UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2007

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 Number 000-51169

ASPREVA PHARMACEUTICALS CORPORATION

(Exact name of registrant as specified in its charter)


British Columbia, Canada (State or other jurisdiction of incorporation or organization)	98-0435540 (I.R.S. Employer Identification No.)

1203 - 4464 Markham Street,

Victoria, British Columbia,

Canada V8Z 7X8

(Address of principal executive office)

(250) 744-2488

(Registrant’s telephone number, including area code)

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

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

Large Accelerated Filer x

Accelerated Filer o

Non-accelerated Filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes o No x

As of April 25, 2007, the registrant had 35,179,448 common shares outstanding.

ASPREVA PHARMACEUTICALS CORPORATION

FORM 10-Q

For the Quarterly Period Ended March 31, 2007

TABLE OF CONTENTS

	Page

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets - March 31, 2007 and December 31, 2006	3
Consolidated Statements of Income - Three month periods ended March 31, 2007 and 2006	4
Consolidated Statements of Cash Flows - Three month periods ended March 31, 2007 and 2006	5
Notes to Consolidated Financial Statements	6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
Item 3. Quantitative and Qualitative Disclosures About Market Risk	20
Item 4. Controls and Procedures	21

PART II - OTHER INFORMATION

Item 1. Legal Proceedings	22
Item 1A. Risk Factors	22
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	31
Item 3. Defaults Upon Senior Securities	31
Item 4. Submission of Matters to a Vote of Security Holders	31
Item 5. Other Information	32
Item 6. Exhibits	33
SIGNATURE	34

PART I - FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

ASPREVA PHARMACEUTICALS CORPORATION

CONSOLIDATED BALANCE SHEETS

(in thousands of U.S. dollars)

(unaudited)

	March 31, 2007			December 31, 2006
ASSETS
Current
Cash and cash equivalents	$	17,610		$	49,217
Restricted cash		742			731
Marketable securities (Note 3)		259,602			210,678
Accounts receivable		65,228			57,426
Prepaid expenses		883			394
Deferred income tax asset		2,175			2,142
Foreign currency contracts (Note 8)		95			298

Total current assets		346,335			320,886

Property and equipment, net		6,180			4,736
Deferred income tax asset		1,493			1,435

TOTAL ASSETS	$	354,008		$	327,057

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current
Accounts payable	$	10,110		$	14,279
Income taxes payable		4,016			11,769
Accrued liabilities		7,431			8,604
Foreign currency contracts (Note 8)		2,078			1,695
Unearned royalty advance		6,597			6,559
Current portion under capital leases		251			329
Current portion of deferred lease inducement		147			130
Deferred income tax liability		814			742

Total current liabilities		31,444			44,107

Long-term portion under capital leases		68			91
Long-term portion of deferred lease inducement		355			391
Deferred income tax liability		834			830

Total liabilities		32,701			45,419

Commitments and contingencies (Notes 7 and 12)

Shareholders’ equity (Note 6)
Common shares
Authorized: unlimited
Issued and outstanding		151,044			150,815
March 31, 2007 - 35,172,657
December 31, 2006 - 35,159,619
Additional paid-in capital		15,749			13,049
Retained earnings		155,039			118,625
Accumulated other comprehensive loss		(525	)		(851	)

Total shareholders’ equity		321,307			281,638

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	354,008		$	327,057

See accompanying notes to consolidated financial statements.

ASPREVA PHARMACEUTICALS CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(in thousands of U.S. dollars, except per share amounts)

(unaudited)

	Three Months Ended March 31,
	2007			2006
Royalty revenue (Note 2)	$	59,273		$	62,680

Expenses
Research and development		12,270			9,814
Marketing, general and administrative		9,802			6,111

		22,072			15,925

Operating income		37,201			46,755

Other income (expense)
Foreign exchange gain (loss)		(14	)		866
Interest and other income		3,322			1,420

Total other income		3,308			2,286

Income before income taxes		40,509			49,041

Income tax expense (Note 9)		4,095			4,289

Net income	$	36,414		$	44,752

Net income per common share (Note 5)
Basic	$	1.04		$	1.30
Diluted	$	1.03		$	1.25

See accompanying notes to consolidated financial statements.

ASPREVA PHARMACEUTICALS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands of U.S. dollars)

(unaudited)

	Three Months Ended March 31,
	2007			2006
Operating Activities
Net income for the period	$	36,414		$	44,752
Adjustment to reconcile net income to cash provided by operating activities:
Depreciation and amortization		215			122
Deferred taxes		(52	)		917
Stock-based compensation		2,849			973

Net change in non-cash working capital items related to operations:
Accounts receivable		(5,338	)		(19,116	)
Prepaid expenses		(489	)		(833	)
Restricted cash		(11	)		(2	)
Accounts payable		(4,132	)		2,157
Income taxes payable		(7,753	)		2,840
Accrued liabilities		(1,174	)		(1,541	)

Net cash flows from operating activities		20,529			30,269

Investing Activities
Purchases of marketable securities		(86,609	)		(55,615	)
Redemptions of marketable securities		36,169			53,955
Purchase of property and equipment		(1,677	)		(54	)

Net cash flows used in investing activities		(52,117	)		(1,714	)

Financing Activities
Issuance of common shares		80			1,405
Payments on capital lease obligations		(99	)		(109	)

Net cash flows (used in) from financing activities		(19	)		1,296

Net (decrease) increase in cash and cash equivalents		(31,607	)		29,851

Cash and cash equivalents, beginning of the period		49,217			14,759

Cash and cash equivalents, end of the period	$	17,610		$	44,610

See Note 10 for supplemental cash flow information

See accompanying notes to consolidated financial statements.

ASPREVA PHARMACEUTICALS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(all tabular amounts in thousands of U.S. dollars other than share or per share data or unless otherwise stated)

March 31, 2007

1.	Nature of Business and Basis of Presentation

Unless the context otherwise required, all references to “Aspreva”, “we”, “our” and “us” refer to Aspreva Pharmaceuticals Corporation and its subsidiaries.

We were incorporated on December 20, 2001 under the Canada Business Corporation Act and continued under the Business Corporations Act (British Columbia) on November 19, 2004. Our principal business is to identify, develop and commercialize new indications for approved drugs and drug candidates for patients living with less common diseases.

We have prepared these consolidated financial statements in accordance with U.S. generally accepted accounting principles for interim financial statements and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, the financial statements do not include all of the information and footnotes required by U.S. generally accepted accounting principles for annual financial statements. The financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2006 filed with the United States Securities and Exchange Commission on February 26, 2007.

In the opinion of management, these consolidated financial statements include all normal and recurring adjustments considered necessary to present fairly our financial position, results of operations and cash flows. The results for the three months ended March 31, 2007 are not necessarily indicative of the operating results for the full year or for any other interim period subsequent to March 31, 2007.

2.	Significant Accounting Policies

Our significant accounting policies are the same as described in Note 2 to our Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2006 filed with the United States Securities and Exchange Commission on February 26, 2007, except for the adoption of Financial Accounting Standards Board, or FASB, Interpretation No. 48, Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109, or FIN 48. The following is a summary of the significant accounting policies used in the preparation of these financial statements.

Income Taxes

Effective January 1, 2007, Aspreva adopted FIN 48. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for 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 derecognizing, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. The implementation of FIN 48 did not have a material impact on Aspreva’s consolidated financial statements. As of January 1, 2007 and March 31, 2007 we did not recognize any assets or liabilities for unrecognized tax benefits relative to uncertain tax positions.

Revenue Recognition

In accordance with the terms of our agreement with Hoffmann - La Roche Inc. and F. Hoffmann - La Roche Ltd, collectively Roche, we earn a royalty based on an equal sharing of incremental net sales of CellCept in non-transplant indications above a negotiated baseline less a distribution fee, payable on a quarterly basis. This baseline is subject to an annual price index adjustment. Roche and Aspreva set the baseline for 2007 at CHF 131.3 million. Royalty revenue is recognized net of value added tax in accordance with the provisions of the Securities and Exchange Commission’s Staff Accounting Bulletin No. 104, (SAB 104), Revenue Recognition, which sets forth criteria that must be met in order to recognize revenue: (i) there is persuasive evidence that an arrangement exists; (ii) delivery of the products and/or services has occurred; (iii) the selling price is fixed or determinable; and (iv) collectibility is reasonably assured.

Roche and Aspreva have developed a proprietary sales tracking methodology to audit net sales of CellCept and to determine the portion attributable to sales from use in non-transplant indications. The results of this audit lag actual net sales by approximately six months. Roche and Aspreva use actual total CellCept sales results and estimates of the quarterly split between net sales attributed to transplant and non-transplant indications to calculate the royalty payment payable to us at the end of each quarter. We record a portion of this royalty payment as revenue within quarterly financial results, with the balance recorded as unearned royalty advance and subject to a subsequent reconciliation.

This reconciliation process is undertaken quarterly, based on the most recent available audit information, and limits reconciliation payments to either Roche or Aspreva to a maximum amount of 4.0 million Swiss Francs, or CHF, per quarter. Thus, at any period end we carry a maximum of CHF 4.0 million for each quarter that has not been reconciled, classified as unearned royalty advance on the balance sheet. As at March 31, 2007, there was CHF 8.0 million ($6.6 million) recorded in unearned royalties as the royalties for the fourth quarter of 2006 and first quarter of 2007 have not been reconciled.

3.	Marketable Securities

Available for sale debt securities

	Cost		Accrued interest		Gross unrealized gains		Gross unrealized losses			Approximate market and carrying value
March 31, 2007	$	256,688	$	2,468	$	599	$	(153	)	$	259,602
December 31, 2006	$	208,762	$	1,820	$	153	$	(57	)	$	210,678

4.	Stock-Based Compensation

We measure stock-based awards using the Black-Scholes option pricing model and amortize the fair value of granted stock options to the consolidated statement of operations over the vesting period of the options on an accelerated basis. We estimate the fair value of options using the following assumptions:

	Three Months Ended March 31,
	2007		2006
Expected stock price volatility		70%		70%
Average risk-free interest rate		4.0%		4.0%
Expected option life in years		5.0		5.0
Dividend yield		0%		0%
Forfeiture rate		5%		3%

Included within the statements of income are the following charges for stock-based compensation:

	Three Months Ended March 31,
	2007		2006
Research and development expense	$	900	$	341
Marketing, general and administrative expense		1,949		632
Total stock-based compensation	$	2,849	$	973

Stock option transactions for the three month period ended March 31, 2007, and the number of stock options outstanding as of March 31, 2007, are summarized below:

	Number of			Weighted
	Optioned			Average
	Common			Exercise
	Shares			Price
Exercisable in Canadian dollars
Outstanding at December 31, 2006		2,011,371		$	17.92
Options granted		694,100			23.35
Options forfeited		(38,258	)		14.47
Options exercised		(13,038	)		5.52
Outstanding at March 31, 2007		2,654,175		$	19.45
Exercisable at March 31, 2007		805,206		$	13.91

The stock options expire at various dates from September 2013 to February 2017. As of March 31, 2007, a total of 445,727 common shares are available for future grant under the Aspreva 2002 Incentive Stock Option Plan. The stock options typically have a ten year contractual life and vest ratably over a period of one to four years from the date of grant.

5.	Net Income per Common Share

We calculate net income per common share in accordance with SFAS No. 128, Earnings per Share, which requires the presentation of basic and diluted net income per common share using the treasury stock method.

The denominators for basic and diluted net income per common share for the three month periods ended March 31, 2007 and 2006 were calculated as follows:

	Three Months Ended March 31,
	2007		2006
Weighted average shares outstanding used for basic net income per common share		35,165,100		34,375,761
Effect of dilutive stock options		241,038		1,186,127
Effect of dilutive warrants		-		128,255
Weighted average shares outstanding used for diluted net income per common share		35,406,138		35,690,143

Due to their anti-dilutive nature, the following potentially issuable shares were omitted from the calculation of diluted net income per common share for these periods:

	As of March 31,
	2007		2006
Stock options		826,082		551,724

6.	Shareholders’ Equity

Statement of Shareholders’ Equity

The following table summarizes the activity in our shareholders’ equity from December 31, 2006 to March 31, 2007:


	Number of Shares		Common Shares		Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings		Total Shareholders’ Equity
Balance, as of December 31, 2006		35,159,619	$	150,815	$	13,049		$	(851	)	$	118,625	$	281,638
Shares issued on:
Exercise of options		13,038		229		(149	)		-			-		80
Stock-based compensation expense		-		-		2,849			-			-		2,849
Unrealized gain on derivative financial instruments, net of tax		-		-		-			159			-		159
Reclassification of unrealized gain on derivative financial instruments, net of tax		-		-		-			(147	)		-		(147	)
Unrealized gain on marketable securities, net of tax		-		-		-			314			-		314
Net income for the period		-		-		-			-			36,414		36,414
Balance, as of March 31, 2007		35,172,657	$	151,044	$	15,749		$	(525	)	$	155,039	$	321,307

Comprehensive Income

Comprehensive income for the three month periods ended March 31, 2007 and 2006 was $36.7 million and $45.0 million, respectively.

