demand, or at a satisfactory cost, either of which would adversely affect our projected revenues and gross margins.

Moreover, the FDA has previously identified manufacturing deficiencies and violations of cGMP at one of our manufacturers. Some of these deficiencies were significant and required substantial capital to remediate. Although we believe that these violations and deficiencies have since been remediated, the FDA may identify further violations or deficiencies in future inspections of our manufacturers’ facilities, which may impede their ability to timely provide us with product, if they are able to do so at all.

In addition, BTG is located in Israel. Future hostilities in the Middle East could harm BTG’s ability to supply us with the drug substance and could harm our commercialization efforts. Reliance on third-party manufacturers entails risks to which we would not be subject if we manufactured products ourselves, including:

• reliance on the third party for regulatory compliance, quality assurance and adequate training in management of manufacturing staff,

• the possible breach of the manufacturing agreement by the third party because of factors beyond our control, and

• the possibility of termination or non-renewal of the agreement by the third party, based on its own business priorities, at a time that is costly or inconvenient for us.

Any of these risks could cause us to be unable to obtain sufficient quantities of KRYSTEXXA to meet future demand, which would adversely affect our projected revenues and gross margins.

In the past, we experienced some batch failures of KRYSTEXXA based on one manufacturing specification. If we experience additional batch failure in the future, our gross margin in selling KRYSTEXXA will decrease and we may not have enough product to meet demand and the FDA may require us to take further steps to address issues related to our manufacturing process, any of which could materially harm our commercialization efforts.

In the second half of 2010, we experienced some batch failures of KRYSTEXXA based on one manufacturing specification. Although we believe that these batch failures are within normal industry failure rates experienced for the commencement of biologic commercial manufacturing, this failure rate is nonetheless above the level that we believe to be acceptable for normal ongoing operations. With the assistance of an outside manufacturing and quality consulting firm, we completed a review of these batch failures. Although we believe that we identified the root cause of the batch failures and have not had any batch failures since 2010, we may experience further batch failures. Under our direction, our third-party contract manufacturers have implemented remediation steps that we believe will continue to minimize or eliminate these failures in the future. However, the remediation steps that we have implemented may fail to minimize or eliminate future batch failures.

If we again experience rates of batch failures above levels that are acceptable for normal ongoing manufacturing operations, then our cost of producing KRYSTEXXA will increase and our gross margin in selling KRYSTEXXA will therefore decrease. We also may then not have enough product to meet demand. In addition, the FDA could require us to take further steps to reduce this batch failure rate, which could be costly and could require us to stop manufacturing KRYSTEXXA in order to implement these further remediation steps. Any reduction in our gross margin, inability to meet demand or FDA requirement to implement further remediation steps could materially harm our commercialization efforts.

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The manufacture and packaging of pharmaceutical products such as KRYSTEXXA are subject to the requirements of the FDA and similar foreign regulatory bodies. If we, or our third-party manufacturers, fail to satisfy these requirements, our product development and commercialization efforts may be materially harmed.

The manufacture and packaging of pharmaceutical products, such as KRYSTEXXA, are regulated by the FDA and similar foreign regulatory bodies and must be conducted in accordance with the FDA’s cGMPs and comparable requirements of foreign regulatory bodies. Our third-party manufacturers, including BTG, Sigma-Tau and NOF, are subject to periodic inspection by the FDA and similar foreign regulatory bodies. If our third-party manufacturers do not pass such periodic FDA or other regulatory inspections for any reason, including equipment failures, labor difficulties, failure to meet stringent manufacturing, quality control or quality assurance practices, or natural disaster, our ability to execute upon our commercial strategy for KRYSTEXXA will be jeopardized. Failure by us, or our third-party manufacturers, to comply with applicable regulations, requirements, or guidelines could result in sanctions being imposed on us, including fines, injunctions, civil penalties, failure of regulatory authorities to grant approval of pending marketing applications for our product, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of product, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect our business.

A significant disruption at any of our main manufacturing facilities could materially and adversely affect our business, financial position and results of operations.

We have concentrated third-party manufacturing facilities in Israel. A significant disruption resulting from, but not limited to, fire, tornado, storm, flood, cyber-attacks, geopolitical unrest, terror attacks, acts of war or pandemic could impair the facilities’ abilities to develop, produce and/or ship products on a timely basis, which could have a material adverse effect on our business, financial position, liquidity and operating results.

* Qualifying a global secondary source supplier of drug substance, any other change to any of our third-party manufacturers for KRYSTEXXA or any change in the location where KRYSTEXXA is manufactured requires prior FDA review, approval of the manufacturing process and procedures for KRYSTEXXA manufacture. This qualification and FDA review and approval will be costly and time consuming and could delay or prevent the manufacture of KRYSTEXXA at such facility.

