10-K

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Sepracor Inc. FORM 10-K TABLE OF CONTENTS
PART IV
Consolidated Financial Statements

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT
TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

(Mark One)
ý	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2007
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                        to
Commission file number 0-19410

Sepracor Inc.
(Exact Name of Registrant as Specified in its Charter)

Delaware (State or Other Jurisdiction of Incorporation or Organization)	22-2536587 (IRS Employer Identification No.)
84 Waterford Drive, Marlborough, Massachusetts (Address of Principal Executive Offices)	01752 (Zip Code)

Registrant's telephone number, including area code: (508) 481-6700

Securities registered pursuant to Section 12(b) of the Act:

Common Stock, $.10 par value
(Title of class) Nasdaq Global Select Market
(Name of Exchange on which Registered)

Securities registered pursuant to Section 12(g) of the Act: None

         Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý    No o

         Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o    No ý

         Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

         Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to the Form 10-K. o

         Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or smaller reporting company. See the definitions of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ý Accelerated filer o Non-accelerated filer o
(Do not check if a smaller reporting company) Smaller reporting company o

         Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No ý

         The aggregate market value of voting common stock held by nonaffiliates of the registrant based, on the last reported sale price of the common stock on the Nasdaq Global Select Market on June 30, 2007, was approximately $4,398,899,000.

         The number of shares outstanding of the registrant's class of common stock as of February 15, 2008 was 112,030,558 shares.

DOCUMENTS INCORPORATED BY REFERENCE

Proxy Statement for the 2008 Annual Meeting of Stockholders—Part III

Sepracor Inc.
FORM 10-K

TABLE OF CONTENTS

PART I
Item 1.	Business	1
Item 1A.	Risk Factors	27
Item 1B.	Unresolved Staff Comments	50
Item 2.	Properties	50
Item 3.	Legal Proceedings	51
Item 4.	Submission of Matters to a Vote of Security Holders	55
EXECUTIVE OFFICERS OF THE REGISTRANT		56
PART II
Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	58
Item 6.	Selected Financial Data	59
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	61
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	90
Item 8.	Financial Statements and Supplementary Data	91
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	91
Item 9A.	Controls and Procedures	91
Item 9B.	Other Information	94
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	94
Item 11.	Executive Compensation	94
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	94
Item 13.	Certain Relationships and Related Transactions, and Director Independence	94
Item 14.	Principal Accountant Fees and Services	94
PART IV
Item 15.	Exhibits and Financial Statement Schedules	95
SIGNATURES		96
Appendix A	Consolidated Financial Statements	F-1
	Report of Independent Registered Public Accounting Firm on Financial Statement Schedules
Schedule II	Valuation and Qualifying Accounts and Reserves	S-1
Exhibit Index
Exhibits	(Attached to this Report on Form 10-K)

Explanatory Note

Restatement of Prior Period Financial Information

        This Annual Report on Form 10-K includes the restatement of our consolidated financial statements as of and for the years ended December 31, 2006 and 2005. This report also includes the restatement of the selected financial data as of and for the years ended December 31, 2006, 2005, 2004 and 2003.

        As announced in our Current Report on Form 8-K, which we filed with the Securities and Exchange Commission, or SEC, on January 28, 2008, we concluded that our previously filed financial statements should no longer be relied upon due to matters relating to our government pricing discussed in this Explanatory Note, Note U "Restatement of Financial Statements Based on Review of Government Pricing" to our consolidated financial statements included in this report and elsewhere in this Form 10-K.

        Revenue is recognized for amounts that are fixed or determinable assuming all other applicable criteria are met. We recently determined that Public Health Service, or PHS, discounts were provided to non-PHS covered entities. This circumstance creates uncertainty as to whether a new best price was set in prior periods. If a new best price was set, additional Medicaid rebates will be required to be paid. A portion of the revenue we previously recognized is therefore contingent on the outcome of this matter. Revenue has been reduced and rebate liabilities increased to adjust for the amounts previously invoiced and received that are contingent and do not qualify for revenue recognition. The restatement for such contingent amounts reflects our best estimate of the net revenue that should have been recognized in the respective periods.

        Under the Medicaid rebate program, we are obligated to pay a rebate to each participating State Medicaid program for each unit of product reimbursed by Medicaid. The amount of the rebate is set by law as the greater of (a) 15.1% of the average manufacturer price, which is referred to as AMP, or (b) the difference between AMP and the Medicaid best price, which is the lowest price available from us to any customer not excluded by law from that determination. The determination of whether a new best price was set is uncertain and is a matter of judgment that will be subject to disclosure to the Centers for Medicare and Medicaid Services, or CMS. A determination of the actual amount of payments required may change as a result of future interactions with CMS and we cannot be certain that we will not be subject to fines, penalties and interest.

        We also excluded transactions involving the Pennsylvania General Assistance Program, or PAGA, from our calculation of the Medicaid best price based on the belief that PAGA, a State Pharmaceutical Assistance Program, was excluded from Medicaid best price. Despite review of available materials, we cannot be sure that PAGA is excluded from Medicaid best price. While we may have incorrectly excluded the PAGA transactions, we do not believe including the transactions would have set the Medicaid best price for any period in which the PHS price was given to an entity that was not a PHS covered entity, where the PHS price was lower than the PAGA price and the PHS price is determined to be included in best price. We notified CMS of these possible PHS and PAGA errors in January 2008.

        As a result of these matters, our management, with the oversight of our Audit Committee, is reviewing our government pricing activities affected by the material weakness described below. The aggregate amount by which we have reduced revenue in prior periods is approximately $60.2 million. The amount by which we have reduced revenues for the first three quarters of 2007, combined, and the fiscal years ended December 31, 2006 and 2005 is approximately $8.2 million, $13.4 million and $19.8 million, respectively. The amount by which we have reduced revenues for the fiscal years ended December 31, 2004 and 2003 is approximately $7.8 million and $8.0 million, respectively. Included in our accumulated deficit balance at January 1, 2003 is the cumulative impact of a $3.0 million reduction of revenue for periods prior to the year ended December 31, 2003.

        The amounts by which we have reduced revenues for contingent rebates were based on management's best estimates and assumptions made prior to any concurrence by CMS. These amounts

may change as a result of future interactions with CMS and we cannot be certain that we have not overestimated the amount of additional rebates we may be required to pay, that the amount of any additional rebate payments or other payments we may owe will not exceed our current estimates, or that we will not be subject to fines, penalties or interest. The restatement and its impact on fiscal years ended December 31, 2006 and 2005 are discussed in more detail in Note U to our consolidated financial statements, which are included herein.

        While we have restated the unaudited quarterly information in Note T in our consolidated financial statements and intend to amend and restate our quarterly reports on Form 10-Q for the fiscal quarters ended March 31, June 30 and September 30, 2007 and 2006, we have not amended and do not intend to amend any of our other previously filed reports for the periods affected by the restatement. As we have previously announced, the consolidated financial statements and related information contained in such previously filed reports should no longer be relied upon.

Identification of Material Weakness

        In connection with the restatement of our Medicaid rebate reserve, we identified a material weakness in our disclosure controls and procedures and internal controls over financial reporting as of December 31, 2007 and reported those to our Audit Committee. The material weakness, which is further described below in Item 9A of this Form 10-K resulted in the restatement of our prior period financial information included in this report.

Cautionary Statement Regarding Forward-Looking Statements

        This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 concerning our business, operations and financial condition, including statements with respect to the safety, efficacy and potential benefits of our products and products under development, expectations with respect to the timing and success of the development and commercialization of our products and product candidates and acquisitions of technologies, product candidates, approved products and/or businesses, the timing and success of the submission, acceptance and approval of regulatory filings, the scope of patent protection with respect to our products and product candidates, our review of government pricing and the related restatement of certain historical financial statements and information with respect to the other plans and strategies for our business and the business of our subsidiaries. All statements other than statements of historical facts included in this report regarding our strategy, future operations, timetables for product testing, development, regulatory approvals and commercialization, acquisitions, financial position, costs, prospects, plans and objectives of management are forward-looking statements. When used in this report the words "expect," "anticipate," "intend," "plan," "believe," "seek," "will," "estimate," and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Because these forward-looking statements involve risks and uncertainties, actual results could differ materially from those expressed or implied by these forward-looking statements for a number of important reasons, including those discussed under "Risk Factors", "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this report.

        You should read these forward-looking statements carefully because they discuss our expectations about our future performance, contain projections of our future operating results or our future financial condition, or state other "forward-looking" information. You should be aware that the occurrence of any of the events described under "Risk Factors" and elsewhere in this report could substantially harm our business, results of operations and financial condition and that upon the occurrence of any of these events, the trading price of our common stock could decline.

        We cannot guarantee any future results, levels of activity, performance or achievements. The forward-looking statements contained in this annual report on Form 10-K represent our expectations as of the date of this annual report on Form 10-K and should not be relied upon as representing our expectations as of any other date. Subsequent events and developments will cause our expectations to change. However, while we may elect to update these forward-looking statements, we specifically disclaim any obligation to do so, even if our expectations change.

PART I

Item 1. Business.

The Company

        We are a research-based pharmaceutical company focused on discovering, developing and commercializing differentiated products that address large and growing markets and unmet medical needs and that are prescribed principally by primary care physicians and certain specialists. Our proprietary compounds are either:

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Single isomers or active metabolites of existing drugs, or



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New chemical entities that are unrelated to marketed drugs.

        Our drug research and development program, together with our corporate development and licensing activities, have yielded a portfolio of drugs and drug candidates intended to treat a broad

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range of indications. We are currently concentrating our product development efforts in two therapeutic areas: respiratory diseases and central nervous system, or CNS, disorders.

        In our isomer and metabolite development program, we identify existing drugs that might, in single-isomer or active-metabolite forms, provide significant advances over existing therapies within the indications of the parent compound or in new indications. We then develop isomers or metabolites designed to offer benefits over both the parent drugs and competitive compounds, such as reduced side effects, improved therapeutic efficacy, effectiveness for new indications or improved dosage forms.

        Our development program for new chemical entities encompasses a more traditional approach to drug development. In this program, we are seeking to discover novel compounds unrelated to existing commercial compounds that have the potential to provide benefits over existing treatments or provide new therapies for diseases currently lacking effective treatment.

        Our currently marketed products are:

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XOPENEX® (levalbuterol HCl) Inhalation Solution, a short-acting bronchodilator, for the treatment or prevention of bronchospasm in patients six years of age and older with reversible obstructive airway disease;



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XOPENEX HFA® (levalbuterol tartrate) Inhalation Aerosol, a hydrofluoroalkane, or HFA, metered-dose inhaler, or MDI, for the treatment or prevention of bronchospasm in adults, adolescents and children four years of age and older with reversible obstructive airway disease;



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BROVANA® (arformoterol tartrate) Inhalation Solution, a long-acting, twice-daily (morning and evening), maintenance treatment of bronchoconstriction in patients with chronic obstructive pulmonary disease, or COPD, including chronic bronchitis and emphysema; and



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LUNESTA® (eszopiclone) for the treatment of insomnia in adults.

        We market these products in the United States to primary care physicians, allergists, pulmonologists, pediatricians, hospitals, psychiatrists and sleep specialists, as appropriate, primarily through our sales organization comprising approximately 1,600 sales professionals. In addition, we recently obtained from Nycomed GmbH, or Nycomed, the exclusive U.S. distribution rights to two products that have been approved by the United States Food and Drug Administration, or FDA, OMNARIS™ AQ (ciclesonide) nasal spray and ALVESCO® HFA (ciclesonide) Inhalation Aerosol, which we expect to launch commercially during 2008.

        We have, from time to time, licensed our technology and patent rights to third parties. These out-licensing agreements include Schering-Plough Corporation for CLARINEX® (desloratadine); sanofi-aventis, formerly Aventis, for ALLEGRA® (fexofenadine HCl); and UCB Farchim S.A. and UCB S.A., referred to collectively as UCB, for XYZAL®/XUSAL™ (levocetirizine). As a result of these agreements, we earned aggregate royalties of $47.7 million, $33.8 million and $51.2 million in 2007, 2006 and 2005, respectively, on sales of CLARINEX, ALLEGRA and XYZAL/XUSAL. Our out-licensing agreements also include licenses to Eisai Co. Ltd., or Eisai, for the development and commercialization in Japan of our eszopiclone product, marketed as LUNESTA in the United States, and Glaxo Group Limited, or GSK, an affiliate of GlaxoSmithKline, for the development and commercialization of our eszopiclone product for all markets worldwide excluding the United States, Canada, Mexico and Japan. Our eszopiclone product will be marketed by GSK in its territory primarily as LUNIVIA® brand eszopiclone for the treatment of insomnia. We will not receive royalties on sales of our eszopiclone product pursuant to either of these agreements unless and until such product is approved for commercialization by the relevant regulatory authority in the applicable market and the product is commercially introduced.

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        In early 2008 and 2007, our key developments included the following:

Corporate Development & Licensing

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In January 2008, we entered into an agreement with Nycomed for the exclusive U.S. distribution, development and commercialization in the United States, its territories and possessions, of Nycomed's compound ciclesonide, and products incorporating such compound, including ALVESCO HFA Inhalation Aerosol metered-dose inhaler, for use in the treatment of asthma, and OMNARIS AQ nasal spray for use in the treatment of allergic rhinitis. Under the agreement, we paid Nycomed an upfront payment of $150.0 million in February 2008 and may be required to make subsequent payments of up to $280.0 million over the life of the agreement upon accomplishment of various development and sales milestones. Nycomed will also receive compensation for supplying finished product pursuant to the agreement, including a supply price for the products, which will be based on Nycomed's manufacturing costs plus a percentage of such costs, and quarterly royalty payments based on our net sales of the products.



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In December 2007, we entered into a license agreement with Bial—Portela & C^a, S.A., or Bial, for the development and commercialization in the United States and Canada of Bial's anti-epileptic compound, BIA 2-093, which we now refer to as SEP-0002093. Pursuant to the agreement, we paid Bial an upfront payment of $75.0 million and are required to make subsequent payments upon accomplishment of various development and regulatory milestones, which could include up to an additional $100.0 million if all milestones are met. Bial will also receive compensation for providing finished product pursuant to a supply agreement that is expected to be entered into by the parties, which will be calculated as a percentage of the average net selling price for finished tablets, and milestone payments upon FDA approval of additional indications, if any.



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In September 2007, we entered into an agreement with GSK for the development and commercialization of our eszopiclone product, which we market as LUNESTA in the United States, for all markets worldwide excluding the United States, Canada, Mexico and Japan. Our eszopiclone product will be marketed by GSK in its territory primarily as LUNIVIA brand eszopiclone for the treatment of insomnia. Under this agreement, we received an initial payment of $20.0 million and are entitled to receive additional payments upon accomplishment of various milestones. If all milestones are met, GSK will be obligated to pay us $155.0 million in aggregate license and milestone payments. We are also entitled to receive double-digit royalties that escalate upon increased product sales, and compensation for supplying the product to GSK pursuant to a supply agreement that is expected to be entered into by the parties.



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In July 2007, we entered into an agreement with Eisai for the development and commercialization of our eszopiclone product, which we market as LUNESTA in the United States. Under this agreement, Eisai will be responsible for completing remaining clinical trials necessary for attaining marketing approval from the Japanese regulatory authorities and, contingent on obtaining regulatory approval, commercialization of the product in Japan. We received an initial milestone payment and will be entitled to receive subsequent payments upon accomplishment of various development, regulatory and pricing milestones, as well as royalties on product sales. We will also be responsible for, and will receive compensation in connection with, the manufacture and supply of bulk tablets and/or active ingredient.

Directors & Officers

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In December 2007, we announced that Timothy J. Barberich will retire as an executive of our company prior to May 13, 2008 and plans to serve as our advisor through December 2009.

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Mr. Barberich also intends to continue to serve as Chairman of our Board of Directors, contingent on his election as a director at the 2008 annual meeting of our shareholders.

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In November 2007, Lisa Ricciardi was elected as a new member of our Board of Directors.



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In October 2007, Mark Iwicki was elected to the newly-created position of Executive Vice President, Chief Commercial Officer.



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In May 2007, Adrian Adams was elected to the role of President and Chief Executive Officer. Mr. Adams previously served as our President and Chief Operating Officer and assumed the Chief Executive Officer role from Mr. Barberich.



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In March 2007, W. James O'Shea resigned as our President and Chief Operating Officer and was elected Vice Chairman. Mr. O'Shea ceased acting in this capacity on August 31, 2007. In addition, effective March 1, 2007, our board elected Adrian Adams to the positions of President and Chief Operating Officer and Andrew I. Koven to the positions of Executive Vice President, General Counsel and Corporate Secretary. The board, upon the recommendation of the nominating and corporate governance committee, also elected Mr. Adams to the Board of Directors, as a Class II director. Douglas E. Reedich, our former Senior Vice President, Legal Affairs, was employed by us through December 31, 2007 in order to ensure an orderly transition in the handling of our legal matters.

Litigation and Investigations

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In November 2007, the SEC notified us that the investigation concerning our historical stock option granting practices had been completed and that no enforcement action was being recommended.



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In October 2007, we reached a settlement with the parties to both the state and Federal derivative actions brought against us (as a nominal defendant) and certain of our current and former officers and directors related to certain stock option grants and alleged violations of Federal securities laws, that provided for the dismissal of both actions. The settlement resolved all claims and included no finding of wrongdoing on the part of any of the defendants and no cash payment other than attorneys' fees. As part of the settlement, we have adopted, and are in the process of completing the implementation of, stock option grant and other procedures that reflect developing best practices. The settlement became final and effective in January 2008 upon final approval by the state court and entry of dismissal with prejudice by the Federal court.



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In October 2007, we reached a final settlement agreement with Tharos Laboratories, Inc., or Tharos, with respect to the litigation brought against us by Tharos alleging trademark infringement, dilution, unfair competition, false advertising and false designation of origin arising out of our use of our silk luna moth design in connection with LUNESTA. As a result of this settlement agreement, the case has been dismissed.



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In June 2007, we filed in the United States District Court for the District of Massachusetts, or the Court, a Stipulation of Settlement regarding two securities class action lawsuits, or class actions, pending in the Court naming Sepracor and certain of our current and former officers and one director as defendants. The class actions, which were filed on behalf of certain purchasers of our equity and debt securities, or the plaintiffs, allege that the defendants violated the Federal securities laws by making false and misleading statements relating to the testing, safety and likelihood of approval of tecastemizole by the FDA. The Stipulation of Settlement contains no admission of wrongdoing. Sepracor and the other defendants have always maintained and continue to believe that we did not engage in any wrongdoing or otherwise commit any violation of Federal or state securities laws or other laws. However, given the

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potential cost and burden of continued litigation, we believe the settlement was in our best interests and the best interests of our stockholders. Under the terms of the Stipulation of Settlement, in June 2007 we paid into escrow $52.5 million in settlement of the class actions and, in July 2007, received an $18.5 million reimbursement from our insurance carriers. We recorded the litigation settlement expense of $34.0 million, relating to this matter, during the quarter ended March 31, 2007. In September 2007, the Court granted final approval of the Stipulation of Settlement and entered a final judgment consistent with the Stipulation of Settlement. The settlement is now final and the total settlement amount has been released from escrow. Pursuant to the final judgment entered by the Court, the Court dismissed the class actions with prejudice, and the plaintiffs are deemed to have released all claims against us.

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In April 2007, we were served with a Complaint filed in the United States District Court for the Southern District of New York, C.A. No. 1:07-cv-2353, by Dey, L.P. and Dey, Inc., referred to collectively as Dey, alleging that the manufacture and sale of BROVANA infringes or will induce infringement of a single U.S. patent for which Dey owns all rights, title and interest. In April 2007, we filed an Answer and Counterclaim to this Complaint seeking to invalidate the originally asserted patent and a second related patent. In May 2007, Dey filed a reply asserting infringement of the second patent. Under the current scheduling order, trial will begin no earlier than January 12, 2009.

Regulatory

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In November 2007, we announced that CMS established a product-specific billing code, or J Code, for BROVANA under the Medicare Part B benefit, which became effective on January 1, 2008. In April 2007, we announced the commercial availability of BROVANA for the treatment of COPD.



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In July 2007, we submitted a Marketing Authorization Application, or MAA, to the European regulatory authorities for LUNIVIA for the treatment of insomnia. Approval of the MAA, which is the European Union equivalent of a New Drug Application, or NDA, in the United States, would allow authorization to market LUNIVIA in the European Union. Pursuant to our agreement with GSK, we are responsible for supporting the MAA until final approval, or such earlier date mutually agreed upon by the parties, and GSK is responsible for supporting the MAA thereafter. We received a consolidated report from the reviewing MAA rapporteurs in December 2007 and responded to them in early 2008. Approval of the MAA is targeted for the fourth quarter of 2008.



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In June 2007, we announced that CMS determined that, based on its interpretation of the statutory language of the Medicare Prescription Drug Improvement and Modernization Act of 2003, or MMA, it was required to discontinue the stand-alone reimbursement for XOPENEX Inhalation Solution and generic albuterol, which had been in place since January 2005, and instead calculate the reimbursement for XOPENEX Inhalation Solution and generic albuterol based on the blended weighted average selling price, or ASP, for the two products. This new reimbursement became effective on July 1, 2007. Using a blended weighted ASP for XOPENEX Inhalation Solution results in reimbursement for the product that is considerably lower than the published selling price for the product in the wholesaler distribution channel. The new reimbursement rate is subject to change quarterly based upon the respective contribution of commercial sales of XOPENEX Inhalation Solution and generic albuterol to the quarterly blended weighted ASP calculation. This quarterly ASP calculation is mandated by the MMA. Revenues from the sale of XOPENEX Inhalation Solution have been, and we expect will continue to be, adversely affected on a comparable basis as a result of this change.

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In addition, on December 29, 2007, President Bush signed into law legislation, the effect of which mandates that XOPENEX Inhalation Solution and generic albuterol be reimbursed at the lower of their stand-alone weighted ASP and the blended weighted ASP for XOPENEX Inhalation Solution and generic albuterol. The effect of this legislation is that XOPENEX Inhalation Solution will continue to be reimbursed at the blended rate and generic albuterol will be reimbursed at its stand-alone weighted ASP. The legislation goes into effect on April 1, 2008.

Other Key Developments

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In February 2008, we announced that we intend to increase our sales force capacity by at least 200 sales professionals in order to accommodate the commercialization of OMNARIS AQ and ALVESCO HFA.



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In January 2008, we notified CMS that we had identified potential errors in our determination of the best price used to calculate Medicaid rebate amounts in prior periods. As a follow up to this disclosure to CMS, our management, with the oversight of our Audit Committee, is reviewing our government pricing activities affected by the material weakness in our internal controls related to these potential errors.



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In October 2007, we announced that we had decided to reduce our sales force by approximately 300 positions. The decision was based on our evaluation of the structure, size and allocation of our direct sales force at that time and was intended to result in cost savings in fiscal year 2008. As of December 31, 2007, this sales force reduction was completed.



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In February 2007, we paid in full $440.0 million in aggregate principal amount of outstanding 5% convertible subordinated debentures, which matured on February 15, 2007, plus approximately $11.0 million in accrued interest.

        For the year ended December 31, 2007, our total revenues and net income were $1,225.2 million and $58.3 million, respectively. Fiscal year 2007 was our second profitable year since inception. We have funded our operations primarily through convertible debt financings, sales of our products, license agreements for our drug compounds, and the issuance of common stock, including the exercise of stock options. We now plan to finance our operations primarily with cash generated from product sales. In order to achieve continued profitability, we will need to continue to grow our product sales. The rate of our future sales growth depends, in part, upon our ability to successfully develop or acquire and commercialize new products and/or product candidates.

        Our future success is also highly dependent on obtaining and maintaining patent protection for our products. With respect to XOPENEX Inhalation Solution, Breath Limited, or Breath, Dey, L.P., Barr Laboratories, Inc., or Barr, and Watson Laboratories, Inc., or Watson, have each filed an Abbreviated New Drug Application, or ANDA, including Paragraph IV certifications with the FDA seeking to market a generic version of levalbuterol hydrochloride inhalation solution before our patents expire. We have commenced patent infringement litigation against Breath, Dey, L.P., and Barr, but we have decided not to commence litigation against Watson at this time as its Paragraph IV certification is limited to a patent that expires in 2021. A non-jury trial in our litigation against Breath is scheduled to begin on July 14, 2008 in the United States District Court for the District of Delaware, C.A. No. 06-113. No trial date has been set in our patent infringement litigation against Dey, L.P. or Barr.

        The filing of a lawsuit for patent infringement under the Hatch-Waxman Act results in an automatic 30-month stay of the FDA's authority to grant marketing approval to these companies. The 30-month stay against Breath's ANDA is scheduled to expire for our 1.25 mg/3 mL, 0.63 mg/3 mL and 0.31 mg/3 mL XOPENEX Inhalation Solution on or about March 7, 2008. In December 2007, the FDA granted tentative approval to Breath's ANDA for all three dosages. Upon expiration of that 30-month stay, the FDA could grant final approval and Breath could then commence an "at risk" distribution of

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its generic levalbuterol product for those dosages notwithstanding our patents and notwithstanding that the court's decision as to the merits of the litigation will not have been rendered, unless we were able to obtain an injunction prohibiting such distribution. However, if a forfeiture event occurs and the FDA determines that Breath has forfeited the 180-day semi-exclusivity period for those three dosages, other ANDA filers who have been granted final approval by the FDA could commence an "at risk" launch upon expiration of the 30-month stay. For those three dosages, the 30-month stays against Dey, L.P. and Barr expire on or about July 9, 2008 and November 30, 2009, respectively. If any of these parties were to commence selling a generic alternative to our XOPENEX Inhalation Solution product prior to the resolution of these ongoing legal proceedings, or there is a court determination that the products these companies wish to market do not infringe our patents, or that our patents are invalid or unenforceable, it would have a material adverse effect on our business, financial condition and/or results of operations. In addition, our previously issued guidance regarding our projected financial results may no longer be accurate and we would have to revise such guidance.

Background on Science

Chiral Compounds

        Approximately 500 currently available drugs are chiral compounds. Chiral compounds frequently exist as mixtures of mirror-image molecules known as isomers. When a chiral compound contains equal amounts of both isomers, it is a racemic mixture, or a racemate. These two isomers are generally referred to as (S)-isomers (left) and (R)-isomers (right). While isomers have identical molecular weights and physical properties, they can show remarkable selectivity within biological systems and therefore can have different biological actions. In many cases, only one isomer of the racemic drug is responsible for the drug's efficacy. The other may be an unnecessary component or may cause side effects. Typically, in our chiral compound product development process, we separate racemic mixtures containing two isomers into compounds containing only one isomer.

Active Metabolites

        Drugs administered to treat diseases are sometimes transformed, or metabolized, within the body into a variety of related chemical forms known as metabolites, some of which may have therapeutic activity. Metabolites that have therapeutic activity are known as active metabolites. Active metabolites can also be synthesized in the laboratory. During preclinical and clinical testing of a parent drug, subjects are exposed to metabolites of the parent drug. Therefore, a developer of an active metabolite may be able to rely upon certain known clinical information from the parent drug in its NDA submission for the active metabolite, including safety data. In some cases, this can eliminate the need for certain clinical studies and expedite the development process of an active metabolite drug.

        In contrast to traditional new drug development, the safety and efficacy of the racemates and parent drugs of our chiral compound and active metabolite pharmaceuticals under development are often well understood before clinical trials begin. Parent drugs have been successfully taken through clinical studies and may have been on the market for years. We evaluate isomers or active metabolites in an accelerated and focused manner that is designed to allow us to efficiently identify potential advantages in our candidates such as improvements in efficacy, onset of action, duration of activity, dosage, additional indications or meaningful reductions in side effects or adverse reactions.

New Chemical Entities

        We have significantly expanded our research efforts to look beyond single isomers and active metabolites as sources of discovering new compounds. We are actively pursuing novel chemical entity research and licensing activities focusing primarily on central nervous system disorders, respiratory diseases and other disorders and diseases.

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Marketed Products

LUNESTA

Overview

        LUNESTA brand eszopiclone is a non-benzodiazepine used for the treatment of insomnia. Symptoms of insomnia include difficulty falling asleep, awakening frequently during the night, waking up too early, an inability to fall back to sleep, or awakening feeling unrefreshed. LUNESTA is approved for long- or short-term treatment of sleep onset and sleep maintenance insomnia. LUNESTA is classified as a schedule IV controlled substance and is marketed in 1 mg, 2 mg and 3 mg film-coated tablets.

        In December 2004, we received approval from the FDA for our NDA for LUNESTA. We commercially introduced LUNESTA in the United States in April 2005, and the product is currently marketed through our sales force. Our revenues from sales of LUNESTA grew to $600.9 million in 2007 from $565.4 million in 2006 and $327.1 million in 2005. LUNESTA accounted for approximately 49%, 48% and 41% of our total revenues in 2007, 2006 and 2005, respectively. We expect that LUNESTA will account for a substantial portion of our revenues in 2008.

        Under our original license agreement with Rhone-Poulenc Rorer SA (the predecessor to Aventis, now sanofi-aventis) for eszopiclone, dated October 1999, we are obligated to pay a 5% royalty on sales of LUNESTA in the United States and, as part of the July 2004 amendment to this agreement, we permitted Aventis, now sanofi-aventis, to assign our royalty obligation to a third party in exchange for the right to read and reference sanofi-aventis' regulatory filings related to zopiclone outside of the U.S. for the purpose of development and regulatory registration of eszopiclone outside of the United States. Aventis has assigned to us the foreign counterparts to the U.S. patent covering eszopiclone and its therapeutic use.

        In July 2007, we entered into an agreement with Eisai for the development and commercialization of our eszopiclone product in Japan. Under this agreement, Eisai will be responsible for completing remaining clinical trials necessary for attaining marketing approval from the Japanese regulatory authorities and, contingent on obtaining regulatory approval, commercialization of the product in Japan. We received an initial milestone payment and will be entitled to receive subsequent payments upon accomplishment of various development, regulatory and pricing milestones, as well as royalties on product sales. We will also be responsible for, and will receive compensation in connection with, the manufacture and supply of bulk tablets and/or active ingredient.

        In September 2007, we entered into an agreement with GSK for the development and commercialization of our eszopiclone product for all markets worldwide excluding the United States, Canada, Mexico and Japan. Our eszopiclone product will be marketed by GSK in its territory primarily as LUNIVIA brand eszopiclone for the treatment of insomnia. Under this agreement, we received an initial payment of $20.0 million and are entitled to receive additional payments upon accomplishment of various milestones. If all milestones are met, GSK will be obligated to pay us $155.0 million in aggregate license and milestone payments. We are also entitled to receive double-digit royalties that escalate upon increased product sales, and compensation for supplying the product to GSK pursuant to a supply agreement that is expected to be entered into by the parties. We submitted an MAA to the European regulatory authorities for LUNIVIA in July 2007. Pursuant to our agreement with GSK, we are responsible for supporting the MAA until final approval, or such earlier date mutually agreed upon by the parties, and GSK is responsible for supporting the MAA thereafter.

        During 2007, we devoted significant resources to the completion of Phase IIIB/IV studies related to LUNESTA. We expect that we will continue to devote significant resources to Phase IV post-marketing studies of LUNESTA during 2008.

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Intellectual Property Position

        We have two issued U.S. patents covering the therapeutic use of LUNESTA (eszopiclone) and another issued U.S. patent covering the compound eszopiclone and pharmaceutical formulations containing eszopiclone. The natural terms of the compound/formulation patent and one of the use patents expire in January 2012 while the natural term of the other use patent expires in August 2012. Under the Drug Price Competition and Patent Term Extension Act of 1984, known as the Hatch-Waxman Act, we have applied for a patent term extension for the compound/formulation patent. If that extension is granted, it could extend the term of the compound/formulation patent to February 14, 2014. We cannot predict whether or not the patent term extension will be granted.

        The Hatch-Waxman Act also provides for a five-year period of exclusivity beginning on the date of approval of LUNESTA, during which the FDA will not approve an ANDA for any product containing eszopiclone. The FDA can receive ANDAs after four years have elapsed from the date of approval if the ANDA contains a Paragraph IV patent challenge.

Manufacturing and Product Supply

        We manufacture the LUNESTA active pharmaceutical ingredient, or API, at our manufacturing facility in Nova Scotia, Ontario, Canada. This facility is part of Sepracor Canada Ltd., our wholly-owned subsidiary. We also have a qualified second source for API manufacturing at Dow Chemical Inc. in Michigan. Our final tablet manufacturing and packaging takes place at Patheon, Inc., outside of Toronto, Canada, with a second Patheon site, currently used for packaging only, in Cincinnati, Ohio. Currently, Patheon is the only qualified manufacturer of finished commercial supplies of LUNESTA. Any future change to manufacturers or the manufacturing process requires regulatory approval. We seek to maintain sufficient inventories of API and finished products to protect against supply disruptions, but cannot guarantee we will not have product shortages.

XOPENEX INHALATION SOLUTION

Overview

        XOPENEX (levalbuterol HCl) Inhalation Solution is a short-acting beta-agonist used to treat or prevent bronchospasm in children six years of age or older and adults. XOPENEX Inhalation Solution is used to relax the constricted or narrowed bronchial tubes and reduce bronchospasm in the lung. Bronchospasm occurs most commonly in patients with reversible obstructive airway disease, such as asthma, but can also occur in patients with COPD, including chronic bronchitis and emphysema, lung infections, acute bronchitis and other medical conditions. XOPENEX Inhalation Solution comes in a liquid form that is turned into a vapor-like mist in a nebulizer machine and is then inhaled. XOPENEX Inhalation Solution is marketed in 0.31 mg and 0.63 mg dosage strengths for routine treatment of children six to eleven years old, and 0.63 mg and 1.25 mg for patients twelve years of age and older. We currently sell XOPENEX Inhalation Solution in the United States through our sales force.

        According to the American Lung Association, approximately 26 million Americans have been diagnosed with asthma in their lifetime. It is the most common childhood illness and affects approximately 8.6 million children in the United States under the age of eighteen.

        XOPENEX Inhalation Solution revenues tend to be greater during the colder weather months, when asthma symptoms are more prevalent, thus, our first quarter and fourth quarter revenues from XOPENEX Inhalation Solution historically have exceeded those of the second and third quarters. Our revenues from sales of XOPENEX Inhalation Solution declined to $487.2 million in 2007 from $543.0 million in 2006 and $410.8 million in 2005. XOPENEX Inhalation Solution accounted for approximately 40%, 46% and 51% of our total revenues in 2007, 2006 and 2005, respectively.

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        In June 2007, we announced that CMS determined that, based on its interpretation of the statutory language of the MMA, it was required to discontinue the stand-alone reimbursement for XOPENEX Inhalation Solution and generic albuterol, which had been in place since January 2005, and instead calculate the reimbursement for XOPENEX Inhalation Solution and generic albuterol based on the blended weighted average selling price, or ASP, for the two products. This new reimbursement became effective on July 1, 2007. Using a blended weighted ASP for XOPENEX Inhalation Solution results in reimbursement for the product that is considerably lower than the published selling price for the product in the wholesaler distribution channel. The new reimbursement rate is subject to change quarterly based upon the respective contribution of commercial sales of XOPENEX Inhalation Solution and generic albuterol to the quarterly blended weighted ASP calculation. This quarterly ASP calculation is mandated by the MMA. While XOPENEX Inhalation Solution accounted for a substantial portion of our revenues in 2007, and we expect it will account for a substantial portion of our revenues in 2008, revenues from the sale of XOPENEX Inhalation Solution have been, and we expect will continue to be, adversely affected on a comparable basis as a result of this change.

        The CMS bundling action also resulted in an unintended increase in Medicare Part B reimbursement for generic albuterol, significantly higher than the product's ASP as publicly reported by the Medicare Part B program, creating the potential for inappropriate reimbursement incentives to influence the dispensing decisions of providers. On December 29, 2007, President Bush signed into law legislation, the effect of which mandates that XOPENEX Inhalation Solution and generic albuterol be reimbursed at the lower of their stand-alone weighted ASP and the blended weighted ASP for XOPENEX Inhalation Solution and generic albuterol. The effect of this legislation is that XOPENEX Inhalation Solution will continue to be reimbursed at the blended rate and generic albuterol will be reimbursed at its stand-alone weighted ASP. The legislation goes into effect on April 1, 2008.

Intellectual Property Position

        We have one issued U.S. patent covering the active ingredient in XOPENEX HFA (levalbuterol tartrate) and five issued U.S. patents covering the approved therapeutic use of XOPENEX Inhalation Solution, expiring between January 2010 and August 2013. We have one other issued U.S. patent covering the marketed formulation of XOPENEX Inhalation Solution, expiring in March 2021.

        Breath, Dey, L.P., Barr and Watson have each filed an ANDA including Paragraph IV certifications with the FDA seeking to market a generic version of levalbuterol hydrochloride inhalation solution before our patents expire. We have commenced patent infringement litigation against Breath, Dey, L.P., and Barr, but we have decided not to commence litigation against Watson at this time as its Paragraph IV certification is limited to a patent that expires in 2021. A non-jury trial in our litigation against Breath is scheduled to begin on July 14, 2008 in the United States District Court for the District of Delaware, C.A. No. 06-113. No trial date has been set in our patent infringement litigation against Dey, L.P. or Barr.

        The filing of a lawsuit for patent infringement under the Hatch-Waxman Act results in an automatic 30-month stay of the FDA's authority to grant marketing approval to these companies. The 30-month stay against Breath's ANDA is scheduled to expire for our 1.25 mg/3 mL, 0.63 mg/3 mL and 0.31 mg/3 mL XOPENEX Inhalation Solution on or about March 7, 2008. In December 2007, the FDA granted tentative approval to Breath's ANDA for all three dosages. Upon expiration of that 30-month stay, the FDA could grant final approval and Breath could then commence an "at risk" distribution of its generic levalbuterol product for those dosages notwithstanding our patents and notwithstanding that the court's decision as to the merits of the litigation will not have been rendered, unless we were able to obtain an injunction prohibiting such distribution. However, if a forfeiture event occurs and the FDA determines that Breath has forfeited the 180-day semi-exclusivity period for those three dosages, other ANDA filers who have been granted final approval by the FDA could commence an "at risk" launch upon expiration of the 30-month stay. For those three dosages, the 30-month stays against Dey, L.P.

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and Barr expire on or about July 9, 2008 and November 30, 2009, respectively. If any of these parties were to commence selling a generic alternative to our XOPENEX Inhalation Solution product prior to the resolution of these ongoing legal proceedings, or there is a court determination that the products these companies wish to market do not infringe our patents, or that our patents are invalid or unenforceable, it would have a material adverse effect on our business, financial condition and/or results of operations. In addition, our previously issued guidance regarding our projected financial results may no longer be accurate and we would have to revise such guidance.

Manufacturing and Product Supply

        We manufacture the API for XOPENEX Inhalation Solution at our manufacturing facility in Nova Scotia, Canada. We also have a qualified second source for API manufacturing at Shasun Pharma Solutions, Ltd. (formerly known as Rhodia-Chirex, Inc.) in the United Kingdom. Catalent Pharma Solutions, LLC, or Catalent, formerly Cardinal Health, Inc., and Holopack International Corporation, or Holopack, are currently our only finished goods manufacturers of our XOPENEX Inhalation Solution. Any future change to manufacturers or the manufacturing process requires regulatory approval. We seek to maintain sufficient inventories of API and finished products to protect against supply disruptions but cannot guarantee we will not have product shortages.

XOPENEX HFA METERED-DOSE INHALER

Overview

        XOPENEX HFA (levalbuterol tartrate) Inhalation Aerosol, an HFA MDI, is indicated for the treatment or prevention of bronchospasm in adults, adolescents and children four years of age and older with reversible obstructive airway disease. MDIs are hand-held, pressurized canisters that deliver inhaled medications directly to the lungs. XOPENEX HFA combines levalbuterol with a propellant to produce a fine mist that delivers a specific amount of medication to a patient's lungs. XOPENEX HFA complements the XOPENEX Inhalation Solution product line and provides patients with a portable means of administering XOPENEX.

        XOPENEX HFA does not contain any ozone-depleting chlorofluorocarbons, or CFCs, but instead contains a hydrofluoroalkane propellant, which is not ozone-depleting. Approximately 40% of the short-acting beta-agonist inhalers sold in the fourth quarter of 2007 contained CFC propellants, according to IMS Health information. Under provisions in the Montreal Protocol on Substances that Deplete the Ozone Layer, an international agreement that requires the phase-out of substances that deplete the ozone layer, MDIs containing CFC propellants would qualify for removal from the marketplace. In March 2005, the FDA issued its final rule for the removal of the essential use exemption for albuterol, which currently permits the use of CFC-containing albuterol inhalers notwithstanding environmental concerns. Under the rule, all production and sales of CFC-containing albuterol MDIs in the U.S. are required to cease by the end of 2008.

        In 2006, production of CFC-containing albuterol inhalers began to decline as production of HFA inhalers began to increase. As of early 2007, the major producers ceased production of CFC-containing albuterol MDIs. There continues to be a transition in the short-acting beta-agonist MDI market from a predominantly generic CFC-based market to a branded HFA-based market. We expect to continue to position XOPENEX HFA as an appropriate alternative to CFC albuterol MDIs throughout this transition period.

        In March 2005, we received approval from the FDA for our NDA for XOPENEX HFA. We commercially introduced XOPENEX HFA in the United States in December 2005, and the product is currently marketed through our sales force. Revenues from sales of XOPENEX HFA grew to $74.9 million in 2007 from $41.0 million in 2006. XOPENEX HFA accounted for approximately 6% and 3% of our total revenues in 2007 and 2006, respectively. XOPENEX HFA revenues are expected to be greater during the colder weather months, when asthma symptoms are more prevalent, thus our first quarter and fourth quarter revenues for this product are expected to exceed those of the second and third quarters. In 2008, we expect that XOPENEX HFA will account for less than 10% of our overall revenues.

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Intellectual Property Position

        We have five issued U.S. patents covering the approved therapeutic use of XOPENEX HFA, which expire between January 2010 and August 2013. We have an issued U.S. patent covering the active ingredient in XOPENEX HFA, which expires in October 2024. We also have a non-exclusive license under certain patents owned by Minnesota Mining and Manufacturing Company, or 3M, that relate to HFA inhalation aerosol technology. The 3M patents expire between 2009 and 2017.

Manufacturing and Product Supply

        We manufacture the API for XOPENEX HFA at our facility in Nova Scotia, Canada. We currently have one qualified manufacturer of finished commercial supplies of XOPENEX HFA, which is 3M. Under our supply agreement with 3M, we are obligated to pay to 3M a combination of a fixed price per unit of product purchased and a percentage royalty based on our net sales of XOPENEX HFA. We have several suppliers from whom we order components that go into the manufacture of the canister. These parts are shipped to a 3M site in California for final manufacturing, which includes aerosol filling and packaging. Any future change to manufacturers or the manufacturing process requires regulatory approval. We seek to maintain sufficient inventories of API and finished products to protect against supply disruptions but cannot guarantee we will not have product shortages.

BROVANA

Overview

        BROVANA (arformoterol tartrate) Inhalation Solution is a long-acting, twice-daily (morning and evening), maintenance treatment of bronchoconstriction in patients with COPD, including chronic bronchitis and emphysema, and is approved for use with a nebulizer. According to the National Center for Health Statistics, COPD is the fourth leading cause of death in the United States, and in 2004, approximately 12 million adults in the United States were reported to have COPD. Approximately 24 million adults have evidence of impaired lung function, which may indicate that COPD is under-diagnosed, according to the National Heart, Lung, and Blood Institute, or NHLBI. COPD is a slowly progressive disease of the airways that is characterized by a gradual loss of lung function.

        In October 2006, we received approval from the FDA for our NDA for BROVANA. We commercially introduced BROVANA in the United States in April 2007, and the product is currently marketed through our sales force. In November 2007, we announced that CMS established a product-specific billing code, or J Code, for BROVANA under the Medicare Part B benefit, which became effective on January 1, 2008. Revenues from sales of BROVANA were $14.3 million in 2007 and accounted for approximately 1% of our total revenues. In 2008, we expect that BROVANA will account for less than 5% of our overall revenues.

Intellectual Property Position

        We have four issued U.S. patents covering the approved therapeutic use of BROVANA Inhalation Solution, all expiring in April 2012. We have applied for a patent term extension of 745 days for one of these patents. We also have four issued U.S. patents covering the active ingredient of BROVANA, one of which expires in November 2016, and the other three in November 2021.

Manufacturing and Product Supply

        We manufacture the API for BROVANA at our manufacturing facility in Nova Scotia, Canada. Catalent is currently our only qualified manufacturer of finished commercial supplies of BROVANA. Any future change to manufacturers or the manufacturing process requires regulatory approval. We

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seek to maintain sufficient inventories of API and finished products to protect against supply disruptions but cannot guarantee we will not have product shortages.

Competition

        We face intense competition in the sale of our current products, and expect to face intense competition in the sale of any future products we sell. If we are unable to compete effectively, our financial condition and results of operations could be materially adversely affected because we may not achieve our product revenue objectives and because we may use our financial resources to seek to differentiate ourselves from our competition. Large and small companies, academic institutions, governmental agencies and other public and private organizations conduct research, seek patent protection, develop and acquire products, establish collaborative arrangements for product development and sell or license products in competition with us. Many of our competitors and potential competitors have substantially greater resources, manufacturing and sales and marketing capabilities, research and development staff and production facilities than we have. The fields in which we compete are subject to rapid and substantial technological change. Our competitors may be able to respond more quickly to new or emerging technologies or to devote greater resources to the development, manufacture and marketing of new products and/or technologies than we can. As a result, any products and/or technologies that we develop may become obsolete or noncompetitive before we can recover expenses incurred in connection with their development.

LUNESTA

        For insomnia treatments, LUNESTA faces intense competition from established branded and generic products in several drug classes including benzodiazepines, non-benzodiazepines, melatonin agonists, select anti-depressants and others. We estimate that our existing LUNESTA prescriptions account for less than 10% of the total, annual prescriptions currently being written in the United States for insomnia pharmaceutical therapies. Furthermore, LUNESTA faces substantial competition from non-prescription, over-the-counter and dietary supplement insomnia product options. We expect that LUNESTA will face increasing competition from a generic version of AMBIEN (zolpidem tartrate), which was introduced in April 2007, a generic version of AMBIEN CR (zolpidem tartrate extended release), which could be introduced as early as March 2009, and therapies in clinical development and under FDA review for the treatment of insomnia. We may also face additional competition in the event of commercial introduction of a generic version of LUNESTA. To continue to be successful with LUNESTA, we must continue to demonstrate that LUNESTA's safety and efficacy features are superior to those of competing branded and generic products, some of which may be less expensive than LUNESTA.

XOPENEX FRANCHISE

        For asthma and COPD treatments, XOPENEX Inhalation Solution and XOPENEX HFA face intense competition from a variety of products. Asthma and COPD patients turn to numerous classes of drugs, including corticosteroids, long-acting beta-agonists, short-acting beta-agonists, leukotriene modifiers, anticholingerics, and others, as well as certain combinations thereof. XOPENEX Inhalation Solution and XOPENEX HFA together account for approximately 3% of the total annual prescriptions currently being written in the United States for asthma and COPD pharmaceutical therapies. XOPENEX Inhalation Solution and XOPENEX HFA also face intense competition specifically within the beta-agonist classes of asthma and COPD treatments. We estimate that our existing XOPENEX prescriptions account for approximately 10% of the total annual prescriptions currently being written in the United States for beta-agonist asthma and COPD pharmaceutical therapies.

        Both mono-therapy and combination-therapy beta-agonist treatments compete directly with our XOPENEX products for the treatment of asthma and COPD. Albuterol, a short-acting beta-agonist,

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has been available generically for many years. Products containing albuterol as an active ingredient are well established and sell at prices substantially lower than XOPENEX Inhalation Solution and XOPENEX HFA. XOPENEX HFA also faces direct competition from CFC-containing albuterol MDIs and branded HFA albuterol MDIs. With the phase-out of CFC albuterol MDI products required by the end of December 2008, we expect that competition from branded HFA MDIs will increase substantially. Furthermore, as a consequence of the ongoing commercialization of BROVANA, prescription levels for XOPENEX Inhalation Solution may be adversely affected to the extent that a significant number of physicians prescribe BROVANA, which could reduce the need for concomitant XOPENEX products. We may also face additional competition in the event of the commercial introduction of generic versions of our XOPENEX products.

        To be successful with our XOPENEX products, we must demonstrate that the efficacy and safety features of these drugs outweigh the higher price as compared to generic albuterol and other competing products and that these attributes differentiate these products from other asthma and COPD treatments, including beta-agonist asthma and COPD treatments.

BROVANA

        For COPD treatments solely, BROVANA faces competition from a variety of products. Competitive products include all products used in the treatment of COPD. COPD patients turn to numerous classes of drugs including anticholingerics, corticosteroids, mukolytics, long-acting beta-agonists, short-acting beta-agonists, theophyllines and others. We estimate that our existing BROVANA prescriptions account for less than 1% of the total annual prescriptions currently being written in the United States for COPD pharmaceutical therapies, and less than 1% of beta-agonist COPD pharmaceutical therapies specifically. Even though BROVANA is a nebulized product, it also faces competition from long-acting beta-agonists and anticholinergics delivered by MDI and dry-powder inhaler. BROVANA also competes with combination therapy products used for COPD. In the fourth quarter of 2007, PERFOROMIST, a direct competitor with BROVANA, was launched, which we anticipate may impact adversely BROVANA's prescription levels. To be successful with BROVANA, we must demonstrate that patients with COPD will benefit by using BROVANA.

OMNARIS AQ

        If and when it is commercialized, OMNARIS AQ, a corticosteroid nasal spray, will compete with perennial and seasonal allergic rhinitis treatments, and will face competition from oral antihistamines, intranasal antihistamines, intranasal decongestants, other intranasal corticosteroids, intranasal mast cell stabilizers and antileukotrienes. To be successful with OMNARIS AQ, we must demonstrate that OMNARIS AQ's safety and efficacy features are superior to those of competing branded and generic products, some of which may be less expensive than OMNARIS AQ and may be available without a prescription. We may also face additional competition in the event of commercial introduction of a generic version of OMNARIS AQ.

        For all of our products, we need to demonstrate to physicians, patients, and third-party payors that the cost of our product is reasonable and appropriate in light of its safety, efficacy, and health care benefits, each as compared to other competing products. In addition, if competitors introduce new products or develop new processes or new information about existing products, then our products, even those protected by patents, may be replaced in the marketplace or we may be required to lower our prices.

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Research and Development

        Our research and development activities are primarily directed toward discovering and developing potentially improved versions of widely-prescribed drugs and new chemical entities unrelated to existing compounds.

        Our total research and development expenses were $263.8 million, $163.5 million and $144.5 million for 2007, 2006 and 2005, respectively.

        Our spending during the past three years has centered on advancing our drug candidates through clinical trials. We expend the majority of funds on programs closest to NDA submission. Over the three-year period ended December 31, 2007, our principal research and development programs were (1) the post-NDA development of LUNESTA, for which we received FDA approval in December 2004, and which we commercially introduced in April 2005; (2) the development of XOPENEX HFA, for which we received FDA approval in March 2005, and which we commercially introduced in December 2005; (3) the development of BROVANA, for which we received FDA approval in October 2006, and which we commercially introduced in April 2007; (4) Phase I studies of SEP-225289, a serotonin, norepinephrine and dopamine reuptake inhibitor, or SNDRI, for the treatment of major depressive disorder, or MDD; and (5) Phase I studies of SEP-227162, a serotonin, norepinephrine reuptake inhibitor, or SNRI for the treatment of depression and/or anxiety.

        In 2008, we intend to significantly increase research and development expenditures over 2007. We expect our principal research and development activities will relate to the following programs (which are described in more detail below); (1) drug discovery; (2) LUNESTA; (3) SEP-225441; (4) ciclesonide pipeline; (5) SEP-225289, and; (6) SEP-0002093.

Drug Development Programs

        All of our drug candidates require significant research, development, successful preclinical and/or clinical testing, regulatory approval and a commitment of significant additional resources prior to commercialization.

Respiratory

        XOPENEX HFA.    In 2008, we expect to commence a Phase IV pediatric study of XOPENEX HFA.

        BROVANA.    The FDA approved BROVANA in October 2006, which we commercially introduced in April 2007, and has mandated a large Phase IV safety study and a pediatric Phase IV asthma study. In late 2007, we commenced the pediatric asthma study and we expect to commence the safety study in late 2008 or early 2009.

        ALVESCO inhalation solution.    Under our agreement with Nycomed, we are responsible for the clinical development of ALVESCO inhalation solution. ALVESCO inhalation solution is an innovative inhaled corticosteroid providing asthma control in all patient groups regardless of asthma severity. ALVESCO inhalation solution is in the pre-Investigational New Drug Application, or IND, planning stage.

        OMNARIS HFA.    Under our agreement with Nycomed, we are responsible for the technical and clinical development of OMNARIS HFA. OMNARIS HFA is an innovative intranasal steroid formulation being developed for therapeutic effects in seasonal as well as perennial allergic rhinitis. The OMNARIS HFA program has completed Phase I and Phase II clinical trials and is in the planning stage for Phase III trials.

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        ALVESCO in combination with a long-acting beta-agonist.    Under our agreement with Nycomed, we are responsible for the clinical development of ALVESCO in combination with a long-acting beta-agonist. Prior to entering into our agreement, Nycomed completed various preclinical and early stage clinical studies. We are in the process of evaluating the next steps for the development of this product.

Central Nervous System

LUNESTA / LUNIVIA (eszopiclone).

        Together with our collaboration partners, we are currently seeking to develop and market our eszopiclone product outside the United States, and we are seeking to provide further clinical support of our LUNESTA marketing efforts in the United States.

Eszopiclone—Europe

        In July 2007, we submitted an MAA for LUNIVIA with the regulatory authorities in the European Union, or E.U. We received a consolidated report from the reviewing MAA rapporteurs in December 2007 and responded to them in early 2008. Approval of the MAA is targeted in the fourth quarter of 2008. We also have an ongoing European clinical study of eszopiclone for the treatment of patients with depression.

Eszopiclone—Japan

        In the United States, we completed a Phase I pharmacokinetic study of eszopiclone for the treatment of insomnia for use in connection with the registration with the Japanese regulatory authorities that we initiated in 2006. In 2006, we conducted successful regulatory meetings in Japan with regard to our plans for further study and development of eszopiclone and filed a Clinical Trial Notification, or CTN, in Japan, which is equivalent to an IND in the United States. During 2007, we completed a Phase I pharmacokinetic study for the treatment of insomnia in the elderly in Japan. In the third quarter of 2007, we established a joint development committee with Eisai, our eszopiclone collaboration partner in Japan. This committee has developed plans and committed resources required to complete the remaining development necessary in connection with the filing of the Japanese NDA equivalent. The major outstanding component of the Japanese development program is the completion of two clinical studies in Japan. The CTN transfer to Eisai and subsequent initiation of these clinical trials are targeted for the third quarter 2008.

LUNESTA—United States

        During 2008, we expect to commence a human pediatric study of LUNESTA in response to an FDA request, in addition to completing a Phase IV study on the use of LUNESTA for the treatment of insomnia in the elderly.

SEP-225289 is an SNDRI for the treatment of MDD. SEP-225289 has been shown in preclinical studies to be a potent and balanced reuptake inhibitor of serotonin, norepinephrine and dopamine, which are three neurotransmitters associated with depression. While there are currently no triple reuptake inhibitors on the market, preclinical studies suggest that a triple mechanism of action may provide a profile superior to those of currently marketed antidepressants. In 2006, we completed a Phase I, single-blind, randomized, placebo-controlled safety, tolerability and pharmacokinetic clinical study. In late 2007, we initiated a Phase II, proof-of-concept study for the use of SEP-225289 in patients with depression.

SEP-227162 is an SNRI for the treatment of depression and/or anxiety. In 2006, we filed an IND for SEP-227162, and completed Phase I studies in 2007. In the second half of 2008, we expect to

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participate in an end of Phase II meeting with the FDA, and we are currently targeting the initiation of Phase III in 2009.

SEP-225441 is a GABA_A agonist and potent anxiolytic in preclinical models. Clinical Phase I studies were initiated in Europe in 2007. In the fourth quarter of 2007, we submitted an IND to the FDA and initiated a Phase II generalized anxiety disorder study. We are currently enrolling patients for this study.

SEP-225432 is an SNDRI for the treatment of MDD and has been shown in preclinical studies to be a potent and balanced reuptake inhibitor of serotonin, norepinephrine and dopamine, which are three neurotransmitters associated with depression. While there are currently no triple reuptake inhibitors on the market, preclinical studies suggest that a triple mechanism of action may provide a profile superior to those of currently marketed antidepressants. We submitted an IND in December 2007 and expect to initiate a first-in-man clinical study in the first quarter of 2008.

SEP-225425 is an SNDRI for the treatment of MDD and has been shown in preclinical studies to be a potent and balanced reuptake inhibitor of serotonin, norepinephrine and dopamine, which are three neurotransmitters associated with depression. While there are currently no triple reuptake inhibitors on the market, preclinical studies suggest that a triple mechanism of action may provide a profile superior to those of currently marketed antidepressants. We submitted an IND in December 2007 and expect to initiate a first-in-man clinical study in the first quarter of 2008.

SEP-0002093, formerly BIA 2-093, is the compound we recently licensed from Bial. Under our agreement with Bial, we are responsible for further developing SEP-0002093, filing an NDA with the FDA and seeking regulatory approval in Canada. SEP-0002093 is a new chemical entity which is intended to offer patients suffering with partial epilepsy additional control of their seizures and improved quality of life. Bial has completed a Phase III program in Europe for the adjunctive treatment of epilepsy. Bial and Sepracor representatives attended a pre-NDA meeting with the FDA in January 2008. The remaining NDA submission timeline is dependent upon the quality and completeness of the Bial-derived preclinical and clinical data set. We anticipate submitting the NDA in late 2008 or in early 2009.

Drug Discovery Programs

        All of our drug candidates require significant research, development, successful preclinical and/or clinical testing, regulatory approval and a commitment of significant additional resources prior to commercialization.

        We are continuing our research efforts for novel compounds for treatment of CNS disorders. In these programs, we are seeking to discover novel compounds, unrelated to existing compounds, which we believe may have the potential to provide benefits over existing treatments or address unmet medical needs.

        Blocking the reuptake of certain brain neurotransmitters has been demonstrated to lead to effective treatments for mood and anxiety disorders. These have traditionally focused on serotonin and norepinephrine. Dopamine is a third neurotransmitter involved in the regulation of mood and attention. We recently advanced SEP-225432 and SEP-225425 with triple reuptake blocking mechanisms to our clinical program as additional lead product candidates. These candidates block reuptake of dopamine, norepinephrine and serotonin thus having the potential to address mood and anxiety disorders through incorporation of the dopamine blockade.

        We are currently evaluating selective agonists that bind to the alpha₂ and alpha₃ subunits of the GABA_A (gamma-aminobutyric acid) receptor, which we believe may have utility in treating anxiety without the sedation typically associated with the GABA_A complex.

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        DAAOIs, or D-amino acid oxidase inhibitors, may offer therapeutic potential for treatment of cognitive disorders, schizophrenia and pain. We have been evaluating DAAOIs and our discovery program has identified SEP-227900 as well as other leads that may be applicable for treating different CNS disorders.

Partnered Research

        ACADIA Pharmaceuticals.    In January 2005, we entered into a collaboration agreement with ACADIA Pharmaceuticals, Inc., or ACADIA, for the development of new drug candidates targeted toward the treatment of CNS disorders. This agreement expired pursuant to its terms in January 2008, and we are no longer pursuing the development of the drug candidates subject to this agreement.

        From time to time, we engage in collaborations, sponsored research agreements, and other development arrangements with third parties, including academic researchers and institutions.

Partnered Products

Out-Licensed Patents

        Royalty revenues from our out-licensing agreements for certain patents we own were $47.7 million, $33.8 million and $51.2 million for the years ended December 31, 2007, 2006 and 2005, respectively. Our royalty revenues currently come primarily from sales in the antihistamine market. The antihistamine products for which we receive royalties face intense competition from over-the-counter products, such as CLARITIN® and ZYRTEC®, which in November 2007 was approved by the FDA for sale without a prescription, and generic prescription antihistamine products. This competition has a direct impact on our ability to earn royalties in this market. Additionally, there is uncertainty relating to possible changes in the market with much discussion about other prescription allergy products possibly being sold without a prescription. Finally, there is a possibility that companies that produce generic drugs may succeed in their patent challenges relating to drugs for which we receive royalties and other drugs with large market share. This could result in the introduction of other generic equivalents, which may increase price competition among antihistamines and lower market share for the branded drugs.

        sanofi-aventis for Fexofenadine HCl.    In July 1993, we licensed to Hoechst Marion Roussel, Inc., now sanofi-aventis (formerly Aventis), our U.S. patent rights covering fexofenadine hydrochloride, or HCl. In October 1996, Aventis commercially introduced ALLEGRA, which is fexofenadine HCl. Since March 1, 1999, we have been entitled to receive royalties on fexofenadine product sales in countries where we have patents related to fexofenadine. In February 2001, we began earning royalties on fexofenadine sales in the U.S. However, since the introduction of a generic version of ALLEGRA in the United States during the third quarter of 2005, we have ceased to earn royalties on United States sales of ALLEGRA. We are currently receiving royalties from sanofi-aventis for sales of ALLEGRA in Japan, Canada and Australia and in certain E.U. member states.

        Schering-Plough Corporation for Desloratadine.    In December 1997, we licensed to Schering-Plough Corporation, or Schering-Plough, exclusive worldwide rights to our patents and patent applications relating to desloratadine, an active-metabolite of loratadine, which is marketed by Schering-Plough as CLARITIN. In January 2002, Schering-Plough commercially introduced CLARINEX brand desloratadine 5 mg tablets for the treatment of seasonal allergic rhinitis, or SAR, in adults and children twelve years of age and older. In February 2002, Schering-Plough received FDA approval to market CLARINEX tablets for the treatment of chronic idiopathic urticaria, or CIU, in adults and children twelve years of age and older. Under the terms of our license agreement with Schering-Plough, we are currently receiving royalties on sales of CLARINEX in countries in which we hold patents.

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        UCB for Levocetirizine.    In February 2006, we entered into a license agreement with UCB S.A. relating to levocetirizine. Under this agreement, we have exclusively licensed to UCB S.A. all of our patents and patent applications in the United States regarding levocetirizine and royalties are payable to us on United States sales of levocetirizine products. In September 2006, UCB and sanofi-aventis announced they entered into an agreement to co-promote XYZAL in the United States. In February 2008, UCB announced that the FDA approved its NDA for XYZAL 0.5 mg/ml solution. XYZAL tablets received approval in May 2007. Pursuant to our agreement with UCB Farchim S.A., we also earn royalties on sales of levocetirizine outside of the United States. Levocetirizine is currently marketed by UCB under the brand names XYZAL and XUSAL in the E.U. for treatment of symptoms of seasonal and perennial allergic rhinitis, persistent allergic rhinitis and CIU in adults and children six years of age and older.

Out-Licensed Products

        Eisai for Eszopiclone.    In July 2007, we entered into an agreement with Eisai for the development and commercialization of our eszopiclone product in Japan. Under this agreement, Eisai will be responsible for completing remaining clinical trials necessary for attaining marketing approval from the Japanese regulatory authorities and, contingent on obtaining regulatory approval, commercialization of the product in Japan. We received an initial milestone payment and will be entitled to receive subsequent payments upon accomplishment of various development, regulatory and pricing milestones, as well as royalties on product sales. We will also be responsible for, and will receive compensation in connection with, the manufacture and supply of bulk tablets and/or active ingredient.

        GSK for Eszopiclone.    In September 2007, we entered into an agreement with GSK for the development and commercialization of our eszopiclone product for all markets worldwide excluding the United States, Canada, Mexico and Japan. Our eszopiclone product will be marketed by GSK in its territory primarily as LUNIVIA brand eszopiclone for the treatment of insomnia. Under this agreement, we received an initial payment of $20.0 million and are entitled to receive additional payments upon accomplishment of various milestones. If all milestones are met, GSK will be obligated to pay us $155.0 million in aggregate license and milestone payments. We are also entitled to receive double-digit royalties that escalate upon increased product sales, and compensation for supplying the product to GSK pursuant to a supply agreement that is expected to be entered into by the parties.

In-Licensed Product and Exclusive Distributor Agreement

        Bial for Anti-Epileptic Compound    In December 2007, we entered into a license agreement with Bial for the development and commercialization in the United States and Canada of Bial's anti-epileptic compound, BIA 2-093, which we subsequently renamed SEP-0002093. Pursuant to the agreement, we paid Bial an upfront payment of $75.0 million and are required to make subsequent payments upon accomplishment of various development and regulatory milestones, which could include up to an additional $100.0 million if all milestones are met. Bial will also receive compensation for providing finished product pursuant to a supply agreement that is expected to be entered into by the parties, which will be calculated as a percentage of the average net selling price for finished tablets, and milestone payments upon FDA approval of additional indications, if any.

        Nycomed for Ciclesonide Compound.    In January 2008, we entered into an agreement with Nycomed for the exclusive U.S. distribution, development and commercialization in the United States, its territories and possessions of Nycomed's compound ciclesonide, and products incorporating such compound, including ALVESCO HFA Inhalation Aerosol metered-dose inhaler, for use in the treatment of asthma, and OMNARIS AQ nasal spray for use in the treatment of allergic rhinitis. Under the agreement, we paid Nycomed an upfront payment of $150.0 million in February 2008 and may be required to make subsequent payments of up to $280.0 million over the life of the agreement upon accomplishment of various development and sales milestones. Nycomed will also receive

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compensation for supplying finished product pursuant to the agreement, including a supply price for the products, which will be based on Nycomed's manufacturing costs plus a percentage of such costs, and quarterly royalty payments based on our net sales of the products.

Marketing and Sales

        We currently market and sell our products through our sales force, and we out-license certain of our intellectual property rights in exchange for royalties. We believe that in certain situations, partnering arrangements allow us to use the partner's development and marketing expertise to market our drug candidates more quickly. We currently have partnering agreements for our products and intellectual property with Schering-Plough, sanofi-aventis, UCB, Eisai and GSK. In each of these partnering arrangements, we are dependent upon the efforts, including marketing and sales efforts for approved products, of our partners, and these efforts may not be successful.

        We have established a sales force to market XOPENEX Inhalation Solution, our short-acting bronchodilator; LUNESTA, for the treatment of insomnia; XOPENEX HFA, our short-acting bronchodilator in an MDI formulation; and BROVANA, our long-acting, twice-daily (morning and evening), maintenance treatment of bronchoconstriction in patients with COPD, including chronic bronchitis and emphysema. In October 2007, we announced that we had decided to reduce our sales force by approximately 300 positions. The decision was based on our evaluation of the structure, size and allocation of our direct sales force at that time and was intended to result in cost savings in fiscal year 2008. As of December 31, 2007, this sales force reduction was complete. We now have approximately 1,600 sales professionals who market our drugs to primary care physicians, psychiatrists, pediatricians, pulmonologists, allergists, sleep specialists and hospitals in the United States. In January 2008, we acquired exclusive U.S. distribution rights to two products that have been approved by the FDA, OMNARIS AQ and ALVESCO HFA, and we intend to increase our sales force capacity by at least 200 sales professionals through the expansion of our direct sales force or the services of a contract sales organization in order to accommodate the commercialization of these two products.

        Our products are primarily sold directly to pharmaceutical wholesalers, retail pharmacy chains and home health care organizations. There are a limited number of major wholesalers and retail chains as a result of significant consolidation among companies in the industry. Therefore, as is typical in the pharmaceutical industry, a few customers provide a significant portion of our overall revenues. Also, our terms of sale typically allow for the return of unused product up to one year after product expiration.

        Product sales of LUNESTA, XOPENEX Inhalation Solution, XOPENEX HFA and BROVANA to McKesson Corp, Cardinal Health, Inc., AmerisourceBergen Corp. and CVS Caremark Corp. represented approximately 31%, 29%, 17% and 10%, respectively, of our revenues in 2007. No other customer accounted for more than 10% of our revenues in 2007.

        We currently warehouse and ship all of our products through UPS Supply Chain Solutions, a division of United Parcel Services, Inc., through locations in Louisville, Kentucky and outside of Reno, Nevada. Our expectation for 2008 and beyond is to continue to distribute all of our products through one third-party vendor with at least two locations.

        In 2008, we expect sales and marketing expenses to increase over 2007 as a result of the expected commercial introduction of OMNARIS AQ in the first half of 2008 and the expected commercial introduction ALVESCO HFA in the second half of 2008, including the anticipated increase in our sales force capacity.

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Manufacturing

        We prepare certain of our drug compounds for research purposes primarily at our laboratories in Marlborough, Massachusetts. We also own and operate a current Good Manufacturing Practices compliant, or GMP-compliant, 50,000 square foot fine chemical manufacturing facility in Windsor, Nova Scotia, which we believe has sufficient capacity to support the production of our product candidates in quantities required for our clinical trials. If we successfully develop and receive regulatory approval for additional product candidates, we will need to either manufacture the drugs ourselves or rely on third parties for manufacturing. While we believe that we have the capability to scale up our manufacturing process to support the production in commercial quantities of certain of the drugs that we intend to market and sell directly, we contract out to third-party manufacturers the production of a substantial portion of those drugs. See the discussions above for specific information on the manufacture of our marketed products.

        We have established a quality assurance/quality control program to ensure that our products and product candidates are manufactured in accordance with applicable regulations. We require that our contract manufacturers and collaboration partners adhere to current GMP. The facilities of our contract manufacturers and collaboration partners must pass regular post-approval FDA inspections. The FDA or other regulatory agencies must approve the processes and the facilities that may be used for the manufacture of any of our potential products.

Government Regulation

Government Approval Process

        We, our collaboration partners and our customers, are required to obtain the approval of the FDA and similar health authorities in foreign countries, to test clinically and sell commercially, pharmaceuticals and biopharmaceuticals for human use.

        Human therapeutics are generally subject to rigorous preclinical and clinical testing. The standard process required by the FDA before a drug may be marketed in the United States includes:

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preclinical laboratory tests and animal studies of toxicity and, often, carcinogenicity;



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submission to the FDA of an IND application, which must be accepted before human clinical trials may commence;



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adequate and well-controlled human clinical trials to establish safety and efficacy of the drug for its intended indication;



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submission to the FDA of an NDA; and



•

FDA acceptance and approval of the NDA prior to any commercial sale or shipment of the drug.

        We sometimes attempt to shorten the regulatory approval process of our drug candidates by relying on preclinical and clinical toxicology data with respect to a parent drug.

        Typically, clinical evaluation involves a three-phase process. In Phase I, the initial introduction of the drug to humans, the drug is tested for safety, or adverse effects, dosage tolerance, absorption, distribution, metabolism and excretion. Phase II involves studies in a limited patient population to:

•

determine the efficacy of the drug for specific targeted indications;



•

determine dosage tolerance and optimal dosage; and



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identify possible adverse effects and safety risks.

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        When a compound is found to be effective and to have an acceptable safety profile in Phase II evaluations, Phase III trials are undertaken to further evaluate clinical efficacy and to test further for safety within an expanded patient population at geographically dispersed clinical study sites. The process of completing clinical testing, obtaining FDA regulatory approval and commencing commercial marketing takes a number of years. We may not successfully complete Phase I, Phase II or Phase III testing within any specified time period, if at all, with respect to any of our products subject to this testing. Even if we successfully complete clinical testing and the FDA accepts an NDA for filing, the FDA may determine not to approve an NDA. Furthermore, even if an NDA is approved, the FDA may not accept our evidence that a particular product meets our claims of superiority.

Other Regulations Relating to the Sale of Pharmaceuticals

        FDA regulations pertain not only to health care products, but also to the processes and production facilities used to produce such products. Although we have designed the required areas of our facilities in the United States and Canada to conform to current GMP, the FDA will not review the facilities for compliance until we produce a product for which we are seeking marketing approval. Environmental legislation provides for restrictions and prohibitions on releases or emissions of various substances produced in, and waste by-products from, our operations.

        The Controlled Substances Act imposes various registration, record-keeping and reporting requirements, procurement and manufacturing quotas, labeling and packaging requirements, security controls and a restriction on prescription refills on certain pharmaceutical products. A principal factor in determining the particular requirements of this Act, if any, applicable to a product is its actual or potential abuse profile. A pharmaceutical product may be listed as a Schedule II, III, IV or V substance, with Schedule II substances considered to present the highest risk of substance abuse and Schedule V substances the lowest. Eszopiclone, the active drug substance in LUNESTA, has been scheduled under the Controlled Substances Act as a Schedule IV substance. Prescriptions for Schedule IV substances may not be filled or refilled more than six months after they are written and they may not be refilled more than five times unless they are renewed. Schedule IV substances are also subject to special handling procedures relating to storage, shipment, inventory control and disposal. In addition to Federal scheduling, LUNESTA is subject to state controlled substance regulation, and may be placed in more restrictive state schedules than those determined by the U.S. Drug Enforcement Agency and FDA. To date, LUNESTA has not been placed in a more restrictive schedule by any state.

        The FDA also imposes requirements relating to the marketing of drug products after approval, including requirements relating to the advertising and promotion of drug products to health care professionals and consumers and the reporting to the FDA of adverse drug experiences known to companies holding approved applications. Our failure to adhere to these requirements could lead to regulatory action by the FDA. Information reported to the FDA in compliance with these requirements could cause the FDA to withdraw drug approval or to require modification of labeling, for example, to add warnings or contraindications. The FDA has the statutory authority to seek judicial remedies and sanctions and to take administrative corrective action for violation of these and other FDA requirements and standards.

        We are also subject to various Federal and state laws pertaining to health care fraud, including anti-kickback laws and false claims laws. Anti-kickback laws make it illegal for a prescription drug manufacturer to solicit, offer, receive, or pay any remuneration in exchange for, or to induce, the utilization of products or services reimbursed by a Federal or state health care program, including the purchase or prescribing of a particular drug. False claims laws prohibit anyone from knowingly and willingly presenting, or causing to be presented for payment to third-party payors, including Medicare and Medicaid, false or fraudulent claims for reimbursed drugs or services, claims for items or services not provided as claimed, or claims for medically unnecessary items or services. Penalties for violations

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of health care fraud or false claims laws can include disgorgement of profits, fines, and exclusion from Federal health care programs such as Medicare.

        The cost of pharmaceutical products is continually being investigated and reviewed by various government agencies, legislative bodies and private organizations in the United States and throughout the world. In the United States, most states have enacted legislation permitting, or even requiring, a dispensing pharmacist to substitute a different manufacturer's generic version of a pharmaceutical product for the one prescribed.

Reimbursement

        In the United States and other countries in which we sell our products, sales of drug products are dependent in part on the availability of reimbursement by third-party payors, such as government and private insurance plans. Third-party payors are increasingly challenging the reimbursements paid for drugs and other medical products and services. We cannot provide assurance that any of our products will be considered cost effective by payors or that reimbursement will be available or will be sufficient to allow us to sell our products on a competitive and profitable basis.

        Two principal payors in the United States are Medicaid and Medicare. Medicaid is a Federal and state entitlement program that pays for medical assistance for certain individuals and families with low incomes and resources and who meet other eligibility requirements. Medicaid became law in 1965 and is jointly funded by the Federal and state governments (including the District of Columbia and the territories) to assist states in furnishing medical assistance to eligible needy persons. Medicaid is the largest source of funding for medical and health-related services for America's indigent population.

        Our drugs are generally eligible for reimbursement under Medicaid and are, therefore, subject to rebates under the Medicaid Drug Rebate Program established by the Omnibus Budget Reconciliation Act of 1990. Under the Medicaid Drug Rebate Program, we pay a rebate to each participating state agency for each unit of our product reimbursed by Medicaid. The basic amount of the rebate for each product is the greater of 15.1% of the AMP of that product, or the difference between AMP and the best price available from us to any non-excluded customer. The rebate amount also includes an inflation adjustment if AMP increases faster than a specified inflation index. The rebate amount is calculated quarterly based on our reports of our current AMP and best price for each of our products to CMS. AMPs and best price may be recalculated after they are initially submitted based on the availability of additional data or because of additional analysis of prices that have been reported.

        In January 2008, we notified CMS that we had identified potential errors in our determination of the best price used to calculate Medicaid rebate amounts in prior periods. A more detailed description of our notification to CMS is found in the "Explanatory Note" of this Form 10-K. As a result of these errors, our management, with the oversight of our Audit Committee, is reviewing our government pricing. Based on the results of the review, we concluded our previously issued financial statements could no longer be relied upon and that we needed to restate our financial statements for the years ended December 31, 2006 and 2005 and the quarters ended March 31, June 30 and September 30, 2007 and 2006 to reduce the amount of product revenue earned during such periods. Depending on the final outcome of the review, we may be required to revise the prices reported under the Medicaid rebate and other programs and pay the corresponding additional rebate amounts or other amounts that may be due. We may also be subject to penalties.

        Several state Medicaid programs have implemented Preferred Drug Lists, or PDLs, and more states may adopt this practice. Products placed on a state Medicaid program's PDL are not subject to restrictions on their utilization by Medicaid patients, such as the need to obtain authorization prior to prescribing. If our drugs are not included on Medicaid PDLs, use of our drugs in the Medicaid program may be adversely affected. In some states that have adopted PDLs, we have been, and may

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continue to be, required to provide substantial supplemental rebates to state Medicaid authorities in order for our drugs to be included on the PDL.

        Pharmaceutical manufacturers, as a condition of participation in the Medicaid Drug Rebate Programs, must enter into an agreement with the Secretary of the Department of Health and Human Services to participate in the 340B program, enacted by the PHS Act. Under the 340B programs pharmaceutical manufacturers are required to extend discounts based on the Medicaid rebate to a variety of health care entities referred to as covered entities. These covered entities include health care providers that receive health services grants from the PHS, as well as certain hospitals that serve a disproportionate share of Medicare and Medicaid beneficiaries.

        Section 603 of the Veteran's Health Care Act of 1992 requires manufacturers of covered drugs to enter into a master agreement with the Secretary of the Department of Veteran Affairs, or VA, in order to have its drugs covered under Medicaid. The master agreement requires the manufacturer to make its products available for federal procurement by listing them on the Federal Supply Schedule. In addition, the master agreement requires the manufacturer to enter into a Pharmaceutical Pricing Agreement, or PPA, with the VA. Under the PPA, the manufacturer agrees to sell its drugs to the "Big Four" federal agencies—the VA, the Department of Defense, the PHS and the Coast Guard—at or below a Federal Ceiling Price, which is set at 76% of a calculation called the Non-Federal Average Manufacturer Price (non-FAMP), minus an additional discount.

        Another source of reimbursement for drug products is state Pharmaceutical Assistance Programs, or SPAPs. Many of these programs were created by states to aid low-income elderly or persons with disabilities who do not qualify for Medicaid. We pay rebates to some SPAPs and, if they are considered qualified programs by CMS, the prices we provide these entities are excluded from our Medicaid best price.

        The Medicare program was enacted in 1965 under the Social Security Act and provides health care coverage to aged and disabled eligible consumers. The Medicare program is comprised of several parts. In general, Medicare Part B covers physician services and many other forms of outpatient care, including some outpatient drugs. Drugs covered under Part B include those furnished incident to a physician's service and those furnished under the durable medical equipment, or DME, benefit. XOPENEX Inhalation Solution and BROVANA are eligible for coverage under Medicare Part B because each is administered via a nebulizer, which is a piece of DME covered under Part B. We established a Medicare Part B rebate program in order to increase the access by Medicare Part B beneficiaries to our XOPENEX Inhalation Solution and BROVANA products through Medicare Part B pharmacy providers.

        Effective January 1, 2006, Congress enacted a prescription drug benefit known as Medicare Part D. CMS contracted with numerous Medicare Advantage Prescription Drug, or MA-PD, managed care plans and Medicare Prescription Drug Plans, or PDPs, which offer only prescription drug coverage, to deliver the drug benefit. MA-PDs and PDPs develop formularies that determine which products are covered and at what co-pay level. We pay rebates to certain Medicare Part D plans on the sale of LUNESTA, XOPENEX Inhalation Solution, XOPENEX HFA and BROVANA.

        Federal and state government agencies continue to promote efforts to reduce health care costs, including those associated with the Medicare and Medicaid programs. These efforts may include supplemental rebates and restrictions on the amounts that agencies will reimburse for the use of products.

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Availability and Delivery of Pharmaceutical Products

        We expect debate to continue during 2008 at the Federal and state levels over the availability, delivery of, and payment for, pharmaceutical products. We believe that if certain legislation is enacted, it could have the effect of reducing prices or limiting price increases of pharmaceutical products.

        At this time it is not possible to predict the extent to which we, or the pharmaceutical industry in general, might be affected by the reimbursement and pricing issues discussed above.

Hazardous Materials

        Our research and development activities involve the controlled use of hazardous materials, chemicals, biological materials, and various radioactive compounds. We believe that our procedures comply with the standards prescribed by state and Federal regulations; however, the risk of injury or accidental contamination cannot be completely eliminated.

Patents and Proprietary Technology

General

        We and our affiliates, subsidiaries and collaboration partners have filed patent applications in the United States and selected other countries relating to compositions of, formulations of, methods of making, and methods of using our drugs and drug candidates (and those for which we have rights to commercialize), and chiral synthesis and separations. In addition, we have licensed from third parties certain rights under various patents and patent applications.

        To the extent that we invent or discover a new, useful and non-obvious invention and file a patent application for such invention, a composition or method-of-use patent may be issued. We are currently pursuing a policy of seeking patent protection for our drug candidates and discovery programs.

        Many of the compounds that we are investigating or developing may be subject to patents held by third parties. There may be foreign equivalents to these third-party patents, the scope and expiration of which may vary from country to country. Even if we are issued a patent for the use of a single isomer or active metabolite that is currently claimed by one or more third-party patents, products based on any such patent issued to us may not be sold until all of such third-party patents expire unless a license is obtained to such third-party patents or such third-party patents are determined to be invalid, unenforceable, or not infringed by a court of proper jurisdiction. In addition, there may be pending additional third-party patent applications covering our drugs in development, which, if issued, may preclude the sale of our drug.

        We have a significant number of other U.S. patents and patent applications covering composition of, methods of making and methods of using our product candidates. We may not be issued patents based on patent applications already filed or that we file in the future, and if patents are issued, they may be insufficient in scope. Patents and/or patent applications covering our product candidates would become increasingly material to our business if and when we seek to commercialize these candidates. Our ability to commercialize any drug successfully will largely depend on our ability to obtain and maintain patents of sufficient strength and scope to prevent third parties from developing and commercializing similar or competitive products.

Related Party

BioSphere Medical, Inc.

        In 1994, we established and independently financed BioSepra Inc. as a subsidiary through an initial public offering of its common stock. From 1994 to 1999, the company operated as BioSepra Inc.,

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developing proprietary microsphere beads used as chromatography media in the production of pharmaceuticals.

        In February 1999, BioSepra determined that it would refocus on embolotherapy, which is the occlusion of the blood supply to fibroids and vascular defects. BioSepra acquired a 51% interest in French-based BioSphere Medical, S.A., referred to as BioSphere France, with an option to purchase the remaining 49% interest in BioSphere France, and changed its corporate name to BioSphere Medical, Inc., or BioSphere. The acquisition enabled BioSphere to gain ownership of technology know-how and European regulatory approval of Embosphere® Microspheres. Between February 1999 and October 2001, BioSphere acquired the remaining 49% interest in BioSphere France.

        In November 2004, we purchased, in a private placement, 4,000 shares of BioSphere Series A Convertible Preferred Stock, or BioSphere Series A Stock, and warrants to purchase 200,000 shares of BioSphere common stock from BioSphere for an aggregate purchase price of $4.0 million. Each share of BioSphere Series A Stock is convertible into 250 shares of BioSphere common stock. In addition, quarterly dividends of 6% per annum are paid on the shares in either cash or additional shares of Series A Stock, at BioSphere's election.

        At December 31, 2007, we owned 3,224,333 shares, or approximately 18%, of BioSphere's outstanding common stock, 4,749 shares of Series A Convertible Preferred Stock and warrants to purchase an additional 200,000 shares of common stock. Assuming conversion of our of Series A Convertible Preferred Stock of BioSphere and the exercise of our warrants, we would own approximately 23% of the outstanding common stock of BioSphere. We account for our investment in BioSphere under the equity method.

Employees

        On January 31, 2008, we and our wholly-owned subsidiaries employed approximately 2,277 persons. Of these 2,277 employees, approximately 230 were primarily engaged in research, development and engineering activities, 72 were primarily engaged in manufacturing, 1,600 were engaged in direct sales and 375 were primarily engaged in marketing, sales administration, legal, finance and accounting and corporate administration.

Investor Information

        We are a Delaware corporation and were founded in 1984. Our principal executive offices are located at 84 Waterford Drive, Marlborough, Massachusetts 01752. Our phone number is (508) 481-6700.

        We maintain a web site with the address www.sepracor.com. We are not including the information contained on our web site as part of, or incorporating by reference into, this annual report. We make available free of charge on or through our web site our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports as soon as practicable after such material is electronically filed with or furnished to the SEC. In addition, we intend to disclose on our web site any amendments to, or waivers from, our code of business conduct and ethics that are required to be disclosed pursuant to rules of the SEC.

        We file annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy materials that we have filed with the SEC at the SEC public reference room located at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room.

        Our SEC filings are also available to the public on the SEC's Internet website at www.sec.gov.

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Item 1A. Risk Factors

        You should carefully consider the risks described below in addition to the other information contained in this report, before making an investment decision. Our business, financial condition or results of operations could be harmed by any of these risks. The risks and uncertainties described below are not the only ones we face. Additional risks not currently known to us or other factors not perceived by us to present significant risks to our business at this time also may impair our business operations, financial condition or results from operations.

Risks Related to Our Financial Results and Our Common Stock

We have a history of net losses and we may not be able to generate revenues sufficient to achieve and maintain profitability on a quarterly and annual basis.

        Until the year ended December 31, 2006, we had incurred net losses each year since our inception. It is possible we will not be able to achieve profitability again or maintain profitability on a quarterly or annual basis. We expect to continue to incur significant operating expenditures to further develop and commercialize our products and product candidates and in order to allow us to otherwise expand our product portfolio through drug discovery and business development efforts. As a result, we will need to generate significant revenues in future periods to achieve and maintain profitability. We cannot provide assurance that we will be able to maintain profitability for any substantial period of time. If revenues grow more slowly than we anticipate or if operating expenses exceed our expectations or cannot be adjusted accordingly, our business, results of operations and financial condition will be materially and adversely affected. In addition, if we are unable to achieve or maintain profitability on a quarterly or annual basis, the market price of our common stock may decline.

Almost all of our revenues are derived from sales of LUNESTA and XOPENEX Inhalation Solution and our future success depends on the continued commercial success of these products as well as our other products.

        Approximately 89% of our total revenues for the twelve months ended December 31, 2007 resulted from sales of LUNESTA and XOPENEX Inhalation Solution, and we expect that sales from these two products will continue to represent a significant majority of our revenues for the coming year. In April 2005, we commercially introduced LUNESTA as a new product in a highly and increasingly competitive market, and we cannot be certain that it will achieve continued commercial success. In addition, we do not have long-term sales contracts with our customers, and we rely primarily on purchase orders for sales of LUNESTA and XOPENEX Inhalation Solution. Reductions, delays or cancellations of orders for LUNESTA or XOPENEX Inhalation Solution could adversely affect our operating results. Additionally, revenues from the sale of XOPENEX Inhalation Solution have been, and we expect will continue to be, adversely affected on a comparable basis as a result of a change in the Medicare Part B reimbursement rate. If sales of LUNESTA do not increase and if sales of XOPENEX Inhalation Solution in other markets do not offset the reduction in revenues resulting from the change in Medicare Part B reimbursement for the product, or if we do not prevail against those manufacturers seeking to market a generic version of our XOPENEX Inhalation Solution product, we may not have sufficient revenues to achieve our business plan or repay our outstanding debt, and our business will not be successful. Any other adverse developments with respect to the sale of LUNESTA or XOPENEX Inhalation Solution could significantly reduce revenues and have a material adverse effect on our ability to maintain profitability and achieve our business plan.

        In December 2005, we commercially introduced XOPENEX HFA and in April 2007, we commercially introduced BROVANA. In addition, we expect to launch OMNARIS AQ and ALVESCO HFA in 2008. We cannot be certain that XOPENEX HFA, BROVANA, OMNARIS AQ or ALVESCO HFA will achieve commercial success.

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        With respect to XOPENEX Inhalation Solution, Breath, Dey, L.P., Barr and Watson have filed ANDAs including Paragraph IV certifications with the FDA seeking to market a generic version of levalbuterol hydrochloride inhalation solution before our patents expire. We have commenced patent infringement litigation against Breath, Dey, L.P., and Barr, but we have decided not to commence litigation against Watson at this time as its Paragraph IV certification is limited to a patent that expires in 2021. The filing of a lawsuit for patent infringement under the Hatch-Waxman Act results in an automatic 30-month stay of the FDA's authority to grant marketing approval to these companies. The 30-month stay against Breath's ANDA is scheduled to expire for our 1.25 mg/3 mL, 0.63 mg/3 mL and 0.31 mg/3 mL XOPENEX Inhalation Solution on or about March 7, 2008. In December 2007, the FDA granted tentative approval to Breath's ANDA for all three dosages. A non-jury trial in our litigation against Breath is scheduled to begin on July 14, 2008 in the United States District Court for the District of Delaware, C.A. No. 06-113. No trial date has been set in our patent infringement litigation against Dey, L.P. and Barr.

        Upon expiration of that 30-month stay in March 2008, the FDA could grant final approval and Breath could then commence an "at risk" distribution of its generic levalbuterol product for those dosages notwithstanding our patents and notwithstanding that the court's decision as to the merits of the litigation will not have been rendered, unless we were able to obtain an injunction prohibiting such distribution. However, if a forfeiture event occurs and the FDA determines that Breath has forfeited the 180-day semi-exclusivity period for those three dosages, other ANDA filers who have been granted final approval by the FDA could commence an "at risk" launch upon expiration of the 30-month stay. For those three dosages, the 30-month stays against Dey, L.P. and Barr expire on or about July 9, 2008 and November 30, 2009, respectively. If any of these parties were to commence selling a generic alternative to our XOPENEX Inhalation Solution product prior to the resolution of these ongoing legal proceedings, or there is a court determination that the products these companies wish to market do not infringe our patents, or that our patents are invalid or unenforceable, it would have a material adverse effect on our business, financial condition and/or results of operations. In addition, our previously issued guidance regarding our projected financial results may no longer be accurate and we would have to revise such guidance.

        With respect to BROVANA, in April 2007, we were served with a Complaint filed in the United States District Court for the Southern District of New York, C.A. No. 1:07-cv-2353, by Dey alleging that the manufacture and sale of BROVANA infringes or will induce infringement of a single U.S. patent for which Dey owns all rights, title and interest. In April 2007, we filed an Answer and Counterclaim to this Complaint seeking to invalidate the originally asserted patent and a second related patent. In May 2007, Dey filed a reply asserting infringement of the second patent. Under the current scheduling order, trial will begin no earlier than January 12, 2009. It is too early to make a reasonable assessment as to the likely outcome or impact of this litigation. We are unable to reasonably estimate any possible range of loss or liability related to this lawsuit due to its uncertain resolution.

        We cannot be certain that we will be able to continue to successfully commercialize LUNESTA and/or XOPENEX Inhalation Solution, that we will be able to successfully launch OMNARIS AQ or ALVESCO HFA, or that any of our products will be accepted in their markets. Specifically, the following factors, among others, could affect the level of success and market acceptance of our products:

•

a change in the perception of the health care community of their safety and/or efficacy, both in an absolute sense and relative to that of competing products;



•

the introduction of new products into the sleep or respiratory markets;



•

the level and effectiveness of our sales and marketing efforts;



•

any unfavorable publicity regarding these products or similar products;



•

litigation or threats of litigation with respect to these products;

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•

a finding that our patents are invalid or unenforceable or that generic versions of our products do not infringe our patents or the "at risk" launch of generic versions of our products;



•

the price of the product relative to other competing drugs or treatments;



•

private insurers, such as managed care organizations, adopting their own coverage restrictions or demanding price concessions in response to state, Federal or administrative action;



•

any changes in government and other third-party payor reimbursement policies and practices; and



•

regulatory developments or other factors affecting the manufacture, marketing or use of these products.

Sales of XOPENEX Inhalation Solution have been adversely affected as a result of the change in the Medicare Part B reimbursement rate, and if our strategy for responding to such change is not successful, our revenue will be further adversely affected.

        In May 2007, CMS announced that based on its interpretation of the statutory language of the MMA, it was required to discontinue the stand-alone reimbursement for XOPENEX Inhalation Solution and generic albuterol, which had been in place since January 2005, and instead calculate the reimbursement for XOPENEX Inhalation Solution and generic albuterol based on the blended weighted average selling price, or ASP, for the two products. This new reimbursement became effective on July 1, 2007. Using a blended weighted ASP for XOPENEX Inhalation Solution results in reimbursement for the product that is considerably lower than the published selling price for the product in the wholesaler distribution channel. The new reimbursement rate is subject to change quarterly based upon the respective contribution of commercial sales of XOPENEX Inhalation Solution and generic albuterol to the quarterly blended weighted ASP calculation. This quarterly ASP calculation is mandated by the MMA. Revenues from the sale of XOPENEX Inhalation Solution have been, and we expect will continue to be, adversely affected on a comparable basis as a result of this change.

        The bundling action also resulted in an unintended increase in Medicare Part B reimbursement for generic albuterol, significantly higher than the product's ASP (as publicly reported by the Medicare Part B program), creating the potential for inappropriate reimbursement incentives to influence the dispensing decisions of providers. On December 29, 2007, President Bush signed into law legislation, the effect of which mandates that XOPENEX Inhalation Solution and generic albuterol be reimbursed at the lower of their stand-alone weighted ASP and the blended weighted ASP for XOPENEX Inhalation Solution and generic albuterol. The effect of this legislation is that XOPENEX Inhalation Solution will continue to be reimbursed at the blended rate and generic albuterol will be reimbursed at its stand-alone weighted ASP. The legislation goes into effect on April 1, 2008.

        We estimate that as much as 20% of our XOPENEX Inhalation Solution units sold are subject to reimbursement under Medicare Part B. We have been actively contracting with home health care and retail pharmacy providers in an effort to ensure the continued availability of XOPENEX Inhalation Solution to Medicare Part B beneficiaries with reversible obstructive airway disease. If the contracting strategy for XOPENEX Inhalation Solution is not successful in maintaining as much of the current unit sales levels for the product in Medicare as commercially possible, if the blended Medicare Part B reimbursement rate for XOPENEX Inhalation Solution and generic albuterol falls to an amount where it is no longer financially feasible to market XOPENEX Inhalation Solution to Medicare Part B participants and/or if the Durable Medical Equipment Program Safeguard Contractors, or DME-PSCs, the entities responsible for overseeing the Medicare Part B prescription drug benefit for respiratory products, impose restrictive coverage policies on XOPENEX Inhalation Solution, revenue from sales of XOPENEX Inhalation Solution will be adversely affected and our financial condition and results from operations will be impaired.

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We have significant debt and we may not be able to make principal payments when due.

        As of December 31, 2007, our total debt was approximately $720.8 million. None of our 0% Series A notes due December 2008, our 0% Series B notes due December 2010 nor our 0% notes due October 2024 restricts us or our subsidiaries' ability to incur additional indebtedness, including debt that ranks senior to the notes. The 0% notes due 2024 are senior to the Series A notes due 2008 and Series B notes due 2010. Additional indebtedness that we incur may in certain circumstances rank senior to or on parity with this debt. Our ability to satisfy our obligations will depend upon our future performance, which is subject to many factors, including factors beyond our control. The conversion prices for the 0% Series A notes due 2008 and 0% Series B notes due 2010 are $31.89 and $29.84, respectively. In December 2008, $72.8 million will be due on our 0% Series A notes due 2008. On January 31, 2008, the closing sale price of our common stock was $28.24. If the market price for our common stock does not exceed the conversion price, the holders of our outstanding convertible debt may decide not to convert their securities into common stock. For example, the holders of our 5% debentures did not convert such debentures into common stock, and on February 15, 2007, the maturity date for the 5% debentures, we repaid in cash the entire principal amount of $440.0 million, plus $11.0 million of accrued interest. Our 0% notes due 2024 are convertible into cash and, if applicable, shares of our common stock at a conversion price of approximately $67.20, at the option of the holders in October 2009, 2014, 2019 and 2024, as well as under certain circumstances. We may not be able to make the required cash payments upon conversion of the 0% notes due 2024.

        Historically, we have had negative cash flow from operations, and in 2006, we experienced our first full year of positive cash flow from operating activities. Unless we have sufficient cash or are able to generate sufficient operating cash flow to pay off the principal of our outstanding debt, we will be required to raise additional funds or default on our obligations under the debentures and notes. If revenue generated from sales of our products do not meet expected levels, it is unlikely that we would have sufficient cash flow to repay our outstanding convertible debt and/or make cash payments upon conversion of the 0% notes due 2024. There can be no assurance that, if required, we would be able to raise the additional funds on favorable terms, if at all.

If we exchange debt for shares of common stock, there will be additional dilution to holders of our common stock.

        As of December 31, 2007, we had approximately $720.8 million of outstanding debt that could be converted into common stock. In order to reduce future payments due at maturity, we may, from time to time, depending on market conditions, repurchase additional outstanding convertible debt for cash; exchange debt for shares of our common stock, warrants, preferred stock, debt or other consideration; or a combination of any of the foregoing. If we exchange shares of our capital stock, or securities convertible into or exercisable for our capital stock, for outstanding convertible debt or use proceeds from the issuance of convertible debt to fund redemption of outstanding convertible debt with a higher conversion ratio, the number of shares that we might issue as a result of such exchanges would significantly exceed the number of shares originally issuable upon conversion of such debt and, accordingly, such exchanges would result in material dilution to holders of our common stock. We cannot provide assurance that we will repurchase or exchange any additional outstanding convertible debt.

We have identified a material weakness in our internal control over financial reporting that could adversely affect our ability to meet reporting obligations and negatively affect the trading price of our stock.

        A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis. Accordingly, a material weakness increases the risk that the financial information we report contains

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material errors. As more fully described in Item 9A of this annual report on Form 10-K, Controls and Procedures, we have determined that we did not establish and/or maintain effective controls over the process to identify transactions with the potential to establish a new Medicaid best price, which affected the accuracy of the net revenue and product sales allowance and return accounts. Specifically, our controls over the calculation of Medicaid rebates were not designed to effectively monitor whether certain entities were appropriately exempt from the Medicaid best price calculation. Our management has determined that this control deficiency constitutes a material weakness and contributed to our conclusion on January 28, 2008 that our financial statements could no longer be relied upon and needed to be restated.

        While we have taken, and will continue to take, steps to remediate the identified material weakness, these steps may not be adequate to fully remediate the material weakness. In addition, we may identify additional control deficiencies in the future that individually or in the aggregate constitute a material weakness. If we fail to adequately remediate the identified material weakness or there are other undetected or uncorrected deficiencies in our internal controls, we could fail to meet our reporting obligations, we could have material misstatements in our financial statements and, under certain circumstances, could be subject to legal liability. In addition, inferior controls could cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our common stock.

If the estimates we make, or the assumptions on which we rely, in preparing our financial statements prove inaccurate, our actual results may vary from those reflected in our projections and accruals.

        Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of our assets, liabilities, net revenues and expenses, the amounts of charges accrued by us and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. We cannot provide assurance, however, that our estimates, or the assumptions underlying them, will not be materially different from actual results. For example, our royalty revenue is recognized based upon our estimates of our collaboration partners' sales during the period and, if these sales estimates are greater than the actual sales that occur during the period, our net income would be reduced. In addition, we estimate product sales allowances, including payment term discounts, government and commercial rebates and returns and other discounts. If actual amounts differ from these estimates, net income could be adversely affected. Each, in turn, could adversely affect our financial condition, results from operations and stock price.

If sufficient funds to finance our business are not available to us when needed or on acceptable terms, then we may be required to delay, scale back, eliminate or alter our strategy for our programs.

        We may require additional funds for our research and product development programs, operating expenses, repayment of debt, the pursuit of regulatory approvals, license or acquisition opportunities and the expansion of our production, sales and marketing capabilities. Historically, we have satisfied our funding needs through collaboration arrangements with corporate partners, sales of products, and equity and debt financings. These funding sources may not be available to us when needed in the future, and, if available, they may not be on terms acceptable to us. Insufficient funds could require us to delay, scale back, eliminate or alter certain of our research and product development programs and/or commercialization efforts or to enter into license agreements with third parties to commercialize products or technologies that we would otherwise develop or commercialize ourselves. Our cash requirements may vary materially from those now planned because of factors including:

•

patent developments;



•

licensing or acquisition opportunities;

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•

drug discovery efforts;



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relationships with collaboration partners;



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the FDA regulatory process;



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expansion into foreign markets;



•

litigation and government inquiries and investigations;



•

our capital requirements; and



•

selling, marketing and manufacturing expenses in connection with commercialization of products.

Our long-term investments include auction rate securities that may not be accessible within the next twelve months and may experience a decline in value, which may adversely affect our liquidity and income.

        Our long-term investments as of December 31, 2007 were $174.0 million, which includes $99.9 million invested in highly-rated (AAA) student-loan-backed auction rate securities, of which some are associated with failed auctions in 2008. Auction rate securities are securities that are structured with short-term interest rate reset dates of generally less than ninety days but with contractual maturities that can be well in excess of ten years. At the end of each reset period investors can typically sell at auction or continue to hold the securities at par. These securities are subject to fluctuations in fair value depending on the supply and demand at each auction.

        As a result of the recent instability in the market for auction rate securities, there may be a future decline in the value of our auction rate securities. Should a decline in the value of these securities occur that is not temporary, it would result in a loss being recognized in our statement of operations, which could be material. In 2008, the funds associated with our auction rate securities that have failed auction, may not be accessible until a successful auction occurs, a buyer is found outside of the auction process, the security is called, or the underlying securities have matured.

Fluctuations in the demand for our products, the success and timing of clinical trials, regulatory approvals, product introductions, collaboration and licensing arrangements, any termination of development efforts and other material events will cause fluctuations in our quarterly operating results, which could cause volatility in our stock price.

        Our quarterly operating results are likely to fluctuate significantly, which could cause our stock price to be volatile. These fluctuations will depend on many factors, including:

•

timing and extent of product sales and market penetration;



•

timing and extent of operating expenses, including selling and marketing expenses and the costs of reducing, expanding and/or maintaining a direct sales force or attaining the services of a co-promotion partner or contract sales force;



•

success and timing of regulatory filings and approvals for products developed by us or our licensing or collaborative partners;



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timing and success of product introductions, including OMNARIS AQ and ALVESCO HFA;



•

changes in third-party reimbursement policies;



•

introduction of competitive products into the market;



•

results of clinical trials with respect to products under development;



•

a finding that our patents are invalid or unenforceable or that generic versions of our products do not infringe our patents or the "at risk" launch of generic versions of our products;

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•

the initiation of, or adverse developments in, any judicial litigation proceedings or governmental investigations in which we are involved;



•

a change in the perception of the health care and/or investor communities with respect to our products;



•

success and timing of collaboration agreements for development of our pharmaceutical candidates and development costs for those pharmaceuticals;



•

timing of receipt of upfront, milestone or royalty payments under collaboration or licensing agreements;



•

timing and success of any business and/or product acquisitions;



•

timing and success of expansion into foreign markets;



•

termination of development efforts of any product under development or any collaboration agreement; and



•

timing of expenses we may incur with respect to any license or acquisition of products or technologies.

We have various mechanisms in place to discourage takeover attempts, which may reduce or eliminate our stockholders' ability to sell their shares for a premium in a change of control transaction.

        Various provisions of our certificate of incorporation and by-laws and of Delaware corporate law may discourage, delay or prevent a change of control or takeover attempt of our company by a third party that is opposed by our management and board of directors. Public stockholders who might desire to participate in such a transaction may not have the opportunity to do so. These anti-takeover provisions could substantially impede the ability of public stockholders to benefit from a change of control or change in our management and board of directors. These provisions include:

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preferred stock that could be issued by our board of directors to make it more difficult for a third party to acquire, or to discourage a third party from acquiring, a majority of our outstanding voting stock;



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classification of our directors into three classes with respect to the time for which they hold office;



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non-cumulative voting for directors;



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control by our board of directors of the size of our board of directors;



•

limitations on the ability of stockholders to call special meetings of stockholders;



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inability of our stockholders to take any action by written consent; and



•

advance notice requirements for nominations of candidates for election to our board of directors or for proposing matters that can be acted upon by our stockholders at stockholder meetings.

        In addition, in June 2002, our board of directors adopted a shareholder rights plan, the provisions of which could make it more difficult for a potential acquirer of Sepracor to consummate an acquisition transaction.

The price of our common stock historically has been volatile, which could cause the loss of part or all of an investment in Sepracor.

        The market price of our common stock, like that of the common stock of many other pharmaceutical and biotechnology companies, has been highly volatile. In addition, the stock market has experienced extreme price and volume fluctuations. The volatility and market prices of securities of

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many pharmaceutical and biotechnology companies have been significantly affected for reasons frequently unrelated to or disproportionate to the operating performance of the specific companies. These broad market fluctuations may adversely affect the market price of our common stock. Prices for our common stock are determined in the marketplace and may be influenced by many factors, including variations in our financial results and investors' perceptions of us, and changes in recommendations by securities analysts as well as their perceptions of general economic, industry and market conditions.

Risks Related to Commercialization

We face intense competition and many of our competitors have greater resources and capabilities than we have.

        We face intense competition in the sale of our current products, and expect to face intense competition in the sale of any future products we sell. If we are unable to compete effectively, our financial condition and results of operations could be materially adversely affected because we may not achieve our product revenue objectives and because we may use our financial resources to seek to differentiate ourselves from our competition. Large and small companies, academic institutions, governmental agencies and other public and private organizations conduct research, seek patent protection, develop and acquire products, establish collaborative arrangements for product development and sell or license products in competition with us. Many of our competitors and potential competitors have substantially greater resources, manufacturing and sales and marketing capabilities, research and development staff and production facilities than we have. The fields in which we compete are subject to rapid and substantial technological change. Our competitors may be able to respond more quickly to new or emerging technologies or to devote greater resources to the development, manufacture and marketing of new products and/or technologies than we can. As a result, any products and/or technologies that we develop may become obsolete or noncompetitive before we can recover expenses incurred in connection with their development.

LUNESTA

        For insomnia treatments, LUNESTA faces intense competition from established branded and generic products in several drug classes including benzodiazepines, non-benzodiazepines, melatonin agonists, select anti-depressants, and others. We estimate that our existing LUNESTA prescriptions account for less than 10% of the total, annual prescriptions currently being written in the United States for insomnia pharmaceutical therapies. Furthermore, LUNESTA faces substantial competition from non-prescription, over-the-counter and dietary supplement insomnia product options. We expect that LUNESTA will face increasing competition from a generic version of AMBIEN (zolpidem tartrate), which was introduced in April 2007, a generic version of AMBIEN CR (zolpidem tartrate extended release), which could be introduced as early as March 2009, and therapies in clinical development and under FDA review for the treatment of insomnia. We may also face additional competition in the event of commercial introduction of a generic version of LUNESTA. To continue to be successful with LUNESTA, we must continue to demonstrate that LUNESTA's safety and efficacy features are superior to those of competing branded and generic products, some of which may be less expensive than LUNESTA.

XOPENEX FRANCHISE

        For asthma and COPD treatments, XOPENEX Inhalation Solution and XOPENEX HFA face intense competition from a variety of products. Asthma and COPD patients turn to numerous classes of drugs, including corticosteroids, long-acting beta-agonists, short-acting beta-agonists, leukotriene modifiers, anticholingerics, and others, as well as certain combinations thereof. XOPENEX Inhalation Solution and XOPENEX HFA together account for approximately 3% of the total annual prescriptions

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currently being written in the United States for asthma and COPD pharmaceutical therapies. XOPENEX Inhalation Solution and XOPENEX HFA also face intense competition specifically within the beta-agonist classes of asthma and COPD treatments. We estimate that our existing XOPENEX prescriptions account for approximately 10% of the total annual prescriptions currently being written in the United States for beta-agonist asthma and COPD pharmaceutical therapies.

        Both mono-therapy and combination therapy beta-agonist treatments compete directly with our XOPENEX products for the treatment of asthma and COPD. Albuterol, a short-acting beta-agonist, has been available generically for many years. Products containing albuterol as an active ingredient are well established and sell at prices substantially lower than XOPENEX Inhalation Solution and XOPENEX HFA. XOPENEX HFA also faces direct competition from CFC-containing albuterol MDIs and branded HFA albuterol MDIs. With the phase-out of CFC albuterol MDI products required by the end of December 2008, we expect that competition from branded HFA MDIs will increase substantially. Furthermore, as a consequence of the ongoing commercialization of BROVANA, prescription levels for XOPENEX Inhalation Solution may be adversely affected to the extent that a significant number of physicians prescribe BROVANA, which could reduce the need for concomitant XOPENEX products. We may also face additional competition in the event of the commercial introduction of generic versions of our XOPENEX products.

        To be successful with our XOPENEX products, we must demonstrate that the efficacy and safety features of these drugs outweigh the higher price as compared to generic albuterol and other competing products and that these attributes differentiate these products from other asthma and COPD treatments, including beta-agonist asthma and COPD treatments.

BROVANA

        For COPD treatments solely, BROVANA faces competition from a variety of products. Competitive products include all products used in the treatment of COPD. COPD patients turn to numerous classes of drugs including anticholingerics, corticosteroids, mukolytics, long-acting beta-agonists, short-acting beta-agonists, theophyllines, and others. We estimate that our existing BROVANA prescriptions account for less than 1% of the total annual prescriptions currently being written in the United States for COPD pharmaceutical therapies, and less than 1% of beta-agonist COPD pharmaceutical therapies specifically. Even though BROVANA is a nebulized product, it also faces competition from long-acting beta-agonists and anticholinergics delivered by MDI and dry-powder inhaler. BROVANA also competes with combination therapy products used for COPD. In the fourth quarter of 2007, PERFOROMIST, a direct competitor with BROVANA, was launched, which we anticipate may impact adversely BROVANA's prescription levels. To be successful with BROVANA, we must demonstrate that patients with COPD will benefit by using BROVANA.

OMNARIS AQ

        If and when it is commercialized, OMNARIS AQ, a corticosteroid nasal spray, will compete with perennial and seasonal allergic rhinitis treatments, and will face competition from oral antihistamines, intranasal antihistamines, intranasal decongestants, other intranasal corticosteroids, intranasal mast cell stabilizers, and antileukotrienes. To be successful with OMNARIS AQ, we must demonstrate that OMNARIS AQ's safety and efficacy features are superior to those of competing branded and generic products, some of which may be less expensive than OMNARIS AQ and may be available without a prescription. We may also face additional competition in the event of commercial introduction of a generic version of OMNARIS AQ.

        For all of our products, we need to demonstrate to physicians, patients, and third-party payors that the cost of our product is reasonable and appropriate in light of its safety, efficacy, and health care benefits, each as compared to other competing products. In addition.if competitors introduce new products or develop new processes or new information about existing products, then our products, even

35

those protected by patents, may be replaced in the marketplace or we may be required to lower our prices.

We may be unable to successfully commercialize products for which we receive approval from the FDA or similar foreign agencies.

        Commercialization of a product for which we have received an approval letter from the FDA or similar foreign agency could be delayed for a number of reasons, some of which are outside of our control, including delays in delivery of the product due to importation regulations and/or problems with our distribution channels or delays in the issuance of approvals from, or the completion of, required procedures by agencies other than the FDA, such as the United States Drug Enforcement Administration. In addition, commercialization of approved products may be delayed by our failure to timely finalize distribution arrangements, manufacturing processes and arrangements, produce sufficient inventory and/or properly prepare our sales force. If we are unable to successfully commercialize a product promptly after receipt of an approval letter, our business and financial position may be materially adversely affected due to reduced revenue from product sales during the period or periods that commercialization is delayed and the shortening of any lead time to market we may have had over our competitors. In addition, the exclusivity period, which is the time during which the FDA or similar foreign agency will prevent generic pharmaceutical companies from introducing a generic copy of the product, begins to run upon approval and, therefore, to the extent we are unable to successfully commercialize a product promptly after receipt of an approval letter, our long-term product sales and revenues could be adversely affected.

        Even if the FDA or similar foreign agencies grant us regulatory approval of a product, if we fail to comply with the applicable regulatory requirements, we may be forced to suspend and/or cease commercialization of the product due to suspension or withdrawal of regulatory approvals, product recalls, seizures of products and/or operating restrictions and may be subject to fines and criminal prosecution. In any such event, our ability to successfully commercialize the product would be impaired and sales and revenues could be materially adversely affected.

We may increase or decrease the size of our sales force in the future based on inaccurate assumptions. Future increases in our sales force will result in significant expenses. Such increases may be done in anticipation of approvals and/or expected sales growth that are not realized. If such approvals and/or growth are not realized, we will have incurred unnecessary expense and may also be forced to reduce our sales force. Future reductions in our sales force could prevent us from achieving anticipated revenues and attracting and retaining qualified sales personnel and could negatively impact our financial condition and results of operations.

        We sell our products, XOPENEX Inhalation Solution, XOPENEX HFA, BROVANA and LUNESTA, primarily through our direct sales force. During the fourth quarter of 2007, we reduced our direct sales force by approximately 300 positions. In February 2008, we announced that we intend to increase our sales force capacity by at least 200 sales professionals, in order to accommodate the commercialization of OMNARIS AQ and ALVESCO HFA. We expect that the costs of the anticipated increase in sales force capacity will offset the decrease in sales and marketing expenses we expected to realize as a result of the December 2007 sales force reduction. Any future expansion of the direct sales force will also require us to incur significant expenses. To the extent we expand our direct sales force in anticipation of receiving marketing approval for products under development, commercially introducing newly developed or acquired products and/or expected sales growth, we may again be forced to reduce our sales force if our expectations are not realized. In addition, our recent sales force reduction, and any future sales force reduction, may make it more difficult for us to attract the qualified sales people necessary to implement necessary sales force expansion, attract and retain qualified sales people necessary to maintain sales levels and/or to support potential sales growth and sales of additional products we may commercialize in the future.

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We sell our products primarily through a direct sales force, and if we are not successful in attracting and retaining qualified sales personnel, we may not be successful in commercializing our products.

        We have established a sales force to market our products. Our ability to realize significant revenues from direct marketing and sales activities depends on our ability to attract and retain qualified sales personnel. Competition for qualified sales personnel is intense. Our recent sales force reduction could harm our ability to attract and retain qualified sales personnel, which would prevent us from successfully expanding our marketing and direct sales force on a timely or cost effective basis and from successfully commercializing these newly acquired products. In addition, any failure to attract and retain qualified sales personnel in the future, could impair our ability to maintain sales levels, successfully commercialize new products and/or support expected future sales growth. Our recent sales force reduction, and any future sales force reduction, could also result in temporary lack of focus and reduced productivity among our sales personnel. If our sales organization does not devote the time and resources necessary to attain sales projections, we may not be able to achieve anticipated revenues and our financial condition and operating results could be harmed.

        In February 2008, we announced that we intend to increase our sales force capacity by at least 200 sales professionals in order to accommodate the commercialization of OMNARIS AQ and ALVESCO HFA. We anticipate that this increase will be effectuated through an expansion of our direct sales force or through the services of a contract sales organization.

        We may also need to enter into additional co-promotion, contract sales force or other such arrangements with third parties, for example, where our own direct sales force is not large enough or sufficiently well aligned to achieve maximum penetration in the market. We may not be successful in entering into any co-promotion, contract sales force or other such arrangements, and the terms of any co-promotion, contract sales force or other such arrangements may not be favorable to us.

If we or our third-party manufacturers do not comply with current GMP regulations, then the FDA could refuse to approve marketing applications or force us to recall or withdraw our products.

        The FDA and other regulatory authorities require that our products be manufactured according to their GMP regulations. The failure by us, our collaborative development partners or our third-party manufacturers to comply with current GMP regulations could lead to delay in our development programs or refusal by the FDA or other regulatory authorities to approve marketing applications. Following marketing approval of a product, failure in either respect could also impede commercial introduction or on-going distribution of the product and/or be the basis for action by the FDA or other regulatory authorities to withdraw approvals previously granted, to recall products and for other regulatory action.

We could be exposed to significant liability claims that could prevent or interfere with our product commercialization efforts.

        We may be subject to product liability claims that arise through testing, manufacturing, marketing, sale and use of pharmaceutical products. Product liability claims could distract our management and key personnel from our core business, require us to spend significant time and money in litigation or to pay significant damages, which could prevent or interfere with our product commercialization efforts and could adversely affect our business. Claims of this nature could also subject us to product recalls or adversely affect our reputation, which could damage our position in the market. Although we maintain product liability insurance coverage for both the clinical trials and products we commercialize, it is possible that we will not be able to obtain further product liability insurance on acceptable terms, if at all, and that our insurance coverage may not provide adequate coverage against all potential claims.

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Buying patterns of our wholesalers may vary from time to time, which could have a material impact on our financial condition, cash flows and results of operations.

        Sales of our products to wholesalers represent a substantial portion of our total sales. Buying patterns of our wholesalers may vary from time to time, in part as a result of pricing or seasonality. Wholesalers, or direct customers of wholesalers, may accumulate inventory in one quarter and limit product purchases in subsequent quarters, which could have a material impact on our financial condition, cash flows and results of operations.

        We have entered into wholesaler fee-for-service agreements, or FFSAs, with our three largest customers. Under the FFSAs, we pay the wholesalers a fee to maintain certain minimum inventory levels that gradually decline over the next several quarters. We believe it is beneficial to enter into FFSAs to establish specified levels of product inventory to be maintained by our wholesalers and to obtain more precise information as to the level of our product inventory available throughout the product distribution channel. We record the cost associated with the FFSAs as revenue deductions. We cannot be certain that the FFSAs will be effective in limiting speculative purchasing activity, that there will not be a future drawdown of inventory as a result of declining minimum inventory requirements, or otherwise, or that the inventory level data provided through our FFSAs are accurate. If speculative purchasing does occur, if the wholesalers significantly decrease their inventory levels, or if inventory level data provided through FFSAs is inaccurate, our business, financial condition, cash flows and results of operations may also be adversely affected.

Risks Related to the Regulatory Environment

If our products do not receive government approval, we will not be able to commercialize them.

        The FDA and similar foreign agencies must approve for commercialization any pharmaceutical products developed by us or our development partners. These agencies impose substantial requirements on drug manufacturing and marketing. Any unanticipated preclinical and clinical studies we are required to undertake could result in a significant increase in the cost of advancing our products to commercialization. In addition, failure by us or our collaborative development partners to obtain regulatory approval on a timely basis, or at all, or the attempt by us or our collaborative development partners to receive regulatory approval to achieve labeling objectives, could prevent or adversely affect the timing of commercial introduction of, or our ability to market and sell, our products.

If we fail to successfully develop and receive regulatory approval for product candidates, we will be unable to commercialize the product candidates and future sales and earnings growth will be substantially hampered.

        Our ability to maintain profitability will depend in large part on successful development and commercialization of additional products. Most of our product candidates are in the early stages of development. We cannot be assured that we will be able to develop or acquire and commercially introduce new products in a timely manner or that new products, if developed or acquired, will be approved for the indications and/or with the labeling we expect, or that they will achieve market acceptance. Before we commercialize any other product candidate in the United States, we will need to successfully develop the product candidate by completing successful clinical trials, submitting an NDA for the product candidate that is accepted for filing by the FDA and receiving FDA approval to market the candidate. We must comply with similar requirements in foreign jurisdictions before commercializing any products in the jurisdiction. If we fail to successfully develop a product candidate and/or the FDA or similar foreign agency delays or denies approval of any NDA, or foreign equivalent, that we have submitted or submit in the future, then commercialization of our products under development may be delayed or terminated, which could have a material adverse effect on our business.

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        A number of problems may arise during the development of our product candidates, including the following:

•

results of clinical trials may not be consistent with preclinical study results;



•

results from later phases of clinical trials may not be consistent with results from earlier phases;



•

results from clinical trials may not demonstrate that the product candidate is safe and efficacious;



•

we may not receive regulatory approval for our product candidates;



•

the product candidate may not offer therapeutic or other improvements over comparable drugs;



•

we may elect not to continue funding the development of our product candidates; or



•

funds may not be available to develop all of our product candidates.

        Even if the FDA or similar foreign agencies grant us regulatory approval of a product, the approval may take longer than we anticipate and may be subject to limitations on the indicated uses for which the product may be marketed or contain requirements for costly post-marketing follow-up studies. Moreover, if we fail to comply with applicable regulatory requirements, we may be subject to fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution.