7.	Contractual Obligations and Commitments

We have agreements with clinical sites and contract research organizations for the conduct of our clinical trials. We make payments to these sites and organizations based upon the number of patients enrolled and the period of follow-up in the trials. At March 31, 2007, we have commitments to these groups amounting to $29.6 million over the next three years.

Occasionally, we enter into agreements with third parties in the ordinary course of business that include indemnification provisions that are customary in the industry. Those indemnifications generally require us to compensate the other party for certain damages and costs incurred as a result of third party claims or damages arising from these transactions. These indemnification provisions may survive termination of the underlying agreement. The nature of the indemnification obligation prevents us from making a reasonable estimate of the maximum potential amount we could be required to pay. Historically, we have not made any indemnification payments under such agreements and no amount has been accrued in the accompanying consolidated financial statements with respect to these indemnification obligations.

8.	Derivative Financial Instruments

We use derivative financial instruments to hedge foreign currency exposures in the business. Our royalty payments are received from Roche in Swiss francs, or CHF, on a quarterly basis 45 days after each quarter end. Sales of CellCept are denominated in multi-currencies and are converted to CHF by Roche for the purpose of calculating amounts to be paid to us. To the extent the Swiss franc increases in value relative to these other currencies, the total aggregate CHF value of CellCept sales decreases and the amount that we are entitled to may be reduced. To mitigate this risk, at the beginning of each quarter, we enter into noon average rate contracts, or NARCs, to sell U.S. dollars and Euros and buy CHF. The NARCs are designed to hedge our direct exposures of forecasted transactions and pursuant to SFAS No. 133 Accounting for Derivative Instruments and Hedging Activities qualify as cash flow hedges. Forward contracts to sell CHF are entered into with settlement dates that coincide with the date we receive our royalty payments from Roche. The forward contracts entered into are based on forecasts and as such they are initially designated as cash flow hedges. For the period from the quarter end to the settlement date, the hedges are re-designated and are treated as fair value hedges. Any change in value between quarter end and settlement date is recorded in other income or expense as a foreign exchange gain or loss.

As a result of our global operations with offices in Canada and Europe we incur significant amount of our research and development and general and administrative expenditures in Canadian dollars, euros and pounds sterling. In order to hedge against the impact of fluctuations in the value of the Canadian dollar, euro and pounds sterling relative to the U.S. dollar, we enter into short-term forward contracts to purchase both Canadian dollars, euros and pounds sterling. Forward hedges relating to forecasted expenditures are cash flow hedges.

The following is a summary of the derivative instruments in place at March 31, 2007:

Hedge designation	Type of hedge	Currency Exchanged	Settlement dates	Total Notional Amount	Average Settlement Amount
Cash Flow	Forward Contract	Sell USD buy CAD	April 2007 - March 2008	9,763USD	0.8796
Cash Flow	Forward Contract	Sell USD buy GBP	April 2007 - March 2008	5,325 USD	1.8896
Cash Flow	Forward Contract	Sell CHF buy GBP	May 2007 - November 2007	1,927 CHF	2.3064
Cash Flow	Forward Contract	Sell CHF buy CAD	May 2007 - November 2007	2,803 CHF	1.0618
Cash Flow	Forward Contract	Sell USD buy Euro	April 2007 - December 2007	1,321 USD	1.3060
Cash Flow	Forward Contract	Sell CHF buy Euro	May 2007 - November 2007	347 CHF	1.6027
Fair Value - dual purpose	Forward Contract	Sell CHF buy USD	May 2007	58,016 CHF	1.2185
Cash Flow - dual purpose	Forward Contract	Sell CHF buy USD	August 2007 - February 2008	164,363 CHF	1.2057
Cash Flow	NARC	Sell USD buy CHF	May 2007 - August 2007	57,334 USD	0.8299
Cash Flow	NARC	Sell Euro buy CHF	May 2007 - August 2007	12,370 Euro	0.6231

The fair value of the derivative financial instruments is the estimated amount that we would receive (or pay) to terminate a contract at the reporting date. At March 31, 2007, the fair value of our forward contracts and NARCs totaled ($1.3) million and $(731,000) respectively. Cash flow hedges amounting to ($981,000) were recorded in Other Comprehensive Income; and ($1.0) million of fair value and cash flow hedges were recorded in revenue.

We do not use derivative financial instruments for speculative or trading purposes, nor do we hold or issue leveraged derivative financial instruments. All activity is governed by a board approved hedging policy and is monitored for compliance on an ongoing basis.

9.	Income Taxes

The provision for income taxes was $4.1 million for the three months ended March 31, 2007, resulting in an effective global tax rate of 10.1% for the period. The difference between the effective tax rate and the statutory Canadian federal income tax rate of 34.1% relates to differing foreign tax rates, changes in our future income tax valuation allowance and utilization of tax pools. We believe the overall effective global tax rate for the full year will be less than 15%.

Effective January 1, 2007 we adopted FIN 48. The total amount of unrecognized tax benefits as of the date of adoptions was $2.6 million, and, if recognized, the full amount would impact the effective tax rate. As at March 31, 2007, the total amount of unrecognized tax benefits is $2.8 million. We expect the unrecognized tax benefit will decrease by $614,000 within the next twelve months as we expect profitability in jurisdictions in which we have recognized valuation allowances on the respective net operating losses.

Our accounting policy is to treat interest and penalties relating to unrecognized tax benefits as a component of income taxes.

Aspreva is subject to taxes in Switzerland, Canada, the United Kingdom and the United States. The tax years which remain subject to examination by major jurisdictions as of March 31, 2007 include 2003 to present. The Canadian tax authorities commenced an audit in the fourth quarter of 2006 on our Scientific Experimental and Research Development claim for 2004. We do not believe there will be any material impact on Aspreva’s financial position or results of operations as a consequence of this audit. In addition, the Canadian tax authorities have informed us that they will commence an audit of Canadian tax returns for the years of 2003 to 2005, during the second quarter of 2007.

10.

Supplemental Cash Flow

Supplemental cash flow information is as follows:

	Three Months Ended March 31,
	2007		2006
Income taxes paid	$	11,995	$	219
Interest paid		6		12

11.

Related Party Transactions

We retain Farris, Vaughan, Wills & Murphy LLP, a law firm where R. Hector MacKay-Dunn, Q.C., is a senior partner. Mr. MacKay-Dunn is a member of our board of directors and acts as our Corporate Secretary. In the three months ended March 31, 2007 and 2006, we incurred legal fees payable to Farris, Vaughan, Wills & Murphy LLP, of $115,000 and $143,000, respectively, of which $78,000 has been paid as of March 31, 2007. In 2007 and 2006, these fees relate primarily to general corporate legal advice.

12.

Contingencies

From time to time, we may be involved in litigation relating to claims arising out of our operations. We are not currently involved in any material legal proceedings.

13.

Comparative Figures

Certain of the comparative figures have been reclassified to conform to the presentation adopted in the current period.

14.

Recent Accounting Pronouncements

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements, or SFAS 157. SFAS 157 establishes a framework for measuring fair value and expands disclosures about fair value measurements. The changes to current practice resulting from the application of this statement relate to the definition of fair value, the methods used to measure fair value, and the expanded disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007. Earlier adoption is permitted, provided the company has not yet issued financial statements, including for interim periods, for that fiscal year. We do not expect the adoption of this standard to have a material impact on our consolidated financial statements.

Item 2.

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

You should read the following discussion and analysis by our management of our financial condition and results of operations in conjunction with our audited consolidated financial statements and related notes thereto included as part of our Annual Report on Form 10-K for the year ended December 31, 2006 and our unaudited consolidated financial statements for the three month period ended March 31, 2007. Our consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles and are presented in U.S. dollars.

Forward-Looking Statements

The information in this discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and/or forward-looking information under applicable Canadian provincial securities laws (collectively, “forward-looking statements”), which are subject to the “safe harbor” created by those sections. The words “anticipates”, “believes”, “estimates”, “expects”, “intends”, “may”, “plans”, “projects”, “will”, “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. The forward-looking statements in this discussion include, but are not limited to, statements concerning:

	•	our strategy;
	•	our future operations;
	•	our future financial position;
	•	our future revenues;
	•	our projected costs;
	•	prospects, plans and objectives of our management;
	•	our expectations regarding our relationship with Hoffmann - La Roche Inc. and F. Hoffmann - La Roche Ltd, or collectively Roche;
	•	our expectations regarding the development of CellCept for certain autoimmune indications; and
	•	our expectations with respect to our clinical trials of CellCept.

With respect to the forward-looking statements contained in this discussion, we have made numerous assumptions regarding, among other things:

	•	our ability to complete our clinical trials of CellCept;
	•	our ability to file a supplemental new drug application, or sNDA, with the U.S. Food and Drug Administration, or FDA, as well as other applicable filings with the European Union and Canadian regulatory authorities;
	•	our ability to protect our intellectual property rights and to not infringe on the intellectual property rights of others;
	•	our ability to comply with applicable governmental regulations and standards;
	•	our ability to succeed at establishing a successful commercialization program for CellCept in any indication for which it may be approved; and
	•	other assumptions set forth in Part II, Item 1A “Risk Factors” in this Quarterly Report on Form 10-Q.

We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements or the underlying assumptions thereto, and you should not place undue reliance on our forward-looking statements. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from the plans, intentions and expectations disclosed in the forward-looking statements and underlying assumptions, including, without limitation, those set forth in Part II, Item 1A “Risk Factors” in this Quarterly Report on Form 10-Q. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make. We do not assume any obligation to update any forward-looking statements, other than as required by applicable law.

Overview

Aspreva is a global pharmaceutical company focused on identifying, developing, and, upon approval, commercializing evidence-based medicines for patients living with less common diseases.

Our objective is to successfully complete our current clinical programs while seeking growth opportunities that will allow us to leverage the clinical, medical affairs and commercial infrastructure that we have established. Potential opportunities for growth include the acquisition or licensing of products in various stages of clinical or commercial development from pharmaceutical or biotechnology companies.

Collaborative Agreements

Our initial focus in autoimmune diseases led us to identify the potential efficacy of the drug CellCept, (mycophenolate mofetil, or MMF) in the treatment of autoimmune diseases. In July 2003, we entered into our first collaboration with Roche for exclusive world-wide rights, excluding Japan, to develop and, upon regulatory approval, commercialize CellCept, for all autoimmune indications. CellCept is an immunosuppressant or “anti-rejection” drug currently approved by the FDA for use in the prevention of rejection in patients receiving heart, kidney and liver transplants. It is important to note that CellCept is not currently approved by the FDA for use in autoimmune indications.

Under the terms of our collaboration agreement with Roche, we agreed to conduct three clinical programs for the indications lupus nephritis, pemphigus vulgaris and myasthenia gravis. In 2006, we discontinued our myasthenia gravis development program. We are responsible for assembling the necessary materials from these programs for any filings made and Roche are responsible for submitting the applications to the relevant regulatory authorities. Roche will be the holder of any regulatory submissions and any resulting approvals.

Pursuant to our collaboration agreement with Roche we are entitled to a royalty based on an equal sharing of incremental net sales of CellCept in non-transplant indications above a negotiated baseline less a distribution fee, payable on a quarterly basis. This baseline is subject to an annual price index adjustment and accordingly, Roche and Aspreva set that the baseline for 2007 at Swiss Francs (CHF) 131.3 million.

We use a proprietary methodology for tracking sales of CellCept. This enables Roche and Aspreva to determine the portion of Roche’s net sales attributable to the use of CellCept in non-transplant indications. We and Roche have agreed that autoimmune sales are considered the equivalent of non-transplant sales for the purposes of our agreement. We have the right to audit Roche’s calculations of the net sales of CellCept attributable to non-transplant sales, including all data used in the sales tracking methodology, on an annual basis. We also rely on third party data providers, such as International Medical Statistics, or IMS, and the United Network for Organ Sharing to supplement our information regarding the sales tracking of CellCept in transplant and autoimmune diseases and to validate our market assumptions underlying our agreed upon tracking methodology.

If we and Roche receive regulatory approval for the use of CellCept in the treatment of any autoimmune indications, we will be obligated to commercialize CellCept for such indications pursuant to a jointly agreed commercialization plan with Roche. Following regulatory approval, we plan to field a small targeted sales force to conduct promotional detailing presentations to targeted physicians in the United States and in the major European markets, and to develop targeted marketing and advertising strategies and materials. We are reviewing various options regarding sales force deployment, including size, and will make a final decision of the most appropriate deployment based on a full analysis and agreement with our partners. We also plan to focus on medical education activities. Roche will conduct all manufacturing and distribution of CellCept. Roche will also continue to record all sales and will retain control over the pricing of CellCept.