We are re-evaluating whether to continue our efforts to validate Fujifilm Diosynth Biotechnologies USA LLC, or Fujifilm, as a potential secondary source supplier of the pegloticase drug substance used in the manufacture of KRYSTEXXA. Should we proceed, this supplier is required to produce validation batches of the drug substance to demonstrate to the FDA, in connection with its consideration of Fujifilm as a secondary source supplier, that the materials produced by this supplier are comparable to those produced at BTG. If we do not establish to the satisfaction of the FDA that the drug substance manufactured by the potential secondary source supplier is comparable to the drug substance manufactured at BTG, we will not be permitted to use the drug substance manufactured by the secondary source supplier in the formulation of KRYSTEXXA for marketing in the United States. During the first quarter of 2010, the conformance batch production campaign commenced, and as a result of batch failures, based on one manufacturing specification, the campaign was terminated in December 2010. We renegotiated the agreement with Fujifilm in June 2011.

Should we seek FDA approval of the Fujifilm secondary source manufacturing facility, we do not expect it to be completed until the first quarter of 2013, at the earliest. If the FDA requires that we conduct clinical or non-clinical trials to demonstrate that the drug substance manufactured by Fujifilm is equivalent to the drug substance manufactured by BTG, we would incur significant additional costs and delays in qualifying Fujifilm for the drug substance. If we elect to manufacture the drug substance used in KRYSTEXXA at the facility of another third-party supplier, if we elect to utilize a new facility to fill and finish KRYSTEXXA or if we change the location where KRYSTEXXA is manufactured, we would need to ensure that the new facility and the manufacturing process are in substantial compliance with the FDA’s cGMPs and obtain prior FDA approval. Any such new facility could also be subject to a pre-approval inspection by the FDA, and a successful technology transfer and subsequent validation of the manufacturing process would be required by the FDA, all of which are expensive and time-consuming endeavors. Any delays or failures in satisfying these requirements could delay our ability to manufacture KRYSTEXXA in quantities sufficient to satisfy market demand and our needs for any future clinical trials or other development purposes.

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If the company from which we source our mPEG-NPC is unable to supply us with product, our business may suffer.

We procure mPEG-NPC, a key raw material in the manufacture of drug substance, from a single supplier, NOF, whose manufacturing facilities are in Japan. Our contract with NOF requires us to purchase this material on an exclusive basis from NOF. Although we have a contractual right to procure this material from another supplier in the event of a supply failure, procuring this material from another source would require time and effort which may interrupt the supply of mPEG-NPC and thereby cause an interruption of the supply of drug substance and KRYSTEXXA to the marketplace and for any future clinical trials or other development purposes. For example, the FDA could require that we conduct additional clinical or non-clinical trials in support of the change to a new manufacturer, which could result in significant additional costs or delays. Any interruption of supply of mPEG-NPC could cause harm to our business.

* If the company on which we rely for fill and finish services for KRYSTEXXA is unable to perform these services for us, our business may suffer.

We have outsourced the operation for KRYSTEXXA fill and finish services to a single approved company, Sigma-Tau. Until we determine our path forward with a potential secondary source manufacturing facility, we have placed on hold our efforts to engage a secondary third-party fill and finish manufacturer for KRYSTEXXA and plan to continue to rely on Sigma-Tau for fill and finish services for the foreseeable future. At this time, we do not have redundancy in our supply chain for these fill and finish functions and currently have no substitute that can provide these services. If Sigma-Tau is unable to perform these services for us, we would need to identify and engage an alternative company or develop our own fill and finish capabilities. Any new contract fill and finish manufacturer or capabilities that we acquire or develop will need to obtain FDA approval. Identifying and engaging a new contract fill and finish manufacturer or developing our own capabilities and obtaining FDA approval could involve significant cost and delay. As a result, we might not be able to deliver KRYSTEXXA orders on a timely basis, and we might not have sufficient supply to meet our needs for any future clinical trials or other development purposes, any of which would harm our business.

We rely on third parties to conduct our clinical activities and non-clinical studies for KRYSTEXXA and those third parties may not perform satisfactorily, which could impair our ability to satisfy our post-approval commitments to the FDA and any clinical development activities that we may undertake in the future.

