UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For The Fiscal Year Ended December 31, 2007

OR

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

For the transition period from                  to                .

Commission File No. 0-19700

(Exact Name of Registrant as Specified in its Charter)

Registrant’s telephone number, including area code: (858) 552-2200

Securities registered pursuant to Section 12(g) of the Act:

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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o

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The aggregate market value of the common stock of the registrant as of June 30, 2007 held by non-affiliates was $2,212,973,204.

The number of shares outstanding of the registrant’s common stock was 135,302,323 as of February 13, 2008.

Portions of the registrant’s Definitive Proxy Statement to be filed with the Securities and Exchange Commission (the “Commission”) pursuant to Regulation 14A in connection with the 2008 Annual Meeting of Stockholders to be held on May 30, 2008 are incorporated herein by reference into Part III of this Annual Report. Such Definitive Proxy Statement will be filed with the Commission not later than 120 days after December 31, 2007.

You should read the following together with the more detailed information regarding our company, our common stock and our financial statements and notes to those statements appearing elsewhere in this document or incorporated by reference. The Securities and Exchange Commission, or SEC, allows us to “incorporate by reference” information that we file with the SEC, which means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is considered to be part of this annual report on Form 10-K.

Except for the historical information contained herein, this annual report on Form 10-K and the information incorporated by reference contains forward-looking statements that involve risks and uncertainties. These statements include projections about our accounting and finances, plans and objectives for the future, future operating and economic performance and other statements regarding future performance. These statements are not guarantees of future performance or events. Our actual results may differ materially from those discussed here. Factors that could cause or contribute to such differences are described in Part I, Item 1A, entitled “Risk Factors,” as well as those discussed in Part II, Item 7, entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere throughout this annual report on Form 10-K and in any other documents incorporated by reference into this annual report on Form 10-K. We disclaim any obligation to update any forward-looking statement.

PART I

We are a biopharmaceutical company committed to improving the lives of people with diabetes, obesity and other diseases through the discovery, development and commercialization of innovative medicines.  We are marketing two first-in-class medicines to treat diabetes, BYETTA^® (exenatide) injection and SYMLIN^® (pramlintide acetate) injection. Our near-term strategy is to drive BYETTA and SYMLIN sales growth while investing in other development opportunities, such as a sustained-release formulation of exenatide which we refer to as exenatide once weekly (formerly referred to as exenatide LAR) and our obesity program, to drive mid-term and long-term growth.

BYETTA is the first and only approved medicine in a new class of compounds called incretin mimetics.  It is approved as an adjunctive therapy to improve glycemic control in patients with type 2 diabetes who have not achieved adequate glycemic control using metformin, a sulfonylurea and/or a thiazolidinediene (TZD), three common oral therapies for type 2 diabetes.  Net product sales of BYETTA were $636.0 million in 2007, $430.2 million in 2006 and $75.2 million in 2005.

We have an agreement with Eli Lilly and Company, or Lilly, for the global development and commercialization of exenatide. This agreement includes BYETTA and other formulations of exenatide such as exenatide once weekly.  Under the terms of the agreement, operating profits from products sold in the United States are shared equally between Lilly and us, and Lilly will pay us royalties for product sales outside of the United States.  Lilly has primary responsibility for developing and commercializing BYETTA outside of the United States including any sustained-release formulations of exenatide such as exenatide once weekly.  In late 2006, BYETTA was approved in the European Union, or EU, and, by the end of 2007, was commercially launched in 23 countries worldwide.

SYMLIN is the first and only approved medicine in a new class of compounds called amylinomimetics.  It is approved as an adjunctive therapy to improve glycemic control in patients with either type 2 or type 1 diabetes who are treated with mealtime insulin but who have not achieved adequate glycemic control.  We own 100% of the global rights to SYMLIN.  Net product sales of SYMLIN were $65.5 million in 2007, $43.8 million in 2006 and $11.5 million in 2005.

We have a field force of approximately 600 people dedicated to marketing BYETTA and SYMLIN in the United States.  In addition, Lilly co-promotes BYETTA in the United States.  Our field force includes our specialty and primary care sales forces, a managed care and government affairs organization, a medical science organization and diabetes care specialists.

In addition to our marketed products, we have ongoing programs in pharmaceutical discovery and development, including a late-stage program to develop exenatide once weekly, to enable once weekly administration of exenatide for the treatment of type 2 diabetes.  We are working with Lilly and Alkermes, Inc., or Alkermes, to develop exenatide once weekly.  In October 2007, we announced positive results of a 30-week pivotal comparator study that showed a statistically significant improvement in A1C, a standard measure of blood glucose control, of approximately 1.9 percentage points from baseline for exenatide once weekly patients, with three out of four patients achieving an A1C of 7% or less.  We plan to complete our

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manufacturing scale-up activities in 2008 and to submit a new drug application, or NDA, to the U.S. Food and Drug Administration, or FDA, no later than the end of the first half of 2009, although we are aggressively pursuing strategies which may allow an earlier submission.  In 2008 we also plan to initiate three studies to demonstrate the superiority of exenatide once weekly over insulin and several oral medications used in the treatment of type 2 diabetes.

Our long-term growth strategy includes our Integrated Neurohormonal Treatment of Obesity, or INTO, strategy.  In November 2007, we announced that overweight or obese subjects in a 24-week proof-of-concept study treated with a combination of pramlintide, an analog of human amylin and the same active ingredient in SYMLIN, and metreleptin, an analog of human leptin, lost an average of 25 pounds from baseline, resulting in reduced body weight on average of 12.7%.  In 2008 we will focus on the development of a potential obesity medicine that is a combination of pramlintide and metreleptin.

We also have other early stage programs for diabetes, obesity and other therapeutic areas.  We maintain an active discovery research program focused on novel peptide therapeutics and are actively seeking to in-license additional drug candidates.  We have also entered into a number of strategic alliances and business initiatives that support our expansion into new therapeutic areas.

On March 1, 2007 Ginger L. Graham stepped down as our chief executive officer and continues to serve as a member of our board of directors.  Daniel M. Bradbury, our former president and chief operating officer, became our president and chief executive officer effective March 1, 2007.

Our principal executive offices are located at 9360 Towne Centre Drive, San Diego, CA 92121, and our telephone number is (858) 552-2200.  We were incorporated in Delaware in September 1987.  We maintain a website at www.amylin.com.  The reference to our worldwide web address does not constitute incorporation by reference into this report of any of the information contained on our website.

Our periodic and current reports that we file with the SEC are available free of charge on our website at www.amylin.com as soon as reasonably practicable after we have electronically filed them with, or furnished them to, the SEC.

Diabetes is a major health problem both in the United States and worldwide and is the fifth leading cause of death by disease in the United States.  Diabetes is a complex, metabolic disorder of carbohydrate, fat and protein metabolism, primarily resulting from the failure of pancreatic beta cells to produce sufficient insulin to match the demands for insulin in the body.  Insulin is a hormone that plays a central role in helping the body process, convert and store energy from glucose.  In those with diabetes, the relative shortage of insulin impairs the ability of glucose to enter and fuel the body’s cells and as a result, glucose builds up in the bloodstream causing hyperglycemia (high blood sugar).  Longstanding elevation of blood glucose may result in damage to the kidney, retina and nerves — and may lead to kidney failure, permanent nerve damage, blindness and amputation.  High glucose also increases the risk of cardiovascular disease. Conversely, too much insulin in the bloodstream can cause hypoglycemia (low blood sugar).  Individuals who manage their diabetes with insulin or other oral antidiabetic medication are especially vulnerable to swings of high to low blood sugar level and the risk of very low blood sugar which, if left untreated, can be fatal.

It is estimated that nearly 200 million people worldwide have diabetes.  Of that population, it is estimated that approximately 90-95% have type 2 diabetes, previously known as adult-onset diabetes, and the remainder have type 1 diabetes, previously known as juvenile-onset diabetes.  In the United States alone, in 2005 there were approximately 20.8 million people, or 7% of the population, with diabetes and there were approximately 20.6 million over the age of 20, or 9.6% of all people in this age group, with diabetes.  However, in 2005 only 14.6 million people in the United States had been diagnosed with diabetes and approximately 1.5 million new cases were diagnosed.  From 1997 through 2004, new cases of diagnosed diabetes among Americans aged 18-79 increased by 54%.  In addition, there are currently approximately 54 million people in the United States with pre-diabetes, a condition that raises the risk of developing type 2 diabetes, heart disease and stroke.  People with pre-diabetes have blood glucose levels higher than normal but not high enough to establish a diagnosis of diabetes.

Long term control of blood glucose is known to limit the risk of developing diabetes related retinal, renal and neurologic complications.  Glycated hemoglobin (A1C) is the most widely used measure of long-term blood glucose control.

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A1C level is a recognized indicator of an individual’s average blood glucose concentrations over the preceding three- to four-month period.  Lower A1C levels indicate better average blood glucose control, with values in people without diabetes usually being less than 6%.  The American Diabetes Association, or ADA, suggests that people with diabetes should aim for an A1C value that is lower than 7%.  It is estimated that nearly half of Americans being treated for diabetes are failing to achieve recommended blood glucose levels and, according to research studies conducted in the United States and abroad, these patients would significantly benefit from improved glycemic control. In general, for every one-point reduction in A1C, the risk of developing microvascular diabetic complications (eye, kidney and nerve disease) is reduced by up to 40%. Additionally, aggressive use of insulin and some oral medications to reduce glucose levels can be associated with an increased risk of hypoglycemia and weight gain.  Consequently, there has long been a need to develop new treatment strategies that safely improve glucose control, improve the overall health profile of patients with diabetes and reduce the risk of complications.

In people without diabetes, the beta cells of the pancreas produce two hormones, insulin and amylin.  Type 1 diabetes, which is most often diagnosed in children and young adults, results in a deficiency of both hormones due to a destruction of beta cells.  Replacement of beta cells through islet transplant therapy can, in some cases, temporarily render patients insulin-independent; however, life-long daily insulin therapy is usually required to sustain life for people with type 1 diabetes.  The addition of SYMLIN therapy to insulin treatment reduces the characteristic rise in blood sugars after meals and further reduces A1C levels.

Type 2 diabetes results from the body’s inability to produce sufficient insulin, or to properly use available insulin, or both. Secretion of the hormone amylin is also impaired in people with type 2 diabetes.  Historically, type 2 diabetes occurs later in life.  However, primarily as a result of changes in diet and lifestyle, type 2 diabetes is now occurring much earlier in life for many people.  Diet and exercise therapy, oral medications, BYETTA, insulin, and insulin with SYMLIN are currently used to treat type 2 diabetes.

While insulin resistance – the inability of the body’s cells to properly respond to the insulin signal – is felt to be a core defect in those with type 2 diabetes, as the disease progresses a reduction in the beta cells’ ability to make and release insulin plays a key role.  Because of the progressive nature of the disease (in great part the result of this decline in insulin release), no single therapy has been shown to consistently control blood glucose over time.  A majority of individuals with type 2 diabetes will eventually require additional medications, and even these additional treatments can become less effective in regulating blood glucose levels over time.  Historically, insulin therapy is then initiated; however, given the progressive nature of the decline in the body’s production of insulin over time, insulin dosage and the number of insulin injections needed to maintain glucose control is also increased.  Even with additional insulin doses and injections, many individuals are unable to control their blood glucose levels, or do so at the expense of significant weight gain and an increased risk of low blood glucose or hypoglycemia.

In 2005, we introduced two new treatment options for the management of diabetes, BYETTA and SYMLIN.  BYETTA offers patients with inadequate glycemic control using oral medications the opportunity to better control their blood glucose levels and lose weight. SYMLIN offers patients with inadequate glycemic control using mealtime insulin a treatment option that can both improve glucose control and result in weight loss.  These novel first-in-class medicines provide new options in disease management and glucose control to millions of people suffering with diabetes.

For people suffering from diabetes, poor control of blood glucose levels has been shown to result in severe long-term complications.  For instance, the United States Centers for Disease Control, or CDC, has stated that complications due to diabetes include:

·                  heart disease and stroke;

·                  high blood pressure;

·                  blindness due to retinopathy, a condition manifested by damage to the retina;

·                  nephropathy, or kidney disease;

·                  neuropathy, a condition where there is damage to the nervous system;

·                  amputations due to peripheral vascular disease; and

·                  periodontal disease.

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Obesity is common in patients with type 2 diabetes and weight control is a major problem for many patients with both type 1 and type 2 diabetes.  Weight gain is particularly common in those using insulin and certain oral medications as part of their treatment regimen.  In addition, patients with diabetes frequently have wide fluctuations in blood sugar following meals.  These fluctuations in blood sugar can significantly affect a patient’s quality of life.  Blood glucose fluctuations, weight gain and diabetes complications may each contribute to substantial disability, reduced quality of life, reduced productivity in the workplace, increased pain and suffering and premature death.

BYETTA^® (exenatide) injection

BYETTA is the first and only approved medicine in a new class of compounds called incretin mimetics.  We began selling BYETTA in the United States in June 2005 as an add-on therapy to improve glycemic control in patients with type 2 diabetes who have not achieved adequate gylcemic control and who are taking metformin and/or a sulfonylurea, two common oral therapies for type 2 diabetes.  Lilly also co-promotes BYETTA in the United States.  In December 2006, the FDA approved BYETTA as an add-on therapy to improve glycemic control in people with type 2 diabetes who have not achieved adequate glycemic control by using a TZD.  We estimate the number of people in the United States currently using metformin, sulfonylurea and/or a TZD to be approximately 8.2 million.  Approximately one half of all diabetes patients using oral medications are believed to have an A1C higher than the ADA’s recommendation of less than 7% and the vast majority of these patients could be candidates for BYETTA.

BYETTA provides self-regulating glucose control by augmenting the body’s natural physiologic processes, allowing the body to respond to blood glucose changes as they occur.  BYETTA directly affects the beta cells’ responses to elevated glucose by enhancing insulin secretion; this effect dissipates as glucose levels approach the normal range.  BYETTA also restores first-phase insulin response, an effect which is evident following the initial dose.  BYETTA is administered twice a day by using a fixed dose injection, and requires no dose adjustments due to changes in meal size or composition, exercise or other variables.  No additional glucose monitoring is required with BYETTA therapy.

The most common adverse effect of BYETTA is mild to moderate nausea, which tends to dissipate with time.  Mild to moderate hypoglycemia has also been observed, primarily when used in conjunction with a sulfonylurea, agents that are known to cause hypoglycemia.

By the end of 2007, our field force expanded to approximately 600 individuals and, together with the Lilly field organization, our goal is to provide education, through both one-on-one interactions and educational programs, to ensure that physicians understand BYETTA, including its mechanisms of action, potential benefits and important use considerations.  In 2007 we saw a shift in prescribers of BYETTA.  Early adoption of BYETTA was primarily by diabetes specialists, however in 2007 utilization in that segment declined and, we believe, has stabilized.  Importantly, we believe BYETTA is increasingly being prescribed by primary care physicians, a much larger prescribing segment that tends to adopt products later in the product life cycle.  Primary care physicians write approximately 80% of diabetes prescriptions in the United States.  Beginning in 2007 and continuing through 2008, we are refining our marketing efforts to remind primary care physicians of BYETTA’s unique benefits of glucose control with weight loss.  Additionally, as we begin 2008, we have increased access to health care plan reimbursement for BYETTA to approximately 85% coverage nationally on tier 2, which requires a relatively low co-payment from patients who are covered under such plans.

We and Lilly piloted a direct-to-customer advertising program in the fourth quarter of 2007.  Although the program increased patient awareness of BYETTA, we now believe our efforts are best focused on supporting physicians and patients starting BYETTA therapy.  In December 2007 we launched a patient support initiative to facilitate the successful initiation of therapy by primary care physicians.  This effort includes:  increased patient educational material for health care providers to distribute in their offices; a network of approximately 450 diabetes educators to work with physicians and their patients within their local communities; direct support to patients through the BYETTA easy start line, which provides a toll-free number that allows patients to contact trained medical professionals to better understand the benefits of BYETTA therapy and to get assistance starting and using the BYETTA pen; a pharmacy support component partnering with managed care plans designed specifically to assist patient refills; and an enhanced BYETTA website.  We believe this support will prove helpful to patients who may be on their first injectable therapy and to primary care providers who may be less accustomed to treating patients with an injectable product earlier in the disease cycle and who have fewer resources in their offices.

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In February 2007, we announced that the FDA approved more convenient patient storage instructions for BYETTA.  BYETTA pens can now be kept at room temperatures (below 77 degrees Fahrenheit) after first use.  Prior to first use, BYETTA pens should continue to be refrigerated at temperatures between 36 and 46 degrees Fahrenheit.

Lilly has primary responsibility for developing and commercializing BYETTA outside the United States, including any sustained-release formulations such as exenatide once weekly.  In late 2006, we announced that the European Commission granted marketing authorization for BYETTA for the treatment of type 2 diabetes.  Lilly commercially launched BYETTA in various EU member states and other countries in 2007 and by the end of 2007, BYETTA was launched in 23 countries worldwide.

In June 2007, we announced the results of a three-year, open-label study which showed treatment with BYETTA was associated with sustained blood sugar control and progressive weight loss in people not achieving adequate blood sugar control on oral medications alone.  Study participants treated with BYETTA and oral medication(s) showed sustained reductions in A1C of approximately 1% and reduced fasting blood glucose levels.  After three years of BYETTA treatment, 46% of study participants achieved an A1C of 7% or less and 30% of patients achieved an A1C of 6.5% or less.  Weight loss observed in this study was progressive, with participants losing on average approximately 11 pounds from baseline.  In addition, one in four patients lost an average of approximately 28 pounds.  In this study, BYETTA treatment was also assessed for improvements in pancreatic beta-cell function in a subset of 92 participants.  Homeostasis Model Assessment, or HOMA-B, a measure of pancreatic beta-cell function, improved by 17 % from baseline over three years.

In June 2007, we announced results from a 16-week open-label study comparing treatment with BYETTA versus insulin glargine in people with type 2 diabetes who were also taking oral medications.  Study findings showed comparable A1C reductions of approximately 1.4% in patients using BYETTA or insulin glargine therapies, with weight loss and a lower incidence of hypoglycemia associated with BYETTA therapy.  BYETTA treatment with metformin resulted in a statistically significant lower risk of hypoglycemia than treatment with insulin glargine and metformin.  There were seven episodes of severe hypoglycemia in three patients taking insulin glargine and no severe episodes during treatment with BYETTA, reflecting a lower overall risk of hypoglycemia.  BYETTA treatment was also associated with a 4.3 pound weight loss from baseline, compared with a 0.8 pound weight gain among individuals in the insulin glargine group.

In June 2007, we also announced results from a study that showed treatment with BYETTA in patients sustained improvements in A1C of approximately 0.8%, reduced fasting glucose and progressive weight loss of approximately 11 pounds through three and a half years of therapy.  BYETTA therapy was also associated with improvements in cardiovascular risk factors in people with type 2 diabetes, including improved triglyceride levels and lower systolic and diastolic blood pressure.  Results also showed an increase in HDL, or “good”, cholesterol levels after three and a half years and a decrease in LDL, or “bad”, cholesterol levels.