Our collaboration agreement with Roche currently excludes Japan as a licensed territory and thus excludes that region from our revenue sharing arrangement. In April 2006, Aspreva entered into a non-binding collaboration agreement with Chugai Pharmaceuticals Co., Ltd., for the development of CellCept in Japan for certain autoimmune indications. If Chugai, with agreement from the Japanese regulatory authorities, determines to move forward with its proposed trial in 2007, we will complete the details of our agreement and provide an update at that time.

Clinical Development Program

We currently have two clinical development programs underway to evaluate CellCept in the treatment of the autoimmune diseases: lupus nephritis and pemphigus vulgaris. In October 2006, we completed a third development program for the treatment of myasthenia gravis. Based on the preliminary results of our myasthenia gravis trial, we do not intend to continue any further development of CellCept in the treatment of myasthenia gravis.

Our clinical programs have been designed, in accordance with our discussions with the FDA, to utilize portions of existing clinical data provided by investigator initiated trials, or IITs. We expect to use the results of an IIT conducted by Dr. Ellen Ginzler of State University of New York, or SUNY Downstate Medical Center in Brooklyn, New York, to support our supplemental new drug application, or sNDA, with the FDA for the use of CellCept in the treatment of lupus nephritis. The results of Dr. Ginzler’s study (as published in the November 24, 2005 issue of the New England Journal of Medicine) are supportive of the potential efficacy and safety of CellCept in the induction phase of lupus nephritis, adding to the existing body of data that supports the potential benefit of CellCept in the treatment of lupus nephritis. It is important to note that CellCept is not currently approved by the FDA for use in any autoimmune indications.

Although the results of Dr. Ginzler’s study are encouraging, a separate prospective, adequate and well-controlled study such as our international phase III lupus nephritis study is necessary to provide substantive evidence of the potential safety and efficacy of CellCept in patients with lupus nephritis.

Lupus Nephritis

Systemic lupus erythematosus, commonly referred to as lupus, is a complex autoimmune disease affecting numerous organs and tissues. The immune system, which typically fights off viruses and bacteria, loses the ability to differentiate between foreign substances, or antigens, and its own cells and tissues. The involvement of the kidney, known as lupus nephritis, is considered to be the most serious manifestation of lupus. From our analysis of various sources of data, we also estimate that there are about 600,000 diagnosed lupus nephritis patients worldwide.

The Lupus Foundation of America estimates that between 500,000 and 1.5 million Americans have lupus. This wide range demonstrates the challenge that exists when trying to determine the true prevalence of less common diseases such as lupus. Our analysis shows that there are currently about 600,000 patients being treated for lupus in the U.S. health care system. Since clinicians estimate that one third to one half of all lupus patients have lupus nephritis, it is projected that this disease affects at least 200,000 Americans. Based on data from third-party data providers such as IMS Health, we estimate that approximately 13.5% of lupus nephritis patients in the U.S. are being treated with CellCept. Neither we nor Roche market CellCept for the treatment of any autoimmune disease and the FDA has not approved the use of CellCept for the treatment of any autoimmune disease.

Clinical and Regulatory Progress

In July 2005, we initiated enrollment of patients with biopsy-proven lupus nephritis into our two phase, international phase III trial comparing CellCept to the current standard of care for inducing treatment response and maintaining remission in patients suffering from lupus nephritis.

The open-label induction phase was designed as a 24-week study comparing CellCept to cyclophosphamide, the current standard of care for inducing treatment response in patients with lupus nephritis. In September 2006, we announced the completion of patient enrollment into this phase of the study, reaching total enrolment of 371 patients. The last patient received their final dose in the induction phase

of this trial in March 2007 and we plan to achieve data lock in the second quarter of 2007. We expect, if the data is supportive, to file regulatory submissions, including an sNDA with the FDA, as well as appropriate filings with the European Union and Canadian regulatory authorities, in the fourth quarter of 2007.

Patients who successfully completed the induction phase of our lupus nephritis study, and who were eligible, have been re-randomized into the maintenance phase, a blinded study comparing CellCept to azathioprine in maintaining remission and renal function in subjects with lupus nephritis. Patients will remain in this study until they have a relapse of disease, need a treatment that the protocol does not allow, or withdraw for any other reason. The study will continue until a predetermined number of patients have left the study or for a maximum of 36 months.

Pemphigus Vulgaris

Pemphigus vulgaris is a rare dermatological autoimmune disease that, according to the International Pemphigus Foundation, affects approximately 40,000 people worldwide. Symptoms include painful and life-threatening blistering of the skin and mucous membranes which can cover much of the body.

Clinical and Regulatory Progress

In March 2006, we completed enrollment of 77 patients in our international phase III trial of CellCept in the treatment of pemphigus vulgaris. In this trial, CellCept is compared to placebo with both groups receiving corticosteroids as background therapy. The trial is a randomized, double-blind, placebo controlled comparison study of CellCept and placebo and is designed to investigate the efficacy and safety of CellCept for patients with pemphigus vulgaris over a treatment period of 52 weeks. The primary end points encompass both minimal disease activity, defined as no new persistent lesions, together with a low steroid dose.

In June 2006, we received orphan drug designation with the FDA for CellCept in the treatment of pemphigus vulgaris. In the third quarter of 2006, based on discussions with the FDA, we amended the protocol to increase the statistical power of the study by 15 patients. As a result, we re-opened enrollment with a revised target of 92 patients. We now expect to complete the trial during 2008 and our goal is to file an sNDA with the FDA, as well as appropriate filings with the European Union and Canadian regulatory authorities, by the end of 2008.

Myasthenia Gravis

Myasthenia gravis is a debilitating, chronic autoimmune neuromuscular disease in which the body produces auto antibodies which prevent the nerves from sending messages to the muscles. According to the Myasthenia Gravis Foundation, myasthenia gravis affects approximately 70,000 to 100,000 people worldwide, including approximately 36,000 people in the United States.

2006 Clinical and Regulatory Progress

On October 26, 2006, we announced preliminary results of our analysis of the data from our myasthenia gravis study. While we continue to believe that the study design, sample size, choice of efficacy endpoints, requirements for background therapy and dose of CellCept were sufficient to demonstrate a treatment effect, the study failed to demonstrate a treatment difference between 36 weeks of treatment with CellCept and placebo in patients with mild to moderate myasthenia gravis on background oral corticosteroids and cholinesterase inhibitors. CellCept is well tolerated in this patient population and the safety profile is consistent with what we would expect. There is no evidence that CellCept worsened symptoms of myasthenia gravis and approximately 45% of patients were able to achieve the target endpoint of minimal myasthenia gravis symptoms and low prednisone and cholinesterase inhibitor doses; however, this percentage of patients was no different from the control arm. In fact, the results of our trial are consistent with the results of our preliminary analysis of the 80 patient investigator initiated trial for myasthenia gravis led by Dr. Donald Sanders of Duke University with The Muscle Study Group, a consortium of academic centers. We had intended to use the clinical data from Dr. Sanders’ trial to support our application for the use of CellCept in the treatment of myasthenia gravis; however, because of the results of these two studies, we do not intend to conduct further studies of CellCept in myasthenia gravis.

Preliminary Studies

Based on our analysis of existing clinical trial and scientific data, we believe that CellCept has the potential to be effective in treating other autoimmune diseases. We are supporting the study of some of these diseases such as cardiovascular disease in lupus patients and multiple sclerosis through Investigator Initiated Trials. These trials help to answer key clinical questions regarding CellCept’s potential ability to help these patients and provide scientific evidence to support physicians’ management of patients suffering with these debilitating conditions. In addition, this early stage research provides us with valuable data to help determine if there is a business case for continuing further clinical development.

Commercialization

We intend to design our future commercialization activities to comply with the laws and regulations enforced by applicable regulatory authorities. Our overall commercialization strategy is to target a small subset of specialty physicians who treat a majority of patients with the greatest underserved medical needs.

Prior to regulatory approval of CellCept for any autoimmune indications, we are conducting extensive market research regarding specialty physician prescribing practices and product positioning, and will undertake a market preparation program. We currently are fielding a team of medical liaison specialists and other medical professionals whose primary role is to help us identify knowledge gaps in the treatment of lupus nephritis and in the potential use of CellCept and to assist us in our clinical development planning. We currently have 12 such field based medical advisors deployed in the U.S. and major EU markets.

Although CellCept is currently approved in Malaysia for the treatment of lupus nephritis, we do not currently have an approved drug in any other market.

Critical Accounting Policies and Significant Judgments and Estimates

The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported revenues and expenses during the reporting periods. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Significant accounting policies are more fully described in the notes to our audited consolidated financial statements and notes thereto, included as part of our Annual Report on Form 10-K for the year ended December 31, 2006. However, we believe the following accounting policies relating to revenue recognition, stock-based compensation, clinical trial accounting, provision for income taxes and derivative instruments are the most critical accounting policies for assessing our financial performance.

Revenue Recognition

Pursuant to our agreement with Roche commencing April 1, 2005, we became entitled to a royalty based on an equal sharing of incremental net sales of CellCept in non-transplant indications above a negotiated baseline less a distribution fee, payable on a quarterly basis. This baseline is subject to an annual price index adjustment. Roche and Aspreva reset the baseline for 2007 to CHF 131.3 million, after taking into account the price index adjustment. We follow the provisions of the Securities and Exchange Commission’s Staff Accounting Bulletin No. 104, or SAB 104, Revenue Recognition, which sets forth criteria that must be met in order to recognize revenue: (i) there is persuasive evidence that an arrangement exists; (ii) delivery of the products and/or services has occurred; (iii) the selling price is fixed or determinable; and (iv) collectibility is reasonably assured.

Once the six month lag period has passed, and audited results can be obtained, Aspreva and Roche employ a mechanism to reconcile audited amounts against the royalty previously paid to us. This reconciliation process is undertaken quarterly, based on the most recent available audit information. This reconciliation mechanism, however, will limit reconciliation payments to either Roche or Aspreva to a maximum amount of CHF 4.0 million per quarter. If the results of the reconciliation indicate that the CHF 4.0 million collar has been exceeded in favor of the same party for two consecutive quarters, we and Roche have agreed upon a mechanism to review the sales tracking methodology and/or our methodology for estimating royalty payments and introduce appropriate changes. The terms of this collar may be changed prospectively at any time by the joint committee formed under our agreement with Roche, on which we have equal representation.

We record all but CHF 4.0 million of the royalty payment as revenue within quarterly financial results. In subsequent quarters, consistent with the timing of the reconciliation described above, the remaining CHF 4.0 million of the royalty payment, as well as any additional payments to us or from us to Roche as a result of such reconciliation will be recorded in the period the reconciliation is completed. Thus, at any period end we will carry a maximum of CHF 4.0 million for each quarter that has not then been reconciled, classified as unearned royalty advance on the balance sheet. At March 31, 2007, there was CHF 8.0 million ($6.6 million) recorded in unearned royalties as the fourth quarter of 2006 and the first quarter of 2007 have not been reconciled.

In March 2007, Aspreva and Roche agreed to the final audited results for the net sales relating to the third quarter of 2006. The resulting reconciliation payment of $1.4 million is payable to Aspreva within 45 days of quarter end. For the three month period ended March 31, 2007, we recorded royalty revenue of $59.3 million, which is comprised of $54.5 million for the first quarter initial royalty payment ($57.8 million less $3.3 million collar recorded as unearned royalty advance) and a net reconciliation amount of $4.8 million arising from the reconciliation of audited net sales data to the initial royalty payment for the third quarter of 2006. The initial royalty payment and reconciliation payment are recorded in accounts receivable as of March 31, 2007, and are payable to us within 45 days of March 31, 2007.

Stock-Based Compensation

Stock-based compensation expense, which is a non-cash charge, results in part from estimating the fair value of employee stock options granted using the Black-Scholes option pricing model. The exercise price for option grants are based on the market value of our common shares.

We account for employee stock options in accordance with the provisions of Statement of Financial Accounting Standards No. 123(R), Share-based Payment, a revision of SFAS 123. The Black-Scholes option pricing model requires the input of the fair value of our stock at the date of grant of the stock options as well as the input of several subjective assumptions including: the expected life of the option, the expected volatility at the time the options are granted, and the expected forfeiture rate at the time the options were granted. Our current estimate of expected stock price volatility is 70%, expected option life is five years, and expected forfeiture rate is 5%. The estimated grant date fair value of our options as calculated by the Black-Scholes option pricing model is amortized, using the accelerated method, over the vesting period, which is generally two to four years.

Changes in the inputs and assumptions can materially affect the measure of the estimated fair value of our employee stock options. Also, the accounting estimate of stock-based compensation expense is reasonably likely to change from period to period as further stock options are granted and adjustments are made for stock option forfeitures and cancellations.

