1172480--3/4/2008--SANTARUS

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If we are unable to maintain adequate levels of reimbursement for our Zegerid products on reasonable pricing terms, their commercial success may be severely hindered. Our strategic partners, GSK and Schering-Plough, may not successfully commercialize products using our patented PPI technology. The market for the GI pharmaceutical industry is intensely competitive and many of our competitors have significantly more resources and experience, which may limit our commercial opportunity. Our Zegerid products compete with many other drug products focused on upper GI diseases and disorders, which could put downward pressure on pricing and market share and limit our ability to generate revenues. The promotional efforts of inVentiv, under our contract sales organization agreement, and Otsuka America, under our co-promotion agreement, may not be successful in increasing market demand for, and sales of, our Zegerid prescription products. We depend on a limited number of wholesaler customers for retail distribution of our products, and if we lose any of our significant wholesaler customers, our business could be harmed. If we are unable to continue to manufacture our products on a commercial basis, our commercialization efforts will be materially harmed. We do not currently have any manufacturing facilities and instead rely on third-party manufacturers. Our resources have been primarily focused on commercializing our Zegerid products, and we may be unable to expand our product portfolio or integrate new products successfully. We may not generate adequate revenues under our co-promotion agreements for Naprelan Controlled Release Tablets and the Fleet Bowel Cleansing System to justify our level of promotional effort and expense under the agreements. Our reporting and payment obligations under the Medicaid rebate program and other governmental purchasing and rebate programs are complex and may involve subjective decisions, and any failure to comply with those obligations could subject us to penalties and sanctions, which in turn could have a material adverse effect on our business and financial condition. Regulatory approval for our currently marketed products is limited by the FDA to those specific indications and conditions for which we are able to support clinical safety and efficacy. We are subject to ongoing regulatory review of our Zegerid products and any other products that we market. We are subject to new legislation, regulatory proposals and managed care initiatives that may increase our costs of compliance and adversely affect our ability to market our products, obtain collaborators and raise capital. We face a risk of product liability claims and may not be able to obtain adequate insurance. We rely on third parties to perform many necessary services for our commercial products, including services related to the distribution, storage and transportation of our products. Our reliance on third-party clinical investigators and clinical research organizations may result in delays in completing, or a failure to complete, clinical trials or we may be unable to use the clinical data gathered if they fail to comply with regulatory requirements or perform under our agreements with them. Any products we develop in the future likely will require significant product and clinical development activities and ultimately may not be approved by the FDA, and any failure or delays associated with these activities or the FDA s approval of such products would increase our costs and time to market. If we are unable to attract and retain key personnel, our business will suffer. Risks Related to Our Intellectual Property The protection of our intellectual property rights is critical to our success and any failure on our part to adequately maintain such rights would materially affect our business. Par s Paragraph IV certifications under the Hatch-Waxman Act related to Zegerid Capsules and Zegerid Powder for Oral Suspension and the related patent infringement litigation could adversely affect our financial condition and results of operations as it could result in the introduction of generic products prior to the expiration of the patents for Zegerid Capsules and Zegerid Powder for Oral Suspension, as well as in significant legal expenses and diversion of management time. Third parties may choose to file patent infringement claims against us, which litigation would be costly, time consuming and distracting to management and could be materially adverse to our business. Our Zegerid products depend on technology licensed from the University of Missouri and any loss of our license rights would harm our business and seriously affect our ability to market our products. We may be subject to damages resulting from claims that we or our employees have wrongfully used or disclosed alleged trade secrets of their former employers or otherwise breached the terms of agreements with former employers. Risks Related to Our Financial Results and Need for Financing We have incurred significant operating losses since our inception, and we expect to incur significant additional operating losses and may not achieve profitability. To the extent we need to raise additional funds in connection with the licensing or acquisition of new products or to continue our operations, we may be unable to raise capital when needed. Our quarterly financial results are likely to fluctuate significantly because our sales prospects are uncertain. The committed equity financing facility that we entered into with Kingsbridge may not be available to us if we elect to make a draw down, may require us to make additional blackout or other payments to Kingsbridge, and may result in dilution to our stockholders. Any future indebtedness under our loan agreement with Comerica could adversely affect our financial health. Covenants in our loan agreement with Comerica may limit our ability to operate our business. To service any future indebtedness and fund our working capital and capital expenditures, we will require a significant amount of cash. Our ability to generate cash depends on many factors beyond our control. Rises in interest rates could adversely affect our financial condition. Negative conditions in the global credit markets may impair the liquidity of a portion of our investment portfolio. Our short operating history makes it difficult to evaluate our business and prospects. Changes in, or interpretations of, accounting rules and regulations could result in unfavorable accounting charges or require us to change our compensation policies. In connection with the reporting of our financial condition and results of operations, we are required to make estimates and judgments which involve uncertainties, and any significant differences between our estimates and actual results could have an adverse impact on our financial position, results of operations and cash flows. Risks Related to the Securities Markets and Ownership of Our Common Stock Our stock price may be volatile and you may not be able to sell your shares at an attractive price. Our stock price could decline and our stockholders may suffer dilution in connection with future issuances of equity or debt securities. Future sales of our common stock by our stockholders may depress our stock price. We may become involved in securities or other class action litigation that could divert management s attention and harm our business. We are exposed to increased costs and risks related to complying with recently enacted and proposed changes in laws and regulations, including costs and risks associated with compliance with Section 404 of the Sarbanes-Oxley Act of 2002.

Full 10-K form ▸

1172480--3/4/2008--SANTARUS_INC