Research Associate: Abhishek Mishra, M.Fin

December 11, 2006

Research Associate: Abhishek Mishra, M.Fin.

Editor: Nelson Bishop, CFA

Sr. Ed.: Ian Madsen, CFA; ; 1-800-767-3771, x417

North Wacker Drive  Chicago, IL 60606

Note to Reader: All new or revised material since the last report ishighlighted.

Reason for Report: Actelion announces commencement Prev. Ed.: November 7, 2006

of cash tender offer

Overview

Headquartered in San Francisco, California, CoTherix, Inc. (CTRX) is a biopharmaceutical company focused on licensing, developing and commercializing therapeutic products for the potential treatment of cardiopulmonary and other chronic diseases. The company offers Ventavis inhalation solution for the treatment of pulmonary arterial hypertension(PAH) in patients with New York Heart Association (NYHA) Class III or IV symptoms. Ventavis is the only approved inhaled therapy for PAH. CoTherix markets its products primarily in the United States, Europe and Australia. Additional information on the company can be found at its website:

Analysts have identified the following factors for evaluating investment merits of CTRX:

Analysts are exceedingly positive on CoTherix’s outlook. In fact, they estimaterevenue from Ventavis,to cross the doubletotripledigit range, going forward, given the company’sattempts to improve delivery and expand indications of the drug. Based on this expectation, most analysts anticipate CoTherix reaching profitability by 2008. On the downside, Ventavis is the company’s sole product, and thus,exposed to competitive risk.

Note: The company’s fiscal year ends on December 31; fiscal references coincide with the calendar year.

Recent News

On November 20, 2006, Actelion Ltd announced that it has entered into a definitive agreement to acquire CTRXfor a total acquisition price of approximately$420 million (CHF 525 million).

CoTherix reported its 3Q06 results onNovember 1, 2006. The company reported revenue of $18.4 million and GAAP loss of $0.10 per diluted share.

Revenue

Ventavis

Indication: Pulmonary arterial hypertension (PAH)

Product Life Cycle Status: The company began selling Ventavis (iloprost) in March 2005 after receivingthe FDA approval on December 29, 2004 for the treatment of pulmonary arterial hypertension in patients with NYHA Class III or IV symptoms.

Importance: Ventavis is an aerosolized prostacyclin analogue for treatment of PAH, which affects up to 50,000 Americanseach year. One analyst (CIBC) indicates the advantage of Ventavis is that complications associated with marketed infused prostacyclin therapies, such as pain, infection, and thrombosis are often avoided with this drug. Ventavis is delivered via inhalation, and hence is far more patient-friendly.

Sales: According to the company and the Zacks Digest Report, 3Q06 sales were $18.4 million, up 13.3% sequentially. One firm (Piper Jaffray) believes the higher-than-expected 3Q sales may be due to continued underlying demand for Ventavis and a possible improvement in Ventavis’s attrition rates. Ventavis sales continued to show solid growth in Q3 despite potential competition from ongoing clinical trials for PAH patients. CTRX expects that new patient starts and reduced attrition will accelerate Ventavis sales going forward. For 2007, Ventavis net product sales are expected to be between $100.0 million and $105.0 million; gross margin is expected to be between 71% and 73% of net product sales.

CTRX reported that enrollment in the VISION trial had slowed in 3Q,but is accelerating following protocol amendments. The phase III VISIONtrial, initiated in March, is evaluating Ventavis in combination with sildenafil. In the view of one firm (CIBC), improved delivery and formulations of Ventavis are critical for the long-term growth of the company. CTRX is working on several approaches toimprove the dosing convenience of Ventavis.

Regulatory issues: On October 31, 2006, CTRX filed a label supplement with the U.S. Food and Drug Administration regarding thecommercial use of a new program chip for the I-Neb Adaptive Aerosol Delivery device that provides for more rapiddose delivery. The FDA is expected to respond to the filing within a six-month period.

