News Column

MEDICINES CO /DE - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations

August 4, 2014

You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and accompanying notes included elsewhere in this quarterly report on Form 10-Q. In addition to the historical information, the discussion in this quarterly report on Form 10-Q contains certain forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated by the forward-looking statements due to our critical accounting estimates discussed below and important factors set forth in this quarterly report on Form 10-Q, including under "Risk Factors" in Part II, Item 1A of this quarterly report on Form 10-Q. Overview Our Business We are a global biopharmaceutical company focused on saving lives, alleviating suffering and contributing to the economics of healthcare by focusing on 3,000 leading acute and intensive care hospitals worldwide. We market Angiomax® (bivalirudin), Recothrom® Thrombin topical (Recombinant), Cleviprex® (clevidipine) injectable emulsion, Minocin® (minocycline) for injection and the Tenaxis surgical sealant, a vascular and surgical sealant acquired in our acquisition of Tenaxis Medical, Inc., or Tenaxis. We also have a pipeline of acute and intensive care hospital products in development, including five product candidates for which we have submitted applications for regulatory approval or plan to submit applications for regulatory approval in 2014 which we refer to as our registration stage product candidates, cangrelor, IONSYSTM (fentanyl iontophoretic transdermal system), OrbactivTM (oritavancin), RaplixaTM, formerly referred to as FibrocapsTM, and RPX-602, and three research and development product candidates, MDCO-216, CarbavanceTM and ALN-PCSsc, which we have the right to develop, manufacture and commercialize under our collaboration agreement with Alnylam Pharmaceuticals, Inc., or Alnylam. We believe that these marketed products and products in development possess favorable attributes that competitive products do not provide, can satisfy unmet medical needs in the acute and intensive care hospital product market and offer, or, in the case of our products in development, have the potential to offer, improved performance to hospital businesses. In addition to these products and product candidates, we sell a ready-to-use formulation of Argatroban and have a portfolio of ten generic drugs, which we refer to as our acute care generic products, that we have the non-exclusive right to market in the United States. We are currently selling three of our acute care generic products, midazolam, ondansetron and rocuronium. We also co-promote the oral tablet antiplatelet medicine BRILINTA® (ticagrelor) in the United States as part of our global collaboration agreement with AstraZeneca LP, or AstraZeneca, and the Boston Scientific Promus PREMIERTM Everolimus-Eluting Platinum 24 -------------------------------------------------------------------------------- Chromium Coronary Stent System, or Promus PREMIER Stent System, in the United States under our co-promotion agreement with Boston Scientific Corporation, or BSX. In addition to the product candidates above, we also have an exclusive option to acquire worldwide rights for ABP700, an intravenous anesthetic program, which is under development with Annovation Biopharma Inc., or Annovation. The following table identifies each of our marketed products and our products in development, their stage of development, their mechanism of action and the indications for which they have been approved for use or which they are intended to address. The following chart also identifies each of our acute care generic products and the therapeutic areas which they are intended to address. All of our marketed products and products in development, except for Recothrom, IONSYS, ALN-PCSsc, the Tenaxis surgical sealant and Raplixa, are administered intravenously. Recothrom and the Tenaxis surgical sealant are, and Raplixa is being developed as, a topical hemostat, IONSYS is being developed to be administered transdermally and ALN-PCSsc is being developed as a subcutaneous injectable. All of our acute care generic products are injectable products.



Product or Product Development Stage Mechanism/Target Clinical Indication(s)/Therapeutic

in Development Areas Marketed Products Angiomax Marketed Direct thrombin U.S. - for use as an anticoagulant inhibitor in combination with aspirin in patients with unstable angina undergoing percutaneous



transluminal coronary angioplasty,

or



PTCA, and for use in patients

undergoing percutaneous coronary

intervention, or PCI, including

patients with or at risk of

heparin induced thrombocytopenia

and thrombosis syndrome, or HIT/HITTS Europe - for use as an anticoagulant in patients



undergoing PCI, adult patients

with acute coronary syndrome, or ACS, and for the treatment of



patients with ST-segment elevation

myocardial infarction, or STEMI,

undergoing primary PCI Ready-to-use Argatroban Marketed in the Direct thrombin Approved for prophylaxis or United States inhibitor



treatment of thrombosis in adult

patients with HIT and for use as

an



anticoagulant in adult patients

with



or at risk for HIT undergoing

PCI Cleviprex Marketed in the Calcium channel U.S.



- Blood pressure reduction

United States, blocker when



oral therapy is not feasible

Australia, Germany or



not desirable

and Switzerland



Switzerland - with indications for

blood pressure control in

Approved in



perioperative settings

Austria, Belgium,



Ex-U.S. - with indications for

Canada, France,



blood pressure control in

Luxembourg, the perioperative settings Netherlands, New Zealand, Spain and the United Kingdom MAA submitted for other European Union countries Minocin IV Marketed in the Tetracycline-class



Treatment of bacterial infections

United States antibiotic



caused by Acinetobacter species Tenaxis surgical sealant Approved in the Mechanical vascular U.S. - for use as a vascular

United States; and surgical



sealant Europe - for use as a

Marketed in the sealant



surgical sealant applicable to

European Union



cardiovascular, general,

urological, and thoracic surgery

25 --------------------------------------------------------------------------------

Recothrom Marketed in the Recombinant human For use as an aid to United States and thrombin hemostasis to help Canada control oozing blood and mild bleeding during surgical procedures Acute care generic Approved in the Various Acute cardiovascular products: Adenosine, United States Amiodarone, Esmolol and Milrinone Acute care generic Approved in the Various Serious infectious products: United States disease Azithromycin and Clindamycin Acute care generic Approved in the Various Surgery and products: United States; perioperative Haloperidol, Midazolam, Midazolam, Ondansetron and Ondansteron and Rocuronium marketed Rocuronium in the United States Registration Stage Cangrelor NDA in the United Antiplatelet agent Prevention of States accepted for platelet activation filing by the FDA and aggregation when in the third oral therapy is not quarter of 2013; feasible or not MAA accepted for desirable review in the European Union in the fourth quarter of 2013 IONSYS Supplemental New Patient-controlled Short-term Drug Application, analgesia system management of acute or sNDA, filed in postoperative pain the second quarter of 2014; MAA submission in European Union planned for the middle of 2014 Orbactiv NDA in the United Antibiotic Treatment of serious States accepted for gram-positive filing by the FDA bacterial in the first infections, quarter of 2014; including acute MAA accepted for bacterial skin and review in the skin structure European Union in infections, or the first quarter ABSSSI, and of 2014 including infections that are resistant to conventional treatment Raplixa Phase 3 completed; Dry powder topical For use as an aid to Biologics License formulation of stop bleeding during Application, or fibrinogen and surgery BLA, accepted for thrombin filing by the FDA in April 2014; MAA submission in the European Union accepted for review by the EMA in the fourth quarter of 2013 RPX-602 NDA submission in Improved Treatment of the United States formulation of infections caused by planned for 2014 Minocin IV Acinetobacter species Research and Development Stage Carbavance Phase 1 completed, Combination of Treatment of we expect to enter RPX-7009, a hospitalized Phase 3 clinical proprietary, novel patients with study in the second beta-lactamase serious half of 2014 inhibitor, with a gram-negative carbapenem infections antibiotic MDCO-216 Phase 1 completed Naturally occurring Reversal cholesterol variant of a transport agent to protein found in reduce high-density atherosclerotic lipoprotein, or HDL plaque burden development and thereby reduce the risk of adverse thrombotic events ALN-PCSsc Pre-clinical PCSK-9 gene Treatment of antagonist hypercholesterolemia addressing low-density lipoprotein, or LDL, cholesterol disease modification Our revenues to date have been generated primarily from sales of Angiomax in the United States. In the six months ended June 30, 2014, we had net revenue from sales of Angiomax of approximately $318.8 million, net revenue from sales of Recothrom of approximately $29.8 million and net revenue from sales of Cleviprex, ready-to-use Argatroban, Minocin IV and the Tenaxis surgical sealant of approximately $12.4 million in the aggregate. 26 -------------------------------------------------------------------------------- We continue to expand our sales and marketing efforts outside the United States. We believe that by establishing operations outside the United States, we can increase our sales of Angiomax, Cleviprex and the Tenaxis surgical sealant outside of the United States and be positioned to commercialize Recothrom and Minocin IV and our products in development, if and when they are approved and ready to be marketed outside of the United States. Cost of revenue represents expenses in connection with contract manufacture of our products sold and logistics, product costs, royalty expenses and amortization of the costs of license agreements, amortization of product rights and other identifiable intangible assets, from product and business acquisitions. Research and development expenses represent costs incurred for licenses of rights to products, clinical trials, nonclinical and preclinical studies, regulatory filings and manufacturing development efforts. We outsource much of our clinical trials, nonclinical and preclinical studies and all of our manufacturing development activities to third parties to maximize efficiency and minimize our internal overhead. We expense our research and development costs as they are incurred. Selling, general and administrative expenses consist primarily of salaries and related expenses, costs associated with general corporate activities and costs associated with marketing and promotional activities. Research and development expense, selling, general and administrative expense and cost of revenue also include share-based compensation expense, which we allocate based on the responsibilities of the recipients of the share-based compensation. Angiomax Patent Litigation



The principal U.S. patents covering Angiomax include U.S. Patent No. 5,196,404, or the '404 patent, U.S. Patent No. 7,582,727, or the '727 patent, and U.S. Patent No. 7,598,343, or the '343 patent.