We do not independently conduct clinical activities for KRYSTEXXA. We rely on third parties, such as contract research organizations, or CROs, clinical data management organizations, medical institutions and clinical investigators, to perform these activities, including the observational study for serious adverse events associated with the administration of KRYSTEXXA therapy that the FDA is requiring that we implement as part of its approval of KRYSTEXXA, any additional clinical trials that may be required in the future by the FDA or similar foreign regulatory bodies, and any other clinical studies that we may elect to conduct. We also will rely on these third parties to perform the post-approval non-clinical studies that the FDA is requiring us to conduct for KRYSTEXXA. We use multiple CROs to coordinate the efforts of our clinical investigators and to accumulate the results of our trials. Our reliance on these third parties for clinical activities and non-clinical studies reduces our control over these activities. We are responsible for ensuring that each of our clinical trials is conducted in accordance with the general investigational plan and protocol for the trial and in accordance with agreed upon deadlines. Moreover, the FDA requires us and third parties acting on our behalf to comply with good clinical practices, or cGCPs, for conducting, recording and reporting the results of clinical trials to ensure that data and reported results are credible and accurate and that the rights, integrity and confidentiality of trial participants are protected. Our reliance on third parties that we do not control does not relieve us of these responsibilities and requirements. Furthermore, these third parties may also have relationships with other entities, some of which may be our competitors.

If these third parties do not successfully carry out their contractual obligations, meet expected deadlines or conduct our clinical development activities in accordance with regulatory requirements or our stated protocols, we may not be able to, or may be delayed in our efforts to, successfully execute upon our commercial strategy, and obtain additional regulatory approvals, for KRYSTEXXA. We also may be subject to fines and other penalties for failure to comply with requirements applicable to the conduct and completion of post-marketing studies and clinical trials within specified timeframes and to the public reporting of clinical trial information on the registry and results database maintained by the National Institutes of Health, or NIH.

We also rely on third parties to store and distribute drug supplies for our clinical development activities. Any performance failure on the part of such third parties could delay the commercialization of KRYSTEXXA, causing us to incur additional expenses and harming our ability to generate additional revenue.

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We do not plan to commercially launch KRYSTEXXA on our own in Europe or other markets but will instead explore partnership opportunities in those regions. However, we may be unsuccessful in identifying such partnerships on favorable terms or consummating such partnerships. If we are not successful in these efforts, we may fail to meet our business objectives.

We do not plan to launch KRYSTEXXA on our own in Europe or other markets but will instead explore partnership opportunities in those regions. We may seek development and commercialization for KRYSTEXXA outside the United States. We face significant competition in seeking appropriate partners. In addition, such arrangements may not be scientifically or commercially successful or we may not be able to enter into such partnerships on favorable terms. If we are unable to reach agreement with a development and commercialization partner on favorable terms, or if such an arrangement is terminated, our ability to develop, commercialize and market KRYSTEXXA may be harmed and we may fail to meet our business objectives for KRYSTEXXA.

The success of any collaboration arrangement will depend heavily on the efforts and activities of any potential collaborators. Any potential collaborators will have significant discretion in determining the efforts and resources that they will apply to such collaborations. The risks that we face in connection with potential collaborations include the following:

• collaboration agreements are generally for fixed terms and subject to termination under various circumstances, including, in many cases, on short notice without cause,

• we expect that any collaboration agreement will require that we not conduct specified types of research and development in the field that is the subject of the collaboration, which may have the effect of limiting the areas of research and development that we may pursue, either alone or in cooperation with third parties,

• collaborators may develop and commercialize, either alone or with others, products and services that are similar to or competitive with our products that are the subject of the collaboration with us, and

• collaborators may change the focus of their development and commercialization efforts.

Pharmaceutical and biotechnology companies historically have re-evaluated their priorities following mergers and consolidations, which have been common in recent years in our industry. The ability of KRYSTEXXA to reach its potential could be limited if any potential collaborators decrease or fail to increase spending related to any collaboration. Collaborations with pharmaceutical companies and other third parties often are terminated or allowed to expire by the other party. Such terminations or expirations can adversely affect us financially as well as harm our business reputation.

Further, entering into collaborative arrangements for the commercialization of KRYSTEXXA in the European Union and other foreign jurisdictions may also be time consuming, and may not be on terms favorable to us, if we are successful in entering into such arrangements at all. The commercialization of KRYSTEXXA outside the United States would subject us to additional risks, including:

• potentially reduced protection for intellectual property rights,

• unexpected changes in tariffs, trade barriers and regulatory requirements,

• economic weakness, including inflation, or political instability in particular foreign economies and markets,

• compliance with tax, employment, immigration and labor laws for employees traveling abroad,

• foreign taxes,

• foreign currency fluctuations, which could result in increased operating expenses and reduced revenues, and other obligations incident to doing business in another country,

• workforce uncertainty in countries where labor unrest is more common than in the United States, and

• business interruptions resulting from geo-political actions, including war and terrorism, or natural disasters, including earthquakes, volcanoes, typhoons, floods, hurricanes and fires.

These and other risks may materially adversely affect our ability to attain or sustain profitable operations or collaborations in jurisdictions outside of the United States.

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Risks relating to intellectual property

If we fail to comply with our obligations in our intellectual property licenses with third parties, we could lose license rights that are important to our business.

