10-Q

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)
ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2008
or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                        to

Commission file number 0-19410

Sepracor Inc.
(Exact name of registrant as specified in its charter)

Delaware (State or Other Jurisdiction of Incorporation or Organization)	22-2536587 (IRS Employer Identification No.)
84 Waterford Drive Marlborough, Massachusetts (Address of principal executive offices)	01752 (Zip Code)
Registrant's telephone number, including area code: (508) 481-6700

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

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

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

        The number of shares outstanding of the registrant's class of Common Stock as of July 31, 2008 was 108,848,178 shares.

SEPRACOR INC.
INDEX

Part I—Financial Information
Item 1.	Condensed Consolidated Interim Financial Statements (unaudited)
	Condensed Consolidated Balance Sheets as of June 30, 2008 (unaudited) and December 31, 2007	2
	Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2008 and 2007 (unaudited)	3
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2008 and 2007 (unaudited)	4
	Notes to Condensed Consolidated Interim Financial Statements (unaudited)	5
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	47
Item 4.	Controls and Procedures	47
Part II—Other Information
Item 1.	Legal Proceedings	50
Item 1A.	Risk Factors	55
Item 4.	Submission of Matters to a Vote of Security Holders	82
Item 6.	Exhibits	83
	Signatures	84
	Exhibit Index	85

PART 1—FINANCIAL INFORMATION

Item 1.    Financial Statements

SEPRACOR INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands)

		June 30, 2008			December 31, 2007
		(Unaudited)
Assets
Current assets:
	Cash and cash equivalents	$	515,554		$	598,929
	Short-term investments		234,920			292,659
	Accounts receivable, net		166,711			159,644
	Inventories		71,135			53,125
	Deferred tax asset		154,589			—
	Other current assets		30,778			26,948
Total current assets			1,173,687			1,131,305
	Long-term investments		102,873			174,031
	Property and equipment, net		100,004			87,308
	Investment in affiliate		3,612			4,313
	Deferred financing costs, net		5,152			7,071
	Intangible assets, net		168,393			501
	Goodwill		25,016			—
	Deferred tax asset		312,417			—
	Other assets		197			197
Total assets		$	1,891,351		$	1,404,726
Liabilities and Stockholders' Equity
Current liabilities:
	Accounts payable	$	17,601		$	17,317
	Accrued expenses		142,342			210,109
	Current portion of notes payable and capital lease obligation		1,112			1,162
	Current portion of convertible subordinated debt		72,800			72,800
	Deferred tax liabilities		1,814			—
	Product sales allowances and reserves		285,151			245,839
	Other current liabilities		129			6,887
Total current liabilities			520,949			554,114
	Notes payable and capital lease obligation		900			1,443
	Convertible subordinated debt		648,020			648,020
	Deferred tax liabilities		8,816			—
	Other liabilities		115,308			24,736
Total liabilities			1,293,993			1,228,313
Stockholders' equity:
	Preferred stock, $1.00 par value, 1,000 shares authorized; none outstanding at June 30, 2008 and December 31, 2007		—			—
	Common stock, $.10 par value, 240,000 shares authorized at June 30, 2008 and December 31, 2007; 113,094 and 111,955 shares issued, 108,833 and 107,694 shares outstanding, at June 30, 2008 and December 31, 2007, respectively		11,309			11,195
	Treasury stock, at cost (4,261 shares at June 30, 2008 and December 31, 2007)		(232,028	)		(232,028	)
	Additional paid-in capital		1,882,365			1,858,775
	Accumulated deficit		(1,064,444	)		(1,471,716	)
	Accumulated other comprehensive income		156			10,187
Total stockholders' equity			597,358			176,413
Total liabilities and stockholders' equity		$	1,891,351		$	1,404,726

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

2

SEPRACOR INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In Thousands, Except Per Share Amounts)

			Three Months Ended						Six Months Ended
			June 30, 2008			June 30, 2007			June 30, 2008			June 30, 2007
Revenues:
	Product sales, net		$	269,946		$	264,326		$	575,490		$	581,889
	Royalties and license fees			24,199			12,466			39,434			22,603
		Total revenues		294,145			276,792			614,924			604,492
Costs and expenses:
	Cost of product sold			27,301			25,141			56,636			56,493
	Cost of royalties			580			389			1,069			655
	Research and development			58,299			45,457			124,528			86,159
	Research and development—in process upon acquisition			50,758			—			89,995			—
	Selling, marketing and distribution			179,308			191,516			334,635			383,634
	General and administrative			28,461			19,263			51,960			38,104
	Amortization of intangible assets			1,918			34			4,183			85
	Litigation settlement, net			—			—						34,000
	Restructuring			(266	)		—			(566	)		—
		Total costs and expenses		346,359			281,800			662,440			599,130
	(Loss) income from operations			(52,214	)		(5,008	)		(47,516	)		5,362
Other income (expense):
	Interest income			5,865			11,107			14,598			23,709
	Interest expense			(2,115	)		(113	)		(2,170	)		(2,870	)
	Equity in investee losses			(272	)		(132	)		(475	)		(404	)
	Other expense			(9,354	)		(558	)		(9,432	)		(286	)
	(Loss) income before income taxes			(58,090	)		5,296			(44,995	)		25,511
	(Benefit from) provision for income taxes			(453,170	)		485			(452,267	)		1,885
	Net income		$	395,080		$	4,811		$	407,272		$	23,626
	Basic net income per common share		$	3.66		$	0.05		$	3.78		$	0.22
	Diluted net income per common share		$	3.41		$	0.04		$	3.52		$	0.20
Shares used in computing basic and diluted net income per common share:
		Basic		107,834			106,567			107,797			106,275
		Diluted		115,764			116,635			115,747			116,839

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

3

SEPRACOR INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In Thousands)

		Six Months Ended
		June 30, 2008			June 30, 2007
Cash flows from operating activities:
	Net income	$	407,272		$	23,626
Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation and amortization		16,306			10,585
	Research and development—in process upon acquisition		89,995			—
	Interest accretion on license fee liabilities		2,066			—
	Impairment on investments		9,106			—
	Equity in investee losses		475			404
	Stock compensation		19,509			17,589
	Changes in deferred income taxes—release of valuation allowance		(451,997	)		—
	Loss on asset disposal		37			200
Changes in operating assets and liabilities, net of acquisitions:
	Accounts receivable		(5,084	)		69,139
	Inventories		(13,661	)		(4,887	)
	Other assets		(12,979	)		(24,867	)
	Accounts payable		(167	)		12,233
	Accrued expenses		(69,219	)		12,293
	Product sales allowances and reserves		39,311			(6,549	)
	Other liabilities		(3,322	)		(26	)
Net cash provided by operating activities			27,648			109,740
Cash flows from investing activities:
	Purchases of short and long term investments		(293,583	)		(577,314	)
	Sales and maturities of short and long term investments		403,104			659,456
	Additions to property and equipment		(21,305	)		(14,252	)
	Payments for purchased intangibles		(151,000	)		—
	Business acquisition, net of cash acquired		(49,812	)		—
Net cash (used in) provided by investing activities			(112,596	)		67,890
Cash flows from financing activities:
	Net proceeds from issuance of common stock		4,195			30,696
	Repayments of long-term debt and capital leases		(593	)		(440,597	)
Net cash provided by (used in) financing activities			3,602			(409,901	)
Effect of exchange rate changes on cash and cash equivalents			(2,029	)		285
Net decrease in cash and cash equivalents			(83,375	)		(231,986	)
Cash and cash equivalents at beginning of period		$	598,929		$	415,411
Cash and cash equivalents at end of period		$	515,554		$	183,425
Supplemental schedule of cash flow information:
	Cash paid during the period for interest	$	104		$	22,084
	Cash paid during the period for income taxes	$	5,702		$	3,873
Non cash activities:
	Additions to capital leases	$	—		$	3,260
	Fair value of intangible assets acquired under license and development agreement	$	78,996		$	—
	Liabilities assumed under the license and development agreement	$	77,996		$	—
	Cash paid upon execution of license and development agreement	$	(1,000	)	$	—

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

4

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

1. Basis of Presentation

        The accompanying condensed consolidated interim financial statements are unaudited and have been prepared on a basis substantially consistent with the audited financial statements. Certain information and footnote disclosures normally included in our annual financial statements have been condensed or omitted. The condensed consolidated interim financial statements, in the opinion of our management, reflect all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the results for the interim periods ended June 30, 2008 and 2007. Certain prior period amounts have been reclassified to conform to the current period presentation.

        The condensed interim consolidated financial statements include our accounts and the accounts of our wholly-owned subsidiaries, including Sepracor Canada Limited and Oryx Pharmaceuticals, Inc., or Oryx. We also have an investment in BioSphere Medical, Inc., or BioSphere, which we record under the equity method.

        The condensed consolidated results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full fiscal year. These condensed consolidated interim financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2007, which are contained in our annual report on Form 10-K for the year ended December 31, 2007, filed with the Securities and Exchange Commission, or SEC.

        The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the following: (i) the reported amounts of assets and liabilities, (ii) the disclosure of contingent assets and liabilities at the dates of the financial statements and (iii) the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

2. Recent Accounting Pronouncements

        In May 2008, the Financial Accounting Standards Board, or FASB, issued Statement of Financial Accounting Standards, or SFAS, No. 162, The Hierarchy of Generally Accepted Accounting Principles, or SFAS 162. SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements that are presented in conformity with generally accepted accounting principles. This statement will become effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Comformity with Generally Accepted Accounting Principles. We do not expect the adoption of SFAS 162 to have a material impact on our consolidated financial statements.

        In May 2008, the FASB issued FASB Staff Position, or FSP, No. APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement), which clarifies the accounting for convertible debt instruments that may be settled in cash (including partial cash settlement) upon conversion. The FSP requires issuers to account separately for the liability and equity components of certain convertible debt instruments in a manner that reflects the issuer's nonconvertible debt (unsecured debt) borrowing rate when interest cost is recognized. The FSP requires bifurcation of a component of the debt, classification of that component in equity and the accretion of the resulting discount on the debt to be recognized as part of interest expense in our consolidated statement of operations. The FSP requires retrospective application to the terms of instruments as they existed for all periods presented. Accordingly, prior periods will be restated as if the new rule had been in effect in these prior periods. This statement is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2008 and early adoption is not permitted. While cash payments for interest will not be affected, the adoption of this

5

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED) (Continued)

2. Recent Accounting Pronouncements (Continued)

FSP could increase reported interest expense in a manner that reflects interest rates of similar non-convertible debt. We are evaluating the impact this standard will have on our consolidated financial statements but expect it to result in greater interest expense and therefore lower earnings per share.

        In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133, or SFAS 161. SFAS 161 requires enhanced disclosures about an entity's derivative and hedging activities to make transparent the effect of those activities on the entity's financial position, financial performance and cash flows This statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. This statement encourages, but does not require, comparative disclosures for earlier periods at initial adoption. We do not expect the adoption of SFAS 161 to have a material impact on our consolidated financial statements.

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

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

        In November 2007, the Emerging Issues Task Force of the FASB, or EITF, reached a final consensus on Issue No. 07-1, Accounting for Collaborative Arrangements Related to the Development and Commercialization of Intellectual Property, or EITF 07-1. This statement is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years, and is to be applied retrospectively to all periods presented for all collaborative arrangements existing as of the effective date. We do not expect the adoption of EITF 07-1 to have a material impact on our consolidated financial statements.

        In June 2007, the EITF, reached a final consensus on Issue No. 07-3, Accounting for Nonrefundable Advance Payments for Goods or Services to Be Used in Future Research and Development Activities, or EITF 07-3. This statement is effective beginning January 1, 2009. EITF 07-3 requires nonrefundable advance payments for future research and development activities to be capitalized until the goods have been delivered or related services have been performed. Adoption will be on a prospective basis and could impact the timing of expense recognition for agreements entered into after January 1, 2008. We do not expect the adoption of EITF 07-3 to have a material impact on our consolidated financial statements.

6

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED) (Continued)

2. Recent Accounting Pronouncements (Continued)

        In June 2008, the FASB issued FSP No. EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities, which states that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share under the two-class method. This statement is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2008. We are currently evaluating the impact this standard will have on our consolidated financial statements.

        In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities—including an amendment of FASB Statement No. 115, or SFAS 159. SFAS 159 expands the use of fair value accounting but does not affect existing standards which require assets or liabilities to be carried at fair value. The objective of SFAS 159 is to improve financial reporting by providing companies with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. Under SFAS 159, a company may elect to use fair value to measure eligible items at specified election dates and report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. This election is irrevocable. Eligible items include, but are not limited to, accounts and loans receivable, available-for-sale and held-to-maturity securities, equity method investments, accounts payable, guarantees, issued debt and firm commitments. This Statement is effective beginning January 1, 2008. Currently, we have not expanded our eligible items subject to the fair value option under SFAS 159. Accordingly, adoption of this statement has had no impact on our financial results.

3. Acquisitions

        In June 2008, in order to establish a Canadian commercial presence, we acquired the outstanding capital stock of Oryx, a specialty pharmaceutical company that markets branded prescription pharmaceutical products to physician specialists and hospitals within Canada and is focused in the cardiovascular, central nervous system disorder, pain and infectious diseases therapeutic areas, for approximately $49.8 million, including $3.0 million of acquisition-related transaction costs. In addition, the selling shareholders are entitled to receive milestone payments of up to an aggregate of $20.0 million upon the accomplishment of various regulatory milestones. This acquisition was accounted for under the purchase method of accounting and the results of operations of Oryx have been included in our consolidated results from the acquisition date. The purchase price of the acquisition was allocated to tangible and intangible assets and assumed liabilities based on their estimated fair values. We have allocated $34.1 million of the purchase price to intangible assets primarily comprised of acquired technology. We are amortizing the acquired technology over estimated average useful lives of 3 to 13 years. The excess purchase price of $25.0 million after this allocation has been accounted for as goodwill. The goodwill is not deductible for tax purposes.

7

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED) (Continued)

3. Acquisitions (Continued)

        The following table presents the fair values of assets and liabilities recorded in connection with the Oryx acquisition:

		Total
		(in thousands)
Accounts receivable		$	1,982
Inventory			4,568
Other current assets			3,450
Goodwill			25,016
Intangible assets			34,070
Fixed assets			40
	Total assets acquired		69,126
Accrued expenses and other current liabilities			8,994
Deferred tax liability			10,320
Cash consideration paid, net of cash acquired		$	49,812

        The Oryx acquisition is not material to our condensed consolidated statements of operations, and therefore pro forma information is not presented.

4. Earnings Per Share

        Basic earnings per share, or EPS, excludes dilution and is computed by dividing net income by the weighted-average number of common shares outstanding for the period. Unvested restricted shares, although legally issued and outstanding, are not considered outstanding for purposes of calculating basic EPS. Diluted EPS is calculated by dividing net income by the weighted-average number of common shares outstanding plus the dilutive effect, if any, of outstanding stock options, restricted shares and restricted stock units. Potential common shares result from the assumed conversion of convertible subordinated debt and the assumed exercise of outstanding stock options, the proceeds of which are then assumed to have been used to repurchase outstanding stock options using the treasury stock method. Potential common shares are not included in the per share calculation when the effect of their inclusion would be anti-dilutive.

        For the three and six months ended June 30, 2008 and 2007, the following options to purchase shares of common stock were excluded from the computation of diluted EPS because they would have had an anti-dilutive effect:

	Three Months Ended June 30, 2008		Three Months Ended June 30, 2007		Six Months Ended June 30, 2008		Six Months Ended June 30, 2007
	(in thousands, except price per share data)
Number of options		9,309		6,645		9,034		6,618
Price range per share	$	18.45 to $87.50	$	44.78 to $87.50	$	21.26 to $87.50	$	44.78 to $87.50

        We have issued 0% convertible subordinated notes due 2024, which were not convertible into equity as of June 30, 2008 or 2007, or at any time during the six months ended June 30, 2008 or 2007. Once these notes become convertible into equity, shares of common stock will be reserved under the conversion formula for issuance upon conversion if and when our common stock price exceeds $67.20

8

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED) (Continued)

4. Earnings Per Share (Continued)

per share on the NASDAQ Global Select Market. Prior to such occurrence, the notes are only convertible into cash.

5. Inventories

        Inventories consist of the following:

	June 30, 2008		December 31, 2007
	(in thousands)
Raw materials	$	32,414	$	26,811
Finished goods		38,721		26,314
Total	$	71,135	$	53,125

6. Business Investments

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

        In 2005 and 2006, under the terms of the collaboration agreement with ACADIA, we purchased a total of 1,890,422 shares of ACADIA's common stock for $16.1 million. These publicly traded securities, which are classified as available-for-sale, are accounted for under SFAS 115, Accounting for Certain Investments in Debt and Equity Securities. We adjust the carrying value of our available-for-sale securities to fair value and report the related temporary unrealized gains and losses as a separate component in other comprehensive income. Declines in the fair value of an available-for-sale security that are estimated to be "other-than-temporary" are recognized as other expense in the condensed consolidated statements of operations, thus establishing a new cost basis for such investments. We evaluate our investment securities portfolio on a quarterly basis to determine whether declines in the fair value of these securities are other-than-temporary. This quarterly evaluation consists of reviewing, among other things, the fair value of our investment securities compared to their carrying amount, the historical volatility of the price of each security and any market and company-specific factors related to each security.

        Based on a significant decline in the value of ACADIA's common stock, which we believe is the result of adverse clinical results announced in June 2008, we recorded an other-than-temporary impairment charge of $9.1 million related to this security. As of June 30, 2008, this investment was recorded at its fair value of approximately $7.0 million on our condensed consolidated balance sheet.

7. Goodwill and Intangible Assets

        In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, goodwill is tested for impairment at least annually, or on an interim basis if an event occurs or circumstances change that would, more likely than not, reduce the fair value of the reporting unit below its carrying value.

        Intangible assets subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. Recoverability of

9

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED) (Continued)

7. Goodwill and Intangible Assets (Continued)

assets to be held and used is measured by a comparison of the carrying amount of an asset group to the estimated undiscounted future cash flows expected to be generated by the asset group. If the carrying amount of an asset group exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset group exceeds the fair value of the asset group.

        During the six months ended June 30, 2008, we entered into a worldwide license and development agreement with Arrow International Limited, or Arrow, for the development, commercialization, marketing, sale and distribution of Arrow's Levalbuterol/ipratropium combination inhalation solution product, which we refer to as the Levalbuterol/ipratropium Product, in current and all future formulations and delivery modes. We refer to this agreement as the Levalbuterol/ipratropium Product Agreement. The Levalbuterol/ipratropium Product is currently ready to enter Phase III clinical development. Arrow received $500,000 upon execution of this agreement and we are also required to pay Arrow $70.0 million as further consideration under the agreement, provided Arrow is not in material breach of certain of its obligations under the agreement. Although these future payments are subject to Arrow's continued compliance with the agreement, they have been recorded because we believe it is probable that Arrow will be entitled to these future payments. Arrow will also receive single-digit royalties based on our sales of the Levalbuterol/ipratropium Product, subject to Arrow's one-time option in the fourth quarter of 2009 to receive a lump sum discounted amount of $23.5 million in lieu of ongoing royalty payments.

        During the six months ended June 30, 2008, we also entered into a worldwide license and development agreement with Arrow, which we refer to as the Ciclesonide Agreement, for know-how and intellectual property rights related to stable sterile suspension formulations, for use in the development, commercialization, marketing, sale and distribution of an inhalation solution pharmaceutical product containing ciclesonide as its only active ingredient, or the Nebule Ciclesonide Product, and an inhalation solution pharmaceutical product containing both ciclesonide and arformoterol as its active ingredients, or the Ciclesonide/arformoterol Combination Product. The agreement also includes rights to Arrow's "U-Bend" packaging technology, which allows increased accuracy in dosing through a novel U-Bend ampule design. Arrow received $500,000 upon execution of this agreement and we are also required to pay Arrow $47.5 million as further consideration under the agreement, provided Arrow is not in material breach of certain of its obligations under the agreement. Although these future payments are subject to Arrow's continued compliance with the agreement, they have been recorded because we believe it is probable that Arrow will be entitled to these future payments. Arrow will also receive single-digit royalties based on our sales of the Nebule Ciclesonide Product and Ciclesonide/arformoterol Combination Product, subject to Arrow's one-time options in the fourth quarter of 2009 to receive an aggregate lump sum discounted amount of up to $37.9 million in lieu of ongoing royalty payments.

        The total of $117.5 million of future payments due to Arrow, pursuant to the Levalbuterol/ipratropium Product Agreement ($70 million) and the Ciclesonide Agreement ($47.5 million), which we refer to collectively as the Future Payments to Arrow, were recorded at their present value of $78.0 million on our condensed consolidated balance sheet as of June 30, 2008. We imputed interest expense associated with these liabilities using a 13% interest rate, which will be amortized over the expected term of the payments and recorded as interest expense in our condensed consolidated statement of operations.

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NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED) (Continued)

7. Goodwill and Intangible Assets (Continued)

        Of the $78.0 million of Future Payments to Arrow currently recorded, and the $1.0 million previously paid to Arrow pursuant to the two agreements, $50.8 million was assigned to in-process research and development, or IPR&D. IPR&D is defined by FASB Interpretation No. 4, Applicability of SFAS Statement No. 2 to Business Combinations Accounted for by the Purchase Method, or FIN 4, as being a development project that has been initiated and achieved material progress but: (i) has not yet reached technological feasibility or has not yet reached the appropriate regulatory approval; (ii) has no alternative future use; and (iii) the fair value is estimable with reasonable certainty. As required by FIN 4, the portion of the purchase price under the Levalbuterol/ipratropium Product Agreement and the Ciclesonide Agreement allocated to IPR&D was immediately charged to operations following the consummation of the transaction and is reflected in our condensed consolidated statement of operations.

        A project-by-project valuation using the guidance in SFAS No. 141—Business Combinations, or SFAS 141, has been conducted to determine the fair value of our research and development projects that were in-process, but not yet completed, as of the date we entered into the Levalbuterol/ipratropium Product Agreement and the Ciclesonide Agreement. The Levalbuterol/ipratropium Product candidate, an inhalation solution with the potential to treat chronic obstructive pulmonary disease, or COPD, was the only project in development under the Levalbuterol/ipratropium Product Agreement as of the valuation date. We have targeted commercial introduction of this product for 2011. The two projects in development pursuant to the Ciclesonide Agreement as of the valuation date were the (i) Nebule Ciclesonide Product candidate and (ii) Ciclesonide/arformoterol Combination Product candidate. The Nebule Ciclesonide Product candidate is an inhalation solution formulation of ciclesonide, which is an inhaled corticosteroid that is intended for the treatment of asthma symptoms, regardless of asthma severity. We have targeted commercial introduction of this product for 2013 or early 2014. The Ciclesonide/arformoterol Combination Product candidate will be comprised of a nebulized version of ciclesonide with the arformoterol inhalation solution, which is a long-acting maintenance treatment of bronchoconstriction in patients suffering from COPD. The Ciclesonide/arformoterol Combination Product is targeted for commercial introduction in 2014. Successful development of our products is highly uncertain. Completion costs can be significant, vary for each product and are difficult to predict.

        The fair value of IPR&D has been determined by the income approach using the excess cash flow method. The value of the projects has been based on the present value of probability adjusted incremental cash flows, after the deduction of contributory asset charges for other assets employed (including working capital, trade names and acquired workforce). The probability weightings used to determine IPR&D cash flows ranged from 25% to 80%. The discount rates used to determine the present value of IPR&D cash flows ranged from 15% to 25%.

        The remaining $28.2 million of acquired intangible assets represent core technology product rights.

        During the three months ended March 31, 2008, we entered into an agreement with Nycomed GmbH, or Nycomed, for the exclusive distribution, development and commercialization in the United States, its territories and possessions of Nycomed's compound ciclesonide, and products incorporating such compound, including ALVESCO® HFA (ciclesonide) Inhalation Aerosol metered-dose inhaler, or MDI, for use in the treatment of asthma, OMNARIS™ (ciclesonide) Nasal Spray for use in the treatment of allergic rhinitis and three development projects for line extensions. Under the agreement, we paid Nycomed an upfront payment of $150.0 million in February 2008 and may be required to make subsequent payments of up to $280.0 million over the life of the agreement upon accomplishment of various development and sales milestones. The transaction was accounted for under the purchase method of accounting and the purchase price was allocated to identifiable intangible assets based on their estimated fair values.

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NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED) (Continued)

7. Goodwill and Intangible Assets (Continued)

        Of the $150.0 million of intangible assets related to the Nycomed transaction, $39.2 million was assigned to IPR&D. As required by FIN 4, the portion of the purchase price allocated to IPR&D was immediately charged to operations following the consummation of the transaction and is reflected in our condensed consolidated statement of operations.

        A project-by-project valuation using the guidance in SFAS No. 141 has been conducted to determine the fair value of Nycomed's research and development projects that were in-process, but not yet completed, as of the completion of the consummation of the Nycomed transaction. The three projects in development as of the valuation date were a hydrofluoroalkane, or HFA, MDI and two other respiratory-related candidates. We have targeted commercial introduction of the HFA MDI for 2012. One of the respiratory candidates is a combination therapy that is comprised of ciclesonide and a long-acting beta-agonist, which we have targeted for commercial introduction for 2014. The second respiratory candidate is an inhalation solution for which we have targeted commercial introduction at the end of 2013 or early 2014.

        The fair value of IPR&D has been determined by the income approach using the excess cash flow method. The value of the Nycomed projects has been based on the present value of probability adjusted incremental cash flows, after the deduction of contributory asset charges for other assets employed (including working capital, trade names and acquired workforce). The probability weightings used to determine IPR&D cash flows ranged from 65% to 86%. The discount rate used to determine the present value of IPR&D cash flows was approximately 25%.

        The remaining $110.8 million of acquired intangible assets related to the Nycomed transaction include: OMNARIS Nasal Spray product rights for $21.2 million, ALVESCO HFA Inhalation Aerosol product rights for $30.0 million, and core technology product rights for $59.6 million.

        Our intangible assets included in the condensed consolidated balance sheets are detailed as follows:

	June 30, 2008							December 31, 2007
	(in thousands)
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amounts		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amounts
Goodwill (not amortized)	$	25,016	$	—		$	25,016	$	—	$	—		$	—
Oryx's intangible assets	$	34,070	$	(336	)	$	33,734	$	—	$	—		$	—
Arrow's intangible assets		28,238		(313	)		27,925		—		—			—
Nycomed's intangible assets		110,763		(4,463	)		106,300		—		—			—
Patents and other intangible assets		2,259		(1,825	)		434		2,259		(1,758	)		501
Total intangible assets	$	175,330	$	(6,937	)	$	168,393	$	2,259	$	(1,758	)	$	501

        Oryx intangible assets are being amortized over 3-13 years; Arrow intangible assets are being amortized over 15 years; Nycomed intangible assets are being amortized over 8 - 15 years; and patents are being amortized over 10 years.

        The estimated aggregate amortization expense for each of the next five years is as follows: 2008, $16.5 million; 2009, $17.7 million; 2010, $15.5 million; 2011, $14.3 million; and 2012, $13.5 million.

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NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED) (Continued)

8. Convertible Subordinated Debt

        Convertible subordinated debt consists of the following:

	June 30, 2008		December 31, 2007
	(in thousands)
0% Series A convertible senior subordinated notes due December 2008	$	72,800	$	72,800
0% Series B convertible senior subordinated notes due December 2010		148,020		148,020
0% convertible senior subordinated notes due October 2024		500,000		500,000
Total	$	720,820	$	720,820

        Our 0% notes due 2024 are convertible into cash and, if applicable, shares of our common stock at a conversion price of approximately $67.20, at the option of the holders in October 2009, 2014, 2019 and 2024, as well as under certain circumstances.

        In August 2008, we repurchased, at our option, $21.3 million principal amount of our 0% notes due 2024.

9. Comprehensive Income

        Total comprehensive income consists of net income, net foreign currency translation adjustments and net unrealized (loss) gain on available-for-sale securities.

	Three Months Ended						Six Months Ended
	June 30, 2008			June 30, 2007			June 30, 2008			June 30, 2007
	(in thousands)
Comprehensive income:
Net income	$	395,080		$	4,811		$	407,272		$	23,626
Net foreign currency translation adjustment		448			1,791			(495	)		1,844
Net unrealized (loss) gain on available-for-sale securities		(2,089	)		(2,646	)		(9,536	)		8,866
Total comprehensive income	$	393,439		$	3,956		$	397,241		$	34,336

10. Legal Proceedings

Litigation Related to Generic Competition and Patent Infringement

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

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10. Legal Proceedings (Continued)

rights to our patents before the expiration of our patents would have a material adverse effect on our business, financial condition and results of operations.

Levalbuterol Hydrochloride Inhalation Solution Abbreviated New Drug Applications

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

        In April 2008, we entered into a settlement and license agreement with Breath to resolve this litigation. The agreement permits Breath to sell its generic versions of these XOPENEX Inhalation Solution products in the United States under the terms of an exclusive 180-day license commencing on August 20, 2012 and a non-exclusive license thereafter. Upon launch, Breath would pay us a double-digit royalty on gross profits generated from the sales of generic versions of these XOPENEX Inhalation Solution products. Under the agreement, Breath agrees not to sell any of the products covered by our patents that are the subject of the license before the date on which the license commences. On May 1, 2008, the parties submitted to the court an agreed order of dismissal without prejudice, which the court approved. The litigation is now concluded.

        In April 2008, we also entered into a supply agreement with Breath whereby, effective August 20, 2012, we will exclusively supply levalbuterol products (1.25 mg/3 mL, 0.63 mg/3 mL and 0.31 mg/3 mL) to Breath, under our New Drug Application, or NDA, for a period of 180 days, which we refer to as the Initial Term, and on a non-exclusive basis for two and one-half years thereafter. In addition to the royalties described above, Breath will pay us on a cost plus margin basis for supply of these levalbuterol products. The supply agreement contains provisions regarding termination for cause and convenience, including either party's right to terminate the agreement at any time after the Initial Term upon nine months written notice. Both the exclusive license under the settlement and license agreement and the exclusive supply obligations under the supply agreement could become effective prior to August 20, 2012 if a third party launches a generic version of these dosages of XOPENEX Inhalation Solution or if the parties otherwise mutually agree.

        On May 9, 2008, we provided to the Federal Trade Commission and Department of Justice Antitrust Division the notifications of the settlement with Breath as required under Section 1112(a) of the Medicare Prescription Drug, Improvement and Modernization Act of 2003, or MMA. The settlement with Breath and the other agreements with Breath and its affiliates, including the supply agreement, the agreement for the acquisition of Oryx, and license agreements with Arrow, may be reviewed by antitrust enforcement agencies, such as the Federal Trade Commission and Department of Justice Antitrust Division. There can be no assurances that governmental authorities will not seek to challenge the settlement with Breath or that a competitor, customer or other third party will not initiate a private action under antitrust or other laws challenging the settlement with Breath. We may

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10. Legal Proceedings (Continued)

not prevail in any such challenges or litigation and, in any event, may incur significant costs in the event of an investigation or in defending any action under antitrust laws.

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

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

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

        In March 2008, the trial judge consolidated the Dey L.P. and Barr cases for all purposes, including discovery and trial. The court held a Markman hearing on July 18, 2008, to address the parties' disputed issues of patent claim interpretation. The court has not yet issued its decision regarding the disputed issues of patent claim interpretation nor has it formally set a trial date.

        In June 2008, Dey L.P. filed a Complaint against us in the United States District Court for the District of Delaware, C.A. 08-372. The Complaint is a declaratory judgment action in which Dey L.P. seeks a declaration of non-infringement and invalidity of United States Patent 6,451,289 owned by us. Dey L.P. had previously sent us notice that its ANDA contained a Paragraph IV certification against the 6,451,289 patent, and we did not commence litigation in response.

        The filing of an action for patent infringement under the Drug Price Competition and Patent Term Restoration Act of 1984, also known as the "Hatch-Waxman Act results in an automatic 30-month stay of the FDA's authority to grant final marketing approval to those companies that filed an ANDA containing a Paragraph IV certification against one or more of our XOPENEX Inhalation Solution patents. The first filer of an ANDA with a Paragraph IV certification is potentially entitled to a 180 day period of semi-exclusivity during which the FDA cannot approve subsequently filed ANDAs. The 180 day semi-exclusivity period would begin to run only upon first commercial marketing by the first filer. There are, however, also certain events that could cause the first filer to forfeit the 180 day semi-exclusivity period, which we refer to as a forfeiture event.

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10. Legal Proceedings (Continued)

        For our 1.25 mg/3 mL, 0.63 mg/3 mL, and 0.31 mg/3 mL dosages of XOPENEX Inhalation Solution, we believe that Breath is the sole first filer and potentially entitled to 180 days of semi-exclusivity against subsequent ANDA filers for those three dosages. The 30-month stay against Breath's ANDA expired on March 7, 2008. On April 9, 2008, the FDA granted final approval to Breath's ANDA for all three dosages. However, if a forfeiture event occurs and the FDA determines that Breath has forfeited the 180 day semi-exclusivity period for those three dosages, other ANDA filers who have been granted final approval by the FDA could commence an "at risk" launch upon expiration of the 30-month stay. For those three dosages, the 30-month stay against Dey, L.P. expired on July 9, 2008 and the 30-month stay against Barr expires on or about November 30, 2009.

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

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

Desloratadine Abbreviated New Drug Applications

        Certain of Schering-Plough Corporation's, or Schering-Plough's, CLARINEX® (desloratadine) products for which we receive sales royalties are currently the subject of patent infringement litigation. Since June 2007, the FDA has received ANDAs relating to various dosage forms of CLARINEX from ten different generic pharmaceutical companies. These ANDA submissions include Paragraph IV certifications alleging that our patents, which Schering-Plough (as exclusive licensee of such patents) listed in the Orange Book for these products, are invalid, unenforceable or not infringed by the submitter's proposed product. We and the University of Massachusetts, co-owners of certain patents listed in the Orange Book, filed civil actions against these parties for patent infringement in the United States District Court for the District of New Jersey. In April 2008, the trial judge consolidated these cases for all purposes including discovery and trial. The court has not set a trial date. We believe that all of these ANDAs are subject to a statutory stay of approval until at least December 21, 2009 based on previous litigation commenced by Schering-Plough against these parties in separate civil actions involving another patent.

        In March 2008, we entered into a consent agreement with Glenmark Pharmaceuticals, Inc., or Glenmark, one of the ten generic pharmaceutical companies that filed a Paragraph IV certification against our patents, whereby Glenmark agreed not to pursue its case and to not market CLARINEX 5 mg tablets until the expiration of our patents listed by Schering-Plough in the Orange Book or until these patents are found invalid or unenforceable.

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10. Legal Proceedings (Continued)

Levocetirizine Abbreviated New Drug Applications

        Beginning in February 2008, we and UCB S.A., or UCB, received notices from Synthon Pharmaceuticals, Inc., or Synthon, Sun Pharmaceutical Industries Limited of Andheri (East), or Sun, Sandoz Inc., or Sandoz and Pliva Hrvatska D.O.O., or Pliva, that each has filed an ANDA seeking approval to market a generic version of XYZAL® 5 mg tablets, and that each ANDA contained a Paragraph IV certification alleging that United States Patent 5,698,558, owned by us and exclusively licensed to UCB, is invalid, unenforceable or not infringed. Beginning in April 2008, UCB filed in its name and on our behalf civil actions in the United States District Court for the Eastern District of North Carolina against Synthon, Sun, Sandoz, Pliva and Barr (Pliva's agent), an action against Synthon in the United States District Court for the District of Delaware, and actions against Sun and Pliva/Barr in the United States District Court for the District of New Jersey. The action in Delaware has been voluntarily dismissed. We believe that all of these ANDAs are subject to a 30-month statutory stay of approval, the earliest of which, against Synthon, is scheduled to expire on or about August 29, 2010.

BROVANA Patent Infringement Claim

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

        In March 2008, United States Patent 7,348,362, or the '362 patent, entitled "Bronchodilation b-agonist compositions and Methods" issued and Dey, L.P. is the assignee of the patent. In May 2008, we filed a Motion to Amend our Answer and Counterclaims to seek declaratory judgment that the '362 patent is invalid and unenforceable and to add Mylan Inc. as a party. Dey has opposed this motion and we await a decision from the court.

XOPENEX Inhalation Solution LCA Matter

        In March 2006, the parties responsible for administrating the Medicare Part B prescription drug benefit for respiratory products on behalf of Centers for Medicare and Medicaid Services, or CMS, which we refer to collectively as the Medicare Administration Subcontractors, announced their intention to implement a Least Costly Alternative, or LCA, reimbursement action for XOPENEX Inhalation Solution. If implemented, the LCA would reduce the Medicare Part B reimbursement paid for XOPENEX Inhalation Solution to the level of generic racemic albuterol. As a result, we would be unable to discount XOPENEX Inhalation Solution in the Medicare market, and we do not believe that providers would continue to dispense XOPENEX Inhalation Solution to Medicare Part B beneficiaries at this payment rate.

        The LCA announced in March 2006 was subsequently stayed by the Medicare Administration Subcontractors pending a National Coverage Analysis by CMS. CMS ultimately deferred to the

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10. Legal Proceedings (Continued)

Medicare Administration Subcontractors the determination as to the criteria for when XOPENEX Inhalation Solution would be appropriate for use by the Medicare population. On April 10, 2008, the Medicare Administration Subcontractors announced their intention to implement the previously announced LCA, effective July 1, 2008.

        In June 2008, a preliminary injunction motion seeking to block the implementation of the LCA policy in advance of its July 1, 2008 effective date was filed in the District Court for the District of Columbia against certain of the Medicare Administration Subcontractors, among others, by four Medicare beneficiaries utilizing XOPENEX Inhalation Solution. These Medicare beneficiaries, who rely on XOPENEX Inhalation Solution to treat their medical conditions, stated in the motion that they would be denied access to this drug if the LCA was implemented and as a result would suffer irreparable injury. Shortly following the filing of the motion, the Medicare Administration Subcontractors announced they would suspend the LCA and not reinstate it at any time prior to December 31, 2008. The Medicare Administration Subcontractors further agreed that they would provide a public notice and comment period, which is typically 90 days, should they decide to reinstate the LCA. As a result of the LCA suspension, the court denied the Medicare beneficiaries' preliminary injunction motion. CMS filed a motion to dismiss the Medicare beneficiary lawsuit on the grounds that the case is moot as no LCA is in effect or pending. If the court denies this motion the permanent injunction case will proceed and be heard on its merits. Otherwise, the beneficiaries will not have a cause of action unless and until the LCA is reinstated by CMS.

        Both Sepracor and the Medicare beneficiaries believe that the LCA action by the Medicare Administration Subcontractors is outside the scope of their authority and is contrary to the express intent of Congress which has been enumerated in statutes, such as the MMA, and establishes the method that CMS and the Medicare Administration Subcontractors must use to determine the payment rate for Medicare Part B inhalation drugs such as XOPENEX Inhalation Solution that are administered through durable medical equipment. Although we are not a named party to the litigation, our interest in the outcome is aligned with that of the Medicare beneficiaries. Accordingly, we have, and if the case proceeds, plan to continue to provide funding in support of the litigation and assistance to legal counsel for the Medicare beneficiaries.

Class Action Litigation Settlement

        Litigation settlement expense was $0 and $34.0 million for the six months ended June 30, 2008 and 2007, respectively. In June 2007, we filed in the United States District Court for the District of Massachusetts, or the Court, a Stipulation of Settlement regarding two securities class action lawsuits, or class actions, then pending in the Court naming Sepracor and certain of our current and former officers and one director as defendants. The class actions, which were filed on behalf of certain purchasers of our equity and debt securities, or the plaintiffs, alleged that the defendants violated the Federal securities laws by making false and misleading statements relating to the testing, safety and likelihood of approval of tecastemizole by the FDA. Under the terms of the Stipulation of Settlement, in June 2007 we paid into escrow $52.5 million in settlement of the class actions and, in July 2007, received an $18.5 million reimbursement from our insurance carriers. We recorded the litigation settlement expense of $34.0 million, relating to this matter, during the quarter ended March 31, 2007. In September 2007, the Court granted final approval of the Stipulation of Settlement and entered a final judgment consistent with the Stipulation of Settlement. The settlement is now final and the total settlement amount has been released from escrow.

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NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED) (Continued)

10. Legal Proceedings (Continued)

Other Legal Proceedings

        We have been named as a defendant in a lawsuit filed in the United States District Court for the Middle District of Florida (Sharp, et al., filed July 17, 2008) claiming that our pharmaceutical sales representatives should have been categorized as "non-exempt" rather than "exempt" employees, and claiming that we owe damages, overtime wages, interest, costs and attorneys' fees for up to the four-year period preceding the filing of the action. Other companies in the pharmaceutical industry face substantially similar lawsuits. Based upon the facts as presently known, we do not believe that it is likely that the collective action will result in liability which would be material to our financial position. We believe this lawsuit is without merit and are prepared to defend against it vigorously.

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

11. Commitments and Contingencies

        See Note 5 "Acquisitions" regarding a commitment for potential future milestone payments relating to the purchase of Oryx. See Note 7 "Goodwill and Intangible Assets" regarding commitments for future payments under the Arrow Levalbuterol/ipratoropium Product Agreement, Arrow Ciclesonide Agreement and the Nycomed distribution agreement.

        We have committed to make potential future milestone payments to third parties as part of licensing, distribution and development agreements. Payments under these agreements generally become due and payable only upon achievement of certain development, regulatory and/or commercial milestones. We may also be required to make additional payments to Nycomed and Bial—Portela & C^a, S.A., or Bial, of up to $280.0 million and $90.0 million, respectively, if all remaining milestones under the agreements with these parties are met. Because the achievement of these milestones is neither probable nor reasonably estimable, such contingent payments have not been recorded on our condensed consolidated balance sheet.

12. Income Taxes

        Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to tax benefit carryforwards and for differences between the financial statement amounts of assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is established if, based on management's review of both positive and negative evidence, it is more likely than not that all or a portion of the deferred tax asset will not be realized. Based upon our settlement with Breath during the second quarter of 2008, our operating results over recent years and through June 30, 2008 and an assessment of our expected future results of operations, we determined that it is more likely than not that we will realize a substantial portion of our deferred tax assets in the United States and a foreign jurisdiction. As a result, during the second quarter, we released a total of $452.0 million of our valuation allowance, which was recorded as an income tax benefit.

        As of June 30, 2008, we had a remaining valuation allowance recorded against United States net deferred tax assets of $215.4 million which consists of $145.9 million for stock based compensation deductions and $6.9 million of stock based compensation research and development credits that will be credited to additional paid-in-capital when realized; $6.1 million for certain state operating loss

19

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED) (Continued)

12. Income Taxes (Continued)

carryforwards, and $19.4 million of research and development credits that will likely expire without being utilized; and an aggregate of $37.1 million which will be released in the third and fourth quarters of 2008 to offset our expected tax expense for the remainder of 2008. Additionally, there is a non-U.S. valuation allowance of $2.0 million for non-U.S. operating loss and tax credit carryforwards that will likely expire without being utilized.

        Our income tax provisions for the three and six months ended June 30, 2008 include a tax benefit of $452.0 million recorded upon our decision in the second quarter of 2008 to release a substantial portion of the valuation allowance recorded against net deferred tax assets in the United States and a foreign jurisdiction. Excluding the effect of this tax benefit, our income tax provisions in the three and six months ended June 30, 2008 consisted primarily of income taxes owed on income generated by a foreign subsidiary and certain state income taxes in the United States. The tax provisions for these periods included only insignificant amounts in relation to the income that we generated in the United States, due to our utilization of available net operating loss carryforwards that previously had been recorded in our balance sheet with a full valuation allowance.

        We account for uncertain tax positions in accordance with FIN 48, Accounting for Uncertainty in Income Taxes, which prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return and also provides guidance on various related matters such as derecognition, interest, penalties, and disclosure. At December 31, 2007, approximately $18.4 million of unrecognized tax benefits were identified related to certain temporary differences, which have been reduced to $11.3 million at June 30, 2008 for certain temporary differences that meet the recognition threshold. An additional $10.7 million of unrecognized tax benefits have been identified and recorded as of March 31, 2008 related to certain tax credit carryforwards, which resulted in a reduction of the related deferred tax asset.

        We file tax returns in the United States Federal jurisdiction and in various state, local and foreign jurisdictions. We are no longer subject to Internal Revenue Service, or IRS, examination for years prior to 2004, although carryforward attributes that were generated prior to 2004 may still be adjusted upon examination by the IRS if they either have been or will be used in a future period. We receive inquiries from various states during the year, some of which include an audit of state returns previously filed. With limited exceptions, we are no longer subject to state or local examinations for years prior to 2004, however, carryforward attributes that were generated prior to 2004 may still be adjusted upon examination by state or local tax authorities if they either have been or will be used in a future period.

        The foreign jurisdictions where we currently file income tax returns are Canada and the Netherlands Antilles. We are currently under examination by Canada Revenue Agency, or CRA, for our Scientific Research and Experimental Development claims for the years ended December 31, 2005, 2004 and 2003. There are currently no examinations being conducted by the tax authorities in the Netherlands Antilles. With limited exceptions, we are no longer subject to examination in Canada and the Netherlands Antilles for years prior to 2003 and 1999, respectively, although carryforward attributes that were generated prior to these respective periods may still be adjusted upon examination if they either have been or will be used in a future period.

        We recognize accrued interest and penalties related to unrecognized tax benefits as a component of tax expense. For the three and six months ended June 30, 2008, the amount of accrued interest related to unrecognized tax benefits was not significant and no amount has been accrued for penalties.

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NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED) (Continued)

13. Fair Value Measurements

        In September 2006, the FASB issued SFAS 157, Fair Value Measurements, or SFAS 157. SFAS 157 defines fair value, establishes a framework and gives guidance regarding the methods used for measuring fair value and expands disclosures about fair value measurements. We partially adopted this statement effective January 1, 2008. In February 2008, the FASB released FSP No. 157-2, Effective Date of FASB Statement No. 157, or FSP 157-2 which delays the effective date of SFAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually).

        In accordance with FSP 157-2, we have not applied the provisions of SFAS 157 to the following nonfinancial assets and nonfinancial liabilities:

•

reporting units and nonfinancial assets and nonfinancial liabilities measured at fair value for the goodwill impairment test in accordance with SFAS No. 142;



•

nonfinancial long-lived assets or asset groups measured at fair value for impairment assessment or disposal under SFAS No. 144; and



•

nonfinancial liabilities for exit or disposal activity that is initially measured at fair value under SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities.

        We have not yet determined the impact on our financial statements from our expected adoption of SFAS 157 as it pertains to non-financial assets and liabilities in the first quarter of 2009. The partial adoption of SFAS 157 for financial assets and liabilities did not have a material impact on our condensed consolidated financial position, results of operations or cash flows.

        Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. Fair value is based upon quoted market prices, where available. Where quoted market prices or other observable inputs are not available, we apply valuation techniques to estimate fair value. SFAS 157 establishes a three-level valuation hierarchy for disclosure of fair value measurements. The three levels of the hierarchy are defined as follows:

        Level 1—Inputs to the valuation methodology are quoted market prices for identical assets or liabilities in active markets. The types of assets measured at fair value using Level 1 inputs include our publicly traded equity investments with quoted market prices and money market funds.

        Level 2—Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.) and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs). The types of assets measured at fair value using Level 2 inputs include our publicly traded debt securities and other marketable securities with quoted market prices, which are in markets that are considered less active.

        Level 3—Inputs to the valuation methodology are unobservable inputs based on management's best estimate of inputs market participants would use in pricing the asset or liability at the measurement date, including assumptions about risk. The types of assets measured at fair value using Level 3 inputs include auction-rate securities where the auctions have failed.

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NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED) (Continued)

13. Fair Value Measurements (Continued)

        In accordance with the fair value hierarchy described above, the following table shows the fair value of our financial assets and liabilities that are measured at fair value on a recurring basis as of June 30, 2008:

		Quoted Prices in Active Markets		Significant Other Observable Inputs		Significant Unobservable Inputs		Carrying Value at June 30, 2008
		Level 1		Level 2		Level 3		Total
		(in thousands)
Money market funds		$	437,130	$	—	$	—	$	437,130
US treasury securities			42,299		—		—		42,299
Asset-backed securities			—		1,501		—		1,501
Corporate bonds			—		696		—		696
Equity securities(1)			10,442		—		—		10,442
Other available-for-sale investments			—		250		—		250
Auction-rate securities			—		—		78,194		78,194
	Total	$	489,871	$	2,447	$	78,194	$	570,512

(1)

Included within equity securities is our investment in ACADIA. See footnote 6 regarding the impairment taken on this investment for the three months ended June 30, 2008.

        Auction-rate securities are long-term variable rate bonds tied to short-term interest rates. After the initial issuance of the securities, the interest rate on the securities is reset periodically, at intervals established at the time of issuance (primarily every twenty-eight days), based on market demand for a reset period. Auction-rate securities are bought and sold in the marketplace through a competitive bidding process referred to as an auction. If there is insufficient interest in the securities at the time of an auction, the auction may not be completed and the rates may be reset to predetermined "penalty" or "maximum" rates.

        Substantially all of our auction-rate investments, approximately $78.2 million at June 30, 2008, are backed by pools of student loans guaranteed by the Federal Family Education Loan Program, or FFELP, and we continue to believe that the credit quality of these securities is high based on this guarantee and other collateral. Auctions for these securities began failing in the first quarter of 2008 and continued to fail throughout the second quarter, which we believe is a result of the recent uncertainties in the credit markets. Consequently, the investments are not currently liquid, and we will not be able to access these funds until a future auction of these investments is successful, a buyer is found outside of the auction process, the security is called, or the underlying securities have matured. At the time of the initial investment and through the date of this report, all of these auction-rate securities remain AAA rated. We believe we have the ability to hold these investments until the lack of liquidity in these markets is resolved. As a result, we continue to classify the entire balance of our auction-rate securities as non-current available-for-sale investments at fair value on our condensed consolidated balance sheet.

        Because of the temporary declines in fair value for the auction-rate securities, which we attribute to liquidity matters rather than credit issues as discussed above, we have recorded an unrealized loss of $4.0 million to accumulated other comprehensive income. Any future fluctuation in fair value related to these instruments that we deem to be temporary, including any recoveries of previous write-downs,

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NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED) (Continued)

13. Fair Value Measurements (Continued)

would be recorded to accumulated other comprehensive income. If current market conditions deteriorate further, we may be required to record additional unrealized losses in other comprehensive income. If the credit ratings of the security issuers deteriorate, the anticipated recovery in market values does not occur or we need funds from the auction-rate securities to meet working capital needs, we may be required to adjust the carrying value of these investments through impairment charges recorded to earnings, as appropriate.

        The fair values of these auction-rate securities are estimated utilizing a trinomial discounted cash flow valuation model as of June 30, 2008. This analysis considers, among other items, the maximum interest rate, the probability of passing, failing or default at each auction, the severity of default and the discount rate. These securities were also compared, when possible, to other observable market data or inputs with similar characteristics to the securities that we held, including credit default swaps spreads on securities with similar credit, implied volatility rates on exchange traded options and spreads on corporate credit. The analysis assumes that a successful auction would occur, at par, at some point in time for each security.

        All of our assets measured at fair value on a recurring basis using significant Level 3 inputs as of June 30, 2008 were auction-rate securities. The following table summarizes the change in balances for the six month period ended June 30, 2008:

	Level 3 Auction-Rate Securities
	(in thousands)
Balance at December 31, 2007	$	99,900
Unrealized loss included in other comprehensive income		(3,509	)
Net settlements		(16,150	)
Balance at March 31, 2008	$	80,241
Unrealized loss included in other comprehensive income		(447	)
Net settlements		(1,600	)
Balance at June 30, 2008	$	78,194

14. Restructuring Charges

        During the year ended December 31, 2007, we completed an evaluation of our sales force structure, size and allocation in an attempt to maximize efficiency of our sales force. This evaluation resulted in a decision to restructure and re-align our sales force. The restructuring program was completed by December 31, 2007, approximately 300 positions were eliminated and we recorded a charge of $6.9 million. This charge was primarily comprised of severance costs for terminated employees and contract termination costs for excess leased computer equipment and company cars. At June 30, 2008 and December 31, 2007, the remaining accrual was $0 and $6.7 million, respectively.

        In the six months ended June 30, 2008, we reversed $566,000 of our restructure reserve as the result of a change in estimate associated with employee severance costs and contract terminations that were not realized. We do not expect to incur any additional charges in connection with this restructuring.

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

Cautionary Statement Regarding Forward-Looking Statements

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

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

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

Executive Overview

        We are a research-based pharmaceutical company dedicated to discovering, developing and commercializing innovative pharmaceutical products targeted to address large and growing markets and unmet medical needs.

        Our currently marketed products are:

•

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



•

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

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•

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



•

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



•

OMNARIS™ (ciclesonide) Nasal Spray, the intranasal formulation of ciclesonide for the treatment of nasal symptoms associated with seasonal allergic rhinitis in adults and children six years of age and older, and with perennial allergic rhinitis in adults and adolescents 12 years of age and older.

        In January 2008, we obtained from Nycomed GmbH, or Nycomed, the exclusive United States distribution rights to OMNARIS Nasal Spray and ALVESCO® HFA (ciclesonide) Inhalation Aerosol, which has been approved by the United States Food and Drug Administration, or FDA.

        We commercially launched OMNARIS Nasal Spray in April 2008 and expect to commercially launch ALVESCO HFA Inhalation Aerosol during the second half of 2008. We market our products in the United States to primary care physicians, allergists, pulmonologists, pediatricians, hospitals, psychiatrists and sleep specialists, as appropriate, primarily through our sales organization currently comprised of approximately 1,700 sales professionals. In May 2008, in an effort to maximize the commercial opportunity of OMNARIS Nasal Spray and ALVESCO HFA Inhalation Aerosol, we entered into an agreement with a contract sales organization for the services of additional sales professionals. We anticipate that approximately 400 sales professionals will commence selling certain of our products pursuant to this agreement during the end of the third quarter or early in the fourth quarter of 2008. In addition, we have entered into out-licensing arrangements with respect to the sale of eszopiclone outside of the United States, Canada and Mexico and with respect to several other compounds. We expect to commercialize any additional products that we may successfully develop or acquire through our sales force, co-promotion agreements and/or out-licensing partnerships. Factors that will be critical for us in achieving near-term success include our ability to:

•

increase our LUNESTA revenues, despite increasing competition;



•

grow XOPENEX Inhalation Solution revenues outside of the Medicare market by maintaining targeted sales and marketing efforts aimed at the retail and hospital market segments. Revenues from the sale of XOPENEX Inhalation Solution have been, and we expect will continue to be, adversely affected on a comparable basis as a result of restrictions on the Medicare Part B reimbursement amount for XOPENEX Inhalation Solution;



•

continue to increase our XOPENEX HFA revenues;



•

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



•

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



•

maintain patent protection for our products, including successful enforcement of our patents, particularly for XOPENEX Inhalation Solution for which five Abbreviated New Drug Applications, or ANDAs, have been submitted to the FDA.

        We believe that success in each of these areas should allow us to continue to be profitable in the near term and provide us the ability to repay our outstanding convertible debt of $720.8 million. If not

25

converted, repurchased at the noteholders' or our option, or otherwise refinanced earlier, the principal amount of this debt becomes due as follows:

Principal Amount of Convertible Debt	Maturity Date
$72,800,000	December 2008
$148,020,000	December 2010
$500,000,000(1)	2024	(2)

(1)

In August 2008, we repurchased, at our option, $21.3 million principal amount of our 0% notes due 2024.



(2)

These notes may be converted into cash at the option of the noteholders in October 2009, 2014, 2019 and 2024, as well as under certain other conditions.

        Our long-term success depends in part on our ability to build upon our current business, our ability to successfully develop or acquire and commercialize new products and product candidates, and our ability to successfully launch ALVESCO HFA Inhalation Aerosol and commercialize OMNARIS Nasal Spray and ALVESCO HFA Inhalation Aerosol.

        We expect that sales of LUNESTA and XOPENEX Inhalation Solution will represent the majority of our total revenues in 2008. We do not have long-term sales contracts with our customers, and we rely on purchase orders for sales of our products. Reductions, delays or cancellations of orders for our marketed products could adversely affect our operating results. If sales of our marketed products do not meet our expectations, we may not have sufficient revenue to achieve our business plan and our business will not be successful.

        In 2008, we expect to be profitable for the year on an operating and net income basis. We expect sales and marketing expenses to continue to decrease as compared to 2007 as we have reduced marketing programs related to LUNESTA, which will be offset by costs incurred related to the second quarter 2008 commercial introduction of OMNARIS Nasal Spray and costs we expect to incur related to the planned commercial introduction of ALVESCO HFA Inhalation Aerosol. Research and development expenses for 2008 are expected to increase as compared to 2007 as we continue to invest in research and development activities relating to LUNESTA and our earlier-stage drug candidates, as well as increased drug discovery efforts and development activities for ciclesonide and eslicarbazepine acetate, an anti-epileptic compound that we licensed from Bial—Portela & C^a, S.A., or Bial, in late 2007. As part of our business strategy, in 2008, and in the future, we expect to consider and, as appropriate, consummate acquisitions of other technologies, product candidates, approved products and/or businesses. We can provide no assurance that we will be successful in completing any such acquisitions.

Significant 2008 Developments and Recent Corporate Development and Licensing Transactions

•

In June 2008, 1765800 Ontario Limited, a wholly-owned subsidiary of Sepracor incorporated under the laws of the Province of Ontario, completed the acquisition of 100% of the issued and outstanding common stock of Oryx Pharmaceuticals, Inc., or Oryx, pursuant to the share purchase agreement dated April 30, 2008, by and among Sepracor, 1765800 Ontario Limited, Oryx, Cobalt Pharmaceuticals, Inc., or Cobalt, Melville Holdings Limited, which we refer to together with Cobalt as the Sellers, and Arrow Group A.p.S. Under the terms of the agreement, the Sellers were paid $50.0 million in cash, subject to a post-closing working capital adjustment. The Sellers are also entitled to receive milestone payments of up to an aggregate of $20.0 million upon the accomplishment of various regulatory milestones. Oryx is now an indirect wholly-owned subsidiary of Sepracor.



•

In May 2008, David P. Southwell entered into a severance and consulting agreement with us pursuant to which Mr. Southwell agreed to resign as our Executive Vice President and Chief

26

Financial Officer on May 20, 2008. Mr. Southwell will continue to serve as a consultant to us through December 31, 2008 to assist in the transition of his work and to provide such other advice and assistance on corporate projects as reasonably requested by our Chief Executive Officer.



•

In May 2008, our board of directors appointed Robert F. Scumaci to the position of Executive Vice President and Chief Financial Officer, effective May 20, 2008. Prior to his appointment to this position, Mr. Scumaci had served as our Executive Vice President, Corporate Finance and Administration since February 2001 and as our Treasurer since March 1996. In May 2007, Mr. Scumaci assumed the additional responsibility of leadership of our commercial technical operations. Mr. Scumaci served as our Senior Vice President, Finance and Administration from March 1996 to February 2001 and as our Vice President and Controller from March 1995 until March 1996.



•

In May 2008, in an effort to maximize the commercial opportunity of OMNARIS Nasal Spray and ALVESCO HFA Inhalation Aerosol, we entered into a definitive agreement with a contract sales organization for the services of additional sales professionals. We anticipate that approximately 400 sales professionals will commence selling certain of our products pursuant to this agreement during the end of the third quarter or early in the fourth quarter of 2008. We will be responsible for the management and training of these representatives and for providing all promotional materials and samples used for product detailing. We will also hire the sales managers necessary to support the additional sales professionals.



•

In April 2008, we entered into a license and development agreement with Arrow International Limited, or Arrow, for the development, commercialization, marketing, sale and distribution of Arrow's levalbuterol/ipratropium combination inhalation solution product in current and all future formulations and delivery modes, or the Levalbuterol/ipratropium Product, throughout the world. We paid Arrow an upfront payment of $500,000 upon execution of the agreement. We are also required to pay Arrow $25.0 million on December 15, 2009 and $25.0 million on December 15, 2010 as further consideration for the transfer of know-how and the grants of rights and licenses to the Arrow technology, provided Arrow is not in material breach of certain of its obligations under the agreement, as well as a milestone payment of $20.0 million upon receipt of marketing approval for the Levalbuterol/ipratropium Product in the United States. We will also pay single-digit royalties that escalate based on product sales, subject to Arrow's one-time option in the fourth quarter of 2009 to receive a lump sum discounted amount of $23.5 million in lieu of ongoing royalty payments. Arrow has the right to manufacture and supply us with our requirements of the Levalbuterol/ipratropium Product. If Arrow elects not to manufacture and supply the Levalbuterol/ipratropium Product to us, we will have the right to manufacture or arrange for the manufacture of the Levalbuterol/ipratropium Product.



•

In April 2008, we also entered into a license and development agreement with Arrow for know-how and intellectual property rights related to stable sterile suspension formulations, for use in the development, commercialization, marketing, sale and distribution of an inhalation pharmaceutical product containing ciclesonide as its only active ingredient and an inhalation pharmaceutical product containing both ciclesonide and arformoterol as its active ingredients, throughout the world, collectively referred to as the Ciclesonide Products. The agreement also includes rights to Arrow's "U-Bend" packaging technology, which allows increased accuracy in dosing through a novel U-Bend ampule design. We paid Arrow an upfront payment of $500,000 upon execution of the agreement. We are also required to pay Arrow $10.0 million on December 15, 2009 and a $10.0 million payment on December 15, 2010, as further consideration for the transfer of know-how and the grants of rights and licenses to the Arrow technology, provided Arrow is not in material breach of certain of its obligations under the agreement, as well as milestone payments of up to an aggregate of $27.5 million upon the achievement of

27

certain regulatory milestones relating to both of the Ciclesonside Products. We will also pay single-digit royalties on sales of the Ciclesonide Products, subject to Arrow's one-time options in the fourth quarter of 2009 to receive an aggregate lump sum discounted amount of up to $37.9 million in lieu of ongoing royalty payments.



•

In April 2008, we entered into a settlement and license agreement with Breath Limited, or Breath, to resolve the patent infringement litigation involving certain XOPENEX Inhalation Solution products (1.25 mg/3 mL, 0.63 mg/3 mL and 0.31 mg/3 mL). The agreement permits Breath to sell its generic versions of these products in the United States under the terms of an exclusive 180-day license from us commencing on August 20, 2012, and a non-exclusive license thereafter. Upon launch, Breath would pay us a double-digit royalty on gross profits generated from the sales of generic versions of these products. Under the agreement, Breath agrees not to sell any of the products covered by our patents that are the subject of the license before the date on which the license commences. On May 1, 2008, the parties submitted to the court an agreed order of dismissal without prejudice, which the court approved. The settlement and license agreement is a final settlement of the Breath litigation and the litigation is now concluded.



•

In April 2008, we also entered into a supply agreement with Breath, whereby, effective August 20, 2012, we will exclusively supply certain levalbuterol products (1.25 mg/3 mL, 0.63 mg/3 mL and 0.31 mg/3 mL) to Breath, under our New Drug Application, or NDA, for a period of 180 days, which we refer to as the Initial Term, and on a non-exclusive basis for up to an additional two and one-half year period thereafter. In addition to the royalties described above, Breath will pay us on a cost plus margin basis for supply of the XOPENEX Inhalation Solution products. The supply agreement contains provisions regarding termination for cause and convenience, including either party's right to terminate the agreement at any time after the Initial Term upon nine months written notice. Both the exclusive license under the settlement agreement and the exclusive supply obligations under the supply agreement could become effective prior to August 20, 2012, if a third party launches a generic version of those dosages of our XOPENEX Inhalation Solution products or if the parties otherwise mutually agree.



•

In January 2008, we notified the Centers for Medicare and Medicaid Services, or CMS, that we had identified potential errors in our determination of the best price used to calculate Medicaid rebate amounts in prior periods. As a follow up to this disclosure to CMS, we identified a material weakness in our internal controls related to these potential errors and our management, with the oversight of our Audit Committee, is reviewing our government pricing activities affected by this material weakness. See also Item 4, Controls and Procedures, regarding the material weakness of our internal controls and remediation plan with respect thereto.



•

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



•

In December 2007, we entered into a license agreement with Bial for the development and commercialization in the United States and Canada of Bial's anti-epileptic compound, which Bial refers to as BIA 2-093 and which we now refer to as SEP-0002093. Pursuant to the agreement,

28

we paid Bial an upfront payment of $75.0 million and are required to make subsequent payments upon accomplishment of various development and regulatory milestones, including $10.0 million we paid to Bial in May 2008 upon achievement of one such milestone, and which could include up to an additional $90.0 million if all other milestones are met. We will also compensate Bial for providing finished product pursuant to a supply agreement that is expected to be entered into by the parties, which will be calculated as a percentage of the average net selling price for finished tablets, and make milestone payments to Bial upon FDA approval of additional indications, if any.



•

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



•

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

Three Month Periods ended June 30, 2008 and 2007

Revenues

        Product sales were $269.9 million and $264.3 million for the three months ended June 30, 2008 and 2007, respectively, an increase of approximately 2%.

        Sales of LUNESTA were $148.1 million and $142.9 million for the three months ended June 30, 2008 and 2007, respectively, an increase of approximately 4%. The increase is primarily the result of an increase in gross selling price of approximately 20%, which resulted in a net selling price increase of approximately 3%. The number of units sold increased by less than 1%. Adjustments recorded to gross sales are disclosed below under the heading "Analysis of gross sales to net sales."

        Sales of XOPENEX Inhalation Solution were $85.4 million and $103.5 million for the three months ended June 30, 2008 and 2007, respectively, a decrease of approximately 18%. The decrease is in part the result of a decrease in net selling price of approximately 5%, which was related to the decision made by CMS during the second quarter 2007 to institute a new bundled payment amount for XOPENEX Inhalation Solution and generic albuterol inhalation solution products. Partially offsetting the decrease in net selling price is a gross selling price increase of approximately 20%. The decrease in sales was also due in part to a decrease in number of units sold of approximately 13%, which was primarily the result of a decrease in market share. We believe that the re-allocation of sales resources in an effort to support the second quarter launch of OMNARIS Nasal Spray may have contributed to this decrease in market share. Adjustments recorded to gross sales are disclosed below under the heading "Analysis of gross sales to net sales."

29

        Sales of XOPENEX HFA were $14.1 million and $12.4 million for the three months ended June 30, 2008 and 2007, respectively, an increase of approximately 14%. The increase is primarily the result of a gross selling price increase of approximately 10%, which resulted in a net selling price increase of approximately 5%, and an increase in the number of units sold of approximately 8%. Adjustments recorded to gross sales are disclosed below under the heading "Analysis of gross sales to net sales."

        Sales of BROVANA were $13.3 million and $5.5 million for the three months ended June 30, 2008 and 2007, respectively. We introduced BROVANA commercially in April 2007. The increase is primarily the result of an increase in the number of units sold of approximately 118%, and a gross selling price increase of approximately 14% including discounts given at the commencement of the commercialization in the three months ended June 30, 2007, which resulted in a net selling price increase of approximately 11%. Adjustments recorded to gross sales are disclosed below under the heading "Analysis of gross sales to net sales."

        Sales of OMNARIS Nasal Spray were $7.4 million and $0 for the three months ended June 30, 2008 and 2007, respectively. We introduced OMNARIS Nasal Spray commercially in April 2008. Adjustments recorded to gross sales are disclosed below under the heading "Analysis of gross sales to net sales."

         Analysis of gross sales to net sales—We record product sales net of the following significant categories of product sales allowances: payment term discounts, wholesaler fee-for-service discounts, government rebates and contractual discounts, returns and other discounts. We recompute these amounts each quarter and, with the exception of the Medicaid best price matters described in more detail in Item 4, Controls and Procedures, of this Form 10-Q, historically our estimates have not materially differed from actual results. Calculating each of these items involves significant estimates and judgments and requires us to use information from external sources. The following table presents the adjustments deducted from gross sales to arrive at total net sales:

		For the Three Months Ended June 30,
		2008		% of Sales			2007		% of Sales			$ Change			% Change
		(dollars in thousands)
Gross sales		$	402,942		100	%	$	336,960		100.0	%	$	65,982			20	%
Adjustments to gross sales:
	Payment term discounts		7,995		2.0	%		6,741		2.0	%		1,254			19	%
	Wholesaler fee-for-service		1,123		0.3	%		3,712		1.1	%		(2,589	)		(70	)%
	Government rebates and contractual discounts		115,488		28.7	%		53,083		15.8	%		62,405			118	%
	Returns		4,178		1.0	%		3,831		1.1	%		347			9	%
	Other (includes product introduction discounts)		4,212		1.0	%		5,267		1.6	%		(1,055	)		(20	)%
Sub-total adjustments			132,996		33.0	%		72,634		21.6	%		60,362			83	%
Net sales		$	269,946		67.0	%	$	264,326		78.4	%	$	5,620			2	%

        The increase in adjustments to gross sales as a percentage of gross sales for the three months ended June 30, 2008, as compared to the three months ended June 30, 2007, primarily reflects an increase in government rebates and contractual discounts as a result of an increase in:

•

discounts given through managed care programs on the sales of LUNESTA and XOPENEX Inhalation Solution;

30

•

Medicare Part B discounts given on the sales of XOPENEX Inhalation Solution and BROVANA;



•

Medicaid discounts primarily given on the sales of XOPENEX Inhalation Solution and XOPENEX HFA;



•

discounts under a program with the Veterans Administration, or VA, on the sales of LUNESTA and XOPENEX Inhalation Solution;



•

Medicare Part D discounts given on the sales of LUNESTA, XOPENEX Inhalation Solution and XOPENEX HFA; and



•

chargebacks given on the sales of LUNESTA, XOPENEX HFA and XOPENEX Inhalation Solution.

Partially offsetting the increase in government rebates and contractual discounts was a net decrease in wholesaler fee-for-service discounts given primarily on the sales of XOPENEX Inhalation Solution.

        Royalties and license fees were $24.2 million and $12.5 million for the three months ended June 30, 2008 and 2007, respectively.

        Royalties earned on the sales of ALLEGRA® (fexofenadine HCl) under our agreement with sanofi-aventis were $7.8 million and $6.3 million for the three months ended June 30, 2008 and 2007, respectively, an increase of approximately 25%. The increase is primarily the result of increased sales in Japan.

        Royalties earned on sales of CLARINEX® (desloratadine) under our agreement with Schering-Plough Corporation, or Schering-Plough, were $7.3 million and $4.8 million for the three months ended June 30, 2008 and 2007, respectively, an increase of approximately 52%. The increase is primarily the result of a contractual royalty rate increase that took effect in October 2007.

        Royalties received on sales of XYZAL®/XUSAL™ (levocetirizine) under our agreements with UCB S.A. and UCB Farchim S.A., which we refer to collectively as the UCB entities, were $6.7 million and $1.4 million for the three months ended June 30, 2008 and 2007, respectively, an increase of approximately 369%. The increase is the result of the commencement of commercialization of XYZAL in the United States during the fourth quarter of 2007.

        A number of the patents we own and license to third parties and for which we receive these royalties are the subject of patent invalidation or revocation claims by companies seeking to introduce generic equivalents of the products covered by such patents. We can provide no assurance concerning the outcome or the duration of any patent related lawsuits. If we, or third parties from whom we receive royalties, are not successful in enforcing our respective patents, the companies seeking to market generic versions will not be excluded from marketing their generic versions of these products. Introduction of generic copies of any of these products before the expiration of our patents or the patents of our licensees could have a material adverse effect on our business.

Costs of Revenues

        Cost of products sold was $27.3 million and $25.1 million for the three months ended June 30, 2008 and 2007, respectively.

        Cost of LUNESTA sold as a percentage of LUNESTA gross sales was approximately 5% and 6% for the three months ended June 30, 2008 and 2007, respectively. The decrease in the cost as a percentage of gross sales is primarily due to an increase in our gross selling price.

        Cost of XOPENEX Inhalation Solution sold as a percentage of XOPENEX Inhalation Solution gross sales was approximately 6% and 7% for the three months ended June 30, 2008 and 2007,

31

respectively. The decrease in the cost as a percentage of gross sales is primarily due to an increase in our gross selling price.

        Cost of XOPENEX HFA sold as a percentage of XOPENEX HFA gross sales was approximately 12% and 15% for the three months ended June 30, 2008 and 2007, respectively. Included in the costs of XOPENEX HFA sold is a royalty paid on net sales of XOPENEX HFA to 3M Company, or 3M, our third party finished goods manufacturer of the product. The decrease in the cost as a percentage of gross sales is primarily due to an increase in our gross selling price in addition to lower manufacturing cost per-unit as a result of an increase in the number of units manufactured during the three months ended June 30, 2008 as compared to the same period in 2007.

        Cost of BROVANA sold as a percentage of BROVANA gross sales was approximately 11% and 20% for the three months ended June 30, 2008 and 2007, respectively. The decrease in the cost as a percentage of gross sales is primarily due to lower manufacturing costs during the three months ended June 30, 2008 as compared to the same period in 2007. The decrease in the cost to manufacture BROVANA is the result of increased production of the 60-count package, which has a lower manufacturing cost, as compared to the 30-count package, during the three months ended June 30, 2008 as compared to the same period in 2007.

        Cost of OMNARIS Nasal Spray sold as a percentage of OMNARIS Nasal Spray gross sales was approximately 23% for the three months ended June 30, 2008. We commercially introduced OMNARIS Nasal Spray in April 2008.

        Cost of royalties earned was $580,000 and $389,000 for the three months ended June 30, 2008 and 2007, respectively, an increase of approximately 49%. The cost of royalties in both periods relates to an obligation to a third party as a result of royalties we earn from Schering-Plough based on its sales of CLARINEX. This increase in third party obligations is due to the increase in royalties earned in the three months ended June 30, 2008 as compared with the same period in 2007.

Research and Development

        Research and development expenses were $58.3 million and $45.5 million for the three months ended June 30, 2008 and 2007, respectively, an increase of approximately 28%. The increase is primarily due to increased spending on early-stage programs (SEP-225441, SEP-228432, SEP-227900) and increased drug discovery efforts, as well as increased salary and other compensation related expenses for research and development personnel.

        Research and development in-process upon acquisition expenses were $50.8 million and $0 for the three months ended June 30, 2008 and 2007, respectively. These expenses represent the cost of acquiring rights to branded pharmaceutical products in development from third parties, which we expense at the time of acquisition. For the three months ended June 30, 2008, research and development-in process upon acquisition expenses included costs associated with our agreements with Arrow.

        Drug development and approval in the United States is a multi-step process regulated by the FDA. The process begins with the filing of an investigational new drug application, or IND, which, if successful, allows the opportunity for study in humans, or clinical study, of the potential new drug. Clinical development typically involves three phases of study: Phase I, II and III. The most significant costs in clinical development are in Phase III clinical trials, as they tend to be the longest and largest studies in the drug development process. Following successful completion of Phase III clinical trials, an NDA must be submitted to, and accepted by, the FDA, and the FDA must approve the NDA, prior to commercialization of the drug. We may elect either on our own, or at the request of the FDA, to conduct further studies that are referred to as Phase IIIB and IV studies, which if conducted, could cause us to incur substantial costs. Phase IIIB studies are initiated and either completed or substantially

32

completed while the NDA is under FDA review. These studies are conducted under an IND. Phase IV studies, also referred to as post-marketing studies, are studies that are initiated and conducted after the FDA has approved a product for marketing. Phase IV studies may be requested by the FDA either before or after the FDA has approved an NDA. These studies may also be independently initiated by the company for which an NDA has been approved. The FDA and the companies conducting post-marketing studies use them to gather additional information about a product's safety, efficacy or optimal use.

        Successful development of our product candidates is highly uncertain. Completion dates and completion costs can vary significantly for each product candidate and are difficult to predict. The lengthy process of seeking FDA approvals, and subsequent compliance with applicable statutes and regulations, require the expenditure of substantial resources. Any failure by us to obtain, or delay in obtaining, regulatory approvals could materially adversely affect our business. We cannot provide assurance that we will obtain any approval required by the FDA on a timely basis, if at all.

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

        Below is a summary of development of our products and product candidates that represent approximately 10% or more of our direct project research and development spending for the three months ended June 30, 2008. The "Estimate of Completion of Phase" column contains forward-looking statements regarding expected timing of completion of product development phases. Completion of product development, if successful, culminates in the submission of an NDA to the FDA; however, there can be no assurance that the FDA will accept for filing, or approve, any NDA. The actual timing of completion of phases could differ materially from the estimates provided in the table. In the table below, the FDA approved product and the three product candidates listed accounted for approximately 56% of our direct project research and development spending for the three months ended June 30, 2008. No other product candidate accounted for more than 8% of our direct research and development spending in this period.

Product or Product Candidate	Indication	Phase of Development	Estimate of Completion of Phase
LUNESTA (eszopiclone)	Insomnia	*	*
SEP-225441	Anxiety	Phase II	2009
SEP-227162	Depression	Phase I	2009
SEP-228432	Depression	Phase I	2009

*

We commercially introduced LUNESTA in April 2005.

        Below is a summary of expenditure information related to our products and product candidates representing approximately 10% or more of our direct project research and development spending during the three months ended June 30, 2008 and 2007, as well as the costs incurred to date on these projects. The costs in this analysis include only direct costs and do not include certain indirect labor,

33

overhead, share-based compensation or other costs that benefit multiple projects. As a result, fully-loaded research and development cost summaries by project are not presented.

	Project costs for the three months ended June 30, 2008		Project costs to date through June 30, 2008		Project costs for the three months ended June 30, 2007		Project costs to date through June 30, 2007
	(in thousands)
LUNESTA (eszopiclone)	$	3,926	$	259,739	$	5,921	$	231,549
BROVANA (arformoterol tartrate)	$	1,636	$	192,600	$	3,886	$	181,343
XOPENEX HFA (levalbuterol tartrate)	$	1,829	$	178,250	$	1,961	$	172,219
SEP-225289	$	1,748	$	28,465	$	2,596	$	17,565
SEP-225441	$	4,376	$	14,640	$	1,118	$	1,725
SEP-227162	$	2,488	$	25,476	$	3,071	$	12,151
SEP-228432	$	2,966	$	6,410	$	712	$	831

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

Selling, Marketing and Distribution

        Selling, marketing and distribution expenses were $179.3 million and $191.5 million for the three months ended June 30, 2008 and 2007, respectively, a decrease of approximately 6%. The decrease was largely due to a $19.6 million decrease in marketing, advertising and promotional expenses primarily related to LUNESTA, partially offset by increased expenses associated with our commercialization of OMNARIS Nasal Spray.

General and Administrative

        General and administrative costs were $28.5 million and $19.3 million for the three months ended June 30, 2008 and 2007, respectively, an increase of approximately 48%. The increase primarily relates to a $4.8 million increase in salary and other compensation related expenses, a $1.8 million increase in legal fees largely related to patent litigation, and a $1.8 million increase in fees associated with outside consulting services.

Amortization of Intangible Assets

        Amortization of intangible assets were $1.9 million and $34,000 for the three months ended June 30, 2008 and 2007, respectively. The increase primarily relates to the amortization of the intangible assets acquired from Nycomed during the first quarter of 2008 and Arrow during the second quarter of 2008. We recorded $997,000 and $0 of amortization of the intangible assets to cost of product sold in the three months ended June 30, 2008 and 2007, respectively.

Other Income (Expense)

        Interest income was $5.9 million and $11.1 million for the three months ended June 30, 2008 and 2007, respectively, a decrease of approximately 47%. The decrease is primarily due to lower interest rates earned on investments in the three months ended June 30, 2008 as compared to the same period in 2007. For the three months ended June 30, 2008 and 2007, the average annualized interest rate that we earned on our investments was 2.68% and 5.23%, respectively.

34

        Interest expense was $2.1 million and $113,000 for the three months ended June 30, 2008 and 2007, respectively. The expense in the three months ended June 30, 2008 is primarily related to imputed interest associated with the intangible assets licensed from Arrow.

        Equity in investee losses were $272,000 and $132,000 for the three months ended June 30, 2008 and 2007, respectively. The loss represents our portion of BioSphere Medical, Inc., or BioSphere, losses.

        Other expense was $9.4 million and $558,000 for the three months ended June 30, 2008 and 2007, respectively. The expense in the three months ended June 30, 2008 primarily represents an impairment loss recorded related to our investment in ACADIA Pharmaceuticals Inc., or ACADIA.

Income Taxes

        For the three months ended June 30, 2008, our effective tax rate was a benefit of 780% on pre-tax losses of $58.1 million compared to an income tax expense of 9.2% for the three months ended June 30, 2007, on pre-tax income of $5.3 million. The net tax benefit recorded for the three months ended June 30, 2008 was principally due to a tax benefit of $452.0 million recorded upon our decision in the second quarter of 2008 to release a valuation allowance recorded against net deferred tax assets in the United States and a foreign jurisdiction. Excluding the effect of these tax benefits, our income tax provisions in the three months ended June 30, 2008 consisted primarily of income taxes owed on income generated by a foreign subsidiary and certain state income taxes in the United States. The tax provisions of those periods included only insignificant amounts in the United States, due to our utilization of available net operating loss carryforwards that previously had been recorded in our balance sheet with a full valuation allowance.

        As of the end of the first quarter of 2008, a full valuation allowance was recorded against our net deferred tax assets in the United States and foreign jurisdictions. Based upon our settlement with Breath during the second quarter of 2008, our operating results over recent years and through June 30, 2008 and an assessment of our expected future results of operations, we determined that it is more likely than not that we will realize a substantial portion of our deferred tax assets in the United States and a foreign jurisdiction. As a result, during the second quarter, we released a total of $452.0 million of our valuation allowance, which was recorded as an income tax benefit.

        As of the end of the second quarter, we have a remaining valuation allowance recorded against United States net deferred tax assets of $215.4 million which consists of $145.9 million for stock-based compensation deductions and $6.9 million of stock-based compensation research and development credits that will be credited to additional paid-in-capital when realized; $6.1 million for certain state operating loss carryforwards, and $19.4 million of research and development credits that will likely expire without being utilized; and $37.1 million which will be released in the third and fourth quarters of 2008 to offset our expected tax expense for the remainder of 2008. Additionally, there is a non-U.S. valuation allowance of $2.0 million for non-U.S. operating loss and tax credit carryforwards that will likely expire without being utilized.

        We account for uncertain tax positions in accordance with the Financial Accounting Standards Board, or FASB, Interpretation No. 48, Accounting for Uncertainty in Income Taxes, or FIN 48, which prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return and also provides guidance on various related matters such as derecognition, interest, penalties and disclosure. At December 31, 2007, approximately $18.4 million of unrecognized tax benefits were identified related to certain temporary differences, which have been reduced to $11.3 million at June 30, 2008 for certain temporary differences that meet the recognition threshold. In the first quarter of 2008, an additional $10.7 million of unrecognized tax benefits have been identified and recorded as of March 31, 2008 related to certain tax credit carryforwards, which resulted in a reduction of the related deferred tax asset.

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Six Month Periods ended June 30, 2008 and 2007

Revenues

        Product sales were $575.5 million and $581.9 million for the six months ended June 30, 2008 and 2007, respectively, a decrease of approximately 1%.

        Sales of LUNESTA were $283.7 million and $290.4 million for the six months ended June 30, 2008 and 2007, respectively, a decrease of approximately 2%. The decrease is primarily the result of a decrease in the number of units sold of approximately 6%, which is primarily the result of a decline in our market share after the launch of zolpidem tartrate, the generic equivalent to AMBIEN®, in April of 2007, and a reduction in selling and marketing resources. The reduction in units sold was partially offset by a gross selling price increase of approximately 19%, which resulted in a net selling price increase of approximately 4%. Adjustments recorded to gross sales are disclosed below under the heading "Analysis of gross sales to net sales."

        Sales of XOPENEX Inhalation Solution were $225.4 million for the six months ended June 30, 2008 as compared to $253.1 million for the same period in 2007, a decrease of approximately 11%. The decrease is in part the result of a decrease in net selling price of approximately 2%, which was related to the decision made by CMS during the second quarter 2007 to institute a new bundled payment amount for XOPENEX Inhalation Solution and generic albuterol inhalation solution products. Partially offsetting the decrease in net selling price is a gross selling price increase of approximately 19%. The decrease in sales was also due in part to a decrease in number of units sold of approximately 9%, which was primarily the result of a decrease in market share. We believe that the re-allocation of sales resources in an effort to support the second quarter launch of OMNARIS Nasal Spray may have contributed to this decrease in market share. Adjustments recorded to gross sales are disclosed below under the heading "Analysis of gross sales to net sales."

        Sales of XOPENEX HFA were $34.2 million for the six months ended June 30, 2008, as compared to $32.9 million for the same period in 2007, an increase of approximately 4%. The increase is primarily the result of a net selling price increase of approximately 13%, which was impacted by a gross selling price increase of approximately 10%, partially offset by a decrease in the number of units sold of approximately 8%. Adjustments recorded to gross sales are disclosed below under the heading "Analysis of gross sales to net sales."

        Sales of BROVANA were $23.2 million for the six months ended June 30, 2008, as compared to $5.5 million for the same period in 2007. We commercially introduced BROVANA in April 2007. Adjustments recorded to gross sales are disclosed below under the heading "Analysis of gross sales to net sales."

        Sales of OMNARIS Nasal Spray were $7.4 million for the six months ended June 30, 2008 and $0 for the same period in 2007, respectively. We commercially introduced OMNARIS Nasal Spray in April 2008. Adjustments recorded to gross sales are disclosed below under the heading "Analysis of gross sales to net sales."

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

		For the Six Months Ended June 30,
		2008		% of sales			2007		% of sales			$ Change			% Change
		(dollars in thousands) (as restated)
Gross sales		$	848,622		100.0	%	$	748,746		100.0	%	$	99,876			13	%
Adjustments to gross sales:
	Payment term discounts		16,961		2.0	%		14,966		2.0	%		1,995			13	%
	Wholesaler fee for service		4,607		0.5	%		13,862		1.9	%		(9,255	)		(67	)%
	Government and commercial rebates and discounts		235,510		27.8	%		122,704		16.4	%		112,806			92	%
	Returns		10,640		1.3	%		8,950		1.2	%		1,690			19	%
	Other (includes product introduction discounts)		5,414		0.6	%		6,375		0.8	%		(961	)		(15	)%
Sub-total adjustments			273,132		32.2	%		166,857		22.3	%		106,275			64	%
Net sales		$	575,490		67.8	%	$	581,889		77.7	%	$	(6,399	)		(1	)%

        The increase in adjustments to gross sales as a percentage of gross sales for the six months ended June 30, 2008, as compared to the six months ended June 30, 2007, primarily reflects an increase in government rebates and contractual discounts as a result of:

•

an increase in Medicare Part B discounts given on the sales of XOPENEX Inhalation Solution and BROVANA,



•

an increase in discounts given through managed care programs on the sales of LUNESTA, XOPENEX Inhalation Solution and XOPENEX HFA,



•

a net increase in Medicaid discounts primarily given on the sales of XOPENEX Inhalation Solution and XOPENEX HFA,



•

an increase in Medicare Part D discounts given on the sales of LUNESTA and XOPENEX HFA,



•

an increase in discounts under a program with the VA on the sales of LUNESTA and XOPENEX Inhalation Solution, and



•

a net decrease in chargebacks given primarily on the sales of XOPENEX HFA.

Partially offsetting this increase in government rebates and contractual discounts was a net decrease in wholesaler fee-for-service discounts given primarily on the sales of XOPENEX Inhalation Solution, LUNESTA and XOPENEX HFA.

        Royalties and license fees were $39.4 million and $22.6 million for the six months ended June 30, 2008 and 2007, respectively, an increase of approximately 74%.

        Royalties earned on the sales of ALLEGRA under our agreement with sanofi-aventis increased to $15.6 million for the six months ended June 30, 2008 compared to $12.1 million for the same period in 2007, an increase of approximately 28%. The increase is primarily the result of increased sales in Japan.

        Royalties earned on sales of CLARINEX under our agreement with Schering-Plough were $13.4 million for the six months ended June 30, 2008 compared to $8.1 million for the same period in 2007, an increase of approximately 65%. The increase is primarily the result of a contractual royalty rate increase that took effect in October 2007.

37

        Royalties received on sales of XYZAL/XUSAL under our agreements with the UCB entities were $8.0 million for the six months ended June 30, 2008 compared to $2.4 million for the same period in 2007, an increase of approximately 238%. The increase is the result of the commencement of commercialization of XYZAL in the United States during the fourth quarter of 2007.