        In addition, our growth is dependent on our continued ability to penetrate new markets where we have limited experience and competition is intense. We cannot be certain that the markets we serve will grow in the future, that our existing and new products will meet the requirements of these markets, that our products will achieve customer acceptance in these markets, that competitors or regulators will not force prices to an unacceptably low level or take market share from us, or that we can achieve or maintain profits in these markets.

Our sales depend on payment and reimbursement from third-party payors, and a reduction in payment rate or reimbursement could result in decreased use or sales of our products.

        Sales of our products are dependent, in part, on the availability of reimbursement from third-party payors such as Federal and state government agencies under programs such as Medicare and Medicaid, and private insurance plans. Third-party payors continually attempt to contain or reduce the cost of health care by challenging the prices charged for medical products and services. We may not be able to sell our products profitably if reimbursement is unavailable or coverage is limited in scope or amount.

        There have been, there are, and we expect there will continue to be, state and Federal legislative and/or administrative proposals that could limit the amount that state or Federal governments will pay to reimburse the cost of pharmaceutical products. Legislative or administrative acts that reduce reimbursement for our products could adversely affect our business. In addition, private insurers, such as managed care organizations, may adopt their own coverage restrictions or demand price concessions in response to legislation or administrative action. Reduction in reimbursement for our products could have a material adverse effect on our results of operations. Also, the increasing emphasis on managed care in the United States may put increasing pressure on the price and usage of our products, which may adversely affect product sales. Further, when a new drug product is approved, governmental and/or private reimbursement for that product is uncertain, as is the amount for which that product will be reimbursed and the extent of coverage for the product. We cannot predict availability or amount of reimbursement for our approved products or product candidates and current reimbursement policies for marketed products may change at any time.

        The MMA established a prescription drug benefit beginning in 2006 for all Medicare beneficiaries. We do not know the extent to which our products will continue to be included in the Medicare

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prescription drug benefit, and we may be required to provide significant discounts or rebates to drug plans participating in the Medicare drug benefit. Moreover, Congress may enact legislation that permits the Federal government to directly negotiate price and demand discounts on pharmaceutical products that may implicitly create price controls on prescription drugs. In addition, Managed Care Organizations, or MCOs, Health Maintenance Organizations, or HMOs, Preferred Provider Organizations, or PPOs, health care institutions and other government agencies continue to seek price discounts. MCOs, HMOs, PPOs and private health plans administer the Medicare drug benefit, leading to managed care and private health plans influencing prescription decisions for a larger segment of the population. In addition, certain states have proposed, and certain other states have adopted, various programs to control prices for their seniors' and low-income drug programs, including price or patient reimbursement constraints, restrictions on access to certain products, importation from other countries, such as Canada, and bulk purchasing of drugs.

        In May 2007, CMS announced, that based on its interpretation of the statutory language of the MMA, it was required to discontinue the stand-alone reimbursement for XOPENEX Inhalation Solution and generic albuterol, which had been in place since January 2005, and instead calculate the reimbursement for XOPENEX Inhalation Solution and generic albuterol based on the blended weighted ASP for the two products. This new reimbursement became effective on July 1, 2007. Using a blended weighted ASP for XOPENEX Inhalation Solution results in reimbursement for the product that is considerably lower than the published selling price for the product in the wholesaler distribution channel. The new reimbursement rate is subject to change quarterly based upon the respective contribution of commercial sales of XOPENEX Inhalation Solution and generic albuterol to the quarterly blended weighted ASP calculation. This quarterly ASP calculation is mandated by the MMA. Revenues from the sale of XOPENEX Inhalation Solution have been, and we expect will continue to be, adversely affected on a comparable basis as a result of this change.

        The bundling action also resulted in an unintended increase in Medicare Part B reimbursement for generic albuterol, significantly higher than the product's average selling price (as publicly reported by the Medicare Part B program), creating the potential for inappropriate reimbursement incentives to influence the dispensing decisions of providers. On December 29, 2007, President Bush signed into law legislation, the effect of which mandates that XOPENEX Inhalation Solution and generic albuterol be reimbursed at the lower of their stand-alone weighted ASP and the blended weighted ASP for XOPENEX Inhalation Solution and generic albuterol. The effect of this legislation is that XOPENEX Inhalation Solution will continue to be reimbursed at the blended rate and generic albuterol will be reimbursed at its stand-alone weighted ASP. The legislation goes into effect on April 1, 2008.

        We estimate that as much as 20% of our XOPENEX Inhalation Solution units sold are subject to reimbursement under Medicare Part B. We have been actively contracting with home health care and retail pharmacy providers in an effort to ensure the continued availability of XOPENEX Inhalation Solution to Medicare Part B beneficiaries with reversible obstructive airway disease. If the contracting strategy for XOPENEX Inhalation Solution is not successful in maintaining as much of the current unit sales levels for the product in Medicare as commercially possible, if the blended Medicare Part B reimbursement rate for XOPENEX Inhalation Solution and generic albuterol falls to an amount where it is no longer financially feasible to market XOPENEX Inhalation Solution to Medicare Part B participants and/or if the DME-PSCs, the entities responsible for overseeing the Medicare Part B prescription drug benefit for respiratory products, impose restrictive coverage policies on XOPENEX Inhalation Solution, revenue from sales of XOPENEX Inhalation Solution will be adversely affected and our financial condition and results from operations will be impaired.

        On June 13, 2007, the DME-PSCs published an article detailing the coverage criteria for BROVANA. Unless otherwise modified by the DME-PSCs, the coverage criteria established for BROVANA in this article will remain in effect under the product-specific billing code that was awarded for the product. We have initiated a contracting strategy with retail and home health care pharmacy

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providers for BROVANA that is intended to ensure the availability of the product for Medicare patients. If the contracting strategy for BROVANA is not successful or if the coverage policies established by the DME-PSCs for the product are viewed by physicians and providers as too restrictive, revenue growth from sales of BROVANA in the Medicare market will be materially adversely affected.

        As we enter into agreements to license our products for commercialization outside of the United States, we may be subject to pricing decisions made by regulatory bodies and private insurers around the world. Such pricing decisions may affect royalty rates and payments made to us under those agreements, or decisions whether or not to commercialize our products in the applicable jurisdiction. Efforts to obtain pricing decisions are often the responsibility of the third party licensee and we cannot predict the success of any third party in obtaining desirable pricing, or how the actions of such third party or any regulatory body or private insurer will affect the ultimate commercial benefits of those transactions.

        If reimbursement for our marketed products changes adversely or if we fail to obtain adequate reimbursement for our other current or future products, health care providers may limit how much or under what circumstances they will prescribe or administer them, which could reduce use of our products or cause us to reduce the price of our products.

We will spend considerable time and money complying with Federal, state and foreign laws and regulations and, if we are unable to fully comply with such laws and regulations, we could face substantial penalties.

        We are subject to extensive regulation by Federal and state governments. The laws that directly or indirectly affect our business include, but are not limited to, the following:

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Federal Medicare and Medicaid Anti-Kickback laws, which prohibit persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce either referral of an individual, or furnishing or arranging for a good or service, for which payment may be made under Federal health care programs such as the Medicare and Medicaid programs;



•

other Medicare and Medicaid laws and regulations that establish requirements for coverage and payment for our products, including the amount of such payments;



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the Federal False Claims Act, which imposes civil and criminal liability on individuals and entities who submit, or cause to be submitted, false or fraudulent claims for payment to the government;



•

the Federal Health Insurance Portability and Accountability Act of 1996, which prohibits executing a scheme to defraud any health care benefit program, including private payors and, further, requires us to comply with standards regarding privacy and security of individually identifiable health information and conduct certain electronic transactions using standardized code sets;



•

the Federal False Statements Statute, which prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement in connection with the delivery of or payment for health care benefits, items or services;



•

the Federal Food, Drug and Cosmetic Act, which regulates manufacturing, labeling, marketing, distribution and sale of prescription drugs and medical devices;



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the Controlled Substances Act, which regulates handling of controlled substances such as LUNESTA;



•

the Prescription Drug User Fee Act, which governs the filing of applications for marketing approval of new prescription drug products;

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•

the Food and Drug Administration Amendments Act of 2007;



•

the Deficit Reduction Act of 2005;



•

state and foreign law equivalents of the foregoing; and



•

state food and drug laws, pharmacy acts and state pharmacy board regulations, which govern the sale, distribution, use, administration and prescribing of prescription drugs.

        If our past or present operations are found to be in violation of any of the laws described above or other governmental regulations to which we or our customers are subject, we may be subject to the applicable penalty associated with the violation, including civil and criminal penalties, damages, fines, exclusion from Medicare and Medicaid programs and curtailment or restructuring of our operations. Similarly, if our customers are found non-compliant with applicable laws, they may be subject to sanctions, which could also have a negative impact on us. In addition, if we are required to obtain permits or licenses under these laws that we do not already possess, we may become subject to substantial additional regulation or incur significant expense. Any penalties, damages, fines, exclusion from Medicare and Medicaid programs or curtailment or restructuring of our operations would adversely affect our ability to operate our business and our financial results. The risk of our being found in violation of these laws is increased by the fact that many of them have not been fully interpreted by the regulatory authorities or the courts and their provisions are open to a variety of interpretations. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses, divert our management's attention from operating our business and damage our reputation.

        Federal and state government agencies also continue to promote efforts to reduce health care costs, including those associated with the Medicare and Medicaid programs. These efforts may include supplemental rebates and restrictions on the amounts that agencies will reimburse for the use of products. In addition, both the Federal and state governments have initiated investigations and lawsuits concerning the Medicaid price reporting practices of many pharmaceutical companies to ensure compliance with the Medicaid rebate program. For example, in April 2007, we were sued by the County of Orange, New York in the Southern District of New York, along with over 70 other pharmaceutical companies, for allegedly inflating published average wholesale prices allegedly resulting in the overpayments by the state of New York's Medicaid program. This suit has been transferred by the Judicial Panel on Multidistrict Litigation to the District of Massachusetts, where the case is now pending as part of MDL 1456 (in re Pharmaceutical Industry Average Wholesale Price Litigation) and our obligation to answer the Complaint has been stayed pending the Court's decisions in related actions brought by other New York Counties against other defendants. We could be subject to damages and penalties as a consequence of this lawsuit, if we are found liable.

The approval of sale of certain medications without a prescription may adversely affect our business.

        In May 2001, an advisory panel to the FDA recommended that the FDA allow certain popular allergy medications to be sold without a prescription. In November 2002, the FDA approved CLARITIN, an allergy medication, to be sold without a prescription. In November 2007, the FDA also approved ZYRTEC, another allergy medication, to be sold without a prescription. In the future, the FDA may allow sale of additional allergy medications without a prescription. The sale of CLARITIN, ZYRTEC and/or, if allowed, the sale of other allergy medications without a prescription, may have a material adverse effect on our business because the market for prescription drugs, including CLARINEX, ALLEGRA, and XYZAL/XUSAL for which we receive royalties on sales, has been and may continue to be, adversely affected.

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We recently determined that PHS discounts were provided to non-PHS covered entities. This circumstance creates uncertainty as to whether a new best price was set in prior periods. If a new best price was set, additional Medicaid rebates will be required to be paid. In addition, we may face an increased risk of investigation or litigation concerning our Medicaid price reporting or other price reporting obligations.

        Under the Medicaid rebate program, we are obligated to pay a rebate to each participating State Medicaid program for each unit of product reimbursed by Medicaid. The amount of the rebate for each product is set by law as the greater of (a) 15.1% of AMP or (b) the difference between AMP and the Medicaid best price, which is the lowest price available from us to any customer not excluded by law from that determination. The rules related to determining AMP and best price are complicated. We compute best price and the required rebate payments each quarter based on our knowledge of the statutory requirements, the current CMS guidance and our understanding of which customers are exempt from the best price calculation.

        In January 2008, we notified CMS that we had identified potential errors in our determination of the best price used to calculate Medicaid rebate amounts in prior periods. As a follow up to this disclosure to CMS, our management, with the oversight of our Audit Committee, is reviewing our government pricing activities affected by the material weakness on our internal controls related to these potential errors. We restated our financial statements for the years ended December 31, 2006 and 2005 and the unaudited quarterly information in Note T in our consolidated financial statements for the fiscal quarters ended March 31, June 30 and September 30, 2007 and 2006 to reduce the amount of product revenue earned during such periods. The amounts by which we have reduced revenues for contingent rebates were based on management's best estimates and assumptions made prior to any concurrence by CMS. These amounts may change as a result of future communications with CMS, and we cannot be certain that we have not overestimated the amount of additional rebates we may be required to pay, that the amount of any additional rebate payments or other payments we may owe will not exceed our current estimates, or that we will not be subject to fines, penalties or interest.

        Both the federal government and state governments have initiated investigations and lawsuits concerning the Medicaid price reporting practices of many pharmaceutical companies to ensure compliance with the Medicaid rebate program. As a result of the errors that we identified in our calculation of Medicaid rebate reserve amounts, we may face an increased risk of a government investigation or lawsuits concerning our Medicaid or other price reporting. If any such investigation or lawsuit is initiated, we may be required to pay additional rebates or other amounts related to sales made in prior periods, and we may be subject to fines, penalties or interest. In addition, an investigation or lawsuit concerning our Medicaid price reporting could be costly, could divert the attention of our management from our core business and could damage our reputation.

If our drugs are not included on state Preferred Drug Lists, use of our drugs may be negatively affected.

        Several state Medicaid programs have implemented PDLs and more states may adopt this practice. Products placed on a state Medicaid program's PDL are not subject to restrictions on their utilization by Medicaid patients, such as the need to obtain authorization prior to prescribing. If our drugs are not included on Medicaid PDLs, use of our drugs in the Medicaid program may be adversely affected. In some States that have adopted PDLs, we have been, and may continue to be, required to provide substantial supplemental rebates to state Medicaid authorities in order for our drugs to be included on the PDL.

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Risks Related to Our Intellectual Property

If we fail to adequately protect or enforce our intellectual property rights, then we could lose revenue under our licensing agreements or lose sales to generic copies of our products.

        Our success depends in large part on our ability, and the ability of our collaboration partners, to obtain, maintain and enforce patents, and protect trade secrets. Our ability to commercialize any drug successfully will largely depend upon our ability to obtain and maintain patents of sufficient scope to prevent third parties from developing substantially equivalent products. In the absence of patent and trade secret protection, competitors may adversely affect our business by independently developing and marketing substantially equivalent products. It is also possible that we could incur substantial costs if we are required to initiate litigation against others to protect or enforce our intellectual property rights.

        We have filed patent applications covering composition of, methods of making, and/or methods of using, our drugs and drug candidates. Our revenues under collaboration agreements with pharmaceutical companies depend in part on the existence and scope of issued patents. We may not be issued patents based on patent applications already filed or that we file in the future and if patents are issued, they may be insufficient in scope to cover the products licensed under these collaboration agreements. Generally, we do not receive royalty revenue from sales of products licensed under collaboration agreements in countries where we do not have a patent for such products. The issuance of a patent in one country does not ensure the issuance of a patent in any other country. Furthermore, the patent position of companies in the pharmaceutical industry generally involves complex legal and factual questions, and has been and remains the subject of much litigation. Legal standards relating to scope and validity of patent claims are evolving. Any patents we have obtained, or obtain in the future, may be challenged, invalidated or circumvented. Moreover, the United States Patent and Trademark Office may commence interference proceedings involving our patents or patent applications. Any challenge to, or invalidation or circumvention of, our patents or patent applications would be costly, would require significant time and attention of our management and could have a material adverse effect on our business. In addition, if we are not successful in enforcing our patents, we will not be able to prevent others from introducing generic versions of our products.

A number of our products and products for which we receive royalties are the subject of patent invalidation claims.

        XOPENEX Inhalation Solution is currently the subject of patent infringement litigation. The FDA has received ANDAs from Breath, Dey, L.P., Watson and Barr seeking marketing approval for generic versions of our XOPENEX Inhalation Solution products. These submissions include Paragraph IV certifications alleging that our patents listed in the Orange Book for XOPENEX Inhalation Solution are invalid, unenforceable or not infringed by the submitter's proposed product. We have commenced patent infringement litigation against Breath, Dey, L.P., and Barr, but we have decided not to commence litigation against Watson at this time as its Paragraph IV certification is limited to a patent that expires in 2021. The filing of a lawsuit for patent infringement under the Hatch-Waxman Act results in an automatic 30-month stay of the FDA's authority to grant marketing approval to these companies. The 30-month stay against Breath's ANDA is scheduled to expire for our 1.25 mg/3 mL, 0.63 mg/3 mL and 0.31 mg/3 mL XOPENEX Inhalation Solution on or about March 7, 2008. In December 2007, the FDA granted tentative approval to Breath's ANDA for all three dosages. A non-jury trial in our litigation against Breath is scheduled to begin on July 14, 2008 in the United States District Court for the District of Delaware, C.A. No. 06-113. No trial date has been set in our patent infringement litigation against Dey, L.P. or Barr.

        Upon expiration of that 30-month stay, the FDA could grant final approval and Breath could then commence an "at risk" distribution of its generic levalbuterol product for those dosages notwithstanding our patents and notwithstanding that the court's decision as to the merits of the

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litigation will not have been rendered, unless we were able to obtain an injunction prohibiting such distribution. However, if a forfeiture event occurs and the FDA determines that Breath has forfeited the 180-day semi-exclusivity period for those three dosages, other ANDA filers who have been granted final approval by the FDA could commence an "at risk" launch upon expiration of the 30-month stay. For those three dosages, the 30-month stays against Dey, L.P. and Barr expire on or about July 9, 2008 and November 30, 2009, respectively. If any of these parties were to commence selling a generic alternative to our XOPENEX Inhalation Solution product prior to the resolution of these ongoing legal proceedings, or there is a court determination that the products these companies wish to market do not infringe our patents, or that our patents are invalid or unenforceable, it would have a material adverse effect on our business, financial condition and results of operations. In addition, our previously issued guidance regarding our projected financial results may no longer be accurate and we would have to revise such guidance.

        Certain of Schering-Plough's CLARINEX products for which we receive sales royalties are currently the subject of patent infringement litigation and in 2007, the FDA received a number of ANDAs relating to CLARINEX. These ANDA submissions include Paragraph IV certifications alleging that our patents, which Schering Plough (as licensee of such patents) listed in the Orange Book for these products, are invalid, unenforceable or not infringed by the submitter's proposed product. We and the University of Massachusetts, co-owners of certain patents listed in the Orange Book, filed civil actions against these parties for patent infringement. We believe that all of these ANDAs are subject to a statutory stay of approval until June 21, 2009 based on previous litigation commenced by Schering-Plough against these parties in separate civil actions involving another patent.

        In addition, a number of our foreign patents that we have out-licensed to Schering-Plough, sanofi-aventis and UCB in connection with the sale of CLARINEX, ALLEGRA and XYZAL/XUSAL, respectively, are subject to patent invalidity claims. If patent-based exclusivity is lost for one or more of these products in any foreign jurisdiction, our rights to receive royalty revenue with respect to such product in the relevant jurisdiction will terminate, which may have a material adverse effect on our business, financial condition and results of operations. Should the courts uphold our foreign patents, companies seeking to market generic versions of our drugs and the drugs of our licensees should be deterred from market entry until the expiration of the applicable patent(s).

        Patent litigation involves complex legal and factual questions. We can provide no assurance concerning the outcome or the duration of any patent related lawsuits. If we, or third parties from whom we receive royalties, are not successful in enforcing our respective patents, the companies seeking to market generic versions of our drugs and the drugs of our licensees will not be excluded, for the full term of our patents, from marketing their generic versions of our products or third party products for which we have licensed rights to our patents. Introduction of generic copies of any of our products or third party products for which we have licensed rights to our patents before the expiration of our patents would have a material adverse effect on our business.

        Additionally, the costs to us of these proceedings, even if resolved in our favor, could be substantial. Such litigation could also substantially divert the attention of our management and other key personnel from our core business and our resources in general. Uncertainties resulting from the initiation and continuation of this and any other litigation proceedings could harm our ability to compete in the marketplace.

If we face a claim of intellectual property infringement by a third party, then we could be liable for significant damages or be prevented from commercializing our products.

        Our success depends in part on our ability to operate without infringing upon proprietary rights of others, including patent and trademark rights. Third parties, typically drug companies, hold patents or patent applications covering compositions, methods of making and uses, covering the composition of

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matter for some of the drug candidates for which we have patents or patent applications. Third parties also hold patents relating to drug delivery technology that may be necessary for development or commercialization of some of our drug candidates. In each of these cases, unless we have or obtain a license agreement, we generally may not commercialize the drug candidates until these third-party patents expire or are declared invalid or unenforceable by the courts. Licenses may not be available to us on acceptable terms, if at all.

        Others may file suit against us alleging that our products or product candidates infringe patents they hold. Even if resolved in our favor, any patent infringement litigation would be costly, would require significant time and attention of our management, could prevent us from commercializing our products for a period of time and could require us to pay significant damages and could have a material adverse effect on our business. If the matter is not resolved in our favor, we could be required to pay significant damages and/or be prevented from commercializing our product and our business could be materially adversely affected. In April 2007, we were served with a Complaint filed by Dey, alleging that the manufacture and sale of BROVANA infringes or will induce infringement of a single U.S. patent for which Dey owns all rights, title and interest. In April 2007, we filed an Answer and Counterclaim to this Complaint seeking to invalidate the originally asserted patent and a second related patent. In May 2007, Dey filed a reply asserting infringement of the second patent. Under the current trial scheduling order, trial will begin no earlier than January 12, 2009. It is too early to make a reasonable assessment as to the likely outcome or impact of this litigation. We are unable to reasonably estimate any possible range of loss or liability related to this lawsuit due to its uncertain resolution.

        If any of our trademarks or the trademarks we license from our third party collaborators, or our use of any of these trademarks in connection with products we commercialize, is challenged, we or our third party collaborators may be forced to rename the affected product or product candidate, which could be costly and time consuming, and would result in the loss of any brand equity associated with the product name.

Risks Related to Our Dependence on Third Parties

If any third-party collaborator is not successful in development or commercialization of our products and product candidates, we may not realize the potential commercial benefits of the arrangement and our results of operations could be adversely affected.

        We have entered into a collaboration agreement with 3M for the manufacturing of XOPENEX HFA. Under this agreement, 3M is responsible for manufacturing an MDI formulation of XOPENEX. We commercially introduced XOPENEX HFA in December 2005. We have also entered into agreements with Eisai and GSK for development and commercialization of our eszopiclone product, marketed as LUNESTA in the U.S. Under the Eisai agreement, Eisai will be responsible for completing remaining clinical trials necessary for attaining marketing approval from the Japanese regulatory authorities and, contingent on regulatory approval, commercialization of the product in Japan. Under the GSK agreement, GSK is responsible for the development and commercialization of the product for all markets worldwide, excluding the United States, Canada, Mexico and Japan. In addition, we have also recently entered into a license agreement with Bial for the development and commercialization in the United States and Canada of Bial's anti-epileptic compound, BIA 2-093, which we subsequently renamed SEP-0002093. Under this agreement, Bial is responsible for certain development activities and prosecuting all patents and patent applications it licensed to us. We have also recently entered into a distribution and development agreement with Nycomed for the development, commercialization and distribution in the United States, its territories and possessions of Nycomed's compound ciclesonide, and certain products incorporating such compound, including ALVESCO HFA and OMNARIS AQ. Under this agreement, Nycomed is responsible for prosecuting all patents and patent applications with respect to these products.

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        If 3M, Eisai, GSK, Bial, Nycomed or any future development or commercialization collaborator does not devote sufficient time and resources to its collaboration arrangement with us, breaches or terminates its agreement with us, fails to perform its obligations to us in a timely manner, is unsuccessful in its development and/or commercialization efforts, or is unsuccessful in obtaining, maintaining or enforcing patents, and/or protecting trade secrets we license from such collaborator, we may not realize the potential commercial benefits of the arrangement and our results of operations may be adversely affected. In addition, if regulatory approval or commercialization of any product candidate under development by or in collaboration with a partner is delayed or limited, we may not realize, or may be delayed in realizing, the potential commercial benefits of the arrangement.

The royalties and other payments we receive under licensing arrangements could be delayed, reduced or terminated if our licensing partners terminate, or fail to perform their obligations under, their agreements with us, or if our licensing partners are unsuccessful in their sales efforts.

        We have entered into licensing arrangements pursuant to which we license patents to pharmaceutical companies and our revenues under these licensing arrangements consist primarily of milestone payments, royalties on sales of products and supply payments. Payments and royalties under these arrangements depend in large part on the efforts of our licensing partners in countries where we hold patents, including development and sales efforts and enforcement of patents, which we cannot control. If any of our licensing partners do not devote sufficient time and resources to its licensing arrangement with us or focuses its efforts in countries where we do not hold patents, we may not realize the potential commercial benefits of the arrangement, our revenues under these arrangements may be less than anticipated and our results of operations may be adversely affected. If any of our licensing partners was to breach or terminate its agreement with us or fail to perform its obligations to us in a timely manner, the royalties and other payments we receive under the licensing agreement could decrease or cease. If we are unable or fail to perform, or breach in our performance of, our obligations under a licensing agreement, the royalties and other payments and benefits to which we are otherwise entitled under the agreement could be reduced or eliminated. Any delay or termination of this type could have a material adverse effect on our financial condition and results of operations because we may lose technology rights and milestone or royalty payments from licensing partners and/or revenues from product sales, if any, could be delayed, reduced or terminated.

We rely on third-party manufacturers, and this reliance could adversely affect our ability to meet our customers' demands.

        We currently operate a manufacturing plant that we believe can meet our commercial requirements of the active pharmaceutical ingredient for XOPENEX Inhalation Solution, XOPENEX HFA and BROVANA, partially fulfill our commercial requirements of the active pharmaceutical ingredient for LUNESTA, and support production of our product candidates in amounts needed for our clinical trials. We do not, however, have the capability to manufacture at our manufacturing facility all of our requirements for the active ingredients of our currently approved products, and we have no facilities for manufacturing pharmaceutical dosage forms or finished drug products. Developing and obtaining this capability would be time consuming and expensive. Unless and until we develop this capability, we will rely substantially, and in some cases, entirely, on third-party manufacturers. Catalent and Holopack are currently our only finished goods manufacturers of our XOPENEX Inhalation Solution and Catalent is currently the sole finished goods manufacturer of BROVANA. Patheon Inc., or Patheon, is the sole manufacturer of LUNESTA, and 3M is the sole manufacturer and supplier of XOPENEX HFA. Certain components of XOPENEX HFA are available from only a single source. If Catalent, Holopack, Patheon, 3M, or any of our sole-source component suppliers experiences delays or difficulties in producing, packaging or delivering XOPENEX Inhalation Solution, XOPENEX HFA or its components, BROVANA or LUNESTA, as the case may be, we could be unable to meet our customers' demands for such products, which could lead to lost sales, customer dissatisfaction and

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damage to our reputation. Moreover, if we experience delays or difficulties meeting our supply obligations to GSK and Eisai as a result of our third party suppliers and manufacturers not meeting our demands, or for any other reason, we may not realize the potential commercial benefits of our supply and/or licensing arrangements with these parties and our results of operations may be adversely affected. If we are required to change manufacturers, we will be required to verify that the new manufacturer maintains facilities and procedures that comply with quality standards and with all applicable regulations and guidelines, including FDA guidelines. The delays associated with the verification of a new manufacturer for XOPENEX Inhalation Solution, XOPENEX HFA or its components, BROVANA or LUNESTA could adversely affect our ability to produce such products in a timely manner or within budget.

        Pursuant to our distribution, development and commercialization agreement with Nycomed, Nycomed will be responsible for exclusively manufacturing and supplying us with our requirements of ALVESCO HFA and OMNARIS AQ and OMNARIS HFA. Furthermore, in the event that we develop and commercialize any additional products containing the compound ciclesonide, Nycomed, upon request, will be our exclusive supplier of such additional products. If Nycomed experiences delays or difficulties in producing, packaging or delivering ALVESCO HFA, OMNARIS AQ, OMNARIS HFA, or other products containing the compound ciclesonide, we could be unable to meet our customers' demands for such products, which could lead to lost sales, customer dissatisfaction and damage to our reputation.

        We license certain proprietary technology required to manufacture our XOPENEX HFA from 3M. If 3M is unable or unwilling to fulfill its obligations to us under our agreement, we may be unable to manufacture XOPENEX HFA on terms that are acceptable to us, if at all. Our other current contract manufacturers, as well as any future contract manufacturers, may also independently own technology related to manufacturing of our products. If so, we would be heavily dependent on such manufacturer and such manufacturer could require us to obtain a license in order to have another party manufacture our products.

Risks Related to Growth of Our Business

If we fail to acquire and develop additional product candidates or approved products, our ability to grow will be impaired.

        We are currently commercializing four products, recently acquired from Nycomed the exclusive U.S. distribution rights to two FDA-approved products and the development rights to one late-stage product candidate, and recently licensed one late-stage product candidate from Bial. However, all of our other product candidates are in the early stages of development. In order to increase the likelihood that we will be able to successfully develop and/or commercialize additional drugs, we intend to acquire and develop additional product candidates and/or approved products. The success of this growth strategy depends upon our ability to correctly establish criteria for such acquisitions and successfully identify, select and acquire product candidates and/or products that meet such criteria. We will be required to integrate any acquired product candidates, including BIA 2-093, which we now refer to as SEP-0002093, and product candidates we are developing pursuant to our agreement with Nycomed, into our research and development operations and any acquired products, including ALVESCO HFA and OMNARIS AQ into our sales and marketing operations. Managing the development and/or commercialization of a new product involves numerous other financial and operational risks, including difficulties allocating resources between existing and acquired assets and attracting and retaining qualified employees to develop and/or sell the product.

        Any product candidate we acquire may require additional research and development efforts prior to commercial sale, including extensive preclinical and/or clinical testing and approval by the FDA and corresponding foreign regulatory authorities. All product candidates are prone to the risks of failure

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inherent in pharmaceutical product development, including the possibility that the product candidate will not be safe and effective or approved by regulatory authorities.

        In addition, we cannot be assured that any products that we develop or acquire will be:

•

manufactured or produced economically;



•

successfully commercialized or reimbursed at rates sufficient for us to achieve or maintain profitability with respect to such products;



•

complementary to our existing product portfolio; or



•

widely accepted in the marketplace.

        Proposing, negotiating and implementing an economically viable acquisition is a lengthy and complex process. Other companies, including those with substantially greater financial, marketing and sales resources, may compete with us for the acquisition of product candidates and approved products. We may not be able to acquire the rights to additional product candidates and approved products on terms that we find acceptable, or at all.

We may undertake strategic acquisitions in the future and any difficulties from integrating such acquisitions could adversely affect our stock price, business operations, financial condition or results from operations.

        We may acquire additional businesses, products or product candidates that complement or augment our existing business. We have limited acquisition experience and may not be able to integrate any acquired business, product or product candidate successfully or operate any acquired business profitably. Integrating any newly acquired business, product or product candidate could be expensive and time-consuming. Integration efforts often place a significant strain on managerial, operational and financial resources and could prove to be more difficult or expensive than we predict. The diversion of our management's attention and any delay or difficulties encountered in connection with any future acquisitions we may consummate could result in the disruption of our on going business or inconsistencies in standards, controls, procedures and policies that could adversely affect our ability to maintain relationships with customers, suppliers, collaborators, employees and others with whom we have business dealings. Moreover, we may need to raise additional funds through public or private debt or equity financing to acquire any businesses, products or product candidates, which may result in dilution for stockholders or the incurrence of indebtedness.

        As part of our efforts to acquire businesses, products or product candidates or to enter into other significant transactions, we conduct business, legal and financial due diligence with the goal of identifying and evaluating material risks involved in the transaction. Despite our efforts, we ultimately may be unsuccessful in ascertaining or evaluating all such risks and, as a result, might not realize the intended advantages of the transaction. If we fail to realize the expected benefits from acquisitions we have consummated or may consummate in the future, whether as a result of unidentified risks, integration difficulties, regulatory setbacks or other events, our business, results of operations and financial condition could be adversely affected. We will also need to make certain assumptions regarding acquired product candidates, including, among other things, development costs, the likelihood of receiving regulatory approval and the market for such product candidates. Our assumptions may prove to be incorrect, which could cause us to fail to realize the anticipated benefits of these transactions.

        In addition, we will likely experience significant charges to earnings in connection with our efforts, if any, to consummate acquisitions. For transactions that are ultimately not consummated, these charges may include fees and expenses for investment bankers, attorneys, accountants and other advisers in connection with our efforts. Even if our efforts are successful, we may incur as part of a transaction substantial charges for closure costs associated with elimination of duplicate operations and facilities

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and acquired in-process research and development charges. In either case, the incurrence of these charges could adversely affect our results of operations for particular quarterly or annual periods.

Development and commercialization of our product candidates could be delayed or terminated if we are unable to enter into collaboration agreements in the future or if any future collaboration agreement is subject to lengthy government review.

        Development and commercialization of some of our product candidates may depend on our ability to enter into additional collaboration agreements with pharmaceutical companies to fund all or part of the costs of development and commercialization of these product candidates. We may not be able to enter into collaboration agreements and the terms of the collaboration agreements, if any, may not be favorable to us. Inability to enter into collaboration agreements could delay or preclude development, manufacture and/or marketing of some of our drugs and could have a material adverse effect on our financial condition and results of operations because:

•

we may be required to expend additional funds to advance the drugs to commercialization;



•

revenue from product sales could be delayed; or



•

we may elect not to commercialize the drugs.

        We are required to file a notice under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, or the HSR Act, for certain agreements containing exclusive license grants and to delay the effectiveness of any such exclusive license until expiration or earlier termination of the notice and waiting period under the HSR Act. If expiration or termination of the notice and waiting period under the HSR Act is delayed because of lengthy government review, or if the Federal Trade Commission or Department of Justice successfully challenges such a license, development and commercialization could be delayed or precluded and our business could be adversely affected.

Item 1B. Unresolved Staff Comments.

        None.

Item 2. Properties.

        Our main facility at 84 Waterford Drive, Marlborough, Massachusetts, consists of approximately 58 acres and a 192,600 square foot research and development and corporate office building, which we purchased in November 2002. In November 2007, we entered into an agreement with a commercial builder for the construction of a 143,000 square foot building to be used by us as additional office space. We anticipate that construction of this building will be completed in the first quarter of 2009.

        We lease space in two additional facilities in Marlborough, Massachusetts. We lease 57,477 square feet of office and laboratory space at 33 Locke Drive. This is comprised of two leases that expire on February 28, 2009 and June 30, 2012. We lease 68,815 square feet of office space at 111 Locke Drive under a lease that will expire on June 30, 2012. The 111 Locke Drive facility serves as our regional sales office for the northeast region, as our sales training facility and additional office space.

        During 2004, we entered into four leases for office space that serve as regional sales offices. These offices are located in Irvine, California; Alpharetta, Georgia; Deerfield, Illinois, and Flower Mound, Texas. These leases expire on December 31, 2009, October 31, 2011, October 31, 2009 and June 30, 2011, respectively.

        Our primary manufacturing location is a 50,000 square-foot fine chemical manufacturing facility located on a four-acre site in Windsor, Nova Scotia, which we acquired in March 1994. Production at the Nova Scotia facility began in February 1995.

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Item 3. Legal Proceedings.

Litigation Related to Generic Competition and Patent Infringement

        Patent litigation involves complex legal and factual questions. We can provide no assurance concerning the outcome or the duration of any patent related lawsuits. If we, or third parties from whom we receive royalties, are not successful in enforcing our respective patents, the companies seeking to market generic versions of our drugs and the drugs of our licensees will not be excluded, for the full term of the respective patents, from marketing their generic versions of our products or third party products for which we have licensed rights to our patents. Introduction of generic copies of any of our products or third party products for which we have licensed rights to our patents before the expiration of our patents would have a material adverse effect on our business, financial condition and results of operations.

Levalbuterol Hydrochloride Inhalation Solution Abbreviated New Drug Applications

        In September 2005, we received notification that the FDA had received an ANDA from Breath seeking approval of a generic version of our 1.25 mg/3 mL, 0.63 mg/3 mL and 0.31 mg/3 mL XOPENEX Inhalation Solution. Breath's submission includes a Paragraph IV certification alleging that our patents listed in the FDA publication entitled Approved Drug Products With Therapeutic Equivalence Evaluations, commonly referred to as the "Orange Book," for these three dosages of XOPENEX Inhalation Solution are invalid, unenforceable or not infringed by the generic version for which Breath is seeking approval. In October 2005, we filed a civil action against Breath for patent infringement and a non-jury trial is scheduled to begin on July 14, 2008 in the United States District Court for the District of Massachusetts, No. CV:06-10043.

        In January 2006, we received notification that the FDA had received an ANDA from Dey, L.P., seeking approval of a generic version of our 1.25 mg/3 mL, 0.63 mg/3 mL, and 0.31 mg/3 mL XOPENEX Inhalation Solution. Dey, L.P.'s submission includes a Paragraph IV certification alleging that our patents listed in the Orange Book for these three dosages of XOPENEX Inhalation Solution are invalid, unenforceable, or not infringed by the generic version for which Dey, L.P. is seeking approval. In February 2006, we filed a civil action against Dey, L.P. for patent infringement and the case is pending in the United States District Court for the District of Delaware, C.A. No. 06-113.

        In August 2006, we received notification that the FDA had received an ANDA from Dey, L.P. seeking approval of a generic version of our 1.25 mg/0.5 mL XOPENEX Inhalation Solution concentrate. Dey, L.P.'s submission includes a Paragraph IV certification alleging that our patents listed in the Orange Book for 1.25 mg/0.5 mL XOPENEX Inhalation Solution concentrate are invalid, unenforceable, or not infringed by the generic version for which Dey, L.P. is seeking approval. In September 2006, we filed a civil action against Dey, L.P. for patent infringement in the United States District Court for the District of Delaware, C.A. No. 06-604. In September 2006, both civil actions we filed against Dey, L.P. were consolidated into a single suit. No trial date has been set.

        In May 2007, we received notification that the FDA had received an ANDA from Barr seeking approval of a generic version of our 1.25 mg/3 mL, 0.63 mg/3 mL and 0.31 mg/3 mL XOPENEX Inhalation Solution. Barr's submission includes a Paragraph IV certification alleging that our patents listed in the Orange Book for these three dosages of XOPENEX Inhalation Solution are invalid, unenforceable or not infringed by the generic version for which Barr is seeking approval. In July 2007, we filed a civil action against Barr for patent infringement and the case is pending in the United States District Court for the District of Delaware, C.A. No. 07-438. No trial date has been set.

        The filing of an action for patent infringement under the Hatch-Waxman Act invokes an automatic 30-month stay of the FDA's authority to grant final marketing approval to those companies that file an ANDA containing a Paragraph IV certification against one or more of our XOPENEX Inhalation

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Solution patents. The first filer of an ANDA with a Paragraph IV certification is potentially entitled to a 180-day period of semi-exclusivity during which the FDA cannot approve subsequently filed ANDAs. The 180-day semi-exclusivity period would begin to run only upon first commercial marketing by the first filer. There are, however, also certain events that could cause the first filer to forfeit the 180-day semi-exclusivity period, which we refer to as a forfeiture event.

        For our 1.25 mg/3 mL, 0.63 mg/3 mL, and 0.31 mg/3 mL XOPENEX Inhalation Solution, we believe that Breath is the first filer and potentially entitled to 180-days of semi-exclusivity against subsequent ANDA filers for those three dosages. The 30-month stay against Breath's ANDA is scheduled to expire on or about March 7, 2008. In December 2007, the FDA granted tentative approval to Breath's ANDA for all three dosages. Upon expiration of that 30-month stay, the FDA could grant final approval and Breath could then commence an "at risk" distribution of its generic levalbuterol product for those dosages notwithstanding our patents and notwithstanding that the court's decision as to the merits of the litigation will not have been rendered, unless we were able to obtain an injunction prohibiting such distribution. However, if a forfeiture event occurs and the FDA determines that Breath has forfeited the 180-day semi-exclusivity period for those three dosages, other ANDA filers who have been granted final approval by the FDA could commence an "at risk" launch upon expiration of the 30-month stay. For those three dosages, the 30-month stays against Dey, L.P. and Barr expire on or about July 9, 2008 and November 30, 2009, respectively.

        For our 1.25 mg/0.5 mL XOPENEX Inhalation Solution concentrate, we believe that Dey, L.P. is the first filer and potentially entitled to 180-days of semi-exclusivity for that concentration. The 30 month stay against Dey, L.P.'s ANDA for that concentration expires on or about February 14, 2009.

        Although we could seek recovery of any damages sustained in connection with any activities conducted by a party that infringe a valid and enforceable claim in our patents, whether we are ultimately entitled to such damages would be determined by the court in connection with our ongoing legal proceedings with each party desiring to launch generic levalbuterol hydrochloride products. If any of these parties were to commence selling a generic alternative to our XOPENEX Inhalation Solution product prior to the resolution of these ongoing legal proceedings, or there is a court determination that the products these companies wish to market do not infringe our patents, or that our patents are invalid or unenforceable, it would have a material adverse effect on our business, financial condition and results of operations. In addition, our previously issued guidance regarding our projected financial results may no longer be accurate and we would have to revise such guidance.

Desloratadine Abbreviated New Drug Applications

        In June 2007, we received notification that the FDA had received an ANDA from Glenmark Pharmaceuticals, Ltd. and Glenmark Pharmaceuticals, Inc., USA, which we refer to collectively as Glenmark, seeking approval of a generic version of Schering-Plough's 5 mg tablets of CLARINEX. Glenmark's submission includes a Paragraph IV certification alleging that our patents that Schering-Plough (as licensee of such patents) listed in the Orange Book for CLARINEX are invalid, unenforceable or not infringed by the generic version for which Glenmark is seeking approval. In July 2007, we and the University of Massachusetts, co-owners of certain patents listed in the Orange Book, filed a civil action in the United States District Court for the District of New Jersey against Glenmark for patent infringement, C.A. No. 07-3385.

        In July 2007, we received notification that the FDA had received an ANDA from Sun Pharmaceutical Industries, Ltd., or Sun, seeking approval of a generic version of Schering-Plough's 5 mg tablets of CLARINEX. Sun's submission includes a Paragraph IV certification alleging that our patents listed by Schering-Plough (as licensee of such patents) in the Orange Book for CLARINEX are invalid, unenforceable, or are not infringed by the generic version for which Sun is seeking approval. In

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September 2007, we and the University of Massachusetts filed a civil action in the United States District Court for the District of New Jersey against Sun for patent infringement, C.A. No. 07-4213.

        In August 2007, we received notification that the FDA had received an ANDA from Orchid Chemicals & Pharmaceuticals, Ltd., or Orchid, seeking approval of a generic version of Schering-Plough's 5 mg tablets, and 2.5 and 5 mg orally disintegrating tablets of CLARINEX. Orchid's submission includes a Paragraph IV certification alleging that our patents listed by Schering-Plough (as licensee of such patents) in the Orange Book for CLARINEX are invalid, unenforceable or not infringed by the generic version for which Orchid is seeking approval. In October 2007, we and the University of Massachusetts filed a civil action in the United States District Court for the District of New Jersey against Orchid for patent infringement, C.A. No. 07-4623.

        In September 2007, we received notification that the FDA had received ANDAs from Mylan Pharmaceuticals, Inc., or Mylan, Lupin Limited, or Lupin, and Perrigo R & D Company, or Perrigo, seeking approval of a generic version of Schering-Plough's 5 mg tablets of CLARINEX, and from Dr. Reddy's Laboratories, or Dr. Reddy's, seeking approval of generic versions of Schering-Plough's (1) 5 mg tablets of CLARINEX, (2) 2.5 mg and 5 mg orally disintegrating tablets of CLARINEX, (3) 2.5/120 mg tablets of CLARINEX-D 12 hour desloratadine and pseudoephedrine, and (4) 5.0/240 mg tablets of CLARINEX-D 24 hour desleratodine and pseudoephedrine extended release tablets. The submissions by these parties include Paragraph IV certifications alleging that certain patents listed by Schering-Plough (as licensee of such patents) in the Orange Book for CLARINEX are invalid, unenforceable or not infringed by the generic versions for which these parties are seeking approval. In October 2007, we and the University of Massachusetts filed civil actions in the United States District Court for the District of New Jersey against Mylan, Lupin, Perrigo and Dr. Reddy's for patent infringement, C.A. No. 3:07-cv-05017, C.A. No. 3:07-cv-05265, C.A. No. 3:07-cv-05136 and C.A. No. 3:07-cv-05001, respectively.

        In October 2007, we received notification that the FDA had received an ANDA from Anchen Pharmaceuticals, Inc., or Anchen, seeking approval of a generic version of Schering-Plough's 2.5/120 mg tablets of CLARINEX-D 12 hour desloratadine and pseudoephedrine extended release tablets. Anchen's submission includes a Paragraph IV certification alleging that our patents listed by Schering-Plough (as licensee of such patents) in the Orange Book for CLARINEX are invalid, unenforceable or not infringed by the generic version for which Anchen is seeking approval. In November 2007, we and the University of Massachusetts filed a civil action in the United States District Court for the District of New Jersey against Anchen for patent infringement, C.A. No. 07-cv-5737.

        In September 2007, we received notification that the FDA had received an ANDA from Sandoz, Inc., or Sandoz, seeking approval of a generic version of Schering-Plough's 5 mg tablets of CLARINEX. Sandoz's submission includes a Paragraph IV certification alleging that our patents listed by Schering-Plough (as licensee of such patents) in the Orange Book for CLARINEX are invalid, unenforceable, or are not infringed by the generic version for which Sandoz is seeking approval. In December 2007, we and the University of Massachusetts filed a civil action in the United States District Court for the District of New Jersey against Sandoz for patent infringement, C.A. No. 3:07-cv-04213.

        In February 2008, we received notification that the FDA had received an ANDA from Belcher Pharmaceuticals, Inc., or Belcher, seeking approval of a generic version of Schering-Plough's 5 mg tablets of CLARINEX. Belcher's submission includes a Paragraph IV certification alleging that our patents listed by Schering-Plough (as licensee of such patents) in the Orange Book for CLARINEX are invalid, unenforceable, or are not infringed by the generic version for which Belcher is seeking approval. In February 2008, we and the University of Massachusetts filed a civil action in the United States District Court for the District of New Jersey against Belcher for patent infringement, C.A. No. 3:08-cv-00945.

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        We believe that all of these ANDAs are subject to a statutory stay of approval until June 21, 2009 based on previous litigation commenced by Schering-Plough against these parties in separate civil actions involving another patent.

BROVANA Patent Infringement Claim

        In April 2007, we were served with a Complaint filed in the United States District Court for the Southern District of New York, C.A. No. 1:07-cv-2353, by Dey, alleging that manufacture and sale of BROVANA® (arformoterol tartrate) Inhalation Solution infringes or will induce infringement of a single U.S. patent for which Dey owns all rights, title and interest. In April 2007, we filed an Answer and Counterclaim to this Complaint seeking to invalidate the originally asserted patent and a second related patent. In May 2007, Dey filed a reply asserting infringement of the second patent. Under the current trial scheduling order, trial will begin no earlier than January 12, 2009. It is too early to make a reasonable assessment as to the likely outcome or impact of this litigation. We are unable to reasonably estimate any possible range of loss or liability related to this lawsuit due to its uncertain resolution.

Stock Option Inquiry and Derivative Stockholder Complaints

        We announced in November 2007 that we had received notice from the SEC that the informal inquiry into our stock option grants and stock option granting practice had been completed and that no enforcement action was recommended.

        From June to October 2006, six stockholder derivative complaints were commenced against us (as a nominal defendant) and certain of our current and former officers and directors. Three of these complaints were filed in the Superior Court, Middlesex County, Commonwealth of Massachusetts (later transferred to the Business Litigation Session of the Superior Court, Suffolk County, Commonwealth of Massachusetts) and three were filed in the United States District Court for the District of Massachusetts. All state court complaints were later consolidated into one state court action, and all Federal court complaints were consolidated into one Federal court action. It was alleged in both actions that the individual defendants breached their fiduciary duties and were unjustly enriched in connection with certain stock option grants; violations of Federal securities laws were alleged in the Federal action as well. The complaints sought monetary damages in unspecified amounts, equitable and injunctive relief, including disgorgement of profits obtained by certain defendants and other relief as determined by the court.

        In October 2007, we reached a settlement with the parties to both the state and Federal action providing for the dismissal of both actions, subject to the approval of the court. The settlement resolves all claims and includes no finding of wrongdoing on the part of any of the defendants and no cash payment other than attorneys' fees. As part of the settlement, we implemented stock option grant and other procedures that reflect developing best practices. The settlement became final and effective in January 2008 upon final approval by the state court and entry of dismissal with prejudice by the Federal court.

Tecastemizole Class Action Complaints

        In June 2007, we filed in the United States District Court for the District of Massachusetts, or the Court, a Stipulation of Settlement regarding two securities class action lawsuits, or class actions, pending in the Court naming Sepracor and certain of our current and former officers and one director as defendants. The class actions, which were filed on behalf of certain purchasers of our equity and debt securities, or the plaintiffs, allege that the defendants violated the Federal securities laws by making false and misleading statements relating to the testing, safety and likelihood of approval of tecastemizole by the FDA. The Stipulation of Settlement contains no admission of wrongdoing. Sepracor and the other defendants have always maintained and continue to believe that we did not

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engage in any wrongdoing or otherwise commit any violation of Federal or state securities laws or other laws. However, given the potential cost and burden of continued litigation, we believe the settlement was in our best interests and the best interests of our stockholders. Under the terms of the Stipulation of Settlement, in June 2007 we paid into escrow $52.5 million in settlement of the class actions and, in July 2007, received an $18.5 million reimbursement from our insurance carriers. We recorded the litigation settlement expense of $34.0 million, relating to this matter, during the quarter ended March 31, 2007. In September 2007, the Court granted final approval of the Stipulation of Settlement and entered a final judgment consistent with the Stipulation of Settlement. The settlement is now final and the total settlement amount has been released from escrow. Pursuant to the final judgment entered by the Court, the Court dismissed the class actions with prejudice, and the plaintiffs are deemed to have released all claims against us.

LUNESTA Trademark Claim

        In September 2006, Tharos Laboratories, Inc., or Tharos, filed suit against us in the United States District Court, District of Utah, Central Division, 2:06-cv-00757, alleging trademark infringement, dilution, unfair competition, false advertising and false designation of origin arising out of our use of our silk luna moth design in connection with LUNESTA. Tharos sought unspecified monetary damages and to enjoin our use of the silk luna moth design. In October 2007, we reached a final agreement with Tharos, and the case has been dismissed.

Other Legal Proceedings

        From time to time we are party to other legal proceedings in the course of our business. We do not, however, expect such other legal proceedings to have a material adverse effect on our business, financial condition or results of operations.

Item 4. Submission of Matters to a Vote of Security Holders.

        No matters were submitted to a vote of our security holders, through solicitation of proxies or otherwise, during the last quarter of the year ended December 31, 2007.

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EXECUTIVE OFFICERS OF THE REGISTRANT

        The following table sets forth the names, ages and positions of our current executive officers.

Name	Age	Position
Timothy J. Barberich	60	Executive Chairman
Adrian Adams	57	President, Chief Executive Officer
Mark H. N. Corrigan, M.D.	50	Executive Vice President, Research and Development
Mark Iwicki	41	Executive Vice President, Chief Commercial Officer
Andrew I. Koven	50	Executive Vice President, General Counsel and Corporate Secretary
Robert F. Scumaci	48	Executive Vice President, Corporate Finance, Administration and Technical Operations
David P. Southwell	47	Executive Vice President, Corporate Planning, Development and Licensing and Chief Financial Officer

Mr. Barberich, a founder of Sepracor, has served as Chairman of our Board of Directors since 1984. He served as our Chief Executive Officer from 1984 until May 2007. In May 2007, Mr. Barberich became our Executive Chairman. From 1984 until October 1999, Mr. Barberich also served as our President. Mr. Barberich serves as a director of BioSphere Medical, Inc., Gemin X Biotechnologies, Resolvyz Pharmaceuticals, Inc., Bionevia Pharmaceuticals, Inc. and Boston Medical Center.

Mr. Adams has served as our President and Chief Executive Officer since May 2007. From March 2007 to May 2007, Mr. Adams served as our Chief Operating Officer. From January 2002 until March 2007, Mr. Adams served as the President and Chief Executive Officer of Kos Pharmaceuticals, Inc. and from April 2001 until January 2002 as its President and Chief Operating Officer. Prior to joining Kos Pharmaceuticals, Mr. Adams served as President and Chief Executive Officer of Novartis Pharmaceuticals in Europe. Mr. Adams also served SmithKline Beecham Pharmaceuticals from 1992 to 1999 in various national and international capacities, last serving as President of its Canadian subsidiaries. Mr. Adams has served as a director of Amylin Pharmaceuticals, Inc. since October 2007.

Dr. Corrigan has served as our Executive Vice President, Research and Development since April 2003. Prior to joining Sepracor, Dr. Corrigan was Group Vice President of Global Clinical Research and Experimental Medicine at Pharmacia, a pharmaceutical company, from 1998 to 2003. After spending seven years in academic research, Dr. Corrigan joined Upjohn in 1993 and served in several senior management positions in clinical research and development for Upjohn and Pharmacia Upjohn. Dr. Corrigan is board certified in psychiatry and neurology and is a board member of Neuromed Technologies Inc.

Mr. Iwicki, has served as our Executive Vice President and Chief Commercial Officer since October 2007. Prior to joining Sepracor, Mr. Iwicki was Vice President, Cardiovascular Business Franchise Head at Novartis from 1998 until October 2007. Prior to his tenure with Novartis, Mr. Iwicki served in sales, marketing and management positions at Merck and Astra Merck Inc. and began his career at Merck & Co. in 1989.

Mr. Koven has served as our Executive Vice President, General Counsel and Corporate Secretary since March 2007. Prior to joining Sepracor, Mr. Koven served as Executive Vice President, General Counsel and Corporate Secretary of Kos Pharmaceuticals, Inc. from August 2003 to March 2007. Mr. Koven served as Senior Vice President, General Counsel and Corporate Secretary at Lavipharm Laboratories Inc., from 2000 to August 2003, and he served as Assistant General Counsel of both the Pharmaceutical and Consumer Health divisions of Warner Lambert, and earlier practiced law at Cahill, Gordon and Reindel in New York.

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Mr. Scumaci has served as our Executive Vice President, Corporate Finance and Administration since February 2001 and as our Treasurer since March 1996. In May 2007, Mr. Scumaci assumed the additional responsibility of leadership of our commercial technical operations. Mr. Scumaci served as our Senior Vice President, Finance and Administration from March 1996 to February 2001 and as our Vice President and Controller from March 1995 until March 1996. From 1987 to 1994, Mr. Scumaci was employed by Ares-Serono Group, a multinational pharmaceutical company, most recently as Vice President, Finance and Administration of North American Operations. Previously, he was associated with Revlon and Coopers & Lybrand in various finance and accounting capacities.

Mr. Southwell has served as our Executive Vice President and Chief Financial Officer since October 1995. In May 2007, Mr. Southwell assumed the additional responsibility of leadership of corporate planning, development, and licensing. Mr. Southwell served as our Senior Vice President and Chief Financial Officer from July 1994 to October 1995. From August 1988 until July 1994, Mr. Southwell was employed by Lehman Brothers Inc., a securities firm, in various positions within the investment banking division, most recently in the position of Vice President. Mr. Southwell is Chairman of the Board of BioSphere Medical, serves as a director of PTC Therapeutics, Inc. and is on the MBA Advisory Board of the Tuck School at Dartmouth College.

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PART II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

(a)   Market for Registrant's Common Equity

        Our common stock is traded on the NASDAQ Global Select Market under the symbol SEPR. On February 25, 2008, the closing price of our common stock, as reported on the NASDAQ Global Select Market, was $22.73 per share. The following table sets forth for the periods indicated the high and low sales prices per share of our common stock as reported by the NASDAQ Global Select Market and, prior to July 1, 2006, the NASDAQ National Market.

	High		Low
2008
First Quarter (through February 25, 2008)	$	30.60	$	22.41

	High		Low
2007
First Quarter	$	62.34	$	46.20
Second Quarter	$	56.64	$	40.87
Third Quarter	$	42.91	$	25.94
Fourth Quarter	$	28.24	$	22.75

	High		Low
2006
First Quarter	$	60.20	$	47.22
Second Quarter	$	60.75	$	42.29
Third Quarter	$	57.40	$	43.84
Fourth Quarter	$	62.88	$	47.74

        On February 15, 2008, we had approximately 363 stockholders of record.

(b)   Dividend Policy

        We have never paid cash dividends on our common stock. We currently intend to reinvest our future earnings, if any, for use in the business and do not expect to pay cash dividends.

(c)   Issuer Purchases of Equity Securities

None.

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Item 6. Selected Financial Data.

        The following selected financial data are derived from our financial statements. The consolidated statement of operations data for the years ended December 31, 2007, 2006 and 2005 and the consolidated balance sheet data as of December 31, 2007 and 2006 have been derived from our audited consolidated financial statements included elsewhere in this annual report on Form 10-K. The consolidated statement of operations data for the years ended December 31, 2006 and 2005 and the consolidated balance sheet data as of December 31, 2006 is derived from the audited restated consolidated financial statements, including the notes thereto, appearing elsewhere in this report. The consolidated statement of operations data for the years ended December 31, 2004 and 2003 and the consolidated balance sheet data as of December 31, 2004 and 2003 have been restated as discussed in footnote (1) of the table below. The unaudited consolidated financial statements, in the opinion of management, include all adjustments necessary for a fair statement of the results for the unaudited periods.

        The selected consolidated financial data set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Financial Statements and Supplementary Data" and the related notes included elsewhere in this annual report on Form 10-K. The historical results presented are not necessarily indicative of future results.

        See the "Explanatory Note" to this report on Form 10-K and Note U to our consolidated financial statements for more detailed information regarding the restatement of our consolidated financial statements as of December 31, 2006 and 2005 and for each of the fiscal years ended December 31, 2006 and 2005.

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SEPRACOR INC. SELECTED FINANCIAL DATA

		Year Ended December 31,
		2007			2006 (as restated)(1)			2005 (as restated)(1)			2004 (as restated)(1)			2003 (as restated)(1)
		(In Thousands, Except Per Share Data)
STATEMENT OF OPERATIONS DATA:
Revenues:
	Product sales	$	1,177,256		$	1,149,374		$	749,865		$	311,945		$	278,854
	Royalties		47,710			33,759			51,243			52,150			51,487
	License fees and other		264			—			—			8,946			5,734
Total revenues			1,225,230			1,183,133			801,108			373,041			336,075
Costs and expenses:
	Cost of revenue		117,155			104,736			67,431			35,427			30,219
	Research and development(2)		263,756			163,488			144,504			159,974			220,224
	Selling, general and administrative and patent costs		780,865			763,793			626,610			389,417			198,906
	Litigation settlement, net		34,000			—			—			—			—
	Restructuring expense		6,921			—			—			—			—
Total costs and expenses			1,202,697			1,032,017			838,545			584,818			449,349
Income (loss) from operations			22,533			151,116			(37,437	)		(211,777	)		(113,274	)
Other income (expense):
	Interest income		46,599			46,589			27,462			8,470			6,179
	Interest expense		(3,020	)		(22,166	)		(23,368	)		(23,646	)		(50,907	)
	Debt conversion expense(3)		—			—			—			(69,768	)		—
	Gain (loss) on early extinguishment of debt(4)		—			—			—			(7,022	)		(4,645	)
	Equity in investee losses(5)		(507	)		(422	)		(665	)		(1,485	)		(1,921	)
	Other		(1,002	)		(300	)		(79	)		482			157
	Gain on sale of affiliate stock(6)		—			—			18,345			—			18,524
Income (loss) before income taxes			64,603			174,817			(15,742	)		(304,746	)		(145,887	)
Income taxes			6,270			3,656			151			—			—
Net income (loss)		$	58,333		$	171,161		$	(15,893	)	$	(304,746	)	$	(145,887	)
Basic net income (loss) per common share		$	0.55		$	1.63		$	(0.15	)	$	(3.31	)	$	(1.72	)
Diluted net income (loss) per common share		$	0.50		$	1.48		$	(0.15	)	$	(3.31	)	$	(1.72	)
Shares used in computing basic and diluted net income (loss) per common share:
	Basic		106,847			104,943			104,839			92,017			84,639
	Diluted		116,364			115,508			104,839			92,017			84,639
BALANCE SHEET DATA:
Cash and short and long-term investments		$	1,065,619		$	1,166,324		$	976,201		$	833,912		$	840,388
Total assets			1,404,726			1,493,793			1,274,497			1,039,118			1,020,225
Long-term debt			648,020			721,390			1,161,587			1,161,670			1,040,789
Stockholders' equity (deficit)		$	176,413		$	40,184		$	(204,072	)	$	(349,878	)	$	(630,138	)

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(1)

See Note U, "Restatement of Financial Statements Based on Review of Government Pricing," in the Notes to Consolidated Financial Statements.

        The following table sets forth the impact of the product revenues reduction on our historical financial statements disclosed in the Sepracor Inc. Selected Financial Data table, set forth above, for the fiscal years ended December 31, 2006, 2005, and 2004 and 2003.

	Year Ended December 31,
	2006		2005			2004			2003
	(In Thousands, Except Per Share Data)
Consolidated Statement of Operations changes:
Product sales
As previously reported	$	1,162,775	$	769,685		$	319,781		$	286,819
As restated	$	1,149,374	$	749,865		$	311,945		$	278,854
Income (loss) from operations
As previously reported	$	164,517	$	(17,617	)	$	(203,941	)	$	(105,309	)
As restated	$	151,116	$	(37,437	)	$	(211,777	)	$	(113,274	)
Income (loss) before income taxes
As previously reported	$	188,218	$	4,078		$	(296,910	)	$	(137,922	)
As restated	$	174,817	$	(15,742	)	$	(304,746	)	$	(145,887	)
Net income (loss)
As previously reported	$	184,562	$	3,927		$	(296,910	)	$	(137,922	)
As restated	$	171,161	$	(15,893	)	$	(304,746	)	$	(145,887	)
Basic net income (loss) per common share
As previously reported	$	1.76	$	0.04		$	(3.23	)	$	(1.63	)
As restated	$	1.63	$	(0.15	)	$	(3.31	)	$	(1.72	)
Diluted net income (loss) per common share
As previously reported	$	1.60	$	0.03		$	(3.23	)	$	(1.63	)
As restated	$	1.48	$	(0.15	)	$	(3.31	)	$	(1.72	)

        We recorded a prior period adjustment to increase accumulated deficit as of the end of the year ended December 31, 2002 by $3.0 million for the cumulative effect of the error.

(2)

Research and development costs for 2007 include the $75.0 million upfront payment to Bial.

(3)

Represents inducement costs associated with our conversion of $177.2 million of our 0% Series A notes due 2008 and $352.0 million of our 0% Series B notes due 2010 in 2004.

(4)

Represents a loss on our redemption in 2004 of the then remaining outstanding $430.0 million principal amount of our 5.75% convertible subordinated notes due 2006, a loss on our redemption in 2003 of the remaining $111.9 million principal amount of our 7% convertible subordinated debentures due 2005 and a gain from our repurchase in 2002 of approximately $131.1 million of our 7% convertible subordinated debentures in privately negotiated transactions.

(5)

Represents our portion of BioSphere Medical, Inc. losses.

(6)

Represents a gain on the sale of approximately 688,000 and 1.2 million shares of Vicuron Pharmaceuticals Inc. common stock in 2005 and 2003, respectively.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Restatement of Prior Period Financial Information

        In January 2008, we notified CMS that we had identified potential errors in our determination of the best price used to calculate Medicaid rebate amounts in prior periods. As a follow up to this

61

disclosure to CMS, our management, with the oversight of our Audit Committee, is reviewing our government pricing activities affected by the material weakness in our internal controls related to these potential errors. We restated our financial statements for the years ended December 31, 2006 and 2005 and the unaudited quarterly information in Note T in our consolidated financial statements for the fiscal quarters ended March 31, June 30 and September 30, 2007 and 2006 to reduce the amount of product revenue earned during such periods. The amounts by which we have reduced revenues for contingent rebates were based on management's best estimates and assumptions made prior to any concurrence by CMS. These amounts may change as a result of future communications with CMS, and we cannot be certain that we have not overestimated the amount of additional rebates we may be required to pay, that the amount of any additional rebate payments or other payments we may owe will not exceed our current estimates, or that we will not be subject to fines, penalties or interest.

        The discussion and analysis set forth in this Item 7 has been amended to reflect the restatement as described in the prior paragraph, in the Explanatory Note at the beginning of this Annual Report on Form 10-K and in Note U to our consolidated financial statements. The aggregate amount by which we have reduced revenue in prior periods is approximately $60.2 million. The amount by which we have reduced revenues for the first three quarters of 2007, combined, and the fiscal years ended December 31, 2006 and 2005 is approximately $8.2 million, $13.4 million and $19.8 million, respectively. For this reason, the discussion and data set forth in this section may not be comparable to discussions and data in our previously filed reports.

Executive Overview

        We are a research-based pharmaceutical company focused on discovering, developing and commercializing differentiated products that address large and growing markets and unmet medical needs and are prescribed principally by primary care physicians and certain specialists.

        Our currently marketed products are:

•

XOPENEX® (levalbuterol HCl) Inhalation Solution, a short-acting bronchodilator, for the treatment or prevention of bronchospasm in patients six years of age and older with reversible obstructive airway disease;



•

XOPENEX HFA® (levalbuterol tartrate) Inhalation Aerosol, a hydrofluoroalkane, or HFA, metered-dose inhaler, or MDI, for the treatment or prevention of bronchospasm in adults, adolescents and children four years of age and older with reversible obstructive airway disease;



•

BROVANA® (arformoterol tartrate) Inhalation Solution, a long-acting, twice-daily (morning and evening), maintenance treatment of bronchoconstriction in patients with COPD, including chronic bronchitis and emphysema; and



•

LUNESTA® (eszopiclone) for the treatment of insomnia in adults.

        We market these products in the United States to primary care physicians, allergists, pulmonologists, pediatricians, hospitals, psychiatrists and sleep specialists, as appropriate, primarily through our sales organization comprised of approximately 1,600 sales professionals. In addition, we recently obtained from Nycomed the exclusive U.S. distribution rights to two products that have been approved by the FDA, OMNARIS AQ nasal spray and ALVESCO HFA Inhalation Aerosol, which we expect to launch commercially during 2008.

        Factors that will be critical for us in achieving near-term success include our ability to:

•

increase our LUNESTA revenues, despite increasing competition;



•

grow XOPENEX Inhalation Solution revenues outside of the Medicare market by maintaining targeted sales and marketing efforts aimed at the retail and hospital market segments. Revenues

62

from the sale of XOPENEX Inhalation Solution have been, and we expect will continue to be, adversely affected on a comparable basis as a result of restrictions on the Medicare Part B reimbursement amount for XOPENEX Inhalation Solution;

•

continue to increase our XOPENEX HFA revenues;



•

successfully market and sell BROVANA, particularly in the home health care market segment, which could be adversely affected by potential restrictions on Medicare Part B reimbursement or changes in the Medicare Part B reimbursement amount for BROVANA;



•

manage expenses effectively to help preserve profitability and positive cash flow from operations; and



•

maintain patent protection for our products, particularly for XOPENEX Inhalation Solution for which four ANDAs have been submitted to the FDA.

        We believe that success in each of these areas should allow us to continue to be profitable in the near term and provide us the ability to repay our outstanding convertible debt of $720.8 million. If not converted, repurchased at the noteholders' or our option, or otherwise refinanced earlier, the principal amount of this debt becomes due as follows:

Principal Amount of Convertible Debt	Maturity Date
$72,800,000	2008
$148,020,000	2010
$500,000,000	2024	(1)

(1)

This note may be converted into cash at the option of the noteholders at certain specified time periods, the first of which is in October 2009.

        Our long-term success depends in part on our ability to successfully develop or acquire and commercialize new product candidates.

        Our material sources of revenue in 2007 were product revenues from LUNESTA, XOPENEX Inhalation Solution and XOPENEX HFA and to a lesser extent, revenues from BROVANA and royalty revenues received from sales of ALLEGRA, CLARINEX and XYZAL/XUSAL. We expect that sales of LUNESTA and XOPENEX Inhalation Solution will represent the majority of our total revenues in 2008. We do not have long-term sales contracts with our customers and we rely on purchase orders for sales of our products. Reductions, delays or cancellations of orders for LUNESTA, XOPENEX Inhalation Solution or XOPENEX HFA could adversely affect our operating results. If sales of LUNESTA, XOPENEX Inhalation Solution, XOPENEX HFA and BROVANA do not meet our expectations, we may not have sufficient revenue to achieve our business plan and our business will not be successful.

        In 2008, we expect to be profitable for the year on an operating and net income basis. We expect sales and marketing expenses to increase as compared to 2007 as we incur increasing sales and marketing costs related to the anticipated product commercialization of OMNARIS AQ and ALVESCO HFA, including the anticipated increase in sales force capacity in order to accommodate the launch of these two products, as well as continued revenue growth in our currently marketed products. We expect to continue to invest in marketing programs related to LUNESTA, BROVANA and XOPENEX and incur significant costs related to expected OMNARIS AQ and ALVESCO HFA commercial introductions. We expect research and development expenses to increase as compared to 2007 as we continue to invest in research and development activities relating to studies for LUNESTA, XOPENEX HFA, and BROVANA, and for continued development of our earlier stage drug candidates, as well as increased drug discovery efforts and development activities for the ciclesonide pipeline. As part of our business strategy, in 2008, and in the future, we expect to consider and, as

63

appropriate, consummate acquisitions of other technologies, product candidates, approved products, and/or businesses. We can provide no assurance that we will be successful in achieving any such acquisitions.

        Significant 2008 and 2007 Developments In early 2008 and 2007, our key developments included the following:

Corporate Development & Licensing

•

In January 2008, we entered into an agreement with Nycomed for the exclusive U.S. distribution, development and commercialization in the United States, its territories and possessions of Nycomed's compound ciclesonide, and products incorporating such compound, including ALVESCO HFA Inhalation Aerosol metered-dose inhaler, for use in the treatment of asthma, and OMNARIS AQ nasal spray for use in the treatment of allergic rhinitis. Under the agreement, we paid Nycomed an upfront payment of $150.0 million in February 2008 and may be required to make subsequent payments of up to $280.0 million over the life of the agreement upon accomplishment of various development and sales milestones. Nycomed will also receive compensation for supplying finished product pursuant to the agreement, including a supply price for the products, which will be based on Nycomed's manufacturing costs plus a percentage of such costs, and quarterly royalty payments based on our net sales of the products.



•

In December 2007, we entered into a license agreement with Bial for the development and commercialization in the United States and Canada of Bial's anti-epileptic compound, BIA 2-093, which we now refer to as SEP-0002093. Pursuant to the agreement, we paid Bial an upfront payment of $75.0 million and are required to make subsequent payments upon accomplishment of various development and regulatory milestones, which could include up to an additional $100.0 million if all milestones are met. Bial will also receive compensation for providing finished product pursuant to a supply agreement that is expected to be entered into by the parties, which will be calculated as a percentage of the average net selling price for finished tablets, and milestone payments upon FDA approval of additional indications, if any.



•

In September 2007, we entered into an agreement with GSK for the development and commercialization of our eszopiclone product, which we market as LUNESTA in the United States, for all markets worldwide excluding the United States, Canada, Mexico and Japan. Our eszopiclone product will be marketed by GSK in its territory primarily as LUNIVIA brand eszopiclone for the treatment of insomnia. Under this agreement, we received an initial payment of $20 million and are entitled to receive additional payments upon accomplishment of various milestones. If all milestones are met, GSK will be obligated to pay us $155 million in aggregate license and milestone payments. We are also entitled to receive double-digit royalties that escalate upon increased product sales, and compensation for supplying the product to GSK pursuant to a supply agreement that is expected to be entered into by the parties.



•

In July 2007, we entered into an agreement with Eisai for the development and commercialization of our eszopiclone product, which we market as LUNESTA in the United States. Under this agreement, Eisai will be responsible for completing remaining clinical trials necessary for attaining marketing approval from the Japanese regulatory authorities and, contingent on obtaining regulatory approval, commercialization of the product in Japan. We received an initial milestone payment and will be entitled to receive subsequent payments upon accomplishment of various development, regulatory and pricing milestones, as well as royalties on product sales. We will also be responsible for, and will receive compensation in connection with, the manufacture and supply of bulk tablets and/or active ingredient.

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Directors & Officers

•

In December 2007, we announced that Timothy J. Barberich will retire as an executive of our company prior to May 13, 2008 and plans to serve as our advisor through December 2009. Mr. Barberich also intends to continue to serve as Chairman of our Board of Directors, contingent on his election as a director at the 2008 annual meeting of our shareholders.



•

In November 2007, Lisa Ricciardi was elected as a new member of our Board of Directors.



•

In October 2007, Mark Iwicki was elected to the newly-created position of Executive Vice President, Chief Commercial Officer.



•

In May 2007, Adrian Adams was elected to the role of President and Chief Executive Officer. Mr. Adams previously served as our President and Chief Operating Officer and assumed the Chief Executive Officer role from Mr. Barberich.



•

In March 2007, W. James O'Shea resigned as our President and Chief Operating Officer and was elected Vice Chairman. Mr. O'Shea ceased acting in this capacity on August 31, 2007. In addition, effective March 1, 2007, our board elected Adrian Adams to the positions of President and Chief Operating Officer and Andrew I. Koven to the positions of Executive Vice President, General Counsel and Corporate Secretary. The board, upon the recommendation of the nominating and corporate governance committee, also elected Mr. Adams to the Board of Directors, as a Class II director. Douglas E. Reedich, our former Senior Vice President, Legal Affairs, was employed by us through December 31, 2007 in order to ensure an orderly transition in the handling of our legal matters.

Litigation and Investigations

•

In November 2007, the SEC notified us that the investigation concerning our historical stock option granting practices had been completed and that no enforcement action was being recommended.



•

In October 2007, we reached a settlement with the parties to both the state and Federal derivative actions brought against us (as a nominal defendant) and certain of our current and former officers and directors related to certain stock option grants and alleged violations of Federal securities laws, that provided for the dismissal of both actions. The settlement resolved all claims and included no finding of wrongdoing on the part of any of the defendants and no cash payment other than attorneys' fees. As part of the settlement, we have adopted, and are in the process of completing the implementation of, stock option grant and other procedures that reflect developing best practices. The settlement became final and effective in January 2008 upon final approval by the state court and entry of dismissal with prejudice by the Federal court.



•

In October 2007, we reached a final settlement agreement with Tharos Laboratories, Inc., or Tharos, with respect to the litigation brought against us by Tharos alleging trademark infringement, dilution, unfair competition, false advertising and false designation of origin arising out of our use of our silk luna moth design in connection with LUNESTA. As a result of this settlement agreement, the case has been dismissed.



•

In June 2007, we filed in the United States District Court for the District of Massachusetts, or the Court, a Stipulation of Settlement regarding two securities class action lawsuits, or class actions, pending in the Court naming Sepracor and certain of our current and former officers and one director as defendants. The class actions, which were filed on behalf of certain purchasers of our equity and debt securities, or the plaintiffs, allege that the defendants violated the Federal securities laws by making false and misleading statements relating to the testing, safety and likelihood of approval of tecastemizole by the FDA. The Stipulation of Settlement

65

contains no admission of wrongdoing. Sepracor and the other defendants have always maintained and continue to believe that we did not engage in any wrongdoing or otherwise commit any violation of Federal or state securities laws or other laws. However, given the potential cost and burden of continued litigation, we believe the settlement was in our best interests and the best interests of our stockholders. Under the terms of the Stipulation of Settlement, in June 2007 we paid into escrow $52.5 million in settlement of the class actions and, in July 2007, received an $18.5 million reimbursement from our insurance carriers. We recorded the litigation settlement expense of $34.0 million, relating to this matter, during the quarter ended March 31, 2007. In September 2007, the Court granted final approval of the Stipulation of Settlement and entered a final judgment consistent with the Stipulation of Settlement. The settlement is now final and the total settlement amount has been released from escrow. Pursuant to the final judgment entered by the Court, the Court dismissed the class actions with prejudice, and the plaintiffs are deemed to have released all claims against us.

•

In April 2007, we were served with a Complaint filed in the United States District Court for the Southern District of New York, C.A. No. 1:07-cv-2353, by Dey, L.P. and Dey, Inc., referred to collectively as Dey, alleging that the manufacture and sale of BROVANA infringes or will induce infringement of a single U.S. patent for which Dey owns all rights, title and interest. In April 2007, we filed an Answer and Counterclaim to this Complaint seeking to invalidate the originally asserted patent and a second related patent. In May 2007, Dey filed a reply asserting infringement of the second patent. Under the current scheduling order, trial will begin no earlier than January 12, 2009.

Regulatory

•

In November 2007, we announced that CMS established a product-specific billing code, or J Code, for BROVANA under the Medicare Part B benefit, which became effective on January 1, 2008. In April 2007, we announced the commercial availability of BROVANA for the treatment of COPD.



•

In July 2007, we submitted a Marketing Authorization Application, or MAA, to the European regulatory authorities for LUNIVIA for the treatment of insomnia. Approval of the MAA, which is the European Union equivalent of a New Drug Application, or NDA, in the United States, would allow authorization to market LUNIVIA in the European Union. Pursuant to our agreement with GSK, we are responsible for supporting the MAA until final approval, or such earlier date mutually agreed upon by the parties, and GSK is responsible for supporting the MAA thereafter. We received a consolidated report from the reviewing MAA rapporteurs in December 2007 and responded to them in early 2008. Approval of the MAA is targeted for the fourth quarter of 2008.



•

In June 2007, we announced that CMS determined that, based on its interpretation of the statutory language of the Medicare Prescription Drug Improvement and Modernization Act of 2003, or MMA, it was required to discontinue the stand-alone reimbursement for XOPENEX Inhalation Solution and generic albuterol, which had been in place since January 2005, and instead calculate the reimbursement for XOPENEX Inhalation Solution and generic albuterol based on the blended weighted average selling price, or ASP, for the two products. This new reimbursement became effective on July 1, 2007. Using a blended weighted ASP for XOPENEX Inhalation Solution results in reimbursement for the product that is considerably lower than the published selling price for the product in the wholesaler distribution channel. The new reimbursement rate is subject to change quarterly based upon the respective contribution of commercial sales of XOPENEX Inhalation Solution and generic albuterol to the quarterly blended weighted ASP calculation. This quarterly ASP calculation is mandated by the MMA.

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Revenues from the sale of XOPENEX Inhalation Solution have been, and we expect will continue to be, adversely affected on a comparable basis as a result of this change.

In addition, on December 29, 2007, President Bush signed into law legislation mandating that XOPENEX Inhalation Solution and generic albuterol be reimbursed at the lower of their stand-alone weighted ASP and the blended weighted ASP for XOPENEX Inhalation Solution and generic albuterol. The effect of this legislation is that XOPENEX Inhalation Solution will continue to be reimbursed at the blended rate and generic albuterol will be reimbursed at its stand-alone weighted ASP. The legislation goes into effect on April 1, 2008.

Other Key Developments

•

In February 2008, intend to increase our sales force capacity by at least 200 sales professionals in order to accommodate the commercialization of OMNARIS AQ and ALVESCO HFA.



•

In January 2008, we notified CMS that we had identified potential errors in our determination of the best price used to calculate Medicaid rebate amounts in prior periods. As a follow up to this disclosure to CMS, our management, with the oversight of our Audit Committee, is reviewing our government pricing activities affected by the material weakness in our internal controls related to these potential errors.



•

In October 2007, we announced that we had decided to reduce our sales force by approximately 300 positions. The decision was based on our evaluation of the structure, size and allocation of our direct sales force at that time and was intended to result in cost savings in fiscal year 2008. As of December 31, 2007, this sales force reduction was completed.



•

In February 2007, we paid in full $440.0 million in aggregate principal amount of outstanding 5% convertible subordinated debentures, which matured on February 15, 2007, plus approximately $11.0 million in accrued interest.

Revenue-Related Agreements

        Fexofenadine HCl.    In July 1993, we licensed to Hoechst Marion Roussel, Inc., now sanofi-aventis (formerly Aventis), our U.S. patent rights covering fexofenadine HCl. In October 1996, Aventis commercially introduced ALLEGRA, which is fexofenadine HCl. Since March 1, 1999, we have been entitled to receive royalties on fexofenadine product sales in countries where we have patents related to fexofenadine. In February 2001, we began earning royalties on fexofenadine sales in the U.S. However, since the introduction of a generic version of ALLEGRA in the United States during the third quarter of 2005, we have ceased to earn royalties on sales of ALLEGRA in the United States. We are currently receiving royalties from sanofi-aventis for sales of ALLEGRA in Japan, Canada and Australia and in certain E.U. member states. We recorded approximately $25.2 million, $16.6 million and $36.9 million of royalty revenues under these agreements in 2007, 2006 and 2005, respectively.

        Desloratadine.    In December 1997, we licensed to Schering-Plough Corporation exclusive worldwide rights to our patents and patent applications relating to desloratadine, an active-metabolite of loratadine, which is marketed by Schering-Plough as CLARITIN. In January 2002, Schering-Plough commercially introduced CLARINEX brand desloratadine 5 mg tablets for the treatment of seasonal allergic rhinitis, or SAR, in adults and children twelve years of age and older. In February 2002, Schering-Plough received FDA approval to market CLARINEX tablets for the treatment of chronic idiopathic urticaria, or CIU, in adults and children twelve years of age and older. Under the terms of our license agreement with Schering-Plough, we are currently receiving royalties on sales of CLARINEX in countries in which we hold patents. We recorded approximately $16.5 million, $12.2 million and $9.4 million of royalty revenue under this agreement in 2007, 2006 and 2005,

67

respectively. Beginning in October 2007, the contractual royalty rate increased with respect to sales in the United States.

        Levocetirizine.    In February 2006, we entered into a license agreement with UCB S.A. relating to levocetirizine. Under this agreement, we have exclusively licensed to UCB S.A. all of our patents and patent applications in the United States regarding levocetirizine and royalties are payable to us on sales of levocetirizine products in the United States. In September 2006, UCB and sanofi-aventis announced they entered into an agreement to co-promote XYZAL in the United States. In February 2008, UCB announced that the FDA approved its NDA for XYZAL 0.5 mg/ml solution. XYZAL tablets received FDA approval in May 2007. Pursuant to our agreement with UCB Farchim S.A., we also earn royalties on sales of levocetirizine outside of the United States. Levocetirizine is currently marketed by UCB under the brand names XYZAL and XUSAL in the E.U. for treatment of symptoms of seasonal and perennial allergic rhinitis, persistent allergic rhinitis and CIU in adults and children six years of age and older. We recorded approximately $6.0 million, $5.0 million and $4.9 million of royalty revenue under the agreement with UCB in 2007, 2006 and 2005, respectively.

        Eszopiclone.    In September 2007, we entered into an agreement with GSK for the development and commercialization of our eszopiclone product, which we market as LUNESTA in the United States, for all markets worldwide excluding the United States, Canada, Mexico and Japan. Our eszopiclone product will be marketed by GSK in its territory primarily as LUNIVIA brand eszopiclone for the treatment of insomnia. Under this agreement, we received an initial payment of $20.0 million and are entitled to receive additional payments upon accomplishment of various milestones. If all milestones are met, GSK will be obligated to pay us $155.0 million in aggregate license and milestone payments. We are also entitled to receive double-digit royalties that escalate upon increased product sales, and compensation for supplying the product to GSK pursuant to a supply agreement that is expected to be entered into by the parties.

        In July 2007, we entered into an agreement with Eisai for the development and commercialization of our eszopiclone product. Under this agreement, Eisai will be responsible for completing remaining clinical trials necessary for attaining marketing approval from the Japanese regulatory authorities and, contingent on obtaining regulatory approval, commercialization of the product in Japan. We received an initial milestone payment and will be entitled to receive subsequent payments upon accomplishment of various development, regulatory and pricing milestones, as well as royalties on product sales. We will also be responsible for, and will receive compensation in connection with, the manufacture and supply of bulk tablets and/or active ingredient.

        In September 1999, we entered into an agreement with sanofi-aventis' predecessor, Rhone-Poulenc Rorer SA, under which we exclusively licensed preclinical, clinical and post-marketing surveillance data package relating to zopiclone, its isomers and metabolites, to develop, make, use and sell eszopiclone in the United States. Zopiclone is marketed by sanofi-aventis in approximately 80 countries worldwide under the brand names of IMOVANE® and AMOBAN®. Under this agreement, Rhone-Poulenc Rorer assigned all U.S. patent applications relating to (S)-zopiclone to us. Under an amended agreement, we have the right to read and reference sanofi-aventis' regulatory filings related to zopiclone outside of the United States for the purpose of development and regulatory registration of eszopiclone outside of the United States, and sanofi-aventis has assigned to us the foreign counterparts to the U.S. patent covering eszopiclone and its therapeutic use. Also as part of the amendment, we permitted sanofi-aventis to assign our obligation to pay a royalty on sales of LUNESTA in the United States to a third party.

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Results of Operations

Year Ended December 31, 2007 Compared to 2006 (Restated)

Revenues

        Product sales were $1,177.3 million in 2007 as compared with $1,149.4 million in 2006, an increase of approximately 2%.

        Sales of LUNESTA were $600.9 million in 2007, as compared to $565.4 million in 2006, an increase of approximately 6%. The increase is primarily due to a 7% increase in net selling price, which resulted from a gross price increase of approximately 13%, offset by an increase in sales discounts and allowance of approximately 5%. Units sold decreased by just under 1%. Adjustments recorded to gross sales are disclosed below under the heading "Analysis of gross sales to net sales."

        Sales of XOPENEX Inhalation Solution were $487.2 million in 2007 as compared with $543.0 million in 2006, a decrease of approximately 10%. The decrease was primarily due to units sold decreasing by approximately 4% and a decrease in net selling price of 6%. The net selling price decrease resulted from a realized gross price increase of approximately 7%, offset by an increase in sales discounts and allowances of approximately 10%. Adjustments recorded to gross sales are disclosed below under the heading "Analysis of gross sales to net sales."

        Sales of XOPENEX HFA were $74.9 million in 2007, as compared to $41.0 million in 2006, an increase of approximately 83%. The increase is primarily due to a 30% increase in net selling price, which resulted from a decrease in sales discounts and allowances and a 40% increase in units sold. Adjustments recorded to gross sales are disclosed below under the heading "Analysis of gross sales to net sales."

        Sales of BROVANA were $14.3 million in 2007, as compared to $0 in 2006. We introduced BROVANA commercially in April 2007. Adjustments recorded to gross sales are disclosed below under the heading "Analysis of gross sales to net sales."

Analysis of gross sales to net sales—The following table presents the adjustments deducted from total gross sales to arrive at total net sales:

		For the Years Ended December 31,
		2007		% of Sales		2006 (as restated)(1)		% of Sales		Change			% Change
		(Dollars in Thousands)
Gross sales		$	1,594,467	100.0	%	$	1,435,363	100.0	%	$	159,104		11	%
Adjustments to gross sales:
	Payment term discounts		31,939	2.0	%		29,264	2.0	%		2,675		9	%
	Wholesaler fee-for-service		28,629	1.8	%		42,048	2.9	%		(13,419	)	(32	)%
	Government rebates and contractual discounts		312,686	19.6	%		190,206	13.3	%		122,480		64	%
	Returns		29,606	1.9	%		20,255	1.4	%		9,351		46	%
	Other (includes product introduction discounts)		14,351	0.9	%		4,216	0.3	%		10,135		240	%
Sub-total adjustments			417,211	26.2	%		285,989	19.9	%		131,222		46	%
Net sales		$	1,177,256	73.8	%	$	1,149,374	80.1	%	$	27,882		2	%

(1)

As a result of the restatement, the 2006 dollar value of government rebates and contractual discounts increased by $13.4 million and, as a percentage of net sales, increased from 12.3% to 13.3%.

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        The increase in adjustments to gross sales as a percentage of gross sales in 2007 as compared to 2006 primarily reflects an overall increase in government and commercial rebates and discounts as a result of (i) an increase in Medicaid discounts that we offered on the sales of XOPENEX Inhalation Solution, LUNESTA, and XOPENEX HFA, (ii) an increase in discounts given through Medicare Part B program that we offered on the sales of XOPENEX Inhalation Solution as a result of the CMS bundling decision, which created a new reimbursement code for XOPENEX Inhalation Solution, (iii) an increase in managed care commercial discounts we offered on the sales of LUNESTA and XOPENEX HFA, (iv) an increase in discounts given through Medicare Part D program that we offered on the sales of LUNESTA, and (v) a decrease in XOPENEX HFA units sold under a government contract with the Veterans Administration in 2007 as compared to 2006. Returns also increased in 2007 as compared to 2006, which is primarily due to a higher rate of return of XOPENEX Inhalation Solution as a result CMS' decision to discontinue the stand-alone reimbursement for the product and also higher returns of LUNESTA, primarily in the 1mg tablets and all hospital units doses. In addition, other discounts increased as we increased the utilization of coupon programs, primarily related to XOPENEX HFA. Partially offsetting these increases in adjustments to gross sales as a percentage of gross sales was a decrease in wholesaler fee-for-service charges primarily related to credits earned due to LUNESTA and XOPENEX Inhalation Solution gross price increases during 2007.

        Royalties and license fees were $48.0 million in 2007 as compared with $33.8 million in 2006, respectively, an increase of approximately 42%.

        Royalties earned on the sales of ALLEGRA under our agreement with sanofi-aventis increased to $25.2 million in 2007 as compared to $16.6 million in 2006, an increase of approximately 52%. The increase is primarily the result of increased sales in Japan and sanofi-aventis' product commercialization of a 180 mg dosage strength of ALLEGRA.

        Royalties earned on sales of CLARINEX under our agreement with Schering-Plough increased to $16.5 million in 2007 from $12.2 million in 2006, an increase of approximately 35%. The increase is primarily the result of a contractual royalty rate increase that took effect in October 2007.

        Royalties earned on sales of XYZAL/XUSAL under our agreement with UCB increased to $6.0 million in 2007 as compared to $5.0 million in 2006, an increase of approximately 21%.

        License fees recognized on our GSK and Eisai agreements for the development and commercialization of our eszopiclone product, which we entered into in the second half 2007, were $264,000 in 2007 as compared to $0 in 2006.

        A number of our foreign patents that we have out-licensed to Schering-Plough, sanofi-aventis and UCB in connection with the sale of CLARINEX, ALLEGRA and XYZAL/XUSAL, respectively, are subject to patent invalidity claims. If patent-based exclusivity is lost for one or more of these products in any foreign jurisdiction, our rights to receive royalty revenue with respect to such product in the relevant jurisdiction will terminate, which may have a material adverse effect on our business, financial condition and results of operations.

Costs of Revenues

        Cost of products sold was $115.8 million in 2007 as compared with $103.8 million in 2006, an increase of approximately 12%.

        Cost of LUNESTA sold as a percentage of LUNESTA gross sales was approximately 6% in 2007 and 2006, principally due to royalties we pay to a third party on net sales of LUNESTA.

        Cost of XOPENEX Inhalation Solution sold as a percentage of XOPENEX Inhalation Solution gross sales was approximately 7% in 2007 and 2006.

        Cost of XOPENEX HFA sold as a percentage of XOPENEX HFA gross sales was approximately 15% in 2007 and 2006. Included in the costs of XOPENEX HFA sold is a royalty paid on net sales of XOPENEX HFA to 3M, our third-party finished goods manufacturer of the product.

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        Cost of BROVANA sold as a percentage of BROVANA gross sales was approximately 15% in 2007. We introduced BROVANA commercially in April 2007.

        Cost of royalties earned was $1.3 million for 2007, compared with $1.0 million for 2006. The cost of royalties in both periods relates to an obligation to a third party as a result of royalties we earn from Schering-Plough based on its sales of CLARINEX. This increase in obligations to the third party is due to the increase in royalties earned in 2007 as compared to 2006.

Research and Development

        Research and development expenses were $263.8 million in 2007 as compared to $163.5 million in 2006, an increase of approximately 61%. The increase is primarily due to the $75.0 million fee we paid to Bial pursuant to the license agreement for BIA 2-093, which we now refer to as SEP 0002093, increased spending on two of our early stage programs, SEP-227162 and SEP-225441, the LUNESTA Phase IIIb/IV and pediatric programs and increased drug discovery efforts.

        In 2008, we intend to significantly increase research and development expenditures over 2007. We expect our principal research and development activities will relate to the following programs; (1) drug discovery; (2) LUNESTA; (3) SEP-225441; (4) ciclesonide pipeline; (5) SEP-225289; and (6) SEP-0002093.

        Drug development and approval in the United States is a multi-step process regulated by the FDA. The process begins with the filing of an IND which, if successful, allows the opportunity for study in humans, or clinical study, of the potential new drug. Clinical development typically involves three phases of study: Phase I, II and III. The most significant costs in clinical development are in Phase III clinical trials, as they tend to be the longest and largest studies in the drug development process. Following successful completion of Phase III clinical trials, an NDA must be submitted to, and accepted by, the FDA, and the FDA must approve the NDA prior to commercialization of the drug. We may elect either on our own, or at the request of the FDA, to conduct further studies that are referred to as Phase IIIB and IV studies. Phase IIIB studies are initiated and either completed or substantially completed while the NDA is under FDA review. These studies are conducted under an IND. Phase IV studies, also referred to as post-marketing studies, are studies that are initiated and conducted after the FDA has approved a product for marketing. Phase IV studies may be requested by the FDA either before or after the FDA has approved an NDA. These studies may also be independently initiated by the company whose NDA has been approved. The FDA uses post-marketing studies to gather additional information about a product's safety, efficacy or optimal use. Successful development of our product candidates is highly uncertain. Completion dates and completion costs can vary significantly for each product candidate and are difficult to predict. The lengthy process of seeking FDA approvals, and subsequent compliance with applicable statutes and regulations, require the expenditure of substantial resources. Any failure by us to obtain, or delay in obtaining, regulatory approvals could materially adversely affect our business. We cannot assure you that we will obtain any approval required by the FDA on a timely basis, if at all.

        For additional discussion of the risks and uncertainties associated with completing development of potential product candidates, see "Risk Factors".

        Below is a summary of development of our products and product candidates that represent 10% or more of our direct project research and development spending for the year ended December 31, 2007. The "Estimate of Completion of Phase" column contains forward-looking statements regarding expected timing of completion of product development phases. Completion of product development, if successful, culminates in the submission of an NDA to the FDA; however, there can be no assurance that the FDA will accept for filing, or approve, any NDA. The actual timing of completion of phases could differ materially from the estimates provided in the table. In the table below, the three FDA-approved products and two product candidates listed accounted for approximately 81% of our

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direct project research and development spending in 2007. No other product candidate accounted for more than 9% of our direct research and development spending in 2007.

Product or Product Candidate	Indication	Phase of Development	Estimate of Completion of Phase
LUNESTA (eszopiclone)	Insomnia	*	*
XOPENEX HFA (levalbuterol tartrate)	Respiratory—Asthma	**	**
BROVANA (arformoterol tartrate)	Respiratory—COPD	***	***
SEP-225289	Depression	Phase II	2008
SEP-227162	Depression	Phase I	2008

*

We commercially introduced LUNESTA in April 2005.

**

We commercially introduced XOPENEX HFA in December 2005.

***

We commercially introduced BROVANA in April 2007.

        Below is a summary of expenditure information related to our products and product candidates representing 10% or more of our direct project research and development spending during the year ended December 31, 2007 and 2006, as well as the costs incurred to date on these projects. The costs in this analysis include only direct costs and do not include certain indirect labor, overhead, share-based compensation, up-front license fees, milestone payments, or other costs that benefit multiple projects. As a result, fully-loaded research and development cost summaries by project are not presented.

	Project costs for the year ended December 31, 2007		Project costs through December 31, 2007		Project costs for the year ended December 31, 2006		Project costs through December 31, 2006
	(In Thousands)
LUNESTA (eszopiclone)	$	25,074	$	245,097	$	20,301	$	220,023
XOPENEX HFA (levalbuterol tartrate)		6,209		175,507		12,507		169,298
BROVANA (arformoterol tartrate)		14,837		188,768		12,353		173,931
SEP-225289		11,083		24,193		9,041		13,110
SEP-227162		12,844		20,984		6,394		8,140

        Due to the length of time necessary to develop a product, uncertainties related to the ability to obtain governmental approval for commercialization, and difficulty in estimating costs of projects, we do not believe it is possible to make accurate and meaningful estimates, with any degree of accuracy, of the ultimate cost to bring our product candidates to FDA approved status.

Selling, Marketing and Distribution

        Selling, marketing and distribution expenses were $699.3 million in 2007 as compared with $691.7 million in 2006, an increase of approximately 1%. The increase is primarily attributable to an increase in salary and other compensation related expense as a result of hiring additional sales representatives and management in the second quarter of 2006 to support our marketed products, in addition to increased costs associated with our April 2007 commercialization of BROVANA. These increases were offset by a decrease in marketing, advertising and promotional expenses primarily related to costs to support LUNESTA.

        In 2008, we expect sales and marketing expenses to increase over 2007 as a result of the expected commercial introduction of OMNARIS AQ in the first half of 2008 and the expected commercial introduction of ALVESCO HFA in the second half of 2008, offsetting any anticipated 2008 savings from the restructuring of the sales force in the fourth quarter of 2007.

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General and Administrative

        General and administrative costs were $81.5 million in 2007 as compared with $72.1 million in 2006, an increase of approximately 13%. The increase is largely due to an increase in legal fees of approximately $8.7 million related to patent support and litigation costs.

Litigation Settlement

        Litigation settlement expense was $34.0 million in 2007 compared with $0 in 2006. In June 2007, we filed in the Court a Stipulation of Settlement regarding two class actions pending in the Court naming Sepracor and certain of our current and former officers and one director as defendants. As previously disclosed, the class actions alleged that the defendants violated the Federal securities laws by making false and misleading statements relating to the testing, safety and likelihood of approval of tecastemizole by the FDA. Under the terms of the Stipulation of Settlement, in June 2007, we paid into escrow $52.5 million in settlement of the class actions and, in July 2007, received an $18.5 million reimbursement from our insurance carriers. The settlement is now final and the total settlement amount has been released from escrow. We recorded the litigation settlement expense of $34.0 million relating to this matter during the quarter ended March 31, 2007.

Restructuring Expense

        Restructuring expense was $6.9 million in 2007 compared to $0 in 2006. During the quarter ended December 31, 2007, we completed an evaluation of our sales force structure, size and allocation in an attempt to maximize efficiency of our sales force. This evaluation resulted in a decision to restructure and re-align our sales force. The costs associated with the restructuring were employee related items primarily relating to severance costs for $6.5 million and contract terminations on excess leased computer equipment and company cars for $428,000. All associated costs are expected to be paid by the end of the second quarter of 2008.

Other Income (Expense)

        Interest income was $46.6 million in both 2007 and 2006. Our monthly average cash and investment balance was approximately $918.0 million and $990.2 million for the years ended December 31, 2007 and 2006, respectively. For 2007 and 2006, the average annualized interest rate that we earned on our investments was 5.1% and 4.7%, respectively.

        Interest expense was $3.0 million in 2007 as compared with $22.2 million in 2006. The expense in both periods is primarily related to the interest we paid on our 5% convertible subordinated debentures due 2007, which were paid in full in February 2007.

        Equity in investee losses were $507,000 in 2007 as compared with $422,000 in 2006. The equity in investee loss in 2007 and 2006 represents our portion of the losses of BioSphere Medical, Inc.

Income Taxes

        Income tax expense was $6.3 million in 2007 as compared to $3.7 million in 2006. Income tax expense in 2007 and 2006 includes Federal and state alternative minimum tax, or AMT, state income taxes and foreign income tax in 2007. Although we had Federal and state tax net operating loss carryforwards as of December 31, 2007 and 2006, the utilization of these loss carryforwards is limited in the calculation of AMT. The possible adverse impact to our XOPENEX Inhalation Solution sales if an "at risk" generic launch were to occur or we are unable to successfully defend our patents rights and increased sales and marketing expenses as a result of the expected commercial introduction of OMNARIS AQ in the first half of 2008 and the expected commercial introduction of ALVESCO HFA in the second half of 2008, management continues to conclude a valuation allowance is required for the full amount of our deferred tax asset. If in the future, we determine based on our future profitability, that these deferred tax assets are more likely than not to be realized, a release of all, or part, of the

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related valuation allowance could result in an immediate material income tax benefit in the period of decrease and material income tax provisions in future periods. Such release of the valuation allowance could occur within the next 12 months upon resolution of the aforementioned uncertainties.

Year Ended December 31, 2006 (Restated) Compared to 2005 (Restated)

Revenues

        Product sales were $1,149.4 million in 2006 as compared with $749.9 million in 2005, an increase of approximately 53%.

        Sales of LUNESTA were $565.4 million in 2006 as compared to $327.1 million in 2005, an increase of approximately 73%. The increase is primarily the result of a 65% increase in the number of units sold, which is principally attributable to twelve months of sales in 2006 as compared to nine months of sales in 2005. The increase is also related to a 5% increase in net selling price, which resulted from a gross sale price increase of approximately 11%, offset by sales discounts and allowances. Adjustments recorded to gross sales are disclosed below under the heading "Analysis of gross sales to net sales."

        Sales of XOPENEX Inhalation Solution were $543.0 million in 2006 as compared with $410.8 million in 2005, an increase of approximately 32%. The increase is primarily due to a 13% increase in the number of units sold and a 17% increase in the net selling price per unit, which included a weighted average gross per unit price increase of approximately 8%. Adjustments recorded to gross sales are disclosed below under the heading "Analysis of gross sales to net sales."

        Sales of XOPENEX HFA were $41.0 million in 2006 as compared to $12.0 million in 2005, an increase of approximately 243%. We introduced XOPENEX HFA commercially in December 2005 and our XOPENEX HFA revenues in 2005 relate primarily to initial inventory stocking by the wholesalers.

Analysis of gross sales to net sales—The following table presents the adjustments deducted from total gross sales to arrive at total net sales:

		For the Year Ended December 31,
		2006 (as restated)(1)		% of Sales		2005 (as restated)(2)		% of Sales		Change			% Change
		(Dollars in Thousands)
Gross sales		$	1,435,363	100.0	%	$	910,550	100.0	%	$	524,813		58	%
Adjustments to gross sales:
	Payment term discounts		29,264	2.0	%		17,589	1.9	%		11,675		66	%
	Wholesaler fee-for-service		42,048	2.9	%		15,817	1.7	%		26,231		166	%
	Government rebates and contractual discounts		190,206	13.3	%		102,610	11.3	%		87,596		85	%
	Returns		20,255	1.4	%		21,830	2.4	%		(1,575	)	(7	)%
	Other (includes product introduction discounts)		4,216	0.3	%		2,839	0.3	%		1,377		49	%
Sub-total adjustments			285,989	19.9	%		160,685	17.6	%		125,304		78	%
Net sales		$	1,149,374	80.1	%	$	749,865	82.4	%	$	399,509		53	%

(1)

For 2006, as a result of the restatement, the dollar value of government rebates and contractual discounts increased by $13.4 million and, as a percentage of net sales, increased from 12.3% to 13.3%.

(2)

For 2005, as a result of the restatement, the dollar value of government rebates and contractual discounts increased by $19.8 million and, as a percentage of net sales, increased from 9.1% to 11.3%.

        The increase in adjustments to gross sales as a percentage of gross sales in 2006 as compared to 2005 primarily reflected an increase in government rebates and contractual discounts as a result of

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(1) an increase in discounts we offered primarily on the sales XOPENEX HFA, which was commercially introduced in December 2005; (2) an increase in discounts offered to managed care organizations; and (3) an increase in discounts given through Medicare and Medicaid programs. Wholesaler fee-for-service discounts also increased in 2006 as compared to 2005, as these discounts did not commence until the second quarter of 2005. Offsetting these increases in adjustments to gross sales as a percentage of gross sales were (1) a decrease in government rebates and contractual discounts due to a reversal of reserves relating to rebates under the Department of Veterans Affairs TRICARE Pharmacy Benefits Program, which was based on a U.S. Federal Court of Appeals ruling in September 2006 that pharmaceutical manufacturers are not required to provide reimbursement for drugs purchased through the TRICARE Program; and (2) a decrease in sales returns primarily due to a decrease in actual returns for XOPENEX Inhalation Solution and the weighting of LUNESTA returns which are estimated at a lower rate.

        Royalties were $33.8 million in 2006 as compared with $51.2 million in 2005, respectively, a decrease of approximately 34%. The decrease is primarily due to the decrease in royalties earned on the sales of ALLEGRA under our agreement with sanofi-aventis, which were $16.6 million in 2006 as compared to $36.9 million in 2005, primarily because we ceased to receive royalties on sales of ALLEGRA in the United States beginning in late 2005. Pursuant to the terms of our U.S. agreement with sanofi-aventis, our royalties on the sale of ALLEGRA in the United States, which have historically been between $15 and $20 million per year, terminated based on the introduction of a generic equivalent of this product in the United States in September 2005. We are still entitled to receive royalties on the sale of ALLEGRA outside of the United States in countries where we hold patents covering ALLEGRA and no generic equivalent product has been introduced.

        Royalties earned on sales of CLARINEX under our agreement with Schering-Plough increased to $12.2 million in 2006 from $9.4 million in 2005. In August 2006, we were notified that several ANDAs containing Paragraph IV certifications had been received by the FDA seeking approval of generic versions of certain of Schering-Plough's CLARINEX products. If and while a generic version of a CLARINEX product is marketed in the United States without Schering-Plough's consent, Schering-Plough will have no obligation to pay royalties to us on the U.S. sales of CLARINEX products.

        Royalties earned on sales of XYZAL/XUSAL under our agreement with UCB increased slightly to $5.0 million in 2006, as compared to $4.9 million in 2005.

Costs of Revenues

        Cost of products sold was $103.8 million in 2006 as compared with $66.7 million in 2005, or approximately 7% of gross product sales for both 2006 and 2005.

        Cost of LUNESTA sold as a percentage of LUNESTA gross sales was approximately 6% in 2006 and 2005, principally due to royalties we pay to a third party on net sales of LUNESTA.

        Cost of XOPENEX Inhalation Solution sold as a percentage of XOPENEX Inhalation Solution gross sales was approximately 7% in 2006, as compared with 8% in 2005. The decrease in the cost as a percentage of gross sales is primarily due to a gross sales price increase in 2006.

        Cost of XOPENEX HFA sold as a percentage of XOPENEX HFA gross sales was approximately 15% in 2006 compared to 11% in 2005. Included in the costs of XOPENEX HFA sold is a royalty paid on net sales of XOPENEX HFA to 3M, our third-party finished goods manufacturer of the product. We commercially introduced XOPENEX HFA in December 2005. The increase in the cost as a percentage of gross sales is primarily due to an increase in the cost of materials used in manufacturing.

        Cost of royalties earned was $976,000 for 2006, compared with $749,000 in 2005. The cost of royalties in both periods relates to an obligation to a third party as a result of royalties we earn from Schering-Plough based on its sales of CLARINEX. This increase in obligations to the third party is due to the increase in royalties earned in 2006 as compared to 2005.

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Research and Development

        Research and development expenses were $163.5 million in 2006 as compared to $144.5 million in 2005, an increase of approximately 13%. The increase is primarily due to our increased spending on two of our early-stage projects, SEP-225289 and SEP-227162, the LUNESTA Phase IIIB/IV projects, and drug discovery efforts. In addition, we experienced a $15.0 million increase in non-project specific personnel-related expense, which includes stock-based compensation expense of $11.0 million in 2006, resulting from our January 1, 2006 implementation of Statement of Financial Accounting Standards, or SFAS, No. 123(R), Share-Based Payment, (revised 2004), or SFAS 123(R), as compared to $0 in 2005. Offsetting these increases to research and development expenses, was a reduction to project spending on XOPENEX HFA and BROVANA in 2006 as compared to 2005.

        Below is a summary of development of our products and product candidates that represent 10% or more of our direct project research and development spending for the year ended December 31, 2006. The "Estimate of Completion of Phase" column contains forward-looking statements regarding expected timing of completion of product development phases. Completion of product development, if successful, culminates in the submission of an NDA to the FDA; however, there can be no assurance that the FDA will accept for filing, or approve, any NDA. The actual timing of completion of phases could differ materially from the estimates provided in the table. In the table below, the three FDA-approved products and two product candidates listed accounted for approximately 94% of our direct project research and development spending in 2006. No other product candidate accounted for more than 4% of our direct research and development spending in 2006.

Product or Product Candidate	Indication	Phase of Development	Estimate of Completion of Phase
LUNESTA (eszopiclone)	Insomnia	*	*
XOPENEX HFA (levalbuterol tartrate)	Respiratory—Asthma	**	**
BROVANA (arformoterol tartrate)	Respiratory—COPD	NDA Approved	***
SEP-225289	Depression	Phase I	2007
SEP-227162	Depression	Phase I	2007

*

We commercially introduced LUNESTA in April 2005; research and development spending in 2006 relates to Phase IV clinical studies.

**

We commercially introduced XOPENEX HFA in December 2005; research and development spending in 2006 relates to Phase IV clinical studies.

***

The FDA approved our BROVANA NDA in October 2006. We commercially introduced BROVANA in April 2007.

        Below is a summary of expenditure information related to our products and product candidates representing 10% or more of our direct project research and development spending during the year ended December 31, 2006 and 2005, as well as the costs incurred to date on these projects. The costs in this analysis include only direct costs and do not include certain indirect labor, overhead, share-based

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compensation, up-front license fees, milestone payments, or other costs that benefit multiple projects. As a result, fully-loaded research and development cost summaries by project are not presented.

	Project costs for the year ended December 31, 2006		Project costs through December 31, 2006		Project costs for the year ended December 31, 2005		Project costs through December 31, 2005
	(In Thousands)
LUNESTA (eszopiclone)	$	20,301	$	220,023	$	16,159	$	199,722
XOPENEX HFA (levalbuterol tartrate)		12,507		169,298		24,094		156,791
BROVANA (arformoterol tartrate)		12,353		173,931		18,059		161,578
SEP-225289		9,041		13,110		3,951		4,069
SEP-227162		6,394		8,140		1,746		1,746

Selling, Marketing and Distribution

        Selling, marketing and distribution expenses were $691.7 million in 2006 as compared with $585.8 million in 2005, an increase of approximately 18%. The increase is primarily related to a $43.3 million increase in personnel-related expense, which included 1) an increase in salaries as a result of hiring additional sales representatives and management to support marketed products and 2) an increase in stock-based compensation expense of $15.2 million in 2006 over 2005, as a result of our January 1, 2006 implementation of SFAS 123(R), which were offset by a decrease in commission expense as a result of lower commission level achievement in 2006 as compared to 2005. In addition to the personnel-related expense increase, we incurred a $27.0 million increase in marketing, advertising and promotion costs primarily in support of LUNESTA.

General and Administrative

        General and administrative costs were $72.1 million in 2006 as compared with $40.8 million in 2005, an increase of approximately 77%. The increase is largely due to a $22.8 million increase in personnel-related costs, which is primarily attributable to a $17.5 million increase in stock-based compensation expense over 2005 as a result of our January 1, 2006 implementation of SFAS 123(R). The increase was also partly due to a $16.5 million increase in legal fees related to patent support and litigation and shareholder lawsuit-related costs, as well as expense associated with responding to the SEC's informal inquiry into our stock option grants and practices and the related internal investigation.

Other Income (Expense)

        Interest income was $46.6 million in 2006 as compared to $27.5 million in 2005, an increase of approximately 70%. The increase is due to higher average balances of cash and short- and long-term investments combined with an increase in the interest rates earned on investments in 2006. Our monthly average cash and investment balance was approximately $990.2 million and $868.6 million for the years ended December 31, 2006 and 2005, respectively. For 2006 and 2005, the average annualized interest rate that we earned on our investments was 4.7% and 3.2%, respectively.

        Interest expense was $22.2 million in 2006 as compared with $23.4 million in 2005. The expense in both periods is primarily related to the interest we paid on our 5% convertible subordinated debentures due 2007, which were paid in full in February 2007.

        Equity in investee losses were $422,000 in 2006 as compared with $665,000 in 2005. The equity in investee loss in 2006 and 2005 represents our portion of the losses of BioSphere Medical, Inc.

        Gain on sale of equity investment was $0 in 2006 as compared with $18.3 million in 2005. The gain in 2005 represents the gain we recorded when we received cash in exchange for our shares of Vicuron Pharmaceuticals, Inc., or Vicuron, in connection with the merger of Pfizer and Vicuron in September 2005.

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Income Taxes

        Income tax expense was $3.7 million in 2006 as compared to $151,000 in 2005. Income tax expense in 2006 includes Federal and state AMT expense. Income tax expense in 2005 includes state tax expense and foreign income tax expense. Fiscal year 2006 was the first time we generated income from operations and, therefore we will continue to maintain a full valuation allowance on our deferred tax assets until profitability has been sustained over an appropriate time period and in amounts that are sufficient to support a conclusion that it is more likely than not that a portion or all of the deferred tax assets will be realized. If we determine, based on future profitability, that these deferred tax assets are more likely than not to be realized, a release of all, or part, of the related valuation allowance could result in an immediate material income tax benefit in the period of decrease and material income tax provisions in future periods.

Critical Accounting Policies

        In December 2001, the SEC requested that all registrants discuss their most "critical accounting policies" in management's discussion and analysis of financial condition and results of operations. The SEC indicated that a "critical accounting policy" is one which is both important to the portrayal of a company's financial condition and results and requires management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. While our significant accounting policies are more fully described in Note B to our consolidated financial statements included in this report, we believe the following accounting policies are critical:

        Product Revenue Recognition:    We recognize revenue from product sales, upon delivery, when title to product and associated risk of loss has passed to the customer and collectability is reasonably assured. We record revenues from product sales net of applicable allowances for returns, rebates and other applicable discounts and allowances.

        The timing of product shipments and receipts can have a significant impact on the amount of revenue recognized in a period. Also, the majority of our products are sold through distributors. Revenue could be adversely affected if distributor inventories increased to an excessive level. If this were to happen, we could experience reduced purchases in subsequent periods, or product returns from the distribution channel due to overstocking, low end-user demand or product expiration. We have invested in resources to track channel inventories in order to prevent distributor inventories from increasing to excessive levels. If we determine that distributor inventories are at excessive levels, we do not recognize revenue for those shipments that we believe represent excessive inventory.

Revenue Recognition, Multiple Element Arrangements—We have entered into collaborative agreements with other pharmaceutical companies for the development and commercialization of our eszopiclone product outside of the United States, Canada and Mexico. These agreements are in the form of license agreements that call for nonrefundable upfront payments, milestone payments on achieving significant milestones, and royalty payments on sales if and when the compound receives marketing approval.

        Our revenue recognition policy for all multiple revenue-generating arrangements are in accordance with the guidance provided in the SEC's Staff Accounting Bulletin, or SAB, No. 101, Revenue Recognition in Financial Statements, as amended by SAB No. 104, Revenue Recognition, and Emerging Issues Task Force, or EITF, Issue No. 00-21, Revenue Arrangements with Multiple Deliverables.

        Royalty Revenue Recognition:    Royalty revenue is recognized based upon estimates of sales in licensed territories in the period in which the sales occur. These estimates are derived when possible from information from the company paying the royalty, or from historical data and third-party prescription data. Changes in market conditions, such as the introduction of competitive products, can lead to significant deviations from historical patterns and therefore cause estimates to be inaccurate. When estimates differ from actual results, the difference is recognized in the following quarter,

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provided the difference is not material to the results of either quarter. Historically, our estimates have not materially differed from our actual results.

        Product Sales Allowances and Reserves:    We record product sales net of the following significant categories of product sales allowances: payment term discounts, wholesaler fee-for-service discounts, government rebates and contractual discounts (includes Medicaid discounts, Medicare discounts, managed care discounts, chargebacks and group purchasing organization, or GPO, contract discounts), returns and other discounts. Calculating each of these items involves significant estimates and judgments and requires us to use information from external sources. Based on known market events and trends, internal and external historical trends, third party data, customer buying patterns and up-to-date knowledge of contractual and statutory requirements, we are able to make reasonable estimates of sales discounts.

        1)    Payment Term Discounts—We offer our direct purchase customers a 2% prompt-pay cash discount as an incentive to remit payment within the first thirty days after the date of the invoice. Prompt-pay discount calculations are based on the gross amount of each invoice. We account for these discounts by reducing sales by the 2% discount amount when product is sold, and apply earned cash discounts at the time of payment. Since we began selling our products commercially in 1999, our customers have routinely taken advantage of this discount. Based on common industry practices and our customers' overall payment performance, we accrue for cash discounts on product sales recorded during the period. We adjust the accrual to reflect actual experience as necessary, and historical adjustments have not been material. Based on our history of estimating payment term discounts and the low dollar exposure, we do not anticipate that changes to estimates will have a material impact on net sales.

        2)    Wholesaler Fee- for-Service Discounts—In both 2007 and 2006, we entered into agreements with certain wholesaler customers that provide these wholesalers with the opportunity to earn discounts in exchange for the performance of certain services. Our effective rate of wholesaler fee-for-service discounts applied across all product gross sales in 2007 was approximately 1.8% as compared to 2.9% in 2006. Our accruals for wholesaler fee-for-service discounts are based on actual data of product sales made to wholesale customers with agreements and not on estimates. If the percentage of gross sales sold to wholesalers with agreements increases, our liability related to these discounts could increase materially.

        3)    Government Rebates and Contractual Discounts—

Medicaid Discounts—We record accruals for rebates to be provided through the Medicaid Drug Rebate Program as a reduction of sales when the product is sold. We rebate individual states for all eligible units purchased under the Medicaid program based on a rebate per unit calculation, which is driven off of our Average Manufacturer Price, or AMP. We estimate the expected rebate per unit to be used and adjust our rebate accruals based on expected changes in rebate pricing. We also examine the historical rebate trends and the trend of sales that become eligible for Medicaid programs and any changes expected to these trends. In addition, certain states have supplemental rebate programs, which provide such states with an additional rebate. Supplemental rebates, like rebates under the Medicaid Drug Rebate Program, are recorded as a reduction of sales when the product is sold. Rebate amounts are generally invoiced quarterly in arrears and paid thirty days after they are invoiced. As a result, our accrual consists of: (i) an estimate of the amount expected to be incurred for the current quarter's prescriptions; (ii) an accrual for prior quarters' unpaid rebates; and (iii) an accrual for estimated inventory in the distribution channel.

        We recorded a provision for Medicaid rebates of 9.1% and 6.1% of gross sales in 2007 and 2006, respectively. The increase is attributable to an increase in Medicaid discounts that we offered on the sales of XOPENEX Inhalation Solution, LUNESTA, and XOPENEX HFA. The increase is also the result of a Medicaid reserve reversal in 2006 relating to a 2005 estimate. Actual Medicaid discounts could exceed historical experience and our estimates of expected Medicaid activity and rebate-per-unit

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amounts. The most significant estimate we make in connection with this accrual is the estimate of the number of Medicaid-eligible units in the distribution channel. With the exception of the best price matters described in more detail in the "Explanatory Note" to this report on Form 10-K and notes to our consolidated financial statements included herein, our estimates have been approximately 90% accurate in recent quarters. Although the actual Medicaid rebate may vary by more than -10% of the estimated eligible Medicaid units in future periods, we believe, based on prior experience, a -10% variation in our estimate is reasonably likely. A 10% understatement of Medicaid-eligible units at December 31, 2007 would have resulted in an additional provision of approximately $4.4 million.

Medicare Discounts—Part B—We record accruals for rebates to be provided through Medicare Part B programs, as a reduction of sales when the product is sold. We established a Medicare Part B rebate program in order to increase the access by Medicare Part B beneficiaries to our XOPENEX Inhalation Solution product through Medicare Part B pharmacy providers, or MPPs. We estimate the expected rebate using historical data and by examining trends and expected changes in Medicare Part B codes. Medicare Part B payments are paid to MPPs primarily on a monthly basis. Accordingly, the provision typically relates to the activity over a one-month period and, as a result, the total provision consists of: (i) an estimate of the amount expected to be incurred for the current month's prescriptions; (ii) an accrual for prior months' unpaid rebates; and (iii) an accrual for estimated inventory in the distribution channel.

Medicare Discounts—Part D—Effective January 1, 2006, Medicare created a prescription drug benefit for its beneficiaries known as Medicare Part D. The CMS contracted with numerous health plans and prescription drug benefit plans to design and administer the drug benefit, including the development of a formulary (which defines which products are covered and at what co-pay level). We pay rebates to certain Medicare Part D health plans and prescription drug plans on the utilization of LUNESTA, XOPENEX Inhalation Solution, XOPENEX HFA and BROVANA. XOPENEX Inhalation Solution has been, and we expect that it will remain, subject to reimbursement under Medicare Part B resulting in minimal Medicare Part D utilization. Our accruals for Medicare Part D are estimated based on projected sales volumes through the contracted health and drug plans.