In the second half of 2009, the U.S. Patent and Trademark Office, or PTO, issued to us the '727 patent and the '343 patent, covering a more consistent and improved Angiomax drug product and the processes by which it is made. The '727 patent and the '343 patent are set to expire in July 2028. In response to Paragraph IV Certification Notice letters we received with respect to abbreviated new drug applications, or ANDAs, filed by a number of parties with the FDA seeking approval to market generic versions of Angiomax, we have filed lawsuits against the ANDA filers alleging patent infringement of the '727 patent and '343 patent. On September 30, 2011, we settled our '727 patent and '343 patent infringement litigation with Teva Pharmaceuticals USA, Inc. and its affiliates, which we collectively refer to as Teva. In connection with the Teva settlement, we entered into a license agreement with Teva under which we granted Teva a non-exclusive license under the '727 patent and '343 patent to sell a generic bivalirudin for injection product under a Teva ANDA in the United States beginning June 30, 2019 or earlier under certain conditions. The license agreement also contains a grant by Teva to us of an exclusive (except as to Teva) license under Teva's bivalirudin patents and right to enforce Teva's bivalirudin patents. On January 22, 2012, we settled our patent litigation with APP Pharmaceuticals LLC, or APP, including our litigation with respect to the extension of the patent term of the '404 patent and our patent infringement litigation with respect to the '727 patent and the '343 patent. In connection with the APP settlement, we entered into a license agreement with APP under which we granted APP a non-exclusive license under the '727 patent and '343 patent to sell a generic bivalirudin for injection product under an APP ANDA in the United States beginning on May 1, 2019. In certain limited circumstances, the license to APP could become effective prior to May 1, 2019. In addition, in certain limited circumstances, this license to APP could include the right to sell a generic bivalirudin product under our NDA for Angiomax in the United States beginning on May 1, 2019 or, in certain limited circumstances, on June 30, 2019 or on a date prior to May 1, 2019. In September 2013, a three day bench trial was held regarding our patent infringement litigation with Hospira, Inc., or Hospira, with respect to the '727 patent and '343 patent, and a post-trial briefing was completed in December 2013. On March 31, 2014, the court issued its trial opinion on the matter. With respect to patent validity, the court held that the '727 and '343 patents were valid on all grounds. Specifically, the court found that Hospira had failed to prove that the patents were either anticipated and/or obvious. The court further held that the patents satisfied the written description requirement, were enabled and were not indefinite. With respect to infringement, based on its July 2013 Markman decision, the court found that Hospira's ANDAs did not meet the "efficient mixing" claim limitation and thus did not infringe the asserted claims of the '727 and '343 patents. The court found that the other claim limitations in dispute were present in Hospira's ANDA products. The court entered a final judgment on April 15, 2014. On May 9, 2014, a Notice of Appeal to the United States Court of Appeals for the Federal Circuit was filed with the Delaware Court. On May 23, 2014, Hospira filed a notice of cross-appeal. If our appeal is not successful or Hospira's cross-appeal is successful, then Angiomax could be subject to generic competition earlier than anticipated, including from Hospira's generic bivalirudin, as well as potentially Teva's and APP's generic bivalirudin products. 27

-------------------------------------------------------------------------------- We remain in patent infringement litigation involving the '727 patent and '343 patent with other ANDA filers, as described in Part II, Item 1, Legal Proceedings, of this quarterly report on Form 10-Q. If we are unable to maintain our market exclusivity for Angiomax in the United States through enforcement of our U.S. patents covering Angiomax, then Angiomax could be subject to generic competition earlier than May 1, 2019 and as early as June 15, 2015, the date of expiration of the patent term of the '404 patent and the six month pediatric exclusivity. Cangrelor Regulatory Review In February 2014, the FDA Cardiovascular and Renal Drugs Advisory Committee advised against approval of cangrelor for use in patients undergoing PCI or those that require bridging for oral antiplatelet therapy to surgery. On April 30, 2014, the FDA issued a Complete Response Letter for our NDA for cangrelor. For the PCI indication, the FDA stated that the NDA cannot be approved at the present time and the FDA suggested that we perform a series of clinical data analyses of the CHAMPION PHOENIX study, review certain processes regarding data management, and provide bioequivalence information on the clopidogrel clinical supplies for the CHAMPION trials. For the BRIDGE indication, the FDA concluded that a prospective, adequate and well-controlled study in which outcomes such as bleeding are studied, can result in the clinical data necessary to assess the benefit-risk relationship in this indication. The FDA also provided additional comments for us to address, stating that the comments are not currently approvability issues, but could affect labeling. We are focused on the additional analyses in response to the FDA and are working with the FDA to accommodate its review process in a timely manner.



Business Development Activity

Tenaxis Medical, Inc. In April 2014, we entered into an Agreement and Plan of Merger with Tenaxis Medical, Inc., or Tenaxis, Napa Acquisition Corp., our wholly owned subsidiary, and Fortis Advisors LLC, a Delaware limited liability company, solely in its capacity as the representative and agent of the stockholders and optionholders of Tenaxis. On May 1, 2014, we completed our acquisition of Tenaxis and Tenaxis became our wholly owned subsidiary. As a result of the acquisition of Tenaxis, we acquired Tenaxis's sole product, a surgical sealant that mechanically seals both human tissue and artificial grafts. In the United States, the Tenaxis surgical sealant received a premarket approval from the FDA in March 2013 for use as a vascular sealant, but Tenaxis has not yet commercialized the product in the United States. We expect to begin selling the Tenaxis surgical sealant in the United States in the fourth quarter of 2014. In the European Union, the Tenaxis surgical sealant is approved for sale as a surgical sealant applicable to cardiovascular, general, urological, and thoracic surgery with a European CE Mark. Pursuant to this approval, the Tenaxis surgical sealant has been sold in the European Union since September 2008. Under the merger agreement, we paid to the holders of Tenaxis's capital stock, the holders of options to purchase shares of Tenaxis's capital stock (whether or not such capital stock or options were vested or unvested as of immediately prior to the closing) and the holders of certain warrants and side letters, which we refer to collectively as the Tenaxis equityholders, an aggregate of $58.9 million in cash, subject to customary adjustments at and after the closing. At the closing, we also deposited $5.4 million of the purchase price into an escrow fund for the purposes of securing the indemnification obligations of the Tenaxis equityholders to us for any and all losses for which we are entitled to indemnification pursuant to the merger agreement and to provide the source of recovery for any amounts payable to us as a result of the post-closing purchase price adjustment process. To the extent that any amounts remain in the escrow fund after October 1, 2015 and not subject to claims by us, such amounts will be released to the Tenaxis equityholders, subject to certain conditions set forth in the merger agreement. In addition, we have agreed to pay to the Tenaxis equityholders milestone payments subsequent to the closing, if we achieve certain regulatory approval milestones and commercial net sales milestones with respect to the Tenaxis surgical sealant, at the times and on the conditions set forth in the merger agreement. In the event that all of the milestones set forth in the merger agreement are achieved in accordance with the terms of the merger agreement, we will pay the Tenaxis equityholders up to an additional $112.0 million in cash in the aggregate. Promus PREMIER Stent System Co-Promotion. In December 2013, we entered into a co-promotion agreement with BSX for the Promus PREMIER Stent System. Under the terms of the co-promotion agreement, in January 2014, our acute cardiovascular care sales force began a collaboration with the BSX Interventional Cardiology sales force to provide promotional support for the Promus PREMIER Stent System in U.S. hospitals. The Promus PREMIER Stent System combines a platinum chromium alloy stent, everolimus drug (manufactured by Novartis) and polymer coating, and a stent delivery system. Under the terms of the agreement, BSX paid us $2.5 million in December 2013 upon completion of certain training activities and has agreed to pay quarterly, performance-based payments if BSX's drug-eluting stent sales in the U.S. exceed certain targets as specified in the agreement. In addition, under the terms of the agreement, BSX has agreed to pay us an additional fee if yearly sales exceed a certain amount specified in the agreement and a fee if the agreement is still in effect at a certain date as specified in the agreement.



