10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2009

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: 000-50767

CORNERSTONE THERAPEUTICS INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware	04-3523569
(State or Other Jurisdiction of	(I.R.S. Employer
Incorporation or Organization)	Identification No.)
1255 Crescent Green Drive, Suite 250
Cary, North Carolina	27518
(Address of Principal Executive Offices)	(Zip Code)

(919) 678-6611
(Registrant’s Telephone Number, Including Area Code)

     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 þ No o

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

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

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

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

     As of November 2, 2009, the registrant had 25,114,444 shares of Common Stock, $0.001 par value per share, outstanding.

CORNERSTONE THERAPEUTICS INC.

FORM 10-Q

TABLE OF CONTENTS

	Page
PART I — FINANCIAL INFORMATION		1
Cautionary Statement Regarding Forward-Looking Statements		1
Item 1. Financial Statements		2
Condensed Consolidated Balance Sheets as of September 30, 2009 (Unaudited) and December 31, 2008		2
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2009 and 2008 (Unaudited)		3
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2009 and 2008 (Unaudited)		4
Notes to Condensed Consolidated Financial Statements (Unaudited)		5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		16
Item 3. Quantitative and Qualitative Disclosures about Market Risk		29
Item 4. Controls and Procedures		29
Item 4T. Controls and Procedures		29
PART II — OTHER INFORMATION		29
Item 1. Legal Proceedings		29
Item 1A. Risk Factors		31
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		39
Item 4. Submission of Matters to a Vote of Security Holders		39
Item 6. Exhibits		42
SIGNATURES		42
EXHIBIT INDEX		43
EX-10.2 License and Option Agreement between LG Life Sciences, Ltd. and Cornerstone BioPharma, Inc.
EX-10.3 Lease Modification Agreement No. 1, dated October 31, 2008
EX-10.4 Lease Modification Agreement No. 2, dated October 2, 2009
EX-10.5 Second Amendment, dated July 27, 2009, to Amended and Restated Restricted Stock Agreement
EX-31.1 Section 302 Certification of CEO
EX-31.2 Section 302 Certification of CFO
EX-32.1 Section 906 Certification of CEO
EX-32.2 Section 906 Certification of CFO

PART I—FINANCIAL INFORMATION

Cautionary Statement Regarding Forward-Looking Statements

     This quarterly report on Form 10-Q includes forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. For this purpose, any statements contained herein, other than statements of historical fact, including statements regarding the progress and timing of our product development programs and related trials; our future opportunities; our strategy, future operations, anticipated financial position, future revenues and projected costs; our management’s prospects, plans and objectives; and any other statements about management’s future expectations, beliefs, goals, plans or prospects constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We may, in some cases, use words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “should,” “target,” “will,” “would” or other words that convey uncertainty of future events or outcomes to identify these forward-looking statements. Actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors, including our “critical accounting estimates”; our ability to develop and maintain the necessary sales, marketing, supply chain, distribution and manufacturing capabilities to commercialize our products; the possibility that the Food and Drug Administration, or FDA, will take enforcement action against us or one or more of our marketed drugs that do not have FDA-approved marketing applications; patient, physician and third-party payor acceptance of our products as safe and effective therapeutic products; our heavy dependence on the commercial success of a relatively small number of currently marketed products; our ability to maintain regulatory approvals to market and sell our products that do have FDA-approved marketing applications; our ability to enter into additional strategic licensing, collaboration or co-promotion transactions on favorable terms, if at all; our ability to maintain compliance with NASDAQ listing requirements; adverse side effects experienced by patients taking our products; difficulties relating to clinical trials, including difficulties or delays in the completion of patient enrollment, data collection or data analysis; the results of preclinical studies and clinical trials with respect to our products under development and whether such results will be indicative of results obtained in later clinical trials; our ability to satisfy FDA and other regulatory requirements; and our ability to obtain, maintain and enforce patent and other intellectual property protection for our products and product candidates. These and other risks are described in greater detail in “Part I—Item 1A. Risk Factors” of our annual report on Form 10-K for the year ended December 31, 2008 filed with the Securities and Exchange Commission, or SEC, on March 26, 2009. Any material changes to the risk factors disclosed in the annual report are discussed below in “Part II—Item 1A. Risk Factors.” If one or more of these factors materialize, or if any underlying assumptions prove incorrect, our actual results, performance or achievements may vary materially from any future results, performance or achievements expressed or implied by these forward-looking statements. In addition, any forward-looking statements in this quarterly report on Form 10-Q represent our views only as of the date of this quarterly report on Form 10-Q and should not be relied upon as representing our views as of any subsequent date. We anticipate that subsequent events and developments will cause our views to change. However, while we may elect to update these forward-looking statements publicly at some point in the future, we specifically disclaim any obligation to do so, whether as a result of new information, future events or otherwise. Our forward-looking statements do not reflect the potential impact of any acquisitions, mergers, dispositions, business development transactions, joint ventures or investments that we may enter into or make.

ITEM 1. FINANCIAL STATEMENTS

CORNERSTONE THERAPEUTICS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)

	September 30,		December 31,
	2009		2008
	(Unaudited)		(Note 1)
Assets
Current assets:
Cash and cash equivalents	$	10,992	$	9,286
Marketable securities		—		300
Accounts receivable, net		27,483		12,987
Inventories, net		16,143		11,222
Prepaid and other current assets		3,361		1,754
Deferred income tax asset		5,266		2,428
Total current assets		63,245		37,977
Property and equipment, net		1,036		895
Product rights, net		130,393		17,702
Goodwill		13,231		13,231
Amounts due from related parties		38		38
Other assets		525		46
Total assets	$	208,468	$	69,889
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	8,102	$	10,288
Accrued expenses		29,020		19,052
Current portion of license agreement liability		971		2,543
Current portion of capital lease		10		—
Income taxes payable		3,165		2,937
Total current liabilities		41,268		34,820
License agreement liability, less current portion		2,313		2,313
Capital lease, less current portion		41		—
Deferred income tax liability		5,292		3,330
Total liabilities		48,914		40,463
Commitments and contingencies, Note 9
Stockholders’ equity
Preferred stock — $0.001 par value, 5,000,000 shares authorized; no shares issued and outstanding		—		—
Common stock — $0.001 par value, 90,000,000 shares authorized; 24,727,427 and 12,023,747 shares issued and outstanding as of September 30, 2009 and December 31, 2008, respectively		25		12
Additional paid-in capital		156,119		33,519
Retained earnings (accumulated deficit)		3,410		(4,105	)
Total stockholders’ equity		159,554		29,426
Total liabilities and stockholders’ equity	$	208,468	$	69,889

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

2

CORNERSTONE THERAPEUTICS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands, except share and per share data)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2009			2008			2009			2008
Net revenues	$	23,078		$	20,591		$	78,776		$	44,103
Costs and expenses:
Cost of product sales (exclusive of amortization of product rights)		4,143			1,604			10,245			3,102
Sales and marketing		8,226			3,775			20,145			11,309
Royalties		4,593			6,844			16,535			11,648
General and administrative		4,950			1,273			13,837			5,084
Research and development		691			568			3,041			1,173
Amortization of product rights		1,507			109			2,528			957
Other charges		10			35			41			62
Total costs and expenses		24,120			14,208			66,372			33,335
(Loss) income from operations		(1,042	)		6,383			12,404			10,768
Other expenses:
Interest income (expense), net		1			(333	)		(113	)		(1,055	)
Total other expenses		1			(333	)		(113	)		(1,055	)
(Loss) income before income taxes		(1,041	)		6,050			12,291			9,713
Benefit from (provision for) income taxes		503			(2,743	)		(4,776	)		(3,582	)
Net (loss) income	$	(538	)	$	3,307		$	7,515		$	6,131
Net (loss) income per share, basic	$	(0.03	)	$	0.56		$	0.50		$	1.03
Net (loss) income per share, diluted	$	(0.03	)	$	0.48		$	0.46		$	0.89
Weighted-average common shares, basic		20,741,322			5,934,496			15,009,285			5,934,496
Weighted-average common shares, diluted		20,741,322			6,900,105			16,249,578			6,867,157

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

3

CORNERSTONE THERAPEUTICS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)

	Nine Months Ended September 30,
	2009			2008
Cash flows from operating activities
Net income	$	7,515		$	6,131
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Amortization and depreciation		2,695			1,014
Provision for prompt payment discounts		2,316			1,227
Provision for inventory obsolescence		506			382
Stock-based compensation		2,970			256
Benefit from deferred income taxes		(4,664	)		—
Changes in operating assets and liabilities:
Accounts receivable		(16,812	)		(14,500	)
Inventories		(5,271	)		(534	)
Prepaid expenses and other assets		(2,086	)		2,061
Accounts payable		(2,186	)		1,329
Accrued expenses		5,796			9,511
Income taxes payable		228			2,937
Net cash (used in) provided by operating activities		(8,993	)		9,814
Cash flows from investing activities
Advances to related parties		—			(9	)
Proceeds from sale of marketable securities		300			—
Purchase of property and equipment		(250	)		(24	)
Purchase of product rights		(5,169	)		(2,250	)
Payment of acquisition costs		—			(1,002	)
Collection of deposits		—			52
Payment of deposits		—			(111	)
Net cash used in investing activities		(5,119	)		(3,344	)
Cash flows from financing activities
Proceeds from exercise of common stock options		401			—
Proceeds from line of credit		—			5,500
Proceeds from issuance of shares of common stock		15,465			—
Payments for cancellation of warrants		(41	)		—
Principal payments on line of credit		—			(7,250	)
Principal payments on notes payable		—			(460	)
Principal payments on capital lease obligation		(7	)		—
Net cash provided by (used in) financing activities		15,818			(2,210	)
Net increase in cash and cash equivalents		1,706			4,260
Cash and cash equivalents as of beginning of period		9,286			241
Cash and cash equivalents as of end of period	$	10,992		$	4,501
Supplemental disclosure of non-cash investing and financing activities
Acquisition of product rights through equity issued and liabilities assumed	$	110,050		$	—

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

4

CORNERSTONE THERAPEUTICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1: ORGANIZATION AND BASIS OF PRESENTATION

Nature of Operations

     Cornerstone Therapeutics Inc., together with its subsidiaries (collectively, the “Company”), is a specialty pharmaceutical company focused on acquiring, developing and commercializing significant products primarily for the respiratory and related markets. Key elements of the Company’s strategy are to in-license or acquire rights to under-promoted, patent-protected, branded respiratory or related pharmaceutical products, or late-stage product candidates; implement life cycle management strategies to maximize the potential value and competitive position of the Company’s currently marketed products, newly acquired products and product candidates that are currently in development; grow product revenue through the Company’s specialty sales force, which is focused on the respiratory and related markets; and maintain and strengthen the intellectual property position of the Company’s currently marketed products, newly acquired products and product candidates.

Principles of Consolidation

     The Company’s condensed consolidated financial statements include the accounts of Cornerstone Therapeutics Inc. and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

Interim Financial Statements

     The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The Company believes that it has included all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of these financial statements. The consolidated balance sheet at December 31, 2008 has been derived from the Company’s audited consolidated financial statements included in its annual report on Form 10-K for the year ended December 31, 2008, and these financial statements should be read in connection with those financial statements.

     Operating results for the three and nine-month periods ended September 30, 2009 and 2008 are not necessarily indicative of the results for the full year.

Reclassifications

     Royalties and other receivables, which were previously included in accounts receivable, net, are included in prepaid and other current assets and other assets, respectively, in the accompanying condensed consolidated balance sheets. Depreciation expense, which was previously included in amortization and depreciation, is included in general and administrative expenses in the accompanying condensed consolidated statements of operations. These reclassifications had no effect on stockholders’ equity or net income as previously reported.

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

     The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. The more significant estimates reflected in the Company’s condensed consolidated financial statements include certain judgments regarding revenue recognition, product rights, inventory valuation, accrued expenses and stock-based compensation. Actual results could differ from those estimates or assumptions.

5

Concentrations of Credit Risk and Limited Suppliers

     The financial instruments that potentially subject the Company to concentrations of credit risk are cash, cash equivalents and accounts receivable. The Company’s cash and cash equivalents are maintained with one financial institution and are monitored against the Company’s investment policy, which limits concentrations of investments in individual securities and issuers.

     The Company relies on certain materials used in its development and manufacturing processes, some of which are procured from a single source. The Company purchases its pharmaceutical ingredients pursuant to long-term supply agreements with a limited number of suppliers. The failure of a supplier, including a subcontractor, to deliver on schedule could delay or interrupt the development or commercialization process and thereby adversely affect the Company’s operating results. In addition, a disruption in the commercial supply of or a significant increase in the cost of the active pharmaceutical ingredient (“API”) from these sources could have a material adverse effect on the Company’s business, financial position and results of operations.

     The Company sells its products primarily to large national wholesalers, which in turn may resell the products to smaller or regional wholesalers, retail pharmacies or chain drug stores. The following tables list all of the Company’s customers that individually comprise greater than 10% of total gross product sales and their aggregate percentage of the Company’s total gross product sales for the three and nine months ended September 30, 2009 and 2008, and all customers that comprise more than 10% of trade accounts receivable and such customers’ aggregate percentage of the Company’s trade accounts receivable as of September 30, 2009 and December 31, 2008:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2009			2008			2009			2008
	Gross Product			Gross Product			Gross Product			Gross Product
	Sales			Sales			Sales			Sales
Cardinal Health, Inc.		34	%		45	%		35	%		40	%
McKesson Corporation		30			28			34			32
AmerisourceBergen Drug Corporation		21			14			18			15
Total		85	%		87	%		87	%		87	%

	September 30,			December 31,
	2009			2008
	Accounts			Accounts
	Receivable			Receivable
Cardinal Health, Inc.		39	%		35	%
McKesson Corporation		27			32
AmerisourceBergen Drug Corporation		17			16
Total		83	%		83	%

Cash and Cash Equivalents

     The Company considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents.

     The Company maintains cash deposits with a federally insured bank that may at times exceed federally insured limits. The majority of funds in excess of the federally insured limits are held in sweep investment accounts collateralized by the securities in which the funds are invested. As of September 30, 2009 and December 31, 2008, the Company had balances of $207,000 and $1.3 million, respectively, in excess of federally insured limits held in non-investment accounts.

Marketable Securities

     Marketable securities as of December 31, 2008 consisted of auction rate securities. The auction rate securities were of investment-grade quality and had an original maturity date greater than 90 days and could be sold within one year. The Company recorded its investments in marketable securities at fair value. Unrealized gains or losses due to the change in fair value were recognized net of tax in other comprehensive income (loss). The classification of marketable securities is generally determined at the date of purchase. The Company’s marketable securities are classified as available-for-sale. Gains and losses on sales of investments in marketable securities, which are computed based on specific identification of the adjusted cost of each security, are included in investment income at the time of the sale.

6

     In February 2009, the Company sold its investment in the auction rate securities for $300,000, which was the carrying value of the securities.

Accounts Receivable

     The Company typically requires customers of branded and generic products to remit payments within 31 days and 61 days, respectively. In addition, the Company offers wholesale distributors a prompt payment discount as an incentive to remit payment within the first 30 days after the invoice date for branded products and 60 days after the invoice date for generic products. This discount is generally 2%, but may be higher in some instances due to product launches or customer and/or industry expectations. Because the Company’s wholesale distributors typically take the prompt payment discount, the Company accrues 100% of the prompt payment discounts, based on the gross amount of each invoice, at the time of sale, and the Company applies earned discounts at the time of payment. The Company adjusts the accrual periodically to reflect actual experience. Historically, these adjustments have not been material.

     The Company performs ongoing credit evaluations and does not require collateral. As appropriate, the Company establishes provisions for potential credit losses. In the opinion of management, no allowance for doubtful accounts was necessary as of September 30, 2009 or December 31, 2008. The Company writes off accounts receivable when management determines they are uncollectible and credits payments subsequently received on such receivables to bad debt expense in the period received. There were no write offs during the three and nine month periods ending September 30, 2009 and September 30, 2008.

     The following table represents accounts receivable, net, as of September 30, 2009 and December 31, 2008 (in thousands):

	September 30,			December 31,
	2009			2008
Trade accounts receivable	$	28,063		$	13,289
Less allowance for prompt payment discounts		(580	)		(302	)
Accounts receivable, net	$	27,483		$	12,987

Inventories

     Inventories are stated at the lower of cost or market value with cost determined under the first-in, first-out method and consist of raw materials, work in process and finished goods. Raw materials include the API for a product to be manufactured, work in process includes the bulk inventory of tablets that are in the process of being coated and/or packaged for sale and finished goods include pharmaceutical products ready for commercial sale or distribution as samples.

     On a quarterly basis, the Company analyzes its inventory levels and writes down inventory that has become obsolete, inventory that has a cost basis in excess of the expected net realizable value and inventory that is in excess of expected requirements based upon anticipated product revenues.

     The following table represents inventories, net, as of September 30, 2009 and December 31, 2008 (in thousands):

	September 30,			December 31,
	2009			2008
Raw materials	$	6,353		$	6,393
Work in process		3,644			1,832
Finished goods:
Pharmaceutical products — trade		5,858			3,182
Pharmaceutical products — samples		1,145			492
Total		17,000			11,899
Inventory allowances		(857	)		(677	)
Inventories, net	$	16,143		$	11,222

7

Revenue Recognition

     The Company’s consolidated net revenues represent the Company’s net product sales and royalty agreement revenues. The following table sets forth the categories of the Company’s net revenues (in thousands):

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2009			2008			2009			2008
Gross product sales	$	34,681		$	25,868		$	108,384		$	53,959
Sales allowances		(11,603	)		(5,734	)		(29,845	)		(11,100	)
Net product sales		23,078			20,134			78,539			42,859
Royalty agreement revenue		—			457			237			1,244
Net revenues	$	23,078		$	20,591		$	78,776		$	44,103

NOTE 3: GOODWILL AND INTANGIBLE ASSETS

Goodwill

     The Company’s goodwill balance as of September 30, 2009 and December 31, 2008 was $13.2 million and relates to the merger whereby the Company, which was then known as Critical Therapeutics, Inc. (“Critical Therapeutics”), merged (through a transitory subsidiary) with Cornerstone BioPharma Holdings, Inc. (“Cornerstone BioPharma”) on October 31, 2008 (the “Merger”). Cornerstone BioPharma was deemed to be the acquiring company for accounting purposes and the transaction was accounted for as a reverse acquisition in accordance with GAAP. Accordingly, the total purchase price of $25.2 million was allocated to acquired tangible and intangible assets and assumed liabilities of Critical Therapeutics based on their estimated fair values as of the closing date of the Merger. The excess of the purchase price over the estimated fair values of the assets acquired and liabilities assumed was allocated to goodwill. No amount of the goodwill balance at September 30, 2009 will be deductible for income tax purposes.

Product Rights

     The following table represents product rights, net, as of September 30, 2009 and December 31, 2008 (in thousands):

	September 30,			December 31,
	2009			2008
Product rights	$	141,949		$	26,730
Less accumulated amortization		(11,556	)		(9,028	)
Product rights, net	$	130,393		$	17,702

     The Company amortizes the product rights related to its currently marketed products over their estimated useful lives, which, as of September 30, 2009, ranged from approximately five to ten years. As of September 30, 2009, the Company had $3.1 million of product rights related to products it expects to launch in the future. The Company expects to begin amortizing these rights upon the commercial launch of the first product using these rights over the estimated useful lives of the new products. The weighted-average amortization period for the Company’s product rights related to its currently marketed products is approximately nine years.

     On May 6, 2009, the Company entered into a series of agreements for a strategic transaction, subject to approval by the Company’s stockholders, with Chiesi Farmaceutici S.p.A. (“Chiesi”), whereby the Company agreed to issue Chiesi approximately 12.2 million shares of common stock in exchange for $15.5 million in cash, an exclusive license for the U.S. commercial rights to Chiesi’s CUROSURF^® product and a two-year right of first offer on all drugs Chiesi intends to market in the United States. On July 27, 2009, the Company’s stockholders approved the Company’s issuance of the shares at a special stockholders’ meeting, and the transaction closed on July 28, 2009. The Company’s license agreement with Chiesi is for a ten-year initial term and thereafter will be automatically renewed for successive one-year renewal terms, unless earlier terminated by either party upon six months’ prior written notice. As part of this transaction, the Company’s president and chief executive officer and its executive vice president of manufacturing and trade agreed to sell to Chiesi an aggregate of 1.6 million shares of their common stock in the Company and enter into lockup, right of first refusal and option agreements with respect to approximately 80% of their remaining shares and vested and unvested options as of May 6, 2009.

8

     The total purchase price of approximately $119.3 million was determined based on the fair value of the shares of common stock issued using the closing market price on July 28, 2009, or $9.30, and the difference between the fair value of the aggregate 1.6 million shares sold by the Company’s president and chief executive officer and its executive vice president of manufacturing and trade on the date of closing and the amount paid by Chiesi for those shares. The total purchase price was allocated to tangible and intangible assets based on relative fair value. The related product rights of $107.6 million are being amortized over a period of 10 years. Although CUROSURF no longer has patent protection, the Company believes 10 years is an appropriate amortization period based on established product history, unique trade secret manufacturing process and management experience.

     On September 9, 2009, the Company acquired the commercial rights to the antibiotic FACTIVE^® (gemifloxacin mesylate) in North America and certain countries in Europe, certain inventory and related assets and specific product-related liabilities from Oscient Pharmaceuticals Corporation (“Oscient”) for $8.1 million, which includes capitalized acquisition costs of $300,000. The purchase price was allocated to tangible and intangible assets and liabilities using a relative fair value basis.

     The following table represents the allocation of the purchase price as of September 30, 2009 (in thousands):

	September 30,
	2009
Inventory, net	$	2,906
Product rights		7,613
Accrued product returns		(2,455	)
Total purchase price	$	8,064

     The Company is amortizing the product rights for FACTIVE of $7.6 million over a period of 58 months based on the future expiration of the patents associated with the product.

NOTE 4: LINE OF CREDIT

     In April 2005, the Company obtained financing under a bank line of credit for up to $4.0 million. Interest was due monthly with all outstanding principal and interest due on maturity. The initial maturity of the line of credit was April 2006 and the line of credit thereafter was successively renewed on an annual basis on each maturity date. Amounts outstanding under the line of credit bore interest at a variable rate equal to the Wall Street Journal prime rate.

     Because the Company’s borrowing base under the line of credit exceeded $4.0 million as of December 31, 2008, the full amount of the line of credit was available for borrowings and the issuance of letters of credit on that date. As of December 31, 2008, the Company had no borrowings outstanding and had issued letters of credit totaling $68,000, resulting in $3.9 million of available borrowing capacity.

     Effective May 4, 2009, the Company exercised its right to terminate its bank line of credit. There were no penalties associated with the early termination of the line of credit.

NOTE 5: ACCRUED EXPENSES

     The components of accrued expenses are as follows (in thousands):

	September 30,		December 31,
	2009		2008
Accrued product returns	$	11,783	$	5,043
Accrued rebates		2,092		884
Accrued price adjustments and chargebacks		6,686		4,307
Accrued compensation and benefits		2,560		2,507
Accrued royalties		5,754		6,259
Accrued expenses, other		145		52
Total accrued expenses	$	29,020	$	19,052

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NOTE 6: STOCK-BASED COMPENSATION

Stock-Based Compensation Expense

     The following table shows the approximate amount of total stock-based compensation expense recognized for employees and non-employees based on the total grant date fair value of shares vested (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2009		2008		2009		2008
Employee	$	2,102	$	83	$	2,930	$	247
Non-employee		16		4		40		9
Total	$	2,118	$	87	$	2,970	$	256

     The following table shows the amount of total stock-based compensation expense recognized by classification in our statements of operations (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2009		2008		2009		2008
General and administrative	$	1,783	$	64	$	2,564	$	189
Sales and marketing		335		23		406		67
Total	$	2,118	$	87	$	2,970	$	256

     As a result of the strategic transaction with Chiesi (see Note 3), the vesting of 1,145,145 stock options and 342,633 shares of restricted stock accelerated. During the three and nine months ended September 30, 2009, the Company incurred additional stock-based compensation expense of approximately $1.8 million related to the acceleration of these stock options and shares of restricted stock, which is included in the tables above.

Stock Options

     The Company currently uses the Black-Scholes-Merton option pricing model to determine the fair value of its stock options. The determination of the fair value of stock-based payment awards on the date of grant using an option pricing model is affected by the Company’s stock price, as well as assumptions regarding a number of complex and subjective variables. These variables include the Company’s expected stock price volatility over the term of the awards, actual employee exercise behaviors, risk-free interest rate and expected dividends.

     There were 518,833 and 367,572 stock options granted and exercised, respectively, during the nine months ended September 30, 2009.

     The following table shows the assumptions used to value stock options granted during the nine months ended September 30, 2009:

	Nine Months Ended
	September 30,
	2009
Estimated dividend yield		0.0	%
Expected stock price volatility		75	%
Risk-free interest rate		2.31-2.85	%
Expected life of option (in years)		4.84
Weighted-average fair value per share		$5.54

     The Company has not paid and does not anticipate paying cash dividends; therefore, the expected dividend rate is assumed to be 0%. The expected stock price volatility for the stock options is based on the Company’s historical volatility from July 1, 2004 through the month of grant, and on the historical volatility of a representative peer group of comparable companies selected using publicly available industry and market capitalization data. The risk-free rate was based on the U.S. Treasury yield curve in effect at the time of grant commensurate with the expected life assumption. The expected life of the stock options granted was estimated based on the historical exercise patterns over the option lives while considering employee exercise strategy and cancellation behavior.

     As of September 30, 2009, the aggregate intrinsic value of options outstanding and exercisable was $7.6 million and $7.1 million, respectively.

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     As of September 30, 2009, there was $2.4 million of total unrecognized compensation cost related to unvested stock options, which is expected to be recognized over a weighted-average period of 3.2 years.

Restricted Stock

     During the nine months ended September 30, 2009, 120,000 shares of restricted stock were issued and 433,367 shares vested. As of September 30, 2009, there were 102,500 restricted common shares outstanding and approximately $676,000 of total unrecognized compensation cost related to unvested restricted stock, which is expected to be recognized over a weighted-average period of 3.65 years.

NOTE 7: INCOME TAXES

     The Company computes an estimated annual effective tax rate for interim financial reporting purposes. The estimated annual effective tax rate is used to compute the tax or benefit related to ordinary income or loss. Tax or benefit related to all other items is individually computed and recognized when the items occur. The Company’s effective tax rate for the three and nine months ended September 30, 2009 was 48.3% and 38.9%, respectively. The Company’s effective tax rate for the three and nine months ended September 30, 2008 was 45.3% and 36.9%, respectively. The increase in the effective tax rate between the three and nine months ended September 30, 2009 and the three and nine months ended September 30, 2008 was due primarily to the release of valuation allowances against the Company’s deferred tax assets during 2008. Upon release of the valuation allowances, the Company fully utilized its net operating loss (“NOL”) carryforwards during 2008. These NOL carryforwards were not acquired in the Merger and were previously fully offset by valuation allowances.

     The estimated annual effective tax rate for the year ending December 31, 2009 includes a benefit of approximately 2% related to a reduction in the valuation allowance offsetting deferred tax assets. As of the date of the Merger, Critical Therapeutics had approximately $64.0 million in deferred tax assets, primarily relating to NOL carryforwards and tax credits. The Company determined that utilization of these deferred tax assets was limited due to the requirements of Section 382 of the Internal Revenue Code. Therefore, the deferred tax assets resulting from these NOLs and tax credits were offset by a full valuation allowance. The reversal of the valuation allowance that relates to the Company’s use of these deferred tax assets in 2009 is approximately $277,000 and has been recorded as a reduction to tax expense. The Company has not established any other valuation allowances.

     As of September 30, 2009, the Company has no unrecognized tax benefits, including those that would affect the effective tax rate. There were no changes in unrecognized tax positions for the three or nine months ended September 30, 2009. The Company does not reasonably expect any change to the amount of unrecognized tax benefits within the next twelve months.

     The Company recognizes any annual interest and penalties related to uncertain tax positions as operating expenses in its statements of operations. For the three and nine months ended September 30, 2009, the Company recognized no interest or penalties related to uncertain tax positions in the statements of operations.

     The 2005 through 2008 tax years of the Company are open to examination by federal tax and state tax authorities. The Company has not been informed by any tax authorities for any jurisdiction that any of its tax years is under examination as of September 30, 2009.

NOTE 8: NET (LOSS) INCOME PER SHARE

     Basic net (loss) income per share is computed by dividing net (loss) income by the weighted-average number of common shares outstanding during each period. Diluted net (loss) income per share is computed by dividing net (loss) income by the sum of the weighted-average number of common shares and dilutive common share equivalents outstanding during the period. Dilutive common share equivalents consist of the incremental common shares issuable upon the exercise of stock options and warrants and the impact of non-vested restricted stock grants.

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     The following table sets forth the computation of basic and diluted net (loss) income per share (in thousands, except share and per share data):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2009			2008		2009		2008
Numerator:
Net (loss) income	$	(538	)	$	3,307	$	7,515	$	6,131
Denominator:
Weighted-average common shares, basic		20,741,322			5,934,496		15,009,285		5,934,496
Dilutive effect of stock options, warrants and restricted stock		—			965,609		1,240,293		932,661
Weighted-average common shares, diluted		20,741,322			6,900,105		16,249,578		6,867,157
Net (loss) income per share, basic	$	(0.03	)	$	0.56	$	0.50	$	1.03
Net (loss) income per share, diluted	$	(0.03	)	$	0.48	$	0.46	$	0.89
Anti-dilutive weighted-average shares		3,108,446			—		1,096,426		—

     For the three months ended September 30, 2009, diluted net loss per share is the same as basic net loss per share because the effects of 1,939,178 potentially dilutive securities are anti-dilutive for the third quarter of 2009. These potentially dilutive securities have been included in the anti-dilutive weighted average shares shown above.

NOTE 9: COMMITMENTS AND CONTINGENCIES

Leases

     The Company leases its facilities, certain equipment and automobiles under non-cancelable operating leases expiring at various dates through 2016. The Company recognizes rent expense on a straight-line basis over the term of the lease, excluding renewal periods, unless renewal of the lease is reasonably assured. Rent expense was approximately $273,000 and $148,000 for the three months ended September 30, 2009 and 2008, respectively, and $708,000 and $397,000 for the nine months ended September 30, 2009 and 2008, respectively.

     On October 2, 2009, the Company entered into a lease modification agreement modifying the lease agreement for its corporate headquarters. The modification agreement increases leased space by 6,114 square feet to a total of 20,977 square feet. The Company will not be obligated to pay rent for the additional space for the first seven months of the term. The base rent for the additional space for the seven months following the abatement period will be approximately $11,800 per month. Subsequently, the aggregate rent for the entire 20,977 square feet under the lease agreement will be approximately $41,300 per month, or approximately $496,000 on an annual basis, subject to annual rent increases thereafter of 2.5%. In addition to rent, the Company is obligated to pay certain operating expenses and taxes. The modification agreement also entitles the Company to a first offer right on available space located on the property’s second floor during the remainder of the lease term.

Royalties

     The Company has contractual obligations to pay royalties to the former owners of certain product rights that have been acquired by or licensed to the Company, some of which are described in Note 15 to the Company’s consolidated financial statements included in the Company’s annual report on Form 10-K for the year ended December 31, 2008. These royalties are based on a percentage of net sales of the particular licensed product.

     In August 2006, the Company entered into an agreement with Pharmaceutical Innovations, LLC (“Pharmaceutical Innovations”) for an exclusive license to a U.S. patent and know-how to manufacture, package, market and distribute various day-night products. In exchange for these rights, the Company is obligated to pay royalties based on a percentage of the products’ annual net sales. The royalty rate increases as the annual net sales increase. Minimum annual royalties are $300,000 per year under this agreement during the life of the licensed patent based on the products currently marketed by the Company. The Company exceeded the minimum annual royalty during the years ended December 31, 2007 and 2008. As of September 30, 2009, the Company has exceeded the minimum annual royalty for 2009.

     On July 1, 2001, the Company acquired from The Feinstein Institute for Medical Research (formerly known as The North Shore-Long Island Jewish Research Institute) (“The Feinstein Institute”), an exclusive worldwide license, under patent rights and know-how controlled by The Feinstein Institute relating to a cytokine called HMGB1, to make, use and sell products covered by the licensed patent rights and know-how. As partial consideration for the license, among other things, the Company agreed to make payments to The Feinstein Institute ranging from $50,000 to $275,000 for each additional distinguishable product depending on whether it was covered by the licensed patent rights or by the licensed know-how, in each case upon the achievement of specified development and regulatory milestones for the applicable licensed product. As of September 30, 2009, none of these milestones had been

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achieved. In addition, the Company is obligated to pay royalties to The Feinstein Institute based on product sales. In the event of no product sales, the Company will be required to pay minimum annual royalties of $15,000 in years 2009 through 2011 and $75,000 in years 2012 through the expiration in 2023 of the last-to-expire patent included in the licensed patent rights.

     The Company also has entered into two sponsored research and license agreements with The Feinstein Institute, one agreement in July 2001 related to identifying inhibitors and antagonists of HMGB1 and related proteins and a second agreement in January 2003 in the field of cholinergic anti-inflammatory technology, including alpha-7. Under the terms of these agreements, the Company acquired an exclusive worldwide license to make, use and sell products covered by the patent rights and know-how arising from the sponsored research. In connection with the July 2001 sponsored research and license agreement, the Company agreed to make payments to The Feinstein Institute ranging from $50,000 to $200,000 for each additional distinguishable product depending on whether it was covered by the licensed patent rights or by the licensed know-how. In connection with the January 2003 sponsored research and license agreement, the Company agreed to pay additional amounts in connection with the filing of any U.S. patent application or issuance of a U.S. patent relating to the field of cholinergic anti-inflammatory technology. The Company also agreed to make aggregate milestone payments to The Feinstein Institute of up to $1.5 million in both cash and shares of the Company’s common stock upon the achievement of specified development and regulatory approval milestones with respect to any licensed product. As of September 30, 2009, none of these milestones had been achieved. In addition, the Company is obligated to pay royalties to The Feinstein Institute based on product sales. Under the January 2003 sponsored research and license agreement, the Company agreed to pay minimum annual royalties beginning in 2008 to The Feinstein Institute, regardless of whether the Company sells any licensed products, of $100,000 in 2008, which minimum annual royalties amount will increase by $50,000 annually to a maximum of $400,000 in 2014, with a minimum annual royalty payment of $400,000 thereafter payable through the expiration in 2023 of the last-to-expire patent included in the licensed patent rights.

Supply Agreements

Concentrations

     The Company purchases inventory from pharmaceutical manufacturers. During the three and nine months ended September 30, 2009, two vendors accounted for 78% and 45% of the Company’s inventory purchases, respectively. During the three and nine months ended September 30, 2008, two vendors accounted for 54% and 45% of the Company’s inventory purchases, respectively. Three inventory vendors accounted for 28% and 25% of the Company’s accounts payable as of September 30, 2009 and December 31, 2008, respectively. As of September 30, 2009 and December 31, 2008, the Company had outstanding purchase orders related to inventory totaling approximately $20.8 million and $4.3 million, respectively.

Vintage

     The Company has entered into an agreement with Vintage Pharmaceuticals, LLC (“Vintage”) under which Vintage will exclusively manufacture BALACET^® 325, as well as the Company’s generic formulations of propoxyphene napsylate and acetaminophen, APAP 325 and APAP 500, for prices established by the agreement, subject to renegotiation at each anniversary date. The agreement expires in July 2010 and may be renewed for subsequent one-year terms.

Meiji

     In connection with the license agreement with Meiji Seika Kaisha, Ltd. (“Meiji”) dated October 12, 2006, as described in Note 15 to the Company’s consolidated financial statements included in the Company’s annual report on Form 10-K for the year ended December 31, 2008, Meiji is the Company’s exclusive supplier of cefditoren pivoxil. Meiji is also the Company’s exclusive supplier of SPECTRACEF^® 400 mg through October 2018 so long as Meiji is able to supply 100% of the Company’s requirements for this product. Additionally, Meiji is a non-exclusive supplier of SPECTRACEF 200 mg through October 2018. The Company is required to purchase from Meiji combined amounts of the API cefditoren pivoxil, SPECTRACEF 200 mg, SPECTRACEF 400 mg and sample packs of SPECTRACEF 400 mg exceeding $15.0 million for the first year beginning October 2008, $20.0 million for year two, $25.0 million for year three, $30.0 million for year four and $35.0 million for year five. If the Company does not meet its minimum purchase requirement in a given year, the Company must pay Meiji an amount equal to 50% of the shortfall in that year. The Company expects to exceed the minimum purchase requirements. These minimum purchase requirements cease to apply if a third-party generic cefditoren product is launched in the United States prior to October 12, 2011.

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Shasun

     Shasun Pharma Solutions (“Shasun”) manufactures all of the Company’s commercial supplies of the zileuton API pursuant to an agreement dated February 8, 2005, as amended. The Company has committed to purchase zileuton API from Shasun in the amounts of $5.8 million in 2009 and $1.6 million in 2010, respectively, which are in excess of the Company’s minimum purchase requirements. The agreement will expire on the earlier of the date on which the Company has purchased a specified amount of the API for zileuton or December 31, 2011. Thereafter, the agreement will automatically extend for successive one-year periods after December 31, 2011, unless Shasun provides the Company with 18-months’ prior written notice of cancellation.

Jagotec

     Jagotec AG (“Jagotec”) manufactures all of the Company’s bulk, uncoated tablets of ZYFLO CR^® pursuant to a manufacturing and supply agreement dated August 20, 2007. The Company has agreed to purchase from Jagotec a minimum of 20.0 million ZYFLO CR tablet cores in each of the four 12-month periods starting May 30, 2008. The agreement’s initial term extends to May 22, 2012, and will automatically continue thereafter, unless the Company provides Jagotec with 24-months’ prior written notice of termination or Jagotec provides the Company with 36-months’ prior written notice of termination.

     On June 12, 2009, the Company entered into a letter amendment with Jagotec, which amends the manufacturing and supply agreement dated August 20, 2007. The letter amendment adjusts the pricing terms the Company is obligated to pay Jagotec for the delivery of ZYFLO CR. All other terms of the manufacturing and supply agreement remain in full force and effect.

Patheon

     Patheon Pharmaceuticals, Inc. (“Patheon”) coats, conducts quality control, quality assurance and stability testing and packages commercial supplies of ZYFLO CR for the Company using uncoated ZYFLO CR tablets the Company supplies to Patheon. The Company has agreed to purchase from Patheon at least 50% of the Company’s requirements for such manufacturing services for ZYFLO CR for sale in the United States each year during the term of this agreement. The agreement’s current term extends to May 9, 2011, and will automatically continue for successive one-year periods thereafter, unless the Company provides Patheon with 12-months’ prior written notice of termination or Patheon provides the Company with 18-months’ prior written notice of termination.

     Patheon also manufactures all of the Company’s ZYFLO^® immediate release tablets pursuant to a commercial manufacturing agreement. The Company has agreed to purchase from Patheon at least 50% of the Company’s commercial supplies of ZYFLO immediate-release tablets for sale in the United States each year for the term of the agreement. The agreement’s current term extends to September 15, 2011, and automatically continues for successive one-year periods thereafter, unless the Company provides Patheon with 12-months’ prior written notice of termination or Patheon provides the Company with 18-months’ prior written notice of termination.

Sovereign

     Sovereign Pharmaceuticals, Ltd. (“Sovereign”) manufactures all of the Company’s requirements of three HYOMAX^® products pursuant to an exclusive supply and marketing agreement that the Company entered into in May 2008. Additionally, the Company purchases all of its requirements for HYOMAX DT tablets pursuant to purchase orders it places from time to time with Sovereign, which manufactures and supplies the HYOMAX DT tablets to the Company pursuant to an agreement between Sovereign and Capellon Pharmaceuticals, Ltd. to which the Company is not a party. The Company pays Sovereign its costs to manufacture the HYOMAX products exclusively for the Company, as well as a royalty based on a share of the net profits realized from the sale of the products. The term of the agreement expires in April 2011 and will be automatically renewed for successive one-year terms unless either party provides written notice of termination at least 90 days prior to the end of the then current term.

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Chiesi

     Chiesi manufactures all of the Company’s requirements for CUROSURFpursuant to a license and distribution agreement that became effective on July 28, 2009. Under the license and distribution agreement, Chiesi licensed and granted to the Company the exclusive distribution rights to Chiesi’s CUROSURF product in the United States. The Company pays Chiesi the greater of a percentage of net sales price for CUROSURF or the applicable floor price as set forth in the license and distribution agreement. The agreement has a ten-year term and will be renewed for successive one-year terms unless specified prior written notice is given.

DEY Co-Promotion and Marketing Services Agreement

     On March 13, 2007, the Company entered into an agreement, as amended, with Dey, L.P. (“DEY”), a wholly owned subsidiary of Mylan Inc., under which the Company and DEY agreed to jointly promote ZYFLO CR and ZYFLO. Under the co-promotion and marketing services agreement, the Company granted DEY an exclusive right to promote and detail ZYFLO CR and ZYFLO in the United States, together with the Company.

     Under the co-promotion agreement, DEY paid the Company $12.0 million in non-refundable aggregate payments in 2007 and the Company committed to fund at least $3 million in promotional expenses in 2007. In addition, the Company and DEY each agreed to contribute 50% of approved out-of-pocket promotional expenses during 2008 for ZYFLO CR that are approved by the parties’ joint commercial committee. From January 1, 2009 through the expiration or termination of the co-promotion agreement, DEY is responsible for the costs associated with its sales representatives and the product samples distributed by its sales representatives, and the Company is responsible for all other promotional expenses related to the products.

     Prior to January 1, 2009, the Company paid DEY a co-promotion fee equal to thirty five percent (35%) of quarterly net sales of ZYFLO CR and ZYFLO, after third-party royalties, in excess of $1.95 million. Beginning January 1, 2009 through December 31, 2013, the Company has agreed to pay DEY a co-promotion fee equal to the ratio of total prescriptions written by certain pulmonary specialists to total prescriptions during the applicable period multiplied by a percentage of quarterly net sales of ZYFLO CR and ZYFLO, after third-party royalties. The co-promotion agreement expires on December 31, 2013 and may be extended upon mutual agreement by the parties.

Atley Co-Promotion Agreement

     In April 2007, the Company entered into a co-promotion agreement, as amended, with Atley Pharmaceuticals, Inc. (“Atley Pharmaceuticals”) to co-promote a prescription pain product beginning July 1, 2007. Under the agreement, the Company pays Atley Pharmaceuticals fees based on a percentage of the net profits from sales of the product (as well as an authorized generic equivalent of the product marketed by the Company) above a specified baseline within assigned sales territories. The Company’s co-promotion agreement with Atley Pharmaceuticals is subject to “sunset” fees that require the Company to pay additional fees for up to one year in the event of certain defined terminations of the agreement.

Product and Development Agreements

     In August 2006, the Company loaned Neos Therapeutics, L.P. (“Neos”) $500,000 under a secured subordinated promissory note agreement. In December 2006, the Company entered into a product development agreement with Neos providing the Company with an exclusive license to certain products under development utilizing Neos’s patent-pending time release suspension technology. Under the terms of the agreement, the note with Neos was forgiven. The Company has recorded the $500,000 consideration as product rights related to the time release suspension technology. The agreement, as amended and restated in August 2008, requires Neos to develop the first product at its own expense up to a defined milestone. After that milestone is achieved, the Company is required to reimburse Neos 110% of all direct costs incurred and pay hourly fees for personnel time incurred in the development of the products. The Company is also required to make milestone payments up to $1.0 million for each product based on specific events. As of September 30, 2009, the Company had not made any milestone payments. Upon commercialization, the Company would also pay Neos royalties based on a percentage of net sales.

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     In December 2008, the Company entered into an additional development, license and services agreement with Neos to license certain Neos patent-pending technology. Under the agreement, Neos will perform development work on a new product candidate. The Company is required to pay hourly fees for the development work in addition to up to an aggregate of $400,000 in fees.

Research and Development Contracts

     As of September 30, 2009, the Company had outstanding commitments related to ongoing research and development contracts totaling approximately $1.5 million.