        The provision for both Medicare rebates was 4.9% of gross sales in 2007 and 1.4% in 2006. Actual Medicare discounts could change significantly in the future based on future Medicare reimbursement classifications.

        Medicare rebates at our current reimbursement levels represent an immaterial amount of sales rebates. Based on the accuracy of estimates and the small dollar amounts involved, we do not expect changes in estimates to have a material impact on net sales.

Managed Care Discounts—We have entered into agreements with certain MCOs whereby we provide agreed upon discounts to such entities based on the achievement of sales volume and/or market share purchasing targets. We record accruals for these discounts as a reduction of sales when product is sold based on discount rates and expected levels of sales volumes of these MCOs during a period. We estimate eligible sales based on historical amounts and sales trends and expected changes to these trends. Discounts are generally invoiced and paid quarterly in arrears. Accordingly, our accrual consists of: (i) the amount expected to be incurred for the current quarter's prescriptions, (ii) an accrual for prior quarters unpaid discounts; and (iii) an accrual for estimated inventory in the distribution channel.

        The provision for MCO rebates was approximately 3.3% and 1.7% of gross sales in 2007 and 2006, respectively. Actual MCO discounts could exceed historical experience and our estimates of expected future participation in these programs. However, in part due to the fact that only a few organizations currently account for approximately 90% of our MCO discounts, our MCO discount estimates have historically been very similar to the actual MCO discounts. We expect that a small number of organizations will continue to account for substantially all of our MCO discounts for the foreseeable

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future and, therefore, do not expect significant changes to our MCO discount estimates in future periods.

Chargebacks and GPO Contract Discounts—We have entered into agreements with certain GPOs in which their members can purchase product from our wholesalers at a specified price. GPOs are organizations that represent a group of end buyers in the purchase of goods. These agreements involve the wholesalers who receive a stated margin on sales to GPOs. When the difference between the wholesaler's purchase price and the GPO's price creates a margin less than the amount agreed between us and the wholesaler, the wholesaler requests a credit, which is referred to as a chargeback. We record accruals for these discounts as a reduction of sales when product is sold. We estimate eligible sales based on a history of the average actual chargebacks and an average of the chargeback cycle time, which is the time from when a wholesaler sells to a GPO until we issue a credit to the wholesaler. We examine the history of sales which qualify for chargebacks and monitor sales trends and contractual changes. Our accrual consists of the amount expected to be incurred for the current sales in the calculated chargeback cycle, plus an accrual for estimated inventory in the distribution channel.

        The provision for chargebacks and GPO contract credits was approximately 2.4% and 4.5% of gross sales in 2007 and 2006, respectively. The decrease is primarily due to a decrease in XOPENEX HFA units sold under a government contract with the Veterans Administration in 2007 as compared to 2006. Actual chargeback and GPO contract credits could exceed historical experience and our estimates of future participation in these programs. However, over the past few years, chargeback activity has been fairly stable with the exception of XOPENEX HFA, which currently has a limited number of chargeback contracts. Therefore, we do not expect significant variation between actual chargeback and GPO credits and our estimates.

        4)    Returns—Customers can return short-dated or expired product that meets the guidelines set forth in our returned goods policy. Product shelf-life from the date of manufacture for XOPENEX Inhalation Solution is 15 months, XOPENEX HFA is 21 months, LUNESTA is 15-24 months and BROVANA is 18 months. Returns are accepted from wholesalers and retail pharmacies. Customers can return product with six months or less of shelf life remaining and expired product within twelve months following the expiration date. We record an estimate for returns as reductions of revenue at the time product sales are recorded. We base our estimates of product returns on the percentage of returns that we have experienced historically, on a historical aging of the average time a return occurs from the time the product was sold and on key analytical measures such as the percentage of the outstanding pipeline covered by the returns reserve. For products with insufficient return history, we estimate by examining data of similar drugs. For example, with LUNESTA, we researched industry data on return patterns of widely prescribed insomnia drugs. We may adjust our estimate of product returns if we are aware of other factors that we believe could significantly impact our expected return percentages. These factors include our estimate of inventory levels of our products in the distribution channel, the product shelf-life of the product we have shipped, competitive issues such as new product entrants and other known changes in sales trends.

        The provision for returns was approximately 1.9% and 1.4% in 2007 and 2006, respectively. The increase in return percentage provision in 2007 from 2006 is primarily due to a higher rate of return of XOPENEX Inhalation Solution as a result CMS' decision to discontinue the stand-alone reimbursement for the product and also higher returns of LUNESTA, primarily in the 1mg tablets and all hospital units doses. Actual returns could exceed historical experience and our estimates of expected future returns due to factors such as wholesaler and retailer stocking patterns and inventory levels and/or competitive changes. Based on these factors, and as a result of fluctuations observed in prior periods, we believe it is reasonably likely that the actual returns provision percentage could vary from the estimated percentage within a range of up to 0.25%. If the returns provision percentage for each of these products had increased by 0.25% of gross sales in 2007, an additional provision of approximately $4.0 million would have been necessary.

        Many of our accruals include an estimate of inventory in the distribution pipeline. At December 31, 2007, we believe a reasonable estimate of the value of our pipeline inventory in gross sales dollars is approximately $103.6 million for XOPENEX Inhalation Solution, $17.9 million for XOPENEX HFA, $108.6 million for LUNESTA and $2.4 million for BROVANA.

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        5)    Other Discounts—At times we offer special programs and discounts. In 2007, we implemented a patient assistance program, which provides all our products at no cost to those eligible patients who lack prescription drug coverage and are unable to afford them In 2007 and 2006, we utilized discount programs related to LUNESTA and XOPENEX HFA to support the goal of making the products widely available. In 2007, our coupon and voucher utilization increased as compared to 2006, which is largely the result of an increase in our coupon programs related to XOPENEX HFA. These programs include coupons and vouchers, including the LUNESTA 7-Night Challenge introduced in September 2006. Under the coupon program, physicians give patients coupons to purchase the prescribed drug at a discount from any retail pharmacy. We reimburse retail pharmacies for these discounts through a third-party administrator. Under the voucher and LUNESTA 7-Night Challenge programs, physicians give patients vouchers to obtain free samples of the prescribed drug from any retail pharmacy. We reimburse retail pharmacies for the cost of these products through a third-party administrator. We use the voucher program primarily in states where samples cannot be shipped directly to physicians.

        In each case mentioned above, we estimate the cost of reimbursement as a reduction of gross sales when the product is sold. In addition, we maintain an accrual for unused coupons and vouchers based on outstanding total coupons and vouchers and their historical usage rates and adjust this accrual whenever changes in such historical usage rate occurs. Each of these programs has a defined expiration date.

        The following table summarizes activity in each of the above product sales allowances and reserve categories for the years ended December 31, 2007 and 2006:

		Payment Terms Discount			Wholesaler Fee for Service			Government Rebates and Contractual Discounts			Returns			Other Discounts			Total
		(In Thousands)
Balance at December 31, 2005 (as restated)		$	(2,632	)	$	(9,503	)	$	(86,045	)	$	(16,268	)	$	(552	)	$	(115,000	)
Current provision:
	Current year		(29,264	)		(42,048	)		(199,791	)		(20,255	)		(4,236	)		(295,594	)
	Prior year		—			—			9,585			—			20			9,605
	Total		(29,264	)		(42,048	)		(190,206	)		(20,255	)		(4,216	)		(285,989	)
Actual:
	Current year		24,587			25,567			111,876			1,383			2,660			166,073
	Prior year		2,958			9,315			38,142			11,922			597			62,934
	Total		27,545			34,882			150,018			13,305			3,257			229,007
Balance at December 31, 2006 (as restated)		$	(4,351	)	$	(16,669	)	$	(126,233	)	$	(23,218	)	$	(1,511	)	$	(171,982	)
Current provision:
	Current year		(31,939	)		(29,086	)		(312,049	)		(29,606	)		(14,791	)		(417,471	)
	Prior year		—			457			(637	)		—			440			260
	Total		(31,939	)		(28,629	)		(312,686	)		(29,606	)		(14,351	)		(417,211	)
Actual:
	Current year		27,773			19,063			175,373			2,142			12,629			236,980
	Prior year		4,378			14,123			56,813			26,331			590			102,235
	Total		32,151			33,186			232,186			28,473			13,219			339,215
Balance at December 31, 2007		$	(4,139	)	$	(12,112	)	$	(206,733	)	$	(24,351	)	$	(2,643	)	$	(249,978	)

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        Cash and Cash Equivalents:    Cash equivalents are highly liquid, temporary cash investments having original maturity dates of three months or less.

        Short- and Long-Term Investments:    Short and long-term investments include U.S. government securities, certificates of deposit, corporate commercial paper, corporate bonds, asset-backed securities, equity securities and auction rate securities. Those investments with a maturity of less than one year are classified as short-term. Short- and long-term investments are classified as either "available-for-sale" or "held-to-maturity". At acquisition, we designate the appropriate classification of the investment purchased based upon its intended holding period. At each reporting date, the appropriateness of the classification is reassessed. Although auction rate securities are securities that are structured with short-term interest rate reset dates of generally less than ninety days, the contractual maturities can be well in excess of ten years, and are therefore classified as, long-term investments. Available-for-sale investments are carried at fair market value with unrealized gains and losses recorded as a component of accumulated other comprehensive income (loss). Realized gains and losses for securities classified as available-for-sale are included in earnings and are derived using the specific identification method for determining the cost of securities sold. Held-to-maturity investments are recorded at cost plus accrued amortization, which approximates fair value. We evaluate our investments for possible other-than-temporary impairment by reviewing factors such as the investment rating for the securities, the length of time and extent to which fair value has been below cost basis, the financial condition of the issuer and our ability and intent to hold the investment for a period of time which may be sufficient for anticipated recovery of market value. If it is determined that a decline in value is other-than-temporary an impairment charge is recorded to the extent that the carrying value of the security exceeds the estimated fair market value.

        Accounts Receivable and Bad Debt:    Our trade receivables in 2007 and 2006 primarily represent amounts due to us from wholesalers, distributors and retailers of our pharmaceutical products. We perform ongoing credit evaluations of our customers and generally do not require collateral. Bad debt write-offs were not significant in 2007, 2006 and 2005; however, they could be significant in the future and we monitor our receivables closely because a few customers make up a large portion of our overall revenues. In both 2007 and 2006, our top four customers accounted for approximately 87% respectively, of our total revenues.

        Amortization, Depreciation and Certain Long-Lived Assets:    Long-lived assets include:

•

Property and Equipment—Property and equipment are stated at cost. Costs of major additions and betterments are capitalized; maintenance and repairs, which do not improve or extend the life of the respective assets, are charged to operations. On disposal, the related cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations as other income (expense). Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Computers and software, which are recorded in office equipment, have estimated useful lives of three years. All laboratory, manufacturing and office equipment have estimated useful lives of three to ten years. Buildings have an estimated useful life of 30 years. Leasehold improvements are amortized over the shorter of the estimated useful lives of the improvements or the remaining term of the lease.



•

Deferred Financing Costs—Deferred financing costs relating to expenses incurred to complete convertible subordinated debt offerings are amortized evenly over the earlier of the term of the debt, or the date on which we can first be obligated to repurchase all or part of the debt.

        Income Taxes:    Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to tax benefit carryforwards and to differences between the financial statement amounts of assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which the differences are

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expected to reverse. A valuation allowance is established if, based on management's review of both positive and negative evidence, it is more likely than not that all or a portion of the deferred tax asset will not be realized. The possible adverse impact to our XOPENEX Inhalation Solution sales if an "at risk" generic launch were to occur or we are unable to successfully defend our patent rights and increased sales and marketing expenses as a result of the expected commercial introduction of OMNARIS AQ in the first half of 2008 and the expected commercial introduction ALVESCO HFA in the second half of 2008, management continues to conclude a valuation allowance is required for the full amount of the deferred tax asset. Of our total valuation allowance of $662.1 million, approximately $152.2 million relates to stock option compensation deductions. The tax benefit associated with the stock option compensation deductions will be credited to equity if realized. If in the future, we determine based on expected profitability, that these deferred tax assets are more likely than not to be realized, a release of all, or part, of the related valuation allowance could result in an immediate material income tax benefit in the period of decrease and material income tax provisions in future periods. Such release of the valuation allowance could occur within the next 12 months upon resolution of the aforementioned uncertainties.

        We account for uncertain tax positions in accordance with FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement No. 109, or FIN 48. FIN 48 prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return and also provides guidance on various related matters such as derecognition, interest and penalties, and disclosure. We also recognize interest and penalties, if any, related to unrecognized tax benefits in income tax expense.

        Inventory Write-Downs:    Inventory represents bulk material, work-in-process and finished goods relating to our commercial products on hand, valued at lower of cost or market value. Inventories are reviewed periodically for slow-moving or obsolete status based on sales activity, both projected and historical, and through a review of the expiration dates. Our current sales projections provide for full utilization of the inventory balance. If product sales levels differ from projections, inventory may not be fully utilized and could be subject to impairment, at which point we would write down the value of the inventory to its net realizable value.

        We expense costs relating to inventory as research and development expense until such time as we receive an approval letter from the FDA for a new product, and then we begin to capitalize the inventory costs relating to that product.

        Share-Based Compensation—Effective January 1, 2006, we adopted the provisions of SFAS 123(R), which resulted in changes to our financial statements as detailed in Note B and Note O to the financial statements. Determining the amount and distribution of expense for stock-based compensation, as well as the associated impact to the balance sheets and statements of cash flows, requires us to develop estimates of the fair value of stock-based compensation expense.

        We estimate the fair value of stock options using the Black-Scholes valuation model. This valuation model takes into account the exercise price of the award, as well as a variety of assumptions. These assumptions used to estimate the fair value of stock options include the expected term, the expected volatility of our stock over the expected term, the risk-free interest rate over the expected term, and our expected annual dividend yield. Prior to our adoption of SFAS 123(R), we based the expected volatility of our stock on the historical price of our common stock. Upon our adoption of SFAS 123(R) in January 2006, we began utilizing implied volatility, derived from our traded options, to determine the volatility of our stock. As required by SFAS 123(R), management has also made an estimate of expected forfeitures in determining the amount of expense to be recorded, and is recognizing compensation expense only for those equity awards expected to vest. We believe that the valuation technique and the approach utilized to develop the underlying assumptions are appropriate in

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calculating the fair value of stock-based compensation expenses. These estimates are not intended to predict actual future events or the value ultimately realized by persons who receive equity awards.

        Research and Development Expenses:    We expense internal and external research and development costs, including costs of funded research and development arrangements, in the period incurred. We also expense the cost of purchased technology in the period of purchase if we believe that the technology has not demonstrated technological feasibility and that it does not have an alternative future use.

Recent Accounting Pronouncements

        In December 2007, the FASB issued SFAS No.160, Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51, or SFAS 160. SFAS 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. This pronouncement will be effective for fiscal years beginning on or after December 15, 2008. SFAS 160 requires retroactive adoption of the presentation and disclosure requirements for existing minority interests. All other requirements of SFAS 160 shall be applied prospectively. We do not expect the adoption of SFAS 160 to have a material impact on our consolidated financial statements.

        In December 2007, the Emerging Issues Task Force of the FASB, or EITF, reached a consensus on Issue No. 07-1, Accounting for Collaborative Arrangements, or EITF 07-1. The EITF concluded on the definition of a collaborative arrangement and that revenues and costs incurred with third parties in connection with collaborative arrangements would be presented gross or net based on the criteria in EITF No. 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent, or EITF 99-19, and other accounting literature. Based on the nature of the arrangement, payments to or from collaborators would be evaluated and the terms of the arrangement, the nature of the entity's business, and whether those payments are within the scope of other accounting literature would be presented. Companies are also required to disclose the nature and purpose of collaborative arrangements along with the accounting policies and the classification and amounts of significant financial-statement amounts related to the arrangements. Activities in the arrangement conducted in a separate legal entity should be accounted for under other accounting literature; however, required disclosure under EITF 07-1 applies to the entire collaborative agreement. EITF 07-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years, and is to be applied retrospectively to all periods presented for all collaborative arrangements existing as of the effective date. We do not expect the adoption of EITF 07-1 to have a material impact on our consolidated financial statements.

        In December 2007, the FASB issued SFAS No. 141(R), Business Combinations, which will require an acquiring company to measure all assets acquired and liabilities assumed, including contingent considerations and all contractual contingencies, at fair value as of the acquisition date. In addition, an acquiring company is required to capitalize in-process research and development and either amortize it over the life of the product, or write it off if the project is abandoned or impaired. SFAS No. 141(R) is effective for transactions occurring on or after January 1, 2009. We are evaluating the impact this standard will have on our financial statements.

        In February 2007, the FASB issued Statement of Financial Accounting Standards, or SFAS, No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, or SFAS 159, which allows entities the option to measure eligible financial instruments and certain other items at fair value. SFAS 159 is effective for fiscal years beginning after November 15, 2007. We do not expect the adoption of SFAS 159 to have a material impact on our consolidated financial statements.

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        In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, or SFAS 157. This pronouncement defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007. On November 14, 2007, the FASB agreed to a one-year deferral for the implementation of SFAS 157 for other non-financial assets and liabilities. We do not expect the adoption of SFAS 157 to have a material impact on any non-financial assets and liabilities or on our consolidated financial statements.

Liquidity and Capital Resources

        Our liquidity requirements have historically consisted of research and development expenses, sales and marketing expenses, capital expenditures, working capital, debt service and general corporate expenses. Historically, we have funded these requirements and the growth of our business primarily through convertible subordinated debt offerings, the issuance of common stock, including the exercise of stock options, sales of our products and license agreements for our drug compounds. We now expect to fund our liquidity requirements primarily with revenue generated from product sales. We also believe we have the ability to meet our short-term liquidity needs through the use of our cash and short-term investments on hand at December 31, 2007.

        Cash, cash equivalents and short- and long-term investments totaled $1.1 billion, or 76% of total assets at December 31, 2007, compared to $1.2 billion, or 78% of total assets, at December 31, 2006. At December 31, 2007, our portfolio included $99.9 million invested in highly-rated (AAA) student-loan-backed auction rate securities, of which some are associated with failed auctions in 2008. The funds associated with our auction rate securities that have failed auction may not be accessible until a successful auction occurs, a buyer is found outside of the auction process, the security is called, or the underlying securities have matured.

        Net cash provided by operating activities for the year ended December 31, 2007 was $324.0 million, which includes net income of $58.3 million. Our net income includes non-cash charges of $53.5 million, consisting primarily of share-based compensation and depreciation and amortization expense. Accounts receivable decreased by $15.5 million primarily due to LUNESTA and XOPENEX Inhalation Solution sales. Inventory increased by $14.7 million primarily due to an effort to increase the number of days of on hand inventory of XOPENEX HFA. Other assets increased by $1.5 million primarily due to an increase in prepaid expenses and royalty receivables off-set by a decline in interest receivable. Accounts payable increased by $6.5 million primarily due to timing of vendor payments. Accrued expenses increased by $96.8 million primarily due to (1) the recording of the $75.0 million upfront payment we paid to Bial in January 2008, (2) increased accrued sales and marketing and accrued research and development expenses as a result of timing of vendor payments, and (3) a decline in accrued interest as a result of the February 2007 payment in full of our 5% convertible subordinated debentures. Other liabilities increased by $6.7 million primarily due to accruals associated with the restructuring and realignment of our sales force. Product sales allowances and reserves increased $78.2 million primarily due to product revenue rebates related to LUNESTA and XOPENEX Inhalation Solutions product sales. Deferred revenue increased $24.7 million primarily relating to licensing agreements with Eisai and GSK.

        Net cash provided by investing activities for the year ended December 31, 2007 was $263.8 million. As a result of liquidating certain securities into cash and cash equivalents, cash provided by net sales of short- and long-term investments was $289.0 million. We made purchases of property and equipment of $25.4 million and received proceeds from sales of equipment of $273,000.

        Net cash used in financing activities for the year ended December 31, 2007 was $404.9 million. We received proceeds of $36.1 million from issuing common stock upon the exercise of stock options issued

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under our stock option plans. We also used $441.2 million to repay capital lease obligations and long-term debt.

        We believe our existing cash, cash equivalents, and short-term investments and the cash flow we anticipate from operations and current strategic alliances will be sufficient to support existing operations through at least the end of 2009. In the longer term, we expect to continue to fund our operations with revenue generated from product sales. Our actual future cash requirements and our ability to generate revenue, however, will depend on many factors, including:

•

LUNESTA sales;



•

XOPENEX Inhalation Solution and XOPENEX HFA sales;



•

BROVANA sales;



•

successful commercialization of OMNARIS AQ and ALVESCO HFA;



•

successful acquisition of technologies, product candidates, approved products and/or businesses;



•

successful expansion into foreign markets;



•

our ability to establish and maintain additional strategic alliances and licensing arrangements;



•

whether our debt, particularly debt due in 2008, will be paid in cash rather than converted into common stock pursuant to the terms of such debt;



•

progress of our preclinical and clinical research programs and the number and breadth of these programs;



•

progress of our development efforts and the development efforts of our strategic partners;



•

achievement of milestones under our strategic alliance arrangements;



•

royalties from agreements with parties to which we have licensed our technology; and



•

the outcome of pending litigation, including litigation related to generic competition and/or any possible future litigation or the "at risk" launch of generic versions of our product.

        If our assumptions underlying our beliefs regarding future revenues and expenses change, or if unexpected opportunities or needs arise, we may seek to raise additional cash by selling debt or equity securities or borrowing money from a bank. However, we may not be able to raise such funds on favorable terms, or at all.

        Based on our current operating plan, we believe that we will not be required to raise additional capital to fund the repayment of our outstanding convertible debt when due, however we may choose to do so. If we are not able to successfully grow our revenue and properly manage our expenses, it is likely that our business would be materially and adversely affected and that we would be required to raise additional funds in order to repay our outstanding convertible debt. We cannot assure that, if required, we would be able to raise the additional funds on favorable terms, if at all.

Acquisition Strategy

        In January 2008, we entered into an agreement with Nycomed for the exclusive U.S. distribution, development and commercialization in the United States, its territories and possessions of Nycomed's compound ciclesonide, and products incorporating such compound. In December 2007, we entered into a license agreement with Bial for the development and commercialization in the United States and Canada of Bial's anti-epileptic compound, BIA 2-093, which we now refer to as SEP-0002093. We paid Nycomed an upfront payment of $150.0 million in February 2008 and may be required to make subsequent payments of up to $280.0 million over the life of the agreement upon accomplishment of

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various development and sales milestones. We paid Bial an upfront payment of $75.0 million and are required to make subsequent payments upon accomplishment of various development and regulatory milestones, which could include up to an additional $100.0 million if all milestones are met. We utilized cash in early 2008 to make the upfront payments to Nycomed and Bial.

        As part of our business strategy, we plan to continue to consider and, as appropriate, make acquisitions of other businesses, approved products, product candidates and/or technologies. Our cash reserves and other liquid assets may be inadequate to consummate these acquisitions and it may be necessary for us to raise substantial additional funds and/or issue shares of our capital stock in the future to consummate these transactions. In addition, as a result of our acquisition efforts, we are likely to experience significant charges to earnings for acquisitions and related expenses (whether or not our efforts are successful) that may include transaction costs, closing costs or acquired in-process research and development charges.

Convertible Subordinated Debt

        In February 2007, we paid in full $440.0 million of outstanding 5% convertible debentures, which matured on February 15, 2007, plus approximately $11.0 million in accrued interest. The $440.0 million of 5% debentures were convertible into our common stock, at the option of the holder, at a price of $92.38 per share, and the 5% interest was paid semi-annually, commencing on August 15, 2000. As part of the sale of the 5% debentures, we incurred approximately $14.0 million of offering costs, which were recorded as intangible assets and were amortized over seven years, the term of the 5% debentures.

        In January 2004 and December 2003, we issued an aggregate of $750.0 million in principal amount of 0% convertible senior subordinated notes including $250.0 million principal amount of 0% Series A convertible senior subordinated notes due 2008, or Series A notes, due 2008, and $500.0 million principal amount of 0% Series B convertible senior subordinated notes due 2010, or Series B notes due 2010. Note holders may convert the Series A notes due 2008 into shares of our common stock at a conversion price of $31.89 per share and the Series B notes due 2010 into shares of our common stock at a conversion price of $29.84 per share. In each case, the conversion price is subject to adjustment, at any time before close of business on December 15, 2008, in the case of the 0% Series A notes due 2008, or December 15, 2010, in the case of the 0% Series B notes due 2010. We may not redeem the notes prior to maturity. The net proceeds to us after offering costs were approximately $728.9 million. During September 2004, certain holders of our 0% Series A notes due 2008 and 0% Series B notes due 2010, agreed, in separately negotiated transactions, to convert $177.2 million and $352.0 million in aggregate principal amount of their 0% Series A notes due 2008 and 0% Series B notes due 2010, respectively, into an aggregate of 5,556,104 and 11,797,483 shares of our common stock, respectively. As an inducement to convert their notes, we paid the holders of the 0% Series A notes due 2008 and 0% Series B notes due 2010 aggregate cash payments of $23.9 million and $45.9 million, respectively. At December 31, 2007, $72.8 million and $148.0 million of the 0% Series A notes due 2008 and 0% Series B notes due 2010, respectively, remained outstanding.

        In December 2003, we used approximately $94.8 million of the proceeds from the issuance of 0% Series A convertible senior subordinated notes due 2008 and 0% Series B convertible senior subordinated notes due 2010 to purchase four series of call spread options on our common stock expiring at various dates between May 12, 2004 and December 9, 2005. The call spread options, which are now completed, could have been settled at our option in either net shares or in cash. During the second and fourth quarters of 2004, we settled series one and two for cash resulting in payments to us in the amount of $124.3 million. The first series of settled options expired at various dates beginning on May 12, 2004 and ending on June 9, 2004 and the second series of options expired at various dates beginning on November 11, 2004 and ending on December 9, 2004. During the second quarter of 2005, the third series of settled options expired at various dates beginning on May 12, 2005 and ending on June 9, 2005. We settled the third series for cash resulting in a payment to us in the amount of $123.8 million. In the fourth quarter of 2005, the fourth and final series expired in equal installments on each business day from November 11, 2005 through December 9, 2005. We elected to settle the fourth series in net shares for which we received 2,326,263 shares of our common stock, which we currently hold as treasury stock.

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        In September 2004, we issued $500.0 million in principal amount of 0% convertible senior subordinated notes due 2024, or 0% notes due 2024. The 0% notes due 2024 are convertible, at the option of the holder upon certain specified circumstances, into cash and, if applicable, shares of our common stock at an initial price of $67.20 per share, subject to adjustment. The note holders may, at their election, require us to repurchase for cash all or part of the notes on October 15, 2009, 2014 and 2019 at a purchase price equal to 100% of the principal amount of any notes repurchased. We may also be required to repurchase for cash all or part of the notes upon a change in control or if our stock is no longer traded on NASDAQ or a similar market at a purchase price equal to 100% of the principal amount of any notes repurchased, plus in certain change in control circumstances an additional make-whole payment. On or after October 20, 2009, we have the option to redeem for cash all or part of the notes at any time at a redemption price equal to 100% of the principal amount of the notes redeemed.

        In order to reduce future cash interest payments, as well as future payments due at maturity, we may, from time to time, depending on market conditions, repurchase additional outstanding convertible debt for cash, exchange debt for shares of our common stock, warrants, preferred stock, debt or other considerations, or otherwise extinguish debt through a combination of any of the foregoing. If we exchange shares of our capital stock, or securities convertible into or exercisable for our capital stock, for outstanding convertible debt, the number of shares that we might issue as a result of such exchanges could significantly exceed the number of shares originally issuable upon conversion of such debt and, accordingly, such exchanges could result in material dilution to holders of our common stock. We cannot assure you that we will repurchase or exchange any additional outstanding convertible debt.

BioSphere

        BioSphere was a consolidated subsidiary from 1994 through July 2, 2001. As a result of a public offering of BioSphere common stock in 2001, our ownership of BioSphere was reduced from approximately 55% to 26%. Therefore, effective July 3, 2001, we changed the method of accounting for our investment in BioSphere from consolidating the results of BioSphere operations to the equity method. On November 10, 2004, we purchased, in a private placement, 4,000 shares of BioSphere Series A Convertible Preferred Stock and warrants to purchase an additional 200,000 shares of BioSphere common stock from BioSphere for an aggregate purchase price of $4.0 million. Each share of BioSphere Series A Convertible Preferred Stock is convertible into 250 shares of BioSphere common stock. In addition, quarterly dividends of 6% per annum are paid on the shares in either cash or additional shares of Series A Convertible Preferred Stock, at BioSphere's election and, as of December 31, 2007, we had acquired an additional 749 shares of Series A Convertible Preferred Stock in connection with dividend payments.

        At December 31, 2007 and 2006, we owned 3,224,333 shares, or approximately 18% of BioSphere's outstanding common stock. The fair market value of those shares was approximately $16.5 million and $21.5 million as of December 31, 2007 and 2006, respectively. In addition, as of December 31, 2007 and 2006 we owned 4,749 and 4,475 shares of Series A Convertible Preferred Stock, respectively, and warrants to purchase an additional 200,000 shares of common stock. Assuming conversion of our Series A Convertible Preferred Stock and the exercise of our warrants, we would own approximately 23% of BioSphere's common stock as of December 31, 2007. We have recorded $507,000, $422,000, and $665,000 as our share of BioSphere losses for the periods ended December 31, 2007, 2006 and 2005, respectively.

Contractual Obligations

        Contractual obligations represent future cash commitments and liabilities under agreements with third parties and exclude contingent liabilities for which we cannot reasonably predict future payment, including contingencies related to potential future development, financing and/or commercial milestone

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payments on collaboration agreements. The following chart summarizes our material contractual obligations as of December 31, 2007:

Contractual Obligations	Total		2008		2009		2010		2011		2012		2013 and beyond
	(In Thousands)
Convertible subordinated debt—principal(1)	$	720,820	$	72,800	$	—	$	148,020	$	—	$	—	$	500,000
Capital lease obligations		2,871		1,318		1,242		311		—		—		—
Operating leases(2)		6,363		1,867		1,486		1,313		1,208		489
Purchase obligations(3)		204,603		188,505		16,098		—		—		—		—
Total material contractual cash obligations(4)	$	934,657	$	264,490	$	18,826	$	149,644	$	1,208	$	489	$	500,000

(1)

If the convertible subordinated debt were converted into common stock, these amounts would no longer be a contractual cash obligation.

(2)

Operating leases includes our leased facilities obligations.

(3)

Purchase obligations relate to research and development commitments for new and existing products and open purchase orders for the acquisition of goods and services in the ordinary course of business. Our obligation to pay certain of these amounts may be reduced or eliminated based on certain future events.

(4)

In addition to the material contractual cash obligations included in this chart, we have committed to make potential future milestone payments to third parties as part of licensing, distribution and development agreements. Payments under these agreements generally become due and payable only upon achievement of certain development, regulatory and/or commercial milestones. For example, Nycomed and Bial may become entitled to receive subsequent payments of up to $280.0 million and $100.0 million, respectively, if all milestones are met. Because the achievement of these milestones is neither probably nor reasonably estimable, such contingent payments have not been recorded on our consolidated balance sheet and have not been included in this chart. In addition, pursuant to our exclusive U.S. distribution agreement with Nycomed, we paid Nycomed an upfront payment of $150.0 million in February 2008, which is also not reflected in this chart.

        This table also excludes any liabilities pertaining to uncertain tax positions as we cannot make a reliable estimate of the period of cash settlement with the respective taxing authorities.

        We have had no material related party activities in 2007 or 2006, other than those relating to the purchase of BioSphere Series A Convertible Preferred Stock and warrants.

Off-Balance Sheet Arrangements

        We do not have any off-balance sheet arrangements, other than operating leases in the normal course of business, or variable interest entities or activities that include non-exchange traded contracts accounted for at fair value.

Item 7A. Quantitative and Qualitative Disclosure about Market Risk.

        We are exposed to market risk from changes in interest rates and equity prices, which could affect our future results of operations and financial condition. We manage our exposure to these risks through our regular operating and financing activities.

        Interest Rates:    Our cash and cash equivalents consist of cash, money market funds, and short-term investments with original maturities of three months or less. As of December 31, 2007 the carrying

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value of our cash and cash equivalents approximated fair value. Due to the conservative nature and relatively short duration of our investments, interest rate risk is mitigated. However, in a declining interest rate environment, as short-term investments mature, reinvestment occurs at less favorable market rates, negatively impacting future investment income.

        Our short and long-term investments consist of U.S. government securities, certificates of deposits, corporate commercial paper, corporate bonds, asset-backed securities, equity securities and auction rate securities. Although, auction rate securities are securities that are structured with short-term interest rate reset dates of generally less than ninety days but with contractual maturities that can be well in excess of ten years. At the end of each reset period, investors can sell or continue to hold the securities at par. These securities are subject to fluctuations in fair value depending on the supply and demand at each auction. Our long-term investments as of December 31, 2007 was $174.0 million which includes $99.9 million invested in highly-rated (AAA) student-loan-backed auction rate securities, of which some are associated with failed auctions in 2008. The funds associated with our auction rate securities that have failed auction may not be accessible until a successful auction occurs, a buyer is found outside of the auction process, the security is called, or the underlying securities have matured. Additionally, the failure causes the interest rate on these investments to reset to a premium interest rate, resulting in favorable future investment income. If the credit rating of the issuer of any auction rate security held by us deteriorates, we may be required to adjust the carrying value of the investment through an impairment charge.

        Although our investments are subject to credit risk and interest rate risk, our investment policy specifies credit quality standards for our investments and our investment portfolio is monitored for compliance with our investment policy. The primary objective of the investment policy is the preservation of capital. Due to the conservative nature and relatively short duration of our overall investments portfolio, credit and interest rate risk is mitigated. The interest rates on our convertible subordinated debt and capital lease obligations are fixed and, therefore, not subject to interest rate risk.

        Equity Prices:    Our convertible subordinated debt is sensitive to fluctuations in the price of our common stock into which the debt is convertible. Changes in equity prices would result in changes in the fair value of our convertible subordinated debt due to the difference between the current market price of the debt and the market price at the date of issuance of the debt. At December 31, 2007, a 10% decrease in the price of our common stock could have resulted in a decrease of approximately $68.3 million on the net fair value of our convertible subordinated debt.

        Additionally, we have a cost investment in the equity securities of ACADIA with a market value of $20.9 million at December 31, 2007. A 10% decrease in the equity prices of these securities would result in a decrease of approximately $2.1 million in our investments.

Item 8. Financial Statements and Supplementary Data.

        The financial statements and schedules required by this item are filed as Appendix A hereto and are listed under Item 15 below.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

        There have been no disagreements with our Independent Registered Public Accounting Firm on accounting and financial disclosure matters.

Item 9A. Controls and Procedures.

Disclosure Controls and Procedures

        Our management has carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer, Chief Financial Officer, and Executive Vice President, Finance,

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Administration and Technical Operations, of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2007. The term "disclosure controls and procedures," as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, or Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed in the reports that the company files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal financial officers, as appropriate, to allow timely decisions regarding required disclosure. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation and the identification of the material weakness in internal control over financial reporting described below, the Chief Executive Officer, the Chief Financial Officer and the Executive Vice President, Finance, Administration and Technical Operations, have concluded that, as of December 31, 2007, our disclosure controls and procedures were not effective.

Management's Report on Internal Control Over Financial Reporting

        Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting as defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act, is a process designed under the supervision of our Chief Executive Officer, Chief Financial Officer, and Executive Vice President, Finance, Administration and Technical Operations to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with generally accepted accounting principals.

        Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.

        A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis.

        Our management has assessed the effectiveness of our internal control over financial reporting as of December 31, 2007. In making its assessment, management has utilized the criteria set forth by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission in Internal Control—Integrated Framework.

        We did not establish and/or maintain effective controls over the process to identify transactions with the potential to establish a new Medicaid best price which affected the accuracy of the net revenue and product sales allowances and reserve accounts. Specifically, our controls over the calculation of Medicaid rebates were not designed to effectively monitor whether certain entities were appropriately exempt from the Medicaid best price calculation. This control deficiency resulted in the restatement of our consolidated financial statements for the years ended December 31, 2006 and 2005 and each quarter in 2006 and the first three quarters of 2007. Additionally, this control deficiency could result in misstatements of Medicaid rebate liability and corresponding revenues that would result in a material misstatement of the consolidated financial statements that would not be prevented or detected.

92

Accordingly, our management has determined that this control deficiency constitutes a material weakness.

        Because of this material weakness, management concluded that we did not maintain effective internal control over financial reporting as of December 31, 2007, based on criteria in Internal Control—Integrated Framework issued by COSO.

        The effectiveness of our internal control over financial reporting as of December 31, 2007 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report, which appears on page F-2 of Appendix A to this annual report on Form 10-K.

Changes in Internal Control

        There has been no change in our internal control over financial reporting during our quarter ended December 31, 2007 that have materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Remediation Plan

        The material weakness noted above was identified by year end 2007. During the first quarter of 2008, we have engaged in substantial efforts to address this material weakness and will continue to do so throughout 2008. All of these efforts will be commenced in the first or second quarter of 2008 and concluded thereafter in a timely fashion as early in 2008 as is reasonably possible. Our on-going improvements to the internal controls designed to address this material weakness will include the following, which will be undertaken with the assistance of qualified outside legal counsel:

           I)  Measures are and will continue to be taken to identify the cause of the material weakness in internal controls over financial reporting, through the following procedures:

•

Manually review a substantial sample of entities treated as PHS covered entities by us in the past to assess whether these entities were correctly treated as covered entities. We believe there will be no impact on our historical revenue recognition but such determination is necessary for our on-going interactions with CMS and reporting and ultimate resolution with State Medicaid programs.



•

Retain an outside consultant with relevant experience to implement an automated system to assess the entities that were not a part of the manual review and to retest and confirm the treatment of those entities that were part of the manual review.



•

Contact entities whose status cannot be appropriately determined from the manual and automated review for additional data sufficient to identify those entities correctly.



•

Initiate collection procedures against entities determined to have received PHS prices in error.



•

Communicate, in writing, with CMS and HRSA regarding our determinations as to which entities are and are not considered PHS exempt during the manual and the automated review discussed above.



•

Initiate, as necessary, a prior period adjustment to CMS based on recalculations of AMP and best price that result from the efforts described above.

         II)  The following remediation efforts will be implemented by management to remediate the material weakness of internal control over financial reporting:

•

Once implemented, the automated system described above will be used on an on-going basis to assist in the evaluation of PHS-related pricing requests and the determination of which transactions should be excluded from best price.

93

•

We will add headcount and increase training of the employees with responsibility for government contracts and the monitoring of entities eligible for PHS pricing. In particular, we will hire at least one dedicated individual to perform manual intervention for PHS pricing requests before the automated system can be implemented. This person will also perform manual interventions after the automated system is implemented to assess those customers that cannot be classified by the automated system and to retest a sample of entities that were classified by the automated system on a quarterly basis to ensure that the system is working as intended. We will also contact entities whose status cannot be appropriately determined from the manual and automated review for additional data sufficient to identify those entities correctly.



•

We will be implementing appropriate policies and procedures which will address the process for qualifying, approving, and disputing PHS pricing requests and for verifying PHS eligibility.



•

We are establishing monthly meetings between the contracting group and the accounting/finance group to ensure that appropriate and collaborative communications occur around the determination of best price and other price reporting and related contracting issues.



•

We will retain a qualified specialist independent of the entity that assists us in implementing the automated system who will conduct an audit of PHS verification in 2008 following the completion of the manual and automated reviews and the introduction of the policies and procedures discussed above.

        We anticipate that these remediation actions represent ongoing improvement measures and we expect that they will be fully implemented by year end 2008. Although we have devoted, and intend to continue to devote, significant resources to remediating the material weakness, the effectiveness of our remediation efforts will not be known until management next performs its test of internal controls.

Item 9B. Other Information.

        None.

PART III

Items 10-14.

        We have included information about our executive officers in Part I of this report under the caption "Executive Officers of the Registrant."

        The information required by Part III, Items 10-14 of this report is incorporated by reference from our definitive proxy statement for our 2008 Annual Meeting of Stockholders. Such information will be contained in the sections of such proxy statement captioned "Stock Ownership of Certain Beneficial Owners and Management," "Proposal 1—Election of Directors," "Directors, Executive Officers and Corporate Governance," "Information about Executive Officer and Director Compensation," "Certain Relationships and Related Transactions, and Director Independence," "Other Matters—Section 16(a) Beneficial Ownership Reporting Compliance."

        We have adopted a written code of business conduct and ethics that applies to all employees, including but not limited to, our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. We have posted our code of business conduct and ethics, and intend to disclose any amendments to, or waivers from, the code, on our web site, which is located at www.sepracor.com in the corporate governance section.

94

PART IV

Item 15. Exhibits and Financial Statement Schedules.

        The following documents are included in this Annual Report on Form 10-K.

1.

The following financial statements (and related notes) of the Company are included as Appendix A hereto and are filed as part of this Annual Report on Form 10-K:

	Page
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets at December 31, 2007 and 2006 (as restated)	F-4
Consolidated Statements of Operations for the Years Ended December 31, 2007, 2006 (as restated) and 2005 (as restated)	F-5
Consolidated Statements of Stockholders' Equity (deficit) and Comprehensive Income for the Years Ended December 31, 2007, 2006 (as restated) and 2005 (as restated)	F-6
Consolidated Statements of Cash Flows for the Years Ended December 31, 2007, 2006 (as restated) and 2005 (as restated)	F-7
Notes to the Consolidated Financial Statements (as restated)	F-8

2.

The schedule listed below is filed as part of this report:

Schedule II—Valuation and Qualifying Accounts and Reserves (as restated) S-1

        All other schedules are omitted as the information required is inapplicable or the information is presented in the consolidated financial statements or the related notes.

3.

The Exhibits listed in the Exhibit Index immediately preceding the Exhibits are filed as a part of this Annual Report on Form 10-K.

        The following trademarks are mentioned in this report:

        Sepracor, LUNESTA, XOPENEX, XOPENEX HFA and BROVANA are registered trademarks of Sepracor. OMNARIS is a registered trademark and ALVESCO is a trademark of Nycomed GmbH. This report also contains trademarks of other companies.

95

SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	SEPRACOR INC.
	By:	/s/  ADRIAN ADAMS Adrian Adams President and Chief Executive Officer
Date: February 29, 2008

        Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Name	Title	Date
/s/  ADRIAN ADAMS Adrian Adams	President, Chief Executive Officer and Director (Principal Executive Officer)	February 29, 2008
/s/  DAVID P. SOUTHWELL David P. Southwell	Executive Vice President, Corporate Planning, Development and Licensing and Chief Financial Officer (Principal Financial Officer)	February 29, 2008
/s/  ROBERT F. SCUMACI Robert F. Scumaci	Executive Vice President, Corporate Finance, Administration and Technical Operations and Treasurer (Principal Accounting Officer)	February 29, 2008
/s/  TIMOTHY J. BARBERICH Timothy J. Barberich	Executive Chairman and Director	February 29, 2008
James G. Andress	Director
/s/  DIGBY W. BARRIOS Digby W. Barrios	Director	February 29, 2008
/s/  ROBERT J. CRESCI Robert J. Cresci	Director	February 29, 2008
/s/  JAMES F. MRAZEK James F. Mrazek	Director	February 29, 2008
/s/  LISA RICCIARDI Lisa Ricciardi	Director	February 29, 2008
/s/  TIMOTHY J. RINK Timothy J. Rink	Director	February 29, 2008
/s/  ALAN A. STEIGROD Alan A. Steigrod	Director	February 29, 2008

96

APPENDIX A

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets as of December 31, 2007 and 2006 (as restated)	F-4
Consolidated Statements of Operations for the Years Ended December 31, 2007, 2006 (as restated) and 2005 (as restated)	F-5
Consolidated Statements of Stockholders' Equity (Deficit) and Comprehensive Income for the Years Ended December 31, 2007, 2006 (as restated) and 2005 (as restated)	F-6
Consolidated Statements of Cash Flows for the Years Ended December 31, 2007, 2006 (as restated) and 2005 (as restated)	F-7
Notes to Consolidated Financial Statements (as restated)	F-8
Schedule II—Valuation and Qualifying Accounts and Reserves (as restated)	S-1

F-1

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Sepracor Inc.:

        In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of changes in stockholders' equity (deficit) and comprehensive income, and of cash flows present fairly, in all material respects, the financial position of Sepracor Inc. and its subsidiaries at December 31, 2007 and 2006 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2007 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index, Appendix A, presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) because a material weakness in internal control over financial reporting related to the accuracy of calculating Medicaid rebates and the corresponding revenues and related financial disclosures existed as of that date. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness referred to above is described in the accompanying Management's Report on Internal Control over Financial Reporting. We considered this material weakness in determining the nature, timing, and extent of audit tests applied in our audit of the December 31, 2007 consolidated financial statements and our opinion regarding the effectiveness of the Company's internal control over financial reporting does not affect our opinion on those consolidated financial statements. The Company's management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in management's report referred to above. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

        As disclosed in Note B to the consolidated financial statements, the Company changed the manner in which it accounts for stock-based compensation in 2006 and the manner in which it accounts for uncertain income tax positions in 2007.

        As disclosed in Note U to the consolidated financial statements, the Company has restated its 2006 and 2005 consolidated financial statements and the financial statement schedule.

        A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal

F-2

control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

        Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
February 29, 2008

F-3

SEPRACOR INC.

CONSOLIDATED BALANCE SHEETS

		December 31,
		2007			2006 (as restated)
		(In Thousands, Except Par Value Amounts)
ASSETS
Current assets:
	Cash and cash equivalents	$	598,929		$	415,411
	Short-term investments		292,659			568,037
	Accounts receivable, net of allowances of $4,599 and $4,821 at December 31, 2007 and 2006		159,644			175,103
	Inventories		53,125			37,087
	Other current assets		26,948			25,390
Total current assets			1,131,305			1,221,028
	Long-term investments		174,031			182,876
	Property and equipment, net		87,308			72,811
	Investment in affiliate		4,313			5,107
	Deferred financing costs and patents, net		7,572			11,881
	Other assets		197			90
Total assets		$	1,404,726		$	1,493,793
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Accounts payable	$	17,317		$	10,751
	Accrued expenses		210,109			113,099
	Notes payable and current portion of capital lease obligation		1,162			385
	Current portion of convertible subordinated debt		72,800			440,000
	Product sales allowances and reserves		245,839			167,631
	Other current liabilities		6,887			230
Total current liabilities			554,114			732,096
	Notes payable and capital lease obligation		1,443			693
	Deferred revenue		24,736			—
	Convertible subordinated debt		648,020			720,820
Total liabilities			1,228,313			1,453,609
Commitments and contingencies (Notes L and M)
Stockholders' equity (deficit):
	Preferred stock, $1.00 par value, 1,000 shares authorized, none outstanding at December 31, 2007 and 2006		—			—
	Common stock, $.10 par value, 240,000 shares authorized at December 31, 2007 and 2006; 111,955 and 110,040 shares issued; 107,694 and 105,779 shares outstanding, at December 31, 2007 and 2006, respectively		11,195			11,004
	Treasury stock, at cost (4,261 shares at December 31, 2007 and 2006)		(232,028	)		(232,028	)
	Additional paid-in capital		1,858,775			1,788,417
	Accumulated deficit		(1,471,716	)		(1,530,049	)
	Accumulated other comprehensive income		10,187			2,840
Total stockholders' equity			176,413			40,184
Total liabilities and stockholders' equity		$	1,404,726		$	1,493,793

The accompanying notes are an integral part of the consolidated financial statements.

F-4

SEPRACOR INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

		Year Ended December 31,
		2007			2006 (as restated)			2005 (as restated)
		(In Thousands, Except Per Share Amounts)
Revenues:
	Product sales	$	1,177,256		$	1,149,374		$	749,865
	Royalties and license fees		47,974			33,759			51,243
Total revenues			1,225,230			1,183,133			801,108
Costs and expenses:
	Cost of products sold		115,835			103,760			66,682
	Cost of royalties earned		1,320			976			749
	Research and development		263,756			163,488			144,504
	Selling, marketing and distribution		699,336			691,650			585,771
	General and administrative		81,529			72,143			40,839
	Litigation settlement, net		34,000			—			—
	Restructuring expense		6,921			—			—
Total costs and expenses			1,202,697			1,032,017			838,545
Income (loss) from operations			22,533			151,116			(37,437	)
Other income (expense):
	Interest income		46,599			46,589			27,462
	Interest expense		(3,020	)		(22,166	)		(23,368	)
	Equity in investee losses		(507	)		(422	)		(665	)
	Gain on sale of equity investment		—			—			18,345
	Other income (expense)		(1,002	)		(300	)		(79	)
Income (loss) before income taxes			64,603			174,817			(15,742	)
Income taxes			6,270			3,656			151
Net income (loss)		$	58,333		$	171,161		$	(15,893	)
Basic net income (loss) per common share		$	0.55		$	1.63		$	(0.15	)
Diluted net income (loss) per common share		$	0.50		$	1.48		$	(0.15	)
Shares used in computing basic and diluted net income (loss) per common share:
	Basic		106,847			104,943			104,839
	Diluted		116,364			115,508			104,839

The accompanying notes are an integral part of the consolidated financial statements.

F-5

SEPRACOR INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS'
EQUITY (DEFICIT) AND COMPREHENSIVE INCOME
(In Thousands)

		Common Stock			Treasury Stock
									Additional Paid-in Capital		Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Total Stockholders' Equity (Deficit)
		Shares	Amount		Shares	Amount
											(as restated)						(as restated)
BALANCE AT DECEMBER 31, 2004 (As previously reported)		105,309	$	10,531	1,933	$	(100,321	)	$	1,411,440	$	(1,666,554	)	$	13,789		$	(331,115	)
Cumulative impact of restatement												(18,763	)					(18,763	)
BALANCE AT DECEMBER 31, 2004		105,309	$	10,531	1,933	$	(100,321	)	$	1,411,440	$	(1,685,317	)	$	13,789		$	(349,878	)
Comprehensive income (loss):
	Net loss											(15,893	)					(15,893	)
	Foreign currency translation														527			527
	Unrealized loss on marketable equity securities														(7,638	)		(7,638	)
	Total comprehensive income (loss)																	(23,004	)
	Issuance of common stock to employees under stock plans	3,045		304						43,743								44,047
	Employee stock options exercised and settled with shares				2		(79	)										(79	)
	Stock compensation									1,044								1,044
	Settlement of call spread options for cash									123,798								123,798
	Settlement of call spread options for stock				2,326		(131,628	)		131,628								—
BALANCE AT DECEMBER 31, 2005		108,354	$	10,835	4,261	$	(232,028	)	$	1,711,653	$	(1,701,210	)	$	6,678		$	(204,072	)
Comprehensive income (loss):
	Net income											171,161						171,161
	Foreign currency translation														(48	)		(48	)
	Unrealized loss on marketable equity securities														(3,790	)		(3,790	)
	Total comprehensive income																	167,323
	Issuance of common stock to employees under stock plans	1,686		169						31,564								31,733
	Stock compensation									45,200								45,200
BALANCE AT DECEMBER 31, 2006		110,040	$	11,004	4,261	$	(232,028	)	$	1,788,417	$	(1,530,049	)	$	2,840			40,184
Comprehensive income (loss):
	Net income											58,333						58,333
	Foreign currency translation														3,566			3,566
	Unrealized gain on marketable equity securities														3,781			3,781
	Total comprehensive income																	65,680
	Issuance of common stock to employees under stock plans	1,915		191						35,895								36,086
	Stock compensation									34,278								34,278
	Tax benefit for stock compensation									185								185
BALANCE AT DECEMBER 31, 2007		111,955	$	11,195	4,261	$	(232,028	)	$	1,858,775	$	(1,471,716	)	$	10,187		$	176,413

The accompanying notes are an integral part of the consolidated financial statements.

F-6

SEPRACOR INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

		Year Ended December 31,
		2007			2006			2005
					(as restated)			(as restated)
		(In Thousands)
Cash flows from operating activities:
	Net income (loss)	$	58,333		$	171,161		$	(15,893	)
Adjustments to reconcile net income to net cash used in operating activities:
	Depreciation and amortization		18,664			20,724			17,154
	Gain on sale of equity investment		—			—			(18,345	)
	Stock compensation		34,278			45,200			1,044
	Equity in investee losses		507			422			665
	(Gain) loss on disposal of property and equipment		(5	)		(192	)		803
	Loss on write-off of patents		—			245			2,129
Changes in operating assets and liabilities:
	Accounts receivable		15,458			(34,638	)		(71,551	)
	Inventories		(14,699	)		1,900			(25,695	)
	Other assets		(1,496	)		(3,033	)		(3,626	)
	Accounts payable		6,515			(850	)		5,669
	Accrued expenses		96,843			(74,364	)		60,729
	Product sales allowances and reserves		78,209			55,262			52,837
	Deferred revenue		24,659			(2,949	)		(28,537	)
	Other liabilities		6,734			—			—
Net cash provided by (used) in operating activities			324,000			178,888			(22,617	)
Cash flows from investing activities:
	Purchases of short and long term investments		(851,127	)		(1,076,991	)		(1,293,075	)
	Sales and maturities of short and long term investments		1,140,087			1,130,294			912,101
	Additions to property and equipment		(25,450	)		(15,896	)		(13,728	)
	Proceeds from sale of property and equipment		273			150			—
	Investment in non-affiliate		—			(8,939	)		(7,143	)
	Change in other assets		—			28			937
Net cash provided by (used in) investing activities			263,783			28,646			(400,908	)
Cash flows from financing activities:
	Net proceeds from issuance of common stock		36,086			31,733			43,968
	Tax benefit for stock compensation		185			—			—
	Settlement of call spread options		—			—			123,798
	Repayments of long-term debt and capital leases		(441,164	)		(2,015	)		(2,175	)
Net cash provided by (used in) financing activities			(404,893	)		29,718			165,591
Effect of exchange rate changes on cash and cash equivalents			628			15			173
Net increase (decrease) in cash and cash equivalents			183,518			237,267			(257,761	)
Cash and cash equivalents at beginning of year			415,411			178,144			435,905
Cash and cash equivalents at end of year		$	598,929		$	415,411		$	178,144
Supplemental schedule of cash flow information:
	Cash paid during the year for interest	$	11,210		$	22,048		$	22,102
	Cash paid during the year for income taxes	$	4,066		$	3,656		$	151
Non cash activities:
	Capital lease obligations incurred	$	3,260		$	—		$	1,092

The accompanying notes are an integral part of the consolidated financial statements.

F-7

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

        We restated our consolidated financial statements for the years ended December 31, 2006 and 2005 to reduce the amount of product revenue earned during such periods due to matters related to government pricing discussed in Note U "Restatement of Financial Statements Based on Review of Government Pricing".

A)    Nature of the Business

        Sepracor Inc. was incorporated in 1984 to research, develop and commercialize products for the synthesis and separation of pharmaceutical and biopharmaceutical compounds. We are now a research-based pharmaceutical company focused on the discovery, development and commercialization of differentiated products that address large and growing markets and unmet medical needs which can be marketed to primary care doctors through our sales force. Our corporate headquarters are located in Marlborough, Massachusetts.

        Our consolidated financial statements include the accounts of Sepracor Inc. and our wholly-owned subsidiaries, including Sepracor Canada Limited and Sepracor N.V. Our consolidated financial statements include our investment in BioSphere Medical, Inc., or BioSphere, which is recorded under the equity method and our investments in Point Therapeutics, Inc., or Point Therapeutics (formerly known as Hemasure Inc. and HMSR Inc.), and ACADIA Pharmaceuticals Inc., or ACADIA, which we account for as marketable equity securities. During September 2005, we sold our ownership in Vicuron Pharmaceuticals Inc., or Vicuron (formerly known as Versicor, Inc.), which we had accounted for as marketable equity securities.

        We and our subsidiaries are subject to risks common to companies in the industry including, but not limited to, the safety, efficacy and successful development and regulatory approval of product candidates, fluctuations in operating results, protection of proprietary technology, dependence on third-party collaboration partners and third-party sales efforts, limited manufacturing capacity, risk of product liability, compliance with government regulations and dependence on key personnel.

B)    Summary of Significant Accounting Policies

        Principles of Consolidation:    Our consolidated financial statements include our accounts and all of our wholly-owned subsidiaries accounts. All material intercompany transactions have been eliminated. Investments in affiliated companies, which are 20% to 50% owned, and over which we do not exercise control, are accounted for using the equity method. Investments in affiliated companies, which are less than 20% owned, and over which we do not exercise significant influence, are accounted for using the cost method.

        Use of Estimates and Assumptions in the Preparation of Financial Statements:    The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the following: (1) the reported amounts of assets and liabilities, (2) the disclosure of contingent assets and liabilities at the dates of the financial statements and (3) the reported amounts of revenues and expenses during the reporting periods. Actual results could differ materially from those estimates.

        Translation of Foreign Currencies:    The assets and liabilities of our international subsidiaries are translated into United States dollars using current exchange rates. Statement of operations amounts are translated at average exchange rates prevailing during the period. The resulting translation adjustment is recorded in accumulated other comprehensive income (loss). Foreign exchange transaction gains and losses are included in other income (expense).

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        Cash and Cash Equivalents:    Cash equivalents are highly liquid, temporary cash investments having original maturity dates of three months or less.

        Short- and Long-Term Investments:    Short- and long-term investments include U.S. government securities, certificates of deposit, corporate commercial paper, corporate bonds, asset-backed securities, equity securities and auction rate securities. Those investments with a maturity of less than one year are classified as short-term. Short- and long-term investments are classified as either "available-for-sale" or "held-to-maturity". At acquisition, we designate the appropriate classification of the investment purchased based upon its intended holding period. At each reporting date, the appropriateness of the classification is reassessed. Although auction rate securities are securities that are structured with short-term interest rate reset dates of generally less than ninety days, the contractual maturities can be well in excess of ten years, and are therefore classified as long-term investments. Available-for-sale investments are carried at fair market value with unrealized gains and losses recorded as a component of accumulated other comprehensive income (loss). Realized gains and losses for securities classified as available-for-sale are included in earnings and are derived using the specific identification method for determining the cost of securities sold. Held-to-maturity investments are recorded at cost plus accrued amortization, which approximates fair value. We evaluate our investments for possible other-than-temporary impairment by reviewing factors such as the investment rating for the securities, the length of time and extent to which fair value has been below cost basis, the financial condition of the issuer and our ability and intent to hold the investment for a period of time which may be sufficient for anticipated recovery of market value. If it is determined that a decline in value is other-than-temporary an impairment charge is recorded to the extent that the carrying value of the security exceeds the estimated fair market value.

        Concentration of Credit Risk:    We have no significant off balance sheet concentration of credit risk. Financial instruments that potentially subject us to concentrations of credit risk primarily consist of the cash and cash equivalents, short- and long-term investments and trade accounts receivable.

        We place our cash, cash equivalents and short- and long-term investments with high credit quality financial institutions. Our cash equivalents are highly liquid investments purchased with an original remaining maturity of three months or less. Our short and long-term investments consist of U.S. government securities, certificates of deposit, corporate commercial paper, corporate bonds, asset-backed securities, equity securities and auction rate securities. Our long-term investments as of December 31, 2007 were $174.0 million, which includes $99.9 million invested in highly-rated (AAA) student-loan-backed auction rate securities, of which some are associated with failed auctions in 2008. The funds associated with our auction rate securities that have failed auction may not be accessible until a successful auction occurs, a buyer is found outside of the auction process, the security is called, or the underlying securities have matured. If the credit rating of the issuer of any auction rate security held by us deteriorates, we may be required to adjust the carrying value of the investment through an impairment charge. Although our investments are subject to credit risk, our investment policy specifies credit quality standards for our investments and our investment portfolio is monitored for compliance with our investment policy. The primary objective of the investment policy is the preservation of capital. Due to the conservative nature and relatively short duration of our overall investments portfolio, credit risk is mitigated.

F-9

        The percentage of total revenues from significant customers is as follows:

	Year Ended December 31,
	2007		2006 (as restated)		2005 (as restated)
Customer A	31	%	35	%	28	%
Customer B	29	%	26	%	18	%
Customer C	17	%	17	%	24	%
Customer D	10	%	9	%	7	%

        Certain prior year percentages have been reclassified to give effect for a merger of certain of our customers.

        Accounts Receivable and Bad Debt:    Our trade receivables in 2007 and 2006 primarily represent amounts due from wholesalers, distributors and retailers of our pharmaceutical products. We perform ongoing credit evaluations of our customers and we generally do not require collateral. Bad debt write-offs were not significant in 2007, 2006 and 2005; however, we monitor our receivables closely because a few customers make up a large portion of our overall revenues.

        Inventories:    Inventories are stated at the lower of cost (first-in, first-out) or market using a standard cost method. We expense costs relating to inventory until such time as we receive approval from the U.S. Food and Drug Administration, or FDA, for a new product, and then we begin to capitalize the costs relating to that product. We write down our inventory for expiration and probable quality assurance and quality control issues identified in the manufacturing process.

        Amortization, Depreciation and Certain Long-Lived Assets:    Long-lived assets include:

•

Property and Equipment—Property and equipment are stated at cost. Costs of major additions and betterments are capitalized; maintenance and repairs, which do not improve or extend the life of the respective assets, are charged to operations. On disposal, the related cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations as other income (expense). Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Computers and software, which are recorded in office equipment, have estimated useful lives of three years. All laboratory, manufacturing and office equipment have estimated useful lives of three to ten years. Buildings have an estimated useful life of 30 years. Leasehold improvements are amortized over the shorter of the estimated useful lives of the improvements or the remaining term of the lease.



•

Deferred Financing Costs—Deferred financing costs relating to expenses incurred to complete convertible subordinated debt offerings are amortized evenly over the earlier of the term of the debt, or the date on which we can first be obligated to repurchase all or part of the debt.

        Long-lived assets are reviewed for impairment by comparing the undiscounted projected cash flows of the related assets with their carrying amount. Impairment tests take place at least annually or whenever significant adverse events in the business or industry takes place, when a significant change in the manner an asset is used takes place or when a projection or forecast demonstrates continued losses associated with the asset. Any write-downs are treated as permanent reductions in the carrying amount of the assets.

        Revenue Recognition:    We recognize revenue from product sales, upon delivery, when title to product and associated risk of loss has passed to our customer and collectability is reasonably assured. All revenues from product sales are recorded net of applicable allowances for returns, rebates and other applicable discounts and allowances.

F-10

        We receive royalties related to the manufacture, sale or use of products or technologies under license arrangements with third parties. For those arrangements where royalties are reasonably estimable, we recognize revenue based on estimates of royalties earned during the applicable period and adjust for differences between the estimated and actual royalties in the following quarter. Historically, these adjustments have not been material. For those arrangements where royalties are not reasonably estimable, we recognize revenue upon receipt of royalty statements from the licensee.

        We record collaborative research and development revenue from research and development contracts over the term of the applicable contract, as we perform our obligation under the contract.

        Revenue Recognition, Multiple Element Arrangements:    We have entered into collaborative agreements with other pharmaceutical companies for the development and commercialization of our eszopiclone product outside of the United States, Canada and Mexico. These agreements are in the form of license agreements that call for nonrefundable upfront payments, milestone payments on achieving significant milestones, and royalty payments on sales if and when the compound receives marketing approval.

        Our revenue recognition policy for all multiple revenue-generating arrangements are in accordance with the guidance provided in the SEC's Staff Accounting Bulletin, or SAB, No. 101, Revenue Recognition in Financial Statements, as amended by SAB No. 104, Revenue Recognition, and Emerging Issues Task Force, or EITF, Issue No. 00-21, Revenue Arrangements with Multiple Deliverables.

        Rebate and Return Reserves:    Certain product sales qualify for rebates from standard list pricing due to government sponsored programs or other contractual agreements. We also allow for return of our product for up to one year after product expiration. We record an estimate for these allowances as reductions of revenue at the time product sales are recorded. We derive reserves for product returns and rebates through an analysis of historical experience updated for changes in facts and circumstances as appropriate and by utilizing reports obtained from external, independent sources. Reserves for rebate programs are shown as product sales allowances and reserves on our balance sheet and were $221.5 million and $144.4 million at December 31, 2007 and 2006, respectively. Reserves for returns are recorded as product sales allowances and reserves on our balance sheet and were $24.4 million and $23.2 million at December 31, 2007 and 2006, respectively.

        Research and Development Expenses:    We expense internal and external research and development costs, including costs of funded research and development arrangements, in the period incurred. We also expense the cost of purchased technology in the period of purchase if we believe that the technology has not demonstrated technological feasibility and that it does not have an alternative future use.

        Advertising Costs:    Advertising costs are expensed as incurred. These costs are comprised of media, agency and production expenses and are included in selling, marketing and distribution expense on the consolidated statements of operations. Advertising expense for the years ended December 31, 2007, 2006 and 2005 was $216.4 million, $234.5 million and $206.2 million, respectively.

        Income Taxes:    Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to tax benefit carryforwards and to differences between the financial statement amounts of assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are determined measured using enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is established if, based on management's review of both positive and negative evidence, it is more likely than not that all or a portion of the deferred tax asset will not be realized. Of our total valuation allowance of $662.1 million, approximately $152.2 million relates to stock option compensation deductions. The tax benefit associated with the stock option compensation deductions will be credited to equity if realized. If in the future, we determine based on future profitability, that these deferred tax assets are more likely than not to be

F-11

realized, a release of all, or part, of the related valuation allowance could result in an immediate material income tax benefit in the period of decrease and material income tax provisions in future periods. Such release of the valuation allowance could occur within the next 12 months upon resolution of the aforementioned uncertainties.

        Derivatives:    We record all derivative instruments as either assets or liabilities in our consolidated balance sheet and measure those instruments at fair value and subsequent changes in fair value are reflected in current earnings or in accumulated other comprehensive income. In November 2004, we acquired warrants to purchase 200,000 shares of BioSphere common stock. Based on the application of the Black-Scholes option pricing model which incorporates current stock price, expected stock price volatility, expected interest rates and the expected holding period of the warrants, we determined the estimated fair value of the warrants to be $372,000 and $659,000 at December 31, 2007 and 2006, respectively.

        Comprehensive Income (Loss):    Comprehensive income (loss) consists of net income (loss) and other comprehensive income (loss), which includes foreign currency translation adjustments and unrealized gains and losses on available-for-sale investments.

        Basic and Diluted Net Loss Per Common Share:    Basic earnings (loss) per share, or EPS, excludes dilution and is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted EPS is based upon the weighted-average number of common shares outstanding during the period plus the additional weighted average potential common shares during the period. Potential common shares are not included in the per share calculations where the effect of their inclusion would be anti-dilutive. Potential common shares result from convertible subordinated debt and the assumed exercises of outstanding stock options, the proceeds of which are then assumed to have been used to repurchase outstanding stock options using the treasury stock method.

        For the years ended December 31, 2007, 2006 and 2005, basic and diluted net income per common share is computed based on the weighted-average number of common shares outstanding during the period, however diluted net income for that period also includes the dilutive effect of common stock equivalents. Certain securities were not included in the computation of diluted earnings per share for the years ended December 31, 2007, 2006 and 2005 because they would have an anti-dilutive effect due to net income or losses for such periods. These securities include the following:

        Options to purchase shares of common stock:

	2007	2006	2005
	(In Thousands, Except Per Share Data)
Number of options	6,751	3,184	1,919
Price range per share	$18.45 to $87.50	$52.08 to $87.50	$59.13 to $87.50

        Shares of common stock reserved for issuance upon conversion of convertible subordinated debt:

	2007	2006	2005
	(In Thousands)
5% convertible subordinated debentures due 2007	—	4,763	4,763
0% Series A convertible senior subordinated notes due 2008	—	—	—
0% Series B convertible senior subordinated notes due 2010	—	—	—
Total	—	4,763	4,763

F-12

        The 0% convertible subordinated notes due 2024 are not convertible as of December 31, 2007. Shares of common stock will need to be reserved under the conversion formula for issuance upon conversion once the notes become currently convertible and our stock price exceeds $67.20 per share.

        Stock-Based Compensation:    Effective January 1, 2006, we adopted the provisions of Statement of Financial Accounting Standards, or SFAS, No. 123(R), Share-Based Payment, (revised 2004), which establishes accounting for equity instruments exchanged for employee services. Under the provisions of SFAS 123(R), share-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the employee's requisite service period (generally the vesting period of the equity award). Prior to January 1, 2006, we accounted for share-based compensation to employees in accordance with Accounting Principles Board Opinion, or APB, No. 25, Accounting for Stock Issued to Employees, or APB 25, and related interpretations. We also followed the disclosure requirements of SFAS No. 123, Accounting for Stock-Based Compensation, or SFAS 123. We elected to adopt the modified prospective transition method as provided by SFAS 123(R) and, accordingly, financial statement amounts for the prior periods presented in this annual report on Form 10-K have not been restated to reflect the fair value method of expensing stock-based compensation.

        As required by SFAS 123(R), management has made an estimate of expected stock option and restricted stock forfeitures, and we are recognizing compensation costs only for those equity awards expected to vest.

        In accordance with SFAS 123(R), SFAS 109 and EITF Topic D-32, Intraperiod Tax Allocation of the Tax Effect of Pretax Income from Continuing Operations, we have elected to recognize any excess income tax benefits from stock option exercises in additional paid-in capital only if an incremental income tax benefit would be realized after considering all other tax attributes presently available to us. We measure the tax benefit associated with excess tax deductions related to stock-based compensation expense by multiplying the excess tax deductions by the statutory tax rates. We use the incremental tax benefit approach for utilization of tax attributes.

        We estimate the fair value of stock options using the Black-Scholes valuation model. This valuation model takes into account the exercise price of the award, as well as a variety of assumptions. The assumptions we use to estimate the fair value of stock options include the expected term, the expected volatility of our stock over the expected term, the risk-free interest rate over the expected term, and our expected annual dividend yield. We believe that the valuation technique and the approach we utilized to develop the underlying assumptions are appropriate in calculating the fair values of the stock options granted in the years ended December 31, 2007 and 2006. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by persons who receive equity awards.

        Assumptions used to determine the fair value of stock options granted during the year ended December 31, 2007 and 2006, using the Black-Scholes valuation model, were:

	Year Ended December 31, 2007				Year Ended December 31, 2006
	Employee Stock Option Plans		1998 Employee Stock Purchase Plan		Employee Stock Option Plans		1998 Employee Stock Purchase Plan
Expected term	5.6 years		0.5 years		5.5 years		0.5 years
Expected volatility factor	28	%	27	%	30	%	31	%
Risk-free interest rate	4.45	%	4.95	%	4.70	%	4.67	%
Expected annual dividend yield	—		—		—		—

        Prior to January 1, 2006, we accounted for stock-based compensation to employees in accordance with APB 25. We also had previously adopted the disclosure provisions of SFAS 123, which required disclosure of stock-based compensation and its impact on net loss and net loss per share. The following

F-13

table illustrates the effects on net loss and net loss per share for the year ended December 31, 2005 as if we had applied the fair value recognition provisions of SFAS 123 to stock-based employee awards.

	Year Ended December 31, 2005 (as restated)
	(In Thousands)
Net loss attributable to common stockholders	$	(15,893	)
Add: stock-based employee compensation expense		1,044
Total stock-based employee compensation expense determined under fair value based method for all awards		(47,709	)
Pro forma net loss	$	(62,558	)
Amounts per common share:
Basic—as restated	$	(0.15	)
Diluted—as restated	$	(0.15	)
Basic—pro forma	$	(0.60	)
Diluted—pro forma	$	(0.60	)

        In determining the stock-based compensation expense to be disclosed under SFAS 123, we were required to estimate the fair value of stock awards granted to employees using a Black-Scholes valuation model. However, differences between the requirements of SFAS 123(R) and SFAS 123 resulted in a different set of assumptions for our valuation model, including the utilization of a forfeiture rate. Assumptions used to determine the fair value of stock options granted under SFAS 123 during the years ended December 31, 2005 were:

	Year Ended December 31, 2005
	Employee Stock Option Plans		1998 Employee Stock Purchase Plan
Expected term	5.0 years		0.5 years
Expected volatility factor	62	%	36	%
Risk-free interest rate	3.98	%	2.73	%
Expected annual dividend yield	—		—

        We have never declared cash dividends on any of our capital stock and do not expect to do so in the foreseeable future.

        The effects on 2005 pro forma net loss and net loss per share of expensing the estimated fair value of stock options and common shares issued pursuant to the stock option and stock purchase plans are not necessarily representative of the effects on reported results of operations for future years as options vest over several years and we intend to grant varying levels of stock options in future periods.

Recent Accounting Pronouncements:

        In December 2007, the Financial Accounting Standards Board, or FASB, issued SFAS No.160, Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51, or SFAS 160. SFAS 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. This pronouncement will be effective for fiscal years beginning on or after December 15, 2008. SFAS 160 requires retroactive adoption of the presentation and disclosure requirements for existing minority interests. All other requirements of SFAS 160 shall be applied prospectively. We do not expect the adoption of SFAS 160 to have a material impact on our consolidated financial statements.

F-14

        In December 2007, the Emerging Issues Task Force of the FASB, or EITF, reached a consensus on Issue No. 07-1, Accounting for Collaborative Arrangements, or EITF 07-1. The EITF concluded on the definition of a collaborative arrangement and that revenues and costs incurred with third parties in connection with collaborative arrangements would be presented gross or net based on the criteria in EITF No. 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent, or EITF 99-19, and other accounting literature. Based on the nature of the arrangement, payments to or from collaborators would be evaluated and the terms of the arrangement the nature of the entity's business and whether those payments are within the scope of other accounting literature would be presented. Companies are also required to disclose the nature and purpose of collaborative arrangements along with the accounting policies and the classification and amounts of significant financial-statement amounts related to the arrangements. Activities in the arrangement conducted in a separate legal entity should be accounted for under other accounting literature; however, required disclosure under EITF 07-1 applies to the entire collaborative agreement. EITF 07-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years, and is to be applied retrospectively to all periods presented for all collaborative arrangements existing as of the effective date. We do not expect the adoption of EITF 07-01 to have a material impact on our consolidated financial statements.

        In December 2007, the FASB issued SFAS No. 141(R), Business Combinations, which will require an acquiring company to measure all assets acquired and liabilities assumed, including contingent considerations and all contractual contingencies, at fair value as of the acquisition date. In addition, an acquiring company is required to capitalize in-process research and development and either amortize it over the life of the product, or write it off if the project is abandoned or impaired. SFAS No. 141(R) is effective for transactions occurring on or after January 1, 2009. We are evaluating the impact this standard will have on our financial statements.

        In February 2007, the FASB issued Statement of Financial Accounting Standards, or SFAS, No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, or SFAS 159, which allows entities the option to measure eligible financial instruments and certain other items at fair value. SFAS 159 is effective for fiscal years beginning after November 15, 2007. We do not expect the adoption of SFAS 159 to have a material impact on our consolidated financial statements.

        In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, or SFAS 157. This pronouncement defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007. On November 14, 2007, the FASB agreed to a one-year deferral for the implementation of SFAS 157 for other non-financial assets and liabilities. We do not expect the adoption of SFAS 157 to have a material impact on any non-financial assets and liabilities or on our consolidated financial statements.

C)    Investment in Affiliate

        BioSphere was a consolidated subsidiary from 1994 through July 2, 2001. As a result of a public offering of BioSphere common stock in 2001, our ownership of BioSphere was reduced from approximately 55% to 26%. Therefore, effective July 3, 2001, we changed the method of accounting for our investment in BioSphere from consolidating the results of BioSphere operations to the equity method. On November 10, 2004, we purchased from BioSphere, in a private placement, 4,000 shares of BioSphere Series A Convertible Preferred Stock and warrants to purchase an additional 200,000 shares of BioSphere common stock for an aggregate purchase price of $4.0 million. Each share of BioSphere Series A Convertible Preferred Stock is convertible into 250 shares of BioSphere common stock at a conversion price of $4.00 per share. In addition, quarterly dividends of 6% per annum are paid on the shares either in cash or additional shares of Series A Convertible Preferred Stock at BioSphere's election and, as of December 31, 2007, we had acquired an additional 749 shares of Series A Convertible Preferred Stock in connection with dividend payments.

F-15

        At December 31, 2007 and 2006, we owned 3,224,333 shares, or approximately 18% of BioSphere's outstanding common stock. The cost basis of those shares is $4.4 million, and the fair market value of those shares was approximately $16.5 million and $21.5 million as of December 31, 2007 and 2006, respectively. In addition, as of December 31, 2007 and 2006, we owned 4,749 and 4,475 shares of Series A Convertible Preferred Stock, respectively, and warrants to purchase an additional 200,000 shares of common stock, which based on the application of the Black-Scholes option pricing model, we determined the estimated fair value of the warrants to be $372,000 and $659,000 at December 31, 2007 and 2006, respectively, which was recorded as an investment in affiliate. Assuming conversion of our Series A Convertible Preferred Stock and the exercise of our warrants, we would own approximately 23% and 24% of BioSphere's common stock as of December 31, 2007 and 2006, respectively. We recorded $507,000, $422,000 and $665,000 as our share of BioSphere's losses for the years ended December 31, 2007, 2006 and 2005, respectively.

D)    Cash, Cash Equivalents and Short-Term and Long-Term Investments

        Cash and cash equivalents consist of the following at December 31:

		2007		2006
		(In Thousands)
Cash and cash equivalents:
	Cash and money market funds	$	598,929	$	364,115
	Corporate and government commercial paper		—		51,296
Total cash and cash equivalents		$	598,929	$	415,411

        Due to the nature of our investments, amortized cost approximates market value as of December 31, 2007 and 2006.

        Short and long-term investments classified as available-for-sale or held-to-maturity consist of the following at December 31:

		2007				2006
		Available- For-Sale		Held-to- Maturity		Available- For-Sale		Held-to- Maturity
		(In Thousands)
Due within 1 year:
	Corporate and bank obligations	$	18,958	$	212,024	$	27,524	$	173,974
	Government and agency securities		1,988		59,689		1,170		365,369
	Equity securities		—		—		—		—
Due in greater than 1 year:
	Corporate and bank obligations(1)		115,321		37,783		34,713		131,100
	Government and agency securities		—		—		—		—
	Equity securities		20,927		—		17,063		—
Total short-term and long-term investments		$	157,194	$	309,496	$	80,470	$	670,443

(1)

December 31, 2007 and 2006 includes $99.9 million and $131.1 million, respectively, invested in highly-rated (AAA) student-loan-backed auction rate securities. At December 31, 2006, these securities were classified as held-to-maturity. At December 31, 2007, based on our review of our investment classification, we re-classified all our auction rate securities to available-for-sale, which resulted in no adjustment to our consolidated financial statements as these securities had no unrealized gain or loss at the time of the reclassification. In 2008, some of our auction rate securities are associated with failed auctions. The funds associated with our auction rate securities that failed auction, may not be accessible until a successful auction occurs, a buyer is found outside

F-16

of the auction process, the security is called, or the underlying securities have matured. If the credit rating of the issuer of any auction rate security held by us deteriorates, we may be required to adjust the carrying value of the investment through an impairment charge, however we have not recorded an impairment charge related to our auction rate securities given our ability and intent to hold these securities until liquidity is restored. In addition, based on the student-loan-backed guarantee associated with these securities, we do not believe there has been a material decline in the market value of our auction rate securities.

        Held-to-maturity securities are recorded at cost plus accrued amortization, which approximates fair value. Realized gains and losses on held-to-maturity securities were insignificant in 2007 and 2006.

        Available-for-sale securities are carried at fair market value with unrealized gains and losses recorded as a component of accumulated other comprehensive income (loss). Investments with continuous unrealized losses greater than one year were immaterial in 2007 and 2006. Management does not believe any unrealized losses represent an other-than-temporary impairment based on our evaluation of available evidence as of December 31, 2007. The following is a summary of available-for-sale securities:

Type of Security	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(In Thousands)
December 31, 2007
Corporate and bank obligations(1)	$	139,353	$	63	$	137	$	139,279
Government and agency securities		1,988		1		1		1,988
Equity securities		16,082		4,847		2		20,927
	$	157,423	$	4,911	$	140	$	162,194

(1)

At December 31, 2006, our auction rate securities were classified as held-to-maturity. At December 31, 2007, based on our review of our investment classification, we re-classified the auction rate securities to available-for-sale.

Type of Security	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(In Thousands)
December 31, 2006
Corporate and bank obligations	$	62,219	$	42		24	$	62,237
Government and agency securities		1,179		—		9		1,170
Equity securities		16,082		2,773		1,792		17,063
	$	79,480	$	2,815	$	1,825	$	80,470

        Realized gains on available-for-sale securities were $0 in 2007 and 2006 and $18.3 million in 2005.

        Our available-for-sale securities include our equity investments in ACADIA at December 31, 2007 and Point Therapeutics and ACADIA at December 31, 2006.

        We accounted for our investment in Point Therapeutics using the cost method because we do not have significant influence over the operations of Point Therapeutics. As of December 31, 2007, we owned 433,333 shares of Point Therapeutics, which had a cost basis and a market value of approximately $0. At December 31, 2006, this investment had market value of approximately $446,000 and a cost basis of $0.

F-17

        On June 15, 2005, Vicuron entered into an agreement and plan of merger with Pfizer, Inc., where Pfizer agreed to purchase all outstanding shares of Vicuron for a purchase price of $29.10 per share in cash. The merger closed on September 11, 2005 and we received cash proceeds of approximately $20.0 million in exchange for our remaining 687,766 shares of Vicuron common stock. In accordance with the cost method and the classification of our investment in Vicuron as available-for-sale, we were carrying our investment at fair market value with the corresponding unrealized gain recorded through equity. Upon closing of the merger, we recognized the unrealized gain of approximately $18.3 million and included that amount in other income on the consolidated statements of operations. At December 31, 2007, 2006 and 2005, we had no ownership in Vicuron.

        In January 2005, we entered into a collaboration agreement with ACADIA Pharmaceuticals, Inc., or ACADIA, for the development of new drug candidates targeted toward the treatment of CNS disorders. This agreement expired pursuant to its terms in January 2008 and we are no longer pursuing the development of the drug candidates subject to this agreement.

        In 2005, under the terms of the collaboration agreement with ACADIA, we completed the initial $10.0 million purchase of ACADIA common stock in connection with the collaboration. Our purchase was made at a price of approximately $9.28 per share, which represented a 40 percent premium over the 30-day trailing average closing price of ACADIA's common stock on the NASDAQ Global Market and resulted in the issuance to us of 1,077,029 shares of ACADIA common stock. We recorded the premium amount of $2.9 million as research and development expense and the remaining amount of $7.1 million as an investment in ACADIA.

        In 2006, under the terms of the collaboration agreement with ACADIA, we completed the second $10.0 million purchase of ACADIA common stock in connection with the collaboration between the two companies that was formed in January 2005. Our purchase was made at a price of approximately $12.29 per share, which represented a 25 percent premium over the 30-day trailing average closing price of ACADIA's common stock on the NASDAQ Global Market and resulted in the issuance to us of 813,393 shares of ACADIA common stock. We recorded the premium amount of $1.1 million as research and development expense and the remaining amount of $8.9 million as an investment in ACADIA.

        At December 31, 2007 and 2006, we owned 1,890,422 shares of ACADIA's common stock. The fair market value of those shares was approximately $20.9 million and $16.6 million as of December 31, 2007 and 2006, respectively.

E)    Accounts Receivable

        Our trade receivables in 2007 and 2006 primarily represent amounts due from wholesalers, distributors and retailers of our pharmaceutical products. We perform ongoing credit evaluations of our customers and generally do not require collateral. Our allowance for doubtful accounts was $459,000 and $470,000 at December 31, 2007 and 2006, respectively, and our allowance for payment term discounts related to accounts receivable was $4.1 million and $4.4 million at December 31, 2007 and 2006, respectively.

        Customers with amounts due that represent greater than 10% of our accounts receivable balance are as follows at December 31:

	2007		2006
Customer A	29	%	31	%
Customer B	33	%	24	%
Customer C	12	%	25	%
Customer D	15	%	10	%

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        Certain prior year percentages have been adjusted to give retroactive effect for a merger of certain of our customers.

F)    Inventories

        Inventories consist of the following at December 31:

	2007		2006
	(In Thousands)
Raw materials	$	26,811	$	21,611
Finished goods		26,314		15,476
	$	53,125	$	37,087

G)   Property and Equipment

        Property and equipment consist of the following at December 31:

	2007			2006
	(In Thousands)
Land	$	4,181		$	4,125
Building		50,927			47,999
Laboratory and manufacturing equipment		50,233			38,041
Office equipment		61,683			53,477
Leasehold improvements		3,064			2,919
		170,088			146,561
Accumulated depreciation and amortization		(82,780	)		(73,750	)
	$	87,308		$	72,811

        Property and equipment under capital leases at December 31, 2007 and 2006 was $3.7 million and $5.8 million, respectively. Accumulated amortization related to property and equipment under capital leases at December 31, 2007 and 2006 was $1.2 million and $5.3 million, respectively. Depreciation expense was $15.4 million, $15.6 million and $12.7 million including amortization on capital leases of $1.0 million, $1.6 million and $2.0 million for the years ended December 31, 2007, 2006 and 2005, respectively.

H)   Deferred Financing Costs and Patents

        Deferred financing costs and patents, net, consist of the following at December 31:

	2007			2006
	(In Thousands)
Deferred finance costs, gross	$	20,407		$	34,440
Accumulated amortization		(13,336	)		(23,215	)
Deferred finance costs, net	$	7,071		$	11,225
Patents, gross	$	2,259		$	2,259
Accumulated amortization		(1,758	)		(1,603	)
Patents, net	$	501		$	656

F-19

        Amortization of intangible assets is computed on the straight-line method based on the estimated useful lives of the assets. The following schedule details our amortization expense related to patents and deferred financing costs:

	Year Ended December 31,
	2007		2006		2005
	(In Thousands)
Amortization of deferred finance costs	$	4,154	$	5,741	$	6,274
Amortization of patents		155		231		535
Total amortization	$	4,309	$	5,972	$	6,809

        During 2006, we wrote off unamortized patents and other intangible assets of $245,000 related to various compounds we are no longer pursuing. The estimated aggregate amortization expense for each of the next five years is as follows: 2008, $3.9 million; 2009, $2.8 million; 2010, $685,000; 2011, $109,000; and 2012, $16,300.

        We have no goodwill recorded at December 31, 2007 or 2006.

I)     Accrued Expenses

        Accrued expenses consist of the following at December 31:

	2007		2006
	(In Thousands)
Research and development costs	$	19,437	$	12,993
Sales and marketing costs		30,969		20,561
Interest on convertible subordinated debt		—		8,250
Compensation costs		37,084		33,783
Licensing fee		67,500		—
Other		55,119		37,512
Total accrued expenses	$	210,109	$	113,099

J)    Notes Payable and Capital Lease Obligations

        Notes payable and capital lease obligations consist of the following at December 31:

	2007			2006
	(In Thousands)
Government grant from Nova Scotia Department of Economic Development(1)	$	—		$	570
Obligations under capital leases (See Note L)		2,605			508
Total		2,605			1,078
Less current portion		(1,162	)		(385	)
Total long-term portion	$	1,443		$	693

(1)

Our wholly-owned subsidiary, Sepracor Canada Limited, has met certain conditions under a Canadian Government grant, which relieved Sepracor Canada Limited of its obligation under that grant.

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K)   Convertible Subordinated Debt

        Convertible subordinated debt, including current portion, consists of the following at December 31:

	2007				2006
	Carrying Amount		Fair Value(1)		Carrying Amount		Fair Value(1)
	(In Thousands)
5% convertible subordinated debentures due 2007	$	—	$	—	$	440,000	$	439,472
0% Series A convertible senior subordinated notes due 2008		72,800		74,518		72,800		140,591
0% Series B convertible senior subordinated notes due 2010		148,020		156,783		148,020		286,211
0% convertible senior subordinated notes due 2024		500,000		451,900		500,000		539,400
Total	$	720,820	$	683,201	$	1,160,820	$	1,405,674

(1)

The fair value of all the convertible subordinated debt is from a quoted market source.

        In February 2007, we paid in full $440.0 million in principal amount of outstanding 5% convertible debentures, which matured on February 15, 2007, plus approximately $11.0 million in accrued interest. The $440.0 million of 5% debentures were convertible into common stock, at the option of the holder, at a price of $92.38 per share, and the 5% interest was paid semi-annually, commencing on August 15, 2000. The 5% debentures were redeemable at our option if the trading price of our common stock exceeded $110.86, which is equal to 120% of the conversion price, for 20 trading days in a period of 30 consecutive trading days. As part of the sale of the 5% debentures, we incurred $14.0 million of offering costs, which were recorded as other assets and were amortized over seven years, the term of the 5% debentures. In December 2003, we issued an aggregate of $600.0 million of 0% convertible senior subordinated notes, or 0% notes. We issued $200.0 million in principal amount of 0% Series A convertible senior subordinated notes due 2008, or 0% Series A notes due 2008, and $400.0 million in principal amount of 0% Series B convertible senior subordinated notes due 2010, or 0% Series B notes due 2010. In January 2004, pursuant to an option granted to the initial purchasers of our 0% notes, we issued an additional $50.0 million of 0% Series A notes due 2008 and $100.0 million of 0% Series B notes due 2010. The 0% notes are convertible into common stock, at the option of the holder, at a price of $31.89 and $29.84 per share for the 0% Series A notes due 2008 and 0% Series B notes due 2010, respectively. The 0% notes do not bear interest and are not redeemable. We may be required to repurchase the 0% notes at the option of the holders if there is a change in control of Sepracor or the termination of trading of our common stock on NASDAQ or similar markets. As part of the sale of the 0% notes, we incurred offering costs of $16.9 million, which have been recorded as deferred financing costs and are being amortized over the term of the notes on a pro-rata basis based on the total amount of 0% notes issued. Net of issuance costs, our proceeds were approximately $145.9 million. The issuance costs have been recorded as deferred financing costs and are being amortized over 4 and 6 years, respectively, the remaining term of the debt. During September 2004, certain holders of our 0% Series A notes due 2008 and 0% Series B notes due 2010, agreed, in separately negotiated transactions, to convert $177.2 million and $352.0 million in aggregate principal amount of their 0% Series A notes due 2008 and 0% Series B notes due 2010, respectively, into an aggregate of 5,556,104 and 11,797,483 shares of our common stock, respectively. As an inducement to convert their notes, we paid the holders of the 0% Series A notes due 2008 and 0% Series B notes due 2010 aggregate cash payments of $23.9 million and $45.9 million, respectively. These amounts were recorded as a loss on conversion of convertible notes. Deferred financing costs related to the converted 0% Series A notes due 2008 and 0% Series B notes due 2010 of $4.2 million and $8.8 million, respectively, were netted against the amount of debt converted into equity. At December 31, 2007 and 2006, $72.8 million and

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$148.0 million of the 0% Series A notes due 2008 and 0% Series B notes due 2010, respectively, remained outstanding.

        In September 2004, we issued $500.0 million in principal amount of 0% convertible senior subordinated notes due 2024, or 0% notes due 2024. Holders may convert the notes into cash and, if applicable, shares of our common stock at a conversion rate of 14.8816 shares of common stock per $1,000 principal amount of notes (which is equal to a conversion price of approximately $67.20 per share), subject to adjustment, before the close of business on the business day immediately preceding October 15, 2024 only under the following circumstances:

•

during any fiscal quarter beginning after December 31, 2004, if the closing sale price of our common stock for at least 20 trading days in the 30 consecutive trading days ending on the last day of the preceding fiscal quarter is more than 130% of the conversion price per share of common stock on the last day of such preceding quarter;



•

during the five business day period following any five consecutive trading day period (the "measurement period") in which the trading price per note on each day of that measurement period is less than 98% of the closing sale price of our common stock multiplied by the conversion rate on each such day;



•

if the notes have been called for redemption;



•

upon the occurrence and continuance of specified corporate transactions; and



•

in connection with a transaction or event constituting a fundamental change occurring on or prior to October 20, 2009.

        Upon conversion of the notes, if the adjusted conversion value of the notes, which is defined as the product of (1) the conversion rate in effect on the conversion date; and (2) the average of the daily volume weighted average price of our common stock for each of the five consecutive trading days beginning on the second trading day immediately following the day the notes are tendered for conversion, is less than or equal to the principal amount of the notes, then we will convert the notes for an amount in cash equal to the adjusted conversion value of the notes. If the adjusted conversion value of the notes is greater than the principal amount of the notes, then we will convert the notes into whole shares of our common stock for an amount equal to the adjusted conversion value of the notes less the principal amount of the notes, plus an amount in cash equal to the principal amount of the notes plus the cash value of any fractional shares of our common stock. During 2007, none of the listed circumstances occurred and there was no conversion of debt.

        The notes do not bear interest. On or after October 20, 2009, we have the option to redeem for cash all or part of the notes at any time at a redemption price equal to 100% of the principal amount of the notes to be redeemed. We may be required by the note holders to repurchase for cash all or part of the notes on October 15 of 2009, 2014 and 2019 at a repurchase price equal to 100% of the principal amount of the notes to be repurchased. We may be required to repurchase for cash all or part of the notes upon a change in control of Sepracor or a termination of trading of our common stock on the NASDAQ or similar markets at a repurchase price equal to 100% of the principal amount of the notes to be repurchased, plus in certain change in control circumstances, an additional make-whole payment. In connection with the sale of the notes, we incurred offering costs of approximately $14.2 million, which have been recorded as deferred financing costs and are being amortized over 5 years, the note holders first potential redemption date. At December 31, 2007 and 2006, $500.0 million of the 0% notes due 2024 remained outstanding.

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L)    Commitments and Contingencies

Lease Payments

        Future minimum lease payments under all non-cancelable leases in effect at December 31, 2007, are as follows:

Year	Operating Leases		Capital Leases
	(In Thousands)
2008		1, 867		1,318
2009		1,486		1,242
2010		1,313		311
2011		1,208		—
2012		489		—
Thereafter		—		—
Total minimum lease payments	$	6,363		2,871
Less amount representing interest				(266	)
Present value of minimum lease payments			$	2,605

        Future minimum lease payments under operating leases relate primarily to our office, laboratory and production facilities at 33 Locke Drive, and our office facilities at 111 Locke Drive, both in Marlborough, Massachusetts. Most of the lease terms provide options to extend the leases and require us to pay our allocated share of taxes and operating costs in addition to the annual base rent payments.

        Our capital leases relate to laboratory and computer equipment purchased under capital lease agreements.

        Rental expense under operating leases amounted to $1.5 million, $1.3 million and $833,000 for the years ended December 31, 2007, 2006 and 2005, respectively.

Collaboration Agreements

        We have committed to make potential future milestone payments to third parties as part of licensing, distribution and development agreements. Payments under these agreements generally become due and payable only upon achievement of certain development, regulatory and/or commercial milestones. We may also be required to make additional payments to Nycomed and Bial of up to $280.0 million and $100.0 million, respectively, if all milestones under the agreements with these parties are met. Because the achievement of these milestones is neither probably nor reasonably estimable, such contingent payments have not been recorded on our consolidated balance sheet.

Indemnification Obligations

        We enter into standard indemnification agreements in our ordinary course of business, under which we indemnify and hold harmless certain parties, including customers such as wholesalers, against claims, liabilities and losses brought by third parties to the extent that the claims arise out of (1) injury or death to person or property caused by defect in our product, (2) negligence in the manufacture or distribution of the product or (3) a material breach by Sepracor. We have no liabilities recorded for these guarantees at December 31, 2007 and, if liabilities were incurred, we have insurance policies covering product liabilities, which would mitigate any losses.

        Under our certificate of incorporation we indemnify our officers and directors for certain events or occurrences while the officer or director is, or was, serving at our request in such capacity. The term of the indemnification period is for the officer's or director's lifetime. The maximum potential amount of

F-23

future payments we could be required to make under the terms of our certificate of incorporation is unlimited, however, we believe the fair value of this indemnification is minimal.

M)   Litigation

Litigation Related to Generic Competition and Patent Infringement

        Patent litigation involves complex legal and factual questions. We can provide no assurance concerning the outcome or the duration of any patent related lawsuits. If we, or third parties from whom we receive royalties, are not successful in enforcing our respective patents, the companies seeking to market generic versions of our drugs and the drugs of our licensees will not be excluded, for the full term of the respective patents, from marketing their generic versions of our products or third party products for which we have licensed rights to our patents. Introduction of generic copies of any of our products or third party products for which we have licensed rights to our patents before the expiration of our patents would have a material adverse effect on our business, financial condition and results of operations.

Levalbuterol Hydrochloride Inhalation Solution Abbreviated New Drug Applications

        In September 2005, we received notification that the FDA had received an ANDA from Breath seeking approval of a generic version of our 1.25 mg/3 mL, 0.63 mg/3 mL and 0.31 mg/3 mL XOPENEX Inhalation Solution. Breath's submission includes a Paragraph IV certification alleging that our patents listed in the FDA publication entitled Approved Drug Products With Therapeutic Equivalence Evaluations, commonly referred to as the "Orange Book," for these three dosages of XOPENEX Inhalation Solution are invalid, unenforceable or not infringed by the generic version for which Breath is seeking approval. In October 2005, we filed a civil action against Breath for patent infringement and a non-jury trial is scheduled to begin on July 14, 2008 in the United States District Court for the District of Massachusetts, No. CV:06-10043.

        In January 2006, we received notification that the FDA had received an ANDA from Dey, L.P., seeking approval of a generic version of our 1.25 mg/3 mL, 0.63 mg/3 mL, and 0.31 mg/3 mL XOPENEX Inhalation Solution. Dey, L.P.'s submission includes a Paragraph IV certification alleging that our patents listed in the Orange Book for these three dosages of XOPENEX Inhalation Solution are invalid, unenforceable, or not infringed by the generic version for which Dey, L.P. is seeking approval. In February 2006, we filed a civil action against Dey, L.P. for patent infringement and the case is pending in the United States District Court for the District of Delaware, C.A. No. 06-113.

        In August 2006, we received notification that the FDA had received an ANDA from Dey, L.P. seeking approval of a generic version of our 1.25 mg/0.5 mL XOPENEX Inhalation Solution concentrate. Dey, L.P.'s submission includes a Paragraph IV certification alleging that our patents listed in the Orange Book for 1.25 mg/0.5 mL XOPENEX Inhalation Solution concentrate are invalid, unenforceable, or not infringed by the generic version for which Dey, L.P. is seeking approval. In September 2006, we filed a civil action against Dey, L.P. for patent infringement in the United States District Court for the District of Delaware, C.A. No. 06-604. In September 2006, both civil actions we filed against Dey, L.P. were consolidated into a single suit. No trial date has been set.

        In May 2007, we received notification that the FDA had received an ANDA from Barr seeking approval of a generic version of our 1.25 mg/3 mL, 0.63 mg/3 mL and 0.31 mg/3 mL XOPENEX Inhalation Solution. Barr's submission includes a Paragraph IV certification alleging that our patents listed in the Orange Book for these three dosages of XOPENEX Inhalation Solution are invalid, unenforceable or not infringed by the generic version for which Barr is seeking approval. In July 2007, we filed a civil action against Barr for patent infringement and the case is pending in the United States District Court for the District of Delaware, C.A. No. 07-438. No trial date has been set.

F-24

        The filing of an action for patent infringement under the Hatch-Waxman Act invokes an automatic 30-month stay of the FDA's authority to grant final marketing approval to those companies that file an ANDA containing a Paragraph IV certification against one or more of our XOPENEX Inhalation Solution patents. The first filer of an ANDA with a Paragraph IV certification is potentially entitled to a 180-day period of semi-exclusivity during which the FDA cannot approve subsequently filed ANDAs. The 180-day semi-exclusivity period would begin to run only upon first commercial marketing by the first filer. There are, however, also certain events that could cause the first filer to forfeit the 180-day semi-exclusivity period, which we refer to as a forfeiture event.

        For our 1.25 mg/3 mL, 0.⁶³/3 mL, and 0.³¹/3 mL XOPENEX Inhalation Solution, we believe that Breath is the first filer and potentially entitled to 180-days of semi-exclusivity against subsequent ANDA filers for those three dosages. The 30-month stay against Breath's ANDA is scheduled to expire on or about March 7, 2008. In December 2007, the FDA granted tentative approval to Breath's ANDA for all three dosages. Upon expiration of that 30-month stay, the FDA could grant final approval and Breath could then commence an "at risk" distribution of its generic levalbuterol product for those dosages notwithstanding our patents and notwithstanding that the court's decision as to the merits of the litigation will not have been rendered, unless we were able to obtain an injunction prohibiting such distribution. However, if a forfeiture event occurs and the FDA determines that Breath has forfeited the 180-day semi-exclusivity period for those three dosages, other ANDA filers who have been granted final approval by the FDA could commence an "at risk" launch upon expiration of the 30-month stay. For those three dosages, the 30-month stays against Dey, L.P. and Barr expire on or about July 9, 2008 and November 30, 2009, respectively.

        For our 1.25 mg/0.5 mL XOPENEX Inhalation Solution concentrate, we believe that Dey, L.P. is the first filer and potentially entitled to 180-days of semi-exclusivity for that concentration. The 30 month stay against Dey, L.P.'s ANDA for that concentration expires on or about February 14, 2009.

        Although we could seek recovery of any damages sustained in connection with any activities conducted by a party that infringe a valid and enforceable claim in our patents, whether we are ultimately entitled to such damages would be determined by the court in connection with our ongoing legal proceedings with each party desiring to launch generic levalbuterol hydrochloride products. If any of these parties were to commence selling a generic alternative to our XOPENEX Inhalation Solution product prior to the resolution of these ongoing legal proceedings, or there is a court determination that the products these companies wish to market do not infringe our patents, or that our patents are invalid or unenforceable, it would have a material adverse effect on our business, financial condition and results of operations. In addition, our previously issued guidance regarding our projected financial results may no longer be accurate and we would have to revise such guidance.

Desloratadine Abbreviated New Drug Applications

        In June 2007, we received notification that the FDA had received an ANDA from Glenmark Pharmaceuticals, Ltd. and Glenmark Pharmaceuticals, Inc., USA, which we refer to collectively as Glenmark, seeking approval of a generic version of Schering-Plough's 5 mg tablets of CLARINEX. Glenmark's submission includes a Paragraph IV certification alleging that our patents that Schering-Plough (as licensee of such patents) listed in the Orange Book for its CLARINEX are invalid, unenforceable or not infringed by the generic version for which Glenmark is seeking approval. In July 2007, we and the University of Massachusetts, co-owners of certain patents listed in the Orange Book, filed a civil action in the United States District Court for the District of New Jersey against Glenmark for patent infringement, C.A. No. 07-3385.

        In July 2007, we received notification that the FDA had received an ANDA from Sun Pharmaceutical Industries, Ltd., or Sun, seeking approval of a generic version of Schering-Plough's 5 mg tablets of CLARINEX. Sun's submission includes a Paragraph IV certification alleging that our

F-25

patents listed by Schering-Plough (as licensee of such patents) in the Orange Book for CLARINEX are invalid, unenforceable, or are not infringed by the generic version for which Sun is seeking approval. In September 2007, we and the University of Massachusetts filed a civil action in the United States District Court for the District of New Jersey against Sun for patent infringement, C.A. No. 07-4213.

        In August 2007, we received notification that the FDA had received an ANDA from Orchid Chemicals & Pharmaceuticals, Ltd., or Orchid, seeking approval of a generic version of Schering-Plough's 5 mg tablets, and 2.5 and 5 mg orally disintegrating tablets of CLARINEX. Orchid's submission includes a Paragraph IV certification alleging that our patents listed by Schering-Plough (as licensee of such patents) in the Orange Book for CLARINEX are invalid, unenforceable or not infringed by the generic version for which Orchid is seeking approval. In October 2007, we and the University of Massachusetts filed a civil action in the United States District Court for the District of New Jersey against Orchid for patent infringement, C.A. No. 07-4623.

        In September 2007, we received notification that the FDA had received ANDAs from Mylan Pharmaceuticals, Inc., or Mylan, Lupin Limited, or Lupin, and Perrigo R & D Company, or Perrigo, seeking approval of a generic version of Schering-Plough's 5 mg tablets of CLARINEX, and from Dr. Reddy's Laboratories, or Dr. Reddy's, seeking approval of generic versions of Schering-Plough's (1) 5 mg tablets of CLARINEX, (2) 2.5 mg and 5 mg orally disintegrating tablets of CLARINEX, (3) 2.5/120 mg tablets of CLARINEX-D 12 hour desloratadine and pseudoephedrine and (4) 5.0/240 mg tablets of CLARINEX-D 24 hour desleratodine and pseudoephedrine extended release tablets. The submissions by these parties include Paragraph IV certifications alleging that certain patents listed by Schering-Plough (as licensee of such patents) in the Orange Book for CLARINEX are invalid, unenforceable or not infringed by the generic versions for which these parties are seeking approval. In October 2007, we and the University of Massachusetts filed civil actions in the United States District Court for the District of New Jersey against Mylan, Lupin, Perrigo and Dr. Reddy's for patent infringement, C.A. No. 3:07-cv-05017, C.A. No. 3:07-cv-05265, C.A. No. 3:07-cv-05136 and C.A. No. 3:07-cv-05001, respectively.

        In October 2007, we received notification that the FDA had received an ANDA from Anchen Pharmaceuticals, Inc., or Anchen, seeking approval of a generic version of Schering-Plough's 2.5/120 mg tablets of CLARINEX-D 12 hour desloratadine and pseudoephedrine extended release tablets. Anchen's submission includes a Paragraph IV certification alleging that our patents listed by Schering-Plough (as licensee of such patents) in the Orange Book for CLARINEX are invalid, unenforceable or not infringed by the generic version for which Anchen is seeking approval. In November 2007, we and the University of Massachusetts filed a civil action in the United States District Court for the District of New Jersey against Anchen for patent infringement, C.A. No. 07-cv-5737.

        In September 2007, we received notification that the FDA had received an ANDA from Sandoz, Inc., or Sandoz, seeking approval of a generic version of Schering-Plough's 5 mg tablets of CLARINEX. Sandoz's submission includes a Paragraph IV certification alleging that our patents listed by Schering-Plough (as licensee of such patents) in the Orange Book for CLARINEX are invalid, unenforceable, or are not infringed by the generic version for which Sandoz is seeking approval. In December 2007, we and the University of Massachusetts filed a civil action in the United States District Court for the District of New Jersey against Sandoz for patent infringement, C.A. No. 3:07-cv-04213.

        In February 2008, we received notification that the FDA had received an ANDA from Belcher Pharmaceuticals, Inc., or Belcher, seeking approval of a generic version of Schering-Plough's 5 mg tablets of CLARINEX. Belcher's submission includes a Paragraph IV certification alleging that our patents listed by Schering-Plough (as licensee of such patents) in the Orange Book for CLARINEX are invalid, unenforceable, or are not infringed by the generic version for which Belcher is seeking approval. In February 2008, we and the University of Massachusetts filed a civil action in the United

F-26

States District Court for the District of New Jersey against Belcher for patent infringement, C.A. No. 3:08-cv-00945.

        We believe that all of these ANDAs are subject to a statutory stay of approval until June 21, 2009 based on previous litigation commenced by Schering-Plough against these parties in separate civil actions involving another patent.

BROVANA Patent Infringement Claim

        In April 2007, we were served with a Complaint filed in the United States District Court for the Southern District of New York, C.A. No. 1:07-cv-2353, by Dey, alleging that manufacture and sale of BROVANA® (arformoterol tartrate) Inhalation Solution infringes or will induce infringement of a single U.S. patent for which Dey owns all rights, title and interest. In April 2007, we filed an Answer and Counterclaim to this Complaint seeking to invalidate the originally asserted patent and a second related patent. In May 2007, Dey filed a reply asserting infringement of the second patent. Under the current trial scheduling order, trial will begin no earlier than January 12, 2009. It is too early to make a reasonable assessment as to the likely outcome or impact of this litigation. We are unable to reasonably estimate any possible range of loss or liability related to this lawsuit due to its uncertain resolution.

Stock Option Inquiry and Derivative Stockholder Complaints

        We announced in November 2007 that we had received notice from the SEC that the informal inquiry into our stock option grants and stock option granting practice had been completed and that no enforcement action was recommended.

        From June to October 2006, six stockholder derivative complaints were commenced against us (as a nominal defendant) and certain of our current and former officers and directors. Three of these complaints were filed in the Superior Court, Middlesex County, Commonwealth of Massachusetts (later transferred to the Business Litigation Session of the Superior Court, Suffolk County, Commonwealth of Massachusetts) and three were filed in the United States District Court for the District of Massachusetts. All state court complaints were later consolidated into one state court action, and all Federal court complaints were consolidated into one Federal court action. It was alleged in both actions that the individual defendants breached their fiduciary duties and were unjustly enriched in connection with certain stock option grants; violations of Federal securities laws were alleged in the Federal action as well. The complaints sought monetary damages in unspecified amounts, equitable and injunctive relief, including disgorgement of profits obtained by certain defendants and other relief as determined by the court.

        In October 2007, we reached a settlement with the parties to both the state and Federal action providing for the dismissal of both actions, subject to the approval of the court. The settlement resolves all claims and includes no finding of wrongdoing on the part of any of the defendants and no cash payment other than attorneys' fees. As part of the settlement, we implemented stock option grant and other procedures that reflect developing best practices. The settlement became final and effective in January 2008 upon final approval by the state court and entry of dismissal with prejudice by the Federal court.

Tecastemizole Class Action Complaints

        In June 2007, we filed in the United States District Court for the District of Massachusetts, or the Court, a Stipulation of Settlement regarding two securities class action lawsuits, or class actions, pending in the Court naming Sepracor and certain of our current and former officers and one director as defendants. The class actions, which were filed on behalf of certain purchasers of our equity and debt securities, or the plaintiffs, allege that the defendants violated the Federal securities laws by making false and misleading statements relating to the testing, safety and likelihood of approval of

F-27

tecastemizole by the FDA. The Stipulation of Settlement contains no admission of wrongdoing. Sepracor and the other defendants have always maintained and continue to believe that we did not engage in any wrongdoing or otherwise commit any violation of Federal or state securities laws or other laws. However, given the potential cost and burden of continued litigation, we believe the settlement was in our best interests and the best interests of our stockholders. Under the terms of the Stipulation of Settlement, in June 2007 we paid into escrow $52.5 million in settlement of the class actions and, in July 2007, received an $18.5 million reimbursement from our insurance carriers. We recorded the litigation settlement expense of $34.0 million, relating to this matter, during the quarter ended March 31, 2007. In September 2007, the Court granted final approval of the Stipulation of Settlement and entered a final judgment consistent with the Stipulation of Settlement. The settlement is now final and the total settlement amount has been released from escrow. Pursuant to the final judgment entered by the Court, the Court dismissed the class actions with prejudice, and the plaintiffs are deemed to have released all claims against us.

LUNESTA Trademark Claim

        In September 2006, Tharos Laboratories, Inc., or Tharos, filed suit against us in the United States District Court, District of Utah, Central Division, 2:06-cv-00757, alleging trademark infringement, dilution, unfair competition, false advertising and false designation of origin arising out of our use of our silk luna moth design in connection with LUNESTA. Tharos sought unspecified monetary damages and to enjoin our use of the silk luna moth design. In October 2007, we reached a final agreement with Tharos, and the case has been dismissed.

Other Legal Proceedings

        From time to time we are party to other legal proceedings in the course of our business. We do not, however, expect such other legal proceedings to have a material adverse effect on our business, financial condition or results of operations.

N)    Stockholders' Equity (Deficit)

Preferred Stock

        Our board of directors is authorized, without stockholder approval, but subject to any limitations prescribed by law, to issue up to 1,000,000 shares of preferred stock, in one or more series. Each such series will have such rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, as will be determined by the board of directors.

Treasury Stock

        In November 2005, we received 2,326,263 shares of our common stock upon the settlement of call spread options we purchased in December 2003. The shares are being held in treasury at cost and may be issued in connection with our employee stock purchase plan and other corporate purposes.

F-28

Accumulated Other Comprehensive Income

        The components of accumulated other comprehensive income at December 31, 2007 and 2006 were as follows:

	2007		2006
	(In Thousands)
Net unrealized gains on securities available for sale	$	5,416	$	990
Foreign currency translation		4,771		1,850
Total	$	10,187	$	2,840

O)   Stock Plans

        We have stock-based compensation plans, which are described below. Effective January 1, 2006, we record the issuance of stock options using SFAS 123(R). Prior to January 1, 2006, we accounted for share-based compensation to employees in accordance with APB 25 and related interpretations and followed the disclosure requirements of SFAS 123.

        The 1997 Stock Option Plan, or 1997 Plan, permitted us to grant non-qualified stock options, or NSOs, to purchase up to 1,000,000 shares of common stock to our employees and consultants. Executive officers were not entitled to receive stock options under the 1997 Plan. NSOs granted under the 1997 Plan have a maximum term of ten years from the date of grant and generally vest over five years. The 1997 Plan expired in the fourth quarter of 2007.

        The 1999 Director Stock Option Plan, or 1999 Director Plan, permits us to grant NSOs to purchase up to 1,800,000 shares of common stock to our non-employee directors. Under the 1999 Director Plan, stock option grants for the purchase of 20,000 shares of our common stock are automatically made to each non-employee director upon his first election to the board of directors and, on the date of any annual meeting occurring at last six months after he is first elected to the board of directors if he is serving as a director at the adjournment of such annual meeting. Stock options granted under this plan, have a maximum term of ten years and an exercise price equal to the last reported sales price of our common stock on NASDAQ on the date of grant. The stock options to new directors typically vest in equal annual installments over five years and the annual grants typically vest in full on the day prior to the first annual meeting following the date of grant.

        The 2000 Stock Incentive Plan, or 2000 Plan, permits us to grant incentive stock options, or ISOs, NSOs and restricted stock awards to purchase up to 13,500,000 shares of common stock to our employees, officers, directors and consultants. Stock options granted under the 2000 Plan have a maximum term of ten years from the date of grant, have an exercise price not less than the fair value of the stock on the grant date and generally vest over five years. In May 2002, the stockholders approved an amendment to the 2000 Plan increasing the number of shares of common stock that could be granted under the 2000 Plan from 2,500,000 shares to 4,000,000 shares. In May 2003, the stockholders approved an amendment to the 2000 Plan increasing the number of shares of common stock that could be granted under the 2000 Plan from 4,000,000 shares to 5,500,000 shares. In May 2004, the stockholders approved an amendment to the 2000 Plan increasing the number of shares of common stock that could be granted under the 2000 Plan from 5,500,000 shares to 8,000,000 shares. In May 2005, the stockholders approved an amendment to the 2000 Plan increasing the number of shares of common stock that could be granted under the 2000 Plan from 8,000,000 shares to 9,500,000 shares. In May 2006, the stockholders approved an amendment to the 2000 Plan increasing the number of shares of common stock that could be granted under the 2000 Plan from 9,500,000 shares to 11,500,000 shares. In May 2007, our stockholders approved an amendment to the 2000 Plan increasing the number of shares of common stock that could be granted under the 2000 Plan from 11,500,000 shares to 13,500,000 shares.

F-29

        The 2002 Stock Incentive Plan, or 2002 Plan, permits us to grant NSOs and restricted stock awards to purchase up to 4,000,000 shares of common stock to our employees, other than executive officers. Stock options granted under the 2002 Plan have a maximum term of ten years from the date of grant, have an exercise price not less than the fair value of the stock on the grant date and generally vest over five years. In June 2002, the Board of Directors approved an amendment to the 2002 Plan increasing the number of shares of common stock that may be granted under the 2002 Plan from 500,000 shares to 4,000,000 shares.

        Stock options granted under the equity incentive plans are generally non-qualified stock options, but the equity incentive plans permit the granting of "incentive stock options" under the U.S. Internal Revenue Code of 1986, as amended, or the Code. The exercise price of a stock option generally is equal to the fair market value of our common stock on the option grant date. The contractual term of stock options granted under our equity incentive plans is generally 10 years.

        Under the equity incentive plans, in addition to stock options, we granted certain employees restricted stock awards. Restricted stock awards are non-vested stock awards. Restricted stock awards are independent of stock option grants and are subject to forfeiture or repurchase if employment terminates prior to the release of the restrictions. Such awards generally vest annually over a two to five year period from the date of grant. Ownership of restricted stock typically cannot be transferred until the shares have vested. In connection with restricted stock grants, we record compensation expense based on the fair value of the shares granted. This stock compensation is being amortized on a straight-line basis over the vesting periods.

        We issue common stock from previously authorized but unissued shares to satisfy stock option exercises, restricted stock grants and purchases under the 1998 ESPP.

        Stock options and other equity awards, if any, outstanding under the 1997 Plan, the 1999 Director Plan, the 2000 Plan and the 2002 Plan vest and become fully exercisable upon a change in control of Sepracor.

        The following table presents stock-based employee compensation expenses included in our consolidated statements of operations:

	Year Ended
	December 31, 2007		December 31, 2006		December 31, 2005
	(In Thousands)
Cost of products sold	$	496	$	454	$	—
Research and development		9,470		10,984		—
Selling, marketing and distribution		11,425		15,386		140
General and administrative		12,887		18,376		904
Stock-based compensation expense	$	34,278	$	45,200	$	1,044

        The following table presents stock-based employee compensation expenses by type of award:

	Year Ended
	December 31, 2007		December 31, 2006		December 31, 2005
	(In Thousands)
Employee stock options	$	27,695	$	41,385	$	1,044
Restricted stock		5,104		1,930		—
Employee stock purchase plan		1,479		1,885		—
Stock-based compensation expense	$	34,278	$	45,200	$	1,044

F-30

        The following tables summarize information about stock options outstanding at December 31, 2007 (in thousands, except for per share amounts and contractual life):

	Options Outstanding
					Options Exercisable
		Weighted-Average Remaining Contractual Life (Years)
Range of Exercise Price Per Share	Number of Options Outstanding		Weighted-Average Exercise Price Per Share		Number of Options Exercisable	Weighted-Average Exercise Price Per Share
$  6.24 – $  8.31	567	4.7	$	6.28	567	$	6.28
11.57 –  14.50	884	3.5		13.03	765		12.78
18.45 –  27.15	2,533	4.0		24.24	1,902		24.19
27.70 –  39.06	396	5.4		34.80	215		35.40
44.15 –  64.50	5,932	7.4		52.93	2,158		53.91
71.88 –  87.50	119	2.5		85.27	119		85.27
$  6.24 – $87.50	10,431	6.0	$	39.73	5,726	$	33.78

		2007
		Number of Options			Weighted-Average Exercise Price Per Share			Weighted-Average Remaining Contractual Terms (In Years)	Aggregate Intrinsic Value (In Thousands)
Balance at January 1,			10,799		$	36.99	(1)
	Granted		2,586			45.34
	Exercised		(1,360	)		22.09
	Cancelled		(1,001	)		48.86
	Expired		(593	)		39.74
Balance at December 31,			10,431		$	39.73		6.0	$	28,356
Options exercisable at December 31,			5,726		$	33.78		4.0	$	25,805
Vested and unvested expected to vest at December 31,			9,834		$	39.37		5.8	$	28,163
Weighted-average fair value of options granted during the year December 31,		$	15.84

(1)

In March 2007, the exercise price of certain stock options was increased at the election of the officers holding such options.

        All stock options granted during the years ended December 31, 2007, 2006 and 2005 were granted with exercise prices equal to the fair market value of our common stock on the grant date.

        The total intrinsic value of stock options exercised during the year ended December 31, 2007 and 2006 was $33.6 million and $48.2 million, respectively.

        Our non-vested share activity for the year ended December 31, 2007 was as follows:

	Stock Options				Restricted Stock
	Number of Shares (In Thousands)		Weighted Average Fair Value		Number of Shares (In Thousands)		Weighted Average Fair Value
Non-vested at December 31, 2006	4,544		$	22.65	174		$	55.34
Granted	2,586			15.84	418			41.03
Vested	(1,424	)		19.33	(46	)		55.24
Forfeited	(1,001	)		23.22	(44	)		53.53
Non-vested at December 31, 2007	4,705		$	18.91	502		$	41.94

F-31

        At December 31, 2006 the weighted average fair value of stock options granted and stock options vested was $19.86 and $18.47, respectively.

        At December 31, 2007, unrecognized compensation expense related to non-vested stock options and restricted stock was $76.1 million and $17.4 million, respectively, which is expected to be recognized over weighted average periods of 3.1 years and 3.0 years, respectively.

        There were approximately 4,043,000 shares available under our stock plans for future option and restricted stock grants as of December 31, 2007.

        The 1998 Employee Stock Purchase Plan, or 1998 ESPP, permits an aggregate of 1,400,000 shares of common stock to be purchased by employees at 85% of market value on the first or last day of each six-month offering period, whichever is lower, through accumulation of payroll deductions ranging from 1% to 10% of compensation as defined, subject to certain limitations. Employees purchased approximately 207,000, 167,000 and 160,000 shares for a total of $6.0 million, $7.3 million and $6.7 million during the years ended December 31, 2007, 2006 and 2005, respectively. In May 2003, our stockholders approved an amendment to the 1998 ESPP increasing the number of shares of common stock authorized for issuance under the 1998 ESPP from 600,000 shares to 900,000 shares. In May 2006, our stockholders approved an amendment to the 1998 ESPP increasing the number of shares of common stock authorized for issuance under the 1998 ESPP from 900,000 shares to 1,400,000 shares. At December 31, 2007, there were approximately 241,000 shares of common stock authorized for future issuance under the 1998 ESPP.

