Unless the context requires otherwise, references in this report to "Keryx," the "Company," "we," "us" and "our" refer to Keryx Biopharmaceuticals, Inc., its predecessor company and our subsidiaries.

The following discussion and analysis contains forward-looking statements about our plans and expectations of what may happen in the future. Forward-looking statements are based on a number of assumptions and estimates that are inherently subject to significant risks and uncertainties, and our results could differ materially from the results anticipated by our forward-looking statements as a result of many known or unknown factors, including, but not limited to, those factors discussed in "Risk Factors." See also the "Special Cautionary Notice Regarding Forward-Looking Statements" set forth at the beginning of this report.

You should read the following discussion and analysis in conjunction with the unaudited consolidated financial statements, and the related footnotes thereto, appearing elsewhere in this report, and in conjunction with management's discussion and analysis and the audited consolidated financial statements included in our annual report on Form 10-K for the year ended December 31, 2008.

OVERVIEW

We are a biopharmaceutical company focused on the acquisition, development and commercialization of medically important pharmaceutical products for the treatment of life-threatening diseases, including renal disease and cancer. We are developing KRX-0401 (perifosine), a novel, potentially first-in-class, oral anti-cancer agent that inhibits the phosphoinositide 3-kinase (PI3K)/Akt pathway, a key signaling cascade that has been shown to induce cell growth and cell transformation. KRX-0401 has demonstrated both safety and clinical efficacy in several adult and pediatric tumor types, both as a single agent and in combination with novel therapies. KRX-0401 also modulates a number of other key signal transduction pathways, including the JNK and MAPK pathways, which are pathways associated with programmed cell death, cell growth, cell differentiation and cell survival. KRX-0401 is currently in Phase 2 clinical development for multiple tumor types, with a Phase 3 in multiple myeloma, under Special Protocol Assessment, or SPA, pending commencement.

We are also developing Zerenex™ (ferric citrate), an oral, iron-based compound that has the capacity to bind to phosphate and form non-absorbable complexes. Zerenex has recently completed a U.S. Phase 2 clinical program as a treatment for hyperphosphatemia (elevated phosphate levels) in patients with end-stage renal disease, or ESRD, and we are in the process of finalizing the U.S. Phase 3 program for Zerenex in consultation with the FDA. Zerenex is also in Phase 2 development in Japan by our Japanese partner, Japan Tobacco Inc. ("JT") and Torii Pharmaceutical Co., Ltd. ("Torii").

We also actively engage in business development activities that include seeking strategic relationships for our product candidates, as well as evaluating compounds and companies for in-licensing or acquisition. To date, we have not received approval for the sale of any of our drug candidates in any market and, therefore, have not generated any product sales from our drug candidates. We have generated, and expect to continue to generate, revenue from the licensing of rights to Zerenex in Japan to our Japanese partner, JT and Torii.

The table below summarizes the status of our product pipeline.

Product         Target indication      Development status
candidate
KRX-0401        Multiple myeloma       Phase 3 pending, under SPA.
(perifosine)    Multiple other forms   Phase 2 trials ongoing.
                of cancer

Zerenex™        Hyperphosphatemia in   U.S. Phase 2 complete;
(ferric         patients with          U.S. Phase 3 program
citrate)        end-stage renal        pending;
                disease                Japan Phase 2 ongoing by
                                       sublicensee (JT and Torii).

KRX-0401 (perifosine)

Multiple Myeloma

On August 3, 2009, we announced that we had reached agreement with the FDA regarding a Special Protocol Assessment (SPA) on the design of a Phase 3 trial for KRX-0401 (perifosine) in relapsed or relapsed / refractory multiple myeloma patients previously treated with bortezomib (VELCADE®). The SPA provides agreement that the Phase 3 study design adequately addresses objectives in support of a regulatory submission. The trial, entitled, "A Phase 3 Randomized Study to Assess the Efficacy and Safety of Perifosine Added to the Combination of Bortezomib and Dexamethasone in Multiple Myeloma Patients Previously Treated with Bortezomib" will be a double-blind, placebo-controlled trial comparing the efficacy and safety of KRX-0401 versus placebo when combined with bortezomib and dexamethasone. The trial, powered at 90%, will enroll approximately 400 patients with relapsed or relapsed / refractory multiple myeloma. The primary endpoint is progression-free survival and secondary endpoints include overall response rate, overall survival and safety. Drs. Paul Richardson and Kenneth Anderson, from the Jerome Lipper Multiple Myeloma Center, Dana-Farber Cancer Institute, have agreed to lead the Phase 3 trial.