Legal Proceedings

     In 2007, the U.S. Patent and Trademark Office (“USPTO”) ordered a re-examination of a patent licensed to the Company that covers one or more of the Company’s day-night products. Subsequently, in October 2007, the Company filed suit against a pharmaceutical company in the U.S. District Court for the Eastern District of North Carolina alleging infringement of the patent. In November 2007, before a response to the Company’s claims was due, the defendant moved to stay the litigation pending the re-examination of the Company’s patent. The court granted defendants’ motion and stayed the litigation pending the re-examination of the patent in February 2008. In proceedings before a re-examination examiner in the USPTO, the examiner rejected certain claims of the patent as failing to satisfy the novelty and non-obviousness criteria for U.S. patent claims. The patent owner appealed to the USPTO Board of Patent Appeals and Interferences in June 2008, seeking reversal of the examiner’s rejections. Additionally, in September 2008, the defendant requested that the USPTO re-examine a related second patent licensed to the Company by an affiliate of the licensor of the first patent. The USPTO granted this request and ordered a re-examination of the second patent in August 2008. In June 2009, the re-examination examiner issued an office action, rejecting certain claims of this related second patent as failing to satisfy the novelty and non-obviousness criteria for U.S. patent claims. In August 2009, the patent owner filed an amendment to the claims under the patent and requested reconsideration of the office action issued in June 2009. The Company’s intellectual property counsel believes that valid arguments exist for distinguishing the claims of the Company’s patents over the references cited in the requests for re-examination. In cooperation with the licensors of these two patents, the Company intends to vigorously pursue its claims and to vigorously defend against any counterclaims that might be asserted.

NOTE 10: RELATED PARTY TRANSACTIONS

     Chiesi, the Company’s majority stockholder, manufactures all of the Company’s requirements for CUROSURFpursuant to a license and distribution agreement that became effective on July 28, 2009. The Company began promoting and selling CUROSURF in September 2009. Inventory purchases from Chiesi aggregated $3.5 million for the three and nine months ended September 30, 2009. Accounts payable at September 30, 2009 include $1.2 million due to Chiesi.

NOTE 11: SUBSEQUENT EVENTS

     The Company evaluated all events or transactions that occurred after September 30, 2009 through November 4, 2009, the date the Company issued these financial statements. During this period, the Company did not have any material recognizable or nonrecognizable subsequent events.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     You should read the following discussion and analysis of financial condition and results of operations together with our unaudited condensed consolidated financial statements and the related notes included in “Part I—Item 1. Financial Statements” of this quarterly report on Form 10-Q and the consolidated financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our annual report on Form 10-K for the year ended December 31, 2008. In addition to historical information, the following discussion contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results could differ materially from those anticipated by the forward-looking statements due to important factors including, but not limited to, those set forth under “Part II—Item 1A. Risk Factors” of this quarterly report on Form 10-Q.

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Background

     Cornerstone Therapeutics Inc. (“Cornerstone,” “we,” “our,” or “us”) is a specialty pharmaceutical company focused on acquiring, developing and commercializing significant products primarily for the respiratory and related markets. Our commercial strategy is to in-license or acquire rights to underpromoted, patent-protected, branded respiratory or related pharmaceutical products or late-stage product candidates; implement life cycle management strategies to maximize the potential value and competitive position of our currently marketed products, newly acquired products and product candidates that are currently in development; grow product revenue through our specialty sales force, which is focused on the respiratory and related markets; and maintain and strengthen the intellectual property position of our currently marketed products, newly acquired products and product candidates. We currently market our products only in the United States.

     On October 31, 2008, Critical Therapeutics, Inc., or Critical Therapeutics, and Cornerstone BioPharma Holdings, Inc., or Cornerstone BioPharma, completed their previously announced merger. Cornerstone BioPharma’s reasons for the merger included, among other things, the opportunity to expand its respiratory product portfolio, the potential for enhanced future growth and value and the ability to access additional capital. Because former Cornerstone BioPharma stockholders owned, immediately following the merger, approximately 70% of the combined company on a fully diluted basis and as a result of certain other factors, Cornerstone BioPharma was deemed to be the acquiring company for accounting purposes and the transaction was treated as a reverse acquisition in accordance with accounting principles generally accepted in the United States, or GAAP. Accordingly, for all purposes, our financial statements for periods prior to the merger reflect the historical results of Cornerstone BioPharma, and not Critical Therapeutics, and our financial statements for all subsequent periods reflect the results of the combined company. In addition, unless specifically noted otherwise, discussions of our financial results throughout this document do not include the historical financial results of Critical Therapeutics (including sales of ZYFLO CR^® and ZYFLO^®) prior to the completion of the merger.

     On May 6, 2009, we entered into a series of agreements for a strategic transaction, subject to approval by our stockholders, with Chiesi Farmaceutici S.p.A., or Chiesi, whereby we agreed to issue Chiesi approximately 12.2 million shares of common stock in exchange for $15.5 million in cash, an exclusive license for the U.S. commercial rights to Chiesi’s CUROSURF^® product and a two-year right of first offer on all drugs Chiesi intends to market in the United States. Our license agreement with Chiesi is for a ten-year initial term and thereafter will be automatically renewed for successive one-year renewal terms, unless earlier terminated by either party upon six- months’ prior written notice. As part of this transaction, our president and chief executive officer and our executive vice president of manufacturing and trade agreed to sell to Chiesi an aggregate of 1.6 million of their shares of our common stock and enter into lockup, right of first refusal and option agreements with respect to their remaining shares. In addition, certain of our other executive officers entered into lockup agreements with Chiesi with respect to their shares of our common stock and are entitled to receive certain equity incentives from us. On July 27, 2009, our stockholders approved our issuance of the shares at a special stockholders’ meeting, and the transaction closed on July 28, 2009. The transaction was considered a change of control as defined in certain employment arrangements between us and various employees, which caused the acceleration of vesting of 1.1 million stock options and 342,633 shares of restricted stock held by these employees. As a result of this acceleration of vesting, we recorded additional stock-based compensation expense of $1.8 million in the three months ended September 30, 2009.

     CUROSURF is a natural lung surfactant and a world-leading treatment approved by the FDA for Respiratory Distress Syndrome in premature infants. CUROSURF is currently available in over 60 countries, including the United States and most of Europe, and has been administered to over one million infants since 1992. Respiratory Distress Syndrome affects approximately ten of every 100 premature infants in the United States, or approximately 50,000 babies, each year. Respiratory Distress Syndrome can lead to serious complications and is one of the most common causes of neonatal mortality.

     We began marketing, promoting and earning revenues from CUROSURF in the third quarter of 2009. There is no assurance that we will achieve the sales level for CUROSURF that was achieved by Chiesi’s prior licensee of the U.S. rights to this product.

     On July 14, 2009, our previously submitted regulatory filing for our antitussive product candidate, CRTX 067, was accepted for review by the FDA.

     On September 9, 2009, we acquired the commercial rights to the antibiotic FACTIVE^® (gemifloxacin mesylate) in North America and certain countries in Europe, certain inventory and related assets and specific product-related

17

liabilities from Oscient Pharmaceuticals Corporation, or Oscient for $8.1 million, which includes acquisition costs of $300,000. The purchase price was allocated to inventory, product rights and an accrual for product returns using a relative fair value basis. We began earning revenues from FACTIVE in September 2009; however, our marketing and promotion began in October 2009.

Current Marketed Products

     We currently promote CUROSURF, SPECTRACEF^®, ZYFLO CR, FACTIVE and the ALLERX^® Dose Pack family of products. In addition, we have a co-promotion agreement with Dey, L.P., or DEY, for the exclusive co-promotion along with us of ZYFLO CR and ZYFLO. Under the DEY co-promotion agreement, we pay DEY a co-promotion fee equal to the ratio of total prescriptions written by certain pulmonary specialists to total prescriptions during the applicable period multiplied by a percentage of quarterly net sales of ZYFLO CR and ZYFLO, after third-party royalties. We currently generate revenues from product sales and royalties from the sale of other products that we do not actively promote. Of these, our HYOMAX^® and propoxyphene/acetaminophen families of products have generated the most net revenues to date for us. Of our marketed products that we do not promote, only BALACET^® 325 and APAP 325, our generic equivalent of BALACET 325, are currently promoted by a third party.

     The HYOMAX line of products consists of formulations of four antispasmodic medications containing the active pharmaceutical ingredient, or API, hyoscyamine sulfate, an anticholinergic, which may be prescribed for various gastrointestinal disorders. We launched our first HYOMAX product in May 2008. We pay Sovereign Pharmaceuticals, Ltd., or Sovereign, its costs to manufacture the HYOMAX products exclusively for us, as well as a royalty based on a share of the net profits realized from the sale of the products. Although our HYOMAX line of products consists of formulations without patent protection, until the second quarter of 2009, this product line experienced limited competition. However, we are now experiencing increased market competition with respect to a number of our HYOMAX products, and we may experience additional competition in the future. As competition for our HYOMAX line of products increases, we expect that our market share and the price of our HYOMAX products will continue to decline. The extent of the decline will depend on several factors, including, among others, the number of competitors and the pricing strategy of the new competitors.

     In September 2005, we entered into a supply and marketing agreement with Pliva Inc., or Pliva, relating to APAP 500. Under this agreement, which we terminated effective December 31, 2008, Pliva sold APAP 500 that was supplied to it by Vintage Pharmaceuticals, LLC, or Vintage, and paid us royalties based on the quarterly net sales of APAP 500.

Financial Operations Overview

Net Revenues

     Our net revenues are comprised of net product sales and royalty agreement revenues. We recognize product sales net of estimated allowances for product returns; estimated rebates in connection with contracts relating to managed care, Medicaid and Medicare; estimated chargebacks; price adjustments; product vouchers; co-pay vouchers; and prompt payment and other discounts. The primary factors that affect our net product sales are the level of demand for our products, unit sales prices and the amount of sales adjustments that we recognize. Royalty agreement revenues consist of royalties we receive under license agreements with third parties that sell products to which we have rights. The primary factors that affect royalty agreement revenues are the demand and sales prices for such products and the royalty rates that we receive on the sales of such products by third parties.

     From time to time, we implement price increases on our branded products. Our branded and generic products are subject to rebates, chargebacks and other sales allowances that have the effect of decreasing the net revenues that we ultimately realize from product sales. Our generic products are also subject to substantial price competition from equivalent generic products introduced by other pharmaceutical companies. Such competition decreases our net revenues from the sale of our generic products.

Cost of Product Sales

     Our cost of product sales is primarily comprised of the costs of manufacturing and distributing our pharmaceutical products. In particular, cost of product sales includes third-party manufacturing and distribution costs, the cost of API, freight and shipping, reserves for excess or obsolete inventory and labor, benefits and related

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employee expenses for personnel involved with overseeing the activities of our third-party manufacturers. Cost of product sales excludes amortization of product rights.

     We contract with third parties to manufacture all of our products and product candidates. Changes in the price of raw materials and manufacturing costs could adversely affect our gross margins on the sale of our products. Changes in our mix of products sold also will result in variations in our cost of product sales. Accordingly, our gross margins change as our product mix is altered by changes in demand for our existing products or the launch of new products.

Sales and Marketing Expenses

     Our sales and marketing expenses consist of labor, benefits and related employee expenses for personnel in our sales, marketing and sales operations functions; advertising and promotion costs, including the costs of samples; and the fees we pay under our co-promotion agreements to third parties to promote our products, which are based on a percentage of net profits from product sales, determined in accordance with the particular agreement. The most significant component of our sales and marketing expenses is labor, benefits and related employee expenses. We expect that our sales and marketing expenses will continue to increase as we expand our sales and marketing infrastructure to support additional products and product lines and as a result of increased co-promotion fees due to greater product sales.

Royalty Expenses

     Royalty expenses include the contractual amounts we are required to pay the licensors from which we have acquired the rights to our marketed products or third parties to whom we pay royalties under settlement agreements relating to our products. Royalties are generally based on a percentage of the products’ net sales, with the exception of one product line for which the royalties are based on a percentage of the net profits earned by us on the sales of the products. Although product mix affects our royalties, we generally expect that our royalty expenses will increase as total net product sales increase.

General and Administrative Expenses

     General and administrative expenses primarily include labor, benefits and related employee expenses for personnel in executive, finance, accounting, business development, information technology, regulatory/medical affairs and human resource functions. Other costs include facility costs not otherwise included in sales and marketing or research and development expenses and professional fees for legal and accounting services. General and administrative expenses also consist of the costs of maintaining and overseeing our intellectual property portfolio, which include the cost of external legal counsel and the mandatory fees of the U.S. Patent and Trademark Office, or USPTO, and foreign patent and trademark offices. General and administrative expenses also include depreciation expense for our property and equipment, which we depreciate over the estimated useful lives of the assets using the straight-line method. We expect that general and administrative expenses will increase as we continue to build the infrastructure necessary to support our commercialization and product development activities and to meet our compliance obligations as a public company. In addition, during the nine months ended September 30, 2009, we have incurred additional legal, accounting and related costs of approximately $1.8 million and additional stock-based compensation expense of $1.5 million relating to our strategic transaction with Chiesi.

Research and Development Expenses

     Research and development expenses consist of product development expenses incurred in identifying, developing and testing our product candidates. Product development expenses consist primarily of labor, benefits and related employee expenses for personnel directly involved in product development activities; fees paid to professional service providers for monitoring and analyzing clinical trials; expenses incurred under joint development agreements; regulatory costs; costs of contract research and manufacturing; and the cost of facilities used by our product development personnel. We expense product development costs as incurred. We believe that significant investment in product development is important to our competitive position and plan to increase our expenditures for product development to realize the potential of the product candidates that we are developing or may develop.

     Our product development expenses reflect costs directly attributable to product candidates in development during the applicable period and to product candidates for which we have discontinued development. Additionally, product development expenses include our costs of qualifying new current Good Manufacturing Practice, or cGMP, third-party manufacturers for our products, including expenses associated with any related technology transfer. We

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do not allocate indirect costs (such as salaries, benefits or other costs related to our accounting, legal, human resources, purchasing, information technology and other general corporate functions) to the research and development expenses associated with individual product candidates. Rather, we include these costs in general and administrative expenses.

Amortization of Product Rights

     We capitalize our costs to license product rights from third parties as such costs are incurred and amortize these amounts on a straight-line basis over the estimated useful life of the product or the remaining trademark or patent life. We re-evaluate the useful life of our products on an annual basis to determine whether the value of our product rights has been impaired and appropriately adjust amortization to account for such impairment. Amortization of product rights is expected to increase in the future as we begin amortizing product rights related to new products.

Other Charges

     Other charges include expenses related to settlements of litigation.

Critical Accounting Estimates

     Management’s discussion and analysis of financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with GAAP. For information regarding our critical accounting policies and estimates please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” contained in our Annual Report on Form 10-K for the year ended December 31, 2008 and Note 2 to our condensed consolidated financial statements contained therein. There have been no material changes to the critical accounting policies previously disclosed in that report.

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Results of Operations

Comparison of the Three Months Ended September 30, 2009 and 2008

     The following table sets forth certain consolidated statement of operations data for the periods indicated (dollars in thousands):

	Three Months Ended
	September 30,						Change
	2009			2008			$			%
Net product sales
ALLERX Dose Pack product family	$	3,541		$	6,143		$	(2,602	)		(42	)%
SPECTRACEF product family		1,554			(327	)		1,881			575
BALACET 325		958			1,034			(76	)		(7	)
HYOMAX product family		7,616			12,547			(4,931	)		(39	)
ZYFLO product family (1)		5,034			—			5,034			NM
CUROSURF		2,153			—			2,153			NM
FACTIVE		91			—			91			NM
Other currently marketed products		2,131			737			1,394			189
Total net product sales		23,078			20,134			2,944			15
Royalty agreement revenues		—			457			(457	)		(100	)
Net revenues		23,078			20,591			2,487			12
Cost of product sales (exclusive of amortization of product rights)		4,143			1,604			2,539			158
Sales and marketing		8,226			3,775			4,451			118
Royalties		4,593			6,844			(2,251	)		(33	)
General and administrative		4,950			1,273			3,677			289
Research and development		691			568			123			22
Amortization of product rights		1,507			109			1,398			1283
Other charges		10			35			(25	)		(71	)
(Loss) income from operations		(1,042	)		6,383			(7,425	)		(116	)
Interest income (expense), net		1			(333	)		(334	)		(100	)
(Loss) income before income taxes		(1,041	)		6,050			(7,091	)		(117	)
Benefit from (provision for) income taxes		503			(2,743	)		(3,246	)		(118	)
Net (loss) income	$	(538	)	$	3,307		$	(3,845	)		(116	)%

(1)	Does not include the historical sales of ZYFLO CR and ZYFLO made by Critical Therapeutics.
NM	Not meaningful.

Net Revenues

     Net Product Sales

     ALLERX Dose Pack product family net product sales decreased for the three months ended September 30, 2009 compared to the three months ended September 30, 2008. The decline in product sales was due primarily to decreased volume of the ALLERX PE and the ALLERX DF formulations as a result of competition.

     SPECTRACEF product family net product sales increased for the three months ended September 30, 2009 compared to the three months ended September 30, 2008, primarily due to sales force expansion and increased

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promotion. In addition, in August 2008, we revised our coupon program and increased our existing provision for coupon redemption by $1.0 million.

     BALACET 325 net product sales decreased for the three months ended September 30, 2009 compared to the three months ended September 30, 2008, primarily due to the increase in sales of APAP 325, our generic formulation of BALACET 325. Net product sales for APAP 325 were $1.0 million for the three months ended September 30, 2009 compared to $635,000 for the three months ended September 30, 2008 and are included in other currently marketed products. We expect that APAP 325 will continue to challenge BALACET 325 for market share.

     HYOMAX net product sales decreased for the three months ended September 30, 2009 compared to the three months ended September 30, 2008, primarily due to increased competition from other manufacturers, as well as timing of the launches of the HYOMAX products during 2008. We launched the first HYOMAX product in May 2008, the second and third in July 2008 and the fourth in September 2008.

     ZYFLO CR and ZYFLO net product sales were $5.0 million for the three months ended September 30, 2009. As noted above, our historical financial results for the three months ended September 30, 2008 do not include sales of ZYFLO CR and ZYFLO by Critical Therapeutics prior to the completion of our October 31, 2008 merger.

     CUROSURF net product sales were $2.2 million for the three months ended September 30, 2009. We acquired the CUROSURF product rights from Chiesi during the third quarter of 2009 and began promoting and selling CUROSURF in September 2009.

     FACTIVE net product sales were $91,000 for the three months ended September 30, 2009. We acquired the FACTIVE product rights and related inventory from Oscient on September 9, 2009. We began earning revenues from FACTIVE in September 2009; however, we did not begin marketing and promoting FACTIVE until October 2009.

     Royalty Agreement Revenues. Royalty agreement revenues decreased for the three months ended September 30, 2009 compared to the three months ended September 30, 2008, primarily due the expiration of our supply and marketing agreement with Pliva for APAP 500 in December 2008. Subsequent to the expiration of the supply and marketing agreement, we began marketing APAP 500. Net product sales for APAP 500 were $956,000 for the three months ended September 30, 2009 and are included in other currently marketed products.

Costs and Expenses

     Cost of Product Sales. Cost of product sales (exclusive of amortization of product rights of $1.5 million and $109,000 for the three months ended September 30, 2009 and 2008, respectively) increased $2.5 million, or 158%, during the three months ended September 30, 2009 compared to the three months ended September 30, 2008.

     Gross margin (exclusive of royalty agreement revenues and amortization of product rights) was as follows (dollars in thousands):

	Three Months Ended
	September 30,						Change
	2009			2008			$		%
Net product sales	$	23,078		$	20,134		$	2,944		15	%
Cost of product sales (exclusive of amortization of product rights)		4,143			1,604			2,539		158
Gross margin	$	18,935		$	18,530		$	405		2	%
% of net product sales		82	%		92	%				(10	)%

     Gross margin for the three months ended September 30, 2009 decreased ten percentage points compared to the three months ended September 30, 2008. The decrease in gross margin was primarily due to the relatively higher portion of our net product sales in the third quarter of 2009 derived from products that have lower gross margins (including ZYFLO CR and CUROSURF) as compared to our product mix in the third quarter of 2008. We recorded inventory write-offs of $25,000 for the three months ended September 30, 2009 and $0 for the three months ended September 30, 2008. These adjustments were necessary to adequately state reserves related to excess or obsolete inventory that, due to its expiration dating, would not be sold.

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     Sales and Marketing Expenses. Sales and marketing expenses increased $4.5 million, or 118%, during the three months ended September 30, 2009 compared to the three months ended September 30, 2008. This increase was primarily due to increases in labor and benefits-related costs as a result of the growth of our sales force and management team; marketing and promotional spending relating to the launch of ZYFLO CR, FACTIVE and CUROSURF; co-promotion expenses relating to ZYFLO CR; travel-related expenses due to the increased number of sales representatives; and consulting expenses relating to increased market research.

     Royalty Expenses. Royalty expenses decreased $2.3 million, or 33%, during the three months ended September 30, 2009 compared to the three months ended September 30, 2008. This decrease was primarily due to lower net revenues of the HYOMAX products offset by royalties relating to ZYFLO CR and ZYFLO, which were acquired in our October 31, 2008 merger.

     General and Administrative Expenses. General and administrative expenses increased $3.7 million, or 289%, during the three months ended September 30, 2009 compared to the three months ended September 30, 2008. This increase was primarily due to increases in labor and benefits-related employee expenses and travel-related expenses due to the expansion of our workforce; legal and accounting costs, most of which relate to increased regulatory requirements as a result of our becoming a public company and costs associated with the Chiesi transaction; FDA regulatory-related fees; and product liability and other insurance related costs. Costs associated with the Chiesi transaction during the three months ended September 30, 2009 included $1.5 million of additional stock-based compensation expense due to acceleration of certain stock options and shares of restricted stock and $300,000 of legal, accounting and related fees.

     Research and Development Expenses. Research and development expenses increased $123,000, or 22%, during the three months ended September 30, 2009 compared to the three months ended September 30, 2008. Our product development expenses for particular product candidates vary significantly from period to period depending on the product development stage and the nature and extent of the activities undertaken to advance the product candidate’s development in a given reporting period.

     Amortization of Product Rights. Amortization of product rights increased $1.4 million, or 1,283%, during the three months ended September 30, 2009 compared to the three months ended September 30, 2008. This increase was primarily due to the amortization of ZYFLO CR and CUROSURF product rights. We added ZYFLO CR to our product portfolio as a result of our October 31, 2008 merger. We added CUROSURF to our product portfolio as a result of the July 28, 2009 closing of our strategic transaction with Chiesi, and we began promoting and selling CUROSURF in September 2009.

Interest Expense, Net

     Net interest expense decreased $334,000, or 100%, during the three months ended September 30, 2009 compared to the three months ended September 30, 2008. The decrease was due to the conversion of our promissory note with Carolina Pharmaceuticals Ltd., or the Carolina Note, into common stock on October 31, 2008 in connection with our merger.

Benefit from (Provision for) Income Taxes

     The benefit from income taxes was $503,000 for the three months ended September 30, 2009 compared to the provision for income taxes of $2.7 million for the three months ended September 30, 2008. Our effective tax rates for the three months ended September 30, 2009 and 2008 were 48.3% and 45.3%, respectively. The increase in the effective tax rate was due primarily to the release of valuation allowances against our deferred tax assets during 2008. Upon release of the valuation allowances, we fully utilized our net operating loss carryforwards, thereby reducing total income tax expense for the three months ended September 30, 2008.

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Comparison of the Nine Months Ended September 30, 2009 and 2008

     The following table sets forth certain consolidated statement of operations data for the periods indicated (dollars in thousands):

	Nine Months Ended
	September 30,						Change
	2009			2008			$			%
Net product sales
ALLERX Dose Pack product family	$	22,984		$	19,009		$	3,975			21	%
SPECTRACEF product family		6,896			1,468			5,428			370
BALACET 325		2,762			4,137			(1,375	)		(33	)
HYOMAX product family		25,017			17,021			7,996			47
ZYFLO product family (1)		13,837			—			13,837			NM
CUROSURF		2,153			—			2,153			NM
FACTIVE		91			—			91			NM
Other currently marketed products		4,799			1,224			3,575			292
Total net product sales		78,539			42,859			35,680			83
Royalty agreement revenues		237			1,244			(1,007	)		(81	)
Net revenues		78,776			44,103			34,673			79
Cost of product sales (exclusive of amortization of product rights)		10,245			3,102			7,143			230
Sales and marketing		20,145			11,309			8,836			78
Royalties		16,535			11,648			4,887			42
General and administrative		13,837			5,084			8,753			172
Research and development		3,041			1,173			1,868			159
Amortization of product rights		2,528			957			1,571			164
Other charges		41			62			(21	)		(34	)
Income from operations		12,404			10,768			1,636			15
Interest expense, net		(113	)		(1,055	)		(942	)		(89	)
Income before income taxes		12,291			9,713			2,578			27
Provision for income taxes		(4,776	)		(3,582	)		1,194			33
Net income	$	7,515		$	6,131		$	1,384			23	%

(1)	Does not include the historical sales of ZYFLO CR and ZYFLO made by Critical Therapeutics.
NM	Not meaningful.

Net Revenues

     Net Product Sales.

     ALLERX Dose Pack product family net product sales increased for the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008. The growth in product sales was due primarily to higher volume of ALLERX 10/ALLERX 30, offset by decreased volume of the ALLERX PE and the ALLERX DF formulations as a result of competition.

     SPECTRACEF product family net product sales increased for the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008, primarily due to the launch of the SPECTRACEF 400 mg Dose Packs in late 2008.

     BALACET 325 net product sales decreased for the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008, primarily due to our launch of APAP 325 in July 2008. Net product sales for APAP 325 were $2.7 million and $635,000 for the nine months ended September 30, 2009 and 2008, respectively, and are included in other currently marketed products.

     HYOMAX net product sales increased for the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008, primarily due to the timing of the launches of the HYOMAX products during 2008. We launched the first HYOMAX product in May 2008, the second and third in July 2008 and the fourth in September 2008.

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     ZYFLO CR and ZYFLO net product sales were $13.8 million for the nine months ended September 30, 2009. As noted above, our historical financial results for the nine months ended September 30, 2008 do not include sales of ZYFLO CR and ZYFLO by Critical Therapeutics prior to the completion of our October 31, 2008 merger.

     CUROSURF net product sales were $2.2 million for the nine months ended September 30, 2009. We acquired the CUROSURF product rights from Chiesi during the third quarter of 2009 and began promoting and selling CUROSURF in September 2009.

     FACTIVE net product sales were $91,000 for the nine months ended September 30, 2009. We acquired the FACTIVE product rights and related inventory from Oscient on September 9, 2009. We began earning revenues from FACTIVE in September 2009; however, we did not begin marketing and promoting FACTIVE until October 2009.

     Royalty Agreement Revenues. Royalty agreement revenues decreased for the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008, primarily due the expiration of our supply and marketing agreement with Pliva for APAP 500 in December 2008. Subsequent to the expiration of the supply and marketing agreement, we began marketing APAP 500. Net product sales for APAP 500 were $1.4 million for the nine months ended September 30, 2009, and are included in other currently marketed products.

Costs and Expenses

     Cost of Product Sales. Cost of product sales (exclusive of amortization of product rights of $2.5 million and $957,000 for the nine months ended September 30, 2009 and 2008, respectively) increased $7.1 million, or 230%, during the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008.

     Gross margin (exclusive of royalty agreement revenues and amortization of product rights) was as follows (dollars in thousands):

	Nine Months Ended
	September 30,						Change
	2009			2008			$		%
Net product sales	$	78,539		$	42,859		$	35,680		83	%
Cost of product sales (exclusive of amortization of product rights)		10,245			3,102			7,143		230
Gross margin	$	68,294		$	39,757		$	28,537		72	%
% of net product sales		87	%		93	%				(6	)%

     Gross margin for the nine months ended September 30, 2009 decreased six percentage points compared to the nine months ended September 30, 2008. The decrease in gross margin was primarily due to the relatively higher portion of our net product sales in the first nine months of 2009 derived from products that have lower gross margins (including ZYFLO CR, SPECTRACEF and HYOMAX), as compared to our product mix in the first nine months of 2008. We recorded inventory write-offs of $560,000 for the nine months ended September 30, 2009 and $55,000 for the nine months ended September 30, 2008. These adjustments were necessary to adequately state reserves related to excess or obsolete inventory that, due to its expiration dating, would not be sold.

     Sales and Marketing Expenses. Sales and marketing expenses increased $8.8 million, or 78%, during the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008. This increase was primarily due to increases in labor and benefits-related costs as a result of the growth of our sales force and management team; marketing and promotional spending relating to the launch of ZYFLO CR, SPECTRACEF 400 mg, FACTIVE and CUROSURF; co-promotion expenses relating to ZYFLO CR; travel-related expenses due to the increased number of sales representatives; and consulting expenses relating to increased market research.

     Royalty Expenses. Royalty expenses increased $4.9 million, or 42%, during the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008. This increase was primarily due to the launches of our HYOMAX products, the first of which occurred in May 2008; increased net product sales of the ALLERX family of products; and royalties relating to ZYFLO CR and ZYFLO, which were acquired in our October 31, 2008 merger.

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     General and Administrative Expenses. General and administrative expenses increased $8.8 million, or 172%, during the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008. This increase was primarily due to increases in labor and benefits-related employee expenses and travel-related expenses due to the expansion of our workforce; legal and accounting costs, most of which relate to increased regulatory requirements as a result of our becoming a public company and costs associated with the Chiesi transaction; FDA regulatory-related fees; and product liability and other insurance related costs. Costs associated with the Chiesi transaction during the nine months ended September 30, 2009 included $1.5 million of additional stock-based compensation expense due to acceleration of certain stock options and shares of restricted stock and $1.8 million of legal, accounting and related fees.

     Research and Development Expenses. Research and development expenses increased $1.9 million, or 159%, during the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008. This increase was primarily due to the manufacturing of and studies conducted on a product candidate, as well as stability studies for existing products.

     Our product development expenses for particular product candidates vary significantly from period to period depending on the product development stage and the nature and extent of the activities undertaken to advance the product candidate’s development in a given reporting period.

     Amortization of Product Rights. Amortization of product rights increased $1.6 million, or 164%, during the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008. This increase was primarily due to the amortization of ZYFLO CR and CUROSURF product rights. We added ZYFLO CR to our product portfolio as a result of our October 31, 2008 merger. We added CUROSURF to our product portfolio as a result of the July 28, 2009 closing of our strategic transaction with Chiesi, and we began promoting and selling CUROSURF in September 2009.

Interest Expense, Net

     Net interest expense decreased $942,000, or 89%, during the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008. The decrease was due to the conversion of the Carolina Note into common stock on October 31, 2008 in connection with our merger.

Provision for Income Taxes

     The provision for income taxes was $4.8 million for the nine months ended September 30, 2009 compared to $3.6 million for the nine months ended September 30, 2008. Our effective tax rates for the nine months ended September 30, 2009 and 2008 were 38.9% and 36.9%, respectively. The increase in the effective tax rate was due primarily to the release of valuation allowances against our deferred tax assets during 2008. Upon release of the valuation allowances, we fully utilized our net operating loss carryforwards, thereby reducing total income tax expense for the nine months ended September 30, 2008.

Liquidity and Capital Resources

Sources of Liquidity

     We require cash to meet our operating expenses and for working capital, capital expenditures, acquisitions and in-licenses of rights to products and principal and interest payments on any debt we may have outstanding. To date, we have funded our operations primarily from product sales, royalty agreement revenues and borrowings under the Carolina Note and our line of credit with Paragon Commercial Bank, or Paragon. We borrowed $13.0 million under the Carolina Note in April 2004. In connection with the closing of our merger, all of the outstanding principal amount of the Carolina Note of approximately $9.0 million was exchanged for 6,064,731 shares of Cornerstone BioPharma’s common stock (which was exchanged for 1,443,913 shares of our common stock in the merger). As of September 30, 2009, we had $11.0 million in cash and cash equivalents. Effective May 4, 2009, we exercised our right to terminate the Paragon line of credit. There were no borrowings on the Paragon line of credit at any time during 2009 prior to its termination. In July 2009, in connection with the consummation of our strategic transaction with Chiesi, among other consideration, we received approximately $15.5 million in cash.

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Cash Flows

     The following table provides information regarding our cash flows (in thousands):

	Nine Months Ended
	September 30,
	2009			2008
Cash (used in) provided by:
Operating activities	$	(8,993	)	$	9,814
Investing activities		(5,119	)		(3,344	)
Financing activities		15,818			(2,210	)
Net increase in cash and cash equivalents	$	1,706		$	4,260

Net Cash (Used In) Provided By Operating Activities

     Our primary sources of operating cash flows are product sales and royalty agreement revenues. Our primary uses of cash in our operations are for inventories and other costs of product sales, sales and marketing expenses, royalties, and general and administrative expenses.

     Net cash used in operating activities for the nine months ended September 30, 2009 reflected our net income of $7.5 million, adjusted by non-cash expenses totaling $3.8 million and changes in accounts receivable, inventories, income taxes payable, accrued expenses and other operating assets and liabilities totaling $20.3 million. Non-cash items included amortization and depreciation of $2.7 million, change in allowances for prompt payment discounts and inventory obsolescence of $2.8 million, stock-based compensation of $3.0 million and changes in deferred income tax of $4.7 million. Accounts receivable increased by $16.8 million from December 31, 2008 to September 30, 2009, primarily due to increased net product sales. Inventories increased by $5.3 million from December 31, 2008 to September 30, 2009, primarily due to the purchase of $2.8 million of FACTIVE API and finished goods and purchases of CUROSURF. Prepaid expenses and other assets increased by $2.1 million, primarily due to voucher programs and prepayments on purchases of API not yet received into inventory. Accounts payable decreased by $2.2 million from December 31, 2008 to September 30, 2009, primarily due to decreased payables related to the 2008 merger and manufacturing, product development and marketing expenses. Accrued expenses increased by $5.8 million from December 31, 2008 to September 30, 2009, primarily due to increased returns, rebates and chargebacks resulting from increased product sales, offset, in part, by a decrease in accrued bonuses. Income taxes payable (exclusive of income taxes payable assumed in the merger) increased by $228,000 from December 31, 2008 to September 30, 2009.

     Net cash provided by operating activities for the nine months ended September 30, 2008 reflected our net income of $6.1 million, adjusted by non-cash expenses totaling $2.9 million and changes in accounts receivable, inventories, accrued expenses and other operating assets and liabilities totaling $804,000. Non-cash items included amortization and depreciation of $1.0 million, change in allowances for prompt payment discounts and inventory obsolescence of $1.6 million and stock-based compensation of $256,000.

Net Cash Used in Investing Activities

     Net cash used in investing activities for the nine months ended September 30, 2009 primarily reflected the purchase of FACTIVE product rights for $5.2 million and property and equipment for $250,000, offset by net proceeds from the sale of marketable securities of $300,000.

     Net cash used in investing activities for the nine months ended September 30, 2008 primarily reflected the purchase of product rights for $2.3 million and acquisition costs of $1.0 million.

Net Cash Provided by (Used in) Financing Activities

     Net cash provided by financing activities for the nine months ended September 30, 2009 reflected proceeds of $15.5 million from our issuance of shares of common stock to Chiesi and common stock option exercises of $401,000, offset by payment of capital leases and payment for cancellation of warrants.

     Net cash used in financing activities for the nine months ended September 30, 2008 reflected net payments on the Paragon line of credit and the Carolina Note of $1.8 million and $460,000, respectively.

Funding Requirements

     We expect to continue to incur significant development expenses as we advance the development, including clinical testing, of our product candidates, including our SPECTRACEF line extensions, CRTX 058, CRTX 067 and

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CRTX 069. To the extent that our development efforts for our product candidates are successful, we expect to incur significant regulatory expenses seeking FDA approval.

     We also expect to incur additional expenses to add operational, financial and management information systems and personnel, including personnel to support our product development efforts. We also plan to incur significant commercialization expenses as we expand our sales team and marketing capabilities to support the launch of CUROSURF and FACTIVE and to prepare for the commercial launch of future products, subject to FDA approval. Accordingly, we will need to increase our revenues to be able to sustain and increase our profitability on an annual and quarterly basis. There is no assurance that we will be able to do so. Our failure to achieve consistent profitability could impair our ability to raise capital, expand our business, diversify our product offerings and continue our operations.

Our future capital requirements will depend on many factors, including:

• the level of product sales of our currently marketed products and any additional products that we may market in the future;

• the scope, progress, results and costs of development activities for our current product candidates;

• the costs, timing and outcome of regulatory review of our product candidates;

• the number of, and development requirements for, additional product candidates that we pursue;

• the costs of commercialization activities, including product marketing, sales and distribution;

• the costs and timing of establishing manufacturing and supply arrangements for clinical and commercial supplies of our product candidates and products;

• the extent to which we acquire or invest in products, businesses and technologies;

• the extent to which we choose to establish collaboration, co-promotion, distribution or other similar arrangements for our marketed products and product candidates; and

• the costs of preparing, filing and prosecuting patent applications and maintaining, enforcing and defending claims related to intellectual property owned by or licensed to us.

     To the extent that our capital resources are insufficient to meet our future capital requirements, we will need to finance our cash needs through public or private equity offerings, debt financings, corporate collaboration and licensing arrangements or other financing alternatives, which may not be available on acceptable terms, if at all.

     As of September 30, 2009, we had approximately $11.0 million of cash and cash equivalents on hand. Effective May 4, 2009, we exercised our right to terminate our line of credit with Paragon. There were no penalties associated with the early termination of the line of credit.

     Based on our current operating plans, we believe that our existing cash and cash equivalents and targeted revenues from product sales will be sufficient to continue to fund our existing level of operating expenses and capital expenditure requirements for the foreseeable future.

Off-Balance Sheet Arrangements

     Since inception, we have not engaged in any off-balance sheet arrangements, including structured finance, special purpose entities or variable interest entities.

Effects of Inflation

     We do not believe that inflation has had a significant impact on our revenues or results of operations since inception. We expect our cost of product sales and other operating expenses will change in the future in line with periodic inflationary changes in price levels. Because we intend to retain and continue to use our property and equipment, we believe that the incremental inflation related to the replacement costs of such items will not materially affect our operations. However, the rate of inflation affects our expenses, such as those for employee compensation and contract services, which could increase our level of expenses and the rate at which we use our resources. While our management generally believes that we will be able to offset the effect of cost inflation by

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adjusting our product prices and implementing operating efficiencies, any material unfavorable changes in price levels could have a material adverse affect on our financial condition, results of operations and cash flows.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Not required for smaller reporting companies.

ITEM 4. CONTROLS AND PROCEDURES

     Not applicable.

ITEM 4T. CONTROLS AND PROCEDURES

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

     Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2009. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports that it 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 the 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 executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of September 30, 2009, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were not effective at the reasonable assurance level as we have not conducted necessary testing to confirm the material weakness in our internal control over financial reporting described in our annual report on Form 10-K for the year ended December 31, 2008 has been effectively remediated.

Changes in Internal Control Over Financial Reporting

     As discussed in our annual report on Form 10-K for the year ended December 31, 2008, our management initiated a comprehensive assessment of our internal control over financial reporting. As a result of this assessment, management identified a material weakness related to our lack of a sufficient number of personnel in our accounting and finance department with appropriate accounting knowledge and experience to record our financial results in conformity with GAAP, which prevents us from being able to timely and effectively close our books at the end of each interim and annual period. While we believe that we have taken the appropriate actions to remediate the material weakness as of September 30, 2009, with the expansion of our accounting and finance department and remediation of related disclosure controls, we have not conducted necessary testing to confirm that the material weakness has been effectively remediated. Additionally, our assessment of our internal control over financial reporting is not complete; accordingly, our management may identify additional material weaknesses as part of its assessment. We expect to complete the assessment process during the fourth quarter of 2009.

     There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 30, 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     Prior to March 2008, we used a different formulation for ALLERX 10 Dose Pack and ALLERX 30 Dose Pack that we believe was protected under claims in U.S. patent number 6,270,796, or the ‘796 Patent. In 2007, the USPTO ordered a re-examination of the ‘796 Patent as a result of a third-party request for ex parte re-examination.

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We and J-Med Pharmaceuticals, Inc., or J-Med, the licensor of the ‘796 Patent, have asserted infringements of the ‘796 Patent in litigation with each of Everton Pharmaceuticals, LLC, or Everton, Breckenridge Pharmaceutical, Inc., or Breckenridge, and Vision Pharma, LLC, or Vision, and manufacturers and related parties of each, alleging that those parties had infringed the ‘796 Patent by making, using, selling, offering for sale or importing into the United States pharmaceutical products intended as generic equivalents to the former formulation of ALLERX 10 Dose Pack and ALLERX 30 Dose Pack protected under claims in the ‘796 Patent. Everton and Breckenridge entered into settlement agreements in January 2007 and July 2007, respectively, and agreed to cease selling the infringing products. In October 2007, we and J-Med filed an action in the U.S. District Court for the Eastern District of North Carolina against Vision and Nexgen Pharma, Inc. captioned Cornerstone BioPharma, Inc. and J-Med Pharmaceuticals, Inc. v. Vision Pharma, LLC and Nexgen Pharma, Inc., No. 5:07-CV-00389-F. In this action, we and J-Med alleged that the product known as “VisRx” infringes the ‘796 Patent. On November 19, 2007, we and J-Med filed an amended complaint asserting claims against Vision’s principals, Sander Busman, Thomas DeStefano and Michael McAloose. On November 30, 2007, defendants moved to stay the litigation pending the re-examination of the ‘796 Patent. The Court granted defendants’ motion and stayed the litigation pending the re-examination of the ‘796 Patent on February 15, 2008.

     In proceedings before a re-examination examiner in the USPTO, the examiner rejected claims of the ‘796 Patent as failing to satisfy the novelty and non-obviousness criteria for U.S. patent claims. J-Med appealed to the USPTO Board of Patent Appeals and Interferences, or Board of Patent Appeals, on June 13, 2008, seeking reversal of the examiner’s rejections. On the same date, J-Med filed additional documents with the USPTO for review by the examiner. The examiner responded with an advisory action, withdrawing several of the rejections, but maintaining other rejections. An appeal brief was filed on August 18, 2008, and a supplemental appeal brief was filed on May 7, 2009. If the examiner does not reverse his prior rejections, then the Board of Patent Appeals will act on the case and can take various actions, including affirming or reversing the examiner’s rejections in whole or part, or introducing new grounds of rejection of the ‘796 Patent claims. If the Board of Patent Appeals thereafter affirms the examiner’s rejections, J-Med can take various further actions, including requesting reconsideration by the Board of Patent Appeals, filing a further appeal to the U.S. Court of Appeals for the Federal Circuit or instituting a reissue of the ‘796 Patent with narrowed claims. The further proceedings involving the ‘796 Patent therefore may be lengthy in duration, and may result in invalidation of some or all of the claims of the ‘796 Patent.

     On June 13, 2008, counsel for Vision filed in the USPTO a request for re-examination of certain claims under U.S. patent number 6,843,372, or the ‘372 Patent, which we believe covers our current formulation of ALLERX 10 Dose Pack and ALLERX 30 Dose Pack, as well as ALLERX Dose Pack PE and ALLERX Dose Pack PE 30. Our counsel reviewed the request for re-examination and the patents and publications cited by counsel for Vision, and our counsel have concluded that valid arguments exist for distinguishing the claims of the ‘372 Patent over the references cited in the request for re-examination. On June 18, 2009, the USPTO examiner issued an office action, rejecting claims of the ‘372 Patent as failing to satisfy the novelty and non-obviousness criteria for U.S. patent claims, in view of the patents and publications cited by Vision. On August 18, 2009, the patent owner, Pharmaceutical Innovations, LLC, or Pharmaceutical Innovations, filed an amendment to the claims and request for reconsideration of the office action issued on June 18, 2009. If the USPTO re-examination examiner maintains one or more of the USPTO rejections of the claims of the ‘372 Patent, Pharmaceutical Innovations may appeal to the Board of Patent Appeals to seek reversal of the examiner’s rejections. If the Board of Patent Appeals thereafter affirms the examiner’s rejections, Pharmaceutical Innovations could take various further actions, including requesting reconsideration by the Board of Patent Appeals, filing a further appeal to the U.S. Court of Appeals for the Federal Circuit or instituting a reissue of the ‘372 Patent with narrowed claims. The further proceedings involving the ‘372 Patent therefore may be lengthy in duration, and may result in invalidation of some or all of the claims of the ‘372 Patent.

     In February 2008, we filed a notice of opposition before the Trademark Trial and Appeal Board, or TTAB, in relation to Application No. 77/226,994 filed in the USPTO by Vision, seeking registration of the mark VisRx. The opposition proceeding is captioned Cornerstone BioPharma, Inc. v. Vision Pharma, LLC, Opposition No. 91182604. In April 2008, Vision filed an answer and counterclaims in which it requested cancellation of our U.S. Registration Nos. 3,384,232 (covering the mark ALLERX for use in connection with anti-allergy, antihistamine and decongestant preparations) and 2,448,112 (covering the mark ALLERX for use in connection with dietary and nutritional supplements). Vision did not request monetary relief. On October 29, 2009, we reached an agreement with Vision to settle the opposition proceeding, which provided for dismissal with prejudice of our opposition to Vision’s

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application for registration of the mark VisRx; dismissal without prejudice of Vision’s counterclaim seeking cancellation of U.S. Registration No. 3,384,232; and voluntary cancellation of U.S. Registration No. 2,448,112. A stipulation memorializing the agreed resolution of the opposition proceeding and an application for voluntary cancellation of U.S. Reg. No. 2,448,112 were filed with the TTAB on October 29, 2009.

