The Company evaluates fair value of positions classified within the Level 3 category based on revenue projections, business, general economic and market conditions that could be reasonably evaluated as of the valuation date.

(6) Short-Term Investments

        The Company has accounted for its investments in accordance with SFAS No. 115, [ASC 320-10-25], and determined that all of its short-term investments are classified as available-for-sale. Available-for-sale securities are carried at fair value with interest on these securities included in interest income. Available-for-sale securities consisted of the following:

        The contractual maturities of available-for-sale debt securities at September 30, 2009 and December 31, 2008 are within one year. The Company has determined that there were no other-than-temporary declines in the fair values of its short term investments as of September 30, 2009. Short-term investments with maturity of three months or less from date of purchase have been classified as cash equivalents, and amounted to $18,948,149 and $27,283,767 as of September 30, 2009 and December 31, 2008, respectively.

(7) Collaboration Agreement

        On June 30, 2009, the Company entered into an exclusive collaboration and license agreement with Biogen Idec International GmbH (Biogen Idec) to develop and commercialize Fampridine-SR in markets outside the United States (the Collaboration Agreement). Under the Collaboration Agreement, Biogen Idec was granted the exclusive right to commercialize Fampridine-SR and other products containing aminopyridines developed under that agreement in all countries outside of the United States, which grant includes a sublicense of the Company's rights under an existing license agreement between the Company and Elan Pharma International Limited, a subsidiary of Elan Corporation plc (Elan). Biogen Idec will have responsibility for regulatory activities and future clinical development of Fampridine-SR in ex-U.S. markets worldwide. The Company also entered into a related supply agreement with Biogen Idec (the Supply Agreement), pursuant to which the Company will supply Biogen Idec with its requirements for the licensed products through the Company's existing supply agreement with Elan.

        Under the Collaboration Agreement, the Company was entitled to an upfront payment of $110.0 million as of June 30, 2009, which was received on July 1, 2009, and will be entitled to receive additional payments of up to approximately $400 million based on the successful achievement of future regulatory and sales milestones. Due to the uncertainty surrounding the achievement of the future

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ACORDA THERAPEUTICS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

(unaudited)

(7) Collaboration Agreement (Continued)

regulatory and sales milestones, these payments will not be recognized as revenue unless and until they are earned. The Company is not able to reasonably predict if and when the milestones will be achieved. Under the Collaboration Agreement, Biogen Idec will be required to make double-digit tiered royalty payments to the Company on ex-U.S. sales. In addition, the consideration that Biogen Idec will pay for licensed products under the Supply Agreement will reflect the price owed to the Company's suppliers under its supply arrangements with Elan or other suppliers for ex-U.S. sales, including manufacturing costs and royalties owed. The Company and Biogen Idec may also carry out future joint development activities regarding licensed product under a cost-sharing arrangement. Under the terms of the Collaboration Agreement, the Company, in part through its participation in joint committees with Biogen Idec, will participate in overseeing the development and commercialization of Fampridine-SR and other licensed products in markets outside the United States pursuant to that agreement. Acorda will continue to develop and commercialize Fampridine-SR independently in the United States.

        As of June 30, 2009, the Company recorded a license receivable and deferred revenue of $110.0 million for the upfront payment due to the Company from Biogen Idec under the Collaboration Agreement. Also, as a result of such payment to Acorda, a payment of $7.7 million became payable by Acorda to Elan and was recorded as a cost of license payable and deferred expense. The payment of $110.0 million was received from Biogen Idec on July 1, 2009 and the payment of $7.7 million was made to Elan on July 7, 2009. The granting of the sublicense to Biogen Idec and the Company's continued activities under the Collaboration Agreement are treated as a single unit of accounting for revenue recognition purposes. As a result, the Company will recognize the non-refundable upfront payment from Biogen Idec as revenue and the associated payment to Elan as expense ratably over the estimated term of regulatory exclusivity for the licensed products under the Collaboration Agreement. The Company recognized $2.4 million in license revenue, a portion of the $110.0 million received from Biogen Idec and $165,000 in cost of license revenue, a portion of the $7.7 million paid to Elan during the three-month period ended September 30, 2009. The Company currently estimates the recognition period to be approximately 12 years.

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Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations

        The following discussion and analysis of our consolidated financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q.

Background

        Since we commenced operations in 1995, we have devoted substantially all of our resources to the identification, development and commercialization of novel therapies that improve neurological function in people with multiple sclerosis (MS), spinal cord injury (SCI) and other disorders of the central nervous system (CNS). Our marketed drug, Zanaflex Capsules, is U.S. Food and Drug Administration (FDA)-approved for the management of spasticity.

        We announced positive results from a Phase 3 clinical trial of our lead product candidate, Fampridine-SR, for the improvement of walking ability in people with MS in September 2006. A second Phase 3 trial of Fampridine-SR in MS, MS-F204, was initiated in June 2007 and favorable results from that study were released in June 2008. The objective of this study was to show that individuals treated with Fampridine-SR are significantly more likely to have consistent improvements in their walking than those treated with placebo. A Thorough QT cardiac study was initiated in September 2007 and favorable results from that study were released in January 2008. This study evaluated the potential of Fampridine-SR to cause an increase in the electrocardiographic QT interval. Fampridine-SR, at both therapeutic and supratherapeutic doses, was found to be no different than placebo.

        On January 30, 2009, we announced the submission of a New Drug Application (NDA) to the FDA for Fampridine-SR. The Fampridine-SR NDA submission is based on data from a comprehensive development program assessing the safety and efficacy of Fampridine-SR, including two Phase 3 trials that involved 540 people with MS and were conducted under Special Protocol Assessments (SPAs) from the FDA. The safety and efficacy profile of Fampridine-SR was consistent across Phase 2 and Phase 3 trials. Overall, the NDA filing included more than 50 clinical studies of Fampridine-SR. As of June 30, 2009, 177 subjects from MS-F202 had been enrolled in an extension trial and 84, or approximately 47%, remained active in the trial, with duration of treatment of active patients ranging from 3.4 to 5.3 years. As of the same date, 269 patients from MS-F203 had been enrolled in a separate extension study and 180 of these, or approximately 66.9%, remained active, with duration of treatment of active patients ranging from 1.1 to 3.6 years. Also, as of this same date, 214 patients from MS-F204 had been enrolled in a third extension study and 176, or approximately 82%, remained active, with duration of treatment of active patients ranging from 14.3 months to 22.4 months. The total exposure to Fampridine-SR in our MS studies as of June 30, 2009, including both double-blind and open label studies, is approximately 1,750 patient-years.