Rempex Pharmaceuticals, Inc. In December 2013, we acquired Rempex Pharmaceuticals, Inc., or Rempex, a company focused

28 --------------------------------------------------------------------------------



on the discovery and development of new antibacterial drugs to meet the growing clinical need created by multi-drug resistant bacterial pathogens.

Under the terms of our agreement with Rempex, we paid the Rempex equityholders an aggregate of approximately $140.3 million in cash at closing, including purchase price adjustments. In addition, we agreed to pay to the Rempex equityholders milestone payments subsequent to the closing, if we achieve certain development and regulatory approval milestones and commercial sales milestones with respect to Minocin IV, RPX-602, Carbavance and Rempex's other product candidates, at the times and on the conditions set forth in the merger agreement. In the event that all of the milestones set forth in the merger agreement are achieved in accordance with the terms of the merger agreement, we will pay the Rempex equityholders an additional $214.0 million in cash in the aggregate for achieving development and regulatory milestones and an additional $120.0 million in cash in the aggregate for achieving commercial milestones, in each case, less certain transaction expenses and employer taxes owing because of the milestone payments. In the event that any milestone payments become due within eighteen months following the closing, we will enter into an escrow agreement and deposit the first $14.0 million of the aggregate milestone payments into an escrow fund. To the extent that any amounts remain in the escrow fund after June 3, 2015 and not subject to claims by us, such amounts will be released to the Rempex equityholders, subject to certain conditions set forth in the merger agreement. ProFibrix B.V. On August 5, 2013, we completed our acquisition of all of the outstanding equity of ProFibrix B.V., or ProFibrix, pursuant to a share purchase agreement entered into with ProFibrix and its equityholders on June 4, 2013. Under the terms of the share purchase agreement with ProFibrix, we paid an aggregate of approximately $90.9 million in cash to the ProFibrix equityholders and optionholders at the closing. In addition, we are obligated to pay up to an aggregate of $140.0 million in cash to the ProFibrix equityholders and optionholders upon the achievement of certain U.S. and European regulatory approvals prior to January 1, 2016 and certain U.S. and European sales milestones during the 24-month period that follows the initial commercial sale of Raplixa. As a result of our acquisition of ProFibrix, we acquired a portfolio of patents and patent applications, including patents licensed from Quadrant Drug Delivery Limited, or Quadrant, which included the U.S. patent directed to the composition of matter of Raplixa. Under the terms of a license agreement between ProFibrix and Quadrant, we are required to pay low single digit percentage royalties based on annual worldwide net sales of licensed products, including Raplixa, by us or our affiliates and sublicensees. The royalties are subject to reduction in specified circumstances. ALN-PCS Program. In February 2013, we entered into a license and collaboration agreement with Alnylam to develop, manufacture and commercialize therapeutic products targeting the human PCSK-9 gene based on certain of Alnylam's RNAi technology. Under the terms of the agreement, we obtained the exclusive, worldwide right under Alnylam's technology to develop, manufacture and commercialize PCSK-9 products for the treatment, palliation and/or prevention of all human diseases. We paid Alnylam $25.0 million in an initial license payment and agreed to pay up to $180.0 million in cash to Alnylam upon the achievement of certain milestones, including up to $30.0 million in cash upon the achievement of specified development milestones, up to $50.0 million in cash upon the achievement of specified regulatory milestones and up to $100.0 million in cash upon the achievement of specified commercialization milestones. In addition, Alnylam will be eligible to receive scaled double-digit royalties based on annual worldwide net sales of PCSK-9 products by us or our affiliates and sublicensees. Royalties to Alnylam are payable on a product-by-product and country-by-country basis until the last to occur of the expiration of patent rights in the applicable country that cover the applicable product, the expiration of non-patent regulatory exclusivities for such product in such country, and the twelfth anniversary of the first commercial sale of the product in such country. The royalties are subject to reduction in specified circumstances. We are also responsible for paying royalties, and in some cases milestone payments, owed by Alnylam to its licensors with respect to intellectual property covering these products. Recothrom. In February 2013, pursuant to a master transaction agreement with Bristol-Myers Squibb Company, or BMS, we acquired the right to sell, distribute and market Recothrom on a global basis for a two-year period, which we refer to as the collaboration term, and certain limited assets exclusively related to Recothrom, primarily the biologics license application for Recothrom and certain related regulatory assets. BMS also granted to us, under the master transaction agreement, an option to purchase from BMS and its affiliates, following the expiration or earlier termination of the collaboration term, certain other assets, including certain patent and trademark rights, contracts, inventory, equipment and related books and records, held by BMS which are exclusively related to Recothrom. Under the master transaction agreement, we paid to BMS a one-time collaboration fee equal to $105.0 million and a one-time option fee equal to $10.0 million. We did not assume, and if we exercise the option, we will not assume, any pre-existing liabilities related to the Recothrom business, contingent or otherwise, arising prior to the collaboration period, and we did not acquire, and if we exercise the option, we will not acquire, any significant tangible assets related to the Recothrom business. Under the master 29 -------------------------------------------------------------------------------- transaction agreement, we agreed to pay to BMS quarterly tiered royalty payments during the two-year collaboration term equal to a percentage of worldwide net sales of Recothrom. If we exercise the option, we would acquire such assets and assume certain liabilities of BMS and its affiliates related to those assets and to pay to BMS a purchase price equal to the net book value of inventory included in the acquired assets, plus either: • a multiple of average net sales over each of the two 12-month periods preceding the closing of the purchase of the assets to be acquired in connection with exercising the option (unless such closing occurs less



than 24 months after February 8, 2013, in which case the measurement

period would be the 12-month period preceding such closing); or • if BMS has delivered a valid notice terminating the collaboration term



early as a result of a material breach by us under the master transaction

agreement, the amount described above plus an amount intended to give BMS

the economic benefit of having received royalty fees for a 24-month

collaboration term.

Incline Therapeutics, Inc. In January 2013, we acquired Incline Therapeutics, Inc., or Incline, a company focused on the development of IONSYS, a compact, disposable, needleless patient-controlled system for the short-term management of acute postoperative pain in the hospital setting. Under the terms of our agreement with Incline, we paid to the holders of Incline's capital stock and the holders of options to purchase shares of Incline's capital stock, or collectively, the Incline equityholders, an aggregate of approximately $155.2 million in cash. In addition, we also paid $13.0 million to Cadence Pharmaceuticals, Inc., or Cadence, to terminate Cadence's option to acquire Incline pursuant to an agreement between Cadence and Incline and deposited $18.5 million in cash into an escrow fund for the purposes of securing the indemnification obligations of the Incline equityholders to us for any and all losses for which we are entitled to indemnification pursuant to the merger agreement and to provide the source of recovery for any amounts payable to us as a result of the post-closing purchase price adjustment process. Under the terms of our agreement with Incline, we agreed to pay up to $205.0 million in cash in the aggregate, less certain transaction expenses and taxes, to the former Incline equityholders upon our entering into a license agreement in Japan and achieving certain regulatory approval and certain sales milestones with respect to IONSYS. Collaboration with AstraZeneca. On April 25, 2012, we entered into a global collaboration agreement with AstraZeneca, LP, or AstraZeneca, pursuant to which we and AstraZeneca agreed to collaborate globally to develop and commercialize certain acute ischemic heart disease compounds. Under the terms of the collaboration agreement, a joint development and research committee and a joint commercialization committee have been established to prepare and deliver a global development plan and a country-by-country collaboration and commercialization plan, respectively, related to BRILINTA and Angiomax and cangrelor. Implementation of these plans is subject to agreement between both parties. The first joint activity agreed upon by the parties under the global collaboration is a four-year co-promotion arrangement for BRILINTA in the United States. Pursuant to the agreement, our sales force began supporting promotion activities for BRILINTA in May 2012. Under the terms of the agreement, AstraZeneca paid us $2.5 million for conducting BRILINTA co-promotion activities in the second quarter of 2012. In addition, under the terms of the agreement, AstraZeneca paid us $7.5 million in base consideration for conducting BRILINTA co-promotion activities during the period from July 1, 2012 to December 31, 2012 and agreed to pay us $15.0 million in base consideration per year from 2013 through 2015 for conducting BRILINTA co-promotion activities, plus up to an additional $5.0 million per year from 2013 to 2015 if certain performance targets with respect to new prescriptions are achieved and $7.5 million in base consideration for conducting BRILINTA co-promotion activities during the period from January 1, 2016 until June 30, 2016, plus up to an additional $2.5 million in additional consideration for the same period if certain performance targets with respect to new prescriptions are achieved. In the first six months of 2014, AstraZeneca has paid us $8.4 million under the agreement.