     On May 15, 2008, the TTAB issued written notice to us indicating that Bausch & Lomb, Incorporated, or Bausch & Lomb, had initiated a cancellation proceeding (Cancellation No. 92049358) against U.S. Reg. No. 3,384,232. The petition for cancellation filed in this proceeding alleges that the ALLERX registration dilutes the distinctive quality of Bausch & Lomb’s Alrex^® trademark, that the ALLERX mark so resembles Bausch & Lomb’s Alrex^® mark as to cause confusion as to the source of goods sold under ALLERX mark and that Bausch & Lomb is likely to be damaged by the ALLERX registration. We timely filed an answer to Bausch & Lomb’s petition for cancellation, disputing claims made in such petition and raising various defenses. Discovery requests were issued to Bausch & Lomb in January 2009, but cancellation proceedings were suspended by the TTAB on February 10, 2009 for six months and on July 29, 2009 for an additional three months upon indication that the parties were engaged in settlement negotiations. The suspension of cancellation proceedings will expire on November 10, 2009. We are currently engaged in settlement discussions with Bausch & Lomb to resolve the dispute on favorable terms. We have agreed with Bausch & Lomb to request a further suspension of cancellation proceedings if settlement is not concluded before November 10, 2009. If settlement is not reached, then proceedings will resume, and a final decision by the TTAB could take several years.

ITEM 1A. RISK FACTORS

     We operate in a rapidly changing environment that involves a number of risks. The following discussion highlights some of these risks and others are discussed elsewhere in this report. These and other risks could materially and adversely affect our business, financial condition, prospects, operating results or cash flows. For a detailed discussion of the risk factors that should be understood by any investor contemplating an investment in our stock, please refer to Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2008, which was filed with the SEC on March 26, 2009.

     There have been no material changes from the risk factors previously disclosed in that Annual Report on Form 10-K, except as follows:

Concerns regarding the safety profile of ZYFLO CR and ZYFLO may limit the market acceptance of ZYFLO CR.

     Market perceptions about the safety of ZYFLO CR and ZYFLO may limit the market acceptance of ZYFLO CR. In the clinical trials that were reviewed by the FDA prior to its approval of ZYFLO, 3.2% of the approximately 5,000 patients who received ZYFLO experienced increased levels of alanine transaminase, or ALT, of over three times the levels normally seen in the bloodstream. In these trials, one patient developed symptomatic hepatitis with jaundice, which resolved upon discontinuation of therapy, and three patients developed mild elevations in bilirubin. In clinical trials for ZYFLO CR, 1.94% of the patients taking ZYFLO CR in a three-month efficacy trial and 2.6% of the patients taking ZYFLO CR in a six-month safety trial experienced ALT levels greater than or equal to three times the level normally seen in the bloodstream. Because ZYFLO CR can elevate liver enzyme levels, its product labeling, which was approved by the FDA in May 2007, contains the recommendation that periodic liver function tests be performed on patients taking ZYFLO CR. Some physicians and patients may perceive liver function tests as inconvenient or indicative of safety issues, which could make them reluctant to prescribe or accept ZYFLO CR, ZYFLO or any other zileuton product candidates that we successfully develop and commercialize, which could limit their commercial acceptance.

     In March 2008, the FDA issued an early communication regarding an ongoing safety review of the leukotriene montelukast relating to suicide and other behavior-related adverse events. In that communication, the FDA stated that it was also reviewing the safety of other leukotriene medications. On May 27, 2008, we received a request from the FDA that we gather and provide to the FDA data from the clinical trial database to evaluate behavior-related adverse events for ZYFLO and ZYFLO CR. On January 13, 2009, the FDA announced that the company studies it reviewed do not show any association between these drugs that act through the leukotriene pathway (for example, montelukast, zafirlukast and zileuton) and suicide, although the FDA noted that these studies were not designed to detect those events. The FDA also reviewed clinical trial data to assess other mood-related and behavior-related adverse events related to such drugs. On April 23, 2009, the FDA requested that we add wording to the precaution section of the ZYFLO CR and ZYFLO labeling to include post-marketing reports of sleep disorders and

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neuropsychiatric events. It is our understanding that other leukotriene modulator manufacturers were asked to make similar changes. There is a risk that this labeling change may cause physicians and other members of the health care community to prefer competing products without such labeling over ZYFLO CR and ZYFLO, which would cause sales of these products to suffer.

A failure to maintain optimal inventory levels could harm our reputation and subject us to financial losses.

     We are obligated to make aggregate combined purchases of cefditoren pivoxil API, the SPECTRACEF products and sample packs of SPECTRACEF 400 mg exceeding specified dollar amounts annually over a five-year period under our supply agreement with Meiji Seika Kaisha, Ltd., or Meiji. Under the agreement, the required annual aggregate combined purchases of cefditoren pivoxil API, the SPECTRACEF products and sample packs of SPECTRACEF 400 mg are $15.0 million for the first year beginning with the commercial launch in October 2008 of SPECTRACEF 400 mg manufactured by Meiji, $20.0 million for year two, $25.0 million for year three, $30.0 million for year four and $35.0 million for year five. If we do not meet our minimum purchase requirement in a given year, we must pay Meiji an amount equal to 50% of the shortfall in that year. We are using our current inventory of cefditoren pivoxil for formulation, development and manufacture of the currently marketed SPECTRACEF products as well as the SPECTRACEF line extensions.

     We are also subject to minimum purchase obligations under supply agreements, which require us to buy inventory of the tablet cores for ZYFLO CR. We have committed to purchase a minimum of 20 million ZYFLO CR tablet cores from Jagotec in each of the four 12-month periods starting May 30, 2008. If ZYFLO CR does not achieve the level of demand we anticipate, we may not be able to use the inventory we are required to purchase. Based on our current expectations regarding demand for ZYFLO CR, we expect that inventory levels could increase substantially in the future as a result of minimum purchase obligations under supply agreements with third-party manufacturers and orders we have submitted to date.

     Because accurate product planning is necessary to ensure that we maintain optimal inventory levels, significant differences between our current estimates and judgments and future estimated demand for our products and the useful life of inventory may result in significant charges for excess inventory or purchase commitments in the future. If we are required to recognize charges for excess inventories, such charges could have a material adverse effect on our financial condition and results of operations.

     Product acquisitions typically include purchase of existing inventory. If the previous company has distributed product to the wholesalers and distributors that exceeds current demand, such inventory levels could affect our ability to sell product to the wholesalers. Until the inventory levels decline, revenues for the acquired product could be minimal. For example, when we acquired FACTIVE, the wholesaler and distributor levels of inventory exceeded current demand. We do not anticipate FACTIVE sales to wholesalers and distributors to increase until the current wholesaler inventories decrease.

     In the year ended December 31, 2008, we experienced difficulties in the supply for ZYFLO CR, including an aggregate of eight batches of ZYFLO CR that could not be released into our commercial supply chain, consisting of one batch of ZYFLO CR that did not meet our product release specifications and an additional seven batches of ZYFLO CR that were on quality assurance hold and that could not complete manufacturing within the manufacturing timelines specified in its new drug application, or NDA. We cannot assure you that we will not have similar manufacturing issues in producing ZYFLO CR or our other products in the future.

     Our ability to maintain optimal inventory levels also depends on the performance of third-party contract manufacturers. In some instances, third-party manufacturers have encountered difficulties obtaining raw materials needed to manufacture our products as a result of U.S. Drug Enforcement Administration regulations and because of the limited number of suppliers of pseudoephedrine, hyoscyamine sulfate, and methscopolamine nitrate. Although these difficulties have not had a material adverse impact on us, such problems could have a material adverse impact on us in the future. If we are unable to manufacture and release inventory on a timely and consistent basis, if we fail to maintain an adequate level of product inventory, if inventory is destroyed or damaged or if our inventory reaches its expiration date, patients might not have access to our products, our reputation and our brands could be harmed and physicians may be less likely to prescribe our products in the future, each of which could have a material adverse effect on our financial condition, results of operations and cash flows.

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Concerns regarding the potential toxicity and addictiveness of propoxyphene and the known liver toxicity of acetaminophen may limit market acceptance of our propoxyphene/acetaminophen products or cause the FDA to remove these products from the market.

     Periodically, there is negative publicity related to the potential toxicity and addictiveness of propoxyphene. Propoxyphene is one of two APIs, together with acetaminophen, in BALACET 325, APAP 325 and APAP 500. For example, the consumer advocacy organization Public Citizen filed suit in June 2008 against the FDA based on the FDA’s failure to act on Public Citizen’s February 2006 citizen petition that had requested that the FDA immediately begin the phased removal of all drugs containing propoxyphene from the marketplace based on propoxyphene’s toxicity relative to its efficacy and its tendency to induce psychological and physical dependence. The FDA denied the citizen petition on July 7, 2009 stating, that despite serious concerns about propoxyphene, the benefits of using the medication for pain relief outweighed its safety risks. However, as part of the Risk Evaluation and Mitigation Strategy, or REMS, for propoxyphene products, the FDA is also requiring our propoxyphene/acetaminophen products to include additional labeling in the boxed warning to address the risk of overdose and to be accompanied by an FDA-approved medication guide. There is a risk that this labeling change may cause physicians and other members of the health care community to prefer competing products without such labeling over the propoxyphene/acetaminophen products, which would cause sales of these products to suffer.

     In December 2006, the FDA recognized concerns about the known liver toxicity of over-the-counter pain relievers, including acetaminophen, which is found in BALACET 325, APAP 325 and APAP 500. The FDA convened a public advisory committee meeting to discuss acetaminophen risk management in June 2009, and the docket for this meeting remained open for comment until September 30, 2009. The FDA could act on these concerns by changing its policies with respect to acetaminophen as a single ingredient and in combination with opioid products. A change in the FDA’s policy could adversely affect our ability to market our propoxyphene/acetaminophen products.

Fluoroquinolone products have been associated with the risk of tendonitis and tendon ruptures. FACTIVE is a fluoroquinolone product and must comply with the FDA directives on prescribing information for fluoroquinolones.

     On July 7, 2008, the FDA notified Oscient that it was directing that the prescribing information for all fluoroquinolone products, including FACTIVE, be revised to include a boxed warning relating to the risk of tendonitis and tendon rupture associated with the use of fluoroquinolone products. Warnings regarding the risk of tendon-related adverse events were already included in the prescribing information, as part of a class labeling, for all fluoroquinolones. The FDA has cautioned that such risk is increased in patients over the age of 60 and in those on concomitant corticosteroid therapy, as well as kidney, heart and lung transplant recipients. The FDA also required Oscient to include a medication guide in each FACTIVE package. In April 2009, the FDA approved Oscient’s changes to the package insert and its medication guide as part of its approval of the REMS for FACTIVE. We began using the package insert and medication guide when we began earning revenues from FACTIVE in September 2009, and we are obligated to submit periodic REMS assessments for FACTIVE to the FDA 18 months and three years following the approval of the REMS.

     We cannot predict what further action, if any, the FDA may take, including, among others things, further label restrictions in the fluoroquinolone class or even the removal of indications or products from the market. Any of these events could prevent us from achieving or maintaining market acceptance of FACTIVE or could substantially increase the costs and expenses of commercialization, which in turn could delay or prevent us from generating significant revenues from sales of this product.

Our limited experience in obtaining regulatory approvals could delay, limit or prevent such approvals for our product candidates.

     We have only limited experience in preparing and submitting the applications necessary to gain regulatory approvals and expect to rely on third-party contract research organizations to assist us in this process. We acquired the rights to most of our currently marketed products and product candidates through four licensing transactions, two related to ZYFLO CR and ZYFLO in 2003 and 2004, respectively; one for the ALLERX Dose Pack products in February 2005; and one for SPECTRACEF in October 2006. In connection with our strategic transaction with Chiesi, Chiesi granted us the exclusive U.S. rights to distribute CUROSURF. Personnel who are no longer employed by us obtained FDA approval to market ZYFLO and ZYFLO CR in the United States from the FDA in September 2005 and May 2007, respectively. In addition, Brian Dickson, M.D., our former Chief Medical Officer, retired in

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October 2009. Dr. Dickson was significantly involved in our obtaining FDA approval of a supplemental new drug application for SPECTRACEF 400 mg in July 2008. We do not have other experience gaining FDA approval of product candidates.

     Our limited experience in this regard could delay or limit approval of our product candidates if we are unable to effectively manage the applicable regulatory process with either the FDA or foreign regulatory authorities. In addition, significant errors or ineffective management of the regulatory process could prevent approval of a product candidate, especially given the substantial discretion that the FDA and foreign regulatory authorities have in this process.

If we fail to comply with regulatory requirements for our products or if we experience unanticipated problems with them, the FDA may take regulatory actions detrimental to our business, resulting in temporary or permanent interruption of distribution, withdrawal of products from the market or other penalties.

     We and our products are subject to comprehensive regulation by the FDA. These requirements include submissions of safety and other post-marketing information; record-keeping and reporting; annual registration of manufacturing facilities and listing of products with the FDA; ongoing compliance with cGMP regulations; and requirements regarding advertising, promotion and the distribution of samples to physicians and related recordkeeping. For example, we received a warning letter from the FDA’s Division of Drug Marketing, Advertising and Communications, or DDMAC, on May 4, 2009 relating to two sales aids that we formerly used to promote SPECTRACEF. The FDA asserted that the sales aids were misleading because they broadened the approved indication for SPECTRACEF, omitted risks related to its use, made unsubstantiated superiority claims, overstated the efficacy of SPECTRACEF and made misleading dosing claims. While we no longer use the sales aids reviewed by the FDA, in response to the warning letter, we initiated a review of all of our current SPECTRACEF promotional materials for deficiencies similar to those identified by the FDA in the warning letter to ensure that we take effective action to immediately cease and avoid the future dissemination of such deficient promotional materials. As requested by the FDA, we provided written responses to the FDA on May 18, 2009 and July 8, 2009. As part of our responses, we provided a description of our plan to disseminate corrective messages to the recipients of the deficient promotional materials. We incorporated appropriate revisions into new SPECTRACEF promotional materials. On October 20, 2009, we received the close-out letter for the warning letter dated May 4, 2009. If we were to receive any additional warning letters, we could be subject to additional regulatory actions by the FDA, including product seizure, injunctions and other penalties, and our business and reputation could be harmed.

     Under the Food and Drug Administration Amendments Act of 2007, or FDAAA, the FDA is also authorized, among other things, to require the submission of REMS with NDAs, or post-approval upon the discovery of new safety information, to monitor and address potential product safety issues. The FDAAA also grants the FDA the authority to mandate labeling changes in certain circumstances and establishes requirements for registering and disclosing the results of clinical trials. For example, as part of the REMS for FACTIVE, the FDA required the packaging to be revised to include a boxed warning and a medication guide. The FDA also requires us to periodically submit a REMS assessment for FACTIVE to ensure that the REMS are sufficient to inform patients of the serious risks associated with their use. Completion of the REMS assessment could be costly and time consuming.

     The manufacturer and the manufacturing facilities used to make our products and product candidates are also subject to comprehensive regulatory requirements. The FDA periodically inspects sponsors, marketers and manufacturers for compliance with these requirements. Additional, potentially costly, requirements may apply to specific products as a condition of FDA approval or subsequent regulatory developments. For example, as part of the approval of the new drug application for ZYFLO CR in May 2007, the FDA required us to conduct a pediatric clinical trial of ZYFLO CR as a post-approval commitment and report the results to the FDA by June 2010. A waiver from this obligation was requested from the FDA on January 7, 2008, for which no response has been received. If we do not successfully begin and complete this clinical trial in the time required by the FDA, our ability to market and sell ZYFLO CR may be hindered, and our business may be harmed as a result.

     On April 28, 2009, the FDA issued us a Notice of Inspectional Observations, or Form 483, in connection with an inspection of our ZYFLO CR regulatory procedures it conducted during April 2009. The Form 483 stated that our processes related to ZYFLO CR for review of batch specific documentation, analytical information, deviations and investigations prior to releasing finished product for distribution; our staffing levels relating to quality assurance and

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controls; and our late filing of a ZYFLO CR Field Alert Report are areas of possible non-compliance with FDA regulations. We responded to the FDA on May 7, 2009 and intend to take appropriate action to effectively address each of the observations identified by the FDA in the Form 483 as quickly as practicable.

     If the FDA makes additional inspectional observations, or if the FDA is not satisfied with the corrective actions we take in response to the Form 483, we could be subject to further FDA action, including sanctions. We may also be subject to sanctions as a result of discovery of previously unknown problems with our products, manufacturers or manufacturing processes, or failure to comply with applicable regulatory requirements. Possible sanctions include:

• withdrawal of the products from the market;

• restrictions on the marketing or distribution of such products;

• restrictions on the manufacturers or manufacturing processes;

• warning letters;

• refusal to approve pending applications or supplements to approved applications that we submit;

• recalls;

• fines;

• suspension or withdrawal of regulatory approvals;

• refusal to permit the import or export of our products;

• product seizures; or

• injunctions or the imposition of civil or criminal penalties.

     Any of these actions could have a material adverse effect on our business, financial condition and results of operations.

If we fail to manage successfully our product acquisitions, our ability to develop our product candidates and expand our product pipeline may be harmed.

     Our failure to address adequately the financial, operational or legal risks of our product acquisitions or in-license arrangements could harm our business. These risks include:

• the overuse of cash resources;

• higher than anticipated acquisition costs and expenses;

• potentially dilutive issuances of equity securities;

• the incurrence of debt and contingent liabilities, impairment losses and/or restructuring charges;

• the assumption of or exposure to unknown liabilities;

• the development and integration of new products that could disrupt our business and occupy our management’s time and attention;

• the inability to preserve key suppliers or distributors of any acquired products; and

• the acquisition of products that could substantially increase our amortization expenses.

     If we are unable to successfully manage our product acquisitions, our ability to develop new products and expand our product pipeline may be limited, and we could suffer significant harm to our financial condition, results of operations and prospects.

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     For example, we have entered into a ten-year license and distribution agreement with Chiesi for CUROSURF. Even though CUROSURF is currently marketed in the United States, there can be no assurance that our pre-acquisition due diligence identified all possible issues that may arise with respect to this product. There is no assurance that the net sales of CUROSURF will be sufficient to offset the net income per share impact of increased amortization expense and the dilutive effect of the shares issued to Chiesi in the strategic transaction that closed on July 28, 2009.

If we fail to attract and retain key personnel, or to retain our executive management team, we may be unable to successfully develop or commercialize our products.

     Recruiting and retaining highly qualified scientific, technical and managerial personnel and research partners will be critical to our success. Any expansion into areas and activities requiring additional expertise, such as clinical trials, governmental approvals and contract manufacturing, will place additional requirements on our management, operational and financial resources. These demands may require us to hire additional personnel and will require our existing management personnel to develop additional expertise. We face intense competition for personnel. The failure to attract and retain personnel or to develop such expertise could delay or halt the development, regulatory approval and commercialization of our product candidates. If we experience difficulties in hiring and retaining personnel in key positions, we could suffer from delays in product development, loss of customers and sales and diversion of management resources, which could adversely affect operating results. We also experience competition for the hiring of scientific personnel from universities and research institutions. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our development and commercialization strategy. Our consultants and advisors may be employed by third parties and may have commitments under consulting or advisory contracts with third parties that may limit their availability to us.

     We depend to a great extent on the principal members of our management and scientific staff. The loss of the services of any of our key personnel, in particular, Craig Collard, President and Chief Executive Officer, and David Price, Executive Vice President of Finance and Chief Financial Officer, might significantly delay or prevent the achievement of our development and commercialization objectives and could cause us to incur additional costs to recruit replacements. Each member of our executive management team may terminate his or her employment at any time. We do not maintain “key person” life insurance with respect to any of our executives. Furthermore, if we decide to recruit new executive personnel, we will incur additional costs. We may not be able to replace key personnel internally or without additional costs in the future. For example, Brian Dickson, M.D., our former Chief Medical Officer, retired during October 2009. Although Alan Roberts, Vice President of Scientific Affairs, assumed primary responsibility for coordinating all of our medical activities, there is no assurance that Dr. Dickson’s departure will not adversely affect our ability to achieve our business objectives.

     We may experience turnover amongst our board of directors. If our board were to fail to satisfy the requirements of relevant rules and regulations of the SEC and NASDAQ relating to director independence or membership on board committees, this could result in the delisting of our common stock from NASDAQ or could adversely affect investors’ confidence in us and our ability to access the capital markets. If we are unable to attract and retain qualified directors, the achievement of our corporate objectives could be significantly delayed or may not occur.

If we are unable to attract, hire and retain qualified sales and marketing personnel, the commercial opportunity for our products and product candidates may be diminished.

     We have built a commercial organization, consisting of our sales department, which includes our sales force and our sales management, sales logistics and sales administration personnel, as well as our marketing department. As of October 31, 2009, our sales force consisted of 101 sales personnel, including sales representatives and support staff dedicated to marketing and promoting CUROSURF. We may not be able to attract, hire, train and retain qualified sales and marketing personnel to augment our existing capabilities in the manner or on the timeframe that we plan. If we are unsuccessful in our efforts to expand our sales force and marketing capabilities, our ability to independently market and promote our products and any product candidates that we successfully bring to market will be impaired. In such an event, we would likely need to establish a collaboration, co-promotion, distribution or other similar arrangement to market and sell our products and product candidates. However, we might not be able to enter into such an arrangement on favorable terms, if at all. Even if we are able to effectively expand our sales force and marketing capabilities, our sales force and marketing teams may not be successful in commercializing and promoting our products.

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The commercial success of our currently marketed products and any additional products that we successfully develop or bring to market depends on the degree of market acceptance by physicians, patients, health care payors and others in the medical community.

     Any products that we bring to the market may not gain market acceptance by physicians, patients, health care payors and others in the medical community. If our products do not achieve an adequate level of acceptance, we may not generate significant product revenue and may not be able to sustain or increase our profitability. The degree of market acceptance of our products, including our product candidates, if approved for commercial sale, will depend on a number of factors, including:

• the prevalence and severity of the products’ side effects;

• the efficacy and potential advantages of the products over alternative treatments;

• the ability to offer the products for sale at competitive prices, including in relation to any generic or re-imported products or competing treatments;

• the relative convenience and ease of administration of the products;

• the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;

• the perception by physicians and other members of the health care community of the safety and efficacy of the products and competing products;

• the availability and level of third-party reimbursement for sales of the products;

• the continued availability of adequate supplies of the products to meet demand;

• the strength of marketing and distribution support;

• any unfavorable publicity concerning us, our products or the markets for these products, such as information concerning product contamination or other safety issues in the markets for our products, whether or not directly involving our products;

• regulatory developments related to our marketing and promotional practices or the manufacture or continued use of our products; and

• changes in intellectual property protection available for the products or competing treatments.

We rely on third parties to market and promote some products, and these third parties may not successfully commercialize these products.

     We may seek to enter into co-promotion arrangements to enhance our promotional efforts and, therefore, sales of our products. By entering into agreements with pharmaceutical companies that have experienced sales forces with strong management support, we can reach health care providers in areas where we have limited or no sales force representation, thus expanding the reach of our sales and marketing programs.

     We also seek to enter into co-promotion arrangements for the marketing of products that are not aligned with our respiratory focus and, therefore, are not promoted by our sales force. For example, in July 2007, Atley Pharmaceuticals began marketing and promoting BALACET 325 to pain specialists and other high prescribers of pain products through a co-promotion agreement. We rely on DEY to jointly market and promote ZYFLO CR. DEY initiated promotional detailing activities for ZYFLO CR in October 2007. Either DEY or we may terminate the co-promotion agreement on or after October 1, 2012 with six months’ prior written notice. DEY also has the right to terminate the co-promotion agreement upon two months’ prior written notice to us if in any two consecutive calendar quarters we are unable to deliver to DEY at least 75% of the ZYFLO CR samples forecast by DEY for such quarters, or if at any time commercial supplies of ZYFLO CR remain on back order for more than one calendar quarter. In addition, DEY has the right to terminate the co-promotion agreement after January 1, 2010 with two- months’ prior written notice if ZYFLO CR cumulative net sales for any four consecutive calendar quarters beginning on or after January 1, 2009 are less than $20.0 million. Both parties have agreed to use diligent efforts to promote the applicable products in the United States during the term of the co-promotion agreement. In particular, both parties have agreed to provide a minimum number of details per month for
ZYFLO CR.

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     If DEY were to terminate or breach the co-promotion agreement, and we were unable to enter into a similar co-promotion agreement with another qualified party in a timely manner or devote sufficient financial resources or capabilities to independently promote and market ZYFLO CR, then our sales of ZYFLO CR would be limited and we would not be able to generate significant revenues from product sales. In addition, DEY may choose not to devote time, effort or resources to the promotion and marketing of ZYFLO CR beyond the minimum required by the terms of the co-promotion agreement. DEY is a subsidiary of Mylan Inc., or Mylan. Mylan acquired DEY in October 2007 as part of its acquisition of Merck KGaA’s generic business, of which DEY was a part. Any decision by DEY or Mylan not to devote sufficient resources to the co-promotion arrangement or any future reduction in efforts under the co-promotion arrangement, including as a result of the sale or potential sale of DEY by Mylan, would limit our ability to generate significant revenues from product sales. Furthermore, if DEY does not have sufficient sales capabilities, then DEY may not be able to meet its minimum detailing obligations under the co-promotion agreement.

     We rely on MedImmune, Inc., or MedImmune, a subsidiary of AstraZeneca PLC, for the commercialization of any of monoclonal antibodies directed toward a cytokine called HMGB1, which we believe may be an important target for the development of products to treat diseases mediated by the body’s inflammatory response, and we plan to rely on Beckman Coulter, Inc., or Beckman Coulter, for the commercialization of any diagnostic assay for HMGB1. We may not be successful in entering into additional marketing arrangements in the future and, even if successful, we may not be able to enter into these arrangements on terms that are favorable to us. In addition, we may have limited or no control over the sales, marketing and distribution activities of these third parties. If these third parties are not successful in commercializing the products covered by these arrangements, our future revenues may suffer.

Orchid Healthcare’s Paragraph IV certification under the Hatch-Waxman Act related to FACTIVE could have an adverse effect on sales of FACTIVE, as it could result in the introduction of a generic product prior to the expiration of the patents covering FACTIVE, as well as in significant legal expenses and diversion of management’s time.

     On May 30, 2008, Orchid Healthcare, a Division of Orchid Chemicals & Pharmaceuticals Ltd., or Orchid, filed a Paragraph IV certification for an abbreviated new drug application, or ANDA, for a generic version of FACTIVE. Orchid’s Paragraph IV certification alleges that certain of the FDA listed patents covering FACTIVE are invalid and/or will not be infringed by Orchid’s manufacture, importation, use or sale of the product for which Orchid submitted its ANDA. The certification does not include a Paragraph IV certification with respect to U.S. Patent No. 5,633,262, which is listed in the Orange Book and expires in June 2015. We are evaluating whether to commence litigation in response to Orchid’s Paragraph IV certification.

     Any legal action taken to defend our patent rights relating to FACTIVE will likely be costly, time consuming and distracting to management, could have an adverse effect on sales of FACTIVE, and could result in a finding that either Orchid’s proposed generic product does not infringe the claims of our patents or that our patents are invalid and/or unenforceable. An adverse outcome in any such legal action could result in one or more generic versions of FACTIVE being launched before the expiration of the patents covering FACTIVE.

We identified a material weakness in our internal control over financial reporting as of December 31, 2008, and we have not conducted the necessary testing to confirm that the measures we have taken have effectively remediated the material weakness. If we fail to achieve and maintain effective internal control over financial reporting and disclosure controls and procedures, we could face difficulties in preparing timely and accurate financial statements and periodic reports, which could result in a loss of investor confidence in the information that we report and a decline in our stock price, and could impair our ability to raise additional funds to the extent needed to meet our future capital requirements.

     In connection with the preparation of our financial statements as of and for the year ended December 31, 2008, we identified a material weakness in our internal control over financial reporting as discussed in Item 9A(T), “Controls and Procedures,” of our annual report on Form 10-K for the year ended December 31, 2008. As discussed in Item 9A(T) of our annual report on Form 10-K for the year ended December 31, 2008 and “Part I—Item 4(T). Controls and Procedures” of our quarterly report on Form 10-Q for the three months ended March 31, 2009, as a result of this material weakness, our chief executive officer and chief financial officer concluded that, as of December 31, 2008 and March 31, 2009, respectively, our disclosure controls and procedures were not effective. As

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discussed above in “Part I—Item 4(T). Controls and Procedures,” while we believe that we have taken the appropriate actions to remediate this material weakness, we have not conducted the necessary testing to confirm the material weakness has been effectively remediated. We or our independent registered public accounting firm may identify additional material weaknesses in our internal control over financial reporting in the future, including in connection with our management’s ongoing assessment of our internal control over financial reporting, which is discussed in Item 9A(T) of our annual report on Form 10-K for the year ended December 31, 2008 and “Part I—Item 4(T). Controls and Procedures” of this quarterly report on Form 10-Q. Accordingly, our chief executive officer and chief financial officer concluded that, as of September 30, 2009, our disclosure controls and procedures were not effective.

     Any failure or difficulties in promptly and effectively remediating our presently identified material weakness, or any material weaknesses that we or our independent registered public accounting firm may identify in the future, could result in our inability to prevent or detect material misstatements in our financial statements and cause us to fail to meet our periodic reporting obligations. As a result, our management may not be able to provide an unqualified assessment of our internal control over financial reporting as of December 31, 2009 or beyond, and our chief executive officer and chief financial officer may not be able to conclude, on a quarterly basis, that our disclosure controls and procedures are effective. In addition, our independent registered public accounting firm may not be able to provide an unqualified opinion on the effectiveness of our internal control over financial reporting as of December 31, 2009 or beyond. Any material weakness, or any remediation thereof that is ultimately unsuccessful, could also cause investors to lose confidence in the accuracy and completeness of our financial statements and periodic reports, which in turn could harm our business, lead to a decline in our stock price and impair our ability to raise additional funds to the extent needed to meet our future capital requirements.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Recent Sales of Unregistered Securities; Uses of Proceeds from Registered Securities

     On May 6, 2009, we entered into a series of agreements for a strategic transaction, subject to approval by our stockholders, with Chiesi, whereby we agreed to issue Chiesi approximately 12.2 million shares of our common stock, par value $0.001 per share, in exchange for $15.5 million in cash, an exclusive license for the U.S. commercial rights to CUROSURF and a two-year right of first offer on all drugs Chiesi intends to market in the United States. Our license agreement with Chiesi is for a ten-year initial term and thereafter will be automatically renewed for successive one-year renewal terms, unless earlier terminated by either party upon six months’ prior written notice.

     On July 27, 2009, our stockholders approved our issuance of the shares at a special stockholders’ meeting, and the transaction closed on July 28, 2009. We believe that the offer and sale of the shares by us to Chiesi is exempt from registration under Section 4(2) of the Securities Act of 1933, as amended, as a transaction by an issuer not involving a public offering. Chiesi is a knowledgeable, sophisticated investor and had access to comprehensive information about us during an extensive due diligence process. In addition, Chiesi agreed to hold the shares for a minimum of 24 months, with certain exceptions.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     The following matters were submitted to a vote of our stockholders at the special meeting of stockholders held on July 27, 2009 and approved by the requisite vote of our stockholders as follows:

1. To approve the issuance and sale of our shares of our common stock to Chiesi pursuant to the stock purchase agreement, dated as of May 6, 2009, between us and Chiesi, or the Stock Purchase Agreement, in an aggregate amount to be determined in accordance with the Stock Purchase Agreement, estimated as of July 1, 2009 to be approximately 12,170,312 shares.

Number of Shares
For	Against	Abstain
7,739,260	42,769	9,109

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2. To adjourn the special meeting, if necessary, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the issuance and sale of shares of our common stock to Chiesi pursuant to the Stock Purchase Agreement.

Number of Shares
For	Against	Abstain
7,714,575	67,937	8,626

     The number of shares of common stock eligible to vote as of the record date of June 25, 2009 was 12,836,498 shares.

     The following matters were submitted to a vote of our stockholders at the special meeting of stockholders held on August 27, 2009 and approved by the requisite vote of our stockholders as follows:

1. To approve an amendment to our certificate of incorporation that restates Article Sixth, relating to our bylaws, consisting of the following subproposals:

1A. To eliminate a provision requiring that any amendment of our bylaws that is effected by our stockholders be approved by the affirmative vote of at least 75% of the votes which all of our stockholders would be entitled to cast in any election of directors (so that any future amendment of our bylaws by our stockholders will require the approval of a simple majority of the shares present in person or represented by proxy at the meeting and entitled to vote on the matter).

Number of Shares
For	Against	Abstain
19,260,233	1,406,651	11,845

1B. To eliminate the requirement that any amendment to Article Sixth be approved by the affirmative vote of at least 75% of the votes which all of our stockholders would be entitled to cast in any election of directors (so that any future amendment to Article Sixth will require the approval of a simple majority of the outstanding shares entitled to vote on the amendment).

Number of Shares
For	Against	Abstain
19,260,454	1,406,231	12,044

2. To approve an amendment to our certificate of incorporation that restates Article Ninth, relating to our management and conduct of our affairs, consisting of the following subproposals:

2A. To eliminate the classified (or “staggered”) status of our board of directors so that all directors will be subject to re-election at each annual meeting.

Number of Shares
For	Against	Abstain
20,520,098	145,937	12,694

2B. To add a provision to the effect that there will be two classes of directors, one comprised of designees or nominees of Chiesi and the other comprised of directors not designated or nominated by Chiesi, and, so long as Chiesi and its affiliates beneficially own at least 50% of our outstanding common stock (on a fully diluted basis), the two classes of directors will have equal voting power.

Number of Shares
For	Against	Abstain
19,132,841	1,534,344	11,544

2C. To eliminate provisions relating to quorum at a board meeting, action at a board meeting, removal of directors, vacancies of directors, stockholder nominations and introduction of business (so that these matters are governed by our bylaws).

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Number of Shares
For	Against	Abstain
19,182,632	1,483,947	12,150

2D. To add provisions requiring the approval of Chiesi for certain types of corporate transactions so long as Chiesi owns at least 40% of our outstanding common stock (on a fully diluted basis).

Number of Shares
For	Against	Abstain
19,100,552	1,566,584	11,593

2E. To eliminate the requirement that any amendment to Article Ninth be approved by the affirmative vote of 75% of the votes which all our stockholders would be entitled to cast in any election of directors (so that any future amendment to Article Ninth will require the approval of a simple majority of the outstanding shares entitled to vote on the amendment).

Number of Shares
For	Against	Abstain
19,259,844	1,407,581	11,304

3. To approve an amendment to our certificate of incorporation that deletes Article Tenth, relating to action by written consent of our stockholders, consisting of the following subproposals:

3A. To eliminate a prohibition against action by written consent of our stockholders in lieu of a meeting.

Number of Shares
For	Against	Abstain
19,176,325	1,491,000	11,404

3B. To eliminate the requirement that any amendment to Article Tenth be approved by the affirmative vote of 75% of the votes which all of our stockholders would be entitled to cast in any election of directors (so that any future amendment to Article Tenth will require the approval of a simple majority of the outstanding shares entitled to vote on the amendment).

Number of Shares
For	Against	Abstain
19,259,969	1,407,656	11,104

4. To approve an amendment to our certificate of incorporation to add a new Article Tenth, consisting of the following subproposals:

4A. To permit Chiesi and its affiliates to engage in the same or similar business activities or lines of business as we do and relieving Chiesi and its affiliates and board designees or nominees from obligations they otherwise might owe us under the corporate opportunity doctrine, so long as Chiesi and its affiliates beneficially own at least 50% of our outstanding common stock (on a fully diluted basis).

Number of Shares
For	Against	Abstain
19,189,476	1,477,769	11,484

4B. To establish procedures for allocating certain corporate opportunities between us and Chiesi while Chiesi and its affiliates beneficially own at least 50% of our outstanding common stock (on a fully diluted basis).

Number of Shares
For	Against	Abstain
19,100,063	1,567,383	11,283

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5. To approve an amendment to our certificate of incorporation that deletes Article Eleventh, consisting of the following subproposals:

5A. To eliminate a provision stating that only our board of directors, the Chairman of our board of directors or our Chief Executive Officer may call a special meeting of our stockholders.

Number of Shares
For	Against	Abstain
19,441,790	1,225,865	11,074

5B. To eliminate the requirement that any amendment to Article Eleventh be approved by the affirmative vote of 75% of the votes which all of our stockholders would be entitled to cast in any election of directors (so that any future amendment to Article Eleventh will require the approval of a simple majority of the outstanding shares entitled to vote on the amendment).

Number of Shares
For	Against	Abstain
19,487,699	1,179,725	11,305

6. To approve an amendment to our certificate of incorporation to add a new Article Eleventh in which we elect not to be subject to Section 203 of the Delaware General Corporation Law, an anti-takeover statute.

Number of Shares
For	Against	Abstain
20,495,129	170,745	12,855

7. To adjourn the special meeting, if necessary, to solicit additional proxies in favor of any of the proposals set forth above.

Number of Shares
For	Against	Abstain
19,160,536	1,506,790	11,403

     The number of shares of common stock eligible to vote as of the record date of July 30, 2009 was 24,800,316 shares.

ITEM 6. EXHIBITS

The exhibits listed in the accompanying exhibit index are filed as part of this quarterly report on Form 10-Q, and such exhibit index is incorporated by reference herein.

SIGNATURES

     Pursuant to the requirements 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.

	CORNERSTONE THERAPEUTICS INC.
Date: November 4, 2009	/s/ Craig Collard Craig Collard
	President and Chief Executive Officer
	(Principal Executive Officer)
Date: November 4, 2009	/s/ David Price David Price
	Executive Vice President, Finance and Chief Financial Officer
	(Principal Financial Officer)

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EXHIBIT INDEX

Exhibit No.	Description
3.1	Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004).
3.2	Amendment to the Registrant’s Certificate of Incorporation, effecting a 10-to-1 reverse stock split of the Registrant’s common stock (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K dated October 30, 2008).
3.3	Amendment to the Registrant’s Certificate of Incorporation, changing the name of the corporation from Critical Therapeutics, Inc. to Cornerstone Therapeutics Inc. (incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K dated October 30, 2008).
3.4	Amendment to the Registrant’s Certificate of Incorporation, effecting certain changes pursuant to the Governance Agreement dated May 6, 2009 with Chiesi Farmaceutici S.p.A. (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K dated August 27, 2009).
3.5	Fourth Amended and Restated Bylaws of the Registrant dated July 28, 2009 (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K dated July 27, 2009).
10.1	Asset Purchase Agreement between Oscient Pharmaceuticals Corporation and Cornerstone BioPharma, Inc. dated July 13, 2009 (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated July 13, 2009).
10.2+	License and Option Agreement between LG Life Sciences, Ltd. and Cornerstone BioPharma, Inc. (as assignee of Oscient Pharmaceuticals Corporation) dated October 22, 2002, as amended by Amendment No. 1 dated November 21, 2002, Amendment No. 2 dated December 6, 2002, Amendment No. 3 dated October 16, 2003, Amendment No. 4 dated March 31, 2005, Amendment No. 5 dated February 3, 2006, Amendment No. 6 dated February 3, 2006 and Amendment No. 7 dated December 27, 2006.
10.3	Lease Modification Agreement No. 1, dated October 31, 2008, to Lease Agreement between Crescent Lakeside, LLC and the Registrant (as assignee of Cornerstone BioPharma Holdings, Inc.) dated May 1, 2008.
10.4	Lease Modification Agreement No. 2, dated October 2, 2009, to Lease Agreement between Crescent Lakeside, LLC and the Registrant (as assignee of Cornerstone BioPharma Holdings, Inc.) dated May 1, 2008.
10.5	Second Amendment, dated July 27, 2009, to Amended and Restated Restricted Stock Agreement between Cornerstone BioPharma Holdings, Inc. and David Price dated October 31, 2008.
31.1	Certification of Principal Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Principal Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Principal 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 Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

+ Portions of the exhibit have been omitted pursuant to a request for confidential treatment, which portions have been separately filed with the Securities and Exchange Commission.

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EX-10.2

Exhibit 10.2

LICENSE AND OPTION AGREEMENT

     THIS LICENSE AND OPTION AGREEMENT (the “Agreement”) is made this 22nd day of October, 2002 (the “Effective Date”) by and between GENESOFT PHARMACEUTICALS, INC., a Delaware corporation having its principal place of business at 7300 Shoreline Court, South San Francisco, CA, USA 94080 (“GS”) and LG LIFE SCIENCES, LTD., a corporation organized under the laws of the Republic of Korea having its principal place of business at LG Twin Tower, 20 yoido-dong, Youngdungpo-gu, Seoul, 150-721, Republic of Korea (“LGLS”). LGLS and GS are sometimes referred to herein individually as a “Party” and collectively as the “Parties”.

RECITALS

WHEREAS:

LGLS is the owner of all right, title and interest in certain patents and know-how relating to Gemifloxacin (as hereafter defined); and

LGLS is the owner or licensee of certain patent rights, know-how, trademark rights and other intellectual property related to Gemifloxacin; and

LGLS wishes to license to GS the foregoing intellectual property rights to enable GS to develop and commercialize Gemifloxacin in the Territory (as hereafter defined) and in the Field (as hereafter defined) and GS wishes to obtain such a license, all on the terms and conditions set forth herein;

     NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, the Parties hereto agree as follows:

ARTICLE 1
DEFINITIONS

     When used in this Agreement, the following terms shall have the meanings indicated below.

     1.1 “Active Pharmaceutical Ingredient” or “API” means Gemifloxacin in active bulk form meeting the API Specifications.

     1.2 “Additional Indication” means an FDA-approved indication or formulation for Gemifloxacin within the Field other than the Initial Indication(s).

     1.3 “Affiliate” means an individual, trust, business trust, joint venture, partnership, corporation, association or any other entity which (directly or indirectly) is controlled by,

[***] Confidential portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission.

1

controls or is under common control with a Party. For the purposes of this definition, the term “control” (including, with correlative meanings, the terms “controlled by” and “under common control with”) as used with respect to any Party, shall mean the possession (directly or indirectly) at least 50 percent of the outstanding voting securities of a corporation or comparable equity interest in any other type of entity.

     1.4 “API Specifications” shall mean the specifications for Active Pharmaceutical Ingredient attached hereto as Schedule 1.4.

     1.5 “Combination Product” means a product consisting of Gemifloxacin and at least one other biologically active ingredient.

     1.6 “Commercialization” means all activities undertaken relating to the marketing, promotion, distribution, use, storage, sale and offer for sale of a Product in the Territory including, without limitation, advertising and any Phase IV clinical trials.

     1.7 “Development” means:

          (a) all activities relating to obtaining and/or maintaining Regulatory Approval of the Product in the Territory for the Initial Indication including, without limitation, clinical trials and the preparation, submission, review and development of data or other information related thereto;

          (b) Phase IV clinical trials supporting pre-launch and commercialization of the Product but not contributing to obtaining and/or maintaining Marketing Authorization Applications of the Product for the Initial Indication and any Additional Indications in the Territory;

          (c) all activities relating to obtaining and/or maintaining Marketing Authorization of Product for an Additional Indication in the Territory, including Phase III clinical trials and the preparation, submission, review and development of data or other information related thereto; and

          (d) all formulation studies for intravenous administration and any other new formulation of the Product.

The term “Development” shall not include process development or final finish or fill of Product.

     1.8 “EMEA” means the European Agency for the Evaluations of Medical Products.

     1.9 “FDA” means the U.S. Food and Drug Administration.

     1.10 “Field” means [***].

[***] Confidential portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission.

2

     1.11 “Final Product” means the Product in final form for commercialization and distribution, labeled in accordance with applicable regulatory requirements and custom and meeting the Final Product Specifications.

     1.12 “Final Product Specifications” means the specifications for Final Product attached hereto as Schedule 1.12.

     1.13 “Fully Burdened Cost of Manufacture” means: [***]

     1.14 “Gemifloxacin” means the racemic compound whose mesylate is represented on Schedule 1.14 hereto as well as the pharmaceutically acceptable salts, physiologically hydolyzable esters, and solvates thereof, but excluding either enantiomer alone. The mesylate salt of Gemifloxacin is also known under the trademark Factive^®.

     1.15 “GLAXO” means GlaxoSmithKline plc and its Affiliates.

