1172480--3/7/2006--SANTARUS

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Risks Related to Our Business and Industry At this time, we are largely dependent on the commercial success of our Zegerid products, and we cannot be certain that we will be able to successfully commercialize these products. Failure of our Zegerid products to achieve and maintain market acceptance would seriously impair our ability to reach profitability. If we are unable to obtain and maintain favorable reimbursement for our products, their commercial success may be severely hindered. 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 will 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. We have only recently established our sales and marketing capabilities and we will need to retain qualified sales and marketing personnel and collaborate successfully with our co-promotion partner, Otsuka America, to successfully commercialize our Zegerid products and any other products that we develop, acquire or license. We depend on a limited number of customers, and if we lose any of our significant customers, our business could be harmed. If we are unable 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 pending NDA for Zegerid Chewable Tablets may not be approved by the FDA for one or more of the desired indications in a timely manner or at all, which would adversely impact our ability to commercialize this product. Regulatory approval to market Zegerid Capsules and Zegerid Powder for Oral Suspension is limited by the FDA to those specific indications and conditions for which we are able to support clinical safety and efficacy, and any approval we may receive for our products under development will be similarly limited. We are subject to ongoing regulatory review of Zegerid Capsules and Zegerid Powder for Oral Suspension, and we will be subject to ongoing regulatory review of any of our other products that may be approved in the future. Our resources are currently dedicated to our Zegerid family of products, and we may be unable to expand our product portfolio or integrate new products successfully. 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. 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. If we are unable to attract and retain key personnel, our business will suffer. 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. We will need to raise additional funds to continue our operations and we may be unable to raise capital when needed. 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. Our quarterly financial results are likely to fluctuate significantly because our sales prospects are uncertain. Our short operating history makes it difficult to evaluate our business and prospects. Changes in, or interpretations of, accounting rules and regulations, such as expensing of stock options, could result in unfavorable accounting charges or require us to change our compensation policies. Risks Related to Our Intellectual Property and Potential Litigation The protection of our intellectual property rights is critical to our success and any failure on our part to adequately secure such rights would materially affect our business. 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 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 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. Our executive officers and directors and their affiliates may exercise influence over stockholder voting matters in a manner that may not be in the best interests of all of our stockholders.

Full 10-K form ▸

1172480--3/7/2006--SANTARUS_INC