        At December 31, 2007, the estimated unrecognized compensation expense related to the December 1, 2007 offering period of the 1998 ESPP, which concludes on May 31, 2008, was $574,000. The associated expense is amortized on a straight-line basis over the offering period.

P)    Income Taxes

        The components of income tax expense consist of the following at December 31:

		2007			2006		2005
		(In Thousands)
Current income tax expense
	Federal	$	19,764		$	3,530	$	—
	State		2,940			126		38
	Foreign		686			—		113
Total current income tax expense		$	23,390		$	3,656	$	151
Deferred income tax expense
	Federal	$	(15,376	)	$	—	$	—
	State		(1,744	)		—		—
	Foreign		—			—		—
Total deferred income tax benefit		$	(17,120	)	$	—	$	—
Total current and deferred income tax expense		$	6,270		$	3,656	$	151

        For each of the years ended December 31, 2007, 2006 and 2005, our United States Federal statutory tax rate was 35%, 34% and 34% and our effective tax rate was 9.7%, 2.1% and (1.0)%,

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respectively. Our effective tax rate varies from our statutory tax rate for the years ended December 31 principally due to the following:

	2007		2006 (as restated)		2005 (as restated)
United States Federal statutory tax rate	35.0	%	34.0	%	34.0	%
State income taxes, net of U.S. Federal tax expense	4.9		5.9		(0.2	)
Tax rate and tax law differential of foreign operations	0.9		—		(7.8	)
Research and development credits	(11.4	)	(4.4	)	32.7
Change in valuation allowance	(24.5	)	(35.3	)	(60.7	)
Other nondeductible expenses	0.3		0.4		1.0
Deferred compensation amortization	4.5		1.5		—
	9.7	%	2.1	%	(1.0	)%

        Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to tax benefit carryforwards and to differences between the financial statement amounts of assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is established if, based on management's review of both positive and negative evidence, it is more likely than not that all or a portion of the deferred tax asset will not be realized. The possible adverse impact to our XOPENEX Inhalation Solution sales if an "at risk" generic launch were to occur or we are unable to successfully defend our patent rights and increased sales and marketing expenses as a result of the expected commercial introduction of Omnaris AQ in the first half of 2008 and the expected commercial introduction ALVESCO HFA in the second half of 2008, management continues to conclude a valuation allowance is required for the full amount of the deferred tax asset. Of our total valuation allowance of $662.1 million, approximately $152.2 million relates to stock option compensation deductions. The tax benefit associated with the stock option compensation deductions will be credited to equity if realized. If in the future, we determine based on expected profitability, that these deferred tax assets are more likely than not to be realized, a release of all, or part, of the related valuation allowance could result in an immediate material income tax benefit in the period of decrease and material income tax provisions in future periods. Such release of the valuation allowance could occur within the next 12 months upon resolution of the aforementioned uncertainties.

        At December 31, 2007, we had Federal tax net operating loss carryforwards of approximately $1.0 billion, which expire in the years 2020 through 2025 and state tax net operating loss carryforwards of approximately $491.7 million, which expire in the years 2008 through 2025. Based upon the Internal Revenue Code and changes in company ownership, utilization of the net operating losses and tax credit carryforwards may be subject to an annual limitation. At December 31, 2007, we had Netherlands Antilles net operating loss carryforwards of approximately $5.7 million, which will expire in the years 2008 through 2012. At December 31, 2007, we had Federal and state research and experimentation credit carryforwards of approximately $60.7 million and $35.2 million, respectively, which will expire from now through 2027 and 2022, respectively. We also have Canadian federal investment tax credits of $5.6 million, which expire in the years 2009 through 2027.

F-33

        The components of net deferred taxes were as follows at December 31:

		2007			2006 (as restated)
		(In Thousands)
Assets
	Net operating loss carryforwards	$	379,516		$	453,388
	Research and development capitalization		24,161			32,445
	Research and experimentation tax credit carryforwards		93,984			98,305
	Accrued expenses		10,968			29,721
	Reserves		92,472			68,135
	Depreciation		2,592			1,082
	Intangibles		1,664			8,333
	Other		8,112			4,248
	License fee		29,227			—
	Stock based compensation		15,351			—
	Basis difference of subsidiaries		4,118			—
Liabilities
	Deferred revenue on license fees		(103	)		—
	Basis difference of subsidiaries		—			(144	)
	Valuation allowance		(662,062	)		(695,513	)
Net deferred taxes		$	—		$	—

        The United States and foreign components of income before income taxes were as follows for the years ended December 31:

	2007			2006 (as restated)			2005 (as restated)
	(In Thousands)
United States	$	69,463		$	178,617		$	(11,552	)
Foreign		(4,860	)		(3,800	)		(4,190	)
Total	$	64,603		$	174,817		$	(15,742	)

        We file tax returns in the U.S. Federal jurisdiction and in various state, local and foreign jurisdictions. During the third quarter of 2007, the Internal Revenue Service formally concluded its examination of our 2004 and 2005 federal income tax returns, and no payment was due as a result of the audit. We are no longer subject to IRS examination for years prior to 2004, although carryforward attributes that were generated prior to 2004 may still be adjusted upon examination by the IRS if they either have been or will be used in a future period. We receive inquiries from various states during the year, some of those inquiries include an audit of state returns previously filed. With limited exceptions, we are no longer subject to state or local examinations for years prior to 2003, however, carryforward attributes that were generated prior to 2003 may still be adjusted upon examination by state or local tax authorities if they either have been or will be used in a future period.

        The foreign jurisdictions where we currently file income tax returns are Canada and the Netherlands Antilles. We are currently under examination by Canada Revenue Agency, or CRA, for our Scientific Research and Experimental Development claims for the years ended December 31, 2006, 2005, 2004 and 2003. There are currently no examinations being conducted by the tax authorities in the Netherlands Antilles. With limited exceptions, we are no longer subject to examination in Canada and the Netherlands Antilles for years prior to 2003, although carryforward attributes that were generated prior to these periods may still be adjusted upon examination if they either have been or will be used in a future period. United States Federal income taxes were not provided on permanently reinvested undistributed earnings for certain non-U.S. subsidiaries of approximately $2.3 million as of December 31, 2007. We will reinvest these earnings indefinitely in its operations outside the United States. We have deemed it impracticable to determine the amount of taxes payable if any monies were to be returned to us in the United States.

F-34

        Effective January 1, 2007, we adopted the provisions of FIN 48, Accounting for Uncertainty in Income Taxes. The implementation of FIN 48 did not have a material impact on our consolidated financial statements or results of operations. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

Balance at January 1, 2007	$	—
Additions based on tax positions related to the current year		—
Additions for tax positions of prior years		18,438
Reductions for tax positions of prior years		—
Settlements		—
Balance at December 31, 2007	$	18,438

        The $18.4 million of unrecognized tax benefits represents tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deduction. Because of the impact of deferred income tax accounting, other than for interest and penalties, the disallowance of the shorter deductibility period would not change the effective income tax rate but would accelerate the payment of cash to the taxing authority to an earlier period by approximately $1.3 million.

        We recognize accrued interest and penalties related to unrecognized tax benefits as a component of tax expense. This policy did not change as a result of the adoption of FIN 48. As of December 31, 2007, we have accrued $210,000 of interest and $0 of penalties.

        We are still in the process of completing a research and development study and it is reasonably possible that our gross unrecognized tax benefits balance may change within the next twelve months. However, at this time an estimate of the range cannot be made.

Q)   Employees' Savings Plan

        We have a 401(k) savings plan for all domestic employees. Under the provisions of our 401(k) savings plan, employees may voluntarily contribute up to 60% of their compensation, up to the statutory limit. In addition, we can make a matching contribution at our discretion. We matched 50% of the first $7,000, $5,000 and $4,000 contributed by employees up to $3,500, $2,500 and $2,000 maximum per employee during 2007, 2006 and 2005, respectively. We incurred expenses of $5.4 million, $3.9 million, and $2.3 million in 2007, 2006 and 2005, respectively, as a result of our matching contribution.

R)    Restructuring Charges

        During the quarter ended December 31, 2007, we completed an evaluation of our sales force structure, size and allocation that was initiated in the second quarter of 2007 in an attempt to maximize efficiency of our sales force. This evaluation resulted in a decision to restructure and re-align our sales force. The restructuring program was completed by December 31, 2007 and approximately 300 positions were eliminated. All associated costs are expected to be paid out by the end of the second quarter of 2008.

F-35

        The following table sets forth the restructuring accrual activity during the years ended December 31, 2007 and 2006:

	Employee Related Items and Benefits			Contract Terminations		Total
	(In Thousands)
Restructuring charges accrual at December 31, 2006	$	—		$	—	$	—
Initial provision		6,493			428		6,921
Cash payments		(187	)		—		(187	)
Restructuring charges accrual at December 31, 2007	$	6,306		$	428	$	6,734

        The restructuring reserve is recorded as other current liabilities on our balance sheet.

        The employee related items and benefits primarily relate to severance costs for the employees that were terminated. The contract terminations consist of excess leased computer equipment and company cars as a result of the sales force reduction.

S)    Business Segment and Geographic Area Information

        We operate in one business segment, which is the discovery, research and development and commercialization of pharmaceutical products.

        All of our revenues in 2007, 2006 and 2005 were received from unaffiliated customers located in the United States or its territories. Product revenue by product is presented below:

		2007		2006		2005
				(as restated)		(as restated)
		(In Thousands)
Product sales:
	XOPENEX Inhalation Solution	$	487,189	$	542,944	$	410,807
	LUNESTA		600,904		565,436		327,100
	XOPENEX HFA		74,883		40,994		11,958
	BROVANA		14,280		—		—
Total product sales		$	1,177,256	$	1,149,374	$	749,865

        Long-lived asset information, which is comprised of property and equipment, by geographic area is presented below:

		2007		2006		2005
		(In Thousands)
Long-lived assets:
	United States	$	75,151	$	64,156	$	63,663
	Canada		12,157		8,655		8,804
Total long-lived assets		$	87,308	$	72,811	$	72,467

F-36

T)    Quarterly Consolidated Financial Data (Unaudited)

	For the Quarter Ended
	March 31, 2007 (as restated)(1)		June 30, 2007 (as restated)(1)		September 30, 2007 (as restated)(1)		December 31, 2007(4)
	(In Thousands, Except Per Share Data)
Net revenues	$	327,700	$	276,792	$	280,758	$	339,980
Gross profit	$	296,082	$	251,262	$	254,338	$	306,393
Net income (loss) applicable to common shares	$	18,815	$	4,811	$	39,708	$	(5,001	)
Basic net income (loss) per common share	$	0.18	$	0.05	$	0.37	$	(0.05	)
Diluted net income (loss) per common share	$	0.16	$	0.04	$	0.34	$	(0.05	)

	For the Quarter Ended
	March 31, 2006 (as restated)(1)		June 30, 2006 (as restated)(1)(3)		September 30, 2006 (as restated)(1)(2)		December 31, 2006 (as restated)(1)
	(In Thousands, Except Per Share Data)
Net revenues	$	281,354	$	261,687	$	286,830	$	353,263
Gross profit	$	255,662	$	240,711	$	261,949	$	320,076
Net income applicable to common shares	$	5,712	$	8,325	$	61,965	$	95,158
Basic net income per common share	$	0.05	$	0.08	$	0.59	$	0.90
Diluted net income per common share	$	0.05	$	0.07	$	0.54	$	0.82

(1)

See Note U "Restatement of Financial Statements Based on Review of Government Pricing" below.

        The following table sets forth the impact of the product sales reduction on our historical financial statements disclosed in the Quarterly Consolidated Financial Data table, set forth above, for our fiscal quarters ended March 31, June 30 and September 30, 2007 and 2006, and December 31, 2006.

		For the Quarter Ended
		March 31, 2007		June 30, 2007		September 30, 2007
		(In Thousands, Except Per Share Data)
		(unaudited)
Net revenues
	As previously reported	$	331,434	$	278,128	$	283,945
	As restated	$	327,700	$	276,792	$	280,758
Gross profit
	As previously reported	$	299,816	$	252,598	$	257,525
	As restated	$	296,082	$	251,262	$	254,338
Net income applicable to common shares
	As previously reported	$	22,549	$	6,147	$	42,895
	As restated	$	18,815	$	4,811	$	39,708
Basic net income per common share
	As previously reported	$	0.21	$	0.06	$	0.40
	As restated	$	0.18	$	0.05	$	0.37
Diluted net income per common share
	As previously reported	$	0.19	$	0.05	$	0.37
	As restated	$	0.16	$	0.04	$	0.34

F-37

		For the Quarter Ended
		March 31, 2006		June 30, 2006		September 30, 2006		December 31, 2006
		(In Thousands, Except Per Share Data)
		(unaudited)
Net revenues
	As previously reported	$	285,678	$	264,406	$	289,296	$	357,155
	As restated	$	281,354	$	261,687	$	286,830	$	353,263
Gross profit
	As previously reported	$	259,986	$	243,430	$	264,415	$	323,968
	As restated	$	255,662	$	240,711	$	261,949	$	320,076
Net income applicable to common shares
	As previously reported	$	10,036	$	11,044	$	64,431	$	99,050
	As restated	$	5,712	$	8,325	$	61,965	$	95,158
Basic net income per common share
	As previously reported	$	0.10	$	0.11	$	0.61	$	0.94
	As restated	$	0.05	$	0.08	$	0.59	$	0.90
Diluted net income common share
	As previously reported	$	0.09	$	0.10	$	0.56	$	0.85
	As restated	$	0.05	$	0.07	$	0.54	$	0.82

(2)

The three months ended September 30, 2006 includes an $8.3 million product sales allowances and reserve reversal related to rebates under the Department of Veterans Affairs TRICARE Pharmacy Benefits Program, which were based on a U.S. Federal Court of Appeals ruling in September 2006 that pharmaceutical manufacturers are not required to reimburse on drugs purchased through the TRICARE Program

(3)

The three months ended June 30, 2006 includes a $3.0 million Medicaid product sales allowances and reserve reversal as a result of our review of a prior period rebate per unit calculation resulting in a reserve reversal of a prior period estimate.

(4)

The three months ended December 31, 2007 includes a $75.0 million research and development expense associated with our Bial license agreement.

U)    Restatement of Financial Statements Based on Review of Government Pricing

        Subsequent to the filing of our Annual Report on Form 10-K for the fiscal year ended December 31, 2006, we concluded that based on our review of our government price reporting, we would need to restate our financial statements.

        Revenue is recognized for amounts that are fixed or determinable assuming all other applicable criteria are met. We recently determined that PHS discounts were provided to non-PHS covered entities. This circumstance creates uncertainty as to whether a new best price was set in prior periods. If a new best price was set, additional Medicaid rebates will be required to be paid. A portion of the revenue we previously recognized is therefore contingent on the outcome of this matter. Revenue has been reduced and rebate liabilities increased to adjust for the amounts previously invoiced and received that are contingent and do not qualify for revenue recognition. The restatement for such contingent amounts reflects our best estimate of the net revenue that should have been recognized in the respective periods.

        Under the Medicaid rebate program, we are obligated to pay a rebate to each participating State Medicaid program for each unit of product reimbursed by Medicaid. The amount of the rebate is set by law as the greater of (a) 15.1% of the average manufacturer price, which is referred to as AMP, or (b) the difference between AMP and the Medicaid best price, which is the lowest price available from

F-38

us to any customer not excluded by law from that determination. The determination of whether a new best price was set is uncertain and is a matter of judgment that will be subject to disclosure to CMS. A determination of the actual amount of payments required may change as a result of future interactions with CMS and we cannot be certain that we will not be subject to fines, penalties and interest.

        We also excluded transactions involving the Pennsylvania General Assistance Program, or PAGA, from our calculation of the Medicaid best price based on the belief that PAGA, a State Pharmaceutical Assistance Program, was excluded from Medicaid best price. Despite review of available materials, we cannot be sure that PAGA is excluded from Medicaid best price. While we may have incorrectly excluded the PAGA transactions, we do not believe including the transactions would have set the Medicaid best price for any period in which the PHS price was given to an entity that was not a PHS covered entity, where the PHS price was lower than the PAGA price and the PHS price is determined to be included in best price. We notified the Centers for Medicare and Medicaid Services, or CMS, of these possible PHS and PAGA errors in January 2008.

        The aggregate amount by which we have reduced revenue for contingent rebates in prior periods is approximately $60.2 million. The amount by which we have reduced revenues for the fiscal years ended December 31, 2006 and 2005 is approximately $13.4 million and $19.8 million, respectively.

        The following tables set forth the effects of the restatement on certain line items within our consolidated statement of operations and comprehensive income (loss) for the years ended December 31, 2006 and 2005 and consolidated balance sheet as of December 31, 2006.

			Year Ended December 31,
			2006		2005
			(In Thousands, Except Per Share Data)
Consolidated Statement of Operations changes:
	Product sales
		As previously reported	$	1,162,775	$	769,685
		As restated	$	1,149,374	$	749,865
	Income (loss) from operations
		As previously reported	$	164,517	$	(17,617	)
		As restated	$	151,116	$	(37,437	)
	Income (loss) before income taxes
		As previously reported	$	188,218	$	4,078
		As restated	$	174,817	$	(15,742	)
	Net income (loss)
		As previously reported	$	184,562	$	3,927
		As restated	$	171,161	$	(15,893	)
	Basic net income (loss) per common share
		As previously reported	$	1.76	$	0.04
		As restated	$	1.63	$	(0.15	)
	Diluted net income (loss) per common share
		As previously reported	$	1.60	$	0.03
		As restated	$	1.48	$	(0.15	)

F-39

			As of December 31, 2006
			(in thousands)
Consolidated Balance Sheet changes:
	Product sales allowances and reserves
		As previously reported	$	115,647
		As restated	$	167,631
	Accumulated deficit
		As previously reported	$	92,168
		As restated	$	40,184

        The amounts by which have reduced revenues were based on managements best estimates and assumptions made prior to any concurrence by CMS. These amounts may change as a result of future communications with CMS, and we cannot be certain that we have not overestimated the amount of additional rebates we may be required to pay, that the amount of any additional rebate payments or other payments we may owe will not exceed our current estimates or that we will not be subject to fines, penalties or interest. In addition, both the federal government and state governments have initiated investigations and lawsuits concerning the Medicaid price reporting practices of many pharmaceutical companies to ensure compliance with the Medicaid rebate program. As a result of the possible errors that we identified in our calculation of Medicaid rebate reserve amounts, we may face an increased risk of a government investigation or lawsuits concerning our Medicaid or other price reporting. If any such investigation or lawsuit is initiated we may be subject to fines and other penalties.

        We have amended Notes B, P, S, and T and the Selected Financial Data appearing herein to reflect the effects of the matters discussed in this Note U.

V)    Subsequent Event

        In January 2008, we entered into an agreement with Nycomed GmbH, or Nycomed, for the exclusive U.S. distribution, development and commercialization in the United States, its territories and possessions of Nycomed's compound ciclesonide, and products incorporating such compound, including ALVESCO HFA Inhalation Aerosol metered-dose inhaler, for use in the treatment of asthma, and OMNARIS AQ nasal spray, for use in the treatment of allergic rhinitis. Under the agreement, we paid Nycomed an upfront payment of $150.0 million in February 2008 and may be required to make subsequent payments of up to $280.0 million over the life of the agreement upon accomplishment of various development and sales milestones. Nycomed will also receive compensation for supplying finished product pursuant to the agreement, including a supply price for the products, which will be based on Nycomed's manufacturing costs plus a percentage of such costs, and quarterly royalty payments based on our net sales of the products.

F-40

SEPRACOR INC.
Schedule II
Valuation and Qualifying Accounts and Reserves
Years Ended December 31, 2007, 2006 and 2005
(In Thousands)

Description		Balance at Beginning of Period		Additions		Deductions		Balance at End of Period
Allowance for Doubtful Accounts(1)
Year Ended December 31, 2007		$	470	$	—	$	11	$	459
Year Ended December 31, 2006		$	470	$	—	$	—	$	470
Year Ended December 31, 2005		$	510	$	—	$	40	$	470
	(1) Additions to Allowance for Doubtful Accounts are recorded as an expense.
Sales Rebates, Chargebacks & Allowances(2)
Year Ended December 31, 2007		$	144,413	$	355,666	$	278,591	$	221,488
Year Ended December 31, 2006 (as restated)		$	96,099	$	236,470	$	188,156	$	144,413
Year Ended December 31, 2005 (as restated)		$	50,877	$	120,374	$	75,152	$	96,099
	(2) Additions to Sales Rebates, Chargebacks and Allowances are recorded as a reduction of revenue.
Sales Return Reserves(3)
Year Ended December 31, 2007		$	23,218	$	29,606	$	28,473	$	24,351
Year Ended December 31, 2006		$	16,269	$	20,253	$	13,304	$	23,218
Year Ended December 31, 2005		$	8,654	$	21,830	$	14,215	$	16,269
	(3) Additions to Sales Return Reserves are recorded as a reduction of revenue.
Deferred Tax Asset Valuation Allowance(4)
Year Ended December 31, 2007		$	695,513	$	135,223	$	168,674	$	662,062
Year Ended December 31, 2006 (as restated).		$	737,983	$	5,442	$	47,912	$	695,513
Year Ended December 31, 2005 (as restated).		$	680,665	$	66,365	$	9,047	$	737,983
	(4) Additions to Deferred Tax Asset Valuation Allowance are recorded as expense.

S-1

EXHIBIT INDEX

			Incorporated by Reference to
Exhibit Number	Description	Form or Schedule	Exhibit No.	Filing Date with SEC	SEC File Number
3.1	Restated Certificate of Incorporation	Form 10-K for 12/31/2002	3.1	3/31/2003	000-19410
3.2	Amended and Restated By-Laws of the Registrant	Form 10-K for 12/31/2000	3.2	3/28/2001	000-19410
4.1	Specimen Certificate for shares of common stock, $0.10 par value, of the Registrant	Form S-1	4.1	9/20/1991	333-41653
4.2	Rights Agreement, dated June 30, 2002, between the Registrant and EquiServe Trust Company, N.A., as Rights Agent	Form 8-K	4.1	6/4/2002	000-19410
4.3	Form of 0% Series A Convertible Subordinated Notes due 2008	Form 10-K for 12/31/2003	4.5	3/15/2004	000-19410
4.4	Form of 0% Series B Convertible Subordinated Notes due 2010	Form 10-K for 12/31/2003	4.6	3/15/2004	000-19410
4.5	Form of 0% Convertible Senior Subordinated Notes due 2024	Form 10-K for 12/31/2004	4.7	3/15/2004	000-19410
10.1#	The Registrant's 1991 Amended and Restated Stock Option Plan	Form 10-Q for 9/30/1999	10.1	11/12/1999	000-19410
10.2#	The Registrant's 1991 Director Stock Option Plan, as amended and restated	Form 10-K for 12/31/1998	10.3	3/31/1999	000-19410
10.3#	The Registrant's 1997 Stock Option Plan	Form 10-K for 12/31/1997	10.36	3/31/1998	000-19410
10.4#	The Registrant's 1998 Employee Stock Purchase Plan, as amended	Form 10-K for 12/31/2003	10.5	3/15/2004	000-19410
10.5#	The Registrant's 1999 Director Stock Option Plan	Form 10-Q for 9/30/1999	10.2	11/12/1999	000-19410
10.6#	The Registrant's 2000 Stock Incentive Plan, as amended	Form 10-Q for 6/30/2006	10.1	8/14/2006	000-19410
10.7#	The Registrant's 2002 Stock Incentive Plan, as amended	Form 10-Q for 6/30/2002	10.1	8/14/2004	000-19410
10.8	Form of Incentive Stock Option Agreement Granted under the Registrant's 2000 Stock Incentive Plan	Form 10-K for 12/31/2004	10.42	3/16/2005	000-19410
10.9	Form of Nonstatutory Stock Option Agreement Granted under the Registrant's 2000 Stock Incentive Plan	Form 10-K for 12/31/2004	10.43	3/16/2005	000-19410
10.10	Form of Restricted Stock Agreement Granted under the Registrant's 2000 Stock Incentive Plan	Form 10-K for 12/31/2006	10.35	3/1/2007	000-19410
10.11#	Summary of Plan regarding "Parachute Payments" and Section 280G Gross-Up Payments	Form 10-K for 12/31/1999	10.35	3/30/2000	000-19410
10.12#	Letter Agreement, dated June 10, 1994, between the Registrant and David Southwell	Form 10-K for 12/31/1994	—	—	000-19410
10.13#	Letter Agreement, dated February 23, 1995, between the Registrant and Robert F. Scumaci	Form 10-K for 12/31/1996	10.15	3/31/1997	000-19410
10.14#	Letter Agreement, dated March 11, 2003, between the Registrant and Mark H.N. Corrigan, M.D.	Form 10-Q for 3/31/2003	10.1	5/14/2003	000-19410
10.15#	Executive Retention Agreement, made as of February 1, 2002, by and between the Registrant and Timothy J. Barberich	Form 10-K for 12/31/2005	10.41	3/16/2006	000-19410
10.16#	Form of Executive Retention Agreement by and between the Registrant and each of David P. Southwell, Robert F. Scumaci, and Mark H.N. Corrigan	Form 10-K for 12/31/2005	10.42	3/16/2006	000-19410

10.17#	Employment Agreement by and between the Registrant and Adrian Adams dated March 1, 2007	Form 10-Q for 3/31/2007	10.1	5/10/2007	000-19410
10.18#	Executive Retention Agreement by and between the Registrant and Adrian Adams dated March 1, 2007	Form 10-Q for 3/31/2007	10.2	5/10/2007	000-19410
10.19#	Employment Agreement by and between the Registrant and Andrew I. Koven dated March 1, 2007	Form 10-Q for 3/31/2007	10.3	5/10/2007	000-19410
10.20#	Executive Retention Agreement by and between the Registrant and Andrew I. Koven dated March 1, 2007	Form 10-Q for 3/31/2007	10.4	5/10/2007	000-19410
10.21#	Amended and Restated Transition and Severance Agreement by and between the Registrant and W. James O'Shea dated September 7, 2007	Form 10-Q for 9/30/2007	10.1	11/09/2007	000-19410
10.22#	Employment Agreement by and between the Registrant and Mark Iwicki dated October 15, 2007	Form 10-Q for 9/30/2007	10.2	11/09/2007	000-19410
10.23#	Executive Retention Agreement by and between the Registrant and Mark Iwicki dated October 15, 2007	Form 10-Q for 9/30/2007	10.3	11/09/2007	000-19410
10.24#	Executive Retirement Agreement by and between Sepracor Inc. and Timothy Barberich dated December 27, 2007	Form 8-K for 12/27/2007	10.1	12/31/2007	000-19410
10.25	Lease as to Marlboro Industrial Park, dated December 12, 1995, between Valerie A. Colbert, Trustee of Second Marlboro Development Trust under Declaration of Trust dated September 15, 1972, and the Registrant (the "Marlboro Lease")	Form 10-K for 12/31/1995	—	—	000-19410
10.26	First Amendment to Marlboro Lease, dated February 1, 1997, and Second Amendment to Marlboro Lease, dated July 1, 1997	Form 10-K for 12/31/1997	10.22	3/31/1998	000-19410
10.27	Technology Transfer and License Agreement, dated as of January 1, 1994, between the Registrant and BioSepra Inc.	Form 10-K for 12/31/1998	10.10	3/31/1999	000-19410
10.28	Technology Transfer and License Agreement, dated as of January 1, 1994, between the Registrant and HemaSure Inc.	Form 10-K for 12/31/1998	10.11	3/31/1999	000-19410
10.29†	Agreement, dated as of December 5, 1997, by and between the Registrant and Schering-Plough Ltd.	Form 10-K for 12/31/1997	10.31	3/31/1998	000-19410
10.30	Assignment Agreement, dated as of August 25, 1999, by and between the Registrant and Georgetown University	Form 10-Q for 9/30/1999	10.3	11/12/1999	000-19410
10.31†	License Agreement, dated August 31, 1999, by and between the Registrant and Hoechst Marion Roussel, Inc.	Form 10-K for 12/31/1999	10.30	3/30/2000	000-19410
10.32†	EX-US License Agreement, dated August 31, 1999, by and between the Registrant and Hoechst Marion Roussel, Inc.	Form 10-K for 12/31/1999	10.31	3/30/2000	000-19410
10.33†	License and Assignment Agreement, dated September 30, 1999, by and between the Registrant and Rhone-Poulenc Rorer SA	Form 10-K for 12/31/1999	10.32	3/30/2000	000-19410
10.34†	License Agreement, dated May 27, 1999, by and between UCB Farchim S.A. and the Registrant	Form 10-K for 12/31/1999	10.33	3/30/2000	000-19410

10.35†	Agreement, dated December 20, 2001, between Minnesota Mining and Manufacture Company, 3M Innovative Properties Company and the Registrant	Form 10-K for 12/31/2001	10.43	4/1/2002	000-19410
10.36	Indenture, dated as of December 12, 2003, by and between the Registrant and the JPMorgan Chase Bank, as Trustee	Form 8-K	4.1	12/19/2003	000-19410
10.37	Indenture, dated September 22, 2004, between the Registrant and JPMorgan Chase Bank, as trustee	Form 8-K	4.1	9/24/2004	000-19410
10.38†	Manufacturing Services Agreement, dated March 1, 2004, between Patheon and the Registrant	Form 8-K	99.1	12/21/2004	000-19410
10.39†	Amendments No. 1, 2 and 3 to the Manufacturing Services Agreement, dated March 1, 2004, between Patheon and the Registrant	Form 10-K for 12/31/2006	10.30	3/1/2007	000-19410
10.40†	Amended and Restated Manufacturing Services Agreement dated November 6, 2007 among the Registrant and Patheon Inc., Patheon Pharmaceuticals Inc. & MOVA Pharmaceutical Corporation	*
10.41†	Exclusive Supply and Distribution Agreement, dated as of November 16, 2004, by and among 3M Company, through its 3M Drug Delivery Systems Division, 3M Innovative Properties Company and the Registrant	Form 10-K for 12/31/2004	10.46	3/16/2005	000-19410
10.42†	U.S. License Agreement for Levoceterizine, dated as of February 17, 2006, by and between UCB S.A. and the Registrant	Form 10-K for 12/31/2005	10.43	3/16/2006	000-19410
10.43†	Letter Agreement dated December 31, 2007, between the Registrant and Bial—Portela & Ca, S.A.	*
10.44†	License Agreement dated December 31, 2007, between the Registrant and Bial—Portela & Ca, S.A.	*
10.45†	Distribution and Development Agreement for Ciclesonide in the USA dated January 25, 2008 between the Registrant and Nycomed GmbH	*
10.46†	Development, License and Commercialization Agreement dated September 11, 2007 by and between the Registrant and Glaxo Group Limited, an affiliate of GlaxoSmithKline	Form 10-Q for 9/30/2007	10.4	11/09/2007	000-19410
10.47#	Summary of Executive Officer Compensation for 2008	*
10.48#	Summary of Non-Employee Director Compensation for 2008	*
21	Subsidiaries of the Company	*
23	Consent of PricewaterhouseCoopers LLP, an Independent Registered Public Accounting Firm	*
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended	*
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended	*

32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	*
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	*

*

Filed herewith.

(#)

Management contract or compensatory plan or arrangement filed as an exhibit to this Form pursuant to Item 14(c) of Form 10-K.

(†)

Confidential treatment has been requested as to certain portions, which portions have been filed separately with the Securities and Exchange Commission.

EX-10.40

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Exhibit 10.40

Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.

Amended and Restated Manufacturing Services Agreement

Among

Patheon Inc., Patheon Pharmaceuticals Inc. & MOVA
Pharmaceutical Corporation

and

Sepracor Inc.

November 6, 2007

Table of Contents

ARTICLE 1			2
INTERPRETATION			2
	1.1	Definitions	2
	1.2	Currency	4
	1.3	Sections and Headings	4
	1.4	Singular Terms	5
	1.5	Schedules	5
ARTICLE 2			5
MANUFACTURING RESPONSIBILITIES AND CONTRACT ADMINISTRATION			5
	2.1	Manufacturing Services	5
	2.2	Standard of Performance	6
	2.3	API Yield Incentive	6
	2.4	Agreement Administration	7
ARTICLE 3			8
SEPRACOR'S OBLIGATION			8
	3.1	Payment	8
	3.2	API	8
ARTICLE 4			9
CONVERSION FEES AND COMPONENT COSTS			9
	4.1	Fees and Component Costs	9
	4.2	Adjustments to Current Year's Pricing	9
	4.3	Adjustment to Subsequent Year's Pricing	9
	4.4	Adjustments Due to Technical Changes	11
	4.5	Multi-Country Packaging Requirements	11
	4.6	Cost Improvement Program	12
ARTICLE 5			12
ORDERS, DELIVERY, INVOICING, PAYMENT, PRODUCT DEFICIENCIES			12
	5.1	Market Outlook	12
	5.2	Orders and Forecasts	12
	5.3	Modification or Cancellation of Orders	13
	5.4	Advance Purchase of Components	13
	5.5	Minimum Run Quantities	13
	5.6	Shipments	13
	5.7	Invoices and Payment	14
	5.8	Product Deficiencies	14
ARTICLE 6			15
CO-OPERATION			15
	6.1	Quarterly Review	15
	6.2	Product Recalls and Returns	15
	6.3	Customer Questions and Complaints	15

i

	6.4	Governmental Agencies	16
	6.5	Records and Accounting by Patheon	16
	6.6	Inspection	16
	6.7	Access	17
	6.8	Reports	17
	6.9	FDA Filings	17
ARTICLE 7			17
TERMS AND TERMINATION			17
	7.1	Term	17
	7.2	Early Termination	18
	7.3	Obligation on Termination	18
ARTICLE 8			19
REPRESENTATIONS, WARRANTIES AND COVENANTS			19
	8.1	Authority	19
	8.2	Non-Infringement	19
	8.3	Debarred Persons	20
	8.4	Permits	20
	8.5	Compliance with Laws	20
	8.6	Patheon Warranty	20
ARTICLE 9			20
REMEDIES AND INDEMNITIES			20
	9.1	Consequential Damages	20
	9.2	Limitation of Liability	20
	9.3	Patheon Indemnification	21
	9.4	Sepracor Indemnification	21
	9.5	Reasonable Allocation of Risk	22
ARTICLE 10			22
CONFIDENTIALITY			22
	10.1	Disclosure	22
	10.2	Use of Information	22
	10.3	Exceptions	22
	10.4	Presumption of Confidentiality	22
ARTICLE 11			22
DISPUTE RESOLUTION			22
	11.1	Commercial Disputes	22
	11.2	Technical Dispute Resolution	23
ARTICLE 12			23
MISCELLANEOUS			23
	12.1	Inventions	23
	12.2	Patent Matters	24
	12.3	Intellectual Property	25
	12.4	Insurance	25

ii

	12.5	Independent Contractors	25
	12.6	No Waiver	25
	12.7	Assignment	25
	12.8	Force Majeure	26
	12.9	Additional Product	26
	12.10	Notices	26
	12.11	Severability	27
	12.12	Entire Agreement	27
	12.13	Original Agreement	28
	12.14	No Third Party Benefit or Right	28
	12.15	Execution of Counterparts	28
	12.16	Governing Law	28
	12.17	Capital Requirements	28
SCHEDULE A			29
PRODUCT SPECIFICATIONS			29
SCHEDULE B			30
FEES AND MINIMUM RUN QUANTITIES			30
SCHEDULE C			32
API			32
	Supplier(s)		32
SCHEDULE D			33
API REIMBURSEMENT VALUE			33
MAXIMUM REIMBURSEMENT VALUE			33
SCHEDULE E			34
BATCH NUMBERING AND EXPIRATION DATES			34
SCHEDULE F			35
TECHNICAL DISPUTE RESOLUTION			35
SCHEDULE G			37
PATHEON INC. QUALITY AGREEMENT			37
SCHEDULE H			50
PPI QUALITY AGREEMENT			50
SCHEDULE I			51
MOVA QUALITY AGREEMENT			51
SCHEDULE J			52
CAPITAL REQUIREMENTS			52

iii

AMENDED AND RESTATED MANUFACTURING SERVICES AGREEMENT

THIS AGREEMENT made as of the 6^th day of November, 2007

AMONG:

PATHEON INC., a corporation existing under the laws of Canada ("Patheon Inc."), PATHEON PHARMACEUTICALS INC., a corporation existing under the laws of Delaware ("PPI"), and MOVA PHARMACEUTICAL CORPORATION, a corporation existing under the laws of the Commonwealth of Puerto Rico ("MOVA"),

("Patheon"),

-and-

SEPRACOR INC.,
a corporation existing under the laws of the State of Delaware, USA,

("Sepracor").

        WHEREAS Patheon Inc. and Sepracor entered into a manufacturing services agreement dated March 1, 2004, as amended by amendment no. 1 dated July 18, 2005, and as further amended by amendment no. 2 dated November 1, 2005, and amendment no. 3 dated May 31, 2006 (collectively, the "Original Agreement");

        AND WHEREAS the parties have decided to further amend the Original Agreement by executing this amendment and restatement of the Original Agreement to, inter alia, add MOVA and PPI as parties, revise the terms to reflect the current intent of the Parties, and supercede and replace the Original Agreement.

        THIS AGREEMENT WITNESSES THAT in consideration of the rights conferred and the obligations assumed herein, and for other good and valuable consideration (the receipt and sufficiency of which are acknowledged by each party), and intending to be legally bound the parties agree as follows:

ARTICLE 1

INTERPRETATION

1.1   Definitions.

        The following terms shall, have the respective meanings set out below and grammatical variations of such terms shall have corresponding meanings:

"API Reimbursement Value" means the value to be attributed to the API for purposes of Section 2.3 of this Agreement, as set out in Schedule D hereto;

"Active Pharmaceutical Ingredient" or "API" means the materials listed on Schedule C hereto;

"Affiliate" means:

(a)

a business entity which owns, directly or indirectly, a controlling interest in a party to this Agreement, by stock ownership or otherwise; or



(b)

a business entity which is owned by a party to this Agreement, either directly or indirectly, by stock ownership or otherwise; or



(c)

a business entity, the majority ownership of which is directly or indirectly common to the majority ownership of a part to this Agreement;

"Business Day" means a day other than a Saturday, Sunday or a day that is a statutory holiday in the Province of Ontario, Canada, the State of Massachusetts, United States, the State of Ohio, United States or the Commonwealth of Puerto Rico;

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"cGMPs" means current good manufacturing practices as described in:

        (a)   Division 2 of Part C of the Food and Drug Regulations (Canada); and,

        (b)   Parts 210 and 211 of Title 21 of the United States' Code of Federal Regulations;

together with the latest Health Canada and FDA guidance documents pertaining to manufacturing and quality control practice, all as updated, amended and revised from time to time;

"Components" means, collectively, all packaging components, raw materials and ingredients (including labels, product inserts and other labelling for the Products), required to be used in order to produce the Products in accordance with Sepracor's Technical Information, other than the API;

"Confidential Information" means a party's technology, data, know-how or information whether written or oral, technical or non-technical, including financial statements, reports, pricing, trade secrets, secret processes, formulas, customer data (including customer lists), and the like, that is disclosed to the other party;

"Deficiency Notice" shall have the meaning ascribed thereto in Section 5.7(a);

"Effective Date" means November 6, 2007;

"EXW" means ex-works, as that term is defined in INCOTERMS 2000;

"FDA" means the United States government department known as the Food and Drug Administration;

"Firm Orders" has the meaning specified in Section 5.2(b);

"Health Canada" means the section of the Canadian government known as Health Canada and includes, among other departments, the Therapeutic Products Directorate and the Health Products and Food Branch Inspectorate;

"Intellectual Property" includes, without limitation, rights in patents, patent applications, formulae, trade-marks, trade-mark applications, trade-names, trade secrets, Inventions, copyright, industrial designs, know-how and, with respect to Sepracor, Sepracor's Technical Information;

"Inventions" means information relating to any innovation, improvement, development, discovery, computer program, device, trade secret, method, know-how, process, technique or the like, whether or not written or otherwise fixed in any form or medium, regardless of the media on which it is contained and whether or not patentable or copyrightable;

"Inventory" means all inventories of Components and work-in-process produced or held by Patheon in connection with the manufacture of the Products but, for greater certainty, does not include the API;

"Manufacturing Responsibilities" has the meaning specified in Section 2.2;

"Manufacturing Site" means (i) in respect of Patheon Inc., Patheon's facilities located at 2100 Syntex Court, Mississauga, Ontario, Canada, (ii) in respect of PPI, PPI's facilities located at 2110 East Galbraith Road, Cincinnati, Ohio 45237-1625, USA, (iii) in respect of MOVA, MOVA's facilities located at State Road # 670, Km. 2.7, Bo. Coto Norte, Manatí, Puerto Rico 00674, and (iv) any additional facility owned by Patheon Inc. or its Affiliates where Manufacturing Services are to be performed as agreed to by the parties in writing.

"Manufacturing Services" means the manufacturing, quality control, quality assurance, packaging and related services, as contemplated in this Agreement, required to produce Products from API and Components;

"Minimum Run Quantity" means the minimum number of batches of a Product to be produced during the same cycle of manufacturing as set forth in Schedule B hereto;

"Patheon" collectively means Patheon Inc., PPI and MOVA;

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"Patheon Administrator" means the individual or entity designated by Patheon to act for or on behalf of Patheon for the purpose of interacting with Sepracor regarding the performance if this Agreement, including but not limited to communicating with Sepracor, accepting orders from Sepracor and resolving issues as needed

"Products" means the products listed on Schedule A hereto;

"Sepracor's Technical Information" means the file, for each Product, which is provided by Sepracor to the Patheon Administrator, on behalf of Patheon, and which contains documents relating to such Product, including, without limitation:

(a)

the specifications, procedures, requirements, standards and other data set forth in Schedule A;



(b)

a detailed description of each Product; including its physical and chemical characteristics and stability;



(c)

manufacturing and packaging directions;



(d)

shipping and storage requirements;



(e)

protocols for validating processes or equipment to produce Products;



(f)

quality control and quality assurance procedures for sampling, testing, documenting and releasing API, Components and in-process and finished Products; and



(g)

all environmental, health and safety information relating to the Product including material safety data sheets, incident reports, risk analyses, health concerns, and preventative measures,

all as updated, amended and revised from time to time by Sepracor in accordance with the terms of this Agreement;

"Quality Agreement" means (i) in respect of Patheon, the agreement dated March 12, 2007 between Patheon and Sepracor setting out the quality assurance standards to be applicable to the Manufacturing Services provided by Patheon, which agreement is attached hereto as Schedule G, (ii) in respect of PPI, the agreement setting out the quality assurance standards to be applicable to the Manufacturing Services provided by PPI, which agreement will be attached hereto as Schedule H, and (iii) in respect of MOVA, the agreement setting out the quality assurance standards to be applicable to the Manufacturing Services provided by MOVA, which agreement will be attached hereto as Schedule I (each a "Quality Agreement" and collectively the "Quality Agreements");

"Technical Dispute" has the meaning specified in Section 11.2;

"Territory" means in the geographic area of the United States of America, its territories and possessions;

"Third Party Rights" means the Intellectual Property of any third party; and

"Year" means a calendar year.

1.2   Currency.

        Unless otherwise indicated, all monetary amounts are expressed in this Agreement in the lawful currency of the United States of America.

1.3   Sections and Headings.

        The division of this Agreement into Articles, sections, subsections and Schedules and the insertion of headings are for convenience of reference only and shall not affect the interpretation of this Agreement. Unless otherwise indicated, any reference in this Agreement to a Section or Schedule refers to the specified Section or Schedule to this Agreement. In this Agreement, the terms "this Agreement", "hereof", "herein", "hereunder" and similar expressions refer to this Agreement and not to any particular part, Section, Schedule or the provision hereof.

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1.4   Singular Terms.

        Except as otherwise expressly provided herein or unless the context otherwise requires, all references to the singular shall include the plural and vice versa.

1.5   Schedules.

        The following Schedules are attached to, incorporated in and form part of this Agreement:

Schedule A	—	Product Specifications
Schedule B	—	Fees and Minimum Run Quantities
Schedule C	—	API
Schedule D	—	API Reimbursement Value and Maximum Reimbursement Value
Schedule E	—	Batch Numbering and Expiration Dates
Schedule F	—	Technical Dispute Resolution
Schedule G	—	Patheon Quality Agreement
Schedule H	—	PPI Quality Agreement
Schedule I	—	MOVA Quality Agreement
Schedule J	—	Capital Requirements
Schedule K	—	Report of Annual Active Pharmaceutical Ingredient Inventory Reconciliation and Calculation of Actual Annual Yield and Yield Incentive
Schedule L	—	Yield Incentive Scheme
Schedule M	—	Reimbursement for shipments from Manati, PR

ARTICLE 2

MANUFACTURING RESPONSIBILITIES AND CONTRACT ADMINISTRATION

2.1   Manufacturing Services.

        Patheon shall provide the Manufacturing Services for the fees specified in Schedule B in order to produce Products for Sepracor pursuant to Firm Orders submitted by Sepracor hereunder. Patheon agrees to manufacture the Products in accordance with the Technical Information, the Specifications, the applicable laws, rules and regulations, and the terms and conditions of this Agreement and the Quality Agreements, and to sell the Products to Sepracor pursuant to the terms and conditions stated herein

        In the event Sepracor wishes to have Patheon manufacture Product for distribution and sale in a jurisdiction outside of the Territory ("New Jurisdiction"), Sepracor shall inform Patheon of any additional requirements relating to the distribution and sale of the Product in such New Jurisdiction and any increases in costs to provide the Manufacturing Services shall be borne by Sepracor. Any changes to this Agreement that may be required as a result of the addition of a New Jurisdiction shall be agreed to by the parties in a written amendment to this Agreement.

        In providing the Manufacturing Services, Patheon shall perform each of the following services:

(a)

Conversion of API and Components.    Patheon shall convert API and Components into Products.



(b)

Quality Control and Quality Assurance.    Patheon shall perform the quality control and quality assurance testing specified in the Quality Agreements. Each time Patheon ships Products to Sepracor, it shall provide Sepracor with a certificate of analysis that sets out the test results for each batch of Products, and that certifies that such batch has been evaluated by its Quality Control/Quality Assurance department and that the Products comply with Sepracor's Technical Information.

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(c)

Components.    Patheon shall handle, store, purchase and test all Components (with the exception of those that are supplied by Sepracor) at Patheon's expense and in accordance with this Agreement and Sepracor's Technical Information.



(d)

Packaging.    Patheon shall package the Products with labels, product inserts and other packaging as set out in Sepracor's Technical Information. In addition, Patheon shall make arrangements for and implement the imprinting of batch numbers and expiration dates for each Product shipped. Such batch numbers and expiration dates shall be affixed on the Products and on the shipping carton of each Product as outlined in Sepracor's Technical Information and as required by cGMPs. The system used by Patheon for batch numbering and expiration dates is detailed in Schedule E hereto. Sepracor may, in its sole discretion, make changes to labels, product inserts and other packaging for the Products, which changes shall be submitted by Sepracor to all applicable governmental agencies and other third parties responsible for the approval of the Products. Patheon names shall not appear on the label or anywhere else on the Products unless: (i) required by a governmental authority or applicable laws or regulations; or (ii) Patheon expressly consents to such use in writing.



(e)

API Importing.    Patheon and Sepracor will cooperate and provide such assistance to each other as may be reasonably necessary to permit the import of the API into Canada and the Commonwealth of Puerto Rico.



(f)

Bulk Product Export.    Patheon shall be responsible for preparation of all documentation required for the movement of Product between Patheon Manufacturing Sites.



(g)

Additional Services.    Any additional services, including, but not limited to validation activities and stability services, may be performed by Patheon, at Sepracor's request, subject to such terms and fees as may be mutually agreed by the parties in writing.

2.2   Standard of Performance.

        Patheon shall provide the Manufacturing Services in accordance with Sepracor's Technical Information and all applicable laws and regulations including but not limited to, cGMPs and the Manufacturing and Controls (CMC) section of the Product's New Drug Application (and all amendments and supplements thereto). Patheon's responsibilities and obligations with respect to the provision of the Manufacturing Services as set forth in this Article 2 are hereinafter referred to as the "Manufacturing Responsibilities".

2.3   API Yield Incentive.

(a)

After the Effective Date, the Patheon Administrator shall provide Sepracor with an annual inventory report and reconciliation of the API held by Patheon, which shall contain the following information for such Year:

Quantity Received:    The total quantity of API that complies with the Sepracor Technical Information and is received at a Manufacturing Site during the applicable period.

Quantity Dispensed:    The total quantity of API dispensed at each Manufacturing Site during the applicable period. The Quantity Dispensed is calculated by adding the quantity received to the inventory of API that complies with the Sepracor Technical Information and is held at the beginning of the applicable period, less the inventory of API held at the end of such period. The Quantity Dispensed shall not include any API lost or damaged in the course of technology transfer, or as part of failed regulatory, stability, validation or test batches manufactured during the applicable period, unless and to the extent that Patheon did not provide the Manufacturing Services in accordance with cGMPs or otherwise failed to perform in accordance with the requirements of this Agreement.

6

Quantity Converted:    The total amount of API contained in the Products produced with the Quantity Dispensed (including samples and any additional Products produced in accordance with Section 6.2 or 9.2(b)) delivered by Patheon, and not rejected as deficient Product pursuant to Section 5.8 or 6.2.

Within 60 days of the end of each Year, the Patheon Administrator shall calculate the "Actual Annual Yield" or "AAY" for each Product at all Manufacturing Sites during the Year, which AAY is the percentage of the Quantity Dispensed that was converted to Products and is calculated as follows:

Quantity Converted during the Year
Quantity Dispensed during the Year

"Target Yield" shall mean the average yield, expressed as a percentage, of all batches of the same Product manufactured by Patheon in the previous Year, provided that in no event shall the Target Yield be below [**]%. For the 12 months ended December 31, 2007, the Target Yield shall be [**]%.

"Yield Allowance" shall mean yield allowance factor to be applied in the Yield Allowance Scheme set forth in Schedule L, as mutually agreed to by the parties each Year during the term of the Agreement with a maximum Yield Allowance of [**]%.

(b)

API Yield Incentive Scheme.    The parties agree to calculate the value of the credit amount which may be owed to either party under the API Yield Incentive Scheme within 60 days of the end of the Year to which such credit amount (if any) applies. The value of any credit amount determined under the API Yield Incentive Scheme for any particular Year shall be summarized on the annual reconciliation report prepared in the form annexed hereto as Schedule K, and such credit amount shall be paid by the owing party to the receiving party within 90 days of the end of the applicable Year.



(c)

Maximum Credit    Notwithstanding the foregoing provisions of this Section 2.3, Patheon's liability for API calculated in accordance with the API Yield Incentive Scheme for any Product in a Year shall not exceed, in the aggregate, the Maximum Reimbursement Value set forth in Schedule D hereto.



(d)

No Material Breach.    For greater certainty, it shall not constitute a material breach of this Agreement by Patheon, for the purposes of Section 7.2(a), if the Actual Annual Yield is less than the Target Yield.

2.4   Agreement Administration.

        The Patheon Administrator shall act as administrator of this Agreement on behalf of Patheon in order to simplify the management of the relationship between Sepracor and Patheon. Such administration includes, without limitation, API yield matters pursuant to Section 2.3, price adjustments pursuant to Article 4, orders and forecasts pursuant to Section 5.2 and invoicing pursuant to Section 5.6.

2.5   Other Responsibilities.

(a)

Approvals and Permits.    Patheon shall obtain and maintain all necessary regulatory approvals and permits related to its manufacturing facilities and manufacturing of products at its facilities in order to perform its Manufacturing Responsibilities pursuant to this Agreement.



(b)

Records and Reports.    Patheon shall maintain copies of all records and report to Sepracor and applicable government agencies as may be required by law and this Agreement.



(c)

Samples.    Patheon shall retain samples of each lot of Products tested for at least [**] beyond the expiration date. For each lot shipped, Patheon shall prepare a Certificate of Analysis

7

setting forth the items tested, the Technical Information and test results and forward the Certificates of Analysis to Sepracor, or its designee, at the time the Products are shipped.

(d)

Manufacture of Eszopiclone.    During the term of this Agreement, and for a period of [**] thereafter, Patheon shall not perform commercial manufacturing activities or package, for itself or any third party, any product containing eszopiclone in any form as an active ingredient.



(e)

Patheon agrees to obtain and maintain all necessary accreditations, certifications and licenses necessary to perform the Manufacturing Services in a New Jurisdiction, (including, but not limited to, Japan, countries comprising the European Union and/or such other countries as may be agreed by the parties) upon Sepracor's reasonable request and all such costs or changes shall be paid by Sepracor.

ARTICLE 3

SEPRACOR'S OBLIGATION

3.1   Payment.

        Pursuant to the terms of this Agreement, Sepracor shall pay the Patheon Administrator for the provision of the Manufacturing Services according to the fees specified in Schedule B hereto (such fees being subject to adjustment in accordance with the terms hereof).

3.2   API.

        Sepracor shall, at its sole cost and expense, deliver the API to Patheon in sufficient quantities and at such times to facilitate the provision of the Manufacturing Services by Patheon, which API shall be held by Patheon on behalf of Sepracor on the terms and subject to the conditions herein contained. Patheon shall keep all API segregated from other materials within its control so as to maintain the integrity of the API, and shall not permit any API to be used or tested by any party not under its direct supervision and control, except as directed by Sepracor. Within [**] days of receipt of API shipment, Patheon shall verify the quantity and identity of all API received by Patheon, and shall notify Sepracor of any discrepancies in the quantity or identity of the API and/or the documents accompanying each shipment. If Patheon fails to notify Sepracor of a discrepancy within such [**] day period, or if there is damage to the API that Patheon is unable to demonstrate (within the [**] day period) occurred prior to the delivery, or if the damage to the API is a result of Patheon's negligence or wilful misconduct as demonstrated by Patheon's actions, inaction or failure to handle the API in accordance with the terms of this Agreement, then Patheon shall: (i) return the API to Sepracor or dispose of the API at Sepracor's direction and (ii) in the case of Patheon's negligence or wilful misconduct, credit Sepracor in an amount equal to Sepracor's then current API cost for the API that was lost, damaged or destroyed. Subject to the limitations set forth in Section 9.2(c) (Maximum Liability), and notwithstanding anything else in this Agreement to the contrary, Patheon shall assume responsibility and liability for and shall indemnify Sepracor against any loss or damage related to the API and/or the Components caused by Patheon's negligence or wilful misconduct while under Patheon's custody and control. The parties acknowledge and agree that title to the API shall at all times belong to and remain the property of Sepracor.

        Patheon agrees that any API received by it shall only be used by it to provide the Manufacturing Services.

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ARTICLE 4

CONVERSION FEES AND COMPONENT COSTS

4.1   Fees and Component Costs.

        The fees for the Manufacturing Services (which fees include Component costs) listed in Schedule B are intended by the parties to be fixed for the first Year of this Agreement, subject to the amendments to such fees provided for this Article 4.

4.2   Adjustments to Current Year's Pricing.

(a)

During any Year of this Agreement, if at any time market conditions result in Patheon's cost of Components being materially different than normal forecasted prices, then the Patheon Administrator or Sepracor may initiate a request for an adjustment to the fee for Manufacturing Services in respect of any affected Product as compensation for such increased or decreased Component costs. For the purposes of this Section 4.2(a), changes materially different than normal forecasted increases shall be considered to have occurred if (i) the cost of a Component is more than [**]% higher or lower than the cost for that Component upon which the fee quote was based or (ii) the aggregate cost for all Components required to manufacture a Product increases or decreases more than [**]% of the total Component costs for such Product upon which the fee quote was based. To the extent that Manufacturing Services fees have been previously adjusted pursuant to this Section 4.2(a) to reflect an increase or decrease in the cost of one or more Components, the adjustments provided for in (i) and (ii) above shall operate based on the costs attributed to such Component (or Components) at the time the last of such adjustments were made.



(b)

In connection with a fee adjustment request pursuant to this Section 4.2, the Patheon Administrator shall deliver to Sepracor a revised Schedule B and such budgetary pricing information, adjusted Component costs or other documentation sufficient to demonstrate that a fee adjustment is justified, provided that the Patheon Administrator shall have no obligation to provide the specific pricing of any supplier to the extent such pricing is subject to obligations of confidentiality between Patheon and such supplier. Upon delivery of such a request, each of Sepracor and the Patheon Administrator shall forthwith use all reasonable efforts to agree on a revised fee for the Manufacturing Services in respect of each affected Product.

4.3   Adjustment to Subsequent Year's Pricing.

        The fees for the Manufacturing Services provided pursuant to the terms of this Agreement during any Year are outlined in Schedule B, which shall be updated year to year to reflect the then current year's pricing, and shall also be determined in accordance with the following:

(a)

Manufacturing Costs.    On or before November 1, 2007 and October 15 of each Year thereafter beginning in 2008, Patheon (or Sepracor in the case of a decrease in Component costs) shall be entitled to request an adjustment to the fees: (i) for Manufacturing Services in respect of the Products to reflect inflation, which adjustment shall be based on the increase in the U.S. Producer Price Index for Pharmaceutical preparation manufacturing published in August of the then current Year by the US Department of Labor, Bureau of Labor statistics as Service ID PCU325412325412 compared to the same month of the preceding Year, unless the parties otherwise agree in writing; and (ii) for Component costs in order to pass on the actual amount of any increase or decrease in such costs. In addition, in the event the Cost Improvement Program outlined in Section 4.6 below is successful, the parties agree to meet in good faith to effectuate a fee adjustment based on the cost reductions achieved.

9

(b)

Pricing Basis.    Sepracor acknowledges that the fee for Manufacturing Services in respect of a Product in any Year is quoted based upon the Minimum Run Quantity per Product specified in Schedule B and subject to the terms of this Agreement, may be subject to change if the specified Minimum Run Quantity is not met.

(c)

Sepracor shall place purchase orders with Patheon for product to be manufactured beginning in January 2008. Those purchase orders shall conform to the terms of this Agreement and shall be for quantities of product (trade bottles and sample count blisters) based on a minimum percentage ("%") of net annual sales (for trade) and a minimum percentage (%) of samples distributed to physicians. The minimum % and the price associated with that % will be as follows:

Trade—Bottles

Description	2007	2008	2009	2010	2011
Sepracor's minimum commitment to order Product from Patheon expressed as a % of Sepracor's total Product tablets sold for that period as set out in Sepracor's audited financial documents for the USA market only	[**]%	[**]%	[**]%	[**]%	[**]%
Estimated number of Tablets of Product to be manufactured by Patheon (000,000's) based on above % of Sepracor's total Product tablets sold for that period *	[**]	[**]	[**]	[**]	[**]
Patheon price of Product to Sepracor as a percentage of the 2007 baseline price calculated before annual adjustments for inflation and changes in the cost of components	[**]%	[**]%	[**]%	[**]%	[**]%

*

This estimate is provided as of the Effective Date and reflects market conditions and sales history as of such date.

Physician Samples—Blisters	2007	2008	2009	2010	2011
Samples = the number of sample tablets, packaged in blisters, distributed to physicians' offices; USA only
Minimum Commitment (% of samples)	[**]	[**]	[**]	[**]	[**]
Tablets to be made by Patheon—Millions (estimated)**	[**]	[**]	[**]	[**]	[**]
Price Relative to 2007 Baseline Price which does not include annual adjustments to PPI and component costs in Years 2008 and beyond	[**]	[**]	[**]	[**]	[**]

**

This estimate is provided as of the Effective Date and reflects market conditions and marketing strategy as of such date.

10

        In connection with a fee adjustment pursuant to clause (a) of this Section 4.3, the Patheon Administrator shall deliver to Sepracor a revised Schedule B and a statement outlining the percentage increase in the U.S. Producer Price Index for Drugs and Pharmaceuticals upon which such fee adjustment is based. In connection with a fee adjustment request pursuant to clause (b) of this Section 4.3, the Patheon Administrator shall deliver to Sepracor a revised Schedule B and such budgetary pricing information, adjusted Component costs or other documentation sufficient to demonstrate that a fee adjustment is justified, provided that the Patheon Administrator shall have no obligation to provide the specific pricing of any supplier to the extent such pricing is subject to obligations of confidentiality between Patheon and such supplier. Upon delivery of such a request, each of Sepracor and the Patheon Administrator shall forthwith use all reasonable efforts to agree on a revised fee for the Manufacturing Services in respect of each affected Product. The parties agree that a request for a fee adjustment, as well as the supporting documentation described above, shall be delivered by Patheon to Sepracor no later than [**] in the current Year for review and that any price adjustments agreed to by the parties under this Section 4.3 shall become effective as of January 1^st in the following Year for all Product manufactured after such effective date. The parties agree that any Firm Order which is impacted by price adjustments under this Section 4.3 shall be revised accordingly. For greater certainty, any adjustments agreed to by the parties under this Section 4.3 shall remain unchanged for a period of 12 months, unless additional adjustments are permitted under this Agreement.

        Notwithstanding anything herein to the contrary, the Minimum Run Quantity or the Minimum Commitment outlined above (the "Annual Minimum Requirements") shall not apply in the event that: (i) Patheon fails to supply and/or deliver conforming Products as required by this Agreement at any time for any reason; or (ii) there is a material change in the current market conditions resulting from a change in law, a recall, an FDA ruling, generic entry or other event that would significantly impact Sepracor's ability to meet the Minimum Requirement.

4.4   Adjustments Due to Technical Changes.

        Amendments to Sepracor's Technical Information or any Quality Agreement requested by Sepracor will only be implemented following a technical and cost review by Patheon and are subject to Sepracor and the Patheon reaching agreement as to revisions, if any, to the fees specified in Schedule B necessitated by any such amendment. If Sepracor accepts a proposed fee change, the proposed change in Sepracor's Technical Information shall be implemented, and the fee change shall become effective only with respect to those orders of Products that are manufactured in accordance with the revised Sepracor's Technical Information. In addition, Sepracor agrees to purchase, at Patheon's actual out-of-pocket cost, all Inventory utilized under the "old" Sepracor Technical Information and purchased or maintained by Patheon in order to fill Firm Orders or in accordance with Section 5.3, to the extent that such Inventory can no longer be utilized under the revised Sepracor Technical Information. Open purchase orders for Components no longer required under any revised Sepracor Technical Information that were placed by Patheon with suppliers in order to fill Firm Orders or in accordance with Section 5.3 shall be cancelled where possible, and where such orders are not subject to cancellation without penalty, shall be assigned to and satisfied by Sepracor.

4.5   Multi-Country Packaging Requirements.

        If and when Sepracor decides that it wishes to have Patheon manufacture the Product for a New Jurisdiction, then Sepracor shall inform the Patheon Administrator of the packaging needs for each New Jurisdiction and the Patheon Administrator shall prepare a quotation for consideration by Sepracor of the additional Component costs, if any, and the change over fees for the Product destined for such New Jurisdiction. The agreed additional packaging requirements and related packaging costs and change over fees shall be set out in a written amendment to this Agreement.

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4.6   Cost Improvement Program.

        Patheon and Sepracor agree to work together to develop cost reduction initiatives as part of an overall cost improvement program, provided such program does not involve additional capital or extraordinary costs unless otherwise agreed to by parties in writing. All net cost savings (net of implementation costs) realized from the cost improvement program shall be shared equally among the parties, unless otherwise agreed to by the parties in writing. A "cost reduction initiative" for the purpose of this Agreement shall be an initiative that reduces the internal or out-of-pocket costs incurred by a party in connection with the performance of its obligations under this Agreement. It is further agreed by the parties that on-going method improvements developed or adopted by either Sepracor or Patheon independently of the other party(ies), shall not be a cost reduction initiative under this Section 4.6, and there shall be no obligation on such party to share the net cost savings realized from such improvement with the other party(ies) to this Agreement.

ARTICLE 5

ORDERS, DELIVERY, INVOICING, PAYMENT, PRODUCT DEFICIENCIES

5.1   Market Outlook.

        Sepracor acknowledges that for optimal production planning, Patheon requires an understanding of Sepracor's ordering and forecasting needs for the Products in the market and agrees, to the extent that such information (including, if any, Sepracor's five-year market outlook studies) exists, to share such information with Patheon, provided that such information may not be relied upon by Patheon for any purpose and further provided that any information so provided shall be subject to the confidentiality provisions of Article 10.

5.2   Orders and Forecasts.

        Sepracor shall provide Patheon with the following:

(a)

concurrent with the execution of this Agreement, a written non-binding twelve (12) month forecast of the volume of each Product that Sepracor then anticipates will be required to be produced and delivered to Sepracor during that twelve (12) month period. Such forecast will be updated by Sepracor monthly on a rolling twelve (12) month basis and updated forthwith upon Sepracor determining that the volumes contemplated in the most recent of such forecasts has changed by more than [**] per cent ([**]%).

(b)

on or before the 20^th day of each month, firm written orders ("Firm Orders") for the Products to be produced and delivered to Sepracor on a date not less than 12 weeks from the date that the Firm Order is submitted. Such Firm Orders submitted to the Patheon Administrator shall specify Sepracor's purchase order number, quantities by Product type, monthly delivery schedule and any other elements necessary to ensure the timely production and delivery of the Products. The quantities of Products ordered in such written orders shall be firm and binding on Sepracor and Patheon and shall not be subject to reduction except as provided in section 5.3 below. Within [**] business days, Patheon will provide formal confirmation of each Firm Order, acknowledging price, quantity and delivery date.

(c)

on or before September 1 in each Year, a written non-binding three-year forecast (broken down by quarters for the second and third years of the forecast) of the volume of each Product Sepracor then anticipates will be required to be produced and delivered to Sepracor during the three-year period.

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5.3   Modification or Cancellation of Orders.

        In the event that: (i) Patheon is unable to supply and/or deliver conforming Products equal to [**] percent ("[**]%") of Firm Order quantities of Product in a given calendar quarter; or (ii) there is a material change in the current market conditions resulting from a change in law, a recall, an FDA ruling, generic entry or other event that would significantly impact Sepracor's ability to purchase the Firm Order quantities of Products in a given calendar quarter; then any then existing Firm Orders and the Annual Minimum Commitment may be modified by Sepracor as may be reasonably necessary to adequately address the changed circumstances contemplated by this paragraph. The parties shall work together diligently to reestablish the predictability of the forecasting and ordering process as soon as possible thereafter.

        In addition, Sepracor may request a modification of the delivery date or quantity of Product in a Firm Order by submitting a written request to Patheon ("Change Order") at least thirty (30) business days in advance of the scheduled start of manufacturing. Such Change Order shall be effective and binding against Patheon upon Patheon's receipt and approval, which approval shall not be unreasonably withheld. Sepracor has the option of canceling any open balance of Product due on any Firm Order that is overdue by more than [**] days from the acknowledgment date; provided, that such period shall be extended by a period equal to (i) any delays caused directly by Sepracor and (ii) any delays resulting from good-faith quality investigations (provided, Patheon is diligently pursuing any such quality investigation).

5.4   Advance Purchase of Components.

        Sepracor understands that to ensure an orderly supply of such Components and to achieve economies of scale in the costs therefore, it may be desirable for Patheon to purchase such Components in sufficient volumes to meet the production requirements for Products during part or all of the forecasted periods referred to in Section 5.2(a) or to meet the production requirements of any longer period agreed to by the Patheon Administrator and Sepracor. Accordingly, Sepracor authorizes Patheon to purchase Components in order to satisfy the production requirements for Products for the first six (6) months projected in the most recent forecast provided by Sepracor pursuant to Section 5.2(a), and agrees that Patheon may make such other purchases of Components to meet production requirements during such longer periods as may be agreed to in writing from time to time by Sepracor at the request of the Patheon Administrator. If Components ordered by Patheon pursuant to Firm Orders or this Section 5.3 are not included in finished Products purchased by Sepracor within six (6) months after the forecasted month in respect of which such purchases have been made (or such longer period as the parties may agree), Sepracor shall pay Patheon the costs thereof and, in the event such Components are incorporated into Products subsequently purchased by Sepracor, Sepracor will receive credit for any costs of such Components previously paid to the Patheon Administrator by Sepracor.

5.5   Minimum Run Quantities.

        Sepracor may only order Products in multiples of the Minimum Run Quantities set out in Schedule B.

5.6   Shipments.

        Shipments of Products to Sepracor shall be made EXW Patheon's shipping point. Such title as Patheon has in Products and risk of loss or of damage to Products shall remain with Patheon until Products are delivered to the carrier by Patheon for shipment to Sepracor at the EXW point, at which time title and risk of loss or damage shall transfer to Sepracor. Patheon shall, in accordance with Sepracor's instructions and as agent for Sepracor, (i) arrange for shipping and insurance, to be paid by

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Sepracor, and (ii) at Sepracor's risk and expense, obtain any export licence or other official authorization and carry out all customs formalities necessary to export the Products. Sepracor may select the freight carrier used by Patheon to ship Products and may monitor Patheon's shipping and freight practices as they pertain to this Agreement. Products shall be transported in accordance with Sepracor's Technical Information. For greater certainty, Patheon shall assume the risk of loss and damage for any bulk Product while in transit between Patheon's Manufacturing Sites. In addition, any additional shipping costs relative to shipping from Patheon's Toronto, Canada facility that are incurred as a result of Patheon subcontracting the services to any Patheon Affiliates will be borne by Patheon.

5.7   Invoices and Payment.

        Except as otherwise provided in this Agreement, Patheon shall charge Sepracor for the Manufacturing Services only in respect of those Products that are shipped to Sepracor and shall submit to Sepracor, with each shipment of Products, an invoice covering such shipment. The Patheon Administrator shall also provide Sepracor with an invoice covering any Inventory or Components that are to be purchased by Sepracor pursuant to the terms of this Agreement. Each such invoice shall, to the extent applicable, identify Sepracor's purchase order number, Product numbers, names and quantities, unit price and the total amount to be remitted by Sepracor. Except as agreed under section 5.8(a) below, Sepracor shall pay all such invoices within thirty (30) days of the date thereof.

5.8   Product Deficiencies.

        (a)   Inspection.    Sepracor shall inspect the Products manufactured by Patheon upon receipt thereof and, within [**] days, shall give the Patheon Administrator written notice of all claims for Products that deviate from Sepracor's Technical Information or cGMPs (a "Deficiency Notice"). In the case of any defects not reasonably susceptible to discovery upon receipt of the Product, Sepracor shall give the Patheon Administrator a Deficiency Notice within [**] days after discovery thereof by Sepracor, but in no event after the expiration date of the Product. Should Sepracor fail to provide the Patheon Administrator with written notice of its acceptance or rejection of the delivery within [**] days of receipt of a delivery of Products, then delivery shall be deemed to have been accepted by Sepracor on the [**] day after delivery. Except as set out in Section 6.2, Patheon shall have no liability for any deviations for which the Patheon Administrator has not received notice within the applicable [**] day period. Sepracor shall not be obligated to pay for any Product which is the subject of a Deficiency Notice until the issue has been resolved under Section 5.8(b).

        (b)   Determination of Deficiency.    Upon receipt of a Deficiency Notice, Patheon shall undertake appropriate testing of the Products and shall have [**] days to advise Sepracor by notice in writing that it disagrees with the contents of such Deficiency Notice. If Sepracor and the Patheon Administrator fail to agree within [**] days after the Patheon Administrator's notice to Sepracor as to whether any Products identified in the Deficiency Notice deviate from Sepracor's Technical Information or cGMPs, then the parties shall mutually select an independent laboratory to evaluate if the Products deviate from Sepracor's Technical Information or cGMPs (the "Evaluation"). Such Evaluation shall be binding on the parties, and if the Evaluation certifies that any Products deviate from Sepracor's Technical Information or cGMPs, Sepracor may reject those Products in the manner contemplated by Section 5.8(c) and Patheon shall pay the costs of the Evaluation. If the Evaluation does not so certify in respect of any such Products, then Sepracor shall be deemed to have accepted delivery of such Products on the [**] day after delivery and Sepracor shall pay the costs of the Evaluation.

        (c)   Product Rejection.    Subject to the provisions of Sections 5.8(a) and (b), and 9.2(b), Sepracor has the right to reject and return, at Patheon's expense, any portion of any shipment of Products that deviates from Sepracor's Technical Information or cGMPs without invalidating any remainder of such shipment.

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ARTICLE 6

CO-OPERATION

6.1   Quarterly Review.

        Each of Sepracor and the Patheon Administrator shall forthwith upon execution of this Agreement appoint one of its employees to be a relationship manager responsible for liaison between the parties. The relationship managers shall meet not less than quarterly to review the current status of the business relationship and manage any issues that have arisen.

6.2   Product Recalls and Returns.

        (a)   Product Recalls.    Patheon and Sepracor shall each maintain records as may be necessary to permit a recall or a field correction of any Products delivered to Sepracor or customers of Sepracor, effected voluntarily or under a threat of, or a directive by, any governmental agency. Each party shall give notice within one Business Day by telephone (to be confirmed in writing) to the Director of Quality Control/Quality Assurance of the other party upon discovery that any Products should be recalled or corrected, or may be required to be recalled or corrected, and each party upon receiving any such notice or upon any such discovery, shall cease and desist from further shipments of such Products in its possession or control until a decision has been made whether a recall or some other corrective action is necessary. The decision to initiate a recall or to take some other corrective action, if any, shall be made and implemented by Sepracor. Patheon will co-operate as reasonably required by Sepracor, having regard to all applicable laws and regulations.

        (b)   Product Returns.    Sepracor shall have the responsibility for handling customer returns of the Products. The Patheon Administrator and Patheon shall provide Sepracor with such assistance as Sepracor may reasonably need to handle such returns.

        (c)   Patheon Responsibility.    To the extent that a recall or return results from, or arises out of, a failure by Patheon to perform in accordance with this Agreement or to provide the Manufacturing Services in accordance with the Manufacturing Responsibilities, such recall or return shall be made at Patheon's cost and expense, and Patheon shall use commercially reasonable efforts to replace the recalled or returned Products with new Products within [**] days from the date that Sepracor definitively notifies Patheon about the recalled or returned Products, contingent upon the receipt or availability from Sepracor of all API. In the event that Patheon is unable to replace the recalled Products within this [**]-day period (except where such inability results from a failure to receive the required API), then Patheon shall reimburse Sepracor for the price that Sepracor paid to Patheon for manufacturing the affected Products. In all other circumstances, recalls, returns or other corrective actions shall be made at Sepracor's cost and expense.

6.3   Customer Questions and Complaints.

        Sepracor shall have the sole responsibility for responding to questions and complaints from Sepracor's customers. Questions or complaints received by Patheon from Sepracor's customers shall be promptly referred to Sepracor. The Patheon Administrator and Patheon shall co-operate as reasonably required to allow Sepracor to determine the cause of and resolve any customer questions and complaints. Such co-operation shall include follow-up investigations, including testing. In addition, within [**] days from the date of request, the Patheon Administrator shall provide Sepracor with all necessary information that will enable Sepracor to respond properly to questions or complaints relating to the Products. Unless it is determined that the cause of any customer complaint resulted from a failure by Patheon to provide the Manufacturing Services in accordance with the Manufacturing Responsibilities, all costs incurred in respect of this Section 6.3 shall be borne by Sepracor.

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6.4   Governmental Agencies.

        Each party may communicate with any governmental agency, including but not limited to governmental agencies responsible for granting regulatory approval for the Products, regarding such Products if in the opinion of that party's counsel, such communication is necessary to comply with the terms of this Agreement or the requirements of any law, governmental order or regulation; provided, however, that unless in the reasonable opinion of its counsel there is a legal prohibition against doing so, such party shall permit the other party to accompany and take part in any communications with the agency, and to receive copies of all such communications from the agency. In addition, Patheon agrees to update and maintain in good order its Annual Registration of Drug Establishment and such other registrations, licenses or certifications required by the FDA to permit Patheon to perform its obligations under this Agreement and shall make such licenses or other documents available to Sepracor or its designees for inspection upon request on reasonable notice, during regular business hours. Patheon will promptly notify Sepracor of any communications from the FDA or other governmental regulatory authority, which may impact or change the manufacturing of the Products under this Agreement. Patheon shall also maintain one or more facility master files as required and will provide to Sepracor, on request, a letter authorizing the FDA to access the Patheon drug master file for the Products.

6.5   Records and Accounting by Patheon.

        Patheon shall keep records of the manufacture, testing and shipping of the Products, and retain samples of such Products as are necessary to comply with this Agreement and the manufacturing regulatory requirements applicable to Patheon, as well as to assist with resolving product complaints and other similar investigations. Copies of such records and samples shall be retained for a period of five (5) years following the date of manufacture, or longer if required by law. Sepracor is responsible for retaining samples of the Products necessary to comply with the legal/regulatory requirements applicable to Sepracor. Patheon shall also keep and maintain complete and accurate records and books of account in sufficient detail and form so as to enable Patheon's costs and expenses for Components and Manufacturing Services to be determined, provided that Patheon shall have no obligation to provide the specific pricing of any supplier to the extent that such pricing is subject to obligations of confidentiality between Patheon and such supplier. In addition to any other reporting requirements under this Agreement or otherwise, Patheon shall provide a monthly report to Sepracor of all consigned Inventory for all Patheon Manufacturing Sites (the "Inventory Report") as follows: (i) Patheon shall provide the Inventory Report no later than the [**] after the end of the month; (ii) Patheon shall ensure that all API and Components are listed on the Inventory Report; and (iii) Patheon shall provide complete data related to the API and Components, including, but not limited to, Part #, Lot #, date received, unit of measure, status, location and quantity on hand.

6.6   Inspection.

        Sepracor may inspect the Patheon reports and records relating to this Agreement, including, but not limited to, records related to API received at any Patheon location, during normal business hours and with reasonable advance notice, provided Patheon's representative is present during any such inspection. In addition the Patheon Administrator shall notify Sepracor of any inspections by any governmental agency involving the Products and in all cases, shall allow governmental inspectors (such as inspectors from FDA) acting pursuant to statutory authority to inspect the Manufacturing Sites in connection with the manufacture of the Products and to review required documentation.

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6.7   Access.

        Patheon shall provide Sepracor with reasonable access at mutually agreeable times to any of its facilities in which the Products are manufactured, stored, handled or shipped in order to permit Sepracor's verification of Patheon' compliance with the terms of this Agreement and with all applicable laws and regulations, and for the purpose of reviewing the equipment, manufacturing process, testing of the Products and batch, or to conduct an inventory of the API, in whatever form, at all Patheon facilities. For greater certainty, the right of access provided in this Section 6.7 shall not include a right to access to inspect the financial records of Patheon or the Patheon Administrator.

6.8   Reports.

        The Patheon Administrator will supply on an annual basis all product data, including release test results, complaint test results, all investigations (in manufacturing, testing and storage), and the like, that Sepracor reasonably requires in order to complete any filing under any applicable regulatory requirements. At Sepracor's request and subject to an additional fee to be agreed by the parties, the Patheon Administrator may prepare annual product review reports on behalf of Sepracor and in accordance with Sepracor's instructions.

6.9   FDA Filings

        (a)   FDA Filings.    Sepracor shall have the sole responsibility for filing all documents with the FDA and taking any other actions that may be required for the receipt of FDA Approval for the commercial manufacture of all of the Products. The Patheon Administrator shall assist Sepracor, to the extent consistent with Patheon's obligations under this Agreement, to obtain FDA Approval for the commercial manufacture of all Products as quickly as reasonably possible.

        (b)   Verification of Data.    Sepracor shall make reasonable efforts to provide the Patheon Administrator with a copy of those documents, or portions of documents, to be filed with the FDA that incorporate data generated by Patheon prior to filing so as to give Patheon the opportunity to verify the accuracy and regulatory validity of Patheon generated data contained therein and, in any event, shall provide copies of such documents promptly after filing.

        (c)   Deficiencies.    If in Patheon's sole discretion, acting reasonably, Patheon determines that there are material inaccuracies or deficiencies in the information provided by Sepracor in accordance with paragraph (b) above (the "Deficiencies"), the Patheon Administrator shall notify Sepracor in writing of such Deficiencies.

        (d)   Sepracor Responsibility.    For clarity, the parties agree that in reviewing the documents referred to in paragraph (b) above, Patheon's role will be limited to verifying the accuracy of the description of the work undertaken or to be undertaken by Patheon. As such, Patheon shall not assume any responsibility for the accuracy of the New Drug Application ("NDA") or the Abbreviated New Drug Application ("ANDA"), as the case may be. The sole responsibility of the preparation and filing of the NDA shall be borne by Sepracor.

ARTICLE 7

TERMS AND TERMINATION

7.1   Term.

        Subject to Section 7.2, this Agreement shall continue until December 31, 2011 (the "Initial Term"), unless terminated earlier by one of the parties as provided in this Agreement. The Initial Term of this Agreement and each subsequent term may be extended for additional two (2) year terms by mutual

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agreement of the Parties provided that the Parties agree to such extension in writing no later than eighteen (18) months prior to the end of the then current term.

7.2   Early Termination

        (a)   Either Party may terminate this Agreement upon written notice to the other party in circumstances where such other party has failed to remedy a material breach of any of its representations, warranties or other obligations under this Agreement within sixty (60) days following receipt of a written notice (the "Remediation Period") of said breach that expressly states that it is a notice under this Section 7.2(a) (a "Breach Notice"). The non-defaulting party's right to terminate this Agreement pursuant to this Section 7.2(a) may only be exercised for a period of sixty (60) days following the expiry of the Remediation Period (in circumstances where the breach has not been remedied) and if the termination right is not exercised during this period then the non-defaulting party shall be deemed to have waived the breach of the representation, warranty or obligation described in the Breach Notice.

        (b)   Either Party may immediately terminate this Agreement upon written notice, but without the necessity of prior advance notice, to the other party in the event that (i) any other party to this Agreement is declared insolvent or bankrupt by a court of competent jurisdiction; (ii) a voluntary petition of bankruptcy is filed in any court of competent jurisdiction by any other party to this Agreement; or (iii) this Agreement is assigned by any other party to this Agreement for the benefit of creditors.

        (c)   Sepracor may terminate this Agreement as to any Product upon thirty (30) days' written notice to Patheon in the event that any governmental agency takes any action, or raises any objection, that prevents Sepracor from importing, exporting, purchasing or selling such Product, or otherwise has a material impact on Sepracor's ability to import, export, purchase or sell such Product.

        (d)   Patheon may terminate this Agreement on six (6) months' prior written notice if Sepracor assigns pursuant to Section 12.7 any of its rights under this Agreement to an assignee that, in the opinion of Patheon acting reasonably, is (i) not a credit worthy substitute for Sepracor, or (ii) a competitor of Patheon in the contract manufacturing business provided that such competitive party's business is primarily related to contracting manufacturing.

        (e)   After January 1, 2009, either party may terminate this Agreement upon six (6) months' prior written notice in the event of a material change in such party's business or operations, financial status, or such other change that would significantly impact such party's ability to continue to perform under this Agreement.

7.3   Obligation on Termination.

        If this Agreement expires or is terminated in whole or in part for any reason, then:

(a)

Patheon shall immediately begin, in good faith, to mitigate all termination expenses;

(b)

Sepracor shall take delivery of and pay for all undelivered Products that are manufactured and/or packaged pursuant to a Firm Order, at the price in effect at the time the Firm Order was placed;

(c)

Sepracor shall purchase, at Patheon's cost, the Inventory applicable to the Products which was purchased, produced or maintained by Patheon in contemplation of filling Firm Orders or in accordance with Section 5.4 prior to notice of termination being given;

(d)

Sepracor shall satisfy the purchase price payable pursuant to Patheon's orders with suppliers of Components, provided such orders were made by Patheon in reliance on Firm Orders or in accordance with Section 5.4; and

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(e)

Patheon shall return to Sepracor all unused API (with shipping and related expenses, if any, to be borne by Sepracor).

Any termination or expiration of this Agreement shall not affect any outstanding obligations or payments due hereunder prior to such termination or expiration, nor shall it prejudice any other remedies that the parties may have under this Agreement. For greater certainty, termination of this Agreement for any reason shall not affect the obligations and responsibilities of the parties pursuant to Article 9, 10, 11, Sections 12.1, 12.2, 12.3, 12.4 and 12.16 all of which shall survive any termination.

ARTICLE 8

REPRESENTATIONS, WARRANTIES AND COVENANTS

8.1   Authority.

        Each party represents and warrants that it has the full right and authority to enter into this Agreement, and that it is not aware of any impediment that would inhibit its ability to perform its obligations hereunder.

8.2   Non-Infringement.

(a)

Sepracor

        Sepracor represents and warrants that, to the best of Sepracor's knowledge:

(i)

Sepracor's Technical Information for each of the Products is its or its Affiliate's property and that Sepracor may lawfully disclose Sepracor's Technical Information to Patheon;

(ii)

any Intellectual Property provided to Patheon by Sepracor for use by Patheon in connection with the provision of the Manufacturing Services according to Sepracor's Technical Information (i) is Sepracor's or its Affiliate's unencumbered property, (ii) may be lawfully used as directed by Sepracor, and (iii) such use does not infringe and will not infringe any Third Party Rights;

(iii)

the provision of the Manufacturing Services by Patheon in respect of any Product pursuant to this Agreement or use or other disposition of any Product by Patheon as may be required to perform its obligations under this Agreement does not and will not infringe any Third Party Rights;

(iv)

there are no actions or other legal proceedings, the subject of which is the infringement of Third Party Rights related to any of Sepracor's Technical Information, or any of the API and the Components, or the sale, use or other disposition of any Product made in accordance with Sepracor's Technical Information;

(v)

Sepracor's Technical Information for all Products conforms to all applicable cGMPs, laws and regulations; and

(vi)

the Products, if approved for marketing by the applicable drug regulatory authorities and labelled and manufactured in accordance with Sepracor's Technical Information and in compliance with applicable cGMPs, laws and regulations may be lawfully sold and distributed in every jurisdiction in which Sepracor markets such Products.

(b)

Patheon Manufacturing Services

        Patheon represents and warrants that, to the best of its knowledge, the manufacturing processes used by it, and which are not specified by Sepracor, for manufacturing Product do not infringe any Third Party Rights, provided, however that Patheon does not warrant against infringement attributable to an element of the Specifications, the API or Components specified by Sepracor, or an element of the Product specified by Sepracor, or the combination of the API, Components or Product with Patheon' manufacturing process.

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8.3   Debarred Persons.

        Patheon covenants that in the performance of its obligations under this Agreement it will not use the services of any person debarred or suspended under 21 U.S.C. §335(a) or (b). Patheon represents and warrants that it does not currently employ or retain, and covenants that it will not hire, as an officer or an employee, any person who has been convicted of a felony under the laws of the United States for conduct relating to the regulation of any drug product under the United States Food, Drug and Cosmetic Act.

8.4   Permits.

        Sepracor shall be solely responsible for obtaining or maintaining any permits or other regulatory approvals in respect of the Products or Sepracor's Technical Information, including, without limitation, all marketing and post-marketing approvals.

8.5   Compliance with Laws.

        Each party, in connection with its performance under this Agreement, shall comply with all applicable laws, rules, regulations, orders and guidelines.

8.6   Patheon Warranty.

        Patheon warrants and represents to Sepracor that the Product: (i) has been manufactured in accordance with GMP and other applicable FDA laws and regulations, and all other federal, state and local laws, rules and regulations applicable in Canada and the Territory in connection with the Manufacturing Services provided under this Agreement; (ii) will satisfy Sepracor's Technical Information and be free of defects in material and workmanship provided, however, that Patheon will not be responsible for any failure of the Product to meet the specifications that is due to the failure of raw material supplied by Sepracor to meet the raw material's applicable specifications; (iii) will not be adulterated or misbranded within the meaning of the Federal Food, Drug, and Cosmetic Act provided, however, that Patheon will not be responsible for misbranding that is due to any label, instructions or package insert text provided to Patheon by Sepracor; and (iv) will be conveyed to Sepracor with good title and free of all lawful security interests, liens, or encumbrances. Patheon further warrants that Patheon's manufacturing and storage facilities shall comply with all applicable laws, rules and regulations. In addition, in the event any Patheon Manufacturing Site is unable to perform under this Agreement for any reason, Patheon represents and warrants that it will employ all commercially reasonable efforts to make another Patheon Manufacturing Site available to perform the Manufacturing Services as required by this Agreement.

ARTICLE 9

REMEDIES AND INDEMNITIES

9.1   Consequential Damages

        No party shall be liable to any other party to this Agreement in contract, tort, negligence, breach of statutory duty or otherwise for any (direct or indirect) loss of profits, of production, of anticipated savings, of business or goodwill or for any liability, damage, costs or expense of any kind incurred by the other party of an indirect or consequential nature.

9.2   Limitation of Liability

        (a)   API.    Patheon's liability for any loss or damage to the API shall be as set forth in Section 3.2 hereof.

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        (b)   Products.    Except in circumstances where Patheon has failed to provide the Manufacturing Services in accordance with the Manufacturing Responsibilities or otherwise failed to perform in accordance with this Agreement, Patheon shall not be liable nor have any responsibility for any deficiencies in, or other liabilities associated with, any Product manufactured by it, including, without limitation, any deficiencies with respect to Sepracor's Technical Information, the safety, efficacy or marketability of the Products or any distribution risk. Except as set out in Section 6.2(c), if Patheon has failed to provide the Manufacturing Services in accordance with the Manufacturing Responsibilities, then Sepracor shall have no obligation to pay for such Products. At Sepracor's option, Patheon shall, at its sole cost and expense, manufacture additional Products to replace such deficient Products, provided that Sepracor shall supply Patheon with the additional API that is needed to manufacture the Products. Patheon's cost for such API shall be determined in accordance with Section 2.3.

        (c)   Maximum Liability.    The maximum liability of Patheon in the aggregate under this Agreement for any reason whatsoever, including, without limitation, any liability arising under Section 3.2, Article 6 or resulting from a breach of representations, warranties or other obligations under this Agreement shall not exceed in any Year the lesser of (i) the amount equal to fifty percent (50%) of that Year's revenue paid by Sepracor to Patheon and (ii) $7,500,000; provided, however, that this limitation shall not apply with respect to third party claims.

9.3   Patheon Indemnification

        Subject to Sections 9.1 and 9.2, Patheon agrees to defend, indemnify and hold Sepracor, its officers, employees and agents harmless against any and all losses, damages, costs, claims, demands, judgments and liability to, from and in favour of third parties (other than Affiliates) resulting from, or relating to any of the following: (i) any claim of personal injury or property damage to the extent that such injury or damage is the result of a failure by Patheon to provide the Manufacturing Services in accordance with the Manufacturing Responsibilities or any breach of the Agreement by Patheon including, without limitation, any representation or warranty contained herein, (ii) any claim that the manufacturing processes used by Patheon, and which are not specified by Sepracor, for manufacturing Product infringe any Third Party Rights, provided, however that Patheon shall not be liable for any claim of infringement attributable to an element of the Specifications, the API or Components specified by Sepracor, or an element of the Product specified by Sepracor, or the combination of the API, Components or Product with Patheon's manufacturing process, or (iii) any claim that the Components, other than the Components specified by Sepracor or supplied by Sepracor suppliers, infringe any Third Party Rights, except to the extent that any such losses, damages, costs, claims, demands, judgments and liability are due to the negligence or wrongful act(s) of Sepracor, its officers, employees or agents or Affiliates or for which Sepracor is obligated to indemnify Patheon pursuant to Section 9.4. Sepracor shall promptly notify Patheon of any such claim, shall use commercially reasonable efforts to mitigate the effects of such claim, shall reasonably cooperate with Patheon in the defence of such claim and shall permit Patheon to control the defence and settlement of such claim, all at Patheon's cost and expense.

9.4   Sepracor Indemnification

        Subject to Sections 9.1 and 9.2, Sepracor agrees to defend, indemnify and hold each of Patheon, its officers, employees and agents harmless against any and all losses, damages, costs, claims, demands, judgments and liability to, from and in favour of third parties (other than Affiliates) resulting from, or relating to any of the following: (i) any claim of infringement or alleged infringement, of any Third Party Rights in respect of the Products or the API, or (ii) any claim of personal injury or property damage arising from the design, manufacture, distribution, sale or use of the Products except to the extent that any such losses, damages, costs, claims, demands, judgments and liability are due to the negligence or wrongful act(s) of Patheon, its officers, employees or agents or for which Patheon is

21

required to indemnify Sepracor pursuant to Section 9.3. Patheon shall promptly notify Sepracor of any such claims, shall use commercially reasonable efforts to mitigate the effects of such claim, shall reasonably cooperate with Sepracor in the defence of such claims and shall permit Sepracor to control the defence and settlement of such claims, all at Sepracor's cost and expense.

9.5   Reasonable Allocation of Risk

        The parties acknowledge and agree that the provisions of this Agreement (including, without limitation, this Article 9) are reasonable and create a reasonable allocation of risk having regard to the relative profits the parties respectively expect to derive from the Products, and that Patheon, in their fees for the provision of the Manufacturing Services, has not accepted a greater degree of the risks arising from the manufacture, distribution and use of the Products, based on the fact that Sepracor has developed and holds the marketing approval for the Products and requires Patheon to manufacture and label the Products strictly in accordance with Sepracor's Technical Information, and that Sepracor and not Patheon is in a position to inform and advise potential users of the Products as to the circumstances and manner of use of the Products.

ARTICLE 10

CONFIDENTIALITY

10.1    Disclosure.    During and in furtherance of this Agreement, each of the parties hereto may disclose certain of its Confidential Information to the other parties.

10.2    Use of Information.    During the Initial Term and any renewals of this Agreement, and for a period of five (5) years from the termination of this Agreement, each of the parties hereto agrees (i) to use the Confidential Information only in connection with the terms and purpose of this Agreement; (ii) to treat the Confidential Information as it would its own proprietary information; and (iii) to take all reasonable precautions to prevent the disclosure of the Confidential Information to any third party, other than an Affiliate, without the prior written consent of the other parties.

10.3    Exceptions.    Each of parties shall be relieved of any and all of the obligations under Section 10.2 regarding Confidential Information which (i) was known by the recipient prior to receipt hereunder; (ii) at the time of disclosure, was generally available to the public, or which after disclosure hereunder becomes generally available to the public through no fault attributable to a party hereto; or (iii) is hereafter made available for use or disclosure from any third party having a right to do so.

10.4    Presumption of Confidentiality.    Subject to Section 10.3, the obligations set forth in this Section 10 shall apply to all information disclosed under this Agreement that is treated by the disclosing party as confidential or proprietary.

ARTICLE 11

DISPUTE RESOLUTION

11.1     Commercial Disputes.

        In the event of any dispute arising out of or in connection with this Agreement (other than a dispute determined in accordance with Section 5.8(b) or a Technical Dispute), the parties shall first try to solve it amicably. In this regard, any party may send a notice of dispute to the other, and each party shall appoint, within [**] Business Days from receipt of such notice of dispute, a single representative having full power and authority to solve the dispute. The representatives so designated shall meet as necessary in order to solve such dispute. If these representatives fail to solve the matter within one (1) month from their appointment, or if a party fails to appoint a representative within the [**] Business Day period set forth above, such dispute shall immediately be referred to the Chief Operating

22

Officer or Executive Vice President, Operations (or such other officer as they may designate) of each party who will meet and discuss as necessary in order to try to solve the dispute amicably. Should the parties fail to reach a resolution under this Section 11.1, their dispute will be referred to a court of competent jurisdiction.

11.2     Technical Dispute Resolution.

        In the event of a dispute (other than disputes in relation to the matters set out in Sections 5.8(b) and 11.1) between the parties that is exclusively related to technical aspects of the manufacturing, packaging, labelling, quality control testing, handling, storage or other activities under this Agreement (a "Technical Dispute"), the parties shall make all reasonable efforts to resolve the dispute by amicable negotiations. In this regard, senior representatives of each party shall, as soon as practicable and in any event no later than [**] Business Days after a written request from either party to the other, meet in good faith to resolve any Technical Dispute. If, despite such meeting, the parties are unable to resolve a Technical Dispute within a reasonable time, and in any event within [**] Business Days of such written request, the Technical Dispute shall, at the request of either party, be referred for determination to an expert in accordance with the provisions of Schedule F. In the event that the parties cannot agree whether a dispute is a Technical Dispute, Section 11.1 shall prevail. For greater certainty, the parties agree that the release of the Products for sale or distribution pursuant to the applicable marketing approval for such Products shall not by itself indicate compliance by Patheon with its obligations in respect of the Manufacturing Services and further that nothing in this Agreement (including Schedule F) other than the Technical Dispute Resolution provisions of this paragraph 11.2 shall remove or limit the authority of the parties' relevant qualified persons for Product Release (as specified by the Quality Agreement) to determine whether the Products are to be released for sale or distribution.

ARTICLE 12

MISCELLANEOUS

12.1     Inventions.

(a)   Sepracor Inventions

        Patheon agrees that all inventions, data, works, discoveries, designs, technology and improvements, (whether or not protectable by a patent or a copyright), made, reduced to practice, created, written, designed or developed, authored or made by Patheon, alone or in combination with others, in the course of the performance of services under this Agreement, or thereafter if resulting or directly or indirectly derived from Sepracor's proprietary information ("Sepracor Inventions"), shall be the sole and exclusive property of Sepracor. Sepracor Inventions shall be promptly reported to Sepracor but otherwise maintained in confidence by Patheon. All Sepracor Inventions shall be deemed "works made for hire" to the extent permitted by the copyright law.

(i)    Patheon hereby assigns, and ensures that its employees, agents and consultants, as applicable, shall assign, to Sepracor all Inventions and any and all related patents, copyrights, trademarks, trade names, and other industrial and intellectual property rights and applications therefor, in the United States and elsewhere, and appoints any officer of Sepracor as its duly authorized agent to execute, file, prosecute and protect the same before any government agency, court or authority; such appointment only to be exercised after providing to Patheon reasonable notice and opportunity to execute such documents directly.

(ii)    Patheon agrees to cooperate fully with Sepracor and its nominees to obtain patents or register copyrights in any and all countries for these Inventions, and to execute all papers for

23

use in applying for and obtaining such protection thereon as Sepracor may desire, together with assignments thereof to confirm Sepracor's ownership thereof, all at Sepracor's expense.

(b)   Patheon Inventions

        All inventions, data, works, discoveries, designs, technology and improvements, (whether or not protectable by a patent or a copyright) that are conceived, made, reduced to practice, created, written, designed or developed, authored or made by Patheon, and which are not specific to, or dependant upon, Products or Sepracor Inventions and which have application to manufacturing processes or formulation development of drug products or drug delivery systems shall be the exclusive property of Patheon (the "Patheon Inventions"). Patheon hereby grants to Sepracor a non-exclusive, paid-up, royalty-free, transferable license of such Patheon Inventions which Sepracor may use for the manufacture, sale and offer for sale of the Products;

        (i)    Sepracor hereby assigns, and ensures that its employees, agents and consultants, as applicable, shall assign, to Patheon all Patheon Inventions and any and all related patents, copyrights, trademarks, trade names, and other industrial and intellectual property rights and applications therefor, in the United States and elsewhere, and appoints any officer of Patheon as its duly authorized agent to execute, file, prosecute and protect the same before any government agency, court or authority; such appointment only to be exercised after providing to Sepracor reasonable notice and opportunity to execute such documents directly.

        (ii)   Sepracor agrees to cooperate fully with Patheon and its nominees to obtain patents or register copyrights in any and all countries for the Patheon Inventions, and to execute all papers for use in applying for and obtaining such protection thereon as Patheon may desire, together with assignments thereof to confirm Patheon's ownership thereof, all at Patheon's expense.

12.2     Patent Matters.

        (a)   Sepracor will, at Sepracor's expense, have sole responsibility for, in its sole discretion, preparation, filing, prosecution and maintenance of patents and patent applications relating to Sepracor Inventions as described in Section 12.1(a) above and Patheon agrees to provide reasonable assistance to and cooperate fully with Sepracor or its representatives to facilitate preparation, filing, prosecution, and maintenance of any such patents or patent applications.

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        (b)   Patheon will, at Patheon's expense, have the sole responsibility for preparation, filing, prosecution, and maintenance of patents and patent applications relating to subject matter described in Section 12.1(b) above. Patheon agrees that any such preparation, filing, prosecution and maintenance will be conducted diligently and that, for patents pertaining to Technology licensed to Sepracor hereunder, Sepracor will be kept fully and promptly informed of the progress thereof. In the event Patheon elects to discontinue prosecution or maintenance of any patent application or patent described in this Section 12, or part thereof, Sepracor may assume the prosecution or maintenance of any such patent application or patent at its own expense, and Patheon shall assign to Sepracor all right, title and interest in and to any such patent application or patent.

        (c)   If, during the term of this Agreement, either Party learns of any infringement or threatened infringement by a third party of the patents comprising Patent Rights, such Party will promptly notify the other Party and will provide such other Party with any available evidence of such infringement.

12.3     Intellectual Property.

        Any intellectual property developed by either Patheon or Sepracor prior to the Effective Date and any rights relating to such intellectual property will remain the property of the respective party, who shall at all time retain the sole control and use of such intellectual property and the applicable rights. Sepracor, on the one hand, and Patheon and the Patheon Administrator, on the other hand, hereby acknowledge that neither party has, nor shall it acquire, any interest in any of the other party's Intellectual Property unless otherwise expressly agreed to in writing. Nothing perlegalrecited herein shall be construed as granting any right or license in any intellectual property owned or licensed to Sepracor, except to the extent necessary for Patheon to carry out Manufacturing Services for Sepracor hereunder; this limited grant is immediately revocable at Sepracor's sole discretion.

12.4     Insurance.

        Each party shall maintain commercial general liability insurance, which insurance shall afford limits of not less than $5,000,000 for each occurrence for personal injury liability, products liability and property damage liability that may arise from this Agreement or otherwise. If requested each party will provide the other with a certificate of insurance evidencing the above and showing the name of the issuing company, the policy number, the effective date, the expiration date and the limits of liability. The insurance certificate shall further provide for a minimum of thirty (30) days' written notice to the insured of a cancellation of, or material change in, the insurance.

12.5     Independent Contractors.

        The parties are independent contractors and this Agreement shall not be construed to create between any Patheon and Sepracor any other relationship such as, by way of example only, that of employer-employee, principal agent, joint-venturer, co-partners or any similar relationship, the existence of which is expressly denied by the parties hereto.

12.6     No Waiver.

        Any party's failure to require another party to comply with any provision of this Agreement shall not be deemed a waiver of such provision of any other provision of this Agreement.

12.7     Assignment.

        (a)   Patheon may not assign this Agreement or any of its rights or obligations hereunder except with the written consent of Sepracor, such consent not to be unreasonably withheld. For greater certainty, Patheon may arrange for subcontractors to perform specific services arising under this Agreement provided that Patheon will remain responsible to Sepracor under this Agreement;

25

        (b)   Subject to Section 7.2(d), Sepracor may assign this Agreement or any of its rights or obligations hereunder without approval from Patheon; provided, however, that Sepracor shall give prior written notice of any assignment to Patheon, any assignee shall covenant in writing with Patheon to be bound by the terms of this Agreement and Sepracor shall remain liable hereunder;

        (c)   Notwithstanding the foregoing provisions of this Section 12.7, any party may assign this Agreement to any of its Affiliates or to a successor to or purchaser of all or substantially all of its business, provided that such assignee executes an agreement with the non-assigning party hereto whereby it agrees to be bound hereunder.

12.8     Force Majeure.

        Subject to the terms of this Agreement, no party shall be liable for the failure to perform its obligations under this Agreement if such failure is occasioned by a cause or contingency beyond such party's reasonable control, including, but not limited to, strikes or other labour disturbances, lockouts, riots, wars, acts of terrorism, fires, floods, storms, interruption of or delay in transportation, defective equipment (due to manufacturer defect), or compliance with any order or regulation of any government entity acting within colour of right. A party claiming a right to be excused from performance under this Section 12.8 shall immediately notify the other parties in writing of the extent of its inability to perform, which notice shall specify the occurrence beyond its reasonable control that prevents such performance, and shall use reasonable efforts to minimize any delays caused by such occurrence, and if warranted to make best commercial efforts to transfer production to an alternate validated Patheon site.

12.9     Additional Product.

        Additional products may be added to this Agreement and such additional products shall be governed by the general conditions hereof with any special terms (including, without limitation, price) governed by an addendum hereto.

12.10      Notices.

        Any notice, approval, instruction or other written communication required or permitted hereunder shall be sufficient if made or given to the other parties by personal delivery, by telecopier or facsimile

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communication or by sending the same by first class mail, postage prepaid to the mailing address, or telecopier or facsimile number set forth below:

If to Sepracor:
Sepracor Inc. 84 Waterford Drive Marlborough, Massachusetts 01752 U.S.A.
Attention: President Telecopier No.: 508-357-7889
With a copy to:	General Counsel, Sepracor Inc. Same address as Sepracor Telecopier No.: 508-357-7511
If to Patheon:
c/o Patheon Inc. Corporate Office 7070 Mississauga Road, Suite 350 Mississauga, Ontario Canada L5N 7J8.
Attention: President Telecopier No.: (905) 812-6705
With a copy to:	General Counsel, Patheon Inc. Same address as Patheon Telecopier No.: (905) 812-6613

or to such other addresses or telecopier or facsimile numbers provided to the other party in accordance with the terms of this Section 12.10. Notices or written communications made or given by personal delivery or by telecopier or facsimile shall be deemed to have been sufficiently made or given when sent (receipt acknowledged), or if mailed, five days after being deposited in the United States or Canadian mail, postage prepaid or upon receipt, whichever is sooner.

12.11  Severability.

        If any provision of this Agreement is determined by a court of competent jurisdiction to be invalid, illegal or unenforceable in any respect, such determination shall not impair or affect the validity, legality or enforceability of the remaining provisions hereof, and each provision is hereby declared to be separate, severable and distinct.

12.12  Entire Agreement.

        This Agreement, together with the Quality Agreements (incorporated herein by reference), constitutes the full, complete, final and integrated agreement among the parties hereto relating to the subject matter hereof and supersedes all previous written or oral negotiations, commitments, agreements, transactions or understandings with respect to the subject matter hereof, including the Original Agreement except as otherwise stated in Section 12.13. Any modification, amendment or supplement to this Agreement must be in writing and signed by authorized representatives of all parties. In case of conflict, the prevailing order of documents shall be this Agreement and the Quality Agreement. For the avoidance of doubt, this Agreement does not supersede that certain Master

27

Agreement for Development and Manufacturing of Non-Commercial Products, executed by the parties and dated February 12, 2007 which remains in full force and effect in accordance with its terms.

12.13  Original Agreement.

        Notwithstanding the provisions of Section 12.12, the Original Agreement shall apply in respect of the obligations of the parties thereto prior to the Effective Date.

12.14  No Third Party Benefit or Right.

        For greater certainty, nothing in this Agreement shall confer or be construed as conferring on any third party any benefit or the right to enforce any express or implied term of this Agreement.

12.15  Execution of Counterparts.

        This Agreement may be executed in counterparts, by original or facsimile signature, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

12.16  Governing Law.

        This Agreement shall be construed and enforced in accordance with the laws of the State of Delaware, United States of America and jurisdiction shall be vested in the United States District Court for the District of Delaware. The parties expressly agree that the UN Convention on Contracts for the International Sale of Goods shall not apply to this Agreement.

12.17  Capital Requirements.

        Certain capital requirements and the obligations of the parties in respect thereof are set out in Schedule J.

        IN WITNESS WHEREOF, the duly authorized representatives of the parties have executed this Agreement as of the date first written above.

PATHEON INC.
by	/s/ Clive V. Bennett
by	President, Patheon D.S.
PATHEON PHARMACEUTICALS INC.		MOVA PHARMACEUTICAL CORPORATION
by	/s/ Clive V. Bennett	by	/s/ Nick DiPietro
by	President, Patheon D.S.	by	Director
SEPRACOR, INC.
by	/s/ Stephen A. Wald
by	Senior Vice President, Technical Operations

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SCHEDULE A

PRODUCT SPECIFICATIONS

        Copies of the finished Product specifications, packaging specifications and shipping requirements for each product are attached hereto, which specifications are current as of the Effective Date and are subject to change in accordance with the terms of this Agreement.

Purchase Specifications for Lunesta® (eszopiclone)
1.0 mg, 2.0 mg and 3.0 mg Tablets
(Sepracor Material Ids: 400621, 400650 and 400651 respectively)

Attribute		Purchase Specifications
	[**]	[**]
	[**]	[**]
	[**]	[**]
	[**]	[**]
	[**]	[**]
		[**]
	[**]	[**]
	[**]	[**]
	[**]	[**]
	[**]	[**]
	[**]	[**]

Specifications for the API and Excipients

Ingredient		Specifications
	[**]	Sepracor Specification (Sepracor Material ID # 400549)
	[**]	NF
	[**]	USP
	[**]	NF
	[**]	NF
	[**]	NF
	[**]	Vendor Specification approved by Sepracor
	[**]	Vendor Specification approved by Sepracor
	[**]	Vendor Specification approved by Sepracor

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SCHEDULE B

FEES AND MINIMUM RUN QUANTITIES

        Pricing is based on number of batches ordered per purchase order; minimum annual volumes are as indicated.

2007 Pricing Tables—in USD

        Pricing is based on number of batches ordered per purchase order; minimum annual volumes are as indicated.

Lunesta 1 mg

SKU		100's bottle
	Annual Qty (units)	[**]
	Run Qty ([**] kg batches)	1	2	6
	Run Qty (units)	[**]	[**]	[**]
	Price per unit	$[**]	$[**]	$[**]

Lunesta 2 mg and 3 mg

SKU	100's bottle			2x18's blister
Annual Qty (units)	[**]			[**]
Run Qty ([**] kg batches—Toronto)	1	3	6	1	2
Run Qty (units)	[**]	[**]	[**]	[**]	[**]
Run Qty ([**] kg batches—Manati)	1	3	6	1	2
Run Qty (units)	[**]	[**]	[**]	[**]	[**]
Run Qty ([**] kg batches—Manati)	—	1	2	1	2
Run Qty (units)	[**]	[**]	[**]	[**]	[**]
Price per unit	$[**]	$[**]	$[**]	$[**]	$[**]

[**]

Assumptions, Terms and Conditions

1.

This pricing became effective on February 1, 2007.



2.

An actual yield of [**]% is assumed.



3.

The 1 mg strength tablet will be made at Patheon's Toronto, Canada facility ("Patheon TRO") using a [**] kg batch size. The 2 mg and 3mg tablets will be made at TRO (using a [**] kg batch size) or at Manatí (Puerto Rico Operations) using either a [**] kg or a [**] kg batch size. When the [**] kg batch size is validated (anticipated in [**]), all 2 mg and 3 mg production is expected to be manufactured using this batch size. TRO will remain as an alternate site of manufacture for this production.

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4.

When the [**] kg batch size is validated and sample blisters of 2 mg and 3 mg product are ordered, a full lot will be manufactured and must be split between the blister samples and bottles.



5.

The packaging configurations for each SKU are as per specifications established at Patheon TRO.



6.

The same primary packaging components and formats are assumed for all three strengths.



7.

Raw material and finished product testing are based on established specifications and methods set forth in the Technical Information.



8.

Patheon will be responsible for the shipment of bulk tablets from Patheon TRO or Manatí to Patheon Pharmaceuticals Inc. at 2110 East Galbraith Road, Cincinnati, Ohio 45237-1625, USA for blister packaging.

IT IS ASSUMED THAT FINISHED PACKAGES WILL BE SHIPPED FROM THE FINAL PACKAGING SITE TO SEPRACOR'S CURRENT DESIGNATED LOCATION IN THE USA. ANY ADDITIONAL SHIPPING COSTS RELATIVE TO SHIPPING FROM PATHEON TRO THAT ARE INCURRED AS A RESULT OF PATHEON SUBCONTRACTING THE SERVICES TO ANY PATHEON AFFILIATES WILL BE BORNE BY PATHEON.

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SCHEDULE C

API

API	Supplier(s)
Eszoplicone	Dow Chemical Co.
	Sepracor Canada Ltd.

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SCHEDULE D

API REIMBURSEMENT VALUE

        For the purposes of the Agreement, the parties agree that the API Reimbursement Value shall be as follows:

Product	API	API Reimbursement Value
Eszoplicone Tablets	Eszopiclone	$[**]/Kg

MAXIMUM REIMBURSEMENT VALUE

        Patheon's aggregate liability for API calculated in accordance with Sections 2.3 of the Agreement in a Year shall not exceed, in the aggregate, the maximum reimbursement value set forth below:

Product	Maximum Reimbursement Value*
Eszoplicone Tablets	$[**]

*

the $[**] limit above will be adjusted to $[**] for the [**].

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SCHEDULE E

BATCH NUMBERING AND EXPIRATION DATES

        Each batch of Products manufactured by Patheon will bear lot a unique lot number using the batch numbering system of such Patheon. The number will appear on all documents relating to the particular batch of Product.

        Patheon will calculate the expiration date of the Product for each batch by adding the expiration period of the Product supplied by Sepracor to the date of Manufacture of each batch.

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SCHEDULE F
TECHNICAL DISPUTE RESOLUTION

        Technical Disputes which cannot be resolved by negotiation as provided in Section 11.2 shall be resolved in the following matter:

        1.     Appointment of Expert.    Within [**] Business Days after a party requests pursuant to Section 11.2 that an expert be appointed to resolve a Technical Dispute, the parties shall jointly appoint a mutually acceptable expert with experience and expertise in the subject matter of the dispute. If the parties are unable to so agree within such [**] Business Day period, or in the event of disclosure of a conflict by an expert pursuant to paragraph 2 hereof which results in the parties not confirming the appointment of such expert, then an expert (willing to act in that capacity hereunder) shall be appointed by an experienced arbitrator on the roster of ADR Chambers who shall be a retired judge of the Ontario Superior Court of Justice.

        2.     Conflicts of Interest.    Any person appointed as an expert shall be entitled to act and continue to act as such notwithstanding that at the time of his appointment or at any time before he gives his determination, he has or may have some interest or duty which conflicts or may conflict with his appointment provided that before accepting such appointment (or as soon as practicable after he becomes aware of the conflict or potential conflict) he fully discloses any such interest or duty and the parties shall after such disclosure have confirmed his appointment.

        3.     Not Arbitrator.    No expert shall be deemed to be an arbitrator and the provisions of the Arbitration Act, 1991 (Ontario) or of any other applicable statute (foreign or domestic) and the law relating to arbitration shall not apply to any such expert or the expert's determination or the procedure by which the expert reaches his determination to be made pursuant to this Schedule F.

        4.     Procedure.    Where an expert is appointed:

(a)

Timing.    The expert shall be so appointed on condition that (i) he promptly fixes a reasonable time and place for receiving representations, submissions or information from the parties and that he issues such authorizations to the parties and any relevant third party for the proper conduct of his determination and any hearing and (ii) he renders his decision (with full reasons) within [**] Business Days (or such other date as the parties and the expert may agree) after receipt of all information requested by him pursuant to paragraph 4(b) hereof.



(b)

Disclosure of Evidence.    The parties undertake one to the other to provide to any expert all such evidence and information within their respective possession or control as the expert may reasonably consider necessary for determining the matter before him which they shall disclose promptly and in any event within [**] Business Days of a written request from the relevant expert to do so.



(c)

Advisors.    Each party may appoint such counsel, consultants and advisors as it feels appropriate to assist the expert in his determination and so as to present their respective cases so that at all times the parties shall co-operate and seek to narrow and limit the issues to be determined.



(d)

Appointment of New Expert.    If within the time specified in paragraph 4(a) above the expert shall not have rendered a decision in accordance with his appointment, a new expert may (at the request of either party) be appointed and appointment of the existing expert shall thereupon cease for the purposes of determining the matter at issue between the parties save that if the existing expert renders his decision with full reasons prior to the appointment of the new expert, then such a decision shall have effect and the proposed appointment of the new expert shall be withdrawn.

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(e)

Final and Binding.    The determination of the expert shall, save in the event of fraud or manifest error, be final and binding upon the parties.



(f)

Costs.    Each party shall bear its own costs in connection with any matter referred to an expert hereunder and, in the absence of express provision in the Agreement to the contrary, the costs and expenses of the expert shall be shared equally by the parties.

        For greater certainty, the parties agree that the release of the Products for sale or distribution pursuant to the applicable marketing approval for such Products shall not by itself indicate compliance by a Patheon with its obligations in respect of the Manufacturing Services and further that nothing in this Agreement (including this Schedule F) shall remove or limit the authority of the relevant qualified person (as specified by the Quality Agreement) to determine whether the Products are to be released for sale or distribution.

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SCHEDULE G

PATHEON INC. QUALITY AGREEMENT

QUALITY AGREEMENT

        This Quality Agreement is made as of the 12^th day of March, 2007

Between:

Sepracor, Inc., a corporation existing under the laws of the State of Delaware, (hereinafter referred to as "Sepracor")

-and-

Patheon Inc., a corporation existing under the laws of Canada (hereinafter referred to as "Patheon")

        WHEREAS pursuant to a manufacturing services agreement dated March 1, 2004 as amended between the Sepracor and Patheon (the "MSA") Patheon agreed to provide pharmaceutical manufacturing services in respect of certain Products (as described in Schedule A hereto);

        AND WHEREAS pursuant to the MSA, Sepracor will be required to provide certain information to Patheon in order for Patheon to provide the Manufacturing Services ("Sepracor's Technical Information");

        AND WHEREAS pursuant to the MSA Patheon will be required to operate within Sepracor's Technical Information as provided;

        AND WHEREAS the parties desire to allocate responsibility for procedures and Sepracor's Technical Information impacting on the identity, strength, quality and purity of the Products.

        NOW, THEREFORE, in consideration of the rights conferred and the obligations assumed under the MSA and herein, and for other good and valuable consideration (the receipt of sufficiency of which are acknowledged by each party), and intending to be legally bound the parties agree as follows:

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ARTICLE 1 (RESPONSIBILITIES)

        Subject to the terms and conditions hereinafter set out and subject to the terms and conditions of the MSA, the parties agree that Sepracor shall be responsible for all of the items marked with "X" that are in the Sepracor column and that Patheon shall be responsible for all of the items marked with "X" in the Patheon column. If either the Sepracor or Patheon columns are marked with "(X)", cooperation is required from the designated party. Capitalized terms not otherwise defined herein shall have the meaning specified in the MSA.