     1.16 “GLAXO Agreement” means a certain Termination and Transfer Agreement dated on or about October 14, 2002, by and among GLAXO (including certain of its Affiliates) and LGLS (including its Affiliate LG Chem Investment, Ltd.).

     1.17 “GLAXO Know-how” means that Information relating to the Product identified on Schedule 1.17 hereto.

     1.18 “GLAXO Patents” means those patents and patent applications shown on Schedule 1.18 hereto and the equivalents thereof in all countries in the Territory and patents issuing from such patent applications, as well as divisionals, continuations, continuations-in-part, reissues, reexaminations, renewals, extensions, utility models, additions and supplementary protection certificates to any such patents and patent applications which are necessary or useful for the development, use, importation, manufacture, formulation, packaging, sale or offer for sale of Product in the Territory.

     1.19 “GS” means Genesoft Pharmaceuticals, Inc. and its Affiliates.

     1.20 “GS Know-how” means all Information relating to the Product developed by GS as a result of its activities under this Agreement and any and all patent applications and patents covering or claiming any such Information.

     1.21 “Information” means, whether or not patentable: (i) techniques and data including inventions, practices, methods, know-how, data (including pharmacological, toxicological and clinical test data, regulatory submissions and data and analytical and quality control data), marketing, distribution, and sales data or descriptions, (ii) compounds, compositions of matter, assays and biological materials, and (iii) dossiers of information necessary for Regulatory Approvals.

[***] Confidential portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission.

3

     1.22 “Initial Indication(s)” means the first indication(s) for a Product approved by Regulatory Authorities anywhere in the Territory, formulated in the manner so approved.

     1.23 “Launch” means the first commercial sale of a Product in a country in the Territory by GS or any of its Affiliates or sub-licensees following receipt of Regulatory Approval in such country.

     1.24 “[***]” shall mean that compound represented on Schedule 1.24 hereto, as well as [***].

     1.25 “LGLS” means LG Life Sciences, Ltd. and its Affiliates.

     1.26 “LGLS Know-How” means all Information now or hereafter within the Control of LGLS necessary or useful for the Development or Commercialization of the Product in the Territory, or for the filling, labeling and packaging of the Product anywhere in the world for use or sale in the Territory.

     1.27 “LGLS Patents” means: (i) those patents and patent applications shown on Schedule 1.27 attached hereto and the equivalents thereof in all countries in the Territory, (ii) all patents issuing from such patent applications, divisionals, continuations, continuations-in-part, reissues, reexaminations, renewals, extensions, utility models, additions and supplementary protection certificates to any such patents and patent applications, and (iii) all patents and patent applications now or hereafter owned or controlled by LGLS necessary or useful for the development, use, importation, formulation, packaging, sale or offer for sale of Product in the Territory.

     1.28 “Marketing Authorization Application” means an application for Regulatory Approval required before commercial sale or use of the Product in the Field in a regulatory jurisdiction in the Territory.

     1.29 “Memorandum of Understanding” means an agreement between the Parties so titled and dated August 23, 2002.

     1.30 “Net Sales” means, with respect to a Product that is not a Combination Product, the gross receipts representing sales of Product to Third Parties by GS and its Affiliates and sub-licensees in the Territory, less deductions for the following items:

(i) reasonable transportation and insurance charges borne by the selling party,

(ii) sales and excise taxes or customs duties paid by the selling party and any other governmental charges imposed upon the sale of the Product,

(iii) rebates or allowances actually granted or allowed, including government and managed care rebates,

[***] Confidential portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission.

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(iv) quantity discounts, cash discounts or chargebacks actually granted, allowed or incurred in the ordinary course of business in connection with the sale of the Product, and

(v) allowances or credits to customers, not in excess of the selling price of the Product, on account of governmental requirements, rejection, outdating, recalls or return of the Product.

Sales between GS and its Affiliates and sub-licensees shall be excluded from the computation of Net Sales and no royalties shall be payable on such sales. With respect to a Combination Product, [***].

     1.31 “Patent Expenses” means governmental fees and the reasonable fees and expenses of outside counsel and payments to Third Parties incurred after the Effective Date in connection with the preparation, filing, prosecution and maintenance of patents or patent applications, including the costs of patent interference, opposition and revocation proceedings related thereto or to any Third Party patents containing claims which cover the manufacture, use, sale, offer for sale, importation or exportation of Product in the Territory.

     1.32 “Product” means any compound including Gemifloxacin as an active ingredient.

     1.33 “Regulatory Approvals” means all approvals (including pricing and reimbursement approvals) and licenses, registrations or authorizations of a Regulatory Authority, necessary for the use, import, storage, export, transport, filling, labeling, packaging (to the extent that filling, labeling or packaging are carried out by GS or its Affiliates) or sale of a Product in a regulatory jurisdiction in the Territory. “Regulatory Approval” shall not, however, include any regulatory approvals related to the manufacture of API and supply of API by LGLS to GS as contemplated herein.

     1.34 “Regulatory Authority” means a governmental entity with the authority to grant Regulatory Approvals.

     1.35 “Steering Committee” means the entity described in Article 3, below.

     1.36 “Territory” means the United States of America, Canada, Mexico, France, Germany, the United Kingdom, Luxembourg, Ireland, Italy, Spain, Portugal, Belgium, the Netherlands, Austria, Greece, Sweden, Denmark, Finland, Norway, Iceland, Switzerland, Andorra, Monaco, San Marino and Vatican City.

     1.37 “Third Party” means an entity or person other than LGLS or GS or their respective Affiliates.

     1.38 “Trademarks” means those trademarks, trade names, domain names and logos identified on Schedule 1.38 hereto.

[***] Confidential portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission.

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ARTICLE 2
PRODUCT DEVELOPMENT

     2.1 Scope of Development. Upon the Effective Date, GS will assume lead responsibility for Development throughout the Territory for the Initial Indication(s), in consultation with LGLS. Following the Effective Date GS shall in good faith establish internal and external competence and controls appropriate for the assumption of full responsibility for Development for the Initial Indication and, on notice to LGLS not later than the date on which first Regulatory Approval is received in the Territory LGLS shall, to the extent permitted by law, transfer to GS ownership of all pending Marketing Authorization Applications and Regulatory Approvals including, without limitation, New Drug Application Nos. 21-158 and 21-376 (the “NDA”). Following the Effective Date, GS shall have sole responsibility for such Additional Indications as GS, in its sole discretion, elects to pursue; provided, however, that GS shall notify LGLS prior to filing a Marketing Authorization Application for any Additional Indication.

     2.2 Development Effort. GS shall carry out its responsibilities under Section 2.1 using reasonable efforts consistent with prudent business judgment, and in accordance with all applicable legal and regulatory requirements including, without limitation, then-current Good Laboratory Practices, and Good Clinical Practices.

     2.3 Ownership of Regulatory Approvals. Following the transfer of ownership provided in Section 2.1, above, all Marketing Authorization Applications shall be filed and maintained in the name of GS and GS shall be the owner of all resulting Regulatory Approvals. Through meetings of the Steering Committee, GS shall: (i) keep LGLS informed regarding the schedule and progress for the preparation and submission of Marketing Authorization Applications in the Territory, and (ii) permit LGLS a reasonable opportunity to comment on such Marketing Authorization Applications.

     2.4 Communication with Regulatory Authorities. GS shall have primary responsibility for dealing with Regulatory Authorities in the Territory, including filing all supplements and other documents with such authorities with respect to obtaining Regulatory Approvals, reporting all adverse drug experiences related to the Product, and handling all Product complaints. At each meeting of the Steering Committee, GS shall provide to the Steering Committee a report describing the regulatory filing status of each Product throughout the Territory.

     2.5 Costs of Development. All Development expenses shall be borne by GS. Without limiting the foregoing, within 30 days after receipt of an appropriate invoice from LGLS, GS shall reimburse LGLS for Development expenses in the Territory incurred between August 23, 2002 and the Effective Date, as contemplated by the Memorandum of Understanding; provided, however, that the amount of reimbursement due for LGLS activities during such period in the Territory but outside of the United States of America shall not exceed [***] unless GS shall have previously approved such excess.

[***] Confidential portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission.

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ARTICLE 3
MANAGEMENT OF THE COLLABORATION

     3.1 Steering Committee. Within 30 days after the Effective Date, LGLS and GS shall create a Steering Committee consisting of an equal number of qualified representatives of each Party. A Party may change or replace its representatives on the Steering Committee as it deems appropriate, by notice to the other Party. Each Party will designate one of its members of the Steering Committee as co-chairperson. The co-chairperson appointed by each Party shall be empowered to bind such Party to decisions of the Steering Committee to the extent contemplated herein.

     3.2 Meetings of the Steering Committee. The Steering Committee shall hold meetings at such times and places as shall be determined by the co-chairpersons. The meetings shall be held no less frequently than once every six months in the period from the Effective Date through the third year after the first Launch in the United States of America, and not less than once every 12 months thereafter. Steering Committee meetings may be held in person or by telephone or video conference. The co-chairpersons shall alternate in keeping written minutes that shall reflect the decisions taken at the meetings. Such minutes shall be circulated to the Steering Committee for review and approval within two weeks after each meeting.

     3.3 Function of the Steering Committee. The Steering Committee shall coordinate the activities of the Parties under this Agreement, and perform such other functions as appropriate to further the purposes of this Agreement as determined by the Parties.

     3.4 Decision Making. To the extent feasible, the Steering Committee shall make decisions and take actions [***].

     3.5 Limitations of Powers of the Steering Committee. The Steering Committee shall have only such powers as are expressly delegated to it in this Agreement. The Steering Committee is not a substitute for the rights or the obligations of the Parties and, inter alia, shall not have the authority to amend this Agreement.

     3.6 Liaison Manager. Each Party will designate one of its members of the Steering Committee to act as its liaison manager to facilitate the performance of its rights and satisfaction of its obligations hereunder.

     3.7 Development and Commercialization Outside the Territory. LGLS shall have the sole responsibility for development and commercialization of the Product outside of the Territory. LGLS shall regularly disclose to GS its plans for such development and afford GS a reasonable opportunity to comment thereon. During the term of this Agreement, LGLS shall assure that its development of Product outside of the Territory (whether directly or through one or more sub-licenses) is conducted in a manner which minimizes the risk of disruption of or other adverse effects on the development and commercialization of the Product in the Territory by GS as contemplated herein. Without limiting the foregoing: [***]. At LGLS’s request, the

[***] Confidential portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission.

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Parties shall in good faith discuss the matters for which GS approval or consultation is required pursuant subsections (ii) and (iii), above, at each meeting of the Steering Committee.

ARTICLE 4
COMMERCIALIZATION

     4.1 Commercialization Efforts. Commencing on the Effective Date, and subject to Section 4.3, below, GS shall be responsible for carrying out Commercialization, at its sole expense, using reasonable efforts consistent with prudent business judgment. GS, directly or through one or more Affiliates or sub-licensees, shall [***].

     4.2 Pricing in the Territory. GS shall [***] obtain such Product pricing approvals as may be required in each country of the Territory. GS shall be free to set the sale price of the Product in the Territory as it deems appropriate.

     4.3 Co-Promotion. (a) LGLS shall have the option, exercisable on notice to GS prior to July 1, 2007, to co-promote Product in the Territory commencing on January 1, 2008. If LGLS timely exercises this option, the Parties shall promptly and in good faith negotiate a co-promotion agreement which establishes their respective rights and obligations, which agreement shall become effective on January 1, 2008. [***].

     (b) If LGLS exercises its option pursuant to subsection (a), above, all GS royalty obligations under Section 10.4, below, shall terminate with respect to Product sales occurring on or after January 1, 2008, but GS’s obligations under Section 10.2 shall remain in full force and effect.

ARTICLE 5
MANUFACTURE AND SUPPLY

     5.1 General. (a) The intent of the Parties is that: (i) between the Effective Date and July 1, 2004, LGLS shall supply to GS, and GS shall exclusively purchase from LGLS all of GS’s requirements of Product in final form according to the Final Product Specifications, and (ii) following July 1, 2004 LGLS shall supply to GS, and GS shall purchase from LGLS all of GS’s requirements of Product in bulk form according to the API Specifications, with final finish and fill to be provided either by LGLS or a Third Party, as provided in Section 5.1(b). The terms and conditions of LGLS supply pursuant to subsection (i) are as set forth in this Article 5. The terms and conditions of LGLS supply pursuant to subsection (ii) shall be set forth in a supply agreement to be entered into as provided in Section 5.2.

     (b) The Parties acknowledge that secure long-term supply of Product for GS is essential to the success of the relationship reflected herein. No later than December 31, 2002 that Parties shall identify and, to the extent practicable, contractually commit to a long-term final

[***] Confidential portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission.

8

finish and fill facility for the Product. Either the Parties will jointly agree on a Third Party or LGLS shall commit to provide these services, either directly through the acquisition of a U.S.-based facility or by contract with a mutually acceptable third party. If LGLS elects to provide these services, it shall notify GS to that effect no later than December 31, 2002. Regardless of whether final finish and fill is provided by LGLS or through a Third Party, GS shall have the right to approve the site selected for final finish and fill, which approval shall not be unreasonably withheld.

     5.2 Supply Agreement. Not later than December 31, 2002, the Parties shall complete and enter into a supply agreement covering the supply of API by LGLS for the remainder of the term of this Agreement. Such supply agreement shall be consistent with the terms and conditions of this Agreement with respect to supply of Final Product and shall include such other terms and conditions as the Parties may mutually agree including, without limitation, adequate provision for API shortages and supply interruption events to assure GS a secure long-term source of supply of API as well as license to GS or its designee of the right to manufacture API in the event that LGLS fails to supply. The supply price for API provided under the Supply Agreement shall be equal to [***] percent of LGLS’s Fully Burdened Cost of Manufacturing for API supplied thereunder, which shall in no event [***]$[***] per kg [***]$[***] per kg. In addition, the supply agreement shall provide that: (i) if GS purchases more than [***] kg of API in any calendar year, the $[***]supply price shall be reduced by $[***] for each [***]kg of API purchased in such year in excess of [***] kg, and (ii) the bulk supply price (including the [***] such price) shall be renegotiated in good faith in the event that [***] purchases more than [***] kg of API in any 12 month period.

     5.3 Manufacturing Approvals. GS shall be promptly notified of any proposed change in the process for the manufacture of Product pursuant to this Article 5 which potentially impacts the Marketing Authorization Applications or Regulatory Approval in the Territory including, without limitation, any proposed change as to the site at which such manufacture is to occur. No Product incorporating any such proposed change and no Product manufactured at any proposed new facility shall be supplied by LGLS to GS hereunder without such changes having first been approved by the appropriate Regulatory Authorities or by mutual agreement by the Parties, which regulatory approvals the Parties agree to pursue diligently following notice from LGLS of such proposed changes.

     5.4 Specifications. LGLS warrants that the Product it supplies hereunder shall meet the Final Product Specifications, and shall have been manufactured in accordance with all applicable laws and regulations including, without limitation, then-current Good Manufacturing Practice (“GMP”) compliance standards.

     5.5 Purchase Order and Forecasting. On or before the later of: (i) December 31, 2002, or (ii) three business day after the date on which the NDA is accepted by the FDA, GS shall place a [***] for the amount of Product produced to Final Product Specifications which [***]. On [***], GS shall provide to LGLS a [***] forecast of [***]. As shall be provided in the

[***] Confidential portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission.

9

supply agreement, this forecast shall be updated by GS on [***] of each calendar year for the following [***]. Within [***] after receipt of each such forecast, LGLS shall provide to GS a [***] forecast of the Fully Burdened Cost of Manufacturing of the supply forecast by GS.

     Without limiting the foregoing, GS shall use [***] to provide LGLS with supply orders for the delivery of Final Product or API within the following dates:

(i)	[***], GS shall provide its supply orders for delivery during the [***];
(ii)	[***], GS shall provide its supply orders for delivery during the [***];
(iii)	[***], GS shall provide its supply orders for delivery during the [***]; and
(iv)	[***], GS shall provide its supply orders for delivery during the [***].

     5.6 Delivery. The first order of [***] placed by GS pursuant to Section 5.5 shall be delivered to GS no more than [***] to the date on which the Parties in good faith anticipate receipt of final FDA approval of the Product for the Initial Indication(s). All deliveries of Product shall be made Ex Works (“EXW”) as such term is defined in the INCOTERMS 2000. Title to the Product and all risks of loss or damage to Product shall remain with LGLS until Product is delivered to the carrier for shipment at the EXW point, at which time title and all risks of loss or damage shall transfer to GS. LGLS agrees, in accordance with GS’s reasonable written instructions, to arrange for shipping and insurance, to be paid by GS from the EXW point to such locations as are requested by GS.

     5.7 Inspection and Rejection.

          5.7.1 GS shall, [***] upon receipt of a shipment of Product from LGLS, inspect such shipment for defects that cause the Product to deviate from the Final Product Specifications (other than those resulting subsequent to delivery of Product to GS). If GS discovers such a defect, GS may reject such defective Product, and shall promptly notify LGLS in writing of the rejection and the reason therefor.

          5.7.2 Any rejection of defective or non-conforming Product by GS must occur within [***] from delivery, failing which GS shall be deemed to have accepted such shipment and to have irrevocably waived any claims it may have with respect to such shipment failing to meet the Final Product Specifications.

          5.7.3 At the request of LGLS, GS shall either allow a representative of LGLS to inspect the rejected Product and to make a determination as to the cause of the defect, or return a

[***] Confidential portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission.

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sample of the defective Product to LGLS for such inspection. If LGLS disagrees with GS’s determination, it shall notify GS within [***] after inspection by LGLS as provided in this Section 5.7.3, whereupon the Parties shall select an independent laboratory to draw a sample and determine whether such Product in fact conformed to the Final Product Specifications at the time of delivery to GS. The determination of such independent laboratory shall be final. The Party whose determination was not accurate shall bear the cost of the independent analysis.

          5.7.4 At the request and expense of LGLS, Product under the control of GS found to be defective shall be returned to LGLS (if by permitted by law) or disposed of in accordance with LGLS’s lawful instructions. With respect to payments previously made by GS with respect to defective Product, GS shall be entitled, at its discretion, either to a refund or a credit against amounts otherwise due to LGLS for supply hereunder.

     5.8 Remedies.

          5.8.1 If GS asserts that a shipment of Product was defective or non-conforming at the time of delivery to GS, LGLS shall as soon as practical replace the rejected or disputed Product, pending resolution of the question of whether such original shipment was or was not defective.

          5.8.2 The remedies set forth in this Article 5 are GS’s [***] for claims by GS against LGLS based on Product supplied by LGLS pursuant to this Agreement not conforming to the Final Product Specifications.

     5.9 Supply Price and Payment Mechanism.

          5.9.1 Product for use by GS non-commercial purposes (including, without limitation, clinical trials and for pre-Launch compassionate use) shall be supplied by LGLS at[***].

          5.9.2 Product for commercial use shall be supplied by LGLS at [***].

          5.9.3 Payment for API and Final Product supplied by LGLS hereunder shall be due [***] after delivery to GS’s premises pursuant to Section 5.6, above; provided, however, that payment for the [***] ordered by GS pursuant to Section 5.5, above, shall be due in two equal installments. The first such installment shall be due [***] after delivery to GS’s premises pursuant to Section 5.6, above, and the second such installment shall be due [***] after the first installment is due.

          5.9.4 Notwithstanding the foregoing, in the event that any of the Product ordered by and delivered to GS pursuant to this Article 5 is unused by GS because of: (i) the expiration of FDA- or EMEA- approved Product dating, or (ii) commercial considerations which make such Product unusable (including, without limitation, because the Product is not approved by the FDA or the EMEA), GS shall return such unused Product to LGLS (or at LGLS’s request

[***] Confidential portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission.

11

and expense lawfully dispose of such Product). LGLS shall be responsible for the [***] of such returned Product and, if GS has previously paid for such Product, shall give GS a credit or prompt reimbursement for such amount. GS shall be responsible for the [***] associated with such returned Product.

     5.10 Release Certificate. LGLS shall provide to GS with each delivery of Final Product a Release Certificate, a Certificate of Analysis and a Certificate of Compliance signed by a responsible person duly authorized by LGLS to certify the quality of the API delivered, each in a form reasonably acceptable to GS. The Release Certificate shall, inter alia, state that the results of the agreed upon testing procedures are in compliance with the Final Product Specifications as well as any additional applicable requirements of Regulatory Authorities. Without limiting the foregoing, unless expressly agreed by the Parties all Final Products supplied hereunder shall meet all release criteria established by the FDA or EMEA with respect to such Final Product.

     5.11 Production Records. LGLS shall maintain records related to its manufacture and handling of Final Product in accordance with the applicable rules and regulations and conditions of its licensure (including applicable rules of the FDA and EMEA and any other applicable regulatory requirements for record retention), for the longer of: (i) [***] years after the date of manufacture of each batch of API, and (ii) the period required by applicable law. LGLS shall notify GS of any intent to destroy or dispose of records related to the manufacture or handling of API and allow GS an opportunity to secure said records for additional storage periods in accordance with the written procedures of GS or its designee. Upon GS’s request with no fewer than five days’ prior notice, and at GS’s sole expense, LGLS shall send to GS copies of the relevant documents or permit GS or an independent auditor selected by GS to have access to such records from time to time during ordinary business hours to verify compliance by LGLS with such rules and regulations. The provisions set forth in this section shall survive termination of the Agreement for a period of 10 years.

     5.12 Post Expiration Supply. The Parties recognize that following the expiration of the term of this Agreement GS may (or may not) continue to sell Product under the Trademark as contemplated by Sections 10.4 and 11.4. In the event that GS does so and in the further event that LGLS or any Affiliate of LGLS is at such time producing API in commercial quantities, LGLS shall offer to supply API to GS on a [***].

ARTICLE 6
CONFIDENTIALITY

     6.1 Confidentiality; Exceptions. The receiving Party shall keep confidential and shall not publish or otherwise disclose or use for any purpose other than as provided for in this Agreement any Information and other information and materials furnished to it by the other Party pursuant to this Agreement, or any provision of this Agreement that is the subject of an effective

[***] Confidential portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission.

12

order of the Securities Exchange Commission granting confidential treatment pursuant to the Securities Act of 1934, as amended (collectively, “Confidential Information”), except to the extent that it can be established by the receiving Party that such Confidential Information:

(i)	was already known to the receiving Party at the time of disclosure by the other Party;
(ii)	was generally available to the public or otherwise part of the public domain at the time of its disclosure to the receiving Party;
(iii)	became generally available to the public or otherwise part of the public domain after its disclosure by the disclosing Party and other than through any act or omission of the receiving Party in breach of this Agreement;
(iv)	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 to others; or
(v)	was developed by the receiving Party’s employees without the use of or access to confidential information of the disclosing Party, as demonstrated by contemporaneous written records of the receiving Party.

     6.2 Authorized Disclosure. A Party may disclose Confidential Information of the other Party to the extent such disclosure is reasonably necessary in filing or prosecuting patent applications, prosecuting or defending litigation, complying with applicable governmental regulations or conducting pre-clinical or clinical trials, provided that if a Party is required by law to make any such disclosure it will, to the extent practicable, give reasonable advance notice to the other Party of such disclosure requirement and, except to the extent inappropriate in the case of patent applications, use reasonable efforts to secure confidential treatment of such Confidential Information required to be disclosed. In addition, each Party shall be entitled to disclose Confidential Information, under a binder of confidentiality containing provisions as protective as those of this Article 6, to a Third Party for the purpose of carrying out activities authorized under this Agreement, including disclosures to authorized or potential sub-licensees. Nothing in this Article 6 shall restrict any Party from using for any purpose outside the Field any Information developed by it during the course of the collaboration hereunder.

     6.3 Survival. This Article 6 shall survive the expiration or termination of this Agreement for a period of five years; provided, however, that Confidential Information regarding LGLS’s manufacturing process for API shall be kept confidential by GS during the term of this Agreement and for a further period of 10 years after the expiration or termination of this Agreement, subject to the exceptions in Section 6.1, above.

ARTICLE 7
INFORMATION AND REPORTS

     7.1 Information and Reports During Development and Commercialization.

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          7.1.1 To the extent permitted by law, GS and LGLS will each regularly disclose and make available to the other without charge all Information (including, without limitation, copies of all pre-clinical and clinical reports and training, marketing and promotional materials) known to them. Without limiting the foregoing, promptly following the Effective Date, and at reasonable intervals thereafter, LGLS shall disclose and transfer to GS all LGLS Know-how and GLAXO Know-how and GS shall disclose and transfer to LGLS all GS Know-how.

          7.1.2 Upon reasonable prior notice, each Party shall have the right to: (i) review the raw data generated in any clinical trial conducted by the other Party with respect to Product, (ii) visit clinical investigators and centers involved in performance of such clinical trials, and (iii) discuss any such clinical trial and its results in detail with such clinical investigators.

     7.2 Publicity Review.

          7.2.1 Neither Party shall originate any publicity, news release, or other announcement disclosing any non-public terms of this Agreement (collectively, “Disclosure”), without the prior prompt review and written approval of the other, which approval shall not be unreasonably withheld. Once specific information has been approved for disclosure, that information may be reiterated in any subsequent Disclosure without further approval; provided, however, that the Parties shall, to the extent lawful, maintain the confidentiality of financial information contained in this Agreement and resulting from the activities contemplated hereunder.

          7.2.2 Notwithstanding Section 7.2.1, a Party may make any Disclosure it believes in good faith based upon the advice of its counsel or its auditors is required by applicable law and without the prior approval of the other Party may make such disclosures as are required by the rules or regulations of the U.S. Securities and Exchange Commission or its relevant foreign counterpart. With respect to disclosures other than those required under such rules or regulations, prior to making such Disclosure, the disclosing Party shall provide the other Party with a written copy or rendition of the materials proposed to be disclosed and provide the receiving Party with an opportunity to promptly review the proposed Disclosure.

     7.3 Use of Names. Except as required by law or in furtherance of the exercise of its rights hereunder, neither Party shall use the name of the other in any public announcement, press release or other public document related to this Agreement or the understanding reflected herein without the written consent of such other Party, which consent shall not be unreasonably withheld or delayed. No such approval shall be required to republish a disclosure previously made or otherwise in the public domain.

     7.4 Adverse Drug Events. Each Party shall promptly report to the other Party any adverse event observed during any use of a Product. Prior to the first commercial sale of a Product in the Territory, the Parties shall in good faith enter into a data safety exchange agreement consistent with applicable law and regulatory requirements and practices in the United States and European Union.

     7.5 Recall

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          7.5.1 Any necessary recall of Product or any batch of Product from the market in the Territory shall be effected by GS at GS’s reasonable discretion following, to the extent practicable, consultation with LGLS. Upon any Product recall, any then-pending orders of Product pursuant to Article 5, above, shall be suspended until the reinstatement of the Product or revocation of the recall.

          7.5.2 If any Product is recalled either: [***], then GS shall bear all costs and expenses of such recall including, without limitation, expenses or obligations to Third Parties, the cost of notifying end users and costs associated with shipment of any recalled Products from end users and destruction of such Products.

          7.5.3 If any Product is recalled as a result of [***], then LGLS shall bear all costs and expenses of such recall including, without limitation, refund of the supply price of the recalled Products, expenses or obligations to Third Parties, the cost of notifying end users and costs associated with shipment of any recalled Products from end users and destruction of such Products.

          7.5.4 If a recall of Products is necessary for reasons attributable in part to each of the Parties, then LGLS and GS shall be responsible for a proportionate share of such recall costs on the basis of their respective responsibilities with respect to the event justifying the recall.

          7.5.5 In the event of a recall of Products, each Party shall immediately notify the other Party and cooperate in a manner which is appropriate and reasonable under the circumstances.

     7.6 Except as may be expressly provided herein and without prejudice to either Party’s responsibility for Third Party damages as provided for in Article 14, below, no claim for compensation, losses or damages (including, without limitation, punitive, exemplary, incidental or consequential damages) may be made by one Party against the other as a result of any Product recall or any other act or omission of a Party pursuant to this Agreement (including, without limitation, the termination of this Agreement by either Party).

ARTICLE 8
PATENT RIGHTS

     8.1 LGLS Patents and GLAXO Patents. (a) During the term of this Agreement, LGLS shall [***] maintain the LGLS Patents and the GLAXO Patents in the Territory and shall use [***] to convert any currently pending or future filed patent applications into granted patents without [***] delay. LGLS shall use patent counsel selected by LGLS and reasonably approved by GS for such prosecution and maintenance and LGLS shall bear all related Patent Expenses. GS shall cooperate fully with LGLS in all such matters, at GS’s expense.

[***] Confidential portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission.

15

     (b) LGLS shall promptly disclose to GS the text of all LGLS Patents filed after the Effective Date as well as all information received after the Effective Date concerning the institution or possible institution of any interference, opposition, re-examination, reissue, revocation, nullification or any official proceeding involving an LGLS Patent or GLAXO Patent any where in the Territory. GS shall have the right to review all such pending applications and other proceedings and make recommendations to LGLS with respect thereto. LGLS shall keep GS promptly and fully informed of the course of patent prosecution and other proceedings and shall provide GS with copies of all substantive communications, search reports and Third Party observations submitted to or received from patent offices throughout the Territory. All such disclosures shall be considered “Confidential Information” subject to Article 6, above.

     8.2 Abandonment. LGLS shall be free, on at least 30 days’ prior notice to GS, to abandon and stop funding Patent Expenses related to any of the LGLS Patents in any country in the Territory. In such event, GS may, at its sole option, assume and continue prosecution or maintenance of the LGLS Patents and GLAXO Patents in question, and shall thereafter bear all related Patent Expenses. Following such abandonment of a LGLS Patent by LGLS, LGLS shall have no further rights hereunder with respect to the LGLS Patent in question to the extent of such abandonment, and the term “LGLS Patents” shall be deemed to have been modified accordingly. LGLS shall not abandon any GLAXO Patent nor stop funding Patent Expenses related thereto without the prior consent of GS, which consent shall not be unreasonably withheld.

     8.3 Infringement. If either Party learns of an infringement or threatened infringement of the LGLS Patents or GLAXO Patents in the Territory in the Field it shall promptly notify the other Party and shall provide the latter Party with all information reasonably available to the notifying Party evidencing such infringement or threatened infringement. Thereafter, the Parties shall in good faith consult and cooperate in abating such infringement or threatened infringement.

     GS shall have the right, but not the obligation, to bring, defend and maintain any appropriate suit or action for abatement of the infringement or threatened infringement of the LGLS or GLAXO Patents in the Territory and in the Field, at GS’s sole expense. If GS requests LGLS to join GS as a party in such suit or action, LGLS shall execute all papers and perform such other acts as may be reasonably requested by GS, at GS’s expense. LGLS shall have the right to participate in any such suit or action using independent counsel, at its sole expense. Any amount recovered by GS as a result of such suit or action shall first be applied to reimburse each of the Parties, pro rata, for any costs or expenses incurred in bringing, defending and maintaining any such action. The balance (the “Net Recovery”) shall be for the sole benefit of GS. The Net Recovery shall be considered “Net Sales” with respect to the calendar quarter in which payment to GS was received, and royalties shall accordingly be paid on the amount of the Net Recovery exclusively at the rate(s) specified in Section 10.3, below. The Net Recovery shall be considered “Net Sales” for purposes of calculating annual Net Sales in accordance with Milestone 3 and in Section 10.2, below.

     If GS fails to initiate suit or action within 90 days after first notice of infringement or threatened infringement of the LGLS Patents or the GLAXO Patents, or if having initiated such suit or action it thereafter diligently fails to prosecute such suit or action, LGLS shall have the

16

right, but not the obligation, to bring, defend and maintain any appropriate suit or action for abatement of the infringement or threatened infringement, at LGLS’s sole expense. If LGLS requests GS to join LGLS as a party in such suit or action, GS shall execute all papers and perform such other acts as may be reasonably requested by LGLS, at LGLS’s expense. GS shall have the right to participate in any such suit or action using independent counsel, at its sole expense. Any amount recovered by LGLS as a result of such suit or action shall first be applied to reimburse each of the Parties, pro rata, for any costs or expenses incurred in bringing, defending and maintaining any such action. The balance shall be divided equally between the Parties. The amount of any recovery, net of the amounts necessary to reimburse the Parties as provided above shall be considered “Net Sales” for purposes of calculating annual Net Sales in accordance with Milestones 3 and in Section 10.2, below. If such recovery is apportioned by the court such that portions thereof are attributed to infringing activity in different calendar years, or if such apportionment of the recovery can otherwise be readily ascertained, then such apportionment shall govern as to the calendar year(s) in which Net Sales shall be deemed to have occurred for purposes of such Milestones. Otherwise, the amount of such recovery shall be apportioned equally over the number of calendar years in which infringement was found to have occurred (or in the event of a settlement, over the number of calendar years in which it was alleged to have occurred).

     8.4 Third Party Claims. If a Third Party asserts that a patent or other right owned by it is infringed by the development, manufacture, import, use, sale or offer for sale of a Product by GS or its Affiliates or sub-licensees in the Territory in the Field, the Party first obtaining knowledge of such claim shall immediately provide the other Party notice of such claim and the related facts in reasonable detail. In such event, the Parties shall determine how best to control the defense of any such claim. In the event the Parties cannot agree on the defense of such claim, such defense shall be controlled by GS with respect to sales of Product in the Territory and by LGLS with respect to Product sales outside of the Territory. In each such case, the other Party shall have the right, at its own expense, to participate in such defense and to be represented in any such action by counsel of its choice at its sole discretion. With respect to any such claim, the Party entitled to control defense shall also have the right to control settlement of such claim; provided, however, that no settlement shall be entered into without the written consent of the other Party, which consent shall not be withheld unreasonably.

     8.5 Ownership. Subject to Section 9.2, below, each Party shall have and retain sole and exclusive title to all inventions, discoveries and know-how which are made, conceived, reduced to practice or generated solely by its employees or agents in the course of or as a result of this Agreement. Each Party shall own an equal undivided interest in all such inventions, discoveries and know-how made, conceived, reduced to practice or generated jointly by the employees or agents of one Party and the employees or agents of the other Party.

ARTICLE 9
LICENSES and OPTIONS

     9.1 License Grant by LGLS. Subject to the terms and conditions of this Agreement, LGLS hereby grants to GS and GS hereby accepts from LGLS a sole and exclusive license under the LGLS Patents, LGLS Know-How, GLAXO Patents, GLAXO Know-how to use, import,

17

package, sell and offer for sale Products within the Field in the Territory, as well as the exclusive right to use the Trademarks in the Territory in conjunction with the use or sale of Products.

     9.2 License Grant by GS. Subject to the terms and conditions of this Agreement, GS hereby grants to LGLS and LGLS hereby accepts from GS a [***] license under the GS Know-How to develop, use, import, formulate, package, sell and offer for sale Products outside of the Territory. Without limiting the foregoing, the Parties agree that any patent application filed by or on behalf of GS prior to January 1, 2010 which covers or claims any novel use or formulation or means of administration of Product shall be jointly owned by the Parties regardless of inventorship, and to the extent of LGLS’s ownership interest shall be considered an “LGLS Patent” for purposes of this Agreement. At LGLS’s request GS shall take all steps reasonably required to assign to LGLS its joint ownership interest.

     9.3 Sub-licensing. GS may sub-license the license granted to it hereunder on prior notice to LGLS. LGLS may sub-license the license granted to it with respect to GS Know-how [***].

     9.4 Use of Licenses. Neither Party shall use or disseminate the Know-how of the other Party other than as expressly provided under this Agreement. In addition, GS warrants that it shall not adapt the GLAXO databases included in the GLAXO Knowhow or software operating on such databases for uses unrelated to the uses of Product authorized herein.

     9.5 [***]. During the period commencing on the Effective Date and ending on December 31, 2002 (the “Negotiating Period”), the Parties shall in good faith negotiate the terms and conditions on which LGLS would grant to GS [***]. During the Negotiating Period LGLS shall not solicit or otherwise participate in any communications with any Third Party regarding [***].

     9.6 DNA Nanobinder Compounds. Schedule 9.6 hereto describes GS’s DNA nanobinder compounds being developed for use in the fields of [***] (each, a “GS Option Field”). Promptly following the completion of the first Phase II clinical trial for a DNA nanobinder compound in each of the GS Option Fields, GS shall notify LGLS and disclose to LGLS all available preclinical and clinical data regarding the use of such DNA nanobinder compound in the GS Option Field in question. During the [***]period following such closure the Parties shall in good faith negotiate the terms and conditions on which GS would grant to LGLS the exclusive right to develop and commercialize such DNA nanobinder compound in the GS Option Field in question in East Asia, including Japan. If the Parties are unable to reach agreement by the end of such [***]period, GS shall be free to develop and commercialize such DNA nanobinder compound in the GS Option Field in question as it sees fit.

     9.7 [***]. In the event that LGLS proposes to grant commercial rights in the Territory with respect [***] to a Third Party, it shall first offer such rights to GS on definitive terms. GS shall have [***] after receipt of such offer to accept, failing which LGLS shall be free to offer

[***] Confidential portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission.

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such rights to a Third Party on overall terms and conditions no more favorable to such Third Party than those offered to GS. In the event that LGLS proposes to develop and commercialize [***] in the Territory directly or in a collaboration with a Third Party, it shall notify GS. Upon request by GS within [***] following such notice, the Parties shall in good faith negotiate commercially reasonable terms and conditions on which GS would receive from LGLS an exclusive license with respect to such proposed development and commercialization. If the Parties are unable to reach such agreement within [***] after GS’s notice, at GS’s request the terms of such an exclusive license shall be set by [***], and the Parties shall promptly execute a license agreement consistent with [***].

ARTICLE 10
PAYMENTS TO LGLS

     10.1 License Fee. Within 45 days following the Effective Date GS shall: (i) pay to LGLS a non-refundable license fee of $5.5 million, and (ii) deliver to LGLS 4,749,659 fully-paid up and non-assessable shares of GS common stock (the “Shares”). GS represents and warrants that the Shares represent 14.0 percent of the total equity of GS on October 22, 2002, calculated on a fully diluted basis. The rights and further characteristics of the Shares (including, without limitation, certain anti-dilution rights) are as set forth in the Stock Purchase Agreement and related documents attached hereto as Schedule 10.1.

     10.2 Milestone Payments. Within [***] after the achievement of each milestone set forth below, GS shall owe to LGLS a non-refundable milestone payment to LGLS in the amount set forth below. Each milestone payment shall be due only once, notwithstanding the number of Products actually developed or commercialized by GS hereunder. Milestone payments 3 and 4, when earned by LGLS, shall be payable [***]. All other milestone payments shall be due [***] after the relevant milestone event.

Milestone Event	Payment
1. Upon FDA approval of the Product for the Initial Indication. If at the time of such approval GS has not received and accepted the first shipment of Product required pursuant to Section 5.8, one half of this milestone shall be deemed to have been earned, with the second half earned upon receipt and acceptance by GS of such shipment	$5.0 million
2. Upon an initial public offering (“IPO”) by GS of its shares or a sale of GS if, at the time of such IPO or sale, Product has been approved for an Initial Indication	$8.0 million

[***] Confidential portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission.

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Milestone Event	Payment
3. Upon both: (i) approval for the first Additional Indication or approval of an IV formulation of the Product, and (ii) annual Net Sales in the Territory reaching $[***]	$	[***]
4. Upon both: (i) approval for a second Additional Indication or approval of an IV formulation of the Product, and (ii) annual Net Sales in the Territory reaching $380 million	$	[***]
5. Upon approval of the Product for an Initial Indication in the United Kingdom	$	[***]
6. Upon approval of the Product for an Initial Indication in the first of Italy, Germany, France or Spain	$	[***]

As used in this Section 10.2, “IV formulation” shall mean a formulation of Product for intravenous administration.

     10.3 Royalty Payments. In addition to the foregoing license fee and milestone payments, GS shall, subject to Sections 4.3 and 10.4, pay to LGLS royalties on Net Sales in each calendar year at the following rates:

Annual Net Sales	Royalty Rate
on the first $100 million	[***] percent
over $100 million to $150 million	[***] percent
over $150 million to $200 million	[***] percent
over $200 million	[***] percent

The Parties acknowledge that LGLS has incurred a royalty obligation to GLAXO at a rate of [***] percent of Net Sales for the use of the GLAXO Patents, the GLAXO Know-how and the Trademarks (the “GLAXO Royalty”). During the first two years following first commercial sale of a Product in the Territory, GS shall be solely responsible for payment of the GLAXO Royalty and shall pay all amounts so due to LGLS in accordance with Sections 10.7 through 10.11, below. Thereafter, LGLS shall be responsible for payment of the GLAXO Royalty and shall indemnify GS and hold GS harmless from and against any claims by GLAXO as a result of such use.

[***] Confidential portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission.

20

     10.4 Term of Royalty Obligations. GS’s obligation to make royalty payments pursuant to Section 10.3 with respect to a Product shall commence on the date of the first commercial sale of such Product in a given country in the Territory and shall continue until the later of: (i) the expiration of the last to expire of the LGLS Patents and GLAXO Patents claiming or covering such Product in such country, and (ii) 10 years after first commercial sale of such Product in such country. Following the expiration of GS’s royalty obligations, GS shall retain a non-exclusive, royalty-free right to use, sell and offer for sale Product in the Territory, using LGLS Know-how and GLAXO Know-how licensed to GS as of the Effective Date and the exclusive right to use the Trademarks for such purposes. GS shall continue to pay to LGLS a royalty in return for such right to use the Trademark, as provided in Section 11.4, below.

     10.5 Royalty Reductions. If GS is required to pay royalties to Third Parties in order to exercise the license granted to GS in Section 9.1, above, with respect to any Product in any country in the Territory, GS will be entitled to deduct [***] percent of the amount due to such Third Parties from the amounts due to LGLS pursuant to Section 10.3, above, with respect to Net Sales of such Product in such country. In no event shall any such royalty reductions in any calendar quarter be more than [***] percent of the royalty payment due to LGLS with respect to such calendar quarter in a given country. Any royalty reduction to which GS would otherwise be entitled may be carried forward by GS and used by GS in a future period (subject to the maximum reductions specified in this Section 10.5).

     10.6 Royalties Payable Only Once; Sales to Affiliates and Sub-Licensees. The obligation to pay royalties is imposed only once with respect to the same unit of each Product. Sales of Products between GS and its Affiliates or sub-licensees, or among such Affiliates and sub-licensees, shall not be subject to royalties under Sections 10.3 but in such cases the royalties shall be calculated on the Net Sales by such Affiliates or sub-licensees to Third Parties.

     10.7 Reports. GS shall deliver to LGLS, within 60 days after the end of each calendar quarter, reasonably detailed written accountings of Net Sales that are subject to royalty payments due to LGLS for such calendar quarter. Such quarterly reports shall indicate gross sales on a country-by-country and Product-by-Product basis. When GS delivers such reports to LGLS, GS shall also deliver all royalty payments due to LGLS hereunder for such calendar quarter.

     10.8 Accounting and Audits.

          (a) GS shall keep, and shall require its Affiliates and sub-licensees to keep, complete and accurate records of the latest five years of sales of Products on which royalties are due hereunder. For the purpose of verifying royalties due to LGLS hereunder, LGLS shall have the right annually, at LGLS’s expense, to retain an independent certified public accountant selected by LGLS and reasonably acceptable to GS, to review such records in the location(s) where such records are maintained by GS, its Affiliates or its sub-licensees upon reasonable notice and during regular business hours and under obligations of confidence. Results of such review shall be made available to both LGLS and GS. If the review reflects an underpayment of

[***] Confidential portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission.

21

royalties to LGLS such underpayment shall be promptly remitted to LGLS, together with [***]. If the underpayment of royalties is equal to or greater than [***], then GS pay all of the costs of such review.

          (b) LGLS shall keep complete and accurate records of the latest five years of supply hereunder sufficient to enable GS to confirm LGLS’s cost of goods. For the purpose of verifying cost of goods, GS shall have the right annually, at GS’s expense, to retain an independent certified public accountant selected by GS and reasonably acceptable to LGLS, to review such records in the location(s) where such records are maintained, upon reasonable notice and during regular business hours and under obligations of confidentiality. Results of such review shall be made available to both LGLS and GS. If the review reflects an overcharge by LGLS, such overcharge shall be promptly remitted to GS, together with interest calculated in the manner provided in Section 10.9, below. If the amount of such overcharge is equal to or greater than [***], then LGLS pay all of the costs of such review. If the review reflects an undercharge by LGLS, GS shall promptly refund the amount of the overpayment to LGLS, together with [***].