Included within the statements of income are the following charges for stock-based compensation:

	Three Months Ended March 31,
	2007		2006
	(in millions)
Research and development expense	$	0.9	$	0.4
Marketing, general and administrative expense		1.9		0.6
Total stock-based compensation	$	2.8	$	1.0

Clinical Trial Accounting

We record expenses for clinical research organizations, investigators and other vendors based upon the estimated amount of work completed on each trial. These estimates may or may not match the actual services performed by the organizations as determined by patient enrollment levels and related activities. We monitor patient enrollment levels and related activities to the extent possible through internal reviews, correspondence and discussions with contract research organizations and review of contractual terms.

However, if we have incomplete or inaccurate information, we may underestimate activity levels associated with various trials at a given point in time. In this event, we could record significant research and development expenses in future periods when the actual activity level becomes known. All such costs are charged to research and development expenses as incurred. To date, we have not experienced material changes in these estimates.

Income Taxes

We have established a wholly-owned subsidiary, Aspreva Pharmaceuticals SA, a Swiss company, which is the principal party to our agreement with Roche. We have obtained a tax ruling from the Swiss tax authorities pursuant to which, certain income attributable to the exploitation of the CellCept rights we acquired from Roche and certain income attributable to the exploitation of rights we may acquire in the future from other third parties, will be subject to a reduced tax rate in Switzerland.

We believe that our effective overall global corporate tax rate realized through this structure will be less than 15%.

We believe that our agreement with Roche should not be classified as a partnership for U.S. federal income tax purposes. If this belief is incorrect, the income of our Swiss subsidiary that is from sources within the United States, if any, could be taxable in the United States on a net income basis. In such event, our effective tax rate and our tax liability could increase.

If we fail to maintain our tax structure, or one or more of the various taxation authorities successfully assert that more profits should be allocated to their respective tax jurisdictions, this may result in a higher overall effective tax rate. The foregoing analysis only applies to our agreement with Roche. Any future collaborations that we enter into may be structured differently and may result in different tax consequences.

We account for income taxes under the liability method. Deferred tax assets and liabilities are recognized for the differences between the financial statement and income tax bases of assets and liabilities, and for operating losses and tax credit carry forwards. A valuation allowance is provided for the portion of deferred tax assets that is more likely than not to be unrealized. Deferred tax assets and liabilities are measured using the enacted tax rates and laws.

Effective January 1, 2007, Aspreva adopted Financial Accounting Standards Board, or FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109, or FIN 48. The implementation of FIN 48 did not have a material impact on Aspreva’s consolidated financial statements. As of January 1, 2007 and March 31, 2007 we did not recognize any assets or liabilities for unrecognized tax benefits relative to uncertain tax positions.

Derivative Instruments

We utilize foreign exchange forward contracts and other derivative instruments to manage our exposure to foreign exchange fluctuations.

We account for our derivative instruments in accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. Derivative instruments are recorded as assets or liabilities, measured at fair value. Derivatives that are not hedges, or are not designated as hedges, are adjusted to fair value through income. If the derivative is a hedge, depending upon the nature of the hedge, changes in the fair value of the derivatives are either offset against the fair value of assets, liabilities or firm commitments through income, or recognized in other comprehensive income (loss) until the hedged item is recognized in income. The ineffective portion of a derivative’s change in fair value is immediately recognized in income.

Results of Operations and Overview

Presented below is a comparison of our results of operations for the three month periods ended March 31, 2007 and 2006.

Revenue for the three month period ended March 31, 2007 was $59.3 million versus $62.7 million for the three month period ended March 31, 2006. Net income for the three month period ended March 31, 2007 was $36.4 million, or $1.03 per fully diluted share versus $44.8 million, or $1.25 per fully diluted share for the three month period ended March 31, 2006.

Royalty Revenue

In accordance with the terms of our agreement with Roche we earn a royalty based on an equal sharing of incremental net sales of CellCept in non-transplant indications above a negotiated baseline less a distribution fee, payable on a quarterly basis. This baseline is subject to an annual price index adjustment. Accordingly, Roche and Aspreva have set the baseline to CHF 131.3 million for 2007.

Under this agreement with Roche, we and Roche calculate and record the royalty payment due to us at the end of each quarter. We recognize a portion of this royalty payment as revenue within our quarterly financial results, and record CHF 4.0 million of the royalty payment due to us as unearned royalty advance on our consolidated balance sheets. This amount is subject to a subsequent reconciliation between Roche and Aspreva at which time the remaining CHF 4.0 million (approximately $3.3 million) of the royalty payment, as well as any additional payments to us or from us resulting from the reconciliations, will be recorded in the period the reconciliation is completed.

The following summarizes the royalty revenue we have earned over the last five quarters under our agreement with Roche:

	March 31, 2006		June 30, 2006		September 30, 2006		December 31, 2006		March 31, 2007
		(in millions of U.S. dollars)
Initial quarterly payment less collar	$	46.5	$	48.7	$	47.1	$	50.0	$	54.5
Reconciliation amount		16.2		3.0		0.8		2.5		4.8
Total royalty revenue	$	62.7	$	51.7	$	47.9	$	52.5	$	59.3

Our first quarter 2007 revenue represents an increase over the fourth quarter 2006 revenue of $6.8 million and a decrease of $3.4 million over the first quarter of 2006. First quarter 2007 revenue includes the positive impact of foreign exchange and reconciliation payable to Aspreva. The reconciliation amount is in compliance with the terms of our collaboration agreement with Roche and the sales tracking methodology. We continue to expect that the reconciliation amounts will be well within the collar as stated in the agreement moving forward.

In March 2006, Aspreva and Roche agreed to the final audited results for the net sales relating to the third quarter of 2005. The audit results were in excess of the CHF 4.0 million collar for the second consecutive quarter and, in accordance with our collaboration agreement, Roche and Aspreva agreed to settle this amount in full, resulting in a $16.2 million reconciliation amount being recognized in that quarter.

Our only revenue is from our collaboration agreement with Roche. In the first quarter of 2007, we estimate that 40% of our revenue was derived from sales of CellCept in U.S. markets, 20% from major European markets (UK, Spain, Italy, France and Germany) and the remainder from rest of world markets.

Research and Development Expenses

From inception to March 31, 2007, we have incurred total research and development expenses of $101.8 million. Research and development expenses include clinical development expenditures for the use of CellCept to treat lupus nephritis, pemphigus vulgaris; and myasthenia gravis; regulatory affairs expenses related to CellCept; sponsorship of preliminary studies of CellCept efficacy in multiple Investigator Initiated Trials (“IIT’s”); and expenses related to our business development team which is working to identify potential new drug opportunities. We expense research and development costs as they are incurred.

Clinical expenses primarily include clinical trial costs, salaries and related costs for clinical and regulatory personnel, supplies and materials, consultant services and facilities. Business development expenses primarily include salaries and related costs for business development personnel, and consultant services related to our efforts to identify other drug opportunities.

The following table shows the allocation of research and development expenses:


	Annual total		Annual total		Annual total		For the three months ended March 31,				Total from inception to March 31
	2004		2005		2006		2006		2007		2007
	(in millions of U.S. dollars)
Lupus nephritis	$	4.9	$	11.9	$	23.9	$	3.9	$	6.6	$	47.4
Myasthenia gravis		2.2		11.3		12.0		3.0		1.7		27.6
Pemphigus vulgaris		1.3		3.3		3.4		1.0		1.0		9.4
Other		-		0.7		3.2		0.5		0.6		4.5
Clinical development expenditures		8.4		27.2		42.5		8.4		9.9		88.9
Business development expenditures		1.7		3.0		5.5		1.4		2.4		12.9
Total	$	10.1	$	30.2	$	48.0	$	9.8	$	12.3	$	101.8

Research and development expenses were $12.3 million for the three month period ended March 31, 2007, compared to $9.8 million for the three month period ended March 31, 2006. The increase of $2.5 million was due to a $1.5 million increase in our clinical development programs and $1.0 million increase in our business development operations. Clinical development costs increased as a result of: a $2.7 million increase in our lupus nephritis program costs reflecting the continued increase in activity as recruitment increased from 30% in the first quarter of 2006 to over 100% in 2007; a $1.3 million decrease in our myasthenia gravis program as a result of the discontinuation of the program in October 2006; and $100,000 increase in the funding of other programs including preliminary studies for the use of CellCept in the treatment of cardiovascular disease in autoimmune patients and multiple sclerosis patients.

We incurred an increase of $750,000 in salaries and related costs in the three month period ended March 31, 2007 as we continue to build out our global business development and clinical teams in our Canadian, European and U.S. offices. Stock-based compensation increased by $559,000 from the first quarter in 2006 as a result of additional higher-priced options issued since March 2006 and forfeitures of previously issued options recognized in the first quarter of 2006.

The total number of employees engaged in research and development increased from 53 at March 31, 2006 to 57 at March 31, 2007, which includes 14 employees in our business development function.

Clinical Development Expenses

A majority of our research and development expenditures to date have been related to the clinical development of CellCept for autoimmune indications. We currently have rights to one clinical product, CellCept, and are focused on the use of CellCept to treat two specific autoimmune indications: lupus nephritis and pemphigus vulgaris. A third development program in myasthenia gravis was discontinued in October 2006. In addition, we are sponsoring preliminary studies for the potential utility of CellCept in the treatment of diseases such as multiple sclerosis and cardiovascular disease in autoimmune patients.

The last patient received their final dose in the induction phase of our trial for the use of CellCept in the treatment of lupus nephritis in March 2007 and we plan to achieve data lock in the second quarter of 2007. However, we may not be able to complete our CellCept projects on schedule as our patient enrollment may be slower than expected, the results from a clinical trial may not be favorable, or the FDA or other regulatory agencies may require additional clinical trials. Further, data from clinical trials is subject to varying interpretation, and may be deemed insufficient by the regulatory agencies reviewing applications for marketing approvals. As such, clinical development and regulatory programs are subject to risks and changes that may significantly impact our expense projections and development timelines.

Marketing, General and Administrative Expenses

Marketing, general and administrative expenses consist primarily of costs and salaries associated with building our infrastructure, costs of general corporate activities, and salaries and related costs for personnel in executive, finance, accounting, corporate compliance and operational functions. Prior to regulatory approval of CellCept for any autoimmune indications, we limit our marketing activity to conducting extensive market research regarding specialty physician prescribing practices and product positioning, and undertaking a market preparation program. We currently are fielding a team of 12 field-based medical liaison physicians and other medical professionals in the U.S. and major EU markets who interact with potential future presenters and medical advisors to help us identify knowledge gaps in the potential use of CellCept and to assist us in our clinical development planning.

Marketing, general and administrative expenses were $9.8 million for the three month period ended March 31, 2007, compared to $6.1 million for the three month period ended March 31, 2006. The increase of $3.7 was primarily due to additional salary expenses, as we increased the number of employees undertaking marketing, general and administrative activities, as we continued the build out of our European and U.S. operations. Stock-based compensation increased by $1.3 million over the first quarter of 2006 as a result of additional higher-priced options issued since March 2006 and forfeitures of previously issued options recognized in the first quarter of 2006.

The total number of employees engaged in marketing, general and administrative activities increased from 60 at March 31, 2006 to 78 at March 31, 2007.

For the three month period ended March 31, 2007 our marketing costs represented 43% of total marketing, general and administrative expenses compared to 35% for the first quarter of 2006. We expect our marketing infrastructure expenses to continue to increase as we continue to build out our U.S. and European operations. Our marketing program costs will increase significantly immediately prior to and after obtaining regulatory approvals. We expect the growth in our general and administrative expenses to keep pace with overall company activity as we continue to build our operations to support our business, incur the additional costs of being a publicly traded company, and support our agreement with Roche and additional collaborations.

Foreign Exchange Gain (Loss)

Foreign exchange losses were $14,000 for the three month period ended March 31, 2007, compared to gains of $866,000 for the three month period ended March 31, 2006. The net foreign exchange losses were due to the decline in the U.S. Dollar against the Swiss Franc during the quarter, offset by the overall gain in the U.S. Dollar against the Canadian dollar, British pound and Swiss Franc from December 31, 2006.

Interest and Other Income

Interest and other income was $3.3 million for the three month period ended March 31, 2007, compared to $1.4 million for the three month period ended March 31, 2006. The increase of $1.9 million was due to higher average investment balances during the three month period ended March 31, 2007 and higher average rates of return on those investments.

Income Taxes

The provision for income taxes was $4.1 million for the three months ended March 31, 2007, resulting in an effective global tax rate of 10.1% for the period. The difference between the effective tax rate and the statutory Canadian federal income tax rate of 34.1% relates to significant profit in our Swiss subsidiary with favourable foreign tax rates, changes in our future income tax valuation allowance and utilization of tax pools.

We expect our global structure to yield an effective tax rate of less than 15% going forward.