In April 2005, concurrently with BYETTA’s initial approval, the FDA issued an approvable letter for BYETTA when used as a monotherapy (stand-alone therapy) for people with type 2 diabetes.  In December 2007, we announced the results of a 24-week BYETTA monotherapy study in drug-naïve patients.  In this study participants taking 5 micrograms, or mcg or 10 mcg of monotherapy BYETTA twice daily showed reductions in A1C by 0.7% and 0.9%, respectively, from an average baseline A1C ranging from 7.8% to 7.9%.  In addition, approximately 60% of study participants on either 5 mcg or 10 mcg of monotherapy BYETTA at the conclusion of the study had an A1C of 7% or less.  Weight loss from baseline was significant and similar to that observed in previous BYETTA studies.  There was a low incidence of nausea reported in both treatment arms of the study of approximately 3% and 13% in the 5 mcg and 10 mcg arms, respectively.  There were no instances of severe hypoglycemia in this study.  Overall hypoglycemia was similar to that seen in studies where BYETTA was used in conjunction with metformin only.  We currently plan to file a regulatory submission to the FDA for BYETTA use as monotherapy in the first half of 2008.

SYMLIN is the first and only approved medicine in a new class of compounds called amylinomimetics.  We began selling SYMLIN in the United States in April 2005 as adjunctive therapy to mealtime insulin to treat diabetes.  Other than insulin and insulin analogues, SYMLIN is the first FDA-approved medication addressing glucose control for patients with type 1 diabetes since the discovery of insulin over 80 years ago.  SYMLIN is intended to improve blood glucose control in people treated with insulin alone or, in the case of patients with type 2 diabetes, treated with insulin with or without one or more oral medications.

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SYMLIN is indicated for use in adults with type 2 or type 1 diabetes to control blood sugar.  SYMLIN works with insulin to smooth out the peaks in blood glucose levels to give patients more stable blood glucose levels after meals and throughout the day.  SYMLIN also lowers the A1C levels of most patients beyond what insulin alone can achieve.  SYMLIN induces satiety, which leads to eating less and weight loss in most patients.  In addition, because SYMLIN works with insulin to control blood sugar, patients often need less insulin to achieve desired blood sugar levels after meals.

SYMLIN is used with insulin and has been associated with an increased risk of insulin-induced severe hypoglycemia.  The risk can be reduced by appropriate patient selection, careful patient instruction and insulin dose adjustments.  Other adverse effects commonly observed are primarily gastrointestinal, including nausea, which decrease over time in most patients.

Our SYMLIN marketing is focused on a target physician population of approximately 21,000, with a goal of educating these physicians on SYMLIN, including its mechanisms of action, potential benefits, use considerations, and appropriate patient selection for initiating SYMLIN therapy.  These physicians write approximately 40% of all insulin prescriptions in the United States.  In October 2007, we announced that the FDA approved the SymlinPen ™ 120 and the SymlinPen ™ 60 pen-injector devices for administering SYMLIN.  The new pre-filled pen-injector devices feature fixed dosing to improve mealtime glucose control and are now available to patients.  The devices can be stored at room temperature not to exceed 86 degrees F (30 degrees C) after first use.  We are now educating physicians about the SYMLIN pen and believe the SYMLIN pen will not only enable patients to more easily deliver proper dosing than using a vial and syringe but will also improve the convenience of administering SYMLIN.

In late 2006, we announced results from a 16-week study designed to evaluate the efficacy and safety of adding SYMLIN at mealtime to an established regimen of once-daily basal insulin.  Patients receiving SYMLIN on average had better overall A1C, reduced glucose fluctuations, used less insulin and experienced weight loss, compared to those using basal insulin without SYMLIN.  In June 2007, we announced that additional analysis of data from this study demonstrated that weight loss also was associated with a significant reduction in C-reactive protein levels, a marker for increased risk of cardiovascular disease.  The overall results of this study formed the basis of an NDA submitted by us in the fourth quarter of 2006 seeking approval for the use of SYMLIN at mealtime in patients with type 2 diabetes treated with once-daily basal insulin (without mealtime insulin).  In October 2007, we announced that the FDA issued a “Not Approvable” letter for SYMLIN use with basal insulin.  We are continuing our discussions with the FDA with respect to its response regarding the use of SYMLIN with basal insulin alone.

During 2007, we continued an open-label observational study of SYMLIN. This study is designed to evaluate SYMLIN use in the marketplace.  Patients receive SYMLIN as part of their routine diabetes management and are followed in this real-world setting for a period of six months.  In addition, in 2007 we completed a small pharmacokinetic study in pediatric patients (ages 12 to 16) with type 1 diabetes requested by the FDA that was designed to provide insight into dosing in a pediatric population.

Research and Development

We have late-stage development programs in the therapeutic areas of diabetes and obesity and multiple early-stage programs in diabetes and obesity.  Our years of research in diabetes and deep understanding of peptide hormones — their physiology, functionality and impact on the disease — are being leveraged to develop potential treatments for obesity.  The metabolic components of these diseases are linked in numerous ways, which are reflected in the impact each has on the other.

Diabetes

Exenatide Once Weekly

Exenatide once weekly is our late stage development program in diabetes.  Exenatide is the active ingredient in BYETTA and is combined with proprietary technology developed by us and our partner, Alkermes, to provide a sustained

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release delivery of exenatide.  The combination of potency and the glucose-dependent mechanism of action inherent in exenatide makes it well suited to development of a once weekly formulation.  We have an agreement with Alkermes to assist us in the development, manufacture and commercialization of exenatide once weekly and this program is included in our collaboration agreement with Lilly.  We are aggressively working with Lilly and Alkermes to develop exenatide once weekly for the treatment of type 2 diabetes.

In October 2007, we announced positive results of a 30-week pivotal comparator study comparing treatment with exenatide once weekly to treatment with BYETTA.  The study enrolled 295 patients not achieving adequate glucose control with either diet and exercise or with use of oral glucose-lowering agents.  Exenatide once weekly showed a statistically significant improvement in A1C of approximately 1.9% from baseline, compared to an improvement of approximately 1.5% for BYETTA.  Approximately three out of four subjects treated with exenatide once weekly achieved an A1C of 7% or less.

After 30 weeks of treatment, both exenatide once weekly and BYETTA treatment resulted in an average weight loss of approximately eight pounds.  Nearly 90% of subjects in both groups completed the study.  There was no major or severe hypoglycemia regardless of background therapy.  As expected, based on prior BYETTA studies, minor hypoglycemia with exenatide once weekly use was limited to subjects using background sulfonylurea therapy.  Exenatide once weekly was associated with approximately 30% less nausea than twice-daily BYETTA.  Approximately one out of five subjects receiving exenatide once weekly reported treatment-related nausea during the 30-week study.  In both groups nausea was predominately mild and transient.

We are currently completing the building of a facility in West Chester, Ohio to manufacture exenatide once weekly.  We expect to complete the commercial scale-up manufacturing process for exenatide once weekly and the commissioning of the facility in the second half of 2008.  We are also working aggressively to provide sufficient data to the FDA to demonstrate comparability between exenatide once weekly clinical trial material manufactured by our partner, Alkermes, in its facility and exenatide once weekly produced in our West Chester, Ohio facility.  We currently plan to submit an NDA to the FDA by not later than the end of the first half of 2009, although we are actively pursuing strategies which may allow an earlier submission.  To do that, we continue to dialogue with the FDA and are taking multiple approaches to develop the necessary data.  As our conversation with the FDA continues and we provide additional data on comparability, we will finalize the timing of our NDA submission.

We are in the process of initiating three additional superiority trials to support the commercialization of exenatide once weekly.  The first of these trials is underway and is a blinded controlled trial comparing exenatide once weekly versus a TZD and a DPP-4 inhibitor in patients on metformin background therapy.  We also plan to undertake a superiority trial comparing exenatide once weekly with insulin glargine in patients using oral medications.  Results of these two studies are expected in the first half of 2009.  In the second half of 2008, we intend to start a third superiority trial comparing exenatide once weekly to either metformin, a TZD or a DPP-4 inhibitor as stand-alone therapy.  We believe that this clinical program may provide powerful data that will demonstrate the value of this potential medicine to physicians, payors and patients.

In June 2006, we entered into an agreement with Nastech Pharmaceutical Company, or Nastech, to develop a nasal spray formulation of exenatide.  We and Nastech are jointly developing the nasal spray formulation using Nastech’s proprietary nasal delivery technology.  We have the responsibility for the development program including clinical, non-clinical and regulatory activities, while Nastech is focusing on drug delivery and chemistry, and manufacturing and controls activities.  In 2007, we completed a Phase 1 clinical trial with nasal exenatide.  We are evaluating our future options for this program.

Obesity is a chronic condition that affects millions of people and is linked to increased health risk of several medical conditions including type 2 diabetes, high blood pressure, heart disease, stroke, osteoarthritis, sleep disorders and several types of cancers.  Obesity is also rapidly becoming a major health problem in all industrialized nations and many developing countries.  According to NAASO (The Obesity Society), obesity is the second leading cause of preventable death in the United States.  It is estimated that 64% of the adult population in the United States are overweight and nearly 60 million adult Americans are considered obese.  It is also estimated that the total direct and indirect costs attributed to overweight and obesity health issues exceed $100 billion in the United States each year.

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Genetic, metabolic, psychological and environmental factors can all contribute to obesity. Obesity is measured by Body Mass Index, or BMI, a mathematical formula using a person’s height and weight. BMI is calculated by dividing a person’s weight in kilograms by the person’s height in meters squared. A person with a BMI between 25 and 29.9 is considered overweight. A person with a BMI of 30 or more is considered obese, and a person with a BMI of 40 or more is considered severely obese. Current treatments for obesity include diet, exercise, drug therapy and surgery.

The National Heart, Lung and Blood Institute and the World Health Organization have issued evidence-based guidelines for the identification, evaluation and treatment of obesity.  Non-pharmacological treatment modalities (dietary modifications, behavioral interventions, and increased physical activity) are considered the cornerstone of clinical obesity management.  If lifestyle changes do not promote weight loss after six months, pharmacotherapy is considered helpful for eligible high-risk patients.  Only two pharmacological agents are currently approved for the long-term treatment of obesity in the US.  Bariatric surgery is considered an option only for patients with severe obesity and serious co-morbid conditions.

The National Institutes of Health, Surgeon General and FDA recognize a large unmet medical need for safe and efficacious therapies to prevent the debilitating metabolic diseases and mortality associated with obesity.

In 2006, we announced a new obesity clinical program strategy to assess the safety and efficacy of multiple neurohormones used in combination to treat obesity.  We refer to this strategy as Integrated Neurohormonal Therapy for Obesity, or INTO.  Integrated neurohormonal therapy is designed to restore the body’s metabolism to a reduced obese or non-obese state by using neurohormones that work together to address the physiologic imbalances that cause complex chronic diseases such as obesity.  Our INTO strategy is based on combination therapies and as part of this program we are studying combinations of peptide and protein hormones.

Three molecular franchises are the primary focus of our INTO strategy:  amylin and in particular pramlintide, its synthetic version (a first generation amylinomimetic); leptin and in particular metreleptin, its recombinant version, a protein hormone produced from the fat cell that plays a fundamental role in metabolism via its communication to the brain; and PYY 3-36 and in particular a more potent Y-family analog molecule, that is secreted by the gut and provides a satiety signal in the post-meal period.  We are also studying a second-generation amylinomimetic, which is a compound that has been optimized in preclinical models to reduce body weight.

Pramlintide plays an important role in our current INTO strategy.  Pramlintide has been studied extensively in people with and without diabetes and is the active ingredient in SYMLIN.  In February 2006, we reported results from a 16-week Phase 2 dose-ranging study with pramlintide in obese subjects.  After completing 16 weeks of treatment with pramlintide in addition to lifestyle intervention, subjects on average experienced an 8.4 to 13.4 pound weight loss from baseline, compared to a 6.2 pound weight loss with placebo plus lifestyle intervention.

Pramlintide was well tolerated and showed progressive weight loss at doses up to 360 mcg.  No new safety signals were observed in this study, which included higher doses than those previously studied in obese subjects.  There was clear evidence of a dose response for the twice-daily regimens.  Consistent with previous observations, the most common adverse effect was mild nausea.  Weight loss in subjects who did not experience nausea was similar to that seen in the overall study population.  In October 2006, we reported results from a continuation of this study that demonstrated that patients completing 52 weeks of pramlintide therapy experienced a 7-8% mean body weight reduction, depending upon the dose they received, compared to a 1% reduction in patients receiving placebo.

We have conducted clinical studies using pramlintide in combination with leptin and with PYY 3-36.  The proof of concept pramlintide and metreleptin study, which we discuss below, investigated the synergy of pramlintide and metreleptin found in preclinical studies.

Leptin is the second compound we are studying in connection with our INTO program.  Leptin is a naturally occurring protein hormone secreted by fat cells.  It plays a key role in metabolism through multiple metabolic actions and appears to act primarily at the level of the hypothalamus to regulate food intake and energy expenditure.  Leptin’s roles in the

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treatment of obesity and lipodystrophy have been extensively studied, and the lead molecules have a strong safety profile. Humans suffering from lipodystrophy, a disease characterized by loss of body fat and consequent metabolic disorders (insulin resistance, hyperglycemia, and dyslipidemia), are rendered incapable of secreting sufficient amounts of leptin due to the loss of fat cell mass.

In early 2006, we acquired the exclusive rights to the leptin molecular franchise and program (including metreleptin, the recombinant synthetic form of human leptin) from Amgen, Inc., or Amgen.  Under the terms of the license agreement, we made an up-front payment, and in 2007 we made a milestone payment related to technology transfer and we may make potential future payments related to development and regulatory milestones and will pay royalties on any product sales.  Our license includes exclusive rights to the leptin intellectual property developed by Amgen as well as intellectual property Amgen originally licensed from Rockefeller University.

PYY 3-36 is the third compound we are studying in connection with our INTO program.  We are developing more potent and efficacious Y-family mimetics as drug candidates, but have been utilizing the native form of PYY 3-36 for the investigation of potential treatments of obesity.  Independent researchers have reported a reduction in food intake in humans using PYY 3-36.  In November 2007, we announced data from a 14-day safety and tolerability Phase 1 clinical trial showing that PYY 3-36 when used in combination with pramlintide was well-tolerated.  We also announced that this combination was well-tolerated with dose escalation.  We intend to focus our future development of the second generation Y-family mimetic either alone or in combination with a second generation amylinomimetic.

In November 2007, we announced results from a 24-week proof-of-concept study with pramlintide and metreleptin combination treatment in overweight or obese subjects.  At the end of the study, the combination treatment reduced body weight on average 12.7 %, significantly more than treatment with pramlintide alone (8.4%).  Subjects treated with pramlintide and metreleptin lost an average of 25 pounds from the beginning of the study compared with an average of 17 pounds for subjects treated with pramlintide alone.  Subjects receiving pramlintide and metreleptin continued to lose weight through the end of the study compared to those treated with pramlintide alone, whose weight loss had stabilized towards the end of the study.  At the beginning of the study, the average weight of study participants was approximately 205 pounds.

Consistent with previous clinical experience with pramlintide and metreleptin as single agents, the most common side effects seen with combination treatment were injection site adverse events and nausea, which were mostly mild to moderate and transient in nature.  As a result of this study we intend to pursue a pramlintide-metreleptin combination product candidate.  In 2008, we plan to continue developing a delivery system that will provide both pramlintide and metreleptin in a single injection.  Further, we are initiating a Phase 2B study to evaluate different dosing combinations of pramlintide and metreleptin.  We believe this six-month, multi-arm study will enroll approximately 600 patients and will take approximately one year to complete.

In 2006, we submitted an IND application to the FDA for a second generation amylinomimetic.  The targeted product profile for this second generation amylinomimetic includes once-weekly delivery.

During 2007, we completed three Phase 1 studies of a second generation amylinomimetic we are developing and which we believe may have some potential advantages over pramlintide for weight loss as a single agent.  These advantages may include greater efficacy, greater potency and improved pharmaceutical properties, such as having prolonged duration of action and being more amenable to drug delivery.  These three studies included a single dose study, a twice-daily multi-dose study and a once-daily multi-dose study.  In November 2007, we announced data from the twice-daily multi-dose study showing that at 3mcg/kg dosing, individuals exhibited a 996 kilocalorie reduction in intake over a 24-hour period, representing a 34% decrease in daily calories.  We plan to continue developing this molecule in 2008.

A key element of our strategy is to develop first-in-class compounds for treating metabolic diseases.  To achieve this goal, we are exploring hormones with multiple mechanisms of action that will potentially lead to products that have utility in

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treatment of more than one disease with the potential for many product forms.  To do so, we take an integrated and biological, rather than a target-driven, approach to research.  Our research is centered on peptide hormones that play an important metabolic role, and which we consider more likely to have an acceptable safety profile because these hormones exist naturally in the human body.  Our development path begins with identifying a particular peptide and then determining if it is a circulating hormone, a substance that travels through the bloodstream to affect bodily functions.  We then attempt to understand the hormone’s functionality and potential impact on a disease.  Rather than starting with a known biology and targeting molecules to modify, enhance or block it, our scientists are discovering the biology of previously unknown peptides and uncovering utility that could potentially translate into a new human therapy.   The conventional development process commonly used in the pharmaceutical industry emphasizes utilizing isolated cells or molecular targets to advance drug discovery.  Our approach to research calls for our scientists to quickly move to in vivo testing using highly predictive animal models that allow us to design subsequent information-rich clinical trials in humans.

Based on a premise that every peptide hormone has a utility — and a potential therapeutic benefit — we have developed a proprietary and continually growing peptide hormone library we call PHORMOLÔ. PHORMOLÔ encompasses an extensive panel of potentially valuable biologics that have been taken from nature, including human peptides not previously described.  All of these have been synthesized to create a rich source of compounds for ongoing research in their functionality, utility and potential value in treating a range of human diseases.

We are also developing capabilities in delivery system research and development, focused on product presentations that enhance clinical outcomes and patient convenience.  Delivery systems are selected on the basis of technical feasibility, regulatory acceptance and market preference.  They include injectable sustained-release formulations such as salt complexes, lipids, biodegradable polymer and gel systems, as well as non-injectable systems such as nasal sprays, inhalation, oral and transdermal systems.  We are also using our resources to optimize pharmaceutical properties of peptide drugs to develop new peptide hormone analogs that may be more amenable to alternative forms of delivery.

We currently have approximately 700 full-time employees dedicated to our research and development activities.  We also have more than 200 employees with Ph.D., Pharm.D. or M.D. degrees.  Most of our physicians specialize in diabetes.  In the years ended December 31, 2007, 2006 and 2005, we incurred research and development expense of $276.6 million, $222.1 million and $132.1 million, respectively.

In 2007, we established strategic relationships with other companies and we continue to assess additional opportunities for strategic relationships or in-licensing opportunities.  In January 2007, we partnered with PsychoGenics, Inc., or PsychoGenics, to form Psylin Neurosciences, Inc., or Psylin, a new company that will focus on the discovery and development of peptide hormones for treatment of psychiatric disorders.  Under this joint venture, Psylin will have access to molecules in our PHORMOL™ proprietary polypeptide hormone library, and to PsychoGenics’ proprietary drug discovery technologies.  Psylin will have the right to develop a number of drug candidates emerging from this collaboration.  If Psylin decides to out-license these drug candidates, we have preferential rights to acquire such licenses.

