10-Q

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UNITED STATES
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 September 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 October 31, 2008 was 108,872,341 shares.

SEPRACOR INC.
INDEX

Part I—Financial Information
Item 1.	Condensed Consolidated Interim Financial Statements (unaudited)
	Condensed Consolidated Balance Sheets as of September 30, 2008 (unaudited) and December 31, 2007	3
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2008 and 2007 (unaudited)	4
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2008 and 2007 (unaudited)	5
	Notes to Condensed Consolidated Interim Financial Statements (unaudited)	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	54
Item 4.	Controls and Procedures	54
Part II—Other Information
Item 1.	Legal Proceedings	57
Item 1A.	Risk Factors	62
Item 6.	Exhibits	89
	Signatures	90
	Exhibit Index	91

2

PART I—FINANCIAL INFORMATION

Item 1.    Financial Statements

SEPRACOR INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands)

		September 30, 2008			December 31, 2007
		(Unaudited)
Assets
Current assets:
	Cash and cash equivalents	$	554,763		$	598,929
	Short-term investments		133,678			292,659
	Accounts receivable, net		203,839			159,644
	Inventories		74,100			53,125
	Deferred tax asset		99,248			—
	Other current assets		38,680			26,948
Total current assets			1,104,308			1,131,305
	Long-term investments		98,935			174,031
	Property and equipment, net		107,890			87,308
	Investment in affiliate		3,335			4,313
	Deferred financing costs, net		4,017			7,071
	Intangible assets, net		163,204			501
	Goodwill		23,909			—
	Deferred tax asset		379,477			—
	Other assets		196			197
Total assets		$	1,885,271		$	1,404,726
Liabilities and Stockholders' Equity
Current liabilities:
	Accounts payable	$	26,832		$	17,317
	Accrued expenses		149,028			210,109
	Current portion of capital lease obligation		1,137			1,162
	Current portion of convertible subordinated debt		72,800			72,800
	Deferred tax liabilities		1,766			—
	Product sales allowances and reserves		263,204			245,839
	Other current liabilities		155			6,887
Total current liabilities			514,922			554,114
	Capital lease obligation		606			1,443
	Convertible subordinated debt		616,720			648,020
	Deferred tax liabilities		8,581			—
	Other liabilities		121,868			24,736
Total liabilities			1,262,697			1,228,313
Stockholders' equity:
	Preferred stock, $1.00 par value, 1,000 shares authorized; none outstanding at September 30, 2008 and December 31, 2007		—			—
	Common stock, $.10 par value, 240,000 shares authorized at September 30, 2008 and December 31, 2007; 113,128 and 111,955 shares issued, 108,867 and 107,694 shares outstanding, at September 30, 2008 and December 31, 2007, respectively		11,312			11,195
	Treasury stock, at cost (4,261 shares at September 30, 2008 and December 31, 2007)		(232,028	)		(232,028	)
	Additional paid-in capital		1,892,831			1,858,775
	Accumulated deficit		(1,045,006	)		(1,471,716	)
	Accumulated other comprehensive (loss) income		(4,535	)		10,187
Total stockholders' equity			622,574			176,413
Total liabilities and stockholders' equity		$	1,885,271		$	1,404,726

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

3

SEPRACOR INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In Thousands, Except Per Share Amounts)

			Three Months Ended						Nine Months Ended
			September 30, 2008			September 30, 2007			September 30, 2008			September 30, 2007
Revenues:
	Product sales, net		$	289,249		$	271,837		$	864,739		$	853,726
	Royalties and license fees			18,424			8,921			57,858			31,524
		Total revenues		307,673			280,758			922,597			885,250
Costs and expenses:
	Cost of product sold			34,987			26,226			91,623			82,719
	Cost of royalties			590			194			1,659			849
	Research and development			63,014			49,025			187,542			135,184
	Research and development—in-process upon acquisition			—			—			89,995			—
	Selling, marketing and distribution			176,635			154,648			511,270			538,282
	General and administrative			27,349			20,442			79,309			58,546
	Amortization of intangible assets			1,689			35			5,872			120
	Litigation settlement, net			—			—			—			34,000
	Restructuring			—			—			(566	)		—
		Total costs and expenses		304,264			250,570			966,704			849,700
	Income (loss) from operations			3,409			30,188			(44,107	)		35,550
Other income (expense):
	Interest income			5,312			11,173			19,910			34,882
	Gain on extinguishment of debt			2,260			—			2,260			—
	Interest expense			(3,173	)		(88	)		(5,343	)		(2,958	)
	Equity in investee losses			(293	)		(37	)		(768	)		(441	)
	Other income (expense)			38			(621	)		(9,394	)		(907	)
	Income (loss) before income taxes			7,553			40,615			(37,442	)		66,126
	(Benefit from) provision for income taxes			(11,885	)		907			(464,152	)		2,792
	Net income		$	19,438		$	39,708		$	426,710		$	63,334
	Basic net income per common share		$	0.18		$	0.37		$	3.97		$	0.59
	Diluted net income per common share		$	0.17		$	0.34		$	3.70		$	0.54
Shares used in computing basic and diluted net income per common share:
		Basic		107,572			107,318			107,462			106,628
		Diluted		115,455			116,033			115,389			116,508

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

4

SEPRACOR INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In Thousands)

		Nine Months Ended
		September 30, 2008			September 30, 2007
Cash flows from operating activities:
	Net income	$	426,710		$	63,334
Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation and amortization		25,551			15,178
	Research and development—in-process upon acquisition		89,995			—
	Interest accretion on license fee liabilities		5,165			—
	Gain on extinguishment of debt		(2,260	)		—
	Impairment on investments		9,106			—
	Equity in investee losses		768			441
	Stock compensation		29,547			27,926
	Changes in deferred income taxes—release of valuation allowance		(463,884	)		—
	Loss on asset disposal		737			218
Changes in operating assets and liabilities, net of acquisitions:
	Accounts receivable		(42,261	)		20,617
	Inventories		(17,035	)		(11,119	)
	Other assets		(20,919	)		(5,848	)
	Accounts payable		9,097			6,426
	Accrued expenses		(62,271	)		10,699
	Product sales allowances and reserves		17,370			29,716
	Other liabilities		165			24,729
Net cash provided by operating activities			5,581			182,317
Cash flows from investing activities:
	Purchases of short- and long-term investments		(313,327	)		(730,355	)
	Sales and maturities of short and long term investments		526,072			947,885
	Additions to property and equipment		(34,493	)		(19,739	)
	Payments for purchased intangibles		(151,000	)		—
	Business acquisition, net of cash acquired		(49,812	)		—
Net cash (used in) provided by investing activities			(22,560	)		197,791
Cash flows from financing activities:
	Net proceeds from issuance of common stock		4,626			32,200
	Repayments of long-term debt and capital leases		(29,704	)		(440,877	)
Net cash used in financing activities			(25,078	)		(408,677	)
Effect of exchange rate changes on cash and cash equivalents			(2,109	)		399
Net decrease in cash and cash equivalents			(44,166	)		(28,170	)
Cash and cash equivalents at beginning of period			598,929			415,411
Cash and cash equivalents at end of period		$	554,763		$	387,241
Supplemental cash flow data:
	Cash paid during the period for interest	$	146		$	11,148
	Cash paid during the period for income taxes	$	8,288		$	3,976
Supplemental schedule of noncash investing and financing activities:
	Fair value of assets acquired under acquisition and license and development agreement	$	148,122		$	—
	Fair value of liabilities assumed under acquisition and license and development agreement	$	(97,310	)	$	—
	Net cash paid upon execution of acquisition and license and development agreement	$	50,812		$	—
	Additions to capital leases	$	—		$	3,260

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

5

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 September 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 October 2008, the Financial Accounting Standards Board, or FASB, issued FASB Staff Position, or FSP, No. 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active, or FSP 157-3, to clarify the application of the provisions of Statement of Financial Accounting Standards, or SFAS, No. 157, Fair Value Measurements, or SFAS 157, in an inactive market and how an entity would determine fair value in an inactive market. FSP 157-3 was effective upon issuance and applies to our current financial statements. The application of the provisions of FSP 157-3 did not materially affect our results of operations or financial condition as of and for the three and nine months ended September 30, 2008.

        In June 2008, the Emerging Issues Task Force of the FASB, or EITF, issued FSP No. EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities, or EITF 03-6-1, 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 May 2008, the FASB issued 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

6

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

2. Recent Accounting Pronouncements (Continued)

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 FSP No. APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement), or FSP 14-1, which clarifies the accounting for convertible debt instruments that may be settled in cash (including partial cash settlement) upon conversion. FSP 14-1 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. FSP 14-1 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. FSP 14-1 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 FSP 14-1 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,

7

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

2. Recent Accounting Pronouncements (Continued)

or IPR&D, and either amortize it over the life of the product, or write it off if the project is abandoned or impaired. This statement applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. We are evaluating the impact this standard will have on our consolidated financial statements.

        In November 2007, the 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. 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. EITF 07-3 is effective, on a prospective basis, for fiscal years beginning after December 15, 2007 and interim periods within those fiscal years. The adoption of EITF 07-3 did not have a material impact 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 for financial statements issued for fiscal years and interim periods beginning after November 15, 2007, with early adoption permitted. 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

8

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

3. Acquisitions (Continued)

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 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.

9

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

4. Earnings Per Share (Continued)

        For the three and nine months ended September 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 September 30, 2008		Three Months Ended September 30, 2007		Nine Months Ended September 30, 2008		Nine Months Ended September 30, 2007
	(in thousands, except price per share data)
Number of options		9,498		3,569		9,200		4,459
Price range per share		$18.06 to $87.50		$22.71 to $87.50		$18.06 to $87.50		$38.26 to $87.50

        We have issued 0% convertible subordinated notes due 2024, which were not convertible into equity as of September 30, 2008 or 2007, or at any time during the nine months ended September 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 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:

	September 30, 2008		December 31, 2007
	(in thousands)
Raw materials	$	24,643	$	26,811
Finished goods		49,457		26,314
Total	$	74,100	$	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 No. 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

10

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

6. Business Investments (Continued)

historical volatility of the price of each security and any market and company-specific factors related to each security.

        In the second quarter of 2008, based on a significant decline in the value of ACADIA's common stock, which we believe was 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. These amounts were recognized as other expense in the interim condensed consolidated statements of operations, thus establishing a new cost basis for the ACADIA investment. During the third quarter of 2008, we recorded an additional unrealized loss of approximately $1.9 million within stockholders equity. As of September 30, 2008, the fair market value of our investment in ACADIA was approximately $5.1 million, which is recorded in long-term investments on the accompanying condensed consolidated balance sheet.

7. Goodwill and Intangible Assets

        In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, or SFAS 142, 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. We completed our annual impairment review as of September 30, 2008 and concluded that no impairment charge was required as of that date.

        The carrying value of goodwill was $23.9 million at September 30, 2008, which is attributed to the Oryx acquisition (See Note 3 "Acquisitions"). Currency translation adjustments of approximately $1.1 million were recorded for the three months ended September 30, 2008.

        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, or SFAS 144. Recoverability of 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. No impairment charges were required for the three or nine months ended September 30, 2008.

        In April 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. We paid Arrow $500,000 upon execution of this agreement and we are also required to pay Arrow an additional $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 on our sales of the Levalbuterol/ipratropium Product, subject to Arrow's one-time option

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NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

7. Goodwill and Intangible Assets (Continued)

exercisable in the fourth quarter of 2009 to receive a lump sum discounted amount of $23.5 million in lieu of ongoing royalty payments.

        In April 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. We paid Arrow $500,000 upon execution of this agreement, and we are also required to pay Arrow an additional $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 on our sales of the Nebule Ciclesonide Product and Ciclesonide/arformoterol Combination Product, subject to Arrow's one-time options exercisable 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 as other liabilities on our condensed consolidated balance sheet as of September 30, 2008. We impute interest expense associated with these liabilities using a 13% interest rate, which are amortized over the expected term of the payments and are recorded as interest expense in our condensed consolidated statements of operations.

        Of the $78.0 million of Future Payments to Arrow initially recorded, and the $1.0 million previously paid to Arrow pursuant to the two agreements, $50.8 million was assigned to 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

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NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

7. Goodwill and Intangible Assets (Continued)

(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 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 first quarter of 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.

        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 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 (we have selected arformoterol), 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.

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NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

7. Goodwill and Intangible Assets (Continued)

        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:

	September 30, 2008							December 31, 2007
	(in thousands)
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amounts		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amounts
Oryx's intangible assets	$	32,545	$	(1,266	)	$	31,279	$	—	$	—		$	—
Arrow's intangible assets		28,238		(784	)		27,454		—		—			—
Nycomed's intangible assets		110,763		(6,694	)		104,069		—		—			—
Patents and other intangible assets		2,259		(1,857	)		402		2,259		(1,758	)		501
Total intangible assets	$	173,805	$	(10,601	)	$	163,204	$	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 net carrying value of intangible assets decreased by approximately $1.2 million for the three months ended September 30, 2008 due to the effect of foreign currency translation.

8. Convertible Subordinated Debt

        Convertible subordinated debt consists of the following:

	September 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		468,700		500,000
Total	$	689,520	$	720,820

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NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

8. Convertible Subordinated Debt (Continued)

        Our 0% notes due 2024 are convertible into cash and, if applicable, shares of our common stock under a conversion formula that becomes applicable if and when our common stock price exceeds $67.20 per share on the NASDAQ Global Select Market. Prior to our stock exceeding such price, the notes are convertible to cash at the option of the holders in October 2009, 2014, 2019 and 2024, as well as under certain circumstances.

        During the third quarter of 2008, we repurchased and retired $31.3 million principal amount of our 0% notes due 2024 on the open market at prices ranging from 92% to 93% of par. In connection with these transactions, we recorded a gain on the retirement of $2.5 million offset by non-cash charges of approximately $200,000 resulting from the write-off of debt issuance costs associated with the retired debt. The net gain of $2.3 million was recorded as a gain on extinguishment of debt on our condensed consolidated statements of operations.

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					Nine Months Ended
	September 30, 2008			September 30, 2007		September 30, 2008			September 30, 2007
	(in thousands)
Comprehensive income:
Net income	$	19,438		$	39,708	$	426,710		$	63,334
Net foreign currency translation adjustments		(3,090	)		1,294		(3,585	)		3,138
Net unrealized (loss) gain on available-for-sale securities		(1,601	)		2,491		(11,137	)		11,357
Total comprehensive income	$	14,747		$	43,493	$	411,988		$	77,829

        The net unrealized loss on available-for-sale securities for the three months ended September 30, 2008 primarily reflect the market loss on our investment in ACADIA. As described in Note 6 "Business Investments" of these condensed consolidated interim financial statements, we reclassified the other-than-temporary impairment on our investment in ACADIA to other expense in the condensed consolidated statements of operations during the second quarter of 2008.

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 duration or outcome 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 equivalents of any of our marketed products or third-party products for which we have licensed

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(UNAUDITED)

10. Legal Proceedings (Continued)

rights to our patents before the expiration of our or our collaborators' 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 sought 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 will 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.

        In May 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 not prevail in any

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(UNAUDITED)

10. Legal Proceedings (Continued)

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.

        In March 2008, the trial judge consolidated the Dey L.P. and Barr cases for all purposes, including discovery and trial, and the consolidated case is pending as C.A. No. 06-113. 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. No. 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. We filed a Motion to Dismiss for lack of subject matter jurisdiction in response to the Complaint and the court has not yet issued its decision.

        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.

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NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

10. Legal Proceedings (Continued)

The 180 day semi-exclusivity period would begin to run only upon first commercial marketing by the first filer. There are, however, also certain events that could cause the first filer to forfeit the 180 day semi-exclusivity period, which we refer to as a forfeiture event.

        For our 1.25 mg/3 mL, 0.63 mg/3 mL, and 0.31 mg/3 mL 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 infringes 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 products 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 eleven 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 eleven 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

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NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

10. Legal Proceedings (Continued)

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.

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. and Barr, or Pliva/Barr, 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 actions in Delaware and New Jersey have 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 the 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, the trial will begin no earlier than October 2, 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 August 2008, the court granted our 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.

XOPENEX Inhalation Solution Least Costly Alternative Matter

        In March 2006, the parties responsible for administrating the Medicare Part B prescription drug benefit for respiratory products on behalf of the 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.

        The LCA announcement in March 2006 was subsequently stayed by the Medicare Administration Subcontractors pending a National Coverage Analysis by CMS that we expected would determine the

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NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

10. Legal Proceedings (Continued)

criteria for when XOPENEX Inhalation Solution would be appropriate for use by the Medicare population. CMS ultimately did not establish any national coverage criteria for short-acting beta-agonists and instead deferred any such action to the Medicare Administration Subcontractors. 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 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. CMS filed a motion to dismiss the Medicare beneficiary lawsuit on the grounds that the case is moot since, as given their decision to suspend the LCA, no LCA is in effect or pending that could cause irreparable injury to the beneficiaries.

        The reimbursement paid by CMS for XOPENEX Inhalation Solution has fallen significantly since July 1, 2007 as a result of the implementation of the blended Medicare Part B reimbursement rate for XOPENEX Inhalation Solution and generic racemic albuterol. Due to the decrease in the reimbursement rate, we have decided to no longer contract with home health care providers for XOPENEX Inhalation Solution beginning January 1, 2009. Accordingly, the Medicare beneficiaries have withdrawn the case as it is now moot and no further action is expected from the court.

Class Action Litigation Settlement

        Litigation settlement expense was $0 and $34.0 million for the nine months ended September 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.

Other Legal Proceedings

        We have been named as the defendant in two separate lawsuits filed in the United States District Court for the Middle District of Florida (Sharp, et al., filed July 17, 2008) and the United States District Court for the District of Arizona (Greaves, et al., served September 9, 2008) claiming that our pharmaceutical sales representatives should have been categorized as "non-exempt" rather than

20

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

10. Legal Proceedings (Continued)

"exempt" employees under the Fair Labor Standards Act. Both lawsuits claim that we owe damages, overtime wages, interest, costs and attorneys' fees for periods preceding the filing of the respective actions. 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 either collective action will result in a liability that would be material to our financial position. We believe these lawsuits are without merit and we are prepared to defend against them 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 7 "Goodwill and Intangible Assets" regarding commitments for future payments under the Arrow Levalbuterol/ipratoropium Product Agreement, Arrow Ciclesonide Agreement and Nycomed 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, Bial—Portela & C^a, S.A., or Bial, and Oryx, of up to $280.0 million, $90.0 million and $20.0 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 amounts have not been recorded on our condensed consolidated balance sheets.

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 September 30, 2008 and an assessment of our expected future results of operations, we have 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 and third quarters of 2008, we released $452.0 million and $11.9 million, respectively, of our valuation allowance, which was recorded as an income tax benefit.

        We have a remaining valuation allowance recorded against United States net deferred tax assets of $203.5 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 $25.2 million which will be released in the fourth quarter of 2008 to offset our expected tax expense for

21

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

12. Income Taxes (Continued)

the remainder of 2008. Additionally, there is a non-U.S. valuation allowance of $2.0 million for non-U.S. operating losses and tax credit carryforwards that will likely expire without being utilized.

        Our income tax provisions for the three and nine months ended September 30, 2008 include a tax benefit of $11.9 million and $463.9 million, respectively, recorded upon our decision 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 provision in the three and nine months ended September 30, 2008 consisted primarily of income taxes owed on income generated by a foreign subsidiary and certain state income taxes in the United States.

        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 had 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 had 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. There were no changes to our unrecognized tax benefits in the third quarter of 2008.

        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 2005, although carryforward attributes that were generated prior to 2005 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 2005; however, carryforward attributes that were generated prior to 2005 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 nine months ended September 30, 2008, the amount of accrued interest related to unrecognized tax benefits was not significant and no amount has been accrued for penalties.

13. Fair Value Measurements

        In September 2006, the FASB issued SFAS 157. SFAS 157 defines fair value, establishes a framework and gives guidance regarding the methods used for measuring fair value and expands

22

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

13. Fair Value Measurements (Continued)

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 142;

•

nonfinancial long-lived assets or asset groups measured at fair value for impairment assessment or disposal under SFAS 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 (Continued)

(UNAUDITED)

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 September 30, 2008:

		Quoted Prices in Active Markets		Significant Other Observable Inputs		Significant Unobservable Inputs		Carrying Value at September 30, 2008
		Level 1		Level 2		Level 3		Total
		(in thousands)
Money market funds		$	508,458	$	—	$	—	$	508,458
Asset-backed securities			—		1,063		—		1,063
Equity securities(1)			8,239		—		—		8,239
Auction-rate securities			—		—		77,054		77,054
	Total	$	516,697	$	1,063	$	77,054	$	594,814

(1)

Included within equity securities is our investment in ACADIA. See Note 6 "Business Investments" regarding the other-than-temporary impairment taken on this investment during the second quarter of 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 $77.1 million at September 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 and third quarters, 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 sheets.

        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 $3.8 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, would be recorded to other comprehensive income. If current market conditions deteriorate further, we

24

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

13. Fair Value Measurements (Continued)

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 September 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 September 30, 2008 were auction-rate securities. The following table summarizes the change in balances for the nine month period ended September 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
Unrealized gain included in other comprehensive income		110
Net settlements		(1,250	)
Balance at September 30, 2008	$	77,054

14. Business Segments

        With the addition of Oryx, we now operate in two segments distinguished by strategic business units that offer different products: (i) Sepracor Inc. and its subsidiaries other than Oryx, or the Sepracor segment, which currently engage in the discovery, research and development and commercialization of pharmaceutical products and (ii) Oryx, which currently engages in the licensing and commercialization of unique pharmaceutical products.

        Following the acquisition of Oryx in June 2008, in accordance with SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, we began to separately report information for the Oryx segment. The accounting policies of both segments are the same as those described in the

25

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

14. Business Segments (Continued)

summary of significant accounting policies, which are contained in our annual report on Form 10-K and filed with the SEC.

        The table below represents segment information for the periods identified and provides a reconciliation of segment information to total consolidated information. Reconciliations of segment information for the three and nine months ended September 30, 2007 are not presented as Sepracor had only one segment during those periods. For the Sepracor segment and Oryx, segment income (loss) from operations represents segment gross profit less direct research and development expenses, acquired IPR&D, direct selling, general and administrative expenses and amortization of intangible assets. There are no inter-segment revenues and we do not report capital expenditures by segment as such information is not used by our chief operating decision maker.

	Three Months Ended September 30, 2008
	(in thousands)
	Sepracor		Oryx			Consolidated
Total revenues	$	302,673	$	5,000		$	307,673
Income (loss) from operations	$	3,803	$	(394	)	$	3,409
Total assets	$	1,768,286	$	116,985		$	1,885,271
Depreciation and amortization	$	8,305	$	940		$	9,245

	Nine Months Ended September 30, 2008
	(in thousands)
	Sepracor			Oryx			Consolidated
Total revenues	$	915,949		$	6,648		$	922,597
Loss from operations	$	(43,436	)	$	(671	)	$	(44,107	)
Total assets	$	1,768,286		$	116,985		$	1,885,271
Depreciation and amortization	$	24,273		$	1,278		$	25,551

        Reconciling information between reportable segments and consolidated totals is shown in the following table:

	Three Months Ended September 30, 2008			Nine Months Ended September 30, 2008
	(in thousands)
Income (loss) from operations	$	3,409		$	(44,107	)
Interest income		5,312			19,910
Interest expense		(3,173	)		(5,343	)
Gain on extinguishment of debt		2,260			2,260
Equity in investee losses		(293	)		(768	)
Other income (expense)		38			(9,394	)
Income (loss) before income taxes	$	7,553		$	(37,442	)

26

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

15. 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.

        During the second quarter of 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. All amounts associated with the restructuring program were paid by the end of the second quarter of 2008 and 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;

28

•

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;

•

OMNARIS™ (ciclesonide) Nasal Spray, an 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; and

•

ALVESCO® HFA (ciclesonide) Inhalation Aerosol, an inhaled corticosteroid in an HFA MDI formulation for the maintenance treatment of asthma as prophylactic therapy in adult and adolescent patients 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 Inhalation Aerosol. We commercially introduced OMNARIS Nasal Spray and ALVESCO HFA Inhalation Aerosol in April 2008 and September 2008, respectively.

        In June 2008, in order to establish a Canadian commercial presence, we acquired the outstanding capital stock of Oryx Pharmaceuticals, Inc., or 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 disease therapeutic areas. Following the acquisition of Oryx, in accordance with SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, we began operating in two segments distinguished by strategic business units that offer different products. Sepracor Inc., which consists of Sepracor and our subsidiaries other than Oryx, which currently engage in the discovery, research and development and commercialization of pharmaceutical products, represents one segment and Oryx, which currently engages in the licensing and commercialization of unique pharmaceutical products is the other segment. Since there are no differences among our operating segments that are material to an understanding of our business as a whole, we present the discussion in this Management's Discussion and Analysis of Financial Condition and Results of Operations on a consolidated basis. The accounting policies of both segments are the same as those described in the summary of significant accounting policies, which are contained in our annual report on Form 10-K and filed with the Securities and Exchange Commission, or SEC.