Liquidity and Capital Resources

Sources of Liquidity

As of March 31, 2007, we had working capital of $314.9 million, which included $277.2 million in cash, cash equivalents and marketable securities. In aggregate, our cash and investment resources increased by $17.3 million from $259.9 million at December 31, 2006. We had $65.2 million in accounts receivable at March 31, 2007, of which $64.8 million is due from Roche and payable to us within 45 days of March 31, 2007.

We expect to continue to devote substantial resources to continue the development of CellCept for the treatment of lupus nephritis and pemphigus vulgaris, and to continue to pursue other new drug opportunities. The investment in CellCept development includes funding phase III clinical trials as well as regulatory expenses to support approval. In addition, we are expanding our infrastructure to prepare for the potential commercialization of CellCept for these indications.

We expect that our available cash resources, and the revenue from our agreement with Roche, will be sufficient to support our operations for at least 12 months; however, if we pursue new indications for CellCept or pursue other drug opportunities, we may need to raise additional external funds through the sale of additional equity or debt securities. The sale of additional equity and debt securities may result in additional dilution to our shareholders. Additional financing may not be available in amounts or on terms acceptable to us or at all. If we are unable to obtain this additional financing, we may be required to reduce the scope of, delay or eliminate some or all of our planned research, development and commercialization activities, which could harm our business.

Cash Flows

Operating activities

Net cash from operating activities was $20.5 million for the three month period ended March 31, 2007, compared to $30.3 million for the three month period ended March 31, 2006. The decrease of $9.8 million in net cash flows from operating activities reflects a $16.2 million decrease due to accounts payable, income taxes payable and accrued liabilities and a $8.3 million decrease in net income, offset by a $1.0 million increase in non-cash expenditures and a $13.8 million increase due to accounts receivable.

Investing activities

Net cash used in investing activities was $52.1 million for the three month period ended March 31, 2007, compared to $1.7 million for the three month period ended March 31, 2006. Purchases of investments in marketable securities during the three month period ended March 31, 2007 were $86.6 million, and were partially offset by proceeds from sales of short-term investments in marketable securities of $36.2 million. Royalty revenue received in the three month period ended March 31, 2007 was more than sufficient to fund our current operations, which allowed us to invest more of our funds into higher rate, longer term maturities as compared to the three month period ended March 31, 2006.

Financing activities

Net cash used by financing activities was $19,000 for the three month period ended March 31, 2007, compared to $1.3 million cash provided for the three month period ended March 31, 2006. The decrease of $1.3 million was due to the lower number of stock options being exercised in the current period.

Hedging Activities

We utilize a hedging program to manage our exposure to the impact of foreign currency exchange rate fluctuations on our revenue and expenditure cash flows. The program is governed by a hedging policy approved by our Board of Directors and limits the use of derivatives to simple foreign exchange forward contracts and noon average rate contracts. The contracts are intended to protect against changes in the value of the U.S. dollar relative to other currencies. The policy limits the hedged amount between 40% and 80% of forecasted revenue and 60% to 80% of forecasted expenditures in foreign currencies. Our hedges are initiated on a regular basis to maintain a rolling twelve months of hedge position.

We use derivative financial instruments to hedge our royalty revenue. Our royalty payments are received from Roche in Swiss francs, or CHF on a quarterly basis 45 days after each quarter end. Sales of CellCept are denominated in multi-currencies and are converted to CHF by Roche for the purpose of calculating amounts to be paid to us.

To the extent the Swiss franc increases in value relative to these other currencies, the total aggregate CHF value of CellCept sales decreases and the amount that we are entitled to may be reduced. To mitigate this risk, at the beginning of each quarter, we enter into noon average rate contracts, or NARCs, to sell U.S. dollars and Euros and buy CHF. The NARCs are designed to hedge our direct exposures of forecasted transactions and pursuant to SFAS No. 133 qualify as cash flow hedges. Forward contracts to sell CHF are entered with settlement dates that coincide with the date we receive our royalty payments from Roche. The forward contracts entered into are based on forecasts and as such they are initially designated as cash flow hedges. For the period from the quarter end to the settlement date, the hedges are re-designated and are treated as fair value hedges. Any change in value between quarter end and settlement date is recorded in foreign exchange gain (loss).

As a result of our global operations with offices in Canada and the United Kingdom, we incurred significant amount of our research and development and general and administrative expenditures in both Canadian dollars and pounds sterling. In order to hedge against the impact of fluctuations in the value of the Canadian dollar and pound sterling relative to the U.S. dollar, we enter into short-term forward contracts to purchase both Canadian dollars and pounds sterling. Forward hedges relating to forecasted expenditures are cash flow hedges.

The fair value of the derivative financial instruments is the estimated amount that we would receive or pay to terminate a contract at the reporting date. At March 31, 2007 the amount we would pay to terminate all open contracts is $2.0 million.

Contractual Obligations and Commitments

As of March 31, 2007, there was no material change in our capital lease or operating lease obligations or any other long-term liabilities reflected on our consolidated balance sheet as compared to such obligations and liabilities at December 31, 2006.

We also have agreements with clinical sites, and contract research organizations for the conduct of our clinical trials. We make payments to these sites and organizations based upon the number of patients enrolled and the period of follow-up in the trials. At March 31, 2007, we have commitments to these groups amounting to $27.5 million over the next three years. In addition we have contractual commitments for investigator initiated trials totaling $2.1 million over the next three years.

Credit Facilities

We have various agreements with a Canadian chartered bank providing for revolving demand facilities and a lease line in the aggregate amount of $3.6 million. As of March 31, 2007 we had $691,000 of outstanding indebtedness under our credit facilities. The Canadian chartered bank may cancel or restrict the availability of any unutilized portion of our facilities at any time and from time to time without notice. Our credit facilities are secured by a security agreement constituting a first ranking security interest in all our personal property.

Off-Balance Sheet Arrangements

Since inception we have not engaged in material off-balance sheet activities, including the use of structured finance, special purpose entities or variable interest entities.

Related Party Transactions

For a description of our related party transactions during the three month period ended March 31, 2007, please see Note 11 to our Notes to Consolidated Financial Statements.

Recent Accounting Pronouncements

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risks

We are exposed to market risk, including changes to interest rates and foreign currency exchange rates.

We maintain risk management control systems to monitor the risks associated with foreign currency exchange rates and our derivative and financial instrument positions. To reduce the volatility relating to these exposures, we enter into various derivative hedging transactions pursuant to our investment and risk management policies and procedures. We do not use derivatives for speculative purposes. Though we intend for our risk management control systems to be comprehensive, there are inherent risks that may only be partially offset by our hedging programs should there be unfavorable movements in foreign currency exchange rates.

Interest Rate Risk

Our material interest-bearing assets consisted of cash, cash equivalents and marketable securities. The balance of our interest-bearing portfolio, including cash, cash equivalents and investments, was $277.2 million or 80.0% of total current assets at March 31, 2007. Interest income related to this portfolio was $3.3 million for the three month period ended March 31, 2007. Our interest income is sensitive to changes in the general level of interest rates, primarily U.S. interest rates. In this regard, changes in U.S. interest rates affect the interest-bearing portfolio.

Foreign Currency Exchange and Foreign Economic Conditions Risk

Financial risk is the risk to our results of operations that arises from fluctuations in interest rates and foreign exchange rates and the degree of volatility of these rates. Foreign exchange risk arises as our investments, which finance operations, are substantially denominated in U.S. dollars, our royalty payments are received in Swiss francs and our expenses are denominated in several foreign currencies, including U.S. dollars, Canadian dollars, pounds sterling and euros.

If exchange rates change by 10%, we do not believe that it would have a material impact on our results of operations or cash flows to date. However, future exchange rate fluctuations may affect our future operating results.

To mitigate the risk of foreign exchange fluctuations against the U.S. dollar, we have entered into a number of foreign exchange forward contracts and noon average rate contracts.

Counterparties Credit Risks

We could be exposed to losses related to the financial instruments described in Note 8 to the Notes to Consolidated Financial Statements should one of our counterparties default. We attempt to mitigate this risk through credit rating monitoring procedures.

Item 4. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures

We maintain “disclosure controls and procedures” (as such term is defined under Securities Exchange Act Rule 13a-15(e)) that are designed to ensure that information required to be disclosed in our reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and in reaching a reasonable level of assurance our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

We have carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2007. Based upon their evaluation and subject to the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were reasonably effective in ensuring that information required to be disclosed by us in this Quarterly Report on Form 10-Q was recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and Form 10-Q.

Changes in internal controls

There were no changes in our internal controls over financial reporting during the three month period ended March 31, 2007 that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 1A. RISK FACTORS

Risks Related to Our Business

We anticipate that substantially all of our revenue for the foreseeable future will be from royalties based on sales of CellCept and we may not be able to sustain our profitability.

Our operating results may fluctuate from period to period for a number of reasons. In budgeting our operating expenses, some of which are fixed in the short term, we assume that revenues will continue to grow. Even a relatively small revenue shortfall or a small increase in operating expenses may cause our results to be below expectations. A revenue shortfall or increase in operating expenses could arise from any number of factors including:

	•	lower than expected revenues on commercial sales of CellCept;
	•	higher than expected operating expenses as we further develop CellCept for autoimmune indications, seek additional collaborations and operate as a public company;
	•	higher than expected levels of marketing expenses and the expenses of potentially launching CellCept and any future products for our targeted indications; and
	•	fluctuations in currency exchange rates.

We anticipate that substantially all of our revenue for the foreseeable future will be from royalties based on sales of CellCept pursuant to our agreement with Roche. Our revenue is dependent on Roche and our mutual ability to track product sales arising from the use of CellCept by transplant patients. The methodology for accurately tracking sales of CellCept that has been agreed to may be a source of dispute with Roche, which may negatively affect our revenue and our relationship.

If we and Roche are unable to successfully manage our collaboration, the development and commercialization of CelICept for autoimmune indications may be delayed or prevented.

Our collaboration with Roche involves a complex sharing of control over decisions, responsibilities, costs and benefits. Development and promotional activities related to CellCept in the autoimmune indications are approved by a joint committee, consisting of an equal number of our representatives and Roche's representatives. In the event that the joint committee is unable to reach consensus on an issue, the dispute will be referred to senior management of both parties. Unless and until senior management reaches agreement on such dispute, neither party will have the right to implement any changes to the status quo that would result from resolution of such matter. Ultimate decision making authority is vested in us as to some matters and in Roche as to other matters. Although we are responsible for compiling and preparing all applications for regulatory approval of CellCept in autoimmune indications, Roche has the ultimate decision making authority to submit these applications to the appropriate regulatory authorities. If Roche does not approve the application we prepared, or requires that we revise or modify the application, this could result in delays in receipt of regulatory approvals. In addition, Roche may develop and commercialize, either alone or with others, products that are similar to, or competitive with, CellCept. Roche may also change the focus of its development and commercialization efforts and dedicate fewer resources to CellCept or our collaboration.

If we do not satisfy our obligations under the Roche agreement or if the agreement is terminated we may be forced to limit or cease our operations.

Our agreement with Roche requires us to use commercially reasonable efforts to conduct three clinical trial programs for CellCept in autoimmune indications pursuant to an agreed upon development plan. Roche may allege that we are in breach of a material obligation under our agreement and seek to litigate the allegation. If Roche is successful in such litigation, Roche may either be awarded damages based upon such breach or the agreement might be terminated. After 2011, either party may terminate the agreement if there is a lack of non-transplant sales over the baseline for a prolonged period. In addition, if CellCept is withdrawn from or recalled in any given country, either party may terminate the agreement with respect to that country. If the agreement is terminated in its entirety or in a given country we may be forced to limit or cease our operations.

Our agreement with Roche contains provisions requiring us to comply with applicable laws and regulations, including restrictions on the promotion of approved drugs for off label uses. If it were determined by the FDA or other regulatory authority that we violated the rules relating to off label promotion in connection with our pre-approval communications regarding CellCept, we may be deemed by Roche to be in material breach of the agreement. If we fail to cure any material breach of the agreement, Roche may commence legal action for damages and/or seek to terminate our agreement.

If Roche does not manufacture, distribute, price or sell CellCept at levels which generate sufficient revenue for us to operate, we may have to limit or cease our operations.

We do not own or operate any manufacturing or distribution facilities. Roche, not Aspreva, controls the manufacture of CellCept and we have no alternative supplier. If we are unable to obtain adequate supplies of CellCept from Roche for our clinical trials, they could be delayed or prevented. In addition, if there is a shortage of CellCept, Roche may decide to allocate available supplies of CellCept to purchasers for use in transplant indications and not autoimmune or other indications, thereby reducing our revenues. Roche is solely responsible for distributing and selling CellCept, and setting the price, including all discounts and rebates, of CellCept.