In April 2007, we expanded our contract research arrangement with Kelaroo, Inc., or Kelaroo, a developer of cheminformatics and bioinformatics applications and services for drug discovery.  In connection with the expansion of our collaboration, we made a strategic investment in Kelaroo for use in advancing the commercialization of Kelaroo’s SeqR technology which we use for peptide hormone identification and optimization.  This technology is a sequence-profiling approach that combines machine learning methods and high-performance sequence analysis tailored for genome-scale data mining and sequence optimization.

In May 2007, we entered into a joint research collaboration agreement with BioSeek, Inc., or BioSeek, that will focus on the discovery and development of novel peptide therapeutics for inflammatory conditions.  In connection with this collaboration, we made a strategic investment in BioSeek.  Under the collaboration, BioSeek will apply its BioMap® human biology screening systems to evaluate the potential of peptide hormones in PHORMOL™ to treat a range of inflammatory conditions.  In exchange for milestone payments and royalties payable to us, BioSeek will have the right to select and exclusively license two peptides resulting from the screening program as the basis for proprietary optimization and development programs for therapeutic indications outside of our core therapeutic focus.

In November 2007, we entered into a joint research collaboration agreement with Xenome Ltd., or Xenome.  Our collaboration with Xenome will focus on the discovery and development of novel peptide hormones for a range of metabolic

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and musculoskeletal diseases.  In connection with this collaboration, we made a strategic investment in Xenome.  Under the collaboration, we will apply our proprietary screening technologies to evaluate the therapeutic potential of peptides from Xenome’s proprietary bioactive peptide library derived from natural sources.  We will have the right to select and exclusively license lead candidates resulting from the screening program in metabolic and musculoskeletal disease for further development and commercialization in exchange for milestone payments and royalties payable to Xenome.

We have built a sales and marketing organization that focuses on healthcare providers, managed healthcare organizations, wholesalers and pharmacies, government purchasers and other third-party payors.  We currently have a field force of approximately 600 people dedicated to marketing BYETTA and SYMLIN in the United States.  Lilly also co-promotes BYETTA in the United States.  Our field force includes a primary care sales force as well as a specialty sales force of 74 representatives who call on endocrinologists and other physicians who have large diabetes care practices and other healthcare professionals who support their practices.  Our field organization also includes a managed care and government affairs organization and a medical science organization that support broad medical education programs for both BYETTA and SYMLIN.  Members of our sales and marketing team have extensive industry experience from a wide range of large and small companies and have substantial experience in the field of diabetes, as well as in launching and marketing pharmaceutical products.

We utilize common pharmaceutical company practices to market our products.  We call on individual physicians and other healthcare professionals and other organizations and individuals involved in the prescribing, purchasing and/or distributing of human medicines.  We also provide professional symposia through our extensive medical education programs. Our medical education events are conducted live, via satellite or telephone and through web-based, interactive programs.  We will continue to focus on medical education efforts for both BYETTA and SYMLIN through thousands of programs across the United States organized by our medical affairs and professional education organizations.  We train physicians and other healthcare professionals as speakers, so that they can in turn teach their peers about how best to incorporate BYETTA or SYMLIN into their patients’ diabetes treatment regimens.

We provide customer service and other related programs for our products, such as disease and product-specific websites, insurance research services, a customer service call center and order, delivery and fulfillment services.  We have programs in the United States that provide qualified uninsured and underinsured patients with our products at no charge.

We sell BYETTA and SYMLIN to wholesale distributors who in turn sell to retail pharmacies and government entities.  Decisions made by these wholesalers and their customers regarding the levels of inventory they hold, and thus the amount of BYETTA and SYMLIN they purchase, may affect the level of our product sales in any particular period.

We have selected manufacturers that we believe comply with current Good Manufacturing Practices, or cGMP, and other regulatory standards.  We have established a quality control and quality assurance program, including a set of standard operating procedures, analytical methods and specifications, designed to ensure that our products and product candidates are manufactured in accordance with applicable regulations.  We require that our contract manufacturers adhere to cGMP, except for products and product candidates for toxicology and animal studies, which we require to be manufactured in accordance with current Good Laboratory Practices, or cGLP.

Although some materials for our drug products are currently available from a single-source or a limited number of qualified sources, we attempt to acquire an adequate inventory of such materials, establish alternative sources and/or negotiate long-term supply arrangements.  We believe we do not have any significant issues obtaining suppliers; however, we cannot be certain that we will continue to be able to obtain long-term supplies of our manufacturing materials.

We obtain exenatide, the active ingredient contained in BYETTA, from Bachem California, or Bachem, and Mallinckrodt, Inc., or Mallinckrodt, pursuant to long-term agreements with each company.  We have long-term agreements with Wockhardt UK (Holdings) Ltd., or Wockhardt, and Baxter Pharmaceutical Solutions LLC, a subsidiary of Baxter, Inc.,

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or Baxter, to supply us the dosage form of exenatide in cartridges.  We have a long-term agreement with Lilly to supply pens for delivery of BYETTA in cartridges.

We obtain pramlintide acetate, the active ingredient contained in SYMLIN, from Bachem and Lonza Ltd., or Lonza, pursuant to long-term agreements with each company.  We have a long-term contract with Baxter for the dosage form of SYMLIN in vials.  We also have an agreement with Wockhardt for the dosage form of SYMLIN in cartridges.  We have a long-term agreement with Ypsomed AG to supply pen components for the delivery of SYMLIN in cartridges.  We also have a long-term agreement with Hollister-Stier Laboratories LLC for the assembly of the SYMLIN pen components and cartridges.

Under the terms of our development and license agreement with Alkermes, we are responsible for manufacturing the once-weekly dosing formulation of exenatide once weekly for commercial sale and will pay Alkermes milestone payments upon achievement of development milestones and royalties on sales of exenatide once weekly.  Alkermes has transferred to us its technology for manufacturing exenatide once weekly and will supply us with the polymer materials required for the commercial manufacture of exenatide once weekly.  We obtain bulk exenatide, the active ingredient in exenatide once weekly, from Lonza and we obtain pre-filled diluent syringes for exenatide once weekly from Vetter Pharma-Fertigung GMB & Co. KG. pursuant to long-term agreements with both companies.

We are currently building a facility in West Chester, Ohio to manufacture exenatide once weekly.  We are working with Alkermes and Parsons Commercial Technology Group, Inc., or Parsons, a group with significant experience in the design and construction of pharmaceutical manufacturing facilities, to complete the design, construction and validation of this facility.  We expect to complete the commercial-scale manufacturing process for exenatide once weekly and the commissioning of the facility in the second half of 2008.  We are also working aggressively to provide sufficient data to the FDA to demonstrate comparability between exenatide once weekly clinical trial material manufactured by our partner, Alkermes, in its facility and exenatide once weekly produced in our West Chester, Ohio facility.

We entered into a collaboration agreement with Lilly in 2002 for the global development and commercialization of exenatide, including both the twice-daily version, BYETTA, and sustained-release formulations, such as exenatide once weekly.  Under the terms of the agreement, Lilly made initial payments to us, and purchased approximately 1.6 million shares of our common stock.  In addition, Lilly has made milestone payments to us upon the achievement of development milestones for BYETTA and exenatide once weekly and commercial milestones for BYETTA.  In 2007 we received development milestones in the amount of $30 million for exenatide once weekly and because the NDA filing for exenatide once weekly did not occur by December 31, 2007, Lilly is entitled to and has elected to receive $30 million in our common stock.  In addition, Lilly is obligated to make additional future commercial milestone payments to us of up to $80 million contingent upon the commercial launch of exenatide, including BYETTA and exenatide once weekly, in selected territories throughout the world.  We share exenatide United States development and commercialization costs with Lilly equally and we pay Lilly 50% of the operating profits from the sale of products in the United States.  Our collaboration agreement may be terminated by Lilly at any time on 60 days’ notice.

Lilly will pay us tiered royalties based upon the annual gross margin for all exenatide product sales, including any sustained-release formulations, outside of the United States.  Royalty payments for exenatide product sales outside the United States will commence after a one-time cumulative gross margin threshold has been met.  Lilly is responsible for 100% of the costs related to development of twice-daily BYETTA for sale outside of the United States.  Development costs related to all other exenatide products for sale outside of the United States will continue to be allocated 80% to Lilly and 20% to us.  Lilly is responsible for 100% of the costs related to commercialization of all exenatide products for sale outside the United States.  We record all United States BYETTA product revenues and Lilly will record all BYETTA product revenues from outside the United States.

Under our co-promotion arrangement with Lilly, the parties use approximately equal efforts to co-promote BYETTA within the United States and have agreed to use approximately equal efforts to co-promote sustained-release formulations of exenatide within the United States. Lilly is responsible for commercialization efforts outside the United States.  In late 2006, BYETTA was approved in the EU and, by the end of 2007, was commercially launched in 23 countries worldwide.

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The biotechnology and pharmaceutical industry is highly competitive.  There are many pharmaceutical companies, biotechnology companies, public and private universities and research organizations actively engaged in the research and development of products that may be similar to the products in our portfolio.  A number of our largest competitors, including AstraZeneca, Bristol-Myers Squibb Company, GlaxoSmithKline, Lilly, Merck & Co., Novartis AG, Novo Nordisk, Pfizer, Sanofi-Aventis and Takeda Pharmaceuticals, are pursuing the development of or are marketing pharmaceuticals that target the same diseases that we are targeting, and it is probable that the number of companies seeking to develop products and therapies for the treatment of diabetes, obesity and other metabolic disorders will increase.  Many of these and other existing or potential competitors have substantially greater financial, technical and human resources than we do and may be better equipped to develop, manufacture and market products.  These companies may develop and introduce products and processes competitive with or superior to ours.  In addition, other technologies or products may be developed that have an entirely different approach or means of accomplishing the intended purposes of our products, which might render our technology and products noncompetitive or obsolete.  For example, all of our current drug products are injectable, and may have to compete with therapies that do not require injection.  We cannot be certain that we will be able to compete successfully.

SYMLIN is the only non-insulin-based drug product approved for improving blood glucose control in people with type 1 diabetes.  Further, insulin and oral medications are often insufficient for many people with type 2 diabetes to achieve satisfactory glucose and weight control. BYETTA or SYMLIN may be complementary to, or competitive with, these other medications.

BYETTA and SYMLIN must compete with established therapies for market share.  In addition, many companies are pursuing the development of novel pharmaceuticals that target diabetes.  These companies may develop and introduce products competitive with or superior to BYETTA or SYMLIN. Such competitive products and potential products include:

·      sulfonylureas;

·      metformin;

·      insulins (injectable and inhaled versions);

·      thiazolidinediones (TZDs);

·      glinides;

·      dipeptidyl peptidase type IV (DPP-IV) inhibitors;

·      incretin/GLP-1 agonists;

·      CB-1 antagonists;

·      insulin sensitizers including PPARs;

·      alpha-glucosidase inhibitors; and

·      SGLT-2 inhibitors.

There is substantial competition in the discovery and development of treatments for obesity, as well as emerging prescription and over-the-counter treatments for this condition.  Current treatments for obesity include dietary therapy, physical activity, drug therapy and surgery.  Hoffmann-LaRoche and Abbott Laboratories already market oral medicines for the treatment of obesity.  Glaxo Smith Kline now markets a former prescription product (orlistat-Alli) for treatment of obesity.  Sanofi-Aventis has a product candidate that has received an approvable letter from the FDA and is approved in the EU, and a number of other pharmaceutical companies are developing new potential therapeutics.

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We believe that patents and other proprietary rights are important to our business.  Our policy is to file patent applications to protect technology, inventions and improvements that may be important to the development of our business. We also rely upon trade secrets, know-how, continuing technological innovations and licensing opportunities to develop and maintain our competitive position.  We plan to enforce our issued patents and our rights to proprietary information and technology.  We review third-party patents and patent applications, both to refine our own patent strategy and to identify useful licensing opportunities.

We have a number of patents, patent applications and rights to patents related to our compounds, products and technology, but we cannot be certain that issued patents will be enforceable or provide adequate protection or that pending patent applications will result in issued patents.  We have also filed foreign counterparts to many of these issued patents and applications.

We may obtain patents for our compounds many years before we obtain marketing approval for them.  Because patents have a limited life, which may begin to run prior to the commercial sale of the related product, the commercial value of the patent may be limited.  However, we may be able to apply for patent term extensions to compensate in part for delays in obtaining marketing approval.  For example, in the United States a patent term extension of 1,586 days has been granted for SYMLIN and a patent term extension of 1,287 days has been granted for BYETTA.  Similar patent term extensions may be available for other products that we are developing, but we cannot be certain we will obtain them.

Included within our exenatide patent portfolio are issued patents for:

·                                          pharmaceutical compositions containing exenatide;

·                                          modulating gastric emptying;

·                                          inhibiting glucagon secretion;

·                                          stimulating insulin release; and

·                                          reducing food intake.

These patents expire between 2013 and 2020.  We do not have a composition of matter patent for the exenatide molecule.

Included within our pramlintide patent portfolio are issued patents for:

·                                          pramlintide and other amylin agonist analogues invented by our researchers;

·                                          amylin agonist pharmaceutical compositions, including compositions containing pramlintide; and

·                                          methods for treating diabetes and related conditions using amylin agonists.

These patents expire between 2009 and 2018.

With respect to our drug candidates, we have patents and patent applications pending, or have licensed patents and patent applications, relevant to the development and commercialization of such drug candidates.

Generally, our policy is to file foreign counterpart applications in countries with significant pharmaceutical markets.

It is important that we do not infringe patents or proprietary rights of others and that we do not violate the agreements that grant proprietary rights to us.  If we do infringe patents or violate these agreements, we could be prevented from developing or selling products or from using the processes covered by those patents or agreements, or we could be required to obtain a license from the third party allowing us to use their technology.  We cannot be certain that, if required, we could obtain a license to any third-party technology or that we could obtain one at a reasonable cost.  If we were not able

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to obtain a required license, we could be adversely affected.  Because patent applications are confidential for at least some period of time, there may be pending patent applications from which patents will eventually issue and prevent us from developing or selling certain products unless we can obtain a license to use the patented technology.

Patents relating to pharmaceutical, biopharmaceutical and biotechnology products, compounds and processes such as those that cover our existing products, compounds and processes and those that we will likely file in the future do not always provide complete or adequate protection.  Future litigation or proceedings initiated by the United States Patent and Trademark Office regarding the enforcement or validity of our existing patents or any future patents could invalidate our patents or substantially reduce their protection.  In addition, statutory or regulatory changes may adversely affect our ability to obtain protection or enforce our patents.  Furthermore, our pending patent applications and patent applications filed by our collaborative partners may not result in the issuance of any patents or may result in patents that do not provide adequate protection.  As a result, we may not be able to prevent third parties from developing the same compounds and products that we have developed or are developing.  In addition, we do not have patent protection or we may not be able to enforce our patents in certain countries.  As a result, manufacturers may be able to sell generic versions of our products in those countries.

We also rely on unpatented trade secrets and improvements, unpatented internal know-how and technological innovation.  We protect these rights mainly through confidentiality agreements with our corporate partners, employees, consultants and vendors.  These agreements provide that all confidential information developed or made known to an individual during the course of their relationship with us will be kept confidential and will not be used or disclosed to third parties except in specified circumstances.  In the case of employees, the agreements provide that all inventions made by the individual while employed by us will be our exclusive property.  We cannot be certain that these parties will comply with these confidentiality agreements, that we have adequate remedies for any breach, or that our trade secrets will not otherwise become known or be independently discovered by our competitors.  Under some of our research and development agreements, inventions discovered in certain cases become jointly owned by us and our corporate partner and in other cases become the exclusive property of one of us.  It can be difficult to determine who owns a particular invention and disputes could arise regarding those inventions.

Regulation by governmental authorities in the United States and foreign countries is a significant factor in the development, manufacture and marketing of pharmaceutical products.  All of our potential products will require regulatory approval by governmental agencies prior to commercialization.  In particular, human therapeutic products are subject to rigorous preclinical testing and clinical trials and other pre-market approval requirements by the FDA and regulatory authorities in foreign countries.  Various federal, state and foreign statutes and regulations also govern or influence the manufacturing, safety, labeling, storage, record keeping and marketing of such products.

The activities required before a pharmaceutical agent may be marketed in the United States begin with preclinical testing.  Preclinical tests include laboratory evaluation of product chemistry and animal studies to assess the potential safety and activity of the product candidate and its formulations.  The results of these studies must be submitted to the FDA as part of an IND which must be reviewed by the FDA before a proposed clinical trial can begin.  Typically, clinical trials involve a three-phase process.  In Phase 1, clinical trials are conducted with a small number of healthy volunteers to determine the early safety and tolerability profile and the pattern of drug distribution and metabolism.  In Phase 2, clinical trials are conducted with groups of patients afflicted with a specified disease in order to determine preliminary efficacy, dosing regimens and expanded evidence of safety.  In Phase 3, large-scale, multi-center, adequate and well-controlled comparative clinical trials are conducted with patients afflicted with a target disease in order to provide enough data for the statistical proof of efficacy and safety required by the FDA and others.  The results of the preclinical testing and clinical trials for a pharmaceutical product are then submitted to the FDA in the form of an NDA for approval to commence commercial sales. In responding to an NDA, the FDA may grant marketing approval, request additional information, or deny the application if it determines that the application does not satisfy its regulatory approval criteria.  Once a drug is approved for marketing in the US, the FDA requires ongoing safety monitoring to ascertain any undiscovered issues related to “real-world” use of the drug.  The expanded patient exposure once a drug is introduced to the marketplace can reveal new risks (as well as new benefits) that were not detectable during clinical testing.

Among the conditions for NDA approval is the requirement that the prospective manufacturer’s quality control and manufacturing procedures conform to cGMP.  In complying with cGMP, manufacturers must continue to expend time, money and effort in the area of production, quality control, and quality assurance to ensure full technical compliance.  Manufacturing facilities are subject to periodic inspections by the FDA to ensure compliance.

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We are also subject to various federal, state, and local laws, regulations and recommendations relating to safe working conditions; laboratory and manufacturing practices; the experimental use of animals; and the use and disposal of hazardous or potentially hazardous substances, including radioactive compounds and infectious disease agents, used in connection with our research.

The activities required before a pharmaceutical agent may be marketed in the EU are dictated by the International Conference on Harmonization and are generally similar to those established in the United States.  Approval of new drugs across the EU relies on either the mutual recognition process or the centralized approval process of the European Medicines Agency.  Under the centralized procedure, the marketing application is referred for review to two review teams, each representing one of the member countries.  Each reviewer then forwards an early assessment to the Committee for Medicinal Products for Human Use, or CHMP, for discussion and preparation of an initial consolidated assessment report, including a list of questions requesting clarification as well as additional information.  This step initiates a series of dialogues, meetings and other communications among the CHMP, the two review teams and the applicant, leading in turn to clarification, education and refinement of the original assessment reports.  Ultimately, a decision is reached to either grant marketing approval or deny the application if it is determined that the application does not satisfy the regulatory approval criteria.  The clinical testing, manufacture and sale of pharmaceutical products outside of the United States and the EU are subject to regulatory approvals by other jurisdictions which may be more or less rigorous than those required by the United States or the EU.