        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 (although the actual number of sales representatives varies from time to time due to attrition in the ordinary course of business). 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. In September 2008, approximately 400 sales professionals commenced selling certain of our products pursuant to this agreement. 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 own or a contract 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

29

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;

•

successfully commercialize OMNARIS Nasal Spray and ALVESCO HFA Inhalation Aerosol;

•

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 six Abbreviated New Drug Applications, or ANDAs, have been submitted to the Food and Drug Administration, or 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 $689.5 million if and when it comes due. If not converted, repurchased at the noteholders' or our option, or otherwise refinanced earlier, the principal amount of this debt becomes due as follows:

Principal Amount of Convertible Debt Outstanding	Maturity Date
$72,800,000	December 2008
$148,020,000	December 2010
$468,700,000(1)	2024	(2)

(1)

In August 2008 and September 2008, we repurchased, at our option, $21.3 million and $10.0 million, respectively, 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 continue to sell our commercialized products, including successful commercialization of OMNARIS Nasal Spray and ALVESCO HFA Inhalation Aerosol, our ability to build upon our current business and our ability to successfully develop or acquire and commercialize new products and product candidates.

        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, partially offset by costs incurred related to the commercial introductions of OMNARIS Nasal Spray and ALVESCO HFA Inhalation Aerosol in April 2008 and September 2008, respectively. Research and development expenses for fiscal year 2008 are expected to increase as compared to fiscal year 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 in late 2007 from Bial—Portela & C^a, S.A., or Bial. As part of our business strategy, we

30

have and expect to continue considering and, as appropriate, consummating 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 future acquisitions.

Significant 2008 Developments and Recent Corporate Development and Licensing Transactions

•

In October 2008, we announced that the Committee for Medicinal Products for Human Use, or CHMP, of the European Medicines Agency Committee, or EMEA, for Medicinal Products for Human Use issued a positive opinion recommending to grant a marketing authorization for LUNIVIA® brand eszopiclone in the European Union, or EU, for the treatment of insomnia. The EU labeling provides for patients who require longer-term therapy to be treated for up to six months, with the usual course of therapy for typical patients being short-term. LUNIVIA is marketed in the United States under the brand name LUNESTA. We have requested a re-examination of the opinion relating to the exclusion of a new active substance designation that we believe would enable more favorable commercialization of the product.

•

In September 2008, we introduced ALVESCO HFA Inhalation Aerosol, an inhaled corticosteroid in a HFA MDI formulation for the maintenance treatment of asthma as prophylactic therapy in adult and adolescent patients 12 years of age and older.

•

In August 2008, Richard Ranieri was elected to the newly-created position of Executive Vice President, Human Resources and Administration.

•

In June 2008, 1765800 Ontario Limited, a wholly-owned subsidiary of Sepracor incorporated under the laws of the Province of Ontario, which was subsequently named Sepracor Canada, Inc., completed the acquisition of 100% of the issued and outstanding common stock of Oryx pursuant to the share purchase agreement dated April 30, 2008, by and among Sepracor, 1765800 Ontario Limited, Oryx, Cobalt Pharmaceuticals, Inc., or Cobalt, and 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 Sepracor pursuant to which Mr. Southwell resigned as our Executive Vice President and Chief Financial Officer on May 20, 2008. Mr. Southwell will continue to serve as our consultant 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. 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, we entered into a definitive agreement with a contract sales organization for the services of additional sales professionals that are primarily responsible for selling products in our respiratory portfolio. In September 2008, approximately 400 sales professionals commenced selling these products pursuant to this agreement. We are responsible for the management and training of these sales professionals and for providing all promotional materials and samples

31

used for product detailing. We also hired sales managers necessary to support the additional sales professionals.

•

In April 2008, we introduced OMNARIS Nasal Spray, an 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 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 $10.0 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 milestone payments of up to an aggregate of $27.5 million upon the achievement of 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

32

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 Part I, 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 eslicarbazepine acetate, Bial's anti-epileptic compound that Bial refers to as BIA 2-093 and which we now refer to as SEP-0002093. Pursuant to the agreement, we paid Bial an upfront payment of $75.0 million and are required to make subsequent payments upon accomplishment of various development and regulatory milestones, 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

33

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 entered into between 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 September 30, 2008 and 2007

Revenues

Product Sales Revenue

        Product sales were $289.3 million and $271.8 million for the three months ended September 30, 2008 and 2007, respectively, an increase of approximately 6%.

        Sales of LUNESTA were $154.7 million and $160.7 million for the three months ended September 30, 2008 and 2007, respectively, a decrease of approximately 4%. The decrease is primarily the result of a 9% decrease in the number of units sold, which we believe is primarily the result of the April 2007 commercial introduction of zolpidem tartrate, the generic equivalent to AMBIEN®, and a reduction in selling and marketing resources. Partially offsetting this decrease was an increase in gross selling price of approximately 21%, which resulted in a net selling price increase of approximately 6%. Adjustments recorded to gross sales are disclosed below under the heading "Analysis of gross sales to net sales."

        Sales of XOPENEX Inhalation Solution were $77.9 million and $91.6 million for the three months ended September 30, 2008 and 2007, respectively, a decrease of approximately 15%. The decrease was primarily due to a decrease in number of units sold of approximately 21%, which we believe is partially the result of a decline in units sold in the home health care market, which are subject to reimbursement under Medicare Part B. The reimbursement paid by CMS for XOPENEX Inhalation Solution has fallen significantly since July 1, 2007 as a result of the implementation of the blended Medicare Part B reimbursement rate for XOPENEX Inhalation Solution and generic albuterol. Due to the decrease in the reimbursement rate, we have decided to no longer contract with home health care providers for XOPENEX Inhalation Solution. Accordingly, we expect that our sales to Medicare Part B providers will decrease and, as a result, our aggregate unit sales and revenues will decrease. However, we expect the decrease in revenues will be proportionately less than the decrease in unit sales due to a reduction in the Medicaid rebate liability associated with sales of XOPENEX Inhalation Solution in the home health care market. The decrease in the number of units sold is also partially attributed to a decrease in market share. We believe that the re-allocation of sales resources in an effort to support the commercial introductions of OMNARIS Nasal Spray and ALVESCO HFA Inhalation Aerosol may have contributed to this decrease in market share. The decrease in number of units sold was partially offset by a gross selling price increase of approximately 21%, which resulted in a net selling price

34

increase of approximately 7%. Adjustments recorded to gross sales are disclosed below under the heading "Analysis of gross sales to net sales."

        Sales of XOPENEX HFA were $18.5 million and $17.1 million for the three months ended September 30, 2008 and 2007, respectively, an increase of approximately 9%. 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 7%, as well as an increase in the number of units sold of approximately 2%. Adjustments recorded to gross sales are disclosed below under the heading "Analysis of gross sales to net sales."

        Sales of BROVANA were $14.8 million and $2.4 million for the three months ended September 30, 2008 and 2007, respectively. The increase is primarily the result of an increase in the number of units sold of approximately 552%. Partially offsetting the increase in the number of units sold was a net selling price decrease of approximately 6%, which was the result of a gross selling price increase of approximately 7%. Adjustments recorded to gross sales are disclosed below under the heading "Analysis of gross sales to net sales."

        Sales of OMNARIS Nasal Spray were $1.3 million and $0 for the three months ended September 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."

        Sales of ALVESCO HFA Inhalation Aerosol were $17.1 million and $0 for the three months ended September 30, 2008 and 2007, respectively. We introduced ALVESCO HFA Inhalation Aerosol commercially in September 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 Part I, 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 September 30,
		2008		% of Sales			2007		% of Sales			$ Change			% Change
		(dollars in thousands)
Gross sales		$	434,516		100	%	$	372,412		100.0	%	$	62,104			17	%
Adjustments to gross sales:
	Payment term discounts		8,424		1.9	%		7,474		2.0	%		950			13	%
	Wholesaler fee-for-service		13,622		3.1	%		7,012		1.9	%		6,610			94	%
	Government rebates and contractual discounts		113,150		26.1	%		71,817		19.3	%		41,333			58	%
	Returns		6,689		1.5	%		8,231		2.2	%		(1,542	)		(19	)%
	Other (includes product introduction discounts)		3,382		0.8	%		6,041		1.6	%		(2,659	)		(44	)%
Sub-total adjustments			145,267		33.4	%		100,575		27.0	%		44,692			44	%
Net sales		$	289,249		66.6	%	$	271,837		73.0	%	$	17,412			6	%

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        The increase in adjustments to gross sales as a percentage of gross sales for the three months ended September 30, 2008, as compared to the three months ended September 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, XOPENEX HFA and XOPENEX Inhalation Solution;

•

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 Veterans Administration, or VA, on the sales of LUNESTA and XOPENEX Inhalation Solution;

•

an increase in chargebacks given on the sales of XOPENEX Inhalation Solution;

•

a net increase in Medicaid discounts primarily as a result of an increase in discounts on the sales of XOPENEX Inhalation Solution, substantially offset by a decrease in Medicaid discounts on the sales of LUNESTA and XOPENEX HFA; and

•

partially offsetting these increases was a net decrease in Medicare Part B discounts primarily as a result of a decrease in discounts on the sales of XOPENEX Inhalation Solution, partially offset by an increase in Medicare Part B discounts given on the sales of BROVANA.

In addition, wholesaler fee-for-service discounts increased during the three months ended September 30, 2008 primarily related to the credits earned in the three months ended September 30, 2007 as a result of a XOPENEX Inhalation Solution gross price increase in that period. Partially offsetting the increase in government rebates, contractual discounts and wholesaler fee-for-service discounts was a net decrease in:

•

other discounts primarily related to the timing and reduction of XOPENEX HFA coupons distributed; and

•

returns primarily related to XOPENEX Inhalation Solution and LUNESTA.

Royalties and License Fees Revenue

        Royalties and license fees were $18.4 million and $8.9 million for the three months ended September 30, 2008 and 2007, respectively.

        Royalties earned on the sales of ALLEGRA® (fexofenadine HCl) under our agreement with sanofi-aventis were $4.6 million and $3.7 million for the three months ended September 30, 2008 and 2007, respectively, an increase of approximately 26%. 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 $5.3 million and $2.5 million for the three months ended September 30, 2008 and 2007, respectively, an increase of approximately 108%. 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 $6.6 million and $2.5 million for the three months ended September 30, 2008 and 2007, respectively, an increase of approximately 162%. The increase is the result of the commercialization of XYZAL in the United States in 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

36

the duration or outcome 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 equivalents 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 Product Sold

        Cost of products sold was $35.0 million and $26.2 million for the three months ended September 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 September 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 September 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 HFA sold as a percentage of XOPENEX HFA gross sales was approximately 14% for both the three months ended September 30, 2008 and 2007.

        Cost of BROVANA sold as a percentage of BROVANA gross sales was approximately 10% and 14% for the three months ended September 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 September 30, 2008 as compared to the same period in 2007, and an increase in our gross selling price. 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 than the 30-count package, during the three months ended September 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 78% for the three months ended September 30, 2008, which was the result of a minimal number of units sold and the recognition of the amortization of intangible expense associated with the acquisition of rights to OMNARIS Nasal Spray. We commercially introduced OMNARIS Nasal Spray in April 2008.

        Cost of ALVESCO HFA Inhalation Aerosol sold as a percentage of ALVESCO HFA Inhalation Aerosol gross sales was approximately 23% for the three months ended September 30, 2008. We commercially introduced ALVESCO HFA Inhalation Aerosol in September 2008.

Cost of Royalty Revenue

        Cost of royalties earned was $590,000 and $194,000 for the three months ended September 30, 2008 and 2007, respectively, an increase of approximately 204%. 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 we earned in the three months ended September 30, 2008 as compared with the same period in 2007.

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Research and Development

        Research and development expenses were $63.0 million and $49.0 million for the three months ended September 30, 2008 and 2007, respectively, an increase of approximately 29%. The increase is primarily due to increased spending on SEP-225441, SEP-225289, the ciclesonide franchise and increased drug discovery efforts, as well as increased salary and other compensation related expenses for research and development personnel.

        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 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 September 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 64% of our direct project research and development spending for the three months

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ended September 30, 2008. No other product candidate accounted for more than 6% 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-225289	Depression	Phase II	2009

*

Spending relates to post-marketing studies. 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 September 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 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 September 30, 2008		Project costs to date through September 30, 2008		Project costs for the three months ended September 30, 2007		Project costs to date through September 30, 2007
	(in thousands)
LUNESTA (eszopiclone)	$	5,325	$	265,064	$	4,890	$	236,439
BROVANA (arformoterol tartrate)	$	920	$	193,520	$	3,605	$	184,948
SEP-225289	$	4,692	$	33,157	$	3,278	$	20,843
SEP-225441	$	5,149	$	19,789	$	1,796	$	3,521
SEP-227162	$	4,613	$	30,089	$	4,344	$	16,495

        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. We recently commenced a Phase III clinical trial for OMNARIS HFA MDI. To date, the costs associated with this project approximate $2.3 million. We estimate the cost range to bring OMNARIS HFA MDI from its current state to an NDA submission is an additional $40.0 to $50.0 million based on a targeted NDA submission during 2011, provided that no significant delays are imposed by internal resource constraints or unanticipated FDA requirements.

Selling, Marketing and Distribution

        Selling, marketing and distribution expenses were $176.6 million and $154.6 million for the three months ended September 30, 2008 and 2007, respectively, an increase of approximately 14%. The increase was largely due to the addition of services of a contract sales organization and associated training, and OMNARIS Nasal Spray and ALVESCO HFA Inhalation Aerosol commercial launch activities in 2008.

General and Administrative

        General and administrative costs were $27.3 million and $20.4 million for the three months ended September 30, 2008 and 2007, respectively, an increase of approximately 34%. The increase primarily relates to a $2.9 million increase in salary and other compensation related expenses, a $2.2 million

39

increase in legal fees largely related to patent litigation and a $1.8 million increase in costs related to the additional work required for our remediation plan to address a material weakness in internal control and financial reporting as discussed in Part I, Item 4 "Controls and Procedures" of this quarterly report on Form 10-Q as well as other internal company initiatives.

Amortization of Intangible Assets

        Amortization of intangible assets were $1.7 million and $35,000 for the three months ended September 30, 2008 and 2007, respectively. The increase primarily relates to the amortization of the intangible assets acquired from Nycomed and Arrow during the first and second quarters of 2008, respectively.

Other Income (Expense)

        Interest income was $5.3 million and $11.2 million for the three months ended September 30, 2008 and 2007, respectively, a decrease of approximately 53%. The decrease is due to lower average balances of cash and short- and long-term investments and lower interest rates earned on investments for the three months ended September 30, 2008 compared to the same period in 2007. For the three months ended September 30, 2008 and 2007, the average annualized interest rate that we earned on our investments was 2.55% and 5.10%, respectively.

        Gain on extinguishment of debt was $2.3 million and $0 for the three months ended September 30, 2008 and 2007, respectively. During the third quarter of 2008, we repurchased and retired an aggregate of $31.3 million principal amount of our 0% notes due 2024. In connection with these transactions, we recorded a gain on the retirement of $2.5 million offset by non-cash charges of approximately $200,000 resulting from the write-off of debt issuance costs associated with the retired debt.

        Interest expense was $3.2 million and $88,000 for the three months ended September 30, 2008 and 2007, respectively. The expense in the three months ended September 30, 2008 is primarily related to imputed interest on the contingent liabilities associated with the assets licensed from Arrow.

        Equity in investee losses was $293,000 and $37,000 for the three months ended September 30, 2008 and 2007, respectively. The loss represents our portion of BioSphere Medical, Inc., or BioSphere, losses.

        Other income (expense) was $38,000 and ($621,000), respectively, for the three months ended September 30, 2008 and 2007, respectively. For the three months ended September 30, 2008, we have had minimal gains related to foreign currency transactions and a slight increase in the value of BioSphere warrants.

Income Taxes

        For the three months ended September 30, 2008, our effective tax rate was a benefit of 157% on pre-tax income of $7.6 million compared to an income tax expense of 2.2% for the three months ended September 30, 2007, on pre-tax income of $40.6 million. The net tax benefit recorded for the three months ended September 30, 2008 was principally due to a tax benefit of $11.9 million recorded upon our decision in the third quarter of 2008 to release an additional valuation allowance that had been recorded against net deferred tax assets in the United States. Excluding the effect of these tax benefits, our income tax provision in the three months ended September 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 provision for the three months ended September 30, 2007 is primarily due to foreign income taxes as well as United States Federal and state alternative minimum taxes.

        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

40

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.

        We have a remaining valuation allowance recorded against United States net deferred tax assets of $203.5 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 $25.2 million that will be released in the fourth quarter 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 had 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 had 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. There were no changes to our unrecognized tax benefits in the third quarter of 2008.

Nine Month Periods ended September 30, 2008 and 2007

Revenues

Product Sales Revenue

        Product sales were $864.8 million and $853.7 million for the nine months ended September 30, 2008 and 2007, respectively, an increase of approximately 1%.

        Sales of LUNESTA were $438.4 million and $451.1 million for the nine months ended September 30, 2008 and 2007, respectively, a decrease of approximately 3%. The decrease is primarily the result of a 7% decrease in the number of units sold, which we believe is primarily the result of the April 2007 commercial introduction of zolpidem tartrate, the generic equivalent to AMBIEN, and a reduction in selling and marketing resources. Partially offsetting this decrease was an increase in gross selling price of approximately 20%, which resulted in a net selling price increase of approximately 5%. Adjustments recorded to gross sales are disclosed below under the heading "Analysis of gross sales to net sales."

        Sales of XOPENEX Inhalation Solution were $303.3 million and $344.7 million for the nine months ended September 30, 2008 and 2007, respectively, a decrease of approximately 12%. The decrease in sales was primarily due to a decrease in number of units sold of approximately 12%, which we believe is partially the result of a decline in units sold in the home health care market, which are subject to reimbursement under Medicare Part B. The reimbursement paid by CMS for XOPENEX Inhalation Solution has fallen significantly since July 1, 2007 as a result of the implementation of the blended Medicare Part B reimbursement rate for XOPENEX Inhalation Solution and generic albuterol. Due to the decrease in the reimbursement rate, we have decided to no longer contract with home health care providers for XOPENEX Inhalation Solution. Accordingly, we expect that our sales to

41

Medicare Part B providers will decrease and, as a result, our aggregate units sales and revenues will decrease. However, we expect the decrease in revenues will be proportionately less than the decrease in unit sales due to a reduction in the Medicaid rebate liability associated with sales of XOPENEX Inhalation Solution in the home health care market. The decrease in the number of units sold is also partially attributed to a decrease in market share. We believe that the re-allocation of sales resources in an effort to support the commercial introductions of OMNARIS Nasal Spray and ALVESCO HFA Inhalation Aerosol may have contributed to this decrease in market share. The decrease in number of units sold is partially offset by a gross selling price increase of approximately 20%, which resulted in a net selling price increase of less than 1%. Adjustments recorded to gross sales are disclosed below under the heading "Analysis of gross sales to net sales."

        Sales of XOPENEX HFA were $52.7 million and $50.0 million for the nine months ended September 30, 2008 and 2007, respectively, an increase of approximately 5%. The increase is primarily the result of a net selling price increase of approximately 11%, which was primarily the result of a gross selling price increase of approximately 10%, partially offset by a decrease in the number of units sold of approximately 5%. Adjustments recorded to gross sales are disclosed below under the heading "Analysis of gross sales to net sales."

        Sales of BROVANA were $38.0 million and $7.9 million for the nine months ended September 30, 2008 and 2007, respectively. 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 $8.7 million and $0 for the nine months ended September 30, 2008 and 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."

        Sales of ALVESCO HFA Inhalation Aerosol were $17.1 million and $0 for the nine months ended September 30, 2008 and 2007, respectively. We commercially introduced ALVESCO HFA Inhalation Aerosol in September 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    The following table presents the adjustments deducted from gross sales to arrive at net sales:

		For the Nine Months Ended September 30,
		2008		% of sales			2007		% of sales			$ Change			% Change
		(dollars in thousands) (as restated)
Gross sales		$	1,283,138		100.0	%	$	1,121,158		100.0	%	$	161,980			14	%
Adjustments to gross sales:
	Payment term discounts		25,384		2.0	%		22,440		2.0	%		2,944			13	%
	Wholesaler fee-for-service		18,228		1.4	%		20,874		1.9	%		(2,646	)		(13	)%
	Government and commercial rebates and discounts		348,660		27.2	%		194,521		17.4	%		154,139			79	%
	Returns		17,329		1.3	%		17,181		1.5	%		148			1	%
	Other (includes product introduction discounts)		8,798		0.7	%		12,416		1.1	%		(3,618	)		(29	)%
Sub-total adjustments			418,399		32.6	%		267,432		23.9	%		150,967			56	%
Net sales		$	864,739		67.4	%	$	853,726		76.1	%	$	11,013			1	%

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        The increase in adjustments to gross sales as a percentage of gross sales for the nine months ended September 30, 2008, as compared to the nine months ended September 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;

•

an increase in Medicare Part B discounts given on the sales of XOPENEX Inhalation Solution;

•

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

•

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

•

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

•

partially offsetting these increases was a net decrease in chargebacks given primarily on the sales of XOPENEX HFA.

In addition, the increase in government rebates and contractual discounts was partially offset by:

•

a net decrease in wholesaler fee-for-service discounts primarily related to credits earned during the nine months ended September 30, 2008 due to XOPENEX Inhalation Solution, LUNESTA and XOPENEX HFA gross price increases in that period; and

•

a net decrease in other discounts primarily related to the timing and reduction of XOPENEX HFA coupons distributed.

Royalties and License Fees Revenue

        Royalties and license fees were $57.8 million and $31.5 million for the nine months ended September 30, 2008 and 2007, respectively, an increase of approximately 84%.

        Royalties earned on the sales of ALLEGRA under our agreement with sanofi-aventis were $20.2 million and $15.8 million for the nine months ended September 30, 2008 and 2007, respectively, 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 $18.7 million and $10.6 million for the nine months ended September 30, 2008 and 2007, respectively, an increase of approximately 75%. 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 under our agreements with the UCB entities were $14.6 million and $4.9 million for the nine months ended September 30, 2008 and 2007, respectively, an increase of approximately 198%. The increase is the result of the commercialization of XYZAL in the United States in 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 duration or outcome 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 equivalents 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.

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Costs of Revenues

Cost of Product Sold

        Cost of products sold was $91.6 million and $82.7 million for the nine months ended September 30, 2008 and 2007, respectively.

        Cost of LUNESTA sold as a percentage of LUNESTA gross sales was approximately 5% and 6% for the nine months ended September 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 nine months ended September 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 HFA sold as a percentage of XOPENEX HFA gross sales was approximately 13% and 15% for the nine months ended September 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 in addition to lower manufacturing costs per-unit as a result of an increase in the number of units manufactured during the nine months ended September 30, 2008 as compared to the same period in 2007.

        Cost of BROVANA sold as a percentage of BROVANA gross sales was approximately 12% and 18% for the nine months ended September 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 nine months ended September 30, 2008 as compared to the same period in 2007, in addition to an increase in our gross selling price. 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 than the 30-count package, during the nine months ended September 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 33% for the nine months ended September 30, 2008. We commercially introduced OMNARIS Nasal Spray in April 2008.

        Cost of ALVESCO HFA Inhalation Aerosol sold as a percentage of ALVESCO HFA Inhalation Aerosol gross sales was approximately 23% for the nine months ended September 30, 2008. We commercially introduced ALVESCO HFA Inhalation Aerosol in September 2008.

Cost of Royalty Revenue

        Cost of royalties earned was $1.7 million and $849,000 for the nine months ended September 30, 2008 and 2007, respectively, an increase of approximately 95%. 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 we earned during the nine months ended September 30, 2008 as compared with the same period in 2007.