We are party to various license agreements and we may enter into additional license agreements in the future. For example, we license exclusive worldwide rights to patents and pending patent applications that constitute the fundamental composition of matter and underlying manufacturing patents for KRYSTEXXA from Mountain View Pharmaceuticals, Inc., or MVP, and Duke University, or Duke. Under the agreement, we are required to use best efforts to bring to market and diligently market products that use the licensed technology.

The agreement requires us to pay to MVP and Duke quarterly royalty payments within 60 days after the end of each quarter based on KRYSTEXXA net sales made in that quarter by us. The royalty rate for a particular quarter ranges between 8% and 12% of net sales based on the amount of cumulative net sales made by us. In addition, and pursuant to the agreement, we are required to make potential separate milestone payments to MVP and Duke if we successfully commercialize KRYSTEXXA and attain specified KRYSTEXXA sales targets. Also under the agreement, for sales made by sub-licensees and not by us, we are required to pay royalties of 20% on any revenues or other consideration we receive from sub-licensees during any quarter. We record the royalty and sales-based milestone payments pursuant to the MVP and Duke agreement as a component of cost of goods sold in our consolidated statements of operations.

The agreement with MVP and Duke remains in effect, on a country-by-country basis, for the longer of 10 years from the date of first sale of KRYSTEXXA in such country or the date of expiration of the last-to-expire patent covered by the agreement in such country. The licensors may terminate the agreement with respect to the countries affected upon our material breach, if not cured within a specified period of time, immediately after our third or subsequent material breach of the agreement or our fraud, willful misconduct or illegal conduct. The licensors may also terminate the agreement in the event of our bankruptcy or insolvency. Upon a termination of the agreement in one or more countries, all intellectual property rights conveyed to us under the agreement with respect to the terminated countries, including regulatory applications and pre-clinical and clinical data, revert to MVP and Duke and we are permitted to sell off any remaining inventory of KRYSTEXXA for such countries.

In addition, we could have disputes with our current and future licensors regarding, for example, the interpretation of terms in our agreements. Any such disagreements could lead to delays in the development or commercialization of any potential products or could result in time-consuming and expensive litigation or arbitration, which may not be resolved in our favor.

If we fail to comply with our obligations under the agreement, we could lose the ability to commercialize KRYSTEXXA, which could require us to curtail or cease our operations.

If we are unable to obtain and maintain protection for the intellectual property relating to our technology and products, the value of our technology and products will be adversely affected.

Our success will depend in large part on our ability to obtain and maintain protection in the United States and other countries for the intellectual property covering or incorporated into our technology and products. The patent situation in the field of biotechnology and pharmaceuticals is highly uncertain and involves complex legal and scientific questions. We may not be able to obtain additional issued patents relating to our technology or products. Even if issued, patents may be challenged, narrowed, invalidated or circumvented, which could limit our ability to stop competitors from marketing similar products or limit the length or term of patent protection we may have for our products. Generic forms of our product Oxandrin were introduced to the market in late 2006. As a result, our results of operations have been harmed. The composition of matter, methods of manufacturing and methods of use patents expire and, if issued, patent applications relating to KRYSTEXXA would expire between 2019 and 2026. Changes in either patent laws or in the interpretations of patent laws in the United States or other countries may diminish the value of our intellectual property or narrow the scope of our patent protection. For example, the PPACA allows applicants seeking approval of biosimilar or interchangeable versions of biological products like KRYSTEXXA to initiate a process for challenging some or all of the patents covering the innovator biological product used as the reference product. This process is complicated and could result in the limitation or loss of certain patent rights. In addition, such patent litigation is costly and time-consuming and may adversely affect our overall financial condition and liquidity.

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Our patents also may not afford us protection against numerous competitors with similar technology. Patent applications in the United States and many foreign jurisdictions are typically not published until 18 months after filing and in some cases not at all. Therefore, because publications of discoveries in the scientific literature often lag behind actual discoveries, neither we nor our licensors can be certain that we or they were the first to develop the inventions claimed in issued patents or pending patent applications, or that we or they were the first to file for protection of the inventions set forth in these patent applications. Even in the event that our patents are upheld as valid and enforceable, they may not foreclose potential competitors from developing new technologies or “workarounds” that circumvent our patent rights. This means that our patent portfolio may not prevent the entry of a competitive product into the market. In addition, patents generally expire, regardless of their date of issue, 20 years from the earliest claimed non-provisional filing date. As a result, the time required to obtain regulatory approval for a product candidate may consume part or all of the patent term. We are not able to accurately predict the remaining length of the applicable patent term following regulatory approval of any of our product candidates.

If we are unable to protect the confidentiality of our proprietary information and know-how, the value of our technology and products could be adversely affected.

