1344674--2/19/2009--NUCRYST_Pharmaceuticals

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If we are not able to regain compliance with applicable listing standards, our common shares may be delisted from the NASDAQ Global Market. We are no longer able to rely upon Westaim for financial support, and must now rely on third parties for financing. Risks Related to our Relationship with Smith Nephew We are dependent on our relationship with Smith Nephew, our only customer. Our industry is highly competitive, and introduction of lower-cost, higher margin products may adversely affect our revenues. If we are unable to effectively manage our production capacity, our results of operations and our relationship with Smith Nephew may be adversely affected. If we cannot meet Smith Nephew s demand forecasts, our agreements may give Smith Nephew the right to use our technology and facilities to manufacture Acticoat tm Our agreements with Smith Nephew may limit our ability to enter into agreements to transfer certain of our assets or to collaborate with third parties in new product development. We may be unable to sell our existing products to other parties, even if our agreements with Smith Nephew expire or terminate. We may be unable to achieve the cost savings required to offset the manufacturing cost rebate we agreed to pay Smith Nephew in 2007, 2008 and 2009. General Risks Related to Our Business and Industry Our operating results may be adversely impacted by the current worldwide economic conditions. Recent changes in senior management may divert attention and resources from the core activities of our business and may adversely affect our relationships with customers, suppliers, employees and other constituencies. Our ability to develop and sell future products is critical to our success, and if we fail to do so, our business and financial condition will suffer. The market for advanced wound care and pharmaceutical products is intensely competitive and many of our competitors have significantly more resources and experience than we do, which may limit our commercial opportunities and revenues. We currently purchase most of our raw materials from single suppliers. If we are unable to obtain raw materials and other products from our suppliers that we depend on for our operations, our ability to deliver our products to market may be impeded. If we are not successful in establishing collaborations with prominent health care companies, we may not be able to grow our business. We may face increased risk of product liability due to the nanocrystalline nature of our technology. If product liability lawsuits are brought against us, they could result in costly litigation and significant liabilities. We have agreed to indemnify Smith Nephew for claims under our agreements, which could result in significant costs to us. Our insurance may not cover any or all of the costs of product liability claims that may be brought against us or others we may be required to indemnify. If a natural or man-made disaster strikes one or more of our facilities, or facilities upon which we depend, we may be unable to manufacture certain products for a substantial amount of time and our revenue could decline. We are listed on both the Toronto Stock Exchange and the NASDAQ Global Market, and could incur significant compliance expenses as a result. We may incur losses associated with currency fluctuations and may not be able to effectively hedge our exposure. Failure to comply with workplace safety legislation could adversely affect our financial condition. Risks Related to Regulatory Matters Our industry is heavily regulated, and if existing regulatory approvals for our products are not maintained, or regulatory approvals for any new products are delayed or denied, it could have a material adverse effect on our business. If government and third-party payors fail to provide coverage and adequate reimbursement rates for Acticoat tm products or our future products, our revenues and potential for profitability will be reduced. Our business involves the use, handling, storage and disposal of hazardous materials and may subject us to environmental liability, and any future environmental liability could seriously harm our financial condition. We do not maintain insurance covering these risks. Risks Related to Intellectual Property The protection of our intellectual property rights is critical to our success and any failure on our part to adequately protect those rights would materially adversely affect our business. The ability to market Acticoat tm products and any other products we develop is subject to the intellectual property rights of third parties. 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. Risks Related to Our Common Shares There has been limited trading in our common shares and, as a result, the market price of our common shares may be highly volatile. Future sales of currently restricted shares could cause the market price of our common shares to decrease significantly, even if our business is doing well. The amount of our net operating loss carryovers may be limited. If we are classified as a passive foreign investment company, it could have adverse tax consequences to investors. As a foreign private issuer under the U.S. securities laws, we are subject to different laws and rules than a domestic U.S. issuer, which may limit the information publicly available to our shareholders. We may choose to rely on exemptions under the NASDAQ rules for controlled companies and foreign private issuers, which may affect the amount and type of information available to investors. You may be unable to enforce actions against us or certain of our directors and officers under U.S. federal securities laws.

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1344674--2/19/2009--NUCRYST_Pharmaceuticals_Corp.