Research and Development

        Research and development expenses were $187.5 million and $135.2 million for the nine months ended September 30, 2008 and 2007, respectively, an increase of approximately 39%. 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 2-093, 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 the ciclesonide franchise, drug discovery efforts and early-stage programs (SEP-225441, SEP-225289,

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SEP-228425 and SEP-228432), 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 nine months ended September 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 nine months ended September 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 nine months ended September 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 62% of our direct project research and development spending for the nine months ended September 30, 2008. No other product candidate accounted for more than 7% 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-225289	Depression	Phase II	2009

*

Spending relates to post-marketing studies. 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 nine months ended September 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 nine months ended September 30, 2008		Project costs to date through September 30, 2008		Project costs for the nine months ended September 30, 2007		Project costs to date through September 30, 2007
	(in thousands)
LUNESTA (eszopiclone)	$	19,965	$	265,064	$	16,416	$	236,439
BROVANA (arformoterol tartrate)	$	4,752	$	193,520	$	11,017	$	184,948
SEP-225289	$	8,964	$	33,157	$	7,733	$	20,843
SEP-227162	$	9,105	$	30,089	$	8,354	$	16,495
SEP-225441	$	12,556	$	19,789	$	3,521	$	3,521

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Selling, Marketing and Distribution

        Selling, marketing and distribution expenses were $511.3 million and $538.3 million for the nine months ended September 30, 2008 and 2007, respectively, a decrease of approximately 5%. The decrease was largely due to a $71.0 million reduction in marketing, advertising and promotional expenses related to LUNESTA, XOPENEX and BROVANA, partially offset by a $41.3 million increase in marketing and promotional expenses related to OMNARIS Nasal Spray, commercially introduced in April 2008, and ALVESCO HFA Inhalation Aerosol, commercially introduced in September 2008, as well as costs associated with the addition of services of a contract sales organization.

General and Administrative

        General and administrative costs were $79.3 million and $58.5 million for the nine months ended September 30, 2008 and 2007, respectively, an increase of approximately 36%. The increase is primarily the result of a $10.9 million increase in salary and other compensation related expenses, a $5.1 million increase in legal fees largely related to patent litigation, and a $5.6 million increase in costs related to the additional work required for our remediation plan to address a material weakness in internal control and financial reporting as discussed in Part I, Item 4 "Controls and Procedures" of this quarterly report on Form 10-Q as well as other internal company initiatives.

Amortization of Intangible Assets

        Amortization of intangible assets were $5.9 million and $120,000 for the nine months ended September 30, 2008 and 2007, respectively. The increase primarily relates to the amortization of the intangible assets acquired from Nycomed and Arrow in the first and second quarters of 2008, respectively.

Litigation Settlement

        Litigation settlement expense was $0 and $34.0 million for the nine months ended September 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.

Other Income (Expense)

        Interest income was $19.9 million and $34.9 million for the nine months ended September 30, 2008 and 2007, respectively, a decrease of approximately 43%. 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 nine months ended September 30, 2008 compared to the same period in 2007. For the nine months ended September 30, 2008 and 2007, the average annualized interest rate that we earned on our investments was 3.08% and 5.20%, respectively.

46

        Gain on extinguishment of debt was $2.3 million and $0 for the nine months ended September 30, 2008 and 2007, respectively. During the third quarter of 2008, we repurchased and retired an aggregate of $31.3 million principal amount of our 0% notes due 2024. In connection with these transactions, we recorded a gain on the retirement of $2.5 million offset by non-cash charges of approximately $200,000 resulting from the write-off of debt issuance costs associated with the retired debt.

        Interest expense was $5.3 million and $3.0 million for the nine months ended September 30, 2008 and 2007, respectively. The expense for the nine months ended 2008 is primarily related to imputed interest on the contingent liabilities associated with the assets licensed from Arrow. The expense for the nine months ended 2007 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 $768,000 and $441,000 for the nine months ended September 30, 2008 and 2007, respectively, an increase of approximately 74%. The loss represents our portion of BioSphere losses.

        Other expense was $9.4 million and $907,000 for the nine months ended September 30, 2008 and 2007, respectively. The expense in the nine months ended September 30, 2008 primarily represents an other-than-temporary impairment recorded related to our investment in ACADIA.

Income Taxes

        For the nine months ended September 30, 2008, our effective tax rate was a benefit of 1,240% on pre-tax losses of $37.4 million compared to an income tax expense of 4.2% for the nine months ended September 30, 2007, on pre-tax income of $66.1 million. The net tax benefit recorded for the nine months ended September 30, 2008 was principally due to a tax benefit of $463.9 million recorded upon our decision in the second and third 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 nine months ended September 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 provision for the nine months ended September 30, 2007 is primarily due to foreign income taxes as well as U.S. Federal and state alternative minimum taxes.

        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.

        We have a remaining valuation allowance recorded against United States net deferred tax assets of $203.5 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 $25.2 million, which will be released in the fourth quarter 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, in-licensing fees, capital expenditures, working capital, debt service and general corporate expenses. Historically, we have funded these requirements and the growth of our

47

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 September 30, 2008.

        At September 30, 2008, $77.1 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 and third quarters, 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 September 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 $77.1 million. The fair value of these auction-rate securities is 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 September 30, 2008, we determined there was a decline in fair value of our auction-rate securities investments of $3.8 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.

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        Cash, cash equivalents and short- and long-term investments totaled $787.4 million, or 42% of total assets, at September 30, 2008, compared to $1.1 billion, or 76% of total assets, at December 31, 2007.

        Net cash provided by operating activities for the nine months ended September 30, 2008 was $5.6 million, which includes net income of $426.7 million. Our net income includes non-cash adjustments of $305.3 million, consisting primarily of the release of the tax valuation allowance, research and development in-process upon acquisition, share-based compensation, impairment on investments, gain on extinguishment of debt and depreciation and amortization expense. Accounts receivable increased by $42.3 million primarily due to the timing of our sales. Inventory on hand increased by $17.0 million primarily due to timing of deliveries and replenishment of depleted stock. Other assets increased by $20.9 million, which is primarily a result of an increase in prepaid expenses and a change in our deferred tax asset. Accrued expenses decreased by $62.3 million primarily due to the $75.0 million upfront payment we paid to Bial in January 2008. Product sales allowances and reserves increased by $17.4 million primarily due to product revenue rebates related to LUNESTA and XOPENEX Inhalation Solution product sales.

        Net cash used in investing activities for the nine months ended September 30, 2008 was $22.6 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 $34.5 million, partially offset by the cash provided by net sales of short- and long-term investments of $212.7 million.

        Net cash used in financing activities for the nine months ended September 30, 2008 was $25.1 million. We used $29.4 million to repurchase and retire an aggregate of $31.3 million principal amount of our 0% notes due 2024 and we used $268,000 for capital lease obligations. These amounts were partially offset by receipts of $4.6 million from issuing common stock upon the exercise of stock options issued under our stock option plans.

        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 existing 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 2010, 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;

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•

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.

        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.

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         Product sales allowances and reserves:    The following table summarizes activity in each of our product sales allowances and reserve categories for the nine months ended September 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		(25,384	)		(18,228	)		(339,216	)		(17,329	)		(8,798	)		(408,955	)
	Prior year		—			—			(9,444	)		—			—			(9,444	)
	Total		(25,384	)		(18,228	)		(348,660	)		(17,329	)		(8,798	)		(418,399	)
Actual:
	Current year		20,866			5,216			215,731			4,527			7,035			253,375
	Prior year		3,912			11,046			116,557			13,369			2,169			147,053
	Total		24,778			16,262			332,288			17,896			9,204			400,428
Balance at September 30, 2008		$	(4,745	)	$	(14,078	)	$	(223,105	)	$	(23,784	)	$	(2,237	)	$	(267,949	)

        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 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 Measurement:    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; 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 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

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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 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 September 30, 2008:

Contractual Obligations	Total		2008		2009		2010		2011		2012		2013 and beyond
	(In Thousands)
Convertible subordinated debt—principal(1)	$	689,520	$	72,800	$	—	$	148,020	$	—	$	—	$	468,700
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		1,864		311		1,242		311		—		—		—
Operating leases(4)		4,953		473		1,471		1,312		1,208		489		—
Purchase obligations(5)		235,401		178,898		44,659		9,099		1,985		760		—
Total material contractual cash obligations(6)	$	1,049,238	$	252,482	$	84,872	$	198,742	$	3,193	$	21,249	$	488,700

(1)

An aggregate of $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

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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 "Goodwill and Intangible Assets" to our Condensed Consolidated Interim Financial Statements 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 "Goodwill and Intangible Assets" 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 the former shareholders of 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 November 7, 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 September 30, 2008 is estimated to be $3.8 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 sheets. 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 September 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 September 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 September 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 nine months ended September 30, 2008, we have engaged in substantial efforts to address this material weakness and will continue to do so throughout 2008 and into 2009. All of these efforts have been or will be commenced in 2008 and concluded thereafter in as timely a fashion as is reasonably possible. Our ongoing improvements to the internal controls designed to address this material weakness have or will include the following, with the assistance of qualified outside legal counsel:

        I)     Measures have been 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. During the first quarter of 2008, we manually examined all chargebacks for a PHS price invoiced during the first quarter. PHS chargebacks to entities determined through this review to be ineligible for PHS pricing were reversed pending receipt of additional information sufficient to validate their PHS eligibility. We tested the results of these manual reviews 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 has been 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 reviews. This consultant was retained in the second quarter of 2008, and the automated system was used to review all PHS chargebacks paid during the second and third quarters of 2008 and all PHS chargebacks with an

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invoice date between the first quarter of 2002 through the end of the first quarter of 2008. We are targeting full implementation of the system during the first quarter of 2009 and will utilize it thereafter, along with manual reviews, to assess PHS eligibility.

•

contact entities whose status cannot be definitively determined from the manual and automated reviews for additional data sufficient to identify those entities correctly. We have undertaken this process for PHS chargebacks for the first and second quarters of 2008. We are also currently undertaking this process for PHS chargebacks for the third quarter of 2008 and the period from January 1, 2002 through December 31, 2007.

•

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

•

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 reviews discussed above. We have notified CMS regarding our determinations with respect to PHS chargebacks for the first and second quarters of 2008. We are also currently undertaking this process for PHS chargebacks for the third quarter of 2008 and the period from January 1, 2002 through December 31, 2007.

•

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 two individuals to perform manual intervention for PHS pricing requests while the automated system is being implemented. These people 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 on a quarterly basis a sample of entities that were classified by the automated system 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 for two test quarters 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 the end of the second quarter of 2009. 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 duration or outcome 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 equivalents of any of our marketed products or third-party products for which we have licensed rights to our patents before the expiration of our or our collaborators' 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 sought 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 will 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.

        In May 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

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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.

        In March 2008, the trial judge consolidated the Dey L.P. and Barr cases for all purposes, including discovery and trial, and the consolidated case is pending as C.A. No. 06-113. 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. No. 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. We filed a Motion to Dismiss for lack of subject matter jurisdiction in response to the Complaint and the court has not yet issued its decision.

        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.

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The 180 day semi-exclusivity period would begin to run only upon first commercial marketing by the first filer. There are, however, also certain events that could cause the first filer to forfeit the 180-day semi-exclusivity period, which we refer to as a forfeiture event.

        For our 1.25 mg/3 mL, 0.63 mg/3 mL, and 0.31 mg/3 mL 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 infringes 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 products 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 eleven 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 eleven 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 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,

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Sandoz Inc., or Sandoz and Pliva Hrvatska D.O.O. and Barr, or Pliva/Barr, 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 actions in Delaware and New Jersey have 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 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, the trial will begin no earlier than October 2, 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 August 2008, the court granted our 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.

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 the 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.

        The LCA announcement in March 2006 was subsequently stayed by the Medicare Administration Subcontractors pending a National Coverage Analysis by CMS that we expected would determine the criteria for when XOPENEX Inhalation Solution would be appropriate for use by the Medicare population. CMS ultimately did not establish any national coverage criteria for short-acting beta-agonists and instead deferred any such action to the Medicare Administration Subcontractors. 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 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

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Subcontractors announced they would suspend the LCA and not reinstate it at any time prior to December 31, 2008. CMS filed a motion to dismiss the Medicare beneficiary lawsuit on the grounds that the case is moot since, as given their decision to suspend the LCA, no LCA is in effect or pending that could cause irreparable injury to the beneficiaries.

        The reimbursement paid by CMS for XOPENEX Inhalation Solution has fallen significantly since July 1, 2007 as a result of the implementation of the blended Medicare Part B reimbursement rate for XOPENEX Inhalation Solution and generic racemic albuterol. Due to the decrease in the reimbursement rate, we have decided to no longer contract with home health care providers for XOPENEX Inhalation Solution beginning January 1, 2009. Accordingly, the Medicare beneficiaries have withdrawn the case as it is now moot and no further action is expected from the court.

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 the defendant in two separate lawsuits filed in the United States District Court for the Middle District of Florida (Sharp, et al., filed July 17, 2008) and the United States District Court for the District of Arizona (Greaves, et al., served September 9, 2008) claiming that our pharmaceutical sales representatives should have been categorized as "non-exempt" rather than "exempt" employees under the Fair Labor Standards Act. Both lawsuits claim that we owe damages, overtime wages, interest, costs and attorneys' fees for periods preceding the filing of the respective actions. 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 either collective action will result in liability that would be material to our financial position. We believe these lawsuits are without merit and we are prepared to defend against them 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 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, maintain or increase 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 80% of our total revenues for the nine months ended September 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 Inhalation Solution decreased during the nine months ended September 30, 2008, as compared to the same period during the prior year, 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 and 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:

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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;

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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 duration or outcome 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 equivalents 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 our revenue may be further adversely affected as a result these changes.

        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

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

        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 15% of our XOPENEX Inhalation Solution units sold are subject to reimbursement under Medicare Part B. The reimbursement paid by CMS for XOPENEX Inhalation Solution has fallen significantly since July 1, 2007 as a result of the implementation of the blended Medicare Part B reimbursement rate for XOPENEX Inhalation Solution and generic albuterol. Due to the decrease in the reimbursement rate, we have decided to no longer contract with home health care providers for XOPENEX Inhalation Solution beginning January 1, 2009. Accordingly, we expect that our sales to Medicare Part B providers will decrease and, as a result, our aggregate unit sales and revenues will decrease. However, we expect the decrease in revenues will be proportionately less than the decrease in unit sales due to a reduction in the Medicaid rebate liability associated with sales of XOPENEX Inhalation Solution in the home health care market.

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

        As of September 30, 2008, our total debt was approximately $689.5 million. None of our 0% Series A notes due December 2008, our 0% Series B notes due December 2010 or 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 October 31, 2008, the closing sale price of our common stock was $13.32. 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 our 0% Series B notes due 2010 or upon conversion of our 0% notes due 2024.

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        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 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 September 30, 2008, we had approximately $220.8 million of outstanding debt that could be converted into common stock and an additional $468.7 million of outstanding debt that could be converted into cash and, if applicable, shares of our common stock. In order to reduce future payments due at maturity, we may, from time to time, depending on market conditions, repurchase additional outstanding convertible debt for cash; exchange debt for shares of our common stock, warrants, preferred stock, debt or other consideration; or a combination of any of the foregoing. 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 Part I, Item 4, "Controls and Procedures" of this quarterly report on Form 10-Q, 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

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may identify additional control deficiencies in the future that individually or in the aggregate constitute a material weakness. If we fail to adequately remediate the identified material weakness or there are other undetected or uncorrected deficiencies in our internal controls, we could fail to meet our reporting obligations, we could have material misstatements in our financial statements and, under certain circumstances, could be subject to legal liability. In addition, inferior controls could cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our common stock.

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

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

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

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

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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 will be paid in cash rather than converted into common stock pursuant to the terms of such debt;

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•

whether the 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.

Our effective tax rate may increase or fluctuate, which could increase our income tax expense and reduce our net income.

        Our effective tax rate could be adversely affected by several factors, many of which are outside of our control, including:

•

material differences between forecasted and actual tax rates as a result of a shift in the mix of pretax profits and losses in different tax jurisdictions, our ability to use tax credits, or effective tax rates by tax jurisdiction being different than our estimates;

•

changing tax laws, accounting standards, such as occurred with the introduction of FAS No. 123R and FIN No. 48, regulations, and interpretations in multiple tax jurisdictions in which we operate, as well as the requirements of certain tax rulings;

•

an increase in expenses not deductible for tax purposes, including certain stock-based compensation expense, write-offs of acquired in-process research and development and impairment of goodwill;

•

the tax effects of purchase accounting for acquisitions and restructuring charges that may cause fluctuations between reporting periods;

•

changes in the valuation of our deferred tax assets and liabilities;

•

changes in tax laws or the interpretation of such tax laws; and

•

tax assessments resulting from income tax audits or any related tax interest or penalties.

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 September 30, 2008, $77.1 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 and third quarters, 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

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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 September 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 $77.1 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 September 30, 2008, we determined there was a decline in fair value of our auction-rate securities investments of $3.8 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.

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:

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timing and extent of product sales and market penetration;

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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;

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

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timing of product introductions;

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

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changes in third-party reimbursement policies;

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introduction of competitive products into the market;

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results of clinical trials with respect to products under development;

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

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•

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;

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

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

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

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

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timing and success of expansion into foreign markets;

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

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

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

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

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

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

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non-cumulative voting for directors;

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

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

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

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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.

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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 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 nine months ended September 30, 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 we believe 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.

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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.

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.

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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. We estimate that our existing OMNARIS Nasal Spray prescriptions account for less than 1% of the total annual prescriptions currently being written in the United States for allergic rhinitis pharmaceutical therapies, and less and 1% of inhaled nasal corticosteroid allergic rhinitis pharmaceutical therapies, specifically. 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

        ALVESCO HFA Inhalation Aerosol, an inhaled corticosteroid in a MDI, competes with other asthma therapies, including asthma controller therapies, and faces 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, 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.

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

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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 increased 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 willoffset 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 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.

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 sales force reduction in late 2007 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 sales force reduction in late 2007, 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 increased 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

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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 or other regulatory authorities 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 good manufacturing practices, or 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.

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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 several of our customers. Under the FFSAs, we pay 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 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 these customers significantly decrease their inventory levels, or if inventory level data provided through FFSAs is inaccurate, our business, financial condition, cash flows and results of operations may also be adversely affected.

Risks Related to the Regulatory Environment

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

        The FDA and similar foreign agencies must approve for commercialization 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

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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

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

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

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

Our sales depend on payment and reimbursement from third-party payors, and limitations on coverage availability or 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, state and foreign 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.

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        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, conducting comparative effectiveness evaluations, 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 our 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 marketed 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- 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.

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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 marketing 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.

        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

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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, the FDA approved CLARITIN® and ZYRTEC®, respectively, 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, 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.

        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

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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.

Failure to comply with existing and future environmental, safety and health laws and regulations could adversely affect our results of operations and financial condition.

        We are subject to numerous environmental, safety and health laws and regulations. These laws and regulations govern, among other things, the generation, use and storage of hazardous materials as well as the health and safety of our employees. Our operations can involve the handling of hazardous and other highly regulated materials which, if not properly handled or disposed of, could subject us to civil and criminal liabilities under these laws and regulations. We may have not been, and we may not at all times in the future be, in compliance with such environmental, safety and health laws and regulations.

        The costs of complying with existing and future environmental, safety and health laws and regulations may be significant. In addition to these costs, the costs and expenses associated with any future claims for personal injury or the clean-up of hazardous materials could adversely affect our results of operations and financial condition.

Risks Related to Our Intellectual Property

If we or our collaboration partners fail to adequately protect or enforce our respective intellectual property rights, then we could lose revenue under our licensing agreements or lose sales to generic equivalents of our marketed 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, and the ability of our collaboration partners, to obtain and maintain patents, including successful enforcement of those

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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 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 or our licensees do not prevail against those parties seeking to market generic versions of our products or products for which we receive royalties, 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 Pharmaceuticals U.S.A., or Teva, Watson Laboratories, Inc., or Watson, and Apotex Inc., or 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, Teva and Apotex as their respective Paragraph IV certifications are limited to a single patent that expires in 2021.

        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 will 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

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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 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 eleven 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

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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 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 duration or outcome 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 equivalents 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, the trial will begin no earlier than

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October 2, 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 August 2008, the court granted our 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.

        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 Corporation, or 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 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 ciclesonide compound, 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

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may not realize, or may be delayed in realizing, the potential commercial benefits of the arrangement. For example, in October 2008, the CHMP of the EMEA issued an opinion recommending the grant of a marketing authorization for LUNIVIA brand eszopiclone in the EU for the treatment of insomnia; however, the opinion did not include a new active substance designation, which we believe would enable more favorable commercialization of the product. While we have requested a re-examination of the opinion relative to the exclusion of the new active substance designation, if such designation is not granted, we may not realize the expected commercial benefit of our LUNIVIA arrangement.

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

        We have entered into licensing arrangements pursuant to which we license patents to pharmaceutical companies and our revenues under these licensing arrangements consist primarily of milestone payments, royalties on sales of products and supply payments. Payments and royalties under these arrangements depend in large part on the efforts of our licensing partners in countries where we hold patents, including development and sales efforts and enforcement of patents, which we cannot control. If any of our licensing partners do not devote sufficient time and resources to its licensing arrangement with us or focuses its efforts in countries where we do not hold patents, we may not realize the potential commercial benefits of the arrangement, our revenues under these arrangements may be less than anticipated and our results of operations may be adversely affected. If any of our licensing partners was to breach or terminate its agreement with us or fail to perform its obligations to us in a timely manner, the royalties and other payments we receive under the licensing agreement could decrease or cease. If we are unable or fail to perform, or 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 internally developed product candidates in amounts needed for our clinical trials. However, we do not have 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

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realize the potential commercial benefits of our supply and/or licensing arrangements with these parties and our results of operations may be adversely affected. If we are required to change manufacturers, we will be required to verify that the new manufacturer maintains facilities and procedures that comply with quality standards and with all applicable regulations and guidelines, including FDA guidelines. The delays associated with the verification of a new manufacturer for XOPENEX Inhalation Solution, XOPENEX HFA or its components, BROVANA or LUNESTA could adversely affect our ability to produce such products in a timely manner or within budget.

        Pursuant to our distribution, development and commercialization agreement with Nycomed, Nycomed will be responsible for exclusively manufacturing and supplying us with our requirements of ALVESCO HFA Inhalation Aerosol and OMNARIS Nasal Spray. Furthermore, in the event that we develop and commercialize any additional products containing the ciclesonide compound, including OMNARIS HFA, we will rely on Nycomed and/or other third parties for the manufacture and supply of such products. If any manufacturer of a ciclesonide product experiences delays or difficulties in producing, packaging or delivering ALVESCO HFA Inhalation Aerosol, OMNARIS Nasal Spray or other products containing the ciclesonide compound, 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 six products. 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

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

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

•

manufactured or produced economically;

•

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

•

complementary to our existing product portfolio; or

•

widely accepted in the marketplace.

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

We may undertake strategic acquisitions in the future and any difficulties from integrating 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

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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.

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 2-5.    NONE

ITEM 6.    EXHIBITS

10.1	Amended and Restated Employment Agreement by and between the Registrant and Adrian Adams dated November 6, 2008
10.2	Amended and Restated Employment Agreement by and between the Registrant and Mark H.N. Corrigan, M.D. dated November 6, 2008
10.3	Amended and Restated Employment Agreement by and between the Registrant and Mark Iwicki dated November 6, 2008
10.4	Amended and Restated Employment Agreement by and between the Registrant and Andrew I. Koven dated November 6, 2008
10.5	Amended and Restated Employment Agreement by and between the Registrant and Richard Ranieri dated November 6, 2008
10.6	Amended and Restated Employment Agreement by and between the Registrant and Robert F. Scumaci dated November 6, 2008
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.

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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: November 7, 2008	By:	/s/ ADRIAN ADAMS Adrian Adams President and Chief Executive Officer (Principal Executive Officer)
Date: November 7, 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	Amended and Restated Employment Agreement by and between the Registrant and Adrian Adams dated November 6, 2008
	10.2	Amended and Restated Employment Agreement by and between the Registrant and Mark H.N. Corrigan, M.D. dated November 6, 2008
	10.3	Amended and Restated Employment Agreement by and between the Registrant and Mark Iwicki dated November 6, 2008
	10.4	Amended and Restated Employment Agreement by and between the Registrant and Andrew I. Koven dated November 6, 2008
	10.5	Amended and Restated Employment Agreement by and between the Registrant and Richard Ranieri dated November 6, 2008
	10.6	Amended and Restated Employment Agreement by and between the Registrant and Robert F. Scumaci dated November 6, 2008
	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.

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PART I—FINANCIAL INFORMATION
Item 1. Financial Statements

SEPRACOR INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In Thousands)
SEPRACOR INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In Thousands, Except Per Share Amounts)
SEPRACOR INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In Thousands)
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 4. CONTROLS AND PROCEDURES

PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

ITEM 1A. RISK FACTORS

ITEMS 2-5. NONE
ITEM 6. EXHIBITS

SIGNATURES
Exhibit Index

EX-10.1

Exhibit 10.1

AMENDED AND RESTATED

EMPLOYMENT AGREEMENT

THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the “Agreement”), made this 6^th day of November 2008, 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 Adrian Adams, residing at 322 Winfield Road, Devon, Pennsylvania 19333 (the “Executive”).