        We announced the receipt of a refuse to file letter (RTF) from the FDA on March 31, 2009 regarding our NDA for Fampridine-SR. The FDA raised what it termed "format issues" regarding the eCTD (electronic) submission, requesting that some of the data in the NDA be reformatted, as well as requesting that some additional supporting information and pharmacokinetic data from a fed/fasted study be included in the filing. The FDA did not request or recommend additional clinical or other studies.

        We announced the resubmission of our NDA for Fampridine-SR to the FDA on April 23, 2009. On May 6, 2009, we announced that the FDA had accepted our NDA for filing, and had assigned it Priority Review and a Prescription Drug User Fee Act (PDUFA) date of October 22, 2009. The PDUFA date is the target date for the FDA to complete its review of the Fampridine-SR NDA.

        We announced notification by the European Medicines Agency (EMEA) that Fampridine-SR is eligible to be submitted for a Marketing Authorization Application (MAA) via the Agency's

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Centralized Procedure on June 8, 2009. The Centralized Procedure provides for a single, coordinated review that is conducted by the EMEA on behalf of all European Union (EU) member states. The EMEA also designated Fampridine-SR as a New Active Substance (NAS); if approved, compounds designated as an NAS receive a 10-year market exclusivity period in EU member states.

        On October 14, 2009 the FDA Peripheral and Central Nervous System Drugs (PCNSD) Advisory Committee voted 12 to 1 that clinical data on Fampridine-SR 10 mg twice daily demonstrated substantial evidence of effectiveness as a treatment to improve walking in people with MS and voted 10 to 2 (1 abstention) that it is clinically meaningful and can be safe for use. The PCNSD Advisory Committee also recommended by a vote of 12 to 1 that we be required to evaluate the effects of doses lower than 10 mg twice daily, but by a 10 to 2 vote (1 abstention) that these studies not be required prior to approval. At the request of the FDA, the PCNSD Advisory Committee also discussed possible conditions for use, including for patients with renal impairment or history of seizure. Acorda has proposed a Risk Evaluation and Mitigation Strategy (REMS) program, which could include healthcare professional and patient education around appropriate use of Fampridine-SR. The FDA can seek the advice of an advisory committee such as the PCNSD Advisory Committee when evaluating a potential new treatment, but it is not required to follow its recommendation.

        Following the PCNSD Advisory Committee meeting on Fampridine-SR, we submitted additional information on our proposed Risk Evaluation and Mitigation Strategy (REMS) program, which could include healthcare professional and patient education around appropriate use of Fampridine-SR. The FDA accepted this submission as a solicited major amendment to the Fampridine-SR NDA. The FDA has the option to extend the PDUFA date when a sponsor submits a major amendment that provides a substantial amount of new data not previously reviewed by the FDA. On October 21, 2009 the FDA extended the PDUFA date for its review of the NDA for Fampridine-SR to January 22, 2010.

        On June 30, 2009, we entered into a Collaboration and License Agreement (Collaboration Agreement) with Biogen Idec International GmbH (Biogen Idec), a Swiss subsidiary of Biogen Idec Inc. Under the Collaboration Agreement, Acorda and Biogen Idec have agreed to collaborate on the development and commercialization of products containing aminopyridines, including Fampridine-SR, initially directed to the treatment of multiple sclerosis. The Collaboration Agreement includes a sublicense of our rights under an existing license agreement with Elan. We have also entered into a related supply agreement (Supply Agreement) pursuant to which we will supply Biogen Idec with its requirements for the licensed products through our existing supply agreement with Elan. Biogen Idec Inc. has guaranteed the performance of Biogen Idec's obligations under the Collaboration Agreement and the Supply Agreement.

        Under the Collaboration Agreement, Biogen Idec, itself or through its affiliates, has the exclusive right to commercialize licensed products in all countries outside of the United States, while we retain the right to commercialize licensed products in the United States. Each party will have the exclusive right to develop licensed products for its commercialization territory, although the parties may also decide to jointly carry out mutually agreed future development activities under a cost-sharing arrangement. If Biogen Idec does not participate in the development of licensed products for certain indications or forms of administration, it may lose the right to develop and commercialize the licensed products for such indication or form of administration. Biogen Idec may sublicense its rights to certain unaffiliated distributors. During the term of the Collaboration Agreement and for two years after the Collaboration Agreement terminates, neither party nor its affiliates may, other than pursuant to the Collaboration Agreement, research, develop, manufacture or commercialize any competing product, defined as one that contains aminopyridine or any other compound that acts at least in part through direct interaction with potassium channels to improve neurological function in multiple sclerosis, spinal cord injury or other demyelinating conditions, except that we may exploit the licensed products anywhere in the world following termination of the Collaboration Agreement.

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        In consideration for the rights granted to Biogen Idec under the Collaboration Agreement, we were entitled to a non-refundable upfront payment of $110.0 million as of June 30, 2009, which was received on July 1, 2009. Also, as a result of such payment to us, a payment of $7.7 million became payable by us to Elan. We currently estimate the revenue recognition period to be approximately 12 years. The Company recognized $2.4 million in license revenue related to the $110.0 million received from Biogen Idec and $165,000 in cost of license revenue related to the $7.7 million paid to Elan during the three-month period ended September 30, 2009. We are also eligible to receive up to $400 million from Biogen Idec should specified regulatory and sales milestones be met. There can be no guarantee that any such milestones will in fact be met.

        Under the Collaboration Agreement, we will also be entitled to receive double-digit tiered royalties on sales of licensed products by Biogen Idec, its affiliates or certain distributors outside of the United States. Such royalties for products combining a licensed compound with at least one other clinically active therapeutic, prophylactic or diagnostic ingredient are determined based on the contribution of the licensed compound to the overall sales or value of the combination product. Biogen Idec may offset against the royalties payable to us a portion of certain royalties which it may need to pay to third parties. In addition, Biogen Idec will pay us, in consideration for its purchase and sale of the licensed products, any amounts due to Elan for ex-U.S. sales, including royalties owed under the terms of our previous agreements with Elan.

        Biogen Idec will exclusively purchase all of Biogen Idec's, its affiliates' and its sublicensees' requirements of the licensed products from us. The purchase price paid by Biogen Idec for licensed products under the Collaboration Agreement and Supply Agreement reflects the prices owed to our suppliers under our supply arrangements with Elan or other suppliers.