In addition to patented technology, we rely upon unpatented proprietary technology, processes and know-how. We seek to protect this information in part through confidentiality agreements with our employees, consultants and third parties. If any of these agreements are breached, we may not have adequate remedies for any such breach. In addition, any remedies we may seek may prove costly. Furthermore, our trade secrets may otherwise become known or be independently developed by competitors. If we are unable to protect the confidentiality of our proprietary information and know-how, competitors may be able to use this information to develop products that compete with our products, which could adversely affect our business.

If we infringe or are alleged to infringe intellectual property rights of third parties, our business may be adversely affected.

Our development and commercialization activities, as well as any product candidates or products resulting from these activities, may infringe or be claimed to infringe patents or patent applications under which we do not hold licenses or other rights. We are aware of patent applications filed by, and patents issued to, other entities with respect to technology potentially useful to us and, in some cases, related to products and processes being developed by us. Third parties may own or control these patents and patent applications in the United States and abroad. These third parties could bring claims against us, our licensors or our collaborators that would cause us to incur substantial expenses. If such third-party claims are successful, we could be liable for substantial damages. Further, if a patent infringement suit were brought against us, our licensors or our collaborators, we or they could be forced to stop or delay research, development, manufacturing or sales of the product or product candidate that is the subject of the suit.

As a result of patent infringement claims, or in order to avoid potential claims, we, our licensors or our collaborators may choose or be required to seek a license from the third party and be required to pay license fees, royalties or both. These licenses may not be available on acceptable terms or at all. Even if we, our licensors or our collaborators were able to obtain a license, our rights may be non-exclusive, which could result in our competitors gaining access to the same intellectual property. Ultimately, we could be prevented from commercializing a product, or be forced to cease some aspect of our business operations if, as a result of actual or threatened patent infringement claims, we or our collaborators are unable to enter into licenses on acceptable terms. This could harm our business significantly.

The pharmaceutical and biotechnology industries have experienced substantial litigation and other proceedings regarding patent and other intellectual property rights. In addition to infringement claims against us, we may become a party to other patent litigation and other proceedings, including interference proceedings declared by the U.S. Patent and Trademark Office and opposition proceedings in the European Patent Office or in another patent office, regarding intellectual property rights with respect to our products and technology. The costs to us of any patent litigation or other proceeding, even if resolved in our favor, could be substantial. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their substantially greater financial resources.

Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could adversely affect our ability to compete in the marketplace. Patent litigation and other proceedings may also absorb significant management time.

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In the future, we may be involved in costly legal proceedings to enforce or protect our intellectual property rights or to defend against claims that we infringe the intellectual property rights of others.

Litigation is inherently uncertain and an adverse outcome could subject us to significant liability for damages or invalidate our proprietary rights and adversely impact our ability to market and further develop KRYSTEXXA. Legal proceedings that we initiate to protect our intellectual property rights could also result in counterclaims or countersuits against us. Any litigation, regardless of its outcome, could be time consuming and expensive to resolve and could divert our management’s time and attention. Any intellectual property litigation also could force us to take specific actions, including any of the following:

• cease selling products or undertaking processes that are claimed to be infringing a third party’s intellectual property,

• obtain licenses to make, use, sell, offer for sale or import the relevant technologies from the intellectual property’s owner, which licenses may not be available on reasonable terms or at all,

• redesign products or processes that are claimed to be infringing a third party’s intellectual property, or

• pursue legal remedies with third parties to enforce our indemnification rights, which may not adequately protect our interests.

We have been involved in several lawsuits and disputes regarding intellectual property in the past. We could be involved in similar disputes or litigation in the future. An adverse decision in any intellectual property litigation could have a material adverse effect on our business, results of operations, financial condition and liquidity.

Risks relating to our results of operations, common stock and indebtedness

We have incurred operating losses since 2004 and we have incurred and anticipate that we will continue to incur substantial expenses in connection with our commercial launch of KRYSTEXXA in the United States and further development and efforts to obtain regulatory approval for KRYSTEXXA outside of the United States. If we do not generate significant revenues from the sale of KRYSTEXXA, we will not be able to achieve profitability.

Our ability to achieve operating profitability in the future depends on the successful commercialization and further development of KRYSTEXXA. We have incurred and expect to continue to incur significant expenditures in connection with the commercialization of KRYSTEXXA in the United States and further development and effort to seek regulatory approval for KRYSTEXXA outside of the United States. If sales revenue from KRYSTEXXA is insufficient, we may never achieve operating profitability. Even if we do become profitable, we may not be able to sustain or increase our profitability on a quarterly or annual basis.

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* We incurred substantial indebtedness that may adversely affect our cash flow and otherwise negatively affect our operations.