The Company desires to employ the Executive and the Executive desires to be employed by the Company, and in connection therewith the Company and the Executive entered into an Employment Agreement, dated March 1, 2007 (the “Original Agreement”).  The Company and the Executive wish to amend and restate the Original Agreement as provided for herein.  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 that the Original Agreement is amended and restated in its entirety as follows:

1.             Term of Employment.  The Company hereby agrees to employ the Executive and the Executive hereby accepts employment with the Company, upon the terms set forth in this Agreement, for the period commencing on March 1, 2007 (the “Commencement Date”) and ending on March 1, 2012 (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  March 1, 2012, 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 initially serve as President and Chief Operating Officer of the Company and in that capacity 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.  The Company acknowledges that it is the present expectation of the Board and the parties hereto that Executive will be elected to the position of Chief Executive Officer within six months of the Commencement Date.  At such time as the Executive is elected to the position of Chief Executive Officer, he shall report directly to the Board and shall assume the duties and responsibilities inherent in such position and such other duties and responsibilities as the Board shall from time to time reasonably assign to him.

Executive shall also perform such other duties consistent with his position at such time as may be reasonably assigned by the Chief Executive Officer (if Executive does not then hold such position) and/or the Board of Directors of the Company (the “Board”) from time to time.  Executive shall serve on the Board and may also serve as a director or officer of any of the Company’s operating subsidiaries if the Executive shall be elected to such position, for no additional compensation or benefits.  The Executive hereby accepts such service and agrees to undertake the duties and responsibilities inherent in such positions.  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.

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Notwithstanding anything herein to the contrary, Executive shall be entitled to engage in (a) service on the board of directors of a no more than three other companies, businesses or trade organizations, provided, that, the Executive shall provide the Company prior written notice of his intention to join any such board and provided further that he shall not serve on the board of any entity that competes with the Company, (b) service on the board of directors of not-for-profit or charitable organizations, (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 pay to the Executive a base salary at the annualized rate of $800,000 (“Base Salary”) commencing on the Commencement Date.  The Base Salary shall be subject to annual review by the Board but shall not be reduced below $800,000 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 one hundred percent (100%) of Base Salary.  For fiscal year 2007, the Executive shall be entitled to a pro rata guaranteed bonus based on an Annual Bonus of one hundred percent (100%) of

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his 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           Stock and Option Grant.  At the first meeting of the Compensation Committee of the Board of Directors following the Executive’s first day of employment, the Company shall grant to the Executive, under the Company’s 2000 Stock Incentive Plan (the “Stock Plan”), 125,000 shares of restricted stock and an option to purchase 500,000 shares of Company stock (the “Initial Grant”).  The terms and conditions of the Initial Grant (other than the exercise price per share, which shall be equal to the closing price of the Company’s stock on the grant date) shall be set forth in the award agreements attached hereto as Schedules A and B.  The stock option portion of the Initial Grant shall vest in five equal installments on each of the first five anniversaries of the grant date, and the restricted stock award portion of the Initial Grant shall vest in three equal installments on each of the first three anniversaries of the grant date.  The Board, in its sole discretion, may grant further incentive compensation awards to the Executive from time to time.  The Company represents and warrants to Executive that the Company has full power and authority, subject to Compensation Committee approval, and shares available under the Stock Plan to make the Initial Grant.

3.4           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 four (4) weeks

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paid vacation per year, accruing at a rate of 1.67 days per month during the Employment Period and to be taken at such times as may be reasonably determined by Executive consistent with his duties.

3.5           Reimbursement of Expenses.  The Company shall reimburse the Executive for all reasonable travel (which shall be deemed to include first class airfare or reimbursement or equivalent to a first class airfare ticket in the event Executive uses his personal time-share aircraft), 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 or in connection with Executive’s commuting to and from his personal residence in the Philadelphia area and the Company’s offices, upon presentation by the Executive of documentation, expense statements, vouchers and/or such other supporting information as the Company may request.

3.6           Housing Expenses.  The Company understands that the Executive intends to maintain his primary residence outside the Massachusetts area.  The Company agrees to provide the Executive with a housing allowance for reasonable housing and living expenses of $5,600 per month, related to the rental or purchase of a home, within suitable distance to the Company’s headquarters, which payment shall be made on a fully tax grossed-up basis.  The Company also will reimburse the Executive for (i) reasonable travel, meals and lodging expenses incurred by him for up to two trips for the purpose of securing such house or apartment within a suitable distance to the Company’s headquarters and (ii) reasonable moving expenses in relocating his belongings from his residence in Florida to such house or apartment.

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3.7           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 $15,000.

3.8           Automobile.  The Company agrees to provide the Executive with an automobile allowance or a leased automobile with a retail value of up to $75,000, 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.

3.9           Withholding.  All salary, bonus and other compensation payable to the Executive shall be subject to applicable withholding taxes.

4.             Employment Termination.  This Agreement and the employment of the Executive under this Agreement shall terminate upon the occurrence of any of the following:

4.1           At the election of the Executive if the Company fails to name him Chief Executive Officer of the Company within six (6) months from the Commencement Date, on the date of such election.

4.2           On the expiration date of the Employment Period.

4.3           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 4.3, 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

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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 this Agreement by the Executive.  For purposes of this Section 4.3, 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.

4.4           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.

4.5           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

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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.

4.6           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.

4.7           At the election of the Company, without Cause, upon not less than sixty (60) days written notice to Executive.

4.8           At the election of the Company or the Executive in connection with a Change in Control of the Company as set forth in the Executive Retention Agreement between the Company and the Executive (the “ERA”), dated as of the date hereof.  For purposes of this Agreement, “Change in Control” shall have the meaning set forth in the ERA.

5.             Effect of Termination.

5.1           Termination For Failing To Name Executive CEO.  In the event the Company fails to name Executive to the position of Chief Executive Officer of the

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Company within six (6) months from the Commencement Date, and he elects to terminate his employment, 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 C hereto (the “Separation Agreement”), the Company shall pay or cause to be paid to Executive, within thirty (30) days of the date of his termination: (1) a lump-sum payment of two million dollars ($2,000,000); and (2) the amount of any accrued but unpaid Base Salary, unused vacation and unreimbursed business, housing and automobile expenses and the Company thereafter shall have no further obligation to Executive under this Agreement, other than for payment of any other amounts or benefits accrued and vested under any applicable benefit plan or otherwise in accordance with applicable law.

5.2           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 4.2, for Cause by the Company pursuant to Section 4.3, or at the election of the Executive 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.

5.3           Termination for Death or Disability.  In the event the Executive’s employment is terminated by death or because of disability pursuant to Section 4.4, 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

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end of the month in which the termination of his employment because of death or disability occurs; and (B) an annual bonus 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, payable when bonuses are paid for that year (a “Pro Rata Bonus”).  In addition, the Company shall permit Executive or Executive’s estate or representative to exercise the vested stock option portion of the Initial Grant for a period of no less than one year after any such termination of employment.

5.4           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 4.5 or by the Company without Cause pursuant to Section 4.7, 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 the Separation Agreement, the Company shall: (1) continue to pay the Executive the Base Salary for twenty-four (24) months in accordance with the Company’s regular payroll practices; (2) pay the Executive a Pro Rata Bonus; (3) pay the Executive, in bi-weekly installments, over a twenty-four month period, an amount equal in the aggregate to two (2) times the average Annual Bonus earned for the two years prior to the date of his termination (in the event Executive has not been employed for a sufficient period to earn two such bonuses, such calculation shall be made assuming Executive earned a bonus for any such year at a target level of performance (taking into account any minimum bonus amount)); (4) provide to the Executive for two (2) years

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following the date of his termination, payment of COBRA premiums for medical, dental, and vision benefits pursuant to plans maintained by the Company under which Executive and/or Executive’s family is eligible to receive benefits; provided, however, that, notwithstanding the foregoing, the benefits described in this subsection may be discontinued prior the end of the period, but only to the extent, that Executive receives substantially similar benefits from a subsequent employer; and (5) permit Executive to exercise the stock option portion of the Initial Grant for a period of no less than six months after the date of termination.

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 5.4(4) or the period referred to in Section 4.2(b) of the ERA, in the event the Executive elects to participate in the Company’s executive retiree health benefit program set forth on Exhibit A hereto (the “Program”), he will reimburse the Company with respect to his participation in the Program 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           Termination Following a Change in Control.  In the event the Executive’s employment is terminated pursuant to Section 4.8 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.

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5.7           Payments Subject to Section 409A.

(a)           Subject to this Section 5.7, 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

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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 5.7 (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.

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(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 or service developed, produced, marketed, sold or rendered by the Company while the Executive was employed by the Company;

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(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 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.

(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 material breach of this Agreement will cause the Company substantial and irrevocable damage and therefore, in the event of any such material 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.

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(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

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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 Board of Directors or a designee of the Board of Directors, 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 Company or other third parties who may have disclosed or entrusted the same to the Company or to the Executive.

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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

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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 Executive Vice President of Research and Development or the General Counsel 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 Executive Vice President of Research and Development or the General Counsel 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

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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, other than documents filed with the Securities and Exchange Commission, 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 (i) competing, directly or indirectly, with the business of any former employer or others or (ii) 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.

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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, without limitation, the Original Agreement.

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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 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.

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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/ Timothy J. Barberich
Title:	Chairman of the Board
/s/ Adrian Adams
Adrian Adams

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Exhibit A

Program Terms

The Executive shall be entitled to continued access to health benefits under, at the Executive’s election, the Company’s Blue Cross Blue Shield PPO Policy or BlueChoice Policy (the “Policies”), following the Executive’s retirement from the Company, for so long as (A) the Company continues to offer such Policy and (B) the Policy allows for such continued access; and, to the extent the Company no longer maintains at least one of the Policies, or access is no longer allowed under either of the Policies, the Company shall allow the Executive continued access to health benefits under a successor policy, or otherwise, for so long as it offers health benefits to its employees.

SCHEDULE A
FORM OF RESTRICTED STOCK AGREEMENT

SEE ATTACHED AGREEMENT

SEPRACOR INC.

Restricted Stock Agreement

Name of Recipient:

Number of shares of restricted common
stock awarded:

Grant Date:

Sepracor Inc. (the “Company”) has selected you to receive the restricted stock award described above, which is subject to the provisions of the Company’s 2000 Stock Incentive Plan (the “Plan”) and the terms and conditions contained in this Restricted Stock Agreement.  Please confirm your acceptance of this restricted stock award and of the terms and conditions of this Agreement by signing a copy of this Agreement where indicated below.

	SEPRACOR INC.
	By:
	[insert name and title]
Accepted and Agreed:
[insert name of recipient]

SEPRACOR INC.

Restricted Stock Agreement

The terms and conditions of the award of shares of restricted common stock of the Company (the “Restricted Shares”) made to the Recipient, as set forth on the cover page of this Agreement, are as follows:

1.             Issuance of Restricted Shares.

(a)           The Restricted Shares are issued to the Recipient, effective as of the Grant Date (as set forth on the cover page of this Agreement), in consideration of employment services rendered and to be rendered by the Recipient to the Company.

(b)           The Restricted Shares will initially be issued by the Company in book entry form only, in the name of the Recipient.  Following the vesting of any Restricted Shares pursuant to Section 2 below, the Company shall, if requested by the Recipient, issue and deliver to the Recipient a certificate representing the vested Restricted Shares.   The Recipient agrees that the Restricted Shares shall be subject to the forfeiture provisions set forth in Section 3 of this Agreement and the restrictions on transfer set forth in Section 4 of this Agreement.

2.             Vesting.

(a)           Vesting Schedule.  Unless otherwise provided in this Agreement or the Plan, the Restricted Shares shall vest in accordance with the following vesting schedule:  [     % of the total number of Restricted Shares shall vest on the first anniversary of the Grant Date and      % of the total number of Restricted Shares shall vest on each successive anniversary thereafter, through and including the       anniversary of the Grant Date].  Any fractional number of Restricted Shares resulting from the application of the foregoing percentages shall be rounded down to the nearest whole number of Restricted Shares.

(b)           Acceleration of Vesting.  Notwithstanding the foregoing vesting schedule, as provided in the Plan, all unvested Restricted Shares shall vest effective immediately prior to a Change in Control Event (as defined in the Plan).

3.             Forfeiture of Unvested Restricted Shares Upon Employment Termination.

In the event that the Recipient ceases to be employed by, a director of, or a consultant or advisor to, the Company for any reason or no reason, with or without cause all of the Restricted Shares that are unvested as of the time of such employment termination shall be forfeited immediately and automatically to the Company, without the payment of any consideration to the Recipient, effective as of such termination of employment.  The Recipient shall have no further rights with respect to any Restricted Shares that are so forfeited.  If the Recipient is employed by a subsidiary of the Company, any references in this Agreement to employment with the Company shall instead be deemed to refer to employment with such subsidiary.

4.             Restrictions on Transfer.

                The Recipient shall not sell, assign, transfer, pledge, hypothecate or otherwise dispose of, by operation of law or otherwise (collectively “transfer”) any Restricted Shares, or any interest therein, until such Restricted Shares have vested, except that the Recipient may transfer such Restricted Shares as part of the sale of all or substantially all of the shares of capital stock of the Company (including pursuant to a merger or consolidation).  The Company shall not be required (i) to transfer on its books any of the Restricted Shares which have been transferred in violation of any of the provisions of this Agreement or (ii) to treat as owner of such Restricted Shares or to pay dividends to any transferee to whom such Restricted Shares have been transferred in violation of any of the provisions of this Agreement.

5.             Restrictive Legends.

                The book entry account reflecting the issuance of the Restricted Shares in the name of the Recipient shall bear a legend or other notation upon substantially the following terms:

                “These shares of stock are subject to forfeiture provisions and restrictions on transfer set forth in a certain Restricted Stock Agreement between the corporation and the registered owner of these shares (or his or her predecessor in interest), and such Agreement is available for inspection without charge at the office of the Secretary of the corporation.”

6.             Rights as a Shareholder.

                Except as otherwise provided in this Agreement, for so long as the Recipient is the registered owner of the Restricted Shares, the Recipient shall have all rights as a shareholder with respect to the Restricted Shares, whether vested or unvested, including, without limitation, any rights to receive dividends and distributions with respect to the Restricted Shares and to vote the Restricted Shares and act in respect of the Restricted Shares at any meeting of shareholders.

7.             Provisions of the Plan.

                This Agreement is subject to the provisions of the Plan, a copy of which is furnished to the Recipient with this Agreement.  As provided in the Plan, upon the occurrence of a Reorganization Event (as defined in the Plan), the rights of the Company hereunder (including the right to receive forfeited Restricted Shares) shall inure to the benefit of the Company’s successor and, unless the Board determines otherwise, shall apply to the cash, securities or other property which the Restricted Shares were converted into or exchanged for pursuant to such Reorganization Event in the same manner and to the same extent as they applied to the Restricted Shares under this Agreement.

8.             Tax Matters.

(a)            Acknowledgments; Section 83(b) Election.  The Recipient acknowledges that he or she is responsible for obtaining the advice of the Recipient’s own tax advisors with respect to the acquisition of the Restricted Shares and the Recipient is relying solely on such advisors and not on any statements or representations of the Company or any of its agents with respect to the tax consequences relating to the Restricted Shares.  The Recipient understands that the Recipient (and not the Company) shall be responsible for the Recipient’s tax liability that may arise in connection with the acquisition, vesting and/or disposition of the Restricted Shares.

The Recipient acknowledges that he or she has been informed of the availability of making an election under Section 83(b) of the Internal Revenue Code, as amended, with respect to the issuance of the Restricted Shares and that the Recipient has decided not to file a Section 83(b) election.

(b)           Withholding. The Recipient acknowledges and agrees that the Company has the right to deduct from payments of any kind otherwise due to the Recipient any federal, state, local or other taxes of any kind required by law to be withheld with respect to the vesting of the Restricted Shares.  On each date on which Restricted Shares vest, the Company shall deliver written notice to the Recipient of the amount of withholding taxes due with respect to the vesting of the Restricted Shares that vest on such date; provided, however, that the total tax withholding 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).  The Recipient shall satisfy such tax withholding obligations by making a cash payment to the Company on the date of vesting of the Restricted Shares, in the amount of the Company’s withholding obligation in connection with the vesting of such Restricted Shares.

9.             Miscellaneous.

(a)           No Right to Continued Employment.  The Recipient acknowledges and agrees that, notwithstanding the fact that the vesting of the Restricted Shares is contingent upon his or her continued employment by the Company, this Agreement does not constitute an express or implied promise of continued employment or confer upon the Recipient any rights with respect to continued employment by the Company.

(b)           Governing Law.  This Agreement shall be construed, interpreted and enforced in accordance with the internal laws of the State of Delaware without regard to any applicable conflicts of laws provisions.

SCHEDULE B
FORM OF STOCK OPTION AGREEMENTS

SEE ATTACHED AGREEMENT

SEPRACOR INC.

Form of Incentive Stock Option Agreement

Granted Under 2000 Stock Incentive Plan

1.             Grant of Option.

                This agreement evidences the grant by Sepracor Inc., a Delaware corporation (the “Company”), on the Grant Date indicated on the preceding Certificate of Stock Option Grant (the “Certificate”) to an employee, consultant, or director of the Company (the “Participant”), of an option to purchase, in whole or in part, on the terms provided herein and in the Company’s 2000 Stock Incentive Plan (the “Plan”), the number of shares (the “Shares”) of common stock, $.10 par value per share,  of the Company (“Common Stock”),indicated on the certificate at the price per Share indicated on the Certificate. Unless earlier terminated, this option shall expire on the Grant Expiration Date indicated on the Certificate (“Grant Expiration Date”).

                It is intended that the option evidenced by this agreement shall not be an incentive stock option as defined in Section 422 of the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder (the “Code”).  Except as otherwise indicated by the context, the term “Participant”, as used in this option, shall be deemed to include any person who acquires the right to exercise this option validly under its terms.

2.             Vesting Schedule.

                This option will become exercisable (“vest”) pursuant to the Vesting Schedule indicated on the Certificate (“Vesting Schedule”).

                The right of exercise shall be cumulative so that to the extent the option is not exercised in any period to the maximum extent permissible it shall continue to be exercisable, in whole or in part, with respect to all shares for which it is vested until the earlier of the Grant Expiration Date or the termination of this option under Section 3 hereof or the Plan.

3.             Exercise of Option.

(a)            Form of Exercise. Each election to exercise this option shall be in writing, signed by the Participant, and received by the Company at its principal office, accompanied by this agreement, and payment in full in the manner provided in the Plan. The Participant may purchase less than the number of shares covered hereby, provided that no partial exercise of this option may be for any fractional share.

(b)           Continuous Relationship with the Company Required.  Except as otherwise provided in this Section 3, this option may not be exercised unless the Participant, at the time he or she exercises this option, is, and has been at all times since the Grant Date, an [employee or officer of], or consultant or advisor to, the Company or any parent or subsidiary of the Company as defined in Section 424(e) or (f) of the Code (an “Eligible Participant”).

(c)            Termination of Relationship with the Company. If the Participant ceases to be an Eligible Participant for any reason, then, except as provided in paragraphs (d) and (e) below, the right to exercise this option shall terminate three months after such cessation (but in no event after the Grant Expiration Date), provided that this option shall be exercisable only to the extent that the Participant was entitled to exercise this option on the date of such cessation.  Notwithstanding the foregoing, if, following the time the Participant has ceased to be an Eligible Participant, but prior to the Grant Expiration Date, the Participant materially breaches Section 6 or 7 of the Employment Agreement between the Participant and the Company dated March 1, 2007 (the “Employment Agreement”), the right to exercise this option shall terminate immediately upon written notice to the Participant from the Company describing such violation.

(d)           Exercise Period Upon Death or Disability.  If the Participant dies or becomes disabled (within the meaning of Section 22(e)(3) of the Code) prior to the Grant Expiration Date while he or she is an Eligible Participant and the Company has not terminated such relationship for “cause” as specified in paragraph (e) below, this option shall be exercisable, within the period of one year following the date of death or disability of the Participant, by the Participant (or in the case of death by an authorized transferee), provided that this option shall be exercisable only to the extent that this option was exercisable by the Participant on the date of his or her death or disability, and further provided that this option shall not be exercisable after the Grant Expiration Date.

(e)            Discharge for Cause.  If the Participant, prior to the Grant Expiration Date, is discharged by the Company for “cause” (as defined below), the right to exercise this option shall terminate immediately upon the effective date of such discharge.  “Cause” shall have the meaning set forth in the Employment Agreement.

4.             Withholding.

                No Shares will be issued pursuant to the exercise of this option unless and until the Participant pays to the Company, or makes provision satisfactory to the Company for payment of, any federal, state or local withholding taxes required by law to be withheld in respect of this option.

5.             Nontransferability of Option.

                This option may not be sold, assigned, transferred, pledged or otherwise encumbered by the Participant, either voluntarily or by operation of law, except by will or the laws of descent and distribution, and, during the lifetime of the Participant, this option shall be exercisable only by the Participant.

6.             Disqualifying Disposition.

                If the Participant diposes of Shares acquired upon exercise of this option within two years from the Grant Date or one year after such Shares were acquired pursuant to exercise of this option, the Participant shall notify the Company in writing of such disposition.

7.             Provisions of the Plan.

                This option is subject to the provisions of the Plan, a copy of which is furnished to the Participant with this option.

IN WITNESS WHEREOF, the Company has caused this option to be executed under its corporate seal by its duly authorized officer.  This option shall take effect as a sealed instrument.

SEPRACOR INC.

By:

PARTICIPANT’S ACCEPTANCE

                The Participant hereby accepts the foregoing option and agrees to the terms and conditions thereof.  The Participant hereby acknowledges receipt of a copy of the Company’s 2000 Stock Incentive Plan.

Name:

SEPRACOR INC.

Nonstatutory Stock Option Agreement
Granted Under 2000 Stock Incentive Plan

1.             Grant of Option.

This agreement evidences the grant by Sepracor Inc., a Delaware corporation (the “Company”), on the Grant Date indicated on the preceding Certificate of Stock Option Grant (the “Certificate”) to an employee, consultant, or director of the Company (the “Participant”), of an option to purchase, in whole or in part, on the terms provided herein and in the Company’s 2000 Stock Incentive Plan (the “Plan”), the number of shares (the “Shares”) of common stock, $.10 par value per share,  of the Company (“Common Stock”),indicated on the certificate at the price per Share indicated on the Certificate. Unless earlier terminated, this option shall expire on the Grant Expiration Date indicated on the Certificate (“Grant Expiration Date”).

It is intended that the option evidenced by this agreement shall not be an incentive stock option as defined in Section 422 of the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder (the “Code”).  Except as otherwise indicated by the context, the term “Participant”, as used in this option, shall be deemed to include any person who acquires the right to exercise this option validly under its terms.

2.             Vesting Schedule.

This option will become exercisable (“vest”) pursuant to the Vesting Schedule indicated on the Certificate (“Vesting Schedule”).

The right of exercise shall be cumulative so that to the extent the option is not exercised in any period to the maximum extent permissible it shall continue to be exercisable, in whole or in part, with respect to all shares for which it is vested until the earlier of the Grant Expiration Date or the termination of this option under Section 3 hereof or the Plan.

3.             Exercise of Option.

(a)           Form of Exercise. Each election to exercise this option shall be in writing, signed by the Participant, and received by the Company at its principal office, accompanied by this agreement, and payment in full in the manner provided in the Plan. The Participant may purchase less than the number of shares covered hereby, provided that no partial exercise of this option may be for any fractional share.

(b)           Continuous Relationship with the Company Required.  Except as otherwise provided in this Section 3, this option may not be exercised unless the Participant, at the time he or she exercises this option, is, and has been at all times since the Grant Date, an [employee or officer of], or consultant or advisor to, the Company or any parent or subsidiary of the Company as defined in Section 424(e) or (f) of the Code (an “Eligible Participant”).

(c)           Termination of Relationship with the Company. If the Participant ceases to be an Eligible Participant for any reason, then, except as provided in paragraphs (d) and (e) below, the right to exercise this option shall terminate three months after such cessation (but in no event after the Grant Expiration Date), provided that this option shall be exercisable only to the extent that the Participant was entitled to exercise this option on the date of such cessation.  Notwithstanding the foregoing, if, following the time the Participant has ceased to be an Eligible Participant, but prior to the Grant Expiration Date, the Participant materially breaches Section 6 or 7 of the Employment Agreement between the Participant and the Company dated March 1, 2007 (the “Employment Agreement”), the right to exercise this option shall terminate immediately upon written notice to the Participant from the Company describing such violation.