Targanta Therapeutics Corporation. In February 2009, we acquired Targanta Therapeutics Corporation, or Targanta, a biopharmaceutical company focused on developing and commercializing innovative antibiotics to treat serious infections in the hospital and other institutional settings.

Under the terms of our agreement with Targanta, we paid Targanta shareholders an aggregate of approximately $42.0 million in cash at closing. In addition, we originally agreed to pay contingent cash payments up to an additional $90.4 million in the aggregate. This amount has been reduced to $49.4 million as certain milestones have not been achieved by specified dates. We will owe $49.4 million if aggregate net sales of Orbactiv in four consecutive calendar quarters ending on or before December 31, 2021 reach or exceed $400.0 million, and up to an additional $40.0 million in additional payments to other third parties.



BARDA Agreement

In February 2014, our subsidiary Rempex entered into an agreement with the Biomedical Advanced Research and Development

30 -------------------------------------------------------------------------------- Authority, or BARDA, of the U.S. Department of Health and Human Services, under which Rempex has the potential to receive up to $89.8 million in funding to support the development of Carbavance. The BARDA agreement is a cost-sharing arrangement that consists of an initial base period and seven option periods that BARDA may exercise in its sole discretion pursuant to the BARDA agreement. The BARDA agreement provides for an initial commitment by BARDA of an aggregate of $19.8 million for the initial base period and the first option period, and up to an additional $70.0 million if the remaining six option periods are exercised by BARDA. Under the cost-sharing arrangement, Rempex will be responsible for a designated portion of the costs associated with each period of work. If all option periods are exercised by BARDA, the estimated period of performance would be extended until approximately July 31, 2019. BARDA is entitled to terminate the agreement, including the projects under the BARDA agreement for convenience, in whole or in part, at any time and is not obligated to provide continued funding beyond current year amounts from Congressionally approved annual appropriations. We expect to use the total award under the BARDA agreement to support non-clinical development activities, clinical studies, manufacturing and associated regulatory activities designed to obtain marketing approval of Carbavance in the United States for treatment of serious gram-negative infections. The BARDA agreement also covers initial non-clinical studies to assess the potential usefulness of Carbavance for treatment of certain gram-negative bioterrorism agents. For the three months ended June 30, 2014 and six months ended June 30, 2014, we recorded approximately $3.4 million of costs reimbursed by the government as a reduction of research and development expenses. Convertible Senior Notes We have convertible debt outstanding as of June 30, 2014 related to our 1.375% convertible senior notes due 2017, which we issued in June 2012 in the aggregate principal amount of $275.0 million, or the Notes. The Notes are convertible into common stock upon satisfaction of certain conditions. The Notes bear cash interest at a fixed rate of 1.375% per year, payable semi-annually in arrears on June 1 and December of each year. The Notes will mature on June 1, 2017 unless earlier repurchased by us or converted at the option of holders. See note 10, "Convertible Senior Notes," in the accompanying notes to condensed consolidated financial statements for additional information. Convertible Note Hedge and Warrant Transactions In June 2012, we entered into convertible note hedge transactions and warrant transactions with several of the initial purchasers of the Notes, their respective affiliates and other financial institutions. Subject to certain conditions, we may elect to settle all of the warrants in cash. See note 10, "Convertible Senior Notes," in the accompanying notes to condensed consolidated financial statements for additional information. Biogen Letter Agreement On August 7, 2012, we and Biogen Idec MA Inc., or Biogen, entered into a letter agreement resolving a disagreement between the parties as to the calculation and amount of the royalties required to be paid to Biogen by us under our license agreement with Biogen. The letter agreement amends the license agreement providing, among other things, that effective solely for the period from January 1, 2013 through and including December 15, 2014, each of the royalty rate percentages payable by us as set forth in the license agreement shall be increased by one percentage point.



U.S. Health Care Reform

In March 2010, President Obama signed into law the Patient Protection and Affordable Care Act, or PPACA, which was amended by the Health Care and Education Reconciliation Act of 2010. The PPACA, as amended, contains numerous provisions that impact the pharmaceutical and healthcare industries that are expected to be implemented over the next several years. We are continually evaluating the impact of the PPACA on our business. As of the date of this quarterly report on Form 10-Q, we have not identified any provisions that currently materially impact our business or results of operations. However, we believe that the Biologics Price Competition and Innovation Act, or BPCIA, provisions of PPACA could impact our business or results of operations. Under the BPCIA, the FDA has the authority to approve biosimilar interchangeable versions of biological products through an abbreviated pathway following periods of data and marketing exclusivity. However, the potential impact of the PPACA and the BPCIA on our business and results of operations is inherently difficult to predict because many of the details regarding the implementation of this legislation have not been determined. In addition, the impact on our business and results of operations may change as and if our business evolves. On July 9, 2012, President Obama signed the Food and Drug Administration Safety and Innovation Act, or FDASIA. Under the "Generating Antibiotic Incentives Now," or GAIN, provisions of FDASIA, the FDA may designate a product as a qualified infectious disease product, or QIDP. A QIDP is defined as an antibacterial or antifungal drug for human use intended to treat serious or life-threatening infections, including those caused by either an antibacterial or antifungal resistant pathogen, including 31 -------------------------------------------------------------------------------- novel or emerging infectious pathogens or a so-called "qualifying pathogen" found on a list of potentially dangerous, drug-resistant organisms to be established and maintained by the FDA under the new law. The GAIN provisions describe several examples of "qualifying pathogens," including methicillin-resistant Staphylococcus aureus, or MRSA, and Clostridium difficile. Upon the designation of a drug by the FDA as a QIDP, any non-patent exclusivity period awarded to the drug will be extended by an additional five years. This extension is in addition to any pediatric exclusivity extension awarded. We are developing Orbactiv for the treatment of ABSSSI, including infections caused by MRSA, and are exploring the development of Orbactiv for other indications, including for the treatment of Clostridium difficile, prosthetic joint infections, anthrax and other Gram-positive bacterial infections. We are also developing Carbavance for the treatment of hospitalized patients with serious gram-negative bacterial infections. In November 2013, the FDA designated Orbactiv a QIDP, and in January 2014, the FDA designated Carbavance a QIDP. As a result, we expect the non-patent exclusivity that would be awarded to Orbactiv and Carbavance if their respective NDAs were approved would be extended by an additional five years. Results of Operations Net Revenue: Net revenue increased 6.3% to $183.8 million for the three months ended June 30, 2014 as compared to $172.8 million for the three months ended June 30, 2013. Net revenue increased to $361.0 million for the six months ended June 30, 2014, a 9.9% increase from $328.6 million for the six months ended June 30, 2013.



The following tables reflect the components of net revenue for the three and six months ended June 30, 2014 and 2013:

Net Revenue Three Months Ended June 30, Six Months Ended June 30, Change Change 2014 2013 $ % 2014 2013 Change $ Change % (in thousands) Angiomax $ 163,097 151,159 $ 11,938 7.9 % $ 318,801$ 294,045$ 24,756 8.4 % Recothrom 16,283 17,925 (1,642 ) (9.2 )% 29,776 26,547 3,229 12.2 % Other products 4,394 3,742 652 17.4 % 12,432 7,987 4,445 55.7 % Total net revenue $ 183,774$ 172,826$ 10,948 6.3 % $ 361,009$ 328,579$ 32,430 9.9 % Net revenue increased by $10.9 million, or 6.3%, to $183.8 million in the three months ended June 30, 2014 compared to $172.8 million in the three months ended June 30, 2013, reflecting an increase of $13.3 million, or 8.3%, in the United States and a decrease of $2.4 million, or 17.8%, in international markets. The net revenue increase for Angiomax was $11.9 million, which was comprised of $5.5 million of net revenue associated with net volume increases due to increased unit shipments to customers of Angiomax, $5.9 million of net revenue principally due to a price increase for Angiomax effective as of January 1, 2014 and a favorable impact from foreign exchange of $0.5 million. Net revenue increased by $32.4 million, or 9.9%, to $361.0 million in the six months ended June 30, 2014 compared to $328.6 million in the six months ended June 30, 2013, reflecting an increase of $36.6 million, or 12.0%, in the United States and a decrease of $4.2 million, or 16.8%, in international markets. The net revenue increase for Angiomax was $24.8 million, which was comprised of $15.6 million due to increased unit shipments to customers of Angiomax and price increases of $8.3 million, principally due to a price increase for Angiomax effective as of January 1, 2013 in the United States, and a favorable impact from foreign exchange of $0.8 million. Angiomax. Net revenue from sales of Angiomax increased by $11.9 million, or 7.9%, to $163.1 million in the three months ended June 30, 2014 compared to $151.2 million in the three months ended June 30, 2013, primarily due to volume and price increases in the United States. Net revenue in the United States in both the three months ended June 30, 2014 and 2013 reflect chargebacks related to the 340B Drug Pricing Program and rebates related to the PPACA. Under the 340B Drug Pricing Program, we offer qualifying entities a discount off the commercial price of Angiomax for patients undergoing PCI on an outpatient basis. Chargebacks related to the 340B Drug Pricing Program increased by $7.8 million to $22.3 million in the three months ended June 30, 2014 compared to $14.5 million in the three months ended June 30, 2013, primarily due to higher amounts paid to eligible 32 -------------------------------------------------------------------------------- hospital customers. Rebates related to the PPACA decreased by $0.2 million to $0.2 million in the three months ended June 30, 2014 compared to $0.4 million in the three months ended June 30, 2013. Net revenue from sales of Angiomax increased by $24.8 million, or 8.4%, to $318.8 million in the six months ended June 30, 2014 compared to $294.0 million in the six months ended June 30, 2013, primarily due to volume and price increases in the United States. Net revenue in the United States in both the six months ended June 30, 2014 and 2013 reflect chargebacks related to the 340B Drug Pricing Program under the Public Health Service Acts and rebates related to the PPACA. Chargebacks related to 340B Drug Pricing Program increased by $15.0 million to $40.2 million in the six months ended June 30, 2014 compared to $25.2 million in the six months ended June 30, 2013, primarily due to increased usage by eligible hospital customers. Rebates related to the PPACA increased by $0.2 million to $0.9 million in the six months ended June 30, 2014 compared to $0.7 million in the six months ended June 30, 2013. Recothrom. Net revenue from Recothrom decreased by $1.6 million, or 9.2%, to $16.3 million in the three months ended June 30, 2014 compared to $17.9 million in the three months ended June 30, 2013. Net revenue from Recothrom increased by $3.2 million, or 12.2%, to $29.8 million in the six months ended June 30, 2014 compared to $26.5 million in the six months ended June 30, 2013 due to full quarter of sales during the first quarter of 2014. We commenced sales of Recothrom on February 8, 2013 pursuant to the master transaction agreement with BMS. Other Products. Net revenue from sales of Cleviprex, ready-to-use Argatroban, Minocin IV and the Tenaxis surgical sealant increased by $0.7 million, or 17.4%, to $4.4 million in the three months ended June 30, 2014 from $3.7 million in the three months ended June 30, 2013, primarily due to the increase in revenue from our acquired products, Minocin IV and the Tenaxis surgical sealant, and an increase in revenue of Cleviprex. Net revenue from sales of Cleviprex was $1.4 million in the three months ended June 30, 2014, compared to $1.1 million in the three months ended June 30, 2013. Net revenue from sales of ready-to-use Argatroban was $2.6 million in the three months ended June 30, 2014 and June 30, 2013. Net revenue from sales of Minocin IV and the Tenaxis surgical sealant was $0.3 million and $0.1 million in the three months ended June 30, 2014, respectively. We commenced sales of Minocin IV in December 2013 after the acquisition of Rempex, the Tenaxis surgical sealant sales commenced in May 2014 after our acquisition of Tenaxis. Net revenue from sales of Cleviprex, ready-to-use Argatroban, Minocin IV and the Tenaxis surgical sealant increased by $4.4 million, or 55.7%, to $12.4 million in the six months ended June 30, 2014 from $8.0 million in the six months ended June 30, 2013, primarily due to the change in our revenue recognition method for Cleviprex and ready-to-use Argatroban in the first quarter of 2014. Under our revised revenue recognition policy, beginning with the first quarter for 2014, we recognize revenue for Cleviprex and ready-to-use Argatroban as product is sold to Integrated Commercialization Solutions, or ICS. For periods prior to 2014, we recognized revenue for Cleviprex and ready-to-use Argatroban using the deferred revenue model. During 2014, we recognized one-time increases of $0.7 million in net sales of Cleviprex and $1.6 million in net sales of ready-to-use Argatroban, representing product sales previously deferred as of December 31, 2013, net of chargebacks and other discounts or accruals for product returns, rebates and fee-for-service charges. Net revenue from sales of Cleviprex was $4.0 million in the six months ended June 30, 2014, compared to $2.2 million in the six months ended June 30, 2013. Net revenue from sales of ready-to-use Argatroban was $7.6 million in the six months ended June 30, 2014, compared to $5.8 million in the six months ended June 30, 2013. Net revenue from sales of Minocin IV and the Tenaxis surgical sealant was $0.6 million and $0.1 million in the six months ended June 30, 2014, respectively. Cost of Revenue: Cost of revenue for the three months ended June 30, 2014 was $85.7 million, or 46.6% of net revenue, compared to $63.9 million, or 37.0% of net revenue, in the three months ended June 30, 2013. Cost of revenue for the six months ended June 30, 2014 was $152.6 million, or 42.3% of net revenue, compared to $120.7 million, or 36.7% of net revenue for the six months ended June 30, 2013.



Cost of revenue during these periods consisted of:

• expenses in connection with the manufacture of our products sold;

• royalty expenses under our agreements with Biogen and Health Research Inc.

related to Angiomax, our agreement with AstraZeneca related to Cleviprex

and our agreement with Eagle Pharmaceuticals, Inc., or Eagle, related to

ready-to-use Argatroban;



• amortization of the costs of license agreements, product rights and other

identifiable intangible assets, which result from product and business

acquisitions and impairment charges related to product rights; 33

--------------------------------------------------------------------------------



• logistics costs related to Angiomax, Cleviprex, Minocin IV, the Tenaxis

surgical sealant and ready-to-use Argatroban, including distribution,

storage, and handling costs; and • expenses related to our license agreement with BMS for Recothrom and



expenses related to our supply agreement for Recothrom with BMS including

product cost and logistics as well as royalties and amortization related to Recothrom. Cost of Revenue Three Months Ended June 30, Six Months Ended June 30, 2014 % of Total 2013 % of Total 2014 % of Total 2013 % of Total (in thousands) (in thousands) (in thousands) (in thousands)

Manufacturing/Logistics $ 23,472 27 % $ 19,791 31 % $ 44,764 30 % $ 38,442 32 % Royalties 40,697 48 % 39,146 61 % 81,182 53 % 73,408 61 % Amortization of acquired product rights and intangible assets 21,518 25 % 5,001 8 % 26,608 17 % 8,803 7 % Total cost of revenue $ 85,687 100 % $ 63,938 100 % $ 152,554 100 % $ 120,653 100 % Cost of revenue increased by $21.7 million during the three months ended June 30, 2014 compared to the three months ended June 30, 2013 and increased by $31.9 million in the six months ended June 30, 2014 compared to the six months ended June 30, 2013, primarily due to amortization of acquired product rights and intangible assets and we recorded an impairment charge on product licenses of $15.1 million to cost of sales as a result of reduction in estimated future cash flows expected to be generated by our acute care generic products. Royalty expense increased for the six months ended June 30, 2014 compared to six months ended June 30, 2013 due to an increase in royalties to BMS in connection with our sales of Recothrom for the full six months ended June 30, 2014 as compared to a partial six months ended June 30, 2013 as a result of our commencement of selling Recothrom in February 2013. Increased manufacturing and logistics costs were associated with our sales of Recothrom for the six months ended June 30, 2014.