We have $293 million in principal amount of outstanding secured and unsecured notes, consisting of our 2018 Convertible Notes and our 2019 Notes. The 2018 Convertible Notes bear interest at a rate of 4.75% per year. The 2019 Notes were issued in an original principal amount equal to 73.78% of their fully accreted principal amount. In addition to the accretion of principal, the 2019 Notes have a cash coupon interest rate 3% in the first three years and a cash coupon interest rate of 12% per year thereafter. The 2019 Notes will reach their contractully accreted principal amount on May 9, 2015, and will mature on May 9, 2019.

We may in the future incur additional indebtedness, including long-term debt, credit lines and property and equipment financings to finance capital expenditures. We intend to satisfy our current and future debt service obligations from cash generated by our operations, our existing cash and investments and, in the case of principal payments at maturity, funds from external sources. We may not have sufficient funds and we may be unable to arrange for additional financing to satisfy our principal or interest payment obligations when those obligations become due. Funds from external sources may not be available on acceptable terms, or at all.

Our indebtedness could have significant additional negative consequences, including:

• increasing our vulnerability to general adverse economic and industry conditions,

• limiting our ability to obtain additional financing,

• requiring the dedication of a substantial portion of our cash flow from operations to service our indebtedness, thereby reducing the amount of our expected cash flow available for other purposes, including capital expenditures and research and development,

• limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we compete, and

• placing us at a possible competitive disadvantage to less leveraged competitors and competitors that have better access to capital resources.

Moreover, the indentures governing both series of our notes provide for repurchase by us, at the noteholders’ option, under certain circumstances. In the event we are required to repurchase all or a substantial portion our outstanding indebtedness, our business will be materially adversely affected.

In addition, the indenture governing our 2019 Notes contains a number of restrictive covenants that impose significant operating and financial restrictions on us and may limit our ability to engage in acts that may be in our long-term best interest, including restrictions on our ability to:

• incur additional indebtedness and guarantee indebtedness,

• pay dividends or make other distributions or repurchase or redeem capital stock,

• prepay, redeem or repurchase certain debt,

• issue certain preferred stock or similar equity securities,

• make loans and investments,

• sell assets,

• incur liens,

• enter into transactions with affiliates,

• alter the businesses we conduct,

• enter into agreements restricting our subsidiaries’ ability to pay dividends, and

• consolidate, merge or sell all or substantially all of our assets.

However, while the indenture governing the 2019 Notes places limitations on our ability to pay dividends or make other distributions, repurchase or redeem capital stock, and make loans and investments, these limitations are subject to significant qualifications and exceptions. You should read our more detailed descriptions of indebtedness and the indenture governing our 2019 Notes in our filings with the Securities and Exchange Commission, as well as the documents themselves, for further information about these covenants.

We expect sales of Oxandrin and oxandrolone to continue to decrease, which may continue to harm our results of operations.

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Sales of Oxandrin and oxandrolone have declined substantially in recent years due to generic competition. Our sales of Oxandrin and oxandrolone in the United States are also affected by fluctuations in the buying patterns of the three major drug wholesalers to which we principally sell these products. In the past, wholesalers have reduced their inventories of Oxandrin and oxandrolone. We expect that wholesalers will keep their inventory levels flat or continue to reduce them as a result of generic competition, which could further decrease our revenues from these products.

Sales of Oxandrin and oxandrolone have also decreased as a result of the elimination of reimbursement, or limited reimbursement practices, by some states under their AIDS Drug Assistance Programs via their state Medicaid programs for HIV/AIDS prescription drugs, including Oxandrin and oxandrolone. Other state formularies may follow suit.

We have considered the demand deterioration of Oxandrin and oxandrolone in estimating future product returns. However, our demand forecasts are based upon our management’s best estimates. Future product returns in excess of our historical reserves could reduce our revenues even further and adversely affect our results of operations.

In addition, we no longer have an effective agreement with a third-party manufacturer to produce Oxandrin and oxandrolone tablets and therefore our ability to supply the market with Oxandrin and oxandrolone will be materially diminished and our existing market share will decrease.

* An event of default under our outstanding indebtedness would irreparably harm our business.