(d)           Exercise Period Upon Death or Disability.  If the Participant dies or becomes disabled (within the meaning of Section 22(e)(3) of the Code) prior to the Grant Expiration Date while he or she is an Eligible Participant and the Company has not terminated such relationship for “cause” as specified in paragraph (e) below, this option shall be exercisable, within the period of one year following the date of death or disability of the Participant, by the Participant (or in the case of death by an authorized transferee), provided that this option shall be exercisable only to the extent that this option was exercisable by the Participant on the date of his or her death or disability, and further provided that this option shall not be exercisable after the Grant Expiration Date.

(e)           Discharge for Cause.  If the Participant, prior to the Grant Expiration Date, is discharged by the Company for “cause” (as defined below), the right to exercise this option shall terminate immediately upon the effective date of such discharge.  “Cause” shall have the meaning set forth in the Employment Agreement.

4.             Withholding.

No Shares will be issued pursuant to the exercise of this option unless and until the Participant pays to the Company, or makes provision satisfactory to the Company for payment of, any federal, state or local withholding taxes required by law to be withheld in respect of this option.

5.             Nontransferability of Option.

This option may not be sold, assigned, transferred, pledged or otherwise encumbered by the Participant, either voluntarily or by operation of law, except by will or the laws of descent and distribution, and, during the lifetime of the Participant, this option shall be exercisable only by the Participant.

6.             Provisions of the Plan.

This option is subject to the provisions of the Plan, a copy of which is furnished to the Participant with this option.

IN WITNESS WHEREOF, the Company has caused this option to be executed under its corporate seal by its duly authorized officer.  This option shall take effect as a sealed instrument.

SEPRACOR INC.

By:

PARTICIPANT’S ACCEPTANCE

The Participant hereby accepts the foregoing option and agrees to the terms and conditions thereof.  The Participant hereby acknowledges receipt of a copy of the Company’s 2000 Stock Incentive Plan.

Name:

SCHEDULE C
FORM OF SEPARATION AGREEMENT AND RELEASE OF CLAIMS

SEE ATTACHED FORM

FORM OF SEPARATION AGREEMENT AND RELEASE OF CLAIMS

In connection with your employment separation from Sepracor, Inc. (the “Company”) on [INSERT TERMINATION DATE], and in order to receive the benefits as set forth in Section 5 of the Employment agreement, 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 Releases - 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; provided, however, that nothing in this Agreement prevents you from filing, cooperating with, or participating in any proceeding before the EEOC or a state Fair Employment Practices Agency (except that you acknowledge that you may not be able to recover any monetary benefits in connection with any such claim, charge or proceeding).  Notwithstanding the foregoing, the release set forth in this Section 1 shall not apply to (a) any claim to severance benefits under the Employment Agreement or your rights under this agreement or (b) any vested equity interest in the Company, including vested stock options.

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.Non-Disclosure, Non-Competition and Non-Solicitation 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 [Name of the Non-Disclosure Agreement] you executed at the inception of your employment, which remains in full force and effect.  You further acknowledge and reaffirm your obligations under the [Name of the Non-Competition and/or Non-Solicitation Agreement(s)] you previously executed for the benefit of the Company at the inception of your employment, which also remain(s) in full force and effect.

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 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 herein.

5.Non-Disparagement - You understand and agree that, as a condition for payment to you of the consideration herein described, 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.

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 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 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.Cooperation – You agree to cooperate with the Company in the investigation, defense or prosecution of any claims or actions now in existence or which may be brought in the future against or on behalf of the Company.  Your cooperation in connection with such claims or actions shall include, but not be limited to, being available to meet with the Company’s counsel to prepare for discovery or any mediation, arbitration, trial, administrative hearing or other proceeding or to act as a witness when reasonably requested by the Company at mutually agreeable times and at locations mutually convenient to you and the Company.  You also agree to cooperate with the Company in the transitioning of your work, and will be available to the Company for this purpose or any other purpose reasonably requested by the Company.

10.Tax Provision – In connection with the severance benefits provided to you pursuant to this 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.

11.Section 409A - No payments that may be made pursuant to this agreement that constitute “nonqualified deferred compensation” within the meaning of Section 409A of the Internal Revenue Code and the guidance issued thereunder (“Section 409A”) may be accelerated or deferred by the Company or by you.  Notwithstanding anything else to the

contrary in this agreement, to the extent that any of the payments that may be made hereunder constitute “nonqualified deferred compensation”, within the meaning of Section 409A and you are a “specified employee” upon your separation (as defined under Section 409A), any such payment shall be delayed following your separation date if, absent such delay, such payment would otherwise be subject to penalty under Section 409A.  In any event, the Company makes no representation or warranty and shall have no liability to you or to any other person if any provisions of this agreement are determined to constitute “nonqualified deferred compensation” subject to Section 409A but do not satisfy the requirements of that section.

12.Nature of Agreement - You understand and agree that this agreement is a severance agreement and does not constitute an admission of liability or wrongdoing on the part of the Company.

13.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.

14.Voluntary Assent - You affirm that 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.

15.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.

16.Entire Agreement - This 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
Employee Name:

EX-10.2

Exhibit 10.2

AMENDED AND RESTATED

EMPLOYMENT AGREEMENT

THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the “Agreement”), made this 6^th day of November 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, on May 14, 2008, the Company and the Executive entered into an Employment Agreement (the “Original Agreement”); and

WHEREAS, the Company and the Executive wish to amend and restate the Original Agreement as provided for herein.

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 that the Original Agreement is amended and restated in its entirety 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

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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, 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.

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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

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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.

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.

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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

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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 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 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 and, if applicable, the twenty-four (24) month period referred to in Section 5.3(d) or the period referred to in Section 4.2(a)(ii) of the ERA, in the event the Executive elects to participate in the Company’s executive retiree health benefit program set forth on Exhibit A hereto (the “Program”), he will reimburse the Company with respect to his participation in the Program at the lesser of (a) the actual cost to the Company of

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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-

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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 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.

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(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

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(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.

(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.

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(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,

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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 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”).

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(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

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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 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

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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.

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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, without limitation, the letter agreement between the Company and the Executive dated March 11, 2003 and the Original Agreement.

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 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.

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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.

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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 Chief Executive Officer
/s/ Mark H. N. Corrigan
Mark H. N. Corrigan

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Exhibit A

Program Terms

The Executive shall be entitled to continued access to health benefits under, at the Executive’s election, the Company’s Blue Cross Blue Shield PPO Policy or BlueChoice Policy (the “Policies”), following the Executive’s retirement from the Company, for so long as (A) the Company continues to offer such Policy and (B) the Policy allows for such continued access; and, to the extent the Company no longer maintains at least one of the Policies, or access is no longer allowed under either of the Policies, the Company shall allow the Executive continued access to health benefits under a successor policy, or otherwise, for so long as it offers health benefits to its employees.

SCHEDULE A

VACATION POLICY

SEE ATTACHED POLICY

Sepracor Companies Human Resource Policy

Division: All	Effective Date: January 1, 2005	Index No.: 3-60	Page No: 1 of 2
Title: Accrued Vacation Policy Director Level and Above	Supersedes: All	Approved By: Signature on File

1.Introduction

1.1The purpose of the Accrued Vacation Policy is to provide paid time off for employees to cover vacations and personal time.

2.Accrual rate for employees at Director level and above

2.1Employees accrue vacation hours monthly that may be used for paid time off to cover vacations and personal time. Regular full-time employees, Director level or above, will accrue vacation time at a rate of ten (10) hours per month during the first year of employment, for a total of fifteen (15) days per year, equal to one hundred twenty (120) hours.  Additional time begins to accrue in the month of the employee’s anniversary date, up to a maximum of twenty-three (23) days per year, equal to one hundred eighty-four (184) hours. Please see schedule below for details on total hours accrued monthly:

Years of Service	Director and AboveTotal Days	Monthly Accrual(Hours)
0-1	15	10.00
1-2	16	10.67
2-3	17	11.33
3-4	18	12.00
4-5	19	12.67
5-10	20	13.33
10-13	20	13.33
13-15	20	13.33
15-17	20	13.33
17-19	21	14.00
19-20	22	14.67
20+	23	15.33

3.Administration

3.1Accrual of vacation time is pro-rated for employees who are regularly scheduled to work less than forty (40) hours but work at least twenty (20) hours per week.  For example, an employee with a weekly schedule of twenty (20) hours will accrue five (5) hours per month, and a thirty (30) hour employee will accrue seven and a half (7.5) hours of vacation time per month.

Accrued Vacation Policy: Director Level and Above

3.Administration (Continued)

3.2The current month’s accrual is accrued on the 15^th of every month.  An employee must be employed on the 15^th in order to receive that monthly accrual.  For example, if an employee is hired on or before the 15^th, they will receive that month’s accrual, and if they are hired after the 15^th, they will not.  Also, if an employee terminates employment before the 15^th they will not be paid for that month’s accrual, but if they terminate after the 15^th they will.

3.3Employees may carry over a maximum of forty (40) accrued vacation hours into the next calendar year.  The carryover vacation hours must be used by July 31^st of the new calendar year.  Any carried over vacation hours not used by this date will be forfeited.*

3.3.1*In accordance with state law, California residents will not have a limit on carryover time into the next calendar year.  Once an employee accrues twenty-three (23) days of vacation, equal to one hundred eighty-four (184) hours, the employee will cease to accrue any additional vacation time until the vacation balance falls below that level.  Please refer to Sepracor Human Resources for more information.

3.4It is your responsibility to request and schedule the use of accrued vacation time with your manager.  Approval of vacation time will depend on the business needs of the organization.  It is your responsibility to accurately track your use of accrued vacation time through the iTime Tracking system.

3.5At the minimum, vacation time for full time employees should be taken in four (4) hour increments, with the norm being eight (8) hour increments. For those with schedules of 20-39 hours, increments of time used would be pro-rated according to hours worked.  For example, if you were regularly scheduled to work six (6) hours, then you would be paid a six (6) hour vacation day.

3.6Your manager may approve the borrowing of vacation time, up to a maximum of forty (40) hours for regular full-time employees and pro-rated accordingly for regular part-time employees.  Employees with a negative vacation balance may not borrow additional vacation time until the existing vacation time balance has been satisfied and then upon approval from your manager.  Under no circumstances may an employee borrow vacation time from a future calendar year.

3.7If it has been verified by Payroll and the manager that an employee has a balance of accrued and unused vacation time left at the end of employment, the balance will be converted to cash and included in his/her final paycheck.  In the event an employee ends his/her employment before having enough accrued time to cover any borrowed vacation time, the employee’s final paycheck will reflect a deduction equal to the cash value of the borrowed vacation time.

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

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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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EX-10.3

Exhibit 10.3

AMENDED AND RESTATED

EMPLOYMENT AGREEMENT

THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the “Agreement”), made this 6^th day of November 2008, 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 Iwicki residing at 12 Bristol Terrace, Long Valley, New Jersey 07853 (the “Executive”).

The Company desires to employ the Executive and the Executive desires to be employed by the Company, and in connection therewith the Company and the Executive entered into an Employment Agreement, dated October 15, 2007 (the “Original Agreement”).  The Company and the Executive wish to amend and restate the Original Agreement as provided for herein.  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 that the Original Agreement is amended and restated in its entirety as follows:

1.             Term of Employment.  The Company hereby agrees to employ the Executive and the Executive hereby accepts employment with the Company, upon the terms set forth in this Agreement, for the period commencing on October 15, 2007 (the “Commencement Date”) and ending on October 15, 2012 (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 October 15, 2012, 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 Commercial 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 Commercial 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, businesses or trade organization 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 pay to the Executive a base salary at the annualized rate of $475,000 (“Base Salary”) commencing on the Commencement Date.  The Base Salary shall be subject to annual review by the Board but shall not be reduced below $475,000 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 receive a one-time “Sign On” bonus of $175,000 less applicable taxes and withholdings to be paid within thirty (30) days of the

Commencement Date, provided, however, if the Executive’s employment is terminated, within twelve (12) months of the Commencement Date, for Cause by the Company pursuant to Section 4.2 or at the election of the Executive pursuant to Section 4.5, the Executive will be required to repay the portion of the Sign On bonus retained by Executive after the payment of all taxes.  In addition, 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 sixty percent (60%) of Base Salary.  For 2007, Executive shall be entitled to a guaranteed bonus in the amount of $75,000 payable on or about February 2008.  For 2008, Executive shall be entitled to a guaranteed Annual Bonus in an amount equal to sixty percent (60%) of his 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.  The Company’s fiscal year currently ends December 31.

3.3           Stock and Option Grant.  At the first meeting of the Compensation Committee of the Board of Directors following the Executive’s first day of employment, the Company shall grant to the Executive, under the Company’s 2000 Stock Incentive Plan (the “Stock Plan”), 80,000 shares of restricted stock and an option to purchase 150,000 shares of Company stock (the “Initial Grant”).  The terms and conditions of the Initial Grant (other than the exercise price per share, which shall be equal to the closing price of the Company’s stock on the grant date) shall be set forth in the award agreements attached hereto as Schedules A and B.  The Initial Grant shall vest in five equal installments on each of the first five anniversaries of the

Commencement Date.  The Board, in its sole discretion, may grant further incentive compensation awards to the Executive from time to time.  The Company represents and warrants to Executive that the Company has full power and authority, subject to Compensation Committee approval, and shares available under the Stock Plan to make the Initial Grant.

3.4           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 C).

3.5           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 during the one year period beginning on this Commencement Date in connection with, or related to, the performance of his duties, responsibilities or services under this Agreement or in connection with Executive’s commuting to and from his personal residence in New Jersey and the Company’s offices, upon presentation by the Executive of documentation, expense statements, vouchers and/or such other supporting information as the Company may request.  All reimbursement payments made pursuant to this Section 3.5 shall be made on a fully tax grossed-up basis.

3.6           Housing Expenses.  The Company understands that the Executive intends to maintain his primary residence outside the Massachusetts area for up to twelve (12) months and then intends to relocate to the Massachusetts area. Until the third anniversary of the Commencement Date, the Company agrees to provide the Executive with a housing allowance of

$3,750 per month, which payments shall be increased on a fully tax grossed-up basis.  The Company also will reimburse the Executive for reasonable travel, meals and lodging expenses incurred by him for up to two trips for the purpose of securing such house or apartment within a suitable distance to the Company’s headquarters.  Executive shall be entitled to relocation benefits afforded by the Company to other Company executives if and when Executive decides to permanently relocate his primary residence to the Massachusetts area.

3.7           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 $15,000.

3.8           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 increased 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.

3.9           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.

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 during the twenty-four (24) months following the initial occurrence of the condition giving rise to Good Reason, with 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 the date hereof.  “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”).  In addition, the Company shall permit Executive or Executive’s estate or representative to exercise the vested stock option portion of the Initial Grant for a period of no less than one year after any such termination of employment.

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 D 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 (in the event Executive has not been employed for a sufficient period to earn two such bonuses, such calculation shall be made assuming Executive earned a bonus for any such year at a target level of performance (taking into account any minimum bonus amount)); (d) provide to the Executive for 24 months following the date of his termination payment of COBRA premiums for medical, dental, and vision benefits pursuant to plans maintained by the Company under which Executive and/or Executive’s family is eligible to receive benefits; provided, however, that, notwithstanding the foregoing, the benefits described in this subsection may be discontinued prior the end of the period, but only to the extent, that Executive receives substantially similar benefits from a subsequent employer; and (e) permit Executive to exercise the stock option portion of the Initial Grant for a period of no less than six months after the date of 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) or the period referred to in Section 4.2(a)(ii) of the ERA, in the event the Executive elects to participate in the Company’s executive retiree health benefit program set forth on Exhibit A hereto (the “Program”), he will reimburse the Company with respect to his participation in the Program 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 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.

(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 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 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, without limitation, the Original Agreement.

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.

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 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 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.

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 Chief Executive Officer
/s/ Mark Iwicki
Mark Iwicki

Exhibit A

Program Terms

The Executive shall be entitled to continued access to health benefits under, at the Executive’s election, the Company’s Blue Cross Blue Shield PPO Policy or BlueChoice Policy (the “Policies”), following the Executive’s retirement from the Company, for so long as (A) the Company continues to offer such Policy and (B) the Policy allows for such continued access; and, to the extent the Company no longer maintains at least one of the Policies, or access is no longer allowed under either of the Policies, the Company shall allow the Executive continued access to health benefits under a successor policy, or otherwise, for so long as it offers health benefits to its employees.

SCHEDULE A
FORM OF RESTRICTED STOCK AGREEMENT

SEE ATTACHED AGREEMENT

SEPRACOR INC.

Restricted Stock Agreement

Name of Recipient:

Number of shares of restricted common
stock awarded:

Grant Date:

                Sepracor Inc. (the “Company”) has selected you to receive the restricted stock award described above, which is subject to the provisions of the Company’s 2000 Stock Incentive Plan (the “Plan”) and the terms and conditions contained in this Restricted Stock Agreement.  Please confirm your acceptance of this restricted stock award and of the terms and conditions of this Agreement by signing a copy of this Agreement where indicated below.

	SEPRACOR INC.
	By:
	[insert name and title]
Accepted and Agreed:
[insert name of recipient]

SEPRACOR INC.

Restricted Stock Agreement

The terms and conditions of the award of shares of restricted common stock of the Company (the “Restricted Shares”) made to the Recipient, as set forth on the cover page of this Agreement, are as follows:

1.             Issuance of Restricted Shares.

(a)           The Restricted Shares are issued to the Recipient, effective as of the Grant Date (as set forth on the cover page of this Agreement), in consideration of employment services rendered and to be rendered by the Recipient to the Company.

(b)           The Restricted Shares will initially be issued by the Company in book entry form only, in the name of the Recipient.  Following the vesting of any Restricted Shares pursuant to Section 2 below, the Company shall, if requested by the Recipient, issue and deliver to the Recipient a certificate representing the vested Restricted Shares.   The Recipient agrees that the Restricted Shares shall be subject to the forfeiture provisions set forth in Section 3 of this Agreement and the restrictions on transfer set forth in Section 4 of this Agreement.

2.             Vesting.

(a)           Vesting Schedule.  Unless otherwise provided in this Agreement or the Plan, the Restricted Shares shall vest in accordance with the following vesting schedule:  20% of the total number of Restricted Shares shall vest on the first anniversary of your Commencement Date (as defined in the Employment Agreement entered into between you and the Company dated as of October 15, 2007) and 20% of the total number of Restricted Shares shall vest on each successive anniversary thereafter, through and including the 5th anniversary of the Grant Date.  Any fractional number of Restricted Shares resulting from the application of the foregoing percentages shall be rounded down to the nearest whole number of Restricted Shares.

(b)           Acceleration of Vesting.  Notwithstanding the foregoing vesting schedule, as provided in the Plan, all unvested Restricted Shares shall vest effective immediately prior to a Change in Control Event (as defined in the Plan).

3.             Forfeiture of Unvested Restricted Shares Upon Employment Termination.

                In the event that the Recipient ceases to be employed by, a director of, or a consultant or advisor to, the Company for any reason or no reason, with or without cause all of the Restricted Shares that are unvested as of the time of such employment termination shall be forfeited immediately and automatically to the Company, without the payment of any consideration to the Recipient, effective as of such termination of employment.  The Recipient shall have no further rights with respect to any Restricted Shares that are so forfeited.  If the Recipient is employed by a subsidiary of the Company, any references in this Agreement to employment with the Company shall instead be deemed to refer to employment with such subsidiary.

4.             Restrictions on Transfer.

                The Recipient shall not sell, assign, transfer, pledge, hypothecate or otherwise dispose of, by operation of law or otherwise (collectively “transfer”) any Restricted Shares, or any interest therein, until such Restricted Shares have vested, except that the Recipient may transfer such Restricted Shares as part of the sale of all or substantially all of the shares of capital stock of the Company (including pursuant to a merger or consolidation).  The Company shall not be required (i) to transfer on its books any of the Restricted Shares which have been transferred in violation of any of the provisions of this Agreement or (ii) to treat as owner of such Restricted Shares or to pay dividends to any transferee to whom such Restricted Shares have been transferred in violation of any of the provisions of this Agreement.

5.             Restrictive Legends.

                The book entry account reflecting the issuance of the Restricted Shares in the name of the Recipient shall bear a legend or other notation upon substantially the following terms:

                “These shares of stock are subject to forfeiture provisions and restrictions on transfer set forth in a certain Restricted Stock Agreement between the corporation and the registered owner of these shares (or his or her predecessor in interest), and such Agreement is available for inspection without charge at the office of the Secretary of the corporation.”

6.             Rights as a Shareholder.

                Except as otherwise provided in this Agreement, for so long as the Recipient is the registered owner of the Restricted Shares, the Recipient shall have all rights as a shareholder with respect to the Restricted Shares, whether vested or unvested, including, without limitation, any rights to receive dividends and distributions with respect to the Restricted Shares and to vote the Restricted Shares and act in respect of the Restricted Shares at any meeting of shareholders.

7.             Provisions of the Plan.

                This Agreement is subject to the provisions of the Plan, a copy of which is furnished to the Recipient with this Agreement.  As provided in the Plan, upon the occurrence of a Reorganization Event (as defined in the Plan), the rights of the Company hereunder (including the right to receive forfeited Restricted Shares) shall inure to the benefit of the Company’s successor and, unless the Board determines otherwise, shall apply to the cash, securities or other property which the Restricted Shares were converted into or exchanged for pursuant to such Reorganization Event in the same manner and to the same extent as they applied to the Restricted Shares under this Agreement.

8.             Tax Matters.

(a)            Acknowledgments; Section 83(b) Election.  The Recipient acknowledges that he or she is responsible for obtaining the advice of the Recipient’s own tax advisors with respect to the acquisition of the Restricted Shares and the Recipient is relying solely on such advisors and not on any statements or representations of the Company or any of its agents with respect to the tax consequences relating to the Restricted Shares.  The Recipient understands that the Recipient (and not the Company) shall be responsible for the Recipient’s tax liability that may arise in connection with the acquisition, vesting and/or disposition of the Restricted Shares.

The Recipient acknowledges that he or she has been informed of the availability of making an election under Section 83(b) of the Internal Revenue Code, as amended, with respect to the issuance of the Restricted Shares and that the Recipient has decided not to file a Section 83(b) election.

(b)           Withholding. The Recipient acknowledges and agrees that the Company has the right to deduct from payments of any kind otherwise due to the Recipient any federal, state, local or other taxes of any kind required by law to be withheld with respect to the vesting of the Restricted Shares.  On each date on which Restricted Shares vest, the Company shall deliver written notice to the Recipient of the amount of withholding taxes due with respect to the vesting of the Restricted Shares that vest on such date; provided, however, that the total tax withholding 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).  The Recipient shall satisfy such tax withholding obligations by making a cash payment to the Company on the date of vesting of the Restricted Shares, in the amount of the Company’s withholding obligation in connection with the vesting of such Restricted Shares.

9.             Miscellaneous.

(a)           No Right to Continued Employment.  The Recipient acknowledges and agrees that, notwithstanding the fact that the vesting of the Restricted Shares is contingent upon his or her continued employment by the Company, this Agreement does not constitute an express or implied promise of continued employment or confer upon the Recipient any rights with respect to continued employment by the Company.

(b)           Governing Law.  This Agreement shall be construed, interpreted and enforced in accordance with the internal laws of the State of Delaware without regard to any applicable conflicts of laws provisions.

SCHEDULE B
FORM OF STOCK OPTION AGREEMENTS

SEE ATTACHED AGREEMENT

20

SEPRACOR INC.

Form of Incentive Stock Option Agreement

Granted Under 2000 Stock Incentive Plan

1.Grant of Option.

This agreement evidences the grant by Sepracor Inc., a Delaware corporation (the “Company”), on the Grant Date indicated on the preceding Certificate of Stock Option Grant (the “Certificate”) to an employee, consultant, or director of the Company (the “Participant”), of an option to purchase, in whole or in part, on the terms provided herein and in the Company’s 2000 Stock Incentive Plan (the “Plan”), the number of shares (the “Shares”) of common stock, $.10 par value per share,  of the Company (“Common Stock”),indicated on the certificate at the price per Share indicated on the Certificate. Unless earlier terminated, this option shall expire on the Grant Expiration Date indicated on the Certificate (“Grant Expiration Date”).

It is intended that the option evidenced by this agreement shall not be an incentive stock option as defined in Section 422 of the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder (the “Code”).  Except as otherwise indicated by the context, the term “Participant”, as used in this option, shall be deemed to include any person who acquires the right to exercise this option validly under its terms.

2.Vesting Schedule.

This option will become exercisable (“vest”) pursuant to the Vesting Schedule indicated on the Certificate (“Vesting Schedule”).

The right of exercise shall be cumulative so that to the extent the option is not exercised in any period to the maximum extent permissible it shall continue to be exercisable, in whole or in part, with respect to all shares for which it is vested until the earlier of the Grant Expiration Date or the termination of this option under Section 3 hereof or the Plan.

3.Exercise of Option.