        The Collaboration Agreement will terminate upon the expiration of Biogen Idec's royalty payment obligations, which occurs, on a licensed product-by-licensed product and country-by-country basis, upon the latest of expiration of the last-to-expire patent covering a licensed product, fifteen years following first commercial sale of such licensed product, the expiration of regulatory exclusivity and the existence of certain levels of sales by competing products. The Collaboration Agreement and the Supply Agreement will automatically terminate upon the termination of our license agreement with Elan in its entirety or with respect to all countries outside of the United States. We cannot terminate our license agreement with Elan without Biogen Idec's prior written consent under certain circumstances. Biogen Idec may terminate the Collaboration Agreement in its entirety or on a country-by-country basis at any time upon 180 days' prior written notice, subject to our right to accelerate such termination. The Collaboration Agreement may also be terminated by either party if the other party fails to cure a material breach under the agreement, which termination will be limited to a particular country or region under certain circumstances. However, if Biogen Idec has the right to terminate the Collaboration Agreement due to our material uncured breach, Biogen Idec may instead elect to keep the agreement in effect, but decrease the royalty rates they pay us by a specified percentage. We may also terminate the Collaboration Agreement if Biogen Idec does not commercially launch a licensed product within a specified time period after receiving regulatory approval for such licensed product or otherwise fails to meet certain commercialization obligations. In addition, we may terminate the Collaboration Agreement under certain circumstances if (i) Biogen Idec, its affiliates or its sublicensees challenge certain of our patents or (ii) there is a change in control of Biogen Idec or its parent company or certain dispositions of assets by Biogen Idec, its parent or its affiliated companies, followed by a change in the sales and marketing personnel responsible for the licensed products in Biogen Idec's territory of more than a specified percentage within a certain period of time after such change in control or disposition. The Supply Agreement may be terminated by either party if the other party fails to cure a material breach under the Supply Agreement. In addition, the Supply Agreement will terminate automatically upon termination of the Collaboration Agreement, and the Collaboration Agreement will terminate automatically if the Supply Agreement is terminated for any reason other than for a material breach that we are responsible for. To the extent permitted by law, each party may

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terminate the Collaboration Agreement and the Supply Agreement if the other party is subject to bankruptcy proceedings.

        If the Supply Agreement is terminated by Biogen Idec for an uncured material breach, we will waive our right for Elan to exclusively supply the licensed products to us solely to permit Biogen Idec to negotiate terms with Elan for the supply of licensed products to Biogen Idec. If the Supply Agreement is otherwise terminated, Biogen Idec will not have any future obligations to purchase licensed products from us and we will not have any future obligations to supply Biogen Idec with licensed products. If the Collaboration Agreement is terminated, Biogen Idec will assign to us all regulatory documentation and other information necessary or useful to exploit the licensed products in the terminated countries and will grant us a license under Biogen Idec's and its affiliates' relevant patent rights, know-how and trademarks to exploit the licensed products in the terminated countries. Such assignment and license will be at no cost to us unless the Collaboration Agreement is terminated by Biogen Idec for a material uncured breach that we are responsible for, in which case the parties will negotiate a payment to Biogen Idec to reflect the net value of such assigned and licensed rights.

        Neither party may assign the agreements without the prior written consent of the other, except to an affiliate or, in certain cases, to a third party acquirer of the party.

        In connection with the entry into the Collaboration Agreement, Acorda, Biogen Idec and Elan entered into a consent agreement (the Consent). Under the Consent, Elan consented to our sublicense of rights to Biogen Idec, and Acorda, Biogen Idec and Elan agreed to set up a committee to coordinate activities under the agreements between Acorda and Elan with respect to the development, supply and commercialization of the licensed products for Biogen Idec's territory. The Consent also amends our agreements with Elan by, among other things, permitting us to allow Biogen Idec to grant sublicenses to certain unaffiliated distributors, permitting us to allow Biogen Idec to package the licensed products and requiring Elan to facilitate the qualification of an alternate supplier of the licensed products under certain circumstances.

        Biogen, which is responsible under the Collaboration Agreement for the filing of the MAA, has announced that it plans to file with the EMEA in early 2010.

        We believe Fampridine-SR is the first potential therapy in late-stage clinical development for MS that seeks to improve the function of damaged nerve fibers and, if approved, could be complementary to existing drugs used to treat MS. To our knowledge, there are no current therapies indicated to improve walking ability in people with MS.

        We have three preclinical programs focused on novel approaches to repair damaged components of the CNS. We believe all of our preclinical programs—neuregulins, remyelinating antibodies and chondroitinase—have broad applicability and have the potential to be first-in-class therapies. While these programs have initially been focused on MS and SCI, we believe they may be applicable across a number of CNS disorders, including stroke and traumatic brain injury, because many of the mechanisms of tissue damage and repair are similar. In addition, we believe that these programs may have applicability beyond the nervous system, including in such fields as cardiology, oncology, orthopedics and ophthalmology. In 2008, we began to work with a contract manufacturer to develop larger scale manufacturing and purification processes for one of the neuregulins, GGF2, under good manufacturing practices (cGMP) in preparation for a potential future Investigational New Drug (IND) application to support human clinical trials for the treatment of congestive heart failure (CHF). Acorda and the FDA held a pre-IND meeting to discuss an IND filing for CHF. Based on feedback from the FDA, we now expect to file an IND in early 2010 pending final results of animal toxicology and other preclinical activities. If we are able to establish a proof of concept for treatment of CHF through human clinical studies, we believe that this may enable us to enter into a partnership with a cardiovascular-focused company, and that such a partnership, if achieved, could more efficiently move GGF2 forward in a cardiac indication, while potentially providing us the capital to support our work on GGF2 in neurological indications. We have also begun work with contract manufacturers to scale up

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manufacturing and purification processes for one of the remyelinating antibodies (rHIgM22) under cGMPs for preparation for a future IND application.

        Our marketing efforts are focused on Zanaflex Capsules, which we launched in April 2005. Zanaflex tablets lost compound patent protection in 2002 and both Zanaflex Capsules and Zanaflex tablets compete with 12 generic tizanidine products. Although we currently distribute Zanaflex tablets, we do not, and do not intend to, actively promote Zanaflex tablets. As a result, prescriptions for Zanaflex tablets have declined and we expect that they will continue to decline. Our goal is to convert as many sales of Zanaflex tablets and generic tizanidine tablets to sales of Zanaflex Capsules as possible. We believe that sales of Zanaflex Capsules will constitute a significant portion of our total revenue until we begin to generate sales of Fampridine-SR, if approved. Zanaflex Capsules and tablets commercial operations were cash flow positive in 2008. A slight downward trend in prescriptions was observed over the first three quarters of 2009.