A.) General Items

Item	Detail	Sepracor	Patheon
1	Permit on-site audits of all Patheon premises used in the manufacture of Products, procedures and Product-related documentation by Sepracor. This includes one (1) routine audit per year per site and, as necessary any for cause audits.		X
2	Permit access to all appropriate areas of manufacturing by Sepracor for the purpose of observing/monitoring manufacturing, packaging, and in-process/release testing of the Product.		X
3	Manufacture and package the Product in strict adherence to Sepracor's Technical Information and approved master production records.		X
4	Permit inspections by regulatory authorities as necessary. Notify Sepracor within one (1) Business Day of any regulatory inspection related in whole or in part to the Product. Allow Sepracor to be present on site during inspection with Regulatory Authorities pertaining to the Product.		X
5	Patheon will provide copies of any FDA warning letters relating to the Product within two (2) business days of receipt. Patheon will provide copies of any FDA Form 483's, EIR's or the like from applicable regulatory agencies relating to the Product or facilities used to produce, test, or package the Product (redacted as necessary) upon request. Responses related to Sepracor's Product shall be reviewed and approved by Sepracor prior to submission to the applicable regulatory agency, provided that Patheon reserves the right to respond to such regulatory agencies without prior approval if in the reasonable opinion of its counsel it is required to do so.		X
6	Notify Sepracor within one (1) Business Day of any regulatory authority requests for product samples, batch documentation or other information related to the Product. Provide copies of such documentation to Sepracor within three (3) Business Days.		X
7	Provide support during regulatory inspections, as necessary.	X	X
8	Not to subcontract any work hereunder to a third party except in accordance to the provisions of the MSA. For clarity, Patheon shall have the right to subcontract Component testing to other Patheon facilities or to any of the contract laboratories listed in Schedule C.		X

38

9	Provide data to support the completion of an annual product review (excluding stability evaluation) to Sepracor. At Sepracor's request and subject to an additional fee to be agreed by the parties, Patheon may prepare annual product review reports on behalf of Sepracor and in accordance with Sepracor's instructions.		X
10	Review and approve applicable sections of Annual Product Review.	X	X
11	Review findings and recommendations from the Annual Product Review.	X	(X)
12	Notify and obtain approval from Sepracor, prior to implementation, of any proposed changes to the process, Components, supplies, Sepracor's Technical Information, records, and testing which may have impact on the Product or the Products state of validation.		X
13	Maintain agreements with Components suppliers (for which a party is responsible for purchasing) that insure proper notification and approval of any changes impacting the supplied Components.	X	X
14	Provide appropriate sections from Sepracor's regulatory filings to Patheon.	X
15	Conduct operations in compliance with all applicable laws and regulations (including cGMP's).	X	X
16	Investigate and revolve all Product complains including those related to Adverse Events and potential Product failures.	X	(X)
17	Provide copies of batch production records for any lots associated with Adverse Events or potential Product failures at the request of Sepracor.		X
18	Investigate all manufacturing type Product complaints.		X
19	Prepare and file all field alerts with regulatory authorities and provide copies to Patheon.	X
20	Initiate and control any Product recall. Provide notification and documentation to Patheon prior to regulatory submission.	X	(X)
21	Liaise with regulatory authorities for approval, maintenance and updating of regulatory applications.	X
22	Prepare IND/NDA annual reports.	X
23	Provide Patheon generated data to support Sepracor submission for the Annual Report	X	(X)
24	Submit drug listing form 2657 to FDA	X

39

B.) Validation and Process Trending Activities

Item	Detail	Sepracor	Patheon
1	Establish and maintain a validation program and applicable master validation plans for the Product.		X
2	Qualify (IQ/OQ) facilitates, utilities and process equipment.		X
3	Calibrate instrumentation and qualify computer systems used in the manufacture and testing of the Product.		X
4	Provide access to Sepracor for review of the documentation associated with items 1-3 above. If Patheon conducts qualification of facilities or utilities that directly impacts the Product, Sepracor must approve the protocol and the report. If Patheon uses the Product in any qualification of process equipment, then Sepracor must approve the protocol and report.	(X)	X
5	Prepare and approve all performance qualification and process validation protocols and reports, for both manufacturing and packaging operations.		X
6	Review and approve master validation plan, performance qualification and process validation protocols and reports for the Product.	X
7	Maintain an appropriate cleaning and cleaning validation program.		X
8	Provide toxicological information to be used in the development of a cleaning program.	X
9	Provide Quarterly reports for any deviations, reworks and investigations related to the Product.		X

40

C.) Active Materials and Excipients

Item	Detail	Sepracor	Patheon
1	Provide the master formula.	X
2	Provide approved supplier list from the NDA.	X
3	Qualify and approve Active Materials supplier(s).	X
4	Provide Active Materials specifications.	X
5	Provide test methods for Active Materials.	X
6	Validate testing methods for Active Materials.	X
7	Transfer Active Materials methods to Patheon (may be only ID methods).	X
8	Participate in protocol driven method transfers in order to receive Active Materials methods (if necessary).	X	X
9	Analyze and release received Active Materials in accordance with Sepracor's Technical Information.		X
10	Maintain retain sample of the Active Materials for one year beyond the expiration of the Product.	X	X
11	Qualify and approve excipients supplies as per Patheon SOP.		X
12	Provide test methods and method validation (or qualification as appropriate) for excipients for non-compendia methods.	X
13	Provide specifications and test methods for excipients for all compendia methods for Sepracor approval.		X
14	Analyze and release excipients.		X
15	Maintain retain samples of the excipients for one year beyond the expiration of the Product.		X
16	Active Materials shall be consumed on a first in—first our basis unless otherwise authorized by Sepracor.		X

41

D.) Packaging

Item	Detail	Sepracor	Patheon
1	Prepare, control, issue and executive master packaging records.	(X)	X
2	Review and approve master packaging records.	X	X
3	Provide artwork, dimensions, labeling text and other specifications for Sepracor specific packaging components.	X
4	Review and approve labeling.	X	(X)
5	Provide Sepracor's Technical Information for packaging components.	X	(X)
6	Qualify and approve packaging component suppliers as per Patheon SOP, if purchased from Patheon's preferred supplier list. Maintain a vendor qualification program consisting of periodic audits and periodic testing of packaging components.		X
7	Approve any changes to packaging specification prior to implementation.	X
8	Provide specification and test methods for packaging components for Sepracor approval.		X
9	Analyze packaging components (in accordance with vendor qualification program) and release packaging components.		X

42

E.) Product Manufacture and In-process testing

Item	Detail	Sepracor	Patheon
1	Provide approved expiry period for the Product (strength and package).	X
2	Prepare, and control master production records for the Product.	(X)	X
3	Approve master production records for the Product.	X	X
4	Document training of supervisors and operators in the executive of batch production records and applicable SOPs for the Product.		X
5	Issue batch production records as true and accurate reproductions of the master production record in accordance with appropriate lot numbering scheme for the Product.		X
6	Document accurately and completely the manufacture of Product batches concurrently and contiguously at time of execution.		X
7	Document errors and discrepancies as batch production record deviations.		X
8	Document all equipment malfunctions (with respect to equipment used in the manufacture of the Products) with time of occurrence and duration. Document major equipment malfunctions (with respect to equipment used in the manufacture of the Products) as process deviations—include immediate preventive/corrective action.		X
9	Collect samples and perform in-process testing as defined in the batch production record.		X
10	Document and investigate above alert limits and out-of-specification ("OOS") results obtained from in-process testing.		X
11	Provide notification to Sepracor QC before conducting a retest to any OOS. Confirmation testing can be completed as part of routine lab investigation.		X
12	When Sepracor enables access to Sepracor LIMS, data will be entered as appropriate.		X
13	Notify Sepracor within one (1) Business Day of any confirmed OOS test results or above alert limits for in-process tests.		X
14	If Patheon or Sepracor determines any laboratory results for the Product to be unexpected, conduct an investigation into the unexpected result.	X	X

43

F.) Testing of Finishing Drug Product

Item	Detail	Sepracor	Patheon
1	Provide Sepracor's Technical Information.	X
2	Provide Product test methods.	X
3	Provide updates to methods and Sepracor's Technical Information.	X
4	Validate analytical test methods.	X
5	Receive methods via formal protocol driven transfers.	(X)	X
6	Implement necessary method improvements as directed by Sepracor.		X
7	Sample batches for finished Product testing.		X
8	Perform finished Product testing and provide reviewed certificate of analysis within 20 calendar days from completion of packaging.		X
9	Perform investigations related to DOS results.		X
10	Notify Sepracor within one (1) Business Days of any confirmed OOS result after preliminary investigation is complete and no apparent root cause is found.		X
11	Generate Certificates of Analysis.		X
12	Maintain retain samples of the finished Product for one year beyond the expiration of the Product.		X
13	Perform annual retain sample inspection as per Patheon SOP.		X
14	When Sepracor enables access to Sepracor LIMS, data will be entered as appropriate.		X
15	If Patheon or Sepracor determines any laboratory result for the Product to be unexpected, conduct an investigation into the unexpected result.	X	X

44

G.) Batch Disposition

Item	Detail	Sepracor	Patheon
1	Perform a quality review of batch production records at the manufacturing site.		X
2	Document errors, deviations, reworks, investigations, in-process testing investigations, adverse observations, etc found during manufacture or review.		X
3	Resolve open deviations and investigations prior to issuance of approved batch record and Certificate of Manufacture.		X
4	Provide Certificate of Manufacture for any batch presented to Sepracor for disposition.		X
5	Provide photocopies or electronic scans, if requested, of full batch records.		X
6	Review and approve Certificates of Analysis	X	X
7	Review Patheon documentation for batches presented for disposition.	X
8	Conduct supplemental investigations for all batches having deviations, investigations, reworks, low yield, or lab investigations if required.	X
9	Upon satisfactory completion of review and any necessary supplemental investigation(s), disposition (approve or reject) the batch.	X
10	Respond to inquiries/information requests regarding batch production record/certificate of compliance deficiencies within three (3) Business Days.		X
11	Conduct periodic audit of full batch records for those batches having only a Certificate of Manufacture provided to Sepracor.	X
12	Permit periodic on-site review of batch documentation.		X
13	Maintain all batch records for a minimum of one year past Product expiry date and supply photocopies of all such records to Sepracor upon request.		X

45

H.) Stability Program

Item	Detail	Sepracor	Patheon
1	Prepare and provide stability sampling plan and testing protocol.	X
2	Provide samples for stability testing as requested.		X
3	Store stability samples.	X
4	Perform stability testing.	X
5	Notify Patheon of stability testing failures.	X

SEPRACOR, INC.
Per:	/s/  BRIAN H. GRAY VP Commercial Quality Operations	6/5/07
PATHEON INC.
Per:	/s/  ANDREW MCNICOLL Andrew McNicoll Director, Global Quality Compliance	May 25, 2007

46

SCHEDULE A (PRODUCTS)

Product(s)	Galenic Form	Packaged Form	Dosage (Strength)
Lunesta	Tablet	100-ct bottle 90-ct Hospital Unit Dose Blister package (6 cards of 15 tablets)	1 mg 1 mg
Lunesta	Tablet	100-ct bottle 90-ct Hospital Unit Dose Blister package (6 cards of 15 tablets) Physician samples, blister (2 tablets per blister)	2mg   2mg 2mg
Lunesta	Tablet	100-ct bottle 90-ct Hospital Unit Dose Blister package (6 cards of 15 tablets) Physician samples, blister (2 tablets per blister)	3mg 3mg    3mg

47

SCHEDULE B (QUALITY CONTACTS)

ISSUE	CLIENT	PATHEON
Product Release	[**]	[**]
QC Testing/Investigations	[**]	[**]
QA Investigations	[**]	[**]
Regulatory Affairs	[**]	[**]
Validation	[**]	[**]
Compliance Audits	[**]	[**]
Product Complaints	[**]	[**]
Change Management	[**]	[**]
Technical Agreement Revisions	[**]	[**]

Note: Each party will notify the other in the event of a change in contact or designee

48

SCHEDULE C (Contract Laboratories)

[**]

[**]

[**]

[**]

[**]

[**]

49

SCHEDULE H

PPI QUALITY AGREEMENT

        As of the execution date of this Agreement, it is the intent of the parties that the Quality Agreement with PPI will be completed and executed on or before December 21, 2007.

50

SCHEDULE I

MOVA QUALITY AGREEMENT

        As of the execution date of this Agreement, it is the intent of the parties that the Quality Agreement with MOVA will be completed and executed on or before December 21, 2007.

51

SCHEDULE J

CAPITAL REQUIREMENTS

        Pursuant to the terms of the Agreement, Patheon has subcontracted certain of the services to its Affiliates, Patheon Pharmaceuticals Inc. ("Patheon Cincinnati") and MOVA Pharmaceutical Corporation ("MOVA"). In order for Patheon to perform the Manufacturing Services, certain capital expenditures will be necessary in respect of capital equipment required to be acquired and installed at Patheon Cincinnati's facility located at 2110 East Galbraith Road, Cincinnati, Ohio 45237-1625, USA ("Cincinnati") and at MOVA's facility located at State Road # 670, Km. 2.7, Bo. Coto Norte, Manatí, Puerto Rico 00674 ("Manatí") and certain modifications in connection with the installation of the equipment will be required to be made to the facility at Manatí. This schedule sets out the obligations of the parties in respect thereof.

        The following capital expenditures will be required:

Dedicated Capital Requirements

	Total Capital USD
Manatí:
Russell Sieve with Sonicator	[**]
Tablet tooling (6 sets)	[**]
Bottle change parts	[**]
Total	[**]

Non-Dedicated Capital Requirements

Description		Total Capital USD
Utilities for Cat 3 area
New AHU 100A (Caribe AHU)		[**]
Upgrade of Existing 50,000 scfm AHU 100 to comply with 100% fresh air (Install Additional Cooling Coil Capacity and other)		[**]
Install two 50,000 scfm exhaust fans with a Bag Inn / Bag Out Hepa filter housings		[**]
Upgrade Existing Dust Collector (DC-100) for 25,000 scfm		[**]
New Dust Collector 25,000 scfm and Exhaust Fans		[**]
HVAC Controls		[**]
Design		[**]
Metal Duct work for HVAC supply		[**]
Mechanical/Equipment Installation/chilled water/steam		[**]
Demolition (walls, lockers, duct)		[**]
	Subtotal	[**]
Facilities for Cat 3 area and Zoning of Manufacturing area		[**]
New gown/degown room, airlocks and controls; cat 3		[**]
Temporary facilities modifications		[**]
Vaccum system for contaiment area (Dover-Pac)		[**]
New material airlocks		[**]
Cat 3 modifications in mfg rooms and corridors		[**]
Zoning (Gowning Area-Cabinets S/S)		[**]
Zoning (Material Air Locks)		[**]
Hung Ceiling at Corridors		[**]
Design Change Order		[**]
Mansory		[**]

52

Concrete			[**]
Mist Shower			[**]
Electrical			[**]
Doors			[**]
Finish			[**]
Wash system within each room and contaiment tank external			[**]
Housekeeping/debris disposal w/permit (5 month working period)			[**]
	Subtotal		[**]
Equipment			[**]
Compression machine hopper level sensor			[**]
Separate control for each coating pan			[**]
Dew point sensors for coating pans			[**]
Dehumidification for dew point control			[**]
PK blender loading modifications			[**]
Glove boxes [**]			[**]
Russell sieve with sonicator			[**]
Tablet press tooling [**]			[**]
Packaging change parts—bottles			[**]
	Subtotal		[**]
Engineering/Validation/EHS Hours			[**]
External Validation			[**]
Internal Validation			[**]
External Engineering			[**]
Internal Engineering			[**]
EHS			[**]
Design Construction Support (1 visit/week)			[**]
	Subtotal		[**]
Additional EHS Requirements			[**]
Local Construction Permits			[**]
Municipal Taxes			[**]
EHS Pre-Start amd Review			[**]
Portable Gowning			[**]
Upgrade Existing Dust Collector (DC-100) to comply with EHS requirements (Bag inn / Bag out for Cartridge Filters)			[**]
Upgrade Existing Dust Collector (DC-100) to comply with EHS requirements (Bag inn / Bag out Hepa Filter housing at the exhaust)			[**]
	Subtotal		[**]
			[**]
		Total	[**]
	Project Contingency (shipping and installation) [**]%		[**]
		Total Project Cost	[**]

1.

Sepracor will be responsible for all of the costs of the capital equipment requirements listed above under the heading "Dedicated Capital Requirements", being the amount of $[**].

2.

MOVA will be responsible for the majority of the costs of the capital equipment requirements listed above under the heading "Non-Dedicated Capital Requirements", being the amount of $[**] USD.

53

3.

Sepracor will be responsible for a portion of the costs of the capital equipment requirements listed above under the heading "Non-Dedicated Capital Requirements", being the amount of $[**]. Patheon will reimburse the Sepracor for such amount at a rate of $[**] per [**] tablets of Product manufactured, regardless of the origin of manufacture, starting from the point of commercial production at Manati (post-validation) until the capital is repaid. In the event that commercial production at Manati does not start by [**], Patheon will reimburse Sepracor $[**] every [**] months commencing on [**] until the capital is repaid.

4.

Sepracor represents and warrants that the funding to be provided by Sepracor does not contravene any agreement to which Sepracor is a party.

5.

The equipment listed above as "Dedicated Capital Requirements" shall be dedicated for use with respect to Sepracor's Products. The equipment listed above as "Non-Dedicated Capital Requirements" may be used for the manufacture of products for third parties.

6.

Title and risk of loss to the equipment listed above as "Dedicated Capital Requirements" shall reside with Sepracor who shall be the sole legal and beneficial owner thereof. Title and risk of loss to the equipment and the capital improvements listed above as "Non-Dedicated Capital Requirements" shall reside with MOVA who shall be the sole legal and beneficial owner thereof and upon receipt of full repayment, Sepracor shall not have any security interest, charge or encumbrance in such equipment and capital improvements and Sepracor shall not register or take any other action to impose a security interest, charge or encumbrance over such equipment and the capital improvements.

7.

Upon the expiration or termination of the Agreement for any reason prior to completion of the reimbursements contemplated by clause 3 above, (a) MOVA shall have the option to purchase the equipment listed above as "Dedicated Capital Requirements" installed at Manatí at fair market value, (b) Sepracor shall remove, or arrange to remove, from Manatí at its expense all equipment listed above as "Dedicated Capital Requirements" installed at Manatí that is not purchased by MOVA and Sepracor shall repair, or arrange to repair, at its expense any damage to Manatí resulting from such removal, and (c) MOVA shall be entitled to retain all of the equipment and the capital improvements listed above as "Non-Dedicated Capital Requirements" without any compensation therefore owing to Sepracor.

8.

All monetary amounts are expressed in the lawful currency of the United States of America.

54

SCHEDULE K

REPORT OF ANNUAL ACTIVE PHARMACEUTICAL INGREDIENT INVENTORY
RECONCILIATION AND CALCULATION OF ACTUAL ANNUAL YIELD
AND YIELD INCENTIVE.

TO:	SEPRACOR, INC.
FROM:	PATHEON INC.
RE:	API annual inventory reconciliation report and calculation of Actual Annual Yield pursuant to Section 2.3(a) of the Manufacturing Services Agreement dated September •, 2007 (the "Agreement")

Reporting Year ending:
API on hand at beginning of Year:	kg    (A)
API on hand at end of Year:	kg    (B)
Quantity Received during Year:	kg    (C)
Quantity Dispensed(1) during Year: (A + C-B)	kg    (D)
Quantity Converted during Year: (total API in Products produced)	kg    (E)
API Reimbursement Value:	$                  /kg
Target Yield:	%
Yield Allowance:	%
Actual Annual Yield: ((E/D) * 100)	%
API Yield Incentive(2):	$                  credit note to be issued by                   [insert name of party] in favour of                  [insert name of party].

(1)

Excludes any Active Pharmaceutical Ingredient received or consumed in connection with technical transfer activities or development activities, including, without limitation, any regulatory, stability, validation or test batches manufactured during the Year.

(2)

API Yield Incentive identifies the value of the credit amount to be issued by either party is calculated based on the API Yield Incentive Scheme agreed to by the parties in Schedule L of the Agreement.

55

Capitalized terms used in this report have the meanings given to such terms in the Agreement.

PATHEON INC.

Per:                                         
Name:
Title:

Date:                                          - -                

56

SCHEDULE L

API YIELD INCENTIVE SCHEME

Period Covered:    January 1, 2007 to December 31, 2007

Target Yield:    [**]%

Yield Allowance:    [**]%

If the Actual Annual Yield of API used to manufacture bulk Product at all of the Manufacturing Sites is:

A.

Over [**]% (Target Yield + Yield Allowance), Sepracor will issue a credit amount to the Patheon Administrator equal to:

(Actual Annual Yield-[**]%) × Quantity Dispensed × API Reimbursement Value.

B.

At least [**]% (Target Yield-Yield Allowance) to [**]% (Target Yield + Yield Allowance, no credit amount will be issued.

C.

Below [**]% (Target Yield-Yield Allowance), Patheon will issue a credit amount to Sepracor equal to:

([**]%-Actual Annual Yield) × Quantity Dispensed × API Reimbursement Value.

57

SCHEDULE M

SHIPPING REIMBURSEMENT FROM MANATI, PR CREDIT TABLE

        For the purposes of the Agreement, the parties agree that the shipping reimbursements shall be as follows for product manufactured and packaged at the Manatí site:

Product	Transportation Method	Destination	Shipping Reimbursement Value /unit
2 mg 100's Bottle	Boat	Louisville	$[**]
3 mg 100's Bottle	Boat	Louisville	$[**]

        For product shipped from Puerto Rico, shipments must comply with all required storage requirements and applicable DEA regulations, including, but not limited to, DEA notifications and using a dedicated, secured container.

        All shipments will be in either 20' or 40' dry containers which will be properly blocked and braced for ocean shipment. The costs to block and brace will be borne by Patheon. If any shipment will be less than 10 pallets, it must be approved by Sepracor.

        If Patheon delivery performance results in late shipments and / or out of stock situations for Sepracor, the cost to ship a sufficient amount to alleviate the out of stock situation will be borne by Patheon.

        If Sepracor chooses to expedite shipping by air for any reason other than late delivery by Patheon, then the reimbursement rate will be based on boat.

        For the avoidance of doubt, the shipping reimbursement amounts set forth above shall be applied to each invoice in the form of a deduction.

58

QuickLinks

Exhibit 10.40

EX-10.43

QuickLinks -- Click here to rapidly navigate through this document

Exhibit 10.43

Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omission.

SEPRACOR INC.
Att.: Adrian Adams
President & Chief Executive Officer
84 Waterford Drive,
Malborough, MA 01752-7010
USA
S. Mamede do Coronado 31 Dec. 2007

Ref.: BIA 2-093 (Eslicarbazepine Acetate)

Dear Mr. Adams:

        Please find enclosed the two (2) originals of the exclusive license agreement between SEPRACOR and BIAL ("Parties") for the license of BIAL's proprietary compound Eslicarbazepine Acetate in the United States of America and Canada ("License Agreement"). Please have the enclosed documents signed by SEPRACOR and return both originals to Bial for signature. Capitalized terms used but not otherwise defined herein shall have the meaning set forth in the License Agreement.

        As set forth in Section 4.2 of the License Agreement, BIAL or a BIAL Affiliate and SEPRACOR have agreed to negotiate in good faith and enter into an agreement, within one hundred and eighty (180) days of the Effective Date of the License Agreement, for the supply of the BIA 2-093 Product to SEPRACOR for use, sale and distribution within the Field and Territory (the "Supply Agreement").

        In keeping with Section 4.2 of the License Agreement, the Parties have already negotiated certain terms of the Supply Agreement and have agreed that the terms and conditions set forth in this letter will be incorporated in the Supply Agreement. All references to "BIAL" herein shall be read and interpreted as references to "BIAL or a BIAL Affiliate" and all references to "SEPRACOR" herein shall be read and interpreted as references to "SEPRACOR or a SEPRACOR Affiliate".

1.

Supply of BIA 2-093 Products; Price.    BIAL shall manufacture or have manufactured for SEPRACOR in the Territory the BIA 2-093 Product, fully packaged and released for immediate commercial sale, including physician samples ("Finished Product"), and BIA 2-093 for clinical use ("Clinical Product"). Subject to the terms of the Supply Agreement, SEPRACOR agrees to purchase from BIAL all of SEPRACOR's requirements for Finished Products.

a.

Clinical Supply:    BIA 2-093, in the various forms that are agreed upon by the Parties, for use in preclinical and clinical trials (including post-marketing clinical trials) will be supplied by BIAL or a BIAL Affiliate [**].

b.

Physician Samples:    Physician samples of the BIA 2-093 Product will be supplied by BIAL or a BIAL Affiliate [**]. The packaging for physician samples will indicate that they are samples and not for commercial sale and SEPRACOR agrees not to sell such physician samples. Pursuant to the Supply Agreement, until [**], there shall be no restrictions on the number of physician samples utilized by SEPRACOR; provided, however, that [**]. Following [**], the amount of physician samples supplied by BIAL (as measured by the [**]) will not exceed [**]% of the Net Sales of such BIA 2-093 Product, unless otherwise agreed upon by BIAL.

c.

Commercial Supply:    SEPRACOR will not pay a royalty on commercial sales of the BIA 2-093 Products, but will pay a transfer price (the "Transfer Price" or "TP") on the BIA 2-093 Products in accordance with Section 2 below.

1

2.

Price.    Transfer Price for the commercial supply of 400mg, 600mg and 800mg tablets of the BIA 2-093 Product to SEPRACOR for the United States territory will be calculated at the end of each calendar quarter as [**] percent ([**]%) of the weighted average Net Selling Price for the 400mg, 600mg and 800mg pills of the BIA 2-093 Product in such territory; provided however that [**] and will not be [**].

a.

The Transfer Prices set forth in this Section 2 are based on the assumption that [**]. For the avoidance of doubt, the primary packaging of the BIA 2-093 Product is described on Exhibit A attached hereto.

b.

SEPRACOR will provide BIAL by the [**] Business Day of first month following each calendar quarter the weighted average Net Selling Price in US dollars for the previous quarter sales. The [**] will always apply to the next order of the BIA 2-093 Product.

c.

The supply of BIA 2-093 Product for the Canadian territory will be on terms and conditions substantially similar to the Supply Agreement as mutually agreed upon by the Parties, and the Parties agree to negotiate in good faith prices, terms and conditions with [**] to the Transfer Prices for the BIA 2-093 Product for the U.S. territory. It is however clearly understood by both Parties that (i) SEPRACOR shall not be under an obligation to purchase the BIA 2-093 Product for Canada at a Transfer Price which does not provide [**] for SEPRACOR and (ii) BIAL shall be under no obligation to supply the BIA 2-093 Product to SEPRACOR at a Transfer Price which does not provide [**] for BIAL.

3.

Forecast and Firm Order.    Upon the execution of the Supply Agreement and at the beginning of [**] thereafter, SEPRACOR shall provide BIAL with a short-term rolling [**] forecast of its estimated [**] purchases of Finished Product (the "Forecast"). Except as set forth below, each Forecast will be non-binding and will represent only SEPRACOR's good faith estimate of expected orders for the Finished Product. Commencing [**] prior to the anticipated launch date of the Product, the portions of the Forecast set forth in Sections 3.a, 3.b and 3.c will be firm orders and will represent SEPRACOR's commitment to BIAL to purchase the amount of Finished Product indicated in such portion of the Forecast:

a.

[**] percent ([**]%) of the first [**] of each Forecast;

b.

For the [**] percent ([**]%) of the second [**] of each Forecast, and thereafter [**] percent ([**]%) of the second [**] of each Forecast;

c.

For the [**] percent ([**]%) of the [**] of each Forecast, and thereafter [**] of the [**] of each Forecast will be binding.

Forecasts and firm orders for Clinical Product will be addressed in the Supply Agreement.

4.

Shipping and Delivery.    All deliveries of Finished Product by BIAL shall be made [**], unless otherwise agreed to by the Parties. Risk of loss and title shall transfer to SEPRACOR [**]. Product will be appropriately packaged and labeled based upon agreed upon specifications between the Parties.

5.

Acceptance and Rejection.    BIAL will manufacture or have manufactured the BIA 2-093 Product in accordance with the cGMP, and the requirements of the product specifications and Quality Agreement. BIAL or a Third Party on behalf of BIAL will conduct all quality assurance/control testing on each lot along with the release to SEPRACOR. BIAL or a Third Party on behalf of BIAL shall provide to Sepracor with each lot of delivered BIA 2-093 Products (i) a Certificate of Analysis (each, a "COA") certifying that such BIA 2-093 Products conform to the product specifications, cGMP, the Quality Agreement, [**] are referred to herein as, the "Release Documentation"). SEPRACOR shall be under no obligation to accept any shipment of BIA 2-093

2

Products for which BIAL has not provided a COA at the time the BIA 2-093 Products were delivered to SEPRACOR.

SEPRACOR shall have [**] from delivery of the Finished Product and Release Documentation by BIAL to notify BIAL of its rejection of Finished Product for any Defects (as defined below). SEPRACOR shall notify BIAL within the earlier of (a) [**] following sale of a Finished Product by or on behalf of SEPRACOR, and (b) [**] of such Finished Product by BIAL to the carrier, of its rejection of Finished Product for any Latent Defects (as defined below), subject however to, in any event, such SEPRACOR notification being made (i) within [**] after discovery of the Latent Defects by SEPRACOR, its Affiliates, sublicensee or distributors, and (ii) in no event after the expiration date of the Finished Product. For purposes of this paragraph, "Defects" shall mean Finished Products that have manufacturing defects, packaging defects and/or defects in the Release Documentation ("defects", meaning non conformity with the product specifications, cGMP and the Quality Agreement) which would be discoverable upon reasonable physical inspection and "Latent Defects" shall mean [**].

6.

Payment.    BIAL shall invoice SEPRACOR upon the later of delivery of each batch of Finished Product to the carrier and release of such batch by BIAL or a Third Party on behalf of BIAL. Payment terms will be [**] from date of receipt of the invoice (with a paper copy being sent electronically and by post). Any late payment shall accrue interest in accordance with Section 3.2 of the License Agreement.

7.

Conversion Price.    BIAL will be paid a transfer price in [**]. The following currency conversion mechanism will be applied to the Transfer Price calculated when the exchange rate ("ER") between the [**] and [**] is [**] to determine the Adjusted Transfer Price ("ATP"):

ATP = [**]
If the ER is [**], no adjustment to the TP will be made. In this case, the TP will be equal to [**]% of the net selling price (NSP), provided however that [**].

"ER" means the exchange rate between the [**] and [**] at the time of invoice of Licensed Product as published in the Wall Street Journal (US Edition).

Floor and ceiling exchange rates between the [**] and the [**] will be set at [**] and [**], respectively. Beyond these limits, the exchange rate will equal the respective floor or ceiling rate.

The following table illustrates some examples based on the minimum transfer price of [**]:

		[**]	[**]	[**]	[**]
		[**]	[**]	[**]	[**]
		[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]	[**]

8.

Term.    The Supply Agreement shall be coterminous with the License Agreement (on a country by country basis). In the event of expiration or termination of the Supply Agreement, SEPRACOR shall pay BIAL all firm orders, as of the effective date of termination, of Finished Product and Clinical Product.

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9.     Technology Transfer; Inability to Supply; Force Majeure.

(a)

In the event of an Inability to Supply (as defined herein), or an event of Force Majeure affecting BIAL or Third Party manufacturers for a period anticipated to exceed [**], or at such time at which SEPRACOR has reasonable grounds to believe that BIAL will be unwilling or unable to meet its obligations under the Supply Agreement, SEPRACOR may request that BIAL establish a second source of supply for the Finished Product, either internally or through a Third Party manufacturer. If BIAL chooses to establish a second source of supply for such Finished Product, BIAL will use Commercially Reasonable Efforts to establish such supplier as soon as reasonable practicable. If BIAL chooses not to establish a second source of supply for such Finished Product, BIAL shall provide SEPRACOR with such assistance set forth in Section 9(b). In the event of a Force Majeure or an Inability to Supply, the Parties shall cooperate with each other in taking all actions that the Parties deem reasonably necessary in order to minimize the Force Majeure situation or remedy the Inability to Supply.



(b)

Upon (i) termination of the Supply Agreement by SEPRACOR as a result of BIAL's uncured material breach, or (ii) in the event that BIAL does not agree to supply Licensed Products other than the BIA 2-093 Products, or (iii) upon an event of Force Majeure affecting BIAL or Third Party manufacturers for a period anticipated to exceed [**], or (iv) upon BIAL's Inability to Supply, or (v) at such time at which SEPRACOR has reasonable grounds to believe that BIAL will be unwilling or unable to meet its obligations under the Supply Agreement and, with respect to items (iii), (iv) and (v) only, provided that BIAL has chosen not to establish a second source of supply for such Finished Product or is not using Commercially Reasonable Efforts to establish such a second source of supply, BIAL shall provide SEPRACOR with such assistance and any BIAL Know-How Controlled by BIAL, as reasonably necessary for manufacturing, formulating and/or packaging of the BIA 2-093 Product including, without limitation, [**] to which BIAL has no reasonable objection. In connection with the foregoing, SEPRACOR shall be [**].



(c)

In connection with such technology transfer pursuant to (i) above, SEPRACOR shall have a non-exclusive right and license under the License Agreement and the Supply Agreement to manufacture or have manufactured the BIA 2-093 Product in or outside of the Territory for sale, promotion and importation in the Field solely in the Territory (the "Non-Exclusive Manufacturing License"). In connection with a technology transfer pursuant to (ii), SEPRACOR shall have such Non-Exclusive Manufacturing License only upon the Parties' mutual written agreement on whether (A) BIAL shall supply the BIA 2-093 active pharmaceutical ingredient to SEPRACOR (in which case the technology transfer shall be limited to the formulation of the BIA 2-093 active pharmaceutical ingredient into finished product), or (B) SEPRACOR shall manufacture the API and finished product. In connection with a technology transfer pursuant to (iii) and (iv) above, SEPRACOR shall have a Non-Exclusive Manufacturing License solely for the duration of the Force Majeure event or the duration of the Inability to Supply and until BIAL resumes such supply; provided, however, that if SEPRACOR has entered into an arrangement with a Third Party to supply the BIA 2-093 Product, BIAL will [**] termination fees associated with the termination of such Third Party arrangement as a result of BIAL resuming such supply; provided, further, that SEPRACOR will use Commercially Reasonable Efforts to minimize such costs, expenses and termination fees. In connection with a technology transfer pursuant to (v) above, SEPRACOR shall not have any right or license to manufacture or have manufactured the BIA 2-093 Product until such time as there is an actual uncured material breach of the Supply Agreement, a Force Majeure event or Inability to Supply, at which time SEPRACOR's rights under this Section 9(c) with respect to such an event will apply.

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(d)

In connection with a technology transfer pursuant to (i), BIAL shall be [**] costs and expenses incurred in connection with such technology transfer, including FTE costs, out-of-pocket expenses and any technology transfer fees payable to any other Third Party (collectively, "Technology Transfer Costs"). In connection with a technology transfer pursuant to (ii), [**] the Technology Transfer Costs. In connection with a technology transfer pursuant to (iii) and (iv) above, [**]; provided, however, [**]. In connection with a technology transfer pursuant to (v), SEPRACOR shall pay to BIAL its Technology Transfer Costs; provided, however, if there is an actual uncured material breach of the Supply Agreement, a Force Majeure event or Inability to Supply, BIAL will reimburse SEPRACOR for the Technology Transfer Costs if required under this Section 9(d).



(e)

In any of the situations described in items (i), (iii), (iv) and (v) of Section 9(b), a [**] royalty shall be negotiated in good faith between the Parties and, absent such agreement, determined by one arbitrator in accordance with the provisions of Section 16.1 of the License Agreement. In the situation described in Section 9(b)(ii), the provisions of Section 4.3 of the License Agreement shall apply.



(f)

An "Inability to Supply" shall mean BIAL's failure for any reason within BIAL's reasonable control, to supply SEPRACOR with [**] percent ([**]%) of the quantities of the Finished Products ordered by SEPRACOR for [**] orders.

10.

Launch Supply.    At or prior to the date which is [**] after the filing of an NDA for the BIA 2-093 Product, BIAL shall have the capability to meet SEPRACOR's forecasted demand for a minimum of [**] following the first commercial sale of such Product.

11.

Shelf Life.    BIAL shall use Commercially Reasonable Efforts to: (i) ensure that the shelf life of the BIA 2-093 Product submitted with the NDA for the BIA 2-093 Product shall be no less than [**], and (ii) perform stability studies to increase such shelf life to up to [**] once real time stability is available.

12.

Safety Stock.    The Parties shall each [**] supply of stock of BIA 2-093 Product.

13.

Product Image.    Subject to Section 2.a, SEPRACOR shall determine the product image.

14.

Other Standard Terms.    The Supply Agreement will also contain other provisions customary for agreements of this nature addressing the effect of termination, annual and for cause visitation and other audit of manufacturing facilities, representations and warranties, insurance, confidentiality and indemnification, which will be in terms substantially similar to those contained in the License Agreement.

        To confirm that SEPRACOR agrees that the terms set forth above will be incorporated into any Supply Agreement negotiated by the Parties pursuant to Section 4.2 of the License Agreement, we ask

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that SEPRACOR sign, date and return the original of this letter to BIAL along with the two executed originals of the License Agreement.

Sincerely,

/s/ Isabel Morgado    /s/ José Redondo

Isabel Morgado    José Redondo
Members of the Board
BIAL—PORTELA & C^a, S.A.

Agreed and Accepted: SEPRACOR INC.
By:	/s/ Adrian Adams
Title:	President and CEO
Date:	December 31, 2007

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EXHIBIT A
Primary Packaging BIA 2-093

[**]

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Exhibit 10.44

Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.

LICENSE AGREEMENT

        THIS LICENSE AGREEMENT (this "Agreement") is made and entered into as of December 31, 2007 (the "Effective Date") by and between BIAL—PORTELA & C^a, S.A., a Portuguese corporation having a principal place of business at À Av. da Siderurgia Nacional, 4745-457 S. Mamede do Coronado, Portugal (hereinafter referred to as "BIAL") and SEPRACOR INC., a Delaware corporation having a principal place of business at 84 Waterford Drive, Marlborough, MA 01752, USA (hereinafter referred to as "SEPRACOR").

WITNESSETH

        WHEREAS, BIAL Controls (as defined below) the BIAL Patents and BIAL Know-How (each as defined below) relating to its proprietary compound BIA 2-093 (as defined below) and its use in the treatment of human diseases and conditions including, without limitation, epilepsy; and

        WHEREAS, SEPRACOR wishes to acquire licenses under the BIAL Patents, BIAL Know-How and BIAL Trademarks (each as defined below) for the purpose of developing, commercializing, marketing, offering for sale, selling, and distributing Licensed Products (as defined below) comprised of BIA 2-093 for use within the Field and Territory (each as defined below), and BIAL is willing to grant such licenses under the terms and conditions of this Agreement; and

        WHEREAS, BIAL wishes to acquire licenses under any future SEPRACOR Know-How and Development Intellectual Property (each as defined below) and SEPRACOR is willing to grant such licenses under the terms and conditions of this Agreement; and

        WHEREAS, the Parties (as defined below) will execute a Supply Agreement (as defined below) under which BIAL or its Affiliates will, unless otherwise agreed in writing by the Parties, supply all of SEPRACOR's requirements of Licensed Products to SEPRACOR for sale and distribution within the Field and Territory.

        NOW, THEREFORE, in reliance on the foregoing recitals and in consideration of the mutual covenants and promises set forth herein, the Parties agree as follows:

ARTICLE 1

DEFINITIONS

        As used in this Agreement, the following terms have the following meanings, and the singular includes the plural and vice-versa:

        1.1   "Affiliate" means any person or entity that, as of the Effective Date or at any time in the future, directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with a Party. For purposes of this definition, "control" means (i) the ownership of at least fifty percent (50%) of the voting securities of the entity or such lesser percentage which is the maximum allowed by applicable law; (ii) ownership of at least fifty percent (50%) interest in the assets, profits, or earnings of the entity; or (iii) the ability to otherwise direct the management and operations of the entity.

        1.2   "ANDA" means an abbreviated new drug application filed pursuant to 21 U.S.C. 355(j).

        1.3   "Approval" means the receipt of all authorizations, including, without limitation for any labeling and indications, from all governmental entity(ies) that are required to market and sell a Licensed Product within the Field and Territory.

        1.4   "BIA 2-093" means BIAL's proprietary compound (S)-(-)-10-acetoxy-10, 11-dihydro-5H-dibenz/b,f/azepine-5-carboxamide, known under the International Nonproprietary Name (INN) Eslicarbazepine Acetate.

        1.5   "BIA 2-093 IND" means the IND No. 67,466 effective as of the 20^th December 2006.

        1.6   "BIA 2-093 Product" means BIA 2-093 in 800mg, 600mg and 400mg tablet formulations in fully finished and packaged consumer form.

        1.7   "BIAL Know-How" means (i) research and development information, unpatented inventions, trade secrets, proprietary materials, or any other type of proprietary or confidential technical data or information, including, without limitation, methods, techniques, processes, specifications, recipes, formulae, designs, plans, drawings, data, protocols, or preclinical and clinical studies, which are Controlled by BIAL as of the Effective Date and (a) reasonably necessary for the development, commercialization, importation, use, sale, or offer for sale of the Licensed Products, or (b) useful for the development, commercialization, importation, use, sale, or offer for sale of the Licensed Products to the extent that BIAL has developed or uses such know-how in connection with the Licensed Products; and (ii) subject to the provisions in Section 6.7, the BIA 2-093 IND and any other regulatory filings and correspondence and all data and information submitted in support of such filings or correspondence, which are Controlled by BIAL as of the Effective Date and relate solely to BIA 2-093 and/or the Licensed Products. The term BIAL Know-How includes any items encompassed by (i) and (ii) in the preceding sentence created after the Effective Date and during the Term of this Agreement and Controlled by BIAL.

        1.8   "BIAL Logo" means the logo included in Exhibit C, which BIAL may, at its own discretion, update from time to time.

        1.9   "BIAL Patents" means: (i) all U.S. and Canadian patents and patent applications Controlled by BIAL as of the Effective Date, covering the manufacture, use, import, offer for sale, and sale of the Licensed Products, including, without limitation, the patents and patent applications listed in Exhibit A; (ii) any U.S. or Canadian divisional, substitution, continuation, or continuation-in-part applications based on, directly or indirectly, relying for priority on, or having identical disclosure as, any of the U.S. or Canadian patent or patent applications in (i); (iii) any patent issuing from any of the applications in (i) or (ii); and (iv) any extensions, reissues, or reexaminations of any of the patents in (i) and/or (iii). BIAL Patents also include any Development Intellectual Property created by BIAL solely or jointly with SEPRACOR or that otherwise come under BIAL's Control during the Term of this Agreement covering the manufacture, use, import, offer for sale or sale of the Licensed Products. BIAL agrees to update Exhibit A from time to time with additional Development Intellectual Property created by BIAL solely or jointly with SEPRACOR or that otherwise come under BIAL's Control during the Term of this Agreement covering the manufacture, use, import, offer for sale or sale of the Licensed Products.

        1.10 "BIAL Studies" has the meanings set forth in Section 6.4(a).

        1.11 "BIAL Trademarks" means the marks, brand names and/or other indicators of source listed in Exhibit B for use in conjunction with the Licensed Products within the Field and Territory. Exhibit B may be updated from time to time with additional BIAL Trademarks for use with the Licensed Products within the Field and Territory, as selected pursuant to Sections 2.3(a) and 5.3(x). For the avoidance of doubt, the term "BIAL Trademarks" does not encompass the INN Eslicarbazepine Acetate, the BIAL Logo or any marks, brand names and/or other indicators of source not specifically listed in Exhibit B.

        1.12 "Business Day" means 9:00 am to 5:00 pm local on a day (other than a Saturday or Sunday) on which banks are open for business in Porto, Portugal, and Boston, MA USA.

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        1.13 "Change of Control" means any of the following events: (i) a Third Party (or group of Third Parties acting in concert) directly or indirectly, acquires more than fifty percent (50%) of the then outstanding capital stock entitled to vote for the election of SEPRACOR's directors; (ii) SEPRACOR consolidates with or merges into a Third Party, or a Third Party consolidates with or merges into SEPRACOR, which, in either event, more than fifty percent (50%) of the then outstanding capital stock of the surviving entity entitled to vote for the election of directors is not held by the parties holding at least fifty percent (50%) of the outstanding shares of SEPRACOR preceding such consolidation or merger; or (iii) SEPRACOR conveys, transfers or leases all or substantially all of its assets.

        1.14 "Commercialization Plan" means a plan with the primary objective of (i) preparing the market for and launching Licensed Products within the Field and Territory and (ii) continuing the marketing and sale of each Licensed Product after commercial launch has occurred. The term "Commercialization Plan" includes both the Strategic Commercialization Plans and the Annual Commercialization Plans referred to in Article 7 as well as any amendments thereto.

        1.15 "Commercially Reasonable Efforts" means efforts and resources that are consistent with those utilized by SEPRACOR or BIAL, as the case may be, for its own internally developed or in-licensed pharmaceutical products, which are at a similar stage in their development or product life and have similar market potential as the Licensed Products, and (ii) with those utilized by other pharmaceutical companies of similar size and resources for its own internally developed or in licensed pharmaceutical products for the same therapeutic areas as the Licensed Products and which are at a similar stage in their development or product life and have similar market potential as the Licensed Products.

        1.16 "Competing Product" means any pharmaceutical product with [**], which is defined as [**], and [**].

        1.17 "Controlled" means, with respect to any patents, copyrights, trademarks, know-how, trade secrets, proprietary information or data (including, without limitation, any regulatory filings and related data), or any other forms of comparable property rights protected by Federal law and foreign counterparts (collectively "Intellectual Property"), the possession of the right, whether directly or indirectly, whether by ownership, license or otherwise, to disclose, assign, or grant a license, sublicense or other right to or under such Intellectual Property, as provided for in this Agreement, without violating the terms of any agreement, contract, or any other arrangement with any Third Party. For the avoidance of doubt, Third Party Intellectual Property will only be considered "Controlled" by a Party, if the Party has right to disclose, assign, or grant a license, sublicense or other right to the other Party as provided for in this Agreement, at no additional cost and without prior Third Party approval. The term "Control" or "Controls" used in this context will also have a correlative meaning.

        1.18 "CMC Program" means the chemistry, manufacturing and control program relating to the BIA 2-093 Product or any other Licensed Products.

        1.19 "Development Intellectual Property" means any inventions or discoveries (whether or not patentable) made solely by one Party or jointly by the Parties in the performance of this Agreement or the Supply Agreement and any patent applications or patents claiming such inventions or discoveries, but only to the extent such Development Intellectual Property relates to BIA 2-093 or any Licensed Product. The term "Development Intellectual Property" also includes, to the extent Controlled by a Party, any inventions or discoveries (whether or not patentable) made solely by its sublicensee, a contractor, or an Affiliate of a Party or jointly by a Party and its sublicensee, a contractor, or an Affiliate in the performance of this Agreement or the Supply Agreement and any patent applications or patents claiming such inventions or discoveries.

        1.20 "Development Plan" has the meaning set forth in Section 6.2 below.

        1.21 "Development Studies" has the meaning set forth in Section 6.2 below.

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        1.22 "Effective Date" means the date first written above.

        1.23 "Exclusivity Rights" means a marketing or data exclusivity right conferred as a result of (i) designation as a drug for rare diseases or conditions under Sections 525 et seq. of the FD&C Act, (ii) approval of an NDA for a new chemical entity pursuant to 21 U.S.C. 355 and the FD&C Act or any relevant subsequent legislation, rules or regulations, (iii) the exclusive right granted by the FDA upon completion of pediatric studies requested by the FDA under Section 505A(a) of the FD&C Act, and any successor legislations thereof. The term "Exclusivity Rights" also means any marketing or data exclusivity rights that may be conferred under any applicable Canadian law.

        1.24 "Executive Officer" means with respect to SEPRACOR, a Senior Vice President or higher ranking officer, and with respect to BIAL, a Director or higher ranking officer.

        1.25 "FDA" means the United States Food and Drug Administration and its successor bodies.

        1.26 "FD&C Act" means the U.S. Food, Drug and Cosmetic Act, the rules and regulations of the FDA promulgated thereunder and as amended from time to time.

        1.27 "Field" means all human and non-human diagnostic, prophylactic and therapeutic uses of the Licensed Products for adjunctive use in Adult Partial Epileptic Seizures and any and all new indications, including but not limited to [**].

        1.28 "Fully Burdened Manufacturing Cost" means all costs incurred (i.e. paid or accrued) by BIAL, its Affiliates, agents or contractors in the manufacture and supply of BIA 2-093, the BIA 2-093 Product and Licensed Products, including without limitation direct and indirect costs, including overhead. Such costs to be calculated in accordance with International Financial Reporting Standards and using the normal cost accounting and allocation methods and procedures.

        1.29 "IND" means an Investigational New Drug Application filed with the FDA in support of conducting clinical development in the United States.

        1.30 "JSC" has the meaning set forth in Section 5.1.

        1.31 "Knowledge of BIAL" or words of like import means, with respect to the existence or absence of a fact, the actual knowledge of an officer of BIAL.

        1.32 "Licensed Products" means the BIA 2-093 Product and all other products (including any current or future dosages, formulations, improvements and/or delivery modes) comprising BIA 2-093 and all possible metabolites, salts, hydrates, polymorphs, crystalline forms, solvates and prodrugs thereof, including any present and future combination products containing BIA 2-093 or a metabolite, salt, hydrate, polymorph, crystalline form, solvate or prodrug thereof, as one of the active ingredients.

        1.33 "Liabilities" has the meaning set forth in Section 15.1.

        1.34 "Milestone Event" has the meaning set forth in Section 3.1(b).

        1.35 "Milestone Payments" has the meaning set forth in Section 3.1(b).

        1.36 "Minimum Sales" has the meaning set forth in Section 7.4.

        1.37 "NDA" means a New Drug Application to be filed with the FDA including all documents, data, and other information required to be included in such filing.

        1.38 "Net Sales" means the gross amounts received for sales of the Licensed Products by or on behalf of SEPRACOR, its Affiliates and/or its sublicensee (the "Selling Party") to Third Parties, less

4

deductions actually allowed or specifically allocated to the Licensed Products by the Selling Party using U.S generally accepted accounting principals for:

        (a)   transportation charges to the extent that they are included in the price or otherwise paid by the purchaser, including, without limitation, insurance, for transporting Licensed Products and separately identified on the invoice or in other documentation maintained in the ordinary course of business;

        (b)   trade, quantity and cash discounts, or charge-backs, refunds or other rebates actually granted to the customer (including, if applicable, hospitals or private or public health insurance entities);

        (c)   credits, rebates and allowances to the customer on account of rejection or returns of the Licensed Products (including wholesaler and retailer returns), or on account of non-discretionary retroactive price reductions affecting such Licensed Products;

        (d)   sales and excise taxes, other consumption taxes, customs duties and customary compulsory payments to governmental authorities and any other governmental charges imposed upon the production, importation, use or sale of the Licensed Products actually paid by SEPRACOR and separately identified on the invoice or in other documentation maintained in the ordinary course of business (but not including taxes assessed against the income derived from the sales of Licensed Products); and

        (e)   any other items actually deducted from gross invoices sales amounts as reported by the Selling Party in its financial statements in accordance with the U.S generally accepted accounting principals, applied on a consistent basis.

        In no event will any particular amount, identified above, be deducted more than once in calculating Net Sales (i.e., no "double counting" of reductions). Sales of the Licensed Products between SEPRACOR and its Affiliates or sublicensee will be excluded from the computation of Net Sales, but the subsequent resale of such the Licensed Products to a Third Party will be included within the computation of Net Sales.

        In the case of any sale or disposal for value, other than in an arms length transaction exclusively for money, such as barter or counter trade, Net Sales will be calculated as above on the value of the consideration received or the fair market value (if higher) of the Licensed Products in the country of sale or disposal.

        Any amounts hereunder will be determined from the books and records of SEPRACOR, its Affiliates and sublicensee maintained in accordance with US generally applied accounting practices consistently applied to all products of SEPRACOR.

        1.39 "Net Selling Price" means for the applicable period and for each respective Licensed Product (and, in relation to the BIA 2-093 Product, for each respective dosage) the amount corresponding to the total Net Sales of a Licensed Product divided by the actual number of units sold net of returns (for example, the total Net Sales of the BIA 2-093 Product for the applicable period divided by the total number of pills sold).

        1.40 "Paper NDA" means an application filed pursuant to 21 U.S.C. 505(b)(2).

        1.41 "Party" or "Parties" means SEPRACOR or BIAL when used in the singular or SEPRACOR and BIAL when used in the plural.

        1.42 "Product Liability Claim" has the meaning set forth in Section 15.7(a).

        1.43 "SEPRACOR Know-How" means (i) research and development information, unpatented inventions, trade secrets, proprietary materials, or any other proprietary or confidential technical data

5

or information, including without limitation, methods, techniques, processes, specifications, recipes, formulae, designs, plans, drawings, data, protocols or preclinical and clinical studies which are Controlled by SEPRACOR during the Term of this Agreement and (i) are reasonably necessary for the manufacture, development, commercialization, importation, use, sale, or offer for sale of any Licensed Product, or (ii) useful for the manufacture, development, commercialization, importation, use, sale, or offer for sale of the Licensed Products to the extent that SEPRACOR has developed or uses such know-how in connection with the Licensed Products, and (ii) all IND/NDA and any other regulatory filings and correspondence and all data and information submitted in support of such filings or correspondence which are Controlled by SEPRACOR during the Term of this Agreement and which relate solely to the BIA 2-093 or any Licensed Products.

        1.44 "Supply Agreement" has the meaning set forth in Article 4.

        1.45 "Third Party" means any person or entity who or which is neither a Party nor an Affiliate of a Party.

        1.46 "Term" has the meaning set forth in Section 14.1.

        1.47 "Territory" means the United States of America and Canada.

        1.48 "Three Year Strategic Development Plan" means a Development Plan providing the information required in Section 6.3(b) for a period of three (3) years beginning on January 1 of the year following the date on which such Development Plan is approved. Notwithstanding the foregoing, the initial Three Year Development Plan will cover the three year period beginning on the date it is approved.

ARTICLE 2

GRANT OF RIGHTS

Notwithstanding any other provision of this Agreement, no rights or obligations hereunder will be of any force or effect until payment by SEPRACOR of the license fee set forth in Section 3.1(a).

        2.1    Exclusive License:    BIAL grants to SEPRACOR an exclusive (even as to BIAL) license under the BIAL Patents and BIAL Know-How to use, market, distribute, import, commercialize, offer for sale and sell the Licensed Products under the BIAL Trademarks within the Field and Territory either directly on its own and/or through its Affiliates, sublicensee and/or distributors permitted hereunder. The license granted to SEPRACOR under this Section 2.1 does not include an exclusive right to use or practice the BIAL Patents and BIAL Know-How to develop Licensed Products or to have such Licensed Products developed on its behalf within the Field and the Territory.

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        (a)   BIAL grants SEPRACOR the right to grant a sublicense only in Canada, provided that such sublicense conforms with the terms of this Agreement and the sublicensee expressly agrees to be subject to substantially similar obligations imposed to SEPRACOR under this Agreement, including without limitation the provisions of Sections 6.8, 7.6(b), 7.7, 8.1, 8.2 and 9.1.

        (b)   BIAL reserves to itself all rights in and to the Licensed Products, BIAL Patents, and BIAL Know-How for all uses outside of the Territory.

        (c)   SEPRACOR agrees not to use, market, commercialize, distribute, import, offer for sale or sell the Licensed Products outside of the Territory. SEPRACOR further agrees not to use, market, commercialize, distribute, import, offer for sale or sell any Licensed Products other than the BIA 2-093 Product until the Parties agree, in writing, to either (i) the terms and prices for the supply of such other Licensed Products by BIAL to SEPRACOR or (ii) absent such agreement, until such terms, supply prices and/or royalties are determined [**].

        2.2    Non-Exclusive License:    BIAL grants to SEPRACOR a worldwide, non-exclusive license, without any right to sub-license, under the BIAL Patents and BIAL Know-How to develop or have developed on its behalf, Licensed Products for use and sale within the Field and the Territory, subject to the limitations set forth in Article 6.

        (a)   BIAL will provide SEPRACOR with a draft of the protocols of any planned development study to be conducted by or on behalf of BIAL or its licensees in the Territory and will consider in good faith any comments provided by SEPRACOR within the period of [**] upon receipt of the said draft by SEPRACOR. SEPRACOR will have the right to veto any such development study (including the use of BIAL Trademarks in connection therewith) by BIAL or on behalf of BIAL in the Territory if [**] within the Territory. In the event of a dispute between the Parties as to whether there is a reasonable likelihood that such development study (or use of BIAL Trademarks in connection therewith) will [**] within the Territory, [**].

        2.3    Trademark License:    BIAL grants SEPRACOR an exclusive (even as to BIAL), royalty-free license to use the BIAL Trademarks in connection with any Licensed Products that SEPRACOR uses, markets, promotes, distributes, imports, commercializes, offers for sale or sells within the Field and Territory either directly on its own and/or through its Affiliates, sublicensee, and/or distributors authorized under Section 2.1.

        (a)   The Parties [**] the BIAL Trademarks. BIAL will own all right, title and interest in the BIAL Trademarks and the goodwill associated therewith and will be solely responsible for registering and maintaining such trademarks. If requested, SEPRACOR will [**], registration, and maintenance of the BIAL Trademarks.

        (b)   Any marketing, sale or distribution of Licensed Products by SEPRACOR, its Affiliates, sublicensee, or distributors under the license set forth in Section 2.1, will take place exclusively under the BIAL Trademarks, subject to each Party's rights set forth in Section 2.4. SEPRACOR will not file or obtain any trademark application or registration, or Internet domain name registration, comprised of or containing any BIAL Trademarks or the INN Eslicarbazepine Acetate, or any variations thereof, without BIAL's express written permission. SEPRACOR will use the BIAL Trademarks only in accordance with guidelines [**].

        (c)   BIAL reserves to itself all rights in and to the BIAL Trademarks outside of the Territory [**] in conjunction with any development and/or publication activities conducted in accordance with this Agreement.

        (d)   BIAL agrees that it will not use outside the Territory trademarks and trade names for the Licensed Products that are the same or confusingly similar to the BIAL Trademarks used in connection with the commercialization of Licensed Products within the Territory.

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        (e)   In the event that the Parties agree, pursuant to Sections 2.3(a) and 5.3(x), not to use one or more of the brands, trademarks or indicators of source listed in, or otherwise added to, Exhibit B, such brands, trademarks or indicators will be considered excluded from Exhibit B, provided that such brands, trademarks or indicators will not be used in the Territory by BIAL without SEPRACOR's prior written consent, except as BIAL Trademarks are permitted to be used by BIAL hereunder.

        2.4    BIAL Logo License:    BIAL grants SEPRACOR a non-exclusive license to use the BIAL Logo on all packaging materials, promotional materials and documents that are used by SEPRACOR either directly on its own and/or through its sublicensee, contractors or distributors in connection with the development, promotion, marketing, offer for sale, sale, import and commercialization of the Licensed Products. SEPRACOR agrees that all such packaging materials, promotional materials and documents that are used by SEPRACOR, its sublicensee, contractors or distributors in connection with the development, promotion, marketing, offer for sale, sale, import and commercialization of the Licensed Products will contain with legible letters of a reasonable size the words "under license from [BIAL Logo]", unless BIAL determines, in its sole discretion, that such reference will be "under license from BIAL". SEPRACOR will also be permitted to include SEPRACOR's trade name, trademarks and other logos on any packaging materials, promotional materials or other documents with equal prominence as the BIAL Logo.

        2.5    Contracting:    SEPRACOR has the right to contract with Third Parties to perform its development, marketing, and commercialization responsibilities under this Agreement in accordance with the terms of this Agreement; provided (i) that SEPRACOR uses, markets, imports, distributes, offers for sale, sells and commercializes the Licensed Products at all times in its own name, (ii) that SEPRACOR uses Commercially Reasonable Efforts to ensure that its contractors assign to SEPRACOR any inventions or discoveries (whether or not patentable) made in the performance of the subcontract or, absent such assignment, that its contractors grant to SEPRACOR rights to any inventions or discoveries (whether or not patentable) made in the performance of the subcontract consistent with SEPRACOR's obligations to BIAL hereunder, including without limitation the provisions of Sections 6.8, 8.1 (b)(c)(d), 8.2 and 9.1 (b) and that SEPRACOR remains, at all times, solely responsible and liable to BIAL for all of the contractor activities and for any failure by a contractor to comply with the terms of this Agreement.

        2.6    Manufacture of the Licensed Products:    Unless otherwise agreed to by the Parties in writing or provided for in the Supply Agreement, SEPRACOR has no right to make or have made on its behalf, BIA 2-093, the BIA 2-093 Product or any other Licensed Product, and all Licensed Products will be supplied to SEPRACOR by BIAL or BIAL Affiliates in accordance with the terms of the Supply Agreement.

        2.7    Ownership of BIA 2-093 IND:    Within [**] after the Effective Date, BIAL will transfer all right, title and interest in the BIA 2-093 IND to SEPRACOR, subject to the reservation set forth in Section 2.7 (a), for the Term of this Agreement and will promptly notify the FDA in writing of its transfer to SEPRACOR. SEPRACOR will simultaneously notify the FDA in writing that the BIA 2-093 IND has been transferred to SEPRACOR and that SEPRACOR accepts all rights and responsibilities thereunder.

        (a)   Subject to the exclusive licenses granted to SEPRACOR herein, BIAL retains all right, title and interest in all BIAL Know-How submitted in support of the BIA 2-093 IND, including but not limited to, all safety and effectiveness data, provided that SEPRACOR has the right to rely upon and utilize such BIAL Know-How during the Term to support any future regulatory applications or submissions to the FDA, Health Canada, or any other relevant regulatory bodies in the Territory related to the Licensed Products and to the extent consistent with the terms of this Agreement.

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        (b)   BIAL reserves the right to use and refer to the BIA 2-093 IND and BIAL Know-How submitted in support of the BIA 2-093 IND, including but not limited to, all safety and effectiveness data for (i) any purpose, including without limitation, for development and regulatory activities in any country of the world, excluding the Territory (except in the event that the licenses granted by BIAL to SEPRACOR under Sections 2.1 and 2.3 convert to non-exclusive licenses pursuant to Section 7.4(b)), and (b) subject to Section 2.2(a), for the sole purpose of conducting permitted development activities within the Territory.

        (c)   Except as otherwise provided in Section 14.5(b), upon the expiration or the termination of this Agreement, all right, title, and interest in the BIA 2-093 IND will revert back to BIAL.

        2.8    Delivery of BIAL Know-How for Use under Sections 2.1 and 2.2:

        (a)    Existing BIAL Know-How:    BIAL will provide to SEPRACOR, as soon as reasonably practicable following the Effective Date, a copy of BIAL Know-How in existence prior to the Effective Date for use in accordance with the licenses set forth in Sections 2.1 and 2.2.

        (b)    New BIAL Know-How and BIAL Development Intellectual Property:    BIAL will as soon as reasonably practicable provide SEPRACOR with a copy of any BIAL Know-How and Developmental Intellectual Property that comes under BIAL's Control after the Effective Date. To the extent that BIAL licenses-in know-how or patents relating to a Licensed Product after the Effective Date, which is not Controlled by BIAL because prior authorization by and/or an additional payment to the licensor is required before it can be disclosed and/or sublicensed to SEPRACOR under Sections 2.1 and 2.2, BIAL will use Commercially Reasonable Efforts to obtain such rights for SEPRACOR, provided that SEPRACOR agrees, in writing, to: (i) comply with any terms that may apply to such disclosure/sublicensing; (ii) pay [**]; and (iii) pay [**]. BIAL will use Commercially Reasonable Efforts to obtain reasonable terms when negotiating SEPRACOR's sublicense.

        (c)   All BIAL Know-How disclosed to SEPRACOR under Section 2.8(a) and (b) above is subject to the terms and conditions of this Agreement, including without limitation, the confidentiality provisions of Article 10.

        2.9    Limitation to Territory:

        (a)   During the Term of this Agreement, SEPRACOR agrees not to directly or indirectly register, market or sell Licensed Products and/or solicit customers for the Licensed Products and/or use the BIAL Trademarks outside the Territory. SEPRACOR will promptly notify BIAL if it has reason to believe that any Licensed Product has been or will be exported from the Territory during the Term of this Agreement.

        (b)   Except as expressly permitted herein, during the Term of this Agreement, BIAL agrees not to directly or indirectly market or sell Licensed Products and/or solicit customers for the Licensed Products and/or use the BIAL Trademarks within the Territory. BIAL will promptly notify SEPRACOR if it has reason to believe that any Licensed Product has been or will be exported to the Territory during the Term of this Agreement other than pursuant to the Supply Agreement.

ARTICLE 3

PAYMENTS

        3.1    License Fees:    SEPRACOR will make the following payments to BIAL:

        (a)   License Fee: Within five (5) Business Days after the Effective Date, SEPRACOR will pay BIAL Seventy-Five Million U. S. Dollars (US$75,000,000), as a licensing fee. This license fee is not refundable under any circumstances and is not creditable against the transfer prices and/or

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royalties due under Article 4 or any other payments due by SEPRACOR under this Agreement or the Supply Agreement;

        (b)   Milestone Payments: SEPRACOR will make the following milestone payments (the "Milestone Payments") to BIAL upon each of the milestone events specified below (each, a "Milestone Event"):

Milestone Event	Milestone Payment (in U.S. Dollars)
Receipt of written confirmation from the FDA following a pre-NDA meeting with the FDA that it will accept the NDA submission for the BIA 2-093 Product [**] prior to filing an NDA for Adjunctive Use in Adult Partial Epileptic Seizures	$	[**]
Written acceptance by the FDA of an NDA file for the BIA 2-093 Product for Adjunctive Use in Adult Partial Epileptic Seizures	$	[**]
FDA approval of the BIA 2-093 Product for Adjunctive Use in Adult Partial Epileptic Seizures	$	[**]
FDA approval of a Licensed Product for any and each additional indication (other than Adult and Pediatric Adjunct Partial Epileptic Seizures), for either adult or pediatric use, including without limitation the following indications: [**].	$	[**]
FDA grant of six months pediatric exclusivity for the BIA 2-093 Product for Adjunctive use in Partial Epileptic Seizures	$	[**]

        (c)   SEPRACOR will report in writing (with proper written documentation evidencing same) the occurrence of each Milestone Event to BIAL within five (5) Business Days of the date on which the Milestone Event has occurred and will pay the corresponding Milestone Fee within thirty (30) days of the date on which the Milestone Event has occurred, regardless of whether two or more milestones occur at the same time. The Milestone Payments are not refundable under any circumstances and are not creditable against the transfer prices and/or royalties and/or other Milestone Payments due under Article 4 or any other payments due by SEPRACOR under this Agreement or the Supply Agreement.

        3.2    Tax Matters:

        (a)   All payments under Section 3.1 will be made in accordance with the terms of the treaty between Portugal and the United States to avoid double taxation.

        (b)   BIAL will pay and otherwise be responsible for all value added taxes and transfer taxes in connection with any payment made to BIAL pursuant to this Agreement for all applicable sales, goods and services.

        (c)   Any income or other tax that one Party hereunder is required to withhold and pay on behalf of the other Party hereunder with respect to amounts payable under this Agreement will be deducted from and offset against said amounts prior to payment to the other Party; provided, however, that in regard to any tax so deducted, the Party making the withholding will give or cause to be given to the other Party all assistance reasonably necessary to enable that other Party to claim exemption therefrom or credit therefor, and in each case will promptly furnish the Party on whose behalf amounts were withheld, proper evidence of the taxes paid on its behalf and execute and provide such Party with any documents reasonably necessary in connection therewith. Each Party will comply with reasonable requests of the other Party to take any proper actions that may minimize any withholding obligation. BIAL will provide to SEPRACOR a properly completed and executed Form W8-BEN prior to any payment made to BIAL. A properly completed and executed Form W8-BEN will be completed and provided annually to SEPRACOR.

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        3.3    Interest:    If SEPRACOR fails to make payment within any of the above stated timeframe, BIAL is entitled, without prejudice to any other right or remedy available to BIAL, to charge SEPRACOR interest (both before and after judgment) on the unpaid amount at the annual rate of [**]% ([**] percent) per annum calculated on a daily basis until payment is made in full.

ARTICLE 4

SUPPLY

        4.1    General:    Unless otherwise agreed to by the Parties, and without prejudice to BIAL's right to decide, in its sole discretion, not to supply, directly or through a BIAL Affiliate, Licensed Products (other than the BIA 2-093 Product which BIAL will supply pursuant to the Supply Agreement) to SEPRACOR, SEPRACOR will purchase all of its requirements of BIA 2-093 Product and other Licensed Products from BIAL or BIAL's Affiliates.

        4.2    Supply Agreement:    Promptly after the Effective Date and within the period of one hundred and eighty (180) days thereof (or as otherwise agreed in writing by the Parties), BIAL or a BIAL Affiliate and SEPRACOR or its Affiliate will negotiate in good faith and enter into a Supply Agreement (the "Supply Agreement") for the clinical supply of BIA 2-093, the supply of physician samples of the BIA 2-093 Product and the commercial supply of the BIA 2-093 Product.

        4.3    Commercial Supply—Additional Licensed Products:

        (a)   The Parties acknowledge and agree that transfer prices for supply to SEPRACOR of any Licensed Products, other than BIA 2-093 Products, will be negotiated in the future in good faith, and such transfer prices [**]. The Supply Agreement will be amended as necessary to reflect such transfer prices and any other necessary changes resulting from the addition of any Licensed Products.

        (b)   Should BIAL or a BIAL Affiliate not agree to supply a Licensed Product (other than the BIA 2-093 Product which BIAL will supply pursuant to the Supply Agreement) to SEPRACOR, [**].

        (c)   In the event that, within the period of [**] of written request of either Party, the Parties do not reach an agreement on the transfer prices and/or royalties mentioned in this Section 4.3, the following procedure will apply: [**].

        4.4    Generic Entry:    The Parties agree to negotiate in good faith a provision in the Supply Agreement to reflect the impact on the applicable transfer prices and/or royalties upon the entry into the market in each country within the Territory of a generic version of a Licensed Product, provided however that neither Party will be under an obligation to agree on any revised prices and/or royalties.

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ARTICLE 5

JOINT STEERING COMMITTEE

        5.1    Committee Formation:    The Parties will form a Joint Steering Committee (the "JSC"), with general strategic oversight and decision making duties over the Parties' activities hereunder and to provide a forum for regular exchange of data (to the extent required under this Agreement) relating to the Licensed Products.

        5.2    Make-up of the JSC:    The JSC will consist of six members, namely, three members from each of BIAL and SEPRACOR, at least one of whom from each Party will be an Executive Officer of such Party. Each Party will designate its initial members of the JSC within the period of [**] after the Effective Date. BIAL and SEPRACOR may each replace any or all of its representatives on the JSC at any time upon written notice to the other Party in accordance with Section 16.11 of this Agreement. Any member of the JSC may designate a substitute with due authority to temporarily attend and perform the functions of that member at any meeting of the JSC as long as an Executive Officer from each Party will always be present. BIAL and SEPRACOR each may, in its sole discretion but subject to the written objection of the other Party (with demonstrable reason for objection), invite to attend meetings or portions of such meetings of the JSC a reasonable number of non-member representatives of such Party (including, without limitation, its employees or non-employee professional advisors), who have a reasonable purpose for attending such meeting or portion of such meeting. The chairperson of the JSC will alternate at each meeting between one of BIAL's Executive Officers and one of SEPRACOR's Executive Officers. The chairperson will establish the timing (at a mutually agreed upon time with the other Party) and agenda for all JSC meetings and will send notice of such meetings, including the agenda at least [**] prior to the meeting, to all JSC members provided, however, that either Party may request that specific items be included in the agenda provided that notice of such changes is provided to all JSC members at least [**] prior to the date of the meeting.

        5.3    JSC Responsibilities:    Responsibilities of the JSC include, without limitation, the following:

        [**]

        5.4    Meetings:    The JSC may meet, convene or be polled in person or by video or telephone conference (where all Parties can hear and be heard). In addition, the JSC may be polled through electronic mail or correspondence. The JSC will meet within [**] of the Effective Date and at least [**] every calendar year thereafter, where the first [**] such meetings will be in person for all of the JSC members. The JSC will meet on such dates, and at such places and times or in such manner, as the members of the JSC will agree from time to time. Meetings of the JSC that are held in person will alternate between the offices of BIAL and SEPRACOR, or at such other place as the Parties may agree. The Party hosting the meeting will be responsible for recording minutes of the meeting in writing. Such minutes will be circulated to the Parties promptly following the meeting for review, comment and written approval.

        5.5    Decision-making:    The JSC may make decisions with respect to any subject matter within the JSC's functions as described above. Except as expressly provided in this Agreement, all decisions which are to be made by the JSC will be made by unanimous vote or written consent, with each Party having one vote in all decisions. The JSC will use reasonable best efforts to resolve the matters within its roles and functions or otherwise referred to it.

        5.6    Right to Decide:    If, with respect to a decision that is to be made by the JSC pursuant to Section 5.3, the JSC cannot reach consensus within [**] after it has met (whether in person or by telephone or video conference) and attempted to reach such consensus or the Parties cannot reach consensus on whether the JSC has decision-making authority under Section 5.3 regarding a matter within [**] after such matter was first raised by either Party, the dispute in question will be referred to

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the Chief Executive Officer ("CEO") of BIAL and the CEO of SEPRACOR for resolution. The CEO's will use reasonable efforts to resolve the matter referred to them. If the CEO's cannot resolve the matter within [**], then the matter will be decided:

        (i)    by the CEO of BIAL in good faith, giving appropriate consideration to the reasonable business and scientific concerns of SEPRACOR, for all matters relating to the disputes mentioned in Sections [**].

        (ii)   by the CEO of SEPRACOR in good faith, giving appropriate consideration to the reasonable business and scientific concerns of BIAL, for all matters specifically mentioned in Sections [**].

        (iii)  For the avoidance of doubt, neither the CEO of BIAL nor the CEO of SEPRACOR will have decision making authority with respect to [**].

        (iv)  To the extent additional responsibilities are imposed on the JSC pursuant to Section 5.3 (xii), the Parties will mutually agree which CEO will have the right to decide any matter encompassed by that responsibility in the event that neither the JSC nor the CEO's can reach an agreement regarding that dispute.

        (v)   Notwithstanding anything to the contrary contained herein or this Section 5.6, neither Party's CEO will have decision making authority over any dispute explicit reserved for arbitration pursuant to Section 16.1.

        Neither Party will exercise its right to finally resolve a dispute in accordance with this Section 5.6 in a manner that (a) excuses such Party from any of its obligations specifically enumerated under this Agreement, or (b) requires the other Party to make payments or other commitments in excess of those specifically set forth herein. Notwithstanding this Section 5.6, any dispute regarding the interpretation of this Agreement or any alleged breach of this Agreement will be resolved in accordance with the terms of Section 16.1.

        5.7    Alliance Managers:    Promptly after the Effective Date, each Party will appoint an individual to act as the alliance manager for such Party (the "Alliance Manager"). Each Alliance Manager who is not otherwise a member of the JSC will thereafter be permitted to attend meetings of the JSC. The Alliance Managers will be the primary contact for the Parties regarding the activities contemplated by this Agreement and will facilitate all such activities hereunder. Each Party may replace its Alliance Manager with an alternative representative at any time with prior written notice to the other Party. The Alliance Managers will not, in any manner, take over the role of the JSC and will not have any rights, powers or discretion except as expressly granted to the Alliance Managers hereunder. In no event will the Alliance Managers have any power to modify or amend this Agreement. The Parties agree that the Alliance Managers will meet in July of each year so that the Parties can discuss any issues, including without limitation [**].

ARTICLE 6

DEVELOPMENT OF THE LICENSED PRODUCTS
IN THE FIELD AND TERRITORY

        6.1    Responsibility:    Except as otherwise provided for in this Agreement, SEPRACOR will be responsible for, [**], the development of the Licensed Products for use, offer for sale and sale, marketing, commercialization, importation, and distribution within the Field and Territory, including primary responsibility for all efforts required to obtain the Approvals for the use of Licensed Products within the Field and Territory.

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        6.2    Development Activity:    SEPRACOR will use Commercially Reasonable Efforts to conduct, [**] (except as set forth in Section 6.4(c)), the development of the Licensed Products in accordance with the development plans for the Licensed Products within the Field and Territory (the "Development Plan") including, but not limited to any preclinical, clinical, or post-marketing studies (the "Development Studies") set forth in any such Development Plan, provided that such development efforts are consistent with [**]. SEPRACOR will use Commercially Reasonable Efforts to complete the Development Studies as soon as reasonably practicable. For the avoidance of doubt, SEPRACOR does not commit to complete such Development Studies within any given period of time or to obtain any positive results.

        6.3    Development Plans:

        (a)   Within the period of [**] after receiving the FDA minutes from a Pre-NDA meeting with respect to the BIA 2-093 Product, SEPRACOR will provide BIAL with a copy of the Three (3) Year Strategic Development Plan for 2008-2010.

        (b)   SEPRACOR will also submit a draft Annual Development Plan to BIAL by [**] of each calendar year (the first being due by [**] for calendar year 2009) and a revised Three (3) Year Strategic Development Plan by [**] of each calendar year (the first being due by [**] for calendar years 2009-2011) for BIAL's review and comment. Development Plans will at a minimum and without limitation include a reasonable description of the following:

        [**]

        (c)   BIAL will review and comment upon each Annual Development Plan and each revised Three (3) Year Strategic Development Plan within [**] of receipt thereof. If BIAL fails to provide SEPRACOR with specific comments within the respective timeframe, the Annual Development Plan or the Three (3) Year Strategic Development Plan, as the case may be, will be deemed accepted by BIAL. SEPRACOR will consider in good faith all comments by BIAL to the Development Plan. BIAL [**] any Annual Development Plan, revised Three (3) Year Strategic Development Plan (other than the portion of such plans regarding (a) regulatory activities (subject to Section 6.6(b)), and (b) publication plans for the Licensed Products in the Territory), or a Developmental Study (including its protocol) [**], including without limitation the development, regulatory approval, marketing, sale and commercialization thereof. In the event of a dispute between the Parties as to whether there is a reasonable likelihood that an Annual Development Plan, revised Three (3) Year Strategic Development Plan (other than the portion of such plans regarding (a) regulatory activities (subject to Section 6.6(b)), and (b) publication plans for the Licensed Products in the Territory), or a Development Study [**] the dispute will be submitted to the JSC and will be decided in accordance with the mechanism set forth in Sections 5.5 [**].

        (d)   SEPRACOR will submit any amendments to the Annual Development Plans or the Three (3) Year Strategic Development Plans for BIAL's review and comment within the period mentioned in Section 6.3 (c) and under the terms of the said Section 6.3(c).

        (e)   If not previously submitted for BIAL's review and comment as part of an Annual Development Plan, SEPRACOR will submit any additional proposed Development Study, including the final draft protocol thereof, for review and comment by BIAL within the period and under the terms mentioned in Section 6.3(c).

        (f)    Before issuing final study reports on any Development Study, a first draft report must be sent to BIAL for review and comment within the period of [**].

        (g)   In addition to BIAL's rights under this Section 6.3, SEPRACOR will consider in good faith any comments provided by BIAL within the applicable time periods in relation to any Annual

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Development Plan, revised Three (3) Year Strategic Development Plan, Development Study, and draft protocol for any such Development Study or draft report.

        (h)   SEPRACOR will regularly through the JSC and promptly upon BIAL's written request, keep BIAL fully informed of the status of any Development Study. BIAL has the right to appoint one or more monitors to observe SEPRACOR's development activities related to the Licensed Product.

        6.4    Ongoing and Supplemental Studies:

        (a)   BIAL will use Commercially Reasonable Efforts to conduct, [**], the studies listed in Exhibit D (the "BIAL Studies"). All decisions regarding such studies, including the corresponding protocols (the "BIAL Protocols"), [**], provided that (i) BIAL will consider in good faith any comments provided by SEPRACOR in relation to any BIAL Study or draft BIAL Protocol and (ii) BIAL will regularly through the JSC and promptly upon SEPRACOR's written request, keep SEPRACOR fully informed of the status of any BIAL Study. SEPRACOR has the right to appoint one or more monitors to observe the BIAL Studies. All data and information resulting from such BIAL Studies and Controlled by BIAL will be promptly shared with SEPRACOR and will be considered BIAL Know-How. BIAL will use Commercially Reasonable Efforts to complete the BIAL Studies as soon as reasonably practicable. For the avoidance of doubt, BIAL does not commit to complete such BIAL Studies within any given period of time or to obtain any positive results.

        (b)   BIAL will provide SEPRACOR with any amendments to the BIAL Protocols for review and comment within [**] of its receipt thereof. Before issuing final study reports on any BIAL Studies, a first draft report must be sent to SEPRACOR for review and comment within the period of [**], and BIAL will consider in good faith any comments in relation thereto.

        (c)   The Parties [**] conducting any studies required by the FDA to obtain the Approval of the BIA 2-093 Product for Adult Adjunct Partial Epileptic Seizures in the United States of America, provided that (i) SEPRACOR will be responsible for conducting such studies and (ii) prior to initiating any such study the Parties [**]. Once approved, [**]. The Parties acknowledge that the [**].

        (d)   Except as provided for in Sections 6.4(a) and 6.4(c), [**] of all other studies necessary or useful for the Approval of the BIA 2-093 Product and/or Licensed Products within the Field and the Territory, as well as for any marketing or post-Approval studies.

        6.5    CMC Program:    BIAL or a BIAL Affiliate is responsible for performing (itself or through one or more contract manufacturers) and will bear the expenses of the CMC Program for the BIA 2-093 Product. BIAL or a BIAL Affiliate will also be responsible for performing (itself or through one or more contract manufacturers) and will bear the expenses of the CMC Program for a Licensed Product other than the BIA 2-093 Product in the event that BIAL decides to be the supplier (directly or through a BIAL Affiliate) of such Licensed Product to SEPRACOR. If BIAL decides not to be the supplier of such Licensed Product to SEPRACOR, SEPRACOR will be responsible for performing (itself or through one or more contract manufacturers) and will bear the expenses of the CMC Program for such Licensed Product.

        6.6    INDs/NDAs:

        (a)   Except in the event that the licenses granted by BIAL to SEPRACOR under Sections 2.1 and 2.3 [**], SEPRACOR is responsible for the filing of and will own any and all INDs, NDAs and other regulatory filings for the Licensed Products within the Field and Territory, provided that BIAL will be responsible for maintaining and keeping the BIA 2-093 IND in good standing until it is transferred to SEPRACOR in accordance with Section 2.7.

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        (i)    BIAL will have the right to use and refer to all INDs, Approvals, NDAs and regulatory filings for the Licensed Products within the Field and the Territory and all Know-How submitted in support thereof, including but not limited to, all safety and effectiveness data for (i) any purpose, including without limitation, for development and regulatory activities in any country of the world, excluding the Territory (except in the event that the licenses granted by BIAL to SEPRACOR under Sections 2.1 and 2.3 convert to non-exclusive licenses pursuant to Section 7.4(b)), and (ii) subject to Section 2.2(a), for the sole purpose of conducting permitted development activities within the Territory.

        (ii)   SEPRACOR will use Commercially Reasonable Efforts to submit an NDA for the BIA 2-093 Product for Adult Adjunct Partial Epileptic Seizures as soon as reasonably practicable but no later than [**] following the preparation, final compilation and quality control review of all the necessary data, summaries, and administrative sections required to permit a NDA filing. SEPRACOR does not guarantee acceptance or approval by the FDA (or Canadian equivalent) of any IND, NDA or other regulatory filings.

        (b)   SEPRACOR will provide BIAL with a proposed draft of (a) the initial label to be submitted to the FDA for review and approval for each Licensed Product, and (b) the initial draft of any modifications to a Licensed Product label to be submitted to the FDA for review and approval, solely to the extent regarding any new indications. [**].

        (c)   In addition to Section 6.6(b), SEPRACOR will provide BIAL with a draft of all proposed regulatory filings and will consider in good faith any comments by BIAL within [**] upon receipt of such draft. If BIAL fails to provide SEPRACOR with specific comments within such timeframe, the NDA or other regulatory filing will be deemed acceptable by BIAL. [**] and SEPRACOR will not amend the proposed NDA or regulatory filing in the manner requested by BIAL, the dispute will be submitted to the JSC and will be decided in accordance with the mechanism set forth in Sections 5.5 and [**], except as otherwise provided in Section [**].

        (d)   To the extent that providing a copy of a draft regulatory filing pursuant to Section 6.6(c) is not practicable, SEPRACOR will give access thereof to BIAL and provide BIAL with [**] written notice prior to the date such draft may be accessed by BIAL. Notwithstanding the foregoing, BIAL will have the right, to the extent reasonably practicable, to request copies of portions of such draft regulatory filings.

        (e)   Notwithstanding Section 6.6(a), BIAL will have the right to participate in any meetings, interactions, or communications ("Interactions") with the FDA or other regulatory authorities in the Territory to the extent that such Interactions relate to the DMF. BIAL may [**], in other Interactions with the FDA or other regulatory authorities in the Territory. Prior to any such Interactions, SEPRACOR will provide BIAL with a draft of any communication, agenda and/or notice of any planned interaction and will consider in good faith any comments provided by BIAL within the period of [**] upon receipt of the said draft by BIAL.

        (f)    Neither Party warrants to the other Party that any Approvals will be obtained within the Field or Territory. The Parties agree that any and all costs and expenses incurred by SEPRACOR or BIAL in connection thereto are not refundable under any circumstances and are not creditable against the transfer prices and/or royalties due under Article 4 or any other payments due by SEPRACOR under this Agreement or the Supply Agreement.

        (g)   Except as otherwise provided in Section 14.5(b), upon the termination or expiration of the Term of this Agreement, all right, title, and interest in any and all regulatory filings and authorizations issued thereunder, including without limitation the Approvals, the IND and the NDA and its Canadian equivalents, will be assigned to BIAL.

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        6.7    Drug Master File:    Notwithstanding Section 6.6(a), BIAL will be responsible for filing and maintaining, directly or through a Third Party appointed by BIAL, the Drug Master File ("DMF") relating to the manufacture of the BIA 2-093 active pharmaceutical ingredient, to the extent that (i) the Parties agree that DMF submission is preferable to incorporation of the DMF information in the applicable NDA and (ii) BIAL has obtained from its Third Party suppliers the right to file and maintain such DMF. In such an event, BIAL will file and maintain such DMF in its own name and/or in the name of its relevant suppliers and will permit SEPRACOR to cross-reference the open portion of such DMF in its regulatory filings for Licensed Products in the Territory. For the avoidance of doubt, regulatory authorities in the Territory will have the right to access the entire DMF, including the closed portion.

        6.8    SEPRACOR Know-How:    SEPRACOR will, as soon as reasonably practicable and promptly upon BIAL's written request, provide BIAL with a copy of all SEPRACOR Know-How created during the Term of this Agreement. SEPRACOR grants to BIAL a fully paid-up, royalty-free, perpetual, exclusive license (even to SEPRACOR), with the right to grant sublicenses to BIAL's Affiliates, Third Party licensees and distributors in any country outside the Territory, under any SEPRACOR Know-How to the extent necessary to allow BIAL, its Affiliates, Third Party licensees and distributors to use, make, have made, import, develop, register, market, offer for sale, sell, and commercialize Licensed Products or similar products outside the Territory. Subject to Section 2.2(a), SEPRACOR also grants to BIAL a fully paid-up, royalty-free, perpetual, non-exclusive license, with the right to grant sublicenses to BIAL's Affiliates and Third Party licensees, under any SEPRACOR Know-How to the extent necessary to allow BIAL and its sublicensees to develop Licensed Products or similar products within the Territory for use outside of the Territory. To the extent that SEPRACOR licenses-in know-how during the Term, which would not be encompassed by the term "SEPRACOR Know-How" because prior authorization by and/or an additional payment to the licensor of such know-how is required before it can be disclosed and sublicensed to BIAL. SEPRACOR will use Commercially Reasonable Efforts to obtain such rights for BIAL, provided that BIAL agrees, in writing, to: (i) comply with any terms that may apply to such disclosure/sublicensing; (ii) pay [**]; and (iii) pay [**]. SEPRACOR will use Commercially Reasonable Efforts to obtain reasonable terms when negotiating BIAL's sublicense.

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ARTICLE 7

COMMERCIALIZATION OF THE LICENSED PRODUCTS
IN THE FIELD AND TERRITORY

        7.1    Commercialization:    SEPRACOR will use Commercially Reasonable Efforts to market and sell the BIA 2-093 Product within the Field and Territory and will initiate commercialization of the BIA 2-093 Product in the United States within [**] after receiving FDA Approval, provided however that failure to launch the BIA 2-093 Product within such [**] period will not be considered a breach of this Agreement if such failure was caused by circumstances beyond the reasonable control of SEPRACOR including, but not limited to, BIAL's failure to meet timeframes hereunder or inability to supply the BIA 2-093 Product in accordance with the terms of the Supply Agreement. Notwithstanding anything in this Agreement to the contrary, the decision whether or not to pursue the development and/or launch of Licensed Products in addition to the BIA 2-093 Product, and the timing of such launch, will be at SEPRACOR's sole discretion.

        7.2    Responsibility:    Except as otherwise expressly provided for in this Agreement, SEPRACOR is solely responsible for commercializing the Licensed Products within the Territory. Notwithstanding anything in this Agreement to the contrary, the decision whether or not to launch the Licensed Products in Canada and the timing of such launch will be at SEPRACOR's sole discretion.

        7.3    Commercialization Plans:

        (a)   Within the period of [**] after the Effective Date, SEPRACOR will designate an employee to work with BIAL on the preparation of a Strategic Commercialization Plan to be used as an interim plan until the adoption of the first Annual Commercialization Plan in accordance with this Section 7.3(a). A draft annual commercialization plan will be provided to BIAL no later than [**] of each calendar year for the following calendar year (the first being due by [**] for calendar year 2009) for review and comment by BIAL (each, an "Annual Commercialization Plan"). Notwithstanding the foregoing, SEPRACOR will use Commercially Reasonable Efforts to provide the Annual Commercialization Plan to BIAL by [**] of each year. Annual Commercialization Plans will at a minimum and without limitation include a reasonable description of the following:

        [**].

        For clarity, Commercialization Plans will not include sales force incentives and budgets.

        (b)   SEPRACOR will consider in good faith any comments by BIAL in relation to the draft Annual Commercialization Plan that are provided to SEPRACOR within [**] of BIAL's receipt thereof. If BIAL fails to provide SEPRACOR specific comments within the respective timeframes, the draft Annual Commercialization Plan will be deemed acceptable to BIAL.

        (c)   SEPRACOR will provide BIAL with [**].

        (d)   SEPRACOR will provide BIAL with any material amendments to the Annual Commercialization Plans for review and comment by BIAL and will consider in good faith any comments provided by BIAL within [**] of receipt thereof.

        7.4    Minimum Sales:

        (a)   The agreed minimum annual sales in Net Sales (the "Minimum Sales") for years [**] of commercialization of Licensed Products in Territory (following launch in the U.S.) are set forth in Exhibit E. The Minimum Sales in units for any subsequent years will be agreed upon between the Parties by [**] of each calendar year.

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        (b)   If the Minimum Sales are not achieved in accordance with Section 7.4 (a) for reasons within SEPRACOR's reasonable control, the licenses granted to SEPRACOR pursuant to Sections 2.1 and 2.3 will become non-exclusive upon [**] prior written notice from BIAL; provided, however that such licenses will remain exclusive if within [**] following such notification SEPRACOR [**]. It is however clearly understood that SEPRACOR's right to avoid non-exclusivity pursuant to this Section 7.4(b) is exercisable only for up to [**].

        (c)   If the Minimum Sales are not achieved in accordance with Section 7.4 (a) for reasons within SEPRACOR's reasonable control for [**], BIAL will have the right to terminate this Agreement and the Supply Agreement with immediate effect.

        (d)   For the purposes of this Section 7.4, circumstances outside of SEPRACOR's reasonable control will include, without limitation, [**].

        7.5    Resources:    SEPRACOR will use Commercially Reasonable Efforts to at all times deploy the appropriate resources, including without limitation the numbers and type of field based personnel, in order to maximize the commercial value of the Licensed Products during the lifecycle. SEPRACOR will market and promote the Licensed Products in accordance with the Approvals.

        7.6    Sales Information:

        (a)   SEPRACOR will regularly through the JSC and promptly upon BIAL's written reasonable request, keep BIAL fully informed of the status of the commercialization of the Licensed Products in the Territory. Notwithstanding the above, SEPRACOR will provide BIAL with the following information:

        (i)    by the [**] Business Day of each month, a summary of [**];

        (ii)   by the [**] Business Day of each month following the end of each calendar quarter, [**]; and

        (iii)  by the [**] Business Day of each month, [**].

        (b)   During the Term and for a period of [**] thereafter, SEPRACOR and its Affiliates will keep full and accurate books of accounts and other records in sufficient detail so that the Net Selling Price and Net Sales of the Licensed Products can be properly ascertained. SEPRACOR, its Affiliates and sublicensee, at BIAL's request with reasonable written notice, will permit an independent certified public accountant selected by BIAL and reasonably acceptable to SEPRACOR, at its sole expense, access during SEPRACOR's ordinary business hours, to such books and records as may be necessary to determine the correctness of any calculation associated with the sale of the Licensed Products under this Agreement; provided, however, that (i) BIAL will be permitted only one (1) such audit in any twelve (12) month period, and (ii) such accountant will only have access to that portion of SEPRACOR's books and records that relate to this Agreement and the Licensed Products. Prior to the audit, such accountant will enter into a confidentiality agreement with SEPRACOR that is no less restrictive than the confidentiality obligations set forth in Article 10 of this Agreement. SEPRACOR will use Commercially Reasonable Efforts to obtain BIAL's right to access the books and records of SEPRACOR's sublicensee in a manner and for purposes consistent with this Section 7.6(b).

        7.7    Non Competing Products:

        (a)   During the Term of this Agreement, SEPRACOR and its Affiliates will not promote, distribute, market, commercialize, offer for sale, or sell any Competing Product within the Field and Territory. SEPRACOR will use Commercially Reasonable Efforts to cause its sublicensee not to promote, distribute, market, commercialize, offer for sale, or sell any Competing Product within the Field and Territory during the Term.

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        (b)   During the period of [**] after the first commercial sale of the BIA 2-093 Product, or, subject to Section 14.5(b)(i), during the Term if the Agreement is terminated prior to the expiration of such [**] period, BIAL and its Affiliates will not promote, distribute, market, commercialize, offer for sale, or sell any Competing Product within the Field and Territory.

ARTICLE 8

REGULATORY AND CLINICAL DEVELOPMENT ISSUES

        8.1    Cooperation:

        (a)   BIAL will keep SEPRACOR informed as to development efforts of Licensed Products in the Field outside of the Territory, and will use reasonable efforts not to, and will use reasonable efforts to [**]. Each Party will cooperate as reasonably requested by the other Party in an effort to ensure that the development of the Licensed Products are coordinated worldwide, provided however that this will not be interpreted or construed as [**].

        (b)   Outside the JSC, cooperation will include, without limitation, and without prejudice to the provisions of Article 6 and Section 10.5:

        (i)    [**]

        (ii)   [**]

        SEPRACOR will also provide BIAL with any documents, data and information encompassed by this Section 8.1 (b)(i) and (ii) that its sublicensee or contractors may develop during the Term of this Agreement, provided that such sublicensee or contractors have agreed in writing that SEPRACOR may disclose such items to BIAL and that BIAL may use such items in the manner set forth in Section 8.1 (d). BIAL will also provide SEPRACOR with any documents, data and information encompassed by this Section 8.1 (b)(i) and (ii) that its licensees or distributors for the Licensed Products outside the Territory have or may in the future develop, provided that such licenses or contractors have agreed in writing that BIAL may disclose such items to SEPRACOR and that SEPRACOR may use such items in the manner set forth in Section 8.1 (d). Cooperation will also include discussions regarding other activities of the JSC concerning supply and commercialization of the Licensed Products.

        To the extent that providing a copy of a draft regulatory filing pursuant to Section 8.1(b)(i) is not practicable, each Party will give access thereof to the other Party and provide the other Party with [**] notice prior to the date such draft may be accessed by such other Party. Notwithstanding the foregoing, each Party will have the right, to the extent reasonably practicable, to request copies of portions of such draft regulatory filings.

        (c)   BIAL will only share SEPRACOR's documents, data and information encompassed by Section 8.1 (b)(i) and (ii) with those of its licensees or distributors for the Licensed Products outside the Territory that have agreed, in writing, to (i) provide to SEPRACOR any similar data, documents and information that they have or may develop and (ii) comply with confidentially obligations with respect to such data, documents and information that are no less restrictive than those set forth in Article 10 of this Agreement. For clarity, access to SEPRACOR data, documents and information provided hereunder to a BIAL licensee or distributor is not contingent upon the licensee or distributor having similar data to share, but rather its willingness to issue authorization set forth in Section 8.1 (b).

        (d)   BIAL and its Affiliates outside the Territory will be entitled to use SEPRACOR's and SEPRACOR's Affiliates or sublicensee's documents, data and information encompassed by Section 8.1 (b)(i) and (ii) for the purposes of filing and obtaining any Approvals or marketing

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authorizations outside the Territory and licensing any Third Parties to distribute, promote and commercialize products under such Approvals or marketing authorizations. SEPRACOR and its Affiliates will be entitled to use BIAL data and information encompassed by Section 8.1 (b)(i) and (ii) for the purposes of filing and obtaining any Approvals or marketing authorizations within the Territory.

        (e)   SEPRACOR will promptly provide BIAL with copies of any correspondence received from or sent to any regulatory authority in the Territory with respect to BIA 2-093 and/or Licensed Products. BIAL will promptly provide SEPRACOR with copies of any correspondence received from or sent to the European Medicines Evaluation Agency ("EMEA") with respect to BIA 2-093 and/or Licensed Products whenever BIAL considers it materially relevant to the development of the Licensed Products in the Territory.

        8.2    Rights to Use and Reference SEPRACOR Data; Marketing Materials:

        (a)   In addition to the authorization granted in Section 8.1 (d) and the SEPRACOR Know-How license granted pursuant to Section 6.8, any data (including without limitation any preclinical and clinical data) Controlled by SEPRACOR during the Term relating to any Licensed Products in the Territory will be made fully available to BIAL at no cost whatsoever and BIAL and its Affiliates will have a fully paid up, royalty-free, perpetual, right to use and cross-reference such SEPRACOR data in seeking Approvals for such Licensed Products outside the Territory and/or in connection with commercialization of the Licensed Product outside the Territory.

        (b)   Such fully paid up, royalty-free, perpetual, right to use and cross-reference the SEPRACOR data may be extended by BIAL to its licensees or distributors outside the Territory so long as such licensees or distributors have agreed to grant a corresponding right to SEPRACOR. For clarity, this right to use and reference any SEPRACOR data by a BIAL licensee or distributor is not contingent upon the licensee or distributor having similar data, but rather its willingness to grant SEPRACOR rights to use and reference such data to the extent it exists.

        (c)   [**] per year or promptly upon the other Party's reasonable request, each Party will provide the other Party with specimens of its marketing materials for Licensed Products in the Field for informational purposes only. Neither Party, its Affiliates, licensees, distributors or other Third Parties will use the other Party's marketing materials to market, sell or offer for sale Licensed Products without such Party's prior written consent.

        8.3    Adverse Events:

        (a)   Promptly following the Effective Date, but in no event later than [**] thereafter, the Parties will develop and agree upon safety data exchange procedures in a separate and detailed Pharmacovigilance Exchange Agreement ("PVEA"). BIAL will be responsible for all Pharmacovigilance related activities until such agreement is signed. BIAL will have all relevant Affiliates and other licensees become a party to such PVEA or to enter into similar agreement(s) with BIAL in order to ensure global regulatory compliance. The PVEA will describe the collection, investigation, analysis, reporting, and exchange of information concerning adverse events, product safety and product complaints relating to the Licensed Products, sufficient to permit each Party, its Affiliates, sublicensees or licensees to comply with its legal or regulatory obligations, including to the extent applicable, those obligations contained in ICH guidelines.

        (b)   If a Licensed Product becomes subject to a pattern of Serious Adverse Reactions (as defined in the ICH Guidelines) or either Party receives notice from a regulatory authority relating to a significant concern for patient safety, the Parties will in good faith analyze and agree on risk minimization measures and other reasonable actions to be carried out, by either Party or both Parties, in relation to such Licensed Product, including without limitation, the modification of the relevant Approval

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        8.4    Quality Agreement.    Simultaneous with the execution of the Supply Agreement, the Parties will enter into a Quality Agreement with terms appropriate for the manufacture of finished products for commercial distribution.

ARTICLE 9

INTELLECTUAL PROPERTY

        9.1    Ownership of Development Intellectual Property:    All Development Intellectual Property conceived solely by the employees of a Party will be owned by that Party. Development Intellectual Property conceived by employees of both Parties will be jointly owned by the Parties, each having an equal and undivided interest in such Development Intellectual Property.

        (a)   Any Development Intellectual Property that BIAL Controls or is jointly owned by the Parties will be encompassed by the licenses set forth in Sections 2.1 and 2.2 without additional consideration other than the payments set forth in Article 3, provided however that the Licensed Products will be subject to the transfer price and/royalty provisions of Article 4.

        (b)   SEPRACOR grants BIAL an exclusive (even as to SEPRACOR), royalty-free, fully paid-up, perpetual license, with the right to grant sublicenses, under any Development Intellectual Property that SEPRACOR Controls or is jointly owned by the Parties, to make, have made, use, import, develop, offer for sale and sell products (including without limitation Licensed Products) or processes outside of the Territory for as long as BIAL Controls (by license or otherwise) outside the Territory any patent, patent application, or other intellectual property right which would be infringed by the making, importation, use, development, sale or offer for sale of any product or process encompassed by such Development Intellectual Property ("Blocking BIAL IP"). After expiration of such Blocking BIAL IP, the license under this Section 9.1(b) will convert to a Semi-Exclusive, royalty-free, fully paid-up, perpetual license, with the right to grant sub-licenses under any Development Intellectual Property that SEPRACOR Controls to make, have made, use, import, develop, offer for sale and sell any products (including without limitation Licensed Products) or processes outside of the Territory. For the purposes of this Section 9.1(b), the term "Semi-Exclusive License" means that, in addition to BIAL, SEPRACOR will have the right, directly or through one licensee, to make, have made, use, import, offer for sale and sell such products (including without limitation Licensed Products) or processes outside of the Territory under the SEPRACOR Development Intellectual Property.

        (c)   Subject to SEPRACOR's rights set forth in Section 2.2(a), SEPRACOR also grants BIAL a royalty-free, fully paid-up, perpetual, non-exclusive license, with the right to grant sublicenses, under any Development Intellectual Property that SEPRACOR Controls to the extent necessary to allow BIAL, its Affiliates, and Third Party licensees to develop products (including without limitation Licensed Products) or processes within the Territory for use outside of the Territory.

        (d)   During the Term of this Agreement, SEPRACOR will use Commercially Reasonable Efforts to retain all right, title and interest in any Development Intellectual Property that is conceived solely by the SEPRACOR sublicensee or a contractor or jointly by SEPRACOR and the SEPRACOR sublicensee or a contractor. If SEPRACOR, despite such efforts, is unable to retain all right, title and interest in any such Development Intellectual Property it will use Commercially Reasonable Efforts to negotiate an exclusive, world-wide license under such Development Intellectual Property to make, have made, use, import, develop, offer for sale and sell products (including without limitation Licensed Products) or processes, with the right to grant BIAL (a) an exclusive (even as to licensor and SEPRACOR) sublicense, with the right to grant further sublicenses, under such Development Intellectual Property to make, have made, use, import, develop, offer for sale and sell products (including without limitation Licensed Products) or processes outside the Territory and (b) a non-exclusive sublicense, with the right to grant further

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sublicenses, under such Development Intellectual Property to develop products (including without limitation Licensed Products) or processes within the Territory for use outside of the Territory, provided that BIAL agrees, in writing, to: (i) comply with any terms that may apply to such disclosure/sublicensing; (ii) pay [**]; and (iii) pay [**]. SEPRACOR will use Commercially Reasonable Efforts to obtain reasonable terms when negotiating BIAL's sublicense.

        (e)   Any license granted under Sections 9.1 (b), (c) and (d) will expire upon the last to expire of the licensed patents encompassed by such license.

        (f)    The Parties agree that, to the extent it is required by the laws of any country, the Parties will execute necessary documentation to reflect or record any licenses under jointly owned Developmental Intellectual Property licenses or sublicenses granted in accordance with this Agreement under any Developmental Intellectual Property.

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        9.2    Prosecution of Development Intellectual Property:

        (a)   Each Party may, at its own expense, file, prosecute, maintain, defend and enforce the patents and patent applications relating to Development Intellectual Property which are owned solely by that Party.

        (b)   Notwithstanding Section 9.2(a), SEPRACOR will have the first opportunity to file U.S. and foreign patent applications on any Development Intellectual Property Controlled solely by SEPRACOR or jointly owned by SEPRACOR and its sublicensee or a contractor. SEPRACOR will cause a copy of any such patent application and all communications between its agents and any patent office regarding each such patent application and/or patent to be provided to BIAL or its agent for comment, within a reasonable deadline prior to submitting such communications to the patent office. Provided that BIAL responds within the specified deadline, SEPRACOR will consider or cause its agents to consider, in good faith, any comments BIAL may have regarding that application or communication, provided that all final prosecution decisions will rest solely with SEPRACOR. BIAL will be responsible for any expenses that it may incur in providing such comments. SEPRACOR (or its sublicensee or a contractor) will pay all official taxes, annuities, renewal and maintenance fees required to keep in force all issued patents for Development Intellectual Property solely Controlled by the SEPRACOR or jointly owned by SEPRACOR and its sublicense or any of its contractors.

        (c)   BIAL has the right to file a patent application for Development Intellectual Property Controlled by SEPRACOR in any country in which SEPRACOR decides not to file. SEPRACOR will notify BIAL of the decision not to file a patent application in a particular country within [**] of making that decision, but not later than [**] prior to the time when any statutory bar might foreclose filing of a patent application in that country. Upon receipt of such notification, BIAL has the option to assume full responsibility, at its own discretion and expense, to file a patent application in any such country, in which event SEPRACOR will reasonably cooperate and assist BIAL, at BIAL's expense, in executing a written assignment of the Development Intellectual Property to BIAL in that country and provide any other conveyance instruments, documents or assistance as may be necessary or desirable to establish ownership or to support of the prosecution of the application. In the event that such patent application becomes the subject of an opposition or related proceeding, or if any patent(s) to issue becomes involved in any adversary proceeding (e.g. litigation, nullity or revocation proceedings), BIAL will provide SEPRACOR notice of such proceeding and BIAL will provide SEPRACOR reasonable opportunity to comment and advise to BIAL.

        (d)   SEPRACOR will advise BIAL if it no longer desires to continue prosecution or pay maintenance fees, on any patent application or patent either in the United States or any foreign country for Development Intellectual Property Controlled by SEPRACOR. Such notification will be in writing and will be provided not less than [**] before the expiration of a response period or the payment due date for a maintenance fee. Upon receipt of such notification, BIAL has the option, exercisable upon written notification to SEPRAOR, to assume the prosecution and/or maintenance of the patent application or patent, in which event SEPRACOR will reasonably cooperate with and assist BIAL, at BIAL's expense, in executing a written assignment of the patent application or patent to BIAL and provide any other conveyance instruments, documents, or assistance as may be necessary or desirable to establish ownership of the patent or patent application or to support of the prosecution of the application.

        (e)   BIAL will use Commercially Reasonable Efforts to file, prosecute and maintain patents and patent applications filed inside and outside the Territory on all Development Intellectual Property jointly-owned by the Parties. All costs including legal fees, official taxes, annuities, renewal, and maintenance fees required to prosecute all such applications and keep in force all

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issued patents that are jointly owned by the Parties, will be [**] with respect to patents and patent applications in the Territory and [**] with respect to patents and patent applications outside the Territory. If BIAL desires to discontinue its participation in the prosecution of any jointly-owned patent application or maintenance fee of an issued patent, it will notify SEPRACOR in writing not less than [**] before the expiration of a response period or the payment due date for a maintenance fee. Upon receipt of such notification, SEPRACOR has the option to assume full responsibility, at its discretion and expense, for the prosecution and maintenance of the affected patent application(s) or patent(s) in or outside the Territory, in which event BIAL will reasonably cooperate with and assist SEPRACOR, at SEPRACOR's expense, in executing a written assignment of the patent application or patent to other Party and provide any other conveyance instruments, documents, or assistance as may be necessary or desirable to establish ownership of the patent or patent application or to support the prosecution of the application. Except as otherwise provided in Section 2.1(a), neither Party [**]

ARTICLE 10

CONFIDENTIALITY, PUBLICITY AND PRESS RELEASES

        10.1    Confidential Information:    As used in this Agreement, the term "Confidential Information" means all technology, formulations, materials, samples, prototypes, processes, data, know-how and all other information or data, whether written or oral, technical or non-technical, including, without limitation, BIAL Know-How, SEPRACOR Know-How, Commercialization Plans, Development Plans, BIAL Protocols, financial statements, reports, pricing, trade secrets, secret processes, formulas, customer data (including customer lists), business information, business methods, business plans, and pricing, cost, supplier and manufacturing information, that is disclosed by or on behalf of either Party (including by or on behalf of or through a parent, subsidiary, Affiliate, contractor, licensee or sublicensee) to or for the benefit of the other Party (including by or on behalf of or through a parent, subsidiary, Affiliate, contractor, licensee or sublicensee) in the performance of this Agreement or the Supply Agreement. The term "Confidential Information" does not include any such items for which the receiving Party can show by competent written proof or other reasonable support that such item:

        (a)   was known to and existed in documentary or other physical form in the possession of the receiving Party at the time of disclosure;

        (b)   subsequent to the receipt hereunder, is made available to the receiving Party by a Third Party which is legally entitled to make such information available;

        (c)   was or becomes publicly known through no fault of the receiving Party; or

        (d)   is independently developed by the receiving Party without access to Confidential Information disclosed hereunder.

        10.2    Obligations of Confidentiality:    During the Term of this Agreement and for a period equal to the [**] or [**] after the termination or expiration of this Agreement, whichever is longer, each Party agrees to:

        (a)   to preserve the confidentiality of all Confidential Information received from the other Party, and not to disclose any such Confidential Information to a Third Party without first obtaining the written consent of the disclosing Party, except as may be otherwise provided herein;

        (b)   to take all necessary steps to ensure that Confidential Information received from the other Party is securely maintained and to inform those who are authorized to receive such Confidential Information of their obligations under this Agreement; and

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        (c)   to use any and all Confidential Information received from the other Party solely in connection with, or as permitted by, this Agreement and the Supply Agreement and for no other use.

All Confidential Information will remain the property of the disclosing Party.

        10.3    Right to Disclose:

        (a)   Nothing herein will be construed as preventing either Party from disclosing any Confidential Information received from the other Party to its employees, Affiliates, distributors, licensees, sublicensees, consultants, agents and contractors, in each case where such person or entity has a reasonable need to know such Confidential Information, provided that, with respect to Affiliates, distributors, licensees, sublicensees consultants, agents and contractors, such entities have undertaken similar obligations of confidentiality with respect to the Confidential Information.

        (b)   Nothing contained in this Article restricts the Parties from disclosing Confidential Information as reasonably required for: (i) seeking any Approval or other authorization required under or for the purposes of this Agreement, including without limitation [**], (ii) regulatory, tax or customs reasons, (iii) audit purposes, (iv) the development, manufacture, use, sale, external testing or marketing trials of products in a manner consistent with the terms of this Agreement, the Supply Agreement, the PVEA and Quality Agreement, (v) the filing or prosecuting patent applications contemplated by this Agreement, without violating the above secrecy provision; it being understood that publication of such applications within eighteen (18) months of filing will not violate such secrecy provisions, or (vi) by court order or other government order or request. With respect to disclosing Confidential Information pursuant to a court order or other government order or request, prompt notice of such order or request will be provided to the disclosing Party and the disclosure will not occur until the disclosing Party either approves the disclosure or has had the opportunity to seek a protective order or other appropriate remedy to curtail such disclosure. In the event that the disclosing Party is unsuccessful in preventing the disclosure of Confidential Information to the court or government, the other Party will take reasonable efforts to protect the confidentiality of the Confidential Information and will disclose only that portion of Confidential Information which it is legally required to disclose.

        10.4    Disclosure of Financial and Other Terms:    Except as required by applicable laws, treaties or agreements (including securities laws), the Parties agree that the terms of this Agreement, the Supply Agreement, the PVEA and Quality Agreement will be considered Confidential Information of both Parties. Notwithstanding the foregoing, (a) either Party may disclose such terms as are required to be disclosed in its publicly-filed financial statements or other public statements, pursuant to applicable laws, regulations or stock exchange rules (e.g., U.S. Securities and Exchange Commission, NASDAQ, NYSE or any other stock exchange on which securities issued by either Party may be listed); provided, to the extent possible, such Party will provide the other Party with a copy of the proposed text of such statements or disclosure (including any exhibits containing this Agreement or the Supply Agreement) sufficiently in advance of the scheduled release or publication thereof to afford such other Party a reasonable opportunity to review and comment upon the proposed text (including redacted versions of this Agreement or the Supply Agreement), (b) either Party has the right to disclose this Agreement under a confidentiality obligation no less protective than that set forth in this Agreement, to any potential acquirer, merger partner, providers of financing, or potential providers of financing and their advisors, (c) upon the execution of this Agreement, the Parties will be permitted to issue the joint press release attached hereto as Exhibit F, and (d) after the Effective Date, each Party has the right to disclose the existence and execution of this Agreement and the Supply Agreement and the general nature of its terms, provided that the specifics of such terms are not disclosed including, without limitation, the financial terms set forth herein. Neither Party will make any other statement to the public regarding the execution and/or any other aspect of the subject matter of this Agreement or the

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Supply Agreement, except: (i) where a Party reasonably believes disclosure is required under applicable laws or ethical commercial practice; and (ii) either Party may use the text of a statement previously approved by the other Party.

        10.5    Publications:

        (a)   SEPRACOR will submit to BIAL drafts of all proposed publications related to SEPRACOR's development or commercialization activities in the Territory with respect to the Licensed Products no later than [**], prior to the intended submission date for publication, for review and approval by BIAL, provided however that BIAL's approval will not be unreasonably withheld or delayed. For the purposes of this Section 10.5(a), BIAL's approval will only be considered reasonably withheld in the event that (i) the publication contains Confidential Information disclosed by BIAL or on BIAL's behalf, (ii) information that creates potential statutory bars to filing a U.S., Canadian or foreign patent application, or (iii) the proposed publication will [**]. In the event of a dispute between the Parties as to whether a publication proposed by SEPRACOR will [**], the dispute will be submitted to the JSC and will be decided in accordance with the mechanism set forth in Sections 5.5 and [**].

        (b)   BIAL will submit to SEPRACOR drafts of all proposed publications related to BIAL's and its licensees development activities in the Territory with respect to the Licensed Products no later than [**], prior to the intended submission date for publication, for review and approval by SEPRACOR, provided however that SEPRACOR's approval will not be unreasonably withheld or delayed. For the purposes of this Section 10.5(b), SEPRACOR's approval will only be considered reasonably withheld in the event that (i) the publication contains Confidential Information disclosed by SEPRACOR or on SEPRACOR's behalf, (ii) information that creates potential statutory bars to filing a U.S. or Canadian patent application, or (iii) the proposed publication will [**]. In the event of a dispute between the Parties as to whether a publication proposed by BIAL will [**], the dispute will be submitted to the JSC and will be decided in accordance with the mechanism set forth in Sections 5.5 and [**].

        (c)   Notwithstanding anything to the contrary contained herein, neither Party can withhold approval of a publication of the other Party if legally obligated to make such publication.

        (d)   For the avoidance of doubt, the provisions of Section 10.5(b) apply solely to publications related to BIAL's development activities in the Territory and are not applicable with respect to any of BIAL's activities, including without limitation development activities, outside the Territory. SEPRACOR acknowledges that publications relating to such BIAL activities outside the Territory may, by their own nature, be made available on a worldwide basis, including in the Territory.

        10.6    Consequences of Breach:    The Parties understand that monetary damages may be inadequate or insufficient to protect any breach of any of the provisions of this Article 10 by either Party or employees, Affiliates, distributors, licensees, sublicensees and contractors, or any other person or entity acting in concert with it or on its behalf. Accordingly, the non-breaching Party will be able to seek all remedies available at law or in equity, including the right to request injunctive relief, specific performance of the provisions of this Article 10 and/or to claim damages in a court of competent jurisdiction.

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ARTICLE 11

PATENT PROSECUTION AND MAINTENANCE

        11.1    Duty to Prosecute and Maintain BIAL Patents Controlled Solely by BIAL:    BIAL will, [**], use its reasonable efforts to prosecute or cause to be prosecuted or continue to prosecute to allowance in the Territory all of the patent applications included in the BIAL Patents Controlled solely by BIAL. BIAL will pay all official taxes, annuities, renewal and maintenance fees required to keep in force all issued patents included in the BIAL Patents in the Territory. If BIAL desires to discontinue the prosecution or payment of a maintenance fee on any patent application or patent included in the BIAL Patents, it will notify SEPRACOR in writing not less than [**] before the expiration of a response period or the payment due date for a maintenance fee. Upon receipt of such notification, SEPRACOR has the option to assume full responsibility, at its discretion and expense, for the prosecution and maintenance of the affected patent application(s) or patent(s) in the Territory, in which event BIAL will reasonably cooperate with and assist SEPRACOR, [**], in executing a written assignment of the patent application or patent to SEPRACOR and provide any other conveyance instruments, documents, or assistance as may be necessary or desirable to establish ownership of the patent or patent application or to support of the prosecution of the application. [**].

        11.2    SEPRACOR's Right to Consult:    SEPRACOR has the right to review and comment upon the content of all patent applications included in the BIAL Patents Controlled solely by BIAL, prior to filing by BIAL in the Territory. BIAL will cause a copy of the patent application and all communications between BIAL's agents and any patent office in the Territory regarding that patent application and/or patent to be provided to SEPRACOR or its agent for comment, within [**] prior to submitting such communications to the patent office. Provided that SEPRACOR responds within the specified deadline, BIAL will consider or cause its agents to consider, in good faith, any comments SEPRACOR may have regarding that application or communication, provided that all final prosecution decisions will rest solely with BIAL. SEPRACOR will be responsible for any expenses that it may incur in providing such comments. BIAL will pay all official taxes, annuities, renewal and maintenance fees required to keep in force all issued BIAL Patents. The above notwithstanding, BIAL is under no obligation to disclose any patent application or related correspondence that contains Third Party confidential information to SEPRACOR until such information is published as part of the application. In the event such patent application contains Third Party confidential information, BIAL will make reasonable efforts to obtain the Third Party's consent to disclose the confidential information to SEPRACOR.

        11.3    Abandonment of Opposition Contest:    BIAL will provide SEPRACOR with advance written notice of any decision by BIAL not to defend a priority, opposition or reexamination in any patent office within the Territory relating to a BIAL Patent. SEPRACOR will have [**] from receipt of such notice to elect to continue prosecuting and defending such patent or patent applications. If SEPRACOR elects to continue, SEPRACOR [**] and will control that contest. BIAL will [**], provide SEPRACOR with reasonable assistance including, but not limited to, providing available documents and making witnesses available reasonably requested or required by SEPRACOR to continue prosecuting and defending such patent or patent applications, including [**]. BIAL, [**], will have the right to participate in such contest, or designate its own counsel to so participate, throughout each step of the contest. [**] SEPRACOR under this Agreement or the Supply Agreement. If SEPRACOR elects to continue prosecuting and defending any patent or patent application pursuant to this Section 11.3, BIAL will reasonably cooperate with and assist SEPRACOR, [**], in executing a written assignment of the patent application or patent to SEPRACOR and provide any other conveyance instruments, documents, or assistance as may be necessary or desirable to establish ownership of the patent or patent application or to support of the prosecution of the application.

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        11.4    Notices of Issued Patent:    BIAL will notify SEPRACOR within [**] of: (a) the issuance of each U.S. patent included among the BIAL Patents along with the date of issuance and the patent number for each such patent; and (b) communications pertaining to any patent included among the BIAL Patents, which BIAL receives as patent owner pursuant to the Drug Price Competition and Patent Term Restoration Act of 1984, including without limitation any notice pursuant to Sections 101 and 103 of that act from persons who have filed an ANDA or a Paper NDA.

        11.5    Authorization Relating to Patent Term Extension:    In the event that applicable law in any country within the Territory provides for the extension of the term of any patent included among the BIAL Patents, BIAL will apply for and use its reasonable efforts to obtain such an extension. SEPRACOR agrees to cooperate with BIAL in obtaining such extension. Should the law require SEPRACOR to apply for such an extension directly, BIAL will cooperate with SEPRACOR in obtaining such an extension and will execute such documents and take such additional actions as SEPRACOR may reasonably request in connection therewith. Should applicable law in a country within the Territory require that any such authorization be held in the name of SEPRACOR, such authorization will be held by SEPRACOR solely for the benefit of and in trust for BIAL and, upon termination or expiration of the Term of this Agreement, SEPRACOR agrees to assign such authorization to BIAL, its Affiliate or nominee and to provide any other conveyance, instruments, documents or assistance as may be necessary or desirable to establish ownership of such authorization in BIAL. Notwithstanding anything to the contrary contained herein, the Parties will, if necessary and appropriate, use reasonable efforts to agree upon a joint strategy relating to patent term extensions, but, in the absence of mutual agreement with respect to any extension issue, a BIAL Patent will be extended [**].

        11.6    Patent Certifications:

        (a)   Each Party will immediately give written notice to the other of any certification of which it becomes aware that has been filed pursuant to 21 U.S.C. § 355(b)(2)(A)(iv), or § 355(j)(2)(A)(vii)(IV) (or any amendment or successor statute thereto or Canadian equivalent statute) claiming that the BIAL Patents covering the Licensed Product are invalid, unenforceable, and/or that infringement will not arise from the manufacture, use, sale or offer for sale, of such Third Party product by a Third Party. If BIAL decides not to bring infringement proceedings against the Third Party making such a certification with respect to any Licensed Product, BIAL will give notice to SEPRACOR of its decision not to bring suit within [**] after receipt of notice of such certification (or, if the time period permitted by law is less than [**], within half of the time period permitted by law for SEPRACOR to commence such action). SEPRACOR may then, but is not required to, bring suit against the Third Party that filed the certification. Any suit by either Party may be in the name of either or both Parties, as may be required by law. For this purpose, the Party not bringing suit will execute such legal papers necessary for the prosecution of such suit and will provide assistance at the other Party's expense as may be reasonably requested by the Party bringing suit.

        (b)   If BIAL commences infringement proceedings against the Third Party, [**], even if BIAL names SEPRACOR as a co-plaintiff or otherwise brings SEPRACOR into the lawsuit. BIAL will seek the advice of and consult with SEPRACOR regarding the strategy and prosecution of the lawsuit. BIAL will seek SEPRACOR's approval of counsel selected to prosecute the lawsuit. [**].