Metastatic Colon Cancer

In June 2009, we announced positive data from a randomized, multi-center, placebo-controlled, Phase 2 study of KRX-0401 (perifosine) in combination with capecitabine (Xeloda(R)) versus capecitabine plus placebo in patients with second- or third-line metastatic colon cancer. The data was presented in a poster during the Gastrointestinal Cancer - Colorectal session at the 45th Annual Meeting of the American Society of Clinical Oncology (ASCO), held in Orlando, Florida. In this randomized, double-blind, placebo-controlled study conducted at 11 centers across the United States, patients with 2nd or 3rd line metastatic colon cancer were randomized to receive capecitabine (Xeloda(R)), an approved drug for metastatic colon cancer, at a dose of 825 mg/m2 BID (total daily dose of 1650 mg/m2) on days 1 to 14 every 21 days, plus either KRX-0401 (perifosine) or placebo at 50 mg daily. Treatment was continued until progression. The study enrolled a total of 38 patients, of which 35 patients were evaluable for response (20 patients on the capecitabine plus perifosine arm and 15 patients on the capecitabine plus placebo arm). The three patients not evaluable for response were all in the capecitabine plus placebo arm; 2 patients were inevaluable due to toxicity (days 14, 46) and 1 patient was inevaluable due to a new malignancy on day 6.

The median prior treatment regimens was two, with prior treatment regimens as follows: 91% of the patients received prior FOLFIRI (Irinotecan + 5FU + Leucovorin); 74% prior FOLFOX (Oxaliplatin + 5FU + Leucovorin); 63% were previously treated with both FOLFIRI and FOLFOX; 77% received prior Avastin(R); and 43% prior Erbitux(R). Prior treatment with single agent capecitabine was excluded.

The primary endpoints of this study were to measure 1) Time to Progression (TTP); 2) Overall Response Rate (ORR), defined as the percentage of patients achieving a Complete Response (CR) or Partial Response (PR) by RECIST, and 3) Clinical Benefit Rate (CBR) defined as the percentage of patients on treatment for greater than three months with at least Stable Disease. Safety of perifosine plus capecitabine vs. capecitabine + placebo in this patient population was evaluated as a secondary endpoint. Perifosine in combination with capecitabine was well tolerated with hand/foot syndrome (14%) and anemia (11%) as the highest reported grade 3/4 adverse events.

Best response and median time to progression of capecitabine plus perifosine vs. capecitabine plus placebo were as follows:

                                                             Stable
                                                            Disease
                                CR        PR        ORR     > 12 wks     CBR*
Group                   n      n (%)     n (%)     n (%)     n (%)      n (%)         Median TTP
Xeloda + Perifosine    20     1 (5%)    3 (15%)   4 (20%)   11 (55%)   15 (75%)       28.9 weeks
                                                                                  {95% CI (13, 48.1)}
Xeloda + Placebo       15        0      1 (7%)    1 (7%)    5 (33%)    6 (40%)         11 weeks
                                                                                  {95% CI (9, 15.9)}

* CBR: Clinical Benefit Rate as defined by ORR + Stable Disease

Perifosine plus capecitabine more than doubled time to progression vs. capecitabine + placebo with a statistically significant p-value = 0.0006. In addition, perifosine plus capecitabine more than doubled the ORR and almost doubled the Clinical Benefit Rate vs. capecitabine plus placebo.

Although not a primary endpoint in the study, overall survival was analyzed with results as follows:

Group                     Median Overall Survival*          % Change

Xeloda + Perifosine    22 months [95% CI (12.1, NR)]     35% increase**
Xeloda + Placebo      16.3 months [95% CI (5.3, 17.1)]

* Survival calculated from date of randomization until date of death from any cause, whether or not additional therapies were received after removal from treatment.

** As of May 2009, median overall survival in the perifosine plus capecitabine patient group is ongoing with 10 of the 20 patients in this arm still alive.

Renal Cell Carcinoma

In May 2009, we announced data on the clinical activity of KRX-0401 (perifosine) as a treatment for advanced renal cell carcinoma (RCC). The data was presented in a poster session at the 45th Annual Meeting of the American Society of Clinical Oncology (ASCO), held in Orlando, Florida. The study enrolled a total of 50 patients, of which 46 patients were evaluable for response. Evaluable patients were defined as those who had greater than seven days of treatment. The primary endpoint of this study was clinical benefit, defined as response rate (RECIST), and progression-free survival (PFS) in RCC patients who failed a prior VEGF receptor inhibitor (sunitinib or sorafenib). Safety of perifosine in this patient population was evaluated as a secondary endpoint. Best response to single agent perifosine was as follows:

                               Stable
                              Disease
                      PR      > 12 wks     CBR*        Median PFS
Group          n     n (%)     n (%)      n (%)      (SD or greater)
All patients   46   5 (11%)   16 (35%)   21 (46%)       33 weeks
                                                    [95% CI (24, 60)]

* CBR: Clinical Benefit Rate defined as patients with Stable Disease or Partial Response.