On April 30, 2012, a creditor derivative action complaint was filed by one of the holders of the Company’s 2018 Convertible Notes, Tang Capital Partners, LP, against us and our current and former directors in the Court of Chancery of the State of Delaware. On May 21, 2012, Tang Capital amended its complaint to add new claims against us and our current and former directors and also to add additional noteholders as plaintiffs. On June 7, 2012, we received a letter notifying us that certain holders of our 2018 Convertible Notes have notified US Bank, the trustee under the indenture governing our 2018 Convertible Notes, or the 2018 Indenture that, because the April 30, 2012 complaint remained pending without dismissal or stay for a period of 30 consecutive days, an event of default has occurred under the terms of the 2018 Indenture. To the extent that an event of default exists under the 2018 Indenture, then, pursuant to the terms of the 2018 Indenture, the principal of, and accrued and unpaid interest on, all of the 2018 Convertible Notes (approximately $122,000,000 in principal amount) would automatically become due and payable immediately. On June 29, 2012, the plaintiffs amended their complaint for a second time to add claims against us relating to their alleged event of default under the 2018 Indenture. As with the April 30 and May 21 Complaints, the June 29 complaint also alleges, among other things, that we are insolvent, and seeks the appointment of a receiver for us. We filed a motion to dismiss the receiver claim in the June 29 complaint on the grounds that the noteholders did not have standing to bring that claim and a motion for summary judgment that an event of default has not occurred under our convertible notes. On July 23, 2012, the Delaware Court of Chancery issued a bench ruling granting both of our motions. Specifically, the Court determined that the noteholders do not have standing to bring an action to appoint a receiver for us and that an event of default has not occurred under our convertible notes. However, the Court’s decision is subject to appeal by the plaintiffs, and there can be no guarantee as to outcome. If the plaintiffs were to appeal and prevail, and the alleged event of default were to result in the acceleration of our 2018 Convertible Notes and such acceleration is not rescinded, then, under the indenture governing the 2019 Notes, or the 2019 Indenture, following notice from either the Trustee for the 2019 Notes or the holders of at least 25% of the then outstanding 2019 Notes and a 30-day cure period, a cross-default would be triggered under the 2019 Indenture, which would in turn give holders of at least 25% of the 2019 Notes then outstanding under the 2019 Indenture the right to cause the accreted value of, and any accrued and unpaid interest on, the 2019 Notes to immediately become due and payable.

We do not believe that an event of default has occurred under the 2018 Indenture, nor do we believe that a cross-default has occurred under the 2019 Indenture or that acceleration of any of our indebtedness has occurred. Moreover, on June 8, 2012, we filed a cross-complaint against Tang Capital for declaratory and other relief to remedy Tang Capital’s tortious interference with the 2018 Indenture, which remains outstanding. However, if plaintiffs are successful in their appeal and we are unsuccessful in defending against it and it is ultimately determined that an event of default has occurred under the 2018 Indenture, then unless we were able to find alternative means to refinance our outstanding

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indebtedness or to agree with other holders of our indebtedness not to demand immediate payment of our indebtedness, our business and financial condition would be materially and irreparably harmed. In addition, if a cross-default was triggered under the 2019 Indenture, then these risks would be enhanced significantly.

* Our stock price is volatile, which could adversely affect your investment.

Our stock price has been, and will likely continue to be, volatile. The stock market in general and the market for biotechnology companies in particular has experienced extreme volatility that has often been unrelated to the operating performance of particular companies. The market price of our common stock may be influenced by many factors, including:

• the cost of commercialization activities, including product marketing, sales and distribution,

• whether we are successful in marketing and selling KRYSTEXXA,

• market acceptance of KRYSTEXXA by physicians and patients in this largely previously untreated patient population,

• the cost of our post-approval commitments to the FDA, including an observational study and a REMS program,

• the price that we charge for KRYSTEXXA and under what conditions private and public payors will reimburse patients for KRYSTEXXA,

• whether and when we face generic or other competition with respect to KRYSTEXXA,

• our ability to maintain a sufficient inventory of KRYSTEXXA to meet commercial demand,

• the timing and costs of regulatory approval for KRYSTEXXA in any countries other than the United States,

• the timing of any future capital raising transactions by us, and the structure of such transactions and amount of capital raised,

• our ability to successfully defend against the creditor derivative action complaint and subsequent alleged default under our Senior Notes.

• announcements of technological innovations or developments relating to competitive products or product candidates,

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• market conditions in the pharmaceutical and biotechnology industries and the issuance of new or revised securities analyst reports or recommendations,

• period-to-period fluctuations in our financial results,

• legal and regulatory developments in the United States and foreign countries, and

• other factors described in this “Risk Factors” section.

Moreover, on June 29, 2012, The NASDAQ Stock Market notified us that we did maintain a minimum bid price of $1.00 per share as required by NASDAQ listing rules, on August 7, 2012 we were notified that we did not comply with the $50 million market value of listed securities requirement. If we do not regain compliance with the minimum bid requirement by December 26, 2012, and the market value of listed securities requirement by February 3, 2012, we may be delisted from The NASDAQ Global Market. While we may be eligible for an additional 180 day grace period to regain compliance with the minimum bid requirement, or appeal the NASDAQ’s decision following the exhaustion of all available grace periods, there is no assurance that we will regain compliance with the minimum bid requirement or otherwise avoid delisting. If we do not regain compliance, we may implement a reverse stock split to raise our stock price over the minimum bid requirement or be delisted. In the event we are delisted, our common stock will trade on “over-the-counter” exchanges, through which trading in general is less stable than traditional exchanges and which could impact the volatility of our common stock.