        We are conducting prelaunch activities to prepare for the commercialization of Fampridine-SR, if approved.

        We also are conducting activities to provide disease state education and awareness programs to health-care providers and consumers about mobility and walking impairment issues for people with MS. For health-care providers, these activities include a disease state awareness booth at major medical meetings, a physician direct mail campaign and advertisements in medical publications. For consumers, these activities include a booth at consumer events, an online website (moveoverms.org), and advertisements in publications.

        In August 2007, we received a Paragraph IV Certification Notice from Apotex Inc. advising that it filed an Abbreviated New Drug Application (ANDA) with the FDA for generic versions of each of the three Zanaflex Capsules dosage strengths marketed by us. In response to the filing of the ANDA, in October 2007, we filed a lawsuit against Apotex Corp. and Apotex Inc. (collectively, Apotex) in the United States District Court for the District of New Jersey asserting infringement of our U.S. Patent No. 6,455,557 relating to multiparticulate tizanidine compositions, including those sold by us as Zanaflex Capsules. The patent expires in 2021. The defendants have answered our complaint, asserting patent invalidity and non-infringement and counterclaiming, seeking a declaratory judgment of patent invalidity and non-infringement. We have denied those counterclaims. If the ANDA were approved by the FDA and Apotex were successful in challenging the validity of the patent, Apotex could be permitted to sell a generic tizanidine hydrochloride capsule in competition with Zanaflex Capsules.

        In March 2008, Apotex filed a motion, which we opposed, for partial judgment on the pleadings dismissing our request for relief on the ground that the case is "exceptional" under U.S.C. §§ 271(e)(4) or 285. The court ruled in our favor and denied Apotex's motion in December 2008. Fact discovery in the case has been completed. The court has also determined that a Markman hearing on the construction of certain terms contained in the patent will be held, and the parties have completed related depositions and submission of the briefs to the Court. The hearing was set for November 18, 2009 but the Court has postponed it without yet setting a new date. Apotex has filed a motion to exclude certain evidence from consideration at the hearing, which we have opposed.

        We have established our own specialty sales force in the United States, which consisted of 73 sales professionals and account management as of September 30, 2009, including approximately 52 sales representatives. This sales force has targeted neurologists and other prescribers who specialize in treating people with conditions that involve spasticity. We also employ an internal and field-based team who call on managed care organizations, pharmacists and distribution customers. In addition, we retain TMS Professional Markets Group, LLC to provide a small, dedicated sales force of pharmaceutical telesales professionals who contact primary care, specialist physicians and pharmacists. We expect to double our sales representatives to approximately 100 people, in anticipation of and in time for the launch of Fampridine-SR, if approved.

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Results of Operations

Three-Month Period Ended September 30, 2009 Compared to September 30, 2008

Gross Sales

        We recognize product sales using a deferred revenue recognition model where shipments to wholesalers are recorded as deferred revenue and only recognized as revenue when end-user prescriptions of the product are reported. We recognized revenue from the sale of Zanaflex Capsules and Zanaflex tablets of $14.5 million for the three-month period ended September 30, 2009, as compared to $13.7 million for the three-month period ended September 30, 2008. The increase was due to a 10% price increase effective January 1, 2009. A slight downward trend in prescriptions was observed over the first three quarters of 2009.

Discounts and Allowances

        We recorded discounts and allowances of $1.6 million for the three-month period ended September 30, 2009 as compared to $1.2 million for the three-month period ended September 30, 2008. Discounts and allowances are recorded when Zanaflex Capsules and Zanaflex tablets are shipped to wholesalers. Discounts and allowances for the three-month period ended September 30, 2009 consisted of $785,000 in fees for services payable to wholesalers, $597,000 in allowances for chargebacks and rebates and $225,000 in cash discounts and patient program rebates. Discounts and allowances for the three-month period ended September 30, 2008 consisted of $651,000 in fees for services payable to wholesalers, $449,000 in allowances for chargebacks and rebates, and $124,000 in cash discounts and patient program rebates.

Grant Revenue

        We earned no grant revenue for the three-month period ended September 30, 2009 compared to $23,000 for the three-month period ended September 30, 2008. Grant revenue is recognized when the related research expenses are incurred and our performance obligations under the terms of the respective contract are satisfied.

Cost of Sales

        We recorded cost of sales of $2.6 million for the three-month period ended September 30, 2009 as compared to $2.7 million for the three-month period ended September 30, 2008. Cost of sales for the three-month period ended September 30, 2009 consisted of $1.4 million in inventory costs primarily related to recognized revenues, $878,000 in royalty fees based on net product shipments, $321,000 in amortization of intangible assets, which is unrelated to either the volume of shipments or the amount of revenue recognized, and $50,000 in period costs related to freight and stability testing. Cost of sales for the three-month period ended September 30, 2008 consisted of $1.3 million in inventory costs primarily related to recognized revenues, $741,000 in royalty fees based on net product shipments, $596,000 in amortization of intangible assets, which is unrelated to either the volume of shipments or the amount of revenue recognized, and $44,000 in period costs related to packaging, freight, and stability testing. Payments to and interest expense related to our Paul Royalty Fund (PRF) transaction discussed below in the section titled "Liquidity and Capital Resources" do not impact our cost of sales.

Research and Development

        Research and development expenses for the three-month period ended September 30, 2009 were $8.2 million as compared to $8.7 million for the three-month period ended September 30, 2008, a decrease of approximately $500,000, or 5%. The decrease was primarily attributable to a decrease in

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regulatory expenses relating to Fampridine-SR of $762,000 or 33% to $1.5 million as well as a decrease in MS clinical development program expense of $823,000 or 42% to $1.1 million.

        These decreases were offset by an increase in research and development expense of $573,000 or 29% to $2.6 million primarily related to work on one of our preclinical pipeline products, GGF2, including an increase in staff and compensation to support this initiative. This overall increase in expense was primarily associated with animal toxicology expenses and the development of larger scale manufacturing and purification processes for GGF2, under cGMP, in preparation for a potential future IND application to support human clinical trials. The overall decrease in research and development expense was also offset by an increase in clinical and regulatory staff and compensation of $451,000 to support the overall growth of the organization and manufacturing and stability fees for Fampridine-SR of $108,000.