The median PFS for all 46 patients was 12.5 weeks [95% CI (11.9, 19)]. The median overall survival has not been reached with 33 of 46 patients (72%) still alive as of May 2009.

Also reported was the patient subgroup who had failed both a VEGF receptor inhibitor (sunitinib or sorafenib) and an mTOR inhibitor (either everolimus or temsirolimus). For this group, best response and median PFS to single agent perifosine was as follows:

                             Stable
                            Disease
                     PR     > 12 wks    CBR*          Median PFS
Group         n    n (%)     n (%)      n (%)       (SD or greater)
VEGF + mTOR   16   1 (6%)   7 (44%)    8 (50%)         16 weeks
                                                 [95% CI (11.7, 33.6)]

Three patients out of the group of patients previously treated with and failed both a VEGF and an mTOR inhibitor remain on active treatment, out 5, 9 and 17 months as of May 2009.

Pediatric Solid Tumors

In July 2009, we announced the initiation of a Phase 1 clinical study to evaluate KRX-0401 (perifosine) as a single agent treatment for recurrent solid tumors in pediatric patients. This Phase 1 study is now open for enrollment at Memorial Sloan-Kettering Cancer Center in New York City. The study is being fully funded by an external grant provided by a private organization.

Zerenex (ferric citrate)

Effective on June 8, 2009, we entered into an Amended and Restated Sublicense Agreement (the "Revised Agreement") with JT and Torii. The parties had originally entered into a sublicense agreement on September 26, 2007. As a result of the Revised Agreement, we no longer have significant on-going involvement or obligations under the sublicense agreement. As such, in accordance with our revenue recognition policies, all deferred revenue balances pertaining to this sublicense agreement have been recognized as revenue in the three months ended June 30, 2009.

In June 2009, we announced results of the U.S. Phase 2 study of Zerenex for the treatment of elevated serum phosphorous levels, or hyperphosphatemia, in patients with end-stage renal disease (ESRD) on thrice weekly hemodialysis. The study was a multicenter, open-label clinical trial, which enrolled 55 patients. The primary objective of this study was to assess the tolerability and safety of Zerenex with doses ranging from approximately 1 gram per day to 12 grams per day.

The top line efficacy and safety results from this Phase 2 study were submitted to the FDA, and discussed at a recent face to face meeting with the Division of Cardiovascular and Renal Drug Products. The FDA also reviewed the final reports for the 90-day rat and 16-week canine toxicology studies. The FDA indicated that the results of the Phase 2 study and the toxicology studies were adequate to support entry into a Phase 3 program. Keryx is in the process of finalizing the Phase 3 program in consultation with the FDA.

The FDA also reviewed the protocols for the ongoing chronic toxicology studies (6-month rat and 42-week canine), which can be completed after the U.S. Phase 3 program has begun.

In the first part of the Phase 2 study, 34 ESRD patients who were taking approximately 6 to 15 tablets/capsules per day of calcium acetate, calcium carbonate, lanthanum carbonate or sevelamer hydrochloride or any combination of these agents were eligible for enrollment and immediately switched to a starting dose of 4.5 grams per day of Zerenex. In the second part of the study, 21 ESRD patients who were taking greater than 12 tablets/capsules per day of calcium acetate, calcium carbonate, lanthanum carbonate or sevelamer hydrochloride or any combination of these agents were eligible for enrollment and immediately switched to a starting dose of 6.0 grams per day of Zerenex. Patients were treated with Zerenex for four weeks and were titrated weekly to achieve and maintain normal serum phosphorus levels, between 3.5 to 5.5 mg/dL, the therapeutic goal.

Although designed primarily as a safety study, key efficacy parameters were evaluated, with results as follows:

At baseline:

· Baseline mean +/- standard deviation (SD) serum phosphorus was approximately
5.9 +/- 1.5 mg/dL immediately prior to the switch to Zerenex;

· The average daily dose of PhosLo(R) (calcium acetate) was 6.9 grams per day and for Renagel(R) (sevelamer hydrochloride) was 9.9 grams per day, for patients not on combination therapy prior to the switch to Zerenex.