Roche's control over the manufacture, distribution, pricing and sale of CellCept exposes us to a number of risks which are outside our control including:

	•	Roche may fail to comply with FDA-mandated current good manufacturing practices or similar regulations in other jurisdictions resulting in mandated production halts or limitations;
	•	Roche may experience manufacturing quality or control issues which halt or limit CellCept production;
	•	a manufacturing plant may be closed as a result of a natural disaster or work stoppage;
	•	Roche may experience short or long-term supply problems, or problems distributing CellCept, including difficulties importing or exporting supplies or products;
	•	Roche may decrease its efforts to market and promote CellCept for the transplant indications thus lowering the visibility of CellCept in the market; and
	•	Roche may set a low price for CellCept or give discounts or rebates that effectively lower the price of CellCept, which in either case could reduce our revenues.

However, we may in the future outsource the manufacturing of supply for our clinical trials to third parties other than Roche, subject to approval from Roche and the FDA.

The expiration of Roche's patents covering CellCept may reduce our revenue as competitors may seek to sell generic versions of CellCept.

Roche owns the patents covering the composition matter of CellCept. The United States patent covering CellCept expires in May 2009. Counterparts of this patent expire in most European countries in late 2010, but in some instances (for example, Spain, Portugal, Greece and Romania) expire as early as December 2007. Roche patents covering the process for manufacture of CellCept expire in the United States in July 2012, and in most other countries in July 2013. We and Roche expect that following expiration of composition of matter patents competitors may manufacture and sell generic versions of CellCept, at a lower price, which would reduce CellCept's revenues. In certain jurisdictions, including most Canadian provinces, legislation mandates generic substitution for brand name drugs.

If we obtain an orphan drug designation and FDA approval of CellCept for an indication, we would be entitled to seven years of marketing exclusivity for that orphan drug indication. In June 2006, we were granted orphan drug designation for CellCepts’ use in pemphigus vulgaris. In March 2006, Roche and Aspreva agreed not to pursue orphan drug designation for CellCept's use in lupus nephritis. However, if a competitor obtained approval of a generic form of CellCept for another indication, such as transplant use, physicians would not be prevented from prescribing the generic drug for the orphan indication during the period of marketing exclusivity. Such prescribing practices could adversely affect the sales of CellCept for the orphan indication.

We may incur significant liability if it is determined that we are promoting the "off-label" use of drugs or are otherwise found in violation of federal and state regulations in the United States or elsewhere.

Physicians may prescribe drug products for uses that are not described in the product's labelling and that differ from those approved by the FDA or other applicable regulatory agencies. Such off-label uses are common across medical specialities. We are aware that some physicians are prescribing CellCept for the treatment of certain autoimmune diseases, including lupus nephritis, although neither we nor Roche are permitted to promote CellCept for the treatment of any autoimmune diseases, and the FDA and other regulatory agencies have not approved the use of CellCept for any autoimmune indications. Although the FDA and other regulatory agencies do not regulate a physician's choice of treatments, the FDA and other regulatory agencies do restrict communications on the subject of off-label use. Companies may not promote drugs for off-label uses. Accordingly, prior to approval of any autoimmune indications for CellCept, we may not promote CellCept for such indications. The FDA and other regulatory agencies actively enforce regulations prohibiting promotion of off-label uses and the promotion of products for which marketing clearance has not been obtained. A company that is found to have improperly promoted off-label uses may be subject to significant liability, including civil and administrative remedies as well as criminal sanctions.

Notwithstanding the regulatory restrictions on off-label promotion, the FDA and other regulatory authorities allow companies to engage in truthful, non-misleading, and non-promotional speech concerning their products. We engage in medical education activities and communicate with investigators and potential investigators regarding our clinical trials. Although we believe that all of our communications regarding CellCept are in compliance with the relevant regulatory requirements, the FDA or another regulatory authority may disagree, and we may be subject to significant liability, including civil and administrative remedies as well as criminal sanctions.

We and our collaborators are also subject to the U.S. federal False Claims Act and U.S. federal Anti-Kickback law. We have developed a comprehensive compliance program that seeks to establish internal controls to facilitate adherence to the rules and program requirements to which we are and will become subject. If, however, we are determined to have violated these and other laws, we could incur significant penalties and be subject to criminal prosecution. Roche might deem any such determination by a governmental authority to constitute a material breach of our agreement. In addition, management's attention could be diverted and our reputation and our ability to enter into future collaborations could be damaged.

If CellCept and any future products do not gain meaningful market acceptance we are not likely to generate significant revenues or sustain profitability.

The degree of market acceptance for any product that we commercialize will depend on a number of factors, including:

	•	acceptance by physicians and patients of each product as safe and effective;
	•	potential advantages over existing or alternative therapies, including cost;
	•	actual or perceived safety of similar classes of products;
	•	relative convenience and ease of administration;
	•	reimbursement policies of government and third-party payors;
	•	effectiveness of our sales, marketing and medical education efforts; and
	•	scope of the product label approved by the FDA and other regulatory agencies.

Hospitals or physicians may not choose to administer CellCept or any future product to the entire intended market, if at all. If CellCept and any future products do not achieve meaningful acceptance in their intended markets or if the intended market is smaller than anticipated, we are not likely to generate significant revenues or maintain profitability.

Any failure or delay in obtaining additional capital may curtail the development or commercialization of CellCept or any future products.

We expect that our future need for additional capital will be substantial. The extent of this need will depend on many factors, some of which are beyond our control, including:

	•	our ability to develop and obtain regulatory approval for CellCept and any future products in our targeted indications;
	•	our ability to establish marketing and sales capabilities and the costs of launching CellCept and any future products for our targeted indications;
	•	the extent of costs associated with protecting and expanding our patent and other intellectual property rights;
	•	market acceptance of CellCept and any future products for our targeted indications;
	•	future payments, if any, we receive or make under existing or future collaborative arrangements;
	•	the timing of regulatory approvals needed to market products for our targeted indications;
	•	the need to acquire licenses for new products or compounds; and
	•	compliance with rules and regulations implemented by the U.S. Securities and Exchange Commission, Canadian provincial securities regulatory authorities, the NASDAQ Global Select Market and the Toronto Stock Exchange.

We have no committed sources of additional capital. Funds may not be available to us in the future on favorable terms, if at all, and we may be required to delay, reduce the scope of, or eliminate research and development efforts or clinical trials for CellCept or other future products. We may also be forced to curtail or restructure our operations, obtain funds by entering into arrangements with collaborators on unattractive terms or relinquish rights to technologies or product candidates that we would not otherwise relinquish in order to continue our operations.

If we are not successful in establishing additional collaborations we will not be able to grow our business.

Our long-term success depends upon our ability to identify drugs and drug candidates with significant potential and to acquire the rights for those indications from multiple collaborators, thus creating multiple sources of revenue. We face intense competition from other companies for collaborative arrangements with pharmaceutical and biopharmaceutical companies, and there are no barriers prohibiting other companies from adopting our business model. Pharmaceutical and biopharmaceutical companies may also decide to pursue new indications for their products themselves, rather than enter into collaborative arrangements to develop new indications. In addition, accurate sales tracking may be difficult or impossible under future collaborations which may preclude a collaboration or lead to disputes once a collaboration has been established. We currently have one collaboration agreement with Roche and one non-binding collaboration with Chugai. If we are unable to enter into additional collaborations, we will continue to be dependent upon Roche for substantially all our revenues, and we will be limited in our ability to grow our business. In addition, the fact that we are collaborating with Roche, or other potential collaborators, may be viewed negatively by other potential collaborators, making them less likely to enter into arrangements with us.

The terms and conditions of any future collaboration agreements may be less favorable than our agreement with Roche.

Our strategy is to seek collaborations with pharmaceutical and biopharmaceutical companies to develop and commercialize new indications. Any new collaborations that we may secure will likely involve drugs or drug candidates, or collaborators, with characteristics different from CellCept or Roche. These characteristics may include:

	•	costs to manufacture, distribute and sell;
	•	patent terms;
	•	expenditures by our collaborators on research and development;
	•	size and difficulty of development programs for potential product indications;
	•	competitive threats; and
	•	other factors relevant to the development and commercialization of such products.

We expect that any new collaborations will be highly negotiated, and the above characteristics all may play a role in the financial terms of such collaborations, possibly resulting in any or all of the following:

•

our payment of upfront or milestone fees for product rights;

	•	greater clinical trial expenses;
	•	longer timelines to approval;
	•	lower revenue sharing percentages;
	•	shorter agreement periods; or
	•	less than global product rights.

In addition, any new collaboration agreement may provide that we only begin sharing revenue with our collaborator after some long period of time after entering into such collaboration, or after some specific action or approval over which we may have limited control.

If we fail to establish sufficient marketing and sales promotion capabilities, or enter into successful arrangements with third parties to conduct these activities, we may be unable to generate sufficient revenue to continue our operations.

Roche is solely responsible for distributing and selling CellCept. If we obtain approval of CellCept for autoimmune indications, or any future products, we intend to market and promote them through our own sales promotion force in the United States and certain other countries. We currently have no sales promotion capabilities, limited marketing capabilities, limited infrastructure to support such activities, and have limited experience in the commercialization of pharmaceutical products. We may not be able to attract and retain qualified marketing or sales promotion people or be able to establish an effective sales promotion force.

In countries where we do not have a sales promotion force, we may establish relationships with third parties. However, we may not be able to enter into such arrangements on favorable terms or at all and to the extent that we enter into such arrangements, our revenue will depend on their efforts, which may not be successful.

If product liability lawsuits are successfully brought against us, we will incur significant liabilities and may be required to limit the commercialization of our product candidates.

Our use of CellCept and other products in clinical trials, and our future promotion of any products, may expose us to product liability claims and associated adverse publicity. We have a global product clinical trial insurance policy, with aggregate coverage of $10.0 million, for countries not requiring a local insurance policy (including the United States and Canada). In addition, we have policies in varying amounts for all the other countries in which we are conducting clinical trials, and which do not fall within the scope of our global policy. Our insurance coverage may not protect us against any or all of the product liability claims which could be brought against us in the future. Prior to the commercialization of CellCept in autoimmune indications, we expect to obtain product liability insurance for potential claims associated with our promotion of CellCept. However, we may not be able to obtain or maintain adequate insurance coverage at a commercially reasonable cost or in sufficient amounts or scope to protect us against potential losses. Roche is obligated to indemnify us for any product liability claims, except if the claims arise due to false or misleading promotional activity on our part. In the event a product liability claim is brought against us, we may be required to pay legal and other expenses to defend the claim and, if such a claim is successful, damage awards not covered by our insurance. We may also be obligated to indemnify our collaborators. Defending any product liability claim or claims could require us to expend significant financial and managerial resources.

If our competitors are able to develop and market products that are preferred over CellCept or other product candidates that we may develop, we may not be able to generate sufficient revenues to continue our operations.

We may not be able to contend successfully with competitors. The biotechnology and pharmaceutical industries are highly competitive and subject to significant and rapid technological change as researchers learn more about diseases and develop new technologies and treatments. Our current and potential competitors generally include major multinational pharmaceutical companies, biopharmaceutical firms, specialty pharmaceutical companies, universities and other research institutions.

In the transplant market, CellCept currently competes with Novartis' product, Myfortic. If CellCept is approved for any autoimmune indications, Novartis may choose to also pursue clinical trials and regulatory approval for the same indications. If approved, CellCept will also compete with immunosuppressants, such as steroids and cytotoxic agents, including cyclophosphamide, cyclosporine and azathioprine. A cytotoxic agent is an anti-cancer substance that acts by killing or preventing the division of cells. In addition, we are aware of several companies that have products in development or on the market that may be competitive with CellCept in lupus nephritis and pemphigus vulgaris. Some of the companies have commenced clinical trials for products targeting the same markets and indications that we are addressing.

The existence of these products, other products or treatments of which we are not aware, or products or treatments that may be developed in the future may reduce the marketability of CellCept and any future products, particularly to the extent such products:

	•	are more effective;
	•	have fewer or less severe adverse side effects;
	•	have better patient compliance;
	•	receive better reimbursement terms;
	•	are accepted by more physicians;
	•	are more adaptable to various modes of dosing;
	•	have better distribution channels;
	•	are easier to administer; or
	•	are less expensive.

Some of our competitors, either alone or together with their collaborators, have substantially greater financial resources and larger research, development and regulatory staffs than we do. In addition, many of our competitors, either alone or together with their collaborators, have significantly greater experience than we do in discovering, developing, manufacturing and marketing products. Additional mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated in our competitors.

If we are unable to effectively manage our expected future growth, we may be unable to develop or commercialize CellCept or any other product candidate successfully.

In the quarter ended March 31, 2007, we increased our number of employees by 2 and, as of March 31, 2007, we had 135 employees. In order to continue the development and potential commercialization of CellCept for autoimmune indications and enter into new collaborations we will need to expand our clinical development, regulatory, marketing and sales promotion capabilities. We currently have operations in Canada, the United States, the United Kingdom, and Switzerland. Our ability to manage our global operations and expected growth will require us to continue to improve our operational, financial and management controls, reporting systems and procedures. We may not be able to make such improvements in an efficient or timely manner and may discover deficiencies in existing systems and controls. Our ability to develop and commercialize products for new indications and compete effectively, and our future financial performance will depend, in part, on our ability to manage any future growth effectively.