As of December 31, 2007, we had approximately 1,900 full-time employees.  A significant number of our management and professional employees have had experience with pharmaceutical, biotechnology or medical product companies.  We believe that we have been highly successful in attracting skilled and experienced personnel.  None of our employees is covered by collective bargaining agreements and we consider relations with our employees to be good.

Directors and Executive Officers

The names of our directors and executive officers and certain information about them as of February 15, 2008 are set forth below:

(1)           Member of the Finance Committee.

(2)           Member of the Compensation and Human Resources Committee.

(3)           Member of the Audit Committee.

(4)           Member of the Corporate Governance Committee.

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Mr. Bradbury has been our Chief Executive Officer since March 2007, serving as President since June 2006 and as Chief Operating Officer since June 2003. He has served as a director since June 2006.  He previously served as Executive Vice President from June 2000 until his promotion in June 2003.  He joined Amylin in 1994 and has held officer-level positions in Corporate Development and Marketing during that time.  Prior to joining Amylin, Mr. Bradbury spent ten years at SmithKline Beecham Pharmaceuticals, where he held a number of sales and marketing positions.  He is a member of the board of directors of Illumina, Inc. and Novacea, Inc.  He also serves as a board member for PhRMA, BIOCOM, the Keck Graduate Institute’s Board of Trustees and the San Diego Regional Economic Development Corporation.  Mr. Bradbury is a member of the Royal Pharmaceutical Society of Great Britain and serves on the UCSD Rady School of Management’s Advisory Council.  He received a Bachelor of Pharmacy from Nottingham University and a Diploma in Management Studies from Harrow and Ealing Colleges of Higher Education.

Mr. Cook has been our Chairman of the Board since March 1998 and serves on our Finance Committee.  He served as Chief Executive Officer from March 1998 until September 2003.  From 1994 to 1998, Mr. Cook served as a member of our Board and a consultant to us.  Mr. Cook is a founder and serves as Chairman of the Board of Microbia, Inc., a privately held biotechnology company.  He also serves as a director of Corcept Therapeutics Incorporated.  Mr. Cook is a founder of Mountain Group Capital, LLC, Clinical Products, LLC, and Mountain Ventures, Inc.  He serves on the Board of Mercy Ministries, Inc. and is past Chair of the Advisory Board of the College of Engineering, University of Tennessee.  Mr. Cook retired as a Group Vice President of Eli Lilly & Company in 1993 after more than 28 years of service. Mr. Cook received a B.S. in Engineering from the University of Tennessee.

Mr. Adams has served as a director since October 2007 and serves on the Compensation and Human Resources Committee.  Mr. Adams is President and Chief Executive Officer of Sepracor, Inc., a position he has held since May 2007, and serves as a member of Sepracor’s board of directors.  Mr. Adams joined Sepracor in March 2007 as President and Chief Operating Officer.  Most recently, he was with Kos Pharmaceuticals, Inc., where he served as President and Chief Operating Officer from April 2001, prior to becoming President and Chief Executive Officer in January 2002.  Mr. Adams served as President and Chief Executive Officer of Novartis-UK from 1999 until his tenure began at Kos.  For the previous seven years, he was with SmithKline Beecham Pharmaceuticals, last serving as President and CEO of the company’s Canadian subsidiaries.  Previous assignments at SmithKline Beecham included Vice President and Director of Worldwide Marketing in the U.S., and Director and Vice President of Sales and Marketing in the United Kingdom.  Mr. Adams began his career at ICI Pharmaceuticals, where he rose from research laboratory assistant to Director of Sales and Marketing.  Mr. Adams serves as a board member of PhRMA.  He is a graduate of Manchester University in the United Kingdom with a Bachelor of Science degree.

Mr. Altman has served as a director since March 2006 and serves on the Compensation and Human Resources Committee.  He currently serves as President of QUALCOMM Incorporated.  He joined QUALCOMM in 1989 as Corporate Counsel responsible for licensing and acquisitions and was appointed Vice President and General Counsel in 1992.  He became General Manager of QUALCOMM Technology Licensing (QTL) at the formation of the group in 1995 and was named Senior Vice President in 1996.  In 1998, Mr. Altman was named Executive Vice President of QTL and in 2002 he was named President, a position he held until his appointment as President of QUALCOMM in 2005.  Mr. Altman serves on the Board of Trustees of The Salk Institute.  He received his law degree from the University of San Diego.

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Ms. Beck has served as a director since March 2007 and serves on the Audit Committee.  From 1998 to 1999, Ms. Beck served as President of American Stores Company, and previously served as its Chief Financial Officer from 1993 to 1998.  Prior to her appointment as Chief Financial Officer, Ms. Beck served in various finance and accounting related positions with American Stores from 1982 to 1993.  Before joining American Stores, Ms. Beck was the controller of Steiner Financial Corporation and she served as an audit manager for Ernst & Whinney (currently Ernst and Young LLP).  Ms. Beck currently serves as a director for Questar Corporation and Lexmark International, Inc.  In addition, she serves as a member of the Board of Trustees of Intermountain Healthcare, The Nature Conservancy and the Nature Conservancy of Utah.  She is also Vice-Chairman of the University of Utah National Advisory Council.  Ms. Beck received a B.S. and an M.B.A. from the University of Utah.

Ms. Eastham has served as a director since September 2005 and serves as the chair of the Audit Committee.  She has over 25 years experience in financial and operations management, primarily in life sciences companies.  She currently serves as Executive Vice President and Chief Operating Officer, and as a member of the Board of Trustees of the Burnham Institute for Medical Research, a non-profit corporation engaged in basic biomedical research.  From April 1999 to May 2004, Ms. Eastham served as Senior Vice President, Finance, Chief Financial Officer, and Secretary of Diversa Corporation. She previously held similar positions with CombiChem, Inc., a computational chemistry company, and Cytel Corporation, a biopharmaceutical company.  Ms. Eastham also held several positions, including Vice President, Finance, at Boehringer Mannheim Corporation, from 1976 to 1988. Ms. Eastham also serves as a director for Tercica, Inc., Illumina, Inc., and SGX Pharmaceuticals, Inc.  Ms. Eastham received a B.S. and an M.B.A. from Indiana University and is a Certified Public Accountant and a Certified Director.

Dr. Gavin has served as a director since December 2005 and serves as chair of the Corporate Governance Committee. Dr. Gavin is CEO & Chief Medical Officer, Healing Our Village, Inc.  He also serves as Clinical Professor of Medicine, Emory University School of Medicine and Clinical Professor of Medicine at the Indiana University School of Medicine.  He was President of the Morehouse School of Medicine from 2002 to 2004. Dr. Gavin is a member of the board of directors of Baxter International Inc., Anastasia Marie Laboratories, Inc., and Nuvelo, Inc.  Dr. Gavin was Chairman of the board of directors of Equidyne Corporation from August 2001 to 2003.  He was also a member of the board of directors of Taste for Living, Inc. from 1999 to 2002.  From 1991 to 2002, Dr. Gavin was a Senior Scientific Officer of the Howard Hughes Medical Institute.  From 2002 until 2005, he served as National Chairman of the National Diabetes Education Program.  He completed his B.S. in Chemistry at Livingstone College, a Ph.D. in Biochemistry at Emory University and his M.D. at Duke University Medical School.  Dr. Gavin has received numerous civic and academic awards and honors.

Ms. Graham has served as a director since November 1995 and currently serves on the Finance Committee.  Ms. Graham served as President and Chief Executive Officer from September 2003 until June 2006, serving as Chief Executive Officer from June 2006 until March 2007.  She previously served on the Audit Committee and the Nominating and Governance Committee.  From February 2000 until June 2003, Ms. Graham held various positions with Guidant Corporation, notably as Advisor to the President, Group Chairman; Office of the President; and President of the Vascular Intervention Group and Vice President.  Ms. Graham held various positions with Eli Lilly and Company from 1979 to 1992 including sales, marketing and strategic planning positions.  She serves on the board of directors of the American Diabetes Research Foundation Board, Proteus Biomedical Pharmaceutical Systems Division, ICAT Managers, the Harvard Business School Health Advisory Board, the Harvard Business School Dean’s Advisory Board, the Advisory Board for the Kellogg Center for Executive Women, the Advisory Board for the California Council on Science and Technology, and the University of California, San Diego Health Sciences Advisory Board.  Ms. Graham received an M.B.A. from Harvard University.

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Mr. Greene is our co-founder and has served as a director since our inception in 1987.  He serves on the Finance Committee.  Mr. Greene is an entrepreneur who has participated in the founding and/or management of eleven medical technology companies over two decades, including three companies for which he served as chief executive officer. From 1987 to 1996, Mr. Greene served as our Chief Executive Officer.  From 1986 until 1993, Mr. Greene was a founding general partner of Biovest Partners, a seed venture capital firm.  He was Chief Executive Officer of Hybritech from 1979 until its acquisition by Eli Lilly and Company in 1986, and he was co-inventor of Hybritech’s patented monoclonal antibody assay technology.  Prior to joining Hybritech, he was an executive with the medical diagnostics division of Baxter Healthcare Corporation from 1974 to 1979 and a consultant with McKinsey & Company from 1967 to 1974.  Mr. Greene received an M.B.A. from Harvard University.

Dr. Skyler has served as a director since August 1999 and serves on the Corporate Governance Committee.  He is Professor of Medicine, Pediatrics and Psychology, in the Division of Endocrinology Diabetes and Metabolism; and Associate Director for Academic Programs at the Diabetes Research Institute; all at the University of Miami Miller School of Medicine in Florida, where he has been employed since 1976.  He is also Study Chairman for the National Institute of Diabetes & Digestive & Kidney Diseases of the Type 1 Diabetes TrialNet clinical trial network, and serves on the board of directors of DexCom, Inc., and various private companies.  Dr. Skyler has served as President of the American Diabetes Association and as Vice President of the International Diabetes Federation.  Dr. Skyler serves on the editorial board of several diabetes and general medicine journals and the advisory panel of several pharmaceutical companies.  He received his B.S. from The Pennsylvania State University, his M.D. from Jefferson Medical College, and completed postdoctoral studies at Duke University Medical Center.

Mr. Sullivan has served as a director since September 2003 and serves on the Audit Committee and as chair of the Finance Committee.  Mr. Sullivan is currently Chairman of the Board of Advisors of RAND Health and Chairman of the Board of Advisors of the UCLA Medical Center.  From 2000 to 2003, Mr. Sullivan served as Chairman, Chief Executive Officer and a director of Protocare, Inc.  From 1993 until November 1999, he served as Chairman, Chief Executive Officer and a director of American Health Properties, Inc.  For the previous twenty years, Mr. Sullivan was an investment banker with Goldman Sachs.  Mr. Sullivan also currently serves on the board of directors of Cymetrix Corporation, HCP, Inc. (a real estate investment trust) and AutoGenomics, Inc.  Mr. Sullivan received his M.B.A. from the Harvard Graduate School of Business Administration and his J.D. from the University of Minnesota Law School.

Mr. Wilson has served as a director since March 2002 and serves as the chair of the Compensation and Human Resources Committee and on the Corporate Governance Committee.  He is a director and Chairman of the Board of both Corcept Therapeutics Inc. and NuGEN, Inc.  From 1996 to 2001, Mr. Wilson was Chairman of the Board of Amira Medical, Inc. From 1990 to 1994, Mr. Wilson served as President and Chief Operating Officer of Syntex Corporation.  Prior to 1990, he served in various senior management positions, including Chief Executive Officer for Neurex Corporation and LifeScan, Inc.  Mr. Wilson serves on the board of directors of the Palo Alto Medical Foundation, and A Stepping Stone Foundation (pre-school education).  Mr. Wilson received his B.A. and M.B.A. from the University of Arizona.

Dr. Baron has served as our Senior Vice President, Research since September 2004, and previously served as Senior Vice President, Clinical Research since June 2002.  He previously served as Vice President, Clinical Research since December 1999.  Dr. Baron has been clinical Professor of Medicine at the University of California, San Diego, and Clinical VA Staff Physician at the VA Medical Center, San Diego, since 2001.  From 1989 to 2000, Dr. Baron worked for the Indiana University School of Medicine, where he served as Professor of Medicine and Director, Division of Endocrinology and Metabolism. Earlier, Dr. Baron held academic and clinical positions in the Division of Endocrinology and Metabolism at the University of California, San Diego, and the Veterans Administration Medical Center in San Diego.  He is the recipient of several prestigious awards for his research in diabetes and vascular disease, including the 1996 Outstanding Clinical Investigator Award from the American Federation for Medical Research, several awards from the American Diabetes Association, and is a current National Institutes of Health MERIT award recipient.  He received an M.D. from the Medical College of Georgia, Augusta, and completed postdoctoral studies at the University of California, San Diego.

Mr. Eberhard has served as Vice President, Sales since May 2003.  Prior to joining us, Mr. Eberhard was Regional Vice President, Sales, at Pharmacia Corporation, for which he had worked for 21 years.  During his career with Pharmacia Corporation and its related pre-merger companies, he held positions in sales, sales management, corporate training, sales operations, and managed care before assuming the Vice President, Sales position.  Mr. Eberhard received a B.S. in Biology from California Lutheran University.

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Mr. Foletta has served as Senior Vice President, Finance and Chief Financial Officer since March 2006 and he previously served as Vice President, Finance and Chief Financial Officer from March 2000 to March 2006.  Mr. Foletta previously served as a Principal of Triton Group Management, Inc. from 1997 to 2000.  From 1986 to 1997, Mr. Foletta held a number of management positions with Intermark, Inc. and Triton Group Ltd., the most recent of which was Senior Vice President, Chief Financial Officer and Corporate Secretary.  From 1982 to 1986, Mr. Foletta was with Ernst & Young, most recently serving as an Audit Manager.  He is a director of Anadys Pharmaceuticals, Inc. Mr. Foletta received a B.A. in Business Economics from the University of California, Santa Barbara.  He is a Certified Public Accountant and a member of the Financial Executives Institute.

Mr. Gergen has served as Senior Vice President, Corporate Development since August 2006 and previously served as Vice President of Business Development from May 2005 to August 2006.  Prior to joining us, Mr. Gergen was an independent consultant to biotech and medical technology companies for strategy, financing and corporate development.  From 2003 to 2005, Mr. Gergen was Executive Vice President at CardioNet, Inc. He held various positions at Advanced Tissue Sciences, Inc. from 2000 to 2003 most recently as Chief Restructuring Officer and Acting CEO.  He also served as Senior Vice President, Chief Financial and Development Officer and Vice President, Development, General Counsel and Secretary.  From 1999 to 2000, Mr. Gergen was employed at Premier, Inc. and from 1994 to 1999 he held various positions with Medtronic, Inc.  From 1990 to 1994 he held various corporate development positions at Jostens, Inc. and from 1986 to 1990, he practiced law at various law firms.  Mr. Gergen serves on the Board of Directors of a privately held company.  Mr. Gergen received a B.A. in Administration from Minot State University and a J.D. from the University of Minnesota Law School.

Dr. Kolterman has served as Senior Vice President, Clinical and Regulatory Affairs since August 2005.  He previously served as Senior Vice President, Clinical Affairs from February 1997 to August 2005, Vice President, Medical Affairs from 1993 to 1997, and Director, Medical Affairs from 1992 to 1993.  From 1983 to 1992, he was Program Director of the General Clinical Research Center and Medical Director of the Diabetes Center, at the University of California, San Diego Medical Center.  Since 1989, he has been Adjunct Professor of Medicine at the University of California, San Diego. From 1978 to 1983, he was Assistant Professor of Medicine in the Endocrinology and Metabolism Division at the University of Colorado School of Medicine, Denver.  He was a member of the Diabetes Control and Complications Trial Study Group and presently serves as a member of the Epidemiology of Diabetes Intervention and Complications Study.  He is also a past-president of the California Affiliate of the American Diabetes Association.  Dr. Kolterman received his M.D. from Stanford University School of Medicine.

Ms. Lloyd has served as our Senior Vice President, Legal and Corporate Affairs, and General Counsel since February 2007.  Prior to joining us, Ms. Lloyd served as Group Senior Vice President, Chief Administrative Officer, General Counsel and Secretary of VHA Inc. from November 2004 to February 2007.  Previously, she served as VHA’s General Counsel and Secretary from May 1999 to November 2004.  From 1993 to April 1999, Ms. Lloyd was Vice President and Assistant General Counsel of Medtronic, Inc. and served as Medtronic’s Assistant General Counsel from 1991 to 1993.  From 1978 to 1991, Ms. Lloyd held various legal positions with Medtronic.  Prior to joining Medtronic, Ms. Lloyd served as counsel to Pillsbury Company and Montgomery Ward & Co. and she taught Business Law at the University of Minnesota Business School.  Ms. Lloyd is Chairperson of the Executive Leadership Foundation and an associate of the Women Business Leaders of the United States Health Care Industry Foundation.  She received a B.S./B.A. from Knox College and a J.D. from Northwestern University.

Mr. Marchetti has served as our Senior Vice President, Human Resources and Information Management since July 2007 and previously served as Senior Vice President, Human Resources and Corporate Services from November 2005 to July 2007. Prior to joining us, he served as Vice President, Human Resources for Guidant Corporation from July 2002 to October 2005.  Prior to this role, he served as Vice President, Finance and Information Systems, Guidant Europe, Middle East, Africa, and Canada, since the beginning of 2001.  From 1999 through 2000, he served as Vice President, Human Resources for Guidant’s Vascular Intervention group, and served as Guidant’s Corporate Controller and Chief Accounting Officer from 1994 to 1999.  He joined Eli Lilly and Company’s Medical Devices and Diagnostics division in 1988.  In 1992, he became Financial Manager of Lilly’s pharmaceutical manufacturing operations in Indianapolis.  From 1980 to 1986, he was with the audit staff of Touche Ross & Co. (currently Deloitte).  He is a director of Emphasys Medical, a privately-held medical device company.  He received a B.A. from LaSalle University in Philadelphia and an MBA from the Ross School of Business at the University of Michigan.  He is a Certified Public Accountant.

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Mr. Marshall has served as Vice President, Operations since December 2006.  Prior to joining us, he was Vice President of Corporate Manufacturing at Amgen, Inc.  From 2002 to 2005, Mr. Marshall served as President of Manufacturing at Recombinant Proteins at the Bioscience Division of Baxter International.  From 1999 to 2002, he was Site Head of the Baxter International Thousand Oaks facility.  He joined Creative BioMolecules in 1992, first as Head of Process Development and Clinical Manufacturing and then as Head of Operations.  From 1988 to 1992, Mr. Marshall held various management positions with Welgen Manufacturing Partnership (now Amgen, Rhode Island), Repligen Corporation and Damon Biotech.  He serves on the board of directors of Medicago, Inc. and is a member of ISPE and ASCB.  Mr. Marshall received a B.S. and an M.S. in Biology from the University of Massachusetts at Dartmouth and completed three years of post-graduate work concentrating in hematology and coagulation research at Brown University.

Mr. Rowland has served as our Vice President, Governance and Compliance, Secretary, and Chief Compliance Officer since February 2007. He previously served as our Vice President, Legal, Secretary and General Counsel from September 2001 to February 2007.  Prior to joining us, Mr. Rowland served in various positions at Alliance Pharmaceutical Corp., including as Vice President, General Counsel and Secretary, beginning in 1993.  Earlier, Mr. Rowland served as Vice President and Senior Counsel, Finance and Securities, at Imperial Savings Association for four years.  For the previous eight years, he was engaged in the private practice of corporate law with the San Diego, California law firm of Gray, Cary, Ames & Fry, and the Houston, Texas law firm of Bracewell & Patterson.  He received a J.D. from Emory University.