Following the treatment period (four weeks on Zerenex):

· At the end of the treatment period (after four weeks on Zerenex) the mean +/- SD serum phosphorus was approximately 5.4 +/- 1.3 mg/dL;

· The average daily dose of Zerenex at the end of four weeks of treatment was 6.8 grams per day;

In the subset of 29 patients who had a serum phosphorus above the normal range (> 5.5 mg/dL) at baseline, immediately prior to the switch to Zerenex, the mean (SD) baseline serum phosphorus was 7.0 (1.1) mg/dL, and at the end of treatment with Zerenex the mean (SD) serum phosphorus was 5.6 (1.6) mg/dL;

In the Phase 2 study, there were four serious adverse events which were deemed unrelated to Zerenex. Darkened stool was reported in the study and was associated with the presence of iron in the gastrointestinal tract. With the exception of the reporting of darkened stool as an (asymptomatic) adverse event, the gastrointestinal adverse event profile was similar in incidence to that reported for other currently marketed phosphate binders. There was no increase in serum calcium noted in the study.

General Corporate

On May 20, 2009, we announced the appointment of Ron Bentsur as our Chief Executive Officer. The terms of Mr. Bentsur's employment are being finalized and will be set forth in an employment agreement with us. As an inducement to his employment, on May 20, 2009, we granted Mr. Bentsur options to purchase 600,000 shares of our common stock, at an exercise price equal to the fair market value of the stock on the date of grant. The options will vest in equal annual installments over a four-year period or upon an earlier change in control of Keryx. The options were granted as an inducement award and were not issued under our 2007 Incentive Plan.

On June 16, 2009, Ron Bentsur was appointed to our Board of Directors by a unanimous vote of our directors, and Michael P. Tarnok was appointed Chairman of the Board by unanimous vote of our directors. Mr. Tarnok has served on our Board of Directors since September 2007.

On June 17, 2009, we issued a press release announcing that we had received a letter from The NASDAQ Stock Market confirming that we had regained compliance with the minimum bid price requirement for continued listing on The NASDAQ Capital Market under Listing Rule 5550(a)(2). We also received a letter from the NASDAQ Listing Qualifications Hearings Panel (the "Panel") confirming that we had demonstrated a market value of listed securities over the required minimum of $35 million for 10 consecutive trading days, for continued listing on The NASDAQ Capital Market under Listing Rule 5550(b)(2), and that the Panel has determined to continue the listing of our securities on The NASDAQ Stock Market.

On August 4, 2009, we announced that we and Alfa Wassermann S.p.A. settled a dispute over issues arising from the terminated license agreement for Sulonex (sulodexide). Under the terms of the settlement agreement, Alfa Wassermann will pay Keryx US$3,500,000 (of which US$2,750,000 was received on July 31, 2009, and US$750,000 will be paid to Keryx on or before July 30, 2010), and we are required to deliver to Alfa Wassermann all of our data, information and other intellectual property related to Sulonex.

Our major sources of working capital have been proceeds from various private placements of equity securities, option and warrant exercises, public offerings of our common stock, interest income, and, beginning in 2007, from the upfront and milestone payments from our Sublicense Agreement with JT and Torii and miscellaneous payments from our other prior licensing activities. We have devoted substantially all of our efforts to the identification, in-licensing, development and partnering of drug candidates. We have incurred negative cash flow from operations each year since our inception. We anticipate incurring negative cash flows from operating activities for the foreseeable future. We have spent, and expect to continue to spend, substantial amounts in connection with implementing our business strategy, including our product development efforts, our clinical trials, partnership and licensing activities.

Our license revenues currently consist of license fees and milestone payments arising from our agreement with JT and Torii. We recognize upfront license fee revenues ratably over the estimated period which we will have certain significant ongoing responsibilities under the sublicense agreement, with unamortized amounts recorded as deferred revenue. We recognize milestone payments as revenue upon the achievement of specified milestones only if (1) the milestone payment is non-refundable, (2) substantive effort is involved in achieving the milestone, (3) the amount of the milestone is reasonable in relation to the effort expended or the risk associated with achievement of the milestone, and (4) the milestone is at risk for both parties. If any of these conditions are not met, we defer the milestone payment and recognize it as revenue over the estimated period of performance under the contract as we complete our performance obligations.

Our service revenues consist entirely of clinical trial management and site recruitment services. Revenues from providing these services are recognized as the services are provided. Deferred revenue is recorded when we receive a deposit or prepayment for services to be performed at a later date.

Our other revenues consist of fees and payments arising from technology transfer, termination and settlement agreements related to our prior license agreements.

We have not earned any revenues from the commercial sale of any of our drug candidates.

