1040416--3/16/2007--INSPIRE_PHARMACEUTICALS

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{product, liability, claim}

{stock, price, operating}

{regulation, change, law}

{property, intellectual, protect}

{financial, litigation, operation}

{cost, regulation, environmental}

{competitive, industry, competition}

{cost, contract, operation}

{customer, product, revenue}

{provision, law, control}

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Risks Related to Product Development If the FDA does not conclude that our product candidates meet statutory requirements for safety and efficacy, we will be unable to obtain regulatory approval for marketing in the United States, and if foreign governments do not conclude that our product candidates meet their requirements for marketing, we will be unable to commercialize those product candidates in those foreign markets. Since some of our clinical candidates utilize new or different mechanisms of action and in some cases there may be no regulatory precedents, conducting clinical trials and obtaining regulatory approval may be difficult, expensive and prolonged, which would delay any commercialization of our products. Estimated development costs are difficult to project and may change frequently prior to regulatory approval. Clinical trials may take longer to complete and cost more than we expect, which would adversely affect our ability to commercialize product candidates and achieve profitability. If we fail to reach milestones or to make annual minimum payments or otherwise breach our obligations under our license agreements, our licensors may terminate our agreements with them. Risks Related to Product Commercialization Failure to successfully market and commercialize will negatively impact our revenues. We have had limited experience in sales and marketing of products. Failure to adequately market and commercialize and other product candidates will limit our revenues. If we are unable to contract with third parties for the synthesis of APIs required for preclinical testing, for the manufacture of drug products for clinical trials, or for the large-scale manufacture of any approved products, we may be unable to develop or commercialize our drug products. Reliance on a single party to manufacture and supply either finished product or the bulk active pharmaceutical ingredients for a product or product candidates could adversely affect us. We may not be able to successfully compete with other biotechnology companies and established pharmaceutical companies. We will rely on third parties to market, distribute and sell some of our products and those third parties may not perform. If physicians and patients do not accept our product candidates, they will not be commercially successful. Risks Related to Governmental Regulation Failure to comply with all applicable regulations, including those that require us to obtain and maintain governmental approvals for our product candidates, may result in fines and restrictions, including the withdrawal of a product from the market. Medicare prescription drug coverage legislation and future legislative or regulatory reform of the healthcare system may affect our or our partner s ability to sell products profitably. We are subject to fraud and abuse and similar government laws and regulations, and a failure to comply with such laws and regulations, or an investigation into our compliance with such laws and regulations, or a failure to prevail in any litigation related to noncompliance, could harm our business. Failure to adequately control compliance with all applicable laws and regulations may adversely affect our business, and we may become subject to investigative or enforcement actions. Risks Associated with Our Business and Industry We have been named as a defendant in litigation that could result in substantial damages and costs and divert management s attention and resources. The investigation by the U.S. Securities and Exchange Commission could have a material adverse effect on our business. Our co-promotion revenues are based, in part, upon Allergan s revenue recognition policy and other accounting policies over which we have limited or no control. Revenues in future periods could vary significantly and may not cover our operating expenses. If we are not able to obtain sufficient additional funding to meet our expanding capital requirements, we may be forced to reduce or eliminate research programs and product candidate development. If we are unable to make the scheduled principal and interest payments on the term loan facility or maintain minimum liquidity levels or compliance with other debt covenants as defined in the loan and security agreement, we may default on our debt. If we continue to incur operating losses for a period longer than anticipated, or in an amount greater than anticipated, we may be unable to continue our operations. Our dependence on collaborative relationships may lead to delays in product development, lost revenues and disputes over rights to technology. Failure to hire and retain key personnel or to identify, appoint and elect qualified directors, may hinder our product development programs and our business efforts. If our patent protection is inadequate, the development and any possible sales of our product candidates could suffer or competitors could force our products completely out of the market. Since we rely upon trade secrets and agreements to protect some of our intellectual property, there is a risk that unauthorized parties may obtain and use information that we regard as proprietary. Use of our products may result in product liability claims for which we may not have adequate insurance coverage. Our operations involve a risk of injury from hazardous materials, which could be very expensive to us. Insurance coverage is increasingly more costly and difficult to obtain or maintain. Risks Related to Our Stock Our common stock price has been volatile and your investment in our stock may decline in value. Our existing principal stockholders hold a substantial amount of our common stock and may be able to influence significant corporate decisions, which may conflict with the interest of other stockholders. Future sales of securities may cause our stock price to decline. Our Rights Agreement, the provisions of our Change in Control Severance Benefit Plan and our Change in Control Agreements with management, the anti-takeover provisions in our Restated Certificate of Incorporation and Amended and Restated Bylaws, and our right to issue preferred stock, may discourage a third party from making a take-over offer that could be beneficial to us and our stockholders and may make it difficult for stockholders to replace our Board of Directors and effect a change in our management if they desire to do so.

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1040416--3/16/2007--INSPIRE_PHARMACEUTICALS_INC