Research and Development Expenses:

Research and Development Spending Three Months Ended June 30, Six Months Ended June 30, (in millions, except percentages ) 2014 % of Total 2013 % of Total 2014 % of Total 2013 % of Total Marketed products $ 5,826 14 % $ 6,768 25 % $ 10,745 15 % $ 10,663 13 % Registration stage products 15,183 37 % 16,427 61 % 31,534 44 % 39,727 47 % Research and development stage products 20,219 49 % 3,830 14 % 30,045 41 % 34,831 40 %



Total research and development expenses $ 41,228 100 % $ 27,025 100 % $ 72,324 100 % $ 85,221 100 %

Our marketed products consist of Angiomax, Cleviprex, Recothrom, Minocin IV, ready-to-use Argatroban, the Tenaxis surgical sealant and our acute care generic drugs. Registration stage products, for which we have submitted or will soon submit applications for regulatory approval, include Cangrelor, IONSYS, Orbactiv, Raplixa and RPX-602. Research and development stage products include MDCO-216, Carbavance, ALN-PCSsc and other early stage compounds. Research and development expenses increased by $14.2 million during the three months ended June 30, 2014 compared to the three months ended June 30, 2013. These increases were primarily due to expenses associated with Carbavance and Raplixa acquired during December 2013 and August 2013, respectively, and expenses related to MDCO-216. Clinical trial expenses and manufacturing development expenses associated with Carbavance increased by $6.5 million following our December 2013 acquisition of Rempex. Manufacturing development and regulatory filing related costs associated with Raplixa increased by $4.7 million following our August 2013 acquisition of ProFibrix. Expenses related to MDCO-216 increased by $9.9 million primarily due to manufacturing development scale up expenses. These increases were partially offset by decreases in expenses associated with Orbactiv, which decreased by $2.4 million primarily due to the completion of patient enrollment in our SOLO II clinical trials in April 2013 and in expenses associated with cangrelor, which decreased by $3.8 million due to the completion of our Phase 34 -------------------------------------------------------------------------------- 3 CHAMPION PHOENIX clinical trial. Additional decreases during the three months ended June 30, 2014 include reduction of clinical trial expenses for Angiomax of $1.0 million due to the completion of clinical trial expenses related to GLOBAL LEADERS trials in the three months ended June 30, 2013 as well as the completion of the EUROMAX trial and a decrease in research and development costs of $0.5 million for MDCO-157, which we had licensed from CyDex Pharmaceuticals, Inc., or CyDex, due to the termination of our license agreement with CyDex in July 2013. Research and development expenses decreased by $12.9 million during the six months ended June 30, 2014 compared to the six months ended June 30, 2013. The decrease is primarily due to an initial license payment of 25.0 million to Alnylam under our license and collaboration agreement in the first quarter of 2013. In addition, expenses associated with Orbactiv decreased by $11.8 million primarily due to the completion of patient enrollment in our SOLO II clinical trials in April 2013 and expenses associated with cangrelor decreased by $6.6 million due to the completion of our Phase 3 CHAMPION PHOENIX clinical trial. Additional decreases during the six months ended June 30, 2014 included $1.3 million due to a reduction-in-force during 2013 and a decrease in research and development costs of $1.4 million for MDCO-157 due to the termination of license agreement with CyDex in July 2013. These decreases were partially offset by increases in expenses associated with Carbavance and Raplixa acquired during December 2013 and August 2013, respectively, and expenses related to MDCO-216. Clinical trial expenses and manufacturing development expenses associated with Carbavance increased by $12.6 million following our December 2013 acquisition of Rempex. Manufacturing development and regulatory filing related costs associated with Raplixa increased by $10.4 million following our August 2013 acquisition of ProFibrix. Additional increases are related to MDCO-216 as expenses increased by $10.2 million primarily due to manufacturing development scale up. We expect to continue to invest in the development of all our products during the remainder of 2014 and that our research and development expenses will increase in 2014 from their levels in 2013. We expect research and development expenses in 2014 to include costs for global regulatory activities related to IONSYS and Orbactiv in the United States and European Union, and for Cleviprex, cangrelor and Raplixa outside of the United States; manufacturing development activities for Carbavance, IONSYS, Orbactiv and MDCO-216 and our clinical trials of MDCO-216 preparation for a Phase 2 study initiation, initiation of a Phase 3 study for Carbavance and additional clinical studies for Angiomax, cangrelor and Cleviprex for use in additional patient populations and lifecycle management activities for all of our products. Our success in further developing Angiomax and obtaining marketing approvals for Angiomax in additional countries and for additional patient populations, developing and obtaining marketing approvals for Cleviprex outside the United States, and developing and obtaining marketing approvals for our products in development, is highly uncertain. We cannot predict expenses associated with ongoing data analysis or regulatory submissions, if any. In addition, we cannot reasonably estimate or know the nature, timing and estimated costs of the efforts necessary to continue the development of Angiomax, Cleviprex and our products in development, the period in which material net cash inflows are expected to commence from further developing Angiomax and Cleviprex, the timing and estimated costs of obtaining marketing approvals for Angiomax in additional countries and additional patient populations, the timing and estimated costs of obtaining marketing approvals for Cleviprex outside the United States, or the timing and estimated costs of developing and obtaining marketing approvals for our products in development, due to the numerous risks and uncertainties associated with developing and commercializing drugs, including the uncertainty of: • the scope, rate of progress and cost of our clinical trials and other research and development activities;



• future clinical trial results;

• the terms and timing of any collaborative, licensing and other arrangements that we may establish;



• the cost and timing of regulatory approvals;

• the cost and timing of establishing and maintaining sales, marketing and

distribution capabilities;

• the cost of establishing and maintaining clinical and commercial supplies

of our products and product candidates;

• the effect of competing technological and market developments; and

• the cost of filing, prosecuting, defending and enforcing any patent claims

and other intellectual property rights.

Selling, General and Administrative Expenses:

35 --------------------------------------------------------------------------------

Three Months Ended June 30, Six Months Ended June 30, 2014 2013 Change $ Change % 2014 2013 Change $ Change % (in thousands) (in thousands) Selling, general and administrative expenses $ 88,745$ 52,944$ 35,801 67.6 % $ 153,266$ 116,426$ 36,840 31.6 % The increase in selling, general and administrative expenses of approximately $35.8 million in the three months ended June 30, 2014 as compared to the three months ended June 30, 2013 reflects a $6.7 million increase in selling, marketing and promotional expense and a $29.2 million increase in general corporate and administrative expenses. Selling, marketing and promotional expenses increased by $6.7 million, primarily due to increased promotional efforts for our commercial products and spending in preparation for the commercial sale of our registration stage products, if and when approved. General corporate and administrative expenses increased by $29.2 million, primarily due to an increase of $22.4 million increase in accretion costs associated with the fair value adjustments of the contingent consideration due to the former equityholders of Targanta, Incline, ProFibrix, Rempex and Tenaxis. During the three months ended June 30, 2013, we had a reduction of $8.9 million in the amount of contingent consideration due to the former equityholders of Targanta. In addition there was an increase of $2.5 million in share-based compensation costs and an increase of $1.8 million due to our acquisitions of ProFibrix and Rempex in the second half of 2013.



The increase in selling, general and administrative expenses of approximately $36.8 million in the six months ended June 30, 2014 as compared to the six months ended June 30, 2013 reflects a $10.5 million increase in selling, marketing and promotional expense and a $26.3 million increase in general corporate and administrative expenses.

Selling, marketing and promotional expenses increased by $10.5 million, primarily due to increased promotional efforts for our commercial products and spending in preparation for the commercial sale of our registration stage products, if and when approved.

General corporate and administrative expenses increased by $26.3 million, primarily due to an increase of $4.6 million in share-based compensation costs, an increase of $6.5 million in infrastructure costs to support the organizational growth in anticipation of our potential product launches and commercialization, an increase of $25.0 million in accretion costs associated with the fair value adjustments of the contingent consideration due to the former equityholders of Targanta, Incline, ProFibrix and Rempex and an increase of $3.3 million due to our acquisitions of ProFibrix and Rempex in the second half of 2013. During the six months ended June 30, 2013, we had a reduction in contingent consideration of $13.6 million to the former equityholders of Targanta. These increases were primarily offset by reductions of one-time expenses incurred during the six months ended June 30, 2013 for our acquisitions of Incline and licensing of Recothrom which declined by an aggregate of $3.6 million, an arbitration award paid to Eagle of $5.0 million in July 2013 and the 2013 reduction-in-force employee severance and other employee related termination costs of $4.3 million.