Mr. Young has served as Senior Vice President, Marketing since October 2006.  Prior to joining us, Mr. Young served as Vice President, Diabetes Brand Marketing at Novo Nordisk where he managed the marketing activities of Novo Nordisk’s injectable insulin business.  From 2000 to 2004, Mr. Young held global and U.S. commercial leadership roles at Aventis for a variety of metabolic/diabetes compounds.  Prior to working at Aventis, Mr. Young held product and sales management positions at Parke-Davis.  Mr. Young received a B.S. from Texas A&M University with a concentration in pre-medicine and business.

Item 1A. Risk Factors

Except for the historical information contained herein or incorporated by reference, this annual report on Form 10-K and the information incorporated by reference contains forward-looking statements that involve risks and uncertainties. These statements include projections about our accounting and finances, plans and objectives for the future, future operating and economic performance and other statements regarding future performance. These statements are not guarantees of future performance or events. Our actual results may differ materially from those discussed here. Factors that could cause or contribute to differences in our actual results include those discussed in the following section, as well as those discussed in Part II, Item 7 entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere throughout this annual report on Form 10-K and in any other documents incorporated by reference into this report. You should consider carefully the following risk factors, together with all of the other information included or incorporated in this annual report on Form 10-K. Each of these risk factors, either alone or taken together, could adversely affect our business, operating results and financial condition, as well as adversely affect the value of an investment in our common stock. There may be additional risks that we do not presently know of or that we currently believe are immaterial which could also impair our business and financial position.

We have experienced significant operating losses since our inception in 1987, including losses of $211.1 million in 2007, $218.9 million in 2006 and $206.8 million in 2005.  As of December 31, 2007, we had an accumulated deficit of approximately $1.4 billion.  The extent of our future losses and the timing of potential profitability are uncertain, and we may never achieve profitable operations.  We have been engaged in discovering and developing drugs since inception, which has required, and will continue to require, significant research and development expenditures.  We derived substantially all of our revenues prior to 2005 from development funding, fees and milestone payments under collaborative agreements and from interest income.  BYETTA and SYMLIN may not be as commercially successful as we expect and we may not succeed in commercializing any of our other drug candidates.  We may incur substantial operating losses for at least the next few years as we continue to expand our commercial function for BYETTA and SYMLIN and our research and development activities for the other drug candidates in our development pipeline.  These losses, among other things, have had and will have an adverse effect on our stockholders’ equity and working capital.  Even if we become profitable, we may not remain profitable.

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Prior to the launch of BYETTA and SYMLIN in 2005, we had never sold or marketed our own products.  Our ability to generate product revenue for the next few years will depend solely on the success of these products.  The ability of BYETTA and SYMLIN to generate revenue at the levels we expect will depend on many factors, including the following:

·                                          acceptance of these first-in-class medicines by the medical community, patients receiving therapy and third party payors;

·              a satisfactory efficacy and safety profile as demonstrated in a broad patient population;

·              successfully expanding and sustaining manufacturing capacity to meet demand;

·              safety concerns in the marketplace for diabetes therapies;

·              the competitive landscape for approved and developing therapies that will compete with the products; and

·              our ability to expand the indications for which we can market the products.

If we encounter safety issues with BYETTA or SYMLIN or any other drugs we market or fail to comply with extensive continuing regulations enforced by domestic and foreign regulatory authorities, it could cause us to discontinue marketing those drugs, reduce our revenues and harm our ability to generate future revenues, which would negatively impact our financial position.

BYETTA and SYMLIN, in addition to any other of our drug candidates that may be approved by the FDA, will be subject to continual review by the FDA, and we cannot assure you that newly discovered or developed safety issues will not arise.  With the use of any of our marketed drugs by a wide patient population, serious adverse events may occur from time to time that initially do not appear to relate to the drug itself, and only if the specific event occurs with some regularity over a period of time does the drug become suspect as having a causal relationship to the adverse event.  Any safety issues could cause us to suspend or cease marketing of our approved products, subject us to substantial liabilities, and adversely affect our revenues and financial condition.

Moreover, the marketing of our approved products will be subject to extensive regulatory requirements administered by the FDA and other regulatory bodies, including adverse event reporting requirements and the FDA’s general prohibition against promoting products for unapproved uses.  The manufacturing facilities for our approved products are also subject to continual review and periodic inspection and approval of manufacturing modifications.  Manufacturing facilities that manufacture drug products for the United States market, whether they are located inside or outside the United States, are subject to biennial inspections by the FDA and must comply with the FDA’s current good manufacturing practice, or cGMP, regulations.  The FDA stringently applies regulatory standards for manufacturing.  Failure to comply with any of these post-approval requirements can, among other things, result in warning letters, product seizures, recalls, fines, injunctions, suspensions or revocations of marketing licenses, operating restrictions and criminal prosecutions.  Any of these enforcement actions, any unanticipated changes in existing regulatory requirements or the adoption of new requirements, or any safety issues that arise with any approved products, could adversely affect our ability to market products and generate revenues and thus adversely affect our ability to continue our business.

The manufacturers of our products and drug candidates also are subject to numerous federal, state, local and foreign laws relating to such matters as safe working conditions, manufacturing practices, environmental protection, fire hazard control and hazardous substance disposal.  In the future, our manufacturers may incur significant costs to comply with those laws and regulations, which could increase our manufacturing costs and reduce our ability to operate profitably.

The manufacturing of sufficient quantities of newly-approved drug products and drug candidates is a time-consuming and complex process.  We currently have no manufacturing capabilities.  In order to successfully commercialize our products, including BYETTA and SYMLIN, and continue to develop our drug candidates, including exenatide once weekly, we rely on various third parties to provide the necessary manufacturing.

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There are a limited number of manufacturers that operate under the FDA’s cGMP regulations capable of manufacturing for us.  In addition, there are a limited number of bulk drug substance suppliers, cartridge manufacturers and disposable pen manufacturers.  If we are not able to arrange for and maintain third-party manufacturing on commercially reasonable terms, or we lose one of our sole source suppliers used for our existing products or for some components of our manufacturing processes for our products or drug candidates, we may not be able to market our products or complete development of our drug candidates on a timely basis, if at all.

Reliance on third-party suppliers limits our ability to control certain aspects of the manufacturing process and therefore exposes us to a variety of significant risks, including, but not limited to, risks to our ability to commercialize our products or conduct clinical trials, risks of reliance on the third-party for regulatory compliance and quality assurance, third-party refusal to supply on a long-term basis, or at all, the possibility of breach of the manufacturing agreement by the third-party and the possibility of termination or non-renewal of the agreement by the third-party, based on its business priorities, at a time that is costly or inconvenient for us.  If any of these risks occur, our product supply will be interrupted resulting in lost or delayed revenues and delayed clinical trials.  Our reliance on third-party manufacturers for the production of our two commercial products is described in more detail below.

We rely on Bachem California, or Bachem, and Mallinckrodt, Inc., or Mallinckrodt, to manufacture our long-term commercial supply of bulk exenatide, the active ingredient in BYETTA.  In addition, we rely on single-source manufacturers for some of our raw materials used by Bachem and Mallinckrodt to produce bulk exenatide.  We also rely on Wockhardt UK (Holdings) Ltd., or Wockhardt, and Baxter Pharmaceutical Solutions LLC, a subsidiary of Baxter, Inc., or Baxter, to manufacture the dosage form of BYETTA in cartridges.  We are further dependent upon Lilly to supply pens for delivery of BYETTA in cartridges.

We rely on Bachem and Lonza Ltd. to manufacture our commercial supply of bulk pramlintide acetate, the active ingredient contained in SYMLIN.  In addition, we rely on Baxter to manufacture the dosage form of SYMLIN in vials.  We recently received FDA approval of a disposable pen for the delivery of SYMLIN in cartridges.  We rely on Wockhardt for the dosage form of SYMLIN in cartridges and Ypsomed AG to manufacture the components for the SYMLIN disposable pen. We also rely on Hollister-Stier Laboratories LLC for the assembly of the SYMLIN pen.

If any of our existing or future manufacturers cease to manufacture or are otherwise unable to timely deliver sufficient quantities of BYETTA or SYMLIN, in either bulk or dosage form, or other product components, including pens for the delivery of these products, it could disrupt our ability to market our products, subject us to product shortages, reduce product sales and/or reduce our profit margins.  Any delay or disruption in the manufacturing of bulk product, the dosage form of our products or other product components, including pens for delivery of our products, could also harm our reputation in the medical and patient communities.  In addition, we may need to engage additional manufacturers so that we will be able to continue our commercialization and development efforts for these products or drug candidates.  The cost and time to establish these new manufacturing facilities would be substantial.

Our manufacturers have not produced BYETTA or SYMLIN for commercial use for a sustained period of time.  As such, additional unforeseeable risks may be encountered as we, together with our manufacturers, continue to develop familiarity and experience with regard to manufacturing our products.  Furthermore, we and the other manufacturers used for our drug candidates may not be able to produce supplies in commercial quantities if our drug candidates are approved.  While we believe that business relations between us and our manufacturers are generally good, we cannot predict whether any of the manufacturers that we may use will meet our requirements for quality, quantity or timeliness for the manufacture of bulk exenatide or pramlintide acetate, dosage form of BYETTA or SYMLIN, or pens.  Therefore, we may not be able to obtain necessary supplies of products with acceptable quality, on acceptable terms or in sufficient quantities, if at all.  Our dependence on third parties for the manufacture of products may also reduce our gross profit margins and our ability to develop and deliver products in a timely manner.

In order to manufacture exenatide once weekly on a commercial scale, if it is approved by the FDA, we must design, construct, and commission a new facility and validate the manufacturing process.  We are dependent on Alkermes and Parsons to assist us in the design, construction and commissioning of the manufacturing facility.  We have never established, validated, and operated a manufacturing facility and cannot assure you that we will be able to successfully establish or

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operate such a facility in a timely or economical manner, or at all.  In addition, we are dependent on Alkermes to successfully develop and transfer to us its technology for manufacturing exenatide once weekly and to supply us with commercial quantities of the polymer required to manufacture exenatide once weekly.  We also will need to obtain sufficient supplies of diluents, solvents, devices, packaging and other components necessary for commercial manufacture of exenatide once weekly.  Although we are working diligently to finalize the commercial-scale manufacturing process at this facility, we cannot be assured that we will be able to demonstrate comparability of product manufactured at development scale and product manufactured at commercial scale.  If we are unable to demonstrate comparability of product, we may not be able to commercially launch exenatide once weekly in a timely manner or at all.

The continuing efforts of government, private health insurers and other third-party payors to contain or reduce the costs of health care through various means, including efforts to increase the amount of patient co-pay obligations, may limit our commercial opportunity.  In the United States, we expect that there will continue to be a number of federal and state proposals to implement government control over the pricing of prescription pharmaceuticals.  In addition, increasing emphasis on managed care in the United States will continue to put pressure on the rate of adoption and pricing of pharmaceutical products.

Significant uncertainty exists as to the reimbursement status of health care products.  Third-party payors, including Medicare, are challenging the prices charged for medical products and services.  Government and other third-party payors increasingly are attempting to contain health care costs by limiting both coverage and the level of reimbursement for new drugs and by refusing to provide coverage for uses of approved products for disease indications for which the FDA has not granted labeling approval.  Third-party insurance coverage may not be available to patients for BYETTA and/or SYMLIN or any other products we discover and develop.  If government and other third-party payors do not provide adequate coverage and reimbursement levels for our products, the market acceptance of these products may be reduced.

There are many companies that are seeking to develop products and therapies for the treatment of diabetes and other metabolic disorders.  Our competitors include multinational pharmaceutical and chemical companies, specialized biotechnology firms and universities and other research institutions.  A number of our largest competitors, including AstraZeneca, Bristol-Myers Squibb, GlaxoSmithKline, Lilly, Merck & Co., Novartis, Novo Nordisk, Pfizer, Sanofi-Aventis and Takeda Pharmaceuticals, are pursuing the development or marketing of pharmaceuticals that target the same diseases that we are targeting, and it is possible that the number of companies seeking to develop products and therapies for the treatment of diabetes, obesity and other metabolic disorders will increase.  Many of our competitors have substantially greater financial, technical, human and other resources than we do and may be better equipped to develop, manufacture and market technologically superior products.  In addition, many of these competitors have significantly greater experience than we do in undertaking preclinical testing and human clinical studies of new pharmaceutical products and in obtaining regulatory approvals of human therapeutic products.  Accordingly, our competitors may succeed in obtaining FDA approval for superior products.  Furthermore, now that we have received FDA approval for BYETTA and SYMLIN, we may also be competing against other companies with respect to our manufacturing and product distribution efficiency and sales and marketing capabilities, areas in which we have limited or no experience as an organization.

Our target patient population for BYETTA includes people with diabetes who have not achieved adequate glycemic control using metformin, sulfonylurea and/or a TZD, the three most common oral therapies for type 2 diabetes.  Our target population for SYMLIN is people with either type 2 or type 1 diabetes whose therapy includes multiple mealtime insulin injections daily.  Other products are currently in development or exist in the market that may compete directly with the products that we are developing or marketing.  Various other products are available or in development to treat type 2 diabetes, including:

·              sulfonylureas;

·              metformin;

·              insulins, including injectable and inhaled versions;

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·              TZDs;

·              glinides;

·              DPP-IV inhibitors;

·              incretin/GLP-1 agonists;

·              CB-1 antagonists;

·              PPARs; and

·              alpha-glucosidase inhibitors.

In addition, several companies are developing various approaches to improve treatments for type 1 and type 2 diabetes. We cannot predict whether our products will have sufficient advantages to cause health care professionals to adopt them over other products or that our products will offer an economically feasible alternative to other products.  Our products could become obsolete before we recover expenses incurred in developing these products.

Delays in the conduct or completion of our clinical trials, the analysis of the data from our clinical trials or our manufacturing scale-up activities may result in delays in our planned filings for regulatory approvals, and may adversely affect our ability to enter into new collaborative arrangements.

We cannot predict whether we will encounter problems with any of our completed, ongoing or planned clinical studies that will cause us to delay or suspend our ongoing and planned clinical studies, delay the analysis of data from our completed or ongoing clinical studies or perform additional clinical studies prior to receiving necessary regulatory approvals.  We also cannot predict whether we will encounter delays or an inability to create manufacturing processes for drug candidates that allow us to produce drug product in sufficient quantities to be economical, otherwise known as manufacturing scale-up.

If the results of our ongoing or planned clinical studies for our drug candidates are not available when we expect or if we encounter any delay in the analysis of data from our clinical studies or if we encounter delays in our ability to scale-up our manufacturing processes:

·                                          we may be unable to complete our development programs for exenatide once weekly or our obesity clinical trials;

·              we may have to delay or terminate our planned filings for regulatory approval;

·                                          we may not have the financial resources to continue research and development of any of our drug candidates; and

·              we may not be able to enter into, if we chose to do so, any additional collaborative arrangements.

In addition, Lilly can terminate our collaboration for the development and commercialization of BYETTA and sustained-release formulations of exenatide at any time on 60 days’ notice.

Any of the following could delay the completion of our ongoing and planned clinical studies:

·                                          ongoing discussions with the FDA or comparable foreign authorities regarding the scope or design of our clinical trials;

·              delays in enrolling volunteers;

·              lower than anticipated retention rate of volunteers in a clinical trial;

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·              negative results of clinical studies;

·                                          insufficient supply or deficient quality of drug candidate materials or other materials necessary for the performance of clinical trials;

·                                          our inability to reach agreement with Lilly regarding the scope, design, conduct or costs of clinical trials with respect to BYETTA, exenatide once weekly or nasal exenatide; or

·              serious side effects experienced by study participants relating to a drug candidate.

We have entered into a collaborative arrangement with Lilly, who currently markets diabetes therapies and is developing additional diabetes drug candidates, to commercialize BYETTA and further develop sustained-release formulations of BYETTA, including exenatide once weekly.  We entered into this collaboration in order to:

·              fund some of our research and development activities;

·              assist us in seeking and obtaining regulatory approvals; and

·              assist us in the successful commercialization of BYETTA and exenatide once weekly.

In general, we cannot control the amount and timing of resources that Lilly may devote to our collaboration.  If Lilly fails to assist in the further development of exenatide once weekly or the commercialization of BYETTA, or if Lilly’s efforts are not effective, our business may be negatively affected.  We are relying on Lilly to obtain regulatory approvals for and successfully commercialize BYETTA and exenatide once weekly outside the United States.  Our collaboration with Lilly may not continue or result in additional successfully commercialized drugs.  Lilly can terminate our collaboration at any time upon 60 days’ notice.  If Lilly ceased funding and/or developing and commercializing BYETTA or exenatide once weekly, we would have to seek additional sources for funding and may have to delay, reduce or eliminate one or more of our commercialization and development programs for these compounds.  We are also dependent on Alkermes for the development of exenatide once weekly.  If Alkermes’ technology is not successfully developed to effectively deliver exenatide in a sustained release formulation, or Alkermes does not devote sufficient resources to the collaboration, our efforts to develop sustained release formulations of exenatide could be delayed or curtailed.

If our patents are determined to be unenforceable or if we are unable to obtain new patents based on current patent applications or for future inventions, we may not be able to prevent others from using our intellectual property.  If we are unable to obtain licenses to third party patent rights for required technologies, we could be adversely affected.

We own or hold exclusive rights to many issued United States patents and pending United States patent applications related to the development and commercialization of exenatide, including BYETTA and exenatide once weekly, SYMLIN and our other drug candidates.  These patents and applications cover composition-of-matter, medical indications, methods of use, formulations and other inventive results.  We have issued and pending applications for formulations of BYETTA and exenatide once weekly, but we do not have a composition-of-matter patent covering exenatide.  We also own or hold exclusive rights to various foreign patent applications that correspond to issued United States patents or pending United States patent applications.

Our success will depend in part on our ability to obtain patent protection for our products and drug candidates and technologies both in the United States and other countries.  We cannot guarantee that any patents will issue from any pending or future patent applications owned by or licensed to us.  Alternatively, a third party may successfully challenge or circumvent our patents.  Our rights under any issued patents may not provide us with sufficient protection against competitive products or otherwise cover commercially valuable products or processes.  In addition, because patent applications in the United States are maintained, in general, in secrecy for eighteen months after the filing of the applications, and publication of discoveries in the scientific or patent literature often lag behind actual discoveries, we cannot be sure that the inventors of subject matter covered by our patents and patent applications were the first to invent or the first to file patent applications for these inventions.  Third parties have filed, and in the future are likely to file, patent applications on

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inventions similar to ours.  From time-to-time we have participated in, and in the future are likely to participate in, interference proceedings declared by the United States Patent and Trademark Office to determine priority of invention, which could result in a loss of our patent position.  We have also participated in, and in the future are likely to participate in, opposition proceedings against our patents in other jurisdictions, such as Europe and Australia.  Furthermore, we may not have identified all United States and foreign patents that pose a risk of infringement.