        (c)   If SEPRACOR commences infringement proceedings against the Third Party, [**], even if SEPRACOR names BIAL as a co-plaintiff or otherwise brings BIAL into the lawsuit. SEPRACOR will seek the advice of and consult with BIAL regarding the strategy and prosecution of the lawsuit. SEPRACOR will seek BIAL's approval of counsel selected to prosecute the lawsuit. [**].

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ARTICLE 12

INFRINGEMENT

        12.1    Infringement of the BIAL Patents:

        (a)   If either Party identifies a Third Party infringement of an issued BIAL Patent (including any BIAL Patent that is jointly owned by the Parties) in the Territory it will promptly notify the other Party of the alleged infringement. BIAL will have [**], from the date that BIAL either receives a notice of alleged infringement from SEPRACOR or provides such a notice to SEPRACOR, to: [**]. If BIAL initiates a suit against the infringer, SEPRACOR will cooperate fully with BIAL, [**], including joining in the action as a party to the extent necessary to permit BIAL to pursue the action. [**].

        (b)   If BIAL does not complete one of the three actions describe in Section 12.1 (a) within [**] after the notice, SEPRACOR may initiate the action against the infringer and BIAL will cooperate fully with SEPRACOR, [**], including joining the action to the extent necessary to permit SEPRACOR to pursue the action. [**].

        (c)   Any damages or other monetary awards recovered in any action brought by one of the Parties against an infringer of a BIAL Patent will be applied to the reimbursement of the Parties for their respective out-of-pocket expenses (including reasonable attorneys' fees and expenses) incurred in prosecuting such infringement action on a pro rata basis based upon their respective out-of-pocket expenses until all such expenses have been recovered, and any remaining balance, if any, will be divided [**] percent ([**]%) to SEPRACOR and [**] percent ([**]%) to BIAL. [**] to the terms of any sublicense granted under Section 12.1 (a) or the settlement of any law suit initiated by one of the Parties.

        12.2    Alleged Infringement of Third Party Patents:

        (a)   If either Party learns that the making, packing, labeling, handling, storage, importation, transportation, use, distribution, promotion, offer for sale, marketing or sale of a Licensed Product within Field and Territory infringes or is alleged to infringe a Third Party patent, it will promptly notify the other Party. The Parties will thereafter attempt to agree upon a course of action which may include, without limitation: [**].

        (b)   In the event the Parties do not agree upon a course of action, [**].

        (c)   Subject to SEPRACOR's indemnity obligations of Section 15.1(d), BIAL agrees to pay to SEPRACOR [**] percent ([**]%) of any license fees, settlement payments, milestone payments, and royalties due by SEPRACOR to a Third Party, to enable SEPRACOR to [**] in the Territory, provided, however (i) that BIAL's obligation under this Section 12.2 (c) is contingent on [**]. Any amounts payable by BIAL under this Section 12.2 (c) will [**]. Should the amount payable by BIAL under this Section 12.2 (c) exceed the [**] in any given calendar year, the amount by which [**] will not be exceeded in any calendar year. For the avoidance of doubt, BIAL's obligation hereunder applies only to [**].

        (d)   Except as expressly provided in Section 12.2 (c), any costs incurred by SEPRACOR in connection with the actions that it may take pursuant to this Section 12.2, or any license fees, milestones, royalties or other payments due to a Third Party as consideration for a license of intellectual property rights used to develop, import, distribute, sell or offer for sale any Licensed Products in the Territory will be [**].

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ARTICLE 13

REPRESENTATIONS AND ACKNOWLEDGEMENTS

        13.1    Representations and Warranties by BIAL:

        (a)   As of the Effective Date, BIAL represents and warrants that: (i) BIAL has and will continue to have the legal power and authority to grant the licenses set forth in Sections 2.1-2.4 of this Agreement and that it has not made and will not make any commitments to any Third Party inconsistent with or in derogation of such rights; (ii) the patents and patent applications set forth on Exhibit A are all the patents and patent applications in the Territory as of the Effective Date that relate to the Licensed Products; and (iii) BIAL exclusively Controls all right, title and interest to the BIAL Patents listed in Exhibit A and that any issued patent listed in Exhibit A is in full force and effect and in good standing in the Territory and have been maintained and/or prosecuted in good faith.

        (b)   As of the Effective Date, BIAL represents that, to the Knowledge of BIAL, it knows of no material deficiencies with respect to the BIAL Know-How which could materially impact the rights granted to SEPRACOR hereunder.

        (c)   As of the Effective Date, BIAL represents and warrants that, to the Knowledge of BIAL, it has complied in all material respects with all applicable laws, permits, governmental licenses, registrations, approvals, concessions, authorizations, orders, injunctions and decrees with respect to the development and/or manufacture of the Licensed Products.

        (d)   As of the Effective Date, BIAL represents and warrants that it has not received any communications from a regulatory authority which would reasonably be expected to adversely impact the development, manufacture, use, import, offer for sale, sale, or marketing of any Licensed Product.

        (e)   As of the Effective Date, BIAL represents that, to the Knowledge of BIAL, the [**], does not infringe nor will infringe any Third Party's valid patents issued prior to the Effective Date or constitutes a misappropriation of a Third Party's trade secrets or other intellectual property rights in BIAL's possession as of the Effective Date.

        (f)    As of the Effective Date, BIAL represents and warrants that, to the Knowledge of BIAL, there is no Third Party infringing any of the BIAL Patents or misappropriating BIAL Know-How in derogation of the rights granted to SEPRACOR in this Agreement with respect to the Licensed Products.

        (g)   BIAL represents and warrants that, to the Knowledge of BIAL, it is the exclusive owner of all right, title and interest in the BIAL Trademarks and that the aforementioned trademarks are subject to pending applications for registration in the Territory.

        (h)   Except for [**] BIAL represents, to the Knowledge of BIAL, that there are no [**] in the Territory as of the Effective Date involving the Licensed Products, BIAL Patents, BIAL Know-How or the BIAL Trademarks by or against BIAL, or any of its Affiliates.

        (i)    As of the Effective Date, BIAL represents and warrants that to the Knowledge of BIAL, there is no actual, pending, alleged or threatened product liability action with respect to any Licensed Product or BIA 2-093 anywhere in the world and BIAL is not aware of any facts or circumstances that would cause BIAL to believe that there is a basis for such a product liability claim.

        (j)    As of the Effective Date, BIAL represents that, to the Knowledge of BIAL, it has not failed to furnish SEPRACOR with any information requested by SEPRACOR, or intentionally concealed from SEPRACOR any information requested by SEPRACOR and in its possession

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which BIAL reasonably believes would be material to SEPRACOR's decision to enter into this Agreement and undertake the commitments and obligations set forth herein.

        (k)   As of the Effective Date, BIAL represents and warrants that (i) there are no Competing Products Controlled by or on behalf of BIAL or its Affiliates, and (ii) no products are under development or currently being considered for development by or on behalf of BIAL or its Affiliates that are aimed to result in a pharmaceutical product for the treatment of epilepsy.

        13.2    Representation and Warranties by SEPRACOR:

        (a)   SEPRACOR represents and warrants that it will use its Commercially Reasonable Efforts to ensure that all promotional labeling and post-marketing Licensed Products communications, complaint handling and reports of Adverse Events known to SEPRACOR will be in full compliance with all material laws and regulations of countries within the Territory.

        (b)   As of the Effective Date, SEPRACOR represents and warrants that it has the financial resources and capability to meet its obligations under this Agreement.

        (c)   As of the Effective Date, SEPRACOR represents and warrants that (i) there are no Competing Products Controlled by or on behalf of SEPRACOR or its Affiliates, and (ii) no products are under development or currently being considered for development by or on behalf of SEPRACOR or its Affiliates that are aimed to result in a pharmaceutical product for the treatment of epilepsy.

        13.3    Mutual Representations:    Each Party hereby represents to the other Party as of the Effective Date, that:

        (a)   Such Party will at all times in connection with its obligation hereunder and pursuant to the Supply Agreement, Safety and Pharmacovigilance Agreement and Quality Agreement be in compliance with all material laws and regulations applicable to such Party.

        (b)   Such Party is a corporation duly organized, validly existing and in good standing under the laws of its place of incorporation.

        (c)   The execution and delivery of this Agreement by such Party has been duly authorized by all necessary corporate actions on the part of such Party. Such Party has full power, authority and legal right to execute and deliver this Agreement and to perform its obligations hereunder. This Agreement has been duly executed and delivered by such Party, is a legal and valid obligation binding upon such Party and enforceable against such Party in accordance with its terms, except as such enforceability may be limited by applicable insolvency and other laws affecting creditors rights generally or by the availability of equitable remedies.

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        (d)   The execution, delivery and performance of this Agreement does not and will not violate (i) the organizational documents or by-laws of such Party, or (ii) any provision of any agreement or other instrument or document to which such Party is a party or by which any of its assets or properties is bound or affected.

        13.4    Prior Knowledge:    No liability for any breach of any warranty or representation given by a Party under this Article 13 will arise to the extent the other Party has knowledge at the Effective Date that such representation or warranty is untrue or inaccurate.

        13.5    Negation of Implications:    Except as expressly stated herein, nothing in this Agreement will be construed as:

        (a)   An obligation on the part of either Party to bring or prosecute actions or suits against Third Parties for infringement of any of the BIAL Patents or other intellectual property rights of the Parties;

        (b)   Conferring on either Party a right to use in advertising, publicity, or otherwise any trademark, service mark, or trade name of the other Party;

        (c)   Granting by implication, estoppel, or otherwise, any licenses or rights under patents or other intellectual property of a Party other than those rights expressly granted herein; or

        13.6    Non Reliance; Disclaimer:

        (a)   The representations of each Party set forth in this Agreement are intended for the sole and exclusive benefit of the other Party hereto, and may not be relied upon by any Third Party.

        (b)   EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED IN THIS AGREEMENT, NEITHER PARTY MAKES ANY REPRESENTATIONS OR WARRANTIES, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, CONCERNING THE LICENSED PRODUCTS OR ANY PATENTS, KNOW-HOW, TRADEMARKS OR OTHER INTELLECTUAL PROPERTY DISCLOSED, DEVELOPED, OR LICENSED UNDER THIS AGREEMENT. EXCEPT TO THE EXTENT EXPRESSLY SET FORTH HEREIN, EACH PARTY EXPRESSLY DISCLAIMS REPRESENTATIONS OR WARRANTIES, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, CONCERNING THE LICENSED PRODUCTS OR ANY PATENTS, KNOW-HOW, TRADEMARKS OR OTHER INTELLECTUAL PROPERTY DISCLOSED, DEVELOPED, OR LICENSED UNDER THIS AGREEMENT, INCLUDING WITHOUT LIMITATION ANY WARRANTY OR REPRESENTATION OF NON-INFRINGEMENT, MERCHANTABILITY, AND FITNESS FOR A PARTICULAR PURPOSE.

ARTICLE 14

TERM AND TERMINATION

        14.1    Term:

        (a)   This Agreement commences as of the Effective Date and will remain in force in each country within the Territory, unless otherwise terminated in accordance with any of the provisions of this Article 14, until the later of: (i) ten (10) years after the first commercial sale following Approval of any Licensed Products in such country; (ii) expiry of the last to expire of the BIAL Patents in the respective country; or (iii) expiry of the last to expire of the Exclusivity Rights in the relevant country (the "Term").

        (b)   The Parties have the right to extend the Term of this Agreement on the following terms and conditions:

        (i)    either Party notifies the other in writing at least six (6) months prior to the anticipated expiration of the Term of this Agreement that it desires to extend the Term, and

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will include a term sheet with its proposal for the terms of such extension, including the length of the extended term, which may include conditions of supply of Licensed Products.

        (ii)   upon receipt of such notice, the Parties will enter into good faith negotiations regarding the terms of such extension. If the Parties reach an agreement on such terms at any time prior to the expiration of the original Term, the Parties will execute an amendment to this Agreement reflecting such terms.

        14.2    Termination:    Prior to expiration of the Term as set forth in Section 14.1, this Agreement may be terminated, without prejudice to any other remedies available to it at law or in equity, upon the occurrence of any of the following events ("Termination Events");

        (a)   by either Party, upon [**] written notice to the other Party, if the other Party materially breaches or defaults in the performance of any of its obligations hereunder (with the exception of payment obligations) and fails to cure such breach within [**] following receipt of such notice or, if such default cannot be cured within such [**] period, if the other Party does not commence and diligently continue actions to cure such default during such [**] period;

        (i)    Upon any notice under this Section 14.2(a), the Parties will in good-faith meet and discuss if a plan to remedy the alleged breach or default within a period exceeding the [**] period, or to commence actions towards the remedy within such an extended period, can be mutually agreed.

        (b)   by BIAL, upon [**] written notice to SEPRACOR, if SEPRACOR materially breaches or defaults in the performance of any payment obligation hereunder and fails to cure such breach within the said [**] following receipt of such notice;

        (c)   by either Party if the other Party commits an act of bankruptcy, is declared bankrupt, voluntarily files or has filed against it a petition for bankruptcy or reorganization, enters into a procedure of winding up to dissolution, or should a trustee or receiver be appointed for its business assets or operations;

        (d)   In the event that SEPRACOR has undergone a Change of Control involving any of the following circumstances (i) to (iii), BIAL will have the right to terminate this Agreement, at BIAL's sole discretion, upon thirty (30) days written advance notice to SEPRACOR within twelve months of becoming aware of such Change of Control if: (i) the Third Party involved in the Change of Control, whether by absorption of, absorption by, acquisition of, acquisition by, consolidation or merger with, SEPRACOR or otherwise (the "Change of Control Entity") is selling, offering for sale, importing, promoting or commercializing a Competing Product in and/or outside the Territory and such Change of Control Entity does not (A) provide notice to BIAL within thirty (30) days of the Change of Control of its intention to divest itself of such Competing Product; (B) having provided such notice to BIAL does not use Commercially Reasonable Efforts to divest itself of such Competing Product within six (6) months of such Change of Control; or (C) having provided such notice to BIAL does not actually divest itself of such Competing Product within one (1) year of such acquisition; or (ii) the Change of Control Entity has infringed or is infringing any BIAL Patent, BIAL Trademarks or other intellectual property right of BIAL or its Affiliates, relating to the Licensed Products, in and/or outside the Territory; or (iii) the Change of Control Entity does not have the financial capability to meet SEPRACOR's obligations under this Agreement.

        (e)   by either Party, with immediate effect, if the Approvals for a Licensed Product covered by this Agreement is permanently revoked or cancelled by the FDA or Health Canada due to patient safety reasons;

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        (f)    If, following good-faith discussions with BIAL, including without limitation those set forth in Section 8.3(b), SEPRACOR determines, in its reasonable judgment, that the Licensed Products have become subject to a pattern of Serious Adverse Reactions (as defined in the ICH Guidelines) and, in good faith, reasonably believes that it would significantly impact the long-term viability of the Licensed Products, SEPRACOR will have the right to terminate this Agreement upon ten (10) days' prior written notice to BIAL setting forth the reasons therefore in reasonable detail;

        (g)   by BIAL, with immediate effect, in the event of termination of the Supply Agreement (i) by SEPRACOR, other than as a result of a material breach by BIAL, or (ii) by BIAL as a result of a material breach by SEPRACOR;

        (h)   SEPRACOR will have the right to terminate this Agreement at will on written notice to BIAL at any time after the Effective Date: (i) prior to the receipt of the first Approval for a BIA 2-093 Product in the Territory, provided that BIAL is given at least six (6) months' prior written notice, or (ii) anytime thereafter, provided that BIAL is given at least twelve (12) months' prior written notice.

        (i)    by either Party, in accordance with Section 16.3.

        (j)    by SEPRACOR, within ninety (90) days of its receipt of written notice from BIAL pursuant to 7.4(c) that the licenses granted to SEPRACOR pursuant to Section 2.1 and 2.3 will become non-exclusive.

        (k)   by either Party, immediately upon a generic version of the Licensed Products exceeding ten percent (10%) of the total Net Sales of Licensed Products in the Territory, if (i) pursuant to the mechanism set forth in the Supply Agreement as contemplated in Section 4.4, the Parties are unable to negotiate in good faith a new transfer price reflecting the impact of the applicable transfer price as a result of such generic entry, and (ii) following such generic entry, SEPRACOR is unwilling to pay the floor price (as set forth in the Supply Agreement) for commercial supply of the BIA 2-093 Product.

        (l)    by BIAL, pursuant to 7.4(c).

        14.3    Waiver of Termination Event; Termination Disputes.    The right of either Party to terminate this Agreement as provided in Section 14.2 will not be affected in any way by such Party's waiver or failure to take action upon the occurrence of a previous Termination Event. Any dispute as to whether a Party is entitled to terminate under Section 14.2 will be resolved as provided in Section 14.2 will be resolved as provided in Section 16.1 hereof.

        14.4    Rights and obligations upon Expiration of Term or Termination (other than termination for breach or termination at will under Section 14.2(h)):    Unless the Agreement is terminated for breach by the other Party, the following rights and obligations will survive the expiration and termination of this Agreement:

        (a)   All licenses granted by BIAL under this Agreement or the Supply Agreement will terminate upon expiration or termination of this Agreement and SEPRACOR will have the right to sell-off over the six (6) months immediately following such termination, any Licensed Products then in its inventory or on order from BIAL, under the BIAL Trademarks, provided SEPRACOR complies with all relevant provisions of this Agreement.

        (b)   SEPRACOR will promptly assign to BIAL, or to its Affiliate or nominee, all right, title and interest in the BIA 2-093 IND, and SEPRACOR will notify the FDA and other applicable regulatory bodies in writing that ownership of the BIA 2-093 IND has been assigned to BIAL or its Affiliate or nominee.

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        (c)   SEPRACOR will promptly assign to BIAL or its Affiliate or nominee, any Approval(s), and any pending or approved NDAs and INDs, relating to BIA 2-093 and/or Licensed Products in the Territory.

        (d)   Any authorizations relating to patent term extensions that, in accordance with Section 11.5 are held in SEPRACOR's name, will be immediately assigned to BIAL, its Affiliate or nominee as soon as reasonably practicable.

        (e)   The licenses granted to BIAL by SEPRACOR under this Agreement will continue in effect as fully paid-up, royalty-free, and perpetual.

        (f)    The following terms and provisions will survive the expiration or termination of the Agreement under Section 14.4: Articles 10, 14, 15 and Sections 2.5, 2.7(c), 6.6(g), 6.8, 7.6(b), 8.1(c)(d); 8.2(a)(b), 8.3(a), 9.1, 9.1(b)(c)(d)(e)(f), 9.2, 11.5, 13.4, 13.5, 13.6, 16.1, 16.6, 16.7, 16.8, 16.10, 16.11 and 16.12.

        (g)   Expiration or termination of this Agreement will not relieve the Parties of any obligations or liability accruing prior to such termination or expiration, including, without limitation, the payment obligations set forth in Article 3.

        14.5    Rights and obligations upon Termination of the Agreement for Breach or at will:

        (a)   If the Agreement is terminated by BIAL for breach by SEPRACOR, or by SEPRACOR at will:

        (i)    All licenses granted by BIAL under this Agreement or the Supply Agreement will terminate and SEPRACOR will have the right to sell-off over the six (6) months immediately following such termination, any Licensed Products then in its inventory or on order from BIAL, under the BIAL Trademarks, provided SEPRACOR complies with all relevant provisions of this Agreement.

        (ii)   SEPRACOR and its Affiliates will not promote, distribute, market, commercialize, offer for sale or sell within the Field and Territory, any Competing Product for the period of [**] after the date of termination;

        (iii)  SEPRACOR will promptly assign to BIAL, or to its Affiliate or nominee, all right, title and interest in the BIA 2-093 IND and SEPRACOR will notify the FDA and other applicable regulatory bodies in writing that ownership of the BIA 2-093 IND has been assigned to BIAL or its Affiliate or nominee.

        (iv)  SEPRACOR will promptly assign to BIAL or its Affiliate or nominee, any Approval(s), and any pending or approved NDAs and INDs (or Canadian equivalents), relating to BIA 2-093 and/or Licensed Products in the Territory.

        (v)   Any authorizations relating to patent term extensions that, in accordance with Section 11.5 are held in SEPRACOR's name, will be immediately assigned to BIAL, its Affiliate or nominee as soon as reasonably practicable;

        (vi)  The licenses and sublicenses granted to BIAL by SEPRACOR under this Agreement will continue in effect as fully paid-up, royalty-free, and perpetual, and will convert to worldwide licenses;

        (vii) SEPRACOR will promptly assign and deliver to BIAL or its Affiliate all right, title and interest in any Development Intellectual Property owned solely by SEPRACOR or jointly by the Parties, in and outside the Territory, [**], including without limitation, documents, material, data, reports, health authority or development correspondence, rights and

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information, Controlled by SEPRACOR, directly relating to or concerning the relevant Licensed Products; and

        (viii)  In the event of termination by SEPRACOR at will, SEPRACOR will, during the period between the notice of termination and the effective date of termination, use Commercially Reasonable Efforts with respect to SEPRACOR's activities under this Agreement, including without limitation development and commercialization activities; provided, however, SEPRACOR will not be obligated to pay any additional milestone and expense payments pursuant to Section 3.1(b). SEPRACOR will also diligently cooperate with BIAL or its nominee in good faith to effect a smooth and orderly transition in the development, sale and marketing, promotion and commercialization of the Licensed Products in the Territory and, at BIAL's written request, SEPRACOR will use its Commercially Reasonable Efforts to (1) complete any ongoing SEPRACOR Development Studies or, to the extent so requested by BIAL, to promptly transfer of such Development Studies or portions thereof to BIAL or its nominee and (2) to comply with SEPRACOR's obligations under Sections 14.5(a)(iii), (iv), (v) and (vii) prior to the effective date of termination and soon as reasonably practicable upon BIAL's written request.

        (b)   If the Agreement is terminated by SEPRACOR for breach by BIAL:

        (i)    BIAL and its Affiliates will not promote, distribute, market, commercialize or sell within the Field and Territory, any Licensed Products for the period of [**] after the date of termination;

        (ii)   The licenses granted to SEPRACOR by BIAL pursuant to Section 2 will be fully paid-up, royalty-free, and perpetual and all right, title and interest to all Approval(s), any NDAs and INDs (or Canadian equivalents), relating to BIA 2-093 and/or Licensed Products in the Territory will vest with SEPRACOR; provided, however, that SEPRACOR will pay BIAL a trade mark royalty of [**] percent ([**]%) of Net Sales of Licensed Products for as long as they are sold in the Territory. Notwithstanding anything to the contrary contained herein, the rights granted to SEPRACOR pursuant to this Section 14.5(b)(i) and (ii) [**].

        (c)   Termination of this Agreement will not relieve the Parties of any obligation or liability accruing prior to such termination or expiration, including, without limitation, the payment obligations set forth in Article 3.

        (d)   The following terms and provisions will survive the termination of the Agreement under Section 14.5: Articles 10, 14, 15 and Sections 2.5, 2.7(c), 6.6(g), 6.8, 7.6(b), 8.1(c)(d); 8.2(a)(b), 8.3(a), 9.1(b)(c)(d)(e)(f), 9.2, 11.5, 13.4, 13.5, 13.6, 16.1, 16.6, 16.7, 16.8, 16.10, 16.11 and 16.12 and, if terminated by SEPRACOR pursuant to 14.5(b), Article 11 and Sections 12.1 and 12.2 (a)(b)(d).

ARTICLE 15

INDEMNIFICATION

        15.1    Indemnity by SEPRACOR:    Except as otherwise provided in Sections 15.2 and 15.3, SEPRACOR will indemnify, defend, and hold harmless, BIAL, its Affiliates, directors, officers, shareholders, employees, representatives, agents, successors and assigns from and against any and all liabilities, claims, suits, demands, assessments, fines, damages, losses, costs and expenses (including, without limitation, the reasonable costs and expenses of attorneys and other professionals) (collectively, "Liabilities") arising in connection with Third Party claims or suits or demands based on (a) alleged or actual bodily injury or property damage resulting from the manufacturing, packing, labeling, handling, storage, transportation, use, distribution, promotion, marketing, offer for sale or sale of the Licensed

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Products by or on behalf of SEPRACOR, its Affiliates, sublicensee or contractors including any Product liability Claim (in accordance with Section 15.7); (b) liabilities arising from clinical trials conducted by or on behalf of SEPRACOR in connection with any Licensed Products and/or the filing and processing of the NDA (including, without limitation, the studies mentioned in Section 6.4 (c)); (c) the gross negligence or willful misconduct of SEPRACOR or its Affiliates, sublicensee, contractors, or any of its agents, directors, officers or employees; and (d) subject only to BIAL's obligations under Section 12.2(c), any claim of infringement or misappropriation of any patent, trade secret, copyright, or trademark or other proprietary right arising out of the packing, labeling, handling, storage, importation, transportation, use, distribution, promotion, marketing, offer for sale or sale of the Licensed Products.

        15.2    Indemnity by BIAL:    Except as otherwise provided in Section 15.1 and 15.3, BIAL will indemnify, defend, and hold harmless, SEPRACOR, its Affiliates, directors, officers shareholders, employees, representatives, agents, successors and assigns, harmless from and against any and all Liabilities arising in connection with Third Party claims or suits or demands based on (a) alleged or actual bodily injury or property damage resulting from the manufacturing, packing, labeling, handling, storage, transportation, use, distribution of Licensed products by or on behalf of BIAL, its licensees (other than SEPRACOR) or Affiliates, including any Product liability Claim (in accordance with Section 15.7); (b) liabilities arising from clinical trials conducted by or on behalf of BIAL in connection with any Licensed Products; and (c) the gross negligence or willful misconduct of BIAL or its Affiliates, sublicensees, or any of its agents, directors, officers or employees. Subject to the conditions set forth in Section 12.2 (c), BIAL agrees to reimburse SEPRACOR for a portion of any license fees, settlement payments, milestone payments and royalties due by SEPRACOR for a license, under a Third Party patent, [**] within the Territory.

        15.3    Mutual Indemnity:    In addition to Sections 15.1 and 15.2, each Party ("Indemnifying Party") will indemnify, defend, and hold harmless, the other Party and its Affiliates, directors, officers, shareholders, employees, representatives, agents, successors and assigns (the "Indemnitees") from and against any and all Liabilities arising in connection with Third Party claims or suits or demands to the extent arising out of or resulting from a false representation or the breach by the Indemnifying Party of any warranty, covenant or obligation contained in this Agreement.

        15.4    Conditions of Indemnification:    If a Party hereunder seeks indemnification under this Article 15, such Party must: (a) promptly inform the Indemnifying Party of any claim, suit or demand threatened or filed, (b) permit the Indemnifying Party to assume direction and control of the defense of claims resulting therefrom (including the right to settle such claims at the sole discretion of the Indemnifying Party, but subject to the approval of the other Party, not to be unreasonably withheld, if such settlement provides for injunctive or other non-monetary relief affecting the Indemnitees or any admission of liability), and (c) cooperate as requested (at the expense of the Indemnifying Party) in the defense of such claims. Notwithstanding anything to the contrary contained herein, a Party's failure to promptly notify the Indemnifying Party of a claim for which it is seeking indemnification, will only relieve the Indemnifying Party of its obligations under this Section 15 if and to the extent the Indemnifying Party is actually prejudiced thereby.

        15.5    Limits of Indemnity:    An Indemnifying Party's (including sublicensee's) obligations under this Article 15 will not extend to any Liabilities to the extent (a) arising from the Indemnified Party's failure to comply with the terms and conditions of this Agreement, (b) arising from the negligence or willful misconduct of the Indemnitee, its agents or employees or (c) such claim falls within the scope of the indemnification obligations of the Indemnitee. No Party will be liable under any provision of this Agreement for any punitive, exemplary, multiplied or consequential damages.

        15.6    Recalls.

        (a)    Voluntary and Mandatory Recalls: Decision-Making.    To the extent that: (i) any regulatory authority in the Territory issues a directive or order or requests that a Licensed Product be

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recalled or withdrawn, (ii) a court of competent jurisdiction orders a recall or withdrawal of a Licensed Product in the Territory, or (iii) SEPRACOR determines that an event, incident or circumstance has occurred that warrants a Licensed Product should be recalled or withdrawn voluntarily in the Territory, the Parties will recall or withdraw the Licensed Product as set forth in this Section 15.6. As between the Parties, SEPRACOR will control and coordinate all activities that SEPRACOR deems reasonably necessary in connection with such recall or withdrawal of the Licensed Product in the Territory, including making all contact with relevant regulatory authorities; provided, however, that SEPRACOR will not take any action with respect to any such recall without first notifying BIAL in writing, and to the extent practical, consulting in good faith with BIAL. SEPRACOR will consider in good faith any comments of BIAL in connection with any aspect of the management of any such recall. For clarity, all matters relating to a withdrawal or recall of a Licensed Product outside of the Territory will be determined, controlled and coordinated solely by BIAL.

        (b)    Costs of Recall.    All actual direct and documented out-of-pocket expenses for the execution of any recall or withdrawal of a Licensed Product supplied to SEPRACOR by BIAL ("Recall Costs") pursuant to Section 15.6(a) above, will initially be shared equally between the Parties, provided that (i) in each case, responsibility for the Recall Costs will be subject to the final allocation between the Parties as set out in paragraphs (i) and (ii) below, and (ii) BIAL will reimburse SEPRACOR for all amounts paid by SEPRACOR for the recalled products in excess of BIAL's Fully Burdened Manufacturing Costs. For clarity, Recall Costs do not include any lost or refunded sales. In the event that it is finally determined, or agreed between the Parties, that such recall or withdrawal:

        (i)    is caused by breach of BIAL's representations or warranties as set forth in this Agreement or the Supply Agreement, including failure to supply Licensed Product conforming to the specifications set forth in the Supply Agreement or Quality Agreement, or the gross negligence or willful misconduct of BIAL or BIAL's failure to comply with applicable laws and regulations including cGMP (to be defined in the Quality Agreement) (collectively, the "Fault of BIAL"), BIAL will be responsible for all Recall Costs; and

        (ii)   is caused by breach of SEPRACOR's representations or warranties as set forth in this Agreement or the Supply Agreement, including failure of SEPRACOR, or its Affiliates, its sublicensee or contractors, to handle, store, transport, market, promote, distribute, sell or use the Licensed Product in accordance with applicable laws and regulations or the terms of the applicable Approval, the Supply Agreement, the Quality Agreement or the gross negligence or willful misconduct of SEPRACOR, its Affiliates, sublicensee or contractors (collectively, "Fault of SEPRACOR"), SEPRACOR will be responsible for all Recall Costs.

        15.7    Product Liability Claims.

        (a)    Notification to the Other.    Each Party will notify the other Party as promptly as practicable if any Third Party claim is commenced or threatened against such Party alleging product liability, product defect, design, packaging or labeling defect, failure to warn or any similar action relating to the use or safety of any Licensed Product sold by or under authority of SEPRACOR, its Affiliates or sublicensee in the Territory (a "Product Liability Claim"). BIAL will notify SEPRACOR as promptly as practicable of any Product Liability Claim with respect to any Licensed Product sold by or under authority of BIAL outside of the Territory.

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        (b)    Cooperation, Counsel and Control.    Each Party will cooperate with the other Party in connection with any such Product Liability Claim that is commenced or threatened against the other Party. If a Product Liability Claim is asserted against both Parties, each Party will have the right to designate counsel to defend itself in the Product Liability Claim. If a Product Liability Claim is brought against one Party but not the other Party, the named Party will control the defense and/or settlement thereof at its own expense with counsel of its choice, subject to this Section 15.7. In such case, the other Party may participate in the defense and/or settlement thereof at its own expense with counsel of its choice. In any event, the Party that is subject to a Product Liability Claim (if not asserted against both Parties) agrees to keep the other Party hereto informed of all material developments in connection with any such Product Liability Claim.

        (c)    Settlement, Admissions and Asserting Positions.    Neither Party will settle any Product Liability Claim, or make any admissions or assert any position in such Product Liability Claim, in a manner that would adversely affect the other Party, the Licensed Product or the development, manufacture, use or sale thereof without the prior written consent of the other Party, which will not be unreasonably withheld or delayed.

        (d)    Bearing the Liabilities.    To the extent a Product Liability Claim is caused by: (i) the Fault of BIAL, BIAL will bear all Liabilities from such Product Liability Claim to the extent of its fault, (ii) the Fault of SEPRACOR, SEPRACOR will bear all Liabilities from such a Product Liability Claim to the extent of its fault, or (iii) circumstances other than those described in Sub-section (i) or (ii), above, [**].

ARTICLE 16

MISCELLANEOUS

        16.1    Dispute Resolution:

        (a)   Any dispute, controversy or claim arising out of or relating to the alleged breach, termination, or invalidity of this Agreement will be submitted in the first instance to the Chief Executive Officer ("CEO") of BIAL, or such person's designee of equivalent or superior position, and the CEO of SEPRACOR, or such person's designee of equivalent or superior position.

        (b)   If the CEO's cannot resolve the dispute within [**] of receipt by the CEO's, the Parties agree that either Party may submit the dispute for arbitration in accordance with the Rules of the International Chamber of Commerce ("ICC") in effect on the date of filing of the arbitration (the "Rules"), except as modified herein.

        (c)   If the amount in controversy, including claims and counterclaims, is less than [**] dollars (US$[**]) or if only injunctive relief is requested, there will be one arbitrator, who will be selected jointly by SEPRACOR and BIAL within [**] of receipt by respondent of a copy of the demand for arbitration. Such arbitrator will have [**] from the date of appointment to render a decision. If the amount in controversy may be [**] dollars (US$[**]) or more, or if the dispute involves the termination of this Agreement, there will be three neutral and impartial arbitrators, one appointed by SEPRACOR and one appointed by BIAL within [**] of receipt by respondent of a copy of the demand for arbitration, and the third arbitrator, who will serve as chair of the arbitral tribunal, will be appointed by agreement of the Party-appointed arbitrators within [**] of the appointment of the second arbitrator.

        (d)   Any arbitrator appointed in accordance with Section 16.1(c) will have significant experience with the arbitration of similar large, complex, commercial disputes between pharmaceutical companies. All arbitration proceedings will be conducted in the English language. The arbitration proceeding will be held and the award issued in London, England although the Parties may agree in writing to conduct the arbitration proceedings in a different location. The

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Parties agree that only documents directly relevant to the issues in dispute must be produced in any such arbitration. The arbitration will be conducted as expeditiously as practicable, and the Parties and the arbitrators will use their best efforts to hold the hearing on the merits no later than [**] after the appointment of the arbitration tribunal and the arbitrators will use their best efforts to issue a final award within [**] after the close of the hearing.

        (e)   In addition to damages, the arbitration tribunal may award any remedy provided for under applicable law and the terms of this Agreement, including, without limitation, specific performance or other forms of injunctive relief. The arbitration tribunal is not empowered to award damages in excess of compensatory damages, and each Party hereby irrevocably waives any right to recover punitive, exemplary, multiplied (including without limitation treble), consequential or similar damages with respect to any dispute. The arbitration award must be in writing and will state, in English and in reasonable detail, the findings of fact and conclusions of law on which it is based. The arbitration award will be final and binding on the parties and will not be appealable except as otherwise provided for by applicable treaty or law and may be entered and enforced in any court having competent jurisdiction.

        (f)    Each Party will pay its own expenses of arbitration and the expenses of the arbitration tribunal and the ICC will be equally shared, except that if, in the opinion of the arbitration tribunal, any claim by a Party hereto or any defense or objection thereto by the other Party was unreasonable, the arbitration tribunal may in their discretion assess as part of the award all or any part of the arbitration expenses of the other Party (including reasonable attorneys' fees) and the fees and expenses of the arbitration tribunal and the ICC against the Party raising such unreasonable claim, defense or objection.

        16.2   Either Party may, without inconsistency with this agreement to arbitrate, apply to a court to seek pre-arbitral provisional injunctive relief to maintain the status quo or prevent irreparable harm, pre-arbitral attachment, or any other relief or order in aid of arbitration proceedings and the enforcement of any award. Without prejudice to such provisional remedies as may be available under the jurisdiction of a court, the arbitration tribunal will have full authority to grant provisional remedies and to direct the Parties to request that any court modify or vacate any temporary or preliminary relief issued by such court, and to award damages for the failure of any Party to respect the arbitrator(s)' orders to that effect.

        16.3    Force Majeure:    If any circumstance beyond the reasonable control of either Party occurs which delays or renders impossible the performance of that Party's obligations under this Agreement on the dates herein provided (a "Force Majeure"), such obligation will be postponed for such time as the event of Force Majeure exists, provided such Party notifies the other Party in writing as soon as practicable, but in no event more than ten (10) Business Days after the inception of such event of Force Majeure. The Party so affected will give to the other Party a good faith estimate of the continuing effect of the Force Majeure condition and the anticipated duration of the affected Party's non-performance. Notwithstanding the foregoing, if the period of any previous actual non-performance of a Party because of Force Majeure conditions plus the anticipated future period of non-performance because of such conditions will exceed an aggregate of one hundred eighty (180) days, then the Party unaffected by such event may terminate this Agreement by not less than sixty (60) days written notice of termination to the other Party; provided that, if the Force Majeure event ceases within such sixty (60) day period, this Agreement will remain in full force and effect. Events of Force Majeure will include, without limitation, war, revolution, invasion, insurrection, riots, mob violence, sabotage or other civil disorders, acts of God, limitations imposed by exchange control regulations or foreign investment regulations or similar regulations, laws, regulations or rules of any government or governmental agency, any inordinate delays in the regulatory review or governmental approval process that are within the sole control of such government or governmental agency. A Party will be considered

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affected by an event of Force Majeure to the extent that any of its suppliers or contractors is affected by such an event.

        16.4    Assignment:    Except as set forth in Section 14.2(d), neither Party may assign, transfer or otherwise dispose of this Agreement or any rights or obligation with respect thereto, to any other party without the prior written consent of the other Party, provided however that BIAL may assign or transfer this Agreement, or any part or right or obligation thereof, to any Affiliate, or in connection with the transfer or sale of all or substantially all of its assets related to the Licensed Products or the business to which this Agreement relates, without SEPRACOR's consent. Any attempted or purported assignment or transfer of rights or obligations other than provided herein will be void.

        16.5    Performance by Affiliates:    Either Party may exercise any of its respective rights and perform any of its respective obligations hereunder through any of its Affiliates.

        16.6    No Third Party Beneficiaries:    This Agreement does not confer any rights or remedies upon any person or entity other than SEPRACOR and BIAL and their respective successors and permitted assigns and sublicensees.

        16.7    Waiver:    The waiver by a Party, whether express or implied, of any provisions of this Agreement, or of any breach or default of a Party, will not be construed to be a continuing waiver of such provision, or of any succeeding breach or default, or a waiver of any other provisions of this Agreement.

        16.8    Governing Law:    All matters affecting the interpretation, validity, and performance of this Agreement will be governed by the laws of New York, U.S.A. without regard to its choice or conflict of law principles.

        16.9    Unenforceable Provisions:    Any provision hereof that is prohibited or unenforceable in any jurisdiction will, as to such jurisdiction, be ineffective only to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. The Parties will replace such ineffective provision for such jurisdiction with a valid and enforceable provision which most closely approaches the idea, intent, and purpose of this Agreement, and in particular, the provision to be replaced.

        16.10    Relationship Between the Parties:    BIAL and SEPRACOR are independent contractors and will not be deemed to be partners, joint venturers or each other's agents, and neither will have the right to act on behalf of the other except as may be expressly agreed to in writing.

        16.11    Entire Agreement:    It is the mutual desire and intent of the Parties to provide certainty as to their future rights and remedies against each other by defining the extent of their mutual undertakings as provided herein. The Parties have in this Agreement incorporated all representations, warranties, covenants, commitments and understandings on which they have relied in entering into this Agreement and, except as provided for herein, neither Party has made any covenant or other commitment to the other concerning its future action. Accordingly, this Agreement, the Supply Agreement, the PVEA and Quality Agreement and the exhibits attached hereto and thereto (i) constitute the entire agreement and understanding between the Parties with respect to the matters contained herein, and there are no promises, representations, conditions, provisions or terms related thereto other than those set forth in this Agreement, and (ii) supersedes all previous understandings, agreements and representations between the Parties, written or oral relating to the subject matter hereof. The Parties hereto may from time to time during the continuance of this Agreement modify, vary or alter any of the provisions of this Agreement, but only by written agreement of all Parties hereto.

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        16.12    Notices:    All communications, reports, payments, and notices required by this Agreement will be addressed to the Parties at their respective addresses set forth below or to such other address as requested by a Party by notice in writing to the other Party.

If to BIAL:	BIAL Attention: Dr. Luis Portela, President and Chief Executive Officer BIAL Avenida da Siderurgia Nacional 4745-457 S. Mamede do Coronado Portugal Fax: +351 229 866 199
	With a copy to: Ricardo Chorão Director, Legal Department BIAL Avenida da Siderurgia Nacional 4745-457 S. Mamede do Coronado Portugal Fax: +351 229 866 190
If to SEPRACOR:	SEPRACOR INC. Attention: Adrian Adams, President and Chief Executive Officer SEPRACOR INC. 84 Waterford Drive Marlborough, MA 01752 USA Fax: 508-357-7492
	With a copy to: Andrew I. Koven, Executive Vice President, General Counsel & Corporate Secretary SEPRACOR INC. 84 Waterford Drive Marlborough, MA 01752 USA Fax: 508-357-7511

        All such notices, reports, payments, and communications will be made by First Class mail, postage prepaid, or by reputable overnight courier providing evidence of receipt, or by facsimile (and promptly confirm by mail or overnight courier), and will be considered made as of the date of confirmed receipt.

        16.13    Headings:    All headings in this Agreement are for convenience only and will not affect the meaning of any provision hereof.

        16.14    Counterparts:    This Agreement may be executed simultaneously in any number of counterparts, but all such counterparts taken together will constitute one and the same agreement. This Agreement, to the extent signed (and initialed in all pages) and delivered by means of a facsimile machine, will be treated in all manner and respects and for all purposes as an original agreement or instrument and will be considered to have the same binding legal effect as if it were the original signed version thereof delivered in person.

[Signature Page Follows]

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        IN WITNESS WHEREOF, and intending to be legally bound, the parties hereto have caused this Agreement to be executed by their duly authorized representatives as of the Effective Date.

BIAL—PORTELA & Ca, S.A		SEPRACOR INC.
By:	/s/ Isabel Morgado	By:	/s/ Adrian Adams
Its:	Member of the Board	Its:	President and CEO
Date:	December 31, 2007	Date:	December 31, 2007
By:	/s/ José Redondo
Its:	Member of the Board
Date:	December 31, 2007

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EXHIBIT A

BIAL PATENTS

[**]

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EXHIBIT B

BIAL TRADEMARKS

[**]

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EXHIBIT C

BIAL LOGO

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EXHIBIT D

BIAL STUDIES

BIAL ONGOING OR PLANNED STUDIES

Non-Clinical:

[**]

Clinical:

[**]

Others

[**]

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EXHIBIT E

MINIMUM SALES

        The agreed minimum annual sales in Net Sales (the "Minimum Sales") for years [**] of commercialization of Licensed Products in Territory following launch in the U.S. are:

[**]

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EXHIBIT F

PRESS RELEASE

Sepracor Inc. and Bial Announce Exclusive Licensing Agreement for Development and Commercialization of Anti-Epileptic Compound in United States and Canada

BIA 2-093, Eslicarbazepine Acetate, has Completed Large-Scale Phase III Clinical Studies

Submission of U.S. New Drug Application (NDA) Anticipated Late 2008 or Early 2009

U.S. Anti-Epileptic Market Estimated at Approximately $4 Billion in 2006

MARLBOROUGH, Mass. & S. MAMEDE DO CORONADO, Portugal—(BUSINESS WIRE)—Jan. 2, 2008—Sepracor Inc. (Nasdaq: SEPR) and Bial today announced an exclusive licensing agreement for the development and commercialization of Bial's anti-epileptic compound BIA 2-093 in the United States and Canada. Under the terms of the agreement, Sepracor will be responsible for filing the U.S. NDA and seeking marketing approval from the U.S. Food and Drug Administration (FDA), and contingent on obtaining regulatory approval, commercialization of the product in the U.S. Sepracor anticipates that the NDA will be submitted to the FDA in late 2008 or early 2009 with a potential product launch in late 2009 or early 2010, subject to FDA approval. In exchange, Bial is entitled to receive an upfront payment of $75 million and subsequent payments upon accomplishment of various development and regulatory milestones, which could include up to an additional $100 million if all milestones are met. Bial will also receive compensation for providing finished product and milestone payments upon FDA approval of additional indications, if any.

"We are very pleased with the addition of this late-stage asset to our growing product pipeline," said Adrian Adams, President and Chief Executive Officer of Sepracor. "Strategically, BIA 2-093 further strengthens our existing central nervous system portfolio, which includes LUNESTA(R) brand eszopiclone for the treatment of insomnia, as well as earlier-stage candidates for various central nervous system disorders. This milestone in-licensing event is reflective of our overall global corporate strategy to fully leverage our product franchises and commercial infrastructure while driving enhanced research and development productivity and successfully pursuing aligned and value-enhancing corporate development and licensing initiatives."

"In Sepracor we have found a partner who truly shares our vision and commitment to this compound and a company with a proven commercial track record in the U.S. market. This is a landmark event for BIAL and represents the first result of our R & D work within the CNS area. I am very proud of the people within BIAL who have helped to make this happen through their hard work and dedication" said Luis Portela, President and Chief Executive Officer of Bial.

BIA 2-093 (eslicarbazepine acetate) is a new chemical entity which has been designed to offer patients suffering with partial epilepsy additional control of their seizures and improved quality of life. Bial is currently completing clinical evaluation of BIA 2-093 for the adjunctive use in partial seizures in adults with epilepsy.

Eslicarbazepine acetate has been shown in clinical studies to be safe and effective in the control of seizures as adjunctive therapy in adults. Bial has tested the compound in three Phase III trials in 22 countries with over one thousand patients randomized to an 18-week acute double-blind therapy and subsequently followed in a one year, open label extension study. The potential for once-daily administration could be an important clinical advantage for patients with epilepsy in the U.S. and Canada. In addition, there may be benefits to patients such as reduced drug-drug interactions, which may distinguish this drug from commonly used compounds such as carbamazepine.

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According to the National Institute of Neurological Disorders and Stroke, epilepsy is a brain disorder in which clusters of nerve cells, or neurons, in the brain sometimes signal abnormally. In epilepsy, the normal pattern of neuronal activity becomes disturbed, causing strange sensations, emotions, and behavior or sometimes convulsions, muscle spasms, and loss of consciousness. Epilepsy is a disorder with many possible causes. Anything that disturbs the normal pattern of neuron activity—from illness to brain damage to abnormal brain development—can lead to seizures. Epilepsy may develop because of an abnormality in brain wiring, an imbalance of nerve signaling chemicals called neurotransmitters, or some combination of these factors.

About Sepracor

Sepracor Inc. is a research-based pharmaceutical company dedicated to treating and preventing human disease by discovering, developing and commercializing innovative pharmaceutical products that are directed toward serving unmet medical needs. Sepracor's drug development program has yielded a portfolio of pharmaceutical products and candidates with a focus on respiratory and central nervous system disorders. Currently marketed products include LUNESTA brand eszopiclone, XOPENEX(R) brand levalbuterol HCl Inhalation Solution, XOPENEX HFA(R) brand levalbuterol tartrate Inhalation Aerosol and BROVANA(R) brand arformoterol tartrate Inhalation Solution. Sepracor's corporate headquarters are located in Marlborough, Massachusetts.

About Bial

Bial is a Portuguese research-based pharmaceutical company headquartered in S. Mamede do Coronado, Portugal, whose goal is to improve health and wellbeing. Bial was founded in 1924 and is the largest Portuguese pharmaceutical company with an international presence in over 30 countries. It is the partner of choice for many global companies wishing to commercialize products within the Iberian Peninsula, Latin America and Africa. Research and development is focused on the central nervous and cardiovascular systems and Bial currently has several other innovative programs under development, which the company expects to bring to the market within the next years.

Sepracor Forward-Looking Statement

This news release contains forward-looking statements that involve risks and uncertainties, including statements with respect to the safety, efficacy and potential benefits of BIA 2-093; the timing and success of regulatory events relating to BIA 2-093, including the possible submission of an NDA late 2008 or early 2009 and potential commercialization in late 2009 or early 2010; and future payments by Sepracor to Bial. Among the factors that could cause actual results to differ materially from those indicated by such forward-looking statements are: clinical benefits, efficacy and safety of BIA 2-093; the timing and success of submission, acceptance, and approval of regulatory filings for BIA 2-093; unexpected delays in commercial introduction of, and the commercial success of, BIA 2-093; the success of Sepracor's alliance with Bial; Sepracor's ability to obtain favorable reimbursement approval levels, or obtain reimbursement approval at all, for BIA 2-093, if approved for commercialization; the scope of Bial's and/or Sepracor's patents and the patents of others; the ability of Sepracor and Bial to attract and retain qualified personnel; and certain other factors that may affect future operating results that are detailed in Sepracor's quarterly report on Form 10-Q for the quarter ended September 30, 2007 filed with the Securities and Exchange Commission.

In addition, the statements in this press release represent Sepracor's expectations and beliefs as of the date of this press release. Sepracor anticipates that subsequent events and developments may cause these expectations and beliefs to change. However, while Sepracor may elect to update these forward-looking statements at some point in the future, it specifically disclaims any obligation to do so. These forward-looking statements should not be relied upon as representing Sepracor's expectations or beliefs as of any date subsequent to the date of this press release.

Lunesta, Xopenex, Xopenex HFA and Brovana are registered trademarks of Sepracor Inc.

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For a copy of this release or any recent release, visit Sepracor's web site at www.sepracor.com.

CONTACT: Sepracor Inc.
David Southwell, 508-481-6700
Chief Financial Officer
or
Jonae R. Barnes, 508-481-6700
Sr. Vice President
Investor Relations

SOURCE: Sepracor Inc.

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: Statements in this press release regarding Sepracor Inc.'s business which are not historical facts are "forward-looking statements" that involve risks and uncertainties. For a discussion of such risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see "Risk Factors" in the Company's Annual Report or Form 10-K for the most recently ended fiscal year.

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Exhibit 10.44

EX-10.45

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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.

Exhibit 10.45

Distribution and Development Agreement
for Ciclesonide in the USA

By and between

         Nycomed GmbH
(formerly known as ALTANA Pharma AG)
Byk Gulden-Strasse 2
78467 Konstanz
Federal Republic of Germany

and

Sepracor Inc.
84 Waterford Drive
Marlborough, MA 01752
USA

Table of Contents

		Page
Recitals		3
Article 1	Definitions	3
Article 2	Grant of Rights	19
Article 3	Consideration	22
Article 4	Governance	24
Article 5	Regulatory Affairs	30
Article 6	Development and Financial Terms of Development	33
Article 7	Intellectual Property	37
Article 8	Trademarks	45
Article 9	Commercialization	47
Article 10	Manufacturing and Supply	54
Article 11	Financial Terms of Commercialization	62
Article 12	Compliance with Law, Insurance and Product Recall	67
Article 13	Representations and Warranties	70
Article 14	Indemnification and Liability	72
Article 15	Reports, Records and Audits	74
Article 16	Confidentiality; Publications	77
Article 17	Competition	79
Article 18	Term and Termination	79
Article 19	Rights and Duties upon Termination	83
Article 20	Governing Law, Dispute Resolution and Arbitration	86
Article 21	Force Majeure	87
Article 22	Coming into Force and Antitrust Clearance Requirements	88
Article 23	Miscellaneous	89

List of Schedules	92
Schedule 1.1 (Compound Specifications)	93
Schedule 1.2 (Detail Cost)	94
Schedule 1.3 (Nycomed Drug Master File)	95
Schedule 1.4 (Manufacturing Cost)	96
Schedule 1.5 (Sepracor Patents)	98
Schedule 1.6 (Nycomed Patents)	99
Schedule 1.7 (Product Specifications)	100
Schedule 1.8 (Trademarks)	101
Schedule 1.9 (3M Development Agreement)	102
Schedule 1.10 (3M Supply Agreement)	103
Schedule 9.6.1.1 (Minimum Marketing Investment Obligations)	104
Schedule 9.6.2.1 (Minimum Sales Obligations)	105
Schedule 10.2.4 (Quality Agreement)	106
Schedule 10.3.2 (Format of Rolling Monthly Net Requirements Plan)	107
Schedule 10.3.3 (Minimum Batch Sizes)	108
Schedule 12.4 (Ciclesonide Pre- and Post Marketing Surveillance {SOP})	109

        This Distribution and Development Agreement relating to the pharmaceutical compound ciclesonide, dated this January 25^th, 2008 is being entered into by and between Nycomed GmbH (formerly known as ALTANA Pharma AG), a corporation organized and existing under the laws of Germany and having its principal office at Byk-Gulden-Strasse 2, 78467 Konstanz, Federal Republic of Germany ("Nycomed"), and Sepracor Inc., a corporation organized and existing under the laws of the state of Delaware and having its principal office at 84 Waterford Drive, Marlborough, MA 01752, USA ("Sepracor"). Each or both of Nycomed and Sepracor are hereinafter referred to as "Party" or "Parties", as intended in the given context.

WITNESSETH

        WHEREAS, Nycomed and its Affiliates Control certain Nycomed Technology relating to its proprietary Compound (INN) and certain products incorporating such Compound including, without limitation, the Alvesco® MDI Product, an innovative inhaled corticosteroid (ICS) providing asthma control in all patient groups regardless of asthma severity, and the Omnaris® AQ Product, an innovative intranasal steroid formulation exhibiting significant therapeutic effects in seasonal as well as perennial allergic rhinitis (SAR/PAR);

        WHEREAS, Sepracor and its Affiliates have material capabilities, resources and experience in the development and commercialization of pharmaceutical products in the Territory including, without limitation, the facilities, personnel and expertise to Distribute, Commercialize and Develop Products incorporating the Compound in the Territory and in the Field;

        WHEREAS, Nycomed wishes to grant Sepracor Exclusive rights under the Nycomed Technology and the Nycomed Trademarks to Distribute, Commercialize and Develop Products incorporating the Compound in the Territory and in the Field in accordance with all terms and conditions of this Agreement;

        WHEREAS, Nycomed wishes to exclusively supply Sepracor with its requirements of the Original Products and Compound, as may be applicable, subject to the terms and conditions of this Agreement and, subject to further agreement, when appropriate, Sepracor's requirements of Additional Products;

        WHEREAS, Sepracor wishes to accept such rights, and to exclusively purchase its requirements of the Original Products or Compound, as the case may be, and, subject to further agreement, when appropriate, Sepracor's requirements of Additional Products, from Nycomed or its appointee for such purpose, in accordance with all terms and conditions of this Agreement;

        NOW, THEREFORE, in consideration of the mutual promises, covenants and agreements hereinafter set forth, the sufficiency of which is hereby acknowledged, and intending to be legally bound, the Parties to this Agreement mutually agree as follows:

Article 1
Definitions

        For the purposes of this Agreement, the following terms, whether used in the singular or plural, shall be ascribed the following meaning:

"Act" means the Federal Food, Drug and Cosmetic Act of the United States, and all regulations promulgated thereunder, each as amended from time to time.

"Actual Manufacturing Costs" shall have the meaning set forth in Section 11.1.1.2.

"Actual Supply Price of Clinical Samples" shall have the meaning set forth in Section 11.1.4.3.

"Actual Supply Price of Commercial Product" shall have the meaning set forth in Section 11.1.2.3.

"Actual Supply Price of Compound" shall have the meaning set forth in Section 11.1.5.3.

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"Actual Supply Price of Promotional Samples" shall have the meaning set forth in Section 11.1.3.3.

"Additional Product" means any Line Extensions of any of the Original Products or any Improved Product, collectively.

"Additional Product Agreement" shall have the meaning set forth in Section 6.2.1.3.

"Additional Product Supply Agreement" shall have the meaning set forth in Section 6.2.1.4.

        "ADR" or "Adverse Drug Reaction" shall have the meaning set forth in Section 2.2.2 of Schedule 12.4.

        "AE" or "Adverse Event" shall have the meaning set forth in Section 2.2.1 of Schedule 12.4.

"Affiliate" of either Party means any corporation, firm, partnership, organization or entity, whether de jure or de facto, which such Party directly or indirectly controls, is controlled by or is under common control with. For the purpose of this definition, the term "control" means (i) direct or indirect ownership of fifty percent (50%) or more of the outstanding equity voting stock (or such lesser percentage which is the maximum allowed to be owned by a foreign corporation in a particular jurisdiction) of a Party or other entity or (ii) the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Party or other entity, whether through the ownership of voting securities, by contract, or otherwise.

"Agreement" means this distribution and development agreement including all schedules thereto.

"Alliance Manager" shall have the meaning set forth in Section 4.8.

"Altana" means Altana Pharma AG, Byk-Gulden-Strasse 2, D-78467 Konstanz, Germany and the company name under which Nycomed has been trading prior to the name change from "Altana" to "Nycomed".

"Alvesco® MDI Product" means the Product in its presentation form as Alvesco® HFA metered dose inhaler incorporating the Compound as sole active ingredient, as finished product in its presentation form as of the Effective Date ready for sale to the customer, as further described in Schedule 1.7 in the Respiratory Field, subject to Section 2.1.1.5.

"ANDA" means an abbreviated new drug application filed pursuant to 21 U.S.C. §355 by a Third Party for a generic equivalent of Product under the Waxman Hatch Act (codified as amended 21 U.S.C. §§ 301 et seq.) as amended.

"A&P Expenses" means (a) all out-of-pocket costs and expenses incurred (i. e., paid to Third Parties or accrued therefor) by Sepracor in connection with the advertising (including, without limitation, direct-to-consumer advertising), marketing and promotion of the Products in the Territory pursuant to a Marketing Plan and in accordance with Legal Requirements, including out-of-pocket costs incurred for: (i) marketing publications and the planning and development thereof, and market research, (ii) non-personal promotion and advertising (including costs of journal advertising, promotional materials, direct mail, reminder promotions, and web-based promotions); (iii) public relations; (iv) professional relations and medical education programs (including speakers' programs, symposia and conference presentations); (v) advisory boards; and (vi) promotional meetings, including meeting and facilities rental and administration costs; (vii) distribution and stocking allowances and service fees paid to wholesalers, distributors, and retail accounts, (viii) as well as all rebates paid to managed care, and (ix) all rebates or comparable compensation paid to patients, whether directly or indirectly, on account of crediting patients any self-retained costs of medical treatment not covered by medical insurance; (b) the supply price paid by Sepracor to Nycomed for Promotional Samples pursuant to Section 11.1.3; (c) always (i) only to the extent directly directed at the sales promotion of Products and (ii) only to the extent conforming with applicable US codes of ethics and all other

4

applicable Legal Requirements; and (d) (i) to the express exclusion, however, of the costs and expenses incurred by Sepracor (w) related to any public relations or general promotional activities that are not predominantly related to Product and (x) generic investment in the Field that is not predominantly linked to the Product; and (ii) to the express exclusion of overheads.

"Assumptions" shall have the meaning set forth in Section 9.6.3.1.

"Audited Party" shall have the meaning set forth in Section 15.3.2.

"Auditing Party" shall have the meaning set forth in Section 15.3.2.

"Auditor" shall have the meaning set forth in Section 15.3.2.

"Aventis" means Aventis Pharmaceuticals Inc., a corporation organized and existing under the laws of Delaware and having its principal office at 300 Somerset Corporate Boulevard, Bridgewater, New Jersey 08807-0800, USA.

"Base Manufacturing Costs" shall have the meaning set forth in Section 11.1.1.1.

"Base Supply Price of Clinical Samples" shall have the meaning set forth in Section 11.1.4.2.

"Base Supply Price of Commercial Product" shall have the meaning set forth in Section 11.1.2.2.

"Base Supply Price of Compound" shall have the meaning set forth in Section 11.1.5.2.

"Base Supply Price of Promotional Samples" shall have the meaning set forth in Section 11.1.3.2.

"Breach" shall have the meaning set forth in Section 18.2.1.

"Business Day" means any day on which banking institutions in the Commonwealth of Massachusetts, United States and Constance, Germany are open for business.

"Call" means a personal visit by a Sales Representative to a person legally permitted to prescribe prescription drugs in the Territory during which such Sales Representative Details no more than three (3) products as a Primary, Secondary and Tertiary Detail, one of them being the Product as Primary, Secondary or Tertiary Detail.

"Canister" shall have the meaning set forth in Section 6.1.2.2.

"cGCP" means the then current Good Clinical Practices required for the Clinical Development of Product as promulgated by the FDA under the Act, and the foreign equivalents in countries in which a Party is actively performing Clinical Development.

"cGMP" means the then current Good Manufacturing Practices (i) in the country where such manufacture occurs and (ii) in the Territory where Sepracor is actively Commercializing Product, as promulgated by the FDA under the Act, and the foreign equivalents, as applicable.

"Change of Control" with respect to Sepracor means (i) the acquisition (directly or indirectly, whether by merger, consolidation, purchase and sale, share exchange or otherwise) by any Third Party (other than an Affiliate or any trust or fund created under a profit-sharing or other benefit plan for employees of Sepracor) of a beneficial interest in the securities of Sepracor representing more than fifty percent (50%) of the combined voting power of Sepracor's then outstanding securities; or (ii) the transfer, sale or assignment of more than fifty percent (50%) of the assets of Sepracor to a Third Party other than an Affiliate of Sepracor; or (iii) any other transfer to a Third Party of the power to control Sepracor.

"Ciclesonide" means the name of the Compound specified in the International Nonproprietary Name system for pharmaceutical substances maintained by the World Health Organization.

"Claims" shall have the meaning set forth in Section 14.1.1.

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"Clinical Development" means, with respect to a Product, the performance pursuant to a Clinical Development Plan of all pre-clinical, clinical and regulatory activities required to obtain Regulatory Approvals of such Product in the Territory in the Field (including, but not limited to, Phase IIIa clinical trials), as well as the performance of any Phase IIIb Studies, all in accordance with the applicable Clinical Development Plan. For clarity, Clinical Development shall not include Phase IV studies or related activities.

"Clinical Development Plan" means the plan designed to achieve the Clinical Development of a specific Product or of a specific Improvement, as may be applicable, including, without limitation, (i) the budget and nature, number and schedule of Clinical Development activities, (ii) the Clinical Development responsibilities to be undertaken by each Party, (iii) a time schedule for the implementation of the Clinical Development activities concerned, (iv) the financial responsibilities to be assumed by each Party in relation to the Clinical Development activities assigned to it, (v) all such other issues as may reasonably have to be addressed under such Clinical Development Plan, as it may be agreed and amended by the Parties from time to time in accordance with this Agreement.

"Clinical Development Costs" means for all studies or activities performed in accordance with a Clinical Development Plan for any Product in the Territory, the following: (a) All out-of-pocket costs and expenses incurred (i. e., paid to Third Parties or accrued therefor) by the applicable Party or Parties or any of their permitted designees including, without limitation, the costs of clinical trial insurance, (b) the costs of internal personnel engaged in the performance of such studies or activities, which costs shall be determined based on FTE costing or such other basis as may be agreed by the Parties, if relevant, and (c) the costs of Clinical Supplies for such studies or activities, which costs shall include (i) the Clinical Supply Price, (ii) out-of-pocket costs and expenses incurred in purchasing comparator drug and in packaging comparator drug and/or such Product, as applicable, shipping Clinical Supplies to centers, or disposal of Clinical Supplies, and (iii) actual costs of packaging Clinical Samples and comparator drug, as applicable, if done by a Party. Notwithstanding the foregoing, Clinical Development Costs shall not include any costs or expenses incurred in connection with manufacturing process development and validation, manufacturing scale-up, stability testing, or quality assurance/quality control development.

"Clinical Development Data" means all information and data resulting from Clinical Development activities, and specifically the results of related clinical studies.

"Clinical Samples" means Product to be supplied by Nycomed in accordance with the terms of this Agreement for purposes of (i) Phase IV Studies pursuant to a Phase IV Development Plan or (ii) the Clinical Development pursuant to a Clinical Development Plan, as applicable, (iii) in both cases referred to in (i) and (ii) including placebo.

"Clinical Supplies" means (a) Clinical Samples and (b) comparator drug, both for purposes of (i) Phase IV Studies pursuant to a Phase IV Development Plan or (ii) the Clinical Development pursuant to a Clinical Development Plan, as applicable, (iii) in both cases referred to in (i) and (ii) including placebo.

"Clinical Supply Price" means (i) the supply price of Clinical Samples, as determined in accordance with Section 11.1.4, and (ii) the out- of-pocket costs of a Party of comparator drug.

"Combination Product" means any product incorporating the Compound and one or more other compounds as active ingredients for use in the Field, whether Inhaled Combination Products or Nasal Combination Products.

"Commercialization" means any and all activities directed to importing, marketing, promoting, advertising, distributing, storing, offering for sale, using and selling Product, including, without limitation, the distribution of Promotional Samples to targeted prescribers (to the extent applicable), in

6

the Territory and in the Field, and conducting Phase IV Studies of Product. When used as a verb, "Commercialize" means to engage in Commercialization.

"Commercially Reasonable Efforts" mean efforts and resources used for a product of a market potential similar to the market potential of the applicable Product at a similar stage of its product life, taking into account the establishment of the product in the marketplace, the competitiveness of the marketplace, the proprietary position of the product, the regulatory status involved, the profitability of the product, in the case of each such factor as in existence and as reasonably projected to be in existence during the Term, as well as other relevant factors, and corresponding at least to the same type (quality and quantity) of channels, methods, investments and staff (including, without limitation, sales force), which are used by reputable pharmaceutical companies of similar size and scope as the Parties that are engaged in the pharmaceutical business in the marketing of their own products with a similar potential in the Territory.

"Competing Product" shall have the meaning set forth in Section 17.2.1.

"Compound" means the compound ciclesonide, including all its current and future formulations and delivery modes, dosages, isomers, titrates, hydrates, metabolites, polymorphs, prodrugs, epimers and salts.

"Compound Specifications" means the specifications of Compound attached hereto as Schedule 1.1.

"Confidential Information" shall have the meaning set forth bin Section 16.1.

"Confidentiality Agreement" means the confidentiality agreement entered by and between the Parties dated September 28, 2007.

"Control" or "Controlled" means that a right is owned or possessed by a Party with the right to license or sublicense.

"Contract Year" means (a) with respect to the first Contract Year, the period beginning on the Effective Date and ending on December 31, 2008 (the "First Contract Year"), (b) with respect to each subsequent Contract Year other than the last Contract Year, the one (1) year period beginning on the day following the end of the First Contract Year and each succeeding one (1) year period thereafter, and (c) with respect to the last Contract Year, the period beginning on January 1 of such last Contract Year and ending on the date as of which this Agreement expires or is terminated (the "Last Contract Year"). Each Contract Year (other than the First Contract Year or the Last Contract Year) shall be divided into four (4) "Contract Quarters" comprised of successive three (3) month periods. In the First Contract Year, the first Contract Quarter shall end on the first day following the Effective Date that is the last day of a Contract Quarter, and in the Last Contract Year, the last Contract Quarter shall end upon expiration or termination of the Agreement.

"Core Nycomed Promotional Materials" shall have the meaning set forth in Section 9.2.1.1.

"Core Sepracor Promotional Materials" shall have the meaning set forth in Section 9.2.1.1.

"Costs of Nationalization" means, with respect to the importation of Product, Clinical Samples and Promotional Samples in the Territory, governmental duties and levies and non-governmental fees and charges accruing in the course of such importation including, without limitation, customs duties, costs of customs clearance, value added tax on importation of goods and handling charges.

"Defect" means, with respect to Products, Clinical Samples or Promotional Samples and, if applicable, Compound, supplied by Nycomed or its appointee to Sepracor, the failure of the Product, Clinical Samples or Promotional Samples and, if applicable, Compound, as the case may be, to comply with the related Product Specifications and, if relevant, Compound Specifications, in all cases at the time of dispatch by Nycomed or its appointee, and in all cases as determined on the basis of the pertaining Methods of Analysis.

7

"Deficiency" shall have the meaning set forth in Section 10.4.1(v).

"Deficient" shall have the meaning set forth in Section 10.4.1(v).

"Deficient Product" shall have the meaning set forth in Section 10.4.1(v).

"Detail" means that part of an in person, face-to-face sales Call during which a Sales Representative, who is trained and knowledgeable with respect to the applicable Product, including its label and package insert, and the use of the applicable promotional materials, makes a presentation of such Product to a medical professional with prescribing authority. Any activities performed by medical information scientists, market development specialists, managed care account directors and other personnel who are not conducting face-to-face sales Calls as provided in the preceding sentence shall not constitute a "Detail". Further, E-details and presentations made at conventions or similar gatherings shall not constitute a "Detail". Sample drops and reminder details shall not constitute a Detail. When used as a verb, "Detail" means to engage in Detailing activities.

"Detail Cost" means the cost of each position of Detail for a Product for each Call, set each Contract Year by the Parties in accordance with the principles outlined in Schedule 1.2.

"Detailing Expenses" means, with respect to the relevant period, the Detail Cost spent by Sepracor for the aggregate Details for Product performed by Sepracor in such relevant period for Product that may be accounted for pursuant to Schedule 9.6.1.1.

"Development" means the scientific, medical, technical, and clinical, regulatory and other activities necessary to obtain Regulatory Approval to Commercialize a Product in the Territory and in the Field, including, without limitation, Technical Development, Clinical Development and the preparation, filing, prosecution and administration of INDs and NDAs, in accordance with a Development Plan that has been agreed pursuant to the terms and conditions of this Agreement. When used as a verb, "Develop" means to engage in Development.

"Development Costs" means (i) Technical Development Costs and (ii) Clinical Development Costs, collectively.

"Development Milestone" shall have the meaning set forth in Section 3.3.1.

"Development Milestone Fee" shall have the meaning set forth in Section 3.3.1.

"Development Plan" means, for a specific Product, the Technical Development Plan and the Clinical Development Plan, as required, and as coordinated in accordance with Article 4.

"Device" means with respect to any Product the device used for administering the Compound to a patient.

"Dispute" shall have the meaning set forth in Section 20.2.

"Disputed Patent" means a Third Party Patent with respect to which an assertion is made by a Third Party, including its licensee, that the manufacture, use, offer to sell, sale in the Territory, or importation into the Territory, of Compound, of an Original Product or of an Additional Product, in each case in the Field, or the manufacturing of Compound or a Product at a manufacturing site within the European Union or any other agreed manufacturing site outside the European Union for Sepracor, infringes, induces the infringement of or contributorily infringes such Third Party's Patent.

"Distributor" means a person engaging in the Commercialization of Product.

"DOJ" shall have the meaning set forth in Section 22.1.2.

"EC" or "EEC" means the European Community.

"Effective Date" means the date of the execution of this Agreement by both Parties.

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"EONIA" shall have the meaning set forth in Section 3.5.2.

"EU" means the European Union.

"Excess Increased Capacity" shall have the meaning set forth in Section 10.2.1.3.

"Exclusive" shall mean that a right that is granted to or entered into with Sepracor with respect to the Territory hereunder must not be granted to, entered into with, or executed by any other Person (for clarity, including Nycomed or Affiliates of Nycomed).

"Execution Payment" shall have the meaning set forth in Section 3.2.

"Existing Regulatory Approvals" shall mean all Regulatory Approvals held or Controlled by Nycomed for the Original Products in the Territory as at the Effective Date, including all relevant approvals regarding price and reimbursement, if applicable.

"Expert" shall have the meaning set forth in Section 20.4.

"FDA" means the U.S. Food and Drug Administration and any successor agency thereto.

"Field" means all prophylactic and therapeutic uses in humans in any formulation or dosage form for any and all indications including, without limitation, the Nasal Field and the Respiratory Field, subject to Section 2.1.1.5.

"First Commercial Sale" shall mean the first sale or other disposition for value of a Product, in a final dosage form packaged for the ultimate consumer, to an independent Third Party following applicable Regulatory Approval, by Sepracor, its Affiliates or permitted sublicensees.

"Force Majeure Event" shall have the meaning set forth in Section 21.4.

"Formoterol Combination Product" means an inhaled Combination Product incorporating the Compound and the proprietary Sepracor compound R'R'-formoterol (INN), whether or not in combination with one or several other additional active ingredients, as active ingredients for use in the Field, Developed by Sepracor in accordance with the terms of this Agreement.

"FTC" shall have the meaning set forth in Section 22.1.2.

"FTE" means a full time equivalent person year, based upon a total of forty-seven weeks or 1,750 hours per year of scientific, technical or managerial work, on or directly related to Technical Development or Clinical Development.

"FTE Cost" means the product of (i) the number of FTEs, which are documented using a reasonably reliable tracking system, actually used by Nycomed or Sepracor in performing activities in accordance with this Agreement and (ii) an FTE rate to be agreed by and between the Parties, if and when relevant.

"Further Clinical Trials" shall have the meaning set forth in Section 19.1.3.

"GAAP" means the "United States Generally Accepted Accounting Principles" as determined by the US Financial Accounting Standards Board (FASB).

"Gross Sales" means, with respect to any applicable period and any Product, the gross amounts invoiced by Sepracor to unrelated Third Parties for sales of such Product.

"HSR Act" shall have the meaning set forth in Section 22.1.1.

"ICC" shall have the meaning set forth in Section 20.4.1.

"Improved Product" means any Product in the Field, other than the Original Products and other than any Line Extension thereof, that incorporates an Improvement.

9

"Improvement" means any Know-How, including, without limitation, findings, discoveries, inventions, additions, modifications, formulations or changes, whether patentable or not, made and/or Controlled by either Party during the Term insofar as such Improvement relates to the Compound or the Products including, without limitation, Line Extensions, provided, however, "Improvement" shall not include findings, discoveries, inventions, etc. which are not derived from or based on the Compound or the Product.

"Improvement Technology" means all Know-How that is developed and all inventions that are conceived and reduced to practice by one or more employees, agents or consultants of Nycomed and/or one or more employees, agents or consultants of Sepracor during the Term and in connection with the performance of the Technical Development, Clinical Development and the Commercialization of Product and Improvements thereof, together with any Patents that claim any such Know-How and/or inventions.

"Increased Capacity" shall have the meaning set forth in Section 10.2.1.3.

"IND" means an investigational new drug application submitted to the FDA in respect of a new drug.

"Indemnified Party" shall have the meaning set forth in Section 14.1.3.

"Indemnifying Party" shall have the meaning set forth in Section 14.1.3.

"Infringement Claim" shall have the meaning set forth in Section 7.3.1.

"Infringement Date" shall have the meaning set forth in Section 7.2.5.5.2.

"Initiating Party" shall have the meaning set forth in Section 7.2.4.1.

"Insolvency Event" shall have the meaning set forth in Section 18.2.2.

"Installment" shall have the meaning set forth in Section 3.1.

"Jointly-Owned Improvement Technology" shall have the meaning set forth in Section 7.1.1.1.

"Jointly-Owned Patents" shall have the meaning set forth in Section 7.2.3.

"Know-How" means all scientific, medical, technical, clinical, regulatory, marketing and other information relating to the Compound and/or the Product that is Controlled by a Party hereto, and that is in existence as of the Effective Date or coming into existence during the Term.

"Latent Deficiency" means a Deficiency of Product that is not readily discoverable upon reasonable visual inspection of a shipment of Product.

"Launch Date" means, with respect to the first presentation form of the Product, the date of the first commercial sale of such Product in the Territory.

"Launch Period" shall have the meaning set forth in Section 10.3.2.

"Launch Period Net Requirements Plan" shall have the meaning set forth in Section 10.3.2.

"Launch Quantities" shall have the meaning set forth in Section 10.3.2.

"Legal Requirements" means any and all acts of the US legislative bodies, and any and all regulations, instruments, rules, orders, codes of practice and guidance made under such acts having legal force in the Territory without further enactment and in each case being specifically applicable to or having specific application to the Products including, without limitation, the manner in which Nycomed manufactures and supplies Products, and in which Sepracor Develops and Commercializes Products.

"Line Extensions" means [**].

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"Logistically Available Overall Capacities" shall have the meaning set forth in Section 10.2.1.2.

"Logistically Available Sepracor Capacities" shall have the meaning set forth in Section 10.2.1.2.

"Losses" shall have the meaning set forth in Section 14.1.1.

"Major Market Country" means any of the countries France, Germany, Italy, Spain, the UK and Japan.

"Manufacturing Cost" means the Manufacturing Cost as set forth in Schedule 1.4.

"Marketing Expenses" means, with respect to the relevant period, the A&P Expenses and the Detailing Expenses spent by Sepracor, collectively.

"Marketing Plan" shall have the meaning set forth in Section 9.5.2.1.

"MDI Product" means the metered dose inhaler product formerly clinically co-developed by Aventis and Nycomed pursuant to the terms and conditions of MDI Collaboration and Development Agreement by and between Aventis and Nycomed that has been terminated by Aventis effective October 17, 2007.

"MDPI Product" means the metered dose dry powder inhaler combination product incorporating the Compound and formoterol formerly co-developed by Aventis and Nycomed pursuant to the terms and conditions of the MDPI Collaboration and Development Agreement by and between Aventis and Nycomed that has been terminated with effect from December 31, 2007 pursuant to a related MDPI Termination Agreement.

"Methods of Analysis" shall mean the methods of analysis on the basis of which the compliance of Products, Clinical Samples, Promotional Samples and, if relevant, Compound with the related Product Specifications or, if relevant, Compound Specifications is determined and that shall form part of the Product Specifications and Compound Specifications.

"Milestone Fees" mean Development Milestone Fees and Sales Milestone Fees, collectively.

"Minimum Obligations" shall have the meaning set forth in Section 9.6.

"Minimum Marketing Investment Obligations" shall have the meaning set forth in Section 9.6.1.1.

"Minimum Sales Obligations" shall have the meaning the minimum sales obligations of Sepracor pursuant to Section 9.6.2.1.

"Minutes" shall have the meaning set forth in Section 4.6.1.

"Monthly Detailing Report" shall have the meaning set forth in Section 15.1.2.

"Monthly Sales Report" shall have the meaning set forth in Section 15.1.3.

"Nasal Combination Product" means any nasal combination product incorporating the Compound and one or more other compounds as active ingredients for use in the Nasal Field.

"Nasal Field" means the indications of seasonal and perennial rhinitis, subject to Section 2.1.1.5.

"NDA" means (a) a New Drug Application submitted to the FDA pursuant to 21 U.S.C. Section 355(b)(1), and/or Section 355(b)(2) or any successor application or procedure and (b) all supplements and amendments, including supplemental New Drug Applications that may be filed with respect to the foregoing (each, a "SNDA").

"Nebules Product" means a Product incorporating the Compound in the presentation form of an inhalation solution for use with nebulization in the Respiratory Field Developed by Sepracor in accordance with the terms of this Agreement.

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"Net Profits" shall have the meaning set forth in Section 7.2.5.5.2.

        "Net Sales" means, with respect to any period, the Gross Sales of the Product, less the following deductions to the extent included in the gross invoiced sales price for the Product or otherwise directly paid or incurred by Sepracor, its permitted Affiliates and its permitted sublicensees with respect to the sale of the Product and not otherwise recoverable by the paying party: (a) trade, quantity, or cash discounts, chargebacks, returns, allowances or rebates to the extent (i) customary to the industry in the Territory or applied by Sepracor to its own proprietary products of a similar market potential and stage of lifecycle and (ii) actually allowed, given or accrued in the ordinary course of trading (including, but not limited to, cash, governmental and managed care rebates, hospital or other buying group chargebacks); (b) adjustments, rejections, recalls and returns to the extent made in the ordinary course of trading, to the extent the customer has been credited the original sales price or a portion thereof; (c) sales, excise, turnover, inventory, value-added, customs duties and similar taxes and governmental charges assessed on the sale of the Product; (d) the portion of any management fees paid during the relevant time period to group purchasing organizations that relate specifically to the sale of such Product to such organizations, (e) service fees paid or allowances conceded to wholesalers pursuant to Distribution Services Agreements or similar contracts by and between Sepracor and wholesalers for logistic and other services such as, without limitation, stock-keeping; (f) [**]; (g) [**]; (h) always provided that any deductions made outside the orderly course of business such as, without limitation, rebates granted by means of product bundling and selling Products in combination with other products of Sepracor (so-called package deals), shall not be considered; and (i) always provided that the items referred to in (a) to (e) above shall be determined pursuant to GAAP.

        Sales, transfers or dispositions of Product for charitable, promotional (including samples), pre-clinical, clinical, or regulatory purposes shall be excluded from Net Sales, as shall sales or transfers of Product among a Party and its Affiliates.

        Upon any sale or other disposal of any Product for any consideration other than an exclusively monetary consideration on bona fide arm's length terms then, for the purposes of calculating the Net Sales under this Agreement, such Product shall be deemed to be sold exclusively for money at the fair market price generally achieved for such Product in the Territory.

        Any discounts or allowances made by Sepracor outside the ordinary course of trading shall not be accounted for in determining Sepracor's Net Sales. For clarity and without limitation, this shall apply to direct and indirect discounts and allowances to customers regarding Product associated with product bundling and selling the Product in combination with other Sepracor products (so called "package deals"). Upon any sale or other disposal of any Product for any consideration outside the ordinary course of trading, for the purposes of calculating the Net Sales under this Agreement, Product shall be deemed to be sold exclusively for money at the fair market price generally achieved in bona fide arm's length trading for such Product in the Territory when such Product is sold alone, and not with or in combination with products other than Product.

"Non-Exclusive" means that a right which is granted by a Party hereto (the "Licensor") to the other Party (the "Licensee") under this Agreement may, in addition to Licensor and any of its present and future licensees and their sub-licensees, which may be Affiliates of the Licensor or Third Parties, be granted to, entered into with, and exercised by Licensee and, to the extent that sub-licenses are permitted, its sub-licensees.

"Non-Initiating Party" shall have the meaning set forth in Section 7.2.4.1.

"Non-Owning Party" shall have the meaning set forth in Section 7.2.3.

"Nycomed Additional Patents" means (i) the Patents listed as number 2.1 to 2.8 in Schedule 1.6 and (ii) any Patent Controlled by Nycomed at any time during the Term in the Territory and in the Field with a claim relating to the Compound and/or the Products or a component of either of them, or

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a method of manufacture of any of the foregoing, or a method of treatment using any of the foregoing that is not determined by Nycomed to be a Nycomed Core Patent and that is not determined by the SC to be a Nycomed Ancillary Patent.

"Nycomed Ancillary Patents" means (i) the Patents listed as number 3.1 to 3.10 in Schedule 1.6 and (ii) any Patent Controlled by Nycomed at any time during the Term in the Territory and in the Field with a claim relating to the Compound and/or the Products or a component of either of them, or a method of manufacture of any of the foregoing, or a method of treatment using any of the foregoing that is not a Nycomed Core Patent or a Nycomed Additional Patent.

"Nycomed Company Trademark" means "Nycomed", used as a trademark, service mark, trade name or domain name and/or any accompanying design or logo of Nycomed or its Affiliates, which may or may not be registered or pending in the Territory.

"Nycomed Core Patents" means (i) the Patents listed as number 1.1 to 1.8 in Schedule 1.6 and (ii) any Patent Controlled by Nycomed at any time during the Term in the Territory and in the Field with a claim relating to the Compound and/or the Products or a component of either of them, or a method of manufacture of any of the foregoing, or a method of treatment using any of the foregoing that Nycomed designates as a Nycomed Core Patent.

"Nycomed DMF" or "Nycomed Drug Master File" means the drug master file for the Compound specifying at least the items set forth in Schedule 1.3.

"Nycomed Improvement Technology" means the Nycomed Know-How and the Nycomed Patents forming part of (i) Nycomed's Solely Owned Improvement Technology, (ii) Nycomed's rights and interest in any Jointly Owned Improvement Technology, and (iii) the Improvement Technology owned by Nycomed pursuant to Section 7.1.1.2.

"Nycomed Indemnified Persons" shall have the meaning set forth in Section 14.1.2.

"Nycomed Know-How" means the Know-How Controlled by Nycomed that Sepracor reasonably requires for the Development and Commercialization of the Products, in the Territory and in the Field. For clarity, (i) Nycomed Know-How shall not include any Know-How relating directly and specifically to the manufacture of the Compound or Product, unless and to the extent specifically permitted pursuant to this Agreement for the purposes of obtaining and maintaining Regulatory Approvals for Product in the Territory or manufacturing Compound and/or Product, as applicable, and (ii) Nycomed Know-How shall not include any 3M Know-How and Teijin Know-How that is not Controlled by Nycomed.

"Nycomed Material Adverse Impact" shall have the meaning set forth in Section 18.3.2.2.

"Nycomed Patents" means (i) the Nycomed Core Patents, (ii) the Nycomed Additional Patents and (iii) the Nycomed Ancillary Patents. For clarity, Nycomed Patents shall not include any Third Party Patents, whether or not listed in Schedule 1.6, to the extent not Controlled by Nycomed.

"Nycomed's Solely-Owned Improvement Technology" shall have the meaning set forth in Section 7.1.1.1.

"Nycomed Technology" means the Nycomed Know-How and the Nycomed Patents and Nycomed Improvement Technology, collectively.

"Officers" shall have the meaning set forth in Section 20.2.

"Omnaris® AQ Product" means the Product in its presentation form as Omnaris® AQ nasal spray incorporating the Compound as sole active ingredient, as finished product in its presentation form as of the Effective Date ready for sale to the customer, as further described in Schedule 1.7 in the Nasal Field, subject to Section 2.1.1.5.

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"Omnaris® HFA Product" means the Product in its presentation form as Omnaris® HFA nasal spray incorporating the Compound as sole active ingredient, as finished product in its presentation form as of the Effective Date ready for sale to the customer, as further described in Schedule 1.7 in the Nasal Field, subject to Section 2.1.1.5.

"Original Products" means (i) the Omnaris® AQ Product, (ii) the Omnaris® HFA Product, (iii) the Alvesco® MDI Product, and (iv) subject to Sections 6.1, 6.2 and 6.3, any Line Extension thereof, and subject to Section 2.1.1.5.

"Original Trademarks" means the trademark Omnaris® under which Sepracor has been granted a license to Commercialize the Omnaris® AQ Product and the Omnaris® HFA Product in the Territory as further described Schedule 1.8, and the trademark Alvesco® under which Sepracor has been granted a license to Commercialize the Alvesco® MDI Product in the Territory as further described Schedule 1.8.

"Ownership Rights" shall mean any and all right, title and interest under patent, copyright, trade secret and trademark law, or any other intellectual property or other law, in and to any Know-How or Patent.

"Owning Party" shall have the meaning set forth in Section 7.2.2.

"Party" or "Parties" shall mean either Party as the context requires, or both Nycomed and Sepracor.

"Patent Challenge Notice" shall have the meaning ser forth in Section 7.2.5.1.

"Patent Deficiency" means a Deficiency of Product that may be readily discovered upon reasonable visual inspection of a shipment of Product.

"Patents" shall mean all existing patents and patent applications and all patent applications hereafter filed, including, without limitation, any continuations, continuations-in-part, divisions, utility models, provisionals or substitute applications, any patent issued with respect to any such patent applications, any reissue, reexamination, renewal, amendment or extension (including any supplementary protection certificate and any patent term extension) of any such patent, and any confirmation patent or registration patent or patent of addition based on any such patent, and all foreign counterparts of any of the foregoing.

"Patent Right(s)" means any right, title or interest in a Patent.

"PDE" or "Primary Detail Equivalent" means (i) one Primary Detail or (ii) two Secondary Details, or (iii) three Tertiary Details.

"PDE Requirement" shall have the meaning set forth in Schedule 9.6.1.1.

"Person" means any individual, corporation, partnership, association, joint-stock company, trust, unincorporated organization or government or political subdivision thereof.

"Phase IV Development" shall have the meaning set forth in Section 9.5.3.1.

"Phase-Out Period" shall have the meaning set forth in Section 18.3.2.3.

"Primary Detail" means a Detail that is in the first position and receives the most emphasis or focus during a Call (i. e., no other product receives more emphasis or focus during the Call).

"Primary Detail Equivalent" or "PDE" means (i) one Primary Detail or (ii) two Secondary Details, or (iii) three Tertiary Details.

"Product(s)" means (i) the Original Products and (ii) any Additional Products, collectively, (iii) in each case in the applicable Field and subject to Section 2.1.1.5.

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"Product Specifications" means, as of the Effective Date, the Specifications of the Original Products as described in Schedule 1.7 and, after the Effective Date, as amended by mutual agreement of the Parties from time to time subject to the provisions hereof, together with the specifications of any Additional Products agreed to by the Parties, if and when relevant and as attached to the applicable Additional Product Supply Agreement.

"Product Year" shall have the meaning set forth in Section 9.6.1.1.

"Profit Multiplier" shall have the meaning set forth in Section 7.2.5.5.2.

"Promotional Samples" means Product for distribution as samples in the Territory.

"Proposal" shall have the meaning set forth in Section 20.4.2.

"Quality Agreement" means the agreement on the pharmaceutical responsibilities of the Parties attached to this Agreement as Schedule 10.2.4 and any Supply Agreement, in each case in its respective current version as amended by mutual agreement of the Parties.

"Quarterly A&P Expense Report" shall have the meaning set forth in Section 15.1.1.

"Quarterly Payment Report" shall have the meaning set forth in Section 15.1.4.

"Recall" means a recall of Product pursuant to Sections 12.6.1, 12.6.2 or 12.6.3.

"Recall Expenses" means all out-of pocket costs and expenses associated with a Recall, including, without limitation, out-of-pocket costs of Third Parties, the out-of-pocket costs of notifying customers, the out-of-pocket costs of examining and re-packaging Product, if applicable, and the out-of-pocket costs associated with shipment of such recalled Product and the costs and expenses of the necessary replacement and destruction of such Product which are removed from the market.

"Regulatory Agent" shall have the meaning set forth in Section 5.1.2.2.

"Regulatory Approval" means approval and authorization granted by the FDA in the Territory for a specific disease indication or method of treatment with respect to the Products upon a relating IND, NDA or SNDA in order to enable the Development and Commercialization of Product in the Territory including, without limitation, any price and reimbursement and advertising approvals for Product and the Existing Regulatory Approvals.

"Regulatory Authority" means, with respect to the Territory, the FDA or any equivalent or additional governmental or regulatory agencies in the Territory, and with respect to countries other than the Territory, the foreign equivalents of such governmental or regulatory agencies.

"Regulatory Rights" shall have the meaning set forth in Section 19.1.2.

"Rejection Notice" shall have the meaning set forth in Section 18.2.1.4.

"Representatives" shall have the meaning set forth bin Section 16.2.

"Remedy Period" shall have the meaning set forth in Section 18.2.1.2.

"Remedy Plan" shall have the meaning set forth in Section 18.2.1.2.

"Respiratory Combination Product" means any respiratory combination product incorporating the Compound and one or more other compounds as active ingredients for use in the Respiratory Field.

"Respiratory Field" means the prevention, control and/or treatment of human respiratory diseases including, without limitation, asthma, and chronic obstructive pulmonary disease (COPD) and specifically excluding the Nasal Field and subject to Section 2.1.1.5.

"Responsible Regulatory Party" shall have the meaning set forth in Section 5.1.1.

15

"Launch Period" shall have the meaning set forth in Section 10.3.2.

"Rolling Monthly Net Requirements Plan" or "NRP" shall have the meaning set forth in Section 10.3.2.

"Rough Cut Capacity Planning" shall have the meaning set forth in Section 10.3.1.

"ROW" means all countries and territories outside the Territory.

"Royalty" shall have the meaning set forth in Section 11.2.1.

"Royalty Payment" shall have the meaning set forth in Section 11.2.1.

"Sales Representative" means an appropriately trained individual who engages in Detailing and other promotional efforts with respect to the Products and who has been trained by a trainer of Sepracor.

"Sales Force" means the Sales Representatives Detailing product in the Territory, collectively.

"Sales Milestone(s)" shall have the meaning set forth in Section 3.4.1.

"Sales Milestone Fee(s)" shall have the meaning set forth in Section 3.4.1.

"SC" or "Steering Committee" means the committee established and conducted in accordance with the procedures set forth in Section 4.2.

"SC Improved Product Resolution" shall have the meaning set forth in Section 6.2.1.3.

"Secondary Detail" means a Detail that is in the second position and receives the second most emphasis or focus during a Call (i.e., only the Product or, if a Primary Detail is performed for a product other than the Product, such other product receives more emphasis or focus during the Call).

"Sepracor Acquisition" shall have the meaning set forth in Section 18.3.2.1.

"Sepracor Competing Product" shall have the meaning set forth in Section 17.2.2.

"Sepracor Indemnified Persons" shall have the meaning set forth in Section 14.1.1.

"Sepracor Know-How" means the Know-How Controlled by Sepracor related to the Compound and/or the Products including, without limitation, their formulation and their use.

"Sepracor Merger Notice" shall have the meaning set forth in Section 18.3.2.3.

"Sepracor Patent(s)" shall mean any and all Patents Controlled by Sepracor at any time during the Term which contain a claim relating to the Compound and/or the Products or a component of either of them, or a method of manufacture of any of the foregoing, or a method of treatment using any of the foregoing. The Sepracor Patents existing on the Effective Date in the Territory are identified on Schedule 1.5, as it may be amended from time to time. For the avoidance of doubt, an inclusion with respect to any Sepracor Patent coming into existence after the Effective Date shall occur automatically upon the first filing of a provisional or non-provisional application in respect of such Sepracor Patent, and the subsequent amendment of Schedule 1.5 shall only serve declaratory purposes.

"Sepracor's Solely-Owned Improvement Technology" shall have the meaning set forth in Section 7.1.1.1.

"Sepracor Supply Agreement" shall have the meaning set forth in Section 6.2.1.4.

"Sepracor Technology" means the Sepracor Know-How and the Sepracor Patents, collectively.

"Shortfall Amount" shall have the meaning set forth in Section 9.6.1.2.

"Shortfall Amount Payment Period" shall have the meaning set forth in Section 9.6.1.2.

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"sNDA" means a supplemental NDA.

"SOP" means at any time during the Term a Nycomed standard operating procedure in its then current version.

"Special Stability Testing" shall have the meaning set forth in Section 10.3.6.

"Special Stability Testing Report" shall have the meaning set forth in Section 10.3.6.

"Stability Testing" shall have the meaning set forth in Section 10.3.6.

"Subcommittee" shall have the meaning set forth in Section 4.2.3.

"Substance Patent" means US Patent 5,482,934 listed as number 1.1 in Schedule 1.6.

"Supply Agreement" means any supply agreement to be entered pursuant to Article 10 and any future Additional Product Supply Agreement by and between Nycomed and Sepracor covering the supply by Nycomed or its permitted appointee to Sepracor of any Product (whether semi-finished or finished) or components thereof regarding Product other than the Original Products and the Alvesco® MDI Product, to be attached hereto in accordance with Article 6 and Article 10, in each case in its respective current version as amended by mutual agreement of the Parties.

"Supply Price" shall have the meaning set forth in Section 11.1.

"Technical Development" means the process development activities, other than clinical studies, which directly relate to (i) the technical development of the Omnaris® HFA Product and the Alvesco® MDI Product, (ii) the technical development of any Line Extension of an Original Product, (iii) the technical development of any Improved Product including, without limitation, development of new formulations, modifications to any Device and any modifications required for obtaining and maintaining Regulatory Approvals for such Product, and in all cases referred to in (i) to (iii) expressly excluding the technical development of a technology incorporated in the Omnaris® HFA Product, the Alvesco® MDI Product, any Line Extension or Improved Product that is Controlled by a Third Party, without such Third Party's express written consent.

"Technical Development Costs" means, for any Technical Development of a Product, the documented out-of-pocket costs and expenses incurred pursuant to a Development Plan and actually paid to Third Parties and/or the Cost of FTEs to the extent dedicated to such Technical Development. For the purposes of clarity, Technical Development Costs do not include capital expenditures.

"Technical Development Plan" means a plan designed to achieve the Technical Development of a specific Product, including, without limitation, (i) the budget and nature, number and schedule of Technical Development activities, (ii) the Technical Development responsibilities to be undertaken by the relevant Party, (iii) a time schedule for the implementation of the Technical Development activities concerned, (iv) the financial responsibilities to be assumed by the relevant Party or Parties in relation to the Technical Development activities as may be assigned to a Party, (v) all such other issues as may reasonably have to be addressed under such Technical Development Plan, as it may be agreed and amended by mutual agreement of the Parties from time to time in accordance with this Agreement.

"Teijin" means Teijin Limited, 6-7 Minami-hommachi 1-chome, Chuo-Ku, Osaka 541-8587, Japan.

"Teijin Know-How" means the Know-How owned by Teijin relating to the Development of the Omnaris® AQ Product.

"Teijin Patents" mean the Patents referred to as number 1.3 and number 1.4 in Schedule 1.6.

"Term" shall have the meaning set forth in Section 18.1.

"Territory" or "US" means the United States of America, its territories and possessions, including, without limitation, the Commonwealth of Puerto Rico.

17

"Tertiary Detail" means a Detail that is in the third position and receives the third most emphasis or focus during a Call.

"Third Party" shall mean any Person other than the Parties and their Affiliates.

"Third Party Patent Counsel" shall have the meaning set forth in Section 7.2.5.5.1(i).

"Third Party Supply Agreement" shall have the meaning set forth in Section 6.2.1.4.

"Third Party Technology" means the patents and know-how controlled by a Third Party regarding a technology that may be required for the Development and Commercialization of an Additional Product in accordance with this Agreement.

"3M" means 3M Health Care Limited, a British company, having an address of 1 Morley Street, Loughborough, Leicestershire, LE11 1EP, England.

"3M Development Agreement" means the development agreement directed to the development of the MDI Product entered into by and between 3M and Nycomed on [**], attached hereto as Schedule 1.9 (in redacted form).

"3M Drug Master Files" shall have the meaning set forth in Section 5.2.2.2.

        [**]

"3M Know-How" means the Know-How owned by 3M relating to the Development of the Alvesco® MDI Product and of the Omnaris® HFA Product.

"3M Patents" mean the Ownership Rights of 3M (jointly with Nycomed) in the Patents referred to as number 1.7 and number 1.8 in Schedule 1.6.

"3M Supply Agreement" means the purchase agreement entered into by and between Nycomed and 3M on [**] attached hereto as Schedule 1.10 (in redacted form).

"3M Technology" means the 3M Know-How and the 3M Patents, collectively.

"To the best of Nycomed's knowledge" shall have the meaning set forth in Section 13.1.1.

"To the best of Sepracor's knowledge" shall have the meaning set forth in Section 13.2.6.

"Trademark" shall mean (i) the Original Trademarks, (ii) any additional trademark owned by Nycomed and selected and assigned pursuant to Section 8.3.2 to an Additional Product, and (iii) any substitute Trademark selected for any of the foregoing pursuant to Section 8.8.4(c), collectively.

"Ultrahaler™ Technology" means Aventis' proprietary dry powder inhaler technology incorporated in the MDPI Product.

"Unit" shall mean, for each presentation form, dosage and package size of Product in the Territory (including Promotional Samples), one (1) package of the finished Product for resale to the customer or, in case of Promotional Samples, for distribution as sample, and, in case of Clinical Supplies, for each presentation form, dosage and package size of Product, placebo or comparator drug, one (1) package of the finished Product, placebo or comparator drug for use in clinical trials.

"Valois" means Valois SAS, a corporation organized under the laws of France, having its principal place of business at Le Prieuré, 27110, Le Neubourg, France.

"Valois Actuator" shall have the meaning set forth in Section 6.1.2.2.

"Valois Dose Counter" shall have the meaning set forth in Section 6.1.2.2.

"Valois Development and Pilot Scale Supply Agreement" shall have the meaning set forth in Section 6.1.2.2.

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"Valid Claim" means a claim of an issued Patent which claim has not been held invalid or unenforceable by final decision of a court or other governmental agency of competent jurisdiction, unappealable or unappealed within the time allowed for appeal, and which is not admitted to be invalid or unenforceable through reissue, disclaimer or otherwise.

"Withdrawal Notice" shall have the meaning set forth in Section 12.7.1.

Article 2
Grant of Rights

2.1   Grant of Rights.

2.1.1    Grant of Rights by Nycomed to Sepracor.    Subject to all terms and conditions of this Agreement, Nycomed hereby grants to Sepracor, and Sepracor accepts, for the Term, the following rights in the Territory and in the applicable Field:

2.1.1.1    Appointment as Exclusive Distributor for Original Products.    Nycomed hereby appoints Sepracor, and Sepracor hereby accepts such appointment, as the Exclusive Distributor of the Original Products in the Territory, with the sole and exclusive right, exclusive even as to Nycomed, to Commercialize these Products in the Territory, with the limited right pursuant to Section 2.2 to sublicense and subcontract;

2.1.1.2    Grant of Rights under Nycomed Technology to Develop and Commercialize Products.    An Exclusive right under the Nycomed Technology in the Territory to Develop and Commercialize Products in the Field; and

2.1.1.2.1    Grant of Rights under the Teijin Patents to Develop and Commercialize Products.    Subject to the payments to be made pursuant to this Agreement, a right and irrevocable during the Term, fully paid up sublicense under the Teijin Patents to Develop and Commercialize Products in the Field.

2.1.1.2.2    Grant of Rights under the 3M Patents to Develop and Commercialize Products.    A right and irrevocable during the Term, fully paid up non-exclusive license under the 3M Patents to Develop and Commercialize Products in the Field.

2.1.1.3    Grant of Rights under Nycomed Trademarks to Commercialize Product.    Subject to Article 8, Sections 9.2 and 9.3, an Exclusive right and license under the Nycomed Trademarks, to Commercialize Products in the Territory and in the Field exclusively under such Trademarks, as assigned by Nycomed through the SC to each Product pursuant to Section 8.1 and Section 8.2 (and not as non-branded generic), with the limited right pursuant to Section 2.2, to sublicense and subcontract.

2.1.1.4    Commercialization of Non-Branded Rx Generic.    The Parties agree that reasonably prior to the earlier to occur of (a) [**], (b) [**], and (c) [**] they shall, in good faith, [**] Commercialization of a non-branded prescription generic version of the affected Product, such that a non-branded prescription genericversion of the applicable Product [**] (i) always provided, however, that each Party may, [**], and (ii) always [**] notwithstanding.

2.1.1.5    Commercialization of OTC Products.    The Parties agree that reasonably prior to [**], they shall, in good faith [**] Commercialization of an OTC version of the relevant Product or Products. Only if considered [**] by both Parties, shall they agree in good faith on the terms and conditions for the [**], subject to [**].

2.1.1.6    Third Party Technologies.

2.1.1.6.1    Teijin Technology and 3M Technology.    Sepracor acknowledges that Sepracor's rights to any 3M Technology and Teijin Technology forming part of the Nycomed Technology are only provided to the extent Controlled by Nycomed.

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2.1.1.6.2    Aventis Ultrahaler™ Technology.    Sepracor acknowledges that Nycomed has no access rights to and does not Control Aventis' proprietary Ultrahaler™ Technology incorporated in the MDPI Product formerly co-developed by Aventis and Nycomed pursuant to the terms and conditions of the MDPI Collaboration and Development Agreement by and between Aventis and Nycomed, but may, until December 31, 2009, request Aventis to negotiate in good faith a license to such Ultrahaler™ Technology.

2.1.1.7    Access Rights of Sepracor to Nycomed Improvement Technology Covering Additional Products.

2.1.1.7.1    Access Rights.    Subject to all terms and conditions of this Agreement, without limitation, Sepracor's rights pursuant to Section 7.1.1.2, Nycomed hereby grants to Sepracor, and Sepracor accepts, for the Term an Exclusive right to practice the Nycomed Improvement Technology that is incorporated in any Additional Products in the Territory to Develop and Commercialize Products in the Field.

2.1.1.7.2    Consideration for License Grant in Case of Improvements Not Co-Developed by Sepracor.    If Sepracor should Develop or Commercialize in the Territory an Additional Product incorporating any Nycomed Improvement Technology without Sepracor having co-financed the related Technical or Clinical Development Costs in accordance with an agreed Development Plan, then Section 2.1.1.7.1 shall apply subject to the provisos:

[**] shall compensate [**] for a reasonable part of [**] related technical and clinical development costs. The basis of such allocation shall be a good faith estimation of [**], in each case within the Field.

        However and as a general principle, (i) all [**] shall be borne by [**], (ii) [**] shall bear [**] and (iii) there shall be a reasonable adjustment of such [**] if there should be any change regarding the [**], such adjustment to be made [**]. In the event that the Parties should be [**], such adjustment shall be finally determined by means of [**].

2.1.2    Grant of Rights by Sepracor to Nycomed.    Subject to all terms and conditions of this Agreement, Sepracor hereby grants to Nycomed, and Nycomed accepts, for the Term, the following rights and licenses:

2.1.2.1    Grant of Rights under Sepracor Technology to Develop Product.    A Non-Exclusive, non-royalty bearing right and license under the Sepracor Technology to perform Product Development in the Field in the ROW only;

2.1.2.2    Grant of Rights under Sepracor Technology to Manufacture and Import Product into the Territory.    An Exclusive, non-royalty bearing right and license under the applicable Sepracor Technology, to manufacture and import into the Territory Sepracor's requirements of Product.

2.2    Appointment of Sublicensees and Subcontractors.

2.2.1    Sublicensing and Subcontracting by Sepracor.

2.2.1.1    Sublicensing.    Subject to Section 2.2.1.2, Sepracor shall not sublicense its rights and obligations under this Agreement, whether in whole or in part, to a Third Party, without the prior written consent of Nycomed, such consent to be given or withheld within Nycomed's sole discretion.

2.2.1.2    Permitted Subcontracting by Sepracor.    Sepracor may subcontract activities to be performed by Sepracor according to this Agreement as follows:

        Sepracor may subcontract regulatory, Development and Commercialization work relating to the Products, however, in all cases: (i) Sepracor shall maintain close oversight of and direct responsibility for such work; (ii) Sepracor shall consider any reasonable suggestions from the SC with regard to

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vendor selection and (iii) Sepracor shall, if requested in writing by Nycomed, inform Nycomed of any such subcontractors and the activities that have been subcontracted.

2.2.2    Sublicensing and Subcontracting by Nycomed.

2.2.2.1    General Principle.    Except as expressly restricted hereinafter, Nycomed may sublicense or subcontract its rights and obligations under this Agreement, whether to an Affiliate of Nycomed or to a Third Party, without the prior written consent of Sepracor. Notwithstanding the foregoing, Nycomed may sublicense or subcontract any of its rights and obligations under this Agreement that relate to (i) Sepracor Technology or (ii) Know-How owned or developed by Sepracor not relating to the Compound or a Product, in each case whether to an Affiliate of Nycomed or to a Third Party, only with the prior written consent to Sepracor, such consent not to be unreasonably withheld or delayed (for example, due to a legal obligation relating to Sepracor Technology).

2.2.2.2    Appointment of Subcontractors for Product Manufacturing.    Nycomed may subcontract the manufacturing of the Original Products and, to the extent applicable, Products other than the Original Products and Compound or components thereof to Affiliates or Third Parties. Any change of the initial manufacturers or subcontractors appointed for the manufacturing of Product shall be subject to the change control provisions of the applicable Quality Agreement. Until such Quality Agreement or Supply Agreements and such change control procedures are agreed, Nycomed may only appoint subcontractors for the manufacturing of Product with the prior written consent of Sepracor, such consent not to be unreasonably withheld or delayed.

2.2.3    Vicarious Liability.    Unless provided otherwise herein, a Party sublicensing, subcontracting or designating Development, manufacturing or Commercialization activities to an Affiliate, Third Party or permitted designee in accordance with the provisions of this Article 2 shall be liable for the performance of any responsibilities so delegated as if they had been performed by the delegating Party.

2.3    Access Rights of Nycomed to Sepracor Technology.

2.3.1    License Grant.    Nycomed's rights pursuant to Sections 2.3.4 (Supply of Product), Section 5.7 (Right to Access and Reference Use of Regulatory Approvals) and 7.1.1.2 (Ownership to Certain Sepracor Improvements) notwithstanding, during the Term, Sepracor grants Nycomed a world-wide, unrestricted (except, during the Term, in the Field and in the Territory, restricted by and subject to the terms of this Agreement), perpetual, Non-Exclusive and irrevocable license (including the right to sub-license) to practice the Sepracor Technology for the purposes of developing, having developed, making, having made, using and selling Original Products and Additional Products, whether alone or in combination with one or several other active ingredients. Such license shall be subject to (i) a reasonable compensation of Development Costs incurred by Sepracor pursuant to Section 2.3.2, and (ii) royalties pursuant to Section 2.3.3.

2.3.2    Development Cost Sharing.    If Nycomed exercises its access rights pursuant to Section 2.3.1, the Parties shall agree in good faith on a reasonable compensation of Sepracor for the technical and clinical development costs incurred by Sepracor for the relevant Additional Product always provided, however, that Nycomed shall not owe Sepracor any such contribution for technical and clinical development costs incurred by Sepracor for the [**]. The basis of such determination of the share of Sepracor's technical and clinical development costs to be borne by [**] shall be a good faith estimation of [**], in relation to [**].

        There shall be a reasonable adjustment of such development cost compensation payment if there should be any change regarding the relevant countries of the ROW in which Nycomed commercializes the applicable Additional Product and the related sales potential, compared with the sales potential of the relevant Additional Product in the Territory, such adjustment to be made [**]. In the event that the Parties should be unable to determine any such development cost compensation payment or permitted adjustment thereof within a period of three (3) months from the date of receipt by a Party of the

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written request of the other Party to make any such adjustment, such adjustment shall be finally determined by means of Third Party Expert Determination in accordance with Section 20.4.

2.3.3    Royalties.

2.3.3.1    Formoterol Combination Product.    In the event that Sepracor should Develop a Formoterol Combination Product incorporating Sepracor's proprietary Compound RR-Formoterol covered by any Patent Controlled by Sepracor, then Nycomed shall make payment to Sepracor, for the duration of such Sepracor Patent in the relevant countries, of a royalty on its Net Sales of such Formoterol Combination Product, which corresponds in respect of the amount and the applicable thresholds to the royalty rates specified in Article 11.2 hereof as of the Effective Date.

2.3.3.2    Other Additional Products Incorporating Sepracor Technology.    Section 2.3.3.1 shall apply accordingly to any other Additional Product, other than the Nebules Product, Developed by Sepracor that incorporates any Patent Controlled by Sepracor always provided, however, that the Parties shall negotiate the applicable royalty rate at an appropriate time in consideration of all relevant factors including, without limitation, the contribution of the relevant Sepracor Patents to the overall commercial value of any such Additional Product, and always further provided that Nycomed shall owe no royalties for any Original Product or the Nebules Product.

2.3.4    Supply of Product by Sepracor or its Appointee.    In the event that Nycomed should elect to avail itself of its rights pursuant to Section 2.3.1 with regard to any Additional Product and the Parties have agreed pursuant to Section 6.2.1.4 that any such Additional Product shall be manufactured by Sepracor or its appointee, then, with respect to the financial and other terms and conditions of any such supplies of any such Additional or Original Product, as the case may be, Section 10.1.3 shall apply.

2.3.5    Exercise of Rights.    Nycomed may elect to exercise its rights pursuant to this Section 2.3 during the Term by giving Sepracor related written notice.

2.4    Generic Competition.    In the event that there is a generic version of any Product that is sold in the Territory, (i) the Parties, acting through the SC, shall agree on reasonable amendments to the terms under which the Products affected by the generic competition will be sold, including all changes of assumptions under which the Parties will operate during the remaining term of the Agreement, (ii) the Royalties will be discussed by the Parties acting through the SC, (iii) clause (g) of the definition of Net Sales shall be disregarded and no longer applicable, and (iv) the Parties shall agree on all other aspects relating to the sale of such Product and the continued viability of the Agreement with respect to such Product in light of the generic competition.

Article 3
Consideration

3.1    Consideration for Grant of Rights.    As part of the consideration for the grant of rights by Nycomed to Sepracor under this Agreement, Sepracor agrees to make payment to Nycomed of an Execution Payment, Development Milestone Fee, and Sales Milestone Fees (individually, each an "Installment" and collectively, the "Installments"), in accordance with this Article 3.

3.2    Execution Payment.

3.2.1    General.    Sepracor agrees to make payment to Nycomed of an execution payment totaling

US dollars 150 million ($150,000,000)

(the "Execution Payment"). This Execution Payment is considered to be a lump sum reimbursement of Nycomed's development costs attributable to the development of the Omnaris® AQ Product and the Alvesco® MDI Product for the Territory that has been accomplished by Nycomed prior to the Effective Date.

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3.2.2    Due Date of Execution Payment.    The Execution Payment shall be due upon the Effective Date, and Sepracor shall make payment of such Execution Payment in accordance with Section 3.5 no later than thirty (30) days after the Effective Date.

3.3    Development Milestone Fee.

3.3.1    General.    Further, upon the achievement of the milestone referred to in Section 3.3.2, Sepracor agrees to make payment to Nycomed of the following related milestone fee (a "Development Milestone" and a pertaining "Development Milestone Fee"):

3.3.2    Development Milestone and Fee.

3.3.2.1    Alvesco® MDI Product Development Milestone Fee.    Upon the [**] which contains a [**], Sepracor shall make payment to Nycomed of a one-time Development Milestone Fee of

US dollars [**] ($[**]).

3.3.3    Due Date of Development Milestone Fee.    The Development Milestone Fee referred to in Sections 3.3.1 and 3.3.2 above shall become due upon the date as of which the Development Milestone has been accomplished, and Sepracor shall make payment of the Development Milestone Fee in accordance with Section 3.5 within 10 Business Days from the date as of which the Development Milestone has been so accomplished.

3.4    Sales Milestone Fees.

3.4.1    General.    Further, upon the achievement of the milestones referred to in Sections 3.4.2 to 3.4.6, Sepracor agrees to make payment to Nycomed of the related milestone fees set out below (each, a "Sales Milestone" and a pertaining "Sales Milestone Fee"). Thereby and for the avoidance of doubt, it is understood that any Sales Milestone that has been achieved and triggered a Sales Milestone Fee in any given Contract Year shall not trigger another corresponding Sales Milestone Fee if such Sales Milestone is again achieved in any following Contract Year. Also and for clarity, if Sepracor should achieve, in any Contract Year and in each case for the first time, more than one Sales Milestone, all related Milestone Fees shall become due and payable.

3.4.2    First Sales Threshold.    Upon the first time the Net Sales of the Products in the Territory equal or exceed, in any calendar year, [**] US Dollars (US$[**]), Sepracor shall make payment to Nycomed of a Sales Milestone Fee of

US dollars [**] ($[**]).

3.4.3    Second Sales Threshold.    Upon the first time the Net Sales of the Products in the Territory equal or exceed, in any calendar year, [**] US Dollars (US$[**]), Sepracor shall make payment to Nycomed of a Sales Milestone Fee of

US dollars [**] ($[**]).

3.4.4    Third Sales Threshold.    Upon the first time the Net Sales of the Products in the Territory equal or exceed, in any calendar year, [**] US Dollars (US$[**]), Sepracor shall make payment to Nycomed of a Sales Milestone Fee of

US dollars [**] ($[**]).

3.4.5    Fourth Sales Threshold.    Upon the first time the Net Sales of the Products in the Territory equal or exceed, in any calendar year, [**] US Dollars (US$[**]), Sepracor shall make payment to Nycomed of a Sales Milestone Fee of

US dollars [**] ($[**]).

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3.4.6    Fifth Sales Threshold.    Upon the first time the Net Sales of the Products in the Territory equal or exceed, in any calendar year, [**] US Dollars (US$[**]), Sepracor shall make payment to Nycomed of a Sales Milestone Fee of

US dollars [**] ($[**]).

3.4.7    Due Date of Sales Milestone Fees.    The Sales Milestone Fees referred to in Sections 3.4.1 to .4.6 above shall become due upon the end of the Contract Quarter within which the applicable Sales Milestone has been reached, and Sepracor shall make payment of any such Sales Milestone Fee in accordance with Section 3.5 within two (2) weeks from the end of the relevant Contract Quarter.

3.5    Payment of Execution Payment, Development Milestone Fees and Sales Milestone Fees.

3.5.1    Period of Payment.    Payment of the Execution Payment, the Development Milestone Fee, and each Sales Milestone Fee shall be made within the periods referred to in Sections 3.2.2, 3..3.3 and 3.4.7.

3.5.2    Payment.    Sepracor shall make payment of each Installment by means of bank wire transfer in immediately available funds to the following bank account of Nycomed, whereby each Party shall bear bank charges arising on its side associated with any such transfer:

Credit Institute: [**]
Bank Account: [**]
SWIFT Code: [**]
IBAN-No.: [**]
VAT Identification number: [**]

In the event that Sepracor should fail to make timely payment of any Installment pursuant to this Agreement, interest shall accrue at a rate of interest of [**] percent ([**]%) above the monthly average rate(s) of the Euro OverNight Index Average ("EONIA") applying to the specific days of each of the months during which a default of payment occurs, as calculated by the European Central Bank and as quoted in the website of the Deutsche Bundesbank currently located at http://www.bundesbank.de/ sub "Monatsbericht" (or such other source as may be mutually agreed by the Parties) from time to time, effective for the applicable days of the period of default.

3.6    No Refund of Development of Execution Payment Milestone Fees, Development Milestone Fee, and Sales Milestone Fees.    It is expressly understood that the Execution Payment, the Development Milestone Fee and each Sales Milestone Fee paid by Sepracor shall neither be refundable nor refunded for any reason whatsoever.

Article 4
Governance and Oversight

4.1    General.    During the Term, the Development and Commercialization of the Product in the Territory shall be managed, coordinated and overseen by a committee and in the manner described below. All decisions of the Parties shall be made on the basis of the best interest of the Development and Commercialization of the Product in the Territory and in the Field, thereby reasonably considering the effects in the ROW, and Sepracor shall be obligated to use Commercially Reasonable Efforts to maximize profits and optimize sales of the Product in the Territory during the Term. The Parties anticipate that the committee shall perform the functions described below; however, the functions and operations of the committee may be altered from time to time during the Term by the mutual agreement of the Parties.

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4.2    Establishment and Responsibilities of Steering Committee and Subcommittees.

4.2.1    Establishment.    Promptly following the Effective Date, the Parties shall establish a Steering Committee (the "SC") that shall consist of an equal number of representatives of senior management from each Party, each such representative having the authority to act on behalf of the Party such individual represents. Initially, the SC shall consist of six (6) individuals; three (3) of whom shall be nominated by Sepracor; and three (3) of whom shall be nominated by Nycomed. Any member of the SC may designate a substitute to attend and perform the functions of that member at any meeting of the SC. Each Party may, with the consent of the other Party, such consent not to be unreasonably withheld or delayed, invite non-member, non-voting representatives of such Party to attend meetings of the SC. Each Party shall, on an alternate Contract Yearly basis designate the chairperson, and the other Party shall designate the secretary of the SC. The initial chairperson shall be designated by Sepracor; and the initial secretary shall be designated by Nycomed.

4.2.2    Responsibilities of SC.    The SC shall perform the following responsibilities always provided, however, that the SC or any Subcommittee shall in no event have any power to modify or amend this Agreement:

(i)

Oversee and coordinate the overall strategy for the Development and Commercialization of Products in the Territory including, without limitation, Line Extensions;



(ii)

Facilitate communication between the two Parties and provide a forum to review any Development, regulatory, manufacturing and Commercialization or other matters pertaining to the Product;



(iii)

Provide a forum for communication of Sepracor's activities in the Territory and Nycomed's activities in the ROW, both with respect to the Products and the Compound;



(iv)

Coordinate scientific, clinical and regulatory issues regarding Product or Compound in the Territory and in the ROW, including, without limitation, scientific as well as clinical positioning of Product, clinical trials, pharmacovigilance, preparation and prosecution of applications submitted to Regulatory Authorities in the Territory, and responding to requests and recommendations from such Regulatory Authorities, and similar activities, each with respect to Product in accordance with the terms of this Agreement;



(v)

Approve and then undertake a bi-annual (two times per Contract Year) review of the status of any Development Plan and the Marketing Plan, including, without limitation, the applicable timelines, and provide direction to the conduct of the Development Plan and Marketing Plan, as necessary;



(vi)

Review and approve any proposed Development Plan and any fundamental amendments or modifications thereto;



(vii)

Review and approve the proposed Marketing Plan and any fundamental amendments or modifications thereto;



(viii)

Monitor compliance by Sepracor with annual budgets as set out in the Contract Yearly Marketing Plan for the Commercialization of Product including, without limitation, Sepracor's Minimum Marketing Investment Obligations pursuant to Section 9.6.1 and Sepracor's Minimum Sales Obligations pursuant to Section 9.6.2,



(ix)

Review and consider implications of any clinical development regarding products incorporating the Compound performed or planned to be performed by Nycomed in the in ROW;



(x)

Review and approve the strategy for the Commercialization proposed by Sepracor for the Territory;

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(xi)

Discuss any potential benefits from synergies of Commercialization activities in the Territory with efforts in the ROW;



(xii)

Review and approve any additional brand names and Other Trademarks, subject to Article 8;



(xiii)

Discuss, monitor and coordinate supply and manufacturing strategy and issues,



(xiv)

Coordinate, oversee and delegate the activities of any Subcommittees established pursuant to Section 4.2.3 of this Agreement;



(xv)

Resolve disputes, disagreements and deadlocks unresolved by any Subcommittees established pursuant to Article 20 of this Agreement;



(xvi)

Perform such other responsibilities as may be assigned to the SC pursuant to this Agreement or as may be mutually agreed upon by the Parties from time to time; and



(xvii)

Consider whether any new Patents shall be considered to be Ancillary Patents instead of Additional Patents, and with respect to the Patents listed in clause (i) of the definition of Nycomed Ancillary Patents, as soon as reasonably practical following the Effective Date, the Parties shall cause their respective intellectual property counsel to meet and review the Patents listed in such clause (i) to determine whether any of such Patents should be submitted to the SC for consideration for inclusion as a Nycomed Additional Patent, subject to Nycomed's consent, not to be unreasonably withheld.