Co-promotion and Profit-Share Income:

Three Months Ended June 30, Six Months Ended June 30, 2014 2013 Change $ Change % 2014 2013 Change $ Change % (in thousands) (in thousands)

Co-promotion and profit share income $ 7,326$ 4,068$ 3,258 80.1 % $ 13,346$ 7,818$ 5,528 70.7 % During the three months ended June 30, 2014 and June 30, 2013, we recorded co-promotion and profit share income of approximately $7.3 million and $4.1 million, respectively. Co-promotion and profit share income in the three months ended June 30, 2014 was higher due to co-promotion income from our agreement with BSX and due to increases in co-promotion of BRILINTA in the United States. During the six months ended June 30, 2014 and June 30, 2013, we recorded co-promotion and profit share income of approximately $13.3 million and $7.8 million, respectively. Co-promotion and profit share income in the six months ended June 36 -------------------------------------------------------------------------------- 30, 2014 was higher due to co-promotion income from our agreement with BSX, an increase in the profit share income from our license agreement with Eagle related to ready-to-use Argatroban and an increase in co-promotion income from BRILINTA. Interest Expense: Three Months Ended June 30, Six Months Ended June 30, 2014 2013 Change $ Change % 2014 2013 Change $ Change % (in thousands)



(in thousands) Interest expense $ (3,892 )$ (3,704 )$ (188 ) 5.1 % $ (7,752 )$ (7,377 )$ (375 ) 5.1 %

During the three months ended June 30, 2014 and the three months ended June 30, 2013, we recorded interest expense of $3.9 million and $3.7 million, respectively, and for the six months ended June 30, 2014 and the six months ended June 30, 2013 we recorded interest expense of $7.8 million and $7.4 million, respectively. For all periods referenced above, interest expense recorded relates to the Notes.

Other Income:

Three Months Ended June 30, Six



Months Ended June 30,

2014 2013 Change $ Change % 2014 2013



Change $ Change %

(in thousands) (in



thousands)

Other income $ (150 )$ 605$ (755 ) * $ 29$ 803

$ (774 ) (96.4 )%

*Represents a change in excess of 100%.

Other income, which is comprised of interest income and gains and losses on foreign currency transactions decreased by $0.8 million to $0.2 million for the three months ended June 30, 2014. This decrease was primarily due to higher gains on foreign currency transactions in the three months ended June 30, 2013.

Other income decreased by $0.8 million for the six months ended June 30, 2014. This decrease was primarily due to higher gains on foreign currency transactions in the six months ended June 30, 2013.



Benefit (Provision) for Income Tax:

Three Months Ended June 30, Six Months Ended June 30, 2014 2013 Change $ Change % 2014 2013 Change $ Change % (in thousands) Benefit provision for income tax $ 23,428$ (11,854 )$ 35,282 * $ 1,333$ (1,095 )$ 2,428 *



*Represents a change in excess of 100%.

We recorded a $23.4 million benefit for income taxes and an $11.9 million provision for income taxes for the three months ended June 30, 2014 and 2013, respectively, based on loss before taxes of $28.6 million and income before taxes of $29.9 million for the same periods. Our effective income tax rates for the three months ended June 30, 2014 and 2013 were approximately (81.9)% and 39.7%, respectively. The decrease in effective tax rate is primarily driven by decrease in pre-tax income and a discrete tax benefit of $0.6 million related to the effective settlement of an Australian tax audit offset by increase in the non-cash tax impact arising from changes in contingent consideration related to our acquisitions of Targanta, Incline, ProFibrix, Rempex and Tenaxis. The decrease in effective rate is also offset by higher tax losses in foreign jurisdictions, driven primarily by the acquisition of ProFibrix from which we are unable to record a benefit. 37 -------------------------------------------------------------------------------- We recorded a $1.3 million benefit for income taxes for the six months ended June 30, 2014 compared to $1.1 million provision for the six months ended June 30, 2013, respectively, based on loss before taxes of $11.5 million and income before taxes of $7.5 million for the same periods. Our effective income tax rates for the six months ended June 30, 2014 and 2013 were (11.6%) and 14.6%, respectively, with the decrease in effective tax rate the result of a decrease in pre-tax income and a discrete tax benefit related to the effective settlement of an uncertain tax position. The decrease in effective tax rate was offset by an increase in the non-cash tax impact arising from changes in contingent consideration related to our acquisitions of Targanta, Incline, ProFibrix, Rempex and Tenaxis and higher tax losses in foreign jurisdictions from which we are unable to record a benefit, driven primarily by the acquisition of ProFibrix. We expect that our full year 2014 effective tax rate will be lower than 2013 due to anticipated decrease in pre-taxable income compared to 2013. It is possible that our full year effective tax rate could change because of discrete events, our mix of U.S. to foreign earnings, specific transactions or the receipt of new information affecting our current projections. We will continue to evaluate our future ability to realize our deferred tax assets on a periodic basis in light of changing facts and circumstances. These include but are not limited to projections of future taxable income, tax legislation, rulings by relevant tax authorities, the progress of ongoing tax audits, the regulatory approval of products currently under development and the ability to achieve future anticipated revenues.



Liquidity and Capital Resources

Sources of Liquidity

Since our inception, we have financed our operations principally through revenues from sales of Angiomax, the sale of common stock, convertible promissory notes and warrants and interest income.

Cash Flows

As of June 30, 2014, we had $368.3 million in cash and cash equivalents, as compared to $376.7 million as of December 31, 2013. The decrease in cash and cash equivalents in the six months ended June 30, 2014 was primarily due to $64.9 million of net cash used in investing activities, partially offset by $44.5 million of net cash provided in operating activities and $11.2 million of net cash provided by financing activities. Net cash provided by operating activities was $44.5 million in the six months ended June 30, 2014, compared to net cash used in operating activities of $7.6 million in the six months ended June 30, 2013. The cash provided by operating activities in the six months ended June 30, 2014 primarily relates to non-cash items of $71.2 million offset by $16.5 million decrease resulting from changes in working capital items. Non-cash items consist of depreciation and amortization, impairment charge, amortization of debt discount, share-based compensation expense, deferred tax provision and excess tax benefit from share-based compensation arrangements and adjustment in contingent purchase price. The changes in working capital items reflect a decrease in accounts payable and accounts receivable of $37.9 million primarily due to timing of payments of certain corporate expenses and customer payments, a decrease of $2.7 million in deferred revenue, a decrease of $4.9 million in other liabilities and an increase of $28.3 million in accrued expenses and $1.1 million in inventory. The cash used in operating activities in the six months ended June 30, 2013 included net income of $6.4 million, primarily due to $25.0 million initial license payment to Alnylam, and $29.1 million decrease resulting from changes in working capital items. The changes in working capital items were offset by non-cash items of $15.1 million consisting primarily of stock-based compensation expense, deferred tax provision, adjustment to contingent purchase price, depreciation and amortization and an impairment charge. The changes in working capital items reflect a decrease in accounts payable and accrued expenses of $13.5 million primarily due to payments related to inventory of active pharmaceutical ingredient bivalirudin and payment of certain corporate expenses, an increase in accounts receivable of $4.7 million, which was due in part to the timing of receipts and related sales volume, an increase in inventory of $10.5 million due to purchases under our supply agreement with Teva API, Inc. of certain minimum quantities of active pharmaceutical ingredient bivalirudin for our commercial supply, and an increase in prepaid and other current assets of $0.7 million primarily due to an increase in prepaid corporate income and ad valorem taxes.



During the six months ended June 30, 2014, $64.9 million in net cash was used in investing activities, primarily for the purchase of Tenaxis.

During the six months ended June 30, 2013, $273.2 million in net cash was used in investing activities, which reflected $301.7 million incurred in connection with our Incline and Recothrom transactions, consisting of $186.7 million used in the acquisition 38 -------------------------------------------------------------------------------- of Incline and $115.0 million used for the Recothrom transaction, and $10.0 million used for the ProFibrix transaction, the purchase of fixed assets and an additional investment in Annovation, offset by $42.6 million in proceeds from the maturity and sale of available for sale securities. Net cash provided by financing activities was $11.2 million in the six months ended June 30, 2014, which reflected $9.5 million of proceeds from option exercises and $1.7 million in excess tax benefits and purchases of stock under our employee stock purchase plan. We received $55.2 million in the six months ended June 30, 2013 in net cash provided by financing activities, which reflected $49.6 million of proceeds from option exercises and $5.7 million in excess tax benefits and purchases of stock under our employee stock purchase plan.



Funding Requirements

We expect to devote substantial financial resources to our research and development efforts, clinical trials, nonclinical and preclinical studies and regulatory approvals and to our commercialization and manufacturing programs associated with our products and our products in development. We also will require cash to pay interest on the $275.0 million aggregate principal amount of Notes and to make principal payments on the Notes at maturity or upon conversion. In addition, we will require cash to make payments under the license agreements and other acquisition agreements to which we are a party, including potentially a payment to BMS, if we exercise the option granted to us, at a purchase price equal to the net book value of inventory included in the acquired assets. In addition, we may have to make contingent cash payments for our acquisitions and our licensing arrangements of up to $49.4 million due to the former equityholders of Targanta and up to $40.0 million in additional payments to other third parties for the Targanta transaction, up to $205.0 million due to the former equityholders of Incline and up to $115.5 million in additional payments to other third parties for the Incline transaction, up to $140.0 million for the ProFibrix transaction, up to $334.0 million for the Rempex transaction, up to $112.0 million for the Tenaxis transaction, up to $180.0 million for the license and collaboration agreement with Alnylam, up to $422.0 million due to our licensing of MDCO-216 from Pfizer, and up to $54.5 million due to our licensing of cangrelor from AstraZeneca in each case, upon the achievement of specified regulatory, sales and other milestones.