Our research and development expenses consist primarily of salaries and related personnel costs, fees paid to consultants and outside service providers for clinical and laboratory development, facilities-related and other expenses relating to the design, development, manufacture, testing, and enhancement of our drug candidates and technologies, as well as expenses related to in-licensing of new product candidates. We expense our research and development costs as they are incurred.

Our general and administrative expenses consist primarily of salaries and related expenses for executive, finance and other administrative personnel, recruitment expenses, professional fees and other corporate expenses, including investor relations, legal activities and facilities-related expenses.

Our results of operations include non-cash compensation expense as a result of the grants of stock options, restricted stock and warrants. Compensation expense for awards of options and restricted stock granted to employees and directors represents the fair value of the award recorded over the respective vesting periods of the individual awards. The expense is included in the respective categories of expense in the consolidated statements of operations. We expect to continue to incur significant non-cash compensation as a result of Statement of Financial Accounting Standards ("SFAS") No. 123R, "Share-Based Payment" ("SFAS No. 123R"), which we adopted on January 1, 2006.

For awards of options and warrants to consultants and other third-parties, compensation expense is determined at the "measurement date," in accordance with the fair value method prescribed by the provisions of Emerging Issues Task Force ("EITF") Issue No. 96-18, "Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling Goods or Services" ("EITF 96-18"). The expense is recognized over the vesting period of the award. Until the measurement date is reached, the total amount of compensation expense remains uncertain. We record compensation expense based on the fair value of the award at the reporting date. The awards to consultants and other third-parties are then revalued, or the total compensation is recalculated based on the then current fair value, at each subsequent reporting date.

In addition, certain options and restricted stock issued to employees, consultants and other third-parties vest upon the achievement of certain milestones, therefore the total expense is uncertain until the milestone is met.

Our ongoing clinical trials will be lengthy and expensive. Even if these trials show that our drug candidates are effective in treating certain indications, there is no guarantee that we will be able to record commercial sales of any of our drug candidates in the near future. In addition, we expect losses to continue as we continue to fund in-licensing and development of new drug candidates. As we continue our development efforts, we may enter into additional third-party collaborative agreements and may incur additional expenses, such as licensing fees and milestone payments. In addition, we may need to establish the commercial infrastructure required to manufacture, market and sell our drug candidates following approval, if any, by the FDA, which would result in us incurring additional expenses. As a result, our quarterly results may fluctuate and a quarter-by-quarter comparison of our operating results may not be a meaningful indication of our future performance.

RESULTS OF OPERATIONS

Three months ended June 30, 2009 and June 30, 2008

License Revenue. License revenue increased by $17,962,000 to $18,289,000 for the three months ended June 30, 2009, as compared to $327,000 for the three months ended June 30, 2008. The increase in license revenue during the three months ended June 30, 2009, was due to the recognition of deferred revenue related to the JT and Torii sublicense agreement originally signed in September 2007, and amended and restated on June 8, 2009. The Amended and Restated Sublicense Agreement, among other things, provided for the elimination of all significant on-going obligations under the sublicense agreement. Accordingly, all remaining deferred revenue pertaining to this sublicense has been recognized in the three months ended June 30, 2009.

Service Revenue. There was no service revenue in the three months ended June 30, 2009, as compared to service revenue of $62,000 for the three months ended June 30, 2008. We do not expect our service revenue to have a material impact on our financial results during the remainder of 2009.

Other Revenue. Other revenue for the three months ended June 30, 2009 was $75,000, and was related to a payment earned in June 2009 from a December 2008 license termination agreement for KRX-0501. Payments associated with this license termination agreement are recognized as earned since we have no on-going responsibilities under the terminated license agreement or the termination agreement. There was no other revenue for the three months ended June 30, 2008. We do not expect our other revenue to have a material impact on our financial results during the remainder of 2009.

Non-Cash Compensation Expense (Research and Development). Non-cash compensation expense (research and development) related to equity incentive grants increased by $110,000 to $361,000 for the three months ended June 30, 2009, as compared to $251,000 for the three months ended June 30, 2008. The increase in non-cash compensation expense in the three months ended June 30, 2009, as compared to June 30, 2008, was primarily related to reduced expense in the three months ended June 30, 2008 due to forfeitures of equity awards by terminated research and development personnel associated with the 2008 restructuring.

Other Research and Development Expenses. Other research and development expenses decreased by $2,786,000 to $1,456,000 for the three months ended June 30, 2009, as compared to $4,242,000 for the three months ended June 30, 2008. The decrease in other research and development expenses was due primarily to a $1,756,000 reduction in research and development expenses related to KRX-0401, primarily due to reductions in headcount and other expenses related to this development program, and a $996,000 reduction in research and development expenses related to the cessation of the development of Sulonex in March 2008. We expect our . . .