4.2.3    Subcommittees.    From time to time, the JSC may establish one or more Subcommittees to oversee particular projects or activities within the scope of authority of the SC, as it deems necessary or advisable (each, a "Subcommittee"). Each Subcommittee shall consist of such equal number of representatives of each Party as the SC determines is appropriate from time to time. Each Subcommittee shall meet with such frequency as the SC shall determine. All decisions of each Subcommittee shall be made by unanimous vote or written consent, with the representatives of each Sepracor and Nycomed, in each case collectively, having one vote in all decisions. If, with respect to a matter that is subject to a Subcommittee's decision-making authority, the Subcommittee cannot reach unanimity, the matter shall be referred to the SC, which shall resolve such matter in accordance with Section 4.3. The Parties envisage that the SC will establish Subcommittees shortly after the Effective Date to oversee each of the following areas: (i) regulatory matters; (ii) transition activities; (iii) optimum commercial strategies; and (iv) supply matters. If one Party expressly requires that a Subcommittee be appointed, then it will be promptly established by the SC. Each Party shall, on an alternate Contract Yearly basis designate the chairperson of each relevant Subcommittee, and the other Party shall designate the secretary of each relevant Subcommittee. The initial chairperson of each relevant Subcommittee shall be designated by Sepracor; and the initial secretary shall be designated by Nycomed.

4.3    General Principles Applying to the SC and Subcommittees.

4.3.1    Meetings.    All SC and Subcommittee meetings shall be as often as the members may determine, but in any event SC meetings shall occur not less than twice per calendar year. Such meetings may be held in person, or any means of telecommunications or video conference, as the members deem necessary or appropriate; provided, however, that at least one SC meeting per year shall be held in person and the location of such in person meeting shall alternate between Sepracor's and Nycomed's offices. Either Party may convene a special meeting of the SC by providing good reason and at least ten (10) Business Days written notice to the other Party specifying the date, time, place and proposed agenda.

4.3.2    Quorum.    A quorum for SC or Subcommittee meetings shall be four (4) members, with at least two (2) members from each Party. Any decision made by the SC or a Subcommittee without a

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quorum shall be null and void, unless subsequently ratified by all of the members of the SC or Subcommittee concerned.

4.3.3    Decision-Making.    Each Party shall have one vote on the SC and each Subcommittee on all matters that are within the responsibility of the SC and the applicable Subcommittee. Section 4.3.2 notwithstanding, both Parties must vote in the affirmative to allow the SC or a Subcommittee to take any action that requires the vote of the SC or the relevant Subcommittee. The members of the SC and each Subcommittee shall be obliged to use Commercially Reasonable Efforts to reach consensus on any disputes concerning the matters within their roles and functions. Resolutions of the SC and each Subcommittee shall be in accordance with this Agreement. Neither the SC nor any Subcommittee shall not have the authority to alter or amend the terms of this Agreement.

4.4    Right to Make Final Determination

4.4.1    Either Party's Right to Make Final Determination in Certain Cases.    If any matter in dispute is not resolved within sixty (60) days by the SC, then such matters in dispute shall, (i) always subject to Section 4.4.2 and (ii) always provided that the decision is made in good faith, that there is a reasonable basis for the decision, that the decision is not inconsistent with the Regulatory Approvals for the Product (if applicable), and that the decision is otherwise consistent with the terms of this Agreement, be finally determined as follows:

4.4.1.1    Right of Sepracor to Make Final Determination.    Sepracor may, always subject to Sections 4.4.1 and 4.4.2, and always subject to Nycomed's rights pursuant to Section 4.4.1.2(iv), make the final determination in the following matters:

(i)

To the extent that any such Development is financed exclusively by Sepracor and subject to Nycomed's rights pursuant to Section 4.4.1.2(ii), in all conflicts relating to the Development of any Product in the Territory and in the applicable Field;



(ii)

In all conflicts relating to the Commercialization of Product in the Territory including, without limitation, Sepracor's Annual Marketing Plan, adjustments or the execution thereof, or other matters regarding the Commercialization of Product by Sepracor in the Territory;



(iii)

All matters regarding development and commercialization of Products incorporating Compound in the ROW, if and to the extent a conflict relates to Sepracor Technology incorporated in the relevant product incorporating Compound, always, provided, however, that an exercise of such right is, within Sepracor's reasonably exercised discretion, required in order to safeguard Sepracor's global development and commercialization strategy for the relevant Sepracor Technology incorporated in any such product.

4.4.1.2    Right of Nycomed to Make Final Determination.    Nycomed may, always subject to Sections 4.4.1 and 4.4.2, and always subject to Sepracor's rights pursuant to Section 4.4.1.1, make the final determination in the following matters:

(i)

In all conflicts relating to the development of products incorporating the Compound in the ROW;



(ii)

In all conflicts relating solely to Nycomed's compliance with legal or regulatory rules governing any product incorporating the Compound in the Territory or in the ROW;



(iii)

In all conflicts relating to the commercialization of products incorporating the Compound in the ROW;



(iv)

In all conflicts relating to the global development and commercialization strategy of Nycomed for the Compound and products incorporating the Compound that would have a material adverse, safety, regulatory or financial impact on the development or commercialization of

27

Product in any of the Major Market Countries without having a material adverse financial impact on the Development or Commercialization of Products in the Territory; and

(v)

In any determination in accordance with the provisions set forth in Section 4.2.2 (xvii) whether any of the Nycomed Ancillary Patents listed in clause (i) of the definition of Nycomed Ancillary Patents shall be included as a Nycomed Additional Patent or whether they shall continue to be Nycomed Ancillary Patents.

4.4.2    Joint Approval Required.    Neither Party may determine any of the following matters that shall always require the approval of both Parties:

4.4.2.1    General Matters.    The following general matters shall always require the approval of both Parties:

(i)

Issues that would (x) excuse a Party from any of its obligations under this Agreement, (y) deprive a Party of its contractual rights or (z) impose upon a Party obligations exceeding those assumed by such Party under this Agreement, without limitation, modifying Minimum Marketing Investment Obligations or Minimum Sales Obligations for Sepracor, or establishing additional Minimum Marketing Investment Obligations or Minimum Sales Obligations for Sepracor, or modifying Supply Prices or Royalties, or cause a Party to incur out-of pocket expenses or pay any royalty (other than the Royalty);



(ii)

Issues that would cause a Party to violate bona fide contractual obligations towards a Third Party;



(iii)

Issues that would expose a Party to undue risks resulting from an alleged infringement of a Third Party Patent;



(iv)

Issues that would expose a Party to increased product liability risks;



(v)

Payment obligations of the other Party;



(vi)

Increases in the level of deductions above the amount set forth in clause (g) of the definition of "Net Sales"; and



(vii)

Subject to Section 4.2.2(xvii), any determination that a new Patent shall be classified as an Ancillary Patent instead of as an Additional Patent.

4.4.2.2    Specific Matters.    The following specific matters shall, if and to the extent not set out in this Agreement, always require the approval of both Parties:

(i)

Section 2.1.1.6 notwithstanding, issues regarding the Technical Development of the Omnaris® HFA Product and the Alvesco® MDI Product or any other Product incorporating [**] by Sepracor;



(ii)

Section 2.1.1.6 notwithstanding, issues regarding the Technical Development of the Omnaris® HFA Product, the Omnaris® AQ Product and the Alvesco® MDI Product or any other Product incorporating any technology of Valois by Sepracor;



(iii)

Issues related to the manufacturing of Compound and any Product including, without limitation, the determination of the manufacturer and the manufacturing site, unless agreed by the Parties including, without limitation, pursuant to the change control provisions of a Quality Agreement and always provided that Sepracor shall not unreasonably withhold or delay its consent to a relocation of any processing facility for Compound and Product by Nycomed or its permitted appointees;

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(iv)

Any decision to launch an OTC brand of a Product or a non-branded prescription version of a Product in the Territory;



(v)

Adjustments to the operation and function of the SC;



(vi)

The determination of any Minimum Obligations, of the compliance by Sepracor with any Minimum Obligations, of any Shortfall Amounts and of any compensation pursuant to Section 11.4.2(iii);



(vii)

The designation of a Trademark to a Product pursuant to Section 8.2.1, Section 8.3.2 and Section 8.8.4(c); and



(viii)

The determination of periods required by Nycomed to modify or set-up, as the case may be, to manufacture Sepracor's requirements of any Line Extensions or Additional Products that have been incorporated into this Agreement.

        4.4.2.3    Disputes Regarding Interpretation or Alleged Breach.    Notwithstanding this Section 4.4.2, any dispute regarding the interpretation of this Agreement or any alleged breach of this Agreement will be resolved in accordance with the terms of Section 20.2 and 20.3, and without limiting either Party's rights pursuant to Section 20.5.

        4.4.3    Decision Deemed to be Made by SC.    For all purposes under this Agreement, any decision made pursuant to Section 4.4 shall be deemed to be the decision of the SC.

        4.5    Dispute Resolution.

        4.5.1    General Principle.    In case the SC is unable to come to a decision within sixty (60) days of an issue being presented to it and neither Party is entitled to make the final determination pursuant to Section 4.4.1, the matter shall be referred to further dispute resolution pursuant to Section 20.2.

        4.5.2    Treatment of Disputed Matter Pending Dispute Resolution.    Pending dispute resolution pursuant to Sections 20.2 and 20.3, the relevant matter shall be tabled, and, subject to Section 20.5, no action regarding the relevant matter shall be taken.

        4.6    Minutes.

        4.6.1    Minutes of Meetings of SC.    The SC shall summarize its discussions and resolutions in minutes that shall be signed by duly authorized representatives of each Party (in each case and collectively, the "Minutes" of SC discussions and resolutions). Such Minutes for each of the SC meetings shall provide a description in reasonable detail of the discussions had at the meeting and a list of any actions, decisions or determinations approved by the SC, and shall be drafted by the secretary of the meeting and sent to the chairperson of the applicable committee for comment promptly after each such meeting (but in no event more than thirty (30) days). All actions noted in the Minutes are to be reviewed and approved at subsequent meetings of the SC; provided, that if the Parties cannot agree as to the content of the Minutes, such Minutes will be finalized to reflect such disagreement. Final minutes of each meeting shall be distributed to the members of the SC by the chairperson. All minutes of meetings shall be kept in the English language.

        4.6.2    Minutes of Meetings of Subcommittees.    Each relevant Subcommittee shall summarize its discussions and resolutions in Minutes, whereby Section 4.6.1 shall apply accordingly.

        4.7    Expenses.    Each Party shall bear all its own costs, including expenses incurred by the members nominated by it in connection with their activities as members of the SC or any Subcommittee.

        4.8    Alliance Managers.    Promptly after the Effective Date, each Party shall appoint an individual to act as the alliance manager for such Party (each an "Alliance Manager" of a Party). Each Alliance Manager who is not otherwise a member of the SC shall thereafter be permitted to attend meetings of

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the SC. The Alliance Managers shall be the primary contact for the Parties regarding the activities contemplated by this Agreement and shall facilitate all such activities hereunder. Each Party may replace its Alliance Manager with an alternative representative at any time with prior written notice to the other Party. The Alliance Managers shall not, in any manner, take over the role of the SC and shall not have any rights, powers or discretion except as expressly granted to the Alliance Managers hereunder. In no event shall the Alliance Managers have any power to modify or amend this Agreement.

Article 5
Regulatory Affairs

        5.1    Responsibility for Regulatory Issues.

        5.1.1    General.    The Parties shall designate a Party that shall, always subject to Section 5.2.2, Section 12.4, Schedule 12.4 and Section 4.4, be exclusively responsible for managing, overseeing, monitoring and coordinating all regulatory actions with respect to the Original Product and/or Additional Products in the Territory, including, without limitation, for obtaining and maintaining Regulatory Approvals for the Products in the Territory (the "Responsible Regulatory Party").

        5.1.2    Responsible Regulatory Party for Original Products.

        5.1.2.1    General Principle.    Unless otherwise agreed or required by the Legal Requirements, Nycomed shall serve as the Responsible Regulatory Party for the Original Products.

        5.1.2.2    Sepracor's Role as Regulatory Agent.    Nycomed exclusively appoints Sepracor to be its agent for purposes of effectuating its role as the Responsible Regulatory Party (Sepracor being the "Regulatory Agent"). Sepracor shall (i) use Commercially Reasonable Efforts to obtain and maintain all Regulatory Approvals for and on behalf of Nycomed, shall (ii) be the sole authorized interface with the FDA in regards to the Products in the Territory, shall (iii) exclusively handle all regulatory interactions with the FDA, including maintaining existing Regulatory Approvals as well as filing for any additional Regulatory Approvals, and shall (iii) act as recipient of complaints raised by Customers or Third Parties regarding Products in the Territory, all (iv) unless otherwise required or permitted under Legal Requirements and this Agreement.

        5.1.2.3    Specific Coordination Requirements.    When acting as Nycomed's Regulatory Agent, Sepracor shall timely coordinate with Nycomed at SC level any regulatory action or any decision to omit any regulatory action, that may adversely affect Nycomed's interests related to the Products and the Compound in the Territory or in the ROW.

        5.1.3    Regulatory Responsibility and Action Regarding DMF of Compound, Alvesco® MDI Product and Omnaris® HFA Product.    Further to its role as Responsible Regulatory Party for the Original Products, Nycomed, at its own cost, shall be responsible for (i) the DMF relating to the manufacture of the Compound in accordance with Section 5.2.2.1, (ii) the DMF regarding the Alvesco® MDI Product in accordance with Section 5.2.2.2 and (iii) the DMF regarding the Omnaris® HFA Product, in accordance with Section 5.2.2.2.

        5.1.4    Costs Related to Regulatory Activities.    The costs associated with Sepracor's actions taken as Regulatory Agent shall be borne by [**], and those associated with being the Responsible Regulatory Party, including all FDA fees, shall be paid by [**] and shall be reimbursed to [**] by [**] against appropriate documentation, subject to Section 5.1.3.

        5.1.5    Additional Regulatory Approvals.    The parties shall cooperate on any and all Regulatory Activities for Additional Products as set forth herein.

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        5.2    Title to and Ownership of Regulatory Approvals.

        5.2.1    General Principle.    Nycomed or its designee shall be the owner of Regulatory Approvals for the Original Products in the Territory. If and to the extent that Nycomed determines not to own the Regulatory Approvals for, and serve as the Responsible Regulatory Party with respect to, any Additional Product, the Parties agree that Sepracor may elect to exclusively own such Regulatory Approvals for such Additional Product in the Territory and exclusively act as Responsible Regulatory Party with respect to such Additional Product. For clarity, neither Party shall be obliged to act as Responsible Regulatory Party for an Additional Product.

        5.2.2    Restricted Access Regarding Drug Master Files.

        5.2.2.1    Nycomed Drug Master File.    Always subject to Sepracor's obligations of confidentiality and non-use pursuant to Article 16 of this Agreement, the Parties agree that the access of Sepracor to Nycomed's Drug Master File (the "Nycomed DMF") shall be restricted as follows:

        5.2.2.1.1    General.    The Nycomed DMF contains an unrestricted part and a restricted part. It is agreed that Sepracor shall have no access rights to the restricted part of the Nycomed DMF, and that Nycomed shall not be obliged to disclose to Sepracor the restricted part of the Nycomed DMF or any part thereof, except to the extent that such direct access and disclosure is necessary for Sepracor to carry out its obligations under this Agreement to Develop and Commercialize Products, and always subject to Sepracor's obligations of confidentiality and non-use pursuant to Article 16 of this Agreement.

        5.2.2.1.2    Filing of Nycomed DMF.    The filing of the Nycomed DMF with the responsible Regulatory Authorities in the Territory shall be performed by Nycomed, the costs of such filing to be borne by [**].

        5.2.2.1.3    Right of Sepracor to Reference Nycomed DMF.    In the event and to the extent required under applicable laws and regulations of the Territory, Nycomed shall provide Sepracor with a letter of authorization pursuant to which Sepracor shall have the right to reference the Nycomed DMF for purposes of obtaining the Regulatory Approval in the Territory always provided, however, that such letter of authorization shall not entitle Sepracor to access the restricted part of such Nycomed DMF, except to the extent that such direct access is necessary for Sepracor to carry out its obligations under this Agreement to Develop and Commercialize Product.

        5.2.2.1.4    Answering of Deficiency Letters Related to the Compound or Nycomed DMF.    In the event of any deficiency letters in relation to Compound and/or the Nycomed DMF issued by a Regulatory Authority of the Territory, Nycomed shall assist Sepracor in amending applications for Regulatory Approval and answering such deficiency letters, and Sepracor shall closely coordinate with Nycomed the answers to any such deficiency letters. Sepracor shall have direct access to the Nycomed DMF to the extent it is necessary for Sepracor to carry out its obligations under this Agreement to Develop and Commercialize Products.

        5.2.2.2    3M Drug Master Files.    Sepracor acknowledges that Nycomed [**].

        5.3    Regulatory Interface.    Always subject to Section 5.2.2 [**], the Parties agree to cooperate in good faith as follows in regulatory issues:

        5.3.1    Coordination.    The Parties shall establish procedures to ensure that the Parties exchange on a timely basis all necessary information to enable Sepracor as the Distributor of Product in the Territory and, where applicable, as Regulatory Agent or Responsible Regulatory Party, and Nycomed as the Responsible Regulatory Party, and Nycomed as the Party commercializing Compound and products incorporating the Compound in the ROW, to comply with all regulatory obligations relating to Compound, Products and products incorporating the Compound on a global basis, including without limitation filing updates, pharmacovigilance filings and investigator notifications.

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        5.3.2    Regulatory Meetings and Correspondence.    The Regulatory Agent and, where Sepracor is not acting as Regulatory Agent, the Responsible Regulatory Party, shall, always subject to Section 5.2.2, be responsible for interfacing, corresponding and meeting with the applicable Regulatory Authority with respect to the Product in the Field, within the Territory.

        Sepracor as Regulatory Agent shall timely inform Nycomed of, and, where Sepracor is not acting as Regulatory Agent, the Responsible Regulatory Party shall timely inform the other Party of, and representatives of Nycomed or such other Party may participate, in all meetings between representatives of Sepracor or the Responsible Regulatory Party, as the case may be, and the Regulatory Authority with respect to the Product in the Territory and in the Field unless such other party is prohibited by operation of law or regulation from doing so. For the purposes of clarity and further to Section 5.2.2, Sepracor and its representatives shall not be privy to, and shall not be permitted to participate in, those parts of any such meetings, discussions and correspondence that relates to the [**] or restricted part of the Nycomed DMF, except with the prior written consent of Nycomed.

        Nycomed shall be exclusively entitled to interface, correspond and meet with the applicable Regulatory Authorities outside the Territory with respect to the Product in the Field outside the Territory, as Nycomed deems appropriate within its sole discretion.

        To the extent reasonably practicable and subject to any Third Party confidentiality obligations, the Responsible Regulatory Party and, where relevant, Sepracor as Regulatory Agent, shall provide the other Party with drafts of any material documents or correspondence pertaining to the Product and prepared for submission to the FDA sufficiently in advance of submission so that the other Party may review and comment on the substance of such material documents or correspondence. The Responsible Regulatory Party and, where relevant, Sepracor as Regulatory Agent, shall promptly provide the other Party with copies of any material documents or other correspondence received from the FDA pertaining to the Product (including without limitation any meeting minutes). If the other Party has not commented on such material documents or correspondence within five (5) Business Days of provision of such material documents or correspondence to such other Party, then such other Party shall be deemed to have no comments on such material documents or correspondence.

        5.4    Mutual Duties to Assist.    Further to Section 5.3, each Party shall support the other, as may be reasonably necessary, including providing necessary documents or other materials reasonably required, to maintain and obtain Regulatory Approvals for the Product.

        5.5    Patent Notice.    Each Party shall provide the other Party (i) notice of any Patent relevant to any NDA relevant to any Product, Compound or a use thereof, prior to the time the NDA is filed in the Territory, and (ii) immediate notice of the issuance in the Territory of any Patent that may be a Patent relevant to any Product, Compound or a use thereof, giving the date of issue and Patent number for each such Patent, and the Parties will jointly decide within thirty (30) days of the Patent issuance if the Patent is to be listed in the Orange Book pursuant to any NDA submitted for such Product, or the Compound. Similarly, each Party shall provide the other Party immediate notice of any approved NDA and any Patent term extension in the Territory of any such relevant Patent. The Parties will cooperate with each other in the preparation and filing of Patent listings for the Orange Book and Patent term extensions, whereby Nycomed will proceed in filing of appropriate listing and Patent term extension documents. Each Party will provide prompt notice to the other Party of any inquiries as to any relevant patent, which has claims to manufacturing processes, which inquiries are provided pursuant to 35 U.S.C. §287, and will cooperate with respect to responses thereto. In all circumstances, the Party owning the NDA shall be solely responsible for filing the necessary documentation with the FDA to list an issued Patent in the Orange Book and confirming that the issued Patent was duly and properly listed.

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        5.6    Information and Data.

        5.6.1    Transfer of Nycomed Know-How.    As soon as reasonably practicable after the Effective Date, Nycomed, as coordinated by the SC, shall disclose to Sepracor all then existing Nycomed Know-How. Thereafter, during the Term, Nycomed will promptly disclose to Sepracor any additional Nycomed Know-How. Sepracor will be entitled to (i) receive, keep and use for regulatory purposes all clinical protocols, registration applications and other substantive regulatory documents including, but not limited to, all toxicological and clinical data, and (ii) access and reference all regulatory dossiers and filings, produced by Nycomed, its Affiliates and sublicensees and contractors pertaining to the Compound or the Product to the extent Controlled by Nycomed and as is reasonably necessary for Sepracor to exercise its rights and fulfill its obligations under this Agreement.

        5.6.2    Transfer of Sepracor Know-How.    During the Term, Sepracor, as coordinated by the SC, shall promptly disclose to Nycomed all Sepracor Know-How as further provided hereinafter. Nycomed will be entitled to (i) receive, keep and use for regulatory purposes all clinical protocols, registration applications and other substantive regulatory documents including, but not limited to, all toxicological and clinical data, and (ii) access and reference all regulatory dossiers and filings, produced by Sepracor, its Affiliates and sublicensees and contractors pertaining to Sepracor Technology to the extent Controlled by Sepracor and as is reasonably necessary for Nycomed to exercise its rights and fulfill its obligations under this Agreement.

        5.6.3    Know-How Controlled by Third Party.    To the extent that any Know-How related to a Product is Controlled by a Third Party, each Party agrees to use its reasonable efforts to arrange direct access to the portions of such Know-How that is relevant to the activities of a Party regarding a Product always provided, however, that neither Party will be obliged to provide such Know-How to the other Party if the Third Party is unwilling to provide the applicable Party access to the relevant Know-How Controlled by such Third Party.

        5.7    Right to Access and Reference Use of Regulatory Approvals.    Nycomed and its designees shall have the unrestricted (except, during the Term, in the Field and in the Territory, restricted by and subject to the terms of this Agreement) right and license, free of charge (except for Nycomed's obligations pursuant to Section 2.3), to access, use and reference Regulatory Approvals applied for or granted for Product in the Territory and held by Sepracor as Responsible Regulatory Party, and to access, use and reference the pertaining regulatory documentation, for the purposes of developing, obtaining regulatory approval for and Commercializing pharmaceutical products, whether within or outside the Territory, and whether within or outside the Field (except, during the Term, in the Field and in the Territory, restricted by and subject to the terms of this Agreement).

Article 6
Development and Financial Terms of Development

        6.1    Development of Original Products.

        6.1.1    Clinical Development of Alvesco® MDI Product.    Sepracor shall use Commercially Reasonable Efforts to perform, subject to coordination by the SC pursuant to Article 4 [**], the further Clinical Development of the Alvesco® MDI Product for such indications as Sepracor, within its reasonably exercised discretion, deems appropriate. For such purpose, Sepracor shall set up a pertaining Clinical Development Plan that shall be coordinated at SC level in accordance with Article 4. Sepracor acknowledges that Nycomed has informed Sepracor that, as of the Effective Date, there are no substantial ongoing Clinical Development activities by or for Nycomed regarding the Alvesco® MDI Product. For the avoidance of doubt, Nycomed shall have access rights to the Sepracor Technology resulting from Sepracor's Clinical Development of the Alvesco® MDI Product in accordance with Section 2.3.

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        6.1.2    Development of Omnaris® HFA Product.

        6.1.2.1    Responsibility for Development of Omnaris® HFA Product.    Sepracor shall use Commercially Reasonable Efforts to perform, subject to coordination by the SC pursuant to Article 4 [**], the Technical and Clinical Development of the Omnaris® HFA Product under its exclusive responsibility always subject to Sections 6.1.2.2 and 6.1.2.3. For such purpose, Sepracor shall set up a pertaining Technical and Clinical Development Plan that shall be coordinated at SC level in accordance with Article 4.

        6.1.2.2    Cooperation Partners of Nycomed in Development, Manufacturing and Supply of Omnaris® HFA Product.    Sepracor acknowledges that [**] is Nycomed's supplier of the pressurized aerosol canister including a metered dose valve (the "Canister") that forms the core element of the Omnaris® HFA Product.

        Sepracor also acknowledges that Nycomed is, as of the Effective Date, [**]

        Sepracor further acknowledges that Nycomed is [**].

        As a consequence, Sepracor agrees to reasonably coordinate its Development activities regarding the Omnaris® HFA Product with the purview of possibly continuing Nycomed's development efforts, and to timely inform Nycomed if Sepracor should wish to [**]. Upon either Party's reasonable request, the Parties shall lay down their related understandings in a pertaining amendment to this Agreement.

        6.1.2.3    Costs of Development of Omnaris® HFA Product.

        6.1.2.3.1    General Principle.    From the Effective Date, the costs and expenses of the Technical and Clinical Development of the Omnaris® HFA Product shall be borne [**].

        6.1.2.3.2    Omnaris® HFA Product Technical Development Activities Conducted for Nycomed as of Effective Date.    [**], shall be determined by [**] in good faith, and [**] shall make according payment to [**] in accordance with the terms and conditions of [**] by and between the Parties in good faith [**].

        6.1.2.3.3    Omnaris® HFA Product Clinical Development Activities.    Sepracor acknowledges that, as of the Effective Date, [**] regarding the Omnaris® HFA Product. From the Effective Date, the costs and expenses of the Clinical Development of the Omnaris® HFA Product shall be borne [**].

        6.1.2.3.4    Omnaris® HFA Product Development Plan.    Sepracor shall set up a Technical and Clinical Development Plan for the further Development of the Omnaris® HFA Product that shall be coordinated at SC level in accordance with Article 4.

        6.1.2.3.5    Access Rights of Nycomed.    For the avoidance of doubt, Nycomed shall have access rights to the Sepracor Technology resulting from Sepracor's Development of the Omnaris® HFA Product in accordance with Section 2.3.

        6.2    Development of Additional Products.

        6.2.1    Development of Additional Products.

        6.2.1.1    General; Proposal for Commercialization.    Sepracor's rights and license pursuant to Section 2.1.1.2 notwithstanding, the Parties shall discuss the Development and Commercialization of Additional Products at SC level. If a Party believes that any Additional Product, whether Controlled by such Party or by the other Party, is suitable for Commercialization in the Territory and therefore wishes to have such Additional Product Developed for Commercialization in the Territory, such Party shall give the other Party notice in writing, thereby submitting to the other Party, subject to its obligations of confidentiality and non-use pursuant to Article 16 of this Agreement, reasonably detailed information on the applicable Additional Product. The matter shall then be discussed and coordinated by the SC in accordance with the principles set out in Article 4.

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        6.2.1.2    Line Extensions.    Sepracor may Develop and Commercialize Line Extensions without the prior consent of Nycomed, but subject to coordination by the SC in accordance with Article 4. Whenever reasonably required under the circumstances, the SC shall prepare a resolution for the inclusion of the relevant Line Extension addressing the issues referred to in the second sub-paragraph of Section 6.2.1.3 to the extent relevant. Without limitation, the Parties shall reasonably coordinate at SC level reasonable periods as Nycomed may require to modify or set up, as the case may be, at Nycomed or its suppliers, manufacturing facilities regarding the applicable Line Extension in accordance with Section 10.1.2.

        6.2.1.3    SC Inclusion of Improved Products; Improved Product Resolution.    Sepracor may Develop and Commercialize any Improved Products subject to the consent of Nycomed, which consent shall not be unreasonably withheld or delayed after consideration at SC level in accordance with the following principles:

        Within a reasonable period of receipt of any request pursuant to Section 6.2.1.1, the SC (or a Subcommittee appointed by the SC) shall have evaluated the proposed Improved Product and shall submit to each Party a reasonable resolution (subject to Sepracor's right to Develop and Commercialize Line Extensions in accordance with Section 6.2.1.2) regarding the Development and Commercialization of the relevant Improved Product in the Territory. To the extent relevant under the circumstances, such resolution shall appropriately address, among other relevant issues and with respect to the applicable Improved Product, [**] (each, an "SC Improved Product Resolution").

        Whenever reasonably required under the circumstances, any additional covenants made between the Parties regarding an Improved Product following any such SC Improved Product Resolution shall be set forth in an "Additional Product Agreement".

        6.2.1.4    Supply of Additional Product.    If an Additional Product is intended to be supplied by Nycomed to Sepracor, the Parties shall enter into an "Additional Product Supply Agreement", and, if such Additional Product is to be manufactured by Sepracor or a Third Party and Nycomed wishes to Commercialize such Additional Product in the ROW, the Parties shall enter into a "Sepracor Supply Agreement" or a "Third Party Supply Agreement".

        6.2.1.5    Development Plan.    If the SC determines that the applicable Additional Product should be Developed, then Sepracor shall set up a Development Plan for review and coordination by the SC in accordance with the principles set out in Article 4 that shall be attached to the relevant Additional Product Agreement.

        6.2.1.6    Formoterol Combination Product.    Sections 6.2.1.1 to 6.2.1.5 notwithstanding, Sepracor agrees to use its Commercially Reasonable Efforts to Develop and Commercialize an Additional Product in form of the Formoterol Combination Product based on a delivery technology yet to be determined in accordance with Article 4.

        6.2.1.7    Nebules Product.    Sections 6.2.1.1 to 6.2.1.5 notwithstanding, Sepracor agrees to use its Commercially Reasonable Efforts to Develop and Commercialize the Nebules Product in accordance with Article 4. For the avoidance of doubt, Nycomed shall have access rights to the Sepracor Technology resulting from Sepracor's technical and clinical development of the Nebules Product in accordance with Section 2.3.

        6.2.2    Costs of Development of Additional Products and Co-Development.

        6.2.2.1    General Principle.    Subject to Section 6.2.2.2, the costs of the Technical and Clinical Development of any Additional Product for ultimate sale in the Territory only shall be borne by [**].

        6.2.2.2    Development Cost Sharing.    In the event that Nycomed should wish to Commercialize an Additional Product in the ROW and exercise its respective access right, then except for the costs of the further technical and clinical development of the Original Products and the Nebules Product, Nycomed

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agrees to co-finance the related Development Costs, and the Parties will, at SC level, in the course of determining the applicable Development Plan, negotiate an appropriate allocation of the applicable Development Costs in accordance with Section 2.3.

        6.2.2.3    Co-Development.    If and to the extent that Nycomed should wish to participate in such Development by rendering certain Development work, the Parties will, at SC level, agree on the Development work to be performed by Nycomed.

        6.2.2.4    Financial Reconciliation.    If and when relevant, Development Costs subject to Development Cost sharing shall only be submitted in accordance with Section 11.3.4 to the extent made or incurred in conjunction with an approved budget line item in an Development Plan as approved and revised from time to time by the SC in accordance with Article 4.

        6.2.3    Standard of Care.    Sepracor and, if and to the extent relevant pursuant to Section 6.2.2.3, Nycomed, shall use Commercially Reasonable Efforts to perform, subject to coordination by the SC pursuant to Article 4, the Development of any Additional Product.

        6.2.4    Disputed Patents and In-Licensing of Third Party Technology.

        6.2.4.1    Disputed Patents Regarding Additional Products.    In the event that an Infringement Claim pursuant to Section 7.3.1 that relates to an Additional Product is brought against one Party or its Affiliates only in the Territory, Section 7.3 shall apply always provided, however, that the costs of defending infringements claims pursuant to Section 7.3.4.3 and Third Party royalties pursuant to Section 7.3.4.4 shall be borne [**] to the extent that the alleged infringement relates only to Sepracor Technology incorporated in the relevant Additional Product, otherwise, the Third Party royalties shall be borne by the Parties as provided in Section 7.3.

        6.2.4.2    In-Licensing of Third Party Technology Regarding Line Extensions and Additional Products.    If a Party can establish to the reasonable satisfaction of the other Party pursuant to Section 7.4 that license(s) under any Third Party Disputed Patent or a Third Party Patent are necessary or advisable in relation to any Third Party Patent conflict related solely to Sepracor Technology incorporated in any Additional Product, then any related Third Party Patent royalties and other consideration for the use of such Disputed Patent so as to render (i) the manufacture (if relevant), use, offer to sell or sale in the Territory, or importation into the Territory, of the relevant Additional Product in the Field by Sepracor, or (ii) the manufacturing of the relevant Additional Product outside the Territory solely for exportation into the Territory for sale by Sepracor, non-infringing, shall be [**].

        6.2.5    Use of Clinical Data Generated by or for Sepracor in the Course of Clinical Development of Additional Products.    For clarity, Nycomed, its Affiliates and its Third Party licensees and sub-distributors shall have access rights to Clinical Development Data pertaining to Additional Products generated by or for Sepracor in accordance with Section 6.3.5.

        6.2.6    Access Rights of Nycomed.    For the avoidance of doubt, Nycomed shall have access rights to the Sepracor Technology resulting from Sepracor's Development of any Additional Product in accordance with Section 2.3.

        6.3    Principles Applying to all Products.    Unless expressly contracted out in any additional covenant as may be agreed by and between the Parties, the following principles shall apply to all Products:

        6.3.1    Development.    The Development of Product shall be overseen and coordinated by the SC in accordance with Article 4 and all applicable terms and conditions of this Agreement, including, without limitation, this Article 6.

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        6.3.2    Commercialization.    The Commercialization of Product shall be overseen and coordinated by the SC in accordance with Article 4 and all applicable terms and conditions of this Agreement, including, without limitation, Articles 9 and 11.

        6.3.3    Supply of Products and Compound.    The Original Products, any Additional Products and Compound, if and when relevant, shall be supplied to Sepracor in accordance with and all applicable terms and conditions of this Agreement, including, without limitation, Articles 10 and 11 and, whenever applicable, the relevant Supply Agreements.

        6.3.4    Change Control and Related Regulatory Issues.    When negotiating manufacturing and supply issues regarding the relevant Additional Product pursuant to Section 10.1.2 or when negotiating applicable change control issues related to an Original Product, the Parties shall appropriately consider related change control and regulatory issues in accordance with the change control procedures and the applicable notification and consent requirements as set forth in the applicable Quality Agreement. Where applicable, until such Quality Agreement and such change control procedures are agreed, the Specifications of Compound or any relevant Product may be changed with the written consent of both Parties (not to be unreasonably withheld or delayed), or as required by Regulatory Authorities.

        6.3.5    Use of Clinical Data Generated by or for Sepracor in the Course of Clinical Development of Additional Products.    Nycomed, its Affiliates and its permitted Third Party licensees and sub-distributors shall have the right and license to use, free of charge (except for Nycomed's share of the Clinical Development Costs, to the extent agreed and relevant), all Clinical Development Data (including those generated by or for Sepracor) (i) during and following the Term, outside of the Territory, (ii) during the Term, within the Territory and outside the Field, (iii) following the Term, within the Territory inside and outside the Field and (iv) during the Term, within the Territory and in the Field; provided that, in all cases, the exercise of such right shall be restricted by the terms and conditions of this Agreement.

        6.3.6    Dispute Resolution.    Disputes regarding the Development and Commercialization of Products shall be settled in accordance with Article 4, and Sections 20.2 and 20.3. Pending dispute resolution pursuant to Sections 4.5, 20.2 and 20.3, the relevant matter shall be tabled, and, except for dispute resolution and each Party's rights pursuant to Section 20.5, no action regarding the relevant matter shall be taken.

Article 7
Intellectual Property

        7.1    Ownership, Assignment, Prosecution and Maintenance of Ownership Rights.

        7.1.1    Ownership and Assignment of Ownership Rights.

        7.1.1.1    Ownership in General.    Except as provided in Section 7.1.1.2 and subject to the licenses and rights granted pursuant to this Agreement, (i) Nycomed shall own the Nycomed Technology and all Ownership Rights therein, (ii) Sepracor shall own the Sepracor Technology and all Ownership Rights therein; (iii) each Party shall solely own all Improvement Technology that is conceived and reduced to practice exclusively by such Party ("Nycomed's Solely-Owned Improvement Technology" or "Sepracor's Solely-Owned Improvement Technology", as the case may be) and all Ownership Rights therein, and (iv) the Parties shall jointly own all Improvement Technology that is conceived or reduced to practice jointly by the Parties ("Jointly-Owned Improvement Technology") and all Ownership Rights therein in equal shares.

        7.1.1.2    Ownership to Certain Improvement Technology.    Any and all Improvement Technology of Sepracor (whether or not jointly owned with Nycomed) that relates exclusively and directly to the Compound and/or any Original Product shall be the sole and exclusive property of Nycomed and shall form part of the Nycomed Improvement Technology. Sepracor shall receive reasonable compensation

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from Nycomed with respect to the use of any such Improvement Technology outside the Field. Sepracor shall assign all of its rights, title and interest in and to any such Improvement Technology to Nycomed. Upon Nycomed's request and sole expense, Sepracor shall deliver to Nycomed all instruments and other documents and shall take such other actions as may be necessary or reasonably requested by Nycomed, so that Nycomed may protect and defend its rights in and to such Improvement Technology which relates exclusively and directly to the Compound and/or the Product. For the use of any such Improvement Technology of Sepracor that relates exclusively and directly to the Compound and/or the Product, Ownership Rights to which have been transferred to Nycomed and which shall be included in the license grant by Nycomed to Sepracor pursuant to Section 2.1.1, Sepracor shall not owe any additional royalty or other payments to Nycomed and Sepracor shall have an unrestricted, perpetual, Non-Exclusive, royalty-free and irrevocable right (including the right to sub-license) to practice such Improvement Technology of Sepracor.

        7.1.1.3    Responsibility for Compensation Related to Improvement Technology.    Each Party shall be exclusively responsible for any compensation payable to any of its employees, subcontractors and sublicensees in respect of any Improvement Technology.

        7.1.1.4    Practice of Jointly-Owned Improvement Technology.    For clarity, each of the Parties shall have a world-wide, unrestricted (except, during the Term, in the Field and in the Territory, restricted by and subject to the terms of this Agreement), perpetual, Non-Exclusive, royalty-free and irrevocable right (including the right to sub-license) to practice the Jointly-Owned Improvement Technology independently of the other Party. The costs of acquiring any Third-Party technology necessary to exploit such Jointly-Owned Improvement Technology shall be born by the party seeking to exploit it.

        7.1.2    Prosecution and Maintenance of Patents.    In relation to the prosecution and maintenance of Patents, the Parties agree as follows:

        7.1.2.1    Responsibility of Nycomed in Relation to the Nycomed Technology and Nycomed's Solely-Owned Improvement Technology.    Nycomed shall, in its sole discretion, prepare, file, prosecute and maintain all Patents covering the Nycomed Technology and Nycomed's Solely-Owned Improvement Technology always provided, however, that Nycomed shall maintain the Nycomed Core Patents. Should Nycomed elect not to prepare, file, prosecute or maintain any Nycomed Additional Patent, then Nycomed shall, always provided that Nycomed is not subject to existing and future bona fide obligations towards [**] that prevent Nycomed from doing so, (i) provide Sepracor with written notice in sufficient time before any statutory bar date to permit Sepracor to prepare, file, prosecute and maintain such Patent, (ii) give Sepracor the right, at its election and sole expense, to prepare, file, prosecute or maintain such Patent in Sepracor's name, (iii) offer reasonable assistance to Sepracor in connection with such preparation, filing, prosecution or maintenance at no charge to Sepracor except for reimbursement of reasonable out-of-pocket expenses incurred in rendering such assistance, and (iv) assign to Sepracor at Sepracor's cost any such Patent that Sepracor elects to prepare, file, prosecute or maintain in its name pursuant to this Section 7.1.2.1 and use all reasonable efforts to co-operate with Sepracor in any such transfer. If Nycomed has an existing obligation to [**] that prevents it from carrying out its obligations pursuant (i)—(iv) above, Nycomed shall use its reasonable efforts to obtain [**] consent to disclose information to Sepracor.

        7.1.2.2    Responsibility of Sepracor in Relation to Sepracor Technology and Sepracor's Solely-Owned Improvement Technology.    Always subject to Section 7.1.1.2, Sepracor shall, in its sole discretion, prepare, file, prosecute and maintain all Patents covering the Sepracor Technology and Sepracor's Solely-Owned Improvement Technology. Should Sepracor elect not to prepare, file, prosecute or maintain any Patent covering the Sepracor Technology including, without limitation, Sepracor's Solely-Owned Improvement Technology, then Sepracor shall (i) provide Nycomed with written notice in sufficient time before any statutory bar date to permit Nycomed to prepare, file, prosecute and maintain such Patent, (ii) give Nycomed the right, at its election and sole expense, to

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prepare, file, prosecute or maintain such Patent in Nycomed's name, (iii) offer reasonable assistance to Nycomed in connection with such preparation, filing, prosecution or maintenance at no charge to Nycomed except for reimbursement of reasonable out-of-pocket expenses incurred in rendering such assistance, and (iv) assign to Nycomed at Nycomed's cost any such Patent that Nycomed elects to prepare, file, prosecute or maintain in its name pursuant to this Section 7.1.2.2 and use all reasonable efforts to co-operate with Nycomed in any such transfer.

        7.1.2.3    Responsibility in Relation to Jointly-Owned Improvement Technology.    Always subject to Section 7.1.1.2, Nycomed shall be responsible for the preparation, filing, prosecution and maintenance of all Patents covering Jointly-Owned Improvement Technology. Nycomed shall be deemed to be the Owning Party of such Patent for the purposes of this Section 7.1.2.3, Section 7.1.2.4 and Section 7.2. Should Nycomed elect not to prepare, file, prosecute or maintain any Patent covering Jointly-Owned Improvement Technology, then Nycomed shall (i) provide Sepracor with written notice in sufficient time to permit Sepracor to prepare, file, prosecute and maintain such Patent, (ii) give Sepracor the right, at its election, to prepare, file, prosecute or maintain such Patent, and (iii) offer reasonable assistance to Sepracor in connection with such preparation, filing, prosecution or maintenance at no charge to Sepracor. All costs incurred by Nycomed or Sepracor, as the case may be, in carrying out the foregoing responsibilities shall be borne [**], unless otherwise agreed in writing.

        7.1.2.4    Coordination of Patent Prosecution and Maintenance.    The Non-Owning Party shall have full rights of consultation with the Owning Party and the patent counsel selected by the Owning Party in all matters related to the Nycomed Core Patents and the Nycomed Additional Patents in the Territory, the Sepracor Patents and the Jointly Owned Patents. The Owning Party shall use reasonable efforts to implement all reasonable requests made by the Non-Owning Party with regard to the preparation, filing, prosecution, maintenance and/or defense of the Nycomed Core Patents in the Territory, the Sepracor Patents and the Jointly-Owned Patents. Nycomed will use its Commercially Reasonable Efforts to notify Sepracor if it intends to abandon any of the Nycomed Additional Patents.

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        7.1.2.5    Rights in Assigned Patents.    In case the Owning Party elects not to prepare, file, prosecute and maintain Patents and such Patents are being assigned to the Non-Owning Party in accordance with the provisions of Section 7.1.2, the Party assigning its rights in such Patents shall retain a world-wide, Non-Exclusive, perpetual, unrestricted, fully-paid up and irrevocable right and license (with the right to sub-license) to practice such assigned Patents.

        7.2    Enforcement of Ownership Rights.    The Parties agree as follows on the enforcement of Ownership Rights regarding Nycomed Technology in the Territory, Sepracor Technology or any Improvement Technology:

        7.2.1    Reports of Infringement.    Each Party shall promptly report in writing to the other Party during the term of this Agreement any (i) known infringement or suspected infringement of any Nycomed Core Patents and the Nycomed Additional Patents or Sepracor Patents or of the Jointly-Owned Patents by the development or commercialization of a Third Party product in the Field, or (ii) unauthorized use or misappropriation in the Field of any Nycomed Technology, any Sepracor Technology or any Jointly-Owned Improvement Technology by a Third Party of which it becomes aware, and shall provide the other Party with all available evidence in its possession supporting said claim of infringement, suspected infringement or unauthorized use or misappropriation.

        7.2.2    Right to Institute Suit.    Subject to Section 7.2.5 and except as provided in Section 7.2.3, the Party owning or Controlling the relevant Patents or Nycomed or Sepracor Technology (the "Owning Party") shall have the first right to initiate an infringement or other appropriate suit against any Third Party which at any time has infringed or is suspected of infringing, any Nycomed Patents or, Sepracor Patents as the case may be, or is using without proper authorization or misappropriating all or any portion of the Nycomed Technology, Sepracor Technology or Jointly-Owned Improvement Technology, as the case may be.

        7.2.3    Right of the Non-Owning Party to Institute Suit.    The Owning Party shall promptly advise the other Party (the "Non-Owning Party") of its intent not to initiate an infringement or other appropriate suit related to the enforcement of the Nycomed Core Patents in the Territory or the Sepracor Patents or any Patents claiming Jointly-Owned Improvement Technology ("Jointly-Owned Patents"), as the case may be, pursuant to Section 7.2.2. In the event that the Owning Party, and in case of Nycomed as the Owning Party, any contractual partner of Nycomed permitted to do so, does not initiate an infringement or other appropriate suit related to the enforcement of the Nycomed Core Patents and the Nycomed Additional Patents in the Territory or the Sepracor Patents or any Jointly-Owned Patents, as the case may be, pursuant to Section 7.2.2 within a reasonable period of time not exceeding ninety (90) days of becoming aware of a known or suspected infringement or unauthorized use or misappropriation of the Owning Party's Patents in the Field, then (i) the Non-Owning Party may, always subject to Section 7.2.5, take such action as is reasonably appropriate to enforce the Owning Party's Patents (in the case of the Nycomed Core Patents or the Sepracor Patents) or to enforce the Jointly-Owned Patents; provided, however, that Sepracor shall not initiate an infringement or any other suit regarding the [**] without the prior written consent of Nycomed, such consent not to be unreasonably withheld or delayed, and (ii) the Parties shall follow the procedures set forth in Section 7.2.4. Sepracor acknowledges that [**] to enforce the [**] Patents, unless otherwise agreed between [**] and Nycomed, and that [**] to enforce the [**] Patents, and that Nycomed may enforce the [**] Patents only if [**] should fail to do so within a certain period.

        7.2.4    Conduct of Suit.

        7.2.4.1    Conduct of Suit in General.    Subject to Section 7.2.5, a Party who initiates an infringement or other appropriate suit pursuant to Section 7.2.2 or Section 7.2.3 (the "Initiating Party") shall have the sole and exclusive right to select counsel for any such suit. The Initiating Party shall, except as provided in Section 7.2.4.1 and 7.2.4.2, below, pay all expenses of the suit, including, without limitation, attorney's fees and court costs, and keep all damages, settlement fees or other

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consideration for past infringement received as a result of such suit. In all cases, (i) the Initiating Party shall keep the other Party (the "Non-Initiating Party") promptly informed of the status of such suit on an ongoing basis and shall provide the Non-Initiating Party with copies of all documents filed in, and all written communications relating to, such suit; (ii) the Non-Initiating Party shall offer reasonable assistance to the Initiating Party in connection with such suit at no charge to the Initiating Party except for reimbursement of reasonable expenses incurred in rendering such assistance; (iii) if necessary, the Non-Initiating Party shall join as a party to the suit but shall be under no obligation to participate except to the extent that such participation is legally required and except as provided below, and (iv) the Non-Initiating Party shall have the right to join such suit, to the extent permitted by law, and be represented in any such suit by its own counsel at its own expense.

        7.2.4.2    Cost Sharing by Non-Initiating Party.    In case of a suit relating to (a) the Improvement Technology or (b) any Nycomed Patents or Sepracor Patents, the infringement or misappropriation of which by a Third Party would result in damage to the Non-Initiating Party, the Non-Initiating Party may, within sixty (60) days after its receipt of written notice from the Initiating Party of the commencement of such suit, elect to contribute up to an amount not to exceed [**] percent ([**]%) of the costs of such suit, and any damages, settlement fees or other consideration for past infringement received as a result of such suit shall be shared by the Initiating Party and Non-Initiating Party pro-rata based on their respective sharing of the costs of such suit. The Initiating Party shall not settle any such action or otherwise consent to an adverse judgment in any such action that adversely affects the rights or interests of the Non-Initiating Party or imposes additional obligations on the Non-Initiating Party without the prior written consent of the Non-Initiating Party, such consent not to be unreasonably withheld or delayed.

        7.2.5    ANDA Litigation.

        7.2.5.1    Notice of Certification.    With respect to the United States, Nycomed and Sepracor each shall immediately give written notice to the other of its receipt or knowledge of any certification filed under the "U.S. Drug Price Competition and Patent Term Restoration Act of 1984" claiming that a Nycomed Patent, a Sepracor Patent or a Jointly-Owned Patent is invalid, unenforceable and/ or that infringement will not arise from the manufacture, use, offer to sell or sale of Product by a Third Party (a "Patent Challenge Notice").

        7.2.5.2    Exclusive Right to Conduct ANDA-Related Patent Litigation.    Subject to the provisions of Section 7.2.5.5, in the event of the filing of an ANDA by a Person seeking approval to begin commercialization of a generic version of the Product in the Territory, Nycomed, [**], respectively, as pioneer Patent owners, shall have the sole right to bring patent infringement suit.

        Subject to the provisions of Section 7.2.5.5 and subject to Sepracor's rights under Section 7.2.3, the decision of whether or not to file suit in response to a Patent Challenge Notice shall be within Nycomed's, [**] sole discretion as further set forth hereinafter. If any such ANDA related patent infringement suit pertains to the Omnaris® AQ Product, Nycomed [**], as owners of the patents listed in the Orange Book, shall have the sole right to bring patent infringement suit. Subject to the provisions of Section 7.2.5.5 and subject to Sepracor's rights under Section 7.2.3, the decision of whether or not to file suit shall be within Nycomed's and [**] sole discretion. If any such ANDA-related patent infringement suit pertains to the Omnaris® HFA Product or the Alvesco® MDI Product, Nycomed [**], as owners of the patents which are intended to be listed in the Orange Book, shall have the sole right to bring patent infringement suit. Subject to the provisions of Section 7.2.5.5 and subject to Sepracor's rights under Section 7.2.3, the decision of whether or not to file suit shall be within Nycomed's and [**] sole discretion. In all cases referred to above also involving [**], Nycomed shall undertake reasonable efforts to have [**] to also enforce their respective Patent rights.

        7.2.5.3    Conduct of Suit by Nycomed.    If Nycomed, [**], as the case may be, bring suit against the Person having filed the relevant ANDA, Nycomed, [**], as the case may be, shall have the sole and

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exclusive right to select counsel for any such suit. Notwithstanding the foregoing, and always subject to bona fide confidentiality obligations towards [**], Nycomed shall keep Sepracor reasonably informed of the status of such suit on an ongoing basis, shall provide Sepracor with copies of all documents filed in, and all written communications relating to, such suit, and shall obtain Sepracor's consent to the selection of reputable experienced patent counsel for Nycomed, which consent shall not unreasonably be withheld or delayed by Sepracor. Sepracor shall offer reasonable assistance (e. g., including, but not limited, to reasonable access to witnesses and documents) to Nycomed in connection with such suit at no charge to Nycomed except for reimbursement of reasonable expenses incurred in rendering such assistance in accordance with Section 7.2.5.4 below. In no event shall Nycomed name Sepracor as a co-plaintiff or party to any such lawsuit without the express prior written consent of Sepracor.

        7.2.5.4    Cost Sharing and Recovery of Damages.    [**].

        7.2.5.5    Specific Covenants of Nycomed Regarding ANDA-Related Patent Litigation

        7.2.5.5.1    Third Party Patent Counsel Assessment.    In the event that a Third Party prepares to or is manufacturing, importing, using, offering to sell, selling, or seeking approval to begin the commercialization of a generic version of an Original Product in the Territory by filing of an ANDA, then Nycomed shall, as soon as known to Nycomed and legally and contractually permitted pursuant to Section 7.2.5.5.1(i) and (ii) and always subject to Section 7.2.5.5.1(iii), [**].

        7.2.5.5.2    Liquidated Damages.    If the legal opinion referenced in Section 7.2.5.5.1 is not issued and no responsive suit for the relevant Nycomed Core Patent is timely filed by or on behalf of Nycomed, Nycomed shall pay to Sepracor as liquidated damages an amount equal to the [**], always provided that the [**], and (ii) [**], and (B) [**], (C) always further provided, however, that no liquidated damages shall be payable if [**].

        7.3    Disputed Patents.

        7.3.1    Mutual Information.    The Parties shall immediately notify each other (i) of any Patent that may be considered a Disputed Patent or (ii) if a claim or proceedings are threatened or brought against either Party or its Affiliates alleging that the manufacture, use, offer to sell or sale in the Territory, or the importation into the Territory, of Compound or Product, or the manufacturing of Compound or a Product for Sepracor, infringes, induces the infringement of, or contributorily infringes the Patents of a Third Party (each an "Infringement Claim"). Any notice shall set forth the facts of the Infringement Claim as known to such Party providing such notice.

        7.3.2    Infringement Claims Against Both Parties.    If an Infringement Claim is brought against either or both Parties or their Affiliates in the Territory, the Parties shall immediately consult on how to further proceed, and the Parties shall proceed as set out in this Section 7.3.

        7.3.3    Infringement Claims Against One Party.    In the event that an Infringement Claim is brought against one Party or its Affiliates only in the Territory, the other Party shall (to the extent permitted by law) have the right to join any such proceedings as a Party or otherwise as may be admissible under applicable procedural laws at its own expense by counsel of its own choice. In any such proceedings brought against one Party or both Parties hereto, the Parties shall render each other all reasonable assistance in defending any such suit or claim, subject to Section 7.3.4.3 at the assisting Party's expense.

        7.3.4    Coordination of Defense.    The final decision whether or not and, as the case may be, how to, defend or settle any Infringement Claim will be determined as follows:

        7.3.4.1    Defense of Infringement Claim.    The Parties shall first determine whether or not the Infringement Claim should be defended. If the Parties cannot agree, (a) Nycomed shall be entitled to make the final decision (i) in case an Infringement Claim is brought solely against Nycomed, (ii) in cases related to the [**], if Sepracor is not named as defendant, and (iii) always subject to Nycomed's rights pursuant to Sections 7.3.4.2 and 7.3.4.4; (b) Sepracor shall be entitled to make the final decision

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(i) in case an Infringement Claim is brought solely against Sepracor, and (ii) always subject to Sepracor's rights pursuant to Sections 7.3.4.2 and 7.3.4.4. (c) In case an Infringement Claim is brought against both Parties, the Infringement Claim shall be defended with the proviso that, if a Party should have elected not to defend such Infringement Claim, the Party electing to defend such Infringement Claim shall bear all out of pocket costs incurred by the Parties in the preparation of a defense against, and in defending such Infringement Claim (including, without limitation, amounts paid to the Third Party by way of settlement or damages), and shall be entitled to receive any amounts recovered by way of costs or otherwise.

        If infringement claims are asserted against both Parties, each Party shall be entitled to be represented by reputable international patent litigation counsel of its own choice. In all cases, the Parties shall, based on the advice of their legal counsel, endeavor to agree in good faith on a uniform strategy in defending any such Infringement Claim.

        7.3.4.2    Determination of Defense Strategy.    With respect to how the defense of any such Infringement Claim shall be conducted, the Parties shall endeavor to agree on their instructions to counsel, but failing agreement, (a) Nycomed shall be entitled to determine the defense strategy (i) in case an Infringement Claim is brought solely against Nycomed, (ii) in cases related to the [**], if Sepracor is not named as defendant; (b) Sepracor shall be entitled to determine the defense strategy (i) in case an Infringement Claim is brought solely against Sepracor.

        The Parties shall in all cases involving the defense of Infringement Claims (i) closely coordinate the further action to be taken on the basis of the advice of reputable international patent litigation counsel retained by each or both Parties pursuant to Sections 7.3.3 and 7.3.4.1, and (ii) jointly instruct reputable international patent litigation counsel selected by the Parties in good faith to act in the best interests of both Parties, taking into account their interests under this Agreement, in conducting the defense of any such Infringement Claim, the other Party's right to join any such proceedings by counsel of its own choice pursuant to Section 7.3.3 notwithstanding.

        7.3.4.3    Costs of Defending Infringement Claim.    The out of pocket costs incurred by each Party in the preparation of a defense against, and in defending any such action or proceeding (not including amounts paid to the Third Party by way of settlement or damages), and any amounts recovered by way of costs, shall be borne and shared, as applicable, by the Parties in equal shares to the extent that any such action or proceeding relates to a Product. Otherwise and to the extent that any such action or proceeding relates solely to Sepracor Technology incorporated in an Additional Product, the out of pocket costs, the costs incurred by each Party in the preparation of a defense against, and in defending any such action or proceeding (not including amounts paid to the Third Party by way of settlement or damages), and any amounts recovered by way of costs, shall be borne and kept, as applicable, by Sepracor in accordance with the principles applying pursuant to Section 6.2.4.1. Subject always to the provisions of Section 7.3.4.2, (i) neither Party shall settle any action or consent to an adverse judgment if to do so would adversely affect the rights or interests of the other Party or impose additional obligations on the other Party without the prior written consent of the other Party, such consent not to be unreasonably withheld or delayed; and (ii) neither Party shall settle any action or proceeding unless such settlement provides a full release for both Parties.

        7.3.4.4    Settlement of Infringement Claim.    Notwithstanding Section 7.3.4.2, in the event of a disagreement between the Parties regarding a decision to propose or accept a settlement of an Infringement Claim regarding an Original Product, then each Party shall have the right to propose or accept any settlement and to conclude a license in respect of such Disputed Patent, and the other Party shall be bound by such license, always provided (i) that the other Party is afforded a reasonable opportunity to participate in and to influence the negotiation process, (ii) that the cumulative royalties payable to Third Parties in respect of Net Sales in the relevant Field in the Territory (including any royalties payable in connection with such settlement and fees and royalties payable in connection with any other settlements or licenses entered into in accordance with this Agreement) shall not exceed in

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the aggregate the Third Party Royalty Threshold of [**] percent ([**]%) of Net Sales in the relevant Field and in the Territory, (iii) and imposes upon the Parties no other obligations other than the obligation to make payment of royalties to the relevant Third Party and further provided, and (iv) if any such settlement is proposed or accepted by Sepracor, that such settlement only relates to the Territory and not to any countries of the ROW. In determining whether the applicable threshold is exceeded, all amounts paid as a lump sum and/or in respect of the period of time before settlement shall be taken into account by the Parties in a fair and reasonable manner.

        Notwithstanding Section 7.3.4.2, to the extent that any such action or proceeding relates solely to Sepracor Technology incorporated in an Additional Product, the principles applying pursuant Section 6.2.4.1 shall govern.

        7.4    Third Party Licenses.    In the event that a Party can establish to the reasonable satisfaction of the other Party, at any time during the Term of this Agreement, that license(s) under any Third Party Disputed Patent is necessary or advisable for purposes of enabling the Parties, to perform the manufacture, use, offer to sell or sale in the Territory, or importation into the Territory, of Compound, an Original Product or an Additional Product, in the Field, or the manufacturing of Compound or a Product outside the Territory or exportation into the Territory for Sepracor, the Parties shall reasonably co-operate to obtain such Third Party license for the benefit of both Parties and, where applicable, for the benefit of Nycomed in the ROW further to the cost allocations and other principles of Section 7.3.4.4.

        7.5    Updating of Patent Schedules.    To the extent applicable, Schedule 1.5 and Schedule 1.6 shall be updated on a continuous basis but in no event less than on an annual basis.

Article 8
Trademarks

        8.1    Original Trademarks.    Nycomed has registered the Original Trademarks in the Territory. Sepracor shall use the Original Trademark "Alvesco" for the Commercialization in the Territory of the Alvesco® MDI Product, and the Original Trademark Omnaris® for the Commercialization in the Territory of the Omnaris® AQ Product and the Omnaris® HFA Product.

        8.2    Additional Trademarks.

        8.2.1    General Principle.    In the event that applicable Legal Requirements should necessitate the use of a trademark other than any of the Original Trademarks for the Commercialization of an Additional Product, or in the event that a Product is assigned an alternative Trademark pursuant to Section 8.8.4(c), Nycomed shall, as coordinated at SC level, either (i) designate an additional Trademark owned by Nycomed for use with the relevant Product, (ii) engage a Third Party US branding institute appointed with the prior written consent of both Parties, to select a suitable additional Trademark for use with the relevant Product, whereby Nycomed shall bear the costs of the activities of such international branding institute, or (iii) designate a Trademark proposed by Sepracor for use with the relevant Product.

        8.2.2    Ownership of Additional Trademarks.    Each such additional Trademark shall be owned by Nycomed. In the cases referred to in Section 8.2.1(ii), Nycomed agrees to cause the applicable branding institute to transfer to Nycomed ownership to any such additional Trademark in the Territory. In the cases referred to in Section 8.2.1(iii), Sepracor shall, Section 8.2.4 notwithstanding, promptly transfer all rights regarding such additional Trademark for the Territory to Nycomed, whereby Nycomed shall bear the related out-of-pocket costs of Sepracor associated with any such transfer against reasonable documentation.

        8.2.3    Representations of Nycomed Regarding Additional Trademarks.    Section 8.8.1 notwithstanding, with respect to each additional Trademark proposed by Nycomed pursuant to

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Section 8.2.1(i) or Section 8.2.1(ii), Nycomed shall represent and warrant that, in each case as of the date the designation of such additional Trademark for use with the applicable Product in the Territory by Sepracor pursuant to this Agreement, (i) Nycomed Controls any such additional Trademark in the Territory; (ii) Nycomed has the authority and is entitled to license any such additional Trademark in the Territory; and (iii) Nycomed's trademark department is not aware of and has, as of the date of such designation by Nycomed, received no notice alleging that the use of any such additional Trademark in the Territory by means of the Commercialization of Product infringes, violates or misappropriates the rights of a Third Party in the Territory.

        8.2.4    Representations of Sepracor Regarding Additional Trademarks.    With respect to each additional Trademark originally owned by Sepracor and proposed by Nycomed pursuant to Section 8.2.1(iii), Sepracor shall represent and warrant that, as of the date the designation of such additional Trademark for use with the applicable Product in the Territory by Sepracor pursuant to this Agreement, Sepracor's trademark department is not aware of and has received no notice alleging that the use of any such additional Trademark in the Territory by means of the Commercialization of Product infringes, violates or misappropriates the rights of a Third Party in the Territory.

        8.3    Trademark Licenses of Sepracor for Products.

        8.3.1    General.    Sections 2.1.1.3, 9.2 and 9.3 notwithstanding, all rights not expressly granted in Trademarks are reserved by Nycomed, and Sepracor acknowledges that nothing in this Agreement shall confer to Sepracor any right, title or interest in the Trademarks other than those conferred to Sepracor pursuant to Section 2.1.1.3 and this Article 8.

        8.3.2    Commercialization of Product Exclusively under the Trademarks.    Further and subject to Section, 8.8.4(c), each Original Product shall be distributed and sold by Sepracor in the Territory only under the Trademark assigned to it pursuant to Section 8.1, and each Additional Product shall be distributed and sold by Sepracor in the Territory only under the Trademark assigned to it pursuant to Section 8.2.1.

        8.4    Restricted use of the Trademark.    Sections 9.2.2 and 9.3.2 notwithstanding, Sepracor agrees to use the Trademarks in the Territory solely in connection with the Product. Further, Sepracor agrees neither to apply for, nor to register, nor to use, any trademark identical with or confusingly similar to the Trademarks.

        8.5    Nycomed's Rights in the Trademark.    The entire right, title and interest in the Trademarks in the Territory shall remain the sole and exclusive property of Nycomed and Sepracor shall make no representations inconsistent with the foregoing. If Sepracor or an Affiliate of Sepracor acquires (by operation of law or howsoever) any right, title and interest in the Trademarks or a trademark confusingly similar thereto, then Sepracor shall assign or cause such Affiliate of Sepracor to assign such rights to Nycomed at Nycomed's first request and, at the latest, upon expiry or termination of this Agreement free of charge except transfer fees, as Nycomed may direct.

        8.6    Maintenance of the Trademark.    Nycomed shall be responsible for the maintaining and defending the Trademarks in the Territory at its own cost. Nycomed shall use Commercially Reasonable Efforts in obtaining, maintaining, and renewing any registrations for the Trademarks at its sole expense.

        8.7    Defense of Trademark Against Third Party Infringement.    Sepracor agrees to notify Nycomed in writing of any known or suspected conflicting use of any Trademark, and the application for registration or use of trademarks confusingly similar thereto, or of any known or suspected infringements or of unfair competition involving the Trademark in the Territory promptly after it acquires knowledge thereof. Nycomed shall be responsible for the defense of the Trademark and will use Commercially Reasonable Efforts to defend the Trademark. At the reasonable request of Nycomed, Sepracor shall cooperate with Nycomed and render Nycomed its commercially reasonable assistance in the defense of the Trademark, subject to reimbursement of the related out of pocket expenses of Sepracor. Any damages and costs recovered shall be for Nycomed's sole benefit.

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        In case Nycomed decides not to defend the Trademark within thirty (30) days of Sepracor's written request to do so, Sepracor shall be entitled to do so at its own expense in cooperation and with the commercially reasonable assistance of Nycomed and, in such case, any damages and costs recovered shall be for Sepracor's sole benefit, subject to reimbursement of the out of pocket expenses of Nycomed related to Nycomed's assistance.

        8.8    Representations of Nycomed Regarding Original Trademarks as to Third Party Trademark Claims; Defense against Third Party Infringement Claims.

        8.8.1    Representations of Nycomed Regarding Original Trademarks.    Section 8.2.3 notwithstanding, Nycomed represents that, in each case as of the Effective Date, (i) Nycomed Controls the Original Trademarks in the Territory; (ii) Nycomed has the authority and is entitled to license the Original Trademarks in the Territory; and (iii) as of the Effective Date, to the best of Nycomed's knowledge as defined in Section 13.1.1, Nycomed is not aware of and has received no notice alleging that the use of the Original Trademarks in the Territory by means of the Commercialization of Product infringes, violates or misappropriates the rights of a Third Party in the Territory.

        8.8.2    Information on Third Party Infringement Claims.    The Parties shall promptly notify each other if a claim or proceedings are threatened or brought against either Party or its Affiliates alleging that the use of a Trademark in the Territory by means of the Commercialization of Product infringes, violates or misappropriates the rights of a Third Party in the Territory.

        8.8.3    Defense against Third Party Trademark Claims.    If a claim or proceedings as described in Section 8.8.2 should be brought against either Party or both Parties, the Parties shall immediately consult on how to further proceed. The final decision whether or not and, as the case may be, how to defend or settle such claim or proceedings shall be with Nycomed. In the event that proceedings are brought against Nycomed only, then Sepracor shall have the right to join any such proceedings as a Party thereto at its own expense by counsel of its own choice. In the event that proceedings are brought against Sepracor only, Sepracor shall have the right to call Nycomed in any such proceedings as an indemnifying party thereto, and Nycomed agrees to join such proceedings at its own expense by counsel of its own choice. Subject to Section 8.8.4, in any such proceedings brought against a Party hereto, the other Party shall render such Party all reasonable assistance in defending any such suit or claim at such Party's expense. Sepracor may settle any such claim or proceedings only with the prior written consent of Nycomed, such consent not to be unreasonably withheld or delayed.

        8.8.4    Indemnification by Nycomed.    In the event of a determination by final court decision or under a definitive settlement by Nycomed pursuant to Section 8.8.3 that the Commercialization of Product in the relevant Field and in the Territory, on account of the use of a Trademark, infringes the trademark rights of a Third Party in the Territory, then, to the extent that Nycomed has breached any of its representations and warranties pursuant to Section 8.8.1 or Section 8.2.3 and to the express exclusion of any Trademark originally owned by Sepracor and designated to a Product pursuant to Section 8.2.1(iii), Nycomed shall (a) indemnify and hold Sepracor harmless against any such Third Party claim or proceeding referred to in Section 8.8.3 above brought against Sepracor including damages and reasonable attorney's fees; provided, however, that: (i) any obligation to indemnify shall be excluded if Sepracor fails to promptly notify Nycomed of the assertion of any such claims, to the extent that such failure is prejudicial to Nycomed's interests, and/or (ii) if Sepracor recognizes or settles part of or all of any such claims without Nycomed's prior written consent; and (b) replace, free of charge, all Products on stock at Sepracor that are no longer saleable on account of the infringement of a Third Party trademark with Products showing the new trademarks determined pursuant to Section 8.8.4(c). (c) Regardless of whether or not Nycomed has breached any of its representations and warranties pursuant to Section 8.8.1 or Section 8.2.3, Nycomed shall, as coordinated at SC level, propose alternative trademarks that shall replace the relevant Trademark pursuant to this Agreement and to which Article 8 (and all other relevant provisions of this Agreement) shall likewise apply;

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        8.9    Goodwill of Trademark.    Sepracor shall use its Commercially Reasonable Efforts to establish and maintain the goodwill in the Territory of the Trademarks in the course of performing its obligations under this Agreement. Sepracor agrees that all use of Nycomed's Trademark will inure to the benefit of Nycomed. Without limitation, to the extent permitted by law, all goodwill deriving from the use of the Trademark pursuant to the terms of this Agreement or otherwise arising out of this Agreement shall accrue solely and exclusively to Nycomed.

Article 9
Commercialization

        9.1    Commercialization in General.

        9.1.1    Standard of Care and Costs of Commercialization.    Sepracor shall use Commercially Reasonable Efforts to Commercialize and to maximize the sales of the Original Products and Additional Products in the Territory on its behalf and [**].

        9.1.2    Compliance.    Section 12.1 notwithstanding, Sepracor undertakes that package make-up, package inserts and other elements relating to Packaging as well as of Promotional Materials and claims, and its Commercialization activities, will comply with the Legal Requirements and Regulatory Approvals applicable in the Territory, and to make marketing claims for the Product only in conformity with the Regulatory Approvals for the Product.

        9.2    Promotional Materials.

        9.2.1    Development of Promotional Materials.

        9.2.1.1    Core Promotional Materials.    Promptly after the Effective Date, Nycomed shall submit to Sepracor samples of all draft promotional materials existing as of the Effective Date for the then existing Products (the "Core Nycomed Promotional Materials"). Sepracor shall, create representative samples of advertising, promotional, educational and communication materials it intends to use for marketing, advertising and promotion of the Products (the "Core Sepracor Promotional Materials"). The Core Sepracor Promotional Materials shallSection 12.1 notwithstanding, be submitted to Nycomed for Nycomed's prior written approval, which approval shall not be unreasonably withheld or delayed, and which approval shall be deemed to have been given if Nycomed does not raise any written objections within fifteen (15) Business Days from receipt of such Sepracor Core Promotional Materials.

        9.2.1.2    Development of Promotional Materials by Sepracor.    Further promotional materials developed by Sepracor (the "Promotional Materials") shall, to the extent consistent with the Sepracor Core Promotional Materials, shall not require the prior written consent of Nycomed, always subject to Section 9.2.3.

        9.2.2    Nycomed Company Trademark.    Except as necessitated by the Legal Requirements and Section 9.3.2 notwithstanding, Sepracor shall not be entitled to, and shall refrain from, using the Nycomed Company Trademark in any manner whatsoever related to Commercializing the Product and shall, without limitation, refrain from using the Nycomed Company Trademark on or in connection with the use of any promotional materials always provided, however, that, if and when requested by Nycomed and subject to the Legal Requirements and Section 12.1, Sepracor shall display on any Promotional Materials used in connection with the Product to be sold by Sepracor a legend like "Manufactured by: Nycomed GmbH, D 78467 Konstanz, Germany" and Nycomed's logo in easily legible, adequately prominent types in the English language. In the event that Nycomed should request any such marking, Article 8 shall apply accordingly to the Nycomed Company Trademark.

        9.2.3    Submission of Samples of Promotional Materials.    Section 9.2.1.1 notwithstanding, upon Nycomed's reasonable request, Sepracor shall submit to Nycomed reasonable quantities of specimens of any Promotional Material used by Sepracor for the Commercialization of Product in the Territory. It is

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expressly agreed that Nycomed assumes no obligation to examine compliance of any such promotional Material with relevant Regulatory Approvals and applicable Legal Requirements, and that ensuring compliance of Promotional Material with relevant Regulatory Approvals and applicable Legal Requirements shall be the exclusive responsibility of Sepracor.

        9.2.4    Title to and Ownership of Promotional Materials.    Nycomed retains all rights, interest in and to the Core Nycomed Promotional Materials. Nycomed shall have the right to use, free of charge, during and after the Term and always at its own risk, any promotional concepts and slogans assigned to it by the SC included in the Core Sepracor Promotional Materials, in Nycomed's own promotional materials always provided, however, that Nycomed shall not be permitted to refer to Sepracor, its company name and logo including, without limitation, to Sepracor as the originator, in any such promotional materials of Nycomed.

        9.3    Packaging and Package Inserts.

        9.3.1    General Principle.    Promptly after Effective Date, the Parties shall come to a common understanding on the layout of the package make-up, package inserts and other elements relating to Packaging. Sepracor shall submit to Nycomed its proposals for Nycomed's written approval, such approval not to be unreasonably withheld or delayed. Further, Sepracor shall forward to Nycomed specimens of any packaging material including package inserts and other elements relating to packaging planned in connection with the Commercialization of Product for Nycomed's prior written approval, such approval not to be unreasonably withheld or delayed. If Nycomed raises no objections within twenty (20) Business Days after receipt of Sepracor's applicable proposal, Nycomed's approval shall be deemed to have been granted.

        9.3.2    Nycomed Company Trademark.    Except as necessitated by Legal Requirements and Section 9.2.2 notwithstanding, Sepracor shall not be entitled to, and shall refrain from, using the Nycomed Company Trademark in any manner whatsoever related to performing Development or Commercializing Product and shall, without limitation, refrain from using the Nycomed Company Trademark on the packaging and package inserts of Product, or on or in connection with the use of any Promotional Material always provided, however, that, if and when requested by Nycomed and subject to the Legal Requirements in the Territory and Section 12.1, Sepracor shall display on any packaging and pack inserts used in connection with the Product to be sold by Sepracor a legend like "Manufactured by: Nycomed GmbH, D 78467 Konstanz, Germany" and Nycomed's logo in easily legible, adequately prominent types in the English language. In the event that Nycomed should request any such marking, Article 8 shall apply accordingly to the Nycomed Company Trademark.

        9.3.3    Patent Marking.    Upon either Party's reasonable request, the Parties agree to mark any Product packaging sold or distributed in the Territory with up to two (2) material and applicable United States patent numbers, in accordance with 35 U.S.C. Section 287 and to respond to any requests for disclosure under 35 U.S.C. Section 287(b)(4)(b) by notifying Nycomed as the Party Controlling the relevant Patent of the request for disclosure, in easily legible, adequately prominent types in the English language.

        9.3.4    Submission of Artwork for Manufacturing by Nycomed.    Following coordination of the final package make-up and pack insert, Sepracor shall provide Nycomed, at Sepracor's cost and expense, without undue delay with the films for printing and such other data (including, without limitation, electronic data in suitable format) that Nycomed reasonably requires for the manufacture of Products and the related packaging material. Sepracor's obligations pursuant to Section 12.1 notwithstanding, Sepracor shall be exclusively responsible for, and Nycomed shall not be obliged to examine, the compliance of the artwork so submitted with the agreed layout of the final package make-up and pack insert, and any failure of such artwork to do so.

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        9.3.5    Changes of Packaging and Pack Inserts.    Subject to compliance with the change control procedures and the applicable notification and consent requirements as set forth in the applicable Quality Agreement, Sections 9.3.1 to 9.3.4 shall apply accordingly in case of any later changes of packaging and pack inserts. Until such Quality Agreement and such change control procedures are agreed, the packaging and pack inserts may be changed with the written consent of both Parties (not to be unreasonably withheld or delayed), or as required by Regulatory Authorities.

        9.4    Distribution of Product and Promotional Samples in Territory.

        9.4.1    Distribution of Product in Territory.    Sepracor shall be exclusively responsible for distributing the Product in the Territory. Sepracor shall have the sole right to (i) receive, accept and fill orders for the Product, (ii) control invoicing, order processing and collection of accounts receivable for Product sales, (iii) record Product sales in its books of account, and (iv) establish and modify the commercial terms and conditions with respect to the sale and distribution of the Product, including matters such as the price at which the Product will be sold and whether any discounts, rebates or other deductions should be made, paid or allowed, provided that all discounts, rebates, allowances and price reductions shall be reasonable and customary for sales of pharmaceutical products and not exceed the levels for Sepracor's other products at a similar stage of their product lifecycle.

        9.4.2    Distribution of Promotional Samples.    Sepracor agrees that Sepracor and to the extent applicable and permitted, its sublicensees will use Promotional Samples exclusively for purposes of distribution as samples to physicians or other health care professionals capable of prescribing the Products in the Territory in accordance with the Legal Requirements and Sepracor's usual sampling practices in the Territory, and for no other purpose, and to reasonably document such use to Nycomed upon Nycomed's reasonable written request. Without limitation, Sepracor shall use samples in accordance with the then current Marketing Plan and shall distribute samples in compliance with all applicable Laws, including the requirements of the Prescription Drug Marketing Act of 1987, as amended (the "PDM Act").

        9.5    Coordination of Commercialization.

        9.5.1    Co-Operation in Commercialization.    The Parties agree to closely coordinate the Commercialization of Product in the Territory through the SC and Subcommittees, if and when applicable, as provided herein.

        9.5.2    Marketing Plan.

        9.5.2.1    General.    Reasonably in advance of each Contract Year and, as regards the first Contract Year, without undue delay following the Effective Date, Sepracor shall have prepared and submitted to Nycomed through its SC members an annual draft marketing plan for such Contract Year for review and commenting by Nycomed (each, a "Marketing Plan"). Further, Sepracor shall prepare and submit to Nycomed through its SC members a draft update of the then current Marketing Plan for review and commenting by Nycomed through its SC members whenever material changes (including, without limitation, changes of the Assumptions referred to in Section 9.6.3) should occur that require an adjustment of the then current Marketing Plan. Sepracor agrees to reasonably consider any comments submitted by Nycomed through its SC members regarding Sepracor's then current Marketing Plan without limitation, in cases where Commercialization activities of Sepracor in the Territory by or for Nycomed would have an adverse impact on the commercialization of products incorporating Compound in the ROW.

        9.5.2.2    Contents of Marketing Plan.    Each Marketing Plan shall define, among other things, the following items:

(i)

The goals and objectives for Commercializing and detailing the Product in the Territory in the pertinent Contract Year.

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(ii)

Market research and strategy (including market and competitive analysis, sales trends, product positioning and other matters).



(iii)

All advertising and promotion programs and strategies (including, but not limited to, development of materials, media plans, use of symposia, academic speakers, activation of a key opinion leader cascade, a public relations program, and a direct-to consumer campaign and other matters) and other matters).



(iv)

Sales plans and activities (including Sales Force training, sampling strategy, product detail effort), development of appropriate sales training materials, and program and budget for Promotional Samples, and Sales Force incentives or compensation programs.



(v)

Phase IV studies to be conducted for the Territory that have been agreed by the Parties pursuant to Section 9.5.3, and a related Phase IV Development Plan.



(vi)

Plans for addressing significant regulatory issues for existing Indications and forms of the Product and for registration of new Indications and forms of the Product, if applicable.



(vii)

The projected number of Units of Product to be sold in the Territory to Third Parties in the applicable Contract Year and the expected gross and Net Sales of Product, with detailed review of gross-to-net assumptions, including, but not limited to, managed care/medicare rebates and similar rebates.



(viii)

The target audiences for Product.



(ix)

The A&P Expenses projected to be expended by Sepracor in the Commercialization of Product for the applicable Contract Year.



(x)

The Marketing Plan shall identify the A&P Expenses, Detailing Expenses and related Marketing Mix projected to be expended and invested in the applicable Contract Year, and the number of Sales Representatives to be employed in the performance of Primary Details for Product in the applicable Contract Year, the Minimum Marketing Investment Obligations and the Minimum Sales Obligations consistent with Sepracor's obligations pursuant to Sections 9.1.1 and 9.6 and the related Schedule 9.6.1.1 and Schedule 9.6.2.1.

        9.5.3    Phase IV Clinical Studies.

        9.5.3.1    Phase IV Development.    All proposed Phase IV activity that Sepracor intends to perform in the Territory (in each case, "Phase IV Development") is to be included by Sepracor in the relevant Development Plan and submitted to the SC. To the extent legally permitted, Sepracor shall act as sponsor and shall be solely responsible for implementing any Phase IV Development.

        9.5.3.2    Costs of Implementing Phase IV Study under Phase IV Development Plan.    It is understood that Sepracor shall, as a general principle and unless otherwise agreed by the Parties, bear all of its internal and external costs of any such Phase IV Development including, without limitation, the cost of Clinical Supplies required to conduct the Phase IV Development, and that such costs shall not form part of Sepracor's A&P Expenses.

        9.5.3.5    Support of Phase IV Development by Nycomed.    Nycomed shall supply, at the Clinical Supply Price, all quantities of the Clinical Samples required for such Phase IV Development, subject to timely notification of Nycomed of Sepracor's requirements at least six (6) months in advance of the scheduled delivery dates.

        9.5.3.6    Access to Results of Phase IV Studies.    Subject to applicable data protection legislation, all results of any Phase IV clinical studies involving the Product that are conducted by Sepracor in the Territory and Controlled by Sepracor shall be made available to Nycomed free of charge in electronic format, to the extent applicable and required together with suitable data processing software, for

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unrestricted use (except, during the Term, in the Field and in the Territory, restricted by and subject to the terms of this Agreement), free of charge, by Nycomed, its Affiliates and its Third Party licensees and sub-distributors for purposes of the development and Commercialization of the Compound and the Products in any country.

        9.6    Minimum Obligations.    Sepracor's obligations pursuant to Section 9.1.1 notwithstanding, Sepracor shall, in each Contract Year covered by the Term, be subject to the Minimum Marketing Investment Obligations and Minimum Sales Obligations (collectively, the "Minimum Obligations") established for the Original Products pursuant to this Section 9.6.

        9.6.1    Minimum Marketing Investment Obligations.

        9.6.1.1    General.    Sepracor's obligations pursuant to the first sentence of Section 9.1.1 notwithstanding, Sepracor shall invest, and the Marketing Plan shall foresee for each Contract Year, Minimum Marketing Investment Obligations, expressed as minimum A&P investment obligations and minimum Detailing obligations and a specific marketing mix, corresponding at least to the minimum marketing investments and marketing mix indicated for each applicable Original Product Year in Schedule 9.6.1.1 (collectively for each Original Product Year and as may be adjusted pursuant to Section 9.6.3, the "Minimum Marketing Investment Obligations"). The term "Product Year" means, with respect to any Original Product, each twelve calendar month period commencing on the first day of the calendar month following the month in which the launch date of such Product occurs.

        9.6.1.2    Shortfall Amount.    In the event that Sepracor should have failed to achieve at least [**] percent ([**]%) of the Minimum Marketing Investment Obligations required for any Product Year pursuant to Section 9.6.1.1 and Schedule 9.6.1.1, then Sepracor shall pay to Nycomed an amount equal to the relevant shortfall, multiplied by a multiplier as set forth below (the "Shortfall Amount").

Actual Percentage of Minimum Marketing Investment Delivered in the relevant Product Year	Multiplier
[**]% up to, but not including [**]% of Minimum Marketing Investment Obligations	[**]
[**]% up to, but not including [**]% of Minimum Marketing Investment Obligations	[**]
[**]% up to, but not including [**]% of Minimum Marketing Investment Obligations	[**]
[**]% up to, but not including [**]% of Minimum Marketing Investment Obligations	[**]
Below [**]% of Minimum Marketing Investment Obligations	[**]

        Such Shortfall Amount shall be payable within [**] following the end of the Product Year with respect to which the Minimum Marketing Investment Obligations were not achieved (the "Shortfall Amount Payment Period"), without the requirement of a preceding reminder by Nycomed. In the event that there is a Shortfall Amount as a result of Sepracor failing to achieve a minimum number of PDEs as set forth on Schedule 9.6.1.1, the Shortfall Amount attributable to such PDEs shall be calculated in accordance with Schedule 1.2.

        9.6.1.4    Acknowledgement of Shortfall Amount.    The Parties acknowledge that Sepracor's failure to meet its Minimum Marketing Investment Obligations may have a material adverse impact on the Commercialization and market potential of Original Products in the Territory, and that damages shall not be readily ascertainable or determinable in terms of actual money amounts. The Parties therefore further acknowledge and agree that the Shortfall Amount is a fair and equitable determination of such damages and shall be the sole and exclusive remedy for such failure to meet the Minimum Marketing Investment Obligations, subject only to Section 18.3.1.

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        9.6.2    Minimum Sales Obligations.

        9.6.2.1    Minimum Sales Obligations Regarding Original Products.    During the [**] Product Years commencing immediately after [**], Sepracor shall achieve the minimum sales for the Original Products set forth on Schedule 9.6.2.1 (collectively, as may be adjusted pursuant to Section 9.6.3, Sepracor's "Minimum Sales Obligations").

        9.6.2.2    Acknowledgement of Termination Right.    The Parties acknowledge that Nycomed's sole remedy for Sepracor's failure to meet its Minimum Sales Obligations is set forth in Section 18.3.1, and that the Minimum Sales Obligations are not a guarantee by Sepracor that any specific sales levels will be obtained with respect to any Product.

        9.6.3    Adjustment of Minimum Obligations.

        9.6.3.1    Assumptions Underlying Minimum Obligations.    Sepracor's obligations pursuant to Section 9.1.1 notwithstanding, the Parties acknowledge that the Minimum Obligations of Sepracor set out in Schedule 9.6.1.1 (Minimum Marketing Investment Obligations) and Schedule 9.6.2.1 (Minimum Sales Obligations) are based, as of the date when these Minimum Obligations have been determined, on certain assumptions, including those set out in romanettes (i)-(viii) hereinafter (collectively, the "Assumptions"): (i) The reimbursement price of each applicable presentation of the Products corresponds to the reimbursement price applicable or expected as of the date as of which the relevant Minimum Obligations have been determined; (ii) the reimbursement status of the Products is the same as of the date as of which the relevant Minimum Obligations have been determined; (iii) the patent protection status of the Products corresponds to the status as of the date as of which the relevant Minimum Obligations have been determined; (iv) no compulsory rebates have been imposed on any presentation of the Products that have not been accounted for in the then current Minimum Obligations; (v) no new chemical entity (NCE) has been launched in the Territory and achieved in any Contract Year a market share in value of more than [**] per cent ([**]%) in IMS class R3D in the Territory, (vi) Nycomed or its appointee have continuously supplied in accordance with the terms and conditions of this Agreement all of Sepracor's requirements of Products ordered by Sepracor in the orderly course of business; (vii) Sepracor's Minimum Obligations have continued to correspond to at least Commercially Reasonable Efforts as defined in Article 1, and (viii) no other material and sustained changes related to the Commercialization of the Product in the Territory have occurred in the relevant period from the date of the last fixing of Minimum Obligations that reasonably require an adjustment of the then current Minimum Obligations.

        9.6.3.2    Procedure in Case of Change of Assumptions.    If any changes of the Assumptions should have occurred that are so material and sustained that the Party requesting an adjustment cannot be reasonably expected to adhere to the then current Minimum Obligations agreed prior to the occurrence of the relevant change or changes, (i) Sepracor's continuing obligation to use Commercially Reasonable Efforts in the Commercialization of Product notwithstanding, Sepracor's Minimum Obligations shall be suspended (and Nycomed may not terminate this Agreement pursuant to Section 18.3.1 commencing on the date of such change or changes and until revised Minimum Obligations are established in accordance with Section 9.6.3.3, and (ii) the Parties shall, upon either Party's request, promptly meet and negotiate in good faith revised Minimum Obligations for the then current Product Year in accordance with the principles set forth in Section 9.6.3.3.

        9.6.3.3    Adjustment of Minimum Obligations for Change of Assumptions.    If a Party, based on sound and objective criteria, reasonably demonstrates to the other Party during a Product Year that the then current Minimum Obligations have become inappropriate for relevant changes of any of the Assumptions and should therefore be adjusted, then such Party, with the written consent of the other Party, such consent not to be unreasonably withheld or delayed, shall be entitled to reasonably modify such then current Minimum Obligations, thereby giving appropriate consideration to the relevant effects of the applicable changes of the Assumptions the related Minimum Obligations. Such Party shall

52

provide the proposed revised Minimum Obligations and an accordingly revised Schedule 9.6.1.1 and/or Schedule 9.6.2.1, as may be applicable, to the other Party in writing.

        9.6.3.4    Dispute on Adjustment of Minimum Obligations for Change of Assumptions.    If the Parties cannot agree on a reasonable adjustment of the then current Minimum Obligations and an according revision of Schedule 9.6.1.1 and/or Schedule 9.6.2.1 within one (1) month following a related written request by a Party, a reasonable adjustment of the then current Minimum Obligations and an according revision of Schedule 9.6.1.1 and/or Schedule 9.6.2.1 shall, upon either Party's written request, be subject to the dispute resolution procedures set forth in Section 20.2.

        9.6.4    Obligation to Timely Launch Omnaris® AQ Product and Alvesco® MDI Product.

        9.6.4.1    Obligation to Timely Launch Omnaris® AQ Product.    Sepracor shall use Commercially Reasonable Efforts to launch the Omnaris® AQ Product within the first allergy season in the Territory (February until May 2008) after the Effective Date.

        9.6.4.2    Obligation to Timely Launch Alvesco® MDI Product.    Sepracor shall use Commercially Reasonable Efforts to launch the Alvesco® MDI Product during [**] of 2008.

        9.6.4.3    Launch Supplies.    For clarity, the obligations of Sepracor pursuant to Sections 9.6.4.1 and 9.6.4.2 shall be conditioned upon Nycomed supplying to Sepracor, one (1) month prior to the anticipated launch date, reasonably sufficient launch quantities of the Omnaris® AQ Product and of the Alvesco® MDI Product in accordance with Sepracor's Launch Period Net Requirements Plan submitted to Nycomed pursuant to Section 10.3.2.

        9.6.5    Monitoring of Compliance with Minimum Obligations; Quarterly Reports on Detailing and Marketing Investments.

        9.6.5.1    Monitoring of Compliance with Minimum Marketing Investment Obligations.

        9.6.5.1.1    Monitoring of Minimum Marketing Investment Obligations Regarding A&P Expenses.    Nycomed may monitor compliance by Sepracor with its Minimum Marketing Investment Obligations as regards A&P Expenses on the basis of Sepracor's Quarterly A&P Expense Reports pursuant to Section 15.1.1.

        9.6.5.1.2    Monitoring of Minimum Marketing Investment Obligations Regarding Detailing.    Nycomed may monitor compliance by Sepracor with its Minimum Marketing Investment Obligations regarding Detailing and Detailing Expenses on the basis of Sepracor's Monthly Detailing Reports pursuant to Section 15.1.2 and of CAM Global Data Base and/or other reliable Third Party sources if agreed by the Parties in writing.

        9.6.5.2    Monitoring of Minimum Sales Obligations.    Nycomed shall monitor compliance by Sepracor with its Minimum Sales Obligations on the basis of Sepracor's Monthly Sales Reports pursuant to Section 15.1.3.

        9.6.5.3    Audit Rights.    In addition to the foregoing, Nycomed shall be entitled to monitor compliance by Sepracor with its Minimum Marketing Investment Obligations and Minimum Sales Obligations in the course of audits performed by Nycomed pursuant to Section 15.3.

        9.6.6    Dispute on Compliance with Minimum Marketing Investment Obligations.    In the event that the Parties disagree whether Sepracor has accomplished its Minimum Marketing Investment Obligations and/or its Minimum Sales Obligations, the issue shall be referred to the SC for resolution. If the SC is unable to resolve the matter within thirty (30) days of submission (and there shall not be a casting vote on this matter), then the Parties shall submit the matter to dispute resolution in accordance with Section 20.2

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Article 10
Manufacturing and Supply

        10.1    General Issues of Supply by Nycomed and Sepracor.

        10.1.1    Manufacturing and Supply of Original Products by Nycomed.    Nycomed or its permitted appointee shall manufacture and supply exclusively to Sepracor, and Sepracor agrees to purchase exclusively from Nycomed, its requirements of the Original Products in the Territory pursuant to the terms and conditions of this Agreement. It is understood, however, that the supply obligations of Nycomed regarding Omnaris® HFA Product shall extend to the supply of bulk MDI Canisters only unless and until Sepracor has successfully completed the Development of the Omnaris® HFA Product on the basis of a nasal actuator as finally agreed by the Parties, who currently anticipate Valois to be the supplier of the nasal actuator to Nycomed, with Nycomed on its reasonable written request, to be the product finisher, with any changes to be agreed to by the SC.

        10.1.2    Manufacturing and Supply of Additional Products or Compound by Nycomed or its Appointee.

        10.1.2.1    Supply of Additional Products by Nycomed or its Appointee.    In the event that Sepracor elects to Develop and Commercialize an Additional Product, the Parties agree that, upon Nycomed's reasonable written request, Nycomed or its appointee shall use Commercially Reasonable Efforts to exclusively manufacture, or have manufactured, and supply, or have supplied to Sepracor, and that Sepracor shall exclusively purchase from Nycomed or its permitted appointee, its requirements of the applicable Additional Product, as the case may be.

        In such case, the terms and conditions of the supply of the applicable Additional Product by Nycomed shall, mutatis mutandis and unless reasonably required otherwise under the circumstances, basically correspond to the terms and conditions set forth in Articles 10 and 11 of this Agreement.

        10.1.2.2    Supply of Compound by Nycomed.    If the Parties, in the course of the negotiations referred to in Section 6.2.1.3, should agree that a Person other than Nycomed or an appointee of Nycomed shall manufacture the relevant Additional Product, as the case may be, or in the event that the Parties should agree (subject to Nycomed Controlling manufacturing rights) that Sepracor or its appointee shall manufacture any Original Product or Additional Product, the Compound required for any such manufacture shall be supplied by Nycomed or its permitted appointee in accordance with this Agreement.

        10.1.3    Supply of Additional Products to Nycomed by Sepracor or its Appointee.    In the event that Nycomed should elect to avail itself of its right pursuant to Section 2.3 with respect to any Additional Product and the Parties have agreed pursuant to Section 6.2.1.4 that the relevant Additional Product shall be manufactured by Sepracor, then Sepracor agrees to use Commercially Reasonable Efforts to supply exclusively to Nycomed or its permitted appointees, and Nycomed agrees to, and agrees to cause its permitted appointees to, purchase exclusively from Sepracor, its requirements of such Additional Product for Commercialization by Nycomed in the ROW in accordance with the terms of this Agreement. The terms and conditions of supply shall be negotiated in good faith always provided that such terms and conditions shall, Section 2.3 notwithstanding, mutatis mutandis and unless reasonably required otherwise under the circumstances, basically reciprocate the terms and conditions of the supply of the applicable Product or Compound by Nycomed to Sepracor.

        10.2    General Terms of Supply by Nycomed.

        10.2.1    Capacity Planning and Protection of Manufacturing Investment.

        10.2.1.1    General.    Nycomed shall base its manufacturing capacity planning on Sepracor's Rough Cut Capacity Planning pursuant to Section 10.3.1, and shall use its Commercially Reasonable Efforts so

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as to set up and maintain, at Nycomed or its suppliers, manufacturing capacities that are reasonably sufficient so as to meet the quantities of Product forecasted to be purchased by Sepracor in its Rough Cut Capacity Planning.

        10.2.1.2    Logistically Available Sepracor Capacities.    At the beginning of each Contract Year, the Parties shall determine, on a Product-by-Product basis, the manufacturing capacities then currently available to Nycomed for the manufacture of the relevant Product, expressed in numbers of Units of Product per Contract Year (for each Product, the "Logistically Available Overall Capacities") and the percentage of such Logistically Available Overall Capacities that will, Section 10.2.2.1 notwithstanding, be reserved for supplies to Sepracor (for each applicable Product, expressed in numbers of Units of Product per Contract Year, the "Logistically Available Sepracor Capacities"), whereby back-up supply sources established pursuant to Section 10.2.5.2(iii) shall be considered when available.

        For any given Contract Year and any specific Product, Nycomed's supply obligations shall, Section 10.2.2.1 notwithstanding, in no event exceed quantities corresponding to the then currently available Logistically Available Sepracor Capacities as determined at the beginning of such Contract Year, and to use Commercially Reasonable Efforts to supply quantities exceeding such Logistically Available Sepracor Capacities.

        10.2.1.3    Failure of Sepracor to Use Logistically Available Sepracor Capacities; Investment Amortization.     Sepracor acknowledges that, in setting-up, and maintaining and adjusting the Logistically Available Sepracor Capacities, Nycomed relies on Sepracor's Rough Cut Capacity Planning, related forecasts and order volume estimations. In the event that Nycomed and Sepracor mutually agree that Sepracor's Rough Cut Capacity Planning requires Nycomed to increase the Logistically Available Sepracor Capacities, and, therefore, the Logistically Available Overall Capacities (such increase in the Logistically Available Overall Capacities is referred to as the "Increased Capacity"), Sepracor agrees to share in Nycomed's investment to obtain the Increased Capacity as follows:

        In the event that Sepracor should, in any given Contract Year, have failed to purchase a portion of the agreed upon Increased Capacity, then Sepracor shall make payment to Nycomed, within [**] from the end of each relevant Contract Year, of an amount calculated as the product of (i) the number of Units equal to the difference of (a) the number of Units of Product in the Increased Capacity (such difference is referred to as the "Excess Increased Capacity") and (b) the numbers of Units of Product actually purchased and paid by Sepracor in such Contract Year from such Increased Capacity, and (ii) in case of the Omnaris® AQ Product to be 50% of the Actual Manufacturing Cost, in case of the Omnaris® HFA Product to be 50% of the Actual Manufacturing Cost, and in case of the Alvesco® HFA Product to be [**]% of the Actual Manufacturing Cost, provided, however, that in the event Nycomed is able to sell or use all or a portion of the Excess Increased Capacity, Sepracor shall not be required to pay Nycomed for such Excess Increased Capacity.

        Notwithstanding anything above in this Section 10.2.1.3, Sepracor's aggregate payments to Nycomed pursuant to this Section 10.2.1.3 shall not exceed an amount equal to [**] percent ([**]%) of Nycomed's actual investment in connection with the Increased Capacity.

        10.2.2    Failure to Supply.

        10.2.2.1    Allocation of Supply in Supply Shortage Scenarios.    In case of a shortage of supply of Product or Compound such that Nycomed is unable to supply all of Sepracor's requirements of Product or Compound, as the case may be, the supply of Product or Compound within Nycomed's control shall first be allocated on a pro rata basis among the Territory, and the Major Market Countries based on (i) in the case of a shortage of a Product, the net sales of the relevant Product; and, (ii) in the case of a shortage of supply of Compound, the net sales of Products incorporating the Compound as an active ingredient; in each of (i) and (ii) in those regions in the most recent Contract Year in which there was

55

not an allocation of supply. Any supply that remains unallocated or comes available after the preceding pro rata allocation shall be allocated on a first priority basis to the Territory.

        10.2.2.2    General.    In the event that Nycomed shall fail to supply on a timely basis at least [**] percent ([**]%) of Sepracor's requirements of Product, Promotional Samples and Clinical Samples (if relevant) forecasted and ordered pursuant to Sections 10.3.1 to 10.3.3 and accepted by Nycomed pursuant to Section 10.3.4, and always provided that (i) the relevant orders are not outside the scope of orders which Nycomed is obligated to accept in accordance with the provisions of Section 10.3.4 and (ii) such failure to supply has been caused by the negligence or fault of Nycomed or Nycomed's Third Party suppliers, and is not attributable to a Force Majeure Event (in each case, a "Supply Failure"), then the following principles shall apply:

        10.2.2.3    Failure to Supply Exceeding [**] Consecutive Months.    If such failure to supply continues longer than [**] consecutive months and provided that Sepracor has sold out its existing stock of the respective Product to be held in accordance with Section 10.2.3, Nycomed shall make payment to Sepracor of liquidated damages amounting to [**] percent ([**]%) of the net invoice value of the Product, Promotional Samples and Clinical Samples Products subject to the relevant supply failure for each calendar day of any such Supply Failure, commencing with the [**] Business Day from the delivery date specified in the Sepracor purchase order forecasted and placed pursuant to Sections 10.3.1 to 10.3.3 and accepted by Nycomed in accordance with Section 10.3.4, and ending with the calendar day in which delivery has been made pursuant to Section 10.3.5, always provided that the entire amount of liquidated damages for the Supply Failure of any specific quantity of Product, Promotional Samples and Clinical Samples Product shall never exceed [**] percent ([**]%) of the net invoice value of the Product, Promotional Samples and Clinical Samples Products subject to the relevant supply failure.

        10.2.2.4    Timely Supply.    For purposes of this Section 10.2.2, Product shall be deemed to have been supplied on a timely basis if such Product is delivered within [**] of the delivery date specified in the Sepracor purchase order forecasted and placed pursuant to Sections 10.3.1 to 10.3.3 and accepted by Nycomed in accordance with Section 10.3.4. No Supply Failure shall be deemed to have occurred if timely delivery of Product has failed to occur for reasons not attributable to the fault or negligence of Nycomed or Nycomed's Third Party suppliers including, without limitation, a Force Majeure Event.

        10.2.2.5    Failure to Supply and Minimum Obligations.    Sepracor shall not be in breach of any obligation to meet Minimum Obligations to the extent caused by any failure of Nycomed to Supply Product on a timely basis in accordance with this Agreement or a Supply Agreement.

        10.2.2.6    Exclusive Remedy.    The remedies set forth in Section 10.2.2.3 and Nycomed's obligation to establish and pre-qualify with the FDA second manufacturing lines for each of the Products as set forth in Section 10.2.5.2(iii) shall be Sepracor's sole remedy in the event Nycomed fails to meet its supply obligations for other than Nycomed's willful misconduct.

        10.2.3    Stock-Keeping and Inventory.    Sepracor undertakes to use Commercially Reasonable Efforts to keep at its distribution facilities an adequate inventory of Product that shall be sufficient for a continuous supply to its customers in the Territory for a period of [**]. The inventory of Products shall at all times be stored in accordance with the Regulatory Approvals and Nycomed's reasonable handling and storage instructions for the Product to be taken into consideration in the context of the set-up of the Quality Agreement. Nycomed's audit rights in the Quality Agreement that will be attached hereto as Schedule 10.2.4 notwithstanding, Nycomed or its appointee, with a Sepracor representative present at all times, shall, unless required otherwise under the circumstances, no more frequently than [**], during normal business hours and with reasonable prior notice, be entitled to inspect all of Sepracor's and its permitted designees distribution facilities where Products are handled and stored, to ascertain proper storage and handling of Product.

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        10.2.4    Quality Agreement.

        10.2.4.1    Set-Up of Quality Agreement.    The pharmaceutical responsibilities of the Parties in relation to the supply by Nycomed or its permitted designee to Sepracor of Products will be agreed upon and will be attached to this Agreement as Schedule 10.2.4 by the parties with dispatch after the Effective Date.

        10.2.4.2    Pharmaceutical Audit Rights of Sepracor.    Sepracor shall be entitled to ascertain in accordance with this Article 10 that Nycomed is manufacturing and testing Product properly and in accordance with the instructions on manufacture and testing. Nycomed agrees to ensure that Nycomed's suppliers will be periodically audited by Nycomed in order to (i) keep their cGMP or, where not applicable, other appropriate qualification status current, and (ii) maintain compliance with the Product(s)' approved labeling. To the extent permitted to do so pursuant to its agreements with its suppliers, Nycomed will provide to Sepracor summaries of the audit reports and, when requested by Sepracor and required under the circumstances, the full audit reports, regarding its suppliers to Sepracor in order to keep Sepracor informed.

        If Sepracor should not be satisfied with the provided audit information and upon Sepracor's reasonable written request, Sepracor may audit Nycomed's relevant manufacturing and quality control facilities, upon reasonable prior notice and during normal business hours, [**], accompanied by Nycomed representatives as may be appointed by Nycomed. Such audit right shall include the right of Sepracor to audit suppliers of Product, together with representatives of Nycomed and representatives of such suppliers, always provided, however, that any audit rights of Sepracor regarding suppliers shall be limited by pre-existing bona fide agreements with any such suppliers and/or confidentiality obligations undertaken by Nycomed towards such suppliers; provided, however, that Nycomed shall use its reasonable efforts to (i) obtain audit rights for Sepracor under such pre-existing agreements and (ii) obtain, in any future agreements with suppliers, audit rights to the same extent as to which Nycomed has audit rights. The costs and expenses of Sepracor associated with any such audits shall be borne by [**].

        In case Sepracor should wish to conduct audits more frequently than foreseen pursuant to this Section 10.2.4.2, Sepracor shall promptly [**], unless the applicable audit has been caused by the failure of Nycomed and/or the relevant supplier to properly manufacture, perform quality control and package Product in accordance with this Article 10.

        10.2.5    Disruption of Supplies and Protective Strategies.

        10.2.5.1    General.    The Parties acknowledge that the Compound and the Original Products are manufactured in part by Nycomed, and in part by various Third Party suppliers, and that any Additional Products may be manufactured by other Third Parties, specifically in view of a possible use of a Third Party delivery technology. As a consequence, the Parties have agreed with respect to the Alvesco® Supply Agreement, the Omnaris® Supply Agreement and the Compound Supply Agreement, and shall discuss and agree in good faith with respect to any Additional Product in a related Supply Agreement, on reasonable strategies protecting Sepracor's interest in an uninterrupted availability of a sufficient supply of each Product and a Product-specific basis in the context of each relevant Supply Agreement.

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        10.2.5.2    Eligible Strategies.    As regards any Product, the Parties acknowledge that eligible strategies may be, depending on the applicable Product and its components:

(i)

Nycomed shall use Commercially Reasonable Efforts to keep reasonably sufficient safety stocks of the key components necessary to produce Product and of Compound kept at Nycomed or its suppliers, corresponding to at least [**] average requirements of the stock of the key components necessary to produce Product, and no less than [**] average requirements of the stocks of Compound;



(ii)

Sepracor shall use its Commercially Reasonable Efforts to keep reasonably sufficient safety stocks of Product kept at Sepracor, its logistic agents and its distributors, corresponding to at least [**] average requirements in accordance with Section 10.2.3;



(iii)

As regards the Omnaris® AQ Product, Nycomed will, promptly following the Effective Date, start the set-up of a back-up manufacturing line relating to bulk manufacturing steps of the Omnaris® AQ Product. As regards the Alvesco® HFA Product and the Omnaris® HFA Product, Nycomed will, promptly following the Effective Date, use its reasonable efforts to cause its supplier, [**], to promptly start the set-up of a back-up manufacturing line relating to bulk manufacturing steps of the Canister forming the main part of the Alvesco® HFA Product and the Omnaris® HFA Product. The related qualification and submission costs shall be borne by [**]. The pertaining activities shall be subject to the availability of a Rough Cut Capacity Plan by Sepracor; and



(iv)

To the extent that Nycomed Controls manufacturing rights, the grant of a timely limited manufacturing license to Sepracor or its appointee until such time as of which Nycomed may fully resume supplies.

        10.3    Forecasting, Ordering, Shipping and Delivery.    With respect to order planning and ordering of Products, the following principles shall apply:

        10.3.1    Rough Cut Capacity Planning.    Reasonably prior to and in any event no later than in the month of July of the first Contract Year and in the month of [**] of all subsequent Contract Years, Sepracor agrees to submit to Nycomed and update its best estimate rough cut capacity planning of its anticipated requirements of Products for the subsequent [**] period on which Nycomed's manufacturing capacity planning will be based (the "Rough Cut Capacity Planning" and each, a "Rough Cut Capacity Plan"). The first three (3) years of each such Rough Cut Capacity Plan shall be subject to Section 10.2.1.3.

        10.3.2    Rolling [**] Net Requirements Plan.    Promptly following the Effective Date, the Parties shall agree in good faith and subject to reasonably available production capacities at Nycomed and/or its designee on Sepracor's initial requirements of Units of Product and Promotional Samples intended to be delivered by Nycomed to Sepracor prior to the Launch Date and during the [**] thereafter, thereby specifying the applicable quantities and relevant scheduled delivery dates (the "Launch Period", the "Launch Period Net Requirements Plan" and the "Launch Quantities").

        Promptly following the Effective Date and thereafter within the first [**] of each calendar month and as regards Sepracor's requirements of Units of Product, Promotional Samples and Clinical Samples, as may be applicable, following the Launch Period, Sepracor undertakes to submit to Nycomed and update its rolling monthly net requirements plan (the "Rolling Monthly Net Requirements Plan" or "NRP") of its anticipated requirements of Products, Promotional Samples and Clinical Samples, as may be relevant, for the subsequent [**] period in the format attached to this Agreement as Schedule 10.3.2. The quantities indicated in the first [**] of such NRP shall be binding on Sepracor and Nycomed.

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        10.3.3    Placement of Orders.    As regards Launch Quantities, promptly following the date as of which the Parties have agreed upon the Launch Period Net Requirements Plan, Sepracor shall place its binding orders for each package size and dosage form of the Product and Promotional Samples, as may be relevant, to be delivered in accordance with the Launch Period Net Requirements Plan during the Launch Period.

        For all quantities of Product and Promotional Samples to be delivered following the Launch Period, Sepracor shall, together with each Rolling Monthly Net Requirements Plan, and starting no later than [**] prior to expiry of the Launch Period and thereafter within the first [**] of each calendar month (M), place its binding orders for each package size and dosage form of the Product and Promotional Samples, as may be relevant, to be delivered in month [**]. Thereby and always subject to Section 10.3.4, Sepracor shall be obliged to order and purchase a quantity of at least [**] percent ([**]%) of the quantities indicated for the applicable month in its last non-binding Rolling Monthly Net Requirements Plan for such month (i. e., when such month was [**]), and Nycomed shall be obliged to supply up to [**] percent ([**]%) of such amount.

        In placing orders for Products and Promotional Samples, Sepracor shall explicitly specify whether (i) Sepracor orders Products for purposes of resale in the Territory, or (ii) whether Sepracor orders Products as Promotional Samples to the extent applicable, in order to enable Nycomed to invoice Sepracor accordingly.

        Order planning and ordering concerning Clinical Samples shall be done by Sepracor [**] each calendar year, based on the requirements set forth in a Clinical Improvement Development Plan or Phase IV Development Plan and consistent with Sepracor's Rolling Monthly Net Requirements Plan.

        The minimum order volume of any orders of Product and Promotional Samples shall be the applicable batch sizes as set out in Schedule 10.3.3, or multiples thereof. The minimum volume order of any orders of Clinical Samples shall be mutually agreed upon by the Parties pursuant to Article 4.

        10.3.4    Acceptance of Orders and Supply Obligations of Nycomed.    Always subject to Section 10.2.1.2, Nycomed undertakes use Commercially Reasonable Efforts to accept orders placed by Sepracor for delivery within the Launch Period that comply with the Launch Period Net Requirements Plan agreed pursuant to Section 10.3.2, and orders for delivery following the Launch Period regarding [**] placed by Sepracor within the time frames set forth in Section 10.3.3.

        Nycomed further agrees to use Commercially Reasonable Efforts to manufacture and supply quantities in excess of the quantities referred to in the preceding paragraph provided that Nycomed shall be entitled to give due and proportionate consideration to requirements of other customers.

        10.3.5    Shipping and Delivery.    All shipments of Product including Clinical and Promotional Samples shall be made at [**] terms related to such other facility within the EU or the US as may be mutually agreed by the Parties. Nycomed shall invoice Sepracor for the Products shipped to Sepracor in accordance with Article 11 of this Agreement.

        10.3.6    Stability Testing.    Nycomed agrees to perform the annual stability testing of Product pursuant to the Quality Agreement attached hereto as Schedule 10.2.4 and as may be agreed between the Parties from time to time, including any testing required by a Regulatory Authority (the "Stability Testing"). The costs of any Stability Testing shall form part of Nycomed's Manufacturing Cost.

        For any additional stability testing specially requested by Sepracor (the "Special Stability Testing"), Sepracor shall compensate Nycomed an amount of Euro [**] (€ [**]) per hour for all work carried out in respect of Special Stability Testing relating to the Product. Nycomed shall be entitled to review the hourly rate as of the 1^st of January each year, and Nycomed may reasonably increase such hourly rate upon reasonable justification and in any event by a percentage reflecting at least the applicable rate of inflation and wage increases. Nycomed may invoice for such Special Stability Testing in accordance with

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Sections 11.3.2 and 11.3.3 as and when it presents the corresponding Special Stability Testing report exhibiting, summarizing and evaluating all applicable data to the Customer (each, an "Special Stability Testing Report"), and Sepracor shall make payment within [**] of receipt of each Special Stability Testing Report.

        10.4    Product Warranty and Deficient Product.    With respect to deficiencies of Products supplied by Nycomed or its designee to Sepracor for Commercialization by Sepracor in the Territory, the Parties agree as follows:

        10.4.1    Warranty of Nycomed for Product.    Nycomed represents and warrants to Sepracor as follows:

(i)

Products, Clinical Samples and Promotional Samples to be delivered to Sepracor hereunder shall, at the time of dispatch by Nycomed pursuant to Section 10.3.5, have a remaining shelf life of at least [**] percent ([**]%) of the approved shelf life;



(ii)

Products, Clinical Samples and Promotional Samples shall, at the time of dispatch by Nycomed or its appointee pursuant to Section 10.3.5, be free from any Defects;



(iii)

Products, Clinical Samples and Promotional Samples shall, at the time of delivery by Nycomed pursuant to Section 10.3.5, not be adulterated or misbranded by Nycomed; and



(iv)

Products, Clinical Samples and Promotional Samples shall be manufactured by or for Nycomed in accordance with all applicable laws, rules and regulations, including without limitation the then current Good Manufacturing Practices as promulgated by the European Union and the FDA.



(v)

For the purposes of this Section 10.4, the term "Deficient Product" shall mean Products, Promotional Samples and Clinical Samples not conforming to the warranty assumed by Nycomed pursuant to Section 10.4.1 (i)-(iv), and the terms "Deficiency" or "Deficient" shall refer to any deficiency covered by Nycomed's warranty pursuant to Section 10.4.1 (i)-(iv).

        10.4.2    Inspection and Acceptance.    Sepracor agrees to inspect and confirm incoming shipments of Products and associated documents, including, but not limited to a compliance certificate and certificate of analysis (the "Product Documentation") as follows:

        10.4.2.1    Incoming Inspection.    Sepracor agrees to inspect Products and the Product Documentation supplied by Nycomed for [**] and, as far as reasonably possible, any other [**] within [**] following arrival at Sepracor's warehouse.

        10.4.2.2    Additional Quality Control Procedures.    Sepracor may perform additional quality control procedures as may be agreed between the Parties in the Quality Agreement attached hereto as Schedule 10.2.4 or otherwise in writing with respect to Products supplied by Nycomed in order to check if the Products supplied meet the Product Specifications.

        10.4.2.3    Notification of Deficiencies. (i)    Sepracor agrees to provide written notice to Nycomed of any Patent Deficiencies within [**] after arrival at Sepracor's warehouse. (ii) Sepracor shall provide written notice to Nycomed of any Latent Deficiencies, whether detected in the course of quality control procedures agreed pursuant to Section 10.4.2.2 or otherwise, within [**] of discovery by Sepracor, provided that, in relation to Latent Deficiencies, any notification of the relevant Latent Deficiency must be made by Sepracor within the shelf life of the allegedly Deficient Products plus [**].

        10.4.2.4    Disagreement on Deficiencies.    Any non-compliance of Products with the Product Specifications shall be confirmed or rejected by the quality control laboratory of Nycomed or its designee. If Sepracor does not agree to Nycomed's findings, the question of whether or not the allegedly Deficient Products fail to meet the Product Specifications or are otherwise Deficient shall be submitted to an independent laboratory reasonably agreed by both Parties, for determination. Such

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independent laboratory shall determine the conformity of the Products under evaluation with the Product Specifications in conformity with the Methods of Analysis forming part of the Product Specifications. The determination of such independent laboratory shall be binding upon the Parties, and the costs of the activities of such laboratory shall be paid by [**]. If so requested by Sepracor in writing, Nycomed shall use Commercially Reasonable Efforts to effect, as soon as reasonably possible, a replacement delivery of a similar quantity of the allegedly Deficient Products to Sepracor, free of charge (the "Preliminary Replacement Delivery"). In the event of a determination that the delivery under evaluation was not Deficient, Sepracor shall make payment to Nycomed of the [**] applicable to such Preliminary Replacement Delivery pursuant to Section 11.3, within [**] of such determination.

        10.4.2.5    Acceptance of Shipment.    Failure of Sepracor (i) to perform the incoming inspection pursuant to Section 10.4.2.1 and to notify Nycomed in the applicable time period specified in Section 10.4.2.3 above of any [**]; or (ii) to perform quality control procedures as may be agreed pursuant to Section 10.4.2.2 and to notify Nycomed within the agreed time periods in Section 10.4.2.3 above of any Latent Deficiency; or (iii) to notify Nycomed within the applicable time periods specified in Section 10.4.2.3 above of any Latent Deficiency after its discovery by Sepracor, [**].

        10.4.3    Remedies.    Subject to appropriate notification of Nycomed of Deficiencies of Products in accordance with Section 10.4.2.3 above and a confirmation of any disputed Deficiencies in accordance with Section 10.4.2.4 above, Nycomed shall, at the election of Sepracor (i) use Commercially Reasonable Efforts to promptly replace any such Deficient Products with non-Deficient Products or (ii) credit Sepracor the Supply Price paid by Sepracor for any such Deficient Products, in both cases referred to in (i) and (ii) only unless Nycomed has not made a Preliminary Replacement Delivery pursuant to Section 10.4.2.4; in the event that Nycomed has made a Preliminary Replacement Delivery, the Preliminary Replacement Delivery shall be subject to the terms of this Article 10. In addition, Nycomed shall reimburse additional reasonable out-of-pocket expenses incurred by Sepracor in the transportation, inspection and disposal of such Deficient Product. Nycomed shall only responsible for the Costs of Nationalization spent by Sepracor for Deficient Product to the extent that a related credit or reimbursement (including, without limitation, a credit against the Costs of Nationalization of replacement delivery) for Costs of Nationalization of Deficient Product is not available under the laws of the Territory.

        10.4.4    Exclusion of Further Remedies.    Subject always to Nycomed's obligations under Section 12.6.4 (Recall Expenses) and Section 14.1.1 (Indemnification by Nycomed) hereof and subject to Section 14.2 (General Limitation of Liability), any warranties or remedies in addition to those set forth above, whether expressed or implied, in particular claims for damages resulting from Deficient Products including, without limitation, any claims for loss of profit or any compensation for delayed replacement delivery of Products not conforming to Nycomed's warranty pursuant to Sections 10.4.1(i)—10.4.1(iv), are expressly excluded.

        10.4.5    Risk of Expiry of Product, Promotional Samples and Clinical Samples.    Subject to compliance by Nycomed with shelf life requirements of Products set out in Section 10.4.1, the risk of expiry of Product, Promotional Samples and Clinical Samples supplied to Sepracor shall be borne exclusively by Sepracor. For clarity, expired Product, Promotional Samples and Clinical Samples shall, for purposes of the first sentence of this Section 10.4.5, be evaluated at the Supply Price actually paid by Sepracor pursuant to Sections 11.1.1 to 11.1.3. The Parties shall cooperate with each other to obtain the necessary Regulatory Approvals in the Territory to extend the shelf life of the Products to the maximum extent reasonably possible.