We also rely upon licensing opportunities for some of our technologies.  We cannot be certain that we will not lose our rights to certain patented technologies under existing licenses or that we will be able to obtain a license to any required third-party technology.  If we lose our licensed technology rights or if we are not able to obtain a required license, we could be adversely affected.

Our drug candidates are subject to extensive government regulations related to development, clinical trials, manufacturing and commercialization.  The process of obtaining FDA and other regulatory approvals is costly, time-consuming, uncertain and subject to unanticipated delays.  Regulatory authorities may refuse to approve an application for approval of a drug candidate if they believe that applicable regulatory criteria are not satisfied.  Regulatory authorities may also require additional testing for safety and efficacy.  Moreover, if the FDA grants regulatory approval of a product, the approval may be limited to specific indications or limited with respect to its distribution, and expanded or additional indications for approved drugs may not be approved, which could limit our revenues.  Foreign regulatory authorities may apply similar limitations or may refuse to grant any approval.  Unexpected changes to the FDA or foreign regulatory approval process could also delay or prevent the approval of our drug candidates.

The data collected from our clinical trials may not be sufficient to support approval of our drug candidates or additional or expanded indications by the FDA or any foreign regulatory authorities.  Biotechnology stock prices have declined significantly in certain instances where companies have failed to meet expectations with respect to FDA approval or the timing for FDA approval.  If the FDA’s or any foreign regulatory authority’s response is delayed or not favorable for any of our drug candidates, our stock price could decline significantly.

Moreover, manufacturing facilities operated by the third-party manufacturers with whom we may contract to manufacture our unapproved drug candidates may not pass an FDA or other regulatory authority preapproval inspection.  Any failure or delay in obtaining these approvals could prohibit or delay us or any of our business partners from marketing these drug candidates.

Consequently, even if we believe that preclinical and clinical data are sufficient to support regulatory approval for our drug candidates, the FDA and foreign regulatory authorities may not ultimately approve our drug candidates for commercial sale in any jurisdiction.  If our drug candidates are not approved, our ability to generate revenues may be limited and our business will be adversely affected.

Our success will depend in part on our ability to operate without infringing the proprietary rights of third parties and preventing others from infringing our patents.  Challenges by pharmaceutical companies against the patents of competitors are common.  Legal standards relating to the validity of patents covering pharmaceutical and biotechnological inventions and the scope of claims made under these patents are still developing.  As a result, our ability to obtain and enforce patents is uncertain and involves complex legal and factual questions.  Third parties may challenge, in courts or through patent office proceedings, or infringe upon, existing or future patents.  In the event that a third party challenges a patent, a court or patent office may invalidate the patent or determine that the patent is not enforceable.  Proceedings involving our patents or patent applications or those of others could result in adverse decisions about:

The manufacture, use or sale of any of our products or drug candidates may infringe on the patent rights of others.  If we are unable to avoid infringement of the patent rights of others, we may be required to seek a license, defend an infringement action or challenge the validity of the patents in court. Patent litigation is costly and time consuming.  We may not have sufficient resources to bring these actions to a successful conclusion.  In addition, if we do not obtain a license, develop or obtain non-infringing technology, fail to successfully defend an infringement action or have infringing patents declared invalid, we may:

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Upon approval of BYETTA and SYMLIN by the FDA, we became subject to various health care “fraud and abuse” laws, such as the Federal False Claims Act, the federal anti-kickback statute and other state and federal laws and regulations.  Pharmaceutical companies have faced lawsuits and investigations pertaining to violations of these laws and regulations.  We cannot guarantee that measures that we have taken to prevent such violations, including our corporate compliance program, will protect us from future violations, lawsuits or investigations.  If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant fines or other sanctions.

Forecasting future revenues is difficult, especially since we launched our first products in 2005 and when the level of market acceptance of these products may change rapidly.  In addition, our customer base is highly concentrated with four customers accounting for most of our net product sales.  Fluctuations in the buying patterns of these customers, which may result from seasonality, wholesaler buying decisions or other factors outside of our control, could significantly affect the level of our net sales on a period to period basis.  As a result, it is reasonably likely that our financial results will fluctuate to an extent, that may not meet with market expectations and that also may adversely affect our stock price.  There are a number of other factors that could cause our financial results to fluctuate unexpectedly, including:

We intend to use our available cash for:

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We may also be required to use our cash to pay principal and interest on outstanding debt, including a $125 million term loan due in 2010 and $775 million in outstanding principal amount of convertible senior notes, of which $200 million is due in 2011, referred to as the 2004 Notes, and $575 million is due in 2014, referred to as the 2007 Notes.

Our business exposes us to potential product liability risks that are inherent in the testing, manufacturing and marketing of human therapeutic products.  Product liability claims could result in the imposition of substantial liability on us, a recall of products, or a change in the indications for which they may be used.  We currently have limited product liability insurance coverage.  We cannot assure you that our insurance will provide adequate coverage against potential liabilities.

Our ability to enter into and maintain third-party relationships is important to our successful development and commercialization of BYETTA, SYMLIN and our other drug candidates and to our potential profitability.

With respect to sales, marketing and distribution outside the United States, we will be substantially dependent on Lilly for activities relating to BYETTA and sustained-release formulations of BYETTA, including exenatide once weekly.  We believe that we will likely need to enter into marketing and distribution arrangements with third parties for, or find a corporate partner who can provide support for, the development and commercialization of SYMLIN or our other drug candidates outside the United States.  We may also enter into arrangements with third parties for the commercialization of SYMLIN or any of our other drug candidates within the United States.

With respect to BYETTA and, if approved, exenatide once weekly, Lilly is co-promoting within the United States.  If Lilly ceased commercializing BYETTA or, if approved, exenatide once weekly, for any reason, we would likely need to either enter into a marketing and distribution arrangement with a third party for those products or significantly increase our internal sales and commercialization infrastructure.

We may not be able to enter into marketing and distribution arrangements or find a corporate partner for SYMLIN or our other drug candidates as we deem necessary.  If we are not able to enter into a marketing or distribution arrangement or find a corporate partner who can provide support for commercialization of our drug candidates as we deem necessary, we may not be able to successfully perform these marketing or distribution activities.  Moreover, any new marketer or distributor or corporate partner for our drug candidates, including Lilly, with whom we choose to contract may not establish adequate sales and distribution capabilities or gain market acceptance for our products, if any.

We have a significant amount of indebtedness.  We may not be able to make payments on our indebtedness, and we may incur additional indebtedness in the future, which could adversely affect our operations.

In April 2004, we issued $200 million of the 2004 Notes and in June 2007, we issued $575 million of the 2007 Notes.  In December 2007, we entered into a $125 million term loan due in December 2010, or the Term Loan.  Our ability to make payments on our debt, including the 2004 and 2007 Notes and the Term Loan, will depend on our future operating performance and ability to generate cash and may also depend on our ability to obtain additional debt or equity financing. During each of the last five years, our operating cash flows were negative and insufficient to cover our fixed charges.  We may need to use our cash to pay principal and interest on our debt, thereby reducing the funds available to fund our research and development programs, strategic initiatives and working capital requirements.  Our ability to generate sufficient operating cash flow to service our indebtedness, including the 2004 and 2007 Notes and the Term Loan, and fund our operating requirements will depend on our ability, alone or with others, to successfully develop, manufacture, obtain required regulatory approvals for and market our drug candidates, as well as other factors, including general economic, financial, competitive, legislative and regulatory conditions, some of which are beyond our control.  Our debt service obligations increase our vulnerabilities to competitive pressures, because many of our competitors are less leveraged than we are.  If we are unable to generate sufficient operating cash flow to service our indebtedness and fund our operating requirements, we

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may be forced to reduce or defer our development programs, sell assets or seek additional debt or equity financing, which may not be available to us on satisfactory terms or at all.  Our level of indebtedness may make us more vulnerable to economic or industry downturns.  If we incur new indebtedness, the risks relating to our business and our ability to service our indebtedness will intensify.

Holders of the 2004 and 2007 Notes may require us to redeem all or any portion of their notes upon the occurrence of certain designated events which generally involve a change in control of our company.  The lenders under the Term Loan may require us to repay outstanding principal and accrued interest due under the Term Loan upon the occurrence of an event of default, which could include, among other things, nonpayment of principle and interest, violation of covenants and a change in control.  We may not have sufficient cash funds to redeem the notes upon a designated event or repay the Term Loan upon an event of default.  We may elect, subject to certain conditions, to pay the redemption price for the 2004 Notes in our common stock or a combination of cash and our common stock.  We may be unable to satisfy the requisite conditions to enable us to pay some or all of the redemption price for the 2004 Notes in our common stock.  In addition, although there are currently no restrictions on our ability to pay the redemption price under our existing debt agreements, future debt agreements may prohibit us from repaying the redemption price of either of the notes in either cash or common stock.  If we are prohibited from redeeming the 2004 Notes or 2007 Notes, we could seek consent from our lenders to redeem the notes.  If we are unable to obtain their consent, we could attempt to refinance the notes.  If we were unable to obtain a consent or refinance, we would be prohibited from redeeming the notes.  If we were unable to redeem the notes upon a designated event, it would result in an event of default under the indentures governing the notes.  An event of default under the indentures could result in a further event of default under our other then-existing debt including the Term Loan.  In addition, the occurrence of a designated event may be an event of default under our other debt.  Further, an event of default under the Term Loan could result in an event of default under the indentures governing the notes.

Certain of our research and development programs for drug candidates are at an early stage and will require significant research, development, preclinical and clinical testing, manufacturing scale-up activities, regulatory approval and/or commitments of resources before commercialization.  We cannot predict whether our research will lead to the discovery of any additional drug candidates that could generate additional revenues for us.

We are highly dependent on our chief executive officer, and the other principal members of our executive and scientific teams.  The unexpected loss of the services of any of these persons might impede the achievement of our research, development and commercialization objectives.  Recruiting and retaining qualified sales, marketing, regulatory, scientific and other personnel and consultants will also be critical to our success.  We may not be able to attract and retain these personnel and consultants on acceptable terms given the competition between numerous pharmaceutical and biotechnology companies.  We do not maintain “key person” insurance on any of our employees.

In order to protect our proprietary technology and processes, we rely in part on confidentiality agreements with our corporate partners, employees, consultants, manufacturers, outside scientific collaborators and sponsored researchers and other advisors.  These agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information.  In addition, others may independently discover our trade secrets and proprietary information.

Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect our competitive business position.

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Our research and development and our planned manufacturing activities involve the controlled use of hazardous materials, chemicals and various radioactive compounds.  Although we believe that our research and development safety procedures for handling and disposing of these materials comply with the standards prescribed by state and federal regulations, the risk of accidental contamination or injury from these materials cannot be eliminated.  In addition, as part of the development of our planned manufacturing activities, we will need to develop additional safety procedures for the handling and disposing of hazardous materials.  If an accident occurs, we could be held liable for resulting damages, which could be substantial.  We are also subject to numerous environmental, health and workplace safety laws and regulations, including those governing laboratory procedures, exposure to blood-borne pathogens and the handling of biohazardous materials.  Additional federal, state and local laws and regulations affecting our operations may be adopted in the future.  We may incur substantial costs to comply with, and substantial fines or penalties if we violate, any of these laws or regulations.

The Sarbanes-Oxley Act requires that we report annually on the effectiveness of our internal control over financial reporting.  Among other things, we must perform systems and processes evaluation and testing.  We must also conduct an assessment of our internal control to allow management to report on, and our independent registered public accounting firm to attest to, our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act.  In connection with our Section 404 compliance efforts, we have incurred or expended, and expect to continue to incur or expend, substantial accounting and other expenses and significant management time and resources.  We have implemented certain remediation activities resulting from our ongoing assessment of internal control over financial reporting.  Our future assessment, or the future assessments by our independent registered public accounting firm, may reveal material weaknesses in our internal control.  If material weaknesses are identified in the future we would be required to conclude that our internal control over financial reporting are ineffective and we could be subject to sanctions or investigations by the SEC, the NASDAQ Stock Market or other regulatory authorities, which would require additional financial and management resources and could adversely affect the market price of our common stock.

We have implemented anti-takeover provisions that could discourage or prevent an acquisition of our company, even if the acquisition would be beneficial to our stockholders, and as a result our management may become entrenched and hard to replace.

Provisions in our certificate of incorporation and bylaws could make it more difficult for a third party to acquire us, even if doing so would benefit our stockholders.  These provisions include:

·                                          allowing our board of directors to elect a director to fill a vacancy created by the expansion of the board of directors;

·                                          allowing our board of directors to issue, without stockholder approval, up to 5.5 million shares of preferred stock with terms set by the board of directors;

·                                          limiting the ability of holders of our outstanding common stock to call a special meeting of our stockholders; and

·                                          preventing stockholders from taking actions by written consent and requiring all stockholder actions to be taken at a meeting of our stockholders.

Each of these provisions, as well as selected provisions of Delaware law, could discourage potential takeover attempts, could adversely affect the trading price of our securities and could cause our management to become entrenched and hard to replace.  In addition to provisions in our charter documents and under Delaware law, an acquisition of our company could be made more difficult by our employee benefits plans and our employee change in control plan, under which, in connection with a change in control, stock options held by our employees may become vested and our officers may receive severance benefits.  We also have implemented a stockholder rights plan, also called a poison pill, which could make it uneconomical for a third party to acquire us on a hostile basis.

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As of December 31, 2007, executive officers, directors and holders of 5% or more of our outstanding common stock, in the aggregate, owned or controlled approximately 55% of our outstanding common stock.  As a result, these stockholders are able to influence all matters requiring approval by our stockholders, including the election of directors and the approval of corporate transactions.  This concentration of ownership may also delay, deter or prevent a change in control of our company and may make some transactions more difficult or impossible to complete without the support of these stockholders.

Sales by existing stockholders of a large number of shares of our common stock in the public market or the perception that additional sales could occur could cause the trading price of our common stock to drop.  Likewise, the issuance of shares of common stock upon conversion of our convertible notes or redemption of our convertible notes upon a designated event, or upon additional convertible debt or equity financings or other share issuances by us, including shares issued in connection with potential future strategic alliances and the uncertain number of additional shares that we may be required to issue under our agreements with Lilly, could adversely affect the trading price of our common stock.  Our convertible notes are currently convertible into a total of up to 15.2 million shares. In addition, the existence of these notes may encourage short selling of our common stock by market participants.

Significant volatility in the market price for our common stock could expose us to litigation risk.

The market prices for securities of biopharmaceutical and biotechnology companies, including our common stock, have historically been highly volatile, and the market from time to time has experienced significant price and volume fluctuations that are unrelated to the quarterly operating performance of these biopharmaceutical and biotechnology companies.  Since January 1, 2006, the high and low sales price of our common stock varied significantly, as shown in the following table:

Given the uncertainty of our future funding, whether BYETTA and SYMLIN will meet our expectations, and the regulatory approval of our other drug candidates, we may continue to experience volatility in our stock price for the foreseeable future.  In addition, the following factors may significantly affect the market price of our common stock:

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Broad market and industry factors also may materially adversely affect the market price of our common stock, regardless of our actual operating performance.  Periods of volatility in the market price of our common stock expose us to securities class-action litigation, and we may be the target of such litigation as a result of market price volatility in the future.

Item 1B. Unresolved Staff Comments

None.

Our primary administrative offices and research laboratories are located in San Diego, California.  As of December 31, 2007, we occupied approximately 508,000 square feet of office and laboratory space.  Our leases on a majority of these properties expire between 2015 and 2019.  We have also entered into short-term leases and other agreements for small offices in Brentwood, Tennessee, Beachwood, Ohio, Washington, D.C. and Germany.

Our wholly-owned subsidiary, Amylin Ohio LLC, owns two buildings and 44.4 acres of land in West Chester, Ohio.   The buildings, once built out for the manufacture of exenatide once weekly will have approximately 420,000 square feet of manufacturing and office space.

Item 3. Legal Proceedings

None.

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

None.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

                Our common stock is traded on The NASDAQ Global Market under the symbol “AMLN.”  The following table sets forth, for the periods indicated, the reported high and low sales price per share of our common stock on The NASDAQ

Global Market:

                The last reported sale price of our common stock on The NASDAQ Global Market on February 13, 2008 was $29.25.  As of February 13, 2008, there were approximately 630 shareholders of record of our common stock.

                We have never declared or paid any cash dividends on our capital stock.  We currently intend to retain any future earnings for funding growth and, therefore, do not anticipate paying any cash dividends in the foreseeable future.

                For information concerning prior stockholder approval of and other matters relating to our equity incentive plans, see “Equity Compensation Plan Information” under Item 12 in this annual report on Form 10-K.

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Item 6. Selected Financial Data

                Please read the following selected financial data in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statements and related notes included elsewhere in this annual report on Form 10-K.

(1)          Selling, general and administrative expenses for the years ended December 31, 2007 and 2006 include approximately $35.4 million and $29.0 million, respectively, of employee stock-based compensation expense pursuant to the provisions of Statement of Financial Accounting Standards No. 123R “Share-Based Payment” which the Company adopted on January 1, 2006.

(2)          Research and development expenses for the year ended December 31, 2007 and 2006 include approximately $23.6 million and $22.9 million, respectively, of employee stock-based compensation expense pursuant to the provisions of Statement of Financial Accounting Standards No. 123R “Share-Based Payment” which the Company adopted on January 1, 2006.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Amylin Pharmaceuticals, Inc. is a biopharmaceutical company committed to improving the lives of people with diabetes, obesity and other diseases through the discovery, development and commercialization of innovative medicines.  We

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have developed and gained approval for two first-in-class medicines to treat diabetes, BYETTA^® (exenatide) injection and SYMLIN^® (pramlintide acetate) injection, both of which were commercially launched in the United States during the second quarter of 2005.  BYETTA has also been approved in the European Union, or EU, and our collaboration partner, Eli Lilly and Company, or Lilly launched BYETTA in 22 countries outside of the United States during 2007.  We expect Lilly to continue to launch BYETTA in additional EU member states and other countries in 2008.

BYETTA is the first and only approved medicine in a new class of compounds called incretin mimetics.  We began selling BYETTA in the United States in June 2005.  BYETTA is approved in the United States for the treatment of patients with type 2 diabetes who have not achieved adequate glycemic control and are using metformin, a sulfonylurea and/or a thiazolidinedone, or TZD, three common oral therapies for type 2 diabetes.  Net product sales of BYETTA were $636.0 million, $430.2 million and $75.2 million for the years ended December 31, 2007, 2006 and 2005, respectively.

We have an agreement with Lilly for the global development and commercialization of exenatide.  This agreement includes BYETTA and any sustained-release formulations of exenatide such as exenatide once weekly (formerly referred to as exenatide LAR), our once weekly formulation of exenatide for the treatment of type 2 diabetes.  Under the terms of the agreement, operating profits from products sold in the United States are shared equally between Lilly and us.  The agreement provides for tiered royalties payable to us by Lilly based upon the annual gross margin for all exenatide product sales, including any long-acting release formulations, outside of the United States.  Royalty payments for exenatide product sales outside of the United States will commence after a one-time cumulative gross margin threshold amount has been met.  We expect royalty payments to commence in 2009.  Lilly is responsible for 100% of the costs related to development of twice-daily BYETTA for sale outside of the United States.  Development costs related to all other exenatide products for sale outside of the United States will continue to be allocated 80% to Lilly and 20% to us.  Lilly will continue to be responsible for 100% of the costs related to commercialization of all exenatide products for sale outside of the United States.