CTRX is also working on a second adjustment to the I-neb, which could shorten administration time to 4-5 minutes. Based on the outcome of CoTherix’s discussions with the FDA regarding the first alteration of the I-neb, analysts believe it is unlikely that additional clinical trials will be necessary to support approval of second alteration of the device. Additionally, CoTherix is about to select a rapid-release dry powder formulation of Ventavis, which has the potential to reduce substantially the length of time required for each dose. The company intends to begin phase I testing of this formulation in 1H07. Currently, a typical patient takes an average of 5.7 administrations of Ventavis per day at the 5 mcg dose, each lasting about 8-10 minutes.

Safety issues: Ventavis has typical prostacyclin side effects such as flushing and headache. A unique side effect of inhaling Ventavis is an increase in coughing.

Competition: Enrollment in the TRIUMPH trial of inhaled Remodulin, a potentialcompetitor, increased substantially in 3Q06. One firm (CIBC) believes inhaled Remodulin could potentially belaunched in 2H08 or early 2009. Although this formulation of Remodulin remainsa substantial threat to Ventavis, the firm believes CoTherix is taking active steps toimprove Ventavis’s dosing convenience. Although there is areasonably high probability that inhaled Remodulin will eventually be approved, thisis not guaranteed.

Partners: In 2005, Schering AG licensed CTRX’s exclusive marketing rights for Ventavis in the US. Under the license agreement, CTRX must pay Schering AG $4.0 million and $10.0 million when annual sales of Ventavis crest $25.0 million and $100.0 million, respectively. The company will also pay Schering AG royalties based on the net sales of Ventavis. In April 2005, CTRX entered into an agreement with Quadrant Drug Delivery Limited, to develop an extended release formulation to reduce the frequency and duration of Ventavis dosage. Subsequently, on June 1, 2006, CoTherix determined that its own internal development efforts were more productive than the Quadrant collaboration, and therefore terminated the collaboration. CoTherix will continue its own extended release development efforts.

CTRX is collaborating with Accredo and Cardinal Health for the commercial supply of Ventavis. It sells directly to the specialty pharma distributors, which provide reimbursement assistance, patient education, compliance, and a customer call service. The company pays Accredo an undisclosed fee for service to receive call center and reimbursement data. In March 2005, CoTherix signed an initial three-year agreement with Cardinal Health to distribute Ventavis and provide storage, distribution, and customer support.

Additional Studies: On March 8, 2006, CoTherix announced the initiation of a Phase III trial of Ventavis in combination with Sildenafil citrate (Revatio). The clinical trial, called ‘Ventavis Inhalation with Sildenafil to Improve and Optimize Pulmonary Arterial HypertensioN’ (VISION), is a double blind, placebo-controlled trial, in which approximately 180 PAH patients treated with a stable dose of oral Sildenafil(a PDE-5 inhibitor), will be randomized to one of three treatment groups for 16 weeks. The primary clinical endpoint of the trial would be an increase in the distance walked in six minutes. Improvement in NYHA functional class, delay in clinical deterioration, hemodynamics and safety would also be evaluated in the trial. The company may update patient enrollment information toward end-2006. One firm (Rodman & Renshaw) expects the trial to have difficulty enrolling patients given the strong competition for these patients.

Ventavis is at present being investigated in a Phase II study (ACTIVE study) in patients with PAH associated with idiopathic pulmonary fibrosis (IPF). CoTherix reported that the phase II ACTIVE study in IdiopathicPulmonary Fibrosis (IPF) did not reach its efficacy endpoint. As a result,CoTherix will no longer pursue the IPF indication. The brokerage firms believe that this is disappointing, as approval in IPF would have added an additional 10,000patients to the addressable market for the drug.

Fasudil

Indication: Pulmonary arterial hypertension (PAH) and Stable Angina

Product life Cycle Position: Fasudil has been approved in Japan since 1995 as a therapy to prevent cerebral vasospasm in cases of subarachnoid hemorrhage (hemorrhage in the brain), and it reportedly has a strong safety profile. The composition of matter patent for Fasudil expires in 2016, and the patent on the extended-release oral formulation expires in 2019.