This volatility imposes a greater risk of capital losses for our stockholders than a less volatile stock, or a stock which trades on a traditional exchange, would. In addition, volatility makes it difficult to ascribe a stable valuation to a stockholder’s holdings of our common stock. This volatility may affect the price at which our investors can sell their common stock, and any sale of substantial amounts of our common stock could adversely affect the market price of our common stock.

* Effecting a change of control of our company could be difficult, which may discourage offers for shares of our common stock.

Our certificate of incorporation and the Delaware General Corporation Law, or the DGCL, contain provisions that may delay or prevent a merger, acquisition or other change of control that stockholders may consider favorable, including transactions in which stockholders might otherwise receive a premium for their shares. These provisions include the requirements of Section 203 of the DGCL. Section 203 prohibits a publicly held Delaware corporation from engaging in a business combination with an “interested stockholder,” generally deemed a person that, together with its affiliates, owns or within the last three years has owned 15% of our voting stock, for a period of three years after the date of the transaction in which the person became an interested stockholder, unless:

• our Board of Directors approves the transaction before the third party acquires 15% of our stock,

• the third party acquires at least 85% of our stock at the time its ownership exceeds the 15% level, or

• our Board of Directors and the holders of two-thirds of the shares of our common stock not held by the third-party vote in favor of the transaction.

We have also adopted a stockholder rights plan intended to deter hostile or coercive attempts to acquire us. Under the plan, which expires in August 2012 at the earliest, if any person or group acquires more than 15% of our common stock without approval of our board of directors under specified circumstances, our other stockholders have the right to purchase shares of our common stock, or shares of the acquiring company, at a substantial discount to the public market price. As a result, the plan makes an acquisition much more costly to a potential acquirer.

Our certificate of incorporation also authorizes us to issue up to 4,000,000 shares of preferred stock in one or more different series with terms fixed by our Board of Directors. Stockholder approval is not necessary to issue preferred stock in this manner. Issuance of these shares of preferred stock could have the effect of making it more difficult for a person or group to acquire control of our company. No shares of our preferred stock are currently outstanding. Although our Board of Directors has no current intention or plan to issue any preferred stock, issuance of these shares could be used as an anti-takeover device.

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Product liability lawsuits could cause us to incur substantial liabilities.

We face an inherent risk of product liability exposure related to product sales of Oxandrin, oxandrolone and KRYSTEXXA. We also face the risk of product liability exposure related to the testing of KRYSTEXXA. If we cannot successfully defend ourselves against claims that our products caused injuries, we will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:

• decreased demand for KRYSTEXXA,

• injury to our reputation,

• withdrawal of clinical trial participants,

• withdrawal or recall of a product from the market,

• modification to product labeling that may be unfavorable to us,

• costs to defend the related litigation,

• substantial monetary awards to trial participants or patients, and

• loss of revenue.

We currently have product liability insurance coverage in place, which is subject to coverage limits and deductibles. The amount of insurance that we currently hold may not be adequate to cover all liabilities that may occur. Product liability insurance is difficult to obtain and increasingly expensive. We may not be able to maintain insurance coverage at a reasonable cost and we may not be able to obtain insurance coverage with policy limits that will be adequate to satisfy any liability that may arise.

ITEM 6. EXHIBITS

a) Exhibits

The exhibits listed in the Exhibit Index are included in this report.

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SIGNATURES

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

SAVIENT PHARMACEUTICALS , INC.

(Registrant)

By:	/s/    Louis Ferrari
	Louis Ferrari
	Chief Executive Officer & President
	(Principal Executive Officer)

By:	/s/    David G. Gionco
	David G. Gionco
	Group Vice President, Chief Accounting Officer &Treasurer
	(Principal Financial and Accounting Officer)

Dated: August 9, 2012

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EXHIBIT INDEX

Exhibit No.	Description
3.1	By-Laws of Savient Pharmaceuticals, Inc., as amended through August 6, 2012*
4.1	Rights Agreement, dated August 6, 2012, between Savient Pharmaceuticals, Inc. and American Stock Transfer and Trust Company, LLC (including the form of Certificate of Designations of Series A Junior Participating Preferred Stock, as Exhibit A thereto, the form of Rights Certificate as Exhibit B thereto, and the form of Summary of Rights to Purchase Preferred Stock as Exhibit C thereto)*
31.1	Certification of principal executive officer pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as amended
31.2	Certification of the principal financial officer pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as amended
32.1	Statement pursuant to 18 U.S.C. §1350
32.2	Statement pursuant to 18 U.S.C. §1350
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

* Previously filed as an exhibit to, and incorporated by reference from, the Company’s Current Report on Form 8-K filed on August 7, 2012

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