SYMLIN is the first and only approved medicine in a new class of compounds called amylinomimetics.  We began selling SYMLIN in the United States in April 2005 for the treatment of patients with either type 1 or type 2 diabetes who are treated with mealtime insulin but who have not achieved adequate glycemic control.  Net product sales of SYMLIN were $65.5 million, $43.8 million and $11.5 million for the years ended December 31, 2007, 2006 and 2005 respectively.

We have a field force of approximately 600 people dedicated to marketing BYETTA and SYMLIN in the United States.   Our field force includes our specialty and primary care sales forces, a managed care and government affairs organization, a medical science organization and diabetes care specialists.  In addition, Lilly co-promotes BYETTA in the United States and has primary responsibility for developing and commercializing BYETTA outside of the United States, and any sustained-release formulations of exenatide such as exenatide once weekly.

In addition to our marketed products, we are working with Lilly and Alkermes, Inc. to develop exenatide once weekly.   We are also working with Alkermes and Parsons, Inc. on the construction of a manufacturing facility for exenatide once weekly in Ohio.  We expect to complete the commercial scale manufacturing process in this facility in the second half of 2008 and we are also working aggressively to provide sufficient data to the United States Food and Drug Administration, or FDA, to demonstrate comparability between exenatide once weekly clinical trial material manufactured by our partner, Alkermes, in its facility and exenatide once weekly produced in our West Chester, Ohio facility.

We also have other early stage programs for diabetes, obesity, and other therapeutic areas.  We have a number of compounds in development for the potential treatment of obesity which are part of a broader clinical strategy which we refer to as INTO: Integrated Neurohormonal Therapies for Obesity.  We also maintain an active discovery research program focused on novel peptide therapeutics.  We are actively seeking to in-license additional drug candidates.  We have partnered with PyschoGenics, Inc., to form Psylin Neurosciences, Inc., a company that will focus on the discovery and development of peptide hormones for treatment of psychiatric indications.  During the second quarter of 2007, we made a strategic equity investment in BioSeek, Inc., or BioSeek, a company that specializes in predictive human cell-based disease models, and contracted with BioSeek to assess the potential utility of Amylin’s peptide hormones in immune/inflammatory disorders.  During the fourth quarter of 2007, we made a strategic equity investment in Xenome Ltd., or Xenome, a company with largely venom-based peptide libraries, and contracted with Xenome to discover and develop novel peptide therapeutics for a range of metabolic and musculoskeletal diseases.

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Recent Developments

·              Announced positive results from a 30-week comparator study of exenatide once-weekly injection and BYETTA taken twice daily in patients with type 2 diabetes.  We anticipate a regulatory submission to the FDA by the end of the first half of 2009.

·              Announced positive results from a 24-week study of monotherapy, or stand alone, BYETTA in drug naïve patients with Type 2 diabetes.  We plan for a regulatory submission for a monotherapy indication to the FDA in the first half of 2008.

·              Received FDA approval of the SymlinPen(TM) 120 and the SymlinPen(TM) 60 pen-injector devices for administering SYMLIN.  These new pre-filled pen-injector devices feature simple, fixed dosing to improve mealtime glucose control. This new product presentation was commercially launched in the United States in January 2008.

·              Announced plans for a clinical program for exenatide once weekly consisting of three trials designed to show superiority of exenatide once weekly for the treatment of type 2 diabetes over common medications used in the treatment of type 2 diabetes, including TZDs, DPP-IV inhibitors and insulin glargine.  The first of these trials is underway.  Results from the first two studies are expected during the first half of 2009 and results from the third study are expected by early 2010.

·              Made continued progress and expanded the scope of the construction of our manufacturing facility for exenatide once weekly in Ohio.  We remain on schedule to complete the commercial-scale manufacturing process at this facility in the second half of 2008.

·                  Positive results from a 24-week proof-of-concept study with pramlintide, an analog of human amylin, and recombinant human leptin (metreleptin) combination treatment in overweight or obese subjects, validating our novel INTO strategy.  We plan for additional development in 2008, including the initiation of a Phase 2B study and development work on a formulation that will provide both pramlintide and metreleptin in a single injection.

·                  In June 2007, we issued $575.0 million in aggregate principal amount of 3.0% convertible senior notes due in 2014, referred to as the 2007 Notes, generating net proceeds of approximately $558.7 million.

·                  In December 2007, we entered into a $140.0 million credit agreement.  The credit agreement provides for a $125.0 million term loan, which generated net proceeds of approximately $123.5 million, and a $15.0 million revolving credit facility.

Since our inception in September 1987, we have devoted substantially all of our resources to our research and development programs and, more recently, to the commercialization of our products and the ongoing construction of our manufacturing facility for exenatide once weekly.  All of our revenues prior to the second quarter of 2005 were derived from fees and expense reimbursements under our BYETTA collaboration agreement with Lilly, previous SYMLIN collaborative agreements, and previous co-promotion agreements.  During the second quarter of 2005, we began to derive revenues from product sales of BYETTA and SYMLIN.  We have been unprofitable since inception and may incur additional operating losses for at least the next few years.  At December 31, 2007, our accumulated deficit was approximately $1.4 billion.

At December 31, 2007, we had $1.1 billion in cash, cash equivalents and short-term investments.  We may not generate positive operating cash flows for at least the next few years and accordingly, we may need to raise additional funds from outside sources.  Refer to the discussions under the headings “Liquidity and Capital Resources” below and “Cautionary Factors That May Affect Future Results” in Part I, Item 1A for further discussion regarding our anticipated future capital requirements.

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.  The preparation of these financial statements requires us to make estimates and judgments that affect the reported

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amounts of assets, liabilities, revenues, expenses and related disclosures of contingent assets and liabilities.  On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, stock-based compensation, inventory costs, research and development expenses and income taxes.  We base our estimates 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 values of assets and liabilities that are not readily apparent from other sources.  Actual results may differ from these estimates under different assumptions or conditions.

We believe the following critical accounting policies affect the significant judgments and estimates used in the preparation of our consolidated financial statements (see Note 1 to our consolidated financial statements on page F-7).

Revenue Recognition

We recognize revenue from the sale of our products, license fees and milestones earned and for reimbursement of development costs based on contractual arrangements.

We sell our products primarily to wholesale distributors, who in turn, sell to retail pharmacies, pharmacy benefit managers and government entities.  Decisions made by these wholesalers and their customers regarding the level of inventories they hold, and thus the amount of product they purchase, can materially affect the level of our product sales in any particular period.

We recognize revenue from the sale of our products when delivery has occurred and title has transferred to our wholesale customers, net of allowances for product returns, rebates and wholesaler chargebacks, wholesaler discounts and prescription vouchers.  We are required to make significant judgments and estimates in determining some of these allowances.  If actual results differ from our estimates, we will be required to make adjustments to these allowances in the future.

We do not offer our wholesale customers a general right of return.  However, we will accept returns of products that are damaged or defective when received by the wholesale customer or for any unopened product during the period beginning six months prior to and up to 12 months subsequent to its expiration date.  We estimate product returns based on our historical returns experience, and industry trends for other products with similar characteristics.  Additionally, we consider several other factors in our estimation process including our internal sales forecasts, the expiration dates of product shipped and third party data to assist us in monitoring estimated channel inventory levels and prescription trends.  Actual returns could exceed our historical experience and our estimates of expected future returns due to factors such as wholesaler and retailer stocking patterns and inventory levels and/or competitive changes.  To date actual returns have not differed materially from our estimates.

Allowances for rebates include mandated discounts under the Medicaid Drug Rebate Program and contracted discounts with commercial payors.  Rebates are amounts owed after the final dispensing of the product by a pharmacy to a benefit plan participant and are based upon contractual agreements or legal requirements with private sector and public sector (e.g. Medicaid) benefit providers.  The allowance for rebates is based on contractual discount rates, expected utilization under each contract and our estimate of the amount of inventory in the distribution channel that will become subject to such rebates.  Our estimates for expected utilization for rebates are based on historical rebate claims and to a lesser extent third party market research data.  Rebates are generally invoiced and paid quarterly in arrears so that our accrual consists of an estimate of the amount expected to be incurred for the current quarter’s activity, plus an accrual for prior quarters’ unpaid rebates and an accrual for inventory in the distribution channel.

Wholesaler chargebacks are discounts that occur when contracted customers purchase directly from an intermediary wholesale purchaser. Contracted customers, which currently consist primarily of Federal government entities purchasing off the Federal Supply Schedule, generally purchase the product at its contracted price, plus a mark-up from the wholesaler.  The wholesaler, in-turn, charges back to the Company the difference between the price initially paid by the wholesaler and the contracted price paid to the wholesaler by the customer.  The allowance for wholesaler chargebacks is based on expected

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utilization of these programs and reported wholesaler inventory levels.  Actual rebates and wholesaler chargebacks could exceed historical experience and our estimates of future participation in these programs.  To date, actual rebate claims and wholesaler chargebacks have not differed materially from our estimates.

Wholesaler discounts consist of prompt payment discounts and distribution service fees.  We offer all of our wholesale customers a 2% prompt-pay discount within the first 30 days after the date of the invoice.  Distribution service fees arise from contractual agreements with certain of our wholesale customers for distribution services they provide to us and are generally a fixed percentage of their purchases of our products in a given period.  Prompt payment discounts and distribution service fees are recorded as a reduction to gross sales in the period the sales occur.  The allowance for wholesaler discounts is based upon actual data of product sales to wholesale customers and not on estimates.

Prescription vouchers result in amounts owed to pharmacies that have redeemed vouchers for a free prescription.  We provide prescription vouchers to physicians, who in turn distribute them to patients.  Patients may redeem a voucher at a pharmacy for a free prescription.  We reimburse the pharmacy for the price it paid the wholesaler for the medicine and record this reimbursement as a reduction to gross sales.  The allowance for prescription vouchers is based on the number of unredeemed vouchers in circulation, and the estimated utilization rate.  The estimated utilization rate is based on our historical utilization rates experience with prescription vouchers.  The allowance for prescription vouchers could exceed historical experience and our estimates of future utilization rates.  To date, actual prescription voucher utilization has not differed materially from our estimates.

Amounts received for upfront product and technology license fees under multiple-element arrangements are deferred and recognized over the period of such services or performance if such arrangements require on-going services or performance.  Non-refundable amounts received for substantive milestones are recognized upon achievement of the milestone and the expiration of stock conversion rights, if any, associated with such payments.  Amounts received for equalization of development expenses are recognized in the period in which the related expenses are incurred.  Any amounts received prior to satisfying our revenue recognition criteria are recorded as deferred revenue in the accompanying consolidated balance sheets.

We account for stock-based compensation to employees in accordance with Financial Accounting Standards Board, or FASB, Statement of Financial Accounting Standards (SFAS) No. 123R, “Share-Based Payment.”  SFAS No. 123R requires us to expense the estimated fair value of non-cash, stock-based payments to employees.

We estimate the fair value of stock-based payments to employees using the Black-Scholes model.  This estimate is affected by our stock price as well as assumptions regarding a number of inputs that require us to make significant estimates and judgments.  These inputs include the expected volatility of our stock price, the expected term of employee stock options, the risk-free interest rate and expected dividends.

We estimate volatility based upon the historical volatility of our common stock for a period corresponding to the expected term of our employee stock options and the implied volatility of market-traded options on our common stock with various maturities between six months and two years, consistent with the guidance in SFAS No. 123R and the Security and Exchange Commission’s, or SEC’s, Staff Accounting Bulletin, or SAB, No. 107.  Prior to the adoption of SFAS No. 123R, we estimated volatility based on the historical volatility of our common stock for a period corresponding to the expected term of our employee stock options.  The determination to use implied volatility in addition to historical volatility was based upon the availability of data related to actively traded options on our common stock and our assessment that the addition of implied volatility is more representative of future stock price trends than historical volatility alone.

The expected life of our employee stock options represents the weighted-average period of time that options granted are expected to be outstanding in consideration of historical exercise patterns and the assumption that all outstanding options will be exercised at the mid-point of the then current date and their maximum contractual term.

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The risk-free interest rates are based on the yield curve of  United States Treasury strip securities in effect at the time of grant for periods corresponding with the expected life of our employee stock options.  We have never paid dividends and do not anticipate doing so for the foreseeable future.  Accordingly, we have assumed no dividend yield for purposes of estimating the fair value of our stock-based payments to employees.

If factors underlying the above assumptions change in future periods, the associated estimated non-cash, stock-based compensation expense that we record may differ significantly from what we have recorded in the current period.

Inventories consist of raw materials, work-in-process and finished goods for SYMLIN and BYETTA.  We maintain inventory reserves primarily for production failures and potential product expiration.  The manufacturing processes for our products are complex.  Deviations in the manufacturing process may result in production failures and additional inventory reserves.  Obsolete inventory due to expiration may also result in additional inventory reserves.  In estimating inventory obsolescence reserves, we analyze the shelf life, expiration dates and internal sales forecasts, each on a product-by-product basis.

Research and Development Expenses

Research and development costs are expensed as incurred and include: salaries, benefits, bonus, stock-based compensation, license fees, milestones under license agreements, costs paid to third-party contractors to perform research, conduct clinical trials, and develop drug materials and delivery devices; and associated overhead expenses and facilities costs.  Clinical trial costs are a significant component of research and development expenses and include costs associated with third-party contractors.  Invoicing from third-party contractors for services performed can lag several months.  We accrue the costs of services rendered in connection with third-party contractor activities based on our estimate of management fees, site management and monitoring costs and data management costs.  Differences between actual clinical trial costs from estimated clinical trial costs have historically not been material and are adjusted for in the period in which they become known.

Income Taxes

We have net deferred tax assets relating primarily to net operating loss carry forwards and research and development tax credits.  Subject to certain limitations, these deferred tax assets may be used to offset taxable income in future periods.  Since we have been unprofitable since inception and the likelihood of future profitability is not assured, we have reserved for most of these deferred tax assets in our consolidated balance sheets at December 31, 2007 and 2006, respectively.  If we determine that we are able to realize a portion or all of these deferred tax assets in the future, we will record an adjustment to increase their recorded value and a corresponding adjustment to increase income in that same period.

We adopted the provisions of FIN 48 and FSP FIN 48-1 effective January 1, 2007.  FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes,” and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.  FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.  We had no cumulative effect adjustment related to the adoption due to a full valuation allowance against deferred tax assets.  We provide estimates for unrecognized tax benefits.  These unrecognized tax benefits relate primarily to issues common among corporations in our industry.  We apply a variety of methodologies in making these estimates which include advice from industry and subject experts, evaluation of public actions taken by the Internal Revenue Service and other taxing authorities, as well as our own industry experience.  If our estimates are not representative of actual outcomes, our results could be materially impacted.

Recently Issued Accounting Pronouncements

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” and SFAS No. 160,  “Noncontrolling Interests in Consolidated Financial Statements, an amendment of Accounting Research Bulletin No. 51.”  SFAS No. 141R will change how business acquisitions are accounted for and will impact financial statements both on the acquisition date and in subsequent periods.  SFAS No. 160 will change the accounting and reporting for minority interests,

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which will be recharacterized as noncontrolling interests and classified as a component of equity. SFAS No. 141R and SFAS No. 160 are effective for us beginning in the first quarter of fiscal 2009.  Early adoption is not permitted.  We are currently evaluating the impact that SFAS No. 141R and SFAS No. 160 will have on our consolidated financial statements.

In June 2007, the FASB ratified the Emerging Issues Task Force, or “EITF” consensus on EITF Issue No. 07-3, “Accounting for Nonrefundable Advance Payments for Goods or Services Received for Use in Future Research and Development Activities.”  EITF Issue No. 07-3 requires that nonrefundable advance payments for goods or services that will be used or rendered for future research and development activities should be deferred and capitalized.  Such amounts should be recognized as an expense as the related goods are delivered or the related services are performed.  Entities should continue to evaluate whether they expect the goods to be delivered or services to be rendered.  If an entity does not expect the goods to be delivered or services to be rendered, the capitalized advance payment should be charged to expense.  The adoption of EITF Issue No. 07-3 is not expected to have a material effect on our consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities.”  SFAS No. 159 gives us the irrevocable option to carry many financial assets and liabilities at fair values, with changes in fair value recognized in earnings. SFAS No. 159 is effective for us beginning January 1, 2008.  We are currently evaluating the impact, if any, that adoption of SFAS No. 159 will have on our consolidated financial statements.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” which defines fair value, establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements.  SFAS No. 157 does not require any new fair value measurements but rather eliminates inconsistencies in guidance found in various prior accounting pronouncements.  SFAS No. 157 is effective for fiscal years beginning after November 15, 2007.  The adoption of SFAS No. 157 is not expected to have a material effect on our consolidated financial statements.

Results of Operations

Net product sales for the years ended December 31, 2007, 2006 and 2005 were $701.5 million, $474.0 million and $86.7 million, respectively, and consisted of sales of BYETTA and SYMLIN, less allowances for product returns, rebates and wholesaler chargebacks, wholesaler discounts, and prescription vouchers.  The following table provides information regarding net product sales (in millions):

The increases in net product sales for BYETTA and SYMLIN for the year ended December 31, 2007 as compared to the same period in 2006 and for the year ended December 31, 2006 as compared to the same period in 2005, primarily reflects continued growth in patient use.

Revenues under Collaborative Agreements

The following table summarizes the components of revenues under collaborative agreements for the years ended December 31, 2007, 2006 and 2005 (in millions):

Substantially all of the revenue recorded in these periods consists of amounts earned pursuant to our BYETTA collaboration agreement with Lilly and consists primarily of the continued amortization of up-front payments, milestone payments and cost-sharing payments to equalize development expenses for BYETTA and exenatide once weekly.

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The $42.7 million increase in revenues under collaborative agreements in 2007, as compared to 2006, primarily reflects increases in milestone and cost-sharing payments related to our collaboration agreement with Lilly.  Milestone payments in 2007 consisted of the recognition of milestones earned primarily associated with Lilly’s launch of BYETTA in the EU.  The increase in cost-sharing payments in 2007, as compared to 2006 primarily reflects Lilly’s reimbursement to us of increased development expenses incurred by us for exenatide once weekly.

The $17.0 million decrease in revenues under collaborative agreements in 2006, as compared to 2005, primarily reflects a reduction in milestone payments, partially offset by an increase in cost-sharing payments.  Milestone payments in 2005 consisted of the recognition of $35 million of milestones earned in connection with the regulatory approval and commercial launch of BYETTA in the United States.  The increase in cost-sharing payments in 2006, as compared to 2005 primarily reflects increased development expenses for exenatide once weekly.

In future periods, revenues under collaborative agreements will consist of ongoing cost-sharing payments from Lilly to equalize development costs, possible future milestone payments and the continued amortization of the up-front payment.

Cost of goods sold was $65.5 million, representing a gross margin of 91%, $50.1 million, representing a gross margin of 89%, and $14.8 million, representing a gross margin of 83%, for the years ended December 31, 2007, 2006 and 2005, respectively.   Costs of goods sold is comprised primarily of manufacturing costs associated with BYETTA and SYMLIN sales during the period.  The improvement in gross margin in 2007 as compared to 2006 and in 2006 as compared to 2005 primarily reflects a higher average net sales price per unit for BYETTA and lower unit costs for BYETTA resulting from higher production volumes.  Quarterly fluctuations in gross margins may be influenced by product mix and the level of sales allowances.