     10.9 Currency and Method of Payment. All payments due or payable hereunder shall be made in US Dollars, delivered by wire transfer to such account as LGLS may identify from time to time on notice to GS. Royalty payments due hereunder with respect to sales not denominated in US Dollars shall be converted using the applicable conversion rates quoted in the Wall Street Journal for buying US Dollars in accordance with U.S. generally accepted accounting principles, consistently applied. GS shall pay interest to LGLS on the amount of any payments that are not paid on or before the date such payments are due under this Agreement at a rate of [***] for the applicable period, calculated on the number of days such payment is delinquent.

     10.10 Tax Withholding. The Parties shall use all reasonable and legal efforts to reduce tax withholding on payments made to LGLS hereunder. Notwithstanding such efforts, if GS concludes that tax withholdings under the laws of any country are required with respect to payments due to LGLS, GS shall withhold the required amount and pay it to the appropriate governmental authority. In such a case, GS will promptly provide LGLS with original receipts or other evidence reasonably desirable and sufficient to allow LGLS to document such tax withholdings adequately for purposes of claiming foreign tax credits and similar benefits. No withholding deduction shall be made if LGLS furnishes lawful documentation demonstrating that the payment due is exempt from withholding according to the applicable convention for the avoidance of double taxation between the United States and the Republic of Korea or other applicable law or treaty.

     10.11 Blocked Payments. If, by reason of applicable laws or regulations in any country, it becomes impossible or illegal for GS or its Affiliates or sub-licensees to transfer, or have transferred on its behalf, royalties or other payments due hereunder to LGLS, such royalties or other payments shall be deposited in local currency in the relevant country to the credit of

[***] Confidential portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission.

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LGLS in a recognized banking institution designated by LGLS or, if none is designated by LGLS within a period of 30 days after inquiry from GS, in a recognized banking institution selected by GS and identified by notice to LGLS.

ARTICLE 11
TRADEMARKS

     11.1 Responsible Party. GS, in consultation with LGLS, shall be responsible for maintaining the trademark Factive^® in all countries in the Territory in which such mark is registered as of the Effective Date and for establishing and maintaining such trademark in other countries in the Territory in which GS intends to Commercialize the Products, all at GS’s expense.

     11.2 Infringement and Third Party Claims. Each party shall afford the other full cooperation in the defense and assertion of the Trademarks against Third Parties. Absent agreement by the Parties, the provisions of Sections 8.2 and 8.3 shall apply by analogy with respect to infringement of or Third Party challenges to the Trademarks.

     11.3 Termination of the Agreement. Following termination of this Agreement for any reason (but not expiration of its term) GS will refrain from all further use of the Trademarks in the Territory.

     11.4 Expiration of the Agreement. Following expiration of GS’s royalty obligations as provided in Section 10.4, above, and for so long as GS continues to use the Trademark in the use or sale of Product, GS shall pay to LGLS a royalty equal to [***] percent of Net Sales. Such royalty shall be calculated and payable as provided in Sections 10.7 through 10.11, above.

ARTICLE 12
REPRESENTATIONS, WARRANTIES AND COVENANTS

     12.1 Joint Representations and Warranties. Each of the Parties hereby represents and warrants to the other Party that this Agreement is a legal and valid obligation binding upon such Party and enforceable in accordance with its terms. The execution, delivery and performance of the Agreement by such Party does not conflict with any agreement, instrument or understanding, oral or written, to which it is a Party or by which it is bound, nor violate any law or regulation of any court, governmental body or administrative or other agency having jurisdiction over it.

     12.2 Representations and Warranties by LGLS. LGLS represents and warrants to GS that, as of the Effective Date, to the actual knowledge of the executive officers and directors of LGLS:

          (a) The information disclosed to GS during the course of its “due diligence” review of materials related to the Product was true and correct and, through the Effective Date,

[***] Confidential portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission.

23

no material information has been omitted from the “due diligence” disclosures made to GS by LGLS.

          (b) No litigation exists or is threatened which would, if successful, adversely affect the rights granted to GS hereunder.

          (c) All material safety issues related to the Product and to its manufacture have been disclosed to GS.

          (d) All renewal fees related to the LGLS Patents, the GLAXO Patents and the Trademarks have been paid in full.

          (e) LGLS has good title to the LGLS Patents, the GLAXO Patents, the LGLS Know-how and the GLAXO Know-how and to the Trademarks (to the extent that filings thereof exist as of the Effective Date), free and clear of any liens or encumbrances.

          (f) As of the Effective Date LGLS has not been served with notice of any interference proceedings with respect to the LGLS Patents or the GLAXO Patents and to the actual knowledge of LGLS, no such proceedings have been instituted. To the actual knowledge of LGLS, as of the Effective Date there is no existing Third Party infringement of the LGLS Patents, the GLAXO Patents or the Trademarks.

          (g) The information submitted to the Regulatory Authorities with respect to the Product is true and correct.

          (h) It has disclosed to GS the complete texts of all of the LGLS Patents and the GLAXO Patents existing as of the Effective Date as well as all information known to LGLS as of the Effective Date concerning the institution or possible institution of any interference, opposition, re-examination, reissue, revocation, nullification or any official proceeding involving any of the LGLS Patents or GLAXO Patents any where in the Territory.

     12.3 Covenants by LGLS. LGLS hereby covenants that: (i) the Transition Plan contemplated by Section 2.1 of the GLAXO Agreement shall be completed in full not later than December 31, 2002, (ii) LGLS shall use its best efforts to finalize the Technology Transfer Agreement contemplated by Section 3.4 of the GLAXO Agreement not later than January 31, 2003, and (iii) LGLS shall use its best efforts to finalize the Supply Agreement contemplated by Section 8.1 of the GLAXO Agreement, on terms and conditions consistent with this Agreement, not later than January 31, 2003. LGLS shall indemnify GS and hold GS harmless from and against any and all losses resulting from the failure by LGLS to complete the Transition Plan or to finalize the Technology Transfer Agreement or the Supply Agreement by the dates specified in this Section 12.3.

     [***]

[***] Confidential portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission.

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     12.4 Performance by Affiliates and Sub-licensees. The Parties recognize that each may perform some or all of its obligations under this Agreement through Affiliates or, to the extent permitted, by sub-licensees. Nonetheless, each Party shall remain responsible and shall be the guarantor of the performance by its Affiliates and sub-licensees and shall cause its Affiliates and sub-licensees to comply with the provisions of this Agreement in connection with such performance. In the event of a dispute arising out of the actions of an Affiliate or sub-licensee under this Agreement, each of GS and LGLS may proceed directly against the other Party, without any obligation to first proceed against the Affiliate or sub-licensee.

ARTICLE 13
TERM AND TERMINATION

     13.1 Term. The term of this Agreement shall commence on the Effective Date and shall expire upon the termination or expiration in all of the countries of the Territory of the royalty obligations as set forth in Section 10.4, above.

     13.2 Termination for Material Breach. If either Party materially breaches this Agreement at any time, which breach is not cured within 30 days of notice thereof from the non-breaching Party, the non-breaching Party shall have the right to terminate this Agreement on notice to the Party in breach following the expiration of such cure period; provided, however, that if the Party alleged to be in breach shall have invoked the dispute resolution mechanism of Article 15 prior to the expiration of such cure period then termination shall not be effective until the sooner of abandonment of such proceedings by the Party alleged to be in breach or completion of the dispute resolution proceedings and a non-appealable finding in arbitration in favor of the non-breaching Party.

     13.3 Termination for Challenge to Patent Rights. If either Party challenges the validity and/or enforceability of any of the other Party’s patent rights to which a license is granted hereunder, the latter Party shall have the right, to the extent lawful, to terminate the license granted pursuant to this Agreement with respect to the challenged patents.

     13.4 Unilateral Termination by GS. GS may, at any time by delivery of 30 days’ prior notice to LGLS, elect to abandon its rights and obligations with respect to any country in the Territory, or to terminate this Agreement in its entirety. GS shall be entitled to suspend or discontinue its Development, distribution and/or sale of any Product immediately upon notice to LGLS if [***]. Upon notice by GS pursuant to this Section 13.4, this Agreement and all obligations of LGLS and GS hereunder with respect to the country or countries in question shall terminate and GS shall promptly transfer to LGLS all Marketing Authorization Applications and Regulatory Approvals and the Trademarks with respect to the country or countries in question, as well as all other Information and know-how related to such country or countries. In the event that GS terminates its rights with respect to one or more countries but not the entire Territory, then this Agreement shall remain in effect with respect to the countries not subject to such termination which countries shall, thereafter, be considered the “Territory.”

[***] Confidential portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission.

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     13.5 Bankruptcy. All rights granted hereunder are, and shall otherwise be deemed to be, for purposes of Section 365(n) of the U.S. Bankruptcy Code (the “Code”) licenses of rights to “intellectual property” as defined in Section 101(52) of the Code. The licensee Party under this Agreement shall retain and may fully exercise all of its rights and elections under the Code, subject to performance by such Party of its obligations under this Agreement. In the event of the commencement of a bankruptcy proceeding by or against a Party under the Code, the licensee Party shall, to the extent permitted by law, be entitled to a complete duplicate of (or complete access to, as appropriate) any such intellectual property and all embodiments thereof, which shall promptly be delivered to the licensee Party, at its sole expense: (i) upon written request following commencement of a bankruptcy proceeding, or (ii) if not delivered pursuant to subsection (i), above, upon written request following the rejection in bankruptcy of this Agreement by or on behalf of the bankrupt Party. In the event of a filing for bankruptcy or insolvency by a Party, such Party shall, to the extent permitted by law, confirm to the receiver, trustee or liquidator that the intellectual property rights licensed hereunder are, notwithstanding such license, the sole property of the licensor Party and may not be disposed of by licensee except as expressly provided herein.

     13.6 Minimum Sales. LGLS shall have the right to terminate this Agreement on notice to GS in the event that GS’s aggregate gross sales of Products in the Territory in the 12 month period commencing on the third anniversary of the date of first commercial of Product in the United States is less than $30 million [***]; provided, however, that such right to terminate shall not apply in the event that GS sales of Product were at any time materially impeded by either force majeure or failure of supply outside of GS’s control.

     13.7 Effect of Termination

          13.7.1 Termination of this Agreement shall not relieve the Parties of any liability, including any obligation to make payments hereunder, which accrued hereunder prior to the effective date of such termination, nor preclude a Party from pursuing all rights and remedies it may have hereunder or at law or in equity with respect to any breach of this Agreement nor prejudice a Party’s right to obtain performance of any obligation which accrued hereunder prior to the effective date of such termination. Upon termination (but not expiration of the term of this Agreement), all licenses and rights to Patents and Know-How granted hereunder shall terminate.

          13.7.2 Upon termination of this Agreement (but not expiration of its term), all Confidential Information supplied by one Party shall be returned by the other Party except for one copy of such information retained solely for legal archival or regulatory purposes.

          13.7.3 Upon termination of this Agreement (but not expiration of its term), GS shall cooperate in the prompt transfer to LGLS of all Marketing Authorization Applications and Regulatory Approvals related to the Products in the Territory, and shall diligently take such other actions and execute such other instruments, assignments and documents as may be necessary to effect the transfer or reconveyance of rights hereunder to LGLS and the relinquishment of such rights by GS.

[***] Confidential portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission.

26

          13.7.4 Following termination of this Agreement, GS shall have 120 days to sell any Product in its possession as of the effective date of termination, subject to its obligation to pay royalties to LGLS as provided hereinabove with respect to such sales.

     13.8 Memorandum of Understanding. The Memorandum of Understanding shall terminate effective as of the Effective Date.

     13.9 Surviving Rights. The rights and obligations set forth in this Agreement shall extend beyond the term or termination of the Agreement only to the extent expressly provided for herein, or the extent that the survival of such rights or obligations are necessary to permit their complete fulfillment or discharge. Without limiting the foregoing, the following shall survive the expiration or termination of this Agreement: Sections 5.11, 6.1, 6.2, 6.3, 7.4, 7.5, 7.7, 8.3, 8.4, 10.7, 10.8, 11.2, 11.3, 11.4, and 13.7 and Articles 14, 15 and 16.

ARTICLE 14
INDEMNIFICATION

     14.1 Indemnification by GS. GS shall defend and hold LGLS and its agents, directors and employees harmless from and against any and all suits, claims, actions, demands, damages, obligations, settlements, penalties, fines, costs, liabilities, expenses and/or loss claimed by a Third Party, including reasonable attorneys’ fees and expenses (collectively, “Losses”), resulting from [***], except to the extent such Losses result from [***].

     14.2 Indemnification by LGLS. LGLS shall defend and hold GS and its agents, directors and employees harmless from and against any and all Losses resulting from: [***], except to the extent such Losses result from [***].

     14.3 Procedure. A Party seeking indemnification under Section 14.1 or Section 14.2, shall inform the other Party of a claim as soon as reasonably practicable after it receives notice of the Third Party claim, permit the indemnifying Party to assume direction and control of the defense of the Third Party claim (including the right to settle the claim solely for monetary consideration), and cooperate as requested (at the expense of the indemnifying Party) in the defense of the Third Party claim.

     14.4 Insurance. Promptly following the Effective Date and for a period of [***] after the expiration or termination of this Agreement, each Party shall obtain and thereafter maintain, at its sole cost and expense, product liability insurance in amounts which are reasonable and customary in the U.S. pharmaceutical industry for companies of comparable size and activities at the respective place of business of each Party. Such product liability insurance shall insure against all liability arising as a result of activities completed or permitted under this Agreement (including, without limitation, liability for personal injury, physical injury and property damage). Each Party shall provide written proof of the existence of such insurance to the other Party promptly upon request.

[***] Confidential portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission.

27

ARTICLE 15
DISPUTE RESOLUTION

     15.1 Disputes. All disputes arising between the Parties hereunder or with respect to this Agreement shall be resolved solely as provided in this Article 15. Any such dispute that the Parties are unable to resolve directly may be referred by either Party to the Steering Committee for resolution. If the Steering Committee is unable to resolve such dispute within 30 days after referral, either Party may, on notice to the other, have such dispute referred to the CEOs of LGLS and GS for attempted resolution by good faith negotiation. If such individuals are unable to resolve such dispute within 30 days after referral, then either Party may thereafter seek to resolve the dispute through arbitration in accordance with the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with such rules, in English. The place of arbitration shall be London, England.

     15.2 Applicable Law. This Agreement shall be governed by and construed under the substantive laws of the State of California, without regard to conflicts of law principles.

ARTICLE 16
MISCELLANEOUS

     16.1 Assignment.

          16.1.1 Either Party may assign all of its rights and obligations under this Agreement to an Affiliate with the consent of the other Party, such consent not to be unreasonably withheld or delayed.

          16.1.2 A Party may assign its rights or obligations under this Agreement to a non-Affiliate without the approval of the other Party only in connection with a merger of that Party with a Third Party, acquisition of that Party by a Third Party, a similar reorganization affecting that Party, or in connection with the sale by that Party to a Third Party of all or substantially all of the assets to which this Agreement relates. This Agreement shall survive any such merger, acquisition or reorganization of a Party with or into, or such sale of assets to, another party and no consent for such merger, acquisition, reorganization or sale shall be required hereunder; provided, however, that in the event of such merger, acquisition, reorganization or sale, no intellectual property rights of the other merging or acquiring corporation shall be included in the intellectual property licensed hereunder. This Agreement shall be binding upon and inure to the benefit of the successors and permitted assigns of the Parties. Any assignment not in accordance with this Agreement shall be void.

          16.1.3 In the event of an assignment resulting from a merger or acquisition permitted pursuant to Section 16.1.2, above, LGLS and its successor entity shall endeavor to assure that GS confidential information provided under this Agreement is kept confidential and distributed within the successor entity solely to the limited extent necessary in order to satisfy such entity’s obligations, and exercise such entity’s rights, with respect to Gemifloxacin hereunder.

28

     16.2 Force Majeure. Except as otherwise expressly provided herein, neither Party shall lose any rights hereunder or be liable to the other Party for damages or losses on account of failure of performance by the defaulting Party if the failure is occasioned by government action, war, acts of gods, or any other similar or dissimilar cause beyond the control of the defaulting Party, provided that the Party claiming force majeure has exerted all reasonable efforts to avoid or remedy such force majeure.

     16.3 Further Actions. Each Party agrees to execute, acknowledge and deliver such further instruments, and to do all such other acts, as may be necessary or appropriate in order to carry out the purposes and intent of this Agreement.

     16.4 Notices. All notices hereunder shall be in writing and shall be deemed given if delivered personally or by facsimile transmission with confirmed answer-back, mailed by registered mail (return receipt requested), postage prepaid, or sent by internationally recognized express courier service, to the Parties at the addresses first set forth above (or at such other address for a Party as shall be specified by like notice; provided, that notices of a change of address shall be effective only upon receipt thereof). Notice by personal delivery shall be deemed effective upon receipt. Notice by courier or registered mail shall be deemed effective three business dates after the date sent. Notice by fax shall be deemed effective upon receipt by the sending Party of confirmation of receipt of the fax by the receiving Party.

     16.5 Waiver. The waiver from time to time by either of the Parties of any of their rights or their failure to exercise any remedy shall not operate or be construed as a continuing waiver of same or of any other of such Party’s rights or remedies provided in this Agreement.

     16.6 Severability. If any term, covenant or condition of this Agreement or the application thereof to any Party or circumstance shall, to any extent, be held to be invalid or unenforceable, then the remainder of this Agreement, or the application of such term, covenant or condition to Parties or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby and each term, covenant or condition of this Agreement shall be valid and be enforced to the fullest extent permitted by law. In such event the Parties shall in good faith attempt to reform this Agreement to reflect the intent and anticipated consequences of the invalidated or unenforceable provision, to the extent possible in a way that is lawful.

     16.7 Ambiguities. Ambiguities, if any, in this Agreement shall not be construed against either Party, irrespective of which Party may be deemed to have authored the ambiguous provision.

     16.8 Headings. The section and article heading contained herein are for the purposes of convenience only and are not intended to define or limit the contents of said sections or articles.

     16.9 Counterparts. This Agreement may be executed in two counterparts, each of which shall be deemed an original, but which together shall constitute one and the same instrument.

29

     16.10 Entire Agreement. This Agreement (including all Schedules hereto) sets forth all the covenants, promises, agreements, warranties, representations, conditions and understanding between the Parties hereto and supersedes and terminates all prior agreements and understanding between the Parties.

     16.11 Limitation of Liability. IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER HEREUNDER FOR ANY SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES, WHETHER IN CONTRACT, WARRANTY, TORT, STRICT LIABILITY OR OTHERWISE.

IN WITNESS WHEREOF, the Parties have executed this Agreement in duplicate originals by their proper officers as of the Effective Date.

GENESOFT PHARMACEUTICALS, INC.		LG LIFE SCIENCES, LTD.
By:	/s/ David B. Singer	By:	/s/ Heung Joon, Yang
	David B. Singer		Heung Joon, Yang
Its:	Chairman and CEO	Its:	President and CEO

30

Schedule 1.4
API Specification

Chemical Name

(R,S)-7-[(4Z)-3-(aminomethyl)-4-(methoxyimino)-l-pyrrolidinyl]-l-cyclopropyl-6-fluoro-l,4-dihydro-4-oxo-l,8-naphthyridine-3-carboxylic acid, monomethanesulfonate

Molecular Formula: C₁₈H₂₀FN₅O₄ŸCH₄O₃S
Molecular Weight: 485.49

Description (Visual examination)

White to light brown solid

[***]

[***]

[***]

[***] Confidential portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission.

Schedule 1.12
Final Product Specification

Material: Factive^TM Tablet 320mg

Tablet

Description (Visual)

A white to off-white, oval, film-coated tablet with breaklines in both faces and debossed with GE 320 on both faces

[***]

[***]

[***]

[***]

[***]

[***]

[***]

Package For commercial use:	320 mg * 5 tablets in Blister
	320 mg * 7 tablets in Blister
	320 mg * 30 tablets (3*10 tablets) in Blister
	320 mg * 30 tablets in Bottle
	For Promotional use: 320 mg Single tablet in Blister

[***] Confidential portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission.

Schedule 1.14
Gemifloxacin

Chemical Name

(R,S)-7-[(4Z)-3-(aminomethyl)-4-(methoxyimino)-l-pyrrolidinyl]-l-cyclopropyl-6-fluoro-l,4-dihydro-4-oxo- l,8-naphthyridine-3-carboxylic acid, monomethanesulfonate

Molecular Formula: C₁₈H₂₀FN₅O₄ŸCH₄O₃S
Molecular Weight: 485.49

Schedule 1.17
GLAXO Knowhow

“GLAXO Knowhow” shall mean the following inventions and discoveries, to the extent that they were conceived, devised and/or reduced to practice by GSK as of the September 30, 2002, and which are not yet the subject of patent applications:

[***]

[***] Confidential portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission.

Schedule 1.18
GLAXO Patents

	[***]	[***]	[***]	[***]	[***]	[***]
[***]	[***]	[***]	[***]
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	[***]	[***]	[***]
	[***]	[***]	[***]
	[***]	[***]	[***]
	[***]	[***]	[***]

[***] Confidential portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission.

[***]	[***]	[***]	[***]
	[***]	[***]	[***]
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	[***]	[***]	[***]

[***] Confidential portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission.

[***]	[***]	[***]	[***]
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[***] Confidential portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission.

[***]	[***]	[***]	[***]
[***]	[***]	[***]	[***]
[***]	[***]	[***]	[***]
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[***]	[***]	[***]	[***]

[***]

[***] Confidential portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission.

Schedule 1.24
[***]

Chemical Name

[***]

[***] Confidential portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission.

Schedule 1.27
LGLS Patents

	[***]	[***]	[***]	[***]	[***]	[***]
[***]	[***]	[***]	[***]	[***]	[***]	[***]
[***]	[***]	[***]	[***]	[***]	[***]	[***]
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	[***]	[***]	[***]
	[***]	[***]	[***]
[***]	[***]	[***]	[***]	[***]	[***]

[***] Confidential portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission.

[***]	[***]	[***]	[***]	[***]	[***]
[***]	[***]	[***]	[***]	[***]	[***]	[***]
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	[***]	[***]	[***]	[***]	[***]
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[***] Confidential portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission.

[***]	[***]	[***]	[***]
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[***] Confidential portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission.

[***]	[***]	[***]	[***]	[***]	[***]
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[***] Confidential portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission.

[***]	[***]	[***]	[***]
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[***] Confidential portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission.

Schedule 1.38
Trademark

FACTIVE

Country	Class(es)	Status	App. No.	App. Date		Reg. No.	Reg. Date
Andorra	5	Registered	12191	19/11/1998		11723	19/11/1998
5) MEDICINES FOR HUMAN USE; PHARMACEUTICAL PRODUCTS; REMEDIES FOR HUMAN USE
Austria	5	Registered	AM2218/96	12/04/1996		166024	30/08/1996
5) PHARMACEUTICAL AND MEDICINAL PREPARATIONS AND SUBSTANCES FOR HUMAN USE
Canada	Filed	79870600	01/12/1995
5) ANTI-VIRAL PREPARATIONS AND SUBSTANCES FOR HUMAN USE
Denmark	5	Registered	VA 199600283	16/01/1996	VR199600791		02/02/1996
5) PREPARATIONS AND SUBSTANCES FOR THE TREATMENT OF RESPIRATORY DISORDERS
European Union	5	Registered	000950352	08/10/1998		000950352	31/01/2000
5) PHARMACEUTICAL AND MEDICINAL PREPARATIONS AND SUBSTANCES
Finland	5	Registered	T199802485	21/07/1998		214152	14/05/1999
5) PHARMACEUTICAL AND MEDICINAL PREPARATIONS AND SUBSTANCES FOR HUMAN USE; SPECIFICALLY AN ANTI-BACTERIAL
France	5	Registered	95600030	07/12/1995		95600030	07/12/1995
5) PHARMACEUTICAL AND MEDICINAL PREPARATIONS AND SUBSTANCES FOR HUMAN USE
Greece	5	Registered	128137	31/01/1996		128137	17/03/1998
5) PHARMACEUTICAL AND MEDICINAL PREPARATIONS AND SUBSTANCES FOR HUMAN USE

Country	Class(es)	Status	App. No.	App. Date	Reg. No.	Reg. Date
Iceland	5	Registered	351/1996	12/03/1996	1216/1996
5) PHARMACEUTICAL AND MEDICINAL PREPARATIONS AND SUBSTANCES FOR HUMAN USE, INCLUDING AN ANTI-VIRAL
Ireland	5	Registered	95/8291	05/12/1995	171292	05/12/1995
5) PHARMACEUTICAL AND MEDICINAL PREPARATIONS AND SUBSTANCES FOR HUMAN USE
Italy	5	Registered	MI95C012228	06/12/1995	00733838	14/11/1997
5) PHARMACEUTICAL AND MEDICINAL PREPARATIONS AND SUBSTANCES FOR HUMAN USE
Mexico	5	Registered	260065	17/04/1996	542746	27/02/1997
5) PHARMACEUTICAL AND MEDICINAL PREPARATIONS AND SUBSTANCES FOR HUMAN USE
Monaco	5	Registered	020534	17/02/1999	99.20373	17/02/1999
5) PHARMACEUTICAL AND MEDICINAL PREPARATIONS AND SUBSTANCES
Netherlands Antilles	5	Registered	D-900	24/12/1998	21301	09/02/1999
5) PHARMACEUTICAL, VETERINARY AND SANITARY PREPARATIONS; DIETETIC SUBSTANCES ADAPTED FOR MEDICAL USE, FOOD FOR BABIES; PLASTERS, MATERIALS FOR DRESSINGS; MATERIAL FOR STOPPING TEETH, DENTAL WAX; DISINFECTANTS; PREPARATIONS FOR DESTROYING VERMIN; FUNGICIDES, HERBICIDES
Norway	5	Filed	200112664	25/10/2001
5) ANTI-INFECTIVE PREPARATIONS FOR HUMAN USE
Norway	5	Registered	19961885	19/03/1996	182042	15/05/1997
5) PHARMACEUTICAL PREPARATIONS FOR THE TREATMENT OF RESPIRATORY DISORDERS
Portugal	5	Registered	314842	15/01/1996	314842	14/10/1996
5) PHARMACEUTICAL AND MEDICINAL PREPARATIONS AND SUBSTANCES FOR HUMAN USE
Spain	5	Registered	2184599	18/09/1998	2184599	05/10/1999
5) PHARMACEUTICAL AND MEDICINAL PREPARATIONS AND SUBSTANCES FOR HUMAN USE

Country	Class(es)	Status	App. No.	App. Date	Reg. No.	Reg. Date
Sweden	5	Registered	95-14489	13/12/1995	315811	09/08/1996
5) PHARMACEUTICAL AND MEDICINAL PREPARATIONS AND SUBSTANCES FOR HUMAN USE
Switzerland	5	Registered	00225/1996	16/01/1996	433454	30/12/1996
5) PHARMACEUTICAL AND MEDICINAL PREPARATIONS AND SUBSTANCES FOR HUMAN USE, EXCEPT FOR DISINFECTANT OR STERILIZATION PURPOSES
United Kingdom	5	Registered	2041126	13/10/1995	2041126	13/10/1995
5) PHARMACEUTICAL AND MEDICINAL PREPARATIONS AND SUBSTANCES FOR HUMAN USE; BUT NOT INCLUDING ANY SUCH GOODS BEING DISINFECTANTS OR STERILIZING PREPARATIONS
USA	5	Registered	75045500	19/01/1996	2281877	28/09/1999
5) PHARMACEUTICAL AND MEDICINAL PREPARATIONS AND SUBSTANCES FOR HUMAN USE, NAMELY, ANTI- VIRALS AND ANTI-INFECTIVES
FACTIVE DEV.
Country	Class(es)	Status	App. No.	App. Date	Reg. No.	Reg. Date
Andorra	5	Registered			14905	14/07/2000
5) PHARMACEUTICAL AND MEDICINAL PREPARATIONS AND SUBSTANCES
Austria	5	Registered	AM4560/2000	21/06/2000	195230	04/04/2001
5) PHARMACEUTICAL AND MEDICINAL PREPARATIONS AND SUBSTANCES
Canada		Filed	1066283	06/07/2000
5) PHARMACEUTICAL AND MEDICINAL PREPARATIONS AND SUBSTANCES, NA MELYANTI-VIRALS AND ANTI-INFECTIVES
European Union	5	Registered	001721273	23/06/2000	001721273	29/05/2001
5) PHARMACEUTICAL AND MEDICINAL PREPARATIONS AND SUBSTANCES
Iceland	5	Registered	2304/2000	29/06/2000	1149/2000	01/09/2000

Country	Class(es)	Status	App. No.	App. Date	Reg. No.	Reg. Date
5) PHARMACEUTICAL AND MEDICINAL PREPARATIONS AND SUBSTANCES
Mexico	5	Registered	444544	28/08/2000	688725	28/02/2001
5) PHARMACEUTICAL AND MEDICINAL PREPARATIONS AND SUBSTANCES
Monaco	5	Registered	022925	06/07/2001	01.22636	06/07/2001
5) PHARMACEUTICAL AND MEDICINAL PREPARATIONS AND SUBSTANCES
Netherlands Antilles	5	Registered	D-395	10/07/2000	22486	01/11/2000
5) PHARMACEUTICAL AND MEDICINAL PREPARATIONS AND SUBSTANCES
Norway	5	Registered	200007413	27/06/2000	205945	07/12/2000
5) PHARMACEUTICAL AND MEDICINAL PREPARATIONS AND SUBSTANCES
Switzerland	5	Registered	07922/2000	03/07/2000	480382	18/01/2001
5) PHARMACEUTICAL AND MEDICINAL PREPARATIONS AND SUBSTANCES FOR HUMAN USE, EXCEPT FOR DISINFECTANT OR STERILISATION
United Kingdom	5	Registered	2236543	20/06/2000	2236543	20/06/2000
5) PHARMACEUTICAL AND MEDICINAL PREPARATIONS AND SUBSTANCES FOR HUMAN USE; BUT NOT INCLUDING ANY SUCH GOODS BEING DISINFECTANTS OR STERILISING PREPARATIONS
USA	16	Filed	76054224	23/05/2000
16) PRINTED EDUCATIONAL MATERIALS, NAMELY, BROCHURES AND PAMPHLETS CONCERNING HEALTHCARE RELATED ISSUES AND PHARMACEUTICAL TREATMENTS FOR INFECTION
USA	42	Filed	76052305	18/05/2000
42) PROVIDING INFORMATION, VIA GLOBAL COMPUTER NETWORKS, CONCERNING INFECTIOUS DISEASES, INCLUDING RESPIRATORY TRACT INFECTIONS AND TREATMENTS THEREFOR
USA	5	Filed	76054223	23/05/2000
5) PHARMACEUTICALS, NAMELY, ANTIBIOTICS

FACPAC3 DAY

Country	Class(es)	Status	App. No.	App. Date	Reg. No.	Reg. Date
USA	5	Filed	78086704	03/10/2001
5) PHARMACEUTICALS, NAMELY, ANTIBIOTICS IN TABLET FORM PACKAGED IN CONVENIENCE CARTONS TO ENSURE PATIENT COMPLIANCE WITH RESPECT TO COMPLETE COURSE OF MEDICATION
USA	5	Filed	78032521	26/10/2000
5) PHARMACEUTICALS, NAMELY, ANTIBIOTICS IN TABLET FORM PACKAGED IN CONVENIENCE CARTONS TO ENSURE PATIENT COMPLIANCE WITH RESPECT TO COMPLETE COURSE OF MEDICATION
FACPAC7 AND DEV.
Country	Class(es)	Status	App. No.	App. Date	Reg. No.	Reg. Date
USA	5	Filed	78028794	03/10/2000
5) PHARMACEUTICALS, NAMELY, ANTIBIOTICS IN TABLET FORM PACKAGED IN CONVENIENCE CARTONS TO ENSURE PATIENT COMPLIANCE WITH RESPECT TO COMPLETE COURSE OF MEDICATION
FACPAC7 DAY
Country	Class(es)	Status	App. No.	App. Date	Reg. No.	Reg. Date
USA	5	Filed	78086707	03/10/2001
5) PHARMACEUTICALS, NAMELY, ANTIBIOTICS IN TABLET FORM PACKAGED IN CONVENIENCE CARTONS TO ENSURE PATIENT COMPLIANCE WITH RESPECT TO COMPLETE COURSE OF MEDICATION

FACPAC7 (STYLIZED)

Country	Class(es)	Status	App. No.	App. Date	Reg. No.	Reg. Date
USA	5	Filed	78032520	26/10/2000
5) PHARMACEUTICALS, NAMELY, ANTIBIOTICS IN TABLET FORM PACKAGED IN CONVENIENCE CARTONS TO ENSURE PATIENT COMPLIANCE WITH RESPECT TO COMPLETE COURSE OF MEDICATION
FAST. ACTIVE. FACTIVE
Country	Class(es)	Status	App. No.	App. Date	Reg. No.	Reg. Date
USA	16	Filed	76092242	19/07/2000
16) PRINTED EDUCATIONAL MATERIALS, NAMELY BROCHURES, PAMPHLETS, AND BOOKLETS CONCERNING RESPIRATORY TRACT INFECTIONS AND TREATMENTS THEREOF
USA	5	Filed	76092240	19/07/2000
5) PHARMACEUTICALS, NAMELY ANTIBIOTICS

FACTIVE.COM
FACTIVE.ORG
FACTIVE.NET
FACTIVE.BIZ
FACTIVE.INFO

Schedule 9.6
DNA Nanobinder Compounds

DNA nanobinder compounds are compounds that [***]. DNA nanobinder compounds include, but are not limited to, compounds covered by one or more of the following GS patent applications

US Patent Application No. 09/808,729, filed March 14, 2001 (PCT equivalent PCT/US 01/08252, filed March 14, 2001). [GS ref. GSFT005]

US Patent Application No. 10/165856, filed June 6, 2002 (PCT equivalent PCT/US 02/17952, filed June 6, 2002). [GS ref. GSFT007]

US Patent Application No. 10/132,887, filed April 24, 2002 (PCT equivalent PCT/US 02/13199, filed Apr. 24, 2002). [GS ref. GSFT009]

[***]

US Patent Application No. 10/165,433, filed June 6, 2002 (PCT equivalent PCT/US 02/17953, filed June 6, 2002). [GS ref. GSFT011]

US Patent Application No. 10/165,857, filed June 6, 2002 (PCT equivalent PCT/US 02/17954, filed June 6, 2002). [GS ref. GSFT012]

US Patent Application No. 10/165764, filed June 6, 2002 (PCT equivalent PCT/US 02/17951, filed June 6, 2002). [GS ref. GSFT013]

[***]

[***]

[***] Confidential portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission.

AMENDMENT NO. 1 TO LICENSE AND OPTION AGREEMENT

     THIS AMENDMENT NO. 1 TO LICENSE AND OPTION AGREEMENT (the “Amendment”) is made and entered into this 21st day of November, 2002 (the “Effective Date”) by and between GENESOFT PHARMACEUTICALS, INC., a Delaware corporation having its principal place of business at 7300 Shoreline Court, South San Francisco, CA, USA 94080 (“GS”) and LG LIFE SCIENCES, LTD., a corporation organized under the laws of the Republic of Korea having its principal place of business at LG Twin Tower, 20 yoido-dong, Youngdungpo-gu, Seoul, 150-721, Republic of Korea (“LGLS”). LGLS and GS may be referred to herein individually as a “Party” and collectively as the “Parties.”

RECITALS

WHEREAS:

LGLS and GS entered into the License and Option Agreement on October 22, 2002 (“License”).

The Parties have identified several typographical errors in Section 8.3 of the License.

The Parties seek to amend Section 8.3 to reflect the original intent of the Parties.

NOW, THEREFORE, in consideration of the promises and mutual covenants herein contained, the Parties agree as follows:

AMENDMENT

1. The Parties agree to delete Section 8.3 in its entirety and to replace it with the revised Section 8.3 set forth below:

Infringement. If either Party learns of an infringement or threatened infringement of the LGLS Patents or GLAXO Patents in the Territory in the Field it shall promptly notify the other Party and shall provide the latter Party with all information reasonably available to the notifying Party evidencing such infringement or threatened infringement. Thereafter, the Parties shall in good faith consult and cooperate in abating such infringement or threatened infringement.

GS shall have the right, but not the obligation, to bring, defend and maintain any appropriate suit or action for abatement of the infringement or threatened infringement of the LGLS or GLAXO Patents in the Territory and in the Field, at GS’s sole expense. If GS requests LGLS to join GS as a party in such suit or action, LGLS shall execute all papers and perform such other acts as may be reasonably requested by GS, at GS’s expense. LGLS shall have the right to participate in any such suit or action using independent counsel, at its sole expense. Any amount recovered by GS as a result of such suit or action shall first be applied to reimburse each of the Parties, pro rata, for any costs or expenses incurred in bringing, defending and maintaining any such action. The balance (the “Net Recovery”) shall

be for the sole benefit of GS. The Net Recovery shall be considered “Net Sales” with respect to the calendar quarter in which payment to GS was received, and royalties shall accordingly be paid on the amount of the Net Recovery exclusively at the rate(s) specified in Section 10.3, below. The Net Recovery shall be considered “Net Sales” for purposes of calculating annual Net Sales in accordance with Milestones 3 and 4 and in Section 10.2, below.

     If GS fails to initiate suit or action within 90 days after first notice of infringement or threatened infringement of the LGLS Patents or the GLAXO Patents, or if having initiated such suit or action it thereafter diligently fails to prosecute such suit or action, LGLS shall have the right, but not the obligation, to bring, defend and maintain any appropriate suit or action for abatement of the infringement or threatened infringement, at LGLS’s sole expense. If LGLS requests GS to join LGLS as a party in such suit or action, GS shall execute all papers and perform such other acts as may be reasonably requested by LGLS, at LGLS’s expense. GS shall have the right to participate in any such suit or action using independent counsel, at its sole expense. Any amount recovered by LGLS as a result of such suit or action shall first be applied to reimburse each of the Parties, pro rata, for any costs or expenses incurred in bringing, defending and maintaining any such action. The balance shall be divided equally between the Parties. The amount of any recovery, net of the amounts necessary to reimburse the Parties as provided above shall be considered “Net Sales” for purposes of calculating annual Net Sales in accordance with Milestones 3 and 4 and in Section 10.2, below. If such recovery is apportioned by the court such that portions thereof are attributed to infringing activity in different calendar years, or if such apportionment of the recovery can otherwise be readily ascertained, then such apportionment shall govern as to the calendar year(s) in which Net Sales shall be deemed to have occurred for purposes of such Milestones. Otherwise, the amount of such recovery shall be apportioned equally over the number of calendar years in which infringement was found to have occurred (or in the event of a settlement, over the number of calendar years in which it was alleged to have occurred).

2. Except as is expressly provided herein, the License shall remain in full force and effect.

IN WITNESS WHEREOF, the Parties have executed this Agreement in duplicate originals by the proper officers as of the Effective Date.

GENESOFT PHARMACEUTICALS, INC.		LG LIFE SCIENCES, LTD.
By:	/s/ David B. Singer	By:	/s/ Soon-Jae Park
Its:	CEO	Its:	Vice President

AMENDMENT NO. 2 TO THE
LICENSE AND OPTION AGREEMENT

     THIS AMENDMENT NO. 2 TO THE LICENSE AND OPTION AGREEMENT (“Amendment”) is made and entered into as of December 6, 2002, by and among GeneSoft Pharmaceuticals, Inc., a Delaware corporation (the “GS”), and LG Life Sciences, Ltd., a corporation organized under the laws of the Republic of Korea (“LGLS”). Capitalized terms not otherwise defined in this Amendment shall have the meaning given them in that certain License and Option Agreement by and among GS and LGLS dated as of October 22, 2002 (the “Agreement”).

RECITALS

     WHEREAS, each of GS and LGLS deem it advisable to enter into this Amendment to amend certain of the payment obligations under the Agreement;

     NOW, THEREFORE, in consideration of the mutual promises and covenants hereinafter set forth, and certain other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, GS and LGLS hereby agree as follows:

     1. Section 10.1 of the Agreement shall be amended and restated in its entirely to read as follows:

     “License Fee. Within 45 days following the Effective Date GS shall: (i) pay to LGLS a non-refundable license fee of $2.5 million, (ii) issue to LGLS a promissory note with a principal amount of three million dollars ($3,000,000) in the form attached hereto as Exhibit A (the “Note”) and (iii) deliver to LGLS 4,749,659 fully-paid up and non-assessable shares of GS common stock (the “Shares”). GS represents and warrants that the Shares represent 14.0 percent of the total equity of GS on October 22, 2002, calculated on a fully diluted basis. The rights and further characteristics of the Shares (including, without limitation, certain anti-dilution rights) are as set forth in the Stock Purchase Agreement and related documents attached hereto as Schedule 10.1.”

     2. Section 13.2 of the Agreement shall be amended and restated in its entirety to read as follows:

     “Termination for Material Breach. Subject to the last sentence of this Section 13.2, if either Party materially breaches this Agreement at any time, which breach is not cured within 30 days of notice thereof from the non-breaching Party, the non-breaching Party shall have the right to terminate this Agreement on notice to the Party in breach following the expiration of such cure period; provided, however, that if the Party alleged to be in breach shall have invoked the dispute resolution mechanism of Article 15 prior to the expiration of such cure period then termination shall not be effective until the sooner of abandonment of such proceedings by the Party alleged to be in breach or completion of the dispute resolution proceedings and a non-appealable finding in arbitration in favor of the non-breaching Party. Notwithstanding the foregoing, if GS fails to make any payment of principal and interest required by the terms of the Note on the date on which

such payment is due, which failure (a “Payment Failure”) is not cured within 2 business days of notice thereof from LGLS, LGLS shall have the right to terminate this Agreement on notice to GS following the expiration of such cure period and GS shall have no right to invoke the dispute resolution mechanism set forth in Article 15 hereof with regard to or in connection with such Payment Failure.”

     3. Section 15.1 of the Agreement shall be amended and restated in its entirety to read as follows:

     “Disputes. Except as set forth in Section 13.2 above, as amended, all disputes arising between the Parties hereunder or with respect to this Agreement shall be resolved solely as provided in this Article 15. Any such dispute that the Parties are unable to resolve directly may be referred by either Party to the Steering Committee for resolution. If the Steering Committee is unable to resolve such dispute within 30 days after referral, either Party may, on notice to the other, have such dispute referred to the CEOs of LGLS and GS for attempted resolution by good faith negotiation. If such individuals are unable to resolve such dispute within 30 days after referral, then either Party may thereafter seek to resolve the dispute through arbitration in accordance with the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with such rules, in English. The place of arbitration shall be London, England.”

     4. This Amendment shall be governed by and construed under the substantive laws of the State of California, without regard to conflicts of law principles.

     5. This Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

     6. This Amendment, when executed by GS and LGLS, shall be binding upon each of GS and LGLS and each of their successors and assigns.

     7. The Agreement and this Amendment and the documents referred to therein and herein constitute the entire agreement between the parties hereto pertaining to the subject matter thereof and hereof.

     8. Except as modified hereby, all other terms and provisions of the Agreement are hereby ratified and confirmed in all respects.

     IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first above written.

	GENESOFT PHARMACEUTICALS, INC.
	By:	/s/ David B. Singer
	Name:		David B. Singer
	Title:		Chairman and CEO
Address:	7300 Shoreline Court South San Francisco, CA, USA 94080 LG LIFE SCIENCES, LTD.
	By:	/s/ Heung Joon Yang
	Name:		Heung Joon Yang
	Title:		President and CEO
Address:	LG Twin Tower 20 yoido-dong, Youngdungopo-gu Seoul, 150-721, Republic of Korea

AMENDMENT NO. 3 TO LICENSE & OPTION AGREEMENT

     THIS AMENDMENT NO. 3 TO LICENSE & OPTION AGREEMENT (“the Amendment”) is made and entered into this 16^th day of October, 2003 (the “Amendment Effective Date”) by and between GENESOFT PHARMACEUTICALS, INC., a Delaware corporation having its principal place of business at 7300 Shoreline Court, South San Francisco, CA, USA 94080 (“GS”) and LG LIFE SCIENCES, LTD., a corporation organized under the laws of the Republic of Korea, having its principal place of business at LG Twin Tower, 20 yoido-dong, Youngdungpo-gu, Seoul, 150-721, Republic of Korea (“LGLS”). LGLS and GS may be referred to herein individually as a “Party” and collectively as the “Parties.”

RECITALS

WHEREAS:

LGLS and GS entered into the License and Option Agreement on October 22, 2002 (“License Effective Date”) and amended said License and Option Agreement by Amendment No. 1 thereto on November 21, 2002 and Amendment No. 2 thereto on December 6, 2002 (as amended, the “License”);

The License sets forth the terms by which LGLS grants to GS the sole and exclusive license to use, import, package, sell, and offer for sale Products within the Field in the Territory, and the exclusive right to use the Trademarks in the Territory in conjunction with the use or sale of the Products;

The License further sets forth the terms by which LGLS agrees to supply to GS Final Product or Active Pharmaceutical Ingredient (“API”); and

The Parties now seek to amend the License to conform its terms to the terms by which Final Product is to be supplied to LGLS under the supply agreement entered into between LGLS and SB PHARMCO PUERTO RICO, INC. and its affiliates (“GLAXO” or “GSK Supply Agreement”) on February 26, 2003 and to revise certain other terms set forth herein.

NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, the Parties agree as follows:

1. Section 1.13 shall be deleted in its entirety and replaced with the following revised paragraph:

     “Fully Burdened Cost of Manufacture” means: [***].

[***] Confidential portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission.

1

2. Section 1.32 shall be revised to define “Product” as follows:

     “Product” means any compound containing Gemifloxacin as an active ingredient, including API and Final Product.

3. A new Section 1.39 shall be inserted to define “Obsolete Materials” as follows:

     “Obsolete Materials” mean any Materials ordered at the request of GS that will become obsolete as a result of (i) the expiration or termination of the GSK Supply Agreement or (ii) changes in Final Product Specifications and/or the changes in labeling and packaging.

4. A new Section 1.40 shall be inserted to define “Materials” as follows:

     “Materials” mean all material except API used in the manufacture, storage, and shipment of Final Products.

5. A new Section 1.41 shall be inserted to define “Long Lead Time Materials” as follows:

     “Long Lead Time Materials” means [***].

6. A new Section 1.42 shall be inserted, which defines “Second Source Supplier” as follows:

     “Second Source Supplier” means a contract manufacturer, which is retained to produce API in the event of an interruption to LGLS’s supply, and which has an existing manufacturing plant suitable for the production of API.

7. A new Section 1.43 shall be inserted, which defines “Adverse Event” as follows:

     “Adverse Event” shall have the meaning ascribed to the term “adverse drug experience” by the FDA in 21 CFR 310.305(b).

8. A new Section 1.44 shall be inserted, which defines “Serious Adverse Event” as follows:

     “Serious Adverse Event” shall have the meaning ascribed to the term “serious adverse drug experience” by the FDA in 21 CFR 310.305(b).

[***] Confidential portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission.

2

9. A new Section 1.45 shall be inserted to define “Non-Commercial Use” as follows:

     “Non-Commercial Use” means any use of a Product by GS, which is non-commercial in nature, including but not limited to the distribution of samples, use in clinical trials, pre-Launch compassionate use, and any other use from which GS derives no direct commercial benefit.

10. Section 5.1 shall be deleted in its entirety and replaced with the following revised text:

     5.1 General.

          (a) Intent of the Parties. The intent of the Parties is that:

     (i) between the Effective Date and until the expiration or termination of the GSK Supply Agreement, (including any renewal periods thereof, the “Initial Period”), LGLS shall supply to GS, and GS shall exclusively purchase from LGLS, all of GS’s requirements of Final Product according to the Final Product Specifications, and

     (ii) following the expiration or termination of the Initial Period and until the expiration or termination of this Agreement (“Remaining Period”), LGLS shall supply to GS, and GS shall exclusively purchase from LGLS, all of GS’s requirements of API in bulk form according to the API Specifications.

          (b) Terms and Conditions. The terms and conditions by which LGLS shall supply GS and GS shall purchase from LGLS Final Product or API, as applicable, pursuant to Section 5.1(a) are set forth in this Article 5.

          (c) Manufacturing Site Change.

     (i) Prior to the expiration or termination of the Initial Period, GS shall

          (A) select and contract with a Third Party to conduct final finish and fill operations at a facility operated by such Third Party during the Remaining Period to produce Final Product from API supplied by LGLS pursuant to Section 5.l(a)(ii); provided, however, that GS shall have no liability to LGLS for costs or damages resulting from the performance or failure of performance by such Third Party, except to the extent that such costs or damages result from the negligence or willful misconduct of GS, and the agreement with such Third Party shall contain provisions, enforceable by LGLS as a third party beneficiary, pursuant to which such Third Party agrees to indemnify and hold LGLS harmless from and against claims made against LGLS as a result of the negligence or willful misconduct of such Third Party; and

          (B) obtain all necessary Regulatory Approvals for the engagement of such Third Party to so produce such Final Product.

3

     (ii) The commencement of such finish and fill operations at such facility operated by such Third Party in accordance with such Regulatory Approvals so obtained is referred to in this Amendment as the “Manufacturing Site Change”.

     (iii) Within thirty (30) days (the “Plan Preparation Period”) following the execution of this Amendment, GS shall, subject to the approval of LGLS, which approval shall not be unreasonably withheld, complete the preparation of a plan (as so completed and approved, the “Manufacturing Site Change Plan”) for effecting the Manufacturing Site Change and obtaining the Regulatory Approvals for doing so. Promptly following the Plan Preparation Period, GS shall begin implementation of the Manufacturing Site Change Plan. Until such time as the Manufacturing Site Change occurs, GS shall advise LGLS in writing no less frequently than once per month as to the status of the implementation of the Manufacturing Site Change Plan.

     (iv) GS shall use [***] to cause the Manufacturing Site Change to occur on or before the date of expiration or termination of the Initial Period, and LGLS shall provide such assistance as GS reasonably requests to cause such Manufacturing Site Change to so occur.

          (d) Assured Inventory Levels.

          If, at any time during the Initial Period, GS and LGLS mutually agree in their reasonable discretion that it is unlikely that the Manufacturing Site Change will occur on or before the date of expiration or termination of the Initial Period and/or that the actual capacity of the facility contemplated by the Manufacturing Site Change will be less than its rated capacity and/or that the delivery times of Final Product from such contemplated facility will not be in accordance with the scheduled delivery times previously agreed by GS and LGLS, and that a shortage of Final Product inventory will thereby occur in respect of projected sales of Final Product following such date as set forth in GS’s then most recent forecast (the amount of such shortage as initially forecasted and adjusted from time to time in accordance with the procedures set forth below being the “Missed Manufacturing Site Change Shortage”), then LGLS shall use commercially reasonable efforts to undertake any combination of the following actions in order to avoid any such shortage:

     (i) (A) negotiate with GLAXO to extend the term of the GSK Supply Agreement and (B) so extend such term, provided that if such term is so extended, then the Initial Period shall be extended for the same length of time as the GSK Supply Agreement is so extended,

[***] Confidential portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission.

4

     (ii) (A) cause GLAXO to increase its production of Finished Product during the Initial Period by the amount of the Missed Manufacturing Site Change Shortage and (B) require GS to purchase such Missed Manufacturing Site Change Shortage according to the terms and conditions of this Article 5.

     The Missed Manufacturing Site Change Shortage shall be initially calculated before June 30, 2004 by forecasting the combined influence of the anticipated delay or supply shortfall and other related factors agreed to by the parties. Thereafter, the Missed Manufacturing Site Change Shortage shall be adjusted from time to time as LGLS and GS may agree to account for the actual experience with such factors through the passage of time and revisions to the initial assumptions of the Parties regarding the extent and duration of the problem.

11. Section 5.2 shall be deleted in its entirety and replaced with the following:

     Supply Price.

     (i) The supply price for Final Product provided by LGLS to GS during the Initial Period until June 30, 2004, shall be equal to [***] percent of LGLS’s Fully Burdened Cost of Manufacture for Final Product supplied thereunder, which shall [***] $[***] per finished tablet, [***] $[***] per finished tablet. Final Product provided by LGLS to GS for Non-Commercial Use shall be [***] provided, however, that the prices of Final Product shall [***] per finished tablet [***].

     (ii) The supply price for Final Product provided by LGLS to GS, following June 30, 2004 and the expiration or termination of any renewal or extension periods to the GSK Agreement, shall be equal to [***] percent of LGLS’s Fully Burdened Cost of Manufacture for Final Product supplied thereunder, which shall [***] $[***] per finished tablet, [***]. The supply price for Final Product provided by LGLS to GS for Non-Commercial Use shall be [***].

     (iii) The supply price for API provided by LGLS to GS during the Remaining Period, shall be equal to [***] percent of LGLS’s Fully Burdened Cost of Manufacture for API supplied thereunder, which shall in no event [***] $[***] per kg [***] $[***] per kg. In addition, (i) if GS purchases more than [***] kg of API in any calendar year, the $[***] supply price shall be reduced by $[***] per kg for each additional [***] kg of API purchased in such year in excess of [***] kg, and (ii) the bulk supply price (including the [***]price) shall be renegotiated in good faith in the event that GS purchases more than [***] kg of API in any 12 month period. In the event that there is an interruption in LGLS’s supply of API for any reason, which continues uncured for more than [***], then GS shall have the right to procure an alternative source of supply for the duration of the interruption (“Second Source”). Notwithstanding the foregoing, GS shall only have the right to procure a Second Source in the event that the interruption arises with respect to a supply order quantity, which is less than or equal to [***] percent of the quantity anticipated by GS in the most recently updated forecast, immediately preceding the submission of the supply order. LGLS shall have the opportunity to resume its

[***] Confidential portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission.

5

supply of API upon the elimination or resolution of the events causing the interruption; provided that, however, LGLS shall not resume its role as the exclusive supplier until GS is able to negotiate a termination of its purchase obligations with the Second Source Supplier. LGLS shall be responsible for any expenses incurred in excess of the price set forth herein, including any expenses related to the termination of any agreement with the Second Source Supplier; provided, however, that LGLS shall not be responsible for such excess expenses to the extent that such interruption is due to the negligence or willful malfeasance of GS.

12. Section 5.4 shall be deleted in its entirety and replaced with the following:

     Specifications.

     5.4.1 LGLS warrants that the Final Product it supplies hereunder during the Initial Period shall meet the Final Product Specifications, and shall have been manufactured in accordance with all applicable laws and regulations including, without limitation, then-current Good Manufacturing Practice (“cGMP”) standards. LGLS further warrants that the API comprising Final Product supplied hereunder and the API supplied hereunder in bulk form shall meet the API Specifications.

     5.4.2 If, during the Initial Period, GS requests LGLS to make changes to the Final Product Specifications or the labeling and packaging, then LGLS shall initiate such changes and GS shall be responsible for the costs incurred by LGLS in making such change, including without limitation, the cost of any change requested in order to maintain the Specifications or packaging and labeling in conformity with the Final Product’s drug application filed with the FDA, applicable cGMPs, and applicable regulatory acts or legal requirements (including, without limitation, with respect to any of the materials used in the Final Product), not generally applicable to the manufacture of pharmaceutical products or types of dosage forms (e.g., blister packs or sterile vials). GS retains the right and responsibility for Regulatory Approvals of the Final Product Specifications.

     5.4.3 During the Initial Period, GS shall provide to LGLS, at GS’s sole cost and expense, camera-ready artwork for the Final Product Specifications as approved for each market, relating to graphics. GS shall bear all artwork costs and expenses incurred as a result of any revision to the Final Product Specifications.

     5.4.4 During the Initial Period, GS shall pay for Obsolete Materials in the amount of [***]; provided, however, that to the extent that such Obsolete Materials are solely attributable to LGLS’s ordering quantities of materials in excess of quantities necessary to fulfill volumes projected in the Nonbinding Forecast, GS shall not be required to pay for such Obsolete Materials.

[***] Confidential portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission.

6

13. Section 5.5 shall be deleted in its entirety and replaced with the following paragraphs set forth below:

     Purchase Order and Forecasting.

     5.5.1 During the Initial Period, GS shall provide to LGLS a nonbinding projection of [***] of the anticipated volumes of each Final Product for each market to be ordered by GS pursuant to Section 5.5.3 below. GS shall provide such projections to LGLS on [***] during the Initial Period; provided that GS shall provide to LGLS the first such report no later than the execution of this Amendment No. 3.

     5.5.2 On or before March 1, 2003, GS shall place a firm order for the amount of Final Product produced to Final Product Specifications which incorporates [***] of API. With GS’s permission, LGLS may request that GLAXO order Long Lead Time Materials to fulfill such firm order, subject to GS obtaining any required Regulatory Approval from the FDA. LGLS shall have no responsibility for lost Long Lead Time Materials due to FDA delays or requirements, and GS shall pay for such Long Lead Time Materials regardless of any FDA delay or requirement relating to the Final Product.

     5.5.3 All subsequent supply orders for the delivery of Final Product, submitted prior to the expiration or termination of Initial Period, shall specify the aggregate volumes of Final Product ordered for each market and the delivery date, and each such supply order shall be submitted to LGLS not less than [***] prior to the delivery date on which GS has requested shipment pursuant to such supply order; provided that, however, in the event that GS purchases long lead time materials (as defined in Article I and Section 2.4(c) of the GSK Supply Agreement), then such supply orders shall be submitted to LGLS not less than [***] prior to the requested delivery date for each such supply order. GS shall submit [***] supply orders for the aggregate Final Product volumes for each market, which volumes shall be equivalent to the minimum order quantity for each Final Product in a particular market. The minimum order quantity shall be [***].

     5.5.4 LGLS shall not be obligated to produce more than [***] of Final Product (totaling approximately [***] tablets) in 2003, unless on or before [***], GS submits an additional supply order for Final Product to be manufactured in 2003, for delivery on or before [***]. Such order shall be for [***] of Final Product.

     5.5.5 Upon the commencement of the Remaining Period, GS shall provide to LGLS a non-binding forecast of the quantities of API to be manufactured during the [***] period. This forecast shall be updated by GS on or before [***] of each [***] for the following [***]. Within [***] after the receipt of such forecast, LGLS shall provide to GS a good faith non-binding forecast of the Fully Burdened Cost of Manufacture of the supply of API forecasted by GS for the [***].

[***] Confidential portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission.

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     5.5.6 Notwithstanding the foregoing, GS shall use [***] to provide LGLS with supply orders for the delivery of Final Product or, upon the commencement of the Remaining Period, API, within the following dates:

     In [***], GS shall provide its supply orders for delivery during the [***];

     In [***], GS shall provide its supply orders for delivery during the [***];

     In [***], GS shall provide its supply orders for delivery during the [***]; and

     In [***], GS shall provide its supply orders for delivery during the [***].

     GS shall issue each supply order to LGLS at least [***] prior to the delivery date on which GS has requested LGLS to ship pursuant to each such supply order.

14. Section 5.6 shall be deleted in its entirety and replaced with the following paragraph:

     Delivery.

     5.6.1 During the Initial Period, all Final Product shall be shipped FCA GLAXO’s manufacturing facility located at Road 172 Km 9.1, Bo. Certenejas, Cidra, Puerto Rico (as defined in the INCOTERMS, 2000 edition, published by the International Chamber of Commerce, ICC Publication 560), except with regard to title and risk of loss. LGLS shall arrange for pickup from the facility by a freight forwarder, and title and risk of loss with respect to Final Product shall pass to GS upon pick up of the Final Product by the carrier or freight forwarder at the facility. LGLS agrees, in accordance with GS’s reasonable written instructions, to arrange for shipping and insurance to such locations as are requested by GS, at the expense of GS. During the Remaining Period, the Parties agree that API shall be shipped Ex Works (“EXW”), as such term is defined in INCOTERMS 2000, in which case, title and all risks of loss or damage to the API shall remain with LGLS until the API is delivered to the carrier for shipment at the EXW point, at which time title and all risks of loss or damage shall transfer to GS. During the term of this Agreement, GS shall promptly reimburse LGLS for the cost of any duties incurred in conjunction with the delivery of the Final Product, and any insurance purchased at the request of GS to cover any risks of loss to GS arising from shipment.

     5.6.2 The initial supply order for Final Product shall be delivered by August 30, 2003, and the delivery date for all subsequent supply orders shall be the later to occur of (a) the date set forth in the applicable supply order, or (b) the date that is [***] after LGLS’s receipt of the applicable supply order; provided that, however, the delivery of Product purchased under the initial Product supply order shall be contingent upon (i) preliminary indication of artwork and NDC number for GS on or before April 4, 2003, (ii) LGLS obtaining NDA approval for the Product from the FDA on or before July 1, 2003; and (iii) GS delivering final artwork specifications to LGLS on or before July 1, 2003. In the event of any delays regarding the delivery of the initial Product supply order, which arise as a result of the failure to meet any of

[***] Confidential portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission.

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the foregoing contingencies, LGLS shall not be obligated to deliver the initial Product purchase order until November 15, 2003. Products shall be delivered in the volumes set forth on the applicable supply order, plus or minus [***] due to normal production variances and waste.

     5.6.3 GS shall pay and otherwise be responsible for all applicable sales taxes in connection with any payment made by GS related to Final Product and/or API by LGLS pursuant to this Agreement.

15. Sections 5.7.1, 5.7.2, 5.7.3, and 5.8.2 shall be amended to insert “or API Specifications, as applicable” immediately following the words “Final Product Specifications, as applicable to whether Final Product or API is being sold.”

16. Sections 5.9.1 and 5.9.2 shall be deleted in their entirety.

17. Section 5.9.3 shall be amended to delete both references “to GS’s premises.”

18. Section 5.9.4 shall be amended to delete “pursuant to this Article 5” and to replace it with the phrase “pursuant to Section 5.5.2 and delivered to GS pursuant to Section 5.6.2.”

19. A new Section 5.9.5 shall be added, which shall state as follows:

     During the Initial Period, on or before March 15, 2004, LGLS shall provide to GS an accounting and reconciliation statement, showing the difference between LGLS’s actual cost of manufacture and supply of the Final Product and the estimated cost invoiced and paid by GS for such manufacture and supply during the period beginning on the Effective Date and continuing until December 31, 2003. In the event that LGLS’s actual cost for such manufacture and supply exceeds the cost paid by GS during such period, LGLS shall invoice GS for the difference in cost, and GS shall pay such invoice within [***] after receipt thereof. In the event that the cost paid by GS for such manufacture and supply during such period exceeds LGLS’s actual cost, LGLS shall credit GS for such difference and apply such credit toward future costs. LGLS shall provide a similar accounting and reconciliation statement within [***] following the expiration or termination of the Initial Period for the period beginning January 1, 2004 and ending on the date of the expiration or termination of the Initial Period, and LGLS shall invoice or reimburse GS for any difference in costs, accordingly. Upon the reasonable request of GS within [***] following GS’s receipt of an accounting and reconciliation statement under this Section 5.9.5, LGLS shall allow GS to review LGLS’s documentation to support the accounting and reconciliation statement. Notwithstanding the foregoing, any reconciliation of costs by GS under this Section 5.9.5 shall be subject to the terms and conditions of this Agreement, including Section 5.2

20. Section 5.10 shall be deleted and revised as follows:

     Release Certificate. LGLS shall provide to GS with each delivery of Final Product or API a Release Certificate, a Certificate of Analysis, and a Certificate of Compliance signed by a

[***] Confidential portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission.

9

responsible person duly authorized by LGLS or GLAXO to certify the quality of Final Product or API delivered, each in a form reasonably acceptable to GS. The Release Certificate shall, inter alia, state that the results of the agreed upon testing procedures are in compliance with the Final Product or API Specifications as well as any additional applicable requirements of Regulatory Authorities. Without limiting the foregoing, unless expressly agreed by the Parties all Final Products or API supplied hereunder shall meet all release criteria established by the FDA or EMEA with respect to such Final Product or API.

21. Section 5.11 shall be revised to replace the term “Final Product” with the term “API.”

22. A new Section 5.13 shall be added, along with a new Schedule 10.2 attached hereto, which shall state as follows:

     Quality. The Parties have agreed to adopt certain manufacture and control procedures for API Production, which are set forth in Schedule 10.2 attached hereto.

23. A new Section 7.1.3 shall be added to state as follows:

     During the Initial Period and prior to the release of Final Products, LGLS shall ensure that the Final Product is tested in accordance with the testing procedures outlined in the Specifications and shall provide to GS a Certificate of Analysis and batch summary for each batch of the Final Products.

24. Section 7.4 shall be amended to add to the end of the paragraph the following:

     Upon receipt of any information from GLAXO regarding an Adverse Event, LGLS shall provide, or cause GLAXO to provide, written notice to GS of the occurrence of the Adverse Event as soon as possible, but (i) no later than twenty-four (24) hours following its receipt of information concerning a possible Serious Adverse Event and (ii) no later than forty-eight (48) hours following its receipt of information of a possible Adverse Event that is not a Serious Adverse Event.

25. Section 7.5.5 shall be amended to add the following:

     LGLS shall further have the obligation to immediately notify GLAXO of the recall, and to cause GLAXO to cooperate with LGLS and GS in administering the recall as the Parties require.

26. A new Section 7.7 shall be inserted, which states the following:

     Deviation Reports. If during the manufacture or other handling of a Final Product by GLAXO, (i) the process or analytical limits vary from the typical or established report ranges, release guidelines, or release limits, (ii) Specifications or cGMPs were not followed in the production of the Products, or (iii) the Products fail to conform to Specifications, then LGLS shall provide to GS, or cause GLAXO to provide to GS, the written report detailing such deviation (“Deviation Report”) prepared by GLAXO, along with all supporting documentation. The Deviation Report shall be attached to, and shall accompany, copies of all relevant batch records. Any batch or shipment of Final Product that is the subject of a nonconformity or a

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Deviation Report shall not be shipped to GS, unless otherwise directed by GS, or, if such Final Product was shipped and is held in stock by GS, then it shall be given a “Hold” or “Unpassed” status and shall not be released into the passed inventory of GS until GS has completed any investigations related to such Products and approved the disposition of the Final Product. GS shall provide written instructions to LGLS regarding the destruction of any nonconforming Final Products. The cost of destruction and the replacement cost of Final Product [***].

27. A new Section 7.8 shall be inserted, which states the following:

     Product Complaint. LGLS shall provide, or cause GLAXO to provide prompt written notification to GS of, any complaints of which GLAXO becomes aware relating to any Final Product, including, without limitation, those complaints which implicate GLAXO’s manufacturing or other processes.

28. A new Section 7.9 shall be inserted, which states the following:

     Regulatory Inspections. During the period that any Glaxo facility is engaged in the manufacture, packaging, generation, storage, testing, treatment, holding, transportation, distribution, release, or other handling or receiving of Final Product distributed or to be distributed by GS and LGLS is notified that any such Final Product or facility will be subject to inspection, LGLS shall promptly advise, or cause GLAXO to advise, GS of such inspection.

29. A new Section 7.10 shall be inserted which states the following:

     Audit and Inspection. During the period that any Glaxo facility is engaged in the manufacture, packaging, generation, storage, testing, treatment, holding, transportation, distribution, release, or other handling or receiving of Final Products distributed or to be distributed by GS, in the event of an Adverse Event associated with any Final Product or any proposed or actual inspection by the FDA or other governmental body of such Glaxo facility, or upon request by GS reasonably related to compliance by such Glaxo facility with applicable cGMP standards, LGLS shall promptly arrange for an audit and inspection of the portions of such GLAXO facility or facilities. All audits shall be conducted by an independent third party, who is selected by LGLS upon the prior written approval of GS, and copies of all audit results shall be provided to GS, which results shall be treated as GLAXO confidential information, pursuant to the Confidential Disclosure Agreement, dated January 24, 2003 and entered into between GLAXO and GS. GS shall be responsible for the cost of all audits conducted as a result of a GS request; provided, however, if the audit reveals any items of material non-compliance with applicable cGMP standards which is found to have caused such Adverse Event, then LGLS shall be responsible for the payment of all costs of such audit.

30. A new Section 7.11 shall be inserted, along with a new Schedule 10.3 attached hereto, which shall state as follows:

[***] Confidential portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission.

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     FDA Guaranty. LGLS has provided to GS a guaranty, attached hereto as Schedule 10.3, that the Products supplied to GS shall not be adulterated or misbranded as of the date of shipment or delivery so as to thereby not be in compliance with the Federal Food, Drug, and Cosmetic Act.

31. The phrase “Notwithstanding Section 8.1 hereinabove” should be inserted at the beginning of Section 8.2.

32. Sections 8.3, 8.4 and 8.5 shall be deleted and revised as follows:

     8.3 Infringement or Misappropriation of Intellectual Property Rights. If either Party learns of an infringement or threatened infringement of the LGLS Patents or GLAXO Patents, or of a misappropriation of LGLS Know-How, GLAXO Know-How or GS Know-How, in any state or country of the Territory in which exists a colorable cause of action for infringement, including patent infringement or provisional rights, or for misappropriation of trade secrets, it the Party first learning of or discovering the alleged infringement or misappropriation shall promptly notify the other Party in writing and shall provide the other Party with all information reasonably available to the notifying Party evidencing such infringement or threatened infringement, or of such misappropriation. Upon such notice, the parties shall in good faith consult in an effort to determine whether a reasonably prudent owner or licensee of intellectual property would institute litigation to enforce the rights at issue in light of all relevant business, economic, and legal factors (including the projected cost of litigation, the likelihood of success on the merits, the probable amount of any damage award, the prospects for satisfaction of any judgment against the alleged infringer or other potential defendant, the possibility of counterclaims against LGLS or GS, the diversion of LGLS’s or GS’s human and economic resources, the impact of any possible adverse outcome on LGLS or GS and the effect any publicity might have on LGLS’s or GS’s respective reputations and goodwill).

     If GS has standing, GS shall have the right, but not the obligation, to bring, defend and maintain any appropriate suit or action, or commence settlement negotiations with an alleged infringer, or other potential defendant, for abatement of the infringement or threatened infringement of the LGLS or GLAXO Patents, or of the misappropriation of LGLS Know-How, GLAXO Know-How or GS Know-How, in any state or country of the Territory, at GS’s sole expense. If GS lacks such standing and requests LGLS to join GS as a party in such suit or action in order for GS to bring such an action, LGLS shall execute all papers and perform such other acts as may be reasonably requested by GS, at GS’s expense. LGLS shall have the right to participate in any such suit or action using independent counsel, at its sole expense. Any amount recovered by GS as a result of such suit or action shall first be applied to reimburse each of the Parties, pro rata, for any costs or expenses incurred in bringing, defending and maintaining any such action. The balance (the “Net Recovery”) shall be for the sole benefit of GS. The Net Recovery shall be considered “Net Sales” with respect to the calendar quarter in which payment to GS was received, and royalties shall accordingly be paid on the amount of the Net Recovery exclusively at the rate(s) specified in Section 10.3, below. The Net Recovery shall be considered “Net Sales” for purposes of calculating annual Net Sales in accordance with Milestones 3 and 4 in Section 10.2, below.

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     If GS fails to initiate suit or action, or commence settlement negotiations with an alleged infringer, or other potential defendant, within 90 days after first notice of infringement or threatened infringement of the LGLS Patents or the GLAXO Patents, or of a misappropriation of LGLS Know-How, GLAXO Know-How or GS Know-How or if having initiated such suit or action it thereafter diligently fails to prosecute such suit or action, LGLS shall have the right, but not the obligation, to bring, defend and maintain any appropriate suit or action for abatement of the infringement or threatened infringement, or of a misappropriation of LGLS Know-How, GLAXO Know-How or GS Know-How, at LGLS’s sole expense. If LGLS requests GS to join LGLS as a party in such suit or action, GS shall execute all papers and perform such other acts as may be reasonably requested by LGLS, at LGLS’s expense. GS shall have the right to participate in any such suit or action using independent counsel, at its sole expense. Any amount recovered by LGLS as a result of such suit or action shall first be applied to reimburse each of the Parties, pro rata, for any costs or expenses incurred in bringing, defending and maintaining any such action. The balance shall be divided equally between the Parties. The amount of any recovery, net of the amounts necessary to reimburse the Parties as provided above shall be considered “Net Sales” for purposes of calculating annual Net Sales in accordance with Milestones 3 and 4 in Section 10.2, below. If such recovery is apportioned by the court such that portions thereof are attributed to infringing activity in different calendar years, or if such apportionment of the recovery can otherwise be readily ascertained, then such apportionment shall govern as to the calendar year(s) in which Net Sales shall be deemed to have occurred for purposes of such Milestones. Otherwise, the amount of such recovery shall be apportioned equally over the number of calendar years in which infringement was found to have occurred (or in the event of a settlement, over the number of calendar years in which it was alleged to have occurred).

     8.4 Third Party Claims. In the event a Third Party asserts a cause of action concerning alleged infringement of the Third Party’s patent by a Party, or in the event a LGLS Patent or GLAXO Patent is the subject of a legal action by a Third Party seeking declaratory relief, or is subject to an interference, inter partes reexamination or an opposition proceeding instituted by a Third Party, the Parties shall confer and determine whether to defend and how best to control the defense of any such Third Party action. If the Parties disagree whether a defense should be undertaken, then the party desiring to defend the action or proceeding, if such party has standing, may proceed with such defense, but shall be under no obligation to do so, and shall pay its own expenses. In the event the Parties agree that the Third Party action should be defended, such defense shall be controlled by GS with respect to the Territory and by LGLS with respect to outside of the Territory. In each such case, the other Party, if it has standing, shall have the right, at its own expense, to participate in such defense, and to be represented in any such Third Party action by counsel of its choice at its sole discretion. With respect to any such Third Party action, the Party entitled to control defense shall also have the right to control settlement of such Third Party action; provided, however, that no settlement shall be entered into without the written consent of the other Party, which consent shall not be withheld unreasonably. In any event, the Party first obtaining knowledge of such Third Party action shall immediately provide the other Party written notice of such and the related facts in reasonable detail, and the Party involved in defending any such Third Party action or proceeding, shall keep the other Party reasonably informed, in writing, of the progress of any such proceeding.

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     8.5 Ownership. Subject to Section 9.2, below, each Party shall have and retain sole and exclusive title to all inventions, discoveries and know-how which are made, conceived, reduced to practice or generated solely by its employees or agents in the course of or as a result of this Agreement. Each Party shall own an equal undivided interest in all such inventions, discoveries and know-how made, conceived, reduced to practice or generated jointly by the employees or agents of one Party and the employees or agents of the other Party. Notwithstanding the foregoing, inventorship of patentable inventions shall be in accordance with applicable patent law, and ownership of such patentable inventions shall be determined consistent with applicable law concerning inventorship and inventors’ obligation to assign.

          8.5.1 Patent Filings for Joint Inventions. The Parties as joint owners of any joint invention shall jointly pay for the prosecution and maintenance of all Patents directed thereto. All information disclosed to either Party under this Section 8.5.1 shall be deemed to be Confidential Information of the disclosing Party. In the event that a Party elects not to file or discontinues the prosecution or maintenance of any Patents directed to a joint invention, then the other Party may, at its expense, choose to file or continue with the cooperation of the Party choosing not to proceed. A non-electing Party shall assign the Patents on joint inventions to the other electing Party, subject to a non-exclusive, royalty-free and irrevocable license to the non-electing Party under the Patent for the life of the Patent, unless it is determined that such an assignment could endanger the patent estate of the electing Party.

          8.5.2 Further Assurances. Each party has or shall obtain appropriate written agreements from all of its respective employees and agents, without limitation and executed at or as of the commencement of employment or agency, which agreements shall require that all discoveries and inventions conceived or reduced to practice by any individual as a result of the employment or agency shall be promptly reported, fully disclosed, and assigned to the Party employing or otherwise hiring that individual. In the event a patent application is filed directed to the subject matter of the invention, any such assignment shall be promptly recorded in the appropriate patent office(s).

33. A new Section 8.6 shall be inserted which states the following:

     8.6 Covenants. In connection with any proceeding subject to Sections 8.3 or 8.4, neither Party shall enter into any agreement, settlement, or otherwise take any action that results in or constitutes an admission regarding (i) wrongdoing on the part of the other Party, or (ii) the validity, enforceability or absence of infringement of any intellectual property owned by the other Party, without the prior written consent of the affected Party. The Parties shall cooperate in good faith with each other in connection with any such claim, suit or proceeding and shall keep each other reasonably informed, in writing, of all material developments in connection with any such claim, suit or proceeding.

34. Sections l0.3 and 10.4 shall be deleted and revised as follows:

     10.3 Royalty Payments. In addition to the foregoing license fee and milestone payments, commencing on the second anniversary of the first commercial sale of Product in the Territory, GS shall, subject to Sections 4.3 and 10.4 pay to LGLS royalties on Net Sales in each calendar year at the following rates:

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Annual Net Sales	Royalty Rate
on the first $100 million	[***] percent
over $100 million to $150 million	[***] percent
over $150 million to $200 million	[***] percent
over $200 million	[***] percent

The Parties acknowledge that LGLS has incurred a royalty obligation to GLAXO at a rate of [***] percent of Net Sales for the use of the GLAXO Patents, the GLAXO Know-how and the Trademarks (the “GLAXO Royalty”). During the first two years following first commercial sale of Product in the Territory, GS shall be solely responsible only for payment of the GLAXO Royalty, and all amounts so due shall be paid in accordance with Sections 10.7-10.11 below. Thereafter (i) GS shall pay royalties to LGLS at the royalty rate(s) set forth above, and (ii) LGLS shall be solely responsible for payment of the GLAXO Royalty and shall indemnify GS and hold GS harmless from and against any claims by GLAXO as a result of such use by GS of the GLAXO Patents.

     10.4 Term of Royalty Obligations. GS’s obligation to make royalty payments pursuant to Section 10.3 shall commence as provided in Section 10.3 and shall continue until the later of: (i) the expiration of the last to expire of the LGLS Patents and GLAXO Patents claiming or covering such Product in such country, and (ii) 10 years after first commercial sale of such Product in such country. Following the expiration of GS’s royalty obligations, GS shall retain a non-exclusive, royalty-free right to use, sell and offer for sale Product in the Territory, using LGLS Know-how and GLAXO Know-how licensed to GS as of the Effective Date and the exclusive right to use the Trademarks for such purposes. GS shall continue to pay to LGLS a royalty in return for such right to use the Trademark, as provided in Section 11.4, below.

35. A new Section 13.7.5 shall be inserted, which states the following:

     Obsolete Materials. Upon the end of the Initial Period, GS shall pay for Obsolete Materials in the possession of LGLS in accordance with the terms of Section 5.4.4 of this Agreement. Upon the request of GS, LGLS shall deliver such Obsolete Materials to GS and shall transfer the title to such Obsolete Materials to GS, at GS’s expense. For the removal of doubt, this Section 13.7.5 applies to Obsolete Materials upon the end of the Initial Period and Section 5.4.4 applies to Obsolete Materials during the Initial Period.

36. Section 13.9 shall be amended to include the following provisions, which shall survive upon expiration or termination of the License: Sections 7.8 and 7.9.

37. Section 14.4 shall be deleted and revised to state as follows:

     Insurance.

     14.4.1. One week prior to the first delivery of Final Product and for a period of [***] after the expiration or termination of this Agreement, each Party shall obtain, and thereafter

[***] Confidential portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission.

15

maintain, at its sole cost and expense, product liability insurance in amounts which are reasonable and customary in the U.S. pharmaceutical industry for companies of comparable size and activities in a country or countries in the Territory in which Regulatory Approval for sale of a Product is obtained, provided that such reasonable and customary product liability insurance is available in such particular country or countries in the territory. Such product liability insurance shall insure against all liability arising as a result of activities completed or permitted under this Agreement (including, without limitation, liability for personal injury, physical injury, and property damage). The Parties expressly agree that, for the period commencing as of the Effective Date and ending as of the first anniversary of the Effective Date, the reasonable and customary amount of product liability insurance shall be construed to be as follows: primary coverage in the amount of [***]. The Parties further agree that these amounts of coverage shall be re-evaluated on an annual basis within thirty (30) days prior to the anniversary of the Effective Date, and that this Section 14.4.1 shall be amended accordingly as necessary. During the Initial Period, GLAXO shall be named as an additional insured on all policies arising under this Section 14.4.1.

     14.4.2 GS further agrees that it shall obtain and maintain during the Initial Period general liability insurance in the total coverage amounts of [***], which shall insure against bodily injury, property damage, personal injury, and advertising injury claims, which are covered under the policy. LGLS agrees that it shall obtain and maintain during the term of this Agreement general liability insurance in the minimum primary coverage amount of [***], which shall insure against bodily injury, property damage, personal injury, and advertising injury claims, which are covered under the policy. The Parties further agree that these amounts of coverage shall be re-evaluated on an annual basis within thirty (30) days prior to the anniversary of the Effective Date, and that this Section 14.4.2 shall be amended accordingly as necessary. During the Initial Period, GLAXO shall be named as an additional insured on all policies arising under this Section 14.4.2.

     14.4.3 Each Party shall provide written proof of the existence of such insurance to the other Party promptly upon request.

38. In Section 16.2, add the phrase “, acts of terrorism” after the word “war”.

     Except as is expressly provided herein, the License, along with any and all prior amendments thereto, shall remain in full force and effect.

[***] Confidential portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission.

16

     IN WITNESS WHEREOF, the Parties have executed this Agreement in duplicate originals by the proper officers as of the Amendment Effective Date.

GENESOFT PHARMACEUTICALS, INC.		LG LIFE SCIENCES, LTD. INC.
By:	/s/ David B. Singer	By:	/s/ Heung Joon Yang
Its:	Chairman and CEO	Its:	President and CEO

17

Schedule 10.2
Quality Agreement

OBJECTIVE OF THE AGREEMENT

This agreement covers the manufacture and control procedures for API production made by LG Life Sciences (LGLS) for Genesoft Pharmaceuticals Inc. (Genesoft). [***]

[***]	[***]	[***]
[***]	[***]	[***]
	[***]
[***]	[***]	[***]
	[***]
	[***]
	[***]
	[***]
	[***]
[***]	[***]	[***]
	[***]
	[***]	[***]
	[***]	[***]
[***]	[***]	[***]
	[***]	[***]
	[***]	[***]

[***] Confidential portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission.

18

[***]	[***]	[***]
[***]	[***]	[***]
	[***]
	[***]
[***]	[***]	[***]
	[***]	[***]
	[***]
	[***]
	[***]	[***]
	[***]
	[***]
[***]	[***]	[***]
[***]	[***]	[***]
	[***]
[***]	[***]
[***]	[***]
[***]	[***]	[***]
[***]	[***]	[***]

[***] Confidential portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission.

19

The following table defines the Quality & Technical representatives from both LGLS and Genesoft:

LGLS Representative	Genesoft Representative
Name: Mr. Yong-Jae Lee	Mr. Lewis Michaels
Title: QA Team Head, General Manager	Genesoft Pharmaceuticals, Inc.
LG Life Sciences, Ltd.	7300 Shoreline Court
Address: 601 Yongjei-dong, Iksan City	South San Francisco, CA 94080
Chunbuk-do 570-350, Korea	Tel: (650) 837-1802
Tel: 82-(0)63-830-4270 (office)	Email: lmichaels@genesoft.com
82-(0)19-484-1618 (mobile) Fax:
82-(0)63-830-4204
e-mail: yjleeb@lgls.co.kr

20

Schedule 10.3
Guaranty

     The article comprising each shipment or other delivery hereafter made by LG LIFE SCIENCES, LTD. (“LGLS”), a corporation organized and existing under the laws of the Republic of Korea, having its principal place of business at LG Twin Tower, 20 yoido-dong, Youngdungpo-gu, Seoul, 150-721, Republic of Korea, to, or in the order of, GENESOFT PHARMACEUTICALS, INC. (“GS”), a Delaware corporation having its principal place of business at 7300 Shoreline Court, South San Francisco, CA, USA 94080, is hereby guaranteed, as of the date of such shipment or delivery, to be, on such date, not adulterated or misbranded within the meaning of the Federal Food, Drug, and Cosmetic Act (the “Act”), as amended, and not an article which may not, under the provisions of Section 505 or of the Act, be introduced into interstate commerce.

     This Guaranty shall be governed, construed, and interpreted under the laws of the State of California, USA, without regard to conflict of laws principles, and shall not be assigned by either party except upon the prior written consent of the other party or upon the merger or acquisition of all or part of the assets of GS. This Guaranty shall be binding and inure to the benefit of the successors and permitted assigns of the Parties, and any assignment not in accordance with this Guaranty shall be void.

     This Guaranty is signed and executed on this the 27th day of February, 2003 (the “Effective Date”) and shall remain in effect until the final expiration date of the last of the unexpired Final Product, which is supplied or delivered to GS by LG, pursuant to the Supply Agreement between LGLS and SB PHARMCO PUERTO RICO, INC., a corporation organized and existing under the laws of the Commonwealth of Puerto Rico, having its principal office at Road 172, KM 9.1/Bo. Certenejas, Cidra, Puerto Rico 00739, dated as of February 26, 2003.

By:	/s/ Soon-Jae Park
Printed Name: Soon-Jae Park, Ph.D.
Title: Vice President
Address:		LG LIFE SCIENCES, LTD. LG Twin Tower 20 yoido-dong, Youngdungpo Seoul, 150-721, Republic of Korea

21

AMENDMENT NO. 4 TO LICENSE & OPTION AGREEMENT

     THIS AMENDMENT NO. 4 TO THE LICENSE & OPTION AGREEMENT (“Amendment No. 4”) is made and entered into this 31st day of March, 2005 (the “Amendment No. 4 Effective Date”) by and between Oscient Pharmaceuticals Corporation (formerly Genome Therapeutics Corporation) (“OSCIENT”), a Massachusetts corporation, having a principal place of business at 1000 Winter Street, Suite 2200, Waltham, MA 02451, and LG Life Sciences, LTD (“LGLS”), a corporation organized under the laws of the Republic of Korea, having a principal place of business at LG Twin Tower, 20 yoido-dong, Youngdungpo-gu, Seoul, 150-721, Republic of Korea. LGLS and OSCIENT may be referred to herein individually as a “Party” and collectively as the “Parties”.

W I T N E S S E T H

     WHEREAS, LGLS and GeneSoft Pharmaceuticals, Inc. entered into a certain License and Option Agreement dated October 22, 2002 and amended said License and Option Agreement by Amendment No. 1 dated November 21, 2002, Amendment No. 2 dated December 6, 2002 and Amendment No. 3 dated October 16, 2003 (as amended, the “License”);

     WHEREAS, GeneSoft merged into GeneSoft Pharmaceuticals, LLC (then Guardian Holdings, LLC (“Guardian”)) on February 6, 2004 and the benefits of and obligations under the License were assigned to Guardian and then, Guardian assigned all of its right, title and interest in, to and under the License to OSCIENT;

     WHEREAS, the Parties desire to amend the License.

     NOW THEREFORE, in consideration of the premises, and other good and valuable consideration, the sufficiency of which is hereby acknowledged, the Parties agree as follows:

1. A new Section 4.3 (c) shall be added:

4.3 Co-Promotion.

(c) LGLS’s option under subsection (a) above with respect to the United States shall terminate and no longer be exercisable upon annual Net Sales in the United States reaching $[***].

2. Section 5.2 (iii) shall be deleted in its entirety and replaced with the following:

5.2 Supply Price.

     (iii) The supply price for API provided by LGLS to OSCIENT during the Remaining Period, shall be equal to [***] percent of LGLS’s Fully Burdened Cost of Manufacture for API supplied thereunder, which shall in no event [***] $[***] per kg [***] $[***] per kg. In addition, (i) if total purchases by OSCIENT plus any other purchasers of bulk API is greater than [***] kg in any calendar year, the $[***] supply price shall be reduced by $[***] per kg for each additional [***] kg of API purchased in excess of [***] kg in such calendar year by OSCIENT plus any other purchasers, and (ii) the bulk supply price (including the [***] price) shall be renegotiated in good faith in the event that OSCIENT purchases more

[***] Confidential portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission.

than [***] kg of API in any twelve (12) month period. In the event that there is an interruption in LGLS’s supply of API for any reason, which continues uncured for more than [***] days, then OSCIENT shall have the right to procure an alternative source of supply for the duration of the interruption (“Second Source Supplier”). Notwithstanding the foregoing, OSCIENT shall only have the right to procure a Second Source Supplier in the event that the interruption arises with respect to a supply order quantity, which is less than or equal to [***] percent of the quantity anticipated by OSCIENT in the most recently updated forecast, immediately preceding the submission of the supply order. LGLS shall have the opportunity to resume its supply of API upon the elimination or resolution of the events causing the interruption; provided that, however, LGLS shall not resume its role as the exclusive supplier until OSCIENT is able to negotiate a termination of its purchase obligations with the Second Source Supplier. LGLS shall be responsible for any expenses incurred in excess of the price set forth herein, including any expenses related to the termination of any agreement with the Second Source Supplier; provided, however, that LGLS shall not be responsible for such excess expenses to the extent that such interruption is due to the negligence or malfeasance of OSCIENT.

3. Section 10.2 shall be deleted in its entirety and replaced with the following:

10.2 Milestone Payments. Within 30 days after the achievement of each milestone set forth below, OSCIENT shall owe a non-refundable milestone payment to LGLS in the amount set forth below. Each milestone payment shall be due only once, notwithstanding the number of Products actually developed or commercialized by OSCIENT hereunder. Milestone Payments 2, 3 and 4, when earned by LGLS, shall be payable in two installments, the first of which shall be payable on the first day of July or the first day of January (which comes first following the date on which the milestone was earned) and the second installment due six months thereafter. All other milestone payments shall be due 30 days after the relevant milestone event.