Partners: On June 28, 2006, CoTherix and Asahi Kasei Pharma Corporation entered into a development and commercialization agreement granting CoTherix exclusive rights in North America and Europe for the oral and inhaled formulations of Fasudil. In addition, CoTherix has an option to develop Fasudil in North America and Europe for other potential indications using the licensed formulations with the exception of stroke and eye diseases. CoTherix will make an upfront payment of $8.75 million to Asahi Kasei Pharma, in addition to development and revenue milestone payments, and undisclosed royalties on future products. One firm (Needham) believes that the deal signals that CoTherix is building a pipeline but expects development to take some time.

Additional Studies: CoTherix plans to complete a PK study of twice-daily extended-release(ER) Fasudil by the end of 2006. Following this, the company plans to initiatean open-label phase IIa dose-ranging trial of Fasudil ER monotherapy intreatment-naïve PAH patients in 1H07, examining hemodynamics and six-minutewalk distance. This trial will be conducted in Europe, as trialsevaluating new PAH candidates without concurrent therapy are essentiallyimpossible to enroll efficiently in the U.S., given the number of availabletreatments. A phase II study of an inhaled formulation of Fasudil for PAH isplanned for 2H07. CoTherix will also initiate a phase II dose-ranging trial of oralFasudil ER in stable angina in 1H07.

One firm (Pacific Growth) expectsthe extended release version of the drug to be launched in mid-2011 in PAH and in mid-2012 in stable angina in the US, and the inhaled formulation of Fasudil to be launched in mid 2012 for the treatment of PAH in the U.S. It also statedthat CTRX could receive approximately $1 billion in total revenues from the North American and European sales of Fasudil for use in PAH and stable angina.

Firms in the Digest group feel that Fasudil could be a compelling addition to CoTherix's drug pipeline. Some firms (C.E. Unterberg, Rodman & Renshaw) in the Digest Group feel that if CTRX is successful in developing an inhaled formulation of Fasudil, there is a significant amount of potential for it to beused in combination therapies.

Margins

Cost of product sales for the third quarter of 2006 were $4.9 million, or 27% of net product sales, for a gross margin of 73%. This compares to a gross margin of 52% in the third quarter of 2005. The gross margin was lower in the third quarter of 2005 due to a $1.6 million write-down of certain Ventavis inventory related to the transition to a smaller size in connection with the approval of the I-neb device.

Research and development expenses were $5.2 million for the third quarter of 2006, compared to $2.4million in the same period of 2005. This increase was principally due to clinical trial activities and other development costs, as well as an increase in personnel costs in 2006. Selling, general and administrative expenses were $12.1 million for the third quarter of 2006, compared to $7.6 million in the same period of 2005. The increase from 2005 to 2006 was primarily attributable to higher costs associated with the commercialization of Ventavis, the REVEAL Registry and general corporate infrastructure growth. In addition, non-cash stock-based compensation expenses included therein increased to $1.3 million from $613,000 in the same period of 2005. R&D expenses excluding stock option expenses were $4.7 million and SG&A expensesexcluding stock options were $10.8 million. Higher SG&A was a result of sales and marketing activities related to the ongoing launch ofVentavis and the REVEAL Registry. Although one firm (Needham) anticipates increased R&D costs in the near term, it believes the investment in improved Ventavis delivery and Fasudil development will pay off in the long-term.

Earnings per Share

On a GAAP basis, the company reported a net loss of $2.8 million, or $0.10 per share, in the third quarter of 2006, as compared to a net loss of $6.2 million, or $0.26 per share, for the same period in 2005. On January 1, 2006, the company began reporting employee stock-based compensation expense in its GAAP results pursuant to SFAS123. Excluding the non-cash impact of stock- based compensation expenses recorded in the third quarter of 2006,the company reported a non-GAAP net loss of $1.1 million, or $0.04 per share, in the third quarter of 2006. The company believes this non-GAAP financial information is useful in providing a better understanding of its operating performance.