Sales and Marketing

        Sales and marketing expenses for the three-month period ended September 30, 2009 were $15.6 million compared to $14.4 million for the three-month period ended September 30, 2008, an increase of approximately $1.1 million or 8%. This increase was primarily attributable to an increase of $1.3 million in disease state education and awareness programs and pre-launch activities associated with the possible commercialization of Fampridine-SR, if approved.

General and Administrative

        General and administrative expenses for the three-month period ended September 30, 2009 were $7.7 million compared to $5.9 million for the three-month period ended September 30, 2008, an increase of approximately $1.8 million, or 29%. This increase was the result of an increase in costs associated with medical affairs educational programs of $983,000 and an increase in staff and compensation and other expenses of $545,000 related to supporting the growth of the overall organization.

Other Income (Expense)

        Other income (expense) was $429,000 in expense for the three-month period ended September 30, 2009 compared to $398,000 in income for the three-month period ended September 30, 2008, a decrease of approximately $827,000 or 208%. The decrease was primarily due to a decrease in interest income of $925,000 resulting from a lower average interest rate than for the same period in 2008. The decrease in interest income was partially offset by a $170,000 decrease in interest expense principally related to the PRF revenue interest agreement.

Nine-Month Period Ended September 30, 2009 Compared to September 30, 2008

Gross Sales

        We recognize product sales using a deferred revenue recognition model where shipments to wholesalers are recorded as deferred revenue and only recognized as revenue when end-user prescriptions of the product are reported. We recognized revenue from the sale of Zanaflex Capsules and Zanaflex tablets of $43.8 million for the nine-month period ended September 30, 2009, as compared to $39.4 million for the nine-month period ended September 30, 2008. The increase was due to a 10% price increase effective January 1, 2009. A slight downward trend in prescriptions was observed over the first three quarters of 2009.

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Discounts and Allowances

        We recorded discounts and allowances of $6.0 million for the nine-month period ended September 30, 2009 as compared to $4.2 million for the nine-month period ended September 30, 2008. Discounts and allowances are recorded when Zanaflex Capsules and Zanaflex tablets are shipped to wholesalers. Discounts and allowances for the nine-month period ended September 30, 2009 consisted of $2.8 million in allowances for chargebacks and rebates which includes a Tricare rebate reserve of $990,000, of which $351,000 is related to the first three quarters of 2009 and an adjustment of $639,000 is related to 2008. These rebates and adjustments resulted from a Department of Defense (DOD) regulation finalized during the three-month period ended March 31, 2009 which purports to require manufacturers to pay rebates to DOD on utilization distributed to Tricare beneficiaries through retail pharmacies retroactive to January 28, 2008. The application of the regulation is currently being challenged in court by a coalition representing a number of manufacturers. Discounts and allowances for the nine-month period ended September 30, 2009 also consisted of $2.0 million in fees for services payable to wholesalers and $1.1 million in cash discounts and patient program rebates. Discounts and allowances for the nine-month period ended September 30, 2008 consisted of $1.6 million in fees for services payable to wholesalers, $1.5 million in allowances for chargebacks and rebates, and $1.1 million in cash discounts and patient program rebates.

Grant Revenue

        We earned no grant revenue for the nine-month period ended September 30, 2009 compared to $76,000 for the nine-month period ended September 30, 2008. Grant revenue is recognized when the related research expenses are incurred and our performance obligations under the terms of the respective contract are satisfied.

Cost of Sales

        We recorded cost of sales of $8.1 million for the nine-month period ended September 30, 2009 as compared to $8.5 million for the nine-month period ended September 30, 2008. The decrease was principally due to the decrease in amortization of intangible assets resulting from having completed the amortization of the Zanaflex trademark portion of our intangible asset as of December 31, 2008. Cost of sales for the nine-month period ended September 30, 2009 consisted of $4.2 million in inventory costs primarily related to recognized revenues, $2.8 million in royalty fees based on net product shipments, $962,000 in amortization of intangible assets, which is unrelated to either the volume of shipments or the amount of revenue recognized, and $152,000 in period costs related to freight and stability testing. Cost of sales for the nine-month period ended September 30, 2008 consisted of $4.0 million in inventory costs primarily related to recognized revenues, $2.5 million in royalty fees based on net product shipments, $1.8 million in amortization of intangible assets, which is unrelated to either the volume of shipments or the amount of revenue recognized, and $210,000 in period costs related to freight and stability testing. Payments to and interest expense related to our PRF transaction discussed below in the section titled "Liquidity and Capital Resources" do not impact our cost of sales.

Research and Development

        Research and development expenses for the nine-month period ended September 30, 2009 were $24.0 million as compared to $25.8 million for the nine-month period ended September 30, 2008, a decrease of approximately $1.8 million, or 7%. The decrease was primarily attributable to our acquisition of certain in-process research and development assets of Neurorecovery, Inc. (NRI) during the three-month period ended March 31, 2008, resulting in a one time non-cash expense of approximately $2.7 million. In addition, MS clinical development program expense decreased $3.3 million or 49% to $3.5 million for the nine-month period ended September 30, 2009, primarily due

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to the conclusion of our Phase 3 clinical trial of Fampridine-SR in 2008 as well as a decrease in regulatory expenses relating to Fampridine-SR of $942,000 or 19% to $3.9 million.

        These decreases were offset by an increase in research and development expense of $3.2 million or 65% primarily related to work on one of our preclinical pipeline products, GGF2, including an increase in staff and compensation to support this initiative. This overall increase in expense was primarily associated with animal toxicology expenses and the development of larger scale manufacturing and purification processes for GGF2, under cGMP, in preparation for a potential future IND application to support human clinical trials. The overall decrease in research and development expense was also offset by an increase in clinical and regulatory staff and compensation of $1.6 million to support the overall growth of the organization and manufacturing and stability fees for Fampridine-SR of $363,000. Research and development expense for the fourth quarter 2009 is not expected to differ materially from the third quarter 2009. If our GGF2 development program proceeds to clinical trials in 2010, there will be the potential for increased R&D costs next year.