We depend on our executive officers, and if we are not able to retain them or recruit additional qualified personnel, we may be unable to successfully develop or commercialize CellCept.

Our success depends upon the continued contributions of our executive officers and scientific and technical personnel. Due to the specialized knowledge that each of our executive officers possess with respect to CellCept and our operations, the loss of service of any of our executive officers could delay or prevent the successful completion of the clinical trials necessary for the commercialization of CellCept for lupus nephritis or pemphigus vulgaris and could harm our relationship with Roche. We carry key man life insurance coverage of $1.3 million for each of Richard M. Glickman and Noel F. Hall. We do not carry key man life insurance for any of our other executive officers.

We have employment agreements with each of our executive officers; however, each may terminate their employment upon notice and without cause or good reason. On May 2, 2007, Mr. Glickman announced his intention to step down as Chief Executive Officer during 2007. We currently are not aware that any other executive officer is planning to leave or retire.

Our success also depends in part on our ability to attract and retain highly qualified scientific, commercial and administrative personnel. In order to pursue our product development and commercialization strategies, we will need to attract and hire additional personnel with experience in a number of disciplines, including clinical testing, government regulation, sales and marketing, drug reimbursement and information systems. There is intense competition for personnel in the fields in which we operate. We have not experienced difficulty to date in attracting and retaining the personnel we require. If, however, we are unable to continue to attract new employees and retain existing employees, we may be unable to continue our development and commercialization activities.

We may incur losses associated with currency fluctuations and may not be able to effectively hedge our exposure.

Our operations are in many instances conducted in currencies other than the U.S. dollar and fluctuations in the value of currencies relative to the U.S. dollar could cause us to incur currency exchange losses. All amounts paid by Roche to us will be in Swiss Francs. In addition, we currently conduct some operations and incur a portion of our expenses in Canadian dollars, pounds sterling and other foreign currencies. Although we have implemented currency hedging techniques to mitigate the impact of currency fluctuations on our financial results, these techniques do not eliminate the effects of currency fluctuations with respect to anticipated revenues or cash flows, and, as they are short term in nature, do not protect us from prolonged periods of currency fluctuations.

CellCept net sales are denominated in multiple currencies and will be converted to Swiss Francs by Roche for the purpose of calculating amounts to be paid to us. To the extent the Swiss Franc increases in value relative to these other currencies, the total aggregate value of CellCept's net sales will decrease and the amount, if any, that we are entitled to may be reduced.

Risks Related to Regulatory Matters

We will not be able to commercialize our product candidates if our clinical trials do not demonstrate safety and efficacy in humans.

We are currently not authorized to market CellCept for autoimmune indications in any jurisdiction, and we may never be authorized to market CellCept for any autoimmune indication. The development and commercialization of CellCept for autoimmune indications, and any future products, are subject to extensive and rigorous regulation by the U.S. federal government, principally the FDA, other federal, state and local agencies, and governmental authorities elsewhere. Prior to marketing CellCept for any autoimmune indication, we must conduct, at our own expense, extensive clinical trials to demonstrate with substantial evidence to the satisfaction of the FDA and other regulatory authorities that CellCept is safe and effective for the indication. We have no prior experience as a company in conducting clinical trials. Preclinical studies and clinical trials are expensive, can take many years and have uncertain outcomes. In addition, the regulatory approval procedures vary among countries and additional testing may be required in some jurisdictions. It may take several years to complete the requisite clinical trials, and a product candidate may fail any stage of testing. Difficulties and risks associated with clinical trials may result in our failure to receive regulatory approval to market CellCept for autoimmune indications or our inability to commercialize any future products for new indications. The FDA, other regulatory authorities, our collaborators, or we may suspend or terminate clinical trials at any time. The commencement and completion of our clinical trials could be delayed or prevented by several factors, including:

	•		delays in obtaining regulatory approvals to commence or continue a study;
	•		delays in identifying and reaching agreement on acceptable terms with prospective clinical trial sites;
	•		insufficient quantities of the study drug;
	•		slower than expected rates of patient recruitment and enrollment or the inability to reach full enrollment;
	•		inconclusive or negative interim results during clinical trials, including lack of effectiveness or unforeseen safety issues;
	•		death of, or serious adverse effects experienced by, one or more patients during a clinical trial even if the reasons are not related to the study drug, including the advanced stage of the patient's disease or medical condition;
	•		uncertain dosing issues;
	•		inability to monitor patients adequately during and after treatment;
	•		inability or unwillingness of contract laboratories to follow good laboratory practices;
	•		inability or unwillingness of clinical investigators to follow our clinical protocols or good clinical practices generally; and
	•		inability or unwillingness of other third parties to perform data collection and analysis in a timely or accurate manner.

Delays or failures in obtaining regulatory approvals may:

	•	delay or prevent the commercialization of any product that we develop for new indications;
	•	diminish any competitive advantages;
	•	reduce or eliminate revenue from the sale of CellCept and any future products; and
	•	adversely affect our ability to attract new collaborators; and,
	•	impact our staffing levels.

The results of early clinical trials do not necessarily predict the results of later clinical trials. Drugs in later clinical trials may fail to show desired safety and efficacy traits despite having progressed through initial clinical trials. In October 2006, we announced preliminary results of our phase III trial of CellCept for the treatment of myasthenia gravis. The results of our analysis indicated that CellCept failed to meet both the primary and secondary endpoints. Given the results of the study we have discontinued our development efforts in this area. We are aware that Roche conducted three phase III clinical trials for CellCept in the treatment of rheumatoid arthritis which did not demonstrate efficacy. Even if we believe the data collected from clinical trials of drugs are promising, such data may not be sufficient to support approval by the FDA or any other regulatory authority. The FDA or other regulatory authorities could also interpret our data differently, which could delay, limit or prevent regulatory approval.

We expect to rely in part on the results of CellCept clinical trials that were previously performed by or on behalf of Roche and on clinical trials that were previously performed or are being performed by third-party physicians. These trial results may not be predictive of the results of the clinical trials that we plan to conduct for the purposes of our targeted indications. In addition, the results of prior clinical trials may not be acceptable to the FDA or other regulatory authorities because the data may be incomplete, outdated or not otherwise acceptable for inclusion in our submissions for regulatory approval for CellCept in autoimmune indications.

Even if CellCept or any future product candidate receives regulatory approval, we and our collaborators may still face development and regulatory difficulties that may delay or impair future sales.

If we or our collaborators obtain regulatory approval for CellCept for any of our targeted indications, or any other product, we and our collaborators will continue to be subject to extensive regulation by the FDA, other federal authorities, certain state agencies and regulatory authorities elsewhere. These regulations will impact many aspects of our operations and the drug manufacturer's operations including manufacture, record keeping, quality control, adverse event reporting, storage, labelling, advertising, promotion, sale and distribution, export and personnel. The FDA and state agencies may conduct periodic inspections to assess compliance with these requirements. We, together with our collaborators, will be required to conduct post-marketing surveillance of the product. We also may be required to conduct post-marketing studies. Our or our collaborators' failure to comply with applicable FDA and other regulatory requirements, or the later discovery of previously unknown problems, may result in restrictions including:

	•	delays in commercialization;
	•	refusal by the FDA or other similar regulatory agencies to review pending applications or supplements to approved applications;
	•	product recalls or seizures;
	•	warning letters;
	•	suspension of manufacturing;
	•	withdrawals of previously approved marketing applications;
	•	fines and other civil penalties;
	•	injunctions, suspensions or revocations of marketing licenses;
	•	refusals to permit products to be imported to or exported from the United States; and
	•	criminal prosecutions.

Post-approval marketing laws and regulations in other jurisdictions generally provide for the same types of sanctions that may be imposed in the United States.

We may experience delays in patient enrollment, which would delay regulatory approval of CellCept in autoimmune indications and possibly reduce our revenues.

Our ability to obtain, and the timing of, regulatory approval for CellCept in any autoimmune indication depends in part on our ability to successfully complete clinical trials of CellCept in that autoimmune indication. The ability to complete clinical trials depends, in part, on the rate of patient enrollment and patient retention, which is a function of many factors, some of which are beyond our control. In particular, because some of our clinical trials will be blinded so that some patients receive CellCept and others receive another drug or a placebo, and because CellCept is marketed for transplant indications and prescribed by physicians, patients may not want to participate in a clinical trial in which they could receive a placebo or drug other than CellCept.

If third-party clinical research organizations do not perform in an acceptable and timely manner, our clinical trials could be delayed or unsuccessful.

We have limited experience as a company in conducting and managing clinical trials, and rely on third parties, including contract research organizations, outside consultants and principal investigators to assist us in managing, monitoring and conducting our clinical trials. We rely on these parties to assist in the recruitment of sites for participation in clinical trials, to maintain positive relations with the clinical sites and to ensure that these sites conduct the trials in compliance with the protocol and our instructions. If these third parties fail to perform satisfactorily or do not adequately fulfill their obligations to us, our clinical trials may be delayed or unsuccessful. The FDA or other regulatory agencies may inspect some of our clinical sites or our third-party vendors' sites, to determine if our clinical trials are being conducted according to current good clinical practices. If the FDA or another applicable regulatory agency determines that our third-party vendors are not in compliance with applicable regulations, we may be required to delay, repeat or terminate such clinical trials. Any delay, repetition or termination of our clinical trials could prevent or delay the commercialization of CellCept for autoimmune indications and any other future product candidate.

If government and third-party payors fail to provide coverage and adequate reimbursement rates for our product candidates, our revenues and potential for profitability will be reduced.

In the United States and elsewhere, our product revenues will depend principally upon the reimbursement rates established by third-party payors, including government health administration authorities, managed-care providers, public health insurers, private health insurers and other organizations. These third-party payors are increasingly challenging the price, and examining the cost effectiveness, of medical products and services. In addition, significant uncertainty exists as to the reimbursement status, if any, of newly approved drugs, pharmaceutical products or product indications. We may need to conduct post-marketing clinical trials in order to demonstrate the cost-effectiveness of products. Such studies may require us to commit a significant amount of management time and financial and other resources. CellCept is included in various drug compendia as a commercially approved drug in connection with the prevention of organ rejection and certain third party payors provide reimbursement for this use of CellCept because of such inclusion. However, CellCept or other future products may not be reimbursed or covered by any of these third-party payors for our targeted indications.

In some countries other than the United States, particularly the countries of the European Union and Canada, the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, obtaining pricing approval from governmental authorities can take six to twelve months or longer after the receipt of regulatory marketing approval of a product for an indication. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of a product that is the subject of a collaboration with us to other available therapies. If reimbursement of such products is unavailable or limited in scope or amount or if pricing is set at unsatisfactory levels our revenues could be reduced.

Domestic and foreign governments continue to propose and pass legislation designed to reduce the cost of healthcare, including drugs. In the United States, there have been, and we expect that there will continue to be, federal and state proposals to implement similar governmental control. In addition, increasing emphasis on managed care in the United States will continue to put pressure on the pricing of pharmaceutical products. For example, the Medicare Prescription Drug Improvement and Modernization Act of 2003 reforms the way Medicare will cover and reimburse for pharmaceutical products. The legislation expands Medicare coverage for drug purchases by the elderly and has resulted in a new reimbursement methodology based on average sales prices for certain drugs. In addition, the new legislation provides authority for limiting the number of outpatient drugs that will be covered in any therapeutic class. As a result of the new legislation and the expansion of federal coverage of drug products, we expect that there will be additional pressure to contain and reduce costs. The Medicaid program has recently been modified and state healthcare laws and regulations will soon be amended to conform to the federal changes. The new laws and regulations will reduce Medicaid reimbursement. Cost control initiatives could decrease the established reimbursement rates that we receive for any products in the future, which would limit our revenues and profitability. Legislation and regulations affecting the pricing of pharmaceutical products, including CellCept, may change at any time, which could further limit or eliminate reimbursement rates for CellCept or other products.

Risks Related to Intellectual Property

We may incur significant expenses or be prevented from developing or commercializing products as a result of an intellectual property infringement claim.

Our commercial success depends in part on our ability to operate without infringing the patents and other proprietary rights of third parties. Infringement proceedings in the pharmaceutical and biotechnology industries are lengthy, costly and time-consuming and their outcome is uncertain. If we become involved in any patent litigation, interference or other administrative proceedings, we will incur substantial expense and the efforts of our technical and management personnel will be significantly diverted. As a result of such litigation or proceedings we could lose our proprietary position and be restricted or prevented from developing, manufacturing and selling the affected products, incur significant damage awards, including punitive damages, or be required to seek third-party licenses that may not be available on commercially acceptable terms, if at all.