Milestone Event	Payment
1. Upon the signing of this Amendment No. 4.	$	2 million
2. Upon annual Net Sales in the United States reaching $[***].	$	[***]
3. Upon both: (i) approval for the first Additional Indication or approval of an IV formulation of the Product, and (ii) annual Net Sales in the Territory reaching $[***].	$	[***]
4. Upon both: (i) approval for a second Additional Indication or approval of an IV formulation of the Product, and (ii) annual Net Sales in the Territory reaching $380 million.	$	[***]

[***] Confidential portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission.

-2-

Milestone Event	Payment
5. Upon approval of the Product for an Initial Indication in the United Kingdom.	$	[***]
6. Upon approval of the Product for an Initial Indication in the first of Italy, Germany, France, or Spain.	$	[***]

As used in this section 10.2, “IV formulation” shall mean a formulation of Product for intravenous administration.

4. Section 10.3 shall be deleted in its entirety and replaced with the following:

10.3 Royalty Payments. In addition to the foregoing license fee and milestone payments, commencing on the second anniversary of the first commercial sale of Product in the Territory, OSCIENT shall, subject to Sections 4.3 and 10.4, pay to LGLS royalties on Net Sales in each calendar year at the following rates:

Annual Net Sales	Royalty Rate
On the first $100 million	[***] percent
Over $100 million to $150 million	[***] percent
Over $150 million to $200 million	[***] percent
Over $200 million to $300 million	[***] percent
Over $300 million	[***] percent

The Parties acknowledge that LGLS has incurred a royalty obligation to GLAXO at a rate of [***] percent of Net Sales for the use of the GLAXO Patents, the GLAXO Know-how and the Trademarks (the “GLAXO Royalty”). During the first two years following first commercial sale of Product in the Territory, OSCIENT shall be solely responsible only for payment of the GLAXO Royalty, and all amounts so due shall be paid in accordance with Sections 10.7 through 10.11 below. Thereafter (i) OSCIENT shall pay royalties to LGLS at the royalty rate(s) set forth above, and (ii) LGLS shall be solely responsible for payment of the GLAXO Royalty and shall indemnify OSCIENT and hold OSCIENT harmless from and against any claims by GLAXO as a result of such use by OSCIENT of the GLAXO Patents.

     Except as is expressly provided herein the License shall remain in full force and effect.

[***] Confidential portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission.

-3-

     IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by their duly authorized officers on the Execution Date.

OSCIENT PHARMACEUTICALS CORPORATION		LG LIFE SCIENCES LTD.
By:	/s/ Steven M. Rauscher	By:	/s/ Heung Joon Yang
Name:	Steven M. Rauscher	Name:	Heung Joon Yang, Ph.D.
Title:	Chief Executive Officer & President	Title:	Chief Executive Officer & President
Date:	3/31/05	Date:	31/3/05

-4-

AMENDMENT No. 5 TO LICENSE & OPTION AGREEMENT

     THIS AMENDMENT No. 5 TO THE LICENSE & OPTION AGREEMENT (“Amendment No. 5”) is made and entered into this February 3, 2006 (the “Amendment No. 5 Effective Date”) by and between Oscient Pharmaceuticals Corporation (“OSCIENT”), a Massachusetts corporation, having a principal place of business at 1000 Winter Street, Suite 2200, Waltham, MA 02451, and LG Life Sciences, LTD (“LGLS”), a corporation organized under the laws of the Republic of Korea, having a principal place of business at LG Twin Tower, 20 yoido-dong, Youngdungpo-gu, Seoul, 150-721, Republic of Korea. LGLS and OSCIENT may be referred to herein individually as a “Party” and collectively as the “Parties”.

W I T N E S S E T H

     WHEREAS, LGLS and Genesoft Pharmaceuticals, Inc. (“Genesoft”) entered into a certain License and Option Agreement dated October 22, 2002 and amended said License and Option Agreement by Amendment No. 1 dated November 21, 2002, Amendment No. 2 dated December 6, 2002, Amendment No. 3 dated October 16, 2003 and Amendment No. 4 dated March 31, 2005 (as amended, the “License”);

     WHEREAS, Genesoft merged into Genesoft Pharmaceuticals, LLC (then Guardian Holdings, LLC (“Guardian”)) on February 6, 2004 and the benefits of and obligations under the License were assigned to Guardian, and then, Guardian assigned all of its right, title and interest in, to and under the License to OSCIENT;

     WHEREAS, the Parties desire to amend the License to, among other things, amend the supply price paid by Oscient and to amend the royalty rate with respect to Product sales in Mexico and Canada; and

     WHEREAS, the terms used herein with capital initial letters and not otherwise defined shall have the same meanings as set forth in License.

     NOW THEREFORE, in consideration of the premises, and other good and valuable consideration, the sufficiency of which is hereby acknowledged, the Parties agree as follows:

1. A new Section 4.3 (d) shall be inserted as follows:

4.3 Co-Promotion.

     (d) (i) Upon OSCIENT entering into a strategic relationship with a Third Party which grants such Third Party a sublicense to commercialize Product (a “Partnership”) in Mexico within forty five (45) days from the Amendment No.5 Effective Date, LGLS’ option under subsection 4.3(a) above with respect to Mexico shall terminate and no longer be exercisable; provided that, the Parties agree that such 45-day period may be extended by mutual agreement of the Parties.

     (ii) Upon OSCIENT entering into a Partnership in Canada within one hundred twenty (120) days from the Amendment No. 5 Effective Date, LGLS’ option under subsection 4.3(a) above with respect to Canada shall terminate and no longer be exercisable; provided that, the Parties agree that such 120-day period may be extended by mutual agreement of the Parties.

[***] Confidential portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission.

2. Section 5.1(a)(ii) shall be deleted in its entirety and replaced with the following:

5.1 General.

     (a)(ii) Following the expiration or termination of the Initial Period and until the expiration or termination of the License (the “Remaining Period”), LGLS shall supply to OSCIENT, and OSCIENT shall exclusively purchase from LGLS, all of OSCIENT’s requirements of API in bulk form according to the API Specifications; provided that, notwithstanding anything herein to the contrary, Oscient’s obligation to exclusively purchase bulk API from LGLS for Final Product or API to be supplied in Mexico or Canada shall expire on the last to expire of the LGLS Patents and GLAXO Patents claiming or covering such Product in Mexico or Canada, as the case may be; provided that, OSCIENT agrees that it shall exclusively purchase from LGLS all requirements of API in bulk for Mexico and/or Canada, as the case may be, so long as OSCIENT continues to supply API or Final Product in Mexico or Canada pursuant to a Partnership.

3. Section 5.2 (iii) shall be deleted in its entirety and replaced with the following:

5.2 Supply Price.

     (iii) The supply price for API provided by LGLS to OSCIENT during the Remaining Period, shall be equal to [***] percent of LGLS’s Fully Burdened Cost of Manufacture for API supplied thereunder, which shall in no event [***] $[***] per kg [***] $[***] per kg. In addition, if total purchases by OSCIENT plus any other purchasers of bulk API is greater than [***] kg in any calendar year, the $[***] supply price shall be reduced by $[***] per kg for each additional [***] kg of API purchased in excess of [***] kg in such calendar year by OSCIENT plus any other purchasers; provided however, that in the event OSCIENT purchases more than [***] kg of API in any calendar year (the first such calendar year, the “Threshold Year”), OSCIENT shall pay LGLS $[***] per kg for all API purchased during such calendar year. Within thirty (30) days after the end of the Threshold Year, LGLS shall reimburse OSCIENT the difference between (a) the actual amount paid by OSCIENT for API purchased during such year and (b) $[***] per kg times the number of kg purchased for such year. After the Threshold Year, OSCIENT shall continue to pay $[***] per kg unless OSCIENT purchases less than [***] kg of API during any calendar year. In the event OSCIENT purchases less than [***] kg of API during such calendar year, OSCIENT shall pay LGLS the difference between (x) $[***] times the number of kg purchased and (y) the amount paid to LGLS for API purchased during such calendar year (i.e. $[***] times the number of kg purchased) within thirty (30) days after the end of such calendar year. In the event that there is an interruption in LGLS’s supply of API for any reason, which continues uncured for more than [***] days, then OSCIENT shall have the right to procure an alternative source of supply for the duration of the interruption (“Second Source Supplier”). Notwithstanding the foregoing, OSCIENT shall only have the right to procure a Second Source Supplier in the event that the interruption arises with respect to a supply order quantity, which is less than or equal to [***] percent of the quantity anticipated by OSCIENT in the most recently updated forecast, immediately preceding the submission of the supply order. LGLS shall have the opportunity to resume its supply of API upon the elimination or resolution of the events causing the interruption; provided that, however, LGLS shall not resume its role as the exclusive supplier until OSCIENT is able to negotiate a termination of its purchase obligations with the Second Source Supplier; and provided further that OSCIENT shall use commercially reasonable efforts to enter into an agreement with a Second Source Supplier

[***] Confidential portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission.

that allows for such termination of OSCIENT’s purchase obligations within [***] months of notice to the Second Source Supplier (provided that, Oscient shall not enter into an agreement with a Second Source Supplier that requires more than [***] months notice to terminate an agreement without LGLS’ prior consent, such consent not to be unreasonably withheld or delayed). LGLS shall be responsible for any expenses incurred in excess of the price set forth herein; provided, however, that LGLS shall not be responsible for such excess expenses to the extent that such interruption is due to the negligence or malfeasance of OSCIENT.

4. The first sentence of Section 5.5.5 shall be amended to read as follows:

“Upon the commencement of the Remaining Period, OSCIENT shall provide to LGLS a non-binding forecast of the quantities of API to be manufactured during the forthcoming [***]-year period for each country in the Territory, including, without limitation, Mexico and Canada.”

All other parts of Section 5.5.5 shall remain unchanged.

5. Section 9.3 shall be deleted in its entirety and replaced with the following:

9.3 Sub-licensing. OSCIENT may sub-license the license granted to it hereunder on prior notice to LGLS. Upon prior notice to OSCIENT, LGLS may sub-license the license granted to it with respect to GS Know-how (including, without limitation, data and information related to the 5-Day CAP trial or other additional indications for the Product developed by OSCIENT) to Third Parties; provided that, LGLS may not sub-license its rights to such GS Know-how to any Third Party intending to commercialize the Product in any country in the Territory or, without OSCIENT’s prior consent, any country listed on Exhibit A attached hereto.

6. Section 10.2 shall be deleted in its entirety and replaced with the following:

10.2 Milestone Payments. Within 30 days after the achievement of each milestone set forth below, OSCIENT shall owe a non-refundable milestone payment to LGLS in the amount set forth below. Each milestone payment shall be due only once, notwithstanding the number of Products actually developed or commercialized by OSCIENT hereunder. Milestone Payments 1, 2 and 3, when earned by LGLS, shall be payable in two installments, the first of which shall be payable on the first day of July or the first day of January (which comes first following the date on which the milestone was earned) and the second installment due six months thereafter. All other milestone payments shall be due 30 days after the relevant milestone event unless otherwise indicated.

Milestone Event	Payment
1. Upon annual Net Sales in the United States reaching $[***].	$	[***]
2. Upon both: (i) approval for the first Additional Indication or approval of an IV formulation of the Product, and (ii) annual Net Sales in the Territory reaching $[***].	$	[***]

[***] Confidential portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission.

Milestone Event	Payment
3. Upon both: (i) approval for a second Additional Indication or approval of an IV formulation of the Product, and (ii) annual Net Sales in the Territory reaching $380 million.	$	[***]
4. Upon approval of the Product for an Initial Indication in the United Kingdom.	$	[***]
5. Upon approval of the Product for an Initial Indication in the first of Italy, Germany, France, or Spain.	$	[***]
6. Upon signing of each Partnership in Mexico.	$	[***]
7. Upon signing of each Partnership in Canada.	$	[***]
8. Upon approval of the Product in Mexico.	$	[***]
9. Upon approval of the Product in Canada, except for any indication approved prior to the Amendment # 5. Effective Date.	$	[***]

As used in this Section 10.2, “IV formulation” shall mean a formulation of Product for intravenous administration.

7. Section 10.3 shall be deleted in its entirety and replaced with the following:

10.3 Royalty Payments. In addition to the foregoing license fee and milestone payments, commencing on the second anniversary of the first commercial sale of Product in the United States of America,

     (i) OSCIENT shall, subject to Sections 4.3 and 10.4, pay to LGLS royalties on Net Sales in the Territory, except for (a) any Net Sales in Mexico if OSCIENT enters into a Partnership in Mexico with a Third Party and (b) any Net Sales in Canada if OSCIENT enters into a Partnership in Canada with a Third Party, for each calendar year at the following rates:

Annual Net Sales	Royalty Rate
On the first $100 million	[***] percent
Over $100 million to $150 million	[***] percent
Over $150 million to $200 million	[***] percent
Over $200 million to $300 million	[***] percent
Over $300 million	[***] percent

     (ii) OSCIENT shall, subject to Sections 4.3 and 10.4 and in lieu of the royalty obligations set forth in Section 10.3(i) above with respect to Net Sales in Mexico and Canada, pay to LGLS (a) a royalty of [***] % on Net Sales in Mexico for each calendar year if Oscient enters into a Partnership

[***] Confidential portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission.

in Mexico within forty-five (45) days of the Amendment No. 5 Effective Date, and (b) a royalty of [***] % on Net Sales in Canada for each calendar year if Oscient enters into a Partnership in Canada within one-hundred twenty (120) days of the Amendment No. 5 Effective Date; provided, however, that if the Partnership entered into in Mexico or Canada, as the case may be, terminates, then from and after such termination, the royalties payable in respect of Net Sales in Mexico or Canada, as the case may be, shall be paid in accordance with clause (i) of this Section 10.3.

The Parties acknowledge that LGLS has incurred a royalty obligation to GLAXO at a rate of [***] percent of Net Sales for the use of the GLAXO Patents, the GLAXO Know-how and the Trademarks (the “GLAXO Royalty”). During the first two years following first commercial sale of Product in the Territory, OSCIENT shall be solely responsible only for payment of the GLAXO Royalty, and all amounts so due shall be paid in accordance with Sections 10.7 through 10.11 below. Thereafter (a) OSCIENT shall pay royalties to LGLS at the royalty rates set forth above, and (b) LGLS shall be solely responsible for payment of the GLAXO Royalty and shall indemnify OSCIENT and hold OSCIENT harmless from and against any claims by GLAXO as a result of such use by OSCIENT of the GLAXO Patents.

8. Section 10.4 shall be deleted in its entirety and replaced with the following:

10.4 Term of Royalty Obligations. OSCIENT’s obligation to make royalty payments pursuant to 10.3 shall commence as provided in Section 10.3 and shall continue until the later of: (i) the expiration of the last to expire of the LGLS Patents and GLAXO Patents claiming or covering such Product in such country, and (ii) 10 years after first commercial sale of such Product in such country; provided however, that, OSCIENT’s obligation to make royalty payments pursuant to 10.3 for Net Sales in Mexico and Canada shall continue until the later of: (I) the expiration of the last to expire of the LGLS Patents and GLAXO Patents claiming or covering such Product in Mexico or Canada, as the case may be, and (II) the period of data exclusivity in Mexico or Canada, as the case may be. Following the expiration of OSCIENT’s royalty obligations, OSCIENT shall retain a non-exclusive, royalty-free right to use, sell and offer for sale Product in the Territory, using LGLS Know-how and GLAXO Know-how licensed to OSCIENT as of the Effective Date and the exclusive right to use the Trademarks for such purposes. OSCIENT shall continue to pay LGLS a royalty in return for such right to use the Trademark, as provided in Section 11.4, below.

9. Section 10.8(b) shall be amended to add to the end of the paragraph the following sentence:

     On and after the Threshold Year, this Section 10.8(b) shall be of no force and effect.

10. (i) Sections 1 (as to Section 4.3(d)(i) of the License), 2 (as to Section 5.1(a)(ii) of the License with respect to supply of Product in Mexico), 6 (as to milestone Nos. 6 and 8 only), 7 (as to Sections 10.3(i)(a) and 10.3(ii)(a) of the License), and 8 (as to Section 10.4(I) & (II) of the License (with respect to Mexico)) of this Amendment No. 5 shall become null and void within forty five (45) days of the Amendment 5 Effective Date unless (i) OSCIENT enters into a Partnership in Mexico within forty five (45) days of the Amendment 5 Effective Date, or (ii) the Parties mutually agree to extend such 45-day period.

     (ii) Sections 1 (as to Section 4.3(d)(ii) of the License), 2 (as to Section 5.1(a)(ii) of the License with respect to supply of Product in Canada), 6 (as to milestone Nos. 7 and 9 only), 7 (as to Sections 10.3(i)(b) and 10.3(ii)(b) of the License), and 8 (as to Section 10.4(I) & (II) of the License

[***] Confidential portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission.

(with respect to Canada)) of this Amendment No. 5 shall become null and void within one hundred twenty (120) days of the Amendment 5 Effective Date unless (i) OSCIENT enters into a Partnership in Canada within one hundred twenty (120) days of the Amendment 5 Effective Date, or (ii) the Parties mutually agree to extend such 120-day period.

11. Notwithstanding the foregoing or any other provision of this Amendment No. 5, Section 3 (dealing with Section 5.2 Supply Price of the License), Section 5 (dealing with Section 9.3 Sub- licensing of the License) and Section 9 (dealing with Section 10.8(b) of the License) of this Amendment No. 5 shall be and remain in full force and effect as of the Amendment No. 5 Effective Date.

12. Except as is expressly provided herein the License shall remain in full force and effect.

     IN WITNESS WHEREOF, the Parties have caused this Amendment No. 5 to be executed by their duly authorized officers on the Amendment No. 5 Effective Date.

OSCIENT PHARMACEUTICALS CORPORATION		LG LIFE SCIENCES LTD.
By:	/s/ Steven M. Rauscher	By:	/s/ In-Chull Kim
Name:	Steven M. Rauscher	Name:	In-Chull Kim
Title:	Chief Executive Officer & President	Title:	Chief Executive Officer & President
Date:		Date:

[***] Confidential portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission.

EXHIBIT A

Poland
Czech Republic
Slovakia
Slovenia
Hungary
Estonia
Latvia
Lithuania
Liechtenstein
Malta
Cypress
Romania
Bulgaria
Croatia
Serbia and Montenegro
Bosnia and Herzegovina
Macedonia
Albania

AMENDMENT NO. 6 TO LICENSE & OPTION AGREEMENT

     THIS AMENDMENT NO. 6 TO THE LICENSE & OPTION AGREEMENT (“Amendment No. 6”) is made and entered into this February 3, 2006 (the “Amendment No 6 Effective Date”) by and between Oscient Pharmaceuticals Corporation (“OSCIENT”), a Massachusetts corporation, having a principal place of business at 1000 Winter Street, Suite 2200, Waltham, MA 02451, and LG Life Sciences, LTD (“LGLS”), a corporation organized under the laws of the Republic of Korea, having a principal place of business at LG Twin Tower, 20 yoido-dong, Youngdungpo-gu, Seoul, 150-721, Republic of Korea. LGLS and OSCIENT may be referred to herein individually as a “Party” and collectively as the “Parties”.

W I T N E S S E T H

     WHEREAS, LGLS and Genesoft Pharmaceuticals, Inc. (“Genesoft”) entered into a certain License and Option Agreement dated October 22, 2002 and amended said License and Option Agreement by Amendment No. 1 dated November 21, 2002, Amendment No. 2 dated December 6, 2002, Amendment No. 3 dated October 16, 2003, Amendment No. 4 dated March 31, 2005, and Amendment No. 5 dated February 3, 2006 (as amended, the “License”);

     WHEREAS, Genesoft merged into Genesoft Pharmaceuticals, LLC (then Guardian Holdings, LLC (“Guardian”)) on February 6, 2004 and the benefits of and obligations under the License were assigned to Guardian, and then, Guardian assigned all of its right, title and interest in, to and under the License to OSCIENT; and

     WHEREAS, the terms used herein with capital initial letters and not otherwise defined shall have the same meanings as set forth in License.

     NOW THEREFORE, in consideration of the premises, and other good and valuable consideration, the sufficiency of which is hereby acknowledged, the Parties agree as follows:

1. Section 9.3 shall be amended to add to the end of the paragraph the following:

In consideration of the right to grant sublicenses granted by LGLS to OSCIENT in this Section 9.3, OSCIENT agrees to the following:

     (a) within [***] of establishing the date of any Potential Collaboration Meeting (defined herein) with any Third Party, but in no event later than [***] prior to such Potential Collaboration Meeting, OSCIENT shall provide to LGLS written notice of such Potential Collaboration Meeting; provided that if providing LGLS with such notice no later than [***] prior to such Potential Collaboration Meeting would delay a Potential Collaboration Meeting because a Potential Collaborator requests a meeting in less than [***] time, OSCIENT shall provide LGLS with as [***]. For purposes of this Agreement, the term “Potential Collaboration Meeting” shall mean any meeting, teleconference or the like between OSCIENT (and/or any

[***] Confidential portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission.

1

agent of OSCIENT) and any Third Party (each a “Potential Collaborator”) (and/or any agent of such Potential Collaborator) for the purpose of discussing, negotiating or otherwise communicating about any proposed U.S. sublicense by OSCIENT to such Potential Collaborator under this Section 9.3, or any U.S. co-promotion or U.S. co-marketing of the Product;

     (b) OSCIENT agrees that LGLS shall have the right to designate two persons, who may be officers, employees or other agents of LGLS, to attend and observe such Potential Collaboration Meetings. OSCIENT further agrees to timely provide LGLS written meeting minutes of any such Potential Collaboration Meetings as well as copies of OSCIENT presentations and presentations by the Potential Collaborators that are provided to OSCIENT by no later than [***] thereafter, whether or not LGLS designates any such persons to attend and observe any such Potential Collaboration Meeting;

     (c) LGLS and any agent engaged by LGLS for purposes of advising LGLS in respect of any such proposed sublicense to such Potential Collaborator and any co-promotion or co-marketing arrangements relating thereto shall agree to keep confidential any and all information relating thereto; and

     (d) nothing in this Section 9.3 shall in any way diminish or adversely affect the co-promotion rights provided to LGLS under Section 4.3.

Except as is expressly provided herein the License shall remain in full force and effect.

[Remainder of page left intentionally blank]

[***] Confidential portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission.

2

     IN WITNESS WHEREOF, the Parties have caused this Amendment No. 6 to be executed by their duly authorized officers on the Amendment No. 6 Effective Date.

OSCIENT PHARMACEUTICALS CORPORATION		LG LIFE SCIENCES LTD.
By:	/s/ Steven M. Rauscher	By:	/s/ In-Chull Kim
Name:	Steven M. Rauscher	Name:	In-Chull Kim
Title:	Chief Executive Officer & President	Title:	Chief Executive Officer & President
Date:		Date:

3

AMENDMENT NO. 7 TO LICENSE & OPTION AGREEMENT

     THIS AMENDMENT NO. 7 TO THE LICENSE & OPTION AGREEMENT (“Amendment No. 7”) is made and entered into this 27^th day of December, 2006 (the “Amendment No. 7 Effective Date”) by and between Oscient Pharmaceuticals Corporation (“OSCIENT”), a Massachusetts corporation, having a principal place of business at 1000 Winter Street, Suite 2200, Waltham, Massachusetts 02451, and LG Life Sciences, LTD (“LGLS”), a corporation organized under the laws of the Republic of Korea, having a principal place of business at LG Twin Tower, 20 yoido-dong, Youngdungpo-gu, Seoul, 150-721, Republic of Korea. LGLS and OSCIENT may be referred to herein individually as a “Party” and collectively as the “Parties”.

W I T N E S S E T H

     WHEREAS, LGLS and GeneSoft Pharmaceuticals, Inc. entered into a certain License and Option Agreement dated October 22, 2002 and amended said License and Option Agreement by Amendment No. 1 dated November 21, 2002, Amendment No. 2 dated December 6, 2002, Amendment No. 3 dated October 16, 2003, Amendment No. 4 dated March 31, 2005, Amendment No. 5 dated February 3, 2006, and Amendment No. 6 dated February 3, 2006 (as amended, the “License”);

     WHEREAS, Genesoft merged into Genesoft Pharmaceuticals, LLC (then Guardian Holdings, LLC (“Guardian”)) on February 6, 2004 and the benefits of and obligations under the License were assigned to Guardian, and then, Guardian assigned all of its right, title and interest in, to and under the License to OSCIENT;

     WHEREAS, OSCIENT is about to enter into a Partnership agreement with Menarini (as defined below) for Menarini’s marketing of the Product in the European Territory (as defined below) immediately after the execution of this Amendment No. 7 based on and in accordance with the License; and the Parties desire to amend the License to, among other things, provide certain terms and conditions necessary for such Partnership deal between OSCIENT and Menarini and amend the supply price, royalty rate and milestones related to sales of the Product; and

     WHEREAS, the terms used herein with capital initial letters and not otherwise defined shall have the same meanings as set forth in the License.

     NOW THEREFORE, in consideration of the premises, and other good and valuable consideration, the sufficiency of which is hereby acknowledged, the Parties agree as follows:

1. Section 1.36 shall be deleted in its entirety and replaced with the following:

1.36 “Territory” means the United States of America, Canada, Mexico, France, Germany, the United Kingdom, Luxembourg, Ireland, Italy, Spain, Portugal, Belgium, the Netherlands, Austria, Greece, Sweden, Denmark, Finland, Norway, Iceland, Switzerland, Andorra, Monaco, San Marino, Vatican City, Poland, Czech Republic, Slovakia, Slovenia, Hungary, Estonia, Latvia, Lithuania, Liechtenstein, Malta, Cyprus, Romania, Bulgaria, Croatia, Serbia and Montenegro, Bosnia and Herzegovina, Albania and the Former Yugoslav Republic of Macedonia.

2. A new Section 1.46 shall be inserted to define “Centralized Procedure” as follows:

[***] Confidential portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission.

1.46 “Centralized Procedure” shall mean the centralized procedure for obtaining a Marketing Authorization in the European Union as set forth in Regulation (EC) 726/2004.

3. A new Section 1.47 shall be inserted to define “European Territory” as follows:

1.47 “European Territory” means France, Germany, the United Kingdom, Luxembourg, Ireland, Italy, Spain, Portugal, Belgium, the Netherlands, Austria, Greece, Sweden, Denmark, Finland, Norway, Iceland, Switzerland, Andorra, Monaco, San Marino, Vatican City, Poland, Czech Republic, Slovakia, Slovenia, Hungary, Estonia, Latvia, Lithuania, Liechtenstein, Malta, Cyprus, Romania, Bulgaria, Croatia, Serbia and Montenegro, Bosnia and Herzegovina, Albania and the Former Yugoslav Republic of Macedonia.

4. A new Section 1.48 shall be inserted to define “Major Countries” as follows:

1.48 “Major Countries” shall mean each of France, Germany, Italy, Spain and the United Kingdom.

5. A new Section 1.49 shall be inserted to define “Marketing Authorization” as follows:

1.49 “Marketing Authorization” shall mean an authorization issued by the European Medicines Agency, or any other national, regional, state or local regulatory agency in the European Territory with the relevant regulatory authority, necessary to market and sell the Product in the European Territory or in any country in the European Territory.

6. A new Section 1.50 shall be inserted to define “Menarini” as follows:

1.50 “Menarini” means Menarini International Operations Luxembourg SA at Avenue de la Gare, 1, L-1611 Luxembourg GD and any of its Affiliates.

7. Section 2.5 shall be deleted in its entirety and replaced with the following:

2.5 Costs of Development. All Development expenses shall be borne by OSCIENT; provided that, LGLS shall reimburse OSCIENT for 50% of all amounts paid to Menarini by OSCIENT for all reasonable and verifiable regulatory development expenses incurred by Menarini in the European Territory; provided that in no event such reimbursement payments by LGLS shall exceed $[***] in the aggregate. With respect to any such regulatory development expenses to be reimbursed by LGLS, OSCIENT shall provide LGLS with a copy of the statement prepared by Menarini setting forth in detail such development expenses incurred by Menarini in the relevant quarter and proof of payment of such expenses by OSCIENT, such as receipt or payment slip. LGLS shall reimburse OSCIENT as provided for in this Section 2.5 within thirty (30) days of its receipt of all such statements and proofs. OSCIENT shall cause Menarini to keep complete and accurate books and financial records pertaining to such costs and expenses of regulatory development. LGLS shall have the right, at its discretion, to annually audit all such books and records of OSCIENT and Menarini upon advance notice to OSCIENT, and OSCIENT shall duly cooperate with LGLS. OSCIENT shall also cause Menarini to duly cooperate with LGLS with respect to such audit.

8. A new Section 4.3(d)(iii) shall be inserted as follows:

[***] Confidential portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission.

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4.3 Co-Promotion.

     (d) (iii) Upon Oscient entering into a Partnership in the European Territory with Menarini, [***].

9. Section 5.1(a)(ii) shall be deleted in its entirety and replaced with the following:

5.1 General.

     (a) (ii) Following the expiration or termination of the Initial Period and until the expiration or termination of the License (the “Remaining Period”), LGLS shall supply to OSCIENT, and OSCIENT shall exclusively purchase from LGLS, all of OSCIENT’s requirements of API; provided that OSCIENT’s obligation to exclusively purchase API to be supplied in Mexico, Canada or the European Territory shall expire on the last to expire of the LGLS Patents and GLAXO Patents claiming or covering such Product in Mexico, Canada or the European Territory, as the case may be. Notwithstanding anything herein to the contrary, OSCIENT agrees that it shall exclusively purchase from LGLS all its requirements of API for Mexico, Canada, and/or the European Territory, as the case may be, so long as and to the extent that OSCIENT continues to supply API or Final Product in Mexico, Canada or the European Territory irrespective of any expiry of LGLS Patents and GLAXO Patents.

     LGLS shall not sell and shall procure that its Affiliates, sublicensees and distributors shall not sell, Final Product or API to any Third Party for use or resale in the European Territory so long as and to the extent that OSCIENT exclusively purchases from LGLS all its requirements of API and OSCIENT’s sublicensees and distributors exclusively purchases from OSCIENT all their requirements of API.

10. A new Section 5.2(iv) shall be inserted as follows:

5.2 Supply Price.

     (iv) Notwithstanding anything to the contrary in Section 5.2(iii), the API supply price to OSCIENT for use by Menarini or its Affiliates or subcontractors in Finished Product marketed, sold and distributed in the European Territory shall be $[***] per kg irrespective of the volume of API purchased by OSCIENT after the grant of Marketing Authorization in at least one country in the European Territory is obtained. Prior to obtaining the Marketing Authorization in at least one country in the European Territory, the API supply price to OSCIENT for use by Menarini or its Affiliates shall be (A) prior to January 1, 2008, the same as the supply price to OSCIENT for the US, and (B) on or after January 1, 2008, $[***] per kg up to an aggregate of [***] kg with any additional amounts to be purchased at the then current supply price to OSCIENT for the US.

11. A new Section 5.6.4 (i) shall be inserted as follows:

     (i) OSCIENT acknowledges and agrees that all API for use by Menarini shall be manufactured by LGLS. OSCIENT shall ensure that all such API shall be delivered to Menarini directly. OSCIENT shall forward to LGLS all purchase orders for API placed by Menarini at least 90 days prior to the date upon which LGLS is requested to ship such API. OSCIENT shall use best efforts to ensure that all API delivered to Menarini shall be used in the European Territory only and that such API shall not be shipped, distributed or otherwise be used in any way whatsoever and howsoever outside the European Territory.

[***] Confidential portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission.

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12. Section 10.2 shall be deleted in its entirety and replaced with the following:

10.2 Milestone Payments.

     (i) Following the achievement of each milestone set forth below, OSCIENT shall owe a non-refundable milestone payment to LGLS in the amount and at the times set forth below. Each milestone payment shall be due only once, notwithstanding the number of Products actually developed or commercialized by OSCIENT hereunder. Milestone Payments 1, 2 and 3, when earned by LGLS, shall be payable in two installments, the first of which shall be payable on the first day of July or the first day of January (which comes first following the date on which the milestone was earned) and the second installment due six months thereafter. All other milestone payments shall be due 30 days after the relevant milestone event unless otherwise indicated.

Milestone Event	Payment
1. Upon annual Net Sales in the United States reaching $[***].	$	[***]
2. Upon both: (i) approval for the first Additional Indication or approval of an IV formulation of the Product, and (ii) annual Net Sales in the Territory reaching $[***].	$	[***]
3. Upon both: (i) approval for a second Additional Indication or approval of an IV formulation of the Product, and (ii) annual Net Sales in the Territory reaching $380 million.	$	[***]
4. Upon approval of the Product in Canada, except for any indication approved prior to the Amendment # 5 Effective Date.	$	[***]

As used in this Section 10.2, “IV formulation” shall mean a formulation of Product for intravenous administration.

(ii) Within thirty (30) days after receipt of any and all signing or license fees, milestone payments or royalties or any other forms of payments from Menarini or within sixty (60) days following the achievement of such events pursuant the terms of a Partnership agreement with Menarini (excluding, for the avoidance of doubt, any payment with respect to the supply of API), whichever is sooner, OSCIENT shall owe and pay a non-refundable payment to LGLS in an amount equal to [***] ([***]%) of all such payments made by Menarini to OSCIENT (except for the signing fee of $[***], the milestone payments of $[***]M related to the receipt of the Marketing Authorization and $[***]M related to the achievement of annual sales revenues exceeding $100M, which will be paid separately in accordance with the payment scheme set forth below in this Section 10.2(ii)). Attached hereto as Exhibit

[***] Confidential portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission.

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	10.2(ii) is the entire portion of the finally executed Partnership agreement between OSCIENT and Menarini covering all the signing and license fees, milestone payments and royalties and all other forms of payments and other payment terms of the Partnership agreement by and between OSCIENT and Menarini.
	Subject to the preceding paragraph, within thirty (30) days after receipt of the related payment or within sixty (60) days following the achievement of the following events pursuant the terms of a Partnership agreement with Menarini, whichever is sooner, OSCIENT shall pay LGLS:
(a)	a non-refundable upfront signing fee payment of $[***] upon the signing of a Partnership agreement with Menarini with respect to the European Territory; and
(b)	a non-refundable milestone payment of $[***]:

i. in lump sum for obtaining the Marketing Authorization for the Product via the Centralized Procedure; or

ii. according to the following schedule in case the Marketing Authorization is obtained on a country-by-country basis (not by Centralized Procedure) in the Major Countries:

Milestone	Payment
Upon obtaining the Marketing Authorization in the United Kingdom	$[***]
Upon obtaining the Marketing Authorization in France	$[***]
Upon obtaining the Marketing Authorization in Germany	$[***]
Upon obtaining the Marketing Authorization in Italy	$[***]
Upon obtaining the Marketing Authorization in Spain	$[***]

in the event Menarini is able to obtain in at least one country in the Major Countries the Marketing Authorization meeting the minimum label requirement set forth in the Partnership agreement between Menarini and OSCIENT (which the entire portion of the finally executed Partnership agreement between OSCIENT and Menarini covering such minimum label requirement shall be attached hereto under Exhibit 10.2(ii)); provided that, the foregoing provision shall not apply and LGLS shall be entitled to the milestone(s) payment of up to $[***]in accordance with this Section 10.2(ii)(b) if OSCIENT receives any milestone payments from Menarini related to the grant of the Marketing Authorization whether or not Menarini obtains in at least one country in the Major Countries the Marketing Authorization for CAP and either AECB or ABS, and an approved label for the Product with the minimum criteria set forth in the Partnership agreement as stated in subsections (I) and (II) herein; and

[***] Confidential portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission.

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(c) a one-time, non-refundable milestone payment of $[***]in lump sum if Marketing Authorization is obtained in all Major Countries, upon the first achievement of Net Sales exceeding $100 million in (i) the twelve month period following the first commercial sale of the Product in any country in the European Territory or (ii) each successive twelve month period thereafter.

13. Section 10.3 shall deleted in its entirety and replaced with the following:

10.3 Royalty Payments. In addition to the foregoing license fee and milestone payments, commencing on the second anniversary of the first commercial sale of the Product in the United States of America,

     (i) OSCIENT shall, subject to Sections 4.3 and 10.4, pay to LGLS royalties on Net Sales in the Territory, except for (a) any Net Sales in Mexico if OSCIENT enters into a Partnership in Mexico with a Third Party, (b) any Net Sales in Canada if OSCIENT enters into a Partnership in Canada with a Third Party, and (c) any Net Sales in the European Territory if OSCIENT enters into a Partnership in the European Territory with Menarini, for each calendar year at the following rates:

Annual Net Sales	Royalty Rate
On the first $100 million	[***] percent
Over $100 million to $150 million	[***] percent
Over $150 million to $200 million	[***] percent
Over $200 million to $300 million	[***] percent
Over $300 million	[***] percent

     (ii) OSCIENT shall, subject to Sections 4.3 and 10.4 and in lieu of the royalty obligations set forth in Section 10.3(i) above with respect to Net Sales in Mexico, Canada and the European Territory, pay to LGLS (a) a royalty of [***] % on Net Sales in Mexico for each calendar year; (b) a royalty of [***] % on Net Sales in Canada for each calendar year; and (c) a royalty of [***] % on Net Sales in the European Territory for each calendar year; provided, however, that if the Partnership entered into in Mexico or Canada or the Partnership entered into with Menarini in the European Territory, as the case may be, terminates, then from and after such termination the royalties payable in respect of Net Sales in Mexico, Canada or the European Territory, as the case may be, shall be paid in accordance with clause (i) of this Section 10.3.

The Parties acknowledge that LGLS has incurred a royalty obligation to GLAXO at a rate of [***] percent of Net Sales for the use of the GLAXO Patents, the GLAXO Know-how and the Trademarks (the “GLAXO Royalty”). OSCIENT shall pay royalties to LGLS at the royalty rates set forth above, and LGLS shall be solely responsible for payment of the GLAXO Royalty and shall indemnify OSCIENT and hold OSCIENT harmless from and against any claims by GLAXO as a result of such use by OSCIENT of the GLAXO Patents.

14. Section 10.4 shall be deleted in its entirety and replaced with the following:

10.4 Term of Royalty Obligations. OSCIENT’s obligation to make royalty payments pursuant to 10.3 shall commence as provided in Section 10.3 and shall continue until the later of: (i) the

[***] Confidential portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission.

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expiration of the last to expire of the LGLS Patents and GLAXO Patents claiming or covering such Product in such country, and (ii) 10 years after first commercial sale of such Product in such country; provided however, that, OSCIENT’s obligation to make royalty payments pursuant to 10.3 for Net Sales in Mexico, Canada or the European Territory shall continue until the later of: (I) the expiration of the last to expire of the LGLS Patents and GLAXO Patents claiming or covering such Product in Mexico, Canada or the European Territory, as the case may be, and (II) the period of data exclusivity in Mexico, Canada or the European Territory, as the case may be (provided that, for purposes of clarification, “data exclusivity” in the European Territory shall mean the period of data and market exclusivity for the Product in the European Territory provided by Directive 2001/83/EC). Following the expiration of OSCIENT’s royalty obligations, OSCIENT shall retain a non-exclusive, royalty-free right to use, sell and offer for sale Product in the Territory, using LGLS Know-how and GLAXO Know-how licensed to OSCIENT as of the Effective Date and the exclusive right to use the Trademarks for such purposes. OSCIENT shall continue to pay LGLS a royalty in return for such right to use the Trademark, as provided in Section 11.4 below.

15. A new Section 10.8(c) shall be inserted as follows:

(c) OSCIENT shall keep, and shall require its Affiliates to keep, complete and accurate records of the latest three (3) years of API shipped and/or supplied to Menarini for sale of Product in the European Territory. For the purpose of verifying such shipments with regard to OSCIENT’s payment obligations pursuant to Section 5.2(iv) above, LGLS shall have the right annually, at LGLS’s expense, to retain an independent certified public accountant selected by LGLS and reasonably acceptable to OSCIENT, to review such records in the locations(s) where such records are maintained by OSCIENT and its Affiliates upon reasonable notice and during regular business hours and under obligations of confidence. Results of such review shall be made available to both LGLS and OSCIENT.

16. Section 11.4 shall be deleted in its entirety and replaced with the following:

Expiration of the Agreement. Following the expiration of OSCIENT’s royalty obligations as provided in Section 10.4 above, and for so long as OSCIENT continues to use the Trademark in the use or sale of the Product, OSCIENT shall pay to LGLS a royalty equal to [***] percent of Net Sales; provided that, for use of the Trademark in the European Territory after the expiration of OSCIENT’s royalty obligations in the European Territory, OSCIENT shall pay to LGLS a royalty equal to [***] % percent of Net Sales in the European Territory (the “Minimum Royalty Amount”) plus [***] % of any amount in excess of the Minimum Royalty Amount paid by Menarini to OSCIENT for use of the Trademark following the expiration of OSCIENT’s royalty obligations in the European Territory.

17. Following termination of the License, any sublicense granted by OSCIENT under the LGLS Patents, LGLS Know-How, GLAXO Patents and GLAXO Know-How (including pursuant to any Partnership) shall terminate. Following termination of this Amendment No. 7, any sublicense granted by OSCIENT under the LGLS Patents, LGLS Know-How, GLAXO Patents and GLAXO Know-How (including pursuant to any Partnership) for the European Territory shall terminate.

[***] Confidential portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission.

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18. OSCIENT represents and warrants that (i) the summary of financial terms set forth in Schedule 18 attached hereto represent an accurate description of all of the financial terms of the Partnership agreement between OSCIENT and Menarini; and (ii) its Partnership agreement with Menarini shall not in any way adversely affect or contravene with the terms and conditions of the License and this Amendment No. 7 or the rights and obligations of LGLS thereof.

Without limiting the foregoing, OSCIENT agrees to provide LGLS the entire portion of the finally executed Partnership agreement with Menarini covering the financial terms and the minimum label criteria as set forth in Section 10.2 above within five (5) days from the Amendment No. 7 Effective Date, which such part of the finally executed Partnership agreement shall be attached hereto as Exhibit 10.2(ii) immediately thereafter within such five-day period.

19. This Amendment No. 7 shall automatically become null and void and of no force and effect after ninety (90) days of the Amendment No. 7 Effective Date, unless (i) OSCIENT enters into a Partnership agreement with Menarini during such 90-day period, or (b) the Parties mutually agree to extend such 90-day period.

20. OSCIENT shall timely inform and update LGLS in writing of the process and activities related to obtaining the Marketing Authorization by Menarini. OSCIENT shall also timely inform and update LGLS of any material changes or revisions to the Partnership agreement between OSCIENT and Menarini, including but not limited to the financial terms or termination thereof. LGLS may terminate this Amendment No. 7 upon notice at its sole discretion in case (i) Menarini fails to obtain the complete Marketing Authorization in at least one country in the European Territory within three years from the effective date of the Partnership agreement between OSCIENT and Menarini and/or (ii) the Partnership agreement between OSCIENT and Menarini is terminated.

[Remainder of page intentionally left blank]

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IN WITNESS WHEREOF, the Parties have caused this Amendment No. 7 to be executed by their duly authorized officers on the Amendment No. 7 Effective Date.

OSCIENT PHARMACEUTICALS CORPORATION		LG LIFE SCIENCES, LTD.
By:	/s/ Steven M. Rauscher	By:	/s/ In-Chull Kim
Name:	Steven M. Rauscher	Name:	In-Chull Kim, Ph.D.
Title:	Chief Executive Officer & President	Title:	Chief Executive Officer & President
Date:	January 5, 2007	Date:	Dec. 27th 2006

-9-

Schedule 10(ii)

[***]

[***] Confidential portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission.

-10-

Schedule 18

[***]

[***] Confidential portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission.

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EX-10.3

Exhibit 10.3

STATE OF NORTH CAROLINA

WAKE COUNTY

LEASE MODIFICATION AGREEMENT NO. 1

     THIS LEASE MODIFICATION AGREEMENT NO. 1 (this “Agreement”) is made and entered into as of this 31st day of October, 2008 (the “Execution Date”), by and between Crescent Lakeside, LLC, a North Carolina limited liability company (“Landlord”), and Cornerstone BioPharma Holdings, Inc., a Delaware corporation authorized to conduct business in the State of North Carolina (“Tenant”).