Sales and Marketing

        Sales and marketing expenses for the nine-month period ended September 30, 2009 were $44.1 million compared to $36.3 million for the nine-month period ended September 30, 2008, an increase of approximately $7.8 million or 21%. This increase was primarily attributable to an increase of $7.6 million in disease state education and awareness programs and pre-launch activities associated with the possible commercialization of Fampridine-SR, if approved, and an increase in sales and marketing staff and compensation of $799,000 to support the promotion of Zanaflex Capsules and Fampridine-SR pre-launch activities, offset by a decrease of $203,000 in Zanaflex Capsules sales and marketing initiatives and a decrease in other selling related expenses of $874,000. If Fampridine-SR is approved, we expect to see an increase in sales and marketing expenses in the launch year.

General and Administrative

        General and administrative expenses for the nine-month period ended September 30, 2009 were $23.1 million compared to $17.4 million for the nine-month period ended September 30, 2008, an increase of approximately $5.7 million, or 33%. This increase was the result of an increase in staff and compensation and other expenses of $2.1 million related to supporting the growth of the overall organization, an increase in costs associated with medical affairs educational programs of $2.1 million, an increase in legal fees of $622,000 and an increase in business development expenses of $465,000 related to our collaboration and licensing agreement efforts.

Other Income (Expense)

        Other income (expense) was $2.2 million of expense for the nine-month period ended September 30, 2009 compared to $1.5 million of expense for the nine-month period ended September 30, 2008, an increase of approximately $785,000 or 54%. This change was due to a decrease in interest expense of $1.3 million resulting primarily from the impact of a $1.4 million out-of-period adjustment made during the second quarter of 2008. The out-of-period adjustment was made to correct an error identified in the previously recorded effective interest expense recognized related to the November 2006 amended revenue interests assignment with PRF. This out-of-period adjustment did not increase the total interest expense associated with this agreement, but corrected its timing of recognition. The increase in other income (expense) was also attributable to a decrease in investment interest income of $2.0 million resulting from a lower average interest rate than for the same period in 2008.

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Liquidity and Capital Resources

        We have incurred annual operating losses since inception and, as of September 30, 2009, we had an accumulated deficit of approximately $405.8 million. We have financed our operations primarily through private placements of our securities, public offerings of our common stock, our collaboration and licensing agreement, and, to a lesser extent, from loans, government grants and our financing arrangement with PRF.

Financing Arrangements

        In January 1997, Elan International Services, Ltd. (EIS) loaned us an aggregate of $7.5 million pursuant to two convertible promissory notes to partly fund our research and development activities. On December 23, 2005, EIS transferred these promissory notes to funds affiliated with Saints Capital. As of September 30, 2009, $5.0 million of these promissory notes were outstanding.

        On December 23, 2005, we entered into a revenue interest assignment agreement with PRF, a dedicated healthcare investment fund, pursuant to which we assigned to PRF the right to a portion of our net revenues (as defined in the agreement) from Zanaflex Capsules, Zanaflex tablets and any future Zanaflex products. To secure our obligations to PRF, we also granted PRF a security interest in substantially all of our assets related to Zanaflex. Our agreement with PRF covers all Zanaflex net revenues generated from October 1, 2005 through and including December 31, 2015, unless the agreement terminates earlier. In November 2006, we entered into an amendment to the revenue interest assignment agreement with PRF. Under the terms of the amendment, PRF paid us $5.0 million in November 2006 and an additional $5.0 million in February 2007 as our net revenues during the fiscal year 2006 exceeded $25.0 million. Under the terms of the amendment, we are required to pay PRF $5.0 million on December 1, 2009 and an additional $5.0 million on December 1, 2010.

        Under the agreement and the amendment, PRF is entitled to the following portion of Zanaflex net revenues:

•

with respect to Zanaflex net revenues up to and including $30.0 million for each fiscal year during the term of the agreement, 15% of such net revenues;



•

with respect to Zanaflex net revenues in excess of $30.0 million but less than and including $60.0 million for each fiscal year during the term of the agreement, 6% of such net revenues; and



•

with respect to Zanaflex net revenues in excess of $60.0 million for each fiscal year during the term of the agreement, 1% of such net revenues.

        Notwithstanding the foregoing, once PRF has received and retained payments under the agreement that are at least 2.1 times the aggregate amount PRF has paid us under the agreement, PRF will only be entitled to 1% of Zanaflex net revenues. In connection with the transaction, we have a liability recorded, referred to as the revenue interest liability, of approximately $17.1 million. We impute interest expense associated with this liability using the effective interest rate method and record a corresponding accrued interest liability. The effective interest rate is calculated based on the rate that would enable the debt to be repaid in full over the life of the arrangement. The interest rate on this liability may vary during the term of the agreement depending on a number of factors, including the level of Zanaflex sales. We currently estimate that the imputed interest rate associated with this liability will be approximately 6.0%. Payments made to PRF as a result of Zanaflex sales levels reduce the accrued interest liability and the principal amount of the revenue interest liability.

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Investment Activities

        At September 30, 2009, cash and cash equivalents and short-term investments were approximately $292.4 million, as compared to $246.0 million at December 31, 2008. As of September 30, 2009, our cash and cash equivalents consist of highly liquid investments with original maturities of three months or less at date of purchase and consist of time deposits and investments in a Treasury money market fund and high-quality government bonds. Also, we maintain cash balances with financial institutions in excess of insured limits. We do not anticipate any losses with respect to such cash balances. As of September 30, 2009, our cash and cash equivalents were $25.7 million, as compared to $29.6 million as of December 31, 2008. Our short-term investments consist of US Treasury bonds with original maturities greater than three months and less than one year. The balance of these investments was $266.7 million as of September 30, 2009, as compared to $216.4 million as of December 31, 2008.

Net Cash Provided by (Used in) Operations

        Net cash provided by (used in) operations was $51.5 million and ($32.2) million for the nine-month period ended September 30, 2009 and 2008, respectively. Cash used in operations for the nine-month period ended September 30, 2009 was primarily attributable to a net loss of $61.5 million, an increase in the non-current portion of deferred cost of license revenue of $6.9 million and an increase in prepaid expenses and other current assets of $3.6 million. Cash used in operations for the nine-month period ended September 30, 2009, was partially offset by an increase in deferred license revenue of $107.6 million, a non-cash share-based compensation expense of $8.9 million, amortization of net premiums and discounts on short-term investments of $3.4 million, an increase in Zanaflex Capsules deferred product revenues of $2.5 million and depreciation and amortization of $2.1 million. Cash used in operations for the nine-month period ended September 30, 2008 was primarily attributable to a net loss of $54.1 million, amortization of the discount on short-term investments of $2.4 million, an increase in inventory held by others of $416,000, a decrease in Zanaflex tablets deferred product revenues of $142,000, and a gain on our put/call liability of $50,000. Cash used in operations for the nine-month period ended September 30, 2008, was partially offset by an increase in accounts payable, accrued expenses, and other current liabilities of $7.6 million, a non-cash share-based compensation expense of $7.1 million, a decrease in inventory held by the Company of $2.8 million, a non-cash expense for the acquisition of NRI assets of $2.7 million, depreciation and amortization of $2.5 million, an increase in Zanaflex Capsules deferred product revenues of $1.7 million, a decrease in accounts receivable of $249,000, and a decrease in prepaid expenses and other current assets of $236,000.