For 2006, CTRX continues to expect Ventavis sales of $65-70 million. Grossmargin in 4Q06 isexpected to be 71-72%. The company believes full-year2006 operating expenses (including non-stock based compensation) will belower than previous guidance of $91-98 million, due to changes in the timing ofR&D expenses. CTRX expects R&D costs to increase substantially in 4Q06and in 2007. The company expects to end 2006 with cash and equivalents of$70-75 million, higher than previous guidance of $55-65 million. For 2007, thecompany expects net Ventavis sales of $100-105 million, with gross margins of71-73%.

Target Price/Valuation

The Digest average target price of $13.33 (↑ from the previous report) ranges between $12 (Rodman & Renshaw)and$15 (Needham). Most analysts have derived the target price by applying a P/E multiple to forward EPS estimates. Of the nine analysts currently reporting on the stock, eight have provided positive ratings and one analyst has provided a neutral rating. Significantly, none of the analysts provided a negative rating.

Risks to the target price include potential competition beyond 2007 from United Therapeutics’s inhaled Remodulin, which has the potential to offer a favorable dosing regimen compared to Ventavis. Other risks include CTRX’s inability to commercialize a longer-acting formulation of Ventavis, or its ability to successfully in-license an additional pipeline product. Also, increased competition and number of participants in the PAH space, including Actelion, Encysive, United Therapeutics, Myogen, and Pfizer could pose as a major risk for the company.

Potentially Severe Problems

There are none other than those discussed in other sections of this report.

Long-Term Growth

Beyond initial approval and launch, CoTherix has formulated a multi-factorial strategy for maximizing Ventavis’s value. In the short term, the strategy involves leveraging data on combination therapy with Tracleer, and completing a clinical trial evaluating combination therapy with Sildenafil. Also in the short term, the strategy entails exploiting the upgraded battery powered inhalation device (the nebulizer) used to deliver the drug. In the intermediate term, CoTherix plans to expand the Ventavis market by securing approval as a therapy for PAH associated with idiopathic pulmonary fibrosis (IPF). In the long term, the strategy entails developing a longer lasting product by reformulating Ventavis, in order to increase patient convenience and decrease the duration and frequency of inhalations per day. Additional long-term strategy involves developing Fasudil as a therapy for PAH and stable angina.

Long-term growth prospects for CoTherix Inc. are highly contingent onVentavis’smarket penetration. Most analysts expect Ventavis to drive CoTherix to profitability in 2008. They also believe Ventavis has a multihundred million dollar potential with total sales of approximately $148 millionin 2008. For2009/2010, however, most analysts expect slightly lower revenuegrowth due to competitive threats from Remodulin. To establish Ventavis as a viable franchise, the company must seek to develop the next generation of PAH drugs. The only risk to long-term growth is the fact that CoTherix has no pipeline beyond Ventavis.

Management reiterated its commitment to in-license a product to beef up its pipeline. One firm (C.E. Utherberg) expects the company to in-license a product that makes sound strategic sense. It also believes that current CTRX valuation does not reflect the potential for a sound strategic product acquisition and any news on this side could be a potential positive catalyst.

Capital Structure/Solvency/Cash Flow/Governance/Other

On November 20, 2006, Actelion Ltd announced that it has entered into a definitive agreement to purchase CTRXfor a price of approximately$420 million (CHF 525 million) or $13.50 per share. This represents an approximate premium of 72%over the closing price one month prior. The transaction is expected to be completed in 1Q07. One firm (UnionBankSwitz) is of the opinion thatActelion will be able to acquire CTRX without a competitive bid. On December 8, 2006, Actelion launched the cash tender offer for CTRX at $13.50 per share