        A number of the patents we own and license to third parties for which we receive these royalties are the subject of patent invalidation or revocation claims by companies seeking to introduce generic equivalents of the products covered by such patents. We can provide no assurance concerning the outcome or the duration of any patent related lawsuits. If we, or third parties from whom we receive royalties, are not successful in enforcing our respective patents, the companies seeking to market generic versions will not be excluded from marketing their generic versions of these products. Introduction of generic copies of any of these products before the expiration of our patents or the patents of our licensees could have a material adverse effect on our business.

Costs of Revenues

        Cost of products sold was $56.6 million and $56.5 million for the six months ended June 30, 2008 and 2007, respectively.

        Cost of LUNESTA sold as a percentage of LUNESTA gross sales was approximately 5% and 6% for the six months ended June 30, 2008 and 2007, respectively. The decrease in the cost as a percentage of gross sales is primarily due to an increase in our gross selling price.

        Cost of XOPENEX Inhalation Solution sold as a percentage of XOPENEX Inhalation Solution gross sales was approximately 6% and 7% for the six months ended June 30, 2008 and 2007, respectively. The decrease in the cost as a percentage of gross sales is primarily due to lower manufacturing costs during the six months ended June 30, 2008 as compared to the same period in 2007, in addition to an increase in our gross selling price.

        Cost of XOPENEX HFA sold as a percentage of XOPENEX HFA gross sales was approximately 13% and 15% for the six months ended June 30, 2008 and 2007, respectively. Included in the costs of XOPENEX HFA sold is a royalty paid on net sales of XOPENEX HFA to 3M our third party finished goods manufacturer of the product. The decrease in the cost as a percentage of gross sales is primarily due to an increase in our gross selling price in addition to lower manufacturing cost per-unit as a result of an increase in the number of units manufactured during the six months ended June 30, 2008 as compared to the same period in 2007.

        Cost of BROVANA sold as a percentage of BROVANA gross sales was approximately 13% and 20% for the six months ended June 30, 2008 and 2007, respectively. The decrease in the cost as a percentage of gross sales is primarily due to lower manufacturing costs during the six months ended June 30, 2008 as compared to the same period in 2007. The decrease in the cost to manufacture BROVANA is the result of increased production of the 60-count package, which has a lower manufacturing cost, as compared to the 30-count package, during the six months ended June 30, 2008 as compared to the same period in 2007.

        Cost of OMNARIS Nasal Spray sold as a percentage of OMNARIS Nasal Spray gross sales was approximately 26% for the six months ended June 30, 2008. We commercially introduced OMNARIS Nasal Spray in April 2008.

        Cost of royalties earned was $1.1 million and $655,000 for the six months ended June 30, 2008 and 2007, respectively, an increase of approximately 63%. The cost of royalties in both periods relates to an obligation to a third party as a result of royalties we earn from Schering-Plough based upon its sales of CLARINEX. This increase in third party obligations is due to the increase in royalties earned during the six months ended June 30, 2008 as compared with the same period in 2007.

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Research and Development

        Research and development expenses were $124.5 million and $86.2 million for the six months ended June 30, 2008 and 2007, respectively, an increase of approximately 45%. The increase is primarily due to the $10.0 million milestone payment to Bial pursuant to the license agreement for SEP-0002093, referred to by Bial as BIA-2093, as a result of the outcome of a pre-NDA meeting with the FDA, increased spending on LUNESTA Phase IV and pediatric programs, increased spending on drug discovery efforts and early-stage programs (SEP-225441, SEP-228425, SEP-228432, SEP-227900), as well as an increase in salary and other compensation related expenses. These increases were offset by a decrease in research and development spending on BROVANA.

        Research and development in-process upon acquisition expenses were $90.0 million and $0 for the six months ended June 30, 2008 and 2007, respectively. These expenses represent the cost of acquiring rights to branded pharmaceutical products in development from third parties, which we expense at the time of acquisition. For the six months ended June 30, 2008, research and development-in process upon acquisition expenses included costs associated with our Nycomed and Arrow transactions.

        Below is a summary of development of our products and product candidates that represent approximately 10% or more of our direct project research and development spending for the six months ended June 30, 2008. The "Estimate of Completion of Phase" column contains forward-looking statements regarding expected timing of completion of product development phases. Completion of product development, if successful, culminates in the submission of an NDA to the FDA; however, there can be no assurance that the FDA will accept for filing, or approve, any NDA. The actual timing of completion of phases could differ materially from the estimates provided in the table. In the table below, the FDA approved product and product candidate listed accounted for approximately 44% of our direct project research and development spending for the six months ended June 30, 2008. No other product candidate accounted for more than 9% of our direct research and development spending in this period.

Product or Product Candidate	Indication	Phase of Development	Estimate of Completion of Phase
LUNESTA (eszopiclone)	Insomnia	*		*
SEP-225441	Anxiety	Phase II		2009

*

We commercially introduced LUNESTA in April 2005.

        Below is a summary of expenditure information related to our product candidates representing approximately 10% or more of our direct project research and development spending during the six months ended June 30, 2008 or 2007, as well as the costs incurred to date on these projects. The costs in this analysis include only direct costs and do not include certain indirect labor, overhead, share-based compensation or other costs which benefit multiple projects. As a result, fully loaded research and development cost summaries by project are not presented.

	Project costs for the six months ended June 30, 2008		Project costs to date through June 30, 2008		Project costs for the six months ended June 30, 2007		Project costs to date through June 30, 2007
	(in thousands)
LUNESTA (eszopiclone)	$	14,642	$	259,739	$	11,526	$	231,549
BROVANA (arformoterol tartrate)	$	3,832	$	192,600	$	7,412	$	181,343
SEP-225289	$	4,272	$	28,465	$	4,455	$	17,565
SEP-227162	$	4,492	$	25,476	$	4,010	$	12,151
SEP-225441	$	7,407	$	14,640	$	1,725	$	1,725

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Selling, Marketing and Distribution

        Selling, marketing and distribution expenses were $334.6 million and $383.6 million for the six months ended June 30, 2008 and 2007, respectively, a decrease of approximately 13%. The decrease was largely due to a $45.0 million decrease in marketing, advertising and promotional expenses primarily related to LUNESTA, in addition to a decrease in salary and other compensation related expenses resulting from our sales force restructuring, which occurred in the quarter ended December 31, 2007.

General and Administrative

        General and administrative costs were $52.0 million and $38.2 million for the six months ended June 30, 2008 and 2007, respectively, an increase of approximately 36%. The increase is primarily the result of an $8.3 million increase in salary and other compensation related expenses, a $3.0 million increase in legal fees largely related to patent litigation, and a $1.9 million increase in fees associated with outside consulting services.

Amortization of Intangible Assets

        Amortization of intangible assets were $4.2 million and $85,000 for the six months ended June 30, 2008 and 2007, respectively. The increase primarily relates to the amortization of the intangible assets acquired from Nycomed and Arrow in January 2008 and April 2008, respectively. We recorded $997,000 and $0 of amortization of the intangible assets to cost of product sold in the six months ended June 30, 2008 and 2007, respectively.

Litigation Settlement

        Litigation settlement expense was $0 and $34.0 million for the six months ended March 31, 2008 and 2007, respectively. In June 2007, we filed in the United States District Court for the District of Massachusetts, or the Court, a Stipulation of Settlement regarding two securities class action lawsuits, or class actions, then pending in the Court naming Sepracor and certain of our current and former officers and one director as defendants. The class actions, which were filed on behalf of certain purchasers of our equity and debt securities, or the plaintiffs, alleged that the defendants violated the Federal securities laws by making false and misleading statements relating to the testing, safety and likelihood of approval of tecastemizole by the FDA. Under the terms of the Stipulation of Settlement, in June 2007 we paid into escrow $52.5 million in settlement of the class actions and, in July 2007, received an $18.5 million reimbursement from our insurance carriers. We recorded the litigation settlement expense of $34.0 million, relating to this matter, during the quarter ended March 31, 2007. In September 2007, the Court granted final approval of the Stipulation of Settlement and entered a final judgment consistent with the Stipulation of Settlement. The settlement is now final and the total settlement amount has been released from escrow.

Other Income (Expense)

        Interest income was $14.6 million and $23.7 million for the six months ended June 30, 2008 and 2007, respectively, a decrease of approximately 38%. The decrease is primarily due to lower average balances of cash and short- and long-term investments and lower interest rates earned on investments in the six months ended June 30, 2008 compared to the same period in 2007. For the six months ended June 30, 2008 and 2007, the average annualized interest rate that we earned on our investments was 3.32% and 5.25%, respectively.

        Interest expense was $2.2 million and $2.9 million for the six months ended June 30, 2008 and 2007, respectively. The expense for the six months ended 2008 is primarily related to imputed interest associated with the intangible assets licensed from Arrow. The expense for the six months ended 2007

40

is primarily related to the interest we paid on our 5% convertible subordinated debentures, which we repaid in full upon their maturity on February 15, 2007.

        Equity in investee losses were $475,000 and $404,000 for the six months ended June 30, 2008 and 2007, respectively, an increase of approximately 18%. The loss represents our portion of BioSphere losses.

        Other expense was $9.4 million and $286,000 for the six months ended June 30, 2008 and 2007, respectively. The expense in the six months ended June 30, 2008 primarily represents an impairment loss recorded related to our investment in ACADIA.

Income Taxes

        For the six months ended June 30, 2008, our effective tax rate was a benefit of 1,005% on pre-tax losses of $45.0 million compared to an income tax expense of 7.4% for the six months ended June 30, 2007, on pre-tax income of $25.5 million. The net tax benefit recorded for the six months ended June 30, 2008 was principally due to a tax benefit of $452.0 million recorded upon our decision in the second quarter of 2008 to release a valuation allowance recorded against net deferred tax assets in the United States and a foreign jurisdiction. Excluding the effect of these tax benefits, our income tax provisions for the six months ended June 30, 2008 consisted primarily of income taxes owed on income generated by a foreign subsidiary and certain state income taxes in the United States The tax provisions of those periods included only insignificant amounts due to our utilization of available net operating loss carryforwards that previously had been recorded in our balance sheet with a full valuation allowance.

        As of the end of the first quarter of 2008, a full valuation allowance was recorded against our net deferred tax assets in the United States and foreign jurisdictions. Based upon our settlement with Breath during the second quarter of 2008, our operating results over recent years and through June 30, 2008 and an assessment of our expected future results of operations, we determined that it is more likely than not that we will realize a substantial portion of our deferred tax assets in the United States and a foreign jurisdiction. As a result, during the second quarter, we released a total of $452.0 million of our valuation allowance, which was recorded as an income tax benefit.

        As of the end of the second quarter, we have a remaining valuation allowance recorded against United States net deferred tax assets of $215.4 million, which consists of $145.9 million for stock-based compensation deductions and $6.9 million of stock-based compensation research and development credits that will be credited to additional paid-in-capital when realized; $6.1 million for certain state operating loss carryforwards, and $19.4 million of research and development credits that will likely expire without being utilized; and $37.1 million, which will be released in the third and fourth quarters of 2008 to offset our expected tax expense for the remainder of 2008. Additionally, there is a non-U.S. valuation allowance of $2.0 million for non-U.S. operating loss and tax credit carryforwards that will likely expire without being utilized.

Liquidity and Capital Resources

        Our liquidity requirements have historically consisted of research and development expenses, sales and marketing expenses, capital expenditures, working capital, debt service and general corporate expenses. Historically, we have funded these requirements and the growth of our business primarily through convertible subordinated debt offerings, the issuance of common stock, including the exercise of stock options, sales of our products and license agreements for our drug compounds. We now expect to fund our liquidity requirements primarily with revenue generated from product sales. We also believe we have the ability to meet our short-term liquidity needs through the use of our cash and short-term investments on hand at June 30, 2008.

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        At June 30, 2008, $78.2 million of our investment portfolio was invested in AAA rated investments in auction-rate securities. Auction-rate securities are long-term variable rate bonds tied to short-term interest rates. After the initial issuance of the securities, the interest rate on the securities is reset periodically, at intervals established at the time of issuance (primarily every 28 days), based on market demand for a reset period. Auction-rate securities are bought and sold in the marketplace through a competitive bidding process often referred to as an auction. If there is insufficient interest in the securities at the time of an auction, the auction may not be completed and the rates may be reset to predetermined "penalty" or "maximum" rates.

        Substantially all of our auction-rate securities are backed by pools of student loans guaranteed by the Federal Family Education Loan Program, or FFELP, and we continue to believe that the credit quality of these securities is high based on this guarantee and other collateral. Auctions for these securities began failing in the first quarter of 2008 and continued to fail throughout the second quarter, which we believe is a result of the recent uncertainties in the credit markets. Consequently, the investments are not currently liquid, and we will not be able to access these funds until a future auction of these investments is successful, a buyer is found outside of the auction process, the security is called, or the underlying securities have matured. At the time of our initial investment and through the date of this report, all of our auction-rate securities remain AAA rated. We believe we have the ability to hold these investments until the lack of liquidity in these markets is resolved. As a result, we continue to classify the entire balance of auction-rate securities as non-current available-for-sale investments at fair value on our condensed consolidated balance sheet.

        Typically, the fair value of auction-rate securities investments approximates par value due to the frequent resets through the auction process. While we continue to earn interest on our auction-rate securities investments at the contractual rate, these investments are not currently trading and therefore do not have a readily determinable market value. Accordingly, the estimated fair value of the auction-rate securities no longer approximates par value.

        At June 30, 2008, because of the temporary declines in fair value for the auction-rate securities, which we attribute to liquidity matters rather than credit issues as discussed above, we have classified our auction-rate securities at Level 3, as defined under the Statement of Financial Accounting Standards, or SFAS No. 157, Fair Value Measurement, or SFAS 157, framework and described in Note 13, Fair Value Measurements, of our condensed consolidated financial statements included in this quarterly report on Form 10-Q, with a fair value of $78.2 million. The fair value of these auction-rate securities are estimated utilizing a trinomial discounted cash flow analysis, which was compared, when possible, to other observable market data or inputs with similar characteristics. The assumptions used in preparing the discounted cash flow analysis include estimates for the maximum interest rate, the probability of passing, failing or default at each auction, the severity of default and the discount rate. Based on this assessment of fair value, as of June 30, 2008, we determined there was a decline in fair value of our auction-rate securities investments of $4.0 million, which was deemed temporary. If current market conditions deteriorate further, we may be required to record additional unrealized losses in other comprehensive income. If the credit ratings of the security issuers deteriorate, the anticipated recovery in market values does not occur, or we need funds from the auction-rate securities to meet working capital needs, we may be required to adjust the carrying value of these investments through impairment charges recorded to earnings, as appropriate, which could be material.

        Cash, cash equivalents and short- and long-term investments totaled $853.3 million, or 45% of total assets, at June 30, 2008, compared to $1.1 billion, or 76% of total assets, at December 31, 2007.

        Net cash provided by operating activities for the six months ended June 30, 2008 was $27.6 million, which includes net income of $407.3 million. Our net income includes non-cash adjustments of $314.5 million, consisting primarily of the release of the tax valuation allowance, research and development in process upon acquisition, share-based compensation, impairment on investments and

42

depreciation and amortization expense. Accounts receivable increased by $5.1 million primarily due to the timing of our sales. Inventory on hand increased by $13.7 million primarily due to timing of deliveries and replenishment of depleted stock. Other assets increased by $13.0 million, which is primarily a result of an increase in prepaid expenses and a change in our deferred tax asset. Accrued expenses decreased by $69.2 million primarily due to the $75.0 million upfront payment we paid to Bial in January 2008. Product sales allowances and reserves increased by $39.3 million primarily due to product revenue rebates related to LUNESTA and XOPENEX Inhalation Solution product sales.

        Net cash used in investing activities for the six months ended June 30, 2008 was $112.6 million, which is primarily attributable to the purchase of intangible assets from Nycomed for $150.0 million, the acquisition of Oryx for $49.8 million net of cash acquired, and the purchases of property and equipment of $21.3 million, partially offset by the cash provided by net sales of short- and long-term investments of $109.5 million.

        Net cash provided by financing activities for the six months ended June 30, 2008 was $3.6 million. We received proceeds of $4.2 million from issuing common stock upon the exercise of stock options issued under our stock option plans, and we used $593,000 to repay capital lease obligations.

        We believe our existing cash and the cash flow that we anticipate from operations and current strategic alliances will be sufficient to support existing operations through at least 2009. However, if some or all of our significant contingent payments become due and payable under our collaboration agreements and the holders of our 0% notes due 2024 exercise their right to require us to convert their notes into cash in October 2009, we may need to raise additional capital to meet these obligations. In the longer term, we expect to continue to fund our operations with revenue generated from product sales. Our actual future cash requirements and our ability to generate revenue, however, will depend on many factors, including:

•

LUNESTA sales;



•

XOPENEX Inhalation Solution and XOPENEX HFA sales;



•

BROVANA sales;



•

successful commercialization of OMNARIS Nasal Spray and ALVESCO HFA Inhalation Aerosol;



•

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



•

successful expansion into foreign markets;



•

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



•

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



•

whether the holders of our 0% notes due 2024 elect to require us to convert their notes into cash in October 2009;



•

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



•

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



•

achievement of milestones under our strategic alliance arrangements;



•

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



•

the outcome of pending litigation, including litigation related to generic competition and/or any possible future litigation; and



•

the possible future "at risk" launch of generic versions of our products.

43

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

        Based on our current operating plan, we believe that we will not be required to raise additional capital to fund the repayment of our outstanding convertible debt when due, although we may choose to do so. However, if some or all of our significant contingent payments become due and payable under our collaboration agreements and the holders of our 0% notes due 2024 exercise their right to require us to convert their notes into cash in October 2009, we may need to raise additional capital to meet these obligations. If we are not able to successfully continue to grow our revenue and properly manage our expenses, it is likely that our business would be materially and adversely affected and that we would be required to raise additional funds in order to repay our outstanding convertible debt. We cannot assure that, if required, we would be able to raise the additional funds on favorable terms, if at all.

Critical Accounting Policies and Estimates

        We identified critical accounting policies and estimates in our annual report on Form 10-K for the year ended December 31, 2007. These critical accounting policies relate to product revenue recognition, revenue recognition related to multiple element arrangements, royalty revenue recognition, product sales allowance and reserves, cash and cash equivalents, short- and long-term investments, accounts receivable and bad debt, amortization, depreciation and certain long lived assets, income taxes, inventory write-downs, stock based compensation, and research and development expense. These policies require us to make estimates in the preparation of our financial statements as of a given date. Because of the uncertainty inherent in these matters, our actual results could differ from the estimates we use in applying the critical accounting policies.

        A summary of accounting policies that are considered critical may be found in Part II, Item 7 of our annual report on Form 10-K for the year ended December 31, 2007 in the "Critical Accounting Policies" section. Other than as described below, our critical accounting policies and estimates are as set forth in the Form 10-K.

         Product sales allowances and reserves—The following table summarizes activity in each of our product sales allowances and reserve categories for the six months ended June 30, 2008:

		Payment Term Discount			Wholesaler Fee for Service			Government Rebates and Contractual Discounts			Returns			Other Discounts			Total
		(in thousands)
Balance at December 31, 2007		$	(4,139	)	$	(12,112	)	$	(206,733	)	$	(24,351	)	$	(2,643	)	$	(249,978	)
Current provision:
	Current year		(16,961	)		(4,607	)		(226,066	)		(10,640	)		(5,414	)		(263,688	)
	Prior year		—			—			(9,444	)		—			—			(9,444	)
	Total		(16,961	)		(4,607	)		(235,510	)		(10,640	)		(5,414	)		(273,132	)
Actual:
	Current year		13,426			3,751			66,577			17			3,373			87,144
	Prior year		3,912			11,046			116,557			13,369			2,169			147,053
	Total		17,338			14,797			183,134			13,386			5,542			234,197
Balance at June 30, 2008		$	(3,762	)	$	(1,922	)	$	(259,109	)	$	(21,605	)	$	(2,515	)	$	(288,913	)

        Calculating each of these product sales allowances and reserves involves significant estimates and judgments and requires us to use information from external sources. Based on known market events

44

and trends, internal and external historical trends, third party data, customer buying patterns and current knowledge of contractual and statutory requirements, we believe that we are able to make reasonable estimates of sales discounts.

         Fair Value Measurements—Effective January 1, 2008, we partially adopted SFAS 157. SFAS 157 defines fair value, establishes a framework and gives guidance regarding the methods used for measuring fair value and expands disclosures about fair value measurements. In February 2008, the FASB released a FASB Staff Position, or FSP, No. 157-2, Effective Date of FASB Statement No. 157, or FSP 157-2, which delays the effective date of SFAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually).

        In accordance with FSP 157-2, we have not applied the provisions of SFAS 157 to the following nonfinancial assets and nonfinancial liabilities:

•

reporting units and nonfinancial assets and nonfinancial liabilities measured at fair value for the goodwill impairment test in accordance with SFAS No. 142, Goodwill and Other Intangible Assets.

•

nonfinancial long-lived assets or asset groups measured at fair value for impairment assessment or disposal under SFAS No. 144, Accounting for Impairment or Disposal of Long-Lived Assets.

•

nonfinancial liabilities for exit or disposal activity that is initially measured at fair value under SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities.

        We have not yet determined the impact on our financial statements from adoption of SFAS 157 as it pertains to non-financial assets and liabilities for our first quarter of 2009. The partial adoption of SFAS 157 for financial assets and liabilities did not have a material impact on our condensed consolidated financial position, results of operations or cash flows.

        Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. Fair value is based upon quoted market prices, where available. Where quoted market prices or other observable inputs are not available, we apply valuation techniques to estimate fair value. SFAS 157 establishes a three-level valuation hierarchy for disclosure of fair value measurements. The three levels of the hierarchy are defined as follows:

        Level 1—Inputs to the valuation methodology are quoted market prices for identical assets or liabilities in active markets. The types of assets measured at fair value using Level 1 inputs include our publicly traded equity investments with quoted market prices and money market funds.

        Level 2—Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.) and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs). The types of assets measured at fair value using Level 2 inputs include our publicly traded debt securities and other marketable securities with quoted market prices, which are in markets that are considered less active.

        Level 3—Inputs to the valuation methodology are unobservable inputs based on management's best estimate of inputs market participants would use in pricing the asset or liability at the measurement date, including assumptions about risk. The types of assets measured at fair value using Level 3 inputs include auction-rate securities where the auctions have failed.

         Short- and Long-Term Investments:    We estimated the fair values of our auction-rate securities utilizing a trinomial discounted cash flow valuation model. This analysis considers, among other items, the maximum interest rate, the probability of passing, failing or default at each auction, the severity of default and the discount rate. These securities were also compared, when possible, to other observable

45

market data or inputs with similar characteristics to the securities that we held including credit default swaps spreads on securities with similar credit, implied volatility rates on exchange traded options and spreads on corporate credit. The analysis assumes that a successful auction would occur, at par, at some point in time for each security.

Contractual Obligations

        Contractual obligations represent future cash commitments and liabilities under agreements with third parties and exclude contingent liabilities for which we cannot reasonably predict future payment, including contingencies related to potential future development, financing and/or commercial milestone payments on collaboration agreements. The following chart summarizes our material contractual obligations as of June 30, 2008:

Contractual Obligations	Total		2008		2009		2010		2011		2012		2013 and beyond
	(In Thousands)
Convertible subordinated debt—principal(1)	$	720,820	$	72,800	$	—	$	148,020	$	—	$	—	$	500,000
Arrow—Levalbuterol/ipratropium(2)		70,000		—		25,000		25,000		—		20,000		—
Arrow—Ciclesonide(3)		47,500		—		12,500		15,000		—		—		20,000
Capital lease obligations		2,174		621		1,242		311		—		—		—
Operating leases(4)		5,399		919		1,471		1,312		1,208		489
Purchase obligations(5)		354,011		319,864		28,814		3,476		1,857		—		—
Total material contractual cash obligations(6)	$	1,199,904	$	394,204	$	69,027	$	193,119	$	3,065	$	20,489	$	520,000

(1)

$220.8 million of the convertible subordinated debt may be converted into common stock. To the extent it is converted, such amounts would no longer be a contractual cash obligation. Our 0% convertible notes due 2024 may be converted into cash at the option of the noteholders in October 2009, 2014, 2019 and 2024, as well as under certain conditions.

(2)

See Note 7 to our Condensed Consolidated Interim Financial Statements (unaudited) included with this report relating to future payments to Arrow under the Levalbuterol/ipratropium Product Agreement. The 2012 amount represents $20.0 million in future payments the timing of which is based upon management's best estimate and assumptions and could shift from period to period. These amounts do not include a potential $23.5 million payment in the fourth quarter of 2009 in the event Arrow exercises its option to receive a lump sum discounted amount in lieu of ongoing royalty payments.

(3)

See Note 7 to our Condensed Consolidated Interim Financial Statements (unaudited) included with this report relating to future payments to Arrow under the Arrow Ciclesonide Agreement. The 2009, 2010 and 2013 (and beyond) amounts include $2.5 million, $5.0 million and $20.0 million, respectively, in future payments the timing of which is based upon management's best estimate and assumptions and could shift from period to period. These amounts do not include a potential aggregate payment of up $37.9 million in the fourth quarter of 2009 in the event Arrow exercises its options to receive a lump sum discounted amount in lieu of ongoing royalty payments.

(4)

Operating leases includes our leased facilities obligations.

(5)

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

(6)

In addition to the material contractual cash obligations included in this chart, we have committed to make potential future milestone payments to third parties as part of licensing, distribution and development agreements. Payments under these agreements generally become due and payable only upon achievement of certain development, regulatory and/or commercial milestones. For example, Nycomed, Bial and Oryx may become entitled to receive subsequent payments of up to $280.0 million, $90.0 million and $20.0 million, respectively, if all milestones are met. Because the achievement of these milestones is neither probable nor reasonably estimable, such contingent payments have not been recorded on our consolidated balance sheet and have not been included in this chart.

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

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ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk

        We are exposed to market risk from changes in interest rates and equity prices, which could affect our future results of operations and financial condition. These risks are described in Part II, Item 7A of our annual report on Form 10-K for the year ended December 31, 2007. As of August 8, 2008, there have been no material changes to the market risks described in our annual report on Form 10-K for the year ended December 31, 2007. Additionally, we do not anticipate any near-term changes in the nature of our market risk exposures or in our management's objectives and strategies with respect to managing such exposures.

        We hold auction-rate security investments which are AAA rated and the underlying assets are backed by pools of student loans guaranteed by FFELP. Due to the recent uncertainties in the credit market, these securities have been rendered temporarily illiquid, and the fair value of those investments as of June 30, 2008, is estimated to be $4.0 million below par value. We continue to classify our entire balance of auction-rate securities as non-current available-for-sale investments at fair value on our unaudited condensed consolidated balance sheet. We believe we have the ability to hold these investments until the lack of liquidity in these markets is resolved. If current market conditions deteriorate further, we may be required to record additional unrealized losses in other comprehensive income. If the credit ratings of the security issuers deteriorate, the anticipated recovery in market values does not occur, or we need funds from the auction-rate securities to meet working capital needs, we may be required to adjust the carrying value of these investments through impairment charges recorded to earnings, as appropriate, which could be material.

ITEM 4.    CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

        Our management has carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2008. The term "disclosure controls and procedures," as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, or Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed in the reports that the company files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal financial officers, as appropriate, to allow timely decisions regarding required disclosure. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation and the identification of the material weakness in internal control over financial reporting described below, our Chief Executive Officer and Chief Financial Officer have concluded that, as of June 30, 2008, our disclosure controls and procedures were not effective.

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

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Our management has identified the following material weakness in our internal control over financial reporting:

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

        In light of the material weakness referred to above, we performed additional analyses and procedures in order to conclude that our condensed consolidated financial statements included in this quarterly report on Form 10-Q are fairly presented, in all material respects, in accordance with generally accepted accounting principles in the United States.

Changes in Internal Control Over Financial Reporting

        There has been no change in our internal control over financial reporting during our quarter ended June 30, 2008 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Remediation Plan

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

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

•

manually review a substantial sample of entities treated as Public Health Service, or PHS, covered entities by us in the past to assess whether these entities were correctly treated as covered entities. In the first and second quarters of 2008, we examined all entities to which we sold product at PHS prices to determine their eligibility for such pricing. PHS chargebacks to entities determined through this review to be ineligible for PHS pricing were reversed pending receipt of additional information from the entity sufficient to validate their PHS eligibility. We are currently testing the results of this manual review with an automated system we are implementing. Manual reviews will be necessary during the development and implementation of an automated PHS entity review system as well as for our ongoing price reporting obligations and our interactions with CMS and the State Medicaid programs.



•

we have retained an outside consultant with relevant experience to implement an automated system to assess the eligibility of entities for PHS pricing. This system will be used for new entities seeking to access PHS pricing for our products and also to retest the treatment of those entities whose eligibility was determined as part of the manual review. This consultant was retained in the second quarter of 2008 and the automated system was used and tested against the manual reviews that were performed for this time period. We are targeting full

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implementation of the system during the third quarter of 2008 and will utilize it thereafter to assess PHS eligibility.



•

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



•

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



•

upon completion of the aforementioned remediation steps we will communicate, in writing, with CMS and the Heath Resources and Services Administration regarding our determinations as to which entities are and are not considered PHS exempt during the manual and the automated review discussed above.



•

initiate, as necessary upon completion of the aforementioned remediation steps, a prior period adjustment to CMS based on recalculations of average manufacturer price, or AMP, and best price that result from the efforts described above.

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

•

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



•

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



•

we adopted during the second quarter of 2008 and are in the process of implementing appropriate policies and procedures that will address the process for qualifying, approving, and disputing PHS pricing requests and for verifying PHS eligibility.



•

we have established monthly meetings between our contracting group and the accounting/finance group to ensure that appropriate and collaborative communications occur around the determination of best price and other price reporting and related contracting issues.



•

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

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

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PART II

OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

Litigation Related to Generic Competition and Patent Infringement

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

Levalbuterol Hydrochloride Inhalation Solution Abbreviated New Drug Applications

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

        In April 2008, we entered into a settlement and license agreement with Breath to resolve this litigation. The agreement permits Breath to sell its generic versions of these XOPENEX Inhalation Solution products in the United States under the terms of an exclusive 180-day license commencing on August 20, 2012 and a non-exclusive license thereafter. Upon launch, Breath would pay us a double-digit royalty on gross profits generated from the sales of generic versions of these XOPENEX Inhalation Solution products. Under the agreement, Breath agrees not to sell any of the products covered by our patents that are the subject of the license before the date on which the license commences. On May 1, 2008, the parties submitted to the court an agreed order of dismissal without prejudice, which the court approved. The litigation is now concluded.

        In April 2008, we also entered into a supply agreement with Breath whereby, effective August 20, 2012, we will exclusively supply levalbuterol products (1.25 mg/3 mL, 0.63 mg/3 mL and 0.31 mg/3 mL) to Breath, under our NDA for a period of 180 days, which we refer to as the Initial Term, and on a non-exclusive basis for two and one-half years thereafter. In addition to the royalties described above, Breath will pay us on a cost plus margin basis for supply of these levalbuterol products. The supply agreement contains provisions regarding termination for cause and convenience, including either party's right to terminate the agreement at any time after the Initial Term upon nine months written notice. Both the exclusive license under the settlement and license agreement and the exclusive supply obligations under the supply agreement could become effective prior to August 20, 2012 if a third party launches a generic version of those dosages of XOPENEX Inhalation Solution or if the parties otherwise mutually agree.

        On May 9, 2008, we provided to the Federal Trade Commission and Department of Justice Antitrust Division the notifications of the settlement with Breath as required under Section 1112(a) of the Medicare Prescription Drug, Improvement and Modernization Act of 2003, or MMA. The

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settlement with Breath and the other agreements with Breath and its affiliates, including the supply agreement, the agreement for the acquisition of Oryx and license agreements with Arrow, may be reviewed by antitrust enforcement agencies, such as the Federal Trade Commission and Department of Justice Antitrust Division. There can be no assurances that governmental authorities will not seek to challenge the settlement with Breath or that a competitor, customer or other third party will not initiate a private action under antitrust or other laws challenging the settlement with Breath. We may not prevail in any such challenges or litigation and, in any event, may incur significant costs in the event of an investigation or in defending any action under antitrust laws.

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

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

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

        In March 2008, the trial judge consolidated the Dey L.P. and Barr cases for all purposes, including discovery and trial. The court held a Markman hearing on July 18, 2008, to address the parties' disputed issues of patent claim interpretation. The court has not yet issued its decision regarding the disputed issues of patent claim interpretation nor has it formally set a trial date.

        In June 2008, Dey L.P. filed a Complaint against us in the United States District Court for the District of Delaware, C.A. 08-372. The Complaint is a declaratory judgment action in which Dey L.P. seeks a declaration of non-infringement and invalidity of United States Patent 6,451,289 owned by us. Dey L.P. had previously sent us notice that its ANDA contained a Paragraph IV certification against the 6,451,289 patent, and we did not commence litigation in response.

        The filing of an action for patent infringement under the Drug Price Competition and Patent Term Restoration Act of 1984, also known as the "Hatch-Waxman Act" results in an automatic 30-month stay of the FDA's authority to grant final marketing approval to those companies that filed an ANDA containing a Paragraph IV certification against one or more of our XOPENEX Inhalation Solution patents. The first filer of an ANDA with a Paragraph IV certification is potentially entitled to a 180 day period of semi-exclusivity during which the FDA cannot approve subsequently filed ANDAs. The 180 day semi-exclusivity period would begin to run only upon first commercial marketing by the first filer. There are, however, also certain events that could cause the first filer to forfeit the 180 day semi-exclusivity period, which we refer to as a forfeiture event.

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        For our 1.25 mg/3 mL, 0.63 mg/3 mL, and 0.31 mg/3 mL dosages of XOPENEX Inhalation Solution, we believe that Breath is the sole first filer and potentially entitled to 180 days of semi-exclusivity against subsequent ANDA filers for those three dosages. The 30-month stay against Breath's ANDA expired on March 7, 2008. On April 9, 2008, the FDA granted final approval to Breath's ANDA for all three dosages. However, if a forfeiture event occurs and the FDA determines that Breath has forfeited the 180 day semi-exclusivity period for those three dosages, other ANDA filers who have been granted final approval by the FDA could commence an "at risk" launch upon expiration of the 30-month stay. For those three dosages, the 30-month stay against Dey, L.P. expired on July 9, 2008 and the 30-month stay against Barr expires on or about November 30, 2009.

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

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

Desloratadine Abbreviated New Drug Applications

        Certain of Schering-Plough's CLARINEX products for which we receive sales royalties are currently the subject of patent infringement litigation. Since June 2007, the FDA has received ANDAs relating to various dosage forms of CLARINEX from ten different generic pharmaceutical companies. These ANDA submissions include Paragraph IV certifications alleging that our patents, which Schering-Plough (as exclusive licensee of such patents) listed in the Orange Book for these products, are invalid, unenforceable or not infringed by the submitter's proposed product. We and the University of Massachusetts, co-owners of certain patents listed in the Orange Book, filed civil actions against these parties for patent infringement in the United States District Court for the District of New Jersey. In April 2008, the trial judge consolidated these cases for all purposes including discovery and trial. The court has not set a trial date. We believe that all of these ANDAs are subject to a statutory stay of approval until at least December 21, 2009 based on previous litigation commenced by Schering-Plough against these parties in separate civil actions involving another patent.

        In March 2008, we entered into a consent agreement with Glenmark Pharmaceuticals, Inc., or Glenmark, one of the ten generic pharmaceutical companies that filed a Paragraph IV certification against or patents, whereby Glenmark agreed not to pursue its case and to not market CLARINEX 5mg tablets until the expiration of our patents listed by Schering-Plough in the Orange Book or until these patents are found invalid or unenforceable.

Levocetirizine Abbreviated New Drug Applications

        Beginning in February 2008, we and UCB, S.A., or UCB, received notices from Synthon Pharmaceuticals, Inc., or Synthon, Sun Pharmaceutical Industries Limited of Andheri (East), or Sun, Sandoz Inc., or Sandoz and Pliva Hrvatska D.O.O., or Pliva, that each has filed an ANDA seeking approval to market a generic version of XYZAL 5 mg tablets, and that each ANDA contained a Paragraph IV certification alleging that United States Patent 5,698,558, owned by us and exclusively

52

licensed to UCB, is invalid, unenforceable or not infringed. Beginning in April 2008, UCB filed in its name and on our behalf civil actions in the United States District Court for the Eastern District of North Carolina against Synthon, Sun Sandoz, Pliva and Barr (Pliva's agent), an action against Synthon in the United States District Court for the District of Delaware, and an action against Sun and Pliva/Barr in the United States District Court for the District of New Jersey. The action in Delaware has been voluntarily dismissed. We believe that all of these ANDAs are subject to a 30-month statutory stay of approval, the earliest of which, against Synthon, is scheduled to expire on or about August 29, 2010.

BROVANA Patent Infringement Claim

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

        In March 2008, United States Patent 7,348,362, or '362 patent, entitled "Bronchodilation b-agonist compositions and Methods" issued and Dey, L.P. is the assignee of the patent. In May 2008, we filed a Motion to Amend our Answer and Counterclaims to seek declaratory judgment that the '362 patent is invalid and unenforceable and to add Mylan Inc. as a party. Dey has opposed this motion and we await a decision from the court.

XOPENEX Inhalation Solution LCA Matter

        In March 2006, the parties responsible for administrating the Medicare Part B prescription drug benefit for respiratory products on behalf of CMS, which we refer to collectively as the Medicare Administration Subcontractors, announced their intention to implement a Least Costly Alternative, or LCA, reimbursement action for XOPENEX Inhalation Solution. If implemented, the LCA would reduce the Medicare Part B reimbursement paid for XOPENEX Inhalation Solution to the level of generic racemic albuterol. As a result, we would be unable to discount XOPENEX Inhalation Solution in the Medicare market, and we do not believe that providers would continue to dispense XOPENEX Inhalation Solution to Medicare Part B beneficiaries at this payment rate.

        The LCA announced in March 2006 was subsequently stayed by the Medicare Administration Subcontractors pending a National Coverage Analysis by CMS. CMS ultimately deferred to the Medicare Administration Subcontractors the determination as to the criteria for when XOPENEX Inhalation Solution would be appropriate for use by the Medicare population. On April 10, 2008, the Medicare Administration Subcontractors announced their intention to implement the previously announced LCA, effective July 1, 2008.

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        In June 2008, a preliminary injunction motion seeking to block the implementation of the LCA policy in advance of its July 1, 2008 effective date was filed in the District Court for the District of Columbia against certain of the Medicare Administration Subcontractors, among others, by four Medicare beneficiaries utilizing XOPENEX Inhalation Solution. These Medicare beneficiaries, who rely on XOPENEX Inhalation Solution to treat their medical conditions, stated in the motion that they would be denied access to this drug if the LCA was implemented and as a result would suffer irreparable injury. Shortly following the filing of the motion, the Medicare Administration Subcontractors announced they would suspend the LCA and not reinstate it at any time prior to December 31, 2008. The Medicare Administration Subcontractors further agreed that they would provide a public notice and comment period, which is typically 90 days, should they decide to reinstate the LCA. As a result of the LCA suspension, the court denied the Medicare beneficiaries' preliminary injunction motion. CMS filed a motion to dismiss the Medicare beneficiary lawsuit on the grounds that the case is moot as no LCA is in effect or pending. If the court denies this motion the permanent injunction case will proceed and be heard on its merits. Otherwise, the beneficiaries will not have a cause of action unless and until the LCA is reinstated by CMS.

        Both Sepracor and the Medicare beneficiaries believe that the LCA action by the Medicare Administration Subcontractors is outside the scope of their authority and is contrary to the express intent of Congress which has been enumerated in statutes, such as the MMA, and establishes the method that CMS and the Medicare Administration Subcontractors must use to determine the payment rate for Medicare Part B inhalation drugs such as XOPENEX Inhalation Solution that are administered through durable medical equipment. Although we are not a named party to the litigation, our interest in the outcome is aligned with that of the Medicare beneficiaries. Accordingly, we have, and if the case proceeds, plan to continue to provide funding in support of the litigation and assistance to legal counsel for the Medicare beneficiaries.

Class Action Litigation Settlement

        In June 2007, we filed in the United States District Court for the District of Massachusetts, or the Court, a Stipulation of Settlement regarding two securities class action lawsuits, or class actions, then pending in the Court naming Sepracor and certain of our current and former officers and one director as defendants. The class actions, which were filed on behalf of certain purchasers of our equity and debt securities, or the plaintiffs, alleged that the defendants violated the Federal securities laws by making false and misleading statements relating to the testing, safety and likelihood of approval of tecastemizole by the FDA. Under the terms of the Stipulation of Settlement, in June 2007 we paid into escrow $52.5 million in settlement of the class actions and, in July 2007, received an $18.5 million reimbursement from our insurance carriers. We recorded the litigation settlement expense of $34.0 million, relating to this matter, during the quarter ended March 31, 2007. In September 2007, the Court granted final approval of the Stipulation of Settlement and entered a final judgment consistent with the Stipulation of Settlement. The settlement is now final and the total settlement amount has been released from escrow.

Other Legal Proceedings

        We have been named as a defendant in a lawsuit filed in the United States District Court for the Middle District of Florida (Sharp, et al., filed July 17, 2008) claiming that our pharmaceutical sales representatives should have been categorized as "non-exempt" rather than "exempt" employees, and claiming that we owe damages, overtime wages, interest, costs and attorneys' fees for up to the four-year period preceding the filing of the action. Other companies in the pharmaceutical industry face substantially similar lawsuits. Based upon the facts as presently known, we do not believe that it is likely that the collective action will result in liability which would be material to our financial position. We believe this lawsuit is without merit and are prepared to defend against it vigorously.

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

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ITEM 1A.    RISK FACTORS

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

Risks Related to Our Financial Results and Our Common Stock

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

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

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

        Approximately 86% of our total revenues for the six months ended June 30, 2008 and approximately 89% of our total revenues for the year ended December 31, 2007 resulted from sales of LUNESTA and XOPENEX Inhalation Solution, and we expect that sales from these two products will continue to represent a significant majority of our revenues for the coming year. However, unit sales for both LUNESTA and XOPENEX have decreased during the first half of 2008 and may continue to decrease. As a result of the introduction of zolpidem tartrate, the generic equivalent to AMBIEN, and other competitive products being marketed or developed by others, LUNESTA's market share and unit sales may continue to decrease. In addition to the decrease in XOPENEX Inhalation Solution unit sales, revenues from the sale of XOPENEX Inhalation Solution have been, and we expect will continue to be, adversely affected on a comparable basis as a result of changes in the Medicare Part B reimbursement rate. Moreover, the growth of the overall non-generic pharmaceutical market, which includes branded drugs such as LUNESTA and XOPENEX Inhalation Solution, has been declining, and may continue to decline, as a result of economic conditions and managed care trends. If sales of LUNESTA do not increase and if sales of XOPENEX Inhalation Solution in other markets do not offset the reduction in revenues resulting from the changes in Medicare Part B reimbursement for the product, we may not have sufficient revenues to achieve our business plan or repay our outstanding debt, and our business will not be successful.

        We do not have long-term sales contracts with our customers, and we rely primarily on purchase orders for sales of LUNESTA, XOPENEX Inhalation Solution and our other marketed products. Reductions, delays or cancellations of orders for LUNESTA, XOPENEX Inhalation Solution or our other marketed products could adversely affect our operating results. Any other adverse developments with respect to the sale of LUNESTA or XOPENEX Inhalation Solution could significantly reduce

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revenues and have a material adverse effect on our ability to maintain profitability and achieve our business plan.

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

•

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



•

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



•

the level and effectiveness of our sales and marketing efforts;



•

any unfavorable publicity regarding these products or similar products;



•

litigation or threats of litigation with respect to these products;



•

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



•

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



•

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



•

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



•

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

        In addition, a number of the patents we own and/or license to third parties and for which we receive sales revenue or royalties are the subject of patent invalidation or revocation claims by companies seeking to introduce generic equivalents of the products covered by such patents. We can provide no assurance concerning the outcome or the duration of any patent related lawsuits. If we, or third parties from whom we receive royalties, are not successful in enforcing our respective patents, the companies seeking to market generic versions will not be excluded from marketing their generic versions of these products. Introduction of generic copies of any of these products before the expiration of our patents or the patents of our licensees could have a material adverse effect on our business.

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

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

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and generic albuterol to the quarterly blended weighted ASP calculation. This quarterly ASP calculation is mandated by the MMA. Revenues from the sale of XOPENEX Inhalation Solution have been, and we expect will continue to be, adversely affected on a comparable basis as a result of this change.

        On December 29, 2007, President Bush signed into law legislation, the effect of which is two-fold with respect to XOPENEX Inhalation Solution. First, the legislation mandates that XOPENEX Inhalation Solution and generic albuterol be reimbursed at the lower of their stand-alone weighted ASP and the blended weighted ASP for XOPENEX Inhalation Solution and generic albuterol. Since the bundling action described above resulted in an unintended increase in Medicare Part B reimbursement for generic albuterol, significantly higher than the product's ASP (as publicly reported by the Medicare Part B program), the legislation eliminated the potential for inappropriate reimbursement incentives to influence the dispensing decisions of providers. Second, the legislation passed by Congress, and signed into law by President Bush, included a change in the methodology CMS uses to calculate quarterly ASP. This change has resulted in further downward pressure on the Medicare Part B reimbursement for XOPENEX Inhalation Solution, particularly when applied to the blended albuterol/XOPENEX Inhalation Solution ASP calculation.

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

        In March 2006, the Medicare Administration Subcontractors announced their intention to implement an LCA reimbursement action for XOPENEX Inhalation Solution. If implemented, the LCA would reduce the Medicare Part B reimbursement paid for XOPENEX Inhalation Solution to the level of generic racemic albuterol. As a result, we would be unable to discount XOPENEX Inhalation Solution in the Medicare market, and we do not believe that providers will continue to dispense XOPENEX Inhalation Solution to Medicare Part B beneficiaries at this payment rate.

        The LCA announced in March 2006 was subsequently stayed by the Medicare Administration Subcontractors pending a National Coverage Analysis by CMS. CMS ultimately deferred to the Medicare Administration Subcontractors the determination as to the criteria for when XOPENEX Inhalation Solution would be appropriate for use by the Medicare population. On April 10, 2008, the Medicare Administration Subcontractors announced their intention to implement the previously announced LCA, effective July 1, 2008.

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        In June 2008, a preliminary injunction motion seeking to block the implementation of the LCA policy in advance of its July 1, 2008 effective date was filed in the District Court for the District of Columbia against certain of the Medicare Administration Subcontractors, among others, by four Medicare beneficiaries utilizing XOPENEX Inhalation Solution. These Medicare beneficiaries, who rely on XOPENEX Inhalation Solution to treat their medical conditions, stated in the motion that they would be denied access to this drug if the LCA was implemented and as a result would suffer irreparable injury. Shortly following the filing of the motion, the Medicare Administration Subcontractors announced they would suspend the LCA and not reinstate it at any time prior to December 31, 2008. The Medicare Administration Subcontractors further agreed that they would provide a public notice and comment period, which is typically 90 days, should they decide to reinstate the LCA. As a result of the LCA suspension, the court denied the Medicare beneficiaries' preliminary injunction motion. CMS filed a motion to dismiss the Medicare beneficiary lawsuit on the grounds that the case is moot as no LCA is in effect or pending. If the court denies this motion the permanent injunction case will proceed and be heard on its merits. Otherwise, the beneficiaries will not have a cause of action unless and until the LCA is reinstated by CMS.

        Both Sepracor and the Medicare beneficiaries believe that the LCA action by the Medicare Administration Subcontractors is outside the scope of their authority and is contrary to the express intent of Congress which has been enumerated in statutes, such as the MMA, and establishes the method that CMS and the Medicare Administration Subcontractors must use to determine the payment rate for Medicare Part B inhalation drugs such as XOPENEX Inhalation Solution that are administered through durable medical equipment. Although we are not a named party to the litigation, our interest in the outcome is aligned with that of the Medicare beneficiaries. Accordingly, we plan to provide funding in support of the litigation and assistance to legal counsel for the Medicare beneficiaries.

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

        As of June 30, 2008, our total debt was approximately $720.8 million. None of our 0% Series A notes due December 2008, our 0% Series B notes due December 2010 nor our 0% notes due October 2024 restricts us or our subsidiaries' ability to incur additional indebtedness, including debt that ranks senior to the notes. The 0% notes due 2024 are senior to the Series A notes due 2008 and Series B notes due 2010. Additional indebtedness that we incur may in certain circumstances rank senior to or on parity with this debt. Our ability to satisfy our obligations will depend upon our future performance, which is subject to many factors, including factors beyond our control. The conversion prices for the 0% Series A notes due 2008 and 0% Series B notes due 2010 are $31.89 and $29.84, respectively. In December 2008, $72.8 million will be due on our 0% Series A notes. On July 31, 2008, the closing sale price of our common stock was $17.48. If the market price for our common stock does not exceed the conversion price, the holders of our outstanding convertible debt may decide not to convert their securities into common stock. For example, the holders of our 5% debentures did not convert such debentures into common stock, and on February 15, 2007, the maturity date for the 5% debentures, we repaid in cash the entire principal amount of $440.0 million, plus $11.0 million of accrued interest. Our 0% notes due 2024 are convertible into cash and, if applicable, shares of our common stock at a conversion price of approximately $67.20, at the option of the holders in October 2009, 2014, 2019 and 2024, as well as under certain circumstances. We may not be able to make the required cash payments upon maturity of 0% Series B notes due 2010 or upon conversion of the 0% notes due 2024.

        Historically, we have had negative cash flow from operations, and in 2006, we experienced our first full year of positive cash flow from operating activities. Unless we have sufficient cash or are able to generate sufficient operating cash flow to pay off the principal of our outstanding debt, we will be required to raise additional funds or default on our obligations under the debentures and notes. If revenue generated from sales of our products do not meet expected levels, it is unlikely that we would have sufficient cash flow to repay our outstanding convertible debt and/or make cash payments upon

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maturity of the 0% Series B notes due 2010 or upon conversion of the 0% notes due 2024. There can be no assurance that, if required, we would be able to raise the additional funds on favorable terms, if at all.

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

        As of June 30, 2008, we had approximately $220.8 million of outstanding debt that could be converted into common stock and $500.0 million that could be converted into cash. In order to reduce future payments due at maturity, we may, from time to time, depending on market conditions, repurchase additional outstanding convertible debt for cash; exchange debt for shares of our common stock, warrants, preferred stock, debt or other consideration; or a combination of any of the foregoing. The amounts involved in any such transactions, individually or in the aggregate, could be material. If we exchange shares of our capital stock, or securities convertible into or exercisable for our capital stock, for outstanding convertible debt or use proceeds from the issuance of convertible debt to fund redemption of outstanding convertible debt with a higher conversion ratio, the number of shares that we might issue as a result of such exchanges would significantly exceed the number of shares originally issuable upon conversion of such debt and, accordingly, such exchanges would result in material dilution to holders of our common stock. Repurchase of the notes could also adversely affect the trading market for such notes if the public float in such notes is materially reduced. We cannot provide assurance that we will repurchase or exchange any additional outstanding convertible debt.

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

        A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis. Accordingly, a material weakness increases the risk that the financial information we report contains material errors. As more fully described in Item 4 of this quarterly report on Form 10-Q, Controls and Procedures, we have determined that we did not establish and/or maintain effective controls over the process to identify transactions with the potential to establish a new Medicaid best price, which affected the accuracy of the net revenue and product sales allowance and return accounts. Specifically, our controls over the calculation of Medicaid rebates were not designed to effectively monitor whether certain entities were appropriately exempt from the Medicaid best price calculation. Our management has determined that this control deficiency constitutes a material weakness, which resulted in the restatement of our consolidated financial statements as of and for the years ended December 31, 2006 and 2005 and selected financial data as of and for the years ended December 31, 2006, 2005, 2004 and 2003, as set forth in our Form 10-K filed on February 29, 2008, and the restatement of our unaudited quarterly information for the fiscal quarters ended March 31, June 30 and September 30, 2007 and 2006, as set forth in our amended and restated quarterly reports for these periods filed on Form 10-Q/A on May 7, 2008.

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

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

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

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

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

•

patent developments;



•

licensing or acquisition opportunities;



•

drug discovery and development efforts;



•

relationships with collaboration partners;



•

the FDA regulatory process;



•

expansion into foreign markets;



•

litigation and government inquiries and investigations;



•

whether our debt, particularly our debt due in 2008 and 2010, will be paid in cash rather than converted into common stock pursuant to the terms of such debt;



•

whether holders of our 0% notes due 2024 elect to require us to convert their notes into cash in October 2009;



•

our capital requirements; and



•

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

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Our long-term investments include auction-rate securities that may not be accessible within the next 12 months and may experience a decline in value, which may adversely affect our liquidity and income.

        At June 30, 2008, $78.2 million of our investment portfolio was invested in AAA rated investments in auction-rate securities. Auction-rate securities are long-term variable rate bonds tied to short-term interest rates. After the initial issuance of the securities, the interest rate on the securities is reset periodically, at intervals established at the time of issuance (primarily every 28 days), based on market demand for a reset period. Auction-rate securities are bought and sold in the marketplace through a competitive bidding process often referred to as an auction. If there is insufficient interest in the securities at the time of an auction, the auction may not be completed and the rates may be reset to predetermined "penalty" or "maximum" rates.

        Substantially all of our auction-rate securities are backed by pools of student loans guaranteed by FFELP, and we continue to believe that the credit quality of these securities is high based on this guarantee and other collateral. Auctions for these securities began failing in the first quarter of 2008 and continued to fail throughout the second quarter, which we believe is a result of the recent uncertainties in the credit markets. Consequently, the investments are not currently liquid, and we will not be able to access these funds until a future auction of these investments is successful, a buyer is found outside of the auction process, the security is called or the underlying securities have matured. At the time of our initial investment and through the date of this report, all of our auction-rate securities remain AAA rated. We believe we have the ability to hold these investments until the lack of liquidity in these markets is resolved. As a result, we continue to classify the entire balance of auction-rate securities as non-current available-for-sale investments at fair value on our unaudited condensed consolidated balance sheet.

        Typically, the fair value of auction-rate securities investments approximates par value due to the frequent resets through the auction process. While we continue to earn interest on our auction-rate securities investments at the contractual rate, these investments are not currently trading and therefore do not have a readily determinable market value. Accordingly, the estimated fair value of the auction-rate securities no longer approximates par value.

        At June 30, 2008, because of the temporary declines in fair value for the auction-rate securities, which we attribute to liquidity matters rather than credit issues as discussed above, we have classified our auction-rate securities at Level 3, as defined under SFAS 157 framework and described in Note 13, Fair Value Measurements, of our condensed consolidated financial statements included in this quarterly report on Form 10-Q, with a fair value of $78.2 million. The fair value of these auction-rate securities are estimated utilizing a trinomial discounted cash flow analysis, which was compared, when possible, to other observable market data or inputs with similar characteristics. The assumptions used in preparing the discounted cash flow analysis include estimates for the maximum interest rate, the probability of passing, failing or default at each auction, the severity of default and the discount rate. Based on this assessment of fair value, as of June 30, 2008, we determined there was a decline in fair value of our auction-rate securities investments of $4.0 million, which we deem temporary. If current market conditions deteriorate further, we may be required to record additional unrealized losses in other comprehensive income. If the credit ratings of the security issuers deteriorate, the anticipated recovery in market values does not occur, or we need funds from the auction-rate securities to meet working capital needs, we may be required to adjust the carrying value of these investments through impairment charges recorded to earnings, as appropriate, which could be material.

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

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

•

timing and extent of product sales and market penetration;



•

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



•

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



•

timing and success of product introductions, including OMNARIS Nasal Spray and ALVESCO HFA Inhalation Aerosol;



•

changes in third party reimbursement policies;



•

introduction of competitive products into the market;



•

results of clinical trials with respect to products under development;



•

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



•

a finding that our products infringe the patents of a third party;



•

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



•

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



•

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



•

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



•

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



•

timing and success of expansion into foreign markets;



•

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



•

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

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

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

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provisions could substantially impede the ability of public stockholders to benefit from a change of control or change in our management and board of directors. These provisions include:

•

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



•

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



•

non-cumulative voting for directors;



•

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



•

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



•

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



•

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

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

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

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

Risks Related to Commercialization

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

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

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marketing of new products and/or technologies than we can. As a result, any products and/or technologies that we develop may become obsolete or noncompetitive before we can recover expenses incurred in connection with their development.

LUNESTA

        For insomnia treatments, LUNESTA faces intense competition from established branded and generic products in several drug classes including benzodiazepines, non-benzodiazepines, melatonin agonists, select antidepressants, and others. We estimate that our existing LUNESTA prescriptions account for less than 10% of the total, annual prescriptions currently being written in the United States for insomnia pharmaceutical therapies. Furthermore, LUNESTA faces substantial competition from non-prescription, over-the-counter and dietary supplement insomnia product options. During the first half of 2008, partially as a result of increasing competition, LUNESTA unit sales and market share have been decreasing. We expect that LUNESTA will face increasing competition from a generic version of AMBIEN, which was introduced in April 2007, a generic version of AMBIEN CR® (zolpidem tartrate extended release), which could be introduced as early as March 2009, and therapies in clinical development and under FDA review for the treatment of insomnia. We may also face additional competition in the event of commercial introduction of a generic version of LUNESTA. To continue to be successful with LUNESTA, we must continue to demonstrate that LUNESTA's safety and efficacy features are superior to those of competing branded and generic products, some of which may be less expensive than LUNESTA.

XOPENEX FRANCHISE

        For asthma and COPD treatments, XOPENEX Inhalation Solution and XOPENEX HFA face intense competition from a variety of products. Patients with asthma and COPD turn to numerous classes of drugs, including corticosteroids, long-acting beta-agonists, short-acting beta-agonists, leukotriene modifiers, anticholingerics, and others, as well as certain combinations thereof. XOPENEX Inhalation Solution and XOPENEX HFA together account for approximately 3% of the total annual prescriptions currently being written in the United States for asthma and COPD pharmaceutical therapies. XOPENEX Inhalation Solution and XOPENEX HFA also face intense competition specifically within the beta-agonist classes of asthma and COPD treatments. We estimate that our existing XOPENEX prescriptions account for approximately 11% of the total annual prescriptions currently being written in the United States for beta-agonist asthma and COPD pharmaceutical therapies.

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

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

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BROVANA

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

OMNARIS Nasal Spray

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

ALVESCO HFA Inhalation Aerosol

        If and when commercialized, ALVESCO HFA Inhalation Aerosol, an inhaled corticosteroid in a MDI, will compete with other asthma therapies, including asthma controller therapies, and face competition from leukotriene receptor antagonists, inhaled corticosteroid/long-acting beta-agonist combinations, monotherapy long-acting beta-agonists and other monotherapy inhaled corticosteroids. In addition, several of the aforementioned categories will have generic product entries in the future, which will likely result in competitive products that are less expensive than ALVESCO HFA Inhalation Aerosol. To be successful with ALVESCO HFA Inhalation Aerosol when commercialized, we must demonstrate that its safety and efficacy features are superior to that of competing branded products and, upon the entry of generic competition, these features outweigh the higher price compared to such generic competition.

        For all of our products, we need to demonstrate to physicians, patients, and third party payors that the cost of our product is reasonable and appropriate in light of its safety, efficacy, and health care benefits, each as compared to other competing products. The growth of the overall market for branded pharmaceutical products, such as ours, has been decreasing, and we expect it will continue to decrease, due to increased generic competition, economic conditions and managed care trends. In addition, if competitors introduce new products or develop new processes or new information about existing products, then our products, even those protected by patents, may be replaced in the marketplace or we may be required to lower our prices.

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

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

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

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

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

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

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

        We recently announced that we planned to increase our sales force capacity in order to accommodate the commercialization of OMNARIS Nasal Spray and ALVESCO HFA Inhalation Aerosol. This increase is being effectuated through the services of a contract sales organization. We may also need to enter into additional co-promotion, contract sales force or other such arrangements with third parties, for example, where our own direct sales force is not large enough or sufficiently well aligned to achieve maximum penetration in the market. We may not be successful in entering into any co-promotion, contract sales force or other such arrangements, and the terms of any co-promotion, contract sales force or other such arrangements may not be favorable to us.

We may not be able to meet the unique operational, legal and financial challenges that we will encounter in our international operations, which may limit the growth of our business.

        Our success will depend in part on our ability to obtain approval for and market and sell our products in foreign markets. We undertake these activities both on our own and in conjunction with strategic partners. Expanding sales of our products and operations internationally could impose substantial burdens on our resources, divert management's attention from domestic operations and otherwise adversely affect our business. Furthermore, international operations are subject to several inherent risks including:

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failure of local laws to provide adequate protection against infringement of our intellectual property;



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protectionist laws and business practices that favor local competitors, which could slow or prohibit our growth in international markets;



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difficulties in terminating or modifying business arrangements because of restrictions in markets outside the United States;



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delays in regulatory approval of our products outside of the United States;



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manufacturing, import, export or other similar inspection or regulatory requirements imposed by non-U.S. authorities;



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our ability to avoid the re-importation of our products into the United States at prices that are lower than those maintained by us in the United States;



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currency conversion issues arising from sales denominated in currencies other than the United States dollar;



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foreign currency exchange rate fluctuations;



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longer accounts receivable payment cycles and difficulties in collecting accounts receivable; and

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•

Governmental activities related to pricing for products outside of the United States

        If we are unable to meet and overcome these challenges, our international operations may not be successful, which would limit the growth of our business and could adversely impact our results of operations.

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

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

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

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

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

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

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

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Risks Related to the Regulatory Environment

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

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

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

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

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

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



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



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



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we may not receive regulatory approval for our product candidates;



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



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



•

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

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

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

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

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

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

        The MMA established a prescription drug benefit beginning in 2006 for all Medicare beneficiaries. We do not know the extent to which our products will continue to be included in the Medicare prescription drug benefit, and we may be required to provide significant discounts or rebates to drug plans participating in the Medicare drug benefit. Moreover, Congress may enact legislation that permits the Federal government to directly negotiate price and demand discounts on pharmaceutical products that may implicitly create price controls on prescription drugs. In addition, MCOs, Health Maintenance Organizations, or HMOs, Preferred Provider Organizations, or PPOs, health care institutions and other government agencies continue to seek price discounts. MCOs, HMOs, PPOs and private health plans administer the Medicare drug benefit, leading to managed care and private health plans influencing prescription decisions for a larger segment of the population. In addition, certain states have proposed, and certain other states have adopted, various programs to control prices for their seniors' and low-income drug programs, including price or patient reimbursement constraints, restrictions on access to certain products, importation from other countries, such as Canada, and bulk purchasing of drugs.

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

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party or any regulatory body or private insurer will affect the ultimate commercial benefits of those transactions.

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

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

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

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



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



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



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



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



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



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the Hatch-Waxman Act, and amendments thereto, including the MMA, which regulate pharmaceutical patent litigation;



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



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



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the Food and Drug Administration Amendments Act of 2007;



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the Deficit Reduction Act of 2005;



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state and foreign law equivalents of the foregoing; and



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

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

        Federal and state government agencies also continue to promote efforts to reduce health care costs, including those associated with the Medicare and Medicaid programs. These efforts may include supplemental rebates and restrictions on the amounts that agencies will reimburse for the use of products. In addition, both the Federal and state governments have initiated investigations and lawsuits concerning the Medicaid price reporting practices of many pharmaceutical companies to ensure compliance with the Medicaid rebate program. For example, in April 2007, we were sued by the County of Orange, New York in the Southern District of New York, along with over 70 other pharmaceutical companies, for allegedly inflating published average wholesale prices allegedly resulting in the overpayments by the state of New York's Medicaid program. Although this case was dismissed in May 2008 without prejudice and this matter is now closed, we could face similar lawsuits in the future and be subject to damages and penalties if we are found liable.

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

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

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

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

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        In January 2008, we notified CMS that we had identified potential errors in our determination of the best price used to calculate Medicaid rebate amounts in prior periods. As a follow up to this disclosure to CMS, our management, with the oversight of our Audit Committee, is reviewing our government pricing activities affected by the material weakness on our internal controls related to these potential errors. As a result of this matter, we restated our audited, consolidated financial statements as of and for the years ended December 31, 2006 and 2005 and selected financial data as of and for the years ended December 31, 2006, 2005, 2004 and 2003, as set forth in our annual report on Form 10-K filed on February 29, 2008, and our unaudited quarterly information for the fiscal quarters ended March 31, June 30 and September 30, 2007 and 2006, as set forth in our amended and restated quarterly reports for these periods filed on Form 10-Q/A on May 7, 2008. The amounts by which we have reduced revenues for contingent rebates were based on management's best estimates and assumptions made prior to any concurrence by CMS. These amounts may change as a result of future communications with CMS, and we cannot be certain that we have not overestimated the amount of additional rebates we may be required to pay, that the amount of any additional rebate payments or other payments we may owe will not exceed our current estimates, or that we will not be subject to fines, penalties or interest.

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

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

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

Risks Related to Our Intellectual Property

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

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

        We have filed patent applications covering composition of, methods of making, and/or methods of using, our products and product candidates. Our revenues under collaboration agreements with

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

If we do not prevail against those parties seeking to market generic versions of our products, our business will be adversely affected and we may not have sufficient revenues to achieve our business plan or repay our outstanding debt.

        With respect to XOPENEX Inhalation Solution, Breath, Dey, L.P., Barr, Teva, Watson and Apotex have filed ANDAs including Paragraph IV certifications with the FDA seeking to market a generic version of levalbuterol hydrochloride inhalation solution before our patents expire. Patent infringement litigation remains outstanding against Dey, L.P., and Barr, but we have decided not to commence litigation against Watson and Teva as their respective Paragraph IV certifications are limited to a single patent that expires in 2021. Apotex's Paragraph IV certification is likewise limited to the patent that expires in 2021 and we are still evaluating whether to commence litigation in response.

        In April 2008, we entered into a settlement and license agreement with Breath to resolve our patent infringement litigation against Breath. The agreement permits Breath to sell its generic versions of these XOPENEX Inhalation Solution products (1.25 mg/3 mL, 0.63 mg/3 mL and 0.31 mg/3 mL) in the United States under terms of an exclusive 180 day license commencing on August 20, 2012 and a non-exclusive license thereafter. Upon launch, Breath would pay us a double-digit royalty on gross profits generated from the sales of generic versions of these XOPENEX Inhalation Solution products. Under the agreement, Breath agrees not to sell any of the products covered by our patents that are the subject of the license before the date on which the license commences. On May 1, 2008, the parties submitted to the court an agreed order of dismissal without prejudice, which the court approved. The litigation is now concluded.

        In April 2008, we also entered into a supply agreement with Breath whereby, effective August 20, 2012, we will exclusively supply levalbuterol products (1.25 mg/3 mL, 0.63 mg/3 mL and 0.31 mg/3 mL) to Breath, under our NDA for a period of 180 days, which we refer to as the Initial Term, and on a non-exclusive basis for two and one-half years thereafter. In addition to the royalties described above, Breath will pay us on a cost plus margin basis for supply of these levalbuterol products. The supply agreement contains provisions regarding termination for cause and convenience, including either party's right to terminate the agreement at any time after the Initial Term upon nine months written notice. Both the exclusive license under the settlement and license agreement and the exclusive supply obligations under the supply agreement could become effective prior to August 20, 2012 if a third party launches a generic version of those dosages of XOPENEX Inhalation Solution or if the parties otherwise mutually agree.

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        On May 9, 2008, we provided to the Federal Trade Commission and Department of Justice Antitrust Division the notifications of the settlement with Breath as required under Section 1112(a) of the MMA. The settlement with Breath and the other agreements with Breath and its affiliates, including the supply agreement, the agreement for the acquisition of Oryx and license agreements with Arrow, may be reviewed by antitrust enforcement agencies, such as the Federal Trade Commission and Department of Justice Antitrust Division. There can be no assurances that governmental authorities will not seek to challenge the settlement with Breath or that a competitor, customer or other third party will not initiate a private action under antitrust or other laws challenging the settlement with Breath. We may not prevail in any such challenges or litigation and, in any event, may incur significant costs in the event of an investigation or in defending any action under antitrust laws.

        The filing of a lawsuit for patent infringement under the Hatch-Waxman Act results in an automatic 30-month stay of the FDA's authority to grant marketing approval to these companies. The 30-month stay against Breath's ANDA expired for our 1.25 mg/3 mL, 0.63 mg/3 mL and 0.31 mg/3 mL XOPENEX Inhalation Solution products on March 7, 2008. On April 9, 2008, the FDA granted final approval to Breath's ANDA for all three dosages. If the FDA determines that Breath has forfeited the 180 day semi-exclusivity period for those three dosages, other ANDA filers who have been granted final approval by the FDA could commence an "at risk" launch upon expiration of the 30-month stay. For those three dosages, the 30-month stay against Dey, L.P. expired on July 9, 2008 and the 30-month stay against Barr expires on or about November 30, 2009. If either of these parties were to commence selling a generic alternative to our XOPENEX Inhalation Solution product prior to the resolution of these ongoing legal proceedings, or there is a court determination that the products these companies wish to market do not infringe our patents, or that our patents are invalid or unenforceable, it would have a material adverse effect on our business, financial condition and/or results of operations. In addition, our previously issued guidance regarding our projected financial results may no longer be accurate and we would have to revise such guidance.

        Certain of Schering-Plough's CLARINEX products for which we receive sales royalties are currently the subject of patent infringement litigation. Since June 2007, the FDA has received ANDAs relating to various dosage forms of CLARINEX from ten different generic pharmaceutical companies. These ANDA submissions include Paragraph IV certifications alleging that our patents, which Schering-Plough (as exclusive licensee of such patents) listed in the Orange Book for these products, are invalid, unenforceable or not infringed by the submitter's proposed product. We and the University of Massachusetts, co-owners of certain patents listed in the Orange Book, filed civil actions against these parties for patent infringement in the United States District Court for the District of New Jersey. In April 2008, the trial judge consolidated these cases for all purposes including discovery and trial. The court has not set a trial date. We believe that all of these ANDAs are subject to a statutory stay of approval until at least December 21, 2009 based on previous litigation commenced by Schering-Plough against these parties in separate civil actions involving another patent.

        UCB S.A.'s XYZAL 5mg product, for which we receive royalties, is currently the subject of patent infringement litigation. The FDA has received ANDAs from four generic pharmaceutical companies that include Paragraph IV certifications alleging that one of our patents which UCB (as NDA holder and licensee of the patent) listed in the Orange Book for this product, is invalid and/or not infringed by the ANDA filer's product. UCB, on its own and on our behalf, commenced patent infringement litigation against all of these parties. We believe that these ANDAs are subject to a statutory stay of approval until at least on or about August 29, 2010.

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

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our business, financial condition and results of operations. Should the courts uphold our foreign patents, companies seeking to market generic versions of our drugs and the drugs of our licensees should be deterred from market entry until the expiration of the applicable patent(s).

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

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

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

        Our success depends in part on our ability to operate without infringing the proprietary rights of others, including patent and trademark rights. Third parties, typically pharmaceutical companies, may hold patents or patent applications covering compositions, methods of making and uses, covering the composition of matter for some of the drug candidates for which we have patents or patent applications. Third parties may also hold patents relating to drug delivery technology that may be necessary for development or commercialization of some of our drug candidates. In each of these cases, unless we have or obtain a license agreement, we generally may not commercialize the drug candidates until these third party patents expire or are declared invalid or unenforceable by the courts. Licenses may not be available to us on acceptable terms, if at all.

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

        In March 2008, United States Patent 7,348,362 entitled "Bronchodilation b-agonist compositions and Methods" issued and Dey, L.P. is the assignee of the patent. In May 2008, we filed a Motion to Amend our Answer and Counterclaims to seek declaratory judgment that the '362 patent is invalid and

76

unenforceable and to add Mylan Inc. as a party. Dey has opposed this motion and we await a decision from the court.

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

Risks Related to Our Dependence on Third Parties

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

        We have entered into a collaboration agreement with 3M for the manufacturing of XOPENEX HFA. Under this agreement, we license certain proprietary technology from 3M and it is responsible for manufacturing the MDI formulation of XOPENEX. We have also entered into agreements with Eisai and GSK for development and commercialization of our eszopiclone product, marketed as LUNESTA in the United States. Under the Eisai agreement, Eisai will be responsible for completing remaining clinical trials necessary for attaining marketing approval from the Japanese regulatory authorities and, contingent on regulatory approval, commercialization of the product in Japan. Under the GSK agreement, GSK is responsible for the development and commercialization of the product for all markets worldwide, excluding the United States, Canada, Mexico and Japan. In addition, we have entered into a license agreement with Bial for the development and commercialization in the United States and Canada of Bial's eslicarbazepine acetate anti-epileptic compound. Under this agreement, Bial is responsible for certain development activities and prosecuting all patents and patent applications it licensed to us. We have also recently entered into a distribution and development agreement with Nycomed for the development, commercialization and distribution in the United States, its territories and possessions of Nycomed's compound ciclesonide, and certain products incorporating such compound, including ALVESCO HFA Inhalation Aerosol and OMNARIS Nasal Spray. Under this agreement, Nycomed is responsible for prosecuting all patents and patent applications with respect to these products. Most recently, we entered into two license and development agreements with Arrow for the development and commercialization of Arrow's levalbuterol/ipratropium combination inhalation solution candidate and for the development and commercialization of a ciclesonide standalone product and a ciclesonide/arformoterol combination product utilizing Arrow's know-how and intellectual property rights related to stable sterile suspension formulations and other technology.

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

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

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

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

        We currently operate a manufacturing plant that we believe can meet our commercial requirements of the active pharmaceutical ingredient for XOPENEX Inhalation Solution, XOPENEX HFA and BROVANA, partially fulfill our commercial requirements of the active pharmaceutical ingredient for LUNESTA, and support production of our product candidates in amounts needed for our clinical trials. We do not, however, have the capability to manufacture at our manufacturing facility all of our requirements for the active ingredients of our currently approved products, and we have no facilities for manufacturing pharmaceutical dosage forms or finished drug products. Developing and obtaining this capability would be time consuming and expensive. Unless and until we develop this capability, we will rely substantially, and in some cases, entirely, on third party manufacturers. Catalent Pharma Solutions, LLC, or Catalent, formerly Cardinal Health, Inc., and Holopack International Corporation, or Holopack, are currently our only finished goods manufacturers of our XOPENEX Inhalation Solution, and Catalent is currently the sole finished goods manufacturer of BROVANA. Patheon Inc., or Patheon, is the sole manufacturer of LUNESTA, and 3M is the sole manufacturer and supplier of XOPENEX HFA. Certain components of XOPENEX HFA are available from only a single source. If Catalent, Holopack, Patheon, 3M, or any of our sole-source component suppliers experiences delays or difficulties in producing, packaging or delivering XOPENEX Inhalation Solution, XOPENEX HFA or its components, BROVANA or LUNESTA, as the case may be, we could be unable to meet our customers' demands for such products, which could lead to lost sales, customer dissatisfaction and damage to our reputation. Moreover, if we experience delays or difficulties meeting our supply obligations to GSK and Eisai as a result of our third party suppliers and manufacturers not meeting our demands, or for any other reason, we may not realize the potential commercial benefits of our supply and/or licensing arrangements with these parties and our results of operations may be adversely affected. If we are required to change manufacturers, we will be required to verify that the new manufacturer maintains facilities and procedures that comply with quality standards and with all applicable regulations and guidelines, including FDA guidelines. The delays associated with the verification of a new manufacturer for XOPENEX Inhalation Solution, XOPENEX HFA or its

78

components, BROVANA or LUNESTA could adversely affect our ability to produce such products in a timely manner or within budget.

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

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

Risks Related to Growth of Our Business

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

        We are currently commercializing five products and expect to launch a sixth product, ALVESCO HFA Inhalation Aerosol, in 2008. In addition, we recently acquired from Nycomed the development rights to one late-stage product candidate, OMNARIS HFA, and recently licensed two late-stage product candidates, eslicarbazepine acetate and a levalbuterol/ipratropium combination inhalation solution, from Bial and Arrow, respectively. However, all of our other product candidates are in the early stages of development. In order to increase the likelihood that we will be able to successfully develop and/or commercialize additional drugs, we intend to acquire and develop additional product candidates and/or approved products. The success of this growth strategy depends upon our ability to correctly establish criteria for such acquisitions and successfully identify, select and acquire product candidates and/or products that meet such criteria. We will be required to integrate any acquired product candidates, including the product candidates we recently licensed from Bial and Arrow and product candidates we are developing pursuant to our agreement with Nycomed, into our research and development operations and any acquired products, including ALVESCO HFA Inhalation Aerosol and OMNARIS Nasal Spray into our sales and marketing operations. Managing the development and/or commercialization of a new product involves numerous other financial and operational risks, including difficulties allocating resources between existing and acquired assets and attracting and retaining qualified employees to develop and/or sell the product.

        Any product candidate we acquire may require additional research and development efforts prior to commercial sale, including extensive preclinical and/or clinical testing and approval by the FDA and corresponding foreign regulatory authorities. All product candidates are prone to the risks of failure inherent in pharmaceutical product development, including the possibility that the product candidate will not be safe and effective or approved by regulatory authorities.

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

•

manufactured or produced economically;

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•

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



•

complementary to our existing product portfolio; or



•

widely accepted in the marketplace.

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

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

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

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

        In addition, we will likely experience significant charges to earnings in connection with our efforts, if any, to consummate acquisitions. These charges may include fees and expenses for investment bankers, attorneys, accountants and other advisers in connection with our efforts, and may be incurred whether or not an acquisition is consummated. Even if our efforts are successful, we may incur as part of a transaction substantial charges for closure costs associated with elimination of duplicate operations and facilities and acquired in-process research and development charges. In either case, the incurrence of these charges could adversely affect our results of operations for particular quarterly or annual periods.

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

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

•

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



•

revenue from product sales could be delayed; or



•

we may elect not to commercialize the drugs.

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

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ITEMS 2-3.    NONE

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

        Our annual meeting of stockholders was held on May 20, 2008. The following represents the results of the voting on proposals submitted to a vote of stockholders at the annual meeting:

1.

To elect each of Adrian Adams, Timothy J. Barberich and Timothy J. Rink to serve as a Class II director until the 2011 annual meeting and until his successor is duly elected and qualified.

	For		Withheld Authority
Adrian Adams		93,299,120		2,772,129
Timothy J. Barberich		76,057,651		20,013,598
Timothy J. Rink		76,125,556		19,945,693

        The terms of office of the following directors continued after the annual meeting:

Digby W. Barrios
Robert J. Cresci
James F. Mrazek
Lisa Ricciardi
Alan A. Steigrod

2.

To approve an amendment to our 2000 Stock Incentive Plan increasing from 13,500,000 to 15,000,000 the number of shares reserved for issuance under the 2000 plan.

For	Against	Abstain		Broker Non-Votes
68,899,438	17,893,190		27,823		9,250,799

3.

To approve the adoption of our 2008 Director Stock Incentive Plan

For	Against	Abstain		Broker Non-Votes
80,058,709	6,721,460		40,281		9,250,799

4.

To approve an amendment to our 1998 Employee Stock Purchase Plan increasing from 1,400,000 to 1,900,000 the number of shares of our common stock reserved for issuance under the 1998 purchase plan.

For	Against	Abstain		Broker Non-Votes
85,486,965	1,290,147		43,338		9,250,799

5.

To ratify the selection of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the current fiscal year.

For	Against	Abstain
94,380,518	1,619,577		71,154

ITEM 5.    NONE

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ITEM 6.    EXHIBITS

10.1†	Share Purchase Agreement dated April 30, 2008 between the Registrant, 1765800 Ontario Limited, Cobalt Pharmaceuticals Inc., Melville Holdings Limited, Oryx Pharmaceuticals, Inc. and Arrow Group A.p.S.
10.2†	License and Development Agreement dated April 30, 2008 between the Registrant and Arrow International Limited for Levalbuterol/ipratropium Product.
10.3†	License and Development Agreement dated April 30, 2008 between the Registrant and Arrow International Limited for ciclesonide products.
10.4†	Settlement and License Agreement dated April 30, 2008 between the Registrant and Breath Limited.
10.5†	Supply Agreement dated April 30, 2008 between the Registrant and Breath Limited.
10.6	Severance and Consulting Agreement by and between the Registrant and David Southwell dated May 14, 2008.
10.7	Employment Agreement by and between the Registrant and Robert F. Scumaci dated May 14, 2008.
10.8	Employment Agreement by and between the Registrant and Mark H. N. Corrigan dated May 14, 2008.
10.9	2000 Stock Incentive Plan, as amended.
10.10	2008 Director Stock Incentive Plan.
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

†

Confidential treatment has been requested as to certain portions, which portions have been filed separately with the Securities and Exchange Commission.

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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.

	SEPRACOR INC.
Date: August 8, 2008	By:	/s/ ADRIAN ADAMS Adrian Adams President and Chief Executive Officer (Principal Executive Officer)
Date: August 8, 2008	By:	/s/ ROBERT F. SCUMACI Robert F. Scumaci Executive Vice President and Chief Financial Officer (Principal Accounting Officer)

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Exhibit Index

Exhibit No.	Description
10.1†	Share Purchase Agreement dated April 30, 2008 between the Registrant, 1765800 Ontario Limited, Cobalt Pharmaceuticals Inc., Melville Holdings Limited, Oryx Pharmaceuticals, Inc. and Arrow Group A.p.S.
10.2†	License and Development Agreement dated April 30, 2008 between the Registrant and Arrow International Limited for Levalbuterol/ipratropium Product.
10.3†	License and Development Agreement dated April 30, 2008 between the Registrant and Arrow International Limited for ciclesonide products.
10.4†	Settlement and License Agreement dated April 30, 2008 between the Registrant and Breath Limited.
10.5†	Supply Agreement dated April 30, 2008 between the Registrant and Breath Limited.
10.6	Severance and Consulting Agreement by and between the Registrant and David Southwell dated May 14, 2008.
10.7	Employment Agreement by and between the Registrant and Robert F. Scumaci dated May 14, 2008.
10.8	Employment Agreement by and between the Registrant and Mark H. N. Corrigan dated May 14, 2008.
10.9	2000 Stock Incentive Plan, as amended.
10.10	2008 Director Stock Incentive Plan.
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

†

Confidential treatment has been requested as to certain portions, which portions have been filed separately with the Securities and Exchange Commission.

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EX-10.1

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Exhibit 10.1

Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.

SHARE PURCHASE AGREEMENT

SHARE PURCHASE AGREEMENT

THIS AGREEMENT made as of the 30^th day of April, 2008.

AMONG:

COBALT PHARMACEUTICALS INC. ("Cobalt"), a corporation incorporated under the laws of the Province of Ontario, and MELVILLE HOLDINGS LIMITED ("Melville"), a corporation incorporated under the laws of Malta,

(hereinafter collectively called the "Sellers" and sometimes individually a "Seller")

OF THE FIRST PART

- and -

1765800 ONTARIO LIMITED, a corporation incorporated under the laws of the Province of Ontario;

(hereinafter called the "Buyer")

OF THE SECOND PART

- and -

ORYX PHARMACEUTICALS, INC., a corporation incorporated under the laws of the Province of Ontario

(hereinafter called the "Corporation")

OF THE THIRD PART

- and -

SEPRACOR INC., a corporation incorporated under the laws of the State of Delaware

(hereinafter called "Sepracor")

OF THE FOURTH PART

- and -

ARROW GROUP A.p.S., a corporation incorporated under the laws of Denmark

(hereinafter called "Arrow")

OF THE FIFTH PART

WHEREAS the authorized capital of the Corporation consists of an unlimited number of Class "A" Shares and an unlimited number of common shares, of which 17,959,909 Class "A" Shares and 10,000,000 common shares (the "Current Issued Shares") are presently issued and outstanding;

AND WHEREAS the Corporation has options outstanding which it has granted to certain of its employees to acquire up to an aggregate of 732,500 authorized and unissued common shares of the Corporation (collectively the "Outstanding Options", which term includes any options which may be granted by the Corporation to such employees in substitution for such outstanding options), pursuant to a stock option plan dated the 24^th day of June, 2002 approved by the board of directors of the Corporation (such stock option plan, as the same has been amended to the date hereof being hereinafter referred to as the "Stock Option Plan"), the particulars of which Outstanding Options, including the identity of the optionees, the number of common shares which may be acquired by each

such optionee, and the exercise price, vesting and expiry of each such Outstanding Option, are set forth in Schedule "1" hereto;

AND WHEREAS the Buyer, upon and subject to the terms and conditions hereinafter set forth, desires to acquire from the Sellers, and the Sellers desire to sell and transfer to the Buyer, all of the issued shares in the capital of the Corporation outstanding at Closing (as hereafter defined) on the basis that the Outstanding Options will have been exercised or cancelled prior thereto and that the shares issued pursuant to the exercise of the Outstanding Options will be included in the shares being purchased and sold pursuant hereto;

AND WHEREAS the Corporation is a subsidiary of Cobalt which is, in turn, an indirect wholly owned subsidiary of Arrow and the Buyer is a direct wholly owned subsidiary of Sepracor;

NOW THEREFORE WITNESSETH that in consideration of the covenants, agreements, warranties and payments herein set out and provided for, the Parties hereto hereby respectively covenant and agree as follows:

2

ARTICLE 1
INTERPRETATION

1.1   Definitions

        Wherever used in this Agreement the words and terms, "Accounting Records", "Accounts Receivable", "Additional Products", "Affiliate", "Agreement", "Applicable Law", "Assets", "Authorized Pre-Closing Transactions", "Benefit Plans", "Books and Records", "Brand Pharmaceutical Product", "Business", "Business Day", "Buyer's Counsel", "Claim", "Closing Date", "Closing", Closing Document", "Closing Financial Statements", "Closing Time", "Collective Agreement", "Competing Generic Product", "Confidentiality Agreement", "Contingent Oryx Product", "Contracts", "Corporation Financial Statements", "Cross-Licence Agreements", "Direct Claim", "DIN", "Employees", "Encumbrances", "Environmental Laws", "Equipment", "Escrow Agent", "Escrow Agreement—Security", "Escrow Agreement—Withheld Amount", "Escrow Amount", "Execution Date", "Food and Drugs Act", "Formulary", "Generally Accepted Accounting Principles", "Governmental Authority", "including", "Indemnifier", "Indemnified Party", "Indemnity Payment", "Independent Accountant", "Intellectual Property", "Interim Period", "Inventory", "Key Employees", "Knowledge", "Licence", "Licence and Marketing Agreements", "Licensed Intellectual Property", "Licensed Software", "Licencor", "Loss", "Model Key Employee Agreement", "NDS", "New Products", "NOC", "Occupational Health and Safety Acts", "Order", "ordinary course", "Owned Intellectual Property", "parties", "Personal Information", "Permitted Encumbrances", "Person", "Personal Information", "Premises", "Privacy Legislation", "Products", "Purchase Price", "Purchased Shares", "Regulatory Approval", "Regulatory Authorities", "Related Party Agreements", "Representative", "Sellers' Counsel", "Sellers' Required Consents and Approvals", "Service and Cost Sharing Agreement", "Specifications", "Tax Act", "Tax Losses", "Tax Returns", "Taxes", "Terminated Agreements", "Third Party Claim", "Time of Closing", "TPD" and "Withheld Amount" shall have the respective meanings set out in Exhibit 1 annexed hereto. In addition, words and expressions parenthetically defined elsewhere in this Agreement, including the recitals hereto, shall, throughout this Agreement, have the meanings therein provided. Defined terms shall be used in the singular or in the plural, as sense shall require.

1.2   Entire Agreement

        This Agreement, including the Exhibits and Schedules hereto, constitute the entire agreement between the Parties pertaining to the subject matter hereof and supersede all prior agreements, understandings, negotiations and discussions, whether oral or written, of the Parties and there are no warranties, representations or other agreements between the Parties in connection with the subject matter hereof except as expressly set forth herein, subject to any other agreement among, inter alia, the Sellers and the Buyer that specifically make reference to this Agreement. No supplement, modification, waiver or termination of this Agreement shall be binding unless executed in writing by the Parties hereto. No waiver of any of the provisions of this Agreement shall be deemed to constitute or shall constitute a waiver of any other provision (whether or not similar) nor shall such waiver constitute a continuing waiver unless otherwise expressly provided.

1.3   Applicable Law

        This Agreement shall be governed by and construed in accordance with the laws of the Province of Ontario and the laws of Canada applicable therein, without regard to principles of conflicts of laws, and shall be treated, in all respects, as an Ontario contract, irrespective of the place of execution or the order in which the signatures of the Parties are affixed, or the place or places of performance.