Net Cash Used in Investing

        Net cash used in investing activities for the nine-month period ended September 30, 2009 was $56.2 million, primarily due to $278.9 million in purchases from maturities of short-term investments which was partially offset by $224.7 million in proceeds of short-term investments and $1.9 million in purchases of property and equipment.

Net Cash Provided by Financing

        Net cash provided by financing activities for the nine-month period ended September 30, 2009 was $697,000 due to $2.3 million in proceeds from option exercises which was offset by $1.6 million in repayments to PRF.

Future Capital Needs

        Our future capital requirements will depend on a number of factors, including the amount of revenue generated from sales of Zanaflex Capsules, revenue from Fampridine-SR, if approved, the continued progress of our research and development activities, the timing and outcome of regulatory

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approvals, the amount and timing of milestone or other payments made or received under collaborative agreements, the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims and other intellectual property rights and the acquisition of licenses to new products or compounds. We expect to continue to incur losses from operations as we continue to support our sales and marketing infrastructure for the commercialization of Zanaflex Capsules, increase our efforts to support pre-launch activities for Fampridine-SR and its commercialization, if approved, and continue our clinical development and advance our preclinical programs.

        We believe our year-end 2009 cash, cash equivalents and investment balances will be in excess of $250.0 million. To the extent our capital resources are insufficient to meet future operating requirements we will need to raise additional capital, reduce planned expenditures, or incur indebtedness to fund our operations. We may be unable to obtain additional debt or equity financing on acceptable terms, if at all. If adequate funds are not available, we may be required to curtail our sales and marketing efforts, delay, reduce the scope of or eliminate some of our research and development programs or obtain funds through arrangements with collaborative partners or others that may require us to relinquish rights to certain product candidates that we might otherwise seek to develop or commercialize independently.

Critical Accounting Policies and Estimates

        The following discussion of critical accounting policies identifies the accounting policies that require application of management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. It is not intended to be a comprehensive list of all of our significant accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by generally accepted accounting principles, with no need for management's judgment in their application. There are also areas in which the selection of an available alternative policy would not produce a materially different result. We have identified the following as our areas of critical accounting policies: sales revenue recognition, research and development, income taxes, and stock-based compensation.

Revenue Recognition

        We apply the revenue recognition guidance in SFAS No. 48, Revenue Recognition When the Right of Return Exists, [Accounting Standards Codification (ASC) 605-15-25], which among other criteria requires that future returns can be reasonably estimated in order to recognize revenue. We cannot recognize revenue until we can reasonably estimate the likely return rate for our products. Since we have only limited sales history with Zanaflex Capsules and due to generic competition and customer conversion from Zanaflex tablets to Zanaflex Capsules, we do not believe we can reasonably determine a return rate. As a result, we account for sales of these products using a deferred revenue recognition model. At a future point in time when we are able to reasonably estimate product returns we will begin to recognize revenue based on shipments of product to our wholesale drug distributors.

        Under our deferred revenue model, we do not recognize revenue upon shipment of product to our wholesale drug distributors. Instead, we record deferred revenue at gross invoice sales price, and classify the cost basis of the inventory shipped as inventory held by others. We recognize revenue when prescriptions are filled to an end-user because once a prescription is filled the product cannot be returned. We use monthly prescription data that we purchase to determine the amount of revenue to be recognized. We use the number of units of product prescribed to record gross sales. We then reduce deferred revenue and record cost of goods sold. We began receiving end-user prescription data in March 2005 which enabled us to begin recognizing revenue from Zanaflex tablet sales. We began marketing Zanaflex Capsules in April 2005 and began receiving prescription data and recognizing revenue in the same month.

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        In addition to the prescription data we purchase, we also receive data that we use to monitor trends in sales from wholesalers to their customers. We receive this data from an outside vendor on a monthly basis. This data includes the number of bottles shipped from certain wholesalers to their customers. We also compare our shipments to wholesalers to prescription reports to further assess inventory in the distribution channel on a monthly basis. We use the wholesaler sales trend data and the wholesaler vs. prescription comparison to better understand market conditions, but not as a basis for recognizing revenue.

        We accept returns of products for six months prior to and 12 months after their expiration date. Returns of products sold by us are charged directly against deferred revenue, reducing the amount of deferred revenue that we may recognize.

        We recognize collaboration revenues by analyzing each element of the agreement to determine if it shall be accounted for as a separate element or single unit of accounting. If an element shall be treated separately for revenue recognition purposes, the revenue recognition principles most appropriate for that element are applied to determine when revenue shall be recognized. If an element shall not be treated separately for revenue recognition purposes, the revenue recognition principles most appropriate for the bundled group of elements are applied to determine when revenue shall be recognized. Payments received in excess of revenues recognized are recorded as deferred revenue until such time as the revenue recognition criteria have been met.

Research and Development

        Research and development expenses include the costs associated with our internal research and development activities including, salaries and benefits, occupancy costs, and research and development conducted for us by third parties, such as sponsored university-based research, clinical trial vendors, contract manufacturing for our preclinical program, and regulatory consulting to support our NDA filing. In addition, research and development expenses include expenses related to grant revenue and the cost of clinical trial drug supply shipped to our clinical study vendors. We account for our clinical study costs by estimating the patient cost per visit in each clinical trial and recognizing this cost as visits occur, beginning when the patient enrolls in the trial. This estimated cost includes payments to the trial site and patient-related costs, including laboratory costs related to the conduct of the trial. Cost per patient varies based on the type of clinical trial, the site of the clinical trial, and the length of the treatment period for each patient. As actual costs become known to us, we adjust our accrual; such changes in estimate may be a material change in our clinical study accrual, which could also materially affect our results of operations. All research and development costs are expensed as incurred except where EITF Issue No. 07-3, Accounting for Nonrefundable Advance Payments for Goods or Services to be Used in Future Research and Development Activities, [ASC 730-20-25], applies. In these cases, non-refundable advance payments for goods and services that will be used in future research and development activities are capitalized at the time of payment and expensed when the research and development activity has been performed.