(a)Form of Exercise. Each election to exercise this option shall be in writing, signed by the Participant, and received by the Company at its principal office, accompanied by this agreement, and payment in full in the manner provided in the Plan. The Participant may purchase less than the number of shares covered hereby, provided that no partial exercise of this option may be for any fractional share.

(b)Continuous Relationship with the Company Required.  Except as otherwise provided in this Section 3, this option may not be exercised unless the Participant, at the time he or she exercises this option, is, and has been at all times since the Grant Date, an [employee or officer of], or consultant or advisor to, the Company or any parent or subsidiary of the Company as defined in Section 424(e) or (f) of the Code (an “Eligible Participant”).

(c)Termination of Relationship with the Company. If the Participant ceases to be an Eligible Participant for any reason, then, except as provided in paragraphs (d) and (e) below, the right to exercise this option shall terminate three months after such cessation (but in no event after the Grant Expiration Date), provided that this option shall be exercisable only to the extent that the Participant was entitled to exercise this option on the date of such cessation.  Notwithstanding the foregoing, if, following the time the Participant has ceased to be an Eligible Participant, but prior to the Grant Expiration Date, the Participant materially breaches Section 6 or 7 of the Employment Agreement between the Participant and the Company dated October 15, 2007 (the “Employment Agreement”), the right to exercise this option shall terminate immediately upon written notice to the Participant from the Company describing such violation.

(d)Exercise Period Upon Death or Disability.  If the Participant dies or becomes disabled (within the meaning of Section 22(e)(3) of the Code) prior to the Grant Expiration Date while he or she is an Eligible Participant and the Company has not terminated such relationship for “cause” as specified in paragraph (e) below, this option shall be exercisable, within the period of one year following the date of death or disability of the Participant, by the Participant (or in the case of death by an authorized transferee), provided that this option shall be exercisable only to the extent that this option was exercisable by the Participant on the date of his or her death or disability, and further provided that this option shall not be exercisable after the Grant Expiration Date.

(e)Discharge for Cause.  If the Participant, prior to the Grant Expiration Date, is discharged by the Company for “cause” (as defined below), the right to exercise this option shall terminate immediately upon the effective date of such discharge.  “Cause” shall have the meaning set forth in the Employment Agreement.

4.Withholding.

No Shares will be issued pursuant to the exercise of this option unless and until the Participant pays to the Company, or makes provision satisfactory to the Company for payment of, any federal, state or local withholding taxes required by law to be withheld in respect of this option.

5.Nontransferability of Option.

This option may not be sold, assigned, transferred, pledged or otherwise encumbered by the Participant, either voluntarily or by operation of law, except by will or the laws of descent and distribution, and, during the lifetime of the Participant, this option shall be exercisable only by the Participant.

6.Disqualifying Disposition.

If the Participant diposes of Shares acquired upon exercise of this option within two years from the Grant Date or one year after such Shares were acquired pursuant to exercise of this option, the Participant shall notify the Company in writing of such disposition.

7.Provisions of the Plan.

This option is subject to the provisions of the Plan, a copy of which is furnished to the Participant with this option.

IN WITNESS WHEREOF, the Company has caused this option to be executed under its corporate seal by its duly authorized officer.  This option shall take effect as a sealed instrument.

SEPRACOR INC.

By:

PARTICIPANT’S ACCEPTANCE

The Participant hereby accepts the foregoing option and agrees to the terms and conditions thereof.  The Participant hereby acknowledges receipt of a copy of the Company’s 2000 Stock Incentive Plan.

Name:

SEPRACOR INC.

Nonstatutory Stock Option Agreement
Granted Under 2000 Stock Incentive Plan

1.Grant of Option.

This agreement evidences the grant by Sepracor Inc., a Delaware corporation (the “Company”), on the Grant Date indicated on the preceding Certificate of Stock Option Grant (the “Certificate”) to an employee, consultant, or director of the Company (the “Participant”), of an option to purchase, in whole or in part, on the terms provided herein and in the Company’s 2000 Stock Incentive Plan (the “Plan”), the number of shares (the “Shares”) of common stock, $.10 par value per share,  of the Company (“Common Stock”),indicated on the certificate at the price per Share indicated on the Certificate. Unless earlier terminated, this option shall expire on the Grant Expiration Date indicated on the Certificate (“Grant Expiration Date”).

It is intended that the option evidenced by this agreement shall not be an incentive stock option as defined in Section 422 of the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder (the “Code”).  Except as otherwise indicated by the context, the term “Participant”, as used in this option, shall be deemed to include any person who acquires the right to exercise this option validly under its terms.

2.Vesting Schedule.

This option will become exercisable (“vest”) pursuant to the Vesting Schedule indicated on the Certificate (“Vesting Schedule”).

The right of exercise shall be cumulative so that to the extent the option is not exercised in any period to the maximum extent permissible it shall continue to be exercisable, in whole or in part, with respect to all shares for which it is vested until the earlier of the Grant Expiration Date or the termination of this option under Section 3 hereof or the Plan.

3.Exercise of Option.

(a)Form of Exercise. Each election to exercise this option shall be in writing, signed by the Participant, and received by the Company at its principal office, accompanied by this agreement, and payment in full in the manner provided in the Plan. The Participant may purchase less than the number of shares covered hereby, provided that no partial exercise of this option may be for any fractional share.

(b)Continuous Relationship with the Company Required.  Except as otherwise provided in this Section 3, this option may not be exercised unless the Participant, at the time he or she exercises this option, is, and has been at all times since the Grant Date, an [employee or officer of], or consultant or advisor to, the Company or any parent or subsidiary of the Company as defined in Section 424(e) or (f) of the Code (an “Eligible Participant”).

(c)Termination of Relationship with the Company. If the Participant ceases to be an Eligible Participant for any reason, then, except as provided in paragraphs (d) and (e) below, the right to exercise this option shall terminate three months after such cessation (but in no event after the Grant Expiration Date), provided that this option shall be exercisable only to the extent that the Participant was entitled to exercise this option on the date of such cessation.  Notwithstanding the foregoing, if, following the time the Participant has ceased to be an Eligible Participant, but prior to the Grant Expiration Date, the Participant materially breaches Section 6 or 7 of the Employment Agreement between the Participant and the Company dated March 1, 2007 (the “Employment Agreement”), the right to exercise this option shall terminate immediately upon written notice to the Participant from the Company describing such violation.

(d)Exercise Period Upon Death or Disability.  If the Participant dies or becomes disabled (within the meaning of Section 22(e)(3) of the Code) prior to the Grant Expiration Date while he or she is an Eligible Participant and the Company has not terminated such relationship for “cause” as specified in paragraph (e) below, this option shall be exercisable, within the period of one year following the date of death or disability of the Participant, by the Participant (or in the case of death by an authorized transferee), provided that this option shall be exercisable only to the extent that this option was exercisable by the Participant on the date of his or her death or disability, and further provided that this option shall not be exercisable after the Grant Expiration Date.

(e)Discharge for Cause.  If the Participant, prior to the Grant Expiration Date, is discharged by the Company for “cause” (as defined below), the right to exercise this option shall terminate immediately upon the effective date of such discharge.  “Cause” shall have the meaning set forth in the Employment Agreement.

4.Withholding.

No Shares will be issued pursuant to the exercise of this option unless and until the Participant pays to the Company, or makes provision satisfactory to the Company for payment of, any federal, state or local withholding taxes required by law to be withheld in respect of this option.

5.Nontransferability of Option.

This option may not be sold, assigned, transferred, pledged or otherwise encumbered by the Participant, either voluntarily or by operation of law, except by will or the laws of descent and distribution, and, during the lifetime of the Participant, this option shall be exercisable only by the Participant.

6.Provisions of the Plan.

This option is subject to the provisions of the Plan, a copy of which is furnished to the Participant with this option.

IN WITNESS WHEREOF, the Company has caused this option to be executed under its corporate seal by its duly authorized officer.  This option shall take effect as a sealed instrument.

SEPRACOR INC.

By:

PARTICIPANT’S ACCEPTANCE

The Participant hereby accepts the foregoing option and agrees to the terms and conditions thereof.  The Participant hereby acknowledges receipt of a copy of the Company’s 2000 Stock Incentive Plan.

Name:

SCHEDULE C
VACATION POLICY

SEE ATTACHED POLICY

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Sepracor Companies Human Resource Policy

Division: All	Effective Date: January 1, 2005	Index No.: 3-60	Page No: 1 of 2
Title: Accrued Vacation Policy Director Level and Above	Supersedes: All	Approved By: Signature on File

1.Introduction

1.1The purpose of the Accrued Vacation Policy is to provide paid time off for employees to cover vacations and personal time.

2.Accrual rate for employees at Director level and above

2.1Employees accrue vacation hours monthly that may be used for paid time off to cover vacations and personal time. Regular full-time employees, Director level or above, will accrue vacation time at a rate of ten (10) hours per month during the first year of employment, for a total of fifteen (15) days per year, equal to one hundred twenty (120) hours.  Additional time begins to accrue in the month of the employee’s anniversary date, up to a maximum of twenty-three (23) days per year, equal to one hundred eighty-four (184) hours. Please see schedule below for details on total hours accrued monthly:

Years of Service	Director and AboveTotal Days	Monthly Accrual(Hours)
0-1	15	10.00
1-2	16	10.67
2-3	17	11.33
3-4	18	12.00
4-5	19	12.67
5-10	20	13.33
10-13	20	13.33
13-15	20	13.33
15-17	20	13.33
17-19	21	14.00
19-20	22	14.67
20+	23	15.33

3.Administration

3.1Accrual of vacation time is pro-rated for employees who are regularly scheduled to work less than forty (40) hours but work at least twenty (20) hours per week.  For example, an employee with a weekly schedule of twenty (20) hours will accrue five (5) hours per month, and a thirty (30) hour employee will accrue seven and a half (7.5) hours of vacation time per month.

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Accrued Vacation Policy: Director Level and Above

3.Administration (Continued)

3.2The current month’s accrual is accrued on the 15^th of every month.  An employee must be employed on the 15^th in order to receive that monthly accrual.  For example, if an employee is hired on or before the 15^th, they will receive that month’s accrual, and if they are hired after the 15^th, they will not.  Also, if an employee terminates employment before the 15^th they will not be paid for that month’s accrual, but if they terminate after the 15^th they will.

3.3Employees may carry over a maximum of forty (40) accrued vacation hours into the next calendar year.  The carryover vacation hours must be used by July 31^st of the new calendar year.  Any carried over vacation hours not used by this date will be forfeited.*

3.3.1*In accordance with state law, California residents will not have a limit on carryover time into the next calendar year.  Once an employee accrues twenty-three (23) days of vacation, equal to one hundred eighty-four (184) hours, the employee will cease to accrue any additional vacation time until the vacation balance falls below that level.  Please refer to Sepracor Human Resources for more information.

3.4It is your responsibility to request and schedule the use of accrued vacation time with your manager.  Approval of vacation time will depend on the business needs of the organization.  It is your responsibility to accurately track your use of accrued vacation time through the iTime Tracking system.

3.5At the minimum, vacation time for full time employees should be taken in four (4) hour increments, with the norm being eight (8) hour increments. For those with schedules of 20-39 hours, increments of time used would be pro-rated according to hours worked.  For example, if you were regularly scheduled to work six (6) hours, then you would be paid a six (6) hour vacation day.

3.6Your manager may approve the borrowing of vacation time, up to a maximum of forty (40) hours for regular full-time employees and pro-rated accordingly for regular part-time employees.  Employees with a negative vacation balance may not borrow additional vacation time until the existing vacation time balance has been satisfied and then upon approval from your manager.  Under no circumstances may an employee borrow vacation time from a future calendar year.

3.7If it has been verified by Payroll and the manager that an employee has a balance of accrued and unused vacation time left at the end of employment, the balance will be converted to cash and included in his/her final paycheck.  In the event an employee ends his/her employment before having enough accrued time to cover any borrowed vacation time, the employee’s final paycheck will reflect a deduction equal to the cash value of the borrowed vacation time.

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SCHEDULE D
FORM OF SEPARATION AGREEMENT AND RELEASE OF CLAIMS

SEE ATTACHED FORM

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FORM OF SEPARATION AGREEMENT AND RELEASE OF CLAIMS

In connection with your employment separation from Sepracor, Inc. (the “Company”) on [INSERT TERMINATION DATE], and in order to receive the benefits as set forth in Section 5 of the Employment agreement, 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 Releases - 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; provided, however, that nothing in this Agreement prevents you from filing, cooperating with, or participating in any proceeding before the EEOC or a state Fair Employment Practices Agency (except that you acknowledge that you may not be able to recover any monetary benefits in connection with any such claim, charge or proceeding).  Notwithstanding the foregoing, the release set forth in this Section 1 shall not apply to (a) any claim to severance benefits under the Employment Agreement or your rights under this agreement or (b) any vested equity interest in the Company, including vested stock options.

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.Non-Disclosure, Non-Competition and Non-Solicitation 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 [Name of the Non-Disclosure Agreement] you executed at the inception of your employment, which remains in full force and effect.  You further acknowledge and reaffirm your obligations under the [Name of the Non-Competition and/or Non-Solicitation Agreement(s)] you previously executed for the benefit of the Company at the inception of your employment, which also remain(s) in full force and effect.

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 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 herein.

5.Non-Disparagement - You understand and agree that, as a condition for payment to you of the consideration herein described, 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.

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 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 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.Cooperation — You agree to cooperate with the Company in the investigation, defense or prosecution of any claims or actions now in existence or which may be brought in the future against or on behalf of the Company.  Your cooperation in connection with such claims or actions shall include, but not be limited to, being available to meet with the Company’s counsel to prepare for discovery or any mediation, arbitration, trial, administrative hearing or other proceeding or to act as a witness when reasonably requested by the Company at mutually agreeable times and at locations mutually convenient to you and the Company.  You also agree to cooperate with the Company in the transitioning of your work, and will be available to the Company for this purpose or any other purpose reasonably requested by the Company.

10.Tax Provision — In connection with the severance benefits provided to you pursuant to this 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.

11.Section 409A - No payments that may be made pursuant to this agreement that constitute “nonqualified deferred compensation” within the meaning of Section 409A of the Internal Revenue Code and the guidance issued thereunder (“Section 409A”) may be accelerated or deferred by the Company or by you.  Notwithstanding anything else to the

contrary in this agreement, to the extent that any of the payments that may be made hereunder constitute “nonqualified deferred compensation”, within the meaning of Section 409A and you are a “specified employee” upon your separation (as defined under Section 409A), any such payment shall be delayed following your separation date if, absent such delay, such payment would otherwise be subject to penalty under Section 409A.  In any event, the Company makes no representation or warranty and shall have no liability to you or to any other person if any provisions of this agreement are determined to constitute “nonqualified deferred compensation” subject to Section 409A but do not satisfy the requirements of that section.

12.Nature of Agreement - You understand and agree that this agreement is a severance agreement and does not constitute an admission of liability or wrongdoing on the part of the Company.

13.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.

14.Voluntary Assent - You affirm that 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.

15.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.

16.Entire Agreement - This 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
Employee Name:

EX-10.4

Exhibit 10.4

AMENDED AND RESTATED

EMPLOYMENT AGREEMENT

THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the “Agreement”), made this 6^th day of November 2008, 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 Andrew I. Koven, residing at 10 Beechcroft Road, Short Hills, New Jersey 07078 (the “Executive”).

The Company desires to employ the Executive and the Executive desires to be employed by the Company, and in connection therewith the Company and the Executive entered into an Employment Agreement, dated March 1, 2007 (the “Original Agreement”).  The Company and the Executive wish to amend and restate the Original Agreement as provided for herein.  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 that the Original Agreement is amended and restated in its entirety as follows:

1.Term of Employment.  The Company hereby agrees to employ the Executive and the Executive hereby accepts employment with the Company, upon the terms set forth in this Agreement, for the period commencing on March 1, 2007 (the “Commencement Date”) and ending on March 1, 2012 (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 March 1, 2012, 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, General Counsel and Corporate Secretary 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, General Counsel and Corporate Secretary 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, businesses or trade organization 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.

3.1Salary.  During the term of this Agreement, the Company agrees to pay to the Executive a base salary at the annualized rate of $500,000 (“Base Salary”) commencing on the Commencement Date.  The Base Salary shall be subject to annual review by the Board but shall not be reduced below $500,000 per annum.  Such salary shall be payable to Executive in bi-weekly installments and in accordance with the Company’s normal payroll procedures.

3.2Bonus.  The Executive shall receive a one-time “Sign On” bonus of $150,000 less applicable taxes and withholdings to be paid within thirty (30) days of the

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Commencement Date, provided, however, if the Executive’s employment is terminated, within twelve (12) months of the Commencement Date, for Cause by the Company pursuant to Section 4.2 or at the election of the Executive pursuant to Section 4.5, the Executive will be required to repay the portion of the Sign On bonus retained by Executive after the payment of all taxes.  In addition, 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%) of Base Salary.  For 2007, Executive shall be entitled to a pro rata guaranteed bonus based on an Annual Bonus of fifty percent (50%) of his 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.

3.3Stock and Option Grant.  At the first meeting of the Compensation Committee of the Board of Directors following the Executive’s first day of employment, the Company shall grant to the Executive, under the Company’s 2000 Stock Incentive Plan (the “Stock Plan”), 30,000 shares of restricted stock and an option to purchase 70,000 shares of Company stock (the “Initial Grant”).  The terms and conditions of the Initial Grant (other than the exercise price per share, which shall be equal to the closing price of the Company’s stock on the grant date) shall be set forth in the award agreements attached hereto as Schedules A and B.  The stock option portion of the Initial Grant shall vest in five equal installments on each of the first five anniversaries of the grant date, and the restricted stock award portion of the Initial Grant shall vest in three equal installments on each of the first three anniversaries of the grant

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date.  The Board, in its sole discretion, may grant further incentive compensation awards to the Executive from time to time.   The Company represents and warrants to Executive that the Company has full power and authority, subject to Compensation Committee approval, and shares available under the Stock Plan to make the Initial Grant.

3.4Benefits.  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 C).

3.5Reimbursement 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 or in connection with Executive’s commuting to and from his personal residence in New Jersey and the Company’s offices, upon presentation by the Executive of documentation, expense statements, vouchers and/or such other supporting information as the Company may request.

3.6Housing Expenses.  The Company understands that the Executive intends to maintain his primary residence outside the Massachusetts area for up to eighteen (18) months and then intends to relocate to the Massachusetts area. Until the Executive relocates to the Massachusetts area, the Company agrees to provide the Executive with a housing allowance of $3,750 per month, related to the rental or purchase of a home, within suitable distance to the Company’s headquarters, which payments shall be made on a fully tax grossed-up basis.  The

4

Company also will reimburse the Executive for reasonable travel, meals and lodging expenses incurred by him for up to two trips for the purpose of securing such house or apartment within a suitable distance to the Company’s headquarters.  Executive shall be entitled to relocation benefits afforded by the Company to other Company executives if and when Executive decides to permanently relocate his primary residence to the Massachusetts area.

3.7Executive’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 $15,000.

3.8Automobile.  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.

3.9Withholding.  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:

4.1On the expiration date of the Employment Period.

4.2At 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

5

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.

4.3Upon 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.

4.4At 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

6

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.

4.5At 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.

4.6At the election of the Company, without Cause, upon not less than sixty (60) days written notice to Executive.

4.7At 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 the date hereof.  “Change in Control” shall have the meaning set forth in the ERA.

5.Effect of Termination.

5.1Non-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.

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5.2Termination 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”).  In addition, the Company shall permit Executive or Executive’s estate or representative to exercise the vested stock option portion of the Initial Grant for a period of no less than one year after any such termination of employment.

5.3Termination 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 D 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

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two years prior to the date of his termination (in the event Executive has not been employed for a sufficient period to earn two such bonuses, such calculation shall be made assuming Executive earned a bonus for any such year at a target level of performance (taking into account any minimum bonus amount)); (d) provide to the Executive for 24 months following the date of his termination payment of COBRA premiums for medical, dental, and vision benefits pursuant to plans maintained by the Company under which Executive and/or Executive’s family is eligible to receive benefits; provided, however, that, notwithstanding the foregoing, the benefits described in this subsection may be discontinued prior the end of the period, but only to the extent, that Executive receives substantially similar benefits from a subsequent employer; and (e) permit Executive to exercise the stock option portion of the Initial Grant for a period of no less than six months after the date of termination.

5.4Termination 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.

5.5Participation 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) or the period referred to in Section 4.2(a)(ii) of the ERA, in the event the Executive elects to participate in the Company’s executive retiree health benefit program set forth on Exhibit A hereto (the “Program”), he will reimburse the Company with respect to his participation in the Program 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.

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5.6Payments 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

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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 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,

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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

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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.

(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.

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(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.

7.1Proprietary 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,

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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 Company or other third parties who may have disclosed or entrusted the same to the Company or to the Executive.

7.2Developments.

(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”).

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(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

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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.

7.3United 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.

7.4Other 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

17

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.

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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, without limitation, the Original Agreement.

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 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

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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.

18.1No 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.

18.2The 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.

18.3In 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 Chief Executive Officer
/s/ Andrew I. Koven
Andrew I. Koven

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Exhibit A

Program Terms

The Executive shall be entitled to continued access to health benefits under, at the Executive’s election, the Company’s Blue Cross Blue Shield PPO Policy or BlueChoice Policy (the “Policies”), following the Executive’s retirement from the Company, for so long as (A) the Company continues to offer such Policy and (B) the Policy allows for such continued access; and, to the extent the Company no longer maintains at least one of the Policies, or access is no longer allowed under either of the Policies, the Company shall allow the Executive continued access to health benefits under a successor policy, or otherwise, for so long as it offers health benefits to its employees.

SCHEDULE A
FORM OF RESTRICTED STOCK AGREEMENT

SEE ATTACHED AGREEMENT

SEPRACOR INC.

Restricted Stock Agreement

Name of Recipient:

Number of shares of restricted common
stock awarded:

Grant Date:

Sepracor Inc. (the “Company”) has selected you to receive the restricted stock award described above, which is subject to the provisions of the Company’s 2000 Stock Incentive Plan (the “Plan”) and the terms and conditions contained in this Restricted Stock Agreement.  Please confirm your acceptance of this restricted stock award and of the terms and conditions of this Agreement by signing a copy of this Agreement where indicated below.

	SEPRACOR INC.
	By:
		[insert name and title]
Accepted and Agreed:
[insert name of recipient]

SEPRACOR INC.

Restricted Stock Agreement

The terms and conditions of the award of shares of restricted common stock of the Company (the “Restricted Shares”) made to the Recipient, as set forth on the cover page of this Agreement, are as follows:

1.Issuance of Restricted Shares.

(a)The Restricted Shares are issued to the Recipient, effective as of the Grant Date (as set forth on the cover page of this Agreement), in consideration of employment services rendered and to be rendered by the Recipient to the Company.

(b)The Restricted Shares will initially be issued by the Company in book entry form only, in the name of the Recipient.  Following the vesting of any Restricted Shares pursuant to Section 2 below, the Company shall, if requested by the Recipient, issue and deliver to the Recipient a certificate representing the vested Restricted Shares.   The Recipient agrees that the Restricted Shares shall be subject to the forfeiture provisions set forth in Section 3 of this Agreement and the restrictions on transfer set forth in Section 4 of this Agreement.

2.Vesting.

(a)Vesting Schedule.  Unless otherwise provided in this Agreement or the Plan, the Restricted Shares shall vest in accordance with the following vesting schedule:  [     % of the total number of Restricted Shares shall vest on the first anniversary of the Grant Date and      % of the total number of Restricted Shares shall vest on each successive anniversary thereafter, through and including the       anniversary of the Grant Date].  Any fractional number of Restricted Shares resulting from the application of the foregoing percentages shall be rounded down to the nearest whole number of Restricted Shares.

(b)Acceleration of Vesting.  Notwithstanding the foregoing vesting schedule, as provided in the Plan, all unvested Restricted Shares shall vest effective immediately prior to a Change in Control Event (as defined in the Plan).

3.Forfeiture of Unvested Restricted Shares Upon Employment Termination.

In the event that the Recipient ceases to be employed by, a director of, or a consultant or advisor to, the Company for any reason or no reason, with or without cause all of the Restricted Shares that are unvested as of the time of such employment termination shall be forfeited immediately and automatically to the Company, without the payment of any consideration to the Recipient, effective as of such termination of employment.  The Recipient shall have no further rights with respect to any Restricted Shares that are so forfeited.  If the Recipient is employed by a subsidiary of the Company, any references in this Agreement to employment with the Company shall instead be deemed to refer to employment with such subsidiary.

4.Restrictions on Transfer.