Selling, general and administrative expenses were $391.0 million, $282.0 million and $171.5 million in the years ended December 31, 2007, 2006 and 2005, respectively.

The $109.0 million increase in 2007 as compared to 2006 reflects the full annual effect of the expansion of our sales force during the fourth quarter of 2006, increased promotional expenses for BYETTA and SYMLIN, increased business infrastructure to support our growth and an increase in stock-based compensation including costs associated with the adoption of our employee stock ownership plan, or ESOP, and increased expense from stock options due to growth in our number of employees.

The $110.5 million increase in 2006 as compared to 2005 primarily reflects the full annual effect of the 2005 expansion of our commercial capabilities to support the launches of BYETTA and SYMLIN, the continued expansion in 2006 of these capabilities, including the addition of approximately 150 individuals to our field force, increased marketing activities, including medical education, market research and product sampling for BYETTA, growth in our business infrastructure and $29.0 million of stock-based compensation.

We, along with Lilly, are jointly responsible for the co-promotion of BYETTA within the United States, and share equally in sales force costs and external marketing expenses.  Accordingly, our selling, general and administrative expenses include our 50% share of these costs in the United States.

Selling general and administrative expenses are expected to continue to increase in 2008 due to continued investment in promotional activities for BYETTA and SYMLIN, investment in prelaunch education activities for exenatide once-weekly, and increases in business infrastructure to support our growth.

Currently, our research and development efforts are focused on programs for the treatment of diabetes and obesity in various stages of development.  From inception through 1998, we devoted substantially all of our research and development efforts to SYMLIN.  Beginning in 1999, our research and development costs started to include costs for our other drug

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candidates, primarily BYETTA and exenatide once weekly.  In 2004 we initiated our program for the treatment of obesity with pramlintide and in 2006 we commenced our INTO clinical research program for obesity.

The drug development process in the United States includes a series of steps defined by the FDA.  The process begins with discovery and preclinical evaluation leading up to the submission of an IND to the FDA, which allows for the initiation of the clinical evaluation of a potential drug candidate in humans.  Clinical evaluation is typically comprised of three phases of study: Phase 1, Phase 2 and Phase 3. Generally, the majority of a drug candidate’s total development costs are incurred during Phase 3, which consists of trials that are typically both the longest and largest conducted during the drug development process.  Successful completion of Phase 3 clinical testing is followed by the submission of an NDA to the FDA for marketing approval.  It is not uncommon for the FDA to request additional data following its review of an NDA, which can significantly increase the drug development timeline and expenses.  Following initial regulatory approval for a drug candidate, companies generally initiate additional clinical trials aimed at expanding product labeling and market potential.

The timing and costs to complete the successful development of any of our drug candidates are highly uncertain, and therefore difficult to estimate.

Our research and development expenses are comprised of salaries, benefits, bonus, stock-based compensation; license fees, and milestones under license agreements; costs paid to third-party contractors to perform research, conduct clinical trials, and develop drug materials and delivery devices; and associated overhead expenses and facilities costs.  We charge direct internal and external program costs to the respective development programs.  We also incur indirect costs that are not allocated to specific programs because such costs benefit multiple development programs and allow us to increase our overall pharmaceutical development capabilities.  These consist primarily of facilities costs and other internally-shared resources related to the development and maintenance of systems and processes applicable to all of our programs.

The following table sets forth information regarding our research and development expenses for our major projects for the years ended December 31, 2007, 2006 and 2005 (in millions):

(1)  Research and development expenses consist primarily of costs associated with Byetta and  exenatide once weekly which are shared by Lilly pursuant to our collaboration agreement.  Cost-sharing payments received by Lilly are included in revenues under collaborative agreements.  Increased expenditures for our diabetes development programs are generally partially offset by an increase in cost-sharing payments from Lilly.  Cost-sharing payments were $60.2 million, $32.5 million and $14.5 million for the years ended December 31, 2007, 2006 and 2005, respectively

Research and development expenses increased to $276.6 million for the year ended December 31, 2007 from $222.1 million for the year ended December 31, 2006.  The $54.5 million increase in 2007 as compared to 2006 primarily reflects increased expenses associated with our diabetes programs.  The increase in expenses for our diabetes programs primarily reflects increased expenses for exenatide once weekly associated with manufacturing scale-up at third-party manufacturers and our manufacturing facility in Ohio and expenses associated with the recently completed comparator study discussed above.

Research and development expenses increased to $222.1 million for the year ended December 31, 2006 from $132.1 million for the year ended December 31, 2005.  The $90.0 million increase in 2006 as compared to 2005 primarily reflects increased expenses associated with our diabetes, obesity, research and early-stage programs, and indirect costs.  The increase in expenses for our diabetes programs primarily reflects costs associated with the development of exenatide once weekly, including the recently completed comparator study discussed above and manufacturing scale-up for exenatide once weekly; and label expansion activities for BYETTA, including costs associated with the recently completed monotherapy study discussed above.  The increase in expenses for our obesity programs primarily reflects costs associated with our acquisition of the rights to leptin from Amgen in early 2006.  The increase in research and early-stage programs primarily reflects costs associated with an increase in discovery research activities.  The increase in indirect costs primarily reflects increased facilities costs to support growth in our research and development activities.

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Research and development expenses are expected to continue to increase in 2008 due to increases in the level of our spending on our exenatide franchise, including exenatide once weekly, and investment in our obesity programs.

Collaborative profit-sharing was $290.9 million, $194.2 million and $31.4 million for the years ended December 31, 2007, 2006 and 2005, respectively, and consists of Lilly’s 50% share of the gross margin for BYETTA sales in the United States.

In July 2006, we called for the redemption on August 24, 2006 of all our outstanding convertible senior notes due June 2008, or the 2003 Notes, under a provisional redemption based upon the market price of our common stock exceeding certain thresholds.  All holders elected to convert their 2003 Notes into shares of our common stock.  In connection with the conversion, we issued approximately 5.6 million shares, including 180,005 shares as a make-whole payment, representing $112.94 per $1,000 principal amount of the 2003 Notes converted less interest actually paid.  In connection with this make-whole payment, we recorded a non-cash, non-operating charge of $7.9 million during the third quarter of 2006.

Interest and Other Income and Expense

Interest and other income consists primarily of interest income from investment of cash and investments.  Interest and other income was $47.0 million in 2007, $34.9 million in 2006 and $13.2 million in 2005.  The increase in 2007 compared to 2006 primarily reflects higher average investment balances due to net proceeds of $558.7 million from our 2007 Notes issued in June 2007.  The increase in 2006 primarily reflects higher average cash balances available for investment and higher interest rates in 2006 as compared to 2005.

Interest and other expense consists primarily of interest expense resulting from long-term debt obligations and includes interest payments and the amortization of debt issuance costs.  Interest and other expense was $15.1 million in 2007, $8.5 million in 2006 and $10.7 million in 2005.  The increase in 2007 compared to 2006 primarily reflects an increase in additional interest expense for our 2007 Notes issued in June 2007.  The decrease in 2006 compared to 2005 reflects lower interest expense following the August 2006 redemption of our 2003 Notes.

Net Loss

Our net loss for the year ended December 31, 2007 was $211.1 million compared to $218.9 million in 2006 and $206.8  million in 2005.  The decrease in our net loss in 2007 compared to 2006 primarily reflects increased net product sales and revenues under collaborative agreements, partially offset by increased selling, general, and administrative expenses, increased research and development expenses and increased collaborative profit-sharing discussed above.  The increase in our net loss in 2006, compared to 2005 primarily reflects the increased costs and expenses and decreased revenues under collaborative agreements, partially offset by the increases in net product sales and interest and other income discussed above.

We may incur operating losses for the next few years.  Our ability to reach profitability in the future will be heavily dependent upon the product sales that we achieve for BYETTA and SYMLIN.  In addition, ongoing and potential increased expenses associated with the commercialization of BYETTA and SYMLIN, and expenses associated with the continuation and potential expansion of our research and development programs, and related support infrastructure may impact our ability to reach profitability in the future.  Our operating results may fluctuate from quarter to quarter as a result of differences in the timing of expenses incurred and revenues recognized.

Liquidity and Capital Resources

Since our inception, we have financed our operations primarily through public sales and private placements of our common and preferred stock, debt financings, payments received pursuant to our BYETTA collaboration with Lilly, reimbursement of SYMLIN development expenses through earlier collaboration agreements, and since the second quarter of 2005, through product sales of BYETTA and SYMLIN.

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At December 31, 2007, we had $1,130.4 million in cash, cash equivalents and short-term investments, compared to $767.3 million at December 31, 2006.

We used cash of $125.2 million, $126.0 million and $182.0 million for our operating activities in the years ended December 31, 2007, 2006 and 2005, respectively.  Our cash used for operating activities in 2007 included uses of cash due to increases in accounts receivable and inventories of $15.5 million and $40.9 million, respectively.  The increase in accounts receivable reflects growth in our net product sales and the increase in inventories reflects increased inventory purchases to support this growth.  Our cash used for operating activities in 2007 included sources of cash for increases in our current liabilities, including an increase of $28.1 million in accounts payable and accrued liabilities, an increase of $17.2 million in accrued compensation, and an increase of $13.8 million in payable to collaborative partner.  The increase in accounts payable and accrued liabilities primarily reflects growth in our expenses generally, and accounts payable timing differences.  The increase in accrued compensation primarily reflects an accrual of $17.2 million for the 2007 contribution to the ESOP.  The increase in payable to collaborative partner, which represents Lilly’s 50% share of BYETTA gross margins in the United States, reflects increased net product sales for BYETTA and an improvement in gross margins.

Our investing activities used cash of $296.1 million, $425.9 million and $169.0 million in the years ended December 31, 2007, 2006 and 2005, respectively.  Investing activities in all three years consisted primarily of purchases and sales of short-term investments and purchases of property, plant and equipment.  Purchases of property, plant and equipment increased to $268.7 million in 2007, from $97.9 million in 2006 and $29.6 million in 2005.  The increase in 2007 primarily reflects costs associated with our manufacturing facility for exenatide once weekly and, to a lesser extent, purchases of tenant improvements, computer software, office equipment and scientific equipment to support our growth.  We expect that our capital expenditures will continue to increase in 2008 due primarily to costs associated with ongoing construction of our manufacturing facility for exenatide once weekly.  We expect to complete the commercial-scale manufacturing process in the second half of 2008, at a total cost of approximately $500 million, including costs associated with the construction of the facility, purchase and installation of equipment and capitalized labor and materials required to validate the facility.  Through December 31, 2007, we had expended approximately $262 million associated with the construction of this facility.  The full expansion of this project is dependent upon on the continued progress of exenatide once weekly through the development process.  In addition, we anticipate continued investments in tenant improvements, office equipment and scientific equipment.  The $18.3 million increase in other long-term assets primarily reflects our investments in Psylin, BioSeek and Xenome.

Financing activities provided cash of $776.9 million, $546.5 million and $362.5 million in the years ended December 31, 2007, 2006 and 2005, respectively.  Financing activities in 2007 included $558.7 million in net proceeds from our issuance of $575 million in aggregate principal amount of our 2007 Notes, the exercise of stock options and proceeds from our employee stock purchase plan and proceeds of $30.0 million for a contingent share-settled obligation to Lilly.  The contingent share-settled obligation to Lilly relates to the $30.0 million of milestones received by us in December 2007 for which Lilly is entitled to and elected to convert into shares of our common stock in February 2008.  Financing activities also included $123.5 million of net proceeds related to a term loan provided by the credit agreement entered into in December 2007.

At December 31, 2007, we had $200 million in aggregate principal amount of our 2.5% convertible senior notes due in 2011, or the 2004 Notes, and $575 million of the 2007 Notes outstanding.  The 2004 Notes are currently convertible into a total of up to 5.8 million shares of our common stock at approximately $34.35 per share and are not redeemable at our option.  The 2007 Notes are currently convertible into a total of up to 9.4 million shares of our common stock at approximately $61.07 per share and are not redeemable at our option.

In December 2007, we entered into a $140 million credit agreement.  The credit agreement provides for a $125 million term loan and a $15 million revolving credit facility.  The revolving credit facility also provides for the issuance of letters of credit and foreign exchange hedging up to the $15 million borrowing limit.  The term loan is repayable on a quarterly basis, with no payments due quarters one through four, 6.25% of the outstanding principal due quarters five through eleven, and 56.25% of the outstanding principal due in quarter twelve.  At December 31, 2007 we had an outstanding balance of $125 million under the term loan and had issued $5.2 million of letters of credit under the revolving credit facility.  Both loans have a final maturity date of December 21, 2010.  Interest on the term loan is payable quarterly in arrears at a rate equal to 1.75% above the London Interbank Offered Rate, or LIBOR, of either one, two, three, or six months LIBOR term at our election.  We have entered into an interest rate swap agreement which resulted in a fixed interest rate of 5.717% under the term loan.  The interest rate on the credit facility is either LIBOR plus 1.0% or the Bank of America prime rate, at our election.

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The following table summarizes our contractual obligations and maturity dates as of December 31, 2007 (in thousands).

(1)    The interest payments shown were calculated using a rate of 5.717%, the net rate from the term loan and interest rate swap, on the outstanding principal balance of the term loan.

(2)    Includes $100.5 million of outstanding purchase orders, cancelable by us upon 30 days’ written notice, subject to reimbursement of costs incurred through the date of cancellation.

(3)    Excludes long-term obligation of $8.6 million related to deferred compensation, the payment of which is subject to elections made by participants that are subject to change.

In addition, under certain license and collaboration agreements we are required to pay royalties and/or milestone payments upon the successful development and commercialization of related products.  We expect to make development milestone payments up to $9 million associated with licensing agreements in the next 12 months.  Additional milestones of up to approximately $280 million could be paid over the next ten to fifteen years if development and commercialization of all our early stage programs continue and are successful.  The significant majority of these milestones relate to potential future regulatory approvals and subsequent sales thresholds.  Given the inherent risk in pharmaceutical development, it is highly unlikely that we will ultimately make all of these milestone payments; however, we would consider these payments as positive because they would signify that the related products are moving successfully through development and commercialization.

Our future capital requirements will depend on many factors, including: the amount of product sales we achieve for BYETTA and SYMLIN; costs associated with the commercialization of BYETTA and SYMLIN; costs associated with the construction of our exenatide once weekly manufacturing facility; costs of potential licenses or acquisitions; the potential need to repay existing indebtedness; costs associated with an increase in our infrastructure; our ability to receive or need to make milestone payments; our ability, and the extent to which we establish collaborative arrangements for SYMLIN or any of our product candidates; progress in our research and development programs and the magnitude of these programs; costs involved in preparing, filing, prosecuting, maintaining, enforcing or defending our patents; competing technological and market developments; and costs of manufacturing, including costs associated with establishing our own manufacturing capabilities or obtaining and validating additional manufacturers of our products; and scale-up costs for our drug candidates.

We invest our excess cash primarily in United States Government securities, securities of agencies sponsored by the United States Government, asset-backed securities, mortgage-backed securities and debt instruments of financial institutions and corporations with strong credit ratings.  These instruments have various short-term maturities, and therefore the risk of loss due to interest rate risk is considered to be low.  We do not invest in auction rate securities.  We mitigate certain financial exposures, including currency risk and interest rate risk, through a controlled program of risk management that includes the use of derivative financial instruments, however we do not utilize such instruments in any material fashion.  Accordingly, we believe that, while the instruments held are subject to changes in the financial standing of the issuer of such securities, we are not subject to any material risks arising from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices or other market changes that affect market risk sensitive investments.  Our debt is not subject to significant swings in valuation as interest rates on a majority of our debt are fixed.  The fair value of our 2004 Notes and 2007 Notes at December 31, 2007 was approximately $250 million and $549 million, respectively.  A hypothetical 1% adverse move in interest rates along the entire interest rate yield curve would not materially affect the fair value of our financial instruments that are exposed to changes in interest rates.

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The financial statements and supplemental data required by this item are set forth at the pages indicated in Part IV, Item 15(a)(1) of this annual report.

Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended, or the Exchange Act.  Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of December 31, 2007.

Our management does not expect that our disclosure controls and procedures or our internal controls over financial reporting will prevent all potential error and fraud.  A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.  Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, or misstatements due to error, if any, within the Company have been detected.  While we believe that our disclosure controls and procedures and internal control over financial reporting are and have been effective, we intend to continue to examine and refine our disclosure controls and procedures and internal control over financial reporting and to monitor ongoing developments in these areas.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f).  Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.  Based on our evaluation under the framework in Internal Control — Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2007.  The effectiveness of our internal control over financial reporting as of December 31, 2007 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which is included herein.

There has been no change in our internal control over financial reporting in our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting

The Board of Directors and Stockholders of Amylin Pharmaceuticals, Inc.

We have audited Amylin Pharmaceuticals, Inc.’s internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Amylin Pharmaceuticals, Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Amylin Pharmaceuticals, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the accompanying consolidated balance sheets of Amylin Pharmaceuticals, Inc. as of December 31, 2007 and 2006, and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for each of the three years in the period ended December 31, 2007 of Amylin Pharmaceuticals, Inc. and our report dated February 22, 2008 expressed an unqualified opinion thereon.

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Item 9B. Other Information

                None.

PART III

The information required by this item with respect to executive officers and directors is incorporated by reference from the information under the captions “Election of Directors,” “Section 16(a) Beneficial Ownership Reporting Compliance,” and “Code of Business Conduct and Ethics” contained in the proxy statement to be filed with the SEC pursuant to Regulation 14A in connection with our 2008 annual meeting of stockholders.

The information required by this item is incorporated by reference to the information under the captions “Compensation of Directors,” “Executive Compensation,” “Report of the Compensation Committee of the Board of Directors on Executive Compensation,” and “Compensation Committee Interlocks and Insider Participation” contained in the proxy statement to be filed with the SEC pursuant to Regulation 14A in connection with our 2008 annual meeting of stockholders.

The information required by this item is incorporated by reference to the information under the captions “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information” contained in the proxy statement to be filed with the SEC pursuant to Regulation 14A in connection with our 2008 annual meeting of stockholders.

The information required by this item is incorporated by reference to the information under the captions “Election of Directors” and “Certain Transactions” contained in the proxy statement to be filed with the SEC pursuant to Regulation 14A in connection with our 2008 annual meeting of stockholders.

The information required by this item is incorporated by reference to the information under the caption contained in “Ratification of Selection of Independent Auditors” contained in the proxy statement to be filed with the SEC pursuant to Regulation 14A in connection with our 2008 annual meeting of stockholders.

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PART IV

Item 15. Exhibits and Financial Statement Schedules

(a)(1) Index to Consolidated Financial Statements

The financial statements required by this item are submitted in a separate section beginning on page F-1 of this annual report.

(a)(2) Financial Statement Schedules: The following Schedule is filed as part of this annual report on Form 10-K:

All other schedules have been omitted because they are not applicable or required, or the information required to be set forth therein is included in the Consolidated Financial Statements or notes thereto.

(a)(3) Index to Exhibits — See Item 15(b) below.

(b)     Exhibits