1344674--3/4/2008--NUCRYST_Pharmaceuticals

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Smith Nephew is our only customer for all of our existing products. 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. We are required to manufacture Acticoat tm products according to Smith Nephew s forecasts and, if we suffer a material difficulty supplying Acticoat tm products, Smith Nephew would have the right to manufacture or cause a third party to manufacture Acticoat tm products using our technology and facilities. We rely on Smith Nephew for regulatory filings for Acticoat tm products and our results would be adversely affected if they do not fully comply with regulatory requirements. 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 have agreed to indemnify Smith Nephew for claims under our agreements, which could result in significant costs to us. Our ability to develop and sell future products, particularly our gastrointestinal and future wound care products, is critical to our success, and if we fail to do so, our business and financial condition will suffer. 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. 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. Smith Nephew, who previously was restricted by a non-competition clause, may now introduce other silver based products that compete with Acticoat tm products. If we are unable to effectively manage our expected future growth, we may develop too much production capacity resulting in too high of a cost structure to continue to produce Acticoat tm products cost effectively or we may develop production capacity too slowly and be unable to meet demand for Acticoat tm products with our SILCRYST tm coatings and, in either event, we may be unable to develop or commercialize future products successfully. We depend on our executive officers and scientific and technical personnel, and if we are not able to retain them or recruit additional qualified personnel, we may be unable to successfully develop or commercialize future products. 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. 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 have historically had internal controls and accounting processes in place and have modified these controls and processes over time as the need has arisen. However, if our internal controls and accounting processes are insufficient, we may not detect in a timely manner misstatements that could occur in our financial statements in amounts that could be material. We will incur significant expenses as a result of being a public company. We may incur losses associated with currency fluctuations and may not be able to effectively hedge our exposure. Risks Related to Regulatory Matters Smith Nephew may be unable to maintain existing regulatory approvals or obtain new regulatory approvals for the Acticoat tm products that it currently sells, which would negatively affect our results of operations. Our future products may not be approved by the regulatory agencies, and any failure or delay associated with our product development and clinical trials or the agencies approval would increase our product development costs and time to market. Completion of clinical trials does not guarantee successful commercialization of future products. In the case of products that have already received regulatory approval or products for which we may receive regulatory approval in the future, we, Smith Nephew and any companies with which we may collaborate in the future may still face development and regulatory difficulties that may delay or impair future sales. 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. We perform and manage our clinical trials rather than relying on third-party clinical research organizations, or CROs, and since we do not have extensive experience in this area, there may be delays in completing, or a failure to complete, clinical trials that comply with regulatory requirements. Failure to comply with workplace safety legislation could seriously harm our financial condition. 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. We may become involved in expensive intellectual property litigation or other proceedings related to intellectual property rights. Risks Related to Our Common Shares There has been limited trading in our common shares and, as a result, our common share price 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. Westaim controls and will continue to control us and may have conflicts of interest with us or you in the future. 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. We do not intend to pay dividends, which may adversely affect the market price of our common shares. As a foreign private issuer, we are subject to different United States securities laws and rules than a domestic United States issuer, which may limit the information publicly available to our shareholders. You may be unable to enforce actions against us or certain of our directors and officers under United States federal securities laws. We have outstanding share options that have the potential to dilute shareholder value and cause the price of our common shares to decline. Our articles and certain Canadian laws could delay or deter a change of control.

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1344674--3/4/2008--NUCRYST_Pharmaceuticals_Corp.