Income Taxes

        As part of the process of preparing our financial statements we are required to estimate our income taxes in each of the jurisdictions in which we operate. We account for income taxes by the asset and liability method. Under this method, deferred income taxes are recognized for tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year-end, based on enacted laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are provided if, based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

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        We have not recorded any tax provision or benefit for the three and nine-month periods ended September 30, 2009 and 2008. We have provided a valuation allowance for the full amount of our gross deferred tax assets since realization of any future benefit from deductible temporary differences and net operating loss carry-forwards cannot be sufficiently assured at September 30, 2009.

        As of September 30, 2009, we had available net operating loss carry-forwards of approximately $216.5 million for federal and state income tax purposes, which are available to offset future federal and state taxable income, if any, and expire between 2010 and 2028 and research and development tax credit carry-forwards of approximately $1.6 million for federal income tax reporting purposes which are available to reduce federal income taxes, if any, through 2018. Since our inception, we have incurred substantial losses and expect to incur substantial and recurring losses in future periods. The Internal Revenue Code of 1986, as amended, the Code, provides for a limitation of the annual use of net operating loss and research and development tax credit carry forwards (following certain ownership changes, as defined by the Code) that could significantly limit our ability to utilize these carry-forwards. We have experienced various ownership changes, as defined by the Code, as a result of past financings. Accordingly, our ability to utilize the aforementioned carry-forwards may be limited. Additionally, because U.S. tax laws limit the time during which these carry-forwards may be applied against future taxes we may not be able to take full advantage of these attributes for federal income tax purposes.

Share-based Compensation

        We account for stock options and restricted stock granted to employees according to the provisions of SFAS No. 123R, Share Based Payment, [ASC 718-50-30], which requires that the costs resulting from all share-based payment transactions be recognized in the financial statements at their fair values. We estimate the fair value of each option on the date of grant using the Black-Scholes closed-form option-pricing model based on assumptions for the expected term of the stock options, expected volatility of our common stock, prevailing interest rates, and an estimated forfeiture rate.

        We have based our current assumptions on the following:

        Of these assumptions, the expected term of the option and expected volatility of our common stock are the most difficult to estimate since they are based on the exercise behavior of the employees and expected performance of our common stock. Increases in the term and the volatility of our common stock will generally cause an increase in compensation expense.

Item 3.    Quantitative and Qualitative Disclosures About Market Risk

        Our financial instruments consist of cash equivalents, short-term investments, grants receivable, convertible notes payable, accounts payable, and put/call liability. The estimated fair values of all of our financial instruments approximate their carrying amounts at September 30, 2009.

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        We have cash equivalents and short-term investments at September 30, 2009, which are exposed to the impact of interest rate changes and our interest income fluctuates as our interest rates change. Due to the short-term nature of our investments in money market funds and US Treasury bonds, the carrying value of our cash equivalents and short-term investments approximate their fair value at September 30, 2009. At September 30, 2009, we held $292.4 million in cash and cash equivalents and short-term investments which had an average interest rate of approximately 0.4%.

        We maintain an investment portfolio in accordance with our investment policy. The primary objectives of our investment policy are to preserve principal, maintain proper liquidity to meet operating needs and maximize yields. Although our investments are subject to credit risk, our investment policy specifies credit quality standards for our investments and limits the amount of credit exposure from any single issue, issuer or type of investment. Our investments are also subject to interest rate risk and will decrease in value if market interest rates increase. However, due to the conservative nature of our investments and relatively short duration, interest rate risk is mitigated. We do not own derivative financial instruments. Accordingly, we do not believe that there is any material market risk exposure with respect to derivative or other financial instruments.

Item 4.    Controls and Procedures

Evaluation of disclosure controls and procedures

        As required by Rule 13a-15 under the Exchange Act we carried out an evaluation of the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this report. This evaluation was carried out under the supervision and with the participation of our management, including our chief executive officer and our chief financial officer. Based on that evaluation, these officers have concluded that, as of September 30, 2009, our disclosure controls and procedures were effective.

        Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and regulations. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our chief executive officer and chief financial officer as appropriate, to allow timely decisions regarding disclosure.

Change in internal control over financial reporting

        In connection with the evaluation required by Exchange Act Rule 13a-15(d), our management, including our chief executive officer and chief financial officer, concluded that there were no changes in our internal control over financial reporting during the quarter ended September 30, 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on the effectiveness of controls

        Our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure control system are met. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected.

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PART II—OTHER INFORMATION

Item 1.    Legal Proceedings

        In August 2007, we received a Paragraph IV Certification Notice from Apotex Inc. advising that it filed an ANDA with the FDA to market generic versions of each of the three Zanaflex Capsules dosage strengths marketed by us. In response to that Notice, in October 2007, we filed a lawsuit against Apotex Corp. and Apotex Inc. (collectively, Apotex) in the United States District Court for the District of New Jersey asserting infringement of our U.S. Patent No. 6,455,557 relating to methods of reducing drowsiness in patients with immediate release multiparticulate tizanidine formulations, including those sold by us as Zanaflex Capsules. The defendants have answered our complaint, asserting patent invalidity and non-infringement and counterclaiming, seeking a declaratory judgment of patent invalidity and non-infringement. We have denied those counterclaims.

        In March 2008, Apotex filed a motion, which we opposed, for partial judgment on the pleadings dismissing our request for relief on the ground that the case is "exceptional" under U.S.C. §§ 271(e)(4) or 285. The court ruled in our favor and denied Apotex's motion in December 2008. Fact discovery in the case has been completed. The court has also determined that a Markman hearing on the construction of certain terms contained in the patent will be held, and the parties have completed related depositions and submission of briefs to the Court. The hearing was set for November 18, 2009 but the Court has postponed it without yet setting a new date. Apotex has filed a motion to exclude certain evidence from consideration at the hearing, which Acorda has opposed.

Item 1A.    Risk Factors

        In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in Part I, "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2008 and our Quarterly Reports on Form 10-Q for the quarter ended March 31, 2009 and June 30, 2009, all of which could materially affect our business, financial condition or future results. The risks described or referred to herein are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

Item 6.    Exhibits

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SIGNATURES

        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.

        Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

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Exhibit Index

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