        10.4.6    Change of Specifications.    Any changes of the Specifications of Compound or any Product shall be subject to the change control procedures and the applicable notification and consent requirements as set forth in the relevant Quality Agreement. Where applicable, until such Quality Agreement and such change control procedures are agreed, the Specifications of Compound or any

61

relevant Product may be changed with the written consent of both Parties (not to be unreasonably withheld or delayed), or as required by Regulatory Authorities.

Article 11
Financial Terms of Commercialization

        11.1    Supply Price of Commercial Product, Promotional Samples, Clinical Samples and Compound.    The Supply Price of each presentation form and dosage of the Product, and the Supply Price for Promotional Samples and Clinical Samples, as may be applicable, and the Supply Price of Compound shall be calculated and reviewed each Contract Year in accordance with the principles set forth below (in each case, a "Supply Price").

        11.1.1    Manufacturing Costs.    The Supply Prices shall be based on [**] of each presentation form of Product, Promotional Samples and Clinical Samples, and of Compound.

        11.1.1.1    Base Manufacturing Costs.    Nycomed shall establish its Manufacturing Costs of each presentation form of Product, Promotional Samples, Clinical Samples and Compound anticipated for the subsequent Contract Year in the fourth (4^th) calendar quarter preceding such Contract Year in accordance with the principles set forth in Schedule 1.4 (the "Base Manufacturing Costs"), and such Base Manufacturing Costs shall apply to the calculation of the Base Supply Prices of commercial Product, Promotional Samples, Clinical Samples and Compound for the entire relevant Contract Year unless the relevant Manufacturing Costs should change by more than [**] percent ([**]%), in which case Nycomed may in cases of increases, and shall in case of decreases, adjust its applicable Base Manufacturing Costs. Nycomed shall use Commercially Reasonable Efforts to minimize the Base Manufacturing Costs and the Manufacturing Costs.

        11.1.1.2    Actual Manufacturing Costs.    The actual Manufacturing Costs of Product, Promotional Samples, Clinical Samples and Compound shall be equal to the actual Manufacturing Cost of Nycomed in Euro of each Unit of Product in the preceding Contract Year as established by Nycomed in accordance with the principles set forth in Schedule 1.4 (the "Actual Manufacturing Costs").

        11.1.2    Supply Price of Commercial Product.

        11.1.2.1    Base Supply Price and Actual Supply Price of Commercial Product; Reconciliation.    For each Contract Year, the Parties shall establish a Base Supply Price of Commercial Product in Euro in accordance with Section 11.1.2.2. During such Contract Year, commercial Product shall be supplied at the Base Supply Price of Commercial Product. At the end of each Contract Year, the Actual Supply Price of Commercial Product shall be calculated and reconciled with the Base Supply Price of Commercial Product in accordance with Section 11.1.6.

        11.1.2.2    Base Supply Price of Commercial Product.    The base Supply Price for supplies of each Unit of commercial Product in any Contract Year shall correspond to the Base Manufacturing Costs of Nycomed of each Unit of commercial Product in Euro plus a base profit margin of [**] percent ([**]%) of such Base Manufacturing Costs (hereinafter referred to as the "Base Supply Price of Commercial Product").

        11.1.2.3    Actual Supply Price of Commercial Product.    For each Contract Year, the actual Supply Price of Commercial Product shall be equal to the Actual Manufacturing Cost of Nycomed in Euro of each Unit of Product in the preceding Contract Year plus a base profit margin of [**] percent ([**]%) of such Actual Manufacturing Costs (hereinafter referred to as the "Actual Supply Price of Commercial Product").

        11.1.3    Supply Price of Promotional Samples.

        11.1.3.1    Base Supply Price and Actual Supply Price of Promotional Samples; Reconciliation.    For each Contract Year, the Parties shall establish a Base Supply Price of Promotional Samples in Euro in accordance with Section 11.1.3.2. During such Contract Year, Promotional Samples shall be supplied

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at the Base Supply Price of Promotional Samples. At the end of each Contract Year, the Actual Supply Price of Promotional Samples shall be calculated and reconciled with the Base Supply Price of Promotional Samples in accordance with Section 11.1.6.

        11.1.3.2    Base Supply Price of Promotional Samples.    The base Supply Price for supplies of each Unit of Promotional Samples in any Contract Year shall correspond to the Base Manufacturing Costs of Nycomed of each Unit of Promotional Samples in Euro always provided, however, that Nycomed shall be entitled to charge an additional handling fee of [**] percent ([**]%) of such Base Manufacturing Costs for each relevant Product in relation to orders of Promotional Samples (i) that are scheduled to be delivered or (ii) that would have been ordered and delivered in the orderly course of business, after the first anniversary date of the launch of the relevant Product (hereinafter referred to as the "Base Supply Price of Promotional Samples").

        11.1.3.3    Actual Supply Price of Promotional Samples.    For each Contract Year, the actual Supply Price of Promotional Samples shall be equal to the Actual Manufacturing Costs of Nycomed in Euro of each Unit of Promotional Samples in the preceding Contract Year always provided, however, that Nycomed shall be entitled to charge an additional handling fee of [**] percent ([**]%) of such Actual Manufacturing Cost for each relevant Product in relation to orders of Promotional Samples (i) that are scheduled to be delivered or (ii) that would have been ordered and delivered in the orderly course of business, after the first anniversary date of the launch of the relevant Product (hereinafter referred to as the "Actual Supply Price of Promotional Samples").

        11.1.4    Supply Price of Clinical Samples.

        11.1.4.1    Base Supply Price and Actual Supply Price of Clinical Samples; Reconciliation.    For each Contract Year, the Parties shall establish a Base Supply Price of Clinical Samples in Euro in accordance with Section 11.1.4.2. During such Contract Year, Clinical Samples shall be supplied at the Base Supply Price of Clinical Samples. At the end of each Contract Year, the Actual Supply Price of Clinical Samples shall be calculated and reconciled with the Base Supply Price of Clinical Samples in accordance with Section 11.1.6.

        11.1.4.2    Base Supply Price of Clinical Samples.    The Base Supply Price for supplies of each Unit of Clinical Samples in any Contract Year shall correspond to the Base Manufacturing Costs of Nycomed of each Unit of Clinical Samples in Euro (hereinafter referred to as the "Base Supply Price of Clinical Samples").

        11.1.4.3    Actual Supply Price of Clinical Samples.    For each Contract Year, the actual Supply Price of Clinical Samples shall be equal to the Actual Manufacturing Costs of Nycomed in Euro of each Unit of Clinical Samples in the preceding Contract Year in Euro (hereinafter referred to as the "Actual Supply Price of Clinical Samples").

        11.1.5    Supply Price of Compound.

        11.1.5.1    Base Supply Price and Actual Supply Price of Compound; Reconciliation.    For each applicable Contract Year, if and when relevant, the Parties shall, establish a Base Supply Price of Compound in Euro in accordance with Section 11.1.5.2. During such Contract Year, Compound shall be supplied at the Base Supply Price of Compound. At the end of each Contract Year, the Actual Supply Price of Compound shall be calculated and reconciled with the Base Supply Price of Compound in accordance with Section 11.1.6.

        11.1.5.2    Base Supply Price of Compound.    The Base Supply Price for supplies of Compound in any Contract Year shall correspond to the Base Manufacturing Costs of Nycomed of Compound in Euro per kilogram plus a base profit margin of [**] percent ([**]%) of such Base Manufacturing Costs (hereinafter referred to as the "Base Supply Price of Compound").

        11.1.5.3    Actual Supply Price of Compound.    For each Contract Year, the actual Supply Price of Compound shall be equal to the Actual Manufacturing Cost of Nycomed in Euro per kilogram in the

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preceding Contract Year plus a base profit margin of [**] percent ([**]%) of such Actual Manufacturing Costs (hereinafter referred to as the "Actual Supply Price of Compound").

        11.1.6    Contract Yearly Reconciliation.    Within [**] following the end of each Contract Year, Nycomed shall separately calculate for each presentation form and dosage of Product, Promotional Samples, Clinical Samples on a per Unit basis, and for Compound on a per kilogram basis, as may be applicable, the product of (i) the applicable Actual Supply Price less the applicable Base Supply Price, and (ii) the relevant quantity sold for the immediately preceding Contract Year, expressed, in case commercial Product, Promotional Samples and Clinical Samples, in Units of each presentation form and dosage, and, in case of Compound, in kilogram. If the result of any such calculation pursuant to this Section 11.1.6 is positive, Sepracor shall pay the resulting amount to Nycomed. If the result of the calculation of this Section 11.1.6 is negative, Nycomed shall pay the resulting amount to Sepracor.

        11.1.7    Third Party Royalties.    Sepracor shall not be entitled to credit against any Supply Price claims of Nycomed Nycomed's share of Third Party royalties pursuant to Section 7.4 to the extent such Third Party royalties are not paid directly by Nycomed.

        11.1.8    Payment Terms, Payment of Base Supply Price of Commercial Product, Promotional Samples, Clinical Samples and Compound, and Reconciliation Amounts.    All invoices payable in connection with the supply of commercial Product, Promotional Samples, Clinical Samples, Compound or reconciliation amounts hereunder shall be payable in Euro, or such other currency as may be agreed by the Parties, within [**] from the date of invoice, which shall correspond to the date of dispatch. If paid in a currency other than Euro as may be agreed by the Parties, then the conversion shall be based on an unweighted average of the daily exchange rates for the applicable Contract Year, all in a manner consistent with a Party's normal practices used to prepare its audited financial statements for internal and external reporting purposes.

        11.1.9    Costs of Nationalization.    Sepracor's rights regarding Costs of Nationalization related to Deficient Product, Sepracor, its Affiliates or permitted sublicensees shall bear the Costs of Nationalization of Product, Promotional Samples and Clinical Samples. The Parties agree to use Commercially Reasonable Efforts to minimize the Costs of Nationalization of Product, Promotional Samples and Clinical Samples.

        11.1.10    Retention of Title; Security Interest; Counterclaims.    Title to any Delivery of Products shall remain with Nycomed until Sepracor has paid the pertaining Supply Price in full, and Sepracor shall, upon Nycomed's request, create an appropriate security interest, provided, however, that Sepracor shall be entitled to resell Products in the ordinary course of business. Sepracor shall not be entitled to set off any payments due to Nycomed against any counterclaims of Sepracor against Nycomed or exercise a relating right of retention.

        11.2    Quarterly Royalty Payment.

        11.2.1    Quarterly Royalty Payment and Payment Thereof.    Within [**] following the end of each Contract Quarter and based on Sepracor's Quarterly Payment Reports pursuant to Section 15.1.4, Sepracor shall pay to Nycomed an amount equal to

(i)

[**] percent ([**]%) of Net Sales up to $[**] ($[**]) during any Contract Year;



(ii)

[**] percent ([**]%) of Net Sales over $[**] ($[**]) to $[**] ($[**]) during any Contract Year; and



(iii)

[**] percent ([**]%) of Net Sales over $[**] ($[**]) during any Contract Year,

plus an additional amount equal to:

[**] percent ([**]%)

[**].

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        11.2.3    Third Party Royalties.    Section 11.1.7 notwithstanding, Sepracor shall be entitled to credit against such Royalty Payments Nycomed's share of Third Party royalties pursuant to Section 7.4 to the extent that such Third Party royalties are not paid directly by Nycomed and have accrued, are due and payable in the relevant Contract Quarter.

        11.3    Payment Provisions.

        11.3.1    Currency.    Unless otherwise expressly provided to the contrary in this Agreement, all payments under this Agreement shall be made in United States dollars. If and to the extent that there is a sharing and reconciliation of Development Costs incurred by a Party in currencies other than US dollars, any such costs incurred in a currency other than US dollars will be converted to US dollars, based on an unweighted average of the daily exchange rates for the applicable period, all in a manner consistent with a Party's normal practices used to prepare its audited financial statements for internal and external reporting purposes.

        11.3.2    Payment.    All sums due to either Party shall be payable within the time periods specified in this Agreement, and absent any such specification, within [**] from the date of receipt of invoice, by bank wire transfer in immediately available funds to such bank account as each of Nycomed and Sepracor shall designate. Nycomed shall notify Sepracor by facsimile transmission (at such number as may be indicated by Sepracor) as to the date and amount of any such wire transfer by Nycomed one Business Day prior to such transfer. Sepracor shall notify Nycomed by facsimile transmission (at such number as may be indicated by Nycomed) as to the date and amount of any such wire transfer by Sepracor one Business Day prior to such transfer. Each Party shall bear bank charges arising on its side associated with any such transfer.

        11.3.3    Late Payments.    In the event that either Party should fail to make timely payment of any amount due and payable pursuant to this Agreement, interest shall accrue at a rate of interest of [**] percent ([**]%) above the average rate(s) of the London Inter-Bank Offering Rate ("LIBOR") for U.S. dollars, as quoted on the British Banker's Association's website currently located at www.bba.org.uk (or such other source as may be mutually agreed by the Parties) from time to time, effective for the applicable days of the period of default provided, that if such failure to pay continues for more than [**], the applicable rate(s) of interest shall be the applicable monthly average rate(s) of LIBOR plus [**] percent ([**]%) for the entire period of default. The applicable LIBOR period shall be the period closest to the period for which interest is calculated.

        11.3.4    Settlement of Budgeted Expenses Only.    If and to the extent that there is a sharing and reconciliation of Development Costs, a Party may submit any such costs for reconciliation and cost sharing only to the extent made or incurred in conjunction with an approved budget line item in a Development Plan as approved and revised from time to time by the SC in accordance with Article 4.

        11.4    Taxes and Taxation.

        11.4.1    Withholding Tax.    Except as expressly set forth in this Agreement, each Party shall be solely responsible for all taxes payable with respect to any payments or other compensation received by it under this Agreement. In the event that, in the absence of double taxation treaties or similar arrangements, or under existing Double Taxation Treaties, withholding tax should be levied on any payments to be made by a Party to the other Party under this Agreement, the owing Party (the "Debtor") shall be entitled to deduct such withholding tax from payments to be made to the Party entitled to any such payment (the "Creditor") hereunder and pay such withholding tax to the competent tax authorities of the relevant country following prior information of and coordination with the Creditor. In such case, the Debtor shall procure proper tax receipts, and shall forward these tax receipts to the Creditor in order to enable the Creditor to obtain any available withholding tax credit. Should any tax exemption for withholding tax purposes then be available under the laws of the relevant country, a double taxation treaty or any similar arrangement in force at that time, the Debtor shall use Commercially Reasonable Efforts to enable the Creditor to obtain such exemption.

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        11.4.2    U.S. Withholding Tax Certificates and Other Forms.

(i)

Sepracor shall, to the extent required by applicable law, withhold from each payment due to Nycomed hereunder U.S. withholding taxes at the appropriate rate and any amount so withheld shall be treated as paid to Nycomed for all other purposes of this Agreement.



(ii)

Nycomed shall furnish Sepracor on the date of execution of this Agreement and on each date on which Sepracor requests, a properly completed and currently effective IRS Form W-8BEN (or applicable successor form). Nycomed represents and warrants that such form shall be true and correct in all respects, that it will be the beneficial owner of each payment to be received by it hereunder and that each such payment will not be effectively connected with the conduct of a trade or business by it within the United States. Sepracor shall inform Nycomed reasonably in advance whenever Nycomed may be required to issue a new IRS Form W-8BEN (or applicable successor form).



(iii)

Nycomed shall indemnify and hold harmless Sepracor on an after-tax basis for (x) any claim for U.S. withholding taxes which Sepracor improperly fails to withhold on payments to Nycomed if such failure to withhold is a direct result of the failure by Nycomed to provide an IRS form as required by this Section 11.4.2 or any false, inaccurate or untrue statement in any such form provided by Nycomed pursuant to this Section 11.4.2 and (y) any and all liabilities, losses, costs and expenses incurred by Sepracor with respect to any U.S. withholding taxes described in clause (x).



(iv)

The respective rights, obligations, liabilities and agreements of Nycomed and Sepracor in this Section 11.4.2 shall survive the termination of this Agreement and shall remain in full force and effect until all such obligations have been fully performed and all such liabilities have been paid in full.

        11.4.3    Value Added Tax, Sales and Excise Taxes for Supply of Goods.    All prices quoted in this Agreement for the supply of goods are to be considered net of, and not inclusive of, value added taxes, sales taxes, excise taxes and similar taxes.

        11.4.4    Value Added Tax for Services Rendered.    To the extent that this Agreement covers the rendering of services and such services and the pertaining compensation are subject to value added tax under the tax laws where such services are rendered, the Party rendering such services shall be entitled to invoice value added tax on such services to the other Party, unless such other Party demonstrates that, in relation to the services in question, it is subject to value added tax under the tax laws of the state of such other Party's domicile or place of business.

        11.4.5    Additional Tax Matters.    Each Party shall be entitled to all tax benefits, including tax credits and/or tax deductions attributable to amounts that such Party may have funded regarding Technical Development, Clinical Development and Phase IV Development hereunder. Each Party shall file its federal, state, and local tax returns on a basis consistent with this Agreement. In the event that a Party, in its reasonable judgment, determines that it must obtain information and verification regarding the use or application of such expenditures in order to prepare its tax returns or to respond to any inquiry during a tax audit or any other inquiry relating to such treatment of its tax return, or to defend its tax position in any proceeding including litigation, then, to the extent that there is a cost sharing pursuant to this Agreement, the other Party shall reasonably cooperate with the requesting Party and furnish it with such information as it may reasonably require at the requesting Party's request and expense.

        11.4.6    Minimization of Exposure to Value Added Tax.    Each Party shall use Commercially Reasonable Efforts in assisting the other Party in minimizing any applicable value added tax.

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Article 12
Compliance with Law, Insurance and Product Recall

        12.1    Compliance with law.    In performing this Agreement, Sepracor undertakes to, and to cause its permitted designees and permitted sublicensees and subcontractors to, comply, with all applicable Legal Requirements. In performing this Agreement, Nycomed undertakes to, and to cause its permitted designees and permitted sublicensees and subcontractors to, comply, with Legal Requirements and such other legal requirements as may be applicable in the ROW to Nycomed's activities pursuant to this Agreement or by operation of law. To the extent that this Agreement requires Nycomed's approval regarding any activity of Sepracor pertaining to the Territory (e. g., Sections 9.2.3 and 9.3.1 in the context of packaging and Promotional Materials), any such approval shall not relieve Sepracor of its duty of compliance with Legal Requirements, and regardless of any such approval of Nycomed, Sepracor shall refrain from any of such activities if there are reasonable doubts as to the compliance of such activities with the Legal Requirements applicable in the Territory, until the matter has been finally clarified by competent counsel or advice by the competent Regulatory Authority. To the extent that this Agreement requires Sepracor's approval regarding any activity of Nycomed pertaining to a country of the ROW, any such approval shall not relieve Nycomed of its duty of compliance with legal requirements in the applicable country of the ROW, and regardless of any such approval of Sepracor, Nycomed shall refrain from any of such activities if there are reasonable doubts as to the compliance of such activities with the legal requirements applicable in the relevant country of the ROW, until the matter has been finally clarified by competent counsel or advice by the competent Regulatory Authority in such country of the ROW.

        12.2    Duties to Inform.    The Parties shall, among other things, cooperate to keep each Party informed, commencing within [**] of notification of any action by, or notification or other information which it receives (directly or indirectly) from a Regulatory Authority, whether in the Territory or in the ROW, (i) which raises any material concerns regarding the safety or efficacy of any Product or Compound, (ii) which indicates or suggests a potential material liability for either Party to Third Parties arising in connection with any Product or Compound, or (iii) which is reasonably likely to lead to a recall or market withdrawal of any Product or Compound. Subject always to Sections 12.1, 12.3 and 12.4, neither Party shall be obliged to disclose such information in breach of any contractual restriction which it could not reasonably have avoided.

        12.3    Notification.    Each Party shall without delay notify the other Party of any of the following, including any corrective actions initiated by such Party and copies of all relevant documentation relating thereto, to the extent Controlled by such Party:

(i)

Governmental or regulatory inspections of manufacturing, distribution or other related facilities used for any Product or Compound;



(ii)

Inquiries by Regulatory Authorities concerning clinical investigation activities (including inquiries of investigators, clinical monitoring organizations and other related parties) relating to Product;



(iii)

Any communication from Regulatory Authorities pertaining to the manufacture, sale, promotion or distribution of Product or Compound in the Territory and, as regards Nycomed, any communication from Regulatory Authorities in the ROW received by Nycomed pertaining to material issues regarding the quality and safety of Product or Compound;



(iv)

Any other Regulatory Authority reviews or inquiries relating to Product or Compound in the Territory or investigations of any Product;



(v)

Receipt of a warning letter of any Regulatory Authority relating to Product or Compound; or



(vi)

An initiation by any Regulatory Authority of any investigation, detention, recall, seizure or injunction concerning any Product or Compound.

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        12.4    Pharmacovigilance.    The Parties undertake to co-operate in the collection, review, assessment, tracking and filing of information related to Adverse Events and Adverse Drug Reactions associated with the Product and, in the case of Nycomed, other products incorporating the Compound for use in fields other than the Field, in accordance with US 21 CFR 312.32, 314.80 and the Pharmacovigilance Standard Operating Procedure (SOP) ("Ciclesonide Pre- and Post Marketing Surveillance Standard Operating Procedures (SOP)") and a Pharmacovigilance Exchange Agreement (PVEA) the definitive terms of which will be agreed by the parties within ninety (90) days of the Effective Date (and in any event, prior to the sale of any Product) and will be attached as Schedule 12.4 to this Agreement. Without limitation, the Parties agree to promptly communicate to each other all information that comes to their attention pertaining to Adverse Events and Adverse Drug Reactions or side effects developing in persons who have been administered the Product. Information regarding serious (as defined in Schedule 12.4) Adverse Events and serious Adverse Drug Reactions (whether expected or unexpected) of which a Party becomes aware shall be transmitted to the impacted Party without undue delay within the time periods specified in Schedule 12.4. Nycomed shall be responsible for maintaining a global safety database for the Product consistent with industry practices, to which Sepracor shall have access at all times during the Term, except during such limited times that the database is offline for routine maintenance. Sepracor shall be responsible for AE and ADR processing, expedited, and periodic reporting of AEs and ADRs to the Regulatory Authorities in accordance with all applicable AE regulatory reporting requirements in the Territory, and Nycomed shall be responsible for such activities in the ROW, both at their cost and expense. Nycomed shall provide summary reports of adverse events at regular intervals consistent with the intervals required under international reporting requirements for period reporting (U.S. Periodic Reporting requirements and Periodic Safety Reporting requirements in the EU), and at other times, upon reasonable written request by Sepracor, such summary reports to be set up in accordance with Periodic Safety Reporting requirements in the EU.

        12.5    Discontinuance of Commercialization.    Subject to Section 12.7, Nycomed and Sepracor, at any time, shall be entitled to cease, permanently or temporarily, Commercialization of Product in the Territory if continued sale of such Product in such country shall be in violation of any applicable laws or, with reasonable prior consultation with the other Party, if Nycomed and/or Sepracor, in good faith, believe(s) that it (they) has(ve) an ethically valid, compelling reason based on medical or scientific concerns relating to the safety of such Product. Nycomed and Sepracor shall have no liability whatsoever to each other if a Regulatory Authority does not grant, or does not maintain or revokes, Regulatory Approval for any Product based on medical or safety concerns, or if Nycomed and/or Sepracor, in good faith, cease(s) the sale of any Product as provided pursuant to this Section 12.5.

        12.6    Product Recall in the Territory.

        12.6.1    Recall Ordered by Regulatory Authority.    In the event of a recall of Product in the Territory required by the Regulatory Authority, any such recall shall be administered by Sepracor with Nycomed's reasonable assistance, in a manner which is appropriate and reasonable under the circumstances and in conformity with any requests or orders of such Regulatory Authority as well as accepted trade practices.

        12.6.2    Recall of Product for Failure to Meet Product Specifications.    In the event that any batch of Product or part thereof should fail to meet the Product Specifications, then the Responsible Regulatory Party that is holding the regulatory Approval for the relevant Product in the Territory, in its sole responsibility and discretion, shall be entitled to make all decisions with respect to any recall, market withdrawals or other corrective action related to such Product in the Territory, with reasonable prior consultation with the other Party. Prior to making any such recall decision, such Responsible Regulatory Party shall notify the other Party in writing. If any such recall, market withdrawal or other corrective action could be reasonably foreseen to damage or adversely affect the Product, whether inside or outside the Territory, then the other Party shall have the right to review, comment upon and,

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with the Responsible Regulatory Party's consent (not to be unreasonably withheld or delayed), participate in any such statements to the extent feasible and appropriate under the circumstances; provided, however, that the Responsible Regulatory Party shall have the final responsibility and sole discretion to implement and execute any such recall, market withdrawal or other corrective action. For clarity, to the extent that Sepracor should be acting as Nycomed's Regulatory Agent, Nycomed (and not Sepracor as its Regulatory Agent) shall be entitled to make the final decision pursuant to this Section 12.6.2.

        12.6.3    Recall of Product in Other Circumstances.    If Nycomed or Sepracor intends to recall Product for reasons other than a recall ordered by a Regulatory Authority or failure of any Product to comply with the Product Specifications or due to any health or safety problem, the issue shall be discussed and handled through the SC in accordance with Article 4.

        12.6.4    Costs Associated with Product Recall.    Sepracor's rights and obligations regarding Compound or Product pursuant to this Agreement and relevant Supply Agreements notwithstanding, the Recall Expenses associated with any such recall shall be borne by [**] as a result of Nycomed's or its subcontractor's or Sepracor's breach of their respective obligations or representations or warranties under this Agreement (including an applicable Supply Agreement) and related Quality Agreement. If neither Party is in breach, Nycomed shall bear [**] percent ([**]%) of Sepracor's Recall Expenses.

        12.6.5    Batch Tracing.    Sepracor undertakes to use reasonable efforts to establish, and to cause its permitted designees to use reasonable efforts to establish, within the Territory a batch tracing and recall system that will enable Sepracor or its permitted designees, to the extent reasonably possible, to identify, as quickly as reasonably possible, customers who have been supplied by Sepracor and its permitted designees with Products of any particular batch, and to recall such Products from such customers.

        12.7    Continuing Purchase Obligations of Sepracor in the Event of a Product Withdrawal or a Product Recall; Reimbursement of Costs.

        12.7.1    Withdrawal Notice.    The Parties shall immediately notify each other of any discontinuance of sales pursuant to Section 12.5 or any Product recall pursuant to Section 12.6 hereof (the "Withdrawal Notice").

        12.7.2    Cessation of Sepracor's Obligations.    In the event of a withdrawal or recall pursuant to Section 12.5 or Section 12.6 that is attributable predominantly to the fault of Nycomed or its permitted designees, Sepracor shall be entitled to cancel any orders for Product, Promotional Samples or Clinical Samples previously placed by Sepracor and any of its permitted designees and Sepracor shall be released from any obligation to order any specified quantity of Product in any month.

        12.7.3    Continuation of Sepracor's Obligations.

        12.7.3.1    Cancellation of Orders.    In the event of a withdrawal or recall pursuant to Section 12.5 or Section 12.6, Sepracor may cancel any orders for shipments of Product, Promotional Samples and Clinical Samples that have not yet been shipped by Nycomed to Sepracor at the time when any such Withdrawal Notice is being issued and, pending resolution of the issue of a continuation of supplies and Commercialization, Sepracor shall be released from any obligation to order any specified quantity of Product in any month.

        If the event of a withdrawal or recall pursuant to Section 12.5 or 12.6 that is predominantly attributable to the fault of Sepracor or its permitted appointees, the Withdrawal Notice shall not affect shipments of Product, Promotional Samples and Clinical Samples that have already been shipped by Nycomed to Sepracor, and all of the provisions of this Agreement shall continue to apply to such shipments notwithstanding the service of any such Withdrawal Notice. Otherwise, in the event of a withdrawal or recall pursuant to Section 12.5 or 12.6 that is not attributable to the fault of Sepracor or

69

its permitted appointees and that implies Deficiencies of Product, Sepracor may exercise its rights pursuant to Section 10.4.

        12.7.3.2    Completion of Processing and Packaging.    Unless instructed by Sepracor to the contrary, Nycomed shall complete or cause the completion of the processing and packaging of any Units of Product, Promotional Samples and Clinical Samples that are in the process of being packaged or processed by Nycomed on the date upon which any Withdrawal Notice is issued, and such Product, Promotional Samples and Clinical Samples shall be shipped, invoiced and warrantied in accordance with the terms of this Agreement.

        12.7.3.3    Reimbursement of Cost.    Where Sepracor has instructed Nycomed to cease the processing and packaging of Product, Promotional Samples or Clinical Samples pursuant to Section 12.7, Sepracor shall not reimburse Nycomed for any costs that Nycomed may have incurred (or to which Nycomed may be committed) in connection with materials used in the packaging or processing of Product, Promotional Samples or Clinical Samples by Nycomed before any Withdrawal Notice has been issued unless Nycomed can establish that the withdrawal or recall is not attributable predominantly to the fault of Nycomed or its permitted appointees, under which circumstances Sepracor will pay [**] percent ([**]%) of such costs.

        12.8    Withdrawal or Recall of Compound, Products and Products other than Products Incorporating Compound in ROW.    Nycomed's obligations pursuant to Section 12.3, 12.3 and 12.4 and under laws and regulations applicable in the ROW notwithstanding, nothing in this Agreement shall restrict Nycomed its Affiliates, licensees and distributors in deciding upon a withdrawal or recall of Compound, Products or products other than Product incorporating Compound (whether alone or in combination with other active ingredients) in the ROW.

        12.9    Survival of Obligations.    The provisions of this Article 12 shall survive any expiry or termination of this Agreement.

Article 13
Representations and Warranties

        13.1    Representations and Warranties of Nycomed.    Further to its representations and warranties pursuant to Section 8.2.3 (Representations of Nycomed Regarding Additional Trademarks) and Section 8.8.1 (Representations of Nycomed Regarding Original Trademarks) and its warranties for Compound or Product, to the extent supplied by Nycomed, Nycomed represents and warrants to Sepracor that, in each of the cases referred to in Sections 13.1.1 to 13.1.5 below, as of the Effective Date:

        13.1.1    Intellectual Property.    Section 13.4 notwithstanding,

(i)

Nycomed has the full right and authority to grant the rights and licenses, including sublicenses, provided herein;



(ii)

Nycomed Controls the Nycomed Patents listed in Schedule 1.6 (subject to the patent listed in 2.8 which shall be assigned by Sanofi-Aventis to Nycomed after the Effective Date) as of the Effective Date;



(iii)

Nycomed has not previously granted any right, license or interest in or to the Nycomed Technology, or any portion thereof, or the Trademarks, or any confusing similar trademarks, that is in conflict with the rights or licenses granted to Sepracor under this Agreement;



(iv)

To the best of Nycomed's knowledge, there are no actual or threatened, pending or alleged actions, suits, claims, reexaminations, interference proceedings or governmental investigations that have been initiated or threatened by a Third Party in the Territory involving the Original

70

Products, the Compound, the Nycomed Core Patents listed in Schedule 1.6 or the Trademarks by or against Nycomed;

(v)

To the best of Nycomed's knowledge, there is no actual, pending, alleged or threatened product liability action or intellectual property right litigation in relation to the Original Products in the Territory;



(vi)

To the best of Nycomed's knowledge, to the extent that Nycomed manufactures and packages the Original Products, Nycomed owns or possesses adequate licenses to manufacture and package the Products for sale in the Territory; and



(vii)

To the best of Nycomed's knowledge, Nycomed has no actual knowledge of any U.S. patent or trademark which would be infringed by the manufacture, marketing, distribution, development, use, promotion, offer for sale, or sale of the Original Products in the Territory.

        For purposes of Sections 8.8.1, 13.1.1 and 13.1.5, the phrase "To the best of Nycomed's knowledge" means the actual knowledge of the attorneys in Nycomed's legal department and the members of Nycomed's corporate senior management team as of the Effective Date, after due investigation.

        13.1.2    Power to Enter into Agreement.    Nycomed has taken all necessary actions on its part to authorize the execution, delivery and performance of the obligations undertaken in this Agreement. This Agreement has been duly executed and delivered by and on behalf of Nycomed and constitutes legal, valid and binding obligations enforceable against Nycomed in accordance with its terms.

        13.1.3    Corporate Standing.    Nycomed is a limited liability company, duly organized, validly existing and in good standing under the laws of the Federal Republic of Germany, with the power and authority to sign, deliver and perform all of its obligations under this Agreement.

        13.1.4    Violation of Laws or Contractual Obligations.    The execution, delivery and performance of this Agreement: (i) do not, in any material respect, conflict with or violate any applicable statute, law, rule or regulation; (ii) do not conflict with or violate any organizational, charter or internal governance document of Nycomed; and (iii) do not conflict with or constitute a default under any contract, agreement or obligation of Nycomed.

        13.1.5    Additional Information.    To the best of Nycomed's knowledge, Nycomed has disclosed to Sepracor all material information known to Nycomed relating to the safety of the Original Products. Based on Nycomed's good faith assessment, Nycomed has provided to Sepracor all material information known to it relating to the Original Products.

        13.2    Representations and Warranties of Sepracor.    Further to its representations and warranties pursuant to Section 8.2.4 (Representations of Sepracor Regarding Additional Trademarks), Sepracor represents and warrants to Nycomed that, in all cases referred to in Sections 13.2.1 to 13.2.5 below as of the Effective Date:

        13.2.1    Intellectual Property.    Other than as disclosed in Sepracor's filings with the U.S. Securities and Exchange Commission: (i) To the best of Sepracor's knowledge, no claims or proceedings have been brought or threatened by a Third Party against Sepracor challenging ownership of any of the Sepracor Patents in the Territory; and (ii) To the best of Sepracor's knowledge, no claims or proceedings have been brought or threatened by a Third Party against Sepracor alleging the invalidity, misuse, unregisterability, unenforceability in whole or in part of any of the Sepracor Patents in the Territory.

        13.2.2    Power to Enter into Agreement.    Sepracor has taken all necessary actions on its part to authorize the execution, delivery and performance of the obligations undertaken in this Agreement. This Agreement has been duly executed and delivered by and on behalf of Sepracor and constitutes legal, valid and binding obligations enforceable against Sepracor in accordance with its terms.

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        13.2.3    Corporate Standing.    Sepracor is a corporation, duly organized, validly existing and in good standing under the laws of the State of Delaware, United States of America, with the power and authority to sign, deliver and perform all of its obligations under this Agreement.

        13.2.4    Violation of Laws or Contractual Obligations.    The execution, delivery and performance of this Agreement: (i) do not, in any material respect, conflict with or violate any applicable statute, law, rule or regulation; (ii) do not conflict with or violate any organizational, charter or internal governance document of Sepracor; and (iii) do not conflict with or constitute a default under any contract, agreement or obligation of Sepracor.

        13.2.5    Litigation.    To the best of Sepracor's knowledge, (i) there is no actual, pending, alleged or threatened product liability action, and (ii) there is no actual, pending, alleged or threatened infringement in the Territory by a Third Party of any of the Sepracor Technology related to RR-Formoterol in the Territory other than as disclosed in Sepracor's filings with the U.S. Securities and Exchange Commission.

        13.2.6    Sepracor's Knowledge.    For purposes of this Section 13.2, the phrase "To the best of Sepracor's knowledge" means the actual knowledge of the attorneys in Sepracor's legal department and the members of Sepracor's corporate senior management team.

        13.3    Mutual Warranties and Representations of the Parties.    Each Nycomed and Sepracor further represent and warrant to each other that with respect to all Regulatory Approvals for the Compound, Promotional Samples and Product in the Field in the Territory (i) to the best of its knowledge, the data and information in its submissions to the Regulatory Authorities regarding the Compound and Product are and shall be free from fraud; (ii) to the best of its knowledge, Regulatory Approvals for the Compound, Promotional Samples and Product have not been and will not be prosecuted by it either through bribery or the payment of illegal gratuities; and (iii) to the best of its knowledge, Regulatory Approvals for the Compound, Promotional Samples and Product were obtained and shall be obtained without illegal behavior of any kind by it or its Affiliates.

        13.4    DISCLAIMER OF WARRANTIES BY NYCOMED.    EXCEPT FOR THE WARRANTIES SET FORTH IN SECTIONS 8.2.3, 8.8.1, 10.4.1, 13.1 AND 13.3 HEREOF AND ANY WARRANTIES GIVEN BY NYCOMED PURSUANT TO A SUPPLY AGREEMENT, NYCOMED HEREBY DISCLAIMS ANY WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO THE NYCOMED TECHNOLOGY, THE [**], THE COMPOUND, THE ORIGINAL PRODUCT AND ANY ADDITIONAL PRODUCT, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. IN PARTICULAR BUT WITHOUT LIMITATION, NYCOMED ASSUMES NO WARRANTIES AND MAKES NO REPRESENTATIONS WHATSOEVER IN RELATION TO THE VALIDITY AND ENFORCEABILITY OF THE [**].

Article 14
Indemnification and Liability

        14.1    Indemnification

        14.1.1    Indemnification by Nycomed.    Nycomed hereby agrees to defend Sepracor and its Affiliates and their respective directors, officers, employees, agents, successors and assigns (collectively, the "Sepracor Indemnified Persons") against any and all legal claims, suits, demands or actions of a Third Party (collectively, the "Claims") for, and to indemnify and hold the Sepracor Indemnified Persons harmless from and against any and all losses, damages, costs, penalties, liabilities (including strict liabilities), judgments, amounts paid in settlement, fines and expenses (including court costs and

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reasonable fees of attorneys and other professionals) arising out of any Claims (individually and collectively, the "Losses"), for bodily injury, personal injury, death and property damage caused by:

14.1.1.1  In the event and to the extent that Nycomed or its permitted appointee supplies Compound and/or a specific Product, Defects inherent in Compound, Product, Clinical Samples or Promotional Samples at the time of dispatch by Nycomed or Nycomed's permitted appointee;

14.1.1.2  the negligence or willful misconduct or wrongdoing of Nycomed or any Person for whose actions or omissions Nycomed is legally liable.

14.1.1.3  a breach by Nycomed of its representations, warranties and/or covenants hereunder; or

14.1.1.4  the development and commercialization of Product by Nycomed and its designees (except Sepracor and its designees) in the ROW;

14.1.1.5    provided, however, Nycomed shall have no liability or obligations pursuant to this Section 14.1.1 to the extent that such Claims or Losses were caused by: (i) the negligence or willful misconduct or wrongdoing of Sepracor or any Person for whose actions or omissions Sepracor is legally liable or (ii) any breach by Sepracor of its representations, warranties and/or covenants hereunder.

        14.1.2    Indemnification by Sepracor.    Sepracor hereby agrees to defend Nycomed and its Affiliates and their respective directors, officers, employees, agents, successors and assigns (collectively, the "Nycomed Indemnified Persons") against any and all Claims for, and to indemnify and hold the Nycomed Indemnified Persons, harmless from and against any and all Losses arising out of any and all Claims for bodily injury, personal injury, death and property damage caused by:

14.1.2.1  the Development and Commercialization of Product by Sepracor and its designees in the Territory;

14.1.2.2  the negligence or willful misconduct or wrongdoing of Sepracor or any Person for whose actions or omissions Sepracor is legally liable; or

14.1.2.3  a breach by Sepracor of its representations, warranties and/or covenants hereunder;

14.1.2.4  provided, however, Sepracor shall have no liability or obligations pursuant to this Section 14.1.2 to the extent that such Claims or Losses were caused by (i) the negligence or willful misconduct or wrongdoing of Nycomed or any Person for whose actions or omissions Nycomed is legally liable or (ii) any breach by Nycomed of its representations, warranties and/or covenants hereunder.

        14.1.3    Indemnification Procedure.    Any Party seeking to be indemnified hereunder (the "Indemnified Party") shall provide prompt written notice to the other Party (the "Indemnifying Party") no later than thirty (30) days after becoming aware of any actual Claim in respect of which indemnification may be sought; provided, however, that the failure by the Indemnified Party to provide such prompt notice to the Indemnifying Party shall only be a bar to recovering Losses to the extent that the Indemnifying Party can demonstrate that it was actually prejudiced and directly damaged by such failure. In the event of any such actual or threatened Loss or Claim therefor, each Party shall provide the other information and assistance as the other shall reasonably request for purposes of defense, and each Party shall receive from the other all necessary and reasonable cooperation in such defense, including, but not limited to, the services of employees or agents of the other Party who are familiar with the transactions or occurrences out of which any such Loss may have arisen. The primary responsibility for defending any such Loss or claim shall be with the Indemnifying Party; provided, however, that the Indemnified Party shall have the right to participate in and with respect to the defense of any Loss with counsel of its own choosing, whose fees shall be borne by [**]. The Indemnified Party shall not be entitled to settle any claim or agree to the entry of any judgment or

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other relief without the prior written consent of the Indemnifying Party, which consent shall not be unreasonably withheld or delayed.

        14.2    GENERAL LIMITATION OF LIABILITY.    EXCEPT FOR NYCOMED'S INDEMNIFICATION OBLIGATIONS PURSUANT TO SECTION 8.8.4 (TRADEMARK INDEMNIFICATION) AND NYCOMED'S OBLIGATIONS TO MAKE PAYMENT OF LIQUIDATED DAMAGES IN ACCORDANCE WITH SECTION 7.2.5.5.2 OR FOR SUPPLY FAILURE IN ACCORDANCE WITH SECTION 10.2.2.3, EXCEPT FOR NYCOMED'S INDEMNIFICATION OBLIGATIONS PURSUANT TO SECTION 11.4.2(iii), EXCEPT FOR SEPRACOR'S OBLIGATION TO MAKE PAYMENT OF SHORTFALL AMOUNTS PURSUANT TO SECTION 9.6.1.2, EXCEPT FOR SEPRACOR'S OBLIGATION TO MAKE PAYMENTS DUE TO FAILURE OF SEPRACOR TO USE LOGISTICALLY AVAILABLE SEPRACOR CAPACITIES PURSUANT TO SECTION 10.2.1.3, EXCEPT FOR EACH PARTY'S INDEMNIFICATION OBLIGATIONS PURSUANT TO SECTION 12.6.4 (RECALL EXPENSES), SECTION 14.1.1 AND 14.1.2, NEITHER PARTY SHALL HAVE ANY LIABILITY TO THE OTHER PARTY OR ITS AFFILIATES FOR ANY DAMAGES SUCH AS LOSS OF PROFITS, DIRECT, SPECIAL, INDIRECT, CONSEQUENTIAL, EXEMPLARY, PUNITIVE OR INCIDENTAL DAMAGES ARISING OUT OF OR RELATING TO THIS AGREEMENT HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY (INCLUDING NEGLIGENCE), WHETHER OR NOT A PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, UNLESS SUCH DAMAGES HAVE BEEN CAUSED, IN CASE OF PERMITTED CONTRACTING OUT BY WILLFULL MISCONDUCT; OTHERWISE BY THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE OTHER PARTY OR ITS AFFILIATES.

        14.3    Adequate Insurance.    During the Term and for a period of five (5) years after its expiration or termination, both Parties shall obtain and/or maintain, respectively, at their sole cost and expense, product liability insurance that meets the following requirements: (i) the insurance shall insure the respective Party and its Affiliates against all legal liability related to Product (whether a Party's or its Affiliate's legal liability arises from such Party's or Affiliate's conduct or by virtue of a Party's or its Affiliate's participation in this Agreement), including legal liability for bodily injury, property damage, wrongful death, and any pertaining contractual indemnity obligations imposed by this Agreement; and (ii) the insurance shall be in amounts, respectively, that are required by operation of law and reasonable and customary in the industry.

        14.4    Survival of Indemnification obligations.    The provisions of this Article 14 shall survive any expiry or termination of this Agreement.

Article 15
Reports, Records and Audits

        15.1    Reporting Duties of Sepracor.    Sepracor undertakes to submit to Nycomed the following reports:

        15.1.1    Quarterly Reports on Sepracor's A&P Expenses.    Within [**] following the end of each Contract Quarter, Sepracor shall provide Nycomed with a report setting forth (each, a "Quarterly A&P Expense Report"),

(i)

The aggregate A&P Expenses spent by Sepracor during such Contract Quarter, by month;



(ii)

A reasonably detailed description of the marketing activities associated therewith and the related A&P Expenses;



(iii)

Upon Nycomed's request, Sepracor shall further reasonably document such data, e. g., by submitting pertaining invoices of Third Parties; and

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(iv)

Upon Nycomed's written request, each such report shall be confirmed by Sepracor's auditors.

        15.1.2    Monthly Reports on Sepracor's Detailing Activities.    Within [**] following the end of each calendar month, Sepracor shall provide Nycomed with a report setting forth, for the most recently completed calendar month (each, a "Monthly Detailing Report"),

(i)

The aggregate number of Calls and Details performed during such calendar month;



(ii)

The position of each Detail performed during such calendar month;



(iii)

The number of Calls and Details, by position for each Detail, performed by Sales Representatives of Sepracor; and



(iv)

The number of Calls and Details, by position for each Detail, performed by Sales Representatives of Affiliates or subcontractors (contract sales forces) of Sepracor, for each relevant Affiliate and contract sales force.

        15.1.3    Monthly Sales Reports.    Within [**] following the end of each calendar month, Sepracor shall provide Nycomed with a report setting forth, for the most recently completed calendar month and for each dosage, application form and pack size of each Product (each, a "Monthly Sales Report"),

(i)

The Gross Sales and the Net Sales of Product, subdivided into all major sectors including, without limitation, commercial managed care, Medicaid, chargebacks Medicare Part D & Cash & non-rebated sales;



(ii)

The number of Units of Product sold;



(iii)

The number of Units of Product distributed as Promotional Samples;



(iv)

The number of Units of Product in inventory at its distribution facilities;



(v)

Market share data and share of voice data (including competitors).

        15.1.4    Quarterly Payment Reports.    Within [**] following the end of each Contract Quarter, and based on Sepracor's applicable Monthly Sales Reports, Sepracor shall make quarterly payment reports to Nycomed for the preceding Contract Quarter (each, a "Quarterly Payment Report"). Each report shall cover the most recently completed Contract Quarter and shall show, based on the Net Sales of Product sold during the most recently completed Contract Quarter indicated in the applicable Monthly Sales Reports, (i) the Royalty Payment in US dollars, payable by Sepracor with respect to such Net Sales of Product; and (ii) the method used to calculate the Royalty Payment owed to Nycomed. If no sales of Products or a specific Product are made during any reporting period, a statement to this effect is required.

        15.1.5    Further Information.    Further to Section 15.1.3(v), during the Term, Sepracor agrees to promptly submit to Nycomed, [**], all information regarding the relevant US marketplace that may have a material impact on the implementation of this Agreement, including, without limitation, any major publications concerning the Product, changes of its reimbursement status, changes affecting the cooperation with wholesalers, changes of Sepracor's discount and rebate policy, material developments in the cooperation between Sepracor and managed care organizations.

        15.1.6    Information Submitted by Third Parties.    For any report requiring information from a Third Party, the time for a Party to report shall be no less than [**].

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        15.2    General Record-Keeping Obligations.    Each Party shall keep, and cause its applicable Affiliates and permitted designees to keep, at its and its applicable Affiliates' respective main place of business, full, true and accurate books and records and reasonable supporting documentation which may be necessary for the purpose of determining each Party's financial rights, and for the purpose of determining compliance of each Party its financial and other obligations towards the other Party hereunder. Such books and records shall be kept in accordance with applicable laws and regulations and generally accepted accounting principles consistently applied by the recording Party across its entire pharmaceutical business and for as long as required by the laws and regulations applying to the relevant Party and in sufficient detail in order to enable the other Party to accurately determine any sums payable hereunder, and so as to accurately determine compliance by the recording Party with its obligations pursuant to this Agreement.

        15.3    Audits.

        15.3.1    General.    Each Party may exercise audit rights in accordance with this Section 15.3.

        15.3.2    Audit Right of Each Party.    Each Party entitled to or required to make payments hereunder (the "Auditing Party") shall have the right, during normal business hours and upon reasonable prior notice, to have an independent, reputable international auditing firm of its choice reasonably acceptable to the other Party (PWC and KPMG are accepted by both Parties) (the "Auditor") to inspect such books records and pertaining documentation of the other Party (the "Audited Party") to the extent reasonably necessary in order to determine, and to determine compliance with, payment or other obligations of the Audited Party towards the Auditing Party hereunder. Such audits shall occur at the Audited Party's, and its applicable Affiliate's, places of business where such records are to be kept and shall take place during regular business hours during the Term of this Agreement and for a period of [**] years following its termination or such longer period as may be required by law; provided, however, that any such audit shall not take place more often than [**] per year and shall not cover records and supporting documentation for more than the preceding [**] years. Subject to the execution by such Auditor of a reasonable standard form confidentiality undertaking prepared by such Auditor pursuant to which such Auditor shall be permitted to disclose his findings to the Auditing Party for the purposes of enforcing any claims of the Auditing Party against the Audited Party resulting from such Audit, such Auditor shall have the right to examine the such books records and pertaining documentation of the Audited Party kept pursuant to this Agreement and report to the Auditing Party the findings (but not the underlying data) of said examination of records as are necessary to evidence that the records were or were not maintained and used in accordance with this Agreement, and as to evidence and determine any resulting payment obligations pursuant to this Agreement. A copy of any report provided to the Auditing Party by such Auditor shall be submitted concurrently to the Audited Party.

        15.3.3    Results and Costs of Audit.    The results of each such audit, if any, shall be binding on both Parties. The Auditing Party shall pay for any such audit, except that in the event that, as a result of any such audit, the Audited Party is finally required to make an adjustment payment of sums payable to the Auditing Party during the period of time subject to such inspection, of more than [**] percent ([**]%), then the Audited Party shall reimburse the Auditing Party for its out-of-pocket costs incurred in connection with conducting any such audit. Any resulting payments shall be made by the Audited Party within [**] of receiving such audit report.

        15.3.4    Delay of Audit.    The Audited Party shall not unreasonably delay an audit that the Auditing Party is entitled to perform in accordance with Section 15.3.2. The Audited Party shall be deemed to unreasonably delay an audit if it fails to permit the Auditing Party to conduct any such audit within [**] from the Auditing Party's pertaining first written request.

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Article 16
Confidentiality, Publications

        16.1    Confidential Information.    For the purposes of this Agreement, the term "Confidential Information" shall mean any and all information of a Party hereto that may be exchanged between the Parties at any time and from time to time before and during the Term in relation to the subject matter covered by this Agreement. Confidential Information as defined herein shall, without limitation, be deemed to include all notes, analyses, compilations, studies, interpretations or other documents, whether in tangible form or on electronic or other data storage media, prepared by the receiving Party and its Representatives as defined hereinafter, which contain, reflect or are based on, in whole or in part, Confidential Information furnished to the receiving Party or its Representatives by the disclosing Party or its Representatives hereunder. Results pertaining to the Development of Compound or Product shall be deemed to constitute Confidential Information disclosed by Nycomed.

        16.2    Duties of Confidentiality and Non-Use.    During the Term, and for a period of [**] years thereafter, each Party hereto will maintain in confidence all Confidential Information disclosed to it as a "receiving" Party by the other Party as a "disclosing" Party. The receiving Party shall use, disclose or grant use of such other Party's Confidential Information except as permitted under this Agreement. To the extent that disclosure is authorized by this Agreement, the receiving Party shall obtain prior written agreement from its employees, agents, consultants, Affiliates, subcontractors and sublicensees (collectively, the "Representatives") to whom disclosure is to be made to hold in confidence and not make use of such information for any purpose other than those permitted by this Agreement, unless such Representatives are already bound by law or contract to obligations of confidentiality and non-use no less stringent than those assumed by the receiving Party hereunder. Each receiving Party shall use at least the same standard of care as it uses to protect its own Confidential Information to ensure that such Representatives do not disclose or make any unauthorized use of such Confidential Information of the disclosing Party. Each receiving Party shall promptly notify the other disclosing Party upon discovery of any unauthorized use or disclosure of Confidential Information by the receiving Party or any of its Representatives. Confidential Information shall not include any information which:

16.2.1  was already known to the receiving Party, other than under an obligation of confidentiality to the disclosing Party, at the time of disclosure by the disclosing Party;

16.2.2  was generally available to the public or otherwise part of the public domain at the time of its disclosure to the receiving Party;

16.2.3    becomes generally available to the public or otherwise part of the public domain after its disclosure and other than through any act or omission of the receiving Party in breach of this Agreement;

16.2.4  was disclosed to the receiving Party, other than under an obligation of confidentiality, by a Third Party who had no obligation to the disclosing Party not to disclose such information; or

16.2.5  was independently developed by the receiving Party without reference to the disclosure by the disclosing Party.

        16.3    Compulsory Disclosure.    If a receiving or any of a receiving Party's Representatives are requested or become legally compelled (by oral questions, interrogatories, requests for information or documents, subpoena, civil or criminal investigative demand, or similar process) or is required by a regulatory body to make any disclosure that is prohibited or otherwise constrained pursuant to this Article 16, the receiving Party will, and will cause such of its Representatives to, as the case may be, provide the disclosing Party with prompt written notice of such request so that the disclosing Party may seek an appropriate protective order or other appropriate remedy. Subject to the foregoing, the receiving Party may, and may cause such Representatives to, furnish that portion (and only that

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portion) of the Confidential Information that, in the written opinion of its counsel reasonably acceptable to the disclosing Party, the receiving Party is legally compelled or is otherwise required to disclose or else stand liable for contempt or suffer other material censure or material penalty; provided, however, that the receiving Party must, and must cause its Representatives to, use reasonable efforts to obtain reliable assurance that confidential treatment will be accorded any Confidential Information so disclosed.

        16.4    Terms Confidential.    The Parties agree that the terms of this Agreement shall be considered the Confidential Information of both Parties and shall not be disclosed by either Party except pursuant to Section 16.2 or Section 16.6 except (i) as required by applicable law or (ii) to a Third Party with whom Nycomed or Sepracor, as applicable, has entered into or proposes to enter into a business relationship related to the subject matter hereof or (iii) to a Third Party with whom Nycomed or Sepracor is in due diligence relating to a merger or an acquisition or a financing, and provided that such Third Parties are subject to appropriate confidentiality agreements providing for obligations of confidentiality and non-use at least as stringent as those pursuant to this Article 16.

        16.5    Duties of Confidentiality and Non-Use in Relation to the Confidential Information of 3M.    Sepracor's obligations of confidentiality and non-use shall further include obligations corresponding to those of Nycomed [**].

        16.6    Permitted Disclosure.    Each Party and its Representatives may disclose Confidential Information to the extent such disclosure is reasonably necessary for the purpose of the implementation of this Agreement, including without limitation, for purposes of the filing or prosecuting of patent applications, prosecuting or defending litigation, or complying with any applicable statute or governmental regulation.

        16.7    Public Announcements.    Except as set forth in Section 16.8 and in Section 23.12, neither Party shall originate any publicity, news release or public announcements relating to this Agreement (including, without limitation, its existence, its subject matter, the Parties' performance, any amendment hereto or performances hereunder), whether to the public or press, stockholders or otherwise, without the prior written consent of the other Party, save only such announcements that are required by law or the rules of any relevant stock exchange to be made or that are otherwise agreed to by the Parties. If a Party decides to make an announcement, whether required by law or otherwise, it shall give the other Party reasonable advance notice, of the text of the announcement so that the other Party shall have an opportunity to comment upon the announcement. To the extent that the receiving Party reasonably requests the deletion of any information in any such announcement, the disclosing Party shall delete such information unless, in the opinion of the disclosing Party's legal counsel, such Confidential Information is required by law or the rules of any relevant stock exchange to be fully disclosed.

        16.8    Publications.    Whenever reasonably requested by Nycomed through the SC, Sepracor shall submit to Nycomed all written abstracts, articles, letters, reviews and the like intended for publication in scientific, medical, pharmaceutical industry and healthcare-related journals, periodicals, books, websites and the like or presentations at symposia or the like, in each case relating to the Development or Commercialization of the Compound or any Product, for Nycomed's prior written approval that shall not be unreasonably withheld or delayed. Nycomed will respond within [**] of receipt of such a pertaining request from Sepracor. In the event that Nycomed does not raise any objections within such period, the Sepracor shall be free to make the intended publication subject, however, to Sepracor's obligations of confidentiality and non-use under this Agreement.

        Neither Party shall issue any publications regarding any Jointly-Owned Improvement Technology that may have a priority-creating effect prejudicing a Party's efforts to obtain Patent protection for any such Jointly-Owned Improvement Technology.

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        Notwithstanding anything else in this Agreement, Sepracor shall in no way be limited or restricted from making any required safety reporting of any information, however sourced, to any Regulatory Authority or as otherwise required by law or regulation and upon any relevant timelines set by any Regulatory Authority, law or regulation.

        Neither Party shall use the name of the other Party in any publicity or advertising without the prior written consent of the other Party.

Article 17
Competition

        17.1    Exports.    To the extent legally permitted, each Party undertakes, and shall cause its Affiliates, not to export, distribute nor sell Products, whether directly or indirectly, outside the Territory with respect to Sepracor, or into the Territory with respect to Nycomed.

        17.2    Non-Compete Obligations.

        17.2.1    Reciprocal Non-Compete Obligations.    During the Term, neither Party nor its Affiliates, shall, either alone or in collaboration with a Third Party, engage in any activity directed to the development or commercialization of Competing Products in the Territory. For the purposes of this Agreement, the term "Competing Product" means any [**], in the Field.

        17.2.2    Additional Non-Compete Obligations of Sepracor.    During the Term, neither Sepracor nor its Affiliates, shall, either alone or in collaboration with a Third Party, engage in any activity directed to the commercialization of Sepracor Competing Products in the Territory. For the purposes of this Agreement, the term "Sepracor Competing Product" means any [**].

        17.3    Activities Related to Competing Products and Sepracor Competing Products before Termination or Expiration.    Each Party shall, however, be entitled to develop Competing Products, and Sepracor shall be entitled to develop Sepracor Competing Products, within a reasonable time period prior to the end of the Term in order to obtain Regulatory Approval for any such Competing Product or Sepracor Competing Product, as the case may be, in a timely fashion, and to take all such other steps as may be reasonably required so as to be able to commence Commercialization of Competing Product or Sepracor Competing Product without delay following the Term, and each Party releases the respective other Party from its undertakings of confidentiality and non-use pursuant to Article 6 of this Agreement in order to achieve such purpose.

        17.4    Commercialization Rights of Nycomed in ROW.    For clarity, nothing in this Agreement shall restrict or prevent Nycomed from commercializing in the ROW Compound or products incorporating Compound, whether alone or in combination with one or several additional active ingredients, within or outside the Field.

Article 18
Term and Termination

        18.1    Term.    If not terminated by either Party pursuant to Section 18.2 to 18.4, this Agreement shall become effective on the Effective Date and shall continue in effect until fifteen (15) Contract Years from the last Launch Date of any Original Product or Improved Product (the "Term").

        18.2    Either Party's Right to Terminate for Cause.    Each Party my terminate this Agreement for cause in any of the following events and subject to the following terms and conditions.

        18.2.1    Termination for Material Breach.    Without prejudice to any remedy or claim it may have against the other Party for material breach or non-performance of this Agreement, each Party shall

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have the right to terminate this Agreement for cause in the event that the other Party fails to materially comply with or perform any material provision of this Agreement (in each case, a "Breach") in accordance with the following provisions:

        18.2.1.1    Reminder.    The non-breaching Party shall notify the breaching Party of any such Breach in writing, specifying such Breach in reasonable detail and stating that it believes such Breach constitutes grounds for termination under Section 18.2.1 of this Agreement (the "Reminder").

        18.2.1.2    Remedy Plan and Remedy Period.    The Party receiving the Reminder shall have [**] from its receipt of the Reminder in which to prepare and deliver to the other Party a written response to the Reminder that shall (i) provide in reasonable detail a commercially reasonable plan for curing the alleged Breach set forth in the Reminder (the "Remedy Plan") and (ii) set forth a time period within which the Remedy Plan shall be complete and such alleged Breach shall be cured (the "Remedy Period").

        18.2.1.3    Acceptance of Remedy Plan and Obligation to Cure.    In the event that the Party sending the Reminder believes that the Remedy Plan is sufficient to cure the alleged Breach, then such other Party shall cure such alleged Breach in accordance with such Remedy Plan and the related time frame.

        18.2.1.4    Failure to Accept Remedy Plan and Termination for Failure to Perform Remedy Plan.    In the event that the Party sending the Reminder believes (i) that the Remedy Plan is insufficient to cure the alleged Breach or (ii) that the Breaching Party fails to properly perform under an accepted Remedy Plan and cure in all material respects the Breach within the time frame set forth in an accepted Remedy Plan, then the Party sending the reminder may provide written notice to the Party receiving the Reminder that it rejects (y) the Remedy Plan or (z) performance thereunder, as may be applicable, and the reasons therefor in reasonable detail (the "Rejection Notice"). A Rejection Notice shall constitute a written notice of a Dispute under Section 20.2. The Party giving Rejection Notice may, together with such Rejection Notice, give a written notice of termination of this Agreement (a "Termination Notice").

        18.2.1.5    Effectiveness of Notice of Termination Following Dispute Resolution Under Section 20.3.    A Termination Notice shall be effective thirty (30) Business Days after final dispute resolution pursuant to Section 20.2 or, if the issue has not been resolved by dispute resolution pursuant to Section 20.2, by arbitration proceedings pursuant to Section 20.3, provided that such proceedings have not been resolved in favor of the Breaching Party or otherwise resulted in a final conclusion that the terminating Party is not entitled to terminate this Agreement for the reasons set forth in the Termination Notice.

        18.2.1.6    Injunctive Relief.    For clarity, each Party's rights pursuant to Section 20.5 shall remain unaffected.

        18.2.2    Termination for Reasons of Insolvency or Termination of Business Activities.    Always subject to compulsory insolvency legislation applying to the impacted Party under the laws of the state of its incorporation, each Party may terminate this Agreement in its entirety upon written notice to the other (i) if the other Party files in any court or agency under any statute or regulation of any state or country, a petition in bankruptcy or insolvency or for reorganization or for the appointment of a receiver or trustee of the other Party or of its assets, or (ii) if the other Party proposes a written agreement of composition or extension of its debts, or (iii) if the other Party is served with an involuntary petition against it, filed in any insolvency proceeding, and the petition is not stayed or dismissed within sixty (60) Business Days after the filing thereof, or (iv) if the other Party is a party to any dissolution or liquidation, or (v) if the other Party discontinues its business activities completely or with respect to its business activities which are the subject matter of this Agreement, or (vi) if the other Party makes an assignment for the benefit of creditors (each, an "Insolvency Event"). Such termination right may be exercised within three (3) months following the date as of which the Party entitled to terminate receives knowledge of the Insolvency Event affecting the other Party, by giving such other

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Party written notice. The Party affected by an Insolvency Event or a petition against it filed in any bankruptcy, insolvency or similar proceeding shall promptly communicate to the other party in writing that such Insolvency Event has occurred or that such petition has been filed.

        18.2.3    Termination for Severe Safety Reasons.    In the event (i) that there is a discontinuance of Commercialization of Product in the Territory in accordance with Section 12.5, or (ii) a recall of Product in the Territory ordered by a Regulatory Authority in accordance with Section 12.6.1, then the Parties shall reasonably cooperate in good faith to consider the continued viability of this Agreement and discuss in good faith what, if any, modification of the terms of this Agreement may be required, including without limitation immediate termination of this Agreement, in order to arrive at an equitable resolution. In the event that the Parties are unable to agree on the appropriate course of conduct within 30 Business Days of the date of such discontinuance or recall, then either Party shall be entitled to immediately send a Rejection Notice under Section 18.2.1.4, in which case the Parties shall follow the procedures set forth in Section 18.2.1.5, Section 20.2 and Section 20.3.

        18.3    Termination for Cause by Nycomed.    Further to and Section 18.2 notwithstanding, Nycomed may terminate this Agreement for cause in any of the following events and subject to the following conditions:

        18.3.1    Termination for Failure by Sepracor to Comply with Minimum Obligations.    In the event that, after the second Product Year following the Launch Date for the Alvesco MDI Product, Sepracor (i) fails to achieve at least [**]% of the Minimum Marketing Investment Obligations for any Product Year, (ii) fails to pay to Nycomed the Shortfall Amount arising from such failure achieve [**]% of such Minimum Marketing Investment Obligations, and (iii) fails to achieve to achieve the Minimum Sales Obligations for any two consecutive Product Year period including the Product Year for which [**]% of the Minimum Marketing Investment Obligations was not achieved, then Nycomed may terminate this Agreement by giving Sepracor a Termination Notice within ninety (90) Business Days of end of the last Product Year in which Sepracor failed to achieve [**]% of the Minimum Obligations giving rise to Nycomed's right of termination, in which case the Parties shall follow the procedures set forth in Section 18.2.1.5, Section 20.2 and Section 20.3. For clarity, Nycomed's right to claim payment of Shortfall Amounts shall remain unaffected.

        18.3.2    Termination for Change of Control or Acquisition Affecting Sepracor.

        18.3.2.1    General Principle.    Nycomed may terminate this Agreement (i) if Sepracor undergoes a Change of Control, or (ii) if Sepracor or an Affiliate of Sepracor acquires a Third Party ("Sepracor Acquisition"), and (iii) if any such Change of Control affecting Sepracor or any such Sepracor Acquisition has a Nycomed Material Adverse Impact.

        18.3.2.2    Material Adverse Impact in Case of Sepracor Acquisition.    For purposes of this Section 18.3.2, a Change of Control affecting Sepracor or a Sepracor Acquisition shall be considered to have a material adverse impact on the business interests of Nycomed ("Nycomed Material Adverse Impact") if the relevant Third Party is marketing in the Territory (i) any Competing Product(s) or (ii) any Sepracor Competing Product, at the time any such Change of Control affecting Sepracor or Sepracor Acquisition becomes effective, the continuing obligations of the Person resulting from any such Change of Control affecting Sepracor or Sepracor Acquisition pursuant to Article 17 (without limitation, Section 17.2.1 and Section 17.2.2) of this Agreement and Nycomed's related rights in case of an infringement of such obligations notwithstanding.

        18.3.2.3    Notice.    Sepracor shall inform Nycomed without undue delay (i) to the extent legally and contractually permitted, if a reasonable probability of any Change of Control or Sepracor Acquisition has arisen, and (ii) of the execution and the date of execution of a transaction resulting in a Change of Control affecting Sepracor or a Sepracor Acquisition simultaneously with any public disclosure of such event by Sepracor, and (iii) of the effective date of any such Change of Control

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affecting Sepracor or any such Sepracor Acquisition (in each of the cases referred to in Section 18.3.2.3(iii), a "Sepracor Merger Notice") always provided that such Sepracor Merger Notice must be given on or following the date on which any such Change of Control affecting Sepracor any such or Sepracor Acquisition has become effective. If a Change of Control affecting Sepracor or a Sepracor Acquisition occurs and has a Nycomed Material Adverse Impact, then Nycomed may exercise its termination right under this Section 18.3.2 within the ninety (90) Business Day period following receipt of the Sepracor Merger Notice, by giving Sepracor six (6) months prior written notice (such notice period hereinafter being referred to as the "Phase-Out Period").

        18.3.2.4    Right of Sepracor to Avert Termination by Nycomed.    In the event of a Change of Control affecting Sepracor or a Sepracor Acquisition and following the related Sepracor Merger Notice pursuant to Section 18.3.2.3(iii), Sepracor may avert termination by Nycomed, if prior to the expiry of the Phase-Out Period, Sepracor divests itself or definitively and permanently ceases the commercialization of all Competing Product(s) and Sepracor Competing Products(s), in which case any termination by Nycomed for reasons of the applicable Sepracor Acquisition shall retroactively be deemed to be ineffective, and this Agreement shall continue to remain in full force and effect in accordance with its terms. In the event that Sepracor disputes Nycomed's right to terminate this Agreement under this Section or Nycomed disputes Sepracor's right to avert such termination, then either Party may send a Rejection Notice to the other Party in accordance with 18.2.1.4. If such a Rejection Notice is delivered, then the Parties shall follow the procedures set forth in Sections 18.2.1.5, Section 20.2 and Section 20.3.

        18.3.3    Challenge of Licensed Patents.    Nycomed may terminate this Agreement by giving Sepracor ninety (90) Business Days prior written notice, if Sepracor challenges any Valid Claim of any Patents Controlled by Nycomed related to the Compound, the Product or a use thereof, or if Sepracor actively supports such any related action brought through an Affiliate of Sepracor or a Third Party and if Sepracor, following a written reminder by Nycomed, fails to permanently discontinue any such challenge within a period of one (1) month from receipt of such reminder; provided that Sepracor's taking any action that it is legally required to take, including without limitation responding to any subpoena or other legal process, shall not be deemed to be "active support" of any such action. Nycomed may exercise such termination right at any time for as long as Sepracor is continuing or supporting continuance of such an action, by giving Sepracor a written Termination Notice in accordance with 18.2.1.4. If such a Termination Notice is delivered, then the Parties shall follow the procedures set forth in Sections 18.2.1.5, Section 20.2 and Section 20.3.

        18.3.4    Termination for Competing Activities.    Nycomed may terminate this Agreement by giving Sepracor 30 Business Days prior written notice if Sepracor engages in competitive activities that are prohibited pursuant toSection 17.2 hereof including, without limitation, the commercialization of a Competing Product or a Sepracor Competing Product, and fails to cease such competitive activities within such 30 Business Day period. The termination right of Nycomed under this Section 18.3.4 may be exercised by Nycomed by delivering a Termination Notice within 90 Business Days of the end of such 30 Business Day period. If such a Termination Notice is delivered and is disputed by Sepracor, then the Parties shall immediately follow the procedures set forth in clause (B) of Section 20.2 and, thereafter, Section 20.3.

        18.4    Termination of Agreement as to Specific Product.    The termination rights pursuant to this Article 18 may only be exercised by the Party entitled to terminate with respect to the Agreement as a whole.

        18.5    Ordinary Course of Business and Initiation of Smooth Transfer Prior to Expiry or upon Notification of Termination.

        18.5.1    Ordinary Course of Business Prior to Expiry or upon Notification of Termination.    Notwithstanding the upcoming expiry of this Agreement for any reason, and, in case of the termination

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of this Agreement to an earlier date, notwithstanding that a notification of termination of this Agreement has been served, Sepracor shall continue conducting business with the Product in an ordinary course of business until the expiry or termination of this Agreement becomes effective. Sepracor shall use its Commercially Reasonable Efforts so as to enable Nycomed or its designee to continue business with the Product following its expiry or termination on a continuing basis without suffering any losses attributable to a conduct of business by Sepracor outside the ordinary course, without limitation, such that sales that would in the normal course of business have been made by Nycomed or its designee following the effective date of termination are anticipated prior to the effective date of termination in an effort to secure Sepracor additional sales and sales revenues prior to the effective date of termination. Without limiting the generality of the forgoing, Sepracor shall, prior to the effective date of expiry or termination, refrain from any activities in the distribution channels outside of the ordinary course of business such as, without limitation, limitation, (i) anticipating sales into the period prior to the effective date of expiry or termination, when in the ordinary course of trading of the business prior to such date, such sales would not have arisen in such period; (ii) overstocking wholesalers outside the ordinary course of business; (iii) increasing orders for or stocks of Product above the normal course and outside the ordinary course of business, without limitation, for the purposes referred to in the preceding romanettes (i) and (ii); (iv) granting rebates and discounts outside the ordinary course of business, without limitation, by means of product bundling and selling the Product in combination with other Sepracor products (so called "package deals"); and (v) fulfilling its obligations under Article 9 of the Agreement prior to the effective date of termination in any other way than in the ordinary course of trading. For clarity, expiry or termination notwithstanding, Nycomed may audit Sepracor's books, records and accompanying documentation pursuant to Section 15.3 in order to ascertain compliance by Sepracor with its obligations pursuant to this Section 18.5.1.

        18.5.2    Initiation and Implementation of Smooth Transfer.    [**] prior to the expiry of this Agreement and, in case of the early termination of this Agreement, following notification of termination, the Parties shall commence cooperating so as to ensure a smooth transition of Sepracor's business with the Product to Nycomed or its designee, such transfer to become effective upon the effective date of expiry or termination, as the case may be, and such transition to coordinated and performed in accordance with Article 19. For such purpose, Sepracor agrees to cooperate with Nycomed in good faith so as to enable Nycomed or its designee, in the form required by the laws and regulations applicable in the Territory, to fully exercise the rights under the Regulatory Approvals for Product from the date as of which the expiry or termination of this Agreement becomes effective including, without limitation, by releasing Nycomed from its obligations of confidentiality and non-use pursuant to Article 16 of this Agreement to the extent required for that purpose. Sepracor undertakes to give Nycomed, at Nycomed's expense, all reasonable assistance as may be required to achieve such transfer

Article 19
Rights and Duties upon Expiry or Termination

        19.1    Specific Rights and Duties Upon Expiration or Termination.    Upon expiry or termination of this Agreement for any reason whatsoever, the Parties shall have the specific rights and obligations set forth in this Section 19.1.

        19.1.1    Termination of Grant of Rights and Licenses.    Without prejudice to the provisions of this Agreement related to the grant of post contractual rights and licenses (including, without limitation, Section 2.3 {Access Rights of Nycomed to Sepracor Technology}, Section 6.3.5 {Use of Clinical Development Data}, Section 7.1.1.2 {Ownership Rights to Improvement Technology}, Section 7.1.2.3 {Jointly-Owned Improvement Technology}, Section 19.1.3 {Clinical Development and Phase IV Development}, Section 19.1.7 {Transfer of Stocks}), the rights to Commercialize Product and, to the

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extent applicable, perform Clinical Development in the Territory and in the Field granted by Nycomed to Sepracor hereunder shall terminate upon the effective date of any expiration or termination of this Agreement.

        19.1.2    Regulatory Rights.    Section 18.5.2 notwithstanding, Sepracor shall forthwith take all actions necessary, in the form required by the laws and regulations applicable in the Territory, so as to ensure that Nycomed or its designee may exercise Nycomed's rights under the Regulatory Approvals for Product in the Territory in a full and unrestricted way as from the date as of which the expiry or Termination of this Agreement becomes effective.

        Section 5.2.1, Section 5.2.2 and Section 18.5.2 notwithstanding, to the extent that any Regulatory Rights as hereinafter defined should have vested in Sepracor or a designee of Sepracor, Sepracor shall, upon Nycomed's first request, forthwith take all actions necessary in order to effect the most expeditious transfer to Nycomed or its designee, in the form required by the laws and regulations applicable in the Territory, all regulatory rights relating to the Compound and the Product in the Field including, without limitation, all Regulatory Approvals, and scientific dossiers, governmental authorizations, social security approvals and other similar rights or benefits held by or for Nycomed which may be attached to the Product in the Territory (collectively, the "Regulatory Rights") such that title to and ownership of such Regulatory Rights vests in Nycomed or its appointee as from the date as of which the expiry or Termination of this Agreement becomes effective. In case of any delays, if necessary, Sepracor expressly permits Nycomed or its designee to Sepracor's Regulatory Rights for the registration and/or Commercialization of the Product in the Territory and in the Field.

        To the extent relevant and required by applicable legislation in the Territory, until such date as of which any such transfer may be completed, Sepracor agrees to confer to Nycomed Commercialization rights in the form as may be required under the Legal Requirements including, without limitation, the appointment of Nycomed or its designee, as the case may be, as Sepracor's sales agent, so as to permit and assist Nycomed in an uninterrupted Commercialization of the Products under the Trademark in the Territory.

        The costs and expenses incurred by Sepracor in carrying out its obligations under this Section 19.1.2 shall be (i) [**] if this Agreement has been terminated primarily due to the fault of Nycomed, (ii) borne by [**] if this Agreement has been terminated primarily due to the fault of Sepracor, and (iii) [**] if this Agreement has been terminated without either Party being primarily at fault.

        19.1.3    Clinical Development and Phase IV Development.    Sepracor shall, without undue delay, coordinate with Nycomed, to the extent relevant and still applicable at that time, the continuation or cancellation by Nycomed or Nycomed's designee, as the case may be, of all clinical studies related Clinical Development or Phase IV Development that are ongoing at the effective date of Termination or expiry, or that were scheduled to be initiated within six (6) months from such date, under the sponsorship of Sepracor (the "Further Clinical Trials"). The final decision whether or not any such Further Clinical Trial shall be continued or terminated shall be with Nycomed.

        In the event that any such Further Clinical Trial is continued, Sepracor shall fully and reasonably co-operate with Nycomed in order to ensure an orderly transfer to Nycomed or Nycomed's designee of any such Further Clinical Trial. In order to achieve such purpose, Sepracor undertakes to continue conducting any such Further Clinical Trial for a reasonable period of time following the date of termination of this Agreement in close coordination with Nycomed.

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        The costs and expenses incurred by Sepracor in carrying out its obligations under this Section 19.1.3 shall be (i) [**] if this Agreement has been terminated primarily due to the fault of Nycomed, (ii) borne by [**] if this Agreement has been terminated primarily due to the fault of Sepracor, and (iii) [**] if this Agreement has been terminated without either Party being primarily at fault.

        19.1.4    Termination of Commercialization Activities.    Save as provided in Section 19.1.7.1, Sepracor shall terminate its activities under this Agreement and shall, without limitation, cease to Commercialize Product in the Territory. In addition, save as provided herein, Sepracor undertakes to refrain from using the Trademark, or any trademark confusingly similar thereto.

        19.1.5    Use of Nycomed Technology.    Save as otherwise provided herein, Sepracor shall no longer be entitled to, and shall refrain from using, the Nycomed Technology including the Nycomed Know-How.

        19.1.6    Continuing Obligations of Confidentiality and Non-Use.    Save as otherwise provided herein, without limitation regarding post-contractual access rights to intellectual property of a Party, the expiration or termination of this Agreement for any reason whatsoever notwithstanding, the Parties shall continue to be bound by the obligations of secrecy and non-use pursuant to Article 16.

        19.1.7    Transfer of Stocks.

        19.1.7.1    General.    Upon expiry or termination of this Agreement Nycomed shall decide within its reasonably exercised discretion (i) whether Sepracor shall sell to Nycomed or Nycomed's nominee all remaining stocks of the Product to which Sepracor has retained title and/or, if Nycomed so elects, Promotional and Clinical Samples, which are in good salable condition and which have a normal remaining shelf life of at least [**] for the purposes of sell-out or, in case of Promotional and Clinical Samples, distribution by Nycomed or its designee, (ii) or whether Sepracor shall be entitled to sell out such stocks under the conditions as set forth herein during a period of six (6) months after expiry or termination. In the event Nycomed requires Sepracor to sell the relevant stocks of Product, Promotional and Clinical Samples to Nycomed or its designee, the related transfer price shall be equal to [**] for such Product, Promotional and Clinical Samples.

        In case that Nycomed should elect to proceed pursuant to Section 19.1.7.1(i), to the extent legally permitted, Sepracor grants Nycomed or its appointee the right to sell out the applicable stocks of Product in the original package make-up and such additional stock of Product in its make-up pursuant to this Agreement as Nycomed may reasonably require and manufacture for a smooth transfer of Sepracor's business activities related to Product to Nycomed or its appointee, using Sepracor's Promotional Materials.

        19.1.7.2    Destruction of Stocks.    Stocks of the Products not handed over to Nycomed or Nycomed's nominee or stocks not sold out by Sepracor in accordance with the preceding sub-paragraph shall be destroyed. The costs of such destruction shall be borne by [**], if Nycomed has terminated this Agreement pursuant to Section 18.2.1 or 18.2.2 for Breach by or an Insolvency Event affecting Sepracor. The costs of such destruction shall be borne by [**], if Sepracor has terminated this Agreement pursuant to Section 18.2.1 or 18.2.2 for Breach by or an Insolvency Event affecting Nycomed. Otherwise, [**] unless the Parties are able to reach an amicable solution. Nycomed or its duly authorized representative shall have the right to supervise any such destruction.

        19.1.8    Execution Payment, Development Milestone Fee and Sales Milestone Fees.    Section 3.6 and Section 7.2.5.5.2 notwithstanding, it is expressly understood that the Execution Payment, the Development Milestone Fees and Sales Milestone Fees paid by Sepracor shall neither be refundable nor refunded in case of the early termination of this Agreement for any reason whatsoever.

        19.2    General Provisions Applying upon Expiration or Termination of this Agreement.

        19.2.1    Outstanding Payments.    Save as otherwise provided, payments to be made by either Party arising out of the expiration or termination of this Agreement shall be due within [**] after the

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expiration or termination of this Agreement (for any reason whatsoever) provided that the amount may be calculated at that time; if this is not the case, such payments shall become due within [**] of the amount being calculated and such amount being correctly billed to the other Party.

        19.2.2    Survival of Obligations.    The expiration or termination of this Agreement for any reason whatsoever shall be without prejudice to any obligations or rights on the part of either Party which have accrued prior to such expiration or termination, and shall not affect or prejudice any provision of this Agreement which is either expressly (without limitation, Section 2.3 {Access Rights of Nycomed to Sepracor Technology} Section 6.3.5 {Use of Clinical Data Generated by or for Sepracor in the Course of Clinical Development of Additional Products}, Section 11.2.1 {Quarterly Royalty Payment and Payment Thereof}, Article 12 {Compliance with Law, Insurance and Product Recall}, Article 14 {Indemnification and Liability}, Section 15.3 {Audits}, Article 16 { Confidentiality, Publications}, Article 19 {Rights and Duties upon Expiry or Termination or Expiration}) or by implication (without limitation, Section 5.7 {Right to Access and Reference Use of Regulatory Approvals}, Section 7.1.1.2 {Ownership of certain Improvement Technology}, Section 7.1.2 {Prosecution and Maintenance of Patents}, Section 8.5 {Nycomed's Rights in the Trademark}, Section 11.1.6 {Reconciliation Regarding Supply Price}, Section 11.2.1 {Quarterly Royalty and Payment Thereof}, Section 15.1 { Reporting Duties of Sepracor}, Section 15.2 {General Record-Keeping Obligations}, Article 20 {Governing Law, Dispute Resolution and Arbitration}, Article 23 {Miscellaneous}), provided to come into effect on, or continue in effect, after such expiration or termination.

Article 20
Governing Law, Dispute Resolution and Arbitration

        20.1    Governing Law.    This Agreement and the respective rights of the Parties hereunder shall be governed by and construed in accordance with, the laws of Switzerland, without giving effect to the choice of law principles thereof. The UNCITRAL Convention for the International Sale of Goods as well as any other unified law relating to the conclusion and implementation of contracts relating to the international sale of goods shall not apply.

        20.2    Dispute Resolution.    Save for disputes expressly assigned to Third Party determination pursuant to Section 10.4.2.4 and Section 15.3 or to Third Party Expert Determination in accordance with Section 20.4 in accordance with the terms and conditions of this Agreement, any dispute, controversy or claim (a "Dispute") arising out of or relating to this Agreement which (A) the Parties are unable to amicably settle themselves within a period of sixty (60) Business Days, shall, (B) upon either Party's written request after such 60 Business Day period, be referred to the Chief Executive Officers of the Parties (together, the "Officers") within seventy-two (72) hours following receipt by the other Party of any such request, and such Officers shall attempt to resolve the dispute within a reasonable time, but in no case more than thirty (30) Business Days from the time that any such request has been made. The Officers shall issue their resolution in writing. If such Officers should fail to reach consensus on the applicable issue within such term of thirty (30) Business Days, such issue shall be subject to arbitration pursuant to Sections 20.3, 20.4 and 20.6.

        20.3    Arbitration.    Save for disputes expressly assigned to Third Party determination pursuant to Section 10.4.2.4 and Section 15.3 or to Third Party Expert Determination in accordance with Section 20.4 in accordance with the terms and conditions of this Agreement, any dispute, controversy or claim arising out of or relating to this Agreement which the Parties are unable to amicably settle themselves shall be finally decided, without recourse to the courts, by arbitration proceedings held in Paris and administered by a tribunal (the "Tribunal") according the Rules of Conciliation and Arbitration of the International Chamber of Commerce in Paris (the "ICC" and the "ICC Rules", respectively) as in force at the time such arbitration is commenced. All such proceedings shall be conducted in the English language. The Tribunal shall consist of three (3) arbitrators, appointed in accordance with the ICC Rules. All of the arbitrators shall have significant legal or business experience

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in pharmaceutical matters. The award rendered shall be in writing, shall set forth in reasonable detail the facts of the dispute, and the reasons for the Tribunal's decision, and shall apportion the costs of the arbitration. The award shall not be appealable and shall be binding upon the Parties. The prevailing Party may enter the arbitral award in any court having jurisdiction.

        20.4    Third Party Expert Determination.    Wherever in this Agreement (other than the cases referred to in Section 10.4.2.4 and Section 15.3) the Parties have indicated that the matter shall be referred to an expert (the "Expert") for final determination (the "Third Party Expert Determination"), the following provisions shall apply:

        20.4.1    Nomination.    Such expert shall be agreed by the Parties within 10 Business Days of the request of either Party to appoint such an expert, failing which as nominated by the International Center for Expertise of the International Chamber of Commerce (the "ICC") in Paris. The nomination shall be subject to the conditions that (i) the Expert shall be a national or resident of the US and shall have significant legal or business experience in pharmaceutical matters, (ii) the Expert shall undertake to render his or her opinion within two (2) calendar months of the date of the submission by both Parties of their Proposals pursuant to Section 20.4.2, and (iii) the Expert shall undertake to deliver a written opinion evidencing the basis of his or her decision.

        20.4.2    Party Proposals.    Within in a period of thirty (30) Business Days from the nomination by such Expert by the Parties or the ICC, each Party shall submit to such Expert its proposal for the resolution of the conflict under evaluation (each, a "Proposal").

        20.4.3    Expert Decision.    Except for the cases referred to in Section 22.2, such Expert shall select one of the Parties' Proposals in its entirety, without any modifications or other changes, and to the exclusion of the other Party's Proposal.

        Further, such Expert shall determine the procedure for reaching his/her decision as he/she thinks fit provided that he/she provides each of Nycomed and Sepracor with at least one opportunity to present their views (both in writing and in person) and aims to reach a decision within two (2) calendar months of the submission by both Parties of their Proposals pursuant to Section 20.4.2. With respect to the costs of Third Party Expert Determination, Section 20.6 shall apply.

        20.5    Injunctive Relief.    By agreeing to arbitration or Third Party Expert Determination, the Parties do not intend to deprive any competent court of such court's jurisdiction to issue a pre-arbitral injunction, pre-arbitral attachment or other order in aid of the arbitration or Third Party Expert Determination proceedings and the enforcement of any award or judgment. Without prejudice to such provisional remedies in aid of arbitration or Third Party Expert Determination proceedings as may be available under the jurisdiction of a national court, the court of arbitration shall have full authority to grant provisional remedies and to award damages for failure of any Party to respect the court of arbitration's order to that effect.

        20.6    Expenses of Third Party Expert Determination.    The expenses of any Third Party Expert Determination shall be borne by the Parties in proportion as to which each Party prevails or is defeated in such Third Party Expert Determination. Each Party shall bear the expenses of its counsel and other experts.

Article 21
Force Majeure

        21.1    Force Majeure Affecting Either Party.    Notwithstanding any other provision of this Agreement, Nycomed and Sepracor shall each be excused for any delay or default in performing any of their respective obligations hereunder if such delay or default is caused by conditions beyond its reasonable control including, but not limited to, acts of God, government restrictions (including import and export restrictions), wars, insurrections, terrorism, labor disturbances, shortages of equipment, fuel or labor, destruction of facilities or materials by fire, earthquake, storm or other casualty, any law, rule,

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order, decision, decree, judgment or injunction of any court, governmental officer or regulatory body, epidemic, or failure of public utilities or common carrier. When such circumstances arise, the Parties shall discuss in good faith what, if any, modification of the terms of this Agreement may be required in order to arrive at an equitable solution.

        21.2    Force Majeure Affecting Nycomed.    Notwithstanding any other provision of this Agreement, Nycomed's delay or default caused by its suppliers' or manufacturers' delay or default or by its suppliers' or manufacturer's termination of or failure to renew any agreements with such suppliers or manufacturers, shall be considered a Force Majeure Event if Nycomed has fulfilled all of its material obligations under such agreements and has used reasonable efforts to maintain such agreements in force.

        21.3    Blocking Patent.    In the event that the Parties agree that a license from a Third Party is necessary in order to operate under this Agreement, the inability to obtain such a license under Third Party intellectual property in case of a Third Party patent conflict despite fulfillment of all obligations and procedures set forth in Section 7.3 or Section 7.4 of this Agreement shall constitute a Force Majeure Event.

        21.4    Consequences of Persisting Force Majeure.    The Party affected by a Force Majeure Event pursuant to Sections 21.1 to 21.3 (in each case, a "Force Majeure Event") shall notify the other Party without undue delay in writing of any such Force Majeure Event and the underlying reasons for the delay or default. The Parties shall then reasonably cooperate in good faith so as to seek a resolution of the delay or failure to perform and to reasonably remove the Force Majeure Event, the costs and expenses of so removing any such Force Majeure Event to be borne by the Party so affected unless otherwise agreed in writing, and such Party shall use all reasonable diligence to avoid, remove or mitigate any such causes of non-performance. The Party whose performance is affected by a Force Majeure Event shall continue performance with reasonable dispatch wherever such causes have been removed.

Article 22
Coming into Force and Antitrust Clearance Requirements

        22.1    Reporting and Waiting Requirements under the HSR Act.

        22.1.1    Good Faith Determination of Size of Transaction.    Each Party undertakes to determine in good faith and at its cost and expense whether the transaction contemplated under this Agreement will satisfy the size of the transaction test as defined under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (15 U.S.C. Sec. 18a), and the rules and regulations promulgated thereunder (collectively, the "HSR Act"), and will, to the extent required and at its cost and expense, make a filing under the HSR Act.

        22.1.2    HSR Filing.    In the event that a Party makes the good faith determination that a filing of a Notification and Report Form for Certain Mergers and Acquisitions (as that term is defined in the HSR Act) with respect to the matters set forth in this Agreement under the HSR Act is required, each of Sepracor and Nycomed will, within fifteen (15) Business Days after the Execution Date of this Agreement, file with the United States Federal Trade Commission (the "FTC") and the antitrust division of the United States Department of Justice (the "DOJ"), any notification and report form required of it in the reasonable opinion of both Parties under the HSR Act with respect to the transactions contemplated hereby, together with all required documentary attachments thereto. The Parties will cooperate with one another to the extent necessary in the preparation of any notification and report form required to be filed under the HSR Act. Each Party will be responsible for its own costs, expenses, and filing fees associated with any filing under the HSR Act.

        22.2    Antitrust Clearance Requirements under EU Antitrust Law.    Relying on the advice of reputable counsel experienced in the competition law of the European Union, the Parties have made or

88

will make the good faith determination that the transaction covered by this Agreement is not subject to the competition law of the European Union, as it will have no effects within the European Union (whether or not it would otherwise have benefited from an exemption or have been exempted pursuant to Article 81(3) of the EC Treaty).

        In the event that either Party should allege that any term of this Agreement does not so comply with the laws and regulations of the European Community, the Parties shall amend this Agreement in good faith so as to conform to such relevant laws and regulations of the European Community in a way that most closely approximates the purpose and economic effect of the invalid provision and the Parties' presumed intentions, thereby adjusting, to the extent reasonably required, the terms and conditions of this Agreement in order to resolve any inequities. Section 23.5 notwithstanding, if the Parties should have been unable to agree on the issue of whether or not this Agreement complies with the laws of the European Community and/or an appropriate amendment so as to harmonize this Agreement with such laws and regulations within three months from the first written request of a Party to do so, the issues of the compliance of this Agreement with the laws and regulations of the European Community shall be resolved and, if applicable, a corresponding amendment this Agreement shall be determined, by a Third Party Expert Determination pursuant to Section 20.4 always provided, however, that Section 20.4.3 shall not apply, and that such Third Party Expert shall be entitled to determine the appropriate amendments to be made to this Agreement in accordance with this clause.

Article 23
Miscellaneous

        23.1    Entire Agreement.    This Agreement constitutes the entire understanding of the Parties with respect to the subject matter hereof and supersedes and replaces all prior understandings between the Parties hereto including, without limitation, the Confidentiality Agreement.

        23.2    Prevailing Agreement.    In the event of any conflict between the provisions of this Agreement and a schedule attached hereto, the provisions of this Agreement shall prevail, unless the relevant clause of the relevant schedule expressly provides that it shall prevail, thereby referencing the clause of this Agreement over which the applicable schedule is intended to prevail.

        23.3    Amendments.    Modifications and amendments to this Agreement shall be effective only if made in writing; this also applies to a waiver of the written form. Evidence for the contents of this Agreement may only be produced in the form of written documents duly executed by each of the Parties hereto.

        23.4    Notices.    Unless otherwise provided for in this Agreement, any notice or request required or permitted to be given under or in connection with this Agreement or the subject matter hereof, shall be given in the English language in writing by prepaid registered or first-class airmail, by reputable same-day or overnight courier, or facsimile to the recipient at its address as set forth hereunder or to such other address or addressee as may have therefor been furnished in writing by the recipient to the sending Party in accordance with this clause provided, however, that any notice of termination shall be given reputable same-day or overnight courier. Any such aforementioned notice or request shall be

89

deemed to be effective upon receipt by the Party to which it is addressed. Any notice to be sent by a Party pursuant to this Agreement shall be addressed:

If directed at Nycomed:	If directed at Sepracor:
Nycomed GmbH Attention: Legal Department Byk-Gulden-Strasse 2 D-78467 Konstanz Federal Republic of Germany	Sepracor Inc. Attention: Adrian Adams, President & CEO 84 Waterford Drive Marlborough, MA 01752 USA
	With a courtesy copy to, and provided that notification of Sepracor's CEO will suffice to constitute effective notice:
	Andrew I. Koven Exec. Vice President, General Counsel & Corporate Secretary
Telephone: ++49.7531.84.1496	Telephone: ++1.508.481.6700
Facsimile: ++49.7531.84.2982	Facsimile: ++1.508.357.7511

        Any change of these addresses shall be promptly communicated in writing to the other Party.

        23.5    Severability and Gaps.    Subject to Section 22.2, in the event of the invalidity of any provisions of this Agreement or of this Agreement containing any gaps, the Parties agree that such invalidity or gap shall not affect the validity of the remaining provisions of this Agreement. The Parties will replace an invalid provision or fill any gap with valid provisions that most closely approximate the purpose and economic effect of the invalid provision or, in case of a gap, the Parties' presumed intentions. In the event that the terms and conditions of this Agreement are materially altered as a result of the preceding sentences, the Parties shall renegotiate the terms and conditions of this Agreement in order to resolve any inequities. Nothing in this Agreement shall be interpreted so as to require either Party to violate any applicable laws, rules or regulations. Nothing contained in this Section shall permit modification of the Execution Payment, the Development Milestone Fee and Sales Milestone Fees pursuant to Article 3.

        23.6    Waiver and Estoppel.    Failure of either Party to insist upon a strict and punctual performance of any of the provisions hereof shall not constitute a waiver nor an estoppel against asserting the right to require such performance, nor shall a waiver or estoppel in one instance constitute a waiver or estoppel with respect to a later breach, whether of similar nature or otherwise. The observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively) by the Party entitled to enforce such term, but any such waiver shall be effective only if in writing signed by the Party against whom such waiver is to be asserted.

        23.7    No Agency, No Joint Venture, No Partnership.    Nothing herein contained shall be deemed to create an agency, joint venture, amalgamation, partnership or similar relationship between Nycomed and Sepracor, and this Agreement shall not be deemed a partnership agreement. Notwithstanding any of the provisions of this Agreement, neither Party shall at any time enter into, incur, or hold itself out to Third Parties as having authority to enter into or incur, on behalf of the other Party, any commitment, expense, or liability whatsoever, and all contracts, expenses and liabilities undertaken or incurred by one Party in connection with or relating to the development, manufacture, promotion or sale of Products shall be undertaken, incurred or paid exclusively by that Party, and not as an agent or representative of the other Party.

90

        23.8    Assignment.    The terms and provisions of this Agreement shall inure to the benefit of, and be binding upon, Nycomed, Sepracor and, subject to Section 18.3.2, their respective successors by operation of law and permitted assigns. Nycomed may assign or otherwise transfer this Agreement and its rights and obligations thereunder (i) in connection with any merger, reorganization, or sale of all or substantially all of its assets to which this Agreement relates (without limitation, the sale of its respiratory business); and (ii) to an Affiliate of Nycomed. Sepracor may assign or otherwise transfer this Agreement and its rights and obligations thereunder (y) in connection with any merger or sale of all or substantially all of its assets to which this Agreement relates (without limitation, the sale of its respiratory business); and (z) to an Affiliate of Sepracor. In the event of any such assignment or transfer by either Party, each of Nycomed and Sepracor, respectively, shall continue to be responsible for their performance under this Agreement.

        23.9    Reasonable Damages.    The Parties acknowledge and agree that under certain circumstances contemplated by this Agreement, damages shall not be readily ascertainable or determinable in terms of actual money amounts and therefore acknowledge and agree that the monetary remedies identified in such circumstances are a fair and equitable determination of such damages. Unless otherwise specified, this is without prejudice to any other remedy a Party may have available to it.

        23.10    Construction and Interpretation.

        23.10.1    Headings; Singular and Plural.    The heading references herein are for convenience purposes only, do not constitute a part of this Agreement and shall be deemed not to limit or affect any of the provisions hereof and their interpretation. The singular and plural numbers can be substituted for each other when the context requires such substitution.

        23.10.2    Original Version to Govern.    This original English version of this Agreement shall be binding upon the Parties and shall prevail over any translations thereof as may be made by a Party.

        23.10.3    Use of Terms "and" or "or".    The word "and" or "or" shall be deemed to mean "and", "or" or "and/or", where the context so admits or requires.

        23.10.4    Use of Term "Including".    The term "including" as used herein means including without limitation.

        23.10.5    Use of the Term "May".    As used herein, "may" shall mean having the right to do something and "may not" means the prohibition of something.

        23.10.6    Good Faith.    Regardless of whether so specified in each instance, when the Parties discuss, negotiate, agree, conduct their business with each other, or decide or take any other action with respect to each other, they shall do so in good faith.

        23.10.7    Mutual Agreement.    The Parties acknowledge that they may, from time to time, reach agreements, which modify their rights and obligations pursuant to this Agreement. Nothing herein shall limit their right to do so, provided, however, that any such agreement shall be in writing, duly signed on behalf of both of the Parties.

        23.11    Legal Costs of this Agreement.    Each Party shall bear its own legal costs pertaining to the negotiation and execution of this Agreement.

        23.12    Initial Press Release.    The timing and content of the initial press release relating to this Agreement, including its existence, the subject matter to which it relates and the transactions contemplated herein will, except as otherwise required by law or any stock exchange rules, be determined jointly by the Parties.

        23.13    Counterparts.    This Agreement may be executed in duplicate, which may be delivered via facsimile or other means of electronic communication, both of which shall be deemed to be originals, and both of which shall constitute one and the same Agreement.

[Remainder of page intentionally left blank]

91

        IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the day and year first above written by their duly authorized representatives.

NYCOMED GMBH		SEPRACOR INC.
Name:	Dr. Barthold Piening	Name:	Mr. Adrian Adams
Title:	Executive Vice President Operations	Title:	President & CEO
Signature:	/s/  BARTHOLD PIENING	Signature:	/s/  ADRIAN ADAMS
Name:	Anders Ullmann
Title:	Member of the Board of Management, R&D
Signature:	/s/  ANDERS ULLMANN
Place, Date: Konstanz,	Jan. 25, 2008	Place, Date:	Marlborough, Jan. 24, 2008

List of Schedules to this Agreement

Schedule 1.1:	Compound Specifications
Schedule 1.2:	Detail Cost
Schedule 1.3:	Nycomed Drug Master File
Schedule 1.4:	Manufacturing Cost
Schedule 1.5:	Sepracor Patents
Schedule 1.6:	Nycomed Patents
Schedule 1.7:	Product Specifications
Schedule 1.8:	Trademarks
Schedule 1.9:	3M Development Agreement
Schedule 1.10:	3M Supply Agreement
Schedule 9.6.1.1:	Minimum Marketing Investment Obligations
Schedule 9.6.2.1:	Minimum Sales Obligations
Schedule 10.2.4:	Quality Agreement
Schedule 10.3.2:	(Format of Rolling Monthly Net Requirements Plan)
Schedule 10.3.3:	Minimum Batch Sizes
Schedule 12.4:	Ciclesonide Pre- and Post Marketing Surveillance (SOP)

92

SCHEDULE 1.1

to the Distribution and Development Agreement on Ciclesonide
between Nycomed and Sepracor regarding the USA

Compound Specifications

[**]

93

SCHEDULE 1.2

to the Distribution and Development Agreement on Ciclesonide
between Nycomed and Sepracor regarding the USA

Detail Cost

        In the event that there is a Shortfall Amount as a result of Sepracor failing to achieve a minimum number of PDEs as set forth on Schedule 9.6.1.1, the Shortfall Amount attributable to such PDEs pursuant to Section 9.6.1.2 and Schedule 9.6.1.2 shall be calculated at a rate of $[**] per PDE required to be but not performed during such Product Year.

94

SCHEDULE 1.3

to the Distribution and Development Agreement on Ciclesonide between
Nycomed and Sepracor regarding the USA

Nycomed Drug Master File

	Restricted Part	Applicants Part
Name(s) and Site(s) of ASM	+	+
Specification and routine test		+
Nomenclature		+
Description		+
Previous use in medicinal products	+
Manufacturing method
— Brief outline (flow-chart)		+
— Detailed description	+
QC during manufacture	+
Process validation and evaluation of data	+
Development chemistry
— Evidence of structure		+
— Potential isomerism		+
— Physicochemical characterization		+
Analytical validation		+
Impurities		+
Batch analysis (incl. Impurities)		+
Stability		+

95

SCHEDULE 1.4

to the Distribution and Development Agreement on Ciclesonide between
Nycomed and Sepracor regarding the USA

Manufacturing Cost

1.     Manufacturing Cost

        Manufacturing Cost related to the Manufacturing (as defined in Article 1 of the Quality Agreement attached hereto as Schedule 10.2.4) of (i) Product ("Manufacturing Cost") is defined as the per Unit cost of output for Product, and (ii) Compound is defined as the per kilogram cost of output for Compound at a good or best level of performance for a plant and its labor force. Manufacturing Cost should not include more than a proportional share of the supporting activities related to the process of (i) Formulation or Manufacture of Product or (ii) Manufacture of Compound.

        The Manufacturing Cost consist of:

•

Direct Cost



•

Indirect Plant Related Cost



•

Nycomed's Central Manufacturing Support Services Cost

2.     Cost Definitions

2.1   Direct Cost

        Direct Cost includes, but is not limited to:

•

Direct material as defined in the approved bill of material based on the average annual actual costs per unit expected or negotiated to be paid, including any applicable freight, taxes, duties, customs or import fees, and less any discounts or free goods.



•

Direct external activities such as toll manufacturing and toll packaging under a Toll Manufacturing or Contract Manufacturing agreement based on the average annual actual costs per unit expected or negotiated to be paid, including any applicable freight, taxes, duties, customs or import fees, and less any discounts or free goods.



•

Direct labor cost for personnel of production & quality control including wages, taxes, social benefits routinely paid or government mandate respectively collective agreement bonuses.

        All these cost components called "Direct Cost" shall be expressed as a part of the Manufacturing Cost (i) per unit per Product or (ii) per kilogram of Compound.

2.2.  Indirect Plant Related Cost

        Indirect Plant Related Cost is calculated as a part of the Manufacturing Cost (i) per unit cost of the Product or (ii) per kilogram cost of Compound and includes the facilities, equipment, supervisory and other support personnel (i.e., material handlers, line mechanics/engineers, administrative supports, etc.), facility rent/occupancy costs, depreciation/rent for equipment, maintenance, energy, miscellaneous supplies (not included on the BOM), utilities, applicable contract services, insurance and taxes, plus reasonable proportion for people-related support costs (i.e., plant management, human resources, training, cafeteria, safety, industrial hygiene, etc.) and site support services (i.e., facilities, office/administrative services, security, cost accounting, purchasing and receiving of non-inventory items, information systems, communications, etc.). Additionally all costs related to activities such as process engineering, package engineering, warehousing of materials and supplies, production planning,

96

purchasing and receiving of materials and supplies, quality assurance, regulatory fees, and other similar activities, shall be included in the Indirect Plant Related Cost.

        All these cost components called "Indirect Plant Related Cost" shall be expressed as a part of the Manufacturing Cost (i) per unit per Product or (ii) per kilogram of Compound.

2.3   Nycomed's Central Manufacturing Support Services Cost

        Operations and plant support services required to support the Manufacture of (i) the Product and/or (ii) the Compound and not being part of Indirect Plant Related Cost, include Nycomed's central manufacturing support activities "Nycomed's Central Manufacturing Support"). Nycomed's Central Manufacturing Support Services Cost is calculated as a part of the Manufacturing Cost (i) per unit per Product and/or (ii) per kilogram of Compound and includes all costs related to the following central activities such as production planning, purchasing, quality assurance, regulatory affairs, analytical support, technology and formulation management as well as other administration functions (e.g. accounting, human resources, etc.).

        All these cost components called "Nycomed's Central Manufacturing Support Services Cost" shall be expressed as a part of the Manufacturing Cost (i) per unit per Product and/or (ii) per kilogram of Compound.

3      Base Manufacturing Cost for the First Contract Year (subject to Section 11.1.1)

3.1   Alvesco MDI Product

[**]	[**]	[**]	[**]	[**]	[**]
[**]	[**]	[**]	[**]	[**]	[**]

3.2   Omnaris AQ Product

[**]	[**]
[**]	[**]

97

SCHEDULE 1.5

to the Distribution and Development Agreement on Ciclesonide between
Nycomed and Sepracor regarding the USA

Sepracor Patents

None

98

SCHEDULE 1.6

to the Distribution and Development Agreement on Ciclesonide between
Nycomed and Sepracor regarding the USA

No.	Application Number	Filing Date	Publication or Patent Number	Issue Date	Expiry Date	Assignee
Nycomed Core Patents
1.1	08/278112	07.09.1990	5482934	09.01.1996	09.01.2013	Nycomed
1.2	10/110629	20.10.2000	6767901	27.07.2004	21.10.2020	Nycomed
1.3	09/446276	21.04.1999	6939559	06.09.2005	21.04.2019	Teijin
1.4	10/201303	24.07.2002	7235247	26.06.2007	21.04.2019	Teijin
1.5	09/147675	29.08.1997	6787533	07.09.2004	24.01.2019	Nycomed
1.6	530173	31.03.1994	5733901	31.03.1998	31.03.2015	Nycomed
1.7	09/076958	13.05.1998	6120752	19.09.2000	13.05.2018	Nycomed and 3M
1.8	09/440797	13.05.1998	6264923	24.07.2001	13.05.2018	Nycomed and 3M
Nycomed Additional Patents
2.1	10/110632	20.10.2000	not published			Nycomed
2.2	10/537356	11.12.2003	2006/0025392			Nycomed
2.3	10/519484	02.07.2003	2006/0166953			Nycomed
2.4	10/559383	09.06.2004	2006/0127323			Nycomed
2.5	10/571311	15.09.2004	2007/0025923			Nycomed
2.6	11/578294	19.04.2005	2007/0134165			Nycomed
2.7	10/582499	15.12.2004	2007/0117783			Nycomed
2.8	11/325875	08.07.2004	2006/0104917			Sanofi-Aventis, to be assigned to Nycomed
Nycomed Ancillary Patents
3.1	704574	07.03.1995	5728826	17.03.1998	17.03.2015	Nycomed
3.2	08/809687	27.09.1995	5891844	06.04.1999	27.09.2015	Nycomed
3.3	10/399689	06.11.2001	2005/0080063			Nycomed
3.4	10/549631	26.03.2004	2006/0128954			Nycomed
3.5	10/513598	03.05.2003	2005/0222193			Nycomed
3.6	10/524821	29.08.2003	2005/0245493			Nycomed
3.7	10/570986	15.09.2004	2006/0211668			Nycomed
3.8	10/572316	22.09.2004	2007/0023034			Nycomed
3.9	10/589871	25.02.2005	2007/0185067			Nycomed
3.10	11/661150	08.09.2005	not yet published			Nycomed

Patent Term Extensions

No.	Application Number	Filing Date	Publication or Patent Number	Issue Date	Expiry Date	Assignee
Nycomed Core Patents
1.1	08/278112	15.12.2006	5482934			Nycomed

[**]

99

SCHEDULE 1.7

        to the Distribution and Development Agreement on Ciclesonide between
Nycomed and Sepracor regarding the USA

        Within 10 Business Days after the Effective Date, whether or not prior to the finalization of the Quality Agreement, the Parties will attach the relevant Product Specifications for Omnaris AQ, which shall be based on the regulatory specifications approved by the FDA, and upon which Nycomed will consider any reasonable suggestions of Sepracor.

Product Specifications of Omnaris® AQ Product

        [See Appendix 1 Section 1.1 and Appendix 2 Section 3.1 of the Quality Agreement attached hereto]

Product Specifications of Omnaris® HFA Nasal Spray

        [See Appendix 1 Section 1.2 and Appendix 2 Section 3.2 of the Quality Agreement attached hereto]

Product Specifications of Alvesco® MDI Product

        [See Appendix 1 Section 1.3 and Appendix 2 Section 3.3 of the Quality Agreement attached]

100

SCHEDULE 1.8

        to the Distribution and Development Agreement on Ciclesonide between
Nycomed and Sepracor regarding the USA

Trademarks

1.     Trademark for Omnaris® AQ and HFA Product

Country	Trademark	Registration No./ Application No.	Registration Date/ Application Date	Next Renewal
USA	OMNARIS®	Registration No.: Application No.: 78/949782	10 August 2006 (Notice of allowance issued)

2.     Trademark for Alvesco® MDI Product

Country	Trademark	Registration No./ Application No	Registration Date/ Application Date	Next Renewal
USA	ALVESCO® ALVESCO*	Registration No.: 2860362 Application No.: 77/074621	06 July 2004 02 January 2007 (Notice of allowance issued)	06 July 2014

*

This trademark application is pending. It has been filed in addition to the existing registered Trademark "Alvesco®" for the purposes of extending the protection period in case of an eventual failure to use such originally registered Trademark. The pertaining notice of allowance for registration has been issued.

3.     Other Products

        To be determined at an appropriate time in accordance with Section 8.2.

101

SCHEDULE 1.9

        to the Distribution and Development Agreement on Ciclesonide between
Nycomed and Sepracor regarding the USA

3M Development Agreement
(Redacted Copy)

To be provided.

102

SCHEDULE 1.10

        to the Distribution and Development Agreement on Ciclesonide between
Nycomed and Sepracor regarding the USA

3M Supply Agreement
(Redacted Copy)

To be provided.

103

SCHEDULE 9.6.1.1

        to the Distribution and Development Agreement on Ciclesonide between
Nycomed and Sepracor regarding the USA

Minimum Marketing Investment Obligations

        [**].

104

SCHEDULE 9.6.2.1

        to the Distribution and Development Agreement on Ciclesonide between
Nycomed and Sepracor regarding the USA

Minimum Sales Obligations

        For the periods described below, minimum Net Sales of:

(a)

with respect to the Alvesco MDI Product:

        [**] after the Launch Date for such Product: $[**]

        [**] after the Launch Date for such Product: $[**]

        [**] after the Launch Date for such Product: $[**]

(b)

in the aggregate with respect to the Omnaris AQ and Omnaris HFA Products:

        [**] after the Launch Date for such Products: $[**]

        [**] after the Launch Date for such Products: $[**]

        [**] after the Launch Date for such Products: $[**]

105

SCHEDULE 10.2.4

to the Distribution and Development Agreement on Ciclesonide between
Nycomed and Sepracor regarding the USA

Quality Agreement

[To be attached at an appropriate time in accordance with Section 10.2.4.1]

106

SCHEDULE 10.3.2

to the Distribution and Development Agreement on Ciclesonide between
Nycomed and Sepracor regarding the USA

Format of Rolling Monthly Net Requirements Plan

[Nycomed to Propose]

107

SCHEDULE 10.3.3

to the Distribution and Development Agreement on Ciclesonide between
Nycomed and Sepracor regarding the USA

Minimum Batch Sizes

The minimum batch sizes shall be:

Omnaris AQ:

[**]

Alvesco:

[**]

Nycomed will consider any reasonable suggestions of Sepracor as to adjustment to batch sizes.

108

SCHEDULE 12.4

to the Distribution and Development Agreement on Ciclesonide between
Nycomed and Sepracor regarding the USA

Ciclesonide Pre- and Post Marketing Surveillance (SOP)

[To be attached at an appropriate time in accordance with Section 12.4]

109

QuickLinks

Exhibit 10.45

EX-10.47

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Exhibit 10.47

SUMMARY OF EXECUTIVE OFFICER COMPENSATION

Executive Officer Compensation—Payout of 2007 Bonuses

        On January 24, 2008, the Compensation Committee (the "Committee") of the Board of Directors of Sepracor Inc. (the "Company") approved bonus payments to the Company's executive officers with respect to their performance during 2007. The following table sets forth the bonus payments for 2007 paid to each of the Company's executive officers.

Executive Officer	2007 Target Bonus		2007 Bonus Payment
Timothy J. Barberich Executive Chairman; Former Chief Executive Officer	$	731,500	$	660,000
Adrian Adams President and Chief Executive Officer	$	800,000	$	666,640	(1)
Mark H.N. Corrigan, M.D. Executive Vice President, Research and Development	$	258,638	$	235,000
David P. Southwell Executive Vice President, Chief Financial Officer and Secretary	$	252,890	$	230,000
Andrew I. Koven Executive Vice President, General Counsel and Corporate Secretary	$	250,000	$	210,000	(1)
Robert F. Scumaci Executive Vice President, Finance and Administration, Treasurer	$	247,143	$	225,000
Mark Iwicki Executive Vice President, Chief Commercial Officer	$	285,000	$	75,000	(2)

(1)

Amount represents the portion of target bonuses payable to Messrs. Adams and Koven pro rated from the start of their employment in March 2007.

(2)

Mr. Iwicki was guaranteed a 2007 bonus of $75,000.

Executive Officer Compensation for 2008—Base Salary and Target Bonus

        On January 24, 2008, the Committee approved the annual base salaries to be paid to the Company's executive officers during 2008. In addition, the Committee established target bonuses for each executive officer as a percentage of each executive officer's annual base salary. Each executive officer's bonus for 2008 shall be determined based on, among other things, the Company's overall performance, as well as such officer's individual performance, during 2008. The following table sets

forth the annual base salary for 2008 and 2008 target bonus for each of the Company's executive officers.

Executive Officer	Annual Base Salary for 2008		2008 Target Bonus Percentage		2008 Target Bonus
Timothy J. Barberich	$	960,000	80	%	$	768,000
Adrian Adams	$	1,050,000	100	%	$	1,050,000
Mark H.N. Corrigan, M.D.	$	545,000	50	%	$	272,500
David P. Southwell	$	530,000	50	%	$	265,000
Andrew I. Koven	$	525,000	50	%	$	262,500
Robert F. Scumaci	$	520,000	50	%	$	260,000
Mark Iwicki	$	500,000	60	%	$	300,000

Stock Option and Restricted Stock Awards

        Each executive officer may also be granted stock options, restricted stock or other awards pursuant to the Company's equity incentive plans. The Committee may approve annual equity awards at its meeting that coincides with the Company's annual meeting of stockholders and may approve grants to newly named executive officers at its first meeting following the executive's first day of employment. With the approval of the full Board, additional equity awards may be granted to executive officers.

Other Compensation

        The Company has also (1) entered into employment agreements with Messrs. Adams, Koven and Iwicki, (2) entered into letter agreements that include severance provisions with Dr. Corrigan and Messrs. Scumaci and Southwell, (3) entered into executive retention agreements with each of its executive officers, (4) entered into an executive retirement agreement with Mr. Barberich, and (5) agreed to make gross up payments to each of its executive officers in the event that any payments received by them in connection with a change of control constitute parachute payments under Section 280G of the Internal Revenue Code of 1986, as amended. The Company has previously filed these letter agreements, employment agreements, executive retention agreements, executive retirement agreement and a summary of the 280G gross up plan with the Securities and Exchange Commission.

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Exhibit 10.47

EX-10.48

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Exhibit 10.48

SEPRACOR INC.
SUMMARY OF NON-EMPLOYEE DIRECTOR COMPENSATION

        Sepracor Inc. (the "Company") does not pay directors who are also employees of the Company any additional compensation for their service as a director. The Company does pay its non-employee directors for their service. The Company provides the following equity-based and cash-based compensation to its non-employee directors:

•

an option to purchase 20,000 shares of common stock upon initial election to the board, such stock option terminating on the earlier of ten years following the grant date and one year after the director ceases to serve on the board, and vesting as to 2,000 shares on the first anniversary of the grant date and as to 20% of the shares annually thereafter;



•

an option to purchase 10,000 shares of common stock on the date of each annual meeting of stockholders following which the director will continue to serve, assuming he or she has been serving on the board for at least six months, such stock option terminating on the earlier of ten years after the grant date and one year after the director ceases to serve on the board, and vesting on the date which is one business day prior to the next annual meeting of stockholders;



•

a grant of 5,000 shares of restricted common stock on the date of each annual meeting of stockholders following which the director will continue to serve, assuming he or she has been serving on the board for at least six months, such grant vesting on the date which is one business day prior to the next annual meeting of stockholders;



•

$45,000 per year for service as a director;



•

$2,500 for each meeting of the board attended;



•

an additional $8,000 per year for the lead director's service on the board;



•

an additional $12,000 per year for a director's service on the audit committee, other than as chairman;



•

an additional $15,000 per year for a director's service as the chairman of the audit committee;



•

an additional $6,000 per year for a director's service on the compensation committee, other than as chairman;



•

an additional $8,000 per year for a director's service as the chairman of the compensation committee;



•

an additional $6,000 per year for a director's service on the nominating and corporate governance committee, other than as chairman;



•

an additional $8,000 per year for a director's service as the chairman of the nominating and corporate governance committee; and



•

expense reimbursement for attending board and committee meetings.

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Exhibit 10.48

EX-21

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Exhibit 21

LIST OF SUBSIDIARIES

Name	Jurisdiction of Incorporation
Sepracor Canada Holdings, Inc. (100% owned subsidiary of Sepracor)	Delaware
Sepracor Canada Limited (100% owned subsidiary of Sepracor Canada Holdings, Inc.)	Canada
Sepracor Securities Corporation (100% owned subsidiary of Sepracor)	Massachusetts
Sepracor N.V. (100% owned subsidiary of Sepracor)	Netherland Antilles
Sepracor Research and Development Trust (100% owned subsidiary of Sepracor)	Delaware
Sepracor Pharmaceuticals Ltd. (100% owned subsidiary of Sepracor N.V.)	Ireland

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Exhibit 21

EX-23.1

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Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

        We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (Nos. 33-43460, 33-44808, 33-48428, 333-05217, 333-05219, 333-94774, 333-48719, 333-05221, 333-58557, 333-58559, 333-58563, 33-48427, 33-63710, 33-79724, 333-85003, 333-84983, 333-58368, 333-100888, 333-100887, 333-112748, 333-130368, 333-138815 and 333-145323) of Sepracor Inc. of our report dated February 29, 2008 relating to the financial statements, financial statement schedule and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.

/s/ PRICEWATERHOUSECOOPERS LLP

Boston, Massachusetts
February 29, 2008

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Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

EX-31.1

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Exhibit 31.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Adrian Adams, certify that:

1.

I have reviewed this annual report on Form 10-K of Sepracor Inc.;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4.

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: February 29, 2008

/s/ Adrian Adams Adrian Adams
President and Chief Executive Officer

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Exhibit 31.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

EX-31.2

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Exhibit 31.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, David P. Southwell, certify that:

1.

I have reviewed this annual report on Form 10-K of Sepracor Inc.;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4.

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: February 29, 2008

/s/ David P. Southwell David P. Southwell
Executive Vice President and Chief Financial Officer

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Exhibit 31.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

EX-32.1

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Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

        In connection with the annual report on Form 10-K of Sepracor Inc. (the "Company") for the period ended December 31, 2007 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, Adrian Adams, Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, that to his knowledge:

        (1)   the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

        (2)   the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: February 29, 2008 /s/ Adrian Adams Adrian Adams
Chief Executive Officer

A signed original of this written statement required by Section 906 has been provided to Sepracor Inc. and will be retained by Sepracor Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

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Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

EX-32.2

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Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

        In connection with the annual report on Form 10-K of Sepracor Inc. (the "Company") for the period ended December 31, 2007 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, David P. Southwell, Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, that to his knowledge:

        (1)   the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

        (2)   the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: February 29, 2008 /s/ David P. Southwell David P. Southwell
Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to Sepracor Inc. and will be retained by Sepracor Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

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Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002