The Recipient shall not sell, assign, transfer, pledge, hypothecate or otherwise dispose of, by operation of law or otherwise (collectively “transfer”) any Restricted Shares, or any interest therein, until such Restricted Shares have vested, except that the Recipient may transfer such Restricted Shares as part of the sale of all or substantially all of the shares of capital stock of the Company (including pursuant to a merger or consolidation).  The Company shall not be required (i) to transfer on its books any of the Restricted Shares which have been transferred in violation of any of the provisions of this Agreement or (ii) to treat as owner of such Restricted Shares or to pay dividends to any transferee to whom such Restricted Shares have been transferred in violation of any of the provisions of this Agreement.

5.Restrictive Legends.

The book entry account reflecting the issuance of the Restricted Shares in the name of the Recipient shall bear a legend or other notation upon substantially the following terms:

“These shares of stock are subject to forfeiture provisions and restrictions on transfer set forth in a certain Restricted Stock Agreement between the corporation and the registered owner of these shares (or his or her predecessor in interest), and such Agreement is available for inspection without charge at the office of the Secretary of the corporation.”

6.Rights as a Shareholder.

Except as otherwise provided in this Agreement, for so long as the Recipient is the registered owner of the Restricted Shares, the Recipient shall have all rights as a shareholder with respect to the Restricted Shares, whether vested or unvested, including, without limitation, any rights to receive dividends and distributions with respect to the Restricted Shares and to vote the Restricted Shares and act in respect of the Restricted Shares at any meeting of shareholders.

7.Provisions of the Plan.

This Agreement is subject to the provisions of the Plan, a copy of which is furnished to the Recipient with this Agreement.  As provided in the Plan, upon the occurrence of a Reorganization Event (as defined in the Plan), the rights of the Company hereunder (including the right to receive forfeited Restricted Shares) shall inure to the benefit of the Company’s successor and, unless the Board determines otherwise, shall apply to the cash, securities or other property which the Restricted Shares were converted into or exchanged for pursuant to such Reorganization Event in the same manner and to the same extent as they applied to the Restricted Shares under this Agreement.

8.Tax Matters.

(a)Acknowledgments; Section 83(b) Election.  The Recipient acknowledges that he or she is responsible for obtaining the advice of the Recipient’s own tax advisors with respect to the acquisition of the Restricted Shares and the Recipient is relying solely on such advisors and not on any statements or representations of the Company or any of its agents with respect to the tax consequences relating to the Restricted Shares.  The Recipient understands that the Recipient (and not the Company) shall be responsible for the Recipient’s tax liability that may arise in connection with the acquisition, vesting and/or disposition of the Restricted Shares.

The Recipient acknowledges that he or she has been informed of the availability of making an election under Section 83(b) of the Internal Revenue Code, as amended, with respect to the issuance of the Restricted Shares and that the Recipient has decided not to file a Section 83(b) election.

(b)Withholding. The Recipient acknowledges and agrees that the Company has the right to deduct from payments of any kind otherwise due to the Recipient any federal, state, local or other taxes of any kind required by law to be withheld with respect to the vesting of the Restricted Shares.  On each date on which Restricted Shares vest, the Company shall deliver written notice to the Recipient of the amount of withholding taxes due with respect to the vesting of the Restricted Shares that vest on such date; provided, however, that the total tax withholding 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).  The Recipient shall satisfy such tax withholding obligations by making a cash payment to the Company on the date of vesting of the Restricted Shares, in the amount of the Company’s withholding obligation in connection with the vesting of such Restricted Shares.

9.Miscellaneous.

(a)No Right to Continued Employment.  The Recipient acknowledges and agrees that, notwithstanding the fact that the vesting of the Restricted Shares is contingent upon his or her continued employment by the Company, this Agreement does not constitute an express or implied promise of continued employment or confer upon the Recipient any rights with respect to continued employment by the Company.

(b)Governing Law.  This Agreement shall be construed, interpreted and enforced in accordance with the internal laws of the State of Delaware without regard to any applicable conflicts of laws provisions.

SCHEDULE B
FORM OF STOCK OPTION AGREEMENTS

SEE ATTACHED AGREEMENT

SEPRACOR INC.

Form of Incentive Stock Option Agreement

Granted Under 2000 Stock Incentive Plan

1.Grant of Option.

This agreement evidences the grant by Sepracor Inc., a Delaware corporation (the “Company”), on the Grant Date indicated on the preceding Certificate of Stock Option Grant (the “Certificate”) to an employee, consultant, or director of the Company (the “Participant”), of an option to purchase, in whole or in part, on the terms provided herein and in the Company’s 2000 Stock Incentive Plan (the “Plan”), the number of shares (the “Shares”) of common stock, $.10 par value per share,  of the Company (“Common Stock”),indicated on the certificate at the price  per Share indicated on the Certificate. Unless earlier terminated, this option shall expire on the Grant Expiration Date indicated on the Certificate (“Grant Expiration Date”).

It is intended that the option evidenced by this agreement shall not be an incentive stock option as defined in Section 422 of the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder (the “Code”).  Except as otherwise indicated by the context, the term “Participant”, as used in this option, shall be deemed to include any person who acquires the right to exercise this option validly under its terms.

2.Vesting Schedule.

This option will become exercisable (“vest”) pursuant to the Vesting Schedule indicated on the Certificate (“Vesting Schedule”).

The right of exercise shall be cumulative so that to the extent the option is not exercised in any period to the maximum extent permissible it shall continue to be exercisable, in whole or in part, with respect to all shares for which it is vested until the earlier of the Grant Expiration Date or the termination of this option under Section 3 hereof or the Plan.

3.Exercise of Option.

(a)Form of Exercise. Each election to exercise this option shall be in writing, signed by the Participant, and received by the Company at its principal office, accompanied by this agreement, and payment in full in the manner provided in the Plan. The Participant may purchase less than the number of shares covered hereby, provided that no partial exercise of this option may be for any fractional share.

(b)Continuous Relationship with the Company Required.  Except as otherwise provided in this Section 3, this option may not be exercised unless the Participant, at the time he or she exercises this option, is, and has been at all times since the Grant Date, an [employee or officer of], or consultant or advisor to, the Company or any parent or subsidiary of the Company as defined in Section 424(e) or (f) of the Code (an “Eligible Participant”).

(c)Termination of Relationship with the Company. If the Participant ceases to be an Eligible Participant for any reason, then, except as provided in paragraphs (d) and (e) below, the right to exercise this option shall terminate three months after such cessation (but in no event after the Grant Expiration Date), provided that this option shall be exercisable only to the extent that the Participant was entitled to exercise this option on the date of such cessation.  Notwithstanding the foregoing, if, following the time the Participant has ceased to be an Eligible Participant, but prior to the Grant Expiration Date, the Participant materially breaches Section 6 or 7 of the Employment Agreement between the Participant and the Company dated March 1, 2007 (the “Employment Agreement”), the right to exercise this option shall terminate immediately upon written notice to the Participant from the Company describing such violation.

(d)Exercise Period Upon Death or Disability.  If the Participant dies or becomes disabled (within the meaning of Section 22(e)(3) of the Code) prior to the Grant Expiration Date while he or she is an Eligible Participant and the Company has not terminated such relationship for “cause” as specified in paragraph (e) below, this option shall be exercisable, within the period of one year following the date of death or disability of the Participant, by the Participant (or in the case of death by an authorized transferee), provided that this option shall be exercisable only to the extent that this option was exercisable by the Participant on the date of his or her death or disability, and further provided that this option shall not be exercisable after the Grant Expiration Date.

(e)Discharge for Cause.  If the Participant, prior to the Grant Expiration Date, is discharged by the Company for “cause” (as defined below), the right to exercise this option shall terminate immediately upon the effective date of such discharge.  “Cause” shall have the meaning set forth in the Employment Agreement.

4.Withholding.

No Shares will be issued pursuant to the exercise of this option unless and until the Participant pays to the Company, or makes provision satisfactory to the Company for payment of, any federal, state or local withholding taxes required by law to be withheld in respect of this option.

5.Nontransferability of Option.

This option may not be sold, assigned, transferred, pledged or otherwise encumbered by the Participant, either voluntarily or by operation of law, except by will or the laws of descent and distribution, and, during the lifetime of the Participant, this option shall be exercisable only by the Participant.

6.Disqualifying Disposition.

If the Participant diposes of Shares acquired upon exercise of this option within two years from the Grant Date or one year after such Shares were acquired pursuant to exercise of this option, the Participant shall notify the Company in writing of such disposition.

7.Provisions of the Plan.

This option is subject to the provisions of the Plan, a copy of which is furnished to the Participant with this option.

IN WITNESS WHEREOF, the Company has caused this option to be executed under its corporate seal by its duly authorized officer.  This option shall take effect as a sealed instrument.

SEPRACOR INC.

By:

PARTICIPANT’S ACCEPTANCE

The Participant hereby accepts the foregoing option and agrees to the terms and conditions thereof.  The  Participant hereby acknowledges receipt of a copy of the Company’s 2000 Stock Incentive Plan.

Name:

SEPRACOR INC.

Nonstatutory Stock Option Agreement
Granted Under 2000 Stock Incentive Plan

1.Grant of Option.

This agreement evidences the grant by Sepracor Inc., a Delaware corporation (the “Company”), on the Grant Date indicated on the preceding Certificate of Stock Option Grant (the “Certificate”) to an employee, consultant, or director of the Company (the “Participant”), of an option to purchase, in whole or in part, on the terms provided herein and in the Company’s 2000 Stock Incentive Plan (the “Plan”), the number of shares (the “Shares”) of common stock, $.10 par value per share,  of the Company (“Common Stock”),indicated on the certificate at the price  per Share indicated on the Certificate. Unless earlier terminated, this option shall expire on the Grant Expiration Date indicated on the Certificate (“Grant Expiration Date”).

It is intended that the option evidenced by this agreement shall not be an incentive stock option as defined in Section 422 of the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder (the “Code”).  Except as otherwise indicated by the context, the term “Participant”, as used in this option, shall be deemed to include any person who acquires the right to exercise this option validly under its terms.

2.Vesting Schedule.

This option will become exercisable (“vest”) pursuant to the Vesting Schedule indicated on the Certificate (“Vesting Schedule”).

The right of exercise shall be cumulative so that to the extent the option is not exercised in any period to the maximum extent permissible it shall continue to be exercisable, in whole or in part, with respect to all shares for which it is vested until the earlier of the Grant Expiration Date or the termination of this option under Section 3 hereof or the Plan.

3.Exercise of Option.

(a)Form of Exercise. Each election to exercise this option shall be in writing, signed by the Participant, and received by the Company at its principal office, accompanied by this agreement, and payment in full in the manner provided in the Plan. The Participant may purchase less than the number of shares covered hereby, provided that no partial exercise of this option may be for any fractional share.

(b)Continuous Relationship with the Company Required.  Except as otherwise provided in this Section 3, this option may not be exercised unless the Participant, at the time he or she exercises this option, is, and has been at all times since the Grant Date, an [employee or officer of], or consultant or advisor to, the Company or any parent or subsidiary of the Company as defined in Section 424(e) or (f) of the Code (an “Eligible Participant”).

(c)Termination of Relationship with the Company. If the Participant ceases to be an Eligible Participant for any reason, then, except as provided in paragraphs (d) and (e) below, the right to exercise this option shall terminate three months after such cessation (but in no event after the Grant Expiration Date), provided that this option shall be exercisable only to the extent that the Participant was entitled to exercise this option on the date of such cessation.  Notwithstanding the foregoing, if, following the time the Participant has ceased to be an Eligible Participant, but prior to the Grant Expiration Date, the Participant materially breaches Section 6 or 7 of the Employment Agreement between the Participant and the Company dated March 1, 2007 (the “Employment Agreement”), the right to exercise this option shall terminate immediately upon written notice to the Participant from the Company describing such violation.

(d)Exercise Period Upon Death or Disability.  If the Participant dies or becomes disabled (within the meaning of Section 22(e)(3) of the Code) prior to the Grant Expiration Date while he or she is an Eligible Participant and the Company has not terminated such relationship for “cause” as specified in paragraph (e) below, this option shall be exercisable, within the period of one year following the date of death or disability of the Participant, by the Participant (or in the case of death by an authorized transferee), provided that this option shall be exercisable only to the extent that this option was exercisable by the Participant on the date of his or her death or disability, and further provided that this option shall not be exercisable after the Grant Expiration Date.

(e)Discharge for Cause.  If the Participant, prior to the Grant Expiration Date, is discharged by the Company for “cause” (as defined below), the right to exercise this option shall terminate immediately upon the effective date of such discharge.  “Cause” shall have the meaning set forth in the Employment Agreement.

4.Withholding.

No Shares will be issued pursuant to the exercise of this option unless and until the Participant pays to the Company, or makes provision satisfactory to the Company for payment of, any federal, state or local withholding taxes required by law to be withheld in respect of this option.

5.Nontransferability of Option.

This option may not be sold, assigned, transferred, pledged or otherwise encumbered by the Participant, either voluntarily or by operation of law, except by will or the laws of descent and distribution, and, during the lifetime of the Participant, this option shall be exercisable only by the Participant.

6.Provisions of the Plan.

This option is subject to the provisions of the Plan, a copy of which is furnished to the Participant with this option.

IN WITNESS WHEREOF, the Company has caused this option to be executed under its corporate seal by its duly authorized officer.  This option shall take effect as a sealed instrument.

SEPRACOR INC.

By:

PARTICIPANT’S ACCEPTANCE

The Participant hereby accepts the foregoing option and agrees to the terms and conditions thereof.  The  Participant hereby acknowledges receipt of a copy of the Company’s 2000 Stock Incentive Plan.

Name:

SCHEDULE C

VACATION POLICY

SEE ATTACHED POLICY

Sepracor Companies Human Resource Policy

Division: All	Effective Date: January 1, 2005	Index No.: 3-60	Page No: 1 of 2
Title: Accrued Vacation Policy Director Level and Above	Supersedes: All	Approved By: Signature on File

1.Introduction

1.1The purpose of the Accrued Vacation Policy is to provide paid time off for employees to cover vacations and personal time.

2.Accrual rate for employees at Director level and above

2.1Employees accrue vacation hours monthly that may be used for paid time off to cover vacations and personal time. Regular full-time employees, Director level or above, will accrue vacation time at a rate of ten (10) hours per month during the first year of employment, for a total of fifteen (15) days per year, equal to one hundred twenty (120) hours.  Additional time begins to accrue in the month of the employee’s anniversary date, up to a maximum of twenty-three (23) days per year, equal to one hundred eighty-four (184) hours. Please see schedule below for details on total hours accrued monthly:

Years of Service	Director and AboveTotal Days	Monthly Accrual(Hours)
0-1	15	10.00
1-2	16	10.67
2-3	17	11.33
3-4	18	12.00
4-5	19	12.67
5-10	20	13.33
10-13	20	13.33
13-15	20	13.33
15-17	20	13.33
17-19	21	14.00
19-20	22	14.67
20+	23	15.33

3.Administration

3.1Accrual of vacation time is pro-rated for employees who are regularly scheduled to work less than forty (40) hours but work at least twenty (20) hours per week.  For example, an employee with a weekly schedule of twenty (20) hours will accrue five (5) hours per month, and a thirty (30) hour employee will accrue seven and a half (7.5) hours of vacation time per month.

Accrued Vacation Policy: Director Level and Above

3.Administration (Continued)

3.2The current month’s accrual is accrued on the 15^th of every month.  An employee must be employed on the 15^th in order to receive that monthly accrual.  For example, if an employee is hired on or before the 15^th, they will receive that month’s accrual, and if they are hired after the 15^th, they will not.  Also, if an employee terminates employment before the 15^th they will not be paid for that month’s accrual, but if they terminate after the 15^th they will.

3.3Employees may carry over a maximum of forty (40) accrued vacation hours into the next calendar year.  The carryover vacation hours must be used by July 31^st of the new calendar year.  Any carried over vacation hours not used by this date will be forfeited.*

3.3.1*In accordance with state law, California residents will not have a limit on carryover time into the next calendar year.  Once an employee accrues twenty-three (23) days of vacation, equal to one hundred eighty-four (184) hours, the employee will cease to accrue any additional vacation time until the vacation balance falls below that level.  Please refer to Sepracor Human Resources for more information.

3.4It is your responsibility to request and schedule the use of accrued vacation time with your manager.  Approval of vacation time will depend on the business needs of the organization.  It is your responsibility to accurately track your use of accrued vacation time through the iTime Tracking system.

3.5At the minimum, vacation time for full time employees should be taken in four (4) hour increments, with the norm being eight (8) hour increments. For those with schedules of 20-39 hours, increments of time used would be pro-rated according to hours worked.  For example, if you were regularly scheduled to work six (6) hours, then you would be paid a six (6) hour vacation day.

3.6Your manager may approve the borrowing of vacation time, up to a maximum of forty (40) hours for regular full-time employees and pro-rated accordingly for regular part-time employees.  Employees with a negative vacation balance may not borrow additional vacation time until the existing vacation time balance has been satisfied and then upon approval from your manager.  Under no circumstances may an employee borrow vacation time from a future calendar year.

3.7If it has been verified by Payroll and the manager that an employee has a balance of accrued and unused vacation time left at the end of employment, the balance will be converted to cash and included in his/her final paycheck.  In the event an employee ends his/her employment before having enough accrued time to cover any borrowed vacation time, the employee’s final paycheck will reflect a deduction equal to the cash value of the borrowed vacation time.

SCHEDULE D
FORM OF SEPARATION AGREEMENT AND RELEASE OF CLAIMS

SEE ATTACHED FORM

FORM OF SEPARATION AGREEMENT AND RELEASE OF CLAIMS

In connection with your employment separation from Sepracor, Inc. (the “Company”) on [INSERT TERMINATION DATE], and in order to receive the benefits as set forth in Section 5 of the Employment agreement, 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 Releases - 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; provided, however, that nothing in this Agreement prevents you from filing, cooperating with, or participating in any proceeding before the EEOC or a state Fair Employment Practices Agency (except that you acknowledge that you may not be able to recover any monetary benefits in connection with any such claim, charge or proceeding).  Notwithstanding the foregoing, the release set forth in this Section 1 shall not apply to (a) any claim to severance benefits under the Employment Agreement or your rights under this agreement or (b) any vested equity interest in the Company, including vested stock options.

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.Non-Disclosure, Non-Competition and Non-Solicitation 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 [Name of the Non-Disclosure Agreement] you executed at the inception of your employment, which remains in full force and effect.  You further acknowledge and reaffirm your obligations under the [Name of the Non-Competition and/or Non-Solicitation Agreement(s)] you previously executed for the benefit of the Company at the inception of your employment, which also remain(s) in full force and effect.

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 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 herein.

5.Non-Disparagement - You understand and agree that, as a condition for payment to you of the consideration herein described, 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.

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 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 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.Cooperation — You agree to cooperate with the Company in the investigation, defense or prosecution of any claims or actions now in existence or which may be brought in the future against or on behalf of the Company.  Your cooperation in connection with such claims or actions shall include, but not be limited to, being available to meet with the Company’s counsel to prepare for discovery or any mediation, arbitration, trial, administrative hearing or other proceeding or to act as a witness when reasonably requested by the Company at mutually agreeable times and at locations mutually convenient to you and the Company.  You also agree to cooperate with the Company in the transitioning of your work, and will be available to the Company for this purpose or any other purpose reasonably requested by the Company.

10.Tax Provision — In connection with the severance benefits provided to you pursuant to this 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.

11.Section 409A - No payments that may be made pursuant to this agreement that constitute “nonqualified deferred compensation” within the meaning of Section 409A of the Internal Revenue Code and the guidance issued thereunder (“Section 409A”) may be accelerated or deferred by the Company or by you.  Notwithstanding anything else to the

contrary in this agreement, to the extent that any of the payments that may be made hereunder constitute “nonqualified deferred compensation”, within the meaning of Section 409A and you are a “specified employee” upon your separation (as defined under Section 409A), any such payment shall be delayed following your separation date if, absent such delay, such payment would otherwise be subject to penalty under Section 409A.  In any event, the Company makes no representation or warranty and shall have no liability to you or to any other person if any provisions of this agreement are determined to constitute “nonqualified deferred compensation” subject to Section 409A but do not satisfy the requirements of that section.

12.Nature of Agreement - You understand and agree that this agreement is a severance agreement and does not constitute an admission of liability or wrongdoing on the part of the Company.

13.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.

14.Voluntary Assent - You affirm that 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.

15.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.

16.Entire Agreement - This 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
Employee Name:

EX-10.5

Exhibit 10.5

AMENDED AND RESTATED

EMPLOYMENT AGREEMENT

THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the “Agreement”), made this 6^th day of November 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 Richard Ranieri, residing at 7910 Entrada De Luz , San Diego, CA 92127 (the “Executive”).

The Company desires to employ the Executive and the Executive desires to be employed by the Company, and in connection therewith the Company and the Executive entered into an Employment Agreement, dated August 18, 2008 (the “Original Agreement”).  The Company and the Executive wish to amend and restate the Original Agreement as provided for herein.  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 that the Original Agreement is amended and restated in its entirety as follows:

1.Term of Employment.  The Company hereby agrees to employ the Executive and the Executive hereby agrees to be employed by the Company, upon the terms set forth in this Agreement, for the period commencing on August 19, 2008 (the “Commencement Date”) and ending on the fifth anniversary of the Commencement 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 Commencement 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

1

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, Human Resources and Administration 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, Human Resources and Administration 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, businesses or trade organizations with prior Board approval, (b) service on the board of directors for a not-for-profit or charitable organization 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.

3.1Salary.  During the term of this Agreement, the Company agrees to continue to pay the Executive a base salary at the annualized rate of $405,000 (“Base Salary”) commencing on the Commencement Date.  The Base Salary shall be subject to annual review by the Board but shall not be reduced below $ 405,000 per annum.  Such salary shall be payable

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to Executive in bi-weekly installments and in accordance with the Company’s normal payroll procedures.

3.2Bonus.  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.  For 2008, Executive shall be entitled to a guaranteed Annual Bonus in an amount equal to fifty percent (50%) of his 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. In addition, Executive shall receive a one-time “ Sign On” bonus of $150,000 less applicable taxes and withholdings to be paid within thirty (30) days of the Commencement Date, provided, however, if the Executive’s employment is terminated within twelve (12) months of the Commencement Date, for Cause by the Company pursuant to Section 4.2, or at the election of the Executive pursuant to Section 4.5, the Executive will be required to repay the portion of the Sign On bonus retained by Executive after payment of all taxes.

3.3Stock and Option Grant.  At the first meeting of the Compensation Committee of the Board of Directors following the Executive’s first day of employment, the Company shall grant to the Executive, under the Company’s 2000 Stock Incentive Plan (the “Stock Plan”), 40,000 shares of restricted stock ( the “Initial Stock Grant”) and an option to purchase 55,000 shares of Company stock (the “Initial Option Grant”).  The terms and conditions

3

of the Initial Stock Grant and the Initial Option Grant (other than the exercise price per share, which shall be equal to the closing price of the Company’s stock on the grant date) shall be set forth in the award agreements attached hereto as Schedules A and B.  The Initial Stock Grant shall vest in three equal installments on each of the first three anniversaries of the Commencement Date.  The Initial Option Grant shall vest in five equal installments on each of the first five anniversaries of the Commencement Date. The Board, in its sole discretion, may grant further incentive compensation awards to the Executive from time to time.  The Company represents and warrants to Executive that the Company has full power and authority, subject to Compensation Committee approval, and shares available under the Stock Plan, to make the Initial Grant.

3.4Benefits.  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, attached hereto as Schedule C.

3.5Reimbursement 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 until December 31, 2008 and throughout his employment with the Company in connection with, or related to, the performance of his duties, responsibilities or services under this Agreement or in connection with Executive’s commuting to and from his personal residence in San Diego, California and the Company’s offices, upon presentation by the Executive of documentation, expense statements, vouchers and/or such other

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supporting information as the Company may request.  All reimbursement payments made pursuant to this Section 3.5 shall be made on a fully tax grossed-up basis.

3.6Housing Expenses.  The Company understands that the Executive intends to maintain his primary residence outside the Massachusetts area until December 31, 2008 and then intends to relocate to the Massachusetts area. Until December 31, 2008, the Company agrees to provide the Executive with a housing allowance of $3,750 per month, which payments shall be increased on a fully tax grossed-up basis.  The Company also will reimburse the Executive and his spouse for reasonable travel, meals and lodging expenses incurred by them for up to two trips for the purpose of securing such house or apartment within a suitable distance to the Company’s headquarters.  Executive shall be entitled to relocation benefits afforded by the Company to other Company executives if and when Executive decides to permanently relocate his primary residence to the Massachusetts area.

3.7Executive’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 $15,000.

3.8Automobile.  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.

3.9Withholding.  All salary, bonus and other compensation payable to the Executive shall be subject to applicable withholding taxes.

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4.Employment Termination.  The employment of the Executive under this Agreement shall terminate upon the occurrence of any of the following:

4.1On the expiration date of the Employment Period.