WITNESSETH:

     WHEREAS, Landlord and Tenant entered into that certain Lease Agreement dated May 1, 2008 (the “Lease”), pursuant to which Tenant leased approximately 14,863 square feet of office space contained in Suite 250 (the “Leased Premises”) of the building known as Crescent Lakeside II and located at 1255 Crescent Green, Cary, North Carolina 27518 (the “Building”). (The Lease is incorporated herein by reference in its entirety. Any capitalized term used and not otherwise defined herein shall have the meaning ascribed to it in the Lease.); and

     WHEREAS, the Term of the Lease set forth in Subsection 2.01(g) of the Lease is seven (7) years and four (4) months; and

     WHEREAS, the Target Commencement Date and the Target Expiration Date of the Lease were both set forth in Subsection 2.01(h) of the Lease as December 1, 2008 and March 31, 2016 respectively; and

     WHEREAS, the Leased Premises would have been ready for occupancy on November 1, 2008, had it not been for Tenant delay in the construction of the Tenant Improvements to the Leased Premises, and because the delay in completion is the result of Tenant delays, the parties want to document the completion prior to the receipt of a certificate of occupancy and Tenant’s right to occupy the Leased Premises; and

     WHEREAS, pursuant to Section 3.01 of the Lease (Term), it is the desire of Landlord and Tenant to set forth the formal Commencement Date and the actual Expiration Date of the Lease upon the terms and conditions contained herein (the actual Commencement Date will automatically be the day after the date that the Leased Premises are deemed substantially complete as defined in the Lease and evidenced by the receipt of a permanent or temporary certificate of occupancy),

     NOW, THEREFORE, in consideration of the premises, rent, mutual covenants and conditions contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant further agree as follows:

     1. Term. The Term of the Lease shall be extended for one (1) additional month due to the one (1) month increase in the abated Base Rent period, Therefore, Subsection 2.01(g) of the Lease (Term) is hereby amended by changing the number “4” next to the word “Months” to the number “5” (so that the entire Term of the Lease is seven (7) years and five (5) months).

Page 1

     2. Formal Commencement Date and Expiration Date. Effective as of the Execution Date, Subsection 2.01(h) of the Lease is hereby amended by setting forth the formal Commencement Date of the Lease as November 1, 2008 (with the actual Commencement Date occurring after substantial completion and upon the receipt of a certificate of occupancy) and the Expiration Date of the Lease shall remain as March 31, 2016. Tenant’s right to occupy the Leased Premises shall not be granted as of the formal Commencement Date, but shall be granted as of the actual Commencement Date.

     3. Base Rent. Effective as of the formal Commencement Date, Subsection 2.01(d) of the Lease (Base Rent) is hereby amended by substituting the Base Rent chart below for the Base Rent chart currently set forth in the Lease:

Full		Price Per
Month(s)		Square				Annual (or for
of the		Foot, per		Square		time period		Monthly Base
Term	Date(s)	annum		Feet		noted) Base Rent		Rent
Landlord and Tenant specifically acknowledge and agree that the Base Rent set forth below shall be adjusted by Landlord’s obligation to pay Tenant the Base Rent abatement (defined in Section 4.01)
1 through 3	11/1/08 through 1/31/09	$	0.00		14,863	$	0.00	$	0.00
		($23.25/SF Base Rent abated)				($23.25/SF Base Rent abated)		($23.25/SF Base Rent abated)
4 through 15	2/1/09 through 1/31/10	$	23.25		14,863	$	345,564.72	$	28,797.06
16 through 27	2/1/10 through 1/31/11	$	23.83		14,863	$	354,185.28	$	29,515.44
28 through 39	2/1/11 through 1/31/12	$	24.43		14,863	$	363,103.08	$	30,258.59
40 through 51	2/1/12 through 1/31/13	$	25.04		14,863	$	372,169.56	$	31,014.13
52 through 63	2/1/13 through 1/31/14	$	25.67		14,863	$	381,533.16	$	31,794.43
64 through 75	2/1/14 through 1/31/15	$	26.31		14,863	$	391,045.56	$	32,587.13
76 through 87	2/1/15 through 1/31/16	$	26.96		14,863	$	400,706.52	$	33,392.21
88 through 89	2/1/16 through 3/31/16	$	27.63		14,863	$	68,444.12	$	34,222.06
						(for 2 months)

     4. Affirmation of Lease. Except as expressly modified herein, the original terms and conditions of the Lease shall remain in full force and effect.

     5. Binding Agreement. Upon execution by Tenant, this Agreement shall be binding upon Tenant, its legal representatives and successors, and, to the extent assignment may be approved by Landlord hereunder, Tenant’s assigns. Upon execution by Landlord, this Agreement shall be binding upon Landlord,

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its legal representatives, successors and assigns. This Agreement shall inure to the benefit of Landlord and Tenant, and their respective representatives, successors and permitted assigns.

     6. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which taken together shall constitute one and the same instrument.

     IN WITNESS WHEREOF, the parties hereto, intending to be legally bound, have caused this Agreement to be executed by their respective duly authorized representatives as of the day and year first above written.

LANDLORD:
Crescent Lakeside, LLC, a North Carolina limited liability company
By:	Capital Associates Management, LLC, a North Carolina limited liability company, Manager
	By:	/s/ Frank P. Baird Frank P. Baird, Delegate Manager

TENANT:
Cornerstone BioPharma Holdings, Inc., a Delaware corporation
By:	/s/ Chenyqua Baldwin
Name:	Chenyqua Baldwin
Title:	VP – Finance

Page 3

EX-10.4

Exhibit 10.4

STATE OF NORTH CAROLINA

WAKE COUNTY LEASE MODIFICATION AGREEMENT NO. 2

     THIS LEASE MODIFICATION AGREEMENT NO. 2 (this “Amendment”) is made and entered into as of this 2^nd day of October, 2009 (the “Amendment Execution Date”), by and between Crescent Lakeside, LLC, a North Carolina limited liability company (“Landlord”), and Cornerstone Therapeutics Inc., a Delaware corporation authorized to conduct business in the State of North Carolina (“Tenant”) and successor by assignment from Cornerstone BioPharma Holdings, Inc.

WITNESSETH:

     WHEREAS, Landlord and Tenant entered into that certain Lease Agreement dated May 1, 2008 (the “Original Lease”), pursuant to which Tenant leased approximately 14,863 square feet of space (the “Original Leased Premises”) contained in Suite 250 of the building known as Crescent Lakeside II and located at 1255 Crescent Green, Cary, North Carolina 27518 (the “Building”);

     WHEREAS, Landlord and Tenant entered into that certain Lease Modification Agreement No. 1 dated October 31, 2008 (the “First Amendment”), which amended the Original Lease; and

     WHEREAS, Landlord and Tenant entered into that certain Acknowledgement of Assignment dated December 1, 2008 (the “Assignment”), pursuant to which the assignment of the Original Lease to Tenant was set forth. (The Original Lease, the First Amendment, and the Assignment are incorporated herein by reference in their entirety and hereinafter collectively referred to as the “Lease”. Any capitalized term used and not otherwise defined herein shall have the meaning ascribed to it in the Lease.); and

     WHEREAS, Tenant desires to lease additional space in the Building; and

     WHEREAS, Landlord and Tenant desire to modify the Lease increasing Tenant’s leased space in the Building and making certain other modifications to the Lease, all upon the terms and conditions contained herein.

     NOW, THEREFORE, in consideration of the premises, rent, mutual covenants and conditions contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree as follows:

     1. Landlord Notice Address. The notice address for Landlord, provided in Subsection 2.01(k) of the Lease shall change to the following:

Crescent Lakeside, LLC
c/o Capital Associates
1255 Crescent Green, Suite 300
Cary, North Carolina 27518
(919) 233-9901

     2. Term for Expansion No. 1 and Term of the Lease. The term of the Lease for Expansion No. 1 (defined below) (the “Expansion No. 1 Term”) shall commence the day after inspection and approval for occupancy for the intended use, whether permanent, conditional, or temporary, by the Town of Cary, North Carolina, provided the approval is subsequently evidenced by a certificate of occupancy, whether permanent, conditional, or temporary, issued by the municipality, which certificate of occupancy may be dated when actually processed by the municipality, rather than the date of the inspection and approval for occupancy (the date is targeted to be December 1, 2009 (the “Expansion No. 1 Target Commencement Date”), but the actual date shall be referred to herein as the “Expansion No. 1 Commencement Date”); provided, however, that if Landlord does not substantially complete the Expansion No. 1 Tenant Improvements (defined in the Expansion No. 1 Workletter) on or before December 1, 2009 due to any Tenant delay as described in Section 6 of Exhibit C to the Lease, then, for the purposes of determining Tenant’s Rent obligation, the Expansion No. 1 Commencement Date shall be December 1, 2009. Except when due to Tenant delays, in the event the Expansion No. 1 Commencement Date is not December 1, 2009, Landlord and Tenant shall enter into an amendment to the Lease establishing the actual Expansion No. 1 Commencement Date and adjusting any dates, if necessary. If Tenant’s obligation to pay Rent commences prior to Tenant’s right to occupy Expansion No. 1 in accordance with this Section 2, such amendment shall document the date that Tenant’s Rent obligation commenced and the date that Tenant is granted the right to occupy Expansion No. 1.

     3. Leased Premises. Subject to Section 2 of this Amendment, effective as of the Expansion No. 1 Commencement Date, Subsection 2.01(b) of the Lease is hereby amended to show that the “Leased Premises” shall contain approximately 20,977 square feet of office space, including that 6,114 square feet of space shown on the attached Exhibit A-1-a which is incorporated herein by reference in its entirety (“Expansion No. 1”), and including the description of Expansion No. 1 as shown on the attached Exhibit A-1-b, which is incorporated herein by reference in its entirety. (For clarity in this Amendment, the Original Leased Premises shall be referred to as “Suite 250” and Expansion No. 1 shall be referred to as “Suite 250 B”, but as of the Expansion No. 1 Commencement Date, Expansion No. 1 shall become part of the Leased Premises and shall be referred to only as “Suite 250”).

     4. Rent. Effective as of the Amendment Execution Date, Subsection 2.01(d) of the Lease is hereby amended to include the following Rent chart to provide for Base Rent payments owed pursuant to Tenant’s lease of Expansion No. 1 (the Rent chart provided in Subsection 2.01 (d) of the Lease, as amended by the First Amendment, shall continue to be applicable in regards to Rent payments owed in conjunction with Tenant’s lease of the Original Leased Premises) (see following page for Base Rent chart for Expansion No. 1):

		Price Per
Month(s) of the		Square Foot,				Annual (or for
Expansion No.		per annum				time period noted)		Monthly
1 Term	Targeted Date(s)	(rounded)		Square Feet		Base Rent		Base Rent
1 through 7	12/1/09 through 6/30/10	$	0.00		6,114	$	0.00	$	0.00
		($23.22/SF				(for 7 months)
		Base Rent abated)
8 through 14	7/1/10 through 1/31/11	$	23.22		6,114	$	82,814.13	$	11,830.59
						(for 7 months)
15 through 26	2/1/11 through 1/31/12	$	23.80		6,114	$	145,516.20	$	12,126.35
27 through 38	2/1/12 through 1/31/13	$	24.40		6,114	$	149,154.12	$	12,429.51
39 through 50	2/1/13 through 1/31/14	$	25.01		6,114	$	152,883.00	$	12,740.25
51 through 62	2/1/14 through 1/31/15	$	25.63		6,114	$	156,705.12	$	13,058.76
63 through 74	2/1/15 through 1/31/16	$	26.27		6,114	$	160,622.76	$	13,385.23
75 through 76	2/1/16 through 3/31/16	$	26.93		6,114	$	27,439.72	$	13,719.86
						(for 2 months)

     In addition to the foregoing, Tenant shall continue to be liable to Landlord for the Additional Rent as set forth in the Lease.

     5. Base Rent Abatement. The right to Base Rent abatement granted to Tenant in Subsection 4.01 of the Lease shall not apply to Expansion No. 1 and Tenant shall not have the right to abate Expansion No. 1 Rent in accordance with that provision. However, Tenant is granted the right to abate Expansion No. 1 Base Rent for the first seven months of its lease of Expansion No. 1 in accordance with this Amendment. In addition, Landlord and Tenant specifically acknowledge and agree that Landlord has the right to accelerate the Base Rent Abatement set forth in Section 4.01 of the Lease (Base Rent) and require Tenant to accept an abatement of Base Rent prior to the dates set forth in Section 4.01 of the Lease at any time during the Term. In the event Landlord desires to accelerate Tenant’s right to Base Rent Abatement, Landlord shall provide at least 30 days prior notice (in accordance with the Section 11.06 of the Lease) to Tenant.

     6. Base Operating Expense Factor. Effective on the Expansion No. 1 Commencement Date, Subsection 2.01(e) of the Lease, entitled “Base Operating Expense Factor”, shall be amended to provide that the Base Operating Expense Factor for the Expansion No. 1 is the Year 2010 actual Operating Expenses expressed by a price per square foot leased. The Base Operating Expense Factor for the Original Leased Premises shall remain the Year 2009 actual Operating Expenses expressed by a price per square foot leased.

     7. Monument Signage. Subsection 6.01 (g) (ii) of the Lease shall be deleted in its entirety and replaced with the following:

     (ii) In addition to the foregoing interior signage, there are two (2) exterior monument signs at the street for the Crescent Lakeside Complex; one (1) monument sign is for the 1225 Building and the other monument sign is for the Building. Provided that Tenant is (A) not in default of the Lease beyond any applicable notice and cure period(s), (B) occupies the Leased Premises, and (C) has not, except as consented to by Landlord, assigned or subleased all or a portion of the Leased Premises, Tenant will be entitled to the right to use a non-exclusive position on both the 1225

Building monument sign and the Building monument sign with the priority of signage right being determined by the amount of space leased by the tenant(s) in the Building. Landlord shall pay for the initial placement of Tenant’s name or legally assumed name on each monument sign. Tenant shall be responsible for the costs of any changes to Tenant’s monument signage. Monument signage shall be (I) non-exclusive, (II) designed, installed, constructed, maintained and removed (in the event Tenant loses its rights under this provision or) at the expiration or other termination of this Lease, at Landlord’s sole cost and expense, and (III) with regard to design (size, style and font of the lettering), location, construction and all other aspects, subject to prior written approval from Landlord, the Town of Cary, North Carolina, and any other governing entity having jurisdiction with regard to signage at the Building. The right to monument signage shall not automatically apply to any assignee or subtenant of the Leased Premises, unless agreed to by Landlord, in its sole discretion.

     8. Alterations. The attached Workletter shall be incorporated into this Amendment and the Lease for the purpose of Landlord’s construction of the improvements to Expansion No. 1. If Tenant wants to have any additional improvements or alterations made, the improvements or alterations shall be made at Tenant’s sole cost and expense and in accordance with Section 7.02 of the Lease.

     9. HVAC Schedule. Exhibit F of the Lease, entitled “HVAC Schedule”, shall be amended to include the following, in regards to after-hours heating, ventilating and air conditioning:

     Notwithstanding anything in this Lease to the contrary, Landlord shall provide Tenant with up to forty (40) hours per calendar year of the Term, of after-hours heating, ventilating and air conditioning usage free of charge. Tenant shall only be allowed forty (40) free hours per calendar year. In the event Tenant does not use its entire allotment of free after-hours heating, ventilating and air conditioning in any calendar year of the Term, Tenant shall not be allowed to carryover any unused free after-hours heating, ventilating and air conditioning into the following calendar year of the Term.

     10. First Offer Right. Effective as of the Amendment Execution Date, the First Offer Right attached to this Amendment shall be incorporated into the Lease as Exhibit H for the purpose of granting Tenant a First Offer Right as described in Exhibit H.

     11. Brokerage/Indemnification. Landlord and Tenant each represent to the other that they, respectively, have had no dealings with any real estate broker or agent in connection with the negotiation of this Amendment except for Capital Associates Management, LLC, Landlord’s broker, and Jones Lang LaSalle Brokerage, Inc., Tenant’s broker, and that they, respectively, know of no other real estate broker or agent who is entitled to a commission or finder’s fee in connection with this Amendment. Each party shall indemnify, protect, defend and hold harmless the other party against all claims, demands, losses, liabilities, lawsuits, judgments, and costs and expenses (including, but not limited to, reasonable attorneys’ fees) for any leasing commission, finder’s fee or equivalent compensation alleged to be owed on account of dealings with any other than the above-stated real estate broker. Landlord shall pay the commissions or fees due for Expansion No. 1 to the above-stated Landlord’s broker and Landlord’s broker shall then pay Tenant’s broker.

     12. Affirmation of Lease. Except as expressly modified herein, the original terms and conditions of the Lease shall remain in full force and effect.

     13. Binding Agreement. Upon execution by Tenant, this Amendment shall be binding upon Tenant, its legal representatives and successors, and, to the extent assignment may be approved by Landlord hereunder, Tenant’s assigns. Upon execution by Landlord, this Amendment shall be binding upon Landlord, its legal representatives, successors and assigns. This Amendment shall inure to the benefit of Landlord and Tenant, and their respective representatives, successors and permitted assigns.

     14. Counterparts. This Amendment may be executed in any number of counterparts, each of which shall be an original, but all of which taken together shall constitute one and the same instrument.

(Signatures appear on the following page.)

     IN WITNESS WHEREOF, the parties hereto, intending to be legally bound, have caused this Amendment to be executed by their respective duly authorized representatives as of the day and year first above written.

LANDLORD: Crescent Lakeside, LLC, a North Carolina limited liability company
By:  Capital Associates Management, LLC, a North Carolina limited liability company, Manager
By:	/s/ Frank P. Barid
	Frank P. Baird, Delegate Manager

TENANT: Cornerstone Therapeutics, Inc., a Delaware corporation
By:	/s/ David Price
Name:	David Price
Title:	Executive Vice President & C.F.O.

EXHIBIT A-1-a

EXPANSION NO. 1

Crescent Lakeside II
1255 Crescent Green, Suite 250B
Cary, North Carolina 27518

5,317		Occupied Square Feet
x 1.15		Common Area Percentage Factor
6,114		Square Feet
o	= Expansion No. 1

EXHIBIT A-1-b

ENTIRE LEASED PREMISES (after the Expansion No. 1 Commencement Date)

Crescent Lakeside II
1255 Crescent Green, Suite 250
Cary, North Carolina 27518

14,863 square feet of space contained in the Original Leased Premises, plus 6,114 square feet contained in Expansion No. 1 = 20,976 square foot Leased Premises after the Expansion No. 1 Commencement Date.

18,241		Occupied Square Feet
x 1.15		Common Area Percentage Factor
20,977		Square Feet
o	= Leased Premises

EXHIBIT H

FIRST OFFER RIGHT

     As long as (i) Tenant is not in default under this Lease as defined in Section 9.02 of the Lease at the time of exercise of this option or at the time of commencement of the term for the additional space, (ii) Tenant has not been in monetary default of this Lease as defined in Section 9.02 of the Lease, as evidenced by receipt of notice from Landlord of such monetary default, more than two (2) times during the Term, and Tenant has not been in non-monetary default under this Lease, as evidenced by receipt of notice from Landlord of such non-monetary default, more than four (4) times during the Term, and (iii) Tenant is in occupancy of the Leased Premises (in the same, or greater, amount of square footage that was occupied by Tenant as of the Commencement Date) at the time of exercise of this option and at the time of commencement of the term for the additional space, then Landlord hereby grants to Tenant, but not any assignee or subtenant of Tenant, an ongoing right (this “First Offer Right”) during the Term to lease in its entirety, any additional space on the second floor of the Building, as shown on the attached Exhibit H-1 (the “Space”) that may become available (i.e., vacant), at the prevailing Expansion Market Base Rent Rate (defined below), upon the following terms and conditions:

1. This First Offer Right is subject to any prior existing rights of any third parties and Landlord’s hereby reserved right to continue to lease (by lease amendment or new lease agreement) the Space to the tenant, assignee or subtenant occupying the Space, whether or not pursuant to an option to renew.

2. Prior to Landlord leasing the Space to any third party, Landlord shall provide Tenant with notice of the availability of the Space (“Landlord’s Written Offer”). Tenant hereby acknowledges that Landlord’s Written Offer may, among other terms, contain a requirement for prompt lease commencement of the Space. If the prospective tenant is interested in leasing space that includes but is greater than the Space, Tenant must lease all of the space being considered for lease by the third-party, as well as the Space. The terms for the lease of the additional space shall be as provided for in this Exhibit.

3. Tenant shall then have five (5) business days from the date of Tenant’s receipt of Landlord’s Written Offer in which to accept or reject Landlord’s Written Offer, in writing.

4. If Tenant elects to lease the Space, Tenant shall provide Landlord with notice of such election within five (5) business days after the date of Tenant’s receipt of Landlord’s Written Offer. The parties shall then have the time period set forth in Section 8 of this Exhibit H to agree to the Expansion Market Base Rent Rate and any other mutually acceptable terms for Tenant’s leasing the Space and to execute an amendment to the Lease specifying the terms of the expansion.

5. Tenant shall accept the Space in its “AS IS” condition. The term of the Lease with regard to the Space shall commence as mutually agreed between Landlord and Tenant, but, subject to the provisions of Section 8 of this Exhibit H, in no event more than sixty (60) days after the receipt of Landlord’s Written Offer (the “Space Commencement Date”). The term of the Lease for the Space shall expire on the later of: (i) coterminously with the Expiration Date of the Lease, as such may be amended, or (ii) three (3) years from

the Space Commencement Date, in which such event the Term of this Lease for the entire Leased Premises shall also be extended to such date.

6. If Tenant does not respond to Landlord’s notice within such five (5) business day period or provides Landlord with notice that Tenant does not elect to lease the Space, or if Landlord and Tenant, working in good-faith, fail to execute an amendment to the Lease with regard to the Space within the above-the fifteen (15) day period, then this First Offer Right shall automatically terminate, and Landlord may thereafter lease the Space to any third party(ies) at any time and from time to time, and Tenant shall have no further rights with respect thereto. Notwithstanding the foregoing, in the event Landlord does not lease the Space to a third party within six (6) months of Tenant’s waiver of leasing the Space, the First Offer Right with respect to that Space shall be reinstated and Landlord shall re-offer the Space to Tenant on the terms and conditions contained herein.

7. As used in this Lease, the term “Expansion Market Base Rent Rate” shall mean the annual rental rate then being charged in the greater Cary, North Carolina sub-market, as determined in accordance with Section 8 of this Exhibit H, for space comparable to the space for which the Expansion Market Base Rent Rate is being determined (taking into consideration, but not limited to, use, location and floor level within the applicable building, definition of rentable area, leasehold improvements provided, quality and location of the applicable building, rental concessions (e.g., such as abatements or Lease assumptions) and the time the particular rate under consideration became effective). It is agreed that bona fide written offers to lease the Leased Premises or comparable space made to Landlord by third parties (at arm’s-length) may be used by Landlord as an indication of the Expansion Market Base Rent Rate.

8. Landlord shall, within thirty (30) calendar days after its receipt of notice from Tenant, give Tenant a notice setting forth Landlord’s estimate of the Expansion Market Base Rent Rate. Tenant shall have ten (10) business days from receipt of Landlord’s notice to notify Landlord, in writing, that Tenant either accepts or rejects Landlord’s estimate of the Expansion Market Base Rent Rate. If Tenant fails to notify Landlord within such 10-day period, such failure shall be deemed acceptance by Tenant of Landlord’s estimate of the Expansion Market Base Rent Rate. If Tenant rejects Landlord’s estimate as set forth herein, then within ten (10) calendar days after such rejection, each party shall select an MAI (as defined below) and the two MAI’s shall select a third MAI. Landlord’s estimate and Tenant’s estimate of the Expansion Market Base Rent Rate shall then be sent to the third MAI who, within ten (10) business days thereafter, shall select either Landlord’s estimate or Tenant’s estimate of the Expansion Market Base Rent Rate as most closely approximating the Expansion Market Base Rent Rate. Landlord and Tenant shall each be liable for the payment of the charges of the MAI it selects and shall equally bear the charges of the third appraiser. For the purposes of this Lease, the term “MAI” shall mean an appraiser who is a member of the Appraisal Institute (or its successor organization) with a current senior designation of MAI (or comparable designation) currently certified under the continuing education program, who has at least ten (10) years’ experience appraising office buildings in the area in which the Leased Premises are located and shall not then be engaged or have been engaged by either Landlord or Tenant within the 5-year period immediately preceding their appointment hereunder.

EXHIBIT H-1

THE SPACE

1255 Crescent Green, portion of the second floor
Cary, North Carolina 27518

14,077		Occupied Square Feet
x 1.15		Common Area Percentage Factor
16,188		Square Feet
o	= the Space

Expansion No. 1

Workletter

1)

Shell Condition, Tenant Improvements and Cost. The “shell condition” of Expansion No. 1 shall consist of a concrete floor, peripheral windows or walls ready for paint, depending on the configuration of Expansion No. 1; core and corridor walls necessary for multi-tenant occupancy; a sufficient number of 2’ x 2’ tegular ceiling tiles to complete the ceiling, such tiles to be delivered to and stored on the floor of Expansion No. 1; plumbing “wet columns” at several locations per floor; a heating, ventilating and air conditioning system consisting of VAV boxes with rigid ductwork (high and medium pressure) in place; one (1) fluorescent lighting fixture per ninety-five (95) square feet of occupied space, such fixtures to be delivered to and stored on the floor of Expansion No. 1; window blinds; and electrical grids installed above the ceiling that will provide for power and lighting. All demolition of and improvements made to the shell condition of Expansion No. 1 in accordance with the Expansion No. 1 Schematic Space Plan and the Expansion No. 1 Detailed Plans (both defined below) shall be deemed the “Expansion No. 1 Tenant Improvements”. Landlord shall be responsible for the costs and expenses of designing and constructing the Expansion No. 1 Tenant Improvements described in Exhibit C-1 and Section 2 of this Workletter, including any architectural fees and the costs of any plumbing, mechanical and electrical work set forth herein. Notwithstanding the foregoing, and in addition to the turnkey Expansion No. 1 Tenant Improvements to Expansion No. 1, Landlord shall provide Tenant with an allowance in the amount of $6,114.00 to be used by Tenant towards the telephone and date cabling (“Cabling”) of Expansion No. 1 and to tie the Cabling into the Cabling of the Original Leased Premises. Within 60 days of the Expansion No. 1 Commencement Date, Tenant shall provide Landlord with a copy of paid invoice(s) regarding Tenant’s Cabling costs. Landlord shall reimburse Tenant for the Cabling costs up to the amount that is the lower of either $6,114.00 or amount represented by the paid invoices within 10 days of receipt of the invoices.

2)

Design. Landlord shall cause an architect and one or more engineers, each of whom shall be designated by Landlord in its sole discretion, to consult with Tenant and to prepare architectural, plumbing, mechanical and electrical plans that are (i) consistent with the “Schematic Space Plan” for Expansion No. 1 generated by Phillips Architecture, P.A. and dated June 2, 2009, which is attached hereto as Exhibit C-1 (the “Expansion No. 1 Schematic Space Plan”), (ii) sufficiently detailed for approval and construction of the Expansion No. 1 Tenant Improvements, and (iii) subject to Landlord’s approval, in its sole discretion (the “Expansion No. 1 Detailed Plans”). All partitions, doors, hardware, ceiling tile, window coverings, plumbing, HVAC, lighting fixtures, switches, outlets and life safety items shall be designed in Landlord’s standard manner. Carpet, paint, wall covering, and millwork shall be selected and designed in Landlord’s standard manner and from Landlord’s standard finishes, unless Tenant requests changes to such items. Tenant shall furnish to Landlord all other information and technical data reasonably necessary for the preparation of the Expansion No. 1 Detailed Plans within two (2) business days of Landlord’s request therefor, or as otherwise agreed to by Tenant and Landlord, so as not to delay the design, pricing, approval and construction of the Expansion No. 1 Tenant Improvements by the Expansion No. 1 Commencement Date. Tenant has authorized Adrienne Shields (“Tenant’s Expansion No. 1 Representative”) to represent it for all purposes related to the design and construction of the

	Expansion No. 1 Tenant Improvements, including approval of the Expansion No. 1 Plans and any Expansion No. 1 Change Orders (as defined below), and approval by Tenant’s Expansion No. 1 Representative shall constitute approval by Tenant.
3)	Approval of Plans. Landlord shall submit to Tenant for Tenant’s approval the Expansion No. 1 Detailed Plans. Within ten (10) business days after its receipt of the Expansion No. 1 Detailed Plans, Tenant shall approve the Expansion No. 1 Detailed Plans in writing, subject to any modifications or changes in the Expansion No. 1 Detailed Plans requested by Tenant. Landlord, in its sole discretion, shall retain final approval rights for the Expansion No. 1 Detailed Plans. After Tenant’s approval of the Expansion No. 1 Detailed Plans, or in the event Tenant does not respond to Landlord within such ten (10) business day period, the Expansion No. 1 Detailed Plans shall be deemed to be approved by Tenant, and such approved Expansion No. 1 Detailed Plans shall be thereafter deemed the “Expansion No. 1 Plans”. Any subsequent changes or modifications to the Expansion No. 1 Plans shall be made and accepted in writing by Landlord and Tenant and shall constitute an amendment to the Lease.
4)	Change Orders, Tenant Requested Changes and Cost. If Tenant makes any changes or modifications to the Expansion No. 1 Schematic Space Plans (“Expansion No. 1 Change Orders”), Tenant shall be responsible for any additional costs and expenses related to the Expansion No. 1 Change Orders. Tenant shall be provided with a Cost Statement related to each Change Order in conjunction with the Change Order. Tenant shall approve the Cost Statement in the same manner as provided in the Change Order for approving the Change Order. If an approval provision is not included in the Change Order, Tenant shall have two (2) business days to approve the additional Cost Statement. If Tenant does not approve the additional Cost Statement within the two (2) business day period, the additional Cost Statement shall be deemed approved by Tenant. Following the approval of any Cost Statement by Tenant, Tenant shall pay the costs of any Change Order within ten (10) calendar days of receipt of an invoice from Landlord for the same; provided that Landlord reserves the right to require Tenant to pay the costs of any Change Orders that exceed Five Thousand Dollars ($5,000.00), prior to commencing work on the Change Order.
5)	Construction. After Tenant (i) approves the Expansion No. 1 Detailed Plans (or if Tenant does not respond to Landlord regarding the Expansion No. 1 Detailed Plans, as set forth in Section 3 of this Workletter), and (ii) if there are Tenant Requested Improvements (other than Change Orders), pays any and all costs related to the Tenant Requested Improvements, then Landlord shall be entitled to cause, and shall cause, the general contractor designated by Landlord to construct the Expansion No. 1 Tenant Improvements in accordance with the Plans.
6)	Delay. The Expansion No. 1 Commencement Date, and/or commencement of installments of Monthly Base Rent shall not be postponed or delayed as a result of:
i.	Tenant’s failure to furnish information or consult with Landlord or Landlord’s architects or engineers when requested in order to prepare the Expansion No. 1 Detailed Plans;
ii.	If there are any Tenant Requested Improvements, Tenant’s failure to approve the Cost Statement or, if applicable, to pay any cost as provided in Sections 4 and 5 of this Workletter;
iii.	Changes to the Plans requested or caused by Tenant after Tenant’s approval of the Expansion No. 1 Detailed Plans; or,

iv.	Any other delay from any other cause attributable to Tenant, its agents, consultants, contractors, subcontractors or employees.
7.	Tenant’s Access to Expansion No. 1. Landlord shall permit Tenant and its agents reasonable access to Expansion No. 1 during normal business hours fourteen (14) calendar days prior to the Expansion No. 1 Target Commencement Date for the purpose of installing telephone and computer cabling, equipment, fixtures and other personal property, and such entry and use of Expansion No. 1 shall not constitute acceptance of Expansion No. 1 nor Tenant’s acknowledgment of the Expansion No. 1 Commencement Date, unless Tenant commences the operation of any portion of its business therein. This right of entry onto Expansion No. 1 is a license from Landlord to Tenant which is subject to revocation in the event that Tenant or its employees, contractors or agents causes or is the cause of any code or governmental violation, labor dispute, delay or damage during such period which results from, whether directly or indirectly, the installation or delivery of the foregoing, or otherwise becomes in default of any term, covenant or condition of the Lease as provided in Section 9.02 of the Lease. Prior to Tenant’s entry onto Expansion No. 1 in accordance herewith, Tenant shall demonstrate to Landlord that it has obtained the insurance required and is in compliance with Section 8.04 of the Lease. Under no circumstances shall Landlord be liable or responsible for and Tenant agrees to assume all risk of loss or damage to such telephone and computer cabling, equipment, fixtures and other personal property and to indemnify, defend and hold Landlord harmless from any liability, loss or damage arising from any damage to the property of Landlord, or its contractors, employees or agents, and any death or personal injury to any person or persons to the extent caused by, attributable to or arising out of, whether directly or indirectly, Tenant’s entry onto Expansion No. 1 or the delivery, placement, installation, or presence of the telephone and computer cabling, equipment, fixtures and other personal property, except to the extent that such loss or damage is caused solely by Landlord’s willful misconduct or gross negligence or the willful misconduct or gross negligence of Landlord’s contractors, agents or employees.
8.	Warranties. Landlord shall cause the repair or replacement of any defects in material or workmanship in the Expansion No. 1 Tenant Improvements installed by Landlord for a period of one (1) year after the date of substantial completion of Expansion No. 1, or the duration of any manufacturer’s warranty, whichever is longer, provided Tenant notifies Landlord of such defect as soon as reasonably practicable after the date Tenant discovers such defect. LANDLORD MAKES NO WARRANTIES, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, IN CONNECTION WITH THE EXPANSION NO. 1 TENANT IMPROVEMENTS EXCEPT AS EXPRESSLY SET FORTH IN THIS SECTION 8. Tenant’s sole remedy for the breach of any applicable warranty shall be the remedy set forth in this Section 8. Tenant agrees that no other remedy, including without limitation, incidental or consequential damages for lost profits, injury to person or property or any other incidental or consequential loss, shall be available to Tenant. The parties recognize that repair costs that are not covered under a warranty shall be treated in the same manner as any other repair under the Lease, so the costs of repairs that are Landlord’s responsibility shall be either capital costs or Operating Expenses as determined under Section 4.04 of the Lease and any costs that are Tenant’s responsibility shall be as provided in Section 7.04 of the Lease.
9.	Compliance with Certain Requirements. At any time before, during, and after construction, Landlord shall have the right to require changes to the Plans and construction in order to comply with applicable

building codes, other governmental requirements, and insurance requirements. Neither Landlord’s nor Tenant’s approval of the Plans is a warranty that the Plans comply with applicable building codes, other governmental requirements, and insurance requirements.

10.

No Liability. Notwithstanding the review and approval by Landlord of the Expansion No. 1 Detailed Plans and any changes to same, Landlord shall have no responsibility or liability, including the costs of additional or corrective work, in regard to the safety, sufficiency, adequacy or legality thereof, and Tenant shall look solely to the party(ies) preparing same as the party(ies) responsible for ensuring that such Expansion No. 1 Detailed Plans and changes thereto (and the architectural and engineering completeness and sufficiency thereof and the Expansion No. 1 Tenant Improvements constructed as a result thereof) are in compliance with all applicable laws and regulations, and Tenant’s stated intended use.

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EXHIBIT C-1

SCHEMATIC SPACE PLAN

1255 Crescent Green, Suite 250B
Cary, North Carolina 27518

In addition to the Expansion No. 1 Tenant Improvements set forth below, Landlord shall, at Landlord’s sole cost and expense, procure and install one (1) sidelight for each office in Expansion No. 1.

EX-10.5

Exhibit 10.5

EXECUTION VERSION          

SECOND AMENDMENT TO
AMENDED AND RESTATED RESTRICTED STOCK AGREEMENT

     This SECOND AMENDMENT TO AMENDED AND RESTATED RESTRICTED STOCK AGREEMENT (this “Amendment”) is made and entered into as of the 27th day of July, 2009 (the “Amendment Date”), by and between Cornerstone BioPharma Holdings, Inc., a Delaware corporation (the “Company”), and David Price (the “Participant”). Capitalized terms used herein that are not otherwise defined herein shall have the meanings given to them in the Restricted Stock Agreement (as defined below) or the Company’s 2005 Stock Incentive Plan (the “Plan”), as applicable.

W I T N E S S E T H :

     WHEREAS, the Company and the Participant entered into a Restricted Stock Agreement as of August 20, 2008, which was amended and restated as of October 31, 2008 and further amended by the First Amendment to Amended and Restated Restricted Stock Agreement dated June 12, 2009 (the “Restricted Stock Agreement”);

     WHEREAS, the Restricted Stock Agreement provides that, subject to the Participant’s continuing to provide services (whether as an employee, officer, director, consultant or advisor) to Cornerstone Therapeutics Inc., a Delaware corporation and the ultimate parent company of the Company (“Cornerstone Therapeutics”), on such dates, 25% of the Shares shall vest on each of the first four anniversaries of the Vesting Commencement Date, so that all of the Shares shall be vested four years after such date;

     WHEREAS, the Restricted Stock Agreement further provides that immediately prior to, and contingent upon, the consummation of a Change in Control Event, all of the Shares, to the extent that they are then unvested, shall vest in full and the forfeiture restrictions applicable to such Shares shall lapse;

     WHEREAS, on May 6, 2009, Chiesi Farmaceutici SpA, a corporation organized under the laws of Italy (“Chiesi”), entered into, among other agreements, (a) a stock purchase agreement (the “Company Stock Purchase Agreement”) with Cornerstone Therapeutics and (b) a stock purchase agreement (the “Initial Stock Purchase Agreement”) with (1) an entity controlled by Craig A. Collard, the President and Chief Executive Officer of Cornerstone Therapeutics and the Company, and (2) an entity controlled by Steven M. Lutz, the Executive Vice President, Manufacturing and Trade of Cornerstone Therapeutics and the Company, pursuant to which, among other things, on the Closing Date (as defined in the Company Stock Purchase Agreement), Chiesi will purchase from Cornerstone Therapeutics 11,902,741 newly issued shares of common stock, par value $0.001 per share, of Cornerstone Therapeutics (“CRTX Common Stock”), subject to future adjustment, and an aggregate of 1,600,000 shares of CRTX Common Stock from entities controlled by Mr. Collard and Mr. Lutz;

     WHEREAS, concurrently with the execution and delivery of the Company Stock Purchase Agreement and the Initial Stock Purchase Agreement, the Participant entered into a voting agreement (the “Voting Agreement”) with Chiesi, pursuant to which the Participant is subject to, among other things, transfer restrictions on the Shares while the Voting Agreement is in effect (such period, the “Voting Agreement Restriction Period”);

     WHEREAS, Cornerstone Therapeutics has adopted an insider trading policy, as such policy may be amended or superseded from time to time (the “Policy”), which prohibits the Participant from selling, pledging or donating the Shares during certain periods as prescribed by the Policy (each a “Policy Restriction Period”);

     WHEREAS, on the Closing Date, which is expected to occur on or about July 29, 2009, it is anticipated that Chiesi will acquire a number of shares of CRTX Common Stock such that it will become the beneficial owner of more than 50% of the combined voting power of the then-outstanding securities of Cornerstone Therapeutics entitled to vote generally in the election of directors, which would constitute a Change in Control Event;

     WHEREAS, in connection with any vesting of the Shares, the Participant will recognize substantial wages subject to income taxes and the Company (or one of its affiliates) will be required to remit applicable tax withholdings on the Participant’s income on the next business day;

     WHEREAS, the vesting of the Shares is expected to occur during a Voting Agreement Restriction Period and a Policy Restriction Period (each a “Restriction Period”);

     WHEREAS, the Participant has informed the Company that, in order to satisfy his obligation to the Company (or one of its affiliates) with respect to the tax withholding obligations that will arise in connection with the vesting of the Shares, the Participant will be required to sell a portion of the Shares; and

     WHEREAS, the Company and the Participant desire to amend the Restricted Stock Agreement (and such amendment is acceptable to Cornerstone Therapeutics) to defer both the date of any vesting of the Shares and the lapse of a substantial risk of forfeiture of the Shares until the first business day that does not fall during a Restriction Period such that if the Participant voluntarily resigns or terminates his employment with the Company (or any of its affiliates) other than for Good Reason (as defined in the Participant’s employment agreement with the Company (or any affiliate) in effect at the time the Participant gives notice of a Good Reason condition to the Company (or any affiliate) pursuant to such agreement) prior to the first business day that does not fall during a Restriction Period, the Shares will be forfeited.

     NOW, THEREFORE, in consideration of the premises set forth above and the mutual terms and conditions set forth below and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Participant agree as follows:

2

     1. Effective as of the Amendment Date, a new Section 3(d) shall be inserted into the Restricted Stock Agreement, as follows:

     (d) Continued Risk of Forfeiture. If the vesting of any Shares under Section 3(a) or 3(c) above would occur during a Restriction Period, such vesting shall be deferred and the risk of forfeiture of such Shares shall not lapse until the earlier of (1) the first business day that does not fall during a Restriction Period or (2) the termination of the Participant’s employment with Cornerstone Therapeutics (or any subsidiary thereof) by Cornerstone Therapeutics (or any subsidiary thereof) for any reason or by the Participant for Good Reason (as defined in the Participant’s employment agreement with the Company (or any affiliate) in effect at the time the Participant gives notice of a Good Reason condition to the Company (or any affiliate) pursuant to such agreement). For the purposes of this Agreement, a Restriction Period is defined as a period that is a Policy Restriction Period or a Voting Agreement Restriction Period or both. A Policy Restriction Period is defined as any period during which Cornerstone Therapeutics’ insider trading policy, as such policy may be amended or superseded from time to time, prohibits the Participant from selling, pledging or donating the Shares. A Voting Agreement Restriction Period is defined as any period during which the voting agreement, dated as of May 6, 2009, by and among Chiesi Pharmaceutici SpA, a corporation organized under the laws of Italy, the Participant, Cornerstone Therapeutics (solely with respect to Section 2(b) thereof) and certain other stockholders of Cornerstone Therapeutics, as such agreement may be amended or superseded from time to time, is still in effect.

     2. Except as hereby amended, the Restricted Stock Agreement shall remain in full force and effect and is hereby ratified and confirmed in all respects.

     3. This Amendment shall terminate and be of no further force and effect if the Company Stock Purchase Agreement is terminated as provided in Section 6.1 thereof.

[signature page follows]

3

[Signature Page to Second Amendment to Amended and Restated Restricted Stock Agreement]

     IN WITNESS WHEREOF, this Amendment has been duly executed as of the day and year first set forth above.

CORNERSTONE BIOPHARMA HOLDINGS, INC.
By:	/s/ Craig A. Collard    Name: Craig A. Collard
	Title: President and Chief Executive Officer
PARTICIPANT
	/s/ David Price
	Name: David Price

ACKNOWLEDGED AND AGREED:

CORNERSTONE THERAPEUTICS INC.

By:	/s/ Craig A. Collard    Name: Craig A. Collard
	Title: President and Chief Executive Officer

EX-31.1

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

I, Craig A. Collard, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of Cornerstone Therapeutics 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 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 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 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 the 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: November 4, 2009

/s/ Craig A. Collard  

Craig A. Collard 

President and Chief Executive Officer
(Principal Executive Officer) 

EX-31.2

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

I, David Price, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of Cornerstone Therapeutics 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 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 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 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 the 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: November 4, 2009

/s/ David Price  

David Price 

Executive Vice President, Finance, and
Chief Financial Officer
(Principal Financial Officer) 

EX-32.1

Exhibit 32.1

CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO RULE 13a-14(b)
OF THE SECURITIES EXCHANGE ACT OF 1934 AND 18 U.S.C. SECTION 1350

     In connection with the Quarterly Report on Form 10-Q of Cornerstone Therapeutics Inc. (the “Company”) for the period ended September 30, 2009 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Craig A. Collard, President and Chief Executive Officer of the Company, hereby certifies, to the knowledge of the undersigned, pursuant to 18 U.S.C. Section 1350, that:

(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.

Date: November 4, 2009

/s/ Craig A. Collard  

Craig A. Collard 

President and Chief Executive Officer
(Principal Executive Officer) 

This Certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not be deemed “filed” by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and shall not be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Report, irrespective of any general incorporation language contained in such filing.

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER
PURSUANT TO RULE 13a-14(b)
OF THE SECURITIES EXCHANGE ACT OF 1934 AND 18 U.S.C. SECTION 1350

     In connection with the Quarterly Report on Form 10-Q of Cornerstone Therapeutics Inc. (the “Company”) for the period ended September 30, 2009 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, David Price, Executive Vice President, Finance, and Chief Financial Officer of the Company, hereby certifies, to the knowledge of the undersigned, pursuant to 18 U.S.C. Section 1350, that:

(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.

Date: November 4, 2009

/s/ David Price  

David Price 

Executive Vice President, Finance, and
Chief Financial Officer
(Principal Financial Officer) 

This Certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not be deemed “filed” by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and shall not be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Report, irrespective of any general incorporation language contained in such filing.

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.