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

• the extent to which Angiomax is commercially successful globally;

• our ability to maintain market exclusivity for Angiomax in the United

States through the enforcement of the '727 patent and the '343 patent

during the period following the expiration of the patent term of the '404 patent on December 15, 2014 and the six month pediatric exclusivity on



June 15, 2015 through at least May 1, 2019, the date on which we agreed

APP may sell a generic version of Angiomax;



• the extent to which our submissions and planned submissions for regulatory

approval of product candidates are approved on a timely basis, if at all; • the extent to which Recothrom, Cleviprex, ready-to-use Argatroban, Minocin



IV, the Tenaxis surgical sealant and the acute care generic products for

which we acquired the non-exclusive right to sell and distribute from APP

are commercially successful in the United States;



• the extent to which our global collaboration with AstraZeneca, including

our four-year co-promotion arrangement for BRILINTA in the United States,

and our co-promotion agreement with BSX for its Promus PREMIER Stent System, are successful;



• the extent to which we are successful in our efforts to further establish

a commercial infrastructure outside the United States; • the consideration paid by us and to be paid by us in connection with



acquisitions and licenses of development-stage compounds, clinical-stage

product candidates, approved products, or businesses, and in connection

with other strategic arrangements;



• the progress, level, timing and cost of our research and development

activities related to our clinical trials and non-clinical studies with respect to Angiomax, Cleviprex and our products in development; 39

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• the cost and outcomes of regulatory submissions and reviews for approval

of Angiomax in additional countries and for additional indications, of Recothrom and Cleviprex outside the United States and of our other products in development globally;



• the continuation or termination of third-party manufacturing, distribution

and sales and marketing arrangements;

• the size, cost and effectiveness of our sales and marketing programs globally;

• the amounts of our payment obligations to third parties as to our products

and products in development; and

• our ability to defend and enforce our intellectual property rights.

We believe that our cash on hand and the cash we generate from our operations will be sufficient to meet our ongoing funding requirements, including our obligations with respect to the Notes and under the license agreements and other acquisition agreements to which we are a party, but excluding any future material acquisition activity. If our existing cash resources, together with revenues that we generate from sales of our products and other sources, are insufficient to satisfy our funding requirements due to slower than anticipated sales of Angiomax, Recothrom, Cleviprex, ready-to-use Argatroban, Minocin IV, the Tenaxis surgical sealant and the acute generic products for which we acquired the non-exclusive right to sell and distribute from APP or higher than anticipated costs globally, we may need to sell additional equity or debt securities or seek additional financing through other arrangements. Any sale of additional equity or debt securities may result in dilution to our stockholders. Debt financing may involve covenants limiting or restricting our ability to take specific actions, such as incurring additional debt or making capital expenditures. Moreover, our ability to obtain additional debt financing may be limited by the Notes. We cannot be certain that public or private financing will be available in amounts or on terms acceptable to us, if at all. Further, we may seek additional financing to fund our acquisitions of development stage compounds, clinical stage product candidates and approved products and/or the companies that have such products, and we may not be able to obtain such financing on terms acceptable to us or at all. If we seek to raise funds through collaboration or licensing arrangements with third parties, we may be required to relinquish rights to products, product candidates or technologies that we would not otherwise relinquish or grant licenses on terms that may not be favorable to us. If we are unable to obtain additional financing, we may be required to delay, reduce the scope of, or eliminate one or more of our planned research, development and commercialization activities, which could harm our financial condition and operating results.



Certain Contingencies:

We may be, from time to time, a party to various disputes and claims arising from normal business activities. We accrue for loss contingencies when information available indicates that it is probable that a liability has been incurred and the amount of such loss can be reasonably estimated. Currently, we are party to the legal proceedings described in Part II, Item 1, Legal Proceedings, of this quarterly report on Form 10-Q, which include both patent litigation matters and class action litigation. We have assessed such legal proceedings and do not believe that it is probable that a liability has been incurred and the amount of such liability can be reasonably estimated. As a result, we have not recorded a loss contingency related to these legal proceedings.



Contractual Obligations

Our long-term contractual obligations include commitments and estimated purchase obligations entered into in the normal course of business. These include commitments related to royalties, milestone payments, option exercise and other contingent payments due under our license and acquisition agreements, purchases of inventory of our products, research and development service agreements, income tax contingencies, operating leases, selling, general and administrative obligations and increases to our restricted cash in connection with our lease of our principal office space in Parsippany, New Jersey as of June 30, 2014. In addition to the specified contractual obligations set forth in the contractual obligations table included in our annual report on Form 10-K for the year ended December 31, 2013, the following obligations were incurred during the quarter ended June 30, 2014:



• Under the terms of our agreement with Tenaxis, we have agreed to pay to

the Tenaxis equityholders milestone payments subsequent to the closing, if

we achieve certain regulatory approval milestones and commercial net sales

milestones with respect to the Tenaxis surgical sealant, at the times and

on the conditions set forth in the merger agreement. In the event 40

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that all of the milestones set forth in the merger agreement are achieved in accordance with the terms of the merger agreement, we will pay the Tenaxis equityholders up to an additional $112.0 million in cash in the aggregate.

There were no other material changes outside the ordinary course of business to the specified contractual obligations set forth in the contractual obligations table included in our annual report on Form 10-K for the year ended December 31, 2013.



Application of Critical Accounting Estimates

The discussion and analysis of our financial condition and results of operations is based on our unaudited consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP, for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. The preparation of these financial statements requires us to make estimates and judgments that affect our reported assets and liabilities, revenues and expenses, and other financial information. Actual results may differ significantly from these estimates under different assumptions and conditions. In addition, our reported financial condition and results of operations could vary due to a change in the application of a particular accounting standard.



We regard an accounting estimate or assumption underlying our financial statements as a "critical accounting estimate" where:

• the nature of the estimate or assumption is material due to the level of

subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change; and



• the impact of the estimates and assumptions on financial condition or

operating performance is material.

Our significant accounting policies are more fully described in note 2 of our unaudited consolidated financial statements in this quarterly report on Form 10-Q and note 2 of our consolidated financial statements in our annual report on Form 10-K for the year ended December 31, 2013. Not all of these significant accounting policies, however, require that we make estimates and assumptions that we believe are "critical accounting estimates." We have discussed our accounting policies with the audit committee of our board of directors, and we believe that our estimates relating to revenue recognition, inventory, share-based compensation, income taxes, in-process research and development, contingent purchase price from business combinations and impairment of long-lived asset described under the caption "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Application of Critical Accounting Estimates" in our annual report on Form 10-K for the year ended December 31, 2013 are "critical accounting estimates." Please refer to note 2, "Significant Accounting Policies," in the accompanying notes to the condensed consolidated financial statements for a discussion on changes to certain accounting policies during the six months ended June 30, 2014. Recent Accounting Pronouncements Refer to Note 2, "Significant Accounting Policies," in the accompanying notes to the condensed consolidated financial statements for a discussion of recent accounting pronouncements. There were no new accounting pronouncements adopted during the three months ended June 30, 2014 that had a material effect on our financial statements. Forward-Looking Information This quarterly report on Form 10-Q includes forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. For this purpose, any statements contained herein regarding our strategy, future operations, financial position, future revenue, projected costs, prospects, plans and objectives of management, other than statements of historical facts, are forward-looking statements. The words "anticipates," "believes," "estimates," "expects," "intends," "may," "plans," "projects," "will," "would" and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We cannot guarantee that we actually will achieve the plans, intentions or expectations expressed or implied in our forward-looking statements. There are a number of important factors that could cause actual results, levels of activity, performance or events to differ materially from those expressed or implied in the forward-looking statements we make. These important factors include our "critical accounting estimates" described in Part I, Item 2 of this quarterly report on Form 10-Q and the factors set forth under the caption "Risk Factors" in Part II, Item 1A of this quarterly report on Form 10-Q. Although we may elect to update forward-looking statements in the future, we specifically disclaim any obligation to do so, even if our estimates change, and readers should not rely on those forward-looking statements as representing our views as of any date subsequent to the date of this quarterly report on Form 10-Q.


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