4.2At 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.

4.3Upon 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

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permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive’s legal representative.

4.4At 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.

4.5At 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.

4.6At the election of the Company, without Cause, upon not less than sixty (60) days written notice to Executive.

4.7At 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

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and the Executive (the “ERA”), dated as of the date hereof.  “Change in Control” shall have the meaning set forth in the ERA.

5.Effect of Termination.

5.1Non-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..

5.2Termination 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”).  In addition, the Company shall permit Executive or Executive’s estate or representative to exercise the vested stock option portion of the Initial Grant for a period of no less than one year after any such termination of employment.

5.3Termination 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

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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 D 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 (24) 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 (in the event the Executive has not been employed for a sufficient period to earn two such bonuses, such calculation shall be made assuming Executive earned a bonus for any such year at a target level of performance (taking into account any minimum bonus amount)).; and (d) provide to the Executive for 24 months following the date of his termination, payment of COBRA premiums for medical, dental, and vision benefits pursuant to plans maintained by the Company under which Executive and/or Executive’s family is eligible to receive benefits; provided, however, that, notwithstanding the foregoing, the benefits described in this subsection may be discontinued prior to the end of the period, but only to the extent, that Executive receives substantially similar benefits from a subsequent employer; and (e) permit Executive to exercise the stock option portion of the Initial Grant for a period of no less than six months after the date of termination.

5.4Termination 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

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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.

5.5Participation 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) or the period referred to in Section 4.2(a)(ii) of the ERA, in the event the Executive elects to participate in the Company’s executive retiree health benefit program set forth on Exhibit A hereto (the “Program”), he will reimburse the Company with respect to his participation in the Program 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.

5.6Payments 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

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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 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

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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

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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.

(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

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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, or has plans, during the Term, to do business.

(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.

7.1Proprietary 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

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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 Company or other third parties who may have disclosed or entrusted the same to the Company or to the Executive.

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7.2Developments.

(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

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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.

7.3United 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.

7.4Other 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

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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 applicable laws, 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.

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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, without limitation, the Original Agreement.

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

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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.

18.1No 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.

18.2The 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.

18.3In 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 Chief Executive Officer
/s/ Richard Ranieri
Richard Ranieri

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Exhibit A

Program Terms

The Executive shall be entitled to continued access to health benefits under, at the Executive’s election, the Company’s Blue Cross Blue Shield PPO Policy or BlueChoice Policy (the “Policies”), following the Executive’s retirement from the Company, for so long as (A) the Company continues to offer such Policy and (B) the Policy allows for such continued access; and, to the extent the Company no longer maintains at least one of the Policies, or access is no longer allowed under either of the Policies, the Company shall allow the Executive continued access to health benefits under a successor policy, or otherwise, for so long as it offers health benefits to its employees.

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SCHEDULE A

FORM OF RESTRICTED STOCK AGREEMENT

SEE ATTACHED AGREEMENT

SEPRACOR INC.

Restricted Stock Agreement

Name of Recipient:

Number of shares of restricted common
stock awarded:

Grant Date:

Sepracor Inc. (the “Company”) has selected you to receive the restricted stock award described above, which is subject to the provisions of the Company’s 2000 Stock Incentive Plan (the “Plan”) and the terms and conditions contained in this Restricted Stock Agreement.  Please confirm your acceptance of this restricted stock award and of the terms and conditions of this Agreement by signing a copy of this Agreement where indicated below.

	SEPRACOR INC.
	By:
		[insert name and title]
Accepted and Agreed:
[insert name of recipient]

SEPRACOR INC.

Restricted Stock Agreement

The terms and conditions of the award of shares of restricted common stock of the Company (the “Restricted Shares”) made to the Recipient, as set forth on the cover page of this Agreement, are as follows:

Issuance of Restricted Shares.

18.4The Restricted Shares are issued to the Recipient, effective as of the Grant Date (as set forth on the cover page of this Agreement), in consideration of employment services rendered and to be rendered by the Recipient to the Company.

18.5The Restricted Shares will initially be issued by the Company in book entry form only, in the name of the Recipient.  Following the vesting of any Restricted Shares pursuant to Section 2 below, the Company shall, if requested by the Recipient, issue and deliver to the Recipient a certificate representing the vested Restricted Shares.   The Recipient agrees that the Restricted Shares shall be subject to the forfeiture provisions set forth in Section 3 of this Agreement and the restrictions on transfer set forth in Section 4 of this Agreement.

19.Vesting.

Vesting Schedule.  Unless otherwise provided in this Agreement or the Plan, the Restricted Shares shall vest in accordance with the following vesting schedule:  one-third of the total number of Restricted Shares shall vest on the first anniversary of your Commencement Date (as defined in the Employment Agreement entered into between you and the Company dated as of [           ,2008] and one-third of the total number of Restricted Shares shall vest on each successive anniversary thereafter, through and including the 3^rd anniversary of the Commencement Date.   Any fractional number of Restricted Shares resulting from the application of the foregoing percentages shall be rounded down to the nearest whole number of Restricted Shares.

Acceleration of Vesting.  Notwithstanding the foregoing vesting schedule, as provided in the Plan, all unvested Restricted Shares shall vest effective immediately prior to a Change in Control Event (as defined in the Plan).

20.Forfeiture of Unvested Restricted Shares Upon Employment Termination.

In the event that the Recipient ceases to be employed by, a director of, or a consultant or advisor to, the Company for any reason or no reason, with or without cause all of the Restricted Shares that are unvested as of the time of such employment termination shall be forfeited immediately and automatically to the Company, without the payment of any consideration to the Recipient, effective as of such termination of employment.  The Recipient shall have no further rights with respect to any Restricted Shares that are so forfeited.  If the Recipient is employed by a subsidiary of the Company, any references in this Agreement to employment with the Company shall instead be deemed to refer to employment with such subsidiary.

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21.Restrictions on Transfer.

The Recipient shall not sell, assign, transfer, pledge, hypothecate or otherwise dispose of, by operation of law or otherwise (collectively “transfer”) any Restricted Shares, or any interest therein, until such Restricted Shares have vested, except that the Recipient may transfer such Restricted Shares as part of the sale of all or substantially all of the shares of capital stock of the Company (including pursuant to a merger or consolidation).  The Company shall not be required (i) to transfer on its books any of the Restricted Shares which have been transferred in violation of any of the provisions of this Agreement or (ii) to treat as owner of such Restricted Shares or to pay dividends to any transferee to whom such Restricted Shares have been transferred in violation of any of the provisions of this Agreement.

22.Restrictive Legends.

The book entry account reflecting the issuance of the Restricted Shares in the name of the Recipient shall bear a legend or other notation upon substantially the following terms:

“These shares of stock are subject to forfeiture provisions and restrictions on transfer set forth in a certain Restricted Stock Agreement between the corporation and the registered owner of these shares (or his or her predecessor in interest), and such Agreement is available for inspection without charge at the office of the Secretary of the corporation.”

23.Rights as a Shareholder.

Except as otherwise provided in this Agreement, for so long as the Recipient is the registered owner of the Restricted Shares, the Recipient shall have all rights as a shareholder with respect to the Restricted Shares, whether vested or unvested, including, without limitation, any rights to receive dividends and distributions with respect to the Restricted Shares and to vote the Restricted Shares and act in respect of the Restricted Shares at any meeting of shareholders.

24.Provisions of the Plan.

This Agreement is subject to the provisions of the Plan, a copy of which is furnished to the Recipient with this Agreement.  As provided in the Plan, upon the occurrence of a Reorganization Event (as defined in the Plan), the rights of the Company hereunder (including the right to receive forfeited Restricted Shares) shall inure to the benefit of the Company’s successor and, unless the Board determines otherwise, shall apply to the cash, securities or other property which the Restricted Shares were converted into or exchanged for pursuant to such Reorganization Event in the same manner and to the same extent as they applied to the Restricted Shares under this Agreement.

25.Tax Matters.

25.1Acknowledgments; Section 83(b) Election.  The Recipient acknowledges that he or she is responsible for obtaining the advice of the Recipient’s own tax advisors with respect to the acquisition of the Restricted Shares and the Recipient is relying solely on such advisors and not on any statements or representations of the Company or any of its agents with respect to the tax consequences relating to the Restricted Shares.  The Recipient understands that the Recipient (and not the Company) shall be responsible for the Recipient’s tax liability that may arise in connection with the acquisition, vesting and/or disposition of the Restricted Shares.  The Recipient acknowledges that he or she has been informed of the availability of making an election under Section 83(b) of the Internal Revenue Code, as amended, with respect to the

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issuance of the Restricted Shares and that the Recipient has decided not to file a Section 83(b) election.

25.2Withholding. The Recipient acknowledges and agrees that the Company has the right to deduct from payments of any kind otherwise due to the Recipient any federal, state, local or other taxes of any kind required by law to be withheld with respect to the vesting of the Restricted Shares.  On each date on which Restricted Shares vest, the Company shall deliver written notice to the Recipient of the amount of withholding taxes due with respect to the vesting of the Restricted Shares that vest on such date; provided, however, that the total tax withholding 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).  The Recipient shall satisfy such tax withholding obligations by making a cash payment to the Company on the date of vesting of the Restricted Shares, in the amount of the Company’s withholding obligation in connection with the vesting of such Restricted Shares.

26.Miscellaneous.

26.1No Right to Continued Employment.  The Recipient acknowledges and agrees that, notwithstanding the fact that the vesting of the Restricted Shares is contingent upon his or her continued employment by the Company, this Agreement does not constitute an express or implied promise of continued employment or confer upon the Recipient any rights with respect to continued employment by the Company.

26.2Governing Law.  This Agreement shall be construed, interpreted and enforced in accordance with the internal laws of the State of Delaware without regard to any applicable conflicts of laws provisions.

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SCHEDULE B
FORM OF STOCK OPTION AGREEMENT

SEE ATTACHED AGREEMENT

6

SEPRACOR INC.

Nonstatutory Stock Option Agreement

Granted Under 2000 Stock Incentive Plan

1.Grant of Option.

This agreement evidences the grant by Sepracor Inc., a Delaware corporation (the “Company”), on the Grant Date indicated on the preceding Certificate of Stock Option Grant (the “Certificate”) to an employee, consultant, or director of the Company (the “Participant”), of an option to purchase, in whole or in part, on the terms provided herein and in the Company’s 2000 Stock Incentive Plan (the “Plan”), the number of shares (the “Shares”) of common stock, $.10 par value per share, of the Company (“Common Stock”), indicated on the Certificate at the price  per Share indicated on the Certificate. Unless earlier terminated, this option shall expire on the Grant Expiration Date indicated on the Certificate (“Grant Expiration Date”).

It is intended that the option evidenced by this agreement shall not be an incentive stock option as defined in Section 422 of the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder (the “Code”).  Except as otherwise indicated by the context, the term “Participant”, as used in this option, shall be deemed to include any person who acquires the right to exercise this option validly under its terms.

2.Vesting Schedule.

This option will become exercisable (“vest”) pursuant to the Vesting Schedule indicated on the Certificate (“Vesting Schedule”).

The right of exercise shall be cumulative so that to the extent the option is not exercised in any period to the maximum extent permissible it shall continue to be exercisable, in whole or in part, with respect to all shares for which it is vested until the earlier of the Grant Expiration Date or the termination of this option under Section 3 hereof or the Plan.

3.Exercise of Option.

(a)Form of Exercise. Each election to exercise this option shall be in writing, signed by the Participant, and received by the Company at its principal office, accompanied by this agreement, and payment in full in the manner provided in the Plan. The Participant may purchase less than the number of shares covered hereby, provided that no partial exercise of this option may be for any fractional share.

(b)Continuous Relationship with the Company Required.  Except as otherwise provided in this Section 3, this option may not be exercised unless the Participant, at the time he or she exercises this option, is, and has been at all times since the Grant Date, an [employee or officer of], or consultant or advisor to, the Company or any parent or subsidiary of the Company as defined in Section 424(e) or (f) of the Code (an “Eligible Participant”).

(c)Termination of Relationship with the Company. If the Participant ceases to be an Eligible Participant for any reason, then, except as provided in paragraphs (d) and (e) below, the right to exercise this option shall terminate six months after such cessation (but in no event after the Grant Expiration Date), provided that this option shall be exercisable only to the extent that

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the Participant was entitled to exercise this option on the date of such cessation.  Notwithstanding the foregoing, if, following the time the Participant has ceased to be an Eligible Participant, but prior to the Grant Expiration Date, the Participant materially breaches Section 6 or 7 of the Employment Agreement between the Participant and the Company dated [          ], 2008 (the “Employment Agreement”), the right to exercise this option shall terminate immediately upon written notice to the Participant from the Company describing such violation.

(d)Exercise Period Upon Death or Disability.  If the Participant dies or becomes disabled (within the meaning of Section 22(e)(3) of the Code) prior to the Grant Expiration Date while he or she is an Eligible Participant and the Company has not terminated such relationship for “cause” as specified in paragraph (e) below, this option shall be exercisable, within the period of one year following the date of death or disability of the Participant, by the Participant (or in the case of death by an authorized transferee), provided that this option shall be exercisable only to the extent that this option was exercisable by the Participant on the date of his or her death or disability, and further provided that this option shall not be exercisable after the Grant Expiration Date.

(e)Discharge for Cause.  If the Participant, prior to the Grant Expiration Date, is discharged by the Company for “cause” (as defined below), the right to exercise this option shall terminate immediately upon the effective date of such discharge.  “Cause” shall have the meaning set forth in the Employment Agreement.

4.Withholding.

No Shares will be issued pursuant to the exercise of this option unless and until the Participant pays to the Company, or makes provision satisfactory to the Company for payment of, any federal, state or local withholding taxes required by law to be withheld in respect of this option.

5.Nontransferability of Option.

This option may not be sold, assigned, transferred, pledged or otherwise encumbered by the Participant, either voluntarily or by operation of law, except by will or the laws of descent and distribution, and, during the lifetime of the Participant, this option shall be exercisable only by the Participant.

6.Provisions of the Plan.

This option is subject to the provisions of the Plan, a copy of which is furnished to the Participant with this option.

IN WITNESS WHEREOF, the Company has caused this option to be executed under its corporate seal by its duly authorized officer.  This option shall take effect as a sealed instrument.

SEPRACOR INC.

PARTICIPANT’S ACCEPTANCE

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The Participant hereby accepts the foregoing option and agrees to the terms and conditions thereof.  The Participant hereby acknowledges receipt of a copy of the Company’s 2000 Stock Incentive Plan.

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SCHEDULE C
VACATION POLICY

SEE ATTACHED POLICY

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Sepracor Companies Human Resource Policy

Division: All	Effective Date: January 1, 2005	Index No.: 3-60	Page No: 1 of 2
Title: Accrued Vacation Policy Director Level and Above	Supersedes: All	Approved By: Signature on File

1.Introduction

1.1The purpose of the Accrued Vacation Policy is to provide paid time off for employees to cover vacations and personal time.

2.Accrual rate for employees at Director level and above

2.1Employees accrue vacation hours monthly that may be used for paid time off to cover vacations and personal time. Regular full-time employees, Director level or above, will accrue vacation time at a rate of ten (10) hours per month during the first year of employment, for a total of fifteen (15) days per year, equal to one hundred twenty (120) hours.  Additional time begins to accrue in the month of the employee’s anniversary date, up to a maximum of twenty-three (23) days per year, equal to one hundred eighty-four (184) hours. Please see schedule below for details on total hours accrued monthly:

Years of Service	Director and AboveTotal Days	Monthly Accrual(Hours)
0-1	15	10.00
1-2	16	10.67
2-3	17	11.33
3-4	18	12.00
4-5	19	12.67
5-10	20	13.33
10-13	20	13.33
13-15	20	13.33
15-17	20	13.33
17-19	21	14.00
19-20	22	14.67
20+	23	15.33

3.Administration

3.1Accrual of vacation time is pro-rated for employees who are regularly scheduled to work less than forty (40) hours but work at least twenty (20) hours per week.  For example, an employee with a weekly schedule of twenty (20) hours will accrue five (5) hours per month, and a thirty (30) hour employee will accrue seven and a half (7.5) hours of vacation time per month.

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Accrued Vacation Policy: Director Level and Above

3.Administration (Continued)

3.2The current month’s accrual is accrued on the 15^th of every month.  An employee must be employed on the 15^th in order to receive that monthly accrual.  For example, if an employee is hired on or before the 15^th, they will receive that month’s accrual, and if they are hired after the 15^th, they will not.  Also, if an employee terminates employment before the 15^th they will not be paid for that month’s accrual, but if they terminate after the 15^th they will.

3.3Employees may carry over a maximum of forty (40) accrued vacation hours into the next calendar year.  The carryover vacation hours must be used by July 31^st of the new calendar year.  Any carried over vacation hours not used by this date will be forfeited.*

3.3.1*In accordance with state law, California residents will not have a limit on carryover time into the next calendar year.  Once an employee accrues twenty-three (23) days of vacation, equal to one hundred eighty-four (184) hours, the employee will cease to accrue any additional vacation time until the vacation balance falls below that level.  Please refer to Sepracor Human Resources for more information.

3.4It is your responsibility to request and schedule the use of accrued vacation time with your manager.  Approval of vacation time will depend on the business needs of the organization.  It is your responsibility to accurately track your use of accrued vacation time through the iTime Tracking system.

3.5At the minimum, vacation time for full time employees should be taken in four (4) hour increments, with the norm being eight (8) hour increments. For those with schedules of 20-39 hours, increments of time used would be pro-rated according to hours worked.  For example, if you were regularly scheduled to work six (6) hours, then you would be paid a six (6) hour vacation day.

3.6Your manager may approve the borrowing of vacation time, up to a maximum of forty (40) hours for regular full-time employees and pro-rated accordingly for regular part-time employees.  Employees with a negative vacation balance may not borrow additional vacation time until the existing vacation time balance has been satisfied and then upon approval from your manager.  Under no circumstances may an employee borrow vacation time from a future calendar year.

3.7If it has been verified by Payroll and the manager that an employee has a balance of accrued and unused vacation time left at the end of employment, the balance will be converted to cash and included in his/her final paycheck.  In the event an employee ends his/her employment before having enough accrued time to cover any borrowed vacation time, the employee’s final paycheck will reflect a deduction equal to the cash value of the borrowed vacation time.

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SCHEDULE D
FORM OF SEPARATION AGREEMENT AND RELEASE OF CLAIMS

SEE ATTACHED AGREEMENT

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SCHEDULE D

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

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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 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

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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.

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.

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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.

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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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EX-10.6

Exhibit 10.6

AMENDED AND RESTATED

EMPLOYMENT AGREEMENT

THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the “Agreement”), made this 6^th day of November 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, on May 14, 2008, the Company and the Executive entered into an Employment Agreement (the “Original Agreement”); and

WHEREAS, the Company and the Executive wish to amend and restate the Original Agreement as provided for herein.

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 that the Original Agreement is amended and restated in its entirety 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.

3.1Salary.  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.

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3.2Bonus.  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.

3.3Benefits.  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).

3.4Reimbursement 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.

3.5Executive’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.

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3.6Automobile.  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.

3.7Withholding.  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:

4.1On the expiration date of the Employment Period.

4.2At 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

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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.

4.3Upon 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.

4.4At 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.

4.5At 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

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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.

4.6At the election of the Company, without Cause, upon not less than sixty (60) days written notice to Executive.

4.7At 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.

5.1Non-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.

5.2Termination 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

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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”).

5.3Termination 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 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.

5.4Termination 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.

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5.5Participation 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) or the period referred to in Section 4.2(a)(ii) of the ERA, in the event the Executive elects to participate in the Company’s executive retiree health benefit program set forth on Exhibit A hereto (the “Program”), he will reimburse the Company with respect to his participation in the Program 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.

5.6Payments 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.

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(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 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

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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

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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.

(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.

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(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.

7.1Proprietary 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

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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 Company or other third parties who may have disclosed or entrusted the same to the Company or to the Executive.

7.2Developments.

(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

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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

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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.

7.3United 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.

7.4Other 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

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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

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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, without limitation, the letter agreement between the Company and the Executive dated February 23, 1995 and the Original Agreement.

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.

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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.

18.1No 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.

18.2The 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.

18.3In 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 Chief Executive Officer
/s/ Robert F. Scumaci
Robert F. Scumaci

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EXHIBIT A

Program Terms

The Executive shall be entitled to continued access to health benefits under, at the Executive’s election, the Company’s Blue Cross Blue Shield PPO Policy or BlueChoice Policy (the “Policies”), following the Executive’s retirement from the Company, for so long as (A) the Company continues to offer such Policy and (B) the Policy allows for such continued access; and, to the extent the Company no longer maintains at least one of the Policies, or access is no longer allowed under either of the Policies, the Company shall allow the Executive continued access to health benefits under a successor policy, or otherwise, for so long as it offers health benefits to its employee.

SCHEDULE A

VACATION POLICY

SEE ATTACHED POLICY

Sepracor Companies Human Resource Policy

Division: All	Effective Date: January 1, 2005	Index No.: 3-60	Page No: 1 of 2
Title: Accrued Vacation Policy Director Level and Above	Supersedes: All	Approved By: Signature on File

1.Introduction

1.1The purpose of the Accrued Vacation Policy is to provide paid time off for employees to cover vacations and personal time.

2.Accrual rate for employees at Director level and above

2.1Employees accrue vacation hours monthly that may be used for paid time off to cover vacations and personal time. Regular full-time employees, Director level or above, will accrue vacation time at a rate of ten (10) hours per month during the first year of employment, for a total of fifteen (15) days per year, equal to one hundred twenty (120) hours.  Additional time begins to accrue in the month of the employee’s anniversary date, up to a maximum of twenty-three (23) days per year, equal to one hundred eighty-four (184) hours. Please see schedule below for details on total hours accrued monthly:

Years of Service	Director and AboveTotal Days	Monthly Accrual(Hours)
0-1	15	10.00
1-2	16	10.67
2-3	17	11.33
3-4	18	12.00
4-5	19	12.67
5-10	20	13.33
10-13	20	13.33
13-15	20	13.33
15-17	20	13.33
17-19	21	14.00
19-20	22	14.67
20+	23	15.33

3.Administration

3.1Accrual of vacation time is pro-rated for employees who are regularly scheduled to work less than forty (40) hours but work at least twenty (20) hours per week.  For example, an employee with a weekly schedule of twenty (20) hours will accrue five (5) hours per month, and a thirty (30) hour employee will accrue seven and a half (7.5) hours of vacation time per month.

Accrued Vacation Policy: Director Level and Above

3.Administration (Continued)

3.2The current month’s accrual is accrued on the 15^th of every month.  An employee must be employed on the 15^th in order to receive that monthly accrual.  For example, if an employee is hired on or before the 15^th, they will receive that month’s accrual, and if they are hired after the 15^th, they will not.  Also, if an employee terminates employment before the 15^th they will not be paid for that month’s accrual, but if they terminate after the 15^th they will.

3.3Employees may carry over a maximum of forty (40) accrued vacation hours into the next calendar year.  The carryover vacation hours must be used by July 31^st of the new calendar year.  Any carried over vacation hours not used by this date will be forfeited.*

3.3.1*In accordance with state law, California residents will not have a limit on carryover time into the next calendar year.  Once an employee accrues twenty-three (23) days of vacation, equal to one hundred eighty-four (184) hours, the employee will cease to accrue any additional vacation time until the vacation balance falls below that level.  Please refer to Sepracor Human Resources for more information.

3.4It is your responsibility to request and schedule the use of accrued vacation time with your manager.  Approval of vacation time will depend on the business needs of the organization.  It is your responsibility to accurately track your use of accrued vacation time through the iTime Tracking system.

3.5At the minimum, vacation time for full time employees should be taken in four (4) hour increments, with the norm being eight (8) hour increments. For those with schedules of 20-39 hours, increments of time used would be pro-rated according to hours worked.  For example, if you were regularly scheduled to work six (6) hours, then you would be paid a six (6) hour vacation day.

3.6Your manager may approve the borrowing of vacation time, up to a maximum of forty (40) hours for regular full-time employees and pro-rated accordingly for regular part-time employees.  Employees with a negative vacation balance may not borrow additional vacation time until the existing vacation time balance has been satisfied and then upon approval from your manager.  Under no circumstances may an employee borrow vacation time from a future calendar year.

3.7If it has been verified by Payroll and the manager that an employee has a balance of accrued and unused vacation time left at the end of employment, the balance will be converted to cash and included in his/her final paycheck.  In the event an employee ends his/her employment before having enough accrued time to cover any borrowed vacation time, the employee’s final paycheck will reflect a deduction equal to the cash value of the borrowed vacation time.

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

3

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

4

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: November 7, 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: November 7, 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 September 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: November 7, 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 September 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: November 7, 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