3

1.4   Determination of Time

        When calculating the period of time within which or following when any act is to be done or steps taken pursuant to this Agreement, the date which is the reference date in calculating such period shall be included. If the last day for calculating such period is not a Business Day the period in question shall end on the next Business Day.

1.5   Currency

        Unless otherwise indicated, all dollar amounts referred to in this Agreement are in lawful money of the United States of America.

1.6   Interpretation Not Affected by Headings or Party Drafting

        The division of this Agreement into articles, sections, paragraphs, subsections and clauses and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation of this Agreement. The terms "this Agreement", "hereof", "herein", "hereunder" and similar expressions refer to this Agreement and the schedules to this Agreement and not to any particular article, section, paragraph, clause or other portion of this Agreement and include any agreement or instrument supplementary or ancillary to this Agreement. The Parties acknowledge that their respective legal counsel have reviewed and participated in settling the terms of this Agreement, and the Parties agree that any rule of construction to the effect that any ambiguity is to be resolved against the drafting Party shall not be applicable in the interpretation of this Agreement.

1.7   Number and Gender

        In this Agreement, unless there is something in the subject matter or context inconsistent therewith:

(a)

words in the singular number include the plural and such words shall be construed as if the plural had been used;



(b)

words in the plural include the singular and such words shall be construed as if the singular had been used; and



(c)

words importing the use of any gender shall include all genders where the context or party referred to so requires, and the rest of the sentence shall be construed as if the necessary grammatical and terminological changes had been made.

1.8   Statutory References

        A reference to a statute or a section of a statute shall include and shall be deemed to be a reference to such statute or section and to the regulations made pursuant thereto, with all amendments made thereto and in force at the relevant time, and to any statute, section of a statute or regulation that may be passed which has the effect of supplementing or superseding the statute or section so referred to or the regulations made pursuant thereto.

4

1.9   Disclosure Schedules and Exhibits

        The following are the Schedules and Exhibits which are incorporated in and shall be deemed to form part of this Agreement:

Reference	Description
Exhibit 1	Definitions
Exhibit 2	Escrow Agreement—Security
Exhibit 3	Escrow Agreement—Withheld Amount
Exhibit 4	Letter of Credit
Exhibit 5	Standard Sepracor Canadian Offer Package
Exhibit 6	Transitional Service Agreement
Schedule 1	Outstanding Options
Schedule 1.1(A)	Corporation Financial Statements
Schedule 1.1(B)	List of tangible fixed assets
Schedule 1.1(C)	Knowledge
Schedule 1.1(D)	Permitted Encumbrances
Schedule 1.1(E)	Products
Schedule 1.1(F)	Additional Products
Schedule 1.1(G)	Related Party Agreements
Schedule 1.1(H)	Contingent Oryx Product
Schedule 3.1(g)	Related Party Indebtedness
Schedule 3.1(h)	Approvals of Governmental Authorities
Schedule 3.1(i)	Sellers' Required Consents and Approvals
Schedule 3.1(n)	Corporate Records
Schedule 3.1(p)	Qualification re Financial Statements
Schedule 3.1(r)	Post December 31, 2007 Events
Schedule 3.1(t)	Payments to Sellers and Corporate Officers
Schedule 3.1(u)	Prepayment of Indebtedness
Schedule 3.1(w)	Inventory Values
Schedule 3.1(z)	Litigation
Schedule 3.1(cc)	Product Liability
Schedule 3.1(gg)	Employee Information
Schedule 3.1(ii)	Benefit Plans
Schedule 3.1(jj)	Qualification re Title to Assets
Schedule 3.1(kk)	Asset Location and Control
Schedule 3.1(qq)	Inventory
Schedule 3.1(rr)	Intellectual Property
Schedule 3.1(ss)	Software
Schedule 3.1(tt)	Licences
Schedule 3.1(vv)	Insurance
Schedule 3.1(ww)	Contracts
Schedule 3.1(xx)	Contract Status
Schedule 3.1(bbb)	Banking and Trade Accounts and Powers of Attorney
Schedule 4.1(b)(vi)	Authorized Capital Expenditures
Schedule 4.1(l)(A)	Key Employees
Schedule 4.1(l)(B)	Sales Employees

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ARTICLE 2
PURCHASE AND SALE

2.1   Purchase and Sale of Purchased Shares

        At the Closing Time on the Closing Date, the Sellers shall sell and the Buyer shall purchase the Purchased Shares, upon and subject to the terms of this Agreement.

2.2   Purchase Price

        Subject to adjustment, if any, pursuant to Section 2.7 below, the purchase price for the Purchased Shares (the "Purchase Price"), shall be determined and paid to the Sellers as follows:

(a)

The Buyer shall pay the Sellers $50,000,000 (the "Initial Purchase Price"), which Initial Purchase Price shall be allocated as between and paid to the Sellers as follows:



(i)

Cdn $1.00 (or the US dollar equivalent thereof at the rate of exchange prevailing at the opening of business on the Closing Date as calculated in accordance with the provisions of Section 2.7(f)) for each Class "A" Share held by such Seller at the Time of Closing; and



(ii)

the balance of the Initial Purchase Price shall be paid to the Sellers pro rata in proportion to the number of common shares held by each at the Time of Closing.



(b)

As additional consideration for the sale of the Purchased Shares to the Buyer, the Buyer shall make the following milestone payments (the "Milestone Payments") to the Sellers (and Sepracor shall cause the Buyer to make such Milestone Payments) upon each of the milestone events specified below (each, a "Milestone Event"):

Milestone Event	Milestone Payment
[**]	$	2,500,000
[**]	$	2,500,000
[**]	$	2,500,000
[**]	$	2,500,000
[**]	$	10,000,000

2.3   Satisfaction of Purchase Price

(a)

At the Time of Closing the Buyer shall pay the Initial Purchase Price to the Sellers (or as they may direct in writing) by certified cheque, bank draft, wire transfer or other immediately available funds; provided, however, that the payment of the portion of the Initial Purchase Price payable to Melville shall be subject to Section 2.4 below.



(b)

The Buyer and Sepracor will report in writing the occurrence of each Milestone Event to the Sellers within 5 Business Days of the date on which the Milestone Event has occurred and the Buyer and Sepracor will, on a joint and several basis, pay the corresponding Milestone Payment within [**] of the date on which the Milestone Event has occurred, regardless of whether two or more milestones occur at the same time. Each Milestone Payment shall be allocated as between and paid to the Sellers pro rata in proportion to the number of common shares of the Corporation held by each at the Time of Closing. The Buyer shall pay and Sepracor shall cause the Buyer to pay the Milestone Payments to the Sellers (or as they may direct in writing) by certified cheque, bank draft, wire transfer or other immediately available funds; provided, however, that the payment of the portion of the Milestone Payment payable to Melville shall be subject to Section 2.4 below. The payment of the Milestone Payments by the Buyer shall be without reduction, deduction or set-off for long as and to the extent that all

6

or any portion of the Escrow Amount (or Letter of Credit) is held in escrow by the Escrow Agent under the Escrow Agreement—Security. The Buyer or Sepracor will pay interest to the Sellers on the unpaid portion of any Milestone Payment which is not paid on its due date at a rate per annum which is equal to the prime commercial rate of interest of the Royal Bank of Canada (Main Branch Toronto) for US$ demand loans from time to time plus [**]%, calculated daily and compounded monthly, from the due date until paid.

2.4   Withholding Taxes

(a)

Subject to this Section 2.4, Melville will take all reasonable steps to obtain and deliver to the Buyer, on or before the Closing Time, a certificate issued by the Minister of National Revenue pursuant to section 116 of the Tax Act in respect of the sale of the Purchased Shares to the Buyer.



(b)

If a certificate issued by the Minister of National Revenue pursuant to subsection 116(2) of the Tax Act in respect of the sale of the Purchased Shares to the Buyer, specifying a certificate limit in an amount which is not less than the proportionate share of the Purchase Price payable to Melville, is not delivered to the Buyer at or before the Closing Time the Buyer shall be entitled to withhold from the proportionate share of the Purchase Price payable to Melville at the Closing Time the amount that the Buyer may be required to remit pursuant to subsection 116(5) of the Tax Act in connection with such purchase (the "Withheld Amount"), which Withheld Amount will be paid by the Buyer to the Escrow Agent to be held by the Escrow Agent in an interest-bearing trust account.



(c)

If, prior to the 27th day after the end of the month in which the Closing Time occurs, Melville delivers to the Buyer a certificate issued by the Minister of National Revenue pursuant to subsection 116(2) or subsection 116(4) of the Tax Act in respect of the sale of the Purchased Shares to the Buyer, the Buyer will promptly pay to Melville an amount equal to the lesser of (i) the Withheld Amount and (ii) the Withheld Amount less the percentage specified in subsection 116(5) of the Tax Act multiplied by the amount, if any, by which Melville's proportionate share of the Purchase Price exceeds the amount specified in such certificate as the certificate limit or proceeds of disposition, together with any interest earned on the amount withheld to the date of such payment (less any applicable withholding Tax). The time at which a certificate is to be delivered to the Buyer under this Section 2.4(c) will be extended to such later time that the Canada Revenue Agency confirms in writing the Buyer may continue to hold the amount withheld pursuant to Section 2.4(b).



(d)

If the Buyer has withheld an amount pursuant to Section 2.4(b) and Melville does not deliver to the Buyer, prior to the 27th day after the end of the month in which the Closing Time occurs, a certificate issued by the Minister of National Revenue pursuant to subsection 116(2) or subsection 116(4) of the Tax Act in respect of the sale of the Purchased Shares to the Buyer specifying a certificate limit or proceeds of disposition equal or greater than the proportionate share of the Purchase Price payable to Melville at or before such time, the Buyer will remit to the Receiver General of Canada the amount required to be remitted pursuant to subsection 116(5) of the Tax Act and the amount so remitted shall be credited to the Buyer as a payment to Melville on account of the Purchase Price. The Buyer will pay to Melville any remaining portion of the Withheld Amount, together with interest earned on the Withheld Amount prior to such remittance (less any applicable withholding Tax). The time at which a certificate is to be delivered to the Buyer under this Section 2.4(d) will be extended to such later time that the Canada Revenue Agency confirms in writing the Buyer may continue to hold the Withheld Amount pursuant to Section 2.4(b).

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(e)

If the proportionate share of the Purchase Price payable to Melville is increased pursuant to Section 2.7 then, to the extent necessary to allow the Buyer to meet its withholding and remittance obligations under subsection 116(5) of the Tax Act, the payment of any such increased amount to Melville shall become subject to the provisions of Section 2.4(b), (c) and (d).

2.5   Escrow of Withheld Amount

        The Withheld Amount shall be delivered to the Escrow Agent, if necessary, and shall be remitted by the Escrow Agent to the Canada Revenue Agency or to Melville, as the case may be, in accordance with the provisions of Section 2.4 and the Escrow Agreement—Withheld Amount. The Parties agree that the release of the Withheld Amount and the duties and obligations of the Escrow Agent shall be governed by the terms and conditions set forth in Escrow Agreement—Withheld Amount to be executed and delivered at Closing.

2.6   Security for Indemnity Payment:

        To secure the obligations, if any, of the Sellers to make a payment to the Buyer pursuant to Section 2.7, if required, or any Indemnity Payment pursuant to Section 6.1 hereof, on Closing the Sellers and the Buyer shall execute and deliver, and the Buyer shall cause the Escrow Agent to execute and deliver, the Escrow Agreement—Security and the Sellers shall deliver to the Escrow Agent, at the option of the Sellers, the sum of $7,500,000.00 (the "Escrow Amount"), in immediately available funds, or a clean irrevocable letter of credit (the "Letter of Credit") issued by the Royal Bank of Canada (or any other financial institution reasonably acceptable to the Sellers and the Buyer) showing the Escrow Agent, in trust, as the beneficiary thereof and providing:

(a)

an initial face amount of $7,500,000.00;



(b)

a term of [**] (through an initial term of [**] with automatic renewal unless the Royal Bank or such financial institution notifies the Escrow Agent at least 30 days in advance of the expiry that the Letter of Credit will not be renewed, subject to the rights of the Escrow Agent set forth in the Escrow Agreement—Security)

which Letter of Credit shall be in the form of the draft letter of credit annexed hereto as Exhibit 4.

2.7   Working Capital Adjustment

(a)

Buyer will cause the Corporation to prepare and deliver to the Sellers and the Buyer as soon as practicable after the Closing Date but not later than 60 days following the Closing Date, financial statements of the Corporation, consisting of a balance sheet, statements of income and retained earnings (the "Closing Financial Statements"), and a calculation of the Closing Net Working Capital (as defined below) based on the Closing Financial Statements, each as of and for the period ended on the Closing Date. The Closing Financial Statements will present the balance sheet of the Corporation as of the Closing Date and the Corporation's statement of income and retained earnings from January 1, 2008 through the Closing Date, and shall be prepared using the same Generally Accepted Accounting Principles used in the preparation of the Corporation Financial Statements and as may be otherwise required by the terms of this Agreement. In preparing the Closing Financial Statements:



(i)

an accrual shall be included for the Corporation's obligations on account of employee vacation pay up to and including the Closing Date;



(ii)

shall not provide an accrual for accounting fees (internal or outside accounting firm) of the Corporation or the anticipated costs for the services of the Independent Accountant,

8

in each case, with respect to the preparation or finalization of the Closing Financial Statements;

(iii)

the value of Inventory reflected therein will be based on an inventory cutoff as at the close of business on the Business Day immediately proceeding the Closing Date (the "Inventory Confirmation Time") as verified by McKesson Logistic Solutions, Catalent Pharma Solution, LLC and Patheon Whitby Inc. with respect to Inventory held by such service provider/packager/manufacturer, as the case may be, for the account of the Corporation, as well as by a physical count of all other Inventory, if any, of the Corporation to be completed by the Corporation under the joint supervision of the Buyer and the Sellers at the Inventory Confirmation Time and will include a provision for obsolete inventory calculated in accordance with Generally Accepted Accounting Principles consistent with past practices;



(iv)

Accounts Receivable will include a reserve for doubtful accounts calculated in accordance with Generally Accepted Accounting Principles consistent with past practices; and



(v)

An accrual shall be included for accrued and unpaid occupancy costs relating to the Premises for which the Corporation is responsible under the Service and Cost-Sharing Agreement (the "Occupancy Costs") for the period from January 1, 2008 to the Closing Date, calculated in accordance with Generally Accepted Accounting Principles consistent with past practices.

"Closing Net Working Capital" shall mean (i) the current Assets of the Corporation (including cash, cash equivalents, Accounts Receivable, Inventory and prepaid expenses) as shown on the Closing Financial Statements (but not including any value for Tax Losses), less (ii) the current Liabilities of the Corporation (including without limitation accrued bonuses, Occupancy Costs, and accrued but unpaid interest and Taxes other than income Taxes to the extent that such income Taxes are eliminated through the application of the Tax Losses (it being understood and agreed that the Corporation shall use available Tax Losses to eliminate such income Taxes)), as shown on the Closing Financial Statements, calculated in accordance with Generally Accepted Accounting Principles and consistent with past practices. The Buyer will cause the Corporation to retain an independent accounting firm acceptable to Buyer and the Sellers to prepare the Closing Financial Statements and calculate the Closing Net Working Capital. The Buyer and the Sellers shall, for 30 days after receipt of the Closing Financial Statements and the Closing Net Working Capital from such accounting firm, consider and discuss one another's positions with respect to the Closing Financial Statements and the Closing Net Working Capital. The Sellers during such 30-day period shall have the right, through qualified representatives to examine relevant books and records of the Corporation and the working papers of the independent accounting firm and shall have the right to discuss the draft Closing Financial Statements with the appropriate personnel at the independent accounting firm involved in the preparation of such statements.

(b)

Unless the Sellers or the Buyer deliver written notice (a "Notice of Disagreement") to the other notifying the other within the 30-day period specified in Section 2.7(a) that they do not agree with any aspect of the Closing Financial Statements or the Closing Net Working Capital, then for all purposes of this Agreement, in the absence of manifest error, the Closing Financial Statements and the Closing Net Working Capital shall be final and binding upon the Sellers, the Buyer and the Corporation. If the Sellers or the Buyer deliver a Notice of Disagreement within the 30 day time period specified under Section 2.7(a), either the Sellers or Buyer may submit the determination of any of the issues which is the subject matter of a Notice of Disagreement to the Independent Accountant who shall determine the Closing Financial Statements and the Closing Net Working Capital.

9

(c)

Written notice of the submission of the dispute shall be given by the submitting Party to the other Party and to the Independent Accountant no later than 14 days after the expiration of the time period allowed for the delivery of a Notice of Disagreement. Such notice shall give a reasonably detailed statement of the reasons supporting the submitting Party's position. The professional fees of the Independent Accountant will be shared by the Buyer and the Sellers in inverse proportion to their degree of success in relation to the disputed items as determined by the Independent Accountant. Within 14 days following delivery of such notice, each Party shall submit to the Independent Accountant written materials substantiating its position as to each disputed issue. The Independent Accountant may, but is not required to, request a meeting of the Buyer and the Sellers and their representatives to discuss the Buyer's or the Sellers' position. The Independent Accountant may request additional information from the Sellers and the Buyer or the Corporation, and copies of any requested information shall also be provided to the other Party to the dispute. The Sellers and the Buyer and their representatives shall have the right to review all such information requested by the Independent Accountant in connection with the dispute. The Independent Accountant shall provide its written decision on the dispute within 30 days after receipt by the Independent Accountant of all information (including any information requested by the Independent Accountant of the Buyer, the Sellers or the Corporation). The decision of the Independent Accountant on any matter submitted to it under this Section 2.7(c) shall be final and binding on the Sellers, the Buyer and the Corporation. The Parties agree that the Independent Accountant shall act in these matters as an expert and not as an arbitrator and agree that the provisions of the Arbitrations Act (Ontario) shall not apply or govern these matters. The determination of the Independent Accountant shall, in absence of manifest error, be final and binding upon the Parties.



(d)

The Initial Purchase Price will be reduced or increased, as the case may be, by an amount of $1.00 for every $1.00 that the amount by which the Closing Net Working Capital as finally determined in accordance with Section 2.7(c) above exceeds or is less than the Target Working Capital;



(e)

On the 10^th Business Day after the Parties have reached agreement with respect to the Closing Financial Statements and the Closing Net Working Capital (including by reason of the Closing Financial Statements and the Closing Net Working Capital becoming final and conclusive pursuant to Section 2.7(b)) or after a final determination thereof is made in accordance with Section 2.7(c) above:



(i)

if the Initial Purchase Price is reduced pursuant to Section 2.7(d) above, the Sellers shall pay to the Buyer an amount equal to the reduction in the Initial Purchase Price by bank draft, wire transfer or other means of immediately available funds; or



(ii)

if the Initial Purchase Price is increased pursuant to Section 2.7(d) the Buyer shall pay to the Sellers an amount equal to the increase in the Initial Purchase Price by bank draft, wire transfer or other means of immediately available funds.



(f)

All dollar amounts referred to in this Section 2.7, including the calculation of the Closing Net Working Capital, are in lawful money of Canada. Notwithstanding the foregoing, the party responsible for making payment pursuant to this Section 2.7 shall make such payment in lawful money of the United States of America. The amount owed shall be converted from Canadian Dollars to United States Dollars based on the exchange rate as reported in The Wall Street Journal (absent any error) on the Business Day immediately preceding the date such payment is due (or the preceding Business Day if such date falls on a day that is not a Business Day) or if the Wall Street Journal ceases to publish such rates, the current exchange rate reported by a mutually agreed upon third Person.

10

ARTICLE 3
REPRESENTATIONS AND WARRANTIES

3.1   Representations and Warranties of the Sellers

        The Sellers, jointly and severally, represent and warrant and, in respect of future events, covenant to the Buyer as follows and acknowledge that the Buyer is relying thereon in connection with its entering into of this Agreement and the consummation of the transactions contemplated hereby:

(i) as to the Sellers

(a)

Corporate Status of Melville

Melville is a corporation duly incorporated and organized pursuant to the laws of Malta and is a validly subsisting corporation under the laws of Malta with full corporate capacity, power and authority (i) to own the Purchased Shares currently registered in its name, to acquire Purchased Shares not currently registered in its name and to sell, assign, transfer and deliver all such shares to the Buyer as herein contemplated, (ii) to execute and deliver this Agreement and the Closing Documents to which it is a Party, and (iii) to observe, perform, satisfy and carry out its obligations hereunder and under the Closing Documents;

(b)

Corporate Status of Cobalt

Cobalt is a corporation duly amalgamated and organized pursuant to the laws of the Province of Ontario and is a validly subsisting corporation under the laws of the Province of Ontario with full corporate capacity, power and authority (i) to own the Purchased Shares currently registered in its name, to acquire Purchased Shares not currently registered in its name and to sell, assign, transfer and deliver all such shares to the Buyer as herein contemplated, (ii) to execute and deliver this Agreement and the Closing Documents to which it is a Party, and (iii) to observe, perform, satisfy and carry out its obligations hereunder and under such Closing Documents;

(b.1)

Corporate Status of Arrow

Arrow is a corporation duly incorporated and organized pursuant to the laws of Denmark and is a validly subsisting corporation under the laws of Denmark with full corporate capacity, power and authority (i) to execute and deliver this Agreement and the Closing Documents to which it is a Party and (ii) to observe, perform, satisfy and carry out its obligations hereunder and under such Closing Documents;

(c)

Due Authorization

The execution and delivery of this Agreement and the Closing Documents by each of the Sellers and Arrow, as applicable, has been duly authorized and approved by all necessary and appropriate action of the board of directors and of the shareholders of such Seller or Arrow, as the case may be, and by any other necessary action on the part of such Seller and Arrow;

(d)

Pending Proceedings

No Proceedings of any nature, kind or description whatsoever are pending or are threatened which would restrain or otherwise prevent, in any manner, the Sellers from transferring good and marketable title to the Purchased Shares to the Buyer hereunder, nor are any such Proceedings, pending or threatened including, without limitation, any bankruptcy Proceedings or other Proceedings under Applicable Law providing protection against enforcement by creditors;

(e)

Due Execution and Enforceability

This Agreement has been duly executed and delivered by the Sellers and Arrow and constitutes, and the Closing Documents to be delivered by the Sellers and Arrow pursuant hereto at the Time

11

of Closing when executed and delivered will constitute, valid and legally binding obligations of the Sellers and Arrow, as applicable, enforceable against them in accordance with their respective terms, subject to the qualification that enforceability may be limited by bankruptcy, insolvency or other laws affecting the enforcement of creditors' rights generally and that specific performance, injunction and other equitable remedies are discretionary and, in particular, may not be available where damages are considered an adequate remedy;

(f)

Commercial Relationships between Sellers and the Corporation

Neither of the Sellers nor any of their Affiliates:

(i)

is engaged in or carries on (either individually or jointly with any other Person, whether as a partner, joint venturer, member of a syndicate or other unincorporated organization or otherwise) any business which manufactures or markets in Canada any brand prescription pharmaceutical products which competes with the Products currently promoted and marketed by the Corporation in the Business, it being acknowledged and understood that the Sellers and their Affiliates are engaged in and carry on the business of developing, registering, promoting, marketing and distributing generic pharmaceutical products in Canada certain of which are generic equivalents of some of the Products; or



(ii)

except as provided in the Related-Party Agreements, is a customer or supplier of the Business;

and neither the Sellers nor any of their Affiliates is a party to any contract, agreement or commitment, whether written or oral, to which the Corporation is a party or by which it is bound, save as aforesaid;

(g)

Related Party Indebtedness

Save and except as disclosed in Schedule 3.1(g), the Corporation is not indebted to the Sellers or to any of their Affiliates or any of their respective directors or officers or any director or former director or officer or former officer of the Corporation and none of such Persons is indebted to the Corporation;

(h)

Approvals of Government Authorities

Except as contemplated in Schedule 3.1(h), no consent, approval, Order or authorization of any Governmental Authority is required by the Sellers or the Corporation in connection with (i) the Closing, or (ii) the execution and delivery by the Sellers of this Agreement or the Closing Documents, or (iii) the observance and performance by the Sellers or the Corporation of their obligations under this Agreement or the Closing Documents, except as may be necessary as a result of facts or circumstances relating solely to the Buyer and/or its Affiliates.

(i)

Absence of Conflicting Agreements

Except for those consents, approvals, authorizations, Orders, registrations, or declarations of, or filings with, any Governmental Authority or other Person disclosed in Schedule 3.1(i) (collectively, the "Sellers' Required Consents and Approvals"), neither the execution and delivery of this Agreement, the observance and performance by the Sellers or the Corporation of any covenant or obligation under this Agreement or any Closing Document, nor the Closing:

(i)

contravenes or results in, or will contravene or result in, a violation or breach of or a default under (with or without the giving of notice or lapse of time, or both) or in the acceleration of any obligation or creates an obligation to make any payment or require any notice under:



(A)

any Applicable Law;

12

(B)

the articles, constating documents, by-laws, or any resolution of the directors or shareholders of the Corporation;



(C)

the provisions of any Contract;



(D)

any mortgage, lease, agreement, other legally binding instrument, License, permit or judgment to which the Corporation or either of the Sellers may be bound;



(ii)

relieves any other party to a Contract of that party's obligations thereunder or enable such party to terminate its obligations thereunder; or



(iii)

results in the creation or imposition of any Encumbrance on the Sellers, the Corporation, the Purchased Shares or any of the Assets.

(ii) as to the Purchased Shares

(j)

Title to Purchased Shares on Closing

The Sellers are the registered and beneficial owners of the Current Issued Shares and will, at Closing, be the registered and beneficial owners of the Purchased Shares, in each case with good and marketable title thereto, free of all encumbrances. No Seller is a party to any option, warrant, purchase right, or other contract or commitment (other than this Agreement) that could require a Seller to sell, transfer, or otherwise dispose of the Purchased Shares. The Sellers on Closing, will convey to the Buyer good and valid title to the Purchased Shares, free and clear of all Encumbrances. Neither Seller is a party to any voting trust, proxy, or other agreement or understanding with respect to the voting of the Purchased Shares. There are no restrictions on the transfer of the Purchased Shares except as set forth in the Articles of Incorporation of the Corporation, which restrictions will, on Closing, have been complied with.

(iii) as to Corporate Status and Corporate Records

(k)

Corporate Status of Corporation

The Corporation has been duly incorporated and organized under the laws of the Province of Ontario and is a validly subsisting corporation under the laws of the Province of Ontario; the Corporation has full corporate power, capacity and authority to carry on the Business as presently conducted by it and to own, lease and operate the property and assets now owned, leased and operated by it, including the Assets; it is duly qualified as a corporation to do business and is in good standing in each jurisdiction in which the nature of the business now conducted by it therein or the property and assets now owned, leased or operated by it, including the Assets, therein makes such qualification necessary, except where the failure to be so qualified and in good standing would not have a Material Adverse Effect. No bankruptcy Proceedings or other Proceedings under Applicable Law providing protection against enforcement by creditors have been initiated by or against the Corporation and no circumstances exist that would require the Corporation to initiate any such Proceedings.

(l)

Authorized and Issued Capital

The authorized capital of the Corporation consists of an unlimited number of Class "A" Shares and an unlimited number of common shares, of which currently, and prior to completion of the Authorized Pre-Closing Transactions, 17,959,909 Class "A" Shares and 10,000,000 common shares have been validly issued and are outstanding as fully paid and non-assessable. At the Time of Closing and following completion of the Authorized Pre-Closing Transactions, the issued capital of the Corporation shall consist of 10,732,500 common shares and a reduced number of Class "A" Shares as contemplated by the Authorized Pre-Closing Transactions, all of which shares will be registered in the name of and be beneficially owned solely by the Sellers.

13

(m)

Options

Other than the Outstanding Options (all of which will be exercised and the shares issued pursuant thereto included as part of the Purchased Shares and\or cancelled at or prior to the Time of Closing), no Person has any agreement or option or any right or privilege (whether by law, pre-emptive or contractual) capable of becoming an agreement, or option (including rights under convertible securities, warrants, rights or convertible obligations of any nature, rights of exchange, plans or other agreement of any character) for the purchase, subscription, allotment or issuance of any of the unissued shares in the capital of the Corporation or of any other securities of the Corporation.

(n)

Corporate Records

The minute books of the Corporation contain complete and accurate copies of the Certificate of Incorporation and Articles of Incorporation and all Certificates of Amendment and Articles of Amendment pertaining to the Corporation and no applications or filings which would alter in any way the constating documents or corporate status of the Corporation are presently outstanding. Correct and complete copies of the Articles and By-laws of the Corporation, together with all amendments thereto have been delivered to the Buyer. No Proceedings have been taken by the Corporation, the Sellers or, to the Knowledge of the Sellers, by any other Person, with respect to the bankruptcy, insolvency, liquidation, dissolution or winding-up of the Corporation or with respect to any amalgamation, merger, consolidation, arrangement or reorganization relating to the Corporation. Complete and accurate records with respect to the issuance, transfer, redemption and cancellation of shares of the Corporation are contained in the register of shareholders of the Corporation. Except as disclosed in Schedule 3.1(n) the minute books of the Corporation will be complete and accurate in all material respects at the Closing Time and now contain and will at the Closing Time contain records of all minutes of meetings of and signed resolutions in writing of the shareholders and Board of Directors of the Corporation. Correct and complete copies of the Corporation's register of shareholders and minute books have been made available to the Buyer.

(o)

Use of Names

Except for the use of trade marks (whether owned or licensed) in connection with promoting, marketing and selling products, the Corporation does not use any name other than its full corporate name in connection with the Business or for any other purpose;

(iv) as to the Corporation's Financial Position and Condition

(p)

Financial Statements

Except as disclosed in Schedule 3.1(p), the Corporation Financial Statements:

(i)

have been prepared in accordance with Generally Accepted Accounting Principles applied on a basis consistent with those of the previous fiscal year;



(ii)

are in accordance with the Accounting Records of the Corporation;



(iii)

present fairly the assets and liabilities (whether accrued, absolute, contingent or otherwise) of the Corporation of the type required to be disclosed in financial statements prepared in accordance with Generally Accepted Accounting Principles and its financial position and condition as at the dates thereof;



(iv)

present fairly the sales, income, the results of operation, the financial condition of the Corporation and the changes in financial position for the period covered thereby;

14

(v)

reflect all proper accruals as at the dates thereof and for the periods covered thereby of all amounts which though not payable until a time after the relevant period are attributable to activities undertaken during that period;



(q)

Accounting Records

The Sellers have made available to the Buyer all Accounting Records of the Corporation. Except as disclosed in Paragraph 3.1(ii)(x) below with respect to vacation policies of the Corporation, such Accounting Records have been maintained in accordance with good business practices, are complete and accurate in all material respects and fairly set out and disclose, in all material respects and, where applicable, in accordance with Generally Accepted Accounting Principles, the financial position of the Corporation as at the date hereof and there are no material matters or transactions of the Corporation in respect of which accurate entries in all material respects have not been made or recorded in such Accounting Records;

(r)

Absence of Changes and Unusual Transactions

Since December 31, 2007, except as disclosed in Schedule 3.1(r), permitted as part of an Authorized Pre-Closing Transaction, or consented to the Buyer after the date of this Agreement:

(i)

no event, development, or state of circumstances has occurred that has had or would reasonably be expected to have or result in, individually or in the aggregate, a Material Adverse Effect;



(ii)

the Corporation has conducted the Business in the ordinary course, has not incurred any debt, obligation or liability (fixed or contingent), except normal trade or business obligations incurred in the ordinary course of the Business, none of which have or will have a Material Adverse Effect, and the Corporation has used reasonable commercial efforts to preserve the Business and the Assets;



(iii)

there has not been any change in the accounting principles, policies, practices or procedures of the Corporation or their application to the Corporation;



(iv)

other than Permitted Encumbrances, there has not been any Encumbrance created upon any of the Corporation's properties or Assets;



(v)

the Corporation has not sold, assigned, transferred, leased or otherwise disposed of any of its properties or Assets, except Inventory sold in the ordinary course of the Business;



(vi)

Between December 31, 2007 and the Execution Date, the Corporation has not purchased, leased or otherwise acquired any properties or assets in excess of Cdn $10,000 individually, Cdn $25,000 in the aggregate, or outside the ordinary course of business;



(vii)

Between December 31, 2007 and the Execution Date, the Corporation has not waived, cancelled or written-off any rights, claims, Accounts Receivable or any amounts payable to the Corporation or made any gift or donation, having a monetary value in the case of a single transaction in excess of Cdn $10,000 and, in the case of all such transactions, in excess of Cdn $25,000 in the aggregate;



(viii)

Between December 31, 2007 and April 29, 2008, the Corporation has not entered into, or amended or modified, any transaction, contract, agreement, commitment, lease or license having a monetary value in excess of Cdn $25,000;



(ix)

the Corporation has not had any supplier or licensor terminate, or communicate to the Corporation the intention or threat to terminate, its relationship with the Corporation, or the intention to substantially reduce the quantity of products or services it sells to

15

the Corporation, except in the case of suppliers whose sales to the Corporation are not, in the aggregate, material to the Business;

(x)

the Corporation has not had any customer or customers, the losses of whose revenue in the aggregate has had or could have a Material Adverse Effect, terminate, or communicate to the Corporation the intention or threat to terminate, its relationship with the Corporation, or the intention to materially reduce the quantity of products it purchases from the Corporation, or its dissatisfaction with the products sold by the Corporation;



(xi)

the Corporation has not made any material change in the pricing of its goods and services or the method of billing customers or the credit terms made available by the Corporation to its customers;



(xii)

the Corporation has not made any loan, advance or capital contribution to any Person;



(xiii)

the Corporation has not made any material change with respect to any method of managing or operating the Business;



(xiv)

the Corporation has not suffered any damage, destruction or loss (whether or not covered by insurance) which has or could have Material Adverse Effect;



(xv)

the Corporation has not accelerated or increased or agreed or promised to increase or accelerate any form of compensation, severance or termination pay, incentive or equity based compensation, or other benefits payable or to become payable by the Corporation, or terminated or created any new Benefit Plan or materially modified any Benefit Plan;



(xvi)

the Corporation has not suffered any extraordinary loss relating to the Business;



(xvii)

the Corporation has not transferred or granted any material rights or licenses under, or entered into any settlement regarding the breach or infringement of, the Intellectual Property of the Corporation or material modification of any existing rights with respect thereto;



(xviii)

subject to completion of the Authorized Pre-Closing Transactions, the Corporation has not declared or paid (or been deemed under the Income Tax Act (Canada) to have declared or paid) any dividends or declared or made any other distribution on any of its shares of any class and has not redeemed, purchased or otherwise acquired any of its shares of any class or agreed to do so;



(xix)

the Corporation has not amended or changed or taken any action to amend or change its Articles of Incorporation or by-laws;



(xx)

the Corporation has not authorized, permitted, agreed or otherwise become committed to do, and the Sellers have not authorized, permitted or caused the Corporation to do, any of the foregoing, except as otherwise disclosed herein.



(s)

Outstanding Capital Expenditures

There were no commitments with respect to capital expenditures in excess of Cdn $20,000 in the aggregate outstanding on December 3l, 2007 and since December 3l, 2007 no capital expenditures in excess of Cdn $30,000 in the aggregate have been made or authorized by the Corporation.

(t)

Payments to Sellers and Corporate Officers

Except as disclosed in Schedule 3.1(t) or as contemplated by the Authorized Pre-closing Transactions, since December 31, 2007, no payments or loans have been made, promised, agreed

16

to, or authorized by the Corporation, and no monies have been borrowed from and the Corporation has not become indebted to, any officer, director, senior management employee, or shareholder of the Corporation or any other Person with whom the Corporation is not dealing at arm's length (within the meaning of the Tax Act), or any Affiliate of the foregoing, except in the case of officers or directors, at the regular rates payable to them as salary, benefits or other remuneration or compensation in the ordinary course of business;

(u)

Prepayment of Indebtedness

Except as disclosed in Schedule 3.1(u) the Corporation has not, since December 3l, 2007, repaid, or become liable to repay, any obligation or liability, absolute or contingent in advance of its stated maturity and the Corporation has not received any notice (whether formal or informal) from any creditor of the Corporation requiring any such repayment or intimating the enforcement by such creditor of any security which it may hold over any of the Assets of the Corporation;

(v)

Government Assistance

There are no agreements, loans, other funding arrangements or assistance programs which are outstanding in favour of the Corporation from any Governmental Authority.

(w)

Inventory Values

The Inventory levels of the Corporation have been maintained at such amounts as are required for the operation of the Business and are adequate therefore based on prior experience. The current Inventory, subject to a reasonable allowance for obsolete inventory is good and usable and, to the Knowledge of the Sellers, fit for the purpose for which it was procured or manufactured and is capable of being sold in the ordinary course of the Business at profit margins consistent with prior periods. Except as disclosed in Schedule 3.1(w) the Corporation is not now subject to any agreement or commitment with or made to any customer of the Business which would require the Corporation to repurchase any products sold to such customers or to adjust any price or grant any refund, discount or other concession to such customer except in the ordinary course of the business and, with respect to any such agreement or commitment outstanding on December 31, 2007, for which adequate provision has been reflected in the Corporation Financial Statements in accordance with Generally Accepted Accounting Principles.

(x)

Accounts Receivable

The Accounts Receivable reflected in the Corporation Financial Statements for 2007 and all Accounts Receivable arising since December 31, 2007 are good and collectible except to the extent so reserved against and arose from bona fide transactions in the ordinary course of the Business and are valid, genuine and subsisting and are not subject to defences, set off or counterclaims.

(v) as to Debts and Liabilities

(y)

Liabilities

The Corporation does not have outstanding any liabilities or indebtedness, whether known or unknown contingent, absolute, determined, determinable or otherwise, other than (without duplication):

(i)

debts and liabilities disclosed on, reflected in or provided for in the Corporation Financial Statements and not heretofore paid or discharged;



(ii)

debts and liabilities disclosed or referred to in this Agreement, including the Schedules hereto; and

17

(iii)

debts and liabilities incurred in the ordinary course of business and attributable to the period since December 3l, 2007, which debts and liabilities, both individually and collectively, would not have a Material Adverse Effect.

The Corporation is not in default in respect of the terms or conditions of any indebtedness.

(z)

Litigation

Other than regulatory Proceedings relating to Regulatory Approvals in relation to the Products or Proceedings before the Patent Medicines Prices Review Board with respect to Product pricing, in each case, in the ordinary course of the Business, particulars of which regulatory and price Proceeding in existence on the Execution Date being set forth in Schedule 3.1(z), and except as otherwise disclosed in Schedule 3.1(z), there is no Proceeding initiated and in progress, nor to the Knowledge of the Sellers, pending or threatened, against, by or relating to the Corporation, the Business or to the Assets. There is not at present outstanding against the Corporation any Order that will have a Material Adverse Effect on the Corporation or the Business. The Corporation does not have any claims against a director or officer of the Corporation for any matter or thing as of or at the Closing Date and in any capacity including the capacity of an officer, director or shareholder or employee of the Corporation, and there is no basis for any such claims which are known or which ought reasonably be known to the Sellers.

(aa)

Intellectual Property Infringement

None of the Owned Intellectual Property, the current conduct of the Business, or, to the Knowledge of the Sellers, any Licensed Intellectual Property or the Products, including their marketing and sale, infringes upon or misappropriates any patents, trade marks, service marks, trade names, copyrights, licenses, rights to know-how or other intellectual or industrial property rights, domestic or foreign, of any other Person and to the Knowledge of the Sellers, there are no facts indicating a likelihood of the foregoing. The Corporation has not received any charge, complaint, claim, demand or notice alleging any such infringement or misappropriation (including any claim that the Corporation must or should obtain a license to use or refrain from using any intellectual property rights of any other Person).

(bb)

Guarantees

The Corporation has not given or agreed to give, and is not a party to or bound by, any guarantee of the indebtedness or other obligations of any other Person.

(cc)

Product Liability

Except as disclosed in Schedule 3.1(cc), to the Knowledge of the Sellers, the Corporation has not sold or supplied products which are or were in any material respect defective, or which does or did not comply in any material respect with any warranties or representations, expressly or impliedly, made by the Corporation, or with any applicable regulations, standards or requirements of applicable Regulatory Authorities in respect thereof. Except as disclosed in Schedule 3.1(cc), the Corporation has not received any claims or notices of claims in respect of damage or injury to any Person or property alleged to have been caused, directly or indirectly, by any defect in the design, manufacture or materials of any product promoted, marketed, sold, provided or furnished by the Corporation in connection with the Business for which the Corporation is responsible and does not have recourse to indemnification in respect thereof from the manufacturer, supplier or Licencor thereof. Except as disclosed in Schedule 3.1(cc), there were no product recalls in Canada and are no outstanding product recalls in Canada relating to products which were promoted, marketed or distributed by the Corporation in Canada prior to December 31, 2007 and, since December 31, 2007 neither the Corporation nor the Licencor of a Product has initiated any Product recall for reasons of a lack of quality, fitness for use or for any other reason.

18

(dd)

Occupational Health and Safety

The Sellers have provided the Buyer with access to all inspection reports, if any, under Occupational Health and Safety Acts relating to the Corporation or the Business. There are no outstanding Orders nor are there any pending or, to the Knowledge of the Sellers, threatened charges, investigations, inspections or Orders made under any Occupational Health and Safety Acts relating to the Corporation or the Business. There have been no fatal or critical accidents. The Corporation has never been convicted of an offence under any of the Occupational Health and Safety Acts. The Corporation has complied in all respects with any Orders issued under Occupational Health and Safety Acts. There are no appeals of any Orders under Occupational Health and Safety Acts relating to the Corporation which are currently outstanding.

(ee)

Workers' Compensation

There are no notices of assessment, provisional assessment, reassessment, supplementary assessment, penalty assessment or increased assessment (collectively, "assessments") or any other communications related thereto which the Corporation has received from any workers' compensation board or similar authorities in any jurisdictions where the Business is carried on, and there are no assessments which are unpaid on the date hereof and to the Knowledge of the Sellers, there are no facts or circumstances which may result in an increase in liability to the Corporation under any applicable workers' compensation legislation, regulations or rules after the Closing Time. There are no claims or, to the Sellers' Knowledge, potential claims which may adversely affect the Corporation's accident cost experience.

(vi) as to Taxes

(ff)

Tax Matters

(i)

The Corporation has filed all Tax Returns with the appropriate Governmental Authorities required to have been filed by it by Applicable Law prior to the Execution Date for all fiscal periods ending prior to the date hereof and has paid all Taxes that are due and payable to the appropriate Governmental Authority. Each such Tax Return was correct and complete in all material respects and were prepared in substantial compliance with all Applicable Laws. The Corporation is not currently the beneficiary of any extension of time within which to file any Tax Return. No claim has ever been made by any Governmental Authority in a jurisdiction where the Corporation does not file Tax Returns that the Corporations is or may be subject to taxation in that jurisdiction. True copies of all Tax Returns filed by the Corporation during the past three years have been given to the Buyer on or before the Execution Date. Such Tax Returns correctly reflect the income, expenses, business, assets, operations, activities and status of the Corporation, as applicable, at or for the time period applicable to such filing. The provision or reserve for Taxes reflected in the balance sheet forming part of the Corporation Financial Statements for 2007 are adequate to cover any and all such Taxes owing or which may be assessed with respect to the property, business and operations of the Corporation for all fiscal periods of the Corporation ending on or prior to December 31, 2007.



(ii)

There are no reassessments of Taxes that have been issued and are outstanding and no Governmental Authority has challenged, disputed or questioned the Corporation in respect of Taxes or any Tax Returns. There are no audits, investigations or other actions pending or, to the Knowledge of the Sellers, threatened, against the Corporation with respect to Taxes. The Corporation is not negotiating any draft assessment or reassessment with any Governmental Authority. Neither the Corporation nor the Sellers have received any oral or written communication from any Governmental Authority indicating that an assessment or reassessment is proposed in respect of any Taxes allegedly payable by the

19

Corporation. The Corporation has not executed or filed or been requested to execute or file with any Governmental Authority any agreement, arrangement, waiver or objection extending the period for assessment, reassessment or collection of any Taxes. The Corporation has not waived any statute of limitation in respect of Taxes.

(iii)

There are no liens for Taxes against any of the Assets of the Corporation, other than the liens for Taxes that are not yet due and payable or that are being contested in good faith.



(iv)

The Corporation has withheld from each payment made to any of its present or former employees, officers and directors, and to all persons who are non-residents of Canada for the purposes of the Tax Act, all amounts required by law and will continue to do so until the Closing Time (including with respect to the Authorized Pre-closing Transactions) and has remitted such withheld amounts within the prescribed periods to the appropriate Governmental Authority. The Corporation has remitted all Canada Pension Plan contributions, employment or unemployment insurance premiums, employer health taxes and other Taxes payable by it in respect of its employees and has or will have remitted such amounts (including with respect to the Authorized Pre-closing Transactions) to the proper Governmental Authority within the time required by Applicable Law. The Corporation has charged, collected and remitted on a timely basis all Taxes as required by Applicable Law on any sale, supply or delivery whatsoever, made by it.



(v)

The Corporation has paid all Taxes imposed on the acquisition of its tangible personal property and on the receipt of all supplies of goods and services made to it to the extent that the Corporation was not otherwise exempt from the payment of such Taxes.



(vi)

Canadian federal and provincial income tax assessments have been issued to the Corporation covering all past periods up to and including the fiscal year ended December 31, 2006.



(vii)

For all transactions on or before the Closing Date between the Corporation and any non-resident with whom the Corporation does not deal at arms length for purposes of the Tax Act, the Corporation has made or obtained proceeds or documents that meet the requirements of paragraph 247(4)(a) to (c) of the Tax Act.



(viii)

The Corporation has never been a "controlled foreign corporation" within the meaning of Section 957 of the U.S. Internal Revenue Code of 1986, as amended.

(vii) as to Employee Matters

(gg)

Employees

Schedule 3.1(gg) contains, as of the date hereof:

(i)

the names and titles of all Employees of the Corporation together with the location of their employment;



(ii)

the date each Employee was hired;



(iii)

a list of all written employment contracts between the Corporation and the Employees, copies of which have been made available to the Buyer;



(iv)

the rate of annual remuneration of each Employee at the date hereof (or, if Employees are employed on an hourly basis, the applicable hourly wage, together with the total remuneration paid to such Employees during the 2007 calendar year), any bonuses paid since December 31, 2007 and all other bonuses, incentive schemes and benefits to which such Employee is entitled;

20

(v)

the names of all retired employees of the Corporation who are entitled to benefits from the Corporation and the nature of such benefits;



(vi)

the names of all Non-Active Employees, the reason they are Non-Active Employees, whether they are expected to return to work and if so, when, and the nature of any benefits to which such Non-Active Employees are entitled from the Corporation;



(vii)

particulars of all other material terms and conditions of employment or engagement of the Employees and the positions held by them; and



(viii)

all confidentiality and non-competition agreements between the Corporation and the Employees;

No Employee is employed under a contract other than a contract of employment of indefinite hire requiring reasonable notice of termination by Applicable Law. The Corporation is in compliance with all Applicable Laws relating to the employment of the Employees, including any obligations relating to employment standards legislation, pay equity legislation, worker's compensation legislation, occupational health and safety legislation, labour relations legislation, and human rights legislation. There are no material employment standards, pay equity, workers' compensation, occupational health and safety, labour relations or human rights applications, Proceedings, investigations, claims, inquiries, complaints, prosecutions or Orders outstanding or pending or to the Knowledge of the Sellers threatened, and the Sellers are not aware of any state of facts which would provide a valid basis for any of the foregoing. The Corporation has provided the Buyer with a copy of all policies and posted directives with respect to human rights policies, procedures, and guidelines. Each arrangement between the Corporation and any Person which purports to be an independent contractor arrangement is, in fact an independent contractor arrangement and not an employment arrangement.

(hh)

Collective Agreements

The Corporation is not now, nor has it ever been, a party, either directly or by operation of law, to any Collective Agreement and no union or employee bargaining agency holds or has ever held bargaining rights with respect to any Employee by way of certification, voluntary recognition, designation or successor rights, or has applied to have the Corporation declared a related or successor employer. To the Knowledge of the Sellers, there are no threatened or pending union organizing activities involving the Employees.

(ii)

Benefit Plans

(i)

Schedule 3.1(ii) sets forth a complete list of the Benefit Plans.



(ii)

Current, correct and complete copies of all written Benefit Plans as amended to date or, where oral, written summaries of the terms thereof, have been delivered or made available to the Buyer together with current and complete copies of all documents (including, where indicated herein, historical documents) relating to the Benefit Plans, as amended.



(iii)

Each Benefit Plan is, and has been, established, registered, qualified, administered, funded, and invested, as applicable, in compliance with the terms of such Benefit Plan including the terms of any documents in respect of, such Benefit Plan, all Applicable Laws and any agreements, written or oral between the Corporation and any other party, as applicable.



(iv)

The Corporation has complied with all of its obligations in respect of the Benefit Plans.

21

(v)

Except as disclosed, the Corporation has no formal or informal plan and have made no promise or commitment, whether legally binding or not, to create any additional Benefit Plan or to improve or change the benefits provided under any Benefit Plan.



(vi)

Except as expressly provided under this Agreement or as set out in Schedule 3.1(ii), neither the entering into of this Agreement, nor the completion of the transaction contemplated herein will (either alone or in conjunction with any additional or subsequent events) constitute an event under any Benefit Plan that will or may result in any payment (whether severance pay or otherwise), acceleration of payment or vesting of benefits, forgiveness of indebtedness, acceleration or increase in funding obligations, vesting, distribution, restriction of funds, increase or acceleration in benefits or obligation to fund benefits with respect to any Employee of the Corporation.



(vii)

All employer and employee payments, contributions or premiums required to be remitted, paid to or in respect of each Benefit Plan have been paid or remitted in a timely fashion in accordance with its terms and all Applicable Laws. Other than amounts which may be payable as contemplated by the Authorized Pre-Closing Transactions, or premiums not yet due and payable by the Corporation in the ordinary course of business, no taxes, penalties or fees are owing or exigible under or in relation to any Benefit Plan by or from the Corporation and there are no liabilities or contingent liabilities of the Corporation in respect of any Person, benefit or compensation plan that has been discontinued.



(viii)

There is no investigation by a Governmental Authority, or Claim (other than routine claims for payment of benefits) pending or threatened involving any Benefit Plan or their assets, and no facts exist which could reasonably be expected to give rise to any such investigation or Claim (other than routine claims for benefits).



(ix)

No Benefit Plan provides pension or retirement benefits except pension benefits which are, and have always been, provided on a defined contribution basis only.



(x)

All liabilities of the Corporation (whether accrued, absolute, contingent or otherwise) related to the Benefit Plans have been fully and accurately accrued and disclosed, and reported in accordance with Canadian Generally Accepted Accounting Principles in the financial statements of the Corporation. No changes have occurred or are expected to occur to any of the Benefit Plans which would materially affect the most recent financial statement prepared in respect of the applicable Benefit Plan and required to be provided pursuant to this Agreement. All bonuses and commission relating to the business of the Corporation and its Employees are accurately reflected in all material respects and have been appropriately accrued in the Books and Records of the Corporation, in accordance with good bookkeeping practices and, where applicable, Generally Accepted Accounting Principles. The Corporation does not accrue vacation pay on its Books and Records notwithstanding that the same may not amount to good bookkeeping practices and may not be in accordance with Generally Accepted Accounting Principles. The vacation policy of the Corporation with respect to unused vacation time applicable to the Employees is set forth in Schedule 3.1(ii).



(xi)

There are no Proceedings pending or, to the Knowledge of the Sellers, threatened with respect to the Benefit Plans against the Corporation or the insurer, under such Benefit Plans, where applicable, other than claims for benefits in the ordinary course. No order has been made or notice given pursuant to any Applicable Law requiring (or proposing to require) the Corporation to take (or refrain from taking) any action in respect of any Benefit Plan.

22

(xii)

The Benefit Plan applicable to the Employees of the Corporation is part of a group plan which applies to the Employees of Arrow Pharmaceuticals Inc. and Cobalt as well. Save as aforesaid, there are no entities, other than the Corporation, Arrow Pharmaceuticals Inc. or Cobalt, participating in any Benefit Plan.



(xiii)

All Employee data necessary to administer each Benefit Plan is in the possession of Cobalt who administers the Benefit Plan of the Corporation on behalf of the Corporation under the Services and Cost Sharing Agreement, which data is in a form which is sufficient for the proper administration of the Benefit Plan in accordance with its terms and all Applicable Laws and to the Knowledge of the Sellers such data is complete and correct and which data will be provided to the Corporation at the Closing Time.



(xiv)

None of the Benefit Plans provide benefits beyond retirement or other termination of service to Employees or former employees or to the beneficiaries or dependants of such employees.



(xv)

No Benefit Plan provides benefits to any individual who is not an Employee, officer or director of the Corporation or the dependents or other beneficiaries of any such Employee, officer or director.



(xvi)

Save as contemplated above, the Corporation does not sponsor, administer or contribute to a multi-employer plan.



(xvii)

Nothing has been done or omitted to be done by the Corporation which could make any policy or insurance contract void or voidable. None of the Benefit Plans, or any insurance contact relating thereto, require or permit a retroactive increase in premiums or payments due under, or require additional premiums or payments on termination of the Benefit Plan, or any insurance contact relating thereto. The level of insurance reserves under each insured Benefit Plan is reasonable and sufficient to provide for all incurred but unreported claims.



(xviii)

Except as set forth in Schedule 3.1(ii), the execution of this Agreement and the consummation of the transactions contemplated hereby will not cause the payment or acceleration of any benefit or amount payable under any Benefit Plan or change in control agreement between the Corporation and any Employee, director or officer.

(viii) as to the Property and Assets of the Corporation

(jj)

Title to Assets

Except as described in Schedule 3.1(jj) hereto, the Corporation has good and marketable title to or a valid licence (or other right to use) or leasehold interest in, all of the Assets, free and clear of all Encumbrances, except for the Permitted Encumbrances. Schedule 1.1(B) sets out a complete list of all Equipment owned by the Corporation and used in the Business. No other Person owns any assets which are being used in connection with the Business except as otherwise set out in the Schedule 3.1(jj). There are no agreements or commitments to purchase tangible personal property other than Inventory, other than in the ordinary course of the Business of the Corporation.

(kk)

Location of Books and Records and Other Assets

The Sellers have made available to the Buyer all Books and Records of or relating to the Corporation. Except as disclosed in Schedule 3.1(kk), no information, records or systems pertaining to the operation or administration of the Corporation or the Business are in the possession of, recorded, stored, maintained by or otherwise dependent on any other Person. Except as disclosed in Schedule 3.1(kk) hereto, other than Inventory in transit, all of the Assets of the

23

Corporation, including, without limitation, its Books and Records (financial and otherwise), executed copies of all agreements to which the Corporation is a party and original copies of all other documents which are in the possession of the Corporation, are situate at the locations set out in Schedule 3.1(kk).

(ll)

Adequacy of Assets

The Assets now owned, rented, leased or licensed by the Corporation constitute, in the aggregate, all of the property necessary to carry on the Business as currently conducted. There has not been, since December 31, 2007, and will not be prior to the Closing Date, any sale, lease, or any other disposition or distribution by the Corporation of any of the Assets, except transactions in the ordinary course of business.

(mm)

Condition of Tangible Assets

All of the Assets of the Corporation which are of a tangible character, and which are not Inventory, are in good working order and condition, subject only to wear and tear which is normal for property and assets of the type and age as the Assets in question, and are reasonably suitable and adequate for the purposes for which it currently is used.

(nn)

Real Property—Owned

The Corporation is not the owner of and is not a party to or bound by any agreement to acquire any real or immoveable property.

(oo)

Real Property—Leased

Other than its right to occupy the Premises as a shared facility pursuant to the Service and Cost Sharing Agreement, the Corporation is not a party to or otherwise bound by or obligated under any leases, offers to lease, subleases or offer to sublease real or immoveable property.

(pp)

Investments and Subsidiaries

The Corporation has no subsidiaries and does not own any equity securities of or have any investment in, loans or advances to or other ownership interest in, directly or indirectly, any partnership, joint venture, co-tenancy or other jointly owned business undertaking, corporation or other business organization or trust, and the Corporation is not a party to or bound by any agreement of any nature or otherwise obligated:

(i)

to acquire any subsidiary, or



(ii)

to acquire or lease any other business operations or any interest therein;



(qq)

Inventory

Except as disclosed in Schedule 3.1(qq) hereof the Corporation does not hold any Inventory on consignment nor is any Inventory of the Corporation in the possession of any other Person on consignment and, except as disclosed in Schedule 3.1(qq) hereto, the Corporation is not under any obligation to accept return of any Inventory previously sold to and in the possession of its customers, other than in the ordinary course of the Business in accordance with the Corporation's return policy described in Schedule 3.1(qq).

(rr)

Intellectual Property

(i)

Schedule 3.1(rr) contains a true and complete list of all the Intellectual Property (listed as Owned Intellectual Property or Licensed Intellectual Property) that is used in or held for use in connection with, necessary for the conduct of, or otherwise material to the Business. Other than NOCs and other Regulatory Approvals and Intellectual Property held by a Licensor or its Affiliates in relation to a Product and which is not included in

24

Licensed Intellectual Property, the Owned Intellectual Property and the Licensed Intellectual Property comprise all of the Intellectual Property necessary for the Corporation to operate the Business as now conducted;

(ii)

Subject to the Permitted Encumbrances, the Corporation is the sole legal and beneficial owner of and has good and marketable title to and owns all right, title and interest in the Owned Intellectual Property and no licence or other right has been granted in respect thereof to any third Person(s) except as disclosed in Schedule 3.1(rr). The Corporation has not received any oral or written notice of any alleged conflict between the asserted intellectual property rights of third Persons and the rights and entitlement of the Corporation with respect to any or all of the Owned Intellectual Property, nor is there a reasonable basis for any claim that any Person other than the Corporation has any claim of legal or beneficial ownership in the Owned Intellectual Property, other than the Permitted Encumbrances. Immediately after the Closing, the Buyer will own all of the Owned Intellectual Property free from any liens and Encumbrances and free from any requirement of any royalty payments, license fees, charges or other payments, or conditions or restrictions whatsoever, other than the Permitted Encumbrances or restrictions or conditions contained in the applicable License and Marketing Agreements, Acquisition Agreements or Cross-License Agreements contemplated in Paragraph 3.1(ww)(i), (ii)or (vi);



(iii)

No claim or demand of any Person (including any Employee or agent) has been made against the Corporation or, to the Knowledge of the Sellers, against any Licensor nor is there any Proceeding that is pending or, to the Knowledge of the Sellers, threatened, against the Corporation or, to the Knowledge of the Sellers, any Licensor nor is there a reasonable basis therefor which (i) except as disclosed in Schedule 3.1(z), challenges the rights of the Corporation in respect of any Intellectual Property, (ii) except as disclosed in Schedule 3.1(z), asserts that the Corporation is infringing or otherwise in conflict with, or is required to pay any royalty, license fee, charge or other amount with regard to any Intellectual Property (excluding, with respect to Licensed Intellectual Property only, payments not due or payable prior to the Closing under the written licenses or written agreements under which the Corporation receive such rights, all of which are identified in Schedule 3.1(rr) or Schedule 3.1(ww)), or (iii) claims that any default exists under any license or other Contract for Intellectual Property;



(iv)

None of the material Intellectual Property is subject to any outstanding Order with respect to a Proceeding in Canada, or, to the Knowledge of the Sellers, outside Canada, in which the Corporation or, to the Knowledge of the Sellers, any Licensor or other party to an Acquisition Agreement or License and Marketing Agreement (such Licensor or other party herein contemplated being herein in this Paragraph (iv) as the "Third Party") was a party, or has been the subject of any litigation with respect to a Proceeding in which the Corporation or, to the Knowledge of the Sellers, any Third Party was a party, in any such case, within the last five (5) years, whether or not resolved in favor of the Corporation, the Third Party or any of them. With respect to non-material Intellectual Property, except as disclosed in Schedule 3.1(z), the Corporation has not received any notice or communication regarding (x) any outstanding Order with respect to a Proceeding in which the Corporation or, to the Knowledge of the Sellers, any Third Party was a party, or (y) any litigation with respect to a Proceeding in which the Corporation or, to the Knowledge of the Sellers, any Third Party was a party, in any such case, within the last five (5) years, whether or not resolved in favor of the Corporation, the Third Party or any of them;

25

(v)

Except as set forth in Schedule 3.1(rr), the Corporation has taken all reasonable steps required in accordance with sound business practice to establish and preserve its ownership of all material Owned Intellectual Property. To the Knowledge of the Sellers, no Person has infringed or misappropriated or is infringing or misappropriating any Owned Intellectual Property;



(vi)

Except as disclosed in Schedule 3.1(rr), to the Sellers' Knowledge, the Corporation is not making unauthorized use of any confidential information or trade secret of any Person, including any former employee of the Corporation;



(vii)

The Corporation has not granted to any Employee or any other third Persons licenses or options to obtain licenses to any of the Owned Intellectual Property (other than (A) the implied rights granted to Employees to use as necessary in the course of their employment in the Business, (B) Cobalt pursuant to the Cross-License Agreements or (C) Pharmascience under a Terminated Agreement). The Corporation has not granted to any Employee or any other third Persons exclusive licenses or options to obtain exclusive licenses to any of the Licensed Intellectual Property other than to Cobalt pursuant to the Related Party Agreements and other than the implied rights granted to Employees to use as necessary in the course of their employment in the Business;



(viii)

The Owned Intellectual Property was (i), where developed by the Corporation, developed by one or more Employees of the Corporation (A) working within the scope of their employment at the time of such development and (B) who executed employment agreements requiring them to assign ownership of all intellectual property rights in such Owned Intellectual Property but who have not executed specific instruments of assignment in favor of the Corporation as assignee in relation thereto or (ii) acquired by the Corporation in connection with acquisitions in which the Corporation obtained the representations, warranties and indemnities from the transferring party relating to the title to such Owned Intellectual Property contained in the Acquisition Agreements (and the Corporation has not waived any of its rights with respect to any such representations, warranties or indemnities). The Corporation has not received any notice from any Employee or other third Person claiming any right, title or interest in any Intellectual Property (excluding patent, copyright and trademark notices and other similar notices imbedded therein by the manufacturer thereof);



(ix)

Except as described or set forth in Schedule 3.1(rr), the Corporation holds a valid license to use the Licensed Intellectual Property;



(x)

Except as disclosed in Schedule 3.1(rr), immediately after the Closing, subject to obtaining the Sellers' Required Consents and Approvals, the Corporation's rights in the Licensed Intellectual Property will not be not adversely affected by the change in control of the Corporation resulting from the completion of the sale contemplated herein and the Buyer will have the right to use all Licensed Intellectual Property on the same terms and conditions as in effect prior to the Closing, free from any liens and Encumbrances (other than Permitted Encumbrances);



(xi)

The Corporation has not received any oral or written notice of any alleged conflict, interference, infringement, or misappropriation between the asserted intellectual property rights of third Persons and the rights and entitlement of the Corporation with respect to any or all of the Licensed Intellectual Property;



(xii)

To the Knowledge of Sellers, no third Person has interfered with, infringed upon, misappropriated or otherwise come into conflict with, any Intellectual Property right of the Corporation. There are no Proceedings instituted or pending, or to the Knowledge of

26

the Sellers, there are threatened, which challenges the legality, validity, enforceability, use or ownership of the Licensed Intellectual Property or Owned Intellectual Property;

(xiii)

Other than the Intellectual Property, the Corporation does not own and is not licensed to use any patent, nor does the Corporation have any patent applications related to or used by the Corporation in the Business as presently conducted;



(xiv)

To the Knowledge of the Sellers, (A) the patents included on the Patent Register in respect of the Products are eligible for inclusion thereon and (B) there is currently no basis for the delisting of such patents from the Patent Register.



(ss)

Software

Except as disclosed in Schedule 3.1(ss), all computer software used by the Corporation in connection with the Business is licensed by the Corporation (the "Licenced Software") and the material Licenced Software (excluding software that was purchased in off-the-shelf commercial packaging and is used in the ordinary course of the Business) is listed on Schedule 3.1(ss) hereto. The Corporation's use or exploitation of the Licensed Software complies in all material respects with the licensing agreements by which the Corporation is afforded use of the Licensed Software (the "Software Licences"). All of such Software Licences are valid and legally binding on the parties thereto and in full force and effect, and the Corporation has paid all amounts due thereunder and has not waived any material rights thereunder.

(tt)

Licences

Other than Regulatory Approvals registered in the names of Licencors or except as disclosed in Schedule 3.1(tt) hereto, the Corporation has obtained from all applicable Governmental Authorities all Regulatory Approvals, consents, licenses, permits, concessions, franchises and similar rights and privileges necessary to carry on the Business as the same is now conducted by it and to use and operate its Assets (collectively the "Licences"). The Corporation was not required by the Regulatory Authorities to obtain a drug establishment licence in connection with the conduct of the Business while a subsidiary of Arrow Pharmaceuticals Inc.; the Regulatory Authorities permitted the Corporation to operate under a drug establishment licence issued to Arrow Pharmaceuticals Inc., an Affiliate of the Corporation. The only Licences issued to the Corporation in relation to the Business are listed in Schedule 3.1(tt). Such Licences are in full force and effect and the Corporation is in compliance in all material respects with all provisions of the Licences and there are no Proceedings in progress, or to the Knowledge of the Sellers, pending or threatened, which may result in the revocation, cancellation, suspension or any adverse modification of any of the Licences.

(uu)

Manufacturing and Trials

Notwithstanding that the Corporation appears as the manufacturer of certain of the Products as a result of being the holder of the NOC applicable to such Product, the Corporation has not and currently does not engage in the manufacturing of any Inventory or otherwise and acquires all of its Inventory from the Licensor of the Product or its designated supplier or has the Product in question manufactured or packaged for it by a third party contract manufacturer or packager. The Corporation has not and currently does not engage in testing or trials on animals.

(ix) as to Insurance

(vv)

Insurance

Schedule 3.1(vv) is a true and complete list of all insurance policies and/or binders maintained by the Corporation's parent company on an umbrella basis for such corporation and its Affiliates and which extends to and provides coverage to the Corporation on its Assets, Business or personnel as

27

of the date hereof (specifying the insured, the amount of coverage, the type of insurance, the policy number and any pending claims thereunder). To the Knowledge of the Sellers, no other insurance is necessary to the conduct of the Business or would be considered to be desirable by a prudent Person operating a business similar to the Business. The Corporation has made available to the Buyer true and complete copies of all such insurance policies. For any current claim that has not been settled or finally determined, the Corporation has not failed to give any notice or present any claim under any such insurance policy in a due and timely fashion such that the insurer would be entitled to terminate coverage or deny liability on any such claim, and, to the Knowledge of the Sellers, the Corporation has not otherwise failed to give any notice or present any claim under any such insurance policy in due and timely fashion. All such policies of insurance are in full force and effect and neither the Corporation nor the Corporation's parent Company is in default under the terms of any such policy. To the Knowledge of the Sellers, all such policies of insurance provide for coverages that are reasonable adequate as to the amount and scope for the Business. There have been no substantial changes in the insurance described in Schedule 3.1(vv) since December 3l, 2007.

(x) as to Contracts of the Corporation

(ww)

List of Contracts

Schedule 3.1(ww) is a complete list, showing separately by category:

(i)

all licence, marketing, promotion, co-promotion and distributorship agreements (other than Terminated Agreements) to which the Corporation is a party or by which it is bound and pursuant to which the Corporation has been granted the exclusive or non-exclusive right to manufacture, promote, market or distribute the Products in Canada, including all amendments thereto (collectively, the "Licence and Marketing Agreements");



(ii)

all licence and asset purchase agreements between the Corporation and Novartis AG and\or Novartis Pharmaceutical Canada Inc. pursuant to which the Corporation acquired its right and interest in the Products [**] and under which the Corporation has any ongoing rights or obligations, including all amendments thereto (collectively, the "Acquisition Agreements");



(iii)

all licence, marketing, promotion, co-promotion and distributorship agreements to which the Corporation is a party or by which it is bound and pursuant to which the Corporation had previously been granted the exclusive or non-exclusive right to manufacture, promote, market or distribute in Canada products, other than the Products, which agreements have expired or have been terminated prior to the Execution Date but under which the Corporation has any ongoing rights or obligations which survive such expiration or termination, including all amendments thereto (collectively, the "Terminated Agreements");



(iv)

all stand alone confidentiality agreements with third Persons to which the Corporation is a party or by which it is bound and under which the Corporation has any ongoing obligations or rights with respect to confidential information of the Corporation or of any co-contractant thereto (or their respective Affiliates), including all amendments thereto (collectively, the "Confidentiality Agreements");



(v)

all technical or quality agreements and all pharmacovigilence agreements to which the Corporation is a party or by which it is bound and pursuant to which the Corporation has ongoing obligations or rights with respect to allocation of responsibility as between the Corporation and the co-contractant thereto for the performance or satisfaction of regulatory compliance issues or obligations in relation to the Products or products

28

previously promoted, marketed, sold or distributed by the Corporation, including all amendments thereto (collectively, the "Technical Agreements");

(vi)

all agreements between the Corporation and Cobalt pursuant to which the Corporation or Cobalt, as the case may be, has granted to the other a right to cross-reference its product dossier maintained by the TPD with respect to [**], as the case may be, in support of an application for an NOC by such party in its own name and to promote, market and distribute such product in Canada as a generic or brand product, as the case may be, including all amendments thereto (collectively, the "Cross-Licence Agreements");



(vii)

all agreements, arrangements and other commitments or transactions to or by which the Corporation, on the one hand, and the Sellers or any of their Affiliates, on the other hand, are a party or otherwise bound or affected and all other Related-Party Agreements (other than the Cross-Licence Agreements), including all amendments thereto;



(viii)

the agreement between [**] and [**] pursuant to which, inter alia, [**] provides storage and logistical services to the Corporation in relation to the storage and distribution of the Products, including all amendments thereto (collectively, the "Storage and Logistics Agreement");



(ix)

all stand-alone manufacturing and packaging agreements to which the Corporation is a party or by which it is bound and pursuant to which a third party manufactures or packages, as the case may be, for and\or supplies to the Corporation any Products (or any other products previously distributed by the Corporation if and to the extent the Corporation has any ongoing rights or obligations thereunder), including all amendments thereto (collectively, the "Manufacturing Agreements");



(x)

all loan agreements, credit agreements, commitment letters, overdraft agreements, security agreements, debentures and other documents or instruments to which the Corporation is a party, by which it is bound or under which it has any rights or obligations and pursuant to which the Corporation has outstanding indebtedness or financial facilities available or pursuant to which the Corporation has granted to any Person any security on any of its Assets including conditional sale and title retention agreements, including all amendments thereto (collectively the "Credit Agreements");



(xi)

all chattel leases and other similar agreements to which the Corporation is a party or by which it is bound and pursuant to which the Corporation leases, rents or otherwise acquires the right to use chattels or moveable property of any Person, including all amendments thereto (collectively the "Equipment Leases" and the chattels and moveable property contemplated therein is collectively referred to as the "Leased Equipment");



(xii)

all contracts, agreements or commitments for the purchase or sale of any equipment or fixed or capital assets having a fair market value in excess of Cdn $25,000 in the aggregate ("Agreements for Acquisition or Sale of Capital Assets");



(xiii)

all management, consulting, agency or similar contract, agreement or commitments ("Consulting and Management Agreements");



(xiv)

all contracts, agreements, arrangements or understandings which contain change of control provisions ("Agreements with Change of Control Provisions");



(xv)

all contracts, agreements or commitments to make any gift of any of the Corporation's property, other than donations made in the ordinary course of the Business ("Gift Commitments");

29

(xvi)

all material contracts, agreements or commitments for the supply of Inventory ("Inventory Supply Commitments");



(xvii)

all other material contracts and agreements, written or otherwise, to which the Corporation is a party or by which it is bound (other than the employment agreements and arrangements described in Schedule 3.1(gg), the Benefit Plans described in Schedule 3.1(ii) hereto, the insurance policies and binders described in Schedule 3.1(vv) hereto and the Software Licences), including all amendments thereto (collectively, the "Material Contracts").

(the aforesaid contracts, agreements and commitments, together with the employment agreements and arrangements described in Schedule 3.1(gg), the Benefit Plans described in Schedule 3.1(ii), the insurance policies and binders described in Schedule 3.1(vv) and the Software Licenses, are herein collectively referred to as the "Contracts"). True and correct copies of all such Contracts (including the amendments thereto) have been made available to the Buyer or its Representatives prior to the Execution Date. Other than:

(A)

prepaid service contracts on office equipment or with respect to the Premises, if any;



(B)

the Contracts, and



(C)

the contracts, agreements and commitments and Contract amendments hereafter made or entered into by the Corporation in compliance with the provisions of this Agreement including, without limitation, the Authorized Pre-Closing Transactions.

the Corporation is not now and will not be at the Closing Time, a party to or bound by any contract, agreement or commitment (whether oral or written) which contain one or more obligations of the Corporation which in the aggregate exceeds Cdn $25,000 (in any such single contract) and which cannot be terminated by the Corporation without penalty on 60 days' notice;

(xx)

Status of Contracts

Save and except as disclosed in Schedule 3.1(xx), neither the Corporation nor, to the best of the Sellers' Knowledge, the other party or parties thereto, is in material default or breach of the terms or provisions of any such Contracts including, without limitation, that the Corporation has satisfied all minimum sales, marketing, inventory purchase and other minimum requirements under the License and Marketing Agreements, and there exists no state of facts which, after notice or lapse of time or both, would constitute such a default or breach of any Contract by the Corporation or such other party or parties thereunder and all such contracts and agreements are legal, valid, binding, enforceable and in full force and effect.

(xi) Miscellaneous

(yy)

Compliance with Environmental and Other Applicable Law

(i)

The operation of the Business and the use, maintenance and operation of its Assets have been and are in compliance with all Environmental Laws and the Corporation has no liability for environmental matters, including any environmental contamination.



(ii)

The Corporation has conducted and is conducting the Business in compliance with all Privacy Legislation relevant to privacy and the protection of personal information and the Corporation is not in breach of any such laws, except for breaches which, in the aggregate, are not material.



(iii)

The Business has been and is being conducted and the rights and Assets of the Corporation have been and are being used and operated in compliance, in all material respects, with all other Applicable Laws, including the Food and Drugs Act and the

30

Patented Medicines Regulations, 1994, the Ontario Drug Benefit Act, and the Drug Interchangeability and Dispensing Fee Act, and the Corporation is not in material breach of any such laws, and no Proceeding has been filed or commenced against it alleging any failure to do so;

(zz)

Restrictions on Doing Business

Other than as set forth in the Contracts or as required to comply with Privacy Legislation or other Applicable Laws of general application, the Corporation is not a party to or bound by any agreement, contract, agreement, or understanding which would restrict or limit its right to carry on any business or activity or to solicit business from any person or in any geographical area or otherwise to conduct the Business as the Corporation may determine or to use or disclose any information in its possession. The Corporation is not subject to any legislation, Order or requirement of any Governmental Authority which is not of general application to persons carrying on a business similar to the Business. To the Knowledge of the Sellers, there are no facts or circumstances which could materially adversely affect the ability of the Corporation to continue to operate the Business as presently conducted following the completion of the transactions contemplated by this Agreement;

(aaa)

Unlawful Payments

None of the Corporation or any officer, director, employee, agent or representative of the Corporation has made, directly or indirectly, with respect to the operation of the Corporation or the Business any (i) bribe or kickback, (ii) illegal political contribution, (iii) any illegal payment from corporate funds which was incorrectly recorded on the Books and Records of the Corporation; (iv) unlawful payment from corporate funds to governmental or municipal officials in their individual capacities for the purpose of affecting their action or the actions of the jurisdiction which they represent to obtain favorable treatment in securing business or licenses or to obtain special concessions of any kind whatsoever, (v) illegal payment from corporate funds to obtain or retain any business, or (vi) any prohibited rebate as contemplated in the Ontario Drug Benefit Act and the Drug Interchangeability and Dispensing Fee Act.

(bbb)

Banking and Trading Accounts and Powers of Attorney

Schedule 3.1(bbb) is a true and complete list showing:

(i)

the name of each bank or other depository in which the Corporation maintains any bank account, trust account, trading account, investment account, custody account or safety deposit box along with the names of all persons authorized to draw thereon or who have access thereto; and



(ii)

the name of each Person holding a general or special power of attorney from the Corporation and a summary of the terms thereof.



(ccc)

Broker's or Finder's Fees

Other than CIBC World Markets Inc., whose fees, subject to the exception contemplated in Section 8.1 below, will be paid by the Sellers, no agent, broker, Person or firm is, or will be, entitled to any commission or broker's or finder's fees from the Corporation in connection with any of the transactions contemplated by this Agreement.

(ddd)

Securities Legislation

The Corporation is a "private issuer" as that term is defined in National Instrument 45-106.

(eee)

Residency

Cobalt is not a non-resident of Canada within the meaning of the Tax Act.

31

(fff)

No Other Negotiations

Other than the Contingent Oryx Products set forth on Schedule 1.1(H) hereto, the Corporation has not been a party to any material or substantial negotiations during the 6 months prior to the Execution Date with any third Person to acquire the right to promote, market, sell or distribute in Canada a prescription pharmaceutical product of such third Person.

(ggg)

Accuracy of Representations

This Agreement does not contain, and no statement contained in the Schedules or Exhibits or in any certificate or agreement furnished by or on behalf of any Seller to Buyer pursuant to any provision of this Agreement contains, any untrue statement of a material fact with respect to any Seller or the Corporation or omit to state any material fact with respect to any Seller or the Corporation necessary to make the statements contained herein or therein not misleading.

3.2   Survival of Representations, Warranties and Covenants of Sellers

The representations and warranties of the Sellers set forth in subsections 3.1(a), (b), (b.1), (c), (d), (e), (f), (g), (j), (k), (l), (m), and (ccc) shall survive the Closing of the purchase transaction hereunder and shall continue in effect without limitation. The representations and warranties set forth in Section 3.1(ff) shall survive the Closing and shall continue in effect until the first date on which no assessment, reassessment or other document assessing liability for Taxes may be issued to the Corporation in respect of any taxation year end or period or portion thereof prior to or ending on the Closing Date pursuant to any applicable tax legislation. The representations and warranties set forth in Section 3.1(ii) and (yy(i)) shall survive the closing of the purchase transaction hereunder and shall continue in effect for a period of 10 years from the Time of Closing. All other representations and warranties made by the Sellers hereunder shall survive the closing of the purchase transaction hereunder and shall continue in effect for a period of 18 months from the Time of Closing. After such applicable time period, the Sellers shall have no further liability hereunder with respect to such representation or warranty, unless notice in writing of the Claim in relation to such representation and warranty (specifying in reasonable detail the event, matter or default which gives rise to the Claim) has been given to the Sellers prior to the expiration of such applicable period and such Claim is not withdrawn or deemed to have been withdrawn thereafter. Any Claim for breach of a representation or warranty shall be deemed (if it has not been previously satisfied, settled or waived) to have been withdrawn at the end of 2 years following the expiration of such applicable period, unless legal proceedings (or arbitration, by mutual consent) in respect of such Claim shall have been commenced by being issued and served upon the Sellers.

3.3   Representations and Warranties of Buyer

The Buyer represents, warrants and covenants to the Sellers as follows and acknowledges that the Sellers are relying thereon in connection with its entering into of this Agreement and the consummation of the transaction contemplated hereby:

(a)

Corporate Matters

(i)

Each of the Buyer and Sepracor is a corporation duly incorporated, organized, validly existing and in good standing under the laws of its jurisdiction of incorporation. No Proceedings have been taken or authorized by the Buyer, Sepracor or by any other Person, with respect to the bankruptcy, insolvency, liquidation, dissolution or winding up of the Buyer or Sepracor.



(ii)

Each of the Buyer and Sepracor has all necessary capacity, power and authority to execute and deliver, and to observe and perform its covenants and obligations under, this

32

Agreement and the Closing Documents to which it is a party. Each of the Buyer and Sepracor has taken all corporate action necessary to authorize the execution and delivery of, and the observance and performance of its covenants and obligations under, this Agreement and the Closing Documents to which it is a party.

(iii)

This Agreement has been, and each Closing Document to which the Buyer is a party will on Closing be, duly executed and delivered by the Buyer and Sepracor, as applicable, and this Agreement constitutes, and each Closing Document to which the Buyer is a party will on Closing constitute, a valid and binding obligation of the Buyer and Sepracor enforceable against the Buyer and Sepracor in accordance with its terms, subject to the qualification that enforceability may be limited by bankruptcy, insolvency or other laws affecting the enforcement of creditors' rights generally and that specific performance, injunction and other equitable remedies are discretionary and, in particular, may not be available where damages are considered an adequate remedy.



(b)

Absence of Conflicting Agreements

Neither the execution and delivery of, nor the observance and performance by the Buyer or Sepracor of any covenant or obligation under this Agreement or any Closing Document to which it is a party or the Closing contravenes or results in (with or without the giving of notice or lapse of time, or both) or will contravene or violate in any material respect or result in any material breach or default of, or acceleration of any obligation under:

(i)

any Applicable Law;



(ii)

any Licence of the Buyer or Sepracor;



(iii)

the articles, by-laws, directors' or shareholders' resolutions of the Buyer or Sepracor;



(iv)

any agreement, lease, mortgage, security document, obligation or instrument to which the Buyer or Sepracor is a party or by which the Buyer or Sepracor or any of their respective assets is affected or bound,

other than, in the case of (ii) and (iv), and such contraventions, violations, breaches or defaults that, individually or in the aggregate, are not material or reasonably likely to impair in any material respect the ability of the Buyer or Sepracor to perform its obligations under this Agreement.

(c)

Intentionally Omitted

(d)

Financing

The Buyer has sufficient funds, available lines of credit or other sources of immediately available funds to enable it to complete the transactions contemplated hereby at the Closing Time on the terms and conditions of this Agreement.

(e)

Approvals of Government Authorities

No consent, approval, Order or authorization of any Governmental Authority is required by the Buyer or Sepracor in connection with (i) the Closing, or (ii) the execution and delivery by the Buyer or Sepracor of this Agreement or the Closing Documents to which it is a party, or (iii) the observance and performance by the Buyer or Sepracor of their respective obligations under this Agreement or the Closing Documents to which it is a party.

3.4   Survival of Representations, Warranties of Buyer and Covenants of Buyer

        The representations and warranties of the Buyer set forth in subsection 3.3(a) and all of the covenants of the Buyer set forth in this Agreement shall survive the closing of the purchase transaction

33

hereunder and shall continue in effect without limitation. All other representations and warranties set forth in this Section 3.3 shall survive the closing of the purchase transaction hereunder and shall continue in effect for a period of 18 months from the Time of Closing. After such applicable time period, the Sellers shall have no further liability hereunder with respect to such representation or warranty. unless notice in writing of the Claim in relation to such representation and warranty (specifying in reasonable detail the event, matter or default which gives rise to the Claim) has been given to the Sellers prior to the expiration of such applicable period and such Claim is not withdrawn or deemed to have been withdrawn thereafter. Any Claim for breach of a representation of warranty shall be deemed (if it has not been previously satisfied, settled or waived) to have been withdrawn at the end of 2 years following the expiration of such applicable period, unless legal proceedings (or arbitration, by mutual consent) in respect of such Claim shall have been commenced by being issued and served upon the Buyer.

ARTICLE 4
COVENANTS

4.1   Covenants of the Corporation and the Sellers

        The Sellers and the Corporation, jointly and severally, covenant and agree that on or before the Closing Date, or where applicable, thereafter, they will do or cause to be done the following:

(a)

Access to Information

(i)

afford to Buyer and its Representatives access upon reasonable notice and during normal business hours to any Premises and the Business, and reasonable access to the appropriate Employees of the Corporation, for the purpose of facilitating an effective and efficient integration plan for the Business by the Buyer on and after Closing, provided further that such access shall be conducted in a manner which does not interfere with the normal operations, customers and employee relations of the Business or in a manner which would adversely affect the goodwill of the Business.



(ii)

permit the Buyer and its Representatives, upon receipt of reasonable advance notice during normal business hours, reasonable access to the Books and Records, and furnish the Buyer with all such information and copies of such documents relating to the Business and the business, affairs and assets of the Corporation as the Buyer may reasonably request.

The terms of the Confidentiality Agreement shall govern the Buyer's and its Representatives' obligations with respect to all confidential information with respect to the Business and the Corporation, which has been provided or made available to them at any time, including during the period between the date of this Agreement and the Closing Date. It expressly understood and agreed that the Sellers will not be required to disclose any confidential information of a Licensor or other Person which the Corporation is prohibited from disclosing without the consent of such Licensor or other Person until such Licensor or other Person have provided its consent as required.

(b)

Conduct of Business

During the Interim Period, conduct the Business only in the ordinary course (including payment of accounts payable and other liabilities as they become due consistent with the prior practice of the Corporation in this regard) and use reasonable commercial efforts to preserve intact its business organization, keeping available the services of its officers and employees and maintain relationships with Licensors, suppliers, distributors, customers and others having business relationships with the Corporation so as to preserve the goodwill of the Business. Without limiting the generality of the

34

foregoing, prior to the Closing Date, except as may be first approved by the Buyer or as is otherwise permitted or required by this Agreement, the Corporation will refrain:

(i)

from amending its articles, by-laws, constating documents or other organizational documents;



(ii)

from amalgamating, merging or consolidating with, or acquiring any shares or assets of, any Person;



(iii)

from transferring, leasing, licensing, selling or otherwise disposing of any of the Assets, other than Inventory in the ordinary course of the Business;



(iv)

from entering into any contract or commitment or amendments thereto except contracts or amendments thereto in the ordinary course of business;



(v)

from entering into any contract or commitment or amendments thereto (other than contracts or commitments for the purchase or supply of Inventory or supplies in the ordinary course of business) involving one or more obligations which in the aggregate exceeds Cdn $20,000 or which is for a term of one year or more;



(vi)

except as set forth on Schedule 4.1(b)(vi), from incurring any capital expenditure which is in the case of a single transaction, in excess of Cdn $5,000 and, in the case of all such transactions, in excess of Cdn $20,000 in the aggregate;



(vii)

from making any change affecting any bank, safe deposit or power of attorney arrangements of the Corporation;



(viii)

from making or rescinding any material Tax election or amending or refilling any Tax Returns;



(ix)

from settling or compromising any actions, suits, or Proceedings with respect to Taxes or entering into any binding agreements with respect to Taxes;



(x)

from hiring any new employees (whether full or part time, and whether permanent, temporary or hired on a contract basis);



(xi)

other than increases previously committed to by the Corporation and disclosed in Schedule 3.1(r) or 3.1(gg), or as contemplated by an Authorized Pre-Closing Transaction, from increasing any compensation payable to any Employee;



(xii)

other than as expressly contemplated by an Authorized Pre-Closing Transaction, from establishing, amending or terminating any Benefit Plan, unless required by Applicable Law or by an expressed provision of this Agreement;



(xiii)

from waiving, cancelling or writing off any rights, claims, Accounts Receivable or other amounts payable to the Corporation, or making any gift or donation, having a monetary value in a case of a single transaction in excess of Cdn $10,000, and in the case of all such transactions, when added to similar transactions completed by the Corporation since January 1, 2008, will exceed Cdn $25,000 in the aggregate.



(xiv)

from taking any action which if entered into before the Execution Date could cause any representation and warranty of the Sellers in this Agreement to be incorrect or constitute a breach of any covenant of the Sellers in this Agreement;



(xv)

from causing the Books and Records to be maintained other than in the usual, regular and ordinary manner;



(xvi)

from failing to use its commercially reasonable efforts to preserve intact the current business organization and reputation of the Corporation, keep available the services

35

(subject to dismissals, resignations and retirements in the ordinary course of business) of the current Employees and agents used in the conduct of the Corporation's business, or, except as contemplated in Authorized Pre-Closing Transactions, maintain the relations and goodwill with suppliers, customers, landlords, creditors, Employees, agents and others having business relationships with the Corporation;

(xvii)

from failing to perform in all material respects all of its obligations under all Contracts or comply in all material respects with all Applicable Laws;



(xviii)

from issuing any shares of capital stock of the Corporation other than pursuant to Authorized Pre-Closing Transactions;



(xix)

from making any material change in pricing, payment or delivery practices or policies or making any material change in prices charged to or payment terms made available to customers;



(xx)

from declaring or paying any dividends;



(xxi)

from incurring any debt, obligation or liability (fixed or contingent), except normal trade or business obligations incurred in the ordinary course of the Business or except as permitted by Authorized Pre-Closing Transactions, none of which will have a Material Adverse Effect.