Although Roche has an extensive patent estate covering the composition of matter, methods of treatment and manufacture of CellCept, it is possible that a third party may be issued a patent covering some aspect of CellCept or its use. If this happens, we and Roche may be restricted from developing and commercializing CellCept for autoimmune indications. If a third party brings an infringement claim against us based solely upon the development or promotion of CellCept in autoimmune indications, Roche has the right under our agreement to deduct 50% of its cost in defending such action, plus any amounts paid in settlement or in a judgment against Roche or Aspreva, from the calculation of CeIlCept's net sales prior to determining our share of such sales. Roche is obligated to indemnify us if the infringing activity relates to the development and commercialization of CellCept in both transplant and non-transplant indications.

If we or our collaborators are unable to adequately protect or enforce our intellectual property, our competitive position could be impaired.

Our commercial success depends in part on our ability to:

	•	obtain patents or rights to patents and maintain their validity;
	•	protect our trade secrets; and
	•	effectively enforce our proprietary rights or patents against infringers.

Patent applications may not result in patents being issued. Until a patent is issued, the claims covered by the patent may be narrowed or removed entirely and therefore we may not obtain adequate patent protection. As a result, we may face unanticipated competition, or conclude that, without patent rights, the risk of bringing products to the market is too great. Even if we or our collaborators are issued patents covering our products we cannot predict with certainty whether we or our collaborators will be able to ultimately enforce our patents or proprietary rights. Any patents that we own or license may be challenged, invalidated or circumvented and may not provide us with protection against competitors. We or our collaborators may be forced to engage in costly and time-consuming litigation in order to protect our intellectual property rights. In addition, our collaborators may choose not to enforce or maintain their intellectual property rights, and we may be forced to incur substantial additional costs to maintain or enforce such rights. Patent rights may not provide us with adequate proprietary protection or competitive advantages against competitors with similar products or technologies. The laws of certain foreign countries do not protect our intellectual property rights to the same extent as do the laws of the United States.

In addition to patents, we rely on trade secrets and proprietary know-how. We seek protection, in part, through confidentiality and non-disclosure agreements. These agreements may not provide meaningful protection of our technology or adequate remedies in the event of unauthorized use or disclosure of confidential and proprietary information and, in any event, others may develop independently, or obtain access to, the same or similar information. Our failure or inability to protect our trade secrets and proprietary know-how could impair our competitive position.

Our stock price is volatile and purchasers of our common shares could incur substantial losses.

Our stock price is volatile. Since our initial public offering on March 4, 2005 and through April 30, 2007, our common shares have traded on the NASDAQ Global Select Market between $11.00 and $34.89 per share. The stock market in general and the market for biopharmaceutical and biotechnology companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. The price for our common shares may be influenced by many factors, including:

	•		our ability to develop and obtain regulatory approval for CellCept and any future products in our targeted indications;
	•		our ability to establish marketing and sales capabilities and the costs of launching CellCept and any future products for our targeted indications;
	•		market acceptance of CellCept and any future products for our targeted indications;
	•		developments concerning our collaboration with Roche;
	•		our success in establishing additional collaborations;
	•		regulatory developments in the United States, Canada and other countries;
	•		developments or disputes concerning patents or other proprietary rights;
	•		public concern over CellCept or any future products;
	•		litigation;
	•		the departure of key personnel;
	•		future sales of our common shares;
	•		variations in our financial results or those of companies that are perceived to be similar to us;
	•		investors’ perceptions of us; and
	•		general economic, industry and market conditions.

If there are substantial sales of our common shares, our stock price could decline.

If our existing shareholders sell a large number of our common shares or the public market perceives that existing shareholders might sell our common shares, the market price of our common shares could decline significantly.

Our executive officers, directors and major shareholders continue to have substantial control over us and will maintain the ability to control all matters submitted to shareholders for approval.

As of March 31, 2007, our directors and executive officers, together with their affiliates, beneficially owned approximately 22% of our outstanding common shares, including shares subject to outstanding stock options and warrants. These shareholders, acting together, can exercise significant influence over all matters requiring shareholder approval, including the election of directors and any amendment of our notice of articles or articles. This concentration of ownership could also have the effect of delaying or preventing a change in our control.

Our articles, our shareholder rights plan and certain Canadian laws could delay or deter a change of control.

Our authorized preferred capital stock is available for issuance from time to time at the discretion of our board of directors, without shareholder approval. Our articles grant our board of directors the authority, subject to the corporate law of British Columbia, to determine or alter the special rights and restrictions granted to or imposed on any wholly unissued series of preferred shares, and such rights may be superior to those of our common shares.

Also, pursuant to our shareholder rights plan, anyone who seeks to acquire 20% or more of our outstanding common shares is required to make a bid complying with specific provisions of the plan.

Limitations on the ability to acquire and hold our common shares may be imposed by the Competition Act (Canada). This legislation permits the Commissioner of Competition of Canada to review any acquisition of a significant interest in us. This legislation grants the Commissioner jurisdiction to challenge such an acquisition before the Canadian Competition Tribunal if the Commissioner believes that it would, or would be likely to, result in a substantial lessening or prevention of competition in any market in Canada. The Investment Canada Act (Canada) subjects an acquisition of control of a company by a non-Canadian to government review if the value of our assets as calculated pursuant to the legislation exceeds a threshold amount. A reviewable acquisition may not proceed unless the relevant minister is satisfied that the investment is likely to be a net benefit to Canada.

Any of the foregoing could prevent or delay a change of control and may deprive or limit strategic opportunities for our shareholders to sell their shares.

We may be a passive foreign investment company for U.S. tax purposes which may negatively affect U.S. investors.

For U.S. federal income taxation purposes, we will be a passive foreign investment company, or PFIC, if in any taxable year either: (a) 75% or more of our gross income consists of passive income; or (b) 50% or more of the value of our assets is attributable to assets that produce, or are held for the production of, passive income. If we meet either test, our shares held by a U.S. person in that year will be PFIC shares for that year and all subsequent years in which they are held by that person. We were a PFIC prior to 2005 and may be a PFIC in future taxable years. Gain realized by a U.S. investor from the sale of PFIC shares is taxed as ordinary income, as opposed to capital gain, and subject to an interest charge unless the U.S. person has timely made a certain tax election.

The PFIC rules are extremely complex. A U.S. person is encouraged to consult his or her U.S. tax advisor before making an investment in our shares.

As a foreign private issuer, we are subject to different U.S. securities laws and rules than a domestic U.S. issuer, which may limit the information publicly available to our shareholders.

As a foreign private issuer we are not required to comply with all the periodic disclosure requirements of the Securities Exchange Act of 1934 and therefore there may be less publicly available information about Aspreva than if we were a U.S. domestic issuer. In addition, our officers, directors, and principal shareholders are exempt from the reporting and "short-swing" profit recovery provisions of Section 16 of the Securities Exchange Act of 1934 and the rules thereunder. However, under Canadian provincial securities laws, our officers, directors and principal shareholders are required to file reports in electronic format through the System for Electronic Disclosure by Insiders, or SEDI, disclosing changes in beneficial ownership of, or control or direction over, our common shares and other securities. Our shareholders can access such reports at www.sedi.ca.

You may be unable to enforce actions against us, or certain of our directors and officers, under U.S. federal securities laws.

We are a corporation organized under the laws of British Columbia, Canada. A majority of our directors and officers reside principally in Canada. Because all or a substantial portion of our assets and the assets of these persons are located outside the U.S., it may not be possible for you to effect service of process within the United States upon us or those persons. Furthermore it may not be possible for you to enforce against us or them in the United States, judgments obtained in U.S. courts based upon the civil liability provisions of the U.S. federal securities laws or other laws of the U.S. There is doubt as to the enforceability, in original actions in Canadian courts, of liabilities based upon the U.S. federal securities laws and as to the enforceability in Canadian courts of judgments of U.S. courts obtained in actions based upon the civil liability provisions of the U.S. federal securities laws. Therefore, it may not be possible to enforce those actions against us or certain of our directors and officers.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

ITEM 5. OTHER INFORMATION

Executive Officer Cash Bonuses and Stock Options

On February 6, 2007, the Compensation Committee recommended and our Board of Directors approved cash bonuses and the grant of stock options to our Chief Executive Officer, Chief Financial Officer and our three most highly compensated executive officers who earned at least $100,000 of total compensation for the year ended December 31, 2006, as follows:


Named Executive Officer	Position	Cash Bonus Awarded (1)	Number of Shares Subject to Stock Options (2)
Richard Glickman	Chairman and Chief Executive Officer	$139,000	30,000
Noel Hall	President	90,000	20,000
Bruce Cousins	Executive Vice President and Chief Financial Officer	80,000	35,000
Charles Goulburn	Executive Vice President, Global Pharmaceutical Operations	75,000	20,000
Richard Jones	Chief Scientific Officer	42,000	18,000

(1)

The cash bonuses were fully accrued at December 31, 2006 and did not impact expenses for the three month period ended March 31, 2007.

(2)

Each stock option has an exercise price payable in Canadian dollars of C$23.93 ($20.24), being the closing price of our common shares on February 5, 2007 (the trading session ending immediately prior to the time of grant) as reported on the Toronto Stock Exchange, has a ten year term and vests in equal monthly amounts for 48 months from the date of grant.

2006 Performance Bonus Calculation

Each executive officer is eligible for a discretionary performance bonus determined as a percentage of such executive officer's annual base salary as set forth in such officer's employment agreement with Aspreva. The Compensation Committee reviews and recommends to the Board of Directors all compensation decisions relating to our executive officers. The Compensation Committee reviews annually: (i) the annual corporate objectives of Aspreva, which in general include operating, business development and clinical and product development goals; and (ii) the general personal objectives of each executive officer as proposed by our Chief Executive Officer. The Compensation Committee undertakes a review to establish the extent to which such objectives have been met for the purpose of determining each executive officer’s annual cash bonus to recommended to the Board of Directors for approval. In reviewing the performance of each named executive officer, the Compensation Committee also considers each executive officer’s level of leadership, teamwork and general participation in the development of individuals responsible to the executive officer.

On February 6, 2007, the Compensation Committee recommended and our Board of Directors approved annual discretionary performance bonuses to our executive officers in the range of 50% to 84% of their maximum allowable bonus. The Compensation Committee has also approved the corporate and personal goals pursuant to which the performance of the executive officers will be evaluated in 2007 for the purposes of recommending to the Board of Directors the award of discretionary performance bonuses and stock option grants. Please see the 2007 Discretionary Variable Compensation Plan filed as Exhibit 10.34 to this Quarterly Report on Form 10-Q, the description of which is incorporated herein by reference.

ITEM 6. EXHIBITS.


10.34		2007 Discretionary Variable Compensation Plan.

31.1		Certification of the Chief Executive Officer, as required by Rule 13a-14(a) of the Securities and Exchange Act of 1934, as amended.

31.2		Certification of the Chief Financial Officer, as required by Rule 13a-14(a) of the Securities and Exchange Act of 1934, as amended.

32.1*		Certification of the Chief Executive Officer, as required by Rule 13a-14(b) of the Securities and Exchange Act of 1934, as amended and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. Section 1350).

32.2*		Certification of the Chief Financial Officer, as required by Rule 13a-14(b) of the Securities and Exchange Act of 1934, as amended and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. Section 1350).

* The certifications attached as Exhibits 32.1 and 32.2 accompany this quarterly report on Form 10-Q, are not deemed filed with the Security and Exchange Commission and are not to be incorporated by reference into any filing of Aspreva Pharmaceuticals Corporation under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Form 10-Q, irrespective of any general incorporation language contained in such filing.

SIGNATURE

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

	ASPREVA PHARMACEUTICALS CORPORATION
May 8, 2007	/s/ Bruce G. Cousins
	Bruce G. Cousins
	Executive Vice President and Chief Financial Officer
	(Principal Financial and Accounting Officer)

EXHIBIT INDEX

10.34		2007 Discretionary Variable Compensation Plan.

31.1		Certification of the Chief Executive Officer, as required by Rule 13a-14(a) of the Securities and Exchange Act of 1934, as amended.

31.2		Certification of the Chief Financial Officer, as required by Rule 13a-14(a) of the Securities and Exchange Act of 1934, as amended.

32.1*		Certification of the Chief Executive Officer, as required by Rule 13a-14(b) of the Securities and Exchange Act of 1934, as amended and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. Section 1350).

32.2*		Certification of the Chief Financial Officer, as required by Rule 13a-14(b) of the Securities and Exchange Act of 1934, as amended and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. Section 1350).

* The certifications attached as Exhibits 32.1 and 32.2 accompany this quarterly report on Form 10-Q, are not deemed filed with the Security and Exchange Commission and are not to be incorporated by reference into any filing of Aspreva Pharmaceuticals Corporation under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended,whether made before or after the date of this Form 10-Q, irrespective of any general incorporation language contained in such filing.

Aspreva Pharmaceuticals CORP 10-Q