(c)

Maintenance of Assets and Books and Records

During the Interim Period, maintain all of its fixed or capital Assets, whether owned or leased, in good condition and repair (ordinary wear and tear accepted) and maintain the Books and Records in the ordinary course on a basis consistent with past practice.

(d)

Continue Insurance

Continue, to maintain in full force and effect all policies of insurance or renewals thereof now in effect and shall give all notices and present all claims under all policies of insurance in a due and timely fashion, it being understood that coverage under such policies shall terminate on the Closing Date.

(e)

Notification by Sellers

Promptly inform the Buyer of (i) any Material Adverse Effect or (ii) any litigation or Proceedings (or communications indicating that the same may be contemplated) that, individually or in the aggregate, would be material or could impede or materially delay the completion of the transactions contemplated by this Agreement.

(f)

Sellers' Required Consents and Approvals

Subject to obtaining the reasonable cooperation of the Buyer, as and where required, use reasonable commercial efforts to obtain or cause the Corporation to obtain, at or prior to the Time of Closing, the consent of Abiogen Pharma S.p.A. contemplated in paragraph 1 of Schedule 3.1(i) to the change of control arising out of the completion of the transaction contemplated herein and the waiver by Abiogen Pharma S.p.A. of its right to terminate the License and Marketing Agreement between the Corporation and Abiogen Pharma S.p.A. with respect to the Product Clasteon.

(g)

Resignations

Ensure that at the Time of Closing all of the directors and officers of the Corporation designated by the Buyer shall resign in favour of nominees of the Buyer.

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(h)

Corporate Action

Ensure that all necessary corporate actions, steps and proceedings of the Sellers, the Corporation and Arrow to approve or authorize, validly and effectively, the execution and delivery of this Agreement, as required and the other agreements and documents contemplated hereby and to complete the transfer of the Purchased Shares to the Buyer are taken.

(i)

Taxes

Cause the Corporation to prepare and file all Tax Returns required to be filed prior to the Closing Time and to forthwith provide a copy of each such Tax Return to the Buyer and shall cause the Corporation to pay all Taxes payable thereunder. In connection with the preparation of Tax Returns and audits relating to the Corporation by any Governmental Authority or any administrative or judicial Proceeding resulting therefrom, the Sellers and the Buyer and the Corporation will co-operate fully with one another, including but not limited to the furnishing or making available of records, personnel (as reasonably required), books of account, powers of attorney or other materials necessary or helpful for the preparation of Tax Returns, the conduct of audits or the defence of claims by a Governmental Authority as to the imposition of Taxes.

(j)

Delivery of Documents—Purchased Shares

Deliver to the Buyer (i) all necessary transfers, assignments and other documentation reasonably required to transfer the Purchased Shares to the Buyer with a good and valid title, free and clear of all Encumbrances, and (ii) all other Closing Documents reasonably required to complete the transactions of purchase and sale contemplated in this Agreement.

(k)

Intentionally Omitted

(l)

Employment Agreements

(i)

Provide such reasonable assistance as the Buyer may reasonably request to facilitate the conclusion of the Standard Sepracor Canadian Offer Package between the Corporation and each of the Employees listed in Schedule 4.1(1)(A) (the "Key Employees").



(ii)

Provide such assistance as the Buyer may request to facilitate the conclusion of the Standard Sepracor Canadian Offer Package between the Corporation and each of the Employees listed in Schedule 4.1(l)(B) (the "Sales Employees").



(m)

Discharges

Ensure that at the Time of Closing, all Encumbrances affecting the Purchased Shares have been fully and forever discharged, vacated or otherwise released.

(n)

Releases

Ensure that at the Time of Closing, the Sellers and each officer and director of the Corporation who will resign in accordance with section 4.1(g) hereof executes a complete release, in form and substance satisfactory to the Buyer's Counsel and the Sellers' Counsel, each acting reasonably, of all claims against the Corporation and its directors and officers, for any matter or thing as at the Closing Date and in any capacity including the capacity of an officer, director or shareholder or employee of the Corporation, provided however that any such releases, (i) in the case of the Sellers, shall not extend to any rights or obligations under the Related Party Agreements, this Agreement or any of the Closing Documents, (ii) in the case of Douglas Reynolds shall not extend to any claims by him in his capacity as an employee of the Corporation for employment compensation (including bonuses) or reimbursable expenses or to any rights which he may have pursuant to or in relation to the employment agreement to be delivered pursuant to Section 5.1(f) hereof, and (iii) in the case of such directors and officers, shall not extend to any indemnification rights to which they are entitled pursuant to any applicable law, any by-law or agreement.

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(o)

Exclusivity

Until such time, if any, as this Agreement is rescinded or terminated pursuant to the provisions of Section 5.4, no Seller shall, and each Seller shall cause its Affiliates and Representatives not to, directly or indirectly, enter into any agreement or initiate, pursue or participate in any negotiation or discussion with, or provide any information to, or in any manner solicit, encourage, initiate, entertain or consider any inquiries, offers or proposals from any Person other than Buyer with respect to the possible disposition of all or any portion of the Corporation (including any of its assets other than Inventory in the ordinary course of business) or any business combination involving the Corporation, whether by way of bulk sale or transfer of assets or stock, merger, consolidation, share exchange or otherwise.

(p)

Product Liability and Director and Officer Insurance

Notwithstanding anything in this Agreement to the contrary, Arrow agrees that it shall maintain or cause its applicable Affiliate to maintain in effect for a minimum of three years following the Closing Date its (i) current products liability insurance policy with Continental Casualty Company or an equivalent insurance policy covering claims made after the Closing Date in connection with conduct by the Corporation and the Business on or prior to the Closing Date and (ii) current director and officer insurance policy or insurance policy that covers acts and omissions of directors and officers or an equivalent insurance policy covering claims made after the Closing Date in connection with conduct by the Corporation's officers and directors on or prior to the Closing Date.

(q)

Non-Competition

(i)

The Sellers and their respective Covenanting Affiliates (as defined below) shall not, either alone or with any third Person, directly or indirectly:



(A)

engage in the business of manufacturing for sale in Canada, marketing, promoting, selling, or distributing in Canada any Brand Pharmaceutical Product which is competitive to the Products, for (a) a period of 5 years following the Closing or (b) until the Corporation or its successor permanently withdraws such Product from the Canadian market, whichever first occurs;



(B)

engage in the business of manufacturing for sale in Canada, marketing, promoting, selling, or distributing in Canada any Brand Pharmaceutical Product which is competitive to any Additional Products or Contingent Oryx Products which are launched by the Corporation following the Closing, for (a) a period of 5 years following the launch of such Additional Product or Contingent Oryx Product, as the case may be, by the Corporation, (b) a period of 10 years following the Closing, or (c) until the Corporation or its successor permanently withdraws such Additional Product or Contingent Oryx Product from the Canadian market, whichever first occurs;



(ii)

The Sellers and their respective Affiliates shall not, either alone or with any third Person, directly or indirectly:



(A)

market, promote, sell or distribute in Canada a Competing Generic Product with respect to the Products Niaspan, Angiomax, Advicor, Cubicin, Naprelan or Trosec identified in Schedule 1.1(E) hereof and any other Products for which the TPD has not issued an NOC for a Competing Generic Product for (a) a period of 10 years following the Closing or (b) until the TPD issues an NOC for a Competing Generic Product in relation to such Product to any Person (other than the Sellers or their Affiliates or any third Person acting in conjunction with the Sellers or their Affiliates

38

in the development or approval of such Competing Generic Product), whichever first occurs; or

(B)

market, promote, sell or distribute in Canada a Competing Generic Product with respect to any Additional Product or any Contingent Oryx Product for (a) a period of 5 years following the launch of such Additional Product or Contingent Oryx Product, as the case may be, (b) a period of 10 years following the Closing, or (c) until the TPD issues an NOC for a Competing Generic Product in relation to such Additional Product or Contingent Oryx Product, as the case may be, to any Person (other than the Sellers or their Affiliates or any third Person acting in conjunction with the Sellers or their Affiliates in the development or approval of such Competing Generic Product), whichever first occurs.



(iii)

For purposes of this Section 4.1(q):



(A)

the term "Products" shall also include any prescription pharmaceutical products which the Corporation has the right to market, promote, sell or distribute in Canada under or pursuant to any License and Marketing Agreements or any Acquisition Agreements, in each case, without regard to future amendments, if any, whether or not the Corporation currently markets, promotes, sells or distributes such product;



(B)

the term "Covenanting Affiliate" means:



(I)

prior to a Change of Control of Cobalt (as defined below), any corporation or other entity which is an Affiliate of the Sellers; and



(II)

on or after a Change of Control of Cobalt, any corporation or other entity which is an Affiliate of the Sellers other than (i) a corporation or other entity which became an Affiliate of the Sellers on and as a direct result of the Change of Control of Cobalt, or (ii) a corporation or other entity created, formed or established on or after the Change of Control of Cobalt by any corporation or entity contemplated in (i) above or by the Person who acquired control of Cobalt on the Change of Control of Cobalt, or (iii) any corporation or other entity which becomes an Affiliate of a Person contemplated in (i) or (ii) above as a result of an acquisition, merger, or other similar transaction completed after the Change of Control of Cobalt.

For purposes of this clause (B), "Change of Control of Cobalt" means that any Person who is not then an Affiliate of Cobalt acquires, directly or indirectly, by sale of assets, sale of shares, issuance of shares, merger, consolidation, share exchange, or other similar transaction more than 50% of the voting securities of Cobalt or of any Affiliate of Cobalt that directly or indirectly (through one or more other Affiliates) controls Cobalt on the Closing Date.

4.2   Delivery of Books and Records

        At the Time of Closing, the Sellers shall deliver or cause to be delivered to the Corporation all of the Books and Records in the possession of the Sellers. The Buyer agrees that it will preserve and cause the Corporation to preserve the Books and Records so delivered to or maintained by it in the same manner as Sepracor preserves its own books and records, provided; however, that if any such Books and Records are not subject to a record retention policy of Sepracor as of the Closing Date, then the Buyer shall retain and cause the Corporation to retain such records for a period of not less than three (3) years from the Closing Date or for such longer period as is required by any Applicable Law, and will permit the Sellers, or authorized representatives of the Sellers, reasonable access thereto in connection with the affairs of the Sellers relating to its matters, but the Buyer shall not be

39

responsible or liable to the Sellers for or as a result of any accidental loss or destruction of or damage to any such Books or Records, absent gross negligence, bad faith and wilful misconduct. Notwithstanding the foregoing, any and all such Books and Records may be destroyed by the Buyer or the Corporation at any time before three (3) years from the Closing Date, if the Buyer sends to the Sellers written notice of its intent to destroy such Books and Records, specifying in reasonable detail the contents of the Books and Records to be destroyed; such Books and Records may then be destroyed at the expense of the Buyer or the Corporation after the 90th day following such notice unless the Sellers notify the Buyer that the Sellers desires to obtain possession of any or all such Books and Records, in which event the Buyer shall transfer the requested Books and Records to the Sellers and thereafter the Sellers shall be responsible for expenses of destroying the Books and Records so transferred to it.

4.3   Buyer's Covenants

        The Buyer covenants and agrees with the Sellers that on or before the Closing Date, it will do or cause to be done the following:

(a)

Delivery of Closing Documents

Execute or cause to be executed, as required, and/or deliver to the Sellers all Closing Documents reasonably required to complete the transactions of purchase and sale contemplated in this Agreement.

(b)

Cooperation with Third Party Consents

Promptly provide to the Sellers such cooperation as the Sellers may reasonably request from time to time with respect to obtaining (i) any Sellers' Required Consent or Approval or determining that such consent or approval is not required under any Contract, and (ii) consents of Licensors or other Person required to disclose confidential information of such Licensor or other Person to the Buyer, Sepracor or their representatives, as they may request, without breaching the terms of any Contract, including, without limitation, providing the Sellers or the Licensor with such information concerning the Buyer or its Affiliates or the conduct of the Business following the Closing as the Sellers or the Licensor in question may reasonably request.

(c)

Payment of Initial Purchase Price

Pay the Initial Purchase Price to the Sellers and, as applicable, the Escrow Agent in accordance with the provisions of Sections 2.3 and 2.4 hereof.

4.4   Actions to Satisfy Closing Conditions

        Each Party shall take all such action as is within its power to control, and shall use its commercially reasonable efforts to cause other actions to be taken which are not within its power to control, so as to ensure compliance with all conditions set forth in Article 5 which are for the benefit of any Party. The Parties will co-operate in exchanging such information and providing such assistance as may be reasonably required in connection with the foregoing.

4.5   Delivery of Escrow Agreements

        At the Time of Closing, the Buyer shall execute and deliver to the Sellers and the Sellers shall execute and deliver to the Buyer the Escrow Agreement—Security and the Escrow Agreement—Withheld, if necessary, and the Buyer and the Sellers shall jointly cause the Escrow Agent to execute and deliver the Escrow Agreement—Security and the Escrow Agreement—Withheld, if necessary.

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4.6   Authorized Pre-Closing Transactions

        It is agreed that on or before the Closing the Sellers shall complete and cause the Corporation to complete the following transactions (the "Authorized Pre-closing Transactions"):

(i)

the Corporation will amend the Stock Option Plan to provide for the acceleration of the vesting of those Outstanding Options which would not otherwise vest prior to the Execution Date but for such acceleration;



(ii)

the Sellers will enter into agreements with all such holders of Outstanding Options to purchase, at or immediately prior to the Time of Closing, the common shares issued to them pursuant to the exercise of such Outstanding Options for an agreed purchase price and, at or immediately prior to Closing, the Sellers will complete the purchase of all such common shares from such option holders and acquire title to such common shares free and clear of all Encumbrances.



(iii)

contemporaneously with the exercise of the Outstanding Options and the payment by the optionees of the aggregate exercise/subscription price for the common shares issued pursuant thereto (the "Increased Capital Contribution"), the Corporation shall redeem/purchase for cancellation from Cobalt such number of Class "A" Shares in the capital of the Corporation such that the aggregate redemption/purchase price of the shares so redeemed/purchased for cancellation (being Cdn $1.00 per share) will, to the nearest dollar equivalent, be equal to the Increased Capital Contribution, it being the intention of the Parties that there shall be no change in the aggregate stated capital of the Corporation as a result of the issuance of such additional common shares and the redemption/purchase for cancellation of the Class "A" Shares contemplated herein.



(iv)

prior to the Closing, the Corporation will cancel the Stock Option Plan and will obtain from each employee who held an Outstanding Option a consent to such termination and a release by such employee of any Claim that he or she may have against the Corporation relating to or arising out of the creation, administration, amendment or termination of a Stock Option Plan.



(v)

at or prior to the Closing the Corporation shall redeem/purchase for cancellation such number of Class "A" Shares such that the aggregate redemption amount/Purchase Price of the shares so redeemed pursuant to this Paragraph (v) shall, to the nearest dollar equivalent, be equal to the aggregate cash on hand or on deposit for the account of the Corporation immediately prior to the Closing in excess of Cdn $100,000, it being acknowledged and understood that such redemptions/purchases for cancellation are in addition to and not in substitution for the redemptions/purchases for cancellations contemplated in Paragraph (iii) above.



(vi)

with respect to any redemption or cancellation of Class "A" Shares described in Section 4.6(iii) or (v) above, where such shares are held by a non-resident of Canada for purposes of the Tax Act, the Corporation shall comply with the requirements of Section 116 of the Tax Act.

4.7   Buyer's Post-Closing Covenants

        The Buyer and Sepracor jointly and severally covenant and agree that subsequent to the Closing Time they will use commercially reasonable efforts to cause the Corporation to file NDS applications with the TPD in Canada for at least [**] New Products within [**] of the Closing and thereafter to diligently pursue, to the extent commercially reasonable, approval from the TPD for such NDS applications in respect of such [**] New Products as well as the data protection contemplated in Section 2.2 hereof with a view to expediting the occurrence of the Milestone Events and accelerating payment of the Milestone Payments contemplated in Section 2.2 hereof. Sepracor and the Buyer acknowledge and agree that if Sepracor or any of its Affiliates other than the Corporation files an NDS in respect of any New Product or receives an NOC or data protection in respect thereof then, for

41

purposes of Section 2.2 hereof and other related provisions of this Agreement, the Corporation shall be deemed to have filed such NDS, to have received the NOC or to have been granted the data protection contemplated herein.

ARTICLE 5
CONDITIONS PRECEDENT TO CLOSING

5.1   Buyer's Conditions of Closing

The sale and purchase of the Purchased Shares is subject to the following terms and conditions for the benefit of the Buyer to be fulfilled and/or performed at or prior to the Time of Closing:

(a)

Accuracy of Representations and Performance of Covenants

At the Closing Time, all of the representations and warranties of the Sellers made in or pursuant to this Agreement shall be true and correct in all material respects (except for such representations and warranties that are qualified as to materiality, which shall be true in all respects) as if made at the Closing Time (and, unless otherwise date specific, regardless of the date as of which the information in this Agreement or in any schedule or other document made pursuant hereto is given) and shall have been true and correct at all times during the Interim Period, except as such representations and warranties may be affected by events or transactions expressly permitted by this Agreement or undertaken with the consent or approval of the Buyer. At the Closing Time, the Sellers shall have observed or performed in all respects all of the obligations, covenants and agreements on their part to be performed at or before the Closing Time. The Buyer shall have received immediately prior to Closing Time a certificate from a senior officer of the Sellers certifying, to the best of such officer's knowledge, information and belief (after due inquiry) that the conditions in this Section 5.1(a) have been satisfied.

(b)

Sellers' Required Consents and Approvals

The Sellers' Required Consents and Approval contemplated in paragraph 1 of Schedule 3.1(i) shall have been obtained or made on or before the Closing Time, and reasonably acceptable evidence thereof shall be provided to Buyer, and such consent shall not result in the imposition upon the Buyer and/or the Corporation of any additional obligation or liability or result in a waiver or reduction of any right, benefit or forbearance presently enjoyed by the Corporation.

(c)

No Material Adverse Change

No material adverse change shall have occurred since the Execution Date with respect to the Corporation or the Business except for changes expressly contemplated in this Agreement.

(d)

Litigation

No Order shall have been entered that prohibits or restricts the Closing. None of the Parties (including the Buyer), nor any of their respective directors, officers, employees or agents, shall be a defendant or third party to, or threatened with, any litigation or Proceedings before any court or Governmental Authority which, in the opinion of the Buyer, acting reasonably, could prevent or restrict that Party from performing any of its obligations in this Agreement or in any Closing Document.

(e)

Receipt of Closing Documents

All documentation relating to the sale and purchase of the Purchased Shares including the Closing Documents and all actions and proceedings taken on or prior to the Closing in connection with the performance by the Sellers of the Sellers' obligations under this Agreement shall be satisfactory to the Buyer and its counsel, acting reasonably.

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(f)

Employment Agreements

Each of the Key Employees shall have completed the Standard Sepracor Canadian Offer Package with the Corporation effective as of the Closing Time.

(g)

Performance of Agreements

All of the agreements of the Sellers and the Corporation to be performed on or before the Closing Date pursuant to the terms hereof shall have been performed.

(h)

Intentionally Omitted

(i)

Resignations

The Corporation shall have received the resignations contemplated in Section 4.1(g) and the releases contemplated in Section 4.1(n) effective on the Closing Date.

(j)

Proceedings

All proceedings to be taken in connection with the transactions contemplated by this Agreement and all documents incidental thereto shall be reasonably satisfactory in form and substance to the Buyer and its counsel, acting reasonably, and the Buyer shall have received copies of all such documents and other evidence as it or its counsel may reasonably request in order to establish the consummation of such transactions and the taking of all proceedings in connection therewith.

(k)

Termination of Outstanding Options

The Sellers and the Corporation shall have provided evidence to the Buyer and its counsel, acting reasonably, confirming that the Outstanding Options have been cancelled\terminated and\or exercised and all of the common shares of the Corporation issued pursuant to such exercise are included in the Purchased Shares and that the Stock Option Plan has been terminated as contemplated in Section 4.6, including copies of authorizing resolutions of the Board of the Corporation and the consents by each of the holders of the Outstanding Options. The Sellers and the Corporation shall have provided copies of releases against the Corporation by each of the holders of the Outstanding Options.

(l)

Opinion of Sellers' Counsel

The Buyer shall have received an opinion dated the Closing Date from the Sellers' Counsel in form and substance satisfactory to the Buyer's Counsel and the Sellers' Counsel, each acting reasonably. In giving such opinion, Sellers' Counsel may rely on the legal opinion of the Sellers' Maltese and Denmark counsels as to matters pertaining to the laws of Malta or Denmark (which opinion shall be in form and substance reasonably satisfactory to Sellers' Counsel and Buyer's Counsel, each acting reasonably) and certificates of a senior officer of the Sellers as to factual matters, so long as they attach these certificates to the opinion.

(m)

Intentionally Deleted

(n)

Transition Services Agreement

The Sellers and their Affiliates, as appropriate, shall have entered into a transition services agreement with the Buyer and the Corporation, which agreement shall be in the form of the unexecuted agreement annexed hereto as Exhibit 6 and shall provide for the provision by the Sellers or their Affiliates of certain services specified therein to the Corporation after the Closing including arrangements with respect to the continuing occupation of the Premises by the Corporation.

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(o)

Ownership of Capital Stock

The Sellers shall be the registered and beneficial owner of all the issued and outstanding shares of capital stock of the Corporation at the Time of Closing. At the Time of Closing, there shall not be any options, warrants or other rights or privileges for the purchase, subscription, allotment or issuance of any of the unissued shares of the capital stock of the Corporation or of any other securities of the Corporation.

(p)

McKesson Agreement

The Corporation shall have entered into an agreement with McKesson Logistics Solutions for the provision of distribution services on terms no less favorable to the Corporation than the terms set forth in that certain Distribution Services Agreement dated January 31, 2002 originally between McKesson Logistics Solutions (formerly Medis Outsource Logistics) and Arrow Pharmaceuticals Inc. (formerly Cobalt Pharmaceuticals Inc.), as amended.

(q)

Release of Royal Bank of Canada

The Corporation shall have received a release from the Royal Bank of Canada from any Encumbrance on the Corporation's assets and termination of the personal property security registration against it in favour of the Royal Bank of Canada.

(r)

Separation of Benefit Plans

The Corporation shall have taken all steps to have the Benefit Plans which it shares with Arrow Pharmaceuticals Inc. and Cobalt to be separated and to obtain its own stand-alone Benefit Plan from ManuLife Financial on the same terms.

(s)

Employee Intellectual Property Assignments

The Corporation shall have received the appropriate instruments of assignment in favor of the Corporation as assignee from each applicable Employee, if any, that conveys to the Corporation ownership of all intellectual property rights in the Owned Intellectual Property that was developed by such Employee on behalf of the Corporation.

5.2   Conditions to the Sellers' Obligations

The sale of the Purchased Shares by the Sellers on the Closing Date is subject to the following terms and conditions for the benefit of the Sellers to be fulfilled and/or performed at or prior to the Time of Closing:

(a)

Accuracy of Representations and Performance of Covenants

At the Closing Time, all of the representations and warranties of the Buyer made in or pursuant to this Agreement shall be true and correct in all material respects (except for such representations and warranties that are qualified as to materiality, which shall be true in all respects) as if made at the Closing Time except as such representations and warranties may be affected by events or transactions expressly permitted in this Agreement. At the Closing Time, the Buyer shall have observed or performed in all respects all of the obligations, covenants and agreements which it must perform at or before the Closing Time. The Sellers shall have received immediately prior to Closing Time a certificate from a senior officer of the Buyer certifying, to the best of such officer's knowledge, information and belief (after due inquiry) that the conditions in this Section 5.2(a) have been satisfied.

(b)

Opinion of Counsel for Buyer

The Sellers shall have received an opinion dated the Closing Date from the Buyer's Canadian Counsel in form and substance satisfactory to the Sellers' Counsel and the Buyer's Counsel, each

44

acting reasonably. In giving such opinion, Buyer's Canadian Counsel may rely on the legal opinion of the Buyer's Counsel as to matters pertaining to the laws of Delaware (which opinion shall be in form and substance reasonably satisfactory to Buyer's Counsel and Sellers' Counsel, acting reasonably) and certificates of a senior officer of the Buyer as to factual matters, so long as they attach these certificates to the opinion.

(c)

Sellers' Required Consents and Approvals

The Sellers' Required Consents and Approval contemplated in paragraph 1 of Schedule 3.1(i) shall (i) have been obtained or made on or before the Closing Time, and such consent shall not result in the imposition upon the Buyer and/or the Corporation of any additional obligation or liability or result in a waiver or reduction of any right, benefit or forbearance presently enjoyed by the Corporation, or (ii) have been waived as a condition of Closing by the Buyer.

(d)

Litigation

No Order shall have been entered that prohibits or restricts the Closing. None of the Parties (including the Sellers), nor any of their respective directors, officers, employees or agents, shall be a defendant or third party to, or threatened with, any litigation or Proceedings before any court or Governmental Authority which, in the opinion of the Sellers, acting reasonably, could prevent or restrict the Sellers from performing any of its obligations in this Agreement or in any Closing Document.

(e)

Release

The Corporation shall have delivered to the Sellers and to each of the directors and officers of the Corporation a complete release, in form and substance satisfactory to the Buyer's Counsel and the Sellers' Counsel, each acting reasonably, of all claims that the Corporation may have against such Persons for any matter or thing as at the Closing Date and in any capacity including the capacity of an officer, director or shareholder or employee of the Corporation, provided however that any such releases, in the case of the Sellers, shall not extend to any rights or obligations under the Related Party Agreements or this Agreement.

(f)

Replacement Insurance

The Buyer shall have provided evidence reasonably satisfactory to the Sellers and its counsel, acting reasonably, that it has procured (and there is outstanding at the time of Closing) insurance coverage which extends to the Corporation and which provides it with insurance coverage which is at least equivalent to the insurance coverage available to the Corporation on the Execution Date.

(g)

Transition Services Agreement

The Buyer and the Corporation shall have entered into a transition services agreement with the Sellers and their applicable Affiliates, which agreement shall be in the form of the unexecuted agreement annexed hereto as Exhibit 6.

(h)

Employee Share Transfers

The Sellers shall have either (i) acquired prior to Closing from the holders of the Outstanding Options and from The Douglas Reynolds Family Trust good and marketable title to all of the Purchased Shares not currently owned by the Sellers free of all Encumbrances relating to such third Persons, or (ii) the Buyer has waived the condition of Closing contemplated in paragraph 5.1(o) hereof, it being understood and agreed that if the condition contemplated in paragraph 5.1(o) hereof has been waived by the Buyer, the Buyer shall be entitled to a pro-rata reduction in the Initial Purchase Price on the Closing (and any increase in the Initial Purchase Price pursuant to Section 2.7 and any Milestone Payments, in each case, as and when due). Unless the failure of the Sellers to acquire title to such shares was an intentional breach of this

45

Agreement arising out of the wilful and intentional failure of the Sellers to use reasonable commercial efforts to acquire title to such shares as aforesaid, the Buyer and Sepracor shall have no further rights or recourses against the Sellers for any Representation Breach or Covenant Breach arising out of the failure of the Sellers to acquire title to such shares as herein contemplated. For purposes hereof the pro-rata reduction shall be determined based upon (i) in the case of the Initial Purchase Price, the amount thereof allocable to the common shares pursuant to paragraph 2.2(a)(ii) and, (ii) in the case of the increase in Initial Purchase Price pursuant to Section 2.7 or a Milestone Payment, the amount thereof, multiplied by a fraction the numerator of which is the number of common shares which the Sellers failed to acquire title to as aforesaid and the denominator of which is 10,732,500.

5.3   Waiver

        The Sellers or the Buyer may waive, by notice to the other Parties in writing, any condition set forth in this Article 5 which is for its benefit. No waiver by the Sellers or the Buyer of any condition, in whole or in part, shall operate as a waiver of any other condition.

5.4   Non-Performance of Conditions & Termination

        In case any of the foregoing conditions shall not be fulfilled or not performed by the Party by which it is to be performed (the "Defaulting Party") at or before the Closing Time, then the other Party may rescind or terminate this Agreement by notice in writing to the Defaulting Party in which event all of the Parties hereto shall be released from all of their obligations hereunder and shall not be liable for any damages to any other Party; provided, however, the obligations under the Confidentiality Agreement shall continue and, provided further, that if this Agreement is rescinded or terminated by a Party because of a wilful or intentional breach of this Agreement by the Defaulting Party or because one or more of the conditions to the non-Defaulting Party's obligations under this Agreement is not satisfied as a result of the Defaulting Party's wilful or intentional failure to comply with its obligations under this Agreement, the non-Defaulting Party's rights to pursue all legal and equitable remedies shall survive such rescision and termination unimpaired. Unless all of the Parties are released as contemplated above, each Party's right of rescision and termination under this Section 5.4 is in addition to any other rights it may have under this Agreement or otherwise, and the exercise of a right of termination will not be an election of remedies.

ARTICLE 6
INDEMNITY

6.1   Indemnification by Sellers

Subject to the terms, conditions, exclusions and limitations provided for in Sections 3.2, 5.2(h), and this Article 6 hereof, the Sellers and Arrow shall, jointly and severally, indemnify, defend and save harmless the Buyer and the Corporation, and each of their respective Representatives from and against any and all Loss suffered or incurred by them, as a result of, or arising out of, in connection with or related to:

(a)

any misrepresentation or breach of warranty made or given by the Sellers in this Agreement, in any Closing Document or in any document delivered pursuant to this Agreement (a "Representation Breach");



(b)

any failure by the Sellers or Arrow to observe or perform any covenant or obligation contained in this Agreement or any Closing Document to be observed or performed by any of them (a "Covenant Breach"); or

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(c)

subject to Section 8.1 hereof, fees, compensation, or indemnification payable to any investment banker, agent or broker engaged or purportedly engaged by the Sellers or any of their Affiliates in connection with the transaction contemplated herein, including without limitation, by the Corporation to CIBC World Markets Inc. (except to the extent expressly permitted in Section 8.1 hereof).

For the avoidance of doubt, it is expressly understood and agreed that, notwithstanding Section 3.1 hereof, Sellers are making no representation, warranty or guarantee, nor shall the same be implied, regarding (i) any projections, estimates or budgets delivered or made available to the Buyer of future results, cash flow, operations or conditions of the Business, or (ii) the ability of the Corporation to carry forward and apply non-capital losses of the Corporation for income tax purposes to reduce taxable income in prior or future taxation years of the Corporation (the "Tax Losses").

6.2   Indemnification by the Buyer

Subject to the terms, conditions, exclusions and limitations provided for in Section 3.4 and this Article 6, the Buyer and Sepracor shall jointly and severally indemnify, defend and save harmless the Sellers and each of the Sellers' Representatives from and against any and all Loss suffered or incurred by them, as a result of, or arising out of, in connection with or related to:

(a)

any misrepresentation or breach of any warranty made or given by the Buyer in this Agreement or in any Closing Document;



(b)

any failure by the Buyer or Sepracor to observe or perform any covenant or obligation contained in this Agreement or in any Closing Document; or



(c)

fees or compensation payable to any investment banker, agent or broker engaged or purportedly engaged by the Buyer or any of its Affiliates in connection with the transaction contemplated herein.

6.3   General Exclusions

Neither the Sellers nor Arrow shall be liable for Losses or any Claim under Section 6.1 or any claim under or in connection with this Agreement against the Sellers or Arrow for a Representation Breach or a Covenant Breach if and to the extent:

(a)

the amount of the Loss has been covered by actual recoveries in directly related claims against third Persons or by actual recoveries from existing or replacement insurance coverage; it being understand and agreed that the Buyer will use, and cause the Corporation to use, reasonable commercial efforts to pursue any available recoveries of such Loss (i) against third Persons, provided, that the Buyer and/or the Corporation do not reasonably determine that pursuing such recoveries against third Persons would be contrary to the best business interests of the Buyer and/or the Corporation, provided further that if Buyer and/or the Corporation determine not to pursue recoveries against such third Persons it or they, as applicable, shall assign to the Sellers their rights entitling them to recovery against such third Persons, such assignment to be in form and content satisfactory to the Sellers acting reasonably, with the intent that such assignment shall be sufficient to enable the assignee to institute the appropriate legal proceeding in their own name without adding the Buyer, the Corporation, or Separcor as a party to such proceedings, and they shall, at the request and expense of the Sellers, provide reasonable cooperation to the Sellers in pursuing such claim, it being understood and agreed that the Buyers shall be entitled to advise such third Persons that their cooperation with the Sellers is a contractual requirement of their right to indemnification, (ii) from existing or replacement insurance coverage;

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(b)

intentionally omitted;



(c)

the event giving rise to the Claim has resulted from any action taken by a Seller or the Corporation after the Execution Date at the written request or direction of, or with the written consent of, the Buyer (and the Buyer shall be deemed to have consented in writing to any action taken by the Seller that it is required or permitted to do pursuant to an express provision of this Agreement); or



(d)

if the Claim relates to a Representation Breach under Section 3.1(ff) arising out of an assessment or reassessment of income Taxes with respect to any taxation year of the Corporation ending on or before the Closing Date, whether resulting in a reduction in the Tax Losses claimed by the Corporation or otherwise, which assessment or re-assessment occurs on or prior to the fifth anniversary of the Closing, then the Corporation (or its successor) shall, in the aggregate, be entitled to reductions in the Tax Losses available to the Corporation and\or to apply (and shall be deemed to have applied) up to Cdn $1 million of the Tax Loss otherwise available to the Corporation (to the extent that the Corporation at the Time of Closing could otherwise have properly applied such loss) to reduce the income that the taxing authority has purported to include in the revised taxable income of the Corporation through such assessment or reassessment and the Claim of the Buyer and or the Corporation for the Loss otherwise arising shall be reduced and deemed to be reduced by the amount by which the income Taxes, interest and penalties otherwise assessed or reassessed have been reduced or are deemed to be reduced as a result of such application (whether or not the Corporation actually so applies the Tax Loss, and even if the Tax Loss is not then available to the Corporation or its successor solely because the Corporation or its successor has applied same to reduce the income of the Corporation or its successor for taxation years ending after the Closing Date, it being the intention of the Parties that up to Cdn $1 million of the Tax Loss otherwise legally available to the Corporation at the Time of Closing in accordance with the provisions of the applicable tax legislation will be applied to reduce the income Taxes payable by (or reduce the Tax Losses available to) the Corporation in respect of any taxation year ending on or prior to the Closing Date before the same is used in future taxation years).;

6.4   Disclosure Exclusion

        Neither the Sellers nor Arrow shall be liable for any Representation Breach or Covenant Breach, and Buyers shall not be entitled to bring any Claim under Section 6.1 or any other claim under or in connection with this Agreement against the Sellers or Arrow in respect thereof, if and to the extent the matter resulting in the Claim was reasonably disclosed in any Schedule attached to this Agreement, it being understood and agreed that information in any one Schedule is deemed to be included in all other Schedules to which they reasonably relate, whether or not they are cross-referenced.

6.5   De-minimis, Threshold and Deductible

        Except for Claims resulting from a Representation Breach under Sections 3.1(a), (b), (b.1), (c), (d), (e), (f), (g), (j), (k), (l), (m), (ff), (ii), (yy(i)), and (ccc), Sellers and Arrow shall only be liable for Losses arising out of a Representation Breach if and to the extent that the aggregate Loss arising out of Representation Breaches exceeds $250,000 (the "Threshold") in which case Sellers and Arrow shall only be liable for the Losses exceeding the Threshold; provided, however, that the limitations and restrictions contained in this Section 6.5 shall not apply to any Losses incurred by the Buyer attributable to fraud or an intentional Representation Breach.

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6.6   Double Dip

        If one and the same set of facts, events or circumstances qualifies under more than one provision as a breach or entitles the Buyer and/or the Corporation to Claim or Claims or remedies under more than one provision of, or in connection with, this Agreement, then even if the Buyer and/or the Corporation make multiple Claims arising from such facts, events or circumstances, the Buyer and the Corporation shall not be entitled to aggregate recoveries from all such Claims in excess of their aggregate Losses arising from such facts, events or circumstances (subject to the reductions and other limitations contained in this Article 6).

6.7   Maximum Liability of Sellers

        Notwithstanding any other provision of this Agreement, the Sellers and the Buyer further agree that the Sellers shall not be liable to make Indemnity Payments to the Buyer and/or the Corporation on account of Losses arising from a Representation Breach other than Claims resulting from a Representation Breach under Sections 3.1(a), (b), (c), (d), (e) (j), (k), (l), (m), (ff), (ii), (yy(i)), and (ccc) which, in the aggregate, exceed an amount equal to 60% of the aggregate of (i) Initial Purchase Price (as adjusted, if necessary, pursuant to Section 2.7 and 5.2(h)), and (ii) that portion of the Milestone Payments completed in Section 2.2. hereof actually paid by the Buyer following the occurrence of a Milestone Event; provided, however, that such limitation shall not apply to any Representation Breach resulting from Sellers' fraud or an intentional Representation Breach and in such case the amounts of any Losses in respect of such claims shall not be included in determining whether any of the limitations set forth in this Section 6.7 has been exceeded.

6.8   Nature of Payments

        All payments by or to a Party in respect of a claim for indemnification pursuant to this Article 6 shall be treated as an adjustment in the amount of the Purchase Price.

6.9   Exclusion of other Remedies

        The Parties agree that the rights and remedies that a Party may have against the other Party for a breach of any representation, warranty, covenant or obligation under this Agreement or any Closing Document, except for any Loss that is the result of fraudulent conduct, wilful misconduct or intentional misrepresentation or omission, shall be exclusively governed by this Agreement. To the extent permitted by Applicable Law, any further claims and remedies (other than claims for specific performance, injunctive relief or other equitable remedy which do not include claims for monetary damages or fraud), irrespective of the nature, amount or legal basis, are hereby expressly waived and excluded. For the avoidance of doubt, the provisions of this Section 6.9 shall not be construed as limiting in any way whatsoever any remedy other than for the recovery, directly or indirectly, of monetary damages with respect to the matters set forth in Sections 6.1 and 6.2 to which Buyer or Sellers may be entitled.

6.10 Agency for Representatives

        Each Party agrees that it accepts each indemnity in favour of any of its Representatives as agent and trustee of that Representative. Each Party agrees that another Party may enforce an indemnity in favour of any of that Party's Representatives on behalf of that Representative.

6.11 Notice of Third Party Claims

        If an Indemnified Party receives notice of the commencement or assertion of any Third Party Claim, the Indemnified Party shall give the Indemnifier reasonably prompt notice thereof. Such notice to the Indemnifier shall describe the Third Party Claim in reasonable detail and shall indicate, if

49

reasonably practicable, the estimated amount of the Loss that has been or may be sustained by the Indemnified Party.

6.12 Defence of Third Party Claims

        The Indemnifier may participate in or assume the defence of any Third Party Claim by giving notice to that effect to the Indemnified Party not later than 15 Business Days after receiving notice of that Third Party Claim (the "Notice Period"). The Indemnifier's right to do so shall be subject to the rights of any insurer or other party who has potential liability in respect of that Third Party Claim. The Indemnifier agrees to pay all of its own expenses of participating in or assuming such defence. The Indemnified Party shall co-operate in good faith in the defence of each Third Party Claim, even if the defence has been assumed by the Indemnifier and may participate in such defence assisted by counsel of its own choice at its own expense. The Indemnifier shall not enter into any compromise or settlement of any Third Party Claim without obtaining the prior written consent of the Indemnified Party. If the Indemnified Party has not received notice within the Notice Period that the Indemnifier has elected to assume the defence of such Third Party Claim, the Indemnified Party may, at its option, elect to settle or compromise the Third Party Claim or assume such defence, assisted by counsel of its own choosing and the Indemnifier shall be liable for all reasonable costs and expenses paid or incurred in connection therewith and, subject to the provisions of this Article 6, any Loss suffered or incurred by the Indemnified Party with respect to such Third Party Claim.

6.13 Assistance for Third Party Claims

The Indemnifier and the Indemnified Party will use all reasonable efforts to make available to the Party which is undertaking and controlling the defence of any Third Party Claim (the "Defending Party"),

(a)

those employees whose assistance, testimony or presence is necessary to assist the Defending Party in evaluating and in defending any Third Party Claim; and



(b)

all documents, records and other materials in the possession of such Party reasonably required by the Defending Party for its use in defending any Third Party Claim, and shall otherwise co-operate with the Defending Party. The Indemnifier shall be responsible for all reasonable expenses associated with making such documents, records and materials available and for all reasonable expenses of any employees made available by the Indemnified Party to the Indemnifier hereunder, which expense shall not exceed the actual cost to the Indemnified Party associated with such employees.

6.14 Settlement of Third Party Claims

        If an Indemnifier elects to assume the defence of any Third Party Claim as provided in Section 6.12, the Indemnifier shall not be liable for any legal expenses subsequently incurred by the Indemnified Party in connection with the defence of such Third Party Claim. However, if the Indemnifier fails to take reasonable steps necessary to defend diligently such Third Party Claim within 30 days after receiving notice from the Indemnified Party that the Indemnified Party bona fide believes on reasonable grounds that the Indemnifier has failed to take such steps, the Indemnified Party may, at its option, elect to assume the defence of and to compromise or settle the Third Party Claim assisted by counsel of its own choosing and the Indemnifier shall be liable for all reasonable costs and expenses paid or incurred in connection therewith. Without the prior written consent of the Indemnified Party, the Indemnifier shall not, without the consent of the Indemnified Party, enter into any compromise or settlement of any Third Party Claim which would lead to liability or create any financial or other material obligation on the part of the Indemnified Party, or that does not contain a full and unconditional release of the Indemnified Party .

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6.15 Indemnification Disputes

In the event that there is a dispute between an Indemnified Party and an Indemnifier over whether the Indemnifier is liable for a Third Party Claim, then:

(a)

the Indemnified Party shall defend the Third Party Claim in accordance with the provisions of Section 6.12 hereof in the same manner and under the same terms as though there were no dispute and the Indemnifier had failed to elect to defend the Third Party Claim itself and the Indemnified Party shall have the right to settle such Third Party Claim pursuant to Section 6.14 hereof;



(b)

In addition, the Indemnifier must advise the Indemnified Party of such a dispute and the reasons therefor, in writing, within 30 days after the Third Party Claim is first tendered to the Indemnifier, unless the Indemnified Party and the Indemnifier mutually agree, in writing, to extend the time; and



(c)

The Indemnified Party and the Indemnifier shall use good faith efforts to resolve any dispute as to the Indemnifier's indemnification obligation. Should those efforts fail to resolve the dispute, the ultimate resolution shall be determined before a court of competent jurisdiction. Either Party may initiate such proceedings with a court of competent jurisdiction at any time following the termination of the efforts by such Parties to resolve the dispute (termination of such efforts shall be deemed to have occurred 30 days from the commencement of the same unless such time period is extended by the written mutual agreement of the Parties). The prevailing Party in such a proceeding shall be entitled to recover reasonable legal fees, costs and expenses. From and after the date on which responsibility for a disputed indemnity regarding a Third Party Claim is resolved: (i) the Indemnifier shall continue to pay all costs that are determined by the Parties or the court, as the case may be, to be allocable to any such Third Party Claim which is determined to be a Third Party Claim subject to indemnity, and (ii) the Indemnified Party shall (A) pay all future costs that are determined by the parties or the court, as the case may be, to be allocable to any such Third Party Claim which is determined to be a Third Party Claim not subject to indemnity and (B) reimburse the Indemnifier for all costs previously paid by the Indemnifier which are allocable to such Third Party Claim determined to be a Claim not subject to indemnity.

6.16 Direct Claims

        Any Direct Claim shall be asserted by giving the Indemnifier reasonably prompt written notice thereof. The Indemnifier shall then have a period of 30 days within which to respond in writing to such Direct Claim. If the Indemnifier does not so respond within such 30 day period, the Indemnifier shall be deemed to have rejected such Claim, and in such event the Indemnified Party shall, subject to the provisions of this Article 6, be free to pursue such remedies as may be available to the Indemnified Party.

6.17 Failure to Give Timely Notice

        A failure to give timely notice as provided in this Article 6 shall not affect the rights or obligations of any Party, except and only to the extent that, as a result of such failure, any Party which was entitled to receive such notice was deprived of its right to recover any payment under its applicable insurance coverage or was otherwise directly and materially prejudiced as a result of such failure.

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ARTICLE 7
CLOSING

7.1   Closing Arrangements

        Subject to the terms and conditions of this Agreement, the closing of the transactions contemplated herein will take place at the Closing Time at the offices of the Buyer's Counsel or at such other place or places as may be mutually agreed upon by the Sellers and the Buyer.

7.2   Documents to be Delivered

        At or before the Closing Time, the Sellers will execute, or cause to be executed, and will deliver, or cause to be delivered, to the Buyer all documents, instruments and things which are to be delivered by the Sellers pursuant to the provisions of this Agreement, and the Buyer will execute, or cause to be executed, and will deliver, or cause to be delivered, to the Sellers all cheques or bank drafts and all documents, instruments and things which the Buyer is to deliver or to cause to be delivered pursuant to the provisions of this Agreement.

ARTICLE 8
GENERAL

8.1   Expenses

        Except as expressly contemplated in this Section 8.1, each Party shall pay all expenses it incurs in authorizing, preparing, executing and performing this Agreement and the transactions contemplated hereunder, whether or not the Closing occurs, including all fees and expenses of its legal counsel, bankers, brokers, accountants or other representatives or consultants ("Transaction Expenses"). Notwithstanding the foregoing, the parties acknowledge that prior to December 31, 2007, the Corporation had paid $53,000.00 (inclusive of GST) to CIBC World Markets Inc. (the "Prior Paid Fees") which would otherwise be a Transaction Expense of the Sellers and agree that, except for the Prior Paid Fees (for which the Sellers shall not be required to reimburse the Corporation or indemnify the Buyer), in no event shall the Corporation be liable for any Transaction Expenses of the Sellers or the Buyer.

8.2   Announcements

        No announcements with respect to this Agreement will be made by any Party without the prior approval of the other Parties. The foregoing will not apply to any announcement by any Party required in order to comply with any Applicable Law, provided that such Party uses commercially reasonable efforts to consult with the other Parties before making any such announcement.

8.3   Time of the Essence

        Time shall be of the essence hereof.

8.4   Notices

Any notice, demand or other communication (hereinafter in this Section 8.4 called a "notice") required or permitted to be given to either party hereunder shall be in writing and shall be:

(a)

personally delivered to such Party or a responsible officer of such Party;



(b)

except during a period of strike, lockout or other postal disruption, sent by registered mail, postage prepaid; or

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(c)

sent by telex, telegraph, facsimile or other form of recorded communication, charges prepaid, confirmed by prepaid registered mail.

Any notices given pursuant to clauses (b) and (c) hereof shall be sent to the Parties at their respective addresses set out below:

in the case of a notice to the Sellers or Arrow:

c/o Cobalt Pharmaceuticals Inc.
6500 Kitimat Road,
Mississauga, Ontario, L5N 2B8.

Attention: Ian Jacobson
Facsimile: (905) 814-8696

With a copy to:

Blaney McMurtry LLP
2 Queen Street East, Suite 1500
Toronto, ON M5C 3G5

Attention: Jack Ditkofsky
Facsimile: (416) 596-2048

in the case of a notice to the Buyer or Sepracor addressed to it at:

Sepracor Inc.
84 Waterford Drive
Marlborough, MA 01752

Attention: Adrian Adams, President & CEO
Facsimile Number: (508) 357-7511

with a copy to:

Sepracor Inc.
84 Waterford Drive
Marlborough, MA 01752

Attention: Andrew Koven, Executive Vice President, General Counsel & Corporate Secretary
Facsimile Number: (508) 357-7511

and with a copy to:

Holland & Knight LLP
701 Brickell Avenue
Suite 3000
Miami, FL 33131

Attention: Rodney H. Bell, Esq.
Facsimile Number: (305) 789-7799

or at such other address as the party to whom such notice is to be given shall have last notified to the party giving the same in the manner provided in this Section 8.4. Any notice given by personal delivery or by telex, telegraph, facsimile or other form of recorded communication, shall be deemed to be given and received on the date of delivery or receipt provided that if such day is not a Business Day, then the notice shall be deemed to have been given and received on the Business Day next following such day. Any notice given by mail as aforesaid shall be deemed to have been given and received on the fourth Business Day next following the date of its mailing provided no

53

postal strike is then in effect or comes into effect within 4 Business Days after such mailing which affects the delivery of mail to the intended recipient.

8.5   Assignment

        Neither this Agreement nor any rights or obligations hereunder shall be assignable by any Party without the prior written consent of the other Parties; provided that the Buyer may assign any of its rights or obligations hereunder to an Affiliate of the Buyer without the consent of any other Party, provided that the Buyer and Sepracor will remain liable for their obligations under this Agreement. Subject to the foregoing, this Agreement shall ensure to the benefit of and be binding upon the parties and their respective successors (including any successor by reason of the amalgamation of any Party) and permitted assigns.

8.6   Further Assurances

        Each party hereto hereby agrees that it/he will do all such acts and execute all such further documents, conveyances, deeds, assignments, transfers and the like, and will cause the doing of all such acts and will cause the execution of all such further documents as are within its/his power as the other party hereto may in writing from time to time reasonably request be done and/or executed, in order to consummate the transactions contemplated hereby or as may be necessary or desirable to effect the purpose of this Agreement or any document, agreement or instrument delivered pursuant hereto and to carry out their provisions or to better or more properly or fully evidence or give effect to the transactions contemplated hereby, whether before or after the closing.

8.7   Attornment

        Each party irrevocably consents and attorns to the personal jurisdiction of the courts of the Province of Ontario in all matters relating to or arising out of this Agreement, and waives any right such party may have to object to the venue or jurisdiction of such courts. Each party further agrees that these courts will have exclusive jurisdiction over any suit, proceeding or action under, relating to or arising out of this Agreement. Each party irrevocably consents to the service of process from any of the courts of Ontario by delivering copies as required by the notice section of this Agreement to such party at its address designated pursuant to this Agreement, with such service of process to become effective as provided for notices in such section.

8.8   Invalidity

        Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction will, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions this Agreement, and any such prohibition or unenforceability in any jurisdiction will not invalidate or render unenforceable such provision in any other jurisdiction. To the extent permitted by applicable law, the parties waive any provision of law which renders any provision of this Agreement prohibited or unenforceable in any respect. Should any provision of this Agreement be so held to be unenforceable, such provision, if permitted by law, shall be considered to have been superseded by a legally permissible and enforceable clause which corresponds most closely to the intent of the parties as evidenced by the provision held to be unenforceable.

8.9   Counterparts

        This Agreement may be executed in several counterparts, each of which when so executed shall be deemed to be an original and such counterparts together shall constitute one and the same instrument.

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8.10 Facsimile Signatures

        All signatures of the Parties may be transmitted by facsimile or through other electronic means and each such transmission shall for all purposes be deemed to contain the original signature of the person whose signature it reproduces and shall be binding upon that person and on the Party on whose behalf that person signed. Each party hereto undertakes to provide each and every other party hereto with a copy of this Agreement bearing original signatures forthwith upon demand.

[Signatures to appear on following page.]

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IN WITNESS WHEREOF this Agreement has been executed as of the date first above written.

COBALT PHARMACEUTICALS INC.
Per:	/s/ Ian Jacobson
Per:	/s/ Henry Koziarski
MELVILLE HOLDINGS LIMITED
Per:	/s/ Howard Simson
1765800 ONTARIO LIMITED
Per:	/s/ Adrian Adams
ORYX PHARMACEUTICALS, INC.
Per:	/s/ Doug Reynolds
Per:	/s/ Julian Neil Tabatznik
SEPRACOR INC.
Per:	/s/ Adrian Adams
ARROW GROUP A.p.S.
Per:	/s/ Howard Simson

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SCHEDULE A

DEFINITIONS

        "Accounting Records" means all of the Corporation's books of account, accounting records and other financial data and information relating to the Business;

        "Accounts Receivable" means all accounts receivable, notes receivable and other debts due or accruing due to the Corporation in connection with the Business;

"Additional Products" means those prescription pharmaceutical products listed in Schedule 1.1(F), being pharmaceutical products currently promoted and marketed by Sepracor Inc. in the United States of America or in respect of which Sepracor Inc. is currently seeking an approval for an NDA from the United States Food and Drug Administration;

        "Affiliate" means, in relation to any Party, any Person which, directly or indirectly, controls, is controlled by or is under common control with such Party. For purposes of this definition, the term "control" (as used in the terms "controls", "controlled by" and "under common control") means either (i) holding 50% or more of the voting securities of such Person or, (ii) in the case of a Person that has no outstanding voting securities, having the right to 50% or more of the profits of such Person or having the right in the event of dissolution to 50% or more of the net assets of such Person or, (iii) the power to direct or cause the direction of the management and policies of such Person, whether pursuant to the ownership of voting securities, by contract or otherwise;

        "Agreement" means this share purchase agreement including all attached Schedules, as the same may be supplemented, amended, restated or replaced from time to time;

        "Applicable Law" means any domestic or foreign statute, law (including the common law), ordinance, rule, regulation, restriction, regulatory policy or guideline, by-law (zoning or otherwise), or Order, or any consent, exemption, approval or Licence of any Governmental Authority, that applies in whole or in part to the Sellers, the Buyer, the Corporation, the Business, the way the Business is carried on or to any of the Purchased Shares;

        "Assets" means all of the assets, real and personal, tangible and intangible, and undertakings of the Corporation reflected in the Corporation Financial Statements or acquired after December 31, 2007 including the Inventory, the Accounts Receivable, the Equipment, the Licenses, the Contracts and the Intellectual Property;

        "Authorized Pre-closing Transactions" has the meaning assigned thereto in Section 4.6;

        "Benefit Plans" means all bonus, deferred compensation, incentive compensation, share purchase, share appreciation and share option, severance or termination pay, hospitalization or other medical benefits, life or other insurance, dental, disability, salary continuation, vacation, supplemental unemployment benefits, profit-sharing, mortgage assistance, employee loan, employee assistance, pension, retirement or supplemental retirement plan or agreement (including any defined benefit or defined contribution pension plan and any group registered retirement savings plan), and each other employee benefit plan or agreement (whether oral or written, formal or informal, funded or unfunded) sponsored, maintained or contributed to or required to be contributed to by the Corporation for the benefit of any of the Employees or other dependents, whether or not insured and whether or not subject to any Applicable Law, except that the term "Benefit Plans" shall not include any statutory plans with which the Corporation is required to comply, including the Canada/Quebec Pension Plan or plans administered pursuant to applicable provincial health tax, workers' compensation and unemployment insurance legislation;

        "Books and Records" means the Accounting Records and all books, records, sales and purchase records, lists of suppliers, formula, business reports and research and development information of the

57

Corporation and plans and projections for the Business and all other documents, files, records, correspondence, and other data and information, financial or otherwise, which are relevant to the Corporation or the Business, including all data and information stored electronically or on computer related media;

        "Brand Pharmaceutical Product" means any pharmaceutical product approved under an NDS or supplemental NDS.

        "Business" means the business carried on by the Corporation of acquiring the right to market (by in-licensing or acquisition), marketing, and selling branded prescription pharmaceutical products to wholesalers, physician specialists and hospitals within Canada;

        "Business Day" means a day other than a Saturday, Sunday, on which Canadian chartered banks are open for the transaction of domestic business in Toronto, Ontario, and U.S. chartered banks are open for the transaction of domestic business in Boston, Massachusetts;

        "Buyer's Counsel" means Holland & Knight LLP;

        "Claim" means any demand, action, suit, proceeding, claim, assessment, judgment or settlement or compromise relating thereto which may give rise to a right to indemnification under Sections 6.1 or 6.2;

        "Closing" means the completion of all of the transactions contemplated by this Agreement which are to occur contemporaneously at or prior to the Time of Closing;

        "Closing Date" means the date on which all conditions to Closing are satisfied or waived; provided, however, that the Closing Date shall not be a date earlier than June 1, 2008; provided, further, however, that either party shall have the right to terminate the Agreement if Closing has not occurred prior to the 1^st day of July, 2008;

        "Closing Document" means any document delivered at or prior to the Closing Time as provided in or pursuant to this Agreement;

        "Closing Financial Statements" has the meaning assigned thereto in Section 2.7;

        "Collective Agreement" means any collective agreement, letters of understanding, letters of intent or other written communication with any trade union or association which may qualify as a trade union, which would cover any Employees;

        "Competing Generic Product" means with respect to a Product, Additional Product or Contingent Oryx Product, any generic pharmaceutical product in respect of which the TPD has issued an NOC based upon an Abbreviated New Drug Submission that references the Product, Additional Product or Contingent Oryx Product, as the case may be;

        "Confidentiality Agreement" means the agreement dated December 3, 2007 between Sepracor Inc. and Oryx Pharmaceuticals Inc.;

        "Contingent Oryx Product" means a prescription pharmaceutical product identified in Schedule 1.1(H) hereto in respect of which the Corporation enters into a license or distribution agreement within one year following the Closing with the third Person identified on such Schedule as the potential licensor thereof, pursuant to which the Corporation will promote, market, sell or distribute such prescription pharmaceutical product in Canada;

        "Contracts" has the meaning assigned thereto in Section 3.1(ww);

        "Corporation Financial Statements" means the audited financial statements of the Corporation for the fiscal years ended December 31, 2004, December 31, 2005, December 31, 2006 and December 31, 2007 each consisting of a balance sheet, statements of income and retained earnings and cash flows and the Auditors report thereon, true copies of which are attached hereto as Schedule 1.1(A);

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        "Cross-Licence Agreements" has the meaning assigned thereto in Section 3.1(ww);

        "Direct Claim" means any Claim by an Indemnified Party against an Indemnifier which does not result from a Third Party Claim;

        "Employees" means all Persons engaged by the Corporation to supply services in connection with the Business, including all employees (whether full or part time, and whether permanent, temporary or hired on a contract basis and including those employees absent from work by reason of short or long term disability, authorized leave of absence and pregnancy, maternity, paternal or parental leave) and Persons retained by the Corporation as independent contractors or under management or consulting agreements who devote all or substantially all of their respective working time and attention to the affairs of the Corporation;

        "Encumbrance" means any encumbrance of any kind whatever and includes a security interest, mortgage, lien, hypothec, pledge, hypothecation, assignment, charge, trust or deemed trust (whether contractual, statutory or otherwise arising), a voting trust or pooling agreement with respect to securities, an adverse claim or any other right, option or claim of others of any kind whatever affecting the Assets or the Purchased Shares;

        "Environmental Laws" includes all federal, foreign, provincial, municipal territorial, or local, laws, requirements, statutes, regulations, by-laws, guidelines, policies or rules, and Orders of any Governmental Authority and the common law, relating in whole or in part to the environment and includes those laws relating to the storage, generation, use, handling, manufacture, processing, transportation, import, export, treatment, release or disposal of any hazardous substance and any laws relating to asbestos or asbestos containing materials in the environment, in the workplace or in any building;

        "Equipment" means all fixed assets and tangible personal property of the Corporation (other than Inventory and supplies), including all equipment described in Schedule 1.1(B) and all fixtures, furniture, furnishings, tools, spare parts, vehicles and computer hardware owned or leased by the Corporation and used by the Corporation in the Business and not intended for sale;

        "Equipment Leases" has the meaning assigned thereto in Section 3.1(ww);

        "Escrow Agent" means Computershare Trust Company of Canada;

        "Escrow Agreement—Security" means the agreement among the Parties hereto and the Escrow Agent in the form of the draft agreement attached hereto as Exhibit 2;

        "Escrow Agreement—Withheld Amount" means the agreement among Melville, the Buyer and the Escrow Agent in the form of the draft agreement attached hereto as Exhibit 3;

        "Escrow Amount" has the meaning assigned thereto in Section 2.6;

        "Execution Date" means the date on which all of the Parties have executed this Agreement;

        "Food and Drugs Act" means the Food and Drugs Act (Canada) and the regulations enacted thereunder and the guidelines and other sub-regulatory documents issued thereunder, including current good manufacturing practices regulations, as the same may be amended, revised or re-enacted from time to time;

        "Formulary" means the Ontario Drug Benefit Formulary/Comparative Drug Index issued and maintained by the Ministry of Health and Long Term Care of the Province of Ontario or any similar or comparable listing or compilation published or maintained in any other province or territory in Canada;

        "Generally Accepted Accounting Principles" means generally accepted accounting principles from time to time approved by the Canadian Institute of Chartered Accountants, or any successor institute,

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applicable as at the date on which any calculation or determination is required to be made in accordance with generally accepted accounting principles;

        "Governmental Authority" means any domestic or foreign government whether federal, provincial, state or municipal and any crown or state owned corporation, governmental, regulatory, legislative or administrative agency, authority or commission of any kind whatever or any court, tribunal or judicial or arbitral body of competent jurisdiction;

        "including" means "including without limitation" and "includes" means "includes without limitation" and each of the terms "including" and "includes" shall not be construed to limit any general statement which it follows to the specific or similar items or matters immediately following it;

        "Indemnified Party" means any Person entitled to indemnification under this Agreement;

        "Indemnifier" means any Party obligated to provide indemnification under this Agreement;

        "Indemnity Payment" means any amount of Loss required to be paid pursuant to Sections 6.1 or 6.2;

        "Independent Accountant" means Grant Thornton LLP, or another internationally recognized independent accounting firm acceptable to Sellers and Buyer;

        "Intellectual Property" means all intellectual property rights of the Corporation, including:

(i)

all copyrights;



(ii)

all patents, the inventions claimed therein and all applications of or relating to the Business, including patents which may be issued out of such applications, (including divisions, reissues, renewals, re-examinations, continuations, continuations in part and extensions), applied for or registered in any jurisdiction;



(iii)

all trade-marks, trade names, designs, graphics, logos and other commercial symbols of the Corporation, whether registered or not;



(iv)

all trade secrets and confidential information;



(v)

all of the right, title and interest of the Corporation to the URL: www.oryxpharma.com, to the website designated by such URL and to any e-mail address which incorporates any element of such URL; and



(vi)

including those rights set forth in Schedule 3.1(rr);

        "Interim Period" means the period from and including the Execution Date to and including the Closing Time;

        "Inventory" means all raw material and supplies, manufacture and purchase parts, goods in process and finished, goods, wares, stock-in-trade and other merchandise and inventory of the Business on hand at any of the Premises and all inventory of pharmaceutical products stored for the account of the Corporation in the warehouses or other applicable facilities maintained by the third Persons who manufacture, package and\or provides logistical services to the Corporation;

        "Key Employees" has the meaning assigned thereto in Section 4.1(l)(i);

        "Knowledge" means, with reference to any of the representations and warranties of the Sellers, solely the actual knowledge as of the Execution Date of those individuals listed in Schedule 1.1(C);

        "License" has the meaning assigned thereto in Section 3.1(tt);

        "Licensed Intellectual Property" means Intellectual Property rights licensed to the Corporation and used or available for use in connection with all or any part of the Business, including those listed

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in Schedule 3.1(rr) hereto and identified as such, and all renewals, modifications and extensions of any of the aforesaid;;

        "Licensed Software" has the meaning assigned thereto in Section 3.1(ss);

        "Licensor" means the Person (other than the Corporation) to a Licence and Marketing Agreement or Terminated Agreement or the Affiliate of such Person in whose name a Regulatory Approval relating to a Product is registered or who is or purports to be the registered owner or authorized user of any Licensed Intellectual Property used by the Corporation in connection with the Business;

        "Loss" means any and all loss, liability, damage, cost, expense, charge, fine, penalty or assessment, resulting from or arising out of any Claim, including the costs and expenses of any action, suit, proceeding, demand, assessment, judgment, settlement or compromise relating thereto and all interest, punitive damages, fines and penalties and reasonable legal fees and expenses incurred in connection therewith, excluding indirect or consequential damages; provided that the amount of any losses in respect of any inaccuracy or breach of a representation or warranty shall be determined regard to any materiality or material adverse effect qualifier;

        "Material Adverse Effect" means any event, occurrence, fact, condition, change or effect that has a materially adverse effect on the Corporation, the Business, the Assets, or the operations, condition (financial or otherwise), prospects or results of operations of the Business;

        "Material Contracts" has the meaning assigned to such term in Section 3.1(ww);

        "New Products" means any prescription pharmaceutical product in respect of which the Corporation files, or is deemed pursuant to Section 4.7 hereof to have filed, within ten years of the Closing an NDS with the TPD or its successor seeking a marketing approval therefore in Canada and includes, without limitation, an Additional Product, but does not include (i) a Contingent Oryx Product or (ii) a product in-license by the Corporation from a third Person if the corresponding or equivalent product is not in-licensed by Sepracor or any of its Affiliates for sale or distribution in the United States (whether prior, at the same time as, or subsequent to the in-license arrangement in Canada);

        "NOC" means a Notice of Compliance issued by the TPD pursuant to the Food and Drugs Act;

        "Non-Active Employees" means on any particular date, those Employees who are absent from work on such date by reason of short or long term disability or by reason of authorized leave of absence including pregnancy, maternity, paternal or parental leave, but for greater certainty does not include Employees who are absent from work on such date by reason of illness (which is not a disability), holiday or scheduled day off;

"NDS" means a new drug submission within the meaning of the Food and Drug Act and includes a supplemental new drug submission, as the same may be amended from time to time;

        "Occupational Health and Safety Acts" means the Occupational Health and Safety Act (Ontario) and all other legislation of any jurisdiction dealing with any of the subject matter of that Act or with any aspect of the health or safety of employees;

        "Order" means any order (draft or otherwise), judgement, injunction, decree, award or writ of any Governmental Authority or other Person having jurisdiction;

        "ordinary course" when used in relation to the conduct of the Business means any transaction which constitutes an ordinary day-to-day business activity of the Corporation conducted in a manner consistent with the Corporation's past practices;

        "Owned Intellectual Property" means Intellectual Property owned by the Corporation and used or available for use in connection with all or any part of the Business, including those listed in Schedule 3.1(rr) hereto and identified as such.

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        "Parties" means the Persons who have executed and are bound by the terms of this Agreement collectively, and "Party" means any one of them;

        "Pension Plans" means all Benefit Plans relating to retirement or retirement savings including pension plans, pensions or supplemental pensions "registered retirement savings plans" (as defined in the Income Tax Act (Canada)), "registered pension plans" (as defined in the Income Tax Act (Canada)) and "retirement compensation arrangements" (as defined in the Income Tax Act (Canada)), but for greater certainty does not include a Benefit Plan which is a registered retirement savings plan held by any employee and administered by a Person other than the Corporation for the benefit of such employee to which the Corporation makes a contribution;

        "Permitted Encumbrances" means the Encumbrances described in Schedule 1.1(D);

        "Person" shall be broadly interpreted and includes an individual, body corporate, partnership, joint venture, trust, association, unincorporated organization, the Crown, any Governmental Authority or any other entity recognized by law;

        "Personal Information" means any information about an identifiable individual;

        "Premises" means the premises occupied and shared by the Corporation at 6601 Kitimat Road, Mississauga, Ontario pursuant to the terms of the Service and Cost Sharing Agreement;

        "Privacy Legislation" means the Personal Information Protection and Electronic Documents Act (Canada) and all other laws, regulations, by-laws and ordinances that regulate the collection, use or disclosure of Personal Information or information about entities other than identifiable individuals in each jurisdiction in which the Corporation carries on the Business;

        "Proceedings" means a claim, demand, suit, action, cause of action, dispute, proceeding, litigation, investigation, grievance, arbitration, administrative proceedings, changes, plea, mediation, hearing, governmental proceeding or other proceeding including appeals and applications for review;

        "Products" means those prescription pharmaceutical products listed in Schedule 1.1(E), being the Products currently promoted and marketed by the Corporation in Canada;

        "Purchase Price" means the purchase price to be paid by the Buyer for the Purchased Shares as provided in Section 2.2;

        "Purchased Shares" means all of the shares of the Corporation issued and outstanding at the Time of Closing and includes the Current Issued Shares and all common shares of the Corporation issued pursuant to the exercise of the Outstanding Options;

        "Regulatory Approval" means in relation to a Product, the NOC and such provincial and/or territorial licences, authorizations, consents, approvals or registrations required in any province or territory in Canada to sell a pharmaceutical product in such province or territory or to cause such Product to be registered or listed in the Formulary published or maintained for that jurisdiction;

        "Regulatory Authorities" means the TPD and the provincial government ministry, department or agency, the regulatory body or other Person responsible in the province or territory in Canada in question for issuing Regulatory Approvals and/or for enacting, monitoring and/or enforcing the applicable laws, rules and regulations relating to the sale of pharmaceutical products in such market or jurisdiction, the pricing of pharmaceutical products, the designation or listing of any pharmaceutical product as interchangeable with one or more other pharmaceutical products or the listing or acceptance of a pharmaceutical product for listing in the Formulary published in that jurisdiction, including, by way of illustration only and without limitation, the Ministry of Health and Long Term Care in the Province of Ontario;

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        "Related Party Agreements" means the Cross-Licence Agreements, the Service and Cost Sharing Agreement and those other agreements, if any, listed in Schedule 1.1(G) hereof;

        "Representative" means each director, officer, employee, agent, solicitor, accountant, professional advisor and other representative of a Party;

        "Sales Employees" has the meaning assigned thereto in Section 4.1(l)(ii);

        "Sellers' Counsel" means Blaney McMurtry, LLP;

        "Sellers' Required Consents and Approvals" has the meaning assigned thereto in Section 3.1(i);

        "Service and Cost Sharing Agreement" means the agreement made as of the 1^st day of January, 2005 among the Corporation, Cobalt and Arrow Pharmaceuticals Inc. pursuant to which, inter alia, the Corporation occupies the Premises and Cobalt provides certain administrative and regulatory services to the Corporation;

        "Specifications" means the terms and conditions applicable to the Product in question as contemplated by its NOC, as the same may be supplemented from time to time;

        "Standard Sepracor Canadian Offer Package" means the form offer letter annexed hereto as Exhibit 5 and such other standard employment documents consistent with those applicable to other employees of Sepracor, to the extent consistent with applicable Canadian federal and provincial laws;

        "Target Working Capital" means the sum of Cdn $2,700,000;

        "Tax Act" means the Income Tax Act (Canada) and the rules and regulations promulgated thereunder, and the provincial counterparts thereof, as the same may be amended from time to time;

        "Tax Losses" shall have the meaning attributed thereto in Section 6.1 hereof;

        "Tax Returns" means all reports, returns and other documents filed or required to be filed by the Corporation in respect of Taxes, or in respect of or pursuant to any domestic or foreign federal, provincial, state, municipal, local, territorial or other taxing statute;

        "Taxes" means all taxes and similar governmental charges, including:

(a)

Canadian federal, provincial, municipal territorial, and local, foreign or other income, profit, gains, gross receipts, windfalls, franchise, license, capital, real property, land transfer, personal property, tangible, intangible withholding, payroll, employer health, transfer, sales, use, excise, goods and services, consumption, anti-dumping, countervail and value added, stamp, severance, social services, social security, education, utility, surtax, employer health, real property and personal property and any other taxes, charges, custom duties, excises, import or export fees, imposts, levies, assessments or similar charges in the nature of a tax for which the Corporation may have any liability imposed by Canada or any province, municipality, country or foreign Governmental Authority or subdivision or agency thereof, whether disputed or not;



(b)

all Canada Pension Plan and Quebec Pension Plan contributions, employment or unemployment insurance premiums and workers compensation premiums, together with any instalments with respect thereto; and



(c)

any interest, fines and\or penalties imposed by any Governmental Authority (including federal, provincial, municipal, local, territorial, and foreign governmental authorities), with respect to Taxes and whether disputed or not;

        "Terminated Agreements" has the meaning assigned thereto in Section 3.1(ww);

        "Third Party Claim" means any Claim asserted against an Indemnified Party or the Corporation, that is paid or payable to, or claimed by, any Person who is not a Party or an Affiliate of a Party;

        "Time of Closing" or "Closing Time" means 10:00 a.m. on the Closing Date or such other time on such date as the Parties may agree upon before then in writing;

        "TPD" means the Therapeutic Products Directorate of Health Canada (or whatever such agency might be called from time to time) or any successor agency having regulatory jurisdiction over the manufacture, distribution and sale of prescription pharmaceutical drugs in Canada;

"Withheld Amount" shall have the meaning attributed thereto in Section 2.4(b) hereof.

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QuickLinks

Exhibit 10.1

SHARE PURCHASE AGREEMENT
ARTICLE 1 INTERPRETATION
ARTICLE 2 PURCHASE AND SALE
ARTICLE 3 REPRESENTATIONS AND WARRANTIES
ARTICLE 4 COVENANTS
ARTICLE 5 CONDITIONS PRECEDENT TO CLOSING
ARTICLE 6 INDEMNITY
ARTICLE 7 CLOSING
ARTICLE 8 GENERAL
SCHEDULE A DEFINITIONS

EX-10.2

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Exhibit 10.2

Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.

License and Development Agreement

By and between

Arrow International Limited
57 St. Christopher Street
Valletta, VLT 08, Malta

and

Sepracor Inc.
84 Waterford Drive
Marlborough, MA 01752
USA

        This License and Development Agreement (this "Agreement"), dated as of April 30, 2008 is being entered into by and between Arrow International Limited, a Malta corporation having its principal office at 57 St. Christopher Street, Valletta, VLT 08, Malta, and its Affiliates (collectively referred to as "Arrow"), and Sepracor Inc., a corporation organized and existing under the laws of the State of Delaware and having its principal office at 84 Waterford Drive, Marlborough, MA 01752, USA ("Sepracor"). Each or both of Arrow and Sepracor are hereinafter referred to as "Party" or "Parties", as intended in the given context.

RECITALS

A.

Sepracor wishes to commercialize an inhalation pharmaceutical product containing a combination of both levalbuterol and ipratropium as the sole active ingredients.



B.

Arrow controls certain Arrow Know-How and Arrow Patents relating to the Product.



C.

Arrow has material capabilities, resources and experience in the development and analytical testing of inhalation pharmaceutical products, and has made substantial progress in development of the Product.



D.

Sepracor has material capabilities, resources and experience in the development, clinical testing, regulatory approvals, commercialization, marketing and distribution of branded inhalation pharmaceutical products, including with respect to inhalation products containing levalbuterol.



E.

Arrow wishes to grant Sepracor an exclusive right and license under the Arrow Technology to Develop, distribute and Commercialize the Product.



F.

Sepracor wishes to work collaboratively with Arrow to continue to Develop the Product and subsequently to Commercialize the Product.

        NOW, THEREFORE, in consideration of the mutual promises, covenants and agreements hereinafter set forth, the sufficiency of which is hereby acknowledged, and intending to be legally bound, the Parties to this Agreement mutually agree as follows:

Article 1    Definitions

        For the purposes of this Agreement, the following terms, whether used in the singular or plural, shall be ascribed the following meaning:

        1.1   "Additional Product" means any product or proposed product, other than the Product, which contains, [**].

        1.2   "Affiliate" of either Party means any corporation, firm, partnership, organization or entity, whether de jure or de facto, which such Party directly or indirectly controls, is controlled by or is under common control with. For the purpose of this definition, the term "control" means (i) direct or indirect ownership of fifty percent (50%) or more of the outstanding equity voting stock (or such lesser percentage which is the maximum allowed to be owned by a foreign corporation in a particular jurisdiction) of a Party or other entity or (ii) the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Party or other entity, whether through the ownership of voting securities, by contract, or otherwise.

        1.3   "Arrow Know-How" means the Know-How Controlled by Arrow (for purposes of clarity, including Affiliates of Arrow) at any time during the Term in the Territory that may be useful to Sepracor in Sepracor's Development and Commercialization of the Product in the Territory.

        1.4   "Arrow Patent(s)" shall mean any and all Patents or Patent Applications Controlled by Arrow (for purposes of clarity, including Affiliates of Arrow) at any time during the Term in the Territory with a claim relating to a Product or a component of a Product, or a method of manufacture or Formulation of any of the foregoing, or a method of treatment using any of the foregoing. The Arrow Patents in the Territory existing on the Effective Date are identified on Schedule 1.4, as it may be amended from time

to time. For the avoidance of doubt, an inclusion with respect to any Arrow Patent coming into existence after the Effective Date shall occur automatically upon the first filing of a provisional or non-provisional application in respect of such Arrow Patent in the Territory, and the subsequent amendment of Schedule 1.4 shall only serve declaratory purposes.

        1.5   "Arrow Technology" means the Arrow Know-How and the Arrow Patents, collectively.

        1.6   "Business Day" means any day on which banking institutions in the Commonwealth of Massachusetts, United States are open for business.

        1.7   "Change of Control" with respect to a Party means (i) the acquisition (directly or indirectly, whether by merger, consolidation, purchase and sale, share exchange or otherwise) by any Third Party (other than an Affiliate or any trust or fund created under a profit-sharing or other benefit plan for employees of such Party) of a beneficial interest in the securities of such Party representing more than fifty percent (50%) of the combined voting power of such Party's then outstanding securities; or (ii) the transfer, sale or assignment of more than fifty percent (50%) of the assets of such Party to a Third Party other than an Affiliate of such Party; or (iii) any other transfer to a Third Party of the power to control such Party.

        1.8   "Commercialization" means any and all activities directed to importing, marketing, promoting, advertising, distributing, storing, offering for sale, using and selling a Product, including, without limitation, the distribution of promotional samples to targeted prescribers (to the extent applicable), in the Territory, and conducting Phase IV Studies of Product. When used as a verb, "Commercialize" means to engage in Commercialization.

        1.9   "Contract Year" means (a) with respect to the first Contract Year, the period beginning on the Effective Date and ending on December 31, 2008 (the "First Contract Year"), (b) with respect to each subsequent Contract Year other than the last Contract Year, the one (1) year period beginning on the day following the end of the First Contract Year and each succeeding one (1) year period thereafter, and (c) with respect to the last Contract Year, the period beginning on January 1 of such last Contract Year and ending on the date as of which this Agreement expires or is terminated (the "Last Contract Year"). Each Contract Year (other than the First Contract Year or the Last Contract Year) shall be divided into four (4) "Contract Quarters" comprised of successive three (3) month periods. In the First Contract Year, the first Contract Quarter shall end on the first day following the Effective Date that is the last day of a Contract Quarter, and in the Last Contract Year, the last Contract Quarter shall end upon expiration or termination of the Agreement.

        1.10 "Control" or "Controlled" means that a right is owned, licensed, or otherwise possessed by a Party with the right to license or sublicense.

        1.11 "Development" means the scientific, medical, technical, and clinical, regulatory and other activities necessary to obtain Regulatory Approval to Commercialize the Product in the Territory, including, without limitation, technical development, clinical development and the preparation, filing, prosecution and administration of INDs, and/or NDAs, in accordance with a Development Plan that has been agreed pursuant to the terms and conditions of this Agreement. When used as a verb, "Develop" means to engage in Development.

        1.12 "Development Costs" means for all studies or activities performed in accordance with Sepracor's Development Plan for any Product in the Territory, including the following: (a) all out-of-pocket costs and expenses incurred (i.e., paid to Third Parties or accrued therefor) by Sepracor or any of its permitted designees, (b) the costs of internal personnel engaged in the performance of such studies or activities, and (c) the costs of clinical supplies for such studies or activities, which costs shall include (i) the clinical supply price, (ii) out-of-pocket costs and expenses incurred in purchasing comparator drug and in packaging comparator drug and/or such Product, as applicable, shipping clinical

2

supplies to centers, or disposal of clinical supplies, and (iii) actual costs of packaging clinical samples and comparator drug, as applicable, if done by a Party.

        1.13 "Development Plan" means a plan designed by Sepracor to achieve the clinical Development of a specific Product or of a specific Improvement, as may be applicable, including, without limitation, (i) the budget and nature, number and schedule of Development activities, (ii) a time schedule for the implementation of the Development activities concerned, (iii) all such other issues as may reasonably have to be addressed under such Development Plan, as it may be amended by Sepracor from time to time in accordance with this Agreement.

        1.14 "Effective Date" means the date of the execution of this Agreement by both Parties.

        1.15 "FDA" means the U.S. Food and Drug Administration and any successor agency thereto.

        1.16 "First Commercial Sale" shall mean the first sale or other disposition for value of a Product, in a final dosage form packaged for the ultimate consumer, to an independent Third Party following applicable Regulatory Approval, by Sepracor, its Affiliates or permitted sublicensees.

        1.17 "Formulation" or "Formulations" mean the Development of stable and acceptable preparations, suspensions, or other chemical mixtures of ingredient, as well as associated studies and analysis of properties, [**], required to develop INDs for a product, including the Product, all prepared according to Good Laboratory Practice Standards ("GLP") and other relevant laboratory practice standards.

        1.18 "GAAP" means the "United States Generally Accepted Accounting Principles" as determined by the US Financial Accounting Standards Board (FASB).

        1.19 "Gross Sales" means, with respect to any applicable period and any Product, the gross amounts invoiced by Sepracor or an Affiliate to unrelated Third Parties for sales of such Product.

        1.20 "Improvement" means any Know-How, including, without limitation, findings, discoveries, inventions, additions, modifications, formulations or changes, whether patentable or not, made and Controlled by either Party during the Term insofar as such Improvement relates to a Product.

        1.21 "IND" means an investigational new drug application submitted to the FDA in respect of a new drug.

        1.22 "Know-How" means all scientific, medical, technical, clinical, regulatory, marketing and other information relating to a Product that is Controlled by a Party hereto, and that is in existence as of the Effective Date or comes into existence during the Term.

        1.23 "NDA" means (a) a new drug application submitted to the FDA pursuant to 21 U.S.C. Section 355(b)(1), or any successor application or procedure and (b) all supplements and amendments, including supplemental new drug applications that may be filed with respect to the foregoing (each, a "SNDA").

        1.24 "Net Sales" means, with respect to any period, the Gross Sales of the Product, less items recognized under GAAP, including, but not limited to, the following deductions to the extent included in the gross invoiced sales price for the Product or otherwise directly paid or incurred by Sepracor, its permitted Affiliates and its permitted sublicensees with respect to the sale of the Product and not otherwise recoverable by the paying party: (a) trade, quantity, or cash discounts, chargebacks, returns, allowances or rebates and actually allowed, given or accrued in the ordinary course of trading (including, but not limited to, cash, governmental and managed care rebates, hospital or other buying group chargebacks); (b) adjustments, rejections, recalls and returns to the extent made in the ordinary course of trading, to the extent the customer has been credited the original sales price or a portion thereof; (c) sales, excise, turnover, inventory, value-added, customs duties and similar taxes and governmental charges assessed on the sale of the Product; and (d) the portion of any management fees

3

paid during the relevant time period to group purchasing organizations that relate specifically to the sale of such Product to such organizations, (e) any royalties payable by Sepracor to Third Parties in order to enable Sepracor to commercialize the Product in the Territory, (f) service fees paid or allowances conceded to wholesalers pursuant to distribution services agreements or similar contracts by and between Sepracor and wholesalers for logistic and other services such as, without limitation, stock-keeping.

        Sales, transfers or dispositions of the Product for charitable, promotional (including samples), pre-clinical, clinical, or regulatory purposes with respect to which no consideration is received by Sepracor or its Affiliates, shall be excluded from Net Sales, as shall sales or transfers of the Product among a Party and its Affiliates.

        Upon any sale or other disposal of any Product for any consideration other than an exclusively monetary consideration on bona fide arm's length terms then, for the purposes of calculating the Net Sales under this Agreement, such Product shall be deemed to be sold exclusively for money at the fair market price generally achieved for such Product in the Territory.

        Any discounts or allowances made by Sepracor outside the ordinary course of trading shall not be accounted for in determining Sepracor's Net Sales. For clarity and without limitation, this shall apply to direct and indirect discounts and allowances to customers regarding the Product associated with product bundling and selling the Product in combination with other Sepracor products (so called "package deals"). Upon any sale or other disposal of any Product for any consideration outside the ordinary course of trading, for the purposes of calculating the Net Sales under this Agreement, the Product shall be deemed to be sold exclusively for money at the fair market price generally achieved in bona fide arm's length trading for such Product in the Territory when such Product is sold alone, and not with or in combination with products other than the Product.

        1.25 "Patents" shall mean all existing patents and patent applications and all patent applications hereafter filed, including, without limitation, any continuations, continuations-in-part, divisions, reissues, reexaminations, utility models, provisionals or substitute applications, any patent issued with respect to any such patent applications, any reissue, reexamination, renewal, amendment or extension (including any supplementary protection certificate and any patent term extension) of any such patent, and any confirmation patent or registration patent or patent of addition based on any such patent, and all foreign counterparts of any of the foregoing.

        1.26 "Person" means any individual, corporation, partnership, association, joint-stock company, trust, unincorporated organization or government or political subdivision thereof.

        1.27 "Product" means Arrow's levalbuterol/ipratropium combination inhalation solution product in current and all future formulations and delivery modes, any Additional Product and any Improvement to the foregoing.

        1.28 "Regulatory Approval" shall mean that all approvals, price approvals or approvals for reimbursements, product and/or establishment licenses, registrations, permits, or authorizations of any federal, state or local regulatory agency, department, bureau or other governmental entity or Regulatory Authority, necessary for the manufacture, packaging, distribution, use, storage, importation, export, transport, marketing and sale of the Product for therapeutic use in humans in a country of the Territory have been obtained.

        1.29 "Regulatory Authority" shall mean any national, supra-national, regional, state or local regulatory agency, department, bureau or other governmental entity in the Territory responsible for issuing any technical, medical and scientific licenses, registrations, authorizations and/or approvals of the Product including any marketing authorizations based upon such approvals and pricing, third party reimbursement or labeling approvals that are necessary for the manufacture, distribution, use, storage, importation, export, transport and sale of a Product in a country of the Territory.

4

        1.30 "Territory" shall mean the world.

        1.31 "Third Party" shall mean any Person other than the Parties and their Affiliates.

        1.32 "Trademark" shall mean any trademark used in connection with the Commercialization of a Product.

Article 2    Grant of Rights

        2.1    Exclusive License Grant.    During the Term, Arrow grants to Sepracor the exclusive right and license under the Arrow Patents and Arrow Know-How to Develop, have Developed, market, have marketed, use, have used, Commercialize, have Commercialized, distribute, have distributed, offer for sale, sell and have sold the Product in the Territory and to package, distribute, sell, market and promote the Product in and throughout the Territory, including the right to grant sub-licenses, subject to all of the terms and conditions of this Agreement. Such right and license in the Territory shall be exclusive even as to Arrow, except to the extent necessary to enable Arrow to perform any obligations or activities that Arrow is required or permitted to perform under this Agreement. The license is subject to Arrow's right of manufacture in Section 10.1.

        2.2    Further Assurances.    Arrow hereby agrees that it will do all such acts and execute all such further documents, conveyances, deeds, assignments, transfers, licenses and the like, and will cause the doing of all such acts on its own behalf and by each of its Affiliates and will cause the execution of all such further documents on its own behalf and by each of its Affiliates as are within its power as Sepracor may from time to time reasonably request be done and/or executed in order to consummate the transactions contemplated under this Agreement, as may be necessary or desirable to effect the purposes of this Agreement, or as may be appropriate to more effectively carry out and vest in Sepracor the grant of rights and licenses intended to be made under this Agreement, all at the sole cost and expense of Arrow.

Article 3    Development

        3.1    Development of the Product.    Sepracor shall be responsible for all aspects of the Development of the Product. Arrow's obligation with respect to Development of the Product shall be limited to making reasonable efforts upon Sepracor's request to provide and facilitate the transfer of Arrow Technology, including data, and enabling technology with respect to the Product.

        3.2    Access to Data and Information.    Sepracor shall own and have the right to access free of charge all information and data generated in all Development activities and all pre-clinical, clinical and marketing studies with respect to the Product.

        3.3    Cooperation regarding Regulatory Approvals.    The Parties shall consult and cooperate in the preparation of each submission for Regulatory Approvals for the Product in the Territory and in obtaining and maintaining Regulatory Approvals within the Territory, provided however, that, Sepracor shall be solely responsible for interactions with Regulatory Authorities throughout the Territory.

        3.4    Clinical Trial Data.    All data (including all pre-clinical, clinical and/or marketing data) developed by either or both of the Parties during the Term and relating to a Product shall be and remain the property of Sepracor.

        3.5    Clinical Studies.    Sepracor shall have the exclusive right to conduct any clinical trials or studies, prior to or after relevant Regulatory Approval, relating to the Product in the Territory.

        3.6    Funding of Product Development.    Sepracor shall be responsible for all Development Costs. Further Sepracor shall [**] Arrow in connection with [**] specified in Section [**]. Such [**] shall be [**], which shall be delivered by Arrow within [**], in which case such [**].

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Article 4    Commercialization

        4.1    Commercialization in General.    Sepracor shall have the exclusive right, even as to Arrow, to Commercialize the Product in the Territory. Sepracor shall use its commercially reasonable efforts to Commercialize the Product as soon as commercially reasonable following receipt of Regulatory Approval.

        4.2    Compliance and Assistance.    Arrow shall provide Sepracor with reasonable assistance, in a timely manner, to support Sepracor's requirements in complying with Regulatory Authorities' requests or orders, including voluntary or involuntary recalls of a Product, in the Territory insofar as the Regulatory Authority request or order reasonably relates to work performed by Arrow. The foregoing shall occur [**].

        4.3    Promotional Materials.    Arrow shall provide Sepracor with reasonable assistance, in a timely manner, to support Sepracor's activities in Commercializing the Product in the Territory. The foregoing shall occur [**].

Article 5    Governance and Oversight

        5.1    Steering Committee.    The Parties shall establish a joint steering committee (the "SC") consisting of representatives of senior management from each Party, each such representative having the authority to act on behalf of the Party such individual represents, the exact number of which shall be as the Parties may agree, from time to time. Initially, the SC shall consist of five (5) individuals, three (3) of whom shall be nominated by Sepracor, and two (2) of whom shall be nominated by Arrow. Any member of the SC may designate a substitute to attend and perform the functions of that member at any meeting of the SC. Each Party may, with the consent of the other Party, such consent not to be unreasonably withheld or delayed, invite non-member, non-voting representatives of such Party to attend meetings of the SC. Sepracor shall designate the chairperson and the secretary of the SC. The SC shall perform the following responsibilities:

        (a)   Oversee the overall strategy for the Development of the Product in the Territory.

        (b)   Facilitate communication between the two Parties and provide a forum to review any Development, regulatory, manufacturing and Commercialization matters pertaining to the Product.

        (c)   Provide a forum for communication of Sepracor and Arrow's activities in the Territory with respect to the Product.

        (d)   Undertake a regular and frequent review and comparison of the status of the Development Plan, including, without limitation the applicable timelines, and provide direction to the conduct of the Development Plan, as necessary.

        (e)   Review and approve the proposed Development Plan and any fundamental amendments or modifications thereto.

        (f)    Perform such other responsibilities as may be assigned to the SC pursuant to this Agreement or as may be mutually agreed upon by the Parties from time to time.

        5.2    Meetings.    All SC meetings shall be as often as the members may determine, but in any event SC meetings shall occur not less than four times per calendar year. Such meetings may be held in person, or any means of telecommunications or video conference, as the members deem necessary or appropriate; provided, however, that at least one SC meeting per year shall be held in person and the location of such in person meeting shall alternate between Sepracor's and Arrow's offices.

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        5.3    Decision-making of Steering Committee.

        (a)   The SC may make decisions with respect to any subject matter that is subject to the SC's decision-making authority or within the purview of any other subcommittee organized as part of this Agreement. Except as expressly provided in this Agreement, all decisions of the SC shall be made by majority vote of the members with at least 4 members casting a vote. The SC shall use reasonable efforts to resolve any disputes concerning the matters within its roles and functions or otherwise referred to it.

        (b)   If, with respect to a matter that is subject to the SC's decision-making or oversight authority, the SC cannot reach consensus within fifteen (15) Business Days after it has met and attempted to reach such consensus or the Parties cannot reach consensus on whether the SC has decision-making authority regarding a matter within fifteen (15) Business Days after such matter was first raised by either Party, the dispute in question shall be resolved by the chairperson of the SC.

        (c)   Notwithstanding the foregoing, Sepracor shall not exercise its right to finally resolve a dispute in accordance with this Section 5.3 in a manner that excuses Sepracor from any of its obligations specifically enumerated under this Agreement.

        (d)   Notwithstanding this Section 5.3, any dispute regarding the interpretation of this Agreement or any alleged breach of this Agreement will be resolved in accordance with the terms of Article 15.

        5.4    Minutes.    Minutes for each of the SC meetings shall be drafted by the secretary of the meeting and sent to the chairperson for comment promptly after each such meeting (but in no event more than thirty (30) days). All actions noted in the minutes are to be reviewed and approved at subsequent meetings of the SC; provided, that if the Parties cannot agree as to the content of the minutes, such minutes will be finalized to reflect such disagreement.

        5.5    Expenses.    Each Party shall bear all its own costs, including expenses incurred by the members nominated by it in connection with their activities as members of the SC.

Article 6    Regulatory Affairs

        6.1    Title to and Ownership of Regulatory Approvals.    Sepracor or its designee shall be the owner of all Regulatory Approvals for the Product in the Territory. Arrow agrees to have transferred any Regulatory Approvals relating to any Product owned by Arrow or its Affiliates to Sepracor or its designee.

        6.2    Responsibility for Regulatory Approval.    In accordance with the terms and subject to the conditions herein specified, Sepracor shall be solely responsible for obtaining all Regulatory Approvals for the Product in the Territory. All expenses incurred by Sepracor in obtaining any such Regulatory Approvals shall be borne by Sepracor. Sepracor shall use its commercially reasonable efforts to obtain Regulatory Approvals in a timely and expedient manner.

        6.3    Maintaining Regulatory Approval.    Sepracor shall maintain each Regulatory Approval for a Product in the Territory in its own name. All expenses incurred by Sepracor in maintaining such Regulatory Approvals shall be borne by Sepracor.

        6.4    Arrow Cooperation.    Arrow shall use commercially reasonable efforts upon timely request of Sepracor: (i) to assist Sepracor in responding to any queries from a Regulatory Authority, (ii) to provide Sepracor with all necessary documents, data and information which Arrow has in its possession or control that will assist Sepracor in preparing and maintaining the Regulatory Approvals in the Territory, and (iii) to provide, at least [**] before a response is due to any Regulatory Authority, all the

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necessary documents, data, and information that Arrow has in its possession or control that will assist Sepracor in preparing for such response.

        6.5    Inspections, Inquiries and Complaints.

        (a)   Arrow shall advise Sepracor of any Regulatory Authority visit to, or written or oral inquiry about, any facilities or procedures relating to the Development of a Product promptly, but in no event later than [**] after notice of such visit or inquiry. Arrow shall, within [**] of receipt or submission, furnish to Sepracor any report or correspondence issued by or provided to the Regulatory Authority in connection with such visit or inquiry. Sepracor shall have the right to be present during any such visits (provided that Arrow has sufficient advance notice) and shall be apprised of all correspondence with any Regulatory Authority.

        (b)   Arrow shall advise Sepracor within [**] of becoming aware of any material investigation, complaint, claim or potential claim, whether from a Regulatory Authority or not, about a Product relating to a safety issue.

        6.6    Coordination.    The Parties shall establish procedures to ensure that the Parties exchange on a timely basis all necessary information to enable Sepracor and Arrow to comply with all regulatory obligations relating to a Product on a global basis, including without limitation filing updates, pharmacovigilance filings and investigator notifications.

Article 7    Intellectual Property

        7.1    Ownership of Intellectual Property.    Sepracor shall have and retain sole and exclusive right, title and interest in and to all inventions, discoveries, writings, trade secrets, know-how, methods, practices, procedures, engineering information, designs, devices, improvements, manufacturing information and other technology, whether or not patentable or copyrightable, and any patent applications, patents, or copyrights based thereon ("Inventions") that are made, discovered, conceived, reduced to practice or generated by Sepracor (or its employees or representatives) or jointly by Sepracor and Arrow (or their employees or representatives) that relate directly to a Product or the active ingredients in a Product. Arrow shall have and retain sole an exclusive right, title and interest in and to all Inventions made solely by Arrow (or its employees or representatives) that relate directly to a Product or the active ingredients in the Product. With respect to any Inventions not directly relating to a Product or the active ingredients in a Product, each Party shall own all right, title and interest in and to all such Inventions made, discovered, conceived, reduced to practice or generated solely by such Party (or its employees or representatives), and the Parties shall jointly own the right, title and interest in and to all such Inventions made, discovered, conceived, reduced to practice or generated jointly by the Parties (or their employees or representatives). The Parties agree to cooperate in the filing of patent applications upon such jointly-owned inventions. With respect to Inventions made by Arrow that directly relate to a Product or the active ingredients in a Product, Arrow shall grant Sepracor a fully-paid, perpetual, exclusive license in the Territory to make, use, offer to sell, or sell such Inventions in relation to the Product, except that such license shall not be considered exclusive as and to the extent necessary to enable Arrow to perform any obligations or activities that Arrow is required or permitted to perform under this Agreement in relation to the Product. With respect to Inventions made by Arrow that directly relate to the Product or the active ingredients in the Product, Arrow shall retain the right, title and interest to practice such Inventions other than in relation to the Product.

        7.2    Maintenance of Patents.    Sepracor shall be authorized to, and responsible for, [**], maintaining all Patents covering a Product, whether such Patents are Arrow Patents or Sepracor Patents. Should Sepracor elect not to maintain any Arrow Patent in the Territory, then Sepracor shall provide Arrow with written notice in sufficient time (and in no event less than [**] before any statutory bar date) to permit Arrow to maintain such Patent.

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        7.3    Patent Prosecution.    Sepracor, [**], shall have responsibility for filing, prosecution and maintenance of all Patents covering a Product in the Territory. Arrow shall and hereby does give Sepracor the right [**], to prepare, file, prosecute and maintain all such Patents in Arrow's name, and Arrow shall offer reasonable assistance to Sepracor in connection with such preparation, filing, prosecution or maintenance [**]. Arrow shall disclose to Sepracor the complete texts of all Patents filed by Arrow in the Territory that relate to the Product as well as all information received concerning the institution or possible institution of any interference, opposition, re-examination, reissue, revocation, nullification or any official proceeding involving a Patent anywhere in the Territory. Arrow shall cooperate with Sepracor in the prosecution of all Patents covering the Product.

        7.4    Notification of Patent Litigation.    In the event of the institution of any suit by a Third Party against Sepracor or Arrow alleging patent infringement involving the manufacture, use, sale, license or marketing of a Product anywhere in the Territory, the Party sued shall promptly notify the other Party in writing.

        7.5    Patent Infringement.    In the event that Sepracor or Arrow becomes aware of actual or threatened infringement of an Arrow Patent licensed pursuant to this Agreement anywhere in the Territory, that Party shall promptly notify the other Party in writing. However, in no event shall Arrow notify Sepracor later than [**] before any deadline for filing suit which, if missed, would prejudice Sepracor's exclusive rights under this Agreement. Sepracor shall have the sole right, but not the obligation, to investigate and/or bring an infringement action against any Third Party. Sepracor shall have full control over the conduct of such investigations and litigation, including the settlement thereof. [**]. Arrow shall reasonably assist Sepracor and cooperate in any such investigation and litigation at Sepracor's request and [**], unless Arrow has otherwise agreed to participate in the litigation. Should Sepracor choose not to bring an infringement action regarding a particular Arrow Patent, Arrow shall then have the right, exercisable at its sole discretion, to bring such an action. Any such infringement action shall be at [**], and it shall be solely entitled to the entire proceeds, if any, of such litigation.

        7.6    Title to Trademarks and Domains.    The ownership and all goodwill from the use of any Trademark shall vest in and inure to the benefit of Sepracor. The ownership and all goodwill from the use of any domain name incorporating in whole or part a Trademark, a common or foreign misspelling of a Trademark, or a typographical misspelling of a Trademark, shall vest in and inure to the benefit of Sepracor.

Article 8    Consideration

        8.1    Consideration.    As consideration for the transfer of Know-How and the grants of rights and licenses to the Arrow Technology to Sepracor in this Agreement, following execution of this Agreement Sepracor shall make payments to Arrow, which shall become due and payable as set forth below (each an "Execution Payment"):

        (a)    Upon Execution.    Sepracor shall make an initial payment to Arrow in the amount of $500,000 no later than five (5) days after the Effective Date;

        (b)    Further Consideration For Performance From Effective Date to December 15, 2009.    Provided that Arrow is then not in material breach of its obligations in Section 3.1, 4.2 or 6.4, Sepracor shall make a payment to Arrow in the amount of $25,000,000 on or before December 15, 2009, as further consideration for the transfer of Know-How and the grants of rights and licenses to the Arrow Technology and in consideration of Arrow's performance under Sections 3.1, 4.2 and 6.5 of this Agreement; and

        (c)    Further Consideration For Performance From December 15, 2009, to December 15, 2010.    Provided that Arrow is then not in material breach of its obligations under Section 3.1, 4.2 or 6.4, to make reasonable efforts with respect to Arrow Technology, Sepracor shall make a payment to

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Arrow in the amount of $25,000,000 on or before December 15, 2010, as further consideration for the transfer of Know-How and the grants of rights and licenses to the Arrow Technology and in consideration of Arrow's performance under Sections 3.1, 4.2 and 6.4 of this Agreement.

        8.2    Milestone Payments.

        (a)    Product Milestone Payments.    As additional consideration for the grants of rights and licenses under the Arrow Technology to Sepracor in this Agreement and to further incentivize and secure Arrow's efforts to Develop successfully the Product, Sepracor shall pay a one-time milestone payment to Arrow in the amount of $20,000,000 (the "Product Milestone Payment") upon the FDA's issuance of Regulatory Approval for the Product in the United States (the "Product Milestone"). Such payment shall be made within [**] of the achievement or occurrence of such milestone event.

        (b)   The Product Milestone in subsection (a) of this Section 8.2 shall be deemed to have been achieved in the event that, and at such time as Sepracor has abandoned or indefinitely delayed the further Development of the Product, such that such milestone is not reasonably likely to be achieved.

        8.3    Royalty Payments.    As additional consideration, Sepracor shall pay the following Royalty Payments to Arrow in the amounts set forth below (the "Royalty Payment").

        (a)    Product Royalty Payment.    Sepracor will pay Arrow a royalty equal to (i) [**]% of the first $[**] in annual Net Sales of the Product sold by Sepracor and its Affiliates in the Territory during a Contract Year and (ii) [**]% of the annual Net Sales of the Product sold by Sepracor and its Affiliates in the Territory during a Contract Year in excess of $[**] (the "Product Royalty"), to be paid on a quarterly basis within [**] of the end of each Contract Quarter. [**].

        (b)    Royalty Buy-Out Option.    In order to allow Arrow time to decide whether to elect to take certain consideration in the form of a lump sum payment or future royalty payments with respect to the Product, the Parties have agreed to provide Arrow with a one-time royalty buy-out option, as follows, the amount of which the Parties acknowledge is at a significant discount to the royalty payments that Arrow might otherwise receive under Section 8.3(a) above on the global sales of the Product. Provided that Arrow is then not in material breach of its obligations under Sections 3.1, 4.2 or 6.4 prior to October 1, 2009, Arrow may elect to receive a one-time, non-refundable, discounted, fixed royalty payment (the "Fixed Royalty Payment") in lieu of the Royalty Payment set forth in Section 8.3(a) above. Arrow's election to receive a Fixed Royalty Payment in lieu of the Royalty Payment must be exercised by Arrow providing written notice, by facsimile, of such election or elections that is received by Sepracor during the period commencing on October 1, 2009 and ending at 11:59 p.m. (Boston, Massachusetts local time) on December 31, 2009. In the event that Arrow timely elects to receive the Fixed Royalty Payment in lieu of the Royalty Payment, Sepracor shall pay to Arrow within 30 Business Days of Sepracor's receipt of such election the amount of $23,500,000. Arrow's timely election to receive a Fixed Royalty Payment with respect to a Product in lieu of a Royalty Payment shall be irrevocable by Arrow, and Sepracor shall not have any obligation to make the Royalty Payments to Arrow with respect to such Product after Sepracor receives such election and pays the amount of the Fixed Royalty Payment with respect to such Product.

        8.4    Payments.    Sepracor shall pay all amounts due under this Agreement by bank wire transfer in immediately available funds to such bank as Arrow may direct from time to time. Any amount owing to Arrow under this Agreement that is not paid within [**] of Sepracor's receipt of notice that such amount is overdue shall bear interest at the [**] as published by Citibank, NA that is applicable to the date on which the payment was first due.

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Article 9    Reports and Audit Rights.

        9.1    Quarterly Reports.    Within [**] following the end of each Contract Quarter for which Sepracor shall owe a Royalty Payment, Sepracor shall render a written report to Arrow setting forth the following information and calculations for such Contract Quarter, segregated by Sepracor, each Affiliate and each sublicensee: (a) each component making up Net Sales for the Contract Quarter and the calculation of Net Sales; (b) the actual number of units of Product sold (net of returns) for the Contract Quarter; and (c) the calculation of royalties payable to Arrow pursuant to Section 8.3.

        9.2    Records.    Sepracor (or its designee) shall record all sales of the Product anywhere in the Territory and shall keep full and true books of account and other records in accordance with the requirements of GAAP so that details of sales for the Product, the calculation of Net Sales and Sepracor's payment obligations in respect thereof may be properly ascertained.

        9.3    Audit Right of Each Party.    Each of Sepracor and Arrow shall keep complete and accurate records of their respective reimbursable expenses, Net Sales and other financial measures resulting in a payment to the other Party under this Agreement. Each Party shall have the right, at such Party's expense, through a certified public accountant or like person reasonably acceptable to the other Party, upon execution of a reasonable confidentiality agreement, to examine such records during regular business hours upon reasonable notice during the life of this Agreement and for 1 calendar year after its termination; provided, however, that (i) such examination shall not take place more often than once a Contract Year and shall not cover such records for more than the preceding Contract Year, and (ii) such accountant shall report to such Party only as to the accuracy of the reports or payments provided or made by the other Party under this Agreement. Any adjustments required as a result of overpayments or underpayments identified through a Party's exercise of audit rights, and any other adjustments that may be required from time to time in order to correct overpayments or underpayments under this Agreement, shall be made by subtracting or adding, as appropriate, amounts from or to the next payment required to be made to the other Party under this Agreement, or in the event that no further payments are required to the other Party under this Agreement, within ten (10) days following such identification of overpayments or underpayments. The Party requesting the audit shall bear the full cost of the audit unless such audit correctly discloses that the discrepancy for the Contract Year differs by more than [**] percent ([**]%) from the amount the accountant determines is correct, in such case the owing Party shall pay the reasonable fees and expenses charged by the accountant. In the event that a Party disputes an invoice or other payment obligation under this Agreement, such Party shall timely pay the undisputed amount of the invoice or other payment obligation, and the Parties shall resolve such dispute in accordance with Article 15.

Article 10    Manufacturing and Supply

        10.1    Manufacturing Rights.    Arrow shall have the exclusive right but not the obligation to manufacture or arrange for the manufacture of the Product for purchase by Sepracor at [**]. In the event that Arrow elects not to manufacture or arrange for the manufacture of the Product for purchase by Sepracor, then Sepracor shall have the right to manufacture or arrange for the manufacture of the Product.

Article 11    Representations, Warranties, Covenants and Indemnification

        11.1    Representations of Arrow.    Arrow represents and warrants that (i) it owns the entire right, title and interest in the Arrow Patents and Arrow Know-How licensed by Sepracor under this Agreement, or otherwise has the right to grant the license rights under this Agreement, (ii) it has the right to enter into this Agreement, (iii) that there is nothing in any Third Party agreement Arrow has entered into that in any way limits Arrow's ability to perform all of its obligations under this Agreement, (iv) it will not encumber, with liens, mortgages, security interests or otherwise, the Arrow

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Patents or Arrow Know-How, (v) it has disclosed to Sepracor the complete texts of all Patents as of the Effective Date as well as all information received by Arrow as of the Effective Date concerning the institution or possible institution of any interference, opposition, reexamination, reissue, revocation, nullification or any official proceeding involving an Arrow Patent anywhere in the Territory, (vi) it has received no notice of infringement or misappropriation of any alleged rights asserted by any Third Party in relation to any technology used in connection with the manufacture, use or sale of a Product, and it is not aware of any patent, know-how, trade secret, or other right of any Third Party which could reasonably be expected to materially adversely affect its ability to carry out its responsibilities under this Agreement or the manufacture, use or sale of a Product or the rights granted to Sepracor under this Agreement, (vii) it shall be in compliance with all laws and regulations applicable to the subject matter of this Agreement, including, without limitation, the Federal Food, Drug and Cosmetic Act of the United States, (viii) to the best of its knowledge, the Arrow Patents are valid and enforceable; (ix) it has disclosed to Sepracor all litigations, oppositions, interferences or other proceedings involving Arrow Patents and copies of all motions and pleadings filed in same, (xi) it has disclosed to Sepracor all litigations, oppositions, interferences, or other proceedings involving Arrow and a patent or patent application having one or more claims directed to any compound or formulation comprising ipratropium; and (xi) to the best of its knowledge, there are no patents or patent applications that, if issued with claims as currently pending, would be infringed by the making, selling, or using of a Product.

        11.2    Representations of Sepracor.    Sepracor represents and warrants that (i) it has the right to enter into this Agreement, (ii) there is nothing in any Third Party agreement Sepracor has entered into that in any way will limit Sepracor's ability to perform all of the obligations undertaken by Sepracor under this Agreement, and (iii) Sepracor shall be in compliance with all laws and regulations applicable to the subject matter of this Agreement, including, without limitation, the Federal Food, Drug and Cosmetic Act of the United States.

        11.3    Indemnification by Arrow.    Arrow shall defend, indemnify and hold harmless Sepracor and its Affiliates and their officers, directors, shareholders, employees, agents, representatives, successors and assigns from and against all claims, complaints, or lawsuits for damages (collectively referred to as "Claims") arising out of (i) any negligent act or omission, or willful wrongdoing by Arrow in the performance of this Agreement, (ii) the failure by Arrow to comply with any FDA or other governmental requirement, or (iii) any breach of any representation or warranty of Arrow, except to the extent caused by the negligent act or omission or willful wrongdoing of Sepracor.

        11.4    Indemnification by Sepracor.    Sepracor shall defend, indemnify and hold harmless Arrow and its Affiliates and their officers, directors, shareholders, employees, agents, representatives, successors and assigns from and against all Claims arising out of (i) any negligent act or omission, or willful wrongdoing by Sepracor in the performance of this Agreement, (ii) the failure by Sepracor to comply with any FDA or other governmental requirement, or (iii) any breach of any representation or warranty of Sepracor, except to the extent caused by the negligent act or omission or willful wrongdoing of Arrow.

Article 12    Confidentiality, Publications

        12.1    Confidential Information.    For the purposes of this Agreement, the term "Confidential Information" shall mean any and all information of a Party hereto that may be exchanged between the Parties at any time and from time to time before and during the Term in relation to the subject matter covered by this Agreement. Confidential Information as defined herein shall, without limitation, be deemed to include all notes, analyses, compilations, studies, interpretations or other documents, whether in tangible form or on electronic or other data storage media, prepared by the receiving Party and its Representatives as defined hereinafter, which contain, reflect or are based on, in whole or in part, Confidential Information furnished to the receiving Party or its Representatives by the disclosing

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Party or its Representatives hereunder. Results pertaining to the Development of compound or Product shall be deemed to constitute Confidential Information disclosed by Arrow.

        12.2    Duties of Confidentiality and Non-Use.    During the Term, and for a period of [**] thereafter, each Party hereto will maintain in confidence all Confidential Information disclosed to it as a "receiving" Party by the other Party as a "disclosing" Party. The receiving Party shall not use, disclose or grant use of such other Party's Confidential Information except as permitted under this Agreement. To the extent that disclosure is authorized by this Agreement, the receiving Party shall obtain prior written agreement from its employees, agents, consultants, Affiliates, subcontractors and sublicensees (collectively, the "Representatives") to whom disclosure is to be made to hold in confidence and not make use of such information for any purpose other than those permitted by this Agreement, unless such Representatives are already bound by law or contract to obligations of confidentiality and non-use no less stringent than those assumed by the receiving Party hereunder. Each receiving Party shall use at least the same standard of care as it uses to protect its own Confidential Information to ensure that such Representatives do not disclose or make any unauthorized use of such Confidential Information of the disclosing Party. Each receiving Party shall promptly notify the other disclosing Party upon discovery of any unauthorized use or disclosure of Confidential Information by the receiving Party or any of its Representatives. Confidential Information shall not include any information which:

        (a)   was generally available to the public or otherwise part of the public domain at the time of its disclosure to the receiving Party; or

        (b)   becomes generally available to the public or otherwise part of the public domain after its disclosure and other than through any act or omission of the receiving Party in breach of this Agreement.

        12.3    Compulsory Disclosure.    If a receiving Party or any of a receiving Party's Representatives are requested or become legally compelled (by oral questions, interrogatories, requests for information or documents, subpoena, civil or criminal investigative demand, or similar process) or is required by a regulatory body to make any disclosure that is prohibited or otherwise constrained pursuant to this Article 12, the receiving Party will, and will cause such of its Representatives to, as the case may be, provide the disclosing Party with prompt written notice of such request so that the disclosing Party may seek an appropriate protective order or other appropriate remedy. Subject to the foregoing, the receiving Party may, and may cause such Representatives to, furnish that portion (and only that portion) of the Confidential Information that, in the written opinion of its counsel reasonably acceptable to the disclosing Party, the receiving Party is legally compelled or is otherwise required to disclose or else stand liable for contempt or suffer other material censure or material penalty; provided, however, that the receiving Party must, and must cause its Representatives to, use reasonable efforts to obtain reliable assurance that confidential treatment will be accorded any Confidential Information so disclosed.

        12.4    Terms Confidential.    The Parties agree that the terms of this Agreement shall be considered the Confidential Information of both Parties and shall not be disclosed by either Party, except (i) as required by applicable law or (ii) to a Third Party with whom Arrow or Sepracor, as applicable, has entered into or proposes to enter into a business relationship related to the subject matter hereof or (iii) to a Third Party with whom Arrow or Sepracor is in due diligence relating to a merger or an acquisition or a financing, and provided that such Third Parties are subject to appropriate confidentiality agreements providing for obligations of confidentiality and non-use at least as stringent as those pursuant to this Article 12.

        12.5    Permitted Disclosure.    Each Party and its Representatives may disclose Confidential Information to the extent such disclosure is reasonably necessary for the purpose of the implementation of this Agreement, including without limitation, for purposes of the filing or prosecuting of patent

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applications, prosecuting or defending litigation, or complying with any applicable statute or governmental regulation.

        12.6    Public Announcements.    Neither Party shall originate any publicity, news release or public announcements relating to this Agreement (including, without limitation, its existence, its subject matter, the Parties' performance, any amendment hereto or performances hereunder), whether to the public or press, stockholders or otherwise, without the prior written consent of the other Party, save only such announcements that are required by law or the rules of any relevant stock exchange to be made or that are otherwise agreed to by the Parties. If a Party decides to make an announcement, whether required by law or otherwise, it shall give the other Party reasonable notice of the text of the announcement so that the other Party shall have an opportunity to comment upon the announcement. To the extent that the receiving Party reasonably requests the deletion of any information in any such announcement, the disclosing Party shall delete such information unless, in the opinion of the disclosing Party's legal counsel, such information is required by law or the rules of any relevant stock exchange to be disclosed. The timing and content of the initial press release relating to this Agreement, including its existence, the subject matter to which it relates and the transactions contemplated herein will, except as otherwise required by law or any stock exchange rules, be determined jointly by the Parties.

        12.7    Publications.    Sepracor may use Confidential Information to the extent such disclosure is reasonably necessary for the purpose of preparing all written abstracts, articles, letters, reviews and the like intended for publication in scientific, medical, pharmaceutical industry and healthcare-related journals, periodicals, books, websites and the like or presentations at symposia or the like ("Publications"). Arrow shall not prepare any such Publications relating to a Product without the prior written consent of Sepracor.

Article 13    Competition

        13.1    Non-Compete Obligations.    During the Term, neither Arrow nor its Affiliates shall, either alone or in collaboration with a Third Party, engage in any activity directed to the Development or Commercialization of Competing Products in the Territory. For the purposes of this Section 13.1, the term "Competing Products" means [**], and provided that following a Change of Control of Arrow, "Competing Products" shall mean [**].

        13.2    [**] Exempt From Non-Compete Obligations.    Nothing in this section or this Agreement shall be construed to in any way restrict or encumber Arrow's ability to Develop and Commercialize a [**].

Article 14    Term and Termination

        14.1    Term.    This Agreement shall become effective on the Effective Date and shall continue until the later of, on a Product by Product basis, (i) the last to expire of any Patent with a claim covering a Product or (ii) 12 years after the First Commercial Sale in the Territory on a country by country basis (the "Term").

        14.2    Early Termination.    Each Party shall have the right to terminate this Agreement in its entirety before the end of the Term:

        (a)   by mutual written agreement of the Parties;

        (b)   upon the bankruptcy or insolvency, or the filing of an action to commence insolvency proceedings against the other Party, or the making or seeking to make or arrange an assignment for the benefit of creditors of the other Party, or the initiation of proceedings in voluntary or involuntary bankruptcy, or the appointment of a receiver or trustee of such Party's property that is not discharged within ninety (90) days.

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        (c)   upon written notice by either Party if the other Party is in material and continuing breach of this Agreement and has not cured such breach within [**] after receiving written notice ([**] with respect to breach of any payment obligation) from the terminating Party requesting cure of the breach and informing the breaching Party that the terminating Party intends to terminate this Agreement; provided, however, in the event of a good faith dispute with respect to the existence of a material breach, the cure period shall be tolled (except with respect to breach of a payment obligation) until such time as the dispute is resolved pursuant to Article 15; and provided further that the terminating Party has given the defaulting Party the following opportunities to remedy any breach:

        (i)    the written notice of breach referenced above shall detail the specific obligation under this Agreement which is alleged to have been breached; the manner of such alleged breach; and the steps that may be taken in order to remedy such breach; and

        (ii)   the terminating Party has provided the defaulting Party with a reasonable amount of time (but not less than [**]) in which (x) to complete any steps which might be taken to remedy the breach, as stated in the notification of breach, or (y) if completion of those steps is not possible within a [**] period, to commence those steps required as stated in the notification of breach, on the condition that the defaulting Party continues to perform those steps with due diligence and the breach is capable of being cured.

        14.3    Effect of Termination.

        (a)    Accrued Obligations.    The termination of this Agreement, in whole or part, for any reason shall not release either Party from any liability which, at the time of such termination, has already accrued to such Party or which is attributable to a period prior to such termination, nor will any termination of this Agreement preclude either Party from pursuing all rights and remedies it may have under this Agreement, at law or in equity, with respect to breach of this Agreement.

        (b)    Rights Become Non-Exclusive.    Notwithstanding any other provision of this Agreement, following the effective date of termination of this Agreement for any reason, provided however that Sepracor has paid all amounts due under this Agreement, Sepracor's, its Affiliates' and its sublicensees' rights and licenses with respect to the Arrow Technology incorporated into the Product in the Territory shall not terminate but shall continue on a non-exclusive basis, and, without limiting the foregoing, Sepracor shall have the right to engage one or more other distributors and/or licensees of the Product in all or part of the Territory.

        14.4    Continuing Payment Obligations.    Any Product sold by Sepracor, its Affiliates or sublicensees, in the Territory after the date of termination of this Agreement shall be subject to the payment of any continuing Royalty Payment obligations under Section 8.3 above. Further, any abandonment or indefinite delay of the Development of the Product by Sepracor prior to [**], shall not impair Arrow's right to elect to receive [**].

        14.5    Survival.    Upon the termination of this Agreement, all rights and obligations of the Parties under this Agreement shall terminate, except those described in the following Articles and Sections: Article 9, Article 12, Article 15, Article 16, and Article 17 and Sections 3.2, 3.4, 6.1, 7.1, 7.6, 11.3, 11.4, 13.1, 14.3, 14.4, and 14.5. Termination shall not affect any rights to receive payments that have accrued under Article 8 at the time of termination.

Article 15    Governing Law; Dispute Resolution

        15.1    Dispute Resolution Process.    The Parties recognize that disputes as to certain matters may from time to time arise during the Term of this Agreement that relate to a Party's rights and/or obligations hereunder. If the Parties cannot resolve any such dispute within [**] days after written notice of a dispute from one Party to another, any Party may, by written notice to the other Party, have

15

such dispute referred to their senior executives. The senior executives shall negotiate in good faith to resolve the dispute within [**]. During such period of negotiations, any applicable time periods under this Agreement shall be tolled. If the senior executives are unable to resolve the dispute within such time period, either Party may pursue any remedy available to such Party at law or in equity, subject to the terms and conditions of this Agreement and the other agreements expressly contemplated hereunder.

        15.2    Arbitration.    Any controversy or claim arising out of, or relating to this Agreement, or the breach thereof, shall be determined by Arbitration administered by the American Arbitration Association in accordance with its Commercial Arbitration Rules, and judgment on the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof. The place of arbitration shall be New York, New York, USA. This Agreement shall be governed by and interpreted in accordance with the laws of the State of New York. The Parties acknowledge that this agreement evidences a transaction involving interstate commerce. The United States Arbitration Act (Title 9, U.S. Code, as amended) shall govern the interpretation, enforcement, and proceedings pursuant to the arbitration clause in this Agreement. Within 15 days after the commencement of arbitration, each Party shall select one person to act as arbitrator and the two selected shall select a third arbitrator within 10 days of their appointment. If the arbitrators selected by the Parties are unable or fail to agree upon the third arbitrator, the third arbitrator shall be selected by the American Arbitration Association. Except as may be required by law, neither a Party nor an arbitrator may disclose the existence, content, or results of any arbitration arising hereunder without the prior written consent of both Parties. The language of the arbitration shall be English. Each Party shall bear its own costs and expenses and an equal share of the arbitrators' and administrative fees of arbitration. The arbitrators will have no authority to award punitive, consequential or other damages not measured by the prevailing Party's actual damages, except as may be required by statute.

Article 16    Force Majeure

        16.1    Force Majeure Affecting Either Party.    Notwithstanding any other provision of this Agreement, Arrow and Sepracor shall each be excused for any delay or default in performing any of their respective obligations hereunder if such delay or default is caused by conditions beyond its reasonable control including, but not limited to, acts of God, government restrictions (including import and export restrictions), wars, insurrections, terrorism, labor disturbances, shortages of equipment, fuel or labor, destruction of facilities or materials by fire, earthquake, storm or other casualty, any law, rule, order, decision, decree, judgment or injunction of any court, governmental officer or regulatory body, epidemic, or failure of public utilities or common carrier. When such circumstances arise, the Parties shall discuss what, if any modification of the terms of this Agreement may be required in order to arrive at an equitable solution. The Party affected by a force majeure event shall notify the other Party without undue delay in writing of any such force majeure event and the underlying reasons for the delay or default. The Parties shall then reasonably cooperate in good faith so as to seek a resolution of the delay or failure to perform and to reasonably remove the force majeure event, the costs and expenses of so removing any such force majeure event to be borne by the Party so affected unless otherwise agreed in writing, and such Party shall use all reasonable diligence to avoid, remove or mitigate any such causes of non-performance. The Party whose performance is affected by a force majeure event shall continue performance with reasonable dispatch wherever such causes have been removed.

Article 17    Miscellaneous

        17.1    Entire Agreement.    This Agreement constitutes the entire understanding of the Parties with respect to the subject matter hereof and supersedes and replaces all prior understandings between the Parties hereto including, without limitation, the Confidentiality Agreement.

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        17.2    Prevailing Agreement.    In the event of any conflict between the provisions of this Agreement and a schedule attached hereto, the provisions of this Agreement shall prevail, unless the relevant clause of the relevant schedule expressly provides that it shall prevail, thereby referencing the clause of this Agreement over which the applicable schedule is intended to prevail.

        17.3    Amendments.    Modifications and amendments to this Agreement shall be effective only if made in writing and signed by both Parties. Evidence for the contents of this Agreement may only be produced in the form of written documents duly executed by each of the Parties hereto.

        17.4    Cooperation.    Subject to confidentiality restrictions that may be reasonably requested, the Parties shall use their respective commercially reasonable efforts to:

        (a)   Make all required filings with all governmental authorities and obtain all necessary approvals in connection with this Agreement to the extent required under applicable laws. Subject to confidentiality restrictions that may be reasonably requested and to the extent permissible by law, Sepracor and Arrow shall make every effort to coordinate and exchange all filings and documents submitted to all government authorities regarding this Agreement;

        (b)   Cooperate with each other in any review, investigation, inquiry or proceeding regarding the Agreement by any government authority. Subject to such confidentiality restrictions as may be reasonably requested and to the extent permissible by law, Sepracor and Arrow will render reasonable assistance as the other may request in connection with this Agreement and coordinate and cooperate with one another in exchanging information, permitting reasonable access to Sepracor's and Arrow's documents, officials, and data in connection with any such review, investigation, inquiry or proceeding by any governmental authority;

        (c)   Promptly inform each other of any material communication made to, or received by such party from any governmental authority regarding this Agreement;

        (d)   Defend, contest and resist any administrative, judicial or legislative action or proceeding that is instituted (or threatened to be instituted) challenging the transactions contemplated by this Agreement as violative of any applicable law, and have vacated, lifted, reversed or overturned any decree, judgment, injunction or other order (whether temporary, preliminary or permanent) that is in effect and that challenges this Agreement, including, without limitation, by pursuing all reasonable avenues of administrative and judicial appeal;

        (e)   Without limiting any other provision of this Agreement, take all actions and do all things reasonably necessary or proper (at its own cost and expense), including under applicable law to make effective and further the intent and purposes of the transactions contemplated by this Agreement, including executing any further instruments reasonably requested by the other Party, and to resist and to contest any proposals or efforts to materially alter the terms of the Agreement so as to permit the Parties to fulfill their obligations under and to obtain the full benefits contemplated by the Agreement.

        17.5    Notices.    Unless otherwise provided for in this Agreement, any notice or request required or permitted to be given under or in connection with this Agreement or the subject matter hereof, shall be given in the English language in writing by prepaid registered or first-class airmail, by reputable same-day or overnight courier, or facsimile to the recipient at its address as set forth hereunder or to such other address or addressee as may have therefor been furnished in writing by the recipient to the sending Party in accordance with this clause provided, however, that any notice of termination shall be given reputable same-day or overnight courier. Any such aforementioned notice or request shall be

17

deemed to be effective upon receipt by the Party to which it is addressed. Any notice to be sent by a Party pursuant to this Agreement shall be addressed:

        in the case of a written notice to Arrow addressed to it at:

Arrow International Limited
57 St. Christopher Street
Valletta, VLT 08, Malta

Attn: Francis Mifsud
Facsimile: +356-21653046

With a copy to:

Arrow International Limited
57 St. Christopher Street
Valletta, VLT 08, Malta

Attn: Anna Power
Facsimile: +353-18473897

and with a copy to (which shall not constitute notice):

Foley & Lardner LLP
3000 K Street, NW
Washington, DC 20007

Attn: Steven Maddox
Facsimile: (202) 672-5399

        in the case of a written notice to Sepracor addressed to it at:

Sepracor Inc.
84 Waterford Drive
Marlborough, MA 01752

Attention: Adrian Adams, President & CEO
Facsimile Number: (508) 357-7511

with a copy to:

Sepracor Inc.
84 Waterford Drive
Marlborough, MA 01752

Attention: Andrew I. Koven, Executive Vice President, General Counsel & Corporate Secretary
Facsimile Number: (508) 357-7511

and with a copy to (which shall not constitute notice):

Holland & Knight LLP
701 Brickell Avenue
Suite 3000
Miami, FL 33131

Attention: Rodney H. Bell, Esq.
Facsimile Number: (305) 789-7799

Any change of these addresses shall be promptly communicated in writing to the other Party.

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        17.6    Waiver and Estoppel.    Failure of either Party to insist upon a strict and punctual performance of any of the provisions hereof shall not constitute a waiver nor an estoppel against asserting the right to require such performance, nor shall a waiver or estoppel in one instance constitute a waiver or estoppel with respect to a later breach, whether of similar nature or otherwise. The observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively) by the Party entitled to enforce such term, but any such waiver shall be effective only if in writing signed by the Party against whom such waiver is to be asserted.

        17.7    Severability.    To the extent any provision or term set forth herein is or becomes unenforceable by operation of law, such unenforceability shall not affect the remaining provisions of this Agreement. The Parties agree to renegotiate in good faith any provision or term held to be unenforceable and to be bound by the mutually agreed substitute provision.

        17.8    No Agency.    Nothing herein contained shall be deemed to create an agency, joint venture, amalgamation, partnership or similar relationship between Arrow and Sepracor, and this Agreement shall not be deemed a partnership agreement. Notwithstanding any of the provisions of this Agreement, neither Party shall at any time enter into, incur, or hold itself out to Third Parties as having authority to enter into or incur, on behalf of the other Party, any commitment, expense, or liability whatsoever, and all contracts, expenses and liabilities undertaken or incurred by one Party in connection with or relating to the development, manufacture, promotion or sale of Product shall be undertaken, incurred or paid exclusively by that Party, and not as an agent or representative of the other Party.

        17.9    Assignment.    The terms and provisions of this Agreement shall inure to the benefit of, and be binding upon, Arrow, Sepracor and their respective successors and permitted assigns. Neither Party shall assign or otherwise transfer this Agreement or its rights and obligations thereunder without the prior written consent of the other Party, provided that no such consent shall be required in connection with (i) an assignment or transfer to an Affiliate of such Party so long as the assigning or transferring Party remains fully responsible for the performance of its Affiliate, or (ii) an assignment or transfer upon a Change of Control of the assigning Party.

        17.10    Headings; Singular and Plural.    The heading references herein are for convenience purposes only, do not constitute a part of this Agreement and shall be deemed not to limit or affect any of the provisions hereof and their interpretation. The singular and plural numbers can be substituted for each other when the context requires such substitution.

        17.11    Counterparts.    This Agreement may be executed in duplicate, both of which shall be deemed to be originals, and both of which shall constitute one and the same Agreement. This Agreement may be executed and delivered by telecopier or other electronic means (including PDF format) with the same force and effect as if the same were a fully executed and delivered manual counterpart.

[Remainder of page intentionally left blank]

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        IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the day and year first above written by their duly authorized representatives.

ARROW INTERNATIONAL LIMITED		SEPRACOR INC.
Name:	Anna Power	Name:	Adrian Adams
Title:	Chief Operating Officer	Title:	President & CEO
Signature:	/s/ Anna Power	Signature:	/s/ Adrian Adams
Name:	Howard Simson	Name:
Title:	Director	Title:
Signature:	/s/ Howard Simson	Signature:
Date:		Date:

Schedule 1.4
(Patents)

        [**]

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Exhibit 10.2

EX-10.3

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Exhibit 10.3

Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.

License and Development Agreement

By and between

Arrow International Limited
57 St. Christopher Street
Valletta, VLT 08, Malta

and

Sepracor Inc.
84 Waterford Drive
Marlborough, MA 01752
USA

        This License and Development Agreement (this "Agreement"), dated as of April 30, 2008 is being entered into by and between Arrow International Limited, a Malta corporation having its principal office at 57 St. Christopher Street, Valletta, VLT 08, Malta, and its Affiliates (collectively referred to as "Arrow"), and Sepracor Inc., a corporation organized and existing under the laws of the State of Delaware and having its principal office at 84 Waterford Drive, Marlborough, MA 01752, USA ("Sepracor"). Each or both of Arrow and Sepracor are hereinafter referred to as "Party" or "Parties", as intended in the given context.

RECITALS

A.

Sepracor wishes to commercialize inhalation pharmaceutical products containing Ciclesonide, alone (the "Standalone Product") and in combination with arformoterol (the "Combination Product").



B.

Arrow controls certain Arrow Know-How and Arrow Patents relating to the Products, including technology essential to the Development of stable and acceptable preparations, suspensions, or other chemical mixtures of ingredient required to Develop a product containing a corticosteriod, including Ciclesonide.



C.

Arrow and its Affiliates, such as Cobalt Pharmaceuticals Inc., is a high-volume, world-class manufacturer of pharmaceutical products. Through years of high-volume manufacturing of pharmaceutical products, including inhaled corticosteriods, Arrow has gained valuable proprietary know-how and technology relating to, among other things, the Development, analytical testing, and manufacture of stable suspension solutions for products containing a corticosteriod.



D.

Sepracor has material capabilities, resources and experience in the development, clinical testing, regulatory approvals, commercialization, marketing and distribution of branded inhalation pharmaceutical products.



E.

Arrow wishes to grant Sepracor an exclusive right and license under the Arrow Technology to Develop, distribute and Commercialize the Products.



F.

Sepracor wishes to Develop and subsequently Commercialize the Products.



G.

Arrow has the right to manufacture products pursuant to the Arrow Technology. The Parties do not intend that this Agreement include any current grant of manufacturing rights with respect to the Products or any other product or process.

        NOW, THEREFORE, in consideration of the mutual promises, covenants and agreements hereinafter set forth, the sufficiency of which is hereby acknowledged, and intending to be legally bound, the Parties to this Agreement mutually agree as follows:

Article 1    Definitions

        For the purposes of this Agreement, the following terms, whether used in the singular or plural, shall be ascribed the following meaning:

        1.1   "Additional Product" means [**].

        1.2   "Affiliate" of either Party means any corporation, firm, partnership, organization or entity, whether de jure or de facto, which such Party directly or indirectly controls, is controlled by or is under common control with. For the purpose of this definition, the term "control" means (i) direct or indirect ownership of fifty percent (50%) or more of the outstanding equity voting stock (or such lesser percentage which is the maximum allowed to be owned by a foreign corporation in a particular jurisdiction) of a Party or other entity or (ii) the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Party or other entity, whether through the ownership of voting securities, by contract, or otherwise.

        1.3   "Arrow Know-How" means the Know-How Controlled by Arrow (for purposes of clarity, including Affiliates of Arrow) at any time during the Term in the Territory that may be useful to Sepracor in Sepracor's Development and Commercialization of the Products in the Territory.

        1.4   "Arrow Patent(s)" shall mean any and all Patents or Patent Applications Controlled by Arrow (for purposes of clarity, including Affiliates of Arrow) at any time during the Term in the Territory with a claim relating to a Product or a component of a Product, or a method of manufacture or Formulation of any of the foregoing, or a method of treatment using any of the foregoing. The Arrow Patents in the Territory existing on the Effective Date are identified on Schedule 1.4, as it may be amended from time to time. For the avoidance of doubt, an inclusion with respect to any Arrow Patent coming into existence after the Effective Date shall occur automatically upon the first filing of a provisional or non-provisional application in respect of such Arrow Patent in the Territory, and the subsequent amendment of Schedule 1.4 shall only serve declaratory purposes.

        1.5   "Arrow Technology" means the Arrow Know-How and the Arrow Patents, collectively.

        1.6   "Business Day" means any day on which banking institutions in the Commonwealth of Massachusetts, United States are open for business.

        1.7   "Change of Control" with respect to a Party means (i) the acquisition (directly or indirectly, whether by merger, consolidation, purchase and sale, share exchange or otherwise) by any Third Party (other than an Affiliate or any trust or fund created under a profit-sharing or other benefit plan for employees of such Party) of a beneficial interest in the securities of such Party representing more than fifty percent (50%) of the combined voting power of such Party's then outstanding securities; or (ii) the transfer, sale or assignment of more than fifty percent (50%) of the assets of such Party to a Third Party other than an Affiliate of such Party; or (iii) any other transfer to a Third Party of the power to control such Party.

        1.8   "Ciclesonide" means the compound ciclesonide including all its isomers, titrates, hydrates, metabolites, polymorphs, prodrugs, epimers, and salts.

        1.9   "Commercialization" means any and all activities directed to importing, marketing, promoting, advertising, distributing, storing, offering for sale, using and selling a Product, including, without limitation, the distribution of promotional samples to targeted prescribers (to the extent applicable), in the Territory, and conducting Phase IV Studies of a Product. When used as a verb, "Commercialize" means to engage in Commercialization.

        1.10 "Contract Year" means (a) with respect to the first Contract Year, the period beginning on the Effective Date and ending on December 31, 2008 (the "First Contract Year"), (b) with respect to each subsequent Contract Year other than the last Contract Year, the one (1) year period beginning on the day following the end of the First Contract Year and each succeeding one (1) year period thereafter, and (c) with respect to the last Contract Year, the period beginning on January 1 of such last Contract Year and ending on the date as of which this Agreement expires or is terminated (the "Last Contract Year"). Each Contract Year (other than the First Contract Year or the Last Contract Year) shall be divided into four (4) "Contract Quarters" comprised of successive three (3) month periods. In the First Contract Year, the first Contract Quarter shall end on the first day following the Effective Date that is the last day of a Contract Quarter, and in the Last Contract Year, the last Contract Quarter shall end upon expiration or termination of the Agreement.

        1.11 "Control" or "Controlled" means that a right is owned, licensed, or otherwise possessed by a Party with the right to license or sublicense.

        1.12 "Development" means the scientific, medical, technical, and clinical, regulatory and other activities necessary to obtain Regulatory Approval to Commercialize the Products in the Territory, including, without limitation, technical development, clinical development and the preparation, filing,

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prosecution and administration of INDs, and/or NDAs, in accordance with a Development Plan that has been agreed pursuant to the terms and conditions of this Agreement. When used as a verb, "Develop" means to engage in Development.

        1.13 "Development Costs" means for all studies or activities performed in accordance with Sepracor's Development Plan for any Product in the Territory, including the following: (a) all out-of-pocket costs and expenses incurred (i.e., paid to Third Parties or accrued therefor) by Sepracor or any of its permitted designees, (b) the costs of internal personnel engaged in the performance of such studies or activities, and (c) the costs of clinical supplies for such studies or activities, which costs shall include (i) the clinical supply price, (ii) out-of-pocket costs and expenses incurred in purchasing comparator drug and in packaging comparator drug and/or such Product, as applicable, shipping clinical supplies to centers, or disposal of clinical supplies, and (iii) actual costs of packaging clinical samples and comparator drug, as applicable, if done by a Party.

        1.14 "Development Plan" means a plan designed by Sepracor to achieve the clinical Development of a specific Product or of a specific Improvement, as may be applicable, including, without limitation, (i) the budget and nature, number and schedule of Development activities, (ii) a time schedule for the implementation of the Development activities concerned, (iii) all such other issues as may reasonably have to be addressed under such Development Plan, as it may be amended by Sepracor from time to time in accordance with this Agreement.

        1.15 "Effective Date" means the date of the execution of this Agreement by both Parties.

        1.16 "FDA" means the U.S. Food and Drug Administration and any successor agency thereto.

        1.17 "First Commercial Sale" shall mean the first sale or other disposition for value of a Product, in a final dosage form packaged for the ultimate consumer, to an independent Third Party following applicable Regulatory Approval, by Sepracor, its Affiliates or permitted sublicensees.

        1.18 "Formulation" or "Formulations" mean the Development of stable and acceptable preparations, suspensions, or other chemical mixtures of ingredient, as well as associated studies and analysis of properties, [**], required to develop INDs for a product, including the Products, all prepared according to Good Laboratory Practice Standards ("GLP") and other relevant laboratory practice standards.

        1.19 "GAAP" means the "United States Generally Accepted Accounting Principles" as determined by the US Financial Accounting Standards Board (FASB).

        1.20 "Gross Sales" means, with respect to any applicable period and any Product, the gross amounts invoiced by Sepracor, an Affiliate or sublicensee to unrelated Third Parties for sales of such Product.

        1.21 "Improvement" means any Know-How, including, without limitation, findings, discoveries, inventions, additions, modifications, formulations or changes, whether patentable or not, made and Controlled by either Party during the Term insofar as such Improvement relates to a Product.

        1.22 "IND" means an investigational new drug application submitted to the FDA in respect of a new drug.

        1.23 "Know-How" means all scientific, medical, technical, clinical, regulatory, marketing and other information relating to a Product that is Controlled by a Party hereto, and that is in existence as of the Effective Date or comes into existence during the Term.

        1.24 "NDA" means (a) a new drug application submitted to the FDA pursuant to 21 U.S.C. Section 355(b)(1), or any successor application or procedure and (b) all supplements and amendments, including supplemental new drug applications that may be filed with respect to the foregoing (each, a "SNDA").

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        1.25 "Net Sales" means, with respect to any period, the Gross Sales of the Products, less items recognized under GAAP, including, but not limited to, the following deductions to the extent included in the gross invoiced sales price for the Products or otherwise directly paid or incurred by Sepracor, its permitted Affiliates and its permitted sublicensees with respect to the sale of the Products and not otherwise recoverable by the paying party: (a) trade, quantity, or cash discounts, chargebacks, returns, allowances or rebates and actually allowed, given or accrued in the ordinary course of trading (including, but not limited to, cash, governmental and managed care rebates, hospital or other buying group chargebacks); (b) adjustments, rejections, recalls and returns to the extent made in the ordinary course of trading, to the extent the customer has been credited the original sales price or a portion thereof; (c) sales, excise, turnover, inventory, value-added, customs duties and similar taxes and governmental charges assessed on the sale of the Products; and (d) the portion of any management fees paid during the relevant time period to group purchasing organizations that relate specifically to the sale of such Products to such organizations, (e) any royalties payable by Sepracor to Third Parties in order to enable Sepracor to commercialize the Products in the Territory, (f) service fees paid or allowances conceded to wholesalers pursuant to distribution services agreements or similar contracts by and between Sepracor and wholesalers for logistic and other services such as, without limitation, stock-keeping.

        Sales, transfers or dispositions of the Products for charitable, promotional (including samples), pre-clinical, clinical, or regulatory purposes with respect to which no consideration is received by Sepracor or its Affiliates, shall be excluded from Net Sales, as shall sales or transfers of the Products among a Party and its Affiliates.

        Upon any sale or other disposal of any Product for any consideration other than an exclusively monetary consideration on bona fide arm's length terms then, for the purposes of calculating the Net Sales under this Agreement, such Product shall be deemed to be sold exclusively for money at the fair market price generally achieved for such Product in the Territory.

        Any discounts or allowances made by Sepracor outside the ordinary course of trading shall not be accounted for in determining Sepracor's Net Sales. For clarity and without limitation, this shall apply to direct and indirect discounts and allowances to customers regarding a Product associated with product bundling and selling such Product in combination with other Sepracor products (so called "package deals"). Upon any sale or other disposal of any Product for any consideration outside the ordinary course of trading, for the purposes of calculating the Net Sales under this Agreement, the Products shall be deemed to be sold exclusively for money at the fair market price generally achieved in bona fide arm's length trading for such Products in the Territory when such Products are sold alone, and not with or in combination with products other than Products.

        1.26 "Patents" shall mean all existing patents and patent applications and all patent applications hereafter filed, including, without limitation, any continuations, continuations-in-part, divisions, reissues, reexaminations, utility models, provisionals or substitute applications, any patent issued with respect to any such patent applications, any reissue, reexamination, renewal, amendment or extension (including any supplementary protection certificate and any patent term extension) of any such patent, and any confirmation patent or registration patent or patent of addition based on any such patent, and all foreign counterparts of any of the foregoing.

        1.27 "Person" means any individual, corporation, partnership, association, joint-stock company, trust, unincorporated organization or government or political subdivision thereof.

        1.28 "Products" means the Standalone Product, the Combination Product, any Additional Product and any Improvement to the foregoing.

        1.29 "Regulatory Approval" shall mean that all approvals, price approvals or approvals for reimbursements, product and/or establishment licenses, registrations, permits, or authorizations of any

4

federal, state or local regulatory agency, department, bureau or other governmental entity or Regulatory Authority, necessary for the manufacture, packaging, distribution, use, storage, importation, export, transport, marketing and sale of the Products for therapeutic use in humans in a country of the Territory have been obtained.

        1.30 "Regulatory Authority" shall mean any national, supra-national, regional, state or local regulatory agency, department, bureau or other governmental entity in the Territory responsible for issuing any technical, medical and scientific licenses, registrations, authorizations and/or approvals of the Products including any marketing authorizations based upon such approvals and pricing, third party reimbursement or labeling approvals that are necessary for the manufacture, distribution, use, storage, importation, export, transport and sale of a Product in a country of the Territory.

        1.31 "Territory" shall mean the world.

        1.32 "Third Party" shall mean any Person other than the Parties and their Affiliates.

        1.33 "Trademark" shall mean any trademark used in connection with the Commercialization of a Product.

Article 2    Grant of Rights

        2.1    Exclusive License Grant.    During the Term, Arrow grants to Sepracor the exclusive right and license under the Arrow Patents and Arrow Know-How to Develop, have Developed, market, have marketed, use, have used, Commercialize, have Commercialized, distribute, have distributed, offer for sale, sell and have sold the Products in the Territory and to package, distribute, sell, market and promote the Products in and throughout the Territory, including the right to grant sub-licenses, subject to all of the terms and conditions of this Agreement. Such right and license in the Territory shall be exclusive even as to Arrow, except to the extent necessary to enable Arrow to perform any obligations or activities that Arrow is required or permitted to perform under this Agreement. The license is subject to Arrow's right of manufacture in Section 10.1.

        2.2    Manufacturing and Supply Rights Retained by Arrow.    For the sake of clarity, the license in Section 2.1 does not include a right or license by Arrow regarding any Arrow Technology that Arrow has or may acquire to manufacture, have manufactured or supply the Products (or any sub-component or sub-process involved in the manufacture of the Products), such rights being retained by Arrow pursuant to Section 10.1.

        2.3    Further Assurances.    Arrow hereby agrees that it will do all such acts and execute all such further documents, conveyances, deeds, assignments, transfers, licenses and the like, and will cause the doing of all such acts on its own behalf and by each of its Affiliates and will cause the execution of all such further documents on its own behalf and by each of its Affiliates as are within its power as Sepracor may from time to time reasonably request be done and/or executed in order to consummate the transactions contemplated under this Agreement, as may be necessary or desirable to effect the purposes of this Agreement, or as may be appropriate to more effectively carry out and vest in Sepracor the grant of rights and licenses intended to be made under this Agreement, all at the sole cost and expense of Arrow.

Article 3    Development

        3.1    Development of the Products.    Sepracor and Arrow shall together be responsible for Development of the Products based upon the timing and requirements of the Development Plan as overseen by the Steering Committee. Both Sepracor and Arrow shall use their commercially reasonable efforts to Develop the Products, including that Arrow shall, upon Sepracor's request, provide and facilitate the transfer of Arrow Technology, including data, and enabling technology with respect to the Products.

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        3.2    Access to Data and Information.    Sepracor shall own and have the right to access free of charge all information and data generated in all Development activities and all pre-clinical, clinical and marketing studies with respect to the Products.

        3.3    Cooperation regarding Regulatory Approvals.    The Parties shall consult and cooperate in the preparation of each submission for Regulatory Approvals for the Products in the Territory and in obtaining and maintaining Regulatory Approvals within the Territory, provided however, that, Sepracor shall be solely responsible for interactions with Regulatory Authorities throughout the Territory.

        3.4    Clinical Trial Data.    All data (including all pre-clinical, clinical and/or marketing data) developed by either or both of the Parties during the Term and relating to a Product shall be and remain the property of Sepracor.

        3.5    Clinical Studies.    Sepracor shall have the exclusive right to conduct any clinical trials or studies, prior to or after relevant Regulatory Approval, relating to the Products in the Territory.

        3.6    Funding of Product Development.    Sepracor shall be responsible for all Development Costs. Further Sepracor shall [**] Arrow in connection [**] under Section [**]. Such [**] shall be [**], which shall be delivered by Arrow within [**], in which case [**].

Article 4    Commercialization

        4.1    Commercialization in General.    Sepracor shall have the exclusive right, even as to Arrow, to Commercialize the Products in the Territory. Sepracor shall use its commercially reasonable efforts to Commercialize the Products as soon as commercially reasonable following receipt of Regulatory Approval for such Product.

        4.2    Compliance and Assistance.    Arrow shall provide Sepracor with reasonable assistance, in a timely manner, to support Sepracor's requirements in complying with Regulatory Authorities' requests or orders, including voluntary or involuntary recalls of a Product, in the Territory insofar as the Regulatory Authority request or order reasonably relates to work performed by Arrow. The foregoing shall occur [**].

        4.3    Promotional Materials.    Arrow shall provide Sepracor with reasonable assistance, in a timely manner, to support Sepracor's activities in Commercializing the Products in the Territory. The foregoing shall occur [**].

Article 5    Governance and Oversight

        5.1    Steering Committee.    The Parties shall establish a joint steering committee (the "SC") consisting of representatives of senior management from each Party, each such representative having the authority to act on behalf of the Party such individual represents, the exact number of which shall be as the Parties may agree, from time to time. Initially, the SC shall consist of five (5) individuals, three (3) of whom shall be nominated by Sepracor, and two (2) of whom shall be nominated by Arrow. Any member of the SC may designate a substitute to attend and perform the functions of that member at any meeting of the SC. Each Party may, with the consent of the other Party, such consent not to be unreasonably withheld or delayed, invite non-member, non-voting representatives of such Party to attend meetings of the SC. Sepracor shall designate the chairperson and the secretary of the SC. The SC shall perform the following responsibilities:

        (a)   Oversee the overall strategy for the Development of the Products in the Territory.

        (b)   Facilitate communication between the two Parties and provide a forum to review any Development, regulatory, manufacturing and Commercialization matters pertaining to the Products.

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        (c)   Provide a forum for communication of Sepracor and Arrow's activities in the Territory with respect to the Products.

        (d)   Undertake a regular and frequent review and comparison of the status of the Development Plan, including, without limitation the applicable timelines, and provide direction to the conduct of the Development Plan, as necessary.

        (e)   Review and approve the proposed Development Plan and any fundamental amendments or modifications thereto.

        (f)    Perform such other responsibilities as may be assigned to the SC pursuant to this Agreement or as may be mutually agreed upon by the Parties from time to time.

        5.2    Meetings.    All SC meetings shall be as often as the members may determine, but in any event SC meetings shall occur not less than four times per calendar year. Such meetings may be held in person, or any means of telecommunications or video conference, as the members deem necessary or appropriate; provided, however, that at least one SC meeting per year shall be held in person and the location of such in person meeting shall alternate between Sepracor's and Arrow's offices.

        5.3    Decision-making of Steering Committee.

        (a)   The SC may make decisions with respect to any subject matter that is subject to the SC's decision-making authority or within the purview of any other subcommittee organized as part of this Agreement. Except as expressly provided in this Agreement, all decisions of the SC shall be made by majority vote of the members with at least 4 members casting a vote. The SC shall use reasonable efforts to resolve any disputes concerning the matters within its roles and functions or otherwise referred to it.

        (b)   If, with respect to a matter that is subject to the SC's decision-making or oversight authority, the SC cannot reach consensus within fifteen (15) Business Days after it has met and attempted to reach such consensus or the Parties cannot reach consensus on whether the SC has decision-making authority regarding a matter within fifteen (15) Business Days after such matter was first raised by either Party, the dispute in question shall be resolved by the chairperson of the SC.

        (c)   Notwithstanding the foregoing, Sepracor shall not exercise its right to finally resolve a dispute in accordance with this Section 5.3 in a manner that excuses Sepracor from any of its obligations specifically enumerated under this Agreement.

        (d)   Notwithstanding this Section 5.3, any dispute regarding the interpretation of this Agreement or any alleged breach of this Agreement will be resolved in accordance with the terms of Article 15.

        5.4    Minutes.    Minutes for each of the SC meetings shall be drafted by the secretary of the meeting and sent to the chairperson for comment promptly after each such meeting (but in no event more than thirty (30) days). All actions noted in the minutes are to be reviewed and approved at subsequent meetings of the SC; provided, that if the Parties cannot agree as to the content of the minutes, such minutes will be finalized to reflect such disagreement.

        5.5    Expenses.    Each Party shall bear all its own costs, including expenses incurred by the members nominated by it in connection with their activities as members of the SC.

Article 6    Regulatory Affairs

        6.1    Title to and Ownership of Regulatory Approvals.    Sepracor or its designee shall be the owner of all Regulatory Approvals for the Products in the Territory. Arrow agrees to have transferred any Regulatory Approvals relating to any Product owned by Arrow or its Affiliates to Sepracor or its designee.

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        6.2    Responsibility for Regulatory Approval.    In accordance with the terms and subject to the conditions herein specified, Sepracor shall be solely responsible for obtaining all Regulatory Approvals for the Products in the Territory. All expenses incurred by Sepracor in obtaining any such Regulatory Approvals shall be borne by Sepracor. Sepracor shall use its commercially reasonable efforts to obtain Regulatory Approvals in a timely and expedient manner.

        6.3    Maintaining Regulatory Approval.    Sepracor shall maintain each Regulatory Approval for a Product in the Territory in its own name or in the name of its designee. All expenses incurred by Sepracor in maintaining such Regulatory Approvals shall be borne by Sepracor.

        6.4    Arrow Cooperation.    Arrow shall use commercially reasonable efforts upon timely request of Sepracor: (i) to assist Sepracor in responding to any queries from a Regulatory Authority, (ii) to provide Sepracor with all necessary documents, data and information which Arrow has in its possession or control that will assist Sepracor in preparing and maintaining the Regulatory Approvals in the Territory, and (iii) to provide, at least [**] before a response is due to any Regulatory Authority, all the necessary documents, data, and information that Arrow has in its possession or control that will assist Sepracor in preparing for such response.

        6.5    Inspections, Inquiries and Complaints.

        (a)   Arrow shall advise Sepracor of any Regulatory Authority visit to, or written or oral inquiry about, any facilities or procedures relating to the Development of a Product promptly, but in no event later than [**] after notice of such visit or inquiry. Arrow shall, within [**] of receipt or submission, furnish to Sepracor any report or correspondence issued by or provided to the Regulatory Authority in connection with such visit or inquiry. Sepracor shall have the right to be present during any such visits (provided that Arrow has sufficient advance notice) and shall be apprised of all correspondence with any Regulatory Authority.

        (b)   Arrow shall advise Sepracor within [**] of becoming aware of any material investigation, complaint, claim or potential claim, whether from a Regulatory Authority or not, about a Product relating to a safety issue.

        6.6    Coordination.    The Parties shall establish procedures to ensure that the Parties exchange on a timely basis all necessary information to enable Sepracor and Arrow to comply with all regulatory obligations relating to a Product on a global basis, including without limitation filing updates, pharmacovigilance filings and investigator notifications.

Article 7    Intellectual Property

        7.1    Ownership of Intellectual Property.    Sepracor shall have and retain sole and exclusive right, title and interest in and to all inventions, discoveries, writings, trade secrets, know-how, methods, practices, procedures, engineering information, designs, devices, improvements, manufacturing information and other technology, whether or not patentable or copyrightable, and any patent applications, patents, or copyrights based thereon ("Inventions") that are made, discovered, conceived, reduced to practice or generated by Sepracor (or its employees or representatives) or jointly by Sepracor and Arrow (or their employees or representatives) that relate directly to a Product or the active ingredients in a Product. Arrow shall have and retain sole an exclusive right, title and interest in and to all Inventions made solely by Arrow (or its employees or representatives) that relate directly to a Product or the active ingredients in the Product. With respect to any Inventions not directly relating to a Product or the active ingredients in a Product, each Party shall own all right, title and interest in and to all such Inventions made, discovered, conceived, reduced to practice or generated solely by such Party (or its employees or representatives), and the Parties shall jointly own the right, title and interest in and to all such Inventions made, discovered, conceived, reduced to practice or generated jointly by the Parties (or their employees or representatives). The Parties agree to cooperate in the filing of

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patent applications upon such jointly-owned inventions. With respect to Inventions made by Arrow that directly relate to a Product or the active ingredients in a Product, Arrow shall grant Sepracor a fully-paid, perpetual, exclusive license in the Territory to make, use, offer to sell, or sell such Inventions in relation to the Product, except that such license shall not be considered exclusive as and to the extent necessary to enable Arrow to perform any obligations or activities that Arrow is required or permitted to perform under this Agreement in relation to the Product. With respect to Inventions made by Arrow that directly relate to the Product or the active ingredients in the Product, Arrow shall retain the right, title and interest to practice such Inventions other than in relation to the Product.

        7.2    Maintenance of Patents.    Sepracor shall be authorized to, and responsible for, [**], maintaining all Patents covering a Product, whether such Patents are Arrow Patents or Sepracor Patents. Should Sepracor elect not to maintain any Arrow Patent in the Territory, then Sepracor shall provide Arrow with written notice in sufficient time (and in no event less than [**] before any statutory bar date) to permit Arrow to maintain such Patent.

        7.3    Patent Prosecution.    Sepracor, [**], shall have responsibility for filing, prosecution and maintenance of all Patents covering a Product in the Territory. Arrow shall and hereby does give Sepracor the right [**], to prepare, file, prosecute and maintain all such Patents in Arrow's name, and Arrow shall offer reasonable assistance to Sepracor in connection with such preparation, filing, prosecution or maintenance [**]. Arrow shall disclose to Sepracor the complete texts of all Patents filed by Arrow in the Territory that relate to a Product as well as all information received concerning the institution or possible institution of any interference, opposition, re-examination, reissue, revocation, nullification or any official proceeding involving a Patent anywhere in the Territory. Arrow shall cooperate with Sepracor in the prosecution of all Patents covering the Product.

        7.4    Notification of Patent Litigation.    In the event of the institution of any suit by a Third Party against Sepracor or Arrow alleging patent infringement involving the manufacture, use, sale, license or marketing of a Product anywhere in the Territory, the Party sued shall promptly notify the other Party in writing.

        7.5    Patent Infringement.    In the event that Sepracor or Arrow becomes aware of actual or threatened infringement of an Arrow Patent licensed pursuant to this Agreement anywhere in the Territory, that Party shall promptly notify the other Party in writing. However, in no event shall Arrow notify Sepracor later than [**] before any deadline for filing suit which, if missed, would prejudice Sepracor's exclusive rights under this Agreement. Sepracor or its designee shall have the sole right, but not the obligation, to investigate and/or bring an infringement action against any Third Party. Sepracor shall have full control over the conduct of such investigations and litigation, including the settlement thereof. [**]. Arrow shall reasonably assist Sepracor and cooperate in any such investigation and litigation at Sepracor's request and at [**], unless Arrow has otherwise agreed to participate in the litigation. Should Sepracor or its designee choose not to bring an infringement action regarding a particular Arrow Patent, Arrow shall then have the right, exercisable at its sole discretion, to bring such an action. Any such infringement action shall be at [**], and it shall be solely entitled to the entire proceeds, if any, of such litigation.

        7.6    Title to Trademarks and Domains.    The ownership and all goodwill from the use of any Trademark shall vest in and inure to the benefit of Sepracor. The ownership and all goodwill from the use of any domain name incorporating in whole or part a Trademark, a common or foreign misspelling of a Trademark, or a typographical misspelling of a Trademark, shall vest in and inure to the benefit of Sepracor.

Article 8    Consideration

        8.1    Standalone Product Consideration.    As consideration for the transfer of Know-How and the grants of rights and licenses to the Arrow Technology to Sepracor in this Agreement with respect to the

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Standalone Product, following execution of this Agreement Sepracor shall make payments to Arrow , which shall become due and payable as set forth below (each an "Execution Payment"):

        (a)    Upon Execution.    Sepracor shall make an initial payment to Arrow in the amount of $250,000 no later than five (5) days after the Effective Date;

        (b)    Further Consideration For Performance From Effective Date to December 15, 2009.    Provided that Arrow is then not in material breach of its obligations in Section 3.1, 4.2 or 6.4, Sepracor shall make a payment to Arrow in the amount of $10,000,000 on or before December 15, 2009, as further consideration for the transfer of Know-How and the grants of rights and licenses to the Arrow Technology in connection with the Standalone Product and in consideration of Arrow's performance under Sections 3.1, 4.2 and 6.4 of this Agreement; and

        8.2    Standalone Product Milestone Payments.

        (a)    Standalone Product Milestone Payments.    As additional consideration for the grants of rights and licenses under the Arrow Technology to Sepracor in this Agreement and to further incentivize and secure Arrow's efforts to Develop successfully the Standalone Product, Sepracor shall pay a one-time milestone payment to Arrow in the amount (each a "Standalone Product Milestone Payment") and upon the occurrence of each of the events (each a "Standalone Product Milestone") set forth below. Such payments shall be made within [**] of the achievement or occurrence of such milestone event. For purposes of clarity, Sepracor shall be obligated to pay a Standalone Product Milestone Payment only with respect to the first achievement or occurrence of each respective Standalone Product Milestone.

Milestone		Milestone Payment
(i)	Filing with the FDA of an Investigational New Drug application for the Standalone Product	$[**]
(ii)	Submission of an NDA for the Standalone Product to the FDA	$[**]
(iii)	Receipt of Regulatory Approval for the Standalone Product in the United States from the FDA	$[**]

        (b)   The Standalone Product Milestones in subsection (a) of this Section 8.2 shall be deemed to have been achieved in the event that, and at such time as Sepracor has abandoned or indefinitely delayed the further Development of the Standalone Product, such that such milestone is not reasonably likely to be achieved.

        8.3    Standalone Product Royalty Payments.    As additional consideration, Sepracor shall pay the following Royalty Payments to Arrow in the amounts set forth below (the "Standalone Product Royalty").

        (a)    Standalone Product Royalty Payment.    Sepracor will pay Arrow a royalty equal to [**]% of the annual Net Sales of the Standalone Product sold by Sepracor and its Affiliates in the Territory during a Contract Year, to be paid on a quarterly basis within [**] of the end of each Contract Quarter. [**].

        (b)    Standalone Product Royalty Buy-Out Option.    In order to allow Arrow time to decide whether to elect to take certain consideration in the form of a lump sum payment or future royalty payments with respect to the Standalone Product, the Parties have agreed to provide Arrow with a one-time royalty buy-out option, as follows, the amount of which the Parties acknowledge is at a significant discount to the royalty payments that Arrow might otherwise receive under Section 8.3(a) above on the global sales of the Standalone Product. Provided that Arrow is then not in material breach of its obligations under Sections 3.1, 4.2 or 6.4 prior to October 1, 2009, Arrow may elect to receive a one-time, non-refundable, discounted, fixed royalty payment (the

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"Standalone Fixed Royalty Payment") in lieu of the Standalone Royalty Payment set forth in Section 8.3(a) above. Arrow's election to receive a Standalone Fixed Royalty Payment in lieu of the Standalone Royalty Payment must be exercised by Arrow providing written notice, by facsimile, of such election or elections that is received by Sepracor during the period commencing on October 1, 2009 and ending at 11:59 p.m. (Boston, Massachusetts local time) on December 31, 2009. In the event that Arrow timely elects to receive the Standalone Fixed Royalty Payment in lieu of the Standalone Royalty Payment, Sepracor shall pay to Arrow within 30 Business Days of Sepracor's receipt of such election the amount of $14,400,000. Arrow's timely election to receive a Standalone Fixed Royalty Payment with respect to the Standalone Product in lieu of a Standalone Royalty Payment shall be irrevocable by Arrow, and Sepracor shall not have any obligation to make the Standalone Royalty Payments to Arrow with respect to such Standalone Product after Sepracor receives such election and pays the amount of the Standalone Fixed Royalty Payment with respect to such Standalone Product.

        8.4    Combination Product Consideration.    As consideration for the transfer of Know-How and the grants of rights and licenses to the Arrow Technology to Sepracor in this Agreement with respect to the Combination Product, following execution of this Agreement Sepracor shall make payments to Arrow, which shall become due and payable as set forth below (each an "Execution Payment" or the "Combination Product Execution Payment"):

        (a)    Consideration For Execution.    Sepracor shall make an initial payment to Arrow in the amount of $250,000 no later than five (5) days after the Effective Date;

        (b)    Further Consideration For Performance From Effective Date to December 15, 2010.    Provided that Arrow is then not in material breach of its obligations in Section 3.1, 4.2 or 6.4, Sepracor shall make a payment to Arrow in the amount of $10,000,000 on or before December 15, 2010, as further consideration for the transfer of Know-How and the grants of rights and licenses to the Arrow Technology in connection with the Combination Product and in consideration of Arrow's performance under Sections 3.1, 4.2 and 6.4 of this Agreement; and

        8.5    Combination Product Milestone Payments.

        (a)    Combination Product Milestone Payments.    As additional consideration for the grants of rights and licenses under the Arrow Technology to Sepracor in this Agreement and to further incentivize and secure Arrow's efforts to Develop successfully the Combination Product, Sepracor shall pay a one-time milestone payment to Arrow in the amount (each a "Combination Product Milestone Payment") and upon the occurrence of each of the events (each a "Combination Product Milestone") set forth below. Such payment shall be made within [**] of the achievement or occurrence of such milestone event. For purposes of clarity, Sepracor shall be obligated to pay a Combination Product Milestone Payment only with respect to the first achievement or occurrence of each respective Combination Product Milestone.

Milestone		Milestone Payment
(i)	Filing with the FDA of an Investigational New Drug application for the Combination Product	$[**]
(ii)	Submission of an NDA for the Combination Product to the FDA	$[**]
(iii)	Receipt of Regulatory Approval for the Combination Product in the United States from the FDA	$[**]

        (b)   The Combination Product Milestones in subsection (a) of this Section 8.5 shall be deemed to have been achieved in the event that, and at such time as Sepracor has abandoned or indefinitely delayed the further Development of the Combination Product, such that such milestone is not reasonably likely to be achieved.

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        8.6    Combination Product Royalty Payments.    As additional consideration, Sepracor shall pay the following Royalty Payments to Arrow in the amounts set forth below (the "Combination Product Royalty").

        (a)    Combination Product Royalty Payment.    Sepracor will pay Arrow a royalty equal to [**]% of the annual Net Sales of the Combination Product sold by Sepracor and its Affiliates in the Territory during a Contract Year, to be paid on a quarterly basis within [**] of the end of each Contract Quarter. [**].

        (b)    Combination Product Royalty Buy-Out Option.    In order to allow Arrow time to decide whether to elect to take certain consideration in the form of a lump sum payment or future royalty payments with respect to the Combination Product, the Parties have agreed to provide Arrow with a one-time royalty buy-out option, as follows, the amount of which the Parties acknowledge is at a significant discount to the royalty payments that Arrow might otherwise receive under Section 8.6(a) above on the global sales of the Combination Product. Provided that Arrow is then not in material breach of its obligations under Sections 3.1, 4.2 or 6.4 prior to October 1, 2009, Arrow may elect to receive a one-time, non-refundable, discounted, fixed royalty payment (the "Combination Fixed Royalty Payment") in lieu of the Combination Royalty Payment set forth in Section 8.6(a) above. Arrow's election to receive a Combination Fixed Royalty Payment in lieu of the Combination Royalty Payment must be exercised by Arrow providing written notice, by facsimile, of such election or elections that is received by Sepracor during the period commencing on October 1, 2009 and ending at 11:59 p.m. (Boston, Massachusetts local time) on December 31, 2009. In the event that Arrow timely elects to receive the Combination Fixed Royalty Payment in lieu of the Combination Royalty Payment, Sepracor shall pay to Arrow within 30 Business Days of Sepracor's receipt of such election the amount of $23,500,000. Arrow's timely election to receive a Combination Fixed Royalty Payment with respect to the Combination Product in lieu of a Combination Royalty Payment shall be irrevocable by Arrow, and Sepracor shall not have any obligation to make the Combination Royalty Payments to Arrow with respect to such Combination Product after Sepracor receives such election and pays the amount of the Combination Fixed Royalty Payment with respect to such Combination Product.

        8.7    Payments.    Sepracor shall pay all amounts due under this Agreement by bank wire transfer in immediately available funds to such bank as Arrow may direct from time to time. Any amount owing to Arrow under this Agreement that is not paid within [**] of Sepracor's receipt of notice that such amount is overdue shall bear interest at the [**] as published by Citibank, NA that is applicable to the date on which the payment was first due.

Article 9    Reports and Audit Rights.

        9.1    Quarterly Reports.    Within [**] following the end of each Contract Quarter for which Sepracor shall owe a Royalty Payment, Sepracor shall render a written report to Arrow setting forth the following information and calculations for such Contract Quarter, segregated by Sepracor, each Affiliate and each sublicensee: (a) each component making up Net Sales for the Contract Quarter and the calculation of Net Sales; (b) the actual number of units of Product sold (net of returns) for the Contract Quarter; and (c) the calculation of royalties payable to Arrow pursuant to Sections 8.3 and 8.6.

        9.2    Records.    Sepracor (or its designee) shall record all sales of the Products anywhere in the Territory and shall keep full and true books of account and other records in accordance with the requirements of GAAP so that details of sales for the Products, the calculation of Net Sales and Sepracor's payment obligations in respect thereof may be properly ascertained.

        9.3    Audit Right of Each Party.    Each of Sepracor and Arrow shall keep complete and accurate records of their respective reimbursable expenses, Net Sales and other financial measures resulting in a

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payment to the other Party under this Agreement. Each Party shall have the right, at such Party's expense, through a certified public accountant or like person reasonably acceptable to the other Party, upon execution of a reasonable confidentiality agreement, to examine such records during regular business hours upon reasonable notice during the life of this Agreement and for 1 calendar year after its termination; provided, however, that (i) such examination shall not take place more often than once a Contract Year and shall not cover such records for more than the preceding Contract Year, and (ii) such accountant shall report to such Party only as to the accuracy of the reports or payments provided or made by the other Party under this Agreement. Any adjustments required as a result of overpayments or underpayments identified through a Party's exercise of audit rights, and any other adjustments that may be required from time to time in order to correct overpayments or underpayments under this Agreement, shall be made by subtracting or adding, as appropriate, amounts from or to the next payment required to be made to the other Party under this Agreement, or in the event that no further payments are required to the other Party under this Agreement, within ten (10) days following such identification of overpayments or underpayments. The Party requesting the audit shall bear the full cost of the audit unless such audit correctly discloses that the discrepancy for the Contract Year differs by more than [**] percent ([**]%) from the amount the accountant determines is correct, in such case the owing Party shall pay the reasonable fees and expenses charged by the accountant. In the event that a Party disputes an invoice or other payment obligation under this Agreement, such Party shall timely pay the undisputed amount of the invoice or other payment obligation, and the Parties shall resolve such dispute in accordance with Article 15.

Article 10    Manufacturing and Supply

        10.1    Manufacturing Rights.    Further to Section 2.2, Arrow retains the right to manufacture or have manufactured products using Arrow Controlled patents and know-how. Arrow may, including pursuant to Section 7.1 of this Agreement, develop or acquire additional rights or technology allowing it to manufacture, or have manufactured, the Products. The Parties shall enter into a Supply Agreement, to the extent of Arrow's right to do so, under which Arrow shall manufacture or have manufactured the Products, to the full extent of Arrow's right to do so, for the exclusive supply to Sepracor or its authorized designee at [**].

        10.2    Election Not to Manufacture or Supply.    Should Arrow elect not to manufacture or arrange for the manufacture of such Product, or Arrow is in material breach of any obligation to supply such Product to Sepracor or its authorized designee, Sepracor shall have the non-exclusive right to manufacture, arrange for the manufacture of or to supply such Product.

Article 11    Representations, Warranties, Covenants and Indemnification

        11.1    Representations of Arrow.    Arrow represents and warrants that (i) it owns the entire right, title and interest in the Arrow Patents and Arrow Know-How licensed by Sepracor under this Agreement, or otherwise has the right to grant the license rights under this Agreement, (ii) it has the right to enter into this Agreement, (iii) that there is nothing in any Third Party agreement Arrow has entered into that in any way limits Arrow's ability to perform all of its obligations under this Agreement, (iv) it will not encumber, with liens, mortgages, security interests or otherwise, the Arrow Patents or Arrow Know-How, (v) it has disclosed to Sepracor the complete texts of all Patents as of the Effective Date as well as all information received by Arrow as of the Effective Date concerning the institution or possible institution of any interference, opposition, reexamination, reissue, revocation, nullification or any official proceeding involving an Arrow Patent anywhere in the Territory, (vi) it has received no notice of infringement or misappropriation of any alleged rights asserted by any Third Party in relation to any technology used in connection with the manufacture, use or sale of a Product, and it is not aware of any patent, know-how, trade secret, or other right of any Third Party which could reasonably be expected to materially adversely affect its ability to carry out its responsibilities under

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this Agreement or the manufacture, use or sale of a Product or the rights granted to Sepracor under this Agreement, (vii) it shall be in compliance with all laws and regulations applicable to the subject matter of this Agreement, including, without limitation, the Federal Food, Drug and Cosmetic Act of the United States, (viii) to the best of its knowledge, the Arrow Patents are valid and enforceable; (ix) it has disclosed to Sepracor all litigations, oppositions, interferences or other proceedings involving Arrow Patents and copies of all motions and pleadings filed in same; (x) that Breath Limited, a United Kingdom corporation having its registered address at 930 High Road, London, N12 9RT, United Kingdom ("Breath") is an Affiliate of Arrow; (xi) that Resolution Chemicals Limited having or having had a place of business at 4^th Floor, 7 Cavendish Square, London, W1G 0PE is an Affiliate of Arrow; (xii) it has disclosed to Sepracor all litigations, oppositions, interferences, or other proceedings involving Arrow and a patent or patent application Controlled by it; and (xiii) to the best of its knowledge, there are no patents or patent applications that, if issued with claims as currently pending, would be infringed by the making, selling, or using of a Product.

        11.2    Representations of Sepracor.    Sepracor represents and warrants that (i) it has the right to enter into this Agreement, (ii) there is nothing in any Third Party agreement Sepracor has entered into that in any way will limit Sepracor's ability to perform all of the obligations undertaken by Sepracor under this Agreement, and (iii) Sepracor shall be in compliance with all laws and regulations applicable to the subject matter of this Agreement, including, without limitation, the Federal Food, Drug and Cosmetic Act of the United States.

        11.3    Indemnification by Arrow.    Arrow shall defend, indemnify and hold harmless Sepracor and its Affiliates and their officers, directors, shareholders, employees, agents, representatives, successors and assigns from and against all claims, complaints, or lawsuits for damages (collectively referred to as "Claims") arising out of (i) any negligent act or omission, or willful wrongdoing by Arrow in the performance of this Agreement, (ii) the failure by Arrow to comply with any FDA or other governmental requirement, or (iii) any breach of any representation or warranty of Arrow, except to the extent caused by the negligent act or omission or willful wrongdoing of Sepracor.

        11.4    Indemnification by Sepracor.    Sepracor shall defend, indemnify and hold harmless Arrow and its Affiliates and their officers, directors, shareholders, employees, agents, representatives, successors and assigns from and against all Claims arising out of (i) any negligent act or omission, or willful wrongdoing by Sepracor in the performance of this Agreement, (ii) the failure by Sepracor to comply with any FDA or other governmental requirement, or (iii) any breach of any representation or warranty of Sepracor, except to the extent caused by the negligent act or omission or willful wrongdoing of Arrow.

Article 12    Confidentiality, Publications

        12.1    Confidential Information.    For the purposes of this Agreement, the term "Confidential Information" shall mean any and all information of a Party hereto that may be exchanged between the Parties at any time and from time to time before and during the Term in relation to the subject matter covered by this Agreement. Confidential Information as defined herein shall, without limitation, be deemed to include all notes, analyses, compilations, studies, interpretations or other documents, whether in tangible form or on electronic or other data storage media, prepared by the receiving Party and its Representatives as defined hereinafter, which contain, reflect or are based on, in whole or in part, Confidential Information furnished to the receiving Party or its Representatives by the disclosing Party or its Representatives hereunder. Results pertaining to the Development of compound or Product shall be deemed to constitute Confidential Information disclosed by Arrow.

        12.2    Duties of Confidentiality and Non-Use.    During the Term, and for a period of [**] thereafter, each Party hereto will maintain in confidence all Confidential Information disclosed to it as a "receiving" Party by the other Party as a "disclosing" Party. The receiving Party shall not use, disclose

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or grant use of such other Party's Confidential Information except as permitted under this Agreement. To the extent that disclosure is authorized by this Agreement, the receiving Party shall obtain prior written agreement from its employees, agents, consultants, Affiliates, subcontractors and sublicensees (collectively, the "Representatives") to whom disclosure is to be made to hold in confidence and not make use of such information for any purpose other than those permitted by this Agreement, unless such Representatives are already bound by law or contract to obligations of confidentiality and non-use no less stringent than those assumed by the receiving Party hereunder. Each receiving Party shall use at least the same standard of care as it uses to protect its own Confidential Information to ensure that such Representatives do not disclose or make any unauthorized use of such Confidential Information of the disclosing Party. Each receiving Party shall promptly notify the other disclosing Party upon discovery of any unauthorized use or disclosure of Confidential Information by the receiving Party or any of its Representatives. Confidential Information shall not include any information which:

        (a)   was generally available to the public or otherwise part of the public domain at the time of its disclosure to the receiving Party; or

        (b)   becomes generally available to the public or otherwise part of the public domain after its disclosure and other than through any act or omission of the receiving Party in breach of this Agreement.

        12.3    Compulsory Disclosure.    If a receiving Party or any of a receiving Party's Representatives are requested or become legally compelled (by oral questions, interrogatories, requests for information or documents, subpoena, civil or criminal investigative demand, or similar process) or is required by a regulatory body to make any disclosure that is prohibited or otherwise constrained pursuant to this Article 12, the receiving Party will, and will cause such of its Representatives to, as the case may be, provide the disclosing Party with prompt written notice of such request so that the disclosing Party may seek an appropriate protective order or other appropriate remedy. Subject to the foregoing, the receiving Party may, and may cause such Representatives to, furnish that portion (and only that portion) of the Confidential Information that, in the written opinion of its counsel reasonably acceptable to the disclosing Party, the receiving Party is legally compelled or is otherwise required to disclose or else stand liable for contempt or suffer other material censure or material penalty; provided, however, that the receiving Party must, and must cause its Representatives to, use reasonable efforts to obtain reliable assurance that confidential treatment will be accorded any Confidential Information so disclosed.

        12.4    Terms Confidential.    The Parties agree that the terms of this Agreement shall be considered the Confidential Information of both Parties and shall not be disclosed by either Party, except (i) as required by applicable law or (ii) to a Third Party with whom Arrow or Sepracor, as applicable, has entered into or proposes to enter into a business relationship related to the subject matter hereof or (iii) to a Third Party with whom Arrow or Sepracor is in due diligence relating to a merger or an acquisition or a financing, and provided that such Third Parties are subject to appropriate confidentiality agreements providing for obligations of confidentiality and non-use at least as stringent as those pursuant to this Article 12.

        12.5    Permitted Disclosure.    Each Party and its Representatives may disclose Confidential Information to the extent such disclosure is reasonably necessary for the purpose of the implementation of this Agreement, including without limitation, for purposes of the filing or prosecuting of patent applications, prosecuting or defending litigation, or complying with any applicable statute or governmental regulation.

        12.6    Public Announcements.    Neither Party shall originate any publicity, news release or public announcements relating to this Agreement (including, without limitation, its existence, its subject matter, the Parties' performance, any amendment hereto or performances hereunder), whether to the public or press, stockholders or otherwise, without the prior written consent of the other Party, save

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only such announcements that are required by law or the rules of any relevant stock exchange to be made or that are otherwise agreed to by the Parties. If a Party decides to make an announcement, whether required by law or otherwise, it shall give the other Party reasonable notice of the text of the announcement so that the other Party shall have an opportunity to comment upon the announcement. To the extent that the receiving Party reasonably requests the deletion of any information in any such announcement, the disclosing Party shall delete such information unless, in the opinion of the disclosing Party's legal counsel, such information is required by law or the rules of any relevant stock exchange to be disclosed. The timing and content of the initial press release relating to this Agreement, including its existence, the subject matter to which it relates and the transactions contemplated herein will, except as otherwise required by law or any stock exchange rules, be determined jointly by the Parties.

        12.7    Publications.    Sepracor may use Confidential Information to the extent such disclosure is reasonably necessary for the purpose of preparing all written abstracts, articles, letters, reviews and the like intended for publication in scientific, medical, pharmaceutical industry and healthcare-related journals, periodicals, books, websites and the like or presentations at symposia or the like ("Publications"). Arrow shall not prepare any such Publications relating to a Product without the prior written consent of Sepracor.

Article 13    Competition

        13.1    Non-Compete Obligations.    During the Term, neither Arrow nor its Affiliates, shall, either alone or in collaboration with a Third Party, engage in any activity directed to the Development or Commercialization of Competing Products in the Territory. For the purposes of this Section 13.1, the term "Competing Products" means [**], and provided that following a Change of Control of Arrow, "Competing Products" shall mean [**].

        13.2    [**] Exempt From Non-Compete Obligations.    Nothing in this section or this Agreement shall be construed to in any way restrict or encumber Arrow's ability to Develop and Commercialize [**].

Article 14    Term and Termination

        14.1    Term.    This Agreement shall become effective on the Effective Date and shall continue until the later of, on a Product by Product basis, (i) the last to expire of any Patent with a claim covering a Product or (ii) 12 years after the First Commercial Sale in the Territory on a country by country basis (the "Term").

        14.2    Early Termination.    Each Party shall have the right to terminate this Agreement in its entirety before the end of the Term:

        (a)   by mutual written agreement of the Parties;

        (b)   upon the bankruptcy or insolvency, or the filing of an action to commence insolvency proceedings against the other Party, or the making or seeking to make or arrange an assignment for the benefit of creditors of the other Party, or the initiation of proceedings in voluntary or involuntary bankruptcy, or the appointment of a receiver or trustee of such Party's property that is not discharged within ninety (90) days.

        (c)   upon written notice by either Party if the other Party is in material and continuing breach of this Agreement and has not cured such breach within [**] after receiving written notice ([**] with respect to breach of any payment obligation) from the terminating Party requesting cure of the breach and informing the breaching Party that the terminating Party intends to terminate this Agreement; provided, however, in the event of a good faith dispute with respect to the existence of a material breach, the cure period shall be tolled (except with respect to breach of a payment obligation) until such time as the dispute is resolved pursuant to Article 15; and provided further

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that the terminating Party has given the defaulting Party the following opportunities to remedy any breach:

        (i)    the written notice of breach referenced above shall detail the specific obligation under this Agreement which is alleged to have been breached; the manner of such alleged breach; and the steps that may be taken in order to remedy such breach; and

        (ii)   the terminating Party has provided the defaulting Party with a reasonable amount of time (but not less than [**]) in which (x) to complete any steps which might be taken to remedy the breach, as stated in the notification of breach, or (y) if completion of those steps is not possible within a [**] period, to commence those steps required as stated in the notification of breach, on the condition that the defaulting Party continues to perform those steps with due diligence and the breach is capable of being cured.

        14.3    Effect of Termination.

        (a)    Accrued Obligations.    The termination of this Agreement, in whole or part, for any reason shall not release either Party from any liability which, at the time of such termination, has already accrued to such Party or which is attributable to a period prior to such termination, nor will any termination of this Agreement preclude either Party from pursuing all rights and remedies it may have under this Agreement, at law or in equity, with respect to breach of this Agreement.

        (b)    Rights Become Non-Exclusive.    Notwithstanding any other provision of this Agreement, following the effective date of termination of this Agreement for any reason, provided however that Sepracor has paid all amounts due under this Agreement, Sepracor's, its Affiliates' and its sublicensees' rights and licenses with respect to the Arrow Technology incorporated into the Product in the Territory shall not terminate but shall continue on a non-exclusive basis, and, without limiting the foregoing, Sepracor shall have the right to engage one or more other distributors and/or licensees of the Product in all or part of the Territory.

        14.4    Continuing Payment Obligations.    Any Product sold by Sepracor, its Affiliates or sublicensees, in the Territory after the date of termination of this Agreement shall be subject to the payment of any continuing Royalty Payment obligations under Sections 8.3(a) and 8.6(a) above. Further, any abandonment or indefinite delay of the Development of a Product by Sepracor prior to [**], shall not impair Arrow's right to elect to receive [**].

        14.5    Survival.    Upon the termination of this Agreement, all rights and obligations of the Parties under this Agreement shall terminate, except those described in the following Articles and Sections: Article 9, Article 12, Article 15, Article 16, and Article 17 and Sections 3.2, 3.4, 6.1, 7.1, 7.6, 11.3, 11.4, 13.1, 14.3, 14.4, and 14.5. Termination shall not affect any rights to receive payments that have accrued under Article 8 at the time of termination.

Article 15    Governing Law; Dispute Resolution

        15.1    Dispute Resolution Process.    The Parties recognize that disputes as to certain matters may from time to time arise during the Term of this Agreement that relate to a Party's rights and/or obligations hereunder. If the Parties cannot resolve any such dispute within [**] after written notice of a dispute from one Party to another, any Party may, by written notice to the other Party, have such dispute referred to their senior executives. The senior executives shall negotiate in good faith to resolve the dispute within [**]. During such period of negotiations, any applicable time periods under this Agreement shall be tolled. If the senior executives are unable to resolve the dispute within such time period, either Party may pursue any remedy available to such Party at law or in equity, subject to the terms and conditions of this Agreement and the other agreements expressly contemplated hereunder.

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        15.2    Arbitration.    Any controversy or claim arising out of, or relating to this Agreement, or the breach thereof, shall be determined by Arbitration administered by the American Arbitration Association in accordance with its Commercial Arbitration Rules, and judgment on the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof. The place of arbitration shall be New York, New York, USA. This Agreement shall be governed by and interpreted in accordance with the laws of the State of New York. The Parties acknowledge that this agreement evidences a transaction involving interstate commerce. The United States Arbitration Act (Title 9, U.S. Code, as amended) shall govern the interpretation, enforcement, and proceedings pursuant to the arbitration clause in this Agreement. Within 15 days after the commencement of arbitration, each Party shall select one person to act as arbitrator and the two selected shall select a third arbitrator within 10 days of their appointment. If the arbitrators selected by the Parties are unable or fail to agree upon the third arbitrator, the third arbitrator shall be selected by the American Arbitration Association. Except as may be required by law, neither a Party nor an arbitrator may disclose the existence, content, or results of any arbitration arising hereunder without the prior written consent of both Parties. The language of the arbitration shall be English. Each Party shall bear its own costs and expenses and an equal share of the arbitrators' and administrative fees of arbitration. The arbitrators will have no authority to award punitive, consequential or other damages not measured by the prevailing Party's actual damages, except as may be required by statute.

Article 16    Force Majeure

        16.1    Force Majeure Affecting Either Party.    Notwithstanding any other provision of this Agreement, Arrow and Sepracor shall each be excused for any delay or default in performing any of their respective obligations hereunder if such delay or default is caused by conditions beyond its reasonable control including, but not limited to, acts of God, government restrictions (including import and export restrictions), wars, insurrections, terrorism, labor disturbances, shortages of equipment, fuel or labor, destruction of facilities or materials by fire, earthquake, storm or other casualty, any law, rule, order, decision, decree, judgment or injunction of any court, governmental officer or regulatory body, epidemic, or failure of public utilities or common carrier. When such circumstances arise, the Parties shall discuss what, if any modification of the terms of this Agreement may be required in order to arrive at an equitable solution. The Party affected by a force majeure event shall notify the other Party without undue delay in writing of any such force majeure event and the underlying reasons for the delay or default. The Parties shall then reasonably cooperate in good faith so as to seek a resolution of the delay or failure to perform and to reasonably remove the force majeure event, the costs and expenses of so removing any such force majeure event to be borne by the Party so affected unless otherwise agreed in writing, and such Party shall use all reasonable diligence to avoid, remove or mitigate any such causes of non-performance. The Party whose performance is affected by a force majeure event shall continue performance with reasonable dispatch wherever such causes have been removed.

Article 17    Miscellaneous

        17.1    Entire Agreement.    This Agreement constitutes the entire understanding of the Parties with respect to the subject matter hereof and supersedes and replaces all prior understandings between the Parties hereto including, without limitation, the Confidentiality Agreement.

        17.2    Prevailing Agreement.    In the event of any conflict between the provisions of this Agreement and a schedule attached hereto, the provisions of this Agreement shall prevail, unless the relevant clause of the relevant schedule expressly provides that it shall prevail, thereby referencing the clause of this Agreement over which the applicable schedule is intended to prevail.

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        17.3    Amendments.    Modifications and amendments to this Agreement shall be effective only if made in writing and signed by both Parties. Evidence for the contents of this Agreement may only be produced in the form of written documents duly executed by each of the Parties hereto.

        17.4    Cooperation.    Subject to confidentiality restrictions that may be reasonably requested, the Parties shall use their respective commercially reasonable efforts to:

        (a)   Make all required filings with all governmental authorities and obtain all necessary approvals in connection with this Agreement to the extent required under applicable laws. Subject to confidentiality restrictions that may be reasonably requested and to the extent permissible by law, Sepracor and Arrow shall make every effort to coordinate and exchange all filings and documents submitted to all government authorities regarding this Agreement;

        (b)   Cooperate with each other in any review, investigation, inquiry or proceeding regarding the Agreement by any government authority. Subject to such confidentiality restrictions as may be reasonably requested and to the extent permissible by law, Sepracor and Arrow will render reasonable assistance as the other may request in connection with this Agreement and coordinate and cooperate with one another in exchanging information, permitting reasonable access to Sepracor's and Arrow's documents, officials, and data in connection with any such review, investigation, inquiry or proceeding by any governmental authority;

        (c)   Promptly inform each other of any material communication made to, or received by such party from any governmental authority regarding this Agreement;

        (d)   Defend, contest and resist any administrative, judicial or legislative action or proceeding that is instituted (or threatened to be instituted) challenging the transactions contemplated by this Agreement as violative of any applicable law, and have vacated, lifted, reversed or overturned any decree, judgment, injunction or other order (whether temporary, preliminary or permanent) that is in effect and that challenges this Agreement, including, without limitation, by pursuing all reasonable avenues of administrative and judicial appeal;

        (e)   Without limiting any other provision of this Agreement, take all actions and do all things reasonably necessary or proper (at its own cost and expense), including under applicable law to make effective and further the intent and purposes of the transactions contemplated by this Agreement, including executing any further instruments reasonably requested by the other Party, and to resist and to contest any proposals or efforts to materially alter the terms of the Agreement so as to permit the Parties to fulfill their obligations under and to obtain the full benefits contemplated by the Agreement.

        17.5    Notices.    Unless otherwise provided for in this Agreement, any notice or request required or permitted to be given under or in connection with this Agreement or the subject matter hereof, shall be given in the English language in writing by prepaid registered or first-class airmail, by reputable same-day or overnight courier, or facsimile to the recipient at its address as set forth hereunder or to such other address or addressee as may have therefor been furnished in writing by the recipient to the sending Party in accordance with this clause provided, however, that any notice of termination shall be given reputable same-day or overnight courier. Any such aforementioned notice or request shall be deemed to be effective upon receipt by the Party to which it is addressed. Any notice to be sent by a Party pursuant to this Agreement shall be addressed:

in the case of a written notice to Arrow addressed to it at:

Arrow International Limited
57 St. Christopher Street
Valletta, VLT 08, Malta

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Attn: Francis Mifsud
Facsimile: +356-21653046

With a copy to:

Arrow International Limited
57 St. Christopher Street
Valletta, VLT 08, Malta

Attn: Anna Power
Facsimile: +353-18473897

and with a copy to (which shall not constitute notice):

Foley & Lardner LLP
3000 K Street, NW
Washington, DC 20007

Attn: Steven Maddox
Facsimile: (202) 672-5399

in the case of a written notice to Sepracor addressed to it at:

Sepracor Inc.
84 Waterford Drive
Marlborough, MA 01752

Attention: Adrian Adams, President & CEO
Facsimile Number: (508) 357-7511

with a copy to:

Sepracor Inc.
84 Waterford Drive
Marlborough, MA 01752

Attention: Andrew I. Koven, Executive Vice President, General Counsel & Corporate Secretary
Facsimile Number: (508) 357-7511

and with a copy to (which shall not constitute notice):

Holland & Knight LLP
701 Brickell Avenue
Suite 3000
Miami, FL 33131

Attention: Rodney H. Bell, Esq.
Facsimile Number: (305) 789-7799

Any change of these addresses shall be promptly communicated in writing to the other Party.

        17.6    Waiver and Estoppel.    Failure of either Party to insist upon a strict and punctual performance of any of the provisions hereof shall not constitute a waiver nor an estoppel against asserting the right to require such performance, nor shall a waiver or estoppel in one instance constitute a waiver or estoppel with respect to a later breach, whether of similar nature or otherwise. The observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively) by the Party entitled to enforce such term, but any

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such waiver shall be effective only if in writing signed by the Party against whom such waiver is to be asserted.

        17.7    Severability.    To the extent any provision or term set forth herein is or becomes unenforceable by operation of law, such unenforceability shall not affect the remaining provisions of this Agreement. The Parties agree to renegotiate in good faith any provision or term held to be unenforceable and to be bound by the mutually agreed substitute provision.

        17.8    No Agency.    Nothing herein contained shall be deemed to create an agency, joint venture, amalgamation, partnership or similar relationship between Arrow and Sepracor, and this Agreement shall not be deemed a partnership agreement. Notwithstanding any of the provisions of this Agreement, neither Party shall at any time enter into, incur, or hold itself out to Third Parties as having authority to enter into or incur, on behalf of the other Party, any commitment, expense, or liability whatsoever, and all contracts, expenses and liabilities undertaken or incurred by one Party in connection with or relating to the development, manufacture, promotion or sale of the Products shall be undertaken, incurred or paid exclusively by that Party, and not as an agent or representative of the other Party.

        17.9    Assignment.    The terms and provisions of this Agreement shall inure to the benefit of, and be binding upon, Arrow, Sepracor and their respective successors and permitted assigns. Neither Party shall assign or otherwise transfer this Agreement or its rights and obligations thereunder without the prior written consent of the other Party, provided that no such consent shall be required in connection with (i) an assignment or transfer to an Affiliate of such Party so long as the assigning or transferring Party remains fully responsible for the performance of its Affiliate, or (ii) an assignment or transfer upon a Change of Control of the assigning Party.

        17.10    Headings; Singular and Plural.    The heading references herein are for convenience purposes only, do not constitute a part of this Agreement and shall be deemed not to limit or affect any of the provisions hereof and their interpretation. The singular and plural numbers can be substituted for each other when the context requires such substitution.

        17.11    Counterparts.    This Agreement may be executed in duplicate, both of which shall be deemed to be originals, and both of which shall constitute one and the same Agreement. This Agreement may be executed and delivered by telecopier or other electronic means (including PDF format) with the same force and effect as if the same were a fully executed and delivered manual counterpart.

[Remainder of page intentionally left blank]

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        IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the day and year first above written by their duly authorized representatives.

ARROW INTERNATIONAL LIMITED		SEPRACOR INC.
Name:	Anna Power	Name:	Adrian Adams
Title:	Chief Operating Officer	Title:	President & CEO
Signature:	/s/ Anna Power	Signature:	/s/ Adrian Adams
Name:	Howard Simson	Name:
Title:	Director	Title:
Signature:	/s/ Howard Simson	Signature:
Date:		Date:

Schedule 1.4
(Arrow Patents)

        [**]

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Exhibit 10.4

Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.

SETTLEMENT AND LICENSE AGREEMENT

        This SETTLEMENT AND LICENSE AGREEMENT (this "Agreement") is made and effective as of April 30, 2008 (the "Effective Date"), by and between Sepracor Inc., a Delaware corporation having its principal place of business at 84 Waterford Drive, Marlborough, MA 10752 ("Sepracor"), and Breath Limited, a United Kingdom corporation having its registered address at 930 High Road, London, N12 9RT, United Kingdom ("Breath Limited") (each a "Party" and collectively, the "Parties").

RECITALS

        WHEREAS, Sepracor and Breath Limited are parties to the patent infringement litigation captioned, Sepracor Inc. v. Breath Limited, Civil Action No. 06-10043 filed on January 13, 2006, pending in the United States District Court for the District of Massachusetts before the Honorable Douglas P. Woodlock (the "Litigation");

        WHEREAS, Sepracor currently manufactures and markets the Xopenex® brand (levalbuterol hydrochloride) inhalation solutions products (the "Sepracor Products");

        WHEREAS, Breath Limited filed Abbreviated New Drug Application No. 77-756 (the "ANDA") with the United States Food and Drug Administration (the "FDA") containing a certification pursuant to 21 U.S.C. §355(j)(2)(A)(vii)(IV) ("Breath's p(IV) certification") regarding U.S. Patent Nos. 5,362,755; 5,547,994; 5,760,090; 5,844,002; 6,083,993; and 6,451,289 owned by Sepracor (the "Patents-in-Suit") and seeking approval to market generic versions of certain levalbuterol hydrochloride inhalation solution products ("Breath's ANDA Product");

        WHEREAS, Sepracor has alleged that the filing of the ANDA by Breath Limited containing Breath's p(IV) certification is an act of infringement of the Sepracor Patents-in-Suit under 35 U.S.C. § 271(e)(2)(A);

        WHEREAS, in response to Breath Limited's p(IV) certification, Sepracor commenced the Litigation;

        WHEREAS, Sepracor has asserted in the Litigation that Breath Limited's ANDA Product would infringe certain claims of the Sepracor Patents-in-Suit;

        WHEREAS, the Parties wish to fully and finally settle the Litigation and all patent issues concerning Breath's ANDA Product, upon the terms and subject to the conditions set forth below;

        WHEREAS, settlement of the Litigation will help both Sepracor and Breath Limited avoid the substantial costs, uncertainty and risk involved with prolonged patent-infringement litigation, trial and appeal;

        WHEREAS, settlement of the Litigation will permit both Sepracor and Breath Limited to save substantial litigation costs, as well as adhere to the judicially recognized public policy favoring the settlement of litigation whenever possible;

        WHEREAS, settlement of the Litigation will permit the management of both Sepracor and Breath Limited to refocus on running their respective companies rather than devoting substantial time and resources to the Litigation;

        WHEREAS, pursuant to the terms of this Agreement, Breath will have the right to enter the market for the Sepracor Products in 1.25 mg/ 3 ml, 0.63 mg/ 3 ml, and 0.31 mg/ 3 ml strengths pursuant to the ANDA at least 8 years prior to the expiration of the last to expire of the Sepracor Patents-in-Suit in the Territory, thereby benefiting consumers by permitting generic entry that may not have occurred if the Litigation were allowed to proceed;

        WHEREAS, the public will benefit significantly from this final settlement as it saves judicial resources and creates certainty for Sepracor and Breath Limited that will encourage the development, investment and marketing of levalbuterol hydrochloride inhalation solution products and other pharmaceutical products;

        WHEREAS, by reducing litigation expenses, this Agreement allows saved money to be spent on marketing and further drug development, including development of Xopenex® (levalbuterol hydrochloride) inhalation solutions product, allowing the products to reach a larger group of patients and thus improving lives;

        WHEREAS, money saved by settling the Litigation can now be invested by Sepracor and Breath Limited into research and development, thereby benefiting consumers by identifying new uses for current drugs, as well as furthering the creation of new proprietary medications; and

        WHEREAS, the Parties are concurrently entering into that certain Supply Agreement, pursuant to which Sepracor shall supply Breath with levalbuterol hydrochloride product manufactured pursuant to Sepracor's NDA No. 02-0837, attached as "Attachment B" (the "Supply Agreement").

        NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:

ARTICLE 1
DEFINITIONS

        Section 1.1.    Certain Defined Terms.    The following terms, when used with initial capital letters shall have the meanings set forth below:

        "Affiliate" means any entity controlling, controlled by or under common control with a Party, but only as long as such control continues, where "control" means: (i) the ownership of at least fifty percent (50%) of the equity or beneficial interest of such entity, or the right to vote for or appoint a majority of the board of directors or other governing body of such entity; or (ii) the power to directly or indirectly direct or cause the direction of the management and policies of such entity by any means whatsoever.

        "Breath" means Breath Limited and its Affiliates, including but not limited to Cobalt Laboratories Inc.

        "Fully Loaded Manufacturing Cost" shall mean, with respect to each Licensed Product, a Party's internal and external costs, determined in accordance with International Financial Reporting Standards, as consistently applied by such Party in accordance with its past practice and in the ordinary course of its business for products other than Licensed Products, incurred in manufacturing, acquiring raw materials, including active pharmaceutical ingredient ("API"), excipients and other materials consumed in the manufacture of Licensed Products including all taxes related thereto, packaging, insuring, transporting and/or storing such Licensed Product (including product testing activities relating to quality assurance, quality control and regulatory compliance), and reasonably allocated administrative and overhead expenses associated with the Licensed Product, in each case to the extent related and allocable to the Licensed Product.

        "Gross Profit" means Net Sales less Fully Loaded Manufacturing Cost.

        "Licensed Products" means Breath's ANDA Product approved by the FDA for sale pursuant to the ANDA, as existing on the Effective Date.

        "Losses" means all pending and potential claims, demands, all manner of actions, causes of action, suits, debts, liabilities, losses, damages, attorneys' fees, costs, expenses, judgments, settlements, interest,

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punitive damages and other damages or costs of whatever nature, whether known or unknown, pending or future, certain or contingent.

        "Net Sales" means gross sales of Licensed Products in the Territory less the following deductions:

        (a)   sales and excise taxes, duties, and any other governmental charges imposed upon the production, importation, use or sale of Licensed Products, if and to the extent included on the invoice that Breath provides to its customers;

        (b)   trade, quantity, cash and other discounts allowed on Licensed Products to wholesalers or other Third Parties to whom the Licensed Products are sold and shipped directly, if and to the extent included on the invoice that Breath provides to its customers;

        (c)   provisions for actual or expected allowances or credits to customers on account of rejection or return of Licensed Products or on account of price reductions for a Licensed Products;

        (d)   rebates, charge-backs and other price reduction programs for Licensed Products granted to managed care entities and pharmaceutical benefit management service entities (if Breath chooses to contract one or more of the Licensed Products together with another Breath product with composite rebates or chargebacks, then rebates and or chargebacks for the affected Licensed Product will be recalculated based on the then-average rebate or chargeback of the Licensed Product to the applicable customer category as if such Licensed Product is contracted independently of any other Breath product); and

        (e)   actual write-offs of uncollectible customer accounts for previously recorded sales.

in each case determined and applied consistently in accordance with Breath's commercial and accounting policies and practices consistently applied in a manner consistent with GAAP.

        "Person" means any individual, firm, corporation, partnership, limited liability company, trust, joint venture, governmental authority, or other entity or organization.

        "Proceeding" means any administrative, judicial or legislative action, audit, litigation, investigation, suit or other proceeding in any tribunal.

        "Sepracor Patents" means the "Patents-in-Suit" and additionally includes any other patent that Sepracor owns or will own, in whole or in part, that is, or could alleged to be, infringed by any of Breath's Licensed Products.

        "Territory" means the United States of America and its territories and possessions, including the Commonwealth of Puerto Rico and the District of Columbia.

        "Third Party" means any Person other than Sepracor and Breath.

ARTICLE 2
SETTLEMENT AND RELEASE

        Section 2.1.    Mutual Release.    Upon the terms and subject to the conditions of this Agreement, each Party, on behalf of itself and its Affiliates hereby releases, acquits and forever discharges the other Party and its Affiliates, and their respective directors, officers, employees, agents, representatives, heirs, assigns, predecessors and successors ("Related Parties") from any and all Losses arising out of, derived from, predicated upon or relating to infringement of the Sepracor Patents by the Licensed Products, and the actions underlying the Litigation. Notwithstanding the foregoing, nothing in this Agreement shall prevent or impair the right of either Party to bring a Proceeding in court or any other forum for breach of this Agreement (including, without limitation, any claim for infringement of any intellectual property based upon activities that are not the subject of the license granted hereunder) or any representation, warranty or covenant herein.

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        Section 2.2.    Dismissal of Litigation.    The Parties agree to the entry of a Dismissal Without Prejudice of all claims, counterclaims, and affirmative defenses in the Litigation. To effectuate this provision, within 3 business days following execution of this Agreement, the Parties shall cause the Dismissal Without Prejudice attached hereto as Attachment A (each Party acknowledging that the approval of the court is required in order to make such Dismissal Without Prejudice effective) to be filed with the United States District Court for the District of Massachusetts and shall take all other necessary actions to obtain the settlement and dismissal of the Litigation. Each Party shall bear its own costs and expenses in connection with the foregoing.

        Section 2.3.    Mutual Agreements.    Each Party acknowledges and agrees that:

        (a)   It may have sustained Losses that are presently unknown and unsuspected, and that such Losses might give rise to Losses in the future. Nevertheless, each Party acknowledges and agrees that this Agreement has been negotiated and agreed upon, notwithstanding the existence of such possible Losses, all of which have been hereby released under Section 2.1 hereof.

        (b)   If any fact relating to this Agreement or the Litigation and now believed to be true is found hereafter to be other than, or different from, that which is now believed, each Party expressly assumes the risk of such difference in fact and agrees that this Agreement shall be, and will remain, effective notwithstanding any such difference in fact, subject to each Party's right to bring a Proceeding for a breach of any representation, warranty or covenant herein.

        (c)   This Agreement may be pleaded as a full and complete defense to, and used as a basis for injunction against, any Proceeding that may be instituted, prosecuted or attempted in breach hereof.

ARTICLE 3
LICENSE

        Section 3.1.    License Grant.    Effective as of August 20, 2012, or as modified in accordance with Section 3.6 (the "License Effective Date"), Sepracor hereby grants to Breath a license under the Sepracor Patents, including any continuations, divisions, reissues or reexaminations thereof, without the right to grant sublicenses, to make, have made, use, promote, offer to sell, sell, import, or otherwise dispose of Licensed Products in the Territory. The license granted hereunder shall be exclusive as to any other levalbuterol hydrochloride product marketed as a generic equivalent of Xopenex® brand products covered by Sepracor NDA No. 02-0837 (and any supplements or amendments thereto) for a period of 180 days (the "Exclusivity Period") from the License Effective Date. Following the Exclusivity Period, the license granted to Breath hereunder shall become non-exclusive and Sepracor shall have the right to grant licenses to Third Parties under the Sepracor Patents.

        Section 3.2.    Commercial Sales Prior to License Effective Date.    Without limiting the rights of Breath under the Supply Agreement, Breath shall not distribute, offer to sell, sell or sell in the Territory any Licensed Products prior to the License Effective Date. Breath agrees that any breach by Breath or its Related Parties of this Section 3.2 shall cause irreparable harm to Sepracor, and Breath and its and Related Parties consents irrevocably and unconditionally to specific performance, or immediate entry of a temporary restraining order, preliminary injunction, and permanent injunction, to enforce this Section 3.2. Notwithstanding anything to the contrary, Breath and its Related Parties consents irrevocably and unconditionally to personal jurisdiction and venue in the United States District Court for the District of Massachusetts for the purpose of enforcing this Section 3.2. Notwithstanding the foregoing, Breath shall have the right and license under the Sepracor Patents, including any continuations, divisions, reissues or reexaminations thereof, to make, have made and import Licensed Products in the Territory sufficiently in advance of a Licensed Product launch so as to have sufficient quantities of inventory of such product for such launch.

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        Section 3.3.    Breath's Covenant Not to Assist Challenges to the Licensed Patents.    Except to the extent required by law or order of a court or administrative agency of competent jurisdiction, Breath shall not, and shall cause its Affiliates, Related Parties and their respective counsel who have advised or represented Breath in connection with the Litigation not to, assist, encourage, finance, or otherwise provide any information to any Third Party attacking or who may attack the validity or enforceability of, or assert the noninfringement of, any of the Sepracor Patents.

        Section 3.4.    Reservation of Rights.    All rights not expressly granted to Breath hereunder or in the Supply Agreement are expressly reserved to Sepracor, and Sepracor has no obligation to make available any intellectual property rights or to take any other actions other than as expressly set forth herein. Without limiting the terms of the Supply Agreement, nothing in this Agreement shall be construed as granting Breath any rights: (a) with respect to any Licensed Products outside the Territory; (b) with respect to any product other than Licensed Products; or (c) to make, have made, use, offer to sell, sell, import, or otherwise dispose of any generic version of any Sepracor product covered by Sepracor NDA No. 02-0837 or Sepracor Patents at any time prior to the License Effective Date.

        Section 3.5.    No Other Limitation.    Nothing in this Agreement is intended to prevent or restrict Breath from making, having made, using, promoting, marketing, distributing, offering for sale, selling, or importing any product, the importation, manufacture, use, offering for sale or selling of which would not infringe the Sepracor Patents under 35 U.S.C. § 271(e)(1).

        Section 3.6.    Acceleration of License Effective Date.    Upon the occurrence of a Third Party commercial launch of any particular strength of a generic version of levalbuterol hydrochloride solution products ("The Launch Date") pursuant to an ANDA, the License Effective Date for only that particular strength of the Licensed Products shall be accelerated to that Launch Date. In addition, the parties may in the future mutually agree to accelerate the License Effective Date. It is understood and agreed that, if the Parties anticipate a Third Party commercial launch, Breath may take such action as is reasonably necessary, including manufacture and stock an inventory of Licensed Products, so as to be prepared to launch Licensed Products on the accelerated License Effective Date.

ARTICLE 4
ROYALTIES

        Section 4.1.    Royalty.    During the period commencing on the License Effective Date and ending on the later of (i) expiration of the Exclusivity Period, or (ii) the date a Third Party has commenced a commercial launch of a generic levalbuterol product pursuant to an ANDA, Breath shall pay Sepracor a royalty of [**] percent ([**]%) of Breath's Gross Profit for sales of any Licensed Products. Following such period, Breath shall pay Sepracor a royalty of [**] percent ([**]%) of Breath's Gross Profit for sales of the Licensed Products. The license granted hereunder shall become fully paid-up and royalty free upon the earlier of (i) the date of the expiration of the last to expire of the Sepracor Patents, or (ii) the date on which a court enters a final decision that is no longer subject to appeal holding that each of the unexpired patent claims included in the Sepracor Patents that were asserted against Breath in the Litigation is invalid, unenforceable or not infringed by a product substantially similar to Breath's ANDA Product.

        Section 4.2.    Royalty Payments.    Royalties payable by Breath to Sepracor hereunder shall be determined and paid on a calendar quarterly basis. Within thirty (30) days following the end of each calendar quarter in which royalties are payable hereunder, Breath shall provide Sepracor with (i) a written statement of its Net Sales and Gross Profit for such calendar quarter and the royalties payable hereunder for such quarter, and (ii) payment of the royalties then-payable hereunder. Whenever information relating to Licensed Products is reported under this Agreement, such information shall (i) be listed separately by Licensed Product and dose, and in the aggregate, and (ii) include a breakdown of gross sales of Licensed Products and applicable deductions therefrom.

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        Section 4.3.    Currency.    All payments under this Agreement shall be in U.S. dollars in immediately available funds, and, unless instructed otherwise by Sepracor, shall be made via wire transfer to an account designated from time to time by Sepracor.

        Section 4.4.    Taxes.    Unless otherwise required by law, each Party shall be responsible for paying and reporting all of its own taxes and fees, including without limitation income taxes, payroll taxes, franchise taxes and all taxes and fees in connection with this Agreement.

        Section 4.5.    True-Up.    In the event Breath issues any allowances or credits or takes any write-offs related to its recorded Gross Profit on Licensed Products in the Territory, the amount of any applicable underpayment or overpayment will be added or subtracted, as appropriate, to or from the next royalty payment in accordance with this ARTICLE 4 or, if no further royalty payments are due, by payment to the Party owed such adjustment within thirty (30) days after identification of such adjustment.

        Section 4.6.    Audit.    Breath shall keep complete and accurate records of Net Sales and Gross Profit on Licensed Products and shall retain such records for a period of at least [**] from the date of the sales reported therein. Sepracor shall have the right, through an independent certified public accountant reasonably acceptable to Breath, upon execution of a confidentiality agreement, to examine such records during regular business hours, in a manner that does not unreasonably interfere with ongoing operations, upon reasonable written notice for so long as any royalties are payable hereunder for Licensed Product sold in the Territory and for [**] thereafter, provided, however, that such examination shall not take place more often than [**] per year. Any adjustments required as a result of overpayments or underpayments identified through Sepracor's exercise of audit rights shall be made by subtracting or adding, as appropriate, amounts from or to the next royalty payment in accordance with this ARTICLE 4 or, if no further royalty payments are due, by payment to the Party owed such adjustment within thirty (30) days after identification of such adjustment. Sepracor shall bear the full cost and expense of the audit unless such audit correctly discloses that the discrepancy for the year differs by more than [**] percent ([**]%) from the amount the accountant determines is correct, in such case Breath shall pay the reasonable fees and expenses charged by the accountant. In addition, Breath shall pay interest from the original date due until payment on the amount of the underpayment at a rate equal to the average one-year London Inter-Bank Offering Rate for the United States dollar as reported from time to time in the Wall Street Journal (or, if such rate is not regularly published, as published in such source as the Parties agree) and calculated from the date due until the payment date. In the event that a Party disputes an invoice or other payment obligation under this Agreement, such Party shall timely pay the amount of the invoice or other payment obligation that is not in dispute, and the Parties shall resolve such dispute in accordance with Section 7.2.

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ARTICLE 5
REPRESENTATIONS AND WARRANTIES

        Section 5.1.    Mutual Representations.    Each Party hereby represents and warrants to the other Party as follows:

        (a)   Due Authorization.    Such Party is a corporation duly incorporated and in good standing as of the Effective Date, and the execution, delivery and performance of this Agreement by such Party have been duly authorized by all necessary action on the part of such Party.

        (b)   Due Execution.    This Agreement has been duly executed and delivered by such Party and, with due authorization, execution and delivery by the other Party, constitutes a legal, valid and binding obligation of such Party, enforceable against such Party in accordance with its terms.

        (c)   No Conflict.    Such Party's execution, delivery and performance of this Agreement do not: (i) violate, conflict with or result in the breach of any provision of the charter or by-laws (or similar organizational documents) of the Party; (ii) conflict with or violate any law or governmental order applicable to the Party or any of its assets, properties or businesses; or (iii) conflict with, result in any breach of, constitute a default (or event which with the giving of notice or lapse of time, or both, would become a default) under, require any consent under, or give to others any rights of termination, amendment, acceleration, suspension, revocation or cancellation of any note, bond, mortgage or indenture, contract, agreement, lease, sublease, license, permit, franchise or other instrument or arrangement to which it is a party.

        Section 5.2.    Sepracor Representations and Warranties.    Sepracor represents and warrants to Breath that, as of the Effective Date, Sepracor (i) has the right to grant to Breath the licenses granted hereunder with respect to the Sepracor Patents, (ii) has the right to settle the Litigation, and (iii) does not license from a Third Party any patents that would preclude Breath from making, using, selling, offering for sale or importing Licensed Products in the Territory.

        Section 5.3.    Breath Representations and Warranties.    Breath represents and warrants to Sepracor that (i) Breath Limited owns all right, title and interest in, to and under the ANDA, and Breath has not granted or assigned to any Third Party, directly or indirectly, any rights under or to the ANDA or Breath's ANDA Product, (ii) Breath will not transfer ownership, in whole or in part, of said ANDA, except to an Affiliate of Breath or to a successor to all or substantially all of the business to which this Agreement pertains, until the expiration of the License granted herein, (iii) to the best of Breath's knowledge and belief, it is the sole first entity to file a "substantially complete application" as defined in 21 U.S.C. § 355(j)(5)(B)(iv)(cc) with a paragraph IV certification seeking approval to engage in the commercial manufacture, use, offer for sale, and sale of generic levalbuterol hydrochloride inhalation solutions in 1.25 mg/3 ml, 0.63 mg/ 3ml, and 0.31 mg/ 3 ml dosage products, and Breath has obtained final approval with respect to these strengths, (iv) Breath is not aware of the occurrence of any forfeiture event as defined in 21 U.S.C. § 355(j)(5)(D)(i), and Breath has received no communication from the FDA informing Breath that it believes that such forfeiture event has occurred, (v) the FDA granted tentative approval of Breath's ANDA within 30 months after the date on which Breath filed the ANDA, (vi) Breath has not amended or withdrawn its paragraph IV certification with respect to any of the Sepracor Patents, (vii) Breath has not withdrawn its ANDA, (viii) Breath has not entered into an agreement concerning levalbuterol hydrochloride with another party that has filed an ANDA seeking to market generic versions of levalbuterol hydrochloride, including but not limited to Barr Laboratories, Inc., Dey, Inc., Dey, L.P., and Watson Laboratories, Inc., (ix) Breath has the right to settle the Litigation, and (x) [**].

        Section 5.4.    Disclaimer.    EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, NEITHER PARTY MAKES ANY REPRESENTATIONS OR WARRANTIES, EXPRESS OR

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IMPLIED, EITHER IN FACT OR BY OPERATION OF APPLICABLE LAW, AND EACH PARTY HEREBY EXPRESSLY DISCLAIMS SUCH WARRANTIES.

ARTICLE 6
INDEMNIFICATION

        Section 6.1.    Sepracor Indemnification.    Sepracor shall indemnify and hold harmless Breath and its Related Parties from and against any claims, actions, demands, suits, causes of action, losses, damages, liabilities, judgments, costs and expenses (including reasonable attorneys' fees) arising out of or related to any breach of Sepracor's representations, warranties and covenants set forth in this Agreement.

        Section 6.2.    Breath Indemnification.    Breath shall indemnify and hold harmless Sepracor, its Affiliates, and its Related Parties from and against any claims, actions, demands, suits, causes of action, losses, damages, liabilities, judgments, costs and expenses (including reasonable attorneys' fees) arising out of or related to: (i) any breach of Breath's representations, warranties and covenants set forth in this Agreement, (ii) the design, manufacture, labeling, marketing, sale or use of any Licensed Product, including any product liability claims, (iii) the failure by Breath to comply with any FDA or other governmental requirement with respect to any Licensed Product, and (iv) the infringement or misappropriation of any Third Party patent, copyright, trademark, service mark, trade secret or other intellectual property based on any Licensed Product.

        Section 6.3.    Indemnification Procedures.    The obligations to indemnify, defend, and hold harmless set forth in Section 6.1 and Section 6.2 shall be contingent upon the Party seeking indemnification (the "Indemnitee"): (i) notifying the indemnifying Party of a claim, demand or suit within [**] of receipt thereof; provided, however, that the Indemnitee's failure or delay in providing such notice shall not relieve the indemnifying Party of its indemnification obligation except to the extent the indemnifying Party is prejudiced thereby; (ii) allowing the indemnifying Party and/or its insurers the right to assume direction and control of the defense of any such claim, demand or suit; (iii) cooperating with the indemnifying Party and/or its insurers in the defense of such claim, demand or suit at the indemnifying Party's expense; and (iv) agreeing not to settle or compromise any claim, demand or suit without prior written authorization of the indemnifying Party. The Indemnitee shall have the right to participate in the defense of any such claim, demand or suit referred to in this Section utilizing attorneys of its choice, at its own expense, provided, however, that the indemnifying Party shall have full authority and control to handle any such claim, demand or suit.

ARTICLE 7
MISCELLANEOUS

        Section 7.1.    Assignment.    Neither Party hereto may assign any of its rights or obligations under this Agreement, except to an Affiliate or successor to all or substantially all of the business of the Party to which this Agreement pertains, without the prior written consent of the other Party. Either Party may assign this Agreement in connection with a merger, reorganization, change of control or sale of all or substantially all of the applicable business of such Party, in each case, on written notice to the other Party, provided that the successor Person agrees in writing to adhere to all of the terms and conditions of this Agreement. Any purported assignment in violation of the foregoing shall be null and void and of no force or effect. No assignment of this Agreement will relieve the assigning Party from any of its obligations hereunder. In the event of a permitted assignment, this Agreement shall be binding upon and inure solely to the benefit of the Parties and their respective successors and permitted assigns.

        Section 7.2.    Dispute Resolution.    Any dispute, controversy or claim arising out of or relating to this Agreement (a "Dispute") shall be attempted to be settled by the Parties, in good faith, by submitting each such Dispute to the Chief Executive Officers of each Party by written notice from either Party to the other Party specifying the terms of such Dispute in reasonable detail. Within [**] of

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receipt of such notice, the Chief Executive Officers of each Party, or a member of management designated by the respective Chief Executive Officer, shall meet in person (at a mutually agreed upon time and location) or by telephone for the purpose of resolving such Dispute. They will discuss the problems and/or negotiate for a period of up to [**] in an effort to resolve the Dispute or negotiate an acceptable interpretation or revision of the applicable portion of this Agreement mutually agreeable to both Parties, without the necessity of formal procedures relating thereto. If the problem is not resolved within the period set forth above, either Party shall be free to pursue all available remedies, at law or in equity, consistent with the terms of this Agreement. Notwithstanding the foregoing, either Party may apply to a court of competent jurisdiction for a temporary restraining order, preliminary injunction of other equitable relief, where such relief is necessary to protect its interests.

        Section 7.3.    Governing Law and Venue.    This Agreement shall be governed by and construed in accordance with the laws of the State of Massachusetts, without giving effect to its conflict of laws principles. The Parties hereby consent to the exclusive jurisdiction of the federal courts located in Massachusetts, and expressly waive any objections or defenses based on lack of personal jurisdiction or venue in connection with any dispute arising out of or relating to this Agreement.

        Section 7.4.    Bankruptcy.    All rights and licenses granted under or pursuant to any Section of this Agreement are, and shall otherwise be deemed to be, for purposes of Section 365(n) of the U.S. Bankruptcy Code (the "Bankruptcy Code"), licenses of "intellectual property" as defined under the Bankruptcy Code. The Parties shall retain and may fully exercise all of their respective rights and elections under the Bankruptcy Code.

        Section 7.5.    Confidentiality.    Sepracor and Breath shall not use or disclose to Third Parties any information received from the other Party or otherwise developed or obtained (including prior to the date hereof or during any period in which the Parties have audit rights pursuant to Section 4.6) by either Party in the performance of activities under this Agreement without first obtaining the written consent of the disclosing Party, except as may be otherwise provided in, or required in order for a Party to exercise its rights or fulfill its obligations under, this Agreement. This confidentiality obligation shall not apply to information that (i) is or becomes a matter of public knowledge (other than by breach of this Agreement by the receiving Party), (ii) is required by law, regulation or order of a court or administrative agency of competent jurisdiction, to be disclosed, (iii) the receiving Party can establish was already known to it or was in its possession at the time of disclosure, (iv) the receiving Party can establish was independently developed by Persons in its employ who had no contact with and were not aware of the content of the confidential information, or (v) is disclosed to the receiving Party by a Third Party having no obligation of confidentiality to the disclosing Party with respect to such information. The Parties shall take reasonable measures to assure that no unauthorized use or disclosure is made by others to whom access to such information is granted.

        Section 7.6.    Publicity.    Except as consistent with a press release mutually agreed by the Parties, or other publicly disclosed information concerning this Agreement, no public announcement or other disclosure to Third Parties concerning the existence of or terms of this Agreement shall be made, either directly or indirectly, by either Party, without first obtaining the written approval of the other Party and agreement upon the nature, text and timing of such announcement or disclosure; provided, however, either Party shall have the right to make any such public announcement or other disclosure required by law after such Party has provided to the other Party a copy of such announcement or disclosure and an opportunity to comment thereon. Each Party agrees that it shall cooperate fully with the other with respect to all disclosures regarding this Agreement to the Securities Exchange Commission and any other governmental or regulatory agencies, including requests for confidential treatment of proprietary information of either Party included in any such disclosure. Neither Party shall be required to provide the other Party with any advance notice of any public announcements or other disclosures related to periodic, routine financial reporting unless such announcement or other disclosure will include non-routine information relating to the Licensed Products or this Agreement.

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        Section 7.7.    Cooperation.    Subject to confidentiality restrictions that may be reasonably requested, the Parties shall use their respective commercially reasonable efforts to:

        (a)   Make all required filings with all governmental authorities and obtain all necessary approvals in connection with this Agreement to the extent required under applicable laws. Subject to confidentiality restrictions that may be reasonably requested and to the extent permissible by law, Sepracor and Breath shall make every effort to coordinate and exchange all filings and documents submitted to all government authorities regarding this Agreement;

        (b)   Cooperate with each other in any review, investigation, inquiry or proceeding regarding the Agreement by any government authority. Subject to such confidentiality restrictions as may be reasonably requested and to the extent permissible by law, Sepracor and Breath will render reasonable assistance as the other may request in connection with this Agreement and coordinate and cooperate with one another in exchanging information, permitting reasonable access to Sepracor's and Breath's documents, officials, and data in connection with any such review, investigation, inquiry or proceeding by any governmental authority;

        (c)   Promptly inform each other of any material communication made to, or received by such party from any governmental authority regarding this Agreement;

        (d)   Defend, contest and resist any administrative, judicial or legislative action or proceeding that is instituted (or threatened to be instituted) challenging the transactions contemplated by this Agreement as violative of any applicable law, and have vacated, lifted, reversed or overturned any decree, judgment, injunction or other order (whether temporary, preliminary or permanent) that is in effect and that challenges this Agreement, including, without limitation, by pursuing all reasonable avenues of administrative and judicial appeal;

        Without limiting any other provision of this Agreement, take all actions and do all things reasonably necessary or proper (at its own cost and expense), including under applicable law to make effective and further the intent and purposes of the transactions contemplated by this Agreement, including executing any further instruments reasonably requested by the other Party, and to resist and to contest any proposals or efforts to materially alter the terms of the Agreement so as to permit the Parties to fulfill their obligations under and to obtain the full benefits contemplated by the Agreement.

        Section 7.8.    Government Proceedings.    Within ten (10) business days following the Effective Date, and pursuant to current statutory law, the Parties shall file or cause to be filed this Agreement with the U.S. Federal Trade Commission Bureau of Competition ("FTC") and the Assistant Attorney General for the Antitrust Division of the U.S. Department of Justice ("DOJ") and shall request that the FTC and DOJ treat this Agreement as confidential to the fullest extent permitted under the law.

        Section 7.9.    Notices.    All notices required or permitted under this Agreement must be in writing and must be given by addressing the notice to the address for the recipient set forth below or at such other address as the recipient may specify in writing under this procedure. Notices will be deemed to have been given (a) three (3) business days after deposit in the mail with proper postage for first class

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registered or certified mail prepaid, return receipt requested, or (b) one (1) business day after sending by nationally recognized overnight delivery service.

If to Sepracor:	If to Breath:
Sepracor Inc. Attn: Adrian Adams President and Chief Executive Officer 84 Waterford Drive Marlborough, MA 01752 Phone: (508) 481-6700 Fax: (508) 357-7492	Attn: Ian McAffer Managing Director Breath Limited 100 Paynesfield Road Tatsfield Westerham Kent TN16 2BQ United Kingdom. Phone: +44 1959 542 578 Fax: +44 1959 542 578
With a copy to:	With a copy to:
Andrew I. Koven Executive Vice President, General Counsel     and Corporate Secretary Sepracor Inc. 84 Waterford Drive Marlborough, MA 01752 Phone: (508) 357-7307 Fax: (508) 357-7511	Francis Mifsud Arrow International Limited 57 St Christopher Street Valletta, VLT 08, Malta Phone: +356 2165 3041 Fax: +356 2165 3046

        Section 7.10.    Amendment.    This Agreement may not be amended or modified except by an instrument in writing signed by authorized representatives of Sepracor and Breath.

        Section 7.11.    No Waiver.    The failure of either Party to enforce at any time for any period the provisions of or any rights deriving from this Agreement shall not be construed to be a waiver of such provisions or rights or the right of such Party thereafter to enforce such provisions.

        Section 7.12.    Severability.    If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any law or public policy, all other terms and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any Party.

        Section 7.13.    Headings.    The descriptive headings contained in this Agreement are for convenience of reference only and shall not affect in any way the meaning or interpretation of the Agreement.

        Section 7.14.    Counterparts.    This Agreement may be executed in one or more counterparts, and by the respective Parties in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same Agreement.

        Section 7.15.    Entire Agreement.    This Settlement and License Agreement and the contemporaneously executed Supply Agreement constitute the entire agreement between the Parties with respect to the subject matter hereof, and no oral or written statement that is not expressly set forth in this Settlement and License Agreement or the Supply Agreement may be used to interpret or vary the meaning of the terms and conditions hereof. This Settlement and License Agreement and the Supply Agreement supersede any prior or contemporaneous agreements and understandings, whether written or oral, between the Parties with respect to the subject matter hereof.

        Section 7.16.    Third Party Beneficiaries.    Except as expressly provided herein, nothing in this Agreement, either express or implied, is intended to or shall confer upon any third party any legal or equitable right, benefit or remedy of any nature whatsoever under or by reason of this Agreement.

[Remainder of Page Intentionally Left Blank; Signature Page Follows]

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        IN WITNESS WHEREOF, this Agreement has been executed by the Parties as of the date first written above.

SEPRACOR INC.		BREATH LIMITED
By:	/s/ Adrian Adams	By:	/s/ Ian Gardner Cameron McAffer
Name:	Adrian Adams	Name:	Ian Gardner Cameron McAffer
Title:	President and Chief Executive Officer	Title:	Managing Director

ATTACHMENT A

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS

SEPRACOR INC.,

Plaintiff,

v.                                        C. A. No. 06-10043-DPW

BREATH LIMITED,

Defendant.

DISMISSAL WITHOUT PREJUDICE

        Plaintiff Sepracor Inc. ("Sepracor"), and Defendant Breath Limited ("Breath"), having agreed to a settlement of this action, STIPULATE that:

        1.     The above parties to this Civil Action No. 06-10043 (DPW) (referred to as "the Litigation") wish to settle this dispute.

        2.     This Court has jurisdiction over the parties and the subject matter of the Litigation.

        3.     Plaintiff Sepracor owns and/or has the legal title and interest in and to United States Letters Patent Nos. 5,362,755 ("the '755 patent"), 5,547,994 ("the '994 patent"), 5,760,090 ("the '090 patent"), 5,844,002 ("the '002 patent"), 6,083,993 ("the '993 patent"), and 6,451,289 (the '289 patent") (collectively the "Sepracor Patents").

        4.     In the Litigation, Sepracor alleged that Breath infringed the Sepracor Patents, under 35 U.S.C. § 271(e)(2), by virtue of Breath's submission of Abbreviated New Drug Application No. 77-756 ("Breath's ANDA") to the United States Food and Drug Administration ("FDA") containing a certification pursuant to 21 U.S.C. § 355(j)(2)(A)(vii)(IV) ("paragraph IV certification"), asserting that the Sepracor patents are invalid, unenforceable and/or not infringed.

        5.     Breath's ANDA containing the paragraph IV certification was submitted to the FDA under 21 U.S.C. § 355(j) in order to obtain approval to engage in the commercial manufacture, use and sale of generic copies of certain Xopenex® (levalbuterol hydrochloride) inhalation solutions in 1.25 mg/3 ml, 0.63 mg/3ml, and 0.31 mg/3 ml dosage products prior to the expiration of the Sepracor patents.

        6.     In December 2007, the FDA granted tentative approval to Breath's ANDA.

        7.     Sepracor's filing of the Litigation caused an automatic 30 month stay of the FDA's approval of Breath's ANDA. The thirty-month stay of FDA approval of Breath's ANDA expired on March 7, 2008, and the FDA granted final approval on April 9, 2008.

        8.     On March 17, 2008, Breath and Sepracor agreed and stipulated to this Court that Breath will provide Sepracor with at least 30 days' notice prior to commencing, or authorizing a third party to commence under Breath's ANDA, the commercial launch of a generic levalbuterol hydrochloride inhalation solution product.

        9.     Plaintiff and Defendant have reached agreements to settle the Litigation, as set forth in this stipulated Dismissal Without Prejudice and a separate Settlement and License Agreement and Supply Agreement, which are being executed contemporaneously.

        10.   As a result of the Settlement and License Agreement and the Supply Agreement there will be early, procompetitive generic competition for Xopenex® (levalbuterol hydrochloride) inhalation

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solutions in 1.25 mg/3 ml, 0.63 mg/3ml, and 0.31 mg/3 ml dosage products in the United States, which competition might have been delayed or otherwise might not have occurred or been allowed to continue, had Sepracor prevailed in the Litigation. The settlement has a number of other procompetitive effects. Among other benefits, this settlement allows generic entry of levalbuterol hydrochloride inhalation solutions in 1.25 mg/3 ml, 0.63 mg/3ml, and 0.31 mg/3 ml dosage products eight years in advance of the expiration of the last to expire of the Sepracor Patents. The settlement also avoids the substantial uncertainty and risk involved with prolonged patent infringement litigation and eliminates the substantial litigation costs incurred by both Plaintiff and Defendant during the patent litigation while also serving the public interest by saving judicial resources.

        11.   All affirmative defenses, claims, and counterclaims in the Litigation that have been or could have been raised by the parties in the Litigation are hereby dismissed without prejudice.

        12.   Each of the parties shall bear its own costs and attorney fees.

        13.   Both Plaintiff and Defendant consent to personal jurisdiction and venue in the United States District Court for the District of Massachusetts for the purpose of enforcing the Settlement and License Agreement. This Court shall retain jurisdiction over any matters related to or arising from the interpretation or enforcement of the Settlement and License Agreement.

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IT IS SO STIPULATED:

Dalila Argaez Wendlandt (BBO# 639280) F. Turner Buford (BBO# 661311) Ropes & Gray LLP One International Place Boston, MA 02110-2624 (617) 951-7242 (Phone) (617) 951-7050 (Facsimile)	Alan D. Rose (BBO # 427280) Michael L. Chinitz (BBO # 552915) ROSE, CHINITZ & ROSE 29 Commonwealth Avenue Boston, MA 02116 Telephone (617) 536-0040 Facsimile (617) 536-4400
Attorneys for Plaintiff Sepracor Inc.	Attorneys for Defendant, Breath Limited
Joseph M. O'Malley, Jr. (admitted pro hac vice) Bruce M. Wexler (admitted pro hac vice) Paul, Hastings, Janofsky & Walker LLP 75 East 55th Street New York, NY 10022 (212) 318-6000 (Phone) (212) 319-4090 (Facsimile)	E. Anthony Figg (admitted pro hac vice) Joseph A. Hynds (admitted pro hac vice) Sharon L. Davis (admitted pro hac vice) R. Elizabeth Brenner-Leifer (admitted pro hac vice) ROTHWELL, FIGG, ERNST & MANBECK, P.C. 1425 K Street, N.W. Suite 800 Washington, DC 20005 Telephone (202) 783-6040 Facsimile (202) 783-6031
Attorneys for Plaintiff Sepracor Inc.	Attorneys for Defendant, Breath Limited
SO ORDERED
Dated:	Hon. Douglas P. Woodlock United States District Judge

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ATTACHMENT B

Filed as Exhibit 10.5 to Sepracor Inc.'s Quarterly Report on Form 10-Q
for the fiscal period ended June 30, 2008

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Exhibit 10.4

EX-10.5

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Exhibit 10.5

Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.

SUPPLY AGREEMENT

        This SUPPLY AGREEMENT (this "Supply Agreement") is made and effective as of April 30, 2008 (the "Effective Date"), by and between Sepracor Inc., a Delaware corporation having its principal place of business at 84 Waterford Drive, Marlborough, MA 10752 ("Sepracor"), and Breath Limited, a United Kingdom corporation having its registered address at 930 High Road, London, N12 9RT, United Kingdom ("Breath Limited") (each a "Party" and collectively, the "Parties").

        WHEREAS, Sepracor develops, manufactures, markets, sells, and distributes pharmaceutical products, including levalbuterol hydrochloride solution products for inhalation covered by approved United States Food and Drug Administration ("FDA") New Drug Application No. 02-0837 (and any supplements or amendments thereto) (the "Sepracor NDA" or "NDA");

        WHEREAS, Breath Limited develops, manufactures, markets, sells and distributes pharmaceutical products and has filed Abbreviated New Drug Application No. 77-756 (the "ANDA") with the FDA seeking approval to market generic versions of certain levalbuterol hydrochloride inhalation solution products;

        WHEREAS, Sepracor and Breath Limited are parties to patent infringement litigation captioned, Sepracor Inc. v. Breath Limited, Civil Action No. 06-10043 filed on January 13, 2006, pending in the United States District Court for the District of Massachusetts before the Honorable Douglas P. Woodlock (the "Litigation");

        WHEREAS, Sepracor and Breath Limited are, simultaneously with the execution of this Supply Agreement, entering a Settlement and License Agreement (the "Settlement and License Agreement"), pursuant to which the Parties have agreed to settle and dismiss the Litigation and pursuant to which Breath receives a license under the Sepracor patents involved in the Litigation;

        WHEREAS, to enable Breath Limited to enter the market with Products (as hereinafter defined) promptly on the effective date of the license granted under the Settlement Agreement, Breath Limited wishes to enter into an agreement for the supply of Products to Breath Limited by Sepracor; and

        WHEREAS, Sepracor wishes to enter into such an agreement with Breath Limited.

        NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein and in the Settlement and License Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:

ARTICLE 1
DEFINITIONS

        Section 1.1    Certain Defined Terms.    The following terms, when used with initial capital letters shall have the meanings set forth below:

        "Affiliate" means any entity controlling, controlled by or under common control with a Party, but only as long as such control continues, where "Control" means: (i) the ownership of at least fifty percent (50%) of the equity or beneficial interest of such entity, or the right to vote for or appoint a majority of the board of directors or other governing body of such entity; or (ii) the power to directly or indirectly direct or cause the direction of the management and policies of such entity by any means whatsoever.

        "Applicable Accounting Standards" means the generally accepted accounting standards applicable to each Party. As of the Effective Date, the Applicable Accounting Standards of Sepracor means

U.S. GAAP, and the Applicable Accounting Standards of Breath means International Financial Reporting Standards.

        "Breath" means Breath Limited and its Affiliates, including but not limited to, Cobalt Laboratories Inc.

        "Calendar Quarter" means those three (3) month periods beginning on January 1, April 1, July 1, and October 1.

        "cGMPs" means Current Good Manufacturing Practices as defined in 21 CFR § 210 et seq., as amended from time to time.

        "FFDCA" means the Federal Food, Drug and Cosmetic Act, as amended, 21 U.S.C. §301 et seq., and any related federal and/or state law or regulation pertaining to the safety, effectiveness, adulteration, misbranding, mishandling, packaging, labeling or storage of pharmaceutical ingredients, finished pharmaceutical products, and/or medical devices that may be applicable to the Products during the term of this Supply Agreement.

        "Fully Loaded Manufacturing Cost" means, with respect to each Product, a Party's internal and external costs, determined in accordance with such Party's Applicable Accounting Standards, as consistently applied by such Party in accordance with its past practice and in the ordinary course of its business for products other than Products and all taxes related thereto, incurred in manufacturing, acquiring raw materials, including active pharmaceutical ingredient ("API"), excipients and other materials consumed in the manufacture of Products, packaging, insuring, transporting and/or storing such Product (including product testing activities relating to quality assurance, quality control and regulatory compliance), and reasonably allocated administrative and overhead expenses associated with the Products, in each case to the extent related and allocable to the Product.

        "Gross Profit" means Net Sales less Fully Loaded Manufacturing Cost.

        "Initial Term" means the 180-day period commencing on the License Effective Date (as defined in the Settlement and License Agreement).

        "License Effective Date" has the meaning set forth in the Settlement and License Agreement.

        "Losses" means all pending and potential claims, demands, all manner of actions, causes of action, suits, debts, liabilities, losses, damages, attorneys' fees, costs, expenses, judgments, settlements, interest, punitive damages and other damages or costs of whatever nature, whether known or unknown, pending or future, certain or contingent.

        "Net Sales" means gross sales of Products in the Territory less the following deductions:

        (a)   sales and excise taxes, duties, and any other governmental charges imposed upon the production, importation, use or sale of Products, if and to the extent included on the invoice that Breath provides to its customers;

        (b)   trade, quantity, cash and other discounts allowed on Products to wholesalers or other Third Parties to whom the Products are sold and shipped directly, if and to the extent included on the invoice that Breath provides to its customers;

        (c)   provisions for actual or expected allowances or credits to customers on account of rejection or return of Products or on account of price reductions for a Products;

        (d)   rebates, charge-backs and other price reduction programs for Products granted to managed care entities and pharmaceutical benefit management service entities (if Breath chooses to contract one or more of the Products together with another Breath product with composite rebates or chargebacks, then rebates and or chargebacks for the affected Product will be recalculated based on the then-average rebate or chargeback of the Product to the applicable

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customer category as if such Product is contracted independently of any other Breath product); and

        (e)   actual write-offs of uncollectible customer accounts for previously recorded sales.

in each case determined and applied consistently in accordance with Breath's commercial and accounting policies and practices consistently applied in a manner consistent with Applicable Accounting Standards.

        "Person" means any individual, firm, corporation, partnership, limited liability company, trust, joint venture, governmental authority, or other entity or organization.

        "Proceeding" means any administrative, judicial or legislative action, audit, litigation, investigation, suit or other proceeding in any tribunal.

        "Products" means levalbuterol hydrochloride inhalation solution products covered by Sepracor's NDA in strengths of 1.25 mg/ 3 ml, 0.63 mg/ 3 ml, and 0.31 mg/ 3 ml and packaged and labeled in accordance with this Supply Agreement.

        "Specifications" means all Product, regulatory, manufacturing, quality control, and quality assurance procedures, processes, practices, standards, instructions and specifications comprising Sepracor's approval applicable to the manufacture and packaging of Product as set forth in the NDA, and such other FDA and/or other regulatory requirements as may be applicable.

        "Subsequent Term" means the term commencing on the expiration of the Initial Term and continuing until expiration or termination of this Supply Agreement.

        "Territory" means the United States of America and its territories and possessions, including the Commonwealth of Puerto Rico and the District of Columbia.

        "Third Party" means any Person other than Sepracor and Breath.

        "Transfer Price" means [**] percent ([**]%) of Sepracor's Fully Loaded Manufacturing Cost of Products.

ARTICLE 2
SCOPE OF SUPPLY AGREEMENT

        Section 2.1    Supply of Product During the Initial Term.    Subject to the terms and conditions of this Supply Agreement, during the Initial Term of this Supply Agreement, Breath shall purchase from Sepracor Products as Breath may require to market, sell, promote and/or distribute the Products in the Territory. During such Initial Term, Sepracor shall sell to Breath its requirements of such Products on an exclusive basis. This provision shall not preclude Breath from manufacturing and selling Licensed Products (as defined in the Settlement and License Agreement) during the Initial Term in accordance with the terms of the Settlement and License Agreement.

        Section 2.2    Supply of Product During the Subsequent Term.    Subject to the terms and conditions of this Supply Agreement, during the Subsequent Term of this Supply Agreement, Breath may purchase Products from Sepracor, and Sepracor shall sell such Products to Breath on a non-exclusive basis.

        Section 2.3    Sales Limited to Territory.    Breath acknowledges and agrees that the Products are only approved by the FDA for sale in the Territory pursuant to the Sepracor NDA, and that Breath shall not market, sell, promote and/or distribute Products outside the Territory, or knowingly market, sell, promote and/or distribute Products to any Third Party in the Territory for sale or use outside the Territory.

        Section 2.4 Breath's Re-Sale of Products.    Breath will have the right in its sole discretion to establish the price at which the Products will be sold to Third Parties.

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ARTICLE 3
FORECASTS AND SUPPLY

        Section 3.1    General Limitations on Supply.    Breath acknowledges that (i) Sepracor shall utilize the services of a contract manufacturer for the manufacture of Products (the "Contract Manufacturer"), (ii) significant lead times may be required to procure any molds or other equipment necessary to manufacture Products on behalf of Sepracor consistent with this Supply Agreement, (iii) significant lead times may be required to manufacture an Inventory of Products consistent with Breath's requirements, and (iv) the Products have shelf life limitations that may hinder Breath's ability to maintain a desired Inventory of Products while enabling Breath to commence distribution of Products on the commencement on the License Effective Date.

        Section 3.2    Lead Time Standards.    As soon as possible following the Effective Date, the Parties shall cooperate to develop lead time requirements (the "Lead Time Requirements") for the ordering of Products hereunder, which lead time standards shall take into account the factors listed in Section 3.1. Breath acknowledges that Sepracor shall be under no obligation to supply Products hereunder on any terms that are not consistent with the terms of the Contract Manufacturer's ability to supply such Products. Sepracor acknowledges that the Lead Time Requirements shall be on a [**] of terms available from such Contract Manufacturer, and Sepracor shall [**]. If, notwithstanding the reasonable good faith efforts of the Parties to develop Lead Time Requirements, there are [**], the Parties shall [**].

        Section 3.3    Equipment Manufacture.    In the event it is necessary to procure molds or other equipment necessary to manufacture Products, the procurement of such molds and other equipment shall be at the sole cost of Breath on a pass-through cost basis. If such additional equipment requires validation under Sepracor's NDA, Sepracor will fully cooperate and provide commercially reasonable support and access to appropriate data to achieve such validation on an expeditious basis and incorporate it within the NDA, provided that Breath shall be solely responsible for all costs and expenses in connection with such validation.

        Section 3.4    Change of Contract Manufacturer.    Should Sepracor decide to change manufacturers, it shall notify Breath in writing at least [**] before doing so.

        Section 3.5    Forecasts.    At least [**] prior to the commencement of the Initial Term, Breath shall prepare and deliver to Sepracor a non-binding forecast of its requirements for Products during the Initial Term; provided, however, that in the event the Initial Term commences on an accelerated date as determined in accordance with the Settlement and License Agreement, Breath shall provide Sepracor with its forecast for Products during the Initial Term as soon as reasonably practical to permit Sepracor to supply Products prior to such accelerated date. On the first day of each Calendar Quarter thereafter, Breath shall provide Sepracor with rolling quarterly forecasts, each forecast covering a [**] period. The forecast for the first quarter covered by the forecast may not increase or decrease by more than [**] percent ([**]%) from the most recent previous forecast for that quarter.

        Section 3.6    Purchase Orders.    All purchase orders for Products under this Supply Agreement shall be consistent with the principles discussed in Section 3.2, including Lead Time Requirements and any requirements of the Contract Manufacturer notified to Breath from time-to-time. All purchase orders shall be subject to written acceptance by Sepracor, such acceptance [**], including a purchase order [**], including [**] of the Contract Manufacturer, and the [**] by Breath. Breath shall address and deliver all purchase orders as directed by Sepracor. A properly communicated purchase order shall be deemed accepted if Breath does not receive written notice of its rejection from Sepracor within [**] of its receipt. In no event shall Sepracor have an obligation to meet any order that is not consistent with the foregoing, provided that, Sepracor shall use reasonable efforts to meet such inconsistent order terms to the extent the Contract Manufacturer is able to accommodate the same.

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        Section 3.7    Purchase of Product for Initial Term.    At any time during the Term of this Supply Agreement, Breath may provide Sepracor with firm purchase orders for each of the Products. With respect to all accepted purchase orders, Sepracor shall have the applicable Products available for shipment to Breath or Breath's designee(s) on or before the delivery date set forth in the applicable purchase order, provided that applicable purchase order is consistent with the Lead Time Requirements. It is understood and agreed that Breath may not commence sales, offers for sale, shipment and distribution of Products to Third Parties prior to the License Effective Date.

        Section 3.8    Inventory.    In the event Breath [**] an inventory of Products, [**], Breath shall have [**] Supply Agreement, provided that the [**]. Breath shall have [**] that are [**] Breath hereunder.

        Section 3.9    Manufacture of Products.    As soon as possible following the Effective Date, the Parties shall cooperate to develop packaging and labeling requirements (the "Packaging Requirements") for the Products, which Packaging Requirements shall: (i) include artwork to be provided by Breath, such artwork and related packing not to be confusingly similar to any artwork or trade dress of Sepracor, and (ii) meet any labeling requirements for the Products consistent with FDA requirement and requirements of applicable law. Sepracor shall use commercially reasonable efforts to ensure that the Contract Manufacturer manufactures, packages, labels, stores, and ships the Products in accordance with (i) the Packaging Requirements, the cost of such packaging to be included in the Fully Loaded Manufacturing Cost of the Products, (ii) cGMPs, and (iii) the Specifications set forth in the NDA. Sepracor shall promptly and fully advise Breath of any new instructions or Specifications required by the FDA or the FFDCA.

        Section 3.10    Inspection.    Breath quality personnel, upon reasonable prior notice to Sepracor, shall be permitted to observe during regular business hours and for reasonable durations the manufacture of Products being manufactured, provided that (i) unless Breath is aware of a specific quality issue, such observation shall occur no more than once per Calendar Quarter, and (ii) such observation shall be subject to any reasonable requirements of the Contract Manufacturer.

        Section 3.11    Cooperation by the Parties in the Event of Demand Fluctuations.    In the event of a sudden and unexpected material increase or decrease in the demand for the Products in the marketplace, Sepracor shall use reasonable efforts to accommodate such material increase or decrease to the extent the Contract Manufacturer is able to accommodate the same.

ARTICLE 4
PAYMENTS AND REPORTS

        Section 4.1    Price and Payment.    Breath shall remit payment for shipments of Product shipped by Sepracor to Breath or Breath's designee(s) in U.S. dollars within thirty (30) days of receipt of Sepracor's invoice. Each invoice shall set forth the quantity of Products shipped, the Transfer Price for such Products and the total amount due.

        Section 4.2    Additional Payments.    Within sixty (60) days following the close of each Calendar Quarter during the Initial Term and the Subsequent Term, Breath shall submit to Sepracor a report of its Net Sales of Products to Third Parties, its Gross Profit and the Additional Payment due Sepracor based on Gross Profit during such Calendar Quarter. The "Additional Payment" shall be (i) [**] percent ([**]%) of Breath's Gross Profit on sales during that portion of the Initial Term or Subsequent Term that Breath is the only Person selling levalbuterol hydrochloride inhalation solution products in the Territory as generic equivalents of Sepracor's Xopenex® brand levalbuterol hydrochloride inhalation solution products, or (ii) [**] percent ([**]%) of Breath's Gross Profit on sales during that portion of the Initial Term or Subsequent Term that Breath is not the only Person selling levalbuterol hydrochloride inhalation solution products in the Territory as generic equivalents of Sepracor's Xopenex® brand levalbuterol hydrochloride inhalation solution products.

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        Section 4.3    Shipment and Risk of Loss.    Sepracor shall provide all Products Ex Works at Sepracor's Contract Manufacturer. Breath shall have the sole responsibility to arrange shipments of Products to Breath's distribution center or such other location in the Territory that Breath desires. Title and risk of loss or damage to the Products shall remain with Sepracor until Products are tendered to Breath's designated carrier at the Contract Manufacturer's facilities.

        Section 4.4    Audit.    Each Party shall keep complete and accurate records of information required for the determination of Fully Loaded Manufacturing Cost, Transfer Price and Gross Profit, as applicable to such Party, and shall retain such records for a period of at least [**] from the date of the information reported therein. Each Party shall have the right, through an independent certified public accountant reasonably acceptable to the other Party, upon execution of a confidentiality agreement, to examine such records during regular business hours, in a manner that does not unreasonably interfere with ongoing operations, upon reasonable written notice for so long as any payments are due hereunder and for [**] thereafter, provided, however, that such examination shall not take place more often than [**]per year. Any adjustments required as a result of overpayments or underpayments identified through a Party's exercise of audit rights shall be made by subtracting or adding, as appropriate, amounts from or to the next payment in accordance with this ARTICLE 4 or, if no further payments are due, by payment to the Party owed such adjustment within [**] after identification of such adjustment. The Party requesting the audit shall bear the full cost and expense of the audit unless such audit correctly discloses that the discrepancy for the year differs by more than [**] percent ([**]%) from the amount the accountant determines is correct, in such case the audited Party shall pay the reasonable fees and expenses charged by the accountant. In addition, the audited Party shall pay interest from the original date due until payment on any amount found owing to the other Party at a rate equal to the average one-year London Inter-Bank Offering Rate for the United States dollar as reported from time to time in the Wall Street Journal (or, if such rate is not regularly published, as published in such source as the Parties agree) and calculated from the date due until the payment date. In the event that a Party disputes an invoice or other payment obligation under this Supply Agreement, such Party shall timely pay the amount of the invoice or other payment obligation that is not in dispute, and the Parties shall resolve such dispute in accordance with Section 11.2 below.

ARTICLE 5
PRODUCTS TESTING/INSPECTION

        Section 5.1    Quality Assurance Testing and Certificates of Analysis.    Sepracor or its designee shall perform the same quality testing with respect to the Products sold hereunder as Sepracor performs with respect to its own purchases of Products from the Contract Manufacturer. Sepracor shall provide the results thereof to Breath in the form of a Certificate of Analysis (a "COA"). Sepracor will also provide Breath with Material Safety Data Sheets ("MSDS") to the extent required for the Products, and updates of the same as necessary.

        Section 5.2    Visits.    Breath Quality Control personnel, upon reasonable prior notice to Sepracor, shall be permitted to visit during regular business hours and for reasonable durations any facility used for the manufacture, storage and distribution of the Products and will allow such personnel to review and make copies of any relevant records in connection therewith, provided that (i) unless Breath is aware of a specific quality control issue, such visit shall occur no more than once per Calendar Quarter, and (ii) such observation shall be subject to any reasonable requirements of the Contract Manufacturer.

        Section 5.3    Inspection and Acceptance/Rejection of Products.    Breath shall have a period of [**] from the later of (a) the date of tender of the Products to Breath's designated carrier, or (b) the date of Breath's receipt of the COA's applicable to such Products, to inspect any shipment of Products to determine whether such shipment conforms to the Specifications. Sepracor shall use commercially reasonable efforts to extend its inspection time with its Contract Manufacturer and, if able to do so, Sepracor will extend Breath's inspection timeframe set forth in the previous sentence accordingly. If

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Breath determines that the Products do not conform to the Specifications, it shall immediately notify Sepracor. Breath's failure to notify Sepracor within the above-described period will be deemed, for purposes of this Supply Agreement, as Breath's acceptance of such shipment and shall constitute a waiver of any claims Breath may have against Sepracor with respect to such shipment subject, however, to Breath's right to reject Products for latent defects discovered by Breath or Breath's customer(s) after such stipulated period has expired. If Sepracor agrees that the Products do not conform to the Specifications, Breath shall return the non-conforming Products to Sepracor, at a location designated by Sepracor and at Sepracor's expense. Sepracor shall use commercially reasonable efforts to cause the Contract Manufacturer to replace any non-conforming Products within the shortest possible time. In the event that Sepracor does not agree with Breath's determination that the Products fail to meet Specifications based on the same techniques and processes, and using the same standards, used by Sepracor to tests its own products from the Contract Manufacturer, the Parties shall, in good faith, attempt to resolve such dispute. In the event the Parties cannot resolve said dispute among themselves they may submit the matter to an independent Third Party testing laboratory agreeable to both Parties for a binding opinion based on the same techniques and processes, and using the same standards, used by Sepracor to tests its own products from the Contract Manufacturer. The expenses of obtaining the opinion shall be equally shared by Sepracor and Breath and shall be binding upon the Parties. In no event shall Sepracor have any liability to Breath in the event Sepracor or, in the case of a dispute, the Third Party testing laboratory determines the Products meet Specifications based on the same techniques and processes, and using the same standards, used by Sepracor to tests its own products from the Contract Manufacturer. In the event it is agreed or determined by the Third Party testing laboratory that the Products do not meet the Specifications, Sepracor shall pass through to Breath any claims that it may have against Third Parties with respect thereto, including, without limitation, warranties, indemnities, tort claims, contract claims, implied contract claims, and statutory commercial claims, that Sepracor may have against a Contract Manufacturer or other Third Party supplier of raw materials, including API, excipients and other materials used in the manufacture of Products. Sepracor shall cooperate with Breath in obtaining the full benefit of such rights or remedies, including being joined in any action against such Contract Manufacturer or Third Party supplier.

ARTICLE 6
REGULATORY AND MEDICAL INQUIRY

        Section 6.1    Compliance with Regulatory Requirements.    Sepracor shall remain responsible for maintaining and fulfilling all regulatory requirements in the Territory with respect to the Products that are imposed by law upon Sepracor as the manufacturer of the Products and the holder of the NDA in connection therewith. Breath shall be responsible for obtaining, maintaining and fulfilling all regulatory requirements in the Territory with respect to the Products that are imposed by Law upon Breath in connection with Breath's marketing, distribution and sale of the Products. Each Party will, on a timely basis, provide the other Party with all information that such Party has that the other Party does not have that is reasonably necessary and relevant to either Party's obligations in fulfilling such requirements. The Parties shall cooperate in the reporting of adverse drug experience information and other post-marketing reports as are required to be filed with the FDA. Breath shall submit to Sepracor all complaints, adverse drug experience reports and other medical inquiries associated with the Products within [**] of Breath's receipt of such reports. Sepracor will be responsible for fulfilling any regulatory requirements with respect to such events, including but not limited to the filing of all applicable Form FDs, and will make any necessary contact with the FDA regarding the subject matter of same. The parties will cooperate in good faith to develop a procedure by handling adverse drug experience reports.

        Section 6.2    Product Recalls.    In the event Sepracor or Breath shall be required or requested by any governmental authority (or shall voluntarily decide) to recall any Products, because such Products may violate any laws or regulations or for any other reason, the Parties shall cooperate fully with one

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another in connection with any recall. If a recall is due to Sepracor's gross negligence, willful misconduct or material breach of this Supply Agreement, Sepracor shall reimburse Breath for the Transfer Price and any Additional Payment paid by Breath for such recalled Products, all of the reasonable costs and expenses actually incurred by Breath in connection with the recall including, but not limited to, costs of retrieving Products already delivered to customers, costs and expenses Breath is required to pay for notification, shipping and handling charges, and such other costs as may be reasonably related to the recall. If a recall is due to Breath's gross negligence, willful misconduct or material breach of this Supply Agreement, Breath shall remain responsible for the Transfer Price and any Additional Payments for such recalled Products and Breath shall reimburse Sepracor for all the reasonable costs and expenses described above actually incurred by Sepracor in connection with such recall including administration of the recall and such other actual costs as may be reasonably related to the recall. If a recall results from a cause other than the negligence, willful misconduct or material breach of this Supply Agreement of or by Sepracor or Breath, Breath shall remain responsible for the Transfer Price of the recalled Product, but not for any Additional Payments associated with the recalled Products, and each Party shall be responsible for its own reasonable costs and expenses incurred in connection with such recall, including administration of the recall and such other actual costs as may be related to the recall. Prior to any reimbursements pursuant to this Section, the Party claiming any reimbursement shall provide the other Party with reasonably acceptable documentation of all reimbursable costs and expenses.

        Section 6.3    Limitation of Liability.    IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES, INCLUDING, BUT NOT LIMITED TO, LOST PROFITS, PROVIDED, HOWEVER, IF SEPRACOR FAILS TO EXERCISE COMMERCIALLY REASONABLE EFFORTS TO PROVIDE THE PRODUCT TO BREATH AS REQUIRED UNDER THIS SUPPLY AGREEMENT, [**].

        Section 6.4    State and Local Requirements.    Breath shall be responsible for filing and maintaining all documentation and other information as required by each and every state and locality ("State") for the purpose of listing the Products on each such State's formulary or other similar authority, and for obtaining such other approvals as may be necessary to sell the Products in the Territory. Sepracor shall provide Breath with such assistance as reasonably necessary to obtain such listings. Breath will pay Medicaid and other applicable rebates required by law or contract.

ARTICLE 7
TERM AND TERMINATION

        Section 7.1    Term.    This Supply Agreement shall become effective on the Effective Date and shall continue for a period of three (3) years following the License Effective Date.

        Section 7.2    Termination for Cause.    If either Party shall at any time materially fail to abide by or fail to perform in accordance with any of the material provisions of this Supply Agreement, the other Party shall have the right to terminate this Supply Agreement upon at least [**] prior written notice to the allegedly defaulting Party specifying the default complained of, setting forth the underlying reasons for its belief a default has occurred and the remedy sought. The Party allegedly in default may cure the asserted breach, in which case this Supply Agreement shall remain in full force and effect. If the allegedly defaulting Party disagrees that it is in breach, it may pursue whatever remedies it may have in law or equity in accordance with the procedures set forth below in Section 11.2.

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        Section 7.3    Bankruptcy.    If either Party (i) institutes or has instituted against it any insolvency, receivership, bankruptcy or other proceedings for the settlement of that Party's debts, and such proceedings are not dismissed within ninety (90) days, (ii) makes an assignment for the benefit of creditors, or (iii) dissolves or ceases to do business, the other Party may terminate this Supply Agreement on written notice.

        Section 7.4    Applicable Law.    This Supply Agreement shall be subject to immediate termination by either party in the event the manufacture, distribution or sale of the Products would materially contravene any applicable law or administrative order; provided however, no termination shall occur if the manufacture, distribution or sale of the Products can be brought into compliance with such law or order within a reasonable period of time following the notice of non-compliance or violation.

        Section 7.5    Termination for Convenience.    Either Party may terminate this Supply Agreement effective at any time following expiration of the Initial Term on nine (9) months written notice to the other Party.

        Section 7.6    Effect of Termination.    Termination of this Supply Agreement for any reason shall be without prejudice to:

        (a)   Sepracor's right to receive all payments due from Breath as of the effective date of such termination, if any;

        (b)   Breath's right to sell such Products remaining in its inventory and at Breath's option; and

        (c)   Any other legal, equitable, or administrative remedies as to which either Party is or may become entitled.

ARTICLE 8
INDEMNIFICATION AND INSURANCE

        Section 8.1    Breath Indemnification.    Breath agrees to indemnify, defend and hold Sepracor harmless from and against any Losses resulting from or arising out of Breath's storage, handling, marketing, promotion, distribution, and/or delivery of the Products; the performance or breach by Breath of its representations, warranties or obligations under this Supply Agreement or the negligence or willful misconduct of Breath, its employees or its agents, except to the extent such Losses result from Sepracor's activities for which Breath is indemnified hereunder.

        Section 8.2    Sepracor Indemnification.    Sepracor agrees to indemnify, defend and hold Breath harmless from and against any Losses resulting from or arising out of Third Party claims based on (i) a failure of the Products to comply with the Specifications or Sepracor's failure to meet its supply obligations (each, only to the extent Sepracor is indemnified by the Contract Manufacturer), (ii) Sepracor's breach of its representations and warranties, or (iii) the gross negligence or willful misconduct of Sepracor, its employees or its agents. Sepracor shall not be responsible for any Losses that it incurs that are attributable to alleged inherent characteristics of the Products that are not attributable to defects in manufacture, packaging, storage or transport of the Products or materials used to manufacture the products. In the event of Losses attributable to defects in the manufacture, packaging, storage or transport of the Products or materials used to manufacture the products , whether as a result of non-compliance of the Products with Specifications or otherwise, Sepracor shall pass through to Breath any claims that it may have against Third Parties with respect thereto, including, without limitation, warranties, indemnities, tort claims, contract claims, implied contract claims, and statutory commercial claims, that Sepracor may have against a Contract Manufacturer or other Third Party supplier of raw materials, including API, excipients and other materials used in the manufacture of Products. Sepracor shall cooperate with Breath in obtaining the full benefit of such rights or remedies, including being joined in any action against such Contract Manufacturer or Third Party supplier.

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        Section 8.3    Indemnification Procedures.    The obligations to indemnify, defend, and hold harmless set forth in Section 8.1 or Section 8.2 shall be contingent upon the Party seeking indemnification (the "Indemnitee"): (i) notifying the indemnifying Party of a claim, demand or suit within [**] of receipt thereof; provided, however, that the Indemnitee's failure or delay in providing such notice shall not relieve the indemnifying Party of its indemnification obligation except to the extent the indemnifying Party is prejudiced thereby; (ii) allowing the indemnifying Party and/or its insurers the right to assume direction and control of the defense of any such claim, demand or suit; (iii) cooperating with the indemnifying Party and/or its insurers in the defense of such claim, demand or suit at the indemnifying Party's expense; and (iv) agreeing not to settle or compromise any claim, demand or suit without prior written authorization of the indemnifying Party. The Indemnitee shall have the right to participate in the defense of any such claim, demand or suit referred to in this Section utilizing attorneys of its choice, at its own expense, provided, however, that the indemnifying Party shall have full authority and control to handle any such claim, demand or suit.

        Section 8.4    Insurance.    The parties will provide each other with evidence of insurance reflecting the comprehensive general liability and products liability programs each has in effect.

ARTICLE 9
REPRESENTATIONS AND WARRANTIES

        Section 9.1    Mutual Representations.    Each Party hereby represents and warrants to the other Party as follows:

        (a)   Due Authorization.    Such Party is a corporation duly incorporated and in good standing as of the Effective Date, and the execution, delivery and performance of this Supply Agreement by such Party have been duly authorized by all necessary action on the part of such Party.

        (b)   Due Execution.    This Supply Agreement has been duly executed and delivered by such Party and, with due authorization, execution and delivery by the other Party, constitutes a legal, valid and binding obligation of such Party, enforceable against such Party in accordance with its terms.

        (c)   No Conflict.    Such Party's execution, delivery and performance of this Supply Agreement do not: (i) violate, conflict with or result in the breach of any provision of the charter or by-laws (or similar organizational documents) of the Party; (ii) conflict with or violate any law or governmental order applicable to the Party or any of its assets, properties or businesses; or (iii) conflict with, result in any breach of, constitute a default (or event which with the giving of notice or lapse of time, or both, would become a default) under, require any consent under, or give to others any rights of termination, amendment, acceleration, suspension, revocation or cancellation of any note, bond, mortgage or indenture, contract, Supply Agreement, lease, sublease, license, permit, franchise or other instrument or arrangement to which it is a party.

        (d)   Compliance with Laws and Regulatory Actions.    Each of the Parties, in performing its obligations hereunder shall materially comply with all applicable laws. In the event either Party receives notice of an inspection or other notification by a governmental entity, including FDA, directly relating to the Products, promotional materials or other matters within the scope of this Supply Agreement, such Party shall notify the other Party as soon as practicable, and provide to the other Party, within ten (ten) days, copies of all relevant documents, including pertinent FDA forms, warning letters and other correspondence and notifications, as such other Party may reasonably request. The Parties agree to cooperate with each other during any inspection, investigation or other inquiry by FDA or any other governmental entity, including providing information and/or documentation, as requested by FDA or other governmental entity in connection with Products.

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        Section 9.2    Representations and Warranties by Sepracor.    Sepracor hereby represents and warrants to Breath as follows:

        (a)   Sepracor is not debarred and has not and will not use in any capacity the services of any person debarred under subsection 306(a) or (b) of the Generic Drug Enforcement Act of 1992, as amended. If at any time this representation and warranty is no longer accurate, Sepracor shall immediately notify Breath of such fact;

        (b)   Sepracor has and will maintain throughout the term of this Supply Agreement all permits, licenses, registrations and other forms of governmental authorization and approval as required by Law in order for Sepracor to execute and deliver this Supply Agreement and to perform its obligations hereunder in accordance with all applicable Laws;

        (c)   To the best of Sepracor's knowledge and belief, there are no investigations, adverse Third Party allegations or actions, or claims against Sepracor, including any pending or threatened action against Sepracor in any court or by or before any governmental body or agency, with respect to the Products, or its obligations set forth herein which may materially adversely affect its ability to perform its obligations under this Supply Agreement.

        Section 9.3    Representations and Warranties by Breath.    Breath hereby represents and warrants to Sepracor as follows:

        (a)   Breath is not debarred and has not and will not use in any capacity the services of any person debarred under subsections 306(a) or (b) of the Generic Drug Enforcement Act of 1992, as amended. If at any time this representation and warranty is no longer accurate, Breath shall immediately notify Sepracor of such fact; and

        (b)   Breath has and will maintain throughout the term of this Supply Agreement all federal, state and local permits, licenses, registrations and other forms of governmental authorization and approval as required by Law in order for Breath to execute and deliver this Supply Agreement and to perform its obligations hereunder. Breath will perform its obligations hereunder in accordance with all applicable Laws.

ARTICLE 10
FORCE MAJEURE

        Section 10.1 If either Party is prevented from complying, either totally or in part, with any of the terms or provisions set forth herein, by reason of force majeure, including, by way of example and not of limitation, fire, flood, explosion, storm, strike, lockout or other labor dispute, riot, war, rebellion, act of terrorism, accidents, acts of God, acts of governmental agencies or instrumentalities or any other cause or externally induced casualty beyond its reasonable control, whether similar to the foregoing contingencies or not, said Party shall provide written notice of same to the other Party. Said notice shall be provided within thirty (30) working days of the occurrence of such event and shall identify the requirements of this Supply Agreement or such of its obligations as may be affected and to the extent so affected, said obligations shall be suspended during the period of such disability. The Party prevented from performing hereunder shall use commercially reasonable efforts to remove such disability, and shall continue performance whenever such causes are removed. The Party so affected shall give to the other Party a good faith estimate of the continuing effect of the force majeure condition and the duration of the affected Party's nonperformance.

ARTICLE 11
MISCELLANEOUS

        Section 11.1    Assignment.    Neither Party hereto may assign any of its rights or obligations under this Supply Agreement, except to an Affiliate or successor to all or substantially all of the business of

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the Party to which this Supply Agreement pertains, without the prior written consent of the other Party. Either Party may assign this Supply Agreement in connection with a merger, reorganization, change of control or sale of all or substantially all of the applicable business of such Party, in each case, on written notice to the other Party. Any purported assignment in violation of the foregoing shall be null and void and of no force or effect. No assignment of this Supply Agreement will relieve the assigning Party from any of its obligations hereunder. In the event of a permitted assignment, this Supply Agreement shall be binding upon and inure solely to the benefit of the Parties and their respective successors and permitted assigns.

        Section 11.2    Dispute Resolution.    Any dispute, controversy or claim arising out of or relating to this Supply Agreement (a "Dispute") shall be attempted to be settled by the Parties, in good faith, by submitting each such Dispute to the Chief Executive Officers of each Party by written notice from either Party to the other Party specifying the terms of such Dispute in reasonable detail. Within [**] of receipt of such notice, the Chief Executive Officers of each Party, or a member of management designated by the respective Chief Executive Officer, shall meet in person (at a mutually agreed upon time and location) or by telephone for the purpose of resolving such Dispute. They will discuss the problems and/or negotiate for a period of up to [**] in an effort to resolve the Dispute or negotiate an acceptable interpretation or revision of the applicable portion of this Supply Agreement mutually agreeable to both Parties, without the necessity of formal procedures relating thereto. If the problem is not resolved within the period set forth above, either Party shall be free to pursue all available remedies, at law or in equity, consistent with the terms of this Supply Agreement. Notwithstanding the foregoing, either Party may apply to a court of competent jurisdiction for a temporary restraining order, preliminary injunction of other equitable relief, where such relief is necessary to protect its interests.

        Section 11.3    Governing Law and Venue.    This Supply Agreement shall be governed by and construed in accordance with the laws of the State of Massachusetts. The Parties hereby consent to the exclusive jurisdiction of the federal courts located in Massachusetts, and expressly waive any objections or defenses based on lack of personal jurisdiction or venue in connection with any dispute arising out of or relating to this Supply Agreement.

        Section 11.4    Confidentiality.    Sepracor and Breath shall not use or disclose to Third Parties any information received from the other Party or otherwise developed or obtained (including prior to the date hereof or during any period in which the Parties have audit rights pursuant to Section 4.4) by either Party in the performance of activities under this Supply Agreement without first obtaining the written consent of the disclosing Party, except as may be otherwise provided in, or required in order for a Party to exercise its rights or fulfill its obligations under, this Supply Agreement. This confidentiality obligation shall not apply to information that (i) is or becomes a matter of public knowledge (other than by breach of this Supply Agreement by the receiving Party), (ii) is required by law, regulation or order of a court or administrative agency of competent jurisdiction, to be disclosed, (iii) the receiving Party can establish was already known to it or was in its possession at the time of disclosure, (iv) the receiving Party can establish was independently developed by Persons in its employ who had no contact with and were not aware of the content of the confidential information, or (v) is disclosed to the receiving Party by a Third Party having no obligation of confidentiality to the disclosing Party with respect to such information. The Parties shall take reasonable measures to assure that no unauthorized use or disclosure is made by others to whom access to such information is granted.

        (a)   Publicity.    Except as consistent with a press release mutually agreed by the Parties, or other publicly disclosed information concerning this Supply Agreement, no public announcement or other disclosure to Third Parties concerning the existence of or terms of this Supply Agreement shall be made, either directly or indirectly, by either Party, without first obtaining the written approval of the other Party and agreement upon the nature, text and timing of such announcement or disclosure; provided, however, either Party shall have the right to make any such public announcement or other disclosure required by law after such Party has provided to the other Party

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a copy of such announcement or disclosure and an opportunity to comment thereon. Each Party agrees that it shall cooperate fully with the other with respect to all disclosures regarding this Supply Agreement to the Securities Exchange Commission and any other governmental or regulatory agencies, including requests for confidential treatment of proprietary information of either Party included in any such disclosure. Neither Party shall be required to provide the other Party with any advance notice of any public announcements or other disclosures related to periodic, routine financial reporting unless such announcement or other disclosure will include non-routine information relating to the Products or this Supply Agreement.

        (b)   Government Proceedings.    Within ten (10) business days following the Effective Date, and pursuant to current statutory law, the Parties shall file or cause to be filed this Supply Agreement with the U.S. Federal Trade Commission Bureau of Competition ("FTC") and the Assistant Attorney General for the Antitrust Division of the U.S. Department of Justice ("DOJ") and shall request that the FTC and DOJ treat this Supply Agreement as confidential to the fullest extent permitted under the law.

        Section 11.5    Notices.    All notices required or permitted under this Supply Agreement must be in writing and must be given by addressing the notice to the address for the recipient set forth below or at such other address as the recipient may specify in writing under this procedure. Notices will be deemed to have been given (a) three (3) business days after deposit in the mail with proper postage for first class registered or certified mail prepaid, return receipt requested, or (b) one (1) business day after sending by nationally recognized overnight delivery service.

If to Sepracor: Sepracor Inc. Attn: Adrian Adams President and Chief Executive Officer 84 Waterford Drive Marlborough, MA 01752 Phone: (508) 481-6700 Fax: (508) 357-7492	If to Breath: Ian McAffer Managing Director Breath Limited 100 Paynesfield Road Tatsfield Westerham Kent TN16 2BQ United Kingdom Phone: +44 1959 578 Fax: +44 1959 542 578
With a copy to:	With a copy to:
Andrew I. Koven Executive Vice President, General Counsel     and Corporate Secretary Sepracor Inc. 84 Waterford Drive Marlborough, MA 01752 Phone: (508) 357-7307 Fax: (508) 357-7511	Francis Mifsud Arrow International Limited HF62 Hal Far Industrial Estate Birzebbugia BBG06 Malta Phone: +356 2165 2207 Fax: +356 2165 2210

        Section 11.6    Amendment.    This Supply Agreement may not be amended or modified except by an instrument in writing signed by authorized representatives of Sepracor and Breath.

        Section 11.7    No Waiver.    The failure of either Party to enforce at any time for any period the provisions of or any rights deriving from this Supply Agreement shall not be construed to be a waiver of such provisions or rights or the right of such Party thereafter to enforce such provisions.

        Section 11.8    Severability.    If any term or other provision of this Supply Agreement is invalid, illegal or incapable of being enforced by any law or public policy, all other terms and provisions of this

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Supply Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any Party.

        Section 11.9    Headings.    The descriptive headings contained in this Supply Agreement are for convenience of reference only and shall not affect in any way the meaning or interpretation of the Supply Agreement.

        Section 11.10    Counterparts.    This Supply Agreement may be executed in one or more counterparts, and by the respective Parties in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same Supply Agreement.

        Section 11.11    Entire Agreement.    This Supply Agreement and the contemporaneously executed Settlement and License Agreement constitute the entire agreement between the Parties with respect to the subject matter hereof, and no oral or written statement that is not expressly set forth in this Supply Agreement or the Settlement and License Agreement may be used to interpret or vary the meaning of the terms and conditions hereof. This Supply Agreement and the Settlement and License Agreement supersede any prior or contemporaneous agreements and understandings, whether written or oral, between the Parties with respect to the subject matter hereof.

        Section 11.12    Third Party Beneficiaries.    Except as expressly provided herein, nothing in this Supply Agreement, either express or implied, is intended to or shall confer upon any Third Party any legal or equitable right, benefit or remedy of any nature whatsoever under or by reason of this Supply Agreement.

[Remainder of Page Intentionally Left Blank; Signature Page Follows]

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        IN WITNESS WHEREOF, this Supply Agreement has been executed by the Parties as of the date first written above.

SEPRACOR INC.		BREATH LIMITED
By:	/s/ Adrian Adams	By:	/s/ Ian Gardner Cameron McAffer
Name:	Adrian Adams	Name:	Ian Gardner Cameron McAffer
Title:	President and Chief Executive Officer	Title:	Managing Director

Signature Page to Supply Agreement

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Exhibit 10.5

EX-10.6

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Exhibit 10.6

SEVERANCE AND CONSULTING AGREEMENT

        This Severance and Consulting Agreement (the "Agreement") is made and entered into between DAVID SOUTHWELL ("SOUTHWELL" or "you" or "your") and SEPRACOR INC. ("SEPRACOR"), collectively referred to herein as the "Parties" this 14^th day of May 2008.

        NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:

        1.    Term of Employment.    On May 20, 2008, you shall resign from your position as Chief Financial Officer of SEPRACOR, at which time your employment with SEPRACOR shall be terminated (the "Separation Date"). Until the Separation Date, you shall perform the duties consistent with your position and such duties that are reasonably assigned to you by the President and Chief Executive Officer of SEPRACOR.

        2.    Consulting Arrangement.

        (a)   Beginning on the Separation Date and ending on December 31, 2008 (the "Consulting Period"), unless earlier terminated pursuant to Section 2(b) below, you shall serve, in an independent contractor capacity, as a consultant ("Consultant") to SEPRACOR. In your capacity as a Consultant, you shall cooperate with SEPRACOR in transitioning your work and will provide such advice and perform such projects as are reasonably requested of you by the President and Chief Executive Officer of SEPRACOR, including but not limited to assisting SEPRACOR with potential financings, business development opportunities and/or acquisition related activities. Subject to your execution and the effectiveness of a release in connection with the termination of your employment in substantially the form attached hereto as Exhibit A, during the Consulting Period, SEPRACOR shall pay you in regular bi-weekly installments at the rate of $530,000 per year and you shall be solely responsible for all state and federal income taxes, unemployment insurance and social security taxes and for maintaining adequate workers' compensation insurance for yourself, consistent with his independent contractor status. Subject to your execution of the release and Section 5 of this Agreement, during the Consulting Period, you shall be entitled to participate in SEPRACOR'S executive retiree health benefit program for which you will reimburse SEPRACOR based on the same cost sharing arrangement that applied immediately prior to the Separation Date. During the Consulting Period, SEPRACOR shall reimburse you for all reasonable travel, entertainment and other expenses incurred or paid by you in connection with, or related to, the performance of your duties, responsibilities or services under this Agreement, upon your presentation of documentation, expense statements, vouchers and/or such other supporting information as SEPRACOR may request.

        (b)   The Consulting Period may be terminated by SEPRACOR prior to December 31, 2008 upon the occurrence of a material breach by SOUTHWELL of his Consultant obligations or any other provision of this Agreement; provided, however, that SEPRACOR shall not terminate the Consulting Period unless it first provides SOUTHWELL with written notice setting forth in reasonable detail the facts and circumstances allegedly constituting such material breach and SOUTHWELL fails to cease and desist from, or cure, such alleged material breach within 15 days of his receipt of such notice.

        3.    Severance.

        (a)    Severance Pay.    Subject to Section 5, your execution and the effectiveness of a release, substantially in the form of Exhibit B hereto, and the Consulting Period not having been terminated pursuant to Section 2(b) , for a period of 24 months, which period shall begin on the first day following the date the Consulting Period ends (the "Severance Period"), SEPRACOR shall pay you in regular bi-weekly installments at the rate of $795,000 per year (the "Severance

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Amount"). Each bi-weekly payment will be in the amount of 1/26^th the Severance Amount, less appropriate state, federal and other mandatory withholding amounts and, to the extent applicable, your portion of the insurance payments referred to in Section 3(b). By way of clarification, the stock options and restricted stock you hold shall continue to be governed by the applicable stock option or stock incentive plan under which they were granted or issued (or any successor plan thereto) and any related stock option or restricted stock agreement.

        (b)    Continued Medical and Dental Benefits during Severance Period.    Subject to your execution of the release and Section 5 of this Agreement, during the Severance Period, you shall be entitled to participate in SEPRACOR'S executive retiree health benefit program for which you will reimburse SEPRACOR based on the same cost sharing arrangement that applied immediately prior to the Separation Date.

        (c)    Use of Vehicle.    You are entitled to continue to use the SEPRACOR vehicle currently in your possession through the end of the Severance Period. At the end of the automobile lease, you shall have the option of purchasing such vehicle from the leasing company (the "Lessor") on terms to be agreed upon by you and the Lessor.

        (d)    Other Compensation and Benefits.    You acknowledge and agree that SEPRACOR does not owe you, and is not responsible to pay or provide you, any compensation, employment benefits, or other amounts not specifically outlined in this Agreement.

        4.    Participation in Executive Retirement Health Benefit Program following Severance Period.    Following the Severance Period, for such time as you elect to continue to participate in SEPRACOR'S executive retiree health benefit program, you will reimburse SEPRACOR at the lesser of (a) the actual cost to SEPRACOR of your participation and (b) the rate applicable to former SEPRACOR employees to elect COBRA health coverage.

        5.    Section 409A.

        (a)    Distributions.    The following rules shall apply with respect to distribution of the payments and benefits, if any, to be provided to you under Section 3:

        (i)    It is intended that each installment of the payments and benefits provided under Section 3 shall be treated as a separate "payment" for purposes of Section 409A of the U.S. Internal Revenue Code of 1986, as amended, and the guidance issued thereunder ("Section 409A"). Neither you nor SEPRACOR shall have the right to accelerate or defer the delivery of any such payments or benefits except to the extent specifically permitted or required by Section 409A;

        (ii)   If, as of the date of your "separation from service" from SEPRACOR (as defined below), you are not a "specified employee" (within the meaning of Section 409A), then each installment of the payments and benefits shall be made on the dates and terms set forth in Section 3; and

        (iii)  If, as of the date of your "separation from service" from SEPRACOR, you are a "specified employee" (within the meaning of Section 409A), then:

        (A)  Each installment of the payments and benefits due under Section 3 that, in accordance with the dates and terms set forth herein, will in all circumstances, regardless of when the separation from service occurs, be paid within the Short-Term Deferral Period (as hereinafter defined) shall be treated as a short-term deferral within the meaning of Treasury Regulation Section 1.409A-1(b)(4) to the maximum extent permissible under Section 409A. For purposes of this Agreement, the "Short-Term Deferral Period" means the period ending on the later of the 15th day of the third month following the end of your tax year in which the separation from service occurs and the

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15th day of the third month following the end of SEPRACOR'S tax year in which your separation from service occurs; and

        (B)  Each installment of the payments and benefits due under Section 3 that is not described in Subsection (A) and that would, absent this subsection, be paid within the six-month period following your "separation from service" from SEPRACOR shall not be paid until the date that is six months and one day after such separation from service (or, if earlier, your death), with any such installments that are required to be delayed being accumulated during the six-month period and paid in a lump sum on the date that is six months and one day following your separation from service and any subsequent installments, if any, being paid in accordance with the dates and terms set forth herein; provided, however, that the preceding provisions of this sentence shall not apply to any installment of payments and benefits if and to the maximum extent that such installment is deemed to be paid under a separation pay plan that does not provide for a deferral of compensation by reason of the application of Treasury Regulation Section 1.409A-1(b)(9)(iii) (relating to separation pay upon an involuntary separation from service). Any installments that qualify for the exception under Treasury Regulation Section 1.409A-1(b)(9)(iii) must be paid no later than the last day of your second taxable year following your taxable year in which the separation from service occurs.

        (b)   SEPRACOR and SOUTHWELL agree and anticipate that the level of bona fide services performed by SOUTHWELL after the Separation Date shall be permanently decreased beneath the level set forth in Treasury Regulation Section 1.409A-1(h) to constitute a "separation from service" of SOUTHWELL from SEPRACOR. Solely for purposes of this Section 5(b), SEPRACOR shall include all persons with whom SEPRACOR would be considered a single employer under Sections 414(b) and 414(c) of the Internal Revenue Code of 1986, as amended.

        (c)   All reimbursements and in-kind benefits provided under the Agreement shall be made or provided in accordance with the requirements of Section 409A to the extent that such reimbursements or in-kind benefits are subject to Section 409A.

        (d)   It is intended that any amounts payable and benefits provided under this Agreement shall either be exempt from or comply with Section 409A so as not to subject SOUTHWELL to payment of any interest, penalties or additional tax imposed under Section 409A. If and to the extent that SOUTHWELL or SEPRACOR reasonably determines that any amount payable or benefit provided under this Agreement would fail to satisfy any applicable requirement of Section 409A and trigger the additional tax and/or penalties or interest imposed by Section 409A, the parties shall negotiate in good faith and use reasonable efforts to modify the Agreement to bring it into compliance with Section 409A.

        (e)   Notwithstanding the foregoing, SEPRACOR makes no representation or warranty and shall have no liability to you or any other person if any provisions of this Agreement are determined to constitute deferred compensation subject to Section 409A but do not satisfy an exemption from, or the conditions of, such section.

        6.    Non-Compete and Non-Solicit.

        (a)   Until the termination of the Severance Period, you agree not to directly or indirectly engage in any business or enterprise (whether as an owner, partner, officer, employee, director, investor, lender, consultant, independent contractor or otherwise, except as the holder of not more than 5% of the combined voting power of the outstanding stock of a publicly held company) that is a Competitive Business. For purposes of this Agreement, "Competitive Business" shall mean any business that produces, develops, designs, markets or sells any compounds to treat insomnia, epilepsy, asthma, chronic obstructive pulmonary disease or allergic rhinitis; and in addition, any monoamine reuptake inhibitor for the treatment of major depressive disorder or generalized

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anxiety disorder or any GABA receptor antagonist for the treatment of generalized anxiety disorder or panic disorder.

        (b)   Until the termination of the Severance Period, you agree not to directly or indirectly, either alone or in association with others (i) recruit or solicit, any person who was employed by SEPRACOR at any time during the period of your employment with SEPRACOR and remains employed by SEPRACOR, or (ii) solicit, divert or take away, or attempt to divert or to take away, the business or patronage of any of the clients, customers or accounts, or prospective clients, customers or accounts, of SEPRACOR which were contacted, solicited or served by you while you were employed by SEPRACOR;

        (c)   If any restriction set forth in this Section 6 is found by any court of competent jurisdiction to be unenforceable because it extends for too long a period of time or over too great a range of activities or in too broad a geographic area, it shall be interpreted to extend only over the maximum period of time, range of activities or geographic area as to which it may be enforceable. You acknowledge that the restrictions contained in this Section are necessary for the protection of the business and goodwill of SEPRACOR and are considered by you to be reasonable for such purpose. You agree that any breach of this provision will cause SEPRACOR substantial and irrevocable damage and therefore, in the event of any such breach, in addition to such other remedies which may be available, SEPRACOR shall have the right to seek specific performance and injunctive relief without posting a bond. The geographic scope of this Section 6 shall extend to anywhere SEPRACOR or any of its subsidiaries did business or had plans to do business while you were an employee of SEPRACOR. If you violate the provisions of this Section 6, you shall continue to be held by the restrictions set forth in this Section 6, until a period equal to the period of restriction has expired without any violation.

        7.    Relationship with Affiliates.    You shall not intentionally seek employment or any agency relationship with SEPRACOR or any of its subsidiaries, parent corporation(s), or any of its related entities, at any time without the prior written consent of SEPRACOR. By execution of this Agreement, you hereby agree to relinquish and resign from all offices and directorships you hold (i) with SEPRACOR and its subsidiaries and/or (ii) with any entities for which you are serving as an officer or director at SEPRACOR'S request or as its nominee, if necessary for SEPRACOR to appoint or nominate another person to fill such position, immediately upon the earlier of (a) the Separation Date or (b) the date when you receive a written request from the President and Chief Executive Office of SEPRACOR, or his designee.

        8.    Return of Property.    You represent, promise and agree that immediately upon the termination of the Consulting Period you will return to SEPRACOR all keys, files, records (and copies thereof), equipment (including, but not limited to, computer hardware, software and printers, wireless handheld devices, cellular phones, pagers, etc.), SEPRACOR identification, and any other SEPRACOR-owned property, in your possession or control, other than the SEPRACOR vehicle currently in your possession, which you will return, unless you exercise the purchase option set forth above in Section 3(c), upon the termination of the Severance Period. You further represent, promise and agree that you will leave intact all electronic SEPRACOR documents, including but not limited to, those that you developed or helped develop during your employment. You further represent, promise and agree that on or prior to the Separation Date you will have cancelled all accounts for your benefit, if any, in SEPRACOR'S name, including but not limited to, credit cards, telephone charge cards, cellular phone and/or pager accounts and computer accounts. You confirm that you have not used any such property belonging to SEPRACOR which has been in your possession, custody and/or control in a manner that may be detrimental or adverse to SEPRACOR'S business interests.

        9.    Confidential Information.    You shall not at any time disclose to any person, firm, or corporation any confidential or proprietary information concerning the business or affairs of SEPRACOR, which you may have acquired in the course of, or as incident to, your employment or

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otherwise. You hereby expressly reaffirm your obligations under the terms and conditions of the Non-Disclosure and Invention Agreement, which you executed during or prior to your employment with SEPRACOR (the "Confidentiality Agreement"). The restriction in this Agreement or the Confidentiality Agreement shall not, however, apply to any information which you can demonstrate through written evidence has become publicly known through no wrongful action by SOUTHWELL.

        10.    Cooperation.    Following the Separation Date, you agree, subject to advance notice, to reasonably cooperate with SEPRACOR in defense or prosecution of any threatened or actual claims or actions which may be brought by, against or on behalf of SEPRACOR, its predecessors or any of its current or former partners, agents, employees, directors or affiliates and which relate to events or occurrences that transpired or are alleged to have transpired during your employment with SEPRACOR or service as a Consultant. Such cooperation shall include, without limitation, being reasonably available to meet with SEPRACOR'S counsel to prepare for discovery or trial or an administrative hearing, government investigation or alternative dispute resolution procedure and to testify truthfully as a witness when reasonably requested by SEPRACOR at reasonable times and for reasonable time periods. You also agree to cooperate with SEPRACOR in transitioning your work and will be available to SEPRACOR for this purpose and any other purpose reasonably requested of you by SEPRACOR. In the event any such cooperation is required following the Consulting Period and requires more than de minimis time or effort, SEPRACOR agrees to reimburse you for reasonable travel, food and lodging expenses for any cooperation provided after the Consulting Period.

        11.    Governing Law.    This Agreement shall be governed by the laws of the Commonwealth of Massachusetts (without giving effect to its conflicts of laws principles) and may be amended or modified only in writing executed by the parties. Should any provision be declared by any court to be invalid, the validity of the remaining provisions shall not be affected, and the invalid provision(s) shall be deemed not a part of this Agreement. The language of all parts of this Agreement shall be construed as a whole, according to its fair meaning, and not strictly for or against either party.

        12.    Binding Nature of Agreement.    This Agreement shall be binding upon and inure to the benefit of SOUTHWELL and SEPRACOR their heirs, administrators, executors, representatives, successors and assigns.

        13.    Sealed Instrument.    The terms of this Agreement are contractual in nature and not a mere recital, and it shall take effect as a sealed instrument.

        14.    Entire Agreement.    This Agreement, together with the Confidentiality Agreement and the Releases, sets forth the entire agreement between the Parties pertaining to the subject matter hereof and supersedes all prior and contemporaneous communications, emails, letters, agreements, representations, understandings or negotiations between SOUTHWELL, SEPRACOR and/or their agents and attorneys, including without limitation, the letter agreement between SOUTHWELL and SEPRACOR dated June 10, 1994 and the Executive Retirement Agreement between SOUTHWELL and SEPRACOR dated February 1, 2002. This Agreement may be modified only by a written agreement signed by each of the Parties hereto. No waiver of the Agreement or any provision hereof shall be binding upon the Party against whom enforcement of such waiver is sought unless it is made in writing and signed by or on behalf of such Party.

        15.    Legal Counsel.    You represent that you have been advised, and have had the opportunity to thoroughly discuss all aspects of this Agreement with legal counsel retained by you, that you have read and understand the provisions herein, and that you are voluntarily entering into this Agreement.

        16.    Counterparts.    This Agreement may be executed in two (2) counterparts, each of which shall be deemed an original, and all of which together shall constitute one (1) and the same instrument.

5

SIGNED AND SEALED:
/s/ David Southwell DAVID SOUTHWELL		Dated:    May 14, 2008
SEPRACOR INC.
BY	/s/ Adrian Adams	Dated:    May 19, 2008
ADRIAN ADAMS PRESIDENT & CEO

6

EXHIBIT A

Form of Release of Claims to be Signed Upon Termination of Employment

        In connection with your separation from Sepracor Inc. (the "Company") on [            ], 2008, and in order to receive the benefits as set forth in Section 2 of the Severance and Consulting Agreement (the "Agreement") between you and the Company dated [            ], 2008, this agreement must become binding between you and the Company. By signing and returning this agreement, you will be entering into a binding agreement with the Company and will be agreeing to the terms and conditions set forth in the numbered paragraphs below, including the release of claims set forth in paragraph 1. Therefore, you are advised to consult with an attorney before signing this agreement and you have been given more than twenty-one (21) days to do so. If you sign this agreement, you may change your mind and revoke your agreement during the seven (7) day period after you have signed it. If you do not so revoke, this agreement will become a binding agreement between you and the Company upon the expiration of the seven (7) day revocation period.

        The following numbered paragraphs set forth the terms and conditions which will apply if you timely sign and return this agreement and do not revoke it within the seven (7) day revocation period:

        1.     Release—In consideration of the payment of the severance benefits, which you acknowledge you would not otherwise be entitled to receive, you hereby fully, forever, irrevocably and unconditionally release, remise and discharge the Company, its officers, directors, stockholders, corporate affiliates, subsidiaries, parent companies, successors and assigns, agents and employees (each in their individual and corporate capacities) (hereinafter, the "Released Parties") from any and all claims, charges, complaints, demands, actions, causes of action, suits, rights, debts, sums of money, costs, accounts, reckonings, covenants, contracts, agreements, promises, doings, omissions, damages, executions, obligations, liabilities, and expenses (including attorneys' fees and costs), of every kind and nature which you ever had or now have against the Released Parties, including, but not limited to, those claims arising out of your employment with and/or separation from the Company, including, but not limited to, all claims under Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e et seq., the Age Discrimination in Employment Act, 29 U.S.C. § 621 et seq., the Americans With Disabilities Act of 1990, 42 U.S.C. § 12101 et seq., the Family and Medical Leave Act, 29 U.S.C. § 2601 et seq., the Worker Adjustment and Retraining Notification Act ("WARN"), 29 U.S.C. § 2101 et seq., Section 806 of the Corporate and Criminal Fraud Accountability Act of 2002, 18 U.S.C. § 1514(A), the Rehabilitation Act of 1973, 29 U.S.C. § 701 et seq., Executive Order 11246, Executive Order 11141, the Fair Credit Reporting Act, 15 U.S.C. § 1681 et seq., the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq., the Massachusetts Fair Employment Practices Act., M.G.L. c. 151B, § 1 et seq., the Massachusetts Civil Rights Act, M.G.L. c. 12, §§ 11H and 11I, the Massachusetts Equal Rights Act, M.G.L. c. 93, § 102 and M.G.L. c. 214, § 1C, the Massachusetts Labor and Industries Act, M.G.L. c. 149, § 1 et seq., the Massachusetts Privacy Act, M.G.L. c. 214, § 1B, and the Massachusetts Maternity Leave Act, M.G.L. c. 149, § 105D, all as amended; all common law claims including, but not limited to, actions in tort, defamation and breach of contract; all claims to any non-vested ownership interest in the Company, contractual or otherwise, including, but not limited to, claims to stock or stock options; and any claim or damage arising out of your employment with or separation from the Company (including a claim for retaliation) under any common law theory or any federal, state or local statute or ordinance not expressly referenced above. Notwithstanding the foregoing, the release set forth in this Section 1 shall not apply to (a) your rights under the Agreement, (b) any vested equity interest in the Company, including vested stock options or (c) the rights you have to be indemnified and defended by the Company pursuant to the terms of the Company's Restated Certificate of Incorporation, as amended, or other organizing documents, and the rights that you have under, or with respect to, the Company's Directors and Officers liability insurance policies with respect to conduct or events occurring during, or relating to, your employment by, or while serving as an officer or director of, the Company. Without limiting the generality of the foregoing, the Company

7

shall continue to cover you under its Directors and Officers liability insurance policies following the Separation Date in substantially the same amount and on substantially the same terms as the Company covers its other former officers and directors.

        2.     On-Going Obligations—You acknowledge and reaffirm your obligation to keep confidential and not to disclose any and all non-public information concerning the Company which you acquired during the course of your employment with the Company, including, but not limited to, any non-public information concerning the Company's business affairs, business prospects and financial condition, as is stated more fully in the Non-Disclosure and Invention Agreement, which you executed during or prior to your employment with the Company (the "Non-Disclosure Agreement"). You further acknowledge and reaffirm your obligations under the Agreement for the benefit of the Company.

        3.     Business Expenses and Compensation—You acknowledge that you have been reimbursed by the Company for all business expenses incurred in conjunction with the performance of your employment and that no other reimbursements are owed to you. You further acknowledge that you have received payment in full for all services rendered in conjunction with your employment by the Company and that no other compensation is owed to you except as provided in the Agreement.

        4.     Non-Disparagement—You understand and agree that, as a condition for payment to you of the consideration herein described and described in the Agreement, you shall not make any false, disparaging or derogatory statements to any media outlet, industry group, financial institution or current or former employee, consultant, client or customer of the Company regarding the Company or any of its directors, officers, employees, agents or representatives or about the Company's business affairs and financial condition; provided, however, that nothing herein shall prevent you from making truthful disclosures to any governmental entity or in any litigation or arbitration. The Company agrees not to make any false, disparaging or derogatory statements about you to any media outlet, industry group, financial institution, or current or former employee, consultant, client, or customer; provided, however, that nothing herein shall prevent the Company from making truthful disclosures to any governmental entity or in any litigation or arbitration. In the event that any inquiries are directed to the Company's Human Resources Office regarding you from prospective employers, the Company will explain its neutral reference policy, confirm only the fact of your former employment with the Company, starting and ending dates, and your job title in the last position held.

        5.     Amendment—This agreement shall be binding upon the parties and may not be modified in any manner, except by an instrument in writing of concurrent or subsequent date signed by duly authorized representatives of the parties hereto. This agreement is binding upon and shall inure to the benefit of the parties and their respective agents, assigns, heirs, executors, successors and administrators.

        6.     Waiver of Rights—No delay or omission by the Company or you in exercising any right under this agreement shall operate as a waiver of that or any other right. A waiver or consent given by the Company or you on any one occasion shall be effective only in that instance and shall not be construed as a bar or waiver of any right on any other occasion.

        7.     Validity—Should any provision of this agreement be declared or be determined by any court of competent jurisdiction to be illegal or invalid, the validity of the remaining parts, terms or provisions shall not be affected thereby and said illegal or invalid part, term or provision shall be deemed not to be a part of this agreement.

        8.     Tax Provision—In connection with the severance benefits provided to you pursuant to this agreement and the Agreement, the Company shall withhold and remit to the tax authorities the amounts required under applicable law, and you shall be responsible for all applicable taxes with respect to such severance benefits under applicable law. You acknowledge that you are not relying upon

8

advice or representation of the Company with respect to the tax treatment of any of the severance benefits.

        9.     Nature of Agreement—You understand and agree that this agreement, together with the Agreement, is a severance agreement and does not constitute an admission of liability or wrongdoing on the part of the Company.

        10.   Acknowledgments—You acknowledge that you have been given at least twenty-one (21) days to consider this agreement and that the Company advised you to consult with an attorney of your own choosing prior to signing this agreement. You understand that you may revoke this agreement for a period of seven (7) days after you sign this agreement, and the agreement shall not be effective or enforceable until the expiration of this seven (7) day revocation period. You understand and agree that by entering into this agreement you are waiving any and all rights or claims you might have under The Age Discrimination in Employment Act, as amended by The Older Workers Benefit Protection Act, and that you have received consideration beyond that to which you were previously entitled.

        11.   Voluntary Assent—You affirm that, other than as contained in the Agreement, no other promises or agreements of any kind have been made to or with you by any person or entity whatsoever to cause you to sign this agreement, and that you fully understand the meaning and intent of this agreement. You state and represent that you have had an opportunity to fully discuss and review the terms of this agreement with an attorney. You further state and represent that you have carefully read this agreement, understand the contents herein, freely and voluntarily assent to all of the terms and conditions hereof, and sign your name of your own free act.

        12.   Applicable Law—This agreement shall be interpreted and construed by the laws of the Commonwealth of Massachusetts, without regard to conflict of laws provisions. You hereby irrevocably submit to and acknowledge and recognize the jurisdiction of the courts of the Commonwealth of Massachusetts, or if appropriate, a federal court located in Massachusetts (which courts, for purposes of this agreement, are the only courts of competent jurisdiction), over any suit, action or other proceeding arising out of, under or in connection with this agreement or the subject matter hereof.

        13.   Entire Agreement—This agreement, together with the Agreement, contains and constitutes the entire understanding and agreement between the parties hereto with respect to your severance benefits and the settlement of claims against the Company and cancels all previous oral and written negotiations, agreements, commitments and writings in connection therewith. Nothing in this paragraph, however, shall modify, cancel or supersede your obligations set forth in paragraph 2 herein.

	Sepracor Inc.
By:
	Name: Title:

I hereby agree to the terms and conditions set forth above. I have been given at least twenty-one (21) days to consider this agreement and I have chosen to execute this on the date below. I intend that this agreement become a binding agreement between me and the Company if I do not revoke my acceptance in seven (7) days by notifying                                    in writing.

	Date
David Southwell

9

EXHIBIT B

Form of Release of Claims to be Signed Upon Termination of Consulting Period

        In connection with your separation as an independent contractor from Sepracor Inc. (the "Company") on [            ], and in order to receive the benefits as set forth in Section 3 of the Severance and Consulting Agreement (the "Agreement") between you and the Company dated [            ], 2008, this agreement must become binding between you and the Company. By signing and returning this agreement, you will be entering into a binding agreement with the Company and will be agreeing to the terms and conditions set forth in the numbered paragraphs below, including the release of claims set forth in paragraph 1. Therefore, you are advised to consult with an attorney before signing this agreement and you have been given more than twenty-one (21) days to do so. If you sign this agreement, you may change your mind and revoke your agreement during the seven (7) day period after you have signed it. If you do not so revoke, this agreement will become a binding agreement between you and the Company upon the expiration of the seven (7) day revocation period.

        The following numbered paragraphs set forth the terms and conditions which will apply if you timely sign and return this agreement and do not revoke it within the seven (7) day revocation period:

        1.     Release—In consideration of the payment of the severance benefits, which you acknowledge you would not otherwise be entitled to receive, you hereby fully, forever, irrevocably and unconditionally release, remise and discharge the Company, its officers, directors, stockholders, corporate affiliates, subsidiaries, parent companies, successors and assigns, agents and employees (each in their individual and corporate capacities) (hereinafter, the "Released Parties") from any and all claims, charges, complaints, demands, actions, causes of action, suits, rights, debts, sums of money, costs, accounts, reckonings, covenants, contracts, agreements, promises, doings, omissions, damages, executions, obligations, liabilities, and expenses (including attorneys' fees and costs), of every kind and nature which you ever had or now have against the Released Parties, including, but not limited to, those claims arising out of your employment or consulting arrangement with and/or separation from the Company, including, but not limited to, all claims under Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e et seq., the Age Discrimination in Employment Act, 29 U.S.C. § 621 et seq., the Americans With Disabilities Act of 1990, 42 U.S.C. § 12101 et seq., the Family and Medical Leave Act, 29 U.S.C. § 2601 et seq., the Worker Adjustment and Retraining Notification Act ("WARN"), 29 U.S.C. § 2101 et seq., Section 806 of the Corporate and Criminal Fraud Accountability Act of 2002, 18 U.S.C. § 1514(A), the Rehabilitation Act of 1973, 29 U.S.C. § 701 et seq., Executive Order 11246, Executive Order 11141, the Fair Credit Reporting Act, 15 U.S.C. § 1681 et seq., the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq., the Massachusetts Fair Employment Practices Act., M.G.L. c. 151B, § 1 et seq., the Massachusetts Civil Rights Act, M.G.L. c. 12, §§ 11H and 11I, the Massachusetts Equal Rights Act, M.G.L. c. 93, § 102 and M.G.L. c. 214, § 1C, the Massachusetts Labor and Industries Act, M.G.L. c. 149, § 1 et seq., the Massachusetts Privacy Act, M.G.L. c. 214, § 1B, and the Massachusetts Maternity Leave Act, M.G.L. c. 149, § 105D, all as amended; all common law claims including, but not limited to, actions in tort, defamation and breach of contract; all claims to any non-vested ownership interest in the Company, contractual or otherwise, including, but not limited to, claims to stock or stock options; and any claim or damage arising out of your employment or consulting arrangement with or separation from the Company (including a claim for retaliation) under any common law theory or any federal, state or local statute or ordinance not expressly referenced above. Notwithstanding the foregoing, the release set forth in this Section 1 shall not apply to (a) your rights under the Agreement, (b) any vested equity interest in the Company, including vested stock options or (c) the rights you have to be indemnified and defended by the Company pursuant to the terms of the Company's Restated Certificate of Incorporation, as amended, or other organizing documents, and the rights that you have under, or with respect to, the Company's Directors and Officers liability insurance policies with respect to conduct or events occurring during, or relating to, your employment by, or while serving as an officer or director of, the Company, Without limiting the

10

generality of the foregoing, the Company shall continue to cover you under its Directors and Officers liability insurance policies following the Separation Date in substantially the same amount and on substantially the same terms as the Company covers its other former officers and directors.

        2.     On-Going Obligations—You acknowledge and reaffirm your obligation to keep confidential and not to disclose any and all non-public information concerning the Company which you acquired during the course of your service to the Company, including, but not limited to, any non-public information concerning the Company's business affairs, business prospects and financial condition, as is stated more fully in the Non-Disclosure and Invention Agreement, which you executed during or prior to your employment with the Company (the "Non-Disclosure Agreement"). You further acknowledge and reaffirm your obligations under the Agreement for the benefit of the Company.

        3.     Return of Company Property—You confirm that you have returned to the Company all keys, files, records (and copies thereof), equipment (including, but not limited to, computer hardware, software and printers, wireless handheld devices, cellular phones, pagers, etc.), Company identification, Company vehicles and any other Company owned property in your possession or control and have left intact all electronic Company documents, including but not limited to, those that you developed or helped develop during your employment or while providing consulting services. You further confirm that you have cancelled all accounts for your benefit, if any, in the Company's name, including but not limited to, credit cards, telephone charge cards, cellular phone and/or pager accounts and computer accounts.

        4.     Business Expenses and Compensation—You acknowledge that you have been reimbursed by the Company for all business expenses incurred in conjunction with the performance of your service to the Company and that no other reimbursements are owed to you. You further acknowledge that you have received payment in full for all services rendered in conjunction with your employment by the Company and the consulting services provided to the Company and that no other compensation is owed to you except as provided in the Agreement.

        5.     Non-Disparagement—You understand and agree that, as a condition for payment to you of the consideration herein described and described in the Agreement, you shall not make any false, disparaging or derogatory statements to any media outlet, industry group, financial institution or current or former employee, consultant, client or customer of the Company regarding the Company or any of its directors, officers, employees, agents or representatives or about the Company's business affairs and financial condition; provided, however, that nothing herein shall prevent you from making truthful disclosures to any governmental entity or in any litigation or arbitration. The Company agrees not to make any false, disparaging or derogatory statements about you to any media outlet, industry group, financial institution, or current or former employee, consultant, client, or customer; provided, however, that nothing herein shall prevent the Company from making truthful disclosures to any governmental entity or in any litigation or arbitration. In the event that any inquiries are directed to the Company's Human Resources Office regarding you from prospective employers, the Company will explain its neutral reference policy, confirm only the fact of your former employment with the Company, starting and ending dates, and your job title in the last position held.

        6.     Amendment—This agreement shall be binding upon the parties and may not be modified in any manner, except by an instrument in writing of concurrent or subsequent date signed by duly authorized representatives of the parties hereto. This agreement is binding upon and shall inure to the benefit of the parties and their respective agents, assigns, heirs, executors, successors and administrators.

        7.     Waiver of Rights—No delay or omission by the Company or you in exercising any right under this agreement shall operate as a waiver of that or any other right. A waiver or consent given by the Company or you on any one occasion shall be effective only in that instance and shall not be construed as a bar or waiver of any right on any other occasion.

11

        8.     Validity—Should any provision of this agreement be declared or be determined by any court of competent jurisdiction to be illegal or invalid, the validity of the remaining parts, terms or provisions shall not be affected thereby and said illegal or invalid part, term or provision shall be deemed not to be a part of this agreement.

        9.     Tax Provision—In connection with the severance benefits provided to you pursuant to this agreement and the Agreement, the Company shall withhold and remit to the tax authorities the amounts required under applicable law, and you shall be responsible for all applicable taxes with respect to such severance benefits under applicable law. You acknowledge that you are not relying upon advice or representation of the Company with respect to the tax treatment of any of the severance benefits.

        10.   Nature of Agreement—You understand and agree that this agreement, together with the Agreement, is a severance agreement and does not constitute an admission of liability or wrongdoing on the part of the Company.

        11.   Acknowledgments—You acknowledge that you have been given at least twenty-one (21) days to consider this agreement and that the Company advised you to consult with an attorney of your own choosing prior to signing this agreement. You understand that you may revoke this agreement for a period of seven (7) days after you sign this agreement, and the agreement shall not be effective or enforceable until the expiration of this seven (7) day revocation period. You understand and agree that by entering into this agreement you are waiving any and all rights or claims you might have under The Age Discrimination in Employment Act, as amended by The Older Workers Benefit Protection Act, and that you have received consideration beyond that to which you were previously entitled.

        12.   Voluntary Assent—You affirm that, other than as contained in the Agreement, no other promises or agreements of any kind have been made to or with you by any person or entity whatsoever to cause you to sign this agreement, and that you fully understand the meaning and intent of this agreement. You state and represent that you have had an opportunity to fully discuss and review the terms of this agreement with an attorney. You further state and represent that you have carefully read this agreement, understand the contents herein, freely and voluntarily assent to all of the terms and conditions hereof, and sign your name of your own free act.

        13.   Applicable Law—This agreement shall be interpreted and construed by the laws of the Commonwealth of Massachusetts, without regard to conflict of laws provisions. You hereby irrevocably submit to and acknowledge and recognize the jurisdiction of the courts of the Commonwealth of Massachusetts, or if appropriate, a federal court located in Massachusetts (which courts, for purposes of this agreement, are the only courts of competent jurisdiction), over any suit, action or other proceeding arising out of, under or in connection with this agreement or the subject matter hereof.

        14.   Entire Agreement—This agreement, together with the Agreement, contains and constitutes the entire understanding and agreement between the parties hereto with respect to your severance benefits and the settlement of claims against the Company and cancels all previous oral and written negotiations, agreements, commitments and writings in connection therewith. Nothing in this paragraph, however, shall modify, cancel or supersede your obligations set forth in paragraph 2 herein.

	Sepracor Inc.
By:
	Name: Title:

        I hereby agree to the terms and conditions set forth above. I have been given at least twenty-one (21) days to consider this agreement and I have chosen to execute this on the date below. I intend that this agreement become a binding agreement between me and the Company if I do not revoke my acceptance in seven (7) days by notifying                                    in writing.

	Date
David Southwell

12

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Exhibit 10.6

SEVERANCE AND CONSULTING AGREEMENT
EXHIBIT A Form of Release of Claims to be Signed Upon Termination of Employment
EXHIBIT B Form of Release of Claims to be Signed Upon Termination of Consulting Period

EX-10.7

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Exhibit 10.7

EMPLOYMENT AGREEMENT

        THIS EMPLOYMENT AGREEMENT (the "Agreement"), made this 14^th day of May 2008 (the "Effective Date"), is entered into by Sepracor Inc., a Delaware corporation with its principal place of business at 84 Waterford Drive, Marlborough, Massachusetts 01752-7231(the "Company"), and Robert F. Scumaci, residing at 174 Clinton Street, Hopkinton, MA 01748 (the "Executive").

        WHEREAS, the Company desires to continue to employ the Executive and the Executive desires to continue to be employed by the Company; and

        WHEREAS, the Company has determined that appropriate steps should be taken to reinforce and encourage the continued employment of the Executive.

        NOW THEREFORE, in consideration of the mutual covenants and promises contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties hereto, the parties agree as follows:

        1.    Term of Employment.    The Company hereby agrees to continue to employ the Executive and the Executive hereby agrees to continue to be employed by the Company, upon the terms set forth in this Agreement, until the fifth anniversary of the Effective Date (the "Term"). Notwithstanding the foregoing, the Term shall be extended automatically without further action by either party by one (1) additional year (added to the end of the Term) on each succeeding anniversary of the Effective Date, unless either party shall have served written notice upon the other party at least sixty (60) days preceding the date upon which such Term would end (such period, as it may be extended, the "Employment Period"), unless sooner terminated in accordance with the provisions of Section 4.

        2.    Title and Capacity.    The Executive shall serve as Executive Vice-President, Chief Financial Officer of the Company. Executive shall report directly to the Chief Executive Officer of the Company and shall, except as permitted hereby, devote all of his business time and services to the business and affairs of the Company. Executive shall also perform such other duties consistent with his position as Executive Vice-President, Chief Financial Officer as may be reasonably assigned by the Chief Executive Officer and the Board of Directors of the Company (the "Board") from time to time. The Executive agrees to abide by the rules, regulations, instructions, personnel practices and policies of the Company and any changes therein that may be adopted from time to time by the Company.

        Notwithstanding anything herein to the contrary, Executive shall be entitled to engage in (a) service on the board of directors of one company, business or trade organization with prior Board approval, (b) continued service on the board of directors of the MS Society (c) service on the board of directors for a not-for-profit or charitable organization with prior Board approval, (d) other charitable activities and community affairs and (e) managing his personal investments and affairs, in each case to the extent such activities do not materially interfere with the performance of his duties and responsibilities to the Company.

        3.    Compensation and Benefits.

        3.1    Salary.    During the term of this Agreement, the Company agrees to continue to pay the Executive a base salary at the annualized rate of $520,000 ("Base Salary"). The Base Salary shall be subject to annual review by the Board but shall not be reduced below $520,000 per annum. Such salary shall be payable to Executive in bi-weekly installments and in accordance with the Company's normal payroll procedures.

        3.2    Bonus.    The Executive shall be eligible for a performance-based annual bonus for each fiscal year of the Term (the "Annual Bonus"). The Annual Bonus shall be based upon annual quantitative and qualitative performance targets as established by the Board in its sole discretion in accordance with the Company's bonus plan; provided, that the Executive's annual bonus level target shall be set at fifty percent (50%) or more of Base Salary. The Annual Bonus is not earned until the close of business on the last business day of the Company's fiscal year. Any Annual

Bonus payable hereunder shall be payable, if at all, after the date of the delivery of the audited financial statements for the applicable fiscal year.

        3.3    Benefits.    The Executive shall be entitled to participate in all bonus and benefit programs that the Company establishes and makes available to its employees, including its other executives, to the extent that the Executive is eligible under (and subject to the provisions of) the plan documents governing those programs. The Executive shall be entitled to no less than four weeks paid vacation per year, subject to the other terms of the Company's standard vacation policy (Schedule A).

        3.4    Reimbursement of Expenses.    The Company shall reimburse the Executive for all reasonable travel (which shall be deemed to include first class airfare), entertainment and other expenses incurred or paid by the Executive in connection with, or related to, the performance of his duties, responsibilities or services under this Agreement, upon presentation by the Executive of documentation, expense statements, vouchers and/or such other supporting information as the Company may request.

        3.5    Executive's Legal Fees.    The Company agrees to pay the Executive's reasonable legal costs and expenses in connection with negotiating and drafting this Agreement up to a maximum of $10,000.

        3.6    Automobile.    The Company agrees to provide the Executive with an automobile allowance or a leased automobile with a retail value of up to $60,000, which payments shall be made on a fully tax grossed-up basis. In addition, the Company agrees to pay all insurance, maintenance, fuel and other customary costs associated with operating the automobile.

        3.7    Withholding.    All salary, bonus and other compensation payable to the Executive shall be subject to applicable withholding taxes.

        4.    Employment Termination.    The employment of the Executive under this Agreement shall terminate upon the occurrence of any of the following:

        4.1   On the expiration date of the Employment Period.

        4.2   At the election of the Company, for Cause (as defined below), immediately upon written notice by the Company to the Executive, which notice shall identify the Cause upon which termination is based. For the purposes of this Section 4.2, Cause for termination shall mean: (a) the Executive's willful and continued failure to substantially perform his reasonable assigned duties (other than any such failure resulting from incapacity due to physical or mental illness or any failure after the Executive gives notice of termination for Good Reason and Good Reason exists), which failure is not cured within 30 days after a written demand for substantial performance is received by the Executive from the Board of Directors of the Company which specifically identifies the manner in which the Board of Directors believes the Executive has not substantially performed the Executive's duties; (b) the Executive's willful engagement in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company; or (c) a material breach of Section 6 or 7 of this Agreement by the Executive. For purposes of this Section 4.2, no act or failure to act by the Executive shall be considered "willful" unless it is done, or omitted to be done, in bad faith and without reasonable belief that the Executive's action or omission was in the best interests of the Company.

        4.3   Upon the death or disability of the Executive. As used in this Agreement, the term "disability" shall mean the Executive's absence from the full-time performance of the Executive's duties with the Company for one hundred eighty (180) consecutive calendar days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a

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physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative.

        4.4   At the election of the Executive for Good Reason as defined herein. The Executive may terminate his employment for Good Reason at any time, following 30-days prior written notice of such termination to the Company. Such notice shall provide factual details of the basis behind such termination and the Company shall have a thirty (30) day period thereafter to cure such matter. As used herein, the term "Good Reason" shall mean: (a) a material breach by the Company of the terms of this Agreement, including the failure to pay Base Salary or any Annual Bonus when due; or (b) any material adverse change by the Company in Executive's titles, authorities, duties, responsibilities or lines of reporting inconsistent with the terms hereof or the assignment to Executive by the Company of titles, authorities, duties, responsibilities or lines of reporting inconsistent with the terms hereof, or (c) a relocation of the offices of the Company where the Executive is working to an area more than forty (40) miles from the location of such offices as of the date hereof.

        4.5   At the election of the Executive without Good Reason, upon not less than sixty (60) calendar days prior written notice of termination by the Executive to the Company; provided, however, that the Company may, in its sole discretion, determine that the termination of the Executive shall become effective immediately and in which case the termination shall still be considered at the election of the Executive without Good Reason.

        4.6   At the election of the Company, without Cause, upon not less than sixty (60) days written notice to Executive.

        4.7   At the election of the Company or the Executive in connection with a Change in Control, as set forth in the Executive Retention Agreement between the Company and the Executive (the "ERA"), dated as of February 1, 2002. "Change in Control" shall have the meaning set forth in the ERA.

        5.    Effect of Termination.

        5.1    Non-Renewal, Termination Without Good Reason By the Executive or Termination For Cause By the Company.    In the event the Executive's employment is terminated by non-renewal pursuant to Section 4.1, for Cause by the Company pursuant to Section 4.2, or at the election of the Executive pursuant to Section 4.5, the Company shall pay to the Executive the compensation and benefits otherwise payable to him under Section 3 through the last calendar day of his actual employment by the Company, or at the end of the sixty (60) day period referenced in Section 4.5, whichever is longer.

        5.2    Termination for Death or Disability.    In the event the Executive's employment is terminated by death or because of disability pursuant to Section 4.3, the Company shall pay to the estate of the Executive or to the Executive, as the case may be, (A) within thirty (30) days of the date of the Executive's death or determination of disability, the compensation which would otherwise be payable to the Executive up to the end of the month in which the termination of his employment because of death or disability occurs; and (B) an annual bonus, payable when bonuses are paid for that year, in an amount equal to the total bonus he would be paid for such year, if any, multiplied by a fraction, the numerator of which is the number of days in the year that have elapsed since January 1 and the denominator of which is 365 (a "Pro Rata Bonus").

        5.3    Termination By the Executive With Good Reason or By the Company Without "Cause".    In the event the Executive's employment is terminated by the Executive with Good Reason pursuant to Section 4.4 or by the Company without Cause pursuant to Section 4.6, the Company shall pay to the Executive the compensation and benefits otherwise payable to him under Section 3 through the last calendar day of his actual employment by the Company. In addition, provided the

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Executive executes and does not revoke a Separation Agreement and Release of Claims for the benefit of the Company substantially in the form set forth on Schedule B hereto, the Company shall (a) continue to pay the Executive the Base Salary for twenty four (24) months in accordance with the Company's regular payroll practices; (b) pay the Executive a Pro Rata Bonus; (c) pay the Executive, in bi-weekly installments, over a twenty four-month period, an amount equal in the aggregate to 1.5 times the average Annual Bonus earned for the two years prior to the date of his termination; and (d) for twenty four (24) months following the date of his termination, allow the Executive to participate in the Company's executive retiree health benefit program based on the same cost sharing arrangement that applied immediately prior to the date of his termination.

        5.4    Termination Following a Change in Control.    In the event the Executive's employment is terminated pursuant to Section 4.7 by the Company or by the Executive within 24 months following the Change in Control Date as defined in the ERA, the Executive will be entitled to the benefits set forth in the ERA in accordance with the terms of the ERA.

        5.5    Participation in Executive Retirement Health Benefit Program.    Following the date of the Executive's termination, for any reason whatsoever, and, if applicable, the twenty four (24) month period referred to in Section 5.3(d), for such time as the Executive elects to continue to participate in the Company's executive retiree health benefit program, he will reimburse the Company at the lesser of (a) the actual cost to the Company of the employee's participation and (b) the rate applicable to former employees of the Company to elect COBRA health coverage.

        5.6    Payments Subject to Section 409A.

        (a)   Subject to this Section 5.6, payments or benefits under Section 5 shall begin only upon the date of a "separation from service" of the Executive (determined as set forth below) which occurs on or after the termination of the Executive's employment. The following rules shall apply with respect to distribution of the payments and benefits, if any, to be provided to the Executive under Section 5, as applicable:

        (i)    It is intended that each installment of the payments and benefits provided under Section 5 shall be treated as a separate "payment" for purposes of Section 409A of the Code and the guidance issued thereunder ("Section 409A"). Neither the Company nor the Executive shall have the right to accelerate or defer the delivery of any such payments or benefits except to the extent specifically permitted or required by Section 409A.

        (ii)   If, as of the date of the "separation from service" of the Executive from the Company, the Executive is not a "specified employee" (within the meaning of Section 409A), then each installment of the payments and benefits shall be made on the dates and terms set forth in Section 5.

        (iii)  If, as of the date of the "separation from service" of the Executive from the Company, the Executive is a "specified employee" (within the meaning of Section 409A), then:

        (1)   Each installment of the payments and benefits due under Section 5 that, in accordance with the dates and terms set forth herein, will in all circumstances, regardless of when the separation from service occurs, be paid within the Short-Term Deferral Period (as hereinafter defined) shall be treated as a short-term deferral within the meaning of Treasury Regulation Section 1.409A-1(b)(4) to the maximum extent permissible under Section 409A. For purposes of this Agreement, the "Short-Term Deferral Period" means the period ending on the later of the 15^th day of the third month following the end of the Executive's tax year in which the separation from service occurs and the 15^th day of the third month following the end of the Company's tax year in which the separation from service occurs; and

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        (2)   Each installment of the payments and benefits due under Section 5 that is not described in Section 5.6 (a)(iii)(1) and that would, absent this subsection, be paid within the six-month period following the "separation from service" of the Executive from the Company shall not be paid until the date that is six months and one day after such separation from service (or, if earlier, the Executive's death), with any such installments that are required to be delayed being accumulated during the six-month period and paid in a lump sum on the date that is six months and one day following the Executive's separation from service and any subsequent installments, if any, being paid in accordance with the dates and terms set forth herein; provided, however, that the preceding provisions of this sentence shall not apply to any installment of payments and benefits if and to the maximum extent that that such installment is deemed to be paid under a separation pay plan that does not provide for a deferral of compensation by reason of the application of Treasury Regulation 1.409A-1(b)(9)(iii) (relating to separation pay upon an involuntary separation from service). Any installments that qualify for the exception under Treasury Regulation Section 1.409A-1(b)(9)(iii) must be paid no later than the last day of the Executive's second taxable year following his taxable year in which the separation from service occurs.

        (b)   The determination of whether and when a separation from service of the Executive from the Company has occurred shall be made and in a manner consistent with, and based on the presumptions set forth in, Treasury Regulation Section 1.409A-1(h). Solely for purposes of this Section 5.6 (b), "Company" shall include all persons with whom the Company would be considered a single employer under Section 414(b) and 414(c) of the Code.

        (c)   All reimbursements and in-kind benefits provided under the Agreement shall be made or provided in accordance with the requirements of Section 409A to the extent that such reimbursements or in-kind benefits are subject to Section 409A.

        6.    Non-Competition and Non-Solicitation.

        (a)   While the Executive is employed by the Company, and for a period of twelve (12) months following the Executive's termination or cessation of such employment for any reason, the Executive will not directly or indirectly:

        (i)    Engage in any business or enterprise (whether as an owner, partner, officer, employee, director, investor, lender, consultant, independent contractor or otherwise, except as the holder of not more than 5% of the combined voting power of the outstanding stock of a publicly held company) that (A) is competitive with the Company's business, and (B) develops, designs, produces, markets, sells or renders any product or service competitive with any product developed, produced, marketed, sold or rendered by the Company while the Executive was employed by the Company;

        (ii)   Either alone or in association with others, recruit or solicit, any person who was employed by the Company at any time during the period of the Executive's employment with the Company, except for an individual whose employment with the Company has been terminated for a period of six months or longer; and

        (iii)  Either alone or in association with others, solicit, divert or take away, or attempt to divert or to take away, the business or patronage of any of the clients, customers or accounts, or prospective clients, customers or accounts, of the Company which were contacted, solicited or served by the Executive while he was employed by the Company.

        (b)   If any restriction set forth in this Section 6 is found by any court of competent jurisdiction to be unenforceable because it extends for too long a period of time or over too great

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a range of activities or in too broad a geographic area, it shall be interpreted to extend only over the maximum period of time, range of activities or geographic area as to which it may be enforceable.

        (c)   The Executive acknowledges that the restrictions contained in this Agreement are necessary for the protection of the business and goodwill of the Company and are considered by the Executive to be reasonable for such purpose. The Executive agrees that any breach of this Agreement will cause the Company substantial and irrevocable damage and therefore, in the event of any such breach, in addition to such other remedies which may be available, the Company shall have the right to seek specific performance and injunctive relief without posting a bond.

        (d)   The geographic scope of this Section shall extend to anywhere the Company or any of its subsidiaries is doing business during the Term.

        (e)   The Executive agrees to provide a copy of this Agreement to all persons and Entities with whom the Executive seeks to be hired or do business before accepting employment or engagement with any of them.

        (f)    If the Executive violates the provisions of this Section, the Executive shall continue to be held by the restrictions set forth in this Section, until a period equal to the period of restriction has expired without any violation.

        7.    Proprietary Information and Developments.

        7.1    Proprietary Information.

        (a)   The Executive agrees that all information, whether or not in writing, of a private, secret or confidential nature concerning the Company's business, business relationships or financial affairs (collectively, "Proprietary Information") is and shall be the exclusive property of the Company. By way of illustration, but not limitation, Proprietary Information may include discoveries, inventions, products, product improvements, product enhancements, processes, methods, techniques, formulas, compositions, compounds, negotiation strategies and positions, projects, developments, plans (including business and marketing plans), research data, clinical data, financial data (including sales, costs, profits and pricing methods), personnel data, computer programs (including software used pursuant to a license agreement), customer and supplier lists, and contacts at or knowledge of customers or prospective customers of the Company. Except as required by applicable law, the Executive will not disclose any Proprietary Information to any person or entity other than employees of the Company or use the same for any purposes (other than in the performance of his duties as an employee of the Company) without prior written approval from the Chief Executive Officer, either during or after his employment with the Company, unless and until such Proprietary Information has become public knowledge without fault by the Executive.

        (b)   The Executive agrees that all files, documents, letters, memoranda, reports, records, data, sketches, drawings, methods, laboratory notebooks, program listings, computer equipment or devices, computer programs or other written, photographic, or other tangible material containing Proprietary Information, whether created by the Executive or others, which shall come into his custody or possession, shall be and are the exclusive property of the Company and are to be used by the Executive only in the performance of his duties for the Company. All such materials or copies thereof and all tangible property of the Company in the custody or possession of the Executive shall be delivered to the Company upon the earlier of (i) a request by the Company or (ii) termination of his employment. After such delivery, the Executive shall not retain any such materials or copies thereof or any such tangible property.

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        (c)   The Executive agrees that his obligation not to disclose or to use information and materials of the types set forth in subsections (a) and (b) above, and his obligation to return materials and tangible property set forth in subsection (b) above, also extends to such types of information, materials and tangible property of customers of the Company or suppliers to the Company or other third parties who may have disclosed or entrusted the same to the Company or to the Executive.

        7.2    Developments.

        (a)   The Executive will make full and prompt disclosure to the Company of all inventions, creations, improvements, discoveries, trade secrets, secret processes, technology, know-how, copyrightable materials, methods, developments, software, and works of authorship or other creative works, whether patentable or not, which are created, made, conceived or reduced to practice by him or under his direction or jointly with others during his employment by the Company, whether or not during normal working hours or on the premises of the Company (all of which are collectively referred to in this Agreement as "Developments").

        (b)   The Executive agrees to assign and does hereby assign to the Company (or any person or entity designated by the Company) all his right, title and interest in and to all Developments and all related patents, patent applications, copyrights and copyright applications. However, this subsection (b) shall not apply to Developments that do not relate to any business or research and development conducted or planned to be conducted by the Company at the time such Development is created, made, conceived or reduced to practice and that are made and conceived by the Executive not during normal working hours, not on the Company's premises and not using the Company's tools, devices, equipment or Proprietary Information. The Executive understands that, to the extent this Agreement shall be construed in accordance with the laws of any state that precludes a requirement in an employee agreement to assign certain classes of inventions made by an employee, this subsection (b) shall be interpreted not to apply to any invention that a court rules and/or the Company agrees falls within such classes. The Executive also hereby waives all claims to moral rights in any Developments.

        (c)   The Executive agrees to cooperate fully with the Company and to take such further actions as may be necessary or desirable, both during and after his employment with the Company, with respect to the procurement, maintenance and enforcement of copyrights, patents and other intellectual property rights (both in the United States and foreign countries) relating to Developments. The Executive shall sign all papers, including, without limitation, copyright applications, patent applications, declarations, oaths, formal assignments, assignments of priority rights and powers of attorney, that the Company may deem necessary or desirable in order to protect its rights and interests in any Development. The Executive further agrees that if the Company is unable, after reasonable effort, to secure the signature of the Executive on any such papers, the Chief Executive Officer of the Company shall be entitled to execute any such papers as the agent and the attorney-in-fact of the Executive, and the Executive hereby irrevocably designates and appoints the Chief Executive Officer of the Company as his agent and attorney-in-fact to execute any such papers on his behalf and to take any and all actions as the Company may deem necessary or desirable in order to protect its rights and interests in any Development under the conditions described in this sentence.

        7.3    United States Government Obligations.    The Executive acknowledges that the Company from time to time may have agreements with other parties or with the United States Government, or agencies thereof, which impose obligations or restrictions on the Company regarding inventions made during the course of work under such agreements or regarding the confidential nature of such work. The Executive agrees to be bound by all such obligations and restrictions that are made

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known to the Executive and to take all action necessary to discharge the obligations of the Company under such agreements.

        7.4    Other Agreements.    The Executive hereby represents that he is not bound by the terms of any agreement with any previous employer or other party to refrain from competing, directly or indirectly, with the business of such previous employer or any other party. The Executive further represents that his performance of all the terms of this Agreement and the performance of his duties as an employee of the Company does not and will not breach any agreement to keep in confidence proprietary information, knowledge or data acquired by him in confidence or in trust prior to his employment with the Company and that the Executive will not disclose to the Company or induce the Company to use any confidential or proprietary information, knowledge or material belonging to any previous employer or others. The Executive further represents that his performance of all the terms of this Agreement and the performance of his duties as an employee of the Company does not and will not breach any agreement to refrain from soliciting employees, customers or suppliers of any former employer or others.

        8.    Indemnification.    The Company shall indemnify the Executive in accordance with its Certificate of Incorporation and By-Laws and any other policy or plan of any kind that provides for indemnification of the Executive and is, or may become, applicable or available to the Executive.

        9.    Survival.    The provisions of Sections 6, 7 and 8 shall survive the termination of this Agreement for any reason.

        10.    Notices.    Any notices delivered under this Agreement shall be deemed duly delivered three (3) business days after it is sent by registered or certified mail, return receipt requested, postage prepaid, or one (1) business day after it is sent for next-business day delivery via a reputable nationwide overnight courier service, in each case to the address of the recipient set forth in the introductory paragraph hereto. Either party may change the address to which notices are to be delivered by giving notice of such change to the other party in the manner set forth in this Section 10.

        11.    Compliance with Code Section 409A.    This Agreement is intended to comply with the provisions of Section 409A and the Agreement shall, to the extent practicable, be construed in accordance therewith. The Company makes no representation or warranty and shall have no liability to the Executive or any other person if any provisions of this Agreement are determined to constitute deferred compensation subject to Section 409A and do not satisfy an exemption from, or the conditions of, Section 409A.

        12.    Pronouns.    Whenever the context may require, any pronouns used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular forms of nouns and pronouns shall include the plural, and vice versa.

        13.    Entire Agreement.    This Agreement, together with the ERA, constitutes the entire agreement between the parties and supersedes all prior agreements and understandings, whether written or oral, relating to the subject matter of this Agreement, including the letter agreement between the Company and the Executive dated February 23, 1995.

        14.    Amendment.    This Agreement may be amended or modified only by a written instrument executed by both the Company and the Executive.

        15.    Governing Law.    This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts (without reference to the conflict of laws provisions thereof). Any action, suit or other legal proceeding arising under or relating to any provision of this Agreement shall be commenced only in a court of the Commonwealth of Massachusetts (or, if appropriate, a federal court located within the Commonwealth of Massachusetts), and the Company and the Executive each consents to the jurisdiction of such a court. The Company and the Executive

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each hereby irrevocably waive any right to a trial by jury in any action, suit or other legal proceeding arising under or relating to any provision of this Agreement or any other dealing between them relating to the subject matter of this transaction and the relationship that is being established.

        16.    Successors and Assigns.    This Agreement shall be binding upon and inure to the benefit of both parties and their respective successors and assigns, including any corporation with which or into which the Company may be merged or which may succeed to its assets or business; provided, however, that the obligations of the Executive are personal and shall not be assigned by him.

        17.    Acknowledgment.    The Executive states and represents that he has had an opportunity to fully discuss and review the terms of this Agreement with an attorney. The Executive further states and represents that he has carefully read this Agreement, understands the contents herein, freely and voluntarily assents to all of the terms and conditions hereof, and signs his name of his own free act.

        18.    Miscellaneous.

        18.1     No delay or omission by the Company or the Executive in exercising any right under this Agreement shall operate as a waiver of that or any other right. A waiver or consent given by the Company or the Executive on any one occasion shall be effective only in that instance and shall not be construed as a bar to or waiver of any right on any other occasion.

        18.2     The captions of the sections of this Agreement are for convenience of reference only and in no way define, limit or affect the scope or substance of any section of this Agreement.

        18.3     In case any provision of this Agreement shall be invalid, illegal or otherwise unenforceable, the validity, legality and enforceability of the remaining provisions shall in no way be affected or impaired thereby.

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        IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year set forth above.

Sepracor Inc.
By:	/s/ ADRIAN ADAMS
Title:	President and CEO
/s/ ROBERT F. SCUMACI Robert F Scumaci

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SCHEDULE A

VACATION POLICY

SEE ATTACHED POLICY

SCHEDULE B

FORM OF SEPARATION AGREEMENT AND RELEASE OF CLAIMS

        In connection with your separation from Sepracor Inc. (the "Company") on [            ], and in order to receive the benefits as set forth in the Employment Agreement (the "Agreement") between you and the Company dated [            ], 2008, this agreement must become binding between you and the Company. By signing and returning this agreement, you will be entering into a binding agreement with the Company and will be agreeing to the terms and conditions set forth in the numbered paragraphs below, including the release of claims set forth in paragraph 1. Therefore, you are advised to consult with an attorney before signing this agreement and you have been given more than twenty-one (21) days to do so. If you sign this agreement, you may change your mind and revoke your agreement during the seven (7) day period after you have signed it. If you do not so revoke, this agreement will become a binding agreement between you and the Company upon the expiration of the seven (7) day revocation period.

        The following numbered paragraphs set forth the terms and conditions which will apply if you timely sign and return this agreement and do not revoke it within the seven (7) day revocation period:

        1.     Mutual Release—In consideration of the payment of the severance benefits, which you acknowledge you would not otherwise be entitled to receive, you hereby fully, forever, irrevocably and unconditionally release, remise and discharge the Company, its officers, directors, stockholders, corporate affiliates, subsidiaries, parent companies, successors and assigns, agents and employees (each in their individual and corporate capacities) (hereinafter, the "Released Parties") from any and all claims, charges, complaints, demands, actions, causes of action, suits, rights, debts, sums of money, costs, accounts, reckonings, covenants, contracts, agreements, promises, doings, omissions, damages, executions, obligations, liabilities, and expenses (including attorneys' fees and costs), of every kind and nature which you ever had or now have against the Released Parties, including, but not limited to, those claims arising out of your employment with and/or separation from the Company, including, but not limited to, all claims under Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e et seq., the Age Discrimination in Employment Act, 29 U.S.C. § 621 et seq., the Americans With Disabilities Act of 1990, 42 U.S.C. § 12101 et seq., the Family and Medical Leave Act, 29 U.S.C. § 2601 et seq., the Worker Adjustment and Retraining Notification Act ("WARN"), 29 U.S.C. § 2101 et seq., Section 806 of the Corporate and Criminal Fraud Accountability Act of 2002, 18 U.S.C. § 1514(A), the Rehabilitation Act of 1973, 29 U.S.C. § 701 et seq., Executive Order 11246, Executive Order 11141, the Fair Credit Reporting Act, 15 U.S.C. § 1681 et seq., the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq., the Massachusetts Fair Employment Practices Act., M.G.L. c. 151B, § 1 et seq., the Massachusetts Civil Rights Act, M.G.L. c. 12, §§ 11H and 11I, the Massachusetts Equal Rights Act, M.G.L. c. 93, § 102 and M.G.L. c. 214, § 1C, the Massachusetts Labor and Industries Act, M.G.L. c. 149, § 1 et seq., the Massachusetts Privacy Act, M.G.L. c. 214, § 1B, and the Massachusetts Maternity Leave Act, M.G.L. c. 149, § 105D, all as amended; all common law claims including, but not limited to, actions in tort, defamation and breach of contract; all claims to any non-vested ownership interest in the Company, contractual or otherwise, including, but not limited to, claims to stock or stock options; and any claim or damage arising out of your employment with or separation from the Company (including a claim for retaliation) under any common law theory or any federal, state or local statute or ordinance not expressly referenced above. Notwithstanding the foregoing, the release set forth in this Section 1 shall not apply to (a) your rights under the Agreement, (b) any vested equity interest in the Company, including vested stock options or (c) the rights you have to be indemnified and defended by the Company pursuant to the terms of the Company's Restated Certificate of Incorporation, as amended, or other organizing documents, and the rights that you have under, or with respect to, the Company's Directors and Officers liability insurance policies with respect to conduct or events occurring during, or relating to, your employment by, or while serving as an officer or director of, the Company, Without limiting the generality of the foregoing, the Company

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shall continue to cover you under its Directors and Officers liability insurance policies following the Separation Date in substantially the same amount and on substantially the same terms as the Company covers its other former officers and directors.

        The Company hereby fully, forever, irrevocably and unconditionally releases, remises and discharges you from any and all claims, charges, complaints, demands, actions, causes of action, suits, rights, debts, sums of money, costs, accounts, reckonings, covenants, contracts, agreements, promises, doings, omissions, damages, executions, obligations, liabilities and expenses (including attorney's fees and costs), of every kind and nature that the Company ever had or now has against you as of the date of this agreement.

        2.     On-Going Obligations—You acknowledge and reaffirm your obligation to keep confidential and not to disclose any and all Proprietary Information (as defined in the Agreement) concerning the Company which you acquired during the course of your employment with the Company, including, but not limited to, any non-public information concerning the Company's business affairs, business prospects and financial condition. You further acknowledge and reaffirm your obligations under the Agreement for the benefit of the Company.

        3.     Return of Company Property—You confirm that you have returned to the Company all keys, files, records (and copies thereof), equipment (including, but not limited to, computer hardware, software and printers, wireless handheld devices, cellular phones, pagers, etc.), Company identification, Company vehicles and any other Company owned property in your possession or control and have left intact all electronic Company documents, including but not limited to, those that you developed or helped develop during your employment. You further confirm that you have cancelled all accounts for your benefit, if any, in the Company's name, including but not limited to, credit cards, telephone charge cards, cellular phone and/or pager accounts and computer accounts.

        4.     Business Expenses and Compensation—You acknowledge that you have been reimbursed by the Company for all business expenses incurred in conjunction with your employment with the Company and that no other reimbursements are owed to you. You further acknowledge that you have received payment in full for all services rendered in conjunction with your employment by the Company and that no other compensation is owed to you except as provided in the Agreement.

        5.     Non-Disparagement—You understand and agree that, as a condition for payment to you of the consideration herein described and described in the Agreement, you shall not make any false, disparaging or derogatory statements to any media outlet, industry group, financial institution or current or former employee, consultant, client or customer of the Company regarding the Company or any of its directors, officers, employees, agents or representatives or about the Company's business affairs and financial condition; provided, however, that nothing herein shall prevent you from making truthful disclosures to any governmental entity or in any litigation or arbitration. The Company agrees not to make any false, disparaging or derogatory statements about you to any media outlet, industry group, financial institution, or current or former employee, consultant, client, or customer; provided, however, that nothing herein shall prevent the Company from making truthful disclosures to any governmental entity or in any litigation or arbitration. In the event that any inquiries are directed to the Company's Human Resources Office regarding you from prospective employers, the Company will explain its neutral reference policy, confirm only the fact of your former employment with the Company, starting and ending dates and your job title in the last position held.

        6.     Amendment—This agreement shall be binding upon the parties and may not be modified in any manner, except by an instrument in writing of concurrent or subsequent date signed by duly authorized representatives of the parties hereto. This agreement is binding upon and shall inure to the benefit of the parties and their respective agents, assigns, heirs, executors, successors and administrators.

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        7.     Waiver of Rights—No delay or omission by the Company or you in exercising any right under this agreement shall operate as a waiver of that or any other right. A waiver or consent given by the Company or you on any one occasion shall be effective only in that instance and shall not be construed as a bar or waiver of any right on any other occasion.

        8.     Validity—Should any provision of this agreement be declared or be determined by any court of competent jurisdiction to be illegal or invalid, the validity of the remaining parts, terms or provisions shall not be affected thereby and said illegal or invalid part, term or provision shall be deemed not to be a part of this agreement.

        9.     Tax Provision—In connection with the severance benefits provided to you pursuant to this agreement and the Agreement, the Company shall withhold and remit to the tax authorities the amounts required under applicable law, and you shall be responsible for all applicable taxes with respect to such severance benefits under applicable law. You acknowledge that you are not relying upon advice or representation of the Company with respect to the tax treatment of any of the severance benefits.

        10.   Nature of Agreement—You understand and agree that this agreement, together with the Agreement, is a severance agreement and does not constitute an admission of liability or wrongdoing on the part of the Company.

        11.   Acknowledgments—You acknowledge that you have been given at least twenty-one (21) days to consider this agreement and that the Company advised you to consult with an attorney of your own choosing prior to signing this agreement. You understand that you may revoke this agreement for a period of seven (7) days after you sign this agreement, and the agreement shall not be effective or enforceable until the expiration of this seven (7) day revocation period. You understand and agree that by entering into this agreement you are waiving any and all rights or claims you might have under The Age Discrimination in Employment Act, as amended by The Older Workers Benefit Protection Act, and that you have received consideration for that waiver.

        12.   Voluntary Assent—You affirm that, other than as contained in the Agreement, no other promises or agreements of any kind have been made to or with you by any person or entity whatsoever to cause you to sign this agreement, and that you fully understand the meaning and intent of this agreement. You state and represent that you have had an opportunity to fully discuss and review the terms of this agreement with an attorney. You further state and represent that you have carefully read this agreement, understand the contents herein, freely and voluntarily assent to all of the terms and conditions hereof, and sign your name of your own free act.

        13.   Applicable Law—This agreement shall be interpreted and construed by the laws of the Commonwealth of Massachusetts, without regard to conflict of laws provisions. You hereby irrevocably submit to and acknowledge and recognize the jurisdiction of the courts of the Commonwealth of Massachusetts, or if appropriate, a federal court located in Massachusetts (which courts, for purposes of this agreement, are the only courts of competent jurisdiction), over any suit, action or other proceeding arising out of, under or in connection with this agreement or the subject matter hereof.

        14.   Entire Agreement—This agreement, together with the Agreement, contains and constitutes the entire understanding and agreement between the parties hereto with respect to your severance benefits and the settlement of claims against the Company and cancels all previous oral and written

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negotiations, agreements, commitments and writings in connection therewith. Nothing in this paragraph, however, shall modify, cancel or supersede your obligations set forth in paragraph 2 herein.

Sepracor Inc.
By:
	Name: Title:

        I hereby agree to the terms and conditions set forth above. I have been given at least twenty-one (21) days to consider this agreement and I have chosen to execute this on the date below. I intend that this agreement become a binding agreement between me and the Company if I do not revoke my acceptance in seven (7) days by notifying                                    in writing.

	Date
Name

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Exhibit 10.7

EMPLOYMENT AGREEMENT
SCHEDULE A VACATION POLICY
SCHEDULE B FORM OF SEPARATION AGREEMENT AND RELEASE OF CLAIMS

EX-10.8

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Exhibit 10.8

EMPLOYMENT AGREEMENT

        THIS EMPLOYMENT AGREEMENT (the "Agreement"), made this 14^th day of May 2008 (the "Effective Date"), is entered into by Sepracor Inc., a Delaware corporation with its principal place of business at 84 Waterford Drive, Marlborough, Massachusetts 01752-7231(the "Company"), and Mark H. N. Corrigan, residing at 389 Marlborough Street, Boston, MA 02115 (the "Executive").

        WHEREAS, the Company desires to continue to employ the Executive and the Executive desires to continue to be employed by the Company; and

        WHEREAS, the Company has determined that appropriate steps should be taken to reinforce and encourage the continued employment of the Executive.

        NOW THEREFORE, in consideration of the mutual covenants and promises contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties hereto, the parties agree as follows:

        1.    Term of Employment.    The Company hereby agrees to continue to employ the Executive and the Executive hereby agrees to continue to be employed by the Company, upon the terms set forth in this Agreement, until the fifth anniversary of the Effective Date (the "Term"). Notwithstanding the foregoing, the Term shall be extended automatically without further action by either party by one (1) additional year (added to the end of the Term) on each succeeding anniversary of the Effective Date, unless either party shall have served written notice upon the other party at least sixty (60) days preceding the date upon which such Term would end (such period, as it may be extended, the "Employment Period"), unless sooner terminated in accordance with the provisions of Section 4.

        2.    Title and Capacity.    The Executive shall serve as Executive Vice-President, Research and Development of the Company. Executive shall report directly to the Chief Executive Officer of the Company and shall, except as permitted hereby, devote all of his business time and services to the business and affairs of the Company. Executive shall also perform such other duties consistent with his position as Executive Vice-President, Research and Development as may be reasonably assigned by the Chief Executive Officer and the Board of Directors of the Company (the "Board") from time to time. The Executive agrees to abide by the rules, regulations, instructions, personnel practices and policies of the Company and any changes therein that may be adopted from time to time by the Company.

        Notwithstanding anything herein to the contrary, Executive shall be entitled to engage in (a) service on the board of directors of two companies, business or trade organizations with prior Board approval, (b) service on the board of directors of not-for-profit or charitable organizations with prior Board approval, (c) other charitable activities and community affairs and (d) managing his personal investments and affairs, in each case to the extent such activities do not materially interfere with the performance of his duties and responsibilities to the Company.

        3.    Compensation and Benefits.

        3.1    Salary.    During the term of this Agreement, the Company agrees to continue to pay the Executive a base salary at the annualized rate of $545,000 ("Base Salary"). The Base Salary shall be subject to annual review by the Board but shall not be reduced below $545,000 per annum. Such salary shall be payable to Executive in bi-weekly installments and in accordance with the Company's normal payroll procedures.

        3.2    Bonus.    The Executive shall be eligible for a performance-based annual bonus for each fiscal year of the Term (the "Annual Bonus"). The Annual Bonus shall be based upon annual quantitative and qualitative performance targets as established by the Board in its sole discretion in accordance with the Company's bonus plan; provided, that the Executive's annual bonus level

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target shall be set at fifty percent (50%) or more of Base Salary. The Annual Bonus is not earned until the close of business on the last business day of the Company's fiscal year. Any Annual Bonus payable hereunder shall be payable, if at all, after the date of the delivery of the audited financial statements for the applicable fiscal year.

        3.3    Benefits.    The Executive shall be entitled to participate in all bonus and benefit programs that the Company establishes and makes available to its employees, to the extent that the Executive is eligible under (and subject to the provisions of) the plan documents governing those programs. The Executive shall be entitled to no less than four weeks paid vacation per year, subject to the other terms of the Company's standard vacation policy (Schedule A).

        3.4    Reimbursement of Expenses.    The Company shall reimburse the Executive for all reasonable travel (which shall be deemed to include first class airfare), entertainment and other expenses incurred or paid by the Executive in connection with, or related to, the performance of his duties, responsibilities or services under this Agreement, upon presentation by the Executive of documentation, expense statements, vouchers and/or such other supporting information as the Company may request.

        3.5    Automobile.    The Company agrees to provide the Executive with an automobile allowance or a leased automobile with a retail value of up to $60,000, which payments shall be made on a fully tax grossed-up basis. In addition, the Company agrees to pay all insurance, maintenance, fuel and other customary costs associated with operating the automobile.

        3.6    Withholding.    All salary, bonus and other compensation payable to the Executive shall be subject to applicable withholding taxes.

        4.    Employment Termination.    The employment of the Executive under this Agreement shall terminate upon the occurrence of any of the following:

        4.1   On the expiration date of the Employment Period.

        4.2   At the election of the Company, for Cause (as defined below), immediately upon written notice by the Company to the Executive, which notice shall identify the Cause upon which termination is based. For the purposes of this Section 4.2, Cause for termination shall mean: (a) the Executive's willful and continued failure to substantially perform his reasonable assigned duties (other than any such failure resulting from incapacity due to physical or mental illness or any failure after the Executive gives notice of termination for Good Reason and Good Reason exists), which failure is not cured within 30 days after a written demand for substantial performance is received by the Executive from the Board of Directors of the Company which specifically identifies the manner in which the Board of Directors believes the Executive has not substantially performed the Executive's duties; (b) the Executive's willful engagement in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company; or (c) a material breach of Section 6 or 7 of this Agreement by the Executive. For purposes of this Section 4.2, no act or failure to act by the Executive shall be considered "willful" unless it is done, or omitted to be done, in bad faith and without reasonable belief that the Executive's action or omission was in the best interests of the Company.

        4.3   Upon the death or disability of the Executive. As used in this Agreement, the term "disability" shall mean the Executive's absence from the full-time performance of the Executive's duties with the Company for one hundred eighty (180) consecutive calendar days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative.

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        4.4   At the election of the Executive for Good Reason as defined herein. The Executive may terminate his employment for Good Reason at any time, following 30-days prior written notice of such termination to the Company. Such notice shall provide factual details of the basis behind such termination and the Company shall have a thirty (30) day period thereafter to cure such matter. As used herein, the term "Good Reason" shall mean: (a) a material breach by the Company of the terms of this Agreement, including the failure to pay Base Salary or any Annual Bonus when due; or (b) any material adverse change by the Company in Executive's titles, authorities, duties, responsibilities or lines of reporting inconsistent with the terms hereof or the assignment to Executive by the Company of titles, authorities, duties, responsibilities or lines of reporting inconsistent with the terms hereof, or (c) a relocation of the principal offices of the Company to an area more than forty (40) miles from the location of such offices as of the date hereof.

        4.5   At the election of the Executive without Good Reason, upon not less than sixty (60) calendar days prior written notice of termination by the Executive to the Company; provided, however, that the Company may, in its sole discretion, determine that the termination of the Executive shall become effective immediately and in which case the termination shall still be considered at the election of the Executive without Good Reason.

        4.6   At the election of the Company, without Cause, upon not less than sixty (60) days written notice to Executive.

        4.7   At the election of the Company or the Executive in connection with a Change in Control, as set forth in the Executive Retention Agreement between the Company and the Executive (the "ERA"), dated as of April 17, 2003. "Change in Control" shall have the meaning set forth in the ERA.

        5.    Effect of Termination.

        5.1    Non-Renewal, Termination Without Good Reason By the Executive or Termination For Cause By the Company.    In the event the Executive's employment is terminated by non-renewal pursuant to Section 4.1, for Cause by the Company pursuant to Section 4.2, or at the election of the Executive pursuant to Section 4.5, the Company shall pay to the Executive the compensation and benefits otherwise payable to him under Section 3 through the last calendar day of his actual employment by the Company.

        5.2    Termination for Death or Disability.    In the event the Executive's employment is terminated by death or because of disability pursuant to Section 4.3, the Company shall pay to the estate of the Executive or to the Executive, as the case may be, (A) within thirty (30) days of the date of the Executive's death or determination of disability, the compensation which would otherwise be payable to the Executive up to the end of the month in which the termination of his employment because of death or disability occurs; and (B) an annual bonus, payable when bonuses are paid for that year, in an amount equal to the total bonus he would be paid for such year, if any, multiplied by a fraction, the numerator of which is the number of days in the year that have elapsed since January 1 and the denominator of which is 365 (a "Pro Rata Bonus").

        5.3    Termination By the Executive With Good Reason or By the Company Without "Cause".    In the event the Executive's employment is terminated by the Executive with Good Reason pursuant to Section 4.4 or by the Company without Cause pursuant to Section 4.6, the Company shall pay to the Executive the compensation and benefits otherwise payable to him under Section 3 through the last calendar day of his actual employment by the Company. In addition, provided the Executive executes and does not revoke a Separation Agreement and Release of Claims for the benefit of the Company substantially in the form set forth on Schedule B hereto, the Company shall (a) continue to pay the Executive the Base Salary for eighteen (18) months in accordance with the Company's regular payroll practices; (b) pay the Executive a Pro Rata Bonus; (c) pay the

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Executive, in bi-weekly installments, over an eighteen-month period, an amount equal in the aggregate to 1.5 times the average Annual Bonus earned for the two years prior to the date of his termination; and (d) for 18 months following the date of his termination, allow the Executive to participate in the Company's executive retiree health benefit program based on the same cost sharing arrangement that applied immediately prior to the date of his termination.

        5.4    Termination Following a Change in Control.    In the event the Executive's employment is terminated pursuant to Section 4.7 by the Company or by the Executive within 24 months following the Change in Control Date as defined in the ERA, the Executive will be entitled to the benefits set forth in the ERA in accordance with the terms of the ERA.

        5.5    Participation in Executive Retirement Health Benefit Program.    Following the date of the Executive's termination and, if applicable, the 18 month period referred to in Section 5.3(d), for such time as the Executive elects to continue to participate in the Company's executive retiree health benefit program, he will reimburse the Company at the lesser of (a) the actual cost to the Company of the employee's participation and (b) the rate applicable to former employees of the Company to elect COBRA health coverage.

        5.6    Payments Subject to Section 409A.

        (a)   Subject to this Section 5.6, payments or benefits under Section 5 shall begin only upon the date of a "separation from service" of the Executive (determined as set forth below) which occurs on or after the termination of the Executive's employment. The following rules shall apply with respect to distribution of the payments and benefits, if any, to be provided to the Executive under Section 5, as applicable:

        (i)    It is intended that each installment of the payments and benefits provided under Section 5 shall be treated as a separate "payment" for purposes of Section 409A of the Code and the guidance issued thereunder ("Section 409A"). Neither the Company nor the Executive shall have the right to accelerate or defer the delivery of any such payments or benefits except to the extent specifically permitted or required by Section 409A.

        (ii)   If, as of the date of the "separation from service" of the Executive from the Company, the Executive is not a "specified employee" (within the meaning of Section 409A), then each installment of the payments and benefits shall be made on the dates and terms set forth in Section 5.

        (iii)  If, as of the date of the "separation from service" of the Executive from the Company, the Executive is a "specified employee" (within the meaning of Section 409A), then:

        (1)   Each installment of the payments and benefits due under Section 5 that, in accordance with the dates and terms set forth herein, will in all circumstances, regardless of when the separation from service occurs, be paid within the Short-Term Deferral Period (as hereinafter defined) shall be treated as a short-term deferral within the meaning of Treasury Regulation Section 1.409A-1(b)(4) to the maximum extent permissible under Section 409A. For purposes of this Agreement, the "Short-Term Deferral Period" means the period ending on the later of the 15^th day of the third month following the end of the Executive's tax year in which the separation from service occurs and the 15^th day of the third month following the end of the Company's tax year in which the separation from service occurs; and

        (2)   Each installment of the payments and benefits due under Section 5 that is not described in Section 5.6 (a)(iii)(1) and that would, absent this subsection, be paid within the six-month period following the "separation from service" of the Executive

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from the Company shall not be paid until the date that is six months and one day after such separation from service (or, if earlier, the Executive's death), with any such installments that are required to be delayed being accumulated during the six-month period and paid in a lump sum on the date that is six months and one day following the Executive's separation from service and any subsequent installments, if any, being paid in accordance with the dates and terms set forth herein; provided, however, that the preceding provisions of this sentence shall not apply to any installment of payments and benefits if and to the maximum extent that that such installment is deemed to be paid under a separation pay plan that does not provide for a deferral of compensation by reason of the application of Treasury Regulation 1.409A-1(b)(9)(iii) (relating to separation pay upon an involuntary separation from service). Any installments that qualify for the exception under Treasury Regulation Section 1.409A-1(b)(9)(iii) must be paid no later than the last day of the Executive's second taxable year following his taxable year in which the separation from service occurs.

        (b)   The determination of whether and when a separation from service of the Executive from the Company has occurred shall be made and in a manner consistent with, and based on the presumptions set forth in, Treasury Regulation Section 1.409A-1(h). Solely for purposes of this Section 5.6 (b), "Company" shall include all persons with whom the Company would be considered a single employer under Section 414(b) and 414(c) of the Code.

        (c)   All reimbursements and in-kind benefits provided under the Agreement shall be made or provided in accordance with the requirements of Section 409A to the extent that such reimbursements or in-kind benefits are subject to Section 409A.

        6.    Non-Competition and Non-Solicitation.

        (a)   While the Executive is employed by the Company and for a period of twelve (12) months following the Executive's termination or cessation of such employment for any reason, the Executive will not directly or indirectly:

        (i)    Engage in any business or enterprise (whether as an owner, partner, officer, employee, director, investor, lender, consultant, independent contractor or otherwise, except as the holder of not more than 5% of the combined voting power of the outstanding stock of a publicly held company) that (A) is competitive with the Company's business and (B) develops, designs, produces, markets, sells or renders any product or service competitive with any product developed, produced, marketed, sold or rendered by the Company while the Executive was employed by the Company;

        (ii)   Either alone or in association with others, recruit or solicit, any person who was employed by the Company at any time during the period of the Executive's employment with the Company, except for an individual whose employment with the Company has been terminated for a period of six months or longer; and

        (iii)  Either alone or in association with others, solicit, divert or take away, or attempt to divert or to take away, the business or patronage of any of the clients, customers or accounts, or prospective clients, customers or accounts, of the Company which were contacted, solicited or served by the Executive while he was employed by the Company.

        (b)   If any restriction set forth in this Section 6 is found by any court of competent jurisdiction to be unenforceable because it extends for too long a period of time or over too great a range of activities or in too broad a geographic area, it shall be interpreted to extend only over the maximum period of time, range of activities or geographic area as to which it may be enforceable.

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        (c)   The Executive acknowledges that the restrictions contained in this Agreement are necessary for the protection of the business and goodwill of the Company and are considered by the Executive to be reasonable for such purpose. The Executive agrees that any breach of this Agreement will cause the Company substantial and irrevocable damage and therefore, in the event of any such breach, in addition to such other remedies which may be available, the Company shall have the right to seek specific performance and injunctive relief without posting a bond.

        (d)   The geographic scope of this Section shall extend to anywhere the Company or any of its subsidiaries is doing business during the Term or has plans, during the Term, to do business.

        (e)   The Executive agrees to provide a copy of this Agreement to all person and Entities with whom the Executive seeks to be hired or do business before accepting employment or engagement with any of them.

        (f)    If the Executive violates the provisions of this Section, the Executive shall continue to be held by the restrictions set forth in this Section, until a period equal to the period of restriction has expired without any violation.

        7.    Proprietary Information and Developments.

        7.1    Proprietary Information.

        (a)   The Executive agrees that all information, whether or not in writing, of a private, secret or confidential nature concerning the Company's business, business relationships or financial affairs (collectively, "Proprietary Information") is and shall be the exclusive property of the Company. By way of illustration, but not limitation, Proprietary Information may include discoveries, inventions, products, product improvements, product enhancements, processes, methods, techniques, formulas, compositions, compounds, negotiation strategies and positions, projects, developments, plans (including business and marketing plans), research data, clinical data, financial data (including sales, costs, profits and pricing methods), personnel data, computer programs (including software used pursuant to a license agreement), customer and supplier lists, and contacts at or knowledge of customers or prospective customers of the Company. Except as required by applicable law, the Executive will not disclose any Proprietary Information to any person or entity other than employees of the Company or use the same for any purposes (other than in the performance of his duties as an employee of the Company) without prior written approval from the Chief Executive Officer, either during or after his employment with the Company, unless and until such Proprietary Information has become public knowledge without fault by the Executive.

        (b)   The Executive agrees that all files, documents, letters, memoranda, reports, records, data, sketches, drawings, methods, laboratory notebooks, program listings, computer equipment or devices, computer programs or other written, photographic, or other tangible material containing Proprietary Information, whether created by the Executive or others, which shall come into his custody or possession, shall be and are the exclusive property of the Company and are to be used by the Executive only in the performance of his duties for the Company. All such materials or copies thereof and all tangible property of the Company in the custody or possession of the Executive shall be delivered to the Company upon the earlier of (i) a request by the Company or (ii) termination of his employment. After such delivery, the Executive shall not retain any such materials or copies thereof or any such tangible property.

        (c)   The Executive agrees that his obligation not to disclose or to use information and materials of the types set forth in subsections (a) and (b) above, and his obligation to return materials and tangible property set forth in subsection (b) above, also extends to such types of information, materials and tangible property of customers of the Company or suppliers to the

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Company or other third parties who may have disclosed or entrusted the same to the Company or to the Executive.

        7.2    Developments.

        (a)   The Executive will make full and prompt disclosure to the Company of all inventions, creations, improvements, discoveries, trade secrets, secret processes, technology, know-how, copyrightable materials, methods, developments, software, and works of authorship or other creative works, whether patentable or not, which are created, made, conceived or reduced to practice by him or under his direction or jointly with others during his employment by the Company, whether or not during normal working hours or on the premises of the Company (all of which are collectively referred to in this Agreement as "Developments").

        (b)   The Executive agrees to assign and does hereby assign to the Company (or any person or entity designated by the Company) all his right, title and interest in and to all Developments and all related patents, patent applications, copyrights and copyright applications. However, this subsection (b) shall not apply to Developments that do not relate to any business or research and development conducted or planned to be conducted by the Company at the time such Development is created, made, conceived or reduced to practice and that are made and conceived by the Executive not during normal working hours, not on the Company's premises and not using the Company's tools, devices, equipment or Proprietary Information. The Executive understands that, to the extent this Agreement shall be construed in accordance with the laws of any state that precludes a requirement in an employee agreement to assign certain classes of inventions made by an employee, this subsection (b) shall be interpreted not to apply to any invention that a court rules and/or the Company agrees falls within such classes. The Executive also hereby waives all claims to moral rights in any Developments.

        (c)   The Executive agrees to cooperate fully with the Company and to take such further actions as may be necessary or desirable, both during and after his employment with the Company, with respect to the procurement, maintenance and enforcement of copyrights, patents and other intellectual property rights (both in the United States and foreign countries) relating to Developments. The Executive shall sign all papers, including, without limitation, copyright applications, patent applications, declarations, oaths, formal assignments, assignments of priority rights and powers of attorney, that the Company may deem necessary or desirable in order to protect its rights and interests in any Development. The Executive further agrees that if the Company is unable, after reasonable effort, to secure the signature of the Executive on any such papers, the Chief Executive Officer of the Company shall be entitled to execute any such papers as the agent and the attorney-in-fact of the Executive, and the Executive hereby irrevocably designates and appoints the Chief Executive Officer of the Company as his agent and attorney-in-fact to execute any such papers on his behalf and to take any and all actions as the Company may deem necessary or desirable in order to protect its rights and interests in any Development under the conditions described in this sentence.

        7.3    United States Government Obligations.    The Executive acknowledges that the Company from time to time may have agreements with other parties or with the United States Government, or agencies thereof, which impose obligations or restrictions on the Company regarding inventions made during the course of work under such agreements or regarding the confidential nature of such work. The Executive agrees to be bound by all such obligations and restrictions that are made known to the Executive and to take all action necessary to discharge the obligations of the Company under such agreements.

        7.4    Other Agreements.    The Executive hereby represents that he is not bound by the terms of any agreement with any previous employer or other party to refrain from competing, directly or

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indirectly, with the business of such previous employer or any other party. The Executive further represents that his performance of all the terms of this Agreement and the performance of his duties as an employee of the Company does not and will not breach any agreement to keep in confidence proprietary information, knowledge or data acquired by him in confidence or in trust prior to his employment with the Company and that the Executive will not disclose to the Company or induce the Company to use any confidential or proprietary information, knowledge or material belonging to any previous employer or others. The Executive further represents that his performance of all the terms of this Agreement and the performance of his duties as an employee of the Company does not and will not breach any agreement to refrain from soliciting employees, customers or suppliers of any former employer or others.

        8.    Indemnification.    The Company shall indemnify the Executive in accordance with its Certificate of Incorporation and By-Laws.

        9.    Survival.    The provisions of Sections 6, 7 and 8 shall survive the termination of this Agreement for any reason.

        10.    Notices.    Any notices delivered under this Agreement shall be deemed duly delivered three (3) business days after it is sent by registered or certified mail, return receipt requested, postage prepaid, or one (1) business day after it is sent for next-business day delivery via a reputable nationwide overnight courier service, in each case to the address of the recipient set forth in the introductory paragraph hereto. Either party may change the address to which notices are to be delivered by giving notice of such change to the other party in the manner set forth in this Section 10.

        11.    Compliance with Code Section 409A.    This Agreement is intended to comply with the provisions of Section 409A and the Agreement shall, to the extent practicable, be construed in accordance therewith. The Company makes no representation or warranty and shall have no liability to the Executive or any other person if any provisions of this Agreement are determined to constitute deferred compensation subject to Section 409A and do not satisfy an exemption from, or the conditions of, Section 409A.

        12.    Pronouns.    Whenever the context may require, any pronouns used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular forms of nouns and pronouns shall include the plural, and vice versa.

        13.    Entire Agreement.    This Agreement, together with the ERA, constitutes the entire agreement between the parties and supersedes all prior agreements and understandings, whether written or oral, relating to the subject matter of this Agreement, including the letter agreement between the Company and the Executive dated March 11, 2003.

        14.    Amendment.    This Agreement may be amended or modified only by a written instrument executed by both the Company and the Executive.

        15.    Governing Law.    This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts (without reference to the conflict of laws provisions thereof). Any action, suit or other legal proceeding arising under or relating to any provision of this Agreement shall be commenced only in a court of the Commonwealth of Massachusetts (or, if appropriate, a federal court located within the Commonwealth of Massachusetts), and the Company and the Executive each consents to the jurisdiction of such a court. The Company and the Executive each hereby irrevocably waive any right to a trial by jury in any action, suit or other legal proceeding arising under or relating to any provision of this Agreement or any other dealing between them relating to the subject matter of this transaction and the relationship that is being established.

        16.    Successors and Assigns.    This Agreement shall be binding upon and inure to the benefit of both parties and their respective successors and assigns, including any corporation with which or into

8

which the Company may be merged or which may succeed to its assets or business; provided, however, that the obligations of the Executive are personal and shall not be assigned by him.

        17.    Acknowledgment.    The Executive states and represents that he has had an opportunity to fully discuss and review the terms of this Agreement with an attorney. The Executive further states and represents that he has carefully read this Agreement, understands the contents herein, freely and voluntarily assents to all of the terms and conditions hereof, and signs his name of his own free act.

        18.    Miscellaneous.

        18.1 No delay or omission by the Company in exercising any right under this Agreement shall operate as a waiver of that or any other right. A waiver or consent given by the Company on any one occasion shall be effective only in that instance and shall not be construed as a bar to or waiver of any right on any other occasion.

        18.2 The captions of the sections of this Agreement are for convenience of reference only and in no way define, limit or affect the scope or substance of any section of this Agreement.

        18.3 In case any provision of this Agreement shall be invalid, illegal or otherwise unenforceable, the validity, legality and enforceability of the remaining provisions shall in no way be affected or impaired thereby.

        IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year set forth above.

Sepracor Inc.
By:	/s/ ADRIAN ADAMS
Title:	President and CEO
/s/ MARK H. N. CORRIGAN Mark H. N. Corrigan

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SCHEDULE A

VACATION POLICY

SEE ATTACHED POLICY

SCHEDULE B

FORM OF SEPARATION AGREEMENT AND RELEASE OF CLAIMS

        In connection with your separation from Sepracor Inc. (the "Company") on [            ], and in order to receive the benefits as set forth in the Employment Agreement (the "Agreement") between you and the Company dated [            ], 2008, this agreement must become binding between you and the Company. By signing and returning this agreement, you will be entering into a binding agreement with the Company and will be agreeing to the terms and conditions set forth in the numbered paragraphs below, including the release of claims set forth in paragraph 1. Therefore, you are advised to consult with an attorney before signing this agreement and you have been given more than twenty-one (21) days to do so. If you sign this agreement, you may change your mind and revoke your agreement during the seven (7) day period after you have signed it. If you do not so revoke, this agreement will become a binding agreement between you and the Company upon the expiration of the seven (7) day revocation period.

        The following numbered paragraphs set forth the terms and conditions which will apply if you timely sign and return this agreement and do not revoke it within the seven (7) day revocation period:

        1.     Release—In consideration of the payment of the severance benefits, which you acknowledge you would not otherwise be entitled to receive, you hereby fully, forever, irrevocably and unconditionally release, remise and discharge the Company, its officers, directors, stockholders, corporate affiliates, subsidiaries, parent companies, successors and assigns, agents and employees (each in their individual and corporate capacities) (hereinafter, the "Released Parties") from any and all claims, charges, complaints, demands, actions, causes of action, suits, rights, debts, sums of money, costs, accounts, reckonings, covenants, contracts, agreements, promises, doings, omissions, damages, executions, obligations, liabilities, and expenses (including attorneys' fees and costs), of every kind and nature which you ever had or now have against the Released Parties, including, but not limited to, those claims arising out of your employment with and/or separation from the Company, including, but not limited to, all claims under Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e et seq., the Age Discrimination in Employment Act, 29 U.S.C. § 621 et seq., the Americans With Disabilities Act of 1990, 42 U.S.C. § 12101 et seq., the Family and Medical Leave Act, 29 U.S.C. § 2601 et seq., the Worker Adjustment and Retraining Notification Act ("WARN"), 29 U.S.C. § 2101 et seq., Section 806 of the Corporate and Criminal Fraud Accountability Act of 2002, 18 U.S.C. § 1514(A), the Rehabilitation Act of 1973, 29 U.S.C. § 701 et seq., Executive Order 11246, Executive Order 11141, the Fair Credit Reporting Act, 15 U.S.C. § 1681 et seq., the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq., the Massachusetts Fair Employment Practices Act., M.G.L. c. 151B, § 1 et seq., the Massachusetts Civil Rights Act, M.G.L. c. 12, §§ 11H and 11I, the Massachusetts Equal Rights Act, M.G.L. c. 93, § 102 and M.G.L. c. 214, § 1C, the Massachusetts Labor and Industries Act, M.G.L. c. 149, § 1 et seq., the Massachusetts Privacy Act, M.G.L. c. 214, § 1B, and the Massachusetts Maternity Leave Act, M.G.L. c. 149, § 105D, all as amended; all common law claims including, but not limited to, actions in tort, defamation and breach of contract; all claims to any non-vested ownership interest in the Company, contractual or otherwise, including, but not limited to, claims to stock or stock options; and any claim or damage arising out of your employment with or separation from the Company (including a claim for retaliation) under any common law theory or any federal, state or local statute or ordinance not expressly referenced above. Notwithstanding the foregoing, the release set forth in this Section 1 shall not apply to (a) your rights under the Agreement, (b) any vested equity interest in the Company, including vested stock options or (c) the rights you have to be indemnified and defended by the Company pursuant to the terms of the Company's Restated Certificate of Incorporation, as amended, or other organizing documents, and the rights that you have under, or with respect to, the Company's Directors and Officers liability insurance policies with respect to conduct or events occurring during, or relating to, your employment by, or while serving as an officer or director of, the Company, Without limiting the generality of the foregoing, the Company shall continue to cover you under its Directors and Officers liability insurance policies following the

1

Separation Date in substantially the same amount and on substantially the same terms as the Company covers its other former officers and directors.

        2.     On-Going Obligations—You acknowledge and reaffirm your obligation to keep confidential and not to disclose any and all non-public information concerning the Company which you acquired during the course of your employment with the Company, including, but not limited to, any non-public information concerning the Company's business affairs, business prospects and financial condition, as is stated more fully in the Non-Disclosure and Invention Agreement, which you executed during or prior to your employment with the Company (the "Non-Disclosure Agreement"). You further acknowledge and reaffirm your obligations under the Agreement for the benefit of the Company.

        3.     Return of Company Property—You confirm that you have returned to the Company all keys, files, records (and copies thereof), equipment (including, but not limited to, computer hardware, software and printers, wireless handheld devices, cellular phones, pagers, etc.), Company identification, Company vehicles and any other Company owned property in your possession or control and have left intact all electronic Company documents, including but not limited to, those that you developed or helped develop during your employment. You further confirm that you have cancelled all accounts for your benefit, if any, in the Company's name, including but not limited to, credit cards, telephone charge cards, cellular phone and/or pager accounts and computer accounts.

        4.     Business Expenses and Compensation—You acknowledge that you have been reimbursed by the Company for all business expenses incurred in conjunction with your employment with the Company and that no other reimbursements are owed to you. You further acknowledge that you have received payment in full for all services rendered in conjunction with your employment by the Company and that no other compensation is owed to you except as provided in the Agreement.

        5.     Non-Disparagement—You understand and agree that, as a condition for payment to you of the consideration herein described and described in the Agreement, you shall not make any false, disparaging or derogatory statements to any media outlet, industry group, financial institution or current or former employee, consultant, client or customer of the Company regarding the Company or any of its directors, officers, employees, agents or representatives or about the Company's business affairs and financial condition; provided, however, that nothing herein shall prevent you from making truthful disclosures to any governmental entity or in any litigation or arbitration. The Company agrees not to make any false, disparaging or derogatory statements about you to any media outlet, industry group, financial institution, or current or former employee, consultant, client, or customer; provided, however, that nothing herein shall prevent the Company from making truthful disclosures to any governmental entity or in any litigation or arbitration. In the event that any inquiries are directed to the Company's Human Resources Office regarding you from prospective employers, the Company will explain its neutral reference policy, confirm only the fact of your former employment with the Company, starting and ending dates, and your job title in the last position held.

        6.     Amendment—This agreement shall be binding upon the parties and may not be modified in any manner, except by an instrument in writing of concurrent or subsequent date signed by duly authorized representatives of the parties hereto. This agreement is binding upon and shall inure to the benefit of the parties and their respective agents, assigns, heirs, executors, successors and administrators.

        7.     Waiver of Rights—No delay or omission by the Company or you in exercising any right under this agreement shall operate as a waiver of that or any other right. A waiver or consent given by the Company or you on any one occasion shall be effective only in that instance and shall not be construed as a bar or waiver of any right on any other occasion.

        8.     Validity—Should any provision of this agreement be declared or be determined by any court of competent jurisdiction to be illegal or invalid, the validity of the remaining parts, terms or provisions shall not be affected thereby and said illegal or invalid part, term or provision shall be deemed not to be a part of this agreement.

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        9.     Tax Provision—In connection with the severance benefits provided to you pursuant to this agreement and the Agreement, the Company shall withhold and remit to the tax authorities the amounts required under applicable law, and you shall be responsible for all applicable taxes with respect to such severance benefits under applicable law. You acknowledge that you are not relying upon advice or representation of the Company with respect to the tax treatment of any of the severance benefits.

        10.   Nature of Agreement—You understand and agree that this agreement, together with the Agreement, is a severance agreement and does not constitute an admission of liability or wrongdoing on the part of the Company.

        11.   Acknowledgments—You acknowledge that you have been given at least twenty-one (21) days to consider this agreement and that the Company advised you to consult with an attorney of your own choosing prior to signing this agreement. You understand that you may revoke this agreement for a period of seven (7) days after you sign this agreement, and the agreement shall not be effective or enforceable until the expiration of this seven (7) day revocation period. You understand and agree that by entering into this agreement you are waiving any and all rights or claims you might have under The Age Discrimination in Employment Act, as amended by The Older Workers Benefit Protection Act, and that you have received consideration beyond that to which you were previously entitled.

        12.   Voluntary Assent—You affirm that, other than as contained in the Agreement, no other promises or agreements of any kind have been made to or with you by any person or entity whatsoever to cause you to sign this agreement, and that you fully understand the meaning and intent of this agreement. You state and represent that you have had an opportunity to fully discuss and review the terms of this agreement with an attorney. You further state and represent that you have carefully read this agreement, understand the contents herein, freely and voluntarily assent to all of the terms and conditions hereof, and sign your name of your own free act.

        13.   Applicable Law—This agreement shall be interpreted and construed by the laws of the Commonwealth of Massachusetts, without regard to conflict of laws provisions. You hereby irrevocably submit to and acknowledge and recognize the jurisdiction of the courts of the Commonwealth of Massachusetts, or if appropriate, a federal court located in Massachusetts (which courts, for purposes of this agreement, are the only courts of competent jurisdiction), over any suit, action or other proceeding arising out of, under or in connection with this agreement or the subject matter hereof.

        14.   Entire Agreement—This agreement, together with the Agreement, contains and constitutes the entire understanding and agreement between the parties hereto with respect to your severance benefits and the settlement of claims against the Company and cancels all previous oral and written negotiations, agreements, commitments and writings in connection therewith. Nothing in this paragraph, however, shall modify, cancel or supersede your obligations set forth in paragraph 2 herein.

Sepracor Inc.

By:

Name:
Title:

        I hereby agree to the terms and conditions set forth above. I have been given at least twenty-one (21) days to consider this agreement and I have chosen to execute this on the date below. I intend that this agreement become a binding agreement between me and the Company if I do not revoke my acceptance in seven (7) days by notifying                                    in writing.

	Date
Name

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Exhibit 10.8

SCHEDULE A VACATION POLICY
SCHEDULE B FORM OF SEPARATION AGREEMENT AND RELEASE OF CLAIMS

EX-10.9

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Exhibit 10.9

SEPRACOR INC.

2000 STOCK INCENTIVE PLAN

1.     Purpose

        The purpose of this 2000 Stock Incentive Plan (the "Plan") of Sepracor Inc., a Delaware corporation (the "Company"), is to advance the interests of the Company's stockholders by enhancing the Company's ability to attract, retain and motivate persons who make (or are expected to make) important contributions to the Company by providing such persons with equity ownership opportunities and performance-based incentives and thereby better aligning the interests of such persons with those of the Company's stockholders. Except where the context otherwise requires, the term "Company" shall include any of the Company's present or future subsidiary corporations as defined in Section 424(f) of the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder (the "Code") and any other business venture (including, without limitation, joint venture or limited liability company) in which the Company has a significant interest, as determined by the Board of Directors of the Company (the "Board").

2.     Eligibility

        All of the Company's employees, officers, directors, consultants and advisors (and any individuals who have accepted an offer for employment) are eligible to be granted options, restricted stock awards, or other stock-based awards (each, an "Award") under the Plan. Each person who has been granted an Award under the Plan shall be deemed a "Participant".

3.     Administration, Delegation

        (a)    Administration by Board of Directors.    The Plan will be administered by the Board. The Board shall have authority to grant Awards and to adopt, amend and repeal such administrative rules, guidelines and practices relating to the Plan as it shall deem advisable. The Board may correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Award in the manner and to the extent it shall deem expedient to carry the Plan into effect and it shall be the sole and final judge of such expediency. All decisions by the Board shall be made in the Board's sole discretion and shall be final and binding on all persons having or claiming any interest in the Plan or in any Award. No director or person acting pursuant to the authority delegated by the Board shall be liable for any action or determination relating to or under the Plan made in good faith.

        (b)    Appointment of Committees.    To the extent permitted by applicable law, the Board may delegate any or all of its powers under the Plan to one or more committees or subcommittees of the Board (a "Committee"). All references in the Plan to the "Board" shall mean the Board or a Committee of the Board referred to in Section 3(b) to the extent that the Board's powers or authority under the Plan have been delegated to such Committee.

4.     Stock Available for Awards

        (a)    Number of Shares.    Subject to adjustment under Section 8, Awards may be made under the Plan for up to 2,500,000 shares of common stock, $.10 par value per share, of the Company (the "Common Stock"). If any Award expires or is terminated, surrendered or canceled without having been fully exercised or is forfeited in whole or in part or results in any Common Stock not being issued, the unused Common Stock covered by such Award shall again be available for the grant of Awards under the Plan, subject, however, in the case of Incentive Stock Options (as hereinafter defined), to any

1

limitation required under the Code. Shares issued under the Plan may consist in whole or in part of authorized but unissued shares or treasury shares.

        (b)    Per-Participant Limit.    Subject to adjustment under Section 8, for Awards granted after the Common Stock is registered under the Securities Exchange Act of 1934 (the "Exchange Act"), the maximum number of shares of Common Stock with respect to which Awards may be granted to any Participant under the Plan shall be 500,000 per calendar year. The per-Participant limit described in this Section 4(b) shall be construed and applied consistently with Section 162(m) of the Code ("Section 162(m)").

5.     Stock Options

        (a)    General.    The Board may grant options to purchase Common Stock (each, an "Option") and determine the number of shares of Common Stock to be covered by each Option, the exercise price of each Option and the conditions and limitations applicable to the exercise of each Option, including conditions relating to applicable federal or state securities laws, as it considers necessary or advisable. An Option which is not intended to be an Incentive Stock Option (as hereinafter defined) shall be designated a "Nonstatutory Stock Option".

        (b)    Incentive Stock Options.    An Option that the Board intends to be an "incentive stock option" as defined in Section 422 of the Code (an "Incentive Stock Option") shall only be granted to employees of the Company and shall be subject to and shall be construed consistently with the requirements of Section 422 of the Code. The Company shall have no liability to a Participant, or any other party, if an Option (or any part thereof) which is intended to be an Incentive Stock Option is not an Incentive Stock Option.

        (c)    Exercise Price.    The Board shall establish the exercise price at the time each Option is granted and specify it in the applicable option agreement, provided, however, that the exercise price shall not be less than 100% of the fair market value of the Common Stock, as determined by the Board, at the time the Option is granted.

        (d)    Duration of Options.    Each Option shall be exercisable at such times and subject to such terms and conditions as the Board may specify in the applicable option agreement, provided however, that no Option will be granted for a term in excess of ten years.

        (e)    Exercise of Option.    Options may be exercised by delivery to the Company of a written notice of exercise signed by the proper person or by any other form of notice (including electronic notice) approved by the Board together with payment in full as specified in Section 5(f) for the number of shares for which the Option is exercised.

        (f)    Payment Upon Exercise.    Common Stock purchased upon the exercise of an Option granted under the Plan shall be paid for as follows:

        (1)   in cash or by check, payable to the order of the Company;

        (2)   except as the Board may, in its sole discretion, otherwise provide in an option agreement, by (i) delivery of an irrevocable and unconditional undertaking by a creditworthy broker to deliver promptly to the Company sufficient funds to pay the exercise price or (ii) delivery by the Participant to the Company of a copy of irrevocable and unconditional instructions to a creditworthy broker to deliver promptly to the Company cash or a check sufficient to pay the exercise price;

        (3)   when the Common Stock is registered under the Exchange Act, by delivery of shares of Common Stock owned by the Participant valued at their fair market value as determined by (or in a manner approved by) the Board in good faith ("Fair Market Value"), provided (i) such method

2

of payment is then permitted under applicable law and (ii) such Common Stock was owned by the Participant at least six months prior to such delivery;

        (4)   to the extent permitted by the Board, in its sole discretion by (i) delivery of a promissory note of the Participant to the Company on terms determined by the Board, or (ii) payment of such other lawful consideration as the Board may determine; or

        (5)   by any combination of the above permitted forms of payment.

        (g)    Substitute Options.    In connection with a merger or consolidation of an entity with the Company or the acquisition by the Company of property or stock of an entity, the Board may grant Options in substitution for any options or other stock or stock-based awards granted by such entity or an affiliate thereof. Substitute Options may be granted on such terms as the Board deems appropriate in the circumstances, notwithstanding any limitations on Options contained in the other sections of this Section 5.

6.     Restricted Stock

        (a)    Grants.    The Board may grant Awards entitling recipients to acquire shares of Common Stock, subject to the right of the Company to repurchase all or part of such shares at their issue price or other stated or formula price (or to require forfeiture of such shares if issued at no cost) from the recipient in the event that conditions specified by the Board in the applicable Award are not satisfied prior to the end of the applicable restriction period or periods established by the Board for such Award (each, a "Restricted Stock Award").

        (b)    Terms and Conditions.    The Board shall determine the terms and conditions of any such Restricted Stock Award, including the conditions for repurchase (or forfeiture) and the issue price, if any. Any stock certificates issued in respect of a Restricted Stock Award shall be registered in the name of the Participant and, unless otherwise determined by the Board, deposited by the Participant, together with a stock power endorsed in blank, with the Company (or its designee). At the expiration of the applicable restriction periods, the Company (or such designee) shall deliver the certificates no longer subject to such restrictions to the Participant or if the Participant has died, to the beneficiary designated, in a manner determined by the Board, by a Participant to receive amounts due or exercise rights of the Participant in the event of the Participant's death (the "Designated Beneficiary"). In the absence of an effective designation by a Participant, Designated Beneficiary shall mean the Participant's estate.

7.     Other Stock-Based Awards

        The Board shall have the right to grant other Awards based upon the Common Stock having such terms and conditions as the Board may determine, including the grant of shares based upon certain conditions, the grant of securities convertible into Common Stock and the grant of stock appreciation rights.

8.     Adjustments for Changes in Common Stock and Certain Other Events

        (a)    Changes in Capitalization.    In the event of any stock split, reverse stock split, stock dividend, recapitalization, combination of shares, reclassification of shares, spin-off or other similar change in capitalization or event, or any distribution to holders of Common Stock other than a normal cash dividend, (i) the number and class of securities available under this Plan, (ii) the per-Participant limit set forth in Section 4(b), (iii) the number and class of securities and exercise price per share subject to each outstanding Option, (iv) the repurchase price per share subject to each outstanding Restricted Stock Award, and (v) the terms of each other outstanding Award shall be appropriately adjusted by the Company (or substituted Awards may be made, if applicable) to the extent the Board shall determine, in good faith, that such an adjustment (or substitution) is necessary and appropriate. If this Section 8(a) applies and Section 8(c) also applies to any event, Section 8(c) shall be applicable to such event, and this Section 8(a) shall not be applicable.

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        (b)    Liquidation or Dissolution.    In the event of a proposed liquidation or dissolution of the Company, the Board shall upon written notice to the Participants provide that all then unexercised Options will (i) become exercisable in full as of a specified time at least 10 business days prior to the effective date of such liquidation or dissolution and (ii) terminate effective upon such liquidation or dissolution, except to the extent exercised before such effective date. The Board may specify the effect of a liquidation or dissolution on any Restricted Stock Award or other Award granted under the Plan at the time of the grant of such Award.

        (c)    Acquisition and Change in Control Events

        (1)    Definitions

        (a)   An "Acquisition Event" shall mean:

(i)

any merger or consolidation of the Company with or into another entity as a result of which the Common Stock is converted into or exchanged for the right to receive cash, securities or other property; or



(ii)

any exchange of shares of the Company for cash, securities or other property pursuant to a statutory share exchange transaction.

        (b)   A "Change in Control Event" shall mean:

(i)

the acquisition by an individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership of any capital stock of the Company if, after such acquisition, such Person beneficially owns (within the meaning of Rule 13d-3 promulgated under the Exchange Act) 30% or more of either (x) the then-outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (y) the combined voting power of the then-outstanding securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (i), the following acquisitions shall not constitute a Change in Control Event: (A) any acquisition directly from the Company (excluding an acquisition pursuant to the exercise, conversion or exchange of any security exercisable for, convertible into or exchangeable for common stock or voting securities of the Company, unless the Person exercising, converting or exchanging such security acquired such security directly from the Company or an underwriter or agent of the Company), (B) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (C) any acquisition by any corporation pursuant to a Business Combination (as defined below) which complies with clauses (x) and (y) of subsection (iii) of this definition; or



(ii)

such time as the Continuing Directors (as defined below) do not constitute a majority of the Board (or, if applicable, the Board of Directors of a successor corporation to the Company), where the term "Continuing Director" means at any date a member of the Board (x) who was a member of the Board on the date of the initial adoption of this Plan by the Board or (y) who was nominated or elected subsequent to such date by at least a majority of the directors who were Continuing Directors at the time of such nomination or election or whose election to the Board was recommended or endorsed by at least a majority of the directors who were Continuing Directors at the time of such nomination or election; provided, however, that there shall be excluded from this clause (y) any individual whose initial assumption of office occurred as a result of an actual or

4

threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents, by or on behalf of a person other than the Board; or

(iii)

the consummation of a merger, consolidation, reorganization, recapitalization or statutory share exchange involving the Company or a sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), unless, immediately following such Business Combination, each of the following two conditions is satisfied: (x) all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the then-outstanding shares of common stock and the combined voting power of the then-outstanding securities entitled to vote generally in the election of directors, respectively, of the resulting or acquiring corporation in such Business Combination (which shall include, without limitation, a corporation which as a result of such transaction owns the Company or substantially all of the Company's assets either directly or through one or more subsidiaries) (such resulting or acquiring corporation is referred to herein as the "Acquiring Corporation") in substantially the same proportions as their ownership of the Outstanding Company Common Stock and Outstanding Company Voting Securities, respectively, immediately prior to such Business Combination and (y) no Person (excluding the Acquiring Corporation or any employee benefit plan (or related trust) maintained or sponsored by the Company or by the Acquiring Corporation) beneficially owns, directly or indirectly, 30% or more of the then-outstanding shares of common stock of the Acquiring Corporation, or of the combined voting power of the then-outstanding securities of such corporation entitled to vote generally in the election of directors (except to the extent that such ownership existed prior to the Business Combination).

        (2)    Effect on Options

(a)

Acquisition Event.    Upon the occurrence of an Acquisition Event (regardless of whether such event also constitutes a Change in Control Event), or the execution by the Company of any agreement with respect to an Acquisition Event (regardless of whether such event will result in a Change in Control Event), the Board shall provide that all outstanding Options shall be assumed, or equivalent options shall be substituted, by the acquiring or succeeding corporation (or an affiliate thereof); provided that if such Acquisition Event also constitutes a Change in Control Event, except to the extent specifically provided to the contrary in the instrument evidencing any Option or any other agreement between a Participant and the Company, such assumed or substituted options shall be immediately exercisable in full upon the occurrence of such Acquisition Event. For purposes hereof, an Option shall be considered to be assumed if, following consummation of the Acquisition Event, the Option confers the right to purchase, for each share of Common Stock subject to the Option immediately prior to the consummation of the Acquisition Event, the consideration (whether cash, securities or other property) received as a result of the Acquisition Event by holders of Common Stock for each share of Common Stock held immediately prior to the consummation of the Acquisition Event (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding shares of Common Stock); provided, however, that if the consideration received as a result of the Acquisition Event is not

5

solely common stock of the acquiring or succeeding corporation (or an affiliate thereof), the Company may, with the consent of the acquiring or succeeding corporation, provide for the consideration to be received upon the exercise of Options to consist solely of common stock of the acquiring or succeeding corporation (or an affiliate thereof) equivalent in fair market value to the per share consideration received by holders of outstanding shares of Common Stock as a result of the Acquisition Event.

        Notwithstanding the foregoing, if the acquiring or succeeding corporation (or an affiliate thereof) does not agree to assume, or substitute for, such Options, then the Board shall, upon written notice to the Participants, provide that all then unexercised Options will become exercisable in full as of a specified time prior to the Acquisition Event and will terminate immediately prior to the consummation of such Acquisition Event, except to the extent exercised by the Participants before the consummation of such Acquisition Event; provided, however, in the event of an Acquisition Event under the terms of which holders of Common Stock will receive upon consummation thereof a cash payment for each share of Common Stock surrendered pursuant to such Acquisition Event (the "Acquisition Price"), then the Board may instead provide that all outstanding Options shall terminate upon consummation of such Acquisition Event and that each Participant shall receive, in exchange therefor, a cash payment equal to the amount (if any) by which (A) the Acquisition Price multiplied by the number of shares of Common Stock subject to such outstanding Options (whether or not then exercisable), exceeds (B) the aggregate exercise price of such Options.

(b)

Change in Control Event that is not an Acquisition Event.    Upon the occurrence of a Change in Control Event that does not also constitute an Acquisition Event, except to the extent specifically provided to the contrary in the instrument evidencing any Option or any other agreement between a Participant and the Company, all Options then-outstanding shall automatically become immediately exercisable in full.

        (3)    Effect on Restricted Stock Awards

(a)

Acquisition Event that is not a Change in Control Event.    Upon the occurrence of an Acquisition Event that is not a Change in Control Event, the repurchase and other rights of the Company under each outstanding Restricted Stock Award shall inure to the benefit of the Company's successor and shall apply to the cash, securities or other property which the Common Stock was converted into or exchanged for pursuant to such Acquisition Event in the same manner and to the same extent as they applied to the Common Stock subject to such Restricted Stock Award.

6

(b)

Change in Control Event.    Upon the occurrence of a Change in Control Event (regardless of whether such event also constitutes an Acquisition Event), except to the extent specifically provided to the contrary in the instrument evidencing any Restricted Stock Award or any other agreement between a Participant and the Company, all restrictions and conditions on all Restricted Stock Awards then-outstanding shall automatically be deemed terminated or satisfied.

        (4)    Effect on Other Awards

(a)

Acquisition Event that is not a Change in Control Event.    The Board shall specify the effect of an Acquisition Event that is not a Change in Control Event on any other Award granted under the Plan at the time of the grant of such Award.



(b)

Change in Control Event.    Upon the occurrence of a Change in Control Event (regardless of whether such event also constitutes an Acquisition Event), except to the extent specifically provided to the contrary in the instrument evidencing any other Award or any other agreement between a Participant and the Company, all other Awards shall become exercisable, realizable or vested in full, or shall be free of all conditions or restrictions, as applicable to each such Award.

        (5)    Limitations.    Notwithstanding the foregoing provisions of this Section 8(c), if the Change in Control Event is intended to be accounted for as a "pooling of interests" for financial accounting purposes, and if the acceleration to be effected by the foregoing provisions of this Section 8(c) would preclude accounting for the Change in Control Event as a "pooling of interests" for financial accounting purposes, then no such acceleration shall occur upon the Change in Control Event.

9.     General Provisions Applicable to Awards

        (a)    Transferability of Awards.    Except as the Board may otherwise determine or provide in an Award, Awards shall not be sold, assigned, transferred, pledged or otherwise encumbered by the person to whom they are granted, either voluntarily or by operation of law, except by will or the laws of descent and distribution, and, during the life of the Participant, shall be exercisable only by the Participant. References to a Participant, to the extent relevant in the context, shall include references to authorized transferees.

        (b)    Documentation.    Each Award shall be evidenced by a written instrument in such form as the Board shall determine. Each Award may contain terms and conditions in addition to those set forth in the Plan.

        (c)    Board Discretion.    Except as otherwise provided by the Plan, each Award may be made alone or in addition or in relation to any other Award. The terms of each Award need not be identical, and the Board need not treat Participants uniformly.

        (d)    Termination of Status.    The Board shall determine the effect on an Award of the disability, death, retirement, authorized leave of absence or other change in the employment or other status of a Participant and the extent to which, and the period during which, the Participant, the Participant's legal representative, conservator, guardian or Designated Beneficiary may exercise rights under the Award.

        (e)    Withholding.    Each Participant shall pay to the Company, or make provision satisfactory to the Board for payment of, any taxes required by law to be withheld in connection with Awards to such Participant no later than the date of the event creating the tax liability. Except as the Board may otherwise provide in an Award, when the Common Stock is registered under the Exchange Act, Participants may, to the extent then permitted under applicable law, satisfy such tax obligations in whole or in part by delivery of shares of Common Stock, including shares retained from the Award

7

creating the tax obligation, valued at their Fair Market Value. The Company may, to the extent permitted by law, deduct any such tax obligations from any payment of any kind otherwise due to a Participant.

        (f)    Amendment of Award.    The Board may amend, modify or terminate any outstanding Award, including but not limited to, substituting therefor another Award of the same or a different type, changing the date of exercise or realization, and converting an Incentive Stock Option to a Nonstatutory Stock Option, provided that the Participant's consent to such action shall be required unless the Board determines that the action, taking into account any related action, would not materially and adversely affect the Participant.

        (g)    Conditions on Delivery of Stock.    The Company will not be obligated to deliver any shares of Common Stock pursuant to the Plan or to remove restrictions from shares previously delivered under the Plan until (i) all conditions of the Award have been met or removed to the satisfaction of the Company, (ii) in the opinion of the Company's counsel, all other legal matters in connection with the issuance and delivery of such shares have been satisfied, including any applicable securities laws and any applicable stock exchange or stock market rules and regulations, and (iii) the Participant has executed and delivered to the Company such representations or agreements as the Company may consider appropriate to satisfy the requirements of any applicable laws, rules or regulations.

        (h)    Acceleration.    The Board may at any time provide that any Options shall become immediately exercisable in full or in part, that any Restricted Stock Awards shall be free of restrictions in full or in part or that any other Awards may become exercisable in full or in part or free of some or all restrictions or conditions, or otherwise realizable in full or in part, as the case may be.

10.   Miscellaneous

        (a)    No Right To Employment or Other Status.    No person shall have any claim or right to be granted an Award, and the grant of an Award shall not be construed as giving a Participant the right to continued employment or any other relationship with the Company. The Company expressly reserves the right at any time to dismiss or otherwise terminate its relationship with a Participant free from any liability or claim under the Plan, except as expressly provided in the applicable Award.

        (b)    No Rights As Stockholder.    Subject to the provisions of the applicable Award, no Participant or Designated Beneficiary shall have any rights as a stockholder with respect to any shares of Common Stock to be distributed with respect to an Award until becoming the record holder of such shares. Notwithstanding the foregoing, in the event the Company effects a split of the Common Stock by means of a stock dividend and the exercise price of and the number of shares subject to such Option are adjusted as of the date of the distribution of the dividend (rather than as of the record date for such dividend), then an optionee who exercises an Option between the record date and the distribution date for such stock dividend shall be entitled to receive, on the distribution date, the stock dividend with respect to the shares of Common Stock acquired upon such Option exercise, notwithstanding the fact that such shares were not outstanding as of the close of business on the record date for such stock dividend.

        (c)    Effective Date and Term of Plan.    The Plan shall become effective on the date on which it is adopted by the Board, but no Award granted to a Participant that is intended to comply with Section 162(m) shall become exercisable, vested or realizable, as applicable to such Award, unless and until the Plan has been approved by the Company's stockholders to the extent stockholder approval is required by Section 162(m) in the manner required under Section 162(m) (including the vote required under Section 162(m)). No Awards shall be granted under the Plan after the completion of ten years from the earlier of (i) the date on which the Plan was adopted by the Board or (ii) the date the Plan was approved by the Company's stockholders, but Awards previously granted may extend beyond that date.

8

        (d)    Amendment of Plan.    The Board may amend, suspend or terminate the Plan or any portion thereof at any time, provided that to the extent required by Section 162(m), no Award granted to a Participant that is intended to comply with Section 162(m) after the date of such amendment shall become exercisable, realizable or vested, as applicable to such Award, unless and until such amendment shall have been approved by the Company's stockholders as required by Section 162(m) (including the vote required under Section 162(m)).

        (e)    Governing Law.    The provisions of the Plan and all Awards made hereunder shall be governed by and interpreted in accordance with the laws of the State of Delaware, without regard to any applicable conflicts of law.

Adopted by the Board of Directors on February 24, 2000

Adopted by the Stockholders on May 24, 2000

9

AMENDMENT NO 1. TO
2000 STOCK INCENTIVE PLAN
OF
SEPRACOR INC.

        The 2000 Stock Incentive Plan (the "Plan") of Sepracor Inc. be, and hereby is, amended as follows:

        1.     Section 4, paragraph (a) is deleted in its entirety and the following is substituted in its place:

        "(a)    Number of Shares.    Subject to adjustment under Section 8, Awards may be made under the Plan for up to 4,000,000 shares of common stock, $.10 par value per share, of the Company (the "Common Stock"). If any Award expires or is terminated, surrendered or cancelled without having been fully exercised or is forfeited in whole or in part or results in any Common Stock not being issued, the unused Common Stock covered by such Award shall again be available for the grant of Awards under the Plan, subject, however, in the case of Incentive Stock Options (as hereinafter defined), to any limitation required under the Code. Shares issued under the Plan may consist in whole or in part of authorized but unissued shares or treasury shares."

Adopted by the Board of Directors on February 21, 2002

Adopted by the Stockholders on May 22, 2002

10

AMENDMENT NO 2. TO
2000 STOCK INCENTIVE PLAN
OF
SEPRACOR INC.

        The 2000 Stock Incentive Plan (the "Plan") of Sepracor Inc. be, and hereby is, amended as follows:

        1.     Section 4, paragraph (a) is deleted in its entirety and the following is substituted in its place:

        "(a)    Number of Shares.    Subject to adjustment under Section 8, Awards may be made under the Plan for up to 5,5000,000 shares of common stock, $.10 par value per share, of the Company (the "Common Stock"). If any Award expires or is terminated, surrendered or cancelled without having been fully exercised or is forfeited in whole or in part or results in any Common Stock not being issued, the unused Common Stock covered by such Award shall again be available for the grant of Awards under the Plan, subject, however, in the case of Incentive Stock Options (as hereinafter defined), to any limitation required under the Code. Shares issued under the Plan may consist in whole or in part of authorized but unissued shares or treasury shares."

Adopted by the Board of Directors on February 20, 2003

Adopted by the Stockholders on May 22, 2003

11

AMENDMENT NO 3. TO
2000 STOCK INCENTIVE PLAN
OF
SEPRACOR INC.

        The 2000 Stock Incentive Plan (the "Plan"), as amended, of Sepracor Inc. be, and hereby is, further amended as follows:

        1.     Section 4, paragraph (a) is deleted in its entirety and the following is substituted in its place:

        "(a)    Number of Shares.    Subject to adjustment under Section 8, Awards may be made under the Plan for up to 8,000,000 shares of common stock, $.10 par value per share, of the Company (the "Common Stock"). If any Award expires or is terminated, surrendered or cancelled without having been fully exercised or is forfeited in whole or in part or results in any Common Stock not being issued, the unused Common Stock covered by such Award shall again be available for the grant of Awards under the Plan, subject, however, in the case of Incentive Stock Options (as hereinafter defined), to any limitation required under the Code. Shares issued under the Plan may consist in whole or in part of authorized but unissued shares or treasury shares."

Adopted by the Board of Directors on February 11, 2004.

Adopted by the Stockholders on May 19, 2004.

12

AMENDMENT NO. 4 TO
2000 STOCK INCENTIVE PLAN
OF
SEPRACOR INC.

        The 2000 Stock Incentive Plan (the "Plan"), as amended, of Sepracor Inc. be, and hereby is, further amended as follows:

        1.     Section 4, paragraph (a) is deleted in its entirety and the following is substituted in its place:

        "(a)    Number of Shares.    Subject to adjustment under Section 8, Awards may be made under the Plan for up to 9,500,000 shares of common stock, $.10 par value per share, of the Company (the "Common Stock"). If any Award expires or is terminated, surrendered or cancelled without having been fully exercised or is forfeited in whole or in part or results in any Common Stock not being issued, the unused Common Stock covered by such Award shall again be available for the grant of Awards under the Plan, subject, however, in the case of Incentive Stock Options (as hereinafter defined), to any limitation required under the Code. Shares issued under the Plan may consist in whole or in part of authorized but unissued shares or treasury shares."

Adopted by the Board of Directors on April 1, 2005.

Adopted by the Stockholders on May 19, 2005.

13

AMENDMENT NO. 5 TO
2000 STOCK INCENTIVE PLAN
OF
SEPRACOR INC.

        The 2000 Stock Incentive Plan (the "Plan") of Sepracor Inc. be and hereby is, amended as follows:

1.

The following Section 5(h) is hereby added:



(h)

Limitation on Repricing.    Unless such action is approved by the Company's stockholders: (i) no outstanding Option granted under the Plan may be amended to provide an exercise price per share that is lower than the then-current exercise price per share of such outstanding Option (other than adjustments pursuant to Section 8), and (ii) the Board may not cancel any outstanding option (whether or not granted under the Plan) and grant in substitution therefor new Awards under the Plan covering the same or a different number of shares of Common Stock and having an exercise price per share lower than the then-current exercise price per share of the cancelled Option.



2.

Section 9(f) is hereby deleted in its entirety and replaced with the following:



(f)

Amendment of Plan.    Except as prohibited by Section 5(h), the Board may amend, modify or terminate any outstanding Award, including but not limited to, substituting therefore another Award of the same or a different type, changing the date of exercise or realization, and converting an Incentive Stock Option to a Non-Statutory Stock Option, provided that the Participant's consent to such action shall be required unless the Board determines that the action, taking into account any related action, would not materially and adversely affect the Participant.

Adopted by the Board of Directors on May 13, 2005

14

AMENDMENT NO. 6 TO
2000 STOCK INCENTIVE PLAN
OF
SEPRACOR INC.

        The 2000 Stock Incentive Plan (the "Plan") of Sepracor Inc. be and hereby is, amended as follows:

        1.     Section 4, paragraph (a) is deleted in its entirety and the following is substituted in its place:

        "(a)    Number of Shares.    Subject to adjustment under Section 8, Awards may be made under the Plan for up to 11,500,000 shares of common stock, $.10 par value per share, of the Company (the "Common Stock"). If any Award expires or is terminated, surrendered or cancelled without having been fully exercised or is forfeited in whole or in part or results in any Common Stock not being issued, the unused Common Stock covered by such Award shall again be available for the grant of Awards under the Plan, subject, however, in the case of Incentive Stock Options (as hereinafter defined), to any limitation required under the Code. Shares issued under the Plan may consist in whole or in part of authorized but unissued shares or treasury shares."

Adopted by the Board of Directors on April 5, 2006.

Adopted by the Stockholders on May 18, 2006.

15

AMENDMENT NO. 7 TO
2000 STOCK INCENTIVE PLAN
OF
SEPRACOR INC.

        The 2000 Stock Incentive Plan (the "Plan"), as amended, of Sepracor Inc. be, and hereby is, further amended as follows:

        1.     Section 4, paragraph (a) is deleted in its entirety and the following is substituted in its place:

        "(a)    Number of Shares.    Subject to adjustment under Section 8, Awards may be made under the Plan for up to 13,500,000 shares of common stock, $.10 par value per share, of the Company (the "Common Stock"). If any Award expires or is terminated, surrendered or cancelled without having been fully exercised or is forfeited in whole or in part or results in any Common Stock not being issued, the unused Common Stock covered by such Award shall again be available for the grant of Awards under the Plan, subject, however, in the case of Incentive Stock Options (as hereinafter defined), to any limitation required under the Code. Shares issued under the Plan may consist in whole or in part of authorized but unissued shares or treasury shares."

Adopted by the Board of Directors on March 8, 2007.

Adopted by the Stockholders on May 15, 2007.

16

AMENDMENT NO. 8 TO
2000 STOCK INCENTIVE PLAN
OF
SEPRACOR INC

        The 2000 Stock Incentive Plan (the "Plan") of Sepracor Inc. be, and hereby is, amended as follows:

        1.     Section 4, paragraph (a) is hereby deleted in its entirety and the following is substituted in its place:

        "(a)    Number of Shares; Share Counting.

        (1)Authorized Number of Shares.    Subject to adjustment under Section 8, Awards may be made under the Plan for up to 15,000,000 shares of common stock, $.10 par value per share, of the Company (the "Common Stock").

        (2)Share Counting.    For purposes of counting the number of shares available for the grant of Awards under the Plan and under the sublimits contained in Sections 4(b), (i) all shares of Common Stock covered by stock appreciation rights ("SARs") shall be counted against the number of shares available for the grant of Awards; provided, however, that SARs that may be settled in cash only shall not be so counted; (ii) if any Award (A) expires or is terminated, surrendered or canceled without having been fully exercised or is forfeited in whole or in part (including as the result of shares of Common Stock subject to such Award being repurchased by the Company at the original issuance price pursuant to a contractual repurchase right) or (B) results in any Common Stock not being issued (including as a result of an SAR that was settleable either in cash or in stock actually being settled in cash), the unused Common Stock covered by such Award shall again be available for the grant of Awards; provided, however, in the case of Incentive Stock Options (as hereinafter defined), the foregoing shall be subject to any limitations under the Code; and provided further, in the case of SARs, that the full number of shares subject to any stock-settled SAR shall be counted against the shares available under the Plan and against the sublimits listed in the first clause of this Section regardless of the number of shares actually used to settle such SAR upon exercise; (iii) shares of Common Stock delivered (either by actual delivery or attestation) to the Company by a Participant to (A) purchase shares of Common Stock upon the exercise of an Award or (B) satisfy tax withholding obligations (including shares retained from the Award creating the tax obligation) shall not be added back to the number of shares available for the future grant of Awards; and (iv) shares of Common Stock repurchased by the Company on the open market using the proceeds from the exercise of an Award shall not increase the number of shares available for future grant of Awards."

        2.    Section 7 is hereby deleted in its entirety and the following is substituted in its place:

        "The Board shall have the right to grant other Awards based upon the Common Stock having such terms and conditions as the Board may determine, including the grant of shares based upon certain conditions, the grant of securities convertible into Common Stock and the grant of stock appreciation rights. Notwithstanding the foregoing, with respect to any SAR granted by the Board under the Plan:

        (a)   The exercise price applicable to any such SAR shall not be less than 100% of the Fair Market Value on the date the SAR is granted; provided that if the Board approves the grant of a SAR with an exercise price to be determined on a future date, the exercise price shall be not less than 100% of the Fair Market Value on such future date; and

        (b)   unless such action is approved by the Company's stockholders: (1) no outstanding SAR granted under the Plan may be amended to provide an exercise price per share that is

17

lower than the then-current exercise price per share of such outstanding SAR (other than adjustments pursuant to Section 8) and (2) the Board may not cancel any outstanding SAR (whether or not granted under the Plan) and grant in substitution therefor new Awards under the Plan covering the same or a different number of shares of Common Stock and having an exercise price per share lower than the then-current exercise price per share of the cancelled SAR."

Adopted by the Board of Directors on April 4, 2008.

Adopted by the Stockholders on May 20, 2008.

18

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Exhibit 10.9

EX-10.10

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Exhibit 10.10

SEPRACOR INC.

2008 DIRECTOR STOCK INCENTIVE PLAN

1.     Purpose

        The purpose of this 2008 Director Stock Incentive Plan (the "Plan") of Sepracor Inc., a Delaware corporation (the "Company"), is to advance the interests of the Company's stockholders by enhancing the Company's ability to attract, retain and motivate outside directors of the Company and by providing such persons with equity ownership opportunities and performance-based incentives that are intended to better align the interests of such persons with those of the Company's stockholders.

2.     Eligibility

        Each director of the Company who is not an employee of the Company is eligible to be granted options and restricted stock (each, an "Award") under the Plan. Each person who receives an Award under the Plan is deemed a "Participant".

3.     Administration and Delegation

        (a)    Administration by Board of Directors.    The Plan will be administered by the Board. The Board shall have authority to grant Awards and to adopt, amend and repeal such administrative rules, guidelines and practices relating to the Plan as it shall deem advisable. The Board may construe and interpret the terms of the Plan and any Award agreements entered into under the Plan. The Board may correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Award in the manner and to the extent it shall deem expedient to carry the Plan into effect and it shall be the sole and final judge of such expediency. All decisions by the Board shall be made in the Board's sole discretion and shall be final and binding on all persons having or claiming any interest in the Plan or in any Award. No director or person acting pursuant to the authority delegated by the Board shall be liable for any action or determination relating to or under the Plan made in good faith.

        (b)    Appointment of Committees.    To the extent permitted by applicable law, the Board may delegate any or all of its powers under the Plan to one or more committees or subcommittees of the Board (a "Committee"). All references in the Plan to the "Board" shall mean the Board or a Committee of the Board to the extent that the Board's powers or authority under the Plan have been delegated to such Committee.

4.     Stock Available for Awards

        (a)    Authorized Number of Shares.    Subject to adjustment under Section 7, Awards may be made under the Plan for up to 500,000 shares of common stock, $0.10 par value per share, of the Company (the "Common Stock"). Shares issued under the Plan may consist in whole or in part of authorized but unissued shares or treasury shares.

        (b)    Share Counting.    For purposes of counting the number of shares available for the grant of Awards under the Plan (i) if any Award (A) expires or is terminated, surrendered or canceled without having been fully exercised or is forfeited in whole or in part (including as the result of shares of Common Stock subject to such Award being repurchased by the Company at the original issuance price pursuant to a contractual repurchase right) or (B) results in any Common Stock not being issued, the unused Common Stock covered by such Award shall again be available for the grant of Awards; (ii) shares of Common Stock delivered (either by actual delivery or attestation) to the Company by a Participant to (A) purchase shares of Common Stock upon the exercise of an Award or (B) satisfy tax

1

withholding obligations (including shares retained from the Award creating the tax obligation) shall not be added back to the number of shares available for the future grant of Awards; and (iii) shares of Common Stock repurchased by the Company on the open market using the proceeds from the exercise of an Award shall not increase the number of shares available for future grant of Awards.

5.     Stock Options.

        (a)    General.    The Board may grant options to purchase Common Stock (each, an "Option") and determine the number of shares of Common Stock to be covered by each Option, the exercise price of each Option and the conditions and limitations applicable to the exercise of each Option, including conditions relating to applicable federal or state securities laws, as it considers necessary or advisable. All Options granted under this Plan shall be designated "Nonstatutory Stock Options."

        (b)    Initial Grant.    Upon the commencement of service on the Board by any individual who is not then an employee of the Company or any subsidiary of the Company, the Company shall grant to such person a Nonstatutory Stock Option to purchase 20,000 shares of Common Stock (subject to adjustment under Section 7).

        (c)    Annual Grant.    On the date of each annual meeting of stockholders of the Company, the Company shall grant to each member of the Board of Directors of the Company who is both serving as a director of the Company immediately prior to and immediately following such annual meeting and who is not then an employee of the Company or any of its subsidiaries, a Nonstatutory Stock Option to purchase 10,000 shares of Common Stock (subject to adjustment under Section 7); provided, however, that a director shall not be eligible to receive an option grant under this Section 5(c) until such director has served on the Board for at least six months.

        (d)    Terms of Director Options.    Options granted under this Section 5 shall:

        (1)   have an exercise price equal to the closing sale price (for the primary trading session) of the Common Stock on the national securities exchange on which the Common Stock is then traded on the day of grant (or if the date of grant is not a trading day on such exchange, the trading day immediately prior to the date of grant) or if the Common Stock is not then traded on a national securities exchange, the fair market value of the Common Stock on such date as determined by the Board,

        (2)   vest, except as provided in Section 5(e),

        (A)  in the case of an option granted under 5(a), as to 4,000 shares on the first anniversary of the date of grant and as to an additional 20% on each subsequent anniversary provided that the individual is serving on the Board on such date and

        (B)  in the case of an option granted under Section 5(c), on the date which is one business day prior to the date of the Company's next annual meeting,

provided that no additional vesting shall take place after the Participant ceases to serve as a director and further provided that, in addition to the acceleration of vesting provided for in Section 5(e) and 7(c), the Board may provide for accelerated vesting in the case of attainment of mandatory retirement age or retirement following at least 10 years of service,

        (3)   expire on the earlier of 10 years from the date of grant or one year following cessation of service on the Board, and

        (4)   contain such other terms and conditions as the Board shall determine.

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        (e)    Vesting Upon Death or Disability.

        (1)   Notwithstanding the provisions of Section 5(d), any Option granted under this Plan shall vest in full (A) if the Participant becomes disabled (within the meaning of Section 22(e)(3) of the Code or any successor provision thereto) while serving as a director of the Company; (B) upon the death of the Participant while serving as a director of the Company.

        (2)   In the event the Participant dies while serving as a director or within the twelve months after ceasing to serve as a director, the Participant's Designated Beneficiary (as defined in Section 6(d)(d)) may exercise any Option granted under this Plan, to the extent vested, prior to the expiration of the Option pursuant to Section 5(d)(3).

        (f)    Form of Exercise.    Options may be exercised by delivery to the Company of a written notice of exercise signed by the proper person or by any other form of notice (including electronic notice) approved by the Board, together with payment in full as specified in Section 5(g) for the number of shares for which the Option is exercised. Shares of Common Stock subject to the Option will be delivered by the Company as soon as practicable following exercise.

        (g)    Payment Upon Exercise.    Common Stock purchased upon the exercise of an Option granted under the Plan shall be paid for as follows:

        (1)   in cash or by check, payable to the order of the Company;

        (2)   except as may otherwise be provided in the applicable option agreement, by (i) delivery of an irrevocable and unconditional undertaking by a creditworthy broker to deliver promptly to the Company sufficient funds to pay the exercise price and any required tax withholding or (ii) delivery by the Participant to the Company of a copy of irrevocable and unconditional instructions to a creditworthy broker to deliver promptly to the Company cash or a check sufficient to pay the exercise price and any required tax withholding;

        (3)   to the extent provided for in the applicable option agreement or approved by the Board, in its sole discretion, by delivery (either by actual delivery or attestation) of shares of Common Stock owned by the Participant valued at their fair market value as determined by (or in a manner approved by) the Board, provided (i) such method of payment is then permitted under applicable law, (ii) such Common Stock, if acquired directly from the Company, was owned by the Participant for such minimum period of time, if any, as may be established by the Board in its discretion and (iii) such Common Stock is not subject to any repurchase, forfeiture, unfulfilled vesting or other similar requirements;

        (4)   to the extent permitted by applicable law and provided for in the applicable option agreement or approved by the Board, in its sole discretion, by payment of such lawful consideration as the Board may determine; or

        (5)   by any combination of the above permitted forms of payment.

        (h)    Board Discretion.    The Board retains the specific authority to from time to time increase or decrease the number of shares subject to Options granted under this Section 5, subject to the limitation on the aggregate number of shares issuable to non-employee directors contained in Section 4(a). The Board also retains the specific authority to issue Restricted Stock Awards in lieu of some or all of the Options otherwise issuable under this Section 5, subject to the limitation on the aggregate number of shares issuable to non-employee directors contained in Section 4(a).

        (i)    Limitation on Repricing.    Unless such action is approved by the Company's stockholders: (1) no outstanding Option granted under the Plan may be amended to provide an exercise price per share that is lower than the then-current exercise price per share of such outstanding Option (other than adjustments pursuant to Section 7) and (2) the Board may not cancel any outstanding option

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(whether or not granted under the Plan) and grant in substitution therefor new Awards under the Plan covering the same or a different number of shares of Common Stock and having an exercise price per share lower than the then-current exercise price per share of the cancelled option.

6.     Restricted Stock

        (a)    General.    The Board may grant Awards entitling recipients to acquire shares of Common Stock ("Restricted Stock"), subject to the right of the Company to repurchase all or part of such shares at their issue price or other stated or formula price (or to require forfeiture of such shares if issued at no cost) from the recipient in the event that conditions specified by the Board in the applicable Award are not satisfied prior to the end of the applicable restriction period or periods established by the Board for such Award.

        (b)    Annual Grant.

        (1)   On the date of each annual meeting of stockholders of the Company, the Company shall grant to each member of the Board of Directors of the Company who is both serving as a director of the Company immediately prior to and immediately following such annual meeting and who is not then an employee of the Company or any of its subsidiaries, an Award of 5,000 shares of Restricted Stock (subject to adjustment under Section 7); provided, however, that a director shall not be eligible to receive a Restricted Stock grant under this Section 6(b) until such director has served on the Board for at least six months.

        (2)   Except as provided in Sections 6(b)(3) and 7(c), Restricted Stock granted under this Section 6(b) shall vest as to 100% of the shares on the date which is one business day prior to the date of the Company's next annual meeting, provided that no vesting shall take place after the Participant ceases to serve as a director and further provided that, in addition to the acceleration of vesting provided for in Section 6(b)(3) and 7(c), the Board may provide for accelerated vesting in the case of attainment of retirement or retirement following at least 10 years of service.

        (3)   Notwithstanding the provisions of Section 6(b)(2), the vesting of any Restricted Stock granted under the Plan shall be fully accelerated (A) in the event the Participant becomes disabled (within the meaning of Section 22(e)(3) of Code or any successor provision thereto) or while serving as a director of the Company, or (B) upon the upon the death of the Participant while serving as a director of the Company.

        (c)    Board Discretion.    The Board retains the specific authority to from time to time increase or decrease the number of shares of Restricted Stock granted under this Section 6, subject to the limitation on the aggregate number of shares issuable to non-employee directors contained in Section 4(a). The Board also retains the specific authority to issue Options in lieu of some or all of the Restricted Stock otherwise issuable under this Section 4, subject to the limitation on the aggregate number of shares issuable to non-employee directors contained in Section 4(a).

        (d)    Additional Provisions Relating to Restricted Stock.

        (1)    Dividends.    Participants holding shares of Restricted Stock will be entitled to all ordinary cash dividends paid with respect to such shares, unless otherwise provided by the Board. Unless otherwise provided by the Board, if any dividends or distributions are paid in shares, or consist of a dividend or distribution to holders of Common Stock other than an ordinary cash dividend, the shares, cash or other property will be subject to the same restrictions on transferability and forfeitability as the shares of Restricted Stock with respect to which they were paid. Each dividend payment will be made no later than the end of the calendar year in which the dividends are paid to shareholders of that class of stock or, if later, the 15th day of the third month following the date the dividends are paid to shareholders of that class of stock.

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        (2)    Stock Certificates.    The Company may require that any stock certificates issued in respect of shares of Restricted Stock shall be deposited in escrow by the Participant, together with a stock power endorsed in blank, with the Company (or its designee). At the expiration of the applicable restriction periods, the Company (or such designee) shall deliver the certificates no longer subject to such restrictions to the Participant or if the Participant has died, to the beneficiary designated, in a manner determined by the Board, by a Participant to receive amounts due or exercise rights of the Participant in the event of the Participant's death (the "Designated Beneficiary"). In the absence of an effective designation by a Participant, "Designated Beneficiary" shall mean the Participant's estate.

7.     Adjustments for Changes in Common Stock and Certain Other Events.

        (a)    Changes in Capitalization.    In the event of any stock split, reverse stock split, stock dividend, recapitalization, combination of shares, reclassification of shares, spin-off or other similar change in capitalization or event, or any dividend or distribution to holders of Common Stock other than an ordinary cash dividend, (i) the number and class of securities available under this Plan, (ii) share counting rules set forth in Section 4(b) , (iii) the number and class of securities and exercise price per share of each outstanding Option and each Option issuable under Section 5, (iv) the number of shares subject to and the repurchase price per share subject to each outstanding Restricted Stock Award and each Restricted Stock Award issuable under Section 6, shall be equitably adjusted by the Company (or substituted Awards may be made, if applicable) in the manner determined by the Board. Without limiting the generality of the foregoing, in the event the Company effects a split of the Common Stock by means of a stock dividend and the exercise price of and the number of shares subject to an outstanding Option are adjusted as of the date of the distribution of the dividend (rather than as of the record date for such dividend), then an optionee who exercises an Option between the record date and the distribution date for such stock dividend shall be entitled to receive, on the distribution date, the stock dividend with respect to the shares of Common Stock acquired upon such Option exercise, notwithstanding the fact that such shares were not outstanding as of the close of business on the record date for such stock dividend.

        (b)    Reorganization Events.

        (1)    Definition.    A "Reorganization Event" shall mean: (a) any merger or consolidation of the Company with or into another entity as a result of which all of the Common Stock of the Company is converted into or exchanged for the right to receive cash, securities or other property or is cancelled, (b) any exchange of all of the Common Stock of the Company for cash, securities or other property pursuant to a share exchange transaction or (c) any liquidation or dissolution of the Company.

        (2)    Consequences of a Reorganization Event on Options.    In connection with a Reorganization Event, the Board may take any one or more of the following actions as to all or any (or any portion of) outstanding Options on such terms as the Board determines: (i) provide that Options shall be assumed, or substantially equivalent Options shall be substituted, by the acquiring or succeeding corporation (or an affiliate thereof), (ii) upon written notice to a Participant, provide that the Participant's unexercised Options will terminate immediately prior to the consummation of such Reorganization Event unless exercised by the Participant within a specified period following the date of such notice, (iii) provide that outstanding Options shall become exercisable, realizable, or deliverable, or restrictions applicable to an Award shall lapse, in whole or in part prior to or upon such Reorganization Event, (iv) in the event of a Reorganization Event under the terms of which holders of Common Stock will receive upon consummation thereof a cash payment for each share surrendered in the Reorganization Event (the "Acquisition Price"), make or provide for a cash payment to a Participant equal to the excess, if any, of (A) the Acquisition Price times the number of shares of Common Stock subject to the Participant's Options (to the extent the exercise

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price does not exceed the Acquisition Price) over (B) the aggregate exercise price of all such outstanding Options and any applicable tax withholdings, in exchange for the termination of such Options, (v) provide that, in connection with a liquidation or dissolution of the Company, Options shall convert into the right to receive liquidation proceeds (if applicable, net of the exercise price thereof and any applicable tax withholdings) and (vi) any combination of the foregoing. In taking any of the actions permitted under this Section 7(b), the Board shall not be obligated by the Plan to treat all Awards, all Awards held by a Participant, or all Awards of the same type, identically.

        For purposes of clause (i) above, an Option shall be considered assumed if, following consummation of the Reorganization Event, the Option confers the right to purchase, for each share of Common Stock subject to the Option immediately prior to the consummation of the Reorganization Event, the consideration (whether cash, securities or other property) received as a result of the Reorganization Event by holders of Common Stock for each share of Common Stock held immediately prior to the consummation of the Reorganization Event (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding shares of Common Stock); provided, however, that if the consideration received as a result of the Reorganization Event is not solely common stock of the acquiring or succeeding corporation (or an affiliate thereof), the Company may, with the consent of the acquiring or succeeding corporation, provide for the consideration to be received upon the exercise of Options to consist solely of common stock of the acquiring or succeeding corporation (or an affiliate thereof) equivalent in value (as determined by the Board) to the per share consideration received by holders of outstanding shares of Common Stock as a result of the Reorganization Event.

        (3)    Consequences of a Reorganization Event on Restricted Stock Awards.    Upon the occurrence of a Reorganization Event other than a liquidation or dissolution of the Company, the repurchase and other rights of the Company under each outstanding Restricted Stock Award shall inure to the benefit of the Company's successor and shall, unless the Board determines otherwise, apply to the cash, securities or other property which the Common Stock was converted into or exchanged for pursuant to such Reorganization Event in the same manner and to the same extent as they applied to the Common Stock subject to such Restricted Stock Award. Upon the occurrence of a Reorganization Event involving the liquidation or dissolution of the Company, except to the extent specifically provided to the contrary in the instrument evidencing any Restricted Stock Award or any other agreement between a Participant and the Company, all restrictions and conditions on all Restricted Stock Awards then outstanding shall automatically be deemed terminated or satisfied.

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        (c)   Change in Control Events.

        (1)    Definition.    A "Change in Control Event" shall mean:

        (A)  A "Change in Control Event" shall mean:

(i)

the acquisition by an individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership of any capital stock of the Company if, after such acquisition, such Person beneficially owns (within the meaning of Rule 13d-3 promulgated under the Exchange Act) 30% or more of either (x) the then-outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (y) the combined voting power of the then-outstanding securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (i), the following acquisitions shall not constitute a Change in Control Event: (A) any acquisition directly from the Company (excluding an acquisition pursuant to the exercise, conversion or exchange of any security exercisable for, convertible into or exchangeable for common stock or voting securities of the Company, unless the Person exercising, converting or exchanging such security acquired such security directly from the Company or an underwriter or agent of the Company), (B) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (C) any acquisition by any corporation pursuant to a Business Combination (as defined below) which complies with clauses (x) and (y) of subsection (iii) of this definition; or



(ii)

such time as the Continuing Directors (as defined below) do not constitute a majority of the Board (or, if applicable, the Board of Directors of a successor corporation to the Company), where the term "Continuing Director" means at any date a member of the Board (x) who was a member of the Board on the date of the initial adoption of this Plan by the Board or (y) who was nominated or elected subsequent to such date by at least a majority of the directors who were Continuing Directors at the time of such nomination or election or whose election to the Board was recommended or endorsed by at least a majority of the directors who were Continuing Directors at the time of such nomination or election; provided, however, that there shall be excluded from this clause (y) any individual whose initial assumption of office occurred as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents, by or on behalf of a person other than the Board; or



(iii)

the consummation of a merger, consolidation, reorganization, recapitalization or statutory share exchange involving the Company or a sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), unless, immediately following such Business Combination, each of the following two conditions is satisfied: (x) all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the then-outstanding shares of common stock and the combined voting power of the then-outstanding securities entitled to vote generally in the election of directors, respectively, of the resulting or acquiring corporation in such Business

7

Combination (which shall include, without limitation, a corporation which as a result of such transaction owns the Company or substantially all of the Company's assets either directly or through one or more subsidiaries) (such resulting or acquiring corporation is referred to herein as the "Acquiring Corporation") in substantially the same proportions as their ownership of the Outstanding Company Common Stock and Outstanding Company Voting Securities, respectively, immediately prior to such Business Combination and (y) no Person (excluding the Acquiring Corporation or any employee benefit plan (or related trust) maintained or sponsored by the Company or by the Acquiring Corporation) beneficially owns, directly or indirectly, 30% or more of the then-outstanding shares of common stock of the Acquiring Corporation, or of the combined voting power of the then-outstanding securities of such corporation entitled to vote generally in the election of directors (except to the extent that such ownership existed prior to the Business Combination).

        (2)    Effect on Options.    Notwithstanding the provisions of Section 7(b), effective immediately prior to a Change in Control Event, except to the extent specifically provided to the contrary in the instrument evidencing any Option or any other agreement between a Participant and the Company, all Options then outstanding shall automatically become immediately exercisable in full.

        (3)    Effect on Restricted Stock Awards.    Notwithstanding the provisions of Section 7(b), effective immediately prior to a Change in Control Event, except to the extent specifically provided to the contrary in the instrument evidencing any Restricted Stock Award or any other agreement between a Participant and the Company, all restrictions and conditions on all Restricted Stock Awards then-outstanding shall automatically be deemed terminated or satisfied.

8.     General Provisions Applicable to Awards

        (a)    Transferability of Awards.    Awards shall not be sold, assigned, transferred, pledged or otherwise encumbered by the person to whom they are granted, either voluntarily or by operation of law, except by will or the laws of descent and distribution or pursuant to a qualified domestic relations order, and, during the life of the Participant, shall be exercisable only by the Participant; provided, however, that the Board may permit or provide in an Award for the gratuitous transfer of the Award by the Participant to or for the benefit of any immediate family member, family trust or other entity established for the benefit of the Participant and/or an immediate family member thereof if, with respect to such proposed transferee, the Company would be eligible to use a Form S-8 for the registration of the sale of the Common Stock subject to such Award under the Securities Act of 1933, as amended; provided, further, that the Company shall not be required to recognize any such transfer until such time as the Participant and such permitted transferee shall, as a condition to such transfer, deliver to the Company a written instrument in form and substance satisfactory to the Company confirming that such transferee shall be bound by all of the terms and conditions of the Award. References to a Participant, to the extent relevant in the context, shall include references to authorized transferees.

        (b)    Documentation.    Each Award shall be evidenced in such form (written, electronic or otherwise) as the Board shall determine. Each Award may contain terms and conditions in addition to those set forth in the Plan.

        (c)    Board Discretion.    Except as otherwise provided by the Plan, each Award may be made alone or in addition or in relation to any other Award. The terms of each Award need not be identical, and the Board need not treat Participants uniformly.

        (d)    Termination of Status.    The Board shall determine the effect on an Award of the disability, death, termination or other cessation of employment, authorized leave of absence or other change in

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the employment or other status of a Participant and the extent to which, and the period during which, the Participant, or the Participant's legal representative, conservator, guardian or Designated Beneficiary, may exercise rights under the Award.

        (e)    Withholding.    The Participant must satisfy all applicable federal, state, and local or other income and employment tax withholding obligations before the Company will deliver stock certificates or otherwise recognize ownership of Common Stock under an Award. The Company may decide to satisfy the withholding obligations through additional withholding on salary or wages. If the Company elects not to or cannot withhold from other compensation, the Participant must pay the Company the full amount, if any, required for withholding or have a broker tender to the Company cash equal to the withholding obligations. Payment of withholding obligations is due before the Company will issue any shares on exercise or release from forfeiture of an Award or, if the Company so requires, at the same time as is payment of the exercise price unless the Company determines otherwise. If provided for in an Award or approved by the Board in its sole discretion, a Participant may satisfy such tax obligations in whole or in part by delivery (either by actual delivery or attestation) of shares of Common Stock, including shares retained from the Award creating the tax obligation, valued at their Fair Market Value; provided, however, except as otherwise provided by the Board, that the total tax withholding where stock is being used to satisfy such tax obligations cannot exceed the Company's minimum statutory withholding obligations (based on minimum statutory withholding rates for federal and state tax purposes, including payroll taxes, that are applicable to such supplemental taxable income). Shares used to satisfy tax withholding requirements cannot be subject to any repurchase, forfeiture, unfulfilled vesting or other similar requirements.

        (f)    Amendment of Award.    Except as otherwise provided in Section 5(i) with respect to repricings or Section 9(d) with respect to actions requiring shareholder approval, the Board may amend, modify or terminate any outstanding Award, including but not limited to, substituting therefor another Award of the same or a different type and changing the date of exercise or realization. The Participant's consent to such action shall be required unless (i) the Board determines that the action, taking into account any related action, would not materially and adversely affect the Participant's rights under the Plan or (ii) the change is permitted under Section 7 hereof.

        (g)    Conditions on Delivery of Stock.    The Company will not be obligated to deliver any shares of Common Stock pursuant to the Plan or to remove restrictions from shares previously delivered under the Plan until (i) all conditions of the Award have been met or removed to the satisfaction of the Company, (ii) in the opinion of the Company's counsel, all other legal matters in connection with the issuance and delivery of such shares have been satisfied, including any applicable securities laws and any applicable stock exchange or stock market rules and regulations, and (iii) the Participant has executed and delivered to the Company such representations or agreements as the Company may consider appropriate to satisfy the requirements of any applicable laws, rules or regulations.

        (h)    Acceleration.    The Board may at any time provide that any Award shall become immediately exercisable in full or in part, free of some or all restrictions or conditions, or otherwise realizable in full or in part, as the case may be.

9.     Miscellaneous

        (a)    No Right To Board Membership or Other Status.    No person shall have any claim or right to be granted an Award, and the grant of an Award shall not be construed as giving a Participant the right to continue as a director of the Company or to maintain any other role with the Company. The Company expressly reserves the right at any time to dismiss or otherwise terminate its relationship with a Participant free from any liability or claim under the Plan, except as expressly provided in the applicable Award.

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        (b)    No Rights As Stockholder.    Subject to the provisions of the applicable Award, no Participant or Designated Beneficiary shall have any rights as a stockholder with respect to any shares of Common Stock to be distributed with respect to an Award until becoming the record holder of such shares.

        (c)    Effective Date and Term of Plan.    The Plan shall become effective on the date the Plan is approved by the Company's stockholders (the "Effective Date"). No Awards shall be granted under the Plan after the expiration of 10 years from the Effective Date, but Awards previously granted may extend beyond that date.

        (d)    Amendment of Plan.    The Board may amend, suspend or terminate the Plan or any portion thereof at any time provided that (i) no amendment that would require stockholder approval under the rules of the NASDAQ Stock Market ("NASDAQ") may be made effective unless and until such amendment shall have been approved by the Company's stockholders; and (ii) if NASDAQ amends its corporate governance rules so that such rules no longer require stockholder approval of NASDAQ "material amendments" to equity compensation plans, then, from and after the effective date of such amendment to the NASDAQ rules, no amendment to the Plan (A) materially increasing the number of shares authorized under the Plan (other than pursuant to Section 7), (B) expanding the types of Awards that may be granted under the Plan, or (C) materially expanding the class of participants eligible to participate in the Plan shall be effective unless stockholder approval is obtained. Unless otherwise specified in the amendment, any amendment to the Plan adopted in accordance with this Section 9(d) shall apply to, and be binding on the holders of, all Awards outstanding under the Plan at the time the amendment is adopted, provided the Board determines that such amendment does not materially and adversely affect the rights of Participants under the Plan. No Award shall be made that is conditioned upon stockholder approval of any amendment to the Plan.

        (e)    Provisions for Foreign Participants.    The Board may modify Awards granted to Participants who are foreign nationals or employed outside the United States or establish subplans or procedures under the Plan to recognize differences in laws, rules, regulations or customs of such foreign jurisdictions with respect to tax, securities, currency, employee benefit or other matters.

        (f)    Compliance with Code Section 409A.    No Award shall provide for deferral of compensation that does not comply with Section 409A of the Code, unless the Board, at the time of grant, specifically provides that the Award is not intended to comply with Section 409A of the Code. The Company shall have no liability to a Participant, or any other party, if an Award that is intended to be exempt from, or compliant with, Section 409A is not so exempt or compliant or for any action taken by the Board.

        (g)    Governing Law.    The provisions of the Plan and all Awards made hereunder shall be governed by and interpreted in accordance with the laws of the State of Delaware, excluding choice-of-law principles of the law of such state that would require the application of the laws of a jurisdiction other than such state.

Adopted by the Board of Directors on February 26, 2008

Adopted by the Stockholders on May 20, 2008

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EX-31.1

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Exhibit 31.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Adrian Adams, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of Sepracor Inc.;



2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly 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 quarterly 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 quarterly report is being prepared;



b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;



c)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and



d)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and



5.

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):



a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and



b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: August 8, 2008 /s/ ADRIAN ADAMS
Adrian Adams
President and Chief Executive Officer

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Exhibit 31.1

EX-31.2

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Exhibit 31.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Robert F. Scumaci, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of Sepracor Inc.;



2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly 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 quarterly 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 quarterly report is being prepared;



b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;



c)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and



d)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and



5.

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):



a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and



b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: August 8, 2008 /s/ ROBERT F. SCUMACI
Robert F. Scumaci
Executive Vice President and Chief Financial Officer

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Exhibit 31.2

EX-32.1

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Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

        In connection with the quarterly report on Form 10-Q of Sepracor Inc. (the "Company") for the period ended June 30, 2008 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, Adrian Adams, Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, that to his knowledge:

(1)

the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and



(2)

the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 8, 2008 /s/ ADRIAN ADAMS
Adrian Adams
President and Chief Executive Officer

        A signed original of this written statement required by Section 906 has been provided to Sepracor Inc. and will be retained by Sepracor Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

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Exhibit 32.1

EX-32.2

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Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

        In connection with the quarterly report on Form 10-Q of Sepracor Inc. (the "Company") for the period ended June 30, 2008 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, Robert F. Scumaci, Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, that to his knowledge:

(1)

the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and



(2)

the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 8, 2008 /s/ ROBERT F. SCUMACI
Robert F. Scumaci
Executive Vice President and Chief Financial Officer

        A signed original of this written statement required by Section 906 has been provided to Sepracor Inc. and will be retained by Sepracor